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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File No. 0-19529
ALTEON INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3304550
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
170 Williams Drive, Ramsey, New Jersey 07446
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(Address of principal executive offices) (zip code)
(201) 934-5000
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(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: $101,690,814 at March 25, 1998 based on
the last sales price on that date.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 25, 1998:
Class Number of Shares
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Common Stock, $.01 par value 17,974,125
Documents incorporated by reference
The Proxy Statement to be filed with respect to the Annual Meeting of
Stockholders to be held on June 3, 1998 is incorporated by reference into
Part III.
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ITEM 1. BUSINESS.
OVERVIEW
Alteon is engaged in the discovery and development of pharmaceutical
products for the treatment of the complications of diabetes and age-related
diseases. The Company's efforts have focused primarily on developing its lead
first-in-class compound, pimagedine, as an agent to inhibit or block abnormal
glucose/protein complexes, known as Advanced Glycosylation End-products
("A.G.E.s"), that lead to diabetic complications such as kidney disease and
retinopathy.
A.G.E.s accumulate throughout the body at a rate dependent on glucose
levels. This accumulation and the subsequent cross-linking of A.G.E.s to other
proteins results in a progressive loss of function of certain organs, blood
vessels and nerves. High levels of A.G.E.s are found in persons with diabetes,
a disease characterized by elevated glucose levels. The Company is also
utilizing its technical expertise in the field of diabetes to develop compounds
focused on glucose regulation and control.
The Company is currently conducting two pivotal clinical trials evaluating
pimagedine as a treatment for diabetic kidney disease: one Phase III clinical
trial for overt nephropathy and one Phase III trial for end-stage renal
disease. The status of Alteon=s clinical development programs for pimagedine
in diabetic complications is as follows:
Overt Nephropathy. The Company is testing the safety and efficacy of oral
pimagedine in a Phase III clinical trial, called the ACTION I trial (A
Clinical Trial In Overt Nephropathy) in Type I diabetics with overt
nephropathy. The trial is being conducted at more than 50 clinical sites and
involves approximately 690 patients. The Company expects to complete the
treatment phase for this trial in the third quarter of 1998. Data from this
trial is anticipated to be released during the fourth quarter of 1998.
A second Phase III trial of pimagedine in patients with Type II diabeties
and overt nephropathy was initiated in July 1995. In March 1998, the Company
discontinued this trial because of an insuffient risk/benefit ratio based upon
data currently available.
End-Stage Renal Disease ("ESRD"). Alteon initiated a Phase II trial in
ESRD in January 1996. An interim analysis in July 1997 revealed positive trend
data in the mortality of treated patients versus placebo patients. Based on
these findings, the Company has expanded this trial to a pivotal Phase III
trial with an anticipated minimum enrollment of 300 patients.
Alteon continues to evaluate the potential indications and dosage forms of
pimagedine beyond the complications of diabetes to take advantage of its
activity in the inhibition of specific inflammatory responses due to nitric
oxide and in the inhibition of polyamine oxidase.
In addition to the clinical programs for pimagedine in diabetic
complications, Alteon has a number of research programs under way to expand its
research and development pipeline. The key programs are:
A.G.E. Cross-link Breakers. The Company has identified novel orally
available compounds which in pre-clinical testing demonstrate the ability to
chemically break what were previously believed to be permanent, A.G.E.-mediated
bonds between proteins. A.G.E. cross-link breakers offer the possibility of
the first therapeutic approach to removing A.G.E. cross-links. These compounds
are being evaluated in pre-clinical models for their potential to reverse
certain cardiovascular complications, as well as ophthalmic and dermatological
conditions. A lead agent, ALT-711, has been selected and is undergoing
pre-clinical development.
Glucose Lowering Agents. The Company has identified novel orally available
compounds which have demonstrated in pre-clinical models of diabetes an ability
to lower blood glucose and free fatty acids by a
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potentially new mechanism of action. The Company is actively pursuing
additional studies in order to advance the most promising compound to clinical
lead status.
Alteon has strategic alliances with Genentech, Inc. ("Genentech"),
Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"), Corange International Ltd.,
acting through Boehringer Mannheim Diagnostics ("Boehringer Mannheim"), Gamida
for Life, formerly Eryphile BV ("Gamida"), and IDEXX Laboratories, Inc.
("IDEXX") to develop and market pimagedine and A.G.E. diagnostics for human or
veterinary uses in specific territories throughout the world. In order to
expand its internal research and development capacities, Alteon has licensed
technology and/or patent rights from The Rockefeller University ("Rockefeller
University"), The Picower Institute for Medical Research ("The Picower
Institute") and Washington University in St. Louis, Missouri ("Washington
University").
Alteon owns or has exclusive rights to 71 issued or allowed United States
patents and has 72 additional patent applications pending in the United States.
Alteon also owns or has exclusive rights to over 70 issued or granted non-U.S.
patents and has over 100 patent applications pending in Europe, Japan,
Australia and Canada. Alteon intends to continue pursuing its patent filing
strategy and intends to vigorously defend its intellectual property position
against infringement.
This document includes certain forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The words believes, anticipates, expects and similar expressions
are intended to identify such forward-looking statements. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated by the statements made by the Company.
Factors described in this Annual Report on Form 10-K, including without
limitation those identified in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview could cause the
Company's actual results to differ materially from those expressed in any
forward-looking statements made by the Company.
BACKGROUND
The human body is composed of a complex network of cells which interact
and communicate with each other through the actions of proteins, hormones and
other chemical messengers to carry out and maintain bodily functions. This
interactive network incorporates various tissue and organ systems in the body,
including the nervous system, the endocrine (hormone) system and the immune
system. Changes in the balance of, and the interactions in, these systems
occur in a variety of disease states including diabetes, cardiovascular disease
and inflammatory conditions.
In healthy individuals, physiological glucose levels are tightly regulated
by the opposing actions of two hormones--insulin, which lowers blood glucose,
and glucagon, which elevates blood glucose. Diabetes arises from either 1) a
severe decrease of insulin production and subsequent uptake and utilization of
glucose, generally referred to as Type I or Insulin Dependent Diabetes Mellitus
("IDDM"), or 2) a loss in responsiveness to insulin, generally referred to as
Type II or Non-Insulin Dependent Diabetes Mellitus ("NIDDM"). Concurrently,
the ability to moderate the glucose-elevating effects of glucagon is
diminished, leading to the persistent hyperglycemic (excess blood sugar) state
of diabetes. In both cases, glucose levels rise significantly and, if not
brought under control, increase the rate of formation of A.G.E.s.
These A.G.E. complexes form continuously over time at a rate dependent
upon glucose levels, subsequently cross-link to other proteins and ultimately
accumulate in various tissues, vessels and organs. As the rate of accumulation
increases, A.G.E. cross-linked proteins, normally flexible and separate, become
rigid and aggregated. It is this process which the Company believes results in
progressive loss of function of certain organs, blood vessels and nerves. In
healthy individuals this process occurs naturally, though slowly, as the body
ages. In diabetic patients, the rate of A.G.E. accumulation and the extent of
protein cross-linking is accelerated. The Company believes that this is a
major factor contributing to diabetic complications. The DCCT, a
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multi-center investigation conducted under the auspices of the National
Institutes of Health, demonstrated that elevated blood glucose levels
significantly increase the rate of progression of eye, kidney, blood vessel and
nerve complications from diabetes. More than 50% of people with diabetes in
the United States develop diabetic complications which range from mild to
severe.
Studies conducted in animal models at numerous independent institutions
worldwide suggest that A.G.E.s are responsible for diabetic complications
including kidney disease (nephropathy), eye disease (retinopathy), nerve
disease (neuropathy) and hardening of the arteries (atherosclerosis). More
recent studies implicate A.G.E.s in age-related disorders such as
cardiovascular disease, Alzheimer's disease and stroke. Alteon believes
certain complications, such as atherosclerosis, hypertension and the
progressive decline in renal function that occur eventually in non-diabetics
may also be A.G.E.-related, as this pathological process is cumulative in
effect over the lifetime of any individual.
Alteon's lead compound, pimagedine, has also been shown to inhibit certain
inflammatory conditions. The Company believes that this is due to pimagedine's
inhibitory effect on one of the enzymes responsible for synthesis of nitric
oxide ("NO"), a naturally occurring molecule which, when overproduced, may lead
to or result in serious complications. There is increasing evidence that NO
plays a significant role in acute and chronic inflammation, and may play a role
in inflammatory diseases such as asthma, inflammatory skin conditions,
rheumatoid arthritis and inflammatory bowel disease. Inhibition of the
inducible enzyme responsible for formation of NO, inducible nitric oxide
synthase ("iNOS"), has been shown in animal models to mitigate the inflammatory
disease process.
TECHNOLOGY
A.G.E.-Formation Inhibitors
Alteon's most advanced therapeutic program is the development of drugs
that inhibit A.G.E.-formation. These compounds are designed to prevent major
diabetic and age-related complications by blocking the formation of A.G.E.s and
the subsequent cross-linking of A.G.E.s to other proteins. Alteon's lead
compound, pimagedine, has been shown to inhibit A.G.E.-formation and subsequent
cross-link formation in pre-clinical models. Data from Alteon's Phase II
trials has provided evidence of this activity in humans. Alteon and its
corporate partners are developing pimagedine to slow the progression of various
complications of diabetes, such as diabetic nephropathy and retinopathy.
Alteon is also engaged in research programs on second-generation
A.G.E.-formation inhibitors to identify compounds that have advantages over
pimagedine, such as increased efficacy or a more favorable safety profile. The
Company has proposed one compound, ALT-946, for further development.
A.G.E. Cross-link Breakers
The Company is developing the A.G.E. cross-link breaker class of compounds
for several therapeutic indications. Studies in animal models in several
laboratories around the world have demonstrated rapid reversal of impaired
cardiovascular functions through a unique mechanism of action, which is
associated with the stiffening of arteries as well as stiffening of the heart
that accompanies the development of diabetes and of aging. Reductions in blood
pressure that have been observed could prove beneficial in the treatment of
hypertension in the elderly. The Company is also evaluating development of
the breaker class for reversing the stiffening and subsequent dehydration of
skin through a topical formulation. The cross-linking of matrix proteins in
the dermis is believed to be responsible for the deep wrinkling phenomenon of
aging. The Company is also pursuing investigations into the role of A.G.E.
cross-linking in restricting the flow of fluid through the eye, the consequence
of which causes elevated intraocular pressure which is central to the
development of glaucoma. Preliminary studies in aged monkeys demonstrates a
persistent improvement in fluid flow following a single intraocular injection.
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Glucose Lowering Agents
The inability to utilize glucose effectively in Type II diabetes is due to
a defect in the response of glucose utilizing tissues (e.g. skeletal muscle) to
insulin. The Company has identified novel orally available compounds that lower
blood glucose and free fatty acid levels in pre-clinical models of Type II
diabetes. These compounds, collectively called Glucose Lowering Agents
("G.L.A."), are chemically distinct from and exhibit a different mechanism of
action than the thiazolidinedione compounds, a class of compounds that has been
the focus of many pharmaceutical companies because of potential beneficial
effects on glucose and triglyceride levels. Analysis of plasma lipids suggests
that the regulation of fat metabolism leads to improved glucose utilization and
may be an important feature in the mechanism of action for the G.L.A. class.
This series of compounds prevents weight gain in obese/diabetic animal models
suggesting a possible role for use in the treatment of obesity. The Company is
actively pursuing pre-clinical studies with these compounds in order to advance
the most promising compound to clinical lead status.
The following chart illustrates the process of A.G.E.-formation and
cross-linking and is qualified by the more detailed description in the text. It
also highlights those areas within the A.G.E. cascade where Alteon is attempting
to offer chemical agents to intervene pharmaceutically.
[ NOTE: THE PRINTED COPY OF THIS FORM 10-K CONTAINS A ]
[ GRAPHICAL REPRESENTATION OF THE FOLLOWING. THE ]
[ "||" REPRESENT ARROWS POINTING FROM "GLUCOSE ]
[ LOWERING AGENTS" TO "GLUCOSE," FROM "A.G.E. FORMATION ]
[ INHIBITORS" TO "PROTEINS" AND "A.G.E.s," AND FROM ]
[ "A.G.E. CROSS-LINK BREAKERS" TO "CROSS-LINKED A.G.E.s" ]
[ ]
[ A.G.E. CASCADE ]
[ -------------- ]
[ ]
[ Glucose + Proteins ====K> A.G.E.s ====> Cross-linked A.G.E.s ]
[ ]
[ || || || || ]
[ || || || || ]
[ Glucose Lowering A.G.E. A.G.E. ]
[ Agents Formation Inhibitors Cross-link ]
[ Breakers ]
[ ]
iNOS Technology
Pimagedine is a preferential inhibitor of iNOS in animal models, thereby
decreasing the formation of NO, a molecule which has been shown in pre-clinical
models to play a role in acute and chronic inflammation. Independent
researchers have reported that treatment with pimagedine reduces inflammation in
specific pre-clinical models. Pimagedine has also been shown to decrease the
migration of macrophages (inflammatory cells) to the site of tissue damage and
prevents the release of cytokines and the consequent release of NO. The Company
has developed a topical formulation of pimagedine for the treatment of
inflammatory skin diseases.
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PRINCIPAL PRODUCTS UNDER DEVELOPMENT
The following table summarizes Alteon=s principal products in research and
development:
<TABLE>
<CAPTION>
PRODUCT TARGET MECHANISM DEVELOPMENT MARKETING
CANDIDATE / INDICATIONS OF ACTION STATUS RIGHTS (2)
- ----------------------- --------- ------------------ ------------------
<S> <C> <C> <C>
Pimagedine Oral
Diabetic Complications Genentech/
Overt Nephropathy (Type I) Phase III Yamanouchi/Gamida/
End-Stage Renal Disease A.G.E. Phase III IDEXX
ALT-946 Alteon/
Diabetic Complications A.G.E. Pre-clinical Genentech
A.G.E. Cross-link Breakers
Cardiovascular Disease A.G.E. Pre-clinical
Ophthalmic A.G.E. Pre-clinical Alteon/
Dermatological A.G.E. Pre-clinical Yamanouchi
Glucose Lowering Agents (4) Discovery Research Alteon
Pimagedine Topical
Dermatological Alteon/
Allergic Contact Dermatitis iNOS Veterinary IDEXX (3)
Pimagedine Intravenous Alteon(3)/Genentech/
Stroke (4) IND Gamida
</TABLE>
Notes:
(1) Phase III clinical trials indicate that Alteon is testing the compound in
humans for safety and efficacy in an expanded patient population at multiple
clinical sites. Pre-clinical includes toxicological and pharmacokinetics
assessment of candidate compounds as well as formulation of a product in an
appropriate dosage form. Discovery Research includes identification and
evaluation of compounds in vitro and in animal models. IND stands for
Investigational New Drug. See "-- Government Regulation".
(2) Where indicated, the Company's corporate partner, Genentech has rights to
market products in all areas of the world except for the territories reserved to
Yamanouchi and Gamida. Yamanouchi has rights, or under certain circumstances
the option to acquire rights, to market products in Japan, South Korea, Taiwan
and The People's Republic of China. Where indicated, the Company's corporate
partner Gamida has rights to market products in Israel, Jordan, South Africa,
Cyprus and Bulgaria. Where indicated, the Company's corporate partner IDEXX has
rights to develop and market pimagedine and A.G.E. diagnostics for certain
veterinary uses. See "-- Corporate Strategic Alliances."
(3) In June 1995, Alteon obtained a license from Washington University, St.
Louis, for patents covering the use of pimagedine to inhibit iNOS. Alteon and
Yamanouchi are currently determining marketing rights for certain potential
products based upon this mechanism of action.
(4) Mechanism not fully elucidated.
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The Company incurred research and development expenditures of $11,648,000,
$18,720,000 and $23,264,00 for the years ended December 31, 1995, 1996 and 1997,
respectively. Expenditures were reduced by reimbursements from corporate
partners in these periods of $1,643,000, $1,226,000 and $0, respectively.
Pimagedine Oral
Diabetic Kidney Disease. Kidney disease is a significant cause of
morbidity and mortality in patients with Type I and Type II diabetes. It is a
chronic and progressive disease. One of the early signs of kidney damage is
microalbuminuria (characterized by leakage of small amounts of protein into the
urine) which progresses to overt nephropathy (characterized by leakage of large
amounts of protein into the urine) and ultimately to end-stage renal disease
(advanced renal disease requiring dialysis). Approximately 35% of patients with
Type I diabetes and approximately 10-15% of patients with Type II diabetes
develop nephropathy. As of 1995, there were approximately 1,000,000 diabetics
diagnosed with kidney disease in the United States. The only product approved
to treat nephropathy in patients with Type I diabetes is the anti-hypertensive
captopril, an angiotensin-converting enzyme ("A.C.E.") inhibitor. The Company
believes that pimagedine acts through a mechanism different from captopril and
therefore if used in conjunction with captopril may have a complementary
therapeutic effect. See "-- Competition."
Overt Nephropathy. The Company is conducting a randomized double-blind,
placebo-controlled, multi-center, Phase III clinical trial to evaluate the
safety and efficacy of pimagedine in Type I diabetic patients with overt
nephropathy, the ACTION I (A Clinical Trial In Overt Nephropathy) trial. The
trial was initiated in January 1994. The primary objective of the trial is to
evaluate the safety and efficacy of pimagedine in preserving renal function in
Type I patients. Enrollment in the trial was completed in August 1996 with 690
patients from 56 investigational sites in the United States and Canada. Patients
will be treated for a minimum of two years and will receive twice daily oral
doses of pimagedine, adjusted for kidney function. The Company expects to
complete the treatment phase of the trial in the third quarter of 1998 with data
anticipated to be disclosed during the fourth quarter of 1998.
A second Phase III trial of pimagedine, in patients with Type II diabetes
and overt nephropathy (ACTION II), was initiated in July 1995 and used a trial
design similar to the ACTION I trial. The objective of this study was to
evaluate the safety and efficacy of pimagedine in preserving renal function in
Type II patients. In March 1998, the Company discontinued this trial because of
an insufficient risk/benefit ratio based upon data currently available.
An independent External Safety Monitoring Committee has been involved
since the initiation of the ACTION trials, and has as its charter the
assessment on a periodic basis of the ongoing risk/benefit ratios of these
pivotal studies. In March 1998, the External Safety Monitoring Committee
recommended that the Company complete the ACTION I trial, as planned, and
discontinue the ACTION II trial based on the committee's observation of an
increased incidence of side effects in the Type II patient population.
End-Stage Renal Disease (ESRD). As kidneys fail, there is a significant
increase in circulating A.G.E.s because of the patient's inability to clear
these compounds. This occurs to a greater degree in diabetic patients because
of their more rapid rate of A.G.E.-formation. A.G.E.s are not removed to a
significant degree by dialysis in part due to the large size of certain A.G.E.
proteins. The high A.G.E. burden in diabetic patients is thought to be
responsible for the rapid progression of diabetic complications in dialysis
patients. The Company believes that elevated A.G.E. levels also contribute to
higher levels of cardiovascular morbidity and mortality in diabetic patients.
Approximately 50,000 diabetics develop ESRD annually in the United States.
Diabetics with ESRD have a cardiovascular mortality (myocardial infarction and
cerebral vascular mortality) which is higher than other patient groups with
renal failure. Erythropoietin ("EPO") is often used to treat the anemia
resulting from loss of kidney function and there is no known agent useful for
treatment of ESRD.
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The Company is conducting a randomized, double-blind, placebo-controlled,
multi-center, Phase III clinical trial to evaluate the safety and efficacy of
pimagedine in diabetic patients with ESRD on hemodialysis, a form of dialysis
used by approximately 80% of dialysis patients in the United States. This
clinical trial was initiated as a Phase II study in January 1996, with an
enrollment of approximately 120 patients who received oral doses of pimagedine
three times per week in conjunction with their dialysis treatment. Interim
analyses performed after 90 patients were in the study for a minimum of six
months revealed a positive trend in the mortality of treated patients versus
placebo patients and a positive effect on certain lipid measurements. In
addition, the drug appeared well tolerated in this very ill patient population.
Based on discussions with Alteon's end-stage renal disease consultants and with
the FDA, Alteon has converted the trial into a pivotal Phase III evaluation,
focusing on all-cause mortality as the primary endpoint, and expanded
enrollment to a minimum of 300 patients.
An independent External Review Committee has been established to assess on
a periodic basis the ongoing risk/benefit ratio and the clinical results of
this pivotal study.
Pimagedine Intravenous
Stroke. Every year approximately 500,000 persons in the United States
suffer a stroke and approximately one-third of these individuals die, making
stroke the third leading cause of death by disease. According to the American
Heart Association, in 1994 the economic cost of stroke due to health care
expense and loss of productivity was estimated to be nearly $30 billion.
Individuals at increased risk for stroke include those with hypertension,
smokers, obese individuals, diabetics and those with hyperlipidemia. Currently
several pharmaceutical and biopharmaceutical companies are conducting
pre-clinical studies and clinical trials on numerous compounds for the
treatment of stroke.
Animal studies have demonstrated that pimagedine, when given prior to or
after induction of stroke by occlusion of the middle cerebral artery, reduced
the volume of tissue death by 30%.
Alteon has completed acute toxicity studies in animals with an intravenous
formulation of pimagedine. The Company has filed an IND with the FDA. Rights
to pimagedine for stroke have been licensed to Genentech, which has agreed to
evaluate the potential for this indication in its internal models for stroke
prior to making a decision as to whether to initiate a clinical program using
this formulation.
Pimagedine Topical
Inflammatory Skin Disease. Nitric oxide ("NO") has been shown to play a
role in the inflammatory disease process. Pre-clinical studies with pimagedine
have shown a significant reduction in both NO production as well as skin
inflammation. Based on these findings, the Company believes that pimagedine
could have a beneficial effect in certain inflammatory diseases such as contact
dermatitis and eczema. Currently, topical steroids are the treatment of choice
for these indications but are contraindicated for prolonged use. A topical
formulation of pimagedine has been developed. The Company has filed an IND for
these indications.
A.G.E. Cross-link Breakers
Several classes of novel compounds have been identified which are capable
of breaking the cross-links formed as a result of A.G.E. accumulation. These
compounds are currently under evaluation in various animal models to assess
their potential for treatment of a variety of diseases including cardiovascular
disease, certain ophthalmic disease states and certain skin conditions. The
most promising drug candidate, ALT-711 has been designated a clinical lead and
additional studies have been initiated in preparation for an IND filing.
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Glucose Lowering Agents
The Company is currently investigating the glucose lowering potential of
several compounds initially identified from a natural product screening
program. These compounds, which are structurally different than the
thiazolidinediones, have been identified as having activity similar to the
thiazolidinediones without the same side effect profile. Additional
mechanistic studies on these compounds are currently under way, as is
additional pre-clinical testing designed to identify a potential lead compound
for future clinical development.
Diagnostic Programs
Alteon is utilizing its A.G.E. technology to develop diagnostic tests that
may be used to assess A.G.E. levels and monitor drug therapy in diabetic
patients. Because the levels of circulating and tissue-bound A.G.E.s are
correlated with the pathology of diabetes and aging, measurement of A.G.E.
levels could provide valuable information on the stage of disease prior to the
appearance of clinical signs. The Company believes these tests, if developed,
will complement its drug products by enabling physicians to better diagnose and
treat patients with the potential to develop significant diabetic complications
before progression of their disease to a more advanced state.
Uncertainties Relating to Product Development
There can be no assurance that any of the products discussed above or
resulting from the Company's research programs will be successfully developed,
prove to be safe and efficacious in clinical trials, meet applicable regulatory
standards, be capable of being produced in commercial quantities at reasonable
costs or be successfully marketed. In addition, there can be no assurance that
results obtained in animal studies will be predictive of results obtained in
humans, and no assurance can be given that the Company will commence additional
clinical trials in the near term, if at all.
STATUS OF CLINICAL TRIALS
Completed Trials for Diabetic Complications
The Company began clinical trials in 1987. Seven Phase I clinical trials
have been completed to assess the safety and pharmacokinetics of pimagedine.
Single and multiple-dose studies were conducted. Pimagedine was administered
to a total of 127 human subjects in this program, including healthy subjects,
diabetic patients with normal renal function, diabetic patients with varying
degrees of renal impairment and diabetic patients in hemodialysis programs. No
serious side effects were reported. The most commonly observed side effects
were headaches, heartburn, nausea, lightheadedness and drowsiness.
In addition, in 1989, two 28-day safety studies were completed in diabetic
patients with varying degrees of renal insufficiency as well as in healthy
subjects. Thirty-seven patients received pimagedine. The most common side
effects reported were nausea, vomiting and other gastro-intestinal
disturbances.
As a result of the gastro-intestinal side effects seen in pre-clinical
toxicology studies and earlier trials, the FDA required the Company to modify
its original Phase II/III protocol to include certain gastric function tests,
including endoscopy. In August 1994, based on such tests in the first 31
patients receiving pimagedine, an independent safety committee recommended and
the FDA allowed removal of the routine endoscopy requirement. At the same
time, the FDA permitted the inclusion of women of childbearing potential in the
trial.
In April 1997, Alteon and Gamida completed a randomized, double-blind,
placebo-controlled, Phase II clinical trial to evaluate the effect of
pimagedine on plasma lipid levels and A.G.E.s in patients with diabetes and
elevated serum cholesterol levels. Dyslipidemia is a condition characterized
by an abnormal lipid profile. The elevation of one lipid component,
low-density lipoprotein, is known to be a significant risk factor in
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cardiovascular disease. Diabetic patients are twice as likely as nondiabetic
individuals to die from coronary artery disease, and the annual incidence of
cardiovascular complications is increased significantly in patients with Type
II diabetes. This Phase II clinical trial enrolled 89 patients in Israel who
were treated for a minimum of three months and who received twice daily oral
doses of pimagedine, adjusted for kidney function. The primary objective of
this study was to evaluate the safety and efficacy of pimagedine in reducing
levels of low-density lipoproteins ("LDLs") in Type II diabetic patients with
varying degrees of renal function and elevated LDLs.
A comprehensive statistical report of the trial after audit of the results
concluded: "Comparisons of percentage change from baseline of lipid parameters
between pimagedine and Placebo treatment arms shows steeper decreases in the
pimagedine arm almost in all parameters, all populations. In Cholesterol,
triglycerides and VLDL the decreases are significant by "last observation
carried forward" analysis. In LDL, the decrease in the pimagedine group is
significant at the 8th week."
Albumin in the urine was also reduced in a statistically significant
manner in this Phase II trial. (Protein in the urine is an indicator of
diabetic kidney disease.) Urinary albumin fell by an average of 40% from
baseline (p=.0068) in patients identified as having albuminuria (excretion of
more than 30 mg of albumin in 24 hours). While not an endpoint of the Israeli
trial, this data provides the first evidence of the ability of pimagedine to
lower urinary protein in humans, suggesting a positive effect on diabetic
kidney disease. Effect on urinary albumin is a secondary endpoint of the
pivotal ACTION I trial.
In July 1997, the Company announced that its Phase II trial evaluating
pimagedine in diabetic patients with end-stage renal disease was being extended
into a pivotal Phase III trial focusing on mortality as the primary endpoint.
This decision was based upon an interim analysis of the ongoing Phase II trial,
which revealed a positive trend in the mortality of treated patients versus
placebo patients. Interim analysis also showed a positive effect on certain
lipid measurements, similar to those seen in other studies. In addition, the
drug appears to be well tolerated in this patient population.
Ongoing Clinical Trials
The Company currently has ongoing a Phase III clinical trial for overt
nephropathy in patients with Type I diabetes and a Phase III clinical trial for
diabetic patients with ESRD. As of December 31, 1997, in the Company's Phase
III clinical trial for overt nephropathy in patients with Type I diabetes, of
the 690 patients who were enrolled in the trial, all patients have been in the
trial for a minimum of 16 months, approximately 430 patients have been in the
study for 2 years, and approximately 103 have been in the study for 3 years.
Pursuant to the study design, 460 patients in the study are receiving
pimagedine.
As of December 31, 1997, in the Company's expanded Phase III clinical
trial in end-stage renal disease, approximately 150 patients have been
enrolled. The majority of patients have been in the trial for at least 6
months, and approximately 90 have been in for 1 year. See "--End-Stage Renal
Disease".
In 1996, the Company retained Quintiles, Inc. to provide clinical trial
services to support the Phase III ACTION trials. The major areas of service
include project management, clinical site monitoring and data management.
Uncertainties Relating to Clinical Trials
No assurance can be given that enrollment in the Phase III end-stage renal
disease trial can be achieved on a timely basis, if at all, or that any of the
Company's clinical trials can be successfully completed. The results of
various Phase I and Phase II studies were used by the Company to design the
Phase III trials described above. There can be no assurance that the results
of Phase I and Phase II trials will be indicative of results in Phase III
trials or that the Phase III trials will show that pimagedine is sufficiently
safe and efficacious for marketing approval by the FDA or other regulatory
authorities. In March 1998, the Company discontinued its
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Phase III trial of pimagedine in patients with Type II diabetes and overt
nephropathy because of an insufficient risk/benefit ratio based upon data
currently available. Similar results could occur in the Company's other Phase
III clinical trials involving pimagedine. In addition, delays in completion of
the trials may occur as a result of difficulties in retaining patients in the
trials, preliminary safety data analysis which requires changes in the protocols
and delays in approval of the trials by institutional review boards at the trial
sites. Accordingly, no assurance can be given that clinical trials can be
successfully completed within any particular time frame or at all.
CORPORATE STRATEGIC ALLIANCES
Genentech, Inc.
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. Alteon and Genentech are concluding
discussions regarding certain amendments to the agreements. Genentech's
purchases of Series H Preferred Stock will begin after these amendments are
finalized. The agreements also provide that Genentech will fund 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, 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 cash payments from Genentech upon meeting milestones relating to
U.S. and European regulatory filings and approvals for pimagedine products and
an additional $50,000,000 upon meeting milestones relating to U.S. and European
regulatory filings and approvals for the first 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 with Alteon responsible for U.S.
clinical development and regulatory filings. Genentech will be responsible for
development and registration outside the United States and for marketing and
sales of the licensed products in the Genentech Territory. Alteon has granted
Genentech the option to assume responsibility to manufacture pimagedine for its
pre-clinical, clinical and commercial supplies of licensed products and has
agreed to supply pimagedine for pre-clinical and clinical trials in the United
States. The parties have agreed to enter into a manufacturing and supply
agreement covering commercial supplies on terms to be agreed upon.
The development collaboration and license agreement (including Genentech's
obligations to fund development for products) may be terminated upon six months'
notice by Genentech in its entirety or with respect to any licensed product.
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.
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Yamanouchi Pharmaceutical Co., Ltd.
In July 1989, Alteon and Yamanouchi entered into a series of agreements
pursuant to which the parties formed a strategic alliance to develop and
commercialize Alteon's A.G.E.-related technology in Japan, South Korea, Taiwan
and The People's Republic of China (the "Yamanouchi Territory"). Under this
arrangement, the parties agreed to collaborate on further research and
development, Yamanouchi purchased shares of Alteon stock and Alteon granted to
Yamanouchi an exclusive license to commercialize Alteon's technology in the
Yamanouchi Territory in exchange for royalty payments on net sales, if any.
Yamanouchi has the right to terminate the agreement upon 90 days' prior written
notice to Alteon. This license expires as to each product in each licensed
country upon the later of 15 years from the date of the agreement, the
expiration of the last patent applicable to the product or five years after the
first commercial sale of the product in the country.
Pursuant to the license agreement, Alteon granted Yamanouchi the right to
manufacture pimagedine bulk material for sale in the Yamanouchi Territory. With
respect to certain second-generation A.G.E.-formation inhibitors, Alteon has the
option to supply all of Yamanouchi's reasonable requirements of active
ingredient bulk materials for sale within the Yamanouchi Territory.
Alteon and Yamanouchi also entered into a research and development
collaboration agreement to provide for joint collaboration on further research
and development, specifically Alteon's A.G.E.-formation and protein cross-
linking technology. Yamanouchi also 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. The collaboration agreement provides
that any joint development program is terminable by either party upon 60 days'
prior written notice. The agreement terminates in June 1999, unless otherwise
extended. In September 1992, Alteon and Yamanouchi amended the research and
development collaboration agreement to clarify their relative responsibilities
for patent prosecution and payment thereof.
Pursuant to the agreement, Yamanouchi has provided financial support for
most of the pre-clinical toxicity studies and has completed Phase I clinical
trials on pimagedine in Japan. Yamanouchi has not yet initiated Phase II
clinical trials in Japan.
Boehringer Mannheim
In December 1994, the Company entered into an exclusive licensing
arrangement with Boehringer Mannheim for Alteon's technology for diagnostic
applications. Under this alliance, Alteon will be entitled to receive royalties
based on net sales of research and commercial assays developed by Boehringer
Mannheim and based on Alteon's A.G.E. technology. Boehringer Mannheim will
receive exclusive worldwide rights to the technology for diagnostic applications
outside of the territory covered by the agreement with Yamanouchi for the
Yamanouchi Territory.
Under the agreement, Boehringer Mannheim has agreed to develop immunoassays
to detect A.G.E.-hemoglobin, ApoB-A.G.E. and A.G.E.-serum protein/peptides.
Development of research assays was initiated during the first quarter of 1995.
Boehringer Mannheim plans to develop automated commercial assays to correspond
with the projected product launch of pimagedine, if successfully developed and
approved. Boehringer Mannheim may terminate the license agreement upon 90 days'
prior written notice.
Gamida
In November 1995, the Company entered into clinical testing and
distribution agreements with Gamida. Under these agreements, Gamida conducted,
at its own expense, a Phase II multi-site clinical trial in Israel, in
accordance with the protocol developed by Alteon, to evaluate pimagedine in
patients with diabetes and elevated serum cholesterol levels. Gamida will
receive the exclusive right to distribute pimagedine, if successfully
<PAGE> 14
developed and approved for marketing, in Israel, Bulgaria, Cyprus, Jordan and
South Africa. The distribution agreement is for a term ending 10 years after
the date of regulatory approval for the sale of pimagedine in Israel;
thereafter, it will be automatically renewed for successive three-year periods
unless terminated by either party on the last day of the initial or a renewal
term. See "--Status of Clinical Trials."
IDEXX
In June 1997, Alteon entered into a license and supply agreement with IDEXX
pursuant to which Alteon licensed to IDEXX pimagedine as a potential therapeutic
in companion animals (dogs, cats and horses) and its A.G.E. diagnostics
technology for companion animal use. IDEXX will be responsible for the
development, licensing and marketing of pimagedine and A.G.E. diagnostics for
such use on a worldwide basis. Alteon will be entitled to receive milestone
payments and royalties on sales of the licensed products.
Alteon's corporate 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.
ACADEMIC RESEARCH AND LICENSE AGREEMENTS
Washington University, St. Louis
In June 1995, the Company obtained an exclusive, worldwide, royalty-bearing
license from Washington University for patents covering the use of pimagedine as
an inhibitor of iNOS. The agreement requires the Company to pay certain
licensing fees upon the attainment of development milestones as well as a
royalty on net sales or a share of sub-licensing profits on products covered by
the patents. The license also covers patents developed through any subsequent
research collaboration between the parties which Alteon agrees to fund.
Cerami Consulting Corporation and Warren Laboratories
The Company is currently discussing the terms of an agreement with Cerami
Consulting Corporation ("Cerami Consulting"), a corporation of which Dr. Anthony
Cerami, a founder of the Company, is the President, pursuant to which Cerami
Consulting will provide consulting services to the Company. The Company is also
discussing the terms of a multi-year research agreement with Kenneth S. Warren
Laboratories, Inc. ("Warren Laboratories"), pursuant to which Warren
Laboratories will conduct research and development of such of the Company's
technology as the parties may agree upon. Warren Laboratories is a non-profit
corporation of which Dr. Cerami is a trustee and the President. Cerami
Consulting and Dr. Cerami are currently providing these consulting and research
and development services to the Company in anticipation of the agreements.
The Rockefeller University
Pursuant to an agreement with Rockefeller University, Alteon has exclusive,
worldwide and perpetual rights to the technology and inventions relating to
A.G.E.s and protein cross-linking, including those relating to the complications
of diabetes and aging. See "--Patents, Trade Secrets and Licenses."
The Picower Institute for Medical Research
Pursuant to an agreement with The Picower Institute, a not-for-profit
biomedical science institution of which Dr. Cerami was the President, the
Company has received to an exclusive worldwide, royalty-bearing license for
certain commercial health care applications of A.G.E.-related inventions. See
"--Patents, Trade Secrets and Licenses."
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MANUFACTURING
The Company has no manufacturing facilities for either production of bulk
chemicals or the manufacturing of pharmaceutical dosage forms. The Company
relies on third party contract manufacturers to produce the raw materials and
chemicals used as the active drug ingredients in its pharmaceutical products and
to perform the tasks necessary to process, package and distribute these products
in finished form. In September 1997, Alteon entered into an agreement with
Ganes Chemicals Inc. to provide a portion of the Company=s requirements of bulk
pimagedine. The Company intends to establish relationships with other companies
or with collaborative partners for the spray drying, tableting, packaging and
commercial distribution of pimagedine.
Such third party contractors will be inspected by the Company and its
consultants to confirm compliance with cGMP required for pharmaceutical
products. The Company believes it will be able to obtain sufficient quantities
of bulk chemical at reasonable prices to satisfy anticipated needs. There can
be no assurance, however, that the Company can continue to meet its needs for
supply of bulk chemicals or that manufacturing limitations will not delay
clinical trials or possible commercialization. See "-- Corporate Strategic
Alliances."
MARKETING AND SALES
Alteon plans to market and sell its products, if successfully developed and
approved, directly or through co-promotion or other licensing arrangements with
third parties. Such arrangements may be exclusive or nonexclusive and may
provide for marketing rights worldwide or in a specific market.
For certain of its products Alteon has licensed exclusive marketing rights,
formed joint marketing arrangements or granted distribution rights within
specified territories with its corporate partners, Genentech, Yamanouchi,
Boehringer Mannheim, Gamida and IDEXX. See "--Corporate Strategic Alliances."
In cases where Alteon enters into joint marketing arrangements or in the
event that it does not enter into joint marketing or other licensing
arrangements with third parties, it will have to develop a marketing and sales
force with significant technical expertise or, where appropriate or permissible,
enter into arrangements with third parties to market and sell its products.
Alteon has no marketing experience and there can be no assurance that it will
successfully develop such experience or that it will be able to enter into
marketing agreements with others on acceptable terms. To the extent that the
Company enters into co-promotion or other sales and marketing arrangements with
other companies, any revenues to be received by Alteon will be dependent on the
efforts of others and there can be no assurance that such efforts will be
successful.
PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for the Company's product candidates, processes and
know-how is important to its business. Alteon aggressively files and prosecutes
patents covering its proprietary technology, and, if warranted, will defend its
patents and proprietary technology. As appropriate, the Company seeks patent
protection for its proprietary technology and products in the United States and
Canada and in key commercial European and Asia/Pacific countries. The Company
also relies upon trade secrets, know-how, continuing technological innovation
and licensing opportunities to develop and maintain its competitive position.
Pimagedine is not a novel compound and is not protected by a
composition-of-matter patent. In 1992, a United States patent on the use of
pimagedine was issued to Rockefeller University and subsequently exclusively
licensed to Alteon with claims relating to the inhibition of A.G.E.-formation.
The patent claims the new use of a known agent for the treatment of the
complications of diabetes and aging. In 1994, corresponding patents were
granted in France, Germany, Italy, the United Kingdom and other European
countries. A corresponding patent was issued in Japan in 1995. The Company
continues to pursue and patent chemical
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analogs of known A.G.E.-formation inhibitors, as well as novel compounds having
potential inhibitory properties.
On August 12, 1997, Alteon obtained a patent covering certain novel
compounds in the A.G.E. cross-link breaker category. These compounds have the
ability to break what were previously believed to be permanent, A.G.E.-mediated
bonds between proteins. The use of these compounds offers the possibility of
the first therapeutic approach to the removal of A.G.E. cross-links.
The Company believes that its licensed and owned patents provide a
substantial proprietary base that will allow Alteon and its collaborative
partners to commercialize products in this field. There can be no assurance,
however, that pending or future applications will issue, that the claims of any
patents which do issue will provide any significant protection of the Company=s
technology, or that the Company's directed discovery research will yield
compounds and products of therapeutic and commercial value.
In 1987, the Company acquired an exclusive, royalty-free, worldwide
license (including the right to sub-license to others) to issued patents,
patent applications and trade secrets from Rockefeller University relating to
the A.G.E.-formation and cross-linking technology currently under development
at Alteon. The inventors of the patented technology include Drs. Michael A.
Brownlee, Anthony Cerami and Helen Vlassara, members of Alteon's Scientific
Advisory Board, and Dr. Peter C. Ulrich, formerly the Company's Director of
Chemistry and now an employee of Cerami Consulting. Additional patent
applications have since been filed on discoveries made in support of the
technology from research conducted at Rockefeller University, The Picower
Institute and the Company's laboratories.
Pursuant to the Company's agreement with The Picower Institute, certain
patentable inventions and discoveries relating to A.G.E. technology have been
licensed exclusively to the Company. In consultation with the Company, The
Picower Institute is responsible for the world-wide filing and prosecution of
patent applications and maintenance of patents for such inventions. Alteon
will contribute 50% of the cost of such activities.
As of December 31, 1997, the Company's patent estate of owned and/or
licensed patent rights consisted of 71 issued patents or allowed United States
patent applications, none of which expire prior to 2001, and 72 pending patent
applications in the United States, the majority of which are A.G.E.-related.
Included in Alteon's patent estate are two issued United States patents on the
use of pimagedine for inhibition of iNOS, licensed from Washington University.
Alteon also owns or has exclusive rights to over 70 issued or granted
non-United States patents and has over 100 patent applications pending in
Europe, Japan, Australia and Canada.
The Company intends to continue to focus its research and development
efforts on the synthesis of novel compounds and on the search for additional
therapeutic applications to expand and broaden the Company's rights within its
technological and patent base. The Company is also prepared to in-license
additional technology that may be useful in building its proprietary position.
Where appropriate, the Company utilizes trade secrets and unpatentable
improvements to enhance its technology base and improve its competitive
position. Alteon requires all employees, scientific consultants and
contractors to execute confidentiality agreements as a condition of engagement
by the Company. There can be no assurance, however, that the Company can limit
unauthorized or wrongful disclosures of unpatented trade secret information.
The Company believes that its estate of licensed and owned issued patents,
if upheld, and pending applications, if granted and upheld, will be a
substantial factor in the Company's success. The patent positions of
pharmaceutical firms, including Alteon, are generally uncertain and involve
complex legal and factual questions. Consequently, even though Alteon is
currently prosecuting such patent applications in the United States and foreign
patent offices, the Company does not know whether any of such applications will
result in
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the issuance of any additional patents or, if any additional patents are
issued, whether the claims thereof will provide significant proprietary
protection or will be circumvented or invalidated.
Competitors or potential competitors have filed for or have received
United States and foreign patents and may obtain additional patents and
proprietary rights relating to compounds or processes competitive with those of
the Company. Accordingly, there can be no assurance that the Company's patent
applications will result in patents being issued or that, if issued, the claims
of the patents will afford protection against competitors with similar
technology; nor can there be any assurance that others will not obtain patents
that the Company would need to license or circumvent. See "--Competition."
The Company's success will depend, in part, on its ability to obtain
patent protection for its products, preserve its trade secrets and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that the Company's current patent estate will enable the Company to
prevent infringement by third parties or that competitors will not develop
competitive products outside the protection that may be afforded by the claims
of such patents. To the extent the Company relies on trade secrets and
unpatented know-how to maintain its competitive technological position, there
can be no assurance that others may not develop independently the same or
similar technologies. Failure to maintain its current patent estate or to
obtain requisite patent and trade secret protection, which may become material
or necessary for product development, could delay or preclude the Company or
its licensees or marketing partners from marketing their products and could
thereby have a material adverse effect on the Company's business, financial
condition and results of operations.
GOVERNMENT REGULATION
The Company and its products are subject to comprehensive regulation by
the FDA in the United States and by comparable authorities in other countries.
These national agencies and other federal, state, and local entities regulate,
among other things, the pre-clinical and clinical testing, safety,
effectiveness, approval, manufacture, labeling, marketing, export, storage,
record keeping, advertising and promotion of the Company's products.
The process required by the FDA before the Company's products may be
approved for marketing in the United States generally involves (i) pre-clinical
new drug laboratory and animal tests, (ii) submission to the FDA of an IND,
which must become effective before clinical trials may begin, (iii) adequate
and well-controlled human clinical trials to establish the safety and efficacy
of the drug for its intended indication, (iv) submission to the FDA of an NDA,
and (v) FDA review of the NDA in order to determine, among other things,
whether the drug is safe and effective for its intended uses. There is no
assurance that the FDA review process will result in product approval on a
timely basis, if at all.
Pre-clinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Certain pre-clinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
pre-clinical tests are submitted to the FDA as part of an IND and are reviewed
by the FDA prior to the commencement of clinical trials.
Clinical trials are conducted under protocols that detail such matters as
the objectives of the study, the parameters to be used to monitor safety and
the efficacy criteria to be evaluated. Each protocol must be submitted to the
FDA as part of the IND. Further, each protocol must be reviewed by an
institutional review board.
Clinical trials are typically conducted in three sequential phases, which
may overlap. During Phase I, when the drug is initially given to human
subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. Phase II involves studies in a limited
patient population to (i) evaluate preliminarily the efficacy of the product
for specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. Phase
III trials are undertaken in
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order to further evaluate clinical efficacy and to further test for safety
within an expanded patient population. The FDA may suspend clinical trials at
any point in this process if it concludes that clinical subjects are being
exposed to an unacceptable health risk.
FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the United States. The
process of obtaining approvals from the FDA can be costly, time consuming and
subject to unanticipated delays. There can be no assurance that approvals of
the Company's proposed products, processes, or facilities will be granted on a
timely basis, if at all. Any failure to obtain or delay of such approvals
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, even if regulatory approval is
granted, such approval may include significant limitations on indicated uses
for which a product could be marketed.
Among the conditions for New Drug Application ("NDA") approval is the
requirement that the prospective manufacturer's manufacturing procedures
conform to cGMP requirements, which must be followed at all times. In
complying with those requirements, manufacturers (including a drug sponsor's
third party contract manufacturers) must continue to expend time, money and
effort in the area of production and quality control to ensure compliance.
Domestic manufacturing establishments are subject to periodic inspections by
the FDA in order to assess, among other things, cGMP compliance. To supply a
product for use in the United States, foreign manufacturing establishments must
comply with cGMP and are subject to periodic inspection by the FDA or by
regulatory authorities in certain of such countries under reciprocal agreements
with the FDA.
Both before and after approval is obtained, a product, its manufacturer,
and the holder of the NDA for the product are subject to comprehensive
regulatory oversight. Violations of regulatory requirements at any stage,
including the pre-clinical and clinical testing process, the approval process,
or thereafter (including after approval) may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or NDA holder.
In addition, later discovery of previously unknown problems may result in
restrictions on such product, manufacturer, or NDA holder, including withdrawal
of the product from the market. Also, new government requirements may be
established that could delay or prevent regulatory approval of the Company's
products under development.
The FDA has implemented accelerated approval procedures for certain
pharmaceutical agents that treat serious or life-threatening diseases and
conditions, especially where no satisfactory alternative therapy exists. The
Company believes that certain of its products in development may qualify for
accelerated approval. The Company cannot predict the ultimate impact, however,
of the FDA's accelerated approval procedures on the timing or likelihood of
approval of any of its potential products or those of any competitor. In
addition, the approval of a product under the accelerated approval procedures
may be subject to various conditions, including the requirement to verify
clinical benefit in post-marketing studies, and the authority on the part of
the FDA to withdraw approval under streamlined procedures if such studies do
not verify clinical benefit.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and diagnostic products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. The Company does not currently have any
facilities or personnel outside of the United States.
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's research and development involves
the controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, the risk of
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accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources
of the Company.
COMPETITION
A number of companies are pursuing the research and development of
pharmaceutical agents to treat the complications of diabetes and age-related
diseases. The Company is not aware of any other pharmaceutical company
developing an A.G.E.-formation inhibitor which has reached the clinical
development stage and it has no knowledge of any company pursuing a product to
break cross-linked A.G.E. proteins. Conversely, Alteon is aware of many
companies which are pursuing research and development of compounds for the
lowering of glucose levels and the selective inhibition of iNOS.
Many of the Company's potential competitors have substantially greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture and market products. In addition, many of
these companies have extensive experience in pre-clinical testing and human
clinical trials. These companies may develop and introduce products and
processes competitive with or superior to those of the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's compounds are developed and ultimately
approved by regulatory authorities. For certain of the Company's potential
products, an important factor in competition may be the timing of market
introduction of its or its competitors' products. Accordingly, the relative
speed with which Alteon can develop products, complete the clinical trials and
approval processes and supply commercial quantities of the products to the
market are important competitive factors. The Company expects that competition
among products approved for sale will be based on, among other things, product
efficacy, safety, reliability, availability, price and patent position.
Competitive drugs based on other therapeutic mechanisms may be efficacious
in treating diabetic complications. The development by others of non-A.G.E.-
related treatment modalities for diabetic complications could render pimagedine
and other Alteon products in the diabetic field non-competitive or obsolete.
Therapeutic approaches being pursued include curing diabetes via gene therapy or
islet cell transplantation, as well as pharmaceutical intervention with agents
such as the aldose reductase inhibitors.
Results of the DCCT showed that tight glucose control reduced the
incidence of diabetic complications. Numerous companies are pursuing other
methods to manage glucose control and to reduce the incidence of diabetic
complications. In addition, several companies have initiated research with
drugs that inhibit vascularization as a potential treatment of diabetic
retinopathy. In the event one or more of these initiatives are successful, the
market for the Company's products may be reduced or eliminated.
The treatment of diabetic complications with use of existing agents such
as lipid lowering agents or A.C.E. inhibitors also appears beneficial. The
A.C.E. inhibitor, captopril, has been approved by the FDA for patients with
diabetic nephropathy. Alteon's clinical trials were designed assuming
patients' baseline therapy would include A.C.E. inhibitor treatment. The patent
covering captopril expired in March 1996. Other pharmaceutical companies have
chosen to market and sell this drug which has lead to a significant decrease in
its price. Sales of captopril may reduce or eliminate the market for any
product developed by the Company for this indication.
The Company is aware of the development by several pharmaceutical companies of
thiazolidinedione derivatives ("glitazones") for treatment of Type II diabetes.
In January 1997, Warner-Lambert Company was given approval and clearance by
the FDA for the marketing of RezulinTM (troglitazone), an anti-diabetic drug
designed to target insulin resistance in Type II diabetes.
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The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain protection or otherwise develop
proprietary products or processes and secure sufficient capital resources.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
recognized expertise in the medical complications of diabetes and aging,
biochemistry and pharmaceutical science and related fields who advise the
Company about present and long-term scientific planning, research and
development. Members of the Scientific Advisory Board consult and meet with
Company management informally on a frequent basis. All members of the
Scientific Advisory Board are employed by employers other than the Company and
may have commitments to, or consulting or advisory agreements with, other
entities that may limit their availability to the Company. These companies may
also be competitors of Alteon. The members of the Scientific Advisory Board
have agreed, however, not to provide any services to any other entities that
might conflict with the activities that they provide as members of the
Scientific Advisory Board. Each member also has executed a confidentiality
agreement for the benefit of the Company. Although members of the Scientific
Advisory Board may devote significant time and energy to the affairs of the
Company, except for members of the Scientific Advisory Board with consulting
contracts with Alteon, no members are expected to devote more than a small
portion of their time to Alteon.
The following persons are members of Alteon's Scientific Advisory Board:
Anthony Cerami, Ph.D., the President of Cerami Consulting
Corporation.
Michael A. Brownlee, M.D., the Anita and Jack Saltz Chair of
Diabetes Research at the Albert Einstein College of Medicine, and a
Professor in the Department of Medicine and Co-Director of the
Diabetes Research Center.
Helen Vlassara, M.D., Professor and Head, Laboratory of
Diabetes and Aging at The Picower Institute.
Scott M. Grundy, M.D., Ph.D., Chairman of the Department of
Clinical Nutrition and Director of the Center for Human Nutrition
at the University of Texas Southwestern Medical Center at Dallas,
Texas, and a Professor of Internal Medicine and Biochemistry.
Bruce Merrifield, Ph.D., a Nobel Laureate and a John D.
Rockefeller Professor Emeritus at Rockefeller University.
Leslie Z. Benet, Ph.D., Professor and Chairman, Department of
Biopharmaceutical Sciences, University of California, San
Francisco.
Richard Bucala, M.D., Ph.D., Professor and Head, Laboratory of
Medical Biochemistry at The Picower Institute.
EMPLOYEES
As of March 1, 1998, Alteon employed 47 persons (14 of whom held a Ph.D.,
M.D. or other advanced degree), of whom 31 were engaged in research and
development and 16 were engaged in administration and management. A
significant number of the Company's management and professional employees have
had prior experience with pharmaceutical, biotechnology or medical product
companies. Alteon believes that it has been successful in attracting skilled
and experienced personnel. None of the Company's employees are covered by
20
<PAGE> 21
collective bargaining agreements and all employees are covered by
confidentiality agreements. The Company believes that its relationship with
its employees is good.
ITEM 2. PROPERTIES.
The Company leases a 37,000 square foot building in Ramsey, New Jersey,
which contains its executive and administrative offices and research
laboratories. The lease, which commenced on November 1, 1993, has a 10-year
term. In addition, the lease has two five-year renewal options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "ALTN." The following table sets forth, for the calendar periods
indicated, the range of high and low sale prices for the Common Stock of the
Company on the Nasdaq National Market:
<TABLE>
<CAPTION>
High Low
-------- ------
<S> <C> <C>
1996
- ----
First Quarter $15.750 $9.250
Second Quarter 15.625 9.625
Third Quarter 11.375 7.250
Fourth Quarter 10.250 5.250
1997
- ----
First Quarter $6.625 $3.000
Second Quarter 5.125 2.250
Third Quarter 5.875 3.438
Fourth Quarter 9.188 4.500
</TABLE>
As of March 25, 1998, there were 334 holders of the Common Stock, with
beneficial stockholders in excess of 400. On March 25, 1998, the last sale
price reported on the Nasdaq National Market for the Common Stock was $5.75 per
share.
The Company has neither paid nor declared dividends on its Common Stock
since its inception and does not plan to pay dividends in the foreseeable
future. Any earnings which the Company may realize will be returned to finance
the growth of the Company.
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 837,134 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
into a number of shares of Common Stock
21
<PAGE> 22
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 "Conversion
Price"). 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 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.
In October 1997, the Company agreed to issue warrants to purchase Common
Stock (the "Warrants") to the persons and entities who purchased its 6%
Cumulative Convertible Preferred Stock (the "6% Preferred Stock") in April
1997, and their assignees in consideration of their waiver of certain rights of
first refusal to purchase the Company's Common Stock. The Warrants were issued
and delivered in January 1998. The Warrants were issued exclusively to
accredited investors in compliance with the requirements of Rule 506 under the
Securities Act of 1933, and accordingly the transaction was exempt from
registration under such Act. The holders of the Warrants are entitled to
purchase, in the aggregate, 10,000 shares of Common Stock for $4.025 per share.
The Warrants may be exercised at any time and from time to time, in whole or
in part, prior to October 9, 2004. The number of shares and kind of securities
issuable on exercise of the Warrants is subject to adjustment in the event of
certain subdivisions or combinations of the securities issuable upon exercise
of the Warrants, declarations of dividends or distributions on the Common
Stock, mergers or consolidations of the Company and reorganizations or
reclassifications of the securities issuable upon exercise of the Warrants.
During the year ended December 31, 1997, all shares of 6% Preferred Stock
were converted into shares of Common Stock in accordance with terms thereof.
The market prices for securities of biotechnology and pharmaceutical
companies, including Alteon, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or others, clinical trial results, developments concerning agreements
with collaborators, governmental regulation, developments in patent or other
proprietary rights, public concern as to the safety of drugs developed by the
Company or others, future sales of substantial amounts of Common Stock by
existing stockholders and general market conditions can have an adverse effect
on the market price of the Common Stock.
22
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below should be read in conjunction
with the audited financial statements and related notes included elsewhere in
this Annual Report on Form 10-K. The selected financial data for the five
years ended December 31, 1997 has been derived from the audited financial
statements of the Company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Investment income..................... $2,108 $1,797 $1,888 $2,295 $1,510
Expenses:
Research and development.............. 6,719 8,573 10,004 17,494 23,264
General and administrative............ 2,651 3,706 3,699 3,517 3,633
Interest.............................. 5 43 68 47 25
-------- -------- -------- -------- --------
Total expenses........................ 9,375 12,322 13,771 21,058 26,922
-------- -------- -------- -------- --------
Net loss.............................. (7,267) (10,525) (11,883) (18,763) (25,412)
Preferred stock dividends
and discount amortization............. ---- ---- ---- ---- 1,091
-------- -------- -------- -------- --------
Net loss applicable to common
stockholders.......................... $ (7,267) $(10,525) $(11,883) $(18,763) $(26,503)
======== ======== ======== ======== ========
Basic loss per share to common
stockholders.......................... $ (0.59) $ (0.85) $ (0.90) $ (1.20) $ (1.60)
======== ======== ======== ======== ========
Diluted loss per share to common
stockholders.......................... $ (0.59) $ (0.85) $ (0.90) $ (1.20) $ (1.60)
======== ======== ======== ======== ========
Weighted average common shares used
in computing basic and
diluted loss
per share............................. 12,329 12,431 13,170 15,640 16,566
======== ======== ======== ======== ========
DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments...................... $49,183 $36,435 $45,197 34,500 28,974
Working capital....................... 48,787 35,540 44,433 26,542 22,390
Total assets.......................... 54,346 43,612 52,216 40,139 33,508
Long-term capital lease obligations... 6 750 467 162 ----
Accumulated deficit................... (11,629) (22,154) (34,037) (52,800) (79,303)
Stockholders' equity.................. 52,500 41,214 49,716 31,371 26,455
</TABLE>
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
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 a number of years, if at all.
Alteon has incurred an accumulated deficit of $79,303,374 as of December 31,
1997, and expects to incur operating losses, potentially greater than losses in
prior years, for a number of years.
Alteon has financed its operations through proceeds from an initial public
offering of Common Stock in 1991, a follow-on offering of Common Stock
completed in 1995, and private placements of common and preferred equity
securities, revenue from its collaborations with 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. 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 will occur after Alteon and Genentech finalize certain amendments
to the agreements. Genentech will also fund agreed-upon development costs for
second-generation A.G.E.-formation inhibitors. Genentech may terminate the
license agreement (including its funding obligations) upon six months' notice
to the Company.
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. Gamida conducted, at
its own expense, a Phase II clinical trial in Israel to evaluate pimagedine in
patients with diabetes and elevated serum cholesterol levels, which was
completed in April 1997. Yamanouchi and Gamida do not fund Alteon's research
or early product development expenses.
The Company's business is subject to significant risks including, but not
limited to, (i) its ability to obtain funding, (ii) the risks inherent in its
research and development efforts, including clinical trials, (iii)
uncertainties associated both with obtaining and enforcing its patents and with
the patent rights of others, (iv) the lengthy, expensive and uncertain process
of seeking regulatory approvals, (v) uncertainties regarding government reforms
and product pricing and reimbursement levels, (vi) technological change and
competition, (vii) manufacturing uncertainties, and (viii) dependence on third
parties. Even if the Company's product candidates appear promising at an early
stage of development, they may not reach the market for numerous reasons. Such
reasons include the possibilities that the products will 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.
24
<PAGE> 25
RESULTS OF OPERATIONS
Years Ended December 1997, 1996, 1995
Revenues
Total revenues for 1997, 1996 and 1995 were $1,510,000, $2,295,000, and
$1,888,000, respectively. Revenues in 1997, 1996 and 1995 were derived from
interest earned on cash and cash equivalents and short-term investments. The
decrease in investment income in 1997 over 1996 was attributed to lower cash
and cash equivalents and short-term investment balances during most of 1997.
The increase in investment income in 1996 over 1995 was attributed to the
higher cash and cash equivalents and short-term investment balances during most
of 1996.
Operating Expenses
The Company's total expenses increased to $26,922,000 in 1997, from
$21,058,000 in 1996 and $13,771,000 in 1995 and consisted primarily of research
and development expenses. Research and development expenses, net of
reimbursements from its collaborative partners, were $23,264,000 in 1997,
$17,494,000 in 1996 and $10,004,000 in 1995. Research and development expenses
increased in 1997 from 1996 by $5,770,000, or 33.0%, due to the costs
associated with the ACTION trials throughout 1997. Research and development
expenses increased in 1996 from 1995 by $7,490,000 or 74.9%, due to the
Company's assumption of the ACTION trial costs from August 10, 1996. The
Company was reimbursed $1,226,000 in 1996 and $1,643,000 in 1995 by its
collaborative partners for research and development expenditures. No amounts
were reimbursed in 1997.
General and administrative expenses were $3,633,000 in 1997 as compared to
$3,517,000 in 1996, and $3,699,000 in 1995. The increase in 1997 over 1996 was
due to increased personnel related costs offset by decreased investor relation
and depreciation costs.
Interest expense was $25,000 in 1997, $47,000 in 1996 and $68,000 in 1995.
The decrease in interest expense was primarily due to a five-year capital
lease arrangement which commenced in June 1994 for leasehold improvements on
the Company's headquarters and research facility.
Net Loss
At December 31, 1997, the Company had available net operating tax loss
carry forwards, which expire in various amounts from the years 2006 through
2012, of approximately $76 million for income tax purposes. In addition, the
Company had research and development credit carry forwards of approximately $4
million. The Company had net losses of $25,412,000 in 1997, $18,763,000 in
1996 and $11,883,000 in 1995.
The Company does not believe that inflation has had a material impact on
the results of its operations.
LIQUIDITY AND CAPITAL RESOURCES
Alteon had cash and cash equivalents and short-term investments at
December 31, 1997 of $28,974,000 compared to $34,500,000 at December 31, 1996.
This is a decrease in cash and cash equivalents and short-term investments for
the twelve months ended December 31, 1997, of $5,526,000. This consisted of
$25,236,000 of cash used in operations consisting primarily of research and
development expenses, personnel and related costs and facility expenses,
$21,000 of capital expenditures and $2,000 of additional unrealized losses.
This was offset by $19,630,000 of financing activities primarily related to the
sale of Preferred and Common Stock to Genentech, the sale of its 6% Cumulative
Convertible Preferred Stock and the reclassification of restricted cash
25
<PAGE> 26
of $103,000. As of December 31, 1997, Alteon had invested $7,359,000 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 through the first
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 ("Preferred Stock"). In connection with
this issuance, the Company issued to the purchasers, warrants to purchase
60,000 shares of its Common Stock at an exercise price of $4.025 per share. 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 will occur
after Alteon and Genentech finalize certain amendments to the agreements. In
addition, Genentech will fund agreed-upon development costs for
second-generation A.G.E.-formation inhibitors. However, Genentech may
terminate the license agreement (including its funding obligations) on six
months' notice.
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 of its research or development programs or
obtain funds through arrangements with collaborative partners or others. This
may require the Company to relinquish rights to certain of its technologies or
product candidates.
Alteon's corporate 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required to be filed pursuant to this Item 8 are
appended to this Annual Report on Form 10-K. A list of the financial
statements filed herewith is found at "Index to Financial Statements and
Schedules" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
For information concerning this item, see the information under "Election
of Directors" and "Executive Officers" in the Company's Proxy Statement to be
filed with respect to the Annual Meeting of Stockholders to be held on June 3,
1998, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this item, see the information under "Executive
Compensation" in the Company's Proxy Statement to be filed with respect to the
Annual Meeting of Stockholders to be held on June 3, 1998, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning this item, see the information under "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement to be filed with respect to the Annual Meeting of Stockholders to be
held on June 3, 1998, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning this item, see the information under "Certain
Relationships and Related Transactions" in the Company's Proxy Statement to be
filed with respect to the Annual Meeting of Stockholders to be held on June 3,
1998, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements.
The Company's audited financial statements, financial statement schedules
and the Report of Independent Public Accountants are appended to this Annual
Report on Form 10-K. Reference is made to the Index to Financial Statements
and Schedules on page F-1.
(b) Reports on Form 8-K.
On October 3, 1997, the Company filed a current report on Form 8-K under
Item 5 which reported the execution of a Supply Agreement by the Company and
Ganes Chemicals, Inc.
27
<PAGE> 28
On December 10, 1997, the Company filed a current report on Form 8-K under
Item 5 which reported the execution of a Development Collaboration and License
Agreement and a Stock Purchase Agreement with Genentech, Inc.
(c) Exhibits.
The exhibits required to be filed are listed on the Index to Exhibits
attached hereto, which is incorporated herein by reference.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 30th day of March
1998.
ALTEON INC.
By:/s/ James J. Mauzey
-----------------------------
James J. Mauzey
Chairman of the Board and
Chief Executive Officer
29
<PAGE> 30
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------- -------------------- --------------
<S> <C> <C>
/s/ James J. Mauzey Chairman of the March 30, 1998
- ------------------- Board and Chief
James J. Mauzey Executive Officer
(principal
executive officer)
/s/ Jere E. Goyan President, Chief Operating March 30, 1998
- ----------------- Officer and Director
Jere E. Goyan
/s/ Kenneth I. Moch Senior Vice President, March 30, 1998
- ------------------- Finance and Business
Kenneth I. Moch Development and
Chief Financial
Officer (principal
financial officer)
/s/ Elizabeth O'Dell Vice President, March 30, 1998
- -------------------- Finance and
Elizabeth O'Dell Administration,
Secretary and
Treasurer (principal
accounting officer)
/s/ Marilyn G. Breslow
- ---------------------- Director March 30, 1998
Marilyn G. Breslow
/s/ Robert N. Butler
- -------------------- Director March 30, 1998
Robert N. Butler
/s/ Anthony Cerami
- ------------------ Director March 30, 1998
Anthony Cerami
/s/ Alan J. Dalby
- ----------------- Director March 30, 1998
Alan J. Dalby
/s/ David McCurdy
- ----------------- Director March 30, 1998
David McCurdy
/s/ Mark Novitch
- ---------------- Director March 30, 1998
Mark Novitch
</TABLE>
30
<PAGE> 31
Form 10-K - Item 14(a) (1)
Alteon Inc.
List of Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
The following financial statements of Alteon Inc. are included in Item 8:.............
Report of independent public accountants - Arthur Andersen LLP........................ F-2
Financial statements:................................................................. F-3
Balance sheets as of December 31, 1996 and 1997....................................... F-3
Statements of operations for the years ended December 31, 1995, 1996 and 1997......... F-4
Statements of stockholders' equity for the period from December 31, 1995
to December 31, 1997.................................................................. F-5
Statements of cash flows for the years ended December 31, 1995, 1996 and 1997......... F-6
Notes to financial statements................................................. F-7 -- F-14
</TABLE>
<PAGE> 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Alteon Inc.:
We have audited the accompanying balance sheets of Alteon Inc. (a Delaware
corporation) as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alteon Inc. as of December 31,
1996 and 1997, and the results of its operations and cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 27, 1998
F-2
<PAGE> 33
ALTEON INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $ 18,285,853 $ 20,423,675
Short-term investments...... 16,213,670 8,550,063
Other current assets........ 649,169 468,680
------------- -----------
Total current assets....... 35,148,692 29,442,418
Property and equipment, net.. 3,999,530 3,183,362
Deposits and other assets.... 266,971 261,358
Restricted cash.............. 723,800 620,400
------------- -----------
Total assets............... $ 40,138,993 $ 33,507,538
============= =============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable............ $ 1,853,400 $ 921,637
Accrued expenses............ 6,447,521 5,969,384
Obligations under capital
leases.................... 305,321 161,581
------------- -------------
Total current liabilities.. 8,606,242 7,052,602
------------- -------------
Obligations under capital
leases..................... 161,577 -
------------- -------------
CONTINGENCIES AND COMMITMENTS (NOTES 3 AND 6)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par
value; 1,993,329 shares
authorized, and 0 and 942
shares issued and
outstanding, as of
December 31, 1996 and 1997,
respectively................. - 9
Common stock, $.01 par value;
30,000,000 shares authorized
and 15,702,825 and 17,922,319
shares issued and outstanding
as of December 31, 1996
and 1997, respectively....... 157,028 179,223
Additional paid-in
capital...................... 84,018,146 105,585,019
Accumulated deficit.......... (52,800,283) (79,303,374)
Unrealized losses on
short-term investments....... (3,717) (5,941)
-------------- --------------
Total stockholders' equity... 31,371,174 26,454,936
-------------- --------------
Total liabilities and
stockholders' equity......... $ 40,138,993 $ 33,507,538
============== ==============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 34
ALTEON INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Investment income..................... $ 1,888,496 $ 2,295,394 $ 1,510,673
Expenses:
Research and development.............. 10,004,244 17,494,193 23,264,385
General and administrative............ 3,699,210 3,516,599 3,632,917
Interest.............................. 68,435 47,394 25,061
-------------- --------------- ---------------
Total expenses...................... 13,771,889 21,058,186 26,922,363
-------------- --------------- ----------------
Net loss.............................. (11,883,393) (18,762,792) (25,411,690)
-------------- --------------- ----------------
Preferred stock dividends and discount
amortization.......................... - - 1,091,401
-------------- --------------- ----------------
Net loss applicable to common
shareholders.......................... $ (11,883,393) $ (18,762,792) $ (26,503,091)
=============== =============== ================
Basic loss per share to common
shareholders.......................... $ (0.90) $ (1.20) $ (1.60)
=============== =============== ================
Diluted loss per share to common
shareholders.......................... $ (0.90) $ (1.20) $ (1.60)
=============== =============== ================
Weighted average common shares used in
computing basic and diluted loss per
share................................. 13,169,968 15,640,399 16,566,290
=============== =============== ================
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 35
ALTEON INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Preferred Stock Common Stock Additional Losses Total
------------------ --------------------- Paid-in Accumulated on Short-Term Stockholders'
Shares Amount Shares Amount Capital Deficit Investments Equity
------ ---------- --------- --------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994.................... -- $ -- 12,493,633 $124,936 $64,071,309 $(22,154,098) $(828,061) $41,214,086
Exercise of employee
stock options........... -- -- 594,352 5,944 524,208 -- -- 530,152
Change in unrealized
losses.................. -- -- -- -- -- -- 820,355 820,355
Follow-on offering of
common stock............ -- -- 2,300,000 23,000 19,011,537 -- -- 19,034,537
Net loss................ -- -- -- -- -- (11,883,393) -- (11,883,393)
Balance, December 31, ------- ------ ---------- -------- ----------- ------------- --------- ------------
1995.................... -- -- 15,387,985 153,880 83,607,054 (34,037,491) (7,706) 49,715,737
Exercise of employee
stock options........... -- -- 314,840 3,148 381,560 -- -- 384,708
Deferred compensation
expense in connection
with the issuance of
non-qualified stock
options....... -- -- -- -- 29,532 -- -- 29,532
Change in unrealized
losses.................. -- -- -- -- -- -- 3,989 3,989
Net loss................ -- -- -- -- -- (18,762,792) -- (18,762,792)
Balance, December 31, ------- ------ ---------- -------- ----------- ------------- --------- ------------
1996.................... -- -- 15,702,825 157,028 84,018,146 (52,800,283) (3,717) 31,371,174
Issuance of 6%,
cumulative preferred
stock valued at $1,000
per share, net of
transaction costs....... 5,000 50 -- -- 4,812,277 -- -- 4,812,327
Conversion of all 6%,
cumulative preferred
stock to common stock... (5,000) (50) 1,203,099 12,031 (12,014) -- -- (33)
Preferred stock dividends
and discount
amortization........... -- -- -- -- 1,065,161 (1,065,161) -- --
Issuance of Series G
preferred stock valued at
$10,000 per share to
Genentech, Inc., net of
transaction
costs................... 939 9 -- -- 9,266,313 -- -- 9,266,322
Issuance of Series G
preferred stock
dividends............... 3 0 -- -- 26,240 (26,240) -- --
Issuance of common stock
to Genentech, Inc....... -- -- 837,314 8,373 5,601,627 -- -- 5,610,000
Exercise of employee
stock options........... -- -- 179,081 1,791 119,165 -- -- 120,956
Deferred compensation
expense in connection
with the issuance of
non-qualified stock
options................ -- -- -- -- 249,501 -- -- 249,501
Expense in connection
with the valuation of
non-qualified stock
options granted to
consultants............ -- -- -- -- 438,603 -- -- 438,603
Change in unrealized
losses................. -- -- -- -- -- -- (2,224) (2,224)
Net loss............... -- -- -- -- -- (25,411,690) -- (25,411,690)
Balance, December 31, ------- ------ ---------- -------- ------------ ------------- --------- ------------
1997................... 942 $ 9 17,922,319 $179,223 $105,585,019 $(79,303,374) $ (5,941) $26,454,936
======= ====== ========== ======== ============ ============= ========= ============
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 36
ALTEON INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss...................................... $ (11,883,393) $ (18,762,792) $ (25,411,690)
Adjustments to
reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 861,159 790,770 711,839
Amortization of
deferred compensation........................ ---- 29,532 688,104
Changes in
operating assets and liabilities:
Receivables from corporate partner........... (345,364) 602,999 ----
Other current
assets....................................... (172,213) 18,216 180,489
Other assets................................. 175,239 (13,674) 5,613
Accounts payable
and accrued expenses......................... 371,068 6,550,303 (1,409,900)
---------------- ---------------- ----------------
Net cash used in
operating activities......................... (10,993,504) (10,784,646) (25,235,545)
---------------- ---------------- ----------------
Cash Flows from
Investing Activities:
Capital expenditures......................... (361,188) (376,624) (21,187)
Purchases of
marketable securities........................ (110,536,398) (104,285,343) (105,272,696)
Sales and maturities of
marketable securities........................ 100,525,658 132,292,363 112,934,079
Restricted cash.............................. ---- 103,400 103,400
---------------- ---------------- ----------------
Net cash provided by (used in)
investing activities......................... (10,371,928) 27,733,796 7,743,596
---------------- ---------------- ----------------
Cash Flows from Financing
Activities:
Proceeds from issuance of common
stock........................................ 19,564,689 384,708 5,730,956
Proceeds from issuance of
preferred stock.............................. ---- ---- 14,078,616
Payments under capital lease
obligations.................................. (268,503) (282,990) (305,317)
Proceeds from sales-leaseback
financing.................................... ---- 254,975 125,516
---------------- ---------------- ----------------
Net cash provided by financing
activities................................... 19,296,186 356,693 19,629,771
---------------- ---------------- ----------------
Net (decrease)/increase
in cash and cash equivalents................. (2,069,246) 17,305,843 2,137,822
Cash and cash equivalents,
beginning of period.......................... 3,049,256 980,010 18,285,853
---------------- ---------------- ----------------
Cash and cash equivalents, end of
period....................................... $ 980,010 $ 18,285,853 $ 20,423,675
================ ================ ================
Supplemental disclosures of cash
flow information:
Cash paid for interest....................... $ 68,435 $ 47,394 $ 25,061
================ ================ ================
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Alteon Inc. (the "Company") was founded in 1986 and is engaged in the
discovery and development of novel therapeutic and diagnostic products to treat
the complications of diabetes and age-related diseases. The Company's products
are designed to inhibit, measure and reverse damage to cells, tissues and
organs caused by Advanced Glycosylation End-product ("A.G.E.") formation and
cross-linking resulting from glucose in the body's circulatory system. Since
its inception, the Company has recognized $17,000,000 of revenues from
corporate partners related to collaborative arrangements. All of the Company's
products are in research or development, and no revenues have been generated
from product sales. The Company is currently conducting two pivotal clinical
trials evaluating pimagedine as a treatment for diabetic kidney disease: one
Phase III clinical trial for overt nephropathy in Type I diabetics and one
Phase III trial for end-stage renal disease. In addition, the Company recently
expanded the potential indications and dosage forms of pimagedine beyond the
complications of diabetes to take advantage of its other mechanisms of action.
In March 1998, the Company discontinued a Phase III clinical trial for overt
nephropathy in Type II diabeties because of an insufficient risk/benfit ratio
based upon data currently available.
Operations of the Company are subject to certain risks and uncertainties
including, but not limited to, uncertainties related to clinical trials,
technological uncertainty, uncertainty of future profitability and access to
capital, and dependence on collaborative relationships and key personnel.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash and highly liquid investments which
have a maturity of less than three months at the time of purchase. Short-term
investments, classified as available for sale on the accompanying Balance
Sheet, are recorded at fair market value and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
------------ -----------
<S> <C> <C>
U.S. Government Agency Funds $9,561,798 $8,550,063
Corporate Obligations 6,651,872 --
------------ -----------
$16,213,670 $8,550,063
============ ===========
</TABLE>
These amounts represent market value which was lower than amortized cost
at December 31, 1996 and December 31, 1997. The amortized cost of these
short-term investments was $16,213,759 and $8,552,658 at December 31, 1996 and
December 31, 1997, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the useful lives of owned
assets which range from three to five years. Leasehold improvements and
equipment under capital leases are amortized using the straight-line method
over the shorter of the lease term or the useful life of the assets.
F-7
<PAGE> 38
Patent Costs
Patent costs are expensed as incurred.
Research and Development
Expenditures for research and development are charged to operations as
incurred. Research and development expenditures were $11,648,000, $18,720,000
and $23,264,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. Expenditures were reduced by reimbursements from corporate
partners in these periods of $1,643,000, $1,226,000, and $0, respectively.
(See Note 4.)
Net Loss Per Share
Effective for the year ended December 31, 1997, the Company adopted
statement of Financial Accounting Standards, 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.
New Accounting Pronouncements
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" for the
year ending December 31, 1996. (See Note 6.)
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2 -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Laboratory equipment............................ $1,336,211 $1,225,485
Furniture and equipment......................... 710,149 675,965
Computer equipment.............................. 552,255 548,779
Leasehold improvements.......................... 4,908,545 4,908,545
----------- -----------
7,507,160 7,358,774
Less: Accumulated depreciation & amortization... (3,507,630) (4,175,412)
----------- -----------
$3,999,530 $3,183,362
=========== ===========
</TABLE>
Laboratory equipment and furniture include approximately $1,375,000 and
$1,347,000 under capital leases at December 31, 1996 and 1997, respectively.
Accumulated amortization relating to leased assets totaled approximately
$550,000 and $643,000 at December 31, 1996 and 1997, respectively. (See Note
5.)
NOTE 3 - COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
Genentech, Inc. ("Genenetech")
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
F-8
<PAGE> 39
NOTE 3 - COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS (CONTINUED)
in Series H. Preferred Stock. The first such purchase will occur after Alteon
and Genentech finalize certain amendments to the agreements. 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, 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 (including Genentech's
obligations to fund development for products) may be terminated upon six months'
notice by Genentech in its entirety or with respect to any licensed product. If
terminated, certain of the Series H funds received may be refundable to
Genentech, 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.
NOTE 4 - OTHER DEVELOPMENT AGREEMENTS
In 1989, the Company and Yamanouchi Pharmaceutical Co., Ltd.
("Yamanouchi") formed a strategic alliance to develop and commercialize the
Company's A.G.E. technology. Under this arrangement, the parties agreed to
collaborate on further research and development, and the Company granted to
Yamanouchi an exclusive license to commercialize the Company's technology in
Japan, South Korea, Taiwan and The People's Republic of China.
In December 1994, the Company entered into an exclusive licensing
arrangement for Alteon's diagnostic technology with Corange International
Limited, acting through its subsidiary Boehringer Mannheim Diagnostics
("Boehringer Mannheim"). Under the agreement, Boehringer Mannheim will receive
exclusive worldwide rights to Alteon's technology for diagnostics application,
subject to an option held by Yamanouchi for Japan, South Korea, Taiwan and The
People's Republic of China. Yamanouchi is Alteon's exclusive licensee for its
A.G.E.
F-9
<PAGE> 40
NOTE 4 - OTHER DEVELOPMENT AGREEMENTS (CONTINUED)
technology in the aforementioned countries. Pursuant to the agreement, Alteon
received an initial payment in January 1995, and will be entitled to receive
ongoing royalties based on net sales of research test kits and commercial
assays developed by Boehringer Mannheim which are based on Alteon's A.G.E.
technology.
In June 1995, the Company obtained an exclusive, worldwide,
royalty-bearing license from Washington University for patents covering the use
of pimagedine as an inhibitor of inducible nitric oxide synthase. The
agreement requires the Company to pay certain licensing fees upon the
attainment of development milestones as well as a royalty on net sales or a
share of sub-licensing profits of products covered by the patents. The license
also covers patents developed through any subsequent research collaboration
between the parties which is funded by Alteon.
In November 1995, the Company entered into clinical testing and
distribution agreements with Gamida for Life "Gamida"), formerly Eryphile BV.
Under these agreements, Gamida conducted, at its own expense, a Phase II
multi-site clinical trial in Israel, in accordance with the protocol developed
by Alteon, evaluating pimagedine in patients with diabetes and elevated serum
cholesterol levels. Gamida will receive the exclusive right to distribute
pimagedine, if successfully developed and approved for marketing, in Israel,
Bulgaria, Cyprus, Jordan and South Africa. The distribution agreement is for a
term ending 10 years after the date of regulatory approval for the sale of
pimagedine in Israel; thereafter, it will be automatically renewed for
successive three-year periods unless terminated by either party on the last day
of the initial or a renewal term.
In June 1997, Alteon entered into a license and supply agreement with
IDEXX Laboratories, Inc. ("IDEXX") pursuant to which Alteon licensed to IDEXX
pimagedine as a potential therapeutic in companion animals (dogs, cats and
horses) and its A.G.E. diagnostics technology for companion animal use. IDEXX
will be responsible for the development, licensing and marketing of pimagedine
and A.G.E. diagnostics for such use on a worldwide basis. Alteon will be
entitled to receive milestone payments and royalties on sales of the licensed
products.
Alteon's commercial partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the commercial partners or
to which the commercial partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. (See Note 6.)
The Company has also entered into various arrangements with independent
research laboratories to conduct studies in conjunction with the development of
the Company's technology. The Company receives certain rights to inventions or
discoveries that may arise from this research. (See Note 9.)
NOTE 5 -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Accrued clinical trial expense $5,159,331 $4,515,983
Accrued payroll and related expenses 308,686 429,316
Accrued consultants/contracts 192,607 338,737
Accrued rent 375,235 320,323
Accrued professional 184,130 151,445
Accrued patent 40,770 140,252
Accrued relocation 58,578 12,203
Other 128,184 61,125
----------- -----------
$6,447,521 $5,969,384
=========== ===========
</TABLE>
The Company's headquarters and research facility rent is being expensed on
a straight-line basis over the ten-year lease period. (See Note 6.)
F-10
<PAGE> 41
NOTE 6 - CONTINGENCIES AND COMMITMENTS
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. The Company and HMRI are
negotiating various open issues arising from the termination of their
collaboration. This includes the rights of the parties under certain patents
and amounts which may be payable by the Company to HMRI and by HMRI to the
Company. HMRI has invoiced the Company $2,612,000 which in the Company's
opinion is without merit. The Company believes the ultimate resolution of this
matter will not have a material adverse effect on the Company's financial
position, results of operations or cash flow.
Commitments
The Company leases its headquarters and research facility and related
equipment and furniture under non-cancelable capital and operating leases. As
of December 31, 1997 future net minimum lease payments under capital leases and
future minimum rentals under operating leases that have initial or remaining
non-cancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
1998................................... $165,191 $ 802,447
1999................................... -- 732,002
2000................................... -- 599,777
2001................................... -- 536,500
2002................................... -- 536,500
Thereafter............................. -- 447,083
------------ ------------
$165,191 $3,654,309
============
Less: imputed interest................ (3,610)
------------
Present value of minimum lease payments 161,581
Less: Current portion................. (161,581)
------------
$ --
------------
</TABLE>
In 1994, the Company entered into a sales-leaseback transaction for
certain headquarters and research facility assets (principally, leasehold
improvements) generating proceeds of $1,136,037. The related lease was
accounted for as a capital lease payable over four years with 7.6% interest.
Rent expense for each of the years in the three-year period ended December
31, 1997, was $563,721, $570,612, and $573,962, respectively. As of December
31, 1997, the Company has restricted cash of $620,400 which represents the
escrow amount related to the Company's leased headquarters and research
facility. The Company may reduce the originally required escrow amount of
$1,034,000 by 10% per year.
NOTE 7 -- STOCKHOLDERS' EQUITY
Common/Preferred Stock Issuances
On November 1, 1991, the Company completed an initial public offering of
Common Stock with net proceeds to the Company of $47,406,581. In conjunction
with the offering, all of the then outstanding shares of Preferred Stock were
converted into 6,725,627 shares of Common Stock.
F-11
<PAGE> 42
NOTE 7 -- STOCKHOLDERS' EQUITY (CONTINUED)
In October and November 1995, the Company completed a follow-on offering
of Common Stock, which included the sale of 2,000,000 shares and 300,000
shares, respectively, at a price of $9.00 per share which provided net proceeds
to the Company of $19,035,000.
On April 24, 1997, the Company raised $4.8 million net of offering costs,
through the issuance of 5,000 shares of its $0.01 par value, 6% Cumulative
Convertible Preferred Stock ("Preferred Stock"). This stock was convertible at
a discount to market. In connection with this issuance, the Company issued to
the purchasers, warrants to purchase 60,000 shares of its Common Stock at an
exercise price of $4.025 per share. As of December 1997, all the Preferred
Stock has been converted and approximately $1,065,000 of Preferred Stockholder
Dividends were recorded which included the amortization of the conversion
discount and warrants, and the 6% preferred dividends.
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. (See Note 3.) In
December 1997, Genentech purchased Common Stock and Series G Preferred Stock
for an aggregate purchase price of $15,000,000. As of December 31, 1997,
approximately $26,000 of Preferred Stockholder Dividends were recorded. Series
G Preferred Stock Dividends are payable quarterly in shares of Series G
Preferred Stock at a rate of 8.25%. Genentech has also agreed to purchase up
to $48,000,000 in Series H Preferred Stock. The first such purchase will occur
after Alteon and Genentech finalize certain amendments to the agreements. Each
share of Series G Preferred Stock is convertible at any time 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 "Conversion Price"). 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 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.
Stock Option Plan
The Company has established two stock option plans for its employees,
officers, directors, consultants and independent contractors. Options to
purchase up to 4,192,000 shares of Common Stock may be granted under the first
plan ("1987 Plan"). In 1995, a second stock option plan ("1995 Plan") was
approved which authorized additional options to purchase 1,000,000 shares of
Common Stock and in June 1997 additional options to purchase 1,000,000 shares
of Common Stock was authorized.
The plans are administered by a committee of the Board of Directors, which
may grant either non-qualified or incentive stock options. The committee
determines the exercise price and vesting schedule at the time the option is
granted. Options vest over various periods and may expire no later than 10
years from date of grant. Each option entitles the holder to purchase one
share of Common Stock at the indicated exercise price. The plans also provide
for certain antidilution and change in control rights, as defined.
F-12
<PAGE> 43
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes the activity in the Company's stock
options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE EXERCISE PRICE
OPTIONS PER SHARE PER SHARE
--------- -------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1994.. 3,415,663
Granted..................... 387,729 $6.88-14.13 $7.68
Exercised................... (594,352) 0.30- 8.25 .90
Canceled.................... (104,409) 4.36-15.00 9.66
---------
Balance, December 31, 1995.. 3,104,631 5.88
Granted..................... 418,083 1.00-15.00 6.83
Exercised................... (314,840) 0.30-10.25 1.22
Canceled.................... (47,079) 4.36-15.00 8.16
---------
Balance, December 31, 1996.. 3,160,795 $6.44
Granted..................... 852,110 3.88-6.56 5.60
Exercised................... (179,081) 0.30-6.56 .68
Canceled.................... (174,384) 0.89-14.13 6.75
---------
Balance, December 31, 1997.. 3,659,440 $6.51
=========
</TABLE>
At December 31, 1997, 2,397,839 options were exercisable at a weighted
average price of $6.29 per share, and 907,079 shares were available for future
grants. The weighted average fair value of the options granted was $4.25,
$4.13 and $2.89 during 1995, 1996 and 1997, respectively. The outstanding
stock options at December 31, 1997 have a weighted average remaining
contractual life of 6.5 years. Included in options at December 31, 1997, are
600,004 options granted to certain executives with option prices ranging from
$5.38 per share to $11.15 per share. Such options vest upon the earlier of 10
years after grant or upon achievement of certain Company milestones.
The Company accounts for the 1987 and 1995 Stock Option Plans under APB
Opinion No. 25, under which no compensation cost (excluding those options
granted below fair market value) has been recognized. Had compensation costs
for these plans been determined consistent with FASB Statement No. 123, the
Company's pro forma net loss and loss per share applicable to common
Stockholders for 1995, 1996 and 1997 would have been $12.6 million, $19.4
million and $28.0 million and $0.95, $1.24 and $1.74, respectively. Because
the FASB Statement No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
Under the FASB Statement No. 123, the fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants in 1995, 1996 and 1997,
respectively: risk free interest rates ranging from 5.31% to 7.10%, 5.38% to
6.64% and 5.73% to 6.78% respectively; expected life of 2.02 years over the
vesting periods; and expected volatility of 70%.
NOTE 8 -- SAVINGS AND RETIREMENT PLAN
The Company maintains a savings and retirement plan under Section 401(k)
of the Internal Revenue Code which allows eligible employees to annually
contribute a portion of their annual salary to the plan. The Company may make
discretionary contributions. To date, the Company has not made any
contributions.
F-13
<PAGE> 44
NOTE 9 -- RELATED PARTY TRANSACTIONS
Since the Company's inception, the Company has entered into certain
collaborative agreements with organizations which Dr. Anthony Cerami, the
Chairman of the Company's Scientific Advisory Board and member of the Company's
Board of Directors, was affiliated. Those organizations included The Picower
Institute for Medical Research ("The Picower Institute"), The Rockefeller
University and since March 1997, Cerami Consulting Corporation. The Company
paid to the organizations $1,109,000, $1,006,000 and $284,000 in 1995, 1996,
and 1997, respectively. In addition, the Company paid patent maintenance fees
for technology related to the organizations of $217,0000, $137,000 and $168,000
in 1995, 1996 and 1997, respectively. Although the Company has terminated its
collaborative relationship with The Picower Institute, the Company has a
royalty obligation on all net sales and other revenues associated with certain
technologies developed.
The Chairman of the Company's Scientific Advisory Board, who also serves
as a member of the Company's Board of Directors, and three other Scientific
Advisory Board members provide consulting services to the Company. Consulting
fees paid to these members totaled $178,000 in 1995 and 1996 and $136,000 in
1997, respectively.
In 1993, a Company officer received a loan which bore interest at a rate
equal to the prime rate as published in the Wall Street Journal, adjusted
quarterly, for purpose of purchasing a home. The loan is secured by a second
mortgage on the premises purchased by the officer. In 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. The loan
and accrued interest balance was $241,173, $261,946, and $259,925 as of December
31, 1995, 1996, and 1997, respectively. The loan decreased in 1997 due to a
$25,000 payment made at December 31, 1997.
NOTE 10 -- INCOME TAXES
At December 31, 1997, the Company had available net operating tax loss
carryforwards, which expire in the years 2006 through 2012, of approximately
$76 million for income tax purposes. In addition, the Company has research and
development credit carryforwards of approximately $4 million. The amount of
net operating loss and research and development credit carryforwards which can
be utilized in any one period may become limited by federal income tax
regulations if a cumulative change in ownership of more than 50% occurs within
a three year period.
The Company accounts for income tax in accordance with Statement of
Financial Accounting Standards No. 109. The components of the deferred tax
assets and the valuation allowance are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
------------ -------------
<S> <C> <C>
NOL carryforwards.................. $21,000,000 $30,000,000
Research and development credit.... 2,600,000 4,000,000
Other temporary differences........ 960,000 2,400,000
------------ -------------
Gross deferred tax assets.......... 24,560,000 36,400,000
-------------
Valuation allowance................ (24,560,000) (36,400,000)
------------ -------------
Net-deferred tax assets............ $ -- $ --
============ =============
</TABLE>
A valuation allowance was established since the realization of the
deferred tax assets is uncertain.
F-14
<PAGE> 45
EXHIBIT INDEX
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 6% Cumulative Convertible Preferred Stock
for Alteon Inc. (Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed on May 9, 1997).
3.4 Certificate of Designations of Series G Preferred Stock of Alteon Inc.
3.5 Certificate of Designations of Series H Preferred Stock of Alteon Inc.
3.6 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+ Amended and Restated 1987 Stock Option Plan.
10.2+ Amended 1995 Stock Option Plan. (Incorporated by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.3 Form of Employee's or Consultant's Invention Assignment, Confidential
Information and Non-Competition Agreement executed by all key employees
and consultants as employed or retained from time to time. (Incorporated
by Reference to Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (File Number 33-42574) which became effective on November 1,
1991).
10.4 Amendment and Assignment of Research and Option Agreement dated as of
September 25, 1987 among Telos, The Rockefeller, the Company and Anthony
Cerami. (Incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (File Number 33-42574) which became
effective on November 1, 1991).
<PAGE> 46
10.5 License Agreement dated as of September 25, 1987 among Telos, Applied
Immune Sciences, Inc., the Company and The Rockefeller as amended by
letter agreement dated September 25, 1987 and letter agreement dated
August 15, 1991. (Incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File Number 33-42574) which
became effective on November 1, 1991).
10.6 Stock Purchase Agreement dated as of June 16, 1989 between the Company
and Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"). (Incorporated by
reference to Exhibit 10.16 to the Company's Registration Statement on
Form S-1 (File Number 33-42574) which became effective on November 1,
1991).
10.7* License Agreement dated as of June 16, 1989 between the Company and
Yamanouchi. (Incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1 (File Number 33-42574) which became
effective on November 1, 1991).
10.8* Research and Development Collaboration Agreement dated as of June 16,
1989 between the Company and Yamanouchi. (Incorporated by reference to
Exhibit 10.18 to the Company's Registration Statement on Form S-1 (File
Number 33-42574) which became effective on November 1, 1991).
10.9 Letter Agreement dated June 21, 1989 between the Company and Yamanouchi.
(Incorporated by reference to Exhibit 10.19 to the Company's Registration
Statement on Form S-1 (File Number 33-42574) which became effective on
November 1, 1991).
10.10 Consulting Agreement dated September 1, 1991 between the Company and
Anthony Cerami, Ph.D. (Incorporated by reference to Exhibit 10.27 to the
Company's Registration Statement on Form S-1 (File Number 33-42574) which
became effective on November 1, 1991).
10.11* Research and License Agreement dated as of September 5, 1991 between the
Company and The Picower Institute for Medical Research. (Incorporated by
reference to Exhibit 10.29 to the Company's Registration Statement on
Form S-1 (File Number 33-42574) which became effective on November 1,
1991).
10.12 Amendment dated as of September 17, 1992 to the Research and Development
Collaboration Agreement dated as of June 16, 1989, between the Company
and Yamanouchi. (Incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992).
10.13 Lease Agreement dated January 11, 1993 between Ramsey Associates and the
Company. (Incorporated by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.14+ Employment Agreement dated July 13, 1993 between the Company and Jere E.
Goyan. (Incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993).
10.15+ Employment Agreement dated as of February 28, 1994 between the Company
and James J. Mauzey. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on March 9, 1994).
10.16 Lease Agreement dated June 6, 1994 between the Company and Financing for
Science International, Inc. (Incorporated by reference to Exhibit 10.36
to the Company's Annual Report on Form 10-K for the year ended December
31, 1994).
<PAGE> 47
10.17* License Agreement dated as of December 30, 1994 between the Company and
Corange International Limited. (Incorporated by reference to Exhibit
10.38 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.18+ Employment Agreement dated as of February 27, 1995 between the Company
and Kenneth I. Moch. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on March 20, 1995).
10.19+ Employment Agreement dated as of March 27, 1995 between the Company and
Kenneth Cartwright. (Incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995.)
10.20* Research Collaboration and License Agreement dated as of June 2, 1995
between Washington University and the Company. (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
filed on August 11, 1995).
10.21 Distribution Agreement dated September 25, 1995 between the Company and
Eryphile BV. (Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on November 24, 1995).
10.22 Clinical Testing Agreement dated September 25, 1995 between the Company
and Eryphile BV. (Incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on November 24, 1995).
10.23+ Employment Agreement dated as of October 21, 1995 between the Company
and Elizabeth O'Dell. (Incorporated by reference to Exhibit 10.42 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.24+ Alteon Inc. Change in Control Severance Benefits Plan. (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on March 13, 1996).
10.25+ Letter Agreement dated July 10, 1996 between the Company and Jere E.
Goyan amending Employment Agreement dated July 13, 1993. (Incorporated
by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.26+ Letter Agreement dated January 29, 1997 between the Company and Kenneth
Cartwright amending Employment Agreement dated March 27, 1995.
(Incorporated by reference to Exhibit 10.31 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.27+ Letter Agreement dated January 29, 1997 between the Company and Elizabeth
A. O'Dell amending Employment Agreement dated October 21, 1995.
(Incorporated by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.28+ Letter Agreement dated January 30, 1997 between the Company and James J.
Mauzey amending Employment Agreement dated February 28, 1994.
(Incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.29+ Letter Agreement dated March 27, 1997 between the Company and Kenneth
Cartwright amending Employment Agreement dated March 27, 1995, as
amended. (Incorporated by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
<PAGE> 48
10.30* Clinical Services Agreement dated as of August 11, 1996 between the
Company and Quintiles, Inc. (Incorporated by reference to Exhibit 10.35
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997).
10.31 Registration Rights Agreement dated as of April 24, 1997 between Alteon
Inc. and the investors named on the signature page thereof.
(Incorporated by reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K filed on May 9, 1997).
10.32 Preferred Stock Investment Agreement dated as of April 24, 1997 between
Alteon Inc. and the investors named on the signature page thereof.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on May 9, 1997).
10.33* License and Supply Agreement dated June 17, 1997 between IDEXX
Laboratories, Inc. and Alteon Inc. (Incorporated by reference to Exhibit
10.1 to the Company's Report on Form 10-Q filed on July 13, 1997).
10.34* Supply Agreement dated September 12, 1997 between Ganes Chemicals Inc.
and Alteon Inc. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on October 3, 1997).
10.35+ Letter Agreement dated September 15, 1997 between the Company and
Kenneth I. Moch amending Employment Agreement dated February 27, 1995.
10.36+ Letter Agreement dated October 21, 1997 between the Company and
Elizabeth A. O'Dell amending Employment Agreement dated October 21, 1995,
as amended (Incorporated by reference to Exhibit 10.2 to the Company's
Report on Form 10-Q filed on November 12, 1997)
10.37 Stock Purchase Agreement dated as of December 1, 1997 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 December 10, 1997).
10.38* Development Collaboration and License Agreement dated as of December 1,
1997 between Alteon Inc. and Genentech, Inc. (Incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on
December 10, 1997).
10.39+ Letter Agreement dated February 24, 1998 between the Company and Jere E.
Goyan amending Employment Agreement dated July 13, 1993, as amended.
27 Financial Data Schedule.
- ---------------
* Confidentiality has been granted for a portion of this exhibit
+ Denotes a management contract or compensation plan or arrangement required to
be filed as an exhibit pursuant to Item 14(c) to this Form 10-K.
<PAGE> 1
EXHIBIT 3.4
CORRECTED CERTIFICATE OF DESIGNATIONS
OF SERIES G PREFERRED STOCK
OF ALTEON INC.
Pursuant to Section 103 of the General Corporation Law of the
State of Delaware, Alteon Inc., organized and existing under the General
Corporation Law of the State of Delaware, files this Corrected Certificate of
Designations of Series G Preferred Stock of Alteon Inc. to correct the number of
shares initially constituting the Series G Preferred Stock as set forth in
Section 1 of the Certificate of Designations of Series G Preferred Stock of
Alteon Inc. filed on December 11, 1997. The Certificate of Designations of
Series G Preferred Stock of Alteon Inc. in its corrected form is as follows:
CERTIFICATE OF DESIGNATIONS
OF SERIES G PREFERRED STOCK
OF ALTEON INC.
Pursuant to Section 151 of the General Corporation Law of the
State of Delaware, Alteon Inc. (the "Corporation"), organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of
Directors of the Corporation by Article Fifth of the Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), the Board
of Directors of the Corporation on December 3, 1997, adopted the following
resolution creating a series of Preferred Stock designated as Series G Preferred
Stock:
RESOLVED, that, pursuant to the authority vested in the Board
of Directors of the Corporation in accordance with the provisions of
the Certificate of Incorporation of the Corporation, a series of
Preferred Stock of the Corporation is hereby created and that the
designation and number of shares thereof and the voting powers,
preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
SECTION 1. Designation and Number of Shares. The shares of such series
shall be designated as "Series G Preferred Stock" (the "Series G Preferred
Stock"), par value $0.01 per share. The number of shares initially constituting
the Series G Preferred Stock shall be 1,200.
<PAGE> 2
SECTION 2. Dividends or Distributions.
(a) Quarterly Dividends. The holders of the shares of Series G
Preferred Stock shall be entitled to receive, out of the assets of the
Corporation legally available therefor, cumulative quarterly dividends, payable
in shares of Series G Preferred Stock, whether or not declared, on the last day
of each fiscal quarter in each year (the "Dividend Payment Date"), commencing
upon the Dividend Payment Date next following the first issuance of a share of
Series G Preferred Stock, at the rate per annum equal to the Prime Rate
published in The Wall Street Journal five (5) Business Days (as defined in
Section 5(a)) prior to such issuance. Such dividend shall be calculated by
multiplying the number of shares of Series G Preferred Stock held by a holder on
the Dividend Payment Date by such Prime Rate per annum.
(b) Record Date. The Dividend Payment Date shall be the record
date for the determination of holders of shares of Series G Preferred Stock
entitled to receive a dividend declared thereon.
(c) Accrual and Accumulation. Dividends shall begin to accrue
and be cumulative on outstanding shares of Series G Preferred Stock from and
after the date of issue of such shares of Series G Preferred Stock. Accrued but
unpaid dividends shall not bear interest. Notwithstanding anything to the
contrary contained herein, the Corporation shall not be required to deliver
certificates representing shares of Series G Preferred Stock in payment of
accrued dividends on any date other than a Dividend Payment Date.
(d) Other Dividends and Distributions. The holders of the
shares of Series G Preferred Stock shall not be entitled to receive any other
dividends or distributions except as provided herein.
(e) Necessary Actions. The Corporation shall take any and all
corporate action necessary to declare and pay such dividends described in this
Section 2.
(f) Limitation on Dividends. Dividends shall accrue but shall
not be payable on the shares of Series G Preferred Stock held by any holder
during any period when such holder, its Affiliates (as hereinafter defined) and
any group (a "Group") (within the meaning of Rule 13d-5 promulgated pursuant to
the Securities and Exchange Act of 1934, as amended from time to time (the
"Exchange Act") of which such holder or any of its Affiliates is a member is the
beneficial owner (as defined in Rule 13d-3 promulgated pursuant to the Exchange
Act) (a "Beneficial Owner"), in aggregate, directly or indirectly, of more than
forty (40%) percent of the Common Stock of the Corporation. For purposes of this
Certificate of Designations of Series G Preferred Stock (the "Certificate"),
-2-
<PAGE> 3
"Affiliate" shall have the meaning given it in Rule 405 promulgated under the
Securities Act of 1933, as amended from time to time (the "Securities Act"),
provided, however, that an affiliate which is not controlled (within the meaning
of Rule 405 promulgated under the Securities Act) by a holder of Series G
Preferred Stock shall not be deemed to be an Affiliate unless such affiliate
files statements regarding the securities of the Corporation pursuant to
Regulation 13D-G under the Exchange Act, and provided, further, that a holder
and its Affiliate(s) shall not be deemed to be a member of a Group unless a
member of such Group has filed statements regarding the securities of the
Corporation pursuant to Regulation 13D-G under the Exchange Act stating that
such holder or its Affiliate(s) is a member of such Group.
SECTION 3. Voting Rights. The Series G Preferred Stock shall have no
voting rights whatsoever, except as required under the General Corporation Law
of Delaware.
SECTION 4. Certain Restrictions.
(a) Restrictions. Whenever quarterly dividends payable on the
Series G Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends, whether or not declared, on shares of
Series G Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series G Preferred Stock;
(ii) declare or pay dividends on, or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series G Preferred
Stock, except dividends paid ratably on the Series G Preferred Stock and all
such parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series G Preferred Stock,
except for (x) redemptions, purchases or other acquisitions made ratably of the
Series G Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled, (y) redemptions, purchases or other
acquisitions made pursuant to Section 8, or redemption, purchases
-3-
<PAGE> 4
or other acquisitions of the 6% Cumulative Convertible Preferred Stock or Series
H Preferred Stock made pursuant to the Certificate of Designations for such
stock or any agreement with the holders thereof in effect on the date this
Certificate of Designations is executed.
SECTION 5. Conversion Rights. The shares of Series G Preferred Stock
may be converted into shares of Common Stock or cash as set forth in this
Section 5.
(a) Conversion by Holder. Subject to and in compliance with
the provisions of this Section 5, any shares of Series G Preferred Stock may, at
the option of the holder thereof upon at least seventy (70) days prior written
notice to the Corporation, be converted into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock which a holder of Series G
Preferred Stock shall be entitled to receive upon conversion of a share of
Series G Preferred Stock shall be the quotient (hereinafter, the "Conversion
Ratio") obtained by dividing $10,000 (the "Original Issuance Price") by the
average of the Fair Market Value of the Common Stock for the twenty (20)
Business Days immediately preceding the Conversion Date (as such terms are
hereinafter defined) (such average being hereinafter referred to as the
"Conversion Value"). For purposes of this Certificate, (i) "Business Day" shall
mean a day on which the Nasdaq National Market or, if the Common Stock is not
then listed on the Nasdaq National Market, any other established exchange or
national system on which the Common Stock is listed, is open for trading and
(ii) "Fair Market Value" shall mean, for any Business Day, the closing sales
price of the Common Stock (or the closing bid, if no sales were reported) as
quoted on the Nasdaq National Market, or if the Common Stock is not then quoted
on the Nasdaq National Market, on any established stock exchange or national
market system on which the Common Stock is listed for such Business Day.
(b) Conversion by Corporation. Subject to and in compliance
with the provisions of this Section 5, any shares of Series G Preferred Stock
may at any time (subject to the limitation in Section 5(e)(iii)) at the option
of the Corporation upon at least seventy (70) days prior written notice to the
holder of Series G Preferred Stock, be converted into fully-paid and
nonassessable shares of Common Stock or cash. Upon conversion of shares of
Series G Preferred Stock by the Corporation, a holder of Series G Preferred
Stock shall be entitled to a number of shares of Common Stock equal to the
Conversion Ratio for each share of Series G Preferred Stock converted.
(c) Conversion Procedure. In order to convert Series G
Preferred Stock into Common Stock, a holder of Series G Preferred Stock or the
Corporation, as the case may be, shall deliver to the other written notice (a
"Conversion Notice") of its election to make such conversion at least seventy
(70) days prior to the
-4-
<PAGE> 5
intended date of conversion (the "Conversion Date"). The Conversion Notice, if
delivered by a holder, shall be delivered to the Corporation at its principal
office and if delivered by the Corporation shall be delivered to the holder at
its address as shown on the records of the Corporation. The Conversion Notice
shall specify the Conversion Date, set forth the number of shares of Series G
Preferred Stock to be converted upon the Conversion Date and, in the case of
conversion by the holder, shall state the name or names (with address or
addresses) in which the certificate(s) for shares of Common Stock issuable upon
such conversion shall be issued and, in the case of conversion by the
Corporation, shall state that the certificate(s) for shares of Common Stock
issuable upon conversion shall be issued in the name and address of the holder,
unless instructed otherwise by such holder. On the Conversion Date the holder
shall surrender the certificate(s) representing the shares of Series G Preferred
Stock being converted, duly endorsed, to the Corporation at its principal office
or at the office of its transfer agent. As promptly as possible after the
Conversion Date, the Corporation shall issue and deliver to such holder, at the
Corporation's sole election, such certificate(s) as such holder may request for
the number of whole shares of Common Stock issuable upon the conversion of such
shares of Series G Preferred Stock, in accordance with the provisions of this
Section 5, or cash in the amount equal to $10,000 for each share of Series G
Preferred Stock being converted, or any combination of Common Stock and cash; as
well as cash as provided in Section 5(f) in respect of any fraction of a share
of Common Stock issuable upon such conversion. Such conversion shall be deemed
to have been effected immediately prior to the close of business on the
Conversion Date, and at such time the rights of the holder of the converted
shares of Series G Preferred Stock shall cease (other than the right to receive
accrued but unpaid dividends, whether or not declared, as of such Conversion
Date), and the person or persons in whose name or names any certificate(s) for
shares of Common Stock shall be issuable shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented thereby
unless the Corporation delivers cash to such holders as permitted by this
Section 5(c).
(d) Adjustments for Stock Splits, Recombinations, etc.
(i) The Conversion Date (as defined in Section 5(c))
shall be subject to adjustment from time to time as follows:
(A) In the event the Corporation should at
any time or from time to time after the date hereof fix a record date which is
less than twenty-one (21) days prior to a Conversion Date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder
-5-
<PAGE> 6
thereof to receive directly or indirectly, additional shares of Common Stock
(hereinafter, the "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then such Conversion Date shall
be extended to the date which is twenty-one (21) days after such record date.
(B) In the event the Corporation should at
any time or from time to time after the date hereof fix a record date which is
less than twenty-one (21) days prior to a Conversion Date for a combination of
the outstanding shares of Common Stock, then such Conversion Date shall be
extended to the date which is twenty-one (21) days after such record date.
(ii) In the event that after the date hereof the
Corporation shall declare a dividend payable in securities of other persons,
evidences of indebtedness issued by this Corporation or other persons, assets
(excluding cash dividends), or options or rights not referred to in Section
5(d)(i), then, in each such case each holder of Series G Preferred Stock shall
be entitled to a proportionate share of any such distribution as though such
holder were the holder of the number of shares of Common Stock into which such
holder's shares of Series G Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock entitled to
receive such distribution. For purposes of the foregoing, the average Fair
Market Value of the Common Stock over the twenty (20) Business Days prior to the
record date shall be utilized in calculating the Conversion Value and Conversion
Ratio.
(iii) If at any time or from time to time after the
date hereof there shall be a recapitalization of the Common Stock (other than a
Corporate Reorganization under Section 7 or a subdivision or combination
provided for above in this Section 5(d)), provision shall be made so that each
holder of Series G Preferred Stock shall thereafter be entitled to receive upon
any conversion of the Series G Preferred Stock under this Section 5 the number
of shares of stock or other securities or property of the Corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion of
Series G Preferred Stock pursuant to Section 5 would have been entitled on such
recapitalization, all subject to further adjustment as provided hereinbelow or
with respect to such other securities or property by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of Series
G Preferred Stock after the recapitalization to the end that the provisions of
this Section 5 (including the adjustment in the Conversion Ratio and the number
of shares of Common Stock issuable on conversion) shall be applicable after that
event as nearly equivalent as may be practicable.
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(e) Limitations Upon Conversion. Notwithstanding any other
provision of this Section 5:
(i) In no event shall any holder of Series G
Preferred Stock be entitled to deliver a Conversion Notice with respect to the
conversion into Common Stock of any shares of Series G Preferred Stock to the
extent that, after giving immediate effect to such conversion (but employing for
purposes of calculating the number of shares of Common Stock to be issued upon
such conversion, in lieu of any Conversion Value, the Fair Market Value for the
Business Day immediately preceding the date of such Conversion Notice), such
holder, its Affiliates and any Group of which such holder or its Affiliates is a
member would be the Beneficial Owner, in aggregate, directly or indirectly, of
more than forty percent (40%) of the Common Stock that (but for this Section
5(e)) would be outstanding following such conversion. To the extent a Conversion
Notice provides for the conversion on the Conversion Date of shares of Series G
Preferred Stock in excess of that permitted under this Section 5(e)(i), then
such Conversion Notice shall be deemed to cover the maximum number of shares of
Series G Preferred Stock which the holder thereof is entitled to convert on such
Conversion Date.
(ii) In addition to the limitation imposed by Section
5(e)(i), on a Conversion Date in no event shall any holder of Series G Preferred
Stock be entitled to convert into Common Stock any shares of Series G Preferred
Stock to the extent that, after giving effect to such conversion pursuant to the
provisions of this Section 5, such holder, its Affiliates and any Group of which
such holder or its Affiliates is a member would be the Beneficial Owner, in
aggregate, directly or indirectly, of more than forty percent (40%) of the
Common Stock that (but for this Section 5(e)) would be outstanding following
such conversion. To the extent a Conversion Notice provides for the conversion
on the Conversion Date of shares of Series G Preferred Stock in excess of that
permitted under this Section 5(e)(ii), then such Conversion Notice shall be
deemed to cover the maximum number of shares of Series G Preferred Stock which
the holder thereof is entitled to convert on such Conversion Date.
(iii) The Corporation shall not be entitled to
convert any shares of Series G Preferred Stock into shares of Common Stock if
the holder of the Series G Preferred Stock and its Affiliates would be the
Beneficial Owner of more than ten percent (10%) of the Common Stock that (but
for this Section 5(e)) would be outstanding following any such conversion or if
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 the holder
of the shares of Common Stock to be issued upon conversion would be required to
make a filing in advance of the acquisition of such shares. To the extent that a
Conversion Notice provides for the conversion on the Conversion Date of shares
of Series G Preferred Stock in excess of that permitted pursuant to the prior
sentence,
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<PAGE> 8
then upon written notice from the holder to the Corporation specifying the
holder's Beneficial Ownership percentage on the date of the Conversion Notice,
such Conversion Notice shall be deemed to cover the maximum number of shares of
Series G Preferred Stock which the Corporation is entitled to convert on such
Conversion Date. In addition, at any time that the holder of the Series G
Preferred Stock and its Affiliates is the Beneficial Owner of more than ten
percent (10%) of the Common Stock, the Corporation shall not be entitled to
convert any shares of Series G Preferred Stock, provided, however, that, on a
Conversion Date which is after the later of (A) the date which is six (6) months
and one (1) Business Day from the last date on which the holder of Series G
Preferred Stock or its Affiliates purchased or otherwise acquired (as those
terms have been interpreted by the courts for the purposes of Section 16 of the
Exchange Act) any Common Stock of the Corporation or (B) the date which is six
(6) months and one (1) Business Day from the date on which the holder of Series
G Preferred Stock has purchased all shares of Series G Preferred Stock and
Series H Preferred Stock which it is obligated to purchase pursuant to that
certain Stock Purchase Agreement by and between the Corporation and Genentech,
Inc., dated as of December 1, 1997 (the "Stock Purchase Agreement"), the
Corporation may convert to cash all, but not less than all, of the shares of
Series G Preferred Stock and Series H Preferred Stock held by such holder. Any
purchases or acquisitions of Common Stock by the holder after receipt of a
Conversion Notice providing for conversion pursuant to the preceding sentence
shall not be included in calculating the time period described in phrase (A) of
such sentence. For purposes of this Section 5(e)(iii) only, a Conversion Date
set forth in a Conversion Notice delivered to the Company by a holder shall be
deemed to be a date on which the holder has purchased or acquired Common Stock.
For purposes of this Section 5(e), all calculations of the number of shares of
Common Stock that (but for this Section 5(e)) would be outstanding following any
conversion of Series G Preferred Stock shall be made upon the assumption that
the Corporation would elect, pursuant to Section 5(b), to issue shares of Common
Stock, and not cash, in connection with such conversion.
(f) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series G Preferred Stock. In lieu of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series G Preferred Stock, the Corporation shall pay to the holder of the shares
of Series G Preferred Stock that were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the Conversion
Value. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Series G Preferred Stock being
converted at any one time by any holder thereof, and not upon each share of
Series G Preferred Stock being converted by such holder.
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<PAGE> 9
(g) Partial Conversion. In the event some but not all of the
shares of Series G Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, then Corporation shall execute and
deliver to or on the order of the holder, at the expense of the Corporation, a
new certificate representing the number of shares of Series G Preferred Stock
that were not converted.
(h) Standstill. For a period of five (5) years following the
first issuance of a share of Series G Preferred Stock, during each calendar week
within a Restricted Period (as hereinafter defined), no holder of Series G
Preferred Stock shall sell, transfer, assign, pledge, hypothecate or otherwise
dispose of, directly or indirectly, more than the Restricted Amount (as
hereinafter defined) in such calendar week in the Restricted Period. A
"Restricted Period" shall mean any period commencing on the date which is
twenty-five (25) Business Days preceding the Conversion Date (provided that a
Conversion Notice has been provided to the Corporation under this Section 5) and
ending on the Conversion Date applicable to such Conversion Notice, or any other
period of time designated as a Restricted Period in this Certificate. The
"Restricted Amount" applicable to any such calendar week within the Restricted
Period shall mean that number of shares of Common Stock equal to twenty-five
(25%) percent of the average weekly trading volume of the Common Stock for the
four (4) week period preceding the first Business Day within the Restricted
Period. Neither the Corporation nor its transfer agent shall be required to
register upon the books and records of the Corporation any sale, transfer,
assignment, pledge, hypothecation or other disposition of Common Stock made
contrary to this Section 5(h). Furthermore, in the event of any violation of
this Section 5(h), then the Corporation shall not be obligated to effect the
subject conversion. In the case of conversion of Series G Preferred Stock by the
Corporation, the Restricted Period shall begin on the date of delivery of the
Conversion Notice.
(i) Conversion Upon Default. In the event of a material
uncured default by the Corporation under any of the Transaction Documents (as
such term is defined in the Stock Purchase Agreement), Genentech shall have the
right to convert its shares of Series G Preferred Stock into shares of Common
Stock according to the provisions of Section 5. Notwithstanding the foregoing,
for the purposes of Genentech's right to convert under this Section 5(i), the
limitations set forth in Sections 5(e)(i) and 5(e)(ii) shall not apply.
(j) Automatic Conversion. Each share of Series G Preferred
Stock shall automatically be converted into shares of Common Stock at its then
effective Conversion Ratio immediately upon the transfer of ownership by the
initial holder to a third party which is not an Affiliate of such holder or a
member of any Group of which such holder or any of its Affiliates is a member.
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<PAGE> 10
In the event of such an automatic conversion, the outstanding shares of Series G
Preferred Stock shall be converted automatically without any further action by
the holder of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent. The Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Series G Preferred Stock are delivered to the Corporation or its
transfer agent. Such conversion shall be deemed to have been made on the date of
transfer to such third party holder and the person(s) entitled to receive shares
of Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date. For
purposes of this Section 5(j) only, "Affiliate" shall have the meaning given it
in Rule 405 promulgated under the Securities Act.
SECTION 6. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, no distribution
shall be made (a) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series G
Preferred Stock unless, prior thereto, the holders of shares of Series G
Preferred Stock shall have received an amount equal to (i) the Original Issuance
Price per share for the Series G Preferred Stock, plus (ii) the Original
Issuance Price per share for each share of Series G Preferred Stock constituting
accrued and unpaid dividends thereon, whether or not declared, to the date of
such distribution, or (b) to the holders of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series G
Preferred Stock, except distributions made ratably on the Series G Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up.
SECTION 7. Corporate Reorganization. If at any time or from time to
time there shall be a reorganization, consolidation, merger, combination or
other transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property (each of
such transactions, a "Corporate Reorganization"), then, at such time and in any
such case the Corporation shall provide each holder of Series G Preferred Stock
with notice of such transaction and the details of such exchange at least
fifteen (15) days before the closing of such transaction, and each such holder
of Series G Preferred Stock shall have the right, at its election, to convert
such shares of Series G Preferred Stock into shares of Common Stock prior to
such closing, or to receive in such transaction the amount of the liquidation
preference set forth in Section 6, as appropriate, in the form of the other
stock or securities, cash
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<PAGE> 11
and/or other property as is received by the holders of the Common Stock. For
purposes of the foregoing, the average Fair Market Value of the Common Stock
over the twenty (20) Business Days prior to the closing of such transaction
shall be utilized in calculating the Conversion Value and Conversion Ratio, and
a Restricted Period shall commence on the date the holder of the Series G
Preferred Stock receives notice of such transaction and shall terminate on the
date on which such transaction closes.
SECTION 8. Corporation's Repurchase Obligation. For a period of five
(5) years following the first issuance of Series G Preferred Stock, if at any
time the Corporation shall repurchase (a "Common Stock Repurchase") any shares
of Common Stock from any person or entity other than a holder of Series G
Preferred Stock or Series H Preferred Stock or Common Stock issued upon
conversion of 6% Cumulative Convertible Preferred Stock, then the Corporation
shall repurchase from each holder of shares of Series G Preferred Stock the
number of whole shares of Series G Preferred Stock determined by multiplying the
number of shares of Series G Preferred Stock then held by such holder by a
fraction, the numerator of which is the number of shares of Common Stock
repurchased by the Company from the other holder(s) and the denominator of which
is the number of shares of Common Stock issued and outstanding on the date of
the Common Stock Repurchase. The repurchase price per share of Series G
Preferred Stock repurchased pursuant to this Section 8 shall be the product of
the number of shares of Common Stock into which a share of Series G Preferred
Stock is convertible on the date of the Common Stock Repurchase and the price
per share of Common Stock paid by the Corporation in connection with the Common
Stock Repurchase. For purposes of the foregoing, the average Fair Market Value
of the Common Stock over the twenty (20) Business Days prior to the closing of
the Common Stock Repurchase shall be utilized in calculating the Conversion
Value and Conversion Ratio, and a Restricted Period shall commence on the date
the holder of the Series G Preferred Stock receives notice of the Common Stock
Repurchase and shall terminate on the date of the Common Stock Repurchase. Such
repurchase of shares of Series G Preferred Stock shall be effected on the date
of the Common Stock Repurchase.
SECTION 9. No Redemption; No Sinking Fund.
(a) No Redemption. The shares of Series G Preferred Stock
shall not be subject to redemption by the Corporation or at the option of any
holder of Series G Preferred Stock except as set forth in the Certificate of
Incorporation or in Section 8.1 of the Stock Purchase Agreement; provided,
however, that, subject to Section 4 hereof, the Corporation may purchase or
otherwise acquire outstanding shares of Series G Preferred Stock by offer to any
holder or holders of shares of Series G Preferred Stock and the Corporation may
deliver cash in lieu of Common Stock upon the
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<PAGE> 12
conversion of the shares of Series G Preferred Stock by the holders thereof or
by the Corporation.
(b) No Sinking Fund. The shares of Series G Preferred Stock
shall not be subject to or entitled to the operation of a retirement or sinking
fund.
SECTION 10. Ranking. The Series G Preferred Stock shall rank on parity
in all respects with the 6% Cumulative Convertible Preferred Stock and the
Series H Preferred Stock and superior in all respects to the Series F Preferred
Stock. Nothing contained herein shall limit or restrict the ability of the Board
of Directors of the Corporation, pursuant to Article Fifth of the Certificate of
Incorporation, to fix powers, preferences or rights of the shares of one or more
series of Preferred Stock of the Corporation that are superior to the powers,
preferences or rights of the Series G Preferred Stock or the ability of the
Corporation to issue shares of such Preferred Stock.
SECTION 11. Fractional Shares. To the extent necessary, the Corporation
shall issue fractions of shares of Series G Preferred Stock issuable in payment
of dividends. Such fractions shall be rounded to two (2) decimal places.
SECTION 12. Re-acquired Shares. Any shares of Series G Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
(including upon conversion thereof) shall be retired and canceled promptly after
the acquisition thereof. All such shares, upon their cancellation, shall become
authorized but unissued shares of Preferred Stock, without designation as to
series until such shares are once more designated as part of a particular series
by the Board of Directors pursuant to the provisions of Article Fifth of the
Certificate of Incorporation.
SECTION 13. Reservation of Common Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series G Preferred Stock, such number of its shares
of Common Stock as from time to time shall be sufficient to effect the
conversion of all outstanding shares of Series G Preferred Stock. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series G
Preferred Stock, then the Corporation shall promptly take such corporate action
as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Certificate of
Incorporation.
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<PAGE> 13
SECTION 14. Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series G Preferred Stock
as provided herein or in the Certificate of Incorporation shall be amended in
any manner which would alter or change the powers, preferences, rights or
privileges of the holders of Series G Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least sixty-seven
(67%) percent of the outstanding shares of Series G Preferred Stock, voting as a
separate class.
IN WITNESS WHEREOF, the Corporation has caused this Corrected
Certificate of Designations to be duly executed in its corporate name on this
14th day of January, 1998.
ALTEON INC.
By: /s/ James J. Mauzey
---------------------
Name: James J. Mauzey
--------------------
Title: President and CEO
-------------------
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<PAGE> 1
EXHIBIT 3.5
CORRECTED CERTIFICATE OF DESIGNATIONS
OF SERIES H PREFERRED STOCK
OF ALTEON INC.
Pursuant to Section 103 of the General Corporation Law of the
State of Delaware, Alteon Inc., organized and existing under the General
Corporation Law of the State of Delaware, files this Corrected Certificate of
Designations of Series H Preferred Stock of Alteon Inc. to correct the number of
shares initially constituting the Series H Preferred Stock as set forth in
Section 1 of the Certificate of Designations of Series H Preferred Stock of
Alteon Inc. filed on December 11, 1997. The Certificate of Designations of
Series H Preferred Stock of Alteon Inc. in its corrected form is as follows:
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"), organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of
Directors of the Corporation by Article Fifth of the Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), the Board
of Directors of the Corporation on December 3, 1997, adopted the following
resolution creating a series of Preferred Stock designated as Series H Preferred
Stock:
RESOLVED, that, pursuant to the authority vested in the Board
of Directors of the Corporation in accordance with the provisions of
the Certificate of Incorporation of the Corporation, a series of
Preferred Stock of the Corporation is hereby created and that the
designation and number of shares thereof and the voting powers,
preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
SECTION 1. Designation and Number of Shares. The shares of such series
shall be designated as "Series H Preferred Stock" (the "Series H Preferred
Stock"), par value $0.01 per share. The number of shares initially constituting
the Series H Preferred Stock shall be 8,000.
<PAGE> 2
SECTION 2. Dividends or Distributions.
(a) Quarterly Dividends. The holders of the shares of Series H
Preferred Stock shall be entitled to receive, out of the assets of the
Corporation legally available therefor, cumulative quarterly dividends, payable
in shares of Series H Preferred Stock, whether or not declared, on the last day
of each fiscal quarter in each year (the "Dividend Payment Date"), commencing
upon the Dividend Payment Date next following the first issuance of a share of
Series H Preferred Stock, at the rate per annum equal to the Prime Rate
published in The Wall Street Journal five (5) Business Days (as defined in
Section 5(a)) prior to such issuance. Such dividend shall be calculated by
multiplying the number of shares of Series H Preferred Stock held by a holder on
the Dividend Payment Date by such Prime Rate per annum.
(b) Record Date. The Dividend Payment Date shall be the record
date for the determination of holders of shares of Series H Preferred Stock
entitled to receive a dividend declared thereon.
(c) Accrual and Accumulation. Dividends shall begin to accrue
and be cumulative on outstanding shares of Series H Preferred Stock from and
after the date of issue of such shares of Series H Preferred Stock. Accrued but
unpaid dividends shall not bear interest. Notwithstanding anything to the
contrary contained herein, the Corporation shall not be required to deliver
certificates representing shares of Series H Preferred Stock in payment of
accrued dividends on any date other than a Dividend Payment Date.
(d) Other Dividends and Distributions. The holders of the
shares of Series H Preferred Stock shall not be entitled to receive any other
dividends or distributions except as provided herein.
(e) Necessary Actions. The Corporation shall take any and all
corporate action necessary to declare and pay such dividends described in this
Section 2.
(f) Limitation on Dividends. Dividends shall accrue but shall
not be payable on the shares of Series H Preferred Stock held by any holder
during any period when such holder, its Affiliates (as hereinafter defined) and
any group (a "Group") (within the meaning of Rule 13d-5 promulgated pursuant to
the Securities and Exchange Act of 1934, as amended from time to time (the
"Exchange Act") of which such holder or any of its Affiliates is a member is the
beneficial owner (as defined in Rule 13d-3 promulgated pursuant to the Exchange
Act) (a "Beneficial Owner"), in aggregate, directly or indirectly, of more than
forty (40%) percent of the Common Stock of the Corporation. For purposes of this
Certificate of Designations of Series H Preferred Stock (the "Certificate"),
"Affiliate" shall have the meaning given it in Rule 405 promulgated
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<PAGE> 3
under the Securities Act of 1933, as amended from time to time (the "Securities
Act"), provided, however, that an affiliate which is not controlled (within the
meaning of Rule 405 promulgated under the Securities Act) by a holder of Series
H Preferred Stock shall not be deemed to be an Affiliate unless such affiliate
files statements regarding the securities of the Corporation pursuant to
Regulation 13D-G under the Exchange Act, and provided, further, that a holder
and its Affiliate(s) shall not be deemed to be a member of a Group unless a
member of such Group has filed statements regarding the securities of the
Corporation pursuant to Regulation 13D-G under the Exchange Act stating that
such holder or its Affiliate(s) is a member of such Group.
SECTION 3. Voting Rights. The Series H Preferred Stock shall have no
voting rights whatsoever, except as required under the General Corporation Law
of Delaware.
SECTION 4. Certain Restrictions.
(a) Restrictions. Whenever quarterly dividends payable on the
Series H Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends, whether or not declared, on shares of
Series H Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series H Preferred Stock;
(ii) declare or pay dividends on, or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series H Preferred
Stock, except dividends paid ratably on the Series H Preferred Stock and all
such parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series H Preferred Stock,
except for (x) redemptions, purchases or other acquisitions made ratably of the
Series H Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled, (y) redemptions, purchases or other
acquisitions made pursuant to Section 8, or redemption, purchases or other
acquisitions of the 6% Cumulative Convertible Preferred
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<PAGE> 4
Stock or Series G Preferred Stock made pursuant to the Certificate of
Designations for such stock or any agreement with the holders thereof in effect
on the date this Certificate of Designations is executed.
SECTION 5. Conversion Rights. The shares of Series H Preferred Stock
may be converted into shares of Common Stock or cash as set forth in this
Section 5 at any time following the earlier of: (i) the granting of approval by
the U.S. Food and Drug Administration (or any successor thereto) for the
marketing and sale of any product which contains as an active ingredient the
compound "Pimagedine" and which is a "Licensed Product"(as such terms are
defined in that certain Development Collaboration and License Agreement (the
"License Agreement") entered into by and between the Corporation and Genentech,
Inc. ("Genentech") as of December 1, 1997; (ii) termination by Genentech of the
License Agreement pursuant to Section 10.4(a) or 10.5 thereof; or (iii) December
1, 2002. Notwithstanding the foregoing, Genentech may convert up to that number
of shares of Series H Preferred Stock described in the following sentence at any
time when the product of (A) the average Fair Market Value (as hereinafter
defined) of the Corporation's Common Stock for the twenty (20) days preceding
the date of delivery of a Conversion Notice (as hereinafter defined) times (B)
the number of outstanding shares of the Corporation's Common Stock on the date
of delivery of a Conversion Notice, is less than two (2) times the aggregate
price paid by Genentech to the Corporation for all shares of Series G Preferred
Stock and Series H Preferred Stock then held by it (the "Purchase Price"). The
number of shares of Series H Preferred Stock which Genentech shall be entitled
to convert at any time shall not exceed that number of shares of Series H
Preferred Stock, the Original Issuance Price (as hereinafter defined) of which,
when added to the product of (A) and (B) of the preceding sentence, after giving
effect to such conversion, will cause such sum to exceed two (2) times the
Purchase Price of the Series G Preferred Stock and Series H Preferred Stock held
by Genentech following such conversion, provided, however, that such Original
Issuance Price shall be rounded up to the nearest multiple of $2,500,000.
Genentech's right to convert shares of Series H Preferred Stock pursuant to the
preceding sentence shall be suspended for a period of six (6) months following
the effective date of termination of the License Agreement by Genentech under
Section 10.5 of the License Agreement, unless such termination occurs within
sixty (60) days after new technical data regarding the development of Pimagedine
becomes available to Genentech.
(a) Conversion by Holder. Subject to and in compliance with
the provisions of this Section 5, any shares of Series H Preferred Stock may, at
the option of the holder thereof upon at least seventy (70) days prior written
notice to the Corporation, be converted into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock which a holder of Series H
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<PAGE> 5
Preferred Stock shall be entitled to receive upon conversion of a share of
Series H Preferred Stock shall be the quotient (hereinafter, the "Conversion
Ratio") obtained by dividing $10,000 (the "Original Issuance Price") by the
average of the Fair Market Value of the Common Stock for the twenty (20)
Business Days immediately preceding the Conversion Date (as such terms are
hereinafter defined) (such average being hereinafter referred to as the
"Conversion Value"). For purposes of this Certificate, (i) "Business Day" shall
mean a day on which the Nasdaq National Market or, if the Common Stock is not
then listed on the Nasdaq National Market, any other established exchange or
national system on which the Common Stock is listed, is open for trading and
(ii) "Fair Market Value" shall mean, for any Business Day, the closing sales
price of the Common Stock (or the closing bid, if no sales were reported) as
quoted on the Nasdaq National Market, or if the Common Stock is not then quoted
on the Nasdaq National Market, on any established stock exchange or national
market system on which the Common Stock is listed for such Business Day.
(b) Conversion by Corporation. Subject to and in compliance
with the provisions of this Section 5, any shares of Series H Preferred Stock
may at any time (subject to the limitation in Section 5(e)(iii)) at the option
of the Corporation upon at least seventy (70) days prior written notice to the
holder of Series H Preferred Stock, be converted into fully-paid and
nonassessable shares of Common Stock or cash. Upon conversion of shares of
Series H Preferred Stock by the Corporation, a holder of Series H Preferred
Stock shall be entitled to a number of shares of Common Stock equal to the
Conversion Ratio for each share of Series H Preferred Stock converted.
(c) Conversion Procedure. In order to convert Series H
Preferred Stock into Common Stock, a holder of Series H Preferred Stock or the
Corporation, as the case may be, shall deliver to the other written notice (a
"Conversion Notice") of its election to make such conversion at least seventy
(70) days prior to the intended date of conversion (the "Conversion Date"). The
Conversion Notice, if delivered by a holder, shall be delivered to the
Corporation at its principal office and if delivered by the Corporation shall be
delivered to the holder at its address as shown on the records of the
Corporation. The Conversion Notice shall specify the Conversion Date, set forth
the number of shares of Series H Preferred Stock to be converted upon the
Conversion Date and, in the case of conversion by the holder, shall state the
name or names (with address or addresses) in which the certificate(s) for shares
of Common Stock issuable upon such conversion shall be issued and, in the case
of conversion by the Corporation, shall state that the certificate(s) for shares
of Common Stock issuable upon conversion shall be issued in the name and address
of the holder, unless instructed otherwise by such holder. On the Conversion
Date the holder shall surrender the certificate(s) representing the shares of
Series H Preferred Stock
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<PAGE> 6
being converted, duly endorsed, to the Corporation at its principal office or at
the office of its transfer agent. As promptly as possible after the Conversion
Date, the Corporation shall issue and deliver to such holder, at the
Corporation's sole election, such certificate(s) as such holder may request for
the number of whole shares of Common Stock issuable upon the conversion of such
shares of Series H Preferred Stock, in accordance with the provisions of this
Section 5, or cash in the amount equal to $10,000 for each share of Series H
Preferred Stock being converted, or any combination of Common Stock and cash; as
well as cash as provided in Section 5(f) in respect of any fraction of a share
of Common Stock issuable upon such conversion. Such conversion shall be deemed
to have been effected immediately prior to the close of business on the
Conversion Date, and at such time the rights of the holder of the converted
shares of Series H Preferred Stock shall cease (other than the right to receive
accrued but unpaid dividends, whether or not declared, as of such Conversion
Date), and the person or persons in whose name or names any certificate(s) for
shares of Common Stock shall be issuable shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented thereby
unless the Corporation delivers cash to such holders as permitted by this
Section 5(c).
(d) Adjustments for Stock Splits, Recombinations, etc.
(i) The Conversion Date (as defined in Section 5(c))
shall be subject to adjustment from time to time as follows:
(A) In the event the Corporation should at
any time or from time to time after the date hereof fix a record date which is
less than twenty-one (21) days prior to a Conversion Date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter, the "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then such Conversion Date shall be extended to the date which is twenty-one (21)
days after such record date.
(B) In the event the Corporation should at
any time or from time to time after the date hereof fix a record date which is
less than twenty-one (21) days prior to a Conversion Date for a combination of
the outstanding shares of Common Stock, then such Conversion Date shall be
extended to the date which is twenty-one (21) days after such record date.
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<PAGE> 7
(ii) In the event that after the date hereof the
Corporation shall declare a dividend payable in securities of other persons,
evidences of indebtedness issued by this Corporation or other persons, assets
(excluding cash dividends), or options or rights not referred to in Section
5(d)(i), then, in each such case each holder of Series H Preferred Stock shall
be entitled to a proportionate share of any such distribution as though such
holder were the holder of the number of shares of Common Stock into which such
holder's shares of Series H Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock entitled to
receive such distribution. For purposes of the foregoing, the average Fair
Market Value of the Common Stock over the twenty (20) Business Days prior to the
record date shall be utilized in calculating the Conversion Value and Conversion
Ratio.
(iii) If at any time or from time to time after the
date hereof there shall be a recapitalization of the Common Stock (other than a
Corporate Reorganization under Section 7 or a subdivision or combination
provided for above in this Section 5(d)), provision shall be made so that each
holder of Series H Preferred Stock shall thereafter be entitled to receive upon
any conversion of the Series H Preferred Stock under this Section 5 the number
of shares of stock or other securities or property of the Corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion of
Series H Preferred Stock pursuant to Section 5 would have been entitled on such
recapitalization, all subject to further adjustment as provided hereinbelow or
with respect to such other securities or property by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of Series
H Preferred Stock after the recapitalization to the end that the provisions of
this Section 5 (including the adjustment in the Conversion Ratio and the number
of shares of Common Stock issuable on conversion) shall be applicable after that
event as nearly equivalent as may be practicable.
(e) Limitations Upon Conversion. Notwithstanding any other
provision of this Section 5:
(i) In no event shall any holder of Series H
Preferred Stock be entitled to deliver a Conversion Notice with respect to the
conversion into Common Stock of any shares of Series H Preferred Stock to the
extent that, after giving immediate effect to such conversion (but employing for
purposes of calculating the number of shares of Common Stock to be issued upon
such conversion, in lieu of any Conversion Value, the Fair Market Value for the
Business Day immediately preceding the date of such Conversion Notice), such
holder, its Affiliates and any Group of which such holder or its Affiliates is a
member would be the Beneficial Owner, in aggregate, directly or indirectly, of
more than forty percent (40%) of the Common Stock that (but for this Section
5(e)) would be
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<PAGE> 8
outstanding following such conversion. To the extent a Conversion Notice
provides for the conversion on the Conversion Date of shares of Series H
Preferred Stock in excess of that permitted under this Section 5(e)(i), then
such Conversion Notice shall be deemed to cover the maximum number of shares of
Series H Preferred Stock which the holder thereof is entitled to convert on such
Conversion Date.
(ii) In addition to the limitation imposed by Section
5(e)(i), on a Conversion Date in no event shall any holder of Series H Preferred
Stock be entitled to convert into Common Stock any shares of Series H Preferred
Stock to the extent that, after giving effect to such conversion pursuant to the
provisions of this Section 5, such holder, its Affiliates and any Group of which
such holder or its Affiliates is a member would be the Beneficial Owner, in
aggregate, directly or indirectly, of more than forty percent (40%) of the
Common Stock that (but for this Section 5(e)) would be outstanding following
such conversion. To the extent a Conversion Notice provides for the conversion
on the Conversion Date of shares of Series H Preferred Stock in excess of that
permitted under this Section 5(e)(ii), then such Conversion Notice shall be
deemed to cover the maximum number of shares of Series H Preferred Stock which
the holder thereof is entitled to convert on such Conversion Date.
(iii) The Corporation shall not be entitled to
convert any shares of Series H Preferred Stock into shares of Common Stock if
the holder of the Series H Preferred Stock and its Affiliates would be the
Beneficial Owner of more than ten percent (10%) of the Common Stock that (but
for this Section 5(e)) would be outstanding following any such conversion or if
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 the holder
of the shares of Common Stock to be issued upon conversion would be required to
make a filing in advance of the acquisition of such shares. To the extent that a
Conversion Notice provides for the conversion on the Conversion Date of shares
of Series H Preferred Stock in excess of that permitted pursuant to the prior
sentence, then upon written notice from the holder to the Corporation specifying
the holder's Beneficial Ownership percentage on the date of the Conversion
Notice, such Conversion Notice shall be deemed to cover the maximum number of
shares of Series H Preferred Stock which the Corporation is entitled to convert
on such Conversion Date. In addition, at any time that the holder of the Series
H Preferred Stock and its Affiliates is the Beneficial Owner of more than ten
percent (10%) of the Common Stock, the Corporation shall not be entitled to
convert any shares of Series H Preferred Stock, provided, however, that, on a
Conversion Date which is after the later of (A) the date which is six (6) months
and one (1) Business Day from the last date on which the holder of Series H
Preferred Stock or its Affiliates purchased or otherwise acquired (as those
terms have been interpreted by the courts for the purposes of Section 16 of the
Exchange Act) any Common Stock of the Corporation
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<PAGE> 9
or (B) the date which is six (6) months and one (1) Business Day from the date
on which the holder of Series H Preferred Stock has purchased all shares of
Series G Preferred Stock and Series H Preferred Stock which it is obligated to
purchase pursuant to that certain Stock Purchase Agreement by and between the
Corporation and Genentech, Inc., dated as of December 1, 1997 (the "Stock
Purchase Agreement"), the Corporation may convert to cash all, but not less than
all, of the shares of Series H Preferred Stock and Series G Preferred Stock held
by such holder. Any purchases or acquisitions of Common Stock by the holder
after receipt of a Conversion Notice providing for conversion pursuant to the
preceding sentence shall not be included in calculating the time period
described in phrase (A) of such sentence. For purposes of this Section 5(e)(iii)
only, a Conversion Date set forth in a Conversion Notice delivered to the
Company by a holder shall be deemed to be a date on which the holder has
purchased or acquired Common Stock.
For purposes of this Section 5(e), all calculations of the number of shares of
Common Stock that (but for this Section 5(e)) would be outstanding following any
conversion of Series H Preferred Stock shall be made upon the assumption that
the Corporation would elect, pursuant to Section 5(b), to issue shares of Common
Stock, and not cash, in connection with such conversion.
(f) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series H Preferred Stock. In lieu of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series H Preferred Stock, the Corporation shall pay to the holder of the shares
of Series H Preferred Stock that were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the Conversion
Value. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Series H Preferred Stock being
converted at any one time by any holder thereof, and not upon each share of
Series H Preferred Stock being converted by such holder.
(g) Partial Conversion. In the event some but not all of the
shares of Series H Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, then Corporation shall execute and
deliver to or on the order of the holder, at the expense of the Corporation, a
new certificate representing the number of shares of Series H Preferred Stock
that were not converted.
(h) Standstill. For a period of five (5) years following the
first issuance of a share of Series H Preferred Stock, during each calendar week
within a Restricted Period (as hereinafter defined), no holder of Series H
Preferred Stock shall sell, transfer, assign, pledge, hypothecate or otherwise
dispose of, directly or indirectly, more than the Restricted Amount (as
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<PAGE> 10
hereinafter defined) in such calendar week in the Restricted Period. A
"Restricted Period" shall mean any period commencing on the date which is
twenty-five (25) Business Days preceding the Conversion Date (provided that a
Conversion Notice has been provided to the Corporation under this Section 5) and
ending on the Conversion Date applicable to such Conversion Notice, or any other
period of time designated as a Restricted Period in this Certificate. The
"Restricted Amount" applicable to any such calendar week within the Restricted
Period shall mean that number of shares of Common Stock equal to twenty-five
(25%) percent of the average weekly trading volume of the Common Stock for the
four (4) week period preceding the first Business Day within the Restricted
Period. Neither the Corporation nor its transfer agent shall be required to
register upon the books and records of the Corporation any sale, transfer,
assignment, pledge, hypothecation or other disposition of Common Stock made
contrary to this Section 5(h). Furthermore, in the event of any violation of
this Section 5(h), then the Corporation shall not be obligated to effect the
subject conversion. In the case of conversion of Series H Preferred Stock by the
Corporation, the Restricted Period shall begin on the date of delivery of the
Conversion Notice.
(i) Conversion Upon Default. In the event of a material
uncured default by the Corporation under any of the Transaction Documents (as
such term is defined in the Stock Purchase Agreement), Genentech shall have the
right to convert its shares of Series H Preferred Stock into shares of Common
Stock according to the provisions of Section 5. Notwithstanding the foregoing,
for the purposes of Genentech's right to convert under this Section 5(i), the
limitations set forth in Sections 5(e)(i) and 5(e)(ii) shall not apply.
(j) Automatic Conversion. Each share of Series H Preferred
Stock shall automatically be converted into shares of Common Stock at its then
effective Conversion Ratio immediately upon the transfer of ownership by the
initial holder to a third party which is not an Affiliate of such holder or a
member of any Group of which such holder or any of its Affiliates is a member.
In the event of such an automatic conversion, the outstanding shares of Series H
Preferred Stock shall be converted automatically without any further action by
the holder of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent. The Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Series H Preferred Stock are delivered to the Corporation or its
transfer agent. Such conversion shall be deemed to have been made on the date of
transfer to such third party holder and the person(s) entitled to receive shares
of Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date. For
purposes of this
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<PAGE> 11
Section 5(j) only, "Affiliate" shall have the meaning given it in Rule 405
promulgated under the Securities Act.
SECTION 6. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, no distribution
shall be made (a) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series H
Preferred Stock unless, prior thereto, the holders of shares of Series H
Preferred Stock shall have received an amount equal to (i) the Original Issuance
Price per share for the Series H Preferred Stock, plus (ii) the Original
Issuance Price per share for each share of Series H Preferred Stock constituting
accrued and unpaid dividends thereon, whether or not declared, to the date of
such distribution, or (b) to the holders of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series H
Preferred Stock, except distributions made ratably on the Series H Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up.
SECTION 7. Corporate Reorganization. If at any time or from time to
time there shall be a reorganization, consolidation, merger, combination or
other transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property (each of
such transactions, a "Corporate Reorganization"), then, at such time and in any
such case the Corporation shall provide each holder of Series H Preferred Stock
with notice of such transaction and the details of such exchange at least
fifteen (15) days before the closing of such transaction, and each such holder
of Series H Preferred Stock shall have the right, at its election, to convert
such shares of Series H Preferred Stock into shares of Common Stock prior to
such closing, or to receive in such transaction the amount of the liquidation
preference set forth in Section 6, as appropriate, in the form of the other
stock or securities, cash and/or other property as is received by the holders of
the Common Stock. For purposes of the foregoing, the average Fair Market Value
of the Common Stock over the twenty (20) Business Days prior to the closing of
such transaction shall be utilized in calculating the Conversion Value and
Conversion Ratio, and a Restricted Period shall commence on the date the holder
of the Series H Preferred Stock receives notice of such transaction and shall
terminate on the date on which such transaction closes.
SECTION 8. Corporation's Repurchase Obligation. For a period of five
(5) years following the first issuance of Series H Preferred Stock, if at any
time the Corporation shall repurchase (a "Common Stock Repurchase") any shares
of Common Stock from any person or entity other than a holder of Series G
Preferred Stock or
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<PAGE> 12
Series H Preferred Stock or Common Stock issued upon conversion of 6% Cumulative
Convertible Preferred Stock, then the Corporation shall repurchase from each
holder of shares of Series H Preferred Stock the number of whole shares of
Series H Preferred Stock determined by multiplying the number of shares of
Series H Preferred Stock then held by such holder by a fraction, the numerator
of which is the number of shares of Common Stock repurchased by the Company from
the other holder(s) and the denominator of which is the number of shares of
Common Stock issued and outstanding on the date of the Common Stock Repurchase.
The repurchase price per share of Series H Preferred Stock repurchased pursuant
to this Section 8 shall be the product of the number of shares of Common Stock
into which a share of Series H Preferred Stock is convertible on the date of the
Common Stock Repurchase and the price per share of Common Stock paid by the
Corporation in connection with the Common Stock Repurchase. For purposes of the
foregoing, the average Fair Market Value of the Common Stock over the twenty
(20) Business Days prior to the closing of the Common Stock Repurchase shall be
utilized in calculating the Conversion Value and Conversion Ratio, and a
Restricted Period shall commence on the date the holder of the Series H
Preferred Stock receives notice of the Common Stock Repurchase and shall
terminate on the date of the Common Stock Repurchase. Such repurchase of shares
of Series H Preferred Stock shall be effected on the date of the Common Stock
Repurchase.
SECTION 9. No Redemption; No Sinking Fund.
(a) No Redemption. The shares of Series H Preferred Stock
shall not be subject to redemption by the Corporation or at the option of any
holder of Series H Preferred Stock except as set forth in the Certificate of
Incorporation, the Stock Purchase Agreement or the License Agreement; provided,
however, that, subject to Section 4 hereof, the Corporation may purchase or
otherwise acquire outstanding shares of Series H Preferred Stock by offer to any
holder or holders of shares of Series H Preferred Stock and the Corporation may
deliver cash in lieu of Common Stock upon the conversion of the shares of Series
H Preferred Stock by the holders thereof or by the Corporation.
(b) No Sinking Fund. The shares of Series H Preferred Stock
shall not be subject to or entitled to the operation of a retirement or sinking
fund.
SECTION 10. Ranking. The Series H Preferred Stock shall rank on parity
in all respects with the 6% Cumulative Convertible Preferred Stock and the
Series G Preferred Stock and superior in all respects to the Series F Preferred
Stock. Nothing contained herein shall limit or restrict the ability of the Board
of Directors of the Corporation, pursuant to Article Fifth of the Certificate of
Incorporation, to fix powers, preferences or rights of the shares of one or more
series of Preferred Stock of the
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<PAGE> 13
Corporation that are superior to the powers, preferences or rights of the Series
H Preferred Stock or the ability of the Corporation to issue shares of such
Preferred Stock.
SECTION 11. Fractional Shares. To the extent necessary, the Corporation
shall issue fractions of shares of Series H Preferred Stock issuable in payment
of dividends. Such fractions shall be rounded to two (2) decimal places.
SECTION 12. Re-acquired Shares. Any shares of Series H Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
(including upon conversion thereof) shall be retired and canceled promptly after
the acquisition thereof. All such shares, upon their cancellation, shall become
authorized but unissued shares of Preferred Stock, without designation as to
series until such shares are once more designated as part of a particular series
by the Board of Directors pursuant to the provisions of Article Fifth of the
Certificate of Incorporation.
SECTION 13. Reservation of Common Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series H Preferred Stock, such number of its shares
of Common Stock as from time to time shall be sufficient to effect the
conversion of all outstanding shares of Series H Preferred Stock. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series H
Preferred Stock, then the Corporation shall promptly take such corporate action
as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Certificate of
Incorporation.
SECTION 14. Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series H Preferred Stock
as provided herein or in the Certificate of Incorporation shall be amended in
any manner which would alter or change the powers, preferences, rights or
privileges of the holders of Series H Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least sixty-seven
(67%) percent of the outstanding shares of Series H Preferred Stock, voting as a
separate class.
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<PAGE> 14
IN WITNESS WHEREOF, the Corporation has caused this Corrected
Certificate of Designations to be duly executed in its corporate name on this
14th day of January, 1998.
ALTEON INC.
By: /s/ James J. Mauzey
---------------------
Name: James J. Mauzey
--------------------
Title: President and CEO
-------------------
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<PAGE> 1
EXHIBIT 10.1
ALTEON INC.
AMENDED AND RESTATED
1987 STOCK OPTION PLAN
1. PURPOSE. This Stock Option Plan (this "Plan") was established
to provide incentives for selected persons to promote the financial success and
progress of Alteon Inc. (the "Company") by granting such persons options to
purchase shares of stock of the Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan became effective
on December 10, 1987, the date that it was adopted by the Board of Directors
(the "Board") of the Company. This Plan was approved by the shareholders of
the Company within twelve months before or after the date this Plan was adopted
by the Board. This Plan was amended by the shareholders of the Company, to
increase the maximum number of shares that may be granted pursuant to this
Plan, on June 15, 1988, June 23, 1989, December 12, 1990 and June 19, 1991.
This Plan was amended and restated on March 1, 1994 to (i) increase the maximum
number of shares that may be granted pursuant to this Plan, and (ii) provide
for the issuance of options hereunder in compliance with Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended, or any successor thereto
("Rule 16b-3"). The increase in the maximum number of shares was approved by
the shareholders of the Company on June 7, 1994. This Plan was further amended
by the Board on June 7, 1994 to allow for limited transferability of options
and for the
<PAGE> 2
issuance of options to certain eligible parties at an exercise price not less
than 85% of the fair market value of the underlying shares and on December 17,
1996 to provide for the issuance of options hereunder in compliance with Rule
16b-3, as amended.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan
(the "Options") may be either (a) incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") (or Section 422A with respect to Options issued before such Section's
termination), or (b) nonqualified stock options ("NQSOs"), as designated at the
time of grant. The shares of stock that may be purchased upon exercise of
Options granted under this Plan (the "Shares") are shares of the common stock
of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be
issued pursuant to Options granted under this Plan is 4,192,000 Shares. Such
number of Shares shall be subject to adjustment as provided in this Plan. If
any Option is terminated in whole or in part for any reason without being
exercised in whole or in part, the Shares thereby released from such Option
shall be available for purchase under other Options subsequently granted under
this Plan. At all times during the term of this Plan, the Company shall
reserve and keep available such number of Shares as shall be required to
satisfy the requirements of outstanding Options under this Plan.
2
<PAGE> 3
5. ADMINISTRATION OF THE PLAN: EMPLOYEES, OFFICERS, CONSULTANTS
AND INDEPENDENT CONTRACTORS.
(a) Procedure.
(i) Administration With Respect to Directors and
Officers. With respect to grants of Options to employees who are also officers
or directors of the Company, this Plan shall be administered, and grants of
Options shall be approved, by (A) the Board or (B) a committee comprised of
directors of the Company designated by the Board to administer this Plan (a
"Committee" is hereinafter defined as any committee appointed by the Board in
accordance with this Section), which Committee shall be constituted in such a
manner as to satisfy the legal requirements relating to the administration of
stock option plans, if any, of Delaware corporate and securities laws, and of
the Code (the "Applicable Laws") and in such a manner as to permit transactions
under the Plan to qualify for exemption from the provisions of Section 16(b) of
the Exchange Act pursuant to Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time, the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer this
Plan.
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<PAGE> 4
(ii) Multiple Administrative Bodies. This Plan
may be administered by different bodies with respect to directors, non-director
officers and employees, consultants and independent contractors who are neither
directors nor officers.
(iii) Administration With Respect to Consultants,
Independent Contractors and Other Employees. With respect to grants of Options
to employees, consultants or independent contractors who are neither directors
nor officers of the Company, this Plan shall be administered by (A) the Board
or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time, the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer this Plan, all to the extent
permitted by the Applicable Laws.
(b) Additional Powers of the Board or Committee. Except
as provided in Section 6 with respect to Options granted to directors of the
Company who are not compensated as employees or consultants ("Non-Compensated
Directors"), in addition to those powers otherwise conferred upon the Board or
Committee by this Plan, and subject to the provisions of this Plan and in the
case of
4
<PAGE> 5
a Committee, the specific duties delegated by the Board to such Committee, the
Board or the Committee appointed pursuant to this Section (the "Administrator")
shall have the authority, in its discretion:
(i) to determine the fair market value of the
Shares, in accordance with the following: (A) If the Shares are listed on the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System the option price of such Option shall be
the fair market value of the Common Stock of the Company on the date of grant
which shall be equal to the NASDAQ-quoted closing price of the common stock on
the date of grant, except that if the common stock did not trade on the date of
grant, then the option price shall be equal to the NASDAQ-quoted closing price
on the last business day prior to the date of grant on which the common stock
traded; or (B) In the absence of an established market for the Shares, the fair
market value thereof shall be determined in good faith by the Board.
(ii) to determine whether and to what extent Options
are granted hereunder;
(iii) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any Option granted hereunder
(including, but not limited to, the share price, transferability, and any
restriction or limitation or waiver of forfeiture restrictions regarding any
Option and/or Shares relating thereto, based in each case on such factors as
the Administrator shall determine, in its sole discretion);
5
<PAGE> 6
(iv) to determine whether and under what
circumstances the Administrator may offer to buy out, for a payment in cash or
Shares, an Option previously granted, based on such terms and conditions as the
Committee shall establish and to communicate to the Optionee at the time that
such offer is made;
(v) to determine whether, to what extent and under
what circumstances Shares and other amounts payable with respect to an Option
under this Plan shall be deferred either automatically or at the election of
the participant (including providing for and determining the amount, if any, of
any deemed earnings on any deferred amount during any deferral period); and
(vi) to reduce the exercise price of any Option to
any then permissible exercise price if such permissible exercise price is lower
than the exercise price determined on the date the Option was granted.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
6. FORMULA AWARDS: NON-COMPENSATED DIRECTORS.
(a) Date of Grant and Number of Shares. With respect to
grants of Options to Non-Compensated Directors, NQSOs in the amount of 33,600
Shares shall be made to each Non-Compensated Director on the date of such
Non-Compensated Director's election or reelection to the Board. If a
Non-Compensated Director to whom NQSO's are to be granted pursuant to this
Section is serving on the Board at the
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<PAGE> 7
time of such election or reelection by virtue of having been appointed to the
Board to fill a vacancy or newly created directorship, the number of shares
subject to the NQSO's to be granted pursuant to this Section shall be reduced
by a number equal to 33,600 minus the product of (i) 933 and (ii) the number of
full months during which such Non-Compensated Director has served as a
director. For purposes of the preceding sentence, a month shall mean a period
of 30 consecutive days.
(b) Exercise Period and Price. Options granted to
Non-Compensated Directors shall vest in equal annual installments over the
three year period of such Non-Compensated Director's term as director such that
one-third (or 11,200 Shares) shall vest on the first anniversary of such
Non-Compensated Director's election to the Board, an additional one-third shall
vest on the second anniversary of such Non-Compensated Director's election to
the Board, and the entire Option shall become vested on the third anniversary
of such Non-Compensated Director's election to the Board. An Option granted
pursuant to this Section shall be exercisable for a period of ten years from
the date of grant at the fair market value as of the date of grant, regardless
of whether any such Non-Compensated Director later ceases to be affiliated with
the Company; provided, however, in the case of an Option granted to an
Non-Compensated Director who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any
7
<PAGE> 8
Parent or Subsidiary, the term of the Option shall be five years from the date
of grant thereof.
(c) Fair Market Value. For the purposes of this Section, the
fair market value of the Shares shall be determined as follows: (i) If the
Shares are listed on NASDAQ the option price of such Option shall be the fair
market value of the Common Stock of the Company on the date of grant which
shall be equal to the NASDAQ-quoted closing price of the common stock on the
date of grant, except that if the common stock did not trade on the date of
grant, then the option price shall be equal to the NASDAQ-quoted closing price
on the last business day prior to the date of grant on which the common stock
traded; or (ii) In the absence of an established market for the Shares, the
fair market value thereof shall be determined in good faith by the Board.
7. ELIGIBILITY. Options may be granted only to such employees,
officers, directors, consultants and independent contractors of the Company or
any Parent, Subsidiary or Affiliate of the Company (as defined below) as the
Administrator shall select from time to time in its sole discretion
("Optionees"), provided that only employees of the Company or a Parent or
Subsidiary of the Company shall be eligible to receive ISOs; provided, further
that Non-Compensated Directors may be granted Options only as set forth in
Section 6 above. An Optionee may be granted more than one Option under this
Plan. As used in this Plan, the following terms shall have the following
meanings:
8
<PAGE> 9
(a) "Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
the granting of the Option, each of such corporations other than the Company
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
(c) "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to cause the direction of the
management and policies of the corporation, whether through the ownership of
voting securities, by contract or otherwise.
8. TERMS AND CONDITIONS OF OPTIONS. Except as provided in
Section 6 with respect to Options granted to Non-Compensated Directors, the
Administrator shall determine whether each Option is to be an ISO or an NQSO,
the number of Shares for which the Option shall be granted, the exercise price
of the Option, the periods
9
<PAGE> 10
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following terms and conditions:
(a) Form of Option Grant. Each Option granted under this
Plan shall be evidenced by a written Stock Option Grant ("Grant") in such form
(which need not be the same for each Optionee) as the Administrator shall from
time to time approve, which Grant shall comply with and be subject to the terms
and conditions of this Plan.
(b) Exercise Price. The exercise price of a NQSO granted to
eligible parties other than officers, directors and persons owning more than
10% of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary of the Company (a "Ten Percent Shareholder") shall
be not less than 85% of the fair market value of the Shares at the time that
the Option is granted, as determined by the Administrator in good faith. The
exercise price of (i) an ISO or (ii) a NQSO granted to an officer or director
of the Company shall be not less than the fair market value of the Shares, at
the time that the Option is granted, as determined by the Administrator in good
faith. The exercise price of any Option granted to a Ten Percent Shareholder
shall not be less than 110% of the fair market value of the Shares at the time
of the Grant, as determined by the Administrator in good faith.
10
<PAGE> 11
(c) Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Administrator as set forth in the
Grant provided, however, that no Option shall be exercisable after the
expiration of ten years from the date the Option is granted, and provided
further that no Option granted to a Ten Percent Shareholder shall be
exercisable after the expiration of five years from the date the Option is
granted.
(d) Limitations on ISOs. The aggregate fair market value
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an optionee during any calendar year
under this Plan or under any other incentive stock option plan of the Company
(or any Parent or Subsidiary of the Company) shall not exceed $100,000.
(e) Date of Grant. The date of grant of an Option shall be
the date on which the Administrator makes the determination to grant such
Option unless otherwise specified by the Administrator. The Grant representing
the Option shall be delivered to the Optionee within a reasonable time after
the granting of the Option.
(f) Rule 16b-3. Shares acquired pursuant to Options granted
to persons subject to Section 16(b) of the Exchange Act shall not be sold or
otherwise disposed of for a period of six (6) months following the date of the
Grant. Grants of options to persons subject to Section 16(b) of the Exchange
Act must qualify for exemption from Section 16(b) of the Exchange Act pursuant
to Rule 16b-3. Options granted to such persons shall contain such additional
conditions or restrictions as may be required thereunder
11
<PAGE> 12
to qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
9. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the
Company of a written notice and exercise agreement in a form approved by the
Administrator, stating the number of Shares being purchased, the restrictions
imposed on the Shares and such representations and agreements regarding the
Optionee's investment intent and access to information as may be required by
the Company to comply with applicable securities laws, together with payment in
full of the exercise price for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made (i) in cash
(by check), (ii) by surrender of shares of common stock of the Company having a
fair market value equal to the exercise price of the Option; or (iii) by any
combination of the foregoing where approved by the Administrator in its sole
discretion.
(c) Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for
any federal or state withholding obligations of the Company, if applicable.
(d) Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject
to the following limitations:
12
<PAGE> 13
(i) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the date of
exercise.
(ii) The Administrator may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent the Optionee from exercising
the full number of Shares as to which the Option is then exercisable.
10. TRANSFERABILITY OF OPTIONS. Except as otherwise provided in
this Section 10, Options may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution, and, during the lifetime of the Optionee, shall be
exercisable only by the Optionee. If the Administrator so determines, NQSO's
may be transferable to (A) the Optionee's spouse, parents, siblings, children
or grandchildren (including stepparents, stepsiblings, stepchildren, and
stepgrandchildren), (B) trusts for the benefit of the Optionee and/or such
family members, and (C) partnerships whose only partners are the Optionee
and/or such family members, provided that (i) no consideration is paid for such
transfer, (ii) the terms and conditions of the Option which are applicable to
the Optionee prior to the transfer of the Option shall continue to apply to the
transferee; and (iii) the Grant pertaining to the Option shall set forth the
applicable transfer restrictions.
13
<PAGE> 14
11. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of
the rights of a shareholder with respect to any Shares subject to an Option
until the Option has been validly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior
to the date of exercise, except as provided in this Plan. The Company shall
provide to each Optionee a copy of the annual financial statements of the
Company, at such time after the close of each fiscal year of the Company as
they are released by the Company to its shareholders.
12. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such Options shall
be proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional shares
shall be issued upon exercise of any Option and any resulting fractions of a
Share shall be ignored.
13. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option
granted under this Plan shall confer on any Optionee any right to continue in
the employ of the Company or any Parent, Subsidiary or Affiliate of the Company
or limit in any way the
14
<PAGE> 15
right of the Company or any Parent, Subsidiary or Affiliate of the Company to
terminate the Optionee's employment at any time, with or without cause.
14. COMPLIANCE WITH LAWS. The grant of Options and the issuance
of Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without
limitation compliance with the Securities Act of 1933, as amended, compliance
with all other applicable state securities laws and compliance with the
requirements of any stock exchange on which the Shares may be listed. The
Company shall be under no obligation to register the Shares with the Securities
and Exchange Commission or to effect compliance with the registration or
qualification requirements of any state securities laws or stock exchange.
15. RESTRICTIONS ON SHARES. At the discretion of the
Administrator, the Company may reserve to itself or its assignee(s) in the
Grant (a) a right of first refusal to purchase any Shares that an Optionee (or
a subsequent transferee) may propose to transfer to a third party, and (b) a
right to repurchase any or all Shares held by an Optionee upon the Optionee's
termination of employment or service with the Company or its Parent, Subsidiary
or Affiliate for any reason within a specified time as determined by the
Administrator at the time of grant at (i) the Optionee's original purchase
price (provided that the right to repurchase at such price shall lapse at the
rate of at least 20% per year from the date of grant), (ii) the fair market
value of such Shares as
15
<PAGE> 16
determined by the Administrator in good faith or (iii) a price determined by a
formula or other provision set forth in the Grant.
16. ASSUMPTION OF OPTIONS BY SUCCESSORS. In the event of a
dissolution or liquidation of the Company, a merger in which the Company is not
the surviving corporation, a transaction in which 100% of the then outstanding
voting stock is sold or otherwise transferred, or the sale of substantially all
of the assets of the Company, any or all outstanding Options shall,
notwithstanding any contrary terms of the Grant, accelerate and become
exercisable in full at least ten days prior to (and shall expire on) the
consummation of such dissolution, liquidation, merger, sale of stock or sale of
assets at such times and on such conditions as the Administrator shall
determine unless the successor corporation assumes the outstanding Options or
substitutes substantially equivalent options. The aggregate fair market value
(determined at the time an Option is granted) of stock with respect to ISOs
which first become exercisable in the year of such dissolution, liquidation,
merger, sale of stock or sale of assets cannot exceed $100,000. Any remaining
accelerated ISOs shall be NQSOs.
17. AMENDMENT OR TERMINATION OF PLAN. The Administrator may at
any time terminate or amend this Plan in any respect (including, but not
limited to, any form of Grant, agreement or instrument to be executed pursuant
to this Plan), provided, however, that the Administrator shall not, without the
approval of the shareholders of the Company, increase the total number of
Shares available under this Plan (except by operation of the provisions of this
Plan) or
16
<PAGE> 17
change the class of persons eligible to receive Options. In any case, no
amendment of this Plan may adversely affect any then outstanding Options or any
unexercised portions thereof without the written consent of the Optionee.
18. TERM OF PLAN. Options may be granted pursuant to this Plan
from time to time within a period of ten years from the date this Plan was
originally adopted by the Board of Directors.
19. EXTENSION OF TERM. Notwithstanding anything to the contrary
contained herein, the term of the Plan during which Options may be granted
hereunder shall be extended to December 31, 2007, provided after December 9,
1997, all Options granted under this Plan shall be NQSO's.
17
<PAGE> 1
[ALTEON LETTERHEAD]
EXHIBIT 10.35
September 15, 1997
Mr. Kenneth I. Moch
68 Willow Avenue
Larchmont, NY 10538
Dear Ken:
This letter will confirm certain matters related to your employment by Alteon
Inc. (the "Company") and shall constitute an amendment to your employment
agreement with the Company dated February 27, 1995 (the "Employment
Agreement").
Your Term of Employment, as defined in Paragraph 1 of your Employment
Agreement, is due to expire on February 27, 1998. Assuming satisfactory
performance of your obligations under your Employment Agreement until February
27, 1998, the Term of Employment will, effective February 28, 1998, be defined
as beginning on February 28, 1998, and terminating three (3) years from such
date.
Your Salary will be $195,000 for the first year during the Term of Employment,
$205,000 for the second year and $215,000 for the third year. In addition, at
the end of each calendar year during the Term of Employment, you will be
eligible to receive a bonus, pursuant to the terms of Paragraph 3 of your
Employment Agreement and consistent with the 1997 Management Bonus Plan
previously approved by the Board, in an amount of up to $15,000 and up to
30,000 stock options. The number of options awarded, if any, and the vesting
schedule and exercise price for these options will be determined by the
Compensation Committee of the Board at the end of each calendar year.
You will be entitled to four (4) weeks vacation per year during the Term of
Employment. Further, the Company will pay up to $5,000 in 1998 for you to
complete a cutting edge leadership training program selected by you and
approved by me.
On February 28, 1998, the Company shall issue and deliver to you options to
purchase 200,000 shares of the Company's common stock at an exercise price of
$3.875 (the fair market value of Alteon stock on June 10, 1997, when the
Compensation Committee and the Board approved this award). The options will be
subject to the terms and conditions
<PAGE> 2
Mr. Kenneth I. Moch
September 15, 1997 Page 2
of the Company's Amended 1995 Stock Option Plan and the Company's standard
Incentive/Non-Qualified Stock Option Grant Agreement (the "New Grant
Agreement"). One hundred and twenty thousand (120,000) of these options will
vest at a rate of 5,000 per month during the two (2) year period beginning on
February 28, 1999, and ending on February 28, 2001. The remaining 80,000
options shall vest in 20,000 share increments upon the accomplishment by you
and the Company of each of the following performance related milestones:
1) Raise enough capital as determined by me and the Board of
Directors) to ensure Alteon's financial viability through the
end of 1999.
2) Establish a new partnering relationship covering North America
and Western Europe for an A.G.E. inhibitor, an A.G.E. breaker
or a glucose lowering agent.
3) Elevate Alteon's market capitalization to over $250,000,000.
4) Ensure Alteon's first NDA is accepted for filing by the FDA.
Notwithstanding the foregoing, all 80,000 milestone related options shall also
vest on the date ten (10) years after their grant date, provided you are then
employed by the Company as set forth in the New Grant Agreement.
In the event the Company elects to terminate your employment without cause
prior to the expiration of the Term of Employment, the exercise period for all
then vested Alteon stock options which you may then hold shall be extended from
the date your employment terminates for a period equal to that number of full
calendar months you have been employed by the Company, provided that such
extension shall not exceed 36 months, and provided further, that if the
expiration date of an option as set forth in the applicable stock option grant
agreement is earlier than the extension date calculated pursuant to this
sentence, such expiration date shall remain in effect. You acknowledge that
pursuant to current applicable law any stock options exercised more than three
months after you cease to be employed by the Company shall cease to be eligible
for treatment as federal income tax qualified incentive stock options.
In the event that prior to February 28, 1998, the Company participates in a
transaction described in either Section 11.2 or Section 11.3 of the Amended
1995 Stock Option Plan, the Company shall cause the New Grant Agreement for the
options described in this letter to be issued and delivered to you prior to the
closing of such transaction.
<PAGE> 3
Mr. Kenneth I. Moch
September 15, 1997 Page 3
Paragraph 20 of your Employment Agreement ("General") is amended to include the
New Grant Agreement and this letter as part of the "entire agreement," with
respect to the subject matter of your employment by the Company under these
agreements. Except as modified by this letter, the terms of all the foregoing
enumerated agreements shall remain in full force and effect.
If the foregoing is acceptable to you, please indicate your agreement by
signing and returning the enclosed copy of this letter.
Sincerely,
/s/ JAMES J. MAUZEY
James J. Mauzey
Chairman and
Chief Executive Officer
ACCEPTED AND AGREED THIS
17th day of September , 1997.
- ------ ------------ -
/s/ Kenneth I. Moch
- --------------------------------
Kenneth I. Moch
<PAGE> 1
EXHIBIT 10.39
[ALTEON LETTERHEAD]
February 24, 1998
Jere E. Goyan, Ph.D.
103 Chestnut Ridge Road
Saddle River, NJ 07548
Dear Jere:
This letter will confirm certain matters related to your employment by Alteon
Inc. (the "Company") and shall constitute an amendment to your employment
agreement with the Company dated July 13, 1993 (The "Employment Agreement"),
as amended by letter dated July 10, 1996 (the "1996 Amendment"), and certain
other agreements you have with the Company as set forth below.
Your Term of Employment, as defined in Paragraph 1 of your Employment
Agreement, shall be extended through and including July 13, 1999.
Your Salary will continue to be $262,500 per annum and your housing allowance
of $4,500 per month will also continue. In connection with the Company's
fiscal year ending December 31, 1998, you will be eligible to receive a bonus,
pursuant to the terms of Paragraph 3 of your Employment Agreement, in an amount
of up to $50,000 in cash; provided, however, that you and the Company may agree
to substitute the award of stock options in lieu of some or all of such bonus.
On July 20, 1993, you executed a promissory note in favor of the Company in the
amount of $200,000 (the "Note") and a mortgage to secure payment of the Note
(the "Mortgage"), which Note and Mortgage were amended pursuant to the 1996
Amendment. the amendments to the Note and Mortgage enumerated in the 1996
Amendment are hereby replaced, in their entirety, as follows:
1. except as set forth below, interest on the Note will stop accruing as
of July 13, 1999
2. the principal amount of the Note, plus the amount of interest accrued
through and including July 13, 1999, shall be paid in three (3) equal
installments on the following dates: July 13, 1999; July 13, 2000;
and July 13, 2001
<PAGE> 2
JERE E. GOYAN, Ph.D
FEBRUARY 24, 1998 PAGE 2
3. in the event any of the three (3) installment payments are not made
when due, Interest shall accrue on such unpaid amount at a rate of
one percent (1%) per month until such payment is made
You recognize that you may realize additional taxable income due to the imputed
interest rules under the Internal Revenue Code of 1986 for those tax years when
payments on the Note are deferred without the accrual interest.
Paragraph 21 of your Employment Agrement ("General") is amended to include this
letter as part of the "entire agreement," with respect to the subject matter of
your employment by the Company under the agreements included therein. Except
as modified by this letter, the terms of your Employment Agreement, the Note
and the Mortgage shall remain in full force and effect.
If the foregoing is acceptable to you, please indicate your agreement by signing
and returning the enclosed copy of this letter.
Sincerely,
/s/ JAMES J. MAUZEY
James J. Mauzey
Chairman and
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ JERE E. GOYAN
- ---------------------------------
Jere E. Goyan, Ph.D. Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS, STATEMENTS OF OPERATIONS, CASH FLOW STATEMENTS AND THE STATEMENT
OF STOCKHOLDERS' EQUITY FILED AS PART OF ALTEON INC.'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
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<NAME> ALTEON INC.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<SECURITIES> 8,550,063
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0
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<OTHER-EXPENSES> 26,897,302
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<INTEREST-EXPENSE> 25,061
<INCOME-PRETAX> (25,411,690)
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