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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended March 31, 1999,
or
[ ] Transition Period Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the Transition Period From ______ to ______.
Commission file number 0-19591
CYTEL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 33-0245076
-------- ----------
(State of Incorporation) (I.R.S. Employer
Identification No.)
9393 Towne Centre Drive
San Diego, California 92121
(Address of principal executive offices)
(619) 450-7100
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.01 par value 4,997,322 shares outstanding as of March 31, 1999.
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CYTEL CORPORATION
QUARTERLY REPORT
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
COVER PAGE................................................................... 1
TABLE OF CONTENTS............................................................ 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998..................... 3
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 1998....... 4
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998....... 5
Notes to Condensed Consolidated Financial Statements..... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk..................................................... *
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................ *
ITEM 2. Changes in Securities and Use of Proceeds................ *
ITEM 3. Defaults upon Senior Securities.......................... *
ITEM 4. Submission of Matters to a Vote of Security Holders...... *
ITEM 5. Other Information........................................ *
ITEM 6. Exhibits and Reports on Form 8-K......................... 21
SIGNATURE........................................................... 22
</TABLE>
* NO INFORMATION PROVIDED DUE TO INAPPLICABILITY OF ITEM.
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CYTEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,787 $ 2,594
Short-term investments 9,073 9,217
Prepaids and other current assets 574 1,657
Assets held for sale 250 --
--------- ---------
Total current assets 15,684 13,468
Restricted short-term investment 472 472
Property and equipment, net 610 2,879
Patents and other assets 2,206 4,211
--------- ---------
Total assets $ 18,972 $ 21,030
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,499 $ 2,289
Deferred contract revenues -- 515
Accrued restructuring cost 2,967 --
Accrued payroll and related expenses 329 416
Current portion of obligations under equipment
loans and notes payable 583 493
--------- ---------
Total current liabilities 7,378 3,713
Equipment loans and notes payable 610 1,606
Commitments
Minority interest in consolidated subsidiary 1,594 1,735
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, 659,898 shares issued and outstanding
at December 31, 1998 and 1997, respectively 7 7
Common stock, $.01 par value, 75,000,000 shares
authorized at December 31, 1998; 4,997,322 shares
and 4,987,453 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 50 50
Additional paid-in capital 142,836 142,642
Accumulated deficit (133,471) (128,723)
Unrealized (loss) on available-for-sale securities (32) --
--------- ---------
Total stockholders' equity 9,390 13,976
--------- ---------
$ 18,972 $ 21,030
========= =========
</TABLE>
See accompanying notes.
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CYTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Research and development revenues $ 929 $ 470
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929 470
COST AND EXPENSES
Research and development 4,279 3,786
General and administrative 1,238 1,106
Restructuring costs 3,700 --
----------- -----------
Total costs and expenses 9,217 4,892
Loss from operations (8,288) (4,422)
Minority interest in net loss of consolidated subsidiary 141 25
Interest income, net 103 278
Gain on disposal of assets 3,296 --
----------- -----------
Net loss $ (4,748) $ (4,119)
=========== ===========
Net loss per share - basic and diluted $ (0.95) $ (0.88)
=========== ===========
Shares used in computing net loss per share - basic
and diluted 4,991,531 4,656,399
=========== ===========
</TABLE>
See accompanying notes.
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CYTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,748) $ (4,119)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 179 168
Deferred rent -- (75)
Deferred revenue (515) 46
Gain on disposal of assets (3,296) --
Minority interest in consolidated subsidiary (141) (25)
Accrued restructuring costs 3,700 --
Net change in operating assets and liabilities; net of
divestitures:
Other current assets 992 (236)
Accounts payable and accrued liabilities 1,076 95
Accrued payroll and related expenses (87) 7
-------- --------
Net cash used in operating activities (2,840) (4,139)
INVESTING ACTIVITIES
Purchases of available-for-sale securities (1,963) (7,754)
Maturities of available-for-sale securities 967 4,774
Sales of available-for-sale securities 1,108 3,673
Proceeds from the sale of property and equipment 3,195 --
Proceeds from the sale of patents (net of fees) 2,914 --
Purchase of property and equipment (282) (479)
Deposits and other assets 10 (221)
-------- --------
Net cash provided by (used in) investing activities 5,949 (7)
FINANCING ACTIVITIES
Principal payments under equipment notes payable and note
payable to bank (110) (119)
Restricted cash released as note payable collateral -- 43
Net proceeds from issuance of preferred stock -- 9,700
Net proceeds from issuance of common stock 194 49
-------- --------
Net cash provided by financing activities 84 9,673
Increase in cash and cash equivalents 3,193 5,527
Cash and cash equivalents at beginning of year 2,594 6,187
-------- --------
Cash and cash equivalents at end of period $ 5,787 $ 11,714
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 69 $ 21
======== ========
DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Unrealized losses on available-for-sale securities $ (32) $ (6)
======== ========
Issued common stock for non-exclusive license agreement
for patent rights $ -- $ 900
======== ========
Asset write down in accrued restructuring charge $ 736 $ --
======== ========
Assumption of debt $ 868 $ --
======== ========
</TABLE>
See accompanying notes
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CYTEL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
1. BASIS OF PRESENTATION
The interim unaudited condensed consolidated financial statements contained
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In management's opinion, the
unaudited information includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented.
Interim results are not necessarily indicative of results to be expected for the
full year. The financial statements should be read in conjunction with the
audited consolidated financial statements and footnotes thereto included in the
Registrant's Form 10-K for the year ended December 31, 1998.
The condensed consolidated financial statements include the accounts of
Cytel Corporation and its majority-owned subsidiary Epimmune Inc. ("Epimmune").
All significant intercompany accounts and transactions have been eliminated. The
minority interest calculation is based on third parties' ownership percentage in
Epimmune of 13.4% during the first quarter of 1999. The calculation does not
include the potential additional ownership interest that would result from the
conversion of the Cytel preferred stock held by G.D. Searle & Co. ("Searle"), a
wholly-owned subsidiary of Monsanto Co., which is convertible into Epimmune
common stock. As of March 31, 1999, Cytel owned 74.6%, Epimmune employees owned
13.8%, and Searle owned 11.6% of the outstanding capital stock of Epimmune.
Unless otherwise indicated, all references to "Cytel" are to Cytel
Corporation, all references to "Epimmune" are to Epimmune Inc., and all
references to the "Company" are to the combined entity of Cytel and Epimmune.
A one-for-seven reverse split of Cytel's common stock was effected on
November 13, 1998. The reverse split was approved by Cytel's Board of Directors
on November 2, 1998 pursuant to authority granted to the Board of Directors by
Cytel's stockholders at a special meeting held on October 30, 1998. All common
share balances and net loss per share amounts presented in these financial
statements have been retroactively adjusted to reflect the reverse stock split.
Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding during the period. All potential common
shares have been excluded from the diluted net loss per share calculations as
they are antidilutive.
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2. RESULTS OF CYLEXIN CLINICAL TRIAL
On March 29, 1999, Cytel announced the results from the Cylexin Phase
II/III clinical trials. The results of these trials indicated that Cylexin,
Cytel's lead therapeutic compound, showed no benefit over placebo in the
clinical trial. Accordingly, Cytel terminated its therapeutic anti-inflammatory
business and recorded a charge of $3.4 million as of December 31, 1998,
representing the book value of its cell adhesion patent portfolio. This charge
was recorded in accordance with SFAS 121 after Cytel determined that its
intangible assets were permanently impaired.
Based on the determination to terminate Cytel's businesses and focus future
operations on Epimmune, Cytel recorded a restructuring charge of $3.7 million in
the first quarter 1999. Such charge includes $1.2 million for minimum
commitments for leased facilities that Cytel will abandon, $827,000 for employee
severance, $628,000 for exit costs of operations, $575,000 for the write-down to
fair value for certain assets held for sale and $470,000 for other loss
contingencies.
3. SALE OF THE GLYTEC CARBOHYDRATE SYNTHESIS AND MANUFACTURING BUSINESS
In the first quarter of 1999, Cytel completed the sales of its Glytec
carbohydrate synthesis and manufacturing business, including the sale of fixed
assets and intellectual property, and assignment of certain liabilities and
transfer of certain personnel relating to the business. The sales of the fixed
and intangible assets of this business raised approximately $6.2 million, net of
fees, the proceeds of which will be used to fund the restructuring efforts of
the Company. Cytel recorded a gain of approximately $3.3 million in connection
with the two transactions, as discussed further below.
On February 28, 1999, Cytel licensed its proprietary carbohydrate synthesis
and manufacturing intellectual property assets to Baxter Healthcare
Corporation's Nextran unit ("Nextran") for exclusive use in xenotransplantation.
Cytel received total consideration of $4.0 million, of which $3.2 million was
cash and $0.8 million assignment of certain liabilities to Nextran.
Additionally, Nextran assumed the facility lease and certain personnel and fixed
assets related to this manufacturing operation.
On March 26, 1999, Cytel sold the remainder of its Glytec carbohydrate
synthesis and manufacturing intellectual property assets to Neose Technologies,
Inc. ("Neose"). Neose paid Cytel $3.5 million cash and paid an additional $1.5
million into escrow, the release of which is conditioned on Cytel's satisfaction
of certain matters relating to the patents and licenses acquired by Neose. Neose
may pay Cytel up to an additional $1.6 million contingent on potential payments
and revenues realized by Neose in connection with certain future corporate
collaborations. Cytel has recorded the gain relating to the initial cash
consideration and will record subsequent gains as they are realized, if at all.
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4. MANAGEMENT'S PLAN FOR FUTURE OPERATIONS
Following the termination of Cytel's anti-inflammatory therapeutic business
and the sale of its Glytec business, Cytel is terminating its employees, selling
its fixed assets and intellectual property, and focusing all subsequent
development efforts on Epimmune's technology. Epimmune is developing novel
vaccines that stimulate the body's immune system to treat and prevent cancer and
infectious diseases.
Cytel plans to use the proceeds from the disposition of the Glytec
carbohydrate synthesis and manufacturing business, together with existing cash
resources, to meet its financial obligations, including restructuring and
termination costs of its non-Epimmune operations. There can be no assurance,
however, that Cytel's available cash (excluding Epimmune) will be sufficient to
satisfy all of its financial obligations.
5. ADDITIONAL INFORMATION
As a result of the events described above, the Company is presenting
additional information related to the operation and financial position of
Epimmune and Cytel. Epimmune was formed in October 1997 as a wholly-owned
subsidiary with separate management and financing. As of March 31, 1999, Cytel
owned approximately 75% of the outstanding stock of Epimmune.
CYTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cytel Epimmune Consolidating
Corporation Inc. Entries Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Research and
development revenues $ 525 $ 404 $ -- $ 929
------- ------- ------- -------
525 404 -- 929
COSTS AND EXPENSES:
Research and development 3,042 1,237 -- 4,279
General and administrative 871 367 -- 1,238
Restructuring costs 3,700 -- -- 3,700
------- ------- ------- -------
Total costs and expenses 7,613 1,604 -- 9,217
Loss from operations (7,088) (1,200) (8,288)
Minority interest in net
loss of consolidated subsidiary -- -- 141 141
Interest income, net (43) 146 -- 103
Gain on disposal of assets 3,296 -- -- 3,296
------- ------- ------- -------
Net loss $(3,835) $(1,054) $ 141 $(4,748)
======= ======= ======= =======
</TABLE>
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CYTEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cytel Epimmune Consolidating
Corporation Inc. Entries Total
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Assets
Cash, cash equivalents and short-
term investments $ 5,106 $ 9,754 $ -- $ 14,860
Other current assets 413 391 20 824
-------- -------- -------- --------
Total current assets 5,519 10,145 20 15,684
Restricted cash -- 472 -- 472
Property and equipment, net -- 610 -- 610
Investment in consolidated
subsidiary 11,742 -- (11,742) --
Patents and other non-current assets -- 2,206 -- 2,206
-------- -------- -------- --------
Total assets $ 17,261 $ 13,433 $(11,722) $ 18,972
======== ======== ======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued
liabilities $ 2,780 $ 1,028 $ 20 3,828
Accrued restructuring costs 2,967 -- -- 2,967
Current portion of obligations under
equipment loans and notes payable 555 28 -- 583
-------- -------- -------- --------
Total current liabilities 6,302 1,056 20 7,378
Long-term obligations under
equipment loans and notes payable 398 211 -- 610
Minority interest in consolidated
subsidiary -- -- 1,594 1,594
Stockholders' equity 10,561 12,166 (13,336) 9,390
-------- -------- -------- --------
Total liabilities and
stockholders' equity $ 17,261 $ 13,433 $(11,722) $ 18,972
======== ======== ======== ========
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, without limitation, those discussed below under "Risks and
Uncertainties" and those discussed in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998. The Company undertakes no
obligation to release publicly the results of any revisions to these forward
looking statements to reflect events or circumstances arising after the date
hereof.
Unless otherwise indicated, all references to "Cytel" are to Cytel
Corporation, all references to "Epimmune" are to Epimmune Inc., a majority-owned
subsidiary of Cytel, and all references to the "Company" are to the combined
entity of Cytel and Epimmune.
Since its inception in July 1987, the Company has devoted substantially
all of its resources to the discovery and development of its potential
therapeutic products. To date, the Company has not received any revenues from
the sale of products. The Company has funded its research and development
primarily from equity-derived working capital and through strategic alliances
with other companies. The Company has been unprofitable since its inception and
expects to incur substantial operating losses for the next several years. As of
March 31, 1999, the Company's accumulated deficit was approximately $133.5
million.
In the first quarter of 1999, Cytel completed the sales of its Glytec
carbohydrate synthesis and manufacturing business resulting in net proceeds of
approximately $6.2 million (see Note 3 in financial statements). Additionally,
Cytel announced the results from the Cylexin Phase II/III clinical trial. The
results of this trial indicated that Cylexin, Cytel's lead therapeutic compound,
showed no benefit over placebo. Accordingly, Cytel terminated its therapeutic
anti-inflammatory business and, as a result, Cytel recorded a restructuring
charge of $3.7 million as of March 31, 1999 (see Note 2 in financial
statements). Cytel will focus all subsequent development efforts on Epimmune's
vaccine research and development technology.
Cytel plans to use the proceeds from the disposition of the Glytec
carbohydrate synthesis and manufacturing business, together with existing cash
resources, to meet its financial obligations, including restructuring and
termination costs of its non-Epimmune operations. There can be no assurance,
however, that Cytel's available cash (excluding Epimmune) will be sufficient to
satisfy all of its financial obligations.
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LIQUIDITY AND CAPITAL RESOURCES
Cytel and Epimmune on a Consolidated Basis
The following discussion reflects financial information for Cytel and
Epimmune on a consolidated basis. Financial information for Epimmune alone is
provided in the section entitled "Epimmune" below.
The Company has financed operations since inception primarily through
private placements of its equity securities, two public common stock offerings,
revenues under collaborative research and development agreements, grant
revenues, certain asset divestitures and interest income. Through March 1999,
the Company has raised approximately $145.1 million from the sale of equity
securities. The Company has financed its laboratory equipment and research and
office facilities primarily through capital and operating lease arrangements.
The Company had net working capital of $8.3 million as of March 31, 1999
compared to $9.8 million as of December 31, 1998. The decrease was primarily due
to recording of the accrued restructuring liability, partially offset by an
increase in cash from the sale of fixed and intangible assets. As of March 31,
1999, the Company's cash, cash equivalents, restricted cash and short-term
investments increased to $15.3 million from $12.3 million at December 31, 1998.
The increase was due to proceeds from the sale of assets discussed above,
partially offset by cash used for Epimmune operations and the winddown of Cytel
operations. Excluding Epimmune, as of March 31, 1999, Cytel had $5.1 million of
cash available to fund its operations, which it plans to use to meet its
financial obligations, including corporate restructuring and termination costs
of all its non-Epimmune operations. There can be no assurance, however, that
Cytel's cash resources (excluding Epimmune) will be sufficient to satisfy all of
its financial obligations.
Capital expenditures totaled $0.3 million for the three months ended
March 31, 1999, primarily for laboratory equipment, compared to $.5 million in
the first quarter of 1998, primarily for manufacturing and laboratory equipment
additions for Cytel's carbohydrate manufacturing facility. The Company has sold
its Glytec carbohydrate synthesis and manufacturing business and has terminated
its anti-inflammatory therapeutic business. Future capital expenditures will be
in support of Epimmune's vaccine business.
The Company's cash, cash equivalents and short-term investments are
expected to decline primarily due to Epimmune's ongoing vaccine research
programs and the payments associated with the termination of Cytel's therapeutic
anti-inflammatory business. Cytel raised approximately $6.2 million in the first
quarter of 1999 through the sale of its Glytec carbohydrate synthesis and
manufacturing business, the proceeds of which will be used to fund the
restructuring efforts of Cytel.
Epimmune
The following discussion reflects financial information for Epimmune
alone. Epimmune's financial information is also included on a consolidated basis
with Cytel in the preceding section.
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Since inception in October 1997, Epimmune has financed its operations
through private offerings of its equity securities, NIH grant revenues, capital
and operating lease transactions and investment income. From inception through
March 1999, Epimmune has raised approximately $16.7 million from sales of equity
securities. Total cash proceeds of sales of private equity securities since
inception were $10.4 million and $6.1 million from Cytel and Searle,
respectively, and $175,000 from exercise of options.
In August 1998, Epimmune entered into a $750,000 term credit facility
with Silicon Valley Bank to provide secured financing for future laboratory,
office and tenant improvement additions. As of March 31, 1999, Epimmune had
$511,000 available to finance future capital equipment and tenant improvements
by August 1999. In addition, Epimmune leases its laboratory and office
facilities under operating leases. In November 1998, Epimmune entered into a
10-year lease related to the construction of a new laboratory and office
facility, which was completed and occupied in April 1999.
Epimmune's working capital balance decreased to $9.1 million as of March
31, 1999 from $10.1 million at the end of 1998. The decrease is attributable to
cash used for ongoing operating activity. For the same reasons, cash, cash
equivalents, short-term investments and restricted cash decreased to $10.2
million at March 31, 1999 from $11.1 million at December 31, 1998. Epimmune
primarily invests its cash in United States government and investment grade
corporate debt securities.
Epimmune believes that its available cash, cash equivalents, marketable
securities and existing sources of funding will be adequate to satisfy its
anticipated capital requirements through December 31, 2000. The estimate for the
period for which Epimmune expects its available cash balances and existing
sources of funding to be sufficient to meet its capital requirements is a
forward-looking statement that involves risks and uncertainties as set forth
herein and in the Company's Form 10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS
Three months ended March 31, 1999 ("1999"), as compared with three
months ended March 31, 1998 ("1998").
The Company had total revenues of $929,000 for 1999, compared to
$470,000 in 1998. Total revenues increased $459,000 in 1999 from 1998 primarily
due to revenue recognized in connection with the sale of Cytel's Glytec
carbohydrate synthesis and manufacturing business.
In 1999, research and development expenses increased to $4.3 million
from $3.8 million in 1998. The increase was due to increased research personnel
at Epimmune. General and administrative expenses increased slightly to $1.2
million in 1999 from $1.1 million in 1998.
The restructuring charge of $3.7 million recorded in 1999 relates to the
termination of its non-Epimmune operations, and also recorded a gain on disposal
of assets of $3.3 million related to the sale of Cytel's Glytec carbohydrate
synthesis and manufacturing business, as discussed above.
Net interest income was $103,000 in 1999 compared to $278,000 in 1998.
The slight decrease is due to a lower average cash balance.
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The Company expects to incur operating losses over the next several
years due to continuing expenses associated with its research and development
programs, including preclinical testing and clinical trials. Operating losses
may fluctuate from quarter to quarter as a result of differences in the timing
of revenues received and expenses incurred, and such fluctuations may be
substantial.
Future Capital Needs
The Company expects to incur substantial additional research and
development expenditures, including costs related to preclinical testing,
clinical trials and manufacturing, as well as marketing and distribution
expenses. It is the Company's intention to seek additional collaborative
research and development relationships with suitable corporate partners. There
can be no assurance that any agreements that may result from these discussions
will successfully reduce the Company's funding requirements. Additional equity
or debt financing will be required, and there can be no assurance that these
funds will be available on favorable terms, if at all. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate one or
more of its drug discovery or development programs or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
products that the Company would not otherwise relinquish.
The Company's future capital requirements depend on many factors,
including continued scientific progress in its drug discovery programs, the
magnitude of these programs, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, changes in the existing collaborative
research relationships, the ability of the Company to establish and maintain
development arrangements, the cost of manufacturing scale-up and effective
commercialization activities and arrangements.
As is typical in the biotechnology industry, the commercial success of
the Company will depend in part on the Company neither infringing patents issued
to competitors nor breaching the technology licenses upon which the Company's
products might be based. The Company's business is also subject to other
significant risks, including the uncertainties associated with the lengthy
regulatory approval process and with potential competition from other products.
Even if the Company's products appear promising at an early stage of
development, they may not reach the market for a number of reasons. Such reasons
include, but are not limited to the Company's inability to fund clinical
development of such products, or the possibilities that the potential products
will be found ineffective during clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, or be
uneconomical to market.
Year 2000
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with year 2000
requirements. The impact of the year 2000 issue may affect other systems that
utilize imbedded computer chip technology, including building controls, security
systems or laboratory equipment. It may also impact the ability to obtain
products or services if the provider encounters and fails to resolve year 2000
related problems.
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In 1999, the Company established an active program to identify and
resolve year 2000 related issues. This program includes the review and
assessment of the Company's information technology and non-information
technology systems, as well as third parties with whom the Company has material
relationships. This program consists of four phases: inventory, risk assessment,
problem validation and problem resolution. The inventory phase identified
potential risks we face. They include among others computer software, computer
hardware, telecommunications systems, laboratory equipment, facilities systems
(security, environment control, alarm), service providers, and other third
parties. The risk assessment phase categorizes and prioritizes each risk by its
potential impact. The problem validation phase tests each potential risk,
according to priority, to determine if an action risk exists. In the case of
critical third parties, this step will include a review of their year 2000 plans
and activities. The problem resolution phases will, for each validated risk,
determine the method/strategy for alleviating the risk. It may include anything
from replacement of hardware or software to process modification to selection of
alternative vendors. This step also includes the development of contingency
plans.
The inventory and risk assessment phases will be completed in second
calendar quarter 1999. The problem validation phase will be completed in third
calendar quarter 1999 for all areas, except for evaluating specific pieces of
research equipment and the assessment of some protocol third parties. The
Company expects that it will complete the last portion of the problem validation
and resolution phase by the end of the third calendar quarter of 1999.
Contingency plans are being developed. The Company expects to have those plans
completed by the end of the third quarter 1999.
The Company is actively correcting problems as they are identified.
These corrections include the replacement of hardware and software systems, the
identification of alternative service providers and the creation of contingency
plans. The Company currently estimates that the cost of identified problems will
be approximately $130,000 for hardware and software upgrades or modifications.
In addition, the Company will incur approximately $10,000 of internal personnel
costs to complete the remaining phases of the project. The Company does not
believe that the costs of these actions will have a material adverse effect on
its business. The Company expects to be able to resolve any problems identified
of the project as part of normal operating expenses.
Any failure to be year 2000 compliant within the Company's internal
computer systems or of third party equipment or software it uses, or of systems
maintained by its suppliers, may adversely affect the Company's business.
RISKS AND UNCERTAINTIES
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected the Company's results and in the
future could cause actual results and needs of the Company to vary materially
from forward-looking statements made from time to time by the Company on the
basis of management's then-current expectations. The business in which the
Company is engaged is in rapidly changing and competitive markets and involves a
high degree of risk, and accuracy with respect to forward-looking projections is
difficult.
14
<PAGE> 15
Disappointing results of the Phase II/III clinical trial of Cylexin, Cytel's
lead cell adhesion inhibitor compound, has led to the termination of the
therapeutic anti-inflammatory business. Accordingly, Cytel is terminating its
employees, selling its fixed assets and intellectual property, and focusing all
subsequent development efforts on Epimmune's vaccine technology. During the
first quarter of 1999, Cytel sold its Glytec carbohydrate synthesis and
manufacturing business and plans to use the proceeds from such sale, together
with existing cash resources, to meet its financial obligations, including
corporate restructuring and termination costs of all of its non-Epimmune
operations. There can be no assurance, however, that Cytel's cash resources
(excluding Epimmune) will be sufficient to satisfy all of its financial
obligations.
Future Capital Needs; Uncertainty of Additional Funding. Excluding Epimmune, as
of March 31, 1999, Cytel had approximately $5.1 million of cash available. As of
March 31, 1999, Epimmune had $10.2 million in cash, cash equivalents, restricted
cash and short-term investments. The Company is considering various alternatives
in light of its financial position and the recent sales of its carbohydrate
synthesis and manufacturing business and decision to terminate the therapeutic
anti-inflammatory program. The Company's future capital requirements will depend
on many factors, including: the ability of the Company to establish and maintain
collaborative arrangements; progress with preclinical testing and clinical
trials; the time and costs involved in obtaining regulatory approvals; the costs
involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; changes in its existing research
relationships; continued scientific progress in its drug discovery programs; the
magnitude of these programs; the cost of manufacturing scale-up; and effective
commercialization activities and arrangements. Epimmune intends to seek
additional funding through collaborative arrangements or equity or debt
financings. If additional financing is not available, Epimmune anticipates its
existing available cash, cash equivalents, restricted cash and short-term
investments will be adequate to fund its operations through the end of 2000. The
estimate for the period for which Epimmune expects its available cash balances,
investment income and estimated cash flow from collaborative agreements and
research grants to be sufficient to meet its capital requirements is a
forward-looking statement that involves risks and uncertainties as set forth
herein and in Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Report on Form 10-Q.
There can be no assurance that any financing or transaction through which the
Company seeks to obtain additional funding will be available on favorable terms,
if at all, or that any collaboration agreements to which the Company is or may
become a party will successfully reduce the Company's funding requirements. The
suspension or termination of the Company's collaborations with its existing
corporate partners or the inability to enter into new collaborations, the
failure of any such collaborations to be successful or the delay in their
development or commercialization of products could have a material adverse
effect on the Company's business, financial condition and results of operations.
If additional funds are raised by issuing securities, further dilution to
existing stockholders may result. If adequate funds are not available, the
Company will be required to delay, scale back or eliminate one or more of its
drug discovery or development programs; obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to or sell certain of its technologies, product candidates or products
that the Company would not otherwise relinquish or sell; sell itself or certain
of its technologies or other assets to a third party; cease operations; or
declare bankruptcy.
15
<PAGE> 16
Early Stage of Development; Absence of Products. The Company is a research and
development focused company. It has not completed the development of any product
and, accordingly, has not begun to market or generate revenues from the
commercialization of products. The Company does not expect to market any
therapeutic or prophylactic products for a number of years. The Company's
products under development will require significant time-consuming and costly
research, development, preclinical studies, clinical testing, regulatory
approval and significant additional investment prior to their commercialization,
which may never occur. There can be no assurance that the Company's research and
development programs will be successful. In particular, Cytel completed its
Phase II/III clinical trial of Cylexin, its lead cell adhesion inhibitor
compound, in March 1999. Based on disappointing results from this Phase II/III
clinical trial, Cytel announced that it has halted clinical trials of Cylexin
and is discontinuing its cell adhesion programs. Further, there can be no
assurance that the Company will be able to manufacture any products in
commercial quantities in compliance with regulatory requirements at an
acceptable cost, that any of its products under development will be successfully
commercialized or will prove to be safe and efficacious in clinical trials or
that the Company or its collaborators will be successful in obtaining market
acceptance of any of its products. The Company or its collaborators may
encounter problems and delays relating to research and development, regulatory
approval, manufacturing and marketing. The failure by the Company to address
such problems and delays successfully would have a material adverse effect on
the Company's business, financial condition and results of operations.
Reliance on Collaborative Partners. The Company expects to rely on collaborative
arrangements both to develop and commercialize pharmaceutical products. The
Company has relied on certain established pharmaceutical companies interested in
its technology to fund a portion of its research and development expenses for
pharmaceutical product candidates. There can be no assurance that the Company
will be able to enter into collaborative arrangements in the future, that any
such collaborative arrangements or its existing collaborative arrangements will
continue or be successful or that the Company will receive royalty revenues,
license fees or milestone payments from any of such collaborative arrangements.
In addition, collaborative partners may pursue alternative technologies or
develop alternative compounds either on their own or in collaboration with
others, including the Company's competitors, as a means of developing treatments
for the disease targeted by any collaborative program of the Company.
Epimmune has entered into a research and development collaboration with Searle
with respect to the production, use and sale of pharmaceutical products derived
from Epimmune's cancer epitopes and the use thereof in therapeutic vaccines.
Such collaboration is Epimmune's only significant collaboration to date, and
Epimmune is substantially dependent upon it. The success of the collaboration
will depend, in significant part, on Searle's development, competitive marketing
and strategic considerations, including the relative advantages of alternative
products being developed or marketed by competitors. Epimmune expects that
substantially all of its revenues for the foreseeable future will result from
payments under its existing, and any future, collaborations, including royalties
on product sales and interest income. There can be no assurance that Searle will
perform its obligations as expected or that any future milestone payments or
other amounts will be received by Epimmune. The suspension or termination of the
Epimmune collaboration with Searle, the failure of such collaboration to be
successful or the delay in the development or commercialization of
pharmaceutical products pursuant to such collaboration could have a material
adverse effect on the Company's business, financial condition and results of
operations.
16
<PAGE> 17
In addition, the Company may be required to enter into licenses or other
collaborative agreements with third parties in order to access technologies that
may be necessary to successfully develop certain of its products. There can be
no assurance that the Company will be able to successfully negotiate acceptable
licenses or other collaborative arrangements that allow it to access such
technology. In addition, there can be no assurance that any technology accessed
through such licenses or other collaborations will successfully meet the
Company's requirements.
Continuing Operating Losses; Accumulated Deficit. The Company has experienced
significant operating losses since its inception in 1987. As of March 31, 1999,
the Company had an accumulated deficit of approximately $133.5 million. The
Company expects to incur substantial additional operating losses as the
Company's research and development and clinical trial efforts continue. All of
the Company's revenues to date have consisted of contract research and
development revenues, license and milestone payments, research grants, certain
asset divestitures and interest income. To achieve profitable operations, the
Company, alone or with others, must identify, develop, register, manufacture and
market proprietary products. There can be no assurance that the Company will be
successful in its efforts to achieve profitable operations.
Manufacturing Limitations. To be successful, the Company's products and products
of its partners must be manufactured in commercial quantities in compliance with
regulatory requirements and at an acceptable cost. The Company has not
commercialized any products, nor has it demonstrated its ability to manufacture
commercial quantities of its or its partners' product candidates in accordance
with regulatory requirements. If the Company is unable to develop itself or
contract with a third-party manufacturing capabilities to produce suitable
quantities of its or its partners' products in accordance with regulatory
standards, the ability of the Company or its partners to conduct clinical
trials, obtain regulatory approvals and market such products may be adversely
affected, which could adversely affect the Company's competitive position and
its chances of achieving profitability. There can be no assurance that such
products can be manufactured by the Company or any other party at a cost or in
quantities which are commercially viable.
Government Regulation; Uncertainty Associated with Clinical Trials. The
production and marketing of the Company's products and its ongoing research and
development activities are subject to regulation by numerous governmental
authorities in the United States, Canada and other countries. Before any drug
developed by the Company can be marketed, it will undergo rigorous preclinical
and clinical testing and an extensive regulatory approval process mandated by
the Food and Drug Administration ("FDA") and equivalent foreign authorities,
including the Canadian Health Protection Branch ("HPB"). These processes can
take a number of years and require the expenditure of substantial resources. The
time required for completing such testing and obtaining such approvals is
uncertain and approval itself may not be obtained. The FDA, the HPB or the
Company and its collaborators may decide to discontinue or suspend clinical
trials at any time if the subjects or patients who are participating in such
trials are being exposed to unacceptable health risks or if the results show no
or limited benefit in patients treated with the drug compared to patients in the
control group. In particular, Cytel completed its Phase II/III clinical trial of
Cylexin, its lead cell adhesion inhibitor compound, in March 1999. Cytel
announced that it halted clinical trials of Cylexin based on disappointing
results that indicated that Cylexin showed no benefit over placebo for the
treatment of reperfusion injury in infants undergoing Cardiopulmonary bypass
("CPB") to facilitate the surgical repair of heart defects.
17
<PAGE> 18
Cytel has recently discontinued human clinical testing of its lead product
candidate, Cylexin, in infants undergoing surgery to correct congenital heart
defects. This trial was terminated in March 1999 after a determination that the
drug was safe, but that there was no increased efficacy seen in patients treated
with Cylexin compared to those patients in the placebo control group. Testing of
the Company's other product candidates in research and development may reveal
undesirable and unintended side effects or other characteristics that may
prevent or limit their commercial use. There can be no assurance that the
Company will not encounter problems in clinical trials of other product
candidates that will cause the FDA, or the Company to delay or suspend clinical
trials. Furthermore, there can be no assurance that any of the Company's
products will be approved by the FDA or foreign regulatory agency for any
indication. Products, if any, resulting from the Company's research and
development programs are not expected to be commercially available for a number
of years. Even if regulatory approval of a drug is granted, such approval may
entail limitations on the indicated uses for which the drug may be marketed. In
addition, a marketed drug, its manufacturer and the facilities in which the drug
is manufactured are subject to continual review and periodic inspections. Later
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market.
Technological Change and Competition. The Company is engaged in a highly
competitive industry. The Company competes with many public and private
companies, including pharmaceutical companies, chemical companies, specialized
biotechnology companies and academic institutions. Many of the Company's
competitors have substantially greater financial, scientific and technical
resources, and manufacturing and marketing experience and capabilities than the
Company. In addition, many of the Company's competitors have significantly
greater experience conducting preclinical studies and clinical trials of new
pharmaceutical products, and in obtaining regulatory approvals for
pharmaceutical products. Competitors of the Company and its collaborators may
develop and commercialize such products more rapidly than the Company and its
collaborators. There can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than any
being developed by the Company, or that would render the Company's technology
and products obsolete or noncompetitive. The Company is aware of companies that
are pursuing the development of novel pharmaceuticals which target the same
diseases that the Company is targeting. There can be no assurance that these and
other efforts by potential competitors will not be successful, or that other
technologies will not be developed to compete with the Company's technologies.
The Company's products under development address a range of markets. The
Company's competition will be determined in part by the potential indications
for which the Company's compounds are developed and ultimately approved by
regulatory authorities. For certain of the Company's potential products, an
important factor in competition may be the timing of market introduction of its
or competitive products. Accordingly, the relative speed with which the Company
can develop products, complete the clinical trials and approval processes and
supply commercial quantities of the products to the market are expected to be
important competitive factors. The Company expects that competition among
products approved for sale will be based, among other things, on product
effectiveness, safety, reliability, availability, price and patent position.
18
<PAGE> 19
Patents and Proprietary Rights. The Company's success will depend in part on its
ability to obtain patent protection for its products and processes, both in the
United States and other countries. The patent position of biotechnology and
pharmaceutical companies is highly uncertain and involves complex legal and
factual questions. There is no consistent policy regarding the breadth of claims
allowed in biotechnology patents. The Company intends to file applications and
pursue patent prosecution as appropriate for patents covering both its products
and processes. There can be no assurance that patents will issue from any of the
patent applications owned or licensed by the Company or that, if patents do
issue, that claims allowed will be sufficiently broad to protect the Company's
products and processes. In addition, there can be no assurance that any patents
issued to the Company will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide proprietary protection to the
Company.
As is typical in the biotechnology industry, the commercial success of the
Company will depend in part on the Company neither infringing patents issued to
competitors nor breaching the technology licenses upon which the Company's
products might be based. Failure by the Company to obtain a license to any
technology that it requires to commercialize its products, or to develop an
alternative compound and obtain FDA approval within an acceptable period of time
if required to do so, would have a material adverse effect on the Company.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce any patents issued to the Company or to determine the scope
and validity of others' proprietary rights. In addition, the Company may have to
participate in interference proceedings declared by the United States Patent and
Trademark Office which could result in substantial costs to the Company to
determine the priority of inventions.
The Company also protects its proprietary technology and processes in part by
confidentiality agreements with its collaborative partners, employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
Absence of Sales and Marketing Experience. The Company has no experience in
sales, marketing or distribution. Before it can market any of its products
directly, the Company must develop a substantial marketing and sales force with
technical expertise and supporting distribution capability. Alternatively, the
Company may obtain the assistance of a pharmaceutical company with a large
distribution system and a large direct sales force. Other than its agreements
with Searle and Takara, the Company does not have any existing distribution
arrangements with any pharmaceutical company for its products under development.
There can be no assurance that the Company will be able to establish sales and
distribution capabilities or be successful in gaining market acceptance for its
products.
Dependence on Reimbursement. The Company's ability to commercialize its products
successfully may depend in part on the extent to which reimbursement for the
cost of such products and related treatment will be available from government
health administration authorities, private health insurers and other
organizations. Third-party payors are increasingly challenging the price of
medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and there can be no
assurance that adequate third-party coverage will be available to enable the
Company to maintain price levels sufficient to realize an appropriate return on
its investment in product development.
19
<PAGE> 20
Dependence on Key Personnel. The Company is highly dependent on the principal
members of its scientific and management staff. The Company does not maintain
key person life insurance on the life of any employee. The Company's future
success also will depend in part on the continued service of its key scientific
personnel and its ability to identify, hire and retain additional qualified
personnel.
There is intense competition for qualified personnel in the areas of the
Company's activities, and there can be no assurance that the Company will be
able to continue to attract and retain such personnel necessary for the
development of the Company's business. Because of the intense competition, there
can be no assurance that the Company will be successful in adding technical
personnel as needed to meet the staffing requirements of additional
collaborative relationships. Failure to attract and retain key personnel could
have a material adverse effect on the Company.
Product Liability and Insurance. The Company's business exposes it to potential
product liability risks which are inherent in the testing, manufacturing and
marketing of human therapeutic products. While the Company currently has product
liability insurance, there can be no assurance that it will be able to maintain
such insurance on acceptable terms or that insurance will provide adequate
coverage against potential liabilities.
Use of Hazardous Materials. The Company's research and development involves the
controlled use of hazardous materials, chemicals and radioactive compounds.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damage that results, which liability could
exceed the resources of the Company. The Company may incur substantial cost to
comply with environmental regulations if the Company develops commercial
manufacturing capacity.
Although the Company believes that it is in compliance in all material respects
with applicable environmental laws and regulations and currently does not expect
to make material capital expenditures for environmental control facilities in
the near term, there can be no assurance that it will not be required to incur
significant costs to comply with environmental laws and regulations in the
future, or that the operations, business or assets of the Company will not be
materially, adversely affected by current or future environmental laws or
regulations.
Volatility of Common Stock Price.The market price for securities of
biotechnology companies, including the Company, have historically been highly
volatile, and the market from time to time has experienced significant price and
volume fluctuations that are unrelated to the operating performance of such
companies. Factors such as announcements of technological innovations or new
commercial therapeutic products by the Company or others, governmental
regulation, developments in patent or other proprietary rights, developments in
the Company's relationships with its collaborative partners, public concern as
to the clinical results and/or, the safety of drugs developed by the Company or
others and general market conditions may have a significant effect on the market
price of the Company's common stock. Fluctuations in financial performance from
period to period also may have a significant impact on the market price of the
common stock.
Absence of Dividends. The Company has never paid any cash dividends and does not
anticipate paying cash dividends in the foreseeable future.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6.A Exhibits
Exhibit 2.1 Asset Purchase Agreement between the Company and
Neose Technologies, Inc. dated March 26, 1999 (1)
Exhibit 2.2 Escrow Agreement between the Company and Neose
Technologies, Inc. dated March 26, 1999 (1)
Exhibit 27.1 Financial Data Schedule
(1) Certain confidential portions deleted subject to the
Application for Confidential Treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934 filed by the
Registrant with the Commission concurrently herewith.
ITEM 6.B REPORTS ON FORM 8-K
The Company filed a Report of Form 8-K on April 9, 1999 relating
to the sale of the Company's carbohydrate manufacturing and
synthesis intellectual property assets to Neose Technologies, Inc.
21
<PAGE> 22
CYTEL CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTEL CORPORATION
Date: May 17, 1999 By: /s/ ROBERT L. ROE
---------------------------------------
Robert L. Roe
Acting President and Chief Operating
Officer (Duly Authorized Officer and
Acting Principal Financial Officer)
22
<PAGE> 1
* Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4), 200.83
and 240.246-2.
EXHIBIT 2.1
EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
NEOSE TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
AND
CYTEL CORPORATION
(A DELAWARE CORPORATION)
MARCH 26, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions............................................................................................1
2. Sale and Purchase......................................................................................6
2.1 Purchased Assets.............................................................................6
2.2 Excluded Assets..............................................................................7
2.3 Purchase Price and Payment...................................................................7
2.4 Contingent Consideration.....................................................................8
2.5 Allocation of Purchase Price; Accounting Treatment..........................................10
2.6 Assumed Liabilities.........................................................................11
2.7 Excluded Liabilities........................................................................11
2.8 Employee Matters............................................................................11
3. Closing...............................................................................................12
3.1 Location, Date..............................................................................12
3.2 Deliveries..................................................................................12
3.3 Reasonable Steps............................................................................13
3.4 Further Assurances..........................................................................13
3.5 Technical Support...........................................................................13
4. Representations and Warranties of Cytel...............................................................14
4.1 Corporate Status............................................................................14
4.2 Authorization and Enforceability............................................................14
4.3 Consents and Approvals......................................................................14
4.4 Financial Statements........................................................................15
4.5 Purchased Assets; Absence of Liens and Encumbrances.........................................15
4.6 Liabilities.................................................................................15
4.7 Taxes and Tax Returns.......................................................................15
4.8 Litigation..................................................................................16
4.9 Compliance with Laws........................................................................16
4.10 Governmental Permits........................................................................16
4.11 Contracts...................................................................................17
4.12 Intellectual Property.......................................................................17
4.13 Insurance...................................................................................19
4.14 Employee Matters............................................................................19
4.15 Absence of Certain Changes..................................................................19
4.16 Finder's Fees...............................................................................19
4.17 No Third Party Options......................................................................19
4.18 Fairness Opinion............................................................................20
4.19 Solvency....................................................................................20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.20 Completeness and Accuracy of Information....................................................20
5. Representations and Warranties of Neose...............................................................20
5.1 Corporate Status............................................................................20
5.2 Authorization and Enforceability............................................................20
5.3 Consents and Approvals......................................................................21
5.4 Finder's Fees...............................................................................21
5.5 Litigation..................................................................................21
5.6 Accuracy of Information.....................................................................21
6. Covenants.............................................................................................21
6.1 Cytel Confidentiality.......................................................................21
6.2 Covenant Not to Compete.....................................................................21
6.3 Cytel Affiliates............................................................................22
6.4 Neose Injunctive Relief.....................................................................22
6.5 Neose Confidentiality.......................................................................22
6.6 Neose Affiliates............................................................................23
6.7 Cytel Injunctive Relief.....................................................................23
6.8 Bulk Transfer Laws..........................................................................23
6.9 Transfer Taxes..............................................................................23
6.10 Access to Information.......................................................................24
6.11 Enforcement of Certain Agreements...........................................................24
7. Indemnification.......................................................................................24
7.1 By Cytel....................................................................................24
7.2 By Neose....................................................................................24
7.3 General Procedure for Claims................................................................25
7.4 Procedure for Third Party Claims............................................................25
7.5 Time Limitations............................................................................26
7.6 Limitations on Liability....................................................................26
7.7 Effect of Investigation or Knowledge........................................................27
7.8 Contingent Claims...........................................................................27
7.9 Other Remedies..............................................................................27
8. General...............................................................................................27
8.1 Expenses....................................................................................27
8.2 Publicity...................................................................................27
8.3 Amendment, Severability, Parties in Interest and Assignment.................................27
8.4 Waivers.....................................................................................28
8.5 Notices.....................................................................................28
8.6 Entire Agreement............................................................................29
8.7 Interpretation..............................................................................29
8.8 Governing Law...............................................................................29
8.9 Counterparts................................................................................30
</TABLE>
ii
<PAGE> 4
SCHEDULES
1A Cylexin Description
2.1 Permitted Encumbrances
2.1.1 Purchased Contracts
2.1.2 Patents, Trademarks and Copyrights
2.2 Certain Excluded Assets
2.4 Potential Collaborators
2.5 Allocation of Purchase Price
2.6.1 Certain Excluded Obligations under Purchased Contracts
2.8 Certain Cytel Employees
4.3 Required Consents
4.6 Liabilities
4.8 Cytel Litigation
4.12 Intellectual Property
4.15 Absence of Certain Changes
4.17 Third Party Options
6.2 Certain Non-Restricted Activities
EXHIBITS
A Form of Assignment of Patents and Patent Applications
B Form of Assignment of Trademarks, Service Marks, Registrations
and Applications
C Form of Escrow Agreement
D Form of Cylexin License Agreement
E Form of Glycosyltransferase Inhibitors Program License Agreement
F Form of Opinion of Counsel to Cytel
G Form of Opinion of Counsel to Neose
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of March 26, 1999 by and
between NEOSE TECHNOLOGIES, INC., a Delaware corporation ("Neose"), and CYTEL
CORPORATION, a Delaware corporation ("Cytel"). Certain other terms used herein
are defined below in Section 1 or elsewhere in this Agreement.
Background
This Agreement sets forth the terms and conditions under which Neose
is purchasing from Cytel the carbohydrate manufacturing technology and related
assets (other than Excluded Assets, as hereinafter defined) of Cytel used by
Cytel in the conduct of its carbohydrate manufacturing and purification process
and technology development program and glycoprotein remodeling program.
Witnesseth:
NOW, THEREFORE, in consideration of the respective covenants
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Definitions.
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Affiliates" means, with respect to a particular party, Persons
controlling, controlled by or under common control with that party, as well as
any officers, directors and majority-owned entities of that party, and any
Affiliates of any of the foregoing. For the purposes of the foregoing,
ownership, directly or indirectly, of 50% or more of the voting stock or other
equity interest shall be deemed to constitute control.
"Agreement" means this Agreement and the Exhibits and Schedules
hereto.
"Assignment of Patents" means the Assignment of Patents and Patent
Applications in the form of Exhibit A hereto.
"Assignment of Trademarks" means the Assignment of Trademarks,
Service Marks, Registrations and Applications in the form of Exhibit B hereto.
<PAGE> 6
"Assumed Liabilities" is defined in Section 2.6.1.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Philadelphia, Pennsylvania are authorized or
required by Law to close.
"Carbohydrate Manufacturing Program" means Cytel's carbohydrate
manufacturing and purification process and technology development program and
glycoprotein remodeling program as in effect on the date hereof.
"Cash Consideration" is defined in Section 2.3.1.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, certificate of formation, operating agreement, joint
venture agreement or similar document governing the entity.
"Claim Notice" is defined in Section 7.3.1.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means all confidential or proprietary
information received by either party from the other party relating to any use,
process, method, compound, research project, work in process, future
development, scientific, engineering, manufacturing, marketing, business plan,
financial or personnel matter relating to the disclosing party, its present or
future products, research, process and technology development programs, sales,
suppliers, customers, employees, investors or business, whether in oral, graphic
or electronic form, and, with respect to Cytel, includes the Documentation.
"Confidentiality Agreement" is defined in Section 4.12.14.
"Contingent Consideration" is defined in Section 2.4.1.
"Contract" means any written or oral contract, agreement, license,
lease, instrument or other commitment that is binding on any Person or its
property under applicable Law.
"Copyrights" means all registered copyrights, copyright applications
and unregistered copyrights, and all applications for any of the foregoing which
are in the process of being prepared.
2
<PAGE> 7
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any Person or its property under applicable Law.
"Cylexin" means the carbohydrate-based drug being developed by Cytel
for human therapeutic use, which drug is an analog of the carbohydrate structure
sialyl-Lewis X as more specifically described in Schedule 1A hereto.
"Cytel" is defined above in the preamble.
"Damages" is defined in Section 7.1.
"Default" means (i) a breach, default or violation, (ii) the
occurrence of an event that with or without the passage of time or the giving of
notice, or both, would constitute a breach, default or violation, or (iii) with
respect to any Contract, the occurrence of an event that with or without the
passage of time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive damages or a
payment of penalties.
"Deposit" means any and all monies deposited by Neose with
NationsBanc Montgomery as escrow agent, and any and all interest accrued thereon
or proceeds thereof, in connection with Neose's evaluation of the Transactions
and in accordance with those certain Escrow Instructions Regarding Good Faith
Deposit by Neose With Regard to Due Diligence Investigation of Cytel dated as of
July 29, 1998.
"Documentation" means all documentation relating to engineering,
production, assembly, design, installation and other technical drawings and
specifications, process and technology development, manufacturing, customer and
supplier records, working notes and memos, laboratory books, market studies,
consultants' reports, research, product plans, products, services plans,
services, marketing, distribution and sales methods and systems, technical and
laboratory data, clinical trial data, engineering prototypes, and any similar
documentation, used or useful, in whole or in part, directly or indirectly, in
the conduct of the Carbohydrate Manufacturing Program.
"Encumbrances" means any lien, mortgage, security interest, license
right, pledge, restriction on transferability, defect of title or other claim,
charge or encumbrance of any nature whatsoever on any property or property
interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means Chase Manhattan Trust Company, National
Association.
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<PAGE> 8
"Escrow Agreement" means the Escrow Agreement in the form of Exhibit
C hereto being entered into by Neose, Cytel and the Escrow Agent simultaneously
with the execution and delivery of this Agreement.
"Escrow Funds" is defined in Section 2.3.2.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" is defined in Section 2.2.
"Excluded Liabilities" is defined in Section 2.7.
"GAAP" means generally accepted accounting principles of the United
States of America.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Permits" means any governmental permits, licenses,
registrations, certificates of occupancy, orders, approvals and other
governmental authorizations.
"Indemnified Cytel Party" is defined in Section 7.2.
"Indemnified Neose Party" is defined in Section 7.1.
"Indemnified Party" means any Indemnified Cytel Party or Indemnified
Neose Party.
"Indemnitor" is defined in Section 7.3.1.
"Intellectual Property" is defined in Section 2.1.2.
"Know-How" means all know-how, trade secrets, inventions, data,
processes, techniques, procedures, compositions, devices, methods, formulas,
protocols and information, which are not generally publicly known.
"Knowledge" and words of similar import means, (i) with respect to
Cytel, actual knowledge of a particular fact being known by any member of
Cytel's Board of Directors, Virgil Thompson, Dr. James C. Paulson (through the
date of his termination of employment by Cytel), Dr. Robert L. Roe, Jennifer L.
Lorenzen, Edward C. Hall (through the date of his termination of employment by
Cytel), Deborah Schueren, Shawn Defrees, Raymond Nathan or Kathryn J. Gregory,
and (ii) with respect to Neose, actual knowledge of a particular fact being
known by any director or executive officer of Neose.
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"Law" means any statute, law, ordinance, regulation, order or rule of
any federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body (including common law), including, without
limitation, those covering environmental, pollution, energy, safety, health,
transportation, bribery, recordkeeping, zoning, antidiscrimination, antitrust,
wage and hour, and price and wage control matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, demand, loss, damage, deficiency, guaranty or
endorsement of or by any Person, absolute or contingent, accrued or unaccrued,
due or to become due, liquidated or unliquidated.
"License Agreements" means the License Agreement in the form of
Exhibit D hereto and the License Agreement in the form of Exhibit E hereto, each
of which is being entered into by Neose and Cytel simultaneously with the
execution and delivery of this Agreement.
"Liquidated Claim Notice" is defined in Section 7.3.1.
"Litigation" means any lawsuit, action, arbitration, administrative
or other proceeding, criminal prosecution or governmental investigation or
inquiry.
"Material Adverse Effect" means (i) with respect to Cytel, a material
adverse effect on the Purchased Assets or the prospects of the Carbohydrate
Manufacturing Program relating to the Purchased Assets, and (ii) with respect to
Neose, a material adverse effect on the assets, financial condition, results of
operations, liquidity or prospects of Neose.
"NASD" is defined in Section 4.3.
"NationsBanc Montgomery" means NationsBanc Montgomery Securities LLC.
"Neose" is defined above in the preamble.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practice (including with respect
to quantity and frequency).
"Patents" means all patents and patent applications, and all patents
issuing thereon (including utility, model and design patents and certificates of
invention), together with all reissue patents, patents of addition, divisions,
renewals, continuations, continuations-in-part, substitutions, additions,
extensions (including supplemental protection certificates), registrations,
confirmations, re-examinations and foreign counterparts of any of the foregoing,
and all applications for any of the foregoing which are in the process of being
prepared.
"Permitted Encumbrances" is defined in Section 2.1.
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<PAGE> 10
"Person" means any natural person, corporation, company, partnership,
proprietorship, trust or estate, joint venture, association or other legal
entity.
"Prime Rate" means the prime lending rate as published in The Wall
Street Journal from time to time as the base rate on corporate loans by at least
a certain portion of the largest banks in the United States.
"Purchased Assets" is defined in Section 2.1.
"Purchased Contracts" is defined in Section 2.1.1.
"Purchase Price" is defined in Section 2.3.1.
"Required Consents" is defined in Section 4.3.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation of
which securities having the power to elect a majority of that corporation's
board of directors (other than securities having that power only upon the
happening of a contingency that has not occurred) are held by such Person or one
or more of its Subsidiaries.
"Taxes" means any taxes, duties, charges, fees, levies or other
assessments imposed by any taxing authority, including, without limitation,
income, gross receipts, value-added, excise, withholding, personal property,
real estate, sale, use, ad valorem, license, lease, service, severance, stamp,
transfer, payroll, employment, customs, duties, alternative, add-on minimum,
estimated and franchise taxes (including any interest, penalties or additions
attributable to or imposed on or with respect to any such assessment).
"Trademarks" means all registered trademarks, registered service
marks, trademark and service mark applications, unregistered trademarks and
service marks, logos and trade names, and all applications for any of the
foregoing which are in the process of being prepared.
"Transaction Documents" means, collectively, this Agreement, the
Escrow Agreement, the License Agreements, the Assignment of Patents, the
Assignment of Trademarks and any other certificates, agreements and documents
contemplated and delivered hereby and thereby.
"Transactions" means the sale of the Purchased Assets and the other
transactions contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 7.3.1.
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<PAGE> 11
2. Sale and Purchase.
2.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, Cytel hereby grants, sells, conveys, assigns, transfers and delivers
to Neose, free and clear of all Encumbrances whatsoever, other than permitted
Encumbrances set forth in Schedule 2.1 (the "Permitted Encumbrances"), and Neose
hereby purchases from Cytel in reliance upon the representations, warranties and
covenants of Cytel contained herein, all right, title and interest of Cytel in
and to the following assets, properties and rights of every kind and
description, real, personal and mixed, tangible and intangible (including all
causes of action, rights of action, contract rights and claims against third
parties), wherever situated constituting, generated by, or used or useful, in
whole or in part, directly or indirectly, in the conduct of, the Carbohydrate
Manufacturing Program (other than the Excluded Assets) as the same shall exist
on the date hereof (the "Purchased Assets"):
2.1.1 Contracts Relating to the Carbohydrate Manufacturing
Program. All of the interest of Cytel in the Contracts relating to
the Carbohydrate Manufacturing Program listed in Schedule 2.1.1 (the
"Purchased Contracts");
2.1.2 Intellectual Property. All Patents, Trademarks and
Copyrights relating to the Carbohydrate Manufacturing Program whether
owned by, licensed to or controlled by Cytel listed in Schedule 2.1.2
and all Know-How relating to the Carbohydrate Manufacturing Program
whether owned by, licensed to or controlled by Cytel (collectively,
the "Intellectual Property");
2.1.3 Biological Materials. All cell lines, genes, gene
fragments, vectors, plasmids, bacteria, fungi, yeast, viruses,
bacteriophages, nucleotides, RNA, DNA, tissue cultures and similar
materials in the possession of Cytel or a third party acting on
behalf of Cytel which are useful in, or necessary for, the practice
of the Carbohydrate Manufacturing Program, whether owned by, licensed
to or controlled by Cytel; and
2.1.4 Carbohydrate Manufacturing Program Documentation.
All Documentation relating to the Carbohydrate Manufacturing Program,
whether in electronic form or otherwise.
2.2 Excluded Assets. Notwithstanding Section 2.1, all
assets, properties and rights of Cytel described in Schedule 2.2
(including all causes of action, rights of action, contract rights
and claims against third parties relating thereto) (collectively, the
"Excluded Assets") shall be excluded from this Agreement and shall
not be sold, assigned or transferred to Neose.
2.3 Purchase Price and Payment.
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<PAGE> 12
2.3.1 Purchase Price. The purchase price for the Purchased Assets
(the "Purchase Price"), payable in accordance with Sections 2.3.2 and 2.4,
consists of (a) $3,500,000 in cash (the "Cash Consideration"), (b) the
consideration payable to Cytel pursuant to the Escrow Agreement, and (c) the
Contingent Consideration.
2.3.2 Payment of Purchase Price. Subject to the terms and
conditions of this Agreement, at the Closing, Neose (a) shall pay the Cash
Consideration, less the Deposit previously paid by Neose, to Cytel (by a wire
transfer of immediately available funds in accordance with instructions provided
by Cytel prior to the date hereof), (b) shall cause the Deposit to be paid to
Cytel by NationsBanc Montgomery (by a wire transfer of immediately available
funds in accordance with instructions provided by Cytel prior to the date
hereof), and (c) shall deposit $1,500,000 (the "Escrow Funds") with the Escrow
Agent for disbursement in accordance with the Escrow Agreement.
2.4 Contingent Consideration.
2.4.1 Prior to the date hereof, Cytel delivered to Neose Schedule
2.4 setting forth the names (with specificity) of six companies with which Cytel
previously has had discussions or negotiations with respect to possible
collaborative agreements relating to the Carbohydrate Manufacturing Program. In
the event that Neose, in its sole discretion, enters into any written Contract
with any Person involving or relating to [***] or with one or more of the
companies identified in Schedule 2.4 (any such Persons or companies being
referred to herein as "Potential Collaborators") during the period beginning on
the date hereof and ending at the close of business on the first anniversary of
the date of this Agreement (each, a "Collaborator Contract"), pursuant to which
Neose receives any Collaborator Payments (defined below) during the period
ending on the [***] of the date of this Agreement, or, with respect to
Collaborator Payments from Potential Collaborators [***], during the period
ending on the [***] of the date of this Agreement (each of such periods being
referred to herein as a "Contingency Period"), Neose shall pay to Cytel in cash
by wire transfer of immediately available funds within 30 days after receipt by
Neose of any such Collaborator Payments, subject to the limitations set forth in
this Section 2.4.1, the following amounts (the "Contingent Consideration"):
2.4.1.1 [***] of any Split Payments (defined below), [***]
of any Equity Premiums (defined below) and [***] of any Collaborator
Payments other than Split Payments or Equity Premiums received by
Neose during the applicable Contingency Period pursuant to a
Collaborator Contract (other than a Collaborator Contract entered
into by Neose with a Potential Collaborator [***], provided that the
amount payable hereunder with respect to payments received from a
[***] during the period beginning on the third anniversary of the
date of this Agreement and ending on the [***]hereof will be reduced
by [***]; and
* Confidential Treatment Requested
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<PAGE> 13
2.4.1.2 [***] of any Collaborator Payments received by
Neose during the applicable Contingency Period pursuant to a
Collaborator Contract entered into by Neose with a [***];
2.4.1.3 [***] upon the execution and delivery by both
Neose and [***] by no later than the close of business on the [***]
of the date of this Agreement, of a definitive collaborative
agreement;
provided, however, that Neose shall not be required to pay under Section 2.4.1.1
or 2.4.1.2 more than [***] per each Potential Collaborator; and, provided,
further, that all amounts payable pursuant to this Section 2.4.1, including the
payment specified under Section 2.4.1.3, shall not exceed $1,600,000 in value in
the aggregate. As used herein, "Collaborator Payments" means and includes
(subject to the limitation set forth below) any of the following that are
actually received by Neose during the applicable Contingency Period pursuant to
a Collaborator Contract to the extent not subject to any offset, rebate or
adjustment of any nature (provided, that any indemnification obligation of Neose
set forth in any Collaborator Contract entered into by Neose shall not be deemed
to be an offset, rebate or adjustment hereunder): [***] but specifically
excludes any payment or consideration of any type whatsoever received by Neose
from a Potential Collaborator with respect to [***]. As used herein, "Split
Payments" means and includes (a) that portion of any payment or consideration
received by Neose from a Potential Collaborator with respect to [***], (b) any
[***], and (c) any [***]. As used herein, "Equity Premiums" means the aggregate
amount by which the value of consideration received by Neose from a Potential
Collaborator with respect to the purchase by such Potential Collaborator of, or
investment by such Potential Collaborator in, any equity security of Neose
exceeds the aggregate Fair Market Value of the equity securities so purchased or
otherwise acquired on the date Neose receives such consideration. As used in the
definitions of Split Payments and Equity Premiums, "Fair Market Value" means
either of the following: (a) if a basis for the purchase price of Neose Common
Stock or relevant equity security (the "Basis") is specified by the terms of the
relevant Collaborator Contract document, such Basis shall be accepted as "Fair
Market Value" so long as the Basis is calculated by reference to (1) the opening
or closing bid, asked or sale price of a share of Neose Common Stock or relevant
equity security on the Nasdaq National Market ("Nasdaq") or other stock exchange
on the trading day immediately preceding the date of the Collaborator Contract
or (2) the average of the opening or closing bid, asked or sale price of a share
of Neose Common Stock or relevant equity security on Nasdaq or other stock
exchange for a successive range of trading days ending on a trading day not more
than three trading days prior to the date of the relevant Collaborator Contract,
provided that such range shall not be greater than 30 trading days, or (b) if a
Basis is not specified in the relevant Collaborator Contract document or the
specified Basis does not meet the criteria set forth in clause (a) of this
definition, "Fair Market Value" means the closing sale price of a share of Neose
Common Stock or relevant equity security on Nasdaq or other stock exchange on
the trading day immediately preceding the date of the relevant Collaborator
Contract.
* Confidential Treatment Requested
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2.4.2 In the event Cytel disputes the calculation of any
Contingent Consideration paid by Neose pursuant to Section 2.4.1 or its right to
receive any Contingent Consideration, then Cytel shall notify Neose in writing
of such dispute by no later than 15 Business Days after (a) payment by Neose to
Cytel of any Contingent Consideration, or (b) the date on which Neose receives
Cytel's written notice asserting that Cytel is entitled to payment of Contingent
Consideration and the reasons therefor. If Cytel fails to give notice to Neose
within such period, Cytel shall be deemed not to dispute the Contingent
Consideration paid in accordance with Section 2.4.1. If Cytel gives notice
within such period, the parties shall then attempt to reconcile their
differences and any written resolution signed by them as to any disputed amounts
shall be final, binding and conclusive on the parties. If Cytel and Neose are
unable to reach a resolution to such effect within 30 days of receipt by Neose
of Cytel's written notice of such dispute, then the parties shall submit in
Chicago, Illinois the amounts remaining in dispute for resolution to an
independent accounting firm of national reputation mutually appointed by Cytel
and Neose (such independent accounting firm being referred to as the "Accounting
Firm"), which shall, within 30 days after such submission, determine and report
to the parties upon such remaining disputed amounts, and such report shall be
final, binding and conclusive on the parties. The parties agree that any of the
"big five" accounting firms that are not at such time engaged by Neose or Cytel
shall be acceptable to them. Cytel and Neose shall each pay one-half of the fees
and disbursements of the Accounting Firm incurred in connection with resolving
any such dispute; provided, however, that if the final adjustment amount
determined by the Accounting Firm is greater than 5% of the disputed amount,
then Neose shall pay all of the fees and disbursements of the Accounting Firm
and if the final adjustment amount determined by the Accounting Firm is less
than 5% of the disputed amount, then Cytel shall pay all of the fees and
disbursements of the Accounting Firm.
2.5 Allocation of Purchase Price; Accounting Treatment.
2.5.1 The Purchase Price shall be allocated based upon the fair
market values of the Purchased Assets conforming with the requirements of
Section 1060 of the Code. At the Closing, Neose shall deliver to Cytel Schedule
2.5 setting forth the allocation of the Purchase Price to the extent then
allocable as agreed to by the parties. Neither Cytel nor Neose will take a
position on any income tax return, before any Governmental Authority charged
with the collection of any income Tax or in any judicial proceeding that is in
any way inconsistent with the allocation set forth in Schedule 2.5, except to
the extent such a position is prohibited under applicable Law. If and to the
extent that the allocation of the Purchase Price provided for in Schedule 2.5
shall be dependent upon the determinations made with respect to the Escrow Funds
pursuant to the Escrow Agreement, such allocation shall be adjusted and made in
a manner consistent with such determinations.
2.5.2 The parties acknowledge that (a) Neose intends to record
the purchase of the Purchased Assets as a purchase for accounting purposes and,
specifically, intends to take
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after the Closing a one-time charge-off of the value of the Purchased Assets, in
part, as acquired in-process research and development, and (b) Cytel intends to
treat the sale of the Purchased Assets as gain or loss from the sale of assets.
Cytel will not take any position before any Governmental Authority or in any
federal or state securities filing or otherwise that is in any way inconsistent
with the terms of this Section 2.5.2, except to the extent such a position is
prohibited under applicable Law or is not in accordance with GAAP.
2.6 Assumed Liabilities.
2.6.1 Neose hereby acquires the Purchased Assets subject only to
the Permitted Encumbrances, and hereby agrees to undertake, assume, perform and
otherwise pay, satisfy and discharge any obligations to be performed from and
after the Closing under the Purchased Contracts for which the rights thereunder
have been duly and effectively assigned to Neose as of the Closing or thereafter
(the "Assumed Liabilities"); provided that Neose does not hereby assume and
shall have no responsibility for (a) any obligations arising from or relating to
any breach by Cytel of any provision of any Purchased Contract on or prior to
the Closing Date, (b) any obligations of Cytel to be performed on or prior to
the Closing Date under any Purchased Contract, or (c) the obligations listed in
Schedule 2.6.1.
2.6.2 Cytel hereby agrees to undertake, assume, perform and
otherwise pay, satisfy and discharge (a) any obligations arising from or
relating to any breach by Cytel of any provision of any Purchased Contract on or
prior to the Closing Date, or (b) any obligations of Cytel to be performed on or
prior to the Closing Date under the Purchased Contracts.
2.7 Excluded Liabilities. Except for Permitted Encumbrances and as
otherwise explicitly provided in Section 2.6.1, Cytel hereby transfers the
Purchased Assets to Neose free and clear of all Encumbrances, and without any
assumption by Neose of Liabilities (other than the Assumed Liabilities), and
Neose does not hereby, by virtue of its purchase of the Purchased Assets, assume
or become responsible for under this Agreement, as of the Closing or at any
time, any Liabilities of Cytel except as explicitly provided in Section 2.6.1
(all such excluded Liabilities being referred to herein as "Excluded
Liabilities").
2.8 Employee Matters. Neose shall have no obligation whatsoever
pursuant to this Agreement or the other Transaction Documents or in connection
with the consummation of the Transactions or otherwise to offer employment to,
or employ or retain the services of, any present, former or future employee,
consultant, agent or independent contractor of Cytel or any Subsidiary or
Affiliate of Cytel, and shall incur no Liabilities of any nature whatsoever with
respect thereto. Notwithstanding the foregoing, at its sole discretion and upon
such terms and conditions as shall be deemed to be acceptable to Neose in its
sole discretion, Neose may, subsequent to the Closing Date and only upon the
prior written consent of Cytel, offer employment to, or otherwise retain the
services of, any employee of Cytel; provided, however, that the foregoing shall
not restrict Neose from offering employment to or retaining, without
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Cytel's consent, any employee of Cytel who initiates contact with Neose after
the date of this Agreement or who is listed in Schedule 2.8. Cytel acknowledges,
however, that Neose has no current intention to do so and agrees that it will
not make any representations or inducements to its employees to the contrary.
30 Closing.
3.1 Location, Date. The closing for the Transactions (the "Closing")
shall be held at the offices of Morgan, Lewis & Bockius LLP in Philadelphia,
Pennsylvania, at 10:00 a.m., local time, on the date hereof (the "Closing
Date"), unless Neose and Cytel agree in writing to another date or place.
3.2 Deliveries. At the Closing:
3.2.1 Neose shall pay to Cytel the amount of the Cash
Consideration less the Deposit by wire transfer of immediately
available funds;
3.2.2 Neose shall cause the Deposit to be paid to Cytel by
NationsBanc Montgomery by wire transfer of immediately available
funds;
3.2.3 Cytel and Neose shall execute and deliver to each
other and to the Escrow Agent the Escrow Agreement and Neose shall
deposit with the Escrow Agent the Escrow Funds;
3.2.4 Cytel and Neose shall execute and deliver to each
other the License Agreements;
3.2.5 Cytel shall execute and deliver to Neose the
Assignment of Patents and the Assignment of Trademarks;
3.2.6 Cytel shall deliver to Neose all Required Consents;
3.2.7 Cytel shall deliver to Neose a certificate, dated
the date hereof, of the Secretary of Cytel certifying that attached
to the certificate are true and complete copies of (a) the Charter
Documents and bylaws of Cytel, as in full force and effect as of the
date hereof, and (b) the resolutions duly adopted by the Board of
Directors of Cytel evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of
this Agreement and the other Transaction Documents and the
consummation of the Transactions;
3.2.8 Cytel shall deliver to Neose a certificate issued by
the Secretary of State of the State of Delaware with respect to Cytel
as of a recent date before the Closing
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(and in no event more than three Business Days prior thereto) showing
Cytel to be validly existing and in good standing;
3.2.9 Neose shall deliver to Cytel a certificate, dated
the date hereof, of the Secretary of Neose certifying that attached
to the certificate are true and complete copies of (a) the Charter
Documents and bylaws of Neose, as in full force and effect as of the
date hereof, and (b) the resolutions duly adopted by the Board of
Directors of Neose evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of
this Agreement and the other Transaction Documents and the
consummation of the Transactions;
3.2.10 Neose shall deliver to Cytel a certificate issued
by the Secretary of State of the State of Delaware with respect to
Neose as of a recent date before the Closing (and in no event more
than three Business Days prior thereto) showing Neose to be validly
existing and in good standing;
3.2.11 Cytel shall deliver to Neose a legal opinion of
Cooley Godward LLP, counsel to Cytel, in the form of Exhibit F
hereto;
3.2.12 Neose shall deliver to Cytel a legal opinion of
Morgan, Lewis & Bockius LLP, counsel to Neose, in the form of Exhibit
G hereto; and
3.2.13 Cytel shall execute and deliver to Neose such
additional instruments of conveyance and transfer as Neose may
reasonably require in order to more effectively vest in Neose, and
put it in possession of, the Purchased Assets.
3.3 Reasonable Steps. Cytel shall take such reasonable steps as may
be necessary or appropriate so that, upon the execution and delivery of this
Agreement, Neose shall be placed in actual possession and control of all of the
Purchased Assets. Without limiting the generality of the foregoing, Cytel shall
be solely responsible, at its sole cost and expense, for obtaining any and all
Required Consents referred to in Section 4.3 hereof prior to the Closing.
3.4 Further Assurances. From time to time after the Closing, Cytel
and Neose shall execute, acknowledge and deliver to each other any further
documents, assurances and other matters, and will take any other action
consistent with the terms of this Agreement, that may reasonably be requested by
a party and necessary or desirable to carry out the purpose of this Agreement.
In the event that any assets of Cytel that were intended to be included in the
Purchased Assets or any liabilities of Cytel that were intended to be included
in the Assumed Liabilities and transferred to Neose pursuant to this Agreement
have not been properly or fully transferred, Cytel shall take all commercially
reasonable steps to ensure that such assets and liabilities are promptly
transferred to Neose such that Neose has all right, title and interest in and to
such assets and all obligations under such liabilities.
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3.5 Technical Support. In connection with the sale and transfer to
Neose of the Purchased Assets, Cytel shall provide technical support to Neose to
assist in the integration of the Purchased Assets with Neose's existing
carbohydrate manufacturing program in accordance with this Section 3.5. During
the period of 90 days following the date of this Agreement, Cytel shall make
reasonably available to Neose, at times and places reasonably requested by
Neose, but in any event not to exceed a total of 20 work days per any one
employee, such technical support employees, not to exceed two persons at any one
time, of Cytel that Neose deems reasonably necessary to effect the transition of
the Purchased Assets to Neose; provided, however, that Neose shall bear (i) all
reasonable out-of-pocket costs and expenses of such Cytel employees incurred in
connection with providing such technical support (including travel, lodging and
other similar expenses incurred by such employees), and (ii) all costs of
salaries and benefits paid or owed by Cytel to, and reasonable out-of-pocket
costs and expenses (including travel, lodging and other similar expenses) of,
such Cytel employees incurred in connection with providing technical support
services to Neose in excess of 20 works days per employee; and provided,
further, that Cytel will cooperate with Neose in providing additional technical
support to the extent reasonably necessary for the integration of the Purchased
Assets if the limitations set forth in this Section 3.5 restrict Neose's ability
to accomplish such integration.
40 Representations and Warranties of Cytel.
Cytel hereby represents and warrants to Neose on the Closing Date as
follows:
4.1 Corporate Status. Cytel is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Cytel is
qualified to do business as a foreign corporation in any jurisdiction where it
is required to be so qualified, except where the failure so to qualify would
not, individually or in the aggregate, have a Material Adverse Effect on Cytel.
The Charter Documents and bylaws of Cytel that have been delivered to Neose as
of the date hereof are true, correct and complete.
4.2 Authorization and Enforceability. Cytel has the corporate power
and authority to own its property and to carry on its business, including the
Carbohydrate Manufacturing Program, as now being conducted. Cytel has the
corporate power and authority to execute and deliver the Transaction Documents
to which it is a party and to perform the Transactions performed or to be
performed by it. Such execution, delivery and performance by Cytel have been
duly authorized by all necessary corporate action. Each Transaction Document
executed and delivered by Cytel has been duly executed and delivered by Cytel
and constitutes a valid and binding obligation of Cytel, enforceable against
Cytel in accordance with its terms, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights, and (ii) equitable
principles generally and limitations on the availability of equitable remedies.
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4.3 Consents and Approvals. Except for the consents specified in
Schedule 4.3 (the "Required Consents"), neither the execution and delivery by
Cytel of the Transaction Documents to which it is a party, nor the performance
of the Transactions performed or to be performed by Cytel, (i) require any
filing, consent or approval, conflict with, constitute a Default or cause any
payment obligation to arise under (a) any Law or Court Order to which Cytel or
any of the Purchased Assets is subject, (b) the Charter Documents or bylaws of
Cytel, or (c) any Contract or Governmental Permit to which Cytel is a party or
by which it or any of the Purchased Assets is bound, or (ii) will result in the
creation or imposition of any Encumbrance upon any of the Purchased Assets.
Without limiting the generality of the foregoing, no approval whatsoever of the
stockholders of Cytel is required for the performance of the Transactions by
Cytel under applicable Law, the Charter Documents or bylaws of Cytel, any
regulation or bylaw of the National Association of Securities Dealers, Inc.
("NASD") or any Contract to which Cytel is a party or by which it or any of its
properties or other assets is bound. Cytel has delivered to Neose all Required
Consents, none of the Required Consents has been modified or revoked and each
Required Consent remains in full force and effect.
4.4 Financial Statements. Cytel has delivered to Neose true and
complete copies of (i) audited consolidated balance sheets of Cytel and its
Subsidiaries at December 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity and statements of cash
flow for the years then ended, together with the notes thereto, audited by Ernst
& Young LLP, and (ii) unaudited consolidated balance sheets of Cytel and its
Subsidiaries at December 31, 1998 and the related consolidated statements of
income, changes in stockholders' equity and statements of cash flow for the year
then ended, together with the notes thereto, all of which have been prepared in
accordance with GAAP consistently applied. Such balance sheets, including the
related notes, present fairly in all material respects the consolidated
financial position, assets and liabilities of Cytel and its Subsidiaries at the
dates indicated, and such consolidated statements of income, changes in
stockholders' equity and statements of cash flow present fairly in all material
respects the consolidated results of operations, changes in stockholders' equity
and cash flow of Cytel and its Subsidiaries for the periods indicated in
conformity with GAAP. The unaudited consolidated financial statements as of and
for the year ended December 31, 1998 contain all adjustments, which are solely
of a normal recurring nature, necessary to present fairly the financial position
of Cytel and its Subsidiaries at December 31, 1998 and the results of operations
and changes in stockholders' equity and such financial position for the periods
then ended in conformity with GAAP.
4.5 Purchased Assets; Absence of Liens and Encumbrances. Cytel has
good and marketable title to all of the Purchased Assets, free from any
Encumbrances, other than Permitted Encumbrances. The use of the Purchased Assets
is not subject to any Encumbrances (other than Permitted Encumbrances), and
Cytel's use does not materially encroach on the property or rights of any other
Person. The Purchased Assets include all material rights and property, except
for the Excluded Assets, that are necessary to the conduct of the Carbohydrate
Manufacturing Program by Neose in the manner in which it is currently conducted
by Cytel.
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4.6 Liabilities. Except as set forth in Schedule 4.6, none of the
Purchased Assets is subject to any Liabilities, except (i) as specifically
disclosed in the balance sheet of Cytel and its Subsidiaries as of September 30,
1998 and not heretofore paid or discharged, (ii) Liabilities incurred in the
ordinary course of business since September 30, 1998 that, individually or in
the aggregate, are not material to the Carbohydrate Manufacturing Program or the
Purchased Assets, and (iii) those Liabilities arising after the Closing Date
under the express terms of the Purchased Contracts.
4.7 Taxes and Tax Returns. All federal, state, local and foreign tax
returns, reports, statements and other similar filings required to be filed with
respect to any federal, state, local or foreign Taxes of Cytel (the "Tax
Returns") have been timely filed with the appropriate Governmental Authorities
in all jurisdictions in which such Tax Returns are required to be filed, and all
such Tax Returns properly reflect the Liabilities of Cytel for Taxes for the
periods, property or events covered thereby. All Taxes, including, without
limitation, those which are called for by the Tax Returns, or heretofore or
hereafter claimed to be due by any taxing authority from Cytel, have been
properly accrued or paid. Cytel has not received any notice of assessment or
proposed assessment in connection with any Tax Returns and there are no pending
tax examinations of or tax claims asserted against Cytel or any of the Purchased
Assets. There are no tax liens on any of the Purchased Assets. Cytel has no
knowledge of any basis for any additional assessment of any Taxes. Cytel has
made all deposits required by Law to be made with respect to employees'
withholding and other employment Taxes, including, without limitation, the
portion of such deposits relating to Taxes imposed upon Cytel. Cytel has not
taken any action that would have the effect of deferring any Liabilities of
Cytel for Taxes affecting any of the Purchased Assets from a pre-Closing period
to any period commencing on or after the Closing Date.
4.8 Litigation. Except as set forth in Schedule 4.8, Cytel has
received no notice of, and there is no Litigation in any court or before any
Governmental Authority or any arbitrator pending against or related to Cytel,
the Carbohydrate Manufacturing Program or any of the Purchased Assets or, to the
knowledge of Cytel, threatened against the Carbohydrate Manufacturing Program or
any of the Purchased Assets, or which seeks to enjoin or obtain damages in
respect of the consummation of the Transactions, nor does Cytel know of any
reasonably likely basis for any such Litigation. None of the Purchased Assets is
subject to the provisions of any judgment, order, writ, injunction, decree or
award of any Governmental Authority or any arbitrator, nor is there any Court
Order to which Cytel or any of the Purchased Assets is subject that might affect
the Transactions. There has been no Default with respect to any Court Order
applicable to any of the Purchased Assets.
4.9 Compliance with Laws. Cytel has been and is being operated in
material compliance with all Laws applicable to the Carbohydrate Manufacturing
Program (other than with respect to the Excluded Assets) and the Purchased
Assets. There has been no Default by
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Cytel under any Laws applicable to the conduct or operation of the Carbohydrate
Manufacturing Program (other than with respect to the Excluded Assets) or the
ownership or use of the Purchased Assets, except for any Defaults that would
not, individually or in the aggregate, have a Material Adverse Effect on Cytel,
and Cytel has not received any notice from any Governmental Authority regarding
any alleged Defaults under any such Laws. There are no environmental liens on
any of the Purchased Assets and no government actions which could subject any of
the Purchased Assets to such liens have been taken, are pending or, to Cytel's
knowledge, are threatened.
4.10 Governmental Permits. Cytel has all Governmental Permits of all
Governmental Authorities that are required to operate the Carbohydrate
Manufacturing Program (other than with respect to the Excluded Assets) and Cytel
is in compliance with the terms and conditions of such Governmental Permits,
except where the failure so to comply would not, individually or in the
aggregate, have a Material Adverse Effect on Cytel. All such Governmental
Permits are currently valid and in full force and effect. To Cytel's knowledge,
no suspension, revocation, cancellation or withdrawal of any such Governmental
Permit is threatened and no cause exists for such suspension, revocation,
cancellation or withdrawal.
4.11 Contracts. Schedule 2.1.1 lists each Purchased Contract, which
are all of the Contracts of Cytel used or useful in the Carbohydrate
Manufacturing Program, other than the Contracts between Cytel and Abbott
Laboratories and Cytel and Glycomed Incorporated, which are included in the
Excluded Assets. No Affiliate of Cytel is a party to any of the Purchased
Contracts. Each Purchased Contract is valid and enforceable in accordance with
its terms and is in full force and effect. Cytel is not in Default under any
Purchased Contract and, to Cytel's knowledge, none of the other parties to any
Purchased Contract is in Default thereunder. Schedule 4.3 identifies each
Purchased Contract which requires action on behalf of a third party to give
Neose all rights under such Purchased Contract following the consummation of the
Transactions. Cytel has made all payments to any Persons and all filings with
any Governmental Authorities or any other Persons required to be made pursuant
to any Purchased Contracts. Cytel has no further obligations or Liabilities of
any nature whatsoever relating to or affecting the Purchased Assets under any
Contracts or other agreements or arrangements with Abbott Laboratories or any
Affiliate thereof.
4.12 Intellectual Property.
4.12.1 Except as set forth in Schedule 4.12, the Patents,
Trademarks and Copyrights listed in Schedule 2.1.2 constitute all of the
Patents, Trademarks and Copyrights that (a) are in use, or are under development
for use, in the operation of the Carbohydrate Manufacturing Program, or (b) are
necessary for the operation of the Carbohydrate Manufacturing Program as
conducted by Cytel prior to the Closing. Except as set forth in Schedule 4.12,
the Know-How included in the Intellectual Property constitutes all Know-How that
(a) is in use, or is under development for use, in the operation of the
Carbohydrate Manufacturing Program, or (b) is necessary for the operation of the
Carbohydrate
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Manufacturing Program as conducted by Cytel prior to the Closing. Except as set
forth in Schedule 4.12, the Documentation included in the Purchased Assets
constitutes all Documentation that (a) is in use, or is under development for
use, in the operation of the Carbohydrate Manufacturing Program, or (b) is
necessary for the operation of the Carbohydrate Manufacturing Program as
conducted by Cytel prior to the Closing.
4.12.2 Except as set forth in Schedule 4.12, Cytel owns or has
the lawful right and license to use pursuant to a Purchased Contract, free and
clear of all Encumbrances (other than Permitted Encumbrances), all of the
Intellectual Property.
4.12.3 Cytel has the lawful right to assign and transfer to
Neose all of the Intellectual Property, including, without limitation, all
rights relating thereto under the Purchased Contracts.
4.12.4 Except as set forth in Schedule 4.12, Cytel has not
received any notice of and there are no pending, and Cytel otherwise has no
knowledge of any threatened, claims by any Person contesting the validity,
enforceability, use or ownership of any of the Intellectual Property.
4.12.5 Except as set forth in Schedule 4.12, Cytel has not
received any notice of, and Cytel otherwise has no knowledge of, the
infringement or misappropriation by any Person of the Intellectual Property.
4.12.6 Except as set forth in Schedule 4.12, Cytel's use of the
Intellectual Property does not infringe upon or otherwise violate any rights or
interests owned or claimed by any other Person.
4.12.7 Except as set forth in Schedule 4.12, none of the Patents
is the subject of any reissue, reexamination, interference, opposition or
similar proceeding.
4.12.8 Except as set forth in Schedule 4.12, none of the
Trademarks is the subject of any opposition, cancellation or similar proceeding.
4.12.9 Except as set forth in Schedule 4.12, Cytel has not, in
connection with the Carbohydrate Manufacturing Program (other than solely with
respect to the Excluded Assets), entered into any agreement to indemnify any
Person against any charge of infringement of any intellectual property.
4.12.10 Except as set forth in Schedule 4.12, to Cytel's
knowledge, there are no third party patent applications which, if issued, would
materially adversely affect the right of Cytel to use the Patents included in
the Intellectual Property.
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4.12.11 Except as set forth in Schedule 4.12, there have been
no, and Cytel has no reason to believe that there will be any, inventorship
challenges with respect to any of the Patents included in the Intellectual
Property.
4.12.12 Schedule 4.12 sets forth a schedule of all maintenance
fees or annuities for each of the Patents included in the Intellectual Property
paid, or, to Cytel's knowledge, payable, by Cytel between January 1, 1996 and
February 28, 1999. All such fees due prior to the date hereof have been paid by
Cytel or will be paid by Cytel upon receipt of invoices therefor in accordance
with the payment terms of such fees.
4.12.13 Schedule 4.12 sets forth a listing of all Litigation
relating to the Intellectual Property brought by or against Cytel whether or not
currently pending during the past three years and, to the knowledge of Cytel,
during the five years prior thereto.
4.12.14 All employees and consultants of Cytel who are involved
in the design, review, evaluation or development of Intellectual Property and
Documentation included within the Purchased Assets have executed a nondisclosure
and assignment of inventions agreement ("Confidentiality Agreement")
substantially in the form attached to Schedule 4.12. To Cytel's knowledge, (a)
none of the Confidential Information relating to the Purchased Assets has been
used, divulged or appropriated for the benefit of any Person other than Cytel or
otherwise to the detriment of Cytel, (b) no employee or consultant of Cytel has
used any other Person's trade secrets or other information that is confidential
in the course of his or her work for Cytel, and (c) no employee or consultant of
Cytel is in Default under any term of any employment Contract relating to such
Intellectual Property or Documentation, any Confidentiality Agreement or any
other Contract or any restrictive covenant relating to such Intellectual
Property or Documentation, or the development or exploitation thereof. Cytel is
in compliance with the provisions of applicable Law relating to the
assignability of inventions.
4.13 Insurance. Cytel maintains such policies of insurance with such
amounts of coverage relating to the Carbohydrate Manufacturing Program (other
than with respect to the Excluded Assets) and the Purchased Assets as management
reasonably believes are adequate in relation to the Carbohydrate Manufacturing
Program and the Purchased Assets and reasonable and customary in the industry in
which Cytel operates, and all of such insurance policies are in full force and
effect.
4.14 Employee Matters. There has been no "mass layoff" or "plant
closing" as defined in the Worker Adjustment and Retraining Notification Act, 29
U.S.C. Sections 2101 et seq. that is attributable to the Transactions, and
Cytel does not contemplate that there will be a "mass layoff" or "plant closing"
in the future that is attributable to the Transactions.
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4.15 Absence of Certain Changes. Except as disclosed in Schedule
4.15, since September 30, 1998, Cytel has conducted the Carbohydrate
Manufacturing Program in the ordinary course and there has not been:
4.15.1 any material adverse change in any of the Purchased
Assets or the Carbohydrate Manufacturing Program (except any such
change affecting only the Excluded Assets);
4.15.2 any transfer or grant of any rights to any
Intellectual Property;
4.15.3 any sale, assignment or transfer of any of the
Purchased Assets or any agreements entered into with respect to the
foregoing, other than those made in the ordinary course of business;
or
4.15.4 any waiver or release of any claim or right or
cancellation of any substantial debt or claim relating to the
Carbohydrate Manufacturing Program (except with respect to the
Excluded Assets), other than in the ordinary course of business.
4.16 Finder's Fees. No Person retained by Cytel is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions, other than BT Alex. Brown Incorporated, which commission or fees
shall be paid solely by Cytel.
4.17 No Third Party Options. Except as disclosed in Schedule 4.17,
there are no existing agreements, options, commitments or rights with, of or to
any Person to acquire, or obtain any rights with respect to, any of the
Purchased Assets.
4.18 Fairness Opinion. Immediately prior to the execution of this
Agreement, Cytel has received and delivered to Neose a written opinion of BT
Alex. Brown Incorporated to the effect that the Transactions, including the
Purchase Price, are fair, from a financial point of view, to Cytel.
4.19 Solvency. Immediately after the consummation of the
Transactions, (i) the fair value of the assets of Cytel will exceed its debts
and liabilities, subordinated, contingent or otherwise, (ii) the present fair
saleable value of the property of Cytel will be greater than the amount that
will be required to pay the probable obligations of its debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured, and (iii) Cytel will be able to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured.
4.20 Completeness and Accuracy of Information. All information set
forth in any Schedule prepared by Cytel and delivered in connection herewith is
correct and complete. No representation or warranty by Cytel in any Transaction
Document, and no information contained
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therein or otherwise delivered by or on behalf of Cytel in connection with the
Transactions, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements contained herein or
therein not misleading.
50 Representations and Warranties of Neose.
Neose hereby represents and warrants to Cytel on the Closing Date as
follows:
5.1 Corporate Status. Neose is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
qualified to do business as a foreign corporation in any jurisdiction where it
is required to be so qualified, except where the failure so to qualify would
not, individually or in the aggregate, have a Material Adverse Effect on Neose.
The Charter Documents and bylaws of Neose that have been delivered to Cytel as
of the date hereof are true, correct and complete.
5.2 Authorization and Enforceability. Neose has the corporate power
and authority to own its property and to carry on its business as now being
conducted. Neose has the corporate power and authority to execute and deliver
the Transaction Documents to which it is a party and to perform the Transactions
performed or to be performed by it. Such execution, delivery and performance by
Neose have been duly authorized by all necessary corporate action. Each
Transaction Document executed and delivered by Neose has been duly executed and
delivered by Neose and constitutes a valid and binding obligation of Neose,
enforceable against Neose in accordance with its terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general applicability relating to or affecting creditors' rights, and (ii)
equitable principles generally and limitations on the availability of equitable
remedies.
5.3 Consents and Approvals. Neither the execution and delivery by
Neose of the Transaction Documents to which it is a party, nor the performance
of the Transactions performed or to be performed by Neose, require any filing,
consent or approval, conflict with or constitute a Default under (i) any Law or
Court Order to which Neose is subject, (ii) the Charter Documents or bylaws of
Neose, or (iii) any Contract, Governmental Permit or other document to which
Neose is a party or by which the properties or other assets of Neose may be
subject.
5.4 Finder's Fees. No Person retained by Neose is or will be entitled
to any commission or finder's or similar fee in connection with the
Transactions.
5.5 Litigation. Neose has received no notice of, and there is no
Litigation in any court or before any Governmental Authority or any arbitrator
pending or, to the knowledge of Neose, threatened against or related to Neose
which seeks to enjoin or obtain damages in respect of the consummation of the
Transactions, nor does Neose know of any reasonably likely basis for any such
Litigation. There is no judgment, order, writ, injunction, decree or award of
any
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Governmental Authority or any arbitrator, nor is there any Court Order to which
Neose is subject, that might affect the Transactions.
5.6 Accuracy of Information. All information set forth in any
Schedule prepared by Neose and delivered in connection herewith is correct and
complete. No representation or warranty by Neose in any Transaction Document,
and no information contained therein or otherwise delivered by or on behalf of
Neose to Cytel in writing in connection with the Transactions, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
60 Covenants.
6.1 Cytel Confidentiality. Cytel recognizes and acknowledges that it
has had access to Confidential Information relating to the Carbohydrate
Manufacturing Program, the Purchased Assets and the Transactions. Cytel
acknowledges that such Confidential Information is a valuable and unique asset
of Neose and covenants that Cytel will not, except as otherwise permitted under
the License Agreements and except with respect to Confidential Information
solely relating to the Excluded Assets, disclose, communicate or use in any way
any such Confidential Information for any reason whatsoever from the Closing and
indefinitely thereafter, without the prior written consent of Neose, unless such
information (i) is in the public domain through no wrongful act of any party
hereto, (ii) has been rightfully received from a third party without restriction
and without breach of this Agreement, or (iii) except as may be required by
applicable Law, Court Order, or the regulations or bylaws of the NASD. In the
event that Cytel believes that it is required to disclose any such Confidential
Information pursuant to any applicable Law or Court Order, Cytel shall give
timely written notice to Neose so that Neose may have an opportunity to obtain a
protective order or other appropriate relief.
6.2 Covenant Not to Compete. Cytel shall not, without the prior
written consent of Neose, at any time within the Restricted Period (defined
below), directly or indirectly, engage, or have any interest on behalf of itself
or others in any Person (whether as an agent, security holder, creditor,
partner, joint venturer, investor, consultant or otherwise) that engages within
the Restricted Territory (defined below) in any of the business activities
relating to the Carbohydrate Manufacturing Program and the Purchased Assets,
except with respect to those business activities specifically contemplated by
the License Agreements and those specifically described in Schedule 6.2. In
furtherance of the foregoing, during the Restricted Period, Cytel shall not
contact any of the employees of Neose for the purpose of hiring or retaining any
of such employees for employment, consulting or similar purposes. The term
"Restricted Period" means the three-year period immediately following the
Closing Date. The term "Restricted Territory" means the area comprising the
entire United States of America, Canada and those other areas of the world in
which Cytel has engaged in the Carbohydrate Manufacturing Program (except solely
with respect to the Excluded Assets) at any time since its inception.
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6.3 Cytel Affiliates. The terms of Sections 6.1, 6.2 and 6.4 shall
apply to Cytel and any of its Affiliates to the same extent as if they were
parties hereto, and Cytel shall take whatever actions may be necessary to cause
its Affiliates to adhere to the terms of such Sections.
6.4 Neose Injunctive Relief. Cytel specifically acknowledges and
agrees that the provisions of Sections 6.1 and 6.2 are reasonable and necessary
to protect the interests of Neose, that any violation of Section 6.1 or 6.2 will
result in an irreparable injury to Neose and that the remedy at law for any
breach of such Sections will be inadequate. In the event of any breach or
threatened breach by Cytel (or any other Person specified in Section 6.3) of any
provision of Section 6.1 or 6.2, Neose, in addition to any other relief
available to it, shall be entitled to temporary and permanent injunctive or
other equitable relief, restraining such Person from using or disclosing any
Confidential Information in whole or in part, or from engaging in conduct that
would constitute a breach of the obligations under such Sections, without the
necessity of proving actual damages or posting a bond or other security and to
an equitable accounting of all earnings, profits and other benefits arising out
of any violation of such Sections. Such relief shall be in addition to and not
in lieu of any other remedies that may be available, including an action for the
recovery of damages. In the event of Litigation involving this Agreement, if a
court of competent jurisdiction determines that the scope of Section 6.1 or 6.2
is too broad in any respect, then the scope shall be deemed to be reduced or
narrowed to such scope as is found lawful and reasonable by such court. Cytel
acknowledges, however, that Sections 6.1 and 6.2 have been negotiated by the
parties and that the geographic and time limitations, as well as the limitation
on activities, are reasonable in light of the circumstances pertaining to the
Transactions. Cytel acknowledges and understands that Neose is and will be
relying upon the agreements made by Cytel in Sections 6.1 through 6.4 in
entering into this Agreement and consummating the Transactions.
6.5 Neose Confidentiality. Neose recognizes and acknowledges that it
has had access to Confidential Information relating to certain aspects of the
business and operations of Cytel, including the Excluded Assets and the
Transactions. Neose acknowledges that such Confidential Information is a
valuable and unique asset of Cytel and covenants that Neose will not, except as
otherwise permitted under the License Agreements and except with respect to
Confidential Information relating to the Purchased Assets, disclose, communicate
or use in any way any such Confidential Information for any reason whatsoever
from the Closing and indefinitely thereafter, without the prior written consent
of Cytel, unless such information (i) is in the public domain through no
wrongful act of any party hereto, (ii) has been rightfully received from a third
party without restriction and without breach of this Agreement, or (iii) except
as may be required by applicable Law, Court Order, or the regulations or bylaws
of the NASD. In the event that Neose believes that it is required to disclose
any such Confidential Information pursuant to any applicable Law or Court Order,
Neose shall give timely written notice to Cytel so that Cytel may have an
opportunity to obtain a protective order or other appropriate relief.
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6.6 Neose Affiliates. The terms of Sections 6.5 and 6.7 shall apply
to Neose and any of its Affiliates to the same extent as if they were parties
hereto, and Neose shall take whatever actions may be necessary to cause its
Affiliates to adhere to the terms of such Sections.
6.7 Cytel Injunctive Relief. Neose specifically acknowledges and
agrees that the provisions of Section 6.5 are reasonable and necessary to
protect the interests of Cytel, that any violation of Section 6.5 will result in
an irreparable injury to Cytel and that the remedy at law for any breach of such
Section will be inadequate. In the event of any breach or threatened breach by
Neose (or any other Person specified in Section 6.6) of any provision of Section
6.5, Cytel, in addition to any other relief available to it, shall be entitled
to temporary and permanent injunctive or other equitable relief, restraining
such Person from using or disclosing any Confidential Information in whole or in
part, or from engaging in conduct that would constitute a breach of the
obligations under such Section, without the necessity of proving actual damages
or posting a bond or other security and to an equitable accounting of all
earnings, profits and other benefits arising out of any violation of such
Section. Such relief shall be in addition to and not in lieu of any other
remedies that may be available, including an action for the recovery of damages.
In the event of Litigation involving this Agreement, if a court of competent
jurisdiction determines that the scope of Section 6.5 is too broad in any
respect, then the scope shall be deemed to be reduced or narrowed to such scope
as is found lawful and reasonable by such court. Neose acknowledges, however,
that Section 6.5 has been negotiated by the parties and that the time
limitations, as well as the limitation on activities, are reasonable in light of
the circumstances pertaining to the Transactions. Neose acknowledges and
understands that Cytel is and will be relying upon the agreements made by Neose
in Sections 6.5 through 6.7 in entering into this Agreement and consummating the
Transactions.
6.8 Bulk Transfer Laws. Except as otherwise provided in Section 6.9,
Neose hereby waives compliance by Cytel with the provisions of any and all Laws
relating to bulk transfer in connection with the sale of the Purchased Assets.
6.9 Transfer Taxes. Cytel and Neose shall each bear one-half of and
shall pay at the Closing all state and local sales, documentary and other
transfer Taxes (including, without limitation, any sales Tax required under the
Laws of the State of California), if any, due as a result of the purchase, sale
or transfer of the Purchased Assets hereunder.
6.10 Access to Information. At all times after the Closing Date, each
party will permit the others and its representatives (including its counsel and
auditors) during normal business hours, for a proper purpose to have reasonable
access to and examine and make copies, at the expense of the copying party, of
all books, records, files and documents in its possession which relate to the
Purchased Assets prior to the Closing Date.
6.11 Enforcement of Certain Agreements. At Neose's request, Cytel
shall use commercially reasonable efforts at Neose's expense to enforce the
provisions of any Confidentiality Agreements and agreements with respect to
noncompetition existing as of the
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Closing Date with any present or former employees, agents, consultants or
independent contractors of Cytel that relate to the Carbohydrate Manufacturing
Program (except solely with respect to the Excluded Assets); provided, however,
that the obligation of Cytel to enforce any such Confidentiality Agreement or
agreement with respect to noncompetition described in this Section 6.11 shall
terminate as of the date on which such agreement has terminated or expired in
accordance with its terms.
7. Indemnification.
7.1 By Cytel. From and after the Closing Date, Cytel shall indemnify
and hold harmless Neose, its successors and assigns, and its officers,
directors, employees, stockholders, agents, Affiliates and any Person who
controls any of such Persons within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Neose Party") from and against any (i) loss,
liability, claim, obligation, damage or deficiency, and (ii) all actions,
judgments, costs and expenses (including without limitation interest, penalties
and reasonable attorneys', consultants' and other professional fees) relating to
the foregoing (collectively, "Damages") that such Indemnified Neose Party may
suffer arising out of or resulting from (A) any breach of the representations
and warranties set forth in Section 4, (B) the nonfulfillment of any agreement
or obligation on the part of Cytel (including, without limitation, Cytel's
obligations to discharge certain liabilities pursuant to Section 2.6.2)
contained in this Agreement or as a result of noncompliance with any bulk
transfer Law (except to the extent that any such Damages arise out of any
failure of Neose to pay any liability or perform any obligations assumed by
Neose pursuant to Section 2.6.1), (C) except for the Assumed Liabilities, any
act, omission, occurrence or Liabilities arising out of Cytel's ownership,
maintenance and operation of its business prior to Closing, (D) the Excluded
Liabilities, and (E) any claim by any Person who owned or owns any securities of
Cytel or any successor thereto, including any claim against Cytel or any such
successor with respect to any of the Transactions.
7.2 By Neose. From and after the Closing Date, Neose shall indemnify
and hold harmless Cytel, its successors and assigns, and its officers,
directors, employees, stockholders, agents, Affiliates and any Person who
controls any of such Persons within the meaning of the Securities Act or the
Exchange Act (each an "Indemnified Cytel Party") from and against any Damages
that such Indemnified Cytel Party may suffer arising out of or resulting from
(A) any breach of the representations and warranties set forth in Section 5, (B)
the nonfulfillment of any agreement or obligation on the part of Neose contained
in this Agreement (including, without limitation, Neose's obligations to
discharge certain liabilities pursuant to Section 2.6.1), and (C) any failure by
Neose to pay or discharge the Assumed Liabilities.
7.3 General Procedure for Claims.
7.3.1 An Indemnified Party that desires to seek indemnification
under any part of this Section 7 (unless for a third party claim which is
covered by Section 7.4) shall give
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<PAGE> 30
notice (a "Claim Notice") to each party responsible or alleged to be responsible
for indemnification hereunder (an "Indemnitor"). Such notice shall briefly
explain the nature of the claim and the parties known to be involved, and shall
specify the amount thereof. If the matter to which a claim relates has not been
resolved as of the date of the Claim Notice, the Indemnified Party shall
estimate the amount of the claim in the Claim Notice, but also specify therein
that the claim has not yet been liquidated (an "Unliquidated Claim"). If an
Indemnified Party gives a Claim Notice for an Unliquidated Claim, the
Indemnified Party shall also give a second Claim Notice (the "Liquidated Claim
Notice") within 60 days after the matter giving rise to the claim becomes
finally resolved, and the Second Claim Notice shall specify the amount of the
claim. Each Indemnitor to which a Claim Notice is given shall respond to any
Indemnified Party that has given a Claim Notice (a "Claim Response") within 20
days (the "Response Period") after the later of (a) the date that the Claim
Notice is given, or (b) if a Claim Notice is first given with respect to an
Unliquidated Claim, the date on which the Liquidated Claim Notice is given. Any
Claim Notice or Claim Response shall be given in accordance with the notice
requirements hereunder, and any Claim Response shall specify whether or not the
Indemnitor giving the Claim Response disputes the claim described in the Claim
Notice. If any Indemnitor fails to give a Claim Response within the Response
Period, such Indemnitor shall be deemed not to dispute the claim described in
the related Claim Notice. If any Indemnitor elects not to dispute a claim
described in a Claim Notice, whether by failing to give a timely Claim Response
or otherwise, then the amount of such claim shall be conclusively deemed to be
an obligation of such Indemnitor. Any failure to give prompt notice under this
Section 7.3 shall not bar an Indemnified Party's right to claim indemnification
under this Section 7, except to the extent that an Indemnitor shall have been
harmed by such failure.
7.3.2 If any Indemnitor is obligated to indemnify an
Indemnified Party hereunder, such Indemnitor shall pay to such Indemnified Party
within 30 days after the last day of the Claim Response Period the amount to
which such Indemnified Party is entitled. If there is a dispute as to the amount
or manner of indemnification under this Section 7, the Indemnified Party may
pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to the Prime Rate plus 2%, and the Prime Rate in effect on the first
Business Day of each calendar quarter shall apply to the amount of the unpaid
obligation during such calendar quarter.
7.4 Procedure for Third Party Claims. An Indemnified Party that
desires to seek indemnification under any part of this Section 7 with respect to
any actions, suits or other administrative or judicial proceedings (each, an
"Action") that may be instituted by a third party shall give each Indemnitor
prompt notice of a third party's institution of such Action. After such notice,
solely to the extent requested by such Indemnified Party, any such Indemnitor
shall participate in such Action or assume the defense thereof, with counsel
satisfactory to such
26
<PAGE> 31
Indemnified Party; provided, however, that such Indemnified Party shall have the
right to participate at its own expense in the defense of such Action; and
provided, further, that the Indemnitor shall not consent to the entry of any
judgment or enter into any settlement, except with the written consent of such
Indemnified Party (which consent shall not be unreasonably withheld), that (i)
fails to include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all Liability in respect
of any such Action, or (ii) grants the claimant or plaintiff any injunctive
relief against the Indemnified Party. If the Indemnified Party elects to assume
the defense of such Action, any such Indemnitor shall have the right to
participate at its own expense in the defense of such Action. Any failure to
give prompt notice under this Section 7.4 shall not bar an Indemnified Party's
right to claim indemnification under this Section 7, except to the extent that
an Indemnitor shall have been harmed by such failure.
7.5 Time Limitations. Except as otherwise provided in this Section
7.5, the indemnification set forth in Section 7.1(A) and all representations and
warranties made by Cytel hereunder will expire on the first anniversary of the
Closing Date, and Cytel will have no liability under the indemnification
provisions of Section 7.1(A) unless Neose gives written notice to Cytel of its
claim for any such liability before the expiration of such period. With respect
to claims for indemnification under Sections 7.1(B), (C), (D) and (E), there
shall be no time limitation for indemnification on claims with respect thereto.
Except as otherwise provided in this Section 7.5, the indemnification set forth
in Section 7.2(A) and all representations and warranties made by Neose hereunder
will expire on the first anniversary of the Closing Date, and Neose will have no
liability under the indemnification provisions of Section 7.2(A) unless Cytel
gives written notice to Neose of its claim for any such liability before the
expiration of such period. With respect to claims for indemnification under
Sections 7.2(B) and (C), there shall be no time limitation for indemnification
on claims with respect thereto. Except as otherwise provided in this Section
7.5, the limitations of this Section 7.5 shall apply to any other action taken
by a party as contemplated by Section 7.9.
7.6 Limitations on Liability. Notwithstanding any other provision of
this Section 7, the aggregate of all Damages payable by Cytel under this Section
7 shall not exceed the Purchase Price, and an Indemnified Party shall be
entitled to indemnification hereunder only when the aggregate of all Damages
incurred by such Indemnified Party exceeds [***] (the "Threshold Amount");
provided, that in the event that the aggregate amount of such Damages exceeds
the Threshold Amount, the Indemnified Party shall be entitled to[***]. The
limitations of this Section 7.6, however, shall not apply to any covenants or
agreements to be performed by an Indemnitor prior to or after the Closing,
including, without limitation, with respect to Excluded Liabilities and with
respect to confidentiality and noncompetition as provided in Section 6. Except
as otherwise provided in this Section 7.6, the limitations of this Section 7.6
shall apply to any other action taken by a party as contemplated by Section 7.9.
* Confidential Treatment Requested
27
<PAGE> 32
7.7 Effect of Investigation or Knowledge. Any claim by an Indemnified
Neose Party for indemnification shall not be adversely affected by any
investigation by or opportunity to investigate afforded to Neose. Each party
shall be deemed to be relying on the representations and warranties of any other
party set forth herein regardless of any investigation or audit conducted before
or after the Closing Date or the decision of any party to consummate the
Transactions contemplated hereby and complete the Closing.
7.8 Contingent Claims. Nothing herein shall be deemed to prevent an
Indemnified Party from making a claim hereunder for potential or contingent
claims or demands provided the Claim Notice sets forth the specific basis for
any such potential or contingent claim to the extent then feasible and the
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made.
7.9 Other Remedies. None of the specific remedies provided in this
Agreement for any party is the exclusive remedy of such party for any breach of
this Agreement. In addition to any specific remedy provided herein, any party
shall be entitled to such rights and remedies as such party may have at law or
in equity or otherwise for any breach of this Agreement, including the right to
seek specific performance, rescission or restitution, none of which rights or
remedies shall be affected or diminished by the remedies provided hereunder. The
indemnification rights under this Section 7 are independent of, and in addition
to and not in limitation of, the foregoing rights and remedies.
8. General.
8.1 Expenses. Except as otherwise provided in this Agreement, Neose
and Cytel shall each pay their own fees, expenses and disbursements, including
the fees and expenses of their respective counsel, accountants and other
experts, in connection with the subject matter of this Agreement and all other
costs and expenses incurred in performing and complying with all conditions to
be performed under this Agreement.
8.2 Publicity. The parties hereto will consult with each other before
issuing any press release or making any public statement with respect to this
Agreement and the Transactions and, except as may be required by applicable Law
or any stock exchange regulations, no party shall issue any such press release
or make any such public statement without the consent of the other party hereto.
8.3 Amendment, Severability, Parties in Interest and Assignment. This
Agreement may be amended, modified or supplemented only by a written instrument
duly executed by each of the parties hereto. If any provision of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
This Agreement
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<PAGE> 33
shall be binding upon and inure to the benefit of and be enforceable by the
respective legal representatives, successors and permitted assigns of the
parties hereto. Nothing in this Agreement, express or implied, is intended to
confer on any Person other than the parties hereto, or their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement. No Party hereto shall assign or otherwise
transfer this Agreement or any right, benefit or obligation hereunder (whether
by operation of Law or otherwise) to any other Person without the prior written
consent of the other party; provided, however, that (i) Neose may (a) assign or
otherwise transfer any or all of its rights and interests hereunder to one or
more of its Affiliates, and (b) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases Neose
nonetheless shall remain responsible for the performance of all of its
obligations hereunder), and (ii) either party may assign or otherwise transfer
any or all of its rights and interests hereunder in connection with the sale of
all or substantially all of its assets or business, whether by way of merger,
sale of stock, sale of assets or other similar transaction (in any or all of
which cases such party nonetheless shall remain responsible for the performance
of all of its obligations hereunder).
8.4 Waivers. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any provision of this
Agreement in one or more instances shall operate or be construed as a waiver of
any other condition or subsequent breach.
8.5 Notices. All notices that are required or permitted hereunder
shall be in writing and shall be sufficient if personally delivered or sent by
mail, facsimile message or Federal Express or other delivery service. Any
notices shall be deemed given upon the earlier of the date when received at, or
the third day after the date when sent by registered or certified mail or the
day after the date when sent by Federal Express to, the address or fax number
(with such receipt being confirmed by the sender) set forth below, unless such
address or fax number is changed by notice to the other parties hereto:
8.5.1 If to Neose:
Neose Technologies, Inc.
102 Witmer Road
Horsham, PA 19044
FAX: (215) 441-5896
Attention: Chief Executive Officer
with a copy to:
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<PAGE> 34
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Fax: (215) 963-5299
Attention: David R. King, Esquire
8.5.2 If to Cytel:
Cytel Corporation
9393 Towne Centre Drive
San Diego, CA 92121
Fax: (619) 552-3025
Attention: Chief Executive Officer
with a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Fax: (619) 453-3555
Attention: L. Kay Chandler, Esquire
8.6 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto), together with the other Transaction Documents, sets forth the
entire agreement and understanding of the parties hereto with respect to the
Transactions and the other matters set forth herein and supersedes all prior
agreements or understandings, oral or written, between the parties regarding
those matters, including, without limitation, the letter agreement between Neose
and Cytel dated April 22, 1998 relating to certain confidential information.
8.7 Interpretation. Unless the context of this Agreement clearly
requires otherwise, (i) references to the plural include the singular, the
singular the plural, the part the whole, (ii) references to any gender include
all genders, (iii) "or" has the inclusive meaning frequently identified with the
phrase "and/or," (iv) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to," and (v) references to
"hereunder" or "herein" relate to this Agreement. The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, Schedule and Exhibit references are
to this Agreement unless otherwise specified. Each accounting term used herein
that is not specifically defined herein shall have the meaning given to it under
GAAP.
8.8 Governing Law. This Agreement shall be construed and interpreted
in accordance with the laws of the State of Delaware without regard to its
provisions concerning conflict of laws.
30
<PAGE> 35
8.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first written above.
NEOSE TECHNOLOGIES, INC.
By: /s/ P. Sherrill Neff
---------------------------------------------
Name: P. Sherrill Neff
Title: President and Chief Financial Officer
CYTEL CORPORATION
By: /s/ Virgil Thompson
---------------------------------------------
Name: Virgil Thompson
Title: President and Chief Executive Officer
31
<PAGE> 1
* Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4), 200.83
and 240.246-2.
EXHIBIT 2.2
EXECUTION COPY
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of March
26, 1999 by and among NEOSE TECHNOLOGIES, INC., a Delaware corporation
("Neose"), CYTEL CORPORATION, a Delaware corporation ("Cytel"), and CHASE
MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION (the "Escrow Agent").
Background
At the Closing today under the Asset Purchase Agreement dated as of
the date hereof (the "Asset Purchase Agreement"), Neose is purchasing the
Purchased Assets, including the Patents that are the subject of this Escrow
Agreement.
This Escrow Agreement is being entered into pursuant to the Asset
Purchase Agreement. Unless otherwise defined herein, terms are used herein as
defined in the Asset Purchase Agreement.
Witnesseth
NOW, THEREFORE, in consideration of the respective covenants
contained herein and in the Asset Purchase Agreement and intending to be legally
bound, the parties hereto agree as follows:
1. Appointment and Acceptance of Escrow Agent.
Neose and Cytel hereby appoint the Escrow Agent as their agent
hereunder to serve in accordance with the terms and conditions of this Escrow
Agreement. The Escrow Agent hereby accepts such appointment and agrees to act in
accordance with such terms and conditions.
2. Escrow Funds.
2.1 Simultaneously with the execution hereof, Neose shall deposit
with the Escrow Agent a portion of the Purchase Price in the amount of
$1,500,000 (the "Escrow Funds"), the receipt of which is hereby acknowledged by
the Escrow Agent.
2.2 The Escrow Funds shall be held and disbursed by the Escrow Agent
as hereinafter provided. The Escrow Funds shall not be subject to lien or
attachment by any creditor of any party hereto and shall be used solely for the
purpose set forth in this Escrow Agreement.
2.3 The Escrow Funds shall be invested exclusively in (i) any money
market mutual fund that invests exclusively in obligations of the United States
Government, or any agencies or instrumentalities thereof or any combination of
the foregoing, (ii) short-term obligations issued by the United States Treasury,
and (iii) such other government securities as may be approved
<PAGE> 2
jointly in writing from time to time by Neose and Cytel. Any interest income or
other investment proceeds earned on the Escrow Funds ("Investment Income") shall
be distributed as provided in Section 4.1 and/or Section 4.2.
3. Required Actions for Certain Patent Matters.
3.1 Cytel shall use commercially reasonable efforts to complete, by
no later than [***] (the "Completion Date"), the following actions set forth in
subsections 3.1.1, 3.1.2 and 3.1.3 hereof ("Required Actions") with respect to
certain Patents included in the Purchased Assets in accordance with the
applicable standard specified below (the "Applicable Standard"):
3.1.1 With respect to the Patents more specifically
described in Section 3.1.1 of Exhibit A hereto [***], by the
Completion Date Cytel shall provide documentation reasonably
satisfactory to Neose that (a) [***] associated with [***] listed in
the [***], and [***] and [***] associated with the [***] listed in
the [***], respectively, all of each such [***], at no additional
cost, obligation or burden to Neose, and (b) either [***] has been
[***], at no additional cost, obligation or burden to Neose, or [***]
have entered into an [***] in the [***], at no additional cost,
obligation or burden to Neose.
3.1.2 With respect to the Patents more specifically
described in Section 3.1.2 of Exhibit A hereto [***] by the
Completion Date Cytel shall provide documentation reasonably
satisfactory to Neose that each [***] of the [***] by the[***] and
each of the [***] at no additional cost, obligation or burden to
Neose, [***] of such [***], respectively, to the[***].
3.1.3 With respect to [***], by the Completion Date Cytel
shall provide documentation reasonably satisfactory to Neose that
[***] have been [***], at no additional cost, obligation or burden to
Neose, and in a manner that [***] and its [***] if any, [***] that
were the [***] at no additional cost, obligation or burden to[***]. A
grant by [***] to the other party to the [***] in connection with the
[***] of a [***] from the [***] that were the [***] shall not be
deemed to be at [***].
3.2 Upon receipt of documentation identified in writing as final
("final documentation") with respect to a Required Action under any subsection
of Section 3.1, Neose shall have 30 days to determine if such final
documentation satisfies the Applicable Standard with respect to any such
Required Action. If Neose does not provide a Dispute Notice (as defined in
Section 3.3) to Cytel within such 30-day period, the Required Action for which
Cytel submitted final documentation shall be deemed to have been completed. In
the case of Sections 3.1.1 and 3.1.2 above, Cytel may submit to Neose for its
review and approval in advance the proposed documentation to be submitted to the
applicable parties for signature in order to satisfy the Applicable Standard
with respect to the applicable Required Action. If Neose approves the form of
such proposed documentation prior to its execution, then Neose shall be deemed
to have
* Confidential Treatment Requested
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<PAGE> 3
determined that such documentation, when signed by the relevant parties and
submitted as final documentation by Cytel, satisfies the Applicable Standard
with respect to the applicable Required Action.
3.3 If Neose determines that the final documentation provided by
Cytel with respect to a Required Action does not satisfy the relevant Applicable
Standard, Neose shall provide written notice to Cytel of such determination (the
"Dispute Notice") within 30 days after receipt of the documentation from Cytel.
Following receipt of the Dispute Notice, Cytel may take either of the following
actions:
3.3.1 provide written notice to Neose within 15 days after
its receipt of the Dispute Notice that it does not intend to provide
any further documentation with respect to such disputed Required
Action and request in such notice that the parties promptly (and in
any event within 10 days) submit the dispute to patent counsel at a
law firm of national reputation mutually appointed by Neose and Cytel
(which counsel and firm do not then represent and have not previously
represented either Neose or Cytel or any of their Affiliates) (the
"IP Firm") for a determination in accordance with Section 3.5 of
whether the Applicable Standard has been satisfied with respect to
the disputed Required Action; or
3.3.2 at any time on or prior to the Completion Date,
provide further documentation to Neose to show compliance with the
Applicable Standard with respect to such Required Action accompanied
by written notice to Neose whether or not Cytel reserves the right to
provide additional further documentation with respect to such
Required Action on or prior to the Completion Date.
3.4 If, pursuant to Section 3.3.2, Cytel provides further
documentation to Neose with respect to a disputed Required Action, Neose shall
have 15 days after its receipt of the documentation to provide a Dispute Notice
to Cytel. If Neose does not provide a Dispute Notice to Cytel within such 15-day
period, the Required Action at issue shall be deemed to have been completed. If
Neose provides a Dispute Notice to Cytel within such 15-day period and Cytel's
notice to Neose pursuant to Section 3.3.2 did not reserve the right to provide
additional further documentation to Neose with respect to such Required Action,
the parties shall promptly (and in any event within 10 days) submit the dispute
to the IP Firm for a determination in accordance with Section 3.5 of whether the
Applicable Standard has been satisfied with respect to the disputed Required
Action.
3.5 Within 30 days after a submission by Neose and Cytel for
resolution of a disputed Required Action, the IP Firm shall determine and report
to the parties whether Cytel has satisfied the Applicable Standard with respect
to such disputed Required Action, and such report shall be final, binding and
conclusive on the parties. Neose and Cytel shall each pay one-half of the fees
and disbursements of the IP Firm incurred in connection with resolving any such
dispute.
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<PAGE> 4
3.6 Upon a final determination that Cytel has satisfied the
Applicable Standard with respect to a Required Action, either by (i) Neose
failing to provide a Dispute Notice to Cytel with respect to such Required
Action by the end of the 30-day period specified in Section 3.2, or (ii) Neose
failing to provide a Dispute Notice to Cytel with respect to such Required
Action by the end of the 15-day period specified in Section 3.4, or (iii) by the
issuance by the IP Firm of a report to Neose and Cytel that Cytel has satisfied
the Applicable Standard with respect to such Required Action, Neose and Cytel
shall, within five days of the event specified in clauses (i), (ii) or (iii)
above, issue a joint written statement to the Escrow Agent that such relevant
Required Action has been completed (each, a "Completion Statement"). The
Completion Statement shall clearly identify which Required Action has been
completed by reference to the relevant subsection number of Section 3.1.
4. Payment of Escrow Funds and Investment Income; Termination of Escrow.
4.1 Upon its receipt of the first Completion Statement, if any, for a
Required Action under Section 3.1, the Escrow Agent shall promptly deliver to
Cytel from the Escrow Funds the amount of $500,000, plus all Investment Income
thereon, by cashier's check. Upon its receipt of the second Completion
Statement, if any, for a Required Action under Section 3.1, the Escrow Agent
shall promptly deliver to Cytel from the Escrow Funds the amount of $500,000
plus all Investment Income thereon, by cashier's check. Upon its receipt of the
third and final Completion Statement, if any, for a Required Action under
Section 3.1, the Escrow Agent shall promptly deliver to Cytel from the Escrow
Funds $500,000 plus all Investment Income thereon, by cashier's check.
4.2 If Cytel shall have failed to complete all Required Actions under
Section 3.1 prior to the Completion Date, as evidenced by the Escrow Agent's
failure to receive a Completion Statement for each of the Required Actions under
Sections 3.1.1, 3.1.2 and 3.1.3 on or prior to [***], then promptly after such
date the Escrow Agent shall deliver to Neose by cashier's check all remaining
Escrow Funds, plus all Investment Income thereon, that have not been disbursed
by the Escrow Agent to Cytel pursuant to Section 4.1.
4.3 Upon the delivery by the Escrow Agent of all Escrow Funds and
Investment Income pursuant to Section 4.1 and/or Section 4.2, this Escrow
Agreement shall terminate. All rights and obligations of the parties hereto
arising prior to the termination of this Escrow Agreement shall survive any such
termination.
5. Expenses.
All expenses and fees (including reasonable attorneys' fees) of the
Escrow Agent shall be paid in equal amounts by Neose and Cytel. The Escrow
Agent's fee schedule is attached hereto as Exhibit B and incorporated herein. To
the extent the Escrow Agent requires the advance
* Confidential Treatment Requested
-4-
<PAGE> 5
payment of any expenses and fees, Neose and Cytel each shall pay one-half of
such expenses and fees simultaneously with the execution hereof and the deposit
of the Escrow Funds. Neose and Cytel shall each bear their own expenses in
connection with the resolution of any Required Action or other dispute with
respect to this Escrow Agreement, except as otherwise expressly provided herein
or in the Asset Purchase Agreement.
6. Notices.
All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number (with
such receipt being confirmed by the sender) set forth below, unless such address
or fax number is changed by notice to the other parties hereto:
6.1 If to Neose:
Neose Technologies, Inc.
102 Witmer Road
Horsham, PA 19044
FAX: (215) 441-5896
Attention: Chief Executive Officer
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Fax: (215) 963-5299
Attention: David R. King, Esquire
6.2 If to Cytel:
Cytel Corporation
9393 Towne Centre Drive
San Diego, CA 92121
Fax: (619) 552-3025
Attention: Chief Executive Officer
with a copy to:
-5-
<PAGE> 6
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Fax: (619) 453-3555
Attention: L. Kay Chandler, Esquire
6.3 If to the Escrow Agent:
Chase Manhattan Trust Company,
National Association
Corporate Trust Department
1600 Market Street
30th Floor
Philadelphia, Pennsylvania 19103
Attn.: Stuart P. Papavassiliou, Asst.
Vice President
Fax: (215) 585-8872
7. Liability of Escrow Agent.
7.1 Neose and Cytel, jointly and severally, shall indemnify the
Escrow Agent and hold it harmless from and against any losses, liabilities,
expenses (including reasonable attorneys' fees and expenses), claims or damages
arising out of or in connection with the performance of its obligations in
accordance with the provisions of this Escrow Agreement, except for losses,
liabilities, expenses, claims or damages resulting from the gross negligence or
willful misconduct of the Escrow Agent. These indemnities shall survive the
resignation of the Escrow Agent and the termination of this Escrow Agreement.
7.2 The Escrow Agent shall have no duties except those specifically
set forth in this Escrow Agreement and shall not be subject to, nor have any
liability or responsibility under, any other agreement or document the parties
hereto may be responsible for, even if same is referenced herein.
7.3 The Escrow Agent shall be protected in acting upon written
instructions from Neose and Cytel if it, in good faith, believes such written
instructions to be genuine and what they purport to be.
7.4 The Escrow Agent may confer with legal counsel, including its own
in-house counsel, in the event of any dispute or questions as to the
construction of any of the provisions hereof, or its duties hereunder, and it
shall incur no liability and be fully protected in acting in accordance with the
opinions of such counsel except to the extent of any willful misconduct or gross
negligence of the Escrow Agent.
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<PAGE> 7
7.5 If a dispute arises between or among any of the parties to this
Escrow Agreement, the Escrow Agent shall be entitled, at its option, and upon
written notice to Neose and Cytel, to tender into the custody of any court of
competent jurisdiction in Delaware the Escrow Funds, any Investment Income and
all materials that the Escrow Agent may be holding under this Escrow Agreement
and to begin such legal proceedings as the Escrow Agent deems appropriate. After
taking such actions, the Escrow Agent shall then be discharged from any further
duties and liability under this Escrow Agreement except to the extent of any
prior willful misconduct or gross negligence of the Escrow Agent.
8. Resignation and Removal of Escrow Agent.
The Escrow Agent may resign at any time and for any reason upon
notice to Neose and Cytel given at least 30 days prior to the effective date of
such resignation. During such 30-day period, Neose and Cytel shall endeavor to
agree upon a successor Escrow Agent. If Neose and Cytel fail to agree on a
successor Escrow Agent within such 30-day period, the Escrow Agent shall deliver
the Escrow Funds, any Investment Income and all materials that it may then be
holding to a court in accordance with Section 7.5 above. If the Escrow Agent
becomes unable to fulfill its duties hereunder, or if for any reason, Neose and
Cytel desire to remove the Escrow Agent hereunder, Neose and Cytel may jointly
appoint a successor Escrow Agent for the purposes of this Escrow Agreement. Upon
the appointment of any successor Escrow Agent under this Escrow Agreement, the
successor Escrow Agent shall have all the rights, duties and powers that applied
to the original Escrow Agent hereunder. Upon any resignation or removal of the
Escrow Agent under this Section 8, all amounts paid or to be paid to the Escrow
Agent shall be prorated from the date of this Agreement through the effective
date of such resignation or removal.
9. General.
9.1 This Escrow Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware without regard to its
provisions concerning conflict of laws.
9.2 The parties hereto agree to execute and deliver any and all
papers and documents necessary to complete the actions contemplated hereby.
9.3 This Escrow Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective legal representatives,
successors and permitted assigns of the parties hereto. Nothing in this Escrow
Agreement, express or implied, is intended to confer on any person other than
the parties hereto, or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Escrow
Agreement. Neither Neose nor Cytel shall assign or otherwise transfer this
Escrow Agreement or any right, benefit or obligation hereunder (whether by
operation of law or otherwise) to any other person without the prior written
consent of the other party; provided, however, that (i) Neose may (a) assign or
otherwise transfer any or all of its rights and interests hereunder to one or
more of its Affiliates,
-7-
<PAGE> 8
and (b) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases Neose nonetheless shall remain
responsible for the performance of all of its obligations hereunder), and (ii)
either party may assign or otherwise transfer any or all of its rights and
interests hereunder in connection with the sale of all or substantially all of
its assets or business, whether by way of merger, sale of stock, sale of assets
or other similar transaction (in any or all of which cases such party
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
9.4 This Agreement may be amended, modified or supplemented only by a
written instrument duly executed by each of the parties hereto. This Agreement
(including the Exhibits hereto), together with the Asset Purchase Agreement,
sets forth the entire agreement and understanding of the parties hereto with
respect to the matters set forth herein and supersedes all prior agreements or
understandings, oral or written, between the parties regarding those matters.
-8-
<PAGE> 9
9.5 This Escrow Agreement may be executed in two or more
counterparts, each of which shall be binding as the date first written above,
all of which shall constitute one and the same instrument. Each such copy shall
be deemed an original, and it shall not be necessary in making proof of this
Escrow Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Agreement as of the date first written above.
NEOSE TECHNOLOGIES, INC.
By: /s/ P. Sherrill Neff
-------------------------------------
P. Sherrill Neff
President and Chief Financial Officer
CYTEL CORPORATION
By: /s/ Virgil Thompson
-------------------------------------
Virgil Thompson
President and Chief Executive Officer
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION,
as Escrow Agent
By: /s/ Stuart P. Papavassiliou
-------------------------------------
Stuart P. Papavassiliou
Assistant Vice President
-9-
<PAGE> 10
EXHIBIT A
Section 3.1.1
[***] and all [***] of any of the foregoing, and any [***] from any of the
foregoing.
Section 3.1.2
[***] any related [***] of any of the foregoing, and any [***] from any of the
foregoing.
* Confidential Treatment Requested
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q for the three months ended March 31, 1999 and is qualified in its entirety
by reference to such financial statements. (in thousands except earnings per
share)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,787
<SECURITIES> 9,545
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,684
<PP&E> 735
<DEPRECIATION> 125
<TOTAL-ASSETS> 18,972
<CURRENT-LIABILITIES> 7,378
<BONDS> 610
0
7
<COMMON> 50
<OTHER-SE> 9,365
<TOTAL-LIABILITY-AND-EQUITY> 18,972
<SALES> 0
<TOTAL-REVENUES> 929
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> (4,748)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,748)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,748)
<EPS-PRIMARY> (0.95)
<EPS-DILUTED> (0.95)
</TABLE>
