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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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AMENDMENT NO. 2
TO
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________
COMMISSION FILE NUMBER: 0-11572
ENDOREX CORP.
(Name of small business issuer in its charter)
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<S> <C>
DELAWARE 41-1505029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 NORTH SHORE DRIVE
LAKE BLUFF, ILLINOIS 60044
(Address of principal executive offices) (Zip Code)
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Issuer's telephone number, including area code: 847-604-7555
Securities registered under Section 12(b) of the Exchange Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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None None
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Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Revenues for its most recent fiscal year were: $-0-.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average bid and asked prices of such stock, as of
February 27, 1998 was $49,400,000. Non-affiliates have been determined on the
basis of holdings set forth under Item 11 of this Annual Report on Form 10-KSB.
As of February 27, 1998 the issuer had 9,962,666 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement of Endorex Corp. in connection with the
annual meeting to be held on or about May 13, 1998 is incorporated by reference
into Part III of this Form 10-KSB.
Transitional Small Business Issuer: Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
THE COMPANY
Endorex Corp. (the "Company") is a development stage biotechnology company
involved in oral drug delivery and cancer therapy.
In August 1996, the Company hired Mr. Michael Rosen as its President and
Chief Executive Officer. Prior to joining the Company, Mr. Rosen was a senior
executive with several pharmaceutical and biotechnology companies. Under Mr.
Rosen's direction, the Company has changed its original research and development
focus on immunotherapy to create a new hybrid company with two components: 1) a
novel cancer products company and 2) a platform drug delivery company. In
addition, Mr. Rosen has eliminated drug discovery activities and focused the
Company on acquiring complementary and more advanced stage technologies from key
universities and government institutions.
In October 1996, the Company established its majority owned subsidiary,
Orasomal Technologies, Inc. ("Orasomal"), to develop its newly acquired oral
delivery technology. In December 1996, Orasomal obtained an exclusive license
from the Massachusetts Institute of Technology ("M.I.T.") for technology for the
oral delivery of vaccines, allergens and therapeutics via stable liposomal
technology. In July 1997, the Company formed another majority owned subsidiary,
Wisconsin Genetics, Inc. ("WGI"), which signed an exclusive worldwide license
agreement with the Wisconsin Alumni Research Foundation ("WARF"), the office
designated to license discoveries made by University of Wisconsin -- Madison
scientists, for the development and commercialization of a new cancer drug
candidate, perillyl alcohol (POH).
In January 1998, Endorex teamed up with Elan Corporation, plc ("Elan"), one
of the leading drug delivery companies in the world, to establish a joint
venture for the exclusive research, development and commercialization of oral
vaccines. The joint venture will combine novel existing and future delivery
systems of the two companies for the development of human vaccines, an estimated
$4 billion market that is projected to increase to $7 billion by 2001, as well
as for the estimated $2 billion veterinary vaccine market.
The Company's business strategy is to develop products in the following
areas: (1) Oral delivery of drugs and vaccines for which the only existing form
of administration is injection and (2) Novel cancer drugs. To accomplish this,
the Company seeks to identify novel products with good intellectual property
positions from major research-based universities and in-license such
technologies. As a result, the Company eliminated drug discovery activities, and
now relies on state-of-the-art science at major universities and government
institutions. This strategy eliminates development time, costs, and risks, as
acquired products have already undergone extensive evaluation and development.
The Company plans to develop its oral delivery systems for vaccines in a
newly formed joint venture with Elan. The Company will continue to develop oral
delivery of peptides, proteins and other therapeutics independently of the Elan
joint venture. However, in both cases, the Company's goal will be to partner
with major pharmaceutical companies desirous of "creating" an oral version of an
existing or new injectable drug or vaccine, as well as extending the patent life
of the product with the joint venture patents. Regarding the Company's cancer
therapy program, it is the Company's intent to develop its own drugs through at
least Phase II trials in the United States and then seek partners for further
clinical development and marketing of these drugs for the three major markets:
U.S., Europe and Japan.
The Company has no current plans to market or manufacture its own drugs. It
will, however, seek strategic relationships for both of these activities.
Endorex Corp. was incorporated in January 1987 as ImmunoTherapeutics, Inc,
a wholly-owned subsidiary of BiologicalTherapeutics, Inc. ("BTI"). BTI was
incorporated on December 19, 1984 and commenced operations on February 15, 1985.
On March 30, 1987 BTI was merged into the Company. The Company's principal
executive office is located at 900 North Shore Drive, Lake Bluff, Illinois 60044
and its
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telephone number is (847) 604-7555. The Company also has recently acquired new
research and development laboratories located at 28101 N. Ballard Drive, Lake
Forest, Illinois 60045.
RESEARCH AND DEVELOPMENT PROGRAMS
Research and Development expenditures for the periods ending December 31,
1997 and 1996 were approximately $1.8 million and $1.1 million, respectively.
The Company is directing its research and product development efforts in two
areas: oral delivery systems and novel cancer therapy.
ORAL DELIVERY TECHNOLOGY
Many macromolecules (proteins, peptides, antigens), cannot currently be
delivered orally because they are degraded in the G.I. tract. This includes many
of the new biotech therapies, but also includes hormones such as insulin, human
growth hormones, etc. Additionally, it is estimated that 96% of all vaccines in
the U.S. are currently injectable. Injections are painful, particularly in
children and the elderly, and are more expensive to administer because they
require a doctor or nurse, often in a hospital or out-patient setting. Oral
delivery of drugs and vaccines is clearly less expensive and preferred by the
patient.
ORASOMAL -- Endorex formed Orasomal to develop a technology licensed from
M.I.T. for the oral and mucosal delivery of vaccines, allergens, proteins and
peptides via polymerized liposomes (the "Orasome(TM) technology"). The key
inventor of this science is the renowned drug delivery expert, Robert Langer,
Ph.D., who is a member of three National Academies (Science, Medicine and
Engineering), author of 265 patents and 540 articles, and editor 12 books.
This Orasome(TM) technology is based on lipids that can easily be assembled
into structures that efficiently capture drugs and proteins, bypassing the
destructive action of stomach acids and intestinal degradative enzymes -- while
being taken up efficiently by crucial key cells in the intestinal tract. Because
of the unique ability of these cross-linked liposomes to withstand the cleansing
activity of bile salts, digestive enzymes, and gastric acids, this proprietary
liposomal technology may be utilized practically and commercially for the oral
delivery of many therapeutics.
ELAN JOINT VENTURE -- Endorex recently formed with Elan a joint venture for
the exclusive research, development and commercialization of oral vaccines. The
joint venture will combine novel existing and future delivery systems of the two
companies for the development of human and veterinary vaccines. The Company and
Elan plan to expend approximately $1.5 million each in the first year to
formalize the business plan, further develop the existing delivery systems of
the two companies into a portfolio of technology for the oral delivery of
vaccines, and develop preclinical data to introduce to vaccine companies for
collaborations.
PROTEINS AND PEPTIDES -- Orasomal continues to develop its Orasome(TM)
technology for drugs, independent of the joint venture. Orally delivered
hormones, such as insulin and human growth hormone are being evaluated in animal
models at Johns Hopkins University Hospital. Orasomal also plans to evaluate
oral delivery of allergens and cancer therapy. The Company believes the
technology has application to oral delivery of cytokines, growth factors, gene
therapy, as well as other hormones.
CANCER THERAPY
Traditional cancer therapy relies on surgery, radiation and chemotherapy
with limited efficacy in select tumors. Cancers can be divided into two groups:
1) potentially curable (e.g., testicular cancer and childhood leukemia) and 2)
treatable with varying degrees of response.
New directions in cancer therapy include gene therapy, cell therapy,
angiogenesis inhibitors, photodynamic therapy, immunotherapy, novel sources of
traditional chemotherapy (e.g., natural plants and marine organisms). The
Company's cancer program is focusing on these last two areas: immunotherapy and
natural cancer therapy.
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IMMUNOTHERAPY PROGRAM -- Endorex is working in two aspects of
immunotherapy: macrophage activators and vaccine adjuvants. The objective of
immunotherapy is to stimulate or enhance the body's own immune system to defend
itself against disease or infection.
Macrophages are one of the body's key cell types involved in the first line
defense against invading microbes and metastasizing cancer cells. Along with
other cells found in the blood, macrophages or "scavenger cells" recognize and
destroy cancer cells and foreign invaders by directly engulfing them or
secreting substances that directly kill the undesirable cells or invaders.
However, in order to perform this function efficiently, macrophages must be
triggered to produce lymphokines, antimicrobial substances, cellular recognition
molecules, and other molecules involved in the process. The macrophage
activation process can be triggered effectively in humans by one of the
Company's patented compounds, ImmTher(R), a macrophage activator derived from
muramyl dipeptide (MDP), a naturally occurring component of bacterial cell walls
that has the capacity to activate macrophages. ImmTher has been evaluated in
Phase I and II trials in large tumors in advanced stage colorectal cancer and
melanoma patients. The drug has a favorable toxicity profile and, as stand-alone
therapy, impeded disease progression in some patients, but it was evident that
this type of therapy is not particularly effective for large tumors. Currently,
in conjunction with M.D. Anderson Cancer Center of The University of Texas,
Endorex has initiated a new Phase II trial with ImmTher as an agent to treat
micrometastic disease associated with key pediatric tumors following surgery and
intensive chemotherapy.
Adjuvants are agents designed to increase the body's immune response to an
antigen that is the basis of a particular vaccine. Many new vaccines, resulting
from recombinant DNA technology and peptide chemistry, invoke less than desired
immune responses that need bolstering for even minimal effectiveness. Endorex
has developed another compound related to MDP, Theramide(TM), which is capable
of inducing protective responses to several experimental vaccines for certain
cancers and chronic infections. Endorex believes that Theramide may have
widespread application to boost the body's response to many new and old
vaccines. The Company is currently evaluating the efficacy of this vaccine
adjuvant in several infectious disease vaccines and in conjunction with a tumor
vaccine.
NATURAL CANCER THERAPY -- In 1997, WGI signed an exclusive worldwide
license agreement with the WARF for the development and commercialization of a
new cancer drug, PERILLYL ALCOHOL ("POH"). POH is a synthetic compound that is a
member of a new class of anti-cancer agents, monoterpenes, which have shown
anti-tumor and preventative activity against a wide range of tumor types in
preclinical studies at non-toxic dose levels. Monoterpenes are natural compounds
produced by plants and are found in commonly consumed fruits and vegetables, and
have multiple cellular effects including the modulation of the cellular levels
of growth factors and their receptors.
Monoterpenes selectively inhibit cell growth in a wide variety of rodent
tumors and human cancer cell lines and also act to induce programmed cell death
(apoptosis). A group of investigators at the University of Wisconsin have led
the development of this new class of compounds with the support of the National
Cancer Institute ("NCI"). POH has completed Phase I human trials sponsored by
the NCI at several centers including the University of Wisconsin, Yale
University, Fox Chase Cancer Center and is completing a trial at Memorial Sloan
Kettering Cancer Center. Based on results obtained in over 70 cancer patients in
Phase I trials during the last 22 months, the University of Wisconsin
Comprehensive Cancer Center has begun enrollment of patients in NCI-sponsored
Phase II studies for breast and prostate cancer. A third multi-center, NCI
sponsored Phase II trial is being conducted by The Eastern Cooperative Oncology
Group (ECOG) for evaluation of POH in advanced epithelial ovarian cancer.
GOVERNMENT REGULATION
Prior to marketing, each of the Company's products must undergo an
extensive regulatory approval process conducted by the FDA and applicable
agencies in other countries. The Company is currently conducting Phase II
clinical trials for its two cancer drugs, perillyl alcohol and ImmTher. See also
"Certain Factors that may Effect Future Results, Financial Condition and the
Market Price of Securities Government Regulation -- Need for FDA and Other
Regulatory Approval."
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In connection with those trials, the FDA has approved an Investigational
New Drug (IND) application permitting the evaluation of these drugs in human
patients based on results of studies in animals.
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company relies on patent rights, trade secrets and nondisclosure
agreements to establish and protect its proprietary rights in its technologies.
Despite these precautions, it may be possible for unauthorized third parties to
utilize the Company's technology or to obtain and use information that the
Company regards as proprietary. The laws of some foreign countries do not
protect the Company's proprietary rights in its processes and products to the
same extent as do the laws of the United States.
The Company currently has the following patent portfolio in the United
States: (1) The Company has two issued patents and two pending, (2) Orasomal has
one notice of allowance and two pending applications, and (3) WGI has two issued
patents. In addition, the Company has numerous foreign patents issued and patent
applications pending.
EMPLOYEES
The Company currently has thirteen (13) full-time employees. Nine full-time
research and development personnel are currently employed in drug development
and quality control, including one M.D. and five Ph.D.'s. It expects to have 19
employees by the end of 1998 with the addition of at least three Ph.D.'s.
During the last fourteen months, the Company has hired a new management
team. In addition to Michael Rosen, CEO, the Company hired Robert Brey, Ph.D. as
Vice President, Research and Development. Dr. Brey is the key scientific
executive for the Orasome technology, including the Elan joint venture. David G.
Franckowiak, CPA, CMA was hired in April 1997 as Controller/Treasurer and was
promoted to Vice President, Finance and Administration in January 1998. In
November 1997, Rick Wilson, MD, JD joined as Executive Vice President and Chief
Scientific Officer of WGI. He was appointed Executive Vice President, Clinical
Development and Regulatory Affairs of the Company in January 1998 and is
responsible for the Company's clinical development of ImmTher and POH.
In February 1998, the Company announced moving its North Dakota research
and development operations to a new facility in Chicago. In addition, Gerald
Vosika, M.D., Chairman of the Board and Scientific Director, resigned to pursue
scientific activities with a new start-up biotech company based in Fargo, ND.
The Company is negotiating an out-license to the new company for development of
non-competing technology that was initiated at Endorex.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL CONDITION AND THE
MARKET PRICE OF SECURITIES
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS, RISK OF INSOLVENCY. The Company had
approximately $15.7 million of cash, cash equivalents and marketable securities
at December 31, 1997. The Company may be required to seek additional financing
in the future to continue operations during such period in the event of cost
overruns, unanticipated expenses, a determination to pursue additional research
projects, or the failure to receive funds anticipated from other sources. The
Company will require substantial additional funds to finance its business
activities on an ongoing basis. The Company's actual future capital requirements
will depend on numerous factors, including, but not limited to, costs associated
with technologies and products which it may license from third parties, progress
in its research and development programs, including preclinical and clinical
trials, costs of filing and prosecuting patent applications and, if necessary,
enforcing issued patents or obtaining additional licenses to patents, competing
technological and market developments, the cost and timing of regulatory
approvals, the ability of the Company to establish collaborative relationships,
and the cost of establishing manufacturing, sales and marketing capabilities.
The Company has no current commitment to obtain other additional funds and is
unable to state the amount or potential source of any other additional funds.
Because of the Company's potential long-term capital requirements, it may
undertake additional equity offerings whenever conditions are favorable, even if
it does not have an immediate need for additional capital
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at that time. There can be no assurance that the Company will be able to obtain
additional funding when needed, or that such funding, if available, will be
obtainable on reasonable terms. Any such additional funding may result in
significant dilution to existing stockholders. If adequate funds are not
available, the Company may be required to accept unfavorable alternatives,
including (i) the delay, reduction or elimination of research and development
programs, capital expenditures, and marketing and other operating expenses, (ii)
arrangements with collaborative partners that may require the Company to
relinquish material rights to its products that it would not otherwise
relinquish, or (iii) a merger of the Company or a sale of the Company or its
assets.
EARLY STAGE OF DEVELOPMENT. The Company is a development state enterprise
and expects no significant revenue from the sale of products in the near future.
The Company's proprietary immunomodulator, ImmTher, has completed some Phase II
clinical trials for cancer with limited response in gross metastatic disease and
its immuno-adjuvant, Theramide, has completed a Phase I clinical trial for
cancer. The Company plans to initiate new Phase II clinical trials for ImmTher
in treating micro-metastasis in pediatric sarcomas with two major cancer
centers. For Theramide, the Company is completing preclinical data for new phase
I trials as an adjuvant for a vaccine program. Additionally, POH has completed
several Phase I trials as an anti-cancer drug and has started three Phase II
trials in breast, ovarian and prostate cancers. The Company's oral delivery
technology is in the preclinical evaluation stage. As a result, the Company must
be evaluated in light of the problems, delays, uncertainties and complications
encountered in connection with early-stage biopharmaceutical development. The
risks include, but are not limited to, the possibilities that any or all of the
Company's potential products will be found to be ineffective or toxic, or fail
to receive necessary regulatory clearances in the United States or abroad. To
achieve profitable operations, the Company must successfully develop, obtain
regulatory approval for, introduce and successfully market through a larger
pharmaceutical partner at a profit, products that are currently in the research
and development phase. The Company is currently not profitable, and no assurance
can be given that the Company's research and development efforts will be
successful, that required regulatory approvals will be obtained, that any of the
Company's proposed products will be safe and effective, that any such products,
if developed and introduced, will be successfully marketed or achieve market
acceptance, or that such products can be marketed at prices that will allow
profitability to be achieved or sustained. Failure of the Company to
successfully develop, obtain regulatory approval for, introduce and market its
products under development would have a material adverse effect on the business,
financial condition and results of operations of the Company.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE FINANCIAL RESULTS. The Company has
experienced significant operating losses since its inception, and expects to
incur losses for the next several years. As of December 31, 1997, the Company's
accumulated deficit was $13.5 million. The amount of net losses may vary
significantly from year-to-year and quarter-to-quarter and depend on, among
other factors, the success of the Company in securing collaborative partners and
the progress of research and preclinical and clinical development programs. The
Company's ability to attain profitability will depend, among other things, on
its successfully completing development of its product candidates, obtaining
regulatory approvals, establishing manufacturing, sales and marketing
capabilities and obtaining sufficient funds to finance its activities. There can
be no assurance that the Company will be able to achieve profitability or that
profitability, if achieved, can be sustained.
DEPENDENCE ON ELAN JOINT VENTURE. As described more fully under
"Description of Business -- Research and Development Programs," the Company
recently established a joint venture with Elan for the exclusive research,
development and commercialization of oral and mucosal prophylactic and
therapeutic vaccines. As part of the joint venture, the Company will be
obligated to fund the Elan joint venture's research and development activities,
in an amount of approximately $1,500,000 during the first year of the joint
venture and in proportion to its ownership interest in the joint venture
thereafter. In the event that the Company is unable to have sufficient resources
to meet its obligations under the Elan joint venture, or if by meeting those
funding obligations, the Company is therefore unable to have sufficient
resources to fund its other research and development activities, such funding
obligations could have a material adverse effect on the Company's business,
financial condition or results of operations.
LIMITED EXPERIENCE AND DEPENDENCE ON THIRD PARTIES FOR COMPLETION OF
CLINICAL TRIALS, MANUFACTURING AND MARKETING. The Company has no experience with
receipt of government approvals or marketing
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pharmaceutical products and has limited experience with clinical testing and
manufacturing. The Company may seek to form alliances with established
pharmaceutical companies for the testing, manufacturing and marketing of, and
pursuit of regulatory approval for, its products. There can be no assurance that
the Company will be successful in forming such alliances or that the Company's
partners would devote adequate resources to, and successfully market, the
Company's products. If the Company instead performs such tasks itself, it will
be required to develop expertise internally or contract with third parties to
perform these tasks. This will place increased demands on the Company's
resources, requiring the addition of new management personnel and the
development of additional expertise by existing management personnel. The
failure to acquire such services or to develop such expertise could materially
adversely affect prospects for the Company's success. All of the Company's
scientific and clinical advisors are employed by others and may have commitments
to or consulting or advisory contracts with other entities that may limit their
availability to the Company.
RELIANCE ON PATENTS AND OTHER PROPRIETARY RIGHTS. The pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection for new technologies, products and processes. The Company's success
will depend, in part, on its ability to obtain protection for its products and
technologies under United States and foreign patent laws and other intellectual
property laws, to preserve its trade secrets and to operate without infringing
the proprietary rights of third parties. There can be no assurance that the
research conducted by or on behalf of the Company will result in any patentable
technology or products. Even if patents are obtainable, the procedure for
obtaining patents is expensive, time consuming and can be subject to lengthy
litigation. No assurance can be given that patents issued to or licensed by the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company. There can
be no assurance that the Company's patent applications will be approved, that
the Company will develop additional products that are patentable, that any
issued patent will provide the Company with any competitive advantage or
adequate protection for its inventions or will not be challenged by others, or
that the patents of others will not have an adverse effect on the ability of the
Company to do business. Competitors may have filed applications, may have been
issued patents or may obtain additional patents and proprietary rights relating
to products or processes competitive with those of the Company. Furthermore,
there can be no assurance that others will not independently develop similar
products, duplicate any of the Company's products or design around any patented
products developed by the Company. Moreover, it is possible, with respect to
some patentable items, that the Company may conclude that better protection
would be afforded by not seeking patents. Although the Company has endeavored,
and will continue to endeavor, to prevent disclosure of any confidential
information by adopting a policy to bind its scientific advisors and scientific
and management employees and consultants by confidentiality agreements. No
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets, or that the Company can effectively protect its
rights to its unpatented trade secrets. Any such discovery or disclosure would
likely have an adverse effect on the Company. The Company currently has several
patents issued and patent applications pending in the United States and foreign
countries. Although the Company intends to apply for additional patents, there
can be no assurance that the Company will obtain patents either under the
pending applications or any future applications or that any of its existing or
any future patent will provide effective protection against competitive
products. If patent or other proprietary rights cannot be obtained and
maintained by the Company, its products may face significantly increased
competition.
The application of patent law to the area of biotechnology is relatively
new and has resulted in considerable litigation. The ability of the Company to
obtain patents, licenses and similar rights and the nature, extent and
enforceability of the intellectual property rights, if any, that are obtained as
a result of its research programs involve complex legal and factual issues. For
example, the Company is dependent upon its license of oral delivery technology
from M.I.T. and its license of POH from the WARF. No assurance can be given that
the technology underlying such license will be profitable, or that the Company
will retain its license for such technology or that the Company will obtain
patent protection outside the United States. The issues are more significant
with respect to any product based upon natural substances, for which available
patent protection may be limited due to the prior use or reported utility of
such products (or their natural sources) to treat various disorders or diseases.
There can be no assurance as to the degree of protection that proprietary
rights, when and if established, will afford the Company. To the extent that the
Company relies on trade secret
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protection and confidentiality agreements to protect technology, there can be no
assurance that others will not independently develop similar technology, or
otherwise obtain access to the Company's findings or research materials
embodying those findings.
There is also a substantial risk in the rapidly developing biotechnology
industry that patents and other intellectual property rights held by the Company
could be infringed by others or that products developed by the Company or their
method of manufacture could be covered by patents owned by other companies. To
the extent that any infringement should occur with respect to any patents issued
to the Company or licenses granted to the Company, or if the Company is alleged
to have infringed on patents or licenses held by others, the Company could be
faced with the expensive prospect of litigating such claims; if the Company were
to have insufficient funds on hand to finance its litigation, it might be forced
to negotiate a license with such other parties or to otherwise resolve such a
dispute on terms less favorable to the Company than could result from successful
litigation.
UNCERTAINTY OF CLINICAL TRIALS AND RESULTS. The results of clinical trial
and preclinical testing for the Company's products are subject to varying
interpretations. Furthermore, studies conducted with alternative designs or on
alternative populations could produce results that vary from those expected.
Therefore, there can be no assurance that the results or the Company's
interpretation of them will be accepted by governmental regulators or the
medical community. Even if the development of the Company's products in the
preclinical phase advances to the clinical stage, there can be no assurance that
they will prove to be safe and effective. The products that are successfully
developed, if any, will be subject to requisite regulatory approval prior to
their commercial sale, and the approval, if obtainable, may take several years.
Generally, only a very small percentage of the number of new pharmaceutical
products initially developed is approved for sale. Even if new products are
approved for sale, there can be no assurance that they will be commercially
successful. The Company may encounter unanticipated problems relating to
development, manufacturing, distribution and marketing, some of which may be
beyond the Company's financial and technical capacity to solve. The failure to
address such problems adequately could have a material adverse effect on the
Company's business, financial condition or results of operations. No assurance
can be given that the Company will succeed in the development and marketing of
any new drug products, or that they will not be rendered obsolete by products of
competitors.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES. Federal, state and local
officials and legislators (and certain foreign government officials and
legislators) have proposed or are reportedly considering proposing a variety of
reforms to the health care systems in the United States and abroad. The Company
cannot predict what health care reform legislation, if any, will be enacted in
the United States or elsewhere. Significant changes in the health care system in
the United States or elsewhere are likely to have a substantial impact over time
on the manner in which the Company conducts its business. Such proposals and
changes could have a material adverse effect on the Company's ability to raise
capital. Furthermore, the Company's ability to commercialize its potential
products may be adversely affected to the extent that such proposals have a
material adverse effect on the business, financial condition and profitability
of other companies that are prospective corporate partners with respect to
certain of the Company's proposed products.
UNCERTAIN EXTENT OF PRICE FLEXIBILITY AND THIRD-PARTY REIMBURSEMENT. The
Company's ability to commercialize its products successfully will depend in part
on the extent to which appropriate reimbursement levels for the cost of such
products and related treatment are obtained from government authorities, private
health insurers and other organizations, such as health maintenance
organizations ("HMOs"). Third party payers are increasingly challenging the
prices charged for medical products and services. Also, the trend towards
managed health care in the United States and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the
purchase of health care services and products, as well as legislative proposals
to reduce government insurance programs, may all result in lower prices for the
Company's products. The cost containment measures that health care providers are
instituting could affect the Company's ability to sell its products and may have
a material adverse effect on the Company.
GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVAL. Prior to
marketing, each of the Company's products must undergo an extensive regulatory
approval process conducted by the U.S. Food and
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Drug Administration (the "FDA") and applicable agencies in other countries. The
process, which focuses on safety and efficacy and includes a review by the FDA
of preclinical testing and clinical trials and investigating as to whether good
laboratory and clinical practices were maintained during testing, takes many
years and requires the expenditure of substantial resources. The Company is, and
will be dependent on the external laboratories and medical institutions
conducting its preclinical testing and clinical trials to maintain both good
laboratory practices established by the FDA and good clinical practices. Data
obtained from preclinical and clinical testing are subject to varying
interpretations which could delay, limit or prevent regulatory approval. In
addition, delays or rejection may be encountered based upon changes in FDA
policy for drug approval during the period of development and by the requirement
for regulatory review of each submitted Product License Approval or New Drug
Application. There can be no assurance that, even after such time and
expenditures, regulatory approval will be obtained for any of the Company's
product candidates. Moreover, such approval may entail significant limitations
on the indicated uses for which a drug may be marketed. Even if such regulatory
approval is obtained, a marketed therapeutic product and its manufacturer are
subject to continual regulatory review, and later discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
such product or manufacturing, including withdrawal of such product from the
market. Change in the manufacturing procedures used by the Company for any of
the Company's approved drugs are subject to FDA review, which could have an
adverse effect upon the Company's ability to continue the commercialization or
sale of a drug. The process of obtaining FDA and foreign regulatory approval is
costly and time consuming, and there can be no assurance that any product that
the Company may develop will be deemed to be safe and effective by the FDA. The
Company will not be permitted to market any product it may develop in any
jurisdiction in which the product does not receive regulatory approval.
The Company is also subject to various foreign, federal, state and local
laws, regulations and recommendations (collectively "Governmental Regulations")
relating to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use, manufacture, storage, handling and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research and development work and manufacturing processes. Included in this area
is Good Manufacturing Practices ("GMP") compliance and its European equivalent,
ISO 9000. Currently, the Company's manufacturing activities for preclinical and
clinical supplies are not fully in GMP compliance, although the Company expects
to reach full compliance in the near future. There can be no assurance that the
Company will achieve such compliance. Although the Company believes it is in
compliance with all other Governmental Regulations in all material respects
there can be no assurance that the Company will not be required to incur
significant costs to comply with Governmental Regulations in the future.
COMPETITION; TECHNOLOGICAL CHANGE. There is substantial competition in the
pharmaceutical field in general and in vaccine development and lyposomal
formulation in particular. The Company's competitors include companies with
financial resources, and licensing, research and development staffs and
facilities substantially greater than those of the Company. Competitors in the
vaccine development field include major pharmaceutical companies, specialized
biotechnology firms, universities and governmental agencies, including American
Home Products, the Merck Company, SmithKline Beecham, MedImmune, Aviron and
Chiron. Competitors in the liposomal formulation field include The Liposome
Company, NexStar and Sequus. Competitors in the field of the oral delivery of
drugs include Emisphere, which is currently in Phase I trials for oral heparin
and in preclinical development with an oral human growth hormone, and Cortecs,
which has several products in clinical development. Many competitors have
greater experience than the Company in undertaking preclinical testing and
clinical trials and obtaining FDA and other regulatory approvals. There can be
no assurance that the Company's competitors will not succeed in developing
similar technologies and products more rapidly than the Company and that these
technologies and products will not be more effective than any of those that are
being or will be developed by the Company, or that such competitors'
technologies and products will not render the Company's technologies and
products obsolete or noncompetitive.
MANUFACTURING AND MARKETING CAPABILITIES. The Company does not now have,
and probably will not have in the foreseeable future, the resources to
manufacture or directly market on a large commercial scale any products which it
may develop. In connection with the Company's research and development
activities, it
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<PAGE> 10
will seek to enter into collaborative arrangements with pharmaceutical companies
to assist in funding development costs, including the costs of clinical testing
necessary to obtain regulatory approvals. It is expected that these entities
will also be responsible for commercial scale manufacturing which must be in
compliance with applicable FDA regulations. The Company anticipates that such
arrangements may involve the grant by the Company of the exclusive or
semi-exclusive right to sell specific products to specified market segments in
particular geographic territories in exchange for a royalty, joint venture,
future co-marketing or other financial interest. The Company believes that these
arrangements will be more effective in promoting and distributing therapeutic
products in the United States in view of the Company's limited resources and the
extensive marketing networks and large advertising budgets of large
pharmaceutical companies. To date, the Company has not entered into any
collaborative marketing agreements or distributorship arrangements for any of
its proposed products and there can be no assurance that the Company will be
able to enter into any such arrangements on favorable terms or at all. The
Company may ultimately determine to establish its own manufacturing and/or
marketing capability, at least for certain products, in which case it will
require substantial additional funds and personnel.
USE OF HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company's research
and development involves the controlled use of small quantities of hazardous
materials, chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by federal, state and local regulations,
the risk of accidental contamination or injury from these materials cannot be
eliminated. In the event of such an accident, the Company could be held liable
for any resulting damages, and any such liability could exceed the resources of
the Company. There can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations in the
future, nor that the operations, business or assets of the Company will not be
materially adversely affected by current or future environmental laws or
regulations.
PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE. The testing and
marketing of pharmaceutical products entails an inherent risk of exposure to
product liability claims from adverse effects of products. The Company has
obtained liability insurance with limits of liability of $1,000,000 for each
claim and $3,000,000 in the aggregate. There is no assurance that current or
future policy limits will be sufficient to cover all possible liabilities.
Further, there can be no assurance that adequate product liability insurance
will continue to be available in the future or that it can be maintained at
reasonable costs to the Company. In the event of a successful product liability
claim against the Company, lack or insufficiency of insurance coverage could
have an adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL AND SCIENTIFIC ADVISORS; EVOLUTION OF
MANAGEMENT. The Company is dependent on the principal members of its management
and scientific staff, the loss of whose services could impede the achievement of
development objectives. Furthermore, as the Company's focus evolves, the
Company's need for certain skills may diminish and the need for other skills may
arise. Thus, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success and may lead to further evolution of the Company's management.
Although the Company believes it will be successful in attracting and retaining
skilled and experienced scientific personnel, there can be no assurance that the
Company will be able to attract and retain such personnel on acceptable terms
given the competition among numerous pharmaceutical and health care companies,
universities and non-profit research institutions for experienced scientists and
managers.
The Company's scientific advisors are employed on a full-time basis by
unrelated employers and some have one or more consulting or other advisory
arrangements with other entities which at times may conflict with their
obligations to the Company. Inventions or processes discovered by such persons,
other than those to which the Company's licenses relate, or those for which the
Company is able to acquire licenses or those which were invented while
performing consulting services under contract to the Company, will most likely
not become the property of the Company, but will remain the property of such
persons or such persons' full-time employers. Failure to obtain needed patents,
licenses or proprietary information held by others could have a material adverse
effect on the Company's business, financial condition or results of operations.
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<PAGE> 11
LIMITED PERSONNEL; DEPENDENCE ON CONTRACTORS. The Company has thirteen
full-time employees. With these exceptions, the Company relies, and for the
foreseeable future will rely, on certain independent organizations, advisors and
consultants to provide certain services with regard to clinical research. There
can be no assurance that their services will continue to be available to the
Company on a timely basis when needed, or that the Company could find qualified
replacements. The Company's advisors and consultants generally sign agreements
that provide for confidentiality of the Company's proprietary information.
However, there can be no assurance that the Company will be able to maintain the
confidentiality of the Company's technology, the dissemination of which could
have a material adverse effect on the Company's business, financial condition or
results of operations.
CONDUCTING BUSINESS ABROAD. Although the Company currently does not conduct
business outside the United States, it is in discussions with potential
strategic partners for the in-licensing and out-licensing of technology and the
development and marketing of its products. No assurance can be given that the
Company will be able to establish arrangements covering foreign countries, that
the necessary foreign regulatory approvals for its product candidates will be
obtained, that foreign patent coverage will be available or that the development
and marketing of its products through such licenses, joint ventures or other
arrangements will be commercially successful. The Company may also have greater
difficulty obtaining proprietary protection for its products and technologies
outside the United States rather than in it, and enforcing its rights in foreign
courts rather than in United States courts.
LIMITED AVAILABILITY OF NET OPERATING LOSS CARRY FORWARDS. For Federal
income tax purposes, net operating loss and tax credit carryforwards as of
December 31, 1997 are approximately $5,224,000 and $322,000, respectively. These
carryforwards will expire beginning in 2004 through 2011. The Tax Reform Act of
1986 provided for a limitation on the use of net operating loss and tax credit
carryforwards following certain ownership changes. The Company believes that the
Private Placement, together with certain prior issuances of Common Stock, is
likely to restrict severely the Company's ability to utilize its net operating
losses and tax credits. Additionally, because U.S. tax laws limit the time
during which net operating loss and tax credit carryforwards may be applied
against future taxable income tax liabilities, the Company may not be able to
fully utilize its net operating loss and tax credits for federal income tax
purposes.
POTENTIAL VOLATILITY OF PRICE; LOW TRADING VOLUME. The market price of the
Common Stock, like that of many other development-stage public pharmaceutical or
biotechnology companies, has been highly volatile and may continue to be in the
future. Factors such as announcements of technological innovations or new
commercial products by the Company or its competitors, disclosure of results of
preclinical and clinical testing, adverse reactions to products, governmental
regulation and approvals, developments in patent or other proprietary rights,
public or regulatory agency concerns as to the safety of products developed by
the Company and general market conditions may have a significant effect on the
market price of the Common Stock and its other equity securities. In addition,
in general, the Common Stock has been thinly traded on the OTC Bulletin Board,
which may affect the ability of the Company's stockholders to sell shares of the
Common Stock in the public market. There can be no assurance that a more active
trading market will develop in the future.
RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK" RULES ON
LIQUIDITY FOR THE COMPANY'S SECURITIES. Since the Company's securities are not
listed on a national securities exchange nor listed on a qualified automated
quotation system, they are, under certain circumstances, subject to Rule 15g-9
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which imposes additional sales practice requirements on broker-dealers that sell
such securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by this Rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
affect the ability of broker-dealers to sell the Company's securities and may
materially adversely affect the ability of purchasers in this Offering to sell
any of the securities acquired hereby, after subsequent registration, in the
secondary market.
The SEC has adopted regulations that define a "penny stock" to be any
equity security that has a market price (as therein defined) of less than $5.00
per share or with an exercise price of less than $5.00 per share,
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subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the SEC relating to the penny stock
market. Disclosure is also required to be made about sales commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stock.
The foregoing required penny stock restrictions will not apply to the
Company's securities so long as the Company meets certain minimum net tangible
assets or average revenue criteria. Even while the Company's securities are
exempt from such restrictions, the Company would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock, if the SEC finds
that such a restriction would be in the public interest.
DIVIDENDS. The Company has never paid cash dividends on its Common Stock
and does not anticipate paying any such dividends in the foreseeable future. The
Company currently intends to retain its earnings, if any, for the development of
its business.
CERTAIN INTERLOCKING RELATIONSHIPS; POTENTIAL CONFLICTS OF INTEREST. Steve
H. Kanzer, C.P.A., Esq., a director of the Company, is a Senior Managing
Director of the Paramount Capital, Inc. ("Paramount"). Paramount Capital Asset
Management, Inc. ("PCAM") is the investment manager and general partner of The
Aries Fund, a Cayman Island Trust, and the Aries Domestic Fund, L.P.,
respectively. Lindsay A. Rosenwald, M.D., the President and sole stockholder of
PCAM, is also the President and sole stockholder of the Paramount. Dr. Rosenwald
is also President and sole stockholder of Paramount Capital Investment LLC, a
merchant banking and venture capital firm specializing in biotechnology
companies ("PCI"). In addition, certain officers, employees and/or associates of
the Paramount and/or its affiliates own securities in the Company's
subsidiaries. In the regular course of its business, PCI identifies, evaluates
and pursues investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that any
transactions between the Company and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to the Company as those
then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither such affiliates nor PCI is
obligated pursuant to any agreement or understanding with the Company to make
any additional products or technologies available to the Company, nor can there
be any assurance, and the Company does not expect and purchasers of the
securities offered hereby should not expect, that any biomedical or
pharmaceutical product or technology identified by such affiliates or PCI in the
future will be made available to the Company. In addition, certain of the
current officers and directors of the Company or certain of any officers or
directors of the company hereafter appointed may from time to time serve as
officers or directors of other biopharmaceutical or biotechnology companies.
There can be no assurance that such other companies will not have interests in
conflict with those of the Company.
CONCENTRATION OF OWNERSHIP AND CONTROL. The Company's directors, executive
officers and principal stockholders and certain of their affiliates have the
ability to influence the election of the Company's directors and most other
stockholder actions. In particular, pursuant to the placement agency agreement
relating to the private placement completed in October 1997 (the "Private
Placement"), so long as 50% of the shares sold in the Private Placement
("Placement Shares") remain outstanding and subject contractual rights described
in the subscription agreement between the Company and each signatory thereto
(the "Subscription Agreements"), the Company may not do any of the following
without the Paramount's prior approval: (i) issue or increase the authorized
amount or alter the terms of any securities of the Company senior to, or on
parity with, the Placement Shares with respect to voting, liquidation or
dividends, (ii) alter the Company's charter documents in any manner that would
adversely affect the relative rights, preferences, qualifications, limitations
or restrictions of the Placement Shares or of certain contractual rights
described in the Subscription Agreements, (iii) incur indebtedness in excess of
$1,000,000, (iv) incorporate or acquire any subsidiaries and (v) enter any
transactions with affiliates of the Company. In addition, the Company's Board of
Directors cannot exceed seven persons without the prior written consent of the
Paramount's. These arrangements may discourage or prevent any proposed takeover
of the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over the then current market prices. Such
stockholders
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may influence corporate actions, including influencing elections of directors
and significant corporate events. See also, "-- Certain Interlocking
Relationships; Potential Conflicts of Interest."
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 1,500 square feet in Lake Bluff, Illinois.
This space constitutes the Company's executive offices. This space is leased
through December 31, 1998. The lease provides the Company two options to renew
the lease for one year each. In addition, the Company leases approximately 7,500
square feet in Lake Forest, Illinois. This space constitutes the Company's
research and development facility. This space is leased through December 31,
2000. The lease provides that the Company with an option to renew the lease for
an additional three years. The Company believes that its current leased
facilities will be sufficient to meet the Company's needs for the foreseeable
future and that suitable additional space will be available if and as needed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Quotations for the Company's Common Stock appear in the "pink sheets"
published by the National Quotations Bureau, Inc. and on the "Bulletin Board" of
the National Association of Securities Dealers, Inc. The following table sets
forth the high and low bid quotations, as provided by the National Quotation
Bureau, Inc., for the Company's Common Stock during the period February 1, 1996
through February 27, 1998. The amounts represent inter-dealer quotations without
adjustment for retail markups, markdowns or commissions and do not represent the
prices of actual transactions. All prices have been adjusted for the
one-for-fifteen reverse stock split effected by the Company on June 11, 1997.
<TABLE>
<CAPTION>
HIGH BID LOW ASK
-------- -------
<S> <C> <C> <C>
1996........................ 1st Quarter $ 3.150 $ 1.200
2nd Quarter $33.188 $ 2.340
3rd Quarter $23.445 $13.125
4th Quarter $15.000 $ 8.445
1997........................ 1st Quarter $12.188 $ 7.969
2nd Quarter $ 7.200 $ 2.750
3rd Quarter $ 2.938 $ 2.750
4th Quarter $ 6.500 $ 2.938
1998........................ 1st Quarter $ 8.625 $ 6.000
</TABLE>
As of February 27, 1998, the Company had approximately 1,128 stockholders
of record.
In connection with a senior line of credit agreement entered into by the
Company with two of its major stockholders, Aries Domestic Fund, L.P. and The
Aries Fund, on May 19, 1997, the Company granted warrants to purchase an
aggregate of 66,668 shares of Common Stock at an initial exercise price equal
equal to the offering price of the Company's Private Placement (as defined
below), subject to adjustment under certain circumstances. Such warrants are
exercisable from May 19, 1997 until May 19, 2002.
Pursuant to the Private Placement, the Company issued and sold an aggregate
of 8,648,716 shares of Common Stock to certain accredited investors on July 16,
October 10 and October 16, 1997, in consideration
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of an aggregate amount of $20,000,000. The net proceeds to the Company, after
deducting commissions and expenses of Paramount, were $17,400,000.
In connection with the Private Placement, the Company issued and sold to
the Placement Agent and/or its designees warrants (the "Placement Warrants") to
purchase up to an aggregate of 864,865 shares of Common Stock and, in connection
with the execution of a financial advisory agreement, dated October 16, 1997,
between the Company and the Placement Agent, the Company issued and sold to the
Placement Agent warrants (the "Advisory Warrants") to purchase up to an
aggregate of 1,297,297 shares of Common Stock. The Placement Warrants and the
Advisory Warrants are exercisable beginning on April 16, 1998 until April 16,
2003, at an exercise price of $2.54375 per share, subject to adjustment under
certain circumstances.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
PLAN OF OPERATION
The following "Plan of Operation" provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operation and financial condition. The discussion should be read in
conjunction with the audited consolidated financial statements of the Company
and notes thereto. This report contains certain statements of a forward-looking
nature relating to future events or the future financial performance of the
Company. Investors are cautioned that such statements are only predictions and
that actual events or results may differ materially. In evaluating such
statements, investors should carefully consider the various factors identified
in this report, which could cause actual results to differ materially from those
indicated from such forward-looking statements, including those set forth in
"Business -- Certain Factors that may Effect Future Results, Financial Condition
and the Market Price of Securities."
The Company is a development stage enterprise and expects no significant
revenue from the sale of products in the near future. The Company's proprietary
immunomodulator, ImmTher, has completed some Phase II clinical trials for cancer
with limited response in gross metastatic disease and its immuno-adjuvant,
Theramide, has completed a Phase I clinical trial for cancer. The Company has
initiated new Phase II clinical trials for ImmTher in treating micrometastasis
in pediatric sarcomas with two major cancer centers and new preclinical programs
as an anti-infective agent in immuno-compromised patients. For Theramide, the
Company is completing preclinical data for new Phase I trials as an adjuvant for
a vaccine program.
In January 1998, Endorex formed, with Elan, a joint venture for the
exclusive research, development and commercialization of oral vaccines. The
joint venture will combine novel existing and future delivery systems of the two
companies for the development of vaccines. The joint venture plans to select a
few key vaccines for testing in and further development of the delivery systems
during 1998 and to build a data package which may attract interest from vaccine
companies.
Orasomal has initiated preclinical evaluation of at least one new product
utilizing its proprietary oral delivery system, and plans to expand, during
1998, its oral delivery program for proteins and peptides including insulin and
human growth hormone. Orasomal plans to select products for this program that
are only available in injectable form and for which oral therapy is not
available. Orasomal believes its technology, if effective, will increase patient
compliance and ease of administration of therapy.
On August 1, 1997, WGI signed an exclusive worldwide license agreement with
the WARF, for the development of a new cancer therapy. The new drug, perillyl
alcohol (POH), has completed Phase I human trials sponsored by the National
Cancer Institute (NCI) at several cancer centers. WGI has initiated NCI-
sponsored Phase II trials for breast, prostate and ovarian cancer. The Company
has the option to license another perillyl alcohol analog with WARF and recently
exercised this option. WGI intends to initiate reformulation work of POH during
1998.
On December 31, 1997 and 1996, the Company had cash and cash equivalents of
$15,706,374 and $905,907, respectively, and working capital of $15,212,680 and
$824,821, respectively. On January 21, 1998, in connection with financing the
Elan joint venture, Elan purchased $2 million in common stock for cash.
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The Company's current level of research and development activities requires
the expenditure of approximately $350,000 per month. The Company may be required
to seek additional financing in the future to continue operations during such
period in the event of cost overruns, unanticipated expenses, a determination to
pursue additional research projects, or the failure to receive funds anticipated
from other sources. The Company's actual future capital requirements will depend
on numerous factors, including, but not limited to, costs associated with
technologies and products which it may license from third parties, progress in
its research and development programs, including preclinical and clinical
trials, costs of filing and prosecuting patent applications and, if necessary,
enforcing issued patents or obtaining additional licenses to patents, competing
technological and market developments, the cost and timing of regulatory
approvals, the ability of the Company to establish collaborative relationships,
and the cost of establishing manufacturing, sales and marketing capabilities.
The Company has no current commitment to obtain other additional funds and is
unable to state the amount or potential source of any other additional funds.
Because of the Company's potential long-term capital requirements, it may
undertake additional equity offerings whenever conditions are favorable, even if
it does not have an immediate need for additional capital at that time. There
can be no assurance that the Company will be able to obtain additional funding
when needed, or that such funding, if available, will be obtainable on
reasonable terms. Any such additional funding may result in significant dilution
to existing stockholders. If adequate funds are not available, the Company may
be required to accept unfavorable alternatives, including (i) the delay,
reduction or elimination of research and development programs, capital
expenditures, and marketing and other operating expenses, (ii) arrangements with
collaborative partners that may require the Company to relinquish material
rights to its products that it would not otherwise relinquish, or (iii) a merger
of the Company or a sale of the Company or its assets.
The Company does not intend to significantly increase employees during the
next twelve months, but will recruit some key personnel to accelerate
preclinical development of products. It expects to have 19 employees by
year-end.
The Company uses a number of outside consultants skilled in the area of
government regulatory management, clinical trial management, Good Manufacturing
Practices ("GMP") and business development. The Company also formed a Drug
Delivery Scientific Advisory Board for which it appointed as co-chairman of such
Board, Robert Langer, Ph.D., Professor of Biomedical Engineering of M.I.T. and
Henry Brem, M.D., Director of Neurosurgical Oncology at Johns Hopkins Hospital.
Both individuals are recognized leaders in drug delivery systems. Dr. Langer is
a co-inventor of the Orasome(TM) technology currently under development by
Orasomal and licensed from M.I.T. WGI formed Scientific Advisory Board comprised
of a select group of oncologists to guide the clinical development of the
Company's cancer drugs.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The Company utilizes
personal computers, software packages developed by 3rd parties and a service
bureau for payroll. The Company is currently in the process of determining and
coordinating the action necessary to provide uninterrupted, normal operation of
business-critical systems. It is anticipated that the evaluation will be
completed by December 31, 1998, allowing adequate time arranging alternative
software and services, if necessary. Management believes that the Year 2000
problem will not pose significant operational problems and that the total costs
associated with Year 2000 issues will not have a material effect on the
consolidated results of the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
On October 1, 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share". Earnings per share have been
presented on the Consolidated Statement of Operations in accordance with SFAS
No. 128 for the current and prior periods. As operations resulted in a net loss
for all periods presented, diluted earnings per share are the same as basic
earnings per share due to the antidilutive effect of potential dilutive common
shares.
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In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". In February 1998, FASB
issued SFAS No. 132 "Employers' Disclosure about Pensions and Other
Postretirement Benefits." The Company does not expect the effect of the adoption
of these pronouncements to have a material effect on results of operations or
financial condition.
ITEM 7. FINANCIAL STATEMENTS.
Pursuant to Rule 12b-23, the financial statements set forth on pages F-1,
et seq attached hereto are incorporated herein by reference. The financial
statements attached hereto reflect adjustments relating to accounting for the
fair value of stock warrants issued in connection with certain financial
agreements. These adjustments were not reflected in the Company's results
previously reported in a press release and the Fourth Quarter Report 1997 sent
to stockholders. The impact of these non-cash adjustments increased the net loss
for the year ended December 31, 1997 by $476,046.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
From February 1, 1996 to January 20, 1997, the Company did not change
independent public accountants.
The engagement of the Company's former independent public accountants,
Moore Stephens, P.C. ("MS"), ended on January 20, 1997.
(i) MS's report on the financial statements for either of the past two
fiscal years and any subsequent interim period through the date of such
dismissal, January 20, 1997, did not contain an adverse opinion or
disclaimer of opinion and was not modified as to uncertainty, audit scope
or accounting principles.
(ii) The decision to change accountants was approved by the Board of
Directors of the Company on January 7, 1997.
(iii) There were no disagreements or reportable events with MS,
whether or not resolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to MS's satisfaction, would have caused it to make
reference to the subject matter of the disagreements in connection with its
reports.
Coopers & Lybrand L.L.P. ("C&L") was engaged by the Company as its
independent public accountants on January 20, 1997. C&L was not consulted by the
Company with respect to the application of accounting principles to a specific
completed transaction or contemplated transaction, or the type of audit opinion
that might be rendered on the Company's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with the Commission prior to
120 days after December 31, 1997.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with the Commission prior to
120 days after December 31, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with the Commission prior to
120 days after December 31, 1997.
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<PAGE> 17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with the Commission prior to
120 days after December 31, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following financial statements are filed as part of this report:
<TABLE>
<S> <C>
Financial Statements.
(1) Balance Sheet as of December 31, 1997.
(2) Statements of Operations for the periods ended December 31,
1997 and 1996 and cumulative from February 15, 1985 (date of
inception) to December 31, 1997.
(3) Statements of Cash Flows for the periods ended December 31,
1997 and 1996 and cumulative from February 15, 1985 (date of
inception) to December 31, 1997.
(4) Statements of Stockholders' Equity for the period from
February 15, 1985 (date of inception) to December 31, 1997.
(5) Notes to Financial Statements.
(6) Independent Accountants' Report.
</TABLE>
(b) Reports on Form 8-K
During the fiscal quarter ended December 31, 1997 the Company did not file
any Current Reports on Form 8-K.
(c) Exhibits:
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of Company.(1)
3.2 Certificate of Ownership and Merger filed March 30, 1987.(1)
3.3 Certificate of Amendment to Certificate of Incorporation
filed September 7, 1989.(2)
3.4 Certificate of Amendment to Certificate of Incorporation
filed November 13, 1990.(3)
3.5 Certificate of Amendment to Certificate of Incorporation
filed May 29, 1991.(3)
3.6 Certificate of Amendment to Certificate of Incorporation
filed February 27, 1992.(3)
3.7 Certificate of Amendment to Certificate of Incorporation
filed February 27, 1992.(3)
3.8 Certificate of Amendment to Certificate of Incorporation
filed June 29, 1993.(7)
3.9 Certificate of Amendment to Certificate of Incorporation
filed April 15, 1996.(7)
3.10 Certificate of Amendment to Certificate of Incorporation
filed June 10, 1997.(9)
3.11 Series B Preferred Certificate of Designations, Preferences
and Rights filed January 21, 1998.(9)
3.12 By-laws of Company.(1)
4.1 Specimen Common Stock Certificate.(1)
4.2 Warrant for the Purchase of 864,865 shares of Common
Stock.(8)
4.3 Warrant for the Purchase of 1,297,297 shares of Common
Stock.(8)
4.4 Warrant for the Purchase of 230,770 shares of Common
Stock.(9)
10.1 Patent License Agreement dated December 16, 1996 between the
Company and Massachusetts Institute of Technology.(7)
10.2 Consultation Agreement dated as of September 1, 1996 between
the Company and Kenneth Tempero, Ph.D., M.D.(7)
10.3 Employment Agreement dated July 25, 1996 between the Company
and Michael S. Rosen.(5)
10.4 Employment Agreement dated December 1, 1996 between the
Company and Robert N. Brey.(7)
10.5 Purchase Agreement dated March 1, 1996 between the Company
and Dominion Resources, Inc.(4)
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C>
10.6 Purchase Agreement dated as of June 13, 1996 between the Company, Dominion Resources, Inc.,
The Aries Fund and The Aries Domestic Fund, L.P.(7)
10.7 Purchase Agreement dated as of June 26, 1996 between the Company, The Aries Fund and The
Aries Domestic Fund, L.P.(7)
10.8 Incentive Stock Option Plan.(1)
10.9 Lease dated April 28, 1993 between the Company and Landmark Investors.(7)
10.10 Office Lease dated September 18, 1996 between the Company and American National Bank & Trust
Company of Chicago, as amended.(7)
10.11 Placement Agency Agreement between the Company and Paramount Capital, Inc. dated July 1,
1997.(8)
10.12 Side Letter #1 to Placement Agency Agreement.(8)
10.13 Form of Subscription Agreement for the purchase of Common Stock.(8)
10.14 Financial Advisory Agreement between the Company and Paramount Capital, Inc. dated October
16, 1997.(8)
10.15 Lease dated December 19, 1997 between the Company and Howard M. Ruskin.(9)
10.16+* Joint Development and Operating Agreement, dated as of January 21, 1998, between the Company,
Elan Corporation, plc, Orasomal Technologies, Inc. and Endorex Vaccine Delivery Technologies,
Inc.
10.17+** Securities Purchase Agreement, dated as of January 21, 1998, between the Company and Elan
International Services, Ltd.
10.18 Registration Rights Agreement, dated as of January 21, 1998, between the Company and Elan
International Services, Ltd.(9)
10.19+* License Agreement, dated as of January 21, 1998, between the Elan Pharmaceuticals, plc and
Endorex Vaccine Delivery Technologies, Inc.
10.20+* License Agreement, dated as of January 22, 1998, between Orasomal Technologies, Inc., Endorex
Vaccine Delivery Technologies, Inc. and the Company.
16 Letter on change in certifying accountants.(6)
21 Subsidiaries of the Company.(9)
23.1 Consent of PricewaterhouseCoopers LLP, independent certified public accountants.
27 Financial Data Schedule(9)
</TABLE>
- -------------------------
+ The Company has applied for Confidential Treatment of portions of this
exhibit pursuant to Rule 24b-2 under the Securities Act of 1934, as amended.
* Re-filed pursuant to the Company's request for Confidential Treatment.
** Confidential Treatment of this exhibit has been withdrawn. The exhibit has
been re-filed in its entirety.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-13492).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1989.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1992.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended January 31, 1996.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended July 31, 1996.
(6) Incorporated by reference to the Company's Report on Form 8-K/A dated
February 10, 1997.
(7) Incorporated by reference to the Company's Annual Report on Form 10-KSB, as
amended, for the transition period ended December 31, 1996.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB,
as amended, for the fiscal quarter ended September 30, 1997.
(9) Previously filed with the Company's Annual Report of Form 10-KSB for the
year ended December 31, 1997 filed on March 27, 1998.
17
<PAGE> 19
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 15,706,374
Prepaid expenses.......................................... 135,789
Deferred costs............................................ 1,580,000
------------
Total current assets................................... 17,422,163
Leasehold improvements and equipment, net of accumulated
amortization of $932,270.................................. 88,914
Deferred costs.............................................. 1,251,500
Patent issuance costs, net of accumulated amortization of
$38,384................................................... 287,590
------------
TOTAL ASSETS........................................... $ 19,050,167
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 629,483
Stockholders' Equity:
Preferred stock, $.05 par value. Authorized 100,000
shares; none issued and outstanding
Common stock, $.001 par value. Authorized 50,000,000
shares; issued 9,855,283 outstanding 9,736,641......... 9,856
Additional paid-in capital................................ 32,318,584
(Deficit) accumulated during the development stage........ (13,464,006)
------------
18,864,434
------------
Less: treasury stock, at cost, 118,642 shares............. (443,750)
------------
Total stockholders' equity............................. 18,420,684
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $ 19,050,167
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-1
<PAGE> 20
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE PERIOD
TRANSITION PERIOD FEBRUARY 15, 1985
YEAR ENDED FEBRUARY 1, 1996 TO (INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- ------------------- -----------------
<S> <C> <C> <C>
SBIR contract revenue....................... $ -- $ -- $ 100,000
Expenses:
SBIR contract research and development.... 86,168
Proprietary research and development...... 1,826,066 1,136,099 9,869,324
General and administrative................ 1,450,828 871,658 4,422,911
----------- ----------- ------------
Total expenses......................... 3,276,894 2,007,757 14,378,403
----------- ----------- ------------
Loss from operations........................ (3,276,894) (2,007,757) (14,278,403)
Other income................................ -- -- 1,512
Interest income............................. 185,642 44,880 1,006,598
Interest expense............................ (153,074) -- (193,713)
----------- ----------- ------------
Loss before income taxes.................... (3,244,326) (1,962,877) (13,464,006)
Income taxes -- -- --
----------- ----------- ------------
Net loss............................... $(3,244,326) $(1,962,877) $(13,464,006)
=========== =========== ============
Basic and diluted net loss per share........ $ (1.03) $ (2.49) $ (30.95)
Weighted average common shares
outstanding............................... 3,141,827 787,451 435,034
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE> 21
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(DEFICIT)
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TREASURY STOCK
--------------------- PAID-IN DEVELOPMENT ------------------- DEFERRED
SHARES PAR VALUE CAPITAL STAGE SHARES COST COMPENSATION
------ --------- ---------- ----------- ------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued for cash in
February 1985 at $1.50 per
share........................ 667 $ 1 $ 999 $ -- -- $ -- $ --
Net earnings for the period
from February 15, 1985 to
January 31, 1996............. -- -- -- 6,512 -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1986.... 667 1 999 6,512 -- -- --
Common stock issued for cash in
October 1986 at $750.00 per
share........................ 666 1 499,999 -- -- -- --
Excess of fair market value
over option Price of
non-qualified stock option
granted...................... -- -- 13,230 -- -- -- --
Net (loss) for the year........ -- -- -- (34,851) -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1987.... 1,333 2 514,228 (28,339) -- -- --
Common stock issued in May 1987
at $750.00 per share for
legal services performed for
the company.................. 7 -- 5,000 -- -- -- --
Net proceeds from initial
public stock offering in June
1987 at $6,000.00 per share,
less issuance costs.......... 333 -- 1,627,833 -- -- -- --
Non-qualified stock options
exercised.................... 48 -- 33,808 -- -- -- (28,188)
Amortization of deferred
compensation................. -- -- -- -- -- -- 7,425
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- -- 75,063 -- -- -- --
Net (loss) for the year........ -- -- -- (627,652) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1988.... 1,721 2 2,255,932 (655,991) -- -- (20,763)
Non-qualified stock options
exercised.................... 18 -- 256 -- -- -- --
Stock warrants exercised....... 1 -- 12,000 -- -- -- --
Common stock redeemed and
retired...................... (10) -- (150) -- -- -- --
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- -- 36,524 -- -- -- --
Amortization of deferred
compensation................. -- -- -- -- -- -- 19,113
Net (loss) for the year........ -- -- -- (1,092,266) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1989 --
FORWARD...................... 1,730 2 2,304,562 (1,748,257) -- -- (1,650)
<CAPTION>
TOTAL
NOTE STOCKHOLDERS
RECEIVABLE EQUITY
---------- ------------
<S> <C> <C>
Common stock issued for cash in
February 1985 at $1.50 per
share........................ $ -- $ 1,000
Net earnings for the period
from February 15, 1985 to
January 31, 1996............. -- 6,512
-------- -----------
BALANCE -- JANUARY 31, 1986.... -- 7,512
Common stock issued for cash in
October 1986 at $750.00 per
share........................ -- 500,000
Excess of fair market value
over option Price of
non-qualified stock option
granted...................... -- 13,230
Net (loss) for the year........ -- (34,851)
-------- -----------
BALANCE -- JANUARY 31, 1987.... -- 485,891
Common stock issued in May 1987
at $750.00 per share for
legal services performed for
the company.................. -- 5,000
Net proceeds from initial
public stock offering in June
1987 at $6,000.00 per share,
less issuance costs.......... -- 1,627,833
Non-qualified stock options
exercised.................... -- 5,620
Amortization of deferred
compensation................. -- 7,425
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- 75,063
Net (loss) for the year........ -- (627,652)
-------- -----------
BALANCE -- JANUARY 31, 1988.... -- 1,579,180
Non-qualified stock options
exercised.................... -- 256
Stock warrants exercised....... -- 12,000
Common stock redeemed and
retired...................... -- (150)
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- 36,524
Amortization of deferred
compensation................. -- 19,113
Net (loss) for the year........ -- (1,092,266)
-------- -----------
BALANCE -- JANUARY 31, 1989 --
FORWARD...................... -- 554,657
</TABLE>
F-3
<PAGE> 22
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
(DEFICIT)
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TREASURY STOCK
--------------------- PAID-IN DEVELOPMENT ------------------- DEFERRED
SHARES PAR VALUE CAPITAL STAGE SHARES COST COMPENSATION
------ --------- ---------- ----------- ------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 31, 1989 --
FORWARD...................... 1,730 $ 2 $ 2,304,562 $ (1,748,257) -- $ -- $ (1,650)
Non-qualified stock options
exercised.................... 71 -- 1,060 -- -- -- --
Common stock redeemed and
retired...................... (12) -- (175) -- -- -- --
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- -- 113,037 -- -- -- --
Net proceeds from secondary
public stock offering in
April 1989 at $525.00 per
share, less issuance cost.... 2,174 2 980,178 -- -- -- --
Amortization of deferred
compensation................. -- -- -- -- -- -- 1,650
Net (loss) for the year........ -- -- -- (1,129,477) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1990.... 3,963 4 3,398,662 (2,877,734) -- -- --
Common stock issued for cash in
October 1990 through January
1991 at $9.00 per share...... 5,694 6 51,244 -- -- -- --
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- -- 30,635 -- -- -- --
Net (loss) for the year........ -- -- -- (854,202) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1991.... 9,657 10 3,480,541 (3,731,936) -- -- --
Common stock issued for cash in
February 1991 through April
1991 at $9.00 per share...... 2,772 3 24,947 -- -- -- --
Common stock issued for cash
and services in November 1991
at $1.50 per share........... 15,333 15 22,985 -- -- -- --
Common stock issued for cash
and note in December 1991 at
$0.75 per share.............. 296,949 297 200,018 -- -- -- --
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- -- 16,570 -- -- -- --
Non-qualified stock options
exercised.................... 1 -- 1 -- -- -- --
Net (loss) for the year........ -- -- -- (410,149) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1992.... 324,712 325 3,745,062 (4,142,085) -- -- --
Payment on note receivable..... -- -- -- -- -- -- --
Net proceeds from secondary
public stock offering in
August 1992 at $112.50 per
share, less issuance costs... 66,666 66 6,230,985 -- -- -- --
Non-qualified stock options
exercised.................... 2,000 2 28 -- -- -- --
Net (loss) for the year........ -- -- -- (564,173) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1993 --
FORWARD...................... 393,378 393 9,976,075 (4,706,258) -- -- --
<CAPTION>
TOTAL
NOTE STOCKHOLDERS
RECEIVABLE EQUITY
---------- ------------
<S> <C> <C>
BALANCE -- JANUARY 31, 1989 --
FORWARD...................... $ -- $ 554,657
Non-qualified stock options
exercised.................... -- 1,060
Common stock redeemed and
retired...................... -- (175)
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- 113,037
Net proceeds from secondary
public stock offering in
April 1989 at $525.00 per
share, less issuance cost.... -- 980,180
Amortization of deferred
compensation................. -- 1,650
Net (loss) for the year........ -- (1,129,477)
-------- -----------
BALANCE -- JANUARY 31, 1990.... -- 520,932
Common stock issued for cash in
October 1990 through January
1991 at $9.00 per share...... -- 51,250
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- 30,635
Net (loss) for the year........ -- (854,202)
-------- -----------
BALANCE -- JANUARY 31, 1991.... -- (251,385)
Common stock issued for cash in
February 1991 through April
1991 at $9.00 per share...... -- 24,950
Common stock issued for cash
and services in November 1991
at $1.50 per share........... -- 23,000
Common stock issued for cash
and note in December 1991 at
$0.75 per share.............. (50,315) 150,000
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- 16,570\
Non-qualified stock options
exercised.................... -- 1
Net (loss) for the year........ -- (410,149)
-------- -----------
BALANCE -- JANUARY 31, 1992.... (50,315) (447,013)
Payment on note receivable..... 11,300 11,300
Net proceeds from secondary
public stock offering in
August 1992 at $112.50 per
share, less issuance costs... -- 6,231,051
Non-qualified stock options
exercised.................... -- 30
Net (loss) for the year........ -- (564,173)
-------- -----------
BALANCE -- JANUARY 31, 1993 --
FORWARD...................... (39,015) 5,231,195
</TABLE>
F-4
<PAGE> 23
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
(DEFICIT)
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TREASURY STOCK
--------------------- PAID-IN DEVELOPMENT ------------------- DEFERRED
SHARES PAR VALUE CAPITAL STAGE SHARES COST COMPENSATION
------ --------- ---------- ----------- ------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 31, 1993 --
FORWARD...................... 393,378 $ 393 $ 9,976,075 $ (4,706,258) -- $ -- $ --
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- -- 126,000 -- -- -- (126,000)
Amortization of deferred
compensation................. -- -- -- -- -- -- 40,750
Non-qualified stock options
exercised.................... 67 -- 57 -- -- -- --
Collection of note
receivable................... -- -- -- -- -- -- --
Net (loss) for the year........ -- -- -- (1,012,882) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1994.... 393,445 393 10,102,132 (5,719,140) -- -- (85,250)
Acquisition of treasury
stock........................ -- -- -- -- 41,975 (300,000) --
Forfeiture of non-qualified
stock options granted........ -- -- (22,402) -- -- -- 22,402
Amortization of deferred
compensation................. -- -- -- -- -- -- 49,348
Net (loss) for the year........ -- -- -- (1,349,678) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1995.... 393,445 393 10,079,730 (7,068,818) 41,975 (300,000) (13,500)
Acquisition of treasury
stock........................ -- -- -- -- 76,667 (143,750) --
Forfeiture of non-qualified
stock options granted........ -- -- (1,379) -- -- -- 1,379
Amortization of deferred
compensation................. -- -- -- -- -- -- 12,121
Net (loss) for the year........ -- -- -- (1,187,985) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- JANUARY 31, 1996.... 393,445 393 10,078,351 (8,256,803) 118,642 (443,750) --
Common stock issued at $0.975
per share.................... 333,333 333 324,667 -- -- -- --
Common stock issued at $3.00
per share.................... 333,333 333 999,667 -- -- -- --
Non-qualified stock options
exercised.................... 145,283 146 379,003 -- -- -- --
Net (loss) for the period...... -- -- -- (1,962,877) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- DECEMBER 31, 1996... 1,205,394 1,205 11,781,688 (10,219,680) 118,642 (443,750) --
Warrants exercised at $1.20 per
share........................ 1,173 1 1,407 -- -- -- --
Proceeds on exercise of stock
options...................... -- -- 5,000 -- -- -- --
Warrants issued................ 5,407,546
Net proceeds from private
placement at $2.3125 per
share, less issuance cost.... 8,648,718 8,650 15,122,943 -- -- -- --
Net (loss) for the year........ -- -- -- (3,244,326) -- -- --
--------- ------ ----------- ------------ ------- --------- ---------
BALANCE -- DECEMBER 31, 1997... 9,855,285 $9,856 $32,318,584 $(13,464,006) 118,642 $(443,750) $ --
========= ====== =========== ============ ======= ========= =========
<CAPTION>
TOTAL
NOTE STOCKHOLDERS
RECEIVABLE EQUITY
---------- ------------
<S> <C> <C>
BALANCE -- JANUARY 31, 1993 --
FORWARD...................... $(39,015) $ 5,231,195
Excess of fair market value
over option price of
non-qualified stock options
granted...................... -- --
Amortization of deferred
compensation................. -- 40,750
Non-qualified stock options
exercised.................... -- 57
Collection of note
receivable................... 39,015 39,015
Net (loss) for the year........ -- (1,012,882)
-------- -----------
BALANCE -- JANUARY 31, 1994.... -- 4,298,135
Acquisition of treasury
stock........................ -- (300,000)
Forfeiture of non-qualified
stock options granted........ -- --
Amortization of deferred
compensation................. -- 49,348
Net (loss) for the year........ -- (1,349,678)
-------- -----------
BALANCE -- JANUARY 31, 1995.... -- 2,697,805
Acquisition of treasury
stock........................ -- (143,750)
Forfeiture of non-qualified
stock options granted........ -- --
Amortization of deferred
compensation................. -- 12,121
Net (loss) for the year........ -- (1,187,985)
-------- -----------
BALANCE -- JANUARY 31, 1996.... -- 1,378,191
Common stock issued at $0.975
per share.................... -- 325,000
Common stock issued at $3.00
per share.................... -- 1,000,000
Non-qualified stock options
exercised.................... -- 379,149
Net (loss) for the period...... -- (1,962,877)
-------- -----------
BALANCE -- DECEMBER 31, 1996... -- 1,119,463
Warrants exercised at $1.20 per
share........................ -- 1,408
Proceeds on exercise of stock
options...................... -- 5,000
Warrants issued................ 5,407,546
Net proceeds from private
placement at $2.3125 per
share, less issuance cost.... -- 15,131,593
Net (loss) for the year........ -- (3,244,326)
-------- -----------
BALANCE -- DECEMBER 31, 1997... $ -- $18,420,684
======== ===========
</TABLE>
F-5
<PAGE> 24
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE PERIOD
TRANSITION PERIOD FEBRUARY 15, 1985
YEAR ENDED FEBRUARY 1, 1996 (INCEPTION)
DECEMBER 31, 1997 TO DECEMBER 31, 1996 TO DECEMBER 31, 1997
----------------- -------------------- --------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss)................................................ $(3,244,326) $(1,962,877) $(13,464,006)
Adjustments to Reconcile Net (loss) to Net Cash Used in
Operating Activities:
Depreciation and Amortization........................... 71,311 151,293 981,751
Amortization of Deferred Compensation................... 131,786
Excess of Fair Market value over option price on
Non-Qualified Stock Options........................... 245,000 528,680
Amortization of fair value of warrants.................. 476,046 476,046
Gain on Sale of Assets.................................. (740)
Write off Patent Issuance Cost.......................... 101,006
Changes in Assets and Liabilities:
Prepaid Expenses...................................... (90,035) (1,448) (135,790)
Accounts Payable and Accrued Expenses................. 502,643 69,357 719,452
----------- ----------- ------------
Total Adjustments.................................. 959,965 464,202 2,802,191
----------- ----------- ------------
NET CASH USED IN OPERATING ACTIVITIES....................... (2,284,361) (1,498,675) (10,661,815)
----------- ----------- ------------
INVESTING ACTIVITIES:
Patent Issuance Cost...................................... (94,307) (39,870) (427,050)
Organizational Costs Incurred............................. (135)
Deposit on Leasehold Improvements......................... (5,000)
Purchases of Leasehold Improvements....................... (414,671)
Purchases of Office and Lab Equipment..................... (58,866) (36,817) (612,665)
Proceeds from Assets Sold................................. 1,000
----------- ----------- ------------
NET CASH USED IN INVESTING ACTIVITIES....................... (153,173) (76,687) (1,458,521)
----------- ----------- ------------
FINANCING ACTIVITIES:
Net Proceeds from Issuance of Common Stock................ $17,233,001 $ 1,325,000 $ 28,152,877
Proceeds from Exercise of Options......................... 5,000 134,149 139,236
Proceeds from Borrowings from President................... 41,433
Repayment of Borrowings from President.................... (41,433)
Proceeds from Borrowings Under Line of Credit............. 362,490 662,490
Repayment of Borrowings Under Line of Credit.............. (362,490) (662,490)
Proceeds from Note Payable to Bank........................ 150,000
Payments on Note Payable to Bank.......................... (150,000)
Proceeds from Borrowings from Stockholders................ 15,867
Repayment of Borrowings from Stockholders................. (15,867)
Advances from Parent Company.............................. 135,000
Payments to Parent Company................................ (135,000)
Repayment of Long-Term Note Receivable.................... 50,315
Repayment of Note Payable Issued in Exchange for Legal
Service................................................. (71,968)
Purchase of Treasury Stock................................ (443,750)
----------- ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 17,238,001 1,459,149 27,826,710
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 14,800,467 (116,213) 15,706,374
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIODS........... 905,907 1,022,120
----------- ----------- ------------
CASH AND CASH EQUIVALENTS -- END OF PERIODS................. $15,706,374 $ 905,907 $ 15,706,374
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid for interest...................................... $ 5,529 $ 46,177
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 25
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
BASIS OF PRESENTATION -- Endorex Corp. and Subsidiaries [the "Company"] was
incorporated in January 1987 as ImmunoTherapeutics, Inc, a wholly-owned
subsidiary of Biological Therapeutics, Inc. ["BTI"]. BTI was incorporated on
December 19, 1984 and commenced operations on February 15, 1985 [inception
date]. On March 30, 1987, BTI was merged into the Company. The financial
statements of the Company include the accounts of its predecessor, BTI, for all
periods presented. In October 1996, the Company formed its majority owned
subsidiary, Orasomal Technologies, Inc. ("Orasomal") and in July 1997, the
Company formed another majority owned subsidiary, Wisconsin Genetics, Inc.
("WGI"). On January 31, 1997, the Company changed its fiscal year end from
January 31 to December 31. The accompanying prior period financial statements
reflect the transition period from February 1, 1996 to December 31, 1996.
NATURE OF BUSINESS -- The Company is involved in oral drug delivery and
cancer therapy. Orasomal licensed technology from Massachusetts Institute of
Technology (MIT) that is being developed to deliver vaccines, proteins and
peptides. In 1998, Endorex formed a joint venture with Elan Corporation, plc to
develop oral and mucosal delivery systems for human and animal vaccines. WGI is
starting Phase II clinical trials for novel cancer therapy based on
monoterpenes. Endorex is presently developing two drugs for cancer and
infectious disease: an immunomodulator and an immuno-adjuvant for vaccines.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include Endorex Corp. and its subsidiaries, Orasomal and WGI. Intercompany
accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS -- Cash equivalents are comprised of certain
highly liquid investments with maturity of three months or less when purchased.
OFFICE AND LAB EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Office, lab
equipment and leasehold improvements are stated at cost. Depreciation is
computed on the straight-line basis over five years. Leasehold improvements are
amortized utilizing the straight-line method over the term of the lease.
RESEARCH AND DEVELOPMENT COSTS -- Expenditures for research and development
activities are charged to operations as incurred.
PATENT ISSUANCE COSTS -- The cost of patents is accumulated during the
approval process. Patents granted are amortized on a straight-line basis over 20
years from the application date or the estimated remaining economic life. When a
patent is not granted or when commercialization of the product or process is no
longer actively pursued, the accumulated cost is charged to operations.
IMPAIRMENT OF LONG-LIVED ASSETS -- In the event that facts and
circumstances indicate that the cost of any long-lived assets may be impaired,
an evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the asset
would be compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow is required.
REVERSE STOCK SPLIT -- On June 11, 1997, the Company effected a
one-for-fifteen reverse stock split of its common stock. All share and per share
amounts have been adjusted to reflect such reverse stock split.
INCOME TAXES -- Deferred taxes reflect the future tax consequences
associated with the differences between financial accounting and tax bases of
assets and liabilities.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments that potentially
subject the Company to concentrations of credit risk are limited to cash and
cash equivalents.
F-7
<PAGE> 26
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RISK AND UNCERTAINTIES -- The Company is subject to risks common to
companies in the biotechnology industry, including, but not limited to,
litigation, product liability, development by the Company or its competitors of
new technological innovations, dependence on key personnel, protection of
proprietary technology, and compliance with FDA regulations.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information". In February 1998, FASB issued SFAS No. 132 "Employers' Disclosure
about Pensions and Other Postretirement Benefits." The Company has not
determined the effect of the adoption of these pronouncements.
3. DEVELOPMENT STAGE ACTIVITIES AND OPERATIONS
For the period from its incorporation to date, the Company has been a
"development stage enterprise" and the Company's operations have consisted
primarily of financial planning, raising capital, and research and development
activities. The Company has not produced any revenues from product sales since
its inception.
4. REVENUE RECOGNITION
In fiscal 1987, the Company was awarded two Phase I Small Business
Innovation and Research ["SBIR"] contracts amounting to $50,000 each. Revenue
related to such contracts has been recorded in the period in which the contract
revenue was earned based upon the terms of the contracts. The U.S. Government
has the right to use the products developed with the above funding for its
internal use only. Expenses directly related to performing research under the
SBIR contracts have been included in SBIR contract research and development
expense in the accompanying statements of operations.
5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
As of December 31, 1997, leasehold improvements and equipment consisted of
the following:
<TABLE>
<S> <C>
Leasehold improvements...................................... $ 414,670
Laboratory equipment........................................ 521,129
Office equipment............................................ 85,385
----------
1,021,184
Accumulated depreciation.................................... (932,270)
----------
$ 88,914
==========
</TABLE>
Depreciation expense was $63,045 and $127,302 for the periods ended
December 31, 1997 and 1996, respectively.
6. LINE OF CREDIT
On May 19, 1997, the Company entered into a senior line of credit agreement
with Aries Fund, a Cayman Island Trust, and the Aries Domestic Fund, L.P., a
Delaware limited partnership ("The Aries Trust" and the "Aries Domestic Fund,
L.P." are collectively referred to as "Aries"), two of its major stockholders,
F-8
<PAGE> 27
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pursuant to which the Company could borrow up to $500,000 (the "Loan"). The Loan
accrued interest at the rate of 12% per annum and was due and payable on August
19, 1997. In partial consideration of the Loan, the Company granted warrants to
purchase an aggregate of 66,668 shares of Common Stock at an initial exercise
price equal to the offering price of the Company's private placement. In
connection with the issuance of these warrants, the Company recognized
additional interest expense and an increase to Additional paid-in capital of
$147,546 based on the fair value of the warrants using the Black-Scholes model.
The exercise price of such warrants and the number of shares of common stock
purchasable thereunder are subject to adjustment in certain circumstances. Such
warrants are exercisable from May 19, 1997 until May 19, 2002. On July 18, 1997,
the Company paid the outstanding principal and interest on the Bridge Loan.
7. STOCKHOLDERS' EQUITY
Pursuant to a Private Placement, the Company issued and sold an aggregate
of 8,648,718 shares of Common Stock on July 16, October 10 and October 16, 1997
to certain accredited investors. The aggregate gross proceeds of these issuances
were $20 million and the net proceeds to the Company after deducting commissions
and expenses were $17,233,001.
On June 13, 1996, Dominion Resources, Inc. ("Dominion") entered into an
agreement with Aries, with the Company a party to the agreement, whereby
Dominion sold and Aries purchased an aggregate of 266,667 shares of the
Company's Common Stock at a price of $1.50 per share. The purchase price was
paid from Aries' general funds. As part of the transaction, Dominion transferred
to Aries certain of its rights under the aforementioned March 1, 1996 agreement
including, among others, the right to designate a Director of the Company and
rights to have the shares registered under the Securities Act of 1933, as
amended. Also concurrently with the completion of the transaction, the Company
redeemed its outstanding rights under the Shareholders Rights Agreement dated as
of September 23, 1994. On June 26, 1996, Aries purchased from the Company an
additional 333,333 shares of the Company's Common Stock at a price of $3.00 per
share or an aggregate of $1,000,000. The purchase price was paid from Aries'
general funds. The purchase agreement relating to such shares contains various
representations and warranties concerning the Company and its activities and
also various affirmative and negative covenants. The purchase agreement grants
to Aries the right to have registered under the Securities Act of 1933, as
amended, the shares sold to Aries to enable the public offer and sale of those
shares. The agreement restricts the Company from entering into mergers,
acquisitions, or sales of its assets without the prior approval of Aries.
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
Dominion pursuant to which Dominion agreed to purchase and the Company agreed to
sell 333,333 shares of the Company's Common Stock at a purchase price per share
of $.975 or an aggregate purchase price of $325,000. Such shares were sold in
three approximately equal installments at closings held on March 18, April 15,
and May 15, 1996.
WARRANTS -- In connection with the Private Placement, the Company issued
warrants to purchase 864,865 shares of Common Stock at an exercise price of
$2.54375 per share to Paramount Capital, Inc., the Placement Agent ("Paramount")
and certain of its affiliates and employees. The estimated fair value at grant
date of the warrants was $2.1 million, which has been recorded as a
reclassification of Additional paid-in capital. The Company also executed a
financial advisory agreement with Paramount. In connection with the financial
advisory agreement, the Company issued warrants to purchase 1,297,297 shares of
common stock at an exercise price of $2.54375 per share to certain employees of
Paramount. The estimated fair value at grant date of the warrants was $3.16
million, which has been recorded as Additional paid-in capital. The $3.16
million has been recorded as a deferred cost and is being amortized to expense
over two years, the term of the agreement. The warrants are exercisable after
April 16, 1998 and expire on April 16, 2003.
On June 17, 1991, the Company issued an aggregate 2,345 five-year common
stock purchase warrants at an exercise price of $9.00 per share. In June 1996,
the warrants were extended to June 16, 1997 and the
F-9
<PAGE> 28
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercise price was adjusted to $1.20 per share. Of these warrants, 1,173 were
exercised during 1997 prior to the expiration of the remaining warrants on June
16, 1997. In connection with the Company's secondary public offering on August
13, 1992, the Company issued 66,667 five-year common stock purchase warrants at
an exercise price of $112.50. 27,530 of these warrants were acquired and retired
by the Company in connection with its acquisition of treasury stock. The
warrants expired on August 13, 1997.
Net [Loss] Per Share -- On October 1, 1997, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Earnings
per share have been presented on the Consolidated Statement of Operations in
accordance with SFAS No. 128 for the current and prior periods. As operations
resulted in a net loss for all periods presented, diluted earnings per share are
the same as basic earnings per share due to the antidilutive effect of potential
dilutive common shares, including warrants discussed above and stock options
discussed in Note 8. The net [loss] per share is computed by dividing the net
loss by the weighted average number of shares outstanding during the period as
follows:
<TABLE>
<CAPTION>
FOR THE TRANSITION PERIOD
ENDED DECEMBER 31, 1996
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net loss................................... $(1,962,877)
Less: Preferred Stock Dividends............ --
-----------
BASIC AND DILUTED EPS
Income available to common stockholders.... $(1,962,877) 787,451 $(2.49)
=========== ======= ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31, 1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net loss................................... $(3,244,326)
Less: Preferred Stock Dividends............ --
-----------
BASIC AND DILUTED EPS
Income available to common stockholders.... $(3,244,326) 3,141,827 $(1.03)
=========== ========= ======
</TABLE>
8. STOCK BASED COMPENSATION
On October 21, 1997, the Board of Directors approved the Amended and
Restated 1995 Omnibus Plan (the "Plan"), subject to shareholder approval at the
1998 Annual Meeting. The Plan incorporates the Company's original 1995 Omnibus
Plan, the existing 1994 Non-Employee Stock Option Plan and the Incentive Stock
Option Plan (collectively, the "Predecessor Plans") so that the Plan will serve
as successor to those plans. The Plan also reserved 1,500,000 shares of common
stock available for issuance, subject to shareholder approval at the 1998 Annual
Meeting.
The Plan is intended to promote the interests of the Company, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Company as an incentive
for them to remain in the service of the Company. The Plan is divided into four
separate equity programs: (i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock, (ii) the Salary Investment Option
Grant Program under which eligible employees may elect to have a portion of
their base salary invested each year in options to purchase shares of Common
Stock, (iii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive options at periodic
F-10
<PAGE> 29
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
intervals to purchase shares of Common Stock, and (iv) the Director Fee Option
Grant Program under which non-employee Board members may elect to have all or
any portion of their annual retainer fee otherwise payable in cash applied to a
special option grant.
The terms of the options, including vesting periods, are determined by the
Compensation Committee of the Board of Directors in accordance with the Plan.
Options generally vest over four years. No one person participating in the Plan
may receive options and separately exercisable stock appreciation rights for
more than 750,000 shares of Common Stock per calendar year.
The Company has elected the disclosure-only option under Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" and accordingly accounts for stock options per the terms of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Had compensation expense for stock options been determined based
upon the fair value at the grant date accordingly to the terms of SFAS No. 123,
the Company's net loss would have been increased by approximately $3.3 million
and $350,000, for 1997 and 1996, respectively, and net loss and net loss per
share would have increased as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Net loss: As reported.............. $(3,244,326) $(1,962,877)
Pro forma................ (6,544,326) (2,312,877)
Basic and diluted
net loss per
share: As reported.............. $(1.03) $(2.49)
Pro forma................ (2.08) (2.93)
</TABLE>
The effects of applying SFAS No. 123 are not likely to be representative of the
effects disclosed in future years because the pro forma calculations exclude
stock options granted before 1995.
The weighted average fair value of options granted with an exercise price
equal to the fair market value of the stock was $2.54 and $0.98 for 1997 and
1996, respectively.
For purposes of estimating the fair value of options according to SFAS 123,
the fair value of each option grant is estimated as of the date of the grant
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used: dividend yield 0%, volatility of 187% and 167%, expected
life of four (4) years and five (5) years, and risk-free interest rate of 6.0%
and 6.2% for 1997 and 1996, respectively.
Option activity for the periods ended December 31, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
EXERCISE PRICE SHARES
-------------- ------
<S> <C> <C>
Balance at January 31, 1996............................ $ 1.545 43,384
Granted................................................ 5.955 213,333
Expired/Cancelled...................................... 0.960 (1,807)
Exercised.............................................. 0.960 (145,282)
------- ---------
Ending Balance at December 31, 1996.................... $11.220 109,627
------- ---------
Granted................................................ 2.681 1,285,834
Expired/Cancelled...................................... 12.369 (95,347)
Exercised..............................................
------- ---------
Ending Balance at December 31, 1997.................... $ 2.660 1,300,114
======= =========
</TABLE>
F-11
<PAGE> 30
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The range of exercise prices and weighted average contractual lives as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE SHARES TERM EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- ------ ---- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.050........................ 15,409 6.99 years $ 1.050 8.742 $ 1.050
2.469........................ 1,192,500 9.81 2.469 145,000 2.469
3.750........................ 1,524 5.82 3.750 1,524 3.750
4.750........................ 35,000 9.97 4.750 -- --
5.500........................ 20,000 9.97 5.500 10,000 5.500
5.625........................ 35,000 9.92 5.625 -- --
18.200........................ 667 8.61 18.200 667 18.200
525.000........................ 14 11.70 525.000 14 525.000
--------- ----- -------- ------- --------
1,300,114 9.78 years $ 2.660 165,947 $ 2.696
========= ===== ======== ======= ========
</TABLE>
9. INCOME TAXES
At December 31, 1997, the Company had a useable net operating loss
carryforward of approximately $5,224,000 after limitations based on changes in
ownership. If not utilized to offset future taxable income, this carryforward
will expire in years 2007 to 2012. In addition, the Company has research and
development tax credit carryforwards of approximately $322,000 which expire
between 2004 and 2011. Pursuant to SFAS No. 109, the Company has deferred taxes
as of December 31, 1997 consisting of the following:
<TABLE>
<S> <C>
Net operating loss carryforward............................. $ 1,776,005
Research & development credit carryforward.................. 322,156
Depreciation................................................ 132,185
-----------
Gross deferred tax assets................................... 2,230,346
Valuation allowance......................................... (2,230,346)
-----------
Net deferred tax assets..................................... $ --
===========
</TABLE>
Due to the uncertainty that the Company will generate income in the future
sufficient to fully or partially utilize these carryovers, a valuation allowance
of $2,230,346 has been established to offset this asset. This represents an
increase of $1,167,346 over the valuation allowance at December 31, 1996.
10. LEASES
At December 31, 1997, the Company leased its executive offices and research
facilities under operating leases which provide for annual minimum rent and
additional rent based on increases in operating costs and real estate taxes.
Future minimum lease payments for operating leases are as follows:
<TABLE>
<S> <C>
1998........................................................ $129,611
1999........................................................ 82,332
2000........................................................ 64,924
</TABLE>
Rent expense totaled $68,814 and $43,288 for the years ended December 31,
1997 and 1996.
F-12
<PAGE> 31
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENT
On December 31, 1997, the Company executed a binding letter of intent with
Elan Corporation, Plc ("Elan"), for the exclusive research, development and
commercialization of oral and mucosal vaccines. The closing of the transactions
contemplated by the letter of intent occurred as of January 21, 1998.
At the time of closing, Endorex issued to Elan International Services, Ltd.
("EIS") (i) 307,692 shares of Endorex common stock at $6.50 per share and a
six-year warrant to purchase an additional 230,777 shares of Endorex common
stock at an exercise price of $10.00 per share for an aggregate purchase price
of $2,000,000. In addition, EIS purchased $8.01 million of Endorex Series B
Convertible Redeemable Preferred Stock, which is convertible into Endorex common
stock at a price of $7.50 per share. The Series B Convertible Preferred Stock
pays an 8% annual in-kind dividend.
The project will be conducted in a joint venture company that is initially
owned 80.1% by Endorex and 19.9% by EIS. The new company has licensed certain
technology from Elan and certain other technology from Orasomal. Endorex has
invested $8.01 million in the joint venture and Elan has invested $1.99 million.
Elan received an initial $10 million license payment from the joint
venture, and may receive future milestones and royalties based on the joint
venture's performance. Since the technology does not yet represent a commercial
product, the joint venture will record an expense in the first quarter of 1998
for the initial license fee paid to Elan. Endorex will consolidate its $8.01
million share of that expense and will simultaneously record Elan's purchase of
$8.01 million of Endorex Series B Convertible Preferred Stock.
Orasomal will license oral vaccine rights to its proprietary Orasome(TM)
polymerized liposome technology exclusively licensed from Massachusetts
Institute of Technology (MIT). In consideration of the license, Orasomal will
receive milestone payments and warranties.
Elan and Endorex will each contribute equally towards funding R&D
activities in the first year, and will thereafter fund future joint venture
expenditures in proportion to their respective ownership levels.
F-13
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Endorex Corp.
(A Development Stage Enterprise):
We have audited the accompanying consolidated balance sheet of Endorex
Corp. (the "Company") (a development stage enterprise) as of December 31, 1997
and the related consolidated statements of operations stockholders' equity, and
cash flows for the year then ended, the period from February 1, 1996 through
December 31, 1996 and the period cumulative from inception (February 15, 1985)
to December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Endorex Corp. as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended, the period from February
1, 1996 through December 31, 1996 and the period cumulative from inception
(February 15, 1985) to December 31, 1997, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 6, 1998
F-14
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Village of Lake Bluff,
State of Illinois, on July 29, 1998.
ENDOREX CORP.
By: /s/ MICHAEL S. ROSEN
------------------------------------
Michael S. Rosen
President and Chief Executive
Officer, and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Village of Lake Bluff,
State of Illinois, on July 29, 1998.
<TABLE>
<S> <C> <C>
By: /s/ MICHAEL S. ROSEN President, Chief Executive Officer, and
------------------------------------------- Director
Michael S. Rosen
By: /s/ DAVID G. FRANCKOWIAK Vice President, Finance and Administration
------------------------------------------- (Principal Financial and Accounting
David G. Franckowiak Officer)
By: * Director
-------------------------------------------
Richard Dunning
By: Director
-------------------------------------------
Steve H. Kanzer
By: * Director
-------------------------------------------
Paul D. Rubin
By: * Director
-------------------------------------------
H. Laurence Shaw
By: * Director
-------------------------------------------
Andrew Stein
By: * Director
-------------------------------------------
Steve Thornton
By: * Director
-------------------------------------------
Kenneth Tempero
*By: /s/ DAVID G. FRANCKOWIAK
-------------------------------------------
David G. Franckowiak
Attorney-in-fact
</TABLE>
F-15
<PAGE> 1
EX. 10.16
CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR
PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 24B-2
UNDER THE SECURITIES EXCHANGE AC TO 1934, AS AMENDED.
JOINT DEVELOPMENT AND OPERATING AGREEMENT, made as of
January 21, 1998 by and among ELAN CORPORATION, PLC, a public limited
company incorporated under the laws of Ireland ("Elan"), ELAN
INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS"), ENDOREX
CORP., a Delaware corporation ("Endorex"), ORASOMAL TECHNOLOGIES, INC.
a Delaware corporation ("Orasomal"), and ENDOREX VACCINE DELIVERY
TECHNOLOGIES, INC., a Delaware corporation (the "Company").
RECITALS
A. Orasomal has proprietary know-how and expertise relating, inter alia,
to immunology and is knowledgeable in the discovery, research,
development, manufacture and marketing of pharmaceutical formulations
capable of delivering drugs, including oral or mucosal Vaccine
delivery. Orasomal owns or has licensed the Orasomal Technology.
Orasomal also owns and uses certain trademarks in connection with the
manufacture, marketing and sale of such compounds, including the
Orasomal Trademarks.
B. Elan is knowledgeable in the discovery, research, development,
manufacture and marketing of pharmaceutical formulations capable of
delivering drugs, including oral or mucosal Vaccine delivery. Elan owns
or has licensed the Elan Technology. Elan also owns and uses certain
trademarks in connection with the manufacture, marketing and sale of
such compounds, including the Elan Trademarks.
C. EIS and Endorex have, as of the date hereof, subscribed for the initial
share capital of the Company and agreed to co-operate in the management
of its business, which will be to research and develop certain Products
incorporating the technologies developed and/or to be developed by Elan
and Orasomal and to distribute and sell such Products throughout the
world.
D. Elan, EIS, Endorex and Orasomal have agreed to enter into this
Agreement for the purpose of recording the terms and conditions of the
Joint Venture and regulating their relationship with each other and
certain aspects of the affairs of and their dealings with the Company.
<PAGE> 2
AGREEMENT
CLAUSE 1
DEFINITIONS
1.1 In this Agreement, the following expressions shall, where not
inconsistent with the context, have the following meanings
respectively.
"ACQUIRING PARTY" shall have the meaning assigned to it in Clause 9.5;
"ADDITIONAL CAPITAL" means, for each of EIS and Endorex, the amount of
funds, if any, contributed to the Company subsequent to the first
anniversary of the Closing Date;
"AFFILIATE" and "SUBSIDIARY" mean any corporation or entity, other than
the Company, controlling, controlled or under the common control of
Elan or Endorex, as the case may be. For the purposes of this
definition and Clause 17.3, "Control" shall mean direct or indirect
ownership of fifty percent (50%) or more of the stock or shares
entitled to vote for the election of directors;
"AGREED" means agreed by all Parties and confirmed in writing;
"AGREEMENT" means this agreement (which expression shall be deemed to
include the Recitals and the Schedules hereto);
"BUSINESS" means the business of the Company as described in Clause 2
and as more particularly specified in the Business Plan and such other
business as the Parties may agree from time to time in writing should
be carried on by the Company;
"BUSINESS PLAN" means the plans to be prepared and approved by the
Directors, including mutual agreement of the Elan Director and the
Endorex Director, pursuant to Clause 14, in conjunction with the
Research and Development Programs, for the conduct of the Business of
the Company for each Financial Year for the duration of this Agreement
which shall include, in particular, details of the planned budget for
research and development expenses to be incurred in that Financial
Year, for which each of the Participants shall be responsible, and how
such expenses shall be funded;
"CLOSING DATE" means January 21, 1998;
"COMPANY PROGRAM TECHNOLOGY" shall have the meaning assigned to it in
Clause 6.4;
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"COMPANY SUBSCRIPTION AGREEMENT" means the Subscription and
Stockholders' Agreement of Endorex Vaccine Delivery Technologies, Inc.,
made by and between EIS, Endorex and the Company as of the date hereof;
"COST" means, depending upon the context, one of the following:
In the case of the [****], Cost shall comprise, [****]
excluding [****].
In the case of [****], Cost will be calculated, [****],
in accordance with [****] and will exclude [****].
In the case of [****], Cost will comprise the amount
[****], including [****] and [****];
"DIRECTORS" means, collectively, the Elan Director, the Endorex
Director and where applicable, the Independent Director;
"DISPUTE" means, collectively, a Program Dispute and a Management
Dispute, each as defined in Clause 16;
"EFFECTIVE DATE" means December 31, 1997;
"ELAN DIRECTOR" means a director of the Company to be appointed by EIS,
pursuant to the terms of the Company Subscription Agreement;
"ELAN LICENSE AGREEMENT" means the license agreement between Elan and
the Company dated as of the date hereof;
"ELAN OPTION" means the right of Elan, as described in the Company
Subscription and Stockholders Agreement made by and among EIS, Endorex
and the Company, as of the date hereof, whereby Elan may increase its
ownership percentage of Company common stock to 50%;
"ELAN PROGRAM TECHNOLOGY" has the meaning assigned to it in Clause
6.3(i);
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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"ELAN TECHNOLOGY" has the meaning assigned to it in the Elan License
Agreement;
"ENDOREX DIRECTOR" means a director of the Company to be appointed by
Endorex, pursuant to the terms of the Company Subscription Agreement
"ENDOREX OPTION" means the right of Endorex, as described in the
Company Subscription and Stockholders Agreement made by and among EIS,
Endorex and the Company, as of the date hereof to increase its
percentage ownership of Company common stock to 100%;
"EXPERT" shall have the meaning assigned to it in Clause 16.5;
"FDA" means the United States Food and Drug Administration or any
successor agencies, the approval of which is necessary to market a
product in the United States of America or any other relevant
regulatory authority the approval of which is necessary to market a
product in any other country in the Territory;
"FACTOR" means an interest rate of [****] per annum, from and after the
Closing Date;
"FIELD" shall be defined as the research, development, and
commercialization of oral and mucosal delivery technologies for
therapeutic and prophylactic Vaccines for humans and animals;
"FINANCIAL YEAR" means that time period commencing on January 1st and
expiring on December 31st of each calendar year;
"FIRST RIGHT OF NEGOTIATION" shall have the meaning assigned to it in
section 9.5;
"GLP" AND "GMP" means current Good Laboratory Practises and current
Good Manufacturing Practises, respectively;
"INDEPENDENT THIRD PARTY" means any Person other than Elan, EIS,
Endorex, Orasomal or the Company and/or any of their respective
Affiliates and advisors;
"INITIAL FUNDING" means the purchase of Common Stock of the Company
made as of the date hereof, pursuant to the Company Subscription
Agreement;
"KNOW-HOW" means all trade secrets, confidential scientific, technical
and medical information and expertise, technical data and marketing
information, studies and data from time to time developed, produced by
or on behalf of Elan, Orasomal or the Company, as the case may be,
whether before the Effective Date or during the Term including, but not
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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limited to, unpatented inventions, discoveries, theories, plans, ideas
(whether or not reduced to practice) relating to the research and
development, manufacture, registration for marketing, use or sale of
the Product, toxicological, pharmacological, analytical and clinical
data, bioavailability studies, product forms and formulations, control
assays and specifications, methods of preparation and stability data;
"LICENSE AGREEMENTS" means the Elan License Agreement and the Orasomal
License Agreement;
"LISTED COMPANY" means the companies set forth in Schedule 3 and their
respective controlled (as such term is used in the definition of
Affiliates above) subsidiaries;
"ORASOMAL LICENSE AGREEMENT" means the license agreement between
Orasomal and the Company dated as of the date hereof;
"ORASOMAL PROGRAM TECHNOLOGY" has the meaning assigned to it in Clause
6.3(ii);
"ORASOMAL TECHNOLOGY" has the meaning assigned to it in the Orasomal
License Agreement;
"PARTICIPANT" means Endorex or Elan, as the case may be, and
"Participants" means each of the Participants together;
"PARTY" means Elan, EIS, Endorex, Orasomal or the Company, as the case
may be, and "PARTIES" means all or some of them together, as
applicable;
"PATENTS" means all and any patents and any applications therefor in
the Territory (including any and all divisions, continuations,
continuations-in-part, extensions, additions or reissues thereto or
thereof);
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, or other entity of whatever
nature;
"PRODUCT(S)" means [****];
"PROGRAM KNOW-HOW" means all Know-How produced, created or acquired
pursuant to one or more of the Research and Development Programs;
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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"PROGRAM PATENTS" means the inventions and underlying Patents that
constitute the inventions or discoveries that have been or subsequently
may be conceived pursuant to one or more of the Research and
Development Program, or are acquired or licensed by the Company from an
Independent Third Party;
"PROGRAM TECHNOLOGY" means the Program Patents and/or the Program
Know-How;
"PROVIDING PARTY" shall have the meaning assigned to such term in
Clause 4.2;
"R&D COMMITTEE" means the committee established pursuant to
Clause 3.2;
"RESEARCH AND DEVELOPMENT PROGRAM" means, depending on the context, one
or more programs of research and development work being conducted or to
be conducted by, inter alia, Orasomal and Elan for and on behalf of the
Company which have been devised by the R&D Committee and approved by
the Management Committee;
"SHARES" means the common stock of the Company, par value $.01 per
share;
"TECHNOLOGIES" means collectively, the Orasomal Technology together
with the Elan Technology;
"TERRITORY" means the world;
"TERM" shall have the meaning assigned to such word in Clause 17.1;
"THIRD PARTY TECHNOLOGY" shall have the meaning assigned to it in
Clause 9.5;
"UNITED STATES DOLLAR" and "US$" means the lawful currency for the time
being of the United States of America; and
"VACCINES" means a [****] administered to [****] to a specific [****],
including a [****] that is either [****];
1.2 Words importing the singular shall include the plural and vice versa.
1.3 Unless the context otherwise requires, reference to a recital, article,
paragraph, provision, clause or schedule is to a recital, article,
paragraph, provision, clause or schedule of or to
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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this Agreement.
1.4 Reference to a statute or statutory provision includes a reference to
it as from time to time amended, extended or re-enacted.
1.5 The headings in this Agreement are inserted for convenience only and do
not affect its construction.
1.7 Unless the context or subject otherwise requires, references to words
in one gender include references to the other genders.
1.8 References to "include" or "including" shall be construed as examples
only, and in no way be read as limiting.
CLAUSE 2
REPRESENTATIONS AND WARRANTIES
2.1 Each of Elan, EIS, Endorex and Orasomal hereby represents and warrants
to the other that the Shares acquired or to be acquired by it in the
Company will be acquired for its own absolute beneficial ownership and
not on behalf of any other Person.
2.2 Each of Elan, EIS, Endorex and Orasomal hereby represents and warrants
to the other that:
(i) it is duly incorporated under the laws of its place of
incorporation;
(ii) it has full authority and capacity to enter into and perform
its obligations under this Agreement (having obtained all
requisite corporate and governmental approvals);
(iii) it is not engaged in any litigation or arbitration, or in any
dispute or controversy reasonably likely to lead to
litigation, arbitration or any other proceeding, which would
materially affect the validity of this Agreement, the Party's
fulfilment of its respective obligations under this Agreement
or the business of the Company as contemplated herein; and
(iv) this Agreement has been fully authorised, executed and
delivered by it and it has full legal right, power and
authority to enter into and perform this Agreement, which
constitutes a valid and binding agreement between the Parties.
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<PAGE> 8
CLAUSE 3
DIRECTION OF RESEARCH AND DEVELOPMENT
3.1 The Directors shall appoint a management committee (the "MANAGEMENT
COMMITTEE") to perform certain operational functions, such delegation
to be consistent with the Directors' right to delegate powers pursuant
to the Company's Certificate of Incorporation. The Management Committee
shall initially consist of four members, two of whom shall be nominated
by the Elan Director and two of whom shall be nominated by the Endorex
Director, and each of whom shall be entitled to one vote, whether or
not present at any Management Committee meeting during which such
operational functions are discussed. Each of the Elan Director and the
Endorex Director shall be entitled to remove any of their nominees to
the Management Committee and appoint a replacement in place of any
nominees so removed. The number of members of the Management Committee
may be altered if agreed to by the Directors; provided that at all
times during the term of this Agreement, each of the Elan Director and
the Endorex Director shall be entitled to appoint an equal number of
members to the Management Committee.
3.2 The Management Committee shall appoint a research and development
committee (the "R&D COMMITTEE"). The R&D Committee shall initially
consist of four members, with an equal number being nominated by the
nominees of the Elan Director on the Management Committee and by the
nominees of the Endorex Director on the Management Committee, and each
of whom shall have one vote, whether or not present at an R&D Committee
meeting during which research and development issues are discussed. The
nominees of the Elan Director or the nominees of the Endorex Director
shall be entitled to remove any of their nominees to the R&D Committee
and appoint a replacement in place of any nominees so removed. The
number of members of the R&D Committee may be altered if agreed to by
the Management Committee; provided, that at all times during the term
of this Agreement an equal number of members shall be nominated by the
nominees of the Elan Director and by the nominees of the Endorex
Director.
3.3 The Management Committee shall be responsible for, inter alia,
devising, implementing and reviewing strategy for the Business and, in
particular, devising the Company's strategy for research and
development in relation to the Field and to monitor and supervise the
implementation of the Company's strategy for research and development.
3.4 The Management Committee shall report all significant developments to
the Directors on the occurrence thereof and, in addition, shall report
at quarterly intervals to the Directors. Any dispute or deadlock among
the members of the Management Committee shall be
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referred by it to the Directors.
3.5 The R&D Committee shall be responsible for the design of the Research
and Development Programs for consideration by the Management Committee
and the implementation of the Research and Development Programs as
approved by the Management Committee. The R&D Committee shall meet at
regular intervals to monitor the progress of the Research and
Development Programs and to report on their progress to the Management
Committee.
CLAUSE 4
CONDUCT OF RESEARCH AND DEVELOPMENT
4.1. During the 12 month period commencing on the January 1, 1998, each of
Elan and Endorex shall undertake to perform research and development
related to the commercialisation of Products in an amount of
approximately $1.5 million each, as stated in the Business Plan, in
furtherance of the development and cultivation of the Program
Technology. Subsequent to December 31, 1998, Elan and Endorex shall
fund research and development work in accordance with their respective
ownership interest in the Company. The cost of such development work
shall be each Party's respective Cost plus 40%.
4.2. Whenever commercially and technically feasible, the Company shall
contract with Elan or Orasomal, as the case may be, to perform
research, development and experimentation activities for the purpose of
developing the Field and the Products (each, a "PROVIDING PARTY"). In
the event that the Company [****], the Company [****]; provided, that
the [****] is not a [****].
4.3 Subject to the provisions of Clause 4.1, each of Elan and Orasomal
shall, at its respective option, provide such research and development
services in the Field as may reasonably be required by the Company. The
research and development work conducted by the Providing Party for the
Company shall be in accordance with the Research and Development
Program devised by the R&D Committee as approved by the Management
Committee. The Providing Party shall use its reasonable endeavors to
conduct its portion of the Research and Development Program in
accordance with the timetable set out in the Research and Development
Program. The Providing Party shall, in accordance with the terms and
conditions set forth in this Agreement, undertake reasonably diligent
efforts, as would be
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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deemed commensurate with the achievement of its own business aims for
a similar product of its own, to conduct its part of the Research and
Development Program.
4.4 The Research and Development Program(s) shall be directed by the R&D
Committee, subject to the strategic direction of the Management
Committee. In conducting the Research and Development Program(s), the
Providing Party shall co-operate fully with the R&D Committee, the
Management Committee and Orasomal or Elan as the case may be. Each
Providing Party shall maintain the facilities used by it for the
performance of the Research and Development Program in compliance with
the applicable requirements of the FDA and other regulatory
authorities, including GMP and GLP standards.
4.5 The Company may evaluate the reports and other data furnished by the
Providing Party for the purpose, inter alia, of deciding whether or not
to proceed with all or part of the applicable Research and Development
Program.
4.6 Elan, Endorex and the Company shall agree on a budget in connection
with the activities to be undertaken by Elan and Orasomal during the
Research and Development Program, which budget shall form part of the
Research and Development Program. In the event that as a result of
additional activities to be undertaken by the Providing Party at the
request of the Company the budget needs to be revised, Elan, Endorex
and the Company will agree on such revision prior to the Providing
Party commencing any such additional development activities.
4.7 The Providing Party will keep accurate records consistent with its
normal business practices of the efforts expended by it under the
Research and Development Program for which it is charging the Company,
which will include the time spent by each person working on the
Research and Development Program.
4.8 [****], the Providing Party shall permit the Company or its duly
authorized representative on reasonable notice and at any reasonable
time during normal business hours to have access to inspect and audit
the accounts and records of the Providing Party and any other book,
record, voucher, receipt or invoice relating to the calculation or the
Cost of the Research and Development Program or, where applicable, for
the supply of the Products and to the accuracy of the reports which
accompanied them. Any such [****] shall be at the [***], except that if
any such [****] in the amount of [****] for the [****] in any calendar
quarter [****] hereunder, then the [****] shall be [****] instead of
[****]. Any [****] properly [****]
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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[****] to the [****] shall be [****]. If such [****] properly [****].
4.9 Subject to the provisions of Clause 4.1, the Company shall pay the
Providing Party for any research and development work carried out by
them on behalf of the Company at the termination of each stage of the
Research and Development Program, subject to the proper invoicing of
research and development work and expenses.
CLAUSE 5
REGULATORY APPROVALS
5.1 During the relevant regulatory procedure, the Company shall keep the
other Parties promptly and fully advised of the relevant regulatory
activities, progress and procedures. The Company shall inform the other
Parties of any dealings it shall have with the FDA, and shall furnish
the other Parties with copies of all correspondence. The Parties shall
collaborate in relation to obtaining the approval of the FDA for final
approved labelling.
5.2 Any and all regulatory applications or approvals filed hereunder for
the Product shall remain the property of the Company; provided, that
the Company shall allow the other Parties access thereto to enable
those Parties to fulfil their obligations and exercise their rights
under this Agreement, the Orasomal License and the Elan License. The
Company shall maintain such regulatory approvals at its own cost.
5.3 The costs and expenses of any filings and proceedings made by the
Company to the FDA, including post approval studies required by the FDA
in respect of the Product, and to maintain the FDA approval hereunder
shall be paid by the Company.
5.4 It is hereby acknowledged that there are inherent uncertainties
involved in the registration of pharmaceutical products with the FDA
insofar as obtaining approval is concerned and such uncertainties form
part of the business risk involved in undertaking the form of
commercial collaboration as set forth in this Agreement. Therefore,
except for using its reasonable efforts, neither Elan nor Endorex shall
have any liability to the Company solely as a result of any failure of
the Product to achieve the approval of the FDA, or any other regulatory
body in the Territory.
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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CLAUSE 6
PROPERTY OWNERSHIP RIGHTS
6.1 The Company [****], the [****] and the [****]. Elan and Orasomal hereby
[****], which they may respectively [****], to the Company. Elan and
Orasomal shall each [****] in the aforesaid [****].
6.2 [****] shall own or license the legal and equitable title to the
[****]. Such rights of [****] shall be subject to the [****]. [****]
shall own or license the legal and equitable title to the [****]. Such
rights of [****] shall be subject to the [****].
6.3 All Program Technology developed by or on behalf of the Company shall:
(i) if based upon, or significantly derived from, [****],
constitute [****] (the "[****]"); or
(ii) if based upon, or significantly derived from, [****]
constitute [****] (the "[****]");
In determining whether Program Technology is based upon or
significantly derived from Elan Technology or Orasomal Technology,
reference shall be made to the Participant's respective patents, patent
applications and other relevant evidence of the Participants'
intellectual property such as laboratory notebooks.
6.4 Any technology acquired or licensed by the Company from an Independent
Third Party and any Program Technology which does not constitute Elan
Program Technology or Orasomal Program Technology shall constitute
Company Program Technology (the "COMPANY PROGRAM TECHNOLOGY").
6.5 [****] shall be [****] (the term of which may survive this Agreement),
and [****] (the term
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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of which may survive this Agreement). As a guide only, the parties
anticipate that [****] (i.e. [****] including [****]). In connection
with such [****], the Company's rights of inspection and audit and
other applicable terms shall be negotiated at the time [****], such
provisions, where applicable, to be mutatis mutandis with those set out
in [****].
6.6. To the extent that the Company Program Technology shall have
application outside the Field, the Company shall grant a world-wide
license to Elan and/or Orasomal on terms to be negotiated in good
faith, including whether such a licence should be exclusive,
semi-exclusive or non-exclusive in nature, the extent of the Company
Program Technology to be licensed, and the financial terms which shall
be generally consistent with prevailing market terms. In the event that
the parties cannot agree on such terms, the parties shall submit their
dispute to an Expert to determine the terms of such licenses.
CLAUSE 7
PATENT RIGHTS
7.1 The rights and obligations of the Participants and the Company in
respect of any Patents claiming the Technologies or the Program
Technology are governed by the provisions of the License Agreements.
CLAUSE 8
EQUIPMENT
8.1 Any equipment or other assets purchased by Orasomal and/or Elan which
are funded by the Company shall belong to the Company. In the event
that such equipment or assets are purchased, the Parties shall conclude
the appropriate arrangements as regards marking of goods, insurance and
bailment provisions.
CLAUSE 9
EXPLOITATION OF PRODUCTS
9.1 The Company will have [****] and in any Products subject to the
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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other terms of this Agreement. [****]. It may be necessary to file a
regulatory application and perform clinical testing in more than one
country. The conduct of such clinical trials and the obtaining of
regulatory approvals shall be regulated in accordance with arrangements
agreed upon by the Management Committee.
9.2 The Management Committee shall review the research and development
programs on a regular basis to decide, inter alia, whether one or more
of such programs should continue, be terminated, or continue as
modified. Any Party may call upon the Management Committee of the
Company to review termination of the research and development program
for a Product.
9.3. In the event that (i) [****], and (ii) an [****] shall negotiate in
good faith whether or not [****] shall be entitled [****], as the case
may be, in relation to [****] and such [****], if any, [****], which
has been [****], and if so upon what terms. In determining whether
[****] shall be [****], the parties shall take into account whether or
not the said [****].
9.4 The strategy for the registration and the commercialization of the
Products shall be determined by the Management Committee.
9.5 Subject to contractual constraints, in the event that [****], as the
case may be, (the "[****]") proposes to [****], or has [****] pursuant
to [****], from a [****], and such [****] relating to [****] (a
"[****]"), the [****]shall, for so long as [****], or may at its
election, if the [****], disclose such details as are required to
[****]. Subject to contractual constraints, the Company shall [****]
(the "[****]") to [****] (as is appropriate) [****]
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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[****]from the [****] (or [****]from the [****]). The [****]shall on
[****]promptly and exclusively [****]for a period of [****]unless the
Company gives [****] that it [****] in question. The terms for the
[****] shall be upon terms to be [****] in good faith, including terms
covering the [****] by the Company for any payments [****]to an
[****]in respect of [****]
9.6. In the event that the Company [****] (or subsequently discontinues
[****]), the [****] shall thereafter be entitled [****]with [****]
and/or to [****].
9.7. In the event that one Participant determines not to fund any amounts
required (as approved by the Elan Director and the Endorex Director in
the Company Budget) to develop and commercialize the Elan Technology or
the Orasomal Technology, or products based thereon, [****], as provided
in the Company's approved budgets, the [****] (a) [****] or (b) [****].
Subsequent to such an event, [****] (the "Revised Interest"). The
[****]. In no event shall such [****], if any, cause [****].
9.8. In the event that (a) one Participant determines not to fund any
amounts required to develop and commercialize a particular product
based on the Elan Technology or Orasomal Technology or project based
thereon, as opposed to generally failing to fund as described under
Section 9.7, above, and (b) the other Participant desires to fund such
product or project, [****].
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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CLAUSE 10
TECHNICAL SERVICES AND ASSISTANCE
10.1 [****], the Company shall contract with Orasomal, Endorex or Elan, as
the case may be, to perform such other services as the Company may
require, other than those specifically dealt with in the Orasomal
License Agreement and the Elan License Agreement. In determining which
Party should provide such services, the Management Committee shall take
into account the respective infrastructure and experience of Elan,
Endorex and Orasomal. Nothing in this Clause 10.1 shall be deemed to
prohibit the Company from contracting such required services from an
Independent Third Party in the event that [****].
10.2 The Company shall, if appropriate, conclude an administrative support
agreement with Elan and Orasomal on such terms as the parties thereto
shall in good faith negotiate. The management services required
include, but are not limited to, one or more of the following
management services which shall be requested by the Company:
(i) accounting, financial and other services;
(ii) tax services;
(iii) insurance services;
(iv) human resources services;
(v) legal and company secretarial services;
(vi) patent and related intellectual property services; and
(vii) all such other services consistent with and of the same type as
those services to be provided pursuant to this Agreement, as may be
required.
10.3 If Elan or Orasomal so requires, Orasomal or Elan, as the case may be,
shall receive, at times and for periods mutually acceptable to the
parties, employees of the other party (such employees to be acceptable
to the receiving party in the matter of qualification and competence)
for instruction in respect of the Elan Technology or the Orasomal
Technology,
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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as the case may be, as is necessary to further the Research and
Development Programs.
10.4 The employees received by Elan or Orasomal, as the case may be, shall
be subject to obligations of confidentiality no less stringent than
those set out in Clause 19 and such employees shall observe the rules,
regulations and systems adopted by the Party receiving the said
employees for its own employees or visitors.
CLAUSE 11
SUPPLY ARRANGEMENTS
11.1 The Company shall provide to Elan a right of first offer to provide
manufacturing for Products; provided, that Elan's terms and conditions
are consistent with terms and conditions (including as to pricing) then
available to the Company and similarly-situated companies; provided,
further, that in the event that the Company shall obtain more favorable
terms from an Independent Third Party, and Elan is unwilling or unable
to match such other party's terms and conditions, the Company shall
have the right to engage such Independent Third Party for manufacturing
services, so long as such Independent Third Party is not a Listed
Company.
CLAUSE 12
PROCEEDINGS OF DIRECTORS AND CHAIRMAN
12.1 The board of directors of the Company shall consist of three members as
follows: the Elan Director, the Endorex Director and an independent
director, mutually satisfactory in fitness of character and business
and industry experience, to each of Elan and Endorex.
12.2 As of the date hereof, the Endorex Director shall be the chairman of
the Company's board of directors.
12.3 The Chairman appointed under Clause 12.2 shall retire as Chairman at
the first Annual Meeting of the Company to be held no later than June
30, 1999. Thereafter, each Participant, beginning with Elan, shall have
the right, exercisable alternatively, of nominating one of the
Directors to be Chairman of the Company for a period of one year. The
Chairman shall hold office until the termination of the next Annual
Meeting following his appointment. If the Chairman is unable to attend
any meeting of the board, the Director of the same designation shall be
entitled to appoint another director to act as
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Chairman in his place at the meeting.
CLAUSE 13
MATTERS REQUIRING PARTICIPANTS' APPROVAL
13.1 In consideration of Orasomal and Elan agreeing to enter into the
License Agreements, the Parties hereby agree that neither the Company
nor any Subsidiary of the Company shall, without the prior approval of
each of the Participants:
(i) engage in any activity other than the Business;
(ii) sell the principal assets, undertaking or Business of the
Company;
(iii) borrow any sum (except from the Company's bankers in the
ordinary and proper course of the Business) in excess of a
maximum aggregate sum outstanding at any time of [****];
(iv) make any loan or advance or give any credit (other than normal
trade credit) in excess of [****] to any Person;
(v) give any guarantee or indemnity to secure the liabilities or
obligations of any Party other than those which it is usual to
give in the ordinary course of a business similar to the
Business;
(vi) enter into any contract, arrangement or commitment involving
expenditure on capital account or the realization of capital
assets if the amount or the aggregate amount of such
expenditure or realisation by the Company and all of the
Subsidiaries of the Company would exceed [****] in any one
year or in relation to any one project, and for the purpose of
this paragraph the aggregate amount payable under any
agreement for hire, hire purchase or purchase on credit sale
or conditional sale terms shall be deemed to be capital
expenditure incurred in the year in which such agreement is
entered into;
(vii) issue any unissued Shares or create or issue any new shares,
or alter any rights attaching to the Company's capital stock;
(viii) create, acquire or dispose of any Subsidiary or of any shares
in any Subsidiary;
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(ix) enter into any partnership or profit sharing agreement with
any Person other than arrangements with trade representatives
and similar Persons in the ordinary course of business;
(x) issue any debentures or other securities convertible into
shares or debentures or any share warrants or any options in
respect of Shares;
(xi) acquire, purchase or subscribe for any shares, debentures,
mortgages or securities (or any interest therein) in any
company, trust or other Person;
(xii) adopt any employee benefit program or incentive schemes;
(xiii) engage any new employee of the Company at remuneration which
could exceed the rate of [****] per annum;
(xiv) pay any remuneration to Directors by virtue of holding such
office;
(xv) licence or sub-licence any of the Elan Technology, Orasomal
Technology, Company Program Technology, Elan Program
Technology or Orasomal Program Technology;
(xvi) amend or vary the terms of the Orasomal Licence Agreement or
the Elan Licence Agreement; and
(xvii) to undertake a Research and Development Program;
(xviii) file an amendment to the Company's certificate of
incorporation or alter the by-laws;
(xix) alter the number of the Company's directors.
CLAUSE 14
THE BUSINESS PLAN AND REVIEWS
14.1 The Directors shall meet as soon as reasonably practicable after the
date hereof and in any event within 30 days of signing this Agreement,
to agree and approve the Business Plan and operating budget for the
initial Financial Year. Thereafter the Directors shall reach
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
19
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agreement on each subsequent Financial Year operating budget at least
30 days prior to the commencement of each respective Financial Year.
14.2 The Participants agree that the Management Committee shall submit to
the Directors, on 15th February, 15th May, 15th August and 15th
November, or as soon as reasonably practicable thereafter in each
Financial Year, a report on the performance of the business activities
of the Company and the Directors shall hold such meeting as may be
necessary to review the performance of the Company against the Business
Plan for the relevant year of trading.
CLAUSE 15
TRANSFER OF OR PLEDGING OF SHARES
15.1 Neither EIS nor Endorex shall, directly or indirectly, sell, assign,
pledge, encumber, hypothecate or otherwise transfer (in each case, a
"Transfer") any Shares except in accordance with this Agreement. The
Company shall not, and shall not permit any transfer agent or registrar
for the Shares to, transfer upon the books of the Company any Shares
from any stockholder to any Transferee (as hereinafter defined), in any
manner, except in accordance with this Agreement, and any purported
transfer not in compliance with this Agreement shall be void.
15.2 In the event a stockholder shall Transfer any Shares (including any
such Shares acquired after the date hereof) to any Person (all Persons
acquiring Shares from a stockholder, as described in this Clause 15,
regardless of the method of transfer, shall be referred to collectively
as "Transferees" and individually as a "Transferee") in accordance with
this Agreement, such Shares shall nonetheless bear legends as provided
in the Company Subscription Agreement of; provided, however, that the
provisions of this Clause 15.2 shall not apply in respect of a sale of
Shares in a registered public offering under the Securities Act of
1933, as amended (the "SECURITIES ACT") or pursuant to Rule 144, or any
successor rule under the Securities Act.
15.3 Notwithstanding any other provision of this Agreement, no stockholder
shall, directly or indirectly, Transfer any Shares at any time if such
action would constitute a violation of any federal or state securities
or blue sky laws or a breach of the conditions to any exemption from
registration of Shares under any such laws or a breach of any
undertaking or agreement of such stockholder entered into pursuant to
such laws or in connection with obtaining an exemption thereunder.
14.4 No stockholder shall effect a Transfer of Shares unless such Transferee
shall agree to be
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bound by this Agreement, and shall further agree to permit EIS or Endorex, as
applicable, to act on their behalf in accordance with the provisions of
this Agreement.
CLAUSE 16
DISPUTES
16.1 Disputes among the members of the R&D Committee (each such event, a
"Program Dispute") which cannot be resolved by consensus shall be
forwarded to the Management Committee for discussion and resolution, by
filing of a notice of dispute from the R&D Committee to the Management
Committee.
16.2 In the event that the members of the Management Committee, after
reasonable consideration, cannot resolve a Program Dispute within 10
days of receipt of a notice as described in Clause 16.1, such Program
Dispute shall be forwarded to the board of directors for discussion and
resolution, by submission of a letter from the Management Committee to
the Chairman of the board of directors detailing the issue in dispute
and the position of each party in relation thereto.
16.3 Disputes under this Agreement among members of the Management Committee
(each such event a "Management Dispute"; together with a Program
Dispute, a "Dispute"), which cannot be resolved by consensus shall also
be forwarded to the board of directors for discussion and resolution,
by submission of a letter from the Management Committee to the Chairman
of the board of directors detailing the issue in dispute and the
position of each party in relation thereto.
16.4 In the event of submission of a letter accordance with Clause 16.2 or
16.3, the members of the board of directors shall convene in person or
via telephone conference within 10 days in order to discuss the
Dispute. After discussion and consideration, resolution of the Dispute
shall be decided by a majority vote of the board of directors.
16.5 In the event that the board is unable to resolve a Dispute, the
Chairman shall refer the matter to an expert (the "Expert"), mutually
acceptable to the Parties; or in the event that the Parties cannot so
agree, a Panel (as defined below) in accordance with the procedures for
such Panel as set forth below in Clause 16.9 below. In each case, the
Expert shall be selected having regard to his suitability to determine
the particular dispute or difference on which he is being requested to
determine. The Expert shall afford each Party a reasonable opportunity,
in writing or orally, to state its respective reasons in support of
such contentions as each Party may wish to make relative to the matters
under consideration. The Expert shall give notice in writing of his
determination to the Parties within such time as may be stipulated in
his terms of appointment, or in the absence of such stipulation as
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<PAGE> 22
soon as practicable, but in any event within three weeks from the
reference of the Program Dispute to him.
16.6 The fees of each Expert shall be shared equally between the Parties.
The Expert shall be entitled to inspect and examine all documentation
and any other material which he may consider to be relevant to the
Dispute.
16.7 Any [****] shall [****] on [****]; provided, however, that any [****]
of a [****] based upon [****] shall be [****].
16.8 In no event shall the referral of a Dispute to the Expert supercede the
requirement, as described in Section 2.6 of the Company Subscription
Agreement or the provisions of Clause 12 of this Agreement, that both
the Elan Director and Endorex Director, and where applicable the
Participants, approve certain business decisions.
16.9 In the event that the board of directors is unable to agree upon an
Expert, a panel of experts (the "Panel") shall be appointed as follows.
The Elan Director and the Endorex Director shall each select one
Expert, each in their sole discretion, using good faith to select an
Expert with appropriate qualifications. Within 20 days of the
appointment of such Experts, the two Experts so selected shall appoint
a third Expert from a list of arbitrators provided by the American
Arbitration Association (the "AAA"); provided, that in the event that
the two selected Experts are unable to agree upon such third Expert
within 20 days, any director of the Company may request the AAA to
appoint such third Expert.
16.10 Notwithstanding Clause 16.9, each of the Elan Director and the Endorex
Director shall be prohibited from selecting as an Expert any person who
has or has had a material interest or relationship (i.e., through
employment, stock ownership, business affiliation or otherwise) with a
Party or any of its directors, officers or employees. Service as an
Expert hereunder shall not constitute such a material interest or
relationship in connection with the resolution of subsequent Disputes.
CLAUSE 17
TERMINATION
17.1 The Company shall continue to operate and exist for so long as its
stockholders shall determine, and this Agreement and the Company
Subscription Agreement shall govern such operation and existence until
this Agreement shall be terminated in accordance with this
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Clause 17 (the "Term").
17.2 For the purpose of this Clause 17, a "Relevant Event" is committed by
Elan or Endorex if:
(i) it commits a material breach of its obligations under this
Agreement and fails to remedy it within 60 days of being
specifically required in writing to do so by the other
Participant; provided, however, that if the breaching
Participant has proposed a course of action to rectify the
breach and is acting in good faith to rectify same but has not
cured the breach by the 60th day, such rectifying period shall
be extended by an amount of time as is reasonably necessary to
permit the breach to be rectified;
(ii) it ceases, wholly or substantially, to carry on its business,
other than for the purpose of a reorganization, without the
prior written consent of the other Participant (such consent
not to be unreasonably withheld);
(iii) the voluntary appointment of a liquidator, receiver,
administrator, examiner, trustee or similar officer over all
or substantially all of its assets under the laws of such
Participant's state or country of incorporation;
(iv) an application or petition for bankruptcy, corporate
reorganization, composition, administration, examination,
arrangement or any other procedure similar to any of the
foregoing under the laws of such Participant's state or
country of incorporation, is filed, and is not discharged
within 90 days.
17.2 If either Participant commits a Relevant Event, the other Participant
shall have in addition to all other legal and equitable rights and
remedies hereunder, the right to terminate this Agreement upon 30 days'
written notice; provided, that such written notice be given within
60 days following the date that the other Participant becomes aware of
the Relevant Event.
17.3 In the event that (a) a Listed Company shall acquire 15% or more of the
voting stock of Endorex, Orasomal or the Company, or otherwise control
their management or business, or (b) any other person or entity shall
acquire 50% or more of the voting stock of Endorex, Orasomal or the
Company, or otherwise merge, consolidate or enter into any similar
transaction (or binding agreement in respect thereof) with any of such
entities, this Agreement shall, at the option of Elan, terminate, so
long as Elan shall provide written notice of such election to terminate
within 90 days of the such event; provided, that the foregoing shall
not apply in relation to any exercise of the Elan Option or the Endorex
Option (each as described in the Company Subscription Agreement).
17.4 If, at any time, the Participants agree that the Company should be
wound up or liquidated,
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the Parties shall ensure that, after all of the debts of the Company
have been satisfied, the assets of the Company shall be distributed,
in specie, as follows:
(i) to Elan of the Elan Program Technology for the Field; and
(ii) to Orasomal of the Orasomal Program Technology for the Field;
and
(iii) to Elan and Endorex of the Company Program Technology pro rata,
based upon each party's ownership percentage of the Company;
and/or the Parties further agree to negotiate in good faith, the terms
for other arrangements, including cross licences, as may be necessary
to enable Orasomal and Elan to exploit the technology of the other
Party for the Field.
17.5 The Parties agree that in the event that Elan shall exercise its right
to acquire 100% of the outstanding Shares, pursuant to its rights under
the Elan Option:
(i) the Orasomal Licence Agreement shall continue in full force
and effect;
(ii) the licence, if any, granted by the Company to Orasomal to use
the Orasomal Program Technology outside the Field pursuant to
this Agreement shall continue; and
(iii) Orasomal shall remain entitled to a licence to the Company
Program Technology outside the Field on terms to be agreed. If
the Parties cannot agree such terms, the Parties shall refer
the dispute to an Expert for resolution, as provided in Clause
16 hereof.
CLAUSE 18
ADDITIONAL FINANCING
18.1 Each Participant shall use its reasonable efforts to procure that the
requirements of the Company for working capital to finance the Business
are provided proportionately to the shareholding held by the
Participants (in the case of Elan, by its Affiliate EIS) in a manner to
be agreed by the Participants. For the avoidance of doubt, the
Participants agree that, [****], there is no [****] to contribute
[****].
18.2 Each of the Participants agree that to the extent that the Company's
assets are insufficient to repay the financial assistance made
available by each of the Participants to the Company,
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
24
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whether directly or indirectly, in the event that the Company is wound
up or goes into liquidation then any deficiency shall be borne by them
in equal proportions.
18.3 If it is not possible to obtain sufficient financial assistance from
the Participants, the Company can obtain borrowings or other funding
from financial institutions and other similar sources on the most
favourable terms reasonably obtainable as to interest, repayment and
security.
CLAUSE 19
CONFIDENTIALITY
19.1 Each of the Parties acknowledge that it may be necessary, from time to
time, to disclose to one another confidential and proprietary
information, including without limitation, inventions, the
Technologies, the Program Technologies, Improvements and the Patents
relating thereto, works of authorship, trade secrets, specifications,
designs, data, Know-How and other information, relating to the Field,
the Maynooth Agreement, the MIT Agreement (as each is defined in,
respectively, the Elan License Agreement and the Orasomal License
Agreement), the terms of the various agreements between the Parties,
the Products, processes, and services, of the disclosing Party
("CONFIDENTIAL INFORMATION").
Confidential Information shall not be deemed to include:
(i) information that is in the public domain;
(ii) information which is made public by the disclosing Party;
(iii) information which is independently developed by a Party
without the aid or application of the Confidential
Information;
(iv) information that is published or otherwise becomes part of the
public domain without any disclosure by a Party, or on the
part of a Participant's directors, officers, agents,
representatives or employees;
(v) information that becomes available to a Party on a
non-confidential basis, whether directly or indirectly, from a
source other than another Party, which source, to the best of
the receiving Party's knowledge, did not acquire this
information on a
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confidential basis; or
(vi) information which the receiving Party is required to disclose
pursuant to:
(A) a valid order of a court or other governmental body
or any political subdivision thereof or otherwise
required by law; or
(B) other requirement of law; provided that if the
receiving Party becomes legally required to disclose any confidential
information, the receiving Party shall give the disclosing Party prompt
notice of such fact so that the disclosing Party may obtain a
protective order or other appropriate remedy concerning any such
disclosure. The receiving Party shall fully co-operate with the
disclosing Party in connection with the disclosing Party's efforts to
obtain any such order or other remedy. If any such order or other
remedy does not fully preclude disclosure, the receiving Party shall
make such disclosure only to the extent that such disclosure is legally
required.
19.2 Any Confidential Information revealed by a Party to another Party shall
be used by the receiving Party exclusively for the purpose of
fulfilling the receiving Party's obligations under this Agreement and
for no other purpose.
19.3 Each of the Parties agrees to disclose Confidential Information of
another Party only to those employees, representatives and agents
requiring knowledge thereof in connection with their duties directly
related to the fulfilling of the Party's obligations under this
Agreement. Each of the Parties further agrees to inform all such
employees, representatives and agents of the terms and provisions of
this Agreement and their duties hereunder and to obtain their consent
hereto as a condition of receiving Confidential Information. Each of
the Parties agrees that it will exercise the same degree of care, but
in no event less than a reasonable degree, and protection to preserve
the proprietary and confidential nature of the Confidential Information
disclosed by a Participant, as the receiving Party would exercise to
preserve its own proprietary and confidential information. Each of the
Parties agrees that it will, upon request of a Party, return all
documents and any copies thereof containing Confidential Information
belonging to or disclosed by, such Party.
19.4 Notwithstanding the above, each Party may use or disclose confidential
information disclosed to it by another Party to the extent such use or
disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with
patent applications, prosecuting or defending litigation, complying
with applicable governmental regulations or otherwise submitting
information to tax or other governmental authorities, conducting
clinical trials, or making a permitted sub-license or otherwise
exercising rights hereunder; provided, that if a Party is required to
make any such disclosure of another Party's confidential information,
other than pursuant to a confidentiality
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agreement, such disclosing Party shall inform the other Party thereof,
and allow such other Party to participate in the disclosure process for
the purpose of generally limiting, to the extent possible, such
disclosure.
19.5 The provisions relating to confidentiality in this Clause 19 shall
remain in effect during the Term, and for a period of [****] following
the expiration or earlier termination of this Agreement.
19.6. The Parties agree that the obligations of this Clause 19 are necessary
and reasonable in order to protect the Parties' respective businesses,
and each Party expressly agrees that monetary damages would be
inadequate to compensate a Party for any breach by another Party of its
covenants and agreements set forth herein. Accordingly, the Parties
agree and acknowledge that any such violation or threatened violation
will cause irreparable injury to a Party and that, in addition to any
other remedies that may be available, in law and equity or otherwise, a
Party shall be entitled to obtain injunctive relief against the
threatened breach of the provisions of this Clause 19, or a
continuation of any such breach by another Party, specific performance
and other equitable relief to redress such breach together with its
damages and reasonable counsel fees and expenses to enforce its rights
hereunder, without the necessity of proving actual or express damages.
CLAUSE 20
PARTICIPANTS' CONSENT
20.1 Where this Agreement provides that any particular transaction or matter
requires the consent, approval or agreement of any Participant, such
consent, approval or agreement may be given subject to such terms and
conditions as that Participant may impose and to which the other
Participant shall agree and any breach of such terms and conditions by
any Persons subject thereto shall ipso facto be deemed to be a breach
of the terms of this Agreement.
CLAUSE 21
PARTIES AND COMPANY BOUND
21.1 The Company undertakes with each of the Parties to be bound by and
comply with the terms and conditions of this Agreement insofar as the
same relate to the Company.
21.2 Each Party undertakes with the others to exercise its part in relation
to the Company so as to
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
27
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ensure that the Company fully and promptly observes, performs and
complies with its obligations under this Agreement.
CLAUSE 22
COSTS
22.1 Each Party shall bear its own legal and other costs incurred in
relation to preparing and concluding this Agreement and the related
agreements and other documents.
22.2 All costs, legal fees, registration fees and other expenses, including
the costs and expenses incurred in relation to the incorporation of the
Company, shall be borne by the Company.
CLAUSE 23
GENERAL
23.1 GOOD FAITH
Each of the Parties hereto undertakes with the others to do all things
reasonably within its power which are necessary or desirable to give
effect to the spirit and intent of this Agreement.
23.2 FURTHER ASSURANCE
The Parties hereto shall use their respective reasonable efforts to
procure that any necessary third party shall do, execute and perform
all such further deeds, documents, assurances, acts and things as any
of the Parties hereto may reasonably require by notice in writing to
the others to carry the provisions of this Agreement into full force
and effect; including, without limitation, the execution of any
documents required to ensure the assignment of the Technologies, as
described in Clause 6.1. In addition, each of Elan and Endorex shall
cooperate and make reasonably available to the Company (including its
authorized agents and representatives) all assistance reasonably
necessary or appropriate to enable the Company to prepare, file,
prosecute and maintain Patents or other Intellectual Property Rights
related to the Technologies or the Company Program Technology,
throughout the Territory.
23.3 NO REPRESENTATION
Each of the Parties hereto hereby acknowledges that in entering into
this Agreement it has
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not relied on any representation or warranty save as expressly set out
herein or in any document referred to herein.
23.4 EXERCISE OF POWERS
Where either Participant is required under this Agreement to exercise
its powers in relation to the Company to procure a particular matter or
thing, such obligation shall be deemed to include an obligation to
exercise its powers both as a Participant and as a Director (where
applicable) of the Company and to procure that any Director appointed
by it (whether alone or jointly with any other Person) shall procure
such matter or thing.
23.5 FORCE MAJEURE
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results
from causes beyond its reasonable control, including, without
limitation, acts of God, fires, strikes, acts of war, or intervention
of any relevant government authority, but any such delay or failure
shall be remedied by such Party as soon as practicable.
23.6 RELATIONSHIP OF THE PARTICIPANTS
Nothing contained in this Agreement is intended or is to be construed
to constitute Elan and Endorex as partners, or Elan as an employee of
Endorex, or Endorex as an employee of Elan. No Party hereto shall have
any express or implied right or authority to assume or create any
obligations on behalf of or in the name of another Party or to bind
another Party to any contract, agreement or undertaking with any third
party.
23.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of
which when taken together shall constitute this Agreement.
23.8 NOTICES
Any notice to be given under this Agreement shall be sent in writing in
English by registered mail, airmail, reputable courier or recorded
delivery post, or telecopied (with a confirmation copy promptly sent by
mail) to:
- IF TO ELAN: Elan Corporation, plc
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Lincoln House
Lincoln Place
Dublin 2, Ireland
Telecopier: 011-353-1-662-4960
Attention: Vice President & General Counsel
Elan Pharmaceutical Technologies
with a copy to: Brock Fensterstock Silverstein & McAuliffe LLC
153 East 53rd Street
56th Floor
New York, New York 10022
Telecopier: (212) 371-5500
Attention: David Robbins
- IF TO ENDOREX: Endorex Corp.
900 North Shore Drive
Lake Buff, Illinois 60044
Telecopier: 847-604-8570
Attention: President
- IF TO ORASOMAL: Orasomal Technologies, Inc.
900 North Shore Drive
Lake Buff, Illinois 60044
Telecopier: 847-604-8570
Attention: President
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in the case of Endorex and Orasomal, with a copy to:
Brobeck Phleger & Harrison LLP
1633 Broadway
New York, New York 10019
Telecopier: (212) 586-7878
Attention: Richard Plumridge
- IF TO THE COMPANY: Endorex Vaccine Delivery Technologies, Inc.
900 North Shore Drive
Lake Buff, Illinois 60044
Telecopier: 847-604-8570
Attention: President
with a copy to the non-notifying Parties; or to such other address(es)
as may from time to time be notified by any Party to the others
hereunder.
Any notice sent by mail shall be deemed to have been delivered within
seven working days after dispatch, any notice sent by reputable courier
shall be deemed to have been delivered within two working days after
dispatch and any notice sent by telecopy shall be deemed to have been
delivered within 24 hours of the time of the dispatch. Notices of
change of address shall be effective upon receipt.
23.9 GOVERNING LAW AND DISPUTES
This Agreement shall be governed by and construed in accordance with
the laws of New York and the Parties agree to submit to the
jurisdiction of the courts of New York for the resolution of disputes
hereunder, which the Parties have not otherwise agreed should be
subject to the binding determination of an Expert or Panel, pursuant to
the terms of this Agreement.
23.10 SEVERABILITY
If any provision in this Agreement is agreed by the Parties to be,
deemed to be or becomes invalid, illegal, void or unenforceable under
any law that is applicable hereto, (i) such provision will be deemed
amended to conform to applicable laws so as to be valid and enforceable
or, if it cannot be so amended without materially altering the
intention of the Parties, it will be deleted, with effect from the date
of such agreement or such earlier date as the Parties may agree, and
(ii) the validity, legality and enforceability of the remaining
provisions of this Agreement shall not be impaired or affected in any
way.
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23.11 AMENDMENTS
No amendment, modification or addition hereto shall be effective or
binding on any Party unless set forth in writing and executed by a duly
authorised representative of all Parties.
23.12 WAIVER
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of
any other right arising under this Agreement.
23.13 ASSIGNMENT
This Agreement may not be assigned by any Party without the prior
written consent of the other, which consent in relation to the
proposed assignment to an Affiliate of a Party shall not be
unreasonably withheld, conditioned or delayed.
23.14 NO EFFECT ON OTHER AGREEMENTS
No provision of this Agreement shall be construed so as to negate,
modify or affect in any way the provisions of any other agreement
between any of the Parties unless specifically referred to, and solely
to the extent provided, in any such other agreement. In the event of a
conflict between the provisions of this Agreement and the provisions of
the License Agreements or the Company Subscription Agreement, the terms
of this Agreement shall prevail
23.15 SUCCESSORS
This Agreement shall be binding upon and enure to the benefit of the
Parties hereto, their successors and permitted assigns.
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IN WITNESS whereof, the Parties have executed this Joint Development &
Operating Agreement on the date first set forth above.
ELAN CORPORATION, PLC
By: /s/ Thomas G. Lynch
-------------------------------
Name: Thomas G. Lynch
Title: Director
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
-------------------------------
Name: Kevin Insley
Title: President & CEO
ENDOREX CORP.
By: /s/ Michael S. Rosen
-------------------------------
Name: Michael S. Rosen
Title: President/CEO
ORASOMAL TECHNOLOGIES, INC.
By: /s/ Michael S. Rosen
-------------------------------
Name: Michael S. Rosen
Title: President/CEO
ENDOREX VACCINE DELIVERY TECHNOLGIES, INC.
By: /s/ Michael S. Rosen
-------------------------------
Name: Michael S. Rosen
Title: President/CEO
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SCHEDULE 1
ELAN LICENSE AGREEMENT
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SCHEDULE 2
ORASOMAL LICENSE AGREEMENT
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SCHEDULE 3
LISTED COMPANIES
[*****]
(AS MAY BE AMENDED WITH MUTUAL AGREEMENT OF ALL THE PARTIES IN WRITING FROM TIME
TO TIME)
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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EX. 10.17
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of January 21, 1998
between ENDOREX CORP., a Delaware corporation (the "Company"), and ELAN
INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS").
R E C I T A L S:
A. The Company desires to issue and sell to EIS, and EIS
desires to purchase from the Company, on the Closing Date (as defined below),
(i) 307,692 shares (the "Initial Common Stock") of the Company's common stock,
par value $.001 per share (the "Common Stock"), and (ii) a warrant to acquire an
aggregate of 230,770 shares (subject to adjustment) of Common Stock, in the form
attached hereto as Exhibit A (the "Warrant"), the Initial Common Stock and the
Warrant together to be sold for aggregate consideration of $2,000,000, and (iii)
80,100 shares of Series B Convertible Preferred Stock (the "Series B Preferred
Stock"; together with the Common Stock and the Warrant, the "Securities"), which
shall be issued to EIS pursuant to the Certificate of Designations in the form
attached hereto as Exhibit B (the "Certificate of Designations") for aggregate
consideration of $8,010,000, all to be paid by wire transfer of immediately
available funds by EIS to the Company on the Closing Date.
B. The Company and EIS have caused to be formed Endorex
Vaccine Delivery Technologies, Inc., a Delaware corporation ("Newco"), for the
purpose of researching, developing and commercializing certain technologies
relating to oral and muscosal vaccine delivery based on technology to be
licensed to Newco by affiliates of EIS and the Company. The initial stockholders
in Newco shall be the Company and EIS. The parties intend, as provided herein,
that the proceeds of the issuance of Series B Preferred Stock shall be applied
by the Company solely to fund the Company's initial investment in Newco.
C. The Company and EIS are executing and delivering on the
date hereof a Registration Rights Agreement in the form attached hereto as
Exhibit C (the "Registration Rights Agreement"; together with this Agreement,
the Securities, and each other document or instrument executed and delivered in
connection with the transactions contemplated hereby, including in connection
with the initial formation and capitalization of Newco, the "Transaction
Documents") in respect of the purchase of Initial Common Stock and the Common
Stock underlying the Series B Preferred Stock and the Warrant.
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A G R E E M E N T:
The parties agree as follows:
SECTION 1. Closings. (a) Time and Place. The closing of the
transactions contemplated hereby (the "Closing") shall occur no later than the
tenth day following receipt by the parties of notice of the expiration or
termination of the applicable HSR (as defined below) waiting period, if any (the
"Closing Date"), at the offices of counsel to EIS or such other place as the
parties may agree, but in any event, the Closing Date shall occur on or prior to
March 31, 1998. If the Closing Date shall not have occurred on or prior to such
date for any reason, either party shall have the right, upon written notice to
the other, to terminate this Agreement and the transactions contemplated hereby,
so long as such terminating party shall not be in material default hereunder.
(b) Issuance of Securities. At the Closing, (x) the Company
shall issue and sell to EIS, and EIS shall purchase from the Company the Initial
Common Stock and the Warrant, upon the terms and subject to the conditions set
forth herein, for an aggregate purchase price of $2,000,000, and (y) the Company
shall issue and sell to EIS, and EIS shall purchase from the Company the Series
B Preferred Stock, for an aggregate purchase price of $8,010,000.
(c) Delivery. At the Closing, EIS shall pay the purchase price
for the Initial Common Stock, the Warrant and the Series B Preferred Stock by
wire transfer of immediately available funds to an account or accounts
designated by the Company and the parties hereto shall execute and deliver to
each other, as applicable: (i) a certificate or certificates for the shares of
the Initial Common Stock; (ii) the Warrant; (iii) a certificate or certificates
for the shares of Series B Preferred Stock; (iv) certificates as to the
incumbency of the officers executing this Agreement and each of the other
documents or instruments executed in connection herewith; and (v) each of the
other documents or instruments executed in connection herewith. In addition, at
the Closing, the Company shall cause to be delivered to EIS an opinion of
counsel in form attached hereto as Exhibit D.
(e) Exemption from Registration. The Securities will be issued
under an exemption or exemptions from registration under the Securities Act of
1933, as amended; accordingly, the certificates evidencing the Securities shall,
upon issuance, contain the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT UNDER ANY CIRCUMSTANCES BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF
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COUNSEL SATISFACTORY TO THE CORPORATION
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT OR APPLICABLE STATE SECURITIES LAWS.
(f) Registration Rights Agreement. On the date hereof, the
Company and EIS are each executing and delivering the Registration Rights
Agreement, covering the shares of the Initial Common Stock, as well as any
Common Stock issuable upon conversion, exercise or exchange of any of the
Securities.
SECTION 2. Representations and Warranties of the Company. The
Company hereby represents on behalf of itself and, as applicable, its
subsidiaries and affiliates:
(a) Organization and Qualification. The Company is 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 own and lease
its properties, to carry on its business as presently conducted and as proposed
to be conducted and to consummate the transactions contemplated hereby. The
Company is qualified and in good standing to do business in jurisdictions set
forth on Schedule 2(a), which constitute all of the jurisdictions in which the
nature of the business conducted or the property owned by it requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect (as defined below) on the business, prospects, properties or
condition (financial or otherwise) of the Company.
(b) Capitalization. (i) The authorized capital stock of the
Company as of December 31, 1997 consisted of 50,000,000 shares of Common Stock,
of which 9,736,641 were issued and outstanding, and 500,000 shares of Preferred
Stock, of which 100,000 are designated as Series A Junior Participating
Preferred Stock, none of which were issued or outstanding.
(ii) Except as set forth in Schedule 2(b) and in the Company's
filings with the Securities and Exchange Commission (the "SEC Filings"), as of
the Closing Date there are no options, warrants or other rights outstanding to
purchase, subscribe for or otherwise acquire, or any securities convertible
into, any of the Company's authorized capital stock. Other than as set forth in
this Agreement and as described in Schedule 2(b), there are no agreements,
arrangements or understandings concerning the voting, acquisition or disposition
of any of the Company's outstanding securities to which the Company is a party
or of which it is otherwise aware, and, other than as set forth in Schedule 2(b)
or in the Registration Rights Agreement, there are no agreements to register any
of the Company's outstanding securities under the U.S. Federal securities laws.
(iii) All of the outstanding shares of capital stock of the
Company have been issued in accordance with applicable state and federal laws
and regulations governing the sale and purchase of securities, all of such
shares of have duly and validly issued and are fully paid and non-assessable,
and none of such shares carries preemptive or similar rights.
(c) Authorization of Transaction Documents. The Company has
full corporate
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power and authority to execute and deliver this Agreement and each of the other
Transaction Documents, and to perform its obligations hereunder and thereunder.
Execution, delivery and performance by the Company of the Transaction Documents
(including the issuance and sale of the Securities) have been authorized by all
requisite corporate actions by the Company; and the Transaction Documents
(including the issuance and sale of the Securities) have been duly executed and
delivered by the Company are the valid and binding obligations of the Company,
enforceable against each in accordance with their respective terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the enforcement of creditors' rights
generally, and except as enforcement of rights to indemnity and contribution
hereunder and thereunder may be limited by U.S. Federal or state securities laws
or principles of public policy.
(d) No Conflicts. The execution, delivery and performance by
the Company of the Transaction Documents (including the issuance and sale of the
Securities), and compliance with the provisions thereof by the Company, will not
(i) violate any provision of applicable law, statute, rule or regulation
applicable to the Company or any ruling, writ, injunction, order, judgment or
decree of any court, arbitrator, administrative agency or other governmental
body applicable to the Company or any of their respective properties or assets
or (ii) conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute (with notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
or result in the creation of, any Encumbrance (as defined below) upon any of the
properties or assets of the Company under its Certificate of Incorporation, as
amended, its Certificate of Designations (in the form to be filed as provided
herein) or By-laws, or any material contract to which the Company is a party,
except where such violation, conflict or breach would not, individually or in
the aggregate, have a Material Adverse Effect on the Company (as used in
connection to either of them, a "Material Adverse Effect"). As used herein,
"Encumbrance" shall mean any liens, charges, encumbrances, equities, claims,
options, proxies, pledges, security interests, or other similar rights of any
nature, except for such conflicts, breaches or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect.
(e) Approvals. Except as set forth on Schedule 2(e), no
material permit, authorization, consent or approval of or by, or any
notification of or filing with, any person or entity (governmental or otherwise)
is required in connection with the execution, delivery or performance of the
Transaction Documents (including the issuance and sale of the Securities) by the
Company or Newco. There is no approval of the Company's stockholders required
under applicable laws in connection with the execution and delivery the
Transaction Documents or the consummation of the transactions contemplated
thereby, including the filing of the Certificate of Designations and the
issuance of the Securities.
(f) Filings, Taxes and Financial Statements. (i) The Company
has filed its annual report on Form 10-K for the transition period ended
December 31, 1996 (the "Annual Report"), its related proxy materials and its
quarterly report on Form 10-Q for the quarter ended September 30, 1997 (the
"Quarterly Report") with the Securities and Exchange Commission and
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any other required person or entity (governmental or otherwise) in a timely
manner and as otherwise required by applicable laws and regulations, including
the federal securities acts. The audited financial statements of the Company for
the transition period ended December 31, 1996 included in the Annual Report (the
"Audited Financial Statements"), and the Company's unaudited balance sheet for
the period ending September 30, 1997, together with the accompanying statements
of operations and cash flows including the notes thereto (the "September
Financial Statements"; collectively, with the Audited Financial Statements, the
"Financial Statements") are accurate and complete in all material respects and
fairly present the financial condition of the Company as at the dates thereof
and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as may be otherwise indicated in such financial statements or the notes
thereto), subject, in the case of the September Financial Statements, to normal
year-end audit adjustments (which shall not be material in the aggregate) and
the absence of footnote disclosures.
(ii) The Company has filed in a timely manner all material
federal, state, local and foreign tax returns, reports and filings
(collectively, "Returns"), including income, franchise, property and other
taxes, and has paid or accrued the appropriate amounts reflected on such
Returns. None of the Returns have been audited or challenged, nor has the
Company received any notice of challenge nor have any of the amounts or other
data included in the Returns been challenged or reviewed by any governmental
authority.
(iii) Except as listed in Schedule 2(f), which sets forth a
true and accurate list and description of any such plans maintained or sponsored
by the Company or to which the Company is required to make contributions, the
Company does not maintain, sponsor, is not required to make contributions to or
otherwise have any liability with respect to any pension, profit sharing, thrift
or other retirement plan, employee stock ownership plan, deferred compensation,
stock ownership, stock purchase, performance share, bonus or other incentive
plan, severance plan, health or group insurance plan, welfare plan, or other
similar plan, agreement, policy or understanding (whether written or oral),
whether or not such plan is intended to be qualified under Section 401(a) of the
Code, within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, which plan covers any employee or former
employee of the Company.
(g) Absence of Changes. Except as set forth on Schedule 2(g),
since September 30, 1997, there has not been (a) any material adverse change in
the business, properties, condition (financial or otherwise), operations or
prospects of the Company; (b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, condition (financial or otherwise), operations or prospects of the
Company; (c) any declaration, setting aside or payment of any dividend or other
distribution or payment (whether in cash, stock or property) in respect of the
capital stock of the Company, or any redemption or other acquisition of such
stock by the Company; (d) any disposal or lapse of any trade secret, invention,
patent, trademark, trademark registration, service mark, service mark
registration, copyright, copyright registration, or any application therefor or
filing in respect
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thereof; (e) loss of the services of any of the key officers or key employees of
the Company; (f) any incurrence of or entry into any liability, mortgage, lien,
commitment or transaction, including without limitation, any borrowing (or
assumption or guarantee thereof) or guarantee of a third party's obligations, or
capital expenditure (or lease in the nature of a conditional purchase of capital
equipment) in excess of $50,000; or (g) any material change by the Company in
accounting methods or principles or (h) any change in the assets, liabilities,
condition (financial or otherwise), results or operations or prospects of the
Company from those reflected on the Quarterly Report, except changes in the
ordinary course of business that have not, individually or in the aggregate, had
a Material Adverse Effect.
(h) No Liabilities. Except as set forth in the SEC Filings or
Schedule 2(h), neither the Company nor Newco nor any of their respective
subsidiaries has incurred or suffered any liability or obligation, matured or
unmatured, contingent or otherwise, except in the ordinary course of business
that have not, individually or in the aggregate, had a Material Adverse Effect.
(i) Properties and Assets; Etc. (i) The Company does not own
any interest in real property, and (ii) the Company owns or has the right to use
pursuant to license, sub-license, agreement or permission all Intellectual
Property necessary for the operation of its business as presently conducted,
including patents, patent applications, continuations, continuations-in-part,
extensions, trademarks and trademark applications, know-how and other
intellectual property, as reflected in the Financial Statements, subject in each
case, to no Encumbrances required to be disclosed in the Financial Statements
except as set forth therein. Except as set forth on Schedule 2(i), (i) all of
the Company's patents, trademarks, service marks, trade names, and copyrights
which are owned by the Company are owned free and clear of all liens, claims and
encumbrances and are valid and duly issued or existing; none of the Company's
rights in or use of such patents, trademarks, service marks, trade names or
copyrights has been or is currently being threatened to be, challenged; to the
Company's knowledge, without makng any inquiry other than those, if any,
routinely conducted by the Company in the ordinary course of business, no
current or currently planned product based upon the Company's intellectual
property would infringe any patent, trademark, service mark, trade name or
copyright of any other person or entity issued or pending on the Closing Date if
the Company were to distribute, sell or manufacture such products; and the
Company is not aware, after due inquiry, of any actual or threatened claim by
any person or entity alleging any infringement by the Company of a patent,
trademark, service mark, trade name or copyright possessed by such Person; (ii)
all of such patents, trademark registrations, service mark registrations, trade
name registrations and copyrights and copyright registrations, whether foreign
or domestic, have been duly issued and have not been canceled, abandoned, or
otherwise terminated; and (iii) all of the Company's patent applications,
trademark applications, service mark applications, trade name applications and
copyright applications have been duly filed.
(ii) Each of the Contracts listed as an exhibit to the
Company's Annual Report is a legal and valid agreement binding upon each of the
parties thereto and is in full force and effect and, to the best knowledge of
the Company, there is no breach or default by any party
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thereunder. Such Contracts constitute all material agreements, arrangements or
understandings required to be included in such Annual Report under Securities
and Exchange Commission regulations promulgated in connection therewith.
(iii) The Company has and maintains adequate and sufficient
insurance, including liability, casualty and products liability insurance,
covering risks associated with its business, properties and assets, including
insurance that is customary for companies similarly situated.
(iv) The Company, its business and properties and assets are
in compliance, in all material respects, with all applicable laws and
regulations, including without limitation, those relating to (a) health, safety
and employee relations, (ii) environmental matters, including the discharge of
any hazardous or potentially hazardous materials into the environment, and (iii)
the development, commercialization and sale of pharmaceutical and biotechnology
products, including all applicable regulations of the U.S. Food and Drug
Administration and comparable foreign regulatory authorities.
(j) Legal Proceedings, etc. There is no legal, administrative,
arbitration or other action or proceeding or governmental investigation pending
or threatened against the Company, or any director, officer or employee of the
Company, which is required to be described in the Company's SEC Filings and is
not so described. The Company is not in violation of or default under, any
material laws, judgments, injunctions, orders or decrees of any court,
governmental department, commission, agency, instrumentality or arbitrator
applicable to its business.
(k) Disclosure. The Company's SEC Filings and the
representations and warranties set forth herein and the Transaction Documents,
when viewed collectively, do not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements contained
herein and therein not misleading.
(l) Brokers or Finders. Other than as set forth on Schedule
2(l), the Company has not retained any investment banker, broker or finder in
connection with the transactions contemplated by the Transaction Documents; and
the Company agrees to indemnify and hold EIS harmless against any liability,
settlement or expense arising out of, or in connection with, any claim related
thereto.
SECTION 3. Representations,Warranties and Covenants of EIS.
EIS hereby represents, warrants and covenants to the Company as follows:
(a) Organization. EIS is a corporation duly organized, validly
existing and in good standing under the laws of Bermuda and has all requisite
corporate power and authority to own and lease its properties, to carry on its
business as presently conducted and as proposed to be conducted and to
consummate the transactions contemplated hereby. EIS is qualified and in good
standing to do business in each jurisdiction in which the nature of the business
conducted or the property owned by it requires such qualification, except where
the failure to so qualify would not reasonably be expected to have a material
adverse effect on the business or condition
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(financial or otherwise) of EIS.
(b) Authorization of Agreement. EIS has full legal right,
power and authority to enter into this Agreement and purchase and accept the
Note, and perform its obligations hereunder, which have been duly authorized by
all requisite corporate action. This Agreement and the purchase of the Note are
the valid and binding obligations of EIS, enforceable against them in accordance
with their terms.
(c) No Conflicts. The execution, delivery and performance by
EIS of this Agreement, the purchase and acceptance of the Note and compliance
with provisions hereof by EIS, will not (i) violate any provisions of applicable
law, statute, rule or regulation applicable to EIS or any ruling, written,
injunction, order, judgment or decree of any court, arbitration, administrative
agency of other governmental body applicable to EIS of any of its properties or
assets or (ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with notice or lapse of time to
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any Encumbrance upon any of
the properties or assets of EIS under the Certificate of Incorporation or
By-laws of EIS or any material contract to which EIS is party, except where such
violation conflict or breach would not, individually or in the aggregate, have a
material adverse effect on EIS.
(d) Approvals. No permit, authorization, consents or approval
of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of this Agreement or the Note (including the funding and
acceptance thereof) by EIS.
(e) Investment Representations. (i) EIS is sophisticated in
transactions of this type and capable of evaluating the merits and risks of the
transactions described herein and in the other Transaction Documents, and has
the capacity to protect its own interests. EIS has not been formed solely for
the purpose of entering into the transactions described herein and therein and
is acquiring the Securities for investment for its own account, not as a nominee
or agent, and not with the view to, or for sale in connection with, any
distribution of any part thereof; provided, that EIS shall be permitted to
convert or exchange such Securities and/or transfer them as permitted herein and
under applicable law.
(ii) Nothing contained in this Section 3(e) shall limit any of
the Company's representations or warranties or limit EIS's recourse in respect
thereof.
(iii) Other than as set forth on Schedule 3(e)(iii), EIS has
not retained any investment banker, broker or finder in connection with the
transactions contemplated by the Transaction Documents; and EIS agrees to
indemnify and hold the Company harmless against any liability, settlement or
expense arising out of, or in connection with, any claim related thereto.
(f) Standstill. EIS shall not, for a period of two years from the
Closing Date, without
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the prior written approval of the Company's board of directors, (i) acquire any
of the Company's Common Stock (or securities exchangeable, convertible or
exercisable therefor) other as contemplated herein, (ii) enter into any merger,
consolidation or similar transaction with the Company, (iii) otherwise attempt
to influence such board of directors or the Company's stockholders to effect a
merger, consolidation, sale or all or substantially all of its assets or
business or (iv) make any public announcement relating to (i), (ii) or (iii)
above; provided, that the foregoing shall not be applicable in the event that
any person or group not affiliated with EIS (as defined in the regulations under
the Securities Exchange Act of 1934) (A) acquires 5% or greater of the Company's
Common Stock (or any such exchangeable, convertible or exercisable securities)
or (B) otherwise attempts to influence the board of directors of Endorex with
respect to a merger, consolidation, asset sale or similar transaction or (C)
indicates publicly its intention to effect any transaction in (A) or (B).
SECTION 4. Covenants of the Company. (a) Non-Disclosure. From
and after the date hereof, the Company shall not disclose to any person or
entity (other than its directors, officers and agents who need to know such
information in connection with the transactions described herein and the other
Transaction Documents (each of whom shall be informed of this confidentiality
provision) the content of this Agreement or any of the other Transaction
Documents or the substance of the transactions described herein, without the
prior written consent of EIS, except to the extent required by applicable laws
or administrative or judicial process, pursuant to arrangements with financial,
accounting or legal advisors, or in respect of press releases and periodic
publicly-filed reports prepared in good faith by the Company; provided, that the
Company shall provide EIS with a reasonable opportunity to review and approve
such releases or reports.
(b) Board of Directors. For as long as EIS shall own at least
10% of the Common Stock, on a fully diluted basis (i.e., after giving effect to
the conversion, exchange or exercise of all Common Stock equivalents or
convertible, exchangeable or exercisable securities), EIS shall be entitled to
nominate a director (the "EIS Director"), and the Company shall use its best
efforts to cause the EIS Director to be elected to the Company's board of
directors, including by including the EIS Director in the management slate of
directors at each meeting of stockholders at which an election of directors
occurs.
(c) Fully-diluted Stock Ownership. Notwithstanding any other
provision of this Agreement, in the event that EIS shall have determined that at
any time it (together with its Affiliates, if applicable) holds or has the right
to receive Common Stock (or securities or rights, options or warrants
exercisable, exchangeable or convertible for or into Common Stock) representing
in the aggregate in excess of 19.9% of the Company's outstanding Common Stock
(assuming any such exercise, exchange or conversion, but not the exercise,
exchange or conversion of any other similar securities), EIS shall have the
right, in its sole discretion, rather than acquiring such securities from the
Company, to exchange such number of securities as are necessary to bring its
holdings to below 19.9% of the voting securities of the Company, for non-voting,
no liquidation preference equity securities of the Company (which shall be
reasonably satisfactory to the Company and EIS), which equity securities shall
be entitled to all of the other
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rights and benefits of the Common Stock. In the event that EIS shall undertake
to exercise such right, EIS shall retain the additional right to exchange such
new class of equity security for Common Stock, in its discretion.
(d) Use of Proceeds. The Company shall use the proceeds of the
sale of the Series B Preferred Stock solely for the purpose of meeting its
capitalization and funding requirements to Newco, as described in the Newco
Subscription and Stockholder Agreement dated as of the date hereof.
(e) Further Assurances. From and after the date hereof, each
of the parties hereto agrees to do or cause to be done such further acts and
things and deliver or cause to be delivered to each other such additional
assignments, agreements, powers and instruments, as each may reasonably require
or deem advisable to carry into effect the purposes of the Transaction Documents
or to better to assure and confirm unto each other their respective rights,
powers and remedies hereunder and thereunder.
SECTION 5. Entire Agreement. This Agreement and the other
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto; provided, that Section 4
of the letter agreement dated December 31, 1997 (the "Letter Agreement") between
Elan Corporation, plc, an Irish limited company and EIS, on the one hand, and
the Company, on the other hand, shall survive the execution and delivery hereof
and be subject to the provisions of Section 6 hereof..
SECTION 6. Survival and Indemnification. (a) Survival Period.
The representations and warranties of the Company contained herein shall survive
for a period of three years after the date hereof.
(b) Indemnification. In addition to all rights and remedies
available to the parties hereunder at law or in equity, the Company and Newco
(each in such capacity, an "Indemnifying Party") shall indemnify EIS, and its
respective affiliates, and EIS' and its respective affiliates' stockholders,
officers, directors, employees, agents, representatives, successors and assigns
(collectively, the "Indemnified Person"), and save and hold EIS harmless from
and against and pay on behalf of or reimburse each such Indemnified Person, as
and when incurred, for any and all loss, liability, demand, claim, action, cause
of action, cost, damage, deficiency, tax, penalty, fine or expense, whether or
not arising out of any claims by or on behalf of such Indemnified Person or any
third party, including interest, penalties, reasonable attorneys' fees and
expenses and all amounts paid in investigation, defense or settlement of any of
the foregoing (collectively, "Losses"), that any such Indemnified Person may
suffer, sustain incur or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of:
(i) any misrepresentation or breach of warranty on
the part of the Indemnifying Party under Section 2 of this Agreement or
Section 4 of the Letter Agreement; or
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(ii) any nonfulfillment, default or breach of any
covenant or agreement on the part of the Indemnifying Party under
Section 4 of this Agreement.
(c) Maximum Recovery. The maximum recovery of EIS under this
Section 6 shall not exceed $10 million. No Indemnified Party shall assert any
such claim unless Losses in respect thereof incurred by any Indemnified Party,
when aggregated with all previous Losses hereunder, equal or exceed $50,000, and
the obligation of the Indemnifying Party to indemnify shall not apply to the
first $50,000 of losses to the Indemnified Person.
(d) Exception. Notwithstanding the foregoing, and subject to
the following sentence, upon judicial determination that is final and no longer
appealable, that the act or omission giving rise to the indemnification set
forth above resulted primarily out of or was based primarily upon the
Indemnified Person's negligence (unless such Indemnified Person's negligence was
based upon the Indemnified Person's reliance in good faith upon any of the
representations, warranties, covenants or promises made by the Indemnifying
Party herein), the Indemnifying Party shall not be responsible for any Losses
sought to be indemnified in connection therewith, and the Indemnifying Party
shall be entitled to recover from the Indemnified Person all amounts previously
paid in full or partial satisfaction of such indemnity, together with all costs
and expenses (including reasonable attorneys fees) of the Indemnifying Party
reasonably incurred in connection with the Indemnified Party's claim for
indemnity, together with interest at the rate per annum publicly announced by
Morgan Guaranty Trust Company as its prime rate from the time of payment of such
amounts to the Indemnified Person until repayment to the Indemnifying Party.
(e) Investigation. All indemnification rights hereunder shall
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 6(b) above,
irrespective of any investigation, inquiry or examination made for or on behalf
of, or any knowledge of the Indemnified Person or the acceptance of any
certificate or opinion.
(f) Contribution. If the indemnity provided for the this
Section 6 shall be, in whole or in part, unavailable to any Indemnified Person,
due to Section 6(b) being declared unenforceable by a court of competent
jurisdiction based upon reasons of public policy, so that Section 6(b) shall be
insufficient to hold each such Indemnified Person harmless from Losses which
would otherwise be indemnified hereunder, then the Indemnifying Party and the
Indemnified Person shall each contribute to the amount paid or payable for such
Loss in such proportion as is appropriate to reflect not only the relative
benefits received by the Indemnifying Party on the one hand and the Indemnified
Person on the other, but also the relative fault of the Indemnifying Party and
be in addition to any liability that the Indemnifying Party may otherwise have.
Subject to Section 6(h) hereunder, the indemnity, contribution and expense
reimbursement obligations that the Indemnifying Party has under this Section 6
shall survive the expiration of the Transaction Documents. The parties hereto
further agree that the indemnification and reimbursement commitments set forth
in this Agreement shall apply whether or not the
11
<PAGE> 12
Indemnified Person is a formal part to any such lawsuit, claims or other
proceedings.
(g) Limitation. No claim shall be brought by an Indemnified
Person in respect of any misrepresentation or breach of warranty under this
Agreement after three years from and after the date hereof unless written notice
thereof shall have been provided prior to such three-year period, in which case
such surviving claims shall be limited to those in such notice; and any claim
for nonfulfillment, default or breach of any covenant shall be brought within
one year of the date of that such Indemnified Person became aware or should have
become aware of the nonfulfillment, default or breach, unless written notice
thereof shall have been provided prior to such one-year period, in which case
such surviving claims shall be limited to those in such notice. Except as set
forth in the previous sentence and in Section 6(c) above, this Section 6 is not
intended to limit the rights or remedies otherwise available to any party hereto
with respect to this Agreement or the Transaction Documents.
SECTION 7. Notices. All notices, demands and requests of any
kind to be delivered to any party in connection with this Agreement shall be in
writing and shall be deemed to have been duly given if personally delivered or
if sent by nationally-recognized overnight courier or by registered or certified
airmail, return receipt requested and postage prepaid, or by facsimile
transmission, addressed as follows:
(i) if to the Company, to:
Endorex Corp.
900 North Shore Drive
Lake Bluff, Illinois 60044
Facsimile: 847-604-8570
Attention: Michael S. Rosen
with a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019
Facsimile: (212) 586-7878
Attn: Richard R. Plumridge, Esq.
(ii) if to EIS, to:
Elan International Services, Ltd.
102 St. James Court
Flatts Smiths SL04
Bermuda
Facsimile: (441) 292-2224
Attention: President
12
<PAGE> 13
with a copy to:
Brock Fensterstock Silverstein & McAuliffe LLC
Citicorp Center
153 East 53rd Street
New York, New York 10022
Facsimile: (212) 371-5500
Attention: David Robbins
or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 7. Any such notice or communication shall be deemed to have been
received (i) in the case of personal delivery or facsimile transmission, on the
date of such delivery, (ii) in the case of nationally-recognized overnight
courier, on the second business day after the date when sent and (iii) in the
case of mailing, on the fifth business day following that day on which the piece
of mail containing such communication is posted. Notice hereunder may be given
on behalf of the parties by their respective attorneys.
SECTION 8. Amendments. This Agreement may not be modified or
amended, or any of the provisions hereof waived, except by written agreement of
the Company and EIS.
SECTION 9. Counterparts and Facsimile. The Transaction
Documents may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement. Each of the Transaction
Documents may be signed and delivered to the other party by facsimile
transmission; such transmission shall be deemed a valid signature.
SECTION 10. Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of the Agreement.
SECTION 11. Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to principles of conflicts of laws.
SECTION 12. Expenses. Each of the parties shall be responsible
for its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transaction Documents.
SECTION 13. Public Releases; Etc. The parties shall reasonably
agree in writing upon the contents of any press release or releases and other
public disclosure in respect of the transactions contemplated hereby, and no
such press release or disclosure shall be made except as so agreed, except as
may otherwise be required by applicable law or judicial or administrative
13
<PAGE> 14
process or pursuant to arrangements with financial, accounting or legal avisors.
SECTION 14. Schedules, etc. All statements contained in any
exhibit or schedule delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated hereby, are an integral part of
this Agreement and shall be deemed representations and warranties hereunder.
SECTION 15. Assignments. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement,
the other Transaction Documents, and the Securities may be transferred by EIS to
affiliates and subsidiaries without restriction; provided, however, that EIS
shall remain liable for its obligations hereunder after any such assignment.
IN WITNESS WHEREOF, each of the undersigned has duly executed
this Securities Purchase Agreement as of the date first written above.
ENDOREX CORP.
By:/s/ Michael S. Rosen
-------------------------------------
Michael S. Rosen
President and Chief Executive Officer
ELAN INTERNATIONAL SERVICES, LTD.
By:/s/ Kevin Insley
-------------------------------------
Name: Kevin Insley
Title: President & CEO
14
<PAGE> 1
EX. 10.19
CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR
PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 24B-2
UNDER THE SECURITIES EXCHANGE AC TO 1934, AS AMENDED.
THIS AGREEMENT is made the 22nd day of January 1998
BY AND BETWEEN
ELAN CORPORATION, PLC
An Irish company, of Lincoln House, Lincoln Place, Dublin 2, Ireland
AND
ENDOREX VACCINE DELIVERY TECHNOLOGIES, INC.
A Delaware corporation of 900 North Shore Drive, Lake Buff, Illinois 60044,
United States of America
LICENSE AGREEMENT
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CLAUSE NO. CLAUSE PAGE NO.
<S> <C> <C>
1 Definitions
2 Grant of Rights
3 Improvements
4 Intellectual Property Rights
5 Exploitation of Licensed Technology
6 Financial Provisions
7 Right of Audit and Inspection
8 Patents
9 Confidential Information
10 Trademarks
11 Term and Termination
12 Warranties/Indemnities
13 Insurance
14 Impossibility of Performance - Force Majeure
15 Settlement of Disputes; Proper Law
16 Assignment
17 Notices
18 Miscellaneous Clauses
</TABLE>
2
<PAGE> 3
WHEREAS
A. Elan is knowledgeable in the discovery, research, development,
manufacture and marketing of pharmaceutical formulations capable of
delivering drugs, including oral or mucosal Vaccine delivery. Elan owns
or has licensed the Elan Technology. Elan also owns and uses certain
trademarks in connection with the manufacture, marketing and sale of such
compounds, including the Elan Trademarks.
B. Orasomal has proprietary know-how and expertise relating, inter alia, to
immunology and is knowledgeable in the discovery, research, development,
manufacture and marketing of pharmaceutical formulations capable of
delivering drugs, including oral or mucosal Vaccine delivery. Orasomal
owns or has licensed the Orasomal Technology. Orasomal also owns and uses
certain trademarks in connection with the manufacture, marketing and sale
of such compounds, including the Orasomal Trademarks.
C. Elan and Endorex have agreed to co-operate in the establishment and
management of the Company, the business of which will be to research and
develop certain Products incorporating the technologies developed and/or
to be developed by Elan and Orasomal and to commercialize such Products
throughout the world.
D. Simultaneously herewith, Elan, Endorex and Orasomal are entering into the
Development Agreement for the purpose of recording the terms and
conditions of the joint venture and of regulating their relationship with
each other and certain aspects of the affairs of and their dealings with
the Company.
E. Under the Development Agreement, the Company shall own all rights in
technology developed pursuant to certain Research and Development
Programs being conducted or to be conducted by the Company or by Orasomal,
Elan or an Independent Third Party on behalf of the Company, including the
Company Program Technology, the Orasomal Program Technology and the Elan
Program Technology.
F. The Company desires to enter into this Agreement with Elan so as to (a)
permit the Company to utilize the Elan Patents, the Elan Know-How and the
Elan Trademarks in the research, development, manufacture, distribution
and sale of the Products in the Field and (b) to permit Elan to utilise
the Orasomal Program Technology, the Elan Program Technology and the
Company Program Technology in connection with (i) Elan's research and
development work on behalf of the Company and (ii) Elan's manufacturing
and supplying the Company or its designee(s) with the Products and other
components.
G. Simultaneously herewith, the Company and Orasomal are entering into a
similar license agreement relating to the Company's use of the Orasomal
Patents, the Orasomal Know-
3
<PAGE> 4
How and the Orasomal Trademarks and Orasomal's use of the Elan Program
Technology, the Orasomal Program Technology and the Company Program
Technology.
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS
1.1. In this present Agreement, including the Recitals, Schedules and
Appendices, the following definitions shall prevail unless the context
otherwise requires:
"ACQUIRED" means a transfer or license of a Patent, Know-How or other
forms of Intellectual Property Rights or information from an
Independent Third Party to Elan or Orasomal, as the case may
be, to the extent to which there are no obligations or
restrictions (such as confidentiality) in respect of that
information which prohibit disclosure to or use by the
Company;
"AFFILIATE" means any corporation or entity other than the Company
controlling, controlled or under the common control of Elan,
Orasomal or the Company as the case may be. For the purpose
of this definition, subject to the provisions of Clause
11.4. "control" shall mean direct or indirect ownership of
fifty percent (50%) or more of the stock or shares entitled
to vote for the election of directors;
"AGREEMENT" means this agreement (which expression shall be deemed to
include the Recitals, the Schedules and Appendices hereto);
"BUSINESS PLAN" means a plan for the business of the Company to be
reasonably agreed to by Elan, Orasomal, Endorex and the
Company prior to signing this Agreement or as soon
thereafter as is practicable and in any event within thirty
(30) days of signing this Agreement;
"CLOSING DATE" means January 22, 1998;
"COMPANY" means Endorex Vaccine Delivery Technologies, Inc.; ;
"COMPANY PROGRAM
PATENTS" means the inventions and underlying Patents that constitute
the Company Program Technology;
4
<PAGE> 5
"COMPANY PROGRAM
TECHNOLOGY" shall have the meaning assigned to it in the Development
Agreement;
"COMPANY SUBSCRIPTION
AGREEMENT" means the Subscription and Stockholders' Agreement of
Endorex Vaccine Delivery Technologies, Inc., made by and
between EIS, Endorex and the Company as of the date hereof;
"DEVELOPMENT
AGREEMENT" means the Joint Development & Operating Agreement of even
date entered into between Orasomal, Elan, EIS, Endorex and
the Company;
"EFFECTIVE DATE" means December 31, 1997;
"EIS" means Elan International Services Ltd.;
"ELAN" means Elan Corporation, plc (Elan will be acting through its
division Elan Pharmaceutical Technologies);
"ELAN EXCLUDED
TECHNOLOGY" has the meaning set forth in Schedule 1;
"ELAN KNOW-HOW" means Elan's drug delivery Know-How (including oral or
mucosal Vaccine delivery Know-How) and Know-How relating to
oral or mucosal Vaccines, other than the Elan Program
Know-How and the Elan Excluded Technology;
"ELAN PATENTS" means Elan's drug delivery inventions and underlying Patents
(including oral or mucosal Vaccine delivery inventions) and
inventions and underlying Patents relating to oral or
mucosal Vaccines, other than the Elan Program Patents and
the Elan Excluded Technology;
"ELAN PROGRAM
PATENTS" means the inventions and underlying Patents that constitute
Elan Program Technology;
"ELAN PROGRAM
TECHNOLOGY" has the meaning assigned to it in the Development Agreement;
"ELAN TECHNOLOGY" means the Elan Patents and/or the Elan Know-How (which
exclude the Elan Excluded Technology). The primary examples
of the Elan
5
<PAGE> 6
Technology existing as of the Effective Date are set forth
on Schedule 1; for the avoidance of doubt the Parties
confirm that the said list is not necessarily exhaustive.
The Elan Technology also includes the inventions and know
how that are the subject of the Maynooth Agreement or any
agreement with Maynooth University Enterprise Development
Limited envisaged by the Maynooth Agreement. For the
avoidance of doubt, Elan Technology shall exclude Patents
and Know How [****] or [****], including, but not limited
to, [****].
"ELAN TRADEMARKS" means, depending on the context, one or more of the
trademarks owned by, Acquired by, assigned or licensed to
Elan which are relevant to the Elan Technology or the
Products;
"ENDOREX" means Endorex Corp.;
"FDA" means the United States Food and Drug Administration or
any successors or agency the approval of which is necessary
to market a product in the United States of America or any
other relevant regulatory authority the approval of which is
necessary to market a product in any other country of the
Territory;
"FIELD" shall mean the [****];
"FIRST RIGHT OF
NEGOTIATION" shall have the meaning assigned to such term in Clause 9.5.
of the Development Agreement;
"IMPROVEMENTS" means inventions, discoveries and developments relating
to (A) the Elan Technology that can usefully be applied to
the Field, and (B) which were first reduced to practice
during the Term by Elan [but shall for the avoidance of
doubt exclude Program Technology and the Elan Excluded
Technology;
"INDEPENDENT
THIRD PARTY" means any person other than the Company, Elan, Endorex,
Orasomal or any of their respective Affiliates;
"IN-MARKET" means [****] (or where applicable by [****]) to an [****]
such as a
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
6
<PAGE> 7
[****], and shall exclude [****];
"INTELLECTUAL
PROPERTY RIGHTS" means proprietary rights in Patents, Know-How, registered
and unregistered designs, copyrights, trademarks, trade
dress, and other like legal rights for the protection of
intellectual property but shall for the avoidance of doubt
exclude the Elan Excluded Technology;
"KNOW-HOW" means all trade secrets, confidential scientific, technical
and medical information and expertise, technical data and
marketing information, studies and data from time to time
developed, produced by or on behalf of Elan, Orasomal or the
Company, as the case may be, whether before the Effective
Date or during the Term including, but not limited to,
unpatented inventions, discoveries, theories, plans, ideas
(whether or not reduced to practice) relating to the
research and development, manufacture, registration for
marketing, use or sale of the Product, toxicological,
pharmacological, analytical and clinical data,
bioavailability studies, product forms and formulations,
control assays and specifications, methods of preparation
and stability data;
"LISTED COMPANY" means the companies set forth in Schedule 2 and their
respective controlled (as such term is used in the
definition of Affiliates above) subsidiaries;
"MAJOR COUNTRY" means those countries of the Territory set forth in
Schedule 3;
"MANAGEMENT
COMMITTEE" means the management committee appointed by the directors of
the Company pursuant to the Development Agreement;
"MAYNOOTH means that certain Proposal Concerning the Exploitation of
AGREEMENT" Intellectual Property Rights by and between Elan and
Maynooth University Enterprise Development Limited dated
March 25, 1996, a copy of which is attached as Schedule 4;
"MIT" means the Massachusetts Institute of Technology;
"MIT AGREEMENT" means that certain Patent License Agreement by and
between Orasomal and the Massachusetts Institute of
Technology dated December 16, 1996 a copy of which is
attached to Schedule 3 of the Orasomal License Agreement;
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
7
<PAGE> 8
"MIT PATENTS" means the Patents licensed by the Massachusetts Institute
of Technology pursuant to the MIT Agreement;
"MIT PATENTED
PRODUCT" means any product or part thereof which: (a) is covered in
whole or in part by an issued, unexpired claim in the MIT
Patents in the country in which any such product or part
thereof is made, used or sold; or (b) is manufactured by
using a process or is employed to practice a process which
is covered in whole or in part by an issued, unexpired
claim in the MIT Patents in the country in which any MIT
Patented Process is used or in which such product or part
thereof is used or sold;
"MIT PATENTED
PROCESS" means any process which is covered in whole or in part by
an issued, unexpired claim or a pending claim contained in
the MIT Patents;
"NET SALES" means [****];
"ORASOMAL" means Orasomal Technologies, Inc.;
"ORASOMAL
KNOW-HOW" means Orasomal's drug delivery Know-How (including oral or
mucosal Vaccine delivery Know-How) and Know-How relating
to oral or mucosal Vaccines, other than Orasomal Program
Know-How;
"ORASOMAL LICENSE
AGREEMENT" means the license agreement of even date herewith entered
into between the Company and Orasomal;
"ORASOMAL PATENTS" means Orasomal's drug delivery inventions and underlying
Patents (including oral or mucosal Vaccine delivery
inventions) and inventions and underlying Patents relating
to oral or mucosal Vaccines, other than Orasomal Program
Technology. The Orasomal Patents include the MIT Patents
and are listed on Schedule 1 of the Orasomal License
Agreement;
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
8
<PAGE> 9
"ORASOMAL PROGRAM
PATENTS" means the inventions and the underlying Patents that
constitute Orasomal Program Technology;
"ORASOMAL PROGRAM
TECHNOLOGY" shall have the meaning assigned to it in the Development
Agreement;
"ORASOMAL
TECHNOLOGY" means the [****] and/or the [****]. The Orasomal
Technology also includes [****]. For the avoidance of
doubt, Orasomal Technology shall exclude [****], including
[****];
"ORASOMAL
TRADEMARKS" means, depending on the context, one or more of the
trademarks and any other relevant trademark owned by,
Acquired by, assigned or licensed to Orasomal which are
relevant to the Orasomal Technology or the Products;
"PARTIES" means Elan and the Company;
"PATENTS" means all and any patents and any applications therefor in
the Territory (including any and all divisions,
continuations, continuations-in-part, extensions,
additions or reissues thereto or thereof);
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, or other
entity of whatever nature;
"PLA" means the Product License Approval, or its equivalent, as
such term is understood by the FDA;
"PRE-EXISTING THIRD
PARTY TECHNOLOGY" has the meaning set forth in Clause 2.3;
"PRODUCT" means any [****];
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
9
<PAGE> 10
"PROGRAM
TECHNOLOGY" has the meaning assigned to it in the Development Agreement;
"RELEVANT EVENT" has the meaning set forth in Clause 11.3.1;
"RESEARCH AND
DEVELOPMENT
PROGRAM" means depending on the context, one or more programs of
research and development work being conducted or to be
conducted by, inter alia, Orasomal and Elan for and on
behalf of the Company which have been devised by the
Research Committee and approved by the Management Committee;
"TECHNOLOGIES" means collectively, the Orasomal Technology together with
the Elan Technology;
"TERM" has the meaning set forth in Clause 11.1;
"TERRITORY" means [****];
"THIRD PARTY
TECHNOLOGY" has the meaning set forth in Clause 9.5. of the Development
Agreement;
"VACCINES" means a biologically or synthetically derived substance
administered to [****]; and
"UNITED STATES
DOLLAR" AND "US$" means the lawful currency for the time being of the United
States of America.
1.2. Words importing the singular shall include the plural and vice versa.
1.3. Unless the context otherwise requires, reference to a recital, article,
paragraph, provision, clause or schedule is to a recital, article,
paragraph, provision, clause or schedule of or to this Agreement.
1.4. Reference to a statute or statutory provision includes a reference to it
as from time to time amended, extended or re-enacted.
1.5. The headings in this Agreement are inserted for convenience only and do
not affect its construction.
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
10
<PAGE> 11
1.6. Unless the context or subject otherwise requires, references to words in
one gender include references to the other genders.
1.7. References to "include" or "including" shall be construed as examples
only, and in no way be read as limiting.
2. GRANT OF RIGHTS
2.1. Subject to the terms of this Agreement, under all of Elan's existing and
future Patents and other Intellectual Property Rights covering the Elan
Technology, Elan hereby grants to the Company for the Term an exclusive
licence to the Elan Technology in the Field for all research, development,
and commercial purposes in the Field. All proprietary rights and rights
of ownership with respect to the Elan Technology shall at all times remain
solely with Elan, or where applicable with Elan's licensor. The Company
shall not have any rights to use the Elan Technology other than insofar as
they relate directly to the Field and are expressly granted herein.
2.2. Subject to any restriction in any licenses or other agreements pursuant to
which Elan licenses any of the Elan Trademarks, Elan hereby grants the
Company for the Term of this Agreement a non-exclusive, royalty-free, fully
paid-up license (or, if applicable, sublicense) to use the Elan Trademarks
which relate to the Elan Technology applicable to the Product, such as an
acronym for the applicable technology applied to the Product, on the terms
set forth in Clause 10 upon or in relation to the promotion, marketing,
advertising, sale or offering for sale of the Products. The Company shall
not be obliged to use the Elan Trademark to identify the Product but at
Elan's request shall be obliged to use the Elan Trademark to identify the
applicable Elan Technology embodied in the Product. For the avoidance of
doubt, the Parties hereby confirm that the Company shall not be entitled to
a licence to use any trademark owned or controlled by Elan which identifies
a pharmaceutical product.
2.3. Elan shall not be obliged to license Patents or Know-How licensed or
Acquired by Elan from an Independent Third Party on or before the
Effective Date ("Pre-existing Third Party Technology") to the Company
(including, but not limited to, Patents or Know-How owned jointly or
through a joint venture with [****] and [****]). In the event that Elan
considers that such Pre-existing Third Party Technology may have
application in the Field, Elan shall, subject to contractual constraints,
review such Pre-existing Third Party Technology with the Company and where
applicable use its reasonable endeavours to procure an agreement between
the Company and the applicable Independent Third Party (at the Company's
cost). Where applicable Elan may, at its option, license or sub-license
such Pre-existing Third Party Technology to the Company for the Field,
subject to the payment by the Company to
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
11
<PAGE> 12
Elan of such amounts as are payable by Elan to any Independent Third
Party in respect of the exploitation by the Company of the Pre-existing
Third Party Technology.
2.4. Elan hereby confirms that prior to the Effective Date it has not licensed
or Acquired any Patents or Know How in relation to the Field save and
except for those that are the subject of the Maynooth Agreement and the
[****]. Elan shall be responsible for the discharge of the licence fees,
if any, and royalties and any other payments payable under the Maynooth
Agreement, or under any agreement concluded with Maynooth University
Enterprise Development Limited as envisaged in the Maynooth Agreement.
2.5. In addition Elan has entered into a preliminary development agreement
with an Independent Third Party in relation to the Field, the terms of
which are subject to confidentiality restrictions. If such preliminary
development program is successful, Elan shall seek the consent of the
Independent Third Party to disclose the results of the formulation
development program to the Company, and such results shall be deemed Third
Party Technology and governed by the provisions of Clause 2.9. of this
Agreement and Clause 9.5. of the Development Agreement.
2.6. Subject to the terms of this Agreement, the Company hereby grants to Elan
for the Term of this Agreement a [****] license to use the Elan Program
Technology, Orasomal Program Technology and the Company Program
Technology, and, subject to the terms and conditions of the Orasomal
License Agreement, a [****] sublicense to use the Orasomal Technology
insofar as is necessary, in each case, solely to permit Elan to perform
its obligations pursuant to this Agreement and the Development Agreement
for the benefit of the Company, including, without limitation, (a)
conducting research and development pursuant to the Research and
Development Programs, and (b) developing, manufacturing and supplying the
Products and any other chemical or formulation components. All rights of
ownership with respect to the Elan Program Technology, the Orasomal
Program Technology and the Company Program Technology shall at all times
remain solely with the Company.
2.7. Elan is entitled to negotiate a license agreement to exploit the Elan
Program Technology outside the Field in accordance with the provisions of
Clauses 9.3. and 9.8. of the Development Agreement pursuant to which the
Company may in the case of Clause 9.3. of the Development Agreement, and
shall in the case of Clause 9.8. of the Development Agreement grant Elan a
licence to use the Elan Program Technology.
2.8. The Company shall not be permitted to sublicense any of the rights
granted to the Company by Elan pursuant to this Agreement without the
prior written consent of Elan, which consent will not be unreasonably
withheld or delayed; provided that such reasonableness standard shall not
be applicable in the case of a proposed sublicense to
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
12
<PAGE> 13
any Listed Company However, the Company shall have the right to grant a
royalty-free sublicense to the Elan Technology in the Field to Orasomal to
enable Orasomal to fulfil its obligations pursuant to the Orasomal License
Agreement and the Development Agreement. Insofar as the obligations owed
by the Company to Elan are concerned, the Company shall remain responsible
for all acts and omissions of any sub-licensee, including Orasomal, as if
they were by the Company. In the event of a termination of this Agreement
due to a breach by the Company, Elan shall have the right but not the
obligation to assume any such sub-license.
2.9. Subject to the other provisions of this Agreement and to the provisions
of [****] of the Development Agreement, [****] (a) for or on behalf of
the Company, (b) in relation to [****] for which the Company has elected
not to [****] or has been unable to [****] after the applicable [****]
has been exercised by the Company, or (c) with the Company's prior
written consent. For the avoidance of doubt the Parties confirm that the
foregoing [****] is applicable to the [****] conducted by [****] through
its division [****] and shall not apply to [****], including, but not
limited to, [****] and if it shall become such, [****].
2.10. Elan shall also provide all reasonable assistance to the Company in
delivering and enabling the Company to utilize the Company's license to
the Elan Technology.
3. IMPROVEMENTS
3.1. Except to the extent prohibited by any undertaking given to any
Independent Third Party (provided that after the Closing Date each Party
shall use all commercially reasonably efforts to exclude or minimise the
extent of any such limitations or restrictions), the licenses to the Elan
Technology granted by Elan pursuant to Clause 2 shall include the
Improvements. If Elan shall develop any Improvements during the Term,
Elan shall communicate to the Company such Improvements and shall provide
to the Company such rights, licenses, information and explanations as the
Company may reasonably require to be able effectively to utilise the
Improvements for the life of this Agreement. Such disclosed Improvements
shall automatically on disclosure to the Company become part of the Elan
Know-How or Elan Patents (as the case may be) and shall be subject to the
provisions of this Agreement. the Company shall not have any right to
use such Improvements outside the Field.
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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4. INTELLECTUAL PROPERTY RIGHTS
4.1. The respective rights of Elan, the Company and Orasomal to exploit the
Elan Program Technology, Orasomal Program Technology and the Company
Program Technology shall be regulated by the provisions of Clause 6 of the
Development Agreement.
5. EXPLOITATION OF LICENSED TECHNOLOGY
5.1. Except as provided for in this Agreement, the Company's obligations to
exploit the Elan Technology shall be regulated by Clause 9 of the
Development Agreement.
5.2. The Company shall exert its reasonable efforts [****] consistent with the
[****] in each [****] determined in a commercially reasonable manner and
with a view to [****]. The Company will diligently pursue the [****], as
provided in the Business Plan.
5.3. The Company will be solely responsible for ensuring that the manufacture,
promotion, distribution, marketing and sale of the Products within each
country of the Territory is in strict accordance with all the legal and
regulatory requirements of each country of the Territory.
5.4. All advertising, promotional materials and marketing costs needed to
exploit the Products are to be paid for by the Company. Any packaging for
the Products shall contain information to the effect that the Product has
been developed by Elan in conjunction with Orasomal and the Company and is
to be agreed upon by Elan in advance. Such acknowledgement shall take
into consideration regulatory requirements and the Company's reasonable
commercial requirements. The Company shall submit copies of all forms of
trade package cartons and labels and other printed materials to Elan for
approval before commercial sale of the Product commences. If a change in
such materials from that initially approved which would require regulatory
approval or filing or any other material change is proposed, all such
package cartons and labels and printed materials shall be resubmitted for
approval before commercial use thereof. It shall be presumed that Elan
approved of such use unless Elan provides written notice of disapproval of
such use to the Company within ten (10) business days of delivery of such
materials to Elan, such approval not to be unreasonably withheld. The
further consent of Elan shall not be required where the format and content
of such materials is substantively similar as the materials previously
furnished to and approved by Elan.
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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<PAGE> 15
6. FINANCIAL PROVISIONS
6.1. In consideration of the rights and licences granted to the Company
pursuant to this Agreement, the Company shall pay the following amounts to
Elan in the manner and on the dates set forth below:
6.1.1. [****]
6.1.2. [****]
6.1.3. [****]
6.1.4. [****].
6.2. In consideration of the rights and licences granted to the Company
pursuant to this Agreement, the Company shall [****] of any and all [****]
received by the Company to Elan; provided, that Elan's [****] of the
aggregate of [****] shall not be less than [****]without Elan's prior
consent, unless the Company shall establish, to Elan's reasonable
satisfaction, consistent with then-current prudent and customary business
standards, that an aggregate [****] of less than [****] is necessary in
order to enable the Company to commercialize the subject Product without
undue hardship; provided further, that the Company shall use commercially
reasonable good faith efforts to seek to obtain the [****] on a case-by
case basis.
6.3. In the event that Elan shall cease to be a shareholder of the Company,
the Parties shall negotiate in good faith such amendments to the Agreement
as are equitable and applicable having regard to the fact that Elan no
longer has any representation on the Board of Directors of the Company or
the Management Committee (for example the royalty provisions and such
provisions of the Development Agreement as are applicable), provided that
such negotiations shall not apply to the existence of the Agreement.
6.4. Payment of royalties shall be made quarterly within forty-five (45) days
after the expiry of the calendar quarter. The method of payment shall be
by way of wire transfer to an account specified by Elan. Each payment made
to Elan shall be accompanied by a
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
15
<PAGE> 16
written report, prepared and signed by a senior financial officer of the
Company. In addition the report shall clearly show the Net Sales for the
months of the calendar quarter for which payment is being made on a
country by country basis. In the event that no royalty is due to Elan
for any calendar quarter, the senior financial officer shall so report.
In addition to the written reports accompanying each payment, the Company
shall notify Elan, within thirty (30) days of the end of each calendar
quarter, of the Net Sales of the Product(s) for that preceding quarter on
a country by country basis.
6.5. The Company shall maintain and keep clear, detailed, complete, accurate
and separate records so:
6.5.1. as to enable any royalties on Net Sales of a Product which shall
have accrued hereunder to be determined; and
6.5.2. that any deductions made in arriving at the Net Sales of a Product
can be determined.
6.6. All payments due hereunder shall be made in United States Dollars.
Payments due on Net Sales of the Product made in a currency other than
United States Dollars shall first be calculated in the foreign currency
and then converted to United States Dollars on the basis of the exchange
rate in effect for the purchase of United States Dollars with such
foreign currency quoted in the Wall Street Journal (or comparable
publication if not quoted in the Wall Street Journal) with respect to the
currency of the country of origin of such payment for the day prior to
the date on which the payment by the Company is being made.
6.7 Subject to the provisions of Clauses 6.8. and 6.10. of this Agreement,
the Company shall pay all royalties at the full rates specified in this
Clause 6.
6.8. If, at any time, legal restrictions in the Territory prevent the prompt
payment of royalties or any portion thereof, the Parties shall meet to
discuss suitable and reasonable alternative methods of reimbursing Elan
the amount of such running royalties. In the event that the Company is
prevented from making any payment under this Agreement by virtue of the
statutes, laws, codes or government regulations of the country from which
the payment is to be made, then such payments may be paid by depositing
them in the currency in which they accrue to Elan's account in a bank
acceptable to Elan in the country the currency of which is involved or as
otherwise agreed by the Parties.
6.9. Elan and the Company agree to co-operate in all respects reasonably
necessary to take advantage of any double taxation agreements or similar
agreements as may, from time to time, be available.
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<PAGE> 17
6.10. Any taxes payable by Elan on any payment made to Elan pursuant to this
Agreement shall be for the account of Elan. If so required by applicable
law any payment made pursuant to this Agreement shall be made by the
Company after deduction of the appropriate withholding tax in which event
the Parties shall co-operate to the extent reasonably necessary to obtain
the appropriate tax credits as soon as is practicable. In the event of a
credit, the Company shall forthwith forward copies of the credit
documentation to Elan.
7. RIGHT OF AUDIT AND INSPECTION
7.1. On not more than two times in each calendar year, the Company shall
permit Elan or its duly authorised representatives upon reasonable notice
and at any reasonable time during normal business hours to have access to
inspect and audit the accounts and records of the Company and any other
book, record, voucher, receipt or invoice relating to the calculation of
the royalty payments on Net Sales submitted to Elan and to the accuracy
of the reports which accompanied them. Any such inspection of the
Company's records shall be at the expense of Elan, except that if any
such inspection reveals a deficiency in the amount of the running royalty
actually paid to Elan hereunder in any calendar quarter of [****] or more
of the amount of any running royalty actually due to Elan hereunder, then
the expense of such inspection shall be borne solely by the Company. Any
amount of deficiency shall be paid promptly to Elan. If such inspection
reveals a surplus in the amount of running royalty actually paid to Elan
by the Company, Elan shall promptly reimburse the Company the surplus.
The Company shall maintain the foregoing records for a period of at least
five (5) years following the end of the calendar year to which they
pertain.
7.2. In the event of any unresolved dispute regarding any alleged deficiency
or overpayment of royalty payments hereunder, the matter will be referred
to an independent firm of chartered accountants for a resolution of such
dispute mutually acceptable to both parties. Any decision by the said
firm of chartered accountants shall be binding on the Parties.
8. PATENTS
8.1. The Company shall permanently mark or otherwise cause Orasomal or any
Independent Third Party to permanently mark all Products and/or the
packaging therefor with such license or patent notices and in such manner
as Elan may reasonably request in writing prior to the sale or commercial
use thereof.
8.2. Elan shall be obliged to disclose promptly to the Company inventions
and discoveries made by or on behalf of Elan otherwise than in connection
with the performance of a
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
17
<PAGE> 18
Research and Development Program (which inventions and discoveries
shall be regulated by the provisions of the Development Agreement), any
patentable inventions and discoveries within the Elan Know-How which
relate to the Field as well as any Improvements developed by or on behalf
of Elan.
8.3. The Parties shall discuss in good faith all material issues relating to
filing, prosecution and maintenance of Elan Patents (insofar as the Elan
Patents are of relevance to the Field), the Elan Program Patents, any
patentable inventions and discoveries within the Elan Know-How that relate
to the Field and any Improvements developed by or on behalf of Elan (other
than pursuant to one or more of the Research and Development Programs).
Subject to agreement to the contrary the following provisions shall apply:
8.3.1. Elan [****] shall have the right but shall not be obligated (a)
to secure the grant of any patent from applications within the Elan
Patents that relate to the Field; (b) to file and prosecute patent
applications on patentable inventions and discoveries within the
Elan Know-How that relate to the Field and patentable Improvements
developed by or on behalf of Elan (other than pursuant to one or
more of the Research and Development Programs); (c) to defend all
such applications against Independent Third Party oppositions;
and/or (d) to maintain in force any issued letters patent within
the Elan Patents that relate to the Field (including any letters
patent that may issue covering any Improvements). Elan shall have
the sole right in its reasonable business discretion to control
such filing, prosecution, defence and maintenance; provided
however, that the Company shall be provided with copies of all
documents relating to such filing, prosecution, defence, and
maintenance in sufficient time to review such documents and comment
thereon prior to filing of such documents.
8.3.2. In the event that Elan (i) elects that it does not intend to
file patent applications on patentable inventions and discoveries
within the Elan Know-How that relate to the Field or patentable
Improvements developed by or on behalf of Elan (other than pursuant
to one or more of the Research and Development Programs) in one or
more countries in the Territory, (ii) fails to file such an
application within a reasonable period of time, or (iii) elects or
fails to maintain or prosecute further any such pending application
or issued patent then Elan shall so notify the Company in writing
no less than two (2) months prior to the expiration of any
applicable due date or time bar, and after receipt of such notice,
the Company shall have the right, but not the obligation, at the
Company's sole expense to file and prosecute such patent
application(s) in the joint names of the Company and Elan, and Elan
upon written request from the Company shall execute all documents,
forms and declarations and to do all things as shall be reasonably
necessary to enable the Company to exercise such option and right.
8.3.3. In relation to the Elan Program Patents, the Company at its
expense shall have the right but shall not be obligated (a) to
secure the grant of any patent from
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
18
<PAGE> 19
applications within the Elan Program Patents; (b) to file and
prosecute patent applications on patentable inventions and
discoveries within the Elan Program Know-How; (c) to defend all
such applications against Independent Third Party oppositions; and
(d) to maintain in force any issued letters patent within the Elan
Program Patents (including any patents that issue on patentable
inventions and discoveries within the Elan Program Know-How). The
Company shall have the right to control such filing, prosecution,
defence and maintenance; provided however Elan and Orasomal shall
be provided with copies of all documents relating to such filing,
prosecution, defence, and maintenance in sufficient time to review
such documents and comment thereon prior to filing of such
documents.
8.3.4. In the event that the Company (i) elects that it does not
intend to file patent applications on patentable inventions and
discoveries within the Elan Program Know-How, (ii) fails to file
such an application within a reasonable period of time or, (iii)
elects or fails to maintain or prosecute further any such pending
application or issued patent then the Company shall so notify Elan
in writing no less than two (2) months prior to the expiration of
any applicable due date or time bar, and after receipt of such
notice, Elan shall, insofar as it is necessary to enable Elan to
exploit the Elan Program Know-How pursuant to Clauses 2.6. and 2.7.
of this Agreement or Clause 6.5. of the Development Agreement, have
the right, but not the obligation at Elan's sole expense to file
and prosecute such patent application(s) in the Company's name and
the Company upon written request from Elan shall execute all
documents, forms and declarations and to do all things as shall be
reasonably necessary to enable Elan to exercise such option and
right. In the event that Elan and the Company negotiate a license
to enable Elan to exploit the Elan Program Technology outside the
Field pursuant to Clause 6.5. of the Development Agreement, the
Parties shall take the patent related expenditures incurred by Elan
as referred to above into account to the extent they are incurred
in relation to the Patents being licensed to Elan in determining
the royalty payable by Elan to the Company. Notwithstanding
anything herein to the contrary, the Parties agree that the Company
shall own all right, title and interest in such patent applications
and any patents that may issue thereon (including any and all
divisions, continuations, continuations-in-part, extensions,
additions or reissues thereto or thereof). Insofar as any patent
filing has application within and outside the Field, the Company
and Elan will negotiate, in good faith, on the course of action to
be taken.
8.4. Elan and the Company shall promptly inform the other in writing of any
alleged infringement of any Patents within the Elan Patents that relate to
the Field, the Elan Program Patents, the Orasomal Program Patents, or the
Company Program Patents or any alleged misappropriation of trade secrets
within the Elan Know-How that relate to the Field, the Elan Program
Know-How, the Orasomal Program Know-How or the
19
<PAGE> 20
Company Program Technology by an Independent Third Party of which it
becomes aware and provide the other with any available evidence of such
infringement or misappropriation.
8.4.1. During the Term, the Company shall have the right to bring suit
or otherwise take action at its own expense and for its own
benefit any such alleged infringements of the Elan Patents or
misappropriation of the Elan Know-How, insofar as such
infringements or misappropriation relate to the Field. In the
event that the Company takes such action, the Company shall do so
at its own cost and expense. At the Company's request, Elan will
co-operate with such action insofar as the said action relates to
the Field at the Company's sole cost and expense. Any recovery
remaining after the deduction by the Company of the reasonable
expenses (including attorney's fees and expenses) incurred in
relation to such an infringement proceeding shall constitute Net
Sales for the purpose of this Agreement and the Orasomal License
Agreement and prior to commencing, or at an early stage in the
proceedings, the Company, Elan and Orasomal shall agree upon the
royalty that shall be due to each of Elan and Orasomal in respect
of such deemed Net Sales. Should the Company decide not to pursue
such infringers, within a reasonable period but in any event (i)
within sixty (60) days after receiving written notice of such
alleged infringement or misappropriation or (ii) ten (10) days
before the time limit, if any, set forth in the appropriate laws
and regulations for the filing of such actions, whichever comes
first, or if such alleged infringement or misappropriation does
not relate to the Field, Elan may in its discretion initiate such
proceedings in its own name, at its expense and for its own
benefit, and at Elan's request, the Company will co-operate with
such action at Elan's sole cost and expense. In the alternative,
the Parties may agree to institute such proceedings in their joint
names and shall reach agreement as to the proportion in which they
will share the proceeds of any such proceedings, and the expense
of any costs not recovered, or the costs or damages payable to the
Independent Third Party. If the infringement of the Elan Patents
affects the Field as well as other products being developed or
commercialised by Elan or its commercial partners outside the
Field, the Parties shall agree as to the manner in which the
proceedings should be instituted and shall reach agreement as to
the proportion in which they will share the proceeds of any such
proceedings, and the expense of any costs not recovered, or the
costs or damages payable to the Independent Third Party.
8.4.2. During the Term, the Company shall have the first right but not
the obligation to bring suit or otherwise take action against any
alleged infringement of the Elan Program Patents or the Company
Program Patents (and as appears from Clause 8.4.2. of the Orasomal
License Agreement, the Orasomal Program Patents) or alleged
misappropriation of the Elan Program Know-How (and as appears from
20
<PAGE> 21
Clause 8.4.2. of the Orasomal License Agreement, the Orasomal
Program Know-How) within the Field. If any such alleged
infringement or misappropriation occurs which gives rise to a
cause of action both inside and outside the Field, the Parties
shall negotiate, together with Orasomal, in good faith to
determine the cause of action to be taken. In the event that the
Company takes such action, the Company shall do so solely at its
own cost and expense. At the Company's request, Elan will
co-operate with any such action at the Company's sole cost and
expense. Any recovery remaining after the deduction by the
Company of the reasonable expenses (including attorney's fees and
expenses) incurred in relation to such an infringement proceeding
shall constitute Net Sales for the purpose of this Agreement and
the Orasomal License Agreement and prior to commencing, or at an
early stage in the proceedings, the Company, Elan and Orasomal
shall agree upon the royalty that shall be due to each of Elan and
Orasomal in respect of such deemed Net Sales. In the event that
the Company decides not to take such action against such
infringement or misappropriation or fails to do so within a
reasonable period but in any event (i) within sixty (60) days
after receiving written notice of such alleged infringement or
misappropriation or (ii) ten (10) days before the time limit, if
any, set forth in the appropriate laws and regulations for the
filing of such actions, whichever comes first, Elan may in its
discretion initiate such proceedings in its own name regarding the
Elan Program Technology (or in the Company's name if required by
law; provided, however, that Elan identifies itself as the real
party in interest and does not take any action that would expose
the Company to liability of any kind). In the event that Elan
initiates such action, it shall do so solely at its sole cost and
expense and all damages and monetary award recovered in or with
respect to such action shall be the property of Elan. At Elan's
request, the Company agrees to co-operate with Elan in any such
proceeding at Elan's sole cost and expense. In the alternative,
the Parties may agree to institute such proceedings in their joint
names and shall reach agreement as to the proportion in which they
will share the proceeds of any such proceedings, and the expense
of any costs not recovered, or the costs or damages payable to the
Independent Third Party.
8.5. In the event that a claim or proceedings are brought against the Company
by an Independent Third Party alleging that the sale, distribution or use
of the Product in the Territory solely because of the Company's use of the
Elan Technology infringes the intellectual property rights of such an
Independent Third Party, the Company shall promptly advise Elan of such
threat or suit.
8.6. Elan shall have no liability to the Company whatsoever or howsoever
arising for any losses incurred by the Company as a result of having to
cease selling Product or having to defer the launch of selling Product as
a result of any infringement proceedings.
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<PAGE> 22
9. CONFIDENTIAL INFORMATION
9.1. The Parties acknowledge that it may be necessary, from time to time, to
disclose to each other confidential and/or proprietary information,
including without limitation, the Technologies, Program Technology,
Improvements and the Patents relating thereto, inventions, works of
authorship, trade secrets, specifications, designs, data, know-how and
other information relating to the Field, the MIT Agreement, the Maynooth
Agreement, the terms of the Definitive Documents, the Products, processes
and services, or the business of the disclosing Party ("Confidential
Information").
Confidential Information shall be deemed not to include:
(i) information that is in the public domain;
(ii) information which is made public by the disclosing Party;
(iii) information which is independently developed by a Party without the
aid or application of the Confidential Information;
(iv) information that is published or otherwise becomes part of the
public domain without any disclosure by a Party, or on the part of
a Party's directors, officers, agents, representatives or employees;
(v) information that becomes available to a Party on a non-confidential
basis, whether directly or indirectly, from a source other than a
Party, which source, to the best of the Party's knowledge, did not
acquire this information on a confidential basis; or
(vi) information which the receiving Party is required to disclose
pursuant to:
(A) a valid order of a court or other governmental body or any
political subdivision thereof or otherwise required by law; or
(B) other requirement of law; provided that if the receiving Party
becomes legally required to disclose any confidential
information, the receiving Party shall give the disclosing
Party prompt notice of such fact so that the disclosing Party
may obtain a protective order or other appropriate remedy
concerning any such disclosure. The receiving Party shall
fully co-operate with the disclosing Party in connection with
the disclosing Party's efforts to obtain any such order or
other remedy. If any such order or other remedy does not fully
preclude disclosure, the receiving Party shall make such
disclosure only to the extent that such disclosure is legally
required.
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<PAGE> 23
9.2. Any Confidential Information revealed by a Party to another Party shall
be used by the receiving Party exclusively for the purposes of fulfilling
the receiving Party's obligations under this Agreement and the Development
Agreement and for no other purpose.
9.3. Each Party agrees to disclose Confidential Information of another Party
only to those employees, representatives and agents requiring knowledge
thereof in connection with their duties directly related to the fulfilling
of the Party's obligations under this Agreement. Each Party further
agrees to inform all such employees, representatives and agents of the
terms and provisions of this Agreement and their duties hereunder and to
obtain their consent hereto as a condition of receiving Confidential
Information. Each Party agrees that it will exercise the same degree of
care, but in no event less than a reasonable degree, and protection to
preserve the proprietary and confidential nature of the Confidential
Information disclosed by a Party, as the receiving Party would exercise to
preserve its own proprietary and confidential information. Each Party
agrees that it will, upon request of a Party, return all documents and any
copies thereof containing Confidential Information belonging to or
disclosed by, such Party.
9.4. Notwithstanding the above, each Party may use or disclose confidential
information disclosed to it by another Party to the extent such use or
disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with patent
applications, prosecuting or defending litigation, complying with
applicable governmental regulations or otherwise submitting information to
tax or other governmental authorities, conducting clinical trials, or
making a permitted sub-license or otherwise exercising its rights
hereunder, provided that if a Party is required to make any such
disclosure of the other Party's confidential information, other than
pursuant to a confidentiality agreement, such Party shall inform the other
Party, allow the other Party to participate in the process and generally
limit disclosure to the greatest extent possible and seek confidential
treatment or a protective order.
9.5. The provisions relating to confidentiality in this Clause 9 shall remain
in effect during the Term, and for a period of [****] following the
expiration or earlier termination of this Agreement.
9.6. The Parties agree that the obligations of this Clause 9 are necessary and
reasonable in order to protect the Parties' respective businesses, and
each Party expressly agrees that monetary damages would be inadequate to
compensate a Party for any breach by the other Party of its covenants and
agreements set forth herein. Accordingly, the Parties agree and
acknowledge that any such violation or threatened violation will cause
irreparable injury to a Party and that, in addition to any other remedies
that may be available, in law and equity or otherwise, any Party shall be
entitled to obtain injunctive
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
23
<PAGE> 24
relief against the threatened breach of the provisions of this Clause 9,
or a continuation of any such breach by the other Party, specific
performance and other equitable relief to redress such breach together
with its damages and reasonable counsel fees and expenses to enforce its
rights hereunder, without the necessity of proving actual or express
damages.
10. TRADEMARKS
10.1. The Company undertakes that all Products and all materials utilised in
connection with the provision, marketing, distribution, advertising
and/or marketing thereof that bear or incorporate the Elan Trademarks
shall be of a consistent and high standard of quality, commensurate with
the prestige of the Elan Trademarks and that its use of the Elan
Trademarks shall conform to such reasonable standards as Elan shall from
time to time specify. The Company shall co-operate fully with the
reasonable instructions of Elan with respect to the maintenance of such
standards.
10.2. The Company shall:
10.2.1. subject to the agreement of the Company's commercial partner
such as a sub-licensee, favourably consider promoting and using
the Elan Trademarks in each country of the Territory and provide
proof of use of the Elan Trademarks if requested by Elan;
10.2.2. use the Elan Trademarks strictly in compliance with any
applicable trademark and other laws and regulations and to use
such legends, markings and notices in connection therewith as are
required by law or otherwise reasonably required by Elan to
protect Elan's rights therein;
10.2.3. do nothing to mislead the public as to the nature or quality of
any Product on which the Elan Trademarks are affixed nor use it
on advertising or display materials which are unethical, immoral
or offensive to good taste;
10.2.4. at Elan's reasonable request, supply samples of the Products
and any materials utilized in connection with the distribution,
advertising and/or marketing thereof that bear or incorporate the
Elan Trademarks for inspection by Elan;
10.2.5. not adopt or seek to register any trademark, design or logo
confusingly similar to the Elan Trademarks without Elan's prior
written consent; and
10.2.6. promptly notify Elan in writing if any alleged infringement or
unauthorized use of the Elan Trademarks comes to the Company's
attention.
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10.3. The Company undertakes to use the Elan Trademarks in relation only to
the Products (or materials for advertising and promotion thereof), and in
accordance with any reasonable specifications and directions given by
Elan from time to time. In particular, but without limitation, the
Company agrees to state on the Products or materials for the advertising
or promotion thereof that the Elan Trademarks are used under license from
Elan.
10.4. The Company shall take no action which could prejudice the validity,
re-registration or reputation of the Elan Trademarks or which could
impair the reputation, business standing or prestige of Elan.
10.5. Elan shall remain the owner of the Elan Trademarks and the goodwill
associated with the same and the Company agrees not to assert any
ownership interest in the Elan Trademarks or the goodwill associated
therewith. The Company shall own and retain all right, title, and
interest in and to any trademark or trademarks (other than the Elan
Trademarks and the Orasomal Trademarks) used in the Territory in
connection with the sale of the Products.
10.6. Elan shall have the exclusive right to take such action in respect of
the registration, defence, infringement and maintenance of the Elan
Trademarks as Elan in its reasonable business judgement deems
appropriate. The Company shall provide all such assistance and
co-operation, including the furnishing of documents and information and
the execution of registered user documentation or the like, as may be
required to give effect to any action as may be taken, or required to be
taken, by Elan. In taking any such action, Elan shall consider the
legitimate commercial interests of the Company.
10.7. New trademarks used in relation to the Elan Program Technology, the
Orasomal Program Technology, the Company Program Technology, or the
Products and all registrations thereof and applications therefor shall be
owned and registered by the Company. New trademarks used in relation to
the Elan Technology and all registrations thereof and applications
therefor shall be owned and registered by Elan and shall constitute Elan
Trademarks.
11. TERM AND TERMINATION
11.1. This Agreement is concluded for a period commencing as of the Effective
Date and expiring on a Product by Product basis and on a country by
country basis on the later to occur of:
11.1.1. fifteen (15) years starting from the date of the launch of the
Product in the country concerned; and
25
<PAGE> 26
11.1.2. the last to expire Patent included in the Elan Patents and/or the Elan
Program Patents and/or the Orasomal Program Patents and/or the Company
Program Patents (the "Term").
11.2. At the end of the Term, the Company shall have a paid-up non-exclusive
licence to the Elan Technology for the Field.
11.3.1. For the purpose of this Clause 11.3, a "Relevant Event" is committed by
Elan or the Company if:
(i) it commits a material breach of its obligations under this
Agreement and fails to remedy it within sixty (60) days of being
specifically required in writing to do so by the other Party;
provided, however, that if the breaching Party has proposed a
course of action to rectify the breach and is acting in good
faith to rectify same but has not cured the breach by the
sixtieth (60th) day, such rectifying period shall be extended by
an amount of time as is reasonably necessary to permit the breach
to be rectified;
(ii) it ceases , wholly or substantially, to carry on its business,
other than for the purpose of a reorganization, without the prior
written consent of the other Participant (such consent not to be
unreasonably withheld);
(iii) the voluntary appointment of a liquidator, receiver,
administrator, examiner, trustee or similar officer over all or
substantially all of its assets under the laws of such
Participant's state or country of incorporation; or
(iv) an application or petition for bankruptcy, corporate
reorganization, composition, administration, examination,
arrangement or any other procedure similar to any of the
foregoing under the laws of such Participant's state or country
of incorporation, is filed, and is not discharged within ninety
(90) days.
11.3.2. If either Party commits a Relevant Event, the other Party shall have
in addition to all other legal and equitable rights and remedies
hereunder, the right to terminate this Agreement upon thirty (30) days'
written notice; provided, that such written notice be given within
sixty (60) days following the date that the other Party becomes aware
of the Relevant Event.
11.4. In the event that (a) [****], or otherwise [****] their management or
business, or (b) [****] or more of the [****], or otherwise
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
26
<PAGE> 27
[****] or [****] with any of such entities, [****] if Elan provides
written notice of its election to so terminate within [****] of the date
on which Elan [****] , or should [****], of the event; provided, however,
that the foregoing shall not apply in [****] by Elan or Endorex as
contemplated by the Company Subscription Agreement.
11.5. Upon exercise of those rights of termination as specified in Clause 11.1
to Clause 11.4, inclusive or elsewhere within the Agreement, this
Agreement shall, subject to the other provisions of the Agreement,
automatically terminate forthwith and be of no further legal force or
effect.
11.6. Upon expiration or termination of the Agreement:
11.6.1. any sums that were due from the Company to Elan on Net Sales in
the Territory or in such particular country or countries in the
Territory (as the case may be) prior to the expiration or
termination of this Agreement as set forth herein shall be paid
in full within sixty (60) days of the expiration or termination
of this Agreement for the Territory or for such particular
country or countries in the Territory (as the case may be);
11.6.2. all confidentiality provisions set out herein shall remain in
full force and effect;
11.6.3. the rights of inspection and audit set out in Clause 7 shall
continue in force for a period of one year;
11.6.4. except as expressly provided for under Clause 11.6.5. all
rights, licenses and sublicenses granted in and pursuant to this
Agreement shall cease for the Territory or for such particular
country or countries in the Territory (as the case may be).
Following such expiration or termination, the Company may not
thereafter, except as expressly provided for in Clause 11.6.5,
use in the Territory or in such particular country or countries
in the Territory (as the case may be) (a) any valid and unexpired
Elan Patents, (b) any Elan Know-How that remains confidential or
otherwise proprietary to Elan, and/or (c) any Elan Trademarks;
and
11.6.5. the Company shall promptly make an accounting to Elan of the
inventory of the Product which it has in the Territory or for
such particular country or countries in the Territory (as the
case may be), if any, as of the date of such termination and the
Company shall thereafter have the right for a period of six (6)
months after said expiration or termination to sell such
inventory of the Product in the Territory or in such particular
country or countries in the Territory (as the case
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
27
<PAGE> 28
may be) or, if appropriate and legally permissible, to transport
such inventory of Product for sale in another country or
countries in the Territory within such six month period; provided
that the Net Sales thereof shall be subject to the royalty
provisions of Clause 6 and so payable to Elan. Thereafter, any
remaining inventory of Product shall be disposed of by mutual
agreement of the Parties in accordance with regulatory
requirements.
12. WARRANTIES/INDEMNITIES
12.1. Elan represents and warrants to the Company that to Elan's best
knowledge, after reasonable investigations, (a) Elan has the right to
grant the licenses and rights granted herein, (b) Schedule 1 contains a
summary of the Elan Technology existing as of the Effective Date, (c)
other than the Maynooth Agreement there are no agreements with any third
parties that relate to Elan Technology existing as of Effective Date, (d)
that to the best of its knowledge and belief, Elan is not in breach or
threatened breach of the Maynooth Agreement and will in the future not
procure a breach and (e) there are no agreements with any Independent
Third Parties that conflict with the rights granted by Elan pursuant to
this Agreement.
12.2. Elan represents and warrants to the Company that it has the sole,
exclusive and unencumbered right to grant the licenses and rights herein
granted to the Company, and that it has not granted any option, license,
right or interest in or to the Elan Technology to any Independent Third
Party which would conflict with the rights granted by this Agreement.
12.3. The Company represents and warrants to Elan that it has the sole,
exclusive and unencumbered right to grant the licenses and rights herein
granted to Elan and that it has not granted any option, license, right or
interest in or to the Elan Program Technology, the Orasomal Program
Technology or the Company Program Technology to any Independent Third
Party which would conflict with the rights granted by this Agreement.
12.4. Elan represents and warrants to the Company that to the best of its
knowledge, the true inventors of the subject matter claimed are named in
the Elan Patents and all such inventors have irrevocably assigned all
their rights and interests therein to Elan.
12.5. Elan and the Company each represent and warrant to and for the benefit
for each other that the execution of this Agreement by them and the full
performance and enjoyment of the rights of them under this Agreement will
not breach the terms and conditions of any license, contract,
understanding or agreement, whether express, implied, written or oral
between them and any Independent Third Party.
28
<PAGE> 29
12.6. In addition to any other indemnifications provided for herein, Elan
shall indemnify and hold harmless the Company and its Affiliates and
their respective employees, agents, partners, officers and directors from
and against any claims, losses, liabilities or damages (including
reasonable attorney's fees and expenses) incurred or sustained by the
Company arising out of or in connection with any breach of any
representation, covenant, warranty or obligation by Elan hereunder.
12.7. In addition to any other indemnifications provided for herein, the
Company shall indemnify and hold harmless Elan and its Affiliates and
their respective employees, agents, partners, officers and directors from
and against any claims, losses, liabilities or damages (including
reasonable attorney's fees and expenses) incurred or sustained by Elan
arising out of or in connection with any breach of any representation,
covenant, warranty or obligation by the Company hereunder.
12.8. The Company shall assume the sole and entire responsibility and shall
indemnify and save harmless Elan from any and all claims, liabilities,
expenses, including reasonable attorney's fees, responsibilities and
damages by reason of any claim, proceedings, action, liability or injury
arising out of any faults of the Product resulting from the transport,
packaging, storage, handling, distribution, marketing or sale of the
Product by the Company, to the extent that it was caused by the
negligence or wrongful acts or omissions on the part of the Company.
12.9. As a condition of obtaining an indemnity in the circumstances set out
above, the Party seeking an indemnity shall:
12.9.1. fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
12.9.2. permit the indemnifying Party to take full care and control of
such claim or proceeding;
12.9.3. co-operate in the investigation and defence of such claim or
proceeding;
12.9.4. not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which
consent shall not be unreasonably withheld conditioned or
delayed; and
12.9.5. take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
29
<PAGE> 30
12.10. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, ELAN AND
NEWCO SHALL NOT BE LIABLE TO THE OTHER BY REASON OF ANY REPRESENTATION
OR WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER
THE TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, INDIRECT OR
INCIDENTAL LOSS OR DAMAGE (WHETHER FOR LOSS OF PROFIT OR OTHERWISE) AND
WHETHER OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR
EMPLOYEES OR AGENTS OR OTHERWISE.
13. INSURANCE
13.1. Elan shall maintain comprehensive general liability insurance,
including product liability insurance on the Products manufactured
and/or sold by Elan in such prudent amount as shall be determined by the
Management Committee. Elan shall provide the Company with a certificate
from the insurance company verifying the above and undertakes to notify
the Company directly at least thirty (30) days prior to the expiration
or termination of such coverage. Elan shall also provide the Company
with a vendor's certificate substantially in a form to be agreed between
the Parties.
13.2. The Company shall maintain comprehensive general liability insurance,
including product liability insurance on Products manufactured and/or
sold by the Company that incorporate intellectual property licensed
hereunder by Elan in such prudent amount as shall be determined by the
Management Committee. The Company shall provide Elan with a certificate
from the insurance company verifying the above and undertakes to notify
Elan thirty (30) days prior to the expiration or termination of such
coverage.
14. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
14.1. Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results
from causes beyond its reasonable control, including, without
limitation, acts of God, fires, strikes, acts of war, or intervention of
a government authority, non availability of raw materials, but any such
delay or failure shall be remedied by such Party as soon as practicable.
15 SETTLEMENT OF DISPUTES; PROPER LAW
30
<PAGE> 31
15.1. The Parties will attempt in good faith to resolve any dispute arising
out of or relating to this Agreement promptly by negotiation between
executives of the Parties, failing which the Parties shall invoke the
dispute resolution provisions set forth in Clause 16 of the Development
Agreement.
15.2. This Agreement shall be governed by and construed in accordance with
the laws of New York and subject to the provisions of Clause 15.1, the
Parties agree to submit to the jurisdiction of the courts of New York for
the resolution of disputes hereunder, which the Parties have not
otherwise agreed should be subject to the binding determination of an
Expert or Panel, pursuant to the terms of this Agreement.
16. ASSIGNMENT
16.1. This Agreement may not be assigned by either Party without the prior
written consent of the other, which consent in relation to the proposed
assignment to an Affiliate of Elan or the Company, as the case may be,
shall not be unreasonably withheld, conditioned or delayed.
17. NOTICES
17.1. Any notice to be given under this Agreement shall be sent in writing in
English by registered mail, airmail, reputable courier or recorded
delivery post, or telecopied (with a confirmation copy promptly sent by
mail) to:
- if to Elan: Elan Corporation, plc
Lincoln House
Lincoln Place
Dublin 2, Ireland
Telecopier: 353 1 662 4960
Attention: Vice President & General Counsel
Elan Pharmaceutical Technologies
with a copy to: Brock Fensterstock Silverstein & McAuliffe LLC
153 East 53rd Street
56th Floor
New York, New York 10022
Telecopier: 1 212 371 5500
Attention: David Robbins
31
<PAGE> 32
- if to the Company: Endorex Vaccine Delivery Technologies, Inc.
900 North Shore Drive
Lake Buff, Illinois 60044
Telecopier: 1 847 604 8570
Attention: President
with a copy to: Brobeck Phleger & Harrison LLP
1633 Broadway
New York, New York 10019
Telecopier: 1 212 586 7878
Attention: Richard Plumridge
or to such other address(es) as may from time to time be notified by any
Party to the others hereunder.
17.2. Any notice sent by mail shall be deemed to have been delivered within
seven (7) working days after dispatch, any notice sent by reputable
courier shall be deemed to have been delivered within two (2) working
days after dispatch and any notice sent by telecopy shall be deemed to
have been delivered within twenty four (24) hours of the time of the
dispatch. Notices of change of address shall be effective upon receipt.
18. MISCELLANEOUS CLAUSES
18.1. No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any other breach or failure to perform or of any
other right arising under this Agreement.
18.2. If any provision in this Agreement is agreed by the Parties to be, or
is deemed to be, or becomes invalid, illegal, void or unenforceable under
any law that is applicable hereto, (i) such provision will be deemed
amended to conform to applicable laws so as to be valid and enforceable
or, if it cannot be so amended without materially altering the intention
of the Parties, it will be deleted, with effect from the date of such
agreement or such earlier date as the Parties may agree, and (ii) the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not be impaired or affected in any way.
18.3. The Parties shall use their respective reasonable endeavours to ensure
that the Parties and any necessary Independent Third Party shall do,
execute and perform all such further deeds, documents, assurances, acts
and things as any of the Parties hereto may
32
<PAGE> 33
reasonably require by notice in writing to the other Party or such
Independent Third Party to carry the provisions of this Agreement.
18.4. This Agreement shall be binding upon and enure to the benefit of the
Parties hereto, their successors and permitted assigns and sub-licensees.
18.5. No provision of this Agreement shall be construed so as to negate,
modify or affect in any way the provisions of any other agreement
between the Parties unless specifically referred to, and solely to the
extent provided, in any such other agreement. In the event of a
conflict between the provisions of this Agreement and the provisions of
the Development Agreement, the terms of the Development Agreement shall
prevail unless this Agreement specifically provides otherwise.
18.6. No amendment, modification or addition hereto shall be effective or
binding on either Party unless set forth in writing and executed by a
duly authorised representative of each Party.
18.7. This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of
which when taken together shall constitute this Agreement.
18.8. Each of the Parties undertake to do all things reasonably within its
power which are necessary or desirable to give effect to the spirit and
intent of this Agreement.
18.9. Each of the Parties hereby acknowledges that in entering into this
Agreement it has not relied on any representation or warranty save as
expressly set out herein or in any document referred to herein.
18.10. Nothing contained in this Agreement is intended or is to be construed
to constitute Elan and the Company as partners, or Elan as an employee
of the Company, or the Company as an employee of Elan. Neither Party
hereto shall have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of the other Party or
to bind the other Party to any contract, agreement or undertaking with
any Independent Third Party.
33
<PAGE> 34
IN WITNESS THEREOF the Parties hereto have executed this License Agreement in
duplicate.
/s/ Thomas G. Lynch
SIGNED BY Thomas G. Lynch
For and on behalf of
ELAN CORPORATION, PLC
/s/ Michael S. Rosen
SIGNED BY Michael S. Rosen
For and on behalf of
ENDOREX VACCINE DELIVERY TECHNOLOGIES, INC.
34
<PAGE> 35
SCHEDULE 1
1. EXISTING ELAN TECHNOLOGY
[****]
2. EXCLUDED ELAN TECHNOLOGY
[****]
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 36
SCHEDULE 2
[****]
(as may be amended with mutual agreement of all the Parties in writing from
time to time)
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 37
SCHEDULE 3
MAJOR COUNTRIES OUTSIDE OF THE UNITED STATES
[****]
**** REPRESENTS MATERIAL REACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 38
SCHEDULE 4
THE MAYNOOTH AGREEMENT
<PAGE> 39
PROPOSAL CONCERNING THE EXPLOITATION OF INTELLECTUAL
PROPERTY RIGHTS
PARTIES:
This agreement is made and is effective this 25th day of March 1996 by and
between Elan Corporation Plc (hereinafter THE COMPANY), its successors and
assigns of Monksland, Athlone, County Westmeath, Ireland and Maynooth
University Enterprise Development Limited, c/o St. Patrick's College, Maynooth,
County Kildare, Ireland (hereinafter THE COLLEGE).
PROJECT
"Evaluation of Biodegradable Microparticles as a delivery system for an
Accelular Pertussis Vaccine"
OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS:
With respect to inventions and know-how made wholly or in part by personnel at
The Department of Biology, North Campus, St. Patrick's College, Maynooth,
relating to this project, THE COMPANY and THE COLLEGE agree to the following:
THE COMPANY will file, prosecute and maintain patent applications in
territories where it shall deem appropriate. THE COLLEGE shall have
the right to file, prosecute and maintain, at its own expense, patent
applications in additional territories where appropriate.
Patentable inventions and other know-how resulting from the project
shall be assigned to THE COMPANY.
In the event of commercial exploitation of a patentable invention, THE
COMPANY and THE COLLEGE will negotiate an appropriate compensation to
THE COLLEGE not to exceed a value of 2% of the net sales income earned
by THE COMPANY in the case of a product resulting from a product
patent claim or in the case of a product resulting from a process
patent claim not to exceed 1% of the net sales income earned by THE
COMPANY. The compensation shall depend, inter alia, upon the
contribution by THE COLLEGE to the patentable invention.
DEFINITION:
NET SALES shall mean the gross receipts, royalties, fees or other
valuable consideration of any kind received or credited to the benefit
of THE COMPANY for sale of the product/process exclusive of taxes and
less any allowances for returned goods or retroactive price reductions
and transport or insurance costs and other directly sales related
charges.
The parties shall negotiate and conclude an agreement to reflect the foregoing
when it becomes appropriate to do so.
For and on behalf of For and on behalf of
/s/ Ken McVey /s/ Patrick Dalton
_____________________ ______________________________
Elan Corporation, Plc. Maynooth University Enterprise
Development Limited.
Date: 25-3-96 Date: 28/3/96
<PAGE> 1
EXHIBIT 10.20
CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR
PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 24b-2
UNDER THE SECURITIES ACT OF 1934, AS AMENDED
THIS AGREEMENT is made the 22nd day of January 1998
BY AND BETWEEN
ORASOMAL TECHNOLOGIES, INC.
A Delaware corporation of 900 North Shore Drive, Lake Buff, Illinois 60044,
United States of America
AND
ENDOREX VACCINE DELIVERY TECHNOLOGIES, INC.
A Delaware company, of 900 North Shore Drive, Lake Buff, Illinois 60044,
United States of America
AND
ENDOREX CORP.
A Delaware company, of 900 North Shore Drive, Lake Buff, Illinois 60044,
United States of America
LICENSE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
Clause No. Clause Page No.
1. DEFINITIONS.....................................................1
2. GRANT OF RIGHTS.................................................7
3. IMPROVEMENTS....................................................9
4. INTELLECTUAL PROPERTY RIGHTS...................................10
5. EXPLOITATION OF LICENSED TECHNOLOGY............................10
6. FINANCIAL PROVISIONS...........................................11
7. RIGHT OF AUDIT AND INSPECTION..................................12
8. PATENTS........................................................13
9. CONFIDENTIAL INFORMATION.......................................17
10. TRADEMARKS.....................................................19
11. TERM AND TERMINATION...........................................21
12. WARRANTIES/INDEMNITIES.........................................22
13. INSURANCE......................................................24
14. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE...................25
15. SETTLEMENT OF DISPUTES; PROPER LAW.............................25
16. ASSIGNMENT.....................................................26
17. NOTICES........................................................26
18. MISCELLANEOUS CLAUSES..........................................27
i
<PAGE> 3
WHEREAS
A. Orasomal has proprietary know-how and expertise relating, inter alia,
to immunology and is knowledgeable in the discovery, research,
development, manufacture and marketing of pharmaceutical formulations
capable of delivering drugs, including oral or mucosal Vaccine
delivery. Orasomal owns or has licensed the Orasomal Technology.
Orasomal also owns and uses certain trademarks in connection with the
manufacture, marketing and sale of such compounds, including the
Orasomal Trademarks.
B. Elan is knowledgeable in the discovery, research, development,
manufacture and marketing of pharmaceutical formulations capable of
delivering drugs, including oral or mucosal Vaccine delivery. Elan owns
or has licensed the Elan Technology. Elan also owns and uses certain
trademarks in connection with the manufacture, marketing and sale of
such compounds, including the Elan Trademarks.
C. Elan and Endorex have agreed to co-operate in the establishment and
management of the Company, the business of which will be to research
and develop certain Products incorporating the technologies developed
and/or to be developed by Elan and Orasomal and to commercialize such
Products throughout the world.
D. Simultaneously herewith, Elan, Endorex and Orasomal are entering into
the Development Agreement for the purpose of recording the terms and
conditions of the joint venture and of regulating their relationship
with each other and certain aspects of the affairs of and their
dealings with the Company.
E. Under the Development Agreement, the Company shall own all rights in
technology developed pursuant to certain Research and Development
Programs being conducted or to be conducted by the Company or by
Orasomal, Elan or an Independent Third Party on behalf of the Company,
including the Company Program Technology, the Orasomal Program
Technology and the Elan Program Technology.
F. The Company desires to enter into this Agreement with Orasomal so as to
(a) permit the Company to utilise the Orasomal Patents, the Orasomal
Know-How and the Orasomal Trademarks in the research, development,
manufacture, distribution and sale of the Products in the Field and (b)
to permit Orasomal to utilize the Orasomal Program Technology, the Elan
Program Technology and the Company Program Technology in connection
with (i) Orasomal's research and development work on behalf of the
Company and (ii) Orasomal's manufacturing and supplying the Company or
its designee(s) with the Products and other components.
G. Simultaneously herewith, the Company and Elan are entering into a
similar license agreement relating to the Company's use of the Elan
Patents, the Elan Know-How and the Elan Trademarks and Orasomal's use
of the Orasomal Program Technology, the Elan Program Technology and the
Company Program Technology.
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS
1.1. In this present Agreement, including the Recitals, Schedules and
Appendices, the following definitions shall prevail unless the context
otherwise requires:
1
<PAGE> 4
"ACQUIRED" means a transfer or license of a Patent, Know-How or
other forms of Intellectual Property Rights or
information from an Independent Third Party to Elan
or Orasomal, as the case may be, to the extent to
which there are no obligations or restrictions (such
as confidentiality) in respect of that information
which prohibit disclosure to or use by the Company;
"AFFILIATE" means any corporation or entity other than the
Company controlling, controlled or under the common
control of Elan, Orasomal or the Company as the case
may be. For the purpose of this definition "control"
shall mean direct or indirect ownership of fifty
percent (50%) or more of the stock or shares entitled
to vote for the election of directors;
"AGREEMENT" means this agreement (which expression shall be
deemed to include the Recitals, the Schedules and
Appendices hereto);
"BUSINESS PLAN" means a plan for the business of the Company to be
reasonably agreed to by Elan, Orasomal, Endorex and
the Company prior to signing this Agreement or as
soon thereafter as is practicable and in any event
within thirty (30) days of signing this Agreement;
"CLOSING DATE" means January 22, 1998;
"COMPANY" means Endorex Vaccine Delivery Technologies, Inc;
"COMPANY PROGRAM
PATENTS" means the inventions and underlying Patents that
constitute the Company Program Technology;
"COMPANY PROGRAM
TECHNOLOGY" shall have the meaning assigned to it in the
Development Agreement;
"DEVELOPMENT
AGREEMENT" means the Joint Development & Operating Agreement of
even date entered into between Orasomal, Elan, EIS,
Endorex and the Company;
"EFFECTIVE DATE" means December 31, 1997;
"ELAN" means Elan Corporation, plc (Elan will be acting
through its division Elan Pharmaceutical
Technologies);
"ELAN EXCLUDED
TECHNOLOGY" has the meaning set forth in Schedule 1;
"ELAN LICENSE
AGREEMENT" means the license agreement of even date herewith
entered into between the Company and Elan;
2
<PAGE> 5
"ELAN KNOW-HOW" means Elan's drug delivery Know-How (including oral
or mucosal Vaccine delivery Know-How) and Know-How
relating to oral or mucosal Vaccines, other than the
Elan Program Know-How and the Elan Excluded
Technology;
"ELAN PATENTS" means Elan's drug delivery inventions and underlying
Patents (including oral or mucosal Vaccine delivery
inventions) and inventions and underlying Patents
relating to oral or mucosal Vaccines, other than the
Elan Program Patents and the Elan Excluded
Technology;
"ELAN PROGRAM
PATENTS" means the inventions and underlying Patents that
constitute Elan Program Technology;
"ELAN PROGRAM
TECHNOLOGY" will have the meaning assigned to it in the
Development Agreement;
"ELAN TECHNOLOGY" means the Elan Patents and/or the Elan Know-How
(which exclude the Elan Excluded Technology). The
primary examples of the Elan Technology existing as
of the Effective Date are set forth on Schedule 1 to
the Elan License Agreement; for the avoidance of
doubt the Parties confirm that the said list is not
necessarily exhaustive. The Elan Technology also
includes the inventions and know how that are the
subject of the Maynooth Agreement or any agreement
with Maynooth University Enterprise Development
Limited envisaged by the Maynooth Agreement. For the
avoidance of doubt, Elan Technology shall exclude
Patents and Know How [****] or [****] including, but
not limited to, [****];
"ELAN TRADEMARKS" means, depending on the context, one or more of the
trademarks owned by, Acquired by, assigned or
licensed to Elan which are relevant to the Elan
Technology or the Products;
"ENDOREX" means Endorex Corp.;
"ESTABLISHMENT LICENSE
APPLICATION" shall have the meaning given to such term in Title 21
CFR Section 600 et seq.;
"FDA" means the United States Food and Drug Administration
or any successors or agency the approval of which is
necessary to market a product in the United States of
America or any other relevant regulatory authority
the approval of which is necessary to market a
product in any other country of the Territory;
"FIELD" shall mean the [****];
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
3
<PAGE> 6
"FIRST RIGHT OF
NEGOTIATION" shall have the meaning assigned to such term in
Clause 9.5. of the Development Agreement;
"IMPROVEMENTS" means inventions, discoveries, developments and
indications relating to (A) the Orasomal Technology
that can usefully be applied to the Field, and (B)
which were first reduced to practice during the Term
by Orasomal but shall for the avoidance of doubt
exclude Program Technology;
"INDEPENDENT THIRD
PARTY" means any person other than the Company, Elan,
Endorex, Orasomal or any of their respective
Affiliates;
"IN-MARKET" means [****] (or where applicable by [****]) to an
[****] such as a [****] and shall exclude [****];
"INTELLECTUAL PROPERTY
RIGHTS" means proprietary rights in Patents, Know-How,
registered and unregistered designs, copyrights,
trademarks, trade dress, and other like legal rights
for the protection of intellectual property;
"INVESTIGATIONAL NEW
DRUG APPLICATION" shall have the same meaning as understood in the MIT
Agreement;
"KNOW-HOW" means all trade secrets, confidential scientific,
technical and medical information and expertise,
technical data and marketing information, studies and
data from time to time developed, produced by or on
behalf of Elan, Orasomal or the Company, as the case
may be, whether before the Effective Date or during
the Term including, but not limited to, unpatented
inventions, discoveries, theories, plans, ideas
(whether or not reduced to practice) relating to the
research and development, manufacture, registration
for marketing, use or sale of the Product,
toxicological, pharmacological, analytical and
clinical data, bioavailability studies, product forms
and formulations, control assays and specifications,
methods of preparation and stability data;
"MAJOR COUNTRY" means those countries of the Territory set forth in
Schedule 2;
"MANAGEMENT
COMMITTEE" means the management committee appointed by the
directors of the Company pursuant to the Development
Agreement;
"MAYNOOTH
AGREEMENT" means that certain Proposal Concerning the
Exploitation of Intellectual Property Rights by and
between Elan and Maynooth University
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
4
<PAGE> 7
Enterprise Development Limited dated March 25, 1996
attached as Schedule 4 to the Elan License Agreement;
"MIT" means the Massachusetts Institute of Technology;
"MIT AGREEMENT" means that certain Patent License Agreement by and
between Orasomal and the Massachusetts Institute of
Technology dated December 16, 1996 attached as
Schedule 3;
"MIT PATENTS" means the Patents licensed by the Massachusetts
Institute of Technology pursuant to the MIT
Agreement;
"MIT PATENTED
PRODUCT" means any product or part thereof which: (a) is
covered in whole or in part by an issued, unexpired
claim in the MIT Patents in the country in which any
such product or part thereof is made, used or sold;
or (b) is manufactured by using a process or is
employed to practice a process which is covered in
whole or in part by an issued, unexpired claim in the
MIT Patents in the country in which any MIT Patented
Process is used or in which such product or part
thereof is used or sold;
"MIT PATENTED
PROCESS" means any process which is covered in whole or in
part by an issued, unexpired claim or a pending claim
contained in the MIT Patents;
"NET SALES" means [****];
"ORASOMAL" means Orasomal Technologies Inc.;
"ORASOMAL KNOW-
HOW" means Orasomal's drug delivery Know-How (including
oral or mucosal Vaccine delivery Know-How) and
Know-How relating to oral or mucosal Vaccines, other
than Orasomal Program Know-How;
"ORASOMAL PATENTS" means Orasomal's drug delivery inventions and
underlying Patents (including oral or mucosal Vaccine
delivery inventions) and inventions and underlying
Patents relating to oral or mucosal Vaccines, other
than Orasomal Program Technology. The Orasomal
Patents include the MIT Patents and those listed on
Schedule 1;
"ORASOMAL PROGRAM
PATENTS" means the inventions and underlying Patents that
constitute Orasomal Program Technology;
"ORASOMAL PROGRAM
TECHNOLOGY" shall have the meaning assigned to it in the
Development Agreement;
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
5
<PAGE> 8
"ORASOMAL
TECHNOLOGY" means the [****] and/or the [****]. The Orasomal
Technology also includes [****]. For the avoidance of
doubt, Orasomal Technology shall exclude [****],
including [****];
"ORASOMAL
TRADEMARKS" means, depending on the context, one or more of the
trademarks and any other relevant trademark owned by,
Acquired by, assigned or licensed to Orasomal which
are relevant to the Orasomal Technology or the
Products;
"PARTIES" means Orasomal, the Company and Endorex for the
purposes of Clause 2.9. and Clause 12 only;
"PATENTS" means all and any patents and any applications
therefor in the Territory (including any and all
divisions, continuations, continuations-in-part,
extensions, additions or reissues thereto or
thereof);
"PERSON" means an individual, partnership, corporation,
limited liability company, business trust, joint
stock company, trust, unincorporated association,
joint venture, or other entity of whatever nature;
"PLA" means the Product License Approval ,or its
equivalent, as such term is understood by the FDA;
"PRODUCT" means any [****];
"PRODUCT LICENSE
APPLICATION" shall have the same meaning as understood in the MIT
Agreement;
"PROGRAM
TECHNOLOGY" has the meaning assigned to it in the Development
Agreement;
"RELEVANT EVENT" has the meaning set forth in Clause 11.3.1;
"RESEARCH AND DEVELOPMENT
PROGRAM" means depending on the context, one or more programs
of research and development work being conducted or
to be conducted by, inter alia, Orasomal and Elan for
and on behalf of the Company which have been devised
by the Research Committee and approved by the
Management Committee;
"TECHNOLOGIES" means collectively, the Orasomal Technology together
with the Elan Technology;
"TERM" has the meaning set forth in Clause 11.1;
"TERRITORY" means [****];
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
6
<PAGE> 9
"THIRD PARTY
TECHNOLOGY" has the meaning set forth in Clause 9.5. of the
Development Agreement;
"VACCINES" means a biologically or synthetically derived
substance administered to [****]; and
"UNITED STATES DOLLAR"
AND "US$" means the lawful currency for the time being of the
United States of America.
1.2. Words importing the singular shall include the plural and vice versa.
1.3. Unless the context otherwise requires, reference to a recital, article,
paragraph, provision, clause or schedule is to a recital, article,
paragraph, provision, clause or schedule of or to this Agreement.
1.4. Reference to a statute or statutory provision includes a reference to
it as from time to time amended, extended or re-enacted.
1.5. The headings in this Agreement are inserted for convenience only and do
not affect its construction.
1.6. Unless the context or subject otherwise requires, references to words
in one gender include references to the other genders.
1.7. References to "include" or "including" shall be construed as examples
only, and in no way be read as limiting.
2. GRANT OF RIGHTS
2.1. Subject to the terms of this Agreement, under all of Orasomal's
existing and future Patents and other Intellectual Property Rights
covering the Orasomal Technology, Orasomal hereby grants to the Company
for the Term an exclusive licence to the Orasomal Technology in the
Field for all research, development, and commercial purposes in the
Field. All proprietary rights and rights of ownership with respect to
the Orasomal Technology shall at all times remain solely with Orasomal,
or where applicable with Orasomal's licensor. The Company shall not
have any rights to use the Orasomal Technology other than insofar as
they relate directly to the Field and are expressly granted herein. The
Company agrees that the MIT Patented Products leased or sold in the
United States of America shall be manufactured substantially in the
United States of America. The Company hereby acknowledges that MIT
reserves the right to practice under the MIT Patents for non-commercial
research purposes.
2.2. Subject to any restriction in any licenses or other agreements pursuant
to which Orasomal licenses any of the Orasomal Trademarks, Orasomal
hereby grants the Company for the Term of this Agreement a
non-exclusive, royalty-free, fully paid-up license (or, if applicable,
sublicense) to use the Orasomal Trademarks which relate to the Orasomal
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
7
<PAGE> 10
Technology applicable to the Product, such as an acronym for the
applicable technology applied to the Product, on the terms set forth in
Clause 10 upon or in relation to the promotion, marketing, advertising,
sale or offering for sale of the Products. The Company shall not be
obliged to use the Orasomal Trademark to identify the Product but at
Orasomal's request shall be obliged to use the Orasomal Trademark to
identify the applicable Orasomal Technology embodied in the Product.
For the avoidance of doubt, the Parties hereby confirm that the Company
shall not be entitled to a licence to use any trademark owned or
controlled by Orasomal which identifies a pharmaceutical product.
2.3. [Intentionally Deleted]
2.4. Orasomal shall be [****].
2.5. In addition Orasomal has entered into a preliminary development
agreement, an evaluation agreement and two material transfer
arrangements with third parties in relation to the Field, the terms of
which are subject to confidentiality restrictions. If one or more of
such preliminary development and evaluation programs are successful,
Orasomal shall seek the consent of the applicable third party to
disclose the results of such program to the Company and such results
shall be deemed Third Party Technology and governed by the provisions
of Clause 2.9. of this Agreement and Clause 9.5. of the Development
Agreement.
2.6. Subject to the terms of this Agreement, the Company hereby grants to
Orasomal for the Term a [****] license to use the Elan Program
Technology, Orasomal Program Technology and the Company Program
Technology, and, subject to the terms and conditions of the Elan
License Agreement, a [*****] to use the Elan Technology
insofar as is necessary, in each case, solely to permit Orasomal to
perform its obligations pursuant to this Agreement and the Development
Agreement for the benefit of the Company, including, without
limitation, (a) conducting research and development pursuant to the
Research and Development Programmes, and (b) developing, manufacturing
and supplying the Products and any other chemical or formulation
components. All rights of ownership with respect to the Elan Program
Technology, the Orasomal Program Technology and the Company Program
Technology shall at all times remain solely with the Company.
2.7. Orasomal is entitled to negotiate a license agreement to exploit the
Orasomal Program Technology outside the Field in accordance with the
provisions of Clause 9.3. and 9.8. of the Development Agreement
pursuant to which the Company may in the case of Clause 9.3. of the
Development Agreement, and shall in the case of Clause 9.8. of the
Development Agreement grant Orasomal a licence to use the Orasomal
Program Technology.
2.8. The Company shall not be permitted to sublicense any of the rights
granted to the Company by Orasomal pursuant to this Agreement without
the prior written consent of Orasomal, which consent will not be
unreasonably withheld or delayed. However, the Company shall have the
right to grant a royalty-free sublicense to the Orasomal Technology in
the Field to Elan to enable Elan to fulfil its obligations pursuant to
the
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
8
<PAGE> 11
Elan License Agreement and the Development Agreement. Insofar as the
obligations owed by the Company to Orasomal are concerned, the Company
shall remain responsible for all acts and omissions of any sub-
licensee, including Elan, as if they were by the Company. In the event
of a termination of this Agreement due to a breach by the Company,
Orasomal shall have the right but not the obligation to assume any such
sub-license. Any sublicense granted by the Company to the MIT Patents
shall contain terms which comply with the provisions of Section 2.5. of
the MIT Agreement and cannot be for anything of value in lieu of cash
payments. Notwithstanding the provisions of Clause 9 of this Agreement
and Clause 19 of the Development Agreement, the Company notes and
agrees that Orasomal shall be entitled to furnish to MIT (I) a copy of
this Agreement and (II) a copy of all agreements in which the Company
grants a sublicense to the MIT Patents (for which purpose, inter alia,
the Company shall furnish a copy of such sublicense agreement to
Orasomal promptly after execution).
2.9. Subject to the other provisions of this Agreement and to the provisions
of [****] of the Development Agreement, [****] (a) for or on behalf of
the Company, (b) in relation to [****] for which the Company has
elected not to [****] or has been unable to [****] after the applicable
[****] has been exercised by the Company, or (c) with the Company's
prior written consent.
2.10. Orasomal shall also provide all reasonable assistance to the Company in
delivering and enabling the Company to utilize the Company's license to
the Orasomal Technology.
2.11. Insofar as the rights licensed to the MIT Patents by MIT to Orasomal
pursuant to the MIT Agreement are concerned, nothing in this Agreement
shall be construed to confer any rights upon the Company by
implication, estoppel or otherwise as to any technology or patent
rights of MIT or any other entity other than the MIT Patents,
regardless of whether such patent rights shall be dominant or
subordinate to any MIT Patents.
2.12. The Company acknowledges that it is subject to the laws and regulations
of the United States of America controlling the export of technical
data, computer software, laboratory prototypes and other commodities
(including the Arms Export Control Act, as amended and the United
States Department of Commerce Export Administration Regulations). The
transfer of such items may require a license from the cognizant agency
of the United States Government and/or written assurances by the
Company that the Company shall not export data or commodities to
certain foreign countries without prior approval of such agency. The
Company notes and agrees that pursuant to the MIT Agreement, MIT
neither represents that a license shall not be required nor that, if
required, it shall be issued.
3. IMPROVEMENTS
3.1. Except to the extent prohibited by any undertaking given to any
Independent Third Party (provided that after the Closing Date each
Party shall use all commercially reasonably efforts to exclude or
minimise the extent of any such limitations or restrictions), the
licenses to the Orasomal Technology granted by Orasomal pursuant to
Clause 2 of this Agreement shall include the Improvements. If Orasomal
shall develop any
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
9
<PAGE> 12
Improvements during the Term, Orasomal shall communicate to the Company
such Improvements and shall provide to the Company such rights,
licenses, information and explanations as the Company may reasonably
require to be able effectively to utilise the Improvements for the life
of this Agreement. Such disclosed Improvements shall automatically on
disclosure to the Company become part of the Orasomal Know-How or
Orasomal Patents (as the case may be) and shall be subject to the
provisions of this Agreement. The Company shall not have any right to
use such Improvements outside the Field.
4. INTELLECTUAL PROPERTY RIGHTS
4.1. The respective rights of Elan, the Company and Orasomal to exploit the
Elan Program Technology, Orasomal Program Technology and the Company
Program Technology shall be regulated by the provisions of Clause 6 of
the Development Agreement.
5. EXPLOITATION OF LICENSED TECHNOLOGY
5.1. Except as provided for in this Agreement, the Company's obligations to
exploit the Orasomal Technology shall be regulated by Clause 9 of the
Development Agreement.
5.2. The Company shall exert its reasonable efforts [****] consistent with
the [****] in each [****] determined in a commercially reasonable
manner and with a view to [****]. The Company will diligently pursue
the [****], as provided in the Business Plan.
5.3. The Company will be solely responsible for ensuring that the
manufacture, promotion, distribution, marketing and sale of the
Products within each country of the Territory is in strict accordance
with all the legal and regulatory requirements of each country of the
Territory.
5.4. All advertising, promotional materials and marketing costs needed to
exploit the Products are to be paid for by the Company. Any packaging
for the Products shall contain information to the effect that the
Product has been developed by Elan in conjunction with Orasomal and the
Company and is to be agreed upon by Orasomal in advance. Such
acknowledgement shall take into consideration regulatory requirements
and the Company's reasonable commercial requirements. The Company shall
submit copies of all forms of trade package cartons and labels and
other printed materials to Orasomal for approval before commercial sale
of the Product commences. If a change in such materials from that
initially approved which would require regulatory approval or filing or
any other material change is proposed, all such package cartons and
labels and printed materials shall be resubmitted for approval before
commercial use thereof. It shall be presumed that Orasomal approved of
such use unless Orasomal provides written notice of disapproval of such
use to the Company within ten (10) business days of delivery of such
materials to Orasomal, such approval not to be unreasonably withheld.
The further consent of Orasomal shall not be required where the format
and content of such materials is substantively similar as the materials
previously furnished to and approved by Orasomal.
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
10
<PAGE> 13
6. FINANCIAL PROVISIONS
6.1. In consideration of the rights and licences granted to the Company
pursuant to this Agreement, the Company shall pay the following amounts
to Orasomal in the manner and on the dates set forth below [****]:
6.1.1. [****];
6.1.2. [****].
6.2. In consideration of the rights and licences granted to the Company
pursuant to this Agreement , the Company shall [****] of any and all
[****] received by the Company to Orasomal.
6.3. In the event that Orasomal shall cease to be a shareholder of the
Company, the Parties shall negotiate in good faith such amendments to
this Agreement as are equitable and applicable having regard to the
fact that Orasomal no longer has any representation on the Board of
Directors of the Company or the Management Committee (for example the
royalty provisions and such provisions of the Development Agreement as
are applicable), provided that such negotiations shall not apply to the
existence of the Agreement.
6.4. Payment of royalties shall be made quarterly within forty-five (45)
days after the expiry of the calendar quarter. The method of payment
shall be by way of wire transfer to an account specified by Orasomal.
Each payment made to Orasomal shall be accompanied by a written report,
prepared and signed by a senior financial officer of the Company. In
addition the report shall clearly show the Net Sales for the months of
the calendar quarter for which payment is being made on a country by
country basis. In the event that no royalty is due to Orasomal for any
calendar quarter, the senior financial officer shall so report. In
addition to the written reports accompanying each payment, the Company
shall notify Orasomal, within thirty (30) days of the end of each
calendar quarter, of the Net Sales of the Product(s) for that preceding
quarter on a country by country basis. The Company shall maintain and
keep clear, detailed, complete, accurate and separate records so:
6.4.1. as to enable any royalties on Net Sales of a Product which
shall have accrued hereunder to be determined; and
6.4.2. that any deductions made in arriving at the Net Sales of a
Product can be determined.
6.5. All payments due hereunder shall be made in United States Dollars.
Payments due on Net Sales of the Product made in a currency other than
United States Dollars shall first be calculated in the foreign currency
and then converted to United States Dollars on the basis of the
exchange rate in effect for the purchase of United States Dollars with
such foreign currency quoted in the Wall Street Journal (or comparable
publication if not quoted in the Wall Street Journal) with respect to
the currency of the country of origin of
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
11
<PAGE> 14
such payment for the day prior to the date on which the payment by the
Company is being made.
6.6. Subject to the provisions of Clauses 6.8. and 6.10. of this Agreement,
the Company shall pay all royalties at the full rates specified in this
Clause 6.
6.7. If, at any time, legal restrictions in the Territory prevent the prompt
payment of royalties or any portion thereof, the Parties shall meet to
discuss suitable and reasonable alternative methods of reimbursing
Orasomal the amount of such running royalties. In the event that the
Company is prevented from making any payment under this Agreement by
virtue of the statutes, laws, codes or government regulations of the
country from which the payment is to be made, then such payments may be
paid by depositing them in the currency in which they accrue to
Orasomal's account in a bank acceptable to Orasomal in the country the
currency of which is involved or as otherwise agreed by the Parties.
6.8. Orasomal and the Company agree to co-operate in all respects reasonably
necessary to take advantage of any double taxation agreements or
similar agreements as may, from time to time, be available.
6.9. Any taxes payable by Orasomal on any payment made to Orasomal pursuant
to this Agreement shall be for the account of Orasomal. If so required
by applicable law any payment made pursuant to this Agreement shall be
made by the Company after deduction of the appropriate withholding tax
in which event the Parties shall co-operate to the extent reasonably
necessary to obtain the appropriate tax credits, as soon as is
practicable. In the event of a credit, the Company shall forthwith
forward copies of the credit documentation to Orasomal.
7. RIGHT OF AUDIT AND INSPECTION
7.1. On not more than two times in each calendar year, the Company shall
permit Orasomal or its duly authorised representatives upon reasonable
notice and at any reasonable time during normal business hours to have
access to inspect and audit the accounts and records of the Company and
any other book, record, voucher, receipt or invoice relating to the
calculation of the royalty payments on Net Sales submitted to Orasomal
and to the accuracy of the reports which accompanied them. Any such
inspection of the Company's records shall be at the expense of
Orasomal, except that if any such inspection reveals a deficiency in
the amount of the running royalty actually paid to Orasomal hereunder
in any calendar quarter of [****] or more of the amount of any running
royalty actually due to Orasomal hereunder, then the expense of such
inspection shall be borne solely by the Company. Any amount of
deficiency shall be paid promptly to Orasomal. If such inspection
reveals a surplus in the amount of running royalty actually paid to
Orasomal by the Company, Orasomal shall promptly reimburse the Company
the surplus. The Company shall maintain the foregoing records for a
period of at least five (5) years following the end of the calendar
year to which they pertain.
7.2. In the event of any unresolved dispute regarding any alleged deficiency
or overpayment of royalty payments hereunder, the matter will be
referred to an independent firm of
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
12
<PAGE> 15
chartered accountants for a resolution of such dispute mutually
acceptable to both parties. Any decision by the said firm of chartered
accountants shall be binding on the Parties.
8. PATENTS
8.1. The Company shall permanently mark or otherwise cause Elan or any
Independent Third Party to permanently mark all Products and/or the
packaging therefor with such license or patent notices and in such
manner as Orasomal may reasonably request in writing prior to the sale
or commercial use thereof.
8.2. Orasomal shall be obliged to disclose promptly to the Company
inventions and discoveries made by or on behalf of Orasomal otherwise
than in connection with the performance of a Research and Development
Program (which inventions and discoveries shall be regulated by the
provisions of the Development Agreement), any patentable inventions and
discoveries within the Orasomal Know-How which relate to the Field as
well as any Improvements developed by or on behalf of Orasomal.
8.3. The Parties shall discuss in good faith all material issues relating to
filing, prosecution and maintenance of Orasomal Patents (insofar as the
Orasomal Patents are of relevance to the Field), the Orasomal Program
Patents, any patentable inventions and discoveries within the Orasomal
Know-How that relate to the Field and any Improvements developed by or
on behalf of Orasomal (other than pursuant to one or more of the
Research and Development Programmes). Subject to agreement to the
contrary the following provisions shall apply:
8.3.1. Orasomal [****] shall have the right but shall not be
obligated (a) to secure the grant of any patent from
applications within the Orasomal Patents that relate to the
Field; (b) to file and prosecute patent applications on
patentable inventions and discoveries within the Orasomal
Know-How that relate to the Field and patentable Improvements
developed by or on behalf of Orasomal (other than pursuant to
one or more of the Research and Development Programmes); (c)
to defend all such applications against Independent Third
Party oppositions; and/or (d) to maintain in force any issued
letters patent within the Orasomal Patents that relate to the
Field (including any letters patent that may issue covering
any Improvements). Orasomal shall have the sole right in its
reasonable business discretion to control such filing,
prosecution, defence and maintenance; provided however, that
the Company shall be provided with copies of all documents
relating to such filing, prosecution, defence, and maintenance
in sufficient time to review such documents and comment
thereon prior to filing of such documents.
8.3.2. In the event that Orasomal (i) elects that it does not intend
to file patent applications on patentable inventions and
discoveries within the Orasomal Know-How that relates to the
Field or patentable Improvements developed by or on behalf of
Orasomal (other than pursuant to one or more of the Research
and Development Programmes) in one or more countries in the
Territory, (ii) fails to file such an application within a
reasonable period of time, or (iii) elects or fails to
maintain or prosecute further any such pending application or
issued patent
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
13
<PAGE> 16
then Orasomal shall so notify the Company in writing no less
than two (2) months prior to the expiration of any applicable
due date or time bar, and after receipt of such notice, the
Company shall have the right, but not the obligation, at the
Company's sole expense to file and prosecute such patent
application(s) in the joint names of the Company and Orasomal,
and Orasomal upon written request from the Company shall
execute all documents, forms and declarations and to do all
things as shall be reasonably necessary to enable the Company
to exercise such option and right.
8.3.3. In relation to the Orasomal Program Patents, the Company at
its expense shall have the right but shall not be obligated
(a) to secure the grant of any patent from applications within
the Orasomal Program Patents; (b) to file and prosecute patent
applications on patentable inventions and discoveries within
the Orasomal Program Know-How; (c) to defend all such
applications against Independent Third Party oppositions; and
(d) to maintain in force any issued letters patent within the
Orasomal Program Patents (including any patents that issue on
patentable inventions and discoveries within the Orasomal
Program Know-How). The Company shall have the right to control
such filing, prosecution, defence and maintenance; provided
however Elan and Orasomal shall be provided with copies of all
documents relating to such filing, prosecution, defence, and
maintenance in sufficient time to review such documents and
comment thereon prior to filing of such documents.
8.3.4. In the event that the Company (i) elects that it does not
intend to file patent applications on patentable inventions
and discoveries within the Orasomal Program Know-How, (ii)
fails to file such an application within a reasonable period
of time or, (iii) elects or fails to maintain or prosecute
further any such pending application or issued patent then the
Company shall so notify Orasomal in writing no less than two
(2) months prior to the expiration of any applicable due date
or time bar, and after receipt of such notice, Orasomal shall,
insofar as it is necessary to enable Orasomal to exploit the
Orasomal Program Know-How pursuant to Clauses 2.6. and 2.7. of
this Agreement or Clause 6.5. of the Development Agreement,
have the right, but not the obligation at Orasomal's sole
expense to file and prosecute such patent application(s) in
the Company's name and the Company upon written request from
Orasomal shall execute all documents, forms and declarations
and to do all things as shall be reasonably necessary to
enable Orasomal to exercise such option and right. In the
event that Orasomal and the Company negotiate a license to
enable Orasomal to exploit the Orasomal Program Technology
outside the Field pursuant to Clause 6.5. of the Development
Agreement, the Parties shall take the patent related
expenditures incurred by Orasomal as referred to above into
account to the extent they are incurred in relation to the
Patents being licensed to Orasomal in determining the royalty
payable by Orasomal to the Company. Notwithstanding anything
herein to the contrary, the Parties agree that the Company
shall own all right, title and interest in such patent
applications and any patents that may issue thereon (including
any and all divisions, continuations, continuations-in-part,
extensions, additions or reissues thereto or thereof). Insofar
as any patent filing has application within and outside the
Field, the Company and Orasomal will negotiate, in good faith,
on the course of action to be taken.
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8.3.5. Orasomal and the Company shall promptly inform the other in
writing of any alleged infringement of any Patents within the
Orasomal Patents that relate to the Field, the Orasomal
Program Patents, the Elan Program Patents or the Company
Program Patents or any alleged misappropriation of trade
secrets within the Orasomal Know-How that relate to the Field,
the Orasomal Program Know-How, the Elan Program Know-How or
the Company Program Technology by an Independent Third Party
of which it becomes aware and provide the other with any
available evidence of such infringement or misappropriation.
8.3.5.1. Subject to the provisions of Clause 8.4.1.2, during
the Term, the Company shall have the right to bring
suit or otherwise take action at its own expense and
for its own benefit any such alleged infringements of
the Orasomal Patents or misappropriation of the
Orasomal Know-How, insofar as such infringements or
misappropriation relate to the Field. In relation to
the MIT Patents, the Company notes and agrees that
MIT shall have the right at its own expense to be
represented in any action involving the MIT Patents
using counsel of its own choice. In the event that
the Company takes such action, the Company shall do
so at its own cost and expense. At the Company's
request, Orasomal will co-operate with such action
insofar as the said action relates to the Field at
the Company's sole cost and expense. Any recovery
remaining after the deduction by the Company of the
reasonable expenses (including attorney's fees and
expenses) incurred in relation to such an
infringement proceeding shall constitute Net Sales
for the purpose of this Agreement and the Elan
License Agreement and prior to commencing, or at an
early stage in the proceedings, the Company, Elan and
Orasomal shall agree upon the royalty that shall be
due to each of Elan and Orasomal in respect of such
deemed Net Sales. Should the Company decide not to
pursue such infringers, within a reasonable period
but in any event (i) within sixty (60) days after
receiving written notice of such alleged infringement
or misappropriation or (ii) ten (10) days before the
time limit, if any, set forth in the appropriate laws
and regulations for the filing of such actions,
whichever comes first, or if such alleged
infringement or misappropriation does not relate to
the Field, Orasomal may in its discretion initiate
such proceedings in its own name, at its expense and
for its own benefit, and at Orasomal's request, the
Company will co-operate with such action at
Orasomal's sole cost and expense. In the alternative,
the Parties may agree to institute such proceedings
in their joint names and shall reach agreement as to
the proportion in which they will share the proceeds
of any such proceedings, and the expense of any costs
not recovered, or the costs or damages payable to the
Independent Third Party. If the infringement of the
Orasomal Patents affects the Field as well as other
products being developed or commercialised by
Orasomal or its commercial partners outside the
Field, the Parties shall agree as to the manner in
which the proceedings should be instituted and shall
reach agreement as to the proportion in which they
will share the proceeds of any such proceedings, and
the expense of any costs not recovered, or the costs
or damages payable to the Independent Third Party.
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8.3.5.2. The provisions of this Clause 8.4.1.2. shall apply in
relation to any alleged infringements of the MIT
Patents by an Independent Third Party. In the event
that the Company brings, or in the event of failure
by the Company and Orasomal fails to bring, an
infringement action as referred to in Section 7.2 of
the MIT Agreement, the Company shall co-operate
fully, including if required to enable MIT to bring
such action, the furnishing of a power of attorney.
The Company will consult with Orasomal and MIT as to
any significant actions that the Company proposes to
take with respect to same. The Company shall give to
MIT all authority (including the right to exclusive
control of the defense of any such suit, action or
proceeding and the exclusive right to compromise,
litigate, settle or otherwise dispose of any such
suit, action or proceeding), information and
assistance necessary to defend or settle any such
suit, action or proceeding, and MIT shall have sole
discretion to determine actions to be taken or not
taken in connection therewith and the terms of any
settlement; provided, however, that MIT shall not
have the right to settle any patent infringement
litigation as referred to in the MIT Agreement
without the prior written consent of Orasomal (not to
be unreasonably withheld or delayed) (who shall not
furnish such consent without the prior written
consent of the Company not to be unreasonably
withheld or delayed) in a manner that diminishes the
scope or duration of the MIT Patents, which would
constitute an amendment of the MIT Agreement, which
would adversely affect the compensation or revenues
to be derived by the Company pursuant to the MIT
Agreement, or which would require a payment by the
Company, or would require an admission of wrongdoing
by the Company. Except as otherwise agreed to by the
parties to the MIT Agreement as part of a cost
sharing arrangement (in which case Orasamol shall not
enter into such an agreement without the consent of
the Company), any recovery realised as a result of
such litigation, shall be applied first toward
reimbursement of any litigation expenses of Orasomal,
the Company and MIT, and then Orasomal shall pay MIT
five percent (5%) of the remainder; provided that the
monies payable by the Company to Orasomal shall be at
least sufficient to enable Orasomal to discharge the
sums due to MIT.
8.3.6. During the Term, the Company shall have the first right but
not the obligation to bring suit or otherwise take action
against any alleged infringement of the Orasomal Program
Patents or the Company Program Patents (and as appears from
Clause 8.4.2. of the Elan License Agreement, the Elan Program
Patents) or alleged misappropriation of the Orasomal Program
Know-How (and as appears from Clause 8.4.2. of the Elan
License Agreement, the Elan Program Know-How) within the
Field. If any such alleged infringement or misappropriation
occurs which gives rise to a cause of action both inside and
outside the Field, the Parties shall negotiate, together with
Elan, in good faith to determine the cause of action to be
taken. In the event that the Company takes such action, the
Company shall do so solely at its own cost and expense. At the
Company's request, Orasomal will co-operate with any such
action at the Company's sole cost and expense. Any recovery
remaining after the deduction by the Company of the reasonable
expenses (including attorney's fees and expenses) incurred in
relation to such an infringement proceeding shall constitute
Net Sales for the purpose of this Agreement and the Elan
License Agreement and prior to
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commencing, or at an early stage in the proceedings, the
Company, Elan and Orasomal shall agree upon the royalty that
shall be due to each of Elan and Orasomal in respect of such
deemed Net Sales. In the event that the Company decides not to
take such action against such infringement or misappropriation
or fails to do so within a reasonable period but in any event
(i) within sixty (60) days after receiving written notice of
such alleged infringement or misappropriation or (ii) ten (10)
days before the time limit, if any, set forth in the
appropriate laws and regulations for the filing of such
actions, whichever comes first, Orasomal may in its discretion
initiate such proceedings in its own name regarding the
Orasomal Program Technology (or in the Company's name if
required by law; provided, however, that Orasomal identifies
itself as the real party in interest and does not take any
action that would expose the Company to liability of any
kind). In the event that Orasomal initiates such action, it
shall do so solely at its sole cost and expense and all
damages and monetary award recovered in or with respect to
such action shall be the property of Orasomal. At Orasomal's
request, the Company agrees to co-operate with Orasomal in any
such proceeding at Orasomal's sole cost and expense. In the
alternative, the Parties may agree to institute such
proceedings in their joint names and shall reach agreement as
to the proportion in which they will share the proceeds of any
such proceedings, and the expense of any costs not recovered,
or the costs or damages payable to the Independent Third
Party.
8.4. In the event that a claim or proceedings are brought against the
Company by an Independent Third Party alleging that the sale,
distribution or use of the Product in the Territory solely because of
the Company's use of the Orasomal Technology infringes the intellectual
property rights of such an Independent Third Party, the Company shall
promptly advise Orasomal of such threat or suit.
8.5. Orasomal shall have no liability to the Company whatsoever or howsoever
arising for any losses incurred by the Company as a result of having to
cease selling Product or having to defer the launch of selling Product
as a result of any infringement proceedings.
9. CONFIDENTIAL INFORMATION
9.1. The Parties acknowledge that it may be necessary, from time to time, to
disclose to each other confidential and/or proprietary information,
including without limitation, the Technologies, Program technologies,
Improvements and the Patents relating thereto, inventions, works of
authorship, trade secrets, specifications, designs, data, know-how and
other information relating to the Field, the MIT Agreement, the
Maynooth Agreement, the terms of the Definitive Documents, the
Products, processes and services, or the business of the disclosing
Party ("Confidential Information").
Confidential Information shall be deemed not to include:
(i) information that is in the public domain;
(ii) information which is made public by the
disclosing Party;
(iii) information which is independently developed by
a Party without the aid or application of the Confidential
Information;
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(iv) information that is published or otherwise
becomes part of the public domain without any disclosure by a
Party, or on the part of a Party's directors, officers,
agents, representatives or employees;
(v) information that becomes available to a Party on
a non-confidential basis, whether directly or indirectly, from
a source other than a Party, which source, to the best of the
Party's knowledge, did not acquire this information on a
confidential basis; or
(vi) information which the receiving Party is
required to disclose pursuant to:
(A) a valid order of a court or other
governmental body or any political subdivision
thereof or otherwise required by law; or
(B) other requirement of law; provided that
if the receiving Party becomes legally required to
disclose any confidential information, the receiving
Party shall give the disclosing Party prompt notice
of such fact so that the disclosing Party may obtain
a protective order or other appropriate remedy
concerning any such disclosure. The receiving Party
shall fully co-operate with the disclosing Party in
connection with the disclosing Party's efforts to
obtain any such order or other remedy. If any such
order or other remedy does not fully preclude
disclosure, the receiving Party shall make such
disclosure only to the extent that such disclosure is
legally required.
9.2. Any Confidential Information revealed by a Party to another Party shall
be used by the receiving Party exclusively for the purposes of
fulfilling the receiving Party's obligations under this Agreement and
the Development Agreement and for no other purpose.
9.3. Each Party agrees to disclose Confidential Information of another Party
only to those employees, representatives and agents requiring knowledge
thereof in connection with their duties directly related to the
fulfilling of the Party's obligations under this Agreement. Each Party
further agrees to inform all such employees, representatives and agents
of the terms and provisions of this Agreement and their duties
hereunder and to obtain their consent hereto as a condition of
receiving Confidential Information. Each Party agrees that it will
exercise the same degree of care, but in no event less than a
reasonable degree, and protection to preserve the proprietary and
confidential nature of the Confidential Information disclosed by a
Party, as the receiving Party would exercise to preserve its own
proprietary and confidential information. Each Party agrees that it
will, upon request of a Party, return all documents and any copies
thereof containing Confidential Information belonging to or disclosed
by, such Party.
9.4. Notwithstanding the above, each Party may use or disclose confidential
information disclosed to it by another Party to the extent such use or
disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with
patent applications, prosecuting or defending litigation, complying
with applicable governmental regulations or otherwise submitting
information to tax or other governmental authorities, conducting
clinical trials, or making a permitted sub-license or otherwise
exercising its rights hereunder, provided that if a Party is required
to make any such disclosure of the other Party's confidential
information, other than pursuant to a
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confidentiality agreement, such Party shall inform the other Party,
allow the other Party to participate in the process and generally limit
disclosure to the greatest extent possible and seek confidential
treatment or a protective order.
9.5. The provisions relating to confidentiality in this Clause 9 shall
remain in effect during the Term, and for a period of [****] following
the expiration or earlier termination of this Agreement.
9.6. The Parties agree that the obligations of this Clause 9 are necessary
and reasonable in order to protect the Parties' respective businesses,
and each Party expressly agrees that monetary damages would be
inadequate to compensate a Party for any breach by the other Party of
its covenants and agreements set forth herein. Accordingly, the Parties
agree and acknowledge that any such violation or threatened violation
will cause irreparable injury to a Party and that, in addition to any
other remedies that may be available, in law and equity or otherwise,
any Party shall be entitled to obtain injunctive relief against the
threatened breach of the provisions of this Clause 9, or a continuation
of any such breach by the other Party, specific performance and other
equitable relief to redress such breach together with its damages and
reasonable counsel fees and expenses to enforce its rights hereunder,
without the necessity of proving actual or express damages.
10. TRADEMARKS
10.1. The Company undertakes that all Products and all materials utilised in
connection with the provision, marketing, distribution, advertising
and/or marketing thereof that bear or incorporate the Orasomal
Trademarks shall be of a consistent and high standard of quality,
commensurate with the prestige of the Orasomal Trademarks and that its
use of the Orasomal Trademarks shall conform to such reasonable
standards as Orasomal shall from time to time specify. The Company
shall co-operate fully with the reasonable instructions of Orasomal
with respect to the maintenance of such standards.
10.2. The Company shall:
10.2.1. subject to the agreement of the Company's commercial partner
such as a sub-licensee, favourably consider promoting and
using the Orasomal Trademarks in each country of the Territory
and provide proof of use of the Orasomal Trademarks if
requested by Orasomal;
10.2.2. use the Orasomal Trademarks strictly in compliance with any
applicable trademark and other laws and regulations and to use
such legends, markings and notices in connection therewith as
are required by law or otherwise reasonably required by
Orasomal to protect Orasomal's rights therein;
10.2.3. do nothing to mislead the public as to the nature or quality
of any Product on which the Orasomal Trademarks are affixed
nor use it on advertising or display materials which are
unethical, immoral or offensive to good taste;
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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10.2.4. at Orasomal's reasonable request, supply samples of the
Products and any materials utilized in connection with the
distribution, advertising and/or marketing thereof that bear
or incorporate the Orasomal Trademarks for inspection by
Orasomal;
10.2.5. not adopt or seek to register any trademark, design or logo
confusingly similar to the Orasomal Trademarks without
Orasomal's prior written consent; and
10.2.6. promptly notify Orasomal in writing if any alleged
infringement or unauthorized use of the Orasomal Trademarks
comes to the Company's attention.
10.3. The Company undertakes to use the Orasomal Trademarks in relation only
to the Products (or materials for advertising and promotion thereof),
and in accordance with any reasonable specifications and directions
given by Orasomal from time to time. In particular, but without
limitation, the Company agrees to state on the Products or materials
for the advertising or promotion thereof that the Orasomal Trademarks
are used under license from Orasomal.
10.4. The Company shall take no action which could prejudice the validity,
re-registration or reputation of the Orasomal Trademarks or which could
impair the reputation, business standing or prestige of Orasomal.
10.5. Orasomal shall remain the owner of the Orasomal Trademarks and the
goodwill associated with the same and the Company agrees not to assert
any ownership interest in the Orasomal Trademarks or the goodwill
associated therewith. The Company shall own and retain all right,
title, and interest in and to any trademark or trademarks (other than
the Orasomal Trademarks and the Elan Trademarks) used in the Territory
in connection with the sale of the Products.
10.6. Orasomal shall have the exclusive right to take such action in respect
of the registration, defence, infringement and maintenance of the
Orasomal Trademarks as Orasomal in its reasonable business judgement
deems appropriate. The Company shall provide all such assistance and
co-operation, including the furnishing of documents and information and
the execution of registered user documentation or the like, as may be
required to give effect to any action as may be taken, or required to
be taken, by Orasomal. In taking any such action, Orasomal shall
consider the legitimate commercial interests of the Company.
10.7. New trademarks used in relation to the Elan Program Technology, the
Orasomal Program Technology, the Company Program Technology, or the
Products and all registrations thereof and applications therefor shall
be owned and registered by the Company. New trademarks used in relation
to the Orasomal Technology and all registrations thereof and
applications therefor shall be owned and registered by Orasomal and
shall constitute Orasomal Trademarks.
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11. TERM AND TERMINATION
11.1. This Agreement is concluded for a period commencing as of the Effective
Date and expiring on a Product by Product basis and on a country by
country basis on the later to occur of:
11.1.1. fifteen (15) years starting from the date of the launch of the
Product in the country concerned; and
11.1.2. the last to expire Patent included in the Orasomal Patents
and/or the Orasomal Program Patents and/or the Elan Program
Patents and/or the Company Program Patents (the "Term").
11.2. At the end of the Term, the Company shall have a paid-up non-exclusive
license to the Orasomal Technology for the Field.
11.3. For the purpose of this Clause 11.3, a "Relevant Event" is committed by
Orasomal or the Company if:
(i) it commits a material breach of its obligations
under this Agreement (and in the case of Orasomal if it or
Endorex breaches Clause 2.9. or Clause 12) and fails to remedy
it within sixty (60) days of being specifically required in
writing to do so by the other Party; provided, however, that
if the breaching Party has proposed a course of action to
rectify the breach and is acting in good faith to rectify same
but has not cured the breach by the sixtieth (60th) day, such
rectifying period shall be extended by an amount of time as is
reasonably necessary to permit the breach to be rectified; it
ceases, wholly or substantially, to carry on its business,
other than for the purpose of a reorganization, without the
prior written consent of the other Participant (such consent
not to be unreasonably withheld);
(ii) the voluntary appointment of a liquidator,
receiver, administrator, examiner, trustee or similar officer
over all or substantially all of its assets under the laws of
such Participant's state or country of incorporation; or
(iii) an application or petition for bankruptcy,
corporate reorganization, composition, administration,
examination, arrangement or any other procedure similar to any
of the foregoing under the laws of such Participant's state or
country of incorporation, is filed, and is not discharged
within ninety (90) days.
11.3.1. If either Party commits a Relevant Event, the other Party
shall have in addition to all other legal and equitable rights
and remedies hereunder, the right to terminate this Agreement
upon thirty (30) days' written notice; provided, that such
written notice be given within sixty (60) days following the
date that the other Party becomes aware of the Relevant Event.
11.4. In the event that the MIT Agreement is terminated, the sublicense to
the MIT Patents shall automatically terminate.
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11.5. Upon exercise of those rights of termination as specified in Clause
11.1. to Clause 11.3. inclusive or elsewhere within the Agreement, this
Agreement shall, subject to the other provisions of the Agreement,
automatically terminate forthwith and be of no further legal force or
effect.
11.6. Upon expiration or termination of the Agreement:
11.6.1. any sums that were due from the Company to Orasomal on Net
Sales in the Territory or in such particular country or
countries in the Territory (as the case may be) prior to the
expiration or termination of this Agreement as set forth
herein shall be paid in full within sixty (60) days of the
expiration or termination of this Agreement for the Territory
or for such particular country or countries in the Territory
(as the case may be);
11.6.2. all confidentiality provisions set out herein shall remain in
full force and effect;
11.6.3. the rights of inspection and audit set out in Clause 7 shall
continue in force for a period of one year;
11.6.4. except as expressly provided for under Clause 11.6.5. all
rights, licenses and sublicenses granted in and pursuant to
this Agreement shall cease for the Territory or for such
particular country or countries in the Territory (as the case
may be). Following such expiration or termination, the Company
may not thereafter, except as expressly provided for in Clause
11.6.5, use in the Territory or in such particular country or
countries in the Territory (as the case may be) (a) any valid
and unexpired Orasomal Patents, (b) any Orasomal Know-How that
remains confidential or otherwise proprietary to Orasomal,
and/or (c) any Orasomal Trademarks; and
11.6.5. the Company shall promptly make an accounting to Orasomal of
the inventory of the Product which it has in the Territory or
for such particular country or countries in the Territory (as
the case may be), if any, as of the date of such termination
and the Company shall thereafter have the right for a period
of six (6) months after said expiration or termination to sell
such inventory of the Product in the Territory or in such
particular country or countries in the Territory (as the case
may be) or, if appropriate and legally permissible, to
transport such inventory of Product for sale in another
country or countries in the Territory within such six month
period; provided that the Net Sales thereof shall be subject
to the royalty provisions of Clause 6 and so payable to
Orasomal. Thereafter, any remaining inventory of Product shall
be disposed of by mutual agreement of the Parties in
accordance with regulatory requirements.
12. WARRANTIES/INDEMNITIES
12.1. Orasomal and Endorex, severally and not jointly, represent and warrant
to the Company that to their respective best knowledge, after
reasonable investigations, (a) Orasomal and Endorex have the right to
grant the licenses and rights granted herein, (b) Schedule 1 contains a
summary of the Orasomal Technology existing as of the Effective Date,
(c) other than the MIT Agreement there are no agreements with any third
parties that relate to Orasomal Technology existing as of the Effective
Date, (d) that to the best of their respective knowledge and belief,
Orasomal is not in breach or threatened breach of the
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MIT Agreement and will in the future not procure a breach and (e) there
are no agreements with any Independent Third Parties that conflict with
the rights granted by Orasomal pursuant to this Agreement.
12.2. Orasomal and Endorex, severally and not jointly, represent and warrant
to the Company that Orasomal has the sole, exclusive and unencumbered
right to grant the licenses and rights herein granted to the Company,
and that Orasomal has not granted any option, license, right or
interest in or to the Orasomal Technology to any Independent Third
Party which would conflict with the rights granted by this Agreement.
12.3. The Company represents and warrants to Orasomal that it has the sole,
exclusive and unencumbered right to grant the licenses and rights
herein granted to Orasomal and that it has not granted any option,
license, right or interest in or to the Orasomal Program Technology,
the Elan Program Technology or the Company Program Technology to any
Independent Third Party which would conflict with the rights granted by
this Agreement.
12.4. Orasomal and Endorex, severally and not jointly, represent and warrant
to the Company that to the best of its knowledge, the true inventors of
the subject matter claimed are named in the Orasomal Patents and all
such inventors have irrevocably assigned all their rights and interests
therein to Orasomal.
12.5. Orasomal and Endorex, severally and not jointly, and the Company on
the other hand each represent and warrant to and for the benefit for
each other that the execution of this Agreement by them and the full
performance and enjoyment of the rights of them under this Agreement
will not breach the terms and conditions of any license, contract,
understanding or agreement, whether express, implied, written or oral
between them and any Independent Third Party.
12.6. In addition to any other indemnifications provided for herein, Orasomal
and Endorex, severally and not jointly, shall indemnify and hold
harmless the Company and its Affiliates and their respective employees,
agents, partners, officers and directors from and against any claims,
losses, liabilities or damages (including reasonable attorney's fees
and expenses) incurred or sustained by the Company arising out of or in
connection with any breach of any representation, covenant, warranty or
obligation by Orasomal hereunder.
12.7. In addition to any other indemnifications provided for herein, the
Company shall indemnify and hold harmless Orasomal and its Affiliates
and their respective employees, agents, partners, officers and
directors from and against any claims, losses, liabilities or damages
(including reasonable attorney's fees and expenses) incurred or
sustained by Orasomal arising out of or in connection with any breach
of any representation, covenant, warranty or obligation by the Company
hereunder.
12.7.1. The Company shall assume the sole and entire responsibility
and shall indemnify and save harmless Orasomal from any and
all claims, liabilities, expenses, including reasonable
attorney's fees, responsibilities and damages by reason of any
claim, proceedings, action, liability or injury arising out of
any faults of the Product resulting from the transport,
packaging, storage, handling, distribution, marketing or sale
of the Product by the Company, to the extent that it was
caused by the negligence or wrongful acts or omissions on the
part of the Company.
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12.7.2. Insofar as the MIT Patents are concerned, the Company shall at
all times during the term of the MIT Agreement and thereafter,
indemnity, defend and hold MIT, its trustees, directors,
officers, employees and affiliates (as such term is understood
in the MIT Agreement) and Orasomal, harmless against all
claims, proceedings, demands and liabilities of any kind
whatsoever, including legal expenses and reasonable attorneys'
fees, arising out of the death or injury to any person or
persons or out of any damage to property, resulting from the
production, manufacture, sale, use, lease, consumption or
advertisement of the MIT Patented Product(s) and/or MIT
Patented Process or arising from any obligation of the Company
as a sublicensee of Orasomal pursuant to the MIT Agreement.
12.8. As a condition of obtaining an indemnity in the circumstances set out
above, the Party seeking an indemnity shall:
12.8.1. fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
12.8.2. permit the indemnifying Party to take full care and control of
such claim or proceeding;
12.8.3. co-operate in the investigation and defence of such claim or
proceeding;
12.8.4. not compromise or otherwise settle any such claim or
proceeding without the prior written consent of the other
Party, which consent shall not be unreasonably withheld
conditioned or delayed; and
12.8.5. take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
12.9. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, ORASOMAL,
NEWCO AND MIT (INCLUDING MIT's TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES
AND AFFILIATES (as such terms are understood in the MIT Agreement))
SHALL NOT BE LIABLE TO THE OTHER BY REASON OF ANY REPRESENTATION OR
WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER
THE TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, INDIRECT OR
INCIDENTAL LOSS OR DAMAGE (WHETHER FOR LOSS OF PROFIT OR OTHERWISE) AND
WHETHER OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR
EMPLOYEES OR AGENTS OR OTHERWISE.
13. INSURANCE
13.1. Orasomal shall maintain comprehensive general liability insurance,
including product liability insurance on the Products manufactured
and/or sold by Orasomal in such prudent amount as shall be determined
by the Management Committee. Orasomal shall provide the Company with a
certificate from the insurance company verifying the above and
undertakes to notify the Company directly at least thirty (30) days
prior to the expiration or termination of such coverage. Orasomal shall
also provide the Company with a vendor's certificate substantially in a
form to be agreed between the Parties.
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13.2. The Company shall maintain comprehensive general liability insurance,
including product liability insurance on Products manufactured and/or
sold by the Company that incorporate intellectual property licensed
hereunder by Orasomal in such prudent amount as shall be determined by
the Management Committee. The Company shall provide Orasomal with a
certificate from the insurance company verifying the above and
undertakes to notify Orasomal thirty (30) days prior to the expiration
or termination of such coverage. Insofar as the MIT Patented Products
are concerned, MIT shall be a named insured under the foregoing
insurance policy and the limits of liability shall be no less than set
forth in Section 8.2. of the MIT Agreement. The Company shall deliver
the appropriate certificates of insurance evidencing such insurance
policy to Orasomal.
14. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
14.1. Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results
from causes beyond its reasonable control, including, without
limitation, acts of God, fires, strikes, acts of war, or intervention
of a government authority, non availability of raw materials, but any
such delay or failure shall be remedied by such Party as soon as
practicable.
15. SETTLEMENT OF DISPUTES; PROPER LAW
15.1. Subject to the provisions of Clause 15.3, the Parties will attempt in
good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives of the Parties,
failing which the Parties shall invoke the dispute resolution
provisions set forth in Clause 16 of the Development Agreement.
15.2. Subject to the provisions of Clause 15.3, this Agreement shall be
governed by and construed in accordance with the laws of New York and
subject to the provisions of Clause 15.1, the Parties agree to submit
to the jurisdiction of the courts of New York for the resolution of
disputes hereunder, which the Parties have not otherwise agreed should
be subject to the binding determination of an Expert or Panel, pursuant
to the terms of this Agreement.
15.3. The provisions of this Clause 15.3. shall apply to the extent that a
dispute arises out of or is related to the MIT Agreement, or the
performance, enforcement, breach or termination thereof and any
remedies relating thereto:
15.3.1. Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a
preliminary injunction, or other equitable relief to preserve
the status quo or prevent irreparable harm, any and all
claims, disputes or controversies arising under, out of, or in
connection with the MIT Agreement, including any dispute
relating to patent validity or infringement, which the parties
shall be unable to resolve within one hundred twenty (120)
days shall be mediated in good faith. The party raising such
dispute shall promptly advise the other party of such claim,
dispute or controversy in a writing which describes in
reasonable detail the nature of such dispute. By not later
than five (5) business days after the recipient has received
such notice of dispute, each party shall have selected for
itself a representative who shall have the authority to bind
such party, and shall additionally have advised the other
party in writing of the name and title of such representative.
By not later than ten (10) business days after the date of
such notice of dispute, the party against whom the dispute
shall
25
<PAGE> 28
be raised shall select a mediation firm in the Boston area and
such representatives shall schedule a date with such firm for
a mediation hearing. The parties shall enter into good faith
mediation and shall share the costs equally. If the
representatives of the parties have not been able to resolve
the dispute within fifteen (15) business days after such
mediation hearing, then any and all claims, disputes or
controversies arising under, out of, or in connection with
the MIT Agreement, including any dispute relating to patent
validity or infringement, shall be resolved by final and
binding arbitration in Boston, Massachusetts under the rules
of the American Arbitration Association, or the Patent
Arbitration Rules if applicable, then obtaining. The
arbitrators shall have no power to add to, subtract from or
modify any of the terms or conditions of the MIT Agreement,
nor to award punitive damages. Any award rendered in such
arbitration may be enforced by either party in either the
courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to
whose jurisdiction for such purposes the Company as a
sublicensee of Orasomal hereby irrevocably consents and
submits.
15.3.2. Notwithstanding the foregoing, nothing in this Clause 15.3.
shall be construed to waive any rights or timely performance
of any obligations existing under the MIT Agreement.
15.3.3. All disputes arising out of or related to the MIT Agreement,
or the performance, enforcement, breach or termination
thereof, and any remedies relating thereto, shall be
construed, governed, interpreted and applied in accordance
with the laws of the Commonwealth of Massachusetts, United
States of America, except that questions affecting the
construction and effect of any patent shall be determined by
the law of the country in which the patent shall have been
granted.
16. ASSIGNMENT
16.1. This Agreement may not be assigned by either Party without the prior
written consent of the other, which consent in relation to the proposed
assignment to an Affiliate of Orasomal or the Company, as the case may
be, shall not be unreasonably withheld, conditioned or delayed.
17. NOTICES
17.1. Any notice to be given under this Agreement shall be sent in writing in
English by registered mail, airmail, reputable courier or recorded
delivery post, or telecopied (with a confirmation copy promptly sent by
mail) to:
- if to the Company: Endorex Vaccine Delivery Technologies, Inc.
900 North Shore Drive
Lake Buff, Illinois 60044
Telecopier: 1 847 604 8570
Attention: President
with a copy to: Brock Fensterstock Silverstein & McAuliffe LLC
153 East 53rd Street
56th Floor
26
<PAGE> 29
New York, New York 10022
Telecopier: 1 212 371 5500
Attention: David Robbins
- if to Orasomal: Orasomal Technologies, Inc.
900 North Shore Drive
Lake Buff, Illinois 60044
Telecopier: 1 847 604 8570
Attention: President
with a copy to: Brobeck Phleger & Harrison LLP
1633 Broadway
New York, New York 10019
Telecopier: 1 212 586 7878
Attention: Richard Plumridge
- if to Endorex: Endorex Corp.
900 North Shore Drive
Lake Buff, Illinois 60044
Telecopier: 1 847 604 8570
Attention: President
with a copy to: Brobeck Phleger & Harrison LLP
1633 Broadway
New York, New York 10019
Telecopier: 1 212 586 7878
Attention: Richard Plumridge
or to such other address(es) as may from time to time be notified by any Party
to the others hereunder.
17.2. Any notice sent by mail shall be deemed to have been delivered within
seven working days after dispatch, any notice sent by reputable courier
shall be deemed to have been delivered within two (2) working days
after dispatch and any notice sent by telecopy shall be deemed to have
been delivered within twenty four (24) hours of the time of the
dispatch. Notices of change of address shall be effective upon receipt.
18. MISCELLANEOUS CLAUSES
18.1. No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any other breach or failure to perform or of
any other right arising under this Agreement.
18.2. If any provision in this Agreement is agreed by the Parties to be, or
is deemed to be, or becomes invalid, illegal, void or unenforceable
under any law that is applicable hereto, (i) such provision will be
deemed amended to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering
the intention of the Parties, it will be deleted, with effect from the
date of such agreement or such earlier date as the Parties may agree,
and (ii) the validity, legality and enforceability of the remaining
provisions of this Agreement shall not be impaired or affected in any
way.
27
<PAGE> 30
18.3. The Parties shall use their respective reasonable endeavours to ensure
that the Parties and any necessary Independent Third Party shall do,
execute and perform all such further deeds, documents, assurances, acts
and things as any of the Parties hereto may reasonably require by
notice in writing to the other Party or such Independent Third Party to
carry the provisions of this Agreement.
18.4. This Agreement shall be binding upon and enure to the benefit of the
Parties hereto, their successors and permitted assigns and
sub-licensees.
18.5. No provision of this Agreement shall be construed so as to negate,
modify or affect in any way the provisions of any other agreement
between the Parties unless specifically referred to, and solely to the
extent provided, in any such other agreement. In the event of a
conflict between the provisions of this Agreement and the provisions of
the Development Agreement, the terms of the Development Agreement shall
prevail unless this Agreement specifically provides otherwise.
18.6. No amendment, modification or addition hereto shall be effective or
binding on either Party unless set forth in writing and executed by a
duly authorised representative of each Party.
18.7. This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of
which when taken together shall constitute this Agreement.
18.8. Each of the Parties undertake to do all things reasonably within its
power which are necessary or desirable to give effect to the spirit and
intent of this Agreement.
18.9. Each of the Parties hereby acknowledges that in entering into this
Agreement it has not relied on any representation or warranty save as
expressly set out herein or in any document referred to herein.
18.10. Nothing contained in this Agreement is intended or is to be construed
to constitute Orasomal and the Company as partners, or Orasomal as an
employee of the Company, or the Company as an employee of Orasomal.
Neither Party hereto shall have any express or implied right or
authority to assume or create any obligations on behalf of or in the
name of the other Party or to bind the other Party to any contract,
agreement or undertaking with any Independent Third Party.
18.11. The Company shall not use the names or trademarks of MIT or Lincoln
Laboratory, nor any adaptation thereof, nor the names of any of their
employees, in any advertising, promotional or sales literature without
prior written consent obtained from MIT or said employee, in each case,
except that Licensee may state that it is licensed by MIT under one or
more of the patents and/or applications comprising the MIT Patents.
28
<PAGE> 31
IN WITNESS THEREOF the Parties hereto have executed this License
Agreement in duplicate.
SIGNED BY /s/ Michael S. Rosen
-------------------------
For and on behalf of
ORASOMAL TECHNOLOGIES, INC.
SIGNED BY /s/ Michael S. Rosen
-------------------------
For and on behalf of
ENDOREX CORP. (for the purposes of Clause 2.9
and Clause 12 only)
SIGNED BY /s/ Michael S. Rosen
-------------------------
For and on behalf of
ENDOREX VACCINE DELIVERY
TECHNOLOGIES, INC.
29
<PAGE> 32
SCHEDULE 1
[****]
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 33
SCHEDULE 2
[****]
- ----------
**** REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 34
SCHEDULE 3
MIT AGREEMENT*
- ----------------
* Incorporated by reference to the Company's Annual Report on Form 10-KSB, as
amended, for the transition period ended December 31, 1996.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Endorex Corp. on Form S-2 (File No. 333-44583) of our report dated March 6,
1998, on our audits of the consolidated financial statements and financial
statement schedules of Endorex Corp. as of December 31, 1997 and for the year
then ended and for the period cumulative from inception (February 15, 1985) to
December 31, 1997, which reports are included in this Annual Report on
Form 10-KSB.
PriceWaterhouseCoopers LLP
Chicago, Illinois
July 29, 1998
