FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1997
_______________________________________________
Commission File Number 0-19529
___________________________________________
Alteon Inc.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-3304550
_________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
170 Williams Drive, Ramsey, New Jersey 07446
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(201) 934-5000
_________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES: * NO:
____ ____
On July 31, 1997, 15,712,825 shares of Registrant's Common Stock
were outstanding.
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Alteon Inc.
Index
PART I. FINANCIAL INFORMATION Page
______________________________ ____
Item 1. - Financial Statements:
Balance sheets as of December 31, 1996
and June 30, 1997.....................................3
Statements of operations for the three and six
months ended June 30, 1996 and 1997...................4
Statements of cash flows for the six months ended
June 30, 1996 and 1997................................5
Notes to financial statements.........................6
Item 2. - Management's Discussion and
Analysis of Financial Condition and
Results of Operations......................................8
PART II. OTHER INFORMATION
___________________________
Item 2. - Changes in Securities...........................11
Item 4. - Submission of Matters to a Vote
of Security-Holders.............................12
Item 6. - Exhibits and Reports on Form 8-K................14
SIGNATURES.....................................................16
__________
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Alteon Inc.
BALANCE SHEETS
(Unaudited)
December 31, June 30,
1996 1997
____________ ____________
ASSETS
Current Assets:
Cash and cash equivalents.......... $31,497,633 $17,934,209
Short-term investments............. 3,001,890 7,669,536
Other current assets............... 649,169 493,905
___________ ___________
Total current assets.............. 35,148,692 26,097,650
Property and equipment, net......... 3,999,530 3,613,857
Deposits and other assets........... 266,971 274,448
Restricted cash..................... 723,800 723,800
___________ ___________
Total assets...................... $40,138,993 $30,709,755
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable................... $ 1,853,400 $ 1,250,099
Accrued expenses................... 6,447,521 5,062,477
Obligations under capital leases... 305,321 317,141
___________ ___________
Total current liabilities......... 8,606,242 6,629,717
___________ ___________
Obligations under capital leases... 161,577 0
___________ ___________
Stockholders' Equity:
Preferred stock, $.01 par value;
1,998,329 shares authorized,
and 0 and 5,000 shares issued
and outstanding, (liquidation
preference $5,055,068)............ 0 50
Common stock, $.01 par value;
30,000,000 shares authorized
and 15,702,825 and 15,712,825
shares issued and outstanding..... 157,028 157,128
Additional paid-in capital......... 84,018,146 89,219,003
Accumulated deficit............... (52,800,283) (65,297,528)
Unrealized (losses)/gains on
short-term investments........... (3,717) 1,385
____________ ___________
Total stockholders' equity....... 31,371,174 24,080,038
____________ ___________
Total liabilities and
stockholders' equity............. $40,138,993 $30,709,755
============ ============
See accompanying notes to financial statements
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Alteon Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
__________________________ ________________________
1996 1997 1996 1997
___________ ___________ __________ ___________
Revenues:
Investment income ... $577,087 $408,828 $1,185,329 $852,797
Expenses:
Research and
development......... 2,382,344 5,857,512 4,555,043 11,113,662
General and
administrative...... 888,753 903,628 1,738,614 1,860,600
Interest............. 12,388 7,004 26,384 15,429
___________ ___________ ___________ ___________
Total expenses..... 3,283,485 6,768,144 6,320,041 12,989,691
___________ ___________ ___________ ___________
Net loss before
preferred stock
dividends.........$(2,706,398) $(6,359,316) $(5,134,712) $(12,136,894)
___________ ___________ ___________ ____________
Preferred stock
dividends........... 0 360,351 0 360,351
___________ ___________ ___________ ____________
Net loss...........$(2,706,398) $(6,719,667) $(5,134,712) $(12,497,245)
=========== ============ ============ ============
Net loss per share
to common
stockholders......... $(0.17) $(0.43) $(0.33) $(0.80)
=========== ============ =========== ============
Weighted average common
shares and common
equivalent shares
outstanding.......... 15,663,576 15,712,492 15,591,607 15,710,325
=========== ============ =========== ============
See accompanying notes to financial statements
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Alteon Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
_______________________________
1996 1997
_____________ _____________
Cash Flows from Operating
Activities:
Net loss...................... $(5,134,712) $(12,497,245)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization................ 396,934 385,673
Amortization of deferred
compensation................ 0 17,622
Accrued preferred stock
dividends................... 0 360,351
Changes in operating assets
and liabilities:
Receivables from corporate
partner.................... 76,958 0
Other current assets........ (168,898) 155,264
Other assets................ (2,264) (7,477)
Accounts payable and accrued
expenses................... 722,772 (1,988,345)
___________ ___________
Net cash used in operating
activities................. (4,109,210) (13,574,157)
___________ ___________
Cash Flows from Investing Activities:
Capital expenditures.......... (164,356) 0
Purchases of marketable
securities................... (45,034,430) (65,501,645)
Sales and maturities of
marketable securities........ 49,663,946 60,839,101
Restricted cash............... 0 0
___________ ___________
Net cash provided by
(used in) investing
activities................. 4,465,160 (4,662,544)
___________ ___________
Cash Flows from Financing
Activities:
Proceeds from issuance of
common stock................. 352,971 8,705
Proceeds from issuance of
preferred stock.............. 0 4,814,329
Principal payments under
capital lease obligations.... (138,808) (149,757)
Proceeds from sales-leaseback
financing.................... 254,975 0
____________ ___________
Net cash provided by
financing activities...... 469,138 4,673,277
____________ ___________
Net increase/(decrease) in cash
and cash equivalents........... 825,088 (13,563,424)
Cash and cash equivalents,
beginning of period............ 980,010 31,497,633
____________ ___________
Cash and cash equivalents,
end of period.................. $1,805,098 $17,934,209
============ ============
Supplemental disclosures of
cash flow information:
Cash paid for interest....... $26,384 $15,429
============ ============
See accompanying notes to financial statements
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Alteon Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation - The accompanying unaudited financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of Management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended
June 30, 1997, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. For
further information refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
2. Cash and Cash Equivalents and Short-term Investments - Cash
and cash equivalents include highly liquid investments which have
a maturity of less than ninety days. Short-term investments are
recorded at fair market value. As of June 30, 1997, short-term
investments were invested in debt instruments of the U.S.
Government, government agencies and financial institutions and
corporations with strong credit ratings.
At June 30, 1997, $7,669,536 of the Company's short term
investments are classified as available for sale. A net
unrealized gain of $1,385 relating to the available for sale
securities has been recorded as a separate component of
stockholders' equity at June 30, 1997.
3. Net Loss Per Share - Net loss per share is calculated using
the weighted average number of common shares and common stock
equivalents, as applicable, outstanding during the period. In
1996 and 1997 common stock equivalents are excluded from the
computation of loss per share since their inclusion would be
antidilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS 128). This Statement establishes
standards for computing and presenting earnings per share and
applies to entities with publicly traded common stock or
potential common stock. SFAS 128 is effective for financial
statements for both interim and annual periods ending after
December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years'
earnings per share. The Company will adopt this statement for
its year ended December 31, 1997.
4. Events Concerning Collaborative Partners - In December 1990,
the Company and Marion Merrell Dow, Inc., which was subsequently
acquired by an affiliate of Hoechst AG and renamed Hoechst Marion
Roussel, Inc. ("HMRI"), formed a strategic alliance to develop
and commercialize the Company's A.G.E. technology for
therapeutics in the areas of diabetic and aging complications.
The arrangements included a research and development
collaboration to conduct clinical trials jointly, including
funding by HMRI of trials on pimagedine, an agreement for the
joint promotion and sale in the United States, Canada and Western
Europe of drugs developed pursuant to the collaboration, and a
manufacturing and supply agreement. In 1996, HMRI ended the
collaboration as a result of HMRI's continuing prioritization of
its new product pipeline, and the Company regained all rights
granted to HMRI covering the Company's technology. As a result
of the termination of the strategic alliance with HMRI, the
Company has assumed full responsibility for the continuation of
clinical trials which has been funded by HMRI. The estimated
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costs of the clinical trials are $1.4 million per month. The
Company and HMRI are negotiating various open issues arising from
the termination of their collaboration. This includes the rights
of the parties under certain patents and amounts which may be
payable by the Company to HMRI and by HMRI to the Company. HMRI
has invoiced the Company $2,611,975 which in the Company's
opinion is without merit. The Company believes the ultimate
resolution of this matter will not have a material adverse effect
o the Company's financial position, results of operations or cash
flows.
5. 1997 Preferred Stock Transaction - On April 24, 1997, the
Company raised $4.8 million net of offering costs, through the
issuance of 5,000 shares of its $0.01 par value, 6% Cumulative
Convertible Preferred Stock ("Preferred Stock"). In connection
with this issuance, the Company issued to the purchasers,
warrants to purchase 50,000 shares of its Common Stock at an
exercise price of $4.025 per share. The Preferred Stock has a
liquidation preference of $1,000 per share plus accrued and
unpaid dividends and certain default payments as defined. Each
share of Preferred Stock is convertible at any time into shares
of the Company's Common Stock determined by the liquidation
preference divided by the conversion price, which price is based
on a discount to the average low trading price of the Common
Stock, as defined, which goes up to 14.5% of the average low
trading price after 180 days of issuance. In the event of a
change in control, as defined, the Preferred Stock will be
convertible into the Company's Common Stock using a conversion
price which is 83% of the lowest of the daily low trading price
of the Common Stock during the ten days immediately preceding the
date of conversion.
Holders of the Preferred Stock have no voting rights;
however, certain significant issues, as defined, require the
majority vote of the outstanding Preferred Stock holders. Also,
under certain conditions, the Company may require conversion of
the Preferred Stock. Simultaneous with the issuance of the
Preferred Stock, the Company entered into a registration rights
agreement which imposes penalties on the Company for failure to
keep the underlying shares registered for resale by the holders.
Non-compliance will require Company to redeem the Preferred Stock
(or Common Stock issued upon conversion) at a price equal to 130%
of the liquidation preference or the average low trading price in
the case of Common Stock. It also provides that if the Company's
Common Stock is delisted from the Nasdaq National Market and the
Company does not redeem the then outstanding Preferred Stock, the
holders may exercise warrants (delisting warrants) to purchase an
aggregate of one million shares of Common Stock at an exercise
price of $0.10 per share. In addition, a 3% monthly default
payment would be required.
The discount, as discussed above, associated with the most
beneficial conversion rate to the holders, 14.5%, is
approximately $848,000, which amount is being amortized over the
180 day initial conversion period. For the period ended June 30,
1997, the Company has recorded Preferred Stockholder Dividends of
$360,351 representing the amortization of the conversion discount
and the 6% preferred dividends.
6. Other Related Party Transactions - In 1993 a Company officer
received a loan which bore interest at a rate equal to the prime
rate as published in the Wall Street Journal, adjusted quarterly,
for purpose of purchasing a home. The loan is secured by a
second mortgage on the premises purchased by the officer. In
July 1996, the terms of the loan were amended so that interest
will stop accruing as of July 1998 and the principal and interest
shall be paid in equal installments in July, 1998, 1999 and 2000.
In the event an installment is not paid when due, interest shall
accrue at a rate of one percent per month until payment is made.
As of June 30, 1997, the entire loan amount of $273,000 including
accrued interest, remained outstanding.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
Since its inception in October 1986, Alteon has devoted
substantially all of its resources to its research, drug
discovery and development programs. To date, Alteon has not
generated any revenues from the sale of products and does not
expect to generate any such revenues for several years, if at
all. Alteon has incurred a cumulative net loss of $65,297,528 as
of June 30, 1997, and expects to incur operating losses,
potentially greater than losses in prior years, for a number of
years.
Alteon has financed its operations through proceeds from an
initial public offering of Common Stock in 1991, a follow-on
offering of Common Stock completed in 1995, private placements of
preferred equity securities (including the sale of its 6%
Cumulative Convertible Preferred Stock in April 1997), revenue
from its collaborations with Hoechst Marion Roussel, Inc.
("HMRI") and Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"),
reimbursement of certain of Alteon's research and development
expenses by its collaborative partners, and investment income
earned on cash balances and short-term investments.
Effective August 10, 1996, HMRI and Alteon ended their
collaboration, and Alteon regained all rights granted to HMRI
covering the Company's core technology and assumed full
responsibility for the continuation of clinical trials which had
been funded by HMRI. HMRI's decision to withdraw from the
collaboration was a result of its continuing prioritization of
its new product pipeline. The Company is seeking one or more
collaborative partners to replace HMRI. There is no assurance
that the Company will be able to enter into such an agreement or
that if such an agreement is reached, it will provide the level
of funding which had been provided by HMRI.
Although the Company anticipates increased expenditures in
research and development expenses as it develops products and
extends its clinical trials, a portion of such development
expenses is expected to be reimbursed by Alteon's collaborative
partners. Yamanouchi has agreed to fund preclinical studies,
including most toxicology studies, on pimagedine and any other
products that the parties jointly agree to develop including a
second generation A.G.E.-formation inhibitor and a macrophage
stimulator. Gamida for Life ('Gamida') conducted, at its own
expense, a Phase II clinical trial in Israel to evaluate
pimagedine in patients with diabetes and elevated serum
cholesterol levels, which was completed in April 1997.
Yamanouchi and Gamida do not fund Alteon's research or early
product development expenses.
The Company's business is subject to significant risks
including, but not limited to, (i) its ability to obtain funding,
(ii) the risks inherent in its research and development efforts,
including clinical trials, (iii) uncertainties associated both
with obtaining and enforcing its patents and with the patent
rights of others, (iv) the lengthy, expensive and uncertain
process of seeking regulatory approvals, (v) uncertainties
regarding government reforms and of product pricing and
reimbursement levels, (vi) technological change and competition,
(vii) manufacturing uncertainties, and (viii) dependence on third
parties. Even if the Company's product candidates appear
promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the
possibilities that the products will be ineffective or unsafe
during clinical trials, will fail to receive necessary regulatory
approvals, will be difficult to manufacture on a large scale,
will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
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Results of Operations
Three Months Ended June 30, 1997 and 1996
Total revenues for the three months ended June 30, 1997, and
the three months ended June 30, 1996, were $409,000 and $577,000,
respectively. Revenues were derived from interest earned on cash
and cash equivalents and short-term investments. The 29.1%
decrease in investment income was attributed to the decrease in
cash and cash equivalents and short-term investments.
The Company's total expenses increased to $6,768,000 for the
three months ended June 30, 1997, from $3,283,000 for the three
months ended June 30, 1996, and consisted primarily of research
and development expenses. Research and development expenses were
$5,858,000 for the three months ended June 30, 1997, and
$2,382,000 for the three months ended June 30, 1996, a 145.9%
increase. This increase was primarily due to the Company's
assumption of the ACTION trial costs as a result of the
termination of the Company's collaborative agreements with HMRI
on August 10, 1996.
General and administrative expenses increased to $904,000
for the three months ended June 30, 1997, from $889,000 for the
three months ended June 30, 1996, a 1.7% increase. This increase
is due primarily to an increase in lease expenses related to
additional sales-leaseback transactions and increased facility
allocated expenses.
The Company's net loss increased to $6,720,000 for the three
months ended June 30, 1997, from $2,706,000 in the same period in
1996, an increase of 148.3%, as a result of increased research
and development expenses, general and administrative expenses,
preferred stock dividend and expenses related to the sale of its
6% Cumulative Convertible Preferred Stock in April 1997 and
decreased investment income.
Six Months Ended June 30, 1997 and 1996
Total revenues for the six months ended June 30, 1997, and
the six months ended June 30, 1996, were $853,000 and $1,185,000,
respectively. Revenues were derived from interest earned on cash
and cash equivalents and short-term investments. The 28.0%
decrease in investment income was attributed to the decrease in
cash and cash equivalents and short-term investment balances.
The Company's total expenses increased to $12,990,000 for
the six months ended June 30, 1997, from $6,320,000 for the six
months ended June 30, 1996, and consisted primarily of research
and development expenses. Research and development expenses were
$11,114,000 for the six months ended June 30, 1997, and
$4,555,000 for the six months ended June 30, 1996, a 144.0%
increase. This increase was primarily due to the Company's
assumption of the ACTION trial costs as a result of the
termination of the Company's collaborative agreements with HMRI
on August 10, 1996.
General and administrative expenses increased to $1,861,000
for the six months ended June 30, 1997, from $1,739,000 for the
six months ended June 30, 1996, a 7.0% increase. This increase
is due primarily to an increase in lease expenses related to
additional sales-leaseback transactions, facility allocated
expenses, patent expenses and insurance expenses which were
offset by decreased investor relations expenses.
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The Company's net loss increased to $12,497,000 for the six
months ended June 30, 1997, from $5,135,000 in the same period in
1996, an increase of 143.4%, as a result of increased research
and development expenses, general administrative expenses, and
preferred dividend expenses related to the sale of its 6%
Cumulative Convertible Preferred Stock in April 1997 and
decreased investment income.
Liquidity and Capital Resources
Alteon had cash and cash equivalents and short-term
investments at June 30, 1997 of $25,604,000 compared to
$34,500,000 at December 31, 1996. This is a decrease in cash and
cash equivalents and short-term investments for the six months
ended June 30, 1997, of $8,896,000. This consisted of
$13,574,000 of cash used in operations consisting primarily of
research and development expenses, personnel and related costs
and facility expenses, offset by $4,673,000 of financing
activities primarily related to the sale of its 6% Cumulative
Convertible Preferred Stock and $5,000 of unrealized gains. As
of June 30, 1997, Alteon had invested $7,473,000 in capital
equipment and leasehold improvements, of which a cumulative
$1,347,000 had been funded through capital leases.
The Company's research and development expenses, to date,
have been funded primarily by research and development
collaborative arrangements and sales of equity securities. In
programs that are subject to joint development agreements, the
Company expects to incur substantial additional research and
development costs, including costs related to drug discovery,
preclinical research and clinical trials. The Company
anticipates that it will be able to offset a portion of its
research and development expenses and its clinical development
expenses with funding from its collaborative partners.
However, as described above, the Company and one of its
collaborative partners, HMRI, have terminated their
collaboration. In addition to the reimbursement of certain of the
Company's research and development expenses, HMRI had also
incurred the significant portion of the expenses of the Company's
clinical trials. The estimated costs of the clinical trials,
which is now the responsibility of the Company, is estimated to
be $1.4 million per month.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments, will be adequate to
satisfy its working capital requirements for its current and
planned operations into the first quarter of 1998. The Company
completed the sale of its 6% Cumulative Convertible Preferred
Stock in April 1997 and is in discussion with potential private
purchasers of its debt or equity securities to provide additional
financing. There can be no assurance that such additional
financing can be obtained.
Future capital requirements will depend on numerous factors,
including the progress of the Company's research and development
programs, the conduct of preclinical tests and clinical trials,
the development of regulatory submissions, the costs associated
with protecting patents and other proprietary rights, the
development of marketing and sales capabilities and the
availability of third-party funding.
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Because of the Company's long-term capital requirements, it
may seek access to the public or private equity markets whenever
conditions are favorable. The Company may also seek additional
funding through corporate collaborations and other financing
vehicles, potentially including off-balance sheet financing
through limited partnerships or corporations. There can be no
assurance that such funding will be available at all or on terms
acceptable to the Company. If adequate funds are not available,
the Company may be required to curtail significantly one or more
of its research or development programs or obtain funds through
arrangements with collaborative partners or others. This may
require the Company to relinquish rights to certain of its
technologies or product candidates.
Alteon's commercial partners may develop, either alone or
with others, products that compete with the development and
marketing of the Company's products. Competing products, either
developed by the commercial partners or to which the commercial
partners have rights, may result in their withdrawal of support
with respect to all or a portion of the Company's technology,
which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Part II
Item 2. Changes in Securities
b) The Preferred Stock Investment Agreement, pursuant to
which Alteon sold 5,000 shares of its 6% Cumulative Convertible
Preferred Stock in April 1997, provides that so long as over 20%
of such Preferred Stock is outstanding, Alteon shall not declare,
nor pay any dividends or make any distributions to any holder of
its Common Stock.
c) (1) On April 24, 1997 the Company sold to certain
investors (the "Investors") 5,000 shares of its 6% Cumulative
Convertible Preferred Stock (the "Preferred Stock") and Warrants
to purchase 50,000 shares of its Common Stock (the "Warrants").
The Investors also received warrants to purchase 1,000,000 shares
of Common Stock at a price of $.10 per share, which warrants will
be exercisable only if the Company fails, refuses or is unable to
cause the securities registrable under its Registration Rights
Agreement with the Investors (the "Registration Rights
Agreement") to be listed on the Nasdaq National Market or if the
Common Stock is delisted from the Nasdaq National Market and the
Company does not elect to redeem the then outstanding Preferred
Stock.
c) (2) The securities described above (the "Securities")
were sold in a private placement to Halifax Fund, L.P., Galileo
Capital, L.L.C., RGC International Investors, LDC, Heracles Fund,
Lewis Fraser, and Joseph A. Umbach (who subsequently transferred
them to Themis Partners, L.P.).
c) (3) The aggregate purchase price for the Securities was
$5,000,000. There were no underwriting discounts or commissions.
c) (4) The Securities were offered and sold exclusively to
accredited investors in compliance with the requirements of Rule
506 under the Securities Act of 1933 and accordingly the
transaction was exempt from registration under such Act.
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c) (5) Each share of Preferred Stock is convertible at any
time prior to the Forced Conversion Date (as defined below) into
a number of shares of Common Stock determined by dividing the
Liquidation Preference (as defined below) by the conversion
price, which is equal to the percentage set forth below of the
average of the daily low trading prices of the Common Stock
during the 10 trading days immediately preceding the date of
conversion. The applicable percentages are as follows:
96.5% during calendar days 1 through 89 following
issuance of the Preferred Stock
92.5% during calendar days 90 through 179 following
issuance of the Preferred Stock
85.5% thereafter
The applicable percentages are subject to decrease in the event
that the Company does not comply with certain obligations under
the Registration Rights Agreement.
As used above, the Liquidation Preference means $1,000 per
share plus accrued dividends and default payments, if any, owed
by the Company to the holders of the Preferred Stock pursuant to
the Registrations Rights Agreement, and Forced Conversion Date
means the date which is (i) the fifth anniversary of the date of
issuance of the Preferred Stock or (ii) the first date following
the third anniversary of such date of issuance on which the
aggregate Liquidation Preference of the outstanding Preferred
Stock is less than $250,000.
In the event of a change in control of the Company (as
defined in the Certificate of Designation for the Preferred
Stock), for a period commencing on the announcement of a
transaction intended or likely to result in a change in control
and ending 10 trading days after a subsequent contrary
announcement or the consummation of the change in control, the
Preferred Stock will be convertible into Common Stock at a
conversion price which is 83% of the lowest of the daily low
trading prices of the Common Stock during the 10 trading days
immediately preceding the date of conversion.
The holders of the Warrants are entitled to purchase, in the
aggregate, 50,000 shares of Common Stock for $4.025 per share.
The Warrants may be exercised at any time and from time to time,
in whole or in part, prior to April 24, 2004. The number of
shares and kind of securities issuable on exercise of the
Warrants is subject to adjustment in the event of certain
subdivisions or combinations of the securities issuable upon
exercise of the Warrants, declarations of dividends or
distributions on the Common Stock, mergers or consolidations or
the Company and reorganizations or reclassifications of the
securities issuable upon exercise of the Warrants.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Annual Meeting of Stockholders of Alteon (the "Meeting")
was held on June 10, 1997. The following matters were voted upon
at the Meeting: (i) the election of two directors, (ii) the
ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year ending December 31,
1997, (iii) the ratification of the amendment of the Alteon Inc.
Amended 1995 Stock Option Plan to increase the number of shares
of Common Stock reserved for issuance upon the exercise of
options granted under the Plan from 1,000,000 shares to 2,000,000
share, (iv) the removal of the limitation on the number of
shares of Common Stock issuable upon conversion of the 6%
Cumulative Convertible Preferred Stock, and (v) the
authorization of the issuance and sale of additional shares of
Preferred Stock.
12
<PAGE>
(i) The following table sets forth the names of the
nominees who were elected to serve as directors and the number of
votes cast for or withheld from the election of each such
nominee:
Number of Number of
Name Votes For Votes Withheld
---- ---------- ---------------
Dr. Robert N. Butler 12,251,781 2,084,259
Dr. Mark Novitch 12,357,181 1,978,859
(ii) The votes cast for, against or abstaining from the
ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year ending December 31,
1997 were as follows:
Votes For Votes Against Abstentions
----------- -------------- ------------
12,789,118 1,259,257 287,665
(iii) The votes cast for, against, abstaining or non-votes
from the ratification of the amendment of the Alteon Inc. Amended
1995 Stock Option Plan to increase the number of Shares of Common
Stock reserved for issuance upon the exercise of options granted
under the Plan from 1,000,000 shares to 2,000,000 shares were as
follows:
Votes For Votes Against Abstentions Non-votes
--------- ------------- ----------- ---------
6,396,188 2,880,358 305,241 4,754,253
(iv) The votes cast for, against, abstaining or non-votes
from the removal of the limitation on the number of shares of
Common Stock issuable upon conversion of the 6% Cumulative
Convertible Preferred Stock were as follows:
Votes For Votes Against Abstentions Non-votes
--------- ------------- ----------- ---------
6,501,081 2,326,459 309,641 5,198,859
(v) The votes cast for, against, abstaining or non-votes of
the authorization of the issuance and sale of additional shares
of Preferred Stock were as follows:
Votes For Votes Against Abstentions Non-votes
--------- ------------- ----------- ---------
6,299,024 2,530,517 310,740 5,195,759
13
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Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit
No. Description of Exhibit
____ _________________________
3.1 Restated Certificate of Incorporation. (Incorporated
by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File Number 33-
42574) which became effective on November 1, 1991).
3.2 Certificate of the Voting Powers, Designations,
Preference and Relative Participating, Optional and
Other Special Rights and Qualifications, Limitations
or Restrictions of Series F Preferred Stock of the
Company. (Incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K filed on
August 4, 1995).
3.3 By-laws, as amended. (Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form
8-K filed on April 22, 1996).
3.4 Certificate of Designations of 6% Cumulative
Convertible Preferred Stock for Alteon Inc.
(Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed on May 9,
1997).
4.1 Stockholders' Rights Agreement dated as of July 27,
1995, between Alteon Inc. and Registrar and Transfer
Company, as Rights Agent. (Incorporated by reference
to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on August 4, 1995).
4.2 Registration Rights Agreement dated as of April 24,
1997 between Alteon Inc. and the investors named on
the signature page thereof (Incorporated by reference
to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on May 9, 1997).
4.3 Form of Common Stock Purchase Warrant (Incorporated
by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K filed on May 9, 1997).
4.4 Form of Common Stock Purchase Delisting Warrant
(Incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K filed on May 9,
1997).
4.5 Amendment to Stockholders' Rights Agreement between
Alteon Inc. and Registrar and Transfer Company, as
Rights Agent (Incorporated by reference to Exhibit
4.4 to the Company's Current Report on Form 8-K filed
on May 9, 1997).
10.1* License and Supply Agreement dated June 17, 1997
between IDEXX Laboratories, Inc. and Alteon Inc.
27 Financial Data Schedule
* Confidential treatment has been requested for a portion
of this document.
14
<PAGE>
b) The following reports on Form 8-K were filed during the
quarter ended June 30, 1997:
On April 25, 1997 the Company filed a current report on Form
8-K which reported the results from a Phase II trial of its lead
compound, pimagedine.
On May 9, 1997 the Company filed a current report on Form 8-K which
reported the Company's private placement of its 6% Cumulative Convertible
Preferred Stock and Warrants to purchase shares of its Common Stock.
On June 24, 1997 the Company filed a current report on Form
8-K which reported the appointment of David McCurdy to the
Company's Board of Directors and the execution of a license and
supply agreement by the Company and IDEXX Laboratories, Inc.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: August 12, 1997
Alteon Inc.
/s/ James J. Mauzey
_____________________________
By: James J. Mauzey
Chairman of the Board,
Chief Executive Officer
and Director
(principal executive
officer)
/s/ Kenneth I. Moch
_____________________________
By: Kenneth I. Moch
Senior Vice President,
Finance and Business
Development
and Chief Financial
Officer (principal
financial officer)
16
<PAGE>
[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO
INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS
CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
EXHIBIT 10.1
LICENSE AND SUPPLY AGREEMENT
Agreement made as of June 17, 1997 by and between IDEXX
Laboratories, Inc., a Delaware corporation having its principal
place of business at One IDEXX Drive, Westbrook, Maine 04092
("IDEXX"), and Alteon Inc., a Delaware corporation having its
principal place of business at 170 Williams Drive, Ramsey, New
Jersey 07446 ("Alteon").
INTRODUCTION
Alteon possesses certain technology and patents related to
the therapeutic use of pimagedine and certain technology and
patents related to the detection of advanced glycosylation
end-products (AGE's). IDEXX desires to license from Alteon the
right to use such technology and patents to develop, manufacture
and market therapeutic and diagnostic products for companion
animals, and Alteon desires to license to IDEXX such technology
for such purposes, all on the terms and conditions set forth
herein.
In consideration of these premises and the mutual covenants
and promises contained in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, IDEXX and Alteon agree as follows:
Article I. DEFINITIONS
As used in this Agreement, the following terms, whether used
in the singular or plural, shall have the following meanings:
1.1 "Active Ingredients" shall mean pimagedine
(aminoguanidine) and all structurally related compounds.
1.2 "Affiliate" shall mean, with respect to a party, a
person or entity which controls, is controlled by or is under
common control with, such party.
1.3 "Confidential Information" shall mean all
information regarding a party's technology, products or business,
which (i) is designated as confidential in writing by the
disclosing party, by letter or by the use of an appropriate stamp
or legend, prior to or at the time any such information is
disclosed by the disclosing party to the other party, or (ii) is
orally or visually disclosed by a party, or is disclosed in
writing without an appropriate letter, stamp or legend, if the
disclosing party, within thirty (30) days after such disclosure,
delivers to the other party a written document or documents
describing the information and referencing the place and date of
such oral, visual or written disclosure and the names of the
persons to whom such disclosure was made.
1.4 "Dermal Product" shall mean a topical therapeutic
product for use in the treatment of dermatitis in canines to be
developed by IDEXX, based upon or utilizing the Licensed
Technology.
<PAGE>
1.5 "Diabetes Product" shall mean an oral therapeutic
product for use in the treatment of the complications of diabetes
and/or age-related diseases in canines to be developed by IDEXX,
based upon or utilizing the Licensed Technology.
1.6 "Diagnostic Products" shall mean such diagnostic
products for use in the Exclusive Area as may be developed by or
on behalf of IDEXX or its Affiliates or sublicensees during the
term of this Agreement, based upon, embodying or utilizing the
Licensed Technology.
1.7 "Exclusive Area" shall mean all applications for
dogs, cats and horses.
1.8 "IDEXX Improvements" shall mean improvements and
enhancements to the Licensed Technology which are conceived,
developed or reduced to practice by IDEXX during the term of this
Agreement, and all Patent Rights of IDEXX related thereto.
1.9 "Licensed Technology" shall mean (i) all technical
information, data, techniques, processes, know-how and trade
secrets throughout the world owned or possessed by, or licensed
to, Alteon (and to which Alteon has the right to grant licenses
or sublicenses) as of the date of this Agreement relating to the
therapeutic use of the Active Ingredients or the detection of
AGE's, (ii) all improvements and enhancements thereto which are
conceived, developed or reduced to practice by, or licensed by
parties other than IDEXX to, Alteon during the term of this
Agreement, and (iii) all Patent Rights of Alteon relating to the
foregoing.
1.10 "Net Sales" shall mean the gross amount actually
received by IDEXX or its Affiliates on the sale to non-Affiliates
of IDEXX of, or the use of, Therapeutic Products, less (a)
credits or allowances, if any, actually granted, (b) discounts
actually allowed, (c) freight, postage and insurance charges and
additional special packaging charges, if invoiced separately, (d)
customs duties, and (e) excise, sales, value added and similar
taxes imposed upon and paid with respect to such sales (excluding
income taxes). Net Sales shall not include any amounts received
by IDEXX or any Affiliate on account of the sale of Therapeutic
Products to IDEXX or any other Affiliate. Net Sales attributable
to a Therapeutic Product which is sold as a "bundle" with one or
more products which are not Therapeutic Products shall be an
amount equal to the list price of the Therapeutic Product
multiplied by a fraction, the numerator of which is the aggregate
sales price for such bundled products and the denominator of
which is the aggregate list price for such bundled products.
1.11 "Patent Rights" of a party shall mean all patents
and patent applications throughout the world which such party
owns or controls (and to which such party has the right to grant
licenses or sublicenses), including any substitutions,
extensions, reissues, reexaminations, renewals, divisions,
continuations or continuations-in-part. The patents and patent
applications comprising Patent Rights of Alteon included in
Licensed Technology as of the date of this Agreement are set
forth on Schedule A hereto.
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<PAGE>
1.12 "Products" shall mean Diagnostic Products and
Therapeutic Products.
1.13 "Sublicense Revenue" shall mean all license fees,
royalties or other revenue, including, without limitation,
up-front fees, milestone payments and lump-sum payments, received
by IDEXX or an Affiliate from non-Affiliate sublicensees from the
sublicensing to such non-Affiliates of any Licensed Technology
for use in Therapeutic Products.
1.14 "Therapeutic Products" shall mean (i) Diabetes
Products, (ii) Dermal Products, and (iii) such other
pharmaceuticals, nutrition supplements or other non-diagnostic
products for use in the Exclusive Area as may be developed by or
on behalf of IDEXX or its Affiliates or sublicensees during the
term of this Agreement, based upon, embodying or utilizing the
Licensed Technology.
1.15 "Valid Claim" shall mean a claim of any unexpired
United States or foreign patent or patent application which shall
not have been withdrawn, cancelled or disclaimed, nor held
invalid by a court of competent jurisdiction in a final decision
from which an appeal can not be taken.
Article II. LICENSE TERMS
2.1 License. Subject to the terms and conditions of
this Agreement, Alteon hereby grants to IDEXX a worldwide,
exclusive license, with full rights to sublicense, to use the
Licensed Technology to develop, have developed, make, have made,
sell, have sold, and use Products for use in the Exclusive Area.
2.2 Assistance. From time to time upon the request of
IDEXX, Alteon shall provide to IDEXX, without charge to IDEXX,
(i) at least one copy of all information as may be known or
possessed by Alteon (which Alteon has the right to disclose) and
as may be reasonably necessary for IDEXX to exploit the license
granted in Section 2.1 (including, without limitation, all
documents describing or depicting, and other tangible
manifestations of, the Licensed Technology and such data relating
to the Active Ingredients as IDEXX may reasonably require in
order to prepare, file and obtain any approvals, permits,
licenses or registrations required for the commercial sale of
Products), and (ii) technical assistance in connection with the
transfer to IDEXX of such information and the use thereof by
IDEXX, including such assistance as may be agreed upon by the
parties relating to the development of Products and the
preparation and filing of regulatory submissions. IDEXX
acknowledges and agrees that nothing in this Agreement shall
obligate Alteon to provide any data or information to IDEXX that
is developed by or with any other licensee of Alteon to the
extent that Alteon is contractually prevented from doing so;
provided, however, that Alteon shall use best efforts to obtain
from each party who in the future becomes a licensee of Alteon
the right to sublicense and provide such data or information to
IDEXX.
2.3 Improvements. IDEXX hereby grants to Alteon a
worldwide, exclusive, royalty free, license, with full rights to
sublicense, to use the IDEXX Improvements for
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<PAGE>
the development, manufacture, sale or use of Active
Ingredient-based products for use in humans or components for
incorporation into Active Ingredient-based products for use in
humans.
2.4 Facility Inspections. Alteon shall permit employees
or representatives of IDEXX, during normal business hours and
upon reasonable prior notice, to visit the facilities of Alteon
to observe the manufacture of Active Ingredients, provided that
such visits do not unreasonably disrupt the conduct of the
business undertaken at such facilities. All such employees or
representatives, while at such facilities, shall comply with all
reasonable rules and regulations established by Alteon. Alteon
shall permit reasonable inspection of its facilities by
representatives of governmental agencies, if and to the extent
IDEXX believes it necessary or desirable in order to comply with
any statue or regulation or to obtain or maintain any necessary
licenses, permits or approvals. In the event that Active
Ingredient is manufactured for Alteon by one or more third
parties, Alteon shall use best efforts to require such third
party suppliers to provide to IDEXX inspection rights with
respect to such third parties' facilities equivalent to those set
forth in this Section 2.4.
2.5 *
* Confidential Treatment Requested
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<PAGE>
*
2.6 Development Obligation. IDEXX shall use reasonable
commercial efforts to achieve each of the development milestones
set forth in Section 3.1 within a reasonable period of time after
the date of this Agreement, or as the parties shall mutually
agree.
Article III. FEES AND ROYALTIES
3.1 License Fees. In consideration of the licenses
granted herein, IDEXX shall pay to Alteon license fees as
follows:
(a) $*, payable within 30 days after the execution
of this Agreement by both parties;
(b) $*, payable upon *;
(c) $*, payable upon *;
(d) $*, payable upon *;
(e) $*, payable upon *;
* Confidential Treatment Requested
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<PAGE>
(f) $*, payable upon *; and
(g) $*, payable upon *.
Each of the payments required pursuant to Sections 3.1(b) through
3.1(g) shall be paid by IDEXX within 30 days after the
achievement of such milestone.
3.2 Royalties.
(a) Royalty Rate. IDEXX shall pay to Alteon,
during the applicable term described in Section 3.2 (b), earned
royalties at the rate of *% on all Net Sales of Therapeutic
Products covered by a Valid Claim of any of the Patent Rights
included in Licensed Technology, and *% on all Net Sales of
Therapeutic Products that are not so covered but that are based
upon, embody or use any other Licensed Technology.
(b) Payment Period. The obligation of IDEXX to pay
royalties on Net Sales of Therapeutic Products covered by one or
more Valid Claims shall terminate on a country-by-country basis
concurrently with the expiration or termination of all applicable
patents (if such Valid Claims are patent) or the withdrawal,
cancellation or disclaiming of all applicable patent applications
(if such Valid Claim are patent application) in the country in
the which the Therapeutic Product is manufactured, used or sold.
The obligation of IDEXX to pay royalties on sales of Therapeutic
Products based upon, embodying or using any other Licensed
Technology shall terminate in all countries on the earlier of (i)
the twentieth anniversary of this Agreement, or (ii) the date on
which such Licensed Technology becomes generally known to the
public. In no event shall more than one royalty be due for any
Therapeutic Product sold by IDEXX or its Affiliates. Upon
expiration in accordance with this Section 3.2(b) of the royalty
obligations with respect to all or any portion of the Licensed
Technology, the license granted pursuant to Section 2.1 shall
become, with respect to such Licensed Technology, or portion
thereof, non-exclusive and fully paid.
(c) Competitive Products. In the event that IDEXX
determines that the sales of any Therapeutic Products in any
country are or are likely to be adversely affected by the
introduction by a third party of a pimagedine-based competitive
product, then the parties shall negotiate in good faith with
respect to a reduction in the royalty rate payable with respect
to such Therapeutic Product in such country to reasonably account
for the effects of such competition.
3.3 Sublicense Fees. IDEXX shall pay to Alteon *% of
all Sublicense Revenue. No such amounts shall be payable with
respect to any sublicensing of Licensed Technology to Affiliates
of IDEXX; provided that royalties on Net Sales by such Affiliate
of Therapeutic Products are paid in accordance with the
provisions of Sections 1.10 and 3.2.
* Confidential Treatment Requested
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<PAGE>
3.4 Minimum Payments. IDEXX shall make, with respect to
each successive 12-month period commencing upon the first
commercial sale by IDEXX of a Therapeutic Product, minimum
payments to Alteon (which may either be earned royalties on Net
Sales calculated as set forth in Section 3.2, sublicense fees
under Section 3.3 or voluntary payments in excess of those
calculated and payable under Sections 3.2 and 3.3, or any
combination thereof), in the following amounts:
(a) for the first such 12-month period, $*;
(b) for the second such 12-month period, $*; and
(c) for the third such 12-month period and each
subsequent 12-month period, $*.
The sole consequence of the failure of IDEXX to make the minimum
payments set forth in this Section 3.4 shall be that Alteon may
give notice to IDEXX of its election to amend the license granted
to IDEXX herein so as to make it non-exclusive. Such license
shall become non-exclusive unless IDEXX shall have made all such
minimum payments within 30 days after such notice; provided,
however, that the right of Alteon to give such notice and to
amend such license shall be suspended if and to the extent that
IDEXX's failure to make the minimum payments has been caused by
the failure of Alteon, for any reason, including on account of an
event of force majeure, to supply Active Ingredient.
3.5 Reports and Payments. IDEXX shall deliver to Alteon
within 60 days after the end of each calendar quarter a written
report showing its computation of royalties and sublicense fees
due under this Agreement for such quarter. Simultaneously with
the delivery of each such report, IDEXX shall tender payment of
all amounts shown to be due thereon. During the term of this
Agreement, Alteon shall have the right from time to time (not to
exceed once during each calendar year) to inspect, or have an
agent, accountant or other representative inspect, during normal
business hours, and upon reasonable advance notice (not less than
72 hours), such books, records and other supporting data of IDEXX
as may be necessary to verify IDEXX's computation of payments due
under this Agreement. In the event Alteon discovers a
discrepancy in one or more report(s) and/or payment(s), then
payment by IDEXX of the shortfall or refund by Alteon of any
overpayment shall be made within 15 (fifteen) days after notice
of such discovery.
Article IV. PURCHASE AND SALE OF ACTIVE INGREDIENT
Alteon shall either: (i) negotiate in good faith with IDEXX
an agreement to supply Active Ingredient to IDEXX at the average
unit price offered to Alteon by * or Alteon's other third party
supplier of Active Ingredient, plus a reasonable handling fee,
and on such other commercially reasonable terms and conditions
(including, without limitation, warranty and product liability
indemnification) as may be mutually agreeable; or (ii) assist
IDEXX, and use best efforts to require its third party
* Confidential Treatment Requested
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<PAGE>
supplier of Active Ingredient to, negotiate in good faith with
IDEXX an agreement between IDEXX and such third party supplier to
provide for such third party supplier to supply Active Ingredient
to IDEXX at a price and on such other commercially reasonable
terms and conditions (including, without limitation, warranty and
product liability indemnification) as may be mutually agreeable;
or (iii) assist IDEXX, and use best efforts to require any other
licensee of Alteon who is manufacturing Active Ingredient to,
negotiate in good faith an agreement between IDEXX and such
licensee to provide for such licensee to supply Active Ingredient
to IDEXX at a price and on such other commercially reasonable
terms and conditions (including, without limitation, warranty and
product liability indemnification) as may be mutually agreeable.
In the event that IDEXX has not, despite the use of good
faith efforts, entered into an agreement with Alteon or another
party described in the preceding paragraph for the supply of
Active Ingredient by the earlier of (i) the date on which IDEXX
notifies Alteon that it is ready to commence clinical trials with
respect to a Therapeutic Product (which shall not be earlier than
six months from the date of this Agreement), or (ii) one year
from the date of this Agreement, then IDEXX and Alteon shall
cooperate to obtain another source for the Active Ingredient. In
such event, IDEXX shall be entitled to deduct, from any payments
then due or in the future coming due under this Agreement, the
amount of such non-recurring expenditures actually and reasonably
incurred by IDEXX in order to establish and qualify a
satisfactory source for the supply of Active Ingredient. In
connection with the establishment and qualification of a source
for the supply of Active Ingredient, Alteon may provide such
assistance to IDEXX as Alteon deems appropriate in order to
minimize the amount of such expenditures.
Article V. INTELLECTUAL PROPERTY RIGHTS
5.1 Patent Prosecution. Except as otherwise set forth
in this Article V, Alteon shall have the exclusive right, with
respect to inventions encompassing Licensed Technology, at its
expense, and IDEXX shall have the exclusive right, with respect
to inventions encompassing IDEXX Improvements, at its expense, to
file, prosecute, maintain and enforce patents. Each party shall
timely notify the other party (but in no event less than 90 days
prior to the expiration of any priority rights period) if it
intends not to seek such patent protection or, after having filed
any patent application, it decides to discontinue prosecution or
maintenance of such applications or patents resulting from such
applications, and thereafter the other party shall have the
right, at its expense but in the name of the party creating the
invention, using counsel reasonably acceptable to such party, to
file, prosecute, maintain and enforce in such country patents
relating to such invention. Each party shall render such
reasonable assistance as may be necessary to allow the other
party to exploit its right under this Section 5.1, including,
without limitation, using best efforts to have signed all legal
documents appropriate and necessary to file, prosecute, maintain
and enforce patent applications or patents.
- 8 -
<PAGE>
5.2 Infringement.
(a) Each party shall promptly report in writing to
the other party during the term of this Agreement any known or
suspected infringement, unauthorized use or misappropriation of
the Licensed Technology or IDEXX Improvements by a third party of
which it becomes aware, and shall provide the other party with
all available evidence supporting said infringement, unauthorized
use or misappropriation.
(b) Alteon shall have the initial right, with
respect to Licensed Technology, and IDEXX shall have the initial
right, with respect to IDEXX Improvements, to decide whether or
not to initiate an infringement or other appropriate suit. If
Alteon or IDEXX, as the case may be, shall decide to file said
suit, such party shall give the other party reasonable advance
notice of filing and shall provide the other party with an
opportunity to make suggestions and comments regarding such suit.
The party initiating such a suit shall keep the other party
informed of the status of any such suit and, at the request of
the other party, shall provide the other party with copies of all
documents filed in, and all written communications relating to,
such suit. The party initiating any such suit shall select
counsel who shall be reasonably acceptable to the other party
and, except as provided below, shall pay all expenses of the
suit, including, without limitation, attorneys' fees and court
costs. The other party, in its sole discretion, may elect, at
any time prior to the commencement of settlement negotiations or
filing of dispositive motions or within 60 days after the receipt
from the initiating party of notice of the commencement of such
litigation, whichever is later, to contribute to the costs
incurred in connection with such litigation in an amount not to
exceed 50% of such costs, whereupon such party shall share in
any damages, settlement fees or other consideration received as a
result of such litigation pro rata based on its share of costs.
If necessary, such other party shall join as a party to the suit
but shall be under no obligation to participate except to the
extent that such participation is required as the result of being
a named party to the suit. The party not initiating such suit
shall offer reasonable assistance to the party initiating such
suit, at no charge except for the reimbursement of reasonable
out-of-pocket expenses. Such party shall have the right to
participate and be represented in any such suit by its own
counsel at its own expense. The initiating party shall not
settle any such suit involving rights of the other party without
obtaining the prior written consent of the other party, which
consent shall not be unreasonably withheld.
(c) In the event that a party entitled initially to
initiate an infringement action or other appropriate suit does
not initiate such action or suit within 90 days after the date of
notice of infringement, the other party shall have the right, at
its expense, to initiate an infringement or other appropriate
suit on the terms described in Section 5.2(b).
5.3 Claimed Infringement.
(a) Representations. Alteon represents and
warrants that (i) it has full power and authority to enter into
this Agreement, to grant all of the rights it hereby grants and
to undertake the commitments it hereby undertakes; (ii) the
execution, delivery and
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<PAGE>
performance by it of this Agreement in accordance with its terms
do not conflict with, or result in a breach of, any agreement to
which it is a party or by which it or its property is bound; and
(iii) it has received no notice of, and has no knowledge of the
basis for, any claim that the exercise by IDEXX of any right or
license granted under this Agreement shall infringe any patent,
copyright or trade secret of a third party.
(b) Indemnification. Alteon shall defend and
indemnify IDEXX from and against all damages, liabilities, costs
and expenses (including reasonable attorneys' fees and costs)
arising out of any claim that the use of Licensed Technology by
IDEXX as contemplated herein infringes a patent, copyright or
trade secret of a third party, provided that (i) IDEXX shall have
promptly provided Alteon written notice thereof and reasonable
cooperation, information and assistance in connection therewith,
and (ii) Alteon shall have sole control and authority with
respect to the defense, settlement or compromise thereof.
Article VI. CONFIDENTIAL INFORMATION
6.1 Treatment of Confidential Information. Each party
shall maintain the Confidential Information of the other party in
confidence, and shall not disclose, divulge or otherwise
communicate such Confidential Information to others, or use it
for any purpose, except pursuant to, and in order to carry out,
the terms and objectives of this Agreement. Each party hereby
agrees to exercise reasonable precautions to prevent the
unauthorized disclosure of such Confidential Information by any
of its directors, officers, employees, consultants,
subcontractors, sublicensees or agents.
6.2 Release from Restrictions. The provisions of
Section 6.1 shall not apply to any Confidential Information
disclosed hereunder which:
(a) was known or used by the receiving party prior
to its date of disclosure to the receiving party, as evidenced by
the prior written records of the receiving party; or
(b) either before or after the date of the
disclosure to the receiving party is lawfully disclosed to the
receiving party by sources other than the disclosing party
rightfully in possession of the Confidential Information; or
(c) either before or after the date of the
disclosure to the receiving party becomes published or generally
known to the public through no fault or omission on the part of
the receiving party; or
(d) is independently developed by the receiving
party, without reliance upon the Confidential Information of the
disclosing party; or
(e) is required to be disclosed by the receiving
party to comply with applicable laws, to defend or prosecute
litigation or to comply with governmental regulations, provided
that the receiving party provides prior written notice of such
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<PAGE>
disclosure to the other party and takes reasonable and lawful
actions to avoid and/or minimize the degree of such disclosure.
6.3 Term of Obligations. The obligations of a party under
this Article VI with respect to any Confidential Information of
the other party shall remain in effect until the later of (i)
five years from the date of receipt of the said Confidential
Information or (ii) the termination of this Agreement.
Article VII. PRODUCT LIABILITY INDEMNIFICATION
7.1 Indemnification by IDEXX. IDEXX shall defend,
indemnify and hold Alteon harmless from and against all claims,
losses, costs, damages, fees or expenses (including the costs and
expenses of attorneys and other professionals) arising out of any
third party claim of injury, damage or death occurring to any
natural person, animal or tangible personal or real property as a
result, directly or indirectly, of the manufacture, use or sale
of Products by IDEXX, its Affiliates or sublicensees pursuant to
this Agreement, except to the extent that such injury, damage or
death was caused by the negligence or willful misconduct of
Alteon.
7.2 Indemnification by Alteon. Alteon shall defend,
indemnify and hold IDEXX, its Affiliates and sublicensees
harmless from and against all claims, losses, costs, damages,
fees or expenses (including the costs and expenses of attorneys
and other professionals) arising out of a claim of injury, damage
or death occurring to any natural person, animal or tangible
personal or real property as a result, directly or indirectly, of
the manufacture, use or sale by Alteon, its Affiliates and its
licensees and sublicensees of diagnostic or therapeutic products
containing the Active Ingredient as an active ingredient.
7.3 Notice. In the event that a party (the
"Indemnitee") seeks indemnification under this Article VII, the
Indemnitee agrees to: (i) promptly notify the other party (the
"Indemnitor") of any such claim, (ii) permit the Indemnitor to
assume direction and control of the defense and settlement of
such claim (provided, however, that the Indemnitor shall not
settle any such claim without the consent of the Indemnitee,
which consent shall not be unreasonably withheld), and (iii)
cooperate as requested (at the expense of the Indemnitor) in the
defense of the claim.
Article VIII. TERM AND TERMINATION
8.1 Term. This Agreement shall remain in effect until
terminated in accordance with the provisions of this Article
VIII.
8.2 Termination for Breach. Either party shall be
entitled to terminate this Agreement by written notice to the
other party in the event that the other party shall be in default
of any of its obligations hereunder and shall fail to remedy any
such default within 60 days after notice thereof.
- 11 -
<PAGE>
8.3 Termination by IDEXX. IDEXX shall have the right to
terminate this Agreement effective on December 31 of any year
(commencing with December 31, 1998), upon not less than 90 days'
prior written notice.
8.4 Survival of Obligations; Return of Confidential
Information. Upon any termination of this Agreement, each party
shall promptly return to the other party all written Confidential
Information, and all copies thereof, of such other party. The
termination of this Agreement shall not relieve any party of any
obligations accrued prior to such termination. Notwithstanding
any termination of this Agreement, the obligations of the parties
with respect to the protection and non-disclosure of Confidential
Information (Article V), intellectual property indemnification
(Section 5.3) and product liability indemnification (Article
VII), as well as any other provisions which by their nature are
intended to survive any such termination, shall survive and
continue to be enforceable.
Article IX. MISCELLANEOUS
9.1 Assignment. Neither party may assign its rights or
obligations hereunder without the prior written consent of the
other party, except that either party may assign its rights and
obligations hereunder without the prior written consent of the
other party in connection with the sale by a party of all or
substantially all of its business or assets relating to the
subject matter of this Agreement.
9.2 Force Majeure. Neither party shall be liable for
any delay in or failure to make or take deliveries of any one or
more orders, or portions thereof, due to acts of God, acts of
governments, war, riots, strikes, fire, floods, explosions,
shortages of supplies, destruction or damage to plant or
machinery, or other causes beyond the reasonable control of such
party, provided that such party shall have used its best efforts
to avoid such occurrence and minimize its duration and shall have
given prompt written notice thereof to the other party.
9.3 Publicity. Neither party shall originate any
publicity, news release or other public announcement, written or
oral, relating to this Agreement without the prior written
approval of the other party except as otherwise required by law.
Such approval shall not be unreasonably withheld.
9.4 Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New
Jersey.
9.5 Waiver. The waiver by either party of a breach or a
default of any provision of this Agreement by the other party
shall not be construed as a waiver of any succeeding breach of
the same or any other provision, nor shall any delay or omission
on the part of a party to exercise or avail itself of any right,
power or privilege that it has or may have hereunder operate as a
waiver of any right, power or privilege by such party.
- 12 -
<PAGE>
9.6 Notices. Any notice or other communication in
connection with this Agreement must be in writing and delivered
either in person, by recognized overnight carrier, by facsimile
transmission (with telephone confirmation of receipt) or by
certified mail, postage and fees prepaid, return receipt
requested, and addressed as follows:
If to Alteon: Alteon Inc.
170 Williams Drive
Ramsey, New Jersey 07446
Fax No.: 201-934-0880
Attn: Chairman and Chief Executive Officer
If to IDEXX: IDEXX Laboratories, Inc.
One IDEXX Drive
Westbrook, Maine 04092
Fax No.: 207-856-0347
Attn: President
or such other address as the addressee shall have specified by
notice hereunder.
9.7 No Agency. Nothing herein shall be deemed to
constitute either party as the agent or representative of the
other party, or both parties as joint venturers or partners for
any purpose. Neither party shall be responsible for the acts or
omissions of the other party, and neither party will have
authority to speak for, represent or obligate the other party in
any way without prior written authority from such other party.
9.8 Entire Agreement. This Agreement and the Schedules
hereto contain the full understanding of the parties with respect
to the subject matter hereof and supersede all prior
understandings and writings relating thereto. No waiver,
alteration or modification of any of the provisions hereof shall
be binding unless made in writing and signed by both parties.
9.9 Headings. The headings contained in this Agreement
are for convenience of reference only and shall not be considered
in construing this Agreement.
9.10 Severability. In the event that any provision of
this Agreement is held by a court of competent jurisdiction to be
unenforceable because it is invalid or in conflict with any law
of any relevant jurisdiction, the validity of the remaining
provisions shall not be affected.
9.11 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their successors and permitted assigns.
9.12 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument.
- 13 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of
the date first above written.
IDEXX Laboratories, Inc.
By: /s/ David Shaw
--------------------------
Title: CEO
-----------------------
Alteon Inc.
By: /s/ Kenneth I. Moch
--------------------------
Title: SVP & CFO
-----------------------
- 14 -
<PAGE>
Schedule A
Patent Rights
*
* Confidential Treatment Requested
<PAGE>
*
Included in this agreement are all foreign counterparts to the
above list of patents.
Notwithstanding the definition of Patent Rights in this Agreement,
the parties acknowledge and agree that the following patent
applications of Alteon shall not be deemed to be included in Patent
Rights of Alteon for purposes of this Agreement:
*
The foregoing two patent applications, including any patents
issuing therefrom and any substitutions, extensions, reissues,
reexaminations, renewals, divisions, continuations or
continuations-in-part, and any foreign counterparts to any of the
foregoing, are referred to as the "Excluded Patents."
Alteon grants IDEXX an option (the "Option") to acquire a
worldwide, exclusive license to the Excluded Patents in the
Exclusive Area, pursuant to the terms and conditions of this
Agreement. The Option may be exercised at any time commencing on
the date of this Agreement and ending on the earlier of: (i) the
third anniversary of the date of this Agreement, or (ii) the date
that is 60 days after Alteon notifies IDEXX that a third party is
interested in acquiring a license to the Excluded Patents (the
"Option Period").
IDEXX may exercise the Option at any time during the Option
Period by sending written notice of the exercise of the Option to
Alteon.
* Confidential Treatment Requested
<PAGE>
Upon exercise of the Option, the Patent Rights of Alteon shall
be expanded to include the Excluded Patents and shall be subject to
all of the terms and conditions contained in this Agreement
applicable thereto, including the payment of any milestones
applicable thereto pursuant to Section 3.1 which have not been paid
prior to the exercise of the Option and the royalties set forth in
Section 3.2.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH
FLOW FILED AS PART OF ALTEON'S QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,934,209
<SECURITIES> 7,669,536
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,097,650
<PP&E> 3,613,857
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,709,755
<CURRENT-LIABILITIES> 6,629,717
<BONDS> 0
0
50
<COMMON> 157,128
<OTHER-SE> 23,922,860
<TOTAL-LIABILITY-AND-EQUITY> 30,709,755
<SALES> 0
<TOTAL-REVENUES> 852,797
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,334,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,429
<INCOME-PRETAX> (12,497,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,497,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,497,245)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
</TABLE>
