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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14758
SOMATIX THERAPY CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 94-2762045
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
850 MARINA VILLAGE PARKWAY, ALAMEDA, CALIFORNIA 94501-1034
(Address of principal executive offices and zip code)
(510) 748-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Title of each class Name of each exchange on which registered
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None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of August 19, 1996 was approximately $124,893,190 based
upon the closing sales price of the registrant's Common Stock as reported on the
Nasdaq National Market System on such date. The number of outstanding shares of
the registrant's Common Stock as of August 19, 1996 was 24,369,403.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into
Parts III and IV of this Form 10-K Report: The Proxy Statement for the
Registrant's Annual Meeting of Stockholders scheduled to be held on December 18,
1996.
<PAGE> 2
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
TABLE OF CONTENTS
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Page
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PART I.................................................................................................... 1
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 18
Item 3. Legal Proceedings..................................................................... 18
Item 4. Submission of Matters to a Vote of Security-Holders................................... 18
PART II................................................................................................... 19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 19
Item 6. Selected Financial Data............................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 20
Item 8. Financial Statements and Supplementary Data........................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 36
PART III.................................................................................................. 37
Item 10. Directors and Executive Officers of the Registrant.................................... 37
Item 11. Executive Compensation................................................................ 38
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 38
Item 13. Certain Relationships and Related Transactions........................................ 38
PART IV................................................................................................... 39
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 39
</TABLE>
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PART I
ITEM I. BUSINESS
THE COMPANY
Somatix Therapy Corporation ("Somatix" or the "Company") is a leader in
the field of gene therapy. The Company's mission is to research, develop and
commercialize proprietary processes for the genetic modification of cells and
their use in the treatment of human disease. The Company was formed through the
merger and/or acquisition of four companies since 1990: Hana Biologics, Inc.,
Somatix Corporation, GeneSys Therapeutics Corporation and Merlin Pharmaceutical
Corporation.
Through the combination of these four companies and its internal
development programs, Somatix has established a substantial scientific and
intellectual property position in the technology of gene transfer. The Company
is pursuing the research and development of gene transfer and human gene therapy
utilizing retroviral, adenoviral, adeno-associated viral and synthetic vector
systems. Somatix is applying its core scientific expertise to the development of
novel treatments for cancer, neurological diseases and genetic diseases.
In August 1995, Bristol-Myers Squibb ("BMS") made an initial $10
million investment in Somatix in return for certain rights including future
rights in Somatix' cancer programs. In May 1996, BMS made a second $10 million
investment after Somatix achieved a contractual clinical development milestone
in oncology. Pursuant to the terms of the BMS agreement, once Somatix decides to
license any of its internally initiated cancer programs, it must first give BMS
90 days to review and meet Somatix' terms of such a license. In February, 1996,
Somatix made a proposal to BMS regarding its GVAX(TM)* cancer vaccine programs.
At the end of the 90 day period, BMS requested and was granted an extension to
continue its evaluation of the GVAX(TM) cancer vaccine program.
With the exception of fiscal year 1990, when the Company sold its cell
biology and diagnostic product lines, the Company's operations have been
unprofitable since its inception, and will continue to be so in the foreseeable
future, as the Company's research and development programs expand into
preclinical studies and clinical trials.
BACKGROUND OF GENE THERAPY
Gene therapy is the genetic modification of cells for therapeutic
benefit. In ex vivo gene therapy, cells are removed from the patient,
genetically modified and processed using aseptic procedures, tested, and
injected or implanted back into the patient. In vivo gene therapy involves the
direct administration, to a patient, of a gene transfer vector that delivers the
gene into specific cells. In both cases, the product of this "transgene" is
typically a protein which may act therapeutically or otherwise stimulate a
clinically beneficial process (e.g., an antitumor immune response).
Gene transfer vectors are the transport vehicles by which genes are
inserted into cells. To date, genetically engineered viruses have been the most
widely used vectors, because viruses have evolved efficient processes for cell
entry and subsequent expression of their genetic information. There are also
efforts underway in academia, government and industry to develop nonviral
methods of gene delivery. Every viral and nonviral gene transfer system has
unique benefits and unique limitations; these differences are important in
evaluating the scientific and clinical utility of each system.
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* GVAX is a trademark of Somatix Therapy Corporation.
1.
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Cell types may be selected or targeted for genetic modification based
on their ability to secrete proteins systemically or locally, their capability
to integrate into the tissue at the site of implantation and their life spans.
As a result, particular cell types may be better suited than others for the
delivery of a specific protein or for the treatment of a specific disease.
Researchers in the field of gene therapy are primarily working with seven major
cell types as candidates for genetic modification: epithelial cells,
fibroblasts, endothelial cells, neurons, muscle cells, hematopoietic stem cells,
and lymphocytes. These are all somatic cells, which differ from germ cells in
that the genetic information contained in them is not passed on to future
generations.
The approaches of gene therapy to treating disease are still in the
development stage. A number of scientific challenges must be met before the
therapeutic potential of gene therapy is realized and gene therapy products are
commercially available. These challenges include attaining sufficient expression
of the desired gene, controlling or regulating the amount of the desired protein
produced, targeting specific cell types for modification and demonstrating the
safety and efficacy of any given approach in human clinical trials.
In addition to its as yet unproven therapeutic effectiveness, gene
therapy may cause unintended side effects. Because with certain gene transfer
methods, the desired gene may be randomly inserted into a cell's genetic
material, it is theoretically possible that a cancer-causing gene could be
activated. The Company believes oncogene activation is unlikely, and that
additional genetic events are required for tumorigenesis to occur. Another risk
is the possibility that a disabled virus could theoretically reassemble and
become virulent. The Company believes that its process for disabling viruses
provides sufficient safeguards against such an event and that current testing
procedures further reduce this risk. Additional research with respect to such
unintended consequences may be necessary, however, before gene therapy products
can be commercialized.
PLATFORM TECHNOLOGY
Through a strategy of mergers, acquisitions and internal development,
Somatix has built a broad-based research and development capability across
multiple gene transfer systems. The Company has research and development
programs in retroviral, adenoviral, adeno-associated viral and synthetic vector
systems, as well as hematopoietic stem cell gene transfer.
RETROVIRAL VECTORS. The retroviral vector is the most advanced system
for the efficient, ex vivo genetic modification of dividing human cells, and is
the vector Somatix is utilizing for the modification of tumor cells, fibroblasts
and hematopoietic stem cells. In addition, Somatix is working on a
second-generation retroviral vector (i.e., lentiviral vector) that will allow
the in vivo delivery of therapeutic genes into nondividing cells. In support of
this effort, Somatix obtained an exclusive, worldwide license to a lentiviral
vector developed by Dr. Inder Verma and colleagues at The Salk Institute in
July, 1996. The lentiviral vector should eventually allow therapeutic gene
transfer into cells, such as neurons, which are clinically relevant but normally
do not divide. Coincident with the licensing of the lentiviral technology from
The Salk Institute, Dr. Verma was nominated to Somatix' board of directors.
ADENOVIRAL VECTORS. With the acquisition of Merlin Pharmaceutical
Corporation in February, 1995, Somatix brought Thomas Shenk, Ph.D., to the
Company as a director and member of the scientific advisory board. The Company
has since expanded its program in the research and development of adenoviral
vectors, which are highly efficient in the short-term genetic modification of
nondividing human cells and have the capacity to carry long segments of genetic
information. The Company is developing a GM-CSF (described further below)
encoding adenovirus that can rapidly modify a wide spectrum of tumor cells,
which may result in faster "turnaround" of the autologous cancer vaccine and
potentially lower manufacturing costs. In addition, Somatix is developing a
proprietary adenovirus which may the avoid the cellular immune responses
triggered by the in vivo administration of first generation adenoviral vectors.
This latter adenovirus is being further modified to allow chromosomal
integration and control of gene expression via the delivery of oral agents.
2.
<PAGE> 5
ADENO-ASSOCIATED VIRAL ("AAV") VECTORS. In addition to Dr. Shenk, the
acquisition of Merlin Pharmaceutical Corporation brought Richard Samulski,
Ph.D., to the Company's scientific advisory board and augmented Somatix'
research efforts in adeno-associated viral AAV vectors. The AAV vector is an
important gene transfer tool because it can efficiently and stably insert its
genetic information into the chromosomes of nondividing target cells. Somatix
has developed a number of adeno-associated viral vectors for the in vivo genetic
modification of neurons, muscle cells, and liver cells, and has detected gene
expression for up to twelve months in animal model systems. Somatix is
conducting experiments to define the immunogenecity of AAV vectors, the extent
of vector diffusion after injection into the brain and other tissues, and to
design a system of transgene regulation which can be controlled through the oral
administration of certain well-tolerated agents. In addition, Somatix is
developing a manufacturing process for the production of clinical grade AAV
vectors.
SYNTHETIC VECTORS. The Company's synthetic vector program is focused on
the development of lipid and polymer-mediated gene transfer systems for the in
vivo delivery of genetic information to cells via intravenous administration.
The near-term goal of the synthetic vector program is the targeted, nonviral
delivery of therapeutic gene sequences to cells in vivo. Longer-term goals
include the incorporation of viral proteins and genetic elements into these
vectors that will enhance the level and duration of transgene expression while
avoiding the immunogenicity and other limitations of current-generation viral
vectors.
STEM CELL GENE THERAPY. Somatix is focusing on the genetic modification
of hematopoietic stem cells ("HSC") as a key strategy for the long-term gene
therapy of chronic disease. HSCs are the precursor cell population from which
the human body's entire complement of blood cells is continuously replenished.
Genetically modified HSCs, therefore, are seen as an ideal cell type for the
long-term, sustained delivery of therapeutic proteins to the circulation (e.g.,
factors VIII and IX for the treatment of hemophilia). Furthermore, there are
numerous genetic diseases which result in a deficiency of proteins required for
metabolic activities (e.g., Gaucher's disease, chronic granulomatous disease,
etc.). These diseases are also good candidates for stem cell gene transfer, and
will likely provide the initial "proof of concept" for stem cell gene therapy.
Consequently, Somatix' stem cell gene transfer group is evaluating several of
the Company's proprietary technologies for use in genetic modification of HSCs.
The most advanced effort in this area is gene therapy of chronic granulomatous
disease (see below).
PRODUCT DEVELOPMENT PROGRAMS
The following table summarizes the Company's product development
programs:
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PRODUCT GENE INDICATION STATUS
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Autologous GVAX(TM) GM-CSF(1) Renal Cell Phase I/II
Cancer Vaccine Carcinoma (complete)
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Melanoma Phase I/II
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Prostate Cancer Phase I
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Allogeneic GVAX(TM) GM-CSF Prostate Cancer Preclinical
Cancer Vaccine
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GM-CSF Colorectal Cancer Preclinical
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Genetically Modified p47phox(2) Chronic Phase I
Hematopoietic Stem Granulomatous (complete)
Cells Disease
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Genetically Modified TH(3) + GTP- Parkinson's Disease Preclinical
Autologous CHI(4)
Fibroblasts
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In Vivo Adeno- TH + GTP- Parkinson's Disease Research
Associated Virus CHI
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3.
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(1) Granulocyte-macrophage colony stimulating factor
(2) A protein which is deficient in chronic granulomatous disease
(3) Tyrosine hydroxylase
(4) Guanosine triphosphate cyclohydrolase I
Cancer, the second leading cause of death in the United States, is a
disease in which certain cells grow uncontrolled by the body's normal
self-regulatory mechanisms. Over 1.2 million new cases of cancer are diagnosed
each year in the United States. While there are several dozen forms of cancer,
Somatix' initial targets are melanoma, renal cell carcinoma ("RCC" or "kidney
cancer"), prostate and colorectal cancers. Hundreds of thousands of patients are
newly diagnosed with these cancers each year in the United States, with a large
percentage suffering a recurrence of their disease one to five years after
initial treatment.
THE AUTOLOGOUS GVAX(TM) CANCER VACCINE. Somatix' most advanced
therapeutic program is the GM-CSF transduced autologous tumor cell vaccine, or
Autologous GVAX(TM) Cancer Vaccine. The vaccine is composed of the patient's own
(autologous) tumor cells which have been genetically modified to secrete the
immune-stimulating protein granulocyte-macrophage colony stimulating factor
("GM-CSF").
The initial preclinical observations suggesting the potential efficacy
of a GM-CSF transduced tumor cell vaccine were reported by Dranoff and coworkers
(Proc. Natl. Acad. Sci. USA 90:3539[1993]). While several cytokine gene-modified
tumor cell vaccines had shown antitumor activity in murine cancer models, the
Dranoff study showed the GM-CSF gene-modified tumor cell vaccine to be a more
potent inducer of systemic antitumor immunity than those vaccines secreting
other effector molecules (e.g., IL-2, IL-4, IFN-[gamma], etc.). The wide
applicability of the GVAX(TM) cancer vaccine to multiple tumor types was
supported by data from several murine tumor models including the colon carcinoma
CT-26, renal carcinoma RENCA, fibrosarcoma CMS-5, Lewis lung carcinoma, and the
Dunning rat model of prostate carcinoma. GM-CSF secreting tumor cells were more
potent inducers of antitumor immunity than unmodified tumor cells in every model
tested.
The Autologous GVAX(TM) Cancer Vaccine began phase I/II clinical
testing in patients with renal cell carcinoma at the Johns Hopkins Oncology
Center in December, 1993. This study was completed in 1995. In May 1994, a
second Phase I/II clinical trial started at the Netherlands Cancer Institute
("NKI") testing the GVAX(TM) cancer vaccine in patients with advanced melanoma.
A second Phase I/II advanced melanoma study at the Dana Farber Cancer Institute
started in early 1995. The treatment phases of both phase I/II melanoma studies
are expected to be completed in the first quarter of 1997. The Company has also
started a Phase I trial of the autologous GVAX(TM) cancer vaccine in prostate
cancer patients at the Johns Hopkins Oncology Center.
The principal end points of these initial Autologous GVAX(TM) Cancer
Vaccine clinical trials are related to safety and tolerability. To date, phase
I/II investigators have administered approximately 300 vaccinations of the
autologous GVAX(TM) cancer vaccine in over 75 patients. The vaccine has proven
to be safe; adverse events have generally been confined to redness and swelling
at the vaccination site and minor flu-like symptoms of short duration.
Preliminary indications of therapeutic activity include a marked
infiltration of white blood cells at the vaccination site, as well as cellular
activity at metastatic sites distant from the site of vaccine injection. This
cellular activity has been associated, in some patients, with a reduction in
metastatic tumor size at residual tumor sites. The phase I/II data suggest that
the injection of irradiated, GM-CSF secreting autologous tumor cells can trigger
a systemic antitumor response in some patients with metastatic disease. However,
the critical efficacy endpoint of any therapeutic investigation in cancer is
patient survival, and the autologous vaccine will require further clinical
testing to prove whether or not it can affect this endpoint in a statistically
significant way.
THE ALLOGENEIC GVAX(TM) CANCER VACCINE. Somatix is now engaged in the
development of a second generation, genetically modified tumor cell vaccine. The
Allogeneic GVAX(TM) Cancer Vaccine is composed of lethally irradiated, GM-CSF
secreting tumor cells derived from tumor cell lines which are not
patient-specific and
4.
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can therefore be manufactured at large scale. The vaccine can thus be produced,
tested, distributed and administered without first obtaining autologous tissue
from the cancer patient, reducing manufacturing costs and promoting ease of use.
The Company intends to file an investigational new drug ("IND") application in
the first quarter of calendar 1997, for the initial clinical evaluation of the
allogeneic vaccine in prostate cancer. Somatix is considering additional
allogeneic vaccine development for malignant melanoma and breast, colorectal and
ovarian cancers.
CHRONIC GRANULOMATOUS DISEASE ("CGD"). The Company's initial clinical
evaluation of stem cell gene therapy is in the treatment of chronic
granulomatous disease, an immunodeficiency that compromises the ability of white
blood cells to eradicate bacterial and fungal infections. In collaboration with
Harry Malech, M.D. at the National Institutes of Health ("NIH"), the Company is
evaluating the use of gene therapy to treat this inherited genetic disease. Dr.
Malech has completed a Phase I clinical trial, in which patients received
autologous hematopoetic stem cells, genetically modified to produce the p47phox
protein. The study showed that the p47phox- modified stem cells can be safely
administered to humans and successfully generate functional white blood cells in
CGD patients. Somatix is continuing to develop this product using a primate
model system to further optimize both stem cell gene transfer and engraftment of
genetically modified HSCs.
GENE THERAPY OF NEUROLOGIC DISEASES. Diseases of the central nervous
system ("CNS") are important targets for new drug development. Pharmaceuticals
to treat CNS diseases are the second largest drug expenditure category behind
cardiovascular drugs. However, the brain is one of the most difficult organs to
treat with drugs since the blood-brain barrier prevents many small molecules and
most proteins from passing out of the blood stream into target areas for
treatment. Additionally the brain is a highly complex, inaccessible organ which
operates as many distinct regions. Thus, systemically administered drugs often
affect multiple systems in the brain, increasing their toxicity. Therefore, it
may be a significant advantage to deliver drugs locally to the specific region
of the brain requiring therapy in order to avoid debilitating side effects.
Gene therapy, in particular, appears to offer promise because it may be
used to promote cell-based delivery of therapeutic proteins: (i) to specific
regions of the brain; (ii) from inside the blood brain barrier; (iii) in a
continuous fashion; and (iv) for long periods of time. The lack of adequate drug
therapy for major neurodegenerative diseases such as Alzheimer's disease and
Parkinson's disease ("PD") and the discovery of a number of neuronal growth
factors ("neurotrophic factors") that could retard degeneration and perhaps
revitalize damaged neurons, make gene therapy an attractive experimental
approach to these diseases. Gene therapy of PD is the Company's most advanced
CNS program.
Although the neurodegeneration that leads to PD is not well understood,
it is known that the loss of dopamine-producing cells causes the debilitating
movement symptoms of PD. Dopamine levels can be restored through the oral
administration of L-dopa, a precursor that is converted to dopamine, and
significantly alleviates the symptoms of PD. However, the clinical benefit of
L-dopa is attenuated after an average of five years in a majority of patients.
This is due to side effects of the drug relating to global exposure of the brain
to L-dopa, and the increased dosing required to overcome continued degeneration
of dopaminergic neurons.
Somatix is evaluating the use of gene therapy to produce a continuous
and efficacious supply of L-dopa in the brain. Several therapeutic genes may
ultimately be required to treat the disease; however, one key transgene encodes
the rate limiting enzyme in the biosynthesis of L-dopa, tyrosine hydroxylase
("TH"). Additionally, scientists believe that administration of neurotrophic
factors to the region of the brain containing dopaminergic neurons may retard
their degeneration and keep natural dopamine production at levels sufficient for
normal motor function for a significantly longer period of time. Recent
preclinical data has suggested that neurotrophic factors may act on such
dopaminergic neurons in a potent and specific way. Eventually, Somatix may
introduce a PD therapy combining neurotrophic factors with TH gene delivery.
Somatix may have to license certain genes for these factors in order to fully
exploit a combination therapy.
5.
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CNS PROGRAM RESULTS AND PROGRESS. The Company has conducted extensive
studies of ex vivo and in vivo gene therapy of the CNS in rodent and nonhuman
primate models over the past three years. Ex vivo studies have centered on the
striatal implantation of autologous fibroblasts genetically modified, via
retroviral vector, to produce TH. The fibroblasts are derived from skin biopsies
of the animals and are genetically modified in the Company's gene transfer
laboratories. In vivo experiments have focused on AAV vectors encoding the TH
and GTP cyclohydrolase ("GTP-CHI") enzymes, which are injected directly into the
brain where target cells are genetically modified in situ. For either strategy,
the required stereotaxic surgery has been reduced to a routine clinical
procedure and does not represent a significant technical barrier.
In late 1995, the Company undertook a large ex vivo preclinical study
involving 24 parkinsonian, nonhuman primates. The study was designed to measure
the longevity of gene expression and, secondarily, the behavioral effect of
implanting TH-modified fibroblasts. Certain primates received the genetically
modified cells while others served as untreated controls. The experiment was
completed after six months and post mortems have been conducted. While evidence
of transgene expression was observed at the longest time point studied to date
(four months), the fibroblast grafts were shown not to contain sufficient cells
for a rigorous efficacy evaluation of the ex vivo strategy. Experiments are
planned to address the technical issues raised by this study.
COMMERCIAL DEVELOPMENT
In the United States, gene therapy is regulated by the FDA's Center for
Biologics Evaluation and Research ("CBER"). CBER regulation places a statutory
emphasis on manufacturing; that is, the genetic modification and processing of
cells for ex vivo gene therapy, and the manufacture of therapeutic gene transfer
vectors for in vivo gene therapy. To ensure compliance with FDA/CBER regulation,
Somatix carries out the ex vivo modification and processing of cells at
facilities under its own control. Somatix is pioneering the development of the
regulatory and manufacturing systems required for adherence to biologics
regulation as it applies to ex vivo gene therapy. Somatix has established a
pilot cell processing facility designed to operate in compliance with Good
Manufacturing Practices ("GMP"). The production of genetically modified cells is
intensive in its requirements of labor, materials, and facilities. Any further
expansion of Somatix' cell processing capabilities will require additional
investment in the physical, systems and staffing infrastructure required for the
manufacturing of biologics in the United States.
The Company intends to market and sell certain of its products
directly, while relying on the sales and marketing expertise of potential
corporate partners for other programs. The decision to market products directly
or through corporate partners will be based on a number of factors, including
market size and concentration, the size and expertise of the partner's sales
force in a particular market and the Company's overall strategic objectives. The
Company is currently engaged in discussions with several potential partners.
COMPETITION
The Company is aware of several development stage and established
enterprises, including prominent pharmaceutical and biotechnology firms, which
are exploring the field of human gene therapy or are actively conducting
research in gene therapy. The Company may also experience competition from other
companies which have acquired or may in the future acquire technology from
universities and other research institutions. As these companies develop, they
may create or acquire proprietary positions involving certain aspects of gene
therapy.
Some disease indications being evaluated for gene therapy by Somatix
are treatable with existing and commercially available medicines. In some cases,
currently available therapies are not completely effective, have significant
toxicity or are very expensive. While Somatix believes that gene therapy has the
potential to provide new and more effective treatments, there is no assurance
that other companies will not develop treatments superior to Somatix' gene
therapy.
6.
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PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company's proprietary position includes rights under patents and
patent applications covering genetically modified cells, gene transfer vectors
for and methods of transferring foreign genes into such cells, and the use of
these genetically modified cells to treat certain diseases. Patent positions in
the field of biotechnology are generally highly uncertain and involve complex
legal and scientific questions. To date, no consistent policy has been developed
by the U.S. Patent and Trademark Office regarding the breadth of claims allowed
in biotechnology patents. Accordingly, there can be no assurance that patent
applications licensed to or submitted by the Company will result in the issuance
of patents, or that, if issued, patents will afford the Company protection
against competitors with similar technology. The Company also relies upon
unpatented proprietary technology. No assurance can be given that the Company
can meaningfully protect its rights with regard to such unpatented proprietary
technology or that competitors will not duplicate or independently develop
substantially equivalent technology.
The Company believes that there may be litigation involving patent and
other intellectual property rights in the gene therapy area. If the Company were
involved, regardless of the outcome, a substantial portion of the Company's
financial and human resources could be involved. The Company's processes and
potential future products may be found to infringe patents which have been or
may be granted to competitors or research institutions. As the biotechnology
industry expands and more patents are issued, the possibility of infringement
may increase. Should this occur, legal action could be brought against the
Company, damages sought, and certain research and products enjoined, if a
competitor's patents were found by a court of competent jurisdiction to be
valid, enforceable and infringed. If such action were successful, in addition to
any potential liability for damages, the Company could be required to obtain a
license in order to continue to use the affected process or manufacture the
affected product, or to cease using such process or product. There can be no
assurance that the Company would prevail in such litigation, or that any
required license would be made available on acceptable terms, or at all.
One of the Company's competitors holds an exclusive license to a United
States patent issued to the National Institutes of Health covering ex vivo gene
therapy (U.S. Patent No. 5,399,346 to Anderson, et al.). This patent is
exclusively licensed to Genetic Therapy Inc., which in 1995 was acquired by
Sandoz Pharmaceuticals. The United States Patent and Trademark Office ("PTO")
has declared an interference between a pending patent application exclusively
licensed to the Company, a patent application of another company, and the
Anderson et al. patent. The PTO will conduct an interference proceeding, which
is primarily intended to determine the priority of the invention rights among
the three parties, and, in addition, will review the validity and patentability
of the parties' patent filings. Somatix' application has been accorded senior
party status based on its priority filing date of July 5, 1985. The outcome of
these proceedings is uncertain, and is expected to take at least a year.
However, there can be no assurance that the Anderson et al. patent or the third
party patent application will not prevail, and that, if one or the other of them
prevails, that any rights under such will be available to the Company on
commercially reasonable terms.
In addition, the Company is aware that a competitor has licensed
pending patent applications relating to certain types of genetically modified
cells. In particular, the Company is aware of a pending application covering
certain genetically modified endothelial cells and their use in gene therapy.
The patent application is assigned to the U.S. government, and the Company
believes that it is exclusively licensed to such competitor. This application
has a filing date later than the filing date of the endothelial cell patent
licensed to the Company. Nevertheless, many issues will have to be resolved
before priority is determined.
Because patent applications in the United States are maintained in
secrecy until patents issue, and because publication of discoveries in the
scientific or patent literature often lags behind the actual discoveries,
Somatix cannot be certain that its licensors were the first creators of
inventions covered by its pending patent applications or that they were the
first to file such applications.
7.
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In order to manufacture and market its potential products, the Company
may be required to obtain licenses to patents or other proprietary rights of
third parties. There can be no assurance that the Company will be able to obtain
a license to any third party technology that it may require to conduct its
business or that, if obtainable, such technology can be licensed at a reasonable
cost. If the Company does not obtain such licenses, it could encounter delays in
introducing any such potential products while it attempts to design around such
patents, or it could find that the development, manufacture or sale of such
products could be foreclosed. Failure by the Company to obtain a license to any
technology that it may require to commercialize its technologies or potential
products may have a material adverse effect on the Company. In addition, the
Company could incur substantial costs in defending itself in suits brought
against it on such patents or in suits in which the Company's patents may be
asserted by it against another party.
Somatix' policy is to file, where appropriate, patent applications
based on its own research to protect technology, inventions, and improvements
that are important to the development of its business. The Company also relies
upon trade secrets, expertise, continuing technological innovations, and
licensing opportunities to develop and maintain its competitive position.
Somatix plans to aggressively pursue patent applications to issuance and to
defend its patents against third parties. To date, Somatix' proprietary position
also includes patents and patent applications licensed from academic
institutions and a corporation. The Company's proprietary position is as
follows:
Gene Transfer Methodology. Somatix has exclusively licensed from the
Whitehead Institute patent applications that have been filed in the United
States, Europe, Japan, Canada, and several other countries. These applications
cover vectors (modified disabled retroviruses used to transfer genes into cells)
that the Company is developing in its gene therapy programs.
Somatix also has an exclusive license from The Whitehead Institute to
patent applications in the United States, Europe, and Japan that covers
packaging cell lines used to produce vectors, methods of construction, and
methods of use for introducing DNA into cells.
In connection with its acquisition of Merlin Pharmaceutical Corporation
in February 1995, the Company acquired rights to novel adeno-associated virus
vector methodology, including licenses from DNX, Inc., the University of
Pittsburgh and the State University of New York. Under such licenses, the
Company has exclusive rights to several important inventions and patent
applications for AAV vectors, and to the production of those vectors for gene
therapy applications.
In July 1996, Somatix licensed a new gene transfer technology from The
Salk Institute. This technology, based on lentiviral vectors, appears to be a
highly efficient method of introducing genes into non-dividing cells.
The Company is also developing adenovirus and non-viral, synthetic
vectors for use in gene therapy, expanding its technology platform to five
distinct types of gene transfer system. The Company has filed, and will continue
to file, patent applications on technology developed internally, where
appropriate.
Cell Types. Somatix has an exclusive license from The Whitehead
Institute to two U.S. patents, and a pending U.S. patent application, covering
genetically modified epithelial cells and methods for creating them; a European
patent has also been issued. Somatix also has an exclusive, worldwide license
from the Whitehead Institute to a U.S. patent, and to a U.S. patent application
and a related European patent, covering genetically modified fibroblasts fixed
in an extracellular matrix for implantation in patients.
Somatix also has an exclusive, worldwide license from The Whitehead
Institute to patent applications for genetically modified hepatocytes and
endothelial cells as well as methods for their creation and use in gene therapy.
A European patent has issued on the creation and use of genetically modified
endothelial cells.
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Gene Therapy Applications. Somatix has an exclusive, worldwide license
from the University of California to an issued patent and a U.S. patent
application covering methods for treating diseases of the central nervous system
using genetically modified cells. The Company also has an exclusive license to a
patent application covering the genetic modification of cells to express GTP
cyclohydrolase, which may be useful for the gene therapy treatment of PD.
Somatix also has an exclusive, worldwide license from The Johns Hopkins
University and the University of Texas to a patent application, and an issued
European patent, for the use of genetically modified cells for cancer vaccines.
The Company also has an exclusive, worldwide license from the Whitehead
Institute to their interest in a patent application for the use of genetically
modified tumor cells expressing GM-CSF for use as cancer vaccines.
Additionally, the Company is currently negotiating or has obtained
exclusive rights to patents and patent applications covering the use of AAV
vectors for gene therapy via muscle tissue, cardiac tissue, the central nervous
system, and the gut, which may be useful in the Company's programs.
The Company has acquired significant proprietary rights under license
agreements that permit the licensors to terminate those agreements in the event
of certain material breaches by the Company. Although the Company has no reason
to believe it is currently in default under any of these agreements, there can
be no assurance that such defaults will not occur in the future. Should a
default occur, and should any of those agreements be terminated in the future,
the Company could lose the right to continue to develop one or more of these
potential products. Patent prosecution involves collaboration between Somatix'
in-house patent counsel and outside intellectual property counsel.
ACCESS TO PROPRIETARY GENES
Some of the genes used by the Company in its gene therapy products are
or may become patented by third parties. As a result, the Company may be
required to obtain licenses under such patents in order to conduct certain
research or to manufacture or market products that contain proprietary genes.
There can be no assurances that these licenses will be granted. The Company is
aware of proceedings to determine rights to the human GM-CSF cDNA sequence in
the United States and Europe. In the United States, in the most recent public
disclosure of which the Company is aware, the Board of Patent Appeals and
Interferences granted a motion by a third party in an interference proceeding
stating that the human GM-CSF cDNA sequence is not patentable over the prior
art. In Europe, a hearing in an opposition proceeding initiated by a third party
to invalidate a European patent covering the human GM-CSF cDNA was unsuccessful.
The decision by the European Patent Office Opposition Division upholding the
patent has been appealed by this third party. There can be no assurance of the
outcome of these proceedings or the outcome o these proceedings on appeal, or
that, if required, a license of rights to the gene sequence will be available to
the Company on commercially reasonable terms, if at all.
GOVERNMENT REGULATION
The Company's potential products will be subject to regulation by the
FDA and will require FDA approval before being commercially marketed for human
therapeutic use in the United States. Similar regulatory approval is also
required in foreign countries. The Company believes that its potential products
will be regulated by the FDA as biologic products. In order to initiate the
clinical trials needed to obtain supporting data for marketing approval, the
Company must file an IND with the FDA. An IND includes the results of
preclinical studies, methods of manufacturing and the proposed plan for clinical
trials. If the FDA finds deficiencies in the proposed plan, or otherwise
concludes that it would not be reasonably safe to proceed with the planned
studies, it may require changes in the IND before allowing the clinical studies
to begin.
Clinical trials are usually conducted in three phases that may take
several years to complete. The initial Phase I clinical studies are primarily
conducted to establish safety; however, some Phase I clinical studies that
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involve terminal diseases may include preliminary efficacy evaluations as well.
Phase I studies may last from six months to over one year, and usually involve
15 to 50 people. Once safety parameters are established, Phase II studies are
initiated to determine therapeutic activity, as well as optimal dosing and route
of administration. Phase II studies may involve 20 to 100 people or more. Phase
III studies are conducted to demonstrate therapeutic efficacy in a statistically
significant manner at the optimal dose, route and schedule of administration.
These studies may include 200 to 1,000 patients. During all phases of clinical
trails, the FDA must be given periodic progress reports and must be notified
regarding adverse reactions, clinical protocol changes and product changes. The
FDA may suspend clinical studies if clinical data indicate that patients are
being subjected to unreasonable risks. The uncertainty of the regulatory and
clinical research process could adversely affect the Company's ability to
clinically test, manufacture or market products.
Once clinical trials are completed, the product must receive FDA
marketing approval. The Company must submit a Product License Application
("PLA") and Establishment License Application ("ELA"). Generally, the FDA takes
between one and five years to review these applications, and once approved,
continues to monitor the effects of the treatment. Even if a product is made
commercially available, the FDA has the power to limit or prevent further
production, based on findings of its surveillance program.
Additionally, the NIH has established guidelines for research involving
recombinant DNA molecules, which Somatix uses. The Company now complies with,
and intends to continue to comply with these guidelines. Until recently,
guidelines stated that proposals to conduct clinical research involving gene
therapy be reviewed by the NIH's Recombinant DNA Advisory Committee (the "RAC").
Somatix' renal cell carcinoma, prostate cancer and U.S. melanoma protocols were
approved by this body. However, new guidelines are being developed that may
remove RAC's oversight responsibilities for many gene therapy protocols. The
impact of these new guidelines on the cost of or timing of clinical trials
cannot be determined at this time.
As discussed, gene therapy is a novel approach to treating disease.
Since it has not been tested extensively in humans, regulatory requirements
governing its testing are subject to review. The uncertainty of these
requirements may result in extensive delays in initiating clinical trials and in
the regulatory approval process. Regulatory requirements ultimately imposed
could adversely affect the Company's ability to test, manufacture or market
products.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company's business is subject to regulation under state and federal
laws regarding environmental protection and hazardous substances control. The
Company believes that its compliance with these laws has had no adverse impact
upon its capital expenditures, earnings or competitive position. Federal and
state agencies and congressional committees have expressed interest in further
regulation of biotechnology. The Company is unable to estimate the extent and
impact of regulation in the biotechnology field resulting from such future
federal, state or local legislation or administrative action.
This Form 10-K contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors" as well as those discussed
elsewhere in this Form 10-K.
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RISK FACTORS
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company anticipates that its existing cash and interest income will
be adequate to satisfy its capital requirements for at least the next 12 months.
The Company's future capital requirements will depend on many factors, including
the progress of the Company's research and development, the scope and results of
preclinical studies and clinical trials, the cost of obtaining regulatory
approvals, the rate of technological advances, determinations as to the
commercial potential of the Company's products under development, the status of
competitive products and the establishment of manufacturing capacity. The
Company anticipates that it will be required to raise substantial additional
funds, including funds raised through collaborative relationships and public or
private financings. Because of the Company's significant long-term capital
requirements, it may seek to access the public equity markets whenever
conditions are favorable, even if it does not have an immediate need for
additional capital at that time. No assurance can be given that additional
financing will be available on acceptable terms, or at all. If adequate funds
are not available, the Company will be required to curtail significantly its
research and development programs or may be required to discontinue its programs
in their entirety and liquidate its assets.
EARLY STAGE OF DEVELOPMENT; NO DEVELOPED OR APPROVED PRODUCTS
Somatix' potential gene therapy products are in research and
development. No revenues have been generated from the sale of any of such
products, nor are any such revenues expected for at least the next several
years. The products currently under development by the Company will require
significant additional research and development efforts, including extensive
preclinical and clinical testing and regulatory approval, prior to commercial
use. There can be no assurance that the Company's research and development
efforts will be successful, that any of the Company's potential gene therapy
products will prove to be safe and effective in clinical trials or that any
commercially successful products will ultimately be developed by the Company.
Even if developed, these products may not receive regulatory approval or be
successfully introduced and marketed at prices that would permit the Company to
operate profitably.
TECHNOLOGICAL UNCERTAINTY
Gene therapy is a new technology, and existing preclinical and clinical
data on the safety and efficacy of gene therapy are very limited. Data relating
to the Company's specific gene therapy approaches are even more limited. The
Company's GVAX(TM) cancer vaccine product is being tested in Phase I human
clinical trials primarily to determine its safety; none of the other products
under development at the Company are in human clinical trials. The results of
preclinical studies do not predict safety or efficacy in humans. Possible
serious side effects of gene therapy include viral infections, the initiation of
cancers and possible autoimmune diseases in the patient. There can be no
assurance that unacceptable side effects will not be discovered during
preclinical and clinical testing of the Company's potential products or
thereafter. There are many reasons that potential products that appear promising
at an early stage of research or development do not result in commercialization.
Although the Company is testing one of its proposed products in Phase I clinical
trials, there can be no assurance that the Company will be permitted to
undertake human clinical trials for any of its other products or that the
results of such testing will demonstrate safety or efficacy. Even if clinical
trials are successful, there is no assurance that the Company will obtain
regulatory approval for any indication, or that an approved product can be
produced in commercial quantities at reasonable costs, or be successfully
marketed. The Company has also recently begun development of in vivo approaches
to gene therapy that will target specific cells. There can be no assurance that
the desired specificity will be attained or that such products will not have
serious side effects.
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OPERATING LOSS AND ACCUMULATED DEFICIT
The Company has incurred net losses since its inception. At June 30,
1996, the Company's accumulated deficit was approximately $170.2 million. Such
losses have resulted principally from expenses incurred in the Company's
research and development programs, the acquisition of new technology, and to a
lesser extent, from general and administrative expenses. The Company incurred a
loss of $20.7 million in fiscal 1996 and expects to incur substantial and
increasing losses for at least the next several years due primarily to the
expansion of its research and development programs, including preclinical
studies, clinical trials and manufacturing. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations may be substantial.
There can be no assurance that the Company will successfully develop,
commercialize, manufacture or market its products or ever achieve or sustain
product revenues or profitability.
VOLATILITY OF STOCK PRICE
The market prices for securities of biopharmaceutical and biotechnology
companies (including the Company) have historically been highly volatile, and
the market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or its competitors, governmental regulation, developments in patent or
other proprietary rights, public concern as to the safety of products developed
by the Company or others and general market conditions may have a significant
effect on the market price of the Common Stock.
UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL PROCESS
Because gene therapy is a relatively new technology and has not been
extensively tested in humans, the regulatory requirements governing gene therapy
products are uncertain and may be subject to substantial further review by
various regulatory authorities in the United States and abroad. These uncertain
requirements may result in extensive delays in initiating clinical trials and in
the regulatory approval process. Regulatory requirements ultimately imposed
could adversely affect the Company's ability to clinically test, manufacture or
market products.
The Company believes that its potential products will be regulated by
the FDA as biologics. Each potential product for a specific disease application
may be subject to regulation as a separate biologic, depending on its intended
use and FDA policy. The regulatory process for new therapeutic products,
including the required preclinical and clinical testing, is lengthy and
expensive, and there can be no assurance that FDA approvals will be obtained in
a timely manner, if at all. Future United States or foreign legislative or
administrative actions could also prevent or delay regulatory approval of the
Company's products. There can be no assurance that the Company will be able to
obtain the necessary authorizations to initiate clinical trials or approvals to
market any of its potential products. Even if FDA regulatory approvals are
obtained, a marketed product is subject to continual review. Later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in product marketing restrictions or withdrawal of the
product from the market, as well as possible civil or criminal sanctions. In
addition, many academic institutions and companies doing research in the gene
therapy field are using a variety of approaches and technologies. Any adverse
results obtained by such researchers in preclinical or clinical studies could
adversely affect the regulatory environment for gene therapy products generally,
possibly leading to delays in the approval process for the Company's potential
products.
On October 25, 1993, the vaccines and related biological products
advisory committee to the Center for Biologics Evaluation and Research ("CBER")
of the FDA met to review issues related to gene therapy, including the use of
retroviruses and adenoviruses. The committee did not recommend limiting the use
of viral vectors in gene therapies and made certain recommendations that will be
incorporated into a revision of the FDA's 1991 "Points to Consider" document
related to gene therapies and somatic cell therapies. There can be no assurance,
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however, that new guidelines will not be instituted, or that Somatix will be
able to continue to comply with existing or future regulations.
The Company's business is subject to regulation under state and federal
laws regarding environmental protection and hazardous substances control. The
Company believes that its efforts to comply with these laws have had no adverse
impact upon its capital expenditures, results of operations or competitive
position, but there can be no assurance that this situation will continue.
Federal and state agencies and congressional committees have expressed interest
in further regulation of biotechnology. The Company is unable to estimate the
extent and impact of regulation in the biotechnology field resulting from any
future federal, state or local legislation or administrative action.
DEPENDENCE UPON KEY PERSONNEL AND COLLABORATIVE RELATIONSHIPS
The Company's success is highly dependent on the retention of principal
members of its management and scientific staff and the recruitment of additional
qualified personnel. The loss of key personnel or the failure to recruit
necessary additional qualified personnel could have an adverse effect on the
operations of the Company. There is intense competition from other companies,
research and academic institutions and other organizations for qualified
personnel in the areas of the Company's activities. There is no assurance that
Somatix will be able to continue to attract and retain the qualified personnel
necessary for the development of its business. These activities are expected to
require the addition of new personnel with expertise in the areas of clinical
testing, manufacturing, marketing and distribution and the development of
additional expertise by existing personnel. The failure to acquire such
personnel or develop such expertise could adversely affect prospects for the
Company's success.
The Company has clinical trial arrangements with The Johns Hopkins
University covering a Phase I clinical trial to treat kidney cancer patients,
now in progress, and a Phase I/II clinical trial to treat prostate cancer
patients for which RAC approval has been obtained, but for which no patients
have yet been enrolled. The Company has additional arrangements with the
Netherlands Cancer Institute and the Dana Farber Cancer Center to treat melanoma
patients in two separate Phase I clinical trials. Both trials are currently in
progress. In the event that any of these relationships are terminated, the
completion and evaluation of clinical trials could be adversely affected. In
addition, the Company has an arrangement with the Parkinson's Institute of Santa
Clara, California to provide animal facilities, animals and consulting services
in connection with preclinical testing of its gene therapy product for PD. If
the relationship were terminated, progress of preclinical testing would be
adversely affected.
The Company depends in part on the continued availability of outside
scientific collaborators performing research, which may be funded by the
Company, in certain areas relevant to the Company's research. These
relationships generally may be terminated at any time by the collaborator,
typically by giving 30 days' notice to the Company. The Company's scientific
collaborators are not employees of the Company. As a result, the Company has
limited control over their activities and can expect that only limited amounts
of their time will be dedicated to Company activities. The Company's agreements
with these collaborators as well as those with the Company's scientific
consultants provide that any rights the Company obtains as a result of the
research efforts of these individuals will be subject to the rights of the
research institutions in such work. In addition, some of these collaborators
have consulting or other advisory arrangements with other entities that may
conflict with their obligations to the Company. For these reasons, there can be
no assurance that inventions or processes discovered by the Company's scientific
collaborators or scientific consultants will become the property of the Company.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
Patent positions in the field of biotechnology are generally highly
uncertain and involve complex legal and scientific questions. To date, there has
emerged no consistent policy regarding the breadth of claims allowed in
biotechnology patents, especially in the area of gene therapy. Accordingly,
there can be no assurance that patent applications and patents licensed to the
Company will result in patents being issued or that, if and when issued, the
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patents will afford protection against competitors with similar technology. The
Company has licensed two U.S. patents covering the ex vivo modification of cells
to treat diseases of the central nervous system, and all three patents have
filing dates earlier than the filing date of the competitor's patent. However,
there can be no assurance that the competitor's patent will not remain in force,
and if it does, that any rights under the patent will be available to the
Company on commercially reasonable terms. The Company also relies upon
unpatented proprietary technology. No assurance can be given that the Company
can meaningfully protect its rights in such unpatented proprietary technology or
that others will not duplicate or independently develop substantially equivalent
technology.
The Company's processes and potential products may conflict with
patents which have been or may be granted to competitors, academic institutions,
universities or others. As the biotechnology industry expands and more patents
are issued, the risk increases that the Company's processes and potential
products may give rise to claims that they infringe the patents of others. Such
other persons could bring legal actions against the Company claiming damages and
seeking to enjoin certain research, manufacturing and marketing of the affected
process or potential product. If any such actions are successful, in addition to
any potential liability for damages, the Company could be required to obtain a
license in order to continue to use the affected process or to manufacture or
use the affected product or cease using such product or process if enjoined by a
court. There can be no assurance that the Company would prevail in any such
action or that any license required under any such patent would be made
available on acceptable terms, or at all. The Company believes that there may be
significant litigation in the industry regarding patent and other intellectual
property rights. If the Company becomes involved in such litigation, it could
consume a substantial portion of the Company's financial and human resources,
regardless of the outcome of such litigation.
One of the Company's competitors has been granted an exclusive license
to a United States patent issued to the National Institute of Health covering ex
vivo gene therapy. While the Company has licensed two U.S. patents covering the
ex vivo modification of epithelial cells and one U.S. patent covering the ex
vivo modification of cells to treat diseases of the central nervous system, and
while all three patents' filing dates are earlier than the filing date of the
competitor's licensed patent, there can be no assurance that the competitor's
patent will not prevail and that if it prevails, that any rights under such will
be available to the Company on commercially reasonable terms, if at all.
In addition, the Company is aware of pending patent applications which
have been licensed to another competitor of the Company relating to certain
types of genetically modified cells. For example, the Company is aware of a
pending application covering genetically modified endothelial cells and their
use in gene therapy. The patent application is assigned to the United States
Government, and it is believed that the patent application is exclusively
licensed to a competitor. There is no assurance that a license to this or
related patent applications will be available to the Company. Furthermore, as
gene therapy becomes more established, others may enter the field who have
patent rights to genes and technology which may be used in gene therapy. If the
Company is unable to obtain licenses to such patents, its business may be
substantially and adversely affected. In addition, since patent applications in
the United States are maintained in secrecy until patents issue, and since
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, Somatix cannot be certain that its licensors were the
first creators of inventions covered by its pending patent applications or that
they were the first to file patent applications for such inventions.
In order to manufacture and market its products, the Company may be
required to obtain licenses to patents or other proprietary rights of third
parties. There can be no assurance that the Company will be able to obtain a
license to any third party technology that it may require to conduct its
business or that, if obtainable, such technology can be licensed at a reasonable
cost. If the Company does not obtain such licenses, it could encounter delays in
introducing any such potential products while it attempts to design around such
patents, or it could find that the development, manufacture or sale of such
potential products could be adversely effected. Failure by the Company to obtain
a license to any technology that it may require to commercialize its
technologies or potential products may have a material adverse effect on the
Company. In addition, the Company could incur substantial
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costs in defending itself in lawsuits brought against it on such patents or in
lawsuits in which the Company's patents may be asserted by it against another
party.
A number of the DNA sequences which the Company expects to use in its
gene therapy products are or may become patented by third parties. As a result,
the Company may be required to obtain licenses under such patents in order to
conduct certain research, to manufacture or to market products that contain
proprietary genes. There can be no assurance that such licenses will be
available on commercially reasonable terms, if at all. Although the rights to
the DNA Sequence for the Form of Factor VIII used by the Company have not yet
been determined, the Company is aware of United States patents for factor VIII
DNA sequences that have been licensed to competitors for exclusive use in their
gene therapy programs. Unless the Company can similarly license such sequences
or other sequences, the Company may not be able to commercialize its hemophilia
program. The Company is aware of proceedings to determine rights to the human
GM-CSF cDNA sequence in the United States and Europe. In the United States, in
the most recent public disclosure of which the Company is aware, the Board of
Patent Appeals and Interferences granted a motion by a third party in an
interference proceeding stating that the human GM-CSF cDNA sequence is not
patentable over the prior art. In Europe, an Opposition proceeding initiated by
a third party to invalidate a European patent covering human GM-CSF cDNA was
unsuccessful. The decision by the European Patent Office Opposition Division
upholding the patent has been appealed by this third party. There can be no
assurance of the outcome of these proceedings or the outcome of these
proceedings on appeal, or that, if required, a license of rights to the gene
sequence will be available to the Company on commercially reasonable terms, if
at all.
The Company has acquired significant proprietary rights under license
agreements that permit the licensors to terminate those agreements in the event
of certain material breaches by the Company. Although the Company is not
currently in default under any of these agreements, there can be no assurance
that such defaults will not occur in the future. Should a default occur, and
should any of those agreements be terminated in the future, the Company could
lose the right to continue to develop one or more of these potential products.
COMMERCIALIZATION: LACK OF MANUFACTURING OR MARKETING EXPERIENCE
The Company intends to market and sell some of its potential products
directly, while relying on sales and marketing expertise of potential corporate
partners for other programs. The Company has no experience in sales, marketing
or distribution of biopharmaceutical products and has not developed a specific
sales and marketing plan with respect to any of its potential products. The
decision to market products directly or through corporate partners will be based
on a number of factors including market size and concentration, the size and
expertise of the partner's sales force in a particular market and the Company's
overall strategic objectives. The Company is currently engaged in various stages
of discussions with potential partners. There can be no assurance that the
Company will be able to establish such relationships on acceptable terms and
conditions, or at all.
The Company's current commercialization strategy is to sell genetically
modified cells to hospitals and clinics. The Company will be required to operate
facilities in which each patient's cells are genetically modified, processed and
tested in compliance with the Good Manufacturing Practices published in the U.S.
Code of Federal Regulations. Currently, the Company can manufacture genetically
modified cells in quantities sufficient to meet its needs for clinical testing
but does not have the capability to manufacture sufficient quantities to meet
large-scale commercial requirements. The Company believes that its processes can
be scaled-up efficiently to meet its anticipated future requirements, but there
can be no assurance that problems or delays will not arise in such scale-up. The
manufacture of sufficient quantities of the Company's potential products can be
an expensive, time-consuming and complex process. If the Company is unable to
develop such manufacturing capabilities, the Company's ability to commercialize
its products will be adversely affected. This could prevent or delay submission
of products for regulatory approval and initiation of new development programs,
which would have a material adverse effect on the Company.
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COMPETITION
The gene therapy field is relatively new and rapidly evolving, and it
is expected to continue to undergo significant and rapid technological change.
Rapid technological development could result in the Company's potential
products, services or processes becoming obsolete before the Company recovers a
significant portion of its related research, development and capital
expenditures. The Company will experience competition both from other companies
in the field of gene therapy and from companies which have other forms of
treatment for the diseases targeted by the Company. The Company is aware of
several development stage and established enterprises, including major
pharmaceutical and biotechnology firms as well as several major universities,
which are exploring the field of human gene therapy or are actively engaged in
research and development in areas including both retroviral vectors and other
methods of gene transfer. To the Company's knowledge, at least one of these
companies and several universities have participated in clinical trials using
retroviral vectors. The Company may also experience competition from companies
that have acquired or may acquire technology from such universities and other
research institutions. As these companies develop their technologies, they may
develop proprietary positions in certain aspects of gene therapy. Certain
competitors and potential competitors of the Company have substantially greater
product development capabilities and financial, scientific, marketing and human
resources than the Company, and other competitors of the Company may enter into
collaborative relationships with other companies having such greater resources.
Other companies may succeed in developing products earlier than the Company,
obtaining FDA approvals for such products more rapidly than the Company, or
developing products that are more effective than those proposed to be developed
by the Company. There can be no assurance that research and development by
others will not render the Company's technology or products obsolete or
non-competitive or result in treatments superior to any therapy developed by the
Company, or that any therapy developed by the Company will be preferred to any
existing or newly developed technologies.
PRODUCT LIABILITY AND INSURANCE
Clinical trials or marketing of any of the Company's potential products
may expose the Company to liability claims resulting from the use of such
products. These claims might be made directly by consumers, health care
providers or by others selling such products. The Company currently maintains
product liability insurance with respect to its former product lines and this
coverage includes clinical trials. The policy coverage is $5 million and is on a
claims made basis. There can be no assurance that the Company will be able to
maintain such insurance or, if maintained, that sufficient coverage can be
acquired at a reasonable cost. An inability to maintain insurance at acceptable
cost or at all could prevent or inhibit the clinical testing or
commercialization of products developed by the Company. A product liability
claim or recall could have a material adverse effect on the business or
financial condition of the Company.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
The Company's research and development activities involve the
controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds. The Company is subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of such materials and certain waste products. Although the Company believes that
its safety procedures for handling and disposing of such materials comply with
the standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
The Company may be required to incur significant costs to comply with
environmental laws and regulations in the future. The Company's operations,
business or assets may be materially or adversely affected by current or future
environmental laws or regulations.
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REIMBURSEMENT
In both domestic and foreign markets, sales of the Company's potential
products will depend in part upon coverage and reimbursement from third-party
payors, including health care organizations, including government agencies,
private health care insurers and other health care payors such as health
maintenance organizations, self-insured employee plans and the Blue Cross/Blue
Shield plans. There is considerable pressure to reduce the cost of drug
products. In particular, reimbursement from government agencies and insurers and
large health organizations may become more restricted in the future. The
Company's potential products represent a new mode of therapy, and, while the
cost-benefit ratio of the products may be favorable, the Company expects that
the costs associated with its products will be substantial. There can be no
assurance that the Company's proposed products, if successfully developed, will
be considered cost-effective by third party payors, that insurance coverage will
be available or, if available, that such payors' reimbursement policies will not
adversely affect the Company's ability to sell its products on a profitable
basis. In addition, there can be no assurance that insurance coverage will be
provided by such payors at all or without substantial delay, or, if such
coverage is provided, that the approved reimbursement will provide sufficient
funds to enable the Company to become profitable.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS
The future revenues and profitability of and availability of capital
for biotechnology companies may be affected by the continuing efforts of
governmental and third party payors to contain or reduce the costs of health
care through various means. For example, in certain foreign markets pricing or
profitability of prescription pharmaceuticals is subject to government control.
In the United States, there have been, and the Company expects that there will
continue to be, a number of federal and state proposals to implement similar
government control. While the Company cannot predict whether any such
legislative or regulatory proposals will be adopted, the announcement or
adoption of such proposals could have a material adverse effect on the Company's
prospects.
17.
<PAGE> 20
ITEM 2. PROPERTIES
The Company operates a laboratory facility in Alameda, California. This
facility houses the research and development staff and laboratories of the
Company. The Company has occupied this facility since March 1987 and believes
that it is well maintained and generally adequate for the Company's present
needs and intended uses. The facility is located in a building of approximately
40,000 square feet at 850 Marina Village Parkway, Alameda, California 94501. The
facility is leased through February 2007, at an approximate annual rent of
$633,000. In addition, on July 1, 1994 the Company leased approximately 16,000
square feet of office space for the corporate headquarters and administrative
staff at 950 Marina Village Parkway and on March 1, 1994 leased 26,000 square
feet of shell space at 2060 Challenger Drive, Alameda for a prospective
manufacturing site which has been subleased for the balance of the lease. The
approximate annual rents are $237,000 and $425,000, respectively, through
February 2004. The Company has a one-time option to terminate these leases after
five years. On January 25, 1996 the Company leased approximately 13,000 square
feet for an animal facility at 2061 Challenger Drive, Alameda through February
2007 at an approximate annual rent of $197,000. Office space at 1301 Marina
Village Parkway, consisting of 13,000 square feet, leased at an approximate
annual rent of $211,000 until September 1993 and $277,000 per year thereafter
through November 1997 has been subleased for the remainder of the lease.
ITEM 3. LEGAL PROCEEDINGS
(a) No material legal proceedings to which Somatix was a party or of
which any of its property was the subject were pending during fiscal 1996.
(b) No material legal proceedings were terminated in the fourth quarter
of fiscal 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the last quarter of the fiscal year ended June 30, 1996.
18.
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Shares of the Company's common stock commenced trading in the
over-the-counter market on the Nasdaq National Market on June 5, 1986, under the
symbol "HANA". On March 15, 1991, as a result of the Merger of Hana and Somatix
and the subsequent name change to Somatix Therapy Corporation, the trading
symbol was changed to "SOMA". As of June 30, 1996, there were approximately 961
holders of record of the Company's common stock.
The Company has never paid cash dividends on its common stock and does
not anticipate paying cash dividends on its common stock in the foreseeable
future. See Note 3 to Financial Statements.
The following table sets forth, for fiscal periods indicated, the range
of high and low closing sale prices available for the fiscal years 1996 and
1995.
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
Fourth Quarter $9 3/4 $6
Third Quarter 7 1/4 5 1/8
Second Quarter 6 1/2 3 3/4
First Quarter 7 5/8 3 7/8
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
Fourth Quarter $5 1/16 $3
Third Quarter 5 1/4 2 7/8
Second Quarter 5 1/2 2 7/8
First Quarter 6 5/8 4 1/8
</TABLE>
19.
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
Consolidated Statements of Operations Data:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Licensing agreement .............. $ -- $ -- $ 2,000 $ -- $ --
Research agreements .............. -- 250 900 -- --
Contract
manufacturing ................. -- -- -- -- 69
-------- -------- -------- -------- --------
Total revenues ................ -- 250 2,900 -- 69
Costs and Expenses:
Cost of revenues ................. -- -- -- -- 1,035
Research and
development ................... 17,509 18,395 13,186 12,732 7,444
General and
administrative ................ 4,035 4,699 3,895 3,903 2,568
Restructuring costs .............. -- 2,752 -- -- --
In-process
technology .................... -- 13,679 -- -- 33,038
-------- -------- -------- -------- --------
Total costs and
expenses .................... 21,544 39,525 17,081 16,635 44,085
-------- -------- -------- -------- --------
Operating loss ...................... (21,544) (39,275) (14,181) (16,635) (44,016)
Other income, net ................... 856 222 474 964 793
-------- -------- -------- -------- --------
Net loss ............................ $(20,688) $(39,053) $(13,707) $(15,671) $(43,223)
======== ======== ======== ======== ========
Net loss per share .................. $ (.90) $ (2.34) $ (0.95) $ (1.19) $ (4.43)
======== ======== ======== ======== ========
Shares used in calculation of net
loss per share ................... 22,971 16,661 14,418 13,191 9,752
Consolidated Balance Sheet Data:
Total assets ........................ $ 19,370 $ 19,128 $ 25,747 $ 23,524 $ 38,755
Capital lease obligations,
noncurrent portion ............... 1,217 1,692 1,627 176 330
Stockholders' equity ................ 12,203 10,489 21,846 21,552 36,510
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview In February 1995, the Company completed the acquisition of
Merlin Pharmaceutical Corporation ("Merlin") a privately held gene therapy
company, pursuant to a stock transaction whereby a subsidiary of the
20.
<PAGE> 23
Company was merged into Merlin. As a result of the Merlin acquisition, the
Company wrote-off to operations an amount equal to $13.7 million in fiscal year
1995. With the exception of fiscal year 1990, when the Company sold its cell
biology and diagnostic product line, the Company has been unprofitable since its
inception and expects to continue to incur operating losses in future periods
due to continued requirements for product development, clinical trials,
regulatory activities and other areas. As of June 30, 1996, the Company had an
accumulated deficit of $170.2 million.
Results of Operations There were no revenues for the fiscal year ending
June 30, 1996 compared to $250,000 in fiscal year 1995. Revenues in fiscal year
1994 were $2,900,000. Revenue in fiscal year 1995 was derived from a research
agreement with Baxter Healthcare Corporation. In fiscal year 1994, revenues were
derived from research and licensing agreements with Baxter Healthcare
Corporation and a private group of investors.
On June 29, 1995, the Company completed a restructuring and cost
savings program separating its research and development infrastructure into two
groups. The development group will focus on clinical trials and product
development and the research group will focus on gene transfer technologies for
various medical applications. As a result of the restructuring, the Company
recorded in fiscal year 1995 a restructuring charge of $2,752,000, consisting
principally of employee severance pay, the accrual of future rent obligations
including the write-off of leasehold improvements, and the write-down of certain
assets.
Research and development expenses decreased by $886,000 in fiscal year
1996 and increased by $5,209,000 in fiscal year 1995. The decrease in research
and development expenses in fiscal year 1996 was primarily due to restructuring
and cost saving programs. The increase in research and development expenses in
fiscal year 1995 was primarily due to increased staffing, recruitment costs,
patent legal services, technology license fees, supplies, and research contracts
to meet the requirements of increased preclinical and clinical activities in
progress. The Company expects research and development expenses to increase in
future periods as the Company's preclinical and clinical activities progress.
General and administrative expenditures decreased $664,000 in fiscal
year 1996 and increased $804,000 in fiscal year 1995. The increase in fiscal
year 1995 was primarily due to the write-off of $741,000 of future rent expenses
and leasehold improvements associated with the former corporate headquarters
which the Company is currently marketing for sublease. The Company expects
general and administrative expenses to increase in future periods due to
expanded research and development efforts.
Other income consists principally of interest income earned on the
Company's cash balances. Changes in other income are due to fluctuations in cash
balances available for investment and returns on cash invested in recent
periods.
Liquidity and Capital Resources On June 30, 1996, the Company had cash,
cash equivalents, and marketable securities of $15,036,000 compared with
$14,576,000 on June 30, 1995. Subsequent to June 30, 1996, the Company received
$5 million in cash from a private placement of convertible preferred stock (see
Note 9 to the Consolidated Financial Statements). Operating expenses have
exceeded revenues every fiscal year, except 1990, since the Company's inception.
For the year ending June 30, 1996, capital expenditures were $1,207,000. The
Company expects its cash requirements and net losses to increase significantly
in future periods due to higher research and development costs, the cost of
Phase III clinical trials due to start December 31, 1996 and other expenses. The
Company has no material capital commitments.
The Company anticipates that its existing cash will be sufficient to
meet its cash requirements for at least the next 12 months. The Company has
financed its operations since inception principally through the sale of equity
securities, contract research revenues, license fees and interest income. The
Company's future capital requirements will depend on many factors, including the
progress of the Company's research and development, the scope and results of
preclinical studies and clinical trials, the cost of obtaining regulatory
approvals, the rate of technological
21.
<PAGE> 24
advances, determinations as to the commercial potential of the Company's
products under development, the status of competitive products and the
establishment of manufacturing capacity. The Company anticipates that it will be
required to raise substantial additional funds, including funds raised through
collaborative relationships and public or private financings. Because of the
Company's significant operating and capital requirements, it may be required to
seek additional financings. It may also seek to access the public equity markets
whenever conditions are favorable, even if it does not have an immediate need
for additional capital at that time. No assurance can be given that additional
financing will be available on acceptable terms, or at all. If adequate funds
are not available, the Company will be required to curtail significantly its
research and development programs or may be required to discontinue its programs
in their entirety and liquidate its assets.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements: Page
--------------------- ----
<S> <C>
Report of Independent Auditors................................ 23
Consolidated Balance Sheets at
June 30, 1996 and 1995...................................... 24
Consolidated Statements of Operations for Years Ended
June 30, 1996, 1995, and 1994 .............................. 25
Consolidated Statements of Stockholders' Equity for
Years Ended June 30, 1996, 1995, and 1994................... 26-27
Consolidated Statements of Cash Flows for Years Ended
June 30, 1996, 1995, and 1994............................... 28
Notes to Consolidated Financial Statements.................... 29-36
</TABLE>
All financial statement schedules of the registrant for the years ended
June 30, 1996, 1995, and 1994 have been omitted since the information is not
required or is not so material as to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or the notes thereto.
22.
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Somatix Therapy Corporation
We have audited the accompanying consolidated balance sheets of Somatix
Therapy Corporation as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Somatix
Therapy Corporation at June 30, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Walnut Creek, California
July 25, 1996
except for Note 9, as to which the date is
September 25, 1996
23.
<PAGE> 26
SOMATIX THERAPY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30
-------
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,703,000 $ 14,326,000
Marketable securities 7,738,000 250,000
Other current assets 889,000 726,000
------------- -------------
Total current assets 15,330,000 15,302,000
Marketable securities 595,000 --
Restricted cash 650,000 300,000
Equipment and improvements, at cost:
Laboratory and production equipment 4,136,000 3,942,000
Equipment under capital leases 3,435,000 3,078,000
Furniture and office equipment 1,266,000 1,115,000
Leasehold improvements 4,286,000 3,781,000
------------- -------------
Total equipment and improvements 13,123,000 11,916,000
Less accumulated depreciation and amortization 10,459,000 8,523,000
------------- -------------
Net equipment and improvements 2,664,000 3,393,000
Other assets 131,000 133,000
------------- -------------
Total assets $ 19,370,000 $ 19,128,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 2,237,000 $ 2,642,000
Accrued compensation and related expenses 1,169,000 992,000
Capital lease obligations, current portion 861,000 718,000
Accrued restructuring costs, current portion 414,000 859,000
Other current liabilities 186,000 186,000
------------- -------------
Total current liabilities 4,867,000 5,397,000
Capital lease obligations, net of current portion 1,217,000 1,692,000
Accrued restructuring costs, net of current portion 834,000 1,288,000
Other liabilities 249,000 262,000
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, par value $0.01 per
share; liquidation preferenceof $5,995,275 in 1996,
$6,350,000 in 1995; authorized 1,000,000 shares, issued
and outstanding 239,811 shares in 1996 and
254,000 in 1995 2,000 3,000
Common stock, par value $0.01 per share;
40,000,000 shares, issued and outstanding
24,369,403 shares in 1996 and 20,991,996
shares in 1995 244,000 210,000
Additional paid-in capital 182,118,000 159,749,000
Accumulated deficit (170,161,000) (149,473,000)
------------- -------------
Total stockholders' equity 12,203,000 10,489,000
------------- -------------
Total liabilities and stockholders' equity $ 19,370,000 $ 19,128,000
============= =============
</TABLE>
See accompanying notes.
24.
<PAGE> 27
SOMATIX THERAPY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Licensing agreement $ -- $ -- $ 2,000,000
Research agreements -- 250,000 900,000
------------ ------------ ------------
Total revenues -- 250,000 2,900,000
------------ ------------ ------------
Costs and Expenses:
Research and development 17,509,000 18,395,000 13,186,000
General and administrative 4,035,000 4,699,000 3,895,000
In-process technology -- 13,679,000 --
Restructuring costs -- 2,752,000 --
------------ ------------ ------------
Total costs and expenses 21,544,000 39,525,000 17,081,000
------------ ------------ ------------
Operating loss (21,544,000) (39,275,000) (14,181,000)
Other income, net 856,000 222,000 474,000
Net loss $(20,688,000) $(39,053,000) $(13,707,000)
============ ============ ============
Net loss per share $ (0.90) $ (2.34) $ (0.95)
============ ============ ============
Shares used in calculation of net
loss per share 22,971,053 16,660,528 14,417,679
============ ============ ============
</TABLE>
See accompanying notes.
25.
<PAGE> 28
SOMATIX THERAPY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balances, June 30, 1993 -- -- 13,266,606 $ 133,000
Issuance of shares of common stock
under stock option and purchase
plans -- -- 13,521 --
Private investment in public equity
financing at $5.85 per share, net
of issuance costs -- -- 2,005,483 20,000
Issuance of common stock to investors
at $6.88 per share, net of issuance
costs -- -- 232,558 2,000
Issuance of common stock to investors
at $6.50 per share, net of issuance
costs -- -- 230,769 2,000
Net loss -- -- -- --
------- ----- ---------- -------
Balances, June 30, 1994 -- -- $ 15,748,937 $ 157,000
Issuance of shares of common stock
under stock option and purchase
plans -- -- 215,782 2,000
Issuance of common stock to and
assumptions of options and
warrants upon the acquisition
of Merlin Pharmaceutical Corporation -- -- 2,257,385 23,000
Private placement of common stock
at $3.68 per share,
net of issuance costs -- -- 2,769,892 28,000
Private placement of preferred stock
at $25.00 per share,
net of issuance costs 254,000 $ 3,000 -- --
Net loss -- -- -- --
------- ----- ---------- -------
Balance, June 30, 1995 254,000 3,000 20,991,996 210,000
Issuance of shares of common stock under
stock option and purchase plans -- -- 323,666 3,000
Paid in kind dividends for preferred stock 16,354 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
------- ------- ------
<S> <C> <C> <C>
Balances, June 30, 1993 $ 118,132,000 $ (96,713,000) $ 21,552,000
Issuance of shares of common stock
under stock option and purchase
plans 69,000 -- 69,000
Private investment in public equity
financing at $5.85 per share, net
of issuance costs 10,842,000 -- 10,862,000
Issuance of common stock to investors
at $6.88 per share, net of issuance
costs 1,582,000 -- 1,584,000
Issuance of common stock to investors
at $6.50 per share, net of issuance
costs 1,484,000 -- 1,486,000
Net loss -- (13,707,000) (13,707,000)
----------- ------------ ----------
Balances, June 30, 1994 $ 132,109,000 $(110,420,000) $ 21,846,000
Issuance of shares of common stock
under stock option and purchase
plans 30,000 -- 32,000
Issuance of common stock to and
assumptions of options and
warrants upon the acquisition
of Merlin Pharmaceutical Corporation 12,574,000 -- 12,597,000
Private placement of common stock
at $3.68 per share,
net of issuance costs 8,689,000 -- 8,717,000
Private placement of preferred stock
at $25.00 per share,
net of issuance costs 6,347,000 -- 6,350,000
Net loss -- (39,053,000) (39,053,000)
----------- ------------ ----------
Balance, June 30, 1995 159,749,000 (149,473,000) 10,489,000
Issuance of shares of common stock under
stock option and purchase plans 857,000 -- 860,000
Paid in kind dividends for preferred stock -- -- --
</TABLE>
See accompanying notes.
26.
<PAGE> 29
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Conversion of preferred stock into common
stock (30,543) (1,000) 190,893 2,000
Exercise of warrants to purchase common stock -- -- 559,627 6,000
Purchase of common stock by Bristol-Myers
Squibb, net of issuance costs -- -- 2,303,221 23,000
Net loss -- -- -- --
------- ----- ---------- -------
Balances, June 30, 1996 239,811 2,000 24,369,403 244,000
======= ===== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
------- ------- ------
<S> <C> <C> <C>
Conversion of preferred stock into common (1,000) -- --
stock 1,572,000 -- 1,578,000
Exercise of warrants to purchase common stock
Purchase of common stock by Bristol-Myers 19,941,000 -- 19,964,000
Squibb, net of issuance costs -- (20,688,000) (20,688,000)
Net loss ----------- ------------ ----------
Balances, June 30, 1996 182,118,000 (170,161,000) 12,203,000
=========== ============ ==========
</TABLE>
See accompanying notes
27.
<PAGE> 30
SOMATIX THERAPY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------
1996 1995 1994
---------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (20,688,000) $ (39,053,000) $ (13,707,000)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization.............................. 1,936,000 1,965,000 1,466,000
Write-off of acquired in-process technology................ -- 13,679,000 -
Write-off of leasehold improvements........................ -- 324,000 -
Decrease (increase) in other current assets................ (163,000) 198,000 (140,000)
Decrease (increase) in other assets........................ 2,000 55,000 (54,000)
Increase (decrease) in accounts payable and
accrued liabilities...................................... (405,000) 119,000 244,000
Increase (decrease) in accrued compensation and
related expenses......................................... 177,000 681,000 (45,000)
Increase (decrease) in other current liabilities........... -- 171,000 (17,000)
Increase (decrease) in accrued restructuring costs......... (899,000) 2,147,000 -
Increase (decrease) in other liabilities................... (13,000) 249,000 (48,000)
---------------- --------------- --------------
Net cash used in operating activities...................... (20,053,000) (19,465,000) (12,301,000)
Cash flows from investing activities:
Maturities of marketable securities and changes
in restricted cash....................................... 11,490,000 25,975,000 9,625,000
Purchases of marketable securities......................... (19,923,000) (6,830,000) (16,198,000)
Purchases of equipment and improvements.................... (1,207,000) (1,496,000) (1,359,000)
---------------- --------------- --------------
Net cash (used in) provided by investing activities........ (9,640,000) 17,649,000 (7,932,000)
Cash flows from financing activities:
Borrowings under sale/leaseback agreements................. 519,000 971,000 2,000,000
Principal payments under capital lease obligations......... (851,000) (705,000) (205,000)
Net proceeds from issuance of capital stock................ 22,402,000 15,099,000 14,001,000
---------------- --------------- ---------------
Net cash provided by financing activities................. 22,070,000 15,365,000 15,796,000
Net (decrease) increase in cash............................ (7,623,000) 13,549,000 (4,437,000)
Cash and cash equivalents, beginning of period................ 14,326,000 777,000 5,214,000
---------------- --------------- ---------------
Cash and cash equivalents, end of period...................... $ 6,703,000 $ 14,326,000 $ 777,000
================ =============== ===============
Cash paid for interest........................................ $ 309,000 $ 300,000 $ 132,000
Supplemental disclosures of non-cash investing
and financing activities:
Conversion of preferred stock into common stock............ $ 743,000 $ -- $ --
</TABLE>
See accompanying notes.
28.
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 1. The Company and its Significant Accounting Policies
Company and Basis of Presentation. Somatix Therapy Corporation
("Somatix" or the "Company") is a leader in the emerging field of gene therapy.
Somatix is applying its gene therapy expertise to research and develop therapies
to treat a variety of diseases. The Company is the result of three transactions.
The first transaction, which was consummated in March 1991, combined Somatix
Corporation and Hana Biologics, Inc. The second transaction occurred in January
1992, when the Company acquired GeneSys Therapeutics Corporation. The third
transaction occurred in February 1995, when the Company acquired Merlin
Pharmaceutical Corporation (see Note 2). The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
The Company anticipates that it will be required to raise substantial
additional funds, including funds raised through collaborative relationships and
public or private financings. Because of the Company's significant operating and
capital requirements, it may be required to seek additional financings. It may
also seek to access the public equity markets whenever conditions are favorable,
even if it does not have an immediate need for additional capital at that time.
No assurance can be given that additional financing will be available on
acceptable terms, or at all. If adequate funds are not available, the Company
will be required to curtail significantly its research and development programs
or may be required to discontinue its programs in their entirety and liquidate
its assets.
Cash and Cash Equivalents. At June 30, 1996, cash equivalents consist
of government securities totaling $4,600,000 and short-term corporate debt
securities totaling $1,500,000 with maturities at the date of acquisition of
three months or less. Cash equivalents are stated at cost which approximates
fair value.
Revenue Recognition. License revenue is recorded as revenue when all
contractual obligations have been met. Research revenue is recorded when earned
as defined under the term of the respective agreements. Payments received which
are related to future performance are deferred and recognized as income when
earned.
Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Marketable Securities. At June 30, 1996, current marketable securities
consist of government securities totaling $6,698,000 and corporate debt
securities totaling $1,040,000 having maturities between three months and one
year. Non-current marketable securities consist of government securities having
maturities greater than one year. Marketable securities are stated at cost which
approximates fair value and the unrealized gains and losses at June 30, 1996 are
not significant.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). The Company adopted the
provisions of the new standard for investments held as of or acquired after July
1, 1994. In accordance with SFAS 115, prior period financial statements have not
been restated to reflect the change in accounting principle. The Company has
classified its entire investment portfolio as held-to-maturity. There is no
impact of adopting SFAS 115 on results of operations or financial position
because the difference between cost and fair value was not significant.
29.
<PAGE> 32
In accordance with SFAS 115, debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost, adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in investment income. Interest on
securities classified as held-to-maturity is included in investment income.
It is the Company's policy to invest funds not required for current
operations in financial instruments with strong credit ratings. The Company has
not experienced significant losses to date on these investments.
Equipment and Improvements. Depreciation of equipment and furniture is
provided over estimated useful lives of three to ten years using the
straight-line method. Assets under capital leases are amortized by the
straight-line method over their useful lives of three to five years. Leasehold
improvements are amortized over the remaining lives of the applicable leases.
Retirement Plan. On January 1, 1993, the Company established a defined
contribution plan which covers all employees 21 years and older. The Company's
contributions to the plan are at the discretion of the Company's Board of
Directors. Amounts contributed to the plan for the years ended June 30, 1996,
1995, and 1994 were $74,000, $61,000 and $46,000, respectively.
Stock-Based Compensation. The Company accounts for its stock option
plan in accordance with the provisions of the Accounting Principles Board's
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". In 1995,
the Financial Accounting Standards Board released the Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation". SFAS 123 provides an alternative method of accounting for
stock-based compensation to APB 25 and is effective for the fiscal years
beginning after December 15, 1995. The Company expects to continue to account
for its stock-based compensation in accordance with the provision of APB 25.
Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations. The Company will make the
proforma disclosures required by FAS 123 in fiscal year 1997.
Income Taxes. The liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Per Share Information. Per share information is based on the weighted
average number of common shares outstanding during each period. Shares issuable
upon the exercise of stock options and warrants and the conversion of preferred
stock are not included since their inclusion would be anti-dilutive. In
addition, the paid in kind dividends on the preferred stock are excluded as
their impact would also be anti-dilutive.
NOTE 2. Acquisition of Merlin Pharmaceutical Corporation
On February 13, 1995, the Company completed its acquisition (the
"Acquisition") of Merlin Pharmaceutical Corporation ("Merlin"), a privately-held
gene therapy company. The Company issued 2,257,385 shares of common stock in
exchange for all of the outstanding capital stock of Merlin and assumed options
and warrants to purchase an aggregate of 743,371 shares of the Company's common
stock at exercise prices between $0.01 and $1.94 per share.
The transaction was accounted for as a purchase and the consideration
issued by the Company was allocated to the tangible assets and intangible
in-process technology acquired based on their estimated fair values on the
Acquisition date. The aggregate purchase price of $13,702,000 consisted of (in
thousands):
30.
<PAGE> 33
Fair value of common stock issued $ 9,144
Fair value of warrants and options assumed 3,110
Acquisition costs 900
Liabilities assumed 548
-------
Total purchase price $13,702
=======
The aggregate purchase price exceeded the fair value of Merlin's
tangible assets by $13,679,000. This amount was allocated to acquired in-process
technology and charged to operations in fiscal year 1995. The allocation of the
aggregate purchase price was as follows (in thousands):
Current assets $ 23
In-process technology 13,679
------
$13,702
=======
NOTE 3. Stockholders' Equity
T-body Technology Research and Development Agreement
On April 29, 1994, the Company signed collaborative research and equity
purchase agreements with Baxter Healthcare Corporation ("Baxter") to jointly
research, develop and commercialize T-body technology for the treatment of
cancer. Under the terms of the agreements, the Company and Baxter will be
responsible for their own research expenditures. In fiscal year 1994, the
Company received a non-refundable technology license fee of $400,000, as well as
$1,600,000 for the sale of 232,558 shares of common stock to Baxter at
$6.88/share. Baxter agreed to purchase $1,000,000 in common stock at the
then-market price along with making a milestone payment of $1,000,000 after the
first patient has been treated in a phase I clinical trial. Before initiating
phase III clinical trials, the companies will have the opportunity to form a
joint venture to complete clinical development and commercialization of this
technology. The funding supported by each party at that time will determine the
ownership of the joint venture; provided, however, that each party can
supplement its funding contributions so that the total amount funded by each
party equals at least 30 percent and up to 50 percent of the total expenditures
under the program.
Colorectal Cancer Treatment Research and Development Agreement
On May 12, 1994, the Company signed an agreement with a private group
of investors (the "Investors") to develop the Company's GVAX(TM) cancer vaccine
technology for the treatment of colorectal cancer. Under the terms of the
agreement, the Company received $500,000 to fund preclinical research and
$1,500,000 for the sale of 230,769 shares of common stock to the Investors, at
$6.50 per share. These initial research funds have been used to finance
staffing, overhead, and supply costs associated with the Company's preclinical
development of the GVAX(TM) cancer vaccine for colorectal cancer. Upon filing an
IND, the Investors have agreed to provide an additional $2,500,000 consisting of
research funding of $1,250,000 and $1,250,000 from the sale of additional shares
of common stock at the then-current market price. In exchange for funding the
program, the Investors will receive royalty payments of 2% of net sales of the
colorectal product, although such payments are to be terminated when the
Investors have received aggregate payments of $1,750,000, therefore recovering
research funding under the agreement.
Bristol-Myers Squibb Equity Investment
On August 14, 1995, the Company entered into an agreement with
Bristol-Myers Squibb to evaluate possible areas for collaboration in gene
therapy and the Company received an initial equity investment of $10 million for
1,195,572 shares of common stock or $8.36 per share. Upon obtaining protocol
clearance from the Food and
31.
<PAGE> 34
Drug Administration (FDA) for a Phase III clinical trial for GVAX(TM) cancer
vaccine in April 1996, the Company received a second equity investment of $10
million for 1,107,649 shares of common stock or $9.03 per share. In addition,
Bristol-Myers Squibb received one board of directors seat. The agreement also
allows Bristol-Myers Squibb a five year right of first offer with regard to
collaborations with the Company in any of its internally initiated oncology
programs.
Other Benefit or Bonus Plans
1992 Stock Option Plan. Under the 1992 Stock Option Plan, 3,200,000
shares have been authorized for the grant to employees of either non-qualified
or incentive stock options and the grant to consultants of non-qualified
options. Incentive stock options are to be granted with exercise prices not less
than the fair market value of common stock at the date of grant and
non-qualified options at not less than 85% of fair market value. Options are
exercisable as determined by the Board of Directors, and the Company may be
granted the right to repurchase shares acquired in diminishing amounts over
varying periods of time (none through June 30, 1996). The following table
summarizes the activity under the Plan for the years ended June 30, 1996, 1995,
and 1994:
<TABLE>
<CAPTION>
Options Exercise
For the years ended June 30, Outstanding Price
- ---------------------------- ----------- --------
<S> <C> <C>
1993
- ----
Balance 1,399,045 $ 2.44-$25.00
1994
- ----
Options granted 483,538 $ 5.63-$ 6.88
Options canceled (56,737) $ 3.75-$25.00
Options exercised (13,521) $ 2.88-$ 7.00
------- -------------
Balance 1,812,325 $ 2.44-$25.00
1995
- ----
Options granted 763,500 $ 3.00-$ 5.63
Options canceled (189,820) $ 2.88-$25.00
Options exercised (3,200) $ 2.88-$ 3.00
--------- -------------
Balance 2,382,805 $ 2.44-$25.00
========= =============
1996
- ----
Options granted 423,000 $ 5.69-$6.94
Options canceled (165,581) $ 3.00 -$8.50
Options exercised (263,444) $ 3.00-$ 6.88
-------- -------------
Balance 2,376,780 $ 2.44-$25.00
========= =============
</TABLE>
Of the options outstanding at June 30, 1996, options to purchase
1,355,596 shares were exercisable at prices from $2.44 to $18.72; 101,561 would
be subject to repurchase rights if exercised, and 1,021,184 were unvested and
unexercisable.
Other Option Plans. As a result of the mergers and acquisitions
described in Note 1 and 2, the Company adopted additional option plans. At June
30, 1996, options to purchase 479,436 shares were outstanding with an exercise
price ranging from $0.0116 to $14.04 per share. All shares are exercisable;
9,375 are subject to repurchase rights.
32.
<PAGE> 35
Stock Option Cancellation/Regrant
On December 14, 1994, the Compensation Committee of the Board of
Directors approved a stock option cancellation/regrant program for employees
with stock option exercise prices in excess of the then current fair value of
the Company's common stock, or $3.00 per share. The holders of such options were
offered new options with an exercise price of $3.00 per share in exchange for
the cancellation of the old options.
Private Placement of Common and Preferred Stock
On June 29, 1995 the Company closed a private placement of units of
common and preferred stock in the aggregate amount of $16,543,000, before
issuance costs of $1,476,000. The financing consisted of $10,100,000 in common
stock units of the Company ("Common Stock Units"; 2,769,892 shares) and
$6,400,000 in preferred stock units of the Company ("Preferred Stock Units";
254,000 shares).
The Common Stock Units were priced at $3.68, and consisted of one share
of the Company's common stock ("Common Stock") and a warrant to purchase 0.56 of
a share of Common Stock. The Preferred Stock Units were priced at $25.00, and
consisted of one share of the Company's convertible preferred stock (the
"Preferred Stock"), convertible to 6.25 shares of Common Stock at $4.00 per
share, and warrants for 3.5 shares of Common Stock. In both cases the warrants
have exercise prices of $4.00 per share and have three year terms.
The Preferred Stock terms include a paid-in-kind dividend paid
quarterly until converted to common stock at the rate of 7% per year, a
liquidation preference of $25.00 per share, extraordinary voting rights in the
event the Company's net cash position, as defined, falls below $5,000,000, and a
conversion price reset provision. Under the reset provision, thirteen months
after closing, the conversion price may be reset to the lower of the current
conversion price or the twenty day average closing price of the Common Stock in
the thirteenth month. The conversion price after reset may not be less than
$2.00 per share. Purchasers of the Preferred Stock Units have agreed to certain
trading restrictions during this measurement period. The Preferred Stock will
automatically convert to Common Stock at any time after two and one-half years
after closing if the Common Stock trades at a 100% premium to the
then-applicable conversion price.
Outstanding Warrants
As of June 30, 1996 and 1995, the Company had outstanding warrants to
purchase 2,290,781 and 3,099,168 shares of common stock, respectively, at prices
ranging from $0.01 to $7.25 per share. The outstanding warrants resulted from
the private placement of preferred and common stock during fiscal year 1995 and
the sale/leaseback agreements entered into during fiscal year 1994 (see Note 6).
The warrants became exercisable in 1995 and expire at various dates through
1999. At June 30, 1996 and 1995, 2,290,781 and 3,099,168 shares of common stock
respectively, were reserved for that purpose.
Shares Reserved
At June 30, 1996 and 1995, common stock was reserved for the following
reasons:
1996 1995
---------- -------
Exercise of stock warrants 2,290,781 3,099,168
Conversion of preferred stock 1,498,820 1,587,500
Stock option plans 3,200,355 3,525,021
--------- ---------
6,989,956 8,211,689
========= =========
33.
<PAGE> 36
NOTE 4. Joint Research and Development Agreement
On November 2, 1993, Baxter and the Company signed an agreement to
jointly research and develop a gene therapy approach for the treatment of
hemophilia. Under the terms of the agreement, the Company received a
non-refundable technology license fee of $2,000,000 in fiscal year 1994. The
agreement grants Baxter worldwide marketing rights to products developed.
As a part of this relationship, Baxter and the Company will collaborate
in areas of research and manufacturing and Baxter will make certain milestone
payments to the Company. Baxter will conduct clinical trials and market the
product worldwide. The Company will receive royalties on product sales. The
Company has also agreed to provide Baxter with a right of first negotiations for
certain other approaches for the treatment of hemophilias A and B.
NOTE 5. Income Taxes
Significant components of the Company's deferred tax assets (in
thousands) are as follows at June 30, 1996 and 1995:
1996 1995
---------- -------
Net operating loss carryforward $ 37,000,000 $ 29,400,000
Research and development credit
carryforward 4,600,000 4,600,000
Capitalized research and development 2,900,000 2,100,000
Restructuring costs 500,000 800,000
------------ ------------
Gross deferred tax assets 45,000,000 36,900,000
Valuation allowance (45,000,000) (36,900,000)
------------ ------------
Net deferred tax asset $ 0 $ 0
------------ ------------
The valuation allowance increased $8,100,000 and $9,200,000 in the
fiscal years 1996 and 1995, respectively.
At June 30, 1996 the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $103,000,000 and
$32,000,000, respectively, which expire in the years 1996 through 2010. The
Company has federal tax credit carryforwards of approximately $3,700,000 which
will expire in the years 1996 through 2010.
Because of "change in ownership" provisions of the Tax Reform Act of
1986, a portion of the Company's net operating loss carryforwards and tax
credits will be subject to an annual limitation regarding their utilization
against taxable income in future periods.
NOTE 6. Commitments
The Company leases certain laboratory, production, and office equipment
under capital leases, and all office and laboratory space under operating
leases. The operating lease agreements generally require the Company to pay
operating costs including property taxes, insurance and maintenance.
34.
<PAGE> 37
Future minimum lease payments under capital and operating leases at
June 30, 1996 are as follows:
Capital Operating
Leases Leases
------- ---------
1997 $1,109,000 $1,678,000
1998 1,037,000 1,517,000
1999 271,000 1,214,000
2000 86,000 780,000
2001 -- 803,000
Thereafter -- 5,017,000
----------- ------------
Total minimum lease payments $2,503,000 $11,009,000
===========
Less amount representing interest 425,000
----------
Present value of minimum lease payments 2,078,000
Less current portion 861,000
----------
Long-term portion $1,217,000
==========
At June 30, 1996, the Company has certificates of deposit totaling
$650,000 which secure obligations under certain operating leases.
Rent expense was $1,033,000, $1,438,000, and $1,051,000 for fiscal
years 1996, 1995, and 1994, respectively. At June 30, 1996, the net book value
of equipment under capital leases is $1,307,000 ($1,683,000 in 1995). Certain
other facilities are sub-leased under a non-cancelable lease for terms
substantially identical to the original lease.
In May 1994, the Company entered into a $2,000,000 sale/leaseback
transaction for equipment used in the Company's operations. The Company's
resulting gain of $358,000 has been recorded on the accompanying balance sheets
as an offset to equipment under capital leases and is being amortized over the
lease term. The lessor also received warrants, exercisable until May 24, 1999,
to purchase 25,000 shares of the Company's common stock at an exercise price of
$7.00 per share.
In June 1994, the Company entered into a $2,000,000 lease line for
equipment used in the Company's operations and such line expires December 31,
1996. As of June 30, 1996, the Company had borrowed a total of $1,490,000 under
this line in the form of sale/leaseback transactions. The lessor also received
warrants that became exercisable in fiscal year 1995. Such warrants expire on
December 31, 1999, and grant the lessor the right to purchase 19,310 shares of
the Company's common stock at an exercise price equal to the lesser of $7.25 per
share or the closing sales price per share of the Company's common stock as
listed on the NASDAQ National Market on the date the warrants become
exercisable, but in no event less than $6.00 per share.
NOTE 7. Other Income
Other income is comprised of the following:
Year ended June 30
---------------------------------------
1996 1995 1994
--------- --------- ---------
Interest income $ 863,000 $ 525,000 $ 731,000
Interest expense (309,000) (300,000) (132,000)
Other income (expense), net 302,000 (3,000) (125,000)
--------- --------- ---------
$ 856,000 $ 222,000 $ 474,000
========= ========= =========
35.
<PAGE> 38
NOTE 8. Restructuring Costs
In June 1995, the Company initiated certain changes in the structure of
its research and development efforts. These changes included a selective
reduction in the Company's overall research, clinical and administrative work
force. Accordingly, the Company recorded restructuring costs of $2,752,000 in
the fourth quarter of fiscal year 1995, which included employee severance costs
for 20 employees, totaling $314,000, of which $176,000 was paid during 1995.
Restructuring costs also included the write-down of certain assets to net
realizable value and the accrual of future rent obligations on vacated buildings
and other such future costs related to the restructuring. As of June 30, 1996,
the remaining accrued costs amounted to $1,248,000 which relate to future rent
obligations.
NOTE 9. Subsequent Events
On September 25, 1996, the Company sold 33,333 shares of convertible
Series B-1 preferred stock ("Preferred Stock") in a private placement pursuant
to Regulation S under the Securities Act of 1933, as amended, for an aggregate
consideration of $5,000,000 in cash. In addition, the Company has the right to
sell up to $10,000,000 in additional shares of Preferred Stock during the three
(3) year period ending September 25, 1999. No more than $5,000,000 may be sold
during any given six month period. The Preferred Stock is not entitled to
dividends and is convertible into common stock at a premium over an average of
the market price of the Company's Common Stock on the earlier of (i) the
investor's option, (ii) immediately following any sixty (60) day trading period
after March 1997 in which the Company's common stock has traded above 130% of
the closing price of the common stock on September 24, 1996, or (iii) September
25, 1999. The Company also issued to the investor a warrant to purchase 650,000
shares of the Company's common stock at a price equal to 130% of the closing
price of the Company's common stock on September 24, 1996. Such warrant is
exercisable between March 1998 and September 2002.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
36.
<PAGE> 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 with respect to the
identification of Directors is hereby incorporated by reference from the
information under the caption "Proposal One - Election of Directors" in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be held on
November 21, 1996 (the "Proxy Statement").
The information required by Section 16(a) is hereby incorporated by
reference from the information under the caption "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Proxy Statement.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David W. Carter 56 Chairman, President and Chief Executive Officer
Edward O. Lanphier II 40 Executive Vice President, Commercial Development; Chief
Financial Officer since August 15, 1996
Richard C. Mulligan, Ph.D.(1) 41 Executive Vice President, Research and Chief Scientific
Officer
Jan I. Drayer, M.D., Ph.D. 50 Executive Vice President, Gene Therapy Development
Mark N.K. Bagnall(2) 39 Vice President, Finance and Chief Financial Officer
</TABLE>
- ------------------
(1) Dr. Mulligan resigned from the Company effective as of November 30 1995.
(2) Mr. Bagnall resigned from the Company effective as of August 15, 1996.
Mr. Carter has been President and Chief Executive Officer of the
Company since September 1991, and has served as a director of the Company since
1988. In September 1994, Mr. Carter was appointed Chairman of the Board of
Directors of the Company. From 1986 until joining Somatix in 1991, he was
President and Chief Operating Officer of Northfield Laboratories, a company
developing an artificial blood product. Mr. Carter is a member of the Board of
Directors of Northfield Laboratories.
Mr. Lanphier joined the Company in July 1992 as Executive Vice
President, Commercial Development. Since August 15, 1996, Mr. Lanphier has also
served as the Company's Chief Financial Officer. From December 1991 to July
1992, he was Senior Vice President of Business Development and Marketing at
Celtrix Pharmaceuticals, Inc., a pharmaceutical company. From 1988 to 1991 he
was President and Chief Executive Officer of BioGrowth, Inc., a pharmaceutical
company. Mr. Lanphier previously has held positions with Biotherapeutics, Inc.,
Synergen, Inc. and Eli Lilly & Company.
37.
<PAGE> 40
In November 1995, Dr. Richard Mulligan resigned his position as
Director and Executive Vice President, Research and Chief Scientific Officer to
accept a position as a Howard Hughes Professor at Harvard University. Dr.
Mulligan, a founder and a director of Somatix Corporation from its formation in
January 1988 to November 1995, is currently a consultant to Somatix and chairman
of the Scientific Advisory Board. He will remain active on the Company's
Scientific Advisory Board.
Dr. Drayer joined Somatix in March 1995. From 1990 to March, 1995, he
served as Senior Vice President of Scientific Affairs at G.H. Besselaar, a
leading clinical research organization, where he worked closely with Somatix in
the areas of clinical development and regulatory affairs. Dr. Drayer was also
with Boeringer Ingelheim as Director of Clinical Research. He sits on the
editorial boards of several clinical development journals.
Mr. Bagnall resigned as Vice President, Finance, and Chief Financial
Officer of Somatix in August 1996, a position he had held since July 1992. From
September 1990 to July 1992, Mr. Bagnall served as Treasurer and Secretary after
joining the Company as the Controller in May 1988. Mr. Bagnall remained
secretary of the Company until his resignation in 1996. Prior to joining the
Company, Mr. Bagnall held positions in high technology companies as well as with
Arthur Young and Company. Mr. Bagnall is a certified public accountant.
Officers are appointed to serve, at the discretion of the board of
directors, until their successors are appointed. There are no family
relationships among any of the executive officers of the Company.
EMPLOYEES
As of June 30, 1996, the Company employed 110 individuals full-time, of
whom 16 hold Ph.D. degrees, and 8 hold M.D. degrees. Of these employees, 41 were
engaged in research, 52 in gene therapy development, and 17 in finance and
administration. None of the Company's employees is represented by a labor union
or is the subject of a collective bargaining agreement. The Company has never
experienced a work stoppage and believes that it maintains good relations with
its employees.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by
reference from the information under the captions "Proposal One - Election of
Directors", "Summary of Cash and Certain Other Compensation", "Stock Options"
and "Option Holdings" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by
reference from the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from
the information under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.
38.
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Index to Financial Statements under Item 8.
2. Financial Statement Schedules
All financial statement schedules of the registrant for the years ended
June 30, 1996, 1995, and 1994 have been omitted since the information is not
required or is not so material as to require submission of the schedule, or
because the information requested is included in the consolidated financial
statements or the notes thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
The following documents are referenced or included in this report.
Exhibit
No.
- -------
3.1 1 Amended and Restated Certificate of Incorporation effective
May 16, 1986. Reference Exhibit 3.1.
3.2 1 Certificates of Determination. Reference Exhibit 3.2.
3.3 2 Bylaws. Reference Exhibit 3.3.
3.4 8 Certificate of Amendment of Certificate of Incorporation effective
January 22, 1987. Reference Exhibit 3.2.
3.5 8 Certificate of Amendment of Restated Certificate of Incorporation
effective March 15, 1991. Reference Exhibit 3.4.
3.6 8 Certificate of Amendment of Restated Certificate of Incorporation
effective January 17, 1992. Reference Exhibit 3.5.
3.7 8 Certificate of Designation of Preferences of Preferred Shares
effective December 12, 1988. Reference Exhibit 3.3
3.8 15 Certificate of Amendment of Restated Certificate of Incorporation
effective December 16, 1993.
3.9 19 Amended and Restated Certificate of Incorporation effective
November 29, 1994. Reference Exhibit 3.1.
3.10 22 Certificate of Designation of Preferences of Preferred Shares
effective June 27, 1995. Reference Exhibit 3.3.
3.11 Certificate of Designation of Preferences of Series B-1 Preferred
Stock effective September 23, 1996.
3.12 19 Bylaws, as amended and restated September 29, 1994. Reference
Exhibit 3.2.
3.13 23 Bylaws, as amended and restated September 14, 1995. Reference
Exhibit 3.3.
10.1 2 Lease Agreement dated June 16, 1986, between Hana Biologics, Inc.
and Alameda Marina Village Associates. Reference Exhibit 10.37.
10.2 3 1988 Directors Stock Option Plan. Reference Exhibit 10.67.
10.3 4 Trade Secrets Agreement dated September 13, 1989, between Hana
Biologics, Inc. and Irvine Scientific Sales Company, Inc. Reference
Exhibit 3.
10.4 4 License Agreement dated September 13, 1989, between Hana Biologics,
Inc. and Irvine Scientific Sales Company, Inc. Reference Exhibit 4.
39.
<PAGE> 42
10.5 4 Manufacturing and Supply Agreement dated September 13, 1989,
between Hana Biologics, Inc. and Irvine Scientific Sales Company,
Inc. Reference Exhibit 5.
10.6 5 Development Agreement dated May 1, 1990, between Hana Biologics,
Inc. and The Polymer Technology Group, Incorporated. Reference
Exhibit 10.68.
10.7 6 License Agreement dated February 1, 1988, between Somatix
Corporation and the Massachusetts Institute of Technology.
Reference Exhibit 10.1.
10.8 6 Somatix Corporation's 1988 Stock Option Plan, as amended, and forms
of agreement currently used thereunder. Reference Exhibit 10.2.
10.9 7 Consulting Agreement dated March 14, 1991, between the Company and
Dr. Richard Mulligan. Reference Exhibit 10.29.
10.10 8 Lease Agreement dated September 7, 1990, between GeneSys
Therapeutics Corporation and Ventana Leasing, Inc. Reference
Exhibit 10.49.
10.11 8 License Agreement dated October 1, 1990, between GeneSys
Therapeutics Corporation and Washington University. Reference
Exhibit 10.34.
10.12 8 License Agreement dated April 4, 1991, between GeneSys
Therapeutics Corporation and the Regents of the University of
California. Reference Exhibit 10.37.
10.13 8 Warrant Agreement dated April 15, 1991, between GeneSys
Therapeutics Corporation and Ventana Leasing, Inc. Reference
Exhibit 10.50.
10.14 8 Letter Agreement dated April 17, 1991, between GeneSys
Therapeutics Corporation and the Regents of the University of
California, as amended by that Letter Agreement dated May 10, 1991.
Reference Exhibit 10.51.
10.15 8 License Agreement dated June 7, 1991, between GeneSys Therapeutics
Corporation and the Fred Hutchinson Cancer Research Center.
Reference Exhibit 10.38.
10.16 8 License Agreement No. 1 dated August 20, 1991, between GeneSys
Therapeutics Corporation and The Salk Institute for Biological
Studies. Reference Exhibit 10.39.
10.17 8 Scientific Consulting Agreement dated November 8, 1991, between
Somatix and Dr. Theodore Friedmann. Reference Exhibit 10.41.
10.18 8 Scientific Consulting Agreement dated November 8, 1991, between
Somatix and Dr. Frederick Gage. Reference Exhibit 10.42.
10.19 8 Scientific Consulting Agreement dated November 8, 1991, between
Somatix and Dr. Inder Verma. Reference Exhibit 10.43.
10.20 8 Consulting Agreement dated November 13, 1991, between Somatix and
Dr. Harry F. Hixson, Jr. Reference Exhibit 10.44.
10.21 8 Warrant Agreement dated November 9, 1991, between GeneSys
Therapeutics Corporation and Kleiner Perkins Caufield & Byers V.
Reference Exhibit 10.45.
10.22 8 Agreement dated January 15, 1992, between Somatix and The Board of
Trustees of the Leland Stanford Jr. University. Reference Exhibit
10.46.
10.23 8 Registration Rights Agreement dated January 17, 1992, among Somatix
and certain Investors as set forth on Exhibit A thereto. Reference
Exhibit 10.47.
10.24 8 Shareholder Agreement dated January 21, 1992, among Somatix,
GeneSys Therapeutics Corporation and Kleiner Perkins Caufield &
Byers V. Reference Exhibit 10.48
10.25 9 License Agreement dated March 4, 1992, by and among Somatix, The
Johns Hopkins University and The University of Texas System.
Reference Exhibit 10.56.
10.26 9 Lease Agreement dated July 15, 1992, between Somatix and Alameda
Real Estate Investments. Reference Exhibit 10.58.
10.27 9 1992 Stock Option Plan, as amended and restated. Reference Exhibit
10.63.
10.28 10 GeneSys Therapeutics Corporation 1991 Stock Option Plan and forms
of agreement currently used thereunder. Reference Exhibit 28.5.
10.29 11 Sublease Agreement dated March 26, 1992, by and among GeneSys
Therapeutics Corporation, Del Mar Plaza, Ltd. and Ligand
Pharmaceuticals, Inc.; Consent to Sublease Agreement dated April
10, 1992. Reference Exhibit 10.57.
40.
<PAGE> 43
10.30 11 Employment Agreement dated July 10, 1992, between Somatix and Dr.
Krzysztof S. Bankiewicz. Reference Exhibit 10.66.
10.31 12 Agreement dated January 15, 1993, by and between Somatix and the
Regents of the University of California on behalf of its Davis
Campus. Reference Exhibit 10.70.
10.32 12 Agreement dated February 10, 1993, by and between Somatix and the
California Parkinson's Foundation. Reference Exhibit 10.71.
10.33* 12 Letter Agreement dated March 16, 1993, between Somatix and Vector
Securities International, Inc. Reference Exhibit 10.72.
10.34 12 Employment Agreement dated July 1, 1993, between Somatix and David
Carter. Reference Exhibit 10.73.
10.35 12 Agreement dated August 30, 1993, by and between Somatix and Ludwig
Institute for Cancer Research. Reference Exhibit 10.74.
10.36 13 Employment Agreement dated November 11, 1993, between Somatix and
Richard Mulligan. Reference Exhibit 10.76.
10.37 14 Property Lease Agreement dated February 8, 1994, between Somatix
and Alameda Real Estate Investments. Reference Exhibit 10.77.
10.38 15 Property Lease Agreement dated May 5, 1994, between Somatix and
Alameda Real Estate Investments. Reference Exhibit 10.55.
10.39* 15 Research Collaboration Agreement dated April 29, 1994, by and
between Somatix and Baxter Healthcare Corporation. Reference
Exhibit 10.53.
10.40 15 Stock Purchase Agreement dated April 29, 1994, by and between
Somatix and Baxter Healthcare Corporation. Reference Exhibit 10.54.
10.41 15 Stock Purchase Agreement dated May 12, 1994, by and between Somatix
and Health Care Partners, LLC. Reference Exhibit 10.56.
10.42 15 Common Stock Purchase Agreement dated November 29, 1993, among
Somatix and the Investors listed on the Schedule of Investors
attached thereto. Reference Exhibit 10.52.
10.43 15 Amended and Restated Registration Rights Agreement dated May 12,
1994, among Somatix and the parties listed on Schedule A attached
thereto. Reference Exhibit 10.57.
10.44 15 Master Equipment Lease Agreement dated May 24, 1994, between
Somatix and Aberlyn Capital Management Limited Partnership.
Reference Exhibit 10.58.
10.45 15 Agreement to Issue Warrant dated May 24, 1994, between Aberlyn
Capital Management Limited Partnership and Somatix. Reference
Exhibit 10.59.
10.46 15 Agreement to Issue Warrant dated May 24, 1994, between Aberlyn
Capital Management Limited Partnership and Somatix. Reference
Exhibit 10.60.
10.47 15 Master Equipment Lease Agreement dated June 30, 1994, between
Financing for Science International, Inc. and Somatix. Reference
Exhibit 10.61.
10.48 15 Warrant dated July 30, 1994, issued by Somatix to Financing for
Science International, Inc. Reference Exhibit 10.62.
10.49* 16 Agreement dated November 2, 1993, by and between Somatix and
Baxter Healthcare Corporation together with Amendment No. 1 dated
September 30, 1994. Reference Exhibit 10.75.
10.50 17 Employment Agreement dated August 1, 1993, between Somatix and
Arlene Jordan-Levy.
10.51 17 Employment Agreement dated August 1, 1993, between Somatix and
Lawrence Cohen.
10.52 17 Employment Agreement dated November 1, 1993, between Somatix and
Edward Oliver Lanphier II.
10.53 17 Employment Agreement dated December 30, 1993, between Somatix and
Mark N.K. Bagnall.
10.54* 17 Non-Exclusive License Agreement dated April 20, 1994 by and between
the Fred Hutchinson Cancer Research Center and Somatix.
10.55 17 Research Agreement dated June 1, 1994 between Baxter Healthcare
Corporation and Somatix.
10.56* 17 Letter Agreement dated September 1, 1994 between Baxter Healthcare
Corporation and Somatix.
10.57 18 Amendment #1 to the Warrant Agreement and Shareholder Agreement
dated November 7, 1994 by and among Somatix, GeneSys Therapeutics
Corporation and Kleiner Perkins Caufield & Byers V.
41.
<PAGE> 44
10.58* 19 Agreement and Plan of Reorganization dated December 19, 1994 as
amended on January 18, 1995 and January 31, 1995 among Somatix, STC
Acquisition Co. and Merlin Pharmaceutical Corporation. Reference
Exhibit 3.
10.59 19 Escrow Agreement, dated as of February 3, 1995, by and between STC
Acquisition Company, The First National Bank of Boston and the
stockholders of Merlin Pharmaceutical Corporation. Reference
Exhibit 4.
10.60* 19 Consulting and Repurchase Agreement, dated February 3, 1995,
between Somatix and Samuel D. Waksal. Reference Exhibit 5.
10.61* 19 Consulting and Repurchase Agreement, dated January 21, 1995,
between Somatix and Thomas Shenk. Reference Exhibit 6.
10.62* 19 Consulting and Repurchase Agreement, dated February 3, 1995,
between Somatix and R. Jude Samulski. Reference Exhibit 7.
10.63* 19 Consulting and Repurchase Agreement, dated February 3, 1995,
between Somatix and Michael Kaplitt. Reference Exhibit 8.
10.64* 19 Consulting and Repurchase Agreement, dated February 3, 1995,
between Somatix and Matthew During. Reference Exhibit 9.
10.65 19 Indemnification Agreement, dated as of December 19, 1994, as
amended by Amendment No. 1, dated as of February 3, 1995, among
Merlin Pharmaceutical Corporation and Samuel D. Waksal. Reference
Exhibit 10.
10.66 19 Promissory Note, dated February 2, 1995, by and between Samuel D.
Waksal and Somatix. Reference Exhibit 11.
10.67 20 Merlin Pharmaceutical Corporation 1993 Stock Option Plan.
Reference Exhibit 99.1.
10.68 20 Non-Qualified Stock Option Agreement to be generally used in
connection with Merlin Pharmaceutical Corporation 1993 Stock Option
Plan. Reference Exhibit 99.2.
10.69 20 Stock Option Assumption Agreement - Installment Option. Reference
Exhibit 99.3.
10.70 20 Stock Option Assumption Agreement - Immediately Exercisable Option.
Reference Exhibit 99.4.
10.71* 21 License Agreement, dated January 10, 1994, between Merlin
Pharmaceutical Corporation and University of Florida Research
Foundation. Reference Exhibit 10.13.
10.72* 21 License Agreement, dated May 1, 1994, between Merlin
Pharmaceutical Corporation and University of Pittsburgh - of the
Commonwealth System of Higher Education. Reference Exhibit 10.14.
10.73* 21 License Agreement, dated August 11, 1994, between Merlin
Pharmaceutical Corporation and The Research Foundation of State
University of New York. Reference Exhibit 10.15.
10.74* 21 License Agreement, dated August 17, 1994, between Merlin
Pharmaceutical Corporation and University of Pittsburgh - of the
Commonwealth System of Higher Education. Reference Exhibit 10.16.
10.75 21 Sublease Agreement, dated December 1, 1994, between Merlin
Pharmaceutical Corporation and ICAgen, Inc. Reference Exhibit
10.17.
10.76* 21 Amendment dated February 15, 1995 to License Agreement dated May 1,
1994, between Merlin Pharmaceutical Corporation and University of
Pittsburgh - of the Commonwealth System of Higher Education.
Reference Exhibit 10.18.
10.77 21 Employment Agreement, dated April 7, 1995, between Somatix and Jan
Drayer, M.D. Reference Exhibit 10.19.
10.78 22 Common Stock Purchase Agreement, dated June 17, 1995. Reference
Exhibit 10.20.
10.79 22 Preferred Stock Purchase Agreement, dated June 17, 1995. Reference
Exhibit 10.21.
10.80 22 Form of Warrant to Purchase Shares of Common Stock. Reference
Exhibit 10.22.
10.81**24 Stock Purchase Agreement, dated August 15, 1995, between Somatix
Therapy Corporation and Bristol-Myers Squibb Company. Reference
Exhibit 5.2.
10.82 25 Engagement Letter, dated April 27, 1995, between Somatix Therapy
Corporation and Merrill Lynch & Co. of Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
42.
<PAGE> 45
10.83 26 Amendment No. 2 to the Warrant Agreement and Shareholder Agreement,
dated November 9, 1995, by and among Somatix Therapy Corporation
and Kleiner Perkins Caufield and Byers V. Reference Exhibit 10.1
10.84 26 Mutual Termination Agreement, dated September 29, 1995, between
Somatix Therapy Corporation and Baxter Healthcare Corporation.
Reference Exhibit 10.2.
10.85 Subscription Agreement, dated September 24, 1996, by and between
Somatix Therapy Corporation and Fletcher International Limited.
10.86 Warrant, dated September 25, 1995, issued by Somatix Therapy
Corporation to Fletcher International Limited.
22.1 3 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney (see pages 45 and 46).
27 Financial Data Schedule.
- --------------------
1 Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-1 (File No. 33-4795) as filed with the SEC on April
14, 1986.
2 Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for fiscal year ended June 30, 1986.
3 Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1989.
4 Incorporated by reference to exhibit filed with the registrant's Form
8-K dated September 13, 1989.
5 Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1990.
6 Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-4 (File No. 33-4795) as filed with the SEC on
January 14, 1991.
7 Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1991.
8 Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-1 (File No. 33-4795) as filed with the SEC on
January 21, 1992.
9 Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1992.
10 Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-8 as filed with the SEC on August 17, 1992.
11 Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for quarter ended September 30, 1992.
12 Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
13 Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1993.
14 Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
15 Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994.
16 This agreement was originally filed as Exhibit 10.75 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993, has not been changed and is being filed with
Amendment No. 1 thereto for convenience of reference.
17 Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
43.
<PAGE> 46
18 Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994.
19 Incorporated by reference to exhibit filed with registrant's Amendment
No. 1 to Current Report on Form 8-K/A as filed with the SEC on February
14, 1995.
20 Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-8 as filed with the SEC on March 3, 1995.
21 Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
22 Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-3 (File No. 33-60873) as filed with the SEC on June
19, 1995.
23 Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter year ended June 30, 1995.
24 Incorporated by reference to exhibit filed with registrant's Current
Report on Form 8-K as filed with the SEC September 20, 1995.
25 Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal ended September 30, 1995.
26 Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.
* Confidential treatment has been granted as to certain portions of this
agreement.
** Confidential treatment has been requested as to certain portions of
this agreement. Such omitted confidential information has been
designated by an asterisk and has been filed separately with the
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended, pursuant to an application for confidential
treatment.
44.
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: September 27, 1996
SOMATIX THERAPY CORPORATION
By: DAVID W. CARTER
-------------------------------------------
David W. Carter
Chairman, President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person who signature appears
below constitutes and appoints jointly and severally, David W. Carter and Edward
O. Lanphier II, or either of them as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
DAVID W. CARTER Chief Executive Officer September 27, 1996
- ---------------------------- (Principal Executive Officer)
(David W. Carter)
EDWARD O. LANPHIER II Vice President, Finance September 27, 1996
- ---------------------------- (Principal Financial and
(Edward O. Lanphier II) Accounting Officer)
KAREN DAVIS Director September 27, 1996
- ----------------------------
(Karen Davis, Ph.D)
MICHAEL R. EISENSON Director September 27, 1996
- ----------------------------
(Michael R. Eisenson)
</TABLE>
45.
<PAGE> 48
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
FRED H. GAGE Director September 27, 1996
- ---------------------------------
(Fred H. Gage, Ph.D.)
HARRY F. HIXSON, JR. Director September 27, 1996
- ---------------------------------
(Harry F. Hixson Jr., Ph.D.)
Director September , 1996
- ---------------------------------
(John T. Potts, Ph.D., M.D.)
LEON E. ROSENBERG Director September 27, 1996
- ---------------------------------
(Leon E. Rosenberg, M.D.)
THOMAS E. SHENK Director September 27, 1996
- ---------------------------------
(Thomas E. Shenk, Ph.D)
INDER M. VERMA Director September 27, 1996
- ---------------------------------
(Inder M. Verma, Ph.D.)
SAMUEL D. WAKSAL Director September 27, 1996
- ---------------------------------
(Samuel D. Waksal, Ph.D.)
</TABLE>
46.
<PAGE> 1
EXHIBIT 3.11
CERTIFICATE OF DESIGNATION
OF PREFERENCES OF SERIES B-1 PREFERRED STOCK OF
SOMATIX THERAPY CORPORATION,
A DELAWARE CORPORATION
The undersigned David W. Carter and J. Stephan Dolezalek hereby
certify that:
(i) They are the duly elected and acting President and Chief
Executive Officer and Assistant, respectively, of Somatix Therapy Corporation, a
Delaware corporation (the "Corporation").
(ii) Pursuant to the authority conferred upon the Board of Directors
of the Corporation by paragraph (B) of Article IV of the Corporation's Restated
Certificate of Incorporation (the "Certificate"), the Board of Directors of the
Corporation on September 23, 1996 adopted the following resolutions creating a
series of preferred stock designated as Series B-1 Preferred Stock;
WHEREAS, the Certificate provides for a class of shares known as
Preferred Stock, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of the Corporation is authorized by
the Certificate to determine the powers, rights, preferences, qualifications,
limitations and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, to fix the number of shares constituting any such
series, and to determine the designation thereof, or any of them; and
WHEREAS, the Board of Directors of the Corporation, in that certain
Certificate of Designation of Preferences dated June 23, 1995 and filed with the
Secretary of State of the State of Delaware on June 27, 1995 (the "Series A
Certificate"), designated and fixed the powers, rights, preferences
qualifications, limitations and restrictions relating to those series of
Preferred Stock known as Series A-1 Preferred Stock (the "Series A-1 Preferred
Stock") and Series A-2 Preferred Stock (the "Series A-2 Preferred Stock") (the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock shall be jointly
referred to herein as the "Series A Preferred Stock");
WHEREAS, the Corporation intends to enter into that certain
Subscription Agreement (the "Subscription Agreement") pursuant to which it
would, among other things, issue shares of Preferred Stock to a certain investor
(the "Investor");
WHEREAS, the Board of Directors of the Corporation desires, pursuant
to its authority as aforesaid, to determine and fix the powers, rights,
preferences, qualifications,
<PAGE> 2
limitations and restrictions relating to the Series B-1 Preferred Stock and the
number of shares constituting, and the designation of, each such series.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority
vested in the Board of Directors of the Corporation in accordance with the
provisions of the Certificate, the Series B-1 Preferred Stock is hereby created,
and the Board of Directors hereby fixes and determines the designation of, the
number of shares constituting, and the rights, preferences, privileges and
restrictions relating to, such Series B-1 Preferred Stock as follows:
1. Designation. The series of preferred stock of the Corporation
shall be designated as "Series B-1 Preferred Stock."
2. Authorized Number. The number of shares constituting the Series
B-1 Preferred Stock shall be thirty-three thousand three hundred thirty-three
(33,333) shares. The rights, preferences, restrictions and other matters
relating to the Series B-1 Preferred Stock set forth below are subject to the
rights, preferences, restrictions and other matters relating to the Series A
Preferred Stock but shall be senior in all respects to all other series of
Preferred Stock that may be issued by the Corporation from time to time;
provided, however, that any series or subseries of Preferred Stock issued to the
Investor shall have the same rights, preferences, restrictions and other matters
as the Series B-1 Preferred Stock; provided further that in the event the
Corporation obtains stockholder approval of the sale of any additional series or
subseries of Preferred Stock to the Investor pursuant to the put rights set
forth in the Subscription Agreement, the provisions of Section 6(B)(ii) hereof
shall not apply to such additional series or subseries. The Board of Directors
is also authorized to decrease the number of shares of any series of preferred
stock prior or subsequent to the issue of that series, but not below the number
of shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
3. Dividend Rights. Subject to the prior dividend rights of holders
of Series A Preferred Stock as set forth in the Series A Certificate, the
holders of the Series B-1 Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors. Subject to the prior dividend rights of holders of
Series A Preferred Stock, the Board of Directors shall not pay any dividend to
the holders of the Common Stock unless and until it has paid an equivalent
dividend, on a pro rata per share basis, to the holders of the Series B-1
Preferred Stock.
4. Liquidation Preference.
(A) In the event of any liquidation, dissolution, change of
control or winding up of the Corporation, whether voluntary or involuntary, the
holders of the Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of
2.
<PAGE> 3
any of the assets or surplus funds of the Corporation to the holders of the
Series B-1 Preferred Stock or the Common Stock by reason of their ownership
thereof, the amount of $25.00 per share (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all accrued or declared
but unpaid dividends on such share for each share of Series A Preferred Stock
then held by them. If upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(B) After payment to the holders of Series A Preferred Stock
of the amounts set forth in 4(A) above, the holders of the Series B-1 Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Corporation to the holders of the
Common Stock by reason of their ownership thereof, the amount of One Hundred
Fifty Dollars ($150.00) (the "Original Issue Price") per share (as adjusted for
any stock dividends, combinations or splits with respect to such shares) plus
all accrued or declared but unpaid dividends on such share for each share of
Series B-1 Preferred Stock then held by such holder. If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series B-1 Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amount, then the entire assets and
funds of the Corporation legally available for distribution shall be distributed
ratably among the holders of the Series B-1 Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(C) After payment to the holders of the Series A Preferred
Stock and the Series B-1 Preferred Stock of the amounts set forth in Sections
4(A) and 4(B), respectively, above, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
among the holders of the Common Stock in proportion to the shares of Common
Stock then held by them.
(D) For purposes of this Section 4, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding shares of the Corporation are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary (other than a mere reincorporation transaction) or (ii) a sale
of all or substantially all of the assets of the Corporation or (iii) any other
transaction or series of related transactions by the Corporation in which in
excess of 50% of the Corporation's voting power is transferred, shall be treated
as a liquidation, dissolution or winding up of the Corporation and shall entitle
the holders of Series A Preferred Stock and Series B-1 Preferred Stock to
receive at the closing in cash, securities or other property (valued as provided
in Section 4(E) below) the amount as specified in Sections 4(A) and 4(B),
respectively, above.
3.
<PAGE> 4
(E) Whenever the distribution provided for in this Section 4
shall be payable in securities or property other than cash, the value of such
distribution shall be as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange, the
value shall be deemed to be the average of the closing prices of the
securities on such exchange over the 30-day period ending three (3)
days prior to the closing;
(B) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale
prices (whichever are applicable) over the 30-day period ending three
(3) days prior to the closing; and
(C) If there is no active public market, the
value shall be the fair market value thereof, as determined in good
faith by the Board of Directors of the Corporation.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a stockholder's status as
an affiliate or former affiliate) shall be to make an appropriate
discount from the market value determined as above in (i) (A), (B) or
(C) to reflect the approximate fair market value thereof, as determined
in good faith by the Board of Directors of the Corporation.
(iii) In the event of any bona-fide dispute between the
Corporation and one or more holders of the Series A Preferred Stock or
Series B-1 Preferred Stock as to any fair market value determination
under clauses (i)(C) or (ii) above, such dispute shall be resolved
through binding arbitration under the rules of the American Arbitration
Association, with the arbitration panel consisting of persons familiar
with the valuation of public and private entities and such panel being
advised, as to such valuation issues, by an investment bank of
nationally recognized standing, the costs thereof to be borne by the
non-prevailing party.
5. Redemption. The Series B-1 Preferred Stock is not redeemable.
6. Conversion. The holders of Series B-1 Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(A) Right to Convert. On and after November 9, 1996, each such
share shall be convertible upon delivery of such shares in accordance with
Section 6(C) below on any business day (each a "Conversion Date") at the option
of the holder into that number of shares of Common Stock equal to the quotient
obtained by dividing (i) the Original Issue Price multiplied by the number of
such shares to be converted at such time,
4.
<PAGE> 5
by (ii) 101% of the average of the daily volume-weighted average price (the
"Conversion Price") of the Common Stock reported by The Nasdaq Stock Market
("Nasdaq") for the forty (40) trading day period (the "Pricing Period") ending
two (2) trading days prior to the Conversion Date; provided, however, that the
Conversion Price shall in no event exceed 115% of the daily volume-weighted
average closing price of the Common Stock as reported by Nasdaq for the first
five (5) days of such Pricing Period; provided further, that the minimum number
of shares which may be converted at any one time shall be such number of shares
of Series B-1 Preferred Stock as shall be convertible in accordance with the
formula set forth above into seventy-five thousand (75,000) shares of Common
Stock or such lesser number of shares as shall be then outstanding; and provided
further, that in the event there is any split, combination, reclassification of
or dividend on the Common Stock (an "Event") during the Pricing Period, all
pre-Event prices during the Pricing Period shall be adjusted, and calculated, on
a post-Event basis.
(B) Automatic Conversion. Each share of Series B-1 Preferred
Stock shall automatically be converted into Common Stock on the earlier of (i)
September 25, 1999, in which event each share of Series B-1 Preferred Stock
shall automatically be converted into Common Stock in accordance with the
formula set forth in Section 6(A) above using September 25, 1999 as the
Conversion Date, or (ii) at such time as the daily volume-weighted average price
of the Common Stock as reported by Nasdaq for any consecutive sixty (60) day
trading period commencing after March 25, 1997 (the "Premium Period") is greater
than 130% of the closing price of the Common Stock as reported by Nasdaq on
September 24, 1996, in which event each share of Series B-1 Preferred Stock
shall be converted into Common Stock in accordance with the formula set forth in
Section 6(A) above using the sixtieth (60th) trading day of the Premium Period
as the Conversion Date; provided, however, that the Conversion Price under
Section 6(B)(ii) shall in no event exceed 130% of the closing price of the
Common Stock as reported by Nasdaq on September 24, 1996; and provided further
that, in the event the Corporation obtains stockholder approval of the sale of
any additional series or subseries of Preferred Stock to the Investor pursuant
to the put rights set forth in the Subscription Agreement, this Section 6(B)(ii)
shall be null and void and of no further force or effect.
(C) Mechanics of Conversion. Before any holder of Series B-1
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this Corporation or of any transfer agent for the
Series B-1 Preferred Stock, and shall give written notice by mail, postage
prepaid, or by facsimile, confirmed by mail, to this Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Conversion Date shall be the date of such
surrender of the Series B-1 Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. This Corporation or the transfer
agent, if any, for such shares shall, within two (2) business days of the
Conversion Date, issue and deliver at such office to such holder of the Series
B-
5.
<PAGE> 6
1 Preferred Stock, or to the nominee or nominees of such holder, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. for purposes of this Section 6, the term
"business day" shall mean any day on which banking institutions in the City and
State of New York are open for business.
(D) Adjustments for Reclassification and Reorganization. If
the Common Stock issuable upon conversion of the Series B-1 Preferred Stock
shall be changed into the same or a different number of shares of any other
class or classes of stock, whether by capital reorganization, reclassification
or otherwise (other than a merger or other reorganization referred to in Section
4(D) above), the number of shares of such other class or classes of stock into
which the Series B-1 Preferred Stock shall be convertible shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series B-1 Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series B-1 Preferred Stock immediately before that change.
(E) No Impairment. This Corporation will not, by amendment of
its Certificate or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B-1 Preferred Stock against impairment.
(F) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion
of the Series B-1 Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether
or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series B-1
Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of any adjustment or
readjustment of the number of shares of Common Stock into which the
Series B-1 Preferred Stock can be converted pursuant to Section 6(D)
above, this Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series B-1 Preferred Stock a
certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based.
6.
<PAGE> 7
(G) Notices of Record Date. In the event of any taking by this
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series B-1 Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(H) Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the Series B-1 Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B-1 Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all the then outstanding Series B-1 Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Series B-1 Preferred Stock, this Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
(I) Notices. Any notice required by the provisions of this
Section 6 to be given to the holders of Series B-1 Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid and return
receipt requested, and addressed to each holder of record at his address
appearing on the books of this Corporation.
7. Voting Rights. Subject to the rights of the holders of the Series
A Preferred Stock as set forth in the Series A Certificate, each holder of
shares of Series B-1 Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such shares of Series
B-1 Preferred Stock could be converted as of the record date for any action and
shall have voting rights and powers equal to the voting rights and powers of the
Common Stock (except as otherwise expressly provided herein, in the Series A
Certificate or as required by law, voting together with the Series A Preferred
Stock and Common Stock as a single class) and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Series B-1 Preferred Stock held by each holder could be converted)
shall be rounded to the nearest whole number (with one-half being rounded
upward). Each holder of Common Stock shall be entitled to one (1) vote for each
share of Common Stock held.
8. Status of Converted or Redeemed Stock. In the event any Series
B-1 Preferred Stock shall be converted pursuant to Section 6 hereof, the shares
so converted shall be promptly canceled after the conversion thereof. All such
shares shall upon their
7.
<PAGE> 8
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued only as part of a new series or subseries of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
* * *
RESOLVED FURTHER, that the Chairman of the Board, the Chief
Executive Officer, the President or any Vice President, and the Secretary, the
Chief Financial Officer, the Treasurer, or any Assistant Secretary or Assistant
Treasurer of this Corporation are each authorized to execute, verify, and file a
Certificate of Designation of Preferences in accordance with Delaware law.
8.
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have executed this certificate
on September 23, 1996.
/s/ DAVID W. CARTER
-------------------------------------
David W. Carter
President and Chief Executive Officer
/s/ J. STEPHAN DOLEZALEK
-------------------------------------
J. Stephan Dolezalek
Assistant Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Certificate of Designation of Preferences and know the contents
thereof, and that the statements therein are true.
Executed at Alameda, California, on September 23, 1996.
/s/ DAVID W. CARTER
-------------------------------------
David W. Carter
President and Chief Executive Officer
/s/ J. STEPHAN DOLEZALEK
-------------------------------------
J. Stephan Dolezalek
Assistant Secretary
9.
<PAGE> 1
EXHIBIT 10.85
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement") dated September
24, 1996 is entered into and by and between Somatix Therapy Corporation, a
Delaware corporation ("Somatix"), and Fletcher International Limited, a company
organized under the laws of the Cayman Islands ("Fletcher").
Unless otherwise defined herein, capitalized terms used herein
and not defined herein shall have the meanings given to them in Regulation S
("Regulations S") under the United States Securities Act of 1933, as amended
(the "Securities Act").
The parties hereto agree as follows:
1. Purchase and Sale. In consideration of and upon the basis
of the representations, warranties and agreements and subject to the terms and
conditions set forth in this Agreement:
a. Put Options. Fletcher agrees to grant to Somatix on the
Closing Date specified in Section 2 hereof two put options each having
the terms set forth in Annex A hereto (each a "Put Option").
b. Warrant. Somatix agrees to sell to Fletcher, and Fletcher
agrees to purchase from Somatix, on the Closing Date specified in
Section 2 hereof, a warrant having the terms set forth in Annex B
hereto (the "Warrant") to purchase an aggregate of up to 650,000
shares of Somatix's Common Stock, par value $0.001 per share (the
"Common Stock"), which, in accordance with the terms and conditions of
this Agreement, will be freely tradable. The shares of Common Stock
issuable pursuant to the Warrant are referred to herein as the
"Warrant Shares."
c. Series B-1 Preferred Shares. Somatix agrees to sell to
Fletcher, and Fletcher agrees to purchase from Somatix, on the Closing
Date specified in Section 2 hereof, 33,333 shares of Series B-1
Preferred Stock, stated value $150.00 per share, having the terms and
conditions set forth in Annex C hereto (the "Series B-1 Preferred
Shares") at a price per share equal to such stated value per share
(the "Shares B-1 Purchase Price").
2. Closing. The delivery of the Put Options referred to in
Section 1(a) and the Warrant referred to in Section 1(b) and the Series B-1
Preferred Shares referred to in Section 1(c) (the "Closing") shall take place at
12:00 noon (New York time) on September 25, 1996, or at such other date and time
as Fletcher and Somatix may agree in writing (such date and time being referred
to herein as the "Closing Date").
<PAGE> 2
At the Closing, the following deliveries shall be made:
a. Warrant. Somatix shall deliver the certificate representing
the Warrant to Fletcher. Such certificate shall be substantially in
the form attached hereto as Annex B hereto.
b. Series B-1 Preferred Shares. Somatix shall deliver the
certificates representing the Series B-1 Preferred Shares, duly
registered on the books of Somatix in the name of Fletcher, against
payment by Fletcher of the Series B-1 Purchase Price in immediately
available funds to the following account: Wells Fargo Bank, Account
No. 4103-126348, ABA No. 121000248.
c. Officers' Certificate. The officers' certificate required by
Sections 8(a) and 9(a) shall be delivered to Fletcher and Somatix,
respectively.
d. Legal Opinions. The legal opinions required by Sections 8(b)
and 9(b) shall be delivered to Fletcher and Somatix, respectively.
The foregoing deliveries shall be deemed to occur
simultaneously as part of a single transaction, and no delivery shall be deemed
to have been made until all such deliveries have been made.
As used herein, the term "Preferred Shares" includes (i) the
Series B-1 Preferred Shares and (ii) the shares of Series B-2 Preferred Stock
and Series B-3 Preferred Stock of Somatix issuable to Fletcher pursuant to the
Put Options.
3. Representations and Warranties of Somatix. Somatix hereby
represents and warrants to Fletcher on the date hereof, on the Closing Date, on
the date any Preferred Share is converted (each a "Preferred Share Conversion
Date"), on each Put Option Exercise Date (as defined in Annex A hereto) and on
each Warrant Exercise Date (as defined in Annex B hereto) as follows:
a. Somatix has been duly incorporated and is validly
existing in good standing under the laws of Delaware.
b. This Agreement has been duly authorized, executed and
delivered by Somatix and, when duly authorized, executed and
delivered by Fletcher, will be a valid and binding agreement
enforceable against Somatix in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to
or affecting creators' rights generally and to general principles
of equity.
c. Somatix has full corporate power and authority necessary
to enter into this Agreement and to perform its obligations
hereunder.
2.
<PAGE> 3
d. No consent, approval, authorization or order of
any court, governmental agency or other body is required for execution
by Somatix of this Agreement or the performance by Somatix of any of
its obligations hereunder.
e. Neither the execution by Somatix of this Agreement
nor the performance by Somatix of any of its obligations hereunder
will:
(1) violate, conflict with, result in a
breach of, or constitute a default (or an event which with the
giving of notice or the lapse of time or both would be
reasonably likely to constitute a default) under (A) the
Certificate of Incorporation, by-laws or any other
constitutive document of Somatix or any of its affiliates, (B)
any decree, judgment, order, law, treaty, rule, regulation or
determination of which Somatix is aware (after due inquiry) of
any court, governmental agency or body, or arbitrator having
jurisdiction over Somatix or any of its affiliates or any of
their respective properties or assets, (C) the terms of any
bond, debenture, note or any other evidence of indebtedness,
or any material agreement, stock option or similar plan,
indenture, lease, mortgage, deed of trust or other instrument
to which Somatix or any of its affiliates is a party, by which
Somatix or any of its affiliates is bound, or to which any of
the properties or assets of Somatix or any of its affiliates
is subject, or (D) the terms of any "lock-up" or similar
provision of any underwriting or similar agreement to which
Somatix or any of its affiliates is a party; or
(2) result in the creation or imposition of
any lien, charge or encumbrance upon (A) any Preferred Share,
the Warrant or any Common Stock or (B) any of the properties
or assets of Somatix or any of its affiliates.
f. When issued to Fletcher against payment therefor
in accordance with the terms of this Agreement, any Preferred Share or
the Warrant, each share of Common Stock:
(1) will have been duly and validly
authorized, duly and validly issued, fully paid and
non-assessable;
(2) will be free and clear of any security
interests, liens, claims or other encumbrances; and
(3) will not have been issued or sold in
violation of any preemptive or other similar rights of the
holders of any securities of Somatix.
g. When any share of Common Stock is issued to
Fletcher pursuant to the terms of this Agreement, any Preferred Share
or the Warrant, the Common Stock will be quoted on the Nasdaq National
Market ("NASDAQ") or listed and
3.
<PAGE> 4
registered on a national securities exchange (as defined in the United
States Securities Exchange Act of 1934, as amended (the "Exchange
Act")).
h. Somatix is a Reporting Issuer within the meaning
of Regulation S.
i. There is no pending or, to the best knowledge of
Somatix, threatened action, suit, proceeding or investigation before
any court, governmental agency or body, or arbitrator having
jurisdiction over Somatix or any of its affiliates that would
materially affect the execution by Somatix of, or the performance by
Somatix of its obligations under, this Agreement; provided, however,
that the representations and warranties contained in this Section 3(i)
shall not apply to any action, threatened action, suit, proceeding or
investigation initiated by Fletcher and shall not be required to be
given in respect of any Preferred Share Conversion Date or Warrant
Exercise Date.
j. None of Somatix's filings with the United States
Securities and Exchange Commission (the "SEC") under the Securities Act
or under Section 13(a) or 15(d) of the Exchange Act (each, an "SEC
Filing"), or press releases material to the business of Somatix as a
whole, as of their respective dates, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements, in the light of the circumstances under which they
were made, not misleading.
k. Since the date of Somatix's most recent SEC Filing
(including Somatix's Current Report on Form 8-K to be filed in the form
attached hereto as Exhibit A), there has not been, and Somatix is not
aware of any development that might result in, any material adverse
change in the condition, financial or otherwise, or in the business
affairs or business prospects of Somatix, whether or not arising in the
ordinary course of business, except as disclosed in such SEC Filing;
provided, however, that the representations and warranties contained in
this Section 3(k) shall not be required to be given in respect of any
Preferred Share Conversion Date or Warrant Exercise Date.
l. The offer and sale of the Preferred Shares, the
Common Stock, the Warrant and the Warrant Shares to Fletcher pursuant
to this Agreement will, subject to compliance by Fletcher with the
applicable representations and warranties contained in Section 4 hereof
and with the applicable covenants and agreements contained in Section 6
hereof, be made in accordance with the provisions and requirements of
Regulation S and any applicable state law.
m. Neither Somatix nor any of its affiliates nor any
person acting on its or their behalf has engaged or will engage in any
Directed Selling Efforts with respect to the Preferred Shares, the
Common Stock, the Warrant or the Warrant
4.
<PAGE> 5
Shares, and all such persons understand and have complied and will
otherwise comply with the requirements of Regulation S.
n. The transactions contemplated by this Agreement
are not part of a plan or scheme on the part of Somatix, any of its
affiliates or any person acting on its or their behalf to evade the
registration provisions of the Securities Act.
o. Somatix has not issued, and after the Closing Date
will not issue, any stop transfer order or other order impeding the
sale and delivery of the Preferred Shares, the Common Stock, the
Warrant or the Warrant Shares issuable hereunder except for a stop
order restricting the sale of any of the foregoing securities to any
person in the United States or to or for the account or benefit of any
U.S. person during an applicable Restricted Period. Notwithstanding the
foregoing provision, Somatix shall place the following legend on the
certificate representing any security issued hereunder prior to the
expiration of the Restricted Period (as defined herein) applicable to
such security:
The securities represented by this certificate were issued on
[insert date on which securities were issued to Fletcher upon
sale, conversion or exercise, as the case may be] (the
"Original Issue Date") pursuant to the Subscription Agreement
dated September 24, 1996 between Somatix Therapy Corporation
("Somatix") and Fletcher International Limited. The securities
represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"),
and have been sold in reliance on the exemption from
registration provided by Regulation S under the Securities Act
("Regulation S"). Prior to the expiration of a 40-day
restricted period beginning on the Original Issue Date (the
"Restricted Period"), the securities represented by this
certificate may not be offered or sold, directly or
indirectly, within the United States (as defined in Regulation
S under the Act), to a U.S. Person (as defined in Regulation S
under the Act) or for the account or benefit of a U.S. Person.
Neither Somatix nor its transfer agent shall be obligated to
remove this legend unless it shall have received an opinion of
counsel stating that such removal complies with the
requirements of Regulation S.
provided, however, that as used in this Agreement and as reflected in
such legend, the term "Restricted Period," with respect to any
security, shall mean the Restricted Period then applicable to such
security pursuant to Regulation S (or any applicable successor
thereto).
p. Neither Somatix nor any of its affiliates has
offered to sell or sold any Common Stock or any securities convertible
or exchangeable into or exercisable for Common Stock in reliance upon
Regulation S at any time during the
5.
<PAGE> 6
past 12 months; and there are no outstanding convertible or
exchangeable securities that have been offered or sold in reliance upon
Regulation S, except, in each case the Warrant and the Preferred Shares
sold pursuant hereto.
4. Representations and Warranties of Fletcher. Fletcher hereby
represents and warrants to Somatix as follows:
a. Fletcher has been duly incorporated and is validly
existing in good standing under the laws of the Cayman Islands.
b. This Agreement has been duly authorized, executed
and delivered by Fletcher and, when duly authorized, executed and
delivered by Somatix, will be a valid and binding agreement enforceable
against Fletcher in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity.
c. Fletcher understands that no United States federal
or state agency has passed on, reviewed or made any recommendation or
endorsement of the Preferred Shares, the Common Stock, the Warrant or
the Warrant Shares.
d. In making the decision to purchase the Preferred
Shares, the Common Stock, the Warrant and the Warrant Shares in
accordance with this Agreement, Fletcher has relied solely upon
independent investigations made by it and not upon any representations
made by Somatix other than those made pursuant to this Agreement.
e. Fletcher understands that the Preferred Shares,
the Common Stock, the Warrant and the Warrant Shares have not been and
will not be registered under the Securities Act and may not be
reoffered or resold other than pursuant to such registration or an
available exemption therefrom.
f. Fletcher is not a U.S. Person and is not acquiring
the Preferred Shares, the Common Stock, the Warrant or any Warrant
Shares for the account or benefit of any U.S. Person, and Fletcher is
not an affiliate (within the meaning of Rule 144 under the Securities
Act) of Somatix.
g. At the time the buy orders for the Preferred
Shares and the Warrant (and any Common Stock and Warrant Shares issued
during the applicable Restricted Period) were originated, Fletcher was
located outside the United States.
h. Neither Fletcher nor any of its affiliates nor
anyone acting on its or their behalf has engaged or will engage in any
Directed Selling Efforts with respect to the Preferred Shares, the
Common Stock, the Warrant or any Warrant
6.
<PAGE> 7
Shares, and all such persons understand and have compiled and will
otherwise comply with the requirements of Regulation S.
i. Fletcher is purchasing the Preferred Shares, the
Warrant and the Warrant Shares for its own account, for the purpose of
investment and not with a view to a distribution thereof.
j. The transactions contemplated by this Agreement
are not part of a plan or scheme on the part of Fletcher, any of its
affiliates or any person acting on its or their behalf to evade the
registration requirements of the Securities Act.
5. Covenants of Somatix. Somatix covenants and agrees with
Fletcher as follows:
a. For so long as any Preferred Share is outstanding
or any of the Put Options have not been exercised or any portion of the
Warrant remains outstanding, and in either case for a period of 40 days
thereafter, Somatix will continue to be a Reporting Issuer within the
meaning of Regulation S and will maintain the eligibility of the Common
Stock for quotation on NASDAQ or listing on a national securities
exchange (as defined in the Exchange Act).
b. For so long as any Preferred Share is outstanding
or any of the Put Options have not been exercised or any portion of the
Warrant remains outstanding, and in either case for a period of six
months thereafter, Somatix will not offer or sell any Common Stock or
any securities convertible into or exchangeable into Common Stock in
reliance upon Regulation S.
c. From the date hereof and for so long as any
Preferred Share is outstanding or any of the Put Options have not been
exercised or any portion of the Warrant remains outstanding, and in any
case for a period of 40 days thereafter, neither Somatix nor any of its
affiliates nor any person acting on its or their behalf will engage in
any Directed Selling Efforts with respect to the Preferred Shares, the
Common Stock, the Warrant or Warrant Shares. Without limiting the
generality of the foregoing, during the period mentioned in this
Section 5(c), neither Somatix nor any of its affiliates nor any person
acting on its or their behalf will issue or cause to be issued any
press releases or similar written public statements (other than SEC
Filings) with the exception of filings under the 1934 Act in connection
with or relating to any of the transactions contemplated hereby.
d. For so long as any Preferred Share is outstanding
or any of the Put Options have not been exercised or any portion of the
Warrant remains outstanding, and in either case for a period of 40 days
thereafter, Somatix will ensure that all applicable Offering
Restrictions with respect to the Preferred Shares, the
7.
<PAGE> 8
Common Stock, the Warrant and the Warrant Shares are thoroughly
complied with and satisfied.
e. Beginning on the date hereof and for so long as
any Preferred Share is outstanding or any of the Put Options have not
been exercised or any portion of the Warrant remains outstanding, and
in either case for a period of 40 days thereafter (or if a registration
statement has been filed pursuant to Section 7 hereof, during the
effectiveness of such registration statement pursuant to such Section
7), Somatix will promptly notify Fletcher if (i) any event shall have
occurred as a result of which any SEC Filing would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (ii) there
is any public disclosure of material information regarding Somatix or
its financial condition prospects or results of operation.
f. At any time after the expiration of any Restricted
Period with respect to the Preferred Shares, the Common Stock, the
Warrant or any Warrant Shares, upon the request of Fletcher accompanied
by an opinion of Rogers & Wells (or such other counsel as shall be
reasonably satisfactory to Somatix and its transfer agent (if any)) to
the effect that the removal of the legend referred to in Section 3(o)
would then be permitted under Regulation S and that the resale of any
such security would not require registration under the Securities Act,
Somatix shall, or shall cause its transfer agent (if any) to, accept
from Fletcher the legended certificates representing such securities
and deliver in their place unlegended certificates therefor.
g. Somatix will comply with the terms and conditions
of the Put Option and the Warrant as set forth in Annex A and Annex B
hereto, respectively (as duty amended from time to time by the parties
hereto), and when issued to Fletcher, each Preferred Share will be
substantially in the form of Annex C hereto.
h. For so long as any Preferred Share is outstanding
or any of the Put Options have not been exercised or any portion of the
Warrant remains outstanding, Somatix shall at all times reserve and
keep available, free from pre-emptive rights, out of its authorized but
unissued Common Stock, for issuance upon conversion of such Preferred
Shares and exercise of such Put Options and Warrant, the maximum number
of shares of Common Stock then so issuable.
i. For a period of one year following the date of
this Agreement, Somatix will not offer to sell to any person any of its
Common Stock (or any securities convertible into or exchangeable for
such Common Stock) in reliance upon Section 4(2) of the Securities Act
or Regulation D thereunder (an "Equity Private Placement") unless
Somatix shall have (i) given Fletcher written notice of its intention
to make such offer and (ii) offered to sell such securities to Fletcher
on the
8.
<PAGE> 9
same terms and conditions as to such other person. In any event,
Fletcher shall be entitled, but not obligated, to participate in any
such Equity Private Placement up to the extent necessary to maintain
Fletcher's pro rata equivalent ownership of Somatix Common Stock
immediately prior to the closing of such Equity Private Placement
(treating all outstanding Preferred Shares as converted as of such
date).
j. Notwithstanding any other provision of this
Agreement, for so long as any Put Option, Preferred Share or portion of
the Warrant remains outstanding, if on any Put Option Exercise Date,
Preferred Share Conversion Date or Warrant Exercise Date (for purposes
of this Section 5(j), a "Limitation Date") Rule 4460(i)(1)(D) (or any
applicable successor provision) of the National Association of
Securities Dealers, Inc. ("Nasdaq") would require the approval of the
stockholders of Somatix for the issuance of any additional shares of
Common Stock to Fletcher pursuant to this Agreement, then (a) no Put
Option shall be exercisable by Somatix and no Preferred Shares may be
converted and the Warrant may not be exercised by Fletcher until such
stockholder approval shall have been obtained, (b) all outstanding
Preferred Shares shall accrue dividends from and including the
Limitation Date at the rate of 10% per annum, payable quarterly, until
such stockholder approval shall have been obtained or such Preferred
Shares have been redeemed pursuant to this Section 5(j), (c) Somatix
shall immediately take such action as may be required to obtain such
stockholder approval as promptly as practicable, (d) if such
stockholder approval shall not have been obtained within 60 days
following the Limitation Date, then such number of outstanding
Preferred Shares as are not then convertible without such stockholder
approval as described shall be immediately redeemed for cash at the
stated value thereof plus accrued but unpaid dividends, if any, and (e)
if such Preferred Shares have not been so redeemed within 65 days
following the Limitation Date, then Fletcher shall immediately be
entitled to elect the number of directors to the Board of Directors of
Somatix corresponding to its pro rata equivalent ownership of Somatix
Common Stock (treating all outstanding Preferred Shares as converted as
of such dates) in each case to the extent permitted by applicable law.
6. Covenants of Fletcher. Fletcher hereby covenants and agrees
with Somatix as follows:
a. Neither Fletcher nor any of its Affiliates nor any
person acting on their behalf will, during the Restricted Period
applicable to the Preferred Shares, the Common Stock, the Warrant and
the Warrant Shares, offer or sell any of the foregoing securities (or
create or maintain any derivative position equivalent thereto) in the
United States, to or for the account or benefit of a U.S. Person or
other than in accordance with Regulation S; and
b. After the expiration of the applicable Restricted
Period, neither Fletcher nor any of its Affiliates nor any person
acting on their behalf will offer, sell,
9.
<PAGE> 10
pledge or otherwise transfer the Preferred Shares, the Common Stock,
the Warrant or any Warrant Shares (or create or maintain any derivative
position equivalent thereto) only pursuant to registration under the
Securities Act or an available exemption therefrom and, in any case, in
accordance with applicable state securities laws.
c. Upon the effectiveness of a Registration Statement
filed pursuant o Section 7 hereof, Fletcher and its affiliates shall
not sell, transfer or assign and Somatix shall not be required to
transfer on its records for the benefit of Fletcher or any of its
transferees (i) any Warrant covered by such Registration Statement in
units consisting of less than 30,000 Warrant Shares of (ii) any
Preferred Shares covered by such Registration Statement in units
consisting of less than 1,000 Preferred Shares.
7. Registration Rights.
(i) If, at any time after the date hereof, the
SEC has reinterpreted Regulation S or has promulgated, or the United
States Congress has legislated, a successor or revision to Regulation
S, and such reinterpretation, successor provision or revision imposes a
Restricted Period applicable to any security issued or issuable
hereunder that is greater than that in effect on the date of this
Agreement, or would materially impair the ability of Fletcher or any of
its affiliates (as defined in Rule 144(a) under the Securities Act) to
reoffer, resell or otherwise dispose of any such security as
contemplated hereby, or requires any such reoffer, resale or other
disposition to be registered under the Securities Act (together, a
"Regulation S Change"), then upon the written request of Fletcher (a
"Registration Request"), Somatix shall, as promptly as practicable
thereafter and at its own expense, file a registration statement (the
"Registration Statement") under the Securities Act covering the sale or
resale of all such securities (each a "Covered Security") by Fletcher;
provided, however, that in no event shall Somatix be required to file a
Registration Statement or otherwise comply with a Registration Request
to the extent that such reinterpretation, successor provision or
revision imposes limitations on the offer, sale or other disposition of
any Covered Security by Fletcher pursuant to Regulation S solely as a
result of Fletcher's hedging or selling short such Covered Security or
engaging in any other activity the effect of which is to decrease or
limit Fletcher's investment risk with respect to such Covered Security
in violation of such reinterpretation, successor provision or revision.
In the event of a Regulation S Change, then prior to the effectiveness
of such Registration Statement, Somatix shall not be entitled to
exercise any Put Option under this Agreement. Upon the effectiveness of
such Registration Statement (A) Somatix shall issue such securities to
Fletcher in accordance with the terms hereof and (B) the provisions of
Sections 3(l), (m) and (o), 4(e), (f), (g), (h), (i) and (j), 5(a),
(b), (c) and (d), 6 (collectively, the "Specified Provisions"), 8(a)
and (b) (to the extent applicable to the Specified Provisions), 9(b),
(c) and (d) (to the extent applicable to the Specified
10.
<PAGE> 11
Provisions) shall thereafter be of no force and effect with respect to
the issuance of such Covered Securities; provided, however, that, if
such Registration Statement has not been declared effective before the
180th day following the date of such Registration Request, then (X) any
Put Options outstanding under this Agreement shall immediately expire
and shall not thereafter be exercisable, and Fletcher shall have no
further liability whatsoever with respect thereto and (Y) Somatix shall
use its best efforts to cause such Registration Statement to become
effective as promptly as practicable in respect of any outstanding
portion of the securities the sale or resale of which is required to be
so registered.
(ii) In the case of the registration effected
by Somatix pursuant to this Section 7, Somatix will use its best
efforts to: (i) keep such registration statement effective until the
earlier of (A) the third anniversary of the issuance of each Covered
Security, (B) such date as all of the Covered Securities have been sold
by Fletcher or (C) such time as all of the Covered Securities held by
Fletcher can be sold by Fletcher or any of its affiliates (within the
meaning of Rule 144(a) under the Securities Act) within a given
three-month period without compliance with the registration
requirements of the Securities Act pursuant to Rule 144 under the
Securities Act ("Rule 144"); (ii) prepare and file with the SEC such
amendments and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement (as so
amended and supplemented from time to time, the "Prospectus") as may be
necessary to comply with the provisions of the Securities Act with
respect to the disposition of all Covered Securities by Fletcher or any
of its affiliates (within the meaning of Rule 144(a) under the
Securities Act); (iii) furnish such number of Prospectuses and other
documents incident thereto, including any amendment of or supplement to
the Prospectus, as Fletcher from time to time may reasonably request;
(iv) cause all Covered Securities that are Common Stock to be listed on
each securities exchange and quoted on each quotation service on which
similar securities issued by Somatix are then listed or quoted; (v)
provide a transfer agent and registrar for all Covered Securities and a
CUSIP number for all Covered Securities; (vi) otherwise use its best
efforts to comply with all applicable rules and regulations of the SEC
and (vii) file the documents required of Somatix and otherwise use its
best efforts to obtain and maintain requisite blue sky clearance in all
states specified in writing by Fletcher; provided, however, that
Somatix shall not be required to qualify to do business or consent to
service of process in any state in which it is not now so qualified or
has not so consented.
(iii) Somatix shall furnish to Fletcher upon
request a reasonable number of copies of a supplement to or an
amendment of such Prospectus as may be necessary in order to facilitate
the public sale or other disposition of all or any of the Covered
Securities by Fletcher or any of its affiliates (within the meaning of
Rule 144(a) under the Securities Act), pursuant to the Registration
Statement.
11.
<PAGE> 12
(iv) With a view to making available to
Fletcher and its affiliates (within the meaning of Rule 144(a) under
the Securities Act) the benefits of Rule 144 and Form S-3 under the
Securities Act, Somatix covenants and agrees to: (i) make and keep
available adequate current public information (within the meaning of
Rule 144(c)) concerning Somatix, until the earlier of (A) the third
anniversary of the issuance of each Covered Security or (B) such date
as all of the Covered Securities shall have been resold by Fletcher or
any of its affiliates (within the meaning of Rule 144(a) under the
Securities Act); (ii) maintain its status as a Reporting Issuer and
file with the SEC in a timely manner all reports and other documents
required of Somatix for use of Form S-3; and (iii) furnish to Fletcher
upon request, as long as Fletcher owns any Covered Securities, (A) a
written statement by Somatix that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (B) a copy of
the most recent annual or quarterly report of Somatix, and (C) such
other information as may be reasonably requested in order to avail
Fletcher and its affiliates (within the meaning of Rule 144(a) under
the Securities Act) of Rule 144 or Form S-3 with respect to such
Covered Securities.
(v) Notwithstanding anything else in this
Section 7, if, at any time during which a Prospectus is required to be
delivered in connection with the sale of any Covered Securities,
Somatix determines in good faith that a development has occurred or a
condition exists as a result of which the Registration Statement or the
Prospectus contains a material misstatement or omission, Somatix will
immediately notify Fletcher thereof by telephone and in writing. Upon
receipt of such notification, Fletcher and its affiliates (within the
meaning of Rule 144(a) under the Securities Act) will immediately
suspend all offers and sales of any Covered Securities pursuant to the
Registration Statement (the period of such suspension being referred to
herein as a "Blackout Period"). In such event, Somatix will amend or
supplement the Registration Statement as promptly as practicable and
will take such other steps as may be required to permit sales of the
Covered Securities, thereunder by Fletcher and its affiliates (within
the meaning of Rule 144(a) under the Securities Act) in accordance with
applicable federal and state securities laws. Somatix will promptly
notify Fletcher after it has determined in good faith that such sales
have become permissible in such manner and will promptly deliver copies
of the Registration Statement and the Prospectus (as so amended or
supplemented) to Fletcher in accordance with paragraph (ii) of this
Section 7. Notwithstanding the foregoing, (i) in no circumstances shall
Somatix impose more than two Blackout Periods of up to thirty days each
or one Blackout Period of up to sixty days during any twelve-month
period and (ii) in no circumstances shall any Blackout Period commence
less than thirty days following the end of the previous Blackout
Period.
Upon the commencement of a Blackout Period pursuant to this
Section 7, Fletcher will immediately notify Somatix of any contracts to
sell any Covered Securities (each a "Sales Contract") that Fletcher or
any of its affiliates (within the
12.
<PAGE> 13
meaning of Rule 144(a) under the Securities Act) has entered into prior
to the commencement of such Blackout Period and that would require
delivery of such Covered Securities during such Blackout Period, which
notice will contain the aggregate sale price and volume of Covered
Securities pursuant to such Sales Contract. Upon receipt of such
notice, Somatix will immediately notify Fletcher of its election either
(i) to terminate the Blackout Period and, as promptly as practicable,
amend or supplement the Registration Statement or the Prospectus in
order to correct the material misstatement or omission and deliver to
Fletcher copies of such amended or supplemented Registration Statement
and Prospectus in accordance with paragraph (ii) of this Section 7 or
(ii) to continue the Blackout Period in accordance with this paragraph.
If Somatix elects to continue the Blackout Period, and Fletcher or any
of its affiliates (within the meaning of Rule 144(a) under the
Securities Act) is therefore unable to consummate the sale of Covered
Securities pursuant to the Sales Contract (such unsold Covered
Securities being hereinafter referred to herein as the "Unsold
Securities"), Somatix will promptly indemnify each Fletcher Indemnified
Party (as such term is defined in Section 12(a) below) against any
Proceeding (as such term is defined in Section 12(a) below) that each
Fletcher Indemnified Party may incur arising out of or in connection
with Fletcher's breach or alleged breach of any such Sales Contract,
and Somatix shall reimburse each Fletcher Indemnified Party for any
reasonable costs or expenses (including reasonable legal fees) incurred
by such party in investigating or defending any such Proceeding
(collectively, the "Indemnification Amount"); provided, however, that
each Fletcher Indemnified Party shall take all actions reasonably
necessary or appropriate to mitigate such Indemnification Amount; and
provided, further, however, that the Indemnification Amount shall be
reduced by an amount equal to the number of Unsold Securities
multiplied by the difference between (x) the actual per share price
received by Fletcher or any of its affiliates (within the meaning of
Rule 144(a) under the Securities Act) upon the sale of the Unsold
Securities (if such sale occurs within three Trading Days of the end of
the Blackout Period) or the closing sale price of the Common Stock on
NASDAQ or other national securities exchange on which the Common Stock
is then listed on the third Trading Day after the end of the Blackout
Period (if the Unsold Securities are not sold by Fletcher or any of its
affiliates (within the meaning of Rule 144(a) under the Securities Act)
within three Trading Days of the end of the Blackout Period), and (y)
the per share sale price for the Unsold Securities provided in the
Sales Contract. As used herein, the term "Trading Day" means any day on
which Somatix's Common Stock is quoted on NASDAQ.
8. Conditions Precedent to Fletcher's Obligations. The
obligations of Fletcher hereunder are subject to the performance by Somatix of
its obligations hereunder and to the satisfaction of the following additional
conditions precedent:
a. The representations and warranties made by Somatix
in this Agreement shall, unless expressly waived in writing by
Fletcher, be true and correct as of the date hereof, on the Closing
Date, on each Preferred Share Conversion
13.
<PAGE> 14
Date, on each Put Option Exercise Date (as defined in Annex A hereto)
and on each Warrant Exercise Date (as defined in Annex B hereto), and
Fletcher shall have received on each such date a certificate of the
Chief Executive Officer and the Chief Financial Officer of Somatix
dated such date and to such effect.
b. On the Closing Date, on each Preferred Share
Conversion Date in respect of the issuance of at least 75,000 shares of
Common Stock, on each Put Option Exercise Date (as defined in Annex A
hereto) and on each Warrant Exercise Date (as defined in Annex B
hereto) in respect of the issuance of at least 75,000 Warrant Shares,
Somatix shall have delivered to Fletcher an opinion of counsel
reasonably satisfactory to Fletcher, dated the date of delivery,
confirming in substance the matters covered in paragraphs (a), (b),
(c), (d), (e), (f), (g), (h) and (i) of Section 3 hereof; provided,
however, that no such opinion delivered in respect of any Preferred
Share Conversion Date or Warrant Exercise Date shall be required to
cover the matters set forth in paragraph (i) of Section 3 hereof.
c. On any Put Option Exercise Date, Fletcher's
obligation to purchase any Preferred Share hereunder shall be subject
to the additional condition that during the five Business Days (as
defined below) immediately preceding such Put Option Exercise Date,
Somatix shall not have made any SEC Filing or issued any press release
describing and shall not be aware of any material adverse change, or
any development that might result in any material adverse changes in
the condition, financial or otherwise, or in the business affairs or
business prospects of Somatix, whether or not arising in the ordinary
course of business; provided, however, that if on any Put Option
Exercise Date such condition has not been satisfied, such Put Option
Exercise Date and each subsequent Put Option Exercise Date and the Put
Option Termination Date hereunder shall be postponed by five Business
Days for all purposes of this Subscription Agreement as if such fifth
Business Day had originally been specified as such Put Option Exercise
Date or Put Option Termination Date, as the case may be; and provided,
further, however, that if, on such fifth Business Day, such condition
has not been satisfied, there shall be no further postponement of such
Put Option Exercise Date.
As used herein the term "Business Day" means any day on which
banks in The City of New York are open for business.
9. Conditions Precedent to Somatix's Obligations. The
obligations of Somatix hereunder are subject to the performance by Fletcher of
its obligations hereunder and to the satisfaction of the following additional
conditions precedent:
a. The representations and warranties made by
Fletcher in this Agreement shall, unless expressly waived in writing by
Somatix, be true and correct as of the date hereof, on the Closing
Date, on each Preferred Share Conversion Date, on each Put Option
Exercise Date and on each Warrant Exercise Date, and
14.
<PAGE> 15
Somatix shall have received on each such date a certificate of the
Chief Financial Officer of Fletcher dated such date and to such effect.
b. On the Closing Date, Fletcher shall have delivered
to Somatix a legal opinion of Rogers & Wells, counsel to Fletcher,
dated the date of delivery stating that:
(i) Fletcher is not a U.S. Person; and
(ii) the offer and sale of the Series B-1
Preferred Shares and the Warrant by
Somatix to Fletcher on the Closing
Date does not require registration
under the Securities Act.
c. On each Preferred Share Conversion Date, Fletcher
shall have delivered to Somatix a legal opinion of Rogers & Wells,
counsel to Fletcher, dated the date of delivery, that:
(i) Fletcher is not a U.S. Person; and
(ii) the issuance of the Common Stock by
Somatix to Fletcher on such date
does not require registration under
the Securities Act.
d. On each Warrant Exercise Date, Fletcher shall have
delivered to Somatix a legal opinion of Rogers & Wells, counsel to
Fletcher, dated the date of delivery, stating that:
(i) Fletcher is not a U.S. Person, and
the Warrant is not being exercised
on behalf of a U.S. Person; and
(ii) the issuances of the Warrant Shares
by Somatix to Fletcher on such date
does not require registration under
the Securities Act.
e. On the date of any transfer by Fletcher of any
Preferred Share or the Warrant or any Common Stock during the
applicable Restricted Period, Fletcher shall have delivered to Somatix
or its transfer agent, as the case may be, a legal opinion of Rogers &
Wells, dated the date of such transfer, stating that such transfer
complies with the requirements of Regulation S.
10. Fees and Expenses. Each of Fletcher and Somatix agrees to
pay its own expenses incident to the performance of its obligations hereunder,
including, but not limited to, the fees, expenses and disbursements of such
party's counsel.
15.
<PAGE> 16
11. Non-Performance.
a. If, on the Closing Date or any Warrant Exercise
Date (as defined in Annex B hereto), Somatix shall fail to deliver the
Warrant Shares, the Preferred Shares or Common Stock to Fletcher
required to be delivered pursuant to this Agreement for any reason
other than the failure of any condition precedent to Somatix's
obligations hereunder or the failure by Fletcher to comply with its
obligations hereunder, then Somatix shall:
(1) hold Fletcher harmless against any loss,
claim or damage arising from or as a result of such failure by
Somatix; and
(2) reimburse Fletcher for all of its
out-of-pocket expenses, including fees and disbursements of
its counsel, incurred by Fletcher in connection with this
Agreement and the transactions contemplated herein;
provided, however, that Somatix shall then be under no further
liability to Fletcher except as provided in this Section 11 and
Section 12 hereof.
b. If, on the Closing Date or any Put Option Exercise
Date, Fletcher shall fail to purchase the Warrant, the Preferred Shares
or any Common Stock required to be purchased pursuant to this Agreement
for any reason other than the failure of any condition precedent to
Fletcher's obligations hereunder or the failure by Somatix to comply
with its obligations hereunder, then Fletcher shall:
(1) hold Somatix harmless against any damage
arising from or as a result of such failure by Fletcher;
(2) reimburse Somatix for all of its
out-of-pocket expenses, including fees and disbursements of
its counsel, incurred by Somatix in connection with this
Agreement and the transactions contemplated herein; and
(3) surrender to Somatix for cancellation
any portion of the Warrant not exercise prior to the date of
such default by Fletcher;
provided, however, that Fletcher shall then be under no further
liability to Somatix except as provided in this Section 11 and Section
12 hereof.
12. Indemnification.
a. Indemnification of Fletcher. Somatix hereby agrees
to indemnify Fletcher and each of its officers, directors, employees,
agents and affiliates and each person that controls (within the meaning
of Section 20 of the Securities Exchange
16.
<PAGE> 17
Act of 1934, as amended) any of the foregoing persons (each a "Fletcher
Indemnified Party") against any claim, demand, action, liability,
damages, loss, cost or expense (including, without limitation,
reasonable legal fees) (a "Proceeding"), that it may incur in
connection with any of the transactions contemplated hereby arising out
of or based upon:
(1) any untrue or alleged untrue statement
of a material fact by Somatix or any of its affiliates or any
person acting on its or their behalf or omission or alleged
omission by Somatix or any of its affiliates or any person
acting on its or their behalf to state any material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading;
(2) any of the representations or warranties
made by Somatix herein being untrue or incorrect; and
(3) any breach or non-performance by Somatix
of any of its covenants, agreements or obligations under this
Agreement;
and Somatix hereby agrees to reimburse each Fletcher Indemnified Party
for any reasonable legal or other expenses incurred by such Fletcher
Indemnified Party in investigating or defending any such Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the
gross negligence of Fletcher in connection therewith.
b. Indemnification by Somatix. Fletcher hereby agrees
to indemnify Somatix and each of its officers, directors, employees,
agents and affiliates and each person that controls (within the meaning
of Section 20 of the Securities Exchange Act of 1934, as amended) any
of the foregoing persons (each a "Somatix Indemnified Party") against
any Proceeding, that it may incur in connection with any of the
transactions contemplated hereby arising out of or based upon:
(1) any untrue or alleged untrue statement
of a material fact by Fletcher or any of its affiliates or any
person acting on its or their behalf or omission or alleged
omission by Fletcher or any of its affiliates or any person
acting on its or their behalf to state any material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading;
(2) any of the representations or warranties
made by Fletcher herein being untrue or incorrect; and
17.
<PAGE> 18
(3) any breach or non-performance by
Fletcher of any of its covenants, agreements or obligations
under this Agreement;
and Fletcher hereby agrees to reimburse each Somatix Indemnified Party
for any reasonable legal or other expenses incurred by such Somatix
Indemnified Party in investigating or defending any such Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the
gross negligence of Somatix in connection therewith.
c. Conduct of Claims.
(1) Whenever a claim for indemnification
shall arise under this Section , the party seeking
indemnification (the "Indemnified Party"), shall notify the
party from whom such indemnification is sought (the
"Indemnifying Party") in writing of the Proceeding and the
facts constituting the basis for such claim in reasonable
detail;
(2) Upon delivery of such notice, such
Indemnified Party shall have a duty to take all reasonable
steps to mitigate any losses, liabilities, costs, charges and
expenses relating to any such Proceeding;
(3) Such Indemnifying Party shall have the
right to retain the counsel of its choice in connection with
such Proceeding and to participate at its own expense in the
defense of any such Proceeding; provided, however, that
counsel to the Indemnifying Party shall not (except with the
consent of the relevant Indemnified Party) also be counsel to
such Indemnified Party. In no event shall the Indemnifying
Party be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from its own
counsel for all Indemnified Parties in connection with any one
action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances; and
(4) No Indemnifying Party shall, without the
prior written consent to the Indemnified Parties (which
consent shall not be unreasonably withheld), settle or
compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened,
or any claim whatsoever in respect of which indemnification
could be sought under this Section unless such settlement,
compromise or consent (A) includes an unconditional release of
each Indemnified Party from all liability arising out of such
litigation, investigation, proceeding or claim and (B) does
not include
18.
<PAGE> 19
a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any Indemnified Party.
13. Survival of the Representations, Warranties, etc. The
respective representations, warranties, and agreements made herein by or on
behalf of the parties hereto shall remain in full force and effect, regardless
of any investigation made by or on behalf of the other party to this Agreement
or any officer, director or employee of, or person controlling or under common
control with, such party and will survive delivery of and payment for the
Preferred Shares, the Warrant and any Common Stock issuable hereunder.
14. Notices. All communications hereunder shall be in writing,
and
a. if sent to Fletcher, shall be delivered by hand,
sent by registered mail or transmitted and confirmed by telecopy to
Fletcher at:
Fletcher International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109, Mary Street
Grand Cayman, Cayman Islands
British West Indies
Telephone: (809) 949-7755
Facsimile: (809) 949-7634
with a copy to:
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attention: Sara Hanks
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
b. if sent to Somatix, shall be delivered by hand,
sent by registered mail or transmitted and confirmed by telecopy to
Somatix at:
Somatix Therapy Corporation
850 Marina Village Parkway
Alameda, CA 94501
Attention: Edward Lanphier
Telephone: (510) 748-3000
Facsimile: (510) 814-8838
19.
<PAGE> 20
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: J. Stephan Dolezalek
Telephone: (415) 496-2842
Facsimile: (415) 496-2736
15. Miscellaneous.
a. This Agreement may be executed in one or more
counterparts and it is not necessary that signatures of all parties appear on
the same counterpart, but such counterparts together shall constitute but one
and the same agreement.
b. This Agreement shall inure to the benefit of and
be binding upon the parties hereto, their respective successors and, with
respect to Section 11 hereof, their respective officers, directors and
affiliates, and no other person shall have any right or obligation hereunder.
c. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York, and each of the
parties hereto hereby submits to the non-exclusive jurisdiction of any State or
Federal court in the Borough of Manhattan in the City and State of New York and
any court hearing any appeal therefrom, over any suit, action or proceeding
against it arising out of or based upon this Agreement (a "Related Proceeding").
Each of the parties hereto hereby waives any objection to any Related Proceeding
in such courts whether on the grounds of venue, residence or domicile or on the
ground that the Related Proceeding has been brought in an inconvenient forum.
d. The provisions of this Agreement are severable,
and if any clause or provision hereof shall be held invalid, illegal or
unenforceable in whole or in part, such invalidity or unenforceability shall not
in any manner affect any other clause or provision of this Agreement.
e. The headings of the sections of this document have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
16. Time of Essence. Time shall be of the essence in this
Agreement.
20.
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, all as of the day and year first above written.
SOMATIX THERAPY CORPORATION
By:
Name:
Title:
FLETCHER INTERNATIONAL LIMITED
By:
Name:
Title:
21.
<PAGE> 22
ANNEX A
TERMS OF PUT OPTIONS
GRANTED BY FLETCHER INTERNATIONAL LIMITED
TO SOMATIX THERAPY CORPORATION
The Put Options granted by Fletcher International Limited
("Fletcher") to Somatix, Therapy Corporation ("Somatix") pursuant to the
Subscription Agreement dated September 24, 1996 between Fletcher and Somatix
(the "Subscription Agreement"), including any additional Put Options granted
pursuant to Paragraph 4 hereof, shall have the terms and conditions set forth
below.
This Annex A forms a part of the Subscription Agreement, and
the following terms and conditions are subject to the representations,
warranties and agreements and further provisions contained in the Subscription
Agreement. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings set forth in the Subscription Agreement.
1. Option to Sell. Each of the Put Options granted pursuant to
the Subscription Agreement shall entitle Somatix to sell to Fletcher and
obligate Fletcher to purchase from Somatix, upon the terms and conditions set
forth in the Subscription Agreement and herein, $5,000,000 stated value of
Somatix's Series B Convertible Preferred Stock, stated value $150.00 per share,
having the terms and conditions set forth in Annex C to the Subscription
Agreement (the "Preferred Stock"), subject to adjustment as provided in
Paragraph 4 hereof (the "Put Option Amount"), at the price per share (the "Put
Option Price") equal to such stated value.
2. Exercisable by Somatix. The Put Options shall be
exercisable only by Somatix and only upon the terms and conditions and subject
to the limitations set forth in the Subscription Agreement and herein, and the
Put Options may not be transferred, sold, pledged, assigned or otherwise
disposed of to any person.
3. Certain Restrictions on Exercise. The Put Options shall be
exercisable on any Trading Day (each, a "Put Option Exercise Date") from and
including March 25, 1997 to and including September 25, 1999 (the "Put Option
Termination Date");
provided, however, that, subject to the provision of Section 7 of the
Subscription Agreement, not more than one Put Option shall be exercisable within
any six-month period; and provided further, however, that no Put Option shall be
exercisable unless Somatix shall have delivered to Fletcher on the relevant Put
Option Exercise Date a certificate of the Chief Executive Officer and Chief
Financial Officer of Somatix, dated such Put Option Exercise
<PAGE> 23
Date, confirming that each of the representations and warranties made by Somatix
in the Subscription Agreement are true and correct as of such Put Option
Exercise Date.
Notwithstanding anything to the contrary contained herein or
in the Subscription Agreement, the maximum amount for which any Put Option may
be exercised shall not exceed X (the "Annual Limit") or Y (the "Cumulative
Limit"), each as defined in the following equations:
X = ((0.099 * A) - B - E - (C/D)) * D
Y = ((0.199 * F) - I - (C/H) - G) * D
where:
A = the total number of shares of Common Stock then
outstanding
B = the maximum number of Warrant Shares issuable
within 60 days from the date of the calculation
C = the face value of the Preferred Stock then issued
but not converted
D = the average of the daily volume weighted average
prices for Somatix Common Stock for the 40 Trading
Days prior to the Put Option Exercise Date
E = the total number of shares of Common Stock issued
to Fletcher within the last 12 months
F = the total number of shares of Common Stock
outstanding on the Agreement Date
G = the total number of shares of Common Stock then
issued to Fletcher pursuant to the Agreement
H = the average of the daily volume weighted average
prices for Somatix Common Stock for the 40 Trading
Days prior to the Put Option Exercise Date
I = 650,000 for any date prior to March 25, 1997; and
the maximum number of unexercised Warrant Shares for
any date thereafter
4. Additional Put Options. Fletcher shall have the right (on
the business day following any Put Option Exercise Date) to reduce the
applicable Put Option Amount to a minimum of the closing price of the Shares on
the Exercise Date as reported by NASDAQ (the "Price") multiplied by the lower of
(a) ten times the average daily volume for Somatix Common Stock as reported by
NASDAQ during the forty Trading Days prior to the Put Option Exercise Date, or
(b) five percent of the then outstanding Common Stock, or (c) unless stockholder
approval has been obtained as described in Section 5(j) of the Purchase
Agreement, the amount represented by the equation: Y / 2 (as defined in
Paragraph 3 hereof). The excess, if any, of the original Put Option Amount over
such reduced Put Option Amount as defined above shall be referred to herein as
the "Remaining Amount." If Fletcher does reduce the Put Option Amount, Somatix
will receive an additional Put Option of stated value equal to the aggregate
Remaining Amount; provided
2.
<PAGE> 24
that no Put Option shall be exercised after the Put Option Termination Date and
not more than one Put Option may be exercised during any six-month period.
5. Certain Exercise Procedures. On any Put Option Exercise
Date, Somatix may exercise a Put Option by delivering notice thereof to Fletcher
in accordance with the Subscription Agreement. On the second Business Day
following such Put Option Exercise Date, Somatix shall issue to Fletcher the
number of shares of Preferred Stock equal to the Put Option Amount calculated as
provided herein against payment by Fletcher of the Put Option Price in New York
Clearing House (next day) funds in accordance with the Subscription Agreement.
6. Expiration and Termination. Any Put Option (including any
additional Put Options granted pursuant to Paragraph 4 hereof) that has not been
exercised by Somatix in accordance with the terms of the Subscription Agreement
and hereof by 5:00 p.m. (New York time) on the Put Option Termination Date shall
immediately expire and not thereafter be exercisable, and Fletcher shall have no
further obligation whatsoever with respect to any such Put Option.
3.
<PAGE> 25
ANNEX B
[Form of Warrant Certificate]
The Warrant represented by this certificate was issued on September 25,
1996 (the "Original Issue Date") pursuant to the Subscription Agreement
dated September 24, 1996 between Somatix Therapy Corporation and
Fletcher International Limited. Neither the Warrant represented by this
certificate nor the securities issuable upon exercise hereof have been
registered under the Securities Act of 1933, as amended (the "Act") and
the Warrants may not be exercised by a U.S. Person unless pursuant to a
transaction registered under the Act or exempt from such Registration.
The Warrant represented hereby has been sold in reliance on the
exemption from registration provided by Regulation S under the Act
("Regulation S"). Prior to the expiration of a 40- day restricted
period beginning on the Original Issue Date (the "Restricted Period"),
the Warrant represented by this certificate may not be exercised,
offered or sold, directly or indirectly, within the United States (as
defined in Regulation S under the Act), to a U.S. Person (as defined in
Regulation S under the Act) or for the account or benefit of a U.S.
Person. Neither Somatix Therapy Corporation nor its transfer agent
shall be obligated to remove this legend unless it shall have received
an opinion of counsel stating that such removal complies with the
requirements of Regulation S.
650,000 WARRANT SHARES
WARRANT CERTIFICATE
SOMATIX THERAPY CORPORATION
This Warrant Certificate certifies that FLETCHER INTERNATIONAL
LIMITED, or registered assigns, is the registered holder of one Warrant (the
"Warrant") expiring on the Termination Date (as defined below) to purchase up to
650,000 shares (the "Maximum Warrant Amount") of common stock, par value $0.01
per share (the "Common Stock"), of Somatix Therapy Corporation, a Delaware
corporation (the "Issuer"), at the Exercise Price (as defined below); provided,
however, that if, on March 24, 1997, the sum of (i) the aggregate stated value
of the Preferred Shares then owned by Fletcher plus (ii) the aggregate
equivalent Preferred Share stated value of all Common Stock (as defined below)
then owned by Fletcher (calculated using the volume-weighted average of the
conversion ratios for the period from the Closing Date through March 24, 1997 is
less than or equal to $2,500,000, then the Maximum Warrant Amount shall be an
amount equal to:
<PAGE> 26
5
650,000 * --------------------
(3 * X) - 4
where X means the average of the daily
volume-weighted average prices of Somatix Common
Stock for the period and including September 24, 1996
to but excluding March 24, 1997; provided, however,
that the Maximum Warrant Amount shall never be
greater than 650,000 and shall never be lower than
195,000.
The Warrant represented hereby was issued on September 25,
1996 (the "Original Issue Date") pursuant to the Subscription Agreement dated
September 24, 1996 (the "Subscription Agreement"), between the Issuer and
Fletcher International Limited ("Fletcher"), and is subject to the terms and
conditions thereof. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings set forth in the Subscription Agreement. A copy
of the Subscription Agreement may be obtained by the registered holder hereof
upon written request to the Issuer.
The Warrant represented hereby may be exercised on any
Business Day (a "Warrant Exercise Date") from and including March 24, 1998 to
and including September 24, 2002 (the "Termination Date"). The Warrant entitles
the registered holder hereof to receive from the Issuer upon exercise up to the
number of Warrant Shares set forth on the face hereof upon surrender of this
Warrant Certificate as provided on the reverse hereof and payment of the
Exercise Price defined below (the "Exercise Price") (plus transfer taxes, if
applicable) to the Issuer in cash or by certified or official bank check.
The Exercise Price per Warrant Share shall be $5.533.
The Warrant represented hereby shall have the following
additional terms:
1. The Warrant represented hereby may be exercised upon surrender of this
Warrant Certificate by the registered holder hereof to the Issuer at
its principal office on any Exercise Date with the Exercise Notice
attached hereto (an "Exercise Notice") duly completed and signed by
the registered holder hereof and upon tender by such holder to the
Issuer of the Exercise Price (plus transfer taxes, if applicable) for
the total number of Warrant Shares in respect of which such Warrant is
then exercised. The Warrant represented hereby shall be exercisable
only in the minimum amount of 30,000 Warrant Shares and integral
multiples of 30,000 Warrant Shares in excess thereof (or such lesser
amount as shall constitute the full amount of this Warrant).
2. On the Business Day following an Exercise Date (an "Issue Date") the
Issuer shall issue and cause to be delivered to the registered holder
hereof at such address as such holder shall specify in the Exercise
Notice a certificate or certificates for the number of full Warrant
Shares issuable upon the exercise of such Warrant, registered in such
holder's name, together with cash (if any) as provided in paragraph 4.
Such
2.
<PAGE> 27
certificate or certificates shall be deemed to have been issued and
any person so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Shares as of such Exercise
Date.
3. If on such Issue Date the number of Warrant Shares to be delivered
shall be less than the total number of Warrant Shares deliverable
hereunder, there shall be issued to the holder hereof or his assignee
on such Issue Date a new warrant certificate substantially identical to
this Warrant Certificate, except that such new warrant certificate
shall evidence the right to purchase the number of Warrant Shares equal
to (x) the total number of Warrant Shares deliverable hereunder less
(y) the number of Warrant Shares so delivered.
4. The Issuer shall not be required to issue fractional Warrant Shares on
the exercise of the Warrant represented hereby. The number of full
Warrant Shares which shall be issuable upon the exercise of the Warrant
shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of the Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this
paragraph 4, be issuable on the exercise of the Warrant, the Issuer
shall pay an amount in cash equal to the closing sale price of the
Common Stock per Warrant Share on the day immediately preceding the
date the Warrant is presented for exercise, multiplied by such
fraction.
5. For so long as the Warrant represented hereby has not been exercised in
full, the Issuer shall at all times reserve and keep available, free
from pre-emptive rights, out of its authorized but unissued Common
Stock, for issuance upon exercise of the Warrant represented hereby,
the maximum number of Common Stock then so issuable (as adjusted from
time to time pursuant to paragraph 10).
6. By accepting delivery of this Warrant Certificate, the registered
holder hereof covenants and agrees with the Issuer not to exercise or
transfer the Warrant represented hereby except in compliance with the
terms of the Subscription Agreement and this Warrant Certificate.
7. By accepting delivery of this Warrant Certificate, the registered
holder hereof covenants and agrees with the Issuer that no Warrant may
be sold, assigned, conveyanced, pledged, hypothecated or in any other
manner disposed of or transferred unless and until such holder shall
deliver to the Issuer (i) written notice of such transfer and of the
name and address of the transferee has been received by the Issuer;
(ii) a written agreement of the transferee to comply with the terms of
the Subscription Agreement and this Warrant Certificate and (iii) in
the case of a transfer hereof prior to the expiration of the Restricted
Period (if any) specified on the first page hereof, an opinion of
counsel stating that such transferee is not a "U.S. Person" as defined
in Regulation S under the Securities Act of 1933, as amended, and that
such transfer is otherwise exempt from any registration requirements.
3.
<PAGE> 28
8. The Issuer will pay all documentary stamp taxes (if any) attributable
to the issuance of Warrant Shares upon the exercise of the Warrant by
the registered holder hereof; provided, however, that the Issuer shall
not be required to pay any tax or taxes which may be payable in respect
of any transfer involved in the registration of the Warrant Certificate
or any certificates for Warrant Shares in a name other than that of the
registered holder of the Warrant Certificate surrendered upon the
exercise of a Warrant, and the Issuer shall not be required to issue or
deliver the Warrant Certificate or certificates for Warrant Shares
unless or until the person or persons requesting the issuance thereof
shall have paid to the Issuer the amount of such tax or shall have
established to the satisfaction of the Issuer that such tax has been
paid.
9. In case this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Issuer may in its discretion issue in exchange and
substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor, but
only upon receipt of evidence reasonably satisfactory to the Issuer of
such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, satisfactory to it. Applicants for a
substitute Warrant Certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as the
Issuer may prescribe.
10. The number of Warrant Shares issuable upon the exercise of the Warrant
(the "Exercise Rate"), the Maximum Warrant Amount, and the terms and
conditions of the Warrant are subject to adjustment by the Issuer, in
consultation with the holder hereof, from time to time as follows:
(a) If the Issuer:
1. subdivides its outstanding shares of Common Stock
into a greater number of shares;
2. combines its outstanding shares of Common Stock into
a smaller number of shares; or
3. issues by reclassification of its Common Stock any
shares of its Capital Stock (as defined below);
then the Exercise Rate in effect immediately prior to such
action shall be adjusted so that the registered holder hereof
shall thereafter be entitled to receive upon exercise the
number of shares of Common Stock or other Capital Stock of the
Issuer which such holder would have owned immediately
following such action if such holder had exercised the Warrant
immediately prior to such action.
4.
<PAGE> 29
As used herein, the term "Capital Stock" means, with respect
to any corporation, any and all shares, interests, rights to
purchase, warrants, options, participations or other
equivalents of or interests (however designated) in stock
issued by that corporation.
Such adjustment shall become effective simultaneously with the
effective date of any subdivision, combination or
reclassification.
If, after an adjustment, the registered holder hereof would
receive upon exercise shares of two or more classes of Capital
Stock of the Issuer, the Exercise Rate shall thereafter be
subject to adjustment upon the occurrence of an action taken
with respect to each such class of Capital Stock as is
contemplated hereby with respect to the Common Stock, on terms
comparable to those applicable to Common Stock hereunder.
(b) Whenever the Exercise Rate is adjusted, the Issuer shall
provide the notices required by paragraph 12 hereof.
(c) If:
1. the Issuer takes any action that would require an
adjustment in the Exercise Rate pursuant to
subparagraph (a) above; or
2. there is a liquidation or dissolution of the Issuer;
then the Issuer shall mail to the registered holder hereof a
notice stating the proposed effective date of a subdivision,
combination, reclassification, consolidation, merger,
transfer, lease, liquidation or dissolution, as the case may
be. The Issuer shall mail the notice at least 15 days before
such date.
(d) The Issuer covenants and agrees with the registered holder
hereof not to consolidate or merge with or into, or transfer
or lease all or substantially all its assets to, any person
unless, at the option of the registered holder hereof, either:
1. on any date prior to the effective date of such
consolidation, merger, transfer or lease (the
"Redemption Date"), the Issuer shall have redeemed
the Warrant represented hereby by paying to such
holder, upon surrender of this Warrant Certificate, a
cash payment equal to the Black-Scholes value of the
Warrant represented hereby, computed as of such
Redemption Date; or
2. (a) such person shall expressly assume in writing all
of the obligations of the Issuer under the
Subscription Agreement and
5.
<PAGE> 30
hereunder and deliver notice thereof to the
registered holder hereof; and
(b) upon consummation of such transaction, the
Warrant shall automatically become
exercisable for the kind and amount of
securities, cash or other assets that the
registered holder hereof would have owned
immediately after the consolidation, merger,
transfer or lease if such holder had
exercised the Warrant immediately before the
effective date of such transaction.
(e) After an adjustment to the Exercise Rate hereunder, any
subsequent event requiring an adjustment hereunder shall
cause an adjustment to the Exercise Rate as so adjusted.
11. Upon the issuance of any stock dividend or distribution of Common
Stock pro rata to all holders of Common Stock, the registered holder
hereof on the record date for such distribution shall be entitled to
receive such dividend or distribution on the same terms as the holders
of Common Stock upon exercise hereof.
12. Upon any adjustment of the Exercise Rate pursuant to paragraph 10, the
Issuer shall promptly thereafter but in any event within 15 days
following such adjustment (i) cause to be delivered to the registered
holder hereof a certificate of its Chief Financial Officer setting
forth the Exercise Rate after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which
such calculations are based, which certificate shall be conclusive
evidence of the correctness of the matters set forth therein, and (ii)
cause to be delivered to the registered holder hereof at his or her
address appearing on the Warrant Register written notice of such
adjustments by first-class mail, postage prepaid. Where appropriate,
such notice may be given in advance and included as part of the notice
required to be mailed under the other provisions of this paragraph 12.
In case:
(a) the Issuer shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to
subscribe for or purchase shares of Common Stock or of any
other subscription rights or warrants; or
(b) of any consolidation or merger to which the Issuer is a party
and for which approval of any shareholders of the Issuer is
required, or of the conveyance or transfer of the properties
and assets of the Issuer substantially as an entirety, or of
any reclassification or change of Common Stock issuable upon
exercise of the Warrant (other than a change in par value, or
from par value to no par value, or from no par value to par
value, or as a result of a
6.
<PAGE> 31
subdivision or combination), or of a tender offer or exchange
offer for shares of Common Stock; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding up of the Issuer; or
(d) the Issuer proposes to take any action which would require an
adjustment of the Exercise Rate pursuant to paragraph 10;
then the Issuer shall cause to be given to the registered holder hereof
at his or her address appearing on the Warrant Register, at least 20
days (or 10 days in any case specified in clauses (a) or (b) above)
prior to the applicable record date hereinafter specified, or promptly
in the case of events for which there is no record date, by first class
mail, postage prepaid, a written notice stating (i) the date as of
which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be
determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date
on which any such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up is expected to become
effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to
exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up.
13. The Issuer shall serve as warrant agent (the "Warrant Agent") under
this Agreement. The Warrant Agent hereunder shall at all times maintain
a register (the "Warrant Register") of the holders of Warrants. Upon 30
days' notice to the registered holder hereof, the Issuer may appoint a
new Warrant Agent. Such new Warrant Agent shall be a corporation doing
business under the laws of the United States or any state thereof, in
good standing and having a combined capital and surplus of not less
than $50,000,000. The combined capital and surplus of any such new
Warrant Agent shall be deemed to be the combined capital and surplus as
set forth in the most recent annual report of its condition published
by such Warrant Agent prior to its appointment; provided that such
reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority.
After acceptance in writing of such appointment by the new Warrant
Agent, it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the
Warrant Agent, without any further assurance, conveyance, act or deed;
but if for any reason it shall be reasonably necessary or expedient to
execute and deliver any further assurance, conveyance, act or deed, the
same shall be done at the expense of the Issuer and shall be legally
and validly executed and delivered by the Issuer.
7.
<PAGE> 32
Any corporation into which the Issuer or any new Warrant Agent may be
merged or any corporation resulting from any consolidation to which the
Issuer or any new Warrant Agent shall be a party or any corporation to
which the Issuer or any new Warrant Agent transfers substantially all
of its corporate trust or shareholders services business shall be a
successor Warrant Agent under this Agreement without any further act;
provided that such corporation (i) would be eligible for appointment as
successor to the Warrant Agent under the Provisions of this paragraph
13 or (ii) is a wholly-owned subsidiary of the Warrant Agent. Any such
successor Warrant Agent shall promptly cause notice of its succession
as Warrant Agent to be mailed (by first class mail, postage prepaid) to
the registered holder hereof at such holder's last address as shown on
the Warrant Register.
This Warrant Certificate shall not be valid unless signed by the
Issuer.
IN WITNESS WHEREOF, Somatix Therapy Corporation has caused this Warrant
Certificate to be signed by its duly authorized officer.
Dated: September 25, 1996
SOMATIX THERAPY CORPORATION
By:
------------------------------------
Name: David W. Carter
Title: Chairman of the Board,
President and Chief
Executive Officer
8.
<PAGE> 33
FORM OF EXERCISE NOTICE
(To Be Executed Upon Exercise Of the Warrant)
[DATE]
Somatix Therapy Corporation
850 Marina Village Parkway
Suite 100
Alameda, CA 94501
Attention: Mr. Edward O. Lanphier II
Re: FLETCHER WARRANT
Ladies and Gentlemen:
The undersigned is a non-U.S. Person (as that term is defined
in Regulation S under the Securities Act of 1933, as amended) and is the
registered holder of the above-referenced warrant (the "Warrant") issued by
Somatix Therapy Corporation, evidenced by the Warrant Certificate attached
hereto, and hereby elects to exercise the Warrant to purchase shares of Warrant
Shares (as defined in such Warrant Certificate) and herewith tenders $ by
certified or official bank check to the order of Somatix Therapy Corporation as
payment for such Warrant Shares in accordance with the terms of such Warrant
Certificate.
In accordance with the terms of the attached Warrant
Certificate, the undersigned requests that certificates for such shares be
registered in the name of and delivered to the undersigned at the following
address:(1)
----------------------------
----------------------------
----------------------------
[If the number of Warrant Shares to be delivered is less than
the total number of Warrant Shares deliverable under the Warrant, insert the
following -- The undersigned requests that a new warrant certificate
substantially identical to the attached Warrant Certificate be issued to the
undersigned evidencing the right to purchase the number of
- ---------------
(1)The Warrant Shares issuable thereunder shall not be delivered within
the United States or to or for the benefit of a U.S. Person (as defined in
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act")) unless registered under the Securities Act or pursuant to an available
exemption from such registration, as set forth in an opinion of counsel, where
applicable.
<PAGE> 34
Warrant Shares equal to (x) the total number of Warrant Shares deliverable under
the Warrant less (y) the number of Warrant Shares to be delivered in connection
with this exercise.]
NAME OF REGISTERED HOLDER
[ADDRESS]
[ADDRESS]
[ADDRESS]
By:
----------------------------------
Name:
Title:
2.
<PAGE> 35
ANNEX C
CERTIFICATE OF DESIGNATION
OF PREFERENCES OF SERIES B-1 PREFERRED STOCK OF
SOMATIX THERAPY CORPORATION,
A DELAWARE CORPORATION
The undersigned David W. Carter and J. Stephan Dolezalek
hereby certify that:
(i) They are the duly elected and acting President and Chief
Executive Officer and Assistant, respectively, of Somatix Therapy Corporation, a
Delaware corporation (the "Corporation").
(ii) Pursuant to the authority conferred upon the Board of
Directors of the Corporation by paragraph (B) of Article IV of the Corporation's
Restated Certificate of Incorporation (the "Certificate"), the Board of
Directors of the Corporation on September 23, 1996 adopted the following
resolutions creating a series of preferred stock designated as Series B-1
Preferred Stock;
WHEREAS, the Certificate provides for a class of shares known
as Preferred Stock, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of the Corporation is
authorized by the Certificate to determine the powers, rights, preferences,
qualifications, limitations and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock, to fix the number of shares
constituting any such series, and to determine the designation thereof, or any
of them; and
WHEREAS, the Board of Directors of the Corporation, in that
certain Certificate of Designation of Preferences dated June 23, 1995 and filed
with the Secretary of State of the State of Delaware on June 27, 1995 (the
"Series A Certificate"), designated and fixed the powers, rights, preferences
qualifications, limitations and restrictions relating to those series of
Preferred Stock known as Series A-1 Preferred Stock (the "Series A-1 Preferred
Stock") and Series A-2 Preferred Stock (the "Series A-2 Preferred Stock") (the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock shall be jointly
referred to herein as the "Series A Preferred Stock");
WHEREAS, the Corporation intends to enter into that certain
Subscription Agreement (the "Subscription Agreement") pursuant to which it
would, among other things, issue shares of Preferred Stock to a certain investor
(the "Investor");
<PAGE> 36
WHEREAS, the Board of Directors of the Corporation desires,
pursuant to its authority as aforesaid, to determine and fix the powers, rights,
preferences, qualifications, limitations and restrictions relating to the Series
B-1 Preferred Stock and the number of shares constituting, and the designation
of, each such series.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority
vested in the Board of Directors of the Corporation in accordance with the
provisions of the Certificate, the Series B-1 Preferred Stock is hereby created,
and the Board of Directors hereby fixes and determines the designation of, the
number of shares constituting, and the rights, preferences, privileges and
restrictions relating to, such Series B-1 Preferred Stock as follows:
1. Designation. The series of preferred stock of the
Corporation shall be designated as "Series B-1 Preferred Stock."
2. Authorized Number. The number of shares constituting the
Series B-1 Preferred Stock shall be thirty-three thousand three hundred
thirty-three (33,333) shares. The rights, preferences, restrictions and other
matters relating to the Series B-1 Preferred Stock set forth below are subject
to the rights, preferences, restrictions and other matters relating to the
Series A Preferred Stock but shall be senior in all respects to all other series
of Preferred Stock that may be issued by the Corporation from time to time;
provided, however, that any series or subseries of Preferred Stock issued to the
Investor shall have the same rights, preferences, restrictions and other matters
as the Series B-1 Preferred Stock; provided further that in the event the
Corporation obtains stockholder approval of the sale of any additional series or
subseries of Preferred Stock to the Investor pursuant to the put rights set
forth in the Subscription Agreement, the provisions of Section 6(B)(ii) hereof
shall not apply to such additional series or subseries. The Board of Directors
is also authorized to decrease the number of shares of any series of preferred
stock prior or subsequent to the issue of that series, but not below the number
of shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
3. Dividend Rights. Subject to the prior dividend rights of
holders of Series A Preferred Stock as set forth in the Series A Certificate,
the holders of the Series B- 1 Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of any assets of the
corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors. Subject to the prior dividend rights of
holders of Series A Preferred Stock, the Board of Directors shall not pay any
dividend to the holders of the Common Stock unless and until it has paid an
equivalent dividend, on a pro rata per share basis, to the holders of the Series
B-1 Preferred Stock.
2.
<PAGE> 37
4. Liquidation Preference.
(A) In the event of any liquidation, dissolution,
change of control or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Series A Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Series B-1 Preferred
Stock or the Common Stock by reason of their ownership thereof, the amount of
$25.00 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus all accrued or declared but unpaid dividends
on such share for each share of Series A Preferred Stock then held by them. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
in proportion to the preferential amount each such holder is otherwise entitled
to receive.
(B) After payment to the holders of Series A
Preferred Stock of the amounts set forth in 4(A) above, the holders of the
Series B-1 Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the Corporation to
the holders of the Common Stock by reason of their ownership thereof, the amount
of One Hundred Fifty Dollars ($150.00) (the "Original Issue Price") per share
(as adjusted for any stock dividends, combinations or splits with respect to
such shares) plus all accrued or declared but unpaid dividends on such share for
each share of Series B-1 Preferred Stock then held by such holder. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series B-1 Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series B-1 Preferred Stock
in proportion to the preferential amount each such holder is otherwise entitled
to receive.
(C) After payment to the holders of the Series A
Preferred Stock and the Series B-1 Preferred Stock of the amounts set forth in
Sections 4(A) and 4(B), respectively, above, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Common Stock in proportion to the shares of
Common Stock then held by them.
(D) For purposes of this Section 4, (i) any
acquisition of the Corporation by means of merger or other form of corporate
reorganization in which outstanding shares of the Corporation are exchanged for
securities or other consideration issued, or caused to be issued, by the
acquiring corporation or its subsidiary (other than a mere reincorporation
transaction) or (ii) a sale of all or substantially all of the assets of the
Corporation or (iii) any other transaction or series of related transactions by
the Corporation in which in excess of 50% of the Corporation's voting power is
transferred, shall be treated as a liquidation, dissolution or winding up of the
Corporation and shall entitle
3.
<PAGE> 38
the holders of Series A Preferred Stock and Series B-1 Preferred Stock to
receive at the closing in cash, securities or other property (valued as provided
in Section 4(E) below) the amount as specified in Sections 4(A) and 4(B),
respectively, above.
(E) Whenever the distribution provided for in this
Section 4 shall be payable in securities or property other than cash, the value
of such distribution shall be as follows:
(i) Securities not subject to investment
letter or other similar restrictions on free marketability:
(A) If traded on a securities
exchange, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the 30-day period ending
three (3) days prior to the closing;
(B) If actively traded
over-the-counter, the value shall be deemed to be the average of the
closing bid or sale prices (whichever are applicable) over the 30-day
period ending three (3) days prior to the closing; and
(C) If there is no active public
market, the value shall be the fair market value thereof, as determined
in good faith by the Board of Directors of the Corporation.
(ii) The method of valuation of securities
subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
stockholder's status as an affiliate or former affiliate) shall be to
make an appropriate discount from the market value determined as above
in (i) (A), (B) or (C) to reflect the approximate fair market value
thereof, as determined in good faith by the Board of Directors of the
Corporation.
(iii) In the event of any bona-fide dispute
between the Corporation and one or more holders of the Series A
Preferred Stock or Series B-1 Preferred Stock as to any fair market
value determination under clauses (i)(C) or (ii) above, such dispute
shall be resolved through binding arbitration under the rules of the
American Arbitration Association, with the arbitration panel consisting
of persons familiar with the valuation of public and private entities
and such panel being advised, as to such valuation issues, by an
investment bank of nationally recognized standing, the costs thereof to
be borne by the non-prevailing party.
5. Redemption. The Series B-1 Preferred Stock is not
redeemable.
6. Conversion. The holders of Series B-1 Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
4.
<PAGE> 39
(A) Right to Convert. On and after November 9, 1996,
each such share shall be convertible upon delivery of such shares in accordance
with Section 6(C) below on any business day (each a "Conversion Date") at the
option of the holder into that number of shares of Common Stock equal to the
quotient obtained by dividing (i) the Original Issue Price multiplied by the
number of such shares to be converted at such time, by (ii) 101% of the average
of the daily volume-weighted average price (the "Conversion Price") of the
Common Stock reported by The Nasdaq Stock Market ("Nasdaq") for the forty (40)
trading day period (the "Pricing Period") ending two (2) trading days prior to
the Conversion Date; provided, however, that the Conversion Price shall in no
event exceed 115% of the daily volume-weighted average closing price of the
Common Stock as reported by Nasdaq for the first five (5) days of such Pricing
Period; provided further, that the minimum number of shares which may be
converted at any one time shall be such number of shares of Series B-1 Preferred
Stock as shall be convertible in accordance with the formula set forth above
into seventy-five thousand (75,000) shares of Common Stock or such lesser number
of shares as shall be then outstanding; and provided further, that in the event
there is any split, combination, reclassification of or dividend on the Common
Stock (an "Event") during the Pricing Period, all pre-Event prices during the
Pricing Period shall be adjusted, and calculated, on a post-Event basis.
(B) Automatic Conversion. Each share of Series B-1
Preferred Stock shall automatically be converted into Common Stock on the
earlier of (i) September 25, 1999, in which event each share of Series B-1
Preferred Stock shall automatically be converted into Common Stock in accordance
with the formula set forth in Section 6(A) above using September 25, 1999 as the
Conversion Date, or (ii) at such time as the daily volume-weighted average price
of the Common Stock as reported by Nasdaq for any consecutive sixty (60) day
trading period commencing after March 25, 1997 (the "Premium Period") is greater
than 130% of the closing price of the Common Stock as reported by Nasdaq on
September 24, 1996, in which event each share of Series B-1 Preferred Stock
shall be converted into Common Stock in accordance with the formula set forth in
Section 6(A) above using the sixtieth (60th) trading day of the Premium Period
as the Conversion Date; provided, however, that the Conversion Price under
Section 6(B)(ii) shall in no event exceed 130% of the closing price of the
Common Stock as reported by Nasdaq on September 24, 1996; and provided further
that, in the event the Corporation obtains stockholder approval of the sale of
any additional series or subseries of Preferred Stock to the Investor pursuant
to the put rights set forth in the Subscription Agreement, this Section 6(B)(ii)
shall be null and void and of no further force or effect.
(C) Mechanics of Conversion. Before any holder of
Series B-1 Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this Corporation or of any transfer agent for the
Series B-1 Preferred Stock, and shall give written notice by mail, postage
prepaid, or by facsimile, confirmed by mail, to this Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
5.
<PAGE> 40
Common Stock are to be issued. The Conversion Date shall be the date of such
surrender of the Series B-1 Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. This Corporation or the transfer
agent, if any, for such shares shall, within two (2) business days of the
Conversion Date, issue and deliver at such office to such holder of the Series
B- 1 Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. for purposes of this Section 6, the
term "business day" shall mean any day on which banking institutions in the City
and State of New York are open for business.
(D) Adjustments for Reclassification and
Reorganization. If the Common Stock issuable upon conversion of the Series B-1
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a merger or other reorganization
referred to in Section 4(D) above), the number of shares of such other class or
classes of stock into which the Series B-1 Preferred Stock shall be convertible
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series B-1 Preferred
Stock shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series B-1 Preferred Stock immediately before that
change.
(E) No Impairment. This Corporation will not, by
amendment of its Certificate or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 6 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B-1 Preferred Stock against impairment.
(F) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon conversion of the Series B-1 Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of
shares of Series B-1 Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
6.
<PAGE> 41
(ii) Upon the occurrence of any adjustment
or readjustment of the number of shares of Common Stock into which the
Series B-1 Preferred Stock can be converted pursuant to Section 6(D)
above, this Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series B-1 Preferred Stock a
certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based.
(G) Notices of Record Date. In the event of any
taking by this Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series B-1 Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(H) Reservation of Stock Issuable Upon Conversion.
This Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the Series B-1 Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B-1 Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all the then outstanding Series
B-1 Preferred Stock, in addition to such other remedies as shall be available to
the holder of such Series B-1 Preferred Stock, this Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(I) Notices. Any notice required by the provisions of
this Section 6 to be given to the holders of Series B-1 Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid and return
receipt requested, and addressed to each holder of record at his address
appearing on the books of this Corporation.
7. Voting Rights. Subject to the rights of the holders of the
Series A Preferred Stock as set forth in the Series A Certificate, each holder
of shares of Series B-1 Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such shares of Series
B-1 Preferred Stock could be converted as of the record date for any action and
shall have voting rights and powers equal to the voting rights and powers of the
Common Stock (except as otherwise expressly provided herein, in the Series A
Certificate or as required by law, voting together with the Series A Preferred
Stock and Common Stock as a single class) and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes
7.
<PAGE> 42
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Series B-1
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward). Each holder of Common
Stock shall be entitled to one (1) vote for each share of Common Stock held.
8. Status of Converted or Redeemed Stock. In the event any
Series B-1 Preferred Stock shall be converted pursuant to Section 6 hereof, the
shares so converted shall be promptly canceled after the conversion thereof. All
such shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued only as part of a new series or subseries
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
* * *
RESOLVED FURTHER, that the Chairman of the Board, the Chief
Executive Officer, the President or any Vice President, and the Secretary, the
Chief Financial Officer, the Treasurer, or any Assistant Secretary or Assistant
Treasurer of this Corporation are each authorized to execute, verify, and file a
Certificate of Designation of Preferences in accordance with Delaware law.
8.
<PAGE> 43
IN WITNESS WHEREOF, the undersigned have executed this
certificate on September __, 1996.
-------------------------------------
David W. Carter
President and Chief Executive Officer
-------------------------------------
J. Stephan Dolezalek
Assistant Secretary
The undersigned certify under penalty of perjury that they
have read the foregoing Certificate of Designation of Preferences and know the
contents thereof, and that the statements therein are true.
Executed at Alameda, California, on September __, 1996.
-------------------------------------
David W. Carter
President and Chief Executive Officer
-------------------------------------
J. Stephan Dolezalek
Assistant Secretary
9.
<PAGE> 44
EXHIBIT A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 24, 1996
SOMATIX THERAPY CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 0-14758 94-2762045
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
950 MARINA VILLAGE PARKWAY, SUITE 100, ALAMEDA, CALIFORNIA 94501
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 748-3000
(Former Name or Former Address, if Changed Since Last Report.)
Page 1 of 4
<PAGE> 45
Item 5. Other Events
On September 24, 1996, Somatix Therapy Corporation (the "Company")
announced an agreement to sell shares of preferred stock convertible at a
premium to market over the prevailing average price of the common stock. The
sale will provide an immediate cash infusion of $5.0 million. Subject to certain
limitations, the Company will also have the right to sell up to $10 million in
additional share of preferred stock on similar terms over the next three years.
In connection with the preferred stock financing, the Company issued to the
investor a warrant to purchase up to 650,000 shares of common stock at a fixed
exercise price representing a premium above the closing price of the Company's
common stock on September 24, 1996.
Subject to certain adjustments and limitations, the preferred stock
is convertible into common stock at a premium to the average market price at the
time of conversion, not later than September 24, 2002.
"This financing provides Somatix with the ability to take down up to
an additional $10 million at the time of our choosing over the next three
years," said David W. Carter, Somatix Chairman and Chief Executive Officer. "I
am particularly encouraged with the enthusiasm of our new investors for our
multiple gene transfer capabilities we have built at Somatix."
The securities associated with this transaction have not been
registered under the Securities Act of 1933, as amended (the "Act"), and were
offered pursuant to the exemption provided by Regulation S thereunder and may
not be offered or sold in the United States or to or for the account or benefit
of a U.S. person except pursuant to registration under the Act or an available
exemption therefrom.
Coincident with the financing, Somatix has implemented a cost
reduction program, delaying a Phase III clinical trial of its Autologous
GVAX(TM) Cancer Vaccine and significantly reducing the clinical development
staff involved in this program. While the Company remains committed to its
cancer gene therapy program, it has determined that the substantial costs
associated with large scale clinical trials should be shared with an appropriate
corporate partner. Somatix will continue to accrue Phase I/II clinical data on
the autologous vaccine as well as further pursue discussions with potential
clinical partners.
"I want to underline Somatix's commitment to cancer gene therapy,
which continues to be our most advanced therapeutics area," stated David W.
Carter. "However, we have other product candidates moving into the clinic and
believe it is more prudent to spread our resources across multiple therapeutic
programs. We will continue to generate GVAX data with our clinical collaborators
and move into pivotal efficacy trials when we have a corporate collaborator."
Somatix Therapy Corporation is a leader in the emerging field of gene
therapy. The company's mission is to research, develop and commercialize
proprietary processes for the genetic modification of cells and their use in the
treatment of human disease. Somatix's strategic assets include its multiple gene
transfer systems, broad-based intellectual property, and product development
programs focused on cancer, neural diseases, and inherited genetic disorders.
2.
<PAGE> 46
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements.
The registrant has determined that no financial statements are
required to be filed pursuant to this item.
(b) Pro Forma Financial Information.
The registrant has determined that no pro forma financial information
is required to be filed pursuant to this item.
(c) Exhibits.
None.
3.
<PAGE> 47
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 hereunto duly authorized.
Date: September 25, 1996 SOMATIX THERAPY CORPORATION
(Registrant)
By: /s/ J. STEPHAN DOLEZALEK
Name: J. Stephan Dolezalek
Title: Assistant Secretary
4.
<PAGE> 1
EXHIBIT 10.86
The Warrant represented by this certificate was issued on September 25,
1996 (the "Original Issue Date") pursuant to the Subscription Agreement
dated September 24, 1996 between Somatix Therapy Corporation and
Fletcher International Limited. Neither the Warrant represented by this
certificate nor the securities issuable upon exercise hereof have been
registered under the Securities Act of 1933, as amended (the "Act") and
the Warrants may not be exercised by a U.S. Person unless pursuant to a
transaction registered under the Act or exempt from such Registration.
The Warrant represented hereby has been sold in reliance on the
exemption from registration provided by Regulation S under the Act
("Regulation S"). Prior to the expiration of a 40-day restricted
period beginning on the Original Issue Date (the "Restricted Period"),
the Warrant represented by this certificate may not be exercised,
offered or sold, directly or indirectly, within the United States (as
defined in Regulation S under the Act), to a U.S. Person (as defined in
Regulation S under the Act) or for the account or benefit of a U.S.
Person. Neither Somatix Therapy Corporation nor its transfer agent
shall be obligated to remove this legend unless it shall have received
an opinion of counsel stating that such removal complies with the
requirements of Regulation S.
650,000 WARRANT SHARES
WARRANT CERTIFICATE
SOMATIX THERAPY CORPORATION
This Warrant Certificate certifies that FLETCHER INTERNATIONAL
LIMITED, or registered assigns, is the registered holder of one Warrant (the
"Warrant") expiring on the Termination Date (as defined below) to purchase up to
650,000 shares (the "Maximum Warrant Amount") of common stock, par value $0.01
per share (the "Common Stock"), of Somatix Therapy Corporation, a Delaware
corporation (the "Issuer"), at the Exercise Price (as defined below); provided,
however, that if, on March 24, 1997, the sum of (i) the aggregate stated value
of the Preferred Shares then owned by Fletcher plus (ii) the aggregate
equivalent Preferred Share stated value of all Common Stock (as defined below)
then owned by Fletcher (calculated using the volume-weighted average of the
conversion ratios for the period from the Closing Date through March 24, 1997 is
less than or equal to $2,500,000, then the Maximum Warrant Amount shall be an
amount equal to:
5
650,000 * -----------
(3 * X) - 4
where X means the average of the daily
volume-weighted average prices of Somatix Common
Stock for the period and including September 24, 1996
to but excluding March 24, 1997; provided,
<PAGE> 2
however, that the Maximum Warrant Amount shall never
be greater than 650,000 and shall never be lower than
195,000.
The Warrant represented hereby was issued on September 25,
1996 (the "Original Issue Date") pursuant to the Subscription Agreement dated
September 24, 1996 (the "Subscription Agreement"), between the Issuer and
Fletcher International Limited ("Fletcher"), and is subject to the terms and
conditions thereof. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings set forth in the Subscription Agreement. A copy
of the Subscription Agreement may be obtained by the registered holder hereof
upon written request to the Issuer.
The Warrant represented hereby may be exercised on any
Business Day (a "Warrant Exercise Date") from and including March 24, 1998 to
and including September 24, 2002 (the "Termination Date"). The Warrant entitles
the registered holder hereof to receive from the Issuer upon exercise up to the
number of Warrant Shares set forth on the face hereof upon surrender of this
Warrant Certificate as provided on the reverse hereof and payment of the
Exercise Price defined below (the "Exercise Price") (plus transfer taxes, if
applicable) to the Issuer in cash or by certified or official bank check.
The Exercise Price per Warrant Share shall be $5.533.
The Warrant represented hereby shall have the following
additional terms:
1. The Warrant represented hereby may be exercised upon surrender of this
Warrant Certificate by the registered holder hereof to the Issuer at
its principal office on any Exercise Date with the Exercise Notice
attached hereto (an "Exercise Notice") duly completed and signed by the
registered holder hereof and upon tender by such holder to the Issuer
of the Exercise Price (plus transfer taxes, if applicable) for the
total number of Warrant Shares in respect of which such Warrant is then
exercised. The Warrant represented hereby shall be exercisable only in
the minimum amount of 30,000 Warrant Shares and integral multiples of
30,000 Warrant Shares in excess thereof (or such lesser amount as shall
constitute the full amount of this Warrant).
2. On the Business Day following an Exercise Date (an "Issue Date") the
Issuer shall issue and cause to be delivered to the registered holder
hereof at such address as such holder shall specify in the Exercise
Notice a certificate or certificates for the number of full Warrant
Shares issuable upon the exercise of such Warrant, registered in such
holder's name, together with cash (if any) as provided in paragraph 4.
Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Shares as of such
Exercise Date.
3. If on such Issue Date the number of Warrant Shares to be delivered
shall be less than the total number of Warrant Shares deliverable
hereunder, there shall be issued to the holder hereof or his assignee
on such Issue Date a new warrant certificate
2.
<PAGE> 3
substantially identical to this Warrant Certificate, except that such
new warrant certificate shall evidence the right to purchase the number
of Warrant Shares equal to (x) the total number of Warrant Shares
deliverable hereunder less (y) the number of Warrant Shares so
delivered.
4. The Issuer shall not be required to issue fractional Warrant Shares on
the exercise of the Warrant represented hereby. The number of full
Warrant Shares which shall be issuable upon the exercise of the Warrant
shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of the Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this
paragraph 4, be issuable on the exercise of the Warrant, the Issuer
shall pay an amount in cash equal to the closing sale price of the
Common Stock per Warrant Share on the day immediately preceding the
date the Warrant is presented for exercise, multiplied by such
fraction.
5. For so long as the Warrant represented hereby has not been exercised in
full, the Issuer shall at all times reserve and keep available, free
from pre-emptive rights, out of its authorized but unissued Common
Stock, for issuance upon exercise of the Warrant represented hereby,
the maximum number of Common Stock then so issuable (as adjusted from
time to time pursuant to paragraph 10).
6. By accepting delivery of this Warrant Certificate, the registered
holder hereof covenants and agrees with the Issuer not to exercise or
transfer the Warrant represented hereby except in compliance with the
terms of the Subscription Agreement and this Warrant Certificate.
7. By accepting delivery of this Warrant Certificate, the registered
holder hereof covenants and agrees with the Issuer that no Warrant may
be sold, assigned, conveyanced, pledged, hypothecated or in any other
manner disposed of or transferred unless and until such holder shall
deliver to the Issuer (i) written notice of such transfer and of the
name and address of the transferee has been received by the Issuer;
(ii) a written agreement of the transferee to comply with the terms of
the Subscription Agreement and this Warrant Certificate and (iii) in
the case of a transfer hereof prior to the expiration of the Restricted
Period (if any) specified on the first page hereof, an opinion of
counsel stating that such transferee is not a "U.S. Person" as defined
in Regulation S under the Securities Act of 1933, as amended, and that
such transfer is otherwise exempt from any registration requirements.
8. The Issuer will pay all documentary stamp taxes (if any) attributable
to the issuance of Warrant Shares upon the exercise of the Warrant by
the registered holder hereof; provided, however, that the Issuer shall
not be required to pay any tax or taxes which may be payable in respect
of any transfer involved in the registration of the Warrant Certificate
or any certificates for Warrant Shares in a name other than that of the
registered holder of the Warrant Certificate surrendered upon the
exercise of a Warrant, and the Issuer shall not be required to issue or
deliver the Warrant
3.
<PAGE> 4
Certificate or certificates for Warrant Shares unless or until the
person or persons requesting the issuance thereof shall have paid to
the Issuer the amount of such tax or shall have established to the
satisfaction of the Issuer that such tax has been paid.
9. In case this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Issuer may in its discretion issue in exchange and
substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor, but
only upon receipt of evidence reasonably satisfactory to the Issuer of
such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, satisfactory to it. Applicants for a
substitute Warrant Certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as the
Issuer may prescribe.
10. The number of Warrant Shares issuable upon the exercise of the Warrant
(the "Exercise Rate"), the Maximum Warrant Amount, and the terms and
conditions of the Warrant are subject to adjustment by the Issuer, in
consultation with the holder hereof, from time to time as follows:
(a) If the Issuer:
1. subdivides its outstanding shares of Common Stock
into a greater number of shares;
2. combines its outstanding shares of Common Stock into
a smaller number of shares; or
3. issues by reclassification of its Common Stock any
shares of its Capital Stock (as defined below);
then the Exercise Rate in effect immediately prior to such
action shall be adjusted so that the registered holder hereof
shall thereafter be entitled to receive upon exercise the
number of shares of Common Stock or other Capital Stock of the
Issuer which such holder would have owned immediately
following such action if such holder had exercised the Warrant
immediately prior to such action.
As used herein, the term "Capital Stock" means, with respect
to any corporation, any and all shares, interests, rights to
purchase, warrants, options, participations or other
equivalents of or interests (however designated) in stock
issued by that corporation.
Such adjustment shall become effective simultaneously with the
effective date of any subdivision, combination or
reclassification.
4.
<PAGE> 5
If, after an adjustment, the registered holder hereof would
receive upon exercise shares of two or more classes of Capital
Stock of the Issuer, the Exercise Rate shall thereafter be
subject to adjustment upon the occurrence of an action taken
with respect to each such class of Capital Stock as is
contemplated hereby with respect to the Common Stock, on terms
comparable to those applicable to Common Stock hereunder.
(b) Whenever the Exercise Rate is adjusted, the Issuer shall
provide the notices required by paragraph 12 hereof.
(c) If:
1. the Issuer takes any action that would require an
adjustment in the Exercise Rate pursuant to
subparagraph (a) above; or
2. there is a liquidation or dissolution of the Issuer;
then the Issuer shall mail to the registered holder hereof a
notice stating the proposed effective date of a subdivision,
combination, reclassification, consolidation, merger,
transfer, lease, liquidation or dissolution, as the case may
be. The Issuer shall mail the notice at least 15 days before
such date.
(d) The Issuer covenants and agrees with the registered holder
hereof not to consolidate or merge with or into, or transfer
or lease all or substantially all its assets to, any person
unless, at the option of the registered holder hereof, either:
1. on any date prior to the effective date of such
consolidation, merger, transfer or lease (the
"Redemption Date"), the Issuer shall have redeemed
the Warrant represented hereby by paying to such
holder, upon surrender of this Warrant Certificate, a
cash payment equal to the Black-Scholes value of the
Warrant represented hereby, computed as of such
Redemption Date; or
2. (a) such person shall expressly assume in writing
all of the obligations of the Issuer under the
Subscription Agreement and hereunder and
deliver notice thereof to the registered
holder hereof; and
(b) upon consummation of such transaction, the
Warrant shall automatically become exercisable
for the kind and amount of securities, cash or
other assets that the registered holder hereof
would have owned immediately after the
consolidation, merger, transfer or lease if
such holder had exercised the Warrant
immediately before the effective date of such
transaction.
5.
<PAGE> 6
(e) After an adjustment to the Exercise Rate hereunder, any
subsequent event requiring an adjustment hereunder shall cause
an adjustment to the Exercise Rate as so adjusted.
11. Upon the issuance of any stock dividend or distribution of Common Stock
pro rata to all holders of Common Stock, the registered holder hereof
on the record date for such distribution shall be entitled to receive
such dividend or distribution on the same terms as the holders of
Common Stock upon exercise hereof.
12. Upon any adjustment of the Exercise Rate pursuant to paragraph 10, the
Issuer shall promptly thereafter but in any event within 15 days
following such adjustment (i) cause to be delivered to the registered
holder hereof a certificate of its Chief Financial Officer setting
forth the Exercise Rate after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which
such calculations are based, which certificate shall be conclusive
evidence of the correctness of the matters set forth therein, and (ii)
cause to be delivered to the registered holder hereof at his or her
address appearing on the Warrant Register written notice of such
adjustments by first-class mail, postage prepaid. Where appropriate,
such notice may be given in advance and included as part of the notice
required to be mailed under the other provisions of this paragraph 12.
In case:
(a) the Issuer shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to
subscribe for or purchase shares of Common Stock or of any
other subscription rights or warrants; or
(b) of any consolidation or merger to which the Issuer is a party
and for which approval of any shareholders of the Issuer is
required, or of the conveyance or transfer of the properties
and assets of the Issuer substantially as an entirety, or of
any reclassification or change of Common Stock issuable upon
exercise of the Warrant (other than a change in par value, or
from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or of
a tender offer or exchange offer for shares of Common Stock;
or
(c) of the voluntary or involuntary dissolution, liquidation or
winding up of the Issuer; or
(d) the Issuer proposes to take any action which would require an
adjustment of the Exercise Rate pursuant to paragraph 10;
then the Issuer shall cause to be given to the registered holder hereof
at his or her address appearing on the Warrant Register, at least 20
days (or 10 days in any case specified in clauses (a) or (b) above)
prior to the applicable record date hereinafter
6.
<PAGE> 7
specified, or promptly in the case of events for which there is no
record date, by first class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such rights, options,
warrants or distribution are to be determined, or (ii) the initial
expiration date set forth in any tender offer or exchange offer for
shares of Common Stock, or (iii) the date on which any such
reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective
or consummated, and the date as of which it is expected that holders of
record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up.
13. The Issuer shall serve as warrant agent (the "Warrant Agent") under
this Agreement. The Warrant Agent hereunder shall at all times maintain
a register (the "Warrant Register") of the holders of Warrants. Upon 30
days' notice to the registered holder hereof, the Issuer may appoint a
new Warrant Agent. Such new Warrant Agent shall be a corporation doing
business under the laws of the United States or any state thereof, in
good standing and having a combined capital and surplus of not less
than $50,000,000. The combined capital and surplus of any such new
Warrant Agent shall be deemed to be the combined capital and surplus as
set forth in the most recent annual report of its condition published
by such Warrant Agent prior to its appointment; provided that such
reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority.
After acceptance in writing of such appointment by the new Warrant
Agent, it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the
Warrant Agent, without any further assurance, conveyance, act or deed;
but if for any reason it shall be reasonably necessary or expedient to
execute and deliver any further assurance, conveyance, act or deed, the
same shall be done at the expense of the Issuer and shall be legally
and validly executed and delivered by the Issuer.
Any corporation into which the Issuer or any new Warrant Agent may be
merged or any corporation resulting from any consolidation to which the
Issuer or any new Warrant Agent shall be a party or any corporation to
which the Issuer or any new Warrant Agent transfers substantially all
of its corporate trust or shareholders services business shall be a
successor Warrant Agent under this Agreement without any further act;
provided that such corporation (i) would be eligible for appointment as
successor to the Warrant Agent under the Provisions of this paragraph
13 or (ii) is a wholly-owned subsidiary of the Warrant Agent. Any such
successor Warrant Agent shall promptly cause notice of its succession
as Warrant Agent to be mailed (by first class mail, postage prepaid) to
the registered holder hereof at such holder's last address as shown on
the Warrant Register.
This Warrant Certificate shall not be valid unless signed by the
Issuer.
7.
<PAGE> 8
IN WITNESS WHEREOF, Somatix Therapy Corporation has caused this Warrant
Certificate to be signed by its duly authorized officer.
Dated: September 25, 1996
SOMATIX THERAPY CORPORATION
By: /s/ DAVID W. CARTER
------------------------------
Name: David W. Carter
Title: Chairman of the Board,
President and Chief
Executive Officer
8.
<PAGE> 9
FORM OF EXERCISE NOTICE
(To Be Executed Upon Exercise Of the Warrant)
[DATE]
Somatix Therapy Corporation
850 Marina Village Parkway
Suite 100
Alameda, CA 94501
Attention: Mr. Edward O. Lanphier II
Re: FLETCHER WARRANT
Ladies and Gentlemen:
The undersigned is a non-U.S. Person (as that term is defined in
Regulation S under the Securities Act of 1933, as amended) and is the registered
holder of the above-referenced warrant (the "Warrant") issued by Somatix Therapy
Corporation, evidenced by the Warrant Certificate attached hereto, and hereby
elects to exercise the Warrant to purchase _______________shares of Warrant
Shares (as defined in such Warrant Certificate) and herewith tenders
$_______________ by certified or official bank check to the order of Somatix
Therapy Corporation as payment for such Warrant Shares in accordance with the
terms of such Warrant Certificate.
In accordance with the terms of the attached Warrant Certificate,
the undersigned requests that certificates for such shares be registered in the
name of and delivered to the undersigned at the following address:(1)
--------------------------
--------------------------
--------------------------
If the number of Warrant Shares to be delivered is less than the
total number of Warrant Shares deliverable under the Warrant, insert the
following -- The undersigned requests that a new warrant certificate
substantially identical to the attached Warrant Certificate be issued to the
undersigned evidencing the right to purchase the number of Warrant Shares equal
to (x) the total number of Warrant Shares deliverable under the
- -------------------------
(1) The Warrant Shares issuable thereunder shall not be delivered within
the United States or to or for the benefit of a U.S. Person (as defined in
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act")) unless registered under the Securities Act or pursuant to an available
exemption from such registration, as set forth in an opinion of counsel, where
applicable.
9.
<PAGE> 10
Warrant less (y) the number of Warrant Shares to be delivered in connection with
this exercise.]
NAME OF REGISTERED HOLDER
[ADDRESS]
[ADDRESS]
[ADDRESS]
By: ____________________________________
Name:
Title:
10.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 33-84010), dated September 14, 1994 pertaining to the 1992 Stock
Option Plan of Somatix Therapy Corporation, the Registration Statement on Form
S-8 (No. 33-87632), dated December 19, 1994 pertaining to the 1992 Stock Option
Plan and a special grant award to Fred H. Gage, the Registration Statement on
Form S-8 (No. 33-89926), dated March 3, 1995 pertaining to the Stock Option Plan
of Merlin Pharmaceutical Corporation, the Registration Statement on Form S-3
(No. 33-60363), dated June 19, 1995 for the registration of the resale of
2,363,895 shares of common stock in connection with the acquisition of Merlin
Pharmaceutical Corporation, the Registration Statement on Form S-3 (No.
33-60365), dated June 19, 1995 for the registration of 4,321,031 shares of
common stock and the Registration Statement on Form S-3 (No. 33-60873), dated
July 6, 1995 for the registration of 2,476,500 shares of common stock upon
conversion of Series A Preferred Stock and the exercise of warrants to purchase
common stock of our report dated July 25, 1996, except for Note 9 as to which
the date is September 25, 1996, with respect to the consolidated financial
statements of Somatix Therapy Corporation included in this Annual Report on Form
10-K for the year ended June 30, 1996.
ERNST & YOUNG LLP
Walnut Creek, California
September 25, 1996
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
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0
2
<COMMON> 244
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<TOTAL-LIABILITY-AND-EQUITY> 19,370
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<INCOME-PRETAX> (21,544)
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