<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended SEPTEMBER 30, 1999
Commission File Number 0-19529
ALTEON INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3304550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
170 WILLIAMS DRIVE, RAMSEY, NEW JERSEY 07446
(Address of principal executive offices) (Zip Code)
(201) 934-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES: * NO:
On November 9, 1999, 19,189,701 shares of Registrant's Common Stock were
outstanding.
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ALTEON INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. - Financial Statements:
Balance sheets as of December 31, 1998
and September 30, 1999...................................................... 3
Statements of operations for the three months and nine months ended
September 30, 1998 and 1999................................................. 4
Statements of cash flows for the nine months ended
September 30, 1998 and 1999................................................. 5
Notes to financial statements............................................... 6
Item 2. - Management's Discussion and
Analysis of Financial Condition and
Results of Operations............................................................. 7
Item 3. - Quantitative and Qualitative Disclosures About Market Risk.............. 19
PART II. OTHER INFORMATION
Item 5. - Other Information....................................................... 19
Item 6. - Exhibits and Reports on Form 8-K........................................ 20
SIGNATURES................................................................................. 22
INDEX TO EXHIBITS.......................................................................... 23
</TABLE>
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PART I
ITEM 1 FINANCIAL STATEMENTS
ALTEON INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ............................................... $ 10,839,586 $ 4,518,471
Short-term investments .................................................. 13,292,666 6,994,026
Other current assets .................................................... 274,145 674,361
------------- -------------
Total current assets ................................................. 24,406,397 12,186,858
Property and equipment, net ............................................. 2,985,156 2,611,414
Deposits and other assets ............................................... 260,080 270,888
------------- -------------
Total assets ............................................................ $ 27,651,633 $ 15,069,160
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................ $ 1,035,417 $ 322,818
Accrued expenses ........................................................ 3,277,858 2,094,250
Deferred revenue ........................................................ -- 431,250
------------- -------------
Total current liabilities ............................................ 4,313,275 2,848,318
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,993,329 shares authorized,
and 771 and 821 of Series G, and 2,315 and 2,465 of Series
H shares issued and outstanding, as of December 31, 1998,
and September 30, 1999, respectively .................................. 31 33
Common stock, $.01 par value; 30,000,000 shares
authorized and 18,814,740 shares issued and outstanding
as of December 31, 1998, and 40,000,000 shares
authorized and 19,189,701 shares issued and outstanding
as of September 30, 1999 .............................................. 188,147 191,897
Additional paid-in capital .............................................. 131,005,033 133,367,640
Accumulated deficit ..................................................... (107,856,621) (121,336,709)
Unrealized other comprehensive income/(loss) ............................ 1,768 (2,020)
------------- -------------
Total stockholders' equity ........................................... 23,338,358 12,220,842
------------- -------------
Total liabilities and stockholders' equity .............................. $ 27,651,633 $ 15,069,160
============= =============
</TABLE>
See accompanying notes to financial statements
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ALTEON INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1998 1999 1998 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue ........................ $ -- $ 168,750 $ -- $ 168,750
Investment income ....................... 270,083 201,604 943,103 706,815
Expenses:
Research and development ................ 7,623,615 1,379,353 18,905,098 9,076,686
Elimination of previously accrued loss
contingency .......................... -- -- (1,770,975) --
General and administrative .............. 918,793 1,109,509 3,060,546 3,275,204
Interest ................................ -- -- 3,610 --
------------ ----------- ------------ -----------
Total expenses ....................... 8,542,408 2,488,862 20,198,278 12,351,890
------------ ----------- ------------ -----------
Net loss ............................. $ (8,272,325) $(2,118,508) $(19,255,175) $(11,476,325)
------------ ----------- ------------ -----------
Preferred stock dividends ................. 722,673 689,313 1,123,756 2,003,762
------------ ----------- ------------ -----------
Net loss applicable to common
stockholders ....................... $ (8,994,998) $(2,807,821) $(20,378,932) $(13,480,087)
============ =========== ============ ============
Basic loss per share to common
stockholders ............................ $ (0.50) $ (0.15) $ (1.13) $ (0.71)
============ =========== ============ ============
Diluted loss per share to common
stockholders ............................ $ (0.50) $ (0.15) $ (1.13) $ (0.71)
============ =========== ============ ============
Weighted average common shares used in
computing basic and diluted loss
per share ............................... 18,091,939 19,184,167 18,007,848 19,009,271
============ =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
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ALTEON INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ............................................ $(19,255,175) $(11,476,325)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................. 503,212 542,694
Amortization of deferred compensation ......... 537,707 196,156
Changes in operating assets and liabilities:
Other current assets ....................... (197,879) (330,000)
Other assets ............................... (18,381) (81,024)
Accounts payable and accrued expenses ...... (3,140,923) (1,896,215)
Other accrued liabilities .................. -- 431,250
------------ ------------
Net cash used in operating activities ...... (21,571,439) (12,613,464)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures ................................ (465,911) (168,945)
Purchases of marketable securities .................. (77,774,432) (45,037,788)
Sales and maturities of marketable securities ....... 81,827,469 51,332,640
Restricted cash ..................................... 620,400 --
------------ ------------
Net cash used in investing activities ...... 4,207,526 6,125,907
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock .............. 192,200 166,441
Proceeds from issuance of preferred stock ........... 8,000,000 --
Principal payments under capital lease obligations .. (161,581) --
------------ ------------
Net cash provided by financing activities .. 8,030,619 166,441
------------ ------------
Net decrease in cash and cash equivalents ............. (9,333,294) (6,321,116)
Cash and cash equivalents, beginning of period ........ 20,423,675 10,839,586
------------ ------------
Cash and cash equivalents, end of period .............. $ 11,090,381 $ 4,518,471
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest .................. $ 3,610 $ --
============ ============
</TABLE>
See accompanying notes to financial statements
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ALTEON INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION - The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
1999, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. For further information refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - Cash and cash equivalents
include highly liquid investments which have a maturity of less than three
months at the time of purchase. Short-term investments are recorded at fair
market value. As of September 30, 1999, short-term investments were invested in
debt instruments of the U.S. Government, government agencies, financial
institutions and corporations with strong credit ratings.
At September 30, 1999, $6,994,026 of the Company's short term
investments are classified as available for sale. A net unrealized loss of
$2,020 relating to the available for sale securities has been recorded as a
separate component of stockholders' equity at September 30, 1999.
3. REVENUE RECOGNITION - EVENTS CONCERNING CORPORATE COLLABORATIONS - In August
1999, Alteon and Taisho Pharmaceutical Co., Ltd. ("Taisho") entered into an
agreement under which Taisho has been granted an exclusive option through
December 31, 1999 to acquire a license to Alteon's lead Advanced Glycosylation
End-product ("A.G.E.") crosslink breaker, ALT-711, for Japan, South Korea,
Taiwan and China for a non-refundable option fee of $600,000. Revenue from the
option agreement will be recognized over the life of the agreement. As of
September 30, 1999, the Company had recognized $168,750 of revenue and has
$431,250 remaining as deferred revenue.
4. NET 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.
5. COMPREHENSIVE INCOME - The following sets forth comprehensive income as
required by SFAS 130 for the periods ended September 30, 1998 and 1999 (dollars
in thousands):
<TABLE>
<CAPTION>
1998 1999
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<S> <C> <C>
Net Loss ....................................... $(19,255) $(11,045)
Net Unrealized Loss on Marketable Securities ... 4 (2)
-------- --------
Comprehensive Loss ............................. $(19,251) $(11,047)
======== ========
</TABLE>
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6. OTHER RELATED PARTY TRANSACTIONS - In July 1993, a former Company officer
received a loan which bore interest at a rate equal to the prime rate as
published in the Wall Street Journal, adjusted quarterly, for the purpose of
purchasing a home. The loan is secured by a second mortgage on the home
purchased by the former officer. In February 1999, the terms of the loan were
amended to require payment of the principal amount and interest in full in the
event such home is sold; otherwise, interest will stop accruing as of July 1999
and the principal and interest shall be paid in equal installments in January
2000, July 2000 and July 2001. In the event an installment is not paid when due,
interest shall accrue at a rate of one percent per month until payment is made.
As of September 30, 1999, $268,073, including accrued interest, remained
outstanding. In 1997 and 1998 interest payments of $25,000 were made. On
November 3, 1999, the Company received a payment of $268,073 representing the
total amount of principal and interest due.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Since its inception in October 1986, Alteon has devoted substantially
all of its resources to its research, drug discovery and development programs.
To date, Alteon has not generated any revenues from the sale of products and
does not expect to generate any such revenues for several years, if at all.
Alteon has incurred an accumulated deficit of $121,336,709 as of September 30,
1999, and expects to incur operating losses, potentially greater than losses in
prior years, for a number of years.
Alteon has financed its operations through proceeds from an initial
public offering of Common Stock in 1991, a follow-on offering of Common Stock
completed in 1995, private placements of common and preferred equity securities,
revenue from its collaborations with Hoechst Marion Roussel, Inc. and Yamanouchi
Pharmaceutical Co., Ltd. ("Yamanouchi"), reimbursement of certain of Alteon's
research and development expenses by its collaborative partners, and investment
income earned on cash balances and short-term investments.
Although the Company anticipates increased expenditures in research and
development expenses as it develops products and conducts its clinical trials, a
portion of such development expenses is expected to be reimbursed by Alteon's
collaborative partners. Yamanouchi has agreed to fund preclinical studies,
including most toxicology studies, on pimagedine and any other products that the
parties jointly agree to develop, including a second generation A.G.E.-formation
inhibitor and a macrophage stimulator. Gamida for Life, formerly Eryphile BV
("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. None of the Company's
collaborative partners is currently funding any of the Company's programs.
In August 1999, Alteon and Taisho entered into an agreement under which
Taisho has been granted an exclusive option through December 31, 1999 to acquire
a license to Alteon's lead A.G.E. crosslink breaker, ALT-711, for Japan, South
Korea, Taiwan and China for a non-refundable option fee of $600,000.
The Company is reviewing with its corporate partners their arrangements
in light of the Company's current development plans and priorities.
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The Company's business is subject to significant risks including, but
not limited to, (i) its ability to obtain funding, (ii) the risks inherent in
its research and development efforts, including clinical trials, (iii)
uncertainties associated both with obtaining and enforcing its patents and with
the patent rights of others, (iv) the lengthy, expensive and uncertain process
of seeking regulatory approvals, (v) uncertainties regarding government reforms
and product pricing and reimbursement levels, (vi) technological change and
competition, (vii) manufacturing uncertainties, and (viii) dependence on
collaborative partners and other third parties. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will prove ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Total revenues for the three months ended September 30, 1999, and the
three months ended September 30, 1998, were $370,000 and $270,000, respectively.
Revenues were derived from the option agreement with a potential corporate
partner and interest earned on cash and cash equivalents and short-term
investments. Investment income decreased 25.2% due to the decrease in cash, cash
equivalents and short-term investment balances.
The Company's total expenses decreased to $2,489,000 for the three
months ended September 30, 1999, from $8,542,000 for the three months ended
September 30, 1998. This decrease was primarily due to decreased research and
development expenditures related to the clinical trials. Research and
development expenses were $1,379,000 for the three months ended September 30,
1999, and $7,624,000 for the three months ended September 30, 1998, an 81.9%
decrease. This decrease was primarily due to decreased expenses related to the
clinical trial costs.
General and administrative expenses increased to $1,110,000 for the
three months ended September 30, 1999 from $919,000 for the three months ended
September 30, 1998, a 20.8% increase. This increase was primarily due to
increased consulting expenses.
The Company's net loss applicable to common stockholders decreased to
$2,808,000 for the three months ended September 30, 1999, from $8,995,000 in the
same period in 1998, a decrease of 68.8%. This was primarily a result of
increased revenue and decreased research and development expenditures related to
the clinical trials.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Total revenues for the nine months ended September 30, 1999, and the
nine months ended September 30, 1998, were $876,000 and $943,000, respectively.
Revenues were derived from the option agreement with a potential corporate
partner and interest earned on cash and cash equivalents and short-term
investments. Investment income decreased 25.0% due to the decrease in cash, cash
equivalents and short-term investment balances.
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The Company's total expenses decreased to $12,352,000 for the nine
months ended September 30, 1999, from $20,198,000 for the nine months ended
September 30, 1998, and consisted primarily of research and development
expenses. This decrease was primarily due to decreased research and development
expenditures related to the clinical trials offset by the elimination of a
previously accrued loss contingency recorded in the second quarter of 1998.
Research and development expenses were $9,077,000 for the nine months ended
September 30, 1999, and $18,905,000 for the nine months ended September 30,
1998, a 52.0% decrease. This decrease was primarily due to decreased expenses
related to the clinical trial costs.
General and administrative expenses increased to $3,275,000 for the
nine months ended September 30, 1999, from $3,061,000 for the nine months ended
September 30, 1998, a 7.0% increase. This increase was primarily due to
increased consulting expenses offset by decreased personnel related expenses.
The Company's net loss applicable to common stockholders decreased to
$13,480,000 for the nine months ended September 30, 1999, from $20,379,000 in
the same period in 1998, a decrease of 33.9%. This decrease was primarily due to
decreased research and development expenditures related to the clinical trials,
offset by the elimination of a previously accrued loss contingency recorded in
the second quarter of 1998 and increased preferred stock dividends.
LIQUIDITY AND CAPITAL RESOURCES
Alteon had cash, cash equivalents and short-term investments at
September 30, 1999, of $11,512,000 compared to $24,132,000 at December 31, 1998.
This is a decrease in cash, cash equivalents and short-term investments for the
nine months ended September 30, 1999, of $12,620,000. This consisted of
$12,614,000 of cash used in operations consisting primarily of research and
development expenses, personnel and related costs and facility expenses,
$169,000 of capital expenditures and $2,000 of additional unrealized losses.
This was offset by $165,000 of financing activities related to proceeds from
stock option exercises. As of September 30, 1999, Alteon had invested $8,025,000
in capital equipment and leasehold improvements.
In August 1999, Alteon and Taisho entered into an agreement under which
Taisho has been granted an exclusive option through December 31, 1999 to acquire
a license to Alteon's lead A.G.E. crosslink breaker, ALT-711, for Japan, South
Korea, Taiwan and China for a non-refundable option fee of $600,000. As of
September 30, 1999, the Company had received $270,000 from Taisho.
On October 1, 1999, the Company received an additional payment of $270,000.
The Company's research and development expenses, to date, have been
funded primarily by research and development collaborative arrangements and
sales of equity securities. The Company expects to incur substantial additional
research and development costs, including costs related to drug discovery,
preclinical research and clinical trials. The Company anticipates that it will
be able to offset a portion of its research and development expenses and its
clinical development expenses with funding from its collaborative partners.
However, none of the Company's programs are currently being funded by a
collaborative partner.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into 2000.
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The amount of the Company's future capital requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the conduct of preclinical tests and clinical trials, the
development of regulatory submissions, the costs associated with protecting
patents and other proprietary rights, the development of marketing and sales
capabilities and the availability of third party funding.
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. If
the Company obtains funds through arrangements with collaborative partners or
others it may be required 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.
The Company's current priorities are the evaluation and possible
continued development of pimagedine and the development of ALT-711, its lead
A.G.E. crosslink breaker candidate. The Company is currently in discussion with
advisors to determine the best course of action for pimagedine, and expects to
seek one or more corporate partners to provide necessary funding. The Company is
actively seeking one or more corporate partners to help fund the development of
ALT-711. In August 1999, Alteon and Taisho entered into an agreement under which
Taisho has been granted an exclusive option through December 31, 1999 to acquire
a license to Alteon's lead A.G.E. crosslink breaker, ALT-711, for Japan, South
Korea, Taiwan and China. The Company believes that additional development of
this compound and other product candidates will require the Company to find
sources of funding.
In September 1999, the Company received notification from the Nasdaq
Stock Market, Inc. ("Nasdaq") that it was not in compliance with the Nasdaq
maintenance standard which requires that the Company's Common Stock maintain a
closing bid price of greater than or equal to $1.00. Following a hearing before
a Nasdaq Listing Qualifications Panel and Nasdaq's review of the Company's plans
to meet the listing maintenance requirements, Nasdaq notified the Company that
it had been granted a temporary exception from the $1.00 per share minimum bid
requirement and would continue to be listed with Nasdaq on the Nasdaq SmallCap
Market. To retain its listing, on or before November 22, 1999, the Company must
evidence a closing bid price of $1.00 per share; immediately thereafter the
Company must evidence a closing bid price of at least $1.00 per share for a
minimum of ten consecutive trading days. In addition, on January 4, 2000 the
Company must make a filing with the Securities and Exchange Commission and
Nasdaq of its November 30, 1999 balance sheet evidencing net tangible assets of
at least $8,000,000. If the Company is deemed to have met the terms of this
exception and has demonstrated the ability to maintain long-term compliance it
will, at the discretion of Nasdaq, continue to be listed on the Nasdaq SmallCap
Market. No assurance can be given that the Company will meet these conditions or
that its Common Stock will continue to be listed on the Nasdaq SmallCap Market.
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Delisting could have a material adverse effect on the Company and its ability to
raise additional capital on favorable terms as well as on stockholder liquidity.
The Company has conducted a review of its computer systems and
identified any issues which might have resulted from the year 2000 date
recognition problem, which is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company
believes that with the minor modifications it has completed, the year 2000 issue
will not pose significant operation problems for its internal computer systems
as so modified. The Company continues to monitor its internal systems to ensure
no undetected problems occur. The year 2000 assessments and modifications have
generally been done in-house. Therefore, the primary costs associated with this
project are included in payroll expenditures.
The Company is assessing the possible effect on its operations of year
2000 problems faced by its third party vendors. The Company believes that the
primary area in which its operations could be materially affected by year 200
problems of its vendors relates to its use of contract research organizations
("CROs") to provide services in connection with portions of its clinical trials.
The CROs have advised the Company that they are addressing the year 2000
compliance issue and are in the process of assessing their systems which may be
vulnerable to the year 2000 issue. The Company continues to monitor their
readiness. However, if year 2000 problems prevent the CROs from performing their
work for the Company, the Company will not be able to develop internal systems
to replace the CROs and will have to find other CROs which are able to perform.
As a result, the Company could incur substantial delays in its data analysis and
any then ongoing clinical trials. In addition, power failures caused by year
2000 problems faced by utilities could compromise animal studies in progress at
the Company's facilities. This could cause material delays in the Company's
research and development programs.
The Company's operations and financial conditions could be adversely
and materially affected by other year 2000 problems including, without
limitation, (i) unexpected failures by third party vendors, (ii) failures by
governmental agencies causing delays in approval of new products, (iii) failures
in global banking systems and capital markets, and (iv) failures to identify
year 2000 problems in critical systems within the Company.
In July 1999, the Company completed a downsizing of its associates. The
Company undertook the downsizing to reduce operating expenses in order to
preserve its existing capital resources for research and development programs.
Statements in this Form 10-Q that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives are based on a number of
assumptions. The words "believes," "expects," "anticipates," "intends,"
"estimates" or other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements as they involve risks and uncertainties, and
actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth in this section and elsewhere in,
or incorporated by reference into, this Form 10-Q. These factors include, but
are not limited to, the risks set forth below. The
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forward-looking statements represent the Company's judgment and expectations as
of the date of this Report. The Company assumes no obligation to update any such
forward-looking statements.
Need for Future Funding; Uncertainty of Access to Capital
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into 2000. Alteon
will require substantial new funding in order to continue the research, product
development, preclinical testing and clinical trials of its product candidates,
including pimagedine if the Company decides to continue its development and
ALT-711, the Company's lead A.G.E. crosslink breaker candidate. The Company will
also require additional funding for operating expenses, the pursuit of
regulatory approvals for its product candidates and the establishment of
marketing and sales capabilities. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its research
and development programs, the size and complexity of these programs, progress
with preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
establishment of additional collaborative arrangements, the cost of
manufacturing arrangements, commercialization activities, and the cost of
product in-licensing and strategic acquisitions, if any. There can be no
assurance that the Company's cash reserves and other liquid assets, including
funding that may be received from the Company's corporate partners and equity
sales and interest income earned thereon, will be adequate to satisfy its
capital and operating requirements.
Alteon intends to seek funding initially through arrangements with
corporate collaborators. It may in the future seek funding through public or
private sales of the Company's securities, including equity securities, when and
if conditions permit. In addition, the Company may pursue opportunities to
obtain debt financing, including capital leases, in the future. There can be no
assurance, however, that additional funding will be available on reasonable
terms, if at all. Any additional equity financing would be dilutive to the
Company's stockholders. If adequate funds are not available, Alteon may be
required to curtail significantly or eliminate one or more of its research and
development programs. If Alteon obtains funds through arrangements with
collaborative partners or others, it may be required to relinquish rights to
certain of its technologies or product candidates.
Uncertainties Related to the Early Stage of Development; Technological
Uncertainties
All of the Company's product candidates are in the research or
development stage, and all revenues to date have been generated from
collaborative research agreements and financing activities, or interest income
earned on these funds. No revenues have been generated from product sales. There
can be no assurance that product revenues can be realized on a timely basis, if
at all.
Alteon has not yet requested or received regulatory approval for any
product from the FDA or any other regulatory body. Before obtaining regulatory
approvals for the commercial sale of any of its products under development, the
Company must demonstrate through preclinical studies and clinical trials that
the product is safe and effective for use in each target indication. The results
from preclinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing, and there can be no
assurance that any clinical trials undertaken by the Company will
12
<PAGE> 13
demonstrate sufficient safety and efficacy to obtain the requisite regulatory
approvals or will result in marketable products.
There can be no assurance that Alteon will succeed in the development
and marketing of any therapeutic or diagnostic product. To achieve profitable
operations, the Company must, alone or with others, successfully identify,
develop, introduce and market proprietary products. Such products will require
significant additional investment, development and preclinical and clinical
testing prior to potential regulatory approval and commercialization.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during preclinical testing or clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. There can be no
assurance that the Company will undertake additional clinical trials or that the
Company's product development efforts will be successfully completed, that
required regulatory approvals can be obtained or that any products, if
introduced, will be successfully marketed or achieve customer acceptance.
Commercial availability of any Alteon products, including pimagedine, is not
expected for a number of years, if at all.
Uncertainty of Future Profitability
At September 30, 1999, the Company had an accumulated deficit of
$121,336,709. The Company anticipates that it will incur substantial,
potentially greater losses in the future. There can be no assurance that the
Company's products under development will be successfully developed or that its
products, if successfully developed, will generate revenues sufficient to enable
the Company to earn a profit. Alteon expects to incur substantial additional
operating expenses over the next several years as its research, development and
clinical trial activities increase. Alteon does not expect to generate revenues
from the sale of products, if any, for a number of years. The Company's ability
to achieve profitability depends in part on its ability to enter into agreements
for product development, obtain regulatory approval for its products and develop
the capacity, or enter into agreements, for the manufacture, marketing and sale
of any products. There can be no assurance that Alteon will obtain required
regulatory approvals, or successfully develop, manufacture, commercialize and
market product candidates or that the Company will ever achieve product revenues
or profitability.
Dependence on Collaborative Relationships
The Company's strategy for development and commercialization of certain
of its products is dependent upon entering into various arrangements with
research collaborators, corporate partners and others and upon the subsequent
success of these third-parties in performing their obligations.
Alteon has established collaborative arrangements with Yamanouchi,
Gamida, Roche Diagnostics, GmbH, formerly Corange International Ltd., acting
through Boehringer Mannheim Diagnostics and IDEXX Laboratories, Inc. with
respect to the development of drug therapies and diagnostics utilizing the
Company's scientific platforms. The Company is reviewing with its corporate
partners their arrangements in light of the Company's current development plans
and priorities. Alteon is seeking to establish new collaborative relationships
to provide the funding necessary for continuation
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<PAGE> 14
of its product development but there can be no assurance that such effort will
be successful. The Company will, in some cases, be dependent upon these outside
partners to conduct preclinical testing and clinical trials and to provide
adequate funding for the Company's development programs. Under certain of these
arrangements, the Company's corporate partners may have all or a significant
portion of the development and regulatory approval responsibilities. Failure of
the corporate partners to develop marketable products or to gain the appropriate
regulatory approvals on a timely basis, if at all, would have a material adverse
effect on the Company's business, financial condition and results of operations.
In most cases, the Company cannot control the amount and timing of
resources which its corporate partners devote to the Company's programs or
potential products. If any of the Company's corporate partners breach or
terminate their agreements with the Company or otherwise fail to conduct their
collaborative activities in a timely manner, the preclinical or clinical
development or commercialization of product candidates or research programs will
be delayed, and the Company will be required to devote additional resources to
product development and commercialization or terminate certain development
programs. The termination of collaborative arrangements would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that disputes will not arise in the future
with respect to the ownership of rights to any technology developed with
third-parties. These and other possible disagreements between collaborators and
the Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time-consuming and expensive and would
have a material adverse effect on the Company's business, financial condition
and results of operations.
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.
Uncertainties Related to Patents and Proprietary Technology
The Company's success will depend on its ability to obtain patent
protection for its products, preserve its trade secrets, prevent third-parties
from infringing upon its proprietary rights and operate without infringing upon
the proprietary rights of others, both in the United States and abroad.
The degree of patent protection afforded to pharmaceutical inventions
is uncertain and the Company's potential products are subject to this
uncertainty. Pimagedine is not a novel compound and is not covered by a
composition-of-matter patent. The patents covering pimagedine are use patents
containing claims covering therapeutic indications and the use of specific
compounds and classes of compounds to inhibit A.G.E. formation. Competitors may
develop and commercialize pimagedine or pimagedine-like products for indications
outside of the protection provided by the claims of the Company's use patents.
Physicians, pharmacies and wholesalers could then substitute for the Company's
pimagedine products. Substitution for the Company's pimagedine products would
have a material adverse effect on the Company's business, financial condition
and results of operations. Use patents may afford a lesser degree of protection
in certain foreign countries due to their patent laws. In addition, although the
Company has several patent applications pending to protect proprietary
technology and potential products, there can be no assurance that these patents
will be issued, that the claims of any
14
<PAGE> 15
patents which do issue will provide any significant protection of the Company's
technology or products, or that the Company will enjoy any patent protection
beyond the expiration dates of its currently issued patents.
There can be no assurance that competitors will not develop competitive
products outside the protection that may be afforded by the claims of the
Company's patents. The Company is aware that other parties have been issued
patents and have filed patent applications in the United States and foreign
countries with respect to other agents which impact A.G.E. or A.G.E.
crosslink formation.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to maintain, develop
and expand its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. The Company also has invention or patent assignment agreements
with its employees and certain, but not all, corporate partners and consultants.
There can be no assurance that relevant inventions will not be developed by a
person not bound by an invention assignment agreement. There can be no assurance
that binding agreements will not be breached, that the Company would have
adequate remedies for such breach, or that the Company's trade secrets will not
otherwise become known to or be independently discovered by competitors.
Uncertainties Related to Government Regulation; No Assurance of Regulatory
Approval
Alteon's research, preclinical testing and clinical trials of its
product candidates are, and the manufacturing and marketing of its products will
be, subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where the Company
intends to test and market its product candidates.
Prior to marketing, any product developed by the Company must undergo
an extensive regulatory approval process. This regulatory process, which
includes preclinical testing and clinical trials, and may include post-marketing
surveillance, of each compound to establish its safety and efficacy, can take
many years and can require the expenditure of substantial resources. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. In
addition, delays or rejections may be encountered based upon changes in FDA
policy for drug approval during the period of product development and FDA
regulatory review of each submitted New Drug Application ("NDA"). Similar delays
may also be encountered in foreign countries. There can be no assurance that
regulatory approval will be obtained for any drugs developed by the Company.
Moreover, regulatory approval may entail limitations on the indicated uses of
the drug. Further, even if regulatory approval is obtained, a marketed drug and
its manufacturer are subject to continuing review and discovery of previously
unknown problems with a product or manufacturer which may have adverse effects
on the Company's business, financial condition and results of operations,
including withdrawal of the product from the market. Violations of regulatory
requirements at any stage, including preclinical testing and clinical trials,
the approval process or post-approval, may result in various adverse
consequences including the FDA's delay in approving, or its refusal to approve,
a product withdrawal of an approved product from the market and the imposition
of criminal penalties against the manufacturer and NDA holder. Except for
pimagedine, which has been allowed to proceed into human clinical trials for
diabetic patients with nephropathy, end-stage renal disease, dyslipidemia and
dermatological conditions and an Investigational New Drug ("IND") for treatment
of stroke (intravenous), the Company has not submitted any other IND application
for any product candidate in the
15
<PAGE> 16
United States, and no products have been approved for commercialization in the
United States or elsewhere. No assurance can be given that the Company will be
able to obtain FDA approval for any products. Failure to obtain requisite
governmental approvals or failure to obtain approvals of the scope requested
will delay or preclude the Company or its licensees or marketing partners from
marketing the Company's products or limit the commercial use of such products
and will have a material adverse effect on the Company's business, financial
condition and results of operations.
Intense Competition and Risk of Technological Obsolescence; Alternate Cures
or Therapies for Diabetes
The Company is engaged in pharmaceutical fields characterized by
extensive research efforts and rapid technological progress. Many established
pharmaceutical and biotechnology companies with resources greater than those of
the Company are attempting to develop products that would be competitive with
the Company's products. Other companies may succeed in developing products that
are safer, more efficacious or less costly than any that may be developed by
Alteon and may also be more successful than Alteon in production and marketing.
Rapid technological development by others may result in the Company's products
becoming obsolete before the Company recovers a significant portion of the
research, development or commercialization expenses incurred with respect to
those products.
Certain technologies under development by other pharmaceutical
companies could result in a cure for diabetes or the reduction of the incidence
of diabetes and its complications. For example, a number of companies are
investigating islet cell transplantation as a possible cure for Type I diabetes.
Results of a study conducted by the National Institutes of Health, known as the
DCCT, published in 1993, showed that tight glucose control reduced the incidence
of diabetic complications. Numerous companies are pursuing methods to control
glucose levels. In addition, several large companies have initiated or expanded
research, development and licensing efforts to build a diabetic pharmaceutical
franchise focusing on diabetic nephropathy, neuropathy, retinopathy and related
conditions. An example of this is research seeking anti-angiogenesis drugs for
the potential treatment of diabetic retinopathy. Furthermore, the Company is
aware of several pharmaceutical companies which are developing thiazolidinedione
derivatives ("glitazones") for the treatment of Type II diabetes. In January
1997, Warner-Lambert Company was given approval and clearance by the FDA for the
marketing of Rezulin(TM) (troglitazone), an anti-diabetic drug designed to
target insulin resistance in Type II diabetes. It is possible that one or more
of these initiatives may reduce or eliminate the market for the Company's
products.
In addition, captopril, a product marketed by Bristol-Myers Squibb
Company, has been approved for Type I diabetics with overt nephropathy. The
patent covering captopril expired in February 1996. Other pharmaceutical
companies have chosen to market and sell this drug, resulting in a substantial
decrease in price. This decline in price for captopril may significantly reduce
or eliminate the market for any product developed by the Company for this
indication.
Uncertainties Related to Pharmaceutical Pricing and Reimbursement
The Company's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third-party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and/or
16
<PAGE> 17
profitability of prescription pharmaceuticals are subject to government control.
In the United States, the Company expects that there will continue to be federal
and state initiatives to control and/or reduce pharmaceutical expenditures. In
addition, increasing emphasis on managed care in the United States will continue
to put pressure on pharmaceutical pricing. Cost control initiatives could
decrease the price that the Company receives for any products it may develop and
sell in the future and have a material adverse effect on the Company's business,
financial condition and results of operations. Further, to the extent that cost
control initiatives have a material adverse effect on the Company's corporate
partners, the Company's ability to commercialize its products may be adversely
affected.
The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the products will be
available from government health administration authorities, private health
insurers and other third-party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third-party
payors, including Medicare, are increasingly challenging the prices charged for
medical products and services. There can be no assurance that any third-party
insurance coverage will be available to patients for any products developed by
the Company. Government and other third-party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. If adequate coverage and
reimbursement levels are not provided by government and other third-party payors
for the Company's products, the market acceptance of these products would be
adversely affected.
Uncertainties Related to Marketing and Sales
For certain of its products, the Company has licensed exclusive
marketing rights to its corporate partners or formed collaborative marketing
arrangements within specified territories in return for royalties to be received
on sales, a share of profits or beneficial transfer pricing. These agreements
are terminable at the discretion of the Company's partners upon as little as 90
days' prior written notice. If the licensee or marketing partner terminates an
agreement or fails to market a product successfully, the Company's business,
financial condition and results of operations may be adversely affected.
Alteon currently has no experience in marketing or selling
pharmaceutical products. In order to achieve commercial success for any approved
product, Alteon must either develop a marketing and sales force or, where
appropriate or permissible, enter into arrangements with third parties to market
and sell its products. There can be no assurance that Alteon will develop
successfully marketing and sales experience or that it will be able to enter
into marketing and sales agreements with others on acceptable terms, if at all,
or that any such arrangements, if entered into, will not be terminated. If the
Company develops its own marketing and sales capability, it will compete with
other companies that currently have experienced, well funded and larger
marketing and sales operations. 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 their efforts will be successful.
No Manufacturing Experience; Reliance on Third-Party Manufacturing
The Company has no experience in manufacturing products for commercial
purposes and does not have manufacturing facilities. Consequently, the Company
is dependent on contract manufacturers
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<PAGE> 18
for the production of products for development and commercial purposes. The
manufacture of the Company's products for clinical trials and for commercial
purposes is subject to cGMP regulations promulgated by the FDA. The Company has
contracted or will be contracting with third parties for the manufacture and
distribution of pimagedine if it pursues this product candidate. However, in the
event that the Company is unable to obtain or retain third-party manufacturing
for its products, it will not be able to commercialize such products as planned.
There can be no assurance that the Company will be able to enter into agreements
for the manufacture of future products with manufacturers whose facilities and
procedures comply with cGMP and other regulatory requirements. The Company's
current dependence upon others for the manufacture of its products may adversely
affect its profit margin, if any, on the sale of future products and the
Company's ability to develop and deliver such products on a timely and
competitive basis.
Potential Product Liability; Uncertainties Related to Insurance
The use of any of the Company's potential products in clinical trials
and the sale of any approved products, including the testing and
commercialization of pimagedine, may expose the Company to liability claims
resulting from the use of products or product candidates. These claims might be
made directly by consumers, pharmaceutical companies or others. The Company
maintains product liability insurance coverage for claims arising from the use
of its products in clinical trials. No assurance can be given that the Company
will be able to maintain insurance or, if maintained, that insurance can be
acquired at a reasonable cost or in sufficient amounts to protect the Company
against losses due to liability that could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to obtain commercially reasonable
product liability insurance for any product approved for marketing in the future
or that insurance coverage and the resources of the Company would be sufficient
to satisfy any liability resulting from product liability claims. A successful
product liability claim or series of claims brought against the Company could
have a material adverse effect on its business, financial condition and results
of operations.
Attraction and Retention of Key Employees and Consultants
The Company is highly dependent on the principal members of its
management and scientific staff. The loss of services of any of these personnel
could impede the achievement of the Company's development objectives.
Furthermore, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain personnel on acceptable terms given the competition between
pharmaceutical and health care companies, universities and non-profit research
institutions for experienced scientists. In addition, the Company relies on
consultants and members of its Scientific Advisory Board to assist the Company
in formulating its research and development strategy. All of Alteon's
consultants and the members of the Scientific Advisory Board are employed
outside the Company and may have commitments to or consulting or advisory
contracts with other entities that may limit their availability to the Company.
Hazardous Materials
The Company's research and development activities involve the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety
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<PAGE> 19
procedures for handling and disposing of hazardous materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of an accident, the Company could be held liable for any damages or
fines that result. Such liability could have a material adverse effect on the
Company's business, financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment in marketable securities. The
Company does not use derivative financial instruments in its investments. The
Company's investments consist primarily of debt instruments of the U.S.
government, government agencies, financial institutions and corporations with
strong credit ratings. The Company prepared a detailed market risk disclosure of
these investments in the Company's 1998 annual report on Form 10-K. There have
been no material changes in the Company's market risk position since December
31, 1998.
PART II
ITEM 5. OTHER INFORMATION.
On August 2, 1999, Kenneth Cartwright, MB ChB, MFCM, MRCPsych., the
Company's Senior Vice President, Development and Regulatory Affairs, announced
his retirement effective August 31, 1999.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit
No. Description of Exhibit
3.1 Restated Certificate of Incorporation, as amended.
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 Retirement of Stock of Alteon Inc.
3.4 Certificate of Designations of Series G Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
3.5 Certificate of Amendment of Certificate of Designations of
Series G Preferred Stock of Alteon Inc. (Incorporated by
reference to Exhibit 3.4 to the Company's Report on Form 10-Q
filed on August 14, 1998.)
3.6 Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
3.7 Amended Certificate of Designations of Series H Preferred
Stock of Alteon Inc. (Incorporated by reference to Exhibit 3.6
to the Company's Report on Form 10-Q filed on August 14,
1998.)
3.8 By-laws, as amended. (Incorporated by reference to Exhibit 3.7
to the Company's Report on Form 10-Q filed on May 12, 1999.)
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
20
<PAGE> 21
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on December 10, 1997.)
10.1 Employment Agreement dated as of June 2, 1999 between the
Company and F. Kenneth Andrews.
10.2* Agreement for an Exclusive Option on ALT-711 dated as of
August 26, 1999 between the Company and Taisho.
27 Financial Data Schedule.
* Confidentiality has been requested with respect to a portion
of this exhibit.
b) The following reports on Form 8-K were filed during the quarter ended
September 30, 1999:
On July 20, 1999, the Company filed a Current Report on Form 8-K, dated
July 14, 1999, which reported the appointment of F. Kenneth Andrews as Senior
Vice President of Operations.
On July 28, 1999, the Company filed a Current Report on Form 8-K, dated
July 21, 1999, which reported the appointment of Edwin D. Bransome, Jr., M.D.
and George M. Naimark, Ph.D. to the Company's Board of Directors.
On August 20, 1999, the Company filed a Current Report on Form 8-K,
dated August 17, 1999, which reported Robert N. Butler's resignation from the
Company's Board of Directors.
On September 15, 1999, the Company filed a Current Report on Form 8-K,
dated September 13, 1999, which reported an Option Agreement between the Company
and Taisho with respect to the Company's lead A.G.E. crosslink breaker compound,
ALT-711.
On October 15, 1999, the Company filed a Current Report on Form 8-K,
dated September 27, 1999, which reported that the Company was granted a
temporary exception to Nasdaq's minimum bid requirement and will be listed on
the Nasdaq SmallCap Market.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 9, 1999
ALTEON INC.
By:/s/ Kenneth I. Moch
--------------------------------------------
Kenneth I. Moch
President and Chief Executive Officer
(principal executive officer)
By:/s/ Elizabeth A. O'Dell
--------------------------------------------
Elizabeth A. O'Dell
Vice President Finance and Administration,
Secretary and Treasurer
(principal finance and accounting officer)
22
<PAGE> 23
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
3.1 Restated Certificate of Incorporation, as amended.
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 Retirement of Stock of Alteon Inc.
3.4 Certificate of Designations of Series G Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
3.5 Certificate of Amendment of Certificate of Designations of
Series G Preferred Stock of Alteon Inc. (Incorporated by
reference to Exhibit 3.4 to the Company's Report on Form 10-Q
filed on August 14, 1998.)
3.6 Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
3.7 Amended Certificate of Designations of Series H Preferred
Stock of Alteon Inc. (Incorporated by reference to Exhibit 3.6
to the Company's Report on Form 10-Q filed on August 14,
1998.)
3.8 By-laws, as amended. (Incorporated by reference to Exhibit 3.7
to the Company's Report on Form 10-Q filed on May 12, 1999.)
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.)
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<PAGE> 24
10.1 Employment Agreement dated as of June 2, 1999 between the
Company and F. Kenneth Andrews.
10.2* Agreement for an Exclusive Option on ALT-711 dated as of
August 26, 1999 between the Company and Taisho.
27 Financial Data Schedule.
* Confidentiality has been requested with respect to a portion
of this exhibit.
24
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO THE
RESTATED
CERTIFICATE OF INCORPORATION
OF
ALTEON INC.
Kenneth I. Moch hereby certifies that:
1. The name of the corporation is Alteon Inc. (the "Corporation"), and
the date of filing of the original Certificate of Incorporation of the
Corporation with the Secretary of State of the State of Delaware is October 22,
1986.
2. He is the duly elected President and Chief Executive Officer of the
Corporation.
3. Paragraph 4 of the Corporation's Amended and Restated Certificate of
Incorporation is hereby amended to read in its entirety as follows:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 41,993,329
shares. The Corporation is authorized to issue two classes of stock,
designated "Common Stock" and "Preferred Stock" respectively. The total
number of shares of Common Stock authorized to be issued by the
Corporation is 40,000,000, and each such shares of Common Stock shall
have a par value of $.01 per share. The total number of shares of
Preferred Stock authorized to be issued by the Corporation is
1,993,329, and each such share shall have a par value of $.01 per
share."
4. The foregoing amendment has been duly adopted by the Board of
Directors and the stockholders of the Corporation in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware. The total number of outstanding shares entitled to vote thereon was
17,974,125. Holders of 83.1% of such outstanding shares approved such amendment
at the duly called and conducted Annual Meeting of the stockholders of the
Corporation, held on July 22, 1998.
* * *
<PAGE> 2
IN WITNESS WHEREOF, Alteon Inc. has caused this Certificate of
Amendment to be signed by its President this 27th day of July 1999.
Alteon Inc.
By: /s/ Kenneth I. Moch
---------------------------------------
Name: Kenneth I. Moch
Title: President and Chief Executive Officer
<PAGE> 3
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
GERITECH INC.
Pursuant to Section 242 of the Delaware General Corporation Law, the
undersigned corporation executes this Certificate of Amendment to its Restated
Certificate of Incorporation.
I. Paragraph FIRST of the Corporation's Restated Certificate of
Incorporation is amended to provide in its entirety:
"FIRST: The name of the Corporation is Alteon Inc."
II. Paragraph FOURTH of the Corporation's Certificate of Incorporation
is amended to provide in its entirety:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 34,000,000
shares. The Corporation is authorized to issue two classes of stock
designated "Common Stock" and "Preferred Stock," respectively. The
total number of shares of Common Stock authorized to be issued by the
Corporation is 30,000,000, and each such share of Common Stock shall
have a par value of $.01 per share. The total number of shares of
Preferred Stock authorized to be issued by the Corporation is
4,000,000, and each such share shall have a par value of $.01 per
share.
Each share of Common Stock of the Corporation, par value $.01
per share, issued and outstanding or held in the treasury of the
Corporation is hereby reclassified and changed into 3.36 fully paid and
nonassessable shares of Common Stock of the Corporation, par value
$.01, and each holder of record of a certificate for one or more shares
of Common Stock of the Corporation as of the close of business on the
date this amendment becomes effective shall be entitled to receive, as
soon as practicable, upon surrender of such certificate, a certificate
or certificates representing 3.36 shares of Common Stock for each one
share of Common Stock represented by the certificate of such holder."
III. Paragraph ELEVENTH, TWELFTH and THIRTEENTH, are hereby added to
the Restated Certificate of Incorporation:
"ELEVENTH: Upon the consummation of the initial public
offering of securities of the Corporation under the Securities
Act of 1933, as amended (the "Securities Act"), the Board of
Directors of the Corporation shall be divided into three
<PAGE> 4
classes, which are hereby designated Class A, Class B and Class C,
respectively. The names and post office addresses of the directors of
the Corporation until the next annual meeting of stockholders and the
class to which each shall belong are as follows:
<TABLE>
<CAPTION>
Name Post Office Address
---- -------------------
<S> <C> <C>
Class A
Marilyn G. Breslow 527 Madison Avenue
New York, N.Y. 10022
Craig A.T. Jones 435 Tasso Street
Palo Alto, CA 94310
Class B
Richard D. Propper, M.D. 600 Montgomery Street
San Francisco, CA 94111
Stephen R. Wong 3201 Fostoria Way
San Ramon, CA 94583
Class C
Charles A. Faden 165 Ludlow Avenue
Northvale, N.J. 07647
Paul Cameron 20 Heathcliff Road
Rumson, N.J. 07780
Louis Fernandez 74 Crystal Downs
Frankfort, MI 49635
</TABLE>
The term of office of the initial Class A directors shall
expire at the next annual meeting of stockholders; that of the Class B
directors at the second succeeding annual meeting of stockholders; and
that of the Class C directors at the third succeeding annual meeting of
stockholders. At each annual meeting after the initial classification
of directors, directors to replace those whose terms expire at such
meeting shall be elected to hold office until the third succeeding
annual meeting. Each class shall hold office until its successors are
elected and qualified. In addition to the limitations imposed by law,
the classification of directors shall be subject to the following
limitations: (i) the number of directors shall be determined in
accordance with the Bylaws of the Corporation and (ii) the classes must
be equal in number as possible.
TWELFTH: Upon the consummation of the initial public
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<PAGE> 5
offering of securities of the Corporation under the Securities Act, (a)
the affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding shares of Voting Stock (except as otherwise
provided herein, all capitalized terms used in this Article TWELFTH
shall have the meanings set forth in paragraph (b) below) of the
Corporation, in each case voting together as a single class, which vote
shall include the affirmative vote of at least two-thirds (2/3) of the
outstanding shares of Voting Stock held by stockholders other than a
Related Person, shall be required for the approval or authorization of
any Business Combination; provided, however, that the super-majority
voting requirement referred to above shall not be applicable to any
particular Business Combination, and such Business Combination shall
require only such affirmative vote as may be required by law, any other
provision of this Certificate of Incorporation, any Preferred Stock and
any agreement with any national securities exchange, if, (1) in the
case of a Business Combination that does not involve any cash or other
consideration being received by the stockholders of the Corporation,
solely in their respective capacities as stockholders of the
Corporation, the condition specified in paragraph (i) below is
satisfied, or, (2) in the case of any other Business Combination, the
conditions specified in paragraphs (i) or (ii) below are satisfied:
(i) such Business Combination shall have been approved by a
majority of the Disinterested Directors of the Corporation; or
(ii) Each of the following five conditions have been satisfied
or have been waived by a vote of not less than a majority of the
Disinterested Directors:
(A) the aggregate amount of the cash and the
Fair Market Value as of the Consummation Date of any consideration
other than cash to be received per share by holders of Common Stock in
such Business Combination shall be at least equal to the highest of the
following (it being intended that the requirements of this clause
(ii)(A) shall be required to be met with respect to all shares of
Common Stock outstanding whether or not the Related Person has acquired
any shares of the Common Stock):
(1) if applicable, the highest per
share price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid in order to acquire any shares of Common
Stock beneficially owned by the Related Person which were acquired
beneficially by such Related Person (x) within the two-year period
immediately prior to the Announcement Date or (y) in the transaction in
which such person became a Related Person, whichever is higher; or
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<PAGE> 6
(2) the Fair Market Value per share
of Common Stock on the Announcement Date, or on the Determination Date,
whichever is higher; or
(3) the amount which bears the same
percentage relationship to the Fair Market Value of the Common Stock on
the Announcement Date as the highest per share price determined in
(ii)(A)(1) above bears to the Fair Market Value of the Common Stock on
the date of the commencement of the acquisition of the Common Stock by
such Related Person; and
(B) the aggregate amount of the cash and the
Fair Market Value as of the Consummation Date of any consideration
other than cash to be received per share by holders of the shares of
any class or series of Voting Stock (other than Common Stock) shall be
at least equal to the highest of the following (it being intended that
the requirements of this clause (ii)(B) shall be required to be met
with respect to every class and series of such outstanding Voting
Stock, whether or not the Related Person has previously acquired any
shares of a particular class of series of Voting Stock):
(1) if applicable, the highest per
share price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid in order to acquire any shares of such
class or series of Voting Stock beneficially by such Related Person (x)
within the two-year period immediately prior to the Announcement Date
or (y) in the transaction in which such person became a Related Person,
whichever is higher; or
(2) if applicable, the highest
preferential amount per share to which the holders of shares of such
class or series of Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; or
(3) the Fair Market Value per share
of such class or series of Voting Stock on the Announcement Date or the
Determination Date, whichever is higher; or
(4) the amount which bears the same
percentage to the Fair Market Value of such class or series of Voting
Stock on the Announcement Date as the highest per share price in
(ii)(B)(1) above bears to the Fair Market Value of such Voting Stock on
the date of the commencement of the acquisition of such Voting Stock by
such Related Person; and
(C) the consideration to be received by
holders of a particular class or series of outstanding Voting Stock
(including Common Stock) shall be in cash or in the same form
-4-
<PAGE> 7
as was previously paid in order to acquire beneficially shares of such
class or series of Voting Stock that are beneficially owned by the
Related Person and, if the Related Person beneficially owns shares of
any class or series of Voting Stock that were acquired with varying
forms of consideration, the form of consideration to be received by
each holder of such class or series of Voting Stock shall be at the
option of such holder, either cash or the form used by the Related
Person to acquire beneficially the largest number of shares of such
class or series of Voting Stock beneficially acquired by the Related
Person prior to the Announcement Date; and
(D) after such Related Person has become a
Related Person and prior to the consummation of such Business
Combination:
(1) such Related Person shall not have
become the beneficial owner of any additional shares of Voting Stock of
the Corporation, except as part of the transaction in which such person
became a Related Person or upon conversion of convertible securities
acquired by such person prior to becoming a Related Person or as a
result of a pro rata stock dividend or stock split; and
(2) such Related Person shall not have
received the benefit, directly or indirectly (except proportionately as
a stockholder), or any loans, advances, guarantees, pledges or other
financial assistance or tax credits or other tax advantages provided by
the Corporation or any Subsidiary, whether in anticipation of or in
connection with such Business Combination or otherwise; and
(3) such Related Person shall not have
caused any material change in the Corporation's business or capital
structure, including, without limitation, the issuance of shares of
capital stock of the Corporation to any third party; and
(4) there shall have been (x) no failure
to declare and pay at the regular date therefor the full amount of
dividends (whether or not cumulative) on any outstanding Preferred
Stock, except as approved by a majority of the Disinterested Directors
(y) no reduction in the rate of dividends, annualized on the basis of
the last dividend declaration, paid on Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors and (z) an
increase in such annual rate of dividends (as necessary to prevent any
such reduction) in the event of any reclassification (including any
reverse stock split), recapitalization, reorganization, self tender
offer or any similar transaction which has the effect of reducing the
-5-
<PAGE> 8
number of outstanding shares of the Common Stock, unless the failure so
to increase such annual rate was approved by a majority of the
Disinterested Directors; and
(E) a proxy or information statement
describing the proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules and regulation thereunder (or any
subsequent provisions replacing such rules and regulations), whether or
not the Corporation is then subject to such requirements shall be
mailed by and at the expense of the Related Person at least 40 days
prior to the Consummation Date of such Business Combination to the
public stockholders of the Corporation (whether or not such proxy or
information statement is required to be mailed pursuant to the Exchange
Act or subsequent provisions), and shall contain at the front thereof
in a prominent place (1) any recommendations as to the advisability (or
inadvisability) of the Business Combination which the Disinterested
Directors, if any, may choose to state, and (2) the opinion of a
reputable national investment banking firm as to the fairness (or not)
of such Business Combination from the point of view of the remaining
public stockholders of the Corporation (such investment banking firm to
be engaged solely on behalf of the remaining public stockholders, to be
paid a reasonable fee for their services by the Corporation upon
receipt of such opinion, to be unaffiliated with such Related Person
and, if there are at the time any Disinterested Directors, to be
selected by a majority of the Disinterested Directors).
(b) For the purposes of this Article TWELFTH and Article
THIRTEENTH:
(i) The term "Business Combination" shall mean (A)
any merger, consolidation or binding share exchange of the Corporation
or any subsidiary with or into any Related Person, (B) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to or with a
Related Person of Assets either of the Corporation (including, without
limitation, any voting securities of a Subsidiary) or of a Subsidiary
having an aggregate Fair Market Value of $10,000,000 or more, (C) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition
to the Corporation or a Subsidiary of assets of a Related Person having
a Fair Market Value of $10,000,000 or more, (D) the issuance or
transfer by the Corporation or any Subsidiary (other than by way of a
pro rata distribution to all stockholders) of any securities of the
Corporation or any Subsidiary to a Related Person, (E) any transaction
involving the Corporation or any Subsidiary (whether or not with or
into or otherwise involving a Related Person), and including without
limitation, any reclassification of securities (including any reverse
stock split) or recapitalization or
-6-
<PAGE> 9
reorganization of the Corporation, any merger or consolidation of the
Corporation with any of its Subsidiaries or any self tender offer for
or repurchase of securities of the Corporation by the Corporation or
any Subsidiary, which in any such case has the effect, directly or
indirectly, of increasing the voting power (whether or not then
exercisable) of a Related Person or increasing the share of the
outstanding shares of any class of equity securities or securities
convertible into equity securities of the Corporation or any Subsidiary
beneficially owned by a Related Person, (F) the adoption of any plan or
proposal for the liquidation or dissolution of the Corporation proposed
by or on behalf of a Related Person, (G) any series or combination of
transactions directly or indirectly having the same effect as any of
the foregoing or (H) any agreement, contract or other arrangement
providing directly or indirectly for any of the foregoing.
(ii) The term "Disinterested Director" shall mean any
member of the Board of Directors who is not affiliated with, and not a
nominee of, a Related Person and who was a member of the Board of
Directors immediately prior to the time that the Related Person became
a Related Person, and any successor to a Disinterested Director who is
not affiliated with, and not a nominee of, the Related Person and who
is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors who are then members of the Board of Directors.
(iii) The term "Fair Market Value" shall mean (A) in
the case of stock, the highest closing sale price during the 30-day
period commencing on the 40th day preceding the date in question of a
share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the New York
Stock Exchange-Composite Tape, on the principal United States
securities exchange registered under the Exchange Act on which such
stock is listed, or, if such stock is not listed on any such exchange,
the highest closing sale price or bid quotation with respect to a share
of such stock during the 30-day period commencing on the 40th day
preceding the date in question on the National Association of
Securities Dealers, Inc., Automated Quotation System or any system then
in use, or if no such quotations are available, the fair market value
on the date in question of a share of stock as determined by a majority
of the Disinterested Directors in good faith; and (B) in the case of
property other than cash or stock, the fair market value of such
property as determined by a majority of the Disinterested Directors in
good faith.
(iv) The term "Related Person" shall mean and include
any individual, corporation, partnership or other "person" or "group"
of persons or entities (as such terms are used in Rule
-7-
<PAGE> 10
13d under the Exchange Act), and the "Affiliates" and "Associates" (as
such terms are in Rule 12b-2 under the Exchange Act) of any such
individual, corporation, partnership or other person or group of
persons, other than the Corporation or any Subsidiary or any employee
benefit plan or plans sponsored by the Corporation or any Subsidiary,
that (A) individually or together constitute the Beneficial Owner of an
aggregate of ten percent (10%) or more of the outstanding Voting Stock
of the Corporation, (B) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was the Beneficial Owner of ten percent (10%) or more of the
outstanding Voting Stock of the Corporation, or (C) is an assignee or
has otherwise succeeded to the beneficial ownership of any shares of
Voting Stock that were at any time within the two-year period
immediately prior to the date in question beneficially owned by a
Related Person, if such assignment or succession shall have occurred in
the course of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act.
(v) The term "Subsidiary" shall mean any company fifty percent
(50%) of whose outstanding equities having ordinary voting power in the
election of directors is owned, directly or indirectly, by the
Corporation or a Subsidiary or by the Corporation and one or more
Subsidiaries.
(vi) The term "Voting Stock" shall mean all outstanding shares
of capital stock of all classes and series of the Corporation entitled
to vote generally in the election of directors, and each reference to a
proportion of shares of Voting Stock shall refer to shares having such
proportion of the number of shares entitled to be cast.
(vii) The term "Announcement Date" shall mean the date of
first public announcement of the proposed Business Combination.
(viii) The term "Determination Date" shall mean the date on
which the Related Person became a Related Person.
(ix) The term "Consummation Date" shall mean the date of the
consummation of the Business Combination.
(x) A person shall be the "Beneficial Owner" of any Voting
Stock: (A) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; (B) which such person or any
of its Affiliates or Associates has (1) the rights to acquire (whether
or not such right is exercisable immediately) pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
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<PAGE> 11
otherwise, or (2) the rights to vote or direct the vote pursuant to any
agreement, arrangement or understanding; or (C) which are beneficially
owned, directly or indirectly, by any other person with which such
person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting or depositing of any shares of Voting Stock.
(xi) For purposes of subparagraphs (a)(ii)(A) and (a)(ii)(B)
of this Article TWELFTH, the expression "other consideration to be
received" shall include, without limitation, Common Stock and/or the
shares of any other class or series of outstanding Voting Stock
retained by the Corporation's existing stockholders in the event of a
Business Combination in which the Corporation is the surviving
corporation.
THIRTEENTH: Except as approved by a vote of not less than a
majority of the directors of the Corporation then holding office (or,
in the event that the Corporation at the time has a Related Person,
then by a vote of not less than a majority of the Disinterested
Directors), Articles ELEVENTH and TWELFTH hereof and this Article
THIRTEENTH may not be amended, altered, changed, repealed or rescinded
in any respect unless such action is approved by the affirmative vote
of the holders of not less than eighty percent (80%) of the outstanding
shares of Voting Stock of the Corporation, considered for purposes of
this Article THIRTEENTH as one class; provided, however, that if there
is a Related Person on the Record Date for the meeting at which such
action is submitted to the stockholders for their consideration, such
eighty percent (80%) vote must include the affirmative vote of at least
two-thirds (2/3) of the outstanding shares of Voting Stock held by
stockholders other than the Related Person. The voting requirements
contained in this Article THIRTEENTH shall be in addition to voting
requirements imposed by law or other provisions of this Certificate of
Incorporation or any designation of preferences in favor of certain
classes or series of classes of Preferred Stock of the Corporation or
any agreement with any national securities exchange."
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<PAGE> 12
IV. The foregoing amendment has been duly adopted in accordance with
the provisions of Section 242(b) of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Certificate of Amendment is made this 29th day
of August, 1991.
GERITECH INC.
By: /s/Charles A. Faden
---------------------------
Charles A. Faden, President
and Chief Executive Officer
ATTEST:
By:/s/ Brian Hayden
-----------------------------
Brian Hayden, Secretary
-10-
<PAGE> 13
RESTATED CERTIFICATE OF INCORPORATION
OF
GERITECH INC.
* * * *
Adopted in accordance with Sections
242 and 245 of the General Corporation
Law of the State of Delaware
* * * *
CHARLES A. FADEN and BRIAN J. HAYDEN, being the President and Secretary,
respectively, of Geritech Inc. (the "Corporation"), a corporation duly organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, DO HEREBY CERTIFY THAT:
FIRST: The Corporation filed its original Certificate of Incorporation
on October 22, 1986 under the name of Geritech Inc.
SECOND: The Corporation filed amendments to the Certificate of
Incorporation on September 9, 1987 and February 4, 1988.
THIRD: The Corporation filed a Restated Certificate of Incorporation on
June 24, 1988.
FOURTH: The Corporation filed a Certificate of Designation of Series D
Preferred Stock on July 25, 1989.
FIFTH: The Board of Directors of the Corporation at a meeting held on
November 28, 1990, and in accordance with Sections 242, 245 and 141(i) of the
General Corporation Law of the State of Delaware, adopted a resolution
authorizing the Corporation to amend, integrate and restate the Certificate of
Incorporation. The Restated Certificate of Incorporation of the Corporation
which sets forth as amended, and which restates and integrates, the Certificate
of Incorporation of the Corporation as heretofore amended and supplemented is
attached hereto and incorporated herein as Exhibit A.
SIXTH: In accordance with Sections 228, 242 and 245 of the General
Corporate Law of the State of Delaware, the holders of a majority of the issued
and outstanding shares of Common Stock, a majority of the issued and outstanding
shares of Series A Preferred Stock, a majority of the issued and outstanding
shares of Series B Preferred Stock, a majority of the issued and outstanding
shares of Series C Preferred Stock and a majority of the issued and outstanding
shares of Series D Preferred Stock of the Corporation, and the holders of sixty
seven percent (67%) of the issued and outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock voting together as a single class, adopted the Restated Certificate of
<PAGE> 14
Incorporation, attached hereto as Exhibit A, by written consents in lieu of an
annual meeting of the stockholders of the Corporation, as of December 6, 1990.
SEVENTH: In accordance with Section 228 of the General Corporation Law
of the State of Delaware, written notice has been given to the stockholders who
have not consented in writing.
IN WITNESS WHEREOF, the undersigned has caused this Restated
Certificate of Incorporation to be signed by Charles A. Faden, its President,
and Brian J. Hayden, its Secretary this 6th day of December, 1990.
GERITECH INC.,
a Delaware Corporation
By: /s/ Charles A. Faden
--------------------
Charles A. Faden
President
ATTEST:
By: /s/ Brian J. Hayden
-------------------
Brian J. Hayden
Secretary
-2-
<PAGE> 15
RESTATED CERTIFICATE OF INCORPORATION
OF
GERITECH INC.
FIRST: The name of the Corporation is Geritech Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is to be located at the Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The name of its registered agent
at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful acts
or activities for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is six million five hundred thousand
(6,500,000). The Corporation is authorized to issue two classes of stock
designated "Common Stock" and "Preferred Stock," respectively. The total number
of shares of Common Stock authorized to be issued by the Corporation is four
million (4,000,000), and each such share of Common Stock shall have a par value
of $0.01 per share. The total number of shares of Preferred Stock authorized to
be issued by the Corporation is two million five hundred thousand (2,500,000)
and each such share shall have a par value of $0.01 per share.
FIFTH: The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors of the Corporation is hereby authorized, by
adopting a resolution or resolutions and filing a certificate or certificates
pursuant to the applicable provisions of the General Corporation Law of
Delaware, to establish from time to time the number of shares to be included in
each such series of Preferred Stock, and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof, including but not limited to the fixing or
alteration of the dividend rights, dividend rate or rates, conversion rights,
voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of shares of Preferred Stock, or any of them, and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares removed from such series by such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
270,000 shares of Preferred Stock are hereby designated as the Series A
Preferred Stock of the Corporation ("Series A Stock"), 400,000 shares of
Preferred Stock are hereby designated as Series
<PAGE> 16
B Preferred Stock of the Corporation ("Series B Stock"), 835,606 shares of
Preferred Stock are hereby designated as the Series C Preferred Stock of the
Corporation ("Series C Stock"), 233,531 share of Preferred Stock are hereby
designated as the Series D Preferred Stock of the Corporation "Series D Stock")
and 262,534 shares of Preferred Stock are hereby designated as the Series E
Preferred Stock of the Corporation("Series E Stock"). The powers, preferences,
rights, qualifications, limitations and restrictions of the Series A Stock,
Series B Stock, Series C Stock, Series D Stock and Series E Stock are set forth
below in this Article FIFTH.
1. DIVIDEND RIGHTS.
(a) Series A Stock. Subject to the prior rights of the holders
of Series B Stock, Series C Stock, Series D Stock and Series E Stock, the
holders of the Series A Stock shall be entitled to receive, when and as declared
by the Board of Directors of the Corporation, out of funds and assets of the
Corporation legally available therefor, noncumulative dividends in the total
amount of $0.10 per share of Series A Stock per calendar year. No dividend or
distribution (as hereinafter defined) shall be declared or made with respect to
the Common Stock of the Corporation during any calendar year until dividends in
a total amount equal to $0.10 per share of Series A Stock shall have been
declared and paid (or set apart for payment) in full in such calendar year.
Dividends on the Series A Stock shall not be cumulative, and no right shall
accrue to the holders of Series A Stock by reason of the fact that the
Corporation may fail to declare or pay dividends on the Series A Stock in the
amount of $0.10 per share or in any amount in any previous calendar year,
whether or not the earnings of the Corporation in that previous calendar year
were sufficient to pay such dividends in whole or in part.
(b) Series B Stock. The holders of the Series B Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, out of funds and assets of the Corporation legally available
therefor, cumulative dividends, payable in cash, which, commencing on the date
of issuance with respect to each share of Series B Stock, shall accumulate
ratably from day to day at the rate of $0.50 per annum per share of Series B
Stock, whether or not earned or declared. Nothing in this Section 1(b) is
intended to obligate the Corporation to declare any dividends on the Series B
Stock. No dividend or distribution (as hereinafter defined) shall be declared or
made with respect to the Series A Stock or the Common Stock of the Corporation
during any calendar year until dividends in a total amount equal to the greater
of (i) $0.50 per share of Series B Stock then outstanding or (ii) all unpaid
cumulative dividends then accumulated on the outstanding Series B Stock shall
have been declared and paid (or set apart for payment) in full in such calendar
year. Any accumulation of dividends on the Series B Stock shall not bear
interest.
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<PAGE> 17
(c) Series C Stock. The holders of the Series C Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, out of funds and assets of the Corporation legally available
therefor, cumulative dividends, payable in cash, which, commencing on the date
of issuance with respect to each share of Series C Stock, shall accumulate
ratably from day to day at the rate of 7.575% per annum of the Series C
Liquidation Value (plus any accumulated but unpaid dividends) of each share of
Series C Stock, whether or not earned or declared. Nothing in this Section 1(c)
is intended to obligate the Corporation to declare any dividends on the Series C
Stock. No dividend or distribution (as hereinafter defined) shall be declared or
made with respect to the Series A Stock or the Common Stock of the Corporation
during any calendar year until dividends in a total amount equal to the greater
of (i) 7.575% per annum of the Series C Liquidation Value (plus any accumulated
but unpaid dividends) of each share of Series C Stock then outstanding or (ii)
all unpaid cumulative dividends then accumulated on the outstanding Series C
Stock shall have been declared and paid (or set apart for payment) in full in
such calendar year. Any accumulation of dividends on the Series C Stock shall
not bear interest. The "Series C Liquidation Value" shall equal $6.60 per share.
(d) Series D Stock. The holders of the Series D Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, out of funds and assets of the Corporation legally available
therefor, cumulative dividends, payable in cash, which, commencing on the date
of issuance with respect to each share of Series D Stock, shall accumulate
ratably from day to day at the rate of $0.975 per annum per share of Series D
Stock, whether or not earned or declared. Nothing in this Section 1(d) is
intended to obligate the Corporation to declare any dividends on the Series D
Stock. No dividend or distribution (as hereinafter defined) shall be declared or
made with respect to the Series A Stock or the Common Stock of the Corporation
during any calendar year until dividends in a total amount equal to the greater
of (i) $0.975 per share of Series D Stock then outstanding or (ii) all unpaid
cumulative dividends then accumulated on the outstanding Series D Stock shall
have been declared and paid (or set apart for payment) in full in such calendar
year. Any accumulation of dividends on the Series D Stock shall not bear
interest.
(e) Series E Stock. The holders of the Series E Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, out of funds and assets of the Corporation legally available
therefor, cumulative dividends, payable in cash, which, commencing on the date
of issuance with respect to each share of Series E Stock, shall accumulate
ratably from day to day at the rate of $1.44 per annum per share of Series E
Stock, whether or not earned or declared. Nothing in this Section 1(e) is
intended to obligate the Corporation to declare any
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dividends on the Series E Stock. No dividend or distribution (as hereinafter
defined) shall be declared or made with respect to the Series A Stock or the
Common Stock of the Corporation during any calendar year until dividends in a
total amount equal to the greater of (i) $1.44 per share of Series E Stock then
outstanding or (ii) all unpaid cumulative dividends then accumulated on the
outstanding Series E Stock shall have been declared and paid (or set apart for
payment) in full in such calendar year. Any accumulation of dividends on the
Series E Stock shall not bear interest.
(f) Partial Dividend Payments. If at any time less than the
full amount of accumulated dividends is paid with respect to the Series B Stock,
Series C Stock, Series D Stock and Series E Stock then outstanding, dividends
shall be paid ratably among the holders of the Series B Stock, Series C Stock,
Series D Stock and Series E Stock based upon the total amount of accumulated
dividends with respect to each series of stock.
(g) Distribution. As used in this Section 1, the term
"distribution" shall mean a transfer of cash, property or securities without
consideration, whether by way of dividend or otherwise, or the purchase or
redemption of shares of the Corporation; provided, however, that the term
"distribution" shall not include (i) a dividend in shares of the Common Stock of
the Corporation, (ii) any purchase or redemption by the Corporation of shares of
its Series A Stock, Series B Stock, Series C Stock, Series D Stock or Series E
Stock pursuant to the provisions of Section 4 hereof, or (iii) any purchase or
redemption by the Corporation of shares of its Common Stock from a current or
former employee, officer, director, consultant of, or other person performing
services for the Corporation if such purchase or redemption is approved by the
Corporation's Board of Directors.
(h) Waiver of Dividends. An affirmative vote of the holders of
at least 67% of Series B Stock, Series C Stock, Series D Stock and Series E
Stock, voting together as a single class, may waive all or any portion of
accrued but unpaid dividends on the Series B Stock, Series C Stock, Series D
Stock and Series E Stock. Such waiver shall be pro rata among the holders of
Series B Stock, Series C Stock, Series D Stock and Series E Stock based upon the
total amount of accrued dividends with respect to each such series of Preferred
Stock.
2. LIQUIDATION.
(a) Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of the Series A Stock, Series B Stock, Series C Stock, Series D
Stock and Series E Stock then outstanding shall, on an equal priority pari passu
basis, be entitled, prior and in preference in all respects to the holders of
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the Common Stock, to be paid first out of the assets and funds of the
Corporation legally available for distribution to holders of the Corporation's
capital stock of all classes, whether such assets are capital, surplus or
earnings, (i) in the case of the Series A Stock, an amount equal to $1.25 per
share of Series A Stock plus all declared and unpaid dividends thereon, to and
including the date full payment of the amounts payable to the holders of Series
A Stock under this Section 2(a) shall be tendered to the holders of the Series A
Stock, (ii) in the case of the Series B Stock, an amount equal to $5.00 per
share of Series B Stock plus all accumulated and unpaid dividends thereon,
whether or not earned or declared, to and including the date full payment of the
amounts payable to the holders of Series B Stock under this Section 2(a) shall
be tendered to the holders of the Series B Stock, (iii) in the case of the
Series C Stock, an amount equal to $6.60 per share of Series C Stock plus all
accumulated and unpaid dividends thereon, whether or not earned or declared, to
and including the date full payment of the amounts payable to the holders of
Series C Stock under this Section 2(a) shall be tendered to the holders of the
Series C Stock, (iv) in the case of the Series D Stock, an amount equal to
$12.85 per share of Series D Stock plus all accumulated and unpaid dividends
thereon, whether or not earned or declared, to and including the date full
payment of the amounts payable to the holders of Series D Stock under this
Section 2(a) shall be tendered to the holders of the Series D Stock, and (v) in
the case of the Series E Stock, an amount equal to $19.05 per share of Series E
Stock plus all accumulated and unpaid dividends thereon, whether or not earned
or declared, to and including the date full payment of the amounts payable to
the holders of Series E Stock under this Section 2(a) shall be tendered to the
holders of the Series E Stock.
(b) Insufficient Assets. If the funds and assets of the
Corporation shall be insufficient to permit the payment in full to the holders
of the Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series
E Stock of the preferential amounts described in Section 2(a) above, then the
entire funds and assets of the Corporation legally available for such
distribution to stockholders shall be distributed pro rata among the holders of
the Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock in proportion to the amounts of their respective aggregate liquidation
preferences as described in Section 2(a) above. After payment in full of the
aforesaid preferential amounts shall have been made to the holders of the Series
A Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock,
then, provided that such liquidation, dissolution or winding up contemplates a
distribution to holders of Common Stock, all remaining assets and funds of the
Corporation legally available for distribution to stockholders shall be
distributed ratably among the holders of the Common Stock in proportion to the
number of shares of Common Stock then held by each of them.
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(c) Special Treatment of Reorganizations, Mergers,
Consolidations and Sales of Assets. A reorganization, consolidation or merger of
the Corporation with or into any other corporation or corporations or other
entity or entities, or a sale, conveyance, lease, transfer or other disposition
of all or substantially all of the Corporation's properties and assets, or a
sale or other transfer, in a single transaction or in a series of related
transactions, of fifty percent (50%) or more of the Corporation's outstanding
stock shall be deemed to be a liquidation, dissolution and winding up of the
Corporation under this Section 2.
(d) Special Election. Each holder of Series A Stock, each
holder of Series B Stock, each holder of Series C Stock, each holder of Series D
Stock and each holder of Series E Stock, shall individually have the right to
elect the benefits of the provisions of Section 5(h) hereof in lieu of receiving
payment in liquidation, dissolution or winding up of the Corporation pursuant to
this Section 2.
(e) Distributions Other than Cash. Whenever a distribution
provided for in this Section 2 shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Corporation.
3. VOTING RIGHTS.
Except as otherwise expressly required by applicable law or as
otherwise provided herein, the rights of the holders of Series A Stock, the
holders of Series B Stock, the holders of Series C Stock, the holders of Series
D Stock, the holders of Series E Stock and the holders of Common Stock to vote
on any matter submitted to stockholders of the Corporation shall be as follows:
(a) Common Stock. Each issued and outstanding share of Common
Stock shall have one (1) vote. Except as provided herein, the holders of Common
Stock, Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series
E Stock will vote together as one class on all matters submitted to the
Corporation's stockholders for approval.
(b) Series A Stock. Except as otherwise expressly required by
applicable law or as otherwise provided herein, the Series A Stock shall have no
voting rights whatsoever. In the event that the Series A Stock shall have voting
rights under applicable law or otherwise provided herein, then each share of
Series A Stock shall have that number of votes which is equal to the number of
whole shares of Common Stock into which such share of Series A Stock could be
converted, pursuant to the provisions of Section 5 hereof, at the record date
for the determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent
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of stockholders is solicited, and the determination of the number of whole
shares of Common Stock into which a share of Series A Stock is convertible for
the purposes of calculating the number of votes the holder of Series A Stock may
cast in respect of such holder's Series A Stock shall be calculated based upon
the total number of shares of Series A Stock held by such holder on the
applicable record date, and not upon each share of Series A Stock held by such
holder.
(c) Series B Stock. Except as otherwise expressly required by
applicable law or as otherwise provided herein, and subject to the second
sentence of this Section 3(c), each share of Series B Stock shall have that
number of votes which is equal to the product obtained by multiplying (i) 1.675
by (ii) the number of whole shares of Common Stock into which such share of
Series B Stock could be converted, pursuant to the provisions of Section 5
hereof, at the record date for the determination of stockholders entitled to
vote on such matter or, if no such record date is established, at the date such
vote is taken or any written consent of stockholders is solicited. The
determination of the number of whole shares of Common Stock into which a share
of Series B Stock is convertible for the purposes of calculating the number of
votes the holder of Series B Stock may cast in respect of such holder's Series B
Stock shall be calculated based upon the total number of shares of Series B
Stock held by such holder on the applicable record date, and not upon each share
of Series B Stock held by such holder.
(d) Series C Stock. Except as otherwise expressly required by
applicable law, as otherwise provided in this Section 3(d) with respect to the
election of directors or as otherwise provided herein, each share of Series C
Stock shall have that number of votes which is equal to the number of whole
shares of Common Stock into which such share of Series C Stock could be
converted, pursuant to the provisions of Section 5 hereof, at the record date
for the determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, and the determination of the number of
whole shares of Common Stock into which a share of Series C Stock is convertible
for the purposes of calculating the number of votes the holder of Series C Stock
may cast in respect of such holder's Series C Stock shall be calculated based
upon the total number of shares of Series C Stock held by such holder on the
applicable record date, and not upon each share of Series C Stock held by such
holder. In the election of directors, the holders of the Series C Stock voting
separately as a single class to the exclusion of all other classes of the
Corporation's capital stock (with each share of Series C Stock entitled to one
vote) shall be entitled to elect two directors to the Corporation's board of
directors.
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(e) Series D Stock. Except as otherwise expressly required by
applicable law or as otherwise provided herein, each share of Series D Stock
shall have that number of votes which is equal to the number of whole shares of
Common Stock into which such share of Series D Stock could be converted,
pursuant to the provisions of Section 5 hereof, at the record date for the
determination of stockholders entitled to vote on such matter or, if no such
record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, and the determination of the number of
whole shares of Common Stock into which a share of Series D Stock is convertible
for the purposes of calculating the number of votes the holder of Series D Stock
may cast in respect of such holder's Series D Stock shall be calculated based
upon the total number of shares of Series D Stock held by such holder on the
applicable record date, and not upon each share of Series D Stock held by such
holder.
(f) Series E Stock. Except as otherwise expressly required by
applicable law or as otherwise provided herein, each share of Series E Stock
shall have that number of votes which is equal to the number of whole shares of
Common Stock into which such share of Series E Stock could be converted,
pursuant to the provisions of Section 5 hereof, at the record date for the
determination of stockholders entitled to vote on such matter or, if no such
record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, and the determination of the number of
whole shares of Common Stock into which a share of Series E Stock is convertible
for the purposes of calculating the number of votes the holder of Series E Stock
may cast in respect of such holder's Series E Stock shall be calculated based
upon the total number of shares of Series E Stock held by such holder on the
applicable record date, and not upon each share of Series E Stock held by such
holder.
4. REDEMPTION.
(a) Voluntary Redemptions.
(i) All Preferred Stock. Provided that the holders of at
least 67% of the then outstanding shares of Series B Stock, Series C Stock,
Series D Stock and Series E Stock, voting together as a single class, have first
consented in writing in advance to such redemption, the Corporation may, at any
time after September 30, 1995, provided that it may lawfully do so, redeem in
whole or in part: (1) the Series A Stock by paying in cash therefor on the
"Redemption Date" (as defined in Section 4(d)(i) below) a sum equal to $1.25 per
share of Series A Stock plus all declared and unpaid dividends thereon (such sum
to be referred to herein as the "Series A Redemption Price"), (2) the Series B
Stock by paying in cash therefor on the "Redemption Date" (as defined in Section
4(d)(i) below) a sum equal to $5.00 per share of Series B Stock plus all
accumulated and unpaid dividends thereon, whether or not earned or
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declared (such sum to be referred to herein as the "Series B Redemption Price"),
(3) the Series C Stock by paying in cash therefor on the "Redemption Date" (as
defined in Section 4(d)(i) below) a sum equal to $6.60 per share of Series C
Stock plus all accumulated and unpaid dividends thereon, whether or not earned
or declared (such sum to be referred to herein as the "Series C Redemption
Price"), (4) the Series D Stock by paying in cash therefor on the "Redemption
Date" (as defined in Section 4(d)(i) below) a sum equal to $12.85 per share of
Series D Stock plus all accumulated and unpaid dividends thereon, whether or not
earned or declared (such sum to be referred to herein as the "Series D
Redemption Price"), (5) the Series E Stock by paying in cash therefor on the
"Redemption Date" (as defined in Section 4(d))i) below) a sum equal to $19.05
per share of Series E Stock plus all accumulated and unpaid dividends thereon,
whether or not earned or declared (such sum to be referred to herein as the
"Series E Redemption Price").
(ii) A Single Series of Preferred Stock. The Corporation
may, at any time after September 30, 1995, provided that it may lawfully do so,
redeem in whole or in part any single series of Preferred Stock, provided that
the holders of at least 67% of the then outstanding shares of Series B Stock,
Series C Stock, Series D Stock and Series E Stock, voting together as a single
class, plus the holders of at least a majority of the then outstanding shares of
such series of Preferred Stock for which the Corporation is electing to redeem,
have first consented in writing in advance to such redemption. Such redemption
shall be made for: (1) the Series A Stock by paying therefor on the "Redemption
Date" (as defined in Section 4(d)(ii) below) the Series A Redemption Price, (2)
the Series B Stock, by paying therefor on the "Redemption Date" (as defined in
Section 4(d)(ii) below) the Series B Redemption Price, (3) the Series C Stock by
paying therefor on the "Redemption Date" (as defined in Section 4(d)(ii) below)
the Series C Redemption Price, (4) the Series D Stock by paying therefor on the
"Redemption Date" (as defined in Section 4(d)(ii) below) the Series D Redemption
Price, and (5) the Series E Stock by paying therefor on the "Redemption Date"
(as defined in Section 4(d)(ii) below) the Series E Redemption Price.
(b) Requested Redemption. Provided that the holders of at
least 67% of the then outstanding shares of Series B Stock, Series C Stock,
Series D Stock and Series E Stock, voting together as a single class, have first
consented in writing in advance to such redemption, at any time after September
30, 1997, the holders of a majority of the outstanding Series C Stock, Series D
Stock or Series E Stock may request redemption of all the outstanding Series C
Stock, Series D Stock or Series E Stock, as the case may be, at a price per
share payable in cash equal to the Series C Redemption Price, the Series D
Redemption Price or the Series E Redemption Price, as applicable, by delivering
written notice to the Corporation. Upon the receipt of a Preliminary Redemption
Notice
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<PAGE> 24
(as defined in Section 4(d)(iii) below), the holders of a majority of each of
the other series of Preferred Stock may each request redemption of all
outstanding shares of such series of Preferred Stock, at a price per share
payable in cash equal to the respective Redemption Prices thereof, by delivery
of written notice to the Corporation within fifteen (15) days after receipt of
the Preliminary Redemption Notice.
(c) Partial Redemption. Unless otherwise provided herein:
(i) in the event of a partial redemption involving more
than one series of Preferred Stock, such redemption shall be made pro rata among
all of such series of Preferred Stock; then
(ii) any partial redemption shall be made pro rata among
all holders of each individual series of Preferred Stock.
(d) Mechanics of Redemption.
(i) Redemption Procedure-Voluntary, For All Preferred
Stock. At least thirty (30) but no more than sixty (60) days prior to the date
fixed for any redemption of Series A Stock, Series B Stock, Series C Stock
Series D Stock and Series E Stock under Section 4(a)(i) above (the "Redemption
Date"), written notice (the "Redemption Notice") shall be sent by registered or
certified mail, postage prepaid, to each holder of record of Series A Stock,
Series B Stock, Series C Stock, Series D Stock and Series E Stock at the close
of business on the business day next preceding the day on which the Redemption
Notice is sent, at the address last shown on the records of the Corporation for
such holder or given by such holder to the Corporation for the purpose of notice
or, if no such address appears or is given, at the place where the principal
executive office of the Corporation is then located. The Redemption Notice shall
notify each holder of Series A Stock, Series B Stock, Series C Stock, Series D
Stock and Series E Stock of the redemption to be effected, specifying the
Redemption Date, the Series A Redemption Price, the Series B Redemption Price,
the Series C Redemption Price, the Series D Redemption Price and the Series E
Redemption Price, the place at which payment may be obtained and the date
("Termination Date") on which such holder's conversion rights (as set forth in
Section 5 hereof) as to such shares terminate (which Termination Date shall in
no event be earlier than the close of business on the date five (5) days prior
to the Redemption Date) and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, the certificate(s)
representing the shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock and Series E Stock to be redeemed. Shares of Series A Stock,
Series B Stock, Series C Stock, Series D Stock and Series E Stock that have been
converted into Common Stock prior to the Termination Date shall not be
redeemable under this Section 4. Notwithstanding anything here to the
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contrary, if there shall be a default or delay in the payment of the Series A
Redemption Price, the Series B Redemption Price, the Series C Redemption Price,
the Series D Redemption Price or the Series E Redemption Price, then the holders
of the shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock
and Series E Stock to be redeemed shall retain all rights, preferences and
privileges relating to their shares of Series A Stock, Series B Stock, Series C
Stock, Series D Stock and Series E Stock, including without limitation the
conversion rights set forth in Section 5 hereof, until the Series A Redemption
Price, the Series B Redemption Price, the Series C Redemption Price, the Series
D Redemption Price and the Series E Redemption Price shall have been paid in
full. Except as provided in Section 4(d)(iv) hereof, on and after the Redemption
Date each holder of Series A Stock, Series B Stock, Series C Stock, Series D
Stock and Series E Stock shall surrender to the Corporation the certificate(s)
representing the shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock and Series E Stock owned by such holder to be redeemed, duly
endorsed for transfer to the Corporation, and certificate(s) shall promptly be
issued representing any unredeemed shares.
(ii) Redemption Procedure-Voluntary, For a Single Series
of Preferred Stock. At least thirty (30) but not more than sixty (60) days prior
to the date fixed for any redemption of any single series of Preferred Stock
under Section 4(a)(ii) above (the "Redemption Date"), written notice (the
"Redemption Notice") shall be sent by registered or certified mail, postage
prepaid, to each holder of record of such series of Preferred Stock at the close
of business on the business day next preceding the day on which the Redemption
Notice is sent, at the address last shown on the records of the Corporation for
such holder or given by such holder to the Corporation for the purpose of notice
or, if no such address appears or is given, at the place where the principal
executive office of the Corporation is then located. The Redemption Notice shall
notify each holder of such series of Preferred Stock of the redemption to be
effected, specifying the Redemption Date, the applicable Redemption Price, the
place at which payment may be obtained and the date ("Termination Date") on
which such holder's conversion rights (as set forth in Section 5 hereof) as to
such shares terminate (which Termination Date shall in no event be earlier than
the close of business on the date five (5) days prior to the Redemption Date)
and calling upon such holder to surrender to the Corporation, in the manner and
at the place designated, the certificate(s) representing the shares of such
series of Preferred Stock to be redeemed. Shares of such series of Preferred
Stock that have been converted into Common Stock prior to the Termination Date
shall not be redeemable under this Section 4. Notwithstanding anything herein to
the contrary, if there shall be a default or delay in the payment of the
applicable Redemption Price, then the holders of the shares of such series of
Preferred Stock to be redeemed shall retain all rights, preferences and
privileges relating to their shares of such series of Preferred Stock,
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including without limitation the conversion rights set forth in Section 5
hereof, until the applicable Redemption Price shall have been paid in full.
Except as provided in Section 4(d)(iv) hereof, on and after the Redemption Date
each holder of such series of Preferred Stock shall surrender to the Corporation
the certificate(s) representing the shares of such series of Preferred Stock
owned by such holder to be redeemed, duly endorsed for transfer to the
Corporation, and certificate(s) shall promptly be issued representing any
unredeemed shares.
(iii) Redemption Procedure - Requested. Within fifteen
(15) days after receipt of written notice of a request for redemption of the
Series C Stock, Series D Stock or Series E Stock pursuant to Section 4(b) above,
the Corporation will deliver a written notice (the "Preliminary Redemption
Notice"), by registered or certified mail and postage prepaid, to each holder of
record of each of the other series of Preferred Stock at the close of business
on the business day next preceding the day on which the Preliminary Redemption
Notice is sent, at the address last shown on the records of the Corporation for
such holder or given by such holder for the purpose of notice or, if no such
address appears or is given, at the place where the principal executive office
of the Corporation is then located. The Preliminary Redemption Notice shall
notify each holder of each of the other series of Preferred Stock of the
redemption of Series C Stock, Series D Stock or Series E Stock, as applicable,
and the rights of the holders of each of the other series of Preferred Stock to
request redemption under Section 4(b). The Corporation will fix a date for
redemption of the Series C Stock, Series D Stock or Series E Stock, as
applicable, and any of the other series of Preferred Stock ("Redemption Date"),
by delivering written notice (the "Final Redemption Notice") of such date by
registered or certified mail, postage prepaid within thirty (30) days after the
Corporation has delivered the Preliminary Redemption Notice. The Final
Redemption Notice will be sent to each holder of record of Series C Stock,
Series D Stock or Series E Stock, as applicable, and any of the other series of
Preferred Stock at the close of business on the business day next preceding the
day on which the Final Redemption Notice is sent, at the address last shown on
the records of the Corporation for such holder or given by such holder to the
Corporation for the purpose of notice or, if no such address appears or is
given, at the place where the principal executive office of the Corporation is
then located. The Redemption Date shall be at least forty-five (45) days but no
more than seventy-five (75) days after the Corporation's delivery of the
Preliminary Redemption Notice. The Final Redemption Notice shall notify each
holder of Series C Stock, Series D Stock or Series E Stock, as applicable, and
any of the other series of Preferred Stock of the redemption to be effected,
specifying the Redemption Date, the Series C Redemption Price, the Series D
Redemption Price or the Series E Redemption Price, as applicable, and the
applicable Redemption Price for any of the other series of Preferred Stock, the
place at which payment may be obtained and the
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date ("Termination Date") on which such holder's conversion rights (as set forth
in Section 5 hereof) as to such shares terminate (which Termination Date shall
in no event be earlier than the close of business on the date five (5) days
prior to the Redemption Date) and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, the certificate(s)
representing the shares of Series C Stock, Series D Stock or Series E Stock, as
applicable, and any of the other series of Preferred Stock to be redeemed.
Shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock and
Series E Stock that have been converted into Common Stock, prior to the
Termination Date shall not be redeemable under this Section 4. Notwithstanding
anything herein to the contrary, if there shall be a default or delay in the
payment of the Series A Redemption Price, the Series B Redemption Price, the
Series C Redemption Price, the Series D Redemption Price or the Series E
Redemption Price, then the holders of the shares of Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock to be redeemed shall
retain all rights, preferences and privileges relating to their shares of Series
A Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock,
including without limitation the conversion rights set forth in Section 5
hereof, until the Series A Redemption Price, the Series B Redemption Price, the
Series C Redemption Price, the Series D Redemption Price and the Series E
Redemption Price, as applicable, shall have been paid in full. Except as
provided in Section 4(d)(iv) hereof, on and after the Redemption Date each
holder of Series A Stock, Series B Stock, Series C Stock, Series D Stock, and
Series E Stock shall surrender to the Corporation the certificate(s)
representing the shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock and Series E Stock owned by such holder to be redeemed, duly
endorsed for transfer to the Corporation, and certificate(s) shall promptly be
issued representing any unredeemed shares.
(iv) Effect of Redemption. From and after any Redemption
Date, unless there shall have been a default or delay in payment of the Series A
Redemption Price, the Series B Redemption Price, the Series C Redemption Price,
the Series D Redemption Price or the Series E Redemption Price, all rights of
the holders of such redeemed shares as holders of Series A Stock, Series B
Stock, Series C Stock, Series D Stock, and/or Series E Stock (except the right
to receive the Series A Redemption Price, the Series B Redemption Price, the
Series C Redemption Price, the Series D Redemption Price and/or Series E
Redemption Price without interest upon surrender of their certificate(s)) shall
cease with respect to such redeemed shares, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be outstanding
for any purpose whatsoever. Subject to this Section 4(d), if the assets and
funds of the Corporation legally available for redemption of shares of Series A
Stock, Series B
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Stock, Series C Stock, Series D Stock and Series E Stock are insufficient to
redeem the total number of shares of Series A Stock, Series B Stock, Series C
Stock, Series D Stock and Series E Stock to be redeemed on such date, those
funds which are legally available will be used to redeem the maximum possible
number of such shares of Series A Stock, Series B Stock, Series C Stock, Series
D Stock and Series E Stock ratably among the holders of such shares of Series A
Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock to be
redeemed in the same proportion in which such shares would be redeemed under
Section 4(c). The shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock and Series E Stock not redeemed shall remain outstanding and be
entitled to all the rights and preferences provided herein.
(v) Payment of Redemption Price. Three (3) business days
prior to the Redemption Date, the Corporation shall deposit the Series A
Redemption Price, the Series B Redemption Price, the Series C Redemption Price,
the Series D Redemption Price and the Series E Redemption Price for all
outstanding shares of Series A Stock, Series B Stock, Series C Stock, Series D
Stock and Series E Stock designated for redemption in the Redemption Notice, and
not yet redeemed or converted, with a bank or trust company having aggregate
capital and surplus in excess of $50,000,000 as a trust fund for the benefit of
the respective holders of the shares designated for redemption and not yet
redeemed. Simultaneously, the Corporation shall deposit irrevocable instructions
and authority to such bank or trust company to pay, on and after the date fixed
for redemption or prior thereto, the Series A Redemption Price, the Series B
Redemption Price, the Series C Redemption Price, the Series D Redemption Price
and the Series E Redemption Price to the holders of the Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock to be redeemed,
respectively, upon surrender of their certificates. Any moneys deposited by the
Corporation pursuant to this Section 4(d)(v) for the redemption of shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock which are thereafter converted into shares of Common Stock pursuant to
Section 5 hereof prior to the close of business on the Redemption Date shall be
returned to the Corporation forthwith upon such conversion. The balance of any
moneys deposited by the Corporation pursuant to this Section 4(d)(v) remaining
unclaimed at the expiration of one (1) year following the Redemption Date shall
thereafter be returned to the Corporation together with any interest accrued
thereon, provided that the stockholders to which such monies would be payable
hereunder shall be entitled, upon proof of ownership of the Series A Stock,
Series B Stock, Series C Stock, Series D Stock and/or Series E Stock payment of
any bond requested by the Corporation, to receive such monies without interest
from the Redemption Date.
5. CONVERSION RIGHTS.
The holders of the Series A Stock, the holders of the Series B Stock,
the holders of the Series C Stock, the holders of the Series D Stock and the
holders of the Series E Stock shall have the
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following rights with respect to the conversion of the Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock into shares of Common
Stock:
(a) General. Subject to and in compliance with the provisions
of this Section 5, any share of Series A Stock, any share of Series B Stock, any
share of Series C Stock, any share of Series D Stock and any share of Series E
Stock may, at the option of the holder, be converted at any time into fully-paid
and nonassessable shares of Common Stock. The number of shares of Common Stock
which a holder of Series A Stock shall be entitled to receive upon conversion
shall be the product obtained by multiplying the Series A Conversion Rate then
in effect (as defined in Section 5(c)) by the number of shares of Series A Stock
being converted. The number of shares of Common Stock which a holder of Series B
Stock shall be entitled to receive upon conversion shall be the product obtained
by multiplying the Series B Conversion Rate then in effect (as defined in
Section 5(c)) by the number of shares of Series B Stock being converted. The
number of shares of Common Stock which a holder of Series C Stock shall be
entitled to receive upon conversion shall be the product obtained by multiplying
the Series C Conversion Rate then in effect (as defined in Section 5(c)) by the
number of shares of Series C Stock being converted. The number of shares of
Common Stock which a holder of Series D Stock shall be entitled to receive upon
conversion shall be the product obtained by multiplying the Series D Conversion
Rate then in effect (as defined in Section 5(c) hereof) by the number of shares
of Series D Stock being converted. The number of shares of Common Stock which a
holder of Series E Stock shall be entitled to receive upon conversion shall be
the product obtained by multiplying the Series E Conversion Rate then in effect
(as defined in Section 5(c) hereof) by the number of shares of Series E Stock
being converted. Subject to and in compliance with the applicable provisions of
this Section 5, all shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock and Series E Stock may, upon a vote of at least 67% of such stock
voting together as a single class (Series A Stock voting only to the extent such
stock shall have a right to vote under applicable law or under the Certificate
of Incorporation of the Corporation, as amended or restated), be converted at
any time into fully-paid and nonassessable shares of Common Stock. The number of
shares of Common Stock which a holder of Series A Stock, Series B Stock, Series
C Stock, Series D Stock or Series E Stock shall be entitled to receive upon
conversion shall be the product obtained by multiplying the applicable
conversion rate then in effect (as defined in Section 5(c)) by the number of
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock or
Series E Stock, respectively, being converted.
(b) Automatic Conversion Upon Initial Public Offering.
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(i) Simultaneously with the closing of a firm commitment
underwritten public offering of the Common Stock of the Corporation to the
general public pursuant to a registration statement on Form S-1 filed with, and
declared effective by, the U.S. Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended (the "1933 Act"), in which the aggregate
net cash proceeds to the Corporation exceed ten million dollars ($10,000,000)
and the offering price equals or exceeds nineteen dollars and eighty cents
($19.80) per share of Common Stock, as presently constituted, all outstanding
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock and
Series E Stock, shall automatically be converted into Common Stock pursuant to
this Section 5 at the applicable conversion rate then in effect (as defined in
Section 5(c)), without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent for the Common Stock; provided that all
declared and unpaid dividends on such shares of Series A Stock, Series B Stock,
Series C Stock, Series D Stock and Series E Stock shall first have been paid in
full.
(ii) Upon the occurrence of the automatic conversion
specified in the preceding Section 5(b)(i), each holder of such converted shares
of Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock shall, upon notice from the Corporation, surrender the certificates
representing such shares at the office of the Corporation or of its transfer
agent for the Common Stock. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form reasonably satisfactory to the
Corporation, duly executed by the registered holder or its attorney duly
authorized in writing. Thereupon, there shall be issued and delivered to such
holder a certificate or certificates for the number of shares of Common Stock
into which the shares of the Series A Stock, Series B Stock, Series C Stock,
Series D Stock and Series E Stock surrendered were convertible on the date on
which such conversion occurred. The Corporation shall not be obligated to issue
such certificates unless and until certificates evidencing such shares of the
Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock being converted are either delivered to the Corporation or any such
transfer agent, or the holder notifies the Corporation or any such transfer
agent that such certificates have been lost, stolen, mutilated or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith.
Notwithstanding the failure of any holder of Series A Stock, Series B Stock,
Series C Stock, Series D Stock or Series E Stock to surrender the certificate(s)
evidencing said holder's Series A Stock, Series B Stock, Series C Stock, Series
D Stock or Series E Stock, as provided in this Section 5(b)(ii), such holder's
Series A Stock, Series B Stock, Series C Stock, Series D Stock or Series E Stock
thereby shall nevertheless
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be treated as converted pursuant to this Section 5(b) and shall, from and after
the date on which such conversion occurred, be deemed to have been retired and
cancelled, and the Corporation shall be entitled to take such action as may be
necessary to reduce accordingly the authorized number of shares of such Series A
Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock and to
treat any holder of such Series A Stock, Series B Stock, Series C Stock, Series
D Stock and Series E Stock in all respects as a holder of the appropriate number
of shares of the Corporation's Common Stock.
(c) Conversion Rates. The Conversion Rate in effect at any
time for the Series A Stock (the "Series A Conversion Rate") shall be the
quotient obtained by dividing $1.25 by the Series A Conversion Price then in
effect, calculated as provided in Section 5(d). The Conversion Rate in effect at
any time for the Series B Stock (the "Series B Conversion Rate") shall be the
quotient obtained by dividing $5.00 by the Series B Conversion Price then in
effect, calculated as provided in Section 5(d). The Conversion Rate in effect at
any time for Series C Stock (the "Series C Conversion Rate") shall be the
quotient obtained by dividing $6.60 by the Series C Conversion Price then in
effect, calculated as provided in Section 5(d). The Conversion Rate in effect at
any time for the Series D Stock (the "Series D Conversion Rate") shall be the
quotient obtained by dividing $12.85 by the Series D Conversion Price then in
effect, calculated as provided in Section 5(d). The Conversion Rate in effect at
any time for the Series E Stock (the "Series D Conversion Rate") shall be the
quotient obtained by dividing $19.05 by the Series E Conversion Price then in
effect, calculated as provided in Section 5(d).
(d) Conversion Prices. The Conversion Price for the Series A
Stock (the "Series A Conversion Price") shall initially be $1.25, and the Series
A Conversion Price shall be adjusted from time to time in accordance with this
Section 5. All references to the Series A Conversion Price herein shall mean the
Series A Conversion Price as so adjusted. The Conversion Price for the Series B
Stock (the "Series B Conversion Price") shall initially be $5.00, and the Series
B Conversion Price shall be adjusted from time to time in accordance with this
Section 5. All references to the Series B Conversion Price herein shall mean the
Series B Conversion Price as so adjusted. The Conversion Price for the Series C
Stock (the "Series C Conversion Price") shall initially be $6.60, and the Series
C Conversion Price shall be adjusted from time to time in accordance with this
Section 5. All references to the Series C Conversion Price herein shall mean the
Series C Conversion Price as so adjusted. The Conversion Price for the Series D
Stock (the "Series D Conversion Price") shall initially be $12.85 and the Series
D Conversion Price shall be adjusted from time to time in accordance with this
Section 5. All references to the Series D Conversion Price herein shall mean the
Series D Conversion Price as so adjusted. The Conversion Price for the
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Series E Stock (the "Series E Conversion Price") shall initially be $19.05 and
the Series E Conversion Price shall be adjusted from time to time in accordance
with this Section 5. All references to the Series E Conversion Price herein
shall mean the Series E Conversion Price as so adjusted. All references herein
to a "Conversion Price" shall mean the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price, the Series D Conversion Price
or the Series E Conversion Price, as applicable, and all references herein to
"Conversion Prices" shall mean collectively the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price and the Series E Conversion Price.
(e) Adjustment to the Conversion Prices Upon Extraordinary
Common Stock Event. Upon the happening of an Extraordinary Common Stock Event
(as hereinafter defined), the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price and the
Series E Conversion Price then in effect shall, simultaneously with the
happening of such Extraordinary Common Stock Event, be adjusted by multiplying
the then effective Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Conversion Price for such series of Preferred Stock. The Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
the Series D Conversion Price and the Series E Conversion Price, as so adjusted,
shall be readjusted in the same manner upon the happening of any subsequent
Extraordinary Common Stock Event or Events. As used herein, the term
"Extraordinary Common Stock Event" shall mean (i) the issuance of additional
shares of Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) a subdivision of outstanding shares of Common Stock into a greater
number of shares of Common Stock (i.e., a stock split), or (iii) a combination
of outstanding shares of Common Stock into a smaller number of shares of Common
Stock (i.e., a reverse stock split).
(f) Adjustments to Conversion Prices for Diluting Issues.
(i) Special Definitions. For purposes of this Section
5(f), the following definitions shall apply:
(1) "Convertible Securities" shall mean any
evidence of indebtedness, stock (other than Common Stock and the shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock authorized herein) or other securities convertible into or exchangeable
for Common Stock.
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(2) "Original Issue Date" shall mean, with respect
to a share of Series A Stock, Series B Stock, Series C Stock, Series D Stock or
Series E Stock, the date of issuance of such share of stock.
(3) "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire (A) shares to any class
or series of Common Stock or Preferred Stock now or hereafter authorized (other
than any shares of Common Stock that are excluded from the definition of
"Additional Shares of Common Stock" by Section 5(f)(i)(4) hereof) or (B) any
Convertible Security.
(4) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or, pursuant to Section 5(f)(iii), deemed to
be issued) by the Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable at any time:
(A) upon the conversion of shares of the
Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock authorized herein;
(B) to officers, directors or employees of, or
consultants to, the Corporation or its subsidiaries, if any, pursuant to a stock
grant, stock option plan, stock option agreement, stock purchase plan, stock
purchase agreement, or other similar stock agreement or arrangement approved by
the Board of Directors, in an aggregate amount of not more than 750,000 shares
of Common Stock, as presently constituted (including all stock options presently
outstanding but net of any shares repurchased by the Corporation from officers,
directors, employees, or consultants at their original issue price upon
termination of employment or consulting services pursuant to the terms of
agreements approved by the Board of Directors of the Corporation), such number
of shares to be subject to proportional adjustment to reflect any subsequent
Extraordinary Common Stock Event; or
(C) as a dividend or distribution on the
Series A Stock, Series B Stock, Series C Stock, Series D Stock or Series E
Stock.
(ii) No Adjustment of Conversion Prices. No adjustment
of the Series A Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Series A Conversion Price in effect on the date of,
and immediately prior to, such issue. No adjustment of the Series B Conversion
Price shall be made in respect of the issuance of Additional Shares of Common
Stock unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by
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the Corporation is less than the Series B Conversion Price in effect on the date
of, and immediately prior to, such issue. No adjustment of the Series C
Conversion Price shall be made in respect of the issuance of Additional Shares
of Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Series C Conversion Price in effect on the date of, and immediately prior to,
such issue. No adjustment of the Series D Conversion Price shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the Series D Conversion Price in
effect on the date of, and immediately prior to, such issue. No adjustment of
the Series E Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Series E Conversion Price in effect on the date of,
and immediately prior to, such issue.
(iii) Deemed Issue of Additional Shares of Common Stock.
(1) Options and Convertible Securities. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, upon the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 5(f)(iv) hereof) of such Additional
Shares of Common Stock would be less than the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price or the Series E Conversion Price in effect on the date of and
immediately prior to such issue, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
the Series D Conversion Price or the Series E Conversion Price shall be made
upon the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such Convertible
Securities, except as provided in Section 5(f)(iii)(B) below;
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(B) if such Options or Convertible Securities
by their terms provide, with the passage of time or otherwise, for any change in
the amount of consideration payable to the Corporation, or change in the number
of shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the applicable Conversion Price for a series of Preferred Stock
computed upon the original issue thereof, and any subsequent adjustment based
thereon, shall, upon any such change becoming effective, be recomputed to
reflect an appropriate increase or decrease reflecting such change insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities, but only if as a result of such adjustment such
Conversion Price as then in effect is not increased above the price at which
such Conversion Price would then have been in effect had such Options and such
Convertible Securities never been issued;
(C) upon the expiration of any such Options or
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Conversion Price for a series of
Preferred Stock computed upon the original issue thereof, and any subsequent
adjustment based thereon, shall, upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities
or Options for Common Stock, the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the exercise of
such Options or upon the conversion or exchange of such Convertible Securities,
and the consideration received therefor was the consideration actually received
by the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration actually received by the Corporation upon the exercise of
all such Options, plus the consideration actually received by the Corporation
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange; and
(II) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options, and
the consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been issued was the consideration actually received
by the Corporation for the issue of all such Options, plus the consideration
deemed to have been received by the Corporation upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment pursuant to Sections
5(f)(iii)(1)(B) or (C) above shall have the effect of increasing the applicable
Conversion Price for a series of Preferred Stock to an amount which exceeds the
lower of (i) such Conversion Price on
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the original adjustment date, or (ii) the Conversion Price for such series of
Preferred Stock that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date;
and
(E) in the case of any Options which expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the applicable Conversion Price for a series of Preferred Stock
shall be made until the expiration or exercise of all such Options, whereupon
such adjustment shall be made in the same manner provided in Section
5(f)(iii)(1)(C) above.
(iv) Determination of Consideration. For purposes of
this Section 5(f), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration
shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation (after
reduction for applicable selling expenses and sales commissions) excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof received by the Corporation at
the time of such issue (after reduction for applicable selling expenses and
sales commissions), as determined in good faith by the Board of Directors of the
Corporation; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares of securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in Sections 5(f)(iv)(1)(A) and
(B) above, as determined in good faith by the Board of Directors of the
Corporation.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(f)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities (after reduction for applicable selling expenses and
sales commissions), plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
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consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or, in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon exercise of such Options or the conversion or exchange of such Convertible
Securities.
(3) Stock Dividends and Stock Subdivisions. Any
Additional Shares of Common Stock deemed to have been issued, relating to stock
dividends and stock subdivisions, shall be deemed to have been issued for no
consideration and will be treated as an Extraordinary Common Stock Event under
Section 5(e).
(v) Adjustment of Conversion Prices upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(f)(iii)) without consideration or for
a consideration per share less than the applicable Conversion Price for a series
of Preferred Stock in effect on the date of and immediately prior to such issue,
then, and in each such event, such Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction:
(1) the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock so
issued (and/or deemed issued) would purchase at such Conversion Price; and
(2) the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of Additional Shares of Common Stock so issued (and/or deemed
issued).
For the purposes of the above subparagraphs (1) and (2) of this Section 5(f)(v),
all shares of Common Stock issuable upon conversion of outstanding shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock shall be deemed to be outstanding shares of Common Stock, all shares of
Common Stock issuable upon full exercise or conversion of outstanding Options
and Convertible Securities shall be deemed to be outstanding shares of Common
Stock and, immediately after any Additional Shares of Common Stock are deemed
issued pursuant to Section 5(f)(iii), such Additional Shares of Common Stock
shall be
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deemed to be outstanding shares of Common Stock. Notwithstanding the above
provisions of this Section 5(f)(v), upon the happening of an Extraordinary
Common Stock Event the applicable Conversion Price for a series of Preferred
Stock shall be adjusted solely pursuant to the provisions of Section 5(e) and
not this Section 5(f)(v).
(g) Dividends. In the event the Corporation shall make or issue, or
shall fix a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution with respect to the Common
Stock payable in (i) securities of the Corporation other than shares of Common
Stock or (ii) assets (excluding cash dividends provided for elsewhere herein)
then, and in each such event, provision shall be made so that (in addition to
all other securities or property which holders of Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock are then entitled to
receive upon conversion of their Series A Stock, Series B Stock, Series C Stock,
Series D Stock and Series E Stock) the holders of Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock shall also be entitled
to receive upon conversion of their Series A Stock, Series B Stock, Series C
Stock, Series D Stock and Series E Stock the number of securities or such other
assets of the Corporation which they would have received had their Series A
Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock been
converted into Common Stock on the date necessary to be entitled to receive such
dividend or distribution.
(h) Corporate Reorganization. If at any time or from time to time there
shall be a capital reorganization or reclassification of the Common Stock (other
than an Extraordinary Common Stock Event), a reorganization, consolidation or
merger of the Corporation with or into any other corporation or corporations or
other entity or entities, or a sale, conveyance, lease, transfer or other
disposition of all or substantially all of the Corporation's properties and
assets, or a sale or other transfer in a single transaction or in a series of
related transactions, of fifty percent (50%) or more of the Corporation's
outstanding stock (each of such transactions being hereinafter referred to as a
"Corporate Reorganization"), then, as a part of such Corporate Reorganization,
provision shall be made so that the holders of the Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock shall thereafter be
entitled to receive upon conversion of their shares of Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock, the number of shares
of stock or other securities or property (including cash) of the Corporation, or
of any successor corporation resulting from any such Corporate Reorganization,
that are receivable upon such Corporate Reorganization by holders of the number
of shares of Common Stock into which such shares of Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock might have been
converted immediately prior to such Corporate Reorganization, all subject to
adjustment as provided herein. In any such case,
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appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Series A Stock,
Series B Stock, Series C Stock, Series D Stock and Series E Stock after such
Corporate Reorganization to the end that the provisions of this Section 5
(including adjustment of the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price and the
Series E Conversion Price then in effect and the number of shares issuable upon
conversion of the Series A Stock, Series B Stock, Series C Stock, Series D Stock
and Series E Stock), shall be applicable after that event in as nearly
equivalent a manner as may be practicable.
Upon the occurrence of a Corporate Reorganization, each holder of
Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock, shall have the option of electing treatment of his, her or its shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock and/or Series E
Stock under either this Section 5(h) or Section 2(c) hereof, notice of which
election shall be submitted in writing to the Corporation at its principal
offices no later than five (5) days before the effective date of such Corporate
Reorganization. The Corporation shall give each holder of record of Series A
Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock at
least twenty (20) days' advance written notice of the effective date of such
Corporate Reorganization.
(i) Exercise of Conversion Privilege. To convert Series A Stock, Series
B Stock, Series C Stock, Series D Stock and/or Series E Stock into Common Stock
(other than pursuant to Section 5(b) hereof), a holder of Series A Stock, Series
B Stock, Series C Stock, Series D Stock or Series E Stock shall surrender the
certificate(s) representing the shares of Series A Stock, Series B Stock, Series
C Stock, Series D Stock and Series E Stock being converted to the Corporation at
its principal office or at the office of its transfer agent, and shall give
written notice to the Corporation at that office that such holder elects to
convert such shares. Such notice shall also 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. The certificate(s) for shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock surrendered for conversion shall be accompanied by proper assignment
thereof to the Corporation or in blank. The date when the Corporation has
received both such written notice and the certificate(s) representing the shares
of Series A Stock, Series B Stock, Series C Stock, Series D Stock and/or Series
E Stock being converted shall be the "Conversion Date." As promptly as
practicable after the Conversion Date, the Corporation shall issue and deliver
to the holder of the shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock and/or Series E Stock being converted, such certificate(s) as
such holder may request for the number of whole shares of Common
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Stock issuable upon the conversion of such shares of Series A Stock, Series B
Stock, Series C Stock, Series D Stock and/or Series E Stock, in accordance with
the provisions of this Section 5, cash in the amount of all dividends declared
and unpaid on Series A Stock, Series B Stock, Series C Stock, Series D Stock
and/or Series E Stock up to and including the Conversion Date, cash as provided
in Section 5(j) in respect of any fraction of a share of Common Stock issuable
upon such conversion, and any other securities, property or cash issuable upon
such conversion as provided in Section 5(h). 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 as holder of the converted
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock and/or
Series E Stock shall cease and the person or persons in whose name or names any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(j) 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 A Stock, Series B Stock, Series C Stock, Series D
Stock or Series E Stock. In lieu of any fractional shares of Common Stock that
would otherwise be issuable upon conversion of Series A Stock, Series B Stock,
Series C Stock, Series D Stock or Series E Stock, the Corporation shall pay to
the holder of the shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock or Series E Stock which were converted, a cash adjustment in
respect of such fractional shares in an amount equal to the same fraction of the
market price per share of the Common Stock (as determined in good faith by the
Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the total number of shares of Series A Stock, Series B Stock, Series
C Stock, Series D Stock and/or Series E Stock being converted at any one time by
any holder thereof, and not upon each share of Series A Stock, Series B Stock,
Series C Stock, Series D Stock or Series E Stock being converted by such holder.
(k) Partial Conversion. In the event some but not all of the shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock or Series E Stock
represented by a certificate or certificates surrendered by a holder are
converted, the 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 A Stock, Series B Stock, Series C Stock, Series D
Stock and Series E Stock that were not converted.
(l) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion
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Price, Series D Conversion Price and/or the Series E Conversion Price pursuant
to this Section 5, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and shall furnish
to each holder of Series A Stock, Series B Stock, Series C Stock, Series D Stock
and Series E Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time by any holder
of Series A Stock, Series B Stock, Series C Stock, Series D Stock or Series E
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (i) the Series A Conversion Price, the Series B Conversion Price,
the Series C Conversion Price, the Series D Conversion Price and the Series E
Conversion Price at the time in effect and (ii) the shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of the Series A Stock, Series B Stock, Series C Stock, Series D
Stock and Series E Stock.
6. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Series A Stock,
Series B Stock, Series C Stock, Series D Stock or Series E Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued, and all such shares shall be cancelled, retired and eliminated from
the shares of Preferred Stock which the Corporation shall be authorized to
issue.
7. RESERVATION OF COMMON STOCK. 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 the Series A
Stock, Series B Stock, Series C Stock, Series D Stock and the Series E Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series A
Stock, Series B Stock, Series C Stock, Series D Stock and Series E 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 the
Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
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.
8. EVENTS OF NONCOMPLIANCE.
(a) Definition. An Event of Noncompliance will be deemed to have
occurred if:
(i) the Corporation fails to make any redemption payment with
respect to the Series C Stock, Series D Stock or
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Series E Stock which it is obligated to make hereunder, whether or not such
payment is legally permissible;
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein with respect to the
Series C Stock, Series D Stock or Series E Stock or in the Purchase Agreement
dated as of June 24, 1988, between the Corporation and the original purchasers
of the Series C Stock (the "Series C Agreement"); provided that an Event of
Noncompliance will not be deemed to have occurred under this Section 8(a)(ii) if
(1) the Event of Noncompliance is not material to the Corporation's financial
condition, operations, assets or business prospects, and (2) if the Event of
Noncompliance is not material to any holder's investment in the Series C Stock,
Series D Stock or Series E Stock; or
(iii) any representation or warranty contained in the Series C
Agreement or required to be furnished to any holder of Series C Stock pursuant
to the Series C Agreement, or any information contained in writing furnished by
the Corporation or any subsidiary to any holder of Series C Stock, is false or
misleading in any material respect on the date made or furnished;
(iv) the Corporation or any subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Corporation or any subsidiary bankrupt or insolvent; or any
order for relief with respect to the Corporation or any subsidiary is entered
under the Federal Bankruptcy Code; or the Corporation or any subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or any subsidiary or of any
substantial part of the assets of the Corporation or any subsidiary, or
commences any proceeding (other than a proceeding for the voluntary liquidation
and dissolution of a subsidiary) relating to the Corporation or any subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction; or any such petition
or application is filed, or any such proceeding is commenced, against the
Corporation or any subsidiary and either (1) the Corporation or any such
subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (2) such petition, application or proceeding is not
dismissed within sixty (60) days; or
(v) the Corporation or any subsidiary defaults in the performance
of any obligation or agreement if the effect of such default is to cause an
amount exceeding $1,000,000 to become due prior to its stated maturity or to
permit the holder or holders of any obligation to cause an amount exceeding
$1,000,000 to become due prior to its stated maturity.
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<PAGE> 43
(b) Consequences of Certain Events of Noncompliance.
(i) If an Event of Noncompliance of the type described in
Section 8(a)(ii) has occurred and continued for a period of thirty (30) days or
any other Event of Noncompliance has occurred, the holder or holders of a
majority of the Series C Stock, Series D Stock or Series E Stock then
outstanding may demand (by written notice delivered to the Corporation),
immediate redemption of all or any portion of the Series C Stock, Series D Stock
or Series E Stock owned by such holder or holders at a price per share equal to
the Series C Redemption Price, the Series D Redemption Price or the Series E
Redemption Price, as applicable. The Corporation will give prompt written notice
of such election to the other holders of Series C Stock, Series D Stock or
Series E Stock, as applicable, and to the holders of each of the other series of
Preferred Stock (but in any event within ten (10) days after receipt of the
initial demand for redemption), and each such other holder may demand immediate
redemption of all or any portion of such holder's Series A Stock, Series B
Stock, Series C Stock, Series D Stock or Series E Stock by giving written notice
thereof to the Corporation within fifteen (15) days after receipt of the
Corporation's notice. The Corporation will redeem all Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock as to which rights
under this Section 8(b)(i) have been exercised within thirty (30) days after
receipt of the initial demand for redemption.
(ii) If any Event of Noncompliance exists, each holder of
Series C Stock, Series D Stock and Series E Stock will also have any other
rights which such holder may have been afforded under any contract or agreement
at any time and any other rights which such holder may have pursuant to
applicable law.
9. NO IMPAIRMENT. The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series A Stock, Series B Stock, Series C Stock, Series D Stock
and Series E Stock set forth herein, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holders of
the Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E
Stock against impairment. Without limiting the generality of the foregoing, the
Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Series A Stock, Series B Stock, Series C
Stock, Series D Stock or Series E Stock above the amount payable therefor on
such conversion, and (b) will take all such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series
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<PAGE> 44
A Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock from
time to time outstanding.
10. PROTECTIVE PROVISIONS. Notwithstanding the provisions of Section 9, the
prior affirmative vote of the holders of at least 67% of the Series A Stock
(only to the extent that the Series A Stock shall have a right to vote under
applicable law or under the Certificate of Incorporation of the Corporation, as
amended or restated), Series B Stock, Series C Stock, Series D Stock and Series
E Stock, voting together as a single class, and in the event there is any
amendment to the Company's Restated Certificate of Incorporation or bylaws or a
resolution of the Board of Directors of the Company which contains any
provisions adversely affecting or otherwise impairing the rights of the holders
of any individual series of Preferred Stock under the Restated Certificate of
Incorporation of the Corporation or the applicable stock purchase agreement
between the Corporation and the original purchasers of any series of Preferred
Stock (the "Stock Purchase Agreements"), such vote including the affirmative
vote of the holders of at least a majority of such affected series of Preferred
Stock (but a majority vote of each series of Preferred Stock shall not be
required if such event adversely affects or otherwise impairs the rights of the
holders of all series of Preferred Stock), shall be required for any action
which:
(i) merges, consolidates or reorganizes the Corporation,
sells, assigns, leases or otherwise disposes of (whether in one transaction or
in a series of transactions) all or substantially all of its assets (whether now
owned or hereinafter acquired), or sells or otherwise transfers, in a single
transaction or a series of related transactions, fifty percent (50%) or more of
the Corporation's outstanding stock, or sells additional securities, in a single
transaction or series of related transactions, representing fifty percent (50%)
or more of the voting power of the Corporation after such sale, or assigns or
otherwise disposes of or permits any subsidiary to do the foregoing, except for
sales or other dispositions of assets in the ordinary course of business and
except that any corporation all of whose outstanding shares of each class and
series of stock and all of whose other securities are owned by the Corporation
(a "Controlled Subsidiary") may merge into or consolidate with or transfer
assets to any other Controlled Subsidiary without compliance with this Section
10(i);
(ii) Alters or changes any of the powers, rights,
preferences, privileges, qualifications, limitations or restrictions of any
series of Preferred Stock of the Corporation;
(iii) increases the authorized number of shares of the
Preferred Stock or of any series of Preferred Stock;
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<PAGE> 45
(iv) creates a new class or series of capital stock having
any rights, preferences or privileges superior to or on a parity with, in any
respect, any series of Preferred Stock;
(v) would result in the payment of declaration (or setting
aside for payment) of any dividend on the Common Stock (other than a dividend
payable solely in shares of Common Stock);
(vi) would result in the imputation of a dividend on any
series of Preferred Stock pursuant to Section 305 of the United States Internal
Revenue Code, as amended, or successor provisions thereto; or
(vii) involves the repurchase, redemption or other
reacquisition of shares of the capital stock of the Corporation, other than
redemptions, repurchases or conversions of any series of Preferred Stock
contemplated herein or in any of the Stock Purchase Agreements and other than
repurchases of shares of Common Stock from employees, officers, directors or
consultants to the Corporation if such repurchases are effected pursuant to
written agreements to which the Corporation is a party and which have been
approved by the Board of Directors or authorized under an employee stock
purchase, stock option or other plan or arrangement approved by the Board of
Directors.
11. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any sale, conveyance,
transfer or other disposition of all or substantially all of the assets of the
Corporation;
then, and in each such event, the Corporation shall send by registered or
certified mail, postage prepaid, to each holder of Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock a notice specifying (i)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, merger, consolidation, sale, conveyance,
transfer or other disposition is expected to become effective and (iii) the
time, if any, that is to be fixed as to when the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property
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<PAGE> 46
deliverable upon such reorganization, reclassification, recapitalization,
merger, consolidation, sale, conveyance, transfer or other disposition. Such
notice shall be mailed at least thirty (30) days prior to the date specified in
such notice on which such action is to be taken.
SIXTH: The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the By-Laws and may alter or repeal any By-Law, whether
adopted by them or otherwise.
SEVENTH: The business and affairs of the Corporation shall be managed by
the Board of Directors, and the directors need not be elected by ballot unless
required by the By-Laws of the Corporation.
EIGHTH: The Board of Directors may adopt By-Laws from time to time with
respect to indemnification to provide at all times the fullest indemnification
permitted by the General Corporation Law of the State of Delaware, as amended
from time to time, and may cause the Corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the Corporation would have the power to indemnify
such person against such liability.
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as
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<PAGE> 47
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders,
directors and other persons herein are granted subject to this reservation.
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<PAGE> 1
Exhibit 3.3
CERTIFICATE
OF
RETIREMENT OF STOCK
OF
ALTEON INC.
Pursuant to Section 243 of the Delaware General Corporation Law, Alteon
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT:
1. The Certificate of Designations of 6% Cumulative Convertible
Preferred Stock for Alteon Inc. provides that shares of the Corporation's 6%
Cumulative Convertible Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall not be reissued.
2. All 5,000 shares of 6% Cumulative Convertible Preferred Stock issued
by the Corporation were acquired by the Corporation and were retired.
3. As a result of such retirement of the 6% Cumulative Convertible
Preferred Stock, the total number of shares of Preferred Stock which the
Corporation is authorized to issue is 1,993,329 shares.
IN WITNESS WHEREOF, this Certificate of Retirement of Stock is made
this 10th day of September 1999.
ALTEON INC.
By: /s/ Kenneth I. Moch
---------------------------------------
Kenneth I. Moch,
President and Chief Executive Officer
ATTEST:
By: /s/ Elizabeth A. O'Dell
---------------------------------------------
Elizabeth A. O'Dell,
Vice President, Finance and Administration,
Treasurer and Secretary
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of June 2, 1999, by
and between Alteon Inc., a Delaware corporation (the "Company"), and F. Kenneth
Andrews (the "Employee").
WHEREAS, the Company wishes to employ the Employee as Senior Vice President
for Operations of the Company; and
WHEREAS, the Employee wishes to enter into the employ of the Company as its
Senior Vice President for Operations;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereby agree as follows;
1. Term of Employment. Subject to the terms and conditions hereof, the Company
will employ the Employee, and the Employee will serve the Company, as
Senior Vice President for Operations for a period beginning on the date
hereof and terminating three (3) years from such date, subject to extension
by mutual agreement of the Company and the Employee (such term, as it may
be extended, is hereinafter referred to as the "Term of Employment").
2. Duties. During the Term of Employment, the Employee will serve as Senior
Vice President for Operations, subject to the terms of this Agreement and
the direction and control of the Board of Directors and/or the Chief
Executive Officer of the Company. The Employee will, during the Term of
Employment, serve the Company faithfully, diligently and competently and to
the best of his ability, and will, consistent with the dignity of Senior
Vice President for Operations of the Company, hold, in addition to the
offices of Senior Vice President of Operations of the Company, such other
offices in the Company to which he may be appointed or assigned from time
to time by the Board of Directors and/or the Chief Executive Officer of the
Company and will discharge such duties in connection therewith. The
Employee shall devote all of his business time to the performance of his
duties hereunder.
3. Compensation. The Company will, during the Term of Employment, pay to the
Employee as compensation for the performance of his duties and obligations
hereunder an initial base salary at the rate of $190,000 per annum
("Salary"), payable in equal semi-monthly installments. Such Salary shall
be reviewed annually by the Board of Directors of the Company in accordance
with the Company's compensation program. In each of the
<PAGE> 2
EMPLOYMENT AGREEMENT PAGE 2
Company's fiscal years during the Term of Employment, the Employee shall be
eligible to receive a bonus, to be awarded at the sole discretion of the
Board of Directors of the Company, in an amount of up to $15,000 for 1999
and $30,000 for 2000 and subsequent years. The Board shall use as a basis
for determining the extent of such bonus awards the attainment of stated
goals and objectives for the Employee to be set by the Compensation
Committee of the Board after consultation with the Chief Executive Officer.
4. Other Benefits. During the Term of Employment:
A. The Company shall grant to the Employee an incentive stock option,
pursuant to the Company's 1995 Stock Option Plan, to purchase 200,000
shares of Common Stock of the Company ("Common Stock") with an
exercise price equal to the closing price of the Company's Common
Stock on June 2, 1999. Such option shall be in the form of and on such
terms and conditions as provided in, the Company's standard form of
Stock Option Grant Agreement in effect as of the date of this
Agreement. Such option grant shall provide, on condition that the
Employee is employed by the Company on the relevant vesting dates,
that such options shall vest as follows:
(1) 25,000 shares shall vest on the first anniversary of the date of
this Agreement and 75,000 shares shall vest over a thirty-six
month period at the rate of 3,125 shares on the first day of each
calendar month commencing on June 1, 2000; and
(2) 100,000 shares shall vest upon the accomplishment by the Employee
of specified milestones, as determined by the Compensation
Committee of the Board after consultation with the Chief
Executive Officer; and
B. The Employee shall be entitled during the Term of Employment to
participate in employee benefit plans and programs of the Company to
the extent that his position, tenure, salary, age, health and other
qualifications make him eligible to participate. The Company does not
guarantee the adoption or continuance of any particular employee
benefit plan or program during the Term of Employment, and the
Employee's participation in any such plan or program shall be subject
to the provisions, rules, regulations and laws applicable thereto;
provided, however, that during the Term of Employment the Employee
shall be entitled to health and hospital insurance benefits consistent
with the past practices of the Company in effect with respect to
Company personnel generally.
<PAGE> 3
EMPLOYMENT AGREEMENT PAGE 3
C. The Employee shall be entitled to three (3) weeks' vacation per year
while employed hereunder. Such vacation may be taken by the Employee
at such times as do not unreasonably interfere with the business of
the Company. The accumulation of annual vacation time earned but not
taken will be in accordance with the Company policy guidelines.
Additional vacation will be earned in accordance with Company policy.
5. Expenses. During the Term of Employment, the Company will reimburse the
Employee for commuting and housing expenses in an amount not to exceed
$30,000 per year, subject to the submission of appropriate vouchers and
receipts. In addition, during the Term of Employment, all travel and other
reasonable business expenses incident to the rendering of services by the
Employee under this Agreement will be paid or reimbursed by the Company
subject to the submission of appropriate vouchers and receipts in
accordance with the Company's policy from time to time in effect.
6. Death or Disability.
A. This Agreement shall be terminated by the death of the Employee. In
addition, this Agreement may be terminated by the Board of Directors
of the Company if the Employee shall be rendered incapable by illness
or any other disability from complying with the terms, conditions and
provisions on his part to be kept, observed and performed for a period
in excess of 180 days (whether or not consecutive) or 90 days
consecutively, as the case may be, during a 12-month period during the
Term of Employment ("Disability"). If this Agreement is terminated by
reason of Disability of the Employee, the Company shall give written
notice to that effect to the Employee in the manner provided herein.
In the event that the Employee receives disability insurance benefits
paid for by the Company during any period prior to termination of this
Agreement pursuant to this Section 6(a), the Employee's Salary shall
be reduced by an amount equal to such disability insurance benefits
during such period.
B. In addition to and not in substitution for any other benefits which
may be payable by the Company in respect of the death or Disability of
the Employee, in the event of such death or Disability, the Salary
payable hereunder shall continue to be paid at the then current rate
for three (3) months after the termination of employment, and any
bonus to which the Employee would have been entitled for the year in
which his death occurs shall be pro rated to the date of his death and
paid not later than three (3) months after the termination of
employment. In the event of the death of the Employee during the Term
of this Agreement, the sums payable hereunder shall be paid to his
personal representative.
<PAGE> 4
EMPLOYMENT AGREEMENT PAGE 4
7. Disclosure of Information, Inventions and Discoveries. The Employee shall
promptly disclose to the Company all processes, trademarks, inventions,
improvements discoveries and other information related to the business of
the Company (collectively, "Developments") conceived, developed or acquired
by him alone or with others during the Term of Employment or during any
earlier period of employment by the Company or any predecessor of the
Company, whether or not during regular working hours or through the use of
materials or facilities of the Company. All such Developments shall be the
sole and exclusive property of the Company, and, upon request, the Employee
shall promptly deliver to the Company all drawings, sketches, models and
other data and records relating to such Developments. In the event any such
Development shall be deemed by the Company to be patentable, the Employee
shall, at the expense of the Company, assist the Company in obtaining a
patent or patents thereon and execute all documents and do all such other
acts and things necessary or proper to obtain letters of patents and to
invest in the Company full right, title and interest in and to such
Developments.
8. Non-Disclosure. The Employee shall not, at any time during or after the
Term of Employment, divulge, furnish or make accessible to anyone
(otherwise than in the regular course of business of the Company) or use
for his own account or for the account of any person any knowledge or
information with respect to confidential or secret processes, inventions,
discoveries, improvements, formulae, plans, materials, devices or ideas or
other know-how, whether patentable or not, with respect to any confidential
or secret development or research work or with respect to any other
confidential or secret aspects of the Company's business (including,
without limitation, customer lists, supplier lists and pricing arrangements
with customers or suppliers).
9. Non-Competition. The Company and the Employee agree that the services
rendered by the Employee hereunder are unique and irreplaceable. The
Employee hereby agrees that, during the Term of Employment and for a period
of one (1) year thereafter, the Employee shall not (i) in any geographical
area in the United States or in those foreign countries where the Company,
during the Term of Employment, conducts or proposes to conduct business or
initiates activities, engage or participate in, directly or indirectly
(whether as an officer, director, employee, partner, consultant, holder of
an equity or debt investment, lender or in any other manner or capacity),
or lend his name (or any part or variant thereof) to any business which is,
or as a result of the Employee's engagement or participation would become,
competitive with any aspect of the business of the Company, such business
being the commercialization of the measurement, prevention therapy or
reversal of glucose-mediated non-enzymatic cross-linking of
macro-
<PAGE> 5
EMPLOYMENT AGREEMENT PAGE 5
molecules, and such other specific technologies in which the Company
has, during the Term of Employment, initiated significant plans to develop
products, (ii) deal, directly or indirectly, in a competitive manner with
any customers doing business with the Company during the Term of Employment
(except in connection with the performance of the duties and obligations of
the Employee during the Term of Employment), (iii) solicit any officer,
director, employee, consultant or agent of the Company to become an
officer, director, employee, consultant or agent of the Employee, his
respective affiliates or anyone else, and (iv) engage in or participate in,
directly or indirectly, any business conducted under any name that shall be
the same as or similar to the name of the Company or any trade name used by
it. Ownership, in the aggregate, of less than 1% of the outstanding shares
of capital stock of any corporation with one or more classes of its capital
stock listed on a national securities exchange or publicly traded in the
over-the-counter market shall not constitute a violation of the foregoing
provision.
10. Remedies. The Employee acknowledges that irreparable damage would result to
the Company if the provisions of Section 7, 8, 9 or 14 were not
specifically enforced, and agrees that the Company shall be entitled to any
appropriate legal, equitable or other remedy, including injunctive relief,
in respect to any failure to comply with the provisions of Section 7, 8, 9
or 14.
11. Termination for Cause. In addition to any other remedy available to the
Company, either at law or in equity, the Employee's employment with the
Company may be terminated by the Board of Directors for cause, which shall
include (i) the Employee's conviction for, or plea of nolo contendere to, a
felony or a crime involving moral turpitude, (ii) the Employee's commission
of an act of personal dishonesty or a breach of fiduciary duty involving
personal profit in connection with the Employee's employment by the
Company, (iii) the Employee's commission of an act which the Board of
Directors shall reasonably have found to have involved willful misconduct
or gross negligence on the part of the Employee, in the conduct of his
duties under this Agreement, (iv) habitual absenteeism, (v) the Employee's
material breach of any material provision of this Agreement, or (vii) the
willful and continued failure by the Employee to perform substantially his
duties with the Company (other than any such failure resulting from his
incapacity due to physical or mental illness). In the event of termination
under this Section 11, the Company's obligations under this Agreement shall
cease and the Employee shall forfeit all rights to receive any future
compensation under this Agreement. Notwithstanding any termination of this
Agreement pursuant to this Section 11, the Employee, in consideration of
his employment hereunder to the date of such termination, shall remain
bound by the provisions of Section 7, 8, 9 and 14 hereof.
<PAGE> 6
EMPLOYMENT AGREEMENT PAGE 6
12. Termination Without Cause. Each of the Company and Employee may terminate
this Agreement at any time for any reasons whatsoever, without any further
liability or obligation of the Company to the Employee or of the Employee
to the Company from and after the date of such termination (other than
liabilities or obligations accrued but unsatisfied on, or surviving, the
date of such termination), by sending thirty (30) days prior written notice
to the other party. In the event (a) the Company elects to terminate this
Agreement prior to the end of the Term of Employment or (b) the Company
gives Employee notice of its election not to extend the Term of Employment
beyond the expiration of the then current Term of Employment, or (c) by the
date which is four (4) months prior to the end of the then current Term of
Employment, the Company has not offered to extend the then current Term of
Employment, the Company shall continue to pay the Employee the full Salary
(exclusive of bonuses, if any) as such Salary would have otherwise accrued
for a period of three (3) months if the effective date of such termination
occurs prior to the first anniversary of this Agreement and for a period of
six (6) months if the effective date of such termination occurs thereafter.
In the event the Employee elects to terminate prior to the end of the Term
of Employment, the Company's obligation to pay Salary shall cease as of the
effective date of termination. Notwithstanding any termination of this
Agreement pursuant to this Section 12, the Employee, in consideration of
his employment hereunder to the date of such termination, shall remain
bound by the provisions of Section 7, 8, 9 and 14 hereof. Any termination
of this Agreement by the Company as provided in this Section 12 shall be in
addition to, and not in substitution for, any rights with respect to
termination of the Employee which the Company may have pursuant to Section
11.
13. Resignation. In the event that the Employee's services under this Agreement
are terminated under any of the provisions of this Agreement (except by
death), the Employee agrees that he will deliver his written resignation
from all positions held with the Company to the Board of Directors, such
resignation to become effective immediately; provided, however, that
nothing herein shall be deemed to affect the provisions of Section 7, 8, 9
and 14 hereof relating to the survival thereof following termination of the
Employee's services hereunder, and provided, further, that except as
expressly provided in this Agreement, the Employee shall be entitled to no
further compensation hereunder.
14. Data. Upon termination of the Term of Employment or termination pursuant to
Sections 6, 11 or 12 hereof, the Employee or his personal representative
shall promptly deliver to the Company all books, memoranda, plans, records
and written data of every kind relating to the business and affairs of the
Company which are then in his possession.
<PAGE> 7
EMPLOYMENT AGREEMENT PAGE 7
15. Insurance. The Company shall have the right, at its own cost and expense to
apply for and to secure in its own name, or otherwise, life, health or
accident insurance or any or all of them covering the Employee, and the
Employee agrees to submit to usual and customary medical examinations and
otherwise to cooperate with the Company in connection with the procurement
of any such insurance, and any claims thereunder.
16. Waiver of Breach. Any waiver of any breach of this Agreement shall not be
construed to be a continuing waiver or consent to any subsequent breach on
the part either of the Employee or of the Company.
17. Assignment. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger or
consolidation of the Company with or into any other entity, all as though
such successors and assigns of the Company and their respective successors
and assigns were the Company. Insofar as the Employee is concerned, this
Agreement, being personal, may not be assigned.
18. Severability. To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in
limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this Agreement be in
excess of that which is valid and enforceable under applicable law, then
such provision shall be construed to cover only that duration, extent or
activities which may be validly and enforceable covered.
19. Notices. All notices, requests and other communications pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given,
if delivered in person or by courier, telegraphed, telexed or by facsimile
transmission or five business days after being sent by registered or
certified mail, return receipt requested, postage paid, addressed as
follows:
If to the Employee
F. Kenneth Andrews
9 Sandy Drive
Acton, Massachusetts 01720
<PAGE> 8
EMPLOYMENT AGREEMENT PAGE 8
If to the Company:
Alteon Inc.
170 Williams Drive
Ramsey, NJ 07446
with a copy to:
Richard J. Pinto, Esq.
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, NJ 08540
Any party may, by written notice to the other in accordance with this
Section 19, change the address to which notices to such party are to be
delivered or mailed.
20. General. Except as otherwise provided herein, the terms and provisions of
this Agreement and the Stock Option Grant Agreement to be entered into
between the Employee and the Company shall constitute the entire agreement
by the Company and the Employee with respect to the subject matter hereof,
and shall supersede any and all prior agreements or understandings between
the Employee and the Company, whether written or oral. This Agreement may
be amended or modified only by a written instrument executed by the
Employee and the Company. This Agreement may be executed in any number of
counterparts, all of which, when executed, shall be deemed to be an
original, and all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the day and year first above written.
ALTEON INC.
By: /S/ Kenneth I. Moch
-------------------
Kenneth I. Moch
Chief Executive Officer
By: /S/ F. Kenneth Andrews
---------------------
F. Kenneth Andrews
<PAGE> 1
EXHIBIT 10.2
[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT
CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION]
<PAGE> 2
AGREEMENT FOR AN EXCLUSIVE OPTION ON ALT-711
BETWEEN
ALTEON INC.
AND
TAISHO PHARMACEUTICAL CO., LTD.
This Agreement (hereinafter referred to as "Agreement") is made as of August 26,
1999, by and between Alteon Inc., having its principal place of business at 170
Williams Drive, Ramsey, New Jersey 07446, U.S.A. (hereinafter referred to as
"ALTEON") and Taisho Pharmaceutical Co., Ltd., having its principal place of
business at 24-1, Takata 3-Chome, Toshimaku, Tokyo 170-8633, Japan (hereinafter
referred to as "TAISHO"). ALTEON and TAISHO hereby agree as follows:
1. GRANT
a. ALTEON grants TAISHO the exclusive option (hereinafter referred to as
"Option") to acquire the exclusive license on ALT-711 for Japan, South
Korea, Taiwan and China for all dosage forms except for ophthalmic dosage
forms. Following the execution of the Agreement, ALTEON and TAISHO shall
agree to continue further negotiation in good faith for the terms of the
license on ALT-711 based on "Basic Terms and Conditions of ALT-711 License
Agreement Between Alteon and Taisho" attached hereto. Provided, however,
TAISHO has no obligation including without limitation to exercise the
Option, to enter into another agreement with ALTEON or to make any further
payment to ALTEON other than stipulated in the Agreement. ALTEON will make
best efforts to determine whether and when a candidate of licensee of
ALT-711 in the United States and/or Europe will participate in the
development of ALT-711 by November 1, 1999.
b. ALTEON grants TAISHO the right to continue evaluation on ALT-711 pursuant
to the terms of the Materials Use Agreement by and between ALTEON and
TAISHO dated February 23, 1999 (hereinafter referred to as "Prior
Agreement").
2. OPTION FEE
TAISHO shall pay ALTEON a non-refundable fee for the Option according to
the following schedule:
- Within fifteen business days from the execution of the Agreement: U.S.
$300,000.00.
- Not later than October 1, 1999: U.S. $300,000.00.
<PAGE> 3
3. OPTION PERIOD
The period to exercise the Option shall expire on December 31, 1999, unless
otherwise agreed in writing between ALTEON and TAISHO. The term of the
Agreement is the period the Option is effective. Exercise of the Option
shall be effected by the parties entering into a definitive license
agreement. Neither party will have any further obligation to the other
party under the Agreement if the parties have not entered into such a
definitive agreement by December 31, 1999.
4. PRIOR AGREEMENT
The term of the Prior Agreement shall be extended to termination of the
Agreement. The other provisions of the Prior Agreement shall remain
effective and unchanged.
5. DISCLOSURE
ALTEON and TAISHO shall not disclose the terms of the Agreement to third
parties who are not under an obligation of confidentiality, except as
required by law, without the prior written consent of the other party.
6. OTHER
The Agreement inclusive of the Attachment hereto and the Prior Agreement
constitute the entire agreement between ALTEON and TAISHO as to the matters
set forth herein. Any dispute arising under the Agreement shall be subject
to resolution by binding arbitration in accordance with the Commercial
Arbitration Rules of the International Chamber of Commerce. The arbitration
may be initiated by either party and shall be conducted in New Jersey, if
initiated by TAISHO, or in Tokyo, if initiated by ALTEON. Withholding taxes
to be imposed by the government of Japan on payments described herein shall
be deducted therefrom by TAISHO subject to the Convention between U.S. and
Japan to Avoid Double Taxation.
The parties hereby executed the Agreement by their respective Officers duly
authorized, the day and year hereinabove written.
ALTEON INC. TAISHO PHARMACEUTICAL CO., LTD.
/s/ Kenneth I. Moch /s/ Akira Uehara
- ------------------------------- -----------------------------------
By: By:
Kenneth I. Moch Akira Uehara
- ------------------------------- -----------------------------------
Printed Name Printed Name
President and CEO President
- ------------------------------- -----------------------------------
Title Title
August 26, 1999 August 27, 1999
- ------------------------------- -----------------------------------
Date Date
<PAGE> 4
[ATTACHMENT]
BASIC TERMS AND CONDITIONS OF ALT-711 LICENSE AGREEMENT
BETWEEN ALTEON AND TAISHO
MILESTONE PAYMENT
Milestone
[CONFIDENTIAL TREATMENT REQUESTED]
ROYALTY ON INCREMENTAL ANNUAL NET SALES
[CONFIDENTIAL TREATMENT REQUESTED]
TERRITORY AND LICENSE
Alteon grants to Taisho an exclusive license with sublicense right
under patent and know how owned by Alteon to research, develop, use and
sell ALT-711 for all dosage forms except for ophthalmic dosage forms in
Japan, South Korea, China and Taiwan ("Licensed Territory").
The issue of manufacturing of ALT-711 will be discussed between the
parties.
For the purpose of obtaining NDA in the Licensed Territory, Taisho has
a right to conduct research and development on ALT-711 outside the
Licensed Territory, alone or in collaboration with Alteon and/or
Alteon's licensees in U.S. and Europe ("Other Licensees") after
discussion with Alteon and/or Other Licensees.
RESEARCH AND DEVELOPMENT
Alteon, Taisho and Other Licensees will discuss and agree to the most
efficient development plan for ALT-711 and the funding thereof,
considering mutual use of the data and information on ALT-711 obtained
from respective research and development. As a general principal, all
data and information regarding ALT-711 will be shared on a worldwide
basis.
A joint "Steering Committee" will be established by Taisho and Alteon
to oversee and coordinate the development of ALT-711.
[CONFIDENTIAL TREATMENT REQUESTED]
ADDITIONAL ISSUES
Taisho shall hold a right to use an independent trademark for ALT-711
in the Licensed Territory.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENT OF OPERATIONS, AND STATEMENT OF CASH FLOW, FILED AS PART OF
ALTEON'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON
FORM 10-Q.
</LEGEND>
<CIK> 0000878903
<NAME> ALTEON INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,518,471
<SECURITIES> 6,994,026
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,186,858
<PP&E> 2,611,414
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,069,160
<CURRENT-LIABILITIES> 2,848,318
<BONDS> 0
0
33
<COMMON> 191,897
<OTHER-SE> 12,028,912
<TOTAL-LIABILITY-AND-EQUITY> 15,069,160
<SALES> 0
<TOTAL-REVENUES> 875,565
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,355,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,480,087)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,480,087)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,480,087)
<EPS-BASIC> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
