<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999, 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 0-12943
CYPRESS BIOSCIENCE, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 22-2389839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4350 Executive Drive, Suite 325, San Diego, California 92121
(Address of principal executive offices) (zip code)
(619) 452-2323
(Registrant's telephone number including area code)
------------------------------------
Indicate by check (X) 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
--- ---
At May 10, 1999, 45,747,472 shares of Common Stock of the Registrant were
outstanding.
This filing, without exhibits, contains 13 pages.
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
<TABLE>
<CAPTION>
<S> <C>
Item 1 - Consolidated Balance Sheets as of
March 31, 1999 (unaudited) and December 31, 1998........... 3
Consolidated Statements of Operations for the quarters ended
March 31, 1999 and 1998 (unaudited)....................... 4
Consolidated Statements of Cash Flows for the
quarters ended March 31, 1999 and 1998 (unaudited)......... 5
Notes to Consolidated Financial Statements (unaudited)......... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings........................................... 13
Item 6 - Exhibits and Reports on Form 8-K............................ 13
Signatures........................................................... 13
</TABLE>
2
<PAGE>
CYPRESS BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 (1)
-------------------- -------------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 9,479,564 $ 5,619,568
Accounts receivable:
Trade 301,060 408,902
Other 223,793 175,298
Inventories 1,262,588 1,014,443
Prepaid expenses 191,244 254,891
-------------------- -------------------
Total current assets 11,458,249 7,473,102
Property and equipment, net 1,728,780 1,789,976
Restricted cash 35,000 35,000
Convertible debenture issuance costs, net 16,016 17,957
-------------------- -------------------
Total assets $ 13,238,045 $ 9,316,035
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,153,952 $ 778,061
Accrued compensation 155,637 164,832
Accrued liabilities 910,857 952,448
Current portion of capital lease obligations 11,222 9,823
-------------------- -------------------
Total current liabilities 2,231,668 1,905,164
Convertible debentures 400,000 400,000
Note payable to corporate partner 4,050,000 -
Notes payable 140,775 144,804
Deferred rent 29,136 -
Capital lease obligations, net of current portion 17,904 21,496
Stockholders' equity:
Series A convertible preferred stock, $.02 par value;
3,333,333 shares authorized, issued and outstanding, none
and 1,156,832 shares at March 31, 1999 and December 31, 1998,
respectively - 23,136
Common stock, $.02 par value; 60,000,000 shares authorized,
43,311,806 and 41,402,045 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 866,236 828,041
Additional paid-in capital 88,621,596 86,238,466
Deferred compensation (11,452) (239,446)
Accumulated deficit (83,107,818) (80,005,626)
-------------------- -------------------
Total stockholders' equity 6,368,562 6,844,571
-------------------- -------------------
Total liabilities and stockholders' equity $ 13,238,045 $ 9,316,035
=================== ====================
</TABLE>
See accompanying notes.
(1) The balance sheet at December 31, 1998, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles.
3
<PAGE>
CYPRESS BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Product sales $ 588,120 $ 498,354
Grant income - 50,564
----------------- -----------------
Total revenue 588,120 548,918
Costs and expenses:
Production costs 519,485 350,816
Sales and marketing 1,086,248 280,562
Research and development 681,293 1,211,249
General and administrative 1,443,711 740,072
----------------- -----------------
Total costs and expenses 3,730,737 2,582,699
Other income (expense):
Interest income 52,316 109,356
Interest expense (11,891) (8,585)
----------------- -----------------
40,425 100,771
----------------- -----------------
Net loss $(3,102,192) $(1,933,010)
================= =================
Net loss per share (basic and diluted) $ (0.07) $ (0.05)
================= =================
Shares used in computing net loss
per share (basic and diluted) 42,364,408 38,684,410
================= =================
</TABLE>
See accompanying notes.
4
<PAGE>
CYPRESS BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Operating Activities
Net loss $(3,102,192) $(1,933,010)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 127,256 160,374
Amortization of deferred compensation 227,994 80,039
Loss on disposal of property and equipment 58 -
Changes in operating assets and liabilities, net 229,090 109,187
--------------- ---------------
Net cash used by operating activities (2,517,794) (1,583,410)
Investing Activities
Purchase of equipment (64,277) (35,398)
Proceeds from sale of assets 100 -
Purchase of short-term investments - (1,000,900)
Proceeds from sale of short-term investments - 974,333
--------------- ---------------
Net cash used by investing activities (64,177) (61,965)
Financing Activities
Payment of notes payable (4,029) -
Proceeds from exercise of stock options and 898,189 439,295
warrants
Proceeds from notes payable 4,050,000 23,783
Proceeds from private placement of common stock
and warrants 1,500,000 -
Payment of capital lease obligations (2,193) (3,599)
--------------- ---------------
Net cash provided by financing activities 6,441,967 459,479
Increase (Decrease) in cash and cash equivalents 3,859,996 (1,185,896)
Cash and cash equivalents at beginning of period 5,619,568 7,541,320
--------------- ---------------
Cash and cash equivalents at end of period $ 9,479,564 $ 6,355,424
=============== ===============
Supplemental disclosure of cash flow information
Interest paid $ 4,982 $ 1,722
=============== ===============
</TABLE>
See accompanying notes.
5
<PAGE>
CYPRESS BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Formation and Business of the Company
The accompanying consolidated financial statements have been prepared by
Cypress Bioscience, Inc. (the "Company") without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the SEC. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany accounts and transactions have been
eliminated. In the opinion of the Company's management, all adjustments
necessary for a fair presentation of the accompanying unaudited financial
statements are reflected herein. All such adjustments are normal and recurring
in nature. Interim results are not necessarily indicative of results for the
full year. For more complete financial information, these consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements included in the Company's 1998 Annual Report on Form 10-K
filed with the SEC.
The Company researches, develops, manufactures and markets medical devices
and therapeutics for the treatment of certain types of immune system disorders
and is engaged in the development of novel therapeutic agents for the treatment
of blood platelet disorders. The Prosorba(R) column, a therapeutic medical
device was approved by the U.S. Food and Drug Administration in March 1999 for
the treatment of moderate to severe rheumatoid arthritis ("RA") in adult
patients with long standing disease who have failed or are intolerant to
disease-modifying anti-rheumatic drugs ("DMARDs"). Sales for the RA indication
commenced in April 1999. The Prosorba column was previously approved in 1987 for
use in idiopathic thrombocytopenic purpura ("ITP"), an immune-mediated bleeding
disorder. The Company is also developing Cyplex(TM), a platelet alternative,
previously known as Infusible Platelet Membranes ("IPM"), as an alternative to
traditional platelet transfusions.
2. Fresenius Agreements
In March 1999, Cypress entered into an agreement with Fresenius AG of Bad
Homburg, Germany and its U.S. subsidiary, Fresenius Hemotechnology, Inc.
("FHI"). The agreement provides Fresenius with an exclusive license to
distribute the Prosorba column in the U.S., Europe, Latin America, and subject
to certain conditions, Japan and certain other countries. Upon signing of the
agreement, Cypress received a total of $1.5 million from Fresenius consisting of
the purchase of 297,530 shares of Cypress common stock for $1.0 million, and
$500,000 for the purchase of three-year warrants to buy 342,466 shares of
Cypress common stock at $7.50 per share.
In the U.S., Cypress and FHI will jointly market the Prosorba column.
Cypress and FHI will share in clinical trials and sales and marketing expenses
in the U.S., subject to certain annual
6
<PAGE>
dollar limits. Fresenius will have exclusive distribution rights and
responsibility for clinical trials and registration of the product overseas. In
the U.S., net profit will be split 50/50 until Prosorba column revenue reaches a
pre-determined sales threshold, after which time Cypress will receive 60% of the
profits and Fresenius will receive 40%. Net profits will be split 50/50 outside
the U.S.
In April 1999, Fresenius AG exercised an option to acquire the Prosorba
column manufacturing facility and related assets, located in Redmond, Washington
for approximately $5.2 million. The assets purchased by Fresenius consisted of
fixed assets of approximately $3.2 million and inventory of approximately
$2.0 million. The purchase price consisted of $1.2 million cash and an offset
of the $4.0 million draw down from the interest-free line of credit provided by
Fresenius in March 1999. In April 1999, the Company recorded a gain of
approximately $1.9 million from the sale of the facility and related assets.
3. Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
---------------- -------------------
<S> <C> <C>
Raw materials and components $ 350,448 $ 536,513
Work in process 747,260 288,930
Finished goods 164,880 189,000
---------- ----------
$1,262,588 $1,014,443
========== ==========
</TABLE>
In connection with the acquisition of the Prosorba column manufacturing
facility and related assets by Fresenius AG in April 1999, all inventory on hand
was transferred to Fresenius.
3. Net Loss Per Share
The computation of net loss per share is based on the weighted average
number of shares of common stock outstanding for each period. Common stock
equivalents related to options, warrants and convertible debentures are
excluded, as their effect is antidilutive.
4. Equity
In March 1999, Cypress received proceeds of approximately $600,000 from the
exercise of warrants to purchase 332,944 shares of common stock. During April
1999, the Company received additional proceeds of approximately $4.6 million
from the exercise of warrants to purchase 2,286,916 shares of common stock. The
warrants were exercised at $2.00 per share.
7
<PAGE>
5. Recently Issued Accounting Standards
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131 "Segment Information" ("SFAS 131").
Comprehensive loss is not different from the net losses disclosed on the
consolidated statements of operations. The adoption of SFAS 131 did not affect
results of operations or financial position and did not affect the disclosure of
segment information because SFAS 131 is not required to be applied to interim
financial statements in the initial year of adoption and because the Company
believes it operates in one business segment. Therefore, the adoption of SFAS
130 and SFAS 131 did not affect the consolidated statements of operations,
consolidated balance sheets, or disclosure of segment information.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934 that involve risks and uncertainties.
The Company's actual results could differ materially from those discussed below
and elsewhere in this Report. Factors that could cause or contribute to such
differences include, without limitation, those discussed in this section, as
well as other sections of this report, and those discussed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Results of Operations
Total revenues for the first quarter of 1999 were approximately $588,000
compared to $549,000 for the same period in 1998. Sales of the Prosorba column
totaled approximately $588,000 and $498,000 for the quarters ended March 31,
1999 and 1998, respectively. During 1998, the Company had an NIH Small Business
Innovation Research (SBIR) grant which generated revenues of $51,000 during the
first quarter. This grant expired at the end of 1998 and is not expected to be
renewed. Sales for the quarter ended March 31, 1999 are at a level consistent
with the Company's expectations.
In March 1999, the Company entered into an agreement with Fresenius
Fresenius AG of Bad Homburg, Germany and its U.S. subsidiary, Fresenius
Hemotechnology, Inc. (collectively, "Fresenius"). The Company granted to
Fresenius the exclusive right to co-market and distribute the Prosorba column in
the U.S. and to register and distribute the Prosorba column in Europe, Latin
America, and subject to certain conditions, Japan and certain other countries.
In the U.S., net profits will be split 50/50 until Prosorba column revenue
reaches a pre-determined sales threshold, after which time Cypress will receive
60% of the profits and Fresenius will receive 40%. Net profits will be split
50/50 outside the U.S. In addition, the Company is entitled to receive up to $54
million in license payments upon the achievement of certain cumulative net sales
of the Prosorba column. In the U.S., the license payments are payable in some
cases in cash and in others in equity investments by Fresenius at market prices.
Outside the U.S., the license payments are payable in cash. In the future, the
Company will no longer record revenues from the sale of the Prosorba column.
Instead, Cypress will recognize revenue based on its share of net profits from
the sale of the Prosorba column by Cypress and Fresenius. Cypress's share of net
losses from the sale of the Prosorba column will be recorded as expense in
future quarters.
Production costs for the first quarter of 1999 were approximately $519,000
compared to $351,000 for the same period in the prior year. The 48% increase in
production costs were attributable to increased production of the Prosorba
column. In March 1999, the FDA approved the Prosorba column for the treatment of
moderate to severe RA in adult patients with long standing disease who have
failed or are intolerant of DMARDs. In April 1999, Fresenius AG exercised an
option to acquire the Prosorba column manufacturing facility and related assets,
located in Redmond, Washington. In connection with this transaction, Fresenius
purchased from the Company inventory of approximately $2.0 million. As a result
of the Fresenius agreement, the Company will not incur production costs with
respect to the Prosorba column in the future.
Sales and marketing expenses for the quarters ended March 31, 1999 and 1998
were approximately $1.1 million and $281,000, respectively. The 287% increase
in sales and marketing expenses was primarily due to the hiring of a sales force
and other activities
9
<PAGE>
associated with the launch of the Prosorba column for RA in April 1999. In the
U.S., Cypress and Fresenius will jointly market the Prosorba column. Under its
agreement with Fresenius, sales and marketing expenses of up to 15% of net sales
for the applicable period are allocated to the Company in the U.S. and 5% to
Fresenius. Sales and marketing expenses of up to 20% of net sales are allocated
to Fresenius outside the U.S. During the first two years of the partnership, the
Company expects to spend up to $9 million in sales and marketing expenses in
excess of the 15% of net sales allocated to the Company due to product launch
costs. If net sales during the first two years are higher than expected, the
Company may be able to recover all or a portion of its unreimbursed sales and
marketing expenses under the agreement. The Company expects to incur
substantially higher sales and marketing expenses in 1999 due to the commercial
launch of the Prosorba column for RA.
For the quarter ended March 31, 1999, the Company incurred research and
development expenses of approximately $681,000 compared to $1.2 million for the
same period in 1998. The 44% decrease in research and development expenses was
attributable to the completion of the Phase III clinical trials the Prosorba
column for RA in January 1998. In addition, expenses associated with the
development of Cyplex during the first quarter of 1999 were lower that incurred
during the same period in 1998. Cypress and Fresenius will share in clinical
trial expenses in the U.S. Fresenius will have exclusive responsibility for
clinical trials and registration of the product in certain other markets. The
Company expects to incur significant ongoing research and development expenses
in connection with the mandatory Phase IV U.S. clinical trials for the treatment
of RA using the Prosorba column in combination with methotrexate, a DMARD.
Cypress and Fresenius will share in the funding of these clinical studies.
General and administrative expenses were approximately $1.4 million and
$740,000 for the quarters ended March 31, 1999 and 1998, respectively. The 95%
increase in general and administrative expenses was primarily due to increased
business development activity associated with the Company's agreement with
Fresenius. In addition, the Company incurred higher general and administrative
expenses in the first quarter of 1999 due to the hiring of its President and
Chief Operating Office. General and administrative expenses are expected to
continue to increase during 1999.
The Company expects to incur operating losses until it and Fresenius
successfully market the Prosorba column for RA in the U.S., or until sales for
its existing indication of ITP increase significantly. There can be no assurance
that the Company can achieve or sustain profitability. There can be no assurance
that the Company and Fresenius will be able to successfully market the Prosorba
column for RA or increase sales in the ITP indication. There can be no assurance
that the Company will be able to obtain FDA approval for or be able to
successfully commercialize Cyplex(TM). The Company has spend considerable time
and expense in obtaining FDA approval of the Prosorba column for the RA
indication. Pursuant to the Company's agreement with Fresenius, the Company must
incur significant additional expense and assume the majority of the risk
associated with the commercial launch and ongoing sales and marketing of the
Prosorba column in the U.S. Any net profits or losses from the sale of the
Prosorba column are shared with Fresenius. The successful launch of the Prosorba
column for use in RA will depend upon but is not limited to, acceptance of the
product by physcians and medical groups, availability and convenience of
treatment centers, availability of third party reimbursements, the effectiveness
of the Company's and Fresenius' marketing strategy and competition.
Liquidity and Capital Resources
In March 1999, Cypress entered into an agreement with Fresenius for the
Prosorba column. Upon signing of the agreement, Cypress received a total of $1.5
million from Fresenius consisting of the purchase of 297,530 shares of Cypress
common stock for $1.0 million, and $500,000 for the purchase of three-year
warrants to buy 342,466 shares of Cypress common stock at $7.50 per share.
10
<PAGE>
The Company's working capital as of March 31, 1999 was $9.2 million
compared to $5.6 million at December 31, 1998. The increase in working capital
was attributable to proceeds from the sale of common stock and warrants to
Fresenius totaling $1.5 million. In addition, the Company had drawn down $4.0
million from a interest-free line of credit provided by Fresenius to fund the
launch of the Prosorba column for RA by Cypress. Further, in the first quarter
of 1999, the company received proceeds of approximately $845,000 from the
exercise of warrants and stock options to purchase 435,649 shares of common
stock. The increase in working capital was offset by a net loss from operations
of approximately $3.1 million during the first quarter of 1999.
In April 1999, Fresenius AG exercised an option to acquire the Prosorba
column manufacturing facility and related assets, located in Redmond, Washington
for approximately $5.2 million. The purchase price consisted of $1.2 million
cash and an offset of the $4.0 million draw down from the interest-free line of
credit provided by Fresenius in March 1999.
During March and April 1999, the Company received additional proceeds of
approximately $5.2 million from the exercise of warrants to purchase 2,619,860
shares of common stock.
The Company recently hired a sales force for the commercial launch of the
Prosorba column for RA. The Company's original sales force has experience in
selling the Prosorba column for use in the treatment of ITP. The Company's
current sales force is composed of predominately new employees and has had no
experience in marketing the Prosorba column for use in the treatment of RA.
There can be no assurance that the Company's sale force will be successful in
marketing the Prosorba column for RA or any other use. The Company's marketing
strategy includes gaining medical association support and the support of
11
<PAGE>
opinion leaders in the rheumatology community. There can be no assurance that
the Company's sales force will succeed in gaining this acceptance. Any such
failure to successfully market the Prosorba column for RA, or any other disease
indication other than ITP could have a material adverse effect on the Company's
business.
As a condition to FDA approval of the Pre-Marketing Application for the
Prosorba column for RA, the Company is obligated to conduct a Phase IV clinical
trial on the use of the Prosorba column in combination with a DMARD. Depending
upon the number of patients and the rate of enrollment, the Company expects this
study will require enrollment of a significant number of patients and take
approximately two years to four years to complete. The cost of the Phase IV
trial is shared with Fresenius and will result in lower profits for the Company.
There can be no assurance that the outcome of the Phase IV clinical trials will
be indicative of earlier clinical trial results or generate positive results.
Any of these occurrences could have a material adverse on the Company including
changes to the product labeling for the RA indication, reduction of the
potential sales of the Prosorba column and/or withdrawal of FDA approval.
The Company expects that existing cash resources will be sufficient to fund
operations to profitability.
The Company is selectively seeking opportunities to raise additional
capital to fund the development of new and the completion of existing research,
including additional clinical trials for the Prosorba column. To the extent the
Company decides to develop products other than the Prosorba column or Cyplex, it
will be required to raise additional capital. The amount of capital required by
the Company is dependent upon many factors, including the following: results of
clinical trials, results of current research and development efforts, the FDA
regulatory process, the Company's and its partner's ability to successfully
market the Prosorba column in the RA market, costs of commercialization of
products and potential competitive and technological advances and levels of
product sales. Because the Company is unable to predict the outcome of the
foregoing factors, some of which are beyond the Company's control, the Company
is unable to estimate with certainty its mid- to long-term capital needs.
Although the Company may seek to raise additional capital through a combination
of additional equity or debt sources, there can be no assurance the Company will
be able to raise additional capital through such sources or the funds raised
thereby will allow the Company to maintain its current and planned operations.
If the Company is unable to obtain additional capital, it may be required to
delay, scale back or eliminate some or all of its research and development and
marketing activities, to license to third parties technologies that the Company
would otherwise seek to develop itself, to seek financing through the debt
market at potentially higher costs to the Company or to seek additional methods
of financing.
12
<PAGE>
PART II
Item 1 - Legal Proceedings
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1/(1)/ License and Distribution Agreement dated March 26, 1999
10.2 Asset Purchase Option Agreement dated March 26, 1999
10.3 Registration Agreement dated March 26, 1999
10.4 Securities Purchase Agreement dated March 26, 1999
10.5 Common Stock Purchase Warrant dated March 26, 1999
------------
/(1)/ Confidential treatment has been requested from the Securities
and Exchange Commission for portions of this exhibit
27. Financial Data Schedule
(b) Reports on Form 8-K
On March 23, 1999 the Company filed a Current Report on Form 8-K dated
March 22, 1999 which indicated the following: (i) the Company had signed a
definitive agreement covering its partnership with Fresenius and FHI; (ii) the
U.S. Food and Drug Administration had approved the Prosorba column for the use
in the treatment of moderate to severe rheumatoid arthritis; and (iii) the
Company had called for redemption approximately 2.7 million outstanding publicly
traded warrants that if not exercised by April 12, 1999 would be redeemed by the
Company at 10 cents per warrant on April 19, 1999.
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.
Cypress Bioscience, Inc.
<TABLE>
<CAPTION>
<S> <C>
May 17, 1999 /s/ Jay D. Kranzler
- ------------------------------------------ ------------------------------------------------------
Date Jay D. Kranzler, M.D., Ph.D.
Chief Executive Officer, Chief Scientific
Officer and Chairman of the Board
(Principal Executive Officer and Acting
Principal Accounting and Financial Officer)
</TABLE>
13
<PAGE>
EXHIBIT 10.1
LICENSE AND DISTRIBUTION AGREEMENT
among
CYPRESS BIOSCIENCE, INC.,
Licensor
FRESENIUS HEMOTECHNOLOGY, INC.,
Licensee
and
FRESENIUS AKTIENGESELLSCHAFT
Dated March 26, 1999
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
---------
<S> <C>
Budgets for 1999 Research and Development and Clinical
Trials Costs........................................................ Schedule A
List of Patents...................................................... Schedule B
List of Trademarks................................................... Schedule C
U.S. Product Launch Schedule......................................... Schedule D
Licensor and Licensee Diligence Obligations.......................... Schedule E
Prosecution of Trademark Registration................................ Schedule F
Licensor Marketing Plan.............................................. Schedule G
Press Release........................................................ Schedule H
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 DEFINITIONS......................................................... 1
ARTICLE 2 STEERING COMMITTEE.................................................. 9
2.1 Establishment of Steering Committee............................................ 9
2.2 Steering Committee Functions................................................... 10
2.3 Other Submissions to the Steering Committee.................................... 11
ARTICLE 3 GRANT OF LICENSE AND DISTRIBUTION RIGHTS............................ 11
3.1 Grant.......................................................................... 11
3.2 Commencement of Licensed Rights................................................ 12
3.3 Sublicensing and Subcontracting................................................ 12
3.4 Competition; Substitute Product................................................ 13
ARTICLE 4 IMPROVEMENTS........................................................ 13
4.1 Disclosure..................................................................... 13
4.2 Modifications from Improvements................................................ 13
4.3 Grant under Improvements....................................................... 14
ARTICLE 5 TRANSFER OF KNOW-HOW................................................ 14
5.1 Transfer....................................................................... 14
5.2 Access......................................................................... 14
5.3 Additional Technical Assistance................................................ 14
5.4 Responsibility................................................................. 15
ARTICLE 6 OBLIGATIONS OF THE PARTIES........................................... 15
6.1 Obligations of Licensor in the U.S. Territory.................................. 15
6.2 Obligations of Licensee in the U.S. Territory.................................. 16
6.3 Obligations of Licensor in the Non-U.S. Territory.............................. 19
6.4 Obligations of Licensee in the Non-U.S. Territory.............................. 19
6.5 Conditions to Rights in Additional Non-U.S. Countries.......................... 20
6.6 Trademarks; Quality Control.................................................... 21
6.7 Operating Procedures........................................................... 22
6.8 Manufacture and Supply of Product.............................................. 23
6.9 Warranties..................................................................... 24
6.10 Board Representation........................................................... 24
ARTICLE 7 CLINICAL TRIALS PROGRAM............................................... 25
7.1 Development of Program......................................................... 25
7.2 Roles.......................................................................... 25
7.3 Costs; Product Supply.......................................................... 25
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
7.4 Final Regulatory Approvals..................................................... 26
7.5 Additional Clinical Investigation.............................................. 27
ARTICLE 8 INFORMATION AND REPORTS; CORRECTIVE ACTIONS.......................... 27
8.1 Information Disclosure......................................................... 27
8.2 Adverse Events................................................................. 28
8.3 Use of Information............................................................. 29
8.4 Regulatory Reporting........................................................... 29
8.5 Certain Corrective Actions..................................................... 29
ARTICLE 9 INTELLECTUAL PROPERTY FILINGS, PROSECUTION, REGISTRATION
AND MAINTENANCE...................................................... 30
9.1 Prosecution of Registration.................................................... 30
9.2 Abandonment of Patents......................................................... 30
9.3 Assistance re Prosecution...................................................... 31
9.4 Transfer to Licensor........................................................... 31
9.5 No Infringement................................................................ 31
9.6 Conflicting Patents or Trademarks.............................................. 31
9.7 Infringement of Patents or Trademarks.......................................... 32
9.8 Description as Authorized Licensee............................................. 32
9.9 Existing Third Party Agreements................................................ 32
ARTICLE 10 PROFIT SHARING...................................................... 33
10.1 Profit Sharing................................................................ 33
10.2 U.S. Territory................................................................ 33
10.3 Non-U.S. Territory............................................................ 33
10.4 Distribution of Net Sales and Profits......................................... 33
ARTICLE 11 LICENSE PAYMENTS.................................................... 35
11.1 License Payments............................................................... 35
11.2 U.S. License Payments.......................................................... 35
11.3 Conditions to Fresenius AG's Purchase of Common Stock with License Payments.... 36
11.4 Conditions to Licensor's Obligation to Issue Common Stock...................... 37
11.5 International License Payments................................................. 38
11.6 Tax Matters.................................................................... 38
11.7 Organic Change................................................................. 38
ARTICLE 12 BOOKS, RECORDS AND REPORTS........................................... 39
12.1 Non-Financial Records.......................................................... 39
12.2 Pro-Forma Financial Records.................................................... 39
12.3 Statements..................................................................... 40
12.4 Payments....................................................................... 40
12.5 [...***...] Costs.................................................................. 40
</TABLE>
CONFIDENTIAL TREATMENT REQUESTED
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 13 REPRESENTATIONS AND WARRANTIES....................................... 40
13.1 By the Licensor................................................................ 40
13.2 By the Fresenius Parties....................................................... 42
ARTICLE 14 INDEMNIFICATION...................................................... 42
14.1 Indemnification for Product Liability and Similar Claims....................... 42
14.2 Patent Indemnity............................................................... 44
14.3 Notice of Claim................................................................ 44
14.4 Direct Claims.................................................................. 45
14.5 Third Party Claims............................................................. 45
14.6 Settlement of Third Party Claims............................................... 46
14.7 Cooperation.................................................................... 46
14.8 Insurance...................................................................... 46
14.9 Survival....................................................................... 46
ARTICLE 15 CONFIDENTIALITY...................................................... 47
15.1 Maintenance of Confidentiality................................................. 47
15.2 Exceptions..................................................................... 47
15.3 Nondisclosure of Agreement..................................................... 48
15.4 Compliance with Confidentiality Obligations.................................... 49
15.5 Injunction..................................................................... 49
ARTICLE 16 TERM AND TERMINATION................................................. 49
16.1 Term........................................................................... 49
16.2 Grounds for Early Termination.................................................. 50
16.3 Rights and Obligations Upon Termination........................................ 51
16.4 Certain Rights Upon Expiration or Termination.................................. 52
16.5 Survival of Certain Rights and Obligations..................................... 53
16.6 Post-Termination Supply Obligations............................................ 54
ARTICLE 17 GUARANTY............................................................ 55
ARTICLE 18 GOVERNING LAW; DISPUTE RESOLUTION................................... 56
18.1 Governing Law.................................................................. 56
18.2 Arbitration.................................................................... 56
18.3 Enforcement.................................................................... 57
ARTICLE 19 MISCELLANEOUS....................................................... 57
19.1 Force Majeure.................................................................. 57
19.2 Notices........................................................................ 58
19.3 Attorneys' Fees................................................................ 60
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
19.4 Assignment..................................................................... 60
19.5 Entire Agreement............................................................... 60
19.6 Modification and Amendment..................................................... 61
19.7 Headings....................................................................... 61
19.8 Telecopy; Counterparts......................................................... 61
19.9 Severability................................................................... 61
19.10 Scope of Authority and Relationship............................................ 61
19.11 Cost of Operations............................................................. 61
19.12 Third Parties.................................................................. 62
19.13 Performance by Subsidiaries.................................................... 62
19.14 Further Assurances............................................................. 62
19.15 Official Language.............................................................. 62
</TABLE>
iv
<PAGE>
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 22.80(b)(4),
200.83 and 240b-2
LICENSE AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is entered into the 26 day of March, 1999 (the "Effective
Date"), among CYPRESS BIOSCIENCE, INC., a Delaware corporation (the "Licensor"),
FRESENIUS HEMOTECHNOLOGY, INC., a Delaware corporation (the "Licensee"), and
FRESENIUS AKTIENGESELLSCHAFT, a corporation incorporated under the laws of the
Federal Republic of Germany ("Fresenius AG").
WHEREAS, the Licensor has developed a medical device for the treatment of
certain immune disorders through extracorporeal treatment of human plasma; and
WHEREAS, the Licensor is willing to grant to the Licensee the exclusive
right to manufacture, sell and distribute such device in the Territory (as
hereinafter defined) utilizing certain intellectual property owned by or
licensed to the Licensor; and
WHEREAS, in connection with the rights to utilize Licensor's intellectual
property, the parties intend to enter into certain marketing and distribution
arrangements for such device in the Territory pursuant to which each will
undertake certain obligations relating to the marketing and distribution of such
device and related disposable products; and
WHEREAS, in recognition of their mutual cooperative efforts with respect to
such marketing and distribution arrangements, the parties have agreed that
Licensor, on the one hand, and Licensee and Fresenius AG on the other, will each
receive a share of the profits attributable to the marketing of the device and
related disposable products; and
WHEREAS, in recognition of the efforts of Licensor with respect to the
development of such device, Fresenius AG has agreed that at such times as
cumulative Net Sales (as defined herein) of such device and certain related
disposable products achieve specified amounts, Licensor shall be entitled to
receive certain specified payments from the cash flow attributable to such Net
Sales and from Fresenius AG's share of the profits attributable to such Net
Sales;
NOW THEREFORE IN CONSIDERATION of the mutual promises and covenants
contained in this agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE 1
DEFINITIONS
In this agreement the following terms shall have the following meanings,
respectively:
"Additional Non-U.S. Countries" means Japan, Thailand, China, New Zealand,
Hong Kong, South Korea, India and Canada.
1
<PAGE>
"Affected Party" has the meaning set out in Section. 19.1.
"Affiliate" has the meaning set out in Rule 405 under the United States
Securities Act of 1933, as amended.
"Asset Purchase Option Agreement" means the Asset Purchase Option Agreement
of even date herewith among Licensor, Licensee and Fresenius AG with respect to
the sale and purchase of the Production Facility.
"Assignment" shall include a merger or a transfer of more than 50% of the
voting securities of a person in a single transaction or series of related
transactions.
"Cash Flow" means U.S. Cash Flow and Non-U.S. Cash Flow, each as defined
below:
"U.S. Cash Flow" means, in any period, Net Sales of the Relevant
Products by the parties to this Agreement in the U.S. Territory less (but
not less than $0) the following deductions (which shall be made in the
following order): (1) the Cost of Goods Sold in the U.S. Territory, (2)
Royalties, (3) Research and Development and Clinical Trials Costs relating
to the Product in the U.S. Territory (which, for 1999, shall be the amounts
set forth in the budgets annexed as Schedule A, and for all other years,
not in excess of amounts budgeted for such purpose by the Steering
Committee for the year that includes such period), (4) all sales and
marketing costs for such period in the U.S. Territory actually incurred by
the party, subject to the limitations set forth below and (5) during the
third and fourth Contract Years, the deductions required by Section 7.3(a)
shall be made, as applicable. For purposes of such determination, sales
and marketing costs in the U.S. Territory shall not exceed [...***...] of
Net Sales, determined each quarter by reference to annualized trailing
quarter net sales and adjusted at the end of each year for [...***...] of
actual Net Sales during the preceding year (of which, five (5) of such
twenty (20) percentage points shall be allocated to Licensee and the
remainder of which shall be allocated to Licensor) and, subject to the
remaining provisions of this definition, any sales and marketing costs
incurred by a party in excess of such party's allocated share shall be
solely for the account of the party incurring such costs.
(a) In addition to the foregoing provisions, in determining U.S. Cash
Flow:
(i) in each of the first two Contract Years, there shall
also be deducted from Net Sales in the U.S. Territory
additional sales and marketing costs actually incurred by
Licensor in such years in excess of [...***...] of Net
Sales, provided that (A) no such deduction in either year
--------
shall reduce Cash Flow for such year below $0, and (B) the
maximum amount of such additional sales and marketing costs
of Licensor to be deducted for both such years shall
- ----------------
* Confidential Treatment Requested
2
<PAGE>
not exceed, in the aggregate, [...***...] and if all of
Licensor's additional sales and marketing costs for such
years are not deducted during the first and second Contract
Years, but Licensee recovers any additional sales and
marketing costs pursuant to subsection (ii) below during
either of such years, then the amount of Licensor's
unreimbursed sales and marketing expenses shall be carried
over to the third (3rd) Contract Year and reimbursed to
Licensor, provided that the maximum amount carried over to
the third (3rd) Contract Year shall be the amount Licensee
recovers pursuant to subsection (ii);
(ii) in the first two Contract Years, there shall also be
deducted from Net Sales in the U.S. Territory additional
sales and marketing costs actually incurred by Licensee in
such year to the extent of the positive difference between
[...***...] and [...***...] of Net Sales for such Contract
Year, provided that no such deduction in either year shall
--------
reduce Cash Flow for such year below $0;
provided, however, that in the event that Net Sales in the
U.S. Territory are insufficient in the first (1st) and
second (2nd) Contract Years to reimburse in full the
additional sales and marketing costs actually incurred by
Licensor and Licensee in accordance with subsections (i) and
(ii), then each party shall be entitled to recover its pro
rata portion of the available Net Sales in proportion to the
relationship that such party's additional sales and
marketing costs bears to the total additional sales and
marketing costs of both parties; and
(iii) in the fourth quarter of calendar year 2000, there
shall be deducted from Net Sales in the U.S. Territory
remaining after the deductions described in clauses (1)
through (5) of this definition and prior to any deduction
for additional sales and marketing costs pursuant to the
preceding subsections (i) and (ii), the sum of [...***...],
which amount shall be allocated to Licensee as a cash
payment for such year (and if Net Sales in the U.S.
Territory are insufficient to provide for such [...***...]
payment, Licensee shall receive the amount available for
payment); provided, however, solely for purposes of the
payment required by this subsection (iii), the calculation
- --------------------
* Confidential Treatment Requested
3
<PAGE>
shall be made using the four (4) quarters of calendar year
2000.
"Non-U.S. Cash Flow" means, in any period, Net Sales of the Relevant
Products by the parties to this Agreement in the Non-U.S. Territory less
(but not less than $0) the following deductions (which shall be made in the
following order): (i) the Cost of Goods Sold in the Non-U.S. Territory,
(ii) Research and Development and Clinical Trials Costs relating to the
Product in the Non-U.S. Territory (which, for 1999, shall be the amounts
set forth in the budgets annexed as Schedule A, and for all other years,
not in excess of amounts budgeted for such purpose by the Steering
Committee for the year that includes such period), and (iii) all sales and
marketing costs for such period in the Non-U.S. Territory. For purposes of
such determination, sales and marketing costs shall not exceed 20% of Net
Sales in the Non-U.S. Territory, determined by reference to annualized
trailing quarter net sales (all of which shall be allocated to Fresenius
AG), and, subject to the remaining provisions of this definition, any sales
and marketing costs incurred by Fresenius AG in the Non-U.S. Territory in
excess of its allocated share shall be solely for the account of Fresenius
AG. In addition to the foregoing provisions, in determining Non-U.S. Cash
Flow, for each of the first two calendar years following product
registration for the Product in Europe, there also shall be deducted from
Net Sales in the European Union additional sales and marketing costs
actually incurred by Fresenius AG in such years in excess of 20% of Net
Sales in the European Union, provided that (1) no such deduction in either
--------
year shall reduce Non-U.S. Cash Flow for such year below $0, and (2) the
maximum amount of such additional sales and marketing costs to be deducted
for both such years shall not exceed, in the aggregate, [...***...].
For the avoidance of doubt, Cash Flow for any year shall be determined
separately with respect to sales of the Relevant Products in the U.S. Territory
and in the Non-U.S. Territory.
"Claim" has the meaning set out in Section 14.3.
"Clinical Trials Program" means the series of clinical trials to be
conducted involving the administration to humans of therapy for RA utilizing the
Product, comprising the Phase I Clinical Trials, Phase II Clinical Trials, Phase
III Clinical Trials, Phase IV Clinical Trials and post-marketing trials.
"Confidential Information" means each party's confidential information,
inventions, know-how, technical data and trade secrets and includes, without
limitation, manufacturing, marketing, financial, personnel and other business
information and plans, whether in oral, written, graphic or electronic form, and
whether in existence on the date hereof or developed or acquired in the future.
Confidential Information shall not include information which the either party
can demonstrate by competent written proof: (a) is
- ----------------------------
* Confidential Treatment Requested
4
<PAGE>
now, or hereafter becomes, through no act or failure to act by the other party,
generally known or available; (b) is known by the other party at the time of
receiving such information, as evidenced by its records; or (c) is the subject
of written permission to disclose provided by the other party.
"Contract Year" means (i) for the first contract year, the period beginning
on the Effective Date and ending twelve (12) months after the first day of the
first calendar quarter commencing after the Effective Date (the "Anniversary
Date") and (ii) for each subsequent contract year, the twelve (12) month period
beginning on each subsequent Anniversary Date.
"Control" means the possession, direct or indirect, of the power to direct
or cause direction of the management and policies of a person, whether through
the ownership of voting securities, by contract, or otherwise.
"Cost of Goods Sold" means the sum of the following amounts: (a) direct
material costs for the production of the Product only; (b) full manufacturing
costs for the production of the Product only, provided that if the manufacturing
facility or facilities used to produce the Product are used in the production of
more than one product, then Fresenius AG shall allocate the manufacturing costs
in a fair manner and make available sufficient information for Licensor to
assess the fairness of the allocation of the manufacturing costs (if Licensor
disagrees with such allocation, it shall be submitted to the Steering Committee
and the disagreement shall be resolved in accordance with the dispute resolution
procedure set forth in Section 2.3); (c) idle production costs which shall be
based upon the parties' good faith agreed-upon assessment of 80% of the full
production capacity of the manufacturing facility or facilities dedicated to the
production of the Product; (d) the cost of any goods purchased for resale as
part of Products based upon the actual invoice price from Third Parties without
any mark-up; and (e) for any year in which Fresenius AG does not receive
Profits, imputed interest on any inventory or other assets of the Production
Facility based upon the carrying value of those assets as determined under U.S.
generally accepted accounting principles, with such imputed interest based upon
the risk-free rate of a long-term corporate debt instrument (excluding any
imputed interest imbedded in subsections (a) through (d)). Without limiting the
foregoing, "Cost of Goods Sold" shall not include charges for transfer to any
Affiliates of the manufacturing party or any sublicensees, nor shall "Cost of
Goods Sold" include any allocations of corporate, administrative, or any other
overhead that is not devoted to manufacturing activities. The party
manufacturing the Product shall operate the Production Facility in a manner
intended to minimize the Cost of Goods Sold on a per unit basis and to achieve
economies of scale and declining Cost of Goods Sold as the number of units of
Product increases. Further, the parties agree that, except as described in
Sections 6.8(a) and 16.6, the manufacturing party shall not make a profit on the
manufacturing activity and that any questions about the calculation of Cost of
Goods Sold shall be resolved in a manner that eliminates such profit.
"D&N Associates, Inc. Agreement" means that certain License Agreement dated
April 9, 1996 between Licensor and D&N Associates, Inc., the successor by merger
to DTER-ENT, Incorporated.
5
<PAGE>
"Direct Claim" has the meaning set out in Section 14.3.
"Disposables" means bloodlines, tubings, solutions (in either concentrate
or ready to use form), blood bags, fistula needles, catheters, and other
disposable products used in connection with the administration of therapy
utilizing the Product.
"FDA" means the United States Food and Drug Administration.
"Final Regulatory Approval" means, with respect to the United States or a
jurisdiction within the Territory, receipt of all authorizations by the FDA or
the appropriate Territorial Regulator or Regulators, as the case may be,
necessary for commercial sale of the Product within such jurisdiction,
including, without limitation, approval of manufacturing, labeling, price (if
required) and treatment parameters.
"FMC AG" means Fresenius Medical Care Aktiengesellschaft, a German
corporation.
"Fresenius Parties" means Fresenius AG and Licensee.
"Force Majeure" has the meaning set out in section 19.1.
"GMP" means, (i) with respect to the United States, the code of
manufacturing practices known from time to time as Current Good Manufacturing
Practices published by the FDA, and (ii) with respect to any jurisdiction within
the Non-U.S. Territory, any comparable manufacturing code, rule, regulations or
practices published by the Territorial Regulator for such jurisdiction.
"Improvements" means all improvements, enhancements, extensions,
developments and modifications of the Product which, after the date hereof and
prior to the termination of this Agreement, the Licensor, the Licensee,
Fresenius AG, an Affiliate of Licensee or Fresenius AG, or any sublicensee of
any Fresenius Parties, as the case may be, may conceive, develop or acquire or
otherwise obtain the right to permit licenses or sublicenses and any and all
improvements, enhancements or modifications to the Patents or Know-How that are
necessary for the manufacture of the Product, in the form approved by the FDA.
"Indemnified Party" has the meaning set out in Section 14.3.
"Indemnifying Party" has the meaning set out in Section 14.3.
"Infringer" has the meaning set out in Section 9.7.
"Intellectual Property Claim" has the meaning set out in Section 14.2.
"ITP" means idiopathic thrombocytopenic purpura.
"Know-How" means all technical information, manufacturing technology
procedures, processes, trade secrets, methods, practices, techniques,
proprietary and other
6
<PAGE>
information and specifications necessary or useful for the design, production,
manufacture, inspection and testing of the Product, which are at the date hereof
in the Licensor's possession or that are subsequently developed or acquired by
Licensor or Licensee.
"Losses" has the meaning set out in Section 14.1
"Net Sales" means in respect of any particular period the sum of the gross
invoice sale price of the Product or each Relevant Product sold by or on behalf
of a party to this Agreement in the Territory or where applicable by or on
behalf of their respective sublicensees, less normal and customary returns only
of defective Relevant Products and Relevant Products shipped in error (provided
such erroneously shipped Relevant Products are returned promptly) and normal and
customary trade, quantity or other cash discounts actually granted by the seller
or where applicable its sublicensees with respect to the Product or the Relevant
Product, less the net amount of all applicable sales and value added taxes with
respect to the Product or the Relevant Product which are included in the invoice
price to the customer and actually paid by the seller. In no event shall
Products be sold "bundled" with Disposables or any other product(s) to the
extent that any such "bundling" would compromise reimbursement or would be
prohibited by applicable law. Where Products are sold "bundled" (consistent
with the preceding sentence), the Steering Committee shall determine the
allocation of the invoice sale price between the Product and the other
components of such "bundled" product. In the event that Products are sold in
kits with Disposables or other products, Products shall be invoiced separately
from such Disposables and other products, and the invoice sale price of such
Product shall be the same invoice sale price then in effect for Products not
sold in kits. Net sales shall be determined separately for the U.S. Territory
and the Non-U.S. Territory.
"Non-Affected Party" has the meaning set out in section 19.1.
"Non-U.S. Territory" means Europe (including the countries of the former
Soviet Union), South America, Central America, including Mexico and the islands
and countries of the Caribbean (other than those included in the U.S.
Territory), and, subject to the provisions of Section 6.5, the Additional Non-
U.S. Countries.
"Patents" means those patents and patent applications set out on Schedule B
and any patents issued based on such patent applications.
"Patent Interest" has the meaning set out in Section 9.2.
"Phase I Clinical Trials" means initial studies of the administration of
therapy utilizing the Product in humans, using a limited number of healthy
volunteer subjects for the purpose of obtaining pharmacology data, safety and
other information concerning the Product.
"Phase II Clinical Trials" means controlled clinical studies of the
administration of therapy utilizing the Product for treatment of RA to evaluate
the effectiveness of the Product in patients meeting the criteria for such
indication, to approximate its therapeutic
7
<PAGE>
range, to determine appropriate treatment regimes and parameters and to evaluate
safety and common short-term side effects.
"Phase III Clinical Trials" means expanded trials, performed after
preliminary evidence suggesting effectiveness of the Product for treatment of RA
has been obtained, involving the administration of therapy utilizing the Product
to the human target patient population in sufficient numbers to generate data to
support Final Regulatory Approval of the Product for use in such indication for
the purpose of determining safety, optimal treatment regimens and parameters,
efficacy and to evaluate the overall risk - benefit relationship in the use of
the Product. An additional aim of such trials may be to accumulate data on the
pharmacoeconomics of the therapy utilizing the Product for this indication if
such data are required for eligibility of therapy utilizing the Product for
reimbursement by insurers or other health care payors in the Non-U.S. Territory.
"Phase IV Clinical Trials" means trials conducted after the Product is
marketed for treatment of RA to provide additional details about the Product's
efficacy or safety profile. Such trials may be mandatory at the direction of
regulatory authorities, or they may be voluntary to collect additional patient
information.
"Product" means the Prosorba(R) column, a therapeutic, extracorporeal
immunoadsorption device as described in the PMA approved by the FDA, and as
modified or redesigned by agreement of the parties in accordance with this
Agreement, as described in an amended PMA approved by the FDA.
"Production Facility" means the Facility, as such term is defined in the
Asset Purchase Option Agreement.
"Profit" means, in any period, Cash Flow attributable to Net Sales of the
Relevant Products by the parties to this Agreement less the amount of any
straight cash license payments made during such period with respect to such
period or preceding periods (including, for avoidance of doubt, any such
straight cash license payments which were earned during a prior period, the
payment of which was deferred and carried forward to subsequent periods due to
the absence of sufficient Cash Flow in the period in which such straight cash
license payments were earned). Profits shall be determined from Cash Flow as
defined herein (including, with respect to the years described in paragraphs (a)
and (b) of the definition of Cash Flow, the deductions for the amounts described
in such paragraphs for such years). Profits for any year shall be determined
separately with respect to U.S. Cash Flow and Non-U.S. Cash Flow.
"RA" means rheumatoid arthritis.
"Regulatory Clearance" means, with respect to any phase of the Clinical
Trials Program, the issuance by a Territorial Regulator of authorization to
commence or proceed to the next phase of the Clinical Trials Program or, if no
such authorization is legally required, the passage of any required or customary
waiting period following submission of the results of such phase and any other
required data without imposition by
8
<PAGE>
a Territorial Regulator of a clinical hold or other similar action suspending or
terminating the Clinical Trials Program in the jurisdiction in question.
"Relevant Product" means (i) for purposes of determining U.S. Cash Flow and
Net Sales and Profits from Net Sales in the U.S. Territory, the Product and
Disposables, and (ii) for purposes of determining Non-U.S. Cash Flow and Net
Sales and Profits from Net Sales in the Non-U.S. Territory, the Product.
"Research and Development and Clinical Trials Costs" means the costs
incurred by one or more parties in connection with the conduct of the Clinical
Trials Program, costs associated with Improvements that are or are intended to
be incorporated into the Product, and costs associated with scientific
investigations of Product characteristics required to support either regulatory
approval or marketing efforts.
"Royalties" means all royalties accrued and payable under the Strahilevitz
Agreement and/or the D&N Associates, Inc. Agreement during the applicable
period.
"Securities Purchase Agreement" means the Securities Purchase Agreement of
even date herewith between Licensor and Fresenius AG.
"Steering Committee" means the committee to be established by the parties
pursuant to the Article 2 of this Agreement and to be named the "Steering
Committee".
"Strahilevitz Agreement" means that certain Patent License, Settlement
Agreement and Release dated June 1, 1997 between Licensor and Dr. Meir
Strahilevitz.
"Substitute Product" means an extracorporeal product that may be used as a
replacement of, or in substitution for, therapy utilizing the Product and
related Disposables in the treatment of RA or ITP that is developed or acquired
by a party to this Agreement or its Affiliates or through the joint development
efforts of the parties under this Agreement.
"Territory" means the U.S. Territory and the Non-U.S. Territory.
"Territorial Regulator" means, with respect to any jurisdiction within the
Territory, the agency or organization performing functions and having authority
comparable to the functions and authority of the FDA with respect to the
authorization of the testing and marketing of medical devices or biological
products.
"Third Party" means any individual, firm or corporation other than the
Licensor, Fresenius AG or their respective Affiliates.
"Third Party Claim" has the meaning set out in Section 14.3.
"Trademarks" means those trademarks set out on Schedule C.
"U.S. Territory" means the United States of America and its territories and
possessions.
9
<PAGE>
ARTICLE 2
STEERING COMMITTEE
2.1 Establishment of Steering Committee. Promptly following the execution
and delivery of this Agreement, the parties shall establish a committee (the
"Steering Committee") which shall perform the functions provided in this Article
2 or as otherwise set forth elsewhere in the Transaction Documents. The Steering
Committee shall consist of four (4) persons, two (2) of whom shall be designated
by Licensor and two (2) of whom shall be designated by Fresenius AG and
Licensee, acting collectively. Each Steering Committee member shall be a senior
officer or employee of the party appointing such member. The expenses incurred
by a member of the Steering Committee shall be borne by the party designating
such member in accordance with such arrangements as may be established between
such member and such party. The Steering Committee shall meet at such times as
shall be determined from time to time by Licensor and Fresenius AG, but in any
event, not less than twice in each calendar year. A request for the convening of
a meeting of the Steering Committee shall be in writing, shall set forth the
proposed date and place of such meeting, and shall be delivered not less than
thirty days prior to the date proposed for the meeting, unless a shorter period
is agreed to by the Steering Committee members. Members of the Steering
Committee may participate in meetings of the Steering Committee in person or by
conference telephone call. A quorum for the conduct of business by the Steering
Committee shall consist of one member designated by Licensor and one member
designated by Fresenius AG and Licensee. All actions and decisions by the
Steering Committee shall require either the unanimous approval of the members in
attendance (in person or by conference telephone) at a meeting at which a quorum
is present, which shall be set forth in minutes of the proceedings of the
Steering Committee subscribed by the members, or the unanimous written consent
of all of its members setting forth the actions or decisions taken.
2.2 Steering Committee Functions. The Steering Committee shall be empowered
to determine the sale price of the Product in the U.S. Territory. Licensee and
Fresenius AG agree that the sale price for the Product in the Non-U.S. Territory
will not vary from the unbundled price of the Product in the U.S. Territory
determined by the Steering Committee by more than [...***...] (determined
without reference to exchange rates in effect from time to time). The Steering
Committee shall also be empowered to fix budgets for Research and Development
and Clinical Trial Costs of the parties, and to determine the priority, as
between the parties, of reimbursement of Research and Development and Clinical
Trials Costs. Notwithstanding the foregoing, the Steering Committee shall in any
event be obligated to approve budgets for, and reimbursement of, all Research
and Development and Clinical Trials Costs of a party to the extent that any of
such costs are incurred in connection with any portion of the Clinical Trials
Program that is required by the FDA or a Territorial Regulator. If the Steering
Committee is unable to decide or resolve an issue unanimously, the issue shall
be referred to the Chief
- --------------------
* Confidential Treatment Requested
10
<PAGE>
Executive Officer of Licensor and the President of the I+H Division of Fresenius
AG. Such officers of the parties shall meet promptly thereafter and shall
negotiate in good faith to resolve such issue. If they cannot resolve the issue
within thirty (30) days of commencing such negotiations, Licensor and Fresenius
AG shall mutually agree on an independent Third Party possessing expertise
regarding the subject matter of such issue and the issue shall be resolved by
such independent Third Party within the time limit mutually agreed by the
parties. In the event that the parties are unable to identify a mutually
agreeable independent Third Party, then each party shall select an independent
Third Party possessing expertise regarding the subject matter of such issue, and
such Third Parties shall together select a third independent Third Party
possessing expertise regarding the subject matter of such issue, and such Third
Party shall resolve the issue within the time limit mutually agreed by the
parties. Any dispute that cannot be resolved after compliance with the foregoing
procedures shall be resolved as provided in Section 18.2; provided, however,
that the arbitrator or arbitrators referred to in Section 18.2 shall not be
empowered to authorize or require Research and Development and Clinical Trial
Costs in any Contract Year in excess of [...***...] of Net Sales (other than the
costs of any clinical trials mandated by a Territorial Regulator.)
Notwithstanding the foregoing or any other provision of this Agreement, the
Steering Committee shall have no discretion to consider, approve or require any
change to the Product that would require a new approval of the applicable
Territorial Regulator. For the avoidance of doubt, Licensor shall have the sole
and absolute discretion to decide whether to permit any change or Improvement
that may require any new approval of a Territorial Regulator in order for such
modified Product or the Product produced by such modified process, as the case
may be, to be marketed and may condition its approval on obtaining a license or
other access to such change or Improvement upon any termination of this
Agreement.
2.3 Other Submissions to the Steering Committee. The Steering Committee
shall have only those powers and functions which are (a) expressly stated in
this Agreement or (b) submitted to the Steering Committee with the unanimous
consent of the parties to this Agreement.
ARTICLE 3
GRANT OF LICENSE AND DISTRIBUTION RIGHTS
3.1 Grant.
(a) Subject to the terms and conditions of this Agreement, the
Licensor grants to the Licensee the exclusive license:
(i) under the Patents, to:
- --------------------
* Confidential Treatment Requested
11
<PAGE>
(a) manufacture and, subject to the conditions provided in
Section 3.3, have manufactured the Product for commercial use and sale and for
the Clinical Trials Program hereunder at the Production Facility and at other
production facilities of Fresenius AG in the Territory; and
(b) use, distribute and sell the Product throughout the
Territory, for (I) use in humans for the treatment of RA and ITP and (II) all
other clinical applications approved by the FDA or the applicable Territorial
Regulator(s), provided that the Product is sold under the applicable
Trademark(s);
(ii) under the Trademarks, to use the Trademarks in conjunction
with the manufacture, distribution and sale of the Product throughout the
Territory; and
(iii) under the Know-How, to:
(a) manufacture and, subject to the conditions provided in
Section 3.3, have manufactured the Product for commercial use and sale and for
the Clinical Trials Program hereunder at the Production Facility and other
production facilities of Fresenius AG in the Territory; and
(b) use, distribute and sell the Product throughout the
Territory, for (I) use in humans for the treatment of RA and ITP and (II) all
other clinical applications approved by the FDA or the applicable Territorial
Regulator(s).
(b) Subject to the terms and conditions of this Agreement, the Licensor
hereby grants to the Licensee an exclusive license under Licensor's non-
exclusive licenses under the Strahilevitz Agreement and the D&N Associates, Inc.
Agreement, to:
(1) Manufacture and, subject to the conditions provided in Section
3.3, have manufactured the Product for commercial use and sale and for the
Clinical Trials Program hereunder at the Production Facility and other
production facilities of Fresenius AG in the Territory; and
(2) Use, distribute and sell the Product throughout the Territory,
for (I) use in humans for the treatment of RA and ITP and (II) all other
clinical applications approved by the FDA or the applicable Territorial
Regulator(s).
(c) Subject to Licensee's compliance with its obligations under this
Agreement (including, without limitation, Article 6 hereof), Licensor will not
grant to any person any rights under the Patents or the Know-How to manufacture
or have manufactured the Product for any purpose. Subject to the provisions of
Article 6, Licensor may appoint distributors of the Product in jurisdictions
outside the Territory.
12
<PAGE>
3.2 Commencement of Licensed Rights. The exclusive license under the
Patents, Trademarks and Know-How to use, distribute and sell the Product in the
Territory shall commence contemporaneously with the execution and delivery of
this Agreement. The exclusive license under the Patents and the Know-How to
manufacture and have manufactured the Product shall commence on the Effective
Date, provided that if the Effective Date is earlier than the closing of the
acquisition of the Production Facility by Licensee pursuant to the Asset
Purchase Option Agreement, Licensor shall continue to manufacture the Product
and Licensee and Fresenius AG shall act as exclusive distributors of the Product
in the Territory and such manufacturing license shall only become effective upon
the closing of such acquisition. The purchase price for the Product pursuant to
such distribution arrangements shall be Cost of Goods Sold.
3.3 Sublicensing and Subcontracting. Licensee shall have the unrestricted
right to appoint one or more sublicensees or subcontractors to manufacture, use,
distribute and sell the Product in the Territory or one or more subcontractor
use, to distribute and sell the Product in the Territory; provided, however,
that any such sublicense or subcontract will maintain Fresenius AG and Licensee
as the primary strategic partners of Licensor with respect to the development,
marketing and sale of the Product, and will be intended to maximize Profits
under this Agreement. Any such sublicensing or subcontracting by Licensee to
Fresenius AG or an Affiliate of Fresenius AG shall be conclusively presumed to
have the foregoing intentions. Any such sublicense or subcontract shall include
terms imposing on the sublicensee or subcontractor all of the applicable
obligations of Licensee hereunder, shall not be inconsistent with the
maintenance of Fresenius AG and Licensee as the primary strategic partners of
Licensor as aforesaid, and shall reserve to the Licensee all of the correlative
rights of the Licensor. Notwithstanding any such sublicensing or
subcontracting, Licensee and Fresenius AG shall remain responsible to Licensor
for the timely performance of all obligations of the sublicensee under the
sublicense or the subcontractor under the subcontract. Licensee shall promptly
provide Licensor with a copy of each sublicense agreement entered into by
Licensee hereunder (and in any event within ten (10) business days after the
execution thereof).
3.4 Competition; Substitute Product. Nothing in this Agreement shall
obligate Licensor, Licensee or Fresenius AG to refrain from developing,
marketing or distributing any products that would compete with treatments
utilizing the Product or the related Disposables. If, however, a Substitute
Product for the treatment of RA or ITP is developed or acquired by a party or
its Affiliates or through the joint development efforts of the parties under
this Agreement, the parties shall negotiate in good faith with a view to
including such Substitute Product within the parties' collaboration on
comparable economic terms, modified to reflect the relative investment and
contribution of the parties to such product to date and the required ongoing
contributions.
13
<PAGE>
ARTICLE 4
IMPROVEMENTS
4.1 Disclosure. Each party agrees to promptly disclose to the other
material technical data and information relating to material developments with
respect to or Improvements of the Patents, the Know-How or the Product (whether
or not patentable) that it may develop or acquire during the term of this
Agreement, to the extent that such disclosure is not restricted or prohibited by
law, by any contract with or undertaking given to or any condition, restriction
or restraint imposed by Third Parties, or by considerations relating to the
validity of any patent in respect of which application is about to be made;
provided, however, that in its dealings with a Third Party, the Licensor, the
Licensee, or Fresenius AG, as the case may be, shall use its reasonable
commercial efforts not to enter into an agreement restricting it from disclosing
the Improvement or development to the other parties hereto. Notwithstanding the
foregoing, neither party shall be required to disclose to the other party any
change or Improvement unless such change or Improvement may require any new
approval of a Territorial Regulator in order for such modified Product or the
Product produced by such modified process, as the case may be, to be marketed.
All patents arising from such developments or Improvements shall be owned by the
party making the invention claimed therein or, if such invention is made
jointly, shall be owned jointly (each as consistent with U.S. laws of
inventorship).
4.2 Modifications from Improvements. Any proposed design changes or
modifications to the Product incorporating any Improvements into the Product may
be implemented by the Licensee or Fresenius AG, unless such proposed design
changes or modifications may require any new approval of a Territorial Regulator
in order for the Product to be marketed as modified, in which case the prior
written consent of Licensor shall be required, which may be withheld in
Licensor's sole and absolute discretion. Licensor may condition its approval of
the use of any such Improvement in the Product or the manufacture of the Product
on obtaining a license or other access to such Improvement upon termination of
this Agreement. Notwithstanding the foregoing, if a regulatory authority
demands a design change or modification to the Product, and if the Licensor,
Licensee, or Fresenius AG, as the case may be, is unable to convince the
regulatory authority to rescind or modify its demands, then the final
determination of the regulator authority shall be complied with by the Licensor,
the Licensee and Fresenius AG.
4.3 Grant under Improvements. Subject to the terms and conditions in this
Agreement, the grant in Section 3.1 by the Licensor to the Licensee includes the
exclusive license to manufacture (and, subject to the conditions set forth in
Section 3.3, have manufactured), use, distribute and sell the Product in the
Territory utilizing all Improvements and developments disclosed by the Licensor
to the Licensee under Section 4.1, together with an ancillary grant of the right
to use any associated trademarks and any associated know-how, provided that the
Licensor shall not be obligated to grant such license if the grant or operation
of such license would require the Licensor to make more than de minimis payments
to any Third Parties, unless the parties shall agree that
14
<PAGE>
any such payments to Third Parties shall be taken into account in determining
Cash Flow and Profits hereunder.
ARTICLE 5
TRANSFER OF KNOW-HOW
5.1 Transfer. Promptly after the execution of this Agreement, upon
Licensee's request, Licensor shall make available to Licensee and Fresenius AG
all Know-How, including plant designs, specifications, plans, drawings, raw
materials and their sources, process formulation, and all relevant data and
documents necessary or useful for the manufacture, sale or use of Product.
Without limiting the obligations of Licensee or Fresenius AG under Article 15,
Licensee shall, and shall cause its employees to prevent unauthorized access to,
copying, use, publication, disclosure or other dissemination of the Know-How.
5.2 Access. In addition to any rights of access to the Production Facility
provided by the Asset Purchase Option Agreement, Licensee and Fresenius AG shall
be entitled to send to the Production Facility their respective qualified
technical personnel (other than personnel scheduled to become employees of
Licensee upon the closing under the Asset Purchase Option Agreement), each of
whom shall agree to be bound by strictures of confidentiality at least as
stringent as those set forth in Article 15, for technical training with respect
to implementation of the Patents and Know-How. Licensor shall make available its
then-existing qualified technical employees to train such personnel so sent to
Licensor's premises.
5.3 Additional Technical Assistance. From time to time, after the closing
under the Asset Purchase Option Agreement, Licensee or Fresenius AG may request
Licensor to furnish technical assistance beyond that set forth in Sections 5.1
and 5.2 hereof, through making available to Licensee and Fresenius AG, at the
Production Facility, at Licensee's expense, such number of Licensor's technical
personnel as they may reasonably request for the implementation, modification or
enhancement of the Patents and Know-How, to the extent that the former technical
personnel of Licensor who become employees of Licensee are unable to complete
such matters without such assistance, and Licensor shall make reasonable efforts
to accommodate such request. The terms and conditions of any such additional
technical assistance, including, without limitation, the compensation to be paid
by Licensee and Fresenius AG therefor, shall be determined by good faith
negotiations between the parties and set forth in a separate written agreement
between Licensor and Licensee.
5.4 Responsibility. In connection with all visits to the Production
Facility authorized by Sections 5.2 and 5.3, Licensee and Fresenius AG shall be
solely responsible for all salaries, travel and related expenses of its visiting
personnel; and any injury or damage sustained by them whether or not in
connection with such visit; and any damage or injury which may be caused by them
to the facility or its employees by reason of their negligence. Each party's
employees shall, while so visiting the other's facilities,
15
<PAGE>
remain employees, and subject to the supervision and control, of their employer,
and shall not be or be deemed to become employees of the host party.
ARTICLE 6
OBLIGATIONS OF THE PARTIES
6.1 Obligations of Licensor in the U.S. Territory. In connection with the
manufacture, sale and distribution of the Product and related Disposables in the
U.S. Territory, Licensor shall:
(a) during any period until acquisition of the Production Facility by
Licensee pursuant to the Asset Purchase Option Agreement, manufacture the
Product in conformity with Licensor's specifications and in compliance with
applicable regulatory requirements, including the maintenance of standards of
facility, materials, quality control, production and safety testing in
compliance with GMP and other regulatory requirements, in quantities sufficient
to meet the needs of post-product approval clinical trials in the U.S.
Territory, the Clinical Trials Program for the Non-U.S. Territory and commercial
demand and provide to the Licensee sufficient quantities of Product to meet
clinical trial requirements hereunder at a cost equal to the Cost of Goods Sold.
To the extent Licensor remains the manufacturer of the Product, it shall supply
the Product to Licensee in accordance with the procedures outlined in Section
6.8(b) and (c) and subject to the warranties set forth in Section 6.9;
(b) procure and maintain (with the joint effort and cooperation of
Licensee as the owner of the Production Facility subsequent to the closing under
the Asset Purchase Option Agreement) appropriate regulatory approvals in the
U.S. Territory (including Regulatory Clearances, pre-market approval from the
FDA and other required Final Regulatory Approvals); provided, however, that
Licensor shall not be required to procure or maintain such approvals to the
extent that the expenses thereof are not included in an approved budget for
Research and Development and Clinical Trials Costs;
(c) procure and maintain all other approvals, licenses, permissions and
permits necessary for the performance of its obligations under this Agreement
and conduct its business in a manner so as not to bring discredit upon the
reputation of the Product, the Trademarks, the Licensee or Fresenius AG;
(d) design, implement, advance expenses for and conduct post-product
approval U.S. clinical trials (the cost of which shall be included in, and which
shall be conducted in accordance with, budgets for Research and Development and
Clinical Trials Costs prepared by the Steering Committee), including but not
limited to trials combining therapy utilizing the Product and drug treatment,
and which shall be planned and conducted in accordance with clinical trial
protocols that have been reviewed and approved by the Steering Committee,
provided that the Steering Committee may not require Licensor to advance the
cost of any clinical trials that are not required by the FDA;
16
<PAGE>
(e) use its best commercial efforts to co-market the Product in the
U.S. Territory. Licensor's marketing activities shall include, but not be
limited to, compliance with the obligations set forth in Schedule E hereto,
maintaining an appropriate number (in Licensor's good faith judgment) of
marketing employees having appropriate experience, training and knowledge of the
Product and the Disposables, maintaining an adequate supply of Product
literature and other promotional materials, advertising and promoting the
Product (to the extent consistent with Licensor's marketing plan described
below), arranging for attendance by representatives of Licensor at professional
meetings, conventions, congresses, symposia and exhibitions at which the Product
may be displayed and treatment utilizing the Product promoted and at which
research results and other information relating to the Product intended for
distribution to professionals may be disseminated, and (subject to applicable
laws relating to referrals, payments to induce referrals and similar matters),
promoting qualified service providers that are Affiliates of Fresenius AG as
preferred providers of treatment utilizing the Product. Licensor shall focus its
marketing efforts on rheumatologists, shall provide all relevant information
with respect to prospective customers and sales of the Product and related
Disposables to Licensee and in appropriate cases, shall recommend use of
Fresenius AG equipment and related Disposables. Prior to the date of this
Agreement, Licensor has provided Licensee and Fresenius AG with a current
marketing plan with regard to the Product, a copy of which is attached to this
Agreement as Schedule G and made a part hereof. Such plan shall be subject to
revision by Licensor in its sole discretion to address developments subsequent
to the execution of this Agreement; and
(f) organize and lead activities aimed at obtaining coverage of
treatment utilizing the Product by public and private third party insurers and
providing reasonable support and assistance to efforts of Licensee's customers
and their patients to obtain coverage for treatment utilizing the Product.
6.2 Obligations of Licensee in the U.S. Territory. In connection with the
manufacture and sale of the Product and related Disposables in the U.S.
Territory, Licensee shall, and Fresenius AG shall cause Licensee to:
(a) upon acquisition of the Production Facility by Licensee pursuant to the
Asset Purchase Option Agreement and thereafter, manufacture the Product in
conformity with Licensor's specifications or in conformity with any changes to
the Product specifications, including any Improvements approved by Licensor
during the term of this Agreement in accordance with this Agreement, and in
compliance with applicable regulatory requirements, including the maintenance of
standards of facility, materials, quality control, production and safety testing
in compliance with GMP and other regulatory requirements in sufficient
quantities, and maintain sufficient inventories of related Disposables, to meet
clinical trials requirements at a cost to Licensor equal to the Cost of Goods
Sold (including the additional clinical trials to be conducted by Licensor
pursuant to Section 6.1(c) and the Clinical Trials Program described in Article
7) and, subject to Section 6.8, commercial demands in the Territory or outside
the Territory as they shall develop;
17
<PAGE>
(b) continue product development work with respect to the Product with
a view to developing Improvements that simplify the Product and treatment
procedure and decrease its manufacturing and treatment procedure costs, provided
that Licensee and Fresenius AG shall not be required to develop or implement any
Improvement which requires the filing of an amended application for pre-market
approval for the Product or which is not included in an approved budget for
Research and Development and Clinical Trials Costs and provided that any such
Improvement shall be approved by Licensor in accordance with this Agreement;
(c) to the extent permitted by applicable law, lead activities to
support and train customers in the use of the Product (regardless of whether
such customers use equipment manufactured or supplied by Licensee or Fresenius
AG), including the services of nurses and technicians or other qualified
personnel and the establishment of training programs having appropriate numbers
of qualified professional staff at a suitable number of treatment sites trained
to correctly use the Product in accordance with timetable for commercial launch
of the Product annexed hereto as Schedule D;
(d) take the lead (with appropriate assistance from Licensor) in
optimizing use of the Product in conjunction with Fresenius Parties' apheresis
equipment, including, but not limited to, improving set-up procedures, priming,
investigating flow rates, software development and automated agitation;
(e) develop custom Disposables kits to simplify treatment with the
Product on the current generation of the Fresenius Parties' apheresis equipment
and the TA Instrument referred to in subparagraph (k) of this Section;
(f) develop, test and obtain regulatory approvals for the items listed
in subsections (d) and (e) above, as they relate to the Fresenius Parties'
equipment and Disposables, as required in the U.S. Territory;
(g) take the lead efforts in making therapy utilizing the Product
available in renal dialysis centers (regardless of whether such centers are
owned or operated by, or affiliated with, Licensee or Fresenius AG, except as
otherwise set forth below), including, without limitation, cooperating with
Licensor in its efforts to obtain appropriate coverage from public and private
third party payors for treatment utilizing the Product, it being understood
that, among other matters to be taken into account in connection with such
efforts: (i) the terms and conditions to be established for such treatment in
FMC AG dialysis centers and for the sale of the Product and related Disposables
to FMC AG and its Affiliates will require the negotiation and execution of
appropriate agreements between Licensee or Fresenius AG, on the one hand, and
FMC AG or its Affiliates, on the other; (ii) FMC AG and its Affiliates are
subject to certain covenants set forth in the instruments governing outstanding
indebtedness of FMC AG and its subsidiaries requiring that transactions between
FMC AG and its subsidiaries and Affiliates of FMC AG (which term, for purposes
of such covenants, includes Licensee and Fresenius AG) be conducted on arm's-
length terms, and (iii) Licensee may focus its efforts in this area on FMC AG
renal dialysis centers but will also dedicate its efforts to
18
<PAGE>
renal dialysis centers not owned or operated by, or affiliated with, Licensee or
Fresenius AG to the extent commercially reasonable or ethically necessary or
appropriate;
(h) use its best commercial efforts to co-market, distribute and sell
the Product and related Disposables to optimize its market potential in the
Territory, which efforts shall include, but not be limited to, compliance with
the diligence obligations set forth in Schedule E hereto and maintenance of an
efficient sales and marketing organization (including, independent sales
representatives and distributors) staffed with appropriate numbers of personnel
(in Licensees' good faith judgment) possessing appropriate experience, training
and knowledge of the Product and related Disposables and equipment, developing
plans and strategies for the sale and marketing of the Product and related
Disposables in the U.S. Territory in accordance with applicable laws relating to
referrals and payment and practices related to inducing or incentivizing Product
use, maintaining an adequate stock of Product literature and other promotional
materials and arranging for attendance by representatives of Licensee at
professional meetings, conventions, congresses, symposia and exhibitions at
which the Products may be displayed and promoted and at which research results
and other information relating to the Product intended for distribution to
professionals may be disseminated. Licensee shall focus its marketing efforts on
hematologists, blood banks, other apheresis service providers and, subject to
the considerations referred to in Section 6.2(e), renal dialysis centers. Within
thirty (30) days following the date of this Agreement, Licensee shall provide
Licensor with a written marketing plan for its activities in the U.S. Territory,
which plan shall be made a part hereof. Such plan shall be subject to revision
by Licensee in its sole discretion to address developments subsequent to the
execution of this Agreement;
(i) subject to Section 6.2(a), manufacture the Product for sale to
distributors outside the Territory appointed by Licensor pursuant to Section
3.1(b) ("Licensor Distributors") in accordance with this Article 6;
(j) procure and maintain all approvals, licenses, permissions and
permits necessary for the performance of its obligations under this Agreement
(to the extent that Licensor is not expressly obligated to do so by this
Agreement) and conduct its business (I) in a manner so as not to compromise or
endanger public and/or private third party insurer coverage, (II) in compliance
with all applicable laws, rules and regulations and (III) in a manner so as not
to bring discredit upon the reputation of the Product, the Trademarks or
Licensor; and
(k) use commercially reasonable efforts to finalize and develop a next
generation apheresis instrument utilizing a plasma separation membrane
[...***...]. Such instrument shall be optimized for plasma generation for use
with the Product ("TA Instrument") and obtain appropriate Final Regulatory
Approval for the TA Instrument in
- -------------------------
* Confidential Treatment Requested
19
<PAGE>
the Territory by the end of 1999 if feasible, or if not feasible, then as
promptly as practicable thereafter, and commercialize the TA Instrument in the
Territory.
6.3 Obligations of Licensor in the Non-U.S. Territory. In connection with
development, registration, marketing and sale of the Product in the Non-U.S.
Territory, Licensor shall coordinate scientific research relating to the Product
and shall provide, with guidance from Fresenius AG, dossiers to obtain CE
registration of the Product in Europe and other necessary approvals for the
manufacture, marketing and sale of the Product in the Non-U.S. Territory.
Licensor shall also engage in such other activities to support the distribution
and sale of the Product in the Non-U.S. Territory as the parties shall agree
upon from time to time, subject to mutual agreement of the parties regarding
compensation to Licensor through appropriate adjustments to the parties' profit-
sharing arrangement hereunder.
6.4 Obligations of Licensee in the Non-U.S. Territory. In connection with
the development registration, marketing and sale of the Product and related
Disposables in the Non-U.S. Territory, Fresenius AG shall:
(a) design, implement, advance expenses for and conduct the Clinical
Trials Program for the Product in the Non-U.S. Territory in accordance with
Article 7 (the costs of which shall be included in, and which shall be conducted
in accordance with, budgets for Research and Development and Clinical Trials
Costs prepared by the Steering Committee);
(b) coordinate and fund efforts to obtain and maintain Final Regulatory
Approvals for marketing and sale of the Product in the Non-U.S. Territory,
including registering Prosorba in Europe with the CE mark under the Medical
Device Directory as far as legally possible;
(c) procure and maintain all other approvals, licenses, permissions and
permits necessary for the performance of its obligations under this Agreement
and conduct its business in a manner so as not to bring discredit upon the
reputation of the Product, the Trademarks or the Licensor; and
(d) upon receipt of Final Regulatory Approval in one or more
jurisdictions in the Non-U.S. Territory, using its best efforts to commercialize
use of the Product in the Non-U.S. Territory for rheumatology and hematology
applications and to market, distribute and sell the Product and related
Disposables in the Non-U.S. Territory, including engaging in such of the
activities described in paragraphs (d) through (h) of Section 6.2 as shall be
necessary and appropriate in the Non-U.S. Territory; provided, however, that
except as specifically provided in this Agreement, Fresenius AG shall have the
final decision with respect to all aspects of marketing, sales, and distribution
of the Product (or, if applicable, a Substitute Product) and related Disposables
in the Non-U.S. Territory. Fresenius AG shall also have the sole power to
determine, in its discretion, whether to commence to manufacture or have
manufactured the Product in the Non-U.S. Territory.
20
<PAGE>
6.5 Conditions to Rights in Additional Non-U.S. Countries.
(a) If the Fresenius Parties shall not have provided Licensor with
written notice of their commitment to make the filings required to obtain
Regulatory Clearance for the commencement of a Clinical Trials Program in Japan
by January 1, 2001, each Additional Non-U.S. Country (with the exception of
Canada) shall be deleted from the Non-U.S. Territory and, from and after such
date, the Fresenius Parties shall cease to have any rights to use, distribute or
sell the Product in any such deleted Additional Non-U.S. Country and Licensor
may exploit such rights or grant such rights to any person;
(b) If the Fresenius Parties commit, by written notice to Licensor
given prior to January 1, 2001, to make the filings required to obtain
Regulatory Clearance for the commencement of a Clinical Trials Program in Japan,
then Japan shall remain a part of the Non-U.S. Territory and be subject to the
applicable provisions of this Agreement;
(c) If the Fresenius Parties provide Licensor with written notice with
respect to Japan as set forth in subsection (b) above prior to January 1, 2001,
then the Fresenius Parties shall have until June 30, 2001 to make similar
written commitments to Licensor with respect to each other Additional Non-U.S.
Country (excluding Canada) in order for any such Additional Non-U.S. Country to
remain as part of the Non-U.S. Territory. Any Additional Non-U.S. Country
(excluding Canada) with respect to which the Fresenius Parties do not provide
written notice to Licensor by June 30, 2001 shall be deleted from the Non-U.S.
Territory and, from and after such date, the Fresenius Parties shall cease to
have any rights to use, distribute or sell the Product in such deleted
Additional U.S. Country and Licensor may exploit such rights or grant such
rights to any person.
(d) Subject to the terms and conditions of this Agreement, Licensor
shall have [...***...] from the date of this Agreement to enter into a letter of
intent with a Third Party with respect to the use, distribution and sale of
Products in Canada. If Licensor has not entered into such letter of intent by
such time or if Licensor does not enter into a definitive agreement within
[...***...] thereafter, Canada shall be deemed a part of the Non-U.S. Territory
hereunder. If Licensor enters into such letter of intent on or before the
expiration of such [...***...] period, Licensor shall provide Licensee and
Fresenius AG with written notice thereof and Canada shall be provisionally
deleted from the Non-U.S. Territory. If Licensor enters into a definitive
agreement relating to such letter of intent within [...***...] of the execution
of the letter of intent, Canada shall be deleted from the Non-U.S. Territory
and, from and after such date, the Fresenius Parties shall cease to have any
rights to use, distribute or sell the Product in Canada and Licensor may exploit
or grant such rights to any person. In no event shall Licensor be obligated to
- ----------------------------------
* Confidential Treatment Requested
21
<PAGE>
disclose the terms of any letter of intent or agreement with a Third Party
regarding the use, distribution and sale of Products in Canada.
6.6 Trademarks; Quality Control.
(a) Labeling; Ownership of Trademarks. Each Product and all labeling,
advertising and promotional material in connection therewith, shall feature the
applicable Trademarks. The ownership and use of such Trademarks shall be
governed by the following provisions:
(i) Licensor or an Affiliate of Licensor shall retain the
ownership of the entire right, title and interest in and to the Trademarks.
(ii) Licensee agrees that in using Trademarks upon the Products or
related advertising or promotional materials distributed by it under this
Agreement it will not represent in any way that it has any right or title to the
ownership of the Trademarks or the registration thereof, and the registration
will remain in the ownership of Licensor. Such Trademarks will be used by
Licensee on behalf of, and in the interest of, Licensor and Licensee, and
Licensee will first obtain the written approval of Licensor of the form and
manner in which the Trademarks will be used upon, in connection with, or in
relation to, the Products, labels, containers, advertisements and other
materials.
(iii) Licensee recognizes Licensor's title in and to the
Trademarks and to the registration thereof, and will not, at any time, do or
authorize any act or thing that will in any way impair the rights of Licensor in
and to the Trademarks and the registration thereof. Wherever Licensor's
trademarks or tradenames are used, e.g., on any package, label or advertisement,
the first or most prominent use shall always be accompanied by a legend
acceptable to Licensor indicating that the Product is an original invention of
Licensor and the trademarks and tradenames are licensed to Licensee by Licensor.
In the event that Licensee, either directly or indirectly, challenges the title
of Licensor to any Trademark or the validity of such registration obtained by
Licensor for the same, and Licensee fails to withdraw such challenge within one
(1) month of receipt of Licensor's written request therefor, Licensor shall have
the right to terminate this Agreement.
(iv) Licensee shall, upon Licensor's request, and at Licensor's
expense, assist Licensor in any action reasonably necessary or desirable to
protect the Trademarks used or proposed to be used hereunder. Licensee shall as
soon as practicable notify Licensor of any apparent infringement by a Third
Party of any of the Trademarks.
(v) After discussion and upon notice from Licensor, Licensee shall
immediately discontinue the use of any of the Trademarks upon notice from a
Third Party that such use is or is alleged to be an infringement of such Third
Party's trademark rights, unless Licensee determines that it does not wish to
discontinue use of any of the Trademarks, in which case all liability arising
out of Licensee's use of any such Trademark after such notice shall be borne by
Licensee. Any direct costs incurred by
22
<PAGE>
Licensee or Fresenius AG as a result of a notice of discontinuation that are not
otherwise included in the Cost of Goods Sold definition shall be borne by
Licensor. In the event of any such Third Party notice, and subsequent
discontinuance by Licensee, Licensee and Licensor agree to meet in good faith to
select a new Trademark acceptable to both parties to be used with the particular
Product involved.
(vi) Licensee shall only use the Trademarks with the applicable
Product hereunder.
(b) Quality Control; Legal Compliance. Licensee recognizes that the
Products are the result of original research by Licensor or its Affiliates and
that Licensor and its Affiliates have a proper concern in maintaining and
controlling the quality of Products that are publicly associated with Licensor
and its Affiliates and distributors outside the Territory. Licensee accordingly
agrees to ensure that the Products, the manufacture, use, sale and disposition
thereof, and all of Licensee's advertising and promotional materials for the
Products will comply with all applicable laws, rules and regulations. Copies of
all technical and scientific information and therapeutic claims in
advertisements, promotional practices and literature, package inserts, sales
aids, training aids, and the like used by Licensee with respect to the Products
shall be provided to Licensor. Licensor shall have the right to reject or demand
modification to such printed materials only to the extent that such materials
inappropriately describe the Product, the use of the Product or practices
related to the use of the Product, inappropriately describe or use the
Trademarks and/or fail to comply with applicable laws, rules and regulations.
Any such action shall be taken within ten (10) business days after receipt of
the materials for review from the Fresenius Parties.
6.7 Operating Procedures.
(a) Product Labeling. Each Product shall bear a label and be contained
in an outer package and/or carton and, if applicable, be accompanied by a
package insert, which label, outer package and/or carton and/or package insert
shall comply with all applicable regulatory requirements in the Territory and
shall clearly carry a legend indicating that the Product was developed as a
result of the research of Licensor. The label shall include the appropriate
patent number of the appropriate Patent in accordance with the applicable
requirements in the Territory.
(b) Reports. Licensee shall submit written reports to Licensor,
containing reasonable detail, as follows:
(i) Monthly reports of sales, by customer, with regard to the
Products in the U.S. Territory, each of which shall be delivered on the 15th day
of the month following the month to which such report relates; and
(ii) Annual marketing plans detailing Licensee's proposed marketing
strategy and tactics for the Products in the Territory during the following
year.
23
<PAGE>
6.8 Manufacture and Supply of Product.
(a) Sale and Purchase. Subject to the terms and conditions of this
Agreement and to the extent requested by Licensor, Licensee shall manufacture
(or have manufactured) and sell to Licensor and/or the Licensor Distributors,
and Licensor and/or the Licensor Distributors may, at Licensor's option,
purchase from Licensee, all of Licensor's or the Licensor Distributors'
requirements of such Products as such Licensor Distributors may desire during
the term of this Agreement, for resale and use exclusively outside of the
Territory. Licensee shall provide such Products to Licensor and the Licensor
Distributors at a price per unit of Product equal to [...***...]. All such sales
shall be FOB the Production Facility or such other manufacturing facility of the
applicable Fresenius Party. Licensee's obligation to provide Products to
Licensor or a Licensor Distributor hereunder shall be subject to Licensee's
receipt from Licensor or such Licensor Distributor of twelve-month rolling
forecasts, of which the first ninety days shall be considered firm commitments.
Licensee agrees to provide Licensor with prompt written notice in the event that
responsibility for the manufacture of Products to be supplied to Licensor or the
Licensor Distributors hereunder passes from one entity to another and to provide
Licensor, at Licensor's expense, with all reasonable assistance and cooperation
to the extent such manufacturing change affects Licensor's or the Licensor
Distributors' ability to secure and/or maintain regulatory approvals outside the
Territory. In the event that Licensee decides to market the Product bundled with
Disposables such that the market comes to expect bundling, then Licensee shall,
if requested by Licensor, supply Licensor and the Licensor Distributors with
Products on a bundled basis, if consistent with existing distribution
arrangements.
(b) Purchase Orders. To the extent that Licensor requests that Licensee
manufacture Products for sale to the Licensor Distributors as set forth in
subsection (a) above, Licensor shall, and shall direct the Licensor Distributors
to, comply with the provisions of this subsection (b). On a quarterly basis,
Licensor shall provide Licensee with a non-binding twelve (12) month rolling
forecast of Licensor's and Licensor Distributors' anticipated requirements.
Licensor and the Licensor Distributors shall order Products by submitting firm
written purchase orders to Licensee specifying the quantities of each Product
ordered and the desired shipment date for such Products. Each such purchase
order shall be submitted to Licensee at least three (3) months in advance of the
desired shipment date specified in such purchase order. Licensee shall make each
shipment of Products in the quantity and on the shipment date specified for it
on Licensor's and each Licensor Distributor's purchase order, via the mode(s) of
transportation and to the party and destination specified on such purchase
order. Licensee shall invoice Licensor and such Licensor Distributor(s) for the
aggregate purchase price of each shipment of Products at the time of such
shipment.
(c) Acceptance of Orders. Licensee reserves the right to refuse any
orders placed by Licensor Distributor(s), in whole or in part, if Licensee's
supply of raw
- ----------------------------------
* Confidential Treatment Requested
24
<PAGE>
material for Products ordered is insufficient due to circumstances beyond the
reasonable control of Licensee or Fresenius AG; provided, however, that if
Licensee refuses any order placed by Licensor Distributor(s), in whole or in
part, due to insufficiency of Licensee's supply of Products or of raw material
for Products, Licensee agrees to allocate (or cause to be allocated) available
Products or raw materials, as the case may be, as follows: first to customers or
patients then receiving treatment using the Product; second, for the Clinical
Trials Program; and third, to new customers or patients. In no event other than
circumstances beyond the reasonable control of Licensee or Fresenius AG
(including, without limitation, expiration or termination of this Agreement),
may Licensee refuse or fail to accept any purchase order or fail to fill any
purchase order of Licensor or the Licensor Distributors for any reason. Licensor
agrees that it and its Licensor Distributors' orders shall be subject to any and
all laws, executive orders, proclamations and regulations of the United States
of America, with respect to the sale of the Products, the exportation or
shipment for exportation of any merchandise or the transaction of business with
foreign countries.
6.9 Warranties.
(a) Product Warranty/Disclaimer of Warranties. Licensee warrants that
all Products manufactured and sold by Licensee (whether to an Affiliate, a
Licensor Distributor or any other Third Party) under this Agreement shall, when
they leave Licensee's possession and control, conform with the applicable
Product specifications. The Products are also warranted, as of the date of their
shipment, to be on such date not adulterated or misbranded within the meaning of
the Federal Food, Drug, and Cosmetic Act, and not articles which may not, under
the provisions of section 505 thereof, be introduced into interstate commerce.
THESE WARRANTIES ARE THE ONLY WARRANTIES MADE BY LICENSEE. LICENSEE MAKES NO
OTHER EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND FURTHER EXPRESSLY DISCLAIMS
THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE.
(b) Return of Defective Products. The Licensor Distributors may reject,
within thirty (30) days of actual receipt, any or all of a shipment of Products
that fails to satisfy any warranty in this Agreement. The Licensor Distributors'
exclusive remedy against Licensee for breach of warranty shall be the return and
replacement, at Licensee's expense, of all Products deemed by the parties to be
in breach of warranty under this Agreement. Replacement shall be made within
forty-five (45) days after Licensee's actual receipt of such defective Products
from Licensor or its Licensor Distributor, as applicable. EXCEPT PURSUANT TO
SECTION 16.6, LICENSEE SHALL NOT, IN ANY EVENT, BE LIABLE TO THE LICENSOR
DISTRIBUTORS FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
INCURRED UNDER ANY LEGAL OR EQUITABLE THEORY WITH RESPECT TO THE MANUFACTURE,
PROMOTION, USE, SALE AND/OR DISTRIBUTION OF THE PRODUCTS.
6.10 Board Representation. Following the date of this Agreement, if
requested by Fresenius AG, Licensor will take all actions required to increase
the total
25
<PAGE>
number of the Class of directors of the Licensor whose term expires in 2001 by
one and to cause a designee of Fresenius AG to be elected to fill such vacancy.
Fresenius AG's designee shall be subject to approval by Licensor, acting
reasonably and taking into account the qualifications of the designee and the
needs of Licensor, and, upon election, shall be governed by Licensor's insurance
policy for its directors and officers. In addition, if requested by Fresenius
AG, Licensor shall include such designee of Fresenius AG in the nominees for
director at the next annual meeting of Licensor at which the Class of directors
referred to in the preceding sentence shall be required to stand for election.
Fresenius AG's designee shall be subject to approval by Licensor, acting
reasonably and taking into account the qualifications of the designee and the
needs of Licensor, and, upon election, shall be governed by Licensor's insurance
policy for its directors and officers. Notwithstanding the foregoing, Licensor
shall in no event be obligated to nominate any designee of Fresenius AG at any
annual meeting of Licensor after the meeting referred to in the preceding
sentence, and all of Licensor's obligations under this Section shall terminate
automatically upon the termination or expiration of this Agreement.
ARTICLE 7
CLINICAL TRIALS PROGRAM
7.1 Development of Program. Promptly after the execution and delivery of
this Agreement, Fresenius AG shall commence the development and planning of the
Clinical Trials Program for the portion of Non-U.S. Territory comprising the
European Union, including the necessity, location, timing, scope and nature of
the trials to be conducted. To the extent practicable, the Clinical Trials
Program for the Non-U.S. Territory shall be conducted in a manner that is
compatible with the clinical trials conducted and to be conducted in the U.S.
Territory by Licensor; subject, nevertheless, to the overriding necessity to
conduct such trials in a manner that will produce results acceptable to
Territorial Regulators. In addition, Licensor shall conduct the Phase IV
Clinical Trial required by the FDA for RA.
7.2 Roles. The Clinical Trials Program in the Non-U.S. Territory shall be
conducted exclusively by Fresenius AG, subject to the information exchange
provisions of Article 8. Fresenius AG shall provide such personnel and such
advisory and support services with respect to each phase of the Clinical Trials
Program as shall be appropriate for such phase and shall use all reasonable
efforts to implement and complete the Clinical Trials Program as soon as
reasonably practicable in light of applicable regulatory requirements.
7.3 Costs; Product Supply.
(a) The costs and expenses of conducting the necessary Clinical Trials
Program and registration in the Non-U.S. Territory shall be included in budgets
for Research and Development and Clinical Trials Costs and shall be reimbursed
to Fresenius AG out of Non-U.S. Cash Flow in accordance with the terms of this
Agreement or as otherwise set forth herein; provided, however, that to the
extent that Licensee or
26
<PAGE>
Fresenius AG has not recovered by the end of the second (2nd) Contract Year
solely through the deductions from Non-U.S. Cash Flow its Research and
Development and Clinical Trials Costs relating to the Product in the Non-U.S.
Territory incurred during the first two Contract Years, then:
(i) during the third (3rd) Contract Year, up to [...***...] of
such unrecovered Research and Development and Clinical Trials Costs incurred in
the first (1st) Contract Year shall be deducted in determining U.S. Cash Flow
after the deduction of all other expenses deductible in calculating U.S. Cash
Flow; and
(ii) during the fourth (4th) Contract Year, up to [...***...] of
such unrecovered Research and Development and Clinical Trials Costs incurred in
the second (2nd) Contract Year shall be deducted in determining U.S. Cash Flow
after the deduction of all other expenses deductible in calculating U.S. Cash
Flow;
provided, however, that no such deduction in either Contract Year shall
reduce U.S. Cash Flow from such period below [...***...].
(b) The costs and expenses of conducting the Clinical Trials Program in
the U.S. Territory shall be included in budgets for Research and Development and
Clinical Trials Costs and shall be reimbursed to Licensor out of U.S. Cash Flow
in accordance with the terms of this Agreement.
(c) In the event that the Clinical Trials Program in the Non-U.S.
Territory shall commence prior to the closing of the Acquisition of the
Production Facility by Licensee, Licensor shall, until the time of such closing,
furnish to Fresenius AG at the Cost of Goods Sold such quantities of the Product
as may reasonably be required by Fresenius AG to conduct the Clinical Trials
Program in the Non-U.S. Territory during such time. Fresenius AG shall not be or
be deemed to be in breach of or default under any provision of this Agreement by
reason of any delay in performing or failure to perform any part of the Clinical
Trials Program attributable to the failure or inability of Licensor to provide
the Product to Fresenius AG for such purpose during the period prior to the
closing of the acquisition of the Production Facility by Licensee. All Product
supplied by Licensor to Fresenius AG for use in such Clinical Trials Program
shall conform to the applicable specifications for and descriptions of such
Product and shall be manufactured and labeled in accordance with applicable GMP
requirements (or such other manufacturing and quality control standards as are
applicable to investigational new medical devices).
7.4 Final Regulatory Approvals.
(a) Promptly upon conclusion of the Clinical Trials Program, Fresenius
AG shall prepare and file such applications, clinical data and other information
and documents as may be required to obtain Final Regulatory Approval for
commercial
- ----------------------------------
* Confidential Treatment Requested
27
<PAGE>
sale of the Product in one or more jurisdictions in the Non-U.S. Territory and,
thereafter, shall use all reasonable efforts to obtain Final Regulatory Approval
for commercial sale of the Product in as many jurisdictions within the Non-U.S.
Territory as is commercially practicable. The approved costs of obtaining Final
Regulatory Approval in the Non-U.S. Territory shall be included in budgets for
Research and Development and Clinical Trials Costs for the Non-U.S. Territory
and shall be reimbursed to Fresenius AG out of Non-U.S. Cash Flow in accordance
with the terms of this Agreement. Fresenius AG shall have the right to obtain
Final Regulatory Approval in all jurisdictions within the Non-U.S. Territory in
its own name and, where required by applicable law, in the name of any permitted
distributor or sublicensee of Fresenius AG, and shall own all such Final
Regulatory Approvals as are issued and all submissions as are made in connection
therewith, provided that Licensor shall have a right of reference to such Final
Regulatory Approvals and to the clinical data and other information filed with
such submissions by Fresenius AG for use by Licensor outside the Non-U.S.
Territory. Upon termination of this Agreement, except to the extent and for as
long as necessary to continue to sell the Product pursuant to Section 16.3 and
to continue to manufacture the Product pursuant to Section 16.6, Fresenius AG
shall promptly transfer to Licensor all regulatory dossiers with respect to the
Product in the Territory.
(b) In connection with the conduct of the Clinical Trial Program and
the submission of applications for Final Regulatory Approval, Fresenius AG shall
also permit Licensor (at Licensor's expense) to attend and participate in
meetings with and presentations to any Territorial Regulator for the Product in
any country in the Non-U.S. Territory for the Product (it being acknowledged by
Licensor that such meetings and presentations will be conducted in the local
language and that any translation or interpretation services required by
Licensor shall be obtained by Licensor at its expense).
7.5 Additional Clinical Investigation. In the event that notwithstanding
the commencement of commercial sale of the Product in the U.S. Territory or the
Non-U.S. Territory, Licensor, Licensee or Fresenius AG shall determine or be
requested or required by the FDA, or by a Territorial Regulator, as the case may
be, to conduct additional clinical investigations or post-marketing surveillance
with respect to the Product (or, if applicable, with respect to a Substitute
Product), the costs and expenses of conducting such additional investigations or
surveillance shall be included in budgets for Research and Development and
Clinical Trials Costs and shall be reimbursed to the party incurring such costs
out of U.S. or Non-U.S. Cash Flow, as applicable, in accordance with the terms
of this Agreement.
ARTICLE 8
INFORMATION AND REPORTS; CORRECTIVE ACTIONS
8.1 Information Disclosure. Licensor, Licensee and Fresenius AG will
disclose and make available to each other promptly the results of the work
conducted in the clinical trials conducted by them as well as all material
preclinical, clinical, regulatory, commercial and other scientific or technical
information known by Licensor, Licensee, or Fresenius AG concerning the Product,
and therapy utilizing the Product,
28
<PAGE>
during the term of this Agreement. The foregoing obligation shall be subject to
any obligations of confidentiality set forth in any agreement between Licensor,
Licensee, or Fresenius AG and a Third Party; provided, however, that (i) each
party shall use its reasonable efforts to obtain appropriate waivers of such
obligation with respect to any information relating to the safety or efficacy of
the Product and therapy utilizing the Product or that is otherwise material to
the development of a commercially viable Product, and (ii) any such information
received from a Third Party shall be subject to the confidentiality obligations
of Article 15 of this Agreement. Licensor, Licensee and Fresenius AG shall also
disclose and make available to each other all information in their possession
relating to recalls or other corrective actions either ordered by the FDA or a
Territorial Regulator or initiated by Licensor, Licensee or Fresenius AG and
which involve the safety or integrity of the Product, as well as all such
material information which they may obtain concerning the development by any
Third Party of any product that is or could be competitive with the Product. All
significant information will be disclosed to the other party promptly after it
is learned or its significance is appreciated, with due regard, nevertheless, to
the clinical significance or other materiality of the information. Each party
shall own and maintain its own database of clinical trial data and adverse drug
event information accumulated from all clinical trials of the Product for which
it was responsible. At the option of the requesting party, such data may be
provided in a computer readable format by the providing party, to the extent
available, and the providing party shall also assist in the transfer and
validation of such data to the receiving party, except that data and information
intended to be submitted to a regulatory authority and required to be submitted
in its original form shall in any event be provided in such original form. All
information disclosed pursuant to this Section that is Confidential Information
shall be subject to the limitations on disclosure and use set forth in Article
15 of this Agreement.
8.2 Adverse Events. The parties recognize that the holder of a pre-
marketing approval application or product registration for a new medical device
will be required to submit information and file reports to various governmental
agencies on devices under clinical investigation, devices proposed for
marketing, or marketed devices. Information must be submitted at the time of
initial filing for investigational use for treatment of humans and at the time
of a request for market approval of a new device. In addition, supplemental
information must be provided on devices at periodic intervals and adverse
experiences must be reported at more frequent intervals depending on the
severity of the experience. Consequently, each party agrees to:
(a) provide to the other for initial and/or periodic submission to
government agencies significant information on the Product from preclinical
laboratory studies and clinical data, as well as adverse drug experience reports
from clinical trials and commercial experiences with the Product;
(b) report in writing to the other immediately and, in any event,
within two (2) days of the initial receipt of a report of any unexpected fatal
or life-threatening experience with the Product; and
29
<PAGE>
(c) report in writing to the other within fifteen (15) days (or, within
such shorter time as shall enable the other party to comply with the reporting
requirements of any Territorial Regulator having jurisdiction over such party),
the initial receipt of a report of any adverse event involving the Product that
is serious or unexpected. Serious adverse experiences mean any experiences that
suggest a significant hazard, contraindication, side effect or precaution, or
any experience that is fatal or life-threatening, is permanently disabling,
requires or prolongs inpatient hospitalization or is a congenital anomaly,
cancer, or overdose. An unexpected adverse experience is one not identified in
nature, specificity, severity or frequency in the current investigative brochure
or the labeling for a product;
(d) require any Third Party with whom it contracts after the date
hereof for research or clinical trials to be performed by such Third Party on
the Product to report to the contracting party the information set forth in
subparagraphs (a), (b), and (c) above; and
(e) provide to the other party promptly in writing any other
information or reports within its control necessary to permit the other party to
comply with any regulatory requirement with respect to adverse experiences
relating to the Product.
The reporting and notification requirements of this Section shall be
revised from time to time as may be necessary to conform to changes in
applicable laws, rules or regulations.
8.3 Use of Information. Information contained in reports made pursuant to
this Article 8 or otherwise communicated between the parties will be
Confidential Information. A party may use any information obtained by it
pursuant to this Article solely for the purposes of regulatory compliance
relating to the Product in the U.S. Territory or the Non-U.S. Territory, as the
case may be.
8.4 Regulatory Reporting. The parties acknowledge that they will be
required to submit information and file reports with the FDA and Territorial
Regulators in addition to those contemplated by the preceding Sections. The
parties agree to cooperate with each other as necessary to allow each party to
comply with its regulatory obligations. To the extent practicable, such
procedures shall be consistent with the parties' current procedures and policies
regarding regulatory compliance.
8.5 Certain Corrective Actions. In the event that the FDA, or any
Territorial Regulator having jurisdiction shall order any change or corrective
action, including a recall, with respect to the Product as then being
manufactured, sold or distributed by a party hereto or if, notwithstanding that
any such change or corrective action shall not have been ordered, a party acting
reasonably and in good faith believes, based on appropriate expert evidence or
advice, that absent such change or corrective action it will be in violation of
a rule of law or other regulatory requirement applicable to it as the
manufacturer or distributor of the Product, the responsible product manufacturer
with respect to such Product in the relevant jurisdiction shall have sole
authority to determine
30
<PAGE>
the nature and extent of its compliance with such order or any action, including
a recall, to be taken notwithstanding the absence of any such order, as the case
may be; provided, that any such order relating to the safety or integrity of the
Product shall be resolved to the satisfaction of the regulatory authority
issuing such order; and provided, further, that such party will provide the
others with prompt written notice describing such corrective action.
ARTICLE 9
INTELLECTUAL PROPERTY FILINGS,
PROSECUTION, REGISTRATION AND MAINTENANCE
9.1 Prosecution of Registration.
(a) Throughout the term of this Agreement the Licensor shall use
reasonable efforts to prosecute and maintain the Patents in the Territory and
shall use reasonable efforts to prepare, file, prosecute and maintain in the
Territory any patents or patent applications on Improvements, the subject of
Section 4 hereof, owned by the Licensor or jointly owned by the Licensor and the
Licensee, Fresenius AG, or both, relating to the Product. This shall include
patents and patent applications or patents on Improvements relating to the
Product granted by the European Patent Office, in the national patent offices of
those countries of Europe to which such European patents apply.
(b) Throughout the term of this agreement, the Licensor shall also use
reasonable efforts to prosecute and maintain the Trademarks in the Territory and
use reasonable efforts to prepare, file, prosecute and maintain in the Territory
any new trademarks relating to the Product. Such prosecution shall be limited to
the countries listed in Schedule F hereto.
(c) Such preparation, filing, prosecution and maintenance of Sections
9.1(a) and 9.1(b) shall be at the expense of the Licensor. The Licensee and
Fresenius AG shall be kept fully informed of such preparations, filings,
prosecutions, and maintenance and, upon Licensor's request, will provide
reasonable assistance therein, at Licensor's expense for any out of pocket
expenses incurred by Licensee or Fresenius AG in providing such assistance. All
Patents and Trademarks, and all patents and patent applications on Improvements
made solely by the Licensor (other than a new patent with respect to an
Improvement developed solely by the Licensee or Fresenius AG or jointly by the
Licensee or Fresenius AG and the Licensor), shall be registered in the name of
the Licensor. The Licensor shall be kept fully informed of preparations,
filings, prosecution and maintenance relating to patent applications or patents
with respect to an Improvement incorporated in the Product developed solely by
Licensee and/or Fresenius AG. Such solely-developed patent applications or
patents for Improvements of Licensee and/or Fresenius AG shall be registered in
the name of Licensee and/or Fresenius AG, as applicable. Patent applications and
patents for jointly-developed Improvements shall be jointly owned, with each
party having an undivided interest, and registered jointly in the names of
Licensor and Licensee and/or Fresenius AG, as applicable.
31
<PAGE>
9.2 Abandonment of Patents. If the Licensor intends to dispose of or
abandon any (a) Patent, (b) right in a Patent, (c) patent application or patent
for an Improvement or (d) the right to file a patent application for an
Improvement under the Paris Convention for a foreign patent (the "Patent
Interest"), which would be covered by this Agreement, it shall notify the
Licensee and Fresenius AG of such intention and, to the extent practicable, give
them sufficient notice to permit them to take all steps necessary to preserve
such Patent Interest. Licensee and Fresenius AG shall then have the right during
the 60 day period commencing with such notification to assume any such Patent
Interest which the Licensor intends to dispose of or abandon and to undertake
the procuring or preserving of such Patent Interest to itself. Licensor will co-
operate with Licensee or Fresenius AG in such endeavor (including making an
assignment of its full right, title and interest in the Patent Interest)
provided that Licensee and Fresenius AG shall bear all the costs (including any
tax liability) in connection therewith. If Licensee or Fresenius AG intends to
dispose of or abandon any Patent Interest with respect to an Improvement
necessary to the manufacture, use or sale of the Product, it shall notify
Licensor of such intention and, to the extent practicable, give Licensor
sufficient notice to permit it to take all steps necessary to preserve such
Patent Interest. Licensor shall then have the right during the 60 day period
commencing with such notification to assume any such Patent Interest which the
Licensee or Fresenius AG intends to dispose of or abandon and to undertake the
procuring or preserving of such Patent Interest to itself. Licensee and/or
Fresenius AG, as applicable, will co-operate with Licensor in such endeavor
(including making an assignment of its full right, title and interest in the
Patent Interest) provided that Licensor shall bear all the costs (including any
tax liability) in connection therewith.
9.3 Assistance re Prosecution. Subject to Section 9.1 hereof, Licensee and
Fresenius AG shall render all reasonable assistance if so requested by the
Licensor in the prosecution of any present or future patent or trademark
applications filed under this Agreement in the Territory.
9.4 Transfer to Licensor. Should the laws or regulations of any country in
the Territory vest the Licensee or Fresenius AG with any property rights to any
of the Trademarks or Patents, or to any new patents, patent applications or
trademarks owned solely by Liecensor under Section 9.1 of this Agreement, the
Licensee and Fresenius AG shall promptly and co-operatively relinquish to the
Licensor (or, if relinquishment is not possible, grant for the life of such
Trademarks or Patents an exclusive royalty-free license to the Licensor, of) any
and all such rights upon termination of this Agreement for any reason.
9.5 No Infringement. Licensee and Fresenius AG shall not do anything to
infringe upon or contest the validity, enforceability or ownership of the
Patents or Trademarks or any new patents, patent applications or trademarks
under this Agreement, except as between the parties pursuant to Section 18.2.
9.6 Conflicting Patents or Trademarks. Licensee and Fresenius AG shall
promptly report to Licensor in writing regarding any patents, patent
applications or
32
<PAGE>
trademarks that potentially or actually conflict with the Patents or Trademarks
of which Licensee or Fresenius AG acquires actual knowledge.
9.7 Infringement of Patents or Trademarks. If the Licensee or Fresenius AG
acquires actual knowledge of any infringement of any Patent or infringement or
passing off of any Trademark in the Territory, Licensee or Fresenius AG shall
promptly notify the Licensor thereof. The Licensor shall have the first right to
bring suit against the person infringing or passing off (the "Infringer"). If
necessary to the suit or if requested so to do by the Licensor, the Licensee and
Fresenius AG agree to be joined or to join as a party in such suit. If the
Licensee or Fresenius AG elects to do so, the Licensee or Fresenius AG may be
represented in such proceedings by its own counsel at its own expense. In every
case of reported infringement or passing off, the Licensor shall be allowed a
reasonable time to investigate the alleged infringement and the advisability of
starting suit, to correspond and negotiate with the Infringer, to engage counsel
and to commence legal proceedings and/or discussions with the Infringer. In the
event the Licensor does not bring suit in any such instance within a reasonable
time and in any event within 120 days after being notified by the Licensee or
Fresenius AG of the alleged infringement or passing off, the Licensee or
Fresenius AG, or both shall have the right during the term of this agreement to
suit in its own name or, with the approval of the Licensor or if necessary to
the suit, jointly with the Licensor, for present and past infringement or
passing off. The Licensor shall be kept informed at all times of all such
proceedings taken by the Licensee or Fresenius AG. If the Licensor elects to do
so, the Licensor may be represented in such proceedings by its own counsel at
its own expense. The party bringing the action shall control the prosecution of
such proceedings and shall bear all costs incurred in connection with such
infringement and passing off of proceedings in the Territory. In the event that
any such action is successfully prosecuted against an Infringer, any damages,
accounting of profits or other recovery shall be applied first to reimburse the
parties for their respective legal expenses in connection with the prosecution,
and any remaining amounts shall then be considered Profits and shared by the
parties in accordance with Article 10. In the event that any such action is
unsuccessful the party or parties bringing the action shall be responsible for
paying any costs which may be awarded to the successful defendant.
9.8 Description as Authorized Licensee. During the term of this agreement
the Licensee and Fresenius AG are required to describe, refer to and advertise
themselves as licensees of the Licensor for the manufacture and sale of the
Product in the Territory and to mark Products with the applicable Trademark(s)
in accordance with Article 6. All written material used by Licensor with respect
to the marketing of the Products hereunder shall expressly identify Licensee as
Licensor's exclusive distributor in the Territory.
9.9 Existing Third Party Agreements. Licensor agrees not to terminate or
abandon any existing licenses from Third Parties related to the Product. Any
decision to abandon or terminate such licenses, to challenge the validity of the
patent rights covered by such licenses, or to obtain any additional Third Party
license in connection with the manufacture, use or sale of the Product shall
require the approval of the Steering
33
<PAGE>
Committee. In any litigation regarding such Third Party licenses, Licensor shall
have the first right to bring or defend suit, in accordance with Section 9.7.
ARTICLE 10
PROFIT SHARING
10.1 Profit Sharing. As consideration for the licenses granted by Licensor
under the Patents, Trademarks and Know-How, including the exclusive marketing
rights in the Territory and the ability to make Improvements (subject to the
approval rights of Licensor, as set forth in this Agreement), and in recognition
of their mutual cooperative efforts to promote sales of the Relevant Products
under this Agreement and, in Licensor's case, in lieu of any up-front payment,
running or other royalty or licensing fee, but subject to the provisions of
Article 11, the parties agree that they will share Profits from such sales in
accordance with this Article 10. Nothing in this Article 10 shall be deemed or
construed to qualify or limit the provisions of Section 19.9.
10.2 U.S. Territory. Profits in any year from sales of the Relevant
Products in the U.S. Territory will be distributed on a quarterly basis 50% to
Licensor and 50% to the Fresenius Parties, provided that in any calendar year in
which Net Sales of Products in the U.S. Territory equal or exceed [...***...],
Profits for such year shall be distributed 60% to Licensor and 40% to the
Fresenius Parties, with any such adjustment in the allocation of Profits to be
effective retroactively to January 1 of the relevant calendar year.
10.3 Non-U.S. Territory. Profits in any year from sales of the Relevant
Products in the Non-U.S. Territory will be distributed on a quarterly basis 50%
to Licensor and 50% to the Fresenius Parties.
10.4 Distribution of Net Sales and Profits.
(a) Subject to Section 2.2, until Profits are being generated from U.S.
Cash Flow under this Agreement, within 45 days following the end of each month
during which there are Net Sales in the U.S. Territory (the "Applicable Month"),
Licensee shall pay to Licensor in cash an amount equal to the following:
(i) Net Sales of Relevant Products for the Applicable Month,
multiplied by a fraction:
(1) the numerator of which is the sum of all expenses incurred
by Licensor during the Applicable Month for Cost of Goods Sold, Research and
Development and Clinical Trials Costs and all sales and marketing expenses in
the U.S. Territory (in each case, subject to the limitations on reimbursable
expenses set forth in the definition of "Cash Flow"); and
- ----------------------------------
* Confidential Treatment Requested
34
<PAGE>
(2) the denominator of which is the total expenses incurred
by Licensor and Licensee during the Applicable Month for Cost of Goods Sold,
Research and Development and Clinical Trials Costs and all sales and marketing
expenses in the U.S. Territory (in each case, subject to the limitations on
reimbursable expenses set forth in the definition of "Cash Flow").
(b) From and after the point at which Profits are being generated from
U.S. Cash Flow, within 45 days following the end of each Applicable Month,
Licensee shall pay to Licensor on a monthly basis:
(i) the sum of all expenses incurred by Licensor during the
Applicable Month for Cost of Goods Sold, Research and Development and Clinical
Trials Costs and all sales and marketing expenses in the U.S. Territory (in each
case, subject to the limitations on reimbursable expenses set forth in the
definition of "Cash Flow"); and
(ii) an amount equal to (A) 50% of Profits in the U.S. Territory
until such time as Net Sales of the Product in the U.S. Territory within a
Contract Year exceed [...***...], and (B) from such achievement forward and
retroactive to the commencement of such Contract Year, until such time, if any,
as annual Net Sales of the Product in the U.S. Territory in a Contract Year are
less than [...***...], an amount equal to 60% of Profits in the U.S. Territory.
On a quarterly basis, Licensee shall provide a reconciliation of the cash
actually distributed or received by the parties versus the expenses actually
incurred by a party that were deducted from Net Sales to determine Profits and
are reimbursable, Profit allocations set forth in Section 10.2 and the straight
cash license payments payable in accordance with Article 11. The parties shall
adjust any payments payable to Licensor during that month for any prior over- or
under-payments of such expenses and Profits for the U.S. Territory. In the
event that Licensee's average days of accounts receivable outstanding is
greater or less than sixty (60), then the parties agree that fifty (50%) of any
deviation from sixty (60) days will be added to (or deleted from as appropriate)
the forty-five (45) days payment terms for each Applicable Month; provided,
however, no such increase in the forty-five (45) day payment date shall occur
unless the corresponding increase in days of accounts receivable outstanding was
due to market conditions beyond Licensee's reasonable control.
(c) The same method used to make payments to Licensor with respect to
the U.S. Territory in Sections 10.4(a) and (b) above shall be used to make
payments to Licensor with respect to the Non-U.S. Territory, except that (i) no
sales and marketing costs of Licensor that are not approved by the Steering
Committee shall be included in such computation and (ii) Section 10.4(b)(ii)(B)
shall be inapplicable.
- ----------------------------------
* Confidential Treatment Requested
35
<PAGE>
Licensee shall maintain a separate pro-forma account for all cash received
from Net Sales in the U.S. Territory and a separate pro-forma account for all
cash received from Net Sales in the Non-U.S. Territory. No disbursements of
expenses, Profits or license payments shall be made from these accounts except
in accordance with this Agreement.
(d) In any Contract Year in which Licensee receives any Profit,
Licensor shall be reimbursed for fifty percent (50%) of the imputed interest
recovered by Licensee through the Cost of Goods Sold during any prior Contract
Years.
ARTICLE 11
LICENSE PAYMENTS
11.1 License Payments. Upon the achievement of the Net Sales amounts for
the Product set forth in this Article 11, Licensor shall be entitled to receive
from Fresenius AG, and Fresenius AG shall be obligated to pay to Licensor, the
payments set forth herein.
11.2 U.S. License Payments. License payments in respect of Net Sales of the
Product in the U.S. Territory shall be payable in cash and shall take the form
of straight cash payments, purchases of shares of Licensor's Common Stock by
Fresenius AG, or both, each as indicated below and payable in U.S. dollars. Each
of the payments and stock purchases set forth below shall be payable within
thirty (30) days following the end of the month in which each of the cumulative
Net Sales amounts specified in the following table is achieved (or at such later
date as specifically provided below):
Cumulative U.S. License Payment Amount:
Territory Net
Sales Requirement Straight Cash Stock Purchase
----------------- ------------- --------------
[...***...] [...***...] [...***...]
Net Sales of the Products in the U.S. Territory shall be determined on a
cumulative basis, commencing as of the date of this Agreement. Such payments
payable as straight cash shall be payable solely out of U.S. Cash Flow. Except
as provided in the definition of U.S. Cash Flow, payments payable as straight
cash shall be paid prior to any distribution of Profits attributable to such Net
Sales to the parties. License payments payable as the consideration for the
purchase of Licensor's Common Stock by Fresenius AG shall be payable solely out
of the Fresenius Parties' share of Profits which are (i) attributable to Net
Sales of the Relevant Products in the U.S. Territory and (ii) actually received
by the Fresenius Parties. Notwithstanding the foregoing, even if the Fresenius
Parties do not
- ----------------------------------
* Confidential Treatment Requested
36
<PAGE>
have sufficient Profits to require an applicable license payment to be made, the
Fresenius Parties, in their sole discretion, may elect to make such stock
purchase. The number of shares of Common Stock to be purchased with any stock
purchase license payment shall be determined by dividing the amount of such
payment by a per share price determined as follows:
(a) if the Fresenius Parties have received or receive distributions of
sufficient Profits to enable such license payment to be made within thirty (30)
days following the end of the month in which the relevant Net Sales requirement
is achieved, or if the Fresenius Parties have elected to purchase Common Stock
of Licensor, even though sufficient Profits are not available as contemplated
above, the per share price shall be the average of the closing sales prices of
such Common Stock during the 20-trading day period preceding the end of the
month in which the requirement was achieved; and
(b) if the Fresenius Parties have not received and do not receive
distributions of sufficient Profits to enable such license payment to be made
within thirty (30) days following the end of the month in which the relevant Net
Sales requirement is achieved, the per share price shall be the average of the
closing prices of such Common Stock over the 20-trading day period preceding the
actual purchase date, as set forth below.
In the event that U.S. Cash Flow, or the Fresenius Parties' share of Profits
from Net Sales of the Relevant Products in the U.S. Territory, as the case may
be, shall be insufficient to fund any license payment, in whole or in part,
within the 30-day period following month in which such requirement is achieved,
the amount of such unpaid license payment shall be carried over and paid to
Licensor out of the first available U.S. Cash Flow (in the case of a straight
cash license payment) or from the Fresenius Parties' share of the first
available Profits from Net Sales of the Relevant Products in the U.S. Territory
(in the case of a Common Stock purchase) actually received by Fresenius AG, in
each case until such license payment to Licensor has been made in full.
11.3 Conditions to Fresenius AG's Purchase of Common Stock with License
Payments. The obligation of Fresenius AG to purchase any shares of Common Stock
of Licensor pursuant to Section 11.2 shall be subject to the satisfaction by
Licensor or waiver by Fresenius AG of the following conditions:
(a) No law or order shall have been enacted, entered, issued,
promulgated or enforced by any governmental entity, nor shall any action have
been instituted and remain pending at the time of such purchase which prohibits
or materially restricts the stock purchase(s) contemplated by this Agreement,
and no governmental entity shall have notified any party to this Agreement that
consummation of the stock purchase(s) contemplated by this Agreement would
constitute a violation of any applicable laws, the consequence of which would be
a material adverse effect on the parties' ability to consummate and receive the
benefits of the transactions contemplated by this Agreement, and/or that it
intends to commence proceedings to restrain or prohibit such transactions or
force divestiture or rescission, unless such governmental entity shall have
withdrawn such notice and abandoned any such proceedings prior to the purchase;
37
<PAGE>
provided, however, that in the event of any such law, order, action or
notification, then any such prohibited or restricted stock purchase obligation
shall automatically and immediately convert into an obligation of Fresenius AG
to make an additional straight cash license payment to Licensor in the amount
which would otherwise have been used to purchase Common Stock of Licensor.
(b) On the date scheduled for such purchase, the Common Stock to be issued
shall have been approved for listing on the NASDAQ National Market, the NASDAQ
SmallCap Market or any national securities exchange on which the Licensor's
Common Stock is then listed, subject to official notice of issuance and, if
Fresenius AG shall be entitled to request that such Common Stock be registered
under the Securities Act of 1933, as amended, (i) Licensor shall have complied
with its obligations under the Registration Agreement of even date herewith
between Licensor and Fresenius AG and, (ii) if a registration statement
including such Common Stock shall then be effective, no stop order or order
suspending the effectiveness of such registration statement shall then be in
effect;
(c) Fresenius AG shall have received an opinion of counsel to Licensor that
the Common Stock to be issued has been duly authorized and, upon the issuance
and sale of such Common Stock against payment of the purchase price therefor,
such Common Stock will be validly issued, fully paid and non-assessable;
(d) Licensor shall have obtained and provided to Fresenius AG, in form
satisfactory to Fresenius AG, all consents, permits and approvals required to be
obtained in connection with the issuance of such Common Stock; and
(e) Licensor shall have delivered to Fresenius AG a copy of Licensor's most
recent Annual Report on Form 10-K, copies of all reports and proxy statements
filed by Licensor with the Securities and Exchange Commission pursuant to
Section 13(a), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the filing of such Annual Report, any management letter received
by Licensor from its independent accountants in connection with the audit of the
financial statements included in such Annual Report, and such information as
Fresenius AG may reasonably request with respect to the issuance of equity
securities or rights to purchase or subscribe for or securities convertible into
or exercisable or exchangeable for equity securities (including copies of any
relevant purchase agreements, rights, options, warrants and certificates of
designation).
11.4 Conditions to Licensor's Obligation to Issue Common Stock. The
obligation of Licensor to issue any shares of its Common Stock pursuant to
Section 11.2 shall be subject to the satisfaction by Fresenius AG or waiver by
Licensor of the following condition: Fresenius AG shall have delivered to
Licensor a certificate executed by a duly authorized officer of Fresenius AG
certifying that as of the date of such stock issuance, all of the
representations and warranties of Fresenius AG contained in the Securities
Purchase Agreement are true and correct in all material respects. In the event
that Fresenius AG does not deliver to Licensor such executed certificate when
due or within ten (10) business days following receipt of written notice from
Licensor to the
38
<PAGE>
effect that such certificate is due, then Fresenius AG's obligation to purchase
stock pursuant to Section 11.2 shall automatically convert to an obligation of
Fresenius AG to make an additional straight cash payment to Licensor in the
amount which would otherwise have been used to purchase Common Stock of
Licensor, which amount shall be payable solely out of U.S. Cash Flow and shall
be paid prior to any distribution of Profits from such Net Sales to Licensor and
the Fresenius Parties. In the event that U.S. Cash Flow shall be insufficient to
fund any such straight cash payment in lieu of stock purchase, in whole or in
part, the amount of such straight cash payment shall be carried over and paid to
Licensor out of the first available U.S. Cash Flow until such payment to
Licensor has been made in full.
11.5 International License Payments. License payments in respect of the Net
Sales of the Relevant Products in the Non-U.S. Territory shall be payable solely
as straight cash payments to Licensor. Each of the following license payments
shall be payable by Fresenius AG within thirty (30) days following the end of
the month in which the cumulative Net Sales amounts set forth below is achieved:
Cumulative Non-U.S. Straight Cash
Territory Net License Payment
Sales Requirement Amount
----------------- ---------------
[...***...] [...***...]
Net Sales of the Product in the Non-U.S. Territory shall be determined on a
cumulative basis, commencing as of the date of this Agreement. Such license
payments shall be payable solely out of Non-U.S. Cash Flow and shall be paid
prior to any distribution of Profits from such Net Sales to Licensor and the
Fresenius Parties. In the event that Non-U.S. Cash Flow shall be insufficient
to fund any license payment, in whole or in part, the amount of such unpaid
license payment shall be carried over and paid to Licensor out of the first
available Non-U.S. Cash Flow until such license payments to Licensor have been
made in full.
11.6 Tax Matters. Fresenius AG will use its best efforts in order to ensure
all license payments are tax free, but Licensor shall not be entitled to receive
any payments tax-free.
11.7 Organic Change. In the event of an Organic Change (as defined in the
Warrant Agreement of even date herewith) Licensor shall make appropriate
provisions to ensure that any of the license payments to be paid through the
purchase of Common Stock pursuant to Section 11.2 shall thereafter become
payments to purchase such shares
- ----------------------------------
* Confidential Treatment Requested
39
<PAGE>
of stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable if such Organic Change had not occurred.
Notwithstanding the foregoing, at the option of Licensor or the surviving entity
of such Organic Change, Fresenius AG shall make such license payment in cash
equal to one-half of the applicable stock purchase amount in lieu of purchasing
such securities.
ARTICLE 12
BOOKS, RECORDS AND REPORTS
12.1 Non-Financial Records. The Fresenius Parties shall keep at their
respective principal places of business accurate records relating to the
Product, including without limitation manufacturing records, test records and
clinical records (including adverse events) in accordance with Fresenius AG's
customary practices and applicable legal requirements. The Fresenius Parties
shall make all such records available for review at their respective offices by
Licensor's representatives, at Licensor's expense, at reasonable times and on
reasonable prior notice.
12.2 Pro-Forma Financial Records. The Fresenius Parties shall keep at their
respective principal places of business, accurate and complete pro-forma and
other financial records relating to the Product and the transactions
contemplated by this Agreement, in accordance with Fresenius AG's customary
practices and applicable legal requirements and in accordance with the cost
accounting and other procedures set forth in this Agreement. The records shall
show, without limiting the foregoing, separately for the U.S. Territory and the
Non-U.S. Territory, all Net Sales in the Territory of the Product manufactured
by or on behalf of the Licensee, as well as Cost of Goods Sold, sales and
marketing costs, Research and Development and Clinical Trials Costs, any license
payments (whether in the form of straight cash or stock purchases) which have
become payable but have been carried over due to insufficient Cash Flow or
Profits in accordance with Article 11, and quantity of Product manufactured in
the Production Facility and any other production facility, in sufficient detail
to enable the payments due under this Agreement to be correctly ascertained and
be capable of being audited by a qualified independent Third Party. In the case
of Relevant Products sold in the U.S. Territory, all pro-forma and other
financial records shall be prepared in accordance with U.S. generally accepted
accounting principles consistently applied, and, in the case of Relevant
Products sold in the Non-U.S. Territory, in accordance with generally accepted
local accounting principles applicable to Fresenius AG consistently applied in
accordance with Fresenius AG's internal accounting procedures, except that Cost
of Goods Sold shall be calculated in accordance with this Agreement. The
Licensor shall be entitled to appoint independent auditors reasonably acceptable
to the Fresenius Parties, acting reasonably, to review on an annual basis at
Licensor's cost the records for the production and sale of the Product, and the
Fresenius Parties shall give access to such records and supporting documentation
and otherwise reasonably assist in such review; provided that such right of
review shall be exercised only at a time and in a manner that does not
unreasonably interfere with or disrupt the preparation of Fresenius AG's annual
report
40
<PAGE>
and accounts; provided, further, the independent auditors shall have access only
to records and documents relating to the Relevant Products. In the event that
any such audit reveals an under-reporting of payments due under this Agreement
of 5% or more (provided that in all cases the underpayment is more than
$50,000), the full cost of the audit shall be borne by Fresenius AG. Each party
agrees to promptly pay to the other the amount of any under- or over-payments
received by such party which resulted from any misreported information
hereunder.
12.3 Statements. The Fresenius Parties shall supply the Licensor with an
annual statement prepared by Fresenius AG and certified by the Chief Financial
Officer of the I+H Division of Fresenius AG or any division of Fresenius AG to
which responsibility for this Agreement is transferred, certifying separately
for the U.S. Territory and the Non-U.S. Territory, the quantity of the Product
manufactured, the amount of Net Sales of the Product, the expenses deducted from
Net Sales to determine Profits (each of which components shall be set forth
separately on such statement) and other figures and information necessary in
determining production and sales of the Product, and the amount of any license
payments and Profits payable under this Agreement with respect to the prior
calendar year. Such annual statement and the quarterly reconciliations required
by Section 10.4 shall be furnished to Licensor in sufficient time to enable the
information set forth therein to be incorporated into or reflected in Licensor's
periodic reports to the United States Securities and Exchange Commission on a
timely basis.
12.4 Payments. All payments to be made under this Agreement shall be made
in U.S. Dollars.
12.5 [...***...] Costs. [...***...].
ARTICLE 13
REPRESENTATIONS AND WARRANTIES
13.1 By the Licensor. The Licensor hereby represents and warrants to the
Fresenius Parties as follows:
(a) Licensor has title to and ownership of or is a licensee with
respect to, in each case free and clear of encumbrances other than encumbrances
contained in the license agreements appointing the Licensor as such licensee,
the Patents, Trademarks and Know-How licensed by the Licensor to the Licensee
under this Agreement, except as disclosed to the Fresenius Parties in the
Securities Purchase Agreement, and, to the best of Licensor's knowledge, the
manufacture, sale and distribution of the Product utilizing the Patents,
Trademarks and Know-How does not infringe any intellectual property rights of
any person who has not granted Licensor a license.
- ----------------------------------
* Confidential Treatment Requested
41
<PAGE>
(b) Proper use of the Patents, Trademarks and Know-How is sufficient
for the production of the Product as constituted on the date hereof, and the
Licensor has sufficient rights to the Patents, Trademarks and Know-How
reasonably necessary for use in connection with production of the Product, the
absence of which would have a material adverse effect on this Agreement or the
transactions contemplated hereby.
(c) Except as disclosed in writing to the Fresenius Parties, there is
no pending or, to its knowledge, threatened litigation against Licensor which
alleges that Licensor's development, manufacture, use and sale of the Product
have violated or would violate any intellectual property rights of any other
person, and the Licensor has not received any written communication alleging
that the Licensor's development, manufacture or sale of the Product has violated
and has no knowledge that the Licensor's development, manufacture or sale of the
Product have violated, the intellectual property rights of any person.
(d) The Licensor has full right, power, and authority to enter into and
perform its obligations under this Agreement. This Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Licensor, and this Agreement has been duly and
validly executed and delivered by Licensor and, upon due and valid execution and
delivery by each of the other parties hereto, will constitute a legal and
binding obligation of the Licensor, enforceable against Licensor in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights generally
or by general principles of equity.
(e) The execution, delivery and performance of this Agreement by
Licensor and the consummation of the transactions contemplated hereby by
Licensor will not violate, or constitute a breach or default (whether upon lapse
of time and/or the occurrence of any act or event or otherwise) under, the
constitutive documents or by-laws of Licensor, any material contract of
Licensor, result in the imposition of any material encumbrance against any asset
or properties of Licensor (other than pursuant to this Agreement) or, to the
best of Licensor's knowledge, violate, in any material respect, any law. To the
best of Licensor's knowledge, the execution and delivery of this Agreement by
Licensor, the grant of the licenses under the Patents, Trademarks and Know-How
in accordance with the terms hereof and the consummation of any related or
contemplated transactions by Licensor will not require filing or registration by
Licensor with, the issuance of any permit or approval to Licensor by, or waiver
in favor of Licensor of any of the foregoing by, any other Third Party or
governmental entity under the terms of any applicable laws or contracts, other
than Regulatory Clearances, Final Regulatory Approvals and the filings related
thereto contemplated by this Agreement.
(f) Prior to the satisfaction of any condition to the obligation to
purchase any securities pursuant to Section 11.2, the Common Stock to be
purchased by Fresenius AG pursuant to Section 11.2 will be duly authorized by
Licensor and, upon issuance and sale of such Common Stock to Fresenius AG
against payment of the purchase price therefor as contemplated by Section 11.2,
such Common Stock will be validly issued, fully paid and non-assessable.
Assuming the continued accuracy and
42
<PAGE>
effectiveness of the representations of Fresenius AG in Sections 2 through 7 of
Article IV of the Securities Purchase Agreement, it is not necessary in
connection with the issuance of the Common Stock to be issued pursuant to
Section 11.2 to register such Common Stock under the Securities Act of 1933, as
amended, or to qualify the offer or sale of the Common Stock under the
securities or Blue Sky law of any state.
13.2 By the Fresenius Parties. Each Fresenius Party, for itself, represents
and warrants to Licensor as follows:
(a) Except as disclosed to Licensor in writing, there is no pending or,
to its knowledge, threatened litigation against such Fresenius Party which
alleges that such Fresenius Party's development, manufacture and sale of the
Product would violate any intellectual property rights of any other person.
(b) Such Fresenius Party has full right, power, and authority to enter
into and perform its obligations under this Agreement. This Agreement has been
duly authorized by all necessary corporate action on the part of such Fresenius
Party, and this Agreement has been duly and validly executed and delivered by
such Fresenius Party and, upon due and valid execution by each of the other
parties hereto, will constitute a legal and binding obligation of such Fresenius
Party, enforceable against such Fresenius Party in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally or by general
principles of equity.
(c) The execution, delivery and performance of this Agreement by such
Fresenius Party and the consummation of the transactions contemplated hereby by
such Fresenius Party will not violate, or constitute a breach or default
(whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under, the constitutive documents or by-laws of such Fresenius Party,
any material contract of such Fresenius Party, result in the imposition of any
material encumbrance against any asset or properties of such Fresenius Party or,
to the best of such Fresenius Parties' knowledge, violate, in any material
respect, any law. To the best of such Fresenius Party's knowledge, the execution
and delivery of this Agreement by such Fresenius Party and the consummation of
any related or contemplated transactions by such Fresenius Party will not
require filing or registration by such Fresenius Party with, the issuance of any
permit or approval to such Fresenius Party by, or waiver in favor of such
Fresenius Party of any of the foregoing by, any other Third Party or
governmental entity under the terms of any applicable laws or contracts, other
than Regulatory Clearances, Final Regulatory Approvals and the filings related
thereto contemplated by this Agreement.
43
<PAGE>
ARTICLE 14
INDEMNIFICATION
14.1 Indemnification for Product Liability and Similar Claims.
(a) By Licensor. Licensor hereby agrees to indemnify and hold harmless
the Fresenius Parties and their respective directors, officers, employees,
Affiliates and agents from and against all liabilities, losses, damages, costs
and expenses, including court or arbitral tribunal fees and costs, reasonable
legal fees and expenses and amounts paid in settlement as permitted hereby
(collectively, "Losses") arising out of or relating to:
(i) any claim of bodily injury or similar claims in the nature of
product liability resulting directly or indirectly from the manufacture, use,
handling, storage, sale or other disposition or shipment by Licensor of the
Product;
(ii) any claim of bodily injury or similar claims in the nature of
product liability resulting directly or indirectly from the manufacture, use,
handling, storage, sale or other disposition or shipment by the Fresenius
Parties and their respective, sublicensees, agents or distributors of the
Product unless (x) Licensee, its sublicensees, agents and distributors have not
manufactured, used, handled, stored, sold or otherwise disposed of and shipped
the Product in accordance with the manufacturing and quality control
specifications for such Product and other technical advice or information
provided to the Fresenius Parties by Licensor and all applicable laws, rules and
regulations and such injury or claim is attributable to such failure or (y)
unless that the claim or injury is attributable to any Improvement made by the
Fresenius Parties or any changes in the manufacturing or quality control
specifications made by the Fresenius Parties, either with or without the
approval of Licensor; and
(iii) any misrepresentation made by Licensor herein, or any breach
by Licensor of or failure by Licensor to perform its obligations under, this
Agreement;
(b) By the Fresenius Party. Fresenius Parties hereby agree jointly, and
severally, to indemnify and hold harmless Licensor and its directors, officers,
employees, Affiliates and agents from and against all Losses arising out of or
relating to:
(i) any claim of bodily injury or similar claims in the nature of
product liability resulting directly or indirectly from the manufacture, use,
handling, storage, sale or other disposition or shipment by the Fresenius
Parties and their respective sublicensees, agents or distributors of the Product
other than in accordance with the manufacturing or quality control
specifications for such Product in effect on the Effective Date and other
technical advice or information provided to the Fresenius Parties by Licensor
and all applicable laws, rules and regulations;
44
<PAGE>
(ii) claims arising from the sale and distribution of the Product
by the Fresenius Parties (except to the extent that Licensor is obligated to
indemnify the Fresenius Parties pursuant to Section 14.1(a) hereof); and
(iii) any misrepresentation made by a Fresenius Party herein, or
any breach by Fresenius of or failure by a Fresenius Party to perform its
obligations under, this Agreement.
14.2 Patent Indemnity.
(a) By Licensor. Licensor hereby agrees to indemnify and hold harmless
the Fresenius Parties and their respective directors, officers, employees,
Affiliates and agents from and against:
(i) all Losses (which, for all purposes of this Article 14, other
than Section 14.1, shall include any running or other royalties or other
payments, however characterized, paid under any agreement or arrangement entered
into by the Fresenius Parties, or either of them, in connection with the
settlement or other resolution of an Intellectual Property Claim (as defined
below)) arising out of or relating to any claim made at any time by any Third
Party of patent or trademark infringement or trade secret misappropriation in
the Territory ("Intellectual Property Claim") by reason of the manufacture, use,
handling, storage, sale or other disposition or shipment of the Product in the
Territory by the Fresenius Parties, their respective sublicensees, agents or
distributors utilizing or practicing the Patents, Trademarks or Know-How, which
Losses are attributable to or caused by utilization or practice of the Patents,
Trademarks or Know-How, provided that this indemnity shall not cover or apply to
any Losses attributable to changes in the form of the Product as of the
Effective Date or to any modification to the manufacturing process or the
Product made by Licensee, whether or not such modification is approved by
Licensor; and
(ii) any Losses arising out of any Intellectual Property Claim by
reason of the manufacture, use, handling, storage, sale or other disposition or
shipment of the Product in the Territory by the Fresenius Parties, their
respective sublicensees, agents or distributors utilizing any Improvement
developed by Licensor, which Losses are caused by or attributable to such
Improvement.
(b) By the Fresenius Parties. The Fresenius Parties hereby agree,
jointly and severally, to indemnify and hold harmless Licensor and its
directors, officers, employees, Affiliates and agents from and against all
Losses (which, for all purposes of this Article 14, other than Section 14.1,
shall include any running or other royalties or other payments, however
characterized, paid under any agreement or arrangement entered into by Licensor
in connection with the settlement or other resolution of an Intellectual
Property Claim) arising out of or relating to any Intellectual Property Claim by
reason of the manufacture, use, handling, storage, sale or other disposition or
shipment of the Product in the Territory by the Fresenius Parties, their
respective sublicensees, agents or distributors utilizing any Improvement
developed by a Fresenius Party or any
45
<PAGE>
changes in the manufacturing process made by any Fresenius Party, which Losses
are caused by or attributable to such Improvement.
14.3 Notice of Claim. In the event that a party entitled to indemnification
hereunder (the "Indemnified Party") shall become aware of any claim, proceeding
or other matter (a "Claim") in respect of which the other party (the
"Indemnifying Party") has agreed to indemnify the Indemnified Party pursuant to
this Agreement, the Indemnified Party shall promptly give written notice thereof
to the Indemnifying Party. Such notice shall specify whether the Claim arises as
a result of a claim by a person (a "Third Party") against the Indemnified Party
(a "Third Party Claim") or whether the Claim does not so arise (a "Direct
Claim"), and shall also specify with reasonable particularity (to the extent
that the information is available) the factual basis for the Claim and the
amount of the Claim, if known. The failure promptly to give such notice or the
failure of such notice to identify the Claim with sufficient particularity shall
not relieve the Indemnifying Party of any of its indemnification obligations
contained herein if the Indemnified Party has actually given written notice to
the Indemnifying Party and has otherwise complied with the provisions of this
Article 14 except where, and solely to the extent that, such failure actually
materially prejudices the rights of such Indemnifying Party.
14.4 Direct Claims. With respect to any Direct Claim, following receipt of
notice from the Indemnified Party of the Claim, the Indemnifying Party shall
promptly make such investigation of the Claim as is considered necessary or
desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information available to the Indemnified Party as the Indemnifying Party may
reasonably request. If both parties agree at or prior to the expiration of 30
days (or any mutually agreed upon extension thereof) following such notice to
the validity and amount of such Claim, the Indemnifying Party shall immediately
pay to the Indemnified Party the full agreed upon amount of the Claim, failing
which the matter shall be referred to arbitration as provided in Section 18.2.
14.5 Third Party Claims. With respect to any Third Party Claim, the
Indemnifying Party shall have the right, at its expense and with counsel of its
choice satisfactory to the Indemnified Party, acting reasonably, to defend and,
upon written request from the Indemnified Party, shall defend the Claim
(including the negotiation and settlement thereof). If the Indemnifying Party
elects or is required to assume such defense, the Indemnified Party shall have
the right to participate in the negotiation, settlement or defense of such Third
Party Claim and to retain separate counsel to act on its behalf, provided that
the fees and disbursements of such separate counsel shall be paid by the
Indemnified Party unless the Indemnifying Party consents to the retention of
such counsel or unless the named parties to any action or proceeding include
both the Indemnifying Party and the Indemnified Party and representation of both
the Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential conflicting interests between them
(such as the availability of different defenses). If the Indemnifying Party,
having assumed such
46
<PAGE>
control, thereafter fails to defend the Third Party Claim within a reasonable
time, the Indemnified Party shall be entitled to assume control of such defense
and the Indemnifying Party shall be bound by the results obtained by the
Indemnified Party with respect to such Third Party Claim. If any Third Party
Claim is of a nature such that the Indemnified Party is required by applicable
law to make a payment to any Third Party with respect to the Third Party Claim
before the completion of settlement negotiations or related legal proceedings,
the Indemnified Party may make such payment and the Indemnifying Party shall,
forthwith after demand by the Indemnified Party, reimburse the Indemnified Party
for such payment. If the amount of any liability of the Indemnified Party under
the Third Party Claim in respect of which such payment was made, as finally
determined, is less than the amount that was paid by the Indemnifying Party to
the Indemnified Party, the Indemnified Party shall, forthwith after receipt of
the difference from the Third Party, pay the amount of such difference, without
interest, to the Indemnifying Party.
14.6 Settlement of Third Party Claims. If the Indemnifying Party does not
elect to assume control of the defense of any Third Party Claim or, after
request by the Indemnified Party, fails to do so, the Indemnified Party shall
have (but shall not otherwise have) the exclusive right to contest, settle or
pay the amount claimed and any Losses incurred by the Indemnified Party in
connection with such contest, settlement or payment shall be conclusive as to
the existence and amount of any liability of the Indemnifying Party to the
Indemnified Party hereunder. Whether or not the Indemnifying Party assumes
control of the negotiation, settlement or defense of any Third Party Claim, the
Indemnifying Party shall not settle any Third Party Claim without the written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld or delayed; provided, however, that (a) no Indemnified Party shall be
obligated to consent to any compromise or settlement that does not provide for a
complete release of the Claim against the Indemnified Party, and (b) the
liability of the Indemnifying Party shall be limited to the proposed settlement
amount if any such consent is not obtained for any reason other than the failure
of such settlement to conform to the requirements of the preceding clause (a).
14.7 Cooperation. The Indemnified Party and the Indemnifying Party shall
co-operate fully with each other with respect to Third Party Claims, and shall
keep each other fully advised with respect thereto (including supplying copies
of all correspondence, demands, pleadings and other relevant documentation
promptly as it becomes available). The Indemnified Party and the Indemnifying
Party shall each use all reasonable efforts to mitigate Losses arising out of
any Claim for which indemnity is sought hereunder.
14.8 Insurance. Licensor and the Fresenius Parties shall each maintain fire
and extended risk insurance on their respective production facilities and
insurance against product liability and risks relating to clinical trials.
Maintenance of such insurance and the performance by a party of its obligations
under this Section 14.8 shall not relieve the party under its indemnity
obligations set out in this Agreement.
47
<PAGE>
14.9 Survival. This Article 14 shall survive any termination or expiration
of this Agreement. In addition, any matter as to which an arbitration claim has
been asserted in accordance with Article 18 that is pending or unresolved at the
end of any applicable limitation period shall continue to be covered by this
Article 14 notwithstanding any applicable statute of limitations, which shall be
tolled during the pendency of the arbitration proceeding, until such matter is
finally terminated or otherwise resolved by the parties under this Agreement and
any amounts payable hereunder are finally determined and paid.
ARTICLE 15
CONFIDENTIALITY
15.1 Maintenance of Confidentiality. Each party shall keep in strict
confidence and secrecy all of the other's Confidential Information and shall not
disclose the same to any person or firm whatsoever during the term of this
Agreement or at any time for a period of five (5) years thereafter, unless such
Confidential Information becomes public knowledge through no act or fault on the
part of such party, except that any party may disclose Confidential Information
or any part thereof:
(a) to the FDA or a Territorial Regulator in connection with the
development and implementation of the Clinical Trials Program or the conduct of
any other clinical trials, a request for Regulatory Clearance or an application
for Final Regulatory Approval, provided that each party agrees to use its
reasonable efforts to secure confidential treatment of such information;
(b) subject to the limitations set forth below, to its officers,
directors, employees and agents for the purpose of performing its obligations
hereunder; or
(c) pursuant to compulsory legal process or as may otherwise be
required by applicable law, but only after having made reasonable efforts to
secure the court's or other appropriate governmental entity's order to (i) limit
production, use and disclosure of said information for the purposes of the
proceeding and to the narrowest class of disclosure practicable under the
circumstances and (ii) hold all proceedings in camera with a sealed record.
Each party agrees to limit the above-contemplated disclosure of Confidential
Information to only those of its directors, officers, employees and authorized
agents whose need to know and whose access to such information is necessary for
the proper discharge of such party's functions and responsibilities under this
Agreement, and further agrees to take all reasonable safeguards so as to protect
the secret and proprietary nature of such information and to prevent the
unauthorized use, reproduction, disclosure or other dissemination thereof.
Prior to disclosing any Confidential Information of a party hereto, or any part
thereof to any of its authorized agents, the party intending to make such
disclosure shall obtain from each such person an agreement in which such person
agrees to keep in strict confidence and secrecy all of the information disclosed
to him or her under the provisions of this clause. Each party shall be
responsible for the disclosure of
48
<PAGE>
any Confidential Information contrary to the provisions of this Article 15 by
its directors, officers, employees and authorized agents.
15.2 Exceptions. The provisions of this Article 15 shall not apply to the
extent and upon the occurrence of any one of the following events: (a) the
information is subsequently otherwise legally acquired by a party hereto from a
Third Party whose disclosure thereof is not in any breach of any applicable
confidentiality obligation; or (b) the information is in or comes into the
public domain or is or becomes generally known in the industry otherwise than by
a breach of this Agreement or any other applicable confidentiality obligation.
In the event that any material disclosure under (a) or (b) occurs, Licensor or
the Fresenius Parties (as applicable) shall after receiving knowledge thereof
promptly notify the Fresenius Parties or Licensor (as applicable) of the
occurrence of such event.
15.3 Nondisclosure of Agreement.
(a) Each party shall obtain the prior written consent of the other
parties hereto, not to be unreasonably withheld or delayed, prior to disclosing
any material information about this Agreement. Consent shall not be required,
however, for disclosures to tax or regulatory authorities, provided, that in
connection with such disclosure, each party agrees to use its reasonable efforts
to secure confidential treatment of such information. Each party shall have the
further right to disclose the terms of this Agreement without the other parties'
prior written consent (i) as required by applicable law, including the
Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as
amended, and the rules and regulations thereunder and the rules and regulations
promulgated by the NASDAQ National Market, the NASDAQ SmallCap Market, the
Frankfurt Stock Exchange, the Dusseldorf Stock Exchange or the Munich Stock
Exchange, provided the disclosing party provides to the other party a copy of
the information to be disclosed and, subject to the remainder of this Section
15.3, an opportunity to comment thereon not less than 5 business days (or such
shorter period as may be available under applicable law) prior to such
disclosure, and (ii) to underwriters, investment, merchant or commercial
bankers, financial advisors, legal counsel and accountants in connection with
due diligence investigations or audits of the party by any such person. Any copy
of this Agreement required to be disclosed pursuant to item (a) of the preceding
sentence shall be redacted to delete Relevant Product pricing and other
Confidential Information to the maximum extent permitted by law or the rules of
the organizations referred to therein as determined by Licensor (with respect to
filings to be made by it) in its reasonable discretion without having any undue
burden or delay in preparing any confidential treatment request or receiving
confidential treatment from the U.S. Securities and Exchange Commission or by
Fresenius AG (with respect to filings to be made by it) in its reasonable
discretion without having any undue burden or delay in preparing any
confidential treatment request or receiving confidential treatment from the
German stock exchanges. If either party determines that a release of such
information to the public other than as a result of the disclosure referred to
above or to any regulatory authority is required by law it shall, to the extent
practicable in light of legal requirements relating to such release, notify the
other in writing as soon as practicable prior to the time
49
<PAGE>
of the proposed release. At the other party's request and before the release (if
time permits under applicable law), the party seeking disclosure shall consult
with the other on the necessity for the disclosure and the text of the proposed
release.
(b) In addition to the foregoing limitations on disclosure, each party
shall obtain the other parties' written consent (not to be unreasonably withheld
or delayed) prior to making or including any reference to or description of such
other parties, this Agreement, any of the Schedules hereto, the terms hereof and
thereof or the transactions contemplated hereby or thereby, in any prospectus,
offering memorandum, road show presentation, press conference or presentation to
investors or prospective investors; provided, however, that, absent any material
change in the facts or circumstances relating to the subject matter of such
disclosures, disclosures of information by a party in form and content
substantially similar to disclosures previously approved in writing by the other
parties shall not require new or additional prior written consent. The intended
press release disclosing the transactions contemplated by this Agreement, which
the parties hereby agree to, is attached hereto as Schedule H.
15.4 Compliance with Confidentiality Obligations. Each party represents and
warrants to the other that neither the execution and delivery of this Agreement
by such party nor the performance of such party's obligations hereunder does or
will conflict with or result in a breach or violation of any agreement or
undertaking of confidentiality to which such party is a signatory or by which
such party is bound.
15.5 Injunction. Each party acknowledges that any violation by it of its
obligations under this Article 15 may cause irreparable injury to the other
party for which damages may not be adequate compensation. Therefore, in
addition to all other remedies available at law or in equity, the non-violating
party will be entitled to seek injunctive relief in the event of a violation or
threatened violation of this Article 15 by the other party.
ARTICLE 16
TERM AND TERMINATION
16.1 Term.
(a) Subject to the provisions for early termination contained herein
(and, with respect to the Additional Non-U.S. Jurisdictions, subject to the
provisions of Section 6.5), this Agreement shall remain in full force and effect
until the later to occur of the 10th anniversary of the date on which Products
for RA are first sold by Fresenius AG, Licensee or their Affiliates hereunder
and (i) with respect to each country in the Territory which is a member of the
European Union or the European Economic Area and in which any Patent is
registered or has been applied for, until the date of expiration of the last of
the Patents registered or applied for in that country, (ii) with respect to each
country in the Territory which is a member of the European Union or the European
Economic Area but in which no Patent is registered or been applied for, until
the tenth anniversary of the date of the first commercial sale of the Product to
a Third Party in that country, and (iii)
50
<PAGE>
with respect to each country in the Territory which is a member of neither the
European Union nor the European Economic Area, until the date of expiration of
the last of the Patents wherever registered or applied for in any country in the
Territory.
(b) If there is an Improvement or development relating to the Product
which is the subject of a patent or patent application, then the term set out in
clauses (i), (ii) and (iii) of Section 16.1(a) with respect to a country shall
be extended as follows: (i) with respect to a country referred to in clause (i),
until the later of the term otherwise set out in clause (i) with respect to such
country or until the date of expiration of the last of such patents covering
such Improvement or development registered or applied for in such country; (ii)
with respect to a country referred to in clause (ii), until the later of the
term otherwise set out in clause (ii) with respect to such country or until the
date of expiration of the last of such patents covering such Improvement or
development registered or applied for in such country; and (iii) with respect to
a country referred to in clause (iii), until the later of the term otherwise set
out in clause (iii) with respect to such country or until the date of expiration
of the last or such patents covering such Improvement or development wherever
registered or applied for in the Territory.
(c) Upon the expiration of the term of this Agreement pursuant to
Section 16.1(a) or Section 16.1(b), this Agreement shall be automatically
renewed for successive one-year periods on the terms and conditions set forth
herein, and may be terminated upon not less than one-year's notice by Licensor
or a Fresenius Party.
16.2 Grounds for Early Termination.
(a) This Agreement and all licenses granted hereunder may be
terminated:
(i) by either Licensor or the Fresenius Parties if the other party
or parties shall have committed a "material breach or default" in the
performance of its or their obligations hereunder;
(ii) by either Licensor or the Fresenius Parties if the other
party shall discontinue business or become bankrupt or insolvent, or apply for,
or consent to the appointment of a trustee, receiver or liquidator of assets, or
seek relief under any reorganization bankruptcy, insolvency or similar law for
the aid of debtors, or take or permit to be taken any action under any such
laws; or
(iii) by the Fresenius Parties in the event of a change of control
of Licensor (which, for purposes of this Article 16, shall be defined as sale of
more than 50% of the outstanding voting securities of Licensor in one or more
related transactions) as follows: in the event that Licensor receives any
proposal of a Third Party to effect a change of control, Licensor shall provide
the Fresenius Parties with prompt written notice thereof, and the Fresenius
Parties shall have fifteen (15) days beginning on the first business day in
Germany following receipt of such notice to provide Licensor with written notice
of termination of this Agreement, contingent and effective upon the consummation
of a change of control. In the event that the Fresenius Parties do not
51
<PAGE>
provide such termination notice within such fifteen (15) day period, the
termination right set forth in this subsection (iii) with respect to such change
of control shall expire and be of no further force or effect.
(b) As used in this Agreement, a "material breach or default" shall
mean a material misstatement or omission in any representation or warranty of a
party to this Agreement or a breach or default in the performance of any
agreement, covenant or obligation of a party hereto which in any such case
(i) deprives or will deprive the other party of any material
rights or benefits conferred on, received by, or intended to be conferred on or
received by, such other party pursuant to this Agreement, or by virtue of the
collaborative efforts contemplated hereby, or
(ii) diminishes or will diminish any of such rights or benefits in
any material respect,
and which in either case continues for a period of 60 days from the date written
notice of such material breach or default is received by a party from the party
claiming the existence of such material breach or default, provided that any
payment default shall be curable within five (5) business days of a written
notice of non-payment and of termination of this Agreement from the non-
breaching party. Any late payment will bear interest from the date due until
paid in full at a rate of twelve percent (12%) per annum.
(c) The Fresenius Parties acknowledge that Licensor is making a
substantial investment of working capital and assuming substantial risk in the
commercial launch of the Product in the U.S. Territory and in the market
acceptance of the Product for RA and that such risk is disproportionate to any
financial risk being assumed by the Fresenius Parties prior to the exercise, if
ever, of its option to purchase the Production Facility. The parties further
acknowledge that they have no right to terminate this Agreement for convenience
or for any reason other than those expressly set forth in this Section 16.2.
Without limiting the generality of the foregoing, failure of the collaboration
between the parties to achieve Net Sales or Profits by any date forecasted in
any model, marketing plan or other plan or forecast prepared by either party
that is not attributable to a material breach of a covenant by the other party
shall not be grounds for termination of this Agreement, and any attempt by
either party to terminate this Agreement not in accordance with this Section
16.2 will cause the other party substantial direct and consequential damages.
16.3 Rights and Obligations Upon Termination. Upon termination of this
Agreement pursuant to Section 16.2, except as otherwise expressly set forth in
this Article 16 (including, without limitation, elsewhere in this Article 16),
the licenses and sublicenses granted in this Agreement to the Fresenius Parties
shall terminate, including all rights with respect to the Product in all
versions and with any Improvements made solely by Licensor during the term of
this Agreement granted hereunder shall terminate and the following terms and
conditions shall apply:
52
<PAGE>
(a) for a period of one-hundred eighty (180) days following
termination, the Fresenius Parties shall be permitted to continue to manufacture
Product from existing work in process and to sell existing inventory of the
Product, subject to the provisions of Articles 10 and 11, and Licensor shall
have the option to purchase any inventory of finished Products remaining in the
possession of any Fresenius Party at any time during such period at Cost of
Goods Sold, upon written notice to such Fresenius Party;
(b) except to the extent necessary to continue to sell the Product
pursuant to this Section 16.3, the Fresenius Parties shall immediately turn over
to Licensor all sales inquiries and unfilled orders;
(c) the parties shall negotiate in good faith with respect to the
assumption by the Licensor of the Fresenius Parties' obligations under any
agreements obligating them to supply Product and or related Disposables to Third
Parties;
(d) each party shall make any payments then due hereunder to the other
party that accrued prior to the effective date of termination;
(e) the Licensor shall refrain from using the Confidential Information
of the Fresenius Parties and the Fresenius Parties shall refrain from using the
Confidential Information of the Licensor, in each case for the period specified
in Section 15.1 hereof;
(f) the Fresenius Parties shall cease using the Patents, Know-How and
Trademarks in the Territory and shall deliver to the Licensor the Patents, Know-
How and rights to Trademarks, except to the extent that any of such matters are
required to be retained by the Fresenius Parties for the purposes of Section
16.3(a) above or Section 16.6 below, and; provided, however, that if applicable
law or any regulation of any country in the Territory vests the Fresenius
Parties with any property rights to any of the Patents or Trademarks, the
Fresenius Parties shall, at Licensor's expense, co-operatively relinquish to the
Licensor (or, if such relinquishment is not possible, grant to the Licensor, for
the life of such Trademarks or Patents (including any Improvements), an
exclusive royalty-free license for) any and all such rights; and
(g) subject to Section 6.8 hereof, the parties shall negotiate in good
faith with respect to the acquisition by Licensor of Regulatory Clearances and
Final Regulatory Approvals for the Product in the Non-U.S. Territory and the
consideration payable to the Fresenius Parties therefor.
16.4 Certain Rights Upon Expiration or Termination.
(a) The Licensor acknowledges that the Fresenius Parties shall have the
right to continue to manufacture, have manufactured, use, distribute and sell
the Product upon expiration of the term of this Agreement specified in Section
16.1, subject, however, to the payment to Licensor of a commercially reasonable
Trademark royalty to be negotiated in good faith by the parties to the extent
the Fresenius Parties desire to continue using the Trademark(s). The Fresenius
Parties acknowledge that the Licensor
53
<PAGE>
shall have the right to manufacture, have manufactured, use, distribute and sell
the Product in the Territory upon the expiration of the term of this Agreement
specified in Section 16.1.
(b) In the event that Licensor has obtained one or more licenses from
Licensee or Fresenius AG under any Improvement(s) pursuant to Section 4.2 above,
such licenses shall survive any termination or expiration of this Agreement.
While it is Licensee's intent to enable Licensor to make or have made Product
incorporating such Improvement(s) in the event of expiration or termination of
this Agreement, Licensor acknowledges that Licensee and Fresenius AG shall not
be obligated to license such Improvements to Licensor if:
(i) It is deemed by Licensee and Fresenius AG, in its good faith
judgment, that the technology embodied in such Improvement is integral to its
core business of the I+H Division and is not effectively protected by patents or
patent applications; and
(ii) Licensee is willing to provide long-term supply of Product to
Licensor and the Licensor Distributors in accordance with Section 16.6.
16.5 Survival of Certain Rights and Obligations. The rights and obligations
of the parties under the following provisions of this Agreement shall survive
the expiration or any termination hereof:
(a) Section 8.2 with respect to notification of adverse drug events;
(b) Article 15 for the period set forth in Section 15.1.
(c) Article 12 (excluding Section 12.3 thereof with respect to periods
after the expiration or termination of this Agreement), provided that the right
of access provided in Section 12.1 shall be limited to the records relating to
Product manufactured at the Production Facility or at any other production
facility utilized while this Agreement was in effect;
(d) Article 14;
(e) Section 18.2 with respect to arbitration of any claims of non-
performance of a party's obligations prior to expiration or termination of this
Agreement or under any surviving provision referred to in this Section;
(f) Article 17 with respect to obligations of Licensee under surviving
provisions specified in this Section 16.5;
(g) Article 9;
(h) Article 10 (to the extent that the Fresenius Parties are entitled
to continue selling existing inventory of Products after termination in
accordance with this Agreement);
54
<PAGE>
(i) Article 11 (to the extent of any license payment carry-overs
permitted by this Agreement and/or to the extent that the Fresenius Parties are
entitled to continue selling existing inventory of Products after termination in
accordance with this Agreement);
(j) Section 16.6;
(k) any payment obligation hereunder accruing prior to expiration or
termination; and
(l) any other provision of this Agreement which states that it survives
the expiration or termination of this Agreement.
16.6 Post-Termination Supply Obligations. Upon termination of this
Agreement for any reason, other than by Fresenius AG pursuant to Section
16.2(a)(i) or (ii), if the Fresenius Parties have exercised their option to
purchase the Production Facility, the Fresenius Parties shall be obligated to
continue to supply to Licensor and to all Licensor Distributors all of their
requirements of Products (in the form that such Product was commercialized at
the time of the termination, subject to any changes in the Product
specifications or manufacturing or quality control procedures required under
applicable law) for the period beginning on the effective date of termination of
this Agreement and ending on the date Licensor or its Licensor Distributors
shall have built or acquired a replacement manufacturing facility capable of
manufacturing the Product and obtained all regulatory clearances necessary in
order to manufacture the Product in the form then in patient use for commercial
distribution ("Terminating Event"). The Fresenius Parties shall be required to
continue to manufacture the Products in accordance with the manufacturing and
supply terms set forth in this Agreement, including meeting all market demand
through any necessary scale-up of manufacturing operations or other ongoing
capital investment even if the Fresenius Parties could achieve a better rate of
return or avoid losses by using its manufacturing capacity or its capital in
other ways. Prior to commencing such scale-up, Licensor will commit either to
(i) purchase a commercially reasonable quantity of Product for a commercially
reasonable period of time taking into account the nature and scope of the
requested scale-up or (ii) finance the cost of such scale-up on commercially
reasonable terms. All Product, and related Disposables, shall be supplied in
accordance with Sections 6.7 through 6.9. Licensor shall be under no obligation
to build or acquire any replacement manufacturing facility or to incur any
expense to redesign the Product or any manufacturing process necessary for the
production of the Product due to the inability of Licensor to use any
Improvement owned by the Fresenius Parties that the Fresenius Parties refuse to
license on a royalty-free or de minimis royalty basis. If the Fresenius Parties
desire to terminate the manufacturing and supply arrangement hereunder, the
Fresenius Parties shall give Licensor thirty-six (36) months' prior written
notice and shall pay Licensor a cash amount equal [...***...].
- -------------------
* Confidential Treatment Requested
55
<PAGE>
If Licensor desires to terminate the manufacturing supply arrangement hereunder,
it shall give the Fresenius Parties twelve (12) months prior written notice and
shall continue to purchase Product exclusively from the Fresenius Parties during
such twelve (12) month period. The Fresenius Parties acknowledge that Licensor
may have ongoing ethical obligations to supply Product following termination of
the supply arrangement hereunder and that, in any event, Licensor would be
irreparably harmed if the Fresenius Parties discontinued the supply of Product
prior to the Terminating Event. In the event of a breach by the Fresenius
Parties of their obligations under this Section 16.6, the damages set forth
above would not be adequate to compensate Licensee.
ARTICLE 17
GUARANTY
In order to induce Licensor to enter into this Agreement and grant the
Licenses and rights granted to Licensee hereunder, Fresenius AG hereby
unconditionally, irrevocably and absolutely guaranties, as primary obligor and
not merely as surety, the due and punctual performance and payment in full of
all Obligations (as hereinafter defined) when the same shall be required to be
performed or become due hereunder. The term "Obligations" includes any an all
obligations of Licensee now or hereafter made, incurred or created, whether
absolute or contingent, liquidated or unliquidated, and however arising under or
in connection with this Agreement. Fresenius AG waives any right to (a) require
Licensor to proceed against Licensee; or (b) pursue any other remedy Licensor
may have whatsoever. Fresenius AG further agrees to pay all costs and expenses,
including, without limitation, attorneys' fees and related costs, at any time
paid or incurred by Licensor in endeavoring to enforce this guaranty. This
guaranty is absolute and unconditional and shall not be affected by any act or
thing whatsoever, except as expressly provided herein. This guaranty is not an
accommodation, but rather a material consideration bargained for by Licensor in
agreeing to enter into the transactions contemplated by this Agreement. No
modification or amendment of any provision of this guaranty shall be effective
unless in writing and subscribed by a duly authorized officer of Licensor. If
any provision of this guaranty or portion of such provision, or the application
thereof to any person or circumstance, shall, to any extent, be held invalid or
unenforceable, the remainder of this guaranty or the remainder of such provision
and the application thereof to other persons or circumstances, other than those
as to which it is held invalid or unenforceable, shall not be affected thereby,
and each term and provision of this guaranty shall be valid and enforced to the
fullest extent permitted by the law. Fresenius AG waives all defenses to
payment or performance available to guarantors or sureties by virtue of being
guarantors or sureties and that are not otherwise available to the primary
obligor.
In its performance of the foregoing guaranty, Fresenius AG shall be
subject to all of the obligations of Licensee and Fresenius AG shall be entitled
to assert any facts or circumstances constituting a material breach of this
Agreement by Licensor
56
<PAGE>
or which would constitute a legal or equitable discharge of any Obligation of
Licensee hereunder. The foregoing notwithstanding, Fresenius AG shall not be
released or discharged from this guaranty by reason of any sublicensing,
subcontracting or assignment permitted by this Agreement and, upon any such
event, this guaranty shall continue in full force and effect.
ARTICLE 18
GOVERNING LAW; DISPUTE RESOLUTION
18.1 Governing Law. This Agreement, the legal relations between the parties
and any claim instituted by any party with respect to matters arising under or
in connection with or in respect of this Agreement, including but not limited to
the negotiation, execution, interpretation, coverage, scope, performance,
breach, termination, validity, or enforceability of this Agreement, shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to conflicts of law doctrines, except (a) to the extent that
matters relating to the internal affairs and corporate status of the parties are
governed as a matter of controlling law by the law of the jurisdiction of
incorporation of the parties, and (b) if any issue is to be determined by
reference to the interpretation of GMP or other regulatory requirements in any
country in the Territory and there is a conflict between the interpretation of
GMP or such other regulatory requirements under New York law and the laws of
such country, GMP or such other regulatory requirements shall be construed and
interpreted in accordance with the law of such country. The parties expressly
exclude the United Nations Convention on the International Sale of Goods.
18.2 Arbitration. (a) Except as provided in Section 14,4 or Section 18.3, a
party asserting the existence of any dispute or controversy arising out of or in
connection with this Agreement (a "Dispute"), including any Dispute relating to
the existence, materiality or cure of a claimed material breach, shall notify to
the other parties to this Agreement in writing of the existence and subject
matter of the Dispute. For a thirtyday period following such notification, the
parties shall meet and negotiate in good faith to attempt the resolve the
Dispute and shall escalate the dispute to the Chief Executive Officer of
Licensor and the President of the I+H Division of Fresenius AG if resolution is
not made within fifteen days. If such efforts do not resolve the Dispute within
such thirty-day period, or if a Direct Claim is subject to arbitration pursuant
to Section 14.4, the Dispute or Direct Claim shall be referred to and finally
resolved by arbitration under the rules of the American Arbitration Association,
and except (i) as provided in Section 18.3 or, (ii) for proceedings commenced to
enforce an arbitration award, each party hereby irrevocably waives its right to
commence any proceeding in any court with respect to any matter arising under
this Agreement. Unless the parties otherwise agree, the tribunal shall consist
of three arbitrators, two of whom shall be appointed by the respective parties
and the third arbitrator shall be appointed jointly by the first two. The place
of arbitration shall be New York, New York or such other location as the parties
shall agree. The language of the arbitration shall be English. The parties shall
be entitled to conduct discovery, which shall be limited by the arbitrators as
to both time and scope
57
<PAGE>
in order to minimize expense and adverse impact on the operations of the
parties. No arbitrator shall be an Affiliate, employee, officer or director of
either party or of their respective Affiliates, nor shall any Arbitrator have
any interest that would be affected in any material respect by the outcome of
the Dispute or Direct Claim. The decision of the arbitrators shall be final and
binding on the parties and their respective successors and assigns. The decision
shall not be subject to appeal or judicial review except in circumstances of
fraud. The prevailing party in any such arbitration shall be entitled to recover
reasonable fees of attorneys and other professionals in addition to all court
costs and arbitrator's fees which that party may incur as a result. Judgment
upon the award granted by the arbitrator(s) may be entered in any court having
jurisdiction over the relevant party or its assets.
18.3 Enforcement. It is expressly agreed that a party will or would suffer
irreparable injury if the other party were to commit any action in violation of
Article 15, Section 16.3(a)(vi) or Section 16.6 (but only in the case of breach
by the Fresenius Parties) of this Agreement and/or fail to perform its or their
obligations under such provisions, that money damages would be insufficient to
remedy such injury, and that the party affected by or threatened with any such
violation or non-performance shall, by reason of such violation or non-
performance be entitled, in addition to any remedy available at law, to
injunctive relief, specific performance or other equitable relief from a court
of appropriate jurisdiction requiring the cessation or cure of any such actual
or threatened violation or non-performance. Each party consents and stipulates
to the entry of such injunctive relief, specific performance or other equitable
relief in such a court against any such actual or threatened violation or non-
performance.
ARTICLE 19
MISCELLANEOUS
19.1 Force Majeure. In the case of Force Majeure preventing or hindering
either party from performing its obligations under this Agreement or under the
post-termination supply obligations contemplated by Section 16.6, except for the
obligation to make payments when due, the party prevented or hindered from
performing (the "Affected Party") may give written notice to the other (the
"Non-Affected Party") containing reasonable particulars of the Force Majeure in
question and the effect of such Force Majeure as it relates to the obligations
of the Affected Party, and such Force Majeure shall not constitute a default
under this Agreement, provided that the Affected Party works diligently to
correct the reason for such delay, excuses performance by the Non-Affected Party
during the period for such delay and reimburses the Non-Affected Party for any
Losses incurred by the Non-Affected Party by reason of such delay. For the
purpose of this Agreement, "Force Majeure" shall mean any of the following
events beyond the control of the Affected Party:
(a) lightning, storms, earthquakes, landslides, floods, washouts and
other acts of God;
58
<PAGE>
(b) substantial or material fires, explosions, breakage of or accidents
to plant, machinery, equipment and storage of the Affected Party;
(c) strikes, lockouts or other industrial disturbances of the Affected
Party;
(d) civil disturbances, sabotage, war, blockades, insurrections,
vandalism, riots, epidemics;
(e) inability to obtain supplies necessary to manufacture the product
at the Production Facility or inability to obtain transportation or electric
power, water, fuel or other utilities, or services necessary to operate the
Production Facility; and
(f) any similar material event that is beyond the reasonable control of
the Affected Party;
but shall not include the inability of either party to obtain financing or any
other financial inability on the part of either party.
19.2 Notices.
(a) Any notice or other documents required or permitted to be given
under this Agreement shall be in writing and shall be delivered, mailed by
prepaid registered mail, return receipt requested, or sent by telecopy addressed
to the party to whom it is to be given at the address shown below or at such
other address or addresses as the party to whom such writing or document is to
be given shall have last notified the other party in accordance with the
provisions of this Section:
If to Licensor, to it at:
Cypress Bioscience, Inc
4350 Executive Drive, Suite 325
San Diego, CA 92121
Attn: President
Telecopy No.: (619) 452-1222
With a copy to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
Attn: Barbara Borden, Esq.
Telecopy No.: (619) 453-3555
59
<PAGE>
If to Fresenius AG, to it at:
Fresenius Aktiengesellschaft
Adsorber Technology Division
Attn: Mr. Stefan Schulze
Frankfurther Str. 6-8
D-66606 St. Wendel
Germany
Telecopy No.: 011-49-6851-807444
With copies to:
Fresenius Aktiengesellschaft
Law Department
Attn: Roland Kirsten
If by mail: 61346 Bad Homburg v.d.H.
Germany
If by delivery: Else-Kroner Strasse 1
61352 Bad Homburg
Germany
Telecopy No.: 011-49-6172-608-2251
and to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
New York, New York 10022-4611
Attn: Ulrich Wagner, Esq.
Telecopy No.: (212) 326-2061
and if to Licensee, to it at:
Fresenius Hemotechnology, Inc.
110 Mason Circle, Suite A
Concord, CA 94520-1238
Attn: President
With copies to Fresenius AG and O'Melveny & Myers LLP at their
respective addresses set forth above.
(b) Any such notice or other document shall:
(i) if delivered in person, be deemed to have been received at the
place of receipt on the date of delivery, provided that if such date is a day
other than a
60
<PAGE>
business day in the place of receipt, such notice or document shall be deemed to
have been given and received at the place of receipt on the first business day
thereafter in the place of receipt;
(ii) if transmitted by telecopy, be deemed to have been received at the
place of receipt on the next business day in the place of receipt, following the
day of sending; and
(iii) if mailed, be deemed to have been received at the place of
receipt on the date which is 5 business days after the date of mailing.
19.3 Attorneys' Fees. In the event of any action for the breach of this
Agreement or misrepresentation by any party, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and expenses incurred in such
action, in addition to any other relief to which such party shall be entitled.
19.4 Assignment. Except as provided in Section 3.3 with respect to
sublicensees and distributors, neither this Agreement nor any of the rights or
duties of the parties hereunder shall be Assigned, transferred or conveyed by a
party by operation of law or otherwise. Notwithstanding the foregoing, this
Agreement may be assigned to a purchaser of the entire business or substantially
all of the assets of Fresenius AG's I+H Division, without the prior written
consent of Licensor, provided that the purchaser assumes in writing all of the
obligations of Fresenius AG and Licensee hereunder. In addition, notwithstanding
the foregoing, this Agreement may be assigned by Licensor to an Affiliate of
Licensor or to a purchaser of all or substantially all of the assets of Licensor
relating to the Product, provided that such purchaser assumes in writing all of
the obligations of Licensor hereunder, and may be transferred by Licensor by
operation of law in connection with a change of control of Licensor through a
tender offer, merger, sale of equity securities or other similar transaction,
subject only to the early termination provision set forth in Section
16.2(a)(iii) of this Agreement. Neither this Agreement nor any rights of a
party hereunder shall enure to the benefit of any trustee in bankruptcy,
receiver, creditor, liquidator or trustee of the business of such party without
the prior written consent of the other party, which such other party may grant
or withhold in its sole discretion. Except as provided in this Section or as
referenced herein, no party shall delegate duties of performance or assign, in
whole or in part, rights or obligations under this Agreement without the prior
written consent of the other party, and any attempted delegation or assignment
without such written consent shall be void and of no force or effect. Subject
to the restrictions contained in the preceding sentence, this Agreement shall be
binding upon the successors and assigns of the parties.
19.5 Entire Agreement. This Agreement, together with the Securities
Purchase Agreement, the Asset Purchase Option Agreement, and the following
additional agreements, each of even date herewith, between Licensor and
Fresenius AG or from Licensor to Fresenius AG:
(a) Warrant to Purchase 400,000 Shares of Common Stock of Licensor;
61
<PAGE>
(b) Registration Agreement;
(c) Master Agreement among Licensor, Licensee and Fresenius AG;
(d) Promissory Note;
(e) Security Agreement;
constitute the entire agreement between the parties relating to the subject
matter hereof and thereof and supersede all prior or contemporaneous agreements
and understandings of the parties in connection therewith, including but not
limited to the Letter of Intent dated January 20, 1999 among Licensor, Licensee
and Fresenius AG and the Confidentiality Agreement dated June 17, 1998 between
Fresenius AG and Licensor.
19.6 Modification and Amendment. Neither this Agreement nor any of the
terms hereof or any exhibit hereto may be terminated, amended, supplemented,
waived or modified orally, but only by an instrument in writing signed by the
parties hereto. No failure on the part of either party to exercise, no delay in
exercising, no partial exercise of, and no course of dealing with respect to,
any right, power or privilege under this Agreement shall operate as a waiver
thereof.
19.7 Headings. The descriptive headings of the Articles, Sections and
Sections of this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
19.8 Telecopy; Counterparts. This Agreement and any amendment hereto or any
other agreement (or document) delivered pursuant hereto may be executed by
telecopy, in one or more counterparts, and by different parties in separate
counterparts. All of such counterparts shall constitute one and the same
agreement (or other document) and shall become effective (unless otherwise
provided therein) when one or more counterparts have been signed by each party
and delivered to the other party. Any execution by telecopy shall be followed
promptly by the delivery of signed original counterparts to the party or parties
receiving the telecopy.
19.9 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable, the remaining provisions of this Agreement to
the extent permitted by law shall remain in full force and effect. In the event
of any such determination, the parties agree to negotiate in good faith to
modify this Agreement to fulfil as closely as possible the original intent and
purposes hereof. To the extent permitted by law, the parties hereby to the same
extent waive any provision of law that renders any provision hereof prohibited
or unenforceable in any respect
19.10 Scope of Authority and Relationship. The relationship between the
Fresenius Parties and Licensor is that of independent contractors and neither
this Agreement nor any act of the parties hereunder or in accordance herewith
creates or shall create any relationship of agency, master and servant,
employment, partnership, or joint venturers between the parties hereto or
between a party and the employees of the other. Neither the Fresenius Parties
nor Licensor shall act or attempt to act, or represent itself,
62
<PAGE>
directly or by implication, as agent, joint venturer, partner or representative
of the other or in any manner assume or attempt to assume or create any
obligation or liability of any kind, nature or sort, express or implied, on
behalf of or in the name of the other.
19.11 Cost of Operations. Except as expressly provided herein, all costs
and expenses of whatever kind or nature incurred by either party hereto in the
conduct of its operations or the performance of its responsibilities in
connection with or pursuant to this Agreement shall be for the account of and
shall be paid by such party, and such party shall not be entitled to
reimbursement therefor from the other party hereto, whether upon the expiration
or earlier termination of this Agreement or otherwise.
19.12 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer or shall confer upon any persons other than the parties
hereto any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement, other than rights of indemnity under Article 14 in
favor of the persons named therein.
19.13 Performance by Subsidiaries. Each party agrees to cause its
subsidiaries to comply with any obligations hereunder relating to such
subsidiaries and to cause its subsidiaries to take any other action which may be
necessary or reasonably requested by the other party in order to consummate the
transactions contemplated by this Agreement
19.14 Further Assurances. Each of the parties covenants and agrees that it
and its successors and permitted assigns will execute such further reasonable
documents and do and perform or cause to be done and performed such further and
other reasonable acts as may be necessary or desirable from time to time in
order to give full effect to the provisions of this Agreement.
19.15 Official Language. The parties understand and agree that this
document has been prepared only in the English language and that the English
language is the official language of this Agreement. No party to this Agreement
will assert or allege that it did not understand each and every term of this
Agreement.
63
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their respective
authorized officers to execute and deliver this Agreement as of the date first
above written.
CYPRESS BIOSCIENCE, INC.
By: /s/ Jay D. Kranzler
---------------------------
Jay D. Kranzler, M.D.
President and Chief Executive Officer
FRESENIUS AKTIENGESELLSCHAFT
By: /s/ Rainer Baule
---------------------------
Rainer Baule
President, Intensive Care and
Hemotechnology Division
Member of the Managing Board
By: /s/ Stefan Schulze
---------------------------
Stefan Schulze
Executive Vice President
FRESENIUS HEMOTECHNOLOGY, INC.
By: /s/ Dale Richardson
---------------------------
Dale Richardson
President
64
<PAGE>
Exhibit 10.2
ASSET PURCHASE OPTION AGREEMENT
BY
AND
AMONG
FRESENIUS HEMOTECHNOLOGY, INC.,
FRESENIUS AKTIENGESELLSCHAFT
(as guarantor of Fresenius Hemotechnology, Inc.)
AND
CYPRESS BIOSCIENCE, INC.
Dated as of March 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS.
1.1 Definitions.............................................................................................. 1
1.2 Interpretation........................................................................................... 8
ARTICLE 2 GRANT OF OPTION FOR PURCHASE OF ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED TRANSACTIONS.
2.1 Grant and Exercise of Option............................................................................. 8
2.2 Purchase and Sale of Assets.............................................................................. 9
2.3 Assumption of Certain Liabilities........................................................................ 11
2.4 Purchase Price and Allocation............................................................................ 12
2.5 Payment of Purchase Price................................................................................ 13
2.6 Expiration of Option..................................................................................... 13
2.7 Post Closing Adjustment.................................................................................. 13
ARTICLE 3 CLOSING.
3.1 Closing Date............................................................................................. 14
3.2 Items to be Delivered at the Closing By Seller........................................................... 14
3.3 Items to be Delivered at the Closing by Buyer............................................................ 15
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER.
4.1 Organization; Authorization.............................................................................. 16
4.2 No Conflicts............................................................................................. 16
4.3 Purchased Assets......................................................................................... 16
4.4 Financial Information.................................................................................... 17
4.5 Certain Taxes............................................................................................ 17
4.6 Assumed Contracts........................................................................................ 17
4.7 Tangible Property........................................................................................ 17
4.8 Legal Proceedings........................................................................................ 18
4.9 Insurance................................................................................................ 18
4.10 Permits.................................................................................................. 18
4.11 Regulatory Compliance.................................................................................... 19
4.12 Labor, Employment and Employee Benefit Matters........................................................... 19
4.13 No Brokers or Finders.................................................................................... 20
4.14 Environmental Compliance................................................................................. 20
4.15 Year 2000 Compliance..................................................................................... 21
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER.
5.1 Organization and Related Matters......................................................................... 21
5.2 Authorization............................................................................................ 21
5.3 No Conflicts............................................................................................. 21
5.4 No Brokers or Finders.................................................................................... 21
ARTICLE 6 COVENANTS WITH RESPECT TO CONDUCT PRIOR TO CLOSING.
6.1 Access................................................................................................... 22
6.2 Material Adverse Changes................................................................................. 22
6.3 Conduct of Operations.................................................................................... 22
6.4 Notification of Certain Matters.......................................................................... 24
6.5 Permits and Approvals.................................................................................... 24
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
Page
<S> <C> <C>
6.6 Third Party Consents..................................................................................... 24
6.7 Certain Filings.......................................................................................... 24
6.8 Environmental Due Diligence.............................................................................. 24
6.9 Management Agreement..................................................................................... 25
6.10 Amendment of Lease....................................................................................... 25
6.11 WARN Act................................................................................................. 25
ARTICLE 7 ADDITIONAL CONTINUING COVENANTS.
7.1 Employment Matters....................................................................................... 25
7.2 Proration Payments....................................................................................... 26
ARTICLE 8 CONDITIONS OF PURCHASE.
8.1 General Conditions....................................................................................... 26
8.2 Conditions to Obligations of Buyer....................................................................... 27
8.3 Conditions to Obligations of Seller...................................................................... 28
ARTICLE 9 TERMINATION OF OBLIGATIONS; SURVIVAL.
9.1 Termination of Agreement................................................................................. 28
9.2 Effect of Termination.................................................................................... 29
ARTICLE 10 INDEMNIFICATION.
10.1 Obligations of Seller.................................................................................... 29
10.2 Obligations of Buyer..................................................................................... 30
10.3 Notice of Claim.......................................................................................... 30
10.4 Direct Claims............................................................................................ 30
10.5 Third Party Claims....................................................................................... 30
10.6 Settlement of Third Party Claims......................................................................... 31
10.7 Cooperation.............................................................................................. 31
10.8 Survival................................................................................................. 31
10.9 Not Exclusive Remedy..................................................................................... 32
ARTICLE 11 GENERAL.
11.1 Modification and Amendment............................................................................... 32
11.2 Schedules; Exhibits; Integration......................................................................... 32
11.3 Arbitration.............................................................................................. 32
11.4 Governing Law............................................................................................ 33
11.5 Assignment............................................................................................... 33
11.6 Headings................................................................................................. 33
11.7 Telecopy; Counterparts................................................................................... 33
11.8 Publicity and Reports.................................................................................... 34
11.9 Confidentiality.......................................................................................... 34
11.10 Third Parties............................................................................................ 34
11.11 Notices.................................................................................................. 34
11.12 Expenses................................................................................................. 36
11.13 Waiver................................................................................................... 36
11.14 Attorneys' Fees.......................................................................................... 36
11.15 Representation By Counsel; Interpretation................................................................ 36
11.16 Severability............................................................................................. 36
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
Page
<S> <C> <C>
11.17 No Consequential Damages................................................................................. 36
11.18 Further Assurances....................................................................................... 37
11.19 Official Language........................................................................................ 37
</TABLE>
-iii-
<PAGE>
DRAFT
EXHIBITS
--------
Exhibit A Bill of Sale and Assignment
Exhibit B Assignment of Leases
Exhibit C Assignment of Contracts
Exhibit D Assumption Agreement
SCHEDULES
---------
Schedule 1.1A Facility
Schedule 1.1B Leased Real Property
Schedule 2.2(a) Purchased Assets
Schedule 2.2(a)(v) Assumed Contracts
Schedule 2.2(b) Excluded Assets
Schedule 2.3(b)(ii) Assumed Liabilities
Schedule 4.7(a) Encumbrances
Schedule 4.7(b) Leased Real Property
Schedule 4.8 Legal Proceedings
Schedule 4.9 Insurance
Schedule 4.10 Approvals and Permits
Schedule 4.12(a) Employment Matters
Schedule 4.12(b) Employee Benefit Plans
Schedule 4.14 Environmental Matters
-iv-
<PAGE>
ASSET PURCHASE OPTION AGREEMENT
THIS ASSET PURCHASE OPTION AGREEMENT (this "Agreement") is made and entered
into as of March 26, 1999 by and among CYPRESS BIOSCIENCE, INC., a Delaware
corporation ("Seller"), FRESENIUS HEMOTECHNOLOGY, INC., a Delaware corporation
("Buyer"), and FRESENIUS AKTIENGESELLSCHAFT, a German corporation and the parent
of Buyer ("Fresenius AG"), as guarantor of Buyer's obligations hereunder (as set
forth herein).
W I T N E S S E T H
WHEREAS, Fresenius AG, Seller and Buyer have entered into a Master
Agreement dated as of March 4, 1999 (the "Master Agreement"), which contemplates
that the parties will enter into a series of agreements in connection with
certain related transactions, as more particularly provided therein;
WHEREAS, Seller has developed a Product (as defined herein) for the
treatment of certain immune disorders through extra-corporeal filtration of
human plasma;
WHEREAS, Seller leases and operates facilities in Redmond, Washington
(collectively, the "Facility") for the manufacture of the Product; and
WHEREAS, in reliance upon the representations, warranties and covenants of
Seller set forth herein, Buyer desires to acquire an option to purchase the
Facility and the Purchased Assets (as defined herein) from Seller and, upon
exercise of such option, to assume certain liabilities, and Seller is willing to
grant such option to Buyer, all as more fully set forth herein.
NOW THEREFORE IN CONSIDERATION of the mutual promises and covenants
contained in this agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions.
As used in this Agreement and the Exhibits and Schedules delivered
pursuant to this Agreement, the following definitions shall apply.
"Action" means any action, complaint, investigation (of which Seller has
actual knowledge), petition, suit or other proceeding, whether civil or
criminal, in law or in equity, or before any arbitrator or Governmental Entity.
"Affiliate" means a Person that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
a specified Person.
"Agreement" has the meaning set forth in the Preamble hereto.
1
<PAGE>
"Approval" means any approval, authorization, consent, qualification or
registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice, statement or other communication required to be filed with
or delivered to, any Governmental Entity or any other Person.
"Associate" of a Person means:
(a) a corporation or organization (other than a party to this Agreement) of
which such person is a director, an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities;
(b) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
capacity; and
(c) any relative or spouse of such person or any relative of such spouse.
"Assumed Contracts" has the meaning set forth in Section 2.2(a).
"Assumed Liabilities" has the meaning set forth in Section 2.3(b).
"Auditors" means Ernst & Young LLP, independent public accountants to
Seller.
"Basic Price" means (a) $3,300,000 plus (b) the product of $100,000 times
the number of days between the date of execution of this Agreement and March 31,
1999 divided by 31, minus (c) if the Closing Date occurs prior to December 31,
----------
1999 the product of the number of calendar months (including any fraction of a
calendar month) between the Closing Date and December 31, 1999 times $100,000.
The forgoing notwithstanding, if the Closing Date occurs after December 31,
1999, the Basic Price shall be $2,400,000, without adjustment.
"Buyer" has the meaning set forth in the Preamble hereto.
"Claim" has the meaning set forth in Section 10.3.
"Closing" means the consummation of the transaction contemplated by this
Agreement.
"Closing Date" means, for purposes of this Agreement, the date fixed as the
Closing Date in Buyer's notice of exercise delivered pursuant to Section 2.1
(b), or such other date as shall be fixed by the parties for the Closing.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Company Reports" has the meaning set forth in the Securities Purchase
Agreement.
"Contract" means any arrangement, bond, commitment, franchise, indemnity,
indenture, instrument, lease (including any real estate lease), license or
understanding, whether or not in writing.
2
<PAGE>
"Cost of Goods Sold" has the meaning set forth in the License and
Distribution Agreement.
"Direct Claim" has the meaning set forth in Section 10.3.
"Dispute" has the meaning set forth in Section 11.3.
"EMF Lease" means the sublease for certain office space and storage space
at Redmond, Washington, between Seller and EMF.
"Encumbrance" means any claim, charge, lease, covenant, easement,
encumbrance, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"Environmental Claim" means any investigation, notice, notice of violation,
claim, action, suit, proceeding, demand, abatement order or other order or
directive (conditional or otherwise), by any governmental authority or any other
Person, arising (i) pursuant to or in connection with any actual or alleged
violation of any Environmental Law, (ii) in connection with any Hazardous
Materials or any actual or alleged Hazardous Materials Activity, or (iii) in
connection with any actual or alleged damage, injury, threat or harm to health,
safety, natural resources or the environment.
"Environmental Consultant" shall have the meaning set forth in Section
6.10.
"Environmental Expenses" has the meaning set forth in Section 10.1(f).
"Environmental Laws" means all Laws relating to pollution, the protection
of safety, human health or the environment, including, but not limited to, any
requirement pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of materials that are or may constitute
a threat to human health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
(S) 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. (S)
-------
1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et
------- --
seq.), the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the
- ---- -------
Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15
-------
U.S.C. (S) 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. (S) 300f et
------- --
seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), and
- ---- -------
the Atomic Energy Act (42 U.S.C. (S) 2011 et seq.), as such laws have been
-------
amended or supplemented, and each similar federal, state or local statute, and
each rule and regulation promulgated under such federal, state and local laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related regulations and published interpretations.
"ERISA Controlled Group" has the meaning set forth in Section 4.15(b).
3
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning set forth in Section 2.2(a).
"Excluded Liabilities" has the meaning set forth in Section 2.3(a).
"Expiration Date" means December 31, 2000.
"Facility" has the meaning set forth in the Recitals hereto, as described
on Schedule 1.1A.
"FDA" means the United States Food and Drug Administration.
"Fresenius Parties" means Fresenius AG and Buyer.
"Furniture and Equipment" means all equipment (including movable
equipment), vehicles, furniture or furnishings that are held or used by Seller
in or ancillary to the Operations (other than Excluded Assets), including all
such equipment, vehicles, furniture or furnishings that have been fully
depreciated for accounting purposes.
"GAAP" means generally accepted accounting principles in the United States,
as in effect from time to time.
"GMP" means, (i) with respect to the United States, the code of
manufacturing practices known from time to time as Current Good Manufacturing
Practices publishing the FDA, and (ii) with respect to any jurisdiction within
the Non-U.S. Territory, any comparable manufacturing code, rule, regulations or
practices published by the Territorial Regulator for such jurisdiction.
"Governmental Entity" means any government or any agency, bureau, board,
directorate, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the related regulations and published
interpretations.
"Hazardous Material" means (i) any chemical, material or substance at any
time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic
pollutant", "contaminant", "restricted hazardous waste", "infectious waste",
"toxic substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or the
indoor or outdoor environment (including harmful properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive
toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iv) any flammable substances or
explosives; (v) any radioactive materials; (vi) any asbestos-containing
materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment
which contains any oil or dielectric fluid containing polychlorinated biphenyls;
(ix) pesticides;
4
<PAGE>
and (x) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority pursuant to
Environmental Laws.
"Hazardous Materials Activity" means any past, current, or threatened
activity, event or occurrence involving any Hazardous Materials, including the
use, manufacture, possession, storage, holding, presence, existence, location,
Release, threatened Release, discharge, placement, generation, transportation,
processing, construction, treatment, abatement, removal, remediation, disposal,
disposition or handling of any Hazardous Materials, and any corrective action or
response action with respect to any of the foregoing.
"Hazardous Materials Claim" has the meaning set forth in Section 10.1(f).
"Hired Employee" has the meaning set forth in Section 7.2(b).
"Historical Financial Information" has the meaning set forth in Section
4.4(a).
"Indemnifiable Claim" means any Loss for or against which any party is
entitled to indemnification under this Agreement.
"Indemnified Party" has the meaning set forth in Section 10.3.
"Indemnifying Party" has the meaning set forth in Section 10.3.
"Information Systems and Equipment" means all computer hardware, firmware
and software, as well as other information processing systems, or any equipment
containing embedded microchips, whether directly owned, licensed, leased,
operated or otherwise controlled by Seller or any of its Affiliates, including
through third-party service providers, and which, in whole or in part, are used,
operated, relied upon, or integral to, the Operations.
"Inventory" has the meaning set forth in Section 2.2(a).
"IRS" means the Internal Revenue Service or any successor entity.
"Know-How" has the meaning set forth in the License and Distribution
Agreement.
"Law" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"Leased Real Property" means all real property subject to a leasehold or
subleasehold estate located, held or used in or ancillary to the Operations and
described on Schedule 1.1B hereto.
"License and Distribution Agreement" means the License and Distribution
Agreement of even date herewith by and among Buyer, Seller and Fresenius AG.
"Line of Credit" means the credit extended by Fresenius AG to Seller on the
date of this Agreement and from time to time thereafter pursuant to the
promissory note in the form annexed to the Master Agreement.
5
<PAGE>
"Loss" means any demand, claim, Action, loss, damage, liability, penalty,
Tax, cost or expense.
"Master Agreement" has the meaning set forth in the Recitals hereto.
"Non-U.S. Territory" has the meaning set forth in the License and
Distribution Agreement.
"Operating Losses" has the meaning set forth in Section 2.7.
"Operations" means the operation of the Facility by Seller for the
manufacture of the Product.
"Option" means the option to acquire the Facility and the Purchased Assets
granted to Buyer by Seller pursuant to this Agreement.
"Order" means any decree, injunction, judgment, order, ruling, assessment
or writ from any Governmental Entity.
"Patents" has the meaning set forth in the License and Distribution
Agreement.
"Permit" means any license, permit, franchise, certificate of authority, or
order, or any waiver of the foregoing, required to be issued by any Governmental
Entity.
"Person" means an association, a corporation, an individual, a partnership,
a trust or any other entity or organization, including a Governmental Entity.
"Plans" has the meaning set forth in Section 4.15(a).
"Prepaid Expenses" has the meaning set forth in Section 2.2(a).
"Product" has the meaning set forth in the License and Distribution
Agreement.
"Purchase Price" has the meaning set forth in Section 2.4.
"Purchased Assets" has the meaning set forth in Section 2.2(a).
"Real Property" means all Purchased Assets consisting of real property,
appurtenances thereto, rights in connection therewith, and any interest therein,
including without limitation leasehold estates.
"Remedial Work" has the meaning set forth in Section 6.11.
"Repayment Note" means a promissory note of Seller to the order of
Fresenius AG having an initial principal amount equal to the principal amount
outstanding under the Line of Credit on the Expiration Date minus $1,000,000,
maturing on the third anniversary of the Expiration Date, payable in 12 equal
quarterly installments of principal, together with interest on the unpaid
principal balance at 8.5% per annum, and secured by the same collateral as the
Line of Credit.
6
<PAGE>
"Retirement Plans" has the meaning set forth in Section 4.15(g).
"Returns" has the meaning set forth in Section 4.6(a).
"Security Agreement" means the Security Agreement of even date herewith in
the form annexed to the Master Agreement.
"Securities Purchase Agreement" means the Securities Purchase Agreement of
even date herewith between Seller and Fresenius AG.
"Seller" has the meaning set forth in the Preamble hereto.
"Steering Committee" means the Steering Committee established pursuant to
the License and Distribution Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"Tax" means any foreign, federal, state, county or local income, sales and
use, excise, franchise, real and personal property, transfer, gross receipt,
capital stock, production, business and occupation, disability, employment,
payroll, severance or withholding tax or charge imposed by any Governmental
Entity, any interest and penalties (civil or criminal) related thereto or to the
nonpayment thereof, and any Loss in connection with the determination,
settlement or litigation of any tax liability.
"Tax Return" means a report, return or other information required to be
supplied to a Governmental Entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities.
"Termination Date" means the specific date first set forth in Section 9.1.
"Territory" has the meaning set forth in the License and Distribution
Agreement.
"Territorial Regulator" means, with respect to any jurisdiction within the
Territory, the agency or organization performing functions and having authority
comparable to the functions and authority of the FDA with respect to the
authorization of the testing and marketing of medical devices or biological
products.
"Third Party" has the meaning set forth in Section 10.3.
"Third Party Claim" has the meaning set forth in Section 10.3.
7
<PAGE>
"Trademarks" has the meaning set forth in the License and Distribution
Agreement.
"Transaction Proposal" has the meaning set forth in Section 6.12(b).
"U.S. Territory" has the meaning set forth in the License and Distribution
Agreement.
"Year 2000 Compliant" means that all Information Systems and Equipment
accurately process and will accurately process date data (including, but not
limited to, calculating, comparing and sequencing), before, during and after the
year 2000, as well as same and multi-century dates, or between the years 1999
and 2000, that when used in combination with, or interfacing with, other
Information Systems and Equipment, shall accurately accept, release and exchange
date data, and shall in all material respects continue to function in the same
manner as it performs as of the date hereof and shall not otherwise impair the
accuracy or functionality of Information Systems and Equipment or have a
material adverse effect on the conduct of the Operations.
1.2 Interpretation. For all purposes of this Agreement, except as
otherwise expressly provided,
(a) the terms defined in this Article I have the meanings assigned to them
in this Article I and include the plural as well as the singular,
(b) all accounting terms not otherwise defined herein have the meanings
assigned under United States generally accepted accounting principles,
(c) all references in this Agreement to designated "Articles," "Sections"
and other subdivisions are to the designated Articles, Sections and other
subdivisions of the body of this Agreement,
(d) pronouns of either gender or neuter shall include, as appropriate, the
other pronoun forms,
(e) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision, and
(f) all references to "$" or "dollars", shall refer to U.S. dollars.
ARTICLE 2
GRANT OF OPTION FOR PURCHASE OF ASSETS, ASSUMPTION OF LIABILITIES
AND RELATED TRANSACTIONS
2.1 Grant and Exercise of Option
(a) Grant and Exercise of Option. Subject to the terms and conditions of
this Agreement, Seller hereby grants to Buyer an option (the "Option") to
acquire the Purchased Assets and the Facility for the Purchase Price. The Option
shall be exercisable at any time
8
<PAGE>
commencing on the date of FDA pre-market approval for the Product for treatment
of rheumatoid arthritis and until the Expiration Date.
(b) Manner of Exercise. If Buyers wishes to exercise the Option, Buyer
shall deliver written notice to such effect to Seller in the manner provided for
the delivery of notices pursuant to this Agreement. Such notice shall specify a
Closing Date for the consummation of the purchase and sale of the Purchased
Assets, which date shall be not less than 30 days following the date on which
such notice is delivered by Buyer. Subject to the provisions of Article 8 and
Article 9, any such notice shall be irrevocable.
2.2 Purchase and Sale of Assets.
(a) Purchased Assets. Subject to the terms and conditions of this
Agreement, upon exercise of the Option by Buyer, on the Closing Date, Seller
shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall
purchase, acquire and accept from Seller, all of the assets, properties, rights,
privileges, claims and contracts of every kind and nature, real and personal,
absolute or contingent, wherever located, owned or leased by Seller at the
Closing Date and held or used in connection with the Operations (the "Purchased
Assets"), except the assets specifically identified in Section 2.2(b) (the
"Excluded Assets"). The Purchased Assets shall include, but shall not be
limited to, the items set forth on Schedule 2.2(a), attached hereto and
incorporated herein by reference, except as changed by assets acquired or
disposed of in accordance with Section 6.3 after the date hereof, and also shall
include the following:
(i) Leasehold title to the Leased Real Property;
(ii) All fixtures and improvements attached to any Real Property in
which Seller has a leasehold interest.
(iii) All Furniture and Equipment.
(iv) Buyer will purchase all inventory of usable goods relating to
the manufacture of the Product, including all merchandise, finished goods,
work-in-process, stores and supplies as of the Closing Date (the
"Inventory") as follows:
(A) Finished goods up to a quantity equal to the actual sales for the four
(4) month period ending on the last day of the month immediately preceding the
month in which the Closing Date occurs valued at Cost of Goods Sold as defined
in the License and Distribution Agreement.
(B) Finished goods in excess of four (4) month's inventory at Seller's book
value calculated in accordance with GAAP and consistent with Seller's historical
practices.
(C) Work-in-process up to a quantity equal to the forecasted net sales over
the next four (4) months (with such forecast subject to review and approval by
the Steering Committee) valued at Sellers book value.
(D) Work-in-process in excess of the four (4) month forecast valued at book
value less twenty percent (20%).
9
<PAGE>
(E) Stores, supplies and raw materials valued at the lower of cost or book
value, determined in accordance with GAAP consistent with Seller's past
practices.
(v) To the extent permitted by Law (and other than as included in
"Excluded Assets" below), all of Seller's rights and interests arising
under or in connection with Contracts to which Seller is a party and which
relate to the Operations or other documents relating to the Operations,
each as set forth on Schedule 2.2(a)(v), excluding the Strahilevitz
Agreement and the D&N Associates Agreement, as such terms are defined in
the License and Distribution Agreement (collectively, the "Assumed
Contracts").
(vi) Seller's prepaid expenses and all charges, deposits, sums and
fees made by Seller as of the date hereof, including utility deposits, each
as set forth on Schedule 2.2(a) ("Prepaid Expenses"), excluding, however,
Seller's letter of credit posted in connection with its sublease of the
Facility, together with any additions thereto and subject to any reductions
therefrom made or accrued by Seller in operating the Operations in the
ordinary course and in compliance with Section 6.3 hereof after the date
hereof through the Closing Date.
(vii) All Permits and Approvals required for the manufacture of
the Product at the Facility, each as set forth on Schedule 2.2(a), to the
extent assignable.
(viii) To the extent permitted by Law (and other than as included
in "Excluded Assets" below), all business and financial records, including
all supplier and vendor lists, personnel records, files, books and
documents relating to the Operations and all rights thereto.
(ix) Any software used at the Facility for or in connection with the
manufacture of the Product.
(x) All other assets and property of any kind used at the Facility
for or in connection with for the manufacture of the Product.
(b) Excluded Assets. The assets that constitute Excluded Assets shall
include only the items set forth on Schedule 2.2(b) and the following:
(i) The consideration delivered to Seller pursuant to this
Agreement, and all cash and cash equivalents of Seller.
(ii) Seller's accounts receivable.
(iii) Provider numbers and government payor agreements.
(iv) Corporate minute books and Tax Returns.
(v) The Patents, Trademarks and Know-How.
10
<PAGE>
(vi) All FDA pre-market approvals and applications with regard to the
Product and other Permits and Approvals related to the marketing of the
Product in the U.S. Territory.
(vii) Rights of Seller under this Agreement and any pre-Closing
causes of action relating to the operation of the Operations.
(viii) Loans, guarantees and extensions of credit, as well as
commitments to make loans, guarantees and extensions of credit, to or for
the benefit of any Affiliate, director, officer, employee, stockholder or
any of their respective Associates or Affiliates.
(ix) Investments in other Persons.
(x) Corporate and trade names of Seller.
(xi) All goodwill of Seller.
(xii) All equipment used solely for the manufacture of Seller's
product Cyplex, as set forth on Schedule 2.2(b).
2.3 Assumption of Certain Liabilities.
(a) Liabilities Not Assumed. Except for the liabilities and obligations
specifically assumed pursuant to and identified in Section 2.3(b) below, Buyer
shall not assume, shall not take subject to and shall not be liable for, any
liabilities or obligations of any kind or nature, whether absolute, contingent,
accrued, known or unknown, of Seller or any Affiliate of Seller (the "Excluded
Liabilities") including, but not limited to, the following:
(i) Any liabilities or obligations incurred arising from or out of or
in connection with Seller's operations, the condition of its assets or
places of business, its ownership of the Purchased Assets, or the issuance,
sale, repayment or repurchase of any of its securities prior to the Closing
Date.
(ii) Any liabilities or obligations incurred, arising from or out of,
in connection with or as a result of claims made by or against Seller
whether before or after the Closing Date that arise out of events prior to
the Closing Date, including any and all liabilities or obligations relating
to investigations by any Governmental Entity.
(iii) Any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of any alleged or actual defect in
any Product or in connection with any alleged or actual breach of warranty
(whether expressed or implied) in relation to any Product sold or
manufactured by Seller prior to the Closing Date.
(iv) Any liabilities or obligations (whether assessed or unassessed)
of Seller for any Taxes arising from the conduct of the Operations prior to
the Closing Date.
(v) All fees and expenses of Seller in connection with the
transactions contemplated herein.
11
<PAGE>
(vi) Any liabilities or obligations to former or current officers,
directors, employees or Affiliates of Seller, including without limitation
any liabilities or obligations of Seller in connection with any employee
benefit plans or collective bargaining, labor or employment agreement or
other similar arrangement or obligations in respect of retiree health
benefits.
(vii) Any liabilities or obligations to any stockholders or former
stockholders of Seller.
(viii) Any liabilities or obligations of Seller incurred, arising
from or out of or in connection with this Agreement.
(ix) All indemnification obligations of Seller relating to acts or
omissions prior to the Closing Date.
(x) Any liabilities relating to any noncompliance with applicable
healthcare laws or regulations which relate to the Operations prior to the
Closing Date.
(xi) Any liabilities or obligations relating to Excluded Assets.
(xii) The EMF Lease and any liabilities under the EMF Lease
including, without limitation, rent, additional rent and charges or
penalties for any early termination of the EMF Lease.
(b) Assumed Liabilities. Notwithstanding Section 2.3(a), on the Closing
Date, Buyer shall assume only those liabilities and obligations (the "Assumed
Liabilities"):
(i) arising under the assigned leases for Seller's Leased Real
Property and the Assumed Contracts with respect to events, facts and
circumstances occurring on or after the Closing Date or accruing on or
after the Closing Date and all obligations to pay deposits or other
security for such leases.
(ii) relating to certain current operating expenses of the Operations
incurred in the ordinary course of Operations consistent with past practice
which are not included in Seller?s Cost of Goods Sold (as defined in the
License and Distribution Agreement) at the Closing Date, but which would be
included in Buyer's Cost of Goods Sold (as defined in the License and
Distribution Agreement) after the Closing Date, as set forth on Schedule
2.3(b)(ii).
(iii) relating to Buyer's use of the Purchased Assets and
operation of the Facility on or after the Closing Date.
2.4 Purchase Price and Allocation.
(a) Purchase Price. Subject to Section 2.4(b), the total purchase price
(the "Purchase Price") to be paid to Seller by Buyer at the Closing for the
Purchased Assets shall be the assumption of the Assumed Liabilities by Buyer,
plus an amount equal to the sum of (i) the Basic Price, (ii) Seller's Inventory
as of the Closing Date, valued in accordance with Section
12
<PAGE>
2.2(a)(iv), (iii) the aggregate amount advanced by Fresenius AG under the Line
of Credit after the date hereof for capital expenditures at the Facility, and
(iv) Seller's Prepaid Expenses. For purposes of the foregoing determination, if
Buyer and Seller do not agree on the Closing Date Inventory Value, they will
seek the input of a mutually appointed public accounting firm.
(b) Allocation. On or prior to the Closing Date, Buyer and Seller shall
agree upon and set forth in a Schedule the allocation of the Purchase Price
among the Purchased Assets at fair market value. Buyer and Seller agree that
each of them shall report the transactions contemplated by this Agreement for
income tax purposes in accordance with the Schedule described in this Section
2.4(b), pursuant to Section 1060 of the Code and the regulations thereunder, and
agree not to take, in any filing with or accompanying any Tax Return reporting
any part of the transaction undertaken herein, or in filing or books and records
for corporate or accounting purposes, a position inconsistent with such
allocations.
2.5 Payment of Purchase Price.
(a) On the Closing Date, Buyer shall pay the Purchase Price by an offset of
the Purchase Price against Seller's obligation to Fresenius AG under the Line of
Credit, and:
(i) if the Purchase Price exceeds the aggregate principal amount
outstanding on the Closing Date under the Line of Credit, Buyer shall pay
such excess to Seller by wire transfer of such amount in immediately
available funds to an account designated by Seller for such purpose; or
(ii) if the aggregate principal amount outstanding on the Closing
Date under the Line of Credit exceeds the Purchase Price, Seller shall pay
such excess to Fresenius AG (or, upon the instructions of Fresenius AG to
Buyer) by wire transfer of such amount in immediately available funds to an
account designated by Fresenius AG (or Buyer, as the case may be) for such
purpose.
(b) Notwithstanding the provisions of Section 2.5(a), Buyer may elect to
pay all or any portion of the Purchase Price to Seller in cash and the balance,
if any, through set off against Seller's obligations under the Line of Credit.
In the event Buyer elects to make any such cash payment, Seller shall
immediately pay to Fresenius AG an amount equal to the amount, if any, by which
such cash payment exceeds the amount, if any, due to Seller pursuant to Section
2.5(a)(i).
2.6 Expiration of Option. In the event that Buyer shall not have
exercised the Option on or prior to the Expiration Date, the Option and this
Agreement shall terminate except for the provisions of this Agreement which
survive such termination pursuant to the express terms hereof. Upon such
termination, Seller shall deliver to Fresenius AG, in full satisfaction of
Seller's payment obligations under the Line of Credit, the Repayment Note.
2.7 Post Closing Adjustment
(a) Seller acknowledges that Operating Losses with respect to the Facility
incurred during 1999 shall be borne by Seller. In the event that (i) the
Closing Date occurs on or
13
<PAGE>
prior to December 31, 1999 and (ii) Seller in good faith believes that the
Operating Losses required to be borne by Seller exceed the difference between
the Basic Price and $2,400,000, Seller may request that the Steering Committee
consider whether, in light of the facts and circumstances (including the amount
of the excess) and other equitable considerations, the Purchase Price should be
increased by all or any part of such excess Operating Losses. Any such request
may be submitted to the Steering Committee prior to the Closing Date for
consideration prior to the Closing Date and may be submitted to the Steering
Committee no later than the 90/th/ day after the Closing Date, whose decision
with respect to such requested Purchase Price increase shall be final.
(b) As used in this Agreement "Operating Losses" shall mean, all losses
incurred by Buyer in the operation of the Facility and the Operations between
the Closing Date and December 31, 1999.
ARTICLE 3
CLOSING
3.1 Closing Date. Upon the terms and subject to the conditions set
forth in this Agreement, the Closing of the transaction shall take place at the
offices of [O'Melveny & Myers LLP, 153 East 53rd Street, New York, New York,
10022], on the Closing Date, or at such other location or time as Seller and
Buyer may agree in writing.
3.2 Items to be Delivered at the Closing By Seller. At the Closing,
Seller shall deliver or cause to be delivered to Buyer:
(a) A Bill of Sale and Assignment, in substantially the form of Exhibit A;
(b) For each Lease with respect to the Facility, an Assignment and
Assumption of Lease, in substantially the form of Exhibit B;
(c) An Assignment of Contracts, in substantially the form of Exhibit C;
(d) An Assumption Agreement, in substantially the form of Exhibit D;
(e) Copies of resolutions duly adopted by Seller, authorizing and approving
Seller's performance of the transactions contemplated hereby and the execution
and delivery of this Agreement and the documents described herein, certified as
true and of full force and effect as of Closing, by the appropriate officers of
Seller;
(f) A certificate of Seller certifying that the conditions set forth in
Section 8.2 have been satisfied;
(g) Certificates of incumbency for the respective officers of Seller
executing this Agreement and any other agreements or instruments contemplated
herein as of the Closing Date;
14
<PAGE>
(h) Certificates of existence and good standing of Seller from its state of
organization and the state in which the Facility is located dated the most
recent practical date prior to Closing;
(i) The opinion of Seller's counsel as provided by Section 8.2 hereof;
(j) With respect to the Purchased Assets, a recent UCC lien search showing
no liens on any fixtures attached to any of the Purchased Assets except for
liens under the Security Agreement, Liens which shall be released at or prior to
Closing Liens securing capitalized lease obligations included in the Assumed
Contracts or, if Buyer elects to assume Seller's indebtedness to Silicon Valley
Bank, the Liens securing such indebtedness;
(k) Any third party consents or Approvals obtained in accordance with
Section 6.6 herein;
(l) Any amount due from Seller to Fresenius AG or Buyer pursuant to Section
2.5(a), clause (ii) and/or Section 2.5(b); and
(m) Such other instruments and documents as are reasonably necessary to
satisfy the conditions precedent to Buyer's obligations hereunder.
3.3 Items to be Delivered at the Closing by Buyer. At the Closing,
Buyer shall deliver to Seller:
(a) The promissory note evidencing the Line of Credit, marked "paid";
(b) A Bill of Sale and Assignment, in substantially the form of Exhibit A;
(c) for each Lease with respect to the Facility, an Assignment and
Assumption of Leases, in substantially the form of Exhibit B;
(d) An Assignment of Contracts, in substantially the form of Exhibit C;
(e) An Assumption Agreement, in substantially the form of Exhibit D;
(f) Copies of resolutions duly adopted by the board of directors of Buyer,
authorizing and approving Buyer's performance of the transactions contemplated
hereby and the execution and delivery of this Agreement and the documents
described herein, certified as true and in full force as of Closing by an
appropriate officer of Buyer;
(g) A certificate of Buyer certifying that the conditions set forth in
Section 8.3 have been satisfied;
(h) Certificates of incumbency for the respective officers of Buyer
executing this Agreement and any other agreements or instruments contemplated
herein dated as of the Closing Date;
15
<PAGE>
(i) The opinion of Buyer's counsel as described in and provided by Section
8.3;
(j) All consents and Approvals, if any, Buyer must obtain to complete the
transactions contemplated herein;
(k) Any cash payment which Buyer elects to make pursuant to Section 2.5(b)
and any amount due from Buyer to Seller pursuant to Section 2.5(a), clause (i);
and
(l) Such other instruments and documents as are reasonably necessary to
effect the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Seller Schedule of Exceptions delivered to
Buyer in connection with the execution and delivery of this Agreement or in
connection with the Closing, as the case may be, Seller represents, warrants and
agrees, as applicable, as follows:
4.1 Organization; Authorization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
organization, with corporate power to own its properties and conduct its
business in the place and manner now conducted. Seller is duly authorized,
qualified to do business and in good standing in California and each
jurisdiction where the Purchased Assets are located, except for such failure to
so qualify as is not reasonably likely to have a material adverse effect on the
Operations or the Purchased Assets. Seller has full right, power, and authority
to enter into and perform its obligations under this Agreement. This Agreement
and the transactions contemplated hereby have been duly authorized by all
necessary corporate and stockholder action on the part of Seller, and this
Agreement has been duly and validly executed and delivered by Seller and
constitutes a legal and binding obligation of the Seller, enforceable against
Seller in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general principles of equity.
4.2 No Conflicts. The execution , delivery and performance of the
Agreement and documents described herein by Seller and the consummation by
Seller of the transactions contemplated by the Agreement and documents described
herein:
(a) will not violate, or constitute a breach or default (whether upon lapse
of time and/or the occurrence of any act or event or otherwise) under, the
constitutive documents or by-laws of Seller;
(b) except as set forth on Schedule 4.10, do not require any Approval of a
third party or material Approval or Permit of, or filing or registration with,
or other action by, any Governmental Entity to be made or sought by Seller or
any of its Affiliates; and
(c) assuming Approvals and Permits set forth on Schedule 4.10 are obtained,
will not conflict in any material respect with, or result in any violation of or
default under (with or without notice or lapse of time or both), or give rise to
a right of termination, cancellation,
16
<PAGE>
acceleration or augmentation of any material obligation under an Assumed
Contract or to loss of a material benefit under, or result in the creation of
any material Encumbrance upon any of the Purchased Assets under (i) any material
contract, agreement or other instrument to which Seller or any of its Affiliates
is a party applicable to the Operations, the Facility or any of the Purchased
Assets or (ii) any Law applicable to any of the Purchased Assets.
4.3 Purchased Assets. Except for the Patents, Trademarks and Know-
How to be licensed to Buyer and Fresenius AG under the License and Distribution
Agreement, the Purchased Assets and the Excluded Assets constitute all assets
which are held or used by Seller or any of its Affiliates and reasonably
necessary for the conduct of the Operations and operation of the Facility in the
manner conducted as of the date of this Agreement.
4.4 Financial Information.
(a) Except as provided for in the most recent balance sheet (or the notes
thereto) included in the Company Reports, there are no material liabilities of
Seller relating to the Operations, the Facility or the Purchased Assets required
in accordance with GAAP to be disclosed in the financial statements included in
the Company Reports.
(b) Since the date of the most recent balance sheet included in the Company
Reports, there has not occurred any material casualty, loss, damage or
destruction to or affecting the Purchase Assets, or any other change in or
affecting the Operations, the Purchased Assets or the Assumed Liabilities that
has had a material adverse effect on the Operations, the Purchased Assets or the
Assumed Liabilities.
4.5 Certain Taxes.
(a) There are no liens for Taxes on any of the Purchased Assets. Proper and
accurate amounts have been withheld by Seller from compensation paid to
employees at the Facility for all periods prior to the date hereof in compliance
with the payroll Tax and other withholding provision of applicable Laws, and all
such amounts have been duly and validly remitted to the proper Governmental
Entity.
4.6 Assumed Contracts. Each Assumed Contract existing on the date of
this Agreement (other than open purchase orders, as to which Seller makes no
representation) (i) is valid and existing, and Seller has duly performed in all
material respects its obligations under each Assumed Contract to which it is a
party to the extent that such obligations to perform have accrued and (ii) no
material breach or default, alleged material breach or default, or event which
would (with the passage of time, notice or both) constitute a material breach or
default under any Assumed Contract by Seller or, to the knowledge of Seller, any
other party or obligor with respect thereto, has occurred.
4.7 Tangible Property.
(a) Except as set forth on Schedule 4.7, Seller has good and marketable
title to each of the Purchased Assets, free and clear of any Encumbrances.
Subject to any required Approvals, Seller has all rights, power and authority to
sell, convey, assign, transfer and deliver
17
<PAGE>
the Purchased Assets to Buyer in accordance with the terms of this Agreement. At
the Closing, Seller shall deliver the Purchased Assets to Buyer, free and clear
of any Encumbrances. The Purchased Assets are in good working condition, except
for ordinary wear and tear and are not materially defective, except that no
representation is made with respect to Purchased Assets currently in storage.
(b) All leasehold interests used by Seller in the conduct of the Operations
are listed on Schedule 4.7. Seller does not use any other Real Property in the
conduct of the Operations. With respect to the leasehold interests listed on
Schedule 4.7, (i) each listed lease is unmodified and in full force and effect,
(ii) all rent and other charges therein have been paid to the extent they are
payable to the date hereof, (iii) Seller enjoys the quiet and peaceful
possession of the property demised thereby, (iv) Seller is not in default under
any of the terms thereof and there are no circumstances which, with the passage
of time or the giving of notice or both, would constitute an event of default
thereunder, (v) to the best of Seller?s knowledge, the lessor thereunder is not
in default under any of the terms or provisions thereof on the part of the
lessor to be observed or performed.
(c) Seller has received no written notice of any proposed special
assessments, nor any proposed material changes in land use laws affecting the
Real Property. Seller has accepted possession of the property demised pursuant
to each leasehold interest and is in actual possession thereof and has not
sublet, assigned or hypothecated its leasehold interest except as set forth on
Schedule 4.7. Seller has received no written notice of non-compliance with any
restriction encumbering any leased property, nor has Seller received written
notice of any zoning violations affecting any leased property. There is no
pending or, to Seller?s knowledge, threatened Action that would materially
interfere with the quiet enjoyment of any such leasehold by Seller.
4.8 Legal Proceedings. There is no Order or Action pending, or, to
the knowledge of Seller, threatened, against or affecting Seller or any of its
properties or assets that individually or when aggregated with one or more other
Orders or Actions has or might reasonably be expected to have a material adverse
effect on the Purchased Assets (or the right to use the Purchased Assets), the
Assumed Liabilities, Seller?s ability to perform this Agreement, or any aspect
of the transactions contemplated by this Agreement. Schedule 4.8 lists each
Order and each Action that involves a claim or potential claim of aggregate
liability in excess of $25,000 against, or that enjoins or seeks to enjoin any
activity by Seller related to the conduct of the Operations. Other than as set
forth on Schedule 4.8, Seller is not subject to any outstanding judgment, order
or decree with respect to the Purchased Assets.
4.9 Insurance. Schedule 4.9 lists each insurance policy maintained
by Seller with respect to the Purchased Assets and the Operations, and each such
policy is in full force and effect as of the date hereof. To Seller?s knowledge,
Seller is not in default with respect to its obligations under any insurance
policy maintained by it, and Seller has not been denied insurance coverage.
Except as set forth on Schedule 4.9, to Seller's knowledge, there is no
outstanding written requirement or recommendation by any insurance company that
issued any policy or by any board of fire underwriters or other similar body
(including any Governmental Entity) exercising similar functions which requires
or recommends any repairs or other work to be done or with respect to any of the
Purchased Assets
18
<PAGE>
4.10 Permits.
(a) Seller holds all material Permits that are required by any Governmental
Entity to permit it to conduct the Operations and operate the Facility as
conducted and operated, and all such Permits are valid and in full force and
effect. Except as set forth on Schedule 4.10, all such Permits are Purchased
Assets. No violations of any such Permits have occurred or, to the knowledge of
Seller, have been alleged to have occurred.
(b) The Facility is in compliance with all Permits and Approvals required
by Law except where the failure to so comply would not be reasonably expected to
have a material adverse effect on the Operations, the Facility or the Purchased
Assets. There are no provisions in, or agreements relating to, any such Permits
and Approvals which preclude or limit in any material respect Seller from
operating the Operations as it is currently operated. There is not now pending
nor, to the knowledge of Seller, threatened, any action by or before any
Governmental Entity to revoke, cancel, rescind, modify or refuse to renew any of
the Permits and Approvals, and all of the material Permits and Approvals are in
good standing now and as of the Closing.
4.11 Regulatory Compliance.
(a) Seller is in compliance with all applicable statutes, rules,
regulations and requirements of Governmental Entities having jurisdiction over
the Facility, the Operations and the Purchased Assets, except where the failure
to so comply would not be reasonably expected to have a material adverse effect
on the Operations, the Facility or the Purchased Assets. The use and operation
of the Purchased Assets are in compliance in all material respects with all
Laws, and there are no material violations of any such Laws, except where the
failure to comply would not have a material adverse effect on the Purchased
Assets, Assumed Liabilities, the Operations or the Facility, from and after the
Closing. Seller has timely filed all material forms, applications, reports,
statements, data and other information relating to the Operations required to be
filed with Governmental Entities.
(b) Without limiting the generality of Section 4.11(a), Seller manufactures
the Product in conformity with Seller?s specifications and in compliance with
applicable regulatory requirements, including the maintenance of standards of
facility, materials, quality, control, production and safety testing in
compliance with GMP and other regulatory requirements.
19
<PAGE>
4.12 Labor, Employment and Employee Benefit Matters.
(a) No changes in the basis for remuneration of employees of the Operations
have been made, promised or authorized by Seller since December 31, 1999, except
in the ordinary and usual course. Except as set forth on Schedule 4.12, Seller
has no written employment contracts, and no agreement of any nature that
provides for employment for any particular period of time or that provides any
restrictions upon Seller's right to terminate employment without any post-
termination payment obligation, with any Person whomsoever relating to the
Operations. Other than in the ordinary course of business, no binding
agreements have been made or entered into between Seller and any employee
involved in the Operations regarding changes in compensation, promotion or any
other change in status.
(b) Schedule 4.12 also contains a true and complete list of all agreements,
plans, arrangements and employees benefit plans which provide compensation or
benefits of a type which Buyer undertakes to provide to Hired Employees pursuant
to Section 7.1(b).
(c) The transactions contemplated by this Agreement will not constitute a
"mass layoff" under or require any actions to comply with the Worker Adjustment
and Retraining Notification Act of 1988 ("WARN act"), if it were closed within
60 days from the date hereof.
(d) Except as set forth on Schedule 4.12, as of the date hereof and solely
with respect to Seller's employees at the Facility, (i) there is no pending or
threatened employee strike, work stoppage or labor dispute, (ii) no union
representation question exists respecting any such employees, no demand has been
made for recognition by a labor organization by or with respect to any such
employees of Seller, no union organizing activities by or with respect to any
such employees are taking place, and none of such employees represented by any
labor union or organization, (iii) no collective bargaining agreement exists or
is currently being negotiated by Seller, (iv) there is no unfair practice claim
against Seller before the National Labor Relations Board, or any strike,
dispute, slowdown, or stoppage pending or, to the best of Seller's knowledge,
threatened against or involving the Operations and none has occurred and (v)
Seller is not engaged in any unfair labor practices.
4.13 No Brokers or Finders. No agent, broker, finder, or investment
or commercial banker, or other Person or firm engaged by or acting on behalf of
Seller or any of its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any brokerage or finder's or similar fee or
other commission as a result of this Agreement or such transactions.
4.14 Environmental Compliance. Except as set forth in Schedule 4.14:
(a) Seller has materially complied and is in material compliance (with
respect to the Facility) with, and, to Seller?s knowledge, the Real Property and
all improvements on the Real Property are in material compliance with, all
Environmental Laws.
(b) Seller has no material liability for fines, damages, clean-up or other
remediation costs or other material liability under any Environmental Law with
respect to any of the Facility or the Real Property, nor is Seller responsible
for any liability of any other Person
20
<PAGE>
under any Environmental Law with respect to the Facility or the Real Property.
There are no pending or, to Seller's knowledge, threatened actions, suits,
orders, claims, legal proceedings or other proceedings based on, and neither
Seller nor any of its Affiliates has received any formal or informal written
notice of any complaint, order, directive, citation, notice of responsibility,
notice of potential responsibility, or information request from any Governmental
Entity or any other Person or knows or suspects any fact(s) which would
reasonably be expected to form the basis for any such actions or notices.
(c) Seller has not conducted any Hazardous Materials Activities at the
Facility and, to Seller's knowledge, there are and have been no conditions,
occurrences, or Hazardous Materials Activities which could reasonably be
expected to form the basis of an Environmental Claim against Seller or any of
its Subsidiaries that, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on the Operations or the transactions
contemplated herein.
(d) Seller has been duly issued, and currently has and will maintain
through the Closing Date, all material Approvals and Permits required under any
Environmental Law with respect to the Facility. A true and complete list of
such Permits, all of which are valid and in full force and effect, is set forth
in Schedule 4.14. Seller is in material compliance (with respect to each
Facility) with and the Real Property and all improvements on the Real Property
are in material compliance with, all Approvals and Permits. Except in
accordance with such Approvals and Permits, to Seller's knowledge there has been
no release of material regulated by such Approvals and Permits at, on, under, or
from the Real Property in violation of Environmental Laws.
(e) Assuming Buyer operates the Purchased Assets in a manner consistent
with Seller's past holding of the Purchased Assets, to Seller's knowledge, Buyer
will be able to operate the Purchased Assets and to use the Purchased Assets in
connection with the Operations in material compliance with any prospective
requirement adopted or promulgated prior to the date hereof under any
Environmental Law without material cost.
4.15 Year 2000 Compliance. Other than any commercially available off-
the-shelf software, all of the Information Systems and Equipment included in the
Purchased Assets are either Year 2000 Compliant, or any reprogramming or any
other corrective action, including the internal testing of all such Information
Systems and Equipment, will be completed and operational by June 30, 1999.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants and agrees, and Fresenius AG guarantees
such representations, warranties and agreements, as follows:
5.1 Organization and Related Matters. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
Buyer has all necessary corporate power and authority to carry on its business
as now being conducted. Buyer
21
<PAGE>
has the necessary corporate power and authority to execute, deliver and perform
this Agreement and any related agreements to which it is a party.
5.2 Authorization. The execution, delivery and performance of this
Agreement and any related agreements by Buyer has been duly and validly
authorized by the Board of Directors of Buyer and by all other necessary
corporate action on the part of Buyer. This Agreement constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws and equitable
principles relating to or limiting creditors' rights generally.
5.3 No Conflicts. The execution, delivery and performance of this
Agreement and any related agreements by Buyer will not violate the provisions
of, or constitute a breach or default whether upon lapse of time and/or the
occurrence of any act or event or otherwise under (a) the charter documents or
bylaws of Buyer, (b) any Law to which Buyer is subject or (c) any Contract to
which Buyer is a party that is material to the financial condition, results of
operations or conduct of the business of Buyer, provided that the appropriate
Approvals are received as contemplated by Section 8.1.
5.4 No Brokers or Finders. No agent, broker, finder or investment or
commercial banker, or other Person or firms engaged by or acting on behalf of
Buyer or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any broker's or finder's or similar fees or
other commissions as a result of this Agreement or such transactions.
ARTICLE 6
COVENANTS WITH RESPECT TO
CONDUCT PRIOR TO CLOSING
6.1 Access. Seller will authorize and permit Buyer and its
representatives (which term shall be deemed to include its independent
accountants and counsel) to have reasonable access during normal business hours,
upon reasonable notice and in such manner as will not unreasonably interfere
with the conduct of its businesses, to all of its properties, books, records,
operating instructions and procedures, and all other information with respect to
the Operations as Buyer may from time to time reasonably request, and to make
copies of such books, records and other documents and to discuss its businesses
with such third Persons, including, without limitation, Seller's directors,
officers, accountants and counsel, as Buyer considers necessary or appropriate
for the purposes of evaluating whether and at what time to exercise the Option
and obtaining any necessary Approvals of or Permits for the transactions
contemplated by this Agreement.
6.2 Material Adverse Changes. Seller will promptly notify Buyer of
any event of which Seller obtains knowledge which has had or might reasonably be
expected to have a material adverse effect on the Operations or any of the
Purchased Assets or Assumed Liabilities or which if known as of the date hereof
would have been required to be disclosed to Buyer.
22
<PAGE>
6.3 Conduct of Operations. (a) Seller will not without the prior
consent in writing of Buyer, (which will not be unreasonably withheld or
delayed) or as expressly contemplated by this Agreement:
(i) conduct the Operations except in the ordinary course consistent
with past practices;
(ii) except as required by its terms, amend, terminate, renew (other
than on substantially equivalent terms) or renegotiate any lease for the
Facility or the equipment lease finance facility provided to Seller by
Silicon Valley Bank, or default (or take or omit to take any action that
with or without the giving of notice or passage of time or both, would
constitute a default) in any of its obligations or waive any material
default by another party under any of the foregoing;
(iii) enter into any material contract or commitment, or incur or
agree to incur any material liability which, in either case, is or will be
an Assumed Liability, except for those which are terminable without cause
or penalty within ninety (90) days following Closing;
(iv) by action or inaction, abandon, terminate, cancel, forfeit,
waive or release Seller's material rights, in whole or in part, with
respect to the Purchased Assets, or sell or dispose of the Purchased
Assets, or encumber any of the Purchased Assets; except (i) Encumbrances
pursuant to the Security Agreement, (ii) dispositions of property not
material in amount, or (iii) sales of Inventory and replacement of obsolete
or worn out property in the ordinary course of business;
(v) hold, store or otherwise retain Inventory except as would be
customary practice in the ordinary course of Operations or in connection
with increased Inventory requirements relating to commercial launch of the
Product, or as Licensee has expressly agreed to purchase pursuant to
Section 2.2(a)(iv);
(vi) fail to conduct the Operations in accordance with applicable
regulatory requirements, including the maintenance of standards of
facility, materials, quality, control, production and safety testing in
compliance with GMP and other regulatory requirements, and in compliance
with all approvals, licenses, permissions and permits necessary for the
conduct of the Operations;
(vii) settle any dispute or threatened dispute with any Governmental
Entity regarding the Purchased Assets in a manner that materially and
adversely affects Buyer (it being understood that the maintenance of record
retention programs with respect to the Purchased Assets shall be deemed not
to materially and adversely affect Buyer);
(viii) terminate or permit the cancellation or lapse of insurance
coverage on the Purchased Assets or related to the Operations;
(ix) terminate, amend or fail to renew or preserve any Permits
necessary for the conduct of the Operations;
23
<PAGE>
(x) so long as the costs therefor are included in the Cost of Goods
Sold or Seller has access to borrowing under the Line of Credit, fail to
maintain or cause to be maintained in good repair, working order and
condition, ordinary wear and tear excepted, the Purchased Assets, adequate
spare parts (including, without limitation, injection molds and other items
of equipment used in the manufacture of the Product) and any other
properties material to and useful in the Operations (including, without
limitation, the Facility), nor fail to make all appropriate repairs,
renewals and replacements thereof; or
(xi) fail to comply with all applicable Environmental Laws and obtain
and comply in all material respects with and maintain any and all licenses,
approvals, notifications, registrations or permits required by applicable
Environmental Laws, except to the extent that failure to do so could not be
reasonably expected to have a material adverse effect on the Purchased
Assets or the conduct of the Operations;
(b) Seller will:
(i) provide Fresenius AG and Buyer 20 days' notice prior to the grant
of any general or uniform increase in the rates of pay or benefits to any
employee (or a class thereof) or agent or any material increase in salary
or benefits of any employee or agent or pay any bonus to any person (other
than consistent with past practices), or enter into any new employment,
collective bargaining or severance agreement; and
(ii) provide Fresenius AG and Buyer with 20 days' notice of any
merger or consolidation with any other Person or sale, transfer or other
disposition of any material assets or any liabilities.
6.4 Notification of Certain Matters. Seller shall give prompt notice
to Buyer, and Buyer shall give prompt notice to Seller, of (i) the occurrence,
or failure to occur, of any event that has caused any of their representations
or warranties contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date of this Agreement to the Closing Date
and (ii) any failure on its part to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement.
6.5 Permits and Approvals.
(a) Buyer and Seller shall take all reasonable steps to obtain all
Approvals and Permits of any Governmental Entities required of either party to
consummate the transactions contemplated by this Agreement.
(b) To the extent that any Approval of a third party with respect to any
Assumed Contract is required in connection with the transactions contemplated by
this Agreement, Seller shall use its reasonable best efforts to obtain such
Approval prior to the Closing Date.
6.6 Third Party Consents. To the extent that the Approval of a third
party with respect to any Material Contract is required in connection with the
transactions contemplated by this Agreement, Seller shall use its reasonable
best efforts to obtain such Approval prior to the
24
<PAGE>
Closing Date (and Buyer shall cooperate with Seller to obtain such Approval),
and in the event that any such Approval is not obtained (but without limitation
on Buyer's rights under Section 8.2), Seller shall cooperate with Buyer to
ensure that Buyer obtains the benefits of each such Material Contract.
6.7 Certain Filings. Seller will make any and all filings required to
be made on its part under the Hart-Scott-Rodino Act. Buyer will make any and
all filings required to be made on its part under the Hart-Scott-Rodino Act.
Seller and Buyer shall furnish each other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of necessary filings or submissions under the provisions of such
laws.
6.8 Environmental Due Diligence.
(a) Seller acknowledges that Buyer wishes to conduct environmental
investigations with respect to the Real Property and the Business which may
include, without limitation a Phase I Environmental Site Assessment (conforming
to the standard for such reports set out by the American Society for Testing and
Materials) with respect to the Real Property and an environmental compliance
audit with respect to the Operations. Any such investigations shall be
conducted at Buyer's expense. For the purpose of conducting such
investigations, Seller hereby grants to Environmental Consultant, Buyer and its
representatives an irrevocable license and authorization to, during normal
business hours and upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of Seller's business, enter upon and
inspect the Real Property, and perform such tests, including without limitation,
subsurface testing, soils and groundwater testing, and other tests which may
physically invade the Real Property, as Buyer, in its sole and reasonable
discretion, determines are necessary. If necessary to the work of the
Environmental Consultant, Seller shall use its reasonable efforts to obtain a
similar license from each landlord for the Real Property. The results of all
investigations and reports prepared by Buyer at Buyer's expense shall be and at
all times remain the property of Buyer and Buyer shall disclose to Seller and
make available to Seller the results or any other information obtained by them
in connection with such investigations and reports.
6.9 Management Agreement. Buyer and Seller agree that, on request of
either party, Buyer and Seller shall negotiate in good faith to enter into a
mutually acceptable Management Agreement pursuant to which Buyer or Fresenius AG
shall perform certain management services with respect to the Facility relating
to installation of a cost accounting system and scale-up of production of the
Product, on terms and conditions to be specified therein. Any management
services undertaken at the request of Buyer shall be provided at no charge to
Seller; any management services provided at Seller's request shall be charged to
Seller at Fresenius AG's customary charges for such services.
6.10 Amendment of Lease. Seller shall cooperate fully with Buyer in
negotiations with the respective landlords for amendments to the leases relating
to the Facility which will be assumed by Buyer at Closing, which amendments
shall be mutually acceptable to Buyer and Seller and shall (i) include a renewal
option enabling Buyer to extend the term of the relevant lease at its option for
a renewal term reasonably satisfactory to Buyer, (ii) delete any provision
requiring the delivery of a letter of credit as security, and (iii) include such
other terms as may be reasonably requested by Buyer and Fresenius AG.
25
<PAGE>
6.11 WARN Act. Seller shall comply with the applicable requirements
of the WARN Act in connection with the employment terminations described in
Section 7.1.
ARTICLE 7
ADDITIONAL CONTINUING COVENANTS
7.1 Employment Matters.
(a) As of the Closing Date, Seller shall terminate or cause its Affiliates
to terminate all employees of the Seller at the Facility, and Buyer shall offer
employment to substantially all of the employees of Seller and its Affiliates at
the Facility at compensation and benefit levels equivalent to the compensation
and benefit levels provided by Seller as of the Closing Date, except that Buyer
shall not be obligated to issue options to acquire any equity securities of
Buyer or any other person or to match Hired Employee retirement or deferred
compensation plan contributions with any such securities. Buyer and Seller
shall cooperate, at Buyer's sole expense, to structure, create and implement an
incentives plan for the retention of an agreed list of key employees at the
Facility. Seller shall be responsible for any and all severance benefits
payable under Seller?s employee benefit plans or otherwise in favor of any
employee to whom an offer of employment by Buyer is made, but not accepted.
(b) The term "Hired Employee" as used in this Agreement means an employee
of Seller or any of its Affiliates who accepts employment with Buyer as of the
Closing Date. All Hired Employees will be retained as employees-at-will (except
to the extent that such Employees are parties to contracts providing for other
employment terms, in which case such Hired Employees shall be retained in
accordance with the terms of such contracts) and Buyer shall provide such Hired
Employees with the same customary employee benefits as they receive from Seller
as of the Closing Date, except that Buyer shall not be obligated to issue
options to acquire any equity securities of Buyer or any other Person or to
match Hired Employee retirement or deferred compensation plan contributions with
any such securities. Buyer shall cause all Hired Employees to be added to
comparable welfare benefits plans with waivers of all limitations as to
preexisting conditions, exclusions of all waiting periods with respect to
coverage and with a credit for any co-payments and deductible paid prior to the
Closing Date by an applicable Hired Employee in satisfying any out-of-pocket
requirements under any welfare benefit plan by such Hired Employee. Buyer shall
provide credit for eligibility, benefit accrual and vesting purposes for all
such Hired Employees' periods of service with Seller (or any Affiliate of
Seller) as provided under the ERISA and non-ERISA plans of Seller and its
Affiliates for purposes of any Buyer employee benefit plan or program, including
all qualified and non-qualified retirement or savings programs, vacation, sick
leave, holiday and severance benefits; provided that, with respect to active
defined benefit plans maintained by Buyer, the existing seniority of such Hired
Employees shall only be recognized for eligibility and vesting purposes and not
for benefit accrual purposes; and provided further that such Hired Employees
shall not participate in any inactive defined benefit plans of Buyer. Any
future plans created by Buyer that provide for benefit and vesting service to
Buyer employees from their original date of hire shall (to the extent permitted
by applicable Law) include all vesting and benefit service credit as would be
included by recognizing such Hired Employees' original date of hire as
recognized by Seller or one of its Affiliates. The service credited under the
Buyer welfare and other benefit plans will include all service credited under
the welfare and other benefit plans of Seller and its Affiliates, respectively.
26
<PAGE>
Participation shall begin as soon as administratively feasible after the Closing
Date for participating Hired Employees (and eligible dependents) and for all
other Hired Employees who, given their Seller service, have met the age and
service requirements for participation under the respective Buyer plans.
(c) As of the Closing Date, Seller will, at its expense or at the expense
of the applicable Plan, (i) terminate all Plans, if any, relating solely to
employees at the Facility, (ii) terminate the participation of all employees
employed at the Facility from all other Plans, (iii) take such actions as are
necessary to make, or cause such Plans to make, timely appropriate distributions
to such employees to the extent required or permitted by, and in accordance
with, such Plans and applicable Law, as determined by Seller and/or its counsel,
and (iv) comply with all applicable Laws in connection with the foregoing.
Seller shall indemnify and hold harmless Buyer from and against any and all
liabilities and obligations whatsoever with respect to the Plans or the acts or
omissions of Seller under this Section 7.1.
7.2 Proration Payments. If any provision hereof requires the
proration between Buyer and Seller of obligations to third parties including
employees or former employees, each party hereto agrees to pay promptly upon
demand by the other party (accompanied by a reasonably itemized statement of the
claim and basis therefor and supporting documentation from such other party) its
proportionate share of the obligations that it has assumed hereunder.
ARTICLE 8
CONDITIONS OF PURCHASE
8.1 General Conditions.
The obligations of the parties to effect the Closing shall be subject
to the following condition unless waived in writing by all parties:
(a) Approvals. To the extent required by applicable Law, all Permits and
Approvals required to be obtained from any Governmental Entity and the consents
of any required third parties, in each case as necessary for consummation of the
transactions contemplated hereby, shall have been received or obtained on or
prior to the Closing Date.
8.2 Conditions to Obligations of Buyer. The obligations of Buyer to
effect the Closing shall be subject to the following conditions except to the
extent waived in writing by Buyer:
(a) Representations and Warranties and Covenants of Seller. The
representations and warranties of Seller herein contained shall be true in all
material respects at the Closing Date with the same effect as though made at
such time except insofar as may be set forth in revised disclosure schedules
which shall be delivered by Seller to Buyer and Fresenius AG as promptly as
practicable after Buyer's delivery of its notice of exercise of the Option, and
such revised disclosure schedules shall be satisfactory to Buyer and Fresenius
AG in their sole discretion, provided, that except with respect to
--------
misrepresentations by Buyer as of the date of this Agreement or Buyer's failure
to perform its obligations hereunder set forth therein, the sole
27
<PAGE>
remedy of Buyer and Fresenius AG with respect to such revised disclosure
schedules shall be to decline to consummate the acquisition of the Purchased
Assets.
(b) Seller shall have performed all obligations and complied with all
covenants and conditions required by this Agreement to be performed or complied
with by it at or prior to the Closing Date, and Seller shall have delivered to
Buyer certificates of Seller in form and substance satisfactory to Buyer, dated
the Closing Date and signed by the appropriate officer of Seller to such effect.
(c) Opinion of Counsel. Buyer and Fresenius AG shall receive at the
Closing from Cooley Godward LLP, counsel to Seller, an opinion dated the Closing
Date, in form and substance reasonably satisfactory to Buyer and Fresenius AG
and their counsel.
(d) Consents. Seller shall have obtained and provided to Buyer evidence of
the receipt of all required Approvals and Permits listed on Schedule 4.13, each
in form and substance reasonably satisfactory to Buyer and none of such
Approvals and Permits shall have been withdrawn prior to or on the Closing Date.
(e) FDA Approval. Seller shall have obtained any and all FDA pre-market
approvals required to manufacture, market and sell the Product in the United
States of America for use in the treatment of rheumatoid arthritis.
(f) No Action or Proceeding. No court or any other Governmental Entity
shall have issued an order restraining or prohibiting the transactions herein
contemplated; and no Governmental Entity shall have commenced or threatened in
writing to commence any action or suit before any court of competent
jurisdiction or other Governmental Entity that seeks to restrain or prohibit the
consummation of the transactions herein contemplated or otherwise seeks a remedy
which would materially and adversely affect the ability of Buyer to enjoy the
full use and enjoyment of the Purchased Assets.
8.3 Conditions to Obligations of Seller. The obligations of Seller to
effect the Closing shall be subject to the following conditions, except to the
extent waived in writing by Seller:
(a) Representations and Warranties and Covenants of Buyer. The
representations and warranties of Buyer herein contained shall be true in all
material respects at the Closing Date with the same effect as though made at
such time, Buyer shall have performed all obligations and complied with all
covenants and conditions required by this Agreement to be performed or complied
with by it at or prior to the Closing Date, and Buyer shall have delivered to
Seller certificates of Buyer in form and substance satisfactory to Seller, dated
the Closing Date and signed by the appropriate officer of Buyer, to such effect.
(b) Opinion of Counsel. Seller shall receive at the Closing from O'Melveny
& Myers LLP, counsel to Buyer an opinion dated the Closing Date, in form and
substance reasonably satisfactory to Seller and its counsel.
28
<PAGE>
ARTICLE 9
TERMINATION OF OBLIGATIONS; SURVIVAL
9.1 Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated by this
Agreement may be terminated at any time before the Closing as follows and in no
other manner:
(a) Mutual Consent. By mutual consent in writing of Buyer, Fresenius AG
and Seller.
(b) Breach of Seller's Representations and Warranties. By Buyer and
Fresenius AG upon written notice to Seller in the event of any action, omission
or occurrence which would constitute a breach of Seller's representations and
warranties as set forth in Article IV herein and which has a material adverse
effect on this Agreement or the transactions contemplated herein.
(c) Breach of Buyer's Representations and Warranties. By Seller upon
written notice to Buyer and Fresenius AG in the event of any action, omission or
occurrence which would constitute a breach of Buyer's representations and
warranties as set forth in Article V herein and which has a material adverse
effect on this Agreement or the transactions contemplated herein.
(d) Conditions to Buyer's Performance Not Met. By Buyer and Fresenius AG
upon written notice to Seller if any event occurs which would render impossible
the satisfaction of one or more conditions to the obligations of Buyer and
Fresenius AG to consummate the transactions contemplated by this Agreement as
set forth in Section 8.1 or 8.2.
(e) Conditions to Seller's Performance Not Met. By Seller upon written
notice to Buyer and Fresenius AG if any event occurs which would render
impossible the satisfaction of one or more conditions to the obligation of
Seller to consummate the transactions contemplated by this Agreement as set
forth in Section 8.1 or 8.3.
(f) Destruction or Condemnation. By Buyer and Fresenius AG, if any of the
Purchased Assets are damaged, destroyed or taken, and if such damage,
destruction or condemnation is beyond reasonable repair and prevents Seller from
performing its obligations under this Agreement as well as the conduct of the
Operations.
(g) Expiration Date. Automatically, if Buyer does not deliver the required
notice of its exercise of the Option prior to or on the Expiration Date or, if
earlier, automatically upon termination of the License and Distribution
Agreement.
9.2 Effect of Termination. In the event that this Agreement shall be
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement shall terminate without further liability of any party to
another; provided, that the obligations of the parties contained in Article X
(Indemnification), Section 11.9 (Confidentiality) and Section 11.12 (Expenses)
shall survive any such termination. A termination under Section 9.1 shall not
relieve any party of any liability for a breach of, or for any misrepresentation
under this
29
<PAGE>
Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
ARTICLE 10
INDEMNIFICATION
10.1 Obligations of Seller. Seller agrees to indemnify and hold
harmless Buyer, its directors, officers, employees, affiliates, agents and
assigns, from and against any and all Losses (including, without limitation,
attorneys' fees, settlement costs, arbitration costs and any reasonable legal
and other expenses for investigating or defending any action or threatened
action) asserted against or incurred by any of them, arising out of or in
connection with or resulting from any of the following (but only to the extent
that all of such Losses exceed $25,000 in the aggregate) and except in the case
of intentional or fraudulent misrepresentation, in no event shall Losses payable
under this Section 10.1 exceed the Purchase Price:
(a) any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by Seller in or
pursuant to this Agreement; provided, however, that the representations and
warranties contained herein shall survive the Closing only for a period of
twelve (12) months after the Closing Date, except for the representations and
warranties contained in Section 4.15 hereof, which shall survive for the
duration of the statute of limitations with respect to any applicable
Environmental Law;
(b) any other matter as to which Seller in other provisions of this
Agreement has agreed to indemnify Buyer or any Affiliate;
(c) any liability or obligation of Seller or any of its Affiliates other
than the Assumed Liabilities;
(d) any liability or termination fees arising in connection with the
termination of the EMF Lease.
10.2 Obligations of Buyer. Buyer agrees to indemnify and hold
harmless, Seller its directors, officers, employees, affiliates, agents and
assigns, from and against any Losses of Seller, directly or indirectly, as a
result of, or based upon or arising from:
(a) any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by Buyer in or
pursuant to this Agreement;
(b) any other matter as to which Buyer in other provisions of this
Agreement has agreed to indemnify Seller;
(c) any Third Party Claims in respect of the use of the Purchased Assets or
the operation of the Operations after the Closing Date (excluding the Third
Party Claims covered by Section 10.1(d)); or
(d) any failure to satisfy the Assumed Liabilities.
30
<PAGE>
10.3 Notice of Claim. In the event that a party entitled to
indemnification hereunder (the "Indemnified Party") shall become aware of any
claim, proceeding or other matter (a "Claim") in respect of which the other
party (the "Indemnifying Party") has agreed to indemnify the Indemnified Party
pursuant to this Agreement, the Indemnified Party shall promptly give written
notice thereof to the Indemnifying Party. Such notice shall specify whether the
Claim arises as a result of a claim by a person (a "Third Party") against the
Indemnified Party (a "Third Party Claim") or whether the Claim does not so arise
(a "Direct Claim"), and shall also specify with reasonable particularity (to the
extent that the information is available) the factual basis for the Claim and
the amount of the Claim, if known. The failure promptly to give such notice or
the failure of such notice to identify the Claim with sufficient particularity
shall not relieve the Indemnifying Party of any of its indemnification
obligations contained herein if the Indemnified Party has actually given written
notice to the Indemnifying Party and has otherwise complied with the provisions
of this Article X except where, and solely to the extent that, such failure
actually prejudices the rights of such Indemnifying Party.
10.4 Direct Claims. With respect to any Direct Claim, following
receipt of notice from the Indemnified Party of the Claim, the Indemnifying
Party shall promptly make such investigation of the Claim as is considered
necessary or desirable. For the purpose of such investigation, the Indemnified
Party shall make available to the Indemnifying Party the information relied upon
by the Indemnified Party to substantiate the Claim, together with all such other
information available to the Indemnified Party as the Indemnifying Party may
reasonably request. If both parties agree at or prior to the expiration of 30
days (or any mutually agreed upon extension thereof) following such notice to
the validity and amount of such Claim, the Indemnifying Party shall immediately
pay to the Indemnified Party the full agreed upon amount of the Claim, failing
which the matter shall be referred to arbitration as provided herein.
10.5 Third Party Claims. With respect to any Third Party Claim, the
Indemnifying Party shall have the right, at its expense and with counsel of its
choice satisfactory to the Indemnified Party, acting reasonably, to defend and,
upon written request from the Indemnified Party, shall defend the Claim
(including the negotiation and settlement thereof). If the Indemnifying Party
elects or is required to assume such defense, the Indemnified Party shall have
the right to participate in the negotiation, settlement or defense of such Third
Party Claim and to retain separate counsel to act on its behalf, provided that
the fees and disbursements of such separate counsel shall be paid by the
Indemnified Party unless the Indemnifying Party consents to the payment of such
counsel or unless the named parties to any action or proceeding include both the
Indemnifying Party and the Indemnified Party and representation of both the
Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential conflicting interests between them
(such as the availability of different defenses). If the Indemnifying Party,
having assumed such control, thereafter fails to defend the Third Party Claim
within a reasonable time, the Indemnified Party shall be entitled to assume
control of such defense and the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to such Third Party Claim. If
any Third Party Claim is of a nature such that the Indemnified Party is required
by applicable Law to make a payment to any Third Party with respect to the Third
Party Claim before the completion of settlement negotiations or related legal
proceedings, the Indemnified Party may make such payment after consulting with
the Indemnifying Party and the Indemnifying Party shall, forthwith after demand
by the Indemnified Party, reimburse the Indemnified Party for such payment. If
the amount of any
31
<PAGE>
liability of the Indemnified Party under the Third Party Claim in respect of
which such payment was made, as finally determined, is less than the amount that
was paid by the Indemnifying Party to the Indemnified Party, the Indemnified
Party shall, forthwith after receipt of the difference from the Third Party, pay
the amount of such difference, with interest, to the Indemnifying Party.
10.6 Settlement of Third Party Claims. If the Indemnifying Party does
not elect to assume control of the defense of any Third Party Claim or, after
request by the Indemnified Party fails to do so, the Indemnified Party shall
have (but shall not otherwise have) the exclusive right to contest, settle or
pay the amount claimed and any Losses incurred by the Indemnified Party in
connection with such contest, settlement or payment shall be conclusive as to
the existence and amount of any liability of the Indemnifying Party to the
Indemnified Party hereunder. Whether or not the Indemnifying Party assumes
control of the negotiation, settlement or defense of any Third Party Claim, the
Indemnifying Party shall not settle any Third Party Claim, without the written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld or delayed; provided, however, that (a) no Indemnified Party shall be
obligated to consent to any compromise or settlement that does not provide for a
complete release of the Claim against the Indemnified Party, and (b) the
liability of the Indemnifying Party shall be limited to the proposed settlement
amount if any such consent is not obtained for any reason other than the failure
of such settlement to conform to the requirements of the preceding clause (a).
10.7 Cooperation. The Indemnified Party and the Indemnifying Party
shall co-operate fully with each other with respect to Third Party Claims, and
shall keep each other fully advised with respect thereto (including supplying
copies of all correspondence, demands, pleadings and other relevant
documentation promptly as it becomes available). The Indemnified Party and the
Indemnifying Party shall each use all reasonable efforts to mitigate Losses
arising out of any Claim for which indemnity is sought hereunder.
10.8 Survival. This Article X shall survive any termination or
expiration of this Agreement. In addition, any matter as to which a claim has
been asserted by notice to the other party that is pending or unresolved at the
end of any applicable limitation period shall continue to be covered by this
Article X until such matter is finally terminated or otherwise resolved by the
parties under this Agreement and any amounts payable hereunder are finally
determined and paid.
32
<PAGE>
10.9 Not Exclusive Remedy. Subject to the monetary limits of Section
10.1, this Article X shall not be deemed to preclude or otherwise limit in any
way the exercise of any other rights or pursuit of other remedies for the breach
of this Agreement or with respect to any misrepresentation.
ARTICLE 11
GENERAL
11.1 Modification and Amendment. Neither this Agreement nor any of
the terms hereof or any exhibit hereto may be terminated, amended, supplemented,
waived or modified orally, but only by an instrument in writing signed by all of
the parties hereto. No failure on the part of either party to exercise, no
delay in exercising, no partial exercise of, and no course of dealing with
respect to, any right, power or privilege under this Agreement shall operate as
a waiver thereof.
11.2 Schedules; Exhibits; Integration. Each schedule and exhibit
delivered pursuant to the terms of this Agreement shall be in writing and shall
constitute a part of this Agreement, although schedules need not be attached to
each copy of this Agreement. This Agreement, together with such schedules and
exhibits and including the guaranty of Fresenius AG set forth on the signature
page hereof, the Master Agreement and related documents contemplated therein
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith, including, but not limited to, the letter of
intent dated January 20, 1999, among Buyer, Seller and Fresenius AG.
11.3 Arbitration. In the event that any dispute or controversy arises
between the parties out of or relating to this Agreement or any other related
agreement ("Dispute"), a party shall notify the other parties in writing of the
existence of the Dispute, and for a thirty-day period following such
notification the parties shall meet and negotiate in good faith to attempt to
resolve the matter and shall escalate the dispute to the Chief Executive Officer
of Licensor and the President of the I+H Division of Fresenius AG if resolution
is not made within the first fifteen days. If such efforts do not resolve the
Dispute within such thirty-day period, the Dispute shall be referred to and
finally resolved by arbitration under the rules of the American Arbitration
Association, and except for proceedings commenced to enforce an arbitration
award, each party hereby irrevocably waives its right to commence any proceeding
in any court with respect to any matter arising under this Agreement. Unless
the parties otherwise agree, the tribunal shall consist of three arbitrators,
two of whom shall be appointed by the respective parties and the third
arbitrator shall be appointed jointly by the first two. The place of
arbitration shall be New York, New York or such other location as the parties
shall agree. The language of the arbitration shall be English. The parties
shall be entitled to conduct discovery which shall be limited in both time and
scope in order to minimize expense and adverse impact on the operation of the
parties. No arbitrator shall be an Affiliate, employee, officer or director of
either party or of their respective Affiliates, nor shall any Arbitrator have
any interest that would be affected in any material respect by the outcome of
the Dispute. The decision of the sole arbitrator or of a majority of the
arbitrators, as the case may be, shall be final and binding on the parties and
their respective successors and assigns. The decision shall not be subject to
appeal or judicial review except in circumstances of fraud. The prevailing
party in any such arbitration shall be entitled to recover
33
<PAGE>
reasonable fees of attorneys and other professionals in addition to all court
costs and arbitrator's fees which that party may incur as a result. Judgment
upon the award granted by the arbitrator(s) may be entered in any court having
jurisdiction over the relevant party, or its assets.
11.4 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines except to the extent that certain
matters are preempted by federal law or are governed by the law of the
jurisdiction of organization of the respective parties.
11.5 Assignment. Neither this Agreement nor any of the rights or
duties of the parties hereunder shall be Assigned, transferred or conveyed by a
party by operation of law or otherwise. Notwithstanding the foregoing, this
Agreement may be assigned by Buyer to an Affiliate of Buyer or a purchaser of
the entire business or substantially all of the assets of Fresenius AG's I+H
Division, without the prior written consent of Seller, provided that the
purchaser assumes in writing all of the obligations of Buyer hereunder. Such an
assignment shall not release Buyer from its liabilities and obligations
hereunder, nor shall it release Fresenius AG from its obligations under its
guaranty attached hereto. In addition, notwithstanding the foregoing, this
Agreement may be assigned by Seller to an Affiliate of Seller or to a purchaser
of all or substantially all of the assets of Seller relating to Product,
provided that the purchaser assumes in writing all of the obligations of Seller
hereunder and may be transferred by Seller by operation of law in connection
with a change of control of Seller through a tender offer, merger, sale of
equity securities or other similar transaction. Neither this Agreement nor any
rights of a party hereunder shall inure to the benefit of any trustee in
bankruptcy, receiver, creditor, liquidator or trustee of the business of such
party without the prior written consent of the other party, which such other
party may grant or withhold in its sole discretion. Except as provided in this
Section or as referenced herein, no party shall delegate duties of performance
or assign, in whole or in part, rights or obligations under this Agreement
without the prior written consent of the other party, and any attempted
delegation or assignment without such written consent shall be void and of no
force or effect. Subject to the restrictions contained in the preceding
sentence, this Agreement shall be binding upon the successors and assigns of the
parties.
11.6 Headings. The descriptive headings of the Articles, Sections and
Subsections of this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
11.7 Telecopy; Counterparts. This Agreement and any amendment hereto
or any other agreement (or document) delivered pursuant hereto may be executed
by telecopy, in one or more counterparts, and by different parties in separate
counterparts. All of such counterparts shall constitute one and the same
agreement (or other document) and shall become effective (unless otherwise
provided therein) when one or more counterparts have been signed by each party
and delivered to the other party. Any execution by telecopy shall be followed
promptly by the delivery of signed original counterparts to the party or parties
receiving the telecopy.
11.8 Publicity and Reports. Seller and Buyer shall coordinate all
publicity relating to the transactions contemplated by this Agreement, and no
party shall issue any press release, publicity statement or other public notice
relating to this Agreement, or the transactions
34
<PAGE>
contemplated by this Agreement, without obtaining the prior consent of both
Seller and Buyer except to the extent that Buyer and its legal counsel in good
faith conclude is required by applicable Law. Seller shall obtain the prior
consent of Buyer to the form and content of any application or report made to
any Governmental Entity that relates or refers to this Agreement.
11.9 Confidentiality. All information disclosed in writing and
designated in writing as confidential by any party (or its representatives)
whether before or after the date hereof, in connection with the transactions
contemplated by, or the discussions and negotiations preceding, this Agreement
to any other party (or its representatives) shall be kept confidential by such
other party and its representatives and shall not be used by any such Persons
other than as contemplated by this Agreement, except to the extent that such
information (i) was known by the recipient when received, (ii) it is or
hereafter becomes lawfully obtainable from other sources, (iii) is necessary or
appropriate to disclose to a Governmental Entity having jurisdiction over the
parties, (iv) as may otherwise be required by law or (v) to the extent such duty
as to confidentiality is waived in writing by the other party. If this
Agreement is terminated in accordance with its terms, each party shall use all
reasonable efforts to return upon written request from the other party all
documents (and reproductions thereof) received by it or its representatives from
such other party (and, in the case of reproductions, all such reproductions made
by the receiving party) that include information not within the exceptions
contained in the first sentence of this Section 11.9, unless the recipients
provide assurances reasonably satisfactory to the requesting party that such
documents have been destroyed.
11.10 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer or shall confer upon any persons other than the parties
hereto any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement, other than rights of indemnity under Article X in
favor of the persons named therein.
11.11 Notices. Any notice or other communication hereunder must be
given in writing and either (a) delivered in person, (b) transmitted by telex,
telefax or telecommunications mechanism or (c) mailed by certified or registered
mail, postage prepaid, receipt requested as follows:
If to Seller, addressed to:
Cypress Bioscience, Inc.
4350 Executive Drive, Suite 325
San Diego, CA 92121
Attn: Jay D. Kranzler, M.D.
Fax No.: (619) 452-1222
35
<PAGE>
With copies to:
Cooley Godward LLP
4365 Executive Drive
San Diego, CA 92121-2128
Attn: Barbara Borden, Esq.
Fax No.: (619) 453-3555
If to Fresenius AG, addressed to:
Fresenius
Aktiengesellschaft
Adsorber Technology Division
Attn: Mr. Stefan Schulze
D-66606 St. Wendel
Telecopy No.: 011-49-6851-807444
With copies to:
Fresenius Aktiengesellschaft
Law Department
Attn.: Mr. Roland Kirsten
If by mail: Else-Kroner-Strasse 1
61346 Bad Homburg
Germany
If by delivery: Else-Kroner-Strasse 1
61352 Bad Homburg
Germany
Telecopy No.: 011-49-6172-608-2251
and to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
New York, New York 10022-4611
Attn: Dr. Ulrich Wagner
Telecopy No.: (212) 326-2061
If to Buyer, addressed to:
Fresenius Hemotechnology, Inc.
110 Mason Circle, Suite A
Concord, CA 94520-1238
Attn: President
36
<PAGE>
with copies to Fresenius AG and O'Melveny & Myers LLP at their
respective addresses set forth above.
or to such other address or to such other person as either party shall
have last designated by such notice to the other party. Each such notice or
other communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 11.11 and an appropriate answer back is received, (ii) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when actually delivered at such address.
11.12 Expenses. Except as otherwise provided in this Section 11.12 and
Section 11.14, Seller and Buyer shall each pay their own expenses incident to
the negotiation, preparation, execution and performance of this Agreement and
the transactions contemplated hereby, including but not limited to the fees,
expenses and disbursements of their respective investment bankers, accountants,
counsel and other representatives.
11.13 Waiver. No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver thereof, nor shall
any single or partial exercise preclude any further or other exercise of such or
any other right.
11.14 Representation By Counsel; Interpretation. Seller and Buyer each
acknowledge that each party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of Law or any legal decision that would
require interpretation of any claimed ambiguities in this Agreement against the
party that drafted it has no application and is expressly waived. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intent of Buyer and Seller.
11.15 Severability. If any provision of this Agreement is determined to
be invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement to the extent permitted by Law shall remain in full
force and effect provided that the essential terms and conditions of this
Agreement remain valid, binding and enforceable. In the event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof. To the extent permitted by Law, the parties hereby to the same extent
waive any provision of Law that renders any provision hereof prohibited or
unenforceable in any respect.
11.16 No Consequential Damages. Notwithstanding anything to the
contrary elsewhere in this Agreement (including, without limitation, the
provisions of Article XI), no party (or its Affiliates) shall, in any event, be
liable to any/the other party (or its Affiliates) for any consequential or
punitive damages, including, but not limited to, loss of revenue or income, cost
of capital, or loss of business reputation or opportunity relating to the breach
or alleged breach of this Agreement.
11.17 Further Assurances. Each of the parties covenants and agrees
that it and its successors and permitted assigns will execute such further
reasonable documents and do and
37
<PAGE>
perform or cause to be done and performed such further and other reasonable acts
as may be necessary or desirable from time to time in order to give full effect
to the provisions of this Agreement.
11.18 Official Language. The parties understand and agree that this
document has been prepared only in the English language and that the English
language is the official language of this Agreement. No party to this Agreement
will assert or allege that it did not understand each and every term of this
Agreement.
38
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officers as of the day and year first above
written.
CYPRESS BIOSCIENCE, INC.
By: /s/ Jay D. Kranzler
____________________________________________
Name: Jay D. Kranzler
_________________________________________
Title: Chief Executive Officer
________________________________________
FRESENIUS HEMOTECHNOLOGY, INC.
By: /s/ Dale L. Richardson
____________________________________________
Name: Dale L. Richardson
_________________________________________
Title: President and Chief Operating Officer
________________________________________
39
<PAGE>
Guaranty
--------
In order to induce Seller to enter into this Agreement, Fresenius AG
hereby unconditionally, irrevocably and absolutely guaranties, as primary
obligor and not merely as surety, the due and punctual performance and payment
in full of all Obligations (as hereinafter defined) when the same shall be
required to be performed or become due hereunder. The term "Obligations"
includes any an all obligations of Buyer now or hereafter made, incurred or
created, whether absolute or contingent, liquidated or unliquidated, and however
arising under or in connection with this Agreement, including, without
limitation, Buyer's obligation to pay the Assumed Liabilities. Fresenius AG
waives any right to (a) require Seller to proceed against Buyer; or (b) pursue
any other remedy Seller may have whatsoever. Fresenius AG further agrees to pay
all costs and expenses, including, without limitation, attorneys? fees and
related costs, at any time paid or incurred by Seller in endeavoring to enforce
this guaranty. This guaranty is absolute and unconditional and shall not be
affected by any act or thing whatsoever, except as expressly provided herein.
This guaranty is not an accommodation, but rather a material consideration
bargained for by Seller in agreeing to enter into the transactions contemplated
by this Agreement. No modification or amendment of any provision of this
guaranty shall be effective unless in writing and subscribed by a duly
authorized officer of each of Fresenius AG and of Seller. If any provision of
this guaranty or portion of such provision, or the application thereof to any
person or circumstance, shall, to any extent, be held invalid or unenforceable,
the remainder of this guaranty or the remainder of such provision and the
application thereof to other persons or circumstances, other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term and provision of this guaranty shall be valid and enforced to the
fullest extent permitted by the law. Fresenius AG waives all defenses to payment
or performance available to guarantors or sureties as by virtue of being
guarantors or sureties and that are not otherwise available to the primary
obligor.
In its performance of the foregoing guaranty, Fresenius AG shall be
subject to all of the obligations of Buyer and shall be entitled to assert any
facts or circumstances constituting a material breach of this Agreement by Buyer
or which would constitute a legal or equitable discharge of any Obligation of
Buyer hereunder. The foregoing notwithstanding, Fresenius AG shall not be
released or discharged from this Guaranty by reason of any assignment of this
Agreement by Buyer or Seller permitted by Section 11.5 and, upon any such
assignment, this Guaranty shall continue in full force and effect with respect
to the obligations of any such assignee and one or more subsequent assignees
hereunder.
FRESENIUS AKTIENGESELLSCHAFT
By_____________________________
By_____________________________
<PAGE>
EXHIBIT A
---------
GENERAL BILL OF SALE AND ASSIGNMENT
THIS GENERAL BILL OF SALE AND ASSIGNMENT (this "Assignment"), dated as
of _______________, 1999, is entered into by CYPRESS BIOSCIENCE, INC., a
Delaware corporation ("Seller"), and FRESENIUS HEMOTECHNOLGY, INC., a Delaware
corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Buyer, Seller and Fresenius Aktiengesellschaft, have entered
into an Asset Purchase Option Agreement, dated as of March 26, 1999 (the "Option
Agreement"), pursuant to which Seller has agreed to sell, assign and transfer,
and Buyer has agreed to purchase, all of Seller's respective right, title and
interest in and to the Purchased Assets.
NOW, THEREFORE, pursuant to the Option Agreement and in consideration
of the above premises and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Definitions. Capitalized terms used herein and not
-----------
otherwise defined herein shall have the meanings given to them in the Option
Agreement.
Section 2. Assignment. Seller does hereby irrevocably and
----------
unconditionally sell, convey, transfer and deliver to Buyer (collectively, the
"Assignment") all of such Seller's right, title and interest in and to the
Purchased Assets subject to the terms and conditions set forth herein.
Section 3. Further Assurances. Seller hereby agrees to take any and
------------------
all additional actions and to execute, acknowledge and deliver any and all
documents which Buyer may reasonably request in order to effect the intent and
purposes of this Assignment and the transactions contemplated hereby.
Section 4. Buyer's Remedies. Buyer's remedies with respect to any
----------------
claim arising from the breach of this Assignment shall be as set forth in the
Option Agreement.
Section 5. Amendment and Modification; Waiver. Subject to applicable
--------------------------
law, this Assignment be amended, modified and supplemented by written
instrument authorized and executed by Buyer and Seller any time with respect to
any of the terms contained herein. No waiver by any party of any of the
provisions hereof shall be effective unless explicitly set forth in writing and
executed by the party so waiving. The waiver by either party hereto of a breach
of any provisions of this Assignment shall not operate or be construed as a
waiver of any other or subsequent breach.
Section 6. No Third-Party Beneficiaries. This Assignment is for the
----------------------------
sole and exclusive benefit of the parties hereto, Fresenius AG, as guarantor of
Buyer's obligations under the Option Agreement, and their respective successors
and permitted assigns and nothing herein
A-1
<PAGE>
is intended or shall be construed to confer upon any person other than the
parties hereto and their respective successors and permitted assigns any rights,
remedies or claims under, or by any reason of, this Assignment or any term,
covenant or condition hereof.
Section 7. Assignment. Neither this Assignment, nor any of the
----------
rights, interests or obligations hereunder, may be assigned, unless in
accordance with the assignment provisions of the Option Agreement.
Section 8. Governing Law. This assignment shall be governed by and
-------------
construed in accordance with the laws of the State of New York without giving
effect to the principles of the conflicts of laws thereof.
Section 9. Option Agreement. This Assignment is not intended to alter
----------------
the obligations of the parties to the Option Agreement. If any conflict exists
between the terms of this Assignment and the terms of the Option Agreement, then
the terms of the Option Agreement shall govern and control.
Section 10. Headings. The headings of this Assignment are for
--------
reference purposes only and shall not affect, in any way the meaning or
interpretation of this Assignment.
Section 11. Counterparts. This Assignment may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
[Remainder of page intentionally left blank]
A-2
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment and Assumption of Lease as of the date first above written.
CYPRESS BIOSCIENCE, INC.
By: ____________________________
Name:
Title:
FRESENIUS HEMOTECHNOLOGY, INC.
By: ____________________________
Name:
Title:
S-1
<PAGE>
EXHIBIT B
---------
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE is made and entered into as of
_______________, 1999, by and between CYPRESS BIOSCIENCE, INC., a Delaware
corporation ("Assignor"), and FRESENIUS HEMOTECHNOLOGY, INC., a Delaware
corporation ("Assignee").
WHEREAS, Assignor as tenant leases [description of leased
-------------------------------
property] , pursuant to a [Lease Agreement] with ________________________
- ----------------
("Lessor"), dated _______________, 19__ (as amended to date, the "Lease"); and
WHEREAS, Assignor desires to assign to Assignee the Lease and Assignee
desires to accept the assignment and assume from Assignor the Lease.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Assignment. Assignor assigns and transfers to Assignee all of
----------
its right, title and interest as tenant in and to the Lease. Assignee hereby
attorns to Landlord, as landlord under the Lease.
2. Assignment and Assumption of Lease. Assignee accepts the
----------------------------------
assignment and hereby assumes the duties as tenant under the Lease and agrees to
perform all duties and obligations required of the tenant by the terms of the
Lease.
3. Governing Law. This assignment and assumption shall be governed
-------------
by and construed in accordance with the laws of the State of Washington without
giving effect to the principles of the conflicts of laws thereof.
4. Headings. The descriptive headings of this Assignment and
--------
Assumption of Lease are for reference purposes only and shall not affect in any
way the meaning or interpretation of this agreement.
5. Counterparts. This Assignment and Assumption of Lease may be
------------
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together will constitute one and the same instrument.
B-1
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment and Assumption of Lease as of the date first above written.
CYPRESS BIOSCIENCE, INC.
By: ____________________________
Name:
Title:
FRESENIUS HEMOTECHNOLOGY, INC.
By: ____________________________
Name:
Title:
S-1
<PAGE>
STATE OF NEW YORK
COUNTY OF ____________
Personally appeared before me, the undersigned authority, a Notary
Public in and for the aforesaid State and County, ___________________________,
with whom I am personally acquainted, and who, upon oath, acknowledged himself
or herself to be the ___________________________ of CYPRESS BIOSCIENCE, INC.,
the within named bargainor, a corporation, and that he or she as such
___________________________, executed the within instrument for the purposes
therein contained, by signing the name of the corporation by himself or herself,
as such Officer.
IN TESTIMONY WHEREOF, witness my hand and official seal at office in
the aforesaid State and County, on this the __________ day of
____________________, 1999.
______________________________________________
Notary Public
My Commission Expires:_______________________
STATE OF NEW YORK
COUNTY OF
Personally appeared before me, the undersigned authority, a Notary
Public in and for the aforesaid State and County, ____________________________,
with whom I am personally acquainted, and who, upon oath, acknowledged himself
or herself to be the ___________________________ of FRESENIUS HEMOTECHNOLOGY,
INC., the within named bargainor, a corporation, and that he or she as such
___________________________, executed the within instrument for the purposes
therein contained, by signing the name of the corporation by himself or herself,
as such Officer.
IN TESTIMONY WHEREOF, witness my hand and official seal at office in
the aforesaid State and County, on this the __________ day of
____________________, 1999.
______________________________________________
Notary Public
My Commission Expires:______________________
S-2
<PAGE>
EXHIBIT C
---------
ASSIGNMENT OF CONTRACTS
THIS ASSIGNMENT OF CONTRACTS is entered into as of _______________,
1999 by CYPRESS BIOSCIENCE, INC., a Delaware corporation ("Seller"), in favor
and for the benefit of FRESENIUS HEMOTECHNOLOGY, INC., a Delaware corporation
("Buyer").
WHEREAS, pursuant to that certain Asset Purchase Option Agreement
dated as of March 26, 1999 (the "Option Agreement") by and among Buyer, Seller
and Fresenius Aktiengesellschaft, Seller has agreed to assign to Buyer and Buyer
has agreed to assume from Seller, for the consideration and upon the terms and
conditions set forth in the Option Agreement, certain of the executory
obligations and liabilities of Seller arising from and after the Closing
pursuant to the Assumed Contracts; and
WHEREAS, capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to such terms in the Option Agreement.
NOW, THEREFORE, pursuant to the Option Agreement and in consideration
of the premises, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed that:
1. Assignment. Seller does hereby assign, grant, convey and
----------
transfer to Buyer, all of Seller's right, title and interest in, to and under
the Assumed Contracts.
2. Seller's Undertaking. Seller agrees to take such action and to
--------------------
execute and attest such documents, assignments, transfers or other writings or
instruments as may be necessary, proper or required by law to evidence the
assignment made herein.
3. Option Agreement. This Assignment of Contracts is not intended
----------------
to alter the obligations of the parties to the Option Agreement. If any
conflict exists between the terms of this Assignment of Contracts and the Option
Agreement, then the terms of the Option Agreement shall govern and control.
4. Governing Law. This assignment shall be governed by and
-------------
construed in accordance with the laws of the State of New York without giving
effect to the principles of the conflicts of laws thereof.
5. Headings. The descriptive headings of this Assignment of
--------
Contracts are for reference purposes only and shall not affect in any way the
meaning or interpretation of this agreement.
6. Counterparts. This Assignment of Contracts may be executed in
------------
two or more counterparts, each of which shall be deemed an original, but all of
which together will constitute one and the same instrument.
C-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
of Contracts as of the date first above written.
CYPRESS BIOSCIENCE, INC.
By: ____________________________
Name:
Title:
FRESENIUS HEMOTECHNOLOGY, INC.
By: ____________________________
Name:
Title:
S-1
<PAGE>
STATE OF NEW YORK
COUNTY OF __________
Personally appeared before me, the undersigned authority, a Notary
Public in and for the aforesaid State and County, ____________________________,
with whom I am personally acquainted, and who, upon oath, acknowledged himself
or herself to be the ___________________________ of CYPRESS BIOSCIENCE, INC.,
the within named bargainor, a corporation, and that he or she as such
___________________________, executed the within instrument for the purposes
therein contained, by signing the name of the corporation by himself or herself,
as such Officer.
IN TESTIMONY WHEREOF, witness my hand and official seal at office in
the aforesaid State and County, on this the __________ day of
____________________, 1999.
___________________________________________
Notary Public
My Commission Expires:________________________
STATE OF NEW YORK
COUNTY OF _________
Personally appeared before me, the undersigned authority, a Notary
Public in and for the aforesaid State and County, ____________________________,
with whom I am personally acquainted, and who, upon oath, acknowledged himself
or herself to be the ___________________________ of FRESENIUS HEMOTECHNOLOGY,
INC., the within named bargainor, a corporation, and that he or she as such
___________________________, executed the within instrument for the purposes
therein contained, by signing the name of the corporation by himself or herself,
as such Officer.
IN TESTIMONY WHEREOF, witness my hand and official seal at office in
the aforesaid State and County, on this the __________ day of
____________________, 1999.
___________________________________________
Notary Public
My Commission Expires:___________________
S-2
<PAGE>
EXHIBIT D
---------
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT is entered into as of _______________, 1999
by and between CYPRESS BIOSCIENCE, INC., a Delaware corporation ("Seller"), and
FRESENIUS HEMOTECHNOLOGY, INC., a Delaware corporation ("Buyer").
WHEREAS, pursuant to that certain Asset Purchase Option Agreement
dated as of March 26, 1999 (the "Option Agreement") by and among Buyer, Seller
and Fresenius Aktiengesellschaft, Seller has agreed to sell to Buyer and Buyer
has agreed to purchase from Seller certain of the assets, properties, and rights
of Seller as the same are described in the Option Agreement (the "Purchased
Assets"); and
WHEREAS, pursuant to the Option Agreement, Buyer has agreed to assume
certain obligations of Seller as partial consideration for the purchase of the
Purchased Assets; and
WHEREAS, capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to such terms in the Option Agreement.
NOW, THEREFORE, pursuant to the Option Agreement and in consideration
of the premises, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed that:
1. Buyer Undertaking. Buyer hereby assumes and agrees timely to pay
------------------
and perform all of the Assumed Liabilities. Other than as specifically stated
herein or in the Option Agreement, Buyer assumes no debt, liability or
obligation of Seller other than such Assumed Liabilities.
2. Option Agreement. Nothing contained in this Assumption Agreement
-----------------
supersedes any of the obligations, agreements, covenants or warranties of Seller
or Buyer under the Option Agreement, or shall be deemed to require Buyer to pay
or discharge any Assumed Liability so long as Buyer shall in good faith contest
or cause to be contested the amount or validity thereof. If any conflict exists
between the terms of this Assumption Agreement and the Option Agreement, then
the terms of the Option Agreement shall govern and control.
3. Governing Law. This assumption shall be governed by and
-------------
construed in accordance with the laws of the State of New York without giving
effect to the principles of the conflicts of laws thereof.
4. Headings. The descriptive headings of this Assumption Agreement
--------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
5. Counterparts. This Assumption Agreement may be executed in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which together will constitute one and the same instrument.
[Remainder of page intentionally left blank]
D-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assumption
Agreement as of the date first above written.
CYPRESS BIOSCIENCE, INC.
By: ____________________________
Name:
Title:
FRESENIUS HEMOTECHNOLOGY, INC.
By: ____________________________
Name:
Title:
S-1
<PAGE>
STATE OF NEW YORK
COUNTY OF ___________
Personally appeared before me, the undersigned authority, a Notary
Public in and for the aforesaid State and County, ____________________________,
with whom I am personally acquainted, and who, upon oath, acknowledged himself
or herself to be the ___________________________ of CYPRESS BIOSCIENCE, INC.,
the within named bargainor, a corporation, and that he or she as such
___________________________, executed the within instrument for the purposes
therein contained, by signing the name of the corporation by himself or herself,
as such Officer.
IN TESTIMONY WHEREOF, witness my hand and official seal at office in
the aforesaid State and County, on this the __________ day of
____________________, 1999.
_______________________________________
Notary Public
My Commission Expires:_______________________
STATE OF NEW YORK
COUNTY OF
Personally appeared before me, the undersigned authority, a Notary
Public in and for the aforesaid State and County, ____________________________,
with whom I am personally acquainted, and who, upon oath, acknowledged himself
or herself to be the ___________________________ of FRESENIUS HEMOTECHNOLOGY,
INC., the within named bargainor, a corporation, and that he or she as such
___________________________, executed the within instrument for the purposes
therein contained, by signing the name of the corporation by himself or herself,
as such Officer.
IN TESTIMONY WHEREOF, witness my hand and official seal at office in
the aforesaid State and County, on this the __________ day of
____________________, 1999.
_______________________________________
Notary Public
My Commission Expires:_______________________
S-2
<PAGE>
Exhibit 10.3
REGISTRATION AGREEMENT
between
CYPRESS BIOSCIENCE, INC.,
and
FRESENIUS AKTIENGESELLSCHAFT,
Dated March 26, 1999
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. INTRODUCTION.......................................................... 1
2. REGISTRATION UNDER SECURITIES ACT, ETC................................ 1
2.1 Registration on Request.......................................... 1
2.1.1 Requests................................................. 1
2.1.2 Registration Statement Form.............................. 2
2.1.3 Expenses................................................. 2
2.1.4 Effective Registration Statement......................... 2
2.1.5 Priority in Requested Registrations...................... 3
2.1.6 Other Securities......................................... 3
2.2 Incidental Registration.......................................... 4
2.2.1 Notices; Obligation to Register.......................... 4
2.2.2 Effect on Requested Registrations; Expenses.............. 4
2.3 Registration Procedures.......................................... 4
2.3.1 Procedures............................................... 4
2.3.2 Information Concerning Holders........................... 7
2.4 Underwritten Offerings........................................... 8
2.4.1 Selection of Underwriters in Requested Offerings......... 8
2.4.2 Incidental Underwritten Offerings........................ 8
2.4.3 Other Registration Rights................................ 8
2.4.4 Suspension of Effectiveness of Registration Statement.... 9
2.5 Indemnification and Contribution................................. 9
2.5.1 Indemnification by the Company........................... 9
2.5.2 Indemnification by the Sellers........................... 10
2.5.3 Notices of Claims, etc................................... 10
2.5.4 Contribution............................................. 11
2.5.5 Other Indemnification and Contribution................... 12
2.5.6 Payments................................................. 12
3. GENERAL............................................................... 12
3.1 Rule 144................................................. 12
3.2 Nominees for Beneficial Owners........................... 12
i.
</TABLE>
<PAGE>
Table of Contents
(continued)
<TABLE>
Page
<S> <C>
3.3 Amendments and Waivers................................... 12
3.4 Notices.................................................. 13
3.5 Certain Definitions...................................... 13
3.6 Determination of Percentages of Registrable Securities... 14
3.7 Consolidation, Merger, Etc............................... 14
3.8 Restrictive Legends...................................... 15
3.9 Company Cooperation...................................... 16
3.10 Miscellaneous............................................ 16
3.11 Arbitration.............................................. 16
3.12 Attorneys' Fees.......................................... 17
3.13 Official Language........................................ 17
</TABLE>
ii.
<PAGE>
REGISTRATION AGREEMENT
REGISTRATION AGREEMENT, dated as of March 26, 1999 (the "Agreement"),
between CYPRESS BIOSCIENCE, INC., a Delaware corporation (the "Company"), and
FRESENIUS AKTIENGESELLSCHAFT, a German corporation ("Fresenius").
1. INTRODUCTION. Fresenius and the Company have entered into a series of
related agreements providing for the purchase by Fresenius, on the date hereof
and from time to time hereafter, of shares of the Company common stock, par
value $0.02 per share (the "Common Stock"). Pursuant to a Securities Purchase
Agreement (the "Securities Purchase Agreement") dated as of the date hereof,
between Fresenius and the Company, Fresenius has purchased 297,530 shares of
Common Stock on the terms and conditions set forth therein. Pursuant to the
License and Distribution Agreement (the "License and Distribution Agreement")
dated as of the date hereof, Fresenius, Fresenius Hemotechnology, Inc. and the
Company have entered into certain arrangements whereby Fresenius agreed to make
certain payments to the Company which shall take the form of purchases of
additional Common Stock. In addition, on the date hereof, Fresenius has been
issued warrants (the "Warrants") to purchase 342,466 shares of Common Stock at a
purchase price of $7.50 per share, exercisable during the three-year period
commencing on the date hereof. The Company has agreed to grant to Fresenius the
right to require that such Common Stock be registered for sale under the
Securities Act under the terms and conditions set forth herein. Certain
capitalized terms used in this Agreement are defined in Section 3.5.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 Registration on Request.
2.1.1 Requests. Subject to the conditions of this Section 2.1 and
the other terms and conditions of this Agreement, at any time or from time to
time after the first anniversary of the date hereof, upon the written request of
one or more Qualified Holders requesting that the Company shall use its
reasonable efforts to effect the registration under the Securities Act of all or
any part of such Qualified Holders' Registrable Securities and specifying the
intended method of disposition thereof, the Company shall promptly give written
notice of such requested registration to all holders of record of Registrable
Securities, and thereupon the Company shall, as expeditiously as reasonably
possible, use all reasonable efforts to effect the registration under the
Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by such Qualified Holder or Holders, for disposition
in accordance with the intended method of disposition stated in such
request;
(ii) all other Registrable Securities the holders of which
shall have made a written request to the Company for registration thereof
within 10 days after the giving of such written notice by the Company
(which request shall specify the intended method of disposition thereof);
and
2.
<PAGE>
(iii) all shares of Common Stock which the Company may elect to
register (for itself or for any other Person) in connection with the
offering of Registrable Securities pursuant to this Section 2.1 by having
given notice of such election, specifying the number of shares to be so
included, to each holder of Registrable Securities within 10 days of its
receipt of the notice from such Qualified Holder or Holders;
all to the extent required to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional shares of Common Stock, if any, so to be registered; provided,
however, that the Company shall not be required to effect more than one
registration pursuant to this Section 2.1. Subject to the other terms and
conditions hereof (including without limitation Section 2.1.4 hereof), the
holders of a majority of Registrable Securities included, or sought to be
included, in any registration pursuant to this Section 2.1 may at any time give
notice to the Company that they are withdrawing the request for such
registration; provided, however, that, subject to Section 2.1.4, such initial
request for inclusion will be counted as the one registration that the Company
is required to effect.
2.1.2 Registration Statement Form. The registration of the
Registrable Securities under this Section 2.1 shall be required to be effected
by the Company only if the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition specified in the
request for registration is permitted to be made pursuant to a registration
statement on Form S-3 (or any successor form thereto), provided that the Company
shall not be required to maintain the effectiveness of the prospectus included
in such registration statement for more than 90 days.
2.1.3 Expenses. The Company will pay all Registration Expenses in
connection with the registration requested under this Section 2.1.
2.1.4 Effective Registration Statement. A registration requested
pursuant to this Section 2.1 will not be deemed to have been effected (i) (a)
unless such registration has become effective and (b) if the method of
disposition is a firm commitment underwritten public offering, a closing shall
have occurred hereunder (unless, in the case of clause (b), such closing has not
occurred as a result of any action or omission on the part of Fresenius), or
(ii) if, after such registration has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Securities and Exchange Commission or other governmental agency or of any
court; provided, however, that a registration which does not become effective
after the Company has filed a registration statement with respect thereto solely
by reason of the refusal to proceed of either the underwriter (if any) or
holders of a majority of the Registrable Securities which are proposed to be
included in such offering shall be deemed to have been effected by the Company
pursuant to this Section 2.1 unless (subject to the further provisions of this
sentence) such holders shall have elected to pay all Registration Expenses in
connection with such registration; and provided, further, that, notwithstanding
the immediately preceding proviso, if the Company, after receipt of the request
for such registration (the "First Registration"), files a registration statement
under the Act covering securities other than Registrable Securities, for its own
account or for the account of any other Person (the "Second Registration"), and
the holders of a majority of the Registrable Securities which are proposed to be
included in the First Registration give notice to the Company, within ten (10)
days of notice
2.
<PAGE>
of such Second Registration being given to such holders, that they have
determined not to proceed with the First Registration due to the effects on the
market for the Company's securities of the Second Registration, then the First
Registration shall not be deemed to have been effected.
2.1.5 Priority in Requested Registrations. Subject to Section 2.1.7
below, if a requested registration pursuant to this Section 2.1 involves an
underwritten offering, and the managing underwriter shall advise the Company in
writing (with a copy to each holder of Registrable Securities requesting
registration) that, in its opinion, the number of securities requested to be
included in such registration (including securities of the Company or any other
Person which are not Registrable Securities) may adversely affect the offering
of Registrable Securities, the Company will include in such registration to the
extent of the number which the Company is so advised can be sold in such
offering without such adverse effect: (i) first, all Registrable Securities
requested to be included in such registration by the holder or holders of
Registrable Securities (or if the number of Registrable Securities requested to
be so included exceeds the number of shares of Common Stock specified by such
managing underwriter as being able to be sold in such offering without such
adverse effect, then pro rata among such holders on the basis of the number of
Registrable Securities requested to be included by such holders), and (ii)
second, to the extent of any remaining excess, securities the Company proposes
to sell and other securities of the Company included in such registration by the
holders thereof in such proportion as the Company may determine.
2.1.6 Other Securities. The Company shall be entitled to include in
any registration statement referred to in this Section 2.1, for sale in
accordance with the notice of the requesting holders of Registrable Securities,
shares of Common Stock to be sold by the Company for its own account, or for the
account of holders of shares of Common Stock that are not Registrable
Securities.
2.1.7 No Registration Statement Required. The Company shall not be
required to effect a registration pursuant to this Section 2.1:
(a) after the Company has effected one registration pursuant
to this Section 2.1, and such registration has been declared or ordered
effective;
(b) during the period starting with the date of filing of,
and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to a primary public offering by
the Company; provided that the Company makes reasonable good faith efforts to
cause such registration statement to become effective;
(c) if within thirty (30) days of receipt of a written
request from initiating holders of Registrable Securities pursuant to Section
2.1, the Company gives notice to the holders of Registrable Securities, the
Company's intention to make a public offering within ninety (90) days; or
(d) if the Company shall furnish to holders of Registrable
Securities requesting a registration statement pursuant to this Section 2.1, a
certificate signed by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such
3.
<PAGE>
registration statement to be effected at such time, in which event the Company
shall have the right to defer such filing for a period of not more than ninety
(90) days after receipt of the request of such holders; provided that such right
to delay a request shall be exercised by the Company not more than once in any
twelve (12) month period.
2.2 Incidental Registration.
2.2.1 Notices; Obligation to Register. If the Company at any time
proposes to register any shares of Common Stock under the Securities Act (other
than (i) a registration in connection with an acquisition in a manner which
would not permit registration of Registrable Securities for sale to the public,
(ii) a registration on Form S-8, or any successor form thereto, relating to a
stock option plan, stock purchase plan, managing directors' plan, savings or
similar plan or (iii) pursuant to Section 2.1 hereof), for its own account or
for the account of any holder of any shares of Common Stock, the Company will
each such time give prompt written notice to all holders of Registrable
Securities of its intention to do so and of such holders' rights under this
Section 2.2. Upon the written request of any such holder made within 10 days
after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such holder and shall state
the intended method of disposition thereof), and subject in the case of
underwritten offerings to Section 2.4.4 hereof, the Company will use reasonable
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the holders of
Registrable Securities, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Securities so to be registered, by inclusion of such Registrable Securities in
the registration statement which covers the shares of Common Stock which the
Company proposes to register; provided, however, that if, at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registering such shares of Common Stock, the Company may, at its
election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination not to
register (and provided the Company acts in accordance with such determination),
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without prejudice, however, to
the rights of any holder or holders of Registrable Securities entitled to do so
to request that such registration be effected as a registration under Section
2.1 thereof, and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Securities for the same period
as the delay in registering such other shares of Common Stock.
2.2.2 Effect on Requested Registrations; Expenses. No registration
effected pursuant to a request or requests provided for in this Section 2.2
shall be deemed to have been effected pursuant to Section 2.1 hereof. The
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to this Section 2.2.
2.3 Registration Procedures.
2.3.1 Procedures. If and whenever the Company is required by the
provisions of this Agreement to use all reasonable efforts to effect or cause
the registration of any
4.
<PAGE>
Registrable Securities under the Securities Act as provided in this Agreement,
the Company shall, as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission (in the case of a registration pursuant to Section 2.1 hereof, such
filing to be made within 60 days after the initial request of one or more
Qualified Holders of Registrable Securities) the requisite registration
statement with respect to such Registrable Securities (including or
incorporating by reference such audited financial statements as may be required
by the Securities Act or the rules and regulations promulgated thereunder) and
use its reasonable efforts to cause such registration statement to become and
remain effective, provided that before filing such registration statement or any
amendment or supplement thereto, the Company will furnish to the counsel
selected by the holders of Registrable Securities which are to be included in
such registration copies of all such documents proposed to be filed for review
and comment;
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to maintain the
effectiveness of such registration statement and to comply with the provisions
of the Securities Act with respect to the disposition of all securities covered
by such registration statement until the earliest of: (i) in the case of a
registration pursuant to Section 2.1 hereof, the earlier to occur of the
completion of the offering pursuant to such prospectus and the expiration of 90
days after such registration statement becomes effective, or (ii) in the case of
a registration pursuant to Section 2.2 hereof, such date as the Company may
determine, provided that if such registration relates to an underwritten
offering and less than all the Registrable Securities are withdrawn from
registration after the expiration of the relevant period, the shares to be so
withdrawn shall be allocated pro rata among the holders thereof on the basis of
the respective numbers of Registrable Securities held by them included in such
registration (it being understood that the shares sold pursuant to such an
offering shall have been allocated among all Persons for whose account such
shares are being registered in accordance with the priorities specified in
Section 2.1.5 or 2.4.2 hereof, as applicable).
(c) furnish to each seller of Registrable Securities covered
by such registration statement and each underwriter, if any, of the securities
being sold by such seller such number of copies of such registration statement
and of each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus and supplements thereto
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents, as such seller or underwriter, if any,
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such seller;
(d) use all reasonable efforts to register or qualify all
Registrable Securities covered by such registration statement under such other
state securities laws or blue sky laws of such United States jurisdictions as
any seller or any underwriter, if any, of the securities being sold by such
seller shall reasonably request, to keep such registrations or qualifications in
effect for so long as the registration statement filed under the Securities Act
remains in effect and do any and all other acts and things which may be
reasonably necessary or
5.
<PAGE>
advisable to enable such seller and underwriter, if any, to consummate the
disposition in such jurisdictions of such Registrable Securities owned by such
seller, provided, however, that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this clause (d) be
obligated to be qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction;
(e) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and
promptly prepare and furnish to each seller and each underwriter, if any, a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(f) advise each seller of Registrable Securities covered by
such registration statement, promptly after it receives notice thereof, of the
time when such registration statement or any amendment thereto has become
effective or any related prospectus or any supplement to such prospectus or any
amendment to such prospectus has been filed, of the issuance by the Securities
and Exchange Commission of any stop order or of any order preventing or
suspending the use of any related preliminary prospectus or prospectus, of the
suspension of the qualification of such Registrable Securities for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Securities and Exchange Commission
for the amending or supplementing of such registration statement or prospectus
or for additional information; and in the event of the issuance of any stop
order or of any order preventing or suspending the use of any such preliminary
prospectus or prospectus or suspending any such qualification, to use promptly
all reasonable efforts to obtain withdrawal of such order;
(g) file promptly all documents required to be filed with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act subsequent to the time such registration statement becomes
effective and during any period when any related prospectus is required to be
delivered;
(h) otherwise use all reasonable efforts to comply with all
applicable provisions of the Securities Act and all applicable rules and
regulations of the Securities and Exchange Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement which
shall satisfy the provisions of Section 11(a) of the Securities Act;
(i) provide a depositary or a transfer agent and registrar
for all such Registrable Securities covered by such registration statement not
later than the effective date of such registration statement;
6.
<PAGE>
(j) in connection with any offering pursuant to Section 2.1 hereof
or in connection with any underwritten offering of Registrable Securities,
furnish, at the request of any seller of Registrable Securities on the date such
securities are delivered to the underwriters for sale pursuant to such
registration or, if such securities are not being sold through underwriters, on
the date the registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of counsel representing the Company
for purposes of such registration, addressed to the underwriters and to such
seller making such request, covering such legal matters with respect to such
registration as such seller of such Registrable Securities may reasonably
request and are customarily included in such an opinion, and (ii) letters, dated
the effective date of the registration statement and the date, if any, such
securities are delivered to the underwriters for sale pursuant to such
registration, from the independent certified public accountants of the Company,
addressed to the underwriters and to such seller making such request, covering
such financial, statistical and accounting matters with respect to such
registration as such seller of such Registrable Securities may reasonably
request and are customarily included in such letters; and
(k) use all reasonable efforts to list all Registrable Securities
covered by such registration statement on each securities exchange on which any
of the securities of the same class as the Registrable Securities are then
listed (which shall be deemed to include any automated quotation system on which
any of such securities are then quoted).
Each holder of Registrable Securities shall be deemed to have agreed by
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in clause (f)
of this Section 2.3.1, such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by clause (f) of this
Section 2.3.1 and, if so directed by the Company, will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in clause (b) of this Section 2.3.1
shall be extended by the length of the period from and including the date when
the Company shall have given such notice to and including the date when each
seller of any Registrable Securities covered by such registration statement
shall have received the copies of the supplemented or amended prospectus
contemplated by clause (f) of this Section 2.3.1.
2.3.2 Information Concerning Holders. The Company may require each
seller of Registrable Securities as to which any registration is being effected
to furnish the Company such information regarding such seller and the
distribution of such securities as the Company may from time to time reasonably
request in writing for inclusion in the registration statement in accordance
with the rules and regulations of the Securities and Exchange Commission or in
connection with any registration, qualification, compliance or filing for an
exemption under state securities laws.
7.
<PAGE>
2.4 Underwritten Offerings.
2.4.1 Selection of Underwriters in Requested Offerings. If a
requested registration pursuant to Section 2.1 hereof involves an underwritten
offering, the underwriter or underwriters thereof shall be selected by the
holders of more than 50 % of the Registrable Securities as to which registration
has been requested, shall be of recognized national standing (or, if the
offering is to be conducted on a multinational basis, recognized international
standing), and shall be acceptable to the Company, such acceptance to be not
unreasonably withheld.
2.4.2 Incidental Underwritten Offerings. If the registration
statement under which the Company gives notice under Section 2.2 is for an
underwritten offering, the Company shall so advise the holders of Registrable
Securities. In such event, the right of any such holder of Registrable
Securities to be included in a registration pursuant to this Section 2.2 shall
be conditioned upon such holder of Registrable Securities participation in such
underwriting and the inclusion of such holder of Registrable Securities in the
underwriting to the extent provided herein. All holders of Registrable
Securities proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of the Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to the Company; second, to the
Qualified Holders and any other stockholders of the Company holding registration
rights pari passu with those granted hereunder on a pro rata basis based on the
total number of Registrable Securities held by the Qualified Holders and such
other holders; and third, to any other stockholder of the Company (other than a
Qualified Holder or a stockholder of the Company holding registration rights
pari passu with those granted hereunder) on a pro rata basis. No such reduction
shall reduce the securities being offered by the Company for its own account to
be included in the registration and underwriting. If any Qualified Holder
disapproves of the terms of any such underwriting, such Qualified Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Qualified Holder which is a partnership or corporation,
the partners, retired partners and stockholders of such Qualified Holder, or the
estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing person shall be deemed to be a
single "Qualified Holder", and any pro rata reduction with respect to such
"Qualified Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Qualified Holder," as defined in this sentence.
2.4.3 Other Registration Rights. The Company represents and warrants to
the holders of Registrable Securities that, as of the date of this Agreement, it
has not agreed to register any securities of the Company under the Securities
Act or the laws of any other jurisdiction pursuant to registration rights which
conflict with those granted pursuant to this Agreement. The Company agrees that,
except with the consent of the holders of a majority of the Registrable
Securities, it will not grant any registration rights with respect to its
securities that will be senior to the registration rights granted hereunder.
8.
<PAGE>
2.4.4 Suspension of Effectiveness of Registration Statement.
Notwithstanding any other provision of this Agreement, following the
effectiveness of any registration statement hereunder, the Company may, at any
time, suspend the effectiveness of the registration statement for up to no
longer than 30 days, as appropriate (a "Suspension Period"), by giving notice to
the Qualified Holder(s), if the Company shall have determined that the Company
may be required to disclose any material corporate development. The Company will
use its best efforts to minimize the length of any Suspension Period.
Notwithstanding the foregoing, no more than two Suspension Periods may occur in
any twelve (12) month period. Each Qualified Holder agrees that, upon receipt of
any notice from the Company of a Suspension Period, such Qualified Holder will
not sell any Common Stock of the Company pursuant to the registration statement
until (i) such Qualified Holder is advised in writing by the Company that the
use of the applicable prospectus may be resumed, (ii) such Qualified Holder has
received copies of any additional supplemental or amended prospectus, if
applicable, and (iii) such Qualified Holder has received copies of any
additional or supplemental filings which are incorporated or deemed to be
incorporated by reference in such prospectus. Each Qualified Holder further
covenants to notify the Company promptly of the sale of all its Common Stock of
the Company.
2.5 Indemnification and Contribution.
2.5.1 Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act, to the extent
permitted by law, the Company will indemnify and hold harmless in the case of
any registration statement filed pursuant to Section 2.1 or 2.2 hereof, the
holder of any Registrable Securities which are covered by such registration
statement, its directors and officers, each other Person who participates as an
underwriter in the offering or sale of such Registrable Securities and each
other Person, if any, who controls such holder or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities (whether arising out of a claim of a party
hereto, a third party or otherwise), to which such holder or any such director
or officer or underwriter or controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus, summary
prospectus, notification or offering circular contained therein or otherwise
used or approved for use by the Company in the offering pursuant thereto, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse such holder
and each such director, officer, underwriter and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or proceeding
or successfully enforcing the provisions hereof; provided, however, that (i) the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, notification,
offering circular, amendment or supplement in reliance upon and in conformity
with information
9.
<PAGE>
furnished to the Company in writing by such holder or, if the Person seeking
indemnification is an underwriter, by such underwriters, in either case
expressly for use therein, and (ii) the provisions of this Section 2.5.1 shall
not inure to the benefit of any underwriter (or any Person controlling such
underwriter) on account of any losses, claims, damages, liabilities or actions
arising from the sale of securities to any Person if such underwriter failed to
send or give a copy of the related prospectus, as the same may be then amended
or supplemented, to such Person within the time required by the Securities Act.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director, officer,
underwriter or controlling person and shall survive the transfer of such
securities by such holder.
2.5.2 Indemnification by the Sellers. The Company may require, as
a condition to including any Registrable Securities in any registration
statement, that the Company shall have received an undertaking satisfactory to
it from the prospective seller of such securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
2.5.1 hereof) the Company, each director of the Company (or each person
performing a similar function), each officer of the Company (or each person
performing a similar function) and each other Person, if any, who controls the
Company within the meaning of the Securities Act, each Person who participates
as an underwriter in the offering or sale of such Registrable Securities and
each other Person, if any, who controls such underwriter within the meaning of
the Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus, summary prospectus, notification or offering
circular contained therein, or any amendment or supplement thereto, if and to
the extent such statement or alleged statement or omission or alleged omission
was made in reliance upon and in conformity with information furnished to the
Company in writing by such holder expressly for use therein; provided, however,
that with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, no such undertaking
shall apply to the extent that any loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus was not sent or
given to the Person asserting any such loss, claim, damage, liability or expense
at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such Person if it is determined that it was the
responsibility of the Company to provide such Person with such current copy of
the prospectus and such current copy of the prospectus would have cured the
defect giving rise to such loss, claim, damage, liability or expense; and
provided, further, that the maximum obligation of each such seller of
Registrable Securities pursuant to any such undertaking shall be limited to an
amount equal to the aggregate sales price of the Registrable Securities of such
seller sold pursuant thereto. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company or
any such director, officer or controlling person and shall survive the transfer
of such securities by such seller.
2.5.3 Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 2.5.1 or 2.5.2 hereof, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give prompt written notice to the latter of the commencement of such
action; provided, however, that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of its
obligations under Section 2.5.1 or 2.5.2 hereof except to the extent that the
indemnifying party is actually prejudiced by such
10.
<PAGE>
failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof (unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim, the counsel chosen by such indemnifying party is not
reasonably satisfactory to such indemnified party or the indemnifying party does
not in fact assume such defense), the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation or enforcement. No indemnifying party shall consent to entry of
any judgment or enter into any settlement without the consent of the indemnified
party (which shall not be unreasonably withheld) if it does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a complete and unconditional release from all liability in
respect of such claim or litigation without any payment or consideration
provided by such indemnified party other than a payment or consideration as to
which such indemnified party is concurrently indemnified by an equal payment to
such indemnified party. No indemnified party shall consent to entry of any
judgment or enter into any settlement of any such action the defense of which
has been assumed by an indemnifying party without the consent of such
indemnifying party (which shall not be unreasonably withheld).
2.5.4 Contribution. If the indemnification provided for in Section
2.5.1 or 2.5.2 hereof is unavailable to a party that would have been an
indemnified party under such Section in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then each
party that would have been an indemnifying party thereunder shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and such
indemnified party on the other in connection with the statements or omissions or
alleged statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof); provided, however, that the
liability of a seller of Registrable Securities shall be limited to an amount
equal to the aggregate sales price of the Registrable Securities of such seller
sold pursuant thereto. The relative fault shall be determined by reference to,
among other things, whether the untrue statement or alleged untrue statement of
a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or such indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each holder of Registrable Securities agree that it would not be just and
equitable if contribution pursuant to this Section 2.5.4 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 2.5.4. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this Section 2.5.4 shall include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim (which shall be limited as provided in Section 2.5.4
hereof if the
11.
<PAGE>
indemnifying party has assumed the defense of any such action in accordance with
the provisions thereof) and of successfully enforcing the provisions hereof. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
2.5.5 Other Indemnification and Contribution. Indemnification and
contribution similar to that specified in Sections 2.5.1, 2.5.2, 2.5.3 and 2.5.4
hereof (with appropriate modifications) shall be given by the Company and each
seller of Registrable Securities with respect to any required registration or
other qualification of such Registrable Securities under any federal or state
law or regulation of any governmental authority, other than the Securities Act.
2.5.6 Payments. The indemnification and contribution required by
this Section 2.5 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
3. GENERAL.
3.1 Rule 144. So long as the shares of Common Stock of the Company are
registered pursuant to the requirements of Section 12 of the Exchange Act, the
Company covenants that it will timely file the reports required to be filed by
it under the Securities Act or the Exchange Act (including but not limited to
the reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act) and the rules and regulations adopted by
the Securities and Exchange Commission thereunder, and will take such further
action as any holder of Registrable Securities may reasonably request, from time
to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the Securities and Exchange Commission. Upon the request of any holder of
Registrable Securities, the Company will inform such holder whether it has
complied with such requirements.
3.2 Nominees for Beneficial Owners. In the event that Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its option, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement (or any
determination of any number or percentage of shares constituting Registrable
Securities held by any holder or holders of Registrable Securities contemplated
by this Agreement).
3.3 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only with
the written consent of the Company, Fresenius and the holders of more than 50%
of the Registrable Securities at the time outstanding. Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 3.3, whether or not Registrable
Securities shall have been marked to indicate such consent.
12.
<PAGE>
3.4 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telex or telecopy) addressed as hereinafter provided and if either (x) actually
delivered at said address (evidenced in the case of a telex or telecopy by
receipt of the correct answerback or other communication) or (y) in the case of
a letter, five business days shall have elapsed after the same shall have been
deposited in the mails, postage prepaid and registered or certified: (a) if to
Fresenius, at its registered address as set forth in the register kept by the
Company, (b) if to any holder of other Registrable Securities, to the registered
address of such holder as set forth in the Company's transfer records; and (c)
if to the Company, to the attention of the Chief Executive Officer at 4350
Executive Drive, Suite 325, San Diego, CA 92121, or at such other address as
the Company shall have furnished to each holder of Registrable Securities at the
time outstanding.
3.5 Certain Definitions. As used in this Agreement, the following terms
have the following respective meanings:
"Affiliate" as defined in Rule 405 under the Securities Act.
"Common Stock" as defined in Section 1 of this Agreement.
"Company" as defined in the Preamble to this Agreement.
"Demand Securities" as defined in Section 2.4.2 of this Agreement.
"Exchange Act" the Securities Exchange Act of 1934, or any similar federal
statute, and the rules and regulations of the Securities and Exchange Commission
thereunder, all as the same shall be amended from time to time.
"First Registration" as defined in Section 2.1.4 of this Agreement.
"Fresenius" as defined in the Preamble to this Agreement.
"License and Distribution Agreement" as defined in Section 1 of this
Agreement.
"NASD" the National Association of Securities Dealers, Inc.
"Person" a corporation, an association, a partnership, an organization, a
trust, a business, an individual, a government or political subdivision thereof,
a governmental agency or any other entity.
"Qualified Holders" any holder or holders of Registrable Securities making
a written request pursuant to Section 2.1 hereof for the registration of all or
part of the Registrable Securities held by such holder or holders if on the date
of such request such holder is Fresenius or an Affiliate of Fresenius.
"Registrable Securities" all shares of Common Stock (i) purchased by
Fresenius pursuant to the Securities Purchase Agreement, (ii) purchased by
Fresenius through the payment of certain amounts as milestone payments from "Net
Profits," as defined in and pursuant to the License and Distribution Agreement,
and (iii) issued or issuable upon exercise of the Warrants,
13.
<PAGE>
including any securities issued or issuable with respect to such shares of
Common Stock or Warrants by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise, except for shares of Common Stock which
have been distributed to the public pursuant to a registration statement or Rule
144 (or any successor provision) under the Securities Act and except for shares
of Common Stock the certificates evidencing which have had the legend specified
in Section 3.8 hereof properly removed pursuant to Section 3.8(c) hereof.
"Registration Expenses" all expenses incident to the Company's performance
of or compliance with Section 2 hereof, including without limitation all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws, all printing expenses and expenses of formatting
for electronic submission to the Securities and Exchange Commission, messenger
and delivery expenses, the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such performance
and compliance, the reasonable fees and disbursements (not to exceed $15,000 per
registration hereunder) of a single counsel retained by the holders of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, provided
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries or fringe benefits of Company
personnel or general overhead expenses of the Company, and shall not include
premiums or other expenses relating to liability insurance required by
underwriters or the Company, or other expenses for the preparation of financial
statements or other data normally prepared by the Company in the ordinary course
of its business or which the Company would have incurred in any event.
"Second Registration" as defined in Section 2.1.4 of this Agreement.
"Securities Act" the Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Securities and Exchange Commission
thereunder, all as the same shall be amended from time to time.
"Securities and Exchange Commission" the U.S. Securities and Exchange
Commission, or any other federal agency at the time administering the Exchange
Act or the Securities Act, whichever is the relevant statute for the particular
purpose.
"Securities Purchase Agreement" as defined in Section 1 of this Agreement.
"Warrants" as defined in Section 1 of this Agreement.
3.6 Determination of Percentages of Registrable Securities. For purposes
of determining any percentage or specified group of holders of Registrable
Securities, holders of securities which are exercisable or exchangeable for, or
convertible into, Registrable Securities shall be deemed to be holders of the
Registrable Securities which are at the time issuable upon such exercise,
exchange or conversion.
3.7 Consolidation, Merger, Etc. The Company agrees not to effect any
consolidation, merger or any transfer of all or substantially all of its
properties or assets for
14.
<PAGE>
consideration consisting of securities unless, prior to the consummation
thereof, the successor corporation or other Person (if other than the Company)
resulting from such consolidation or merger or the Person purchasing such
properties or assets shall assume, by written instrument executed and mailed or
delivered to each holder of Registrable Securities, the due and punctual
performance of the obligations of the Company hereunder. The provisions of this
Section 3.8 shall similarly apply to successive consolidations, mergers and
transfers.
3.8 Restrictive Legends.
3.8.1 Except as otherwise permitted by this Section 3.8, each
Registrable Security shall be stamped or otherwise imprinted with a legend in
substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any state
securities laws and may not be offered for sale, transferred, sold,
assigned, pledged, hypothecated or otherwise disposed of in the
absence of such registration or an exemption therefrom under such Act
and any applicable state securities laws. Furthermore, such securities
may be offered for sale, transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of only in compliance with Section
3.8 of the Registration Agreement dated as of March 26, 1999 between
the issuer hereof and Fresenius Aktiengesellschaft, a complete and
correct copy of which is available for inspection at the principal
office of the issuer of these securities and will be furnished without
charge to the holder hereof upon written request.
(a) No Registrable Security shall be sold, assigned,
encumbered, pledged, hypothecated, given away or in any other manner disposed of
or transferred, whether voluntarily, involuntarily, by operation of law,
pursuant to judicial process, the laws of descent and distribution or otherwise
(a "Transfer") except as permitted by this Section 3.8(b). Any attempted
Transfer of any Registrable Security not permitted by this Section 3.8(b) shall
be null and void, and the Company shall not in any way give effect to such
Transfer. In addition to taking any other actions required by this Section 3.8,
prior to any Transfer of any Registrable Securities which are not registered
under an effective registration statement under the Securities Act, the holder
thereof will give written notice to the Company of such holder's intention to
effect such sale or other transfer and to comply in all other respects with this
Section 3.8(b). Each such notice (x) shall describe the manner and circumstances
of the proposed sale or other transfer and (y) shall be accompanied by an
opinion of outside counsel, which counsel shall be reasonably satisfactory to
the Company, of the holder of such Registrable Securities as to the
applicability to the proposed transfer of the registration provisions of the
Securities Act. The following provisions shall then apply:
(i) If in the unqualified (except for such
qualifications as are reasonable and are customary in opinions rendered
with respect to similar transactions) opinion of such counsel the proposed
sale or other transfer may be effected without registration of such
Registrable Securities under the Securities Act, such holder shall
thereupon be entitled to transfer such Registrable Securities in accordance
with the terms of the notice delivered by such holder to the Company. Each
certificate representing such
15.
<PAGE>
Registrable Securities issued upon or in connection with such sale or other
transfer shall bear the restrictive legends required by Section 3.8(a)
hereof, subject to Section 3.8(c) hereof.
(ii) If in the opinion of such counsel the proposed sale
or other transfer may not legally be effected without registration of such
Registrable Securities under the Securities Act, such holder shall not be
entitled to transfer such Registrable Securities until either (x) receipt
by the Company of a further notice from such holder pursuant to the
foregoing provisions of this Section 3.8(b) and fulfillment of the
provisions of clause (i) above or (y) such Registrable Securities have been
effectively registered under the Securities Act.
(b) The restrictions imposed by Section 3.8(b) hereof upon
the transferability of Registrable Securities shall cease and terminate as to
any particular Registrable Securities (a) when such Registrable Securities shall
have been effectively registered under the Securities Act, or (b) when, in the
opinion of either outside counsel, reasonably satisfactory to the Company, for
the holder thereof or counsel for the Company, such restrictions are no longer
required in order to ensure compliance with the Securities Act. Whenever such
restrictions shall cease and terminate as to any Registrable Securities, the
holder thereof shall be entitled to receive from the Company, without expense
(other than applicable transfer taxes, if any), new securities of like tenor not
bearing the legend required by Section 3.8(a) hereof.
3.9 Company Cooperation. From and after such time, if any, as the shares
of Common Stock shall cease to be registered under the Exchange Act, the Company
agrees to cooperate in such manner as may be reasonably requested by any holder
of Registrable Securities in connection with a proposed sale or other transfer
of all or any portion of such Registrable Securities in order to permit such
holder to utilize exemptions from registration under the Securities Act and
state securities laws which may be applicable to the proposed sale or other
transfer, including without limitation, if applicable, providing to prospective
purchasers the information specified in Rule 144A promulgated under the
Securities Act or any similar or successor rule.
3.10 Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the holders from time to time of Registrable
Securities, whether so expressed or not. This Agreement embodies the entire
agreement and understanding between the Company and Fresenius and supersedes all
prior agreements and understandings relating to the subject matter hereof. This
Agreement shall be construed and enforced in accordance with and governed by the
domestic substantive laws of the State of New York, without reference to any
choice or conflict of laws principles which could cause the application of the
domestic substantive laws of any other jurisdiction. The headings in this
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
3.11 Arbitration. A party asserting the existence of any dispute or
controversy arising out of or in connection with this Agreement (a "Dispute"),
including any Dispute relating to the existence, materiality or cure of a
claimed material breach, shall notify to the other parties to this
16.
<PAGE>
Agreement in writing of the existence and subject matter of the Dispute. For a
thirtyday period following such notification, the parties shall meet and
negotiate in good faith to attempt the resolve the Dispute and shall escalate
the Dispute to the respective Chief Executive Officers of the parties if
resolutions is not made within the first fifteen days. If such efforts do not
resolve the Dispute within such thirty-day period, the Dispute shall be referred
to and finally resolved by arbitration under the rules of the American
Arbitration Association, and except for proceedings commenced to enforce an
arbitration award, each party hereby irrevocably waives its right to commence
any proceeding in any court with respect to any matter arising under this
Agreement. The tribunal shall consist of a sole arbitrator appointed jointly by
the parties. In the case of the parties failing to choose a sole arbitrator, the
tribunal shall consist of three arbitrators, two of whom shall be appointed by
the respective parties and the third arbitrator shall be appointed jointly by
the first two. The place of arbitration shall be New York, New York or such
other location as the parties shall agree. The language of the arbitration shall
be English. No arbitrator shall be an Affiliate, employee, officer or director
of either party or of their respective Affiliates, nor shall any Arbitrator have
any interest that would be affected in any material respect by the outcome of
the Dispute. The decision of the sole arbitrator or of a majority of the
arbitrators, where applicable, shall be final and binding on the parties and
their respective successors and assigns. The decision shall not be subject to
appeal or judicial review except in circumstances of fraud. The prevailing party
in any such arbitration shall be entitled to recover reasonable fees of
attorneys and other professionals in addition to all court costs and
arbitrator's fees which that party may incur as a result. Judgment upon the
award granted by the arbitrator(s) may be entered in any court having
jurisdiction over the relevant party or its assets.
3.12 Attorneys' Fees. In any action at law or in equity to enforce any of
the provisions or rights under this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and expenses incurred in such
action, in addition to any other relief to which such party shall be entitled.
3.13 Official Language. The parties understand and agree that this
document has been prepared only in the English language and that the English
language is the official language of this Agreement. No party to this Agreement
will assert or allege that it did not understand each and every term of this
Agreement.
17.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed on the date first written above.
CYPRESS BIOSCIENCE, INC.,
a Delaware corporation
By: /s/ Jay Kranzler
---------------------------
Its: Chief Executive Officer
--------------------------
FRESENIUS AKTIENGESELLSCHAFT
a German corporation
By: /s/ Stefan Schulze
---------------------------
Its: Executive Vice President
--------------------------
18.
<PAGE>
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
between
CYPRESS BIOSCIENCE, INC.,
(the "Company")
and
FRESENIUS AKTIENGESELLSCHAFT,
("Investor")
Dated March 26, 1999
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 Definitions.
1.1 Defined Terms....................................................... 1
1.2 Additional Defined Terms............................................ 3
ARTICLE 2 BASIC TERMS OF PURCHASE AND SALE.
2.1 Purchase and Sale of Common Stock................................... 4
2.2 Issuance of Warrant................................................. 4
2.3 Closing Dates....................................................... 4
2.4 Payment and Delivery................................................ 4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
3.1 Organization and Standing........................................... 5
3.2 Capitalization...................................................... 5
3.3 Corporate Records................................................... 6
3.4 Authorization....................................................... 6
3.5 Valid Issuance of the Common Stock.................................. 6
3.6 Public Reports; Financial Statements................................ 6
3.7 Governmental and Third Party Consents............................... 7
3.8 Compliance with Other Instruments................................... 7
3.9 Litigation.......................................................... 7
3.10 Material Contracts.................................................. 8
3.11 Title to Property and Assets........................................ 8
3.12 Taxes............................................................... 8
3.13 Patents, Trademarks, etc............................................ 8
3.14 Misleading Statements............................................... 8
3.15 Employee Compensation Plans......................................... 9
3.16 Registration Rights................................................. 9
3.17 Affiliate Transactions.............................................. 9
3.18 Stockholder Agreements.............................................. 9
3.19 Brokers or Finders.................................................. 9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF INVESTOR.
4.1 Authorization....................................................... 9
4.2 Purchase Entirely for Own Account................................... 10
4.3 Disclosure of Information........................................... 10
4.4 Experience.......................................................... 10
4.5 Restricted Securities............................................... 10
4.6 Further Limitations on Disposition.................................. 10
4.7 Legends............................................................. 10
4.8 Brokers or Finders.................................................. 11
</TABLE>
i
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
4.9 Residence........................................................... 11
ARTICLE 5 CONDITIONS OF INVESTOR'S OBLIGATIONS AT FIRST CLOSING.
5.1 Representations and Warranties True at the First Closing............ 11
5.2 Performance......................................................... 11
5.3 Compliance Certificates............................................. 11
5.4 Proceedings and Documents........................................... 11
5.5 Blue Sky............................................................ 11
5.6 Legal Matters....................................................... 11
ARTICLE 6 CONDITIONS OF THE COMPANY'S OBLIGATIONS AT FIRST CLOSING.
6.1 Representations and Warranties True at the First Closing............ 12
6.3 Legal Matters....................................................... 12
6.4 Proceedings and Documents........................................... 12
6.5 Registration Agreement.............................................. 12
6.6 Blue Sky............................................................ 12
ARTICLE 7 AFFIRMATIVE COVENANTS OF THE COMPANY.
7.1 Financial Information............................................... 12
7.2 Taxes, Liens, Etc................................................... 12
ARTICLE 8 INDEMNIFICATION.
8.1 Obligations of the Company.......................................... 13
8.2 Obligations of Investor............................................. 13
8.3 Notice of Claim..................................................... 13
8.4 Direct Claims....................................................... 13
8.5 Third Party Claims.................................................. 14
8.6 Settlement of Third Party Claims.................................... 14
8.7 Cooperation......................................................... 15
8.8 Survival............................................................ 15
ARTICLE 9 ARBITRATION.
9.1 Arbitration......................................................... 15
ARTICLE 10 MISCELLANEOUS PROVISIONS.
10.1 Further Assurances.................................................. 16
10.2 Rights Cumulative................................................... 16
10.3 Number and Gender................................................... 16
10.4 Notices............................................................. 16
</TABLE>
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
10.5 Captions............................................................ 18
10.6 Severability........................................................ 18
10.7 Attorney's Fees..................................................... 18
10.8 Counterparts........................................................ 18
10.9 Entire Agreement.................................................... 18
10.10 Amendment........................................................... 18
10.11 Delays or Omissions................................................. 18
10.12 Waiver and Extenstion of Time....................................... 18
10.13 Governing Law....................................................... 19
10.14 Successors and Assigns.............................................. 19
10.15 Survival............................................................ 19
10.16 Annexes and Schedules............................................... 19
10.17 Legal Expenses...................................................... 19
10.18 Official Language................................................... 19
</TABLE>
<PAGE>
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of March 26, 1999, by and between CYPRESS BIOSCIENCE, INC., a Delaware
corporation (the "Company"), and FRESENIUS AKTIENGESELLSCHAFT, a German
corporation ("Investor").
R E C I T A L S
Whereas, the Company is authorized to issue up to 60,000,000 shares of
common stock at a par value of $0.02 per share (the "Common Stock"); and
Whereas, the Company desires to sell an aggregate of 297,530 shares of its
authorized but unissued shares of Common Stock to Investor at the Average
Closing Price (the "Initial Common Stock"), pursuant to the terms of this
Agreement;
Whereas, the Company desires to issue a warrant for the purchase of up to
shares of Common Stock at a price of $7.50 per share for a period of 3 years
following issuance of the warrant, on terms and conditions as more particularly
described in the Warrant (as defined below);
Whereas, Investor desires to purchase the Initial Common Stock and to
obtain the Warrant as aforesaid; and
Whereas, Investor may purchase additional shares of Common Stock as set
forth in the License and Distribution Agreement.
TERMS
Now, Therefore, in consideration of the above recitals and promises made in
this Agreement, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. Unless the context shall otherwise require, capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings assigned thereto in this Section 1:
"Additional Closings" mean the consummation of the purchases and sales of
Common Stock which are triggered by the achievement of certain milestones, as
set forth in the License and Distribution Agreement.
"Additional Closing Dates" have the meaning set forth in Section 2.3
hereof.
"Agreement" means this Securities Purchase Agreement by and between
Investor and the Company, as amended or supplemented from time to time.
1
<PAGE>
"Average Closing Price" means, as to the Common Stock, the average of the
closing sales prices as reported by the National Association of Securities
Dealers, Inc. electronic interdealer quotation system ("Nasdaq") on the Nasdaq
SmallCap Market or the Nasdaq National Market System or on such other domestic
securities exchange on which the Common Stock may then be listed, as applicable,
or, if on any day the Common Stock is not quoted in the Nasdaq National Market
System or the Nasdaq SmallCap Market or listed on any domestic securities
exchange, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such case
for the twenty (20) trading days immediately preceding the day as of which the
Investor makes any purchase of Common Stock hereunder. If at the time of any
purchase hereunder the Common Stock is not listed on any domestic securities
exchange or quoted in the Nasdaq National Market System, the Nasdaq SmallCap
Market or the domestic over-the-counter market, the "Average Closing Price"
shall be the fair value thereof determined in good faith by the Company's Board
of Directors; provided that if Investor in good faith disagrees with such
valuation, such fair value shall be determined by an investment banker jointly
selected by the Company and the Investor. The determination of such investment
banker shall be final and binding on the Company and the Investor, and the fees
and expenses of such appraiser shall be shared equally by the Company and the
Investor.
"Change of Control" means any act or event as a result of which any Person
or group of Affiliated Persons (other than Investor and its Affiliates) shall
acquire either (a) beneficial ownership of more than 50% (by number of votes) of
the voting securities of the Company, or (b) all or substantially all of the
assets of the Company.
"Closing Date" has the meaning set forth in Section 2.3 hereof.
"Common Stock" has the meaning set forth in the Recitals hereof.
"Company Financial Statements" has the meaning set forth in Section 3.6
hereof.
"Company Reports" has the meaning set forth in Section 3.6 hereof.
"Employee Benefit Plans" means the Company's 1996 Equity Incentive Plan, as
amended, the Company's Amended and Restated 1988 Non-Qualified Stock Option
Plan, as amended, and any equity incentive plan or similar plan subsequently
adopted by the Company under which options or other rights to acquire securities
of the Company may be granted to the Company's officers, directors, employees
and consultants.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Facility" has the meaning set forth in the Promissory Note.
"FHI" means Fresenius Hemotechnology, Inc., a Delaware corporation.
"First Closing" means the consummation of the purchase and sale of the
Initial Common Stock and the issuance of the Warrant under this Agreement.
"Initial Common Stock" has the meaning set forth in Section 2.1 hereof.
2
<PAGE>
"Know-how" has the meaning set forth in the License and Distribution
Agreement.
"License and Distribution Agreement" means the License and Distribution
Agreement among FHI, Investor and the Company dated of even date herewith.
"Lien" has the meaning set forth in the Promissory Note.
"Losses" has the meaning set forth in the Asset Purchase Agreement.
"Material Contract" means any document filed as a material contract with
the SEC as an exhibit to the Company's periodic reports filed with the SEC
pursuant to the Exchange Act.
"Patents" has the meaning set forth in the License and Distribution
Agreement.
"Permitted Lien" has the meaning set forth in the Promissory Note.
"Person" means any individual, partnership, joint venture, firm,
corporation, association, bank, trust or other enterprise, whether or not a
legal entity, or any governmental or political subdivision or any agency,
department or instrumentality thereof.
"Product" has the meaning set forth in the License and Distribution
Agreement.
"Registration Agreement" means the Registration Agreement dated of even
date herewith, in the form attached hereto as Annex 2.
"SEC" means the Securities and Exchange Commission or any successor entity.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" has the meaning set forth in the Promissory Note.
"Trademarks" has the meaning set forth in the License and Distribution
Agreement.
"Transaction Documents" means the License and Distribution Agreement, the
Registration Agreement, the Warrant, the Promissory Note from the Company to the
Investor dated of even date herewith, the Security Agreement between the Company
and Investor dated of even date herewith, the Leasehold Deed of Trust by the
Company for the benefit of Investor dated of even date herewith, and the Master
Agreement among the Company, Investor and FHI dated of even date herewith.
"Warrant" means the Common Stock Purchase Warrant by the Company in favor
of Investor dated of even date herewith, in the form attached hereto as Annex 1.
"Warrant Stock" means the Common Stock issuable upon exercise of the
Warrant.
1.2 Additional Defined Terms. For the convenience of the parties, in
addition to the defined terms set forth in this Article 1, certain other terms
are defined throughout this Agreement.
3
<PAGE>
ARTICLE 2
BASIC TERMS OF PURCHASE AND SALE
2.1 Purchase and Sale of Common Stock. Upon the terms and conditions
contained herein, Investor agrees to purchase from the Company, at the First
Closing, and the Company agrees to sell and issue to the Investor at the First
Closing, at the Average Closing Price per share, 297,530 shares of Common Stock
(the "Initial Common Stock"). Upon the terms and conditions contained herein and
in the License and Distribution Agreement, Investor agrees to purchase from the
Company, at Additional Closings, and the Company agrees to sell and issue to the
Investor at Additional Closings, at the per share specified or determined in
accordance with the License and Distribution Agreement, a number of shares of
Common Stock to be determined based upon the aggregate purchase price payable
pursuant to the License and Distribution Agreement.
2.2 Issuance of Warrant. Company agrees to issue to Investor, and Investor
agrees to purchase, the Warrant at the First Closing at a purchase price of
$500,000.
2.3 Closing Dates. The First Closing shall be held at the San Diego
offices of Cooley Godward LLP on March 26, 1999, or at such other time and place
as the parties agree. The date on which the First Closing actually occurs is
referred to herein as the "Closing Date." Additional Closing shall be held as
set forth in the License and Distribution Agreement. The dates on which the
Additional Closings actually occur are referred to herein as the "Additional
Closing Dates."
2.4 Payment and Delivery. At the First Closing and at any Additional
Closing, the Company shall deliver to Investor a certificate representing the
number of shares of Common Stock which Investor is purchasing from the Company
at such time, against delivery to the Company by Investor of the purchase price
by check payable to the order of Company, by wire transfer of funds to the
Company's account, or in another form suitable for the Company. At the First
Closing, the Company shall execute and deliver the Warrant to Investor.
2.5 Standstill Agreement. Commencing on the date of this Agreement and
until the earlier to occur of the expiration of two (2) years from such date and
a Change of Control of the Company(the "Standstill Period"), neither Investor
nor any of the Investor's employees or other agents (each a "Representative" and
collectively the "Representatives") will, in any manner, directly or indirectly,
except as otherwise expressly contemplated by the Transaction Documents:
(a) make, effect, initiate, cause or participate in (i) any acquisition of
beneficial ownership of any securities of the Company or any securities of any
subsidiary or other affiliate of the Company, (ii) any acquisition of any assets
of the Company or any assets of any subsidiary or other affiliate of the
Company, (iii) any tender offer, exchange offer, merger, business combination,
recapitalization, restructuring, liquidation, dissolution or extraordinary
transaction involving the Company or any subsidiary or other affiliate of the
Company, or involving any securities or assets of the Company or any securities
or assets of any subsidiary or other affiliate of the Company, or (iv) any
"solicitation" of "proxies" (as those terms are used in the proxy rules of the
Securities and Exchange Commission) or consents with respect to any securities
of the Company;
4
<PAGE>
(b) form, join or participate in a "group" (as defined in the Exchange Act
and the rules promulgated thereunder) with respect to the beneficial ownership
of any securities of the Company;
(c) act, alone or in concert with others, to seek to control or influence
the management, board of directors or policies of the Company;
(d) take any action that might require the Company to make a public
announcement regarding any of the types of matters set forth in clause "(a)" of
this Section 2.5;
(e) agree or offer to take, or encourage or propose (publicly or otherwise)
the taking of, any action referred to in clause "(a)", "(b)", "(c)" or "(d)" of
this Section 2.5;
(f) assist, induce or encourage any other person or entity to take any
action of the type referred to in clause "(a)", "(b)", "(c)", "(d)" or "(e)" of
this Section 2.5;
(g) enter into any discussions, negotiations, arrangement or agreement with
any other person or entity relating to any of the foregoing; or
(h) request or propose that the Company amend, waive or consider the
amendment or waiver of any provision set forth in this Section 2.5.
The expiration of the Standstill Period will not terminate or otherwise
affect any of the other provisions of this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached to this
Agreement as Annex 5 or as separately disclosed by the Company in the Company
Reports, the Company hereby represents and warrants to Investor, as follows:
3.1 Organization and Standing. Each of the Company and its Subsidiaries is
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization and is in good standing in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by it require such qualification, except for such failure to so
qualify as is not reasonably likely to have a material adverse effect on the
Company and its Subsidiaries taken as a whole. Each of the Company and its
Subsidiaries has all requisite corporate power and authority to conduct its
business as now conducted and as proposed to be conducted. True and complete
copies of the Company's Certificate of Incorporation and Bylaws, as amended and
restated to date, are attached hereto as Annexes 3 and 4, respectively. All of
the issued capital stock of each corporate Subsidiary has been duly authorized
and validly issued, is fully paid and nonassessable and is owned by the Company
and clear of any mortgage, pledge, lien, encumbrance, claim or equity.
3.2 Capitalization. As of of March 25, 1999, the authorized capital of the
Company consists of 60,000,000 shares of Common Stock, $0.02 par value, of which
42,699,218 are issued and outstanding and 15,000,000 shares of preferred stock,
$0.02 par value, of which no shares are issued and outstanding. All outstanding
shares of Common Stock were
5
<PAGE>
duly authorized, are fully paid and nonassessable, and were validly issued in
accordance with federal and state securities laws.
Except for options and other rights to acquire Common Stock under the
Employee Benefit Plans and options granted outside the Employee Benefit Plans
(whether currently outstanding or granted in the future), 3,270,513 currently
outstanding warrants to acquire Common Stock (of which 2,683,513 warrants were
called for redemption on March 17, 1999) and 139,130 7% convertible debentures,
there are no preemptive rights or any outstanding subscriptions, options, calls,
warrants, conversion privileges, rights of first refusal or other commitments or
rights, of any character whatsoever, presently outstanding or in existence with
respect to the purchase or other acquisition of any of the authorized but
unissued capital stock of the Company.
3.3 Corporate Records. The corporate minute books and stock record books
of the Company made available to Investor or its counsel are true, correct and
complete in all material respects.
3.4 Authorization. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement, the Warrant and the Registration
Agreement and the consummation of the transactions contemplated therein and for
the authorization, issuance and delivery of the Common Stock hereunder has been
taken. This Agreement, the Warrant and the Registration Agreement, when executed
and delivered, shall constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application relating to or affecting the
enforcement of creditors' rights. The Company has all requisite legal and
corporate power to enter into this Agreement, the Warrant and the Registration
Agreement, to issue and sell the Initial Common Stock, the Warrant, and the
Warrant Stock hereunder and under the Warrant, and to carry out and perform its
obligations under the terms of this Agreement.
3.5 Valid Issuance of the Common Stock. The Initial Common Stock to be
purchased by Investor hereunder will, upon issuance in accordance with the terms
hereof, be duly and validly issued, fully paid and nonassessable and will be
free from any liens or encumbrances (except for the restrictions on transfer
provided in this Agreement with respect to federal and state securities laws or
liens or encumbrances created by the holder thereof). Based in part upon the
representations of Investor in Section 4 of this Agreement, the Common Stock and
the Warrant Stock, when issued and delivered in accordance with this Agreement
or the Warrant, respectively, will be issued in compliance with federal and all
applicable state securities laws. Upon exercise of the Warrant and payment of
the exercise price, the Warrant Stock to be purchased by Investor under the
Warrant will, upon issuance pursuant to the terms of the Warrant, be duly and
validly issued, fully paid and nonassessable and will be free from any liens or
encumbrances (except for the restrictions on transfer provided in this Agreement
with respect to federal and state securities laws or liens or encumbrances
created by the holder thereof).
3.6 Public Reports; Financial Statements. Company has filed with the SEC
all material forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required to be filed by it under the
Securities Act, the Exchange Act and the respective rules and regulations
thereunder, all of which complied in all material respects
6
<PAGE>
with all applicable requirements of the appropriate act and the rules and
regulations thereunder. The Company has delivered to Investor (i) each
registration statement (other than a registration statement on Form S-8), under
the Securities Act and proxy statement under the Exchange Act prepared by it
from January 1, 1998 to the date hereof; (ii) the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (iii) any reports on Form 8-K
under the Exchange Act prepared by it for the period from January 1, 1999 to the
date hereof, each in the form filed with the SEC (collectively, the "Company
Reports"). As of their respective dates, the Company Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into the
Company Reports (including the related notes and schedules; all of which
together are referred to the as the "Company Financial Statements") fairly
presents the consolidated financial position of Company and its subsidiaries as
of its date and each of the consolidated statements of income and of cash flows
included in or incorporated by reference in the Company Financial Statements
fairly presents the results of operations, retained earnings and cash flows, as
the case may be, of Company and its subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments), in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein. The Company has also made available to Investor the
ability to ask questions and receive answers concerning the terms and conditions
of this Agreement and the opportunity to obtain any additional information which
the Company possesses or is able to acquire without unreasonable effort or
expense that is necessary to verify the accuracy of any information listed in
this Section 3.6 and provided to Investor.
3.7 Governmental and Third Party Consents. All consents, approvals,
orders, authorizations, registrations, qualifications, designations,
declarations or filings with or from any federal or state governmental agency or
authority or any other person or entity required on the part of the Company in
connection with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated herein have been obtained except
that any notices of sales of securities required to be filed with the SEC
pursuant to Regulation D or the securities laws of any state pursuant to any
applicable blue sky laws may be filed within the applicable periods of such
filings.
3.8 Compliance with Other Instruments. The Company is not in violation of
any provision of its Certificate of Incorporation or Bylaws, and is not in
violation of any mortgage, indenture, contract, agreement, instrument, judgment,
decree or order, and is not in violation of any statute, rule or regulation
applicable to the Company, except as would not have a material adverse effect on
the Company, either individually or in the aggregate. The execution, delivery
and performance of and compliance with this Agreement, and the sale of the
Common Stock and the Warrant pursuant to the terms hereof, will not result in a
violation of or be in conflict with or constitute a default under any such
provision, or result in the creation of any Lien or other encumbrance upon any
of the properties or assets of the Company pursuant to any such provision,
except for Permitted Liens.
3.9 Litigation. There is no action, suit, proceeding or governmental
investigation pending or, to the knowledge of Company, threatened against
Company or any of its Subsidiaries or any of their respective assets which, if
adversely determined, would have a material adverse effect on the business,
operations, properties, assets, condition (financial or
7
<PAGE>
otherwise) of Company and its Subsidiaries, taken as a whole, or the ability of
Company to comply with its obligations hereunder. There is no action, suit,
proceeding or governmental investigation pending or, to the knowledge of the
Company, threatened against Company which alleges that Company's development,
manufacture and sale of the Product have violated or would violate any
intellectual property rights of any other person, and the Company has not
received any written communication alleging that the Company has violated, and
has no knowledge that the Company has violated, the intellectual property rights
of any person.
3.10 Material Contracts. The Company has in all respects performed all
material obligations required to be performed by it to date under all of its
Material Contracts, except where failure would not have a material adverse
effect and, to the best of its knowledge, no party to any such contract is in
default.
3.11 Title to Property and Assets. Company has a valid leasehold interest
in the Facility, and good and marketable title in fee simple to, or a valid
leasehold interest in, all other real property owned or occupied by it and good
title to, or a valid leasehold interest in, all its other property, and none of
such property is subject to any Lien other than Permitted Liens. Each lease of
real property under which Company is lessee is classified as an operating lease
under GAAP.
3.12 Taxes. The Company has timely filed, or caused to be timely filed,
all federal, state and local tax returns for income taxes, franchise taxes,
sales taxes, withholding taxes, property taxes and, to the Company's knowledge,
all other taxes of every kind whatsoever required by law to be filed, and all
such tax returns are complete and accurate and in accordance with all legal
requirements applicable thereto. The tax returns of the Company have never been
audited by appropriate governmental authorities and the Company does not know of
any additional tax liabilities, deficiencies or proposed adjustments for any
period for which any such returns have been filed.
3.13 Patents, Trademarks, etc. Company has title to and ownership of or is
a licensee with respect to, in each case free and clear of encumbrances other
than encumbrances contained in the license agreements appointing the Company as
such licensee, the Patents, Trademarks and Know-How licensed by the Company to
FHI under the License and Distribution Agreement, and, to the best of the
Company's knowledge, the manufacture, sale and distribution of the Product, as
conducted to date by Company, utilizing the Patents, Trademarks and Know-How
does not infringe any intellectual property rights of any person. The
intellectual property rights covered by the Patents, Trademarks and Know-How are
sufficient for the production, as conducted to date by Company, of the Product
as constituted on the date hereof, and the Company has sufficient rights to the
Patents, Trademarks and Know-How necessary for use in connection with production
of the Product, as conducted to date by Company, the absence of which would have
a material adverse effect on the ability of Company to perform its obligations
and grant the licenses under the License and Distribution Agreement or the
transactions contemplated hereby and thereby.
3.14 Misleading Statements. No representation, warranty or statement by
the Company in this Agreement nor in any written statement or certificate
furnished or to be furnished to any Investor pursuant hereto or in connection
with the transactions contemplated hereby, when taken together, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements made, in light
8
<PAGE>
of the circumstances under which they were made, not misleading. There is, to
the best of the Company's knowledge, no fact which materially and adversely
affects the business, prospects, condition, affairs or operations of the Company
or any of its properties or assets which has not been disclosed to Investor in
this Agreement or the Schedules hereto.
3.15 Employee Compensation Plans. Company and each of its subsidiaries is
in material compliance with all applicable provisions and requirements of ERISA
and the regulations and published interpretations thereunder with respect to
each Employee Benefit Plan and has materially performed all its obligations
under each Employee Benefit Plan. Each Employee Benefit Plan which is intended
to qualify under Section 401(a) of the Internal Revenue Code is so qualified.
Neither Company nor any of its subsidiaries maintains or contributes to, nor has
maintained or contributed to, any plan subject to Title IV of ERISA
3.16 Registration Rights. Except as set forth in the Registration
Agreement, the Company is not under any obligation to "register" any of its
presently outstanding securities or any of its securities which may hereafter be
issued. For the purposes of this Agreement, the term "register" refers to a
registration effected by filing a registration statement in compliance with the
Securities Act, or the securities laws of any state.
3.17 Affiliate Transactions. No beneficial owner of 10% or more of the
outstanding common stock of the Company, and no officer or director of the
Company or of any of its subsidiaries, or any entity in which any of such
persons owns any beneficial interest (other than a publicly held corporation
whose stock is traded on a national securities exchange or in over-the-counter
market and less than 10% of the stock of which is beneficially owned by all of
such persons), has any material agreement, arrangement or understanding with the
Company or any of its subsidiaries or any interest in any property, real,
personal or mixed, tangible or intangible, used in or pertaining to the business
of Company or any of its subsidiaries.
3.18 Stockholder Agreements. Except as required by this Agreement, there
are no agreements or arrangements between the Company and any of the Company's
stockholders, or to the Company's knowledge, between or among any of the
Company's stockholders, which grant special rights with respect to any shares of
the Company's capital stock or which affect any stockholder's ability or right
freely to alienate or vote such shares.
3.19 Brokers or Finders. The Company has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to the Company as follows:
4.1 Authorization. All corporate action on the part of Investor, its
officers, directors and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement, the Registration Agreement and the
consummation of the transactions contemplated herein and therein has been taken.
When executed and delivered by Investor, this Agreement and the Registration
Agreement will constitute the valid and legally
9
<PAGE>
binding obligation of Investor, enforceable in accordance with its terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other laws of general application relating to or affecting the enforcement of
creditors' rights. Investor has all requisite legal and corporate power to enter
into this Agreement and the Registration Agreement and to carry out and perform
its obligations under the terms of this Agreement.
4.2 Purchase Entirely for Own Account. Investor is acquiring Common Stock
and the Warrant, and will acquire the Warrant Stock, for its own account for
investment purposes only and not with a view to, or for resale in connection
with, any "distribution" of all or any portion thereof within the meaning of the
Securities Act. Nothing in this Section 4.2 shall limit Investor's rights under
the Registration Agreement.
4.3 Disclosure of Information. Investor has received and reviewed the
Company Reports and the Company's business plan and is familiar with the
operations and prospects of the Company. In addition (but without limiting the
effect of the Company's representations and warranties contained in this
Agreement), Investor has received all additional information it considers
necessary or appropriate for deciding whether to purchase Common Stock and the
Warrant hereunder. Investor has been provided, to its satisfaction, the
opportunity to ask questions concerning the business, plans, operations,
management and financial condition of the Company and to obtain any additional
information necessary to verify the accuracy of the information given to it.
4.4 Experience. Investor is experienced in evaluating and investing in
companies such as the Company. Investor has no need for liquidity in this
investment, has the ability to bear the economic risk of this investment, and
can afford a complete loss of the purchase price. Investor represents that it is
an accredited investor within the meaning of Regulation D under the Securities
Act.
4.5 Restricted Securities. Investor understands that the Common Stock and
the Warrant being purchased hereunder are, and the Warrant Stock will be,
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company pursuant to an exemption
from registration contained in the Securities Act in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only in
certain limited circumstances. In this connection, Investor represents that it
is familiar with Rule 144 promulgated by the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
4.6 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Common Stock, the Warrant or the
Warrant Stock except in each case in compliance with applicable state securities
laws and any applicable contractual limitations or restrictions and in
compliance with the restrictions set forth in Section 3.9 of the Registration
Agreement.
4.7 Legends. It is understood that each certificate evidencing Common
Stock purchased by Investor hereunder and the Warrant Stock (or evidencing any
other securities issued with respect thereto pursuant to any stock split, stock
dividend, merger or other form of reorganization or recapitalization) shall
bear, in addition to any other legends which may be
10
<PAGE>
required by this Agreement or applicable state securities laws, the legend set
forth in Section 3.9(a) of the Registration Agreement.
4.8 Brokers or Finders. Investor has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
4.9 Residence. The office or offices of Investor in which the investment
decision was made is located at the address or addresses of Investor set forth
in Section 10.4.
ARTICLE 5
CONDITIONS OF INVESTOR'S OBLIGATIONS AT FIRST CLOSING
The obligations of Investor under Article 2 of this Agreement are subject
to the fulfillment at or before the First Closing of each of the following
conditions:
5.1 Representations and Warranties True at the First Closing. The
representations and warranties of the Company contained in Article 3 hereof
shall be true when made and shall be true in all material respects on and as of
the Closing Date with the same effect as though such representations had been
made on and as of the Closing Date.
5.2 Performance. The Company shall have performed and complied with all
agreements and conditions contained herein required to be performed and complied
with by it on or before the Closing Date, and, without limiting the generality
of the foregoing, shall have obtained all consents, approvals, authorizations,
registrations and qualifications referred to in Section 2.7 on or before the
Closing Date if required by applicable law.
5.3 Compliance Certificates. There shall have been delivered to Investor
or its counsel a certificate, dated the Closing Date, signed by the Company's
President, certifying that the conditions specified in Sections 5.1 and 5.2 have
been performed and complied with in all respects and including a certified copy
of resolutions of the Board of Directors of Company authorizing the execution,
delivery and performance of this Agreement, the Registration Agreement and the
Warrant.
5.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the First Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investor or its counsel, and contemporaneously with this Agreement,
Fresenius, FHI and Company shall have entered into the Registration Agreement,
the Warrant and the other Transaction Documents.
5.5 Blue Sky. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by any
state for the offer and sale of the Common Stock.
5.6 Legal Matters. On the Closing Date, the sale and issuance of the
Common Stock shall be legally permitted by all laws and regulations to which
Investor and the Company are subject.
11
<PAGE>
ARTICLE 6
CONDITIONS OF THE COMPANY'S OBLIGATIONS AT FIRST CLOSING
The obligations of the Company under Article 2 of this Agreement are
subject to the fulfillment at or before the First Closing of each of the
following conditions:
6.1 Representations and Warranties True at the First Closing. The
representations and warranties of Investor contained in Article 4 hereof shall
be true in all material respects when made and shall be true in all material
respects on and as of the Closing Date with the same effect as though said
representations and warranties had been made on and as of the Closing Date.
6.2 Performance of Obligations. Investor shall have performed and complied
with all agreements and conditions herein required to be performed or complied
with by such Investor on or before the Closing Date.
6.3 Legal Matters. On the Closing Date, the sale and issuance of the
Common Stock shall be legally permitted by all laws and regulations to which
Investor and the Company are subject.
6.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the First Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Company or its counsel, and contemporaneously with this
Agreement, Investor, FHI and Company shall have entered into the Registration
Agreement, the Warrant and the other Transaction Documents.
6.5 Registration Agreement. Investor and the Company shall have entered
into the Registration Agreement and the other Transaction Documents.
6.6 Blue Sky. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by any
state for the offer and sale of the Common Stock.
ARTICLE 7
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
7.1 Financial Information. The Company shall promptly provide to Investor
copies of all periodic and annual reports filed by the Company with the SEC.
7.2 Taxes, Liens, Etc. The Company will and will cause each of its
Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
income, businesses or franchises before any penalty accrues thereon, and all
claims for sums that have become due and payable and that by law have or may
become a Lien on any of its properties or assets, prior to the time when any
penalty or fine shall be incurred with respect thereto, except where the amount
or validity thereof
12
<PAGE>
is being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP shall have been made therefor.
ARTICLE 8
INDEMNIFICATION
8.1 Obligations of the Company. The Company agrees to indemnify and hold
harmless Investor, its directors, officers, employees, affiliates, agents and
assigns from and against any and all Losses (including, without limitation,
attorneys' fees, settlement costs, arbitration costs and any reasonable legal
and other expenses for investigating or defending any action or threatened
action) asserted against or incurred by any of them, arising out of or in
connection with or resulting from:
(a) any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by the Company in or
pursuant to this Agreement; and
(b) any other matter as to which the Company in other provisions of this
Agreement has expressly agreed to indemnify Investor or any Affiliate.
8.2 Obligations of Investor. Investor agrees to indemnify and hold
harmless the Company, its directors, officers, employees, affiliates, agents and
assigns from and against any and all Losses asserted against or incurred by
them, arising out of or in connection with or resulting from:
(a) any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by Investor in or
pursuant to this Agreement; and
(b) any other matter as to which Investor in other provisions of this
Agreement has expressly agreed to indemnify the Company.
8.3 Notice of Claim. In the event that a party entitled to indemnification
hereunder (the "Indemnified Party") shall become aware of any claim, proceeding
or other matter (a "Claim") in respect of which the other party (the
"Indemnifying Party") has agreed to indemnify the Indemnified Party pursuant to
this Agreement, the Indemnified Party shall promptly give written notice thereof
to the Indemnifying Party. Such notice shall specify whether the Claim arises as
a result of a claim by a person ("Third Party") against the Indemnified Party (a
"Third Party Claim") or whether the Claim does not so arise (a "Direct Claim")
and shall also specify with reasonable particularity (to the extent that the
information is available) the factual basis for the Claim and the amount of the
Claim, if known. The failure promptly to give such notice or the failure of such
notice to identify the Claim with sufficient particularity shall not relieve the
Indemnifying Party of any of its indemnification obligations contained herein if
the Indemnified Party has actually given written notice to the Indemnifying
Party and has otherwise complied with the provisions of this Article 8, except
where, and solely to the extent that, such failure actually prejudices the
rights of such Indemnifying Party.
13
<PAGE>
8.4 Direct Claims. With respect to any Direct Claim, following receipt of
notice from the Indemnified Party of the Claim, the Indemnifying Party shall
promptly make such investigation of the Claim as is considered necessary or
desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information available to the Indemnified Party as the Indemnifying Party may
reasonably request. If both parties agree at or prior to the expiration of 30
days (or any mutually agreed upon extension thereof) following such notice to
the validity and amount of such Claim, the Indemnifying Party shall immediately
pay to the Indemnified Party the full agreed upon amount of the Claim, failing
which the matter shall be subject to arbitration as provided in Section 9.2.
8.5 Third Party Claims. With respect to any Third Party Claim, the
Indemnifying Party shall have the right, at its expense and with counsel of its
choice satisfactory to the Indemnified Party, acting reasonably, to defend and,
upon written request from the Indemnified Party, shall defend the Claim
(including the negotiation and settlement thereof). If the Indemnifying Party
elects or is required to assume such defense, the Indemnified Party shall have
the right to participate in the negotiation, settlement or defense of such Third
Party Claim and to retain separate counsel to act on its behalf, provided that
the fees and disbursements of such separate counsel shall be paid by the
Indemnified Party unless the Indemnifying Party consents to the retention of
such counsel or unless the named parties to any action or proceeding include
both the Indemnifying Party and the Indemnified Party and representation of both
the Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential conflicting interests between them
(such as the availability of different defenses). If the Indemnifying Party,
having assumed such control, thereafter fails to defend the Third Party Claim
within a reasonable time, the Indemnified Party shall be entitled to assume
control of such defense and the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to such Third Party Claim. If
any Third Party Claim is of a nature such that the Indemnified Party is required
by applicable law to make a payment to any Third Party with respect to the Third
Party Claim before the completion of settlement negotiations or related legal
proceedings, the Indemnified Party may make such payment and the Indemnifying
Party shall, forthwith after demand by the Indemnified Party, reimburse the
Indemnified Party for such payment. If the amount of any liability of the
Indemnified Party under the Third Party Claim in respect of which such payment
was made, as finally determined, is less than the amount that was paid by the
Indemnifying Party to the Indemnified Party, the Indemnified Party shall,
forthwith after receipt of the difference from the Third Party, pay the amount
of such difference, without interest, to the Indemnifying Party.
8.6 Settlement of Third Party Claims. If the Indemnifying Party does not
elect to assume control of the defense of any Third Party Claim or, after
request by the Indemnified Party, fails to do so, the Indemnified Party shall
have (but shall not otherwise have) the exclusive right to contest, settle or
pay the amount claimed and any Losses incurred by the Indemnified Party in
connection with such contest, settlement or payment shall be conclusive as to
the existence and amount of any liability of the Indemnifying Party to the
Indemnified Party hereunder. Whether or not the Indemnifying Party assumes
control of the negotiation, settlement or defense of any Third Party Claim, the
Indemnifying Party shall not settle any Third Party Claim without the written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld or delayed; provided, however, that (a) no Indemnified Party shall be
14
<PAGE>
obligated to consent to any compromise or settlement that does not provide for a
complete release of the Claim against the Indemnified Party, and (b) the
liability of the Indemnifying Party shall be limited to the proposed settlement
amount if any such consent is not obtained for any reason other than the failure
of such settlement to conform to the requirements of the preceding clause (a).
8.7 Cooperation. The Indemnified Party and the Indemnifying Party shall
co-operate fully with each other with respect to Third Party Claims, and shall
keep each other fully advised with respect thereto (including supplying copies
of all correspondence, demands, pleadings and other relevant documentation
promptly as it becomes available). The Indemnified Party and the Indemnifying
Party shall each use all reasonable efforts to mitigate Losses arising out of
any Claim for which indemnity is sought hereunder.
8.8 Survival. This Article 8 shall survive any termination or expiration
of this Agreement. In addition, any matter as to which a claim has been asserted
by notice to the other party that is pending or unresolved at the end of any
applicable limitation period shall continue to be covered by this Article 8
until such matter is finally terminated or otherwise resolved by the parties
under this Agreement and any amounts payable hereunder are finally determined
and paid.
ARTICLE 9
ARBITRATION
9.1 Arbitration. Except as provided in Section 8.4, a party asserting the
existence of any dispute or controversy arising out of or in connection with
this Agreement (a "Dispute"), including, without limitation, any Dispute
relating to the existence, materiality or cure of a claimed material breach,
shall notify the other parties to this Agreement in writing of the existence and
subject matter of the Dispute and shall escalate the Dispute to the respective
Chief Executive Officers of the parties if resolution is not made within the
first fifteen days. For a thirtyday period following such notification, the
parties shall meet and negotiate in good faith to attempt to resolve the
Dispute. If a Dispute described in this Section 9.1 is not resolved within the
30 day period or if a Claim is deemed subject to arbitration pursuant to Section
8.4, the Dispute or Claim shall be referred to and finally resolved by
arbitration under the rules of the American Arbitration Association, and except
for proceedings commenced to enforce an arbitration award, each party hereby
irrevocably waives its right to commence any proceeding in any court with
respect to any matter arising under this Agreement. The tribunal shall consist
of a sole arbitrator appointed jointly by the parties. In the case of the
parties failing to choose a sole arbitrator, the tribunal shall consist of three
arbitrators, two of whom shall be appointed by the respective parties and the
third arbitrator shall be appointed jointly by the first two. The place of
arbitration shall be New York, New York or such other location as the parties
shall agree. The language of the arbitration shall be English. No arbitrator
shall be an Affiliate, employee, officer or director of either party or of their
respective Affiliates, nor shall any Arbitrator have any interest that would be
affected in any material respect by the outcome of the Dispute or Claim. The
decision of the sole arbitrator or of a majority of the arbitrators, where
applicable, shall be final and binding on the parties and their respective
successors and assigns. The decision shall not be subject to appeal or judicial
review except in circumstances of fraud. The prevailing party in any such
arbitration shall be entitled to recover reasonable fees of attorneys and other
professionals in addition to all court costs and arbitrator's fees which that
party may incur as a
15
<PAGE>
result. Judgment upon the award granted by the arbitrator(s) may be entered in
any court having jurisdiction over the relevant party or its assets.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby, and to carry into effect the intents and purposes of this
Agreement.
10.2 Rights Cumulative. Each and all of the various rights, powers and
remedies of the parties hereto shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have at
law or in equity in the event of the breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or remedy shall
neither constitute the exclusive election thereof nor the waiver of any other
right, power or remedy available to such party.
10.3 Number and Gender. All words and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require or as otherwise
appropriate in view of their context.
10.4 Notices. Any notice or other documents required or permitted to be
given under this Agreement shall be in writing and shall be delivered, mailed by
prepaid registered mail, return receipt requested, or sent by telecopy addressed
to the party to whom it is to be given at the address shown below or at such
other address or addresses as the party to whom such writing or document is to
be given shall have last notified the other party in accordance with the
provisions of this Section:
If to the Company, to it at:
Cypress Bioscience, Inc
4350 Executive Drive, Suite 325
San Diego, CA 92121
Attn: President
Telecopy No.: (619) 452-1222
With a copy to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
Attn: Barbara Borden, Esq.
Telecopy No.: (619) 453-3555
16
<PAGE>
If to Fresenius AG, to it at:
Fresenius Aktiengesellschaft
Attn: Adsorber Technology Division
Mr. Stefan Schulze
Frankfurter Str. 6-8
D-66606 St. Wendel
Germany
Telecopy No.: 011-49-6851-807444
With copies to:
Fresenius Aktiengesellschaft
Law Department
Attn: Roland Kirsten
If by mail: 61346 Bad Homburg v.d.H.
Germany
If by delivery: Else-Kroner Strasse 1
61352 Bad Homburg
Germany
Telecopy No.: 011-49-6172-608-2251
and to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
New York, New York 10022-4611
Attn: Ulrich Wagner, Esq.
Telecopy No.: (212) 326-2061
(a) Any such notice or other document shall:
(i) if delivered in person, be deemed to have been received at the
place of receipt on the date of delivery, provided that if such date is a day
other than a business day in the place of receipt, such notice or document shall
be deemed to have been given and received at the place of receipt on the first
business day thereafter in the place of receipt;
(ii) if transmitted by telecopy, be deemed to have been received at
the place of receipt on the next business day in the place of receipt, following
the day of sending; and
(iii) if mailed, be deemed to have been received at the place of
receipt on the date which is 5 business days after the date of mailing.
17
<PAGE>
10.5 Captions. Captions are provided herein for convenience only and they
are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
10.6 Severability. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be declared invalid or unenforceable, the remaining
provisions shall remain in full force and effect and shall be construed in the
broadest possible manner to effectuate the purposes hereof. The parties further
agree to replace such void or unenforceable provisions of this Agreement with
valid and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
10.7 Attorneys' Fees. In any action at law or in equity to enforce any of
the provisions or rights under this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and expenses incurred in such
action, in addition to any other relief to which such party shall be entitled.
10.8 Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed as an original; when executed,
separately or together, all of such counterparts shall constitute a single
original instrument, effective in the same manner as if all parties hereto had
executed one and the same instrument.
10.9 Entire Agreement. This agreement (together with its Annexes and other
documents referred to herein) is intended by the parties hereto to be the final
expression of their agreement and constitutes and embodies the entire agreement
and understanding between the parties hereto with regard to the subject matter
hereof and is a complete and exclusive statement of the terms and conditions
thereof, and shall supersede any and all prior oral and written correspondence,
conversations, negotiations, agreements and understandings relating to the same
subject matter.
10.10 Amendment. This Agreement may be amended upon the written consent of
the Company and Investor.
10.11 Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to Investor upon any
breach or default under this Agreement, shall impair any such right, power or
remedy of Investor nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to Investor shall be cumulative and
not alternative.
10.12 Waiver and Extension of Time. Any party hereto may by a writing
signed by an authorized representative of such party: (i) extend the time for
the performance of any of the obligations of another party; (ii) waive any
inaccuracies in representations and warranties made by another party contained
in this agreement or in any documents delivered
18
<PAGE>
pursuant hereto; (iii) waive compliance by another party with any of the
covenants contained in this Agreement or the performance of any obligations of
such other party; or (iv) waive the fulfillment of any condition that is
precedent to the performance by such party of any of its obligations under this
Agreement. No waiver of any term, provision or condition of this Agreement, in
any one or more instances, shall be deemed to be, or be construed as, a further
or continuing waiver of any such term, provision or condition or as a waiver of
any other term, provision or condition of this Agreement.
10.13 Governing Law. This Agreement shall be governed by and construed in
accordance with, the laws of the State of New York, without reference to
provisions concerning conflicts of laws.
10.14 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
10.15 Survival. The respective representations and warranties given by the
Company and Investor, as contained herein and in any certificates to be
delivered at the First Closing, shall survive the Closing Date and shall expire
12 months from the Closing Date, without regard to any investigation made by any
party. The respective representations and warranties given by the Company and
Investor, as contained herein and in any certificates to be delivered at any
Additional Closing, shall survive the applicable Additional Closing Date and
shall expire 12 months from such Additional Closing Date, without regard to any
investigation made by any party. All statements as to factual matters contained
in any certificates, exhibits or other instruments delivered by or on behalf of
any party pursuant to the terms hereof or in connection with the transactions
contemplated hereby shall be deemed, for all purposes, to constitute
representations and warranties by such party under the terms of this Agreement
given as of the date of such certificate or instrument.
10.16 Annexes and Schedules. All Annexes and Schedules to this Agreement
are incorporated herein by this reference as if fully set forth herein.
10.17 Legal Expenses. Except as otherwise provided in this Section 17 and
Section 7, the Company and Investor shall each pay their own expenses incident
to the negotiation, preparation, execution and performance of this Agreement and
the transactions contemplated hereby, including but not limited to the fees,
expenses and disbursements of their respective investment bankers, accountants,
counsel and other representatives.
10.18 Official Language. The parties understand and agree that this
document has been prepared only in the English language and that the English
language is the official language of this Agreement. No party to this Agreement
will assert or allege that it did not understand each and every term of this
Agreement.
19
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement
with the intent and agreement that the same shall be effective as of the day and
year first above written.
THE COMPANY:
CYPRESS BIOSCIENCE, INC.,
a Delaware corporation
By: /s/ Jay Kranzler
------------------------------
Its: Chief Executive Officer
-----------------------------
INVESTOR:
FRESENIUS AKTIENGESELLSCHAFT
a German corporation
By: /s/ Stefan Schulze
------------------------------
Its: Executive Vice President
-----------------------------
20
<PAGE>
ANNEX 1
Form of Warrant
Annex 1-1
<PAGE>
ANNEX 2
Form of Registration Agreement
Annex 2-1
<PAGE>
ANNEX 3
Certificate of Incorporation
Annex 3-1
<PAGE>
ANNEX 4
Bylaws
Annex 4-1
<PAGE>
ANNEX 5
Schedule of Exceptions
Annex 5-1
<PAGE>
EXHIBIT 10.5
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT. THIS
WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES ACTS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
CYPRESS BIOSCIENCE, INC.
COMMON STOCK PURCHASE WARRANT
Date of Issuance: March 26, 1999
For Value Received, Cypress Bioscience, Inc., a Delaware corporation (the
"Company"), hereby grants Fresenius Aktiengesellschaft, or its registered
assigns (the "Registered Holder"), the right to purchase from the Company during
the Exercise Period (as defined below) up to 342,466 shares of the Company's
Common Stock at a price per share of $7.50 (as adjusted from time to time
hereunder, the "Exercise Price"). Certain capitalized terms used herein are
defined in Section 4 hereof. The amount and kind of securities obtainable
pursuant to the rights granted hereunder and the Exercise Price for such
securities are subject to adjustment pursuant to the provisions contained in
this Warrant.
This Warrant is subject to the following provisions:
1. EXERCISE OF WARRANT.
1.1 Exercise Period. The Registered Holder may exercise, in whole or
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time after the Date of
issuance of this Warrant to and including the third (3rd) anniversary of the
Date of Issuance set forth above (the "Exercise Period").
1.2 Exercise Procedure.
(a) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(i) a completed exercise agreement, as described in paragraph
1.3 below (the "Exercise Agreement"), executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the "Purchaser");
(ii) this Warrant;
(iii) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in Exhibit II
hereto evidencing the assignment
1.
<PAGE>
of this Warrant to the Purchaser, in which case the Registered Holder shall
comply with the provisions set forth in Section 6 hereof; and
(iv) a check payable to the Company in an amount equal to the
product of the Exercise Price multiplied by the number of shares of Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price").
(b) Certificates for shares of Common Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within ten
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(c) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser and outstanding and the
Purchaser shall be deemed for all purposes to have become the record holder of
such Common Stock at the Exercise Time.
(d) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(e) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Common Stock
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect.
(f) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
warrant (including, without limitation, making any filings required to be made
by the Company).
(g) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law
2.
<PAGE>
or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance, which shall be immediately delivered by the Company upon
each such issuance). The Company shall not take any action that would cause the
number of authorized but unissued shares of Common Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
exercise of this Warrant.
(h) Any certificate for shares of Common Stock issued upon the
exercise of this Warrant shall contain a legend in substantially the form of the
legend set forth on the first page of this Warrant except if such exercise is
effected in connection with a Public Offering of the Company's capital stock and
shares of the Common Stock issuable upon the exercise of this Warrant are
included in such registered offering.
1.3 Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in Exhibit I hereto,
---------
except that if the shares of Common Stock are not to be issued in the name of
the Person in whose name this Warrant is registered, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the shares
of Common Stock are to be issued, and if the number of shares of Common Stock to
be issued does not include all the shares of Common Stock purchasable hereunder,
it shall also state the name of the Person to whom a new Warrant for the
unexercised portion of the rights hereunder is to be delivered. Such Exercise
Agreement shall be dated the actual date of execution thereof.
2. ADJUSTMENT OF EXERCISE PRICE. The Exercise Price shall be subject to
adjustment from time to time as provided in this Section 2.
2.1 Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2.2 Reorganization, Reclassification, Consolidation, Merger or Sale.
Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision (in form and substance reasonably satisfactory to the Registered
Holder) to ensure that the Registered Holder shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the exercise of this Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such Organic Change not
3.
<PAGE>
taken place. In any such case, the Company shall make appropriate provision (in
form and substance reasonably satisfactory to the Registered Holder) with
respect to such holder's rights and interests to ensure that the provisions of
this Section 2 and Section 3 hereof shall thereafter be applicable to this
Warrant. The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity in the Organic
Change (if other than the Company) resulting from consolidation or merger or the
entity purchasing such assets assumes by written instrument (in form and
substance reasonably satisfactory to the Registered Holder) the obligation to
deliver to such holder such shares of stock, securities or assets as the
Registered Holder many be entitled to acquire in accordance with the foregoing
provisions.
2.3 Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions,
then the Company's board of directors shall make an appropriate adjustment in
the Exercise Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrants; provided that no such adjustment shall increase the Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 2.
2.4 Fractional Shares. If, upon exercise of the rights represented by
this Warrant, a fractional share of Common Stock would be issuable by virtue of
the provisions of this Section 2, in lieu of issuing such Fractional Share, the
Company shall, within 5 business days after the date of the Exercise Time,
deliver to the Purchaser the Company's check payable to the Purchaser's order in
an amount equal to the difference between the Average Closing Price of such
fractional share as of the date of the Exercise Time and the Exercise Price of
such additional share.
2.5 Notices.
(a) Immediately upon any adjustment of the Exercise Price or the
number of shares issuable upon exercise of this Warrant, the Company shall give
written notice thereof to the Registered Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Registered Holder
at least 20 days (or, if 20 days notice is not practicable, such notice as is
practicable under the circumstances, but in not less than 10 days notice) prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the Common Stock, (B) with respect
to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Organic Change, dissolution or
liquidation.
(c) The Company shall also give written notice to the Registered
Holders at least 20 days (or, if 20 days notice is not practicable, such notice
as is practicable under the circumstances, but in not less than 10 days notice)
prior to the date on which any Organic Change, dissolution or liquidation shall
take place.
4.
<PAGE>
3. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained
in this Warrant shall be construed as conferring upon the Registered Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Registered Holder to purchase shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the Registered Holder hereof, shall give
rise to any liability of such Registered Holder for the Aggregate Exercise Price
or as a stockholder of the Company, whether such liability is asserted by the
Company or by its creditors.
4. DEFINITIONS. THE FOLLOWING TERMS USED IN THIS WARRANT HAVE MEANINGS SET
FORTH BELOW:
An "Affiliate" of a person (as defined below) means any person which,
directly or indirectly, controls, is controlled by or is under common control
with such person. As used in this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
policies and management of a person, whether by ownership of stock, by contract
or otherwise.
"Average Closing Price" means, as to the Common Stock, the average of the
closing sales prices as reported by the National Association of Securities
Dealers, Inc. electronic interdealer quotation system ("Nasdaq") on the Nasdaq
SmallCap Market or the Nasdaq National Market System or on such other domestic
securities exchange on which the Common Stock may then be listed, as applicable,
or, if on any day the Common Stock is not quoted in the Nasdaq National Market
System or the Nasdaq SmallCap Market or listed on any domestic securities
exchange, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such case
for the twenty (20) trading days immediately preceding the date of the Exercise
Time. If at the Exercise Time the Common Stock is not listed on any domestic
securities exchange or quoted in the Nasdaq National Market System, the Nasdaq
SmallCap Market or the domestic over-the-counter market, the "Average Closing
Price" shall be the fair value thereof determined in good faith by the Company's
Board of Directors; provided that if Purchaser in good faith disagrees with such
valuation, such fair value shall be determined by an investment banker jointly
selected by the Company and the Purchaser. The determination of such investment
banker shall be final and binding on the Company and the Investor, and the fees
and expenses of such appraiser shall be shared equally by the Company and the
Purchaser.
"Common Stock" means the Company's Common Stock, $.02 par value per share.
"Organic Change" means any recapitalization, reorganization,
reclassification, Sale of the Company or other transaction, in each case, which
is effected in such a way that the holders
5.
<PAGE>
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets (other than cash) with respect to or in
exchange for Common Stock.
"Person" means an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
"Public Offering" means any offering by the Company of its securities to
the public pursuant to an effective registration statement under the Securities
Act.
"Sale of the Company" means one or more of the following effected in a
single transaction or series of transactions, whether or not related, with one
or more Persons:
(a) The sale or other disposition of all or substantially all of the
Company's assets or the assets of the Company's subsidiaries, on a consolidated
basis;
(b) The sale or other disposition of a majority of the issued and
outstanding equity securities of the Company or other rights giving such Person
or Persons the power to elect a majority of the Company's board of directors
(whether by merger, consolidation or issuance, sale or transfer of equity
securities of the Company); or
(c) The merger or consolidation of the Company or substantially all
of its subsidiaries with one or more third parties in a transaction in which
such third party(ies) or the holders of their equity securities thereafter
control, directly or indirectly, the business and affairs of the Company or the
subsidiaries party to such transaction.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect at the time.
Other capitalized terms used in this Warrant but not defined herein shall
have the meanings set forth in the Securities Purchase Agreement of even date
herewith by and between the Company and Fresenius Aktiengesellschaft (the
"Purchase Agreement").
5. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. This Warrant shall not entitle
the holder hereof to any voting rights or other rights as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the
Registered Holder to purchase Common Stock, and no enumeration herein of the
rights or privileges of the Registered Holder, shall give rise to any liability
of such holder for the Exercise Price of Common Stock acquirable by exercise
hereof or as a stockholder of the Company.
6. WARRANT TRANSFERABLE. Subject to compliance with applicable federal and
state security laws, this Warrant and all rights hereunder are transferable to
any Affiliate of the Registered Holder, in whole or in part, without charge to
the Registered Holder (except for transfer taxes), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company. This Warrant and all rights
6.
<PAGE>
hereunder may also be transferred to an underwriter in connection with an
underwritten offering of the Common Stock issuable upon exercise of this Warrant
if such Common Stock is to be sold in an underwritten offering pursuant to the
Registration Agreement of even date herewith between the Purchaser and the
Company. This Warrant is otherwise non-negotiable and may not be transferred or
assigned without the prior written consent of the Company, which consent may be
withheld in its sole discretion.
7. WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
8. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of the Registered Holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of the Registered Holder's indemnity agreement or, in the case of
any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
9. NOTICES. Except as otherwise expressly provided herein, all notices
referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered, sent or deposited in
the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to
the Registered Holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by such holder).
10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions
of the Warrants may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Registered Holder.
11. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings of the
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. All issues and questions
concerning the construction, validity, enforcement and interpretation of this
Warrant shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would
7.
<PAGE>
cause the application of the domestic substantive laws of any jurisdiction other
than the State of Delaware.
12. ARBITRATION. Any dispute or controversy arising out of or in connection
with this warrant (a "Dispute"), including any dispute relating to the
existence, materiality or cure of a claimed material breach, shall be governed
by the provisions of Article IX of the Purchase Agreement.
13. ATTORNEYS' FEES. In any action at law or in equity to enforce any of the
provisions or rights under this Warrant, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and expenses incurred in such action, in
addition to any other relief to which such party shall be entitled.
8.
<PAGE>
IN WITNESS Whereof, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
CYPRESS BIOSCIENCE, INC.:
By: /s/ Jay D. Kranzler
-------------------------------
Its: Chief Executive Officer
------------------------------
[Corporate Seal]
Attest:
- -------------------------------
Title: _______________________
9.
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
To: Cypress Bioscience, Inc.
Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for the purchase of ___________ shares of
the Common Stock covered by such Warrant and makes payment herewith in full
therefor at the price per share provided by such Warrant.
Payment shall be made by delivery of $________ transmitted herewith by
check.
Signature _____________________
Address _______________________
Exh. II-1
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________, pursuant to Section 6 of
the Common Stock Purchase Warrant, hereby sells, assigns and transfers all of
the rights of the undersigned under the attached Warrant (Certificate No. [ ])
with respect to the number of shares of the Common Stock covered thereby set
forth below, unto:
NAMES OF ASSIGNEE/AFFILIATE
___________________________
ADDRESS
___________________________
___________________________
NO. OF SHARES
___________________________
Signature ______________________
______________________
Witness ______________________
2.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,480
<SECURITIES> 0
<RECEIVABLES> 325
<ALLOWANCES> (24)
<INVENTORY> 1,263
<CURRENT-ASSETS> 11,458
<PP&E> 3,339
<DEPRECIATION> (1,610)
<TOTAL-ASSETS> 13,238
<CURRENT-LIABILITIES> 2,232
<BONDS> 400
0
0
<COMMON> 866
<OTHER-SE> 88,610
<TOTAL-LIABILITY-AND-EQUITY> 13,238
<SALES> 588
<TOTAL-REVENUES> 640
<CGS> 519
<TOTAL-COSTS> 3,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (3,102)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,102)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,102)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
