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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
For the fiscal year ended December 31, 1996 Commission file number 0-19874
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Neurex Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 77-0128552
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3760 Haven Avenue, Menlo Park, California 94025-1012
(Address of principal executive offices)
(415) 853-1500
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $ .01 par value NASDAQ National Market System
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock of the registrant held
by non-affiliates as of March 11, 1997, was $331,329,660.
The number of shares of Common Stock outstanding at March 11,
1997, was 22,088,644.
DOCUMENTS INCORPORATED BY REFERENCE
(To the extent indicated herein)
Registrant's definitive Proxy Statement which will be filed with the
Securities and Exchange Commission in connection with Registrant's annual
meeting of stockholders to be held on May 15, 1997, is incorporated by reference
into Part III of the Report.
This report on Form 10-K, including all exhibits, contains xxx pages. The
exhibit index is located on pages 58-61 of the Report.
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PART 1
Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K for Neurex Corporation ("Neurex" or
the "Company") contains forward-looking statements including, among other
things: (i) descriptions of the expected therapeutic indications for the
Company's potential products; (ii) the Company's product development and
commercialization timetables; and (iii) various statements concerning the
markets in which the Company's potential products will compete and how the
Company plans to address these markets. All such forward-looking statements are
necessarily only estimates and are subject to a number of risks and
uncertainties which may cause actual results to differ materially from stated
expectations. These risks and uncertainties include, but are not limited to, (i)
the Company's ability to complete clinical development of its products and
obtain timely regulatory approval; (ii) decisions made by regulatory agencies
regarding therapeutic indications for the Company's products; (iii)
technological uncertainties; (iv) the accuracy of the Company's estimates of the
size and characteristics of the markets to be addressed by its products and the
impact of competitive products and pricing on market success; (v) complexities
involving third party product reimbursement; (vi) reliance on collaborative
partners for product development and sales; (vii) complexities and uncertainties
arising from the Company's biotechnology patents; and (viii) other factors and
risks including, but not limited to, those described hereunder in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Annual Report.
ITEM 1. BUSINESS
Overview
Neurex is developing biopharmaceutical products principally for pain
management and the treatment of cardiorenal and neurological diseases. The
Company's two main products are CORLOPAM (fenoldopam) and SNX-111. Both are
currently in advanced stage clinical trials and have potential in multiple
indications. In addition, the Company conducts an active research and licensing
program to expand its product portfolio. The Company's strategy is (i) to
develop and directly market its products for acute care treatment in hospital
settings, such as emergency rooms, intensive care units and pain clinics, in the
United States; and (ii) to enter into collaborative relationships to develop and
market its chronic treatment products in the United States, and all of its
products outside the United States.
On June 21, 1996, the Company submitted a New Drug Application ("NDA")
to the Food & Drug Administration ("FDA") for CORLOPAM. This NDA seeks
approval for intravenous administration of CORLOPAM in patients who require
blood pressure control during and after surgery (perioperative) and for the
treatment of hypertension patients where the administration of oral medication
is not feasible or desirable. During the first half of 1996, the Company
completed one of two small Phase III studies designed to address specific issues
raised by the FDA in response to an NDA filed by SmithKline Beecham
("SmithKline"), the Company's licensor. A second Phase III clinical trial in
patients with malignant hypertension was completed at the end of 1996. There can
be no assurance that the results of these additional studies or the subsequent
NDA filing will ultimately lead to approval by the FDA for marketing of
CORLOPAM. The Company believes CORLOPAM, through its unique mechanism of
action, offers potential advantages over existing therapies in terms of safety,
predictability of response and ease of use. In addition, the action of
CORLOPAM on the kidneys may have a beneficial effect on patients at risk of
renal failure. The Company has already initiated a clinical program to
characterize in some detail the renal effects of the drug and a Phase I study in
healthy volunteers was completed by the end of 1996. The Company intends to
further develop intravenous CORLOPAM and its prodrug form for the treatment of
acute renal failure and congestive heart failure. The Company also has an orally
active prodrug formulation of fenoldopam, the active ingredient in CORLOPAM,
in preclinical development to treat chronic renal failure and congestive heart
failure.
SNX-111, formulated for intrathecal (directly into the spinal canal)
administration, is in Phase III clinical development for the treatment of severe
pain in terminally ill patients suffering from AIDS and cancer. In September
1996, a second Phase III study was initiated in patients who have chronic
intractable neuropathic pain caused by a variety of underlying pathologies.
Based on initial clinical results and discussions with the FDA, the Company
significantly expanded its Phase I/II clinical trials of SNX-111 in early 1996
to include patients with severe pain who are not terminally ill. The Company
believes that the emerging clinical profile of SNX-111 in the treatment of pain
suggests that it may be useful in patients resistant to opiate therapy and in
patients with neuropathic pain for which there is no existing therapy. Neurex
has entered into a collaborative alliance with Medtronic, Inc. ("Medtronic") for
the development and commercialization of SNX-111 for the intrathecal treatment
of chronic pain with Medtronic's implantable pump. The Company received
$2,000,000 from Medtronic upon executing the collaboration agreement, and in
August 1995, Neurex issued an $8,000,000 note (the "Medtronic Note") to
Medtronic. In connection with the Company's directed public offering in October
1995, $6,500,000 of the Medtronic Note, plus interest, converted into common
stock at $4.625 per share and the remaining $1,500,000 converted into a prepaid
development milestone, which, if not earned, will be repaid with interest.
Neurex has retained rights to develop SNX-111 for acute intrathecal analgesic
indications, as well as applications using local administration.
The Company has completed the Phase II clinical development of SNX-111,
formulated for intravenous administration for the treatment of brain damage
following closed head trauma and coronary artery bypass graft ("CABG") surgery.
The Company is also conducting preclinical development of SNX-111 for stroke. In
accordance with the terms of the collaboration, Warner-Lambert will initiate (i)
Phase III clinical trials of SNX-111 for the treatment of head trauma, and (ii)
feasibility studies in stroke in the first half of 1997. Under the Company's
collaborative alliance with Warner-Lambert Company ("Warner-Lambert") for the
development of SNX-111 for the prevention of ischemic damage in these
indications. Under this collaboration, Warner-Lambert and Neurex share
development expenses, product costs and certain marketing rights. Warner-Lambert
purchased $7,000,000 of common stock on September 22, 1993, at the time of the
Company's initial public offering, $1,500,000 on November 13, 1995 at $4.50 per
share and an additional $1,500,000 on March 29, 1996 at $19.93 per share.
The Company focuses its research efforts primarily on the discovery of
new therapeutics which modulate the function of the central and peripheral
nervous systems by regulating nerve cell communication. The Company also
conducts research in (i) programmed cell death (apoptosis) and its link to
neurodegenerative diseases; (ii) the role of potassium channels in demyelinating
diseases such as multiple sclerosis; and (iii) vesicle exocytosis, the
controlled process by which neurotransmitters are released from the nerve
terminal and its role in psychiatric disorders. The Company has also expanded
its interests in the treatment of pain through focusing on a number of programs
including the use of sodium channels.
The Company was incorporated in California in 1983 and changed its
state of incorporation to Delaware in 1986, when it commenced operations. The
Company's executive offices and its research and development facility are
located at 3760 Haven Avenue, Menlo Park, California 94025, and its telephone
number is (415) 853-1500.
Company Strategy
Neurex is developing biopharmaceutical products principally for pain
management and the treatment of cardiorenal and neurological diseases. The
Company's strategy is (i) to develop and directly market its products for acute
care treatment in hospital settings, such as emergency rooms, intensive care
units and pain clinics, in the United States; and (ii) to enter into
collaborative relationships to develop and market its chronic treatment products
in the United States, and all of its products outside the United States. The
Company believes that focusing its resources on developing products for acute
care affords the following significant advantages:
Time to Market. Development of acute care products generally takes less
time than chronic products because the relatively brief clinical
treatment time allows preclinical and clinical studies to be completed
in a shorter period of time.
Cost Savings. The overall cost savings of effective intervention in
acute conditions are more easily demonstrated due to the high cost
setting in which such patients are treated. Products that enable health
care providers to discharge patients from intensive care units faster
or reduce the need for long-term hospital care, offer significant cost
benefits.
Licensing Opportunities. The profile of compounds in large
pharmaceutical company portfolios may become limited to acute care
indications, as the product advances through clinical development.
Consequently, they may fail to meet minimum revenue requirements for
commercialization and become available for in-licensing.
There are a number of important criteria that the Company uses in
identifying potential in-licensing candidates including, among other things, a
unique profile or mechanism of action that offers a potential advance in
treatment, appropriate patent or proprietary protection, and administration of
the product candidate in the hospital setting.
Using this strategy, the Company believes it will be able to build a
product portfolio in various therapeutic areas and to focus its resources on
development and commercialization of products for specialized acute care
markets. The Company continues to review all product development and
commercialization opportunities and strategies to optimize the return on each of
its assets.
If, and when, the Company receives marketing approval for CORLOPAM,
Neurex intends to hire a sales force to market the drug in the United States.
The Company intends to invest significant resources and management time in
developing its sales and marketing organization. Outside of the United States,
the Company's strategy is to market its products in conjunction with corporate
partners, such as the Company's corporate partnership relationship with Beaufour
Ipsen. Neurex intends to use a contract manufacturer for the commercial scale
production of its products, thus deferring the need to invest in manufacturing
infrastructure in the near-term while retaining future flexibility.
Neurex Product Development Programs
The following table summarizes the potential applications and status of
Neurex product development programs and is qualified by reference to the more
detailed descriptions elsewhere. There can be no assurance that any of these
programs will progress beyond its current status. In addition, the Company may
not have any of its products commercially available for sale for more than a
year, if at all.
<TABLE>
Stage of
Program Indication Development (1) Commercial Rights
- ----------------------------- ---------------------------- -------------------- ------------------------------
<S> <C> <C> <C>
CORLOPAM Perioperative
Control of Blood Pressure NDA filed Neurex (4)
Malignant Hypertension NDA filed Neurex (4)
Acute Renal Failure Phase II Neurex (4)
Congestive Heart Failure Phase II Neurex (4)
Fenoldopam Prodrug Chronic Renal Failure Preclinical Neurex
Congestive Heart Failure Preclinical Neurex
SNX-111 for Pain (2) Malignant Phase III Medtronic/Neurex
Chronic Neuropathic Pain Phase III Medtronic
Acute Pain Phase II Neurex
SNX-111 for Ischemia (2) Closed Head Trauma Phase III Warner-Lambert/Neurex(3)
CABG Surgery Phase II Warner-Lambert (3)
Stroke Preclinical Warner-Lambert (3)
</TABLE>
(1) iPreclinical" indicates that the Company has selected a specific compound
to undergo formulation optimization and stability studies, scale-up and
process chemistry, current Good Manufacturing Practices ("cGMP")
manufacturing of bulk drug, in vivo pharmacology, toxicology,
pharmacokinetic and pharmacodynamic studies or other appropriate ex vivo
and in vivo laboratory studies leading to the filing of an investigational
new drug application ("IND").
"Phase I" traditionally indicates the earliest human trials with an
investigational drug, are conducted in a small number of healthy volunteers
to determine the safety, tolerability and pharmacokinetics of the compound.
Phase I/II" indicates initial testing of a compound in patients afflicted
with the target disease or condition, rather that in healthy volunteers,
for safety or ethical reasons. Such studies may provide preliminary
efficacy data in addition to safety data.
"Phase II" designates trials conducted in patients already afflicted with
the target disease or condition and, typically, are proof-of-principle
studies which yield certain data concerning the safety and efficacy profile
of the investigational drug.
"Phase III" designates late-stage human studies which are the final studies
conducted in a large population of patients afflicted with the target
disease or condition prior to filing a new drug application ("NDA").
(2) With certain limited exceptions, all compounds derived from the Company's
neuron-specific calcium channel technology, including SNX-111, are subject
to the Warner-Lambert or Medtronic collaborations; however, Neurex has
retained rights for SNX-111 for the intrathecal and local treatment of
acute pain and the non-intrathecal treatment of chronic pain. See
"Strategic Alliances."
(3) Neurex retains certain co-promotion rights for all products developed in
collaboration with Warner-Lambert.
(4) Neurex has licensed the commercial rights in Europe to Beaufour Ipsen. See
"Strategic Alliances and Associated Risks."
CORLOPAM
Neurex has licensed CORLOPAM (fenoldopam) worldwide from SmithKline.
CORLOPAM, a potent and specific DA1 agonist, produces systemic and renal
dilation through a unique mechanism of action. On June 21, 1996, the Company
submitted a New Drug Application ("NDA") to the Food & Drug Administration
("FDA") for CORLOPAM. This NDA for seeks approval for intravenous use in
patients who require blood pressure control during and after surgery
(perioperative) and for the treatment of patients with hypertension where the
administration of oral medication is not feasible or desirable. During the first
half of 1996, the Company completed one of two small Phase III studies designed
to address specific issues raised by the FDA in response to an NDA filed by
SmithKline, the Company's licensor. A second Phase III clinical trial in
patients with malignant hypertension was completed at the end of 1996. There can
be no assurance that the results of these additional studies or the subsequent
NDA filing will ultimately lead to approval by the FDA for marketing of
CORLOPAM. The Company believes CORLOPAM, through its unique mechanism of
action, offers potential advantages over existing therapies in terms of safety,
predictability of response and ease of use. In addition, the Company believes
the action of CORLOPAM on the kidneys may have a beneficial effect on patients
at risk of renal failure. The Company intends to develop intravenous CORLOPAM
and its prodrug form for the treatment of acute renal failure and congestive
heart failure. The Company also has an orally active prodrug formulation of
fenoldopam, the active ingredient in CORLOPAM, in preclinical development to
treat chronic renal failure and congestive heart failure. There can, however, be
no assurance that these studies will be successfully completed or, if completed,
that the Company will receive approval from the FDA to market CORLOPAM for
these indications.
Perioperative Control of Blood Pressure
The Company believes that CORLOPAM will be useful in controlling
blood pressure in patients who undergo major cardiovascular surgery, such as
CABG procedures. In addition, approximately 33% of patients who have major
general surgery suffer from post-operative increase in blood pressure. Blood
pressure control is required to prevent post-operative complications, and in
many institutions it is standard clinical practice to induce mild post-operative
hypotension to protect against rupture of surgical grafts and sutures. Sodium
nitroprusside is widely used to control perioperative blood pressure in the
United States while nifedipine and other calcium channel blockers are most
commonly used in Europe. Although sodium nitroprusside is effective in lowering
blood pressure, its significant disadvantages include (i) difficulties in smooth
dose adjustment; (ii) photosensitivity with degradation into cyanide; and (iii)
difficult and labor-intensive handling of the product. Although the handling of
nifedipine is satisfactory, there have been recent concerns in the medical press
raised about its safety and in addition, a significant number of patients do not
respond adequately to the treatment. In two clinical studies, CORLOPAM has
been shown to control blood pressure following CABG surgery. In one study
comparing CORLOPAM to nifedipine, CORLOPAM was shown to be more effective
than nifedipine, and in a study comparing it to sodium nitroprusside, CORLOPAM
was shown to be as effective as sodium nitroprusside with fewer side effects and
fewer handling difficulties. See "Competition and Associated Risks." There are
approximately 350,000 CABG procedures and 100,000 major cardiac and vascular
surgeries performed annually in the United States. In addition, about 10% or
approximately 300,000 patients undergoing major surgery have a postoperative
blood pressure increase due to their anesthesia. See "Marketing and Associated
Risks."
Malignant Hypertension
The Company believes that CORLOPAM will be useful in lowering acute
blood pressure in patients with severe or malignant hypertension. The condition
is characterized by extremely high blood pressure, which if left untreated, can
lead to end organ damage such as stroke, renal failure, retinal damage and
possibly death. The treatment of malignant hypertension requires the urgent
reduction of blood pressure in order to relieve the end organ, such as the
heart, brain, kidneys and eyes from potential damage. Sodium nitroprusside is
the current standard therapy for this condition. In clinical studies conducted
by SmithKline, CORLOPAM has been shown to produce a predictable and smooth
reduction in blood pressure in patients with malignant hypertension. Neurex has
just completed a Phase III trial to study CORLOPAM in patients with severe
hypertension with evidence of end organ involvement. Hospital discharge data
indicate that 120,000 patients with malignant hypertension are treated per year
in the United States. See "Marketing and Associated Risks."
Acute Renal Failure
The Company believes that CORLOPAM, based on its direct effect on the
kidneys, may be useful in the treatment of renal failure by improving renal
blood flow, inducing urine production and increasing sodium excretion. In
initial Phase II studies, CORLOPAM was shown to improve urine flow, sodium
excretion and creatinine clearance in patients with renal impairments. The
Company plans to develop CORLOPAM or the IV prodrug form for this indication.
A program to better determine the beneficial effect on the kidneys has been
established and a Phase I study in healthy human subjects was completed at the
end of 1996. It is estimated that 600,000 or more patients each year in the
United States have an elevated risk of acute renal failure as a result of trauma
and post-surgical complications. See "Uncertainty of Clinical Trial Results."
Congestive Heart Failure
The Company believes that CORLOPAM, through a combination of systemic
and renal effects, may be able to reduce the workload of the heart, an important
therapeutic objective in treating congestive heart failure. In initial Phase II
studies evaluating CORLOPAM in the acute treatment of advanced congestive
heart failure, CORLOPAM was shown to improve cardiac function, including
cardiac output. The Company plans to further explore the properties of
CORLOPAM for this indication. Severe congestive heart failure occurs in
approximately 120,000 patients per year in the United States. See "Uncertainty
of Clinical Trial Results."
Risk Factors Specifically Associated with CORLOPAME Product Development
and Commercialization
While the Company's NDA for CORLOPAME for intravenous administration
in patients who require blood pressure control during and after surgery and for
the treatment of hypertension in patients where the administration of oral
medication is not feasible or desirable was filed with the FDA on June 21,1996,
there can be no assurance that the FDA will act promptly on this application or
that if it acts, its response will be favorable or that the general risks
described elsewhere in this report will not negatively impact the development of
CORLOPAM. The standards and procedures used by the FDA to approve the
marketing of pharmaceuticals has changed over time and has proven to be
challenging for biopharmaceutical companies to accurately predict. After
approval, further studies may be required to obtain approval for other uses of
CORLOPAM. Approvals may also be withdrawn if compliance with regulatory
standards is not maintained or if problems with the pharmaceutical product occur
following approval. See the section entitled "Government Regulation and
Associated Risks" below for discussion of additional risk factors which could
effect government approval and marketing of CORLOPAM.
If approved for marketing, there can be no assurance that CORLOPAM
will achieve market acceptance. There can be no assurance that physicians,
patients and payors, or the medical community in general, will accept or utilize
CORLOPAM as anticipated by the Company. In order to be successful, CORLOPAM
must replace existing therapies, both in the United States and Europe and users
of existing therapies may be resistant to change. In addition, resistance is
possible from third party payors who must review and approve products prior to
the time reimbursement can be obtained. See the section entitled "Competition
and Associated Risks" and "Marketing and Associated Risk Factors."
Fenoldopam Prodrug
Originally, SmithKline intended to develop oral CORLOPAM for the
treatment of chronic renal failure and congestive heart disease based upon its
pharmacological profile. However, it was discovered during clinical testing, in
over 4,000 patients, that orally administered CORLOPAM undergoes extensive
first pass metabolism upon absorption from the gastrointestinal ("GI") system
into the blood stream and is rapidly eliminated from the body in both animals
and humans. In order to compensate for these shortcomings, large oral dosages of
fenoldopam were required to achieve short-lived therapeutic blood levels.
In order to provide adequate therapy over the long periods of time
required to treat chronic renal failure, fenoldopam prodrug, formulated for oral
administration, has been developed with improved GI absorption and a prolonged
period of blood circulation. A prodrug is an inactive precursor drug which
releases an active form of a drug through a simple chemical reaction upon
absorption into the blood stream from the GI tract.
Chronic Renal Failure
In preclinical animal studies, fenoldopam prodrug has shown a sustained
increase in fenoldopam concentrations over a period of several hours, and
sustained improvements in kidney function, as compared to minutes following
orally administered CORLOPAM. In animal studies designed to mimic drug induced
renal toxicity, fenoldopam prodrug showed improved renal function and
significantly reduced morphological changes in the kidney in treated animals as
compared to control animals. These results represent a significant opportunity
in the treatment of chronic renal failure and congestive heart failure where
prolonged administration of CORLOPAM is desirable.
Congestive Heart Failure
Based upon fenoldopam prodrug's method of action, similar to that of
CORLOPAM, fenoldopam prodrug may be able to reduce the workload of the heart,
an important objective in treating congestive heart failure. The Company is in
early stages of preclinical development of this compound for the treatment of
chronic congestive heart failure.
Risk Factors Associated with Fenoldopam Prodrug Product Development
Fenoldopam prodrug has not been administered to human beings. Many
products which are administered to animals and successfully pass preclinical
trials to begin administration in human clinical trials after the filing on an
IND fail to prove either safe of efficacious in human beings. Until such trials
are held, there can be no assurance that fenoldopam prodrug will prove to be
safe and efficacious for use by humans. See "Technological Uncertainty",
"Uncertainty of Clinical Trial Results" and "Government Regulation and
Associated Risk Factors" below.
SNX-111 for Pain
SNX-111, for intrathecal administration, is in Phase III clinical
development for the treatment of severe pain in terminally ill patients
suffering from AIDS and cancer as well as patients that have chronic neuropathic
pain. Based on initial clinical results and discussions with the FDA, the
Company significantly expanded its Phase I/II clinical trials of SNX-111 during
early 1996 to include patients with severe pain who are not terminally ill.
These early clinical results suggest that SNX-111 may have a broad efficacy
profile and formed the basis for expanding into Phase III studies in both cancer
and non cancer patients. Neurex has entered into a collaborative alliance with
Medtronic for the development of SNX-111 for the intrathecal treatment of
chronic pain with Medtronic's implantable pump. Medtronic holds exclusive
commercial rights to SNX-111 for intrathecal spinal administration in the United
States and non-exclusive commercial rights in Europe. Neurex is therefore, free
to seek a corporate partner in Europe for SNX-111 in pain indications. Neurex
has retained rights to develop SNX-111 for acute analgesic indications,
including applications using local administration. Early preclinical studies
indicated that Neurex' compounds bind specifically to the area of the spinal
cord that receives input from the nerves responsible for the transmission of
pain signals from the peripheral nervous system to the brain. Neurex discovered
that SNX-111 is a potent analgesic agent when administered either intrathecally
or locally to injured peripheral nerves. It has been estimated that
approximately 134,000 patients annually are treated using spinal catheters in
hospital settings alone.
The Company is developing SNX-111 for the treatment of three different
types of pain: (i) severe malignant chronic pain associated with cancer and
AIDS, (ii) chronic neuropathic pain, and (iii) acute pain. Neuropathic pain,
which may be acute or chronic in nature, occurs when the nervous system becomes
disordered and starts firing automatically. This is seen in such syndromes as
shingles (post-herpetic neuropathy), diabetic neuropathy, reflex sympathetic
dystrophy, complex regional pain syndrome ("CRPS"), and even post-surgery. In
acute pain, there is a noxious stimulus which may be caused by trauma or surgery
and is a physiologic response to a particular stimulus outside the nervous
system.
In various models, SNX-111, when administered directly into the spinal
canal, has been shown to be highly effective in suppressing pain in various
models of severe malignant, chronic neuropathic, and acute pain. Moreover, local
administration of SNX-111 around a nerve associated with neuropathic pain has
also been effective in a relevant animal model. In preclinical studies,
tolerance to the analgesic effects of SNX-111 does not develop over a seven-day
period, and, to date, has not been shown to occur in clinical studies. If this
profile can be confirmed in clinical trials, SNX-111 may offer a significant
advantage over current therapies in the treatment of neuropathic pain. See
"Uncertainty of Clinical Trial Results."
The unique mode of action of SNX-111 may offer a viable alternative to
other types of analgesics including opiates which, although potent, have
significant disadvantages including tolerance, dose-limiting side effects and
the potential for dependence. Nonsteroidal anti-inflammatory drugs and
salicylates, while providing moderate pain relief, do not compare in their
profile to morphine and its analogues in patients with severe and intractable
pain. Moreover, it is generally recognized that there are no selective and
effective treatments for neuropathic pain, which remains an unmet medical need.
See "Competition and Associated Risk Factors."
Malignant Pain
A Phase I/II study was completed by the end of 1995. Entry criteria
were initially limited by the FDA to terminally ill cancer and AIDS patients
with intrathecal catheters already in place, who had a life expectancy of no
more than four months and who had become resistant to opiate therapy. After
results for the first nine patients were discussed with the FDA, the entry
criteria were expanded to include non cancer patients with neuropathic pain. In
this study, the patients were subjected to dose escalation until efficacy was
reached, as evaluated using standard pain analog scales. In addition, those
patients who responded to therapy were allowed to enter a long-term treatment
protocol. Of the 25 patients who were evaluable, 21 had responded favorably with
partial to complete pain relief. The investigators observed relief of symptoms
of chronic and neuropathic pain and a concomitant reduction of other pain
medications. In the long-term protocol, patients were treated for up to 36 weeks
and remained essentially pain-free during such therapy. The Company is currently
conducting 2 multi-center pivotal Phase II/III studies for the treatment of
chronic malignant pain in cancer and AIDS patients, and for the treatment of
chronic intractable nonmalignant pain. These studies have a double blind
crossover design to measure the efficacy of SNX-111 in giving symptomatic relief
and a long-term extension protocol to access safety and efficacy. However, there
can be no assurance that further studies will not be required. The Company is
developing this therapy with its corporate partner, Medtronic. A publication of
the National Cancer Institute indicates that approximately 1,000,000 cancer
patients per year in the United States suffer severe or intractable pain, and
the Company estimates that approximately 10% or 100,000 of these patients
receive intrathecal or epidural therapy. See "Uncertainty of Clinical Trial
Results" and "Marketing and Associated Risk Factors" below.
Chronic Neuropathic Pain
Neuropathic pain syndromes, including reflex sympathetic dystrophy,
phantom limb syndrome and post-herpetic neuralgia (shingles) are poorly treated
by currently available therapies. Many chronic pain syndromes have a significant
neuropathic component that prevents complete pain relief with currently
available analgesics. Data from the Company's initial Phase I/II study for
treatment of chronic intractable pain indicate SNX-111 had a favorable effect on
neuropathic pain. Based on the results of this study, a Phase III study in this
patient population was initiated in September 1996. The neuropathic pain
syndromes are particularly difficult to treat and traditional therapies such as
minor analgesics, anti-inflammatory drugs and major analgesics, including opioid
drugs, do not provide adequate symptomatic relief for most patients. In serious
cases, local anesthetics, such as bupivacaine, are used to give symptomatic
relief. However, these local anesthetics also lead to sensory deprivation which
can affect motor functions and, as a result, are seen as a treatment of last
resort. It is estimated that more than 6,600,000 patients suffer from
neuropathic pain each year in the United States, of which, approximately 700,000
have intractable pain, requiring ongoing out-patient care. See "Marketing and
Associated Risk Factors" and "Competition and Associated Risk Factors."
Acute Pain
In preclinical models of acute pain in small animals, SNX-111 has been
shown to be highly effective. The Company currently has a Phase II study with
SNX-111 ongoing. Although the study remains blinded, early results are promising
in severe post-surgical pain. Recently there has been an increased recognition
of the value of intrathecal opioids in the anesthetic/analgesic management of
patients undergoing major thoracic and abdominal surgery. This approach is
designed to enable patients to be mobilized as quickly as possible following
surgery while providing significant pain relief. The Company intends to evaluate
SNX-111 in such cases and evaluate the market opportunities for intraoperative
and post-operative pain management. There are in excess of 16,000,000 surgical
procedures in the United States each year. The Company believes SNX-111 may be
useful in a significant portion of these surgeries. Initial studies are focusing
on major abdominal and orthopedic procedures. The Company retains all rights to
this indication. See "Competition and Associated Risk Factors" and "Marketing
and Associated Risk Factors."
SNX-111 for Ischemia
SNX-111, for intravenous administration, completed Phase II studies for
the treatment of brain damage following head trauma and CABG surgery in November
1996. Neurex has entered into a collaborative alliance with Warner-Lambert for
the development of SNX-111 for the prevention of ischemic damage. Under the
terms of the collaboration, Neurex is responsible for conducting Phase I and II
studies while Warner-Lambert is responsible for Phase III studies in these
ischemic indications. In addition, feasibility studies in stroke should commence
in the first half of 1997. Warner-Lambert will fund approximately two-thirds of
the cost of all clinical trials.
Neurex selected SNX-111 for development because of its ability in
special brain cell preparations to reduce calcium flow into nerve cells and
inhibit neurotransmitter release. SNX-111 is the only compound known to the
Company to provide neuroprotection when given up to 24 hours after an ischemic
injury, as demonstrated in preclinical studies. These results are of clinical
importance because delays between the original ischemic injury and the time
neuroresuscitation treatment is initiated in the emergency room are likely. In
stroke, for example, an average of eight hours elapse between the original
ischemic event and the eventual diagnosis that leads to the initiation of
therapy. A shorter, but significant, delay in neuroresuscitation treatment can
also be anticipated when cardiac arrest or head trauma occurs outside of the
hospital.
Ischemia occurs in the brain as a consequence of a number of different
clinical conditions. Global ischemia occurs when there is generalized reduction
of blood flow and oxygen delivery to the brain and is caused by events such as
cardiac arrest (when the heart stops beating), closed head injury (when swelling
and other factors reduce blood flow) or drowning. Focal ischemia occurs
following a stroke (when blood flow and oxygen delivery to an isolated segment
of the brain are blocked). In addition, it has now been recognized that global
and focal ischemia can occur as the result of CABG surgery with cardiopulmonary
bypass, which may generate emboli which pass to the brain during the procedure.
Following global or focal ischemia, a series of biochemical events is
set in motion which leads to the progressive death of neurons, which can result
in brain damage and death regardless of whether normal blood flow has been
restored. Neurological deficits observed following these chemical events are
thought to result from the progressive spreading of neuronal damage through a
"biochemical cascade" in which the lack of oxygen leads to destabilization of
the nerve cell membrane, resulting in the excessive influx of calcium through
the NSCC. This influx of calcium leads to the inappropriate release of certain
neurotransmitters, which in turn stimulates adjacent neurons, causing further
influx of calcium. This process apparently continues for periods of hours to
days following the initial ischemic insult and may ultimately lead to cell
death, brain damage and patient disability or death.
Closed Head Trauma
In November 1996, the Company completed a Phase II clinical trial with
SNX-111 for the prevention of neurological damage after closed head trauma.
There are several components that lead to neuronal damage and cell death,
including nerve cell damage directly following mechanical injury, a generalized
destabilization of neuronal membranes, metabolic dysfunction due to excessive
calcium flow into the nerve cells, and damage due to primary and secondary
global and focal ischemic events.
In a double-blind Phase II study, a range of doses was tested to assess
the safety, feasibility and preliminary efficacy of SNX-111 in patients who
suffered significant head trauma and were comatose. The protocol treatment
consisted of a 72-hour infusion of SNX-111 initiated within sixteen hours of the
injury. In addition to comprehensive safety monitoring, a primary efficacy
endpoint was assessed using the Glasgow Coma Score, a 15-point scale of
neurological competence and the Glasgow Outcome score. Three different dose
levels were tested in these studies.
Following several cases of hemodynamic instability during the trial,
which led to a reduction in blood pressure in these patients following
initiation of SNX-111 treatment, the Company announced in February 1995 that a
comprehensive review of the safety profile had been requested by the FDA and,
pending the outcome of this review, clinical trials were halted. In May, 1995,
the clinical hold was lifted and studies were resumed without significant
modification to the protocol. The Company discovered during the initial stages
of the clinical study that a combination of fluid replacement and pressor agents
could restore blood pressure quickly and predictably.
Both measures are standard interventions in intensive care units.
On review of the records of the six patients that had received SNX-111
in the initial phase of this study for head trauma, the investigators reported
that several patients had a significant improvement in their condition and,
although anecdotal and not part of a formal interim analysis submitted to the
FDA, they attributed this improvement to intervention with SNX-111. In
accordance with the 1993 agreement, Warner-Lambert will initiate Phase III
studies by the second quarter of 1997. The Company anticipates that these
studies will be completed by early 1997 and that Warner-Lambert will assume
responsibilities for Phase III clinical studies initiating the program. The
Company estimates that, of the more than 500,000 closed head injuries in the
United States each year, more than 150,000 patients suffer significant
neurological damage following the original injury. See "Uncertainty of Clinical
Trial Results."
CABG Surgery
In November 1996, the Company completed Phase II clinical trials to
evaluate its safety and efficacy in patients who have undergone CABG surgery
with cardiopulmonary bypass. During the study, patients received an intravenous
infusion of SNX-111 or placebo during the surgery for approximately five hours.
This trial was also temporarily suspended pending the safety review of SNX-111
by the FDA but, following the release of the clinical hold in May 1995, has now
been re-initiated. Plans for Phase III studies and selection of the appropriate
patient population are now under evaluation with Warner-Lambert. The National
Institutes of Health ("NIH") statistics indicate that there are approximately
350,000 CABG surgical procedures performed annually in the United States.
Following CABG surgery, certain studies have indicated that between 20%
and 60% of patients suffer a measurable neuropsychological deficit, which in
many patients persists, leading to either physical or mental disability. In
addition, a small proportion of patients suffer from stroke. It is believed that
both global and focal ischemic events contribute to these neurological deficits
that occur as the result of CABG surgery, and it is recognized that
cardiopulmonary bypass generates many small emboli that pass to the brain,
causing multifocal infarcts.
Stroke
Studies by three independent investigators have shown SNX-111 to be
neuroprotective in different small animal models of focal ischemia that simulate
the events that follow human stroke. In these studies, significant reductions of
approximately 45% or more in infarct size were demonstrated compared to
controls. Earlier small animal studies demonstrated protection from damage to
the cerebral cortex, the primary site of injury in stroke, when SNX-111 was
given six hours after the ischemic insult. Feasibility studies in patients will
be initiated during the first half of 1997. NIH publications indicate that more
than 150,000 of the 500,000 stroke patients per year in the United States suffer
severe and permanent neurological damage.
Risks Factors Associated with SNX-111 Product Development and Commercialization
Patient Accession
In order to complete clinical trials for all applications of SNX-111,
including analgesia, the drug must be administered in a sufficient number of
patients to determine its safety and efficacy profile. The Company has had
greater difficulty than anticipated in registering patients in its human trials
of SNX-111 for pain. Cancer centers which traditionally have managed the pain
and discomfort of their patients, particularly in the latter stages of life,
have proved resistant to referring patients to the pain clinics where the
Company's SNX-111 is being tested. While the Company has taken significant
action to address this issue, patient accession continues to be a problem and
there can be no assurance that enough patients can be registered to complete the
trials prior to the end of 1997, which still remains the goal of the Company.
See "Uncertainty of Clinical Trial Results."
Additional Problems in Designing Clinical Trials
The application of SNX-111 to conditions other than analgesia, such as
closed head injury, presents a problem for the design of clinical trials. Using
experimental drugs in emergency situations, such as is generally the case in the
event of closed head injury, can prove difficult and is inherently impossible to
schedule and control. There can be no assurance that the Company will be
successful in designing trials which will satisfy the FDA or achieve acceptance
in the marketplace, although the Company has designed a number of plans to
address these issues. See "Uncertainty of Clinical Trial Results."
<PAGE>
Neurex' Research Programs
NSCC Blocking Compounds
Calcium plays an essential role in the function and dysfunction of
nerve cells by regulating their metabolism and their communication with each
other through its effect on neurotransmitter release. The entry of calcium into
cells is controlled by calcium channels and can be inhibited by calcium channel
blockers. The classical calcium channel blockers developed and successfully
commercialized for the treatment of cardiovascular diseases, such as
hypertension and angina, have been found to be ineffective in treating most
nervous system disorders. This was explained by the discovery that nerve cells
contain additional classes of neuron-specific calcium channels, or NSCCs, that
are distinct from calcium channels present in cardiac and smooth muscle cells.
Neurex has developed highly selective peptides, such as SNX-111, that
have been shown in preclinical studies to bind to discrete NSCC classes in
different regions of the brain and elsewhere in the nervous system, and thereby
regulate nerve cell metabolism and communication. At least six classes of
calcium channels are located in the nervous system where they have distinct and
different functions. Neurex' compounds directly and selectively affect the
release of specific neurotransmitters, including norepinephrine, glutamate,
dopamine, serotonin and acetylcholine, by regulating calcium influx through
specific NSCCs.
Phase II clinical studies have confirmed pre-clinical experiments that
show that Neurex' highly potent and selective N-type NSCC blocker, SNX-111, is a
potent analgesic and can protect neurons from death following injury to the
brain. SNX-111 is currently in several Phase III clinical trials for analgesia.
Phase III trials for neuro protection will commence in early 1997. Neurex is
collaborating with Warner-Lambert to discover second generation small-molecule
N-type NSCC blockers to follow SNX-111 in treating various neurological and
psychiatric disorders. Beyond the N-type NSCC as a therapeutic target, of
particular interest is the R-type NSCC which is found in particular areas of the
central nervous system. The Company has discovered specific blockers of this
channel and is currently evaluating the pharmacological effects of blocking this
channel both in vitro and in vivo to identify the most promising neurological or
neuropsychiatric diseases to pursue.
Sodium Channels
Sodium channels are key elements in propagating the nervous system's
electrical and chemical signals. Neurex is pursuing a research program to
evaluate the roles of sodium channel subtypes in the generation and maintenance
of pain in various acute and chronic pain syndromes. A lead compound, which
selectively blocks one certain sodium channel subtype, has been identified and
patent applications have been filed. The sodium channel research program is an
important component in Neurex' broader effort directed at several molecular
mechanisms to discover and develop novel analgesics.
Apoptosis
Neurex has established a research program in brain apoptosis
(programmed cell death) to discover novel drugs which may have applications in
the prevention and therapy of neuronal degeneration for both acute indications,
such as ischemia due to stroke, cardiac arrest, and head trauma, and chronic
indications, such as amyotrophic lateral sclerosis ("Lou Gehrig's disease") and
Alzheimer's disease.
The Company has demonstrated in animal models that apoptosis greatly
contributes to the death of neurons following both focal and global ischemia.
The research program is currently focused on identifying and evaluating the role
of several genes expressed in the brain and known to be involved in protecting
the cell against neurodegeneration and on defining the mechanisms to control the
process. Neurex has received a $100,000 Phase I small business innovation
research grant from the NIH to study the molecular mechanisms underlying
neuronal apoptosis.
Potassium Channels
Potassium channels play an important role in electrical signal
conductance along nerves. In healthy nerves, a myelin sheath surrounding the
axons of nerves serves as an insulator to permit efficient conduction of
signals. The loss of this sheath, or demyelination, slows or blocks impulses
along nerves and leads to a range of clinical deficits, such as sensory loss,
impaired motor function, muscle weakness, and paralysis, and in some cases,
death.
Neurex is pursuing a research program to determine the role of
potassium channel subtypes in autoimmune demyelinating diseases, such as
multiple sclerosis and Guillain-Barre syndrome, and other neuropathies
associated with axonal demyelination. The Company's research program is focused
on developing pharmacological agents that specifically block exposed axonal
potassium channel subtypes. Neurex has discovered that blocking one particular
potassium channel subtype can restore axonal conductance in an animal model of
demyelination and has discovered several compounds that specifically and
potently block this channel sub-type.
Exocytosis
Nerve cells communicate with each other and with the muscles and glands
they control by releasing chemical transmitters. This process is known as
exocytosis.
Neurex is focusing on several of the newly discovered proteins that
comprise the molecular machinery underling the process of exocytosis to screen
for and develop compounds that modulate (either inhibit or stimulate) the
release of chemical transmitters. The Company has concentrated its research
program on the discovery of novel agents that interfere with the specific
interactions among a set of several exocytotic proteins in nerve cells.
Therapeutic targets include the discovery of treatments for conditions such as
schizophrenia, Parkinson's disease, depression and anxiety.
Other cell types outside the nervous system use a set of similar but
distinct proteins to trigger the release of hormones, growth factors,
immunomodulators and other substances that regulate nearly every aspect of the
body's functions. Here, as in nerve cells, the goal is to discover
pharmacological agents that selectively interfere with the protein-protein
interactions that promote the release of these substances. Neurex' current
research effort is aimed at inhibiting secretion from cells of the immune system
that mediate inflammatory and/or allergic processes.
Risk Factors Associated with Neurex Research
The essential nature of research is uncertain. There can be no
assurance that any of the Company's programs will be successful or be continued.
The Company continually reevaluates its research programs and adjusts or
allocates its resources as necessary. For instance, Walk-through Mutagenesis,
which was a Research Program, is now a research tool used to facilitate other
projects. The Company also endeavors to complete its research programs in
collaboration with corporate partners. These partners are generally necessary
for the full exploitation of any of the Company's technologies should they prove
to be successful. There can be no assurance that such collaborations will be
available for any of the Company's research projects, or that benefits will
result from these collaborations. See "Strategic Alliances and Associated
Risks."
<PAGE>
Research Committee
The Company's Research Committee oversees the scientific direction,
priorities, and resource allocation of its research programs. The Committee
includes outside experts in scientific areas of interest and members of the
Company's management:
<TABLE>
<S> <C>
Dr. Richard Aldrich........ Professor of Molecular and Cellular Physiology at Stanford
University
Dr. Roberto Crea........... Senior Vice President of Research and Technology Development of
Neurex
Dr. Brian B. Hoffman....... Associate Professor of Medicine and Pharmacology, Geriatric
Research, Education and Clinical Center at VA Medical Center
Dr. Robert R. Luther....... Executive Vice President of Development of Neurex
Dr. George Miljanich....... Senior Director, Biochemistry and Assay Development of Neurex
Dr. Richard Scheller....... Professor of Molecular and Cellular Physiology at Stanford
University
Dr. Richard Tsien.......... Smith Professor and former Chairman of the Department of
Molecular and Cellular Physiology at Stanford University
</TABLE>
In addition, Neurex' senior scientists as well as invited key
consultants participate on this Committee.
<PAGE>
Strategic Alliances and Associated Risks
Warner-Lambert Company
Neurex has entered into a collaborative relationship with
Warner-Lambert for the discovery, development and commercialization of SNX-111
and other compounds that block NSCCs. Under this collaboration, Warner-Lambert
is obligated to make milestone payments to Neurex upon the achievement of
certain development objectives with respect to SNX-111. In fiscal 1994, the
Company received a total of $1,000,000 in connection with initiation of Phase II
studies of SNX-111 for the treatment of head trauma and CABG surgery. Under the
Warner-Lambert collaboration, Warner-Lambert has exclusive worldwide rights to
commercialize NSCC compounds, subject to the following: Neurex has retained the
right to (i) commercialize its compounds in Japan and East Asia; (ii) co-promote
products resulting from the collaboration in the United States, the United
Kingdom and one other European country to be designated later; and (iii)
commercialize SNX-111 for intrathecal or local administration for analgesic
indications. Neurex and Warner-Lambert will share profits from the sales of
co-promoted products, subject to certain limitations on the portion of such
profits to be paid to Neurex. Products marketed only by Warner-Lambert, or
co-promoted products marketed by Warner-Lambert outside of the co-promotion
territory, will be subject to royalty payments to Neurex, and products marketed
only by Neurex will be subject to royalty payments to Warner-Lambert. Neurex is
therefore dependent upon the promotion efforts of Warner-Lambert for a portion
of its profits with respect to sales of co-promoted products in the co-promotion
territory and for royalties on the sales of other products under the
collaboration. The development costs of the products to be co-promoted will be
shared one-third by Neurex and two-thirds by Warner-Lambert. Warner-Lambert and
Neurex will commit 12 full-time and 7 full-time employees, respectively, to the
research collaboration. Warner-Lambert has the right to terminate its
relationship with Neurex in its sole discretion upon appropriate notice to
Neurex. Warner-Lambert purchased $7,000,000 of Common Stock on September 22,
1993, at the time of the Company's initial public offering, $1,500,000 on
November 13, 1995 at $4.50 per share and $1,500,000 on March 29, 1996 at $19.93
per share. Warner-Lambert has indicated that it does not hold these shares as a
long-term investor or collaborating partner, but as an investment to be held or
disposed of as a function of portfolio management. Warner-Lambert has also paid
Neurex a total of $1,500,000 in 1995 and $1,000,000 in 1996 in lieu of milestone
payments described in a former agreement between the companies. These amounts
received in lieu of milestone payments may offset future royalties, if any, due
to Neurex from Warner-Lambert resulting in a royalty-free period on the
commencement of product sales.
In an amendment dated September 25, 1996, the Company and
Warner-Lambert extended the 1993 Research and Development Collaboration
agreement for three additional years beginning September 30, 1996. The amendment
further provides for up to $2,500,000 in additional milestone payments to the
Company for the achievement of research milestones in the calcium channel
project. In addition, Warner-Lambert will pay the Company approximately
$1,200,000 per year for research support.
Medtronic, Inc.
The Company has entered into a collaboration agreement with Medtronic
to develop and commercialize SNX-111 or backup peptide compounds for the chronic
treatment of pain when the drug is administered intrathecally. The Company
retains exclusive rights to acute pain indications when administered
intrathecally and to all applications for local and epidural administration.
Neurex and Medtronic will share the costs of the development of the compound in
pivotal studies which will involve the use of the Medtronic implantable pump.
Accordingly, Neurex is dependent upon Medtronic's marketing efforts and its
implantable pump technology in order to generate product sales under the
collaboration. Medtronic has exclusive rights to distribute the drug in the
United States and non-exclusive rights outside the United States. Neurex has
retained manufacturing rights for the compound upon certain enumerated set
terms. The Company received $2,000,000 from Medtronic upon executing the
collaboration agreement and in August 1995, Neurex issued the Medtronic Note to
Medtronic. In connection with the completion of a directed offering, $6,500,000
of the Medtronic Note, plus interest, converted into common stock at $4.625 per
share, and the remaining $1,500,000 converted into a prepaid development
milestone which, if not earned, will be repaid with interest. Upon the
conversion of the Medtronic Note, the Company issued to Medtronic a warrant to
purchase 500,000 shares of common stock at an exercise price of $5.40 per share.
Grunenthal
In Europe, the Company has licensed certain rights under its Pro-UK
patents to Grunenthal, GmbH ("Grunenthal"), which is finalizing a license
application for marketing approval in Europe. Under the terms of the license,
Neurex received $1,667,241 on June 22, 1995, and $1,580,733 on July 2, 1996. In
addition to the licensing fees, the Company will receive royalties on product
sales, if any. In the event that the Company terminates its relationship with
VRL, this license will be terminated.
Vascular Research Laboratories
Through a collaboration agreement with Vascular Research Laboratories
("VRL"), Neurex has an option to acquire exclusive rights to certain technology
discovered at VRL in exchange for continued reimbursement of research and
development expenses incurred by VRL for up to ten years. These expenses have
been covered by annual license fees received from Grunenthal. In accordance with
the agreement, Neurex is currently negotiating the termination of the agreement,
which may be canceled at the discretion of Neurex. In the event Neurex cancels
or defaults on the collaboration agreement, all future payments from
sublicensees, including Grunenthal, will revert to VRL and the option will be
terminated.
American Cyanamid Company
.........In July 1995, the Company established a research collaboration with the
Agricultural Products Research Division of American Cyanamid Company, a wholly
owned subsidiary of American Home Products Corporation, to screen Neurex'
library of synthetic and natural compounds isolated from invertebrate venom
fractions. The collaboration is currently in an exploratory phase and, if
successful, could lead to a comprehensive collaboration. The objective of this
collaboration is to screen for compounds that have selective insecticidal
activity, incorporate the gene for an active peptide into a baculovirus, which
are known to selectively infect specific insect pests, and to deliver a lethal
dose to target pests through the expression of the peptide in the insect.
Beaufour Ipsen
On November 12, 1996, the Company signed a license and supply agreement
with Beaufour Ipsen of Paris, France, a European-based pharmaceutical company.
The license, which is for the intravenous delivery form of the Company's
proprietary drug CORLOPAM, provides Beaufour the exclusive right to market and
sell the product (excluding fenoldopam prodrugs) in the world excluding Japan
and the Americas. Under the terms of the agreement, Beaufour will pay royalties
to Neurex based on a percentage of sales. The Company will supply and sell
CORLOPAM to Beaufour at a price which allows Beaufour to achieve certain
minimum product gross margins. In accordance with the agreement, the Company
received on December 6, 1996 a $1,000,000 refundable signing fee. This signing
fee becomes non-refundable upon the earlier of three years from the date of the
agreement or the achievement of three different European country pricing
approvals. The Company may also receive up to $1,000,000 in additional milestone
payments and $3,000,000 in advanced royalties when marketing approvals and
achievement of certain minimum price targets are obtained in certain European
countries.
Under the agreement, Beaufour also obtained an exclusive option to
license CORLOPAM for the treatment of acute renal failure and retrogenic
nephrotoxicity, which would require Beaufour to pay the Company $500,000 at the
time of the option exercise and $2,000,000 when a number of marketing approvals
are obtained in certain European countries. The agreement also grants Beaufour
the right to negotiate with the Company to participate in the commercial
development of CORLOPAM prodrugs in most European and Far East countries
(excluding Japan). The Company is dependent on the marketing success of Beaufour
for the success of CORLOPAM in these territorial areas.
.........There can be no assurance that any of the above collaborations will
continue, be renewed or be successful. The Company granted to its collaborative
partners certain exclusive rights to commercialize the products covered by these
collaborative agreements. In some cases, the Company is relying on its
collaborative partners to conduct clinical trials, to compile and analyze the
data received from such trials, to obtain regulatory approvals and, if approved,
to manufacture and market these licensed products. As a result, the Company
often has little or no control over the development of these potential products
and little or no opportunity to review clinical data prior to or following
public announcement. In addition, the Company's strategy for the research,
development and commercialization of its product candidates will require the
Company to enter into various arrangements with corporate and academic
collaborators, licensors, licensees and others. Neurex intends to enter into
additional collaborative relationships when it believes it is advantageous to
obtain access to appropriate product candidates, specific technical approaches
and capabilities or geographic or therapeutic markets which it does not have
sufficient resources to develop independently. There can be no assurance that
the Company will be able to enter into collaborative arrangements or license
agreements that the Company deems necessary or appropriate to develop and
commercialize its product candidates, or that any or all of the potential
benefits from such collaborative arrangements or licenses will be realized.
There can be no assurance that the Company will be able to enter into such
collaborative arrangements or license agreements on acceptable terms, or at all,
and failure to obtain such collaborative arrangements or license agreements
could result in delays in marketing the Company's proposed products or the
inability to proceed with the development, manufacture or sale of products
requiring such license agreements. In the event the Company enters into
additional collaborative arrangements, it will be dependent upon the efforts of
its collaborators in performing their responsibilities under the collaboration.
Certain of the collaborative arrangements that the Company may enter into in the
future may place responsibility on the collaborative partner for preclinical
testing and clinical trials, for preparation and submission of applications for
regulatory approval and for commercialization of potential products. Should a
collaborative partner fail to develop or commercialize successfully any product
candidate to which it has rights, the Company's business may be materially
adversely affected. There can be no assurance that collaborators will not pursue
alternative technologies or product candidates either on their own or in
collaboration with others, including the Company's competitors, as a means for
developing treatments for the diseases or disorders targeted by the Company's
collaborative programs.
The Company's collaborative research agreements are generally
terminable by its partners on short notice. Suspension or termination of certain
of the Company's current collaborative research agreements could have a material
adverse effect on the Company's operations and could significantly delay the
development of the affected products and have a material adverse effect on the
Company. Continued funding and participation by collaborative partners will
depend not only on the timely achievement of research and development objectives
by the Company and the successful achievement of clinical trial goals, neither
of which can be assured, but also on each collaborative partner's own financial,
competitive, marketing and strategic considerations. Such considerations
include, among other things, the commitment of management of the collaborative
partners to the continued development of the licensed products, the
relationships among the individuals responsible for the implementation and
maintenance of the collaborative efforts, the relative advantages of alternative
products being marketed or developed by the collaborators or by others,
including their relative patent and proprietary technology positions, and their
ability to manufacture potential products successfully. The Company may
experience difficulty in its relationships with its collaborators due to a
number of factors, including disagreements regarding the timing of the
initiation and design of certain proposed clinical trials and cost sharing.
These disagreements, if they occur, may have a material adverse effect on the
Company's operations.
In addition, Neurex partners may be developing competitive products
that may result in delay or a relatively smaller resource commitment to product
launch and support efforts than might otherwise be obtained if the potentially
competitive product were not under development or being marketed. For example,
Warner-Lambert controls the development of SNX-111 for prevention of ischemic
damage and Medtronic is responsible for the marketing and sales of SNX-111 for
intrathecal treatment of chronic pain, and the Company is dependent upon the
resources and activities of Warner-Lambert and Medtronic to pursue
commercialization of SNX-111 in order for the Company to achieve milestones or
royalties from the development of this product. There can be no assurance that
either Warner-Lambert or Medtronic will proceed to bring products to market in a
rapid and timely manner, if at all, or if marketed, that other independently
development products of Warner-Lambert and Medtronic or others will not compete
with or prevent SNX-111 from achieving meaningful sales. Also, Warner-Lambert
has stated that it plans to conduct or support other clinical trials of SNX-111
in ischemic indications. There can be no assurance that Warner-Lambert will
continue or pursue additional clinical trials in these indications or that, even
if the additional clinical trials are completed, SNX-111 will be shown to be
safe and efficacious, or that the trials will result in approval to market
SNX-111 in these indications. Any adverse announcement related to SNX-111 would
have a material adverse effect on the business and financial condition of the
Company.
Uncertainty of Clinical Trial Results
Before obtaining regulatory approval for the commercial use of any of
its potential products, the Company must demonstrate through preclinical studies
and clinical trials that the product is safe and efficacious for use in the
clinical indication for which approval is sought. There can be no assurance that
the Company will be permitted to undertake or continue clinical trials for any
of its potential products or, if permitted, that such products will be
demonstrated to be safe and efficacious. Moreover, the results from preclinical
studies and early clinical trials may not be predictive of results that will be
obtained in later-stage clinical trials. Thus there can be no assurance that the
Company's present or future clinical trials will demonstrate the safety and
efficacy of any potential products or will result in regulatory approval to
market these products.
In advanced clinical development, numerous factors may be involved that
may lead to different results in larger, later-stage trials from those obtained
in earlier stage trials. For example, early stage trials usually involve a small
number of patients and thus may not accurately predict the actual results
regarding safety and efficacy that may be demonstrated with a large number of
patients in a later-stage trial. Also, differences in the clinical trial design
between an early-stage and late-stage trial may cause different results
regarding the safety and efficacy of a product to be obtained. In addition, many
early stage trials are unblinded and based on qualitative evaluations by
clinicians involved in the performance of the trial, whereas later stage trials
are generally required to be blinded in order to provide more objective data for
assessing the safety and efficacy of the product. The Company may, at times,
elect to aggressively enter potential products into Phase I/II trials to
determine preliminary efficacy in specific indications. The Company anticipates
that a number of its potential products will show efficacy in clinical trials.
The Company has conducted only a limited number of clinical trials to
date. There can be no assurance that the Company will be able to successfully
commence and complete all of its planned clinical trials without significant
additional resources and expertise. In addition, there can be no assurance that
the Company will meet its contemplated development schedule for any of its
potential products. The inability of the Company or its collaborative partners
to commence or continue clinical trials as currently planned, to complete the
clinical trials on a timely basis or to demonstrate the safety and efficacy of
its potential products, would have a material adverse effect on the business and
financial condition of the Company.
The timing of completion of the Company's or its collaborators'
clinical trials is significantly dependent upon, among other factors, the rate
of patient enrollment. Patient enrollment is a function of many factors,
including, among others, the size of the patient population, perceived risks and
benefits of the drug under study, availability of competing therapies, access to
reimbursement from insurance companies or government sources, design of the
protocol, proximity of and access by patients to clinical sites, patient
referral practices, eligibility criteria for the study in question and efforts
of the sponsor of and clinical sites involved in the trial to facilitate timely
enrollment in the trial. Delays in the planned rate of patient enrollment may
result in increased costs and expenses in completion of the trial or may require
the Company to undertake additional studies in order to obtain regulatory
approval if the applicable standard of care changes in the therapeutic
indication under study. For example, patient accrual in the Company's ongoing
Phase II/III trial of SNX-111 has been negatively impacted by changes in
referral patterns between oncologists and pain centers, and patients were not
being referred by oncologists to pain centers where the Company's trials are
being conducted. There can be no assurance that any actions by the Company to
accelerate accrual in this trial will be successful or, to the extent that they
involve modifications in the design of the trial, will not cause that trial to
be considered a Phase II clinical trial and thereby require one or more
additional potentially pivotal trials to be conducted.
.........There can be no assurance that the Company will successfully complete
development of CORLOPAM, SNX-111 or any other product or any indication or
will receive marketing approval of these product candidates on a timely basis,
if at all. Failure to complete development or obtain marketing approval of the
Company's product candidates would have a material adverse affect on the
Company's business, financial condition and results of operations. Certain of
the Company's product development efforts are based on novel alternative
therapeutic approaches (including novel routes of administration) and new
technologies, including prevention of neuronal damage due to ischemia, head
trauma and other toxic insults, and the treatment of certain types of pain,
which although widely studied, are not well understood. There is substantial
risk that the Company's approaches and technologies will prove to be
unsuccessful. The development of products by the Company will require the
commitment of substantial resources to continue research, preclinical
development and clinical trials necessary to bring such products to market and
to establish production and marketing capabilities. Drug research and
development by its nature is uncertain; there is a risk of failure at any stage
and the time required and cost involved in successfully accomplishing the
Company's objectives cannot be predicted. There can be no assurance that the
Company will be successful in addressing these technological challenges or
others that might arise during product development.
Manufacturing and Associated Risk Factors
The Company currently has no manufacturing facilities for late stage
preclinical, clinical or commercial production of either the bulk drug substance
or the final dosage form of any of its compounds. For quantities required for
preclinical and clinical testing, the Company expects to continue to rely, for
the immediate future, on third parties to manufacture its products, including
SNX-111, which can be made by solid-phase synthesis.
Under the terms of the contract with SmithKline, the Company received
275 kg of the raw material of CORLOPAM, fenoldopam, which has been
manufactured to cGMP quality. The Company believes that this will provide
sufficient supplies for both clinical trials and initial commercial quantities
of CORLOPAM. The Company must contract for the processing of this bulk drug
substance into finished pharmaceutical form and for any further compound
quantities. There can be no assurance that Neurex will be successful in
obtaining a third party manufacturer of CORLOPAM bulk drug substance, if
necessary. There can be no assurance that the current supply of bulk drug
substance will continue to be of sufficient quality to allow distribution for
sale.
On October 24, 1996, the Company entered into an approximately three
year manufacturing agreement with Mallinckrodt Chemicals, Inc. ("Mallinckrodt")
pursuant to which Mallinckrodt will be the principal manufacturer and supplier
of the Company's Analgesia requirements of SNX-111 for the U.S. market. The
agreement may, at the discretion of the Company, be renewed for an additional
two year term, provided the manufacturing price can be adjusted to reflect
increased production costs. Under terms of the agreement, the Company is
required to purchase its forecasted six months requirements and Mallinckrodt is,
subject to certain quantity maximums, required to supply the Company with its
forecasted six months requirements of SNX-111. The Company has agreed to
indemnify Mallinckrodt against certain potential liabilities associated with the
manufacture of SNX-111. Mallinckrodt has manufactured on behalf of the Company
sufficient quantities of SNX-111 for preclinical and clinical requirements to
date. Neurex chemists have made significant progress in increasing the yield of
purified material and Neurex continues to advise Mallinckrodt in manufacturing
scale-up and yield improvement in the production of SNX-111. Although
Mallinckrodt has synthesized sufficient quantities for clinical trials, there
can be no assurance that Mallinckrodt will be successful in manufacturing
commercial quantities of SNX-111 necessary for marketing or that the Company
will be able to secure a second source of supply.
The manufacturing of sufficient quantities of new drugs is a time
consuming, complex and unpredictable process. If the Company is unable to
maintain contract manufacturing arrangements or to develop its own manufacturing
capabilities on acceptable terms, the Company's ability to conduct preclinical
and clinical testing would be adversely affected, resulting in the delay of
submission of products for regulatory approval and initiation of new development
programs. This delay could in turn materially impair the Company's competitive
position and the possibility of the Company achieving profitability. The
compounds which the Company is presently developing have never been manufactured
on a commercial scale. There can be no assurance that such compounds can be
manufactured by the Company or any other party at a cost or in quantities
necessary to make commercially viable products.
Neurex has no experience in manufacturing commercial quantities of its
potential products and currently does not have the capacity to manufacture any
of its potential products on a commercial scale. In order to obtain regulatory
approvals and to develop its own capacity to produce its products for commercial
sale at an acceptable cost, Neurex would need to construct and staff
manufacturing capabilities, including demonstration to the FDA of its ability to
manufacture its products using controlled, reproducible processes in a cGMP
validated environment. The Company has evaluated plans to develop its own
manufacturing facility. Such plans, if instituted, would result in substantial
costs to the Company. There can be no assurance that construction delays would
not occur if Neurex were to do this, and any such delays could impair the
Company's ability to produce adequate supplies of its potential products for
clinical use or commercial sale on a timely basis. There can be no assurance
that Neurex will successfully conduct its manufacturing collaborations or
develop its own manufacturing capability and to produce adequate commercial
supplies of its potential products on a timely basis. Failure to do so could
delay commercialization of such products and impair their competitive position,
which could have a material adverse effect on the business or financial
condition of the Company.
Manufacturing of SNX-111 in compliance with regulatory requirements is
complex, time-consuming and expensive. While the Company has obtained third
party manufacturing support, there can be no assurance that the drug will be
successfully and timely manufactured in the quantities required for the
Company's commercialization plans. Furthermore, if changes are made in the
manufacturing process, it may be necessary to demonstrate to the FDA that the
changes have not caused the resulting drug material to differ significantly from
the drug material previously produced. Depending upon the type and degree of
differences between the newer and older drug material, various studies could be
required to demonstrate that the newly produced drug material is sufficiently
similar to the previously produced drug material, possibly requiring additional
animal studies or human clinical trials. Manufacturing changes may be made for
the production of Neurex' products currently in clinical development. There can
be no assurance that such changes will not result in delays in development or
regulatory approvals or, if occurring after regulatory approval, in reduction or
interruption of commercial sales. Such delays could have an adverse effect on
the competitive position of those products and could have a material adverse
effect on the business and financial condition of the Company.
Dependence on Suppliers
The Company is dependent on outside vendors for the supply of raw
materials used to produce its product candidates. The Company currently
qualifies only one or a few vendors for its source of certain raw materials.
Therefore, once a supplier's materials have been selected for use in the
Company's manufacturing process, the supplier could in effect become a sole or
limited source of such raw materials to the Company due to the extensive
regulatory compliance procedures governing changes in manufacturing processes.
Although the Company believes it could qualify alternative suppliers, there can
be no assurance that the Company would not experience a disruption in
manufacturing if it experienced a disruption in supply from any of these
sources. Any significant interruption in the supply of any of the raw materials
currently obtained from such sources, or the time and expense necessary to
transition a replacement supplier's product into the Company's manufacturing
process, could disrupt its operations and have a material adverse effect on the
business and financial condition of the Company.
A problem or suspected problem with the quality of raw materials supplied could
result in a suspension of clinical trials, notification of patients treated with
products or product candidates produced using such materials, potential product
liability claims, a recall of products or product candidates produced using such
materials, and an interruption of supplies, any of which could have a material
adverse effect on the business or financial condition of the Company.
Patents and Proprietary Rights and Associated Risk Factors
Proprietary protection for the Company's product candidates, processes
and know-how is important to its business, and the Company plans to prosecute
and defend its patents and proprietary technology aggressively. The Company's
policy is to file patent applications to protect its technology, inventions and
improvements as soon as practicable after any discovery is made. The Company
also relies upon trade secrets, know-how, continuing technological innovation
and licensing opportunities to develop and maintain its competitive position.
There has been increasing litigation in the biomedical, biotechnology
and pharmaceutical industries with respect to the manufacture, use and sale of
new therapeutic products that are the subject of conflicting patent rights. A
substantial number of patents relating to neurological compounds and treatment
methods have been issued to, or are controlled by, other public and private
entities, including academic institutions. In addition, others, including
competitors of Neurex, may have filed applications for, or may have been issued
patents or may obtain additional patents and proprietary rights relating to
products or processes competitive with those of Neurex. The patent positions of
pharmaceutical, biopharmaceutical, biotechnology and drug delivery companies,
including Neurex, are uncertain and involve complex legal and factual issues.
Additionally, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. As a consequence, the Company does not know
whether any of its patent applications will result in the issuance of patents or
whether any of the Company's existing patents will provide significant
proprietary protection or will be circumvented or invalidated. Since patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it was
the first inventor of inventions covered by its pending patent applications or
that it was the first to file patent applications for such inventions. Moreover,
the Company may have to participate in interference proceedings to determine
priority of invention, which could result in substantial cost to the Company,
even if the eventual outcome is favorable to the Company. There can be no
assurance that any patents owned or controlled by the Company will protect
Neurex against infringement litigation or afford commercially significant
protection of the Company's technology. None of the Company's patents has been
tested in court to determine their validity and scope. Moreover, the patent laws
of foreign countries differ from those of the United States and the degree of
protection. If any, afforded by foreign patents may, therefore, be different.
Under the Company's license from SmithKline for CORLOPAM, the Company
has acquired rights to United States patents. The patent containing claims to
CORLOPAM as a composition of matter expires in April, 1997. However, the
Company believes it would be entitled, under Sections 505(j) and 505(b)(2) of
the Federal Food, Drug and Cosmetic Act, to marketing exclusivity over other
parties filing abbreviated NDAs for an extended period of time from the date of
FDA approval of the CORLOPAM NDA, although there can be no assurance that such
exclusivity will be granted. In addition, the Company may be able to extend the
composition of matter patent for CORLOPAM under the patent terms extension
provisions of 35 U.S.C. 155. The Company also plans to file new patent
applications on its other CORLOPAM formulations, particularly for oral
delivery. If generic products are marketed following the expiration of the
CORLOPAM composition of matter patent, sales of CORLOPAM would be materially
and adversely affected.
In addition to the CORLOPAM patents, the Company currently owns
United States patents covering compositions and methods in the fields of
neuroprotection, analgesia, appetite suppression and drug discovery technology.
In neuroprotection, patents were issued covering methods of treating
ischemia-related neuronal conditions with the Company's NSCC blocking compounds,
and covering Neurex' screening technology for discovery of small molecules that
mimic peptide NSCC blockers. One patent covering a method of producing analgesia
by the Company's NSCC compounds also has been issued. The Company has filed
additional patent applications relating to compositions of matter and methods of
treatment for compounds which block NSCCs. The Company has also filed
commercially relevant foreign patent applications with respect to its issued
patents and patent applications in the United States, and patents covering the
use of the Company's NSCC compounds have been granted in the EPO and Australia.
The Company's patent position in Japan with respect to certain aspects of
treating pain may not be as strong as in the United States, and there can be no
assurance that it will prove attractive to any potential strategic partner in
that country.
Neurex has acquired rights to a United States patent relating to
Pro-UK's composition of matter. The Company plans to file for patent extension
in the United States and Europe. In addition, the Company has rights to second
generation Pro-UK patents covering phosphorylated Pro-UK and Pro-UK variants.
The phosphorylated Pro-UK patent, in particular, covers a general process for
producing phosphorylated Urokinase-type and Pro-UK-type plasminogen activators.
Phosphorylated derivatives of Urokinase and Pro-UK are potentially useful
thrombolytic agents with improved therapeutic characteristics with respect to
the unphosphorylated products. The patent on Pro-UK variants describes analogs
of Pro-UK which have been designed to eliminate undesirable nonspecific systemic
activation of plasminogen which may still be associated with unwanted side
effects. Pro-UK has not yet proven to be an attractive competitor in this
market, and the Company will lose its rights to this patent if it terminates its
relationship with VRL. The Company is now negotiating the termination of this
relationship. In addition to its United States patents, Neurex has foreign
patents and pending United States and foreign applications, which cover its core
technologies, as described above, and supporting technologies.
Litigation, which could result in substantial cost to the Company, may
be necessary to enforce any patents issued to the Company or to determine the
scope and validity of third-party proprietary rights. It is uncertain whether
any third-party patents will require the Company to alter its products or
processes, obtain licenses or cease certain activities. If any licenses are
required, there can be no assurance that the Company will be able to obtain any
such license on commercially favorable terms, if at all. Failure by the Company
to obtain a license to any technology that it may require to commercialize its
products may have a material adverse effect on the Company.
The Company requires its employees, consultants, members of its
Research Committee, outside scientific collaborators and sponsored researchers
and other advisors to execute confidentiality agreements upon the commencement
of employment or consulting relationships with the Company. These agreements
provide that all confidential information developed or made known to the
individual during the course of the individual's relationship with Neurex is to
be kept confidential and not disclosed to third parties, except in limited
circumstances. All of the Company's agreements with its employees and agreements
with most consultants provide that all inventions conceived by the individuals
shall be the exclusive property of the Company. There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for the Company's trade secrets in the event of unauthorized use or
disclosure of such information.
A corporation formed in January 1993 by a former consultant to Neurex
has alleged that the former consultant was a co-inventor of the Company's NSCC
blocking inventions while he was employed by a university. The corporation has
claimed an interest in the Company's NSCC blocking patents as a result of a
grant of an exclusive license of the consultant's technology from the university
to the corporation. The Company believes that this claim is without merit and
that the Company would prevail in any litigation. The Company believes that the
general terms of a resolution of the dispute have been agreed and would not
negatively effect the Company's business, but final settlement papers have not
yet been signed. If final settlement papers are not signed, there can be no
assurance that the Company will not be the subject of litigation, which could be
both costly and time consuming, or that the Company would prevail in such
litigation.
Marketing and Associated Risk Factors
A Vice President of Sales and Marketing was hired in October 1996 and
the Company plans to initiate the hiring of a sales and marketing organization
to support the commercialization of CORLOPAM, if, and when, it is approved for
marketing in the United States. Consistent with the Company's strategy, this
will result in a hospital-based sales force of less than 50 people. Neurex may
be unable to accomplish its strategy for the sale of CORLOPAM and other acute
care treatments in the United States if it has not established a sufficient
marketing organization in a timely fashion.
The Company's strategy is to market and sell its products, if
successfully developed and approved, through the direct sales force in the U.S.
and through sales and marketing partnership arrangements outside the U.S. The
Company has no history or experience in sales, marketing or distribution. To
market its products directly, the Company must either successfully establish its
planned marketing group and direct sales force or obtain the assistance of
another company. While the Company expects to be able to establish its own
internal sales force, there can be no assurance that the Company will be able to
establish sales and distribution capabilities or succeed in gaining market
acceptance for its products. If the Company enters into co-promotion or other
marketing or licensing arrangements with established pharmaceutical companies,
the Company's revenues will be subject to the payment provisions of such
arrangements and dependent on the efforts of third parties. There can be no
assurance that the Company will be able to successfully establish a direct sales
force or that its collaborators will effectively market any of the Company's
potential products, and the inability of the Company or its collaborators to do
so could have a material adverse effect on the business and financial condition
of the Company.
Under its collaboration with Warner-Lambert, the Company plans to
co-promote certain products with Warner-Lambert in the United States, United
Kingdom and one other European country to be designated later. The level of
Neurex profit derived from this collaboration will be dependent, in part, on
Warner-Lambert's promotion efforts and upon the level of direct costs associated
with Neurex' sales force in co-promotion countries, which is not a shared cost
under this collaboration. Products developed under the collaboration with
Medtronic will be marketed by the Medtronic sales force. There can be no
assurance that the marketing efforts of Warner-Lambert or Medtronic will be
successful. Neurex may require the assistance of other pharmaceutical companies
for the development and/or commercialization of products outside of the
Warner-Lambert and Medtronic collaborations. Under such arrangements, the
Company would conduct the primary research while the corporate partner would, in
whole or in part, be responsible for development, manufacturing, the conduct of
clinical trials, regulatory approvals and sales and marketing. The Company
intends to market and distribute its products outside the United States through
third party collaborations, such as with CORLOPAM in Europe with Beaufour.
There can be no assurance that such collaborations can be entered into on
satisfactory terms, if at all, or, if entered into, will be successful.
There can be no assurance that, if approved for marketing, CORLOPAM,
SNX-111 or any of the Company's other products under development will achieve
market acceptance. The existence and degree of market acceptance will depend
upon a number of factors, including the receipt of regulatory approvals, the
establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company's product candidates and their potential
advantages over existing treatment methods and reimbursement policies of
government and third-party payors. There is no assurance that physicians,
patients, payors or the medical community in general will accept or utilize any
products that may be developed by the Company. See "Business--Neurex' Product
Development Programs."
Government Regulation and Associated Risk Factors
.........
The Company's preclinical studies and clinical trials, as well as the
manufacturing and marketing of its potential products, are subject to extensive
regulation by numerous federal, state and local government authorities in the
United States, including the FDA. The Company will similarly be subject to
regulation by comparable regulatory agencies in other countries where the
Company and its collaborators may test and market its products. For marketing of
pharmaceutical products outside the U.S., Neurex is subject to foreign
regulatory requirements governing marketing approval, and FDA and other U.S.
export provisions should the pharmaceutical product be manufactured in the U.S.
Requirements relating to the manufacturing, conduct of clinical trials, product
licensing, promotion, pricing and reimbursement vary widely in different
countries. Difficulties or unanticipated costs or price controls may be
encountered by Neurex or its licensees or marketing partners in their respective
efforts to secure necessary governmental approvals to market the potential
pharmaceutical products, which could delay or preclude Neurex or its licensees
or its marketing partners from marketing their potential pharmaceutical
products. The steps required by the FDA regulatory approval process include
preclinical studies in animal models to assess the drug's efficacy and to
identify any potential safety problems. The results of these studies are
submitted to the FDA as part of an IND which is filed to comply with FDA
regulations prior to beginning clinical testing. In the event that no
appropriate animal models are available, an IND application will be based on in
vitro testing. The IND must be approved before human clinical trials may
commence. Typically, clinical trials involve a three phase process. In Phase I,
clinical trials are conducted with a small number of subjects to determine the
early safety profile and the pattern of drug distribution and metabolism. In
Phase II, clinical trials are conducted with groups of patients afflicted with a
specified disease in order to determine efficacy, optimal dosages, and expanded
evidence of safety. In Phase III, large scale, multi-center comparative clinical
trials are conducted with patients afflicted with a target disease in order to
provide sufficient data to demonstrate the statistical proof of efficacy and
safety required by the FDA and others. The human trials must be adequate and
well controlled to establish the safety and efficacy of the drug for its
intended use. The results of the preclinical testing and clinical trials are
then submitted to the FDA for a pharmaceutical product in the form of an NDA,
for approval to commence commercial sales. The FDA reviews the results of the
trials and may discontinue them at any time for safety reasons or other reasons
if they were deemed to be non-compliant with FDA regulations. There can be no
assurance that Phase I, II or III clinical trials will be completed successfully
within any specific time period, if at all, with respect to any of the Company's
or its collaborators' pharmaceutical products, each of which is subject to such
testing requirements. In responding to an NDA, the FDA may grant marketing
approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that approvals will be granted on a timely
basis, if at all. Preparing an NDA involves considerable data collection,
verification, analysis and expense. In addition to obtaining FDA approval for
each product, each manufacturing establishment for new drugs must receive
approval by the FDA. Manufacturing establishments, both foreign and domestic,
are subject to inspections by or under the authority of the FDA and by other
federal, state or local agencies and must comply with the FDA's current cGMP
regulations.
.........The regulatory process, which includes preclinical studies and clinical
trials of each compound to establish its safety and efficacy, takes many years
and requires the expenditure of substantial resources. The Company has limited
resources in the areas of product testing and regulatory compliance, and thus
will have to expand capital to acquire and expand such capabilities, reach
collaborative arrangements with third parties to provide these capabilities or
contract with third parties to provide these capabilities in order to advance
its products through the necessary regulatory approvals and prepare its products
for commercialization and marketing. Moreover, if regulatory approval of a drug
is granted, such approval may entail limitations on the indicated uses for which
it may be marketed. Failure to comply with applicable regulatory requirements
can, among other things, result in fines, suspension of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal
prosecutions. Further, FDA policy may change and additional government
regulations may be established that could prevent or delay regulatory approval
of the Company's potential products. The Company has filed an NDA for CORLOPAM
which has not yet been approved. There can be no assurance that the Company will
be able to submit NDAs for any other product and, if any such NDAs are
submitted, that CORLOPAM or any others will be approved for marketing in any
country. In addition, a marketed drug and its manufacturer are subject to
continual review, and later discovery of previously unknown problems with a
product or manufacturer may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market.
In addition to the requirement for FDA approval of each pharmaceutical
product, each pharmaceutical product manufacturing facility must be audited and
approved by the FDA. The manufacturing and quality control procedures must
conform to cGMP in order to receive FDA approval. Pharmaceutical product
manufacturing establishments are subject to inspections by the FDA and local
authorities as well as inspections by authorities of other countries. To supply
pharmaceutical products for use in the U.S., foreign manufacturing
establishments must comply with cGMP and are subject to periodic inspection by
the FDA or by corresponding regulatory agencies in such countries under
reciprocal agreements with the FDA. Moreover, pharmaceutical product
manufacturing facilities may also be regulated by state, local and other
authorities.
Both before and after approval is obtained, a pharmaceutical product,
its manufacturer and the holder of the NDA for the pharmaceutical product are
subject to comprehensive regulatory oversight. The FDA may deny an NDA if
applicable regulatory criteria are not satisfied, require additional testing or
information or require postmarketing testing and surveillance to monitor the
safety or efficacy of the pharmaceutical product. Moreover, even if regulatory
approval is granted, such approval may be subject to limitations on the
indicated uses for which the pharmaceutical product may be marketed. Further,
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems with the pharmaceutical product occur following
approval. Among the conditions for NDA approval, is the requirement that the
manufacturer of the pharmaceutical product comply with cGMP. In addition, under
an NDA, the manufacturer continues to be subject to facility inspection and the
applicant must assume responsibility for compliance with applicable
pharmaceutical product and establishment standards. Violations of regulatory
requirements at any stage may result in various adverse consequences, including
FDA refusal to accept a license application, total or partial suspension of
license, delay in approval or refusal to approve the pharmaceutical product or
pending marketing approval applications, warning letters, fines, injunctions,
withdrawal of the previously approved pharmaceutical product or marketing
approvals and/or the imposition of criminal penalties against the manufacturer
and/or NDA holders. In addition, later discovery of previously unknown problems
may result in new restrictions on such pharmaceutical product, manufacturer
and/or NDA holders, including withdrawal of the pharmaceutical product or
marketing approvals and pharmaceutical product recalls or seizures. The Company
is dependent upon third party manufacturers to supply its products. The failure
of any of these to meet the conditions described above could have a material
adverse effect on the Company.
History of Losses; Future Profitability Uncertain
.........The Company has a history of operating losses and expects to incur
substantial additional expenses with resulting quarterly losses over at least
the next few years as it continues to develop its potential products and to
devote significant resources to preclinical studies, clinical trials, and
manufacturing. To date, the Company has not received regulatory approval to
distribute any products. The time and resource commitment required to achieve
market success for any individual product is extensive and uncertain and, in
some cases, controlled by the Company's collaborators. No assurance can be given
that the Company's, or any of its collaborative partners', product development
efforts will be successful, that required regulatory approvals can be obtained,
that potential products can be manufactured at an acceptable cost and with
appropriate quality, or that any approved products can be successfully marketed.
.........The Company has not generated any material revenues from product sales
or royalties from licenses to the Company's technology. The Company's revenues
to date have consisted, and for the near future are expected to consist,
principally of research and development funding, licensing and signing fees and
milestone payments from pharmaceutical companies under collaborative research
and development agreements. These revenues may vary considerably from quarter to
quarter and from year to year, and revenues in any period may not be predictive
of revenues in any subsequent period, and variations may be significant
depending on the terms of the particular agreements. In particular, revenues for
the fourth quarter of 1996, which included several non-recurring payments in
connection with new licensing agreements, may not be indicative of revenues in
future quarters. While the Company historically has received significant revenue
pursuant to certain of its collaborations, the Company has recognized all of the
significant research and development and milestone revenue due under these
collaborations. Although the Company anticipates entering into new
collaborations from time to time, the Company presently does not anticipate
realizing non-royalty revenue from its new and proposed collaborations at levels
commensurate with the revenue historically recognized under its older
collaborations. Moreover, the Company anticipates that its operating expenses
will continue to increase significantly as the Company increases its research
and development, manufacturing, preclinical, clinical, administrative and patent
activities. Accordingly, in the absence of substantial revenues from new
corporate collaborations, royalties on CORLOPAM sales or other sources, the
Company expects to incur substantial and increased operating losses in the
foreseeable future as SNX-111 moves into later stage clinical development, as
additional potential products are selected as clinical candidates for further
development, as the Company invests in additional manufacturing facilities or
capacity, as the Company defends or prosecutes its patents and patent
applications, and as the Company invests in research or acquires additional
technologies, product candidates or businesses. The amount of net losses and the
time required to reach sustained profitability are highly uncertain. To achieve
sustained profitable operations, the Company, alone or with its collaborative
partners, must successfully discover, develop, manufacture, obtain regulatory
approvals for and market its potential products. No assurances can be given that
the Company will be able to achieve or sustain profitability, and results are
expected to be able to achieve or sustain profitability, and results are
expected to fluctuate from quarter to quarter.
Potential Volatility of Stock Price
The market prices for securities of biotechnology companies (including
the Company) have been highly volatile, and the stock market from time to time
has experienced significant price and volume fluctuations that may be unrelated
to the operating performance of particular companies. Factors such as results of
clinical trials, delays in manufacturing or clinical trial plans, fluctuations
in the Company's operating results, disputes or disagreements with collaborative
partners, market reaction to announcements by other biotechnology or
pharmaceutical companies, announcements of technological innovations or new
commercial therapeutic products by the Company or its competitors, initiation,
termination or modification of agreements with collaborative partners, failures
or unexpected delays in manufacturing or in obtaining regulatory approvals or
FDA advisory panel recommendations, developments or disputes as to patent or
other proprietary rights, loss of key personnel, litigation, public concern as
to the safety of drugs developed by the Company, regulatory developments in
either the U.S. or foreign countries (such as opinions, recommendations or
statements by the FDA or FDA advisory panels, health care reform measures or
statements by the FDA or FDA advisory panels, health care reform measures or
proposals), and general market conditions could result in the Company's failure
to meet the expectations of securities analysts or investors. In such event, or
in the event that adverse conditions prevail or are perceived to prevail with
respect to the Company's business, the price of Neurex' common stock would
likely drop significantly. In the past, following significant drops in the price
of a company's common stock, securities class action litigation has often been
instituted against such a company. Such litigation against the Company could
result in substantial costs and a diversion of management's attention and
resources, which would have material adverse effect on the Company's business
and financial condition.
Possible Future Requirements for Significant Additional Capital
The Company's operations to date have consumed substantial amounts of
cash. Negative cash flow from operations is expected to increase significantly
beyond current levels over at least the next two years as the Company expects to
spend substantial funds to conduct clinical trials, to expand its research and
development programs and to develop and expand its manufacturing capability. The
Company believes that it will obtain profitable operations before the need for
additional capital, but future capital requirements will depend on numerous
factors, including, among others, the progress of the Company's product
candidates in clinical trials; the continued or additional support by
collaborative partners or other third parties of research and clinical trials;
enhancement of research and development programs; the time required to gain
regulatory approvals; the resources the Company devotes to self-funded products,
manufacturing methods and advanced technologies; third party manufacturing
commitments; the ability of the Company to obtain and retain funding from third
parties under collaborative agreements; the development of internal marketing
and sales capabilities; the demand for the Company's potential products, if and
when approved; potential acquisitions of technology, product candidates or
businesses by the Company; and the costs of defending or prosecuting any patent
opposition or litigation necessary to protect the Company's proprietary
technology. If these factors effect Company expectations, the Company may need
to raise substantial additional funds through equity or debt financings,
collaborative arrangements, the use of sponsored research efforts or other
means. No assurance can be given that such additional financing will be
available on acceptable terms, if at all, and such financing may only be
available on terms dilutive to existing stockholders. The inability of the
Company to secure adequate funds on a timely basis could result in the delay or
cancellation of programs that the Company might otherwise pursue and, in any
event, could have a material adverse effect on the business and financial
condition of the Company.
Environmental Regulation
The Company is subject to federal, state and local laws and regulations
governing the use, generation, manufacture, storage, discharge, handling and
disposal of certain materials and wastes used in its operations, some of which
are classified as "hazardous." There can be no assurance that the Company will
not be required to incur significant costs to comply with environmental laws,
the Occupational Safety and Health Act, and state, local and foreign
counterparts to such laws, rules and regulations as its manufacturing and
research activities are increased or that the operations, business and future
profitability of the Company will not be adversely affected by current or future
laws, rules and regulations. The risk of accidental contamination or injury from
hazardous materials cannot be eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company. In any event, the cost of defending
claims arising from such contamination or injury could be substantial. In
addition, the Company cannot predict the extent of the adverse effect on its
business or the financial and other costs that might result from any new
government requirements arising out of future legislative, administrative or
judicial actions.
Uncertainty Related to Health Care Industry
The health care industry is subject to changing political, economic and
regulatory influences that may significantly affect the purchasing practices and
pricing of human therapeutics. Cost containment measures, whether instituted by
health care providers or enacted as a result of government health administration
regulators or new regulations, such as pricing limitations or formulary
eligibility for dispensation by medical providers, could result in greater
selectivity in the availability of treatments. Such selectivity could have an
adverse effect on the Company's ability to sell its products and there can be no
assurance that adequate third-party coverage will be available for the Company
to maintain price levels sufficient to generate an appropriate return on its
investment in product development. Third-party payors are increasingly focusing
on the cost-benefit profile of alternative therapies and prescription drugs and
challenging the prices charged for such products and services. Also, the trend
towards managed health care in the U.S. and the concurrent growth of
organizations such as health maintenance organizations, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices or reduced markets for the
Company's products. The cost containment measures that health care providers and
payors are instituting and the effect of any health care reform could adversely
affect the Company's ability to sell its products and may have a material
adverse effect on the Company. To date, the Company has conducted limited
marketing studies on certain of its potential products and has not undertaken
any pharmacoeconomic analysis with respect to its products under development.
The cost containment measures and reforms that government institutions and third
party payors are considering instituting could result in significant and
unpredictable changes to the marketing, pricing and reimbursement practices of
biopharmaceutical companies such as the Company. The adoption of any such
measures or reforms could have a material adverse effect on the business and
financial condition of the Company.
Technological Uncertainty
The Company's research and product development efforts are based on
novel alternative therapeutic approaches (including novel routes of
administration) and new technologies, including prevention of neuronal damage
due to ischemia, head trauma and other toxic insults, and the treatment of
certain types of pain, which although widely studied, are not well understood.
There is substantial risk that the Company's approaches and technologies will
prove to be unsuccessful. The development of products by the Company will
require the commitment of substantial resources to continue research,
preclinical development and clinical trials necessary to bring such products to
market and to establish production and marketing capabilities. Drug research and
development by its nature is uncertain; there is a risk of failure at any stage
and the time required and cost involved in successfully accomplishing the
Company's objectives cannot be predicted. There can be no assurance that the
Company will be successful in addressing these technological challenges or
others that might arise during product development, or that others will not
develop alternative therapies that will make the Company's treatment obsolete.
Competition and Associated Risks
The biopharmaceutical industry is highly competitive. The Company's
potential products are intended to address a wide variety of disease conditions,
including neurological and cardiovascular. Competition with respect to these
disease conditions is intense and is expected to increase. This competition
involves, among other things, successful research and development efforts,
obtaining appropriate regulatory approvals, establishing and defending
intellectual property rights, successful product manufacturing, marketing,
distribution, market and physician acceptance, patient compliance, price and
potentially securing eligibility for reimbursement or payment for the use of the
Company's product. The Company believes its most significant competitors may be
fully integrated pharmaceutical companies with substantial expertise in research
and development, manufacturing, testing, obtaining regulatory approvals,
marketing and securing eligibility for reimbursement or payment, and
substantially greater financial and other resources than the Company. Smaller
companies also may prove to be significant competitors, particularly through
collaborative arrangements with large pharmaceutical companies. Furthermore,
academic institutions, governmental agencies and other public and private
research organizations conduct research, seek patent protection, and establish
collaborative arrangements for product development, clinical development and
marketing. These companies and institutions also compete with the Company in
recruiting and retaining highly qualified personnel. The biotechnology and
pharmaceutical industries are subject to rapid and substantial technological
change. The Company's competitors may develop and introduce other technologies
or approaches to accomplishing the intended purposes of the Company's products
which may render the Company's technologies and products noncompetitive and
obsolete. Moreover, there can be no assurance the Company's products being
developed will be considered cost effective and that reimbursement to the
consumer will be available, or will be sufficient to allow the Company to sell
such products on a competitive basis.
The therapeutic areas in which CORLOPAM is expected to be
commercialized are competitive. Competition in the malignant hypertension market
includes a variety of parenterally and orally effective agents, such as sodium
nitroprusside, nicardipine and nifedipine. The Company believes that sodium
nitroprusside is the most widely prescribed agent for perioperative blood
pressure control in the United States. The medical community views sodium
nitroprusside, sold by Abbott Laboratories and other pharmaceutical companies,
as an essential tool in controlling a patients blood pressure in emergency and
perioperative settings. The Company believes CORLOPAM could be successfully
commercialized against the competition because of the potential advantages
offered by CORLOPAM in terms of safety, predictability of response and ease of
use. However, there can be no assurance that such potential advantages will be
recognized in the marketplace or that a product with a superior safety and
efficacy profile will not be developed.
SNX-111 is in development for the treatment of severe intractable
opiate resistant chronic pain, acute pain and brain ischemia. Effective
pharmacologic interventions do not currently exist. For this reason, the Company
believes that, if approved by the FDA, SNX-111 can be successfully
commercialized, and competitive products, unless clearly demonstrated to be
superior to SNX-111, should not preclude successful introduction of the product
to the market. However, there can be no assurance that a product with a superior
safety and efficacy profile will not assume a dominant position in the market.
The basic scientific area in which the Company is involved and the
diseases and disorders it seeks to treat are characterized by extensive research
efforts, rapid technological progress and intense competition from numerous
organizations including pharmaceutical companies, biotechnology companies,
universities, government agencies and nonprofit research organizations. New
developments are expected to continue at a rapid pace in both industry and
academia. Interest in the role of calcium and neurotransmitters has led to the
development of a number of competitive research strategies primarily targeted at
the nerve cell body. The Company believes that these competitive efforts are
focused on classical calcium channels and glutamate receptors. Blockers of the
three known types of glutamate receptors (NMDA, AMPA and kainate) have been
synthesized and serve to block the action of glutamate on the target nerve cell
after the neurotransmitter is secreted. Some of these compounds have entered
clinical studies for neuroprotection following ischemia, and it is possible that
these or other compounds may prove to be efficacious, in which case physicians
may view them to have characteristics which are superior to or complementary
with those of Neurex' compounds. It is uncertain whether a multi-drug approach
may be useful or desirable in the treatment of the Company's target indications,
and what effect the approval of a glutamate receptor blocker would have in the
competitive marketplace. Many of the Company's competitors have significantly
greater research and development, marketing, financial and human resources than
Neurex and represent significant long-term competition. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products which are more effective than those developed by the
Company or which would render the Company's technology and products less
competitive or obsolete.
Any potential product that the Company succeeds in developing and for
which it gains regulatory approval must then compete for market acceptance and
market share. For certain of the Company's potential products, an important
factor will be the timing of market introduction of competitive products.
Accordingly, the relative speed with which the Company and competing companies
can develop products, complete the clinical testing and approval processes, and
supply commercial quantities of the products to the market is expected to be an
important determinant of market success. Other competitive factors include the
capabilities of the Company's collaborative partners, product efficacy and
safety, timing and scope of regulatory coverage, the amount of clinical benefit
of the Company's products relative to their cost, method of administration,
price and patent protection. There can be no assurance that the Company's
competitors will not develop more efficacious or more affordable products, or
achieve earlier product development completion, patent protection, regulatory
approval or product commercialization than the Company. The occurrence of any of
these events by the Company's competitors could have material adverse effect on
the business and financial condition of the Company.
Product Liability Claims and Uninsured Risks
The testing, marketing and sale of human pharmaceutical products
involves unavoidable risks. The use of any of the Company's potential products
in clinical trials and the sale of any of its products may expose the Company to
potential liability resulting from the use of such products. Such liability
might result from claims made directly by consumers or by regulatory agencies,
pharmaceutical companies or others selling such products. The Company currently
has clinical trial and product liability insurance coverage. The Company will
seek to maintain and appropriately increase such insurance coverage as clinical
development of its product candidates progresses and if and when its products
are ready to be commercialized. There can be no assurance that the Company will
be able to obtain such insurance or, if obtained, that such insurance can be
acquired at a reasonable cost or in sufficient amounts to protect the Company
against such liability. The obligation to pay any product liability claim in
excess of whatever insurance the Company is able to acquire, or the recall of
any of its products, could have a material adverse effect on the business,
financial condition and future prospects of the Company.
Employees
As of December 31, 1996, Neurex employed 75 individuals full time, 27
of whom hold doctorate degrees. A significant number of the Company's management
and professional employees have had prior experience with pharmaceutical,
biotechnology or medical product companies, as well as university laboratories.
The Company is highly dependent upon the principal members of its scientific and
management staff, the loss of whose services might impede the achievement of the
Company's business objectives. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
be critical to the Company's success. Although the Company believes it will be
successful in attracting and retaining skilled and experienced scientific
personnel, there can be no assurance that the Company will be able to attract
and retain such personnel on acceptable terms given the competition among
numerous pharmaceutical and biotechnology companies, universities and other
research institutions for experienced scientists. In addition, Neurex'
anticipated growth and expansion into areas and activities requiring additional
expertise in clinical testing, regulatory approval, manufacturing and marketing
are expected to place increased demands on the Company's resources and
management skills. These demands will require the addition of new management
personnel and the development of additional expertise by existing personnel. The
failure to retain such personnel to develop or acquire this expertise could
adversely affect prospects for the Company's success. The Company maintains
keyman insurance policies on its Chief Executive Officer and Executive Vice
President of Development. None of the Company's employees are covered by
collective bargaining agreements and management considers its relations with its
employees to be good.
ITEM 2. FACILITES
Neurex executive offices and research and development facilities are
located at 3760 Haven Avenue, Menlo Park, California, 94025, and its telephone
number is (415) 853-1500. The Company occupies a 34,500 square foot facility
under a lease which expires in June 2001. The Company has an option to renew the
lease for five years. Approximately 22,500 square feet are laboratory space,
6,600 square feet are administrative space and 5,400 square feet remain
available for laboratory or manufacturing expansion. The facility contains
office space and laboratories designed specifically for the Company's research.
On December 12, 1996, the Company entered into a one year lease
agreement commencing January 1, 1997 covering approximately 6,315 square feet of
additional office space located in Menlo Park near the Company's headquarters.
The new leased office space will be for expanded development and clinical
research activities.
..................
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the Company's fiscal year ended December
31, 1996, no matters were submitted to a vote of securityholders.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since the Company's initial public offering of its common stock, $0.01
par value ("Common Stock"), on September 22, 1993, the Company's Common Stock
has been traded on the NASDAQ National Market System under the symbol NXCO. The
closing price of the Company's Common Stock on Tuesday, March 11, 1997 was
$15.00 per share. No cash dividends have been paid to date by the Company on its
Common Stock. The Company does not anticipate the payment of dividends in the
foreseeable future. As of March 11, 1997, there were approximately 4,000
stockholders of record.
The following table sets forth the high and low bid prices of Neurex
Common Stock, as reported by NASDAQ for the calendar periods indicated:
Calendar Year High Low
- ----------------------- ----------------------- --------------------
1995
First Quarter $ 2.25 $ 0.88
Second Quarter 2.00 1.50
Third Quarter 6.38 1.88
Fourth Quarter 9.00 4.25
1996
First Quarter 21.75 7.25
Second Quarter 24.50 16.50
Third Quarter 22.25 13.25
Fourth Quarter 17.75 12.00
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
Summary Consolidated Financial Information
(In thousands, except per share data)
<CAPTION>
Years ended
--------------------------------------------------------------------------
Consolidated September 30, December 31,
---------------------------------------------------------
Statement of Operations Data: 1992 1993 1994(4) 1995 1996
----------------------------------- -------- -------- -------- -------- --------
----------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ 1,948 $ 1,679 $ 2,132 $ 2,662 $ 3,576
Research and development expenses . 5,284 6,233 8,477 10,607 19,663
Acquired in-process research and
development(1) .................... -- -- 10,153 -- --
General and administrative expenses 1,607 2,083 1,933 2,079 3,923
-------- -------- -------- -------- --------
Loss from operations .............. (4,943) (6,637) (18,431) (10,024) (20,010)
Interest income (expense), net .... (71) (580) 463 35 3,534
-------- -------- -------- -------- --------
Net loss .......................... $ (5,014) $ (7,217) $(17,968) $ (9,989) $(16,476)
======== ======== ======== ======== ========
======== ======== ======== ======== ========
Net loss per share(2) ............. $ (4.39) $ (5.92) $ (1.70) $ (0.80) $ (0.80)
(3)
======== ======== ======== ======== ========
======== ======== ======== ======== ========
Shares used in net loss per share
computation ....................... 1,143 1,218 10,548 12,499 20,680
</TABLE>
<TABLE>
Three months ended December 31,
---------------------------------
Consolidated
Statement of Operations Data: .......................... 1994(4) 1995
- -------------------------------------------------------- -------- --------
<S> <C> <C>
(unaudited)
Revenues ............................................... $ 74 $ 158
Research and development expenses ...................... 2,399 2,781
General and administrative expenses .................... 541 595
-------- --------
Loss from operations ................................... (2,866) (3,218)
Interest income (expense), net ......................... 78 192
-------- --------
Net loss ............................................... $ (2,788) $ (3,026)
======== ========
======== ========
Net loss per share(2) .................................. $ (0.23) $ (0.17)
======== ========
======== ========
Shares used in net loss per share
computation ............................................ 12,302 17,423
</TABLE>
(1) The acquired in-process research and development charges resulted from
the Creagen acquisition in July 1994 ($8.8 million) and the CORLOPAM
licensing fee in April 1994 ($1.4 million).
(2) For a description of the computation of net loss per share, see Note 1 of
Notes to Consolidated Financial Statements.
(3) Net loss per share includes a $0.96 per share charge for acquired
in-process research and development and licensing fees resulting from the
Creagen acquisition and the CORLOPAM licensing fee; loss per share
without these charges would have been $0.77 per share.
(4) The operating results of Creagen, Inc. have been included in the
Company's consolidated results from the date of acquisition,
July 15, 1994.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (CONT.)
<TABLE>
September 30, December 31,
---------------------------------------------------------
Consolidated
Balance Sheet Data: ...... 1992 1993 1994(2) 1995 1996
------------------------------------- -------- -------- -------- -------- --------
------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments ......................... $ 4,037 $ 18,555 $ 11,385 $ 12,753 $ 77,369
Total assets ........................ 5,651 19,774 13,500 17,617 89,571
Long-term obligations ............... 33 18 174 8,161 1,964
Accumulated deficit ................. (21,136) (28,353) (46,320) (56,309) (75,811)
Stockholders' equity (deficiency)(1) (623) 17,517 9,022 3,289 79,958
</TABLE>
(1) No dividends have been declared or paid on the common stock.
(2) The operating results of Creagen, Inc. have been included in the
Company's consolidated results from the date of acquisition, July
15, 1994.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since commencement of operations in October 1986, Neurex has devoted
substantially all of its resources to its research and development programs. The
Company has been unprofitable since inception and expects to incur significant
and increasing losses over at least the next few years in order to continue
clinical development and to commercialize its products. As of December 31, 1996,
the Company's cumulative net loss was $75,811,000. The Company's principal
sources of working capital have been public and private equity financings,
convertible notes payable including the convertible note payable to Medtronic,
Inc., a stockholder (the " Medtronic Note"), milestone and other payments from
collaborative research and development agreements, license fees, interest
income, lease financings and research grants. The Company has not generated any
product sales.
The Company's business is subject to significant risks, including, but
not limited to the success of its research, development, commercialization,
product acceptance and capital raising efforts, uncertainties associated with
obtaining and enforcing patents important to the Company's business, the lengthy
and expensive regulatory process, and possible competition from other products.
Even if the Company's products appear promising at an early stage of
development, they may not reach the market for a number of reasons. Such reasons
include, but are not limited to, the possibilities that the potential products
will be found ineffective during clinical trials, fail to receive the necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical to market or be precluded from commercialization by the proprietary
rights of third parties. Additional expenses, delays and losses of opportunities
that may arise out of these and other risks could have a material adverse impact
on the Company's financial condition, results of operations and cash flows.
In July 1996, the Company changed its fiscal year end from September 30
to December 31, effective with the 12 months ended December 31, 1996. The
information for the three month period ended December 31, 1994, is unaudited,
but in the Company's opinion, the accompanying condensed interim financial
statements include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary to fairly state the Company's
financial position and the results of operations and cash flows. The results of
the Company's operations for any interim period are not necessarily indicative
of the results of the Company's operations for any other interim period or for a
full fiscal year.
Results of Operations
Years Ended December 31, 1996 and September 30, 1995 and 1994
Revenues were $3,576,000, $2,662,000 and $2,132,000 in 1996, 1995 and
1994, respectively. Revenues in 1996 consisted primarily of a license fee from
Grunenthal of $1,581,000 and research and development expense reimbursement
payments from Warner-Lambert of $1,730,000. Revenues in 1995 consisted primarily
of a license fee from Grnenthal of $1,667,000, the recognition of a milestone
payment from Medtronic of $500,000 and research and development expense
reimbursement payments from Warner-Lambert. Revenues in 1994 consisted primarily
of milestone payments from Warner-Lambert of $1,000,000, and $1,111,000 from the
Company's agreement with Ono Pharmaceutical Co., Ltd. ("Ono"), which expired on
May 31, 1994. Other revenue in 1996, 1995 and 1994 consisted primarily of
government grants which fluctuate based upon the timing and performance of the
various grants. The Company expects activity under collaborative agreements and
government grants and related revenues to continue to fluctuate in the future.
Research and development expenses were $19,663,000, $10,607,000 and
$8,477,000 in 1996, 1995 and 1994, respectively. Research and development
expenses in 1996, 1995 and 1994 represent 83%, 84% and 81%, respectively, of
total ongoing operating expenses. Research and development expenses in 1996
increased $9,056,000 or 85% over 1995, due primarily to increased expenses in
clinical study activities and SNX-111 bulk drug procurement expenditures for
Phase II/III malignant and non-malignant pain studies. Research and development
expenses in 1995 increased by $2,130,000 or 25% over 1994, due primarily to
expenses associated with the research collaboration with VRL. In addition,
increased research and development expenses in 1995 resulted from the Company's
Phase II clinical studies for SNX-111 in head trauma and CABG surgery, as well
as Phase I/II studies for SNX-111 for the treatment of pain. The Company expects
research and development expenses to increase significantly over the next
several years.
Acquired in-process research and development of $10,153,000 in 1994 was
due to the cost of licensing CORLOPAM ($1,400,000) from SmithKline in April
and the July acquisition of Creagen ($8,753,000). These transactions were
financed primarily by the issuance of 1,976,400 shares of Neurex common stock
with a fair market value of $7,755,000, and $939,000 of amounts payable at
subsequent dates.
General and administrative expenses were $3,923,000, $2,079,000 and
$1,933,000 in 1996, 1995 and 1994, respectively. General and administrative
expenses increased by 89% in 1996 as compared to 1995 primarily due to higher
corporate and patent legal expenses, other professional fees and employment
related expenses. General and administrative expenses increased by 8% in 1995 as
compared to 1994 due to employment related expenses. As the Company continues
its clinical development and commercialization of its products, the Company
expects general and administrative expenses to increase over the next several
years.
Interest income was $3,720,000, $291,000 and $517,000 in 1996, 1995 and
1994, respectively. Interest income increased substantially in 1996 compared to
1995 due primarily to higher levels of invested funds during the period as a
result of the public offering in May 1996. Interest income decreased in 1995
compared to 1994 due primarily to lower levels of invested funds during the
period.
Interest expense was $186,000, $256,000 and $53,000 in 1996, 1995 and
1994, respectively. Interest expense decreased in 1996 as compared to 1995
primarily due to the conversion of the Medtronic Note into equity in October
1995. Interest expense increased substantially in 1995 as compared to 1994
primarily because of the Medtronic Note and the use of capital leases to fund
capital expenditures.
As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $49,200,000. The net operating loss carryforwards
will expire at various dates beginning in 2001 through 2011, if not utilized.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986 and similar state provisions. The annual limitation may result in
the expiration of net operating losses before utilization.
Three months ended December 31, 1995 and 1994
Revenues were $158,000 and $74,000 for the three months ended December
31, 1995 and 1994, respectively. Revenues in both periods consisted primarily of
expense reimbursements from a related party.
Research and Development expenses increased by $382,000 or 16% to
$2,781,000 for the three months ended December 31, 1995 compared to $2,399,000
in the earlier period. The increase was due primarily to increased clinical
study expenses related to the Company's Phase III clinical studies for
CORLOPAM.
General and administrative expenses increased $54,000 or 10% to
$595,000 for the three months ended December 31, 1995 compared to $541,000 in
the earlier period primarily due to higher employment related expenses.
Interest income increased to $308,000 for the three months ended
December 31, 1995 compared to $83,000 in the earlier period. The increase was
due to the increase in cash available for investments as the result of the
successful completion of the directed public offering on October 16, 1995.
Interest expense increased to $116,000 for the three months ended
December 31, 1995 compared to $5,000 in the earlier period primarily due to the
Medtronic Note.
Liquidity and Capital Resources
For the years ended December 31, 1996 and September 30, 1995, cash
expenditures for operating activities and additions to capital equipment were
$12,749,000 and $10,528,000, respectively. The Company anticipates that these
expenditures will increase significantly in future periods.
The Company had available cash, cash equivalents, short-term and
long-term investments of $87,242,921 at December 31, 1996, and $12,753,457 at
September 30, 1995. The increase during 1996 results primarily from issuances of
common stock, which more than offset cash used for operations.
In May 1996, the Company completed the sale of 3,450,000 shares of
common stock at $22.75 per share which raised approximately $74,000,000, net of
commissions.
On October 16, 1995, the Company completed the sale of 3,000,000 shares
of common stock at $4.50 per share in a directed public offering. The offering
triggered the conversion of $6,500,000 of the Medtronic Note, plus related
interest of $190,576 through October 16, 1995, into common stock at a conversion
price of $4.625 per share. The remaining $1,500,000 of the Medtronic Note
converted into a prepaid milestone fee, which, if not earned by April 30, 1998,
will be repaid with interest. The offering also triggered the obligation of
Warner-Lambert to purchase $3,000,000 of additional equity in the Company. The
first purchase of $1,500,000 was made on November 13, 1995 for 333,334 shares.
The second purchase of $1,500,000 was made on March 29, 1996 for 75,263 shares.
In August 1995, the Company completed a private placement of 1,000,000
shares of common stock at $3.50 per share.
In October 1994, the Company entered into a $1,200,000 equipment line
of credit and during the year ended September 30, 1995, the Company drew down
$664,000 of this line of credit. The line of credit has now expired.
The Company expects to continue to incur substantial additional
operating losses from costs related to continuation and expansion of research
and development, including clinical studies and increased administrative
activities over at least the next few years. The Company anticipates that its
existing capital resources and interest earned thereon will enable it to
maintain its current and planned operations through the foreseeable future.
However, the Company's requirements may change depending on numerous factors,
including, but not limited to, the progress of the Company's research and
development programs, the results of clinical studies, the number and nature of
the indications the Company pursues in clinical studies, the timing of domestic
and foreign regulatory approvals, technological advances, determinations as to
the commercial potential of the Company's products and the status of competitive
products. In addition, expenditures will be dependent on the Company's ability
to establish and continue collaborative relationships with other companies, the
availability of financing and other factors. The Company plans to continue to
fund its short and long-term operations using a combination of public and
private equity and debt offerings, and payments from the licensing, sublicensing
and/or sales of its intellectual property rights. If such funds are not
obtained, the Company may need to delay or curtail its research and development
activities to a significant extent.
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<CAPTION>
Page
Number
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................................................. 38
Consolidated Balance Sheets at September 30, 1995 and December 31, 1996............................ 39
Consolidated Statements of Operations for the years ended September 30, 1994 and 1995 and December
31, 1996...................................................................................... 40
Consolidated Statements of Operations for the three month periods ended December 31, 1994 and 1995.
41
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency) for the years ended
September 30, 1994 and 1995 and December 31, 1996 and for the three month period ended
December 31, 1995............................................................................. 42
Consolidated statements of Cash Flows for the years ended September 30, 1994 and 1995 and December
31, 1996 ..................................................................................... 43
Consolidated statements of Cash Flows for the three month periods ended December 31, 1994
(unaudited) and 1995.......................................................................... 44
Notes to Consolidated Financial Statements......................................................... 45
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Neurex Corporation
We have audited the accompanying consolidated balance sheets of Neurex
Corporation as of September 30, 1995 and December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended September 30, 1994 and 1995 and December 31, 1996 and for the
three month period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Neurex Corporation at September 30, 1995 and December 31, 1996, and the
consolidated results of its operations and its cash flows for the years ended
September 30, 1994 and 1995 and December 31, 1996 and the three month period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Palo Alto, California
February 14, 1997
<PAGE>
<TABLE>
NEUREX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1996
----------- ----------
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................... $ 9,794,387 $40,551,609
Short-term investments ....................................................... 2,959,070 36,816,948
Receivables .................................................................. 12,189 46,022
Receivable - Warner-Lambert, a stockholder ................................... 2,510,377 --
Prepaid expenses ............................................................. 261,076 334,777
----------- ----------
----------- ----------
Total current assets ......................................................... 15,537,099 77,749,356
Property and equipment, net .................................................. 1,660,865 1,747,613
Note receivable from officer ................................................. 110,493 123,215
Long-term investments ........................................................ -- 9,874,364
Other assets, net ............................................................ 308,931 76,724
----------- ----------
$17,617,388 $89,571,272
=========== ==========
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable ......................................... $ $
655,962 1,960,832
Accrued wages and benefits................................ 331,632 458,024
Accrued payables to related parties....................... 361,410 50,000
Accrued clinical and preclinical testing.................. 718,097 2,508,788
Product acquisition payable - related party............... 650,000 --
Other accrued liabilities................................. 570,478 621,159
Deferred revenue ......................................... -- 1,043,420
Deferred revenue - Warner Lambert, a stockholder.......... 2,400,000 803,000
Notes payable to stockholder.............................. 288,513 --
Current portion of capital lease obligations.............. 191,611 204,398
------------------- -----------------
Total current liabilities........................... 6,167,703 7,649,621
Long-term capital lease obligations.......................... 566,960 294,559
Convertible note payable to Medtronic, Inc., a stockholder... 7,594,117 --
Prepaid milestone repayable to Medtronic, Inc., a stockholder -- 1,669,344
Commitments
Stockholders' equity:
Convertible preferred stock, $ .01 par value; authorized:
15,000,000 shares; none outstanding..................... -- --
Common stock, $ .01 par value; authorized: 45,000,000
shares; issued and outstanding 13,404,147 shares at
September 30, 1995 and 22,036,080 shares at December 134,042 220,361
31, 1996 ...............................................
Additional paid-in capital................................ 59,782,154 155,598,852
Deferred compensation..................................... (288,101) (41,307)
Unrealized loss on investments ........................... (30,225) (9,541)
Accumulated deficit....................................... (56,309,262) (75,810,617)
------------------- -----------------
Total stockholders' equity................................... 3,288,608 79,957,748
------------------- -----------------
=================== =================
$ 17,617,388 $ 89,571,272
=================== =================
</TABLE>
See accompanying notes.
<PAGE>
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
<TABLE>
Years ended
-------------------------------------------------------------
September 30, September 30, December, 31
1994 1995 1996
------------ ------------ ------------
------------ ------------
Revenues:
<S> <C> <C> <C>
Related parties ............... $ 1,000,000 $ 896,499 $ 1,883,904
Other ......................... 1,131,670 1,765,113 1,691,653
------------ ------------ ------------
------------ ------------
2,131,670 2,661,612 3,575,557
Costs and expenses:
Research and development ...... 8,476,891 10,606,575 19,662,484
Acquired in-process research
and development ............... 10,153,313 -- --
General and administrative .... 1,932,722 2,079,060 3,922,682
------------ ------------ ------------
------------ ------------
Total costs and expenses ...... 20,562,926 12,685,635 23,585,166
------------ ------------
------------ ------------
Loss from operations .......... (18,431,256) (10,024,023) (20,009,609)
Interest income ............... 516,606 291,395 3,719,677
Interest expense .............. (52,958) (256,310) (185,775)
------------ ------------ ------------
------------
Net loss ...................... $(17,967,608) $ (9,988,938) $(16,475,707)
============
============ ============
Net loss per share ............ (1.70) (0.80) (0.80)
============
============ ============
Shares used in net loss per
share computation ............. 10,548,240 12,498,913 20,680,288
</TABLE>
See accompanying notes.
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
<TABLE>
Three
months ended
----------------------------------------
December 31, December 31,
1994 1995
------------ ------------
(unaudited)
Revenues:
<S> <C> <C>
Related parties ...................................... $ 68,200 $ 158,000
Other ................................................ 5,342 --
------------ ------------
------------ ------------
73,542 158,000
Costs and expenses:
Research and development ............................. 2,399,097 2,780,538
General and administrative ........................... 540,582 595,103
------------ ------------
------------ ------------
Total costs and expenses ............................. 2,939,679 3,375,641
------------
------------ ------------
Loss from operations ................................. (2,866,137) (3,217,641)
Interest income ...................................... 82,995 308,283
Interest expense ..................................... (4,548) (116,290)
------------ ------------
------------
Net loss ............................................. $ (2,787,690) $ (3,025,648)
============ ============
Net loss per share ................................... $ $
(0.23) (0.17)
============ ============
Shares used in net loss per
share computation .................................... 12,301,581 17,422,965
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Note Total stockholders'
Additional receivable Unrealized equity
Common paid-in Deferred from loss on Accumulated
stock capital compensation officer investments deficit
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1993.. $99,402 $46,501,281 $(718,894 (12,500) -- $(28,352,716) $17,516,573
Forgiveness of note receivable from
officer -- -- -- 12,500 -- -- 12,500
Amortization of deferred
compensa-tion, net of -- 15,650) 199,602 -- -- -- 183,952
cancellations
1,876,400 shares of common stock
issuable to shareholders of
Creagen, Inc. 18,764 7,336,723 -- -- -- -- 7,355,487
Issuances of 481,668 shares of
common stock 4,817 1,915,997 -- -- -- -- 1,920,814
Net loss -- -- -- -- -- (17,967,608) (17,967,608)
------------
------------ ------------
Balances at September 30, 1994.. 122,983 55,738,351 (519,292) -- -- (46,320,324) 9,021,718
Issuance of warrant to purchase
169,646 shares of common stock . -- 460,000 -- -- -- -- 460,000
Amortization of deferred
compensa-tion net of -- (7,149) 231,191 -- -- -- 224,042
cancellations
Sale of 1,000,000 shares of
common stock at $3.50 per share 10,000 3,490,002 -- -- -- -- 3,500,002
Issuance of 105,862 shares of
common stock 1,059 100,950 -- -- -- -- 102,009
Unrealized losses on
available-for-sale investments.. -- -- -- -- (30,225) -- 30,225)
Net loss -- -- -- -- -- (9,988,938) (9,988,938)
------------
------------ ------------
Balances at September 30, 1995.. 134,042 59,782,154 (288,101) -- (30,225) (56,309,262) 3,288,608
Amortization of deferred
compensa-tion net of -- (23,477) 68,362 -- -- -- 44,885
cancellations
Sale of 3,000,000 shares of
common stock at $4.50 per share
net of issuance costs of 30,000 12,260,000 -- -- -- -- 12,290,000
$1,210,000
Conversion of note payable to
Medtronic, Inc. and related
accrued interest to 1,446,610
shares of common stock 14,466 6,676,110 -- -- -- -- 6,690,576
Transfer of unamortized discount
on the conversion of note payable
to Medtronic, Inc. -- (318,787) -- -- -- -- (318,787)
Sale of 333,334 shares of common
stock to Warner-Lambert 3,333 1,496,667 -- -- -- -- 1,500,000
Net issuances of 25,006 shares of
common stock on the exercise of
stock options 250 37,046 -- -- -- -- 37,296
Unrealized gains on
available-for-sale investments . -- -- -- -- 27,541 -- 27,541
Net loss -- -- -- -- -- (3,025,648) (3,025,648)
------------
------------ ------------
Balances at December 31, 1995 182,091 79,909,713 (219,739) -- (2,684) (59,334,910) 20,534,471
Amortization of deferred
compensa-tion -- -- 178,432 -- -- -- 178,432
Sale of 75,263 shares of common
stock to Warner-Lambert 753 1,499,247 -- -- -- -- 1,500,000
Issuance of 79,315 shares of
common stock under the stock 793 317,278 -- -- -- -- 318,071
purchase plan
Net issuances of 222,405 shares
of common stock on the exercise
of stock options 2,224 334,517 -- -- -- -- 336,741
Sale of 3,450,000 shares of
common stock at $22.75 per share
net of issuance costs of 34,500 73,538,097 -- -- -- -- 73,572,597
$4,914,903
Unrealized losses on
available-for-sale investments . -- -- -- -- (6,857) -- (6,857)
Net loss -- -- -- -- -- (16,475,707) (16,475,707)
------------ ------------
------------ ------------
Balances at December 31, 1996 $220,361 $155,598,852 (41,307) $ $ $(75,810,617)
-- (9,541) $79,957,748
============
============
</TABLE>
See accompanying notes.
<PAGE>
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
Years ended
September 30, September 30, December 31,
1994 1995 1996
--------------------------------------------------------
Cash flows used for operating activities:
<S> <C> <C> <C>
Net loss............................. $ (17,967,608) $ (9,988,938) $ (16,475,707)
Adjustments to reconcile net loss to
net cash used for
operating activities:
Depreciation and amortization..... 329,944 334,877 425,978
Acquired in-process research and 8,405,487 --
development.......................
Noncash expenses from stock, debt 191,832 332,159 203,297
and warrant issuances.............
Changes in assets and liabilities:
Notes receivable from officer (101,268) (9,225) (10,287)
Receivables.................. (38,901) (2,448,550) 464,676
Prepaid expenses............. (321,981) 164,222 (128,167)
Accounts payable............. (359,419) (358,986) 1,614,341
Accrued and other liabilities 15,111 194,671 2,093,355
Deferred credit/revenue ..... 500,000 1,900,000 (395,580)
--------------------------------------------------------
Net cash used for operating (9,346,803) (9,879,770) (12,208,094)
activities........................
--------------------------------------------------------
--------------------------------------------------------
Cash flows from investing activities:
Acquisition, net of cash balances ... 1,126,635 -- --
Purchases of property and equipment.. (411,773) (647,810) (541,081)
Purchases of short-term investments.. (13,450,181) (1,963,027) (269,426,258)
Sales of short-term investments...... 2,614,067 6,120,093 107,236,122
Maturities of short-term investments. 989,927 2,699,826 137,547,805
Payment of notes payable to -- -- (288,513)
stockholder........................
--------------------------------------------------------
Net cash provided by (used for) (9,131,325) 6,209,082 (25,471,925)
investing activities..............
--------------------------------------------------------
--------------------------------------------------------
Cash flows from financing activities:
Sales of common stock (net of 1,512,934 3,548,011 75,727,409
repurchases) ......................
Proceeds from sale and leasebacks ... -- 664,395 --
Long-term debt and capital lease (50,771) (143,264) (212,723)
repayments.........................
Proceeds from issuance of -- 8,000,000 --
convertible debt ..................
Other assets ....................... -- (142,986) 61,826
--------------------------------------------------------
--------------------------------------------------------
Net cash provided by financing 1,462,163 11,926,156 75,576,512
activities.......................
--------------------------------------------------------
--------------------------------------------------------
Net increase (decrease) in cash and (17,015,965) 8,255,468 37,896,493
cash equivalents ....................
Cash and cash equivalents at beginning 18,554,884 1,538,919 2,655,116
of year.....................
--------------------------------------------------------
========================================================
Cash and cash equivalents at end of $ 1,538,919 $ 9,794,387 $40,551,609
year ....................... ========================================================
========================================================
Supplemental disclosures of noncash investing and financing activities:
Property and equipment acquired $ 226,828 $ -- $ --
under capital lease.......
========================================================
Stock issued in acquisition and for $ $ -- $ --
licensing fees ........... 7,755,487
========================================================
Supplemental disclosures of cash flow information:
Cash paid for interest............... $ $ 75,000 $
55,000 58,000
========================================================
</TABLE>
See accompanying notes.
NEUREX CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
Three
months ended
December 31, December 31,
1994 1995
--------------------------------------
(unaudited)
Cash flows used for operating activities:
Net loss............................. $ (2,787,690) $
(3,025,648)
Adjustments to reconcile net loss to
net cash used for
operating activities:
Depreciation and amortization..... 81,500 135,994
Noncash expenses from stock, debt 43,450 86,362
and warrant issuances.............
Conversion of interest on debt
convertible into common stock..... -- 41,206
Changes in assets and liabilities:
Receivables.................. (36,773) 2,009,433
Prepaid expenses............. (63,886) 54,466
Other long-term assets....... (2,231) --
Accounts payable............. (171,956) (309,471)
Accrued and other liabilities (14,058) (725,269)
Deferred credit/revenue ..... (20,950) (158,000)
------------------------------------
Net cash used for operating
activities........................ (2,972,594) (1,890,927)
------------------------------------
Cash flows from investing activities:
Purchases of property and equipment.. (394,566) (80,244)
Purchases of short-term investments.. (1,045,000) (46,583,054)
Sales of short-term investments...... 2,626,094 25,541,912
Maturities of short-term investments. -- 1,971,916
------------------------------------
Net cash provided by (used for)
investing activities.............. 1,186,528 (19,149,470)
------------------------------------
Cash flows from financing activities:
Sales of common stock (net of 6,117 13,948,018
repurchases) ......................
Proceeds from sale and leasebacks ... 343,524 --
Long-term debt and capital lease
repayments......................... (24,241) (46,892)
--------------------------------------
Net cash provided by financing
activities....................... 325,400 13,901,126
--------------------------------------
Net increase (decrease) in cash and
cash equivalents .................... (1,460,666) (7,139,271)
Cash and cash equivalents at beginning
of period................... 1,538,919 9,794,387
-------------------
====================================
Cash and cash equivalents at end of
period ..................... 78,253 2,655,116
=====================================
=====================================
Supplemental disclosures of noncash investing and financing activities:
Conversion of debt to common stock... $ -- $ 6,371,789
Supplemental disclosures of cash flow information:
Cash paid for interest............... $ 5,000 $ 20,000
========================================= ====================================
See accompanying notes.
<PAGE>
NEUREX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Organization
Neurex was incorporated in Delaware on October 15, 1986 to develop
products for the treatment of diseases based upon advances in neuroscience
technology and other therapeutic areas with unmet medical needs.
Change in Year End
In July 1996, the Company changed its fiscal year end from September 30
to December 31, effective with the 12 months ended December 31, 1996. The
information for the three month period ended December 31, 1994, is unaudited,
but in the Company's opinion, includes all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary to fairly
state the Company's financial position and the results of operations and cash
flows.
Principles of consolidation
The consolidated financial statements include the accounts of Neurex
and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from these estimates.
Cash , cash equivalents, short-term and long-term investments and
credit risk
Cash and cash equivalents consist of cash held in U.S. banks, time
deposits and other highly liquid investments with a maturity of 90 days or less
from the date of purchase. Cash equivalents are readily convertible into cash
and have insignificant interest rate risk. Short-term and long-term investments
include corporate fixed income obligations and U.S. government notes with a
maximum maturity of three years, short-term investments mature within one year
of the balance sheet date. The Company's investment policy stipulates that a
diversified portfolio be maintained and invested in a manner appropriate for the
Company's primary business operations. The policy defines investment objectives
to provide optimal investment return within constraints to optimize safety and
liquidity.
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Interest on securities classified
as held-to-maturity is included in interest income.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in a separate component of
stockholders' equity. The cost of debt securities in this category is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion is included in interest income or expense. Realized
gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in interest income or expense. The
cost of securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in
interest income.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company measures stock-based compensation expense using the intrinsic-value
method as prescribed by Accounting Principle Board Opinion No. 25 and related
interpretations and, accordingly, recognizes no compensation expense for stock
option grants to employees and directors with an exercise price equal to the
fair-market value of the shares at the date of grant. Note 6 contains a summary
of the pro forma impact to the reported net loss for 1996 on the basis that the
Company had elected to recognize compensation expense based on the fair-value
method as described in SFAS 123. There was no effect of adopting SFAS 123 on the
Company's financial position or results of operations.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over estimated useful lives, generally five to
seven years. Leasehold improvements and assets under capitalized leases are
amortized over the lease term or the estimated useful life, whichever is
shorter.
Revenue recognition
Revenue consists of grants, license fees, research and development
milestone payments and reimbursements for research and development expenses from
collaborative partners. Grant revenues and research and development revenues are
recognized when earned. License fees are recognized when the Company meets all
obligations under the arrangement.
Deferred revenue consists of payments under grants and research
agreements for which the corresponding work has not yet been performed.
Net loss per share
The net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Common equivalent shares
from stock options and warrants are excluded from the computation as their
effect is antidilutive.
<PAGE>
2. Joint Research, Development, License and Investment Agreements
A. Investment, Research and Development Agreement with
Warner-Lambert Company
In May 1993, the Company entered into a collaborative relationship with
Warner-Lambert for the discovery, development and commercialization of compounds
that block neuron-specific calcium channels (NSCCs), including SNX-111. Under
this collaboration, Warner-Lambert is obligated to make milestone payments to
the Company upon the achievement of certain development objectives with respect
to SNX-111. Under the Warner-Lambert collaboration, Warner-Lambert has exclusive
worldwide rights, except for the Company's peptide compounds in Japan and East
Asia, to commercialize NSCC compounds, subject to the Company's right to
co-promote products in the United States, the United Kingdom and one other
European country to be designated. The Company and Warner-Lambert will share
profits from the sales of co-promoted products, subject to certain limitations
on the portion of such profits to be paid to the Company. Products marketed only
by Warner-Lambert, or co-promoted products which are being marketed by
Warner-Lambert outside of the co-promotion territory, will be subject to royalty
payments to the Company, and products marketed only by the Company will be
subject to royalty payments to Warner-Lambert. The development costs of the
products to be co-promoted will be shared by the Company and by Warner-Lambert.
Each party has committed a certain number of full-time employees to the research
collaboration. Warner-Lambert has the right to terminate its relationship with
the Company in its sole discretion upon appropriate notice to the Company. The
collaboration was effective upon the completion of the initial public offering
on September 22, 1993, in which Warner-Lambert purchased 1,459,093 common shares
at the offering price to the public less certain selling commissions.
In September 1995, the Company and Warner-Lambert amended their
agreement to provide that, given net proceeds of at least $12,000,000 in the
Company's next offering of securities to the public, Warner-Lambert purchased
$1,500,000 of common stock on November 13, 1995 at the public offering price of
$4.50 per share and $1,500,000 of common stock on March 29, 1996 at a market
average price of $19.93 per share. Warner-Lambert also paid Neurex $1,500,000 on
October 1, 1995, $500,000 on January 1, 1996, $250,000 on April 1, 1996 and
$250,000 on July 1, 1996 in lieu of milestone payments under the original
agreement. These amounts received in lieu of milestone payments may offset
future royalties, if any, due to Neurex from Warner-Lambert resulting in a
royalty-free period on the commencement of product sales.
In an amendment dated September 25, 1996, the Company and
Warner-Lambert extended the 1993 Research and Development Collaboration
agreement for three additional years beginning September 30, 1996. The amendment
further provides for up to $2,500,000 in additional milestone payments to the
Company for the achievement of research milestones in the calcium channel
project. In addition, Warner-Lambert will pay the Company approximately
$1,200,000 per year for research support. Total development cost reimbursement
payments and milestone payments earned during the years ending September 30,
1994 and 1995 and December 31, 1996, were $1,000,000, $396,000 and $1,730,000,
respectively. Amounts earned in the three months ended December 31, 1994 and
1995 were $68,000 (unaudited) and $143,000, respectively.
B. Investment and License Agreement with Medtronic, Inc.
On April 21, 1994, the Company entered into an Investment Agreement and
a Development and License Agreement with Medtronic, Inc. In consideration,
Medtronic paid $2,000,000 to the Company for the purchase of 359,837 shares of
common stock at $5.56 per share and the right to acquire an additional 119,945
shares of common stock for no further consideration if certain milestones were
not met. The $500,000 value of these additional shares was recorded as a
deferred credit as of September 30, 1994. During the year ended September 30,
1995, the development milestones were met, resulting in the recognition of the
$500,000 as revenue, which accounted for 19.5% of total revenues. For the year
ended December 31, 1996, the Company received $154,000, or 4.3% of total
revenues under a clinical services cost sharing agreement. No revenues were
recognized under this agreement for the years ended September 30, 1994 and 1995,
and for the three month periods ended December 31, 1994 and 1995.
On August 3, 1995, the Company issued a convertible promissory note to
Medtronic (the "Medtronic Note") in the principal amount of $8,000,000 with
interest at a rate of the prime rate plus 3% per year. In connection with the
Medtronic Note, the Company issued Medtronic a warrant valued at $460,000,
exercisable immediately for 169,646 shares of the Company's common stock at
$4.625 per share. The warrant valuation represents a $460,000 discount on the
note to be amortized to interest expense ratably over the period of the note. As
of September 30, 1995, $54,117 of the discount had been amortized. On October
16, 1995, following a directed public offering, the Company converted $6,500,000
of the convertible note payable plus related interest of $190,576 into common
stock at a conversion price of $4.625 per share and transferred approximately
$320,000 of the unamortized discount on the note to additional paid-in capital
on the note conversion. The remaining $1,500,000 of the Medtronic Note converted
into a prepaid milestone fee, which, if not earned by April 30, 1998, will be
repaid with interest. For the three months ended December 31, 1995 and the year
ended December 31, 1996, $18,710 and $24,864 of the discount on the prepaid
milestone fee has been amortized and interest of $36,618 and $176,250 has been
accrued. In conjunction with the note conversion, Neurex issued to Medtronic a
warrant to purchase 500,000 shares of common stock at $5.40 per share,
exercisable through October 16, 2001. The agreements provide for additional
research and development payments that aggregate $6,000,000 and are receivable
by Neurex on the achievement of specific research and development milestones.
C. License Agreement with SmithKline Beecham
On April 5, 1994, the Company entered into a license and supply
agreement with SmithKline Beecham Corporation ("SmithKline") for the purchase of
worldwide marketing rights for CORLOPAM (fenoldopam). As consideration the
Company paid $350,000 in cash, issued 100,000 shares of common stock to
SmithKline at $4.00 per share, agreed to pay $650,000 at the time of its next
financing and will pay royalties on future sales. In connection with these
payments the Company recorded a $1,400,000 charge for in-process research and
development in April 1994. The $650,000 was paid in August 1995. In 1996,
marketing rights to Germany were transferred to the Company.
D. Research and Development Agreement with Ono Pharmaceutical Co.,
Ltd.
In June 1991, the Company entered into a joint research and development
agreement with a Japanese company, Ono Pharmaceutical Co., Ltd., ("Ono") to
jointly research and develop a peptide product based on NSCC technology. The
term of the agreement was June 1, 1991 through May 31, 1994. The agreement
provided for Ono to pay $5,000,000 over three years in semi-annual installments
of $833,333. The agreement was on a best efforts basis. The Company received
research and development funding and worldwide rights excluding Japan and East
Asia, to any compounds which result from this collaboration in exchange for
granting Ono rights to the Company's NSCC-based technology and products in Japan
and East Asia. For the year ended September 30, 1994, revenues earned under the
Ono agreement amounted to $1,111,000 accounting for 52% of total revenues. No
revenues were recorded for the years 1995 and 1996 and the three month periods
ended December 31, 1994 and 1995.
E. Collaboration and Option Agreement with Vascular Laboratories,
Inc., and the New England Deaconess Hospital
In July 1994, Neurex obtained an exclusive worldwide manufacturing and
marketing license to Pro-urokinase from Vascular Laboratories, Inc. ("VLI").
Under the Collaboration Agreement, Neurex is required to (i) pay royalties to
VLI based on a percentage of sales or on payments received by Neurex from
sublicensees; and (ii) fund research and development through annual payments to
VLI for ten years. In accordance with the agreement, Neurex is currently
negotiating the termination of the agreement, which may be canceled at the
discretion of Neurex. Upon the cancellation or default on the Collaboration
Agreement, all future payments from sublicensees will revert to VLI and the
Option Agreement may be terminated.
Neurex has sublicensed the rights to Pro-urokinase in Europe to
Grunenthal GmbH. Grunenthal made a payment in December 1993 and is required to
make license payments through December 1996 and to pay royalties on certain
future sales. During the year ended December 31, 1996, the Company made payments
to VLI totaling $1,512,000 and received license payments from Grnenthal totaling
$1,581,000, accounting for 44% of revenues. During the year ended September 30,
1995, the Company made payments to VLI totaling $1,325,000 and received license
payments from Grunenthal totaling $1,667,000, accounting for 65% of revenues.
For the year ended September 30, 1994, the Company paid to VLI $650,000 and
received no revenue payments. In addition, the Company paid to VLI $325,000
(unaudited) and $334,000, for the three month periods ended December 31, 1994
and 1995, respectively.
Also in July 1994, under the Option Agreement, Neurex obtained an
exclusive option to acquire the rights to technology other than Pro-urokinase
developed at the related Vascular Research Laboratory of the New England
Deaconess Hospital in the period from July 1, 1993 through June 30, 2004.
F. Licensing Agreement with Beaufour Ipsen
On November 12, 1996, the Company signed a license and supply agreement
with Beaufour Ipsen of Paris, France, a European-based pharmaceutical company.
The license, which is for the intravenous delivery form of the Company's
proprietary drug CORLOPAM, provides Beaufour the exclusive right to market and
sell the product (excluding fenoldopam prodrugs) in most the world excluding
Japan and all countries in the Americas. Under the terms of the agreement,
Beaufour will pay royalties to Neurex based on a percentage of sales. The
Company will supply and sell CORLOPAM to Beaufour at a price which allows
Beaufour to achieve minimum product gross margins. In accordance with the
agreement, the Company received on December 6, 1996, a $1,000,000 refundable
signing fee. This signing fee becomes non-refundable upon the earlier of three
years from the date of the agreement or the achievement of three different
European country pricing approvals. The Company may also receive up to
$1,000,000 in additional milestone payments when marketing approvals are
obtained in certain European countries.
Under the agreement, Beaufour also obtained an exclusive option to
license CORLOPAM for the treatment of acute renal failure and retrogenic
nephrotoxicity, which would require Beaufour to pay the Company $500,000 at the
time of the option exercise and $2,000,000 when a number of marketing approvals
are obtained in certain European countries. The agreement also grants Beaufour
the right to negotiate with the Company to participate in the commercial
development of CORLOPAM prodrugs in most of the world excluding Japan and all
countries in the Americas.
3. Investments and Foreign Exchange Contract
The Company has classified its short and long-term investments as
available-for-sale. The following is a summary of the Company's investments as
of September 30, 1995 and December 31, 1996.
<TABLE>
September 30, 1995: Amortized Unrealized Unrealized Estimated Fair
Cost Losses Gains Value
----------------- ------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
U.S. government securities ...... 1,004,467 (29,467) 975,000
Corporate debt securities ....... 11,711,592 (758) -- 11,710,834
================= =================== ================== ====================
$ 12,716,059 (30,225) -- 12,685,834
================= =================== ================== ====================
Disclosed as:
Amortized Unrealized Losses Unrealized Gains Estimated Fair
Cost Value
----------------- ------------------- ------------------ --------------------
----------------- ------------------- --------------------
Cash and cash equivalents........ 9,727,308 (544) -- 9,726,764
Short-term investments........... 2,988,751 (29,681) -- 2,959,070
================= =================== ================== ====================
12,716,059 (30,225) -- 12,685,834
================= =================== ================== ====================
Contractual maturities:
Amortized Unrealized Losses Unrealized Gains Estimated Fair
Cost Value
----------------- ------------------- ------------------ --------------------
================= =================== ================== ====================
Within one year ................. 12,716,059 (30,225) -- 12,685,834
================= =================== ================== ====================
December 31, 1996:
Amortized Unrealized Losses Unrealized Gains Estimated Fair
Cost Value
----------------- ------------------- ------------------ --------------------
----------------- ------------------- --------------------
U.S. government securities ...... 23,540,538 (18,595) 18,044 23,539,987
Corporate debt securities ....... 56,890,184 (19,441) 10,451 56,881,194
================= =================== ================== ====================
80,432,722 (38,036) 28,495 80,421,181
================= =================== ================== ====================
</TABLE>
<TABLE>
Disclosed as:
Amortized Unrealized Losses Unrealized Gains Estimated Fair
Cost . Value
------------ ------------ -------------------- ------------
------------ ------------ -------------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ................ 33,734,797 (4,987) 59 33,729,869
Short-term investments .................... 36,828,544 (32,009) 20,413 36,816,948
Long-term investments ..................... 9,867,381 (1,040)...... 8,023 9,874,364
============ ============ ==================== ============
80,430,722 (38,036) 28,495 80,421,181
============ ============ ==================== ============
Contractual maturities:
Amortized Unrealized Losse Unrealized Gains Estimated Fair
Cost . Value
------------ ------------ -------------------- ------------
------------ ------------- -------------------- ------------
Within one year .......................... 52,963,885 (36,159) 2,653 52,930,379
One to 3 years ........................... 27,466,837 (1,877) 25,842 27,490,802
============ ============ ==================== ============
80,430,722 (38,036) 28,495 80,421,181
============ ============ ==================== ============
</TABLE>
Short-term and long-term investments consist principally of government
or government agency securities, corporate notes and bonds, commercial paper and
certificates of deposit with original maturities ranging from one to 18 months.
Long-term investments have original maturities ranging from one to three years.
The gross realized gains and losses on sales of available-for-sale securities
were immaterial in the years ended September 30, 1994 and 1995 and December 31,
1996 and the three months ended December 31, 1994 and 1995.
The Company entered into a foreign currency forward exchange contract on
September 20, 1995 to hedge against the effect of fluctuations in the foreign
exchange rate on a firm commitment to receive DM 2,330,000 by July 1, 1996. The
effects of fluctuating exchange rates for the period of the contract which
expired upon settlement of the DM receivable in June 1996, were not material.
<PAGE>
4. Property and equipment
<TABLE>
Property and equipment consists of:
<CAPTION>
September 30, December 31,
1995 1996
---------------------- ----------------------
<S> <C> <C>
Laboratory equipment................................ $ 2,273,881 $ 2,506,211
Furniture and fixtures.............................. 605,820 973,861
Leasehold improvements.............................. 1,214,422 1,235,376
---------------------- ----------------------
---------------------- ----------------------
4,094,123 4,715,448
Accumulated depreciation and amortization........... (2,433,258) (2,967,835)
---------------------- ----------------------
Property and equipment, net......................... $ 1,660,865 $ 1,747,613
====================== ======================
</TABLE>
5. Commitments
The Company has committed to fund research under certain research and
development agreements (See Note 2) for up to six years at an annual cost of
$1,325,000, and to pay $210,000 for the process development and purchase of
clinical materials over the next year.
At September 30, 1995 and December 31, 1996, equipment with a cost of
$748,877 and $748,877 (accumulated amortization of $211,622 and $408,599),
respectively, is leased under capital leases.
At December 31, 1996, the Company leases facilities for $15,375 per
month under an operating lease which expires in June 2001. The lease agreement
provides for a cost of living adjustment every two years based on the consumer
price index.
Future minimum annual payments under capital and operating leases are
as follows:
<TABLE>
Capital Operating
leases leases
------------------ -----------------
------------------ -----------------
<S> <C> <C>
Year ended December 31,
1997............................................................ $ 256,043 $ 325,770
1998............................................................ 205,907 270,000
1999............................................................ 120,337 270,000
2000 ........................................................... -- 270,000
2001 ........................................................... -- 270,000
2002 ........................................................... -- 135,000
------------------ -----------------
------------------
Total minimum lease payments....................................... 582,287 $ 1,540,770
=================
=================
Less amount representing interest.................................. (83,330)
------------------
Present value of minimum lease payments............................ 498,957
Current portion.................................................... (204,398)
------------------
==================
Amounts due after one year......................................... $ 294,559
==================
</TABLE>
Rent expense was $168,288, $178,861 and $180,360 for the years ended
September 30, 1994 and 1995 and December 31, 1996, respectively. In addition,
the Company paid rent expense of $44,055 (unaudited) and $44,055 for the three
month periods ended December 31, 1994 and December 31, 1995, respectively.
6. Stockholders' equity
Preferred Stock
The Board of Directors, without further action by the stockholders, may
issue up to 15,000,000 shares of preferred stock in one or more series and in
such amounts as may be determined from time to time by the Board of Directors
who may fix the designations, powers, preferences, voting rights and other
special rights and the qualifications, limitations and restrictions of each such
series of preferred stock. The rights and preferences of preferred stock may in
all respects be superior and prior to the rights of the common stock.
Common stock
At December 31, 1996, the Company has reserved 2,938,932 shares of
common stock for issuance for options granted under the Employee and Consultant
Stock Option Plan, 59,593 shares of common stock for issuance under the Stock
Purchase Plan and 693,953 shares of common stock for issuance under warrants.
Warrants
At December 31, 1996, the Company has warrants outstanding to purchase
693,953 shares of common stock at exercise prices ranging from $4.625 to $5.40
per share. Warrants to purchase 24,307, 169,646 and 500,000 shares of common
stock are exercisable on or before September 30, 1999, August 3, 1999 and
October 16, 2001, respectively.
1992 Stock purchase plan
In December 1992, the Company adopted the Employee Stock Purchase Plan
under which employees can purchase shares of the Company's common stock based on
a percentage of their compensation. The purchase price per share must equal at
least the lower of 85% of the market value on the date offered or on the date
purchased. As of December 31, 1996, a total of 94,253 shares had been issued
under the Plan.
Stock option plan
Under the 1988 Employee and Consultant Stock Option Plan, incentive or
nonqualified stock options to purchase shares of common stock may be granted to
key employees, consultants and directors. Options must be granted at not less
than 85 percent of the fair market value at the date of grant as determined by
the Board of Directors. During 1996, the Stockholders authorized an increase in
shares available for grant under the Plan by 750,000 shares so that, through
December 31, 1996, a total of 3,311,111 shares had been authorized for issuance
under the plan.
<PAGE>
<TABLE>
A summary of stock option activity is as follows:
<CAPTION>
Weighted
Number of Average
shares Exercise Exercise
outstanding Price Price Aggregate
----------------- ------------------- ------------- -------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1993........... 864,850 $ .59 - $ 5.58 $ 1,963,126
Options granted............................ 835,580 $3.50 - $4.63 3,297,289
Options exercised.......................... (20,753) $ .59 - $ .88 (12,934)
Options canceled........................... (55,464) $ .59 - $5.58 (246,175)
----------------- ------------------- -------------------
Balance at September 30, 1994........... 1,624,213 $ .59 - $ 5.58 5,001,306
Options granted............................ 1,307,449 $1.50 - $5.00 2,374,837
Options exercised.......................... (78,861) $ .59 (48,009)
Options canceled........................... (1,162,030) $1.17 - $5.58 (4,756,985)
----------------- ------------------- -------------------
Balance at September 30, 1995 .......... 1,690,771 $ .59 - $5.58 2,571,149
Options granted............................ 356,750 $1.50 - $8.13 1,856,944
Options exercised.......................... (13,068) $ .88 - $1.17 (11,790)
Options canceled........................... (25,882) $ .88 - $5.58 (111,557)
----------------- ------------------- ------------- -------------------
Balance at December 31, 1995............ 2,008,571 $ .59 - $8.13 $2.14 4,304,746
Options granted............................ 657,400 $13.00 - $18.50 $16.19 10,645,550
Options exercised.......................... (222,405) $ .59 - $5.58 $1.51 (336,741)
Options canceled........................... (45,710) $ .88 - $13.00 $3.16 (144,543)
------------------- -------------
================= ===================
Balance at December 31, 1996............ 2,397,856 $ .59 - $18.50 $6.03 $ 14,469,012
================= ===================
</TABLE>
<PAGE>
<TABLE>
Weighted
Average Weighted
Number Remaining Average Number
Range of Outstanding Contractual Exercise Exercisable as
Exercise Prices as of 12/31/96 Life Price of 12/31/96
- ---------------------- ---------------- --------------- -------------- ------------------
<S> <C> <C> <C> <C>
$.59 - $1.63 1,317,137 7.17 $1.35 1,317,137
$2.63 - $13.75 8.50 $7.27 602,519
602,519
$16.75 - $18.50 9.56 $17.38 478,200
478,200
- ---------------------- ---------------
================ -------------- ==================
$.58 - $18.50 2,397,856 7.98 $6.03 2,397,856
================ ==================
</TABLE>
At December 31, 1996, options to purchase 541,076 shares of common
stock were available for future grant. Options granted are immediately
exercisable and the resulting shares issued to employees and consultants under
the stock option plan are subject to repurchase by the Company, at the
discretion of the Company, upon termination of employment or association, at the
original purchase price. This right expires as determined by the Board of
Directors, generally over four or five years. At December 31, 1996, there were
4,334 shares of common stock subject to repurchase.
On May 12, 1995, the Board of Directors authorized the repricing of
options to purchase 1,059,274 shares to fair market value at that date which was
$1.625. All repriced options were subject to a new vesting period of 4 years.
Pro forma information regarding net loss is required by SFAS 123,
computed as if the Company had accounted for its employee stock based
compensation granted subsequent to December 31, 1995 under the fair-value-based
accounting method of that Statement. The value for the stock based compensation
was estimated at the date of grant using the Black-Scholes method with the
following weighted-average assumptions:
1996
---------------
Expected dividend yield 0.00%
Risk-free interest rate 5.94%
Expected life 3.0 years
Volatility factor .6121
The weighted average grant-date fair value of the awards granted in 1996 was
$9.88.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period. Because Statement 123
is applicable only to awards granted subsequent to December 31, 1995, its pro
forma effect will not be fully reflected until 2000. The effect of applying SFAS
123 to the Company's reported net loss and net loss per share is as follows:
1996
---------------
Pro forma net loss $17,821,851
Pro forma net loss per share $
(0.86)
The Company has recorded as deferred compensation the excess of the
deemed value for accounting purposes of the common stock issuable upon exercise
of options over the aggregate exercise price of such options. This deferred
compensation is amortized over the vesting period of the options, generally four
or five years.
7. Income taxes
As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $49,200,000. The net operating loss carryforwards
will expire at various dates beginning in 2001 through 2011, if not utilized.
<PAGE>
Significant components of the Company's deferred tax assets for federal
and state income taxes are as follows:
<TABLE>
September 30, December
31,
1995 1996
----------------- -----------------
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 11,943,000 $ 17,400,000
Federal and state research credit carryforwards
(expire 2001-2010) ............................. 1,998,000 2,200,000
Capitalized research and development costs...... 5,548,000 5,100,000
Capitalized licenses............................ -- 1,900,000
Other - net..................................... 61,000 600,000
----------------- -----------------
----------------- -----------------
Total deferred tax assets....................... 19,550,000 27,200,000
Valuation allowance for deferred tax assets..... (19,550,000) (27,200,000)
----------------- -----------------
================= =================
Net deferred tax assets............................. $ $
-- --
================= =================
</TABLE>
The valuation allowance increased by $1,998,000 and $5,881,000 during
1995 and 1994, respectively.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
8. Related party transactions
A note receivable from an officer totaling $123,215 at December 31,
1996, bears interest at 8.75% per annum. The note is secured by 100,000 shares
of Neurex common stock held in escrow and a mortgage on real property. The
principal and all accrued interest is due on August 8, 1997, or immediately if
the officer's employment with the Company is terminated by him or by the Company
with cause.
Additional notes receivable from an officer totaling $175,000 were
issued during 1996 bearing interest rates of 6.15% to 6.84% per annum, and
secured by certain real property. Certain principal and accrued interest payable
amounts on these notes were forgiven by the Company and treated as compensation
expense to the officer during 1996. The remaining balance due of $166,666 was
paid in full on December 29, 1996.
The note payable to stockholder at September 30, 1995 was acquired in
the Creagen acquisition. It bears interest at the adjusted federal rate which
was 5.63% at September 30, 1995, and was paid following the Company's public
offering in 1996.
On January 1, 1995, the Company entered into a Consultant Agreement
with Plexus Ventures, Inc. ("Plexus"), a Pennsylvania corporation wholly-owned
by a director of the Company. This agreement was terminated by the Company upon
the successful contract negotiations with Beaufour Ipsen of France for
CORLOPAM for which Plexus assisted. Plexus remains entitled to certain success
fees payable in cash and stock, based upon the total value of certain future
transactions with Beaufour Ipsen. During the years ended September 30, 1995 and
December 31, 1996, the Company incurred expenses from Plexus valued at $63,000
and $4,000 respectively. In addition, the Company incurred costs of $18,000 for
the three months ended December 31, 1995.
On July 18, 1996, the company entered into a Business Development
Agreement with Plexus to assist the Company in the development, registration and
commercialization of Neurex products in certain Asian countries. Under the terms
of the agreement, Plexus received options to purchase 25,000 shares of common
stock, will receive monthly retainer fees, and is entitled to receive success
fees, based upon the total value of transactions entered into by the Company
with the assistance of Plexus. The term of the agreement is 12 months, but it
may be terminated earlier by the Company upon 60 days notice. During the year
ended December 31, 1996, the Company incurred $29,000 in expenses.
A director of the Company is a partner with a law firm that rendered
various legal services to the Company. The Company incurred costs from that law
firm of approximately $346,000 and $305,000 for years ended September 30, 1994
and 1995, respectively, and $441,000 for the year ended December 31, 1996. In
addition, the Company incurred costs of $64,000 (unaudited) and $150,000 for the
three month periods ended December 31, 1994 and 1995, respectively.
See Note 2 for a description of related party transactions with strategic
partners.
<PAGE>
9. Acquisition of Creagen, Inc.
On July 15, 1994, Neurex acquired Creagen, Inc., ("Creagen") an early
development stage company engaged in the development of a thrombolytic agent,
Pro-urokinase and Walk Through Mutagenesis, a proprietary DNA process. The
purchase price of $8,800,000 consisted of approximately 1,876,400 shares of the
Company's common stock with a market value of $7,400,000 on the acquisition
date, the assumption of net liabilities of Creagen of approximately $1,100,000,
and approximately $300,000 of related costs. This acquisition has been accounted
for as a purchase and, accordingly, the original purchase price was allocated to
assets and liabilities acquired based upon their fair value at the date of the
acquisition. The purchase price has been allocated to assets acquired and to
in-process research and development which has been charged as an expense in the
Neurex consolidated financial statements in July 1994. The operating results of
Creagen have been included in the Company's consolidated results of operations
from the date of the acquisition.
The following unaudited pro forma financial summary is presented as if
the operations of the Company and Creagen were combined as of October 1, 1993.
The unaudited pro forma combined results are not necessarily indicative of the
actual results that would have occurred had the acquisition been consummated at
this date, or of the future operations of the combined entities. The pro forma
results for the year ended September 30, 1994 include the results of Neurex for
the year ended September 30, 1994, and of Creagen for the period from October 1,
1993 to July 15, 1994.
Pro Forma Financial Summary (unaudited)
Year ended
September 30,
-----------------------
1994
-----------------------
-----------------------
Revenues $ 3,491,503
Net loss $ (11,498,589)
Net loss per share $ (0.96)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from
the information under the caption "Election of Directors," with respect to
Directors, and under the caption "Management," with respect to Executive
Officers contained in the Company's Definitive Proxy Statement which will be
filed with the Securities and Exchange Commission in connection with the
solicitation of proxies for the Company's Annual Meeting of Stockholders to be
held on May 15, 1997 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the information under the caption "Executive Compensation" contained in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the information under the caption "Certain Transactions" contained in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents
1. Financial Statements
Reference is made to the Index to Financial Statements under Item 8 of
Part II hereof, where these documents are included.
2. Financial Statement Schedules
All schedules have been omitted because the information required to be
set forth therein is not required or is shown in the financial statements or
notes thereto.
3. Exhibits
The exhibits listed in the following Exhibit Index are filed as part of
this Report.
<PAGE>
<TABLE>
Manner of
Exhibit
Number Description Filing
<S> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of Neurex Corporation, dated
September 27, 1993 ............................................................. (1)
3.2 -- Amended and Restated Bylaws of Neurex Corporation as Adopted by the Board of
Directors and Stockholders on November 6, 1987, as Amended on March 3, 1988,
January 1, 1989, November 16, 1989, and December 8, 1992 ....................... (2)
10.1 -- Lease, dated July 1, 1982 between Engenics, Inc. and Ronald C. Campbell, at
3760 Haven Avenue, Menlo Park, California, Assignment and Assumption of Lease
between Engenics Inc. and Neurex Corporation, dated January 29, 1988 ........... (2)
10.1A -- Amendment to the Lease between Ronald C. Campbell and Neurex Corporation, dated
August 6, 1992 ................................................................. (2)
10.2 -- 1988 Employee and Consultant Stock Option Plan and amendments thereto .......... (7)
10.3 -- Employment Agreement between Neurex Corporation and Paul Goddard, Ph.D., dated
January 8, 1991 ................................................................ (2)
10.3A -- Amendment to Employment Agreement, dated December 21, 1995 ..................... **
10.4 -- Employment Agreement between Neurex Corporation and Bradford M. Wait, dated
January 14, 1992 ............................................................... (2)
10.4A -- Amendment to Employment Agreement, dated December 21, 1995 ..................... **
10.5 -- Employment Agreement between Neurex Corporation and Roberto Crea, Ph.D., dated
June 29, 1994 .................................................................. (3)
10.5A -- Amendment to Employment Agreement dated December 21, 1995 ...................... **
10.6 -- Amended and Restated Registration Rights Agreement between Neurex Corporation and
certain purchasers, dated October 16, 1995 ..................................... (8)
10.7 -- Agreement between National Institute of Mental Health and Neurex Corporation,
dated June 11, 1991 ............................................................ (2)
10.8 -- Employment Agreement between Neurex Corporation and Robert R. Luther, dated
February 7, 1992 ............................................................... (2)
10.8A -- Amendment to Employment Agreement, dated December 21, 1995 ..................... **
10.9 -- Agreement between National Institute of Neurological Disorders and Stroke and
Neurex Corporation, dated August 25, 1992 ...................................... (2)
10.10 -- Research and Development Collaboration Agreement between Neurex Corporation and
Warner-Lambert Company, dated as of May 25, 1993 ............................... (2)+
10.10A -- Amendment to Research and Development Collaboration Agreement between Neurex
Corporation and Warner-Lambert Company, dated September 25, 1996. *++
10.11 -- SNX-111 License Agreement between Neurex Corporation and Warner-Lambert Company,
dated as of May 25, 1993 ....................................................... (2)+
10.11A -- Amendment to SNX-111 License Agreement between Neurex Corporation and
Warner-Lambert Company, dated September 13, 1995 ............................... (7)+
10.12 -- Agreement to Purchase Stock between Neurex Corporation and Warner-Lambert
Company, dated as of May 25, 1993 .............................................. (2)
10.12A -- Amendment to Agreement to Purchase Stock between Neurex Corporation
and Warner-Lambert Company, dated September 13, 1995 ........................... (7)+
10.13 -- License and Supply Agreement between Neurex Corporation and SmithKline Beecham
Corporation, dated April 5, 1994 ............................................... (3)
10.14 -- Investment Agreement between Neurex Corporation and Medtronic, Inc., dated April
21, 1994 ....................................................................... (4)+
10.14A -- Development and License Agreement between Neurex Corporation and Medtronic, Inc.,
dated April 21, 1994 ........................................................... (4)+
10.14B -- Amendment to Development and License Agreement between Neurex
Corporation and Medtronic, Inc., dated August 3, 1995 .......................... (7)+
10.14C -- Investment Agreement between Neurex Corporation and Medtronic, Inc., dated August
3, 1995 ........................................................................ (7)+
10.14C(1) -- Warrant A issued by the Company to Medtronic, Inc., dated August 3, 1995 ....... **
10.14C(2) -- Agreement as to Alternative Dispute Resolution between the Company and Medtronic,
Inc., dated August 3, 1995 ..................................................... **
10.14C(3) -- Convertible Promissory Note issued by the Company to Medtronic, Inc., dated
August 3, 1995 (as amended to include certain portions previously redacted) .... **+
10.14C(4) -- Security Agreement between the Company and Medtronic, Inc., dated August 3, 1995
(as amended to include certain portions previously redacted) ................... **+
10.14C(5) -- Warrant B issued by the Company to Medtronic, Inc. dated October 16, 1995 ...... **
10.14C(6) -- Disclosure Schedules relating to Investment Agreement between the Company
and Medtronic, Inc., dated August 3, 1995 (as amended to include certain portions
previously redacted) ........................................................... **+
10.14C(7) -- Exhibit G to Investment Agreement between the Company and Medtronic, Inc. ...... **+
10.15 -- Agreement and Plan of Reorganization between Neurex Corporation and Creagen,
Inc., dated July 8, 1994 ....................................................... (5)
10.16 -- Collaboration Agreement between Creagen, Inc. and Vascular Laboratories, Inc.,
dated July 8, 1994 ............................................................. (3)+
10.17 -- Option Agreement between Creagen, Inc. and New England Deaconess Hospital, dated
July 8, 1994 ................................................................... (6)+
10.18 -- Promissory Note issued by Roberto Crea, Ph.D. to Neurex Corporation, dated August
6, 1994 ........................................................................ (3)
10.19 -- Development Agreement among Neurex Corporation, Abbott Laboratories and
Warner-Lambert Company, dated October 4, 1994 .................................. (3)+
10.20 -- Cost sharing agreement between Neurex Corporation and Warner-Lambert Company,
dated October 4, 1994 .......................................................... (3)
10.21 -- Corlopam Consultant Agreement between Neurex Corporation and Plexus Ventures,
Inc., dated January 1, 1995, as amended October 25, 1995*
10.22 -- Consultant Agreement between Neurex Corporation and Plexus Ventures, Inc., dated
July 18, 1996, involving business development in Asia .*
10.23 -- Systematic Stock Sales Program, adopted July 11, 1996 (9)
10.23A -- Amendment to Systematic Stock Sales Program, dated August 19,1996OOOO (10)
10.24 -- Promissory Note issued by John M. Ames to Neurex Corporation, dated August 20,
1996 *
10.25 -- Promissory Note issued by John M. Ames to Neurex Corporation, dated August 20,
1996 *
10.26 -- Form Indemnification Agreement between Neurex Corporation and its officers,
directors and agents. (9)
10.27 -- License and Supply Agreement between Neurex Corporation and Beaufour Ipsen, dated
November 11, 1996 *++
10.28 -- Manufacturing and Supply Agreement between Neurex Corporation
and Mallinckrodt Chemicals, *++
Inc., dated October 24, 1996
10.29 -- Lease Agreement between Neurex Corporation and WVP Income Plus III, at 4040 *++
Campbell Avenue, Menlo Park, California, dated December 12, 1996
11 -- Statement of Computation of net loss per share ................................. *
22 -- List of Subsidiaries ........................................................... *
24 -- Consent of Ernst & Young LLP, Independent Auditors ............................. *
28 -- Press release announcing the resignation of John M. Ames as Chief Financial
Officer and Vice-President and the appointment of Bradford M. Wait as Chief
Financial Officer . *
</TABLE>
==========
* Filed herewith
** Filed previously
+ Confidential treatment of certain portions of these agreements has
been granted by the Securities and Exchange Commission.
++ Confidential treatment of certain portions of these agreements has been
applied for with the Securities and Exchange Commission.
(1) Incorporated by Reference from the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (No. 33-45873) declared effective on September 22, 1993.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994.
(4) Incorporated by reference from the Company's Report on Form 8-K dated April
21, 1994.
(5) Incorporated by reference from the Company's Report on Form 8-K dated July
29, 1994.
(6) Incorporated by reference from the Company's Report on Form 8-K dated August
5, 1994.
(7) Incorporated by reference from the Company's Registration Statement on Form
S-1 (No. 33-96840) declared effective October 11, 1995.
(8) Incorporated by reference from the Company's Annual report on Form 10-K for
the fiscal year ended September 30, 1995.
(10) Incorporated by reference from the Company's Report on Form 8-K
dated July 26, 1996.
(11) Incorporated by reference from the Company's Report on Form 8-K dated
September 12, 1996.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEUREX CORPORATION
March 21, 1997 By /s/ Paul Goddard
--------------------
Paul Goddard, Ph.D.
Chairman of the Board, Chief Executive Officer
and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date Title & Signature
March 21, 1997 By /s/ Paul Goddard
-------------------
Paul Goddard, Ph.D.
Chairman of the Board, Chief Executive Officer
and Director
(Principal Executive Officer)
March 21, 1997 By
/s/ Thomas L. Barton
--------------------
Thomas L. Barton
General Counsel, Secretary and Director
March 21, 1997 By
/s/ David L. Anderson
---------------------
David L. Anderson
Director
March 21, 1997 By /s/John F. Chappell
-------------------
John F. Chappell
Director
March 21, 1997 By /s/ Roberto Crea
----------------
Roberto Crea, Ph.D.
Senior Vice President Research and Technology
Development and Director
March 21, 1997 By /s/ John Glynn
--------------
John Glynn
Director
March 21, 1997 By /s/ Howard E. Greene, Jr.
-------------------------
Howard E. Greene, Jr.
Director
March 21, 1997 By /s/ Raymond C. Egan
-------------------
Raymond C. Egan
Director
March 21, 1997 By /s/ Gerard N. Burrow
--------------------
Gerard N. Burrow, M.D.
Director
March 21, 1997 By /s/ Robert Luther
-----------------
Robert Luther, M.D.
Executive Vice President Development
and Director
March 21, 1997 By /s/ Bradford M. Wait
---------------------
Bradford M. Wait
Vice President Finance and Administration and
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
This schedule contains summary financial information extracted from
financial statements for the year ending December 31, 1996 and is qualified in
its entirety by reference to such financial statements.
Currency U.S. Dollars
Period-Type 12 months
Fiscal Year End December 31, 1996
Period End December 31, 1996
Exchange Rate 1.00
Cash 40,551,609
Securities 36,816,948
Receivables 46,022
Allowances 0
Inventory 0
Current Assets 77,749,356
PP&E 4,715,448
Depreciation 2,967,835
Total Assets 89,571,272
Bonds 0
Preferred-Mandatory 0
Preferred 0
Common 220,361
Other-SE 79,737,387
Total Liability and Equity 89,571,272
Sales 0
Total Revenues 3,575,557
CGS 0
Total Costs 0
Other Expenses 23,585,166
Loss Prevention 0
Interest Expense (185,775)
Income Pretax (16,475,707)
Income Tax 0
Income Continuing (16,475,707)
Discontinued 0
Extraordinary 0
Changes 0
Net Income (16,475,707)
EPS Primary (0.80)
EPS Diluted (0.80)
EXHIBIT 10.10A
CONFIDENTIAL TREATMENT REQUESTED
(*) Denotes information for which confidential treatment has been requested.
Confidential portions omitted have been filed separately with the Commission.
AMENDMENT TO NEUREX/WARNER
RESEARCH AND DEVELOPMENT COLLABORATION AGREEMENT
Amendment dated September 25, 1996 (this "Amendment"), to the Research
and Development Collaboration Agreement dated as of May 25, 1993 (the
"Agreement"), between NEUREX CORPORATION, a Delaware corporation ("Neurex"), and
WARNER-LAMBERT COMPANY, a Delaware corporation ("Warner").
WHEREAS, Neurex and Warner have made promising advances in the field of
neuronal-specific calcium channels under the Agreement; and
WHEREAS, Neurex and Warner desire to extend the term of the
Collaboration under the Agreement;
NOW, THEREFORE, Neurex and Warner hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein will
have the meanings set forth in the Agreement. The following additional terms
will have the following meanings:
"Extended Collaboration Term" shall mean the extension of the term of
the Collaboration agreed to pursuant to this Amendment, beginning on September
30, 1996 and terminating pursuant to Section 1.3 (as amended hereby).
"R-Channel Antagonist Milestone I" shall mean a compound having the
following potency and selectivity:
potency: [*]
selectivity: [*]
evidence of in vivo pharmacology (efficacy)
"R-Channel Antagonist Milestone II" shall mean definition of in vivo
pharmacological activity for a selective R-channel antagonist that would predict
a clinical application. Such predictability must be shown by:
Dose-dependent efficacy in an animal disease model. Data and
experimental design (dose, potency, route of administration,
time course, tissue or neurochemical response) must yield
convincing evidence that the relevant neuropharmacological
pharmacology action is principally mediated through blockade
of R-channels and supports follow-up study in the areas of
neurologic and/or psychiatric disease. Demonstrated efficacy
in two replicate experiments giving a p value of less than or
equal to 0.05 (one-tailed t-test) for test treatment vs.
control treatment in a relevant disease model.
2. Personnel and Resources. The following is hereby added to Section
1.2 of the Agreement:
"Notwithstanding the foregoing, during the Extended Collaboration Term
Neurex will be obligated to maintain a minimum of 7 full-time staff
devoted to cooperative discovery research in NSCC. Warner agrees to pay
Neurex $1,166,662 per year in consideration for Neurex's dedication of
such staff. Such amount will be payable in advance in equal
installments of $291,665.50 on each October 1, January 1, April 1 and
July 1 during the Extended Collaboration Term; provided, however, that
the October 1, 1996 payment will instead be made on September 30, 1996.
It is understood that the Collaboration Committee currently intends to
focus Warner's 12 full-time staff and Neurex's 7 full-time staff on
N-channel research during the Extended Collaboration Term, but it is
further understood that the Collaboration Committee has the authority
at its discretion at any time to refocus such staff to work on any
other aspect of the Field, including R-channels."
3. R-Channel. (a) During the Extended Collaboration Term, Neurex and Warner may
each independently devote resources to discovery research in areas of the Field
not then actively being pursued by the Warner and Neurex staff referred to in
Section 1.2, including discovery research in R-channels. Such research will be
deemed to be performed pursuant to the Collaboration. Each party agrees to
report on the status of its independent research in the Field to the other party
within 10 days of any material discoveries or advancements and generally at each
meeting of the Collaboration Committee, and to provide the other party access to
all results of such research at such other party's request.
(b) Each party will notify the other within 1 month of confirming that a
compound satisfies the terms of the R-Channel Antagonist Milestone I. Within 3
months of receipt or provision of such notice, Warner will either (i) pay Neurex
$1,000,000 or (ii) revoke its marketing rights to such compound and all other
compounds of the same chemical class. If Warner chooses option (i), Neurex will
apply reasonable efforts to achieve Milestone II, at Neurex' cost and direction;
provided, however, that simultaneously with paying such $1,000,000 Warner may
elect to support 5 full-time Neurex staff devoted to cooperative discovery
research in R-channels (in addition to Warner's and Neurex' commitments under
Section 1.2) at the rate of $166,666 each per year, payable quarterly in advance
from and after the date of such election, in which case (a) the efforts of such
staff, including the research, development and marketing of all compounds acting
on R-channels, will become subject to the committee governance structure of
Article 2 of the Agreement and (b) Section 3(c) of this Amendment will be
deleted and have no further force or effect (except that Warner would not regain
any marketing rights previously revoked under such Section). If Warner chooses
option (ii), Neurex may pursue development of such compound and all other
compounds of the same chemical class and each such compound will be deemed a
"Neurex Product" for purposes of the Agreement.
(c) Within 3 months following the date that a compound (other than one as to
which Warner has previously revoked marketing rights) satisfies the terms of the
R-Channel Antagonist Milestone II (as reasonably determined by Warner), Warner
will either (i) pay Neurex $1,500,000 or (ii) revoke its marketing rights to
such compound and all other compounds of the same chemical class. If Warner
chooses option (i), Warner will thereafter support 5 full-time Neurex staff
devoted to cooperative discovery research in R-channels (in addition to Warner's
and Neurex' commitments under Section 1.2) at the rate of $166,666 each per
year, payable quarterly in advance from and after the date of electing such
option (i), and the research, development and marketing of all compounds that
act on R-channels shall become subject to the committee governance structure of
Article 2 of the Agreement. If Warner chooses option (ii), Neurex may pursue
development of such compound and all other compounds of the same chemical class
and each such compound will be deemed a "Neurex Product" for purposes of the
Agreement.
(d) Warner will not be required to make the $1,000,000 or $1,500,000 payments
referred to in Sections 3(b) and 3(c) of this Amendment, respectively, more than
once regardless of how many compounds satisfy either relevant milestone;
provided, however, that Warner will not regain any marketing rights revoked
prior to making the relevant milestone payment.
4. R-Channel Personnel and Resources. Warner will in good faith consider
requests from Neurex to assist Neurex in its R-channel discovery research
efforts during 1996 and 1997; provided, however, that Neurex acknowledges that
Warner will have no obligation to provide any such assistance, and in no event
will Warner be required to provide more than two full-time staff equivalents at
any time during such period for such purpose.
5. Development Costs. Section 4.2 of the Agreement is hereby amended by (i)
deleting the phrase "2/3" found twice in such Section and replacing it with the
phrase "3/4" in both instances and (ii) deleting the phrase "1/3" found twice in
such Section and replacing it with the phrase "1/4" in both instances. Subject
to such revised cost sharing percentages, all costs to be shared under Section
4.2 of the Agreement will be governed by the guidelines set forth on June 6,
1996 for the sharing of costs under the SNX-111 License Agreement, dated May 25,
1993. A copy of such guidelines is attached hereto as Exhibit 1.
6. Co-Promotion Participation. Section 8.1 of the Agreement is hereby amended by
(i) deleting the phrase "until the end of the twelfth full calendar quarter
thereafter, Neurex' Detail Percentage will not exceed 12% and thereafter will
not exceed 16%" and (ii) replacing such phrase with "Neurex' Detail Percentage
will not exceed 20%".
7. Term. Section 1.3 of the Agreement is hereby amended by (i) deleting the
phrase "shall terminate on the third anniversary hereafter" and (ii) replacing
such phrase with "shall terminate on September 29, 1999; provided, however, that
Warner may terminate this Agreement in its sole discretion on September 29, 1997
or September 29, 1998, by providing written notice thereof to Neurex on or
before July 31, 1997 or July 31, 1998, respectively." Furthermore, the following
is added at the end of Section 1.3: "The parties agree to discuss adjustment to
the size and focus of their commitment to the Collaboration during the third
calendar quarter of each year of the Term of the Collaboration depending on
mutually agreed research goals for the following year of the Collaboration."
Upon termination or expiration of this Agreement, Neurex will promptly return a
pro rata amount of any advances made by Warner under Section 1.2, based on the
amount of time remaining in the relevant quarter following such termination or
expiration.
8. Section 3(b) Neurex Products. Notwithstanding the terms of Section 5.4 of the
Agreement, Neurex will pay Warner 4% of Net Sales as a royalty on all sales of
Neurex Products that are originally designated "Neurex Products" pursuant to
Section 3(b) of this Amendment. Neurex will notify Warner promptly after filing
an IND with the Food and Drug Administration relating to any Neurex Product that
is originally designated a Neurex Product pursuant to Section 3(b) of this
Amendment. Warner and Neurex agree, at Warner's option, to negotiate in good
faith exclusively with each other for 90 days from Warner's receipt of such
notice regarding a development and marketing collaboration on such Neurex
Product. If the parties do not reach agreement on such a collaboration within
such 90 day period, Neurex will be free to negotiate with all other parties, or
pursue development and marketing of the Neurex Product by itself; provided,
however, that in no event will Neurex be entitled to collaborate with any third
party regarding such Neurex Product on terms that are less favorable to Neurex
than those last proposed by Warner during the 90 day exclusive negotiation
period.
IN WITNESS WHEREOF, the undersigned have signed this Amendment as of
the date first written above.
WARNER-LAMBERT COMPANY
By:________________________________
Name:
Title
NEUREX CORPORATION
By:________________________________
Name:
Title:
EXHIBIT 10.21
CONSULTANT AGREEMENT
This Agreement is made as of the 1st day of January, 1995 by and
between Neurex Corporation, a corporation of the State of California having
offices at 3760 Haven Avenue, Menlo Park, California 95025-1012 ("Client"), and
Plexus Ventures, Inc., a corporation of the Commonwealth of Pennsylvania, with
offices at 1787 Sentry Parkway West, Building 18, Suite 301, Blue Bell,
Pennsylvania 19422 ("Consultant").
Background
Client desires to obtain the consulting services of Consultant in the
field of business development and Consultant desires to provide Client with such
consulting services during the term of this Agreement in its capacity as
independent contractor.
Agreement
Now, therefore, for good and valuable consideration, the legality and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
1. Description of Services.
a. Consultant shall provide business development assistance
through the personal services of Mr. John F. Chappell, Donald E. Kuhla, Ph.D.
and Mr. Robert P. Moran, except as the parties may otherwise agree from time to
time, to assist Client to execute agreements with one (1) or more pharmaceutical
industry partner(s) relating to the development, registration and
commercialization of Corlopam(R) (fenoldopam), its analogs and pro-drugs
("Services").
b. Consultant shall not delegate, subcontract or employ any
other person or entity in the performance of the Services without the prior
written consent of Client except as Consultant's own expense and where
appropriate a Confidential Disclosure Agreement in favor of the Client has been
executed.
c. Consultant shall use its best efforts in the performance of
the Services and agrees to perform the same to the best of its ability.
Consultant shall control the time, location and manner of performance under this
Agreement. Client understands and accepts that a substantial portion of
Consultant's services shall be performed at its offices in Blue Bell,
Pennsylvania; however, Consultant agrees to send its representative to Client's
facilities for a reasonable number of meetings per year as may be requested by
Client. Consultant shall provide Client with monthly written reports detailing
its activities hereunder.
d. Client understands and accepts that the performance of
Services shall not require Consultant's efforts on a full-time basis.
2. Compensation to Consultant.
a. As compensation for Consultant's Services over the term of
this Agreement, Client shall pay Consultant a quarterly retainer at a rate of
three thousand dollars ($3,000) and nine thousand (9,000) Neurex Corporation
common stock grants per quarter. Consultant's quarterly retainer shall be due
and payable by Client on the first day of each quarter.
b. In addition to the quarterly retainer, Client shall pay
Consultant a success fee ("Fee") in Neurex Corporation common stock grants and
cash based on the total value of transactions consummated by the Client with the
assitance of Consultant's Services. For transactions consummated having a total
value to Client of:
(1) less than two million dollars ($2,000,000), Client
shall pay Consultant a Fee of twenty-five thousand (25,000) Neurex Corporation
common stock grants and no cash.
(3) ten million dollars ($10,000,000) and above, Client
shall pay Consultant a Fee of 25,000 Neurex Corporation common stock grants and
four and one-half percent (4.5%) of the total value between two million dollars
($2,000,000) and ten million dollars ($10,000,000) and three and one-half
percent (3.5%) of the total value above ten million dollars ($10,000,000) in
cash. Should Client fail to retain exclusive commercial rights to Corlopam(R)
(fenoldopam) in the United States in the transaction consummated, the cash
portion of the Fee shall be reduced to three and one-half percent (3.5%) of the
total value between two million dollars ($2,000,000) and ten million dollars
($10,000,000) and two and three-quarters percent (2.75%) of the total value
above ten million dollars ($10,000,000); the equity portion of the Fee shall
remain unchanged.
c. For the purpose of computing Consultant's Fee, the total
value of each transaction consummated shall comprise the following:
(1) All cash payments received by Client from third
parties in the form of equity payments, commitment or signing fees, license
fees, milestone payments, collaborative research and/or development payments,
royalty payments, termination payments and any such payments of a similar
nature. Consultant and Client agree that if there is a need to value equity
received by Client, in lieu or of in addition to cash, as part of a transaction
consummated, Client and Consultant shall seek an appraisal of the fair market
value of that equity as of the date received by Client for the purpose of the
calculation of the Fee.
(2) Non-cash items received by Client from third parties
are specifically excluded from the calculation of the Fee.
d. Consultant's Fee shall be paid by Client to Consultant via
wire transfer within ten (10) days of Client's receipt of each and all payments
subject to such Fee. If any payments received in the transaction consummated are
in the form of foreign currency, they shall be converted to U.S. dollars at the
rate listed for that foreign currency in The Wall Street Journal on the date
such payment is received by Client.
3. Reimbursement of Consultant's Expenses.
a. Client shall reimburse Consultant for the reasonable
out-of-pocket and administrative business costs and expenses incurred by
Consultant in the performance of the Services, including courier, copying,
facsimile and telephone charges; travel, meals and lodging incurred by
Consultant while performing the Services at locations other than its offices and
as approved by Client in advance of the travel; and an administrative fee
relating to travel planned and undertaken by Consultant on behalf of Client.
b. Consultant shall periodically invoice Client for all
expenses defined herein and such invoices shall be payable to Consultant
immediately upon receipt by Client.
4. Business and Technical Information.
Client shall regularly furnish Consultant, at no charge
to Consultant, with such of its technical, scientific, marketing, legal and
financial information and data as may be reasonably necessary for the
performance of the Services.
5. Client's Responsibilities.
a. Client shall use its best efforts to assist Consultant to
progress the targeting of, presentations to and negotiations with potential
third party collaborators. Client reserves the right to accept or reject, in its
sole discretion, any terms or conditions offered by any third parties.
b. Client represents to Consultant that it owns or has the
right to develop and license to others the technologies that are the subject
matter of this Agreement.
c. Client shall use the Services of Consultant exclusively for
the Services which are subject to this Agreement.
6. Disclosure and Confidentiality.
Consultant acknowledges that Client shall disclose to
Consultant inventions, trade secrets, know-how or information used or developed
in or related to the business of Client and Consultant has executed a
Confidential Disclosure Agreement in favor of Client.
7. Conflicting Obligations.
Consultant represents that it is not a party to any
agreement which conflicts with the terms of this Agreement or which materially
and adversely affects Consultant's ability to perform the Services for Client;
and Consultant agrees that it shall not enter into any such agreement during the
term hereof.
8. Term and Termination.
This Agreement shall commence on the date noted above and
shall extend for a period of twelve (12) months; however, the Agreement is
cancelable upon sixty (60) days notice should the Client decide to terminate
activities such as those described by Consultant's Services. After the initial
twelve (12) month term, the Agreement shall run from quarter to quarter unless
terminated with thirty (30) days notice by one of the parties to the other.
Client agrees to pay Consultant the applicable Fee for any transaction(s)
consummated within a twelve (12) month period following the date of termination
of this Agreement.
9. Indemnity.
Client and Consultant shall defend, indemnify, and hold
harmless each other and each party's agents, employees, officers and directors
from and against any and all damage, loss, liability, obligations, cost or
expense, caused directly or indirectly, by or as a result of any wrongdoing,
negligence, error or omission under the terms of this Agreement.
10. Miscellaneous.
a. Independent Contractor. Consultant and Client are
independent contractors under the terms of this Agreement and neither shall be
deemed to be an agent, employee or representative of the other, or be deemed to
possess any of the benefits associated therewith.
b. Taxes. Client shall pay the transaction, excise or other
taxes which may result from its execution of this Agreement and Consultant shall
be responsible for the payment of withholding and other taxes resulting from the
payment of any compensation by Client to Consultant hereunder.
c. Notices. All notices given under this Agreement shall be by
personal service, facsimile machine or by first class United States mail,
postage prepaid, return receipt requested, addressed to the parties at the
following addresses:
If to Consultant: If to Client:
Plexus Ventures, Inc. Neurex Corporation
1787 Sentry Parkway West 3760 Haven Avenue
Building 18, Suite 301 Menlo Park, CA 94025-1012
Blue Bell, PA 19422 Attention: Paul Goddard, Ph.D.
Attention: Robert P. Moran FAX number: 415-853-1538
FAX number: 215-542-2288
or to such addresses as may be specified by like notice and shall be deemed to
have been duly given or made when delivered or deposited in the mails.
d. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of California.
e. Sole Agreement. This Agreement, including the Exhibits
thereto, constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
f. Waivers, etc. No amendment of this Agreement, and no waiver
of any one or more of the provisions hereof shall be effective unless set forth
in writing by such person against whom enforcement is sought.
g. Binding Agreement/Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that neither party may
assign any of their rights hereunder or any interests herein without the prior
written consent of the party against whom enforcement is sought.
h. Arbitration. The parties agree that any claim or
controversy relating to this Agreement shall be resolved exclusively by
arbitration in accordance with the rules of the American Arbitration
Association. Any such arbitration award granted shall be conclusive and binding
and shall not be appealable. Attorneys fees, costs and other out-of-pocket
expenses may be awarded by the arbitrators in their discretion to the party
which prevails in any such arbitration. Each party shall pay its own expenses
pending the arbitration award.
i. Enforceability. Any provision in this Agreement (except
provisions regarding the essence of this Agreement) that is held to be
inoperative, unenforceable, viodable or invalid in any jurisdiction shall, as to
that jurisdiction, be ineffective, unenforceable, void and invalid without
affecting the remaining provision hereof in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of the Agreement are declared to be severable. In
Witness Whereof, Client and Consultant have executed this Agreement
as of the day and year written above.
Plexus Ventures, Inc. Neurex Corporation
By: __________________________ By: __________________________
Robert P. Moran Paul Goddard, Ph.D.
Vice President President and C.E.O.
<PAGE>
[Plexus Ventures, Inc. logo]
Via Telefax 415-853-1538
Regular Mail
September 25, 1995
Paul Goddard, Ph.D.
Chief Executive Officer
Neurex Corporation
3760 Haven Avenue
Menlo Park, CA 94025
RE: Consultant Agreement
Dear Paul:
I would like to propose some revisions to the Consultant Agreement
between Neurex Corporation and Plexus Ventures dated January 1, 1995.
The philosophy behind our original proposal as regards compensation for
Plexus Ventures was to recognize the reality of Neurex' cash position and to
structure the relationship so that cash would not be an impediment to moving
ahead with the Corlopam(R) opportunity. In suggesting the following revisions,
we would like to maintain that approach by recognizing that the project has by
now moved to an advanced and, hopefully, late stage.
Proposed Revisions:
1. Original compensation be considered to be effective through August 31, 1995
as follows:
$ Shares
-----------
January - March 3,000 9,000
April - June 3,000 9,000
July - August 2,000 6,000
-------- -----------
8,000 24,000
2. The billing suspension we announced for September 1 will extend through
September 30;
3. Compensation to Plexus Ventures for the months October through December
will be at the rate of $5,000 per month. We will do everything possible to
complete our obligation to Neurex during this period and will agree in
advance that the project will be considered complete on December 31, 1995
unless Neurex elects to continue the Agreement into 1996.
4. The 25,000 Neurex shares payable as a portion of any Success Fee earned by
Plexus Ventures (Section 2.b. (1) et al) will now be payable by Neurex in
the form of stock grants or cash at the exclusive election of Neurex. If
the election is to pay cash the amount payable will be calculated at the
same percentage applicable to the $2 million up to $10 million tranche in
2.b. (2).
If these changes are acceptable to Neurex Corporation, you may signal
your consent by signing below and returning one copy to me.
If you would like us to consider other ideas, please let me know.
We look forward to the successful completion of the Corlopam(R) project
and its positive effect on the fortunes of Neurex.
Sincerely, Accepted,
John F. Chappell _____________________
President Paul Goddard, Ph.D.
Neurex Corporation
_________________, 1995
EXHIBIT 10.22
CONSULTANT AGREEMENT
This Agreement is made as of the 18th day of July, 1996 by and between
Neurex Corporation, a corporation of the State of California having offices at
3760 Haven Avenue, Menlo Park, California 95025-1012 ("Client"), and Plexus
Ventures, Inc., a corporation of the Commonwealth of Pennsylvania, with offices
at 1787 Sentry Parkway West, Building 18, Suite 301, Blue Bell, Pennsylvania
19422 ("Consultant").
Background
Client desires to obtain the consulting services of Consultant in the
field of business development and Consultant desires to provide Client with such
consulting services during the term of this Agreement in its capacity as
independent contractor.
Agreement
Now, therefore, for good and valuable consideration, the legality and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
1. Description of Services.
a. Consultant shall provide business development services
("Services") to assist Client to execute agreement(s) with
pharmaceutical company(ies) relating to the development,
registration and commercialization of Client's products
("Products") in Japan, South Korea, Taiwan and the Peoples
Republic of China.
b. At the written request of Client, Consultant shall seek
agreements with a broader geographical territory for either or
both the Apoptosis and Exocytosis Research Programs referenced
in this Agreement. If Client elects this option, the value of
the broader transactions will be the basis for the Fee
compensation.
c. Consultant shall not delegate, subcontract or employ any
other person or entity in the performance of the Services,
except as noted below, without the prior written consent of
Client.
d. Consultant shall use its best efforts in the performance of
the Services and agrees to perform the same to the best of its
ability. Consultant shall control the time, location and
manner of performance under this Agreement. Client understands
and accepts that a substantial portion of Consultant's
services shall be performed at its offices in Blue Bell,
Pennsylvania; however, Consultant agrees to send its
representative to Client's facilities for a reasonable number
of meetings per year as may be requested by Client. Consultant
shall provide Client with monthly written reports detailing
its activities hereunder.
e. Client understands and accepts that the performance of
Services shall not require Consultant's efforts on a
full-time basis.
2. Products Included Under This Agreement.
a. NSCC, VSCC and other ion channel Development Compounds
including SNX-111 (in all identified applications such as the
treatment of acute and chronic pain, including intra-thecal
administration with Medtronic's pump, and ischemic
neurological disorders) and any identified back-up and second
generation compounds.
b. Fenoldopam Family including 'Corlopam' i.v.,
enantiomers and pro-drug in peri- and post-operative control of blood pressure
and renal disease;
c. Apoptosis and Excocytosis Research Programs
(pre-clinical); and
d. Discovery research in ion channel subtype
receptor modulation.
3. Consultant's Services.
a. Consultant shall present Client as a company with a variety
of high quality early, mid and late stage Product
collaboration opportunities. Such Product collaboration
opportunities are divisible; however, Client favors broadly
based, long-term, strategic relationships with one or two
Japanese pharmaceutical companies.
b. Client and Consultant agree that Consultant shall utilize a
Japan-based individual ("Facilitator") who shall provide local
access to Japanese companies and periodic follow-up contact
with them. Consultant shall identify several individuals who
could serve as the Facilitator in Japan and shall agree with
Client on an appropriate individual.
c. Consultant shall direct the activities of the Facilitator
who shall be compensated by Client. Client and Consultant
agree that Facilitator shall visit Client to gain
familiarization with the company, management and, especially,
Products.
d. Consultant shall be responsible for the overall
management of the project as outlined below:
(1.) Working with Client, Consultant shall produce a
non-confidential document or documents (i.e. Neurex Corporation Opportunity
Profile) to introduce Client and Products to potential partners.
(2.) Consultant shall compile a list of companies to
be targeted. Client and Consultant shall agree on the profile sought in
potential partner(s).
(3.) Under the direction of the Consultant,
Facilitator shall call on targeted companies in Japan. Additionally, Consultant
shall contact selected U.S.-based representative offices of Japanese companies.
Facilitator and Consultant shall provide the Opportunity Profile to targeted
companies for use in their internal evaluation of Client's Products.
(4.) Consultant and Facilitator shall organize
face-to-face meetings involving Client in order for Client to present
confidential information about Products to interested Japanese companies.
(5.) Consultant shall manage all follow-up contacts
with targeted companies and provide periodic reports on the project to Client.
(6.) Consultant shall provide counsel to Client in
defining deal structures and terms to potential partners and provide negotiation
assistance as agreed with Client.
4. Compensation to Consultant.
a. Client shall pay Consultant a cash retainer of six thousand dollars ($6,000)
per month over the term of this Agreement and a single grant of twenty-five
thousand (25,000) Neurex Corporation common stock options, awarded and priced as
of this Agreement date and vesting after thirty-six (36) months. Consultant's
monthly cash retainer shall be due and payable by Client on the first day of
each month.
b. Client shall pay Consultant a success fee ("Fee") in cash based on the value
of each transaction consummated by the Client with the assistance of
Consultant's Services. This Fee shall be calculated as follows:
<TABLE>
Deal Value Fee
<S> <C>
Up to $5,000,000 5% of Deal Value
$5,000,001 to $10,000,000 $250,000 + 4% of Deal Value over $5,000,000
$10,000,001 to $15,000,000 $450,000 + 3% of Deal Value over $10,000,000
$15,000,000 to $20,000,000 $600,000 + 2% of Deal Value over $15,000,000
$20,000,001 to $25,000,000 $700,000 + 1 % of Deal Value over $20,000,000
</TABLE>
c. For the purpose of computing Consultant's Fee, the total
value of each transaction consummated shall be computed as follows:
(1.) All cash payments received by Client from third
parties in the form of commitment or signing fees,
license fees, irrevocable option payments, milestone
payments and any such payments of a similar nature
shall be included in the calculation of the Fee.
(2.) All other forms of payments received by Client
from third parties, such as advance royalty payments
and directly funded research, are specifically
excluded from the calculation of the Fee.
d. Transactions which involve cash payments to Client which
are conditional on the success of explorative efforts--such as
license agreements contingent on successful discovery
research, feasibility studies and similar efforts--shall
obligate Client to success fees provided that the cash
payments are defined in the transaction consummated under this
Agreement.
e. Consultant's Fee shall be paid by Client to Consultant via
wire transfer within ten (10) days of Client's receipt of each
and all payments subject to such Fee. If any payments received
in the transaction consummated are in the form of foreign
currency, they shall be converted to U.S. dollars at the rate
listed for that foreign currency in The Wall Street Journal on
the date such payment is received by Client.
5. Compensation to Facilitator.
a. Client shall be responsible for the payment of compensation
to the Facilitator and for the reimbursement of Facilitator's
reasonable out-of-pocket expenses; however, Client shall not
be responsible to Facilitator for the payment of any success
fee. Client and Consultant agree to limit the total of such
Facilitator compensation and reimbursable out-of-pocket
expenses for the period through December 31, 1996 to forty
thousand dollars ($40,000). Facilitator expenses, if any,
beyond the period noted shall be agreed between Client and
Consultant prior to December 31, 1996.
6. Reimbursement of Consultant's Expenses.
a. Client shall reimburse Consultant for the reasonable
out-of- pocket and administrative business costs and expenses
incurred by Consultant in the performance of the Services,
including courier, copying, facsimile and telephone charges;
travel, meals and lodging incurred by Consultant while
performing the Services at locations other than its offices
and as approved by Client in advance of the travel; and an
administrative fee relating to travel planned and undertaken
by Consultant on behalf of Client.
b. Consultant shall periodically invoice Client for ail
expenses defined herein and such invoices shall be payable to
Consultant immediately upon receipt by Client.
7. Business and Technical Information.
Client shall regularly furnish Consultant, at no charge to
Consultant, with such of its technical, scientific, marketing,
legal and financial information and data as may be reasonably
necessary for the performance of the Services.
8. Client's Responsibilities.
a. Client shall use its best efforts to assist Consultant to
progress the targeting of, presentations to and negotiations
with potential third party collaborators. Client reserves the
right to accept or reject, in its sole discretion, any terms
or conditions offered by any third parties.
b. Client represents to Consultant that it owns or has the
right to develop and license to others the technologies that
are the subject matter of this Agreement.
c. Client shall use the Services of Consultant exclusively
for the Services which are subject of this Agreement.
9. Disclosure and Confidentiality.
Consultant acknowledges that Client shall disclose to
Consultant inventions, trade secrets, know-how or information
used or developed in or related to the business of Client and
Consultant has executed a Confidential Disclosure Agreement in
favor of Client. Consultant shall insure that Facilitator also
executes a Confidential Disclosure Agreement in favor of
Client.
10. Conflicting Obligations.
Consultant represents that it is not a party to any agreement
which conflicts with the terms of this Agreement or which
materially and adversely affects Consultant's ability to
perform the Services for Client; and Consultant agrees that it
shall not enter into any such agreement during the term
hereof.
11. Term and Termination.
This Agreement shall commence on the date noted above and
shall extend for a period of twelve (12) months; however, the
Agreement is cancelable upon sixty (60) days notice should the
Client decide to terminate activities such as those described
by Consultants Services. After the initial twelve (12) month
term, the Agreement shall run from quarter to quarter unless
terminated with thirty (30) days notice by one of the parties
to the other. Client agrees to pay Consultant the applicable
Fee for any transaction(s) consummated within a twelve (12)
month period following the date of termination of this
Agreement.
12. Indemnity.
Client and Consultant shall defend, indemnify, and hold
harmless each other and each party's agents, employees,
officers and directors from and against any and all damage,
loss, liability, obligations, cost or expense, caused directly
or indirectly, by or as a result of any wrongdoing,
negligence, error or omission under the terms of this
Agreement.
13. Miscellaneous.
a. Independent Contractor. Consultant and Client are
independent contractors under the terms of this Agreement and
neither shall be deemed to be an agent, employee or
representative of the other, or be deemed to possess any of
the benefits associated therewith.
b. Taxes. Client shall pay the transaction, excise or other
taxes which may result from its execution of this Agreement
and Consultant shall be responsible for the payment of
withholding and other taxes resulting from the payment of any
compensation by Client to Consultant hereunder.
c. Notices. All notices given under this Agreement shall be
by personal service, facsimile machine or by first class
United States mail, postage prepaid, return receipt
requested, addressed to the parties at the following
addresses:
If to Consultant: If to Client:
Plexus Ventures, Inc. Neurex Corporation
1787 Sentry Parkway West 3760 Haven Avenue
Building 18, Suite 301 Menlo Park, CA 94025-1012
Blue Bell, PA 19422 Attention: Paul Goddard, Ph.D.
Attention: Robert P. Moran FAX number: 415-853-1538
FAX number: 215-542-2288
or to such addresses as may be specified by like notice and
shall be deemed to have been duly given or made when delivered
or deposited in the mails.
d. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the
State of California.
e. Sole Agreement. This Agreement, including the Exhibits
thereto, constitutes the sole agreement of the parties and
supersedes all oral negotiations and prior writings with
respect to the subject matter hereof.
f. Waivers, etc. No amendment of this Agreement, and no waiver
of any one or more of the provisions hereof shall be effective
unless set forth in writing by such person against whom
enforcement is sought.
g. Binding Agreement Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns; provided,
however, that neither party may assign any of their rights
hereunder or any interests herein without the prior written
consent of the party against whom enforcement is sought.
h. Arbitration. The parties agree that any claim or
controversy relating to this Agreement shall be resolved
exclusively by arbitration in accordance with the rules of the
American Arbitration Association. Any such arbitration award
granted shall be conclusive and binding and shall not be
appealable Attorneys fees, costs and other out-of-pocket
expenses may be awarded by the arbitrators in their discretion
to the party which prevails in any such arbitration. Each
party shall pay its own expenses pending the arbitration
award.
i. Enforceability. Any provision in this Agreement (except
provisions regarding the essence of this Agreement) that is
held to be inoperative, unenforceable, voidable or invalid in
any jurisdiction shall, as to that jurisdiction, be
ineffective, unenforceable, void and invalid without
affecting the remaining provisions hereof in that
jurisdiction or the operation, enforceability, or validity of
that provision in any other jurisdiction, and to this end the
provisions of the Agreement are declared to be severable.
In Witness Whereof, Client and Consultant have executed this Agreement,
as of the day and year written above.
Plexus Ventures, Inc. Neurex Corporation
By:_____________________________ By: _____________________________
John F. Chappell Paul Goddard, Ph.D.
President President & C.E.O.
EXHIBIT 10.24
SECURED PROMISSORY NOTE #1
$100,000.00 August 20, 1996
Maturity Date: August 31, 2002 Menlo Park, California
FOR VALUE RECEIVED, John M. Ames ("Ames") promises to pay to Neurex
Corporation, a Delaware corporation ("Neurex") or order at Menlo Park,
California or such other place as the holder hereof may from time to time
designate, the principal sum of One Hundred Thousand Dollars ($100,000.00) with
interest thereon compounded annually at the rate of six and eighty-four
one-hundredths percent (6.84%) per annum.
Payment Schedule. All principal and accrued but unpaid interest shall
be due and payable on August 31, 2002 (the "Maturity Date") unless payment is
forgiven or accelerated as provided in this Note.
Interest Forgiveness. Commencing September 30, 1996 and at the end of
each month thereafter, 1/12th of the annual interest due under this Note shall
be forgiven and considered to be compensation to Ames. All necessary and
applicable federal and state withholding shall be withheld from Ames' regular
payroll checks.
Acceleration. Notwithstanding the foregoing, Neurex may, at Neurex's
option, accelerate the maturity of all amounts due hereunder and the balance of
this Note and all accrued interest shall become immediately due and payable
within thirty (30) days of Ames' termination of employment with Neurex for any
reason.
Security. This Note is secured by a deed of trust executed by Ames on
certain real property located in Santa Clara County commonly known as 18406
Chelmsford Drive, Cupertino, California, APN 375-22-054. The deed of trust
contains a "due on sale" clause providing for acceleration of the maturity date
of this note upon the occurrence of certain described events.
No Offsets. Neurex shall not be entitled to or required to offset any
amounts owed to Ames arising out of Ames' employment with Neurex against the
balance owing on this Note at the time of the termination of Ames' employment
with Neurex.
Tax Consequences. Ames represents and warrants to Neurex that he has
consulted his tax advisers and understands the tax consequences of this Note,
and that Ames has not relied on Neurex, its officers, directors, employees, or
attorneys for any tax advice.
No Guarantee of Continued Employment. Nothing contained in this Note
shall (i) confer upon Ames any right with respect to the continuation of his
employment by Neurex or with any parent or subsidiary corporation of Neurex; or
(ii) limit in any way the right of Neurex or of any parent or subsidiary
corporation of Neurex to terminate Ames' employment at any time.
Waivers. Ames waives any right of demand, presentment, notice of
non-payment, protest or notice of dishonor.
Payable in U.S. Currency. All amounts payable under this Note shall be
payable only in the lawful money of the United States of America.
Termination or Amendment of Note. This Note may not be terminated or
amended orally, but only by discharge in writing signed by the Parties.
Severability. If for any reason any of the provisions of this Note
shall be determined to be inoperative or invalid, the validity and effect of the
other provisions hereof shall not be affected thereby and such other provisions
shall remain in full force and effect.
Attorney's Fees. In the event an action is brought to enforce or to
interpret the terms of this Note, the prevailing party shall be entitled to its
reasonable attorney's fees in addition to any other relief to which that party
may be entitled.
Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.
"AMES"
- ------------------------------------
John M. Ames
Agreed to and Accepted:
"NEUREX"
Neurex Corporation,
a Delaware corporation
By: __________________________
Title: ________________________
EXHIBIT 10.25
SECURED PROMISSORY NOTE #2
$75,000.00 August 20, 1996
Maturity Date: August 31, 1999 Menlo Park, California
FOR VALUE RECEIVED, John M. Ames ("Ames") promises to pay to Neurex
Corporation, a Delaware corporation ("Neurex") or order at Menlo Park,
California or such other place as the holder hereof may from time to time
designate, the principal sum of Seventy Five Thousand Dollars ($75,000.00) with
interest thereon compounded annually at the rate of six and fifteen
one-hundredths percent (6.15%) per annum.
Payment Schedule. All principal and accrued but unpaid interest shall
be due and payable on August 31, 1999 (the "Maturity Date") unless payment is
forgiven or accelerated as provided in this Note. In the event that Ames is and
has remained employed by Neurex on a full time basis continuously form the date
of this Note until the Maturity Date, all principal and accrued interest thereon
shall be forgiven by Neurex, and Ames shall have no further liability hereunder.
Note Forgiveness. Commencing on September 30, 1996 and at the end of
each month thereafter, 1/36th of the principal amount due under this Note shall
be forgiven and considered to be compensation to Ames. All necessary and
applicable federal and state withholding shall be withheld from Ames' regular
payroll checks.
Acceleration. Notwithstanding the foregoing, Neurex may, at Neurex's
option, accelerate the maturity of all amounts due hereunder and the balance of
this Note and all accrued interest shall become immediately due and payable
within thirty (30) days of Ames' termination of employment with Neurex for any
reason.
Security. This Note is secured by a deed of trust executed by Ames on
certain real property located in Santa Clara County commonly known as 18406
Chelmsford Drive, Cupertino, California, APN 375-22-054. The deed of trust
contains a "due on sale" clause providing for acceleration of the maturity date
of this note upon the occurrence of certain described events.
No Offsets. Neurex shall not be entitled to or required to offset any
amounts owed to Ames arising out of Ames' employment with Neurex against the
balance owing on this Note at the time of the termination of Ames' employment
with Neurex.
Tax Consequences. Ames represents and warrants to Neurex that he has
consulted his tax advisers and understands the tax consequences of this Note,
and that Ames has not relied on Neurex, its officers, directors, employees, or
attorneys for any tax advice.
No Guarantee of Continued Employment. Nothing contained in this Note
shall (i) confer upon Ames any right with respect to the continuation of his
employment by Neurex or with any parent or subsidiary corporation of Neurex; or
(ii) limit in any way the right of Neurex or of any parent or subsidiary
corporation of Neurex to terminate Ames' employment at any time.
Waivers. Ames waives any right of demand, presentment, notice of
non-payment, protest or notice of dishonor.
Payable in U.S. Currency. All amounts payable under this Note shall be
payable only in the lawful money of the United States of America.
Termination or Amendment of Note. This Note may not be terminated or
amended orally, but only by discharge in writing signed by the Parties.
Severability. If for any reason any of the provisions of this Note
shall be determined to be inoperative or invalid, the validity and effect of the
other provisions hereof shall not be affected thereby and such other provisions
shall remain in full force and effect.
Attorney's Fees. In the event an action is brought to enforce or to
interpret the terms of this Note, the prevailing party shall be entitled to its
reasonable attorney's fees in addition to any other relief to which that party
may be entitled.
Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.
"AMES"
- ------------------------------------
John M. Ames
Agreed to and Accepted:
"NEUREX"
Neurex Corporation,
a Delaware corporation
By: __________________________
Title: ________________________
EXHIBIT 10.27
CONFIDENTIAL TREATMENT REQUESTED
(*) Denotes information for which confidential treatment has been requested.
Confidential portions omitted have been filed separately with the Commission.
AGREEMENT
This Agreement is entered into this 12 day of November 1996, by and between
NEUREX, a company organized and existing under the laws of the State of
California, U.S.A., having its registered office at 1209 Orange Street
Wilmington, Delaware (U.S.A.) and principal office at 3760 Haven Avenue, Menlo
Park, California 94025-1012 (U.S.A.), represented by its Chairman and C.E.O.,
Mr. Paul Goddard, hereinafter referred to as NEUREX, and SOCIETE DE CONSEILS, DE
RECHERCHES ET D'APPLICATIONS SCIENTIFIQUE (S.C.R.A.S.), a company organized and
existing under the laws of France, having its registered office at 51/53 rue du
Docteur Blanche, 75016 Paris (France), represented by Mr. Philippe Beaufour,
Director, hereinafter referred to as SCRAS.
Witnesseth that
Whereas SmithKline Beecham Co., a corporation of the Commonwealth of
Pennsylvania, having a place of business at One Franklin Plaza, P.O. Box 7929,
Philadelphia, Pennsylvania 19103 (U.S.A.), and NEUREX, have entered into a
License and Supply Agreement on April 5th, 1994, whereby SmithKline Beecham Co.
(i) grants NEUREX an exclusive license for all the countries and territories in
the world, with the right to grant sublicenses, to make, have made, use, and
sell a chemical compound known as Fenoldopam under certain patents proprietary
to SmithKline Beecham Co., (ii) assigned to NEUREX all of SmithKline Beecham
Co.'s rights, title, and interest in the Trademark name for Fenoldopam
"Corlopam(R)", in all countries where registered, and (iii) supplies NEUREX with
substantial quantities of the chemical compound known as Fenoldopam.
Whereas NEUREX has developed a Product (as hereinafter defined) containing
Fenoldopam and indicated for blood pressure control in operating and
post-operating rooms, as well as hypertension crisis emergency treatment, and
intends to market such pharmaceutical Product under the trademark Corlopam(R).
Whereas NEUREX has (i) completed clinical, pharmaceutical, and toxicological
studies in order to file for the Product marketing authorizations, (ii)
consequently filed in the United States of America and in certain European
countries, for the Product registration, and (iii) wishes to grant SCRAS, whose
identity has been duly notified to and approved by SmithKline Beecham Co., the
rights to pack, label, promote, and market the Product under the trademark
Corlopam(R) in the Territory (as hereinafter defined), under the relevant
patents, trademarks, and marketing authorization files.
Whereas SCRAS is willing to be granted by NEUREX, a license with the right to
grant further sublicenses to the member companies of the Beaufour-Ipsen Group,
under the relevant patents, marketing authorization files, and trademark, to
pursue the Corlopam(R) marketing authorization process in the Territory as
hereinafter defined, to purchase from NEUREX the Product, and to pack, label,
promote and market the Product in the Territory under the trademark Corlopam(R).
Whereas NEUREX warrants that on the date of execution of this Agreement, NEUREX
has not presently reached Phase I clinical trials in the development of any
additional formulation and/or indication of the Compound (as hereinafter
defined), prodrugs of the Compound, and more generally any compound belonging to
the Dopaminergic compound family for cardiovascular or renal disease. NEUREX
warrants that on the date of execution of this Agreement it is not in the
process of negotiating the licensing-in or the acquisition of third parties'
rights in the Territory on developments which have reached Phase I clinical
trials, in connection with the aforesaid additional formulations, indications,
prodrugs, and/or compound family.
Now, therefore, in consideration of the premises set forth above and made a part
hereof and the mutual promises hereinafter contained, and intending to be
legally bound, the parties hereto agree as follows
ARTICLE 1 - DEFINITION
As used in this Agreement, the following terms have the meanings indicated.
Affiliate means when referring to a party, any person, corporation or
entity which directly or indirectly controls, is controlled by or
under a common control with such party. For the purpose of this
definition, control shall be deemed to exist if there exists
ownership of more than 50 % of the share capital and/or the
voting rights of such a person, corporation or entity.
Compound means the chemical compound known as SK&F 82526 or Fenoldopam,
whose more specific chemical name is
6-chloro-2,3,4,5-tetrahydro-1-(p-hydroxyphenyl
-1H-3-benzazepine-7,8-diol methane sulfonate for intravenous
infusion, including the corresponding amine, other acid addition
salts, hydrates, solvates, polymorphs, but specifically excluding
Fenoldopam prodrugs, and shall include compositions comprising
such compound, the corresponding amine, other acid addition
salts, hydrates, solvates, polymorphs but specifically excluding
Fenoldopam prodrugs.
Effective Date means that date as of which this Agreement is effective and
shall be the date of execution of this Agreement first written
above.
Marketing Authorization Files means those clinical, pharmacological, and
toxicological study reports, and all other reports and documents
that are required to obtain the Marketing Authorization as
defined hereunder of the Product as defined hereinafter, in the
United States of America, Belgium, Germany, Italy, the
Netherlands, Portugal, Spain, and Switzerland.
Marketing Authorization(s) means the pharmacological, toxicological,
clinical, and Product price and reimbursement, approvals and
decisions from the relevant regulatory authorities in each
country of the Territory, that are required in such country for
importation, promotion, distribution and sale of the Product into
the Territory.
Net Turnover means the gross amount of sales achieved by SCRAS or any
of its Affiliates or sublicensees through the sale of the Product
in the Territory to third parties other than to Affiliates or
sublicensees in the Territory, less all sales, value added,
customs, taxes and duties, trade discounts, and shipping costs.
New Therapeutical Indications means the acute renal failure and
retrogenic nephrotoxicity treatment which NEUREX is considering
developing as Product new therapeutical indications, according to
the NEUREX Program as defined hereunder.
NEUREX Program means the feasibility study and development program that
NEUREX is considering undertaking, relating to the New
Therapeutical Indications, the summary of which are described in
Appendix D attached hereto.
Patents means all patents granted in the Territory as defined
hereinafter, and patent applications held in the Territory, which
are or become owned by SmithKline Beecham Co. or NEUREX, or to
which SmithKline Beecham Co. or NEUREX otherwise has, now or in
the future, the right to grant licenses or sublicenses, which
generically or specifically claim the Compound. Included within
the definition of Patents are all continuations,
continuations-in-part, divisions, patents of addition, reissues,
renewals, or extensions thereof, and all supplementary protection
certificates, valid or having legal effects in the Territory. The
current list of patent applications and granted patents
encompassed within Patents is set forth in Appendix A attached
hereto. The supplementary protection certificates referred to
hereabove are meant to include all such right based upon a patent
that excludes others from making, using or selling the Compound.
Product means the pharmaceutical specialty developed by NEUREX containing
the Compound, in intravenous form and indicated for blood
pressure control in operating and post-operating rooms, as well
as hypertension crisis emergency treatment.
Product Net Price means the Product selling price by SCRAS' (or by any of
SCRAS' Affiliate or sublicensees) to third parties, before
customs and value added taxes, and transportation costs to said
third parties, and after deduction of trade discounts.
Product Transfer Price means the Product selling price invoiced by NEUREX
or by any third party designated by NEUREX, to SCRAS (or to any
of SCRAS' Affiliates or sublicensees), before value added taxes.
Gross Margin means the Product Net Price minus (i) the Product Transfer
Price, (ii) SCRAS' (or any of SCRAS' Affiliates or sublicensees')
direct costs incurred in bringing the Product to an inventory and
saleable stage, and (iii) import customs taxes.
Specifications means the specifications with respect to the formulation, quality
control, packaging, container description, storage instructions,
or any other features relating to the Compound and the Product
that are described in Appendix B attached hereto.
Territory means the world excluding Japan and all countries in the
Americas. Trademark means the trademark Corlopam(R) as registered
in those countries listed in Appendix C attached hereto and as
further registered in the Territory pursuant to Article 4 of this
Agreement.
ARTICLE 2 - GRANT OF RIGHTS
2.1 Subject to the terms of this Agreement, NEUREX hereby grants to SCRAS an
exclusive sublicense under the Patents, the Marketing Authorization File,
as well as the existing and future Marketing Authorizations, and an
exclusive license under the Trademark, all of which to pack, label, sell,
distribute, and promote the Product in the Territory under the Trademark
or under any of SCRAS' or its Affiliates' name or trademarks.
SCRAS agrees that it shall never gain any title in the Patents, the
Trademark, the Marketing Authorization File and/or the Marketing
Authorizations, which are and shall all remain NEUREX and/or SmithKline
Beecham Co. sole property.
2.2 SCRAS shall be entitled to grant further sublicenses in whole or in part,
to any Affiliate of SCRAS, subject to prior written notice to NEUREX.
SCRAS shall not be entitled to grant further sublicenses in whole or in
part to any other third parties, without first obtaining the express
prior written approval from NEUREX which approval shall not be
unreasonably withheld.
ARTICLE 3 - MARKETING AUTHORIZATIONS TRANSFER AND FILING
3.1 Forthwith as of the Effective Date, NEUREX shall undertake at no cost for
SCRAS, all proceedings with the relevant national regulatory authorities,
in order to transfer into the name of SCRAS or of any of its Affiliates
or sublicensees indicated by SCRAS, all pending Marketing Authorizations
applications in the Territory such as those pending applications in
Belgium, the Netherlands, and Italy, in order to enable SCRAS or its
Affiliates or sublicensees, to pursue in its own name the relevant filing
proceedings.
SCRAS shall provide NEUREX with reports on a quarter basis concerning
SCRAS' activities to obtain Marketing Authorizations. SCRAS and NEUREX
will hold monthly telephone conferences with respect to said SCRAS'
activities.
3.2 SCRAS shall file in its own name or in the name of any of its Affiliates
or sublicensees, for the relevant Marketing Authorizations in countries
of the Territory to be freely determined by SCRAS, following the filing
pace that SCRAS shall deem appropriate, except for the Marketing
Authorization filing in France and Germany which SCRAS shall undertake as
a priority.
NEUREX shall forward to SCRAS forthwith as from the Effective Date, the
whole of the Marketing Authorization Files, as well as all relevant
information necessary to enable SCRAS to complete the Product Marketing
Authorization filings and the Product packing and labeling in finished
form in conformity with the Marketing Authorization Files.
NEUREX shall give technical and administrative assistance to SCRAS as
SCRAS may require to progress the registration, packing, and labeling of
the Product. Such assistance as SCRAS may reasonably require shall be
given free of charge to SCRAS for countries where advanced royalty
payments are to be made by SCRAS under this Agreement. All technical and
administrative assistance that SCRAS may require from NEUREX in
connection with countries in the Territory other than the aforesaid,
shall be charged by NEUREX to SCRAS up to an amount to be reasonably
agreed upon by the parties. All out-of-pocket expenses incurred by NEUREX
in the provision of the technical assistance referred to in this Article
3.2 such as traveling, transportation, and lodging expenses, shall be
reimbursed by SCRAS after SCRAS' receipt of an invoice therefore.
Should any further clinical, pharmacological, toxicological, or other
scientific, studies be required by regulatory authorities in the
Territory in connection with obtaining Marketing Authorizations, NEUREX
shall fund all such studies up to an amount not exceeding one million
U.S. Dollars (USD 1,000,000) provided that these studies are required for
submission and complete approval of a Marketing Authorization. Such
NEUREX' contribution shall be allocated to one or several studies with
respect to Marketing Authorization filing and proceedings in one or
several countries of the Territory, such country (or countries) and
corresponding studies to be elected by SCRAS. SCRAS shall conduct all
such required studies with NEUREX reasonable technical and administrative
assistance. NEUREX shall provide SCRAS with enough quantities of Product
free of charge in order for SCRAS conducting all such required studies.
The USD 1,000,000 NEUREX' contribution shall exclude the value of such
Product free units.
3.3 NEUREX may withdraw those member countries of the European Union from the
scope of this Agreement, where (i) no Marketing Authorization will have
been granted to SCRAS, at the expiration of a five-year period as from
the Effective Date, or (ii) SCRAS would not have launched the Product
within nine month after the relevant Marketing Authorization is granted.
NEUREX may withdraw those countries other than the member countries of
the European Union from the scope of this Agreement, where:
(i) no Marketing Authorization will have been granted to SCRAS, at
the expiration of a four-year period as from filing for the
relevant Marketing Authorization; or
(ii) SCRAS would not have launched the Product at the expiration
of a nine-month period after the relevant Marketing Authorization
is obtained; or
(iii) SCRAS will not have submitted requisite Marketing
Authorization applications within eighteen (18) months as from
obtaining the Product Marketing Authorization (a) in the United
Kingdom for those countries listed in Appendix E1 attached hereto,
(b) in France for those countries listed in Appendix E2 attached
hereto, (c) in the United States of America for those countries
listed in Appendix E3 attached hereto, in which last case NEUREX
shall provide SCRAS with the relevant Marketing Authorization file
formatted as requested by SCRAS for application in each such
country, and, subject to SCRAS providing NEUREX within six (6)
months as from issue of the Product Marketing Authorization in the
United States with a list of planned filing dates for the
countries in Appendix E3, the eighteen-month delay shall be
extended on a country by country basis by the period of time
necessary for NEUREX to provide SCRAS with the said formatted
Marketing Authorization files.
NEUREX may enforce the provisions identified as (i) in the first two
paragraphs of this Article 3.3, provided however that NEUREX brings
evidence of SCRAS not making reasonable efforts to obtain the relevant
Marketing Authorizations.
The status of member country of the European Union shall be determined
for each country of the Territory, at the date of expiration of the
relevant time limit in consideration of which NEUREX intends to exercise
its right of country withdrawal pursuant to this Article 3.3.
3.4 SCRAS shall be free to entrust with the packing, labeling, physical
distribution and/or promotion of the Product in a finished form, any
Affiliate or third party on behalf of SCRAS or any Affiliate, subject in
this last case to prior notice to NEUREX of the identity of said third
party.
3.5 NEUREX shall, forthwith as of the Effective Date, supply SCRAS with
copies of NEUREX', or NEUREX' other licensee's or distributor's,
promotional literature and existing sales training materials related to
the Product for use by SCRAS in developing promotional literature and
sales training materials for the Product in the Territory.
SCRAS shall develop, print and use, at its own costs, promotional
materials in connection with the sale of the Product in the Territory.
SCRAS agrees that all such promotional materials shall be in line with
NEUREX' promotional materials. Should SCRAS want to make a major
modification to the medical information to be contained in the
promotional materials, the parties would meet without delay to agree on
the terms to be communicated by such promotional materials. The parties
agree that the copyrights, design, and artwork related to such newly
defined communication shall be proprietary and confidential to SCRAS and
that NEUREX may only use the same with the prior written consent of
SCRAS.
3.6 During the term of this Agreement, each party shall promptly inform the
other party of any information that it obtains or develops regarding the
utility and safety of the Product. Al1 information received on adverse
experiences associated with the use of the Product are to be reported by
one party to the other as follows:
(i) fatal or life threatening adverse experiences to be reported
within one business day of receipt;
(ii) all other serious adverse experiences to be reported within
two business days of receipt;
(iii) a summary of all adverse experiences to be reported on a
quarterly basis.
The above requirements apply to both commercialized Product as well as
the use of the Product in clinical trials, and to all adverse experiences
whether or not considered causally related to the Product.
ARTICLE 4 - TRADEMARK: WARRANTIES - PACKAGING
4.1 NEUREX warrants that SmithKline Beecham Co. has duly transferred to
NEUREX its full ownership of the Trademark and to be at present the full
and sole proprietor of the Trademark. NEUREX warrants that the Trademark
is registered, valid and duly opposable in those countries listed in
Appendix C attached hereto and that at the Effective Date, no
infringement claim, nor legal action or threat whatsoever, is pending
against the existence, validity, or ownership of the Trademark. NEUREX
warrants that to the best of its knowledge, the use of the Trademark will
not infringe any trademark or other similar rights or any rights of any
third party.
Upon request from SCRAS, NEUREX agrees to use its reasonable efforts to
obtain at its own costs and without delay, the registration of the
Trademark in those countries of the Territory where SCRAS requires the
Trademark be registered, but no later than upon the date on which SCRAS
intends to launch the Product in the corresponding countries.
NEUREX agrees to sign all documents necessary to register SCRAS as a
registered user of the Trademark when so reasonably required by SCRAS for
any country in the Territory.
4.2 NEUREX commits itself to maintain any Trademark under registration or
registered in the Territory as of the Effective Date or registered in the
Territory pursuant to article 4.1 hereabove, and to undertake all related
proceedings at its own costs, such as but without limitation, renewal
proceedings.
4.3 Except as provided hereunder, SCRAS shall have no obligation related to
the Trademark presentation as far as the Product packaging and labeling,
and the promotional materials are concerned. The parties agree that the
packaging of the Product shall mention SCRAS (or any of its Affiliates)
as the exploiting laboratory in each country of the Territory.
SCRAS has no obligation to market the Product under the Trademark, and
may freely decide to market the Product under any trademark which SCRAS
is entitled to use, under SCRAS' or any of its Affiliate's own name, or
under the Product generic name, provided however in such cases that SCRAS
shall bear all costs associated with maintaining the Trademark in those
countries where SCRAS elects not to sell the Product under the Trademark.
SCRAS shall be entitled to modify the Marketing Authorizations in the
Territory accordingly.
SCRAS agrees that it shall comply with the following:
(a) SCRAS shall not have the right to use any proprietary brand
name or trademark along with the Trademark other than as permitted
in writing by NEUREX.
(b) SCRAS shall not have the right to use a Trademark as part of
any corporate, partnership or other entity name or other product
name.
(c) SCRAS shall not actively offer for sale outside the Territory
any product, compound, item, or drug (including the Product) that
is identified by the Trademark during the terms of this Agreement.
ARTICLE 5 - PATENTS WARRANTIES
5.1 NEUREX warrants that the Patents are the sole ownership of SmithKline
Beecham Co., are valid, existing, and opposable to third parties in those
countries of the Territory where granted as appearing in Appendix A
hereto, and that at the Effective Date, no infringement claim, nor legal
action or threat whatsoever is pending against the existence, validity,
or ownership of the Patents. NEUREX warrants that to the best of its
knowledge, the use of any of the Patents will not infringe any patent or
other similar rights or any rights of any third party.
5.2 NEUREX commits itself to fully maintain the Patents in the Territory, and
shall be responsible for all Patents matters at NEUREX' expense.
5.3 NEUREX declares to be vested with the necessary powers of attorney and
shall have the obligation, to seek extensions of the terms of the Patents
and to seek to obtain Supplementary Protection Certificates throughout
the Territory.
ARTICLE 6 - DEFENSE OF RIGHTS
6.1 Each party shall immediately inform the other as soon as possible of any
infringement or alleged infringement of either of the Trademark or the
Patents by a third party having effect in the Territory, and of any claim
made by a third party that such third party's intellectual property
rights are infringed by either of the Trademark or the Patents.
6.2 Prosecution of infringing acts by third parties and defense of claims of
infringement by third parties relating to the Trademark or the Patents,
shall be the sole responsibility of NEUREX.
NEUREX declares and warrants to be vested with all the necessary powers
of attorney from SmithKline Beecham Co. as far as the Patents are
concerned.
NEUREX shall promptly take, at its own expense, all appropriate actions
against, and litigate, settle or compromise, any such infringing acts or
claims of infringement so that SCRAS may continue to freely benefit from
the rights granted hereunder. SCRAS agrees to provide NEUREX all
documents reasonably requested by NEUREX necessary to prosecute an
infringement of either of the Trademark or the Patents, to defend a claim
of infringement made by a third party against either of the Trademark or
the Patents.
NEUREX hereby agrees to indemnify and hold SCRAS harmless from and
against any claim, expenses and/or damages (including SCRAS reasonable
attorney's fees) incurred or suffered by SCRAS as a result of such
claims.
ARTICLE 7 - ROYALTIES
7.1 In consideration of the licenses granted herein and the release of the
Marketing Authorization Files, SCRAS agrees to pay to NEUREX a lump sum
of two million United States Dollars (USD 2,000,000) according to the
following timetable, and subject to receipt by SCRAS of the corresponding
invoices:
U.S. Dollars one million (USD 1,000,000) upon execution of this
Agreement,
U.S. Dollars two hundred and fifty thousand (USD 250,000) upon
obtaining the Product Marketing Authorization in each of France,
Germany, the United Kingdom, and Italy, provided the Product selling
and reimbursement price fixed in each such country by the relevant
authorities be based on a one-patient twenty-four (24) hour course of
therapy and enables SCRAS to invoice U.S. Dollars [*] per such course
of therapy.
The product selling and reimbursement price as hereabove fixed is
hereinafter referred to as the Product Minimum Price.
7.2 SCRAS shall pay to NEUREX in U.S. Dollars on a semester basis, a royalty of
[*] of the Net Turnover.
The royalty rate shall amount to [*] of the Net Turnover, for the portion
of the Net Turnover exceeding U.S. Dollars [*] during each one calendar
year, in the Territory.
When marketing the Product in the Territory, SCRAS shall forward to
NEUREX, within thirty (30) days after the end of each calendar semester,
a report showing the gross sales and Net Turnover of the Product in the
local currency, and the Net Turnover in U.S. Dollars, on a
country-by-country basis. For the purpose of the hereby Article 7.2, the
U.S. Dollar exchange rate used to reckon the Net Turnover country by
country, shall be the exchange rate in effect on the last business day of
the corresponding calendar semester, as published in the Wall Street
Journal (or other reputable daily business newspaper if the exchange
rates ever cease to be published in the Wall Street Journal).
7.3 SCRAS shall make advanced royalty payments to NEUREX according to the
following timetable:
U.S.D. five hundred thousand (USD 500,000) upon obtaining the Product
Marketing Authorization in each of France, Germany, the United Kingdom,
Italy, and Spain, and in either Belgium or the Netherlands (whichever is
earliest in the latter two), provided the Marketing Authorization be
issued in each such country with the Product Minimum Price.
It is agreed by the parties that such advanced royalty payments shall be
credited against thirty per cent (30%) of all royalties due by SCRAS to
NEUREX in each calendar year pursuant to Article 7.2 of this Agreement,
until all advanced royalty payments have been entirely credited.
7.4
7.4.1 Should the Product Marketing Authorization be issued in either France,
Germany, the United Kingdom, Italy, Spain, Belgium, or the Netherlands,
with a Product selling and reimbursement price inferior to the Product
Minimum Price, no lump sum as referred to in Article 7.1, nor advanced
royalty payment as referred to in Article 7.3, shall be due by SCRAS for
the corresponding country(ies).
7.4.2 Should no Marketing Authorization or only one or two Marketing
Authorizations, be issued with the Product Minimum Price among France,
Germany, the United Kingdom, and Italy, within three years as from the
Effective Date, SCRAS shall have the option to terminate this Agreement
upon notice served to NEUREX within six months as from expiration of said
three year period, in which case NEUREX shall refund to SCRAS 100% of all
lump sums and advanced royalties paid by SCRAS as from the Effective Date
pursuant to Articles 7.1 and 7.3 of this Agreement, after deduction of
the advanced royalties which would have been credited against royalties
due by SCRAS during said three-year period.
Should SCRAS notify NEUREX of its intention to waive said option, or
should SCRAS fail to exercise said option within six months as from
expiration of the three-year period, this Agreement shall continue in
full force and effect, except that no further lump-sum nor advanced
royalties shall be due by SCRAS to NEUREX when obtaining Marketing
Authorizations in France, Germany, Italy, the United Kingdom, Spain,
Belgium, and the Netherlands, whether such Marketing Authorizations are
obtained with or without the Product Minimum Price.
7.4.3 Should three or four Marketing Authorizations be issued with the Product
Minimum Price among France, Germany, the United Kingdom, and Italy,
within three years as from the Effective Date, Article 7.4.2 shall not
apply.
7.5 The amounts to be paid by SCRAS to NEUREX under Articles 7.1, 7.2, and
7.3 of this Agreement, shall be due and payable within 120 days as from
receipt by SCRAS of the corresponding invoices issued in accordance with
the relevant contractual provisions. Such payments shall be made by wire
transfer (net of bank charges) to an account designated by NEUREX on
NEUREX' invoices.
All payments made by SCRAS to NEUREX under Article 7 of this Agreement
shall be received by NEUREX net of all taxes or deductions that may be
levied by the relevant authorities and consequently withheld by SCRAS
from all such payments. SCRAS shall provide NEUREX with the corresponding
receipts and tax payment justifications in order for NEUREX to apply for
the relevant tax credits.
SCRAS shall provide NEUREX and any representatives of NEUREX with access
during normal business hours with five working days advance notice, to
business records relating to Net Turnover and the calculation of
royalties due to NEUREX.
ARTICLE 8 - SUPPLY OF PRODUCT
8.1 During the whole duration of this Agreement, NEUREX shall supply SCRAS
with all SCRAS' promotional and commercial requirements for the Product.
Except as provided in this Article 8.1, in Article 11, and in Article 13
of this Agreement, and except for those countries of the Territory which
shall have been specifically withdrawn from the scope of this Agreement
pursuant to Article 3.3, SCRAS shall exclusively purchase the Product
from NEUREX, and NEUREX shall not directly or indirectly supply any third
party with the Product nor the Compound for final use or sale in the
Territory in whatever form, in the field of pharmaceutical specialties.
NEUREX shall supply the Product as bulk ampoules in the form,
presentation, and dosage as described in Appendix B. NEUREX shall supply
ampoules to SCRAS packed and labeled in accordance with regulatory
requirements for ampoules bulk export outside the U.S.A. and/or outside
other countries where NEUREX designated manufacturers are located, and
import in France.
NEUREX will identify a second source for the manufacture and sale to
SCRAS, of the Compound and the Product substance, in full compliance with
the conditions set forth in this Agreement. If NEUREX has not identified
a second source within [*] years as from the Effective Date, or before
there is less than [*] years of Compound and Product substance inventory,
whichever occurs first, then NEUREX will provide SCRAS with synthesis
information and know-how free of charge to enable SCRAS to manufacture
the Compound and the Product substance, and will grant SCRAS a
royalty-free exclusive license in the Territory under all patents
proprietary or licensed to NEUREX which are necessary to manufacture the
Compound and the Product substance, including but not limited to patents
claiming a process for manufacturing the Compound or the Product
substance, an intermediate used in such process, and/or any improvements
in connection thereof. The aforesaid royalty-free exclusive patent
license shall provide for patent warranties and defense provisions no
less favourable than as set out in Articles 5 and 6 of this Agreement, in
connection with the manufacturing and sale by SCRAS of the Compound
and/or the Product Substance. NEUREX hereby warrants that the aforesaid
proprietary or licensed patents to NEUREX, will provide SCRAS sufficient
and complete rights to manufacture the Compound and the Product
substance.
8.2 NEUREX warrants that the Compound and all lots of Product, will be
manufactured in accordance with applicable Good Manufacturing Practice
requirements, that adequate quality test control procedures are observed
and accurate records kept of any test and results undertaken pursuant to
any such quality control procedures.
NEUREX warrants that the Compound and all quantities of Product delivered
to SCRAS pursuant to this Agreement meet the Specifications. Any
amendments to the Specifications must be agreed in writing between the
parties.
NEUREX shall with each delivery of Product to SCRAS supply a certificate
of analysis related to each batch delivered, incorporating an active
ingredient test and a signed statement that each of such batch conforms
with the Specifications and accords with the relevant Marketing
Authorization, that the Compound and the Product meet all stability
requirements, that the manufacturing procedures have been checked in
conformity with GMP requirements.
NEUREX shall further deliver to SCRAS all information related to the
manufacture and control methods in respect of the Compound and the
Product so as to enable SCRAS to perform all necessary Compound and
Product testing as may be required by applicable laws, before packing,
labeling, and sale in the Territory. NEUREX agrees to provide SCRAS with
reasonable technical assistance free of charge, should supplementary
heavy Product or Compound controls be required by applicable laws for
sale by SCRAS in the Territory.
8.3 In the case of non conformity to the Specifications of any quantity of
Product delivered to SCRAS, NEUREX shall take back, at its expense, the
quantities concerned and shall replace them promptly, so that SCRAS' sale
agenda be not disturbed.
Any dispute between the parties regarding the conformity to the
Specifications of any quantity of the Product delivered hereunder shall
be referred to an expert, jointly appointed by the parties within thirty
days from the receipt by NEUREX of the notice of claim of SCRAS. The
opinion of such expert shall be definitive and binding upon the parties.
The cost of such independent advice shall be equally shared between the
parties, unless the expert otherwise decide. Should the parties not agree
on the appointment of such expert, the most diligent party shall require
the President of the commercial court of its residence to proceed to such
appointment, which shall be binding upon the parties.
8.4 Within six months of the first anticipated Product launch in the
Territory and every following calendar year, on December 15 at the
latest, SCRAS shall provide NEUREX with written forecasts of the
quantities of Product on a country by country basis, which it will
require during the following calendar year so that NEUREX may plan its
production. The forecasts shall set forth the dates at which deliveries
shall be made. Forecasts shall not be binding upon SCRAS.
SCRAS shall place contractually binding orders for Product to NEUREX
giving no less than ninety (90) days notice of delivery. Each order shall
state the date and location where delivery shall be made. NEUREX shall
supply SCRAS no later than fifteen (15) days after the delivery dates
required by SCRAS. Should orders exceed one hundred twenty percent (120%)
of the forecasts, NEUREX agrees to use its reasonable endeavours to meet
SCRAS' requested quantities of Product and delivery date.
8.5. The Product Transfer Price shall be CPT place of delivery mentioned in
SCRAS' orders (Incoterms 1990).
All Product so delivered hereunder shall be invoiced by NEUREX at the CPT
Product Transfer Price per unit which shall be fixed by NEUREX so as to
procure SCRAS during the whole duration of this Agreement, a minimum of
[*] Gross Margin provided that at no time shall the Product Transfer
Price be less than NEUREX' cost of goods to manufacture the Product. In
order to procure SCRAS a minimum of [*] Gross Margin, NEUREX shall adjust
the Product Transfer Price (i) every two years, and (ii) at the beginning
of any calendar quarter following any given calendar quarter during which
the Gross Margin fell below [*], provided that at no time shall the
Product Transfer Price be less than NEUREX' cost of goods to manufacture
the Product.
If at any time during the first five years as from SCRAS first obtaining
the Product Marketing Authorization in the Territory, NEUREX is not able
to adapt the Product Transfer Price in order to provide SCRAS with the
aforesaid [*] minimum Gross Margin, due to the Product Transfer Price
being equal or inferior to NEUREX' costs of goods to manufacture the
Product, NEUREX shall procure SCRAS with the [*] minimum Gross Margin by
reducing the royalty rates fixed in article 7.2 of this Agreement by one
(1) point for every one (1) point inferior to the [*] Gross Margin, with
a maximum of ten-point royalty reduction (or should the case be pursuant
to Article 7.2, second paragraph of this Agreement, with a maximum of
twelve-point royalty reduction). After expiration of said five-year
period, NEUREX royalty rate reductions as set out hereabove shall be at
NEUREX' option. All such royalties adjustments and reimbursements shall
be made at the end of each calendar year.
Should SCRAS' Gross Margin be inferior to [*] at any time after
expiration of the five-year period referred to in the previous paragraph,
NEUREX shall provide SCRAS, if SCRAS so requests, with synthesis
information and know-how free of charge to enable SCRAS to manufacture
the Compound and the Product substance, and will grant SCRAS a
royalty-free exclusive license in the Territory under all patents
proprietary or licensed to NEUREX which are necessary to manufacture the
Compound and the Product substance, including but not limited to patents
claiming a process for manufacturing the Compound or the Product
substance, an intermediate used in such process, and/or any improvements
in connection thereof. The aforesaid royalty-free exclusive patent
license shall provide for patent warranties and defense provisions no
less favourable than as set out in Articles 5 and 6 of this Agreement, in
connection with the manufacturing and sale by SCRAS of the Compound
and/or the Product Substance. NEUREX hereby warrants that the aforesaid
proprietary or licensed patents to NEUREX, will provide SCRAS sufficient
and complete rights to manufacture the Compound and the Product
substance.
8.6 All payments to be made by SCRAS pursuant to this Article 8 shall be made
in U.S. Dollars by cheque or wire transfer (net of bank charges) to an
account designated by NEUREX on NEUREX invoice within 60 days of the date
of receipt of the corresponding invoice.
SCRAS shall be entitled to withhold payment by reason of a dispute as to
the conformity of any quantity of the Product or Compound to the
Specifications.
8.7 Without prejudice to the provisions of Article 8.5 hereabove, at the
beginning of each calendar year during the term of this Agreement, NEUREX
shall provide SCRAS with free quantities of Product, reckoned as set out
hereunder on a country by country basis exclusively for SCRAS conducting
promotional activities in the Territory:
For the calendar year following the year during which the Product is
launched in the corresponding country: ten per cent (10%) of the
forecasted Product sales in such country for said calendar year;
For the second calendar year following the year during which the
Product is launched in the corresponding country: five per cent (5%) of
the forecasted Product sales in such country for said calendar year.
For the third calendar year following the year during which the
Product is launched in the corresponding country: five per cent (5%) of
the forecasted Product sales in such country for said calendar year.
At the end of each calendar year, NEUREX shall make all necessary
invoicing or credit adjustments on a country by country basis for
quantities of free Products provided to SCRAS, depending on whether the
Product sales realized during the corresponding calendar year in the
corresponding country exceeded or where inferior to, the forecasted
Product sales. SCRAS shall provide documentation for Product sales within
each country in the Territory where free Product is provided.
ARTICLE 9 - PRODUCT LIABILITY - INDEMNIFICATION
9.1 NEUREX agrees to indemnify and hold harmless SCRAS from any and all
claims, damages and expenses (including reasonable attorneys' fees) which
may be sustained or suffered by SCRAS by virtue of death or injury
resulting from administration or use of any of the Compound or the
Product, arising from (i) the development, manufacturing, defaults, or
the handling and/or storage of the Compound and/or the Product by NEUREX
or SmithKline Beecham Co., or (ii) omissions or defaults in the
instructions for use of the Product prescribed by NEUREX, or (iii) a
default from NEUREX in making those notifications referred to in Article
3.5 of this Agreement.
SCRAS hereby agrees to indemnify and hold NEUREX harmless from any and
all claims, damages and expenses (including reasonable attorneys' fees)
which may be suffered or sustained by NEUREX by virtue of death or injury
resulting from administration or use of the Product, which arise solely
from the packing, labeling, handling, storage, distribution and/or
promotion of the Product by SCRAS, its Affiliates, or its sublicensees,
and which are not the result of NEUREX fault or negligence.
9.2 The Party requested to provide indemnification pursuant to this Article 9
(the Indemnifying Party) as to a particular claim of a third party shall
have the sole control of the defense, litigation or settlement of such
claim and shall have the right to elect the legal counsel who shall
assist the Parties with respect to such claim. The Indemnifying Party
shall be excused from its obligation to defend and hold harmless the
other Party with respect to any such claim, should the other Party:
(i) fail to give immediate notice to the Indemnifying Party of any such
claim; or
(ii) act to the detriment of such claim, or of the Indemnifying Party's
efforts to effect a compromise or settlement with respect to such claim,
or make any admission or take any action regarding such claim without the
Indemnifying Party's prior consent; or
(iii) obtain release or indemnification from another party from such claim, but
only to the extent of such other release or indemnification.
Notwithstanding any of the aforesaid, the non indemnifying party shall be
entitled to undertake all protective measures or actions that this party
may deem appropriate in order to secure its factual or legal position, or
to prevent the situation from aggravating.
9.3 The provisions of this Article 9 shall survive the earlier
termination or the expiration of this Agreement.
ARTICLE 10 - PRODUCT RECALL
10.1 In the event either party has reason to believe that one or more lots of
any Product supplied hereunder should be recalled or withdrawn from
distribution such party shall immediately inform the other in writing.
To the extent permitted by circumstances, the parties will confer before
initiating any recall but the decision as to whether or not to initiate a
recall in the Territory shall be solely SCRAS'. Except as otherwise
provided herein, the costs of any recall will be allocated between the
parties in accordance with the parties' respective indemnification
obligations set forth in Article 9.1 herein.
10.2 If such recall is required because of failure of the Compound or the
Product to conform to warranty as provided in Article 8 of this Agreement
or for any reason other than that mentioned in article 10.3 below, then
such recall may be conducted immediately by SCRAS in the Territory if
SCRAS so requests. The costs and expenses of such recall shall be
reimbursed by NEUREX to SCRAS.
10.3 If such recall is required because of a negligent act or omission by
SCRAS in the packing, labeling, handling, storage, distribution or
promotion of the Product, then such recall shall be conducted by SCRAS at
SCRAS' sole costs and expenses, and SCRAS shall not be entitled to any
credit, replacement or refund for the Product so recalled.
10.4 If such recall is required because of a joint act or omission of the
parties, SCRAS shall conduct the recall immediately and the parties shall
negotiate in good faith an appropriate allocation of the costs and
expenses of the recall.
10.6 The provisions of this Article 10 shall survive the earlier termination
or the expiration of this Agreement.
ARTICLE 11 - RESERVED RIGHTS
11.1 Exclusive option rights on NEUREX Program:
When NEUREX reaches to the preparation of Clinical studies Phase III in
connection with the NEUREX Program, SCRAS shall have the option to
participate on an exclusive basis in the NEUREX Program and consequently
be granted the corresponding exclusive distribution and promotional
rights in the Territory. SCRAS shall exercise said option by paying to
NEUREX U.S. Dollars five hundred thousand (USD 500,000) upon acceptance
by SCRAS of the Phase III Protocol (which shall have been submitted to
SCRAS and mutually discussed and agreed upon in good faith between SCRAS
and NEUREX). NEUREX undertakes to make all modifications to the protocol
reasonably required by SCRAS.
When the relevant Marketing Authorization is obtained in at least two
countries among France, Germany, the United Kingdom, and Italy, SCRAS
shall pay to NEUREX U.S. Dollars two million (USD 2,000,000).
11.2 NEUREX shall provide SCRAS with all information and marketing
authorization files related to research and developments made directly by
NEUREX, or through its Affiliates or licensees (in which last case
provided NEUREX has rights to said information and files), in connection
with (i) all additional indications of the Compound, (ii) all intravenous
formulations of the Compound, and/or (iii) all chemical improvements or
derivatives of the Compound excluding prodrugs of the Compound developed
for cardiovascular or renal indications, all of which for the purpose of
SCRAS filing for the relevant marketing authorization or extensions in
the Territory. Should the relevant authorities in the Territory issue the
relevant Marketing Authorizations or extensions without requiring any
complementary development and/or costs, NEUREX shall grant to SCRAS the
corresponding exclusive distribution and promotional rights free of
charge in the Territory.
Should the relevant authorities in the Territory require that
complementary development or costs be undertaken for the purpose of
issuing the relevant Marketing Authorizations or extensions, NEUREX and
SCRAS shall discuss in good faith the conditions under which SCRAS and
NEUREX would undertake and finance such developments and/or costs in
order for NEUREX to grant to SCRAS the relevant exclusive distribution
and promotional rights in the Territory.
NEUREX shall negotiate in good faith to grant SCRAS an exclusive option
to participate in all developments of prodrugs of the Compound for
cardiovascular or renal indications. NEUREX shall offer said options to
SCRAS upon completion of the relevant Phase II clinical trials. NEUREX
and SCRAS shall discuss in good faith the conditions under which NEUREX
and SCRAS shall undertake and finance such developments, and the
financial conditions under which NEUREX shall grant to SCRAS the
corresponding rights in the Territory.
NEUREX shall present to and discuss in good faith with SCRAS development
arrangements and opportunities, as well as marketing arrangements and
opportunities in the Territory for Prodrugs of the Compound for chronic
indications and any indication not covered by the previous paragraph,
which NEUREX is considering developing and/or marketing.
11.3 Should SCRAS reject the options referred to in Articles 11.1 and 11.2 -
first paragraph, after NEUREX presented them to SCRAS, the obligations of
the parties under said Articles 11.1 and 11.2 - first paragraph shall
cease.
After NEUREX has presented to SCRAS the options referred to in Article
11.2 - second, third and fourth paragraphs, and discussions have been
held, and if no agreement is reached between the parties, the obligations
under Article 11.2 - second, third and fourth paragraphs shall cease.
ARTICLE 12 - CONFIDENTIALITY
12.1 Except as provided in this Agreement for Product promotional activities
by SCRAS and Marketing Authorizations filings in the Territory, each
party shall keep secret and confidential for the term of this Agreement
all documents and information communicated to it by the other party on a
confidential basis relating to the Compound, the Product, or any trade or
technical secret related to the disclosing party. Each party further
agrees that for the same period it will not, without the consent of the
other party, use confidential information for any purpose other than
carrying out this Agreement, provided however if either party is
requested or required by any law, regulation, or similar authority to
disclose any confidential document or information, such party may do so
provided that such party (i) undertakes all appropriate measures in order
to protect the secrecy of all such confidential document or information,
prior to their disclosure to any authority, and (ii) inform the other
party of all such measures and disclosures.
12.2 Each party shall have no obligation to maintain the confidentiality of
any specific item of information that is (i) in the public domain or
otherwise available to the public without restriction on its use, (ii)
publicly known through no fault of the receiving party or its employees,
(iii) available to the receiving party or already received at the time of
disclosure, without any obligation of confidentiality from a person not
having a confidential relationship with the disclosing party or its
Affiliates.
12.3 Nothing herein shall be construed as preventing each party from
disclosing any information received from the other party, to an
Affiliate, or to any of SCRAS' future sublicensee or distributor related
to the purpose of this Agreement, provided such Affiliate, sublicensee or
distributor has undertaken a similar obligation of confidentiality with
respect to the confidential information.
ARTICLE 13 - TERM AND TERMINATION
13.1 Royalty obligations under Article 7.2 shall expire on a country per
country basis, upon the earlier of:
(i) ten (10) years from the date the first Marketing Authorization is
granted in the corresponding country;
(ii) the introduction in the corresponding country of a competing
product containing the Compound, as from the date the competing
product's marketing authorization is granted, or such competing
product is launched, whichever is earlier;
(iii) the introduction in the corresponding country of any
pharmaceutical product constituting or resulting from breach of
any of the warranties appearing in the fifth paragraph of the
preamble of this Agreement.
Upon expiry of royalty obligations pursuant to this Article 13. 1, SCRAS
shall give preference to NEUREX as the Product supplier, unless third
parties offer the Compound or the Product for sale to SCRAS providing
SCRAS with over ten percent (10%) increase of SCRAS' gross margin (after
deduction of all costs of goods) on the sale of the Product in the
Territory, in which case SCRAS shall be free to purchase the Product from
such third parties.
13.2 Unless otherwise terminated, this Agreement shall expire upon the
latest of:
expiration, lapse, or invalidation of the last remaining Patent
in the Territory; or (ii) twenty (20) years as from the Effective Date.
13.3 Should one of the following event affect either party, the other party
may terminate this Agreement:
(i) Either party becomes insolvent, is declared bankrupt, put into
liquidation, whether voluntarily or by court decision, is obliged
to make an assignment of its assets to the benefit of any third
party or requests the appointment of a receiver or is subject to a
similar procedure;
(ii) Either party is in breach hereunder and has not cured such default
within thirty days following the receipt of a notice sent to it to
that effect by the non defaulting party;
(iii) Force majeure events, as hereinafter defined, preventing either
party from fulfilling its obligations hereunder during a period of
more than three consecutive months, if no mutually acceptable
solution is agreed upon by the parties forthwith after the
expiration of the three month period.
13.4 Earlier termination of this Agreement under Article 13.3 shall not
require resort to any court or compliance with any other formality, and
in case of earlier termination under Article 13.3 (ii), shall not
prejudice the right of the non defaulting party to recover any damages
for breach of this Agreement.
Any and all amounts outstanding at the date of earlier termination under
Article 13.3 shall remain due and be paid on due date as provided herein.
13.5 In case of earlier termination of this Agreement under Article 13.3,
NEUREX shall refund SCRAS all creditable advanced royalty payments made
by SCRAS pursuant to Article 7.3 of this Agreement, that have not been
fully compensated with royalties due by SCRAS pursuant to Article 7.2 of
this Agreement, without prejudice to the provisions of Article 13.4.
13.6 Upon earlier termination of this Agreement, NEUREX may upon notice to
SCRAS within two months following such termination, (i) elect to purchase
all quantities of Product then in the possession of SCRAS, at the actual
Product Transfer Price, or (ii) authorize SCRAS to pack and label the
Product with the remaining inventory of Product and to sell all such
remaining Product during a period not to exceed nine (9) months following
the date of such termination, period after which any Product inventory
held by SCRAS shall be destroyed.
If NEUREX exercises such purchase option, NEUREX shall bear the expenses
of any further transportation of such quantities, and shall pay for such
quantities upon satisfactory quality control completion to be made
forthwith as from the Compound or Product delivery to NEUREX.
13.7 Except as provided in Article 13.6 hereabove, after earlier termination
of this Agreement SCRAS shall have no further rights in the Patents, the
Trademark, the Marketing Authorization Files and Marketing
Authorizations, and shall not, either directly or indirectly, use or
permit the use of the same or of the promotional procedures, methods or
documentation relating to the Product.
Upon earlier termination of this Agreement for any reason whatsoever,
SCRAS shall undertake all proceedings in order to transfer all Marketing
Authorizations and the Trademark registrations should such registrations
be in the name of SCRAS or any Affiliate, to NEUREX or to any other third
party as may be indicated by NEUREX.
ARTICLE 14 - FORCE MAJEURE
14.1 Failure of a party to fulfill its obligations hereunder because of a case
of force majeure effecting the performance of such obligation shall not
constitute a default by such party and consequently shall not give rise
to liability to the other party. A case of force majeure shall include
any cause beyond the reasonable control of such party, including without
limitation, an event due to or action taken by any government or
administrative authority, fire, flood, act of God, embargo, war,
insurrection, general strike.
14.2 The party affected by such an event shall inform the other party as soon
as possible after the occurrence of such event, and send to the other
party ail appropriate justification evidencing the occurrence of such
event. If such an event shall continue for more than three months, the
parties act in good faith to find and implement a mutually acceptable
solution to the event, paying particular attention to the continuity of
the exploitation of the Product in the Territory.
ARTICLE 15 - MISCELLANEOUS
15.1 This Agreement may not be assigned by a party to any third party,
except to an Affiliate, without the prior written consent of the other
party.
15.2 Either party warrants that the execution, delivery and performance of
this Agreement does not violate the provisions of, or constitute a breach
or default under any agreement to which either party is a party.
15.3 This Agreement sets forth the entire agreement between the parties with
respect to its subject matter and merges all prior discussions,
negotiations, and agreement between them. The Confidentiality Agreement
executed between the parties shall be cancelled as from the Effective
Date. This Agreement may not be amended or modified in any manner except
by an instrument of subsequent date in writing signed by duly authorized
representatives of SCRAS and NEUREX.
15.4 Correspondence, notices and payments pursuant to this Agreement shall be
sent by registered mail with acknowledgment of receipt, first class
overnight mail return receipt requested, and/or by telefax, addressed to
the following attention:
For SCRAS: SCRAS - 51/53 rue du Docteur Blanche, 75016 Paris (France)
Attention General Counsel - Copy to President of Business Development
For NEUREX: NEUREX - 3760 Haven Avenue, Menlo
Park, California 94025-1012 (U.S.A.)
Attention Paul Goddard
Or such address as a party shall from time to time advise at the above
address.
Such correspondence and notice shall be deemed to have been received on the date
of receipt appearing on the acknowledgment of receipt for notice made by mail,
or on the date of the fax transmission receipt for notice made by fax.
15.5 SCRAS shall fulfill all formalities required in connection with this
Agreement under laws and regulations applying to each country in the
Territory. NEUREX shall fulfill all formalities required in connection
with this Agreement under laws and regulations of the State of California
and/or the United States of America.
15.6 The waiver by any party of any default under this Agreement or of any
covenant, agreement or condition contained herein shall not be construed
to constitute a definitive waiver of such or any other default or breach
whether similar or not.
15.7 If any provision of this Agreement shall for any reason be held to be
void, invalid, illegal or unenforceable in any respect, no other portion
of this Agreement shall be affected thereby; provided however, that the
parties shall in such case promptly negotiate in good faith such
adjustments in this Agreement as shall be necessary to make it fair and
equitable to the parties.
15.8 This Agreement shall be governed by and construed in accordance with the
laws of France.
All disputes arising in connection with the validity, interpretation,
execution or termination of this Agreement shall be finally settled under
the Rules of Conciliation and Arbitration of the International Chamber of
Commerce, by one or more arbitrators, appointed and ruling in accordance
with the said rules. The place of arbitration shall be Paris (France).
The language to be used in the arbitral proceedings shall be the English
language.
In witness whereof the parties hereto have executed this Agreement in
two copies
SCRAS NEUREX
/s/Philippe Beaufour /s/ Paul Goddard
- ------------------------------- -------------------------------
Philippe BEAUFOUR Paul GODDARD
Director Chairman & CEO
Appendix A - Patents - Patents registrations in the Territory Appendix B -
Compound and Product Specifications Appendix C - Trademark - Corlopam(R))
registrations in the Territory Appendix D - NEUREX Program Appendix E - (E1 - E2
- - E3)
<PAGE>
<TABLE>
APPENDIX A
PATENT REGISTRATION IN THE TERRITORY
<CAPTION>
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
<S> <C> <C> <C> <C>
Country Patent No. Expiry Date Note Claims
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
U.K. 1595502 07 Nov 1997 5 compound, phenethyl-amines, process
for preparingphenethyl-amines
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
U.K. 1595503 07 Nov 1997 5 intermediate for making fenoldopam
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Australia 534783 19 May 1996 - -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Austria 362379 15 Oct 1998 5 process, ring cyclization
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Belgium 860774 14 Nov 2002 1 compound
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Brunei 60/84 07 Nov 1997 8 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Cyprus 1246 07 Nov 1997 8 compound
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Denmark 156057 11 Nov 1997 5 ether inter.
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Denmark 154833 19 May 2000 5 Process
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- -----------------------------------
Denmark 156058 (Div) 11 Nov 1997 5 amine int.
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
France 7734311 15 Nov 1997 5 compound
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Germany P2751258 16 Nov 1995 - process for cycling the phenethyl
- ------------------------ ---------------------- ---------------------- ----------------------- amine-------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Greece 68523 23 May 1995 - -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Guernsey Conf. of U.K. 07 Nov 1997 8 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Hong Kong 930 07 Nov 1997 8 corresponds to U.K. 1595503
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Ireland 49815 21 May 1996 - -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Israel 53377 14 Nov 1997 8 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Italy 1126216 Oct 2014 2 process - ring formation from
- ------------------------ ---------------------- ---------------------- ----------------------- phenethyl amine---------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Jersey RP385 07 Nov 1997 8 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Kenya P3407B 07 Nov 1997 8 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
South Korea 17934 24 May 1995 - -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Luxembourg 78513 15 Nov 1997 5 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
<PAGE>
- ------------------------ ---------------------- ---------------------- ----------------------- -----------------------------------a-
Country Patent No. Expiry Date Note Claims
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Malaya 382 07 Nov 1997 8 Conf. of U.K. patent
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Netherlands 185563 14 Nov 2002 3 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
New Zealand 193767 19 May 1996 - compound, process and composition
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Portugal 67260 18 April 1994 - process - cyclizing phenethyl amine
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Portugal 71262 27 March 1996 - -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Sabah 370 07 Nov 1997 8 Conf. of U.K. patent
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
South Africa 80/2325 18 April 2000 8 compound
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Sarawak C2252 07 Nov 1997 8 Conf. of U.K. patent
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Singapore 317/84 07 Nov 1997 8 Conf. of U.K. patent
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Spain 464044 05 Jul 1998 5,7 method for making ether int.
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Spain 491620/4 16 April 2001 5,7 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Sweden 436646 16 Nov 1997 5 Conversion of phenethyl amine to
- ------------------------ ---------------------- ---------------------- ----------------------- benzazepine-------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Switzerland 637383 01 Jan 1998 5 ether intermed., method for making
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Switzerland 635079 16 Nov 1997 5 process for making an ether an int
- ------------------------ ---------------------- ---------------------- ----------------------- by cyclizing an amine---------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Switzerland 638487 (Div) 01 Jan 1998 5 hydroxyl intermed used to make the
- ------------------------ ---------------------- ---------------------- ----------------------- amine process-----------------------
- ------------------------ ---------------------- ---------------------- ----------------------- -----------------------------------
Taiwan NI-15027 01 June 1996 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Tanganyika 2227 07 Nov 1997 8 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
Uganda 23 07 Nov 1997 8 -
- ------------------------ ---------------------- ---------------------- ----------------------- ------------------------------------
</TABLE>
<PAGE>
1 Marketing approval was granted in Belgium in March 1993. The patent expiration
date reflects a 5-year patent term extension granted through 14 November 2002.
2 Marketing approval was granted in October 1994 (decrees No. A251/94 and
A252/94). The patent expiration date reflects a 17-year extension period based
upon the granting of an SPC application filed in 1992 under Italian National Law
(Extension Certificate granted under National Law No. 349/91 on October 17,
1995).
3. Marketing approval was received in the Netherlands in June 1992. The patent
expiry date reflects a 5-year patent term extension granted through 14 November
2002.
4 For the Netherlands, Italy and Belgium, since extended patent coverage has
already been obtained for the product covered by the indicated aa basic patent
oo, additional SPCs covering the same product may not be obtained.
5 Patent term extension of a period not to exceed 5 years is available pending
marketing authorization for the product. An SPC (Supplementary Protection
Certificate) application for patent term extension must be filed in the
Industrial Property Office (i) before expiration of the lawful term of the
patent, AND (ii) within 6 months from the date of receiving marketing
authorization. For countries in which more than one patent covering the product
is in force, one patent must be selected as the aa basic patent oo, since a
patentee cannot obtain more than one SPC for the same product.
6 Amendments to the Swiss national patent legislation came into force on 1
September 1995 to make SPCs available in Switzerland.
7 The EEC Regulation providing for patent term extension will come into force in
Spain, Greece and Portugal on January 2, 1988.
8 Under those entries where such has not been indicated, it may also be possible
to obtain an extension of patent term coverage according to individual national
laws in these countries subject to verification.
9 To the extent that claims in the above patents cover a process for
manufacturing the Compound, an intermediate used in such process or use of the
Compound, and/or any improvements in connection thereof, they are excluded from
the Agreement except as provided in Paragraph 8.1(3) and Paragraph 8.5(4)
thereof.
<PAGE>
APPENDIX B
Compound and Product Specifications
[*] Confidential treatment has been requested for the entire contents of this
Appendix B which has been filed separately with the Commission.
<PAGE>
<TABLE>
Appendix C
Schedule of Corlopam Trademarks
Owned by Neurex Corporation
<S> <C> <C> <C>
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Country Status Application/Registration #
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Africa
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Egypt Registered 65866
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Nigeria Filed 47158/1985
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
South Africa Registered 85/4249
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Asia/Pacific
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Australia Registered A428556
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Indonesia Registered 153067
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
New Zealand Registered 186973
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Pakistan Registered 86702
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Philippines Registered 47972
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Singapore Registered 3784/88
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
South Korea Registered 185642 (Korean characters)
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
South Korea Registered 186023
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Taiwan Registered 428454
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Taiwan Registered 430069 (Taiwanese characters)
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Thailand Registered 126795
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Europe
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Denmark Registered 04082/1990
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Finland Registered 108554
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
France Registered 1314252
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Greece Abandoned 80155 (Restoration required)
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
* International Registered 4976252
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Ireland Registered 115608
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Italy Registered 603470
- ------------------------- -------------------------- ---------------------------- -----------------------------------
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Norway Registered 139349
- ------------------------- -------------------------- ---------------------------- -----------------------------------
Sweden Registered 200236
- ------------------------- -------------------------- ---------------------------- -----------------------------------
</TABLE>
* International Registration No. 497625 is extended to the following
jurisdictions: France (home registration), Algeria, Armenia, Austria, Bulgaria,
Czechoslovakia, Germany, Hungary, Italy, Liechtenstein, Monaco, Morocco,
Romania, San Marino, Soviet Union (Russia), Switzerland, and Yugoslavia (not
Spain). Because U.S. corporations, such as Neurex, cannot avail themselves of
the International Registration process, Neurex has formed Neurex International,
a Liechtenstein corporation, which will obtain the assignment of the
international registration for Corlopam and, in turn, license the trademark to
Neurex.
<PAGE>
APPENDIX D
NEUREX PROGRAM
FENOLDOPAM
TENTATIVE PHASE IV PROGRAM
The existing pharmacology, preclinical, and clinical database for Corlopam
suggests a range of opportunities to pursue additional indications for this
product. The initial Phase IV development program will focus primarily on
exploiting the positive renal benefits of Corlopam:
1. Pilot Renal Function Studies
These studies will determine the safety and efficacy of Corlopam in
normal volunteers and patients with acute renal insufficiency. An initial study
is designed as a randomized, placebo-controlled, cross-over investigation to
evaluate the pharmacology and dose-response of intravenous infusion of
fenoldopam on glomerular filtration rate (GFR), effective renal plasma flow
(ERPF), vasoactive hormone levels (i.e., PRA, PA, etc.), and the natriuretic and
kaliuretic response in sodium-balanced as well as sodium depleted, normal
volunteers (n = 8-12). The study will likely be performed at the Drug Evaluation
Unit at Hennepin County Medical Center in Minneapolis, MN and is scheduled to be
completed by year end.
The second pilot study is currently designed to be open-label, dose
ranging examination of a select group of septic patients (n = 5-25) who show
signs of early renal compromise that are suggestive of impending kidney injury
and are associated with a relatively poor outcome. The patients will be
normalized for volume status and various doses of fenoldopam will be assessed
for possible improvement in glomerular filtration rate. This study will likely
be performed at the University of Miami School of Medicine.
The final study is designed to establish proof-of-concept for the use
of fenoldopam in the prevention and/or reversal of renal vasoconstriction. This
open-label, dose ranging pilot study will examine Cyclosporine A-treated
transplant patients (n = 5-10), with stable allograft function, for an
investigation of the acute effects of intravenous fenoldopam on
cyclosporine-induced renal vasoconstriction. This study will likely be performed
at the University of Miami School of Medicine.
2. Post-Marketing Studies/Pivotal Trials
At least two major, multicenter (perhaps multinational) post-marketing
studies are planned during calendar years 1997 and 1998 to be designed based
upon the result of pilot trials. These studies are designed to investigate the
effects of intravenous fenoldopam on renal function in the subset of
hypertensive patients that have or are at risk of developing acute renal
insufficiency. These studies will be performed at 10-30 centers and will involve
approximately 200-400 patients each.
3. Alternative Delivery of CORLOPAM
Opportunities in the transdermal or buccal delivery forms of CORLOPAM
are currently being investigated with a number of supply companies. Such a
dosage form will provide a means of delivering Corlopam for both acute and
chronic renal insufficiency indications.
NOTE: The Phase IV program is contingent upon a program that is mutually
acceptable to Neurex and SCRAS.
<PAGE>
APPENDIX E
- - APPENDIX E1
All countries of the Territory other than those listed in Appendix E2 and
Appendix E3.
- - APPENDIX E2:
BENIN
BURKINA FASO
BURUNDI
CAMEROON
CONGO
IVORY COAST
GABON
GUINEA
MALI
MAURITANIA
NIGER
CENTRAL AFRICA REPUBLIC
RWANDA
SENEGAL
CHAD
TOGO
ZAIRE
- - APPENDIX E3:
AUSTRALIA
ISRAEL
KUWAIT
NEW ZEALAND
SAUDI ARABIA
EXHIBIT 10.28
CONFIDENTIAL TREATMENT REQUESTED
(*) Denotes information for which confidential treatment has been requested.
Confidential portions omitted have been filed separately with the Commission.
MANUFACTURING AND SUPPLY AGREEMENT
THIS AGREEMENT, made effective as of October 24, 1996 (the "Effective Date"), is
entered into by and between Neurex Corporation, a Delaware corporation
("Neurex") and Mallinckrodt Chemical, Inc., a Delaware corporation
("Mallinckrodt").
RECITAL
WHEREAS, Neurex has developed a proprietary Product called SNX- 111 for
analgesia indications and desires Mallinckrodt to manufacture SNX-111 for
Neurex;
WHEREAS, Mallinckrodt has developed proprietary manufacturing processes for
manufacturing peptide products such as SNX-111 and desires to manufacture
SNX-111 for Neurex;
WHEREAS, SNX- 111 is still in the development process but Neurex wants to enter
into a supply contract before it knows the amounts or delivery times of Products
but wants to assure a source of supply of SNX-111;
WHEREAS, Mallinckrodt has limited capacity to manufacture SNX-111 within given
time limits but desires to develop the means to provide continuity of supply to
Neurex within its limited manufacturing capacity.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises
contained herein, the parties agree as follows:
1. Definitions. As used in this Agreement:
1.1 "Affiliate" shall mean any corporation or other business entity
controlling, controlled by or under common control with such party. For purposes
of this Section 1.1, "control" shall mean the direct or indirect ownership of
fifty percent (50%) or more of the voting or income interest in such corporation
or other business entity, or such other relationship as, in fact, constitutes
actual control.
1.2 "Batch" shall mean the amount of the Product coming out of a
single synthesis.
1.3 "Product" shall mean the bulk form of SNX-111, as more fully
described in Schedule A which is attached hereto and made a part hereof.
1.4 "Mallinckrodt Proprietary Technology" shall mean the
proprietary process information relating to the manufacture of the Product which
is considered to be a trade secret of Mallinckrodt.
1.5"Calendar Half-Year" shall mean each of the six (6) month
periods, during the term hereof, beginning with April 1 st and October 1 st.
1.6 "Neurex Patent Rights" or "NPR" shall mean any claim of
any unexpired patent owned by or licensed to Neurex or an Affiliate thereof,
that has not been declared invalid or unenforceable in an unappealed or
unappealable decision of a court of competent jurisdiction.
1.7 "Term" shall mean the duration of this Agreement as
determined in accordance with the terms hereof.
1.8 "Yield" shall mean the weight of the net Product obtained
divided by the weight of the starting peptide resin to obtain that Product.
2. Manufacture and Supply of Product.
2.1 (a) Subject to the provisions of this Agreement,
Mallinckrodt shall manufacture and Neurex shall purchase from Mallinckrodt at
least fifty percent (50%) of Neurex's requirements of the Product for the United
States market for Neurex's Analgesia indication.
(b) Neurex may order amounts of SNX-111 for other
research and development purposes other than the analgesia indication. On each
firm order placed by Neurex pursuant to ss.5.2 hereof, Neurex shall indicate
which amounts ordered are for analgesia and which amounts ordered are for
research and development of other possible indications. Section 6 and 11 shall
not apply to any non-analgesia research and development materials. In no event
will Neurex order any SNX-111 for commercial production except for Product for
analgesia indications. In no event will the amounts ordered exceed the amounts
listed in Exhibit D.
2.2 Subject to the provisions of this Agreement, Neurex agrees
to purchase Mallinckrodt's current inventory of 45 grams of Product at the price
outlined in Schedule B.
3. Manufacturing Fees.
3.1 Neurex shall pay Mallinckrodt for the manufacture of the
Product in accordance with the Payment/Yield Schedule attached hereto as
Schedule B and made a part hereof.
3.2 Upon shipment of the Product to Neurex, Mallinckrodt shall
submit its invoice for its fees for manufacturing the Product shipped according
to the applicable Yields for that particular Batch and provide Neurex with each
Batch documentation supporting the Yield claimed. Neurex shall pay the full
amount of each invoice within forty five (45) days after receipt of invoice.
3.3 In the event that Yield rates for three (3) consecutive
batches are consistently greater than [*], Mallinckrodt acknowledges and agrees
to negotiate in good faith a new manufacturing fee schedule consistent with the
ratios for price set forth in Schedule B.
4. Specifications.
4.1 Each Batch manufactured and supplied by Mallinckrodt to
Neurex hereunder shall conform to the specifications therefor as set forth in
Schedule A hereto, as the same may be amended from time to time by written
agreement of the parties hereto ("the Specifications"). The Specifications shall
be adjusted to meet any new requirements of any changes to applicable law or
regulation. Any resulting change in the manufacturing fee will be reflected in
accordance with Mallinckrodt's standard cost accounting system.
4.2 Each Batch shall be analyzed in accordance with the
methods of analysis specified in Schedule C attached hereto and made a part
hereof, as the same may be amended from time to time by written agreement of the
parties hereto. Mallinckrodt shall send to Neurex with each Batch a Certificate
of Analysis specifying, inter alia, the results of each of the determinations
required to show conformance of such Batch with the Specifications therefor. The
figures set forth in such Certificate of Analysis shall be accepted as accurate
for the purposes of this Agreement unless Neurex within forty five (45) days
after the receipt of such Batch not)fies Mallinckrodt in writing that it has
analyzed such Batch in accordance with the methods of analysis specified in
Schedule C and has determined that all or any portion of such Batch does not
conform to the Specifications therefor. If Neurex fails to notify Mallinckrodt
within such forty five (45) days then said Batches shall be deemed to be
accepted ("Accepted Product"). Those Batches that fail to meet the
Specifications as agreed upon by Neurex and Mallinckrodt shall be returned by
Neurex to Mallinckrodt, at Mallinckrodt's expense, and Mallinckrodt shall, as
soon as reasonably practical, but not more than three (3) months from receipt of
the written notice described above, replace such Batch with a new Batch that
meets the Specifications. Said replacement of Product by Mallinckrodt shall be
Neurex's sole remedy for the failure of any Product hereunder to meet the
Specifications.
4.3 If there is a difference of opinion concerning the
conformance of the Batch with the Specifications therefor, Neurex and
Mallinckrodt agree to consult with each other in order to explain and resolve
the discrepancy between each other's determinations. If such consultation does
not resolve the discrepancy, Neurex shall furnish representative samples for
analysis by a mutually agreed upon independent laboratory, using methods of
analysis set forth in Schedule C, and the reasonably resulting determinations
shall be binding on Neurex and Mallinckrodt for the purposes hereof. Each party
shall have the right to have representatives thereof present, at their own
expense, during such independent analysis. If the Product is found to meet the
requirements of the Specifications in all material respects, Neurex shall pay
the costs of such tests and shall be deemed to have accepted the affected Batch
as Accepted Product. If the Product is not found to meet the requirements of the
Specifications in all material respects, Mallinckrodt shall pay the costs of
such tests and shall promptly credit Neurex's account for the manufacturing fee
paid pursuant to Section 3 related to that Batch.
5. Forecasts and Orders.
5.1 Neurex will keep Mallinckrodt reasonably informed of the
regulatory development of SNX-111 including the status of clinical trials and
filing of the NDA with the FDA so that Mallinckrodt may anticipate when to
prepare for commercial production of an FDA approved SNX- 111. Mallinckrodt
shall keep all such information confidential.
At the beginning of the Calendar Half-Year starting on April
1, 1997, and at the beginning of each Calendar Half-Year thereafter during the
term of this Agreement, Neurex will provide Mallinckrodt with a written twelve
(12) month rolling forecast of the quantities of Product that Neurex expects to
purchase during each of the next twelve (12) months. The first six (6) months of
each forecast shall constitute firm orders deliverable as provided in Section
5.2, except for the period October 1, 1998 to December 31, 1998 for which the
order period will be three (3) months. The balance of each twelve month forecast
given by Neurex pursuant to this Section 5.1 is not a firm commitment on the
part of Neurex to order the quantities of the Product set forth therein, but are
given so that Mallinckrodt will have aufficient information upon which to
schedule its manufacturing operations so as to be able to meet Neurex's firm
orders for the Product that may be placed pursuant to Section 5.2.
5.2 At the beginning of each Calendar Half-Year, Neurex shall
submit the six (6) month firm orders in writing for the quantity of the Product
desired by Neurex at least six (6) months prior to the delivery date, except for
the period October 1, 1998 to December 31, 1998 for which the order period will
be three (3) months, and Mallinckrodt shall supply such quantities of the
Product in accordance with Schedule D attached hereto and made a part hereof.
5.3 Mallinckrodt shall ship the Product in a container closure
system described in Schedule E attached hereto and made a part hereof at
Neurex's expense in accordance with Neurex's instructions, FOB Mallinckrodt's
plant. For purposes of this Agreement, delivery of Product by Mallinckrodt to
Neurex shall be deemed to have taken place upon acceptance of delivery by a
Neurex-designated carrier at Mallinckrodt's plant.
5.4 Title to all finished Product shall pass to Neurex on
delivery.
5.5 Manufacturing Contingencies. Mallinckrodt may, at its
discretion, manufacture Product in anticipation of Neurex's orders. In such
case, Neurex agrees that before or upon termination of this Agreement, it will
purchase Mallinckrodt's inventory of Product up to a maximum of 150 grams.
6. Failure to Deliver.
6.1 If at any time during the Term of this Agreement
Mallinckrodt fails to deliver:
(a) the six (6) month firm order on the delivery
date and up to thirty (30) days after the delivery date, Mallinckrodt shall pay
Neurex a late delivery fee equal [*] of the purchase price per day of each gram
of Product that Mallinckrodt has failed to deliver after the delivery date to
Neurex within such time frame, up to a maximum of [*] per gram of the Product;
(b) the six (6) month firm order on the delivery
date by more than thirty (30) days, then in addition to the late delivery fee
provided in 66.1(a) above, Neurex may in its discretion manufacture or have
manufactured the amount of Product covered by the next following six (6) month
firm order, and Neurex shall no longer be required to purchase at least 50% of
its Product from Mallinckrodt;
(c) the six (6) month firm order on the delivery
date by more than one hundred eighty (180) days or if Mallinckrodt not)fies
Neurex in writing that it is unable or unwilling to provide Product meeting the
Specifications on a consistent ongoing basis and is willing to license its
technology, or has filed against it a petition in bankruptcy which is not
dismissed within ninety (90) days notice to Mallinckrodt, then subject to the
provisions of Section 14 the parties shall negotiate in good faith in order to
reach agreement on a nonexclusive license to Neurex or Neurex's designee which
is acceptable to Mallinckrodt but in no event to a competitor of Mallinckrodt's
peptide business of Mallinckrodt's technology and know-how involved in the
manufacture of the Product. The license will provide, among other things, that
Mallinckrodt shall provide reasonable technical assistance necessary to start
the manufacture by or for Neurex of the Product with no delay if so requested by
Neurex. The license shall also provide without limitation for the payment of a
reasonable royalty to Mallinckrodt based on the full value of the technology and
know-how. The license will be limited solely to the Product for Analgesic
indications and not for any other peptides or other use. In no event shall the
failure of the parties to reach a mutually satisfactory license agreement nor
any specific terms of such license agreement be subject to arbitration
notwithstanding Article 16.2. Neurex shall reimburse Mallinckrodt for the actual
cost to Mallinckrodt of any technical assistance provided pursuant to this
Agreement and/or the license.
<PAGE>
7. Records and Audits.
7.1 During the term of this Agreement and for three (3) years
after the expiration date of any particular Product Batches manufactured by
Mallinckrodt, or such time as may be required by applicable regulations,
whichever is greater, Mallinckrodt shall maintain records and samples relating
to such Batch(es) aufficient to substantiate and verify its duties and
obligations hereunder, including but not limited to, records of orders received,
Product manufactured, work in progress, Product analysis and quality control
tests and the like.
7.2 Mallinckrodt shall allow Neurex employees or
representatives of an independent third party auditor selected by Neurex and
agreed upon by Mallinckrodt upon reasonable notice and at reasonable intervals
during normal business hours, to enter Mallinckrodt's facilities for the purpose
of verifying applicable Product Yield rates and compliance with applicable cGMP
regulations. It shall be a pre-condition of any such audit that the auditor
execute a confidentiality and non-use agreement similar to that in Section 14
below. In no event shall Mallinckrodt be obligated to disclose its Mallinckrodt
proprietary technology.
8. Warranties and Indemnification.
8.1 Mallinckrodt represents and warrants that it is not aware
that the making of the Product using or incorporating the Mallinckrodt
Proprietary Technology infringes any third party United States patent rights.
Neurex represents and warrants that it is not aware that the making of SNX- 1 1
1 infringes any third party patent rights.
8.2 Mallinckrodt and Neurex each represent and warrant to the
other that:
(a) It is a duly organized and validly existing
corporation in good standing under the laws of its jurisdiction of incorporation
and has taken all required corporate or other necessary action to authorize the
execution, delivery and performance of its obligations under this Agreement;
(b) This Agreement is a valid, binding and legal
agreement by it, enforceable against it in accordance with the terms and
conditions of this Agreement, and it has the full right, power and authority to
enter into this Agreement and perform all of its obligations hereunder; and
(c) The execution, delivery and performance of its
obligations under this Agreement will not result in any breach or violation of
its incorporation documents or bylaws or of any other agreement to which it is a
party, nor result in any violation of any law, rule, regulation, statute or
decree by which it or any of its assets are or may be subject.
8.3 Mallinckrodt warrants (a) that all Product manufactured,
stored, and shipped by it shall on the date of delivery meet the Specifications
attached hereto; (b) that all Product shall be manufactured in the United States
and shall be manufactured in accordance with current Good Manufacturing
Practices and, in all material respects, with all other applicable regulations
of the FDA and other appropriate agencies of the United States, state and local
governments; and (c) that it will make a reasonable good faith effort to improve
the Yield rates of the Product.
8.4 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT
MALLINCKRODT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8.5 Neurex shall defend, indemnify, and hold harmless
Mallinckrodt, its officers, agents, employees, and Affiliates from any loss,
claim, action, damage, expense, or liability (including defense costs and
attorneys' fees) ("Claim") including but not limited to the costs of
environmental sampling, clean-up, and remediation, arising out of or related to
the breach or alleged breach of any representation, warranty, or guarantee made
by Neurex herein or the handling, possession, or use of the Product following
acceptance of delivery by a common carrier pursuant to Section 5.5 except to the
extent such claim is due to the negligence or misconduct of Mallinckrodt, its
officers, agents or employees.
It is specifically understood and agreed that the use
of Accepted Product is within the sole control of Neurex and that Neurex will be
exercising sole discretion and control over the conditions of any such use
including without limitation any commercial applications of the Product or use
in clinical trials. It is further understood and agreed that Neurex is in a
unique and superior position to evaluate the suitability of the Product in and
for any such use and the potential hazards associated therewith. Therefore,
Mallinckrodt shall not be liable for and Neurex assumes all responsibility for
and shall defend, indemnify and hold Mallinckrodt harmless against any and all
loss, cost, damage, expense (including reasonable attorneys' fees) arising out
of or related to any claim for personal injury (including death) and/or damage
to property arising out of the possession, transportation, use, sale, testing,
or disposal of any Accepted Product.
8.6 In no event, regardless of the form of action shall
Mallinckrodt be liable for any special, indirect, incidental, consequential or
punitive damages of any nature whatsoever including without limitation loss of
profits or business interruption .
8.7 Mallinckrodt shall promptly notify Neurex of the existence
of any third party claim, demand or other action giving rise to a claim for
indemnification under this Agreement, and shall give Neurex a reasonable
opportunity to defend the same at its own expense and with its own counsel,
provided that Mallinckrodt shall at all times have the right to participate in
such defense at its own expense. If, within a reasonable time after receipt of
notice of a third party claim Neurex shall fail to undertake to so defend,
Mallinckrodt shall have the right, but not the obligation, to defend and to
compromise or settle (exercising reasonable business judgment) the third party
claim for the account and at the risk and expense of Neurex. Each party shall
make available to the other such information and assistance as the other shall
reasonably request in connection with the defense of a third party claim.
8.8 Each party shall maintain policies of comprehensive
general liability insurance, including product liability insurance, during the
term of this Agreement, having appropriate levels of coverage. At the written
request of a party, the other party shall provide to the requesting party
certificates or other evidence of such insurance. Mallinckrodt may satisfy this
requirement through their current program of self-insurance.
9. Term.
9.1 Subject to earlier termination as provided in this
Section 9, this Agreement shall become effective as of the Effective Date hereof
and continue until December 31, 1999. The parties shall negotiate in good faith
for a new Agreement one-hundred-eighty (180) days prior to that time, but if no
such Agreement is reached, the present Agreement shall continue in effect up to
an additional two (2) year period at Neurex's discretion provided that during
such two (2) year period Mallinckrodt shall be able to raise the price of
production in accordance with cost increases for Product since the commencement
of this Agreement according to Mallinckrodt's standard cost system.
9.2 Except with regard to Section 6 - Failure to Deliver, this
Agreement shall be terminable at the option of either party upon notice to the
other party, if such other party shall be in material breach or default with
respect to any term or provision hereof and fails to cure the same within thirty
(30) days after written notice of said breach or default, or is adjudged
bankrupt, or has filed against it a petition under any bankruptcy, which
petition is not withdrawn or dismissed within ninety (90) days. Such termination
may be made effective the date notice of termination is given or, in the case of
a default, at the end of the thirty (30)-day notice period.
9.3 Termination or expiration of this Agreement shall not
relieve the parties from any amounts owing between them, and shall not terminate
any rights or obligations arising prior to or upon termination or expiration of
this Agreement (as the case may be).
9.4 In the event of breach or threat of breach by Mallinckrodt
or Neurex of any provisions of this Agreement, the parties agree that the remedy
of the non-breaching party at law will be inadequate and such party shall be
entitled to appropriate injunctive and other relief (e.g., specific performance
and set off) in addition to its remedies at law.
<PAGE>
1 0. Regulatory.
10.1 Neurex shall have the sole right to decide whether to
initiate, conduct, file and prosecute, at its expense, any clinical trials, new
drug applications or other relevant regulatory filings with the U.S. FDA or
similar agencies worldwide in connection with the Product. Neurex may designate
a third party to carry out these functions. Mallinckrodt will cooperate with
Neurex in the prosecution of any applications filed by Neurex, its affiliates or
licensees, worldwide in regard to the Product.
10.2 Neurex shall be responsible for compliance of the Product
with FDA standards. Mallinckrodt shall be responsible for compliance with FDA of
the manufacturing and container closure system in accordance with Schedule E.
Each party will provide reasonable assistance to the other, at no charge, if
necessary to respond to United States FDA or other United States or worldwide
regulatory agency's audits, inspections, inquiries or requests concerning the
Product. If Neurex desires Mallinckrodt to manufacture Product to meet third
country requirements, the parties will negotiate in good faith any changes
required to this Agreement to provide for manufacturing to such third country
requirements.
10.3 If the Product must be recalled solely for failure to
meet the Specifications at the time of delivery to Neurex or the failure to meet
applicable FDA cGMP manufacturing regulations for Bulk Drug Substances,
Mallinckrodt will reimburse Neurex for any direct costs reasonably expended by
Neurex to effect the recall and Mallinckrodt shall replace such recalled Product
as rapidly as commercially possible given Mallinckrodt's other existing peptide
manufacturing commitments.
11. Joint Venture; Licensing.
11.1 Notwithstanding the nature of the parties relationship as
set forth in Section 13, the parties acknowledge and agree that if at any time
during the term of this Agreement, the annual quantity of the Product for
Neurex's Analgesia indication for the U.S. market purchased by Neurex exceeds
two (2) kilograms, then Mallinckrodt shall consider in good faith negotiations
the formation of a joint venture with Neurex or its designee acceptable to
Mallinckrodt for the purpose of manufacturing Product. Any such joint venture
will contain among other terms, a provision allowing Mallinckrodt to demand the
dissolution of said joint venture upon sixty (60) days written notice in the
event that the annual quantity of Product for Neurex's Analgesia indication for
the U.S. market purchased by Neurex falls below 2kgs in any year. In the event
of such dissolution, Mallinckrodt shall receive sole right, title and interest
in and to any Mallinckrodt proprietary information contributed by Mallinckrodt
to the joint venture. In no event shall the failure of the parties to reach a
mutually satisfactory joint venture agreement nor any specific terms of such
joint venture agreement be subject to arbitration notwithstanding Article 16.2.
1 2. Debarment.
12.1 Mallinckrodt hereby certifies that it has not been
debarred under the provisions of the Generic Drug Enforcement Act of 1992, 21
U.S.C. ss.306(a) and (b). In the event that Mallinckrodt:
(a) becomes debarred; or
(b) receives notice of action or threat of action
with respect to its debarment during the term of this Agreement, Mallinckrodt
agrees to notify Neurex immediately. In the event that Mallinckrodt becomes
debarred as set forth above, this Agreement shall automatically terminate upon
receipt of such notice without any further action or notice.
12.2 Mallinckrodt hereby certifies that it has not and will
not use in any capacity the services of any individual, corporation, partnership
or association which has been debarred under 21 U.S.C. ss.306(a) and (b). In the
event that Mallinckrodt becomes aware of the debarment of any individual,
corporation, partnership or association providing services to Mallinckrodt,
which directly or indirectly relate to Mallinckrodt's activities under this
Agreement, Mallinckrodt shall notify Neurex immediately and Neurex shall have
the right to terminate this Agreement if such event shall substantially
adversely effect Neurex's or the Product's regulatory status or Mallinckrodt
cannot replace such debarred entity within sixty (60) days of such not)fication.
13. Independent Contractor. Both parties shall act solely as
independent contractors, and nothing in this Agreement shall be construed to
give either party the power or authority to act for, bind or commit the other
party. Each party shall indemnify the other and hold it harmless against any
claim based on a representation of authority in excess of that provided herein.
14. Confidentiality.
14.1 Both Mallinckrodt and Neurex recognize that information and
materials disclosed by the parties to the other hereunder, and generated by the
parties pursuant to work conducted under this Agreement, are of proprietary
value to them and are to be considered highly confidential ("Confidential
Information"). Each party agrees not to disclose the Confidential Information of
the other to third parties (except its employees who reasonably require the same
for the purposes hereof and who are bound to it by a like obligation as to
confidentiality) without the express written permission of the other party, and
not to use the Confidential Information, except in connection with work
conducted pursuant to this Agreement, except that neither party shall be
prevented from disclosing or using that portion of Confidential Information
received from the other which (a) can be demonstrated by written records to be
known to the recipient at the time of receipt; or (b) was subsequently otherwise
legally acquired by such party from a third party having an independent right to
disclose the information; or (c) which is now or later becomes publicly known
without breach of this Agreement by either party. The furnishing of information
by a disclosing party shall not constitute any grant, option or license to the
receiving party under any patents or other rights now or hereafter held by the
disclosing party, except as expressly provided for herein. Each party's
obligation of secrecy shall be in force during the term hereof and any extension
hereof and shall extend for a period of ten (10) years from the expiration or
early termination of this Agreement.
14.2 Anything to the contrary in Section 14.1 notwithstanding,
Mallinckrodt or Neurex shall be permitted to disclose Confidential Information
received hereunder (pursuant to obligations of confidentiality comparable to
those contained herein) to regulatory agencies in support of applications to
market the Product to clinicians as are required by law in connection with the
filing of such applications, in which case Neurex shall first obtain the written
approval of Mallinckrodt which shall not be unreasonably withheld.
15. Force Majeure.
15.1 Neither party hereto shall be liable in damages for, nor
shall this Agreement be terminable or cancelable by reason of, any delay or
default in any such party's performance hereunder if such default or delay is
caused by events beyond such party's reasonable control including, but not
limited to, acts of God, regulation or law or other action of any government or
agency thereof, war or insurrection, civil commotion, destruction of production
facilities or materials by earthquake, fire, flood or storm, labor disturbances,
epidemic, or failure of suppliers, public utilities or common carriers.
15.2 Each party shall promptly notify the other party upon
becoming aware of any event of force majeure under Section 15.1.
15.3 Each party agrees to endeavor to resume its performance
hereunder as soon as practicable if such performance is delayed or interrupted
by reason of force majeure.
16. Governing Law and Arbitration.
16.1 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Illinois (regardless of its, or any
other jurisdiction's, choice of law principles).
16.2 Any dispute, controversy or claim arising out of or
related to this Agreement, or the breach, termination or invalidity thereof,
shall be settled by arbitration in Chicago, Illinois in accordance with the
then-existing rules (the "Rules") of the American Arbitration Association
("AAA"). Any award or decision by the arbitrators shall be final and binding
upon the parties, and judgment thereon may be entered in any court having
jurisdiction thereof. Any award or decision shall be rendered by a majority of
the members of the Board of Arbitration consisting of three (3) members, one (1)
of whom shall be appointed by each party and the third of whom shall be the
chairman of the panel and be appointed by mutual agreement of the two (2) party
appointed arbitrators. In the event of failure of the two (2) arbitrators to
agree within sixty (60) days after the commencement of the arbitration
proceeding upon the appointment of the third arbitrator, the third arbitrator
shall be appointed by the AAA in accordance with the Rules. In the event that
either party shall fail to appoint an arbitrator within thirty (30) days after
the commencement of the arbitration proceeding, such arbitrator and the third
arbitrator shall be appointed by the AAA in accordance with the Rules. An
arbitration proceeding shall be deemed to commence upon request or demand for
arbitration filed with the AAA. The arbitrators shall apply the law as set forth
in Section 16.1 above.
17. Captions. The captions and paragraph headings of this
Agreement are solely for the convenience of reference and shall not affect its
interpretation.
18. Severability. Should any part or provision of this Agreement be
held unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the remainder of this Agreement shall remain binding upon the parties
hereto.
1 9. Waiver.
19.1 No failure or delay on the part of a party in exercising
any right hereunder will operate as a waiver of, or impair, any such right. No
single or partial exercise of any such right will preclude any other or further
exercise thereof or the exercise of any other right. No waiver of any such right
will be deemed a waiver of any other right hereunder.
19.2 The parties agree that all Product supplied hereunder
shall be subject to and governed by the terms and provisions set forth herein,
and none of the terms and conditions contained in any purchase or order form,
invoice, or similar document shall have any effect upon or change the provisions
of this Agreement unless signed and delivered on behalf of both parties hereto
and clearly indicating that the parties intended to vary the terms hereof.
<PAGE>
19.3 Any waiver on the part of either party hereto of any
right or interest hereunder shall be effective only if made in writing and shall
not (unless expressly so stated) constitute or imply a waiver of any other right
or interest, or a subsequent waiver.
20. Survival.
20.1 The provisions of Articles 7, 8, 9.3, 12, 14 and 16 shall
survive the termination or expiration of this Agreement.
20.2 The provisions of this Agreement which do not survive
termination or expiration hereof (as the case may be) shall, nonetheless, be
controlling on, and shall be used in construing and interpreting, the rights and
obligations of the parties hereto with regard to any dispute, controversy or
claim that may arise under, out of, in connection with, or relating to this
Agreement.
21. Assignment and Devolution.
21.1 Neurex may, at its sole discretion, assign this Agreement
and transfer all or any portion of its rights and obligations hereunder to any
Affiliate or licensee. Mallinckrodt may, with the written approval of Neurex,
which shall not be unreasonably withheld, assign this Agreement and transfer all
or any portion of its rights and obligations hereunder except that such approval
shall not be required in the event of assignment by Mallinckrodt to an
Affiliate. In any such assignment or transfer, Neurex and Mallinckrodt shall
respectively guarantee each and every obligation of its Affiliate hereunder, or
alternatively demonstrate to the other that the affiliate has greater financial
security than the assigning entity. Except as permitted under this Section 21.1,
this Agreement shall not be assignable by either party without the written
consent of the other party.
21.2 This Agreement shall extend to and be binding upon the
successors, legal representatives and permitted assigns of the parties;
provided, however, that if Mallinckrodt is acquired by a third party, by stock
purchase, asset purchase, merger or otherwise, or if that portion of
Mallinckrodt's business relating to the subject matter of this Agreement is
purchased by a third party, Mallinckrodt shall give written notice to Neurex
within five (5) business days of any such acquisition, and Neurex shall have the
option, by written notice thereof within thirty (30) days of such notice of
acquisition, to (a) terminate this Agreement, termination to be effective on the
date of acquisition unless otherwise agreed by the parties, or (b) continue
under this Agreement with the acquiring party guaranteeing each and every
obligation of Mallinckrodt hereunder.
<PAGE>
22. Notices.
22.1 Any notice, payment, report, or other correspondence
(hereinafter collectively referred to as "correspondence") required or permitted
to be given hereunder shall be mailed or delivered by hand to the party to whom
such correspondence is required or permitted to be given hereunder. If mailed,
any such notice shall be deemed to be given when mailed as evidenced by the
postmark at point of mailing. If delivered by hand, any such correspondence
shall be deemed to have been given when received by the party to whom such
correspondence is given, as evidenced by written and dated receipt by the
receiving party.
22.2 All correspondence to Mallinckrodt shall be addressed as
follows:
Mallinckrodt Chemical, Inc.
16305 Swingley Ridge Drive
Chesterfield MO 63017
Attention: President, Pharmaceutical Specialties Division
with a copy to:
:
Mallinckrodt Chemical, Inc.
16305 Swingley Ridge Drive
Chesterfield MO 63017
Attention: Division Counsel, Pharmaceutical Specialties Division
22.3 All correspondence to Neurex shall be addressed as
follows:
Neurex Corporation
3760 Haven Avenue
Menlo Park, CA 94025
Attention: President
with a copy to:
Wise & Shepard 3030
Hansen Way Suite
100 Palo Alto, CA 94304
Attention: Thomas Barton
22.4 Any entity may change the address to which correspondence
to it is to be addressed by notification as provided for herein.
<PAGE>
23. Entire Agreement. This Agreement, including the attached
Schedules made a part hereof, constitutes the entire agreement between the
parties hereto respecting the subject matter hereof, and supersedes all prior
agreements, negotiations, understandings, representations and statements
respecting the subject matter hereof, whether written or oral. The terms of this
Agreement shall not be mod)fied, superseded, amended or supplemented by any
invoice or purchase order issued hereunder. No mod)fication, alteration, waiver
or change in any of the terms of this Agreement shall be valid or binding upon
the parties hereto unless made in writing and duly executed by the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NEUREX CORPORATION MALLINCKRODT CHEMICAL, INC.
/S/ Paul Goddard /S/ Michael J. Collins
- ----------------- -----------------------
Paul Goddard Michael Collins
Schedules to the Neurex/Mallinckrodt Manufacturing and Supply Agreement:
Schedule A - Product Specifications
Schedule B - Payment/Yield Terms
Schedule C - Methods of Analysis
Schedule D - Order and Delivery Dates and Maximum Orders
Schedule E - Container Closure System
<PAGE>
SCHEDULE A
Protoct Speciflcatlons and
Methods of Analysis
Neurex SNX.111
TEST METHOD SPECIFICATION
Confidential treatment has been requested for the entire contents of this
schedule, which has been filed separately with the Commission.
<PAGE>
SCHEDULE B
Pavment/Yield Terms
$ Price/Gram Net Peptide/Yield
Yield per Batch
Quantity
Ordered 5% 6% 7% 8% 9% 10%
1-50 gms. [*] [*] [*] [*] [*] [*]
51-149
150-299
300-499
500-999
1000
* In the event that the yield is less than 5%, the applicable price shall be
based on the 5% yield price.
Yield is defined as weight of net peptide
weight of peptide resin
Example: 100 gms. of SNX-111 = 5%
2000 gms. of peptide resin
<PAGE>
SCHEDULE C
UNCONTROLLED COPY 09/23/96 08:50 AM
Specifications and Methods Manual
Confidential treatment has been requested for the entire contents of this
schedule which has been filed separately with the Commission.
<PAGE>
CONFIDENTIAL
<TABLE>
SCHEDULE D
ORDER AND DELIVERY DATES AND MAXIMUM ORDERS
Order Date Delivery Date Maximum Order
- ---------- ------------- -------------
<S> <C> <C> <C>
April 1, 1997 September 30, 1997 [*]
October 1, 1997 March 31, 1998 [*]
April 1, 1998 September 30, 1998 [*]
October 1, 1998 December 31, 1998 [*]
January 1, 1999 June 30, 1999 [*]
July 1, 1999 December 31, 1999 [*]
January 1, 2000 June 30, 2000 [*]
July 1, 2000 December 31, 2000 [*]
January 1, 2001 June 30, 2001 [*]
July 1, 2001 December 31, 2001 [*]
</TABLE>
* All Quantities On A Net Peptide Basis
* * If Agreement is extended 2 years per Section 9.1.
Within three (3) months of Neurex's filing its NDA for Analgesia indications,
Neurex and Mallinckrodt will negotiate in good faith a potential revision to
this Schedule D.
Q:SAR:JAL:NEUREX07.DOC - 10/1 6/96
<PAGE>
SCHEDULE E
Container Description
Number
01731 Vial, Type m, Clear, ldrarn, 13-425
09610 Closure, Urea, Green, 13-425, Teflon lining
01650 Bottle, Type III, Clear, French Square, 1/2 oz., 20-405
09600 Closure, Melamine, Green, 20-400, w/Teflonlining
01651 Bottle, Type W, Clear, loz., 24-405
09601 Closure, Melamine, Green, 24-400, w/Teflonlining
01652 Bottle, Type m, Clear, 2OZ., 43-405
09602 Closure, Urea, Green, 43-400, w/Teflon lining
-
01654 Bottle, Type m, Clear, 8OZ., 58-405
09604 Closure, Urea, Green, 58-400, w/Teflon lining
-
01655 Bottle, Type m, Clear, 16 OZ., 63-405
09605 Closure, Urea, Green, 63-400, w/Teflon lining
01656 Bottle, Type W, Clear, 32 OZ., 63-405 - uses CN09605 cap
09605 Closure, Urea, Green, 63-400, w/Teflonlining
01653 Bottle, Type m, Clear, 4 OZ., 48-405
09603 Closure, Urea, Green, 48-400, w/Teflonlining
EXHIBIT 10.29
CONFIDENTIAL TREATMENT REQUESTED
(*) Denotes information for which confidential treatment has been requested.
Confidential portions omitted have been filed separately with the Commission.
STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Lease Provisions ("Basic Lease Provisions")
1.l Parties: This Lease, dated, for reference purposes only, December
12, l996 is made by end between WVP Income Plus III, a California limited
partnership therein called "Lessor") and Neurex Corporation, a Delaware
corporation doing business under the name of _____________________ (herein
called "Lessee").
1.2 Premises: Suite Number(s) n/a 2nd floors, consisting of
approximately _____________ square feet, more or less, as defined in paragraph 2
and as shown on Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at 4040 Campbell
Avenue in the City of Menlo Park, County of San Mateo, State of California as
more particularly described in Exhibit A hereto, and as defined in paragraph 2.
1.4 Use: General office use, research and development and all other
related legal uses, subject to paragraph 6.
1.5 Term: one (1) year commencing January 1, 1997 ("Commencement Date")
and ending December 31, 1997, as defined in paragraph 3.
1.6 Base Rent: [*] (subject to reduction based on final per month,
payable on the 1st day of each month, per Paragraph 4.1 measurement of space to
be occupied)
1.7 Base Rent Increase: On n/a the monthly base rent payable under
paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.
1.8 Rent Paid Upon Execution: [*] for the period January l, 1997 to
January 31, 1997.
1.9 Security Deposit: [*] paid upon execution of this lease.
l.10 Lessee's Share of Operating Expense Increase: n/a % as defined in
paragraph 4.2.
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic
Lease Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "0ffice
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real properly referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use parking spaces in the
Office Building Project at the monthly rate applicable from time to time for
monthly parking as set by Lessor and/or its licensee.
2.2.1 So long as Lessee commits, permits or allows any of the
prohibited activities described in the Lease or the rules then in effect, then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.2.2 The monthly parking rate per parking space will be $ n/a
per month at the commencement of the term of this Lease and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
2.3 Common Areas - Definition. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee and
of other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas-Rules and Regulations. Lessee agrees to abide by and
conform to the ruses and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the noncompliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 Common Areas-Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the lobbies
windows, stairways, air shafts, elevators, escalators, restrooms, driveways.
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways,
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land and Improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Office building Project,
or any portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building Project
as Lessor may, in the exercise of sound business judgment deem to be
appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided, however,
that as to Lessee's obligations, Lessee first reimburses Lessor for all costs
incurred for Non-Standard improvements and, as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee (less any offsets due
Lessor for Non-Standard Improvements); and provided further, that if such
written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate and be of
no further force or effect.
3.2.1 Possession Tendered - Defined. Possession of the
Premises shall be deemed tendered to Lessee ("Tender of Possession") when (1)
the improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises., (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2. shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3. Early Possession. If Lessee occupies the Premises prior
to said Commencement Date, such occupancy shall be subject to all provisions of
this Lease, such occupancy shall not change the termination date, and Lessee
shall pay rent for such occupancy.
3.4. Uncertain Commencement. In the event commencement of the
Lease term is defined as the completion of the improvements, Lessee and Lessor
shall execute an amendment to this Lease establishing the date of Tender of
Possession (as defined in paragraph 3.2.1) or the actual taking of possession by
Lessee, whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in
paragraph 4.3. and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph
1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basis Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease. Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit. Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 1.6 of
the Basis Lease Provisions, Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said document, or so much thereof as has not herefore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any of Lessee's interest hereunder) at the expiration of the term hereof, and
after Lessee has vacated the Premises. No trusted relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which
is reasonably comparable to that use and for no other purpose.
6.2 Compliances with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use which will occupy the Premises, does not
violate any covenants or restrictions of record, or any applicable building
code, regulation or ordinance in effect on such Lease term Commencement Date. In
the event if it determined that this warranty has been violated, then it shall
be the obligation of the Lessor, after written notice from Lessee, to promptly,
at Lessor's sole cost and expense, rectify any such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Lessee of
the Premises. Lessee shall conduct its business in a lawful manner and shall not
use or permit the use of the Premises or the Common Areas in any manner that
will tend to create waste or a nuisance or shall tend to disturb other occupants
of the Office Building Project.
6.3 Conditions of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions or record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls, roof, and common
areas, and the equipment whether used exclusively for the Premises or in common
with other premises, in good condition and repair, provided, however, Lessor
shall be obligated to paint, repair or replace wall coverings, or to repair or
replace any improvements that are no ordinarily a part of the Building or are
above then Building standards. Except as provided in paragraph 9.5, there shall
be no abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to the improvements,
alterations or repairs Made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises
in good condition and repair, Lessee shall be responsible for payment of the
cost thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing o replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair and damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings and
equipment. Except as otherwise stated in this Lease. Lessee shall leave the air
lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, utility installations or repairs
in, on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half time the estimated cost of such improvement, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
installations without the prior approval of Lessor, or use a contractor not
expressly approved by Lessor, Lessor may, at any time during the term of this
Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, addition or Utility
installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
application governmental agencies, furnishing a copy thereof of Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims of labor or
materials furnished in alleged to have been furnished to or for Lessee at or for
Lessee at or use in the Premises, which claims are or may be secured by any
mechanic's or material men's lien against the Premises, the Building or the
Office Building Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days
notice prior to the commencement of any work in the Premises by Lessee, and
Lessor shall have the right to post of non-responsibility in or on the Premises
or the Building as provided by law, if Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, molding,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project ,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonable interfere with Lessee's use of
the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
at Lessor's sole cost during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Broad Form Property Damage Insurance, plus coverage
against such other risks Lessor deems advisable from time to time, insuring
Lessor, but not Lessee, against liability arising out of the ownership, use,
occupancy or maintenance of the Office Building Project in an amount not less
than $5,000,000.00 per occurrence.
8.3 Property Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsement, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance - Lessor. Lessor shall obtain and keep in force
at Lessor's sole cost during the term of this Lease a policy or policies of
insurance covering loss or damage to the Office Building Project Improvements,
but not Lessee's personal property, fixtures, equipment or tenant improvements,
in the amount of the full replacement cost thereof, as the same may exist from
time to time, utilizing insurance Service Office standard form or equivalent,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, plate glass, and such
other perils as Lessor deems advisable or may be required by a lender having a
lien on the Office Building Project. In addition, Lessor shall obtain and keep
in force, during the term of this Lease, a policy of rental value insurance
covering a period of one year, with loss payable to Lessor, which insurance
shall also cover all Operating Expenses for said period. Lessee will not be
named in any such policies carried by Lessor and shall have no right to any
proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4 shall
contain such deductibles as Lessor or the aforesaid lender may determine. In the
event that the Premises shall suffer an insured loss as defined in paragraph
9.1(f) hereof, the deductible amounts under the applicable insurance policies
shall be deemed an Operating Expense. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies carried by Lessor. Lessee
shall pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be cancellable
or subject to reduction of coverage or other modification except after thirty
(30) days prior written notice to Lessor. Lessee shall, at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with renewal
thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents. Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor and
Lessor shall cooperate with Lessee in such defense, Lessor need not have first
paid any such claim in order to be so indemnified. Lessee, as a material part of
the consideration to Lessor, hereby assumes all risk of damage to property of
Lessee or injury to persons, in, upon or about the Office Building Project
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible. Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged
or destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent (50%) of the then Replacement
Cost of the building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Building Total Destruction" shall
mean if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring, excluding all
improvements made by lessees, other than those installed by Lessor at Lessee's
expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense, repair
such damage (but not Lessee's fixtures, equipment or tenant improvements
originally paid for by Lessee) to its condition existing at the time of the
damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs
9.4 and 9.5, if at any time during the term of this Lease there is damage which
is not an insured Loss and which falls within the classification of Premises
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from making any substantial use of the
Premises, Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the
last twelve (12) months of the term of this Lease there is substantial damage to
the Premises, Lessor may at Lessor's option cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services) the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent ___________________. Except for said abatement of rent, if any, Lessee
shall have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement or completion, respectively, of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications required.
9.6 Termination - Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessor's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation or law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating; (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate":
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or
subletting shall release Lessee of Lessee's obligations hereunder or after the
primary liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this L ease.
(d) If Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and Lessor's
consent thereto, shall not be effective unless said guarantors give their
written consent to such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
sublessee. However, Lessor may consent to subsequent subletting and assignments
of the sublease or any amendments or modifications thereto without notify8ing
Lessee or anyone else liable on the Lease or sublease and without obtaining
their consent and such action shall not relieve such persons from liability
under this Lease or said sublease; however, such persons shall not be
responsible to the extent any such amendment or modification enlarges or
increases the obligations of the Lessee or sublessee under this Lease or such
sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or anyone else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting
of the Premises by Lessee shall not consitute an acknowledgment that no default
then exists under this Lease of the obligations to be performed by lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement
relied upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 Additional Terms and Conditions Applicable to Subletting.
Regardless of Lessor's consent, the following terms and conditions shall apply
to any subletting by Lessee of all or any part of the Premises and shall be
deemed included in all subleases under this Lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee' obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary, Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's written consent. Any sublease shall, by reason of
entering into a sublease under this Lease, be deemed, for the benefit of Lessor,
to have assumed and agreed to conform and comply with each and every obligation
herein to be performed by Lessee other than such obligations as are contrary to
or inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease from
the time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior defaults of
Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee to
the sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
of subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions
or provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment
or subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 30(b) (subordination), 33 (auctions), or 41.1 (easements),
all of which are hereby deemed to be material defaults if not cured within
fifteen (15) days after notice by Lessor to Lessee thereof (except where more
than 15 days are required to cure the breach, in which case the breach shall not
constitute a default if Lessee commences the cure within 15 days after notice
and diligently prosecutes same to completion); or the breach by Lessee of any of
the provisions of paragraph 16(a) (estoppel certificate) which is deemed to be a
material, non-curable default without the necessity of any notice by Lessor to
Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of five (5) business days after written
notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee
with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c), above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall no t be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by laws,
such thirty (30) day notice shall constitute the sole and exclusive notice
required to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becoming a "debtor"
as defined in 11 U.S.C. ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false, where such falsehood
materially impacts Lessee's ability to pay rent under this Lease.
13.2 Remedies. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any rights or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right in possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses or reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of the Lessor's obligation is such that
more than thirty (30) days are required for performance then Lessor shall not be
in default if Lessor commences performance within such thirty (30) day period
and thereafter diligently pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or
other sums due hereunder will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation of
Lessee's business conducted from the Premises, Lessee shall have the option, to
be exercised only in writing within thirty (30) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within thirty (30) days after the condemning authority shall have taken
possession), to terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent and Lessee's Share of
Operating Expense Increase shall be reduced in the proportion that the floor
area of the Premises taken bears to the total floor area of the Premises. Common
Areas taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof. Lessor
shall have the option in its sole discretion to terminate this Lease as of the
taking of possession by the condemning authority, by giving written notice to
Lessee of such election within thirty (30) days after receipt of notice of a
taking by condemnation of any part of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are Cornish & Carey
Commercial as "listing broker" and Cooper/Brady as "cooperating broker,"
licensed real estate broker(s). A "cooperating broker" is defined as any broker
other than the listing broker entitled to a share of any commission arising
under this Lease. Upon execution of this Lease by both parties, Lessor shall pay
to said brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in separate agreement between Lessor
and said broker(s).
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor bus also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s), if any, whose names are set forth in paragraph 15(a) above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold harmless
from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall i no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be one hundred twenty-five percent (125%) of the rent payable immediately
preceding the termination date of this Lease, and all Option, if any, granted
under the terms of this Lease shall be deemed terminated and be at no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initialed in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be, Lessee's failure to execute such documents within ten (10) business days
after written demand shall constitute a material default by Lessee hereunder.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording there.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) business days
after written demand shall constitute a material default by Lessee hereunder.
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all attorneys'
fees reasonably incurred in good faith.
31.3 Either party shall be entitled to reasonable attorneys' fees and
all other costs and expenses incurred in the preparation and service of notice
of default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
any services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measure, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for the
same, therewith, except for those damages, injuries or interferences arising out
of the negligence or willful misconduct of Lessor or Lessor's agents in
situations other than Lessor's entry into the Premises by any reasonably
appropriate means in an emergency.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Option, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(c), or paragraph
13.1(d), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office
Building Project or building in which the Premises are located upon not less
than 90 days prior written notice;
(b) To, at Lessee's expense, provide and install Building
standard graphics on the door of the Premises and such portions of the Common
Areas as Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
given herein;
(d) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the buildings
or the Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protect. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust or general or limited
partnership, Lessee, and each individual execute and deliver this Lease on
behalf of said entity if Lessee is a corporation trust or partnership Lessee
shall, within thirty (30) days after execution of this Lease, deliver to Lessor
evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addends
of this Lease and the typewritten or handwritten provision, if any, shall be
controlled by the typewritten of written provision. In case of any conflict
between the terms and conditions of this Lease and the terms and conditions of
the Addendum, the terms and conditions of the Addendum shall prevail and be
controlling.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining to normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein the
obligations of the Lessor or Lessee herein shall be in the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Attachments. Attached hereto are the following documents which constitute a
part of this Lease :
Lease Addendum containing Paragraphs 50 through 75.
In case of any conflict between the terms and conditions of this Lease and the
terms and conditions of the Addendum, the terms and conditions of the Addendum
shall prevail and be controlling.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
LESSOR LESSEE
By By
Its Its
By By
Its Its
Executed at Executed at
on on
Address Address
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: _________________________________
By and Between ________________________________________________________________
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common
Areas, including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property of the
Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in
appropriate receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks
or bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of
the premises of Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the
Premises or Building that causes excessive vibration or floor loading in any
part of the Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or
work to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on
Saturdays, Sundays and legal holidays, and on other days between the hours of
_____ P.M. and _____ A.M. of the following day. If Lessee uses the Premises
during such period, Lessee shall be responsible for security locking any doors
it may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall e responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used
by Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the
Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning
other than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines
upon the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing,
cooking or food preparation.
20. Lessee shall comply with all safety, fire protection and
evacuation regulations established by Lessor or any applicable governmental
agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to
keep its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time deem necessary for the appropriate operation and
safety of the Office Building Project and its occupants.
Lessee agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the holder's
parking privileges. Lessee will pay such replacement charge as is reasonably
established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly
identification devices to any person or entity that willfully refuses to comply
with the applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking
spaces from floor to floor, within one floor, and/or to reasonably adjacent
offsite location(s), and to reasonably allocate them between compact and
standard size spaces, as long as the same complies with applicable laws,
ordinances and regulations.
6. Users of the parking area will obey all posted signs and park only
in the areas designated for vehicle parking.
7. Unless otherwise instructed, every person suing the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method
or methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the
parking structure of Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a
license only and no bailment is intended or shall be created hereby.
<PAGE>
LEASE ADDENDUM
This Lease Addendum ("Addendum") is made pursuant to and in connection with that
certain lease agreement ("Lease") dated as of November 21, 1996 by and between
WVP Income plus III, a California Limited Partnership ("Landlord") and Neurex
Corporation ("Tenant") covering certain premises more particularly described in
Article 2 of the Lease. In consideration of the mutual covenants contained
below, Landlord and Tenant hereby agree as follows:
50. Tenant agrees to accept the premises under this new lease in "as is"
condition and Landlord shall have no responsibility to perform any Tenant
Improvements, except those as specified in this new lease. Tenant acknowledges
that Landlord, including Landlord's Agent, has made no representations or
warranty regarding the condition of the Premises or the Building, and that in
entering into this lease Tenant is not relying on any statements by Landlord or
by Agent.
51. Notwithstanding anything to the contrary, Lessee shall be responsible for
providing its own janitorial service.
52. The Premises are a part of the Building which is a part of the Office
building Project and in this connection, Lessee agrees to abide by, keep and
observe all reasonable rules and regulations which Lessor may make from time to
time for the management, safety, care and cleanliness of the industrial center.
Without limiting the foregoing, Lessee shall not use, keep or permit to be kept,
any foul or noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner that unreasonably interferes in any
way with other tenants or those having business in the Industrial Center.
53. Any claim by Lessee against Lessor shall be limited as described in the
lease, and furthermore, Lessee expressly waives any and all rights to proceed
against the partners, General Partners, officers or agents of Lessor in their
individual capacities and shall look solely to the assets of the Partnership,
WVP Income Plus III, for any liability that Lessor may have to Lessee..
54. Lessee shall be allocated twenty-five (25) non-exclusive parking spaces
from the back parking lot. Parking lot is located at 4005 Bohannon Drive, Menlo
Park.
55. Lessee acknowledges lessor's representation that the existing Tenants may be
using hazardous materials under legal permits from Menlo Park. Lessor will not
indemnify Lessee of any such hazardous materials; however, Lessee shall not be
responsible for hazardous materials problems not caused by Lessee.
56. Lessor reserves the right to terminate this Lease with a minimum of 60 days
written notice starting September 1, 1997 provided that the following events
occur: (a) Mercator Genetics does not exercise their option to expand into the
second floor space occupied by spectra Biomedical and to expand into the second
floor place occupied by spectra Biomedical and (b) Spectra Biomedical vacates,
or intends to vacate their second floor space at their lease termination date of
October 31. 1997.
57. Provided that Lessor does not exercise its right to terminate this Lease as
described above, Lessee shall have two 60 day options to extend the term of the
Lease by providing Lessor 60 days advance written notice. The Full service
monthly rent obligation shall continue to be $130 per rentable square foot per
month.
58. Lessor shall supply HVAC to the premises Monday-Saturday 7:00am to 6:00 pm.
lessor reserves the option to install an HVAC costs beyond the provided hours to
the building (Monday-Saturday 7:00am to 6:00 pm). In such event, Lessee agrees
to pay after hours use at the rate of $25.00 per hour
59. This Lease Agreement, and the obligations of Lessor, shall be subject to and
contingent upon the receipt by Lessor of approval of this Lease from Lessor's
1st mortgage holder, no later than December 10, 1996.
60. The Usable Square Feet of the Premises multiplied by the Load Factor of 112%
shall be Rentable Square Feet. Tenant's Premise are approximately 5638 usable
square feet, which when multiplied by the Load factor of 112% equals
approximately 6315 Rentable Square Feet. The square footage of the premises
shall be subject to field measurement by Landlord within the first 90 days of
the Lease, and shall include a 12% Load Factor. The Rent payable shall be
adjusted by any change in the square feet to be an amount equal to $1.30 per
Rentable Square Foot per month.
61. HAZARDOUS MATERIALS
A. Definitions.
As used herein, the term "Hazardous Materials" shall mean any hazardous
wastes, materials or substances and other pollutants or contaminants, which are
or become regulated by any federal, state or local laws, ordinances,
regulations, rules or requirements, including but not limited to, the Resource
Conservation and Recovery Act, as amended, (42 U.S.C. Sections 6901 et seq.),
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, (42 U.S.C. SS 9601 et seq ), the California Hazardous Materials Control
Act, as amended, (Cal., Health & Safety code SS 25100 et seq.), the California
Hazardous Substance Account Act, as amended, (Cal. Health & Safety code SS 25300
et seq.) and the Safe Drinking Water and Toxic Enforcement Act (Cal. Health &
Safety Code S 25249.8) (Proposition 65). Without limiting the above, the term
"Hazardous Materials" also includes petroleum (including crude oil and any of
its fractions), radioactive materials, asbestos, pesticides, PCB's, and medical
or biologic wastes.
B. Compliance with Law.
(1) Lessee shall comply with all federal, state and local laws,
ordinances, regulations, rules or requirements relating to the Lessee's use and
occupancy of the Leased Premises, including but not limited to those relating to
worker safety, public safety, public safety, public health and the environment
("Applicable Laws). Specifically, but without limiting Lessee's obligations
described above, Lessee shall establish and adhere to any hazardous material
management plan (the "Plan") for Lessee's operations required by the County of
Mateo, City of Menlo Park or any other federal, state or local governmental
agency having jurisdiction ("Agency"), and if a Plan is required, Lessee shall,
not later than six months from the commencement of this Lease, allow Lessor and
Agency representatives to inspect the Leased Premises for compliance with the
Plan, and after giving Lessee 15 days' prior notice and the opportunity for
Lessee to commence correction and if Lessee fails to commence correction and
prosecute same to completion to correct any items not in compliance with the
Plan, and correct any items not in compliance with Applicable Laws. Lessor may
require that Lessee coordinate its Plan with other occupants of the Building.
Lessee also shall not cause, maintain or permit any nuisance in, on or about the
Premises, and shall not install any tanks outside or within the Premises, above
or below ground, without the express written consent of Lessor.
(2) If any Agency directs Lessee or Lessor to take any action with
respect to the presence, release or threatened release of any Hazardous
Materials on, under or about the Premises, and that directive arises out of
Lessee's us of Hazardous Materials at the Premises or at any common areas,
Lessee shall promptly commence and thereafter diligently prosecute to
completion, to the extent that, and in proportion to the share that, Lessee
caused such presence, release or threatened release, any and all actions
required by the Agency. Lessor shall retain the right to review and approve any
remediation action proposed by Lessee. Lessee shall notify Lessor prior to
taking any action in response to the directive; provided, however, that no such
notice or approval shall be required if such would result in non-compliance with
a governmental order or directive.
C. Lessee's Use of Hazardous Materials.
(1) Lessee shall not, and Lessee shall not permit its employees,
agents, contractors, subtenants, licensees, customers, invitees or parties
permitted to enter the Premises by any of the foregoing (Lessee and such
persons, collectively, "Lessee Parties") to, manage, handle, store or use in any
way on the Premises any Hazardous Materials other than those necessary or useful
for Lessee's business, and all activity involving Hazardous Materials must be in
full and strict compliance with all Applicable Laws. Lessee parties shall not
spill, leak, pump, pour, emit, empty, discharge, inject, leach, dump or dispose
(hereinafter "Release") any Hazardous Materials onto, into or about the
Premises, except to the extent permitted under Applicable Laws. Upon Lessor's
request, Lessee shall provide Lessor with a list of all Hazardous Materials
managed, handled, stored, used, or located on the Leased Premises at any time
during the Lease Term, together with evidence that Lease has complied will all
Applicable Laws, including obtainment of a state identification number for
Hazardous Materials uses, if Applicable Laws require that Lessee obtain the
same. Lessee shall comply fully, including the completion of any corrective or
remediation action, with any premises closure requirements under Applicable Laws
relating to Lessee's or Lessee Parties use of Hazardous Materials not later than
the end of the Lease Term.
(2) Lessee shall have an individual under contract or on staff (on at
least a part-time basis) who is trained and assigned to handle environmental,
health and safety matters, such as, but not limited to, radiation safety and
emergency planning.
D. Lessor's Right to Inspect.
Upon prior written notice to Lessee, Lessor shall have the right at all
times during the Lease Term to conduct a reasonable inspection of the Premises,
including performing reasonable tests and investigations to determine if Lessee
is in compliance with the terms of this Lease. In conducting these inspections,
Lessor shall use its best efforts not to unreasonably disrupt Lessee's business
operations. Lessor shall bear the cost of any tests and/or investigations,
except that the cost of such test and/or investigations shall be borne by Lessee
if (a) the tests and/or investigations indicate that Hazardous Materials are
present on or under the Premises at concentrations exceeding levels for which
remediation is required under any Applicable Law, and (b) Lessee is responsible
for the presence of such Hazardous Materials.
E. Notices.
Lessee will immediately notify Lessor orally (with a written follow-up
notice within five days) if Lessee knows or has reasonable cause to believe that
a Release of Hazardous Material has come or will come to be located on, in,
about, or beneath the Premises in violation of Applicable Laws, provided that
such notification obligations shall not in itself imply the existence of a
remediation obligation on the part of Lessee. Lessee also shall notify Lessor of
(a) any formal or informal correspondence or communication from any Agency
concerning the release of Hazardous Materials on or migrating to or from the
Premises, or the violation or possible violation of any Applicable Law; or (b)
any claims made or threatened by any third party relating to loss, damage or
injury claimed to have been caused by and Lessee Party's handling, storage or
use of any kind of Hazardous Materials on the Premises or any Leased Party's
alleged violation of any Applicable Laws at the Premises.
F Indemnification.
(1) Lessee shall indemnify, defend (with Legal counsel acceptable to
Lessor) and hold Lessor, its shareholders, officers, agents, employees,
successor's and assigns harmless from any and all claims, demands, judgments,
damages, liabilities or losses (including diminution in value of the Premises or
damages from loss or restriction on use of the Premises), costs and expenses
(including attorney's fees, consulting fees and expert fees), response and/or
removal costs (including costs associated with site restoration, monitoring,
corrective action, or closure), penalties, fines and punitive damages arising
out of or in connection with the handling, storage, use, generation, treatments,
manufacture, or other management or Release of any Hazardous Materials by any
Lessee Party.
(2) Lessor shall indemnify, defend (with Legal counsel acceptable to
Lessee) and hold Lessee, its shareholders, officers, agents, employees,
successors and assigns harmless from any and all claims, demands, judgments,
liabilities or losses, penalties. fines and punitive damages arising out or in
connection with the handling, storage, use, generation, treatment, manufacture,
or other management or Release of any Hazardous Materials in or about the
Premises, the Building or Industrial Center caused by any person or entity other
than a Lessee Party.
G. Remediation of Hazardous Materials.
If a Release of any Hazardous Materials occurs on the Leased Premises
during the term of the Lease as a result of any act or omission of any Lease as
a result of any act or omission of any Lessee Party, Lessee, at its sole
expense, shall (a) promptly make all reasonable efforts to contain and mitigate
such Release, (b) provide prompt notification of the proper authorities if
required by an Applicable Law, and (c) upon notice to Lessor and with Lessor's
approval, investigate and take all appropriate removal or remedial actions
necessary to comply with any Applicable Law. This provision shall survive the
expiration or termination of this Lease.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
LANDLORD OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTIONS
RELATING THERETO.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date of the Lease.
"LANDLORD" "TENANT"
WVP Income Plus III, Neurex Corporation
a California Limited Partnership a Delaware Corporation
By By
EXHIBIT 11
NEUREX CORPORATION
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
Years ended
September 30, December 31,
Item 1994 1995 1996
- ------------------------------------------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C>
Net loss........................................... $ (17,967,608) $ (9,988,938) $ (16,475,707)
================== ================== ===================
================== ================== ===================
Shares used in net loss per share computation:
Weighted average shares of common stock
outstanding................................... 10,548,240 12,498,913 20,680,288
================== ================== ===================
Net loss per share (primary and fully diluted)..... $ (1.70) $(0.80) $(0.80)
================== ================== ===================
</TABLE>
EXHIBIT 21
List of Subsidiaries
Creagen, Inc., a Delaware corporation
NEUREX International Company Limited, a Liechtenstein corporation
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-76976) pertaining to the Neurex Corporation Employee
Stock Purchase Plan and the 1988 Employee and Consultant Stock Option Plan of
Neurex Corporation of our report dated February 14, 1997 with respect to the
consolidated financial statements of Neurex Corporation included in the Annual
Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Palo Alto, California
March 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the year ended December 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 40,551,609
<SECURITIES> 36,816,948
<RECEIVABLES> 46,022
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,749,356
<PP&E> 4,715,448
<DEPRECIATION> 2,967,835
<TOTAL-ASSETS> 89,571,272
<CURRENT-LIABILITIES> 7,649,621
<BONDS> 0
0
0
<COMMON> 220,361
<OTHER-SE> 79,737,387
<TOTAL-LIABILITY-AND-EQUITY> 89,571,272
<SALES> 0
<TOTAL-REVENUES> 3,575,557
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,585,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (185,775)
<INCOME-PRETAX> (16,475,707)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,475,707)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,475,707)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
EXHIBIT 99
[GRAPHIC OMITTED]
MANAGEMENT CHANGES AT NEUREX CORPORATION
MENLO PARK, California (January 17, 1997) -- Neurex Corporation (NASDAQ/NM:
NXCO) today announced that John Ames has resigned as Chief Financial Officer. In
addition, it was also announced that Bradford Wait has been elected Chief
Financial Officer until such a time as a new CFO is hired. Mr. Wait served as
CFO of Neurex until July of last year, when he announced his intention to retire
from the Company in 1997. Since that time, he has held the position of Vice
President and Treasurer.
Neurex Corporation is developing products for acute care, principally in the
area of cardiorenal and neurological disease. Neurex' products under
development, CORLOPAM (fenoldopam) and SNX-111, are currently in advanced stage
human trials. An NDA for CORLOPAM was filed in June 1996. Each product has
potential in multiple indications. The Company's strategy is to discover,
develop and commercialize its products for acute care treatment in hospital
settings, such as emergency rooms, intensive care units and pain clinics.
For further information contact:
Paul Goddard, Ph.D.
Chairman and Chief Executive Officer
415-833-1288
# # # # #
