<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 June 30, 1999
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
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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)
(858) 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 (l) 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 August 2, 1999, there were 15,237,277 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 June 30, 1999 (unaudited)
and December 31, 1998 1
Condensed Statements of Operations for the Three
and Six Months Ended June 30, 1999 and 1998 (unaudited) 2
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 (unaudited) 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 9
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
None
Item 3. Defaults Upon Senior Securities 10
None
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 11
(b) Reports on Form 8-K 11
None
SIGNATURES 12
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CORVAS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
ASSETS (unaudited)
- - ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,377 $ 611
Short-term debt securities held to maturity
and time deposits, partially restricted 12,399 17,002
Receivables 201 251
Note receivable from related party 153 153
Other current assets 381 411
------------ ------------
Total current assets 14,511 18,428
Property and equipment, net 1,249 1,484
------------ ------------
$ 15,760 $ 19,912
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable $ 516 $ 326
Accrued liabilities 1,226 993
Accrued vacation 214 207
------------ ------------
Total current liabilities 1,956 1,526
------------ ------------
Stockholders' equity:
Preferred stock - Series A 1 1
Preferred stock - Series B 0 0
Common stock 15 15
Additional paid-in capital 96,327 96,223
Accumulated deficit (82,539) (77,853)
------------ ------------
Total stockholders' equity 13,804 18,386
Commitments and contingencies
------------ ------------
$ 15,760 $ 19,912
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
<TABLE>
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
In thousands, except per share data
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Revenue from collaborative agreements $ 1,554 $ 1,746 $ 3,300 $ 3,493
License fees and milestones 0 1,000 0 2,000
Net product sales 0 10 0 44
Royalties 13 53 36 95
------------ ------------ ------------ ------------
Total revenues 1,567 2,809 3,336 5,632
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Research and development 3,678 4,098 6,782 7,682
General and administrative 857 1,400 1,635 2,266
Cost of products sold 0 1 0 18
------------ ------------ ------------ ------------
Total costs and expenses 4,535 5,499 8,417 9,966
------------ ------------ ------------ ------------
Loss from operations (2,968) (2,690) (5,081) (4,334)
OTHER INCOME:
Interest income 157 245 395 572
Other income 0 5 0 5
------------ ------------ ------------ ------------
157 250 395 577
------------ ------------ ------------ ------------
Net loss and other
comprehensive loss $ (2,811) $ (2,440) $ (4,686) $ (3,757)
============ ============ ============ ============
Basic and diluted net loss
per share $ (0.19) $ (0.18) $ (0.31) $ (0.27)
============ ============ ============ ============
Shares used in calculation of
basic and diluted net
loss per share 15,153 14,038 15,140 14,005
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
<TABLE>
CORVAS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
In thousands
(unaudited)
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,686) $ (3,757)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 284 303
Amortization of premiums and discounts on investments 21 (460)
Loss on sale of property and equipment 0 81
Stock compensation expense 12 104
Change in assets and liabilities:
Decrease in receivables 50 31
(Increase) decrease in other current assets 30 (14)
Increase in accounts payable, accrued
liabilities and accrued vacation 430 758
Decrease in deferred revenue 0 (2,656)
------------ ------------
Net cash used in operating activities (3,859) (5,610)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments held to maturity (7,791) (19,693)
Proceeds from maturity of investments held to maturity 12,373 27,295
Purchases of property and equipment (49) (733)
------------ ------------
Net cash provided by investing activities 4,533 6,869
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 92 238
------------ ------------
Net cash provided by financing activities 92 238
------------ ------------
Net increase in cash and cash equivalents 766 1,497
Cash and cash equivalents at beginning of period 611 2,044
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,377 $ 3,541
============ ============
</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 cardiovascular,
cancer and other major 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 condensed
financial statements should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended December 31, 1998.
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 six months ended June 30, 1999 and
1998 is computed using the weighted average number of common share equivalents
outstanding. Options, warrants and convertible preferred stock totaling
4,989,000 and 6,209,000 shares were excluded from the calculation of net loss
per share for the periods ended June 30, 1999 and 1998, respectively, since the
effect of their inclusion would be anti-dilutive.
(4) Subsequent Event
----------------
In July 1999, the Company, Vascular Genomics Inc. ("VGI") and the
stockholders of VGI entered into a Settlement Agreement and Mutual General
Release ("Settlement Agreement") that terminated the Company's option to acquire
all the stock of VGI in exchange for the Company's Common Stock or, in certain
circumstances, a combination of cash and Common Stock. Upon expiration or
cancellation of the option, VGI had the right to put 19.9% of its stock to the
Company for $3,960,000 in Corvas Common Stock. In addition, during the option
period, the Company funded research and other related costs involved in further
developing the technology. Pursuant to the Settlement Agreement, the Company
agreed to pay VGI the sum of $1,200,000 and to deliver to the stockholders of
VGI 250,000 shares of the Company's Common Stock that the Company agreed to
register for resale. Also pursuant to the Settlement Agreement, VGI agreed to
deliver to the Company shares of VGI stock equal to 6.5% of VGI's outstanding
shares.
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. THESE STATEMENTS RELATE TO FUTURE EVENTS, FUTURE CLINICAL TRIALS,
PRODUCT DEVELOPMENT OR FINANCIAL PERFORMANCE. IN SOME CASES, FORWARD-LOOKING
STATEMENTS CAN BE IDENTIFIED BY TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD,"
"EXPECTS," "PLANS," "ANTICIPATES," "BELIEVES," "ESTIMATES," "PREDICTS,"
"POTENTIAL," OR "CONTINUE." 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 THE COMPANY'S ANNUAL REPORT ON FORM 10-K.
OVERVIEW
Formed in 1987, Corvas International, Inc. ("Corvas" or the "Company")
is a clinical stage biopharmaceutical firm engaged in the design and development
of a new generation of therapeutic agents for cardiovascular, cancer and other
major diseases. To date, the Company has not generated significant revenues from
product sales and does not currently sell any commercial products. The Company
has not been profitable on an annual basis since inception and expects to incur
substantial additional operating losses over the next several years as the
Company progresses in its research and development programs. The Company's
historical results are not necessarily indicative of future results. In
addition, there is no assurance that the Company will successfully develop,
commercialize, manufacture or market any products or generate sufficient
revenues to become profitable on a sustained basis or at all. At June 30, 1999,
the Company had an accumulated deficit of $82,539,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Operating revenues in the quarter ended June 30, 1999 decreased to
$1,567,000 from $2,809,000 in the corresponding period of 1998. This $1,242,000
decrease was primarily the result of a $1,000,000 milestone received from
Schering Corporation ("Schering-Plough") in the second quarter of 1998 upon
commencement of a Phase I trial of an oral thrombin inhibitor discovered by
Corvas. Revenue from collaborative agreements decreased by $192,000 comparing
these same periods, as the funding from Pfizer Inc. ("Pfizer") on the neutrophil
inhibitory factor ("NIF") program reached its contractual end, and the option
and related research and development agreements with Vascular Genomics Inc.
("VGI"), which covered a vascular targeting strategy, also ended.
Total costs and expenses decreased by $964,000 to $4,535,000 in the
three months ended June 30, 1999, from $5,499,000 in the same period of 1998.
Research and development expenses decreased by $420,000, mainly due to the
manufacture of clinical supplies for the Company's proprietary rNAP5 program in
1998 that were not incurred in 1999. In addition, general and administrative
expenses decreased by $543,000, primarily as a result of reductions in
administrative headcount in 1999 and higher recruiting costs in 1998.
Total other income decreased to $157,000 in the three month period
ended June 30, 1999 from $250,000 in the corresponding period of 1998. This
$93,000 decrease was due to both lower balances available for investment and
lower yields earned thereon.
5
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Operating revenues in the six months ended June 30, 1999 decreased to
$3,336,000 from $5,632,000 in the same period of 1998. This $2,296,000 decrease
was primarily attributable to two milestone payments of $1,000,000 each earned
in the first half of 1998 upon commencement of Phase I clinical trials in both
the oral thrombin inhibitor program partnered with Schering-Plough and the NIF
program with Pfizer. In addition, revenue from collaborative agreements
decreased by $193,000 due to the contractual end in the first half of 1999 of
research and development funding from Pfizer and VGI. Revenues from product
sales and royalties decreased by $44,000 and $59,000, respectively, due to the
transfer of tissue factor manufacturing to two Johnson & Johnson affiliate
companies in 1998.
Total costs and expenses decreased by $1,549,000 comparing the first
halves of 1999 and 1998, to $8,417,000 in the 1999 period from $9,966,000 in
1998. Expenses associated with rNAP5 manufacturing in 1998 and a lower headcount
in 1999 accounted for the majority of the $900,000 decrease in research and
development expenditures. General and administrative expenses also decreased
comparing these same periods, by $631,000, primarily due to reductions in
administrative headcount.
Total other income decreased by $182,000, to $395,000 in the first
six months of 1999 from $577,000 in the 1998 period. This decrease was
primarily the result of reduced interest income.
Subject to the availability of additional capital, the Company expects
it will continue to incur significant expenses and operating losses over the
next several years as research and development and clinical trials progress.
However, there is no assurance that the Company will be able to raise any
additional capital. 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, funding
and milestones from collaborative agreements, license fees 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 restricted time deposits, totaled $13,708,000 as of June 30, 1999.
Working capital at June 30, 1999 was $12,555,000. Available cash is invested in
accordance with the Company's investment policy, which was set by the Board of
Directors. This policy provides guidelines concerning the quality, term and
liquidity of investments, and has established objectives to preserve principle,
maintain adequate liquidity and maximize income. The Company presently invests
its excess cash primarily in government-backed debt instruments and, to a
smaller degree, in debt instruments of corporations with strong credit ratings.
For the six months ended June 30, 1999, net cash of $3,859,000 was used
in operating activities, a decrease of $1,751,000 from the cash usage one year
earlier. This was primarily due to decreased expenses in 1999. Net cash provided
by investing activities decreased by $2,336,000, to $4,533,000 in the six months
ended June 30, 1999 from $6,869,000 in the same period of 1998. This was due to
fewer capital expenditures and the ability to re-invest maturing investments
since less cash was required for operating activities. Net cash provided by
financing activities was $92,000 for the six month period ending June 30, 1999
compared to $238,000 one year earlier. This $146,000 decrease was attributable
to a decline in the number of stock options exercised.
6
<PAGE>
Substantial additional costs will likely be incurred in the future,
including, but not limited to, costs related to ongoing and planned clinical
trials, preclinical studies, and research and development activities. Over the
next several years, the Company expects that such costs will result in
additional operating losses and negative cash flows from operations. The Company
expects costs to increase over the current levels in the second half of 1999 due
to the planned manufacture of Phase III clinical supplies for rNAPc2, a
proprietary anticoagulant currently in Phase II clinical testing in orthopedic
surgery patients, as well as an additional Phase IIa study planned in coronary
care patients. Further, in connection with the termination of the option and
research and development agreements with VGI, the Company will record a
settlement payment in the third quarter of 1999. In addition, the Company
expects that 1999 revenues will be less than those recognized in 1998 due to the
contractual end of research and development funding of both NIF and VGI in 1999,
the nine month funding extension on the oral anticoagulant program and the
milestones earned in 1998. Management continues to pursue strategic financings
and additional collaborative relationships, as well as continuing to consider
ways to reduce the Company's burn rate, including, but not limited to,
allocating existing resources to clinical trials and research programs which are
more advanced. As of June 30, 1999, the Company believes that, at the current
burn rate, its existing capital resources and interest earned thereon should be
sufficient to satisfy its anticipated funding requirements for at least the next
12 months. In the future, the Company may also receive additional funds through
milestone payments and royalties on sales of products in connection with its
alliances. However, there is no assurance that the Company will be able to raise
any additional amounts under existing or any future alliances, or that it will
be successful in raising additional capital through strategic or other
financings.
Strategic collaborations with Schering-Plough and Pfizer provide for
payments to the Company if and when certain milestones are met. In addition to
future milestones, the Company may also receive royalties on sales of products
in connection with its existing, as well as any future, alliances. If all
milestones on all of the Company's existing collaborations are achieved, Corvas
could receive a maximum of $67,681,000 in future milestone payments and research
and development funding over the next several years. However, there is no
assurance that the Company's existing collaborations will be successful, that
the Company will receive any future milestones or other payments pursuant to
collaborative agreements, that the collaborations will continue since the
existing agreements are terminable at the option of the collaborator upon
certain events, or that the existing collaborations will be commercially
successful.
In July 1999, the Company, VGI and the stockholders of VGI entered into
a Settlement Agreement and Mutual General Release ("Settlement Agreement") that
terminated the Company's option to acquire all the stock of VGI in exchange for
the Company's Common Stock or, in certain circumstances, a combination of cash
and Common Stock. Upon expiration or cancellation of the option, VGI had the
right to put 19.9% of its stock to the Company for $3,960,000 in Corvas Common
Stock. In addition, during the option period, the Company funded research and
other related costs involved in further developing the technology. Pursuant to
the Settlement Agreement, the Company agreed to pay VGI the sum of $1,200,000
and to deliver to the stockholders of VGI 250,000 shares of the Company's Common
Stock that the Company agreed to register for resale. Also pursuant to the
Settlement Agreement, VGI agreed to deliver to the Company shares of VGI stock
equal to 6.5% of VGI's outstanding shares. By declining to exercise the option
and entering into the Settlement Agreement, the Company favorably closed the put
right held by the VGI stockholders and avoided spending an additional $1,000,000
in option payments and other related expenses.
7
<PAGE>
The Company leases its laboratory and office facilities under an
operating lease that expires in September 2006. Future capital requirements of
the Company will depend on many factors, including, but not limited to, the
following: the scientific progress in and magnitude of its drug discovery
programs; the progress and results of preclinical and clinical testing; the
costs involved in regulatory compliance; the costs of filing, prosecuting,
maintaining and enforcing patents; the progress of competing technologies and
other market developments; the changes in its existing collaborative
relationships; the Company's ability to establish and maintain collaborative or
licensing arrangements; the cost of manufacturing scale-up; and the
effectiveness of activities and arrangements of the Company or its collaborative
partners to commercialize the Company's products.
To continue its long-term product development efforts, the Company must
raise substantial additional funding either through collaborative arrangements
or through public or private financings. 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 Corvas, in
particular. The market for securities of biotechnology companies, including
Corvas, has historically been highly volatile and investors have not been
focusing on the biotechnology market; accordingly, there is no assurance that
additional funding will be available, or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing
securities, further dilution, possibly substantial, to existing stockholders
will likely result. The Company may enter into additional collaborative
relationships to develop and commercialize certain of its current or future
technologies or products. There is 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 not attempted to establish bank
financing arrangements, and there is no assurance that it would 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 discontinue one or more of its drug discovery programs, clinical trials
or other aspects of its operations, or obtain funds through arrangements with
collaborative partners or others which may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would not otherwise relinquish or at prices below what the Company would
otherwise choose to accept for relinquishing such rights.
IMPACT OF THE YEAR 2000
Any date fields in computer systems coded to accept only two digits
will be unable to properly interpret dates beyond the end of 1999, which could
lead to business interruptions commonly referred to as the "Year 2000" or "Y2K"
issue.
In August 1998, Corvas established an internal task force to address
the impact of any potential Y2K disruptions and administer the Company's Y2K
program. The task force meets regularly to review potential exposure of the
Company's information systems, laboratory and office equipment, corporate
infrastructure, key vendors and suppliers, corporate partners, communication and
utility providers, financial institutions and certain governmental agencies.
This assessment of both internal systems and external providers is an ongoing
process which will continue into the year 2000. The task force has completed an
initial inventory and review of all hardware and software, and has begun the
testing on items deemed to be critical in nature. As of June 30, 1999, the
Company's review of its financial, informational and operational systems had not
identified any material Y2K issues, and the Company does not expect costs
connected with remediation, if any, to be material.
8
<PAGE>
In addition to risks associated with the Company's internal operating
systems, the Company is potentially vulnerable to failure by third parties to
adequately address their Y2K issues. Corvas continues to access the readiness of
its key third parties by monitoring such parties' readiness statements. To date,
no significant issues have been identified relating to third party vendors.
However, there is no assurance that the systems of third parties on which the
Company relies will be Y2K ready, or that any system failure by such parties
would not have a material adverse effect on the Company. Corvas believes that
its most likely exposure will be from third parties that fail to remediate their
Y2K issues. The Company has developed a contingency plan that identifies and
addresses material risks to Corvas in the event of third party system failures.
The plan specifically addresses potential power outages and outlines steps to
avoid problems relating to contract manufacturing and drug shipments for
clinical trials.
As the Company continues its ongoing evaluation of the impact of Y2K
issues, there is no assurance that additional costs and efforts will not be
required which may have a material adverse impact on the Company's business,
financial condition or results of operations. Furthermore, the Y2K issue is
complex and there is no assurance that the Company will be able to address any
problems that may arise without incurring a material adverse effect on the
Company's business, financial condition or results of operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company invests its excess cash in short-term, high quality fixed
income investments that are held to maturity. The Company does not invest in
derivative financial instruments or any other market risk sensitive instruments.
Interest income earned on the Company's short-term investment portfolio is
affected by changes in the general level of interest rates. The Company believes
that its interest rate market risk is limited, and that it is not exposed to
significant changes in fair value because such investments are held to maturity.
The fair value of each investment approximates its amortized cost.
9
<PAGE>
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In March 1999, the Company was served with a Complaint in the Superior
Court of California, County of San Diego, by a former employee of the Company
who is also a principal shareholder of VGI. The Complaint consisted of several
allegations including, among others, violation of the Labor Code and breach of
contract. The Company continues to deny all claims and allegations and maintains
this denial as part of a Settlement Agreement and Mutual General Release reached
in July 1999. All amounts due under this agreement will be paid in the third
quarter of 1999.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was scheduled on May
24, 1999 at which time the Board adjourned such meeting. The annual meeting was
reconvened and held on June 22, 1999. The matters described below were submitted
to a vote of stockholders. The Company had 15,141,588 shares of common stock,
1,000,000 shares of Series A convertible preferred stock and 250,000 shares of
Series B convertible preferred stock outstanding as of March 31, 1999, the
record date for the annual meeting. At the annual meeting, holders of a total of
13,885,711 shares of common and preferred stock were present in person or
represented by proxy.
a. Election of Class I Director for a three-year term expiring at the 2002
annual meeting. In light of the recent retirement of W. Leigh Thompson,
Jr., M.D., Ph.D., the director that was nominated by the Board in the
Proxy Statement, the Board, pursuant to its authority, nominated George
P. Vlasuk, Ph.D. to serve on the Board until the 2002 annual meeting
and until a successor is duly elected and qualified. Dr. Vlasuk was
nominated for election as the Class I director and the proxies that had
been submitted were voted for Dr. Vlasuk.
Name Shares voting for Shares withheld
---- ----------------- ---------------
George P. Vlasuk, Ph. D. 11,842,047 1,243,664
Class II Directors continuing in office until the 2000 annual meeting:
Michael Sorell, M.D.
Nicole Vitullo
Class III Directors continuing in office until the 2001 annual meeting:
M. Blake Ingle, Ph.D.
Randall E. Woods
10
<PAGE>
b. A proposal to ratify the appointment of KPMG LLP as independent
auditors for the Company for the fiscal year ending December 31, 1999.
For 13,044,404
Against 30,757
Abstain 810,550
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit Number Description
-------------- -----------
10.59 Thirteenth Amendment to Lease Agreement for
3030 Science Park Road, San Diego, California
between the Company and Hub Properties Trust,
dated as of June 15, 1999.
10.60 Letter of Agreement between the Company and
Schering Corporation and Schering-Plough Ltd.,
dated as of June 23, 1999.
10.61 Second Amendment Agreement between the
Company and Schering Corporation and
Schering-Plough Ltd., effective as of June 29,
1999. 1
10.62 Second Amendment to Amended and Restated
Secured Promissory Note between the Company and
Randall E. Woods and Nancy Saint Woods, dated
as of July 7, 1999.
10.63 Settlement Agreement and Mutual General Release
between the Company and Vascular Genomics Inc.
and its stockholders, dated as of July 26,
1999, with certain exhibits thereto.
10.64 Amendment to Settlement Agreement and Mutual
General Release between the Company and
Vascular Genomics Inc. and its stockholders,
effective as of July 26, 1999.
27.1 Financial Data Schedule.
b. Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended June
30, 1999.
- - ----------------
1 Confidential treatment has been requested from the Securities and Exchange
Commission for portions of this exhibit.
11
<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: August 12, 1999 By: /s/ RANDALL E. WOODS
---------------------------------------
Randall E. Woods
President and Chief Executive Officer
Date: August 12, 1999 By: /s/ CAROLYN M. FELZER
---------------------------------------
Carolyn M. Felzer
Senior Director of Finance
Principal Financial Officer
12
<PAGE>
THIRTEENTH AMENDMENT
--------------------
This Thirteenth Amendment to that certain lease (this "THIRTEENTH
AMENDMENT") dated as of the 15 day of June, 1999, between HUB PROPERTIES TRUST,
a Maryland real estate investment trust ("LANDLORD") and CORVAS INTERNATIONAL,
INC., a Delaware corporation ("TENANT").
WHEREAS, Hartford Accident and Indemnity Company (the "ORIGINAL
LANDLORD") and Corvas, Inc. (the "ORIGINAL TENANT") entered into a certain lease
dated March 28, 1989 of a portion of the premises located at 3030 Science Park
Road, San Diego, California (the "PROPERTY"), as amended by certain Lease
Amendments dated March 23, 1990 and May 18, 1990; and
WHEREAS, Corvas International, Inc., a California corporation
("CORVAS") succeeded to the interests of Original Tenant under the lease as set
forth in Consent to Assignment of Lease dated March 13, 1991; and
WHEREAS, Original Landlord and Corvas entered into a Third Lease
Amendment dated May 16, 1991; Fourth Lease Amendment dated January 21, 1992;
Fifth Lease Amendment dated April 15, 1992; Sixth Lease Amendment dated July 16,
1992; and Seventh Lease Amendment dated January 18, 1993;
WHEREAS, Tenant succeeded to the interest of Corvas as set forth in
Consent to Assignment of Lease dated September 14, 1993; and
WHEREAS, Talcott Realty I Limited Partnership succeeded to the interest
of Original Landlord; and
WHEREAS, Talcott and Tenant entered into an Eighth Lease Amendment
dated July 7, 1995 and a Ninth Lease Amendment dated March 15, 1996; and
WHEREAS, Landlord has succeeded to the interest of Talcott as set forth
in Assignment and Assumption of Leases, Contracts and Other Property Interests
dated December 5, 1996; and
WHEREAS, Landlord and Tenant entered into a Tenth Amendment to Lease
dated May 12, 1997; Eleventh Amendment to Lease dated April 23, 1998; and
Twelfth Amendment to Lease dated March 9, 1999; and
WHEREAS, for purposes of this Thirteenth Amendment, the
above-referenced lease dated March 28, 1989 as amended on March 23, 1990; May
18, 1990; May 16, 1991; January 21, 1992; April 15, 1992; July 16, 1992; January
18, 1993; July 7, 1995; March 15, 1996, May 12, 1997; April 23, 1998, and March
9, 1999 shall be hereinafter defined collectively as "the LEASE"; and
<PAGE>
-2-
WHEREAS, Tenant desires to increase the size of the Premises by an
additional 1,160 rentable square feet and Landlord is willing to agree to such
expansion upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, Landlord and Tenant agree that the Lease is hereby amended as
follows:
1. The definition of "PREMISES" shall be amended by adding the
following to the definition as amended in Section l(a) of the Eighth Lease
Amendment: "(the "EXISTING SPACE") and, commencing on the Suite 201(E)
Commencement Date (as hereinafter defined) and thereafter for the remainder of
the term, the Existing Space plus 1,160 rentable square feet of area ("SUITE
201E").
2. The definition of "BASE RENT" set forth in Section II.G of the Lease
shall be amended by deleting all rent set forth in the Lease from the date
10/01/98 and thereafter and inserting the following in its place:
BASE RENT
LEASE PERIOD PER ANNUM
------------ ---------
"10/01/98 to 05/31/99: $1,005,934.48
06/01/99 to 09/30/99: $1,038,646.48
10/01/99 to 09/30/00: $ 883,562.40
10/01/00 to 09/30/01: $ 914,487.08
10/01/01 to 09/30/02: $ 946,494.03
10/01/02 to 09/30/03: $ 979,621.43
10/01/03 to 09/30/04: $1,013,908.18
10/01/04 to 09/30/05: $1,049,394.96
10/01/05 to 09/30/06: $1,086,123.79"
3. The definition of "MONTHLY INSTALLMENTS OF BASE RENT" set forth in
Section II.H of the Lease shall be amended by deleting all rent set forth in the
Lease from the date 10/01/98 and thereafter and inserting the following in its
place:
BASE RENT
LEASE PERIOD PER MONTH
------------ ---------
"10/01/98 to 05/31/99: $ 83,827.87
06/01/99 to 09/30/99: $ 86,553.88
10/01/99 to 09/30/00: $ 73,630.20
10/01/00 to 09/30/01: $ 76,207.26
10/01/01 to 09/30/02: $ 78,874.51
10/01/02 to 09/30/03: $ 81,635.12
10/01/03 to 09/30/04: $ 84,492.35
10/01/04 to 09/30/05: $ 87,449.58
10/01/05 to 09/30/06: $ 90,510.32"
<PAGE>
-3-
4. Section II.W.a.(a) of the Lease shall be amended by deleting all
amounts listed from the date 10/01/98 and thereafter and inserting the following
in its place:
PER SQ. FT.
LEASE PERIOD RATE
------------ ----
"10/01/98 to 05/31/99: $33.34
06/01/99 to 09/30/99: $33.34 as to the Existing Space plus
$28.20 as to Suite 201E
10/01/99 to 09/30/00: $28.20
10/01/00 to 09/30/01: $29.19
10/01/01 to 09/30/02: $30.21
10/01/02 to 09/30/03: $31.27
10/01/03 to 09/30/04: $32.36
10/01/04 to 09/30/05: $33.49
10/01/05 to 09/30/06: $34.67"
5. Section II.D of the Lease shall be amended by inserting the
following definition:
"SUITE 201E COMMENCEMENT DATE. The Suite 201E Commencement Date shall
be June 1, 1999. Landlord shall deliver and Tenant shall accept Suite 201E in
"as is" condition. Tenant shall, at its sole cost and expense, have plans
("TENANT'S PLANS") prepared for the initial improvements to Suite 201E, and
shall submit Tenant's Plans to Landlord for its approval (which approval shall
not be unreasonably withheld or delayed). Any disapproval shall be accompanied
by a specific statement of reasons therefor and Tenant shall promptly revise and
resubmit such Plans in order to obtain Landlord's approval thereof. Promptly
after approval of Tenant's Plans, Tenant shall exercise all reasonable efforts
to complete the work specified therein (collectively "TENANT'S WORK") on or
before June 1, 1999.
6. Section II.P and Section 36 of the Lease of shall be amended to
reflect the total number of unreserved Parking Spaces to be 105 spaces.
7. Effective June 1, 1999, (i) Section 8 of the Twelfth Amendment to
Lease dated March 9, 1999, by and between Landlord and Tenant shall be deleted
in its entirety, and (ii) Section II.L. of the Lease shall be amended to reflect
that Tenant shall, for the period commencing June 1, 1999 and expiring September
30, 1999, increase the amount of the Security Deposit required under the Lease
and deliver to Landlord a second clean irrevocable Letter of Credit (the "JUNE 1
LETTER OF CREDIT") in the amount of $8,178.00; and, effective October 1, 1999,
Tenant shall increase the amount of the Security Deposit for the period
commencing October 1, 1999 and thereafter for the remainder of the term, and
deliver to Landlord a third clean irrevocable Letter of Credit (the "OCTOBER 1
LETTER OF CREDIT") in the amount of $212,712.00, each being in a form acceptable
to Landlord upon the following terms and conditions. The June 1 Letter of Credit
and the October 1 Letter of Credit are hereinafter collectively referred to as
the "LLC":
<PAGE>
-4-
The LLC shall (a) be unconditional and irrevocable and otherwise in
form and substance satisfactory to Landlord; (b) be at all times in the amount
of the Security Deposit, and shall permit multiple draws without a corresponding
reduction in the amount of the LLC; (c) be issued by a commercial bank
reasonably acceptable to Landlord from time to time; (d) be made payable to, and
expressly transferable and assignable at no charge by, the owner from time to
time of the Property (which transfer/assignment shall be conditioned only upon
the execution by such owner of a written document in connection with such
transfer/assignment; (e) be payable at sight upon presentment to a local branch
of the issuer of a simple sight draft accompanied by a certificate of Landlord
stating either that Tenant is in default under the Lease or that Landlord is
otherwise permitted to draw upon such LLC under the express terms of the Lease,
and the amount that Landlord is owed (or is permitted to draw) in connection
therewith; and (f) shall either expire ninety (90) days following the expiration
of the term of the Lease, or be replaced not less than thirty (30) days prior to
the expiration of the then current LLC so that the original LLC or a replacement
thereof shall be in full force and effect throughout the term of the Lease and
for a period of ninety (90) days thereafter. Tenant shall deliver to Landlord
any replacement LLC not less than thirty (30) days prior to the expiration of
the then current LLC. If Landlord transfers the Security Deposit to any
transferee of the Property or Landlord's interest therein, then such transferee
shall be liable for the return of the Security Deposit, and Landlord shall be
released from all liability for the return thereof. Notwithstanding anything in
this Lease to the contrary, any grace period or cure periods which are otherwise
applicable, shall not apply to any of the foregoing, and, specifically, if
Tenant fails to comply with the requirements of subsection (f) above, Landlord
shall have the immediate right to draw upon the LLC in full and hold the
proceeds thereof as a cash security deposit. Each LLC shall be issued by a
commercial bank that has a credit rating with respect to certificates of
deposit, short term deposits or commercial paper of at least P-2 (or equivalent)
by Moody's Investor Service, Inc., or at least A-2 (or equivalent) by Standard &
Poor's Corporation. If the issuer's credit rating is reduced below P-2 (or
equivalent) by Moody's Investor Service, Inc., or at least A-2 (or equivalent)
by Standard & Poor's Corporation, or if the financial condition of the issuer
changes in any other materially adverse way, then Landlord shall have the right
to require that Tenant obtain from a different issuer a substitute LLC that
complies in all respects with the requirements of this Section, and Tenant's
failure to obtain such substitute LLC within ten (10) days after Landlord's
written demand therefor (with no other notice, or grace or cure period being
applicable thereto) shall entitle Landlord to immediately draw upon the existing
LLC in full, without any further notice to Tenant. Tenant warrants and
represents that it has dealt with no broker in connection with the execution of
this Thirteenth Amendment to Lease and Tenant agrees to indemnify Landlord and
hold it harmless from and against any and all brokerage claims arising
therefrom.
<PAGE>
-5-
8. Except as herein specifically amended, this Lease is hereby ratified
and confirmed.
IN WITNESS WHEREOF, the parties have hereto executed this Thirteenth
Amendment the date first abovewritten.
LANDLORD:
HUB PROPERTIES TRUST, a Maryland real estate
investment trust
By: /S/ DAVID M. LEPORE
----------------------------------------
Name: David M. Lepore
Its: Sr. Vice President
TENANT:
CORVAS INTERNATIONAL, INC., a Delaware
corporation
By: /S/ RANDALL E. WOODS
---------------------------------------
Name: Randall E. Woods
Its: President and CEO
<PAGE>
[LETTERHEAD OF SCHERING CORPORATION]
June 23, 1999
Mr. Randall E. Woods
President and Chief Executive Officer
Corvas International, Inc.
3030 Science Park Road
San Diego, California 92121
RE: Factor Xa Research Programs
Dear Mr. Woods:
This "Letter of Agreement" is in reference to the Agreement by and
between Corvas International, Inc. ("Corvas") and Schering Corporation and
Schering-Plough Ltd. (collectively "Schering"), effective as of December 14,
1994, as amended (the "Agreement").
The current term of the Research Program will expire on September 14,
1999, unless extended by the parties pursuant to the Letter of Agreement dated
December 15, 1998. This is to confirm the parties' agreement to extend until
August 15, 1999 the deadline for notification of extension of the term of the
Factor Xa Research Program.
Please confirm Corvas' agreement to the provisions set forth in this
Letter of Agreement by signing below on behalf of Corvas and returning one
signed original to Schering.
Very truly yours,
LEGAL REVIEW LEGAL REVIEW
SCHERING CORPORATION SCHERING -PLOUGH LTD.
/s/ DAVID POORVIN, PH.D. /s/ DAVID POORVIN, PH.D.
--------------------------- ---------------------------
David Poorvin, Ph.D. David Poorvin, Ph.D.
Vice President Prokurist
Acknowledged and Agreed to CORVAS INTERNATIONAL, INC.
By: /s/ RANDALL E. WOODS
----------------------
Date: June 24, 1999
--------------------
cc: Corporate Secretary, Corvas International
Cooley Godward LLP
Cecil B. Pickett, Ph.D.
Ashit Ganguly, Ph.D.
Richard Chipkin, Ph.D.
<PAGE>
***TEXT OMITTED AND FILE SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SS.SS. 200.80(B)(4),
200.83 AND 240.24B-2
SECOND AMENDMENT AGREEMENT
--------------------------
This Second Amendment Agreement ("Amendment No.2") effective as of the
last date on the signature page hereof, by and between Corvas International,
Inc. ("Corvas") and Schering Corporation and Schering-Plough Ltd. (collectively
"Schering") amends and supplements that certain Collaboration and License
Agreement among Corvas and Schering effective December 14, 1994, as amended by:
the Letter of Understanding signed on December 17, 1996; the Letter of
Agreement, dated December 15, 1998, extending the term of the Factor Xa Research
Program; and the Amendment Agreement dated February 18, 1999 (collectively, the
"Agreement").
The parties hereby agree to further amend the Agreement as follows:
Except as expressly defined herein, all capitalized terms shall have
the meanings set forth in the Agreement, as amended.
1. The parties acknowledge that during the term of the Agreement, Schering shall
have the right, in its sole discretion, to screen Program Thrombin Inhibitors
and/or Program Factor Xa Inhibitors against any of Schering's biological targets
to determine whether such compounds have activity other than as a Thrombin
Inhibitor or Factor Xa Inhibitor (hereinafter an "Alternative Activity").
2. In the event that a Program Thrombin Inhibitor and/or Program Factor Xa
Inhibitor is determined by Schering to have Alternative Activity (hereinafter an
"Active Compound"), Schering shall have the right, in its sole discretion, to
initiate a research program based upon such Active Compounds. The research
program may include medicinal chemistry and/or biological research to modify an
Active Compound and/or create Derivative Compounds (as defined in Paragraph 3 of
this Amendment No. 2) for pre-clinical, clinical and/or commercial development.
Any such research program undertaken by Schering pursuant to this Amendment No.2
will be outside the scope of the Factor Xa Research Program.
3. The term "Derivative Compound" shall mean a compound derived by or on behalf
of Schering from an Active Compound, and having Alternative Activity against the
same biological target as such Active Compound. For purposes of this Amendment
No. 2, a compound shall be deemed to have been "derived" from an Active Compound
if it is: (i) a chemical modification made to an Active Compound; (ii) otherwise
derived from a chemical synthesis program based on an Active Compound; (iii)
based on proprietary structure-function data obtained from Active Compounds; or
(iv) developed through the material use of Know-How owned by Corvas.
4. Subject to the terms and conditions set forth in Paragraphs 5, 6, 7 and 8 of
this Amendment No.2, Active Compounds and Derivative Compounds shall be deemed
to be Licensed Compounds under the Agreement.
1.
<PAGE>
5. Notwithstanding anything in the Agreement to the contrary, Schering shall
have [...***...] payment obligations to Corvas under Sections 2.5, 2.6, 2.7,
2.8, 2.9, 2.10, 2.11 or 2.12 of the Agreement with respect to Active Compounds
and/or Derivative Compounds discovered and developed by Schering for an
Alternative Activity and not as a Thrombin Inhibitor or Factor Xa Inhibitor. In
addition, the Earned Royalty payable by Schering (under Article III of the
Agreement) on Net Sales of Licensed Products and Licensed Combinations
containing an Active Compound or Derivative Compound, discovered and developed
by Schering for an Alternative Activity and not as a Thrombin Inhibitor or
Factor Xa Inhibitor, as the only ingredient which is a Licensed Compound shall
be fixed at the rate of:
(i) [...***...] percent of Net Sales for Licensed Products in
countries in the Territory where the Active Compound or Derivative
Compound contained in the Licensed Product is specifically
disclosed and claimed in any of the Patent Rights; or
(ii) [...***...] percent of Net Sales for Licensed Products not subject
to Paragraph 5(i), above; or
(iii) for Licensed Combinations at the corresponding rate determined in
accordance Section 1.7B of the Agreement and Paragraph 5(i) or
5(ii) of this Amendment No.2, as appropriate.
The foregoing notwithstanding, [...***...] royalties shall be due with respect
to sales of Licensed Products or Licensed Combinations containing a Licensed
Compound which is conceived more than [...***...] years after the term of the
Factor Xa Research Program
6. Schering shall notify Corvas in writing:
(i) of any and all Active Compounds that are identified; and
(ii) upon filing of a New Drug Application for a Licensed Product or
Licensed Combination containing an Active Compound and/or
Derivative Compound for any Alternative Activity.
Schering will have no other reporting obligations under the Agreement or this
Amendment No.2 with respect to its research and development activities relating
to Active Compounds and/or Derivative Compounds. Schering shall provide Corvas
with written notice of the First Commercial Sale of each Licensed Compound
and/or Licensed Combination containing an Active Compound or Derivative Compound
for which royalties are payable hereunder.
7. Schering will be solely responsible for all decisions relating to the
selection, development and commercialization of Active Compounds and/or
Derivative Compounds for any Alternative Activity. Schering shall use diligent
efforts to develop and commercialize itself or through its Affiliate(s) or
sublicensee(s) Licensed Products and/or Licensed Combinations containing an
Active Compound or Derivative Compound discovered and developed by Schering for
an Alternative Activity and not as a Thrombin Inhibitor or Factor Xa Inhibitor.
Diligence efforts shall be comparable to those efforts Schering makes with
respect to its own pharmaceutical products of comparable market potential and
status. The diligence obligations set forth in Sections 4.6 and 4.7 of the
Agreement shall not apply to the development and commercialization of such
Active Compounds and Derivative Compounds.
- - --------
* CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE>
8. Schering's diligence obligations under Paragraph 7 of this Amendment No.2 are
expressly conditioned upon the continuing absence of any adverse condition or
event which warrants a delay in commercialization of a Licensed Product and/or
Licensed Combination, including, but not limited to, an adverse condition or
event relating to the safety or efficacy of a Licensed Product or Licensed
Combination, unfavorable labeling, pricing or pricing reimbursement approvals,
or lack of regulatory approval, and the obligation of Schering to develop or
market any such Licensed Product or Licensed Combination shall be delayed or
suspended so long as in Schering's reasonable opinion any such condition or
event exists.
9. Notwithstanding the terms of Article VI of the Agreement, Schering shall be
responsible, at Schering's expense for the filing, prosecution, maintenance and
defense of any patent applications or patents relating to Derivative Compounds
and/or the use of any ActiveCompounds and/or Derivative Compounds for an
Alternative Activity.
Except as expressly amended and supplemented hereby, all other terms of
the Agreement and the Extension Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be executed in duplicate by their duly authorized representatives.
CORVAS INTERNATIONAL, INC. SCHERING CORPORATION
BY: /s/ RANDALL E. WOODS BY: /s/ DAVID POORVIN
---------------------------------- ------------------------------
NAME: Randall E. Woods NAME: David Poorvin
-------------------------------- ----------------------------
TITLE: President & CEO TITLE: Vice President
------------------------------- ---------------------------
DATE: June 29, 1999 DATE: 6/25/99
--------------------------------- ----------------------------
SCHERING-PLOUGH LTD.
BY: /s/ DAVID POORVIN
------------------------------
NAME: David Poorvin
----------------------------
TITLE: Prokurist
---------------------------
DATE: 6/25/99
----------------------------
3.
<PAGE>
SECOND AMENDMENT TO
AMENDED AND RESTATED SECURED PROMISSORY NOTE
$277,500 July 7, 1999
This SECOND AMENDMENT to that certain Amended and Restated Secured
Promissory Note, dated August 28, 1997 as amended by that First Amendment to
Amended and Restated Secured Promissory Note dated September 17, 1998 (as so
amended, the "Amended Promissory Note"), by and between Randall E. Woods and
Nancy Saint Woods, a married couple residing in the State of California
("Borrowers") and Corvas International, Inc. ("Lender"), is entered into
effective as of July 7, 1999 (the "Effective Date") by and between Borrowers and
Lender (the "Second Amendment").
WHEREAS, on August 28, 1997, Mr. Woods executed the Amended and
Restated Secured Promissory Note in the principal amount of $152,500 (the
"Amended Note");
WHEREAS, on September 17, 1998, Borrowers executed the First Amendment
to Amended and Restated Secured Promissory Note, which amended certain terms of
the Amended Note (the "First Amendment");
WHEREAS, Borrowers and Lender desire to further amend the Amended
Promissory Note to extend the Maturity Date and to advance additional dollars
hereunder, and
WHEREAS, except as otherwise provided herein, all capitalized terms
used in this Amendment shall have the meanings set forth in Agreement.
NOW THEREFORE, for value received and in consideration of the promises
and mutual agreements contained herein, the parties hereto agree as follows:
1. AMENDMENT OF PRINCIPAL AMOUNT. The principal amount of the Amended
Promissory Note is hereby increased to Two Hundred Seventy-Seven Thousand Five
Hundred Dollars ($277,500), which amount shall replace the amount $152,500 in
each place it appears in the Amended Promissory Note.
1.
<PAGE>
2. AMENDMENT OF MATURITY DATE. The following new Section G is added to
the Amended Promissory Note, immediately following Section F, which Section F
was added by the First Amendment:
G. As approved by resolution of the Board of Directors of Lender at a
meeting of the Compensation and Stock Option Committee of the Board held July 6,
1999, Borrowers and Lender desire to further amend the Amended Note to provide
that the final maturity date of the Amended Note, as defined therein, is
extended to the earliest of (i) August 28, 2000, (ii) the settlement or other
final determination of the Lawsuit and (iii) the date which is ninety days after
any termination of employment by Mr. Woods with Lender for any reason or no
reason (with or without cause).
Other than expressly amended and stated herein, no other aspect of
the Amended Promissory Note, as amended, is altered by this Second Amendment,
including, without limitation, the security interest granted in Section 3 of the
Amended Promissory Note, and Borrowers expressly agree that the Collateral is
security for all obligations under the Amended Promissory Note, as amended
hereby.
IN WITNESS WHEREOF, Borrowers have executed this Second Amendment as of
the date and year first above written.
BORROWERS:
/s/ RANDALL E. WOODS
-------------------------
Randall E. Woods
/s/ NANCY SAINT WOODS
-------------------------
Nancy Saint Woods
2.
<PAGE>
SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE ("Agreement") is
made and entered into as of the date last written below (the "Effective Date"),
by and between, CORVAS INTERNATIONAL, INC. ("Corvas"), a Delaware corporation,
on the one side, and, VASCULAR GENOMICS INC. ("VGI") a Delaware corporation, and
its stockholders, Jan Schnitzer, Harry Gruber, Dennis Berman, Bruce Jacobson and
Isaac Willis (the "VGI Stockholders"), on the other side. (Corvas, VGI and the
VGI Stockholders are collectively referred to as the "Parties.")
RECITALS
WHEREAS, the Parties entered into that certain Option Agreement, dated
June 29, 1997, pursuant to which Corvas obtained an option to acquire VGI (the
"Option Agreement");
WHEREAS, the Parties also entered into that certain Research and
Development Agreement, dated June 29, 1997, pursuant to which VGI retained
Corvas to conduct certain research and development and granted to Corvas an
exclusive worldwide license to practice certain of VGI's proprietary technology
and to grant sublicenses with VGI's approval (the "Research and Development
Agreement");
WHEREAS, VGI has raised certain issues and asserted certain claims
relating to Corvas' performance under the Option Agreement and the Research and
Development Agreement, including, but not limited to, the assertion in a demand
for arbitration filed with the American Arbitration Association on or about
March 16, 1999, that Corvas is in breach of Section 2.2 of the Research and
Development Agreement (the "Arbitration Demand");
WHEREAS, Corvas disputes any and all issues raised and claims asserted
by VGI;
WHEREAS, the Parties to this Agreement desire to fully and finally
settle, resolve and discharge any and all claims, controversies, demands,
actions or causes of action, arising from or in any way related to the Option
Agreement and the Research and Development Agreement, including, but not limited
to, the termination of the Option Agreement and the Research and Development
Agreement, whether known or unknown, on the terms and conditions set forth
below.
AGREEMENT
NOW, THEREFORE, in consideration of the aforementioned recitals and the
mutual promises, covenants and agreements contained herein, and as a matter of
compromise only, and for consideration of the Parties not taking any further
legal action against each other, the Parties hereto covenant and agree as
follows:
1. In consideration of the termination of the Research and Development
Agreement, termination of the Option Agreement, including the termination of the
Put Right (as that term is defined in the Option Agreement) and all other rights
surviving termination thereof, Corvas' acquisition of Common Stock of VGI and
the settlement of all claims, Corvas shall provide the following consideration
to the VGI Stockholders:
<PAGE>
1.1 Corvas shall pay the VGI Stockholders the aggregate total sum of
One Million and Two Hundred Thousand Dollars ($1,200,000), payable as follows:
1.1.1 Corvas shall pay the VGI Stockholders the aggregate amount of
One Hundred Thousand Dollars ($100,000) within 5 days of Corvas' receipt of a
fully executed original of this Agreement; and
1.1.2 Corvas shall pay the VGI Stockholders the aggregate amount of
One Million and One Hundred Thousand Dollars ($1,100,000) on or before July 30,
1999.
1.1.3 The above payments shall be paid by corporate checks made
payable to "Duckor Spradling & Metzger, Client Trust Account" and shall be
delivered to the VGI Stockholders' counsel, Duckor Spradling & Metzger.
1.2 Concurrent with the execution of this Agreement, Corvas shall
deliver to the VGI Stockholders' counsel, Duckor Spradling & Metzger, Two
Hundred and Fifty Thousand (250,000) shares of Corvas Common Stock pursuant to
the terms of Exhibit C to this Agreement, which is incorporated herein as though
set forth in full and thereby made a part of this Agreement.
2. Within 14 days of receipt by Corvas of a fully executed original of
this Agreement, Corvas shall deliver to VGI, and, to the extent not restricted
by agreements with third parties or otherwise, VGI shall acquire and Corvas
hereby quitclaims to VGI all of Corvas' right, title and interest to that
certain equipment and software described in Exhibit A to this Agreement, which
is incorporated herein as though set forth in full and thereby made a part of
this Agreement. Corvas also shall deliver to VGI a bill of sale for the
equipment delivered to VGI pursuant to this Section. Corvas represents, to the
best of its knowledge, the items set forth on Exhibit A are free and clear of
all claims, liens and encumbrances.
3. Within 14 days of receipt by Corvas of a fully executed original of
this Agreement, Corvas, to the extent it is not restricted by agreements with
third parties and otherwise has the right to do so, shall assign and deliver to
VGI all samples, documents, information, and other materials which embody or
disclose Patent Rights or Improvements (as those terms are defined in the
Research and Development Agreement), including but not limited to, all
information, data and know-how, which were received or developed by Corvas in
connection with Corvas' activities under the Research and Development Agreement.
Corvas represents, to the best of its knowledge, that all such items are set
forth on Exhibit B to this Agreement and no Proprietary Assets (as that term is
defined in the Research and Development Agreement) owned by, or licensed to,
Corvas are necessary for practice of the Patent Rights or Improvements. Corvas
covenants to promptly notify VGI of any items which should have been set forth
on Exhibit B, but were not because they were discovered after the Effective
Date, and to promptly assign and deliver such items to VGI.
4. Concurrent with the execution of this Agreement, VGI, on behalf of the
Stockholders, shall deliver to Corvas shares of VGI non-voting common stock
equal to Six and One-Half Percent (6.5%) of the then outstanding common stock of
VGI on a fully diluted basis pursuant to the terms of Exhibit C to this
Agreement, which is incorporated herein as though set forth in full and thereby
made a part of this Agreement.
<PAGE>
5. Neither VGI nor its stockholders, officers, employees or agents shall
directly, or indirectly, solicit any current employee or officer of Corvas for
employment or collaboration with, or as a consultant to, VGI or any of its
stockholders, officers, employees or agents; provided, however, that upon the
sooner of completion of the deliveries set forth in Sections 2 and 3, above, or
14 days from receipt of Corvas of a fully executed original of this Agreement,
VGI or its Stockholders may solicit Tony Stevens and/or John Kumer for
employment.
6. Upon receipt by VGI of the items described in Sections 1.1, 1.2, and 2,
above, VGI shall immediately withdraw the Arbitration Demand.
7. The Parties hereby agree that the Option Agreement and the Research and
Development Agreement, and all the obligations, rights and licenses thereunder
(including, but not limited to, the rights granted to Corvas by VGI pursuant to
Article 3 of the Research and Development Agreement, the rights and obligations
to VGI assumed by Corvas with respect to the UC License and the BI License held
by VGI as described and defined in Section 4.2 of the Research and Development
Agreement and Exhibit A-1 thereto), are hereby terminated including all rights,
covenants and obligations that survive termination under the Option Agreement
and the Research and Development Agreement as of the Effective Date.
Notwithstanding the foregoing, the Parties shall: (a) cooperate reasonably in
any such litigation maintained by, or assigned to, one of the parties, including
participating as a necessary party, supplying documentary evidence and making
witnesses available who are under the respective parties' control; and (b)
execute such assignments, grants, agreements, licenses, sublicenses or other
documents reasonably necessary to vest VGI with all right, title and interest to
the Patent Rights and Improvements.
8. The Parties hereby agree that for a period of five years after the
Effective Date: (a) Corvas will maintain the confidentiality of any
"Confidential Information" acquired by Corvas from VGI pursuant to the Research
and Development Agreement or acquired or developed by Corvas pursuant to the
Research and Development Agreement; and (b) VGI shall not disclose Corvas'
"Confidential Information" relating to the Improvements except pursuant to an
obligation undertaken by the party to whom it discloses such information to
preserve and not use such Confidential Information, including but not limited
to, an undertaking contained in a sublicense relating to the Improvements issued
by VGI. During the five years after the Effective Date, each party may disclose
the Confidential Information to the extent such disclosure is reasonably
necessary in filing or prosecuting patent applications, prosecuting or defending
litigation or complying with applicable governmental regulations, provided that
if such party is required to make any such disclosure of the Confidential
Information it will to the extent practicable give reasonable advance notice to
the other party of such disclosure requirement and, except to the extent
inappropriate in the case of patent applications, will use its best efforts to
secure confidential treatment of such information required to be disclosed.
The term "Confidential Information" as used herein shall mean: any
confidential or proprietary information, and any other information relating to
any research project, work in process, future development, scientific,
engineering, manufacturing, marketing, business plan, financial or personnel
matter relating to either party, its present or future products, sales,
suppliers, customers, employees, investors or business, whether in oral,
written, graphic or electronic form, that is disclosed by a disclosing party to
a receiving party. Confidential Information shall not include any information
which:
<PAGE>
(a) was already known to the receiving party other than by
disclosure of the disclosing party, at the time of disclosure by the other
party;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the other party;
(c) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement;
(d) was independently developed by the receiving party separate
from the efforts contemplated by the Research and Development Agreement as
supported by competent written proof; or
(e) was disclosed to the receiving party by a third party who had
no obligation to the other party not to disclose such information to others.
9. The Parties hereby agree that Corvas is not obligated to make the
Option Payment, as defined under Section 1.2 of the Option Agreement, due June
1, 1999 or any subsequent Option Payments due on or before the Effective Date,
and Corvas hereby irrevocably waives its right to seek a license from VGI
pursuant to Section 4(b) of the Option Agreement. The Parties also agree that
VGI is not obligated to make any payments under the Research and Development
Agreement due June 1, 1999 or any subsequent payments due on or before the
Effective Date.
10. In exchange for the promises and covenants set forth herein, and in
consideration thereof, the Parties hereby release, acquit and further discharge
each other, and, as applicable, their officers, directors, agents, servants,
employees, stockholders, partners, successors, parent corporations, subsidiary
corporations, assigns, attorneys, affiliates, insurers, customers, vendors,
clients, representatives, and all others, of and from any and all liabilities,
demands, causes of action, costs, expenses, attorneys' fees, damages,
indemnities and obligations of every kind and nature, at law, in equity or
otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed.
11. It is understood and agreed that this is a compromise settlement of
disputed claims and that nothing herein shall be construed to be an admission of
any liability or obligation whatsoever by any party to any other party or to any
other person whomsoever.
12. In giving this release, which includes claims which may be unknown at
present, the Parties represent, warrant and agree that they have been fully
advised by their respective attorneys of the contents of section 1542 of the
Civil Code of the State of California. The Parties expressly waive and
relinquish all rights and benefits under that section and any similar statute or
common law principle of similar effect of any state or territory of the United
States with respect to the claims released hereby. Section 1542 reads as
follows:
<PAGE>
GENERAL RELEASE - CLAIMS EXTINGUISHED. "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."
13. The Parties warrant and represent that there are no liens or claims of
lien or assignments at law, in equity or otherwise, of or against any of the
claims or causes of action released herein and, further that they are fully
entitled and duly authorized to give this complete and final general release and
discharge.
14. The Parties hereby agree and acknowledge that they will keep the terms
and amounts of this Agreement completely confidential, and that neither party
will hereafter disclose or publicize such terms or amounts of the Agreement in
any manner whatsoever; provided however that: (a) the Parties may disclose this
Agreement, in confidence, to their respective attorneys, accountants, auditors,
tax preparers, and financial advisors; (b) the Parties may disclose this
Agreement as necessary to fulfill standard or legally required corporate
reporting or disclosure requirements; and (c) the Parties may disclose this
Agreement insofar as such disclosure may be necessary to enforce its terms or as
otherwise required by law.
15. The Parties shall execute and cause to be delivered to each other party
hereto such instruments and other documents, and shall take such other actions,
as reasonably necessary for the purpose of carrying out or evidencing any of the
transactions contemplated by this Agreement.
16. This Agreement contains the entire agreement between the Parties and
constitutes the complete, final and exclusive embodiment of their agreement with
respect to the subject matter hereof, and all prior or contemporaneous
agreements, understandings, representations and statements, oral or written, are
merged into and superseded by this Agreement. This Agreement may not be modified
except in a writing signed by the Parties. Each party acknowledges and agrees
that they have carefully read this Agreement, and have been afforded the
opportunity to be advised of its meaning and consequences by their respective
attorneys, and signed the same of their free will.
17. Each party to this Agreement will bear its own costs, expenses, and
attorneys' fees, whether taxable or otherwise, incurred in or arising out of or
in any way related to the matters released herein, except that VGI will bear the
shipping costs associated with the deliveries to be made by Corvas pursuant to
Section 2 and 3 herein, including all insurance costs associated therewith.
18. This Agreement shall be deemed to be 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 in California; it shall
be interpreted and construed mutually in accordance with the plain meaning of
the language contained herein and shall not be preemptively construed against
the drafters.
<PAGE>
19. If any term or provision of this Agreement is held by any court to be
void, invalid or unenforceable, in whole or in part, then the remaining terms
and provisions shall nevertheless remain in full force and effect.
20. Venue for any action to enforce or interpret this Agreement or
otherwise arising out of or in any way related to this Agreement shall be the
California Superior Court, County of San Diego.
21. In the event that any party to this Agreement brings an action to
enforce any of the terms of this Agreement, the prevailing party in such action
shall be entitled to an award of attorneys' fees and costs incurred in
connection therewith.
22. Whenever the text hereof requires, the use of the singular shall
include the plural and vice-versa.
23. Any statements, communications or notices to be provided pursuant to
this Agreement shall be sent in writing to the attention of the persons
indicated below, until such time as notice of any change of person to be
notified or change of address is forwarded in writing to all Parties:
If to Corvas:
Cooley Godward LLP
Attention: Michael G. Rhodes
4365 Executive Drive, Suite 1100
San Diego, CA 92122
Telephone: (858) 550-6000
Facsimile: (858) 453-3555
If to VGI:
Duckor Spradling & Metzger
Attention: Kevin M. Bagley
401 West A Street, Suite 2400
San Diego, CA 92101
Telephone: (619) 231-3666
Facsimile: (619) 231-6629
24. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF the Parties have duly authorized and caused this
Agreement to be executed on the date set forth below.
[Signatures on next page]
<PAGE>
CORVAS INTERNATIONAL, INC.:
By: /S/ RANDALL E. WOODS Date: JULY 23, 1999
---------------------------- --------------------------
Randall E. Woods
Chief Executive Officer
VASCULAR GENOMICS INC.:
By: /S/ HARRY GRUBER Date: 7/23/99
---------------------------- --------------------------
Harry Gruber, President
VGI STOCKHOLDERS:
By: /S/ JAN SCHNITZER Date: 7/23/99
---------------------------- --------------------------
Jan Schnitzer
By: /S/ HARRY GRUBER Date: 7/23/99
---------------------------- --------------------------
Harry Gruber
By: /S/ DENNIS BERMAN Date: 7/25/99
---------------------------- --------------------------
Dennis Berman
By: /S/ BRUCE JACOBSON Date: 7-26-99
---------------------------- --------------------------
Bruce Jacobson
By: /S/ ISAAC WILLIS Date: 26 JULY 1999
---------------------------- --------------------------
Isaac Willis
[Signatures continued on next page]
<PAGE>
APPROVED AS TO FORM:
COOLEY GODWARD LLP
By: /S/ MICHAEL G. RHODES Date: JULY 23, 1999
---------------------------- --------------------------
Michael G. Rhodes
Counsel for Corvas International, Inc.
DUCKOR SPRADLING & METZGER
By: /S/ KEVIN M. BAGLEY Date: 7-26-99
---------------------------- --------------------------
Kevin M. Bagley
Counsel for Vascular Genomics Inc.
and VGI Stockholders
<PAGE>
EXHIBIT C
CORVAS INTERNATIONAL, INC.
STOCK EXCHANGE AND
REGISTRATION RIGHTS AGREEMENT
JULY 23, 1999
<PAGE>
CORVAS INTERNATIONAL, INC.
STOCK EXCHANGE AND
REGISTRATION RIGHTS AGREEMENT
THIS STOCK EXCHANGE AND REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT")
is entered into as of the 23rd day of July, 1999, between CORVAS INTERNATIONAL,
INC., a Delaware corporation (the "COMPANY"), Vascular Genomics Inc., a Delaware
corporation ("VGI") and the Stockholders of VGI as set forth on Exhibit A hereto
(the "VGI STOCKHOLDERS"). The Company, VGI and the VGI Stockholders are referred
to as the "Parties".
RECITALS
WHEREAS, pursuant to the terms of the Settlement Agreement and Mutual
General Release of even date herewith entered into between the Company, VGI and
the VGI Stockholders (the "SETTLEMENT AGREEMENT"), the Company proposes to issue
an aggregate of two hundred and fifty thousand (250,000) shares of its Common
Stock (the "Shares") to the VGI Stockholders;
WHEREAS, pursuant to the terms of the Settlement Agreement, the VGI
Stockholders propose to issue an aggregate of sixty-six thousand three hundred
and twenty six (66,326) shares of their non-voting Common Stock (the "VGI
SHARES") to the Company; and
WHEREAS, as a condition of entering into this Agreement and the
Settlement Agreement, the VGI Stockholders have requested that the Company
register the Shares for resale.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties mutually agree as follows:
GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
1.
<PAGE>
"REGISTRABLE SECURITIES" means (a) Common Stock of the Company
issued to the VGI Stockholders; and (b) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public pursuant to Rule 144 or sold in a
private transaction in which the transferor's rights under Section 2 of this
Agreement are not assigned.
"REGISTRATION EXPENSES" means all expenses incurred by the
Company in complying with Section 5.2 hereof, including, without limitation, all
fees and expenses incurred by it incident to the performance of or compliance
with this Agreement by the Company including, without limitation, (i) all
Securities Act and Securities Exchange Act, stock exchange registration and
filing fees, (ii) all fees and expenses incurred in connection with compliance
with state securities or blue sky laws, and (iii) all expenses in preparing or
assisting in preparing, printing any Registration Statement, any prospectus, any
amendments or supplements thereto, other documents relating to the Company's
performance of and compliance with this Agreement, including the Company's legal
and accounting fees, edgarizing the Registration Statement, photo copying and
supplying the VGI Stockholders with photocopies of the Registration Statement.
Such Registration Expenses shall not include expenses, fees and disbursements of
any legal counsel to the VGI Stockholders, any printing costs incurred at the
election of each VGI Stockholder, Selling Expenses and all other expenses, fees
and disbursements incident to any registration either initiated or effected
pursuant to this Agreement which are not explicitly included as Registration
Expenses.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts and
selling commissions applicable to the sale.
"SHARES" means the 250,000 shares of the Company's Common
Stock (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) to be issued to the
VGI Stockholders and their permitted assignees pursuant to this Agreement and
the Settlement Agreement.
"VGI SHARES" means 66,326 shares of VGI's non-voting Common
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares) to be transferred by the VGI
Stockholders to the Company or its permitted assigns pursuant to this Agreement
and the Settlement Agreement.
"VGI STOCKHOLDERS" means the VGI Stockholders of all the
capital stock of VGI and as set forth on EXHIBIT A hereto.
AGREEMENT TO ISSUE SECURITIES
1.2 AUTHORIZATION OF SHARES AND VGI SHARES. On or prior to the
execution of this Agreement, the Company shall have authorized the issuance and
2.
<PAGE>
sale to the VGI Stockholders of the Shares. The Shares shall have the rights,
preferences, privileges and restrictions set forth in the Certificate of
Incorporation of the Company, in the form attached hereto as EXHIBIT B (the
"COMPANY CERTIFICATE OF INCORPORATION"). On or prior to the execution of this
Agreement, VGI shall have approved the sale to the Company of the VGI Shares.
The VGI Shares shall have the rights, preferences, privileges and restrictions
set forth in the Certificate of Incorporation of VGI, in the form attached
hereto as EXHIBIT C (the "VGI CERTIFICATE OF INCORPORATION").
1.3 ISSUANCE AND SALE OF SHARES. Subject to the terms and
conditions hereof and the Settlement Agreement, upon execution of this
Agreement, (a) the Company shall issue to the VGI Stockholders pro rata based
upon each of the VGI Stockholder's percentage ownership of VGI prior to the
issuance of the VGI Shares an aggregate of 250,000 Shares and (b) the VGI
Stockholders shall convey, transfer and assign to the Company 66,326 VGI Shares,
representing 6.5% percentage of the outstanding capital stock of VGI (such
percentage calculated prior to the issuance of 66,326 shares of non-voting stock
to the VGI Stockholders for the sole purpose of transferring such shares to the
Company).
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on a Schedule of Exceptions delivered by the
Company to the VGI Stockholders upon execution of this Agreement, the Company
hereby represents and warrants to the VGI Stockholders as of the date of this
Agreement as follows:
1.4 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, to issue and sell the Shares, and to carry out the provisions of
this Agreement and to carry on its business as presently conducted and as
presently proposed to be conducted.
1.5 CAPITALIZATION.
(a) Immediately prior to the issuance of the Shares, the
authorized capital stock of the Company shall consist of (a) 10,000,000 shares
of Preferred Stock, $.001 par value, of which 1,000,000 shares have been
designated Series A Preferred Stock, $.001 par value, all of which are issued
and outstanding and 250,000 shares have been designated Series B Preferred
Stock, $.001 par value, all of which are issued and outstanding, and 500,000
shares of Series C Junior Participating Preferred Stock, none of which is issued
and outstanding (b) 50,000,000 shares of Common Stock, $.001 par value,
15,230,677 shares of which are issued and outstanding, (c) 1,699,466 shares of
Common Stock reserved for issuance under the Company's stock option plan and
under non-plan options, and (d) 1,983,715 shares reserved for issuance under
outstanding warrants to acquire Common Stock of the Company. As of the date
hereof, all of the outstanding shares of the Company's capital stock have been
duly authorized and validly issued, and are fully paid and nonassessable, except
to the extent that such shares may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein or as otherwise
required by such law at the time a transfer is proposed. The sale of the Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
3.
<PAGE>
1.6 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers, directors and VGI Stockholders necessary
for the authorization of this Agreement and the Settlement Agreement, the
performance of all obligations of the Company hereunder and thereunder and the
authorization, sale, issuance and delivery of the Shares pursuant hereto has
been taken. The Agreement and the Settlement Agreement, when executed and
delivered, will be valid and binding obligations of the Company enforceable in
accordance with their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, (b) general principles of equity
that restrict the availability of equitable remedies, and (c) to the extent that
the enforceability of the indemnification provisions in this Agreement or the
Settlement Agreement may be limited by applicable laws.
1.7 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of the Company Certificate of Incorporation or
Bylaws, or of any provision of any mortgage, indenture, contract, agreement,
instrument or contract to which it is party or by which it is bound or of any
judgment, decree, order, writ. The execution, delivery, and performance of and
compliance with this Agreement, and the issuance and sale of the Shares pursuant
hereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
or the suspension, revocation, impairment, forfeiture or nonrenewal of any
permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.
1.8 GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of the Agreement, or the offer, sale or issuance of the
Shares or the consummation of any other transaction contemplated thereby, except
such filings as may be determined by counsel to the Company to be necessary to
secure an exemption from registration under the Securities Act which filing, if
required, will be accomplished in a timely manner prior to or promptly upon
completion of the issuance of the Shares.
1.9 OFFERING. Subject to the accuracy of the representations set
forth in Section 4 hereof, the offer, sale and issuance of the Shares pursuant
to this Agreement (i) constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act and (ii) is in compliance with
all applicable state securities laws.
1.10 NO DEFAULTS. The Company has, in all material respects,
performed all material obligations required to be performed by it to date and is
not in default under any of the contracts, loans, notes, mortgages, indentures,
licenses, security agreements, agreements, leases, documents, commitments or
other arrangements to which it is a party or by which it is otherwise bound,
except for such defaults which in the aggregate would not have a material
adverse effect on the Company's business, and no event or condition has occurred
which, with the lapse of time or the giving of notice, or both, would constitute
such a default.
4.
<PAGE>
1.11 BROKERS OR FINDERS. The Company has not incurred, and will not
incur, any liability for brokerage or finders' fees or agents' commissions or
any similar charges in connection with this Agreement.
1.12 INVESTMENT REPRESENTATIONS. The Company understands that the
VGI Shares have not been registered under the Securities Act. The Company also
understands that the VGI Shares are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
the Company's representations contained in this Agreement. The Company hereby
represents and warrants as follows:
(a) THE COMPANY BEARS ECONOMIC RISK. The Company has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to VGI so that it is capable of
evaluating the merits and risks of its investment in VGI and has the capacity to
protect its own interests. The Company must bear the economic risk of this
investment indefinitely unless the VGI Shares are registered pursuant to the
Securities Act, or an exemption from registration is available. The Company
understands that VGI has no present intention of registering the VGI Shares, or
any shares of its Common Stock. The Company also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow the Company
to transfer all or any portion of the VGI Shares under the circumstances, in the
amounts or at the times the Company might propose.
(b) ACQUISITION FOR OWN ACCOUNT. The Company is acquiring the
VGI Shares for its own account for investment only, and not with a view towards
their distribution.
(c) THE COMPANY CAN PROTECT ITS INTEREST. The Company
represents that by reason of its, or of its management's, business or financial
experience, the Company has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement. Further, the
Company is aware of no publication of any advertisement in connection with the
transactions contemplated in this Agreement.
(d) ACCREDITED INVESTOR. The Company represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) VGI INFORMATION. The Company has received and read the
business plan and has had an opportunity to discuss VGI's business, management
and financial affairs with directors, officers and management of VGI and has had
the opportunity to review VGI's operations and facilities. The Company has also
had the opportunity to ask questions of and receive answers from, VGI and its
management regarding the terms and conditions of this investment.
(f) RULE 144. The Company acknowledges and agrees that the VGI
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. The
Company has been advised or is aware of the provisions of Rule 144 promulgated
under the Securities Act as in effect from time to time, which permits limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things: the availability of certain
current public information about VGI, the resale occurring following the
required holding period under Rule 144 and the number of shares being sold
during any three-month period not exceeding specified limitations.
5.
<PAGE>
(g) RESIDENCE. The office or offices of the Company in which
its investment decision was made is located at the address or addresses of the
Company set forth on EXHIBIT A.
1.13 TRANSFER RESTRICTIONS. The Company acknowledges and agrees
that the VGI Shares are subject to restrictions on transfer as set forth in this
Agreement.
REPRESENTATIONS AND WARRANTIES OF VGI AND THE VGI STOCKHOLDERS
Except as set forth on a Schedule of Exceptions delivered by VGI and
the VGI Stockholders to the Company, VGI and each of the VGI Stockholders hereby
represent and warrant to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
1.14 ORGANIZATION, GOOD STANDING AND QUALIFICATION. VGI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. VGI has all requisite corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, to approve the sale of the VGI Shares, and to carry out the
provisions of this Agreement and to carry on its business as presently conducted
and as presently proposed to be conducted.
1.15 CAPITALIZATION. Immediately prior to the sale of the VGI
Shares, the authorized capital stock of VGI shall consist of (a) 3,000,000
shares of voting and non-voting Common Stock, $.001 par value, 1,020,408 voting
shares of which are issued and outstanding, (b) 66,326 shares of non-voting
stock (held by the VGI Stockholders for the sole purpose of transferring such
shares to the Company), (c) no options and other rights to acquire Common Stock
under any VGI stock option plan (whether currently outstanding or granted in the
future) any (d) no currently outstanding warrants to acquire Common Stock of
VGI. As of the date hereof, all of the outstanding shares of VGI's capital stock
have been duly authorized and validly issued, and are fully paid and
nonassessable, except to the extent that such shares may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such law at the time a transfer is proposed.
The sale of the VGI Shares are not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with.
1.16 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of VGI, its officers, directors and the VGI Stockholders necessary for
the authorization of this Agreement and the Settlement Agreement and the
performance of all obligations of VGI and the VGI Stockholders hereunder has
been taken. The Agreement and the Settlement Agreement, when executed and
delivered, will be valid and binding obligations of VGI and the VGI Stockholders
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (b) general principles
of equity that restrict the availability of equitable remedies, and (c) to the
extent that the enforceability of the indemnification provisions in this
Agreement or the Settlement Agreement may be limited by applicable laws.
6.
<PAGE>
1.17 COMPLIANCE WITH OTHER INSTRUMENTS. VGI is not in violation or
default of any term of the VGI Certificate of Incorporation or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ. The execution, delivery, and performance of and compliance
with this Agreement, and the issuance and sale of the Shares pursuant hereto,
will not, with or without the passage of time or giving of notice, result in any
such material violation, or be in conflict with or constitute a default under
any such term, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of VGI or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to VGI, its business or operations
or any of its assets or properties.
1.18 GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of VGI or the VGI Stockholders is required in connection
with the valid execution and delivery of this Agreement, or the offer and sale
of the VGI Shares by the VGI Stockholders or the consummation of any other
transaction contemplated thereby.
1.19 SALE. Subject to the accuracy of the representations set forth
in Section 3 hereof, the offer and sale of the VGI Shares pursuant to this
Agreement (i) constitute transactions exempt from the registration requirements
of Section 5 of the Securities Act and (ii) is in compliance with all applicable
state securities laws.
1.20 OWNERSHIP. The VGI Stockholders are the sole beneficial and
record owners of the VGI Shares, free and clear of any lien, pledge, charge,
security interest, encumbrance, title retention agreement, adverse claim,
option, right of first refusal or right of co-sale and, upon the exchange under
this Agreement and the execution of the Settlement Agreement, the Company will
acquire good and valid title thereto, free and clear of any lien, pledge,
security interest, encumbrance, title retention agreement, adverse claim,
option, right of first refusal or co-sale. The VGI Stockholders further
represent and warrant to the Company that the VGI Shares are fully paid and
non-assessable with no personal liability attached to the ownership thereof.
1.21 NO DEFAULTS. VGI has, in all material respects, performed all
material obligations required to be performed by it to date and is not in
default under any of the contracts, loans, notes, mortgages, indentures,
licenses, security agreements, agreements, leases, documents, commitments or
other arrangements to which it is a party or by which it is otherwise bound,
except for such defaults which in the aggregate would not have a Material
Adverse Effect, and no event or condition has occurred which, with the lapse of
time or the giving of notice, or both, would constitute such a default.
1.22 BROKERS OR FINDERS. VGI and the VGI Stockholders have not
incurred, and will not incur, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with the Agreement.
7.
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1.23 INVESTMENT REPRESENTATIONS. Each VGI Stockholder understands
that the Shares have not been registered under the Securities Act. Each VGI
Stockholder also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon his or her representations contained in this Agreement. Each VGI
Stockholder hereby represents and warrants as follows:
(a) THE VGI STOCKHOLDER BEARS ECONOMIC RISK. The VGI
Stockholder has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company so that
it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. The VGI Stockholder
must bear the economic risk of this investment indefinitely unless the Shares
are registered pursuant to the Securities Act, or an exemption from registration
is available. The VGI Stockholder understands that the Company has no present
intention of registering the Shares, or any shares of its Common Stock. The VGI
Stockholder also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow the VGI Stockholder to transfer all or
any portion of the Shares under the circumstances, in the amounts or at the
times the VGI Stockholder might propose.
(b) ACQUISITION FOR OWN ACCOUNT. The VGI Stockholder is
acquiring the Shares for the VGI Stockholder's own account for investment only,
and not with a view towards their distribution.
(c) THE VGI STOCKHOLDER CAN PROTECT ITS INTEREST. The VGI
Stockholder represents that by reason of its, or of its management's, business
or financial experience, the VGI Stockholder has the capacity to protect his or
her own interests in connection with the transactions contemplated in this
Agreement. Further, the VGI Stockholder is aware of no publication of any
advertisement in connection with the transactions contemplated in this
Agreement.
(d) ACCREDITED INVESTOR. The VGI Stockholder represents that
he or she is an accredited investor within the meaning of Regulation D under the
Securities Act.
(e) COMPANY INFORMATION. The VGI Stockholder has received and
read the Company's Annual Report on Form 10-K for the period ended December 31,
1998 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
and a description of the capital stock of the Company and has had an opportunity
to discuss the Company's business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity to
review the Company's operations and facilities. The VGI Stockholder has also had
the opportunity to ask questions of and receive answers from, the Company and
its management regarding the terms and conditions of this investment.
(f) RULE 144. The VGI Stockholder acknowledges and agrees that
the Shares must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
The VGI Stockholder has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act as in effect from time to time, which
8.
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permits limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring following the required holding period under Rule 144 and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(g) RESIDENCE. The VGI Stockholder resides in the state or
province identified in the address of such VGI Stockholder set forth on EXHIBIT
A.
(h) TRANSFER RESTRICTIONS. Each VGI Stockholder acknowledges
and agrees that the Shares are subject to restrictions on transfer as set forth
in this Agreement.
COMPANY REGISTRATION; RESTRICTIONS ON TRANSFER
1.24 RESTRICTIONS ON TRANSFER.
(a) Each VGI Stockholder agrees not to make any disposition of
all or any portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound
by the terms of this Agreement, (B) such VGI Stockholder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (C) if reasonably requested by the Company, such VGI Stockholder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Securities Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any VGI Stockholder thereof if the VGI
Stockholder shall have obtained an opinion of counsel (which counsel may be
9.
<PAGE>
counsel to the Company) reasonably acceptable to the Company to the effect that
the securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
1.25 FORM S-3 REGISTRATION. Within 30 days after the effective date
of the Settlement Agreement, the Company will file a registration on Form S-3
(or any successor to Form S-3) or any similar short-form registration statement
and any related qualification or compliance under the Securities Act (the
"Registration Statement") with respect to all of the Registrable Securities
owned by the VGI Stockholders. The Company agrees to use its reasonable best
efforts to cause the Registration Statement to be declared effective by the SEC
as soon as practicable following filing thereof and thereafter to maintain the
effectiveness of the Registration Statement until the earlier of (i) all
Registrable Securities have been sold pursuant to the Registration Statement or
(ii) one (1) year from the effective date of the Registration Statement.
1.26 EXPENSES OF REGISTRATION. The Company shall pay all
Registration Expenses.
1.27 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement for the period set forth in
Section 5.2 above.
(b) Furnish to the VGI Stockholders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(c) Use its reasonable best efforts to register and qualify
the securities covered by such Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the VGI Stockholders; PROVIDED that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(d) Notify each VGI Stockholder of Registrable Securities
covered by such Registration Statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
10.
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1.28 INFORMATION AND LIMITATIONS ON DISTRIBUTIONS. As a condition
to effecting the registration of any Registrable Securities pursuant to Section
5.2 and maintaining its effectiveness, the Company may require each selling VGI
Stockholder of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding the distribution
of such securities as the Company may from time to time reasonably request in
writing. Notwithstanding any other provision of this Agreement, prior to and
following the effectiveness of any Registration Statement filed pursuant to
Section 5.2 hereunder, the Company may, at any time, suspend the filing of or
the effectiveness of such Registration Statement for up to no longer than
forty-five (45) days, as appropriate (a "SUSPENSION PERIOD"), by delivering a
signed certificate of the Company's Chairman of the Board to the VGI Stockholder
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its Stockholders to disclose
any previously undisclosed material corporate development that would be required
to be disclosed if the Registration Statement is not suspended. The Company will
use its best efforts to minimize the length of any Suspension Period. The VGI
Stockholder agrees that, upon the receipt of any notice from the Company of a
Suspension Period, the VGI Stockholder will not sell any Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until (i) the VGI Stockholder is advised in writing by the Company that the use
of the applicable prospectus may be resumed, (ii) the VGI Stockholder has
received copies of any additional, supplemental or amended prospectus, if
applicable, and (iii) the VGI Stockholder has received copies of any additional
or supplemental filings which are incorporated or deemed to be incorporated by
reference in such prospectus.
1.29 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under Section 5.2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each VGI Stockholder, the partners, officers and directors of
each VGI Stockholder, any underwriter (as defined in the Securities Act) for
such VGI Stockholder and each person, if any, who controls such VGI Stockholder
or underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "VIOLATION") by the Company:
(i) any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such Registration
Statement; and the Company will pay as incurred to each such VGI Stockholder,
partner, officer, director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED HOWEVER,
that the indemnity agreement contained in this Section 5.6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
11.
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if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such VGI Stockholder, partner, officer, director,
underwriter or controlling person of such VGI Stockholder.
(b) To the extent permitted by law, each VGI Stockholder will,
if Registrable Securities held by such VGI Stockholder are included in the
securities as to which such registration qualifications or compliance is being
effected, indemnify and hold harmless the Company, each of its directors, its
officers and each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other VGI Stockholder selling
securities under such Registration Statement or any of such other VGI
Stockholder's partners, directors or officers or any person who controls such
VGI Stockholder, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such director, officer, controlling person,
underwriter or other such VGI Stockholder, or partner, director, officer or
controlling person of such other VGI Stockholder may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such VGI Stockholder under an instrument duly
executed by such VGI Stockholder and stated to be specifically for use in
connection with such registration; and each such VGI Stockholder will pay as
incurred any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or other VGI
Stockholder, or partner, officer, director or controlling person of such other
VGI Stockholder in connection with investigating or defending any such loss,
claim, damage, liability or action if it is judicially determined that there was
such a Violation; PROVIDED, HOWEVER, that the indemnity agreement contained in
this Section 5.6(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the VGI Stockholder, which consent shall not be unreasonably
withheld; PROVIDED FURTHER, that in no event shall any indemnity under this
Section 5.6 exceed the net proceeds from the offering received by such VGI
Stockholder.
(c) Promptly after receipt by an indemnified party under this
Section 5.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 5.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
12.
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the indemnified party under this Section 5.6, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 5.6.
(d) If the indemnification provided for in this Section 5.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; PROVIDED, that in no event shall any contribution by a
VGI Stockholder hereunder exceed the net proceeds from the offering received by
such VGI Stockholder.
(e) The obligations of the Company and VGI Stockholders under
this Section 5.6 shall survive completion of any offering of Registrable
Securities in a Registration Statement and the termination of this agreement. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
1.30 COVENANT REGARDING SALE OF SECURITIES. Each VGI Stockholder
hereby acknowledges and agrees that the disorderly resale of the Shares in the
public market may adversely effect the market price of the Company's Common
Stock. In consideration of the covenants set forth in this Agreement and the
payments made under the Settlement Agreement, each of the VGI Stockholders
hereby covenants that neither such VGI Stockholder nor any combination of VGI
Stockholders shall sell, within any three month period, a total number of the
Shares and other shares of Company's Common Stock owned or controlled by such
VGI Stockholders in excess of the greater of (i) one percent of the total
outstanding shares of Common Stock of the Company as shown by the most recent
report or statement published by the Company, or (ii) the average weekly
reported volume of trading in the Company's Common Stock on the Nasdaq National
Market or such exchange or market in which the Company's Common Stock is then
traded or quoted during the four calendar weeks preceding the proposed sale. All
shares of Company Common Stock sold by any of the VGI Stockholders during any
period of three months shall be aggregated for the purpose of determining the
limitation on the amount of securities sold.
13.
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1.31 RULE 144 REPORTING. With a view to making available to the VGI
Stockholders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act; and
(c) So long as a VGI Stockholder owns any Registrable
Securities, furnish to such VGI Stockholder forthwith upon request: a written
statement by the Company as to its compliance with the reporting requirements of
said Rule 144 of the Securities Act, and of the Exchange Act (at any time after
it has become subject to such reporting requirements); a copy of the most recent
annual or quarterly report of the Company; and such other reports and documents
as a VGI Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.
VGI REGISTRATION; RESTRICTIONS ON TRANSFER
1.32 REGISTRATION RIGHTS. VGI agrees to grant to the Company on a
pari passu basis any current or future registration rights that have been
granted or shall be granted in the future to the VGI Stockholders with respect
to capital stock of VGI owned by the VGI Stockholders as. of the date of this
Agreement. VGI shall take all necessary steps to include the Company as a party
to any such existing agreement and further agreeing to include the Company as a
party to any agreement in the future that shall grant to the VGI Stockholders
any registration rights.
1.33 RESTRICTIONS ON TRANSFER.
(a) The Company agrees not to make any disposition of all or
any portion of the VGI Shares unless and until:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound
by the terms of this Agreement, (B) the Company shall have notified VGI of the
proposed disposition and shall have furnished VGI with a detailed statement of
the circumstances surrounding the proposed disposition, and (C) if reasonably
requested by VGI, the Company shall have furnished VGI with an opinion of
counsel, reasonably satisfactory to VGI, that such disposition will not require
registration of such shares under the Securities Act. It is agreed that VGI will
not require opinions of counsel for transactions made pursuant to Rule 144
except in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Company which is (A) a partnership to its
partners or former partners in accordance with partnership interests, (B) a
14.
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corporation to its stockholders in accordance with their interest in the
corporation, or (C) a limited liability company to its members or former members
in accordance with their interest in the limited liability company; PROVIDED
that in each case the transferee will be subject to the terms of this Agreement
to the same extent as if he were an original party hereunder.
(b) Each certificate representing the VGI Shares shall
(unless otherwise permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR UNLESS VASCULAR GENOMICS, INC. (THE "COMPANY") HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND
ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) VGI shall be obligated to reissue promptly unlegended
certificates at the request of the Company if the Company shall have obtained an
opinion of counsel (which counsel may be counsel to VGI) reasonably acceptable
to VGI to the effect that the securities proposed to be disposed of may lawfully
be so disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by VGI of an order of the
appropriate blue sky authority authorizing such removal.
MISCELLANEOUS
1.34 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
1.35 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Company, VGI
or the VGI Stockholders and the closing of the transactions contemplated hereby.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company or VGI pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company or VGI hereunder solely as of the
date of such certificate or instrument.
1.36 NO ASSIGNMENT. The VGI Stockholders may not assign their
registration rights under this Agreement.
15.
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1.37 ENTIRE AGREEMENT. The Settlement Agreement, this Agreement,
the Exhibits and Schedules hereto and the other documents delivered pursuant
thereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
1.38 SEVERABILITY. In the event one or more of the provisions of
this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
1.39 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement
(other than Section 5) may be amended or modified only upon the written consent
of the Company, VGI and VGI Stockholders holding at least 50% of the outstanding
voting stock of VGI; PROVIDED, HOWEVER, Section 5 of this Agreement may be
amended or modified upon the written consent of the Company and holders of 50%
of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the VGI Stockholders under this Agreement (other
than Section 5) may be waived only with the written consent of the Company, VGI
and VGI Stockholders holding at least 50% of the outstanding voting stock of
VGI; PROVIDED, HOWEVER, Section 5 of this Agreement may be waived only upon the
written consent of the Company and holders of at least 50% of the Registrable
Securities.
1.40 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any VGI Stockholder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval of
any kind or character on any VGI Stockholder part of any breach, default or
noncompliance under the Agreement or any waiver on such VGI Stockholder's part
of any provisions or conditions of this Agreement must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to VGI
Stockholders, shall be cumulative and not alternative.
1.41 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
at the addresses set forth on EXHIBIT A or at such other address as such party
may designate by ten (10) days advance written notice to the other parties
hereto.
16.
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1.42 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
1.43 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
1.44 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
17.
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IN WITNESS WHEREOF, the parties hereto have executed this STOCK
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
CORVAS INTERNATIONAL, INC.
/S/ RANDALL E. WOODS
------------------------------------------
By: Randall E. Woods
Its: President and Chief Executive Officer
VGI:
VASCULAR GENOMICS INC.
------------------------------------------
By: /s/ HARRY GRUBER
-------------------------------------
Its:
-------------------------------------
VGI STOCKHOLDERS:
/s/ JAN SCHNITZER
------------------------------------------
Jan Schnitzer
/s/ HARRY GRUBER
------------------------------------------
Harry Gruber
/S/ DENNIS BERMAN
------------------------------------------
Dennis Berman
/s/ BRUCE JACOBSON
------------------------------------------
Bruce Jacobson
/s/ ISAAC WILLIS
------------------------------------------
Isaac Willis
[SIGNATURE PAGE TO STOCK EXCHANGE AND REGISTRATION RIGHTS AGREEMENT]
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C> <C> <C>
1. General.................................................................................................1
1.1 Definitions....................................................................................1
2. Agreement To Issue Securities...........................................................................2
2.1 Authorization of Shares and VGI Shares.........................................................2
2.2 Issuance of Shares.............................................................................3
3. Representations And Warranties Of The Company...........................................................3
3.1 Organization, Good Standing and Qualification..................................................3
3.2 Capitalization.................................................................................3
3.3 Authorization; Binding Obligations.............................................................4
3.4 Compliance with Other Instruments..............................................................4
3.5 Governmental Consent, etc......................................................................4
3.6 Offering.......................................................................................4
3.7 No Defaults....................................................................................4
3.8 Brokers or Finders.............................................................................5
3.9 Investment Representations.....................................................................5
3.10 Transfer Restrictions..........................................................................6
4. Representations And Warranties Of The VGI Stockholders..................................................6
4.1 Organization, Good Standing and Qualification..................................................6
4.2 Capitalization.................................................................................6
4.3 Authorization; Binding Obligations.............................................................6
4.4 Compliance with Other Instruments..............................................................7
4.5 Governmental Consent, etc......................................................................7
4.6 Offering.......................................................................................7
4.7 No Defaults....................................................................................7
4.8 Brokers or Finders.............................................................................7
4.9 Investment Representations.....................................................................7
5. Company Registration; Restrictions On Transfer..........................................................9
5.1 Restrictions on Transfer.......................................................................9
5.2 Form S-3 Registration.........................................................................10
5.3 Expenses of Registration......................................................................10
5.4 Obligations of the Company....................................................................10
5.5 Information and Limitations on Distributions..................................................10
5.6 Indemnification...............................................................................11
5.7 Covenant Regarding Sale of Securities.........................................................13
5.8 Rule 144 Reporting............................................................................13
6. VGI Registration; Restrictions On Transfer.............................................................14
6.1 Registration Rights...........................................................................14
6.2 Restrictions on Transfer......................................................................14
7. Miscellaneous..........................................................................................15
7.1 Governing Law.................................................................................15
7.2 Survival......................................................................................15
7.3 No Assignment.................................................................................15
7.4 Entire Agreement..............................................................................15
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.5 Severability..................................................................................16
7.6 Amendment and Waiver..........................................................................16
7.7 Delays or Omissions...........................................................................16
7.8 Notices.......................................................................................16
7.9 Attorneys' Fees...............................................................................16
7.10 Titles and Subtitles..........................................................................17
7.11 Counterparts..................................................................................17
</TABLE>
ii.
<PAGE>
AMENDMENT
THE SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE ("Agreement") made
and entered into as of July 26, 1999 by and between CORVAS INTERNATIONAL, INC.
("Corvas"), a Delaware corporation, on the one side, and, VASCULAR GENOMICS INC.
("VGI") a Delaware corporation, and its stockholders, Jan Schnitzer, Harry
Gruber, Dennis Berman, Bruce Jacobson and Isaac Willis (the "VGI Stockholders"),
on the other side, is hereby amended as of the Effective Date as follows:
1. SECTIONS 1.2 AND 4 of the Agreement are amended to read as follows:
1.2 On receipt of the VGI Shares, Corvas shall deliver to the
VGI Stockholders' counsel, Duckor Spradling & Metzger, Two Hundred and
Fifty Thousand (250,000) shares of Corvas Common Stock pursuant to the
terms of Exhibit C to this Agreement, which is incorporated herein as
though set forth in full and thereby made a part of this Agreement.
* * *
4. On or before August 10, 1999, VGI, on behalf of the VGI
Stockholders, shall deliver to Corvas shares of VGI non-voting
common stock equal to Six and One-Half Percent (6.5%) of the then
outstanding common stock of VGI on a fully diluted basis pursuant
to the terms of Exhibit C to this Agreement, which is
incorporated herein as though set forth in full and thereby made
a part of this Agreement.
END OF AMENDMENTS
2. To the extent that the terms of the provisions of this Amendment
conflict or are inconsistent with those of the Agreement, the terms and
provisions of this Amendment shall control and modify those of the Agreement.
Except as so modified, the terms and provisions of the Agreement shall remain in
full force and effect and are incorporated herein by this reference.
3. This Amendment be executed in two or more counterparts, each of which
shall be deemed an original, all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF the Parties have duly authorized and caused this Amendment to
be executed to be effective as of July 26, 1999.
CORVAS INTERNATIONAL, INC.: VASCULAR GENOMICS INC.:
By: /S/ RANDALL E. WOODS By: /S/ HARRY GRUBER
----------------------------- ---------------------------------
Randall E. Woods Harry Gruber, as President and
Chief Executive Officer Individually as a VGI Stockholder
/S/ ISAAC WILLIS /S/ JAN SCHNITZER
----------------------------- ---------------------------------
Isaac Willis Jan Schnitzer
/S/ DENNIS BERMAN /S/ BRUCE JACOBSON
----------------------------- ---------------------------------
Dennis Berman Bruce Jacobson
<PAGE>
APPROVED AS TO FORM:
COOLEY GODWARD LLP
By: /S/ MICHAEL G. RHODES Date:
----------------------------- ----------------------------
Michael G. Rhodes
Counsel for Corvas International, Inc.
DUCKOR SPRADLING & METZGER
By: /S/ KEVIN M. BAGLEY Date:
----------------------------- ----------------------------
Kevin M. Bagley
Counsel for Vascular Genomics Inc.
and Stockholders
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,377
<SECURITIES> 12,399
<RECEIVABLES> 354
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,511
<PP&E> 5,346
<DEPRECIATION> 4,097
<TOTAL-ASSETS> 15,760
<CURRENT-LIABILITIES> 1,956
<BONDS> 0
0
1
<COMMON> 15
<OTHER-SE> 13,788
<TOTAL-LIABILITY-AND-EQUITY> 15,760
<SALES> 0
<TOTAL-REVENUES> 3,336
<CGS> 0
<TOTAL-COSTS> 8,417
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,686)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,686)
<EPS-BASIC> (.31)
<EPS-DILUTED> (.31)
</TABLE>
