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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, 1998
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, 1998, 17,983,036 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, 1997
and June 30, 1998.....................................................3
Statements of operations for the three months and six months
ended June 30, 1997 and 1998..........................................4
Statements of cash flows for the six months ended
June 30, 1997 and 1998................................................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 5. - Other Information................................................11
Item 6. - Exhibits and Reports on Form 8-K.................................12
SIGNATURES...................................................................14
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PART I
ITEM 1. FINANCIAL STATEMENTS.
ALTEON INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
--------------- ---------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ................................................... $ 20,423,675 $ 3,174,480
Short-term investments ...................................................... 8,550,063 13,060,755
Other current assets......................................................... 468,680 859,743
--------------- ---------------
Total current assets...................................................... 29,442,418 17,094,978
Property and equipment, net.................................................... 3,183,362 3,220,609
Deposits and other assets...................................................... 261,358 273,890
Restricted cash................................................................ 620,400 ---
--------------- ---------------
Total assets................................................................. $ 33,507,538 $ 20,589,477
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 921,637 $ 1,420,359
Accrued expenses............................................................. 5,969,384 3,185,276
Obligations under capital leases ............................................ 161,581 ---
--------------- ---------------
Total current liabilities................................................. 7,052,602 4,605,635
--------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,993,329 shares authorized, and 942 and 982
shares issued and outstanding, as of December 31, 1997 and June 30, 1998,
respectively............................................................... 9 10
Common stock, $.01 par value; 30,000,000 shares authorized and 17,922,319 and
17,980,425 shares issued and outstanding, as of December 31, 1997 and
June 30, 1998, respectively................................................ 179,223 179,804
Additional paid-in capital................................................... 105,585,019 106,496,612
Accumulated deficit ......................................................... (79,303,374) (90,687,308)
Accumulated other comprehensive loss......................................... (5,941) (5,276)
--------------- ---------------
Total stockholders' equity................................................ 26,454,936 15,983,842
--------------- ---------------
Total liabilities and stockholders' equity................................... $ 33,507,538 $ 20,589,477
=============== ===============
</TABLE>
See accompanying notes to financial statements
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ALTEON INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -----------------------------
1997 1998 1997 1998
------------- ------------- -------------- --------------
Revenues:
<S> <C> <C> <C> <C>
Investment income............................................... $ 408,828 $ 287,567 $ $ 852,797 $ 673,020
Expenses:
Research and development ....................................... 5,946,838 5,524,504 11,292,134 11,281,432
Elimination of previously accrued loss contingency (See Note 8). --- (1,770,975) --- (1,770,975)
General and administrative...................................... 814,302 989,951 1,682,128 2,141,804
Interest........................................................ 7,004 1,038 15,429 3,610
------------- ------------- -------------- --------------
Total expenses............................................... 6,768,144 4,744,518 12,989,691 11,655,871
------------- ------------- -------------- --------------
Net loss .................................................... $ (6,359,316) $ (4,456,951) $ (12,136,894) $ (10,982,851)
------------- ------------- -------------- --------------
Preferred stock dividends....................................... 360,351 202,349 360,351 401,083
------------- ------------- -------------- --------------
Net loss applicable to common shareholders................... $ (6,719,667) $ (4,659,300) $ (12,497,245) $ (11,383,934)
============= ============= ============== ==============
Basic loss per share to common shareholders....................... $ (0.43) $ (0.26) $ (0.80) $ (0.63)
============= ============= ============== ==============
Diluted loss per share to common shareholders..................... $ (0.43) $ (0.26) $ (0.80) $ (0.63)
============= ============= ============== ==============
Weighted average common shares used in computing
basic and diluted loss per share................................ 15,712,407 17,975,137 15,710,681 17,965,105
============= ============= ============== ==============
</TABLE>
See accompanying notes to financial statements
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ALTEON INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss..................................................................... $ (12,497,245) $ (10,982,851)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.......................................... 385,673 325,911
Amortization of deferred compensation.................................. 17,622 323,189
Accrued preferred stock dividends...................................... 360,351 ---
Changes in operating assets and liabilities:
Other current assets................................................ 155,264 (391,063)
Other assets........................................................ (7,477) (12,533)
Accounts payable and accrued expenses............................... (1,988,345) (2,285,382)
-------------- --------------
Net cash used in operating activities............................... (13,574,157) (13,022,729)
-------------- --------------
Cash Flows from Investing Activities:
Capital expenditures......................................................... --- (363,157)
Purchases of marketable securities........................................... (65,501,645) (58,806,907)
Sales and maturities of marketable securities................................ 60,839,101 54,296,880
Restricted cash.............................................................. --- 620,400
-------------- --------------
Net cash used in investing activities................. (4,662,544) (4,252,784)
-------------- --------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock....................................... 8,705 187,899
Proceeds from issuance of preferred stock.................................... 4,814,329 ---
Principal payments under capital lease obligations........................... (149,757) (161,581)
-------------- --------------
Net cash provided by financing activities........................... 4,673,277 26,318
-------------- --------------
Net decrease in cash and cash equivalents........................... (13,563,424) (17,249,195)
Cash and cash equivalents, beginning of period................................. 31,497,633 20,423,675
-------------- --------------
Cash and cash equivalents, end of period....................................... $ 17,934,209 $ 3,174,480
============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest.............................................. $ 15,429 $ 3,610
============== ==============
</TABLE>
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, 1998,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - Cash and cash equivalents
include highly liquid investments which have a maturity of less than ninety days
at the time of purchase. Short-term investments are recorded at fair market
value. As of June 30, 1998, 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, 1998, $13,061,000 of the Company's short term investments
are classified as available for sale. A net unrealized loss of $5,000 relating
to the available for sale securities has been recorded as a separate component
of stockholders' equity at June 30, 1998.
3. NET LOSS PER SHARE - Effective for the year ended December 31, 1997, the
Company adopted statement of Financial Accounting Standards Board No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 requires the presentation of basic
earnings (loss) per share and diluted earnings (loss) per share. Basic loss per
share is based on the average numbers of shares outstanding during the year.
Diluted loss per share is the same as basic loss per share, as the inclusion of
common stock equivalents would be antidilutive.
4. COMPREHENSIVE INCOME - Effective January 1, 1998, the Company adopted the
provisions of Financial Accounting Standards Board No. 130, Reporting
Comprehensive Income ("SFAS 130"), which establishes standards for reporting and
displaying comprehensive income and its components. The adoption of this
statement has no effect on the Company's financial position or operating
results.
The following sets forth comprehensive income as required by SFAS 130
for the periods ended June 30,:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net Loss ............................................... $(12,137) $(10,983)
Net Unrealized Gains/ Losses on Marketable Securities .. 1 (5)
-------- --------
Comprehensive Loss ..................................... $(12,136) $(10,988)
======== ========
</TABLE>
5. EVENTS CONCERNING COLLABORATIVE PARTNERS - In December 1997, Alteon and
Genentech, Inc. ("Genentech") entered into a stock purchase agreement and a
development collaboration and license agreement providing for the development
and marketing of pimagedine and second-generation A.G.E.-formation inhibitors.
In December 1997, Genentech purchased Common Stock and Series G Preferred
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Stock for an aggregate purchase price of $15,000,000. The use of these funds is
unrestricted to the Company. Genentech has agreed to fund the continued
development of pimagedine and support possible additional clinical trials for
expanded indications of the drug through the periodic purchase of up to
$48,000,000 in Series H Preferred Stock. The first such purchase, in the amount
of $8,000,000, occurred on July 27, 1998. In addition, Genentech will fund the
agreed-upon development costs for second-generation A.G.E. formation inhibitors.
Pursuant to the development collaboration and license agreement, Alteon
has granted Genentech an exclusive license to use and sell pimagedine in all
areas of the world except for Japan, China, South Korea and Taiwan, territories
covered under Alteon's agreement with Yamanouchi Pharmaceutical Co., Ltd.
("Yamanouchi"), and Israel, Jordan, Bulgaria, Cyprus and South Africa,
territories covered under Alteon's agreement with Gamida (the "Genentech
Territory"). Alteon has also granted Genentech an exclusive license to use and
sell second-generation A.G.E.-formation inhibitor products (and any future
Alteon compounds in this class), to be selected by Genentech after review of
Alteon's A.G.E.-formation inhibitor portfolio, in the Genentech Territory. In
consideration of the license, Alteon will receive $50,000,000 in payments from
Genentech upon meeting milestones relating to U.S. and European regulatory
filings and approvals for pimagedine product and an additional $50,000,000 upon
meeting milestones relating to U.S. and European regulatory filings and
approvals for a second-generation A.G.E.-formation inhibitor product. Following
commercialization, Alteon will receive royalties on net sales of pimagedine and
second-generation A.G.E.-formation products within the Genentech Territory.
The development collaboration and license agreement provides that all
development activities in the United States for pimagedine and second-generation
A.G.E.-formation inhibitors will be jointly managed by a steering committee with
representatives from Alteon and Genentech. Genentech will be responsible for
development outside the United States and for marketing and sales of the
licensed products in the Genentech Territory. Alteon has granted Genentech the
right to manufacture pimagedine for its pre-clinical, clinical and commercial
supplies of licensed products and has agreed to supply all pimagedine for
pre-clinical and clinical trials in the United States. The parties have agreed
to enter into a manufacturing and supply agreement covering supplies on terms to
be agreed upon.
The development collaboration and license agreement may be terminated
upon six months' notice by Genentech in its entirety or with respect to any
licensed product. If terminated after the Series H funds are received, certain
of the funds may be refundable to Genentech, as defined in the agreement. If
terminated prior to the receipt of Series H funds, Genentech would be required
to pay certain amounts, as defined in the agreement. Genentech's license expires
as to each product in each country in the Genentech Territory upon the later of
the expiration of the last patent applicable to the product in such country or
twelve and one-half years after the first commercial sale of the product in such
country.
6. PREFERRED STOCK TRANSACTIONS - In December 1997, the Company and Genentech
entered into a stock purchase agreement pursuant to which Genentech agreed to
buy shares of Common Stock, Series G Preferred Stock and Series H Preferred
Stock (the "Securities"). On December 19, 1997, the Company sold to Genentech
837,314 shares of Common Stock and 939 shares of Series G Preferred Stock for an
aggregate purchase price of $15,000,000. The Securities were offered and sold to
a single accredited investor 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. Each share of Series G Preferred Stock is
convertible at any time upon seventy days' written notice into a number of
shares of Common Stock determined by dividing $10,000 by the average of the
closing sales price of the Common Stock, as reported on the Nasdaq National
Market, for the twenty business days immediately preceding the date of
conversion. The shares of Series H Preferred Stock will be convertible on the
same basis at any time after the earlier of (i) the granting of approval by the
U.S. Food and Drug Administration for
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the marketing and sale of any pimagedine product specified in the development
collaboration and license agreement between the Company and Genentech, (ii)
termination by Genentech of the development collaboration and license agreement
or (iii) December 1, 2002.
7. OTHER RELATED PARTY TRANSACTIONS - In July 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 the purpose of purchasing a home.
The loan is secured by a second mortgage on the premises purchased by the
officer. In February 1998, the terms of the loan were amended so that interest
will stop accruing as of July 1999 and the principal and interest shall be paid
in equal installments in July, 1999, 2000 and 2001. 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, 1998, $271,075, including accrued
interest, remained outstanding. A $25,000 payment was made on December 31, 1997.
8. CONTINGENCIES - 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. 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.
In June 1998, the Company and HMRI resolved various open issues arising from the
termination of their collaboration. As a result, the previously established
accrual in the amount of $1.8 million has been eliminated and credited to the
Statement of Operations.
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 $90,687,000 as of June 30, 1998,
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 common and preferred equity securities,
revenue from its collaborations with Hoechst Marion Roussel, Inc. ("HMRI") and
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.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-formation inhibitors. The agreements were amended in April 1998. In
December 1997, Genentech purchased Common Stock and Series G Preferred Stock for
an aggregate purchase price of $15,000,000. The use of these funds is
unrestricted to the Company. Genentech has agreed to fund continued development
of pimagedine and support possible additional clinical trials for expanded
indications of the drug through the periodic purchase of up to $48,000,000 in
Series H Preferred Stock. The first such purchase, in the amount of $8,000,000,
occurred on July 27, 1998. Genentech will also fund agreed-upon development
costs for second-generation A.G.E.-formation inhibitors. Genentech may terminate
the license agreement upon six months' notice to the Company.
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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 pre-clinical 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. Yamanouchi does 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 product pricing and reimbursement levels, (vi) technological change and
competition, (vii) manufacturing uncertainties, and (viii) dependence on
collaborative partners and other 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 prove 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Total revenues for the three months ended June 30, 1998, and the three
months ended June 30, 1997 were $288,000 and $409,000, respectively. Revenues
were derived from interest earned on cash and cash equivalents and short-term
investments. The 29.6% decrease in investment income was attributed to the
decrease in cash and cash equivalents and short-term investments.
The Company's total expenses decreased to $4,745,000 for the three
months ended June 30, 1998, from $6,768,000 for the three months ended June 30,
1997, and consisted primarily of research and development expenses. Research and
development expenses were $5,525,000 for the three months ended June 30, 1998,
and $5,947,000 for the three months ended June 30, 1997, a 7.1% decrease. This
decrease was primarily due to expenses related to the clinical trial costs.
General and administrative expenses increased to $990,000 for the three
months ended June 30, 1998, from $814,000 for the three months ended June 30,
1997, a 21.6% increase. This increase is due primarily to an increase in
personnel-related expenses and investor relations expenses.
The Company's net loss applicable to common shareholders decreased to
$4,659,000 for the three months ended June 30, 1998, from $6,720,000 in the same
period in 1997, a decrease of 30.7%. This was primarily a result of decreased
research and development expenses, the elimination of a previously accrued loss
contingency (see Note 8 - Notes to Financial Statements), decreased preferred
stock dividends and investment income, offset by an increase in general and
administrative expenses.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Total revenues for the six months ended June 30, 1998, and the six
months ended June 30, 1997, were $673,000 and $853,000, respectively. Revenues
were derived from interest earned on cash and cash equivalents and short-term
investments. The 21.1% decrease in investment income was attributed to the
decrease in cash and cash equivalents and short-term investment balances.
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The Company's total expenses decreased to $11,656,000 for the six
months ended June 30, 1998, from $12,990,000 for the six months ended June 30,
1997, and consisted primarily of research and development expenses. Research and
development expenses were $11,281,000 for the six months ended June 30, 1998,
and $11,292,000 for the six months ended June 30, 1997.
General and administrative expenses increased to $2,142,000 for the six
months ended June 30, 1998, from $1,682,000 for the six months ended June 30,
1997, a 27.3% increase. This increase is due primarily to an increase in
personnel-related expenses and investor relations expenses offset by decreased
depreciation expenses.
The Company's net loss applicable to common shareholders decreased to
$11,384,000 for the six months ended June 30, 1998, from $12,497,000 in the same
period in 1997, a decrease of 8.9%. This was primarily a result of the
elimination of a previously accrued loss contingency (see Note 8 - Notes to
Financial Statements) and decreased investment income, offset by increased
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Alteon had cash, cash equivalents and short-term investments at June
30, 1998, of $16,235,000 compared to $28,974,000 at December 31, 1997. This is a
decrease in cash, cash equivalents and short-term investments for the six months
ended June 30, 1998, of $12,739,000. This consisted of $13,022,000 of cash used
in operations consisting primarily of research and development expenses,
personnel and related costs and facility expenses and $363,000 of capital
expenditures. This was offset by $620,000 resulting from the release of escrow
funds and by $26,000 of financing activities primarily related to proceeds from
stock option exercises offset by capital lease obligations. As of June 30, 1998,
Alteon had invested $7,716,000 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, pre-clinical
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.
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 at least into the
second half of 1999. 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. As of December 31, 1997, all of the
Preferred Stock has been converted. In December 1997, Alteon and Genentech
entered into a stock purchase agreement and a development collaboration and
license agreement providing for the development and marketing of pimagedine and
second-generation A.G.E.-formation inhibitors. In December 1997, Genentech
purchased Common Stock and Series G Preferred Stock for an aggregate purchase
price of $15,000,000. The use of these funds is unrestricted to the Company.
Genentech has agreed to fund the continued development of pimagedine and support
possible additional clinical trials for expanded indications of the drug through
the periodic purchase of up to $48,000,000 in Series H Preferred Stock. The
first such purchase, in the amount of $8,000,000, occurred on July 27, 1998. In
addition, Genentech will fund agreed-upon development costs for
second-
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generation A.G.E.-formation inhibitors. Genentech may terminate the license
agreement on six months' notice to the Company.
Future capital requirements will depend on numerous factors, including
the progress of the Company's research and development programs, the conduct of
pre-clinical 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.
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 it 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 corporate partners or to
which the corporate 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.
The Company is conducting a review of its computer systems to identify
the systems that could be affected by the year 2000 issue and is currently
implementing a plan, which includes a review of all hardware/software vendors,
as well as other Alteon suppliers, vendors and partners. The Company believes
that, with minor hardware modifications, the year 2000 issue will not pose
significant operational problems for the Company's internal computer systems as
so modified. The Company is still assessing the possible effects on the
Company's operation of the year 2000 readiness of third party vendors; however,
the potential impact and related costs, if any, are not known at this time.
PART II
ITEM 5. OTHER INFORMATION
As previously reported, in April 1998 the Company and Genentech amended
their agreements regarding Genentech's purchases of the Company's preferred
stock to impose certain restrictions upon Genentech's purchase and conversion of
such stock in order to comply with requirements of the Nasdaq National Market.
The amendment provided that the restrictions would remain in place until the
Company's stockholders approved their removal. At the Company's 1998 Annual
Meeting of Stockholders held on July 22, 1998, the Company's stockholders
approved the removal of these restrictions.
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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 Certificate of Designations of Series G Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.4 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
3.4 Certificate of Amendment of Certificate of Designations of
Series G Preferred Stock of Alteon Inc.
3.5 Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.5 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
3.6 Amended Certificate of Designations of Series H Preferred
Stock of Alteon Inc.
3.7 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).
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 Amendment to Stockholders' Rights Agreement dated as of
April 24, 1997 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).
4.3 Amendment to Stockholders' Rights Agreement dated as of
December 1, 1997 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 December 10, 1997).
10.1* Letter Agreement dated as of April 1, 1998 between Alteon
Inc. and Cerami Consulting Corporation.
12
<PAGE> 13
10.2* Letter Agreement dated as of April 1, 1998 between Alteon
Inc. and Kenneth S. Warren Laboratories, Inc.
10.3 Amendment to Stock Purchase Agreement and Development
Collaboration and License Agreement dated as of April 29,
1998 between Alteon Inc. and Genentech, Inc. (Incorporated
by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on May 6, 1998).
10.4 Letter Agreement dated June 30, 1998 between Alteon Inc.
and Hoechst Marion Roussel, Inc.
27 Financial Data Schedule.
*Confidential treatment has been requested for a portion of this document.
b) The following report on Form 8-K was filed during the quarter ended
June 30, 1998:
On May 6, 1998 the Company filed a Current Report on Form 8-K which
reported that the Company and Genentech, Inc. entered into an Amendment to Stock
Purchase Agreement and Development Collaboration and License Agreement dated as
of April 29, 1998 amending certain provisions of the Stock Purchase Agreement
and Development Collaboration and License Agreement, each dated as of December
1, 1998, between the parties.
13
<PAGE> 14
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 14, 1998
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)
14
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF DESIGNATIONS
OF SERIES G PREFERRED STOCK
OF ALTEON INC.
Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, Alteon Inc., a corporation organized and existing under the laws of
the State of Delaware, DOES HEREBY CERTIFY:
1. Section 5(h) of the Certificate of Designations of Series
G Preferred Stock of Alteon Inc. is amended by adding the following
sentence to the end thereof:
"The Board of Directors of the Corporation or any officer designated by
the Board of Directors of the Corporation may waive the provisions of
this Section 5(h) for any one transaction or for any series of
transactions."
2. The foregoing amendment has been duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Certificate of Amendment is made this 8th day
of May, 1998.
ALTEON INC.
By: /s/ James J. Mauzey
-----------------------
James J. Mauzey
Chairman and
Chief Executive Officer
<PAGE> 1
EXHIBIT 3.6
AMENDED CERTIFICATE OF DESIGNATIONS
OF SERIES H PREFERRED STOCK
OF ALTEON INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Alteon Inc. (the "Corporation"), a corporation organized and existing
under the laws of the State of Delaware, DOES HEREBY CERTIFY:
1. No shares of the Series H Preferred Stock of the Corporation
(the "Preferred Stock") have been issued by the Corporation as of the date of
this Amended Certificate of Designations.
2. The Board of Directors of the Corporation on March 16,
1998 adopted the following resolution amending the Certificate of
Designations of the Preferred Stock:
RESOLVED, that Section 5(h) of the Certificates of Designations for the
Company's Series G Preferred Stock and Series H Preferred Stock (the
"Certificates of Designations") be amended by adding the following
sentence to such sections: "The Board of Directors of the Corporation
or any officer designated by the Board of Directors of the Corporation
may waive the provisions of this Section 5(h) for any one transaction
or for any series of transactions."
IN WITNESS WHEREOF, this Amended Certificate of Designations is made
this 8th day of May, 1998.
ALTEON INC.
By: /s/ James J. Mauzey
-----------------------
James J. Mauzey
Chairman and
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.1
Letter Agreement dated as of April 1, 1998 between Alteon Inc.
and Cerami Consulting Corporation.
[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.]
<PAGE> 2
ALTEON INC.
170 WILLIAMS DRIVE
RAMSEY, NEW JERSEY 07446
April 1, 1998
Carla Cerami, M.D., Ph.D.
Cerami Consulting Corporation
765 Old Saw Mill River Road
Tarrytown, New York 10591
Dear Dr. Cerami:
This letter agreement (this "Agreement") sets forth the terms of the
agreement between Alteon Inc. ("Alteon") and Cerami Consulting Corporation
("Cerami Consulting") regarding consulting services that Cerami Consulting and
Anthony Cerami, Ph.D. ("Dr. Anthony Cerami") have provided, and that Cerami
Consulting will continue to provide, to Alteon.
Prior to the date of this Agreement, Alteon and Dr. Anthony Cerami
entered into a Consulting Agreement (the "Prior Consulting Agreement"), pursuant
to which Dr. Anthony Cerami has provided consulting services to Alteon and which
is still in effect. In addition, Cerami Consulting has been providing research
and consulting services to Alteon since 1997, for which services Alteon has made
payments to Cerami Consulting from time to time. Effective as of the date of
this Agreement, responsibility for such research services is being transferred
to the Kenneth S. Warren Laboratories, Inc. ("Warren").
By this Agreement, the parties will confirm the terms upon which Cerami
Consulting has provided, and will continue to provide, consulting services to
Alteon.
1. ENGAGEMENT OF CERAMI CONSULTING; PRIOR CONSULTING AGREEMENT;
PREVIOUS WORK.
1.1 Engagement. Alteon hereby engages Cerami Consulting to provide, and
Cerami Consulting hereby agrees to provide, consulting services to Alteon upon
the terms and conditions set forth in this Agreement.
1.2 Prior Consulting Agreement. Alteon and Dr. Anthony Cerami agree
that the term of the Prior Consulting Agreement ended as of March 31, 1998.
1.3 Compensation for Previous Work. In consideration of work performed
by Cerami Consulting and its affiliates, including Dr. Anthony Cerami, for the
benefit of Alteon prior to the date of this Agreement (the "Previous Work"),
effective as of the date of this Agreement, Alteon shall:
<PAGE> 3
Dr. Carla Cerami
April 1, 1998
Page 2
(a) Grant Cerami Consulting an option to purchase 25,000
shares of Common Stock of Alteon ("Common Stock"), at an exercise price of
$5.125 per share, which option will vest and become exercisable upon
[confidential treatment requested]
(b) Grant Cerami Consulting an option to purchase 75,000
shares of Common Stock, at an exercise price of $5.125 per share, which option
will vest and become exercisable upon
[confidential treatment requested]
(c) Grant Dr. Peter Ulrich ("Dr. Ulrich") an option to
purchase 10,000 shares of Common Stock, at an exercise price of $5.125 per
share, which option will vest and become exercisable upon
[confidential treatment requested]
The granting of each such option shall be evidenced by Alteon's issuance of a
stock option agreement with substantially similar provisions to those contained
in stock option agreements issued by Alteon to evidence options issued pursuant
to Alteon's 1995 Stock Option Plan, except that the options issued under this
Agreement shall not be issued under such Plan. The granting of such options
shall survive the expiration or earlier termination of this Agreement.
2. PROVISION OF SERVICES; FEES.
2.1 Consulting.
(a) Cerami Consulting will make its personnel, including,
without limitation, Dr. Anthony Cerami, available to Alteon for consultation
with the directors, officers and key scientific employees of Alteon with respect
to (x) advanced glycosylation endproducts, and (y) glucose lowering agents
(predominantly the ALT-4000 series), exclusive of those the primary focus of
which is the glucose lowering activity of cytokines (collectively, the "Field").
The parties acknowledge and agree that such consulting activities shall include:
(i) supervising Warren, as appropriate, with respect
to Alteon's glucose lowering agent program;
<PAGE> 4
Dr. Carla Cerami
April 1, 1998
Page 3
(ii) coordinating the transfer to Warren of certain
research work currently being performed by Cerami Consulting;
(iii) managing pre-clinical and clinical development
of Alteon technologies outside the Breakers Program, as Alteon and Cerami
Consulting may agree to from time to time;
(iv) facilitating business relationships between
Alteon and third parties;
(v) organizing and participating in symposia
pertaining to technology being developed by Alteon;
(vi) reviewing and monitoring, with patent counsel
selected by Alteon, Alteon's patent estate; and
(vii) such other business and scientific development
activities as the parties may agree upon in writing, from time to time.
In consideration of such consulting services, during the term of this Agreement,
Alteon shall pay Cerami Consulting a consulting fee of $250,000 per calendar
year (pro rated for any portion of a year during the term of this Agreement),
which fee shall be paid in equal quarterly installments on the first day of each
calendar quarter.
(b) In addition to the consulting services to be rendered by
Cerami Consulting pursuant to Section 2.1(a), Cerami Consulting will make its
personnel, including, without limitation, Dr. Anthony Cerami, available to
Alteon with respect to the Breakers Program including, without limitation, for
purposes of supervising the completion of third party pre-clinical trials with
respect to the Breakers Program and assisting in management of Phase I and Phase
II clinical trials with respect to the Breakers Program. In consideration of
such consulting services, during the term of Cerami Consulting's material
involvement in the Breakers Program, Alteon shall pay Cerami Consulting a
consulting fee of $200,000 per calendar year (pro rated for any portion of a
year during the term of this Agreement), which fee shall be paid in equal
quarterly installments on the first day of each calendar quarter.
(c) Alteon acknowledges that during the term of this
Agreement, Cerami Consulting will continue to undertake research activities for
the benefit of third parties; provided, however, that during the term of this
Agreement, Cerami Consulting shall not undertake any activities in the Field in
cooperation with, or for the benefit of, any third party. Subject to the
foregoing, Cerami Consulting will use its reasonable efforts to allocate its
<PAGE> 5
Dr. Carla Cerami
April 1, 1998
Page 4
personnel and other resources among Alteon and such third parties in a fair and
equitable manner, consistent with the relative size, scope and importance of
such respective activities to Alteon and each of such third parties, as
determined by Cerami Consulting in its reasonable discretion.
(d) Except as expressly provided in this Agreement, Alteon
shall not be responsible for any out-of-pocket expenses incurred by Cerami
Consulting or its employees or agents in connection with the performance of its
or their obligations under this Agreement. Notwithstanding the foregoing, Alteon
shall be responsible for reasonable travel and per diem expenses actually
incurred by Cerami Consulting in connection with the Breakers Program in
accordance with Alteon's travel reimbursement policies as may be in effect from
time to time, provided that Alteon shall have agreed thereto in advance.
2.2 Availability of Dr. Cerami. Cerami Consulting will make Dr. Anthony
Cerami available, for such periods of time as are reasonably necessary, to
perform and/or supervise the performance of Cerami Consulting's obligations
under this Agreement. The parties anticipate that Dr. Anthony Cerami's time
commitment under this Agreement shall be substantially similar to the time he
has devoted to Alteon matters in the past. By executing this Agreement where
indicated below, Dr. Anthony Cerami confirms that his provision of such services
will not conflict with any agreements he now has, or may have in the future,
with any third party.
3. INVENTIONS, RESULTS; CONFIDENTIALITY; PUBLICATION.
3.1 Ownership of Inventions, Results. Notwithstanding any other
provision of this Agreement, all Results and Inventions shall be owned solely by
Alteon. For purposes of this Agreement: (i) "Results" shall mean all data,
information and other results arising from the performance of Cerami
Consulting's obligations under this Agreement and/or the Previous Work; and (ii)
"Inventions" shall mean all inventions, discoveries, improvements or other
technology that relate to the Field, whether or not patentable, and any patent
applications or patents based thereon, conceived or reduced to practice by
employees or third parties acting on behalf of Cerami Consulting, arising from
the performance of Cerami Consulting's obligations under this Agreement and/or
the Previous Work.
3.2 Confidentiality. Except to the extent necessary for the performance
of obligations hereunder or otherwise agreed in writing, during the term of this
Agreement and for a period of three years thereafter: (i) Cerami Consulting and
its affiliates shall keep completely confidential and shall not publish or
<PAGE> 6
Dr. Carla Cerami
April 1, 1998
Page 5
otherwise disclose and shall not use for any purpose any information furnished
to it or them by Alteon or its affiliates in connection with this Agreement, the
Previous Work, the Results and/or the Inventions (collectively, the "Alteon
Confidential Information"), whether or not marked or otherwise indicated to be
confidential; and (ii) Alteon and its affiliates shall keep completely
confidential and shall not publish or otherwise disclose and shall not use for
any purpose any information furnished to it or them by Cerami Consulting or its
affiliates in connection with this Agreement (the "Cerami Consulting
Confidential Information"), whether or not marked or otherwise indicated to be
confidential (the Alteon Consulting Information and the Cerami Consulting
Confidential Information collectively, "Confidential Information"); except, in
each case, to the extent that it can be established by the receiving party by
competent proof that such information: (a) is or hereafter becomes generally
available to the public other than by reason of any default with respect to a
confidentiality obligation; (b) was already known to the receiving party as
evidenced by prior written documents in the recipient's possession; (c) was
disclosed to the receiving party by a third party who was not in default of any
confidentiality obligation to the disclosing party; or (d) was developed by the
receiving party prior to the date of disclosure. In the event that a receiving
party or any of its affiliates is required to make any disclosure of the
disclosing party's Confidential Information in compliance with applicable laws
or regulations or order by a court or other regulatory body having competent
jurisdiction, the receiving party shall, except where impracticable for
necessary disclosures, for example to physicians conducting studies or to health
authorities, give reasonable advance notice to the disclosing party of such
disclosure requirement and shall use its reasonable efforts to secure
confidential treatment of such Confidential Information required to be
disclosed.
3.3 Cerami Consulting Employees. Cerami Consulting shall cause each of
its and its affiliates' employees and agents who perform Cerami Consulting's
obligations under this Agreement to execute and deliver an Invention Assignment
and Confidentiality Agreement with respect to Inventions. Such agreement shall
be in the form used by Cerami Consulting generally, provided that such form
contains substantially the same provisions as those set forth in Section 3.2.
3.4 Publication. During the term of this Agreement and for a period of
one year thereafter, in the event that Cerami Consulting or any of its
affiliates wishes to make any publication or otherwise disseminate any of the
Results or Inventions, it shall provide to Alteon copies of any abstracts,
papers or manuscripts for review and comment at least 30 days prior to the date
of submission for publication or presentation. If Alteon determines
<PAGE> 7
Dr. Carla Cerami
April 1, 1998
Page 6
that such proposed publication or presentation contains patentable subject
matter that requires protection, then Alteon may require the delay of
publication or presentation for a period not to exceed 45 days for the purpose
of filing patent applications. If Alteon identifies any Alteon Confidential
Information in such proposed publication or presentation, Cerami Consulting
shall delete such Alteon Confidential Information from same.
4. TERM; TERMINATION.
4.1 Term. The initial term (the "Initial Term") of this Agreement shall
commence as of the date hereof and, unless sooner terminated pursuant to Section
4.2, shall continue until the third anniversary of the date hereof. Following
the expiration of the Initial Term and of each extension period referred to in
this sentence, the term of this Agreement automatically shall be extended for a
period of one year thereafter, subject to termination pursuant to Section 4.2.
4.2 Termination.
(a) Either party may terminate this Agreement at any time upon
six months' prior notice to the other party.
(b) Alteon may terminate this Agreement with respect to the
Breakers Program at any time upon 30 days' prior notice to Cerami Consulting.
(c) Alteon may terminate this Agreement due to the
unavailability of Dr. Anthony Cerami due to his departure from Cerami
Consulting, death or permanent disability upon 60 days' prior notice to Cerami
Consulting.
(d) In the event that either party (the "breaching party")
fails to comply with any material obligation under this Agreement (including,
without limitation, Cerami Consulting's failure to assure the availability of
Dr. Anthony Cerami to perform and/or supervise the performance of Cerami
Consulting's obligations under this Agreement, except when Dr. Anthony Cerami's
unavailability is due to his departure from Cerami Consulting, death or
permanent disability), such failure shall be deemed a breach of a material
obligation of the breaching party and shall entitle the other party (the
"non-breaching party") to give notice to the breaching party specifying the
nature of the default and requiring the breaching party to cure such default. If
such default is not cured within 60 days after the receipt of such notice (or,
if such default cannot be cured within such 60-day period, if the breaching
party does not commence and diligently continue actions to cure such default),
the non-breaching party
<PAGE> 8
Dr. Carla Cerami
April 1, 1998
Page 7
shall be entitled, without prejudice to any of its other rights under this
Agreement and in addition to any other remedies available to it at law or in
equity, to terminate this Agreement by giving written notice to the breaching
party to take effect immediately upon delivery of such notice. The non-breaching
party's right to terminate this Agreement as provided in this Section 4.2(d)
shall not be affected in any way by its waiver or failure to take action with
respect to any previous default.
4.3 Effect of Termination.
(a) Upon any termination of this Agreement pursuant to this
Section 4, Cerami Consulting shall promptly deliver to Alteon for copying, at
Alteon's sole cost and expense, all data, reports, records and materials that
constitute or underlie the Results and Inventions in Cerami Consulting's
possession or control.
(b) In the event of termination of this Agreement by Alteon,
Alteon shall be obligated to pay for all work performed by Cerami Consulting, as
contemplated by Sections 2.1(a) and 2.1(b), up to the effective date of
termination.
(c) Sections 1.3, 3, 5.6, 5.7 and 5.8 shall survive the
termination of this Agreement.
5. MISCELLANEOUS.
5.1 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the parties. No party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.
5.2 Assignment. This Agreement may not be assigned, and the obligations
hereunder cannot be delegated, in whole or in part, by either party without the
prior written consent of the other party. This Agreement shall be binding upon
the successors and permitted assigns of the parties. Any assignment not in
accordance with this Section 5.2 shall be void.
5.3 Notices. All legal notices hereunder shall be in writing and shall
be deemed given if delivered personally or by facsimile transmission (receipt
verified), telexed, mailed by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service, to the parties
at the address at the head of this letter (in the case of Alteon) or set forth
below (in the case of Cerami Consulting) (or at such other address for a party
as shall be specified by like notice; provided, that notices
<PAGE> 9
Dr. Carla Cerami
April 1, 1998
Page 8
of a change or address shall be effective only upon receipt thereof).
5.4 Amendment. No amendment, modification or supplement of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each party.
5.5 Waiver. No provision of this Agreement shall be waived by any act,
omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by the waiving
party.
5.6 No Warranty; Maximum Liability.
(a) CERAMI CONSULTING MAKES NO REPRESENTATION OR WARRANTY WITH
RESPECT TO THE WORK PERFORMED HEREUNDER, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ALL DELIVERABLES PROVIDED
HEREUNDER ARE PROVIDED "AS IS."
(b) In no event shall the out-of-pocket liability of Cerami
Consulting under this Agreement exceed the aggregate amount of fees paid by
Alteon to Cerami Consulting during the term of this Agreement.
5.7 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New Jersey without regard to
principles of conflicts of law.
5.8 Alternative Dispute Resolution. Except with respect to breaches for
which a party is seeking injunctive relief, all disputes between the parties
relating to this Agreement or the subject matter hereof which cannot be resolved
by the parties, shall, upon written notice by one party to the other, be
submitted for settlement by means of alternative dispute resolution, which can
include moderated settlement, minitrial, use of expert advisor mediation or
non-binding arbitration, as provided in the New Jersey Alternative Procedure for
Dispute Resolution Act, N.J.S.A. 2A:23A-1 et seq. (the "Act"). All proceedings
for the alternative resolution of a dispute (an "ADR Proceeding") shall be
designed to conclude within four months of the original notice and shall be held
at a mutually agreeable location or in New York City. If the parties cannot
agree on the form of ADR Proceeding to be used, then binding arbitration, with
an independent arbitrator acceptable to both parties, shall be used. The parties
shall have 10 days after notice is received by the other party to mutually agree
on an umpire for the ADR Proceeding, who shall be selected from among the
members of J-A-M-S Endispute, located in Morristown, New Jersey. If the Parties
cannot agree on the umpire to be used within such period, J-A-M-S Endispute
shall appoint one of its members to serve
<PAGE> 10
Dr. Carla Cerami
April 1, 1998
Page 9
as umpire for the ADR Proceeding. All fees and expenses associated with the ADR
Proceeding shall be divided equally between the parties; provided that each
party shall be responsible for such party's own attorneys' fees and
disbursements. The Act shall govern the procedures and methods for any ADR
Proceeding demanded or undertaken pursuant to this Agreement. The Parties will
cooperate with each other in causing the ADR Proceeding to be held in as
efficient and expeditious a manner as practicable.
5.9 Entire Agreement of the Parties. This Agreement, together with all
of the Exhibits attached, if any, constitutes and contains the entire
understanding and agreement of the parties and cancels and supersedes any and
all prior negotiations, correspondence, understandings and agreements, whether
oral or written, between the parties with respect to the subject matter hereof.
5.10 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, either one of which need not contain the signature of more
than one party, but both such counterparts taken together shall constitute one
and the same agreement.
5.11 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
* * *
<PAGE> 11
Dr. Carla Cerami
April 1, 1998
Page 10
Please sign the enclosed copy of this letter to confirm our agreement,
which shall be effective as of the date hereof.
Sincerely,
ALTEON INC.
By: /s/ James J. Mauzey
------------------------------
Name: James J. Mauzey
----------------------------
Title: Chief Executive Officer
---------------------------
Accepted and agreed to:
CERAMI CONSULTING CORPORATION
By: /s/ Carla Cerami
--------------------------
Name: Carla Cerami
------------------------
Title: Vice President
-----------------------
Address:
765 Old Saw Mill River Road
Tarrytown, NY 10591
Attn:__________
Fax No.: (914) 345-3368
Consented and agreed to with respect to the rights and obligations of
Dr. Anthony Cerami hereunder as of the date first set forth above.
/s/ Anthony Cerami, Ph.D.
-------------------------
Anthony Cerami, Ph.D.
<PAGE> 1
EXHIBIT 10.2
Letter Agreement dated as of April 1, 1998 between Alteon Inc. and
Kenneth S. Warren Laboratories, Inc.
[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.]
<PAGE> 2
ALTEON INC.
170 WILLIAMS DRIVE
RAMSEY, NEW JERSEY 07446
April 1, 1998
Anthony Cerami, Ph.D.
Kenneth S. Warren Laboratories, Inc.
765 Old Saw Mill River Road
Tarrytown, New York 10591
Dear Tony:
Alteon Inc. ("Alteon") wishes to retain the services of the Kenneth S.
Warren Laboratories, Inc. ("Warren"), and Warren is willing to provide its
services to Alteon, in connection with the conduct of the Research Program (as
such term is defined herein), upon the terms and conditions set forth in this
letter agreement (this "Agreement"). This Agreement sets forth the terms of the
agreement between Alteon and Warren regarding research services that Warren will
provide to Alteon in connection with the Research Program.
1. RESEARCH PROGRAM.
1.1 Scope. During the term of this Agreement, Warren shall conduct such
a research program with respect to (i) advanced glycosylation endproducts, and
(ii) glucose lowering agents (predominantly the ALT-4000 series), exclusive of
those the primary focus of which is the glucose lowering activity of cytokines
(collectively, the "Field"), as the parties may agree upon in writing, from time
to time (the "Research Program").
1.2 Research Plans. As of the date of this Agreement, and as of each
January 1 thereafter during the term of the Research Program, the parties shall
prepare, in form and substance mutually acceptable to each party, a written
detailed description of the specific activities to be undertaken during the
upcoming year in connection with the Research Program (each such description, an
"Annual Research Plan"), which shall include a reasonably detailed description
of the goals and scope of such research. The Annual Research Plan through
December 31, 1998 shall be prepared within 90 days after the date of this
Agreement. After Alteon has [confidential treatment requested]
the parties shall discuss expansion of the scope of the Research
Program and of the then current Annual Research Plan. In addition, the parties
may revise any Annual Research Plan, from time to time, by mutual agreement. If
the parties fail to agree on an Annual Research Plan, (i) Alteon shall
nevertheless continue to fund the Research Program in accordance with Section
2.1, and (ii) Warren shall nevertheless continue to conduct the Research Program
<PAGE> 3
Anthony Cerami, Ph.D.
April 1, 1998
Page 2
in accordance with the goals and scope of such research as determined by Alteon,
provided that such goals and scope shall be within the scope of the level of
funding to be provided by Alteon and within the scope of the Research Program
conducted to date (or, with respect to the first year of the Research Program,
within the scope of the Research Program agreed upon in writing by the parties
prior to the execution of this Agreement).
1.3 Conduct of Research Program. During the term of the Research
Program, so long as Alteon is providing funding pursuant to Section 2.1, Warren
shall:
(a) Undertake the Research Program, as set forth in the
applicable Annual Research Plan, and such other activities which, from time to
time, the parties agree are necessary for the commercial success of the Research
Program;
(b) Use all reasonable efforts to perform the work set out for
Warren to perform in the applicable Annual Research Plan, using personnel with
sufficient skills and experience, together with sufficient equipment and
facilities, to carry out its obligations under the Research Program and to
accomplish the objectives of the Research Program;
(c) Conduct the Research Program in good scientific manner,
and in compliance in all material respects with all requirements of applicable
laws, rules and regulations, and all other requirements of applicable current
good laboratory practices to attempt to achieve the objectives of the Research
Program efficiently and expeditiously;
(d) Maintain all government and third party licenses, permits
and approvals necessary for Warren's achievement of the objectives of the
Research Program;
(e) Furnish Alteon with fully-detailed, written reports on all
activities under the Research Program during each six-month period during the
term of the Research Program or the term of the Research Program, as the case
may be, including all relevant information related to the Results and Inventions
(as such terms are defined herein) thereunder. Warren shall furnish such reports
within 30 days after the end of each six-month period during the term of the
Research Program and within 30 days after the expiration or termination of the
Research Program;
(f) Promptly provide an invention disclosure report to Alteon
with respect to any Invention (as such term is defined herein); and
<PAGE> 4
Anthony Cerami, Ph.D.
April 1, 1998
Page 3
(g) Allow representatives of Alteon, upon reasonable notice,
during normal business hours and for periods of reasonable duration, to (i)
visit the facilities where the Research Program is being conducted by Warren,
and (ii) consult informally, during such visits and by telephone, with Warren
personnel performing work on the Research Program.
Alteon acknowledges that during the term of this Agreement, Warren will continue
to undertake research activities for the benefit of third parties; provided,
however, that during the term of this Agreement, Warren shall not undertake any
activities in the Field in cooperation with, or for the benefit of, any third
party. Subject to the foregoing, Warren will use its reasonable efforts to
allocate its personnel and other resources among Alteon and such third parties
in a fair and equitable manner, consistent with the relative size, scope and
importance of such respective activities to Alteon and each of such third
parties, as determined by Warren in its reasonable discretion.
1.4 Availability of Dr. Cerami and Dr. Ulrich. During the term of this
Agreement, Warren will make each of Dr. Anthony Cerami and Dr. Peter Ulrich
available, for such periods of time as are reasonably necessary, to perform
and/or supervise the performance of Warren's obligations under this Agreement.
By executing this Agreement where indicated below, each of Dr. Cerami and Dr.
Ulrich confirms that his provision of such services will not conflict with any
agreements he now has, or may have during the term of this Agreement, with any
third party.
1.5 Records. Warren shall maintain records, in sufficient detail and in
good scientific manner, which shall be complete and accurate and shall fully and
properly reflect all work done under this Agreement and the Results (as such
term is defined herein), including all data in the form required under all
applicable laws and regulations. Alteon shall have the right, during normal
business hours and upon reasonable notice, to inspect and copy all such records
of Warren. All such records shall constitute Confidential Information (as such
term is defined herein) of Alteon.
1.6 Term of Research Program. The initial term (the "Initial Term") of
the Research Program shall commence as of the date of this Agreement and shall
continue for a period of three years, unless sooner terminated pursuant to the
terms of this Agreement. Following the expiration of the Initial Term and of
each extension period referred to in this sentence, the term of this Agreement
automatically shall be extended for a period of one year thereafter, subject to
termination pursuant to the terms of this Agreement.
<PAGE> 5
Anthony Cerami, Ph.D.
April 1, 1998
Page 4
2. FUNDING; ADDITIONAL CONSIDERATION.
2.1 Budget; Payment. Alteon shall provide funding to Warren for the
conduct of the Research Program in an amount determined each calendar year or,
in connection with the commencement or expiration of the term of the Research
Program, the relevant portion of each calendar year (each such amount, an
"Annual Budget") in conjunction with the formulation of the Annual Research Plan
for such year or portion of a year, up to a maximum amount of $400,000 per
calendar year (pro rated for any portion of a year during the term of this
Agreement). After Alteon has [confidential treatment requested]
such maximum amount will be $750,000 (pro rated for any portion of a
year during the term of this Agreement). An Annual Budget may be modified from
time to time, upon the parties' agreement, and shall be modified, as
appropriate, in connection with any modification of an Annual Research Plan.
Alteon shall reimburse Warren, in an amount not to exceed the applicable Annual
Budget, for all costs and expenses actually incurred by Warren in connection
with performance of its obligations under this Agreement in the following
manner:
(a) Not later than the first day of each calendar quarter
during the period covered by an Annual Budget, Alteon shall pay Warren, in
advance, one-quarter of the total amount of such Annual Budget.
(b) Within 90 days after the end of the period covered by each
Annual Budget, Warren shall provide Alteon with an accounting (an "Annual
Accounting") of costs and expenses incurred by it Warren connection with the
performance of its obligations under this Agreement during such period.
(c) In the event an Annual Accounting indicates that the costs
and expenses incurred by Warren were less than the total amount of the
applicable Annual Budget paid by Alteon, then (i) if the Research Program has
not then terminated, Alteon shall be entitled to a credit against payments due
under Section 2.1(a) during the year in which such Annual Accounting is
delivered (and during succeeding years, if necessary) in the amount of such
difference; or (ii) if the Research Program has then terminated, Warren shall
pay Alteon the amount of such difference at the time the Annual Accounting is
delivered.
Warren shall not incur expenses in excess of the applicable Annual Budget,
except to the extent that Alteon has approved such excess expenses. Alteon shall
reimburse Warren for all such expenses incurred by Warren that have been so
approved. Except as provided
<PAGE> 6
Anthony Cerami, Ph.D.
April 1, 1998
Page 5
in the two preceding sentences, in no event shall Warren be required to incur
expenses in excess of the applicable Annual Budget.
2.2 Recordkeeping; Audit. During the term of this Agreement and for a
period of three years thereafter, Warren shall keep complete and accurate
records pertaining to all costs and expenses incurred by it in connection with
the performance of its obligations under this Agreement. At the request and
expense of Alteon, Warren shall permit Alteon or an independent certified public
accountant appointed by Alteon, at reasonable times and upon reasonable notice,
to examine such records in order to determine the correctness of all amounts
paid by Alteon pursuant to Section 2.1(a). If, as a result of any such
inspection of records, it is shown that the amounts paid by Alteon were greater
than the amounts that should have been paid, then Warren shall pay to Alteon the
amount necessary to eliminate any such discrepancy within 30 days after Alteon's
demand therefor. If, as a result of any such inspection of records, it is shown
that the amounts paid by Alteon were less than the amounts that should have been
paid, then Alteon shall pay to Warren the amount necessary to eliminate any such
discrepancy within 30 days after Warren's demand therefor.
2.3 Grant of Options.
(a) In partial consideration of the services that Warren
renders pursuant to this Agreement, Alteon will grant Warren options to purchase
up to 500,000 shares of Common Stock of Alteon ("Common Stock") as provided in
this Section 2.3.
(b) Subject to Section 2.3(c), Alteon will grant Warren an
option to purchase [confidential treatment requested] shares of Common Stock, at
an exercise price of $8.75 per share, upon
[confidential treatment requested]
<PAGE> 7
Anthony Cerami, Ph.D.
April 1, 1998
Page 6
(c) Upon a change in control of Alteon, as set forth on
Exhibit A attached, Alteon will grant Warren an option to purchase, at an
exercise price of $8.75 per share, that number of shares of Common Stock equal
to the difference obtained by subtracting from 500,000 the aggregate number of
shares of Common Stock underlying options previously granted by Alteon pursuant
to Section 2.3(b). The options granted pursuant to this Section 2.3(c) shall be
fully vested and exercisable upon the issuance thereof. Following any grant of
options pursuant to this Section 2.3(c), no additional options shall be granted
pursuant to Section 2.3(b).
(d) The granting of options pursuant to this Section 2.3 and
Section 4.3 will be evidenced by Alteon's issuance of stock option agreements
with substantially similar provisions to those contained in stock option
agreements issued by Alteon to evidence options issued pursuant to Alteon's 1995
Stock Option Plan, except that the options issued under this Agreement shall not
be issued under such Plan. The granting of such options shall survive the
expiration or earlier termination of this Agreement.
3. MATERIAL TRANSFER.
3.1 Material Transfer. In order to facilitate the Research Program,
each party (the "transferring party") may provide to the other party (the
"receiving party") certain biological materials or chemical compounds
(collectively, "Substances") owned by or licensed to the transferring party for
use by the receiving party in furtherance of the Research Program. All
Substances delivered to the receiving party (i) shall remain the sole property
of the transferring party, (ii) shall be used only in furtherance of the
Research Program and solely under the control of the receiving party, (iii)
shall not be used by or for the benefit of, or delivered to, any third party
without the prior written consent of the transferring party, and (iv) shall not
be used in research or testing involving human subjects. The Substances supplied
under this Section 3 must be used with prudence and appropriate caution in any
experimental work. THE SUBSTANCES PROVIDED, IF ANY, ARE PROVIDED "AS IS" AND
WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE. Each party acknowledge that the receiving party will be using the
Substances only for research and development purposes as contemplated by this
Agreement and not for any commercial purposes.
<PAGE> 8
Anthony Cerami, Ph.D.
April 1, 1998
Page 7
4. RESULTS AND INVENTIONS.
4.1 Ownership; Patents.
(a) "Results" shall mean all data, information and other
results arising from the Research Program. "Inventions" shall mean all
inventions, discoveries, improvements or other technology that relate to the
Field, whether or not patentable, and any patent applications or patents based
thereon, conceived or reduced to practice by employees or third parties acting
on behalf of Warren, arising from the Research Program. Notwithstanding any
other provision of this Agreement, all Results and Inventions shall be owned
solely by Alteon.
(b) Alteon shall be responsible for the filing, prosecution
and maintenance of all patent applications and patents that relate to
Inventions, through patent counsel chosen at its sole discretion and at Alteon's
sole cost and expense, in accordance with any applicable determinations made
under Section 4.2.
4.2 Patent Committee.
(a) Within 90 days after the date of this Agreement, each of
the parties shall appoint three individuals who will serve on a committee (the
"Patent Committee") that will be responsible for determining whether Alteon will
seek and maintain patent protection with respect to any Invention (any Invention
as to which the Patent Committee determines protection is to be sought, a
"Selected Invention"), and if so, whether such protection should be sought by
means of an application for Original Letters Patent or as a substitution,
extension, renewal, continuation, continuation-in-part, division,
patent-of-addition and/or reissue of any previously issued letters patent or any
previously filed patent application, as the case may be (and, in connection with
any such determination, whether stock options should be issued pursuant to
Section 2.3(b)). The criterion on which the Patent Committee will base
determinations as to whether to seek patent protection with respect to an
Invention will be the material commercial benefit to Alteon of any such
Invention. Any determination of the Patent Committee as to whether to seek such
protection by means of an application for Original Letters Patent or otherwise
shall be consistent with, and subject to, the overall patent strategy formulated
for Alteon by its patent counsel, as may be amended from time to time. All of
the Patent Committee representatives appointed by one party shall have one vote,
collectively. Each party may replace its representatives on the Patent Committee
from time to time upon notice to the other party. A quorum for purposes of
meetings of the Patent Committee shall require the presence of at least two
Alteon members and two Warren members.
<PAGE> 9
Anthony Cerami, Ph.D.
April 1, 1998
Page 8
(b) In the event the Patent Committee cannot resolve any issue
as result of deadlock, the members of the Patent Committee shall refer such
issue to an umpire, selected by the Patent Committee, who has an adequate
background in science and business to permit such umpire to resolve such issue.
In the event the Patent Committee becomes deadlocked when selecting an umpire,
each party shall designate one selector, and the two selectors shall select the
umpire. The decision of any such umpire shall be final and binding upon, and
unappealable by, the parties. The parties shall share equally all costs and
expenses of any such umpire. For the purpose of this Section 4.2(b), "deadlock"
will mean (i) with respect to any matter considered and voted upon by the Patent
Committee, that one Party votes in favor of such matter and the other Party does
not vote in favor of such matter, or (ii) a quorum cannot be established for the
Patent Committee to vote on a matter.
4.3 Abandonment by Alteon.
(a) If Alteon fails to commence (within 180 days after an
affirmative determination under Section 4.2), or abandons, prosecution of a
patent application(s) or maintenance of a patent(s) with respect to a Selected
Invention (an "Abandonment"), Alteon shall notify Warren of same. Thereafter,
Warren shall be entitled to give Alteon a notice demanding that Alteon commence
or re-commence, as the case may be, such prosecution (a "Demand Notice").
Following receipt of a Demand Notice, Alteon shall either:
(i) Refer the Abandonment to the Patent Committee, by
written notice given within 90 days after delivery of such Demand Notice.
Promptly after any such referral, the Patent Committee shall make a further
determination, in accordance with Section 4.2, as to whether Alteon should
continue to seek and maintain patent protection with respect to such Selected
Invention. If the Patent Committee or the umpire, as the case may be, determines
that Alteon should not continue to seek and maintain such patent protection,
then Alteon shall have no further obligation to do so. If the Patent Committee
or the umpire, as the case may be, determines that Alteon should continue to
seek and maintain such patent protection, Alteon shall commence or recommence,
and shall diligently continue, seeking and maintaining such protection within 90
days after the date of such determination;
(ii) Commence or re-commence, and diligently
continue, seeking and maintaining such protection within 90 days after delivery
of such Demand Notice; or
(iii) Issue to Warren, within 90 days after delivery
of such Demand Notice, an option to purchase [confidential
<PAGE> 10
Anthony Cerami, Ph.D.
April 1, 1998
Page 9
treatment requested] shares of Common Stock, at an exercise price of $8.75 per
share. Following the issuance of such an option, Alteon shall have no further
obligation to seek and maintain such patent protection.
(b) In the event that Alteon breaches any obligation under
this Section 4.3, it shall issue to Warren, as Warren's sole and exclusive
remedy for such breach, an option to purchase [confidential treatment requested]
shares of Common Stock, at an exercise price of $8.75 per share; provided,
however, that Alteon shall not issue pursuant to this Section 4.3 options to
purchase more than [confidential treatment requested] shares of Common Stock
with respect to any one Selected Invention; and provided, further, that
following the issuance of such an option with respect to a Selected Invention,
Alteon shall have no further obligation to seek and maintain patent protection
with respect to such Selected Invention.
5. CONFIDENTIALITY; PUBLICATION.
5.1 Definition. For purposes of this Agreement, "Confidential
Information" of one party shall mean any information furnished to the other
party or its affiliates by the disclosing party or its affiliates in connection
with this Agreement; provided, however, that the Results and Inventions shall
constitute Confidential Information of Alteon and shall not constitute
Confidential Information of Warren.
5.2 Confidentiality Obligations. Except to the extent necessary for the
performance of obligations hereunder or otherwise agreed in writing, the parties
agree that, during the conduct of the Research Program and completion of all
reports relating thereto, and for three years thereafter, the receiving party
and its affiliates shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose the Confidential
Information of the other party, except to the extent that it can be established
by the receiving party by competent proof that such information: (a) is or
hereafter becomes generally available to the public other than by reason of any
default with respect to a confidentiality obligation; (b) was already known to
the recipient as evidenced by prior written documents in its possession; or (c)
is disclosed to the recipient by a third party who is not in default of any
confidentiality obligation to the disclosing party. If any party is required to
make any disclosure of the other party's Confidential Information in compliance
with applicable laws or regulations or order by a court or other regulatory body
having competent jurisdiction, it shall, except where impracticable for
necessary disclosures, for example to physicians conducting studies or to health
authorities, give reasonable advance notice to the other party of such
disclosure
<PAGE> 11
Anthony Cerami, Ph.D.
April 1, 1998
Page 10
requirement and, except to the extent inappropriate in the case of patent
applications, shall use its best efforts to secure confidential treatment of
such Confidential Information required to be disclosed.
5.3 Warren Employees. Warren shall cause each of its and its
affiliates' employees and agents who perform services pursuant to this Agreement
to execute and deliver an Invention Assignment and Confidentiality Agreement
with respect to Inventions. Such agreement shall be in used by Warren generally,
provided that such form contains substantially the same provisions as those set
forth in Section 5.2.
5.4 Publication. During the term of this Agreement and for a period of
one year thereafter, in the event that Warren or any of its affiliates wishes to
make any publication or otherwise disseminate any of the Results or Inventions,
it shall provide copies of any abstracts, papers or manuscripts to Alteon for
review and comment at least 30 days prior to the date of submission for
publication or presentation. If Alteon determines that such proposed publication
or presentation contains patentable subject matter that requires protection,
then Alteon may require the delay of publication or presentation for a period
not to exceed 45 days for the purpose of filing patent applications. If Alteon
identifies Confidential Information of Alteon in such proposed publication or
presentation, Warren shall delete such Confidential Information from same.
6. INDEMNIFICATION; INSURANCE.
6.1 Indemnification by Alteon. Alteon will indemnify, defend and hold
harmless Warren and its directors, officers, agents and employees, from and
against any third party demands, suits, claims, actions or proceedings that may
be brought or instituted, and all judgments, damages, liabilities, costs and
expenses (including the fees of attorneys and other professionals) resulting
therefrom (any of the foregoing, a "Claim"), arising out of:
(a) Alteon's use of the Results, Inventions or any other data
or information arising under the Research Program; or
(b) property damage, personal injury or death arising out of
or in connection with Warren's use of any Substance as contemplated by this
Agreement in accordance with Alteon's instructions.
Notwithstanding the foregoing, Alteon will not be required to provide
indemnification under this Section 6.1 to the extent that
<PAGE> 12
Anthony Cerami, Ph.D.
April 1, 1998
Page 11
any Claim is covered by an obligation of Warren to provide indemnification under
Section 6.2.
6.2 Indemnification by Warren. Warren will indemnify, defend and hold
harmless Alteon and its directors, officers, agents and employees, from and
against any Claim, arising out of:
(a) the failure by Warren or any Warren personnel (including
employees, agents or independent contractors) involved in the Research Program
to adhere materially to the terms of the applicable Annual Research Plan(s) or
Alteon's instructions;
(b) any grossly negligent or wrongful act or omission, or
willful malfeasance, of Warren or any Warren personnel (including employees,
agents or independent contractors) involved in the Research Program; or
(c) property damage, personal injury or death arising out of
or in connection with Alteon's use of any Substance as contemplated by this
Agreement in accordance with Warren's instructions.
6.3 Conditions Upon Obligations to Indemnify.
(a) Indemnification pursuant to Section 6.1 or 6.2 is subject
to the following conditions, to the extent that failure to satisfy such
conditions would have a material adverse effect upon the indemnifying party (the
"Indemnitor"):
(i) The party entitled to indemnification under
such Section (the "Indemnitee") shall have adhered to the terms and conditions
of the Research Program and any agreed upon amendments thereto;
(ii) The Indemnitee shall have complied with any U.S.
Food and Drug Administration or other governmental requirements, laws, rules or
regulations applicable to the Research Program; and
(iii) The Indemnitee shall not have committed any
negligent act or omission or willful misconduct related to the performance of
the Research Program.
(b) In addition, indemnification pursuant to Section 6.1 or
6.2 is subject to the following conditions:
(i) The Indemnitee shall immediately notify the
Indemnitor of any Claim made against the Indemnitee, and shall provide all
pertinent data surrounding such Claim;
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Anthony Cerami, Ph.D.
April 1, 1998
Page 12
(ii) The Indemnitee shall assist the Indemnitor and
fully cooperate in the gathering of information with respect to the time, place
and circumstances related to the Claim, and in obtaining the names and addresses
of the injured parties and available witnesses; and
(iii) The Indemnitee shall fully cooperate with the
Indemnitor and authorize the Indemnitor to carry out sole management and defense
of any Claim or action covered by this Agreement (including, without limitation,
the right to settle such Claim at the Indemnitor's sole discretion, except to
the extent that such settlement would have an adverse effect upon the rights or
property of the Indemnitee), and the Indemnitee shall not compromise or settle
any such Claim or action without the Indemnitor's prior written approval.
6.4 Insurance. Warren shall maintain in full force and effect through
the term of the Research Program (and following any termination of the Research
Program, to cover any Claims arising therefrom) insurance coverage for: (i)
general liability; and (ii) worker's compensation, each such coverage in amounts
as required by applicable law(s) and appropriate to the conduct of Warren's
business activities, the services contemplated by the Research Program and
Warren's indemnification obligations under this Section 6. Warren shall cause
Alteon to be added as an additional insured on any policy obtained pursuant to
this Section 6.4. Upon the request of Alteon, copies of certificates of
insurance will be made available to Alteon and shall provide for 30 days' prior
written notice to Alteon in the event of cancellation or any material change in
such coverage.
7. TERMINATION.
7.1 By Either Party. Either party may terminate this Agreement at any
time upon six months' prior notice to the other party.
7.2 By Alteon. Alteon may terminate this Agreement due to the
unavailability of either of Dr. Cerami or Dr. Ulrich due to his departure from
Warren, death or permanent disability upon 60 days' prior notice to Warren.
7.3 With Cause. In the event that either party (the "breaching party")
fails to comply with any material obligation under this Agreement (including,
without limitation, Warren's failure to use reasonable efforts to proceed with
the Research Program, and Warren's failure to assure the availability of each of
Dr. Cerami or Dr. Ulrich to perform and/or supervise the performance of Warren's
obligations under this Agreement, except
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Anthony Cerami, Ph.D.
April 1, 1998
Page 13
when his unavailability is due to his departure from Warren, death or permanent
disability), such failure shall be deemed a breach of a material obligation of
the breaching party and shall entitle the other party (the "non-breaching
party") to give notice to the breaching party specifying the nature of the
default and requiring the breaching party to cure such default. If such default
is not cured within 60 days after the receipt of such notice (or, if such
default cannot be cured within such 60-day period, if the breaching party does
not commence and diligently continue actions to cure such default), the
non-breaching party shall be entitled, without prejudice to any of its other
rights under this Agreement and in addition to any other remedies available to
it at law or in equity, to terminate this Agreement by giving written notice to
the breaching party to take effect immediately upon delivery of such notice. The
non-breaching party's right to terminate this Agreement as provided in this
Section 7.3 shall not be affected in any way by its waiver or failure to take
action with respect to any previous default.
7.4 Effect of Termination.
(a) Upon any termination of this Agreement pursuant to Section
1.6 or this Section 7, Warren shall (i) promptly deliver to Alteon (A) for
copying, at Alteon's sole cost and expense, all data, reports, records and
materials in Warren's possession or control which relate to the Research
Program, and (B) the Results and the Inventions; and (ii) furnish to Alteon all
unused Substances delivered pursuant to Section 3.
(b) In the event of termination by Alteon other than pursuant
to Section 7.3, Alteon shall be obligated to pay for all work performed by
Warren, as contemplated by Sections 2.1(a) and 2.1(b), up to the effective date
of termination and for reasonable costs associated with termination of the
Research Program, such as non-cancelable third party costs associated with the
Research Program that are the responsibility of Warren under the Annual Budgets.
Warren shall use its best efforts to terminate all obligations relating to the
Research Program, as soon as possible, to avoid incurring additional expenses.
In the event of termination by Alteon pursuant to Section 7.3, Alteon shall be
obligated to pay only for all work performed by Warren, as contemplated by
Sections 2.1(a) and 2.1(b), up to the effective date of termination.
(c) Sections 1.3(e), 1.3(f) (with respect to disclosures that
should have been made at the time of termination of this Agreement), 1.5, 2.2,
2.3(b), 3.1, 4, 5, 6, 8.6, 8.7 and 8.8 shall survive the termination of this
Agreement.
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Anthony Cerami, Ph.D.
April 1, 1998
Page 14
8. MISCELLANEOUS.
8.1 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the parties. No party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.
8.2 Assignment. This Agreement may not be assigned, and the obligations
hereunder cannot be delegated, in whole or in part, by Warren without the prior
written consent of Alteon. This Agreement shall be binding upon the successors
and permitted assigns of the parties. Any assignment not in accordance with this
Section 8.2 shall be void.
8.3 Notices. All legal notices hereunder shall be in writing and shall
be deemed given if delivered personally or by facsimile transmission (receipt
verified), telexed, mailed by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service, to the parties
at the address at the head of this letter (in the case of Alteon) or set forth
below (in the case of Warren) (or at such other address for a party as shall be
specified by like notice; provided, that notices of a change or address shall be
effective only upon receipt thereof).
8.4 Amendment. No amendment, modification or supplement of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each party.
8.5 Waiver. No provision of this Agreement shall be waived by any act,
omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by the waiving
party.
8.6 No Warranty; Maximum Liability.
(a) WARREN MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO
THE WORK PERFORMED HEREUNDER, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. ALL DELIVERABLES PROVIDED HEREUNDER ARE
PROVIDED "AS IS."
(b) In no event shall the out-of-pocket liability of Warren
under this Agreement exceed the aggregate amount of fees paid by Alteon to
Warren during the term of this Agreement.
8.7 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New Jersey without regard to
principles of conflicts of law.
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Anthony Cerami, Ph.D.
April 1, 1998
Page 15
8.8 Alternative Dispute Resolution. Except with respect to breaches for
which a party is seeking injunctive relief and with respect to issues on which
the Patent Committee is deadlocked (which shall be resolved as provided in
Section 4.2(b)), all disputes between the parties relating to this Agreement or
the subject matter hereof which cannot be resolved by the parties, shall, upon
written notice by one party to the other, be submitted for settlement by means
of alternative dispute resolution, which can include moderated settlement,
minitrial, use of expert advisor mediation or non-binding arbitration, as
provided in the New Jersey Alternative Procedure for Dispute Resolution Act,
N.J.S.A. 2A:23A-1 et seq. (the "Act"). All proceedings for the alternative
resolution of a dispute (an "ADR Proceeding") shall be designed to conclude
within four months of the original notice and shall be held at a mutually
agreeable location or in New York City. If the parties cannot agree on the form
of ADR Proceeding to be used, then binding arbitration, with an independent
arbitrator acceptable to both parties, shall be used. The parties shall have 10
days after notice is received by the other party to mutually agree on an umpire
for the ADR Proceeding, who shall be selected from among the members of J-A-M-S
Endispute, located in Morristown, New Jersey. If the Parties cannot agree on the
umpire to be used within such period, J-A-M-S Endispute shall appoint one of its
members to serve as umpire for the ADR Proceeding. All fees and expenses
associated with the ADR Proceeding shall be divided equally between the parties;
provided that each party shall be responsible for such party's own attorneys'
fees and disbursements. The Act shall govern the procedures and methods for any
ADR Proceeding demanded or undertaken pursuant to this Agreement. The Parties
will cooperate with each other in causing the ADR Proceeding to be held in as
efficient and expeditious a manner as practicable.
8.9 Entire Agreement of the Parties. This Agreement, together with all
of the Exhibits attached, constitutes and contains the entire understanding and
agreement of the parties and cancels and supersedes any and all prior
negotiations, correspondence, understandings and agreements, whether oral or
written, between the parties with respect to the subject matter hereof.
8.10 Counterparts. This Agreement may be executed simultaneously in two
counterparts, either one of which need not contain the signature of more than
one party, but both such counterparts taken together shall constitute one and
the same agreement.
<PAGE> 17
Anthony Cerami, Ph.D.
April 1, 1998
Page 16
8.11 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
* * *
<PAGE> 18
Anthony Cerami, Ph.D.
April 1, 1998
Page 17
Please sign the enclosed copy of this letter to confirm our agreement,
which shall be effective as of the date hereof.
Sincerely,
ALTEON INC.
By: /s/ James J. Mauzey
--------------------------
Name: James J. Mauzey
------------------------
Title: Chief Executive Officer
-----------------------
Accepted and agreed to:
KENNETH S. WARREN LABORATORIES,
INC.
By: /s/ Anthony Cerami, Ph.D.
--------------------------
Name: Anthony Cerami, Ph.D.
Title: Director
Address:
765 Old Saw Mill River Road
Tarrytown, NY 10591
Attn: Anthony Cerami, Ph.D.
Fax No.: (___) ___-____
Consented and agreed to with respect to the rights and obligations of
Dr. Anthony Cerami hereunder as of the date first set forth above.
/s/ Anthony Cerami, Ph.D.
-------------------------
Anthony Cerami, Ph.D.
Consented and agreed to with respect to the rights and obligations of
Dr. Peter Ulrich hereunder as of the date first set forth above.
/s/ Peter Ulrich
-------------------------
Peter Ulrich, Ph.D.
<PAGE> 19
EXHIBIT A
DEFINITION OF CHANGE IN CONTROL
For purposes of Section 2.3(c), a change in control of Alteon shall be
deemed to occur if:
(1) Alteon is merged with or into or consolidated with another
corporation or other entity under circumstances where the stockholders of Alteon
immediately prior to such merger or consolidation do not own after such merger
or consolidation shares representing at least 50% of the voting power of Alteon
or the surviving or resulting corporation or other entity, as the case may be;
(2) Alteon is liquidated or sells or otherwise disposes of
substantially all of its assets to another corporation or entity;
(3) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended) shall become the
beneficial owner (within the meaning of Rule 13d-3 under such Act) of 40% or
more of the Common Stock other than pursuant to a plan or arrangement entered
into by such person and Alteon or otherwise approved by the Board of Directors
of Alteon;
(4) during any period of two consecutive years, individuals
who at the beginning of such period constitute the entire Board of Directors of
Alteon shall cease for any reason to constitute a majority of the Board unless
the election or nomination for election by Alteon's stockholders of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period.
<PAGE> 1
EXHIBIT 10.4
June 22, 1998
Mr. Terry J. Shelton
Vice President
Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
Post Office Box 9627
Kansas City, MO 64134-0627
RE: JOINT DEVELOPMENT, MARKETING AND LICENSE AGREEMENT (THE "JOINT
DEVELOPMENT AGREEMENT") AND MANUFACTURE AND SUPPLY AGREEMENT,
EACH DATED AS OF DECEMBER 11, 1990, AS AMENDED, AND EXPANDED
TERRITORY LICENSING AGREEMENT, DATED AS OF DECEMBER 11, 1991,
AS AMENDED, BETWEEN HOECHST MARION ROUSSEL, INC. ("HMR") AND
ALTEON INC. ("ALTEON") (COLLECTIVELY, THE "AGREEMENTS")
Dear Terry:
Further to our discussions over the past several months, this letter serves as
Alteon's proposal concerning concluding or clarifying certain outstanding issues
related to the above referenced Agreements. Capitalized terms used in this
letter and not defined herein shall have the meanings assigned to such terms in
the Joint Development Agreement. This letter, once accepted by HMR, shall serve
as an amendment to the Agreements, designed to survive their termination.
In connection with the close-out of our Joint Development Program, HMR has
transferred to Alteon:
a) all INDs filed in connection with the Joint Development
Program for Pimagedine and all corresponding submissions to
regulatory authorities in other countries;
b) HMR's rights and obligations under certain agreements with
clinical investigators and other parties in connection with
the Clinical Programs (the "Clinical Trial Agreements");
<PAGE> 2
MR. TERRY SHELTON
JUNE 22, 1998 PAGE 2
c) copies of all material data, results, records and other
information and materials in HMR's possession or control with
respect to the Joint Development Program for Pimagedine; and
d) additional clinical supplies of Pimagedine to allow Alteon to
complete certain clinical trials.
HMR will promptly, at HMR's expense, complete transfer of certain additional
data to Alteon which the parties have previously identified, including:
a) certain CRF forms, drug accountability records and lab data
which has not yet been delivered in connection with the
European microalbuminuria trial, and
b) certain raw data relating to the stability program and
analytical formulation for Pimagedine.
HMR also agrees promptly, at HMR's expense, to transfer exclusive ownership to
Alteon of the United States patent issued to HMR on July 9, 1996, concerning the
spray drying of Pimagedine for tableting. The assignment of the patent will also
include all rights HMR may have, if any, to extensions or future extension
mechanisms, including Supplementary Protection Certificates or the equivalent
thereof, renewals, continuations, continuations-in-part, divisions, patents of
additions, and/or reissues thereof and all foreign counterparts related thereto,
and the non-exclusive right to use the Know-How related thereto. As to any
period of time prior to the completion of the foregoing patent assignment, the
parties agree that Alteon had and has a perpetual exclusive royalty free license
under the patent, including the right to sublicense, to make or have made
Materials and to use and sell Products throughout the world.
In the future, upon reasonable request by Alteon, and to the extent HMR's then
current employees have knowledge regarding the prior Joint Development Program,
HMR agrees to provide support to Alteon, at Alteon's expense, with respect to
providing information to the FDA or other regulatory authorities relating to the
prior Joint Development Program. This support would include, as an example,
assisting Alteon to address inquiries (or anticipated inquiries) in connection
with Alteon's planned NDA submission for Pimagedine as such may be related to
data or information which remains in HMR's possession. HMR will also forward to
Alteon all correspondence, notices and other communications or materials
relating to the prior Joint Development Program for Pimagedine or the Clinical
Programs that it may receive from others from time to time.
<PAGE> 3
MR. TERRY SHELTON
JUNE 22, 1998 PAGE 3
While HMR and Alteon each believe, in good faith, that HMR has effected transfer
to Alteon of all material information, government filings and Inventions created
under their prior Joint Development Program except as to those matters
specifically set forth above (which HMR shall proceed to do), the parties also
agree that should it later come to their attention that additional material
information, government filings or Inventions remain in HMR's name or possession
which were the product of the Joint Development Program and would otherwise
properly belong to Alteon pursuant to the Agreements, then HMR agrees promptly
to transfer such information, filing or Invention to Alteon.
In connection with the close-out of our Joint Development Program, Alteon and
HMR have had certain good faith disagreements concerning:
a) whether Alteon owes HMR money for certain prepaid costs in
connection with assumption of the Clinical Trial Agreements by
Alteon and for certain other transfer services provided by
HMR;
b) whether HMR owes Alteon money for certain costs incurred by
Alteon in connection with data re-entry and clinical site
monitoring visits.
The claims for amounts due from Alteon are set forth in letters dated October
31, 1996, and October 20, 1996, from HMR to Alteon; the claims for amounts due
from HMR are set forth in letters dated May 27, 1997, and September 23, 1997,
from Alteon to HMR. Alteon and HMR now agree that each party shall assume
responsibility for all close-out costs or expenses which it has paid or incurred
to date which have not already been reimbursed by the other, and each party
waives any right it may have to seek additional payment or credit from the other
on account of any claims or amounts arising out of or related to the Agreements,
except for claims arising out of or related to the provisions of this letter or
those provisions of the Agreements intended to survive termination of the
Agreements.
HMR and Alteon agree that each of the Agreements was terminated, in its
entirety, effective as of August 10, 1996. Except as set forth in this letter,
all rights and obligations of the Parties under the Agreements shall be deemed
to have terminated as of August 10, 1996, except to the extent the Agreements
expressly provide that such rights and obligations shall survive such
termination.
HMR and Alteon agree that their respective confidentiality obligations which
otherwise survive termination of the Agreements shall extend for a period of
five (5) years from the date of this letter, except that neither party shall be
under any further obligation to maintain its own proprietary information in
confidence for the benefit of the other.
<PAGE> 4
MR. TERRY SHELTON
JUNE 22, 1998 PAGE 4
HMR and Alteon agree to cooperate with each other, and to execute all documents
and undertake all other reasonable actions requested by the other, in order to
effect the provisions of this letter.
Please sign and return the enclosed copy to confirm HMR's agreement with the
terms of this letter.
Sincerely,
ALTEON INC.
By: /s/ James J. Mauzey
---------------------------
James J. Mauzey
Chairman and
Chief Executive Officer
Accepted and Agreed this 30th day of
June, 1998
HOECHST MARION ROUSSEL, INC.
By: /s/ Terry J. Shelton
-----------------------------
Terry J. Shelton
Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
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ALTEON'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 AND
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