<PAGE>
FORM 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19732
CORVAS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0238812
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3030 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices and zip code)
(619) 455-9800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- ------
At October 31, 1997, there were 13,914,256 shares of Common Stock, $0.001
par value, of the Registrant issued and outstanding.
<PAGE>
CORVAS INTERNATIONAL, INC.
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of September 30, 1997 (unaudited)
and December 31, 1996 1
Unaudited Condensed Statements of Operations for the Three
and Nine Months Ended September 30, 1997 and 1996 2
Unaudited Condensed Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 3
Notes to Condensed Financial Statements (unaudited) 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 3 Quantitative and Qualitative Disclosures About Market Risk 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
Item 3 Defaults Upon Senior Securities 9
None
Item 4 Submission of Matters to a Vote of Security Holders 9
None
Item 5 Other Information 9
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits 9
(b) Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CORVAS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
ASSETS (unaudited)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,431 $ 2,202
Short-term debt securities held to maturity
and time deposits, partially restricted 24,355 26,394
Receivables 449 438
Notes receivable from related parties 153 200
Other current assets 567 312
--------- ---------
Total current assets 26,955 29,546
Property and equipment, net 1,356 1,093
--------- ---------
$ 28,311 $ 30,639
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 354 $ 358
Accrued expenses 815 713
Accrued benefits 19 0
Accrued vacation 189 194
Current portion of capital lease obligation 0 27
Deferred revenue 3,163 4,000
--------- ---------
Total current liabilities 4,540 5,292
--------- ---------
Deferred revenue 0 1,000
Stockholders' equity:
Preferred stock - Series A 1 1
Preferred stock - Series B 0 0
Common stock 14 14
Additional paid-in capital 92,038 91,629
Accumulated deficit (68,282) (67,297)
--------- ---------
Total stockholders' equity 23,771 24,347
Commitments and contingencies
--------- ---------
$ 28,311 $ 30,639
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
In thousands, except per share amounts (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Revenue from collaborative agreements $ 1,746 $ 1,085 $ 4,065 $ 4,255
License fees & milestones 0 0 4,100 0
Net product sales 76 101 240 147
Royalties 32 18 88 99
-------- -------- -------- --------
Total revenues 1,854 1,204 8,493 4,501
-------- -------- -------- --------
COSTS AND EXPENSES:
Research and development 2,230 2,449 7,272 8,365
General and administrative 991 625 3,230 2,312
Cost of products sold 53 75 130 129
-------- -------- -------- --------
Total costs and expenses 3,274 3,149 10,632 10,806
-------- -------- -------- --------
Loss from operations (1,420) (1,945) (2,139) (6,305)
OTHER INCOME:
Interest income, net 440 332 1,154 901
Other income 0 1 0 31
-------- -------- -------- --------
440 333 1,154 932
-------- -------- -------- --------
Net loss $ (980) $ (1,612) $ (985) $ (5,373)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per share $ (0.07) $ (0.12) $ (0.07) $ (0.42)
-------- -------- -------- --------
-------- -------- -------- --------
Shares used in calculation
of net loss per share 13,898 13,705 13,854 12,650
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (985) $ (5,373)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 472 613
Amortization of premiums and discounts on investments (71) 184
Stock compensation expense 6 1
Change in assets and liabilities:
(Increase) decrease in receivables (11) 58
Increase in other current assets (255) (187)
Increase (decrease) in accounts payable, accrued
expenses, accrued benefits, accrued vacation
and accrued litigation settlement expenses 112 (374)
Decrease in deferred rent 0 (3,285)
Decrease in deferred revenue (1,837) (34)
--------- ---------
Net cash used in operating activities (2,569) (8,397)
--------- ---------
Cash flows from investing activities:
Purchases of investments held to maturity (30,214) (26,752)
Proceeds from maturity of investments held to maturity 32,538 15,640
Purchases of property and equipment (955) (349)
Repayments from (loans to) related parties 47 (380)
--------- ---------
Net cash provided by investing activities 1,416 (11,841)
--------- ---------
Cash flows from financing activities:
Principal payments under capital lease obligation (27) (57)
Net proceeds from issuance of common stock 409 19,967
--------- ---------
Net cash provided by financing activities 382 19,910
--------- ---------
Net decrease in cash and cash equivalents (771) (328)
Cash and cash equivalents at beginning of period 2,202 1,427
--------- ---------
Cash and cash equivalents at end of period $ 1,431 $ 1,099
--------- ---------
--------- ---------
Supplemental disclosures:
Interest paid $ 0 $ 5
--------- ---------
--------- ---------
Noncash financing activities -
Common stock issued under litigation settlement agreement $ 0 $ 298
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
CORVAS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) THE COMPANY
Corvas International, Inc. (the "Company") was incorporated on March 27,
1987 under the laws of the State of California. In July 1993, the Company
reincorporated in the State of Delaware. The Company is engaged in the
design and development of a new generation of therapeutic agents for the
prevention and treatment of major cardiovascular, inflammatory and other
diseases.
(2) BASIS OF PRESENTATION
The interim financial information contained herein is unaudited but, in
management's opinion, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. The financial
statements should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended December 31, 1996.
Results for the interim periods are not necessarily indicative of results
for other interim periods or for the full year.
(3) NET LOSS PER SHARE
Net loss per share for the three and nine months ended September 30, 1997
and 1996 is computed using the weighted average number of common share
equivalents outstanding. Common equivalent shares are not included in the
per share calculation since the effect of their inclusion would be
anti-dilutive.
4
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THIS SECTION AND THOSE DISCUSSED IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K.
OVERVIEW
Formed in 1987, Corvas International, Inc. ("Corvas" or the "Company") is
a biopharmaceutical firm engaged in the design and development of a new
generation of therapeutic agents for the prevention and treatment of major
cardiovascular, inflammatory and other diseases. To date, the Company has
not generated significant revenues from product sales. The Company has not
been profitable on an annual basis since inception and expects to incur
substantial additional operating losses on an annual basis over the next
several years as the Company attempts to sustain, and possibly expand, its
research and development and clinical trial efforts. No assurance can be
given that the Company will generate sufficient revenues to become profitable
on a sustained basis or at all. At September 30, 1997, the Company had an
accumulated deficit of $68,282,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Comparing the third quarters of 1996 and 1997, operating revenues
increased from $1,204,000 in 1996 to $1,854,000 in 1997. Of this $650,000
increase, $394,000 is attributable to a license and collaboration agreement
initiated in June 1997 with Schering Corporation ("Schering-Plough") which
covers the design and development of orally-bioavailable inhibitors of a key
protease necessary for hepatitis C virus replication. An additional $240,000
relates to an option agreement to purchase all of the outstanding stock of
Vascular Genomics Inc. ("VGI"), a private company with a proprietary position
in a novel vascular targeting technology, which was also initiated in June
1997.
Total costs and expenses increased from $3,149,000 in the three month
period ended September 30, 1996 to $3,274,000 in the same period of 1997. A
$219,000 decrease in research and development expenditures, primarily due to
costs incurred in the third quarter of 1996 for the manufacture of clinical
supplies for rNAPc2, was offset by a $366,000 increase in general and
administrative expenses. The primary factors contributing to this increase
were administrative recruiting and relocation costs, and legal and other
costs in connection with various business development activities.
Total other income increased $107,000 comparing the quarter ended
September 30, 1996 to the corresponding quarter of 1997. This is the result
of higher rates of return earned on cash and investment balances.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Operating revenues increased from $4,501,000 in the nine month period
ended September 30, 1996 to $8,493,000 in the same period of 1997. This
$3,992,000 increase is principally due to a $3,000,000 milestone payment
received from Schering-Plough in the first quarter of 1997 pursuant to the
companies' strategic alliance agreement to develop oral thrombin inhibitors.
Also in the first quarter of 1997, Corvas recognized a license fee of
$850,000 pursuant to its collaboration with Pfizer Inc. ("Pfizer") covering
the development of neutrophil inhibitory factor ("NIF"), an anti-inflammatory
agent.
5
<PAGE>
Comparing the nine month periods ended September 30, 1996 and 1997, total
costs and expenses decreased from $10,806,000 to $10,632,000. Such decrease,
primarily due to costs incurred in 1996 for the manufacture of clinical
supplies, caused research and development expenditures to decrease by
$1,093,000, while general and administrative expenses increased by $918,000
for the reasons cited earlier.
Increased interest income caused total other income to increase from
$932,000 in the first nine months of 1996 to $1,154,000 in the corresponding
period of 1997.
Subject to the availability of additional capital, the Company expects
its expenses to increase over the next several years as the Company's
research and development programs progress. The Company also expects both
its expenses and losses to fluctuate from quarter to quarter and that such
fluctuations may, at times, be substantial.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's operations have been funded primarily
through public offerings and private placements of equity securities,
revenues from collaborative agreements, license fees, milestone payments and
research grants, and interest income earned on cash and investment balances.
The Company's principal sources of liquidity are its cash and cash
equivalents, time deposits and debt securities which, net of a restricted
time deposit, totaled $25,726,000 as of September 30, 1997. Working capital
at September 30, 1997 was $22,415,000. Available cash is invested in
accordance with an investment policy set by the Board of Directors, which has
the objectives to preserve principal, maintain adequate liquidity and
maximize income. The policy provides guidelines concerning the quality, term
and liquidity of investments. The Company presently invests its excess cash
in U.S. government securities.
Strategic collaborations with Schering-Plough and Pfizer provide for
payments to the Company if and when certain milestones are met. However,
there can be no assurance that any future milestones will be achieved.
During the first quarter of 1997, a development compound was selected by
Schering-Plough in the thrombin inhibitor program, which triggered a
$3,000,000 milestone payment; the next milestone in this program, if
achieved, is $1,000,000 to be paid upon filing by Schering-Plough of an
Investigational New Drug Application ("IND") or its equivalent for initiating
clinical trials in the U.S. or any corresponding foreign application,
registration or certification. The next milestone in the Corvas/Pfizer
collaboration, if achieved, is $1,000,000 to be paid upon notification to a
regulatory authority, such as the U.S. Food and Drug Administration, of a
plan for clinical trials for NIF. In addition to these and certain other
contractually-defined payments, the Company may also receive capital
resources from additional milestone payments and royalties on sales of
products in connection with its existing alliances, as well as from potential
future alliances. If all of the milestones on all of the Company's existing
collaborations are met, Corvas could receive up to a total of $96,025,000 in
milestone payments over the next several years. However, there can be no
assurance that the Company will successfully develop and commercialize any
products or that the Company will receive any additional amounts under these
or future alliances.
6
<PAGE>
In June 1997, Corvas entered into an option agreement to purchase
all of the outstanding stock of VGI, a vascular targeting company. If this
option is exercised, the purchase will be made with newly-issued Corvas
common stock. The aggregate purchase price, which is based on the timing of
the option exercise, presently ranges between $13,554,000 and $19,960,000.
If Corvas elects not to exercise its option, VGI may require Corvas to
purchase 19.9% of its outstanding stock for $3,960,000 in Corvas common
stock. During the option period, Corvas will make option payments to VGI,
which in turn will fund certain research and development activities at
Corvas. Although the net impact of these payments is not material, the
Company may incur substantial additional costs to develop this technology.
Corvas may enter into one or more collaborative relationships to develop and
commercialize this technology. However, there can be no assurance that the
Company will be able to establish such relationships on satisfactory terms,
that such relationships will successfully reduce the costs associated with
research and development of this technology, that the option will be
exercised, or that this technology will prove to be effective.
The Company expects to incur substantial additional costs in the
foreseeable future, including costs related to sustaining, and possibly
expanding, research and development activities and preclinical and clinical
testing. The Company expects such costs to continue to increase and, as a
result, expects to experience substantial additional operating losses over
the next several years. The Company presently expects to file an IND in the
first half of 1998 for rNAPc2, an anticoagulant for which a Phase Ib clinical
trial has recently begun. The Company believes its capital resources,
interest earned thereon and the funds committed by Schering-Plough under the
companies' strategic alliance agreement covering inhibitors of Factor Xa will
satisfy its funding requirements through the middle of 1999.
Corvas' future funding requirements will depend on many factors,
including, but not limited to, the following: continued scientific progress
in its drug discovery programs; the magnitude of these programs; progress of
preclinical testing and clinical trials; the time and costs involved in
obtaining regulatory approvals; the costs involved in filing, prosecuting,
maintaining and enforcing patent claims; competing technological and market
developments; changes in its existing research relationships; the ability of
the Company to establish and to maintain collaborative or licensing
arrangements; the cost of manufacturing scale-up; and effectiveness of
activities and arrangements to commercialize existing and potential products.
Corvas leases its laboratory and office facilities under an operating lease
and anticipates that it will need to expand its facilities over the next
several years. The Company expects it will acquire additional property and
equipment as its research and development activities progress.
The Company's business is subject to significant risks including, but not
limited to, the risks associated with its research and development efforts,
obtaining and enforcing patents, the lengthy and expensive regulatory
approval process, product reimbursement levels, competition from other
products, dependence on collaborative partners and other third parties, the
possibility of early termination of corporate collaborations, and the
availability of capital. Even if the Company's products appear promising at
an early stage of development, they may not reach the market for a number of
reasons, including the possibility that such potential products will be
ineffective or found to be unsafe during clinical trials, will not 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.
Uncertainties associated with the duration and expense of preclinical and
clinical testing of any of the Company's existing or potential products make
it difficult to predict the Company's funding requirements, and unexpected
developments and/or regulatory requirements could greatly increase the cost
of development of such products and affect the timing of anticipated product
revenues. Failure by the Company to obtain regulatory approval for any
product will preclude the sale of such product. In addition, failure by the
Company to obtain patent protection may make certain of its products
commercially unattractive.
7
<PAGE>
To continue its product development efforts, the Company must raise
substantial additional funds through public or private sales of securities,
collaborative arrangements or other methods of financing. The Company's
ability to raise additional funds through sales of securities depends in part
on investors' perceptions of the biotechnology industry, in general, and of
the Company, in particular. The market for biotechnology company stocks has
historically been highly volatile and, accordingly, there can be no assurance
that additional funding will be available, or, if available, that it will be
available on acceptable terms. The Company may enter into additional
collaborative relationships to develop and commercialize certain of its
technologies or products. There can be no assurance that the Company will be
able to establish such relationships on satisfactory terms, if at all, or
that agreements with collaborators will successfully reduce the Company's
funding requirements. In addition, the Company has no established bank
financing arrangements, and there can be no assurance that it will be able to
establish such arrangements on satisfactory terms, if at all. If adequate
funds are not available, the Company may be required to significantly delay,
scale back or eliminate one or more of its drug discovery programs or obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies,
product candidates or products that the Company would not otherwise
relinquish.
In 1993, the U.S. Patent and Trademark Office (the "USPTO") declared an
interference to determine the priority of invention between a patent for
which some rights are licensed to the Company (the "Licensed Patent") and a
patent application for which rights are held by other parties (the "First
Patent Application"). In 1996, the USPTO added a second patent application
to the proceeding (the "Second Patent Application") and redeclared the
interference. Rights to the Second Patent Application are held by other
parties, at least some of which also hold rights in the First Patent
Application. The subject matter of the patent and these applications is
recombinant tissue factor, which is used by Ortho Diagnostic Systems, Inc.
("Ortho"), a Johnson & Johnson company, to determine the blood clotting
abilities of patients. The Company is contesting the other parties' claims
of prior invention; however, there can be no assurance that the Licensed
Patent will be upheld.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
8
<PAGE>
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In 1993, the U.S. Patent and Trademark Office (the "USPTO") declared an
interference to determine the priority of invention between a patent for
which some rights are licensed to the Company (the "Licensed Patent") and a
patent application for which rights are held by other parties (the "First
Patent Application"). In 1996, the USPTO added a second patent application
to the proceeding (the "Second Patent Application") and redeclared the
interference. Rights to the Second Patent Application are held by other
parties, at least some of which also hold rights in the First Patent
Application. The subject matter of the patent and these applications is
recombinant tissue factor, which is used by Ortho Diagnostic Systems, Inc.
("Ortho"), a Johnson & Johnson company, to determine the blood clotting
abilities of patients. The Company is contesting the other parties' claims
of prior invention; however, there can be no assurance that the Licensed
Patent will be upheld.
Item 2. CHANGES IN SECURITIES
On September 18, 1997, the Company adopted a Stockholder Rights Plan
which is described in the Current Report on Form 8-K filed on October 8, 1997.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.62 Amended and Restated Secured Promissory Note between
the Company and Randall E. Woods, dated as of
August 28, 1997.
10.63 Separation Agreement between the Company and William C.
Ripka, dated as of September 23, 1997.
27.1 Financial Data Schedule.
b. Reports on Form 8-K
On October 8, 1997, the Company filed a Current Report on Form 8-K which
discloses certain information under Item 5.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORVAS INTERNATIONAL, INC.
Date: November 12, 1997 By: /s/ RANDALL E. WOODS
--------------------------------
Randall E. Woods
President and Chief
Executive Officer
Date: November 12, 1997 By: /s/ JOHN E. CRAWFORD
--------------------------------
John E. Crawford
Executive Vice President
and Chief Financial Officer
10
<PAGE>
AMENDED AND RESTATED SECURED PROMISSORY NOTE
$152,500 August 28, 1997
A. Randall E. Woods, an individual residing in the State of California
("Borrower"), has executed that certain Promissory Note dated June 25, 1996
(the "Original Note") in an original principal amount of $200,000 in favor
of Corvas International, Inc., a Delaware corporation ("Lender"), evidencing
a loan made by Lender to Borrower in connection with the relocation of
Borrower to San Diego, California. Payment and performance in respect of the
Original Note was to be secured by that certain unrecorded Deed of Trust
dated June 25, 1996 (the "Deed of Trust") to encumber certain real property
located in Potomac, Maryland (the "Property") formerly owned by Borrower.
B. On January 30, 1997, Lender executed that certain Extension of
Promissory Note pursuant to which the final maturity date of the Original
Note was extended from December 7, 1996 to the earlier of the sale of the
Property or December 7, 1997.
C. On May 1, 1997, Lender agreed to pay to Borrower the difference
between the purchase price originally paid by Borrower for the Property and
the sales price when the Property actually sold, not to exceed $47,500. On
August 28, 1997, Borrower sold the Property and applied the $47,500 against
the outstanding principal amount owing under the Original Note. The current
principal balance outstanding under the Original Note is $152,500.
D. Borrower has filed various claims against various defendants in the
Superior Court of the State of California for the County of San Diego, North
County Judicial District, (Case No. N075230) in connection with certain
alleged defects and other matters related to certain real property owned by
Borrower in the County of San Diego, State of California (the "Lawsuit").
E. As approved by resolution of the Board of Directors of Lender at
its Board meeting held September 18, 1997, Borrower and Lender each desires
to amend and restate in its entirety the Original Note pursuant to this
Amended and Restated Secured Promissory Note (the "Note") to (a) extend the
final maturity date to the earliest of (i) September 18, 1998, (ii) the
settlement or other final determination of the Lawsuit and (iii) the date
which is ninety days after any termination of employment of Borrower with
Lender for any reason or no reason (with or without cause) and (b) to provide
for the grant of a security interest in all of Borrower's right, title and
interest in the Lawsuit and the proceeds thereof to secure the repayment of
principal under this Note and the payment of all costs incurred by Lender
pursuant to the enforcement of Lender's rights under this Note and the
performance of all other obligations under this Note by Borrower.
For Value Received, Borrower, under the terms of this Note, hereby
unconditionally promises to pay to Lender in lawful money of the United
States of America and in immediately available funds, the principal sum of
One Hundred Fifty-Two Thousand Five Hundred and 00/100 Dollars ($152,500)
(the "Loan"), payable on the dates, in the amounts and in the manner set
forth below.
1. REPAYMENT; PREPAYMENT. The outstanding principal amount of the Loan
shall be due and payable on the earliest of (i) September 18, 1998 (ii) the
settlement or other final determination of the Lawsuit and (iii) the date
which is ninety days after any
<PAGE>
termination of employment of Borrower with Lender for any reason or no reason
(with or without cause). The Loan may be prepaid at any time without
penalty. Amounts so prepaid shall not be re-borrowed.
2. APPLICATION OF PAYMENTS/PLACE OF PAYMENT. All payments received by
Lender shall be applied first to any charges due with respect to this Note or
any other document executed by Borrower in connection herewith and second to
the unpaid principal balance. All amounts payable hereunder shall be
payable at the office of Lender, 3030 Science Park Road, San Diego,
California 92121, unless another place of payment shall be specified in
writing by Lender to Borrower. Any amounts payable hereunder will be due
and payable without set-off, deduction, or counterclaim, except as otherwise
provided herein.
3. SECURED NOTE. In order to secure the prompt and complete payment
and performance of all obligations of Borrower under this Note, including,
without limitation, the repayment of principal and the reimbursement of all
costs of enforcing any of Lender's rights under this Note (including, without
limitation, reasonable attorneys' fees, disbursements, costs and other
expenses), Borrower hereby grants to Lender a security interest in all of
Borrower's right, title and interest in the lawsuit filed by Borrower and
Nancy Saint Woods, an individual, in the Superior Court of the State of
California for the County of San Diego, North County Judicial District, known
as Case No. N075230 and the proceeds thereof (the "Collateral"). Borrower
hereby agrees to execute a UCC-1 Financing Statement in the form attached
hereto as Exhibit "A", and from time to time to execute any and all other
documents reasonably requested by Lender to perfect Lender's security
interest in the Collateral. Upon the repayment in full of all obligations
under this Note, Lender hereby agrees to execute all documents and exercise
such further actions as necessary to release the security interest in the
Collateral and to terminate any and all UCC financing statements or similar
filings then effective with respect to the Collateral. If an Event of
Default has occurred and is continuing, Lender shall have all of the rights
and remedies with respect to the Collateral of a secured creditor under the
Uniform Commercial Code as in effect in the State of California.
4. DEFAULT. An Event of Default under this Note shall have occurred
upon the occurrence of any one or more the following events: (1) the
Borrower's failure to pay any of the principal due under this Note when the
same becomes due and payable or the Borrower's failure to pay any other
amounts payable under this Note on the date the same become due and payable
or within five (5) calendar days thereafter, (2) the filing by Borrower of a
petition under the United States Bankruptcy Code or (3) the death of Borrower
or any other maker, endorser, guarantor of this Note. Upon the occurrence of
an Event of Default, all unpaid principal and any other amounts owing
hereunder shall, at the option of Lender, be immediately collectible by
Lender pursuant to applicable law, and Lender may exercise any and all
remedies of a secured creditor under the UCC.
5. WAIVER. Borrower, and any endorsers or guarantors hereof, each
severally waives diligence, presentment, protest and demand and also notice
of protest, demand, dishonor, acceleration, intent to accelerate and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time without notice, and consent to
the acceptance of further security or the release of any security for this
Note, all without in any way affecting the liability of Borrower or any
endorsers or guarantors hereof. No extension of time for the payment of
this Note, or any installment hereof, agreed to by Lender with any person now
or hereafter liable for the payment of this Note, shall affect the original
liability of Borrower under this Note, even if Borrower is not party to such
an agreement or indulgence. Borrower shall pay all costs of
<PAGE>
collection when incurred, including, without limitation, reasonable
attorneys' fees, disbursements, costs and other expenses.
The right to plead any and all statutes of limitations as a defense
to any demands hereunder is hereby waived to the full extent permitted by
law.
6. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
7. SUCCESSORS. The provisions of this Note shall inure to the benefit
of and be binding on any successor or assign to Borrower or Lender. This
Note shall not be assigned by Borrower without the prior written consent of
Lender.
8. MISCELLANEOUS.
a. Borrower shall pay all costs, including, without limitation,
reasonable attorneys' fees incurred by Lender in collecting the sums due
hereunder or in connection with the release of the security for this Note.
b. This Note may be modified only by a written agreement executed
by Borrower and Lender.
c. Time is of the essence with respect to all matters set forth in
this Note.
d. If this Note is destroyed, lost or stolen, Borrower shall
deliver a new note to Lender on the same terms and conditions as this Note
with a notation of the unpaid principal in substitution of the prior Note.
Lender shall furnish to Borrower reasonable evidence that the Note was
destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Borrower in connection with the replacement of this
Note.
e. If any provision of this Note shall be held to be invalid and
unenforceable, such determination shall not affect the remaining provisions
of this Note.
f. In the event an action is commenced to interpret or enforce
this Note or to collect any sums due hereunder, the prevailing party shall be
entitled to receive from the other party attorneys' fees, disbursements,
costs and other expenses determined by the court in which such action is
brought.
g. This Amended and Restated Secured Promissory Note is not
intended to be, and shall not be construed to create, a novation or accord
and satisfaction, and, except as otherwise provided herein, the terms of the
Original Note, as extended prior to the execution hereof, shall remain in
full force and effect.
/s/ RANDALL E. WOODS
----------------------------
Randall E. Woods, Borrower
<PAGE>
[Corvas letterhead]
September 23, 1997
William C. Ripka, Ph.D.
10819 Red Rock Drive
San Diego, California 92131
Dear Bill:
This letter sets forth the terms and conditions of our agreement (the
"Agreement") regarding your retirement from Corvas International, Inc. (the
"Company"). This Agreement shall supersede any and all previous agreements
between you and the Company including, but not limited to, that Employment
Agreement (the "Employment Agreement") dated March 18, 1997, provided,
however, that the confidentiality agreement attached as Exhibit C to the
Employment Agreement shall continue in full force and effect.
This Agreement is made and entered into as of the last day either party
executes this Agreement. Pursuant to paragraph 13 set forth below, the
Agreement shall become effective on the eighth day after this Agreement is
signed by you (the "Effective Date"). You and the Company hereby agree as
follows:
1. This Agreement confirms your retirement from the Company and
resignation of your position as Senior Vice President, Chemical Research, of
the Company as of September 30, 1997 (the "Separation Date").
2. The Company agrees that it will pay you all accrued salary, and all
accrued and unused vacation benefits earned through the Separation Date, if
any, subject to standard payroll deductions, withholding taxes and other
obligations. You are entitled to this payment regardless of whether or not
you sign this Agreement.
3. Although the Company has no policy or procedure for providing
severance benefits, in exchange for the promises and covenants set forth
herein, and in consideration thereof, the Company will pay you the equivalent
of twelve months of your base salary in effect as of the Separation Date,
subject to standard payroll deductions and withholdings. Half of this amount
will be paid in a lump sum within fourteen (14) days of the Effective Date of
this Agreement as defined in paragraph 13, with the rest paid out over the
next six (6) months.
4. To the extent provided by the federal COBRA law or, if applicable,
state insurance laws, and by the Company's current group health insurance
policies, you will be eligible to continue your health insurance benefits.
You will be provided with a separate notice of your COBRA rights. In the
event that you elect continued coverage under COBRA, the Company, as part of
this Agreement and in consideration thereof, will reimburse you on a monthly
basis for the same portion of your COBRA health insurance premium that it
paid during your employment for one year from the Separation Date. You will
continue to be responsible for the same portion of the COBRA health insurance
premium that you paid during your employment with the Company.
5. In exchange for the promises and covenants set forth herein, the
Company agrees that the vesting of each outstanding stock option held by you
as set forth on Exhibit A attached hereto (the "Stock Options") shall be
fully accelerated and become immediately exerciseable in full; provided,
<PAGE>
William C. Ripka, Ph.D.
September 23, 1997
Page 2
that in any event, should you choose to exercise your Stock Options, you must
do so within twenty-four (24) months of the Separation Date as provided in
Section 3.3(c) of the standard terms and conditions relating to Incentive
Stock Options attached to and made part of your Incentive Stock Option
Agreement dated December 4, 1996 (your "Stock Option Agreement"). Your Stock
Options will terminate twenty-four (24) months after the Separation Date if
not exercised. You agree that you otherwise remain bound by the terms and
conditions of your Stock Option Agreement. In addition, you understand that,
pursuant to tax law, your Stock Options will lose potentially favorable tax
treatment afforded "incentive stock options" if not exercised within three
(3) months of the Separation Date.
6. You hereby acknowledge and agree that except as expressly provided
herein, you will not receive (nor are you entitled to) any additional
compensation, severance, benefits, shares of Company stock or stock options
exerciseable for Company stock, notwithstanding any prior agreement to the
contrary, including the Employment Agreement, after the Separation Date.
7. You agree that, within ten (10) days of the Separation Date, you
will submit your final documented expense reimbursement statement reflecting
all business expenses you incurred through the Separation Date, if any, for
which you seek reimbursement. The Company will reimburse you for these
expenses pursuant to its regular business practice. You further agree that
you will not be entitled to any expense reimbursements after the Separation
Date.
8. You agree that for one year after the Separation Date, you will not,
either directly or through others, solicit or attempt to solicit any
employee, consultant, or independent contractor of the Company to terminate
his or her relationship with the Company in order to become an employee,
consultant or independent contractor to or for any other person or entity.
9. Upon the Separation Date, you agree to return to the Company all
Company documents (and all copies thereof) and other Company property in your
possession or your control, including, but not limited to, Company files,
notes, samples of compounds, drawings, specifications, calculations,
sequences, data, computer-recorded information, tangible property, including,
but not limited to, computers, credit cards, entry cards, keys and any other
materials of any nature pertaining to your work with the Company, and any
documents or data of any description (or any reproduction of any documents or
data) containing or pertaining to any proprietary or confidential material of
the Company.
10. Both during and after your employment you acknowledge your
continuing obligations under your Employment Agreement not to use or disclose
any confidential or proprietary information of the Company without prior
written authorization from a duly authorized representative of the Company.
A copy of your Employment Agreement is attached hereto as Exhibit B.
11. You and the Company agree that neither party will at any time
disparage the other party, and the other party's officers, directors,
employees, shareholders and agents, in any manner likely to be harmful to
them or their business, business reputation or personal reputation; provided
that each party shall respond accurately and fully to any questions, inquiry
or request for information when required by legal process.
<PAGE>
William C. Ripka, Ph.D.
September 23, 1997
Page 3
12. The provisions of this Agreement shall be held in strictest
confidence by you and the Company and shall not be publicized or disclosed in
any manner whatsoever; provided, however, that: (a) you may disclose this
Agreement, in confidence, to your immediate family; (b) the parties may
disclose this Agreement in confidence to their respective attorneys,
accountants, auditors, tax preparers, and financial advisors; (c) the Company
may disclose this Agreement as necessary to fulfill standard or legally
required corporate reporting or disclosure requirements; and (d) the parties
may disclose this Agreement insofar as such disclosure may be necessary to
enforce its terms or as otherwise required by law.
13. In exchange for the promises and covenants set forth herein, you
hereby release, acquit, and forever discharge the Company, its parents and
subsidiaries, and their officers, directors, agents, servants, employees,
attorneys, shareholders, partners, successors, assigns, affiliates,
customers, and clients of and from any and all claims liabilities, demands,
causes of action, costs, expenses, attorneys' fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed, arising out of
or in any way related to agreements, acts or conduct at any time prior to the
Separation Date, including, but not limited to: all such claims and demands
directly or indirectly arising out of or in any way connected with the
Company's employment of you, the termination of that employment, and the
Company's performance of its obligations as your former employer; claims or
demands related to salary, bonuses, commissions, stock, stock options, or any
other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, severance pay, or any form of compensation; claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the California Fair Employment and Housing Act, the federal
Civil Rights Act of 1964, as amended; the federal Age Discrimination in
Employment Act of 1967, as amended; the federal Americans With Disabilities
Act; tort law; contract law; wrongful discharge; discrimination; harassment;
fraud; defamation; emotional distress; and breach of the implied covenant of
good faith and fair dealing.
You further acknowledge that you are knowingly and voluntarily
waiving and releasing any rights you may have under the Age Discrimination in
Employment Act of 1967 ("ADEA"). You also acknowledge that the consideration
given for the waiver and release in the preceding paragraphs hereof is in
addition to anything of value to which you were already entitled. You hereby
provide the further acknowledgment that you are advised by this writing, as
required by the Older Workers Benefit Protection Act, that: (a) your waiver
and release do not apply to any rights or claims that may arise after the
Effective Date of this release; (b) you have the right to consult with an
attorney prior to executing this release (although you may voluntarily choose
not to do so); (c) you may have at least twenty-one (21) days to consider
this Agreement (although you may by your own choice execute this release
earlier); (d) you have seven (7) days following the execution of this release
to revoke this release; and (e) this Agreement shall not be effective until
the date upon which the revocation period has expired, therefore making the
effective date the eighth day after this release is signed by you (the
"Effective Date").
14. In giving this release, which includes claims which may be unknown
to you at present, you hereby acknowledge that you have read and understand
Section 1542 of the Civil Code of the State of California which reads as
follows:
<PAGE>
William C. Ripka, Ph.D.
September 23, 1997
Page 4
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by
him must have materially affected his settlement with
the debtor.
You hereby expressly waive and relinquish all rights and benefits
under this section and any law or legal principle of similar effect in any
jurisdiction with respect to claims released hereby.
15. In the event of any litigation arising out of or relating to this
Agreement, its breach or enforcement, including an action for declaratory
relief, the prevailing party in such action or proceeding shall be entitled
to receive his or its damages, court costs, and all out-of-pocket expenses,
including attorneys fees. Such recovery shall include court costs,
out-of-pocket expenses, and attorneys fees on appeal, if any.
16. The parties hereto hereby acknowledge that this is a compromise
settlement of various matters, and that the promised payments in
consideration of this Agreement shall not be construed to be an admission of
any liability or obligation by either party to the other party or to any
other person whomsoever.
17. This Agreement, including Exhibit A and B, constitutes the complete,
final and exclusive embodiment of the entire agreement between you and the
Company with regard to the subject matter hereof. It is entered into without
reliance on any promise or representation, written or oral, other than those
expressly contained herein. It may not be modified except in a writing
signed by you and a duly authorized officer of the Company. Each party has
carefully read this Agreement, has been afforded the opportunity to be
advised of its meaning and consequences by his or its respective attorneys,
and signed the same of his or its free will.
18. This Agreement shall bind the heirs, personal representatives,
successors, assigns, executors, and administrators of each party, and inure
to the benefit of each party, its agents, directors, officers, employees,
servants, heirs, successors and assigns.
19. This Agreement shall be deemed to have been entered into and shall
be construed and enforced in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely within
California.
20. If a court of competent jurisdiction determines that any term or
provision of this Agreement is invalid or unenforceable, in whole or in part,
then the remaining terms and provisions hereof shall be unimpaired. Such
court will have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or
provision that most accurately represents the parties' intention with respect
to the invalid or unenforceable term or provision.
21. This Agreement may be executed in two counterparts, each of which
shall be deemed an original, all of which together shall constitute one and
the same instrument.
<PAGE>
William C. Ripka, Ph.D.
September 23, 1997
Page 5
Please confirm your assent to the foregoing terms and conditions of our
Agreement by signing and returning this letter to me.
Sincerely,
CORVAS INTERNATIONAL, INC.
/s/ RANDALL E. WOODS
- -----------------------------
Randall E. Woods
President and Chief Executive Officer
HAVING READ AND REVIEWED THE FOREGOING, I HEREBY AGREE TO AND ACCEPT THE
TERMS AND CONDITIONS AS STATED ABOVE.
Dated: SEPT. 26, 1997 /s/ WILLIAM C. RIPKA, Ph.D.
--------------- ------------------------------
William C. Ripka, Ph.D.
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