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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-22332
INSITE VISION INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-3015807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
965 Atlantic Avenue
Alameda, CA 94501
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (510) 865-8800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of registrant's Common Stock, $.01 par value,
held by non-affiliates as of March 27, 2000: 84,041,115 (based upon the closing
sale price of the Common Stock on March 27, 2000). Number of shares of Common
Stock, $.01 par value, outstanding as of March 27, 2000: 15,819,504. Shares of
Common Stock held by each officer and director and by each person who owns 5% or
more of the Common Stock have been excluded from such calculation as such
persons may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of the following document are incorporated by
reference into this Report on Form 10-K where indicated: portions of the Proxy
Statement for the registrant's 2000 Annual Meeting of Stockholders which is
estimated to be held on or about June 12, 2000 are incorporated by reference
into Part III.
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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Page
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PART I
Item 1. Business 1
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 22
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 24
Item 7a. Qualitative and Quantitative Disclosures About Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 43
PART III
Item 10 Directors and Executive Officers of the Registrant 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 43
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PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the discussion in
this Annual Report on Form 10-K may contain certain forward-looking statements
that involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
document should be read as applicable to all related forward-looking statements
wherever they appear in this document. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include those discussed below in "Risk Factors," as well as
those discussed elsewhere herein.
THE COMPANY
InSite Vision Incorporated ("InSite," "InSite Vision" or the "Company") is
an ophthalmic product development company focused on genetic research for
diagnosis and prognosis of glaucoma and the development of treatment products
for ophthalmic diseases using its proprietary DuraSite(R) technology.
Glaucoma Genetics. The Company's glaucoma genetics program, which is being
carried out in collaboration with academic researchers, is focused on
discovering genes that are associated with glaucoma, and the mutations on these
genes that cause the disease. This genetic information then may be applied to
develop new glaucoma diagnostic, prognostic and management tools. To date, the
Company's academic collaborators have identified genes associated with primary
open-angle glaucoma (the most prevalent form of the disease in adults), juvenile
glaucoma and primary congenital glaucoma. A diagnostic/prognostic technology,
ISV-900, which is capable of identifying multiple glaucoma genetic markers from
a single sample, has been developed by the Company, and was licensed to
Pharmacia & Upjohn ("P&U") in November 1999. (See "--Collaborative and Licensing
Agreements" for additional information on this transaction.) The Company's
academic collaborators for its glaucoma genetics program are at the University
of California, San Francisco ("UCSF"), the University of Connecticut Health
Center ("UCHC"), INSERM, the French equivalent of US National Institutes of
Health and other institutions in North America and Europe.
DuraSite-Based Product and Candidates. The DuraSite delivery system is a
patented eyedrop formulation comprising a cross-linked carboxyl-containing
polymer which incorporates the drug to be delivered to the eye. The formulation
is instilled in the cul-de-sac of the eye as a small volume eyedrop and remains
in the eye for up to several hours during which time the active drug ingredient
is gradually released. This increased residence time is designed to permit lower
concentrations of a drug to be administered over a longer period of time,
thereby minimizing the inconvenience of frequent dosing and reducing potential
related adverse side effects. Eyedrops delivered in the DuraSite system contrast
to conventional eyedrops which typically only last a few minutes in the eye,
thus requiring delivery of a highly concentrated burst of drug and frequent
administration to sustain therapeutic levels. DuraSite can be customized to
deliver a variety of compounds with a broad range of molecular weights and other
properties.
Recently, the Company received an additional patent allowance extending
the viscosity and pH ranges of the DuraSite system. This will allow a broader
range of compounds to be delivered by the system and extends the patent coverage
to 2016.
The first product utilizing the DuraSite technology, AquaSite(R) dry eye
treatment, was launched as an over-the-counter ("OTC") medication in 1992 by
CIBA Vision Ophthalmics ("CIBA Vision"), to which the Company has licensed
certain co-exclusive rights. In 1999, the Company licensed AquaSite to Global
Damon Pharm ("Global Damon") for sale in Korea and SSP Co., Ltd. ("SSP") for
sale in Japan. (See "--Collaborative and Licensing Agreements" for additional
information on the agreements.) In connection with its DuraSite development
efforts, the Company has established collaborations with P&U and British
Biotechnology Pharmaceuticals, Inc. ("British Biotech"), among others, and has
licensed
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marketing rights to certain DuraSite-based product candidates to P&U, CIBA
Vision and Bausch & Lomb Incorporated ("B&L").
In January 1999, the Company entered into a license agreement and stock
purchase agreement with P&U for the exclusive worldwide rights to ISV-205 for
glaucoma. (See "--Collaborative and Licensing Agreements" for additional
information on the agreements.) During 1999, the Company successfully completed
Phase II trials of ISV-205 and has transitioned the lead on the further
development of the program to P&U.
Business Strategy. The Company's business strategy is to license promising
product candidates and technologies from academic institutions and other
companies, to conduct preclinical and limited clinical testing, if necessary,
and to partner with pharmaceutical companies to complete clinical development
and regulatory filings as needed and to market its products. The Company also
has internally developed DuraSite-based product candidates using either
non-proprietary drugs or compounds developed by others for non-ophthalmic
indications. As with in-licensed product candidates, the Company either has or
plans to partner with pharmaceutical companies to complete clinical development
and commercialization of its own product candidates.
OPHTHALMIC PHARMACEUTICAL MARKET
In 1999, the market for ophthalmic prescription pharmaceuticals in the
U.S. was approximately $1.5 billion. The principal categories of ophthalmic
drugs are glaucoma treatments ($568 million), antibiotics ($254 million),
anti-allergic ($218 million), and anti-viral ($213 million) products. However
many eye conditions, including those that involve damage to the retina, are
untreated at present.
For example, age-related macular degeneration, which affects 10 million or
more people in the U.S., is the leading cause of severe blindness in Americans
aged 60 and above. Laser treatment is the only known therapy, but is only
effective in about 15% of affected patients. Even with treatment, the disease
usually progresses and eventually leads to vision loss.
Also, approximately 10 to 14 million Americans are diabetic and many of
them will develop diabetic retinopathy later in their life. Laser therapy, which
is the only approved treatment, is effective only in a certain segment of the
diabetic population, and has potential side effects such as loss of peripheral
vision, retinal detachment, and loss of vision.
Glaucoma is the leading cause of preventable blindness in the U.S.,
affecting two to three million people. It is estimated that 67 million people
worldwide will have glaucoma by the year 2000. The prevalence of the disease in
first-degree relatives of affected patients has been documented to be as high as
seven to ten times that of the general population. Glaucoma also may occur as a
complication of conditions such as diabetes, or as a result of extended steroid
use.
The prevalence of eye disease is ten times greater in persons over the age
of 65 than under age 65, and the U.S. Census Bureau projects that the U.S.
population over age 65 will increase from 34 million in 1997 to approximately 69
million by the year 2030. This aging of the population in the U.S. and other
developed countries is a significant factor that the Company believes will
contribute to increased demand for new ophthalmic products.
In addition to changing demographics, the Company believes that recent
improvements in medical technology, such as increasingly sophisticated
diagnostic techniques, will allow identification of ocular diseases at an
earlier stage, enabling more effective treatments and expanding the range of
treatment regimens available to the ophthalmologist. Further, the Company
believes that the emergence of new laser-based procedures to correct certain
vision problems has begun to increase the need for comfortable, extended-release
drug therapy during the post-surgical ocular healing process.
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PRODUCTS AND PRODUCT CANDIDATES
The following table summarizes the current status of the Company's
principal products and product candidates. A more detailed description of each
product and product candidate follows the table. There can be no assurance that
any of the listed products or product candidates will progress beyond its
current state of development, receive necessary regulatory approval or be
successfully marketed.
PRODUCTS AND PRODUCT CANDIDATES
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ANTICIPATED
PRODUCT INDICATIONS BENEFITS STATUS(1)
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GLAUCOMA GENETICS
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ISV - 900 Glaucoma prognostic/ Detect disease Pre-commercialization
diagnostic susceptibility and (2)
Determine disease
severity
GLAUCOMA PRODUCT
CANDIDATES
ISV - 205 Steroid-induced IOP Treat/prevent disease Phase II
elevation, glaucoma progression
OTHER TOPICAL PRODUCT
CANDIDATES AND PRODUCT
ISV - 401 Antibiotic Gram-negative and Preclinical
gram-positive
antibiotic with
reduced dosing
frequency
ISV - 615 Diabetic No satisfactory Preclinical(3)
retinopathy and existing therapy
macular degeneration
ISV - 205 Inflammation and Reduced dosing frequency Preclinical
analgesia
AquaSite Dry eye Reduced dosing Marketed (OTC)
frequency and extended
duration of action
RETINAL DEVICE
ISV - 014 Retinal drug Non-surgical delivery Research
delivery device of drugs to the retina
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1) All products except ISV-900, AquaSite and ISV-014 are expected to be
prescription pharmaceuticals. As denoted in the table, "Preclinical"
indicates that a specific compound is being tested in preclinical studies
in preparation for filing an investigational new drug application ("IND").
For a description of preclinical trials, IND, Phase I, Phase II and Phase
III clinical trials and New Drug Application ("NDA"), see "---Government
Regulation."
2) A diagnostic/prognostic technology has been developed and licensed to P&U
and a commercialization plan is being developed by P&U.
3) The active ingredient in this product candidate is the same as in the
ISV-120 candidate for pterygium recurrence prevention. Further development
on ISV-120 has been deferred as resources are focused on other programs.
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GLAUCOMA GENETICS
Glaucoma is the leading cause of preventable blindness in the U.S.,
affecting an estimated two to three million people. Glaucoma-related
pharmaceutical sales were approximately $568 million in the U.S. in 1999. The
most prevalent form of glaucoma in adults is primary open-angle glaucoma. Other
forms of the disease include primary congenital glaucoma, a leading cause of
blindness in infants, and juvenile glaucoma that effects children and young
adults.
Often called the "sneak thief of sight" because of its lack of symptoms,
glaucoma is believed to result when the flow of fluid through the eye is
impaired. This may lead to elevated intraocular pressure ("IOP"), which
increases pressure on the optic nerve and can cause irreversible vision loss if
left untreated. One form of glaucoma, normal or low tension glaucoma, is
associated with individuals who have normal eye pressure. It is estimated that
one-third of the U.S. glaucoma patients and three-quarters of the glaucoma
patients in Japan have this form of the disease. These patients cannot be
identified with standard glaucoma screening tests that only measure a patient's
eye pressure and usually incur visual field loss before they are diagnosed.
ISV-900. There is accumulating evidence that genetic predisposition is a
major factor in the development of several forms of glaucoma. (Data has
indicated the prevalence of primary open-angle glaucoma ("POAG") in first-degree
relatives of affected patients to be as high as 7 to 10 times that of the
general population.) InSite Vision has formed research collaborations with
scientists at institutions located in North America, Europe and Japan both to
identify the genes associated with different forms of glaucoma and to build a
database of information on how these genes affect the progression of the disease
in different populations.
The Company's researchers have identified several genes related to POAG
including TIGR, GLC1B, GLC1D, GLC1E, OCLM and a novel TIGR modifier gene.
Additionally, the CYP1B1 gene has been identified which is related to primary
congenital glaucoma ("PCG"). The Company has obtained exclusive worldwide
licenses for the rights to commercialize research related to the TIGR gene and
associated mutations from the Regents of the University of California ("UC
Regents"), the CYP1B1 gene and associated mutations from UCHC, the OCLM gene
from Dr. Toshihiko Matsuo of Okayama University and a novel TIGR modifier gene
from INSERM. The Company also holds an option to an exclusive worldwide license
for other glaucoma genes.
InSite Vision currently holds patents issued on the TIGR cDNA, the TIGR
antibody, methods for the diagnosis of glaucoma using the TIGR technology and
methods for the diagnosis of glaucoma using the CYP1B1 technology. Additional
patents related to ISV-900 are currently pending.
Current glaucoma tests are often unable to detect the disease before
substantial damage to the optic nerve has occurred. Gene-based tests may make it
possible to identify patients at risk and initiate treatment before permanent
optic nerve damage and vision loss occurs. The Company's ISV-900 program is
intended to discover the appropriate genetic markers for certain forms of
glaucoma and to incorporate those markers into prognostic, diagnostic and
management tools. The first version of these tests has been developed by the
Company and, in November 1999, was licensed to P&U. A commercialization plan is
being developed. The Company anticipates that as further research identifies
additional mutations to these genes, and new genes are located, the marketed
test will be modified to incorporate these findings.
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GLAUCOMA CANDIDATES
ISV-205. InSite Vision's ISV-205 product candidate contains the drug
diclofenac formulated in the DuraSite sustained-release delivery vehicle.
Diclofenac is a non-steroidal anti-inflammatory drug ("NSAID") currently used to
treat ocular inflammation. NSAIDs can block steroid-induced IOP elevation by
inhibiting the production of the TIGR protein that appears to affect the fluid
balance in the eye. The ISV-205 product candidate contains concentrations of
diclofenac which have been shown in cell culture systems to inhibit the
production of the TIGR protein.
A Phase II clinical study was successfully completed in 1999 to evaluate
the efficacy of two concentrations of diclofenac. Analysis of the data from this
study showed that ISV-205 was safe and effective in reducing, by 75%, the number
of subjects with clinically significant IOP elevation following steroid use. A
second Phase II study is being conducted by P&U on a larger patient population.
Other potential indications may include glaucoma prevention, analgesia and
anti-inflammatory indications. Co-exclusive rights, in the U.S., to develop,
manufacture, use and sell ISV-205 to treat inflammation or analgesia, were
licensed to CIBA Vision in May 1996.
In January 1999, the Company entered into an exclusive worldwide
royalty-bearing license agreement with P&U for ISV-205 for glaucoma. The license
provides for research and development payments to be made to the Company by P&U
and for P&U to assume responsibility for the on-going development of the product
since the completion of the Phase II study conducted by the Company. The Company
will continue to provide P&U with technical assistance on the product. P&U also
made equity investments in the Company and may make additional future equity
investments if certain project milestones are achieved. See "--Collaborative and
Licensing Agreements" for additional information on the agreement.
OTHER TOPICAL PRODUCT CANDIDATES AND PRODUCT
ISV-401 is a formulation of an antibiotic that has not previously been
used in ophthalmology. The antibiotic, which is effective both for gram-negative
and gram-positive bacteria, may also provide reduced dosing frequency. Current
ophthalmic antibiotics must be dosed every two hours during the first day and
four times a day for the remainder of the treatment period, which may be up to
fourteen days. This may result in patient compliance issues that could be
minimized with an improved product. Also, a broad-spectrum antibiotic could be
used by physicians to treat a variety of ophthalmic diseases instead of
targeting each disease specifically.
ISV-615 is a DuraSite-based ophthalmic formulation of batimastat that the
Company is evaluating for its potential in preventing neovascularization in the
retina related to diabetic retinopathy and macular degeneration. The Company
obtains batimastat, the active ingredient of ISV-615, through a 1992 agreement
with British Biotech, which in December 1996 advised the Company that it had
discontinued development and manufacturing of batimastat. The Company and
British Biotech are in negotiations on a new licensing agreement related to
batimastat that provides for continued supply of the drug. See "Risk Factors -
Dependence on Third Parties."
AquaSite. The first product utilizing InSite's DuraSite technology was
introduced to the OTC market in the U.S. in October 1992 by CIBA Vision. The
Company receives a royalty on sales of AquaSite by CIBA Vision. The product
contains the DuraSite formulation and demulcents for the symptomatic treatment
of dry eye. In March 1999, the Company licensed the product to Global Damon
Pharm, a Korean company. The license is royalty-bearing and is exclusive in the
Republic of Korea for up to a 10 year period. In August 1999, the Company
licensed the product to SSP for sales and distribution in Japan.
RETINAL DEVICE
Ophthalmic conditions that involve retinal damage include macular
degeneration, which affects 10 million or more people in the U.S., and diabetic
retinopathy, a common side effect of diabetes. Approximately ten to fourteen
million people in the U.S. are diabetics. Both macular degeneration and diabetic
retinopathy can lead to irreversible vision loss and blindness. Current
treatment of retinal diseases generally involves surgery and laser treatments
that can lead to loss of vision, retinal detachment and infection. There is no
effective drug therapy for these conditions.
Retinal Delivery Device. Another technology platform is comprised of a
device, ISV-014, for the
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controlled, non-surgical delivery of ophthalmic drugs to the retina and
surrounding tissues. In 1999, the Company continued to enhance the device and
performed invivo experiments delivering products with a variety of molecular
sizes to retinal tissues. The combination of this device technology with
polymer-based drug platforms may permit long term delivery of therapeutic
agents to treat several retinal diseases, most of which cannot be effectively
treated at the present time.
ISV-014 is a device for the controlled, non-surgical delivery of
ophthalmic drugs to the back of the globe. The device consists of a handle with
a distal platform that is placed against the surface of the eye. A small needle
connected to a drug reservoir is extended from the platform into the tissues of
the eye. Once in place, a metering mechanism controls the amount and rate that
the drug is injected into the tissue. This produces a highly localized depot of
drug inside the ocular tissues. By controlling both the distance and direction
that the needle protrudes, the device greatly reduces the chance that the needle
will penetrate through the sclera of the eye into the underlying tissues, which
are easily damaged. The Company has filed for two patents related to the device
and its use and specific claims to the device have been allowed. The Company is
currently investigating licensing this technology to a third party.
COLLABORATIVE AND LICENSING AGREEMENTS
As a key element of its business strategy, the Company has entered into,
and will continue to pursue additional research collaborations, licensing
agreements and corporate collaborations. However, there can be no assurance that
the Company will be able to negotiate acceptable collaborative or licensing
agreements, or that its existing collaborations will be successful or will be
renewed when they expire.
Pharmacia & Upjohn. On November 11, 1999, the Company entered into a
license agreement, stock purchase agreement and credit agreement pursuant to
which InSite granted P&U an exclusive worldwide royalty-bearing license to its
ISV-900 technology for diagnostic, prognostic and therapeutic applications in
the area of glaucoma. The license calls for (i) P&U to pay the Company a
licensing fee, (ii) P&U to make research and development payments to the Company
over three years starting in 2000, (iii) P&U to pay the Company royalties on
product sales should any products be successfully commercialized from this
technology, and (iv) payments by P&U to the Company if certain milestones are
achieved.
In addition, P&U invested $2,000,000 in the Company's common stock. The
stock purchase agreement also provides for a standstill period of thirty (30)
months during which P&U and its subsidiaries will not purchase additional shares
of the Company, other than those provided for under any existing agreements
between the companies, without the prior written consent of the Company. This
standstill period will terminate earlier if certain actions are taken by other
parties to acquire more than a 9.99% interest in the stock of the Company or if
any other party announces their intention to assume control of the Company,
whether by tender offer, merger, proxy contest or otherwise. Additionally, the
transaction provides for a revolving line of credit to be made available to the
Company beginning November 11, 2001 for a period of three (3) years.
On January 28, 1999, the Company entered into a license agreement and
stock purchase
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agreement pursuant to which InSite granted P&U an exclusive worldwide license to
ISV-205 for the treatment of glaucoma. The license calls for (i) P&U to assume
responsibility for the development of the product upon completion by InSite of,
among other activities, Phase II studies conducted by the Company, (ii) P&U to
reimburse InSite for research and development expenses and to make payments to
InSite for on-going technical support, and (iii) the payment by P&U to InSite of
royalties on product sales should ISV-205 be successfully commercialized. InSite
will continue to bear responsibility for the prosecution and maintenance of the
patents subject to the license, among other things. The transaction also called
for an equity investment from P&U, which was made in February 1999, with the
potential for future equity investments at an average of prevailing market
prices if the Company achieves certain milestones.
CIBA Vision Ophthalmics (CIBA Vision). The Company has entered into
license agreements with CIBA Vision (the "CIBA Vision Agreements"), pursuant to
which the Company granted CIBA Vision a co-exclusive license to manufacture,
have manufactured, use and sell fluorometholone and tear replenishment products
utilizing the DuraSite technology in the U.S. and Canada, ToPreSite, a product
candidate for ocular inflammation/infection, and ISV-205 for non-glaucoma
indications.
Bausch and Lomb. In July 1996, the Company entered into a license
agreement ("the B&L Agreement") with B&L whereby the Company granted B&L an
exclusive worldwide royalty bearing license to make, use and sell PilaSite and
ISV-208. B&L paid the Company an up-front license fee of $500,000 and is
obligated to pay royalties on net sales of the licensed products. In addition,
B&L made a $2.0 million investment in the Company, is sharing the cost of
developing ISV-208 and agreed to manufacture other products on behalf of the
Company.
In July 1999, the Company and B&L entered into a termination, release and
purchase agreement whereby the PilaSite license agreement and the manufacturing
agreement were terminated and the Company's equipment located at B&L's facility
was purchased by B&L. The ISV-208 license and development collaboration remains
in effect.
British Biotech. In November 1992, the Company entered into a
collaboration agreement with British Biotech (the "ISV-120 Agreement"), pursuant
to which British Biotech had granted the Company the right to conduct, at
InSite's own expense, preclinical and clinical trials on British Biotech's
batimastat compound and the exclusive option to initiate negotiations with
British Biotech to pursue further development of ISV-120. In December 1996,
British Biotech advised the Company that it had discontinued its development and
manufacturing of batimastat. The term of the ISV-120 Agreement has expired but
British Biotech is continuing to supply batimastat to the Company while extended
access to the compound for use in its ISV-615 product candidate is being
negotiated.
INSTITUTE NATIONAL DE LA SANTE ET DE LA RECHERCHE MEDICALE (INSERM). In
December 1999, the Company entered into an exclusive worldwide license agreement
with INSERM for the diagnostic, prognostic and therapeutic uses of a gene for
chronic open angle glaucoma. The Company has paid a licensing fee and will make
royalty payments on future product sales, if any.
UC Regents. In March 1993, the Company entered into an exclusive license
agreement with the UC Regents for the development of ISV-205 and, in August
1994, the parties entered into another exclusive license agreement for the use
of a nucleic acid sequence that codes for a protein associated with glaucoma.
Under both agreements, the Company paid initial licensing fees and will make
royalty payments to the UC Regents on future product sales, if any.
University of Connecticut Health Center. In August 1997, the Company
exercised its option to obtain an exclusive worldwide license from UCHC for
diagnostic uses of the newly discovered gene for primary congenital glaucoma.
The Company also has an option for a worldwide exclusive license to
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commercialize technologies related to certain research UCHC is conducting in the
area of adult-onset glaucoma. Under the agreements, the Company will pay a
licensing fee and will make royalty payments on future product sales, if any.
Columbia Laboratories, Inc. In February 1992, InSite entered into a
cross-license agreement (the "Columbia Agreement") with Columbia Laboratories,
Inc. ("Columbia"), pursuant to which Columbia granted InSite a perpetual,
exclusive, irrevocable, royalty-free license to a polymer technology upon which
DuraSite is based. This license permits InSite to make, use and sell products
using such polymer technology for non-veterinary ophthalmic indications in the
over-the-counter and prescription markets in North America and East Asia (the
"Columbia Territory"), and in the prescription market in countries outside the
Columbia Territory. In exchange, InSite granted Columbia a perpetual, exclusive,
irrevocable, royalty-free license, with the right to sublicense and use certain
DuraSite technology in the over-the-counter market outside the Columbia
Territory. In addition, InSite also granted Columbia a perpetual, exclusive,
irrevocable, worldwide license to certain DuraSite technology in the veterinary
field. Under certain circumstances, certain of the licenses in the Columbia
Agreement become non-exclusive. Subject to certain rights of early termination,
the Columbia Agreement continues in effect until the later of January 2002 or
expiration of all patents covered by the DuraSite technology to which Columbia
has certain rights.
Global Damon Pharm and Kukje Pharma Ind. Co., Ltd. In March 1999, the
Company entered into a royalty-bearing license agreement with Global Damon, a
Korean company, to be the exclusive distributor of AquaSite in the Republic of
Korea. Concurrently, the Company entered into a manufacturing agreement with
Kukje Pharma Ind. Co., Ltd ("Kukje"), a Korean company, to produce the AquaSite
to be sold by Global Damon.
SSP Co., Ltd. In August 1999, the Company entered into an exclusive
license agreement with SSP to be the exclusive manufacturer and distributor of
AquaSite in Japan. The Company will be the sole supplier to SSP for some of the
key ingredients necessary for the manufacture of AquaSite.
Other. As part of InSite's basic strategy, InSite continually discusses
entering into agreements with other companies, universities and research
institutions concerning the licensing of additional therapeutic agents and drug
delivery technologies to complement and expand InSite's family of proprietary
ophthalmic products. InSite intends to continue exploring licensing and
collaborative opportunities.
PATENTS AND PROPRIETARY RIGHTS
Patents and other proprietary rights are important to the Company's
business. The Company's policy is to file patent applications seeking to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. Additionally, the Company's policy
is to assist the UC Regents, UCHC and INSERM in filing patent applications
seeking to protect inventions which are the subject of the Company's agreements
with those institutions. The Company also relies upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain its competitive position. InSite's DuraSite drug delivery products are
made under patents and applications, including four U.S. patents, owned by
Columbia and exclusively licensed to InSite in the field of human ophthalmic
applications. See "--Collaborative and Licensing Agreements." In addition, the
Company has filed a number of patent applications in the U.S. relating to the
Company's DuraSite technology, as well as foreign versions of certain of these
applications in many countries. Of these applications, seven U.S. patents have
been issued. In addition, the Company has obtained two U.S. patents on its unit
dose dispenser. The Company has received six additional U.S. patents directed
toward certain uses of lazaroids in ophthalmic applications. Of the patent
applications licensed from the UC Regents, eight patents have issued. Two
patents have been issued of the patent applications licensed from UCHC covering
the diagnosis of primary congenital glaucoma. Two patent applications have been
filed by the Company on its retinal delivery device and its use for delivery of
drugs to the retina. Several other patent applications by the Company and by the
UC Regents, UCHC and INSERM relating to the foregoing and other aspects of the
Company's business and potential business are also pending.
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The patent positions of pharmaceutical companies, including InSite, are
uncertain and involve complex legal and factual questions. In addition, the
coverage claimed in a patent application can be significantly reduced before a
patent is issued. Consequently, the Company does not know whether any of its
pending patent applications will result in the issuance of patents or if any of
its patents will provide significant proprietary protection. Since patent
applications are maintained in secrecy until patents issue in the U.S., or such
patents are published by foreign regulatory authorities, the Company cannot be
certain that it or any licensor was the first to file patent applications for
such inventions. Moreover, the Company might have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office to determine
priority of invention, which could result in substantial cost to the Company,
even if the eventual outcome were favorable. There can be no assurance that the
Company's patents will be held valid or enforceable by a court or that a
competitor's technology or product would be found to infringe such patents.
A number of pharmaceutical companies and research and academic
institutions have developed technologies, filed patent applications or received
patents on various technologies that may be related to the Company's business.
Some of these technologies, applications or patents may conflict with the
Company's technologies or patent applications. Such conflict could limit the
scope of the patents, if any, that the Company may be able to obtain or result
in the denial of the Company's patent applications. In addition, if patents that
cover the Company's activities have been or are issued to other companies, there
can be no assurance that the Company would be able to obtain licenses to these
patents, at all, or at a reasonable cost, or be able to develop or obtain
alternative technology.
In addition to patent protection, the Company also relies upon trade
secret protection for its confidential and proprietary information. There can be
no assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets, that such trade secrets will not be disclosed or that the Company
can effectively protect its rights to unpatented trade secrets.
ACCESS TO PROPRIETARY COMPOUNDS
The Company believes its drug delivery technology may expand the
ophthalmic pharmaceutical market by permitting the novel use of drugs for
ophthalmic indications that are currently used or being developed for
non-ophthalmic indications. However, the Company may be required to obtain
licenses from third parties that have rights to these compounds in order to
conduct certain research, to develop or to market products that contain such
compounds. There can be no assurance that such licenses will be available on
commercially reasonable terms, if at all. See "Business - Collaborative and
Licensing Agreements."
RESEARCH AND DEVELOPMENT
The Company's research and development staff at December 31, 1999 numbered
24 people, of whom 8 have Ph.D's. Research and development expenses sponsored by
the Company during 1999 were $1.4 million, which is net of $4.2 million funded
by P&U as part of the ISV-205 license. During 1998 and 1997, research and
development expenses were $6.2 million and $7.2 million, which is net of
$361,000 and $534,000, respectively, funded by (i) P&U and (ii) B&L, as part of
the 1996 ISV-208 joint development agreement. See "Collaborative and Licensing
Agreements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
MANUFACTURING
The Company has no experience or facilities for the manufacture of
products for commercial processes. Moreover, the Company currently has no
intention of developing such experience or
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implementing such facilities. The Company has a pilot facility, licensed by the
State of California, to produce potential products for Phase I and some of its
Phase II clinical trials. However, as stated above, the Company has no
large-scale manufacturing capacity and relies on third parties, such as P&U, for
supplies and materials necessary for all of its Phase III clinical trials. If
the Company should encounter delays or difficulties in establishing and
maintaining its relationship with qualified manufacturers to produce, package
and distribute its finished products, then clinical trials, regulatory filings,
market introduction and subsequent sales of such products would be adversely
affected. See "Risk Factors - No Commercial Manufacturing Experience."
MARKETING AND SALES
In connection with its November 1995 restructuring, the Company elected
not to proceed with plans to establish its own sales and marketing organization.
Instead, the Company has entered into arrangements and plans to enter into
arrangements with one or more additional pharmaceutical companies to market its
products. There can be no assurance that the Company will be able to conclude or
maintain such arrangements on acceptable terms, if at all.
Bausch and Lomb. In July 1996, the Company entered into an exclusive
worldwide royalty-bearing license agreement whereby B&L has agreed to market
and sell ISV-208. Under the terms of the agreement, the Company is entitled to
royalties based on net sales of the products, if any. See "Risk Factors -
Marketing and Sales."
CIBA Vision. In 1991, the Company entered into a co-exclusive rights
agreement to market the AquaSite product in the U.S. and Canada. Additionally,
in May 1996, the Company granted CIBA Vision a co-exclusive U.S. license for
ISV-205 for non-glaucoma indications, and co-exclusive marketing rights within
the U.S. to sell and use ToPreSite. InSite Vision's trademark is being used,
under license, by CIBA Vision for AquaSite dry eye treatment and the Company's
patents are identified on the AquaSite packaging. The Company received a
one-time licensing fee and is entitled to royalties based on net sales of the
products, if any.
Global Damon Pharm ("Global Damon") and Kukje Pharma Ind. Co., Ltd.
("Kukje"). In March 1999, the Company entered into a royalty-bearing licensing
agreement with Global Damon, a Korean company, to be the exclusive distributor
of AquaSite in the Republic of Korea. Concurrently, the Company entered into a
manufacturing agreement with Kukje, a Korean company, to produce the AquaSite to
be sold by Global Damon.
Pharmacia & Upjohn. In November 1999, the Company entered into an
exclusive worldwide royalty-bearing license agreement whereby P&U has agreed to
market and sell ISV-900 for prognosis, diagnosis and treatment of glaucoma.
Under the terms of the agreement, the Company is entitled to royalties based on
net sales of the products, if any.
In January 1999, the Company entered into an exclusive worldwide
royalty-bearing license agreement whereby P&U has agreed to market and sell
ISV-205 for glaucoma related indications. Under the terms of the agreement, the
Company is entitled to royalties based on net sales of the product, if any.
SSP Co., Ltd. In August 1999, the Company entered into an exclusive
licensing agreement with SSP to be the exclusive manufacturer and distributor of
AquaSite in Japan. The Company will be the sole supplier to SSP for certain key
ingredients necessary for the manufacture of AquaSite.
COMPETITION
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There are many competitors of the Company in the U.S. and abroad. These
companies include ophthalmic-oriented companies that market a broad portfolio of
products, as well as large integrated pharmaceutical companies that market a
limited number of ophthalmic pharmaceuticals in addition to many other
pharmaceuticals. Many of these companies have substantially greater financial,
technical, marketing and human resources than those of the Company and may
succeed in developing technologies and products that are more effective, safer
or more commercially acceptable than any which have been or are being developed
by the Company. These competitors may also succeed in obtaining cost advantages,
patent protection or other intellectual property rights that would block the
Company's ability to develop its potential products, or in obtaining regulatory
approval for the commercialization of their products more rapidly or effectively
than the Company. The ophthalmic prescription pharmaceutical market in the U.S.
is dominated by six companies: Allergan Pharmaceuticals, a division of Allergan,
Inc.; Alcon Laboratories, Inc., a division of Nestle Company; Bausch and Lomb;
CIBA Vision, a division of Novartis Ltd.; Merck, Sharp & Dohme, a division of
Merck & Co., Inc.; and Pharmacia & Upjohn, Inc.
The Company believes that there will be increasing competition from new
products entering the market that are covered by exclusive marketing rights and,
to a lesser degree, from pharmaceuticals that become generic. The Company is
aware of certain products manufactured or under development by competitors that
are used for the treatment of certain ophthalmic indications which the Company
has targeted for product development. The Company's competitive position will
depend on its ability to develop enhanced or innovative pharmaceuticals,
maintain a proprietary position in its technology and products, obtain required
governmental approvals on a timely basis, attract and retain key personnel and
develop effective products that can be manufactured on a cost-effective basis
and marketed successfully.
Over the longer term, the Company's (and its partners') ability to
successfully market the current products, expand its usage and bring new
products to the marketplace, will depend on many factors, including the
effectiveness and safety of the products, and competing products, approved by
the FDA and foreign regulatory agencies, the degree of patent protection
afforded to particular products, and the effect of the advent of managed care as
an important purchaser of pharmaceutical products. See "Risk Factors -
Competition."
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's products and its research
and development activities are subject to regulation by numerous governmental
authorities in the U.S. and other countries. In the U.S., drugs are subject to
rigorous FDA regulation. The Federal Food, Drug and Cosmetic Act and regulations
promulgated thereunder govern the testing, manufacture, labeling, storage,
record keeping, approval, advertising and promotion in the U.S. of the Company's
products. In addition to FDA regulations, the Company is also subject to other
federal and state regulations such as the Occupational Safety and Health Act and
the Environmental Protection Act. Product development and approval within this
regulatory framework take a number of years and involve the expenditure of
substantial resources.
While the FDA currently does not regulate genetic tests, it has stated
that it has the right to do so, and there can be no assurance that the FDA will
not seek to regulate such tests in the future. If the FDA should require that
genetic tests receive FDA approval prior to their use, there can be no assurance
such approval would be received on a timely basis, if at all. The failure to
receive such approval could require the Company to develop alternative testing
methods, which could result in the delay of such tests reaching the market, if
at all. Such a delay could have a materially adverse effect on the Company.
The steps required before a pharmaceutical agent may be marketed in the
U.S. include (i) preclinical laboratory and animal tests, (ii) the submission to
the FDA of an IND, (iii) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug, (iv) the submission of an NDA or
Product License Application ("PLA") to the FDA and (v) the FDA approval of the
NDA or PLA, prior to any commercial sale or shipment of the drug. In addition to
obtaining FDA approval for each
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<PAGE> 14
product, each domestic drug manufacturing establishment must be registered with,
and approved by, the FDA. Drug product manufacturing establishments located in
California also must be licensed by the State of California in compliance with
separate regulatory requirements.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product and
its formulation. The results of the preclinical tests are submitted to the FDA
as part of an IND and, unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA.
Clinical trials involve the administration of the drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with protocols that
detail the objectives of the study, the parameters to be used to monitor safety,
and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA
as part of the IND. Each clinical study is conducted under the auspices of an
independent Institutional Review Board which considers, among other things,
ethical factors and the rights, welfare and safety of human subjects.
Clinical trials are typically conducted in three sequential phases, but
the phases may overlap. In Phase I, the initial introduction of the drug into
human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase
II involves studies in a limited patient population to (i) determine the
efficacy of the drug for specific targeted indications, (ii) determine dosage
tolerance and optimal dosage and (iii) identify possible adverse effects and
safety risks. When a compound is found to be effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
further evaluate clinical efficacy and to further test for safety within an
expanded patient population at multiple clinical study sites. The FDA reviews
both the clinical plans and the results of the trials and may discontinue the
trials at any time if there are significant safety issues.
The results of the preclinical studies and clinical studies are submitted
to the FDA in the form of an NDA or PLA for marketing approval. The testing and
approval process is likely to require substantial time and effort and there can
be no assurance that any approval will be granted on a timely basis, if at all.
Additional animal studies or clinical trials may be requested during the FDA
review period and may delay marketing approval. After FDA approval for the
initial indications, further clinical trials are necessary to gain approval for
the use of the product for additional indications. The FDA may also require
post-marketing testing to monitor for adverse effects, which can involve
significant expense.
Among the conditions for manufacture of clinical drug supplies and for NDA
or PLA approval is the requirement that the prospective manufacturer's quality
control and manufacturing procedures conform to GMP. Prior to approval,
manufacturing facilities are subject to FDA and/or other regulatory agency
inspection to ensure compliance with GMP. Manufacturing facilities are subject
to periodic regulatory inspection to ensure ongoing compliance.
For marketing outside the U.S., the Company also is subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country.
SCIENTIFIC AND BUSINESS ADVISORS
The Company has access to a number of academic and industry advisors with
expertise in clinical ophthalmology and pharmaceutical development, marketing
and sales. The Company's advisors meet with management and key scientific
employees of the Company on an ad hoc basis to provide advice in their
respective areas of expertise and further assist the Company by periodically
reviewing with management the Company's preclinical, clinical and marketing
activities. The Company plans to make arrangements with other individuals to
join as advisors as appropriate. Although the Company expects to receive
guidance from the advisors, all of the advisors are employed on a full-time
basis by other entities, or are
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<PAGE> 15
primarily engaged in business activities outside the Company, and may have other
commitments to, or consulting or advisory contracts with, other entities that
may conflict or compete with their obligations to the Company.
The Company's advisors are as follows:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Chandler R. Dawson, M.D. Emeritus Professor, Department of Ophthalmology,
University of California, San Francisco
Barbara L. Handelin, Ph.D. Advisor and Consultant on Genetics
Roy Karnovsky Advisor and Consultant in Business Development and
Marketing
Steven G. Kramer, M. D., Ph.D. Chairman, Department of Ophthalmology, Director of Beckman
Vision Center and Professor, University of California, San
Francisco
Michael Marmor, M. D. Professor, Department of Ophthalmology, Stanford
University School of Medicine
Thai D. Nguyen, Ph.D. Assistant Professor, University of California, San
Francisco
Gary D. Novack, Ph.D. Founder and President, PharmaLogic Development, Inc.;
former Associate Director for Glaucoma Research at
Allergan, Inc.
Jon R. Polansky, M. D. Associate Professor of Ophthalmology, University of
California, San Francisco
Mansoor Sarfarazi, Ph.D. Professor, Department of Surgery, University of
Connecticut Health Center
Roger Vogel, M. D. Medical Director
</TABLE>
EMPLOYEES
As of December 31, 1999, the Company employed 34 persons, including 30
full time employees. None of the Company's employees are covered by a collective
bargaining agreement. The Company considers its employee relations to be good.
The Company also utilizes independent consultants to provide services to the
Company in certain areas of its scientific and business operations.
RISK FACTORS
IT IS DIFFICULT TO EVALUATE OUR BUSINESS BECAUSE WE ARE IN AN EARLY STAGE OF
DEVELOPMENT AND OUR TECHNOLOGY IS UNTESTED
We are in an early stage of developing our business. We are currently only
receiving a small amount of royalties from the sale of one of our products, an
over-the-counter, or OTC, dry eye treatment. Before regulatory authorities will
grant us marketing approval, we will need to conduct significant additional
research and development and preclinical and clinical testing. All of our
products are subject to risks that are inherent to products based upon new
technologies. These risks include the risks that our products:
- - will be found to be unsafe or ineffective;
- - will fail to receive necessary marketing clearance from regulatory
authorities;
- - even if safe and effective, will be too difficult to manufacture or
market;
- - will be unmarketable due to the proprietary rights of third parties; or
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<PAGE> 16
- - will not be able to compete with superior, equivalent or more
cost-effective products offered by third parties.
Therefore, we cannot guarantee that our research and development activities will
result in any commercially viable products.
WE WILL REQUIRE SIGNIFICANT ADDITIONAL FUNDING FOR OUR CAPITAL REQUIREMENTS
We will require substantial additional funding to develop and conduct
testing on our potential products. We will also require additional funding to
manufacture and market any products which we do develop. Our future capital
requirements will depend upon many factors, including:
- - the progress of our research and development programs;
- - the progress of preclinical and clinical testing;
- - our ability to establish additional corporate partnerships to develop,
manufacture and market our potential products;
- - the time and cost involved in obtaining regulatory approvals;
- - the cost of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights;
- - competing technological and market developments;
- - changes in our existing collaborative and licensing relationships; and
- - the purchase of additional capital equipment.
In addition, as part of the ISV-900 licensing activities, we received a $5
million up front licensing fee from P&U. The UC Regents have alleged that they
are entitled to receive up to $2.5 million of this payment under the terms of
the August 1994 license agreement between us and the UC Regents. We dispute this
allegation and the parties are currently discussing a resolution to this
conflict. We cannot assure you that we will be able to settle this dispute on
acceptable terms or at all and our failure to prevail in this negotiation could
significantly increase our future capital requirements and could significantly
harm our business and financial condition. In addition, any litigation that
results from this dispute, even if successful, could result in substantial cost
to, and diversion of effort by, us and could harm our business and financial
condition.
We are currently seeking additional funding through public or private
equity or debt financing, collaborative or other arrangements, and from other
sources. We cannot be certain that we will be able to secure additional funding
from these sources, or that such funding will be on terms acceptable to us. If
we fail to secure additional funding upon acceptable terms, our business will be
harmed.
If we raise additional funds by issuing equity securities, our
stockholders will suffer substantial dilution. However, if we cannot raise
additional funding, we may be required to delay, scale back or eliminate one or
more of our research, discovery or development programs, or scale back or cease
operations altogether. In addition, the failure to raise additional funding may
force us to enter into agreements with third parties on terms which are
disadvantageous to us, which may, among other things, require us to relinquish
rights to our technologies, products or potential products.
We believe our cash and cash equivalents are sufficient to finance our
working capital and capital expenditure requirements through December 31, 2000.
WE EXPECT TO CONTINUE TO SUFFER LOSSES
We have incurred significant operating losses since our inception in 1986.
As of December 31, 1999, our accumulated deficit was approximately $84.8
million. Although we achieved profitability in 1999, we expect to incur net
losses for the foreseeable future or until we are able to achieve significant
royalties from sale of our licensed products.
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Our ability to achieve significant revenue or profitability depends upon
our ability, alone or with third parties, to successfully develop our potential
products, conduct clinical trials, obtain required regulatory approvals and
successfully manufacture and market our products. We cannot be certain that we
will ever achieve or be able to maintain significant revenue or profitability.
WE RELY ON THIRD PARTIES TO DEVELOP, MARKET AND SELL OUR PRODUCTS
We have not established a dedicated sales and marketing organization.
Therefore, if we are to successfully commercialize our product candidates, we
will be required to enter into arrangements with one or more third parties that
will:
- - provide for Phase III clinical testing;
- - provide for commercial scale up and manufacture of our potential products;
- - obtain or assist us in other activities associated with obtaining
regulatory approvals for our product candidates; and
- - market and sell our products, if they are approved.
There can be no assurance that we will be able to enter into such
arrangements on acceptable terms, if at all. If we are not successful in
concluding such arrangements, we may be required to establish our own sales and
marketing organization, although we have no experience in sales, marketing or
distribution. We cannot be certain we would be able to build such a marketing
staff or sales force, or that our sales and marketing efforts will be
cost-effective or successful.
Our strategy for research, development and commercialization of certain of
our products requires us to enter into various arrangements with corporate and
academic collaborators, licensors, licensees and others. Furthermore, we are
dependent on the diligent efforts and subsequent success of these outside
parties in performing their responsibilities. See "Business - Collaborative and
Licensing Agreements".
We are dependent upon British Biotechnology Pharmaceuticals, Inc., or
British Biotech, for the supply of batimastat, the active drugs incorporated
into the Company's ISV-615 product candidate. British Biotech has discontinued
clinical testing of batimastat and informed us that it will no longer
manufacture the product. We may have no source of ongoing raw materials for
ISV-615. If this turns out to be true, our business may be harmed.
We cannot be certain that, even if regulatory approvals are obtained, our
products will be marketed diligently or successfully by our partners, or that we
will be able to conclude arrangements with other companies to support the
commercialization of other products on acceptable terms, if at all.
In addition, we cannot be certain our collaborators will not take the
position that they are free to compete using our technology without compensating
or entering into agreements with us. Furthermore, we cannot be certain our
collaborators will not pursue alternative technologies or develop alternative
products either on their own or in collaboration with others, including our
competitors, as a means for developing treatments for the diseases or disorders
targeted by these collaborative programs.
We plan to market and sell products through arrangements with third
parties with expertise in the ophthalmic drug or diagnostic industries. There
can be no assurance that we will be able to enter into such arrangements on
acceptable terms, if at all. If we are not successful in concluding such
arrangements, we may be required to establish our own sales and marketing
organization, although we have no experience in sales, marketing or
distribution. We cannot be certain we would be able to build such a marketing
staff or sales force, or that our sales and marketing efforts will be
cost-effective or successful. To the extent we have entered into or will enter
into co-marketing, co-promotion or other licensing arrangements for the
marketing and sale of our products, any revenues received by us will be
dependent on the efforts of third parties, such as CIBA Vision, P&U and B&L. We
cannot be certain that these partners will diligently or successfully market our
products or that such efforts will be successful.
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<PAGE> 18
OUR BUSINESS DEPENDS UPON OUR PROPRIETARY RIGHTS, AND THERE IS A RISK OF
INFRINGEMENT
Our success will depend in large part on our ability to obtain patents,
protect trade secrets, obtain and maintain rights to technology developed by
others, and operate without infringing upon the proprietary rights of others. A
substantial number of patents in the field of ophthalmology and genetics have
been issued to pharmaceutical, biotechnology and biopharmaceutical companies.
Moreover, competitors may have filed patent applications, may have been issued
patents or may obtain additional patents and proprietary rights relating to
products or processes competitive with ours. We cannot be certain that our
patent applications will be approved, that we will develop additional
proprietary products that are patentable, that any issued patents will provide
us with adequate protection for our inventions or will not be challenged by
others, or that the patents of others will not impair our ability to
commercialize our products. The patent positions of firms in the pharmaceutical
and genetic industries generally are highly uncertain, involve complex legal and
factual questions, and have recently been the subject of much litigation. No
consistent policy has emerged from the U.S. Patent and Trademark Office or the
courts regarding the breadth of claims allowed or the degree of protection
afforded under pharmaceutical and genetic patents. Despite our efforts to
protect our proprietary rights, we cannot be certain others will not
independently develop similar products, duplicate any of our products or design
around any of our patents or that third parties from which we have licensed or
otherwise obtained technology will not attempt to terminate or scale back our
rights.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to our business.
Some of these technologies, applications or patents may conflict with our
technologies or patent applications. Such conflicts could limit the scope of the
patents, if any, we may be
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<PAGE> 19
able to obtain or result in the denial of our patent applications. In addition,
if patents that cover our activities have been or are issued to other companies,
there can be no assurance that we will be able to obtain licenses to these
patents, at all, or at a reasonable cost, or be able to develop or obtain
alternative technology. If we do not obtain such licenses, we could encounter
delays or be precluded from introducing products to the market.
Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to us or to protect trade secrets or
know-how owned or licensed by us. Such litigation could result in substantial
cost to and diversion of effort by the Company, all of which may harm our
business. We have also agreed to indemnify our licensees, including P&U, against
infringement claims by third parties related to our technology, which could
result in additional litigation costs and liability, which could harm our
business. In addition, we cannot be certain our efforts to protect or defend our
proprietary rights will be successful or, even if successful, will not result in
substantial cost to us.
We also depend upon unpatented trade secrets to maintain our competitive
position. We cannot be certain others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets, that such trade secrets will not be disclosed
or that we can effectively protect our rights to unpatented trade secrets. To
the extent that we or our consultants or research collaborators use intellectual
property owned by others in their work for us, disputes also may arise as to the
rights in related or resulting know-how and inventions.
ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS
At some point in the future, we may pursue acquisitions of companies,
product lines, technologies or businesses that our management believes are
complementary or otherwise beneficial to our Company. In the event that such an
acquisition does occur, we cannot be certain how such acquisitions will affect
our business. Future acquisitions may result in substantial dilution to our
stockholders, the incurrence of additional debt and amortization expenses
related to goodwill, research and development and other intangible assets, all
of which could harm our business. In addition, acquisitions would involve
several risks for us, including:
- assimilating employees, operations, technologies and products from
the acquired companies with our existing employees, operation,
technologies and products;
- diverting our management's attention from day-to-day operation of
our business;
- entering markets in which we have no or limited direct experience;
and
- potentially losing key employees from the acquired companies.
WE HAVE NO EXPERIENCE IN COMMERCIAL MANUFACTURING AND WE RELY ON A SOLE SOURCE
FOR CERTAIN RAW MATERIALS
We have no experience manufacturing products for commercial purposes. We
have a pilot facility licensed by the State of California to manufacture certain
of our products for Phase I and Phase II clinical trials. In July 1999, we
terminated our alliance under which B&L agreed to manufacture our products.
Should we encounter delays or difficulties in establishing and maintaining a
relationship with other qualified manufacturers to produce, package and
distribute our finished products, then clinical trials, regulatory filings,
market introduction and subsequent sales of our products will be harmed.
Contract manufacturers must adhere to Good Manufacturing Practices, or
GMP, regulations which are strictly enforced by the FDA on an ongoing basis
through its facilities inspection program. Contract manufacturing facilities
must pass a pre-approval plant inspection before the FDA will approve an New
Drug Application (NDA). Certain material manufacturing changes that occur after
approval are also subject to FDA review and clearance or approval. We cannot be
certain the FDA or other regulatory agencies will approve the process or the
facilities by which any of our products may be manufactured. Our dependence on
third parties for manufacture of products may harm our ability to develop and
deliver products on a timely and competitive basis. Should we be required to
manufacture products ourselves, we:
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- - will be required to expend significant amounts of capital to install a
manufacturing capability;
- - will be subject to the regulatory requirements described above;
- - will be subject to similar risks regarding delays or difficulties
encountered in manufacturing any such products; and
- - will require substantial additional capital.
We cannot be certain we will be able to manufacture any products
successfully or in a cost-effective manner. In addition, certain of the raw
materials we use in formulating our DuraSite drug delivery system are available
from only one source. Any significant interruption in the supply of these raw
materials could delay our clinical trials, product development or product sales
and could harm our business.
OUR PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATIONS AND APPROVAL
FDA and comparable agencies in state and local jurisdictions and in
foreign countries impose substantial requirements upon preclinical and clinical
testing, manufacturing and marketing of pharmaceutical products. Lengthy and
detailed preclinical and clinical testing, validation of manufacturing and
quality control processes, and other costly and time-consuming procedures are
required. Satisfaction of these requirements typically takes several years and
the time needed to satisfy them may vary substantially, based on the type,
complexity and novelty of the pharmaceutical product. The effect of government
regulation may be to delay or to prevent marketing of potential products for a
considerable period of time and to impose costly procedures upon our activities.
We cannot be certain the FDA or any other regulatory agency will grant approval
for any products we develop on a timely basis, or at all. Success in preclinical
or early stage clinical trials does not assure success in later stage clinical
trials. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations that could delay, limit or prevent regulatory
approval. If regulatory approval of a product is granted, such approval may
impose limitations on the indicated uses for which a product may be marketed.
Further, even after we have obtained regulatory approval, later discovery of
previously unknown problems with a product may result in restrictions on the
product, including withdrawal of the product from the market. Moreover, the FDA
has recently reduced previous restrictions on the marketing, sale and
prescription of products for indications other than those specifically approved
by the FDA. Accordingly, even if we receive FDA approval of a product for
certain indicated uses, our competitors, including our collaborators, could
market products for such indications even if such products have not been
specifically approved for such indications. Delay in obtaining or failure to
obtain regulatory approvals would harm our business.
The FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of our potential
products. Moreover, increased attention to the containment of health care costs
in the U.S. could result in new government regulations that could harm our
business. We cannot predict the likelihood of adverse governmental regulation
that might arise from future legislative or administrative action, either in the
U.S. or abroad. See "Risk Factors -- We face risks from the uncertainties of
pricing and other regulation".
WE COMPETE IN HIGHLY COMPETITIVE MARKETS
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Our success depends upon developing and maintaining a competitive position
in the development of products and technologies in our areas of focus. We have
many competitors in the U.S. and abroad, including pharmaceutical, biotechnology
and other companies with varying resources and degrees of concentration in the
ophthalmic market. Our competitors may have existing products or products under
development which may be technically superior to ours or which may be less
costly or more acceptable to the market. Competition from such companies is
intense and expected to increase as new products enter the market and new
technologies become available. Many of our competitors have substantially
greater financial, technical, marketing, manufacturing and human resources. In
addition, they may also succeed in developing technologies and products that are
more effective, safer, less expensive or otherwise more commercially acceptable
than any which we have or will develop. Our competitors may obtain cost
advantages, patent protection or other intellectual property rights that would
block or limit our ability to develop our potential products, or may obtain
regulatory approval for commercialization of their products more effectively or
rapidly than we will. To the extent we decide to manufacture and market our
products by ourselves, we will also compete with respect to manufacturing
efficiency and marketing capabilities, areas in which we have limited or no
experience.
WE ARE DEPENDENT UPON KEY EMPLOYEES
We are highly dependent on Dr. Chandrasekaran and other principal members
of our scientific and management staff, the loss of whose services might
significantly delay the achievement of planned development objectives.
Furthermore, recruiting and retaining qualified personnel will be critical to
our success. Competition for skilled individuals in the biotechnology business
is highly intense, and we cannot be certain we will be able to continue to
attract and retain personnel necessary for the development of our business. The
loss of key personnel or the failure to recruit additional personnel or to
develop needed expertise could harm our business.
OUR INSURANCE COVERAGE MAY NOT ADEQUATELY COVER OUR POTENTIAL PRODUCT LIABILITY
EXPOSURE
We are exposed to potential product liability risks which are inherent in
the development, testing, manufacturing, marketing and sale of human therapeutic
products. Product liability insurance for the pharmaceutical industry is
generally expensive. We cannot be certain that our present product liability
insurance coverage is adequate. Such existing coverage will not be adequate as
we further develop our products, and we cannot be certain that adequate
insurance coverage against potential claims will be available in sufficient
amounts or at a reasonable cost.
WE FACE RISKS FROM THE UNCERTAINTIES OF PRICING AND OTHER REGULATION
Our business may be harmed by the continuing efforts of governmental and
third party payers to contain or reduce the costs of health care through various
means. For example, in certain foreign markets the pricing or profitability of
health care products is subject to government control. In the U.S., there have
been, and we expect there will continue to be, a number of federal and state
proposals to implement similar government control. While we cannot predict
whether any such legislative or regulatory proposals or reforms will be adopted,
the announcement of such proposals or reforms could harm our business, including
our ability to raise capital or form collaborations. The adoption of such
proposals or reforms could further harm our business.
In addition, in the U.S. and elsewhere, sales of health care products are
dependent in part on the availability of reimbursement from third party payers,
such as government and private insurance plans. Significant uncertainty exists
as to the reimbursement status of newly approved health care products, and third
party payers are increasingly challenging the prices charged for medical
products and services. If we succeed in bringing one or more products to the
market, we cannot be certain that reimbursement from third party payers will be
available or will be sufficient to allow us to sell our products on a
competitive or
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<PAGE> 22
profitable basis.
WE USE HAZARDOUS MATERIALS WHICH MAY POSE ENVIRONMENTAL RISKS
Our research, development and manufacturing processes involve the
controlled use of small amounts of radioactive and other hazardous materials. We
are subject to federal, state and local laws, regulations and policies governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Although we believe that our safety procedures for
handling and disposing of such materials comply with the standards prescribed by
laws and regulations, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an accident,
we could be held liable for any damages that result, and any such liability
could exceed our resources. Moreover, we may be required to incur significant
costs to comply with environmental laws and regulations, especially to the
extent that we manufacture our own products.
OUR OFFICERS AND DIRECTORS WILL BE ABLE TO EXERT SIGNIFICANT CONTROL ON INSITE
As of December 31, 1999, our management and principal stockholders
together beneficially owned approximately 25% of our outstanding shares of
common stock. As a result, these stockholders, acting together, may be able to
effectively control all matters requiring approval by our stockholders,
including the election of a majority of our directors and the approval of
business combinations.
THE PRICE OF OUR COMMON STOCK IS VOLATILE
The market prices for securities of biopharmaceutical and biotechnology
companies, including ours, have 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. In addition,
future announcements concerning InSite, our competitors or other
biopharmaceutical companies, including the results of testing and clinical
trials, technological innovations or new therapeutic products, governmental
regulation, developments in patent or other proprietary rights, litigation or
public concern as to the safety of products developed by us or others and
general market conditions, may have a significant effect on the market price of
our common stock. We have not paid any cash dividends on our common stock, and
we do not anticipate paying any dividends in the foreseeable future.
WE HAVE ADOPTED CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of our certificate of incorporation and bylaws may have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of InSite. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. The board of directors has the
authority to issue up to 5,000,000 shares of preferred stock, 7,070 of which
have been designated as Series A Convertible Redeemable Preferred Stock.
Furthermore, the board of directors has the authority to determine the price,
rights, preferences, privileges and restrictions of the remaining unissued
shares of preferred stock without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred shares
and of preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock. Certain provisions of Delaware law applicable to us
could also delay or make more difficult a merger, tender offer or proxy contest
involving us, including Section 203 of the Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years unless certain
conditions are met.
WE HAVE CONVERTIBLE, REDEEMABLE SECURITIES THAT MAY RESULT IN DILUTION FOR
COMMON STOCKHOLDERS
Sales of a substantial number of shares of common stock issuable upon
conversion of our Series A Convertible Redeemable Preferred Stock could
adversely affect the market value of the common stock,
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<PAGE> 23
depending upon the timing of such sales, and may effect a substantial dilution
of the book value per share of our common stock.
As of December 31, 1999, warrants for 70 shares of Series A Convertible
Redeemable Preferred Stock were issued and outstanding. The actual number of
shares of common stock issuable upon exercise and conversion of the warrants for
outstanding Series A Convertible Redeemable Preferred Stock will equal:
(i) the aggregate stated value of the Series A Convertible
Redeemable Preferred Stock then being converted ($1,000 per share) plus a
premium in the amount of 6% per annum accruing from September 12, 1997
through the date of conversion, divided by
(ii) a conversion price equal to the lower of $2.127 or the product
of the average of the lowest closing bid prices for our common stock for
any 5 trading days during the 22 consecutive trading day period
immediately preceding the date of conversion, subject to adjustment in
accordance with the terms of the Certificate of Designations, Preferences
and Rights for the Series A Convertible Redeemable Preferred Stock,
multiplied by a conversion percentage equal to 82.5%.
For a complete description of the relative rights, preferences,
privileges, powers and restrictions of the Series A Convertible Redeemable
Preferred Stock, see the Certificate of Designations, Preferences and Rights
attached as Exhibit 4.1 to the Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on September 29, 1997. Depending on market
conditions at the time of conversion, the number of shares of common stock
issuable could increase significantly in the event of a decrease in the trading
price of the common stock. Investors in common stock could therefore experience
a dilution upon conversion of the Series A Convertible Redeemable Preferred
Stock. In addition, in the event that the holder of the warrant for Series A
Convertible Redeemable Preferred Stock is unable to convert any such securities
into common stock, the holder may cause us to redeem in cash any such Series A
Convertible Redeemable Preferred Stock that cannot be so converted. In the event
that we fail to so redeem such shares, the holder of the Series A Convertible
Redeemable Preferred Stock are entitled to additional remedies as set forth in
the Certificate of Designations, Preferences and Rights.
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<PAGE> 24
EXECUTIVE OFFICERS AND OTHER SENIOR MANAGEMENT OF THE REGISTRANT
As of March 27, 2000, the executive officers and other senior management
of the Company were as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
S. Kumar Chandrasekaran, Ph.D. 56 Chairman of the Board, President, Chief
Executive Officer and Chief Financial Officer
Lyle M. Bowman, Ph.D. 51 Vice President, Development and Operations
Cheryl E. Chen 40 Senior Director, Clinical Operations
T. Raymond Chen, Ph.D. 49 Senior Director, Regulatory, Quality Assurance
and Quality Control
Sandra C. Heine 38 Senior Director, Finance and Administration
Samir D. Roy, Ph.D. 41 Senior Director, Formulation Development and
Operations
Erwin C. Si, Ph.D. 46 Senior Director, Preclinical Research
</TABLE>
S. Kumar Chandrasekaran joined the Company in September 1987 as Vice
President, Development. From 1988 to 1989, Dr. Chandrasekaran served as Vice
President, Research and Development. From 1989 to 1993, he served as President
and Chief Operating Officer. Since August 1993, Dr. Chandrasekaran has served as
Chairman of the Board of Directors, President, Chief Executive Officer and,
since January 1999, as Chief Financial Officer, a position he also held from
December 1995 to December 1997. Dr. Chandrasekaran holds a Ph.D. in Chemical
Engineering from the University of California, Berkeley.
Lyle M. Bowman joined the Company in October 1988 as Director of Drug
Delivery Systems. From 1989 to 1991, Dr. Bowman served as Vice President,
Science and Technology. From 1991 to 1995, he served as Vice President,
Development, and since 1995 has served as Vice President Development and
Operations. Dr. Bowman holds a Ph.D. in Physical Chemistry from the University
of Utah.
Cheryl E. Chen joined the Company in January 1990 as the Manager of
Clinical Research. From 1994 to 1998, Ms. Chen served as Director of Clinical
Operations. In 1999, Ms. Chen became the Senior Director of Clinical Operations.
Ms. Chen holds a B.S. in Biological Science from University of California at
Irvine and an M.B.A. in Business from Pepperdine University.
T. Raymond Chen joined the Company in August 1990 as a Senior Staff
Researcher. From 1994 to August 1997, he served as the Director of Analytical
Research. Since September 1997, Dr. Chen has served as Senior Director of
Regulatory, Quality Assurance and Quality Control. Dr. Chen holds a Ph.D. in
Analytical Research from Indiana University.
Sandra C. Heine joined the Company in March 1997 as Controller. Since
October 1999, Ms. Heine has served as Senior Director of Finance and
Administration. Before joining the Company, Ms. Heine served as General
Accounting Manager of Software Logistics Corporation from 1995 to 1997; Systems
Engineer for Platinum Software Corporation from 1994 to 1995; General Audit
Manager for Genentech, Inc. from 1991 to 1994 and was an Audit Manager at
Deloitte & Touche from 1989 to 1991.
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<PAGE> 25
Ms. Heine holds a B.S. in Business Administration from Colorado State
University.
Samir D. Roy joined the Company in May 1997 as Director of Formulation
Development. Since 1998, Dr. Roy has served as Senior Director of Formulation
Development and Operations involving clinical supply and scale-up activities.
Dr. Roy holds a Ph.D. in Pharmaceutical Sciences from the University of
Saskatchewan, Canada, and has post-doctoral training in drug transport at the
University of Michigan.
Erwin C. Si joined the Company in April 1989 as Manager of Pharmacology
and Toxicology. From 1992 to 1996, he served as Manager of Drug Discovery. From
1996 to 1999, he served as Principal Scientist. Since October 1999, he has
served as Senior Director of Pre-clinical Research. Dr. Si holds a Ph.D. in
Pharmacology and Toxicology from Purdue University.
Officers are appointed to serve, at the discretion of the Board of
Directors, until their successors are appointed. There are no family
relationships between any members of the Board of Directors or executive
officers of the Company.
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<PAGE> 26
ITEM 2. PROPERTIES
InSite currently leases approximately 29,402 square feet of research
laboratory and office space located in Alameda, California. The facility
includes laboratories for formulation, analytical, microbiology, pharmacology,
quality control and development as well as a pilot manufacturing plant. The
lease expires on December 31, 2001, but may be renewed by the Company for an
additional 5-year term. The Company believes its existing facilities will be
suitable and adequate to meet its needs for the immediate future.
ITEM 3. LEGAL PROCEEDINGS.
(a) The Company is not a party to any legal proceedings.
(b) No legal proceedings were terminated in the fourth quarter.
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 quarter ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Since June 10, 1998, the Company's common stock has traded on The American
Stock Exchange under the symbol "ISV." From its initial public offering on
October 18, 1993 to June 9, 1998, the Company's common stock traded on The
Nasdaq National Market under the symbol "INSV." Prior to its initial public
offering, there was no public market for the Company's common stock. The
following table sets forth the high and low sales prices for the common stock as
reported by The American Stock Exchange and The Nasdaq National Market for the
periods indicated. These prices do not include retail mark-ups, mark-downs or
commissions.
<TABLE>
1999 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $1.56 $1.00
Second Quarter $2.00 $0.88
Third Quarter $2.81 $1.81
Fourth Quarter $2.75 $1.69
1998 HIGH LOW
---- ---- ---
First Quarter $3.56 $2.44
Second Quarter $4.00 $3.13
Third Quarter $4.44 $1.63
Fourth Quarter $2.44 $0.94
</TABLE>
(b) Holders
As of December 31, 1999, the Company had approximately 7,000 stockholders.
On March 27, 2000, the last sale price reported on The American Stock Exchange
for the Company's common stock was $5.31 per share.
(c) Dividends
The Company has never paid dividends and does not anticipate paying any
dividends in the foreseeable future. It is the present policy of the Board of
Directors to retain the Company's earnings, if any, for the development of the
Company's business.
(d) Recent Sales of Unregistered Securities
As part of a November 11, 1999 transaction to license the exclusive
worldwide rights to the ISV-900 diagnostic/prognostic test for glaucoma to P&U,
on January 18, 2000, the Company sold a total of
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<PAGE> 28
723,195 shares of Common Stock to P&U for $2,000,000.
The Common Stock in this transaction was issued to a single, sophisticated
foreign investor in reliance on the private placement exemption under Section
4(2) of the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for the five years ended December 31, 1999 (in thousands except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenues $ 4,760 $ 16 $ 50 $ 544 $ 65
Operating expenses:
Research and development 1,397 6,227 7,224 5,458 8,079
General and administrative 2,293 2,656 3,034 2,902 3,801
Loss on vacated facility -- -- -- 1,412 --
Restructuring -- -- -- -- 1,031
-------- -------- -------- -------- --------
Total expenses 3,690 8,883 10,258 9,772 12,911
Interest and other income (expense), net 85 299 390 466 224
-------- -------- -------- -------- --------
Net income (loss) before taxes 1,155 (8,568) (9,818) (8,762) (12,622)
Income tax provision 5 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) 1,150 (8,568) (9,818) (8,762) (12,622)
Non cash preferred dividend 22 514 1,326 -- --
-------- -------- -------- -------- --------
Net income (loss) applicable to
common stockholders $ 1,128 $ (9,082) $(11,144) $ (8,762) $(12,622)
======== ======== ======== ======== ========
Net income (loss) per share
applicable to common stockholders
basic and diluted $ 0.06 $ (0.60) $ (0.85) $ (0.72) $ (1.38)
======== ======== ======== ======== ========
Shares used to calculate net income
(loss) per share basic 19,285 15,079 13,053 12,131 9,160
======== ======== ======== ======== ========
Shares used to calculate net income
(loss) per share diluted 19,856 15,079 13,053 12,131 9,160
======== ======== ======== ======== ========
DECEMBER 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents $ 6,746 $ 1,037 $ 8,660 $ 10,518 $ 3,867
Working capital 6,167 544 7,983 9,512 2,376
</TABLE>
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<PAGE> 29
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets 7,463 2,086 10,546 12,820 7,643
Long term notes payable -- -- -- -- 92
Redeemable preferred stock 30 1,511 7,533 -- --
Accumulated deficit (84,754) (85,882) (76,800) (65,656) (56,894)
Total stockholders' equity (deficit) 6,256 (108) 2,031 11,619 5,847
</TABLE>
No cash dividends were declared or have been paid by the Company since its
inception.
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<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto included in Item 8 of this Form 10-K.
Except for the historical information contained herein, the discussion in
this Annual Report on Form 10-K may contain certain forward-looking statements
that involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
document should be read as being applicable to all related forward-looking
statements wherever they appear in this document. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed below and under "Risk
Factors" in Item 1 of this Form 10-K, as well as those discussed elsewhere
herein.
OVERVIEW
InSite Vision is developing genetically-based tools for the diagnosis,
prognosis and management of glaucoma and ophthalmic pharmaceutical products
based on its proprietary DuraSite eyedrop-based drug delivery technology.
The Company is collaborating with academic researchers to develop new
diagnostic, prognostic and management tools for primary congenital, juvenile and
primary open angle glaucomas. Primary congenital glaucoma is an inherited eye
disorder and is one of the leading causes of blindness and visual impairment
affecting infants. A gene-based diagnostic kit may allow early detection of the
disease before considerable irreversible damage has occurred and may improve the
ability to treat it successfully. Primary open angle glaucoma usually affects
people over the age of forty. Current glaucoma tests are generally unable to
detect the disease before substantial damage to the optic nerve has occurred.
Gene-based tests may make it possible to identify patients at risk and initiate
treatment before permanent optic nerve damage and vision loss occurs.
The Company has international and national collaborations with academic
institutions for the identification and clinical evaluation of genetic markers
for glaucoma. To date, the Company's academic collaborators at UCSF and UCHC
have identified genes associated with primary open-angle glaucoma (the most
prevalent form of the disease in adults), juvenile glaucoma and primary
congenital glaucoma. A diagnostic/prognostic technology, ISV-900, which is
capable of identifying multiple glaucoma genetic markers from a single sample,
has been developed and, in November 1999, the Company licensed the technology to
P&U. See "--Collaborative and Licensing Agreements" for additional information
on the agreement.
Another result of the glaucoma genetics research has been the development
of the ISV-205 product candidate. This DuraSite formulation contains a drug that
has been shown in cell and organ culture systems to inhibit the production of a
protein that appears to cause glaucoma. In January 1999, the Company entered
into a transaction that granted P&U an exclusive worldwide license for ISV-205
for the treatment of glaucoma. See "Collaborative and Licensing Agreements" for
additional discussion of the transaction. In June 1999, the Company announced
positive results from its Phase II trial of ISV-205. P&U has assumed the
continued development of the product with the continued technical support of the
Company.
The DuraSite delivery system is a patented eyedrop formulation comprising
a cross-linked carboxyl-containing polymer which incorporates the drug to be
delivered to the eye. The formulation is instilled in the cul-de-sac of the eye
as a small volume eyedrop. DuraSite can be customized to deliver a wide variety
of potential drug candidates with a broad range of molecular weights and other
properties. The DuraSite formulation remains in the eye for up to several hours
during which time the active drug ingredient is gradually released. DuraSite
extends the residence time of the drug due to a combination of mucoadhesion,
surface tension and viscosity. Eyedrops delivered in the DuraSite system
contrast to conventional eyedrops which typically only last in the eye a few
minutes, thus requiring delivery of a
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<PAGE> 31
highly concentrated burst of drug and frequent administration to sustain
therapeutic levels. The increased residence time for DuraSite is designed to
permit lower concentrations of a drug to be administered over a longer period of
time, thereby minimizing the inconvenience of frequent dosing and reducing the
potential related adverse side effects.
The Company is focusing its research and development on (i) expansion of
the ISV-900 technology for the prognosis, diagnosis and management of glaucoma,
(ii) providing on-going technical support to P&U for ISV-205 for the treatment
of inflammation and the prevention and treatment of glaucoma, (iii) ISV-615 for
the treatment of diabetic retinopathy and macular degeneration, (iv) ISV-014 a
retinal drug delivery device, and (v) evaluation and development of several
antibiotics not currently used in ophthalmics.
To date, InSite Vision has not received any revenues from the sale of
products, although it has received a small amount of royalties from the sale of
products using the Company's licensed technology. Until 1999, the Company had
been unprofitable since its inception due to continuing research and development
efforts, including preclinical studies, clinical trials and manufacturing of its
product candidates. The Company has financed its research and development
activities and operations primarily through private and public placement of its
equity securities and, to a lesser extent, from collaborative agreements.
On January 28, 1999, the Company entered into a license agreement and
stock purchase agreement pursuant to which InSite granted P&U an exclusive
worldwide license to ISV-205 for the treatment of glaucoma. The license called
for (i) P&U to assume responsibility for the development of the product upon
completion by InSite of, among other activities, Phase II studies completed by
the Company, (ii) P&U to reimburse InSite for research and development expenses
and to make payments to InSite for on-going technical support, and (iii) the
payment by P&U to InSite of royalties on product sales should ISV-205 be
successfully commercialized. InSite will continue to bear responsibility for the
prosecution and maintenance of the patents subject to the license, among other
things. The transaction also called for equity investments from P&U of
$3,500,000 for which they received 1,942,419 shares of common stock, with the
potential for future equity investments at an average of prevailing market
prices if the Company achieves certain milestones.
On November 11, 1999, the Company entered into a license agreement, stock
purchase agreement and credit agreement pursuant to which InSite granted P&U an
exclusive worldwide royalty-bearing license to its ISV-900 technology for
diagnostic, prognostic and therapeutic applications in the area of glaucoma. The
license calls for (i) P&U to pay the Company a $5 million licensing fee, (ii)
P&U to make up to $5 million in research and development payments to the Company
over three years starting in 2000, (iii) P&U to pay the Company royalties on
product sales should any products be successfully commercialized from this
technology, and (iv) the potential for payments of up to $3 million by P&U to
the Company based on achievement of certain milestones.
The stock purchase agreement provided for a $2.0 million equity investment
by P&U in the Company. A total of 723,195 shares were purchased in January 2000,
45 days after the execution of the agreement. The stock purchase agreement also
provides for a standstill period of thirty (30) months during which P&U and its
subsidiaries will not purchase additional shares of the Company, other than
those provided for under any existing agreements between the companies, without
the prior written consent of
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<PAGE> 32
the Company. This standstill period will terminate earlier if certain actions
are taken by other parties to acquire more than a 9.99% interest in the stock of
the Company or if any other party announces their intention to assume control of
the Company, whether by tender offer, merger, proxy contest or otherwise.
The credit agreement provides for a $4.0 million revolving line of credit
to be made available to the Company on November 11, 2001 for a period of three
(3) years. Any amounts drawn on the line will bear interest at a rate of three
percent (3%) over the prime rate announced at the time of borrowing by Chase
Manhattan Bank in New York City. At the Company's discretion, repayments on the
line may be made in cash at any point, or the total amount due at the end of the
loan period may be paid by issuance of the Company's stock at a twenty-five
percent (25%) premium to the average market price of the Company's stock for a
period prior to the end of the loan. The loan provides for certain affirmative
and negative covenants as well as other terms and conditions.
In August 1999, the Company entered into a license agreement with SSP Co.,
Inc., a Japanese company, to be the exclusive manufacturer and distributor of
AquaSite in Japan. AquaSite is an over-the-counter product which uses the
Company's DuraSite technology and demulcents for the symptomatic treatment of
dry eye. Under this agreement, the Company received a net amount of $3,000 for
materials provided to SSP during 1999.
In March 1999, the Company entered into a royalty-bearing license
agreement with Global Damon, a Korean company, to be the exclusive distributor
of AquaSite in the Republic of Korea. Concurrently, the Company entered into a
manufacturing agreement with Kukje, a Korean company, to produce the AquaSite to
be sold by Global Damon.
As of December 31, 1999, the Company's accumulated deficit was
approximately $84.8 million. There can be no assurance that InSite Vision will
ever achieve or be able to maintain either significant revenues from product
sales or profitable operations.
RESULTS OF OPERATIONS
The Company had total net revenues of $4.8 million, $16,000 and $50,000
for the years ended December 31, 1999, 1998 and 1997, respectively. The increase
from 1998 to 1999 was attributable to the license fee received from P&U in 1999.
The Company earned royalty income of $10,000, $16,000 and $50,000 for the years
ended December 31, 1999, 1998 and 1997, respectively, from sales of AquaSite by
CIBA Vision. To date, the Company has not relied on royalty revenues to fund its
activities, nor has it received revenues from the sale of products.
Research and development expenses, net, decreased 77% to $1.4 million in
1999 from $6.2 million in 1998 and decreased 14% in 1998 from $7.2 million in
1997. The decrease in 1999 was primarily due to expense recovery from P&U of
$4.2 million related to the ISV-205 project. Additionally, compensation and
related costs decreased due to a reduction in R&D headcount which occurred in
November 1998. The decrease in 1998 was primarily due to lower expenditures for
outside services, consultants and compensation-related costs due to a reduction
in R&D headcount. The reduction in outside service costs mainly reflects the
completion of development activities for ISV-208 and transfer of the project to
B&L, the Company's joint development partner on that project.
General and administrative expenses decreased 15% in 1999 to $2.3 million
from $2.7 million in 1998 and decreased 10% during 1998 from $3.0 million in
1997. The decrease in 1999 as compared to 1998 was primarily due to lower
personnel related and facility costs. The lower facility cost reflected the
sublease of a portion of unused office space beginning in January 1999. The
sublease term is consistent with the base lease which is through 2001. The
decrease in 1998 as compared to 1997 was primarily related to the reduced cost
of directors and officers' insurance, lower consulting expenses and lower costs
related to the hiring of full time personnel in the area of accounting and
finance.
34
<PAGE> 33
Net interest and other income was $85,000, $299,000 and $390,000 in 1999,
1998 and 1997, respectively. These fluctuations are due principally to changes
in average cash balances. Interest earned in the future will be dependent on the
Company's funding cycles and prevailing interest rates. Interest expense in 1997
related to notes payable which were paid off during the first quarter of 1997.
The Company had net income for the year ended December 31, 1999 of $1.1
million and incurred net losses of $8.6 million and $9.8 million for the years
ended December 31, 1998 and 1997, respectively. The net income in 1999 is mainly
the result of licensing revenue of $4.8 million and cost reimbursement of $4.2
million received from P&U for the ISV-900 and ISV-205 projects, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Through 1995, InSite Vision financed its operations primarily through
private placements of preferred stock totaling approximately $32 million and an
October 1993 initial public offering of Common Stock, which resulted in net
proceeds of approximately $30 million. After 1995, the Company financed its
operations primarily through a January 1996 private placement of Common Stock
and warrants resulting in net proceeds of approximately $4.7 million and an
April 1996 public offering which raised net proceeds of approximately $8.1
million. In accordance with a July 1996 agreement between the Company and B&L,
the Company received a total of $2.0 million from the sale of Common Stock in
August 1996 and 1997. In September 1997, the Company completed a $7.0 million
private placement of 7,000 shares of redeemable convertible Series A Preferred
Stock resulting in net proceeds of approximately $6.5 million. In January 1999,
the Company entered into a transaction with P&U from which the Company received
a total of $3.5 million from the sale of Common Stock in January and September.
In November 1999, the Company entered into another transaction with P&U from
which the Company received a $5.0 million licensing fee and, in January 2000,
received $2.0 million from the sale of 723,195 shares of Common Stock. At
December 31, 1999, the Company had cash and cash equivalents totaling $6.7
million. It is the Company's policy to invest these funds in highly liquid
securities, such as interest bearing money market funds, Treasury and federal
agency notes and corporate debt.
For the year ended December 31, 1999, cash provided by operating
activities, less cash used to acquire capital equipment, was $1.8 million and
for the years ended December 31, 1998 and 1997, cash used for operating
activities and additions to capital equipment was $7.8 million and $9.4 million,
respectively. Of those amounts, $88,000, $25,000 and $709,000 were for additions
to laboratory and other property and equipment in 1999, 1998 and 1997,
respectively. In 1997, $645,000 of the additional expenditures related to the
Company's portion of improvements at B&L's facilities in Tampa, Florida. In
1999, the Company sold the equipment and improvements at the Tampa facility to
B&L for $410,000, which resulted in a loss on the sale of $107,000. In 1998, the
Company had recognized an impairment in the value of this equipment of $87,000.
This also resulted in a decrease in 1998, in both laboratory and other equipment
and accumulated depreciation of $764,000.
The Company's future capital expenditures and requirements will depend on
numerous factors, including the progress of its research and development
programs and preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, changes in the Company's existing
collaborative and licensing relationships, the ability of the Company to
establish additional collaborative arrangements, acquisition of new businesses,
products and technologies, the completion of commercialization activities and
arrangements, the timing of additional product development and the purchase of
additional property and equipment. Starting in 1997, the Company wrote-off its
fully depreciated assets. This resulted in a decrease in both property and
equipment and accumulated depreciation of $0.3 million, $1.3 million and $3.4
million in 1999, 1998 and 1997, respectively, with no change in net property and
equipment.
The Company anticipates no material capital expenditures to be incurred
for environmental
35
<PAGE> 34
compliance in fiscal year 2000. Based on the Company's good environmental
compliance record to date, and its current compliance with applicable
environmental laws and regulations, environmental compliance is not expected to
have a material adverse effect on the Company's operations.
The Company believes that its cash and cash equivalents, in combination
with the cash the Company has received and will receive during 2000 as part of
the ISV-900 and ISV-205 licensing transactions with P&U, will be sufficient to
meet its operating expenses and cash requirements through 2000. InSite Vision
may require substantial additional funds prior to reaching sustained
profitability, and the Company may seek private or public equity investments,
future collaborative agreements, and possibly research funding to meet such
needs. Even if the Company does not have an immediate need for additional cash,
it may seek access to the private or public equity markets if and when it
believes conditions are favorable. There is no assurance that such additional
funds will be available for the Company to finance its operations on acceptable
terms, or at all.
YEAR 2000
The Year 2000 ("Y2K") issue was the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. It was
anticipated that such computer systems would be unable to interpret dates beyond
the year 1999, which could cause a system failure or other computer errors,
leading to disruptions in operations.
The Company implemented a program to assess its exposure from Y2K related
failures in its internal systems. Prior to December 31, 1999, the Company had
determined that the majority of the Company's significant operating and
accounting systems were Y2K compliant.
The Company did not encounter any system failures or other computer errors
related to a Y2K issue and did not suffer any interruption in service from its
suppliers or vendors. The Company has incurred less than $25,000 in expense to
upgrade or replace non-compliant computer programs or hardware. However, there
can be no assurance that the Company's eventual Y2K related costs will not
exceed this amount. While the Company does not have a comprehensive program for
monitoring whether its suppliers' and vendors' systems were or are Y2K
compliant, it does not believe that non-compliance by and single source provider
would have a material impact on its operations. The Company does not expect its
financial condition or results of operations to be materially adversely affected
by Y2K issues.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discusses the Company's exposure to market risk related to
changes in interest rates.
The Company invests its excess cash in investment grade, interest-bearing
securities. At December 31, 1999, the Company had $6.7 million invested in money
market mutual funds. While a hypothetical decrease in market interest rates by
10 percent from the December 31, 1999 levels would cause a decrease in interest
income, it would not result in a loss of the principal. Additionally, the
decrease in interest income would not be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and Report of Independent
Auditors are included on the pages that follow:
36
<PAGE> 35
<TABLE>
Page
-----
<S> <C>
Report of Independent Auditors 29
Consolidated Statements of Operations 30
Years Ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheets - December 31, 1999 and 1998 31
Consolidated Statements of Stockholders' Equity (Deficit) 32
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows 33
Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 34-42
</TABLE>
37
<PAGE> 36
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
InSite Vision Incorporated
We have audited the accompanying consolidated balance sheets of InSite Vision
Incorporated as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of InSite
Vision Incorporated at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Walnut Creek, California
February 9, 2000
38
<PAGE> 37
INSITE VISION INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
(in thousands, except per share amounts) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
License fee $ 4,750 $ -- $ --
Royalties 10 16 50
-------- -------- --------
Total 4,760 16 50
Operating expenses:
Research and development, net 1,397 6,227 7,224
General and administrative 2,293 2,656 3,034
-------- -------- --------
Total 3,690 8,883 10,258
-------- -------- --------
Income (loss) from operations 1,070 (8,867) (10,208)
Interest and other income (expense), net 85 299 390
-------- -------- --------
Net income (loss) before taxes 1,155 (8,568) (9,818)
Income tax provision 5 -- --
-------- -------- --------
Net income (loss) 1,150 (8,568) (9,818)
Non-cash preferred dividend 22 514 1,326
-------- -------- --------
Net income (loss) applicable to common stockholders $ 1,128 $ (9,082) $(11,144)
======== ======== ========
Basic net income (loss) per share applicable to common stockholders $ 0.06 $ (0.60) $ (0.85)
======== ======== ========
Diluted net income (loss) per share applicable to common stockholders $ 0.06 $ (0.60) $ (0.85)
======== ======== ========
Shares used to calculate basic net income (loss) per share 19,285 15,079 13,053
======== ======== ========
Shares used to calculate diluted net income (loss) per share 19,856 15,079 13,053
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 38
INSITE VISION INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(in thousands, except share and per share amounts) 1999 1998
- -------------------------------------------------- -------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,746 $ 1,037
Prepaid expenses and other current assets 598 190
-------- --------
Total current assets 7,344 1,227
Property and equipment, at cost:
Laboratory and other equipment 204 1,062
Leasehold improvements 10 49
Furniture and fixtures -- 28
-------- --------
214 1,139
Accumulated depreciation 95 280
-------- --------
119 859
-------- --------
Total assets $ 7,463 $ 2,086
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 119 $ 86
Accrued liabilities 534 341
Accrued compensation and related expense 524 256
-------- --------
Total current liabilities 1,177 683
Commitments (Note 3)
Redeemable preferred stock, $0.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding at December 31, 1999; 1,170 shares issued and
outstanding at December 31, 1998; redemption value $1,986,000 at
December 31, 1998 30 1,511
Common stockholders' equity (deficit):
Common stock, $0.01 par value, 30,000,000 shares authorized;
20,298,923 issued and outstanding at December 31, 1999;
16,852,015 issued and outstanding at December 31, 1998; 203 169
Additional paid-in capital 90,807 85,605
Accumulated deficit (84,754) (85,882)
-------- --------
Common stockholders' equity (deficit) 6,256 (108)
-------- --------
Total liabilities, redeemable preferred stock and stockholders'
equity (deficit) $ 7,463 $ 2,086
======== ========
</TABLE>
44
<PAGE> 39
See accompanying notes to consolidated financial statements.
45
<PAGE> 40
INSITE VISION INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON PAID IN ACCUMULATED EQUITY
(dollars in thousands) STOCK CAPITAL DEFICIT (DEFICIT)
- ---------------------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1997 $ 129 $ 77,146 $(65,656) $ 11,619
Issuance of 205,128 shares of common stock
to Bausch & Lomb in private placement 2 998 -- 1,000
Issuance of 43,968 shares of common stock
from exercise of options and employee
stock purchase plan 1 128 -- 129
Issuance of 94,130 shares of common stock
from conversion of preferred shares 1 308 -- 309
Non-employee stock option expense -- 118 -- 118
Net loss and comprehensive loss -- -- (9,818) (9,818)
Non-cash preferred dividend -- -- (1,326) (1,326)
-------- -------- -------- --------
Net loss applicable to common stockholders -- -- (11,144) (11,144)
-------- -------- -------- --------
BALANCES, DECEMBER 31, 1997 133 78,698 (76,800) 2,031
Issuance of 50,000 shares of common stock
from exercise of warrants 1 162 -- 163
Issuance of 27,195 shares of common stock
under employee stock purchase plan -- 50 -- 50
Issuance of 3,495,667 shares of common
stock from conversion of preferred shares 35 6,540 -- 6,575
Non-employee stock option expense -- 155 -- 155
Net loss and comprehensive loss -- -- (8,568) (8,568)
Non-cash preferred dividend -- -- (514) (514)
-------- -------- -------- --------
Net loss applicable to common stockholders -- -- (9,082) (9,082)
-------- -------- -------- --------
BALANCES, DECEMBER 31, 1998 169 85,605 (85,882) (108)
Issuance of 1,942,419 shares of common stock
to Pharmacia & Upjohn in private placements 19 3,480 -- 3,499
Issuance of 33,073 shares of common stock
from exercise of options and employee
stock purchase plan -- 40 -- 40
</TABLE>
46
<PAGE> 41
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON PAID IN ACCUMULATED EQUITY
(dollars in thousands) STOCK CAPITAL DEFICIT (DEFICIT)
- ---------------------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Issuance of 1,471,416 shares of common
stock from conversion of preferred shares 15 1,488 -- 1,503
Non-employee stock option expense -- 194 -- 194
Net income and comprehensive income -- -- 1,150 1,150
Non-cash preferred dividend -- -- (22) (22)
-------- -------- -------- --------
Net income applicable to common stockholders -- -- 1,128 1,128
-------- -------- -------- --------
BALANCES, DECEMBER 31, 1999 $ 203 $ 90,807 $(84,754) $ 6,256
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE> 42
INSITE VISION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,150 $ (8,568) $ (9,818)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 505 904 851
Loss on sale of property and equipment 107 -- --
Changes in:
Prepaid expenses and other current assets (408) 113 (108)
Accounts payable and accrued liabilities 494 (260) 373
-------- -------- --------
Net cash provided (used) by operating activities 1,848 (7,811) (8,702)
INVESTING ACTIVITIES:
Sale of property and equipment 410 -- --
Purchases of property and equipment (88) (25) (709)
-------- -------- --------
Net cash provided (used) by investing activities 322 (25) (709)
FINANCING ACTIVITIES:
Principal payments of notes payable and capital lease
obligations -- -- (92)
Issuance of redeemable preferred stock, net -- -- 6,516
Issuance of common stock, net 3,539 213 1,129
-------- -------- --------
Net cash provided by financing activities 3,539 213 7,553
Net increase (decrease) in cash and cash equivalents 5,709 (7,623) (1,858)
Cash and cash equivalents, beginning of period 1,037 8,660 10,518
-------- -------- --------
Cash and cash equivalents, end of period $ 6,746 $ 1,037 $ 8,660
======== ======== ========
Supplemental disclosures:
Non-cash preferred dividends $ 22 $ 514 $ 1,326
======== ======== ========
Non-cash conversion of redeemable preferred stock
to common stock $ 1,503 $ 6,575 $ 309
======== ======== ========
Interest paid in cash $ -- $ -- $ 9
======== ======== ========
</TABLE>
48
<PAGE> 43
See accompanying notes to consolidated financial
statements.
49
<PAGE> 44
INSITE VISION INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of InSite Vision and its wholly-owned United Kingdom
subsidiary, InSite Vision Limited. InSite Vision Incorporated (the "Company" or
"InSite Vision") operated in one segment and is focused on ophthalmic genetics
and developing ophthalmic drugs and ophthalmic drug delivery systems. InSite
Vision Limited was formed for the purpose of holding and licensing intellectual
property rights. All intercompany accounts and transactions have been
eliminated.
Until 1999, the Company had incurred losses since its inception. The
Company expects to incur substantial additional development costs prior to
reaching sustained profitability, including costs related to clinical trials and
manufacturing expenses. As a result, the Company will require substantial
additional funds, and until sufficient royalties are generated from sales of the
Company's licensed products, the Company may seek collaborative agreements,
research funding, and private or public equity or debt investments to meet such
needs. If such funds are not available, management may need to reassess its
plans. Even if the Company does not have an immediate need for additional cash,
it may seek access to the private or public equity markets if and when
conditions are favorable. There is no assurance that such additional funds will
be available for the Company to finance its operations on acceptable terms, if
at all.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents. The Company invests its excess cash in
investment grade, interest-bearing securities. As of December 31, 1999 and 1998,
cash equivalents consisted of money market and mutual funds. All cash and cash
equivalents are stated at fair market value. The Company considers highly liquid
investments with original maturities of three months or less as cash
equivalents.
Property and Equipment. Property and equipment is stated at cost, less
accumulated depreciation. Depreciation of property and equipment is provided
over the estimated useful lives of the respective assets, which range from three
to five years, using the straight-line method. Leasehold improvements are
amortized over the lives of the related leases or their estimated useful lives,
whichever is shorter, using the straight-line method. It is the Company's policy
to write-off its fully depreciated assets. This resulted in a decrease in both
property and equipment and accumulated depreciation in 1999 and 1998 of $0.3
million and $1.3 million, respectively, with no change in net property and
equipment.
In accordance with FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. During 1998, the Company evaluated certain
assets and determined that assets with a carrying value of $946,000 were
impaired and reduced their carrying value by $87,000. This loss is included in
the 1998 research and development expense in the Consolidated Statements of
Operations. In July 1999, the Company sold this equipment and recorded a loss of
50
<PAGE> 45
$107,000 which is included in the 1999 research and development expense in the
Consolidated Statements of Operations.
Earnings (Loss) per Share. Basic and diluted net income (loss) per share
information for all periods is presented under the requirement of SFAS No. 128,
"Earnings per Share." Basic earnings per share has been computed using the
weighted-average number of common shares outstanding during the period, and
excludes any dilutive effects of stock options and convertible securities.
Potentially dilutive securities have been excluded from the computation of
diluted net loss per share in 1998 and 1997, as their inclusion would be
antidilutive.
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
=====================================================================================================
(in thousands, except per share amounts) 1999 1998 1997
- ---------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 1,150 $ (8,568) $ (9,818)
Non-cash preferred dividend 22 514 1,326
-------- -------- --------
Net earnings (loss) applicable to common
stockholders 1,128 (9,082) (11,144)
======== ======== ========
Denominator:
Denominator for basic earnings (loss) per share -
weighted-average shares outstanding 19,285 15,079 13,053
Effect of dilutive securities:
Employee & director stock options and preferred
stock warrant (determined using the treasure
stock method) 260 -- --
Convertible preferred stock (using the if-converted
method) 311 -- --
-------- -------- --------
Denominator for diluted earnings per share -
weighted-average shares outstanding 19,856 15,079 13,053
======== ======== ========
Basic earnings (loss) per share $ 0.06 $ (0.60) $ (0.85)
======== ======== ========
Diluted earnings (loss) per share $ 0.06 $ (0.60) $ (0.85)
======== ======== ========
=====================================================================================================
</TABLE>
Due to the loss from operations, earnings (loss) per share for 1998 and
1997 is based on the weighted average number of common shares only, as the
effect of including equivalent shares from stock options would be anti-dilutive.
If the Company had recorded net income, the calculation of earnings per share
would have included approximately an additional 2,186,000 and 1,193,000 common
equivalent shares related to the outstanding stock options and warrants
(determined using the treasury stock method) and convertible preferred stock
(using the if-converted method) for 1998 and 1997, respectively.
Accounting for Employee Stock Options. The Company accounts for stock
options granted to employees and directors in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, does not recognize compensation expense for options
granted to employees and directors at an exercise price equal to the fair value
of the underlying common stock.
Accounting for Stock Options Exchanged for Services. The Company issues
stock options to consultants of the Company in exchange for services. The
Company has valued these options using the Black-Scholes option valuation model
at each reporting period and has recorded charges to operations over the vesting
periods of the individual stock options. Such charges amounted to approximately
$194,000, $155,000 and $118,000 in 1999, 1998 and 1997, respectively.
Accounting for Materials Purchased for Research and Development. The
Company expenses materials for research and development activities when the
items are purchased.
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<PAGE> 46
Accounting for Cost Sharing Agreements. The Company directly reduces
expenses for amounts reimbursed pursuant to cost sharing agreements. During 1999
and 1998, research and development expenses were reduced by $4,248,000 and
$361,000, respectively, for costs reimbursed by Pharmacia & Upjohn (P&U) and
Bausch and Lomb Pharmaceuticals, Inc. (B&L) under the terms of the
collaborations described in Note 2.
Key Suppliers. The Company is dependent on single or limited source
suppliers for certain materials used in its research and development activities.
The Company has generally been able to obtain adequate supplies of these
components. However, an extended interruption in the supply of these components
currently obtained from single or limited source suppliers could adversely
affect the Company's research and development efforts.
The Company obtains batimastat, the active ingredient for its ISV-615
product candidate, from British Biotech. In December 1996, British Biotech
advised the Company that it had discontinued its own development and
manufacturing of batimastat. The Company is currently negotiating with British
Biotech to license the compound and obtain access to on-going drug supply.
Inability to obtain a license would adversely affect the Company's ability to
continue the ISV-615 development program.
Revenue Recognition. Non-refundable technology license fees are recognized
as revenues when received and when all contractual obligations of the Company
relating to the fees have been fulfilled, evidence of an arrangement exists, the
fee is fixed and determinable and collectibility is reasonably assured.
2. LICENSES
In December 1999, the Company entered into an exclusive worldwide license
agreement with INSERM for the diagnostic, prognostic and therapeutic uses of a
gene for chronic open angle glaucoma. The Company has paid a licensing fee and
will make royalty payments on future product sales, if any.
On November 11, 1999, the Company entered into a license agreement, stock
purchase agreement and credit agreement pursuant to which InSite granted P&U an
exclusive worldwide royalty-bearing license to its ISV-900 technology for
diagnostic, prognostic and therapeutic applications in the area of glaucoma. The
license calls for (i) P&U to pay the Company a $5 million licensing fee, (ii)
P&U to make up to $5 million in research and development payments to the Company
over three years starting in 2000, (iii) P&U to pay the Company royalties on
product sales should any products be successfully commercialized from this
technology, and (iv) payments of up to $3 million by P&U to the Company if
certain milestones are achieved.
P&U is receiving rights to sub-license all development work on ISV-900
completed as of November 11, 1999, which includes rights to certain genes, a
diagnostic test, a database and access to other data relating to these genes.
The Company expects that these rights will translate into 3 products - one for
indications of more severe forms of glaucoma, one for detecting the possibility
of developing glaucoma and one for diagnosing glaucoma in infants. These
products are ready for commercialization by P&U.
52
<PAGE> 47
The additional research and development payments of $5 million are to be
used for further development of the ISV-900 technology. This R&D work will
include searching for additional gene mutations as well as gathering information
for the development of possible therapeutic products based on the genetic data.
The result of this work could be further enhancements to the products currently
ready for commercialization as discussed above, which would be released
separately, or additional products altogether. This work is not essential to the
products currently ready for commercialization by P&U.
The Company recognized $4.8 million as license revenue during the fourth
quarter of 1999, due to the persuasive evidence of the existence of an
arrangement, delivery had occurred, the fee was fixed and determinable and
collectibility was reasonably assured. The technology represented a separate
element of the arrangement that was recognized when the technology was delivered
to P&U for commercialization.
The stock purchase agreement provided for a $2.0 million equity investment
by P&U in the Company. A total of 723,195 shares were purchased in January 2000,
45 days after the execution of the agreement. The stock purchase agreement also
provides for a standstill period of thirty (30) months during which P&U and its
subsidiaries will not purchase additional shares of the Company, other than
those provided for under any existing agreements between the companies, without
the prior written consent of the Company. This standstill period will terminate
earlier if certain actions are taken by other parties to acquire more than a
9.99% interest in the stock of the Company or if any other party announces their
intention to assume control of the Company, whether by tender offer, merger,
proxy contest or otherwise.
The credit agreement provides for a $4 million revolving line of credit to
be made available to the Company on November 11, 2001 for a period of three (3)
years. Any amounts drawn on the line will bear interest at a rate of three
percent (3%) over the prime rate announced by Chase Manhattan Bank in New York
City. At the Company's discretion, repayments on the line may be made in cash at
any point, or the total amount due at the end of the loan period may be paid by
issuance of the Company's stock at a twenty-five percent (25%) premium to the
average market price of the Company's stock for a period prior to the end of the
loan. The loan provides for certain affirmative and negative covenants as well
as other terms and conditions.
In August 1999, the Company entered into a license agreement with SSP Co.,
Inc., a Japanese company, to be the exclusive manufacturer and distributor of
AquaSite in Japan. AquaSite is an over-the-counter product which uses the
Company's DuraSite technology and demulcents for the symptomatic treatment of
dry eye. Under this agreement, the Company received a net amount of $3,000 for
materials provided to SSP during 1999.
In March 1999, the Company entered into a royalty-bearing license
agreement with Global Damon, a Korean company, to be the exclusive distributor
of AquaSite in the Republic of Korea. Concurrently, the Company entered into a
manufacturing agreement with Kukje, a Korean company, to produce the AquaSite to
be sold by Global Damon.
On January 28, 1999, the Company entered into a license agreement and
stock purchase agreement pursuant to which InSite granted P&U an exclusive
worldwide license to ISV-205 for the treatment of glaucoma. The license calls
for (i) P&U to assume responsibility for the development of the product upon
completion by the Company of, among other activities, Phase II studies currently
being conducted by the Company, (ii) P&U to reimburse InSite for certain
research and development expenses and make payments to InSite for on-going
technical support, and (iii) the payment by P&U to InSite of royalties on
product sales should ISV-205 be successfully commercialized. InSite will
continue to bear responsibility for the prosecution and maintenance of the
patents subject to the license, among other things. The transaction also called
for equity investments from P&U of $3,500,000 for which they received 1,942,419
shares of common stock in February and September 1999, with the potential for
future equity investments based on achievement of certain milestones.
The Company has a license agreement with CIBA Vision, an ophthalmic
company which is an affiliate of
53
<PAGE> 48
CIBA-GEIGY Limited. Under the terms of the agreement, CIBA Vision has
co-exclusive rights to manufacture and market AquaSite and ToPreSite in the U.S.
and AquaSite in Canada. The license agreement requires CIBA Vision to pay
royalties on net sales of the licensed products. The Company recognized $10,000,
$16,000 and $50,000 of royalty revenue for sales of AquaSite in 1999, 1998 and
1997, respectively.
3. LEASE COMMITMENTS
The Company leases its facilities under noncancelable operating lease
agreements that expire in 2001. Rent expense was $431,000, $514,000 and $497,000
for 1999, 1998 and 1997, respectively. The 1999 rent expense reflects $63,000
received by the Company related to the January 1999 sublease of a portion of the
Company's facility. The sublease continues through the term of the Company's
operating lease and provides for annual payments of $64,000 in 2000 and 2001. As
of December 31, 1999, the aggregate future minimum payments under noncancelable
leases, not considering amounts to be received under subleasing agreements, are:
<TABLE>
<S> <C>
2000 $ 500,000
2001 514,000
----------
Total $1,014,000
==========
</TABLE>
4. INCOME TAXES
Significant components of the Company's deferred tax assets for federal
and state income taxes as of December 31, 1999 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 24,508 $ 26,226
Research and development credit carryforwards 3,392 2,916
Capitalized research and development 7,404 5,824
Depreciation 579 572
Other 217 90
-------- --------
Total 36,100 35,629
Valuation allowance (36,100) (35,629)
-------- --------
Net deferred tax assets $ -- $ --
======== ========
</TABLE>
The valuation allowance decreased by $54,000 and increased $3.3 million
during the years ended December 31, 1999 and 1998, respectively.
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $66.0 million, which expire in the
years 2001 through 2018 and net operating loss carryforwards for state income
tax purposes of approximately $29.0 million which expire in the years 1999
through 2003. The Company also has federal and state research and development
credit carryforwards of approximately $2.0 million
54
<PAGE> 49
and $1.0 million, respectively, which expire in the years 2001 through 2013.
Utilization of the Company's federal and state net operating loss
carryforwards and research and development tax credits are subject to an annual
limitation against taxable income in future periods due to the ownership change
limitations provided by the Internal Revenue Code of 1986. As a result of this
annual limitation, a significant portion of these carryforwards will expire
before ultimately becoming available for offset against taxable income.
Additional losses and credits will be subject to limitation if the Company
incurs another change in ownership in the future.
5. REDEEMABLE PREFERRED STOCK
In September 1997, the Company received net proceeds of approximately $6.5
million from a private placement of 7,000 shares of Series A Convertible
Preferred Stock with a $0.01 par value ("Series A Preferred"). The number of
shares of Common Stock issuable upon conversion of the Series A Preferred is
equal to the face value of each share of Series A Preferred divided by the lower
of the fixed conversion price of $2.127 or a variable conversion price. The
variable conversion price is determined by applying a discount, which ranged
from 10% for shares converted prior to June 10, 1998, to 17.5% for shares
converted after December 7, 1998, to an average of closing bid prices of the
Company's common stock at the time of conversion. Such conversion prices are
subject to adjustment in accordance with the terms of the Certificate of
Designations, Preferences and Rights of the Series A Preferred. The value of the
Series A Preferred shares to be converted will also include a 6% per annum
premium which accrues from the date of issuance until the date of conversion.
Three years after issuance, any remaining unconverted preferred shares will
automatically be converted into common stock. As of December 31, 1999, all of
the outstanding shares of Series A Preferred have been converted into 5,061,213
shares of common stock. The Company also issued a warrant to purchase 70 shares
of Series A Preferred that is subject to the same conversion terms and premium
as described above, which is still outstanding as of December 31, 1999. Holders
of the Series A Preferred have no voting rights, except as required by
applicable Delaware law. The Company has authorized 5,000,000 shares of
Preferred Stock, 7,070 of which have been designated Series A Preferred.
Pursuant to the agreement, 6,000,000 shares of common stock have been reserved
for issuance to the holders of the Series A Preferred of which 938,787 shares
remain reserved at December 31, 1999.
For the years ended December 31, 1999, 1998 and 1997, in accordance with
SEC Rules and Regulations, the Company reported non-cash preferred dividends of
$22,000, $514,000 and $1,326,000, respectively. The dividends are related to the
discount at which Series A Preferred could be converted to common stock and the
6% per annum premium, payable in additional common stock, earned on the
outstanding Series A Preferred Stock. The dividends are used to determine the
net loss per share applicable to common stockholders.
The following table summarizes information concerning the issuance and
conversion of the Series A Preferred Stock (in thousands):
<TABLE>
Amount
------
<S> <C>
Issuance of 7,000 shares of Series A Preferred Stock and
a warrant for 70 shares of Series A Preferred Stock $ 6,516
Conversion of 300 shares of Series A Preferred Stock
into common stock (309)
Non-cash preferred dividend 1,326
-------
Balance at December 31, 1997 7,533
Reduction in accrued stock issuance costs 39
Conversion of 5,530 shares of Series A Preferred Stock
into common stock (6,575)
Non-cash preferred dividend 514
-------
Balance at December 31, 1998 1,511
</TABLE>
55
<PAGE> 50
<TABLE>
Amount
------
<S> <C>
Conversion of 1,170 shares of Series A Preferred Stock
into common stock (1,503)
Non-cash preferred dividend 22
-------
Balance at December 31, 1999 $ 30
=======
</TABLE>
6. COMMON STOCKHOLDERS' EQUITY
In January 2000, the Company received $2,000,000 from P&U for the purchase
of 723,195 shares of Common Stock in connection with the November 1999 license
for the Company's ISV-900 glaucoma genetics program.
In September 1999, the Company received $1,500,000 from P&U for the
purchase of 846,913 shares of Common Stock for a milestone reached in connection
with the January 1999 license of the Company's ISV-205 glaucoma product.
In February 1999, the Company received $2,000,000 from P&U for the
purchase of 1,095,506 shares of Common Stock in connection with the January 1999
license for the Company's ISV-205 glaucoma product. The agreement also provides
for additional equity purchases by P&U at an average of prevailing market prices
if the Company achieves certain milestones, the first of which was reached in
September of 1999.
In April 1998, the Company received $163,000 from the exercise of warrants
issued as part of a January 1996 private placement. Each warrant entitles its
holder to purchase shares of the Company's Common Stock for $3.25 per share
until January 2001. As of December 31, 1999, warrants to purchase 317,308 shares
of Common Stock were outstanding.
In August 1997, the Company received $1.0 million from B&L for the
purchase of 205,128 shares of Common Stock in connection with a July 1996
agreement between the Company and B&L. B&L made an initial $1.0 million purchase
for 210,527 shares of Common Stock in August 1996.
In January 1996, the Company received net proceeds of approximately $4.7
million from a private placement of 1,469,232 shares of its Common Stock and
367,308 warrants. Each warrant entitles its holder to purchase one share of the
Company's Common Stock for $3.25 per share until January 2001.
Stock Option Plan.
At December 31, 1999, a total of 2,541,300 shares of Common Stock were
reserved under the 1994 Stock Plan for issuance upon the exercise of options or
by direct sale to employees, including officers, directors and consultants.
Options granted under the plan expire 10 years from the date of grant and become
exercisable at such times and under such conditions as determined by the
Company's Board of Directors (generally ratably over four years). Activity under
the 1994 Stock Plan is as follows:
<TABLE>
<CAPTION>
Shares
----------------------------
Options Weighted Average
Available Options Exercise Price of
for Grant Outstanding Option Price Shares Under Plan
--------- ----------- ------------ -----------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 210,026 1,272,866 $0.60 - 9.25 $ 2.79
</TABLE>
56
<PAGE> 51
<TABLE>
<CAPTION>
Shares
----------------------------
Options Weighted Average
Available Options Exercise Price of
for Grant Outstanding Option Price Shares Under Plan
--------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Additional shares reserved 500,000 -- -- --
Granted (628,500) 628,500 2.81 - 6.25 4.07
Exercised -- (30,598) 0.60 - 4.38 2.86
Forfeited 204,927 (204,927) 0.60 - 6.75 4.07
-------- ---------
Balances at December 31, 1997 286,453 1,665,841 0.60 - 9.25 3.12
Additional shares reserved 265,521 -- -- --
Granted (70,000) 70,000 1.31 - 3.53 2.26
Forfeited 102,709 (102,709) 2.75 - 6.38 3.93
-------- ---------
Balances at December 31, 1998 584,683 1,633,132 0.60 - 9.25 3.03
Additional shares reserved 336,981 -- -- --
Granted (715,932) 715,932 1.06 - 2.44 1.28
Exercised -- (13,496) 2.00 - 2.63 1.25
Forfeited 158,749 (158,749) 0.60 - 6.38 4.69
-------- ---------
Balances at December 31, 1999 364,481 2,176,819 $0.60 - 9.25 $ 2.34
======== =========
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ------------------------------
Weighted Average
---------------------------- Weighted
Number Contractual Number Average
Range of Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
------------------------ ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.60 - $1.13 905,435 6.01 $ 0.90 390,761 $ 0.61
$1.25 - $2.75 595,500 6.86 2.38 193,791 2.53
$2.81 - $5.00 549,170 7.57 3.81 349,999 3.83
$5.63 - $9.25 126,714 6.97 6.13 103,193 6.15
--------- ---- -------- --------- --------
2,176,819 6.69 $ 2.34 1,037,744 $ 2.60
========= ==== ======== ========= ========
</TABLE>
The weighted average grant date fair values of options granted during
1999, 1998 and 1997 was $1.28, $2.26 and $3.58, respectively.
Pursuant to the terms of the 1994 Stock Plan, generally each non-employee
director who is newly elected or appointed after October 25, 1993, is granted an
option to purchase 10,000 shares of common stock at a price per share equal to
the fair market value of the common stock on the grant date. Each continuing
non-employee director also receives an annual grant of an option to purchase
10,000 shares. Such options vest one year after the grant date.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
57
<PAGE> 52
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting requirements
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1999,
1998 and 1997, respectively: risk-free interest rates ranging from 4.64% to
6.87%; volatility factors for the expected market price of the Company's common
stock of 1.15, 1.08 and 0.89; and a weighted-average expected life for the
options of 4 years.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the vesting period of the related options.
The Company's pro forma information follows (in thousands except for loss per
share information):
<TABLE>
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) applicable to common stockholders
- as presented $ 1,128 $ (9,082) $ (11,144)
Net loss applicable to common stockholders - pro forma (35) (9,681) (11,652)
Net income (loss) per share applicable to common
stockholders 0.06 (0.60) (0.85)
- as presented
basic and diluted
Net loss per share applicable to common stockholders -
pro forma basic and diluted (0.00) (0.64) (0.89)
</TABLE>
The pro forma impact of options on the net income (loss) for 1999, 1998
and 1997 is not representative of the effects on net income (loss) for future
years, as future years will include the effects of additional stock option
grants.
Employee Stock Purchase Plan.
On April 1, 1994, employees of the Company began participating in an
Employee Stock Purchase Plan which provides the opportunity to purchase Common
Stock at prices not more than 85% of market value at the time of purchase.
During the years ended December 31, 1999, 1998 and 1997, respectively, 19,577,
27,195 and 13,370 shares of Common Stock were issued pursuant to this plan. At
December 31, 1999, an additional 19,577 shares are reserved for issuance under
this plan. The effects of this plan on the pro forma disclosures above are not
material.
7. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and claims
in the ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The
58
<PAGE> 53
Company currently is not aware of any such legal proceedings or claims that it
believes will have, individually or in the aggregate, a material adverse effect
on its business, prospects, financial condition and operating results.
59
<PAGE> 54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item 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 which is estimated to be held on or about
June 12, 2000 (the "Proxy Statement").
The information required by this item with respect to the identification
of Executive Officers is contained in Item 1 of Part I of this report under the
caption "Executive Officers."
The information required by Item 405 of Regulation S-K regarding
compliance with Section 16(a) of the Securities Exchange Act of 1934 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.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
from the information under the caption "Executive Compensation and Related
Information" 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 "Principal Stockholders" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
from the information under the captions "Executive Compensation and Related
Information" and "Certain Relationships and Related Transactions" in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
61
<PAGE> 55
(a)(1) Financial Statements
The Financial Statements and Report of Independent Auditors are included
in a separate section of this Annual Report on Form 10-K.
(2) Financial Statement Schedules
All financial statement schedules have been omitted because they are not
applicable or are not required or the required information to be set forth
therein is included in the Financial Statements or notes thereto included in a
separate section of this Annual Report on Form 10-K.
(3) Exhibits
The following exhibits are referenced or included in this report.
<TABLE>
<CAPTION>
Number Exhibit Table
------ -------------
<S> <C>
3.1(1) Restated Certificate of Incorporation.
3.2(7) Amended and Restated Bylaws.
4.1(4) Registration Rights Agreement, dated January 24, 1996 (the
"Registration Rights Agreement"), between the Registrant
and the investors listed on Schedule 1 thereto.
4.2(4) Form of Warrant to Purchase Shares of Common Stock between
the Registrant and each of the investors listed on
Schedule 1 to the Registration Rights Agreement.
4.3(10) Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock as filed with the
Delaware Secretary of State on September 11, 1997.
4.4(10) Certificate of Correction of the Certificate of
Designations, Preferences and Rights of Series A
Convertible Preferred Stock as filed with the Delaware
Secretary of State on September 26, 1997.
10.5(2) InSite Vision Incorporated Employee Stock Purchase Plan.
10.6(2) Form of Indemnity Agreement Between the Registrant and its
directors and officers.
10.7(2) Form of Employee's Proprietary Information and Inventions
Agreement.
10.13(3)(H) License Agreement dated as of October 9, 1991 by and
between the Company and CIBA Vision Corporation, as
amended October 9, 1991.
10.14(3)(H) Letter Agreement dated February 27, 1992 by and among the
Company, Columbia Laboratories, Inc. and Joseph R.
Robinson, as amended October 23, 1992.
10.15(2)(H) Collaboration Agreement dated as of November 24, 1992 by
and between the Company and British Bio-technology
Limited.
10.16(2)(H) Collaboration Agreement dated as of April 30, 1993 by and
between the Company and British Bio-technology Limited.
10.17(8) Facilities Lease, dated September 1, 1996, between the
Registrant and Alameda Real Estate Investments.
10.18(1)(H) Agreement dated as of February 15, 1994 by and between the
Company and Timm A. Carpenter.
10.19(9)(HH) InSite Vision Incorporated 1994 Stock Option Plan (Amended
and Restated as of June 8, 1998).
10.20(1)(HH) Form of InSite Vision Incorporated Notice of Grant of
Stock Option and Stock Option Agreement, with Addenda.
10.21(9)(HH) Form of InSite Vision Incorporated Notice of Automatic
Option Grant and Non-Employee Director Option Agreement.
10.22(1) InSite Vision Incorporated 1994 Employee Stock Purchase
Plan.
10.23(1) Form of InSite Vision Incorporated Stock Purchase Agreement.
10.24(1) Form of InSite Vision Incorporated Employee Stock Purchase
Plan Enrollment/Change Form.
</TABLE>
62
<PAGE> 56
<TABLE>
<CAPTION>
Number Exhibit Table
------ -------------
<S> <C>
10.25(4) Letter Agreement dated February 3, 1995 between the
Company and David G. Harper.
10.26(4) Settlement Agreement and General Release dated March 3,
1995 between the Company and Clifford Orent.
10.27(5) Common Stock Purchase Agreement dated January 19, 1996
between the Registrant and the Investors listed on
Schedule 1 thereto.
10.28(6)(H) ISV-205 License Agreement dated May 28, 1996 by and
between the Company and CIBA Vision Ophthalmics.
10.29(6)(H) ToPreSite License Agreement dated May 28, 1996 by and
between the Company and CIBA Vision Ophthalmics.
10.30(6)(H) BetaSite Contract Manufacturing Agreement dated July 18,
1996 by and between the Company and Bausch & Lomb
Pharmaceuticals, Inc.
10.31(6)(H) PilaSite License Agreement dated July 18, 1996 by and
between the Company and Bausch & Lomb Pharmaceuticals,
Inc.
10.32(6)(H) Timolol Development Agreement dated July 18, 1996 by and
between the Company and Bausch & Lomb Pharmaceuticals,
Inc.
10.33(6)(H) Stock Purchase Agreement dated July 18, 1996 by and
between the Company and Bausch & Lomb Pharmaceuticals,
Inc.
10.34(10) Engagement Agreement, dated April 1, 1997, by and between
the Company and William Blair & Company LLC.
10.35(10)(H) License Agreement, dated July 1, 1997, by and between the
University of Connecticut Health Center and the Company.
10.36(10)(H) License Agreement, dated August 19, 1997, by and between
the University of Rochester and the Company.
10.37(10) Form of Securities Purchase Agreement, dated September 12,
1997, by and among the Company and the Selling
Stockholders thereunder.
10.38(10) Form of Registration Rights Agreement, dated September 12,
1997, by and among the Company and the Selling
Stockholders thereunder.
10.39(10) Form of Warrant, dated September 12, 1997, to William
Blair & Company LLC.
10.40(11)(H) License Agreement, dated January 28, 1999, by and between
the Company and Pharmacia & Upjohn AB.
10.41(11)(H) Stock Purchase Agreement, dated January 28, 1999, by and
between the Company and Pharmacia & Upjohn AB and
Pharmacia & Upjohn, SA.
10.42(12) Project Agreement, dated November 11, 1999, by and between
the Company and Pharmacia & Upjohn AB.
10.43(12) Stock Purchase Agreement, dated November 11, 1999, by and
between the Company and Pharmacia & Upjohn AB.
10.44(12) Credit Agreement, dated November 11, 1999, by and between
the Company and Pharmacia & Upjohn Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (included in Part IV of this Annual
Report on Form 10-K under the caption "Signatures").
27 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to exhibit of the same number in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
(2) Incorporated by reference to exhibit of the same number in the Company's
Registration Statement on Form S-1 (Registration No. 33-68024) as filed
with the Securities and Exchange Commission on August 27, 1993.
(3) Incorporated by reference to exhibit of the same number in Amendment No. 1
the Company's Registration Statement on Form S-1 (Registration No.
33-68024) as filed with the Securities and Exchange Commission on
September 16, 1993.
63
<PAGE> 57
(4) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(5) Incorporated by reference to Exhibit 10.25 in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
(6) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(7) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(8) Incorporated by reference to exhibit of the same number in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
(9) Incorporated by reference to Exhibits 99.1, 99.3, 99.4 and 99.8,
respectively, in the Company's Registration Statement on Form S-8
(Registration No. 333-60057) as filed with the Securities and Exchange
Commission on July 28, 1998.
(10) Incorporated by reference to Exhibits 4.1, 4.2, 10.1, 10.2, 10.3, 10.4,
10.5 and 10.6, respectively, in the Company's Registration Statement on
Form S-3 (Registration No. 333-36673) as filed with the Securities and
Exchange Commission on September 29, 1997.
(11) Incorporated by reference to exhibit of the same number in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
(12) 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 Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended, pursuant to an application for confidential treatment.
(H) Confidential treatment has been granted with respect to certain portions
of this agreement.
(HH) Management contract or compensatory plan.
(b) Reports on Form 8-K
A Report on Form 8-K was filed by the Company on November 30, 1999.
(c) Exhibits
See list of exhibits under (a)(3) above.
(d) Financial Statement Schedules
See (a)(2) above.
SIGNATURES
64
<PAGE> 58
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 2000
INSITE VISION INCORPORATED
By: /s/ S. Kumar Chandrasekaran
---------------------------
S. Kumar Chandrasekaran, Ph.D.
Chairman of the Board, President,
Chief Executive Officer and
Chief Financial Officer
65
<PAGE> 59
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of InSite Vision Incorporated,
a Delaware corporation, do hereby constitute and appoint S. Kumar Chandrasekaran
as his true and lawful attorney-in-fact and agent, with the power and authority
to do any and all acts and things and to execute any and all instruments which
said attorney and agent determines may be necessary or advisable or required to
enable said corporation to comply with the Securities Exchange Act of 1934, as
amended, and any rules or regulations or requirements of the Securities and
Exchange Commission in connection with this Annual Report on Form 10-K. Without
limiting the generality of the foregoing power and authority, the powers granted
include the power and authority to sign the names of the undersigned officers
and directors in the capacities indicated below to this Annual Report on Form
10-K, to any and all amendments, and to any and all instruments or documents
filed as part of or in conjunction with this Annual Report on Form 10-K or
amendments or supplements thereof, and each of the undersigned hereby ratifies
and confirms all that said attorney and agent shall do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ S. Kumar Chandrasekaran Chairman of the Board, President, March 28, 2000
- -------------------------------------- Chief Executive Officer and
S. Kumar Chandrasekaran, Ph.D. Chief Financial Officer
/s/ Mitchell H. Friedlaender Director March 28, 2000
- --------------------------------------
Mitchell H. Friedlaender, M. D.
/s/ John E. Lucas Director March 28, 2000
- --------------------------------------
John E. Lucas
/s/ John L. Mattana Director March 28, 2000
- --------------------------------------
John L. Mattana
/s/ Jon S. Saxe Director March 28, 2000
- --------------------------------------
Jon S. Saxe
</TABLE>
67
<PAGE> 60
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ Anders P. Wiklund Director March 28, 2000
- --------------------------------------
Anders P. Wiklund
</TABLE>
68
<PAGE> 1
EXHIBIT 10.42
ISV-900 PROJECT AGREEMENT
BY AND BETWEEN
PHARMACIA & UPJOHN AB
AND
INSITE VISION INCORPORATED
NOVEMBER 11, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1 - Definitions.................................................................1
Section 1.1 "Act".......................................................................1
Section 1.2 "Affiliate".................................................................1
Section 1.3 "Agreement".................................................................2
Section 1.4 "Business Day"..............................................................2
Section 1.5 "Control" or "Controlled"...................................................2
Section 1.6 "Country Term"..............................................................2
Section 1.7 "Development Committee......................................................2
Section 1.8 "Effective Date"............................................................2
Section 1.9 "Executive Committee".......................................................2
Section 1.10 "FDA".......................................................................2
Section 1.11 "Field".....................................................................2
Section 1.12 "First Commercial Sale".....................................................2
Section 1.13 "Force Majeure".............................................................2
Section 1.14 "Improvement"...............................................................2
Section 1.15 "InSite Know-How"...........................................................3
Section 1.16 "ISV-900 Agreements"........................................................3
Section 1.17 "ISV-900 Genes".............................................................3
Section 1.18 "ISV-900 Know-How"..........................................................3
Section 1.19 "ISV-900 Patents"...........................................................3
Section 1.20 "ISV-900 Technology"........................................................3
Section 1.21 "Know-How"..................................................................3
Section 1.22 "Know-How Royalty"..........................................................3
Section 1.23 "Milestone Payments"........................................................3
Section 1.24 "NDA".......................................................................3
Section 1.25 "Net Sales".................................................................3
Section 1.26 "Patent Royalty"............................................................4
Section 1.27 "Payment Period"............................................................4
Section 1.28 "Product"...................................................................4
Section 1.29 "Royalty"...................................................................4
Section 1.30 "Sublicensee"...............................................................4
Section 1.31 "Term"......................................................................4
Section 1.32 "Territory".................................................................4
Section 1.33 "Third Party"...............................................................4
Section 1.34 "Trademark".................................................................4
Article 2. - Grants, Rights, Restrictions and Obligations................................5
Section 2.1 Grant of Sublicense and Other Rights........................................5
Section 2.2 Acceptance of Grant.........................................................5
Section 2.3 Right to Sublicense; No Encumbrances........................................5
Section 2.4 Noncompete..................................................................6
Section 2.5 Obligations.................................................................6
Article 3. - Payments, Reports and Records...............................................7
Section 3.1 Sublicense Fee..............................................................7
Section 3.2 R&D Payments................................................................7
Section 3.3 Milestone Payments..........................................................7
Section 3.4 Royalty.....................................................................8
Section 3.5 Method and Manner of Royalty Payments......................................9
Section 3.6 Third Party Royalties.......................................................9
</TABLE>
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<TABLE>
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Section 3.7 Audit.......................................................................10
Section 3.8 Payment Adjustments.........................................................10
Article 4. - Regulatory and Marketing Obligations........................................10
Section 4.1 Development Committee.......................................................10
Section 4.2 Executive Committee.........................................................11
Section 4.3 ISV-900 Files...............................................................11
Section 4.4 Government Contact..........................................................12
Section 4.5 Marketing Efforts...........................................................12
Section 4.6 Labeling and Packaging......................................................12
Section 4.7 Advertising and Promotional Materials.......................................12
Article 5. - Stock Purchase Agreement; Credit Agreement..................................12
Section 5.1 Stock Purchase..............................................................12
Section 5.2 Credit Agreement............................................................12
Article 6. - Rights in Technology, Improvements, Patents and Trademarks..................13
Section 6.1 Patent Prosecution..........................................................13
Section 6.2 Improvements................................................................13
Section 6.3 Development Information and Know-How........................................13
Section 6.4 Trademarks..................................................................13
Article 7. - Infringement................................................................13
Section 7.1 Infringement of Third Parties' Rights.......................................13
Section 7.2 Infringement Claims Against Third Parties...................................14
Article 8. - Representation and Warranties...............................................15
Section 8.1 InSite Representations......................................................15
Section 8.2 P&U Representations and Warranties.:........................................17
Article 9. - Indemnification.............................................................18
Section 9.1 Indemnification by InSite...................................................18
Section 9.2 Indemnification by P&U......................................................18
Section 9.3 Indemnification Procedures..................................................18
Article 10. - Confidentiality ............................................................19
Section 10.1 Confidential Information....................................................19
Section 10.2 Disclosure..................................................................19
Section 10.3 Survival....................................................................19
Section 10.4 Obligation to Obtain Agreements.............................................19
Section 10.5 Return of Information.......................................................20
Section 10.6 Public Disclosure...........................................................20
Section 10.7 Publication.................................................................20
Article 11. - Term and Termination .......................................................20
Section 11.1 Term........................................................................20
Section 11.2 Early Termination...........................................................20
Section 11.3 P&U Termination.............................................................21
</TABLE>
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<TABLE>
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Section 11.4 InSite Termination..........................................................21
Section 11.5 Rights and Obligations upon Termination.....................................21
Article 12. - Dispute Resolution..........................................................23
Section 12.1 Non-Arbitrable Issues.......................................................23
Section 12.2 Disputes....................................................................23
Section 12.3 Attempt to Resolve..........................................................23
Section 12.4 Binding Arbitration.........................................................23
Section 12.5 Written Notice..............................................................23
Section 12.6 Selection of Arbitrators....................................................23
Section 12.7 Hearings....................................................................24
Section 12.8 Confidential................................................................24
Section 12.9 Costs.......................................................................24
Section 12.10 Decision....................................................................24
Section 12.11 Remedy......................................................................25
Section 12.12 Final Decision within One Year..............................................25
Section 12.13 Provisional Remedies........................................................25
Section 12.14 Non-Jury....................................................................25
Section 12.15 Damages.....................................................................25
Article 13. - Miscellaneous...............................................................25
Section 13.1 Record-keeping..............................................................25
Section 13.2 Notice......................................................................25
Section 13.3 Entire Agreement; Amendment.................................................26
Section 13.4 Force Majeure...............................................................27
Section 13.5 Assignment..................................................................27
Section 13.6 Headings, Interpretation....................................................27
Section 13.7 Independent Parties.........................................................27
Section 13.8 Governing Law...............................................................27
Section 13.9 No Waiver...................................................................27
Section 13.10 Severability................................................................27
Section 13.11 Limitation of Liability.....................................................28
Section 13.12 Interpretation..............................................................28
Section 13.13 Counterparts................................................................28
Section 13.14 Third Party Beneficiaries...................................................28
Section 13.15 Additional Transactions.....................................................28
Section 13.16 Further Assurances..........................................................29
</TABLE>
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ISV-900 PROJECT AGREEMENT
This ISV-900 PROJECT AGREEMENT is made as of November 11, 1999, by and
between PHARMACIA & UPJOHN AB, a Swedish corporation ("P&U ") and INSITE VISION
INCORPORATED, a Delaware corporation ("InSite"). InSite and P&U may be referred
to herein individually as a "Party" or collectively as the "Parties." Terms not
otherwise defined herein shall have the meanings set forth in Article I.
RECITALS
WHEREAS, InSite and P&U are pharmaceutical companies engaged in the
research, development, manufacture and commercialization of pharmaceutical
products;
WHEREAS, InSite owns or Controls or will own or Control certain patents,
patent applications, trademarks, registrations, market applications and know-how
related to the Product, and it has or will have the right to grant certain
rights and sublicenses thereunder as set forth herein;
WHEREAS, P&U desires to obtain licenses and sublicenses from InSite to
develop, manufacture, market, distribute, detail and sell the Product in the
Territory, and InSite desires to grant such rights and sublicenses to P&U, on
the terms and conditions contained in this Agreement; and
NOW THEREFORE, in consideration of the covenants and promises in this
Agreement, INSITE and P&U agree as follows:
ARTICLE 1.
DEFINITIONS
For purposes of this Agreement, the following initially capitalized
terms in this Agreement, whether used in the singular or plural, shall have the
following meanings:
SECTION 1.1 "ACT" means the Federal Food, Drug and Cosmetic Act, as the
same may be amended or re-enacted from time to time.
SECTION 1.2 "AFFILIATE" means, with respect to any party (a) any of its
respective direct or indirect ultimate parent companies as may exist from time
to time, and (b) any company, firm or other entity (i) more than fifty percent
(50%) of whose issued and voting capital, share or equity participation is now
or hereafter owned or (ii) now or hereafter controlled, in the case of either of
the foregoing clauses (i) or (ii), directly or indirectly by such party or by
its parent company. For the purpose of this definition, "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an individual,
<PAGE> 6
corporation or other legal entity, whether through the ownership of voting
securities, by contract, or otherwise.
SECTION 1.3 "AGREEMENT" means this ISV-900 Project Agreement and any
Schedules appended hereto, as may be amended from time to time.
SECTION 1.4 "BUSINESS DAY" means a day, other than Saturday or Sunday,
on which banks are open for business in New York, New York.
SECTION 1.5 "CONTROL" OR "CONTROLLED," when used in connection with
intellectual property rights, means that the Party owns or has right or license
to such intellectual property rights and has legal authority, right and ability
to grant to the other Party access, a license, or a sublicense to such
intellectual property rights or to otherwise disclose proprietary or trade
secret information to such other Party, as provided for in this Agreement,
without violating any agreement with or the rights of a Third Party.
SECTION 1.6 "COUNTRY TERM" shall have the meaning set forth in Section
11.1.
SECTION 1.7 "DEVELOPMENT COMMITTEE" means those representatives of P&U
and InSite appointed to oversee the development of ISV-205 pursuant to the
License Agreement, dated January 28, 1999, between the Parties (the "ISV-205
Agreement") as expanded pursuant to Section 4.1.
SECTION 1.8 "EFFECTIVE DATE" means the date first written above.
SECTION 1.9 "EXECUTIVE COMMITTEE" means the Chief Executive Officer of
InSite and P&U or their designees, with the responsibilities as described in
Section 4.2.
SECTION 1.10 "FDA" means the United States Food and Drug Administration
or any successor entity thereto.
SECTION 1.11 "FIELD" means the use in the diagnosis, prognosis and
treatment of human diseases and/or disorders based on the research, development
and/or use of the ISV 900 Genes.
SECTION 1.12 "FIRST COMMERCIAL SALE" means the first sale for end use or
consumption of the Product in each country within the Territory.
SECTION 1.13 "FORCE MAJEURE" means any act of God, acts of government,
war, fire, explosion, flood, earthquake, embargo, labor dispute or any other
similar event beyond the control of a Party.
SECTION 1.14 "IMPROVEMENT" means any enhancement of the Product for use
in the Field, including without limitation, its use, dosage, form, indication,
presentation and/or formulation, whether or not patentable, developed by or for,
invented or acquired by, or coming under the Control of InSite prior to the
expiration or termination of this Agreement.
2
<PAGE> 7
SECTION 1.15 "INSITE KNOW-HOW" means any Know-How of InSite or its
Affiliates relating specifically to the ISV-900 Genes that is developed or owned
by InSite as of the Effective Date or that comes into existence during the Term.
InSite Know-How does not include ISV-900 Know-How or ISV-900 Patents.
SECTION 1.16 "ISV-900 AGREEMENTS" means those agreements set forth on
Schedule 1.16 as such agreements may be amended from time to time by the
Development Committee to include other agreements related in whole or in part to
the ISV-900 Genes.
SECTION 1.17 "ISV-900 GENES" means the TIGR gene, Apolipoprotein E gene
and CYP1B1 gene and all polymorphisms, mutations and variations thereof.
SECTION 1.18 "ISV-900 KNOW-HOW" means all Know-How developed pursuant to
the ISV-900 Agreements. ISV-900 Know-How does not include ISV-900 Patents or
InSite Know-How.
SECTION 1.19 "ISV-900 PATENTS" means all patents and patent applications
listed in Schedule 1.20, and all patents and patent applications that are
covered by or arise under any of the ISV-900 Agreements, and all patents issued
on any such patent applications, and all foreign counterparts, additions,
divisions, continuations, continuations-in-part, substitutions, extensions,
patent term extensions and renewals thereof, and in the case of any of the
foregoing, whether owned or Controlled by InSite prior to the Effective Date or
during the Term.
SECTION 1.20 "ISV-900 TECHNOLOGY" means ISV-900 Patents, ISV-900
Know-How, InSite Know-How, Improvements and any associated regulatory approvals
necessary to practice the foregoing, including all NDAs.
SECTION 1.21 "KNOW-HOW" means all information and materials, including,
without limitation, processes, techniques, formulas, vectors, data, methods,
equipment designs, know-how, show-how and trade secrets, discoveries, practices,
knowledge, ideas, skill, experience, inventions, technology, manufacturing
procedures, test procedures, purification and isolation techniques,
instructions, technical and scientific data, preclinical and clinical data, test
data and other intellectual property, patentable or otherwise, tangible or
intangible.
SECTION 1.22 "KNOW-HOW ROYALTY" has the meaning set forth in Section
3.4(b).
SECTION 1.23 "MILESTONE PAYMENTS" has the meaning set forth in Section
3.3.
SECTION 1.24 "NDA" means the new drug application related to the
Product, and any amendments or supplements thereto, submitted to the FDA under
Sections 505, 507 or 512 of the Act and applicable regulations related thereto,
or its foreign equivalent.
SECTION 1.25 "NET SALES" shall be determined using the accrual basis of
accounting in accordance with U.S. generally accepted accounting principles in
the U.S., applied in a manner consistent with P&U's customary practices, and
means the actual gross invoiced sales of Product by P&U or its Affiliates,
Sublicensees, distributors, or other agents to Third Parties, less the following
deductions to the extent included in the gross invoiced sales price for the
Product by
3
<PAGE> 8
P&U, its Affiliates, or its Sublicensees with respect to the sale of such
Product and to the extent they are actually paid or allowed and are not
reimbursed by customers or any Third Party:
(i) any rebates, quantity, trade and cash discounts, and other
usual and customary discounts to customers granted in the
ordinary course of business;
(ii) amounts repaid or credited by reason of rejections or
returns of Product;
(iii) returns and retroactive price reductions affecting the
Product;
(iv) compulsory payments and rebates, actually paid or deducted;
and
(v) sales, excise, inventory, value added, and similar taxes
assessed on the sale of Product;
SECTION 1.26 "PATENT ROYALTY" has the meaning set forth in Section
3.4(a).
SECTION 1.27 "PAYMENT PERIOD" means a calendar quarter ending on March
31st, June 30th, September 30th, or December 31st.
SECTION 1.28 "PRODUCT" means any finished product developed using the
ISV-900 Technology for use in the Field.
SECTION 1.29 "ROYALTY" means the Patent Royalty and the Know-How
Royalty.
SECTION 1.30 "SUBLICENSEE" means any person, corporation, unincorporated
body, or other entity that is not an Affiliate of P&U and to whom P&U grants a
sublicense of the rights granted to P&U pursuant to this Agreement.
SECTION 1.31 "TERM" shall have the meaning set forth in Section 11.1.
SECTION 1.32 "TERRITORY" means the world.
SECTION 1.33 "THIRD PARTY" means any person, corporation, unincorporated
body, or other entity other than InSite and its Affiliates and P&U and its
Affiliates and Sublicensees.
SECTION 1.34 "TRADEMARK" means those trademarks, trade names, brand
names, logos and designs whether registered or not, owned or Controlled by
InSite and used in a country in the Territory during a Country Term in
connection with the identification, promotion, marketing or sale of the Product
for use in the Field in such country.
4
<PAGE> 9
ARTICLE 2.
GRANTS, RIGHTS, RESTRICTIONS AND OBLIGATIONS
SECTION 2.1 GRANT OF SUBLICENSE AND OTHER RIGHTS.
(a) Subject to the terms and conditions of this Agreement, InSite
grants to P&U an exclusive sublicense (with reversion rights and
research rights reserved to InSite as provided herein) of all of its
rights under the ISV-900 Agreements. InSite shall remain responsible for
all payment obligations under the ISV-900 Agreements.
(b) Subject to the terms and conditions of this Agreement, InSite
assigns to P&U all of its rights, title and interest in the InSite
Know-How.
(c) Subject to the terms and conditions of this Agreement, InSite
grants to P&U an exclusive right and license under the ISV-900
Technology during the Term to develop, have developed, make, have made,
import, have imported, distribute, have distributed, commercialize, have
commercialized, market, have marketed, sale, and have sold the Product
by P&U, its Affiliates or Sublicensees in the Territory.
(d) Subject to the terms and conditions of this Agreement, InSite
grants to P&U an exclusive right and license to use the Trademarks
during the Term solely for the purpose of marketing, selling, having
sold and distributing Product in the Territory.
(e) Notwithstanding anything to the contrary in Sections 2.1(a),
(b) and (c), InSite shall retain the right (without the right to
sublicense or assign absent P&U's prior written consent) to use this
ISV-900 Know-How for InSite's internal research and development purposes
only.
SECTION 2.2 ACCEPTANCE OF GRANT. P&U accepts the grant of the sublicense
and other rights set forth in Section 2.1 and confirms that it shall use best
appropriate, commercial efforts, consistent with accepted business practices and
legal requirements, to (i) seek any necessary regulatory approval of the Product
in those countries in the Territory in which the Development Committee, in its
discretion, has determined to seek regulatory approval and (ii) if approval is
obtained, to promote, market and sell the Product in each such country.
SECTION 2.3 RIGHT TO SUBLICENSE; NO ENCUMBRANCES. P&U shall have the
right to grant sublicenses of its rights hereunder to any of its Affiliates,
Sublicensees or to any Third Party, with written notice to InSite. During the
Term hereof, InSite shall not directly or indirectly encumber any of the ISV-900
Technology or the ISV-900 Agreements or permit the imposition of any lien
(statutory or otherwise), encumbrance, assign, security interest, hypothecation,
deposit, charge or priority of any type whatsoever on this Agreement, any of the
ISV-900 Technology or any of the ISV-900 Agreements, provided, however, that
InSite shall have the right to assign any Royalty due to InSite hereunder;
provided further that any assignee of such Royalty shall expressly disclaim any
right in this Agreement, the ISV-900 Agreements, and the ISV-900 Technology.
5
<PAGE> 10
SECTION 2.4 NONCOMPETE. During each applicable Country Term, InSite and
its Affiliates shall not (i) directly or indirectly promote, distribute, market
or sell any product based on the ISV-900 Genes in any country in the Territory;
or (ii) with respect to any diagnostic, prescription or over-the-counter
pharmaceutical product not based on the ISV-900 Genes, promote, distribute,
market or sell, or enter into any co-promotions or license agreements in the
Territory with respect thereto, unless InSite has first complied with its
obligations to P&U under Section 13.15.
SECTION 2.5 OBLIGATIONS.
(a) Documents. Within five (5) Business Days of the Effective
Date, InSite shall deliver to P&U, contemporaneously with the execution
of this Agreement, resolutions of its Board of Directors approving the
transactions set forth herein, all necessary regulatory approvals, and
legal opinions of patent and corporate counsel, all as reasonably
requested by P&U.
(b) ISV-900 Agreements.
(i) Notices to P&U. On and after the Effective Date,
InSite agrees to include P&U as a recipient on all notices that
InSite sends to any other party to an ISV-900 Agreement which
relates to an ISV-900 Agreement. InSite also agrees to promptly
provide P&U with copies of any and all notices that it receives
under each of the ISV-900 Agreements of all events requiring
notice to InSite under those agreements.
(ii) Rights of P&U. InSite agrees that (A) it will act at
the Development Committee's direction with respect to the
exercise of any right of InSite arising under any of the ISV-900
Agreements, including without limitation, those rights set forth
in Schedule 2.5, (B) upon any Event of Default by InSite
hereunder, the Development Committee shall have the authority to
act on InSite's behalf with respect to the ISV-900 Agreements,
including without limitation, those matters specifically set
forth on Schedule 2.5, (C) it will not permit or consent to an
amendment, supplement or termination of any of the ISV-900
Agreements without the Development Committee's prior, written
consent, which consent shall not be unreasonably withheld, and
(D) it will not enter into any agreement relating to the ISV-900
Genes without the prior written consent of the Development
Committee, which consent shall not be unreasonably withheld.
(iii) ISV-900 Agreement Obligations. InSite shall remain
responsible for performing all obligations required of it under
the ISV-900 Agreements during the Term other than as consented to
in writing by the Development Committee.
6
<PAGE> 11
ARTICLE 3.
PAYMENTS, REPORTS AND RECORDS
SECTION 3.1 SUBLICENSE FEE.
(a) In consideration of the sublicenses and rights granted by
InSite to P&U hereunder, P&U shall pay to InSite, within five (5)
Business Days after the Effective Date, the sum of Five Million Dollars
* ("Sublicense Fee") in United States currency by wire transfer to an
account designated by InSite, less the sum of * that P&U shall be
credited on account of such amount being paid by P&U to InSite upon
execution of the letter of intent related hereto.
(b) InSite has determined, in the exercise of its obligations to
the parties to the ISV-900 Agreements, that the Sublicense Fee shall be
allocated as follows: * for the rights related to TIGR gene and the
Apolipoprotein E gene, * for the CYP1B1 gene, and * for all other
sublicenses and rights granted herein.
SECTION 3.2 R&D PAYMENTS. In further consideration of InSite's grant of
rights to P&U hereunder, including the licenses set forth in Article 2, and
subject to the terms and conditions of this Agreement, P&U will pay InSite as
follows:
(a) * in United States currency by wire transfer to an account
designated by InSite, on *.
(b) * in United States currency by wire transfer to an account
designated by InSite, on *.
(c) * in United States currency by wire transfer to an account
designated by InSite, on *.
(d) Subject to Section 4.1(b), InSite shall devote and use the
research and development payments received under this Section 3.2 solely
for the purpose of covering internal and external costs associated with
further developing the ISV-900 Technology.
(e) Any additional research and development payments related to
the commercialization of the Product shall be determined by the
Development Committee. The failure of the Development Committee to agree
on any additional research and development payments shall not affect or
impair the rights granted to P&U hereunder.
SECTION 3.3 MILESTONE PAYMENTS.
(a) If the Development Committee or Executive Committee, pursuant
to Section 4.1 or 4.2, as the case may be, determines within * of the
Effective Date, that the milestone described in Schedule 3.3(a) (the
"First Milestone") has been achieved, P&U shall pay InSite within five
(5) Business Days of receiving written notice of such
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
7
<PAGE> 12
determination, the sum of * in United States currency by wire transfer
to an account designated by InSite.
(b) If the Development Committee or Executive Committee, pursuant
to Section 4.1 or 4.2, as the case may be, determines within * of the
Effective Date, that the milestone described in Schedule 3.3(b) (the
"Second Milestone") has been achieved, P&U shall pay InSite the sum of *
in United States currency by wire transfer to an account designated by
InSite.
SECTION 3.4 ROYALTY.
(a) In further consideration of the sublicensing of InSite's
rights under the ISV-900 Agreements by InSite to P&U, P&U shall pay to
InSite a royalty in the amount of * of Net Sales of the Product to Third
Parties (the "Patent Royalty") in each country in the Territory wherein
the manufacture, use, processing, importation, distribution, detailing
or sale of the Product would infringe any filed ISV-900 Patent. In the
event that (i) InSite (or any other party to an ISV-900 Agreement with
obligations to pursue patent rights) abandons or fails to diligently
pursue any filed ISV-900 Patent in a country of the Territory, (ii) any
filed ISV-900 Patent is subsequently disallowed in a country of the
Territory, or (iii) a product, which competes with the Product, is sold
in a country in the Territory in which an ISV-900 Patent has been filed
but not yet issued, and such competition results in the competing
product obtaining a market share in excess of * of the total market for
the Product as determined in any calendar quarter in such country, then
P&U shall have no obligation to pay InSite a Patent Royalty in any such
country for such quarter. Unless this Agreement is otherwise terminated
earlier, P&U's Patent Royalty will automatically expire on a
country-by-country basis on the expiration (or revocation) of the last
to expire (or to be revoked) of the ISV-900 Patents in each country.
Upon the expiration of the Country Term based upon expiration (or
revocation) of the last to expire (or to be revoked) of the ISV-900
Patents in such country, P&U shall have a fully paid, non-revocable,
non-exclusive license under the ISV-900 Know-How in that country to
promote, import, market and sell the Products for use in the Field.
(b) In further consideration of the sublicensing of InSite's
rights under the ISV-900 Agreements by InSite to P&U, including the
rights to InSite Know-How, P&U shall pay to InSite a royalty in the
amount of * of Net Sales of the Product to Third Parties (the "Know-How
Royalty") in each country in the Territory wherein P&U is not subject to
the Patent Royalty. Upon filing of an ISV-900 Patent in any country
wherein P&U is paying a Know-How Royalty, P&U shall pay the Patent
Royalty. Notwithstanding anything to the contrary in this Section
3.4(b), in the event that a product that competes with the Product (i.e.
a product with substantially the same diagnostic or prognostic
capabilities or the same active ingredient and dosage strength as the
Product) is marketed by a Third Party in any country in the Territory
wherein P&U is subject to the Know-How Royalty, the Know-How Royalty
shall be reduced by * of the amount that would otherwise be payable.
Notwithstanding anything herein to the contrary, unless this Agreement
is otherwise terminated earlier, P&U's obligation to
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
8
<PAGE> 13
pay the Know-How Royalty in a country in which P&U is paying the
Know-How Royalty, shall expire on the * of the First Commercial Sale of
the Product in such country by P&U. Upon such date, P&U shall have a
fully paid, non-revocable, non-exclusive license under the ISV-900
Know-How in that country to promote, import, market and sell the
Products for use in the Field.
(c) InSite shall remain obligated for any and all payment
obligations under the ISV-900 Agreements during the terms thereof.
InSite shall pay all royalties arising under the ISV-900 Agreements out
of the Patent Royalty and/or Know-How Royalty in a timely manner,
consistent with the terms of each of the ISV-900 Agreements.
SECTION 3.5 METHOD AND MANNER OF ROYALTY PAYMENTS.
(a) P&U shall deliver to InSite within forty-five (45) days
following the end of each Payment Period a written report (the "Payment
Statement") describing (i) the Net Sales of the Product sold during such
Payment Period in each country wherein P&U is obligated to pay InSite a
Royalty hereunder; (ii) the calculation of Net Sales from the gross
revenues for the Product in each such country, including without
limitation, a breakdown of each deduction from gross sales; and (iii)
the Royalty due on the sales of the Product for such Payment Period. P&U
shall pay to InSite within forty-five (45) days following the end of
each Payment Period any Royalty due and payable to InSite in accordance
with this Article 3. Each such payment shall be accompanied by a Payment
Statement.
(b) All payments to be made by P&U to InSite pursuant to this
Agreement shall be made in U.S. Dollars. Net Sales outside the U.S.
shall be first determined in the currency of the country in which they
are earned and shall be converted quarterly into an amount in U.S.
Dollars based on P&U's internal exchange rates used in preparing P&U's
consolidated earnings statements for such quarter. All such converted
Net Sales shall be consolidated with U.S. Net Sales for the
corresponding period and the applicable royalty payable determined
therefrom.
(c) Any Royalty due and payable to InSite pursuant to this
Agreement shall be made by wire transfer, to such bank or account as
InSite may from time to time designate in writing. All Royalties shall
be made in United States Dollars and shall be considered to be made as
of the day on which it is received in InSite's designated bank account.
(d) Whenever any Royalty is due on a day which is not a Business
Day, such payment shall be made on the immediately succeeding Business
Day.
SECTION 3.6 THIRD PARTY ROYALTIES. In the event that P&U, its Affiliates
and/or its Sublicensees is or are required to obtain a license from a Third
Party in order to practice the rights granted under the ISV-900 Patents or
ISV-900 Know-How in a country in the Territory (the "Third Party Licenses"),
then P&U shall be entitled to reduce the amount of the Royalty payable under
Section 3.4 by the amount of any consideration, including but not limited to
royalties, actually paid to a Third Party under such Third Party License by P&U,
its Affiliates or Sublicensees but in no event shall the Patent Royalty paid to
InSite be less than *
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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* nor shall the Know-How Royalty paid to InSite be less than * in the absence of
competition or * with competition. This provision shall not be applicable to
arrangements or agreements which are determined to constitute ISV-900
Agreements after the Effective Date.
SECTION 3.7 AUDIT.
(a) Each Party shall have the right to audit the records of the
other Party, at its own expense; provided, however, that if any
discrepancy exceeds five percent (5%), the cost and expenses of such
audit shall be paid by the Party against whom the discrepancy is found,
using a mutually acceptable nationally recognized firm of independent
certified accountants. Such accountants will have access, on reasonable
notice to such Party's and to its Affiliates' records, as the case may
be, during reasonable business hours for the purpose of verifying any
royalty payable under this Agreement or under the ISV-900 Agreements for
the two preceding years, or verifying that InSite's use of the payments
received under Section 3.2 were devoted and used by InSite solely to
further develop the ISV-900 Technology. Notwithstanding the foregoing,
this right may not be exercised more than twice in any calendar year.
The accountant shall provide both InSite and P&U with a copy of any
report prepared as a result of the audit.
(b) Each Party agrees to hold confidential all information
learned in the course of any examination of the other Party's books and
records hereunder, except when it is necessary for such Party to reveal
such information in order to enforce its rights under this Agreement or
when otherwise compelled by law.
(c) With respect to the Royalty calculations or InSite's use of
payments received under Section 3.2, all reports and payments not
disputed as to correctness within two (2) years after receipt thereof
shall thereafter conclusively be deemed correct for all purposes. With
respect to any amounts payable under any ISV-900 Agreement, all reports
and payments not disputed as to correctness within the periods provided
under such agreement shall thereafter conclusively be deemed correct for
all purposes.
SECTION 3.8 PAYMENT ADJUSTMENTS. Any adjustment (whether payment or
reimbursement, as the case may be) required as a result of an audit conducted
pursuant to Section 3.7 shall be made within ten (10) Business Days after the
date on which the accountant conducting the audit issues a written report to
InSite and P&U containing the results of the audit.
ARTICLE 4.
REGULATORY AND MARKETING OBLIGATIONS
SECTION 4.1 DEVELOPMENT COMMITTEE.
(a) Within ten (10) Business Days after the Effective Date,
InSite and P&U shall each select two additional representatives to serve
on the Development Committee. P&U shall select one of its members on the
Development Committee to serve as chairperson.
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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(b) The Development Committee shall, among other things, (i)
plan, coordinate and manage the development of the Product, (ii) direct,
in consultation with InSite, expenditure of the R&D payments made under
Section 3.2, (iii) amend Schedule 1.16 as necessary to include
additional agreements related to the ISV-900 Genes, (iv) determine
whether either of the milestones described in Sections 3.3(a) and (b)
have successfully been reached; and (v) determine whether and to what
extent the Product should be the subject of (A) any further assessment
or testing, or (B) any preclinical or clinical development.
(c) The Development Committee shall operate consistent with the
procedures set forth (i) herein and (ii) in Sections 3.3(c) and (e) of
the ISV-205 Agreement, which are attached as Schedule 4.1.
(d) InSite shall, at the direction of the Development Committee,
take any and all actions in any and all matters arising under the
ISV-900 Agreements or involving the ISV-900 Technology.
(e) All decisions of the Development Committee shall be made by
majority vote. In the event of a deadlock on any matter to be decided by
the Development Committee, the decision shall be made by the chairperson
of the Development Committee; provided, however, that in the event of a
deadlock solely with respect to future expenditures of R&D payments
under Section 3.2 or whether either of the milestones described in
Sections 3.3(a) and (b) have been reached, the chairperson of the
Development Committee shall not have the right to cast the deciding vote
but shall instead refer the issue to the Executive Committee.
(f) Each Party will bear its own costs and expenses associated
with participation in the Development Committee, and each Party may
change its Development Committee members upon notice to the other Party.
(g) In the event that the Development Committee is disbanded, P&U
shall have the right and shall undertake all responsibilities of the
Development Committee as set forth herein or as otherwise related to the
Product.
SECTION 4.2 EXECUTIVE COMMITTEE. The Executive Committee shall decide
any matters referred to it by the Development Committee. In the event of a
deadlock on any matter to be decided by the Executive Committee, P&U's
representative on the Executive Committee shall have the right and power to cast
the deciding vote and render a decision on the matter.
SECTION 4.3 ISV-900 FILES. Upon the Effective Date, InSite shall
transfer to P&U copies of all files related to the ISV-900 Agreements, the
ISV-900 Technology and the Product; provided, however, that InSite will retain a
copy of such files for its use consistent with the terms of this Agreement. P&U
shall be solely responsible for preparing applications and for seeking and, if
granted, maintaining Product registrations and regulatory approval in the
Territory, including performing any and all studies required by the governing
regulatory authorities from time to time to obtain and maintain such
registration and regulatory approval for the Product.
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P&U shall be responsible for the direct costs and expenses (e.g. filing fees)
solely associated with the filing and maintaining of Product registrations and
approvals in the Territory.
SECTION 4.4 GOVERNMENT CONTACT. P&U shall be responsible in consultation
with the Development Committee for communicating with all government agencies
and satisfying all regulatory requirements necessary to obtain and maintain
approval to market the Product in those countries in the Territory in which the
Development Committee determines, in its discretion, to seek or maintain Product
approval.
SECTION 4.5 MARKETING EFFORTS. P&U will use best appropriate commercial
efforts, consistent with its other brands with similar economic potential, to
commercialize the Product. P&U shall determine, in its sole discretion, (i)
whether and to what extent the Product should be the subject of any regulatory
submission seeking regulatory approval in any country in the Territory, or (ii)
whether the Product should be the subject of any manufacturing, testing, and
commercialization. InSite shall be entitled to provide comments to P&U regarding
such commercialization efforts and P&U shall reasonably consider such comments.
SECTION 4.6 LABELING AND PACKAGING. P&U shall be responsible for
developing, packaging and labeling the Product, which shall be consistent with
the FDA approved labeling for the Product and such requirements of comparable
regulatory agencies in other countries. P&U shall also be responsible for
seeking and obtaining all necessary regulatory approvals for all labeling and
packaging of the Product. P&U shall be the designated contact with the FDA's
Division of Drug Marketing, Advertising, and Communication ("DDMAC") regarding
Product labeling and/or promotional materials.
SECTION 4.7 ADVERTISING AND PROMOTIONAL MATERIALS. P&U shall be
responsible for (i) developing all advertising and promotional materials
relating to the Product, and (ii) for assuring that all promotional material
that it produces relating to Product is in material compliance with applicable
law and regulations for each country in the Territory where such materials are
used.
ARTICLE 5.
STOCK PURCHASE AGREEMENT; CREDIT AGREEMENT
SECTION 5.1 STOCK PURCHASE. P&U shall purchase shares of InSite Common
Stock with a value of Two Million Dollars ($2,000,000) pursuant to the terms of
a Stock Purchase Agreement to be executed contemporaneously herewith.
SECTION 5.2 CREDIT AGREEMENT. Subject to the terms and conditions set
forth in a Credit Agreement to be executed contemporaneously herewith, and
subject to the conditions set forth below, P&U shall make available to InSite up
to Four Million Dollars ($4,000,000) in debt financing on the second anniversary
of the Effective Date.
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ARTICLE 6.
RIGHTS IN TECHNOLOGY,
IMPROVEMENTS, PATENTS AND TRADEMARKS
SECTION 6.1 PATENT PROSECUTION. InSite, at the direction of the
Development Committee, subject to the terms of the ISV-900 Agreements, shall use
its best, commercial effort to prosecute and maintain the ISV-900 Patents.
InSite shall bear all expenses associated with such patent prosecution and
maintenance. Prosecution of pending patent applications shall mean through final
patent office appeal and any opposition proceedings or the like, including but
not limited to, re-issue applications and re-examination proceedings in any
country in the Territory. The prosecution of any patent applications and/or
maintenance of any ISV-900 Patents may be abandoned as directed by the
Development Committee.
SECTION 6.2 IMPROVEMENTS.
(a) InSite will disclose promptly to P&U any and all proposed or
actual Improvements to the Product conceived and/or made by or for it
during the Term.
(b) To the extent any improvement to a Product is conceived
and/or made by or for P&U (other than by InSite) during the Term, such
improvement shall be owned solely by P&U.
(c) To the extent InSite or any other Party to an ISV-900
Agreement develops any Improvement during the Term, InSite shall
transfer or sublicense, as the case may be, its rights therein to P&U,
without any further consideration, including its rights to any patent
protection obtained for such Improvements and such Improvements to the
Product whether by InSite, P&U or any other Party to an ISV-900
Agreement shall be subject to this Agreement. Whenever requested to do
so by the Development Committee, InSite will execute any and all
applications, assignments or other instruments and give testimony which
the Development Committee shall reasonably deem necessary to apply for
and obtain a patent in any country in the Territory it deems necessary.
SECTION 6.3 DEVELOPMENT INFORMATION AND KNOW-HOW. Subject to the terms
of this Agreement, P&U shall own and have the exclusive right, title and
interest in all Know-How resulting or arising from any development by P&U.
SECTION 6.4 TRADEMARKS. P&U agrees to use its good faith efforts to
continue the registration and maintenance of the Trademarks as it may be amended
from time to time by agreement of the Parties.
ARTICLE 7.
INFRINGEMENT
SECTION 7.1 INFRINGEMENT OF THIRD PARTIES' RIGHTS.
(a) If the manufacture, use, importation, marketing or sale of
the Product results in a claim against a Party for patent infringement,
the Party first having notice of a
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claim by a Third Party of infringement shall promptly notify the other
Party in writing. The notice shall set forth the facts of the claim (to
the extent known by the Party having notice) in reasonable detail.
(b) If the manufacture, use, importation, marketing or sale of
the Product in a country in the Territory results in a claim against a
Party for patent infringement or trade secret misappropriation related
to the ISV-900 Agreements, ISV-900 Patents and/or ISV-900 Know-How (the
"Claim"), the Parties agree to respond to and/or defend against the
Claim as provided in this Section 7.1(b).
(i) The provisions of this Section 7.1(b) shall be subject
to the preexisting rights of any party, other than InSite, to an
ISV-900 Agreement.
(ii) * shall have the initial right to manage solely the
defense of the Parties against the Claim. If * elects to exercise
such right as to the Claim, * shall cooperate with * at * request
and shall have the right to be represented by counsel selected by
*. If * elects not to exercise such right as to the Claim, *
shall have the right to manage solely the defense of the Parties
against the Claim, and * shall cooperate with * at * request and
shall have the right to be represented by counsel selected by *.
(iii) The Party that manages the defense of the Parties
against any Claim shall have the right to negotiate a settlement
provided, however, that (a) such Party shall consult with the
other Party concerning the Terms of any settlement before
entering into settlement agreement, and (b) neither Party shall
settle any Claim without the prior written consent of the other
Party, which consent shall not be unreasonably withheld.
(iv) Each Party shall be responsible for its own fees and
costs of attorneys and consultants, together with the court
costs, incurred in defending against the Claim.
(v) If * is required by a final court order or a
settlement agreement entered into in good faith to pay damages
and/or make royalty or other payments to a Third Party in
connection with the disposition of the Claim, * shall make or
reimburse to * all such damages and/or payments, net of royalties
paid by Third Parties to *.
(c) Neither this Article 7, nor any exercise of rights or
fulfillment of obligations under this Article 7, shall affect by itself
any indemnification or contribution rights of either Party against any
Third Party.
SECTION 7.2 INFRINGEMENT CLAIMS AGAINST THIRD PARTIES. InSite and P&U
each agree to take reasonable actions, consistent with efforts used by each
Party to protect its confidential material, to protect the ISV-900 Patents from
infringement and the ISV-900 Technology from unauthorized disclosure, possession
or use.
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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(a) If ISV-900 Patents are infringed or ISV-900 Technology is
misappropriated, as the case may be, by a Third Party, the Party to this
Agreement first having knowledge of such infringement or
misappropriation, or knowledge of a reasonable probability of such
infringement or misappropriation, shall promptly notify the other in
writing. The notice shall set forth the facts of such infringement or
misappropriation in reasonable detail.
(b) InSite shall have the initial right to institute, prosecute,
and control, with its own counsel and at its own expense, any action or
proceeding with respect to infringement or misappropriation of such
ISV-900 Patents or ISV-900 Know-How, and P&U shall have the right, at
its own expense, to be represented in such action by its own counsel.
(c) If InSite determines not to institute, prosecute or control
any action or proceeding with respect to infringement or
misappropriation of ISV-900 Patents or ISV-900 Know How, then P&U,
standing in the stead of InSite under the ISV-900 Agreements, shall have
the right, at its own expense to institute, prosecute and control such
action or proceeding, provided that P&U shall keep InSite reasonably
informed of the status of such proceeding.
(d) Subject to any payments to be made to any Third Party under
the ISV-900 Agreements, (i) the reasonable costs and expenses of InSite
and/or P&U under this Section 7.2 shall first be reimbursed to such
Party out of any damages or other monetary awards recovered in favor of
InSite and/or P&U, and (ii) P&U shall be entitled to retain for its sole
and exclusive benefit *.
(e) The provisions of this Section 7.2 shall be subject to the
rights of any party, other than InSite, to an ISV-900 Agreement.
ARTICLE 8.
REPRESENTATIONS AND WARRANTIES
SECTION 8.1 INSITE REPRESENTATIONS. InSite represents and warrants to
P&U that as of the Effective Date:
(a) (i) InSite has all rights to the ISV-900 Patents and ISV-900
Know-How throughout the Territory set forth in the ISV-900 Agreements to
develop, have developed, manufacture, have manufactured, distribute,
have distributed, promote, have promoted, market, have marketed, sale
and have sold the Product; (ii) InSite has the right under the ISV-900
Agreements to sublicense all of its rights thereunder to P&U; (iii) to
InSite's knowledge after due and commercially reasonable inquiry, no
person is challenging, infringing, misappropriating, diluting or
otherwise violating in a material way any right, under the ISV-900
Agreements, of InSite or any party to an ISV-900 Agreement; (iv) InSite
has disclosed to P&U each and every license, research, option and other
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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agreement between it and any Third Party that is related in any way, in
whole or in part, to the subject matter of this Agreement and/or the
ISV-900 Patents.
(b) The ISV-900 Agreements and ISV-900 Technology are free and
clear of all encumbrances and, other than this Agreement (subject to any
reversion rights contained in the ISV-900 Agreements), there are no
existing agreements, options, commitments or rights with or to any
person to acquire any of InSite's rights or interests therein;
(c) No litigation, including any arbitration, investigation or
other proceeding of or before any court, arbitrator or governmental or
regulatory official, body or authority is pending or threatened against
InSite or to InSite's knowledge any other party to an ISV Agreement
which relates to the ISV-900 Technology or the transaction contemplated
by this Agreement, nor does InSite know of any basis for any such
litigation, arbitration, investigation or proceeding.
(d) The execution, delivery and performance of this Agreement by
InSite does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it
may be bound, and does not violate any law or regulation of any court,
governmental body or administrative or other agency having authority
over it; InSite is not currently a party to, and during the term of this
Agreement will not enter into, any agreements, oral or written, that
would breach its obligations under this Agreement.
(e) InSite is validly existing and in good standing under the
laws of the state of its incorporation and has the corporate power and
authority to enter into this Agreement. This Agreement has been duly
executed and delivered by InSite and constitutes the valid and binding
obligation of InSite, enforceable against it in accordance with its
terms except as enforceability may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by general
equitable principles. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action on the part
of InSite, its officers and directors.
(f) To InSite's knowledge after due and commercially reasonable
inquiry, (i) no owner of any of the ISV-900 Patents has previously
assigned, transferred, conveyed or otherwise encumbered its right, title
and interest in any ISV-900 Patents, and (ii) there does not exist any
patent, trademark, or other intellectual property right owned or
Controlled by a Third Party that will prevent P&U from developing,
manufacturing, importing, distributing, marketing, or selling, and
distributing Product in any country in the Territory.
(g) To InSite's knowledge after due and commercially reasonable
inquiry, there are no claims, judgments or settlements against, pending
or threatened with respect to the ISV-900 Technology.
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(h) Within ninety (90) days following the Effective Date, InSite
shall obtain amendments to each of those ISV-900 Agreements listed as
numbers 1, 2 and 5 on 1.16 to provide that the parties to such
agreements have agreed to assign their respective rights to P&U, at
P&U's election, upon any default thereunder by InSite.
(i) InSite has instituted a Year 2000 compliance program.
InSite's ability to comply with its obligations hereunder will not be
materially and adversely affected by any issues arising from the date
change from December 31, 1999 to January 1, 2000 and any related issues.
To the extent InSite learns or becomes aware of any Year 2000 problem
relating to Product, it shall notify P&U promptly and take immediate
measures to remedy any such problem at no additional cost to P&U.
(j) All of InSite's employees, officers, relevant subcontractors
and relevant consultants have executed agreements requiring assignment
to it of all inventions made during the course of and as a result of
their association with it and obligating the individual to maintain as
confidential the confidential information of it as well as the
confidential information of a third party which it may receive.
(k) To its knowledge, neither InSite, nor any of its employees,
officers, subcontractors or consultants who has rendered services
relating to the Product(s) (i) has ever been debarred or, to its actual
knowledge, convicted of a crime for which an entity or person could be
debarred under 21 USC Section 335a or (ii) is the subject of a debarment
proceeding or under indictment for a crime for which a person or entity
could be debarred under that Section.
SECTION 8.2 P&U REPRESENTATIONS AND WARRANTIES. P&U represents and
warrants to InSite that:
(a) The execution, delivery and performance of this Agreement and
the agreements contemplated hereby by P&U does not conflict with any
agreement, instrument or understanding, oral or written, to which it is
a party or by which it may be bound, and does not violate any law or
regulation of any court, governmental body or administrative or other
agency having authority over it. P&U is not currently a party to, and
during the term of this Agreement will not enter into, any agreements,
oral or written, that are inconsistent with its obligations under this
Agreement.
(b) P&U is validly existing and in good standing under the laws
of the state of its incorporation and has the corporate power and
authority to enter into this Agreement. This Agreement has been duly
executed and delivered by P&U and constitutes the valid and binding
obligation of P&U, enforceable against it in accordance with its terms
except as enforceability may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by general
equitable principles. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action on the part
of P&U, its officers and directors.
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(c) P&U has instituted a Year 2000 compliance program. P&U's
ability to comply with its obligations hereunder will not be materially
and adversely affected by any issues arising from the date change from
December 31, 1999 to January 1, 2000 and any related issues. To the
extent P&U learns or becomes aware of any Year 2000 problem relating to
Product, it shall notify InSite promptly and take immediate measures to
remedy any such problem at no additional cost to InSite.
(d) All of P&U's employees, officers, relevant subcontractors and
relevant consultants have executed agreements requiring assignment to it
of all inventions made during the course of and as a result of their
association with it and obligating the individual to maintain as
confidential the confidential information of it as well as the
confidential information of a third party which it may receive.
(e) To its knowledge, neither P&U, nor any of its employees,
officers, subcontractors or consultants who will render services
relating to the Product(s) (i) has ever been debarred or, to its actual
knowledge, convicted of a crime for which an entity or person could be
debarred under 21 USC Section 335a or (ii) is the subject of a debarment
proceeding or under indictment for a crime for which a person or entity
could be debarred under that Section.
ARTICLE 9.
INDEMNIFICATION
SECTION 9.1 INDEMNIFICATION BY INSITE. Except as otherwise specifically
provided herein, InSite shall indemnify and hold harmless P&U and its officers,
directors, agents, employees, Affiliates, and Sublicensees against all claims,
actions, losses, damages, costs, expenses (including court costs and legal fees
on a full indemnity basis) or other liabilities net of any tax benefit
("Liabilities") whatsoever in respect of the breach by InSite of its
representations, warranties or default of any of its obligations contained in
this Agreement.
SECTION 9.2 INDEMNIFICATION BY P&U. Except as otherwise specifically
provided herein, P&U shall indemnify and hold harmless InSite and its officers,
directors, agents, employees and Affiliates from all Liabilities whatsoever in
respect of the breach by P&U of its representations, warranties or default of
any of its obligations contained in this Agreement, or which are based on the
labeling of the Product or marketing and commercialization activities undertaken
to promote the Product, including safety, dosage, manufacturing, processing,
testing, packaging, sale (other than intellectual property claims), warehousing,
distributing, detailing, or promotion.
SECTION 9.3 INDEMNIFICATION PROCEDURES.
(a) A party entitled to indemnification hereunder for third party
claims (the "Indemnitee") that intends to claim indemnification under
this Article 9 shall: (i) notify the other Party (the "Indemnitor") of
any Liability with respect to which the Indemnitee intends to claim
indemnification as soon as practicable after the Indemnitee becomes
aware of any such Liability; (ii) permit the Indemnitor to assume the
defense thereof with
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counsel mutually satisfactory to the Indemnitee and Indemnitor; and
(iii) cooperate with the Indemnitor, at the Indemnitor's expense, in the
defense thereof.
(b) With respect to any matter for which the Indemnitor may have
an obligation to indemnify the Indemnitee under this Agreement, the
Indemnitee shall have the right to participate and be represented (at
the Indemnitor's expense) by legal counsel of the Indemnitee's choice in
all proceedings and negotiations, if representation by counsel retained
by Indemnitor would be inappropriate due to actual or potential
differing interests between the Indemnitee and any other Party
represented by such counsel in such proceedings.
(c) The indemnity agreement in this Article 9 shall not apply to
amounts paid in settlement of any Liability if such settlement is
effected without the consent of the Indemnitor, which consent shall not
be unreasonably withheld.
(d) Failure of the Indemnitee to deliver notice to the Indemnitor
within a reasonable time after becoming aware of a Liability shall
relieve the Indemnitor of any liability to the Indemnitee pursuant to
this Article 9 in the event, but only to the extent, such delay is
prejudicial to the Indemnitor's ability to defend such action.
ARTICLE 10.
CONFIDENTIALITY
SECTION 10.1 CONFIDENTIAL INFORMATION. All data, information, documents
and materials transmitted by one Party to the other Party in conjunction with
this Agreement, including, but not limited to, all clinical data, information
reports, financial or business records, summaries and information gathered,
generated or transferred between the Parties during the course of this Agreement
is considered confidential and proprietary information (hereinafter
"Confidential Information"). The Parties shall use the Confidential Information
only for the purpose of fulfilling its obligations under this Agreement.
SECTION 10.2 DISCLOSURE. Neither Party shall disclose, without prior
written consent of the other Party, any Confidential Information to any Third
Party other than officers, directors, Affiliates and representatives of the
receiving Party, except as necessary to carry out its obligations under this
Agreement. When a Party does disclose information it will only be on a need to
know basis, including, without limitation, fulfillment of corporate reporting
required by law or regulation, hospital authorities, regulatory authorities and
others who have agreed in writing to observe the confidentiality of Confidential
Information in the same manner and to the same extent as provided in this
Article 10.
SECTION 10.3 SURVIVAL. The obligations of the Parties with regard to
Confidential Information shall be in effect throughout the Territory and shall
continue in full force and effect for a period of five (5) years from expiration
or early termination of the Term.
SECTION 10.4 OBLIGATION TO OBTAIN AGREEMENTS. The obligations of the
Parties regarding the confidentiality and nondisclosure of Confidential
Information shall extend to and
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be binding upon all employees or agents of the Parties who have access to
Confidential Information pursuant to this Agreement as if such employees or
agents were parties hereto.
SECTION 10.5 RETURN OF INFORMATION. Upon the early termination of this
Agreement due to a breach by a defaulting Party, the non-defaulting Party shall
be entitled to the prompt return of all of its Confidential Information in the
defaulting Party's possession, as well as all written information and materials
which incorporate Confidential Information.
SECTION 10.6 PUBLIC DISCLOSURE. Neither InSite nor P&U shall issue a
press release or in any other way announce to the public the existence, terms,
conditions of, or performance under this Agreement without the prior written
consent of the other Party, which consent shall not be unreasonably withheld or
delayed.
SECTION 10.7 PUBLICATION. The Development Committee will discuss and
review proposed publications describing any scientific results concerning the
Product. Subject to the rights of any party other than InSite, to the ISV-900
Agreements, the Development Committee may, in its sole discretion, decide not to
permit publication of any scientific results related to the ISV-900 Technology
or the Product.
ARTICLE 11.
TERM AND TERMINATION
SECTION 11.1 TERM. The term of this Agreement shall begin on the
Effective Date and end on the first date on which all of P&U's obligations to
pay any Royalty to InSite on account of sales of the Product hereunder has
expired, unless earlier terminated as provided herein (the "Term"). With respect
to each specific country in the Territory, P&U's obligation to pay a Royalty to
InSite hereunder shall begin on the Effective Date and end on the first date on
which all of P&U's obligations to pay any Royalty to InSite on account of sales
of the Product in each such country in the Territory has expired or been
terminated (the "Country Terms").
SECTION 11.2 EARLY TERMINATION. Notwithstanding Section 11.1, either
Party may, in addition to exercising any other available legal or equitable
rights or remedies, terminate this Agreement, effective immediately upon the
expiration of any applicable cure period, upon the occurrence of an Event of
Default (as defined below) with respect to the other Party. The term "Event of
Default" with respect to a Party means the occurrence of any of the following
events:
(a) Except as provided in Section 11.2(b) or (c) below, the
failure of a Party to comply with or perform any material provision of
this Agreement, and such failure remains uncured for sixty (60) days
following written notice of such failure (if such default is cured
within the cure period, such written notice shall be null and void),
provided that, if the defaulting Party can establish to the reasonable
satisfaction of the other Party that it is diligently and actively
pursuing a cure at the expiration of the cure period, and that the
default is reasonably capable of being cured, then the cure period shall
be extended for so long as a cure is being diligently and actively
pursued, not to exceed 120 days in the aggregate. Notwithstanding the
foregoing, in the event any of the material ISV-900 Agreements are
terminated other than as consented to in writing by the
20
<PAGE> 25
Development Committee or P&U, P&U shall have the right to immediately
terminate this Agreement.
(b) Any of the representations or warranties of a Party are
discovered to have been untrue when made, resulting in a material,
adverse impact on the Product, the ISV-900 Technology, or a material
ISV-900 Agreement.
(c) A Party (i) becomes unable to pay its debts as they mature,
(ii) is the subject of a voluntary or involuntary petition in bankruptcy
or of any other proceeding under bankruptcy, insolvency or similar laws
which, if involuntary, is not dismissed within ninety (90) days of the
date filed, (iii) makes an assignment for the benefit of creditors, (iv)
is named in, or its property is subject to, a suit for the appointment
of a receiver which is not dismissed within ninety (90) days of the date
filed, or (v) is dissolved or liquidated.
SECTION 11.3 P&U TERMINATION.
(a) Notwithstanding Section 11.1, P&U shall have the right, in
its sole discretion, to terminate this Agreement in the event the
Development Committee, or the Executive Committee, as the case may be,
determines that the First Milestone described in Schedule 3.3(a) has not
been met by the * of the Effective Date. P&U shall make such election to
terminate this Agreement within thirty (30) days after the * of the
Effective Date by sending written notice to InSite electing such
termination.
(b) Notwithstanding Section 11.1, P&U shall have the right to
terminate this Agreement, in its sole discretion, in the event that the
Development Committee determines that (i) the Mt-1 mutation of the TIGR
gene is not suitable for development as a Product and (ii) the Second
Milestone has not been achieved by * of the Effective Date. P&U shall
make such election to terminate this Agreement within sixty (60) days
after * of the Effective Date by sending written notice to InSite
electing such termination.
SECTION 11.4 INSITE TERMINATION. If, at any time after * of the
Effective Date, the Product is not commercialized in a country in the Territory,
InSite shall have the right to terminate this Agreement with respect to that
country.
SECTION 11.5 RIGHTS AND OBLIGATIONS UPON TERMINATION.
(a) Other Penalties. Termination of this Agreement by either
Party shall not prejudice the rights of such Party under this Agreement,
at law or in equity or otherwise, to seek damages or injunctive relief
for any breach of this Agreement by the other Party hereto and all
payment obligations accruing under this Agreement prior to the effective
date of termination.
(b) Accrued Rights. Subject to Section 11.3, termination of this
Agreement for whatever reason shall not affect the accrued rights of
either InSite or P&U arising
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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<PAGE> 26
under or out of this Agreement. The obligations under any other
provision which expressly or by implication is intended to survive
expiration or termination shall survive expiration or termination of
this Agreement.
(c) Step-in Rights. Upon the termination of this Agreement by
P&U, pursuant to Section 11.2, InSite shall assign, transfer and convey
to P&U all of InSite's rights under the ISV-900 Agreements. Upon
acceptance of such assignment by P&U, P&U shall become responsible for
all obligations, including fees and royalties, under the ISV-900
Agreements accruing after the effective time of such assignment. InSite
shall take all action reasonably requested by P&U to effectuate such
assignment, including, among other things, the amendment of any ISV-900
Agreement necessary to permit P&U such step-in rights.
(d) Reversion Rights. Upon the termination of this Agreement by
InSite pursuant to Sections 11.2 or 11.4 or by P&U pursuant to Section
11.3, all rights granted to P&U under the ISV-900 Agreements and in the
ISV 900 Technology shall revert to InSite on a country by country basis
in the Territory where InSite or P&U, as the case may be, has terminated
this Agreement, provided, however, that with respect to (i) any
termination by InSite under Section 11.4, (ii) any termination by InSite
under Section 11.2 that occurs after the * of the Effective Date, or
(iii) any termination by P&U under Section 11.3, P&U shall be entitled
to * royalty on all net sales of Product to Third Parties by InSite, its
Affiliates, sublicensees, distributors or other agents in any such
country or countries in the Territory in which (x) the Product is
ultimately marketed or commercialized and (z) wherein the manufacture,
use, processing, importation, distribution, detailing or sale of the
Product would infringe any filed ISV-900 Patent. InSite's obligation to
pay P&U any royalty under this Section 11.5(d) shall expire on a country
by country basis on the expiration of the last to expire of such ISV-900
Patents or earlier upon the revocation of such Patents or if such
Patents are held unenforceable or invalid by decision of a court or
government agency of competent jurisdiction. Notwithstanding anything in
this Section 11.5(d) to the contrary, in the event that InSite (or any
other party to an ISV-900 Agreement with patent filing obligations) has
not filed any ISV-900 Patent in any country in the Territory in which
this Agreement has been terminated as referenced in (i) through (iii)
above and in which the Product is being marketed or commercialized, then
InSite shall be obligated to pay P&U a royalty under this Section
11.5(d) in the amount of * of net sales of the Product in any such
country or countries in the Territory, provided that such obligations
shall expire on the * of the First Commercial Sale of Product in such
country or countries and, provided further, that upon the filing of an
ISV-900 Patent in any such country wherein InSite is paying P&U a *
royalty, then InSite shall pay P&U a * royalty as otherwise provided for
in this Section 11.5(d). For purposes of this Section 11.5, "net sales"
shall have the meaning set forth in Section 1.26 except that all
references to P&U shall be changed to InSite. Nothing in this agreement
shall entitle P&U to any royalty in the event InSite terminates this
agreement pursuant to Section 11.2 prior to the * of the Effective Date
or gives notice of such termination prior thereto, provided that
termination pursuant to such notice later becomes effective and final
prior to the * of the Effective Date.
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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<PAGE> 27
ARTICLE 12.
DISPUTE RESOLUTION
SECTION 12.1 NON-ARBITRABLE ISSUES. The Parties acknowledge that matters
to be decided by the Development Committee or the Executive Committee shall not
be submitted to arbitration pursuant to this Article 12 hereof but instead shall
be resolved in accordance with the provisions setting forth the scope of their
rights and obligations. The Parties also acknowledge that matters regarding the
validity or enforceability of ISV-900 Patents shall not be submitted to
arbitration pursuant to this Article 12 but instead shall be resolved in an
appropriate judicial forum.
SECTION 12.2 DISPUTES. Subject to Section 12.1, the Parties recognize
that disputes as to certain matters may from time to time arise that relate to
either Party's rights and/or obligations under this Agreement. It is the
objective of the Parties to establish procedures to facilitate the resolution of
such disputes in an expedient manner by mutual cooperation and without resort to
litigation.
SECTION 12.3 ATTEMPT TO RESOLVE. The Parties agree to take all
reasonable efforts to resolve in an amicable manner any dispute between them
concerning diligence obligations and/or questions of material breach and default
in connection with this Agreement. If any material dispute between the Parties
cannot be resolved by the senior management of the Parties, either Party may
seek to have the issue resolved as otherwise provided herein.
SECTION 12.4 BINDING ARBITRATION. Except in the event of alleged breach,
default or lack of diligence by a bankrupt or insolvent Party, the Parties agree
that any material dispute that arises from or is related to this Agreement or
the interpretation, application, breach, termination or validity thereof, and
which cannot be amicably resolved by the Parties, shall be resolved by binding
arbitration (except as provided for in Section 12.1 and 12.13) pursuant in this
Article 12 conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (AAA) by three (3) arbitrators.
SECTION 12.5 WRITTEN NOTICE. If a Party intends to begin an arbitration
to resolve a dispute, such Party shall provide written notice to the other
Party, informing the other Party of such intention and the issues to be
resolved. Within twenty (20) business days after its receipt of such notice, the
other Party may, by written notice to the Party initiating arbitration, add
additional issues to be resolved.
SECTION 12.6 SELECTION OF ARBITRATORS. Within forty-five (45) days
following the receipt of the notice of arbitration, the Party referring the
matter to arbitration shall appoint an arbitrator and promptly notifying the
other Party of such appointment. The other Party shall, upon receiving such
notice, appoint a second arbitrator within twenty one (21) days, and the two (2)
arbitrators shall, within fifteen (15) days of the appointment of the second
arbitrator, agree on the appointment of a third arbitrator who will act with
them and be chairperson of the arbitration panel. In the event that either Party
shall fail to appoint an arbitrator within thirty (30) days after the
commencement of the arbitration proceeding, the arbitrator shall be appointed by
the AAA in accordance with the AAA's Rules. In the event of the failure of the
two (2) arbitrators to agree
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<PAGE> 28
within sixty (60) days after the commencement of the arbitration proceeding upon
to appoint the chairperson, the chairperson shall also be appointed by the AAA
in accordance with its Rules. The arbitrators shall not be employees, directors
or shareholders of either Party or of their Affiliates. Where applicable, the
arbitrators shall be independent experts in pharmaceutical marketing and
promotion in the U.S. Notwithstanding anything to the contrary herein, in the
event the aggregate damages sought by the claimant are stated to be less than $1
million, and the aggregate damages sought by the counterclaimant are stated to
be less than $1 million, and neither side seeks equitable relief, then a single
arbitrator shall be chosen, having the same qualifications and experience
specified above.
SECTION 12.7 HEARINGS. The arbitrators shall conduct one or more
hearings to allow the Parties to present their positions regarding the dispute.
(a) The arbitrators shall determine what discovery will be
permitted, consistent with the goal of limiting the cost and time that
the Parties must expend for discovery; provided the arbitrators shall
permit such discovery as they deem necessary to permit an equitable
resolution of the dispute. The arbitrators shall have sole discretion
with regard to the admissibility of any evidence.
(b) At least ten (10) business days prior to a hearing, each
Party must submit to the arbitrators and serve on the other Party a
proposed ruling on each issue to be resolved. Such writings shall be
limited to not more than fifty (50) pages.
(c) Each Party shall be entitled to no more than eight (8) days
of hearing to present testimony or documentary evidence. Such time
limitation shall include any direct, cross or rebuttal testimony, but
such time limitation shall only be charged against the Party conducting
such direct, cross or rebuttal testimony. It shall be the responsibility
of the arbitrators to determine whether the Parties have had the eight
(8) days to which each is entitled.
(d) Each Party shall have the right to be represented by
counsel.
(e) The arbitration shall take place in New York, NY.
SECTION 12.8 CONFIDENTIAL. To the extent possible, the arbitration
hearings and award will be maintained in confidence.
SECTION 12.9 COSTS. The costs of the arbitration, including
administrative and arbitrators' fees, shall be shared equally by the Parties.
Each Party shall bear its own costs and attorneys' and witness' fees.
SECTION 12.10 DECISION. In any arbitration pursuant to this Agreement,
the award or decision shall be rendered by a majority of the members of the
panel provided for herein, with each member having one (1) vote. The arbitrators
shall render a written decision with their resolution of the dispute. The
decision of the arbitrators shall be final and non-appealable and binding on the
Parties.
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<PAGE> 29
SECTION 12.11 REMEDY. A disputed performance or suspended performances
pending the resolution of the arbitration must be completed within thirty (30)
days following the final decision of the arbitrators or such other reasonable
period as the arbitrators determine in a written opinion.
SECTION 12.12 FINAL DECISION WITHIN ONE YEAR. Any arbitration subject to
this Article 12 shall be completed within one (1) year from the filing of notice
of a request for such arbitration.
SECTION 12.13 PROVISIONAL REMEDIES. Each party has the right before or
during the arbitration to seek and obtain from the appropriate court provisional
remedies such as attachment, preliminary injunction, replevin, etc. to avoid
irreparable harm, maintain the status quo, or preserve the subject matter of the
arbitration.
SECTION 12.14 NON-JURY. Each party hereto waives its right to trial of
any issue by jury.
SECTION 12.15 DAMAGES. Each party hereto waives any claim to punitive,
consequential, indirect, incidental or exemplary damages from the other.
ARTICLE 13.
MISCELLANEOUS
SECTION 13.1 RECORD-KEEPING. InSite and P&U shall keep complete and
accurate records pertaining to the development, manufacture, use and
commercialization of Product in sufficient detail to permit the other Party to
confirm, in the case of InSite, its relationships with the other parties to the
ISV-900 Agreements and the payments of royalties thereto, and in the case of
P&U, its development and commercialization efforts, sale of Product as well as
the accuracy of calculations of Net Sales and Royalties and any and all payments
required to be made under this Agreement. All records and information required
under this Agreement shall be maintained for the longer of (a) three (3) years
following the year in which any such efforts or payments were made under this
Agreement; or (b) such longer period as may be required by law.
SECTION 13.2 NOTICE. Except as otherwise specifically provided herein,
any notice or other documents to be given under this Agreement shall be in
writing and shall be deemed to have been duly given if sent by registered post,
nationally recognized overnight courier or facsimile transmission to a Party or
delivered in person to a Party at the address or facsimile number set out below
for such Party or such other address as the Party may from time to time
designate by written notice to the other:
If to P&U:
Pharmacia & Upjohn Company
100 Route 206 North
Peapack, New Jersey 07977
Attn: Vice President, Licensing
Telefax: 908-901-1813
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<PAGE> 30
With required copy to:
Pharmacia & Upjohn Company
100 Route 206 North
Peapack, New Jersey 07977
Attn: Vice President, Corporate Law
Telefax: 908-901-1862
Pharmacia & Upjohn AB
Lindhagensgatan 133
112 87 Stockholm, Sweden
Attn: VP and Associate General Counsel, Europe & International
Telefax: 011-46-8-695-4708
If to InSite:
InSite Vision Incorporated
965 Atlantic Avenue
Alameda, California 94501
Attn: Chief Executive Officer
Telefax: 510-865-7830
With required copy to:
Brobeck Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attn: Timothy R. Curry
Any such notice or other document shall be deemed to have been received by the
addressee three (3) Business Days following the date of dispatch of the notice
or other document by post or, where the notice or other document is sent by
overnight courier, by hand or is given by facsimile, simultaneously with the
transmission or delivery. To prove the giving of a notice or other document it
shall be sufficient to show that it was dispatched.
SECTION 13.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with
the Schedules and Exhibits attached hereto, embodies and sets forth the entire
agreement and understanding of the Parties with respect to the subject matter
herein. There are no promises, terms, conditions or obligations, oral or
written, expressed or implied, other than those contained in this Agreement with
respect to the subject matter herein. The terms of this Agreement shall
supersede all previous oral or written agreements which may exist or have
existed between the Parties, including the letter of intent dated August 19,
1999, relating to the subject matter of this Agreement. Neither Party shall be
entitled to rely on any agreement, understanding or arrangement which is not
expressly set forth in this Agreement with respect to the subject matter herein.
This Agreement shall not be amended, modified, varied or supplemented except in
writing signed by duly authorized representatives of the Parties.
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<PAGE> 31
SECTION 13.4 FORCE MAJEURE. Neither Party shall lose any rights
hereunder or be liable to the other Party for damages or losses on account of
failure of performance by the defaulting Party if the failure is caused by Force
Majeure or any other similar cause beyond the control of the defaulting Party;
provided, however, that the Party claiming Force Majeure has exerted all
reasonable efforts to avoid such Force Majeure and has given prompt notice to
the other Party of any such Force Majeure. The Party giving such notice shall be
excused from such of its obligations hereunder as it is disabled from performing
for so long as it is disabled; provided, however, that Party commences and
continues to take reasonable and diligent actions to cure and remedy such Force
Majeure. In the event of any such Force Majeure event, the Parties shall meet
promptly to determine an equitable solution to the effects of such event. Force
Majeure shall not include a Party's failure to perform any obligation to this
Agreement as a result of that Party's Year 2000 problem. The term of this
Agreement shall not be extended by any Force Majeure event.
SECTION 13.5 ASSIGNMENT. Neither Party shall be entitled to assign its
rights and obligations hereunder without the prior written consent of the other;
provided, however, P&U shall be entitled, without the prior written consent of
InSite, to assign its rights and obligations hereunder to an Affiliate or in
connection with the sale of all or substantially all of its pharmaceutical
business. Any successor of InSite pursuant to a merger or otherwise shall be
bound by all of the obligations of InSite as contained herein.
SECTION 13.6 HEADINGS, INTERPRETATION. The headings used in this
Agreement are for convenience only and are not a part of this Agreement nor
affect the interpretation of any of its provisions.
SECTION 13.7 INDEPENDENT PARTIES. This Agreement shall not be deemed to
create any partnership, joint venture, or agency relationship between the
Parties. Each Party shall act hereunder as an independent contractor.
SECTION 13.8 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of New York, excluding its conflict of
laws principles. Subject to the arbitration provisions hereof, the parties agree
to submit to the exclusive jurisdiction of New York courts to resolve any
controversy.
SECTION 13.9 NO WAIVER. Neither the failure nor delay on the part of
either Party to require the strict performance of any term, covenant or
condition of this Agreement or to exercise any right or remedy available on a
breach thereof shall constitute a waiver of any such breach or of any such term
or condition. The consent to, or the waiver of, any breach, or the failure to
require on any single occasion the performance or timely performance of any
term, covenant, or condition of this Agreement shall not be construed as
authorizing any subsequent or additional breach and shall not prevent a
subsequent enforcement of such term, covenant, or condition.
SECTION 13.10 SEVERABILITY. In the event that any provision of this
Agreement or the application thereof to any Party or circumstance shall be
finally determined by a court of proper jurisdiction to be invalid or
unenforceable to any extent, then (i) a suitable and equitable
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<PAGE> 32
provision shall be substituted therefore in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid and unenforceable
provision and (ii) the remainder of this Agreement and the application of such
provision to the Parties or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby.
SECTION 13.11 LIMITATION OF LIABILITY. Except with respect to the
Parties' respective indemnification obligations for Third Party claims pursuant
to Sections 9.1 and 9.2, the Parties expressly agree that, with respect to any
claim by either InSite or P&U against the other arising out of any breach of
this Agreement, the liability of the breaching Party to the non-breaching Party
for such breach shall be limited under this Agreement or otherwise at law or
equity to direct money damages only, and in no event shall a Party be liable to
the other for indirect, incidental, punitive, exemplary or consequential
damages, even if advised of the possibility of the same.
SECTION 13.12 INTERPRETATION. The Parties hereto acknowledge and agree
that (i) each Party and its representatives has reviewed and negotiated the
terms and provisions of this Agreement and have contributed to its revision,
(ii) the rule of construction to the effect that any ambiguities are resolved
against the drafting Party shall not be employed in the interpretation of this
Agreement and (iii) the terms and provisions of this Agreement shall be
construed fairly as to each Party hereto and not in favor of or against either
Party regardless of which Party was generally responsible for the preparation of
this Agreement.
SECTION 13.13 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single agreement.
SECTION 13.14 THIRD PARTY BENEFICIARIES. Except as specifically provided
herein, this Agreement is not intended to confer upon any non-Party rights or
remedies hereunder.
SECTION 13.15 ADDITIONAL TRANSACTIONS.
(a) *. It is the current intention of the Parties that P&U and
InSite will continue good faith discussions after the Effective Date to
jointly develop * using InSite's Durasite technology.
(b) *. * grants to * to purchase, license, and/or sublicense, as
the case may be, *, any and all rights and assets associated with * and
that are conceived of, put into practice, designed, developed, or
manufactured by *. * shall promptly notify * in writing of *, and *. *
shall have * from the date of its receipt of such notice to give written
notice to * intent to enter into * with respect to *. * gives such
notice, but * and * fail to * with respect to *,
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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<PAGE> 33
* within * following * notice to *, * shall then be free to * with *;
provided, however, that the terms of any * shall not be * than *.
SECTION 13.16 FURTHER ASSURANCES. Each Party shall execute and deliver
such additional instruments and other documents and use all commercially
reasonable efforts to take or cause to be taken, all actions and to do, or cause
to be done, all things necessary under applicable law to consummate the
transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be duly executed as of the date first above written.
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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<PAGE> 34
INSITE VISION INCORPORATED
By: S. KUMAR CHANDRASEKARAN
------------------------
Name: S. Kumar Chandrasekaran
Title: CEO
PHARMACIA & UPJOHN AB
By: HAKAN ASTROM
-------------
Name: Hakan Astrom
Title: Sr. VP Corp. Strategy & Investor Relations
By: MATS PETTERSSON
----------------
Name: Mats Pettersson
Title: SENIOR VICE PRESIDENT
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<PAGE> 35
SCHEDULE 1.16
ISV-900 AGREEMENTS
1. Exclusive License Agreement dated August 4, 1994 between University of
California ("UCal") and InSite Vision Incorporated ("InSite"), as
amended.
2. Option Agreement dated April 20, 1999 between UCal and InSite.
3. Research Agreement dated April 27, 1999, by and between UCal, on behalf
of the University of California at San Francisco, and InSite.
4. Research Agreement dated October 25, 1996 between the University of
Connecticut ("UConn") and InSite.
5. License Agreement dated July 1, 1997 between the University of
Connecticut ("UConn") and InSite.
6. Research Agreement dated May 5, 1998 between InSite and Centre de
l'Association Claude Bernard.
7. Research Agreement dated August 16, 1999 between InSite and Uppsala
University University Hospital.
8. Research Agreement dated July 1, 1999 between UCal and InSite.
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<PAGE> 36
SCHEDULE 1.20
ISV-900 PATENT SUMMARY
<TABLE>
<CAPTION>
INSITE LICENSED PATENTS** PATENT/APPLICATION DATE
<S> <C> <C> <C>
1. J. Polansky Methods for the Diagnosis of 5,606,043 2/25/96
Glaucoma 5,789,169 8/04/98
5,849,879 12/15/98
5,854,415 12/29/98
5,861,497 1/19/99
* 10/20/95
* 12/24/98
2. J. Polansky, Diagnosis & Prognosis of * 5/07/99
Glaucoma CIP of * 1/11/99
CIP of * 9/26/97
CIP of * 1/28/97
3. M. Safarazi, Diagnosis and Treatment of 5,830,661 11/03/98
Glaucoma 5,962,230 11/05/99
* 5/07/99
Divisionals of * 3/26/98
CIP of * 2/13/97
4. H. Garchon, Diagnosis of Glaucoma * 5/7/99
</TABLE>
**ISV-900 patents also include foreign filings based on the above U.S. patents
and applications.
- -------------------------------------------------------------------------------
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
37
<PAGE> 37
SCHEDULE 2.5
1. Exclusive License Agreement dated August 4, 1994 between University of
California ("UCal") and InSite Vision Incorporated ("InSite"), as
amended.
All rights of InSite under the agreement shall be exercised at
the direction of the Development Committee, or in the absence
thereof, by Pharmacia & Upjohn Company or its designees ("P&U")
2. Option Agreement dated April 20, 1999 between UCal and InSite.
All rights of InSite under the agreement shall be exercised at
the direction of the Development Committee or, in the absence
thereof, by P&U, including the right to negotiate a separate
license agreement thereunder on such terms and conditions as they
shall determine in their sole discretion. Any such license
agreement or other arrangement shall be deemed to be an ISV 900
Agreement and any amounts payable thereunder, including royalties
shall be borne by InSite.
3. Research Agreement dated April 27, 1999, by and between UCal, on behalf
of the University of California at San Francisco, and InSite.
All rights of InSite under the agreement shall be exercised at
the direction of the Development Committee or, in the absence
thereof, by P&U, including the right to negotiate a separate
license agreement thereunder on such terms and conditions as they
shall determine in their sole discretion. Any such license
agreement or other arrangement shall be deemed to be an ISV 900
Agreement and any amounts payable thereunder, including royalties
shall be borne by InSite.
4. Research Agreement dated October 25, 1996 between the University of
Connecticut ("UConn") and InSite.
All rights of InSite under the agreement shall be exercised at
the direction of the Development Committee or, in the absence
thereof by P&U, including the right to negotiate a separate
license agreement thereunder on such terms and conditions as they
shall determine in their sole discretion. Any such license
agreement or other arrangement shall be deemed to be an ISV 900
Agreement and any amounts payable thereunder, including royalties
shall be borne by InSite.
5. License Agreement dated July 1, 1997 between the University of
Connecticut ("UConn") and InSite.
All rights of InSite under the agreement shall be exercised at
the direction of the Development Committee or, in the absence
thereof by P&U, including the right to negotiate a separate
license agreement thereunder on such terms and conditions as they
shall determine in their sole discretion. Any such license
agreement or other arrangement shall be deemed to be an ISV 900
Agreement and any amounts payable thereunder, including royalties
shall be borne by InSite.
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<PAGE> 38
6. Research Agreement dated May 5, 1998 between InSite and Centre de
l'Association Claude Bernard.
All rights of InSite under the agreement shall be exercised at
the direction of the Development Committee or, in the absence
thereof by P&U, including the right to negotiate a separate
license agreement thereunder on such terms and conditions as they
shall determine in their sole discretion. Any such license
agreement or other arrangement shall be deemed to be an ISV 900
Agreement and any amounts payable thereunder, including royalties
shall be borne by InSite.
7. Research Agreement dated August 16, 1999 between InSite and Uppsala
University University Hospital.
All rights of InSite under the agreement shall be exercised at
the direction of the Development Committee or, in the absence
thereof by P&U, including the right to negotiate a separate
license agreement thereunder on such terms and conditions as they
shall determine in their sole discretion. Any such license
agreement or other arrangement shall be deemed to be an ISV 900
Agreement and any amounts payable thereunder, including royalties
shall be borne by InSite.
8. Research Agreement dated July 1, 1999 between UCal and InSite.
All rights of InSite under the agreement shall be exercised at
the direction of the Development Committee or, in the absence
thereof by P&U, including the right to negotiate a separate
license agreement thereunder on such terms and conditions as they
shall determine in their sole discretion. Any such license
agreement or other arrangement shall be deemed to be an ISV 900
Agreement and any amounts payable thereunder, including royalties
shall be borne by InSite.
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<PAGE> 39
SCHEDULE 3.3(a)
THE FIRST MILESTONE
As of the Effective Date, InSite has documented, *, a correlation between * and
a polymorphism of the * of the * by showing a clinically significant * in
patients with the * polymorphism than in those patients *. A similar correlation
* for the *. Accordingly, the First Milestone shall be the documentation of (1)
a similar correlation between * and a polymorphism of the * of the * for a
similar sized * population of patients *, and (2) the * an investigation, for *
population of patients with *, designed to examine a correlation between * and a
polymorphism of * of the *.
- -------------------------------------------------------------------------------
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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<PAGE> 40
SCHEDULE 3.3(b)
THE SECOND MILESTONE
The Second Milestone shall be the documentation of * or a combination of *,
other than as described in the First Milestone (Schedule 3.3(a)), showing either
(i) a * and * for * in the * population and/or * patients, or (ii) a * and * for
*.
- -------------------------------------------------------------------------------
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
41
<PAGE> 41
SCHEDULE 4.1
SECTION 3.3(c) AND (e) OF THE ISV-205 AGREEMENT
3.3 DEVELOPMENT COMMITTEE; WORK PLAN.
* * * * * *
(c) The DC will operate by consensus, and all decisions shall be
made by a majority vote of the members. In the event of a deadlock on
any matter to be decided by the DC, the chairperson shall cast the
deciding vote.
* * * * * *
(e) The DC shall operate consistent with the following
procedures, which the DC can modify from time to time:
(i) The chairperson shall be responsible for the timing,
agenda, and minutes of each DC meeting.
(ii) The location of the DC meeting will alternate between
InSite's facility and one of P&U's facilities.
(iii) The DC will meet no fewer than four times annually.
(iv) Non-members of the DC are welcome to attend provided
reasonable prior notice is given to and approved by the DC.
(v) Minutes of each DC meeting will be summarized within two
weeks after the meeting and will not be official until the
chairperson has agreed to them.
42
<PAGE> 1
EXHIBIT 10.43
================================================================================
INSITE VISION INCORPORATED
AND
PHARMACIA & UPJOHN AB
STOCK PURCHASE AGREEMENT
NOVEMBER 11, 1999
================================================================================
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of November 11, 1999 (the "Agreement"),
by and between INSITE VISION INCORPORATED, a Delaware corporation with its
principal office at 965 Atlantic Avenue, Alameda, California 94501 (the
"Company"), and PHARMACIA & UPJOHN AB, a Swedish corporation with a principal
office at Lindhagensgatan 133,112 87 Stockholm, Sweden ("P&U").
RECITALS
WHEREAS, the Company and P&U have entered into an ISV-900 Project
Agreement of even date herewith (the "ISV-900 Project Agreement"); and
WHEREAS, in connection with the ISV-900 Project Agreement, the Company
desires to sell to P&U and P&U desires to purchase from the Company shares of
common stock, par value $.01 per share, of the Company ("Common Stock"), on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the following mutual covenants and
agreements, the parties agree as follows:
ARTICLE 1
PURCHASES OF COMMON STOCK
SECTION 1.1 PURCHASE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, and in reliance on the representations and
warranties contained in this Agreement, the Company agrees to sell to P&U and
P&U agrees to purchase from the Company, at the Closing (as defined below), that
number of shares of InSite Common Stock equal to Two Million U.S. Dollars
($2,000,000) divided by the average weighted closing share price of the InSite
Common Stock for the twenty (20) trading days immediately prior to the Closing
Date for an aggregate consideration of Two Million U.S. Dollars ($2,000,000.00).
ARTICLE 2
CLOSING DATE; DELIVERY
SECTION 2.1 CLOSING; CLOSING DATE. Subject to the terms of Article 5,
the closing of the sale and purchase of shares of Common Stock under Section 1.1
of this Agreement (the "Closing") shall be held at 10:00 a.m. (Eastern Time) on
the closing date at the offices of P&U, or at such other time and place as the
Company and P&U may agree. The date of the Closing ("Closing Date") shall be the
forty-fifth (45th) business day following the date first written above, or, on
such other date as the Company and P&U shall agree in writing.
<PAGE> 3
SECTION 2.2 DELIVERY. At the Closing, subject to the terms and
conditions of this Agreement, the Company will deliver to P&U a stock
certificate, in the name of P&U, as applicable, representing, respectively, the
shares of Common Stock deliverable at such closing, dated as of the Closing Date
against payment of the purchase price therefor by wire transfer of immediately
available funds, unless P&U and the Company agree upon other means of payment.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to and except as disclosed by the Company in the Schedule of
Exceptions attached hereto as Exhibit A, the Company represents and warrants to
P&U, on the date hereof and on the Closing Date, as follows:
SECTION 3.1 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement has been taken or will
be taken prior to or as of the Closing Date. The Company has the requisite
corporate power to enter into this Agreement and carry out and perform its
obligations under the terms of this Agreement. This Agreement has been duly
authorized, executed and delivered by the Company and, upon due execution and
delivery by P&U, this Agreement will be a valid and binding agreement of the
Company, except as limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws of general application affecting creditors' rights generally or
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
SECTION 3.2 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (a) any provision of the Company's Certificate of
Incorporation or Bylaws as either are currently in effect; (b) any provision of
any judgment, decree or order to which the Company is a party or by which it is
bound; (c) any material contract, obligation or commitment to which the Company
is a party or by which it is bound; or (d) to the Company's knowledge, any
statute, rule or governmental regulation applicable to the Company.
SECTION 3.3 CERTIFICATE OF INCORPORATION; BY-LAWS. Attached hereto as
Exhibits B and C, respectively, are true, correct and complete copies of the
Certificate of Incorporation and Bylaws of the Company, as in effect on the date
hereof.
SECTION 3.4 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
2
<PAGE> 4
SECTION 3.5 DISCLOSURE DOCUMENTS. The Company's Form 10-K for the fiscal
year ended December 31, 1998 and Forms 10-Q for the fiscal quarters ended March
31, and June 30, 1999, did not, when filed with the Securities and Exchange
Commission, contain any untrue statements of material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
SECTION 3.6 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, of which 20,275,870 shares are issued
and outstanding on the date hereof, and 5,000,000 shares of Preferred
Stock, of which 0 shares of Series A Convertible Preferred Stock, par
value $.01 per share ("Series A Preferred Stock"), are issued and
outstanding on the date hereof. All such issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable. The rights and designations of the Series A Preferred
Stock are as set forth in the Certificate of Designation included within
the Certificate of Incorporation.
(b) The Company has outstanding options to purchase 2,218,723
shares of Common Stock, outstanding warrants to purchase 317,308 shares
of Common Stock and outstanding warrants to purchase 70 shares of Series
A Preferred Stock as of the date hereof. Except as otherwise set forth
herein or in the Company's Restated Certificate of Incorporation, as
amended, or Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock, as corrected, there are no
preemptive or other outstanding rights, options, warrants, conversion
rights or Agreements for the purchase or acquisition from the Company of
any shares of its capital stock or other securities of the Company.
SECTION 3.7 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly (other than investments in money market funds), and has
no stock or other interest as owner or principal in, any other corporation or
partnership, joint venture, association or other business venture or entity
except for its wholly-owned subsidiary, InSite Vision Limited.
SECTION 3.8 VALID ISSUANCE OF SHARES. The shares of Common Stock which
will be purchased by P&U under this Agreement, when issued, sold and delivered
in accordance with the terms of and for the consideration expressed in this
Agreement, will be duly and validly authorized and issued, fully paid and
nonassessable and, based in part upon the representations of P&U in Section 4.3
of this Agreement, will be issued in compliance with all applicable federal and
state securities laws.
SECTION 3.9 LITIGATION, VALIDITY OF AGREEMENT. There is no action, suit,
proceeding or, to the best of the Company's knowledge, any claim or
investigation pending or currently threatened against the Company, nor, to the
best of the Company's knowledge, is there any basis therefor, which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financial or
otherwise. The foregoing includes, without limitation, any action, suit,
proceeding or investigation, pending or
3
<PAGE> 5
threatened, that questions the validity of this Agreement or any other agreement
contemplated hereby or the right of the Company to enter into such agreements.
SECTION 3.10 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices, qualifications
or filings required or permitted to be filed with certain state or federal
securities commissions or self-regulatory organizations, which notices,
qualifications, or filings will be filed on a timely basis.
SECTION 3.11 COMPLIANCE WITH LAWS. The Company has complied and is in
compliance in all material respects with all governmental laws, orders, decrees,
rules or regulations applicable to the Company, its assets and business,
employment practices and procedures, employees or operations (except where the
failure to so comply would not have a material adverse effect on the Company,
its business and operations, or the subject matter of the ISV-900 Project
Agreement), including the rules and regulations of the Securities and Exchange
Commission and any exchange or automated inter-dealer quotation system on which
the Common Stock is traded and then current Good Clinical Practices and then
current Good Manufacturing Practices.
SECTION 3.12 NO BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF P&U
P&U hereby represents and warrants to the Company, on the date hereof
and on the Closing Date, as follows:
SECTION 4.1 LEGAL POWER. All corporate action on the part of P&U, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement has been taken. P&U has the requisite corporate
power to enter into this Agreement, to carry out and perform its obligations
under the terms of this Agreement and, at the Closing, will have the requisite
corporate power to purchase the shares of Common Stock to be purchased at such
Closing.
SECTION 4.2 DUE EXECUTION. This Agreement has been duly authorized,
executed and delivered by P&U and, upon due execution and delivery by the
Company, this Agreement will be a valid and binding agreement of P&U, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application affecting creditors' rights generally or as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
4
<PAGE> 6
SECTION 4.3 INVESTMENT REPRESENTATIONS. In connection with the purchase
and sale of shares under this Agreement, P&U makes the following
representations:
(a) P&U is acquiring the shares of Common Stock under this
Agreement for its own account, not as nominee or agent, for investment
and not with a view to the resale or distribution or public offering
thereof within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"). P&U has no present intention of selling,
granting any participation in, or otherwise distributing the Common
Stock acquired hereunder and has not entered into any agreement or
arrangement with any person with respect to such activities.
(b) P&U understands that (i) the shares of Common Stock to be
purchased under this Agreement have not been registered under the
Securities Act by reason of a specific exemption therefrom, that such
securities are therefore "Restricted Securities" under the Securities
Act and must be held by P&U, and that P&U must bear the economic risk of
such investment, until a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration; (ii) each
certificate representing such shares will be endorsed with the following
legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
and (iii) the Company will instruct any transfer agent not to register
or effect the transfer of the shares of Common Stock unless the
conditions specified in the foregoing legends are satisfied, until such
time as a transfer is made, pursuant to the terms of this Agreement, and
in compliance with Rule 144 or pursuant to a registration statement or,
if the opinion of counsel referred to above is to the further effect
that such legend is not required in order to establish compliance with
any provisions of the Securities Act or this Agreement.
(c) P&U has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks
of the investment in the shares of Common Stock purchased hereunder and
is financially able to bear the risks thereof.
5
<PAGE> 7
(d) P&U is an "accredited investor" as such term is defined in
Rule 501 (a) of Regulation D of the General Rules and Regulations
prescribed by the Securities and Exchange Commission pursuant to the
Securities Act.
(e) P&U has had an opportunity to ask questions and receive
answers from the Company regarding the Company and the terms and
conditions of the offering of the Common Stock and to obtain additional
information necessary to verify the accuracy of the information given to
P&U. P&U has received information that it considers necessary or
appropriate for deciding whether to purchase the Common Stock.
(f) P&U is not a party to any agreement or instrument, or subject
to any charter or other corporate restriction or any judgment, order,
decree, law, ordinance, regulation or other governmental restriction
which would prevent or impede, or be breached or violated by, the
transactions contemplated in this Agreement.
SECTION 4.4 NO BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement.
SECTION 4.5 ORGANIZATION, GOOD STANDING AND QUALIFICATION. P&U is a
corporation duly organized, validly existing and in good standing under the laws
of Sweden, and has all requisite corporate power and authority to carry on their
business as now conducted and as proposed to be conducted. P&U is duly qualified
to transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on its business or
properties.
SECTION 4.6 VALIDITY OF AGREEMENT. No action, suit, proceeding or
investigation is pending or threatened that questions the validity of this
Agreement or any other agreement contemplated hereby or the right of P&U to
enter into such agreements.
SECTION 4.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of P&U is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices, qualifications
or filings required or permitted to be filed with certain state or federal
securities commissions or self-regulatory organizations, which notices,
qualifications, or filings will be filed on a timely basis.
ARTICLE 5
CONDITIONS TO CLOSING
SECTION 5.1 CONDITIONS TO OBLIGATIONS OF P&U AT CLOSING. P&U's
obligation to purchase the shares of the Company's Common Stock at the Closing
is subject to the fulfillment to P&U's satisfaction, on or prior to the Closing,
of each of the following conditions, any of which may be waived by P&U:
6
<PAGE> 8
(a) Representations and Warranties/Performance of Obligations.
The representations and warranties made by the Company in Article 3
hereof and in the ISV-900 Project Agreement shall be true and correct in
all material respects on the Closing Date with the same force and effect
as if they had been made on and as of that date, and the Company shall
have performed and complied in all material respects with all material
obligations and conditions required under this Agreement to be performed
or complied with by it on or prior to the Closing, and a Certificate of
the Company, certifying the foregoing, shall be delivered to P&U at the
Closing.
(b) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the
Closing and all documents and instruments incident to such actions shall
be reasonably satisfactory in substance and form to counsel to P&U, and
counsel to P&U shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably
require.
(c) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required
in connection with the lawful sale and issuance of the shares of Common
Stock to be sold and issued pursuant to this Agreement shall have been
duly obtained and shall be effective on and as of the Closing. No stop
order or other order enjoining the sale of the shares to be sold at the
Closing shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company, threatened by the
Securities and Exchange Commission, or any commissioner of corporations
or similar officer of any state having jurisdiction over such
transaction. At the time of the Closing, the sale and issuance of the
shares of Common Stock to be issued and sold at the Closing shall be
legally permitted by all laws and regulations to which P&U and the
Company are subject.
(d) Opinion of Counsel to the Company. In connection with any
sale of shares hereunder, P&U shall have received from counsel to the
Company, an opinion letter addressed to them, dated the date of the
Closing in substantially the form attached hereto as Exhibit D.
(e) No Material Adverse Change. The Company shall not have
suffered a material adverse change to its business taken as a whole
through the Closing Date.
(f) No Material Default or Notice of Termination under the
ISV-900 Project Agreement. In addition to the conditions set forth
above, P&U's obligation to purchase the shares of the Company's Common
Stock, as applicable, at the Closing shall also be subject to the
condition that the Company is not in material default under the ISV-900
Project Agreement or that a notice of termination of the ISV-900 Project
Agreement shall not have been duly given by either party under the terms
of such ISV-900 Project Agreement.
7
<PAGE> 9
(g) Shares Available. The Company has available under its
Certificate of Incorporation as in effect on the date hereof, and shall
have available under its Certificate of Incorporation as in effect at
the Closing Date, sufficient authorized but unissued shares of its
Common Stock to issue and sell to P&U all of the shares of Common Stock
to be issued at Closing.
SECTION 5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT CLOSING. The
Company's obligation to issue and sell the shares of its Common Stock to be sold
at the Closing, is subject to the fulfillment to the Company's satisfaction, on
or prior to the Closing of each of the following conditions, any of which may be
waived by the Company:
(a) Representations and Warranties/Performance of Obligations.
The representations and warranties made by P&U in Article 4 hereof and
in the ISV-900 Project Agreement shall be true and correct in all
material respects on the Closing Date, with the same force and effect as
if they had been made on and as of that date, and P&U shall have
performed and complied in all material respects with all material
obligations and conditions required under this Agreement to be performed
or complied with by it on or prior to the Closing, and a certificate
duly executed by an officer of P&U, certifying the foregoing, shall be
delivered to the Company at the Closing.
(b) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required
in connection with the lawful sale and issuance of the shares of Common
Stock to be sold and issued pursuant to this Agreement shall have been
duly obtained and shall be effective on and as of the Closing. No stop
order or other order enjoining the sale of the shares to be sold at the
Closing shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company, threatened by the
Securities and Exchange Commission, or any commissioner of corporations
or similar officer of any state having jurisdiction over such
transaction. At the time of the Closing, the sale and issuance of the
shares of Common Stock to be sold and issued at such closing shall be
legally permitted by all laws and regulations to which P&U and the
Company are subject.
(c) No Material Default or Notice of Termination under the
License ISV-900 Project Agreement. In addition to the conditions set
forth above, the Company's obligation to sell the shares of the
Company's Common Stock at the Closing shall also be subject to the
condition that P&U is not in material default under the ISV-900 Project
Agreement or that a notice of termination of the ISV-900 Project
Agreement shall not have been duly given by either party under the terms
of such ISV-900 Project Agreement.
8
<PAGE> 10
ARTICLE 6
COVENANTS OF THE COMPANY
SECTION 6.1 AFFIRMATIVE COVENANTS OF THE COMPANY. The Company agrees
that it shall do the following for so long as P&U, together with its affiliates,
owns at least five percent (5%) of the Company's outstanding Common Stock.
(a) Preserve and maintain its corporate existence and good
standing in the State of Delaware, and qualify and remain qualified as a
foreign corporation in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its business or
properties.
(b) Keep adequate (i) records and books of account reflecting all
financial transactions of the Company's business, (ii) minute books
containing accurate records of all meetings and accurately reflecting
all corporate action of its stockholders and its board of directors, and
(iii) stock books and ledgers correctly recording all transfers and
issuances of all capital stock.
(c) Maintain, keep and preserve all the material assets owned,
leased or used in the Company's business in reasonable operating
condition and repair, ordinary wear and tear excepted, and discharge and
pay in full when due, except those disputed in good faith, all material
obligations of the Company.
(d) Engage in the Company's research and development and business
in the ordinary course and use reasonable commercial efforts to preserve
its business and the goodwill of customers, suppliers and others having
business relations with the Company.
(e) Comply with all material terms and conditions of the ISV-900
Project Agreement.
(f) Maintain insurance on the assets of the Company comparable to
that which the Company has customarily maintained in the past.
(g) Comply in all material respects with all governmental laws,
orders, decrees, rules or regulations applicable to the Company, its
assets and business, employment practices and procedures, employees or
operations, including the rules and regulations of the Securities and
Exchange Commission and any exchange or automated inter-dealer quotation
system on which the Common Stock is traded and then current Good
Clinical Practices and then current Good Manufacturing Practices, except
where the failure to so comply will not have a material adverse effect
on the Company, its business and operations, or the Company's ability to
comply with the terms of the ISV-900 Project Agreement.
(h) Timely file, all tax returns that are required to be filed
by it and pay on or before the date they are required to be paid all
taxes due pursuant to those tax returns or
9
<PAGE> 11
any assessment received by it or otherwise required to be paid, except
taxes being contested in good faith by appropriate proceedings, if
applicable.
SECTION 6.2 NEGATIVE COVENANTS OF THE COMPANY. The Company agrees that,
so long as P&U, individually or collectively with its affiliates owns at least
five percent (5%) of the Company's outstanding Common Stock, it shall not do,
without P&U's prior written approval (which approval shall not be unreasonably
withheld), any of the following:
(a) Amend its Certificate of Incorporation or its by-laws in any
manner that would materially and adversely affect the ability of the
Company to consummate the transactions contemplated by this Agreement or
the ISV-900 Project Agreement.
(b) Directly or indirectly sell, lease, or otherwise dispose of
(other than through a license) any of the assets related to the ISV-900
Project other than in a merger or sale of the entire Company or all or
substantially all of the assets. Any successor of InSite pursuant to a
merger or otherwise shall be bound by all of the obligations of InSite
as contained herein. However, the Company may license its other products
to third parties, provided that the Company notifies P&U of any such
license before that license becomes effective.
(c) Transfer any of the Company's material assets used in its
business to any person and thereafter directly or indirectly lease back
the same or similar property.
(d) Make any significant change in its accounting policies,
except for any change required by GAAP or otherwise in the opinion of
the Company's independent public accountants.
SECTION 6.3 DEMAND REGISTRATION.
(a) At any time that P&U owns any Common Stock of the Company,
P&U shall have the right to cause the Company to register such
Registrable Shares (as defined below) with the Securities and Exchange
Commission and qualify such shares with such state securities
commissions as P&U shall reasonably request in order to allow P&U to
sell such shares, provided that the Company shall not be required to
qualify such shares in any state where such qualification would require
the Company to consent to personal jurisdiction in such state (the
"Demand Registration Right"). P&U shall be entitled to a total of *
Demand Registration *. As used in Sections 6.4 through 6.9 and 7.2, the
term "Registrable Shares" shall mean all Common Stock issued to P&U
pursuant to this Agreement.
(b) If, any offering pursuant to the P&U Demand Registration
Right, involves an underwriting and any other person has piggy-back
registration rights with respect to such registration, and the managing
underwriter shall impose a limitation on the number of shares which may
be included in the registration statement because, in its judgment, such
limitation is necessary to effect an orderly public distribution or
because in its
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
10
<PAGE> 12
judgment the inclusion of shares being sold by persons other than P&U
would adversely affect the offering, then the Company shall not be
obligated to include in such registration statement any portion of
shares of any other person or P&U as provided in 6.3(c) below.
(c) Notwithstanding any other provision of this Section 6.3, if
the underwriter, in its reasonable judgment, advises the Company in
writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Company shall so advise P&U, and any
other holders of registrable securities which would otherwise be
underwritten pursuant to such registration statement, and the number of
shares of registrable securities that may be included in the
underwriting shall be allocated among all such persons, including P&U,
first to P&U, and any other persons making such demand together with P&U
and then to all other persons, and in each case, in proportion (as
nearly as practicable) to the amount of registrable securities of the
Company owned by each such person.
(d) Notwithstanding the foregoing, if the Company shall furnish
to P&U a certificate signed by the Chief Executive Officer of the
Company stating that, in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be filed
and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer taking action with
respect to such filing for a period of not more than ninety (90) days
after receipt of the demand of P&U; provided that the Company may not
utilize this right more than once in any twelve-month period.
SECTION 6.4 PIGGY-BACK REGISTRATION.
(a) If the Company shall determine at any time to register for
its own account or the account of others under the Securities Act any of
its equity securities, other than on Form S-4 or Form S-8 or their then
equivalents or otherwise relating to shares of Common Stock to be issued
in connection with any acquisition of any entity or business or shares
of Common Stock issuable under stock option or other employee benefit
plans, it shall send to P&U written notice of such determination and, if
within five (5) business days after receipt of such notice, P&U shall so
request in writing, the Company shall use its best efforts to include in
such registration statement all or any part of the Registrable Shares
that P&U requests to be registered.
(b) If, in connection with any offering involving an
underwriting, the managing underwriter shall impose a limitation of the
number of shares which may be included in the registration statement
because, in its judgment, such limitation is necessary to affect an
orderly public distribution or because in its judgment the inclusion of
shares being sold by persons other than the Company would adversely
effect the offering, then the Company shall be obligated to include in
such registration statement only such limited portion (which may be
none) of the Registrable Shares with respect to which P&U has requested
inclusion pursuant hereto as may reasonably be determined by the
managing underwriter. Any inclusion of Registrable Shares in an
offering, when the
11
<PAGE> 13
managing underwriter has so limited the number of shares that may be
included in such offering, shall be allocated pro rata among the holders
of similar "piggyback" registration rights granted by the Company
seeking to include their shares, in proportion to the number of shares
(whether or not such shares are sought to be included in such offering)
held by such persons. The Company shall have the right to delay or
withdraw any registration initiated by it pursuant to Section 6.4
hereof.
SECTION 6.5 EFFECTIVENESS. The Company will use its best efforts to
maintain the effectiveness for up to 90 days, (or such shorter period of time as
the underwriters need to complete the distribution of a registered offering or
until the securities are actually sold) of any registration statement pursuant
to which any of the Registrable Shares are being offered, and from time to time
will amend or supplement such registration statement and the prospectus
contained therein to the extent necessary to comply with the Securities Act and
any applicable state securities laws or regulations.
SECTION 6.6 INDEMNIFICATION.
(a) In the event that the Company registers any of the
Registrable Shares under the Securities Act, the Company will indemnify
and hold harmless P&U and each underwriter of Registrable Shares
(including their officers, directors, affiliates and partners and
including any broker or dealer through whom Registrable Shares may be
sold in such registration) and each person, if any, who controls P&U or
any such underwriter within the meaning of Section 15 of the Securities
Act from and against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which they or any of them become
subject under the Securities Act, applicable state securities laws or
under any other statute or at common law or otherwise, as incurred, and,
except as hereinafter provided, will reimburse P&U, each such
underwriter and each such controlling person, if any, for any legal or
other expenses reasonably incurred by them or any of them in connection
with investigating or defending any actions whether or not resulting in
any liability, as incurred, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the final prospectus (or the registration
statement or prospectus as from time to time amended or supplemented by
the Company) or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, or
any violation by the Company of any rule or regulation promulgated under
the Securities Act or any state securities laws applicable to the
Company and relating to action or inaction required of the Company in
connection with such registration, unless (i) such untrue statement or
alleged untrue statement or omission or alleged omission was made in
such registration statement, preliminary or amended preliminary
prospectus or final prospectus in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith
by P&U or any such underwriter expressly for use therein, or unless (ii)
in the case of a sale directly by P&U (including a sale of Registrable
Shares through any underwriter retained by P&U to engage in a
distribution
12
<PAGE> 14
solely on behalf of P&U), such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus copies of
which were delivered to P&U or such underwriter on a timely basis, and
P&U or such underwriter failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the sale of the
Registrable Shares to the person asserting any such loss, claim, damage
or liability in any case where such delivery is required by the
Securities Act; provided, however, that the indemnity agreement
contained in this subsection 6.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, expense, liability or action
if such settlement is effected without the consent of the Company, which
consent shall not be unreasonably withheld.
(b) P&U will indemnify and hold harmless the Company, each
underwriter of Registrable Shares and any other persons selling
securities in such registration statement (including their officers,
directors, affiliates and partners and including any broker or dealer
through whom Registrable Shares may be sold in such registration) and
each person, if any, who controls the Company, any such underwriter or
other such person selling securities in such registration statement
within the meaning of Section 15 of the Securities Act from and against
any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them may become subject, under the
Securities Act, applicable state securities laws or under any other
statutes or at common law or otherwise, as incurred, insofar as such
losses, claims, damages, expenses or liabilities (or actions in the
respect thereto) arise out of are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
registration statement, in any preliminary or amended preliminary
prospectus or in the final prospectus (or the registration statement or
prospectus as from time to time amended or supplemented by the Company)
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, or any violation
by the Company of any rule or regulation promulgated under the
Securities Act or any state securities laws applicable to the Company
and relating to action or inaction required of the Company in connection
with such registration, in each case to the extent (and only to the
extent) that such untrue statement, alleged untrue statement, alleged
omission, omission or violation occurs in reliance upon and in
conformity with written information furnished by or on behalf of P&U
expressly for use in connection with such registration; and P&U will
reimburse, as incurred, the Company, each such underwriter, each such
other person selling securities in such registration statement and each
such controlling person, if any, for any legal or other expenses
reasonably incurred by them or any of them in connection with
investigating or defending any such loss, claim, damage, liability or
action, whether or not resulting in any liability; provided, however,
that the indemnity agreement contained in this subsection 6.6(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
expense, liability or action if such settlement is effected without the
consent of P&U, which consent shall not be unreasonably withheld. In any
event, except in the case of willful misconduct or fraudulent
misrepresentations, the liability of P&U under the indemnity provisions
of this Agreement shall be limited to an
13
<PAGE> 15
amount equal to the gross proceeds received by P&U from the sale of
shares in any transaction to which such indemnification relates.
(c) Promptly after receipt by an indemnified person under this
Section 6.6 of notice of the commencement or threat of any action in
respect of which indemnity may be sought against the indemnifying party,
such indemnified person shall notify the indemnifying party in writing
of the commencement thereof (provided, that failure to so notify the
indemnifying party shall not relieve the indemnifying party from any
liability it may have hereunder, except to the extent prejudiced by such
failure) and, subject to the provisions hereinafter stated, the
indemnifying party shall be entitled to assume the defense of such
action (including the employment of counsel) and the payment of expenses
insofar as such action shall relate to any alleged liability in respect
of which indemnity may be sought against the indemnifying party.
(d) An indemnified person under this Section 6.6 shall have the
right to employ separate counsel in any such action and to participate
in the defense thereof but the fees and expenses of such counsel
subsequent to any assumption of the defense by the indemnifying party
shall not be at the expense of the indemnifying party (but shall be at
the sole expense of the indemnified person) unless the employment of
such counsel has been specifically authorized in writing by the
indemnifying party; provided, however, that, if the defendants in any
such action include both the indemnified person and the indemnifying
party and the indemnified person shall have reasonably concluded that
there may be reasonable defenses available to it which are different
from or additional to those available to the indemnifying party or if
the interests of the indemnified person reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified
person shall have the right to select a separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the
indemnifying party as incurred. At any time, an indemnified person may
select separate counsel and assume its own legal defense with the
expenses and fees of such separate counsel and other expenses related to
such separate counsel to be borne by such indemnified person. An
indemnifying party shall not be liable to an indemnified person for any
settlement of any such action effected without the indemnifying party's
written consent (which consent shall not be unreasonably withheld or
delayed). An indemnifying party shall not, except with the approval of
each party being indemnified under this Section 6.6 (which approval
shall not be unreasonably withheld or delayed), consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
the parties being so indemnified of a release from all liability in
respect to such claim or litigation.
(e) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which an
indemnified person makes a claim for indemnification pursuant to this
Section 6.6 but indemnification is unavailable to or insufficient to hold
harmless an indemnified person, or it is judicially determined (by the
14
<PAGE> 16
entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of
appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 6.6 provides for
indemnification in such case, then the indemnifying party and the
indemnified person will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and of the indemnified
person on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party on the one hand and of indemnified person on the other
hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied
by the Company on the one hand or by P&U on the other hand, and each
party's relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, however,
that, in any such case, (A) except in the case of willful misconduct or
fraudulent misrepresentations, P&U will not be required to contribute any
amount in excess of the public offering price of all Registrable Shares
offered by it pursuant to such registration statement; and (B) no person
or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
SECTION 6.7 FURTHER OBLIGATIONS OF THE COMPANY. Whenever under the
preceding Sections of this Article 6, the Company is required to register
Registrable Shares, the Company agrees that it shall also do the following:
(a) Furnish to P&U such copies of each preliminary and final
prospectus and such other documents as P&U may reasonable request to
facilitate the public offerings of the Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares covered by the registration statement under the applicable
securities or "blue sky" laws of such jurisdictions as P&U may
reasonably request;
(c) Permit P&U or its counsel or other representatives to inspect
and copy such corporate documents and records as may reasonably be
requested by them, after reasonable advance notice, during normal
business hours and without undue interference with the operation of the
Company's business;
(d) Furnish to P&U a copy of all documents filed with and all
correspondence from or to the Securities and Exchange Commission in
connection with any such offering of securities;
15
<PAGE> 17
(e) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and (to
the extent required) make available to its security holders, as soon as
reasonably practicable, an earning statement covering the period of at
least twelve months, but not more than eighteen months, beginning with
the first month after the effective date of the registration statement
covering a public offering, which earning statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
SECTION 6.8 EXPENSES. In the case of each registration effected under
Sections 6.3, 6.4 and 6.7, * shall bear * reasonable costs and expenses of each
such registration *, including, but not limited to, * printing, legal and
accounting fees and expenses, Securities and Exchange Commission and NASD or
AMEX (as applicable) filing fees and "blue sky" fees and expenses; provided,
however, that * shall have no obligation to pay or otherwise bear any portion of
*, or the fees and expenses of counsel for P&U in connection with the
registration of the Registrable Shares.
SECTION 6.9 TERMINATION OF REGISTRATION RIGHTS. No holder of Registrable
Shares shall be entitled to exercise any right provided for in, and the Company
shall have no obligation pursuant to, Sections 6.3, 6.4, 6.5 or 6.7 hereof after
such time as all Registrable Shares held by a holder may be sold pursuant to
Rule 144 promulgated under the Securities Act during a given ninety-day period;
provided, however, if the Company fails to comply with SEC Rule 144(c)(1), the
Company's obligations pursuant to Section 6.3, 6.4, 6.5 and 6.7 hereof shall be
reinstated for so long as such failure to comply shall continue.
ARTICLE 7
COVENANTS OF P&U
SECTION 7.1 STANDSTILL AGREEMENT. Other than shares of Common Stock which it is
purchasing pursuant to this Agreement or that it may become obligated to
purchase under that certain Stock Purchase Agreement dated January 28, 1999, by
and among the Company and Pharmacia & Upjohn AB and Pharmacia and Upjohn SA, P&U
hereby covenants and agrees that it will not, nor will it permit any of its
affiliates (including parents, subsidiaries or other related entities) to
purchase or otherwise acquire, directly or indirectly, any equity securities of
the Company (or any securities convertible, exercisable or exchangeable for any
such securities) without the prior written approval of the Company. This
provision shall terminate and be of no further force or effect thirty (30)
months from the date hereof or such earlier date as shall be agreed to in
writing by the Company; provided, that the restrictions of this Section 7.1
shall automatically terminate upon the occurrence of any of the following
events: (a) the filing with the Securities and Exchange Commission of a Schedule
13D by any person or entity other than P&U or its affiliates or any other party
holding ten percent (10%) or more (or five percent (5%) or more in the case of
subpart (y) below) of any class of the Company's voting equity securities as of
the date hereof indicating that such person or entity has acquired beneficial
ownership of (x) more than 9.99% of any class of the Company's voting equity
securities, or (y) has acquired at least 5% of any class of the Company's voting
equity securities which Schedule 13D expresses
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
16
<PAGE> 18
the filing party's intention to assume control of the Company, whether by tender
offer, merger, proxy contest or otherwise; (b) the commencement of a tender
offer by any person or entity to acquire beneficial ownership of 9.99% or more
of the Company's outstanding voting equity securities; or (c) the solicitation
of proxies by any party other than the Company to which Rule 14(a) of the rules
and regulations under the Securities and Exchange Act of 1934, as amended,
applies and is intended to effect a change in the majority of members of the
Company's Board of Directors.
SECTION 7.2 REGISTRATION. Whenever under the preceding Sections of
Article 6, P&U is registering Registrable Shares pursuant to any registration
statement, (i) P&U agrees to timely provide to the Company, at its request, such
information and materials as it may reasonably request in order to effect the
registration of such Registrable Shares and (ii) if the offering is
underwritten, the Company and P&U agrees to execute an underwriting agreement
containing customary terms and conditions.
SECTION 7.3 VOTING AGREEMENT. P&U agrees that it shall, so long as it
holds shares of Common Stock, vote such shares with respect to any proposed
merger or combination or sale of all or substantially all of the assets of the
Company, with or to any other entity in the same proportion as the shares of the
Company's equity securities voted in favor of such transaction by other parties
who are not themselves a party to any such merger, combination or asset sale;
provided, however, that the foregoing voting requirement shall not apply to P&U
in any transaction which is not approved by the Company's Board of Directors or
in the event of a proposed merger or combination or sale of substantially all of
the assets of the Company to a competitor of P&U.
SECTION 7.4 LIMITATION ON SECURITIES ISSUED PURSUANT TO THIS AGREEMENT.
Unless permitted by the applicable rules and regulations of the American Stock
Exchange, in no event shall the total number of shares of Common Stock issued
pursuant to this Agreement exceed the maximum number of shares of Common Stock
that the Company can so issue pursuant to Rule 713(a) of the American Stock
Exchange (or any successor rule or comparable rule of an applicable exchange or
automated quotation system) which, as of the date of this Agreement shall be
19.99% of shares outstanding on the date of this Agreement.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the substantive laws of the State of New York and
the United States of America, without regard to choice of law rules thereof.
SECTION 8.2 PUBLIC STATEMENTS. Any statement to the public regarding
this Agreement or any aspect of this Agreement shall be made subject to and in
accordance with the terms of the ISV-900 Project Agreement.
17
<PAGE> 19
SECTION 8.3 ASSIGNMENT. The rights and obligations under this Agreement
may not be assigned by either the Company or P&U without the prior written
consent of the other party; provided, however, that the Company may, without the
prior consent of P&U, assign the rights and obligations under this Agreement to
the acquiring company or any of its affiliates in connection with a merger,
combination or sale of all or substantially all of the assets of the Company.
SECTION 8.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions of this Agreement shall inure to the benefit of,
and be binding upon, the successors, and permitted assigns of the Company and
P&U.
SECTION 8.5 ENTIRE AGREEMENT. This Agreement and the ISV-900 Project
Agreement (and all of their exhibits and appendices (collectively, the
"Agreements")) set forth all of the covenants, promises, agreements, warranties,
representations, conditions, and understandings between the Company and P&U and
supersede and terminate all prior agreements and understandings between these
parties with respect to the subject matter hereof and thereof. There are no
covenants, promises, agreements, warranties, representations, conditions or
understandings, either oral or written, between the Company and P&U other than
as set forth in the Agreement, the ISV-900 Project Agreement (and all of their
exhibits and appendices). The Agreements are intended to define the full extent
of the legally enforceable undertakings of the Company and P&U and no promise or
representation, whether written or oral, which is not set forth explicitly
herein or therein is intended by either party to be legally binding. The Company
and P&U acknowledges that, in deciding to enter into this Agreement and to
consummate the transactions contemplated under this Agreement, neither has
relied upon any statement or representation, written or oral, other than those
explicitly set forth in this Agreement.
SECTION 8.6 SEVERABILITY. Whenever possible, each provision of the
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of the Agreement. In the event of such invalidity, the parties shall seek to
agree on an alternative enforceable provision that preserves the original
purpose of this Agreement.
SECTION 8.7 AMENDMENT AND WAIVER. Except as otherwise provided herein,
any term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and P&U. No amendment to
this Agreement shall be binding upon the parties unless reduced to writing and
signed by the respective authorized officers of the parties. Any amendment or
waiver effected in accordance with this Section shall be binding upon any holder
of any securities purchased under this Agreement (including securities into
which such securities have been converted), each future holder of all such
securities, and the Company.
18
<PAGE> 20
SECTION 8.8 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
and received (a) upon personal delivery, (b) on the fifth day following mailing
by registered or certified mail return receipt requested postage prepaid,
addressed to the Company or P&U at their respective addresses listed below (or
at such other address for a party as shall be specified by like notice;
provided, that notices of a change of address shall be effective only upon
receipt thereof), (c) upon transmission by facsimile (with telephonic notice),
or (d) upon confirmed delivery by overnight commercial courier service:
If to the Company, address to: InSite Vision Incorporated
Attention: Chief Executive Officer
965 Atlantic Avenue
Alameda, CA 94501
with a copy to: Brobeck, Phleger & Harrison LLP
Attention: Timothy R. Curry
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
If to P&U, address to: Pharmacia & Upjohn
Attention: Vice President, Licensing
100 Route 206 North
Peapack, NJ 07977
with a copy to: Pharmacia & Upjohn
Attention: Vice President,
Corporate Law
100 Route 206 North
Peapack, NJ 07977
SECTION 8.9 FEES AND EXPENSES. Except as otherwise provided herein, the
Company and P&U shall bear their own expenses and legal fees incurred on their
behalf with respect to this Agreement and the transactions contemplated hereby.
SECTION 8.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
SECTION 8.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
19
<PAGE> 21
IN WITNESS WHEREOF, this Agreement is executed and delivered by the
parties as of the date first above written.
INSITE VISION INCORPORATED
By: /s/ S. KUMAR CHANDRASEKARAN
--------------------------------
Name: S. Kumar Chandrasekaran
Title: CEO
PHARMACIA & UPJOHN AB
By: /s/ HAKAN ASTROM
--------------------------------
Name: Hakan Astrom
Title: Sr. VP Corp. Strategy &
Investor Relations
By: /s/ MATS PETTERSSON
--------------------------------
Name: Mats Pettersson
Title: Senior Vice President
20
<PAGE> 22
EXHIBIT A
SCHEDULE OF EXCEPTIONS
None
A-1
<PAGE> 23
EXHIBIT B
CERTIFICATE OF INCORPORATION
B-1
<PAGE> 24
EXHIBIT C
BYLAWS
C-1
<PAGE> 25
EXHIBIT D
OPINION OF COUNSEL
Pharmacia & Upjohn AB
c/o Pharmacia & Upjohn Company
100 Route 206 North
Peapack, New Jersey 07977
Re: InSite Vision Incorporated
Ladies and Gentlemen:
We have acted as counsel to InSite Vision Incorporated, a
Delaware corporation (the "Company") in connection with the transactions set
forth and contemplated by the Stock Purchase Agreement to be entered into
contemporaneously herewith by and between Pharmacia & Upjohn AB and the Company
(the "Stock Purchase Agreement"). This opinion is furnished to you pursuant to
Section 5.1(d) of the Stock Purchase Agreement.
In rendering the opinions expressed below, we have examined and
are familiar with originals or copies of the Company's Certificate of
Incorporation, and all amendments thereto, as certified by the Delaware
Secretary of State (the "Certificate"), the Company's Bylaws, a Certificate of
Good Standing for the Company issued by the Delaware Secretary of State and such
other agreements, instruments and documents as we have deemed necessary as a
basis for such opinions.
In rendering the opinions set forth herein, we have assumed (i)
the genuineness of all signatures on all documents submitted to us, (ii) the
capacity and competence of each natural person who executed any of these
documents, (iii) the authenticity of all documents submitted to us as originals
and of the originals of all documents submitted to us as copies, (iv) the
conformity with the original documents of all documents submitted to us as
copies and (v) the filing by the Company of all legal forms and documents
required to be filed by the Company, and such filings being made in conformity
with law.
Based on the foregoing and subject to the qualifications and
limitations set forth herein, we are of the opinion that:
1. InSite Vision Incorporated is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is qualified and in good standing as a foreign corporation in each
jurisdiction in which such qualification is required or necessary.
2. The authorized capital of the Company is as set forth in the
Certificate as certified by the Delaware Secretary of State on the date hereof.
D-1
<PAGE> 26
3. The Company has full corporate power and authority to execute
and deliver the Stock Purchase Agreement and all agreements related thereto, and
to carry out the transactions contemplated thereby.
4. The Stock Purchase Agreement and all agreements related
thereto, have been duly authorized and approved by such directors and officers
that are legally required therefor, have been duly executed and delivered by the
Company.
5. The execution and delivery of the Stock Purchase Agreement and
all other agreements or instruments entered into or delivered in connection with
the transactions contemplated thereby and the performance by the Company of
their terms (i) do not conflict with or result in a violation of the Company's
Certificate or Bylaws or any judgment, order or decree of any court or agency to
which the Company or its assets is subject and (ii) do not conflict with and
will not, with or without notice or lapse of time, constitute a material breach
or default of or result in any lien under any material contract, undertaking,
indenture or other agreement or instrument by which the Company is bound or to
which it is a party.
6. No notice, consent, authorization, approval or order is
required to be given or obtained by the Company of any court or governmental
agency or body for the consummation by the Company of the transactions
contemplated by the Stock Purchase Agreement or any of the other agreements
related thereto.
7. There is no suit, action, or legal, administrative,
arbitration, or other proceeding pending, or threatened against the Company
pertaining to the transactions contemplated by the Stock Purchase Agreement.
The opinions expressed herein are solely for benefit of, and may
be relied upon by, the addressee hereof. The opinions may not be relied upon for
any other purpose or relied upon by any other person, firm or entity for any
purpose. The opinions expressed herein are as of the date hereof.
Very truly yours,
BROBECK PHLEGER & HARRISION
D-2
<PAGE> 1
EXHIBIT 10.44
CREDIT AGREEMENT
between
INSITE VISION INCORPORATED,
as Borrower,
and
PHARMACIA & UPJOHN COMPANY,
as Lender
Dated as of November 11, 1999
- --------------------------------------------------------------------------------
$4,000,000 Credit Facility
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1. - Definitions .................................................... 1
Section 1.1 "Affiliate" ............................................. 1
Section 1.2 "Agreement" ............................................. 1
Section 1.3 "Base Rate" ............................................. 1
Section 1.4 "Business Day" .......................................... 1
Section 1.5 "Credit Documents" ...................................... 1
Section 1.6 "Credit Loan" ........................................... 1
Section 1.7 "Credit Note" ........................................... 2
Section 1.8 "Debt" .................................................. 2
Section 1.9 "Default" ............................................... 2
Section 1.10 "Default Rate" .......................................... 2
Section 1.11 "Environmental Laws" .................................... 2
Section 1.12 "ERISA" ................................................. 2
Section 1.13 "Event of Default" ...................................... 3
Section 1.14 "GAAP" .................................................. 3
Section 1.15 "Hazardous Substance" ................................... 3
Section 1.16 "ISV-900 Agreements" .................................... 3
Section 1.17 "Initial Loan Date" ..................................... 3
Section 1.18 "ISV-900 Project" ....................................... 3
Section 1.19 "ISV-900 Project Agreement" ............................. 3
Section 1.20 "Lien" .................................................. 3
Section 1.21 "Obligations" ........................................... 3
Section 1.22 "Permitted Debt" ........................................ 4
Section 1.23 "Permitted Liens" ....................................... 4
Section 1.24 "Person" ................................................ 5
Section 1.25 "Plan" .................................................. 5
Section 1.26 "Termination Date" ...................................... 5
Article 2. - Amount and Terms of the Credit Loan ............................ 5
Section 2.1 Total Credit ............................................ 5
Section 2.2 Credit Loans ............................................ 5
Section 2.3 Interest Rate ........................................... 6
Section 2.4 Payments of Principal, Interest and Costs ............... 6
Section 2.5 Voluntary Prepayments ................................... 7
Section 2.6 Method of Payment ....................................... 8
Section 2.7 Use of Proceeds ......................................... 8
Section 2.8 Application ............................................. 8
Article 3. - Conditions of Lending .......................................... 8
Section 3.1 Conditions of Borrowing ................................. 8
Section 3.2 Credit Documents ........................................ 9
Section 3.3 Conditions Precedent to All Credit Loans ................ 9
Article 4. - Representations and Warranties ................................. 10
Section 4.1 Representations, Warranties and Covenants of the Borrower 10
Section 4.2 Survival of Representations ............................. 12
</TABLE>
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<TABLE>
<S> <C>
Article 5. - Covenants of the Borrower ...................................... 12
Section 5.1 Affirmative Covenants ................................... 12
Section 5.2 Negative Covenants ...................................... 13
Section 5.3 Public Filings .......................................... 14
Article 6. - Default ........................................................ 14
Section 6.1 Events of Default ....................................... 14
Section 6.2 Obligation to Lend; Acceleration ........................ 15
Section 6.3 Right of Set-off ........................................ 16
Article 7. - Miscellaneous .................................................. 16
Section 7.1 Notices ................................................. 16
Section 7.2 Indemnity ............................................... 17
Section 7.3 Entire Agreement; Modification of Agreement ............. 17
Section 7.4 Assignment/Sale of Interest ............................. 17
Section 7.5 Reimbursement of Expenses ............................... 18
Section 7.6 Indulgences Not Waivers ................................. 18
Section 7.7 Severability ............................................ 18
Section 7.8 Successors and Assigns .................................. 18
Section 7.9 General Waivers by the Borrower ......................... 19
Section 7.10 Incorporation by Reference .............................. 19
Section 7.11 Execution in Counterparts; Facsimile Signatures ......... 19
Section 7.12 Governing Law; Consent to Forum ......................... 19
Section 7.13 Waiver of Jury Trial .................................... 19
Section 7.14 Accounting Terms ........................................ 19
Section 7.15 Construction/Headings ................................... 19
</TABLE>
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of November 11, 1999 (the "Effective
Date"), by and between InSite Vision Incorporated, a Delaware corporation (the
"Borrower"), with its chief executive office located at 965 Atlantic Avenue,
Alameda, California, 94501, and Pharmacia & Upjohn Company, a Delaware
corporation (the "Lender"), with an office located at 100 Route 206 North,
Peapack, NJ 07977.
ARTICLE 1.
DEFINITIONS
For purposes of this Agreement, the following terms, whether used in
the singular or plural, shall have the following meanings:
SECTION 1.1 "Affiliate" means a Person (1) which owns or otherwise has
an interest in five percent or more of any equity interest of the Borrower
(except Lender or its Affiliates), (2) five percent or more of the equity
interests of which the Borrower (or any shareholder, director, officer, employee
or Subsidiary of the Borrower or any combination thereof) owns or otherwise has
an interest in, or (3) which, directly or through one or more intermediaries, is
controlled by, controls, or is under common control with the Borrower. For
purposes of subpart (3) above, "control" means the ability, directly or
indirectly, to affect the management or policies of a Person by virtue of an
ownership interest, by right of contract or any other means.
SECTION 1.2 "Agreement" means this Credit Agreement, as amended,
renewed, restated, replaced or otherwise modified from time to time.
SECTION 1.3 "Base Rate" means the rate of interest announced publicly
by Chase Manhattan Bank in New York City from time to time as its prime rate or
other designation in replacement of the prime rate announced publicly by such
bank. Such rate is only a reference rate and may not be the lowest rate offered
by such bank or the Lender.
SECTION 1.4 "Business Day" means a day on which banks in New York City
are open for business to the general public other than a Saturday or Sunday.
SECTION 1.5 "Credit Documents" means this Agreement, the Credit Note
and any other agreements or documents existing on or after the Initial Loan Date
evidencing or securing any Credit Loan and any amendments, renewals,
restatements, replacements or other modifications of the foregoing from time to
time.
SECTION 1.6 "Credit Loan" means any loan made by the Lender as provided
in Section 2.2 of this Agreement.
<PAGE> 5
SECTION 1.7 "Credit Note" means the Credit Note to be executed by the
Borrower on or about the Initial Loan Date in favor of the Lender to evidence
the Credit Loans made pursuant to Section 2.2 of this Agreement, which shall be
substantially in the form of Exhibit A, as the same may be amended, renewed,
replaced, consolidated or otherwise modified from time to time after execution
and delivery thereof.
SECTION 1.8 "Debt" means, collectively, (1) indebtedness or liability
for borrowed money; (2) obligations evidenced by bonds, debentures, notes or
other similar instruments; (3) obligations for the deferred purchase price of
property or services; (4) obligations as lessee under capital leases; (5)
current liabilities in respect of unfunded vested benefits under Plans covered
by ERISA; (6) reimbursement obligations under letters of credit or acceptance
facilities; (7) all guarantees, Debt of another of the types referred to in
clauses (1) through (6) guaranteed or effectively guaranteed through
endorsements (other than for collection or deposit in the ordinary course of
business) and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any Person or entity, or otherwise to
assure a creditor against loss; and (8) obligations secured by a Lien, whether
or not the obligations have been assumed.
SECTION 1.9 "Default" means an event or condition the occurrence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
SECTION 1.10 "Default Rate" has the meaning provided in Section 2.3(b)
of this Agreement.
SECTION 1.11 "Environmental Laws" means any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, policy, consent decree or judgment, relating to the protection of
environment or Hazardous Substances, including, without limitation: the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
Section 9601 et seq.; the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq.; the Clean Air Act, as amended, 42 U.S.C. Section 7401 et
seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section
136 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.;
the Oil Pollution Act of 1990, 33 U.S.C. Section 1001 et seq.; the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. Section 1801 et seq.; the
Atomic Energy Act, as amended, 42 U.S.C. Section 2011 et seq.; The Occupational
Safety and Health Act, as amended, 29 U.S.C. Section 651 et seq.; or the Federal
Food, Drug and Cosmetic Act, as amended, 21 U.S.C. Section 301 et seq.; and any
laws relating to protection of safety, health or the environment which regulate
the use of biological agents or substances including medical or infectious
wastes as any such laws have been amended.
SECTION 1.12 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and all rules and regulations from time
to time promulgated thereunder.
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<PAGE> 6
SECTION 1.13 "Event of Default" has the meaning provided in Section 6.1
of this Agreement.
SECTION 1.14 "GAAP" means generally accepted accounting principles in
effect from time to time in the United States of America.
SECTION 1.15 "Hazardous Substance" means any chemicals, materials or
substances defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"hazardous air pollutants," "pollutants," "contaminants," "toxic chemicals,"
"petroleum or petroleum products," "toxics," "hazardous chemicals," "extremely
hazardous substances," "pesticides" or related materials, as now or in the past
defined in any applicable Environmental Law or any petroleum or petroleum
products, natural or synthetic gas, radioactive materials, asbestos-containing
materials, urea formaldehyde foam insulation, and radon.
SECTION 1.16 "ISV-900 Agreements" has the meaning set forth in the
ISV-900 Project Agreement.
SECTION 1.17 "Initial Loan Date" means the second anniversary of the
Effective Date.
SECTION 1.18 "ISV-900 Project" means all existing and future patent,
license and contractual rights and assets arising out of or related to the
ISV-900 Agreements to which Lender is granted rights under the ISV-900 Project
Agreement.
SECTION 1.19 "ISV-900 Project Agreement" means the ISV-900 Project
Agreement between Lender and Borrower dated the date hereof, as such agreement
is amended, modified or supplemented from time to time.
SECTION 1.20 "Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge or encumbrance of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction to evidence any of
the foregoing).
SECTION 1.21 "Obligations" means all Credit Loans and all other
advances, debts, liabilities, obligations, covenants and duties owing, arising,
due or payable from the Borrower to the Lender of any kind or nature, existing
or future, whether or not evidenced by any note, letter of credit, guaranty or
other instrument, arising under this Agreement or any of the other Credit
Documents and whether direct or indirect (including, without limitation, those
acquired by assignment), absolute or contingent, primary or secondary, due or to
become due, existing on or after the Initial Loan Date and however acquired, and
all amendments, renewals, restatements,
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<PAGE> 7
replacements or other modifications of the foregoing from time to time. The term
includes, without limitation, all principal, interest, fees, expenses and any
other sums chargeable to the Borrower under any of the Credit Documents.
SECTION 1.22 "Permitted Debt" means any of the following:
(a) accrued expenses and trade account payables incurred in the
ordinary course of the Borrower's business;
(b) Debt to the Lender;
(c) Debt which is subordinated to the Obligations pursuant to the
terms of a subordination agreement satisfactory to the Lender
in its sole discretion;
(d) Debt appearing on the latest available balance sheet as of the
Initial Loan Date, less principal payments or prepayments
thereof after the date of such balance sheet and extensions,
renewals and refinancings thereof, provided that the principal
amount is not thereby increased; and
(e) Debt for borrowed money pursuant to which the lender thereof
specifically disclaims any rights in or to the ISV-900
Project, ISV-900 Project Agreement, and the ISV-900
Agreements;
(f) obligations in respect of equipment or facility leases;
(g) investments permitted pursuant to Section 5.2(c); and
(h) other Debt approved in advance by the Lender in writing.
SECTION 1.23 "Permitted Liens" means any of the following:
(a) Liens for taxes, assessments or governmental charges not
delinquent or being contested in good faith and by appropriate
proceedings and for which adequate reserves in accordance with
GAAP are maintained on the Borrower's books;
(b) Liens arising out of deposits in connection with workers'
compensation, unemployment insurance, old age pensions or
other social security or retirement benefits legislation;
(c) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds, and other obligations of
like nature arising in the ordinary course of the Borrower's
business;
(d) Liens imposed by law, such as mechanics', workers',
materialmen's, carriers' or other like Liens arising in the
ordinary course of the Borrower's business which
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<PAGE> 8
secure the payment of obligations which are not past due or
which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in
accordance with GAAP are maintained on the Borrower's books;
(e) rights of way, zoning restrictions, easements and similar
encumbrances affecting the Borrower's real property which do
not materially interfere with the use of such property; and
(f) Liens in respect of Debt for borrowed money but only to the
extent the lienholder expressly disclaims any rights in or to
any of the ISV-900 Project, the ISV-900 Project Agreement and
the ISV-900 Agreements;
(g) Liens in favor of the Lender;
(h) Liens upon or in any equipment acquired or held to secure the
purchase price thereof or Debt incurred for the purpose of
financing the acquisition of such equipment or property;
(i) restrictions and other minor encumbrances on real property
that do not materially impair the use or value thereof; and
(j) Liens in respect of royalties concerning intellectual property
rights.
SECTION 1.24 "Person" means an individual, corporation, partnership,
trust, governmental entity or any other entity, organization or group
whatsoever.
SECTION 1.25 "Plan" means an employee benefit plan (as defined in
Section 3(3) of ERISA) maintained for employees of the Borrower on or after the
Initial Loan Date.
SECTION 1.26 "Termination Date" means the third annual anniversary of
the Initial Loan Date.
ARTICLE 2.
AMOUNT AND TERMS OF THE CREDIT LOAN
SECTION 2.1 Total Credit. The Lender agrees, subject to the terms and
conditions of this Agreement, to make a total credit of up to Four Million U.S.
Dollars ($4,000,000) available to the Borrower upon its request. Subject to the
terms and conditions hereof, the Borrower shall be entitled to borrow, repay and
re-borrow up to the total amount of the credit made available hereunder, during
the term hereof.
SECTION 2.2 Credit Loans.
(a) General. The Lender agrees, subject to the terms and
conditions of this Agreement, to make Credit Loans to the
Borrower, on no more than a monthly
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<PAGE> 9
basis, from the Initial Loan Date to the Business Day
immediately preceding the Termination Date up to a maximum
principal amount at any time outstanding equal to $4,000,000.
In no event shall the Lender be obligated to make any Credit
Loan if any Default exists or would result from the making of
such Credit Loan.
(b) Credit Note. All Credit Loans shall be evidenced by, and shall
be payable in accordance with the terms and conditions of, the
Credit Note, as amended, renewed, restated, replaced or
otherwise modified from time to time.
SECTION 2.3 Interest Rate.
(a) Credit Loans. Interest shall accrue on the outstanding
principal balance at the end of day of each Credit Loan under
the Credit Note at the Base Rate on the day such Credit Loan
is initially advanced plus three percent (3%). Interest shall
be calculated on a daily basis (computed on the actual number
of days elapsed over a year of 360 days), commencing on the
date each Credit Loan is made but excluding the last day, and
shall be based upon the outstanding principal balance of each
Credit Loan at the end of each day.
(b) Default Rate. Upon or after the occurrence and during the
continuation of any Event of Default, the principal amount of
the Credit Loan shall bear interest, calculated daily
(computed on the actual days elapsed over a year of 360 days),
at a rate per annum equal to * above the interest rate that
would otherwise apply under Sections 2.3(a) (the "Default
Rate").
(c) Usury. In no event shall the aggregate amount which is deemed
interest hereunder or under the Credit Note, and charged or
collected pursuant to the terms of this Agreement or any other
Credit Documents exceed the highest rate permissible under any
law which a court of competent jurisdiction shall, in a final
determination, deem applicable thereto. In the event that such
a court determines that the Lender has charged or received
interest hereunder or under the other Credit Documents in
excess of the highest applicable rate, the Lender shall apply
such excess to any other Obligations then due and payable,
whether principal, interest, fees or otherwise, and shall
refund the remainder of such excess interest, if any, to the
Borrower, and such rate shall automatically be reduced to the
maximum rate permitted by such law.
SECTION 2.4 Payments of Principal, Interest and Costs. Except as
otherwise provided in this Agreement, the Obligations shall be due and payable
as provided below.
(a) Credit Loan.
(i) Interest. Accrued interest on outstanding principal
balance of the Credit Loans shall be due and payable
on the Termination Date.
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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(ii) Principal. The outstanding principal balance of the
Credit Loans shall be due and payable on the
Termination Date.
(b) At the election of Borrower, principal and interest on the
Credit Loans due and payable on the Termination Date may be
paid upon the Termination Date in shares of Borrower's common
stock. In the event Borrower elects to repay the Credit Loans
in Borrower common stock, the following shall apply:
(i) shares of Borrower's common stock must be listed for
trading on a nationally recognized stock exchange or
automated quotation system;
(ii) in connection with the issuance of the shares of
Borrower common stock pursuant hereto, Borrower must
grant Lender an additional * demand registration *
and unlimited "piggyback" registration rights;
(iii) the number of shares issuable to Lender as repayment
shall be calculated as follows:
PI / (AWP x *), where
PI is the outstanding amount of principal
and interest under the Credit Loans being
converted and AWP is the average weighted
closing share price of the Borrower's
common stock for the twenty (20) trading
days immediately prior to the repayment
date; and
(iv) upon any distribution of shares to Lender pursuant to
this Section, Lender shall be deemed to have repeated
the representations set forth in Section 4.3 of the
Stock Purchase Agreement dated of even date herewith
between Borrower and Lender (the "Stock Purchase
Agreement") in respect of the shares distributed
pursuant hereto, and Borrower shall be deemed to have
made the representation contained in Section 3.8 of
the Stock Purchase Agreement. Such shares shall be
subject legends as set forth in the Stock Purchase
Agreement.
(c) Other Obligations. Costs, fees and expenses and any other
Obligations payable pursuant to this Agreement or the other
Credit Documents shall be payable as and when provided in this
Agreement or the other Credit Documents, as the case may be,
or, if no specific provision for payment is made, on demand.
SECTION 2.5 Voluntary Prepayments. The Borrower shall have the right,
without penalty or premium, to prepay the Credit Loans, in whole or in part, at
any time and from time to time after the Initial Loan Date on the following
terms and conditions: (a) the Borrower shall give the Lender at least one
Business Day's prior written notice of its intent to prepay any Credit Loan; and
(b) each prepayment shall be in amount of not less than $50,000 (or, if less,
the entire outstanding principal balance of the Credit Loans).
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the Commission pursuant to Rule 24b-2.
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SECTION 2.6 Method of Payment. Payments due the Lender under this
Agreement and the other Credit Documents shall be made in immediately available
funds to the Lender at its office described in the introductory paragraph hereof
unless the Lender gives notice to the contrary. Payments so received at or
before 1:00 p.m. Eastern time on any Business Day shall be deemed to have been
received by the Lender on that Business Day. Payments received after 1:00 p.m.
Eastern time on any Business Day shall be deemed to have been received on the
next Business Day, and interest, if payable in respect of such payment, shall
accrue thereon until such next Business Day.
SECTION 2.7 Use of Proceeds.
(a) General. The Credit Loans shall be used for general corporate
and working capital purposes.
(b) Margin Loan. Notwithstanding anything herein to the contrary,
the Borrower shall not, directly or indirectly, use any part
of the Credit Loan proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System
otherwise than in accordance with the requirements of
Regulation U, or to extend credit to any Person for the
purpose of purchasing or carrying any such margin stock
otherwise than in accordance with the requirements of
Regulation U, or for any purpose which violates, or is
inconsistent with, Regulation X of such Board of Governors.
SECTION 2.8 Application. Each payment by or on behalf of the Borrower
hereunder shall, be applied (i) first, to any fees, costs, expenses and other
amounts (other than principal and interest) due the Lender pursuant to the
Credit Documents; (ii) second, to accrued and unpaid interest due the Lender
pursuant to the Credit Documents; and (iii) third, to principal due the Lender.
ARTICLE 3.
CONDITIONS OF LENDING
SECTION 3.1 Conditions of Borrowing. In addition to the conditions set
forth in Section 3.3, the Lender's obligation to make Credit Loans under this
Agreement at and after the Initial Loan Date is subject to the Borrower's
satisfaction of the following conditions precedent: (1) the Borrower shall give
the Lender notice of its intention to borrower under any Credit Loan at least
one Business Day before the date of such Credit Loan, which notice shall specify
(a) the date of such Credit Loan, (b) the amount of such Credit Loan, and (c) a
statement from the chief financial officer, treasurer or similar financial
officer of the Borrower to the Lender stating that the Borrower is in material
compliance with all of its obligations and covenants under this Agreement and
the other Credit Documents; and (2) the Lender shall not be obligated to make a
Credit Loan to the Borrower if the Lender has made a Credit Loan to or for the
benefit of the Borrower at any time within the preceding 30 days. All notices
given under this Section by the Borrower shall be irrevocable and shall be given
not later than 1:00 p.m. Eastern time on the day
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<PAGE> 12
which is not less than the number of Business Days specified above for such
notice. For purposes of this Section, the Borrower agrees that the Lender may
rely and act upon any request for a Credit Loan from any individual who the
Lender reasonably believes to be a representative of the Borrower.
SECTION 3.2 Credit Documents. Notwithstanding anything herein or in the
other Credit Documents to the contrary, the Lender shall not be obligated to
make the initial Credit Loan under this Agreement to the Borrower until the
Lender shall have received the following documents, duly executed and delivered
by all parties thereto, and otherwise reasonably satisfactory in form and
content to the Lender:
(a) Credit Agreement. This Agreement;
(b) Credit Note. The Credit Note;
(c) Credit Loan Disbursement Instructions. Written instructions
from the Borrower to the Lender directing the account to which
proceeds of the Credit Loans made pursuant to this Agreement
are to be paid;
(d) Opinion of Borrower's Counsel. The favorable written opinion
of Borrower's outside counsel to the Lender, regarding the
incorporation of the Borrower, and the authorization and
execution of the Credit Documents but specifically excluding
an enforceability opinion;
(e) Certificate of Borrower's Secretary. A certificate executed by
the Borrower's secretary whereby such secretary affirms that
attached to such certificate is (1) an accurate copy of the
Borrower's board resolutions authorizing the execution,
delivery and performance of the Credit Documents, (2) a copy
of the Borrower's by-laws then in effect, (3) a copy of the
Borrower's articles or certificate of incorporation and all
amendments thereto, certified by the Secretary of State or
other appropriate official of the Borrower's jurisdiction of
incorporation, and (4) a certificate of good standing for the
Borrower, dated within three Business Days prior to the
initial Credit Loan, from the Secretary or State of the state
of incorporation of the Borrower; and
(f) Other Items. Such other agreements and documents as the Lender
may reasonably request in connection with the transactions
described in or contemplated by the Credit Documents.
SECTION 3.3 Conditions Precedent to All Credit Loans. The obligation of
the Lender to make each Credit Loan under this Agreement (including, without
limitation, the initial Credit Loan) shall be subject to the further conditions
precedent that, on the date of each such Credit Loan:
(a) The following statements shall be true: (1) the
representations and warranties of the Borrower contained in
the Credit Documents (including, without limitation,
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<PAGE> 13
those contained in Section 4 hereof) are correct on and as of
the date of such Credit Loan as though made on and as of such
date except to the extent such representations and warranties
are made as of a specific date, in which event they shall be
true and correct as of such date, and (2) there exists no
Default or Event of Default as of such date, nor would any
Default or Event of Default result from the making of the
Credit Loan requested by the Borrower;
(b) The Borrower shall have signed and sent to the Lender, if the
Lender so requests, a request for advance, setting forth in
writing the amount of the Credit Loan requested and the other
information required pursuant to Section 3.1 hereof; provided,
however, that the foregoing condition precedent shall not
prevent the Lender, if it so elects in its sole discretion,
from making a Credit Loan pursuant to the Borrower's
non-written request therefor;
(c) The Lender shall have received such other documents as it may
reasonably request; and
(d) There shall not be or have been a material, uncured breach as
determined by Borrower under the ISV 900 Project Agreement the
Development Committee or Executive Committee, as the case may
be, as each such Committee is defined in the ISV-900 Project
Agreement.
The Borrower agrees that the making of a request by the Borrower for a
Credit Loan, whether in writing, by telephone or otherwise, shall
constitute a certification by the Borrower that all representations and
warranties of the Borrower in the Credit Documents are true as of the
date thereof except to the extent such representations and warranties
are made as of a specific date, in which event they shall be true and
correct as of such date and that all required conditions to the making
of the Credit Loan have been met.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations, Warranties and Covenants of the Borrower.
The Borrower hereby represents, warrants to the Lender as follows on the date
hereof and on each date a Credit Loan is made:
(a) Organization and Existence. The Borrower (1) is a corporation
duly incorporated, validly existing and in good standing under
the laws of the state of its incorporation, (2) is in good
standing in all other jurisdictions in which it is required to
be qualified to do business as a foreign corporation, except
where failure to be so qualified would not have a material
adverse effect, and (3) has obtained all licenses and permits
and has filed all registrations necessary to the operation of
its business (except where the failure to so qualify or to
obtain such licenses or permits would not materially and
adversely affect the business, financial condition or
operations of the Borrower, a "Material Adverse Effect").
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(b) Authorization by the Borrower. The execution, delivery and
performance by the Borrower of the Credit Documents (1) are
within the Borrower's corporate powers, (2) have been duly
authorized by all necessary corporate action, (3) do not
contravene the Borrower's articles or certificate of
incorporation or by-laws, or any material law or contractual
restriction binding on or affecting the Borrower or its
properties, and (4) do not result in or require the creation
of any Lien upon any of Borrower real or personal property.
(c) Approval of Governmental Bodies. Based in part upon the
representations of the Lender pursuant to Section 2.4, no
authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by
the Borrower of the Credit Documents or the exercise by the
Lender of its rights thereunder.
(d) Enforceability of Obligations. The Credit Documents are the
legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their
respective terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium,
or similar laws affecting the enforceability of creditors'
rights generally and subject to the discretion of courts in
applying equitable remedies.
(e) Financial Statements. All financial statements of the Borrower
which have been furnished to the Lender fairly present the
financial condition of the Borrower, as of the dates reflected
on the financial statements, and fairly present the results of
its operations for the period covered thereby, all in
accordance with GAAP, except for the omission of footnotes in
interim financial statements and subject to normal year-end
adjustments.
(f) Litigation. There is no pending or to the knowledge of
Borrower threatened action or proceeding affecting the
Borrower or its properties before any court, governmental
agency or arbitrator which, if determined adversely to the
Borrower, could reasonably be expected to result in a Material
Adverse Effect.
(g) Existing Debt. The Borrower has no Debt other than Permitted
Debt and Debt reflected on its most recent financial
statements submitted to the Lender.
(h) Taxes. The Borrower has filed all required federal, state,
local and other tax returns and has paid, or made adequate
provision for the payment of, any taxes due pursuant thereto
or pursuant to any assessment received by the Borrower except
such taxes, if any, as are being contested in good faith and
as to which adequate reserves have been provided.
(i) Hazardous Materials. The Borrower has complied in all material
respects with all Environmental Laws and all of its
facilities, leaseholds, assets and other property comply in
all material respects with all Environmental Laws. To the
Borrower's knowledge, there are no outstanding or threatened
citations, notices or orders of
11
<PAGE> 15
non-compliance issued to the Borrower or relating to its
facilities, leaseholds, assets or other property. The Borrower
has been issued all material licenses, certificates, permits
or other authorizations required under any Environmental Law
or by any federal, state or local governmental or
quasi-governmental entity.
(j) Title to Property. The Borrower has good and marketable title
to all material assets and other property owned by it, and
reflected in the latest available publicly filed financial
statements of the Borrower.
(k) Insolvency. After the execution and delivery of the Credit
Documents and the disbursement of the initial Credit Loan
hereunder, the Borrower will not be insolvent within the
meaning of the United States Bankruptcy Code or unable to pay
its debts as they mature.
SECTION 4.2 Survival of Representations. All representations and
warranties made in Section 4.1 shall survive the execution and delivery of the
Credit Documents and the making of the Credit Loans and are remade after the
date hereof only as specifically set forth herein.
ARTICLE 5.
COVENANTS OF THE BORROWER
SECTION 5.1 Affirmative Covenants. So long as any Obligations remain
unpaid or the Lender shall have any commitment to extend credit to or for the
benefit of the Borrower, unless otherwise consented to in writing by the Lender,
the Borrower covenants to the Lender as follows:
(a) Compliance with Laws. The Borrower shall comply in all
material respects with all material, applicable laws, rules,
regulations and orders affecting the Borrower or its
properties, including, without limitation, all Environmental
Laws.
(b) Reporting Requirements. The Borrower shall furnish to the
Lender:
(i) Quarterly Statements. As soon as available and in any
event within 45 days after the end of each quarter of
each fiscal year of the Borrower, an internally
prepared balance sheet of the Borrower as of the end
of such quarter and internally prepared income
statements as of the end of such quarter for such
quarter and for the fiscal year-to-date, each
certified by the Borrower's chief financial officer;
(ii) Audited Year-End Statements. As soon as available and
in any event within 90 days after the end of each
fiscal year of the Borrower, final audited financial
statements (as described above but including a
statement of changes in financial position) as of the
end of such fiscal year of the Borrower prepared by
independent certified accountants.
12
<PAGE> 16
(c) Preservation of Business and Corporate Existence. The Borrower
shall: (1) carry on and conduct its principal business
substantially as it is now being conducted; (2) maintain in
good standing its existence and its right to transact business
in those states in which it is now or may after the Initial
Loan Date be doing business except where failure to be so
qualified does not have a material adverse effect; (3)
maintain all licenses, permits and registrations necessary to
the conduct of its business, and (4) comply with its material
covenants and obligations as set forth in the ISV 900 Project
Agreement.
(d) Notice of Default. The Borrower shall give prompt notice in
writing to the Lender of any events of default under this
Agreement or the other Credit Documents or any development or
the occurrence of any event, financial or otherwise, which may
or shall materially and adversely affect the business,
properties or affairs of the Borrower or its ability to pay
and perform its obligations under this Agreement or the other
Credit Documents.
(e) Further Assurances. The Borrower further agrees to execute,
deliver or perform, or cause to be executed, delivered or
performed, all such documents, agreements or acts, as the case
may be, as the Lender may reasonably request from time to time
to evidence and give effect to, the Lender's rights and
remedies under, or as contemplated by, the Credit Documents or
at law or in equity.
SECTION 5.2 Negative Covenants. So long as any Obligations except
inchoate obligations remain unpaid or the Lender shall have any commitment to
extend credit to or for the benefit of the Borrower, unless otherwise consented
to in writing by the Lender, the Borrower covenants to the Lender as follows:
(a) Liens. The Borrower shall not create or suffer to exist any
Lien, except for Permitted Liens, upon or with respect to any
of its properties, whether the Borrower owns or has an
interest in such properties on the Initial Loan Date or at any
time thereafter.
(b) Debt. The Borrower shall not create or suffer to exist any
Debt except for Permitted Debt.
(c) Restricted Investments. The Borrower will not purchase or make
investments in any Person except for (i) investments made in
accordance with the Borrower's investment policy approved by
its Board of Directors, (ii) investments in the Borrower's
majority-owned subsidiaries, (iii) extensions of credit in the
ordinary course of business and (iv) investments in joint
ventures or other business ventures approved by the Board of
Directors of the Borrower.
(d) Corporate Structure; Disposition of Assets. Unless all
outstanding Obligations are repaid to Lender in cash prior to
such event, Borrower shall not merge or consolidate with or
otherwise acquire, or be acquired by, any other Person.
13
<PAGE> 17
(e) Conflicting Agreements. The Borrower shall not enter into any
agreement any term or condition of which conflicts with any
provision of this Agreement or the other Credit Documents.
(f) Transactions With Affiliates. The Borrower shall not enter
into or be a party to any transaction or arrangement,
including without limitation, the purchase, sale or exchange
of property of any kind or the rendering of any service, with
any Affiliate, except pursuant to the reasonable requirements
of the Borrower's business and upon fair and reasonable terms
substantially as favorable to the Borrower as those which
would be obtained in a comparable arms-length transaction with
a non-Affiliate.
(g) Distributions. The Borrower shall not pay any dividends on or
make any other distributions in respect of any stock of the
Borrower or redeem or otherwise acquire any such stock.
SECTION 5.3 Public Filings. The Borrower shall not be required to
provide copies of any information required pursuant to Section 5.1 to the extent
such information is contained in any filings made by the Borrower with the
Securities and Exchange Commission or national exchange on which the Borrower's
shares are traded.
ARTICLE 6.
DEFAULT
SECTION 6.1 Events of Default. Each of the following events shall
constitute an Event of Default hereunder:
(a) The Borrower fails to pay any principal, interest, fee,
expense or other monetary obligation of the Borrower to the
Lender under the Credit Documents in accordance with the terms
thereof, and the Borrower fails to cure such default within 5
days after written notice from the Lender specifying in
reasonable detail the nature of such default is received by
the Borrower; or
(b) The Borrower fails to perform or observe any term, covenant or
other provision contained in Sections 5.1 or 5.2 of this
Agreement in accordance with the terms thereof provided Lender
gives Borrower thirty (30) days to cure any default under
Section 5.1; or
(c) The Borrower fails to perform or observe any other term,
covenant or other provision in any Credit Document (other than
any term, covenant or provision addressed in Sections 6.1(a)
or 6.1(b) above) in accordance with the terms thereof, and the
Borrower fails to cure such default within 30 days after
written notice from the Lender specifying in reasonable detail
the nature of such default is received by the Borrower;
provided, however, that if such breach is not capable of being
cured within such 30 day period and Borrower diligently
pursues such cure then the cure period shall be extended to
such date as may be requested by
14
<PAGE> 18
Borrower, but in no event more than 90 days from the date of
the initial notice of breach; or
(d) Any "event of default" occurs (as such term is defined in any
other Credit Document to which the Borrower is a party) or
other default in any material agreement to which Borrower is a
party occurs in either case, where such default results or
reasonably could result in a material adverse effect to
Borrower; or
(e) Any material representation or warranty made or furnished by
the Borrower in connection with this Agreement, the other
Credit Documents or the ISV 900 Project Agreement, prove to be
incorrect, incomplete or misleading in any material respect
when made, or the occurrence of an event under Section 3.3(d)
pursuant to which Lender is not obligated to make a Credit
Loan; or
(f) The Borrower fails to pay any Debt for borrowed money (other
than Debt due the Lender) or any material Debt for trade
payables or perform or observe any other obligation or term in
respect of such Debt, and, as a result of any such failure,
the holder of such Debt accelerates the maturity thereof; or
(g) The Borrower suffers the appointment of a receiver, trustee,
custodian or similar fiduciary or makes an assignment for the
benefit of creditors; or any petition for an order for relief
is filed by or against the Borrower under the federal
Bankruptcy Code or any similar state insolvency statute
(except, in the case of a petition filed against the Borrower,
if such proceeding is dismissed within 60 days after the
petition is filed); or the Borrower makes any offer of
settlement, extension or composition to their respective
unsecured creditors generally; or
(h) The Borrower challenges or contests in any action, suit or
proceeding the validity or enforceability of any of the Credit
Documents; or
(i) One or more judgments, decrees or orders for the payment of
money in excess of $250,000 in the aggregate is rendered
against the Borrower which judgment remains unsatisfied,
unvacated or unstayed pending appeal for 60 days or more after
entry thereof; or
SECTION 6.2 Obligation to Lend; Acceleration. Upon or after the
occurrence and during the continuation of any Event of Default (after taking
into account any applicable cure periods), the Lender may declare the obligation
of the Lender to make Credit Loans or to otherwise extend credit hereunder to be
terminated, whereupon the same shall forthwith terminate. Upon or after the
occurrence and during the continuation of any Event of Default, the Lender may
declare the Credit Note, all interest thereon, and all other Obligations to be
forthwith due and payable, whereupon the Credit Note, all such interest thereon
and all such other Obligations shall become and be forthwith due and payable,
without presentment, protest or further notice or demand of any kind, all of
which are hereby waived by the Borrower.
15
<PAGE> 19
SECTION 6.3 Right of Set-off. Upon the expiration of any cure periods
after the occurrence and during the continuation of any Event of Default, the
Lender is authorized, from time to time, without notice to the Borrower (any
such notice being hereby waived by the Borrower), to set off any indebtedness or
other obligations owing by the Lender to or for the credit or the account of the
Borrower against any and all of the Obligations irrespective of whether or not
the Lender shall have made any demand under this Agreement or the other Credit
Documents and although such Obligations may be unmatured. The rights of the
Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Lender may
have. The Lender agrees to promptly notify the Borrower of any such set-off.
ARTICLE 7.
MISCELLANEOUS
SECTION 7.1 Notices. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto to be effective shall be in
writing and shall be personally delivered, mailed by certified or registered
mail, return receipt requested, sent prepaid by reliable overnight courier or
sent by facsimile transmission. Unless otherwise expressly provided herein,
notices shall be deemed to have been validly given when delivered against
receipt; or, in the case of mailing, five (5) Business Days after deposit in the
mail in the continental United States, postage prepaid; or, in the case of
reliable overnight courier, on the Business Day after the courier accepts
delivery of such item for next Business Day delivery; or, in the case of
facsimile transmission, when sent against confirmation of receipt prior to 5:00
p.m. local time at the recipient's office, in each case addressed as follows:
If to the Lender:
Pharmacia & Upjohn Company
100 Route 206, North
Peapack, New Jersey 07977
Attn.: Vice President-Licensing
Fax No.: 908-901-1813
With a copy to:
Pharmacia & Upjohn Company
100 Route 206, North
Peapack, New Jersey 07977
Attn.: Vice President-Corporate Law
Fax No.: 908-901-1862
If to the Borrower:
InSite Vision Incorporated
965 Atlantic Avenue
Alameda, California 94501
Attn.: Chief Financial Officer
16
<PAGE> 20
Fax No.: 510-865-7830
With a copy to:
Brobeck, Phleger & Harrison
2200 Geng Road
Two Embarcadero Place
Palo Alto, California 94303
Attn: Timothy R. Curry
or to such other address or telecopy number as each party may designate for
itself by like notice given in accordance with this Section.
SECTION 7.2 Indemnity. The Borrower indemnifies, and agrees to
indemnify, the Lender and its shareholders, directors, officers, employees and
agents and hold the Lender and such other indemnitees harmless from and against
any liability, loss, expense, damage, suit, action or proceeding on or after the
Initial Loan Date suffered or incurred by the Lender or such other indemnitees
as the result of such Lender's Credit Loans hereunder and the Borrower's failure
to observe, perform or discharge any of the Borrower's duties under any of the
Credit Documents or any misrepresentation made by or on behalf of the Borrower
under any of the Credit Documents. Without limiting the generality of the
foregoing, this indemnity shall extend to any claims asserted against the Lender
or such other indemnitees by any Person under any Environmental Laws or similar
laws by reason of the Borrower's or any other Person's failure to comply with
laws applicable to Hazardous Substances. All indemnities given by the Borrower
to the Lender under the Credit Documents, including, without limitation, the
indemnities set forth in this Section, shall survive the repayment of the Credit
Loans and the termination of this Agreement. Notwithstanding anything herein to
the contrary, in no event shall Borrower be required to indemnify Lender or any
other indemnity in respect of (a) any taxes (except to the extent set forth in
Section 7.5) or (b) any damage, loss, liability, expense or cost resulting from
the gross negligence or willful default of the Lender or any other indemnitee.
SECTION 7.3 Entire Agreement; Modification of Agreement. This Agreement
and the other Credit Documents, together with all other instruments, agreements
and certificates incorporated herein by reference or executed by the parties in
connection herewith and therewith or with reference thereto, embody the entire
agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
inducements, whether express or implied, oral or written. This Agreement may not
be modified, altered or amended, except by an agreement in writing signed by the
Borrower and the Lender.
SECTION 7.4 Assignment/Sale of Interest. The Borrower may not sell,
assign or transfer any interest in this Agreement or any of the other Credit
Documents, or any portion thereof, including, without limitation, the Borrower's
rights, title, interests, remedies, powers, and duties hereunder or thereunder.
The Lender may, with the prior written consent of the Borrower not to be
unreasonably withheld (provided that Borrower may refuse to consent to
assignment to a competitor of Borrower in its sole discretion), grant
participations, sell, assign, transfer or otherwise dispose, at any time or
times on or after the Initial Loan Date, of this
17
<PAGE> 21
Agreement and any of the other Credit Documents, or of any portion hereof or
thereof, including, without limitation, the Lender's rights, title, interests,
remedies, powers and duties hereunder or thereunder.
SECTION 7.5 Reimbursement of Expenses. If, upon or after and during the
continuation of any Event of Default, the Lender employs counsel for advice or
other representation, in connection with any attempt to enforce any rights of
the Lender against the Borrower or any other Person which may be obligated to
the Lender by virtue of this Agreement or any of the other Credit Documents,
irrespective of whether litigation is commenced in pursuance of such rights;
then, in any such event, all reasonable costs and expenses of such counsel shall
be payable, on demand, by the Borrower to the Lender, and shall be additional
Obligations hereunder. Additionally, if any taxes (excluding taxes imposed upon
or measured by the income of the Lender and any foreign taxes imposed on Lender
as a result of (i) entry of this Agreement, (ii) maintenance of any Credit Loans
or (iii) receipt of any payment pursuant hereto) shall be payable on account of
the execution or delivery of this Agreement or the other Credit Documents, or
the execution, delivery, issuance or recording of any of the Credit Documents,
or the creation of any of the Obligations hereunder, by reason of any federal,
state or local statute or other law existing on or after the Initial Loan Date,
the Borrower will pay all such taxes, including, but not limited to, any
interest and penalties thereon, and will indemnify and hold the Lender harmless
from and against liability in connection therewith.
SECTION 7.6 Indulgences Not Waivers. The Lender's failure, at any time
or times on or after the Effective Date, to require strict performance by the
Borrower of any provision of this Agreement or the other Credit Documents shall
not waive, affect or diminish any right of the Lender thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by the
Lender of a Default or an Event of Default by the Borrower under this Agreement
or any of the other Credit Documents shall not suspend, waive or affect any
other Default or Event of Default by the Borrower under this Agreement or any of
the other Credit Documents, whether the same is prior or subsequent thereto and
whether of the same or of a different type. None of the undertakings,
agreements, warranties, covenants and representations of the Borrower contained
in this Agreement or any of the other Credit Documents and no Default or Event
of Default by the Borrower under this Agreement or any of the other Credit
Documents shall be deemed to have been suspended or waived by the Lender, unless
such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of the
Lender and directed to the Borrower.
SECTION 7.7 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
SECTION 7.8 Successors and Assigns. This Agreement and the other Credit
Documents, shall be binding upon and inure to the benefit of the successors and
assigns of the Borrower and the Lender. This provision, however, shall not be
deemed to modify Section 7.4 hereof.
18
<PAGE> 22
SECTION 7.9 General Waivers by the Borrower. Except as otherwise
expressly provided for in this Agreement, the Borrower waives: (a) presentment,
protest, demand for payment, notice of dishonor, demand and protest and notice
of presentment, default, notice of nonpayment; (b) any and all other notices,
demands and consents in connection with the delivery, acceptance, performance,
default or enforcement of this Agreement or any of the other Credit Documents
and/or any of the Lender's rights thereunder.
SECTION 7.10 Incorporation by Reference. All of the terms of the other
Credit Documents are incorporated in and made part of this Agreement by
reference; provided, however, that to the extent of any inconsistency between
this Agreement and such other Credit Documents, this Agreement shall prevail and
govern.
SECTION 7.11 Execution in Counterparts; Facsimile Signatures. This
Agreement and the other Credit Documents may be executed in any number of
counterparts and by different parties thereto, each of which when so executed
and delivered shall be deemed to be an original and all of which counterparts
taken together shall constitute but one and the same instrument. A signature of
a party to any of the Credit Documents sent by facsimile or other electronic
transmission shall be deemed to constitute an original and fully effective
signature of such party.
SECTION 7.12 Governing Law; Consent to Forum. This Agreement shall be
governed by the laws of the State of New York without giving effect to any
choice of law rules thereof. As part of the consideration for new value this day
received, the Borrower hereby consents to the jurisdiction of any state court
located within New York or federal court in New York, and waives personal
service of any and all process upon it and consents that all such service of
process be made by certified or registered mail directed to the borrower at the
address stated in Section 7.1 hereof and service so made shall be deemed to be
completed upon actual receipt thereof. The Borrower waives any objection to
jurisdiction and venue of any action instituted against it as provided herein
and agrees not to assert any defense based on lack of jurisdiction or venue. The
Borrower further agrees not to assert against the Lender (except by way of a
defense or counterclaim in a proceeding initiated by the Lender) any claim or
other assertion of liability with respect to the Credit Documents, the Lender's
conduct or otherwise in any jurisdiction other than the foregoing jurisdictions.
SECTION 7.13 Waiver of Jury Trial. To the fullest extent permitted by
law, and as separately bargained-for consideration, the parties hereby waive any
right to trial by jury in any action, suit, proceeding or counterclaim of any
kind arising out of or otherwise relating to any of the Credit Documents.
SECTION 7.14 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
SECTION 7.15 Construction/Headings. This Agreement shall be construed
without regard to any presumption or rule requiring construction against the
party causing such instrument or any portion thereof to be drafted. The Section
and other headings in this Agreement and the index at the beginning of this
Agreement are for convenience of reference
19
<PAGE> 23
only and shall not limit or otherwise affect any of the terms hereof. Any
pronoun used herein shall be deemed to cover all genders.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the date
first above written.
INSITE VISION INCORPORATED
By: /s/ S. KUMAR CHANDRASEKARAN
---------------------------------
Name: S. Kumar Chandrasekaran
Title: CEO
PHARMACIA &UPJOHN COMPANY
By: /s/ MATS PETTERSSON
---------------------------------
Name: Mats Pettersson
Title: Senior Vice President
20
<PAGE> 24
EXHIBIT A
THIS NOTE AND THE STOCK ISSUABLE IN RESPECT HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT.
CREDIT NOTE
$4,000,000 November __, 1999
For value received, the undersigned, INSITE VISION INCORPORATED, a
Delaware corporation (the "Borrower"), promises to pay to the order of PHARMACIA
& UPJOHN COMPANY, a Delaware corporation (the "Lender"; which term shall include
any subsequent holder hereof), in lawful money of the United States of America,
the principal sum of Four Million and 00/100 U.S. Dollars ($4,000,000.00), or,
if less, the amount outstanding under Section 2.2 of the Credit Agreement (as
defined below).
This is the Credit Note referred to in, is issued pursuant to, and is
subject to the terms and conditions of, the Credit Agreement, dated as of the
Effective Date, between the Borrower and the Lender, as amended, renewed,
restated, replaced or otherwise modified from time to time (the "Credit
Agreement"). To the extent of any direct conflict between the terms and
conditions of this Credit Note and the terms and conditions of the Credit
Agreement, the terms and conditions of the Credit Agreement shall prevail and
govern. Capitalized terms used and not defined in this Credit Note shall have
the meanings given to them in the Credit Agreement.
Interest shall accrue on the outstanding principal balance of this
Credit Note as provided in the Credit Agreement.
Principal, interest and all other amounts, if any, payable in respect
of this of this Credit Note shall be payable on the Termination Date as provided
in the Credit Agreement. The Borrower's right to prepay this Credit Note is
subject to the terms and conditions of the Credit Agreement.
The termination of the Credit Agreement or the occurrence of an Event
of Default shall entitle the Lender, at its option, to declare the then
outstanding principal balance hereof, all accrued interest thereon, and all
other amounts, if any, payable in respect of this Credit Note to be, and the
same shall thereupon become, immediately due and payable without notice to or
demand upon the Borrower, all of which the Borrower hereby waives.
21
<PAGE> 25
Time is of the essence of this Credit Note. To the fullest extent
permitted by applicable law, the Borrower, for itself and its successors and
assigns, expressly waives presentment, demand, protest, notice of dishonor, and
any and all other notices, demands and consents in connection with the delivery,
acceptance, performance, default or enforcement of this Credit Note, and hereby
consents to any extensions of time, renewals, releases of any parties to or
guarantors of this Credit Note, waivers and any other modifications that may be
granted or consented to by the Lender from time to time in respect of the time
of payment or any other provision of this Credit Note.
This Credit Note shall be governed by the laws of the State of New
York, without regard to any choice of law rule thereof giving effect to the laws
of any other jurisdiction.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Credit
Note as of the date first above written.
INSITE VISION INCORPORATED
By:
---------------------------------
Name:
Title:
PHARMACIA & UPJOHN COMPANY
By:
---------------------------------
Name:
Title:
22
<PAGE> 1
EXHIBIT 23.1 - CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 No. 33-75268 pertaining to the 1994 Stock Option Plan and 1994 Stock
Purchase Plan, No. 33-80662 pertaining to the 1994 Stock Option Plan, No.
33-93394 pertaining to the 1994 Employee Stock Purchase Plan, No. 333-29801
pertaining to the 1994 Stock Option Plan, No. 333-60057 pertaining to the 1994
Stock Option Plan, and No. 333-79789 pertaining to the 1994 Stock Option Plan of
InSite Vision Incorporated of our report dated February 9, 2000, with respect to
the consolidated financial statements of InSite Vision Incorporated included in
the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Walnut Creek, California
March 27, 2000
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<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,746
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,344
<PP&E> 214
<DEPRECIATION> 95
<TOTAL-ASSETS> 7,463
<CURRENT-LIABILITIES> 1,177
<BONDS> 0
0
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<COMMON> 203
<OTHER-SE> 6,053
<TOTAL-LIABILITY-AND-EQUITY> 7,463
<SALES> 0
<TOTAL-REVENUES> 4,760
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,133
<INCOME-TAX> 5
<INCOME-CONTINUING> 1,128
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