<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File Number: 0-27972
TREGA BIOSCIENCES, INC.
-----------------------------------------------------------------
(Exact Name of Registrant as Specified in its charter)
DELAWARE 51-0336233
- -------------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9880 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
(619) 410-6500
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone, including
area code, of registrant's principal executive offices)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
- ----------------------------------- ----------------------------------
Common Stock, $0.001 par value 13,980,085
<PAGE> 2
TREGA BIOSCIENCES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 ........................................ 3
Consolidated Statements of Operations for the three and six
months ended June 30, 1998 and 1997........................... 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997.................................. 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ............................................ 14
PART II. OTHER INFORMATION
Item 6. Exhibits ..................................................... 15
SIGNATURE............................................................ 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Trega Biosciences, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 8,858 $ 5,457
Short-term investments 2,126 13,970
Accounts receivable and other current assets 1,905 676
-------- --------
Total current assets 12,889 20,103
Property and equipment, net 4,262 2,741
Other assets 2,187 2,275
-------- --------
$ 19,338 $ 25,119
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,062 $ 211
Accrued compensation 552 497
Other accrued liabilities 1,701 1,479
Current portion of debt obligations 870 2,123
Deferred revenue 2,521 3,002
-------- --------
Total current liabilities 6,706 7,312
Obligations under capital leases 192 298
Long-term equipment notes payable
1,484 1,159
Long-term notes payable
67 132
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 40,000,000 at June 30, 1998
Issued and outstanding shares - 13,952,981 and
13,863,562 at June 30, 1998 and
December 31, 1997, respectively 14 14
Additional paid-in capital 73,233 73,087
Common stock issuable 16 16
Deferred compensation (940) (1,270)
Accumulated deficit (61,434) (55,629)
-------- --------
Total stockholders' equity 10,889 16,218
-------- --------
$ 19,338 $ 25,119
======== ========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE> 4
Trega Biosciences, Inc.
Consolidated Statements of Operations
(in thousands, except net loss per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended,
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Contract research and license fees $ 4,007 $ 2,568 $ 5,175 $ 3,514
Net sales -- -- -- 430
-------- -------- -------- --------
4,007 2,568 5,175 3,944
Costs and expenses:
Cost of sales -- 22 -- 341
Research and development 5,300 3,498 8,875 6,508
Selling, general and administrative 1,224 1,506 2,392 2,569
-------- -------- -------- --------
6,524 5,026 11,267 9,418
-------- -------- -------- --------
Loss from operations (2,517) (2,458) (6,092) (5,474)
Other income (expense):
Interest income 174 392 424 731
Interest expense (42) (56) (137) (81)
Gain/(loss) on sale of MPS -- (4) -- 1,255
-------- -------- -------- --------
Net loss $ (2,385) $ (2,126) $ (5,805) $ (3,569)
======== ======== ======== ========
Basic and diluted net loss per share $ (.17) $ (.16) $ (.42) $ (.27)
======== ======== ======== ========
Shares used in computing basic and diluted
net loss per share 13,950 13,466 13,930 13,439
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
Trega Biosciences, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,805) $ (3,569)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation and amortization 687 275
Amortization of note receivable discount (25) (12)
Amortization of deferred compensation 330 330
Accrued interest on notes payable (81) --
Gain on disposal of assets (68) --
Realized loss on sale of investment -- 88
Gain on sale of MPS -- (1,255)
Changes in operating assets and liabilities, net of effects
from the transfer of assets from sale of MPS in 1997:
Accounts receivable (454) (115)
Other current assets (775) (567)
Accounts payable 851 150
Other accrued liabilities 277 (724)
Deferred revenue (481) 2,083
-------- --------
Net cash provided by (used in) operating activities (5,544) (3,316)
INVESTING ACTIVITIES
Purchase of short-term investments (1,656) (12,552)
Maturities of short-term investments 13,500 10,460
Purchase of property and equipment (2,247) (737)
Proceeds from disposition of equipment 198 --
Proceeds from sale of MPS, net -- 1,592
Notes receivable -- (1,053)
Other assets 22 (1,427)
-------- --------
Net cash provided by/(used) for investing activities 9,817 (3,717)
FINANCING ACTIVITIES
Principal payments under debt obligations (1,690) (255)
Proceeds from equipment notes and notes payable 672 --
Issuance of notes payable -- 1,664
Issuance of common and preferred stock 146 353
-------- --------
Net cash provided by financing activities (872) 1,762
-------- --------
Net increase (decrease) in cash and cash equivalents 3,401 (5,271)
Cash and cash equivalents at beginning of period 5,457 13,615
-------- --------
Cash and cash equivalents at end of period $ 8,858 $ 8,344
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 105 $ 52
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
Trega Biosciences, Inc.
Notes to Consolidated Financial Statements
June 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Trega
Biosciences, Inc. (the "Company"), have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1998, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For more complete information, these financial
statements should be read in conjunction with the audited consolidated financial
statements and footnotes thereto for the year ended December 31, 1997, included
in the Company's Form 10-K filed with the Securities and Exchange Commission.
2. SIGNIFICANT ACCOUNTING POLICIES
Use Of 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 consolidated financial
statements and disclosures made in the accompanying notes to the consolidated
financial statements. Actual results could differ from those estimates.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share." SFAS No. 128 requires the presentation of basic and diluted earnings per
share amounts. Basic earnings per share is calculated based upon the weighted
average number of common shares outstanding during the period while diluted
earnings per share also gives effect to all potential diluted common shares
outstanding during the period such as options, warrants, convertible securities
and contingently issuable shares. SFAS No. 128 is effective for periods ending
after December 15, 1997. All potential dilutive common shares have been excluded
from the calculation of diluted earnings per share, as their inclusion would be
anti-dilutive.
Accounting Policies
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income" and Statement of Financial Accounting Standard No. 131 ("SFAS No. 131"),
"Segment Information." Both of these standards are effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, are required to be reported, net of
their related tax effect, to arrive at comprehensive income. The Company
believes that comprehensive income or loss will not be materially different from
net income or loss. SFAS No. 131 amends the requirements for public enterprises
to report financial and descriptive information about its reportable operating
segments. Operating segments, as defined in SFAS No. 131, are components of an
enterprise for which separate financial information is available and is
evaluated regularly by the Company in deciding how to allocate resources and in
assessing performance. The financial information is required to be reported on
the basis that is used internally for evaluating the segment performance. The
Company operates in one business and operating segment only, and therefore the
adoption of this standard did not have a material impact on the Company's
financial statements.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to
the presentation for the three months and six months ended June 30, 1998.
6
<PAGE> 7
3. LEASES
LONG-TERM DEBT
The Company obtained a $3,000,000 equipment financing line in 1997, of which
approximately $2,254,000 had been utilized at June 30, 1998. The financing line
expired on July 31, 1998. The loan is secured by the equipment. The terms of the
Company's loan agreement call for amounts drawn down under the loan to be repaid
monthly over a four-year term, including interest payments based on the average
of Federal Reserve three- and five-year treasury notes.
In September 1997, the Company entered into a 10-year lease for its
research, development and corporate headquarters. The Company has occupied this
facility since May 1998. Annual rent is initially $1,685,000, but is subject to
annual increases of 3.5%. The Company has the option to extend the lease for an
additional term of five years, subject to terms and conditions specified in the
lease.
4. TPIMS AGREEMENT
Since 1992, the Company has been party to a Research and Option Agreement,
as amended, with Torrey Pines Institute for Molecular Studies ("TPIMS"). A
primary purpose of the Company's relationship with TPIMS has been to give the
Company access to support services provided by TPIMS scientific personnel and to
provide a source of combinatorial libraries and other discoveries. As of April
15, 1997, the Company entered into a Restated and Third Amended Research and
Option Agreement with TPIMS (the "TPIMS Agreement"). In connection with the
TPIMS Agreement, the Company acquired certain patents and purchased technology,
previously invented by TPIMS, in exchange for $1,300,000 (the "Purchase Price")
which together with $115,000 of accrued interest was paid to TPIMS on April 14,
1998. In addition, the TPIMS Agreement eliminated potential related royalties
otherwise payable on such patents and purchased technology. The TPIMS Agreement
also extended, through July 14, 1998, the existing funded research relationship
between the parties, and provided for a possible further extension through April
14, 2000, upon agreement on a work plan. Failure to reach agreement on a work
plan would cause a termination of the agreement as of July 14, 1998. In January
1998, the Company announced that the TPIMS Agreement would not be extended as a
result of a failure to agree on a work plan. The Company has paid, in advance,
the final research funding required under the TPIMS Agreement through July 14,
1998. Included in other assets on the Company's consolidated balance sheets is
$1,274,000, reflecting the current fair market value of the patents and
purchased technology.
5. COLLABORATIVE ARRANGEMENTS
In July 1998, the Company announced that it had identified several lead
compounds in the first phase of its 1997 Research and Development Agreement with
Ono Pharmaceuticals Co., Ltd., ("Ono"). As a result, Ono decided to fund the
next phase of the program by paying $2,000,000 to the Company.
In May 1998, the Company entered into a Research, Development and License
Agreement with Novartis Pharma AG ("Novartis") under which the Company received
$2,000,000 upon execution of the agreement for past research activities. This
non-refundable fee was recognized as revenue in the second quarter of 1998.
Under the terms of the Agreement, the two companies will conduct a research
program to attempt to identify small-molecule compounds for the treatment of
certain diseases mediated by the melanocortin receptor pathway, including
diabetes, obesity, and Syndrome X in humans. The Agreement provides for an
amount of guaranteed funding to the Company, and an equity investment by
Novartis in the Company's common stock (at fair market value) at the Company's
option (which has not yet been exercised), which may aggregate up to
$19,000,000, plus potential milestone payments and royalties.
In May 1998, the Company and Ono reached definitive agreement on terms which
expanded their existing relationship. Under the terms of the new agreement, the
Company will create custom combinatorial libraries, optimize lead compounds
discovered by Ono and undertake screening of those compounds in a target of
interest to Ono in exchange for research funding of $1,875,000 in the aggregate,
and potential milestone payments and royalties.
In February 1998, the Company announced that it met a milestone in
connection with a May 1997 Research and Supply Agreement with Warner-Lambert
Company ("Warner-Lambert"). Based upon certain screening of the Company's
combinatorial libraries against certain Warner-Lambert biological assays
utilizing Warner-Lambert screening technology, Warner-Lambert has identified a
series of lead compounds which are active in a biological target. The
achievement of this milestone requires Warner-Lambert to purchase $1,500,000 of
the Company's common stock (at fair market value), the timing of which
investment may be determined by the Company prior to February 11, 2000, but does
not obligate Warner-Lambert to develop such compounds.
7
<PAGE> 8
6. COMMON STOCK
During the second quarter of 1998, the Company issued 15,361 shares of
common stock upon the exercise of options. These shares are included in common
stock outstanding at June 30, 1998.
7. OFFICER RESIGNATION
On June 24, 1998, the Company announced that Robert S. Whitehead, the
Company's Chairman, Chief Executive Officer ("CEO"), President and Acting Chief
Financial Officer would be leaving the Company. Mr. Whitehead has accepted a new
position as President of Dura Pharmaceuticals, Inc. The Company has initiated a
search process for a new CEO, and Mr. Whitehead will remain with the Company
until his replacement is hired. It is expected that Mr. Whitehead would continue
as Chairman of the Company at that time.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES (SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, STATEMENTS USING WORDS SUCH AS "MAY," "POTENTIAL,"
"EXPECTS," "BELIEVES," "ESTIMATES," "PLANS," "INTENDS," "ANTICIPATES" AND
SIMILAR EXPRESSIONS). THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES (INCLUDING THOSE SET FORTH BELOW, IN THE SECTION OF THIS ITEM 2 OF
THIS QUARTERLY REPORT ON FORM 10-Q UNDER THE CAPTION "RISK FACTORS" AND IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997) THAT
COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THOSE PROJECTED. THESE
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY
UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO
REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY
CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS
BASED.
OVERVIEW
Trega Biosciences, Inc. (the "Company" or "Trega") is a drug discovery
company pursuing the identification and early-stage development of novel,
small-molecule drug therapies through combinatorial chemistry and other drug
discovery technologies. The synthetic chemistry technologies used by Trega in
its combinatorial chemistry program enable the Company to provide a wide range
of small-molecule libraries constructed in single-based compound arrays--a
format that permits the rapid identification of active compounds after testing
in a biological assay. Trega believes its technologies position the Company to
become a leading developer and resource of drug discovery technologies and a
leading provider of novel chemical drug leads to the pharmaceutical industry.
The Company has devoted substantially all of its resources since its founding to
developing methods to synthesize and screen large libraries of chemicals for new
drug discovery and optimization, to developing a select number of chemical
compounds as potential pharmaceutical products, and to acquiring or developing
technologies with the potential to expand the methods available to generate drug
candidates.
The Company leverages its technology platform by entering into
pharmaceutical alliances, providing partners access to the Company's
technologies in exchange for licensing fees and potential milestone payments and
royalties, or by establishing joint-discovery alliances with biotechnology
companies. The timing and amounts of revenues from such alliances, if any, are
subject to significant fluctuations and therefore the Company's results of
operations for any period may not be comparable to the results of operations for
any other period and may not be indicative of future operating results. The
Company will be required to conduct significant research, development and
production activities during the next several years to fulfill its obligations
to corporate partners and for the development of its own compounds. The Company
has been unprofitable since its inception and the Company is unable to predict
when, if ever, it will become profitable. As of June 30, 1998, the Company's
accumulated deficit was approximately $61,434,000.
RESULTS OF OPERATIONS
The Company recorded revenues of approximately $4,007,000 and $5,175,000 for
the three and six months ended June 30, 1998, compared with $2,568,000 and
$3,944,000 for the same periods in 1997, respectively. The second quarter
revenues for 1998 were derived from shipments of combinatorial libraries or
individual compounds and research conducted under collaborative research
agreements (accounting for approximately $3,507,000) as well as $500,000 derived
from milestone and licensing payments from new and existing collaborators. By
comparison, the second quarter revenues for 1997 were also derived from
shipments of combinatorial libraries or individual compounds and research
conducted under collaborative research agreements (accounting for approximately
$2,568,000). Revenues from shipments of combinatorial libraries or individual
compounds and research conducted under collaborative research agreements for the
six months ended June 30, 1998 and 1997 were approximately $4,663,000 and
$3,426,000, respectively. Included in revenues for the six months ended June 30,
1998 and 1997 were approximately $12,000 and $88,000 of grant revenues,
respectively. In addition, net sales of custom peptides and combinatorial
peptide libraries by the Company's former subsidiary, Multiple Peptide Systems,
Inc. ("MPS"), accounted for approximately $430,000 of the total for the first
six months ended June 30, 1997. MPS was sold on February 28, 1997.
9
<PAGE> 10
As of June 30, 1998, the Company's financial statements reflect a liability
for deferred revenue in the amount of approximately $2,521,000. This represents
the excess of payments received from research collaborators over the revenue
from libraries shipped or work performed. (See Note 5 of Notes to the Company's
Consolidated Financial Statements included elsewhere herein.)
Cost of sales for the three and six months ended June 30, 1997 were $22,000
and $341,000, respectively, and were primarily associated with net sales of
custom peptides and combinatorial peptide libraries by MPS.
The Company incurred research and development expenses totaling
approximately $5,300,000 and $8,875,000 for the three and six months ended June
30, 1998, respectively, as compared with approximately $3,498,000 and $6,508,000
for the same periods in 1997. Increased spending in research and development
during the second quarter of 1998 compared to the same period in 1997 resulted
primarily from increased funding for (i) the Company's internal and partnered
drug discovery and melanocortin programs and (ii) the Company's combinatorial
chemistry, automation and robotics synthesis programs, largely reflecting a
shift in the Company's combinatorial chemistry from mixture-based libraries to
small-molecule libraries formatted in single-based compound arrays. Expenses
associated with arrangements with Torrey Pines Institute for Molecular Studies
("TPIMS") were $482,000 and $867,000 for the three and six months ended June 30,
1998, respectively, compared with $387,000 and $964,000, respectively, for the
same periods in 1997. Expenses in connection with the Company's collaboration
with Dura Pharmaceuticals, Inc. ("Dura"), a related party, for the three and six
months ended June 30, 1998 were $251,000 and $139,000, respectively, compared
with $500,000 and $439,000, respectively, for the same periods in 1997
(differentials in year to date figures for Dura expenses reflect credits
received in the second quarter of 1998 and 1997 for amounts paid for the periods
ending February 1998 and 1997, respectively). The Company expects to continue to
incur significant expenses in research and development relating to combinatorial
chemistry, melanocortin biology, product development and clinical trials, as
well as for the development of combinatorial biology technologies (through its
subsidiary, ChromaXome Corp.) and the development of other drug discovery
technologies.
The Company's selling, general and administrative expenses total
approximately $1,224,000 and $2,392,000 for the three and six months ended June
30, 1998, as compared to $1,506,000 and $2,569,000, respectively, for the same
periods in 1997. The decrease is primarily attributable to a decrease in legal
fees related to litigation which concluded in 1997. Selling, general and
administrative expenses are expected to fluctuate as research and development
activities fluctuate.
The Company's interest income decreased to approximately $174,000 and
$424,000 for the three and six months ended June 30, 1998, respectively, as
compared to $392,000 and $731,000, respectively, for the same periods in 1997.
The decrease is a result of lower cash balances due to continuing net losses
from operations.
Interest expense for the three and six months ended June 30, 1998, were
approximately $42,000 and $137,000, respectively, as compared with $56,000 and
$81,000 for the same periods in 1997. The decrease of interest expense for the
quarter is a result of the buy-out of equipment from under capital lease.
However, the year to date increase in interest expense is a result of
utilization of a capital lease and notes payable to fund the acquisition of
laboratory equipment and other capital assets.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had cash, cash equivalents and short-term
investments totaling approximately $10,984,000 compared with $19,427,000 at
December 31, 1997. The decrease of $8,443,000 in cash, cash equivalents and
short-term investments during the first half of 1998 resulted primarily from (i)
the funding of operations of approximately $5,500,000, (ii) capital equipment
purchases of approximately $200,000 (net of equipment placed on the Company's
equipment financing line), (iii) tenant improvements, furniture and equipment
for the Company's new research, development and corporate headquarters of
approximately $1,200,000 and (iv) $1,415,000 in payment for patents and
purchased technology acquired in 1997 from TPIMS.
In July 1998, the Company announced that it had identified several lead
compounds in the first phase of its 1997 Research and Development Agreement with
Ono Pharmaceuticals Co., Ltd., ("Ono"). As a result, Ono decided to fund the
next phase of the program by paying $2,000,000 to the Company.
In May 1998, the Company entered into a Research, Development and License
Agreement with Novartis Pharma AG ("Novartis") under which the Company received
$2,000,000 upon execution of the agreement for past research activities. This
non-refundable fee
10
<PAGE> 11
was recognized as revenue in the second quarter of 1998. Under the terms of the
Agreement, the two companies will conduct a research program to attempt to
identify small-molecule compounds for the treatment of certain diseases mediated
by the melanacortin receptor pathway, including diabetes, obesity, and Syndrome
X in humans. The Agreement provides for an amount of guaranteed funding to the
Company, and an equity investment by Novartis in the Company's common stock (at
fair market value) at the Company's option (which has not yet been exercised),
which may aggregate up to $19,000,000, plus potential milestone payments and
royalties.
In May 1998, the Company and Ono reached definitive agreement on terms which
expanded their existing relationship. Under the terms of the new agreement, the
Company will create custom combinatorial libraries, optimize lead compounds
discovered by Ono and undertake screening of those compounds in a target of
interest to Ono in exchange for research funding of $1,875,000 in the aggregate,
and potential milestone payments and royalties.
In February 1998, the Company announced that it met a milestone in
connection with a May 1997 Research and Supply Agreement with Warner-Lambert
Company ("Warner-Lambert"). Based upon certain screening of the Company's
combinatorial libraries against certain Warner-Lambert biological assays
utilizing Warner-Lambert screening technology, Warner-Lambert has identified a
series of lead compounds which are active in a biological target. The
achievement of this milestone requires Warner-Lambert to purchase $1,500,000 of
the Company's common stock (at fair market value), the timing of which
investment may be determined by the Company prior to February 11, 2000, but does
not obligate Warner-Lambert to develop such compounds.
In September 1997, the Company entered into a 10-year lease covering a
facility located in San Diego, California, to serve as its new research,
development and corporate headquarters. The Company's headquarters and all
operations relocated to this facility effective May 4, 1998. The annual rent is
$1,685,000 and is subject to a 3.5% annual escalation clause. The landlord has
agreed to fund up to a specified amount of tenant improvements for construction,
project management, space planning, architect and engineering fees and other
related costs on behalf of the Company. The Company incurred approximately
$1,200,000 to furnish and equip the new facility. (See Note 3 of Notes to the
Company's Consolidated Financial Statements.)
The Company has maintained a $3,000,000 equipment financing line for the
financing of the majority of its recent equipment needs. The Company has granted
all rights, title and security interest in the equipment acquired through this
financing source, as set forth on periodic equipment schedules, to the lender
(and secured party). The terms of the Company's loan agreement, which became
effective in September 1997, call for amounts drawn down under the loan to be
repaid monthly over a four-year term. The financing line expired July 31, 1998.
As of June 30, 1998, the Company had drawn down approximately $2,254,000 against
this equipment financing line. (See Note 3 of Notes to the Company's
Consolidated Financial Statements.)
Since 1992, the Company has been party to a Research and Option Agreement,
as amended, with Torrey Pines Institute for Molecular Studies ("TPIMS"). A
primary purpose of the Company's relationship with TPIMS has been to give the
Company access to support services provided by TPIMS scientific personnel and to
provide a source of combinatorial libraries and other discoveries. As of April
15, 1997, the Company entered into a Restated and Third Amended Research and
Option Agreement with TPIMS (the "TPIMS Agreement"). In connection with the
TPIMS Agreement, the Company acquired certain patents and purchased technology,
previously invented by TPIMS, in exchange for $1,300,000 (the "Purchase Price")
which together with $115,000 of accrued interest was paid to TPIMS on April 14,
1998. In addition, the TPIMS Agreement eliminated potential related royalties
otherwise payable on such patents and purchased technology. The TPIMS Agreement
also extended, through July 14, 1998, the existing funded research relationship
between the parties, and provided for a possible further extension through April
14, 2000, upon agreement on a work plan. Failure to reach agreement on a work
plan would cause a termination of the agreement as of July 14, 1998. In January
1998, the Company announced that the TPIMS Agreement would not be extended as a
result of a failure to agree on a work plan. The Company has paid, in advance,
the final research funding required under the TPIMS Agreement through July 14,
1998. Included in other assets on the Company's consolidated balance sheets is
$1,274,000, reflecting the current fair market value of the patents and
purchased technology.
In connection with the Company's research agreement with Dura, the Company
is committed to fund $6,000,000 over four years in a drug discovery and
development collaboration using Dura's proprietary drug delivery technology and
Company compounds (such as HP 228). As of June 30, 1998, $4,400,000 had been
funded since the inception of the 1996 Dura agreement.
The Company's future cash requirements will depend on many factors,
including the continuation of its research and development programs, the
acquisition or initiation of new research and development programs, the costs
involved in filing, prosecuting and enforcing patents, competing technological
and market developments, and the scope and results of clinical trials. It is
probable, however, that for at least the foreseeable future, the Company's cash
requirements will exceed its revenues. The Company expects that its primary
potential revenue source for the foreseeable future will be additional
collaborative agreements. The Company intends to
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seek additional funding through additional research and development agreements
with suitable corporate collaborators, extensions of existing corporate
collaborations, and through public or private financings if available and
consistent with the Company's business objectives. There can be no assurances,
however, that such collaboration arrangements, or any public or private
financings, will be available on acceptable terms, if at all. If funds are
raised through equity arrangements, further dilution to stockholders may result.
If adequate funds are not available, the Company may be required to delay,
reduce the scope of, or eliminate one or more of its research or development
programs or take other measures to cut costs, which could have a material
adverse effect on the Company. The Company estimates that its existing capital
resources, funding under existing research and development collaborations and
commitments for equity funding from current and former collaborative partners,
together with currently available facility and equipment financing, will be
sufficient to fund its current and planned operations for at least the next 12
months. There can be no assurances, however, that changes in the Company's
research and development plans or other changes affecting the Company's
operating expenses will not result in the expenditure of such resources before
such time. In any event, the Company will need to raise substantial additional
capital to fund its operations in future periods.
OTHER MATTERS
Impact of Year 2000
The Year 2000 will impact computer programs written using two digits rather
than four to define the applicable year. Any programs with time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operation (including a temporary inability to process
transactions, send invoices or engage in other ordinary activities). This
problem largely affects software programs written years ago, before the issue
came to prominence.
The Company is presently reviewing all of its software for exposure to the
Year 2000 issue, including network and workstation software, and does not
believe that it has significant associated risk. The Company primarily uses
third-party software programs written and updated by outside firms. Currently a
plan is being put into place to request certification from each such firm that
its software is Year 2000 compliant. To assure that all software programs can
successfully work in conjunction with each other after 1999, the Company plans
to test all of its software during 1998 using a combination of past and future
dates. Although no problems are expected to result from these tests, the Company
expects that any problems would be corrected before the end of 1998. The cost of
modifying or replacing software to bring the Company into compliance, if
necessary, is not expected to be material.
Notwithstanding the Company's efforts, there can be no assurances that
problems arising from the Year 2000 will not be encountered with respect to
third parties (such as the Company's collaborators).
RISK FACTORS
THE COMPANY WISHES TO CAUTION READERS THAT THE FOLLOWING IMPORTANT FACTORS,
AMONG OTHERS (INCLUDING THOSE NOTED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997), IN SOME CASES HAVE AFFECTED, AND IN THE
FUTURE COULD AFFECT, THE COMPANY'S ACTUAL CONSOLIDATED RESULTS AND COULD CAUSE
THE COMPANY'S ACTUAL CONSOLIDATED RESULTS FOR FUTURE PERIODS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY, OR ON
BEHALF OF, THE COMPANY.
NEW AND UNCERTAIN TECHNOLOGIES AND BUSINESS
Drug discovery methods based upon combinatorial chemistry technology are
relatively new compared to traditional methods of drug discovery and there can
be no assurance that these methods will lead to the discovery or development of
commercial pharmaceutical products or that the Company will be able to employ
these or other methods of drug discovery successfully. The Company's technology
development programs (including the Company's combinatorial biology technology
program (conducted through its subsidiary, ChromaXome) and the Company's efforts
to synthesize compounds in combinatorial library formats through automation) are
at early stages of development, and there can be no assurance that such
technology programs will be developed or employed successfully, work efficiently
or otherwise enhance the Company's ability to engage effectively in drug
discovery. The types of combinatorial libraries the Company is capable of
offering and the nature of the compounds the Company is able to synthesize will,
in large part, determine the demand for the Company's drug discovery
capabilities. An inability to offer competitive libraries or an inability to
synthesize compounds that have actual or potential utility would have a material
adverse effect on the Company. Failures in the field of drug discovery,
including combinatorial chemistry, could have a material adverse effect on the
Company.
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DEPENDENCE ON COLLABORATORS
The Company's strategy for the utilization of its drug discovery
technologies and for the development, clinical testing, manufacturing and
commercialization of any compounds depends upon the formation of collaborations
and arrangements with corporate collaborators, licensors, licensees and others.
There may only be a limited number of pharmaceutical and biotechnology companies
that would potentially collaborate with the Company. Historically,
pharmaceutical and biotechnology companies have conducted lead compound
identification and optimization within their own research departments, due to
the highly proprietary nature of the activities being conducted, the central
importance of these activities to their drug discovery and development efforts
and the desire to obtain maximum patent and other proprietary protection on the
results of their internal programs. Pharmaceutical and biotechnology companies
must be convinced that the Company's drug discovery technologies and expertise
justify outsourcing these programs to the Company. The amount and timing of
resources that current and future collaborators, if any, devote to
collaborations with the Company are not within the control of the Company. There
can be no assurance that such collaborators will perform their obligations as
expected or that the Company will derive any additional revenue from such
arrangements. Because the Company's arrangements with its collaborators may
entail the provision of identical or similar libraries or compounds to multiple
parties, there can be no assurance that conflicts will not arise between
collaborators as to proprietary rights to particular libraries or as to
particular compounds in the Company's libraries. Moreover, the Company's
collaborations may be terminated under certain circumstances by its
collaborators, which terminations could result in the Company relinquishing
rights to products developed jointly with its collaborators. Any such conflicts
or terminations could have a material and adverse effect on the Company.
There can be no assurance that (i) the Company's present or any future
collaborators will not pursue their existing or alternative technologies in
preference to those of the Company, (ii) any product will be developed and
marketed as a result of such collaborations or (iii) the Company will be able to
negotiate additional collaborative arrangements in the future on acceptable
terms, if at all, or that such current or future collaborative arrangements will
be successful. To the extent that the Company chooses not to or is unable to
establish such arrangements, it will require substantially greater capital to
undertake the research, development and marketing of products at its own
expense. In addition, the Company may encounter significant delays in developing
compounds or find that the development, manufacture or sale of its proposed
products is materially and adversely affected by the absence of such
collaborative agreements.
EARLY STAGE OF PRODUCT DEVELOPMENT
The Company's research and product development programs (including the
Company's program with respect to potential drug candidates for the treatment of
diseases mediated by the melanocortin receptor pathway) are at early stages. Any
compounds resulting from the Company's research and development programs are not
expected to be commercially available for a number of years, if ever, even if
any such compounds are successfully developed and proven to be safe and
effective. There can be no assurances that any of the Company's product
development efforts will be successfully completed, that development
arrangements with pharmaceutical partners will be established on acceptable
terms, if at all, that regulatory approvals will be obtained or will be as broad
as sought, that any candidate products will be capable of being produced in
commercial quantities at reasonable cost, or that any products, if introduced,
will achieve market acceptance or profitability.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The continued development of the Company's technologies and compounds will
require the commitment of substantial additional funds to continue to maintain
the competitiveness of its drug discovery technologies and to conduct the costly
and time consuming research and preclinical and clinical testing necessary to
bring products to market. The Company's future capital requirements will depend
on many factors, including, among others, (i) continued scientific progress in
its research and development programs, (ii) the ability of the Company to
establish and maintain collaborative arrangements with respect to the Company's
drug discovery technologies and the clinical testing of candidate products,
(iii) progress with preclinical and clinical trials, (iv) the costs involved in
further developing and sustaining internal combinatorial chemistry capabilities,
(v) the costs involved in developing additional drug discovery technologies,
including combinatorial biology and the synthesis of compounds through
automation, (vi) the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims, (vii) competing technological and
market developments and (viii) changes in the Company's existing research
relationships. Although the Company estimates that its existing capital
resources, together with funding under existing research and development
collaborations, commitments for equity funding from current and former
collaborative partners and currently available facility and equipment financing,
will be sufficient to fund its current and planned operations for the next 12
months, there can be no assurance that changes will not occur that would consume
available capital resources before such time.
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The Company anticipates that it will be required to raise additional capital
over a period of at least several years in order to conduct its operations. Such
capital may be raised through additional public or private financings, as well
as collaborative arrangements, borrowings and other available sources. There can
be no assurance that additional financing will be available on acceptable terms,
if at all. If adequate funds are not available, the Company may be required to
delay, reduce the scope of or eliminate one or more of its research or
development programs, which could have a material adverse effect on the Company.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has experienced significant operating losses since inception.
For the years ended December 31, 1997, 1996 and 1995, the Company had net losses
of approximately $9,372,000, $11,688,000 and $9,490,000, respectively. For the
six months ended June 30, 1998, the Company recorded a net loss of $5,805,000.
At June 30, 1998, the Company had an accumulated deficit of approximately
$61,434,000. The Company expects that its ability to achieve profitability will
be dependent upon the ability of the Company to enter into and achieve success
under additional collaborative arrangements or to expand and achieve success
under existing relationships. There can be no assurances that the Company will
be successful in entering into additional collaboration arrangements that will
result in revenues or that the Company will receive additional revenues under
existing collaboration arrangements. If the Company is unable to receive
significantly increased revenues under collaboration arrangements, the Company
expects to incur additional operating losses in the future and expects
cumulative losses to increase as the Company's research and development efforts
and preclinical and clinical testing are expanded. Any revenues from the
achievement of milestones, royalties or license fees from the discovery,
development or sale of a commercial drug by a collaborator are not expected to
be material to the Company's financial position for several years, if at all.
The Company is unable to predict when, if ever, it will become profitable.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
No information is presented for this Item (the Company is not presently
required to prepare or provide this information pursuant to the Instructions to
Item 305 of Regulation S-K).
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<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
*10.1 Stock Purchase Agreement made as of May 26,
1998 between Novartis Pharma AG and the
Company
*10.2 Research, Development and License Agreement
dated as of May 26, 1998 between Novartis
Pharma AG and the Company (as amended).
27.1 Financial Data Schedule.
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*The Company has requested confidential treatment of certain
portions of these agreements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended June
30, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Trega Biosciences, Inc.
Date: August 14, 1998 /s/ ROBERT S. WHITEHEAD
------------------------
Robert S. Whitehead
President, Chief Executive Officer, Chairman of the
Board of Directors and Acting Chief Financial Officer
(Principal Executive, Financial and Accounting
Officer)
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<PAGE> 1
EXHIBIT 10.1
NOVARTIS PHARMA AG
TREGA BIOSCIENCES, INC.
STOCK PURCHASE AGREEMENT
MAY 26, 1998
CONFIDENTIAL
<PAGE> 2
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT REQUESTED: PAGES WHERE CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED ARE MARKED "CONFIDENTIAL TREATMENT REQUESTED" AND APPROPRIATE
SECTIONS, WHERE TEXT HAS BEEN OMITTED, ARE NOTED WITH "[CONFIDENTIAL TREATMENT
REQUESTED]." AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made as of the 26th
day of May, 1998 (the "EFFECTIVE DATE"), by and between Novartis Pharma AG
("NOVARTIS" or the "INVESTOR"), a corporation organized under the laws of
Switzerland, with its principal place of business at Lichtstrasse 35, CH-4002,
Basel, Switzerland, and Trega Biosciences, Inc. (the "COMPANY"), a Delaware
corporation with its principal place of business at 3550 General Atomics Ct.,
San Diego, California, 92121, U.S.A.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions
hereof, the Company will issue and sell shares (the "SHARES") of Common Stock,
par value $.001 per share, of the Company ("COMMON STOCK") to the Investor, and
the Investor will buy the Shares from the Company, as follows:
1.1 PUT OPTION INVESTMENT.
(a) At anytime prior to the date which is nineteen (19) months
after the Effective Date, upon thirty (30) days' prior notice made pursuant to
Section 10.10 of this Agreement (the "PUT OPTION NOTICE"), the Company, at the
Company's option, may issue and sell Shares to the Investor, and the Investor
will buy such Shares, for a purchase price of [CONFIDENTIAL TREATMENT REQUESTED]
in cash in U.S. dollars. The date upon which such Shares will be sold (the
"OPTION DATE") shall be the date thirty (30) days after the Company provides the
Investor with the Put Option Notice. The number of Shares which the Company
shall issue and sell to the Investor pursuant to this Section 1.1 shall equal
[CONFIDENTIAL TREATMENT REQUESTED] divided by the "Share Price". The "SHARE
PRICE" shall mean the average closing price per share of the Common Stock (if so
quoted, then as quoted in the Wall Street Journal) for the twenty (20)
consecutive trading day period prior to the Option Date (the "PUT OPTION
MEASUREMENT PERIOD"); provided, however, that (i) if such average closing price
exceeds [CONFIDENTIAL TREATMENT REQUESTED] per share, then the Share Price shall
be [CONFIDENTIAL TREATMENT REQUESTED](the "CAP"), and (ii) if such average
closing price is less than [CONFIDENTIAL TREATMENT REQUESTED] per share, then
the Share Price shall be [CONFIDENTIAL TREATMENT REQUESTED] (the "FLOOR"). The
closing of the purchase and sale of the Shares to be sold and purchased pursuant
to this Section 1.1 (the "PUT OPTION CLOSING") shall occur on the Option Date or
on such date thereafter as is mutually
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CONFIDENTIAL TREATMENT REQUESTED
agreeable to the parties hereto.
(b) If after the Effective Date and on or prior to the Option
Date the outstanding shares of Common Stock shall be changed into a different
number of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or any dividend payable in stock or other
securities shall be declared thereon with a record date within such period, or
any similar event shall occur (any such action, an "ADJUSTMENT EVENT"), then the
per share closing prices of Common Stock during the Put Option Measurement
Period, the Cap and the Floor shall be adjusted accordingly to provide to the
Investor the same economic effect as contemplated by this Agreement prior to
such Adjustment Event.
(c) If the Company does not exercise its option pursuant to
this Section 1.1, then the Investor shall not be required to pay to the Company
the related purchase price of [CONFIDENTIAL TREATMENT REQUESTED].
(d) Notwithstanding the other provisions of this Section 1.1,
at the time of the delivery to the Investor by the Company of the Put Option
Notice, the Company (in the Company's sole discretion) may advise the Investor,
as part of the Put Option Notice, of the Company's election to decrease the size
of the Investor's purchase price (i.e., to a figure of less than [CONFIDENTIAL
TREATMENT REQUESTED]). In such event, the Put Option Notice will set forth the
revised purchase price and the provisions of this Section 1.1 shall be deemed
modified, to the extent necessary, to reflect such revised purchase price.
However, the Investor shall only be required to participate in one Put Option
Closing (and, as a result, the Investor's obligation to purchase Shares
represented by the amount of the decrease in purchase price from [CONFIDENTIAL
TREATMENT REQUESTED] will be extinguished).
1.2 MILESTONE INVESTMENTS.
(a) Pursuant to Section 4.1 of the Research, Development and
License Agreement between the Company and the Investor of even date, a copy of
which is attached hereto as Exhibit A (the "LICENSE AGREEMENT"), the Company
will issue and sell Shares to the Investor, and the Investor will buy such
Shares from the Company, for [CONFIDENTIAL TREATMENT REQUESTED] in cash in U.S.
dollars upon the Investor's "EARLY DEVELOPMENT PROPOSAL DECISION" (as defined in
the License Agreement). The closing of the purchase and sale of the Shares to be
sold and purchased pursuant to this Section 1.2 (the "MILESTONE CLOSING") shall
occur within 30 days of the Investor's Early Development Proposal Decision, or
on such later date as the Company and the Investor may reasonably agree.
(b) On the Milestone Closing, the Company shall issue and sell
to the Investor, and the Investor shall purchase and receive from the Company,
that number of Shares equal to [CONFIDENTIAL TREATMENT REQUESTED] divided by the
average closing price per share of the Common Stock (if so quoted, then as
quoted in the Wall Street Journal) for the twenty (20) consecutive trading day
period prior to the Investor's Early Development Proposal Decision (the
"MILESTONE MEASUREMENT PERIOD").
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CONFIDENTIAL TREATMENT REQUESTED
(c) If an Adjustment Event occurs after the Effective Date and
on or prior to the Milestone Closing, then the per share closing prices of
Common Stock during the Milestone Measurement Period shall be adjusted
accordingly to provide to the Investor the same economic effect as contemplated
by this Agreement prior to such Adjustment Event.
(d) In order to facilitate the purchase of the Shares, the
Company shall furnish to the Investor written confirmation of the date of the
Milestone Closing seven (7) days prior to such date (the "CLOSING
VERIFICATION").
(e) Notwithstanding the other provisions of this Section 1.2,
prior to delivery to the Investor by the Company of the Closing Verification,
the Company (in the Company's sole discretion) may advise the Investor in
writing of the Company's election to terminate the obligations of the parties
with respect to the Milestone Closing. In such event, without limitation, the
Company shall not be required to issue and deliver to the Investor the Shares
otherwise called for at the Milestone Closing and the Investor shall not be
required to pay to the Company the related purchase price of [CONFIDENTIAL
TREATMENT REQUESTED].
1.3 NOVARTIS AFFILIATE. Subject to compliance with applicable state
and federal securities laws, the parties agree that Novartis may assign the
right and obligation to purchase the Shares (as specified and for the
consideration set forth in Sections 1.1 and 1.2 above) and all of its other
rights and obligations under this Agreement to an "AFFILIATE" (as such term is
defined in the License Agreement), in which event the term "Investor" shall
refer herein to such Affiliate; provided, however, that no such assignment shall
relieve Novartis of the obligation to pay for the Shares in the event that the
Affiliate fails to perform as provided herein.
2. CLOSING DATE, DELIVERY.
2.1 ISSUANCE OF SHARES. At the Put Option Closing and the Milestone
Closing, the Company will deliver to the Investor stock certificates, issued in
the Investor's name, representing the Shares issuable at the Put Option Closing
or the Milestone Closing, as the case may be, against payment as specified in
Sections 1.1 and 1.2 (as applicable) by check payable to the Company or by wire
transfer of same day funds per the Company's wiring instructions.
2.2 FURTHER ASSURANCES. The Company and the Investor hereby covenant
and agree, without the necessity of any further consideration, to execute,
acknowledge and deliver any and all such other documents and to take any such
other action as may be reasonably necessary to carry out the intent and purposes
of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor, as of the Effective Date, as follows:
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<PAGE> 5
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
corporate authority to own and operate its properties and assets, to carry on
its business as now conducted and as proposed to be conducted, to enter into
this Agreement, to sell the Shares and to carry out the other transactions
contemplated hereunder. The Company, and each of its subsidiaries, is qualified
to transact business and is in good standing in each jurisdiction in which the
failure to qualify would be reasonably likely to have a material adverse effect
on the business, properties, financial condition or results of operations of the
Company and its subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT"). The
Company has made available to the Investor true, correct and complete copies of
the Company's Amended and Restated Certificate of Incorporation (the "RESTATED
CERTIFICATE") and the Company's By-laws (the "BY-LAWS"), each in the form as is
in effect on the Effective Date.
3.2 CAPITALIZATION AND VOTING RIGHTS.
(a) The authorized capital of the Company as of the Effective
Date consists of:
(i) 40,000,000 shares of Common Stock, of which
13,937,620 shares were issued and outstanding as of March 31, 1998; and
(ii) 5,000,000 shares of preferred stock, $.001 par
value per share, of which no shares were issued and outstanding as of the
Effective Date.
(b) As of March 31, 1998, and except as set forth in the
Schedule of Exceptions attached hereto as Exhibit B (the "SCHEDULE OF
EXCEPTIONS"), there are: (i) no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements pursuant to which the Company is
or may become obligated to issue, sell or repurchase any shares of its capital
stock or any other securities of the Company; (ii) no restrictions on the
transfer of capital stock of the Company imposed by the Restated Certificate,
the By-laws, any agreement to which the Company is a party, any order of any
court or any governmental agency to which the Company is subject or any statute
(other than those imposed by relevant state and federal securities laws); (iii)
no cumulative voting rights for any of the Company's capital stock; (iv) no
registration rights under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with respect to shares of the Company's capital stock; and
(v) to the actual knowledge of the Company's executive officers (the "COMPANY'S
ACTUAL KNOWLEDGE"), no options or other rights to purchase shares of capital
stock from stockholders of the Company granted by such stockholders. The Company
has reserved (i) up to 2,960,465 shares of Common Stock for issuances pursuant
to the Company's 1996 Stock Incentive Plan and (ii) up to 100,000 shares of
Common Stock for issuances pursuant to the Company's 1996 Employee Stock
Purchase Plan.
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(c) Except as set forth in the Schedule of Exceptions, the
Company is not a party to or is not subject to any agreement or understanding
relating to, and to the Company's Actual Knowledge there is no agreement or
understanding between any persons and/or entities which affects or relates to,
the voting of shares of capital stock of the Company or the giving of written
consents by a stockholder or director of the Company.
3.3 SUBSIDIARIES. Each of the Company's subsidiaries is duly
organized and existing under the laws of its jurisdiction of organization and is
in good standing under such laws.
3.4 AUTHORIZATION. All corporate action on the part of the Company
and its stockholders necessary for the authorization, execution and delivery of
this Agreement, the performance of all obligations of the Company hereunder and
the authorization, issuance and delivery of the Shares to be sold hereunder has
been taken or will be taken prior to the Put Option Closing and the Milestone
Closing, respectively. This Agreement has been duly executed and delivered by
the Company and constitutes a valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies). The
execution, delivery and performance of this Agreement and compliance with the
provisions hereof by the Company will not:
(a) violate any provision of law, statute, ordinance, rule or
regulation or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body to which the Company or
its material assets are subject, the violation of which would have a Material
Adverse Effect.
(b) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time, or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under (i) any material agreement, document, instrument, contract,
understanding, arrangement, note, indenture, mortgage or lease to which the
Company is a party or under which the Company or any of its assets is bound or
affected, (ii) the Restated Certificate or (iii) the By-laws; or
(c) result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company where
the same would have a Material Adverse Effect.
3.5 VALID ISSUANCE OF COMMON STOCK.
(a) When issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, the Shares will be validly
issued and outstanding, fully paid and nonassessable and not subject to any
preemptive rights, rights of first refusal or other similar rights imposed by
the Company.
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<PAGE> 7
(b) The outstanding shares of Common Stock are all duly
authorized and validly issued, fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws.
3.6 [RESERVED].
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the issuance and delivery to Novartis
of the Shares, other than filing pursuant to the Hart-Scott-Rodino Premerger
Notification Act ("HSR ACT"), if applicable.
3.8 LITIGATION. Except as set forth in the Schedule of Exceptions,
there is no action, suit, proceeding or investigation pending or, to the actual
knowledge of the Company's officers after reasonable investigation and inquiry
(the "COMPANY'S REASONABLE KNOWLEDGE"), currently threatened against the Company
which questions the validity of this Agreement or the right of the Company to
enter into it, or to consummate the transactions contemplated hereby, or which
would be reasonably likely to have, either individually or in the aggregate, a
Material Adverse Effect, or result in any change in the current equity ownership
of the Company, nor, to the Company's Reasonable Knowledge, is there any basis
for the foregoing. Except as set forth in the Schedule of Exceptions, to the
Company's Reasonable Knowledge there are no legal actions or investigations
pending or threatened involving the employment by or with the Company of any of
the Company's current or former employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers or alleging a violation of any federal, state or local statute or
common law relationship with the Company, in all events which would be
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect. Except as set forth in the Schedule of Exceptions, the Company
is not a party to any order, writ, injunction, judgment or decree of any court
which would be reasonably likely to have, either individually or in the
aggregate, a Material Adverse Effect.
3.9 EMPLOYEES AND CONSULTANTS. Except as set forth in the Schedule of
Exceptions, or where the same would not be reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect:
(a) To the Company's Reasonable Knowledge, none of its
employees is obligated under any contract (including licenses, covenants or
contracts of any nature) or other agreement, or subject to any judgment, decree
or order of any court or administrative agency, that would interfere with the
use of his or her commercially reasonable best efforts to promote the interests
of the Company or that would conflict with the Company's business as proposed to
be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's Reasonable
Knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any material contract, covenant or
instrument under which any of such employees is now obligated.
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(b) Each employee of, or consultant to, the Company who has or
is proposed to have access to confidential or proprietary information of the
Company is a signatory to, and is bound by, an agreement with the Company
relating to nondisclosure, proprietary information and assignment of patent,
copyright and other intellectual property rights.
(c) To the Company's Reasonable Knowledge, no employee of, or
consultant to, the Company is in violation of any material term of any
employment contract, patent disclosure agreement or any other contract or
agreement including, but not limited to, those matters relating to (i) the
relationship of any such employee with the Company or to any other party as a
result of the nature of the Company's business as currently conducted or (ii)
unfair competition, trade secrets or proprietary information.
3.10 PATENTS AND TRADEMARKS. Except as set forth in the Schedule of
Exceptions or where the same reasonably would not be reasonably likely to have,
either individually or in the aggregate, a Material Adverse Effect, (i) since
January 1, 1997 the Company has not received any written communications alleging
that the Company has violated or, by conducting its business as proposed, would
violate any of the patents, service marks, trademarks, copyrights, trade
secrets, proprietary rights or other intellectual property (hereinafter
collectively "INTELLECTUAL PROPERTY") of any other person or entity and (ii) to
the Company's Reasonable Knowledge, all of its Intellectual Property has been
validly obtained.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of the Restated Certificate or the
By-laws or, where the same would have a Material Adverse Effect, of any
instrument, judgment, order, writ or decree.
3.12 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby or as
set forth in the Schedule of Exceptions, (i) there are no agreements,
understandings, transactions or proposed transactions between the Company and
any of its officers, directors or affiliates, or any affiliate thereof, of a
nature required to be disclosed pursuant to the provisions of Item 404 of
Regulation S-K, and (ii) to the Company's Reasonable Knowledge none of any such
individuals or entities has any interest in any party to any such agreement,
understanding, transaction or proposed transaction.
(b) Except as set forth in the Schedule of Exceptions, since
January 1, 1997 the Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) made any loans or advances to any person, other than
ordinary advances to employees and officers for travel expenses, or (iii) sold,
exchanged or otherwise disposed of any of its material assets or rights, other
than in the ordinary course of business.
(c) The Company has not admitted in writing its inability to
pay its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the
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benefit of creditors, consented to the appointment of a receiver for itself or
for the whole or any substantial part of its property, or had a petition in
bankruptcy filed against it, been adjudicated a bankrupt, or filed a petition or
answer seeking reorganization or arrangement under the federal bankruptcy laws
or any other laws of the United States or any other jurisdiction.
(d) Except as set forth in the Schedule of Exceptions, the
Company is in compliance with all obligations, agreements and conditions
contained in any evidence of indebtedness or any loan agreement or other
contract or agreement (whether or not relating to indebtedness) to which the
Company is a party or is subject (collectively, the "OBLIGATIONS"), the lack of
compliance with which could afford to any person the right to (i) accelerate any
material indebtedness or (ii) terminate any right or agreement of the Company,
the termination of which would have a Material Adverse Effect. Except as set
forth in the Schedule of Exceptions, to the Company's Actual Knowledge all other
parties to such Obligations are in compliance with the terms and conditions of
such Obligations to the extent that any noncompliance would be reasonably likely
to have a Material Adverse Effect.
3.13 [RESERVED].
3.14 [RESERVED].
3.15 FINANCIAL STATEMENTS.
(a) The Company has made available to the Investor the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the
"10-K") containing its audited financial statements (Balance Sheets, Statements
of Operations, Statements of Stockholders' Equity and Statements of Cash Flow)
at December 31, 1996 and 1997 and for the fiscal years then ended (the "AUDITED
FINANCIAL STATEMENTS"). The Audited Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and fairly present the financial
condition and consistent operating results of the Company as of the dates, and
for the periods, indicated therein. The Company maintains and consistently
applies and will continue to maintain and consistently apply a standard system
of accounting established and administered in accordance with generally accepted
accounting principles.
(b) Except as set forth in Section 3.15 of the Schedule of
Exceptions, from December 31, 1997 through the Effective Date, the Company
conducted its business in the ordinary course.
(c) Since December 31, 1997, there has not been any material
adverse change in the financial condition or operations of the Company.
(d) Since April 1, 1996, the Company has filed all required
reports, schedules, forms, statements and other documents (including exhibits
and all other information incorporated therein) with the SEC (the "COMPANY SEC
DOCUMENTS"). As of their respective dates (or if amended, then as of the date of
the most recent amendment for each respective Company SEC Document), the Company
SEC Documents complied in all material respects with the
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requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "SECURITIES EXCHANGE ACT"), as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and no Company SEC Document when filed (or if amended, then as of the
date of the most recent amendment for each respective Company SEC Document)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in Company SEC
Documents complied as to form, as of their respective dates of filing with the
SEC (or if amended, then as of the date of the most recent amendment for each
respective Company SEC Document), in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared (as amended, if applicable) in accordance
with GAAP (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present (as
amended, if applicable) the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
3.16 EMPLOYEE BENEFIT PLANS. Except as set forth in the Schedule of
Exceptions, to the Company's Reasonable Knowledge the Company is in compliance
with applicable laws governing the Company's "employee benefit plans" as such
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, except where such failure to comply would not have a Material Adverse
Effect.
3.17 TAX RETURNS, PAYMENTS AND ELECTIONS. Except as set forth in the
Schedule of Exceptions, (i) the Company has filed all tax returns and reports as
required, and within the time prescribed, by law, including without limitation,
all federal, state and local income, excise or franchise tax returns, real
estate and personal property tax returns, sales and use tax returns, payroll tax
returns and other tax returns or reports required to be filed by it, (ii) these
returns and reports are true and correct in all material respects, (iii) the
Company has paid or made provision for the payment of all accrued and unpaid
taxes and other charges to which the Company is subject and which are not
currently due and payable, (iv) the federal income tax returns of the Company
have never been audited by the Internal Revenue Service, and the Company has not
agreed to an extension of the statute of limitations with respect to any of its
tax years, (v) neither the Internal Revenue Service nor any other taxing
authority is now asserting, nor to the Company's Actual Knowledge is threatening
to assert, against the Company any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith, nor does such deficiency
or claim or basis for such deficiency or claim exist, and (vi) the Company has
not made any elections pursuant to the Code (other than elections which relate
solely to methods of accounting, depreciation or amortization) which would have
a Material Adverse Effect as the Company's business is presently conducted.
3.18 INSURANCE. Except as set forth in the Schedule of Exceptions, the
Company has in full force and effect fire, casualty and liability insurance
policies, with coverage, in the case of property insurance, sufficient in amount
(subject to reasonable deductibles) to allow it to
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replace any of its material properties that might be damaged or destroyed, and
in the case of casualty and liability insurance, in amounts customary and
adequate for businesses similar to the business of the Company.
3.19 LABOR AGREEMENTS AND ACTIONS. Except as set forth in the Schedule
of Exceptions, the Company does not have any collective bargaining agreements
covering any of its employees, nor is the Company bound by or subject to (and
none of its assets or properties is bound by or subject to) any written or oral,
express or implied, contract, commitment or arrangement with any labor union,
and no labor union has requested of the Company or, to the Company's Reasonable
Knowledge, has sought to represent any of the employees, representatives or
agents of the Company, and (ii) there is no strike or other labor dispute
involving the Company pending, or to the Company's Reasonable Knowledge
threatened, which could have a Material Adverse Effect as the Company's business
is presently conducted and as it is proposed to be conducted, nor is there, to
the Company's Reasonable Knowledge, any labor organization activity involving
its employees.
3.20 REAL PROPERTY HOLDING CORPORATION. The Company is not, and has
not been at any time, a "United States real property holding corporation" as
defined in Section 897 of the Code.
3.21 OFFERING. Subject to the accuracy of the Investor's
representations set forth in Section 4 of this Agreement, the offer, sale and
issuance of the Shares to be issued in conformity with the terms of this
Agreement constitute transactions which are exempt from the registration
requirements of the Securities Act and from all applicable state registration or
qualification requirements, other than those with which the Company has complied
or will comply.
3.22 ENVIRONMENTAL MATTERS.
(a) To the Company's Reasonable Knowledge, (i) the Company is
not in violation of any Environmental Law (as hereinafter defined) and (ii) no
material expenditures are or will be required in order for the Company to comply
with any Environmental Law. As used in this Agreement, "ENVIRONMENTAL LAW" shall
mean any applicable federal, state and local law, ordinance, rule or regulation
that regulates, fixes liability for, or otherwise relates to the handling, use
(including use in industrial processes, in construction, as building materials,
or otherwise), treatment, storage and disposal of hazardous and toxic wastes and
substances, and to the discharge, leakage, presence, migration, actual Release
(as hereinafter defined) or threatened Release (whether by disposal, a discharge
into any water source or system or into the air, or otherwise) of any pollutant
or effluent.
(b) The Company has not used, generated, manufactured,
refined, treated, transported, stored, handled, disposed, transferred, produced,
processed or released (hereinafter together defined as "RELEASE") any Hazardous
Materials (as hereinafter defined) on, from or affecting any Property (as
hereinafter defined) in any manner or by any means in violation of any
Environmental Laws and, to the Company's Reasonable Knowledge, there is no
threat of such Release. As used herein, the term "PROPERTY" shall include,
without limitation, land, buildings and laboratory facilities owned or leased by
the Company or as to which the Company now has
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any duties, responsibilities (for cleanup, remedy or otherwise) or liabilities
under any Environmental Laws, or as to which the Company or any subsidiary of
the Company may have such duties, responsibilities or liabilities because of
past acts or omissions of the Company or any such subsidiary or their
predecessors, or because the Company or any such subsidiary or their
predecessors in the past was such an owner or operator of, or bore some other
relationship with, such land, buildings or laboratory facilities. The term
"HAZARDOUS MATERIALS" shall include, without limitation, any flammable
explosives, petroleum products, petroleum by-products, radioactive materials,
hazardous wastes, hazardous substances, toxic substances or related materials as
defined by Environmental Laws.
(c) Except as set forth in Section 3.22 of the Schedule of
Exceptions, (i) the Company has not received written notice that the Company is
a party potentially responsible for costs incurred at a cleanup site or
corrective action under any Environmental Laws and (ii) the Company has not
received any written requests for information in connection with any inquiry by
any Governmental Authority (as hereinafter defined) concerning disposal sites or
other environmental matters. As used herein, "GOVERNMENTAL AUTHORITY" shall mean
any nation or government, any federal, state, municipal, local, provincial,
regional or other political subdivision thereof, and any entity or person
exercising executive, legislative, judicial regulatory or administrative
functions of or pertaining to government.
(d) The stockholders of the Company, in their capacities as
such, have had no control over, or authority with respect to, the waste disposal
operations of the Company.
3.23 SECURITIES LAWS. Neither the Company nor anyone acting on its
behalf has offered securities of the Company for sale to, or solicited any
offers to buy the same from, or sold securities of the Company to, any person or
organization, in any case so as to subject the Company or its promoters,
directors or officers to any liability under the Securities Act, the Securities
Exchange Act or any state securities or blue sky law (collectively, the
"SECURITIES LAWS").
3.24 NASDAQ NATIONAL MARKET. Quotations for trading in shares of
Common Stock are presently included in the National Market System of The Nasdaq
Stock Market, Inc. ("NASDAQ") (or shares of Common Stock are traded on the New
York Stock Exchange (the "NYSE")) and the Company has not received any notice
from Nasdaq (or, if applicable, the NYSE) with respect to any pending action or
intent by Nasdaq (or, if applicable, the NYSE) to delist the Common Stock.
3.25 LICENSES AND OTHER RIGHTS; COMPLIANCE WITH LAWS. Except as set
forth in the Schedule of Exceptions or where the same would not be reasonably
likely to result in a Material Adverse Effect, (i) the Company has all
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its business as presently
conducted and is in compliance in all material respects thereunder, (ii) the
Company is in compliance in all material respects with all laws and governmental
rules and regulations applicable to its business, properties and assets, and to
the products and services sold by it, including, without limitation, all such
rules, laws and regulations relating to fair employment practices, occupational
safety and health and public safety, and (iii) the Company is in
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compliance with the applicable provisions, if any, of the Clinical Laboratories
Improvement Act of 1967, as amended.
3.26 RELIANCE. The Company understands that the foregoing
representations and warranties shall be deemed material and to have been relied
upon by the Investor. No representation or warranty by the Company in this
Agreement, and no written statement contained in or incorporated into any
document, certificate or other writing delivered or made available by the
Company to the Investor, when considered in the aggregate, contains any untrue
statement of material fact or omits to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. Novartis hereby
represents and warrants the following:
4.1 AUTHORIZATION, GOVERNMENTAL CONSENTS AND COMPLIANCE WITH OTHER
INSTRUMENTS. All corporate action on the part of the Investor necessary for the
authorization, execution and delivery of this Agreement and the performance of
all obligations of the Investor hereunder has been taken or will be taken prior
to the Put Option Closing and the Milestone Closing, as the case may be. This
Agreement has been duly executed and delivered by the Investor and constitutes a
valid and legally binding obligation of the Investor, enforceable in accordance
with its terms (except as such enforcement is limited by (i) bankruptcy,
insolvency and similar laws affecting creditor rights and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies).
No consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority on the part of the Investor is required in connection
with the consummation of the transactions contemplated by this Agreement, except
as may be required by the HSR Act. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not result in any violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
provision of the Investor's corporate charter or By-laws or any instrument,
judgment, order, writ, decree or contract to which the Investor is a party or by
which it is bound.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. By the Investor's execution of
this Agreement, the Investor hereby confirms that the Shares will be acquired
for investment for the Investor's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and the
Investor has no present intention of selling, granting any participation or
otherwise distributing the Shares. By executing this Agreement, the Investor
further represents that the Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant any
participation to such person or to any third person, with respect to any of the
Shares. The Investor represents that it has full power and authority to enter
into this Agreement.
4.3 DISCLOSURE OF INFORMATION. The Investor has received all the
information from the Company and its management that the Investor considers
necessary or appropriate for deciding whether to purchase the Shares hereunder.
The Investor further represents that it has had an opportunity to ask questions
and receive answers from the Company regarding the terms
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and conditions of the offering of the Shares. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section 3
of this Agreement.
4.4 INVESTMENT EXPERIENCE AND ACCREDITED INVESTOR STATUS. The
Investor is an "ACCREDITED INVESTOR" (as defined in Regulation D promulgated
under the Securities Act). The Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself and bear the economic risk of its investment. The Investor has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Shares hereunder.
4.5 RESTRICTED SECURITIES. The Investor understands that the Shares,
when issued, will be "RESTRICTED SECURITIES" (as defined in Rule 144 under the
Securities Act ("RULE 144")) under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act only in certain limited
circumstances. In this connection, the Investor represents that it is familiar
with Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
4.6 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, the Investor further represents, warrants
and agrees that it will not make any disposition of all or any portion of the
Shares unless:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) The disposition is made pursuant to Rule 144 or similar
provisions of federal securities laws as in effect from time to time; or
(c) (i) The Investor shall have notified the Company of the
proposed disposition; and (ii) if requested by the Company, the Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
Shares under the Securities Act.
4.7 LEGENDS. It is understood that the certificates evidencing the
Shares will bear substantially the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel reasonably
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by applicable state securities laws.
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5. CONDITIONS TO CLOSING OF INVESTOR. The Investor's obligation to purchase
the Shares at each of the Put Option Closing and the Milestone Closing is
subject to the fulfillment as of each of the Closing dates of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the date of each respective Closing with the same
force and effect as though such representations and warranties had been made on
and as of each such date, except that:
(a) there shall be delivered at each such Closing a
certificate, signed by an officer of the Company, which contains the
representations and warranties set forth in Sections 3.2(a) and (b) but
substituting updated numbers for the numbers set forth in Sections 3.2(a) and
(b) (or the related portions of the Schedule of Exceptions);
(b) there shall be delivered at each such Closing a
certificate, signed by an officer of the Company, which contains the
representations and warranties set forth in Section 3.15(a), but substituting
the most recent audited financial statements then available (which shall have
been made available to the Investor at least three (3) business days prior to
such Closing) for the financial statements referred to in Section 3.15(a); and
(c) the Schedule of Exceptions may be updated to reflect
events occurring or arising after the Effective Date by a new schedule (the
"UPDATED SCHEDULE") prepared by the Company and made available to the Investor
at least ten (10) business days prior to such Closing (to be updated, if
applicable, prior to the Closing for any events occurring or arising after
delivery of the Updated Schedule to the Investor and prior to Closing) together
with a certificate, signed by an officer of the Company, as to the Updated
Schedule, and the representations and warranties made by the Company in Section
3 hereof, to the extent qualified by the Schedule of Exceptions, shall be
qualified by the Updated Schedule for all purposes under this Agreement
(including this Section 5.1) as though it were fully incorporated herein.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to each respective
Closing shall have been performed or complied with in all material respects.
5.3 PROCEEDINGS. All proceedings to have been taken and all waivers
and consents to be obtained in connection with the transactions contemplated by
this Agreement, insofar as the Company is concerned, shall have been taken or
obtained, and all documents incidental thereto shall be satisfactory to the
Investor and its counsel, and the Investor and its counsel shall have received
copies (executed or certified, as may be appropriate) of all documents which the
Investor or its counsel may reasonably have requested in connection with such
transactions.
5.4 COMPLIANCE CERTIFICATE. At each respective Closing, the Company
shall have delivered to the Investor a certificate of the Company in the form of
Exhibit C hereto, executed by the President and Chief Executive Officer of the
Company, certifying to the fulfillment of the conditions specified in Sections
5.1 and 5.2 of this Agreement.
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5.5 LEGAL OPINION. At each respective Closing, all legal matters
incident to the purchase of the Shares shall be satisfactory to the Investor's
counsel and the Investor shall have received from the Company's counsel (which
shall be reasonably satisfactory to the Investor) such counsel's opinion,
addressed to the Investor and dated the date of each such Closing, in
substantially the form of Exhibit D hereto.
5.6 CERTIFICATION OF RESOLUTIONS AND OFFICERS. The Company shall
deliver to the Investor, on and as of each respective Closing, a certificate or
certificates of the Secretary of the Company certifying as to (a) the
resolutions of the Company's Board of Directors (and the vote of the
stockholders, if necessary) authorizing the execution and delivery of this
Agreement, the issuance to the Investor of the Shares, the execution and
delivery of such other documents and instruments as may be required by this
Agreement, and the consummation of the transactions contemplated hereby, and
certifying that such resolutions were duly adopted and have not been rescinded
or amended as of said date, (b) the name and the signature of the officers of
the Company authorized to sign, as appropriate, this Agreement and the other
documents and certificates to be delivered pursuant to this Agreement by either
the Company or any of its officers, and (c) a specimen certificate representing
the Common Stock.
5.7 CERTIFICATION OF NO UNDISCUSSED MATERIAL ADVERSE EFFECT. The
Company shall have delivered to the Investor a certificate, dated the date of
each respective Closing, of the Chief Financial Officer or the Chief Executive
Officer of the Company certifying that, except for circumstances or events which
would not be reasonably likely to have a Material Adverse Effect, the Updated
Schedule does not include any item of disclosure which has not been made
publicly available (whether as part of a report or registration statement filed
under the Securities Exchange Act or the Securities Act, as part of a press
release or otherwise).
6. CONDITIONS TO CLOSING OF THE COMPANY. The Company's obligation to sell
the Shares at each of the respective Closings is subject to the fulfillment as
of the date of each such respective Closing of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Investor in Section 4 hereof shall be true and correct in
all material respects as of the date of each respective Closing with the same
force and effect as though such representations and warranties had been made on
each such date.
6.2 COMPLIANCE CERTIFICATE. At each respective Closing, if requested
by the Company, the Investor shall have delivered to the Company a certificate
of the Investor executed by an officer of the Investor and certifying to the
fulfillment of the conditions specified in Section 6.1 of this Agreement.
7. MUTUAL CONDITIONS OF CLOSING. The obligations of each of the Investor
and the Company to consummate each respective Closing are subject to the
fulfillment as of the date of each respective Closing of the following
conditions:
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CONFIDENTIAL TREATMENT REQUESTED
7.1 QUALIFICATIONS. All consents, permits, approvals, qualifications
and registrations to be obtained or effected with any governmental authority,
including, without limitation, necessary blue sky law permits and qualifications
required by any state for the offer and sale to the Investor of the Shares,
shall have been obtained or effected, and any filings required under the HSR Act
shall have been made and the required waiting period shall have elapsed.
7.2 ABSENCE OF LITIGATION. There shall be no injunction, actions,
suits, proceedings or investigations pending or currently threatened against the
Company or the Investor which questions the validity of this Agreement or the
right of the Company or the Investor to enter into it, or to consummate the
transactions contemplated hereby.
7.3 LICENSE AGREEMENT. The Company and the Investor shall have
entered into the License Agreement.
8. ADDITIONAL COVENANTS AND AGREEMENTS.
8.1 BOARD OF DIRECTORS. If, pursuant to the terms of this Agreement,
the Investor shall have purchased Shares comprising at least [CONFIDENTIAL
TREATMENT REQUESTED] of the issued and outstanding shares of Common Stock, and
thereafter for so long as the Investor shall retain such Shares which shall
continue to represent at least a [CONFIDENTIAL TREATMENT REQUESTED] interest in
the outstanding shares of Common Stock, the Company shall, at the request of the
Investor, elect to the Company's Board of Directors and nominate and recommend
for election to the Board of Directors at successive annual meetings of the
stockholders of the Company a representative of Novartis who is approved by the
Company (such approval not to be unreasonably withheld). At any such time as the
Investor shall reduce the Investor's interest in Shares and thereafter no longer
hold Shares representing a [CONFIDENTIAL TREATMENT REQUESTED] interest in the
outstanding shares of Common Stock, then the representative of Novartis shall
tender his or her resignation as a member of the Company's Board of Directors
within sixty (60) days after receipt of the written request of the Company
unless, at the end of such 60-day period, the Investor's interest in shares of
Common Stock is at least equal to [CONFIDENTIAL TREATMENT REQUESTED] of the
outstanding shares of Common Stock.
8.2 INSPECTION OF BOOKS AND RECORDS. The Company shall permit the
Investor, from time to time and at the Investor's expense, to visit and inspect
the Company's properties, to examine its books of account and records and to
discuss the Company's affairs, finances and
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CONFIDENTIAL TREATMENT REQUESTED
accounts with its officers, all at such reasonable times as may be requested by
the Investor; provided, however, that (i) the Company shall not be obligated
pursuant to this Section 8.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information
and (ii) the obligations of the Company under this Section 8.2 shall terminate
at such time as the Investor no longer owns Shares.
8.3 HSR FILING. The parties shall each take any and all actions
reasonably necessary to effect any appropriate filings required under the HSR
Act as promptly as possible. Notwithstanding any other provision in this
Agreement, in the event that appropriate filings required under the HSR Act have
not been made or the termination of any related waiting period has not yet
occurred as of the scheduled date of any Closing, or any other process
associated with required compliance under the HSR Act has not as of then been
completed, then the Closing shall be delayed (without affecting the related
calculation for such Closing of the per Share purchase price as determined
pursuant to Sections 1.1 or 1.2 above, as applicable) until promptly following
such termination or completion.
8.4 NASDAQ LISTING. With respect to the Shares issued in any Closing,
the Company shall take all actions reasonably necessary for quotations for
trading in such Shares to be included in the Nasdaq National Market (or for such
Shares to be listed on the NYSE)[CONFIDENTIAL TREATMENT REQUESTED].
9. REGISTRATION RIGHTS; COMPLIANCE WITH THE ACT. The Company covenants and
agrees as follows:
9.1 DEFINITIONS. For purposes of this Section 9:
(a) The term "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document;
(b) The term "REGISTRABLE SECURITIES" means the Shares,
excluding in all cases, however, (i) any Registrable Securities after they have
been sold in a transaction in which registration rights are not assigned or (ii)
any Registrable Securities sold pursuant to a registration, pursuant to Rule 144
or to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction;
(c) The term "HOLDER" means the Investor and any person to
whom the Investor transfers at least [CONFIDENTIAL TREATMENT REQUESTED] Shares
and the Investor's related rights under this Section 9 pursuant to, and as
permitted by, the terms of this Agreement;
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CONFIDENTIAL TREATMENT REQUESTED
(d) The term "FORM S-3" means such form under the Securities
Act as in effect on the date hereof or any registration form under the
Securities Act subsequently adopted by the Securities and Exchange Commission
("SEC") which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC; and
(e) The term "EXISTING RIGHTS" means the rights with respect
to registration which have been granted by the Company to persons or entities
other than pursuant to this Section 9 and which are referenced on the Schedule
of Exceptions or any Updated Schedule (including, without limitation, the
priority rights of certain holders of the Company's securities to have their
securities registered or included in registration statements and certain
protective restrictions relating to the exercise of registration rights by
others).
9.2 FORM S-3 REGISTRATION. At any time after one year after the
issuance of Shares by the Company to the Investor pursuant to Section 1.1 or 1.2
above, if the registration of Registrable Securities under the Securities Act
can be effected on Form S-3 (or any successor short-form registration
promulgated by the SEC), then subject to the provisions of this Section 9.2 and
the Existing Rights the Company will, upon written demand of the Investor,
promptly file with the SEC a registration statement under the Securities Act on
Form S-3 of all or such portion of the Registrable Securities as the Investor
(or other Holder(s)) shall specify by written notice given to the Company;
provided, however, that the market value of the Registrable Securities to be
sold in any such registration shall be estimated to be at least [CONFIDENTIAL
TREATMENT REQUESTED] at the time of filing of such registration statement; and
provided, further, that the Company shall not be required to effect more than
[CONFIDENTIAL TREATMENT REQUESTED] such [CONFIDENTIAL TREATMENT REQUESTED] (or
[CONFIDENTIAL TREATMENT REQUESTED] such registrations, in the aggregate, if
Shares with a purchase price of more than [CONFIDENTIAL TREATMENT REQUESTED], in
the aggregate, are issued pursuant to Sections 1.1 and 1.2 above) pursuant to
this Section 9.2. The Company shall maintain the effectiveness of the Form S-3
registration until the earlier of (i) the sale of all of the Registrable
Securities included in such registration statement; (ii) seven (7) months
following the effectiveness of such registration statement; or (iii) such time
as all of the Registrable Securities included in such registration statement are
eligible for resale pursuant to Rule 144(k) of the Securities Act.
In case the Company shall receive from the Investor a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to shares of Registrable Securities the
reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed [CONFIDENTIAL TREATMENT
REQUESTED], then subject to the provisions of this Section 9.2 and the Existing
Rights, the Company will:
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CONFIDENTIAL TREATMENT REQUESTED
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all Holders;
(b) use its best efforts to effect such registration as soon
after its receipt of the Investor's written request therefor as is practicable;
and
(c) as soon as practicable, effect all such qualifications and
compliance as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of the Investor's Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such request as
are specified in a written request given within 15 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 9.2: (1) if Form S-3 is not available for such offering
by the Holders; (2) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters discounts or commissions) of less
than [CONFIDENTIAL TREATMENT REQUESTED]; or (3) if the Company shall furnish to
the Investor a certificate signed by the President and Chief Executive Officer
of the Company stating that, in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of the Investor under this Section 9.2; provided, however, that the
Company shall have this right to defer the filing of the Form S-3 registration
statement only once in connection with each written request of the Investor.
(d) All reasonable expenses incurred in connection with any
registration, qualifications and compliance requested pursuant to Section 9.2
(exclusive of underwriting discounts and commissions and any fees and expenses
of counsel to any Holder(s)) shall be paid by the Company.
9.3 COMPANY REGISTRATION. If at any time after one year from the
Effective Date (but without any obligation hereunder to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for stockholders other than the Holder(s)) any of its stock or other
securities under the Securities Act in connection with the public offering of
such securities (other than (i) a registration relating solely to the sale of
securities to or by current or former employees, officers, advisors, consultants
or directors of the Company or any subsidiary of the Company pursuant to a stock
purchase plan or stock option plan or stock awards approved by the Board of
Directors of the Company, (ii) a registration on Form S-4 or any similar
successor form, (iii) a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities or (iv) a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being
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<PAGE> 21
registered), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after the giving of such notice by the Company in
accordance with Section 10.10, the Company shall, subject to the provisions of
this Section 9.3, Section 9.4 below and the Existing Rights, cause to be
registered under the Securities Act the Registrable Securities that each such
Holder has requested to be registered. All expenses incurred in connection with
the inclusion of the Holder's securities in the Company's underwritten offering
pursuant to this Section 9.3 shall be borne by the Company (exclusive of
underwriting discounts and commissions and any fees and expenses of counsel to
any Holder(s)). The Company shall not be obligated to effect, or to take any
action to effect, any registration pursuant to this Section 9.3 if (i) a
registration statement on Form S-3 covering any Registrable Securities is in
effect, (ii) at the time such registration would otherwise be required, the
Registrable Securities requested to be registered may then be sold pursuant to
Rule 144(k) of the Securities Act or (iii) the managing underwriter advises
that, in its sole discretion, inclusion of the Registrable Securities would
adversely affect the marketing of the offering; provided, however, that if the
managing underwriter determines that the total amount of Registrable Securities
requested by the Holders to be included in such offering exceeds the amount of
securities of such Holders that the managing underwriter determines in its sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
Registrable Securities owned by such Holders which the managing underwriter
determines in its sole discretion will not jeopardize the success of the
offering (subject to the provisions of the Existing Rights, the securities so
included to be apportioned pro rata among the Holders and the holders of other
securities entitled to be included in such underwriting under the terms of any
registration rights agreement with the Company).
9.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 9 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities sought to be included therein and
use its best efforts to cause such registration statement to become effective as
promptly as practicable.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them and covered by such registration statement.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in
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<PAGE> 22
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement (and the obligations of the Company under
this Section 9 are expressly conditioned on the satisfaction of this condition).
(f) Promptly notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement or any offering memorandum or other offering document includes an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing.
9.5 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 9 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
9.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 9:
(a) The Company will indemnify and hold harmless each Holder
registering Registrable Securities for resale, any underwriter (as defined in
the Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Securities
Exchange Act, against any and all losses, claims, damages, or liabilities (joint
or several) to which they may become subject under any Securities Laws or any
other statute or common law of the United States of America or any political
subdivision thereof, including the amount paid in settlement of any litigation
commenced or threatened (including any amounts paid pursuant to or in settlement
of claims made under the indemnification or contribution provisions of any
underwriting or similar agreement entered into by the Investor in connection
with any offering or sale of securities covered by this Agreement), and shall
promptly reimburse them, as and when incurred, for any reasonable legal or other
expenses incurred by them in connection with investigating any claims and
defending any actions, insofar as any such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"VIOLATION"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or in any offering memorandum or other offering document
relating to the offering and sale of such securities, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of
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<PAGE> 23
any Securities Law or any rule or regulation promulgated under any Securities
Law; provided, however, that the Company shall not be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any Holder; and, provided, further, that the indemnity
agreement contained in this subsection 9.6(a) shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such settlement is
effected without consent of the Company, which consent shall not be unreasonably
withheld.
(b) Each selling Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Securities Exchange Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of the Company, any such underwriter or other Holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject under any Securities Laws or any other
statute or common law of the United States of America or any political
subdivision thereof, including the amount paid in settlement of any litigation
commenced or threatened (including any amounts paid pursuant to or in settlement
of claims made under the indemnification or contribution provisions of any
underwriting or similar agreement entered into by the Company in connection with
any offering or sale of securities covered by this Agreement), and shall
promptly reimburse them, as and when incurred, for any reasonable legal or other
expenses incurred by them in connection with investigating any claims and
defending any actions, insofar as any such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
provided, however, that the indemnity agreement contained in this subsection
9.6(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without consent of
the Holder, which consent shall not be unreasonably withheld; and provided,
further, that, in no event shall any indemnity under this subsection 9.6(b)
exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 9.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section
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<PAGE> 24
CONFIDENTIAL TREATMENT REQUESTED
9.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.6.
(d) The obligations of the Company and Holders under this
Section 9.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 9 and otherwise.
9.7 REPORTS UNDER SECURITIES EXCHANGE ACT. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to
use its commercially reasonable best efforts to:
(a) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act; and
(b) furnish to any Holder, to the extent true (as applicable)
and for so long as the Holder owns any Registrable Securities, forthwith upon
request (i) a written statement by the Company that it has complied with the
reporting requirements of SEC Rule 144, the Securities Act and the Securities
Exchange Act, or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC (exclusive of Rule 144A) which permits the selling of any such securities
without registration or pursuant to such form.
9.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 9.
9.9 "MARKET STAND-OFF" AGREEMENT. Each Holder agrees that it shall
not, to the extent requested by the Company and an underwriter of Common Stock
(or other securities) of the Company, sell or otherwise transfer or dispose
(other than to donees and authorized transferees who agree to be similarly
bound) of any Registrable Securities during a reasonable and customary period of
time (but not to exceed [CONFIDENTIAL TREATMENT REQUESTED]) following the
effective date of any registration statement of the Company filed under the
Securities Act; provided, however, that all officers and directors of the
Company enter into similar agreements.
9.10 TERMINATION OF REGISTRATION RIGHTS. The Company's obligations
pursuant to this Section 9 shall terminate as to any Holder of Registrable
Securities (as well as with respect to such Registrable Securities) when the
Holder can sell all of such Holder's Registrable Securities pursuant to Rule 144
during any 95-day period.
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CONFIDENTIAL TREATMENT REQUESTED
9.11 AMENDMENT OF REGISTRATION RIGHTS. The provisions of this
Section 9 may be amended or waived by the agreement of the Company, on the one
hand, and the Holders of a majority of the Registrable Securities, on the other
hand; provided, however, that no provision of this Section 9 may be amended or
waived with respect to the Investor without the express written consent of the
Investor.
9.12 PRIORITY REGISTRATION RIGHTS. Notwithstanding any provision to
the contrary in this Agreement, but subject to Section 9.6 hereof relating to
indemnification, if the Put Option Closing has occurred, the Investor continues
to hold Registrable Securities as to which the registration rights granted under
this Section 9 have not terminated or been waived and the Company grants
registration rights to any person or entity which are materially more favorable
than the registration rights set forth in this Section 9 (in the reasonable
estimation of the Company), then the Company shall offer to the Investor such
registration rights (to the extent possible) with respect to the Investor's
Registrable Securities; provided, however, that the provisions of this Section
9.12 shall not apply to (i) the grant of any registration rights in connection
with the acquisition of any company or business or (ii) rights which differ as
to the timing, frequency or quantity/volume of any exercise thereof. Following
the Put Option Closing, the Company shall provide the Investor with prompt
notice regarding the grant of any registration rights which are (in the
reasonable estimation of the Company) more favorable than the registration
rights set forth in this Section 9 (but only if the Investor would be eligible
to benefit from such rights as provided in this Section 9.12).
10. MISCELLANEOUS.
10.1 SURVIVAL OF WARRANTIES. [CONFIDENTIAL TREATMENT REQUESTED].
10.2 INDEMNIFICATION. [CONFIDENTIAL TREATMENT REQUESTED].
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<PAGE> 26
10.3 REMEDIES. In case any one or more of the covenants or agreements
set forth in this Agreement shall have been breached by any party hereto, the
party or parties entitled to the benefit of such covenants or agreements may
proceed to protect and enforce their rights either by suit in equity or action
at law, including, but not limited to, an action for damages as a result of any
such breach or an action for specific performance of any such covenant or
agreement contained in this Agreement. The rights, powers and remedies of the
parties under this Agreement are cumulative and not exclusive of any other
right, power or remedy which such parties may have under any other agreement or
law. No single or partial assertion or exercise of any right, power or remedy of
a party hereunder shall preclude any other or further assertion or exercise
thereof.
10.4 SUCCESSORS AND ASSIGNS. Subject to compliance with applicable
securities laws, this Agreement and the rights and duties of the parties set
forth herein may be assigned, in whole or in part, upon the written consent of
the other party, which consent may not be unreasonably withheld (so long as the
assignee agrees in writing to be bound by all of the terms of this Agreement);
provided, however, that (i) Novartis may assign this Agreement to an Affiliate
(in which event the written consent of the Company shall not be required) and
(ii) no such assignment shall relieve Novartis of the obligation to pay for the
Shares in the event that the Affiliate fails to perform as provided herein.
Notwithstanding the foregoing sentence, the Company may assign this Agreement,
and the rights and the duties of the Company set forth herein, to an entity or
person which purchases or otherwise acquires all or substantially all of its
assets or voting securities, so long as the successor agrees in writing to be
bound by all of the terms of this Agreement. In case of any consolidation or
merger of the Company with or into any other corporation, entity or person, or
any other corporate reorganization, in which the Company shall not be the
continuing or surviving entity of such consolidation, merger or reorganization,
or any sale of all or substantially all of the assets of the Company (any such
transaction being hereinafter referred to as a "REORGANIZATION"), then, in each
case, in lieu of any Shares issuable hereunder following the effectiveness of
such Reorganization, there shall be issued as and when called for by this
Agreement such stock and other securities and property to which a holder of
Shares would have been entitled as part of such Reorganization.
10.5 ENTIRE AGREEMENT. This Agreement and the other writings referred
to herein or delivered pursuant hereto which form a part hereof contain the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings, whether
written or oral, with respect thereto; provided, however, that this Agreement is
not intended to supersede the License Agreement of even date herewith between
the Company and the Investor.
10.6 GOVERNING LAW AND CONSENT TO JURISDICTION. This Agreement shall
be governed by and construed under the laws of the State of Delaware (without
regard to the conflict of law principles thereof).
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CONFIDENTIAL TREATMENT REQUESTED
10.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.9 NOUNS AND PRONOUNS. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
10.10 NOTICES. Unless otherwise provided, all notices, requests,
consents and other communications hereunder to any party shall be given in
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or duly sent by first class registered or certified mail,
or other courier service, postage prepaid, or telecopied with a confirmation
copy by regular mail, and addressed or telecopied to the party to be notified at
the address or telecopier number indicated for such party at the address or
telecopier number, as the case may be, set forth below or such other address or
telecopier number, as the case may be, as may hereafter be designated in writing
by the addressees to the addressor listing all parties:
To the Company: Trega Biosciences, Inc.
3550 General Atomics Ct.
San Diego, CA 92121
[CONFIDENTIAL TREATMENT REQUESTED]
With a copy (which
shall not constitute
notice) to: Pillsbury Madison & Sutro LLP
101 West Broadway, Suite 1800
San Diego, California 92101
[CONFIDENTIAL TREATMENT REQUESTED]
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<PAGE> 28
CONFIDENTIAL TREATMENT REQUESTED
To the Investor: Novartis Pharma AG
Lichtstrasse 35
CH-4002 Basel
Switzerland
[CONFIDENTIAL TREATMENT REQUESTED]
With a copy to: [CONFIDENTIAL TREATMENT REQUESTED]
General Counsel
Novartis Corporation
564 Morris Avenue
[CONFIDENTIAL TREATMENT REQUESTED]
All such notices, requests, consents and other communications
shall be deemed to have been received: (a) in the case of personal delivery, on
the date of such delivery; (b) in the case of mailing, on the seventh business
day following the date of such mailing; and (c) in the case of facsimile
transmission, when confirmed by facsimile machine report.
10.11 FINDER'S FEE. The Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finder's fee (and the reasonable costs and expenses of defending
against such liability or asserted liability) for which the Investor or any of
its officers, partners, employees, or representatives is responsible. The
Company agrees to indemnify and hold harmless the Investor from any liability
for any commission or compensation in the nature of a finder's fee (and the
reasonable costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
10.12 EXPENSES. Each party shall pay its own fees and expenses with
respect to this Agreement. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement or the Articles, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
10.13 AMENDMENTS AND WAIVERS. Except as otherwise provided in
Section 9, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Investor.
10.14 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, in any jurisdiction, such
provision shall be ineffective, as to such jurisdiction, and the balance of the
Agreement shall be interpreted as if such provision were so excluded, without
invalidating the remaining provisions of this Agreement; and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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<PAGE> 29
10.15 CONFIDENTIALITY AND PUBLICITY. Neither the Company nor the
Investor will disclose to any person (other than its attorneys, accountants,
employees, officers, and directors and, in the case of the Company, any entity
that proposes to acquire substantially all of the assets of the Company, a
controlling block of voting securities of the Company or some other strategic
transaction with similar effect) the existence or terms of this Agreement or any
of the transactions contemplated hereby without the prior written consent of the
other party, except as may, in the reasonable opinion of such party's counsel,
be required by law (in which event the disclosing party will first consult with
the other party with respect to such disclosure). If the Company is required to
provide a copy of this Agreement or any related document to any third party, the
Company shall ensure that such document is redacted, to the extent permitted by
law, to eliminate all confidential information. The Investor shall have the
right to review and approve each such document prior to its submission to a
third party. A period of ten business days will be provided for such review
unless not permitted by law, in which case the maximum period allowable shall be
provided. The Company and the Investor will consult and reach agreement with one
another as to the form and substance of any press release or any other public
disclosure of the existence or terms of this Agreement or the transactions
contemplated hereby prior to issuing any such press release or making any such
public disclosure.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the Effective Date.
NOVARTIS PHARMA AG
By: /s/ JOSEPH E. MAMIE
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Title: Head Financial Evaluation and
M&A Sector Pharma
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By: /s/ BRUCE SHAPIRO
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Title: Legal Counsel
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TREGA BIOSCIENCES, INC.
By: /s/ ROBERT S. WHITEHEAD
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Title: Chairman and Chief Executive Officer
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Exhibit A
Research, Development and License Agreement
[not filed]
<PAGE> 31
Exhibit B
Schedule of Exceptions
[not filed]
<PAGE> 32
Exhibit C
Compliance Certificate
[not filed]
<PAGE> 33
Exhibit D
Form of Closing Opinion
[not filed]
<PAGE> 1
EXHIBIT 10.2
execution copy
CONFIDENTIAL TREATMENT REQUESTED: PAGES WHERE CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED ARE MARKED "CONFIDENTIAL TREATMENT REQUESTED" AND APPROPRIATE
SECTIONS, WHERE TEXT HAS BEEN OMITTED, ARE NOTED WITH "[CONFIDENTIAL TREATMENT
REQUESTED]." AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
RESEARCH, DEVELOPMENT, AND LICENSE AGREEMENT
THIS RESEARCH, DEVELOPMENT, AND LICENSE AGREEMENT dated as of May 26,
1998 (the "Agreement"), is entered into between TREGA BIOSCIENCES, INC., a
Delaware corporation ("TREGA"), having a place of business at 9880 Campus Point
Drive, San Diego, California 92121, U.S.A., and NOVARTIS PHARMA A.G., a Swiss
corporation ("NOVARTIS"), having a place of business at Lichtstrasse 35, CH
4002, Basel, Switzerland.
W I T N E S S E T H:
WHEREAS, TREGA possesses certain combinatorial libraries, biological
assays, and synthesis and screening technologies which, when applied, may reduce
the time and expense of identifying and developing potentially useful compounds
for the diagnosis, prevention, treatment and monitoring of diseases, states and
conditions in humans.
WHEREAS, NOVARTIS desires to have TREGA conduct a research program to
attempt to identify compounds, and to gather data and information which may be
useful to develop compounds for the diagnosis and treatment of diabetes,
obesity, insulin resistance, and Syndrome X in humans.
WHEREAS, NOVARTIS desires to utilize such compounds, data and
information resulting from such research program to develop and commercialize
products for use in the treatment of diabetes, obesity, insulin resistance, and
Syndrome X in humans.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Affiliate" shall mean, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person. A
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Person shall be regarded as in control of another Person if it owns, or directly
or indirectly controls, at least forty percent (40%) of the voting stock or
other ownership interest of the other Person, or if it, directly or indirectly,
possesses the power to direct or cause the direction of the management and
policies of the other Person by any means whatsoever; provided, however, that in
the case of NOVARTIS, Chiron Corporation shall not be considered an Affiliate of
NOVARTIS for purposes of this Agreement until such time as it directly or
indirectly controls a majority of such corporation?s voting stock. At the time
of this Agreement, TREGA has only one subsidiary, Chromaxome Corporation, of
which it is the sole shareholder.
1.2 "Development Period" shall mean that period of time commencing
with NOVARTIS's positive EDP decision and its choice of an EDC for further
pre-clinical and clinical development by it pursuant to Section 6.1 herein and
ending upon the earlier of (i) termination of NOVARTIS's rights pursuant to
Sections 11.2 and 11.3 herein or (ii) marketing approval of a Licensed Product
in the last of the United States, Japan, the United Kingdom, France, Germany,
Italy or pursuant to an EMEA submission instead of the United Kingdom, France,
Germany, and Italy.
1.3 "EDP" shall mean the early development point decision where an
FSC is accepted at NOVARTIS's Innovation Management Board or equivalent decision
making body ("IMB") as an early development compound ("EDC") for continued
development for an IND submission and for early clinical phase testing.
1.4 "ESC" shall mean a [CONFIDENTIAL TREATMENT REQUESTED] (such as an
[CONFIDENTIAL TREATMENT REQUESTED]) from a Trega Combinatorial Library or a
NOVARTIS Library which, after testing, evaluation, and optimization, as the case
may be, pursuant to the Research Plan attached hereto as Exhibit A, is selected
by NOVARTIS for further profiling.
1.5 "ESP" shall mean an early selection point decision where several
candidate molecules are identified as early selection compound(s) ("ESC") by
NOVARTIS for further profiling.
1.6 "FDP" shall mean the full development point decision where,
typically following phase IIa clinical testing, an EDC is accepted at NOVARTIS?
IMB as a full development compound ("FDC") for continued clinical testing and
all related development studies for submission of an NDA.
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1.7 "Field" shall mean the diagnosis and treatment of diabetes,
obesity, insulin resistance, and Syndrome X in humans.
1.8 "First Commercial Sale" shall mean, with respect to any Licensed
Product, the date of the first sale in the ordinary course of business in any
country by NOVARTIS, its Affiliates, or sublicensee(s) of such Licensed Product.
A transfer of any Licensed Product for use in [CONFIDENTIAL TREATMENT REQUESTED]
will not be deemed to be a First Commercial Sale whether or not NOVARTIS is paid
for such Licensed Product.
1.9 "FSP" shall mean the final selection point where a final selected
compound ("FSC") is identified out of a series of ESCs and accepted as an FSC at
NOVARTIS's Research Management Board or equivalent decision making body, as the
candidate molecule with the most promising and innovative profile and with a
potential competitive advantage.
1.10 "IND" shall mean an Investigational New Drug application filed
with the U.S. Food and Drug Administration as a necessary predicate to the
commencement of human clinical testing or such similar application filed with
the governmental authority in any country charged with responsibility for
regulating the approval for marketing of drugs intended for human use.
1.11 "Licensed Product" shall mean a product which is or contains,
incorporates or uses a NOVARTIS Compound or a TREGA Compound.
1.12 [CONFIDENTIAL TREATMENT REQUESTED].
1.13 "NDA" shall mean a New Drug Application required to be submitted
to the U.S. Food and Drug Administration or any similar application required to
be submitted in any country to the governing health authority charged with
responsibility for regulating the approval to market a product for the treatment
of humans.
1.14 "Net Sales" shall mean, with respect to any Licensed Product, the
invoiced sales price of such Product billed to independent customers who are not
Affiliates, less to the extent included in the invoiced sales price, (a)
credits, allowances, discounts and rebates to, and chargebacks from the account
of, such independent customers for spoiled, damaged, out-dated and returned or
destroyed as a result, but not replaced, Licensed Product; (b) actual freight
and insurance costs incurred in transporting such Licensed Product in final form
to such
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customers; (c) cash, quantity and trade discounts, third party rebates and
chargebacks, and other price reduction programs; (d) sales, use, value-added and
other direct taxes incurred; (e) customs duties, surcharges and other
governmental charges incurred in connection with the exportation or importation
of such Licensed Product in final form; and (f) amounts incurred or resulting
from government mandated rebate programs.
1.15 "NOVARTIS Compound" shall mean (i) a compound within a NOVARTIS
Library and identified as a hit as defined in the Research Plan together with
[CONFIDENTIAL TREATMENT REQUESTED] and (ii) any such hit compound which would
not have been directly or indirectly discovered, conceived, designed,
synthesized, or developed but for use of a compound described in clause (i)
above; all to the extent and only to the extent that NOVARTIS now has or
hereafter will have at all pertinent times the right to grant licenses,
immunities or other rights to TREGA.
1.16 "NOVARTIS Know-How" shall mean all information and data, which is
possessed, owned by or licensed (other than by TREGA) to NOVARTIS, is not
generally known (including, but not limited to, formulae, procedures, protocols,
techniques and results of pre-clinical and clinical experimentation and
testing), and is necessary or useful to conduct screening or to develop, make,
use, sell, offer for sale, import or seek regulatory approval in any country to
market a Licensed Product for use in the Field, all to the extent and only to
the extend that NOVARTIS now has or hereafter will have at all pertinent times
the right to grant licenses, immunities or other rights hereunder.
1.17 "NOVARTIS Library" shall mean a collection of compounds owned by
or licensed to NOVARTIS (other than by TREGA) and screened pursuant to the
Research Plan under this Agreement.
1.18 "NOVARTIS Materials" shall mean any item provided by or at the
behest of NOVARTIS to TREGA hereunder.
1.19 "NOVARTIS Patent Rights" shall mean (a) all patent applications
heretofore or hereafter filed or having legal force (in any country) owned by or
licensed to NOVARTIS or to which NOVARTIS otherwise acquires rights, which claim
a NOVARTIS Compound, any methods, processes, compounds, materials, formulations
or uses, in whole or in part, related thereto, derived therefrom, or comprising
such NOVARTIS Compound,
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together with any and all patents that have issued or in the future issue
therefrom, including utility, model and design patents and certificates of
invention, and (b) all divisionals, continuations, continuations-in-part,
reissues, reexaminations, renewals, extensions or additions to any such patents
and patent applications; all to the extent and only to the extent that NOVARTIS
now has or hereafter will have at all pertinent times the right to grant
licenses, immunities or other rights thereunder.
1.20 "NOVARTIS Technology" shall mean, collectively, the NOVARTIS
Compounds, NOVARTIS Libraries, NOVARTIS Know-How, and the Research and
Development Results.
1.21 "Person" shall mean an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
1.22 "Research and Development Results" shall mean the information and
data resulting from Research Work which is not generally known (including, but
not limited to, formulae, procedures, protocols, techniques, and results of
experimentation and testing), and is necessary or useful to develop, make, use,
sell, offer for sale, import, or seek regulatory approval to market a Licensed
Product, whether before or after designation as Licensed Products. Research and
Development Results shall exclude all information and data (including, but not
limited to procedures, protocols, techniques and results of experimentation and
testing) related to the creation, assembly, generation, or manipulation of
Combinatorial Libraries and compounds (other that those TREGA Compounds or
NOVARTIS Compounds related directly to Licensed Products.
1.23 "Research Period" shall mean the period commencing on the date
first set forth above and expiring on the [CONFIDENTIAL TREATMENT REQUESTED]
anniversary thereof, subject to NOVARTIS's (i) earlier right of termination set
forth in Section 11.2 and (ii) option to extend the Research Period for
[CONFIDENTIAL TREATMENT REQUESTED] which option may be exercised, if at all, on
or before the [CONFIDENTIAL TREATMENT REQUESTED] anniversary of this Agreement
and which further shall be subject to the ability of the parties hereto to reach
agreement promptly on a research plan and funding for such extension period.
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CONFIDENTIAL TREATMENT REQUESTED
1.24 "Research Work" shall mean the screening, testing, evaluation,
optimization, and other activities to be conducted solely by or on behalf of the
parties during the Research Period and the Development Period, as set forth in
the Research Plan attached hereto as Exhibit A as hereafter modified.
1.25 "Royalty Term" shall mean, with respect to Licensed Product, the
period of time equal to the longer of (a) [CONFIDENTIAL TREATMENT REQUESTED]
years from the date of the First Commercial Sale of such Licensed Product within
the Field on a country-by-country basis or (b) upon the expiration of the last
to expire of TREGA Patent Rights or NOVARTIS Patent Rights on a
country-by-country basis with issued claims covering [CONFIDENTIAL TREATMENT
REQUESTED] a Licensed Product which would be infringed but for the licenses
granted pursuant to this Agreement.
1.26 "Territory" shall mean the World.
1.27 "Third Party" shall mean any Person other than TREGA, NOVARTIS
and their respective Affiliates.
1.28 "TREGA Assays" shall mean those certain assays and the protocols,
data, methods, information, know-how and materials relating thereto which are
used during the Research Period pursuant to the Research Plan and which are
owned by or licensed to TREGA as of the date of this Agreement and at all
pertinent times during the Research Period.
1.29 "TREGA Combinatorial Libraries" shall mean those certain
[CONFIDENTIAL TREATMENT REQUESTED] libraries owned by or licensed to TREGA as of
the date of this Agreement (and during the Research Period) screened pursuant to
the Research Plan including, but not limited to those listed or described in the
Research Plan, [CONFIDENTIAL TREATMENT REQUESTED] all to the extent and only to
the extent that TREGA now has or hereafter will have at all pertinent times the
right to grant licenses, immunities or other rights to NOVARTIS thereunder;
provided, however, that Combinatorial Libraries shall not include, without the
owner?s or licensee?s consent, (a) libraries initially developed by Third
Parties without a license from a party hereto or its Affiliates or licensees,
[CONFIDENTIAL TREATMENT REQUESTED] and which are acquired by either of the
parties as part of the acquisition of such Third Party's on
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CONFIDENTIAL TREATMENT REQUESTED
going business; (b) any Combinatorial Libraries or subsets thereof that have
been or are hereafter developed by TREGA in the first instance as [CONFIDENTIAL
TREATMENT REQUESTED] provided, further, that (i) TREGA shall be [CONFIDENTIAL
TREATMENT REQUESTED] during the initial 24 months of this Agreement (ii) those
Combinatorial Libraries which heretofore have been so developed are listed on
Exhibit B attached hereto, and (iii) notice shall be given promptly to NOVARTIS
of the development of such Combinatorial Libraries in the future, or (c) as a
project under a written agreement with a Third Party which provides that such
Third Party shall have the exclusive rights to such library or subset.
1.30 "TREGA Compound" shall mean (i) a compound within a TREGA
Combinatorial Library and identified as a hit as defined in the Research Plan
together with [CONFIDENTIAL TREATMENT REQUESTED] and (ii) any such hit compound
which would not have been directly or indirectly discovered, conceived,
designed, synthesized, or developed but for use of a compound described in
clause (i) above; all to the extent and only to the extent that TREGA now has or
hereafter will have at all pertinent times the right to grant licenses,
immunities or other rights to NOVARTIS.
1.31 "TREGA Materials" shall mean any item provided by or at the
behest of TREGA to NOVARTIS hereunder.
1.32 "TREGA Patent Rights" shall mean (a) all patent applications
heretofore or hereafter filed or having legal force (in any country) owned by or
licensed to TREGA or to which TREGA otherwise acquires rights (other than by
NOVARTIS through this Agreement), which claim a TREGA Combinatorial Library or
TREGA Compound, together with any and all patents that have issued or in the
future issue therefrom, including utility, model and design patents and
certificates of invention, and (b) all divisionals, continuations,
continuations-in-part, reissues, reexaminations, renewals, extensions or
additions to any such patents and patent applications; all to the extent and
only to the extent that TREGA now has or hereafter will have at all pertinent
times the right to grant licenses, immunities or other rights thereunder.
Notwithstanding the foregoing, TREGA Patent Rights shall exclude all technology,
information, patent rights, methods, processes and all intellectual property
rights related to the generation, assembly, synthesis, creation or manipulation
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CONFIDENTIAL TREATMENT REQUESTED
of combinatorial libraries and compounds (other than TREGA Compounds).
1.33 "TREGA Technology" shall mean, collectively, the TREGA Compounds
and the TREGA Assays, but shall exclude those certain biological materials and
associated license received under [CONFIDENTIAL TREATMENT REQUESTED].
1.34 "Valid Patent Claim" shall mean a claim of an issued and
unexpired patent included within the TREGA Patent Rights or NOVARTIS Patent
Rights, which has not been held permanently revoked, unenforceable or invalid by
a decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, and which has not
been admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties. Each party hereby represents and
warrants to the other party as follows:
2.1.1 Such party (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction where it is organized; (b) has the
requisite power and authority and the legal right to own and operate its
property and assets, to lease the property and assets it operates under lease,
and to carry on its business as it is now being conducted, and (c) is in
compliance with all requirements of applicable law, except to the extent that
any noncompliance would not have a material adverse effect on the properties,
business, financial or other condition of such party and would not materially
adversely affect such party's ability to perform its obligations under this
Agreement.
2.1.2 Such party (a) has the requisite power and authority and the
legal right to enter into this Agreement and to perform its obligations
hereunder, and (b) has taken all necessary action on its part to authorize the
execution and delivery of this Agreement and the performance of its
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CONFIDENTIAL TREATMENT REQUESTED
obligations hereunder. This Agreement has been duly executed and delivered on
behalf of such party, and constitutes a legal, valid, binding obligation,
enforceable against such party in accordance with its terms.
2.1.3 All necessary consents, approvals and authorizations of all
governmental authorities and other persons required to be obtained by such party
in connection with this Agreement have been obtained.
2.1.4 The execution and delivery of this Agreement and the performance
of such party's obligations hereunder (a) do not conflict with or violate any
requirement of applicable laws or regulations, and (b) do not conflict with, or
constitute a default under, any contractual obligation of such party.
2.2 Intellectual Property. The parties represent and warrant to each
other with regard to their respective Technology in existence on the date hereof
that [CONFIDENTIAL TREATMENT REQUESTED].
2.3 Government Grants. TREGA hereby represents and warrants that it
has not and will not enter into a [CONFIDENTIAL TREATMENT REQUESTED].
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2.4 Disclaimer of Warranties.
2.4.1 NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION
MADE OR WARRANTY GIVEN BY TREGA OR NOVARTIS THAT ANY PATENT WILL ISSUE BASED
UPON ANY PENDING PATENT APPLICATION WITHIN THEIR RESPECTIVE PATENT RIGHTS, THAT
ANY PATENT WITHIN THEIR RESPECTIVE PATENT RIGHTS WHICH ISSUES WILL BE VALID, OR
THAT THE USE OF ANY OF THEIR RESPECTIVE MATERIALS, RESEARCH RESULTS, OR ANY OF
THEIR RESPECTIVE TECHNOLOGY WILL NOT INFRINGE THE PATENT OR PROPRIETARY RIGHTS
OF ANY THIRD PARTY.
2.4.2 THE TREGA AND NOVARTIS MATERIALS AND RESEARCH RESULTS ARE
PROVIDED "AS IS" AND WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES OR WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE
PRACTICES. IN NO EVENT WILL THE PARTIES OR ANY THIRD PARTY LICENSORS WHOSE
TECHNOLOGY IS UTILIZED IN PROVIDING THE TECHNOLOGIES HEREUNDER BE LIABLE FOR ANY
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THE
LICENSE RIGHTS BY NOVARTIS HEREUNDER OR USE OF THE TECHNOLOGIES.
ARTICLE 3
RESEARCH PROGRAM
3.1 Research Work.
3.1.1 During the Research Period, TREGA and NOVARTIS shall use
commercially reasonable efforts to perform the Research Work in the Field
according to the priorities established by the Research Plan and the Project
Management Committee. Scientists at TREGA and NOVARTIS shall cooperate in order
to facilitate achievement of the goals of the Research Work.
3.1.2 TREGA and NOVARTIS will provide for use in the Research Work the
number of full time equivalent employees set forth in the Research Plan until
such time, if ever, that the Project Management Committee modifies the Research
Plan in a way that necessitates a change to the number of full time equivalent
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employees required to be devoted to the Research Work. Should the Research Work
terminate prior to completion of its [CONFIDENTIAL TREATMENT REQUESTED] term for
any reason, neither party will be deemed to be in default of this Agreement if
it shall have provided fewer full time equivalent employees than the number
required by the Research Plan through the date of termination unless such
failure results in termination. TREGA and NOVARTIS also shall use in the
Research Work such other scientific resources (facilities, equipment, and
materials) as are reasonably required to carry out their obligations under the
Research Plan, consistent with the Research Plan budget set by the Project
Management Committee and as set forth in the annual research plan.
3.1.3 For each 12 month period of the Research Work commencing with the
first anniversary of this Agreement, an annual research plan shall be prepared
and approved by the Project Management Committee no later than thirty (30) days
before the end of the prior 12 month period. The Project Management Committee
shall meet no later than thirty (30) days after the date of this Agreement for
the purpose of establishing the annual research plan for the initial 12 month
period. Each annual research plan shall be in writing and shall set forth with
reasonable specificity the research objectives, research milestones, budgets,
and personnel requirements for the period covered by such annual research plan
to the extent not addressed by this Agreement and the Exhibits attached hereto.
The Project Management Committee may make adjustments to the annual research
plan at its quarterly meetings or as it may otherwise determine.
3.1.4 TREGA agrees that during the Research Period that neither it nor
its Affiliates will enter into an agreement to (except pursuant to this
Agreement), or conduct, have conducted or fund any research, drug discovery or
drug development activity with respect to the subject matter of the Research
Plan.
3.2 Designation of FSCs. At any time prior to the second anniversary
of the end of the Research Period (or any extension thereof), NOVARTIS shall
have the right to select from ESCs [CONFIDENTIAL TREATMENT REQUESTED] and up to
[CONFIDENTIAL TREATMENT REQUESTED] as FSCs from among the TREGA Compounds
presented by TREGA by giving written notice to TREGA of such selection.
3.3 Research Reports. Not later than 30 days following each
anniversary of this Agreement during the Research Period,
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the parties shall prepare and provide each other with a written research report,
in reasonably specific detail describing the work performed and the results
obtained during the prior 12 months.
3.4 Shipment of Materials.
3.4.1 Each shipment of TREGA Materials or NOVARTIS Materials under this
Agreement, including, but not limited to ESCs, FSCs, and related items shall be
governed by the terms of this Agreement. None of the terms or conditions of any
order, invoices or similar instruments shall be applicable, except those
specifying quantity, delivery dates, designated carrier, special supply
instructions and invoice information, if any.
3.4.2 Risk of loss and damage to the TREGA Materials shall pass to
NOVARTIS (and the risk of loss and damage to the NOVARTIS Materials shall pass
to TREGA) upon release to the recipient's designated carrier or, in the absence
of such designation, to a carrier designated by the shipper.
3.5 Restrictions on Use. Except as expressly set forth in this
Agreement, the parties shall be the sole owners of their respective Technologies
and their respective Patent Rights. Nothing herein shall be deemed to grant to
the other party rights in their Technology and respective Patent Rights, except
as expressly set forth in this Agreement.
Each party shall not, directly or indirectly:
(i) use the other party's Technology and respective Patent
Rights for any purpose other than set forth in this Agreement;
(ii) modify the other party's Technology and respective Patent
Rights other than as set forth in this Agreement;
(iii) claim ownership to the other party's Technology and
respective Patent Rights;
(iv) transfer the other party's Materials to any other Person
other than to employees or consultants who are working on activities
directly related to this Agreement;
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(v) within 30 days after the expiration or earlier termination
of the Research Period, the parties shall return all unused Materials,
subject to a party's need to retain samples in connection with any
registration and development activities.
3.5.1 THE PARTIES UNDERSTAND THAT THEIR RESPECTIVE MATERIALS ARE
EXPERIMENTAL IN NATURE, ARE FOR RESEARCH USE ONLY AND HAVE NOT BEEN APPROVED FOR
USE IN THE DIAGNOSIS OR TREATMENT OF HUMANS OR ANIMALS. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY SHALL ADMINISTER THE OTHER
PARTY'S MATERIALS TO HUMANS IN ANY MANNER OR FORM.
3.6 Project Management Committee.
3.6.1 TREGA and NOVARTIS shall establish a Project Management
Committee. The Project Management Committee shall plan, administer, and monitor
the Research Work. In particular, the Project Management Committee shall prepare
each annual research plan, review progress in the Research Work and recommend
necessary adjustments to the Research Work as the research takes place.
3.6.2 TREGA and NOVARTIS each shall appoint, in its sole discretion,
three members to the Project Management Committee. Substitutes or alternates may
be appointed at any time by notice in writing to the other party. The initial
members shall be:
On behalf of TREGA:
[CONFIDENTIAL TREATMENT REQUESTED]
On behalf of NOVARTIS:
[CONFIDENTIAL TREATMENT REQUESTED]
3.6.3 The Project Management Committee shall be chaired by two
co-chairpersons, one appointed by TREGA and the other appointed by NOVARTIS from
among the Project Management Committee members.
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3.6.4 The Project Management Committee shall meet at least quarterly,
whether in person, telephonically, or through video conference, with such in
person quarterly meetings to be held, alternately, in San Diego, California, and
Basel, Switzerland, unless the parties agree otherwise. Any additional meetings
shall be held at places and on dates selected by the co-chair persons of the
Project Management Committee. Employees and consultants of each party and its
Affiliates, in addition to the members of the Project Management Committee, may
attend meetings of the Project Management Committee at the invitation of either
party.
3.6.5 The Project Management Committee shall keep accurate minutes of
its deliberations which record all proposed decisions and all actions
recommended or taken. Drafts of the minutes shall be delivered to all Project
Management Committee members within thirty (30) days after the meeting. The
party hosting the meeting shall be responsible for the preparation and
circulation of the draft minutes. Draft minutes shall be edited by the
co-chairpersons and shall be issued in final form only with their approval and
agreement as evidenced by their signatures on the minutes. TREGA and NOVARTIS
shall keep the Project Management Committee fully informed about the status of
the Research Plan. In particular, without limitation, each of TREGA and NOVARTIS
shall furnish a quarterly written report to the Project Management Committee,
describing the progress of the Research Plan in reasonable detail, at least ten
(10) days prior to each quarterly meeting of the Project Management Committee.
3.6.6 At each Project Management Committee meeting, at least two
representatives of each party shall constitute a quorum. Each Project Management
Committee member shall have one vote on all matters coming before the Project
Management Committee, provided that the member or members of each party present
at a Project Management Committee meeting shall have the authority to cast the
votes of any of such party?s members of the Project Management Committee who are
absent from the meeting. All decisions of the Project Management Committee shall
be made by a majority vote of all of the members. In the event that the Project
Management Committee is unable to resolve any matter before it, such matter
shall be referred at the request of either party to the Chief Executive Officer
of TREGA and the Head, NOVARTIS Pharma Research for attempted resolution by good
faith negotiations.
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CONFIDENTIAL TREATMENT REQUESTED
3.6.7 TREGA and NOVARTIS shall each bear all expenses of their
respective Project Management Committee members relating to their participation
on the Project Management Committee and attendance at Project Management
Committee meetings.
3.6.8 At the end of the initial 12 month period under the annual
research plan, the Project Management Committee shall be entitled to redirect
subsequent annual research plans away from [CONFIDENTIAL TREATMENT REQUESTED]
for the discovery and development of potential products in the Field to
[CONFIDENTIAL TREATMENT REQUESTED]. In such event the Project Management
Committee shall formulate and present a new annual research plan for
consideration and approval by the parties. There shall be no reduction in
funding as a result of the changed direction of research, but to the extent that
work to be conducted under any new annual research plan exceeds that
contemplated by the Research Plan attached to this Agreement the parties shall
negotiate new funding terms. Furthermore, as a result of a decision to
[CONFIDENTIAL TREATMENT REQUESTED], all rights granted to NOVARTIS hereunder
directly or indirectly related to [CONFIDENTIAL TREATMENT REQUESTED] shall
terminate, the rights granted in Sections 5.1 and 5.2 [CONFIDENTIAL TREATMENT
REQUESTED] shall cease to apply, and NOVARTIS shall turn over to TREGA all
documents, instruments, records, and Technology related thereto, provided,
however, that as long as the parties are conducting the Research Plan, or
NOVARTIS is developing a compound or commercializing a Licensed Product
hereunder, or this Agreement has not been terminated TREGA shall not be entitled
to develop or commercialize [CONFIDENTIAL TREATMENT REQUESTED] for use in the
Field. At the request of TREGA, NOVARTIS shall execute and deliver such bills of
sale, assignments, other transfer instruments and documents as may be reasonably
necessary to fully vest in TREGA all right, title, and interest in and to the
aforesaid.
ARTICLE 4
FUNDING
4.1 Funding. As long as TREGA is not in material breach hereunder,
NOVARTIS shall pay to TREGA the following nonrefundable, non-creditable amounts
which shall be due at the times indicated below.
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CONFIDENTIAL TREATMENT REQUESTED
US [CONFIDENTIAL
(a) upon execution of this Agreement for past TREATMENT
research activities REQUESTED]
(b) at any one time during the 18 month period
commencing on the date of this Agreement, Trega shall US [CONFIDENTIAL
have the right to issue shares of its common stock to TREATMENT
NOVARTIS with a value of up to REQUESTED]
(c) semi-annually for Research Work to be done during
the initial 12 months by TREGA under this Agreement, US [CONFIDENTIAL
following execution of this Agreement ([CONFIDENTIAL TREATMENT
TREATMENT REQUESTED]) REQUESTED]
(d) semi-annually for Research Work to be done during
the second 12 months by TREGA under this Agreement, US [CONFIDENTIAL
following the first anniversary of this Agreement TREATMENT
([CONFIDENTIAL TREATMENT REQUESTED]) REQUESTED]
(e) semi-annually for Research Work to be done during
the third 12 months by TREGA under this Agreement, US [CONFIDENTIAL
following the second anniversary of this Agreement TREATMENT
([CONFIDENTIAL TREATMENT REQUESTED]) REQUESTED]
(1)US
[CONFIDENTIAL
TREATMENT
REQUESTED]
(f) a one time payment upon an affirmative early (2)US
development proposal ("EDP") decision by NOVARTIS with [CONFIDENTIAL
respect to a Licensed Product for use in the Field, TREATMENT
comprised of two components REQUESTED]
(g) a payment in respect of each Licensed Product for
use in the Field, on a product by product basis, upon US [CONFIDENTIAL
the commencement of enrollment for Phase I human TREATMENT
clinical testing REQUESTED]
(h) a payment in respect of each Licensed Product for US [CONFIDENTIAL
use in the Field, on a product by product basis, upon an TREATMENT
affirmative full development point (FDP) decision REQUESTED]
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CONFIDENTIAL TREATMENT REQUESTED
(i) a payment in respect of each Licensed Product for
use in the Field, on a product by product basis, upon US [CONFIDENTIAL
the commencement of enrollment for Phase III human TREATMENT
clinical testing REQUESTED]
(j) a payment in respect of each Licensed Product for
use in the Field, on a product by product basis, upon
the submission of an NDA (or its equivalent) in the US [CONFIDENTIAL
first of the U.S., Japan, the United Kingdom, France, TREATMENT
Germany, Italy, or an EMEA submission REQUESTED]
(k) a payment in respect of each Licensed Product for
use in the Field, on a product by product basis, upon US [CONFIDENTIAL
first marketing approval in the U.S., Japan, the United TREATMENT
Kingdom, France, Germany, Italy, or an EMEA approval REQUESTED]
TREGA shall submit invoices to NOVARTIS for amounts due pursuant to subsections
(c), (d), (e), (f)(2), (g), (h), (i), (j) and (k) above which shall be payable
by NOVARTIS within 30 days of receipt. Semi-annual amounts due under subsections
(c), (d), and (e) above shall be invoiced in advance. The one time payments set
forth in subsections (b) and (f)(1) above shall be made in exchange for the
issuance by Trega of its common stock to NOVARTIS with a value as nearly equal
as possible to the amount of the payments so set forth above. Terms pertaining
to such issuances are set forth in a Stock Purchase Agreement of even date
herewith entered into between the parties hereto. NOVARTIS shall promptly notify
TREGA of the occurrence of each of the events set forth in subsections (f)(2),
(g), (h), (i), (j) and (k) to enable TREGA to submit timely invoices for the
amounts due thereunder. If the Licensed Product in question contains,
incorporates or uses a NOVARTIS Compound, the payments due in subsections (g),
(h,), (i), (j) and (k) above shall be [CONFIDENTIAL TREATMENT REQUESTED] the
amounts set forth.
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CONFIDENTIAL TREATMENT REQUESTED
4.2 Royalties Payable by NOVARTIS. During the Royalty Term, NOVARTIS
shall pay to TREGA royalties (i) equal to [CONFIDENTIAL TREATMENT REQUESTED] of
Net Sales of each Licensed Product which is, contains, incorporates, or uses a
TREGA Compound by NOVARTIS, its Affiliates and (sub)licensees in countries in
which the manufacture, use or sale of a Licensed Product which is, contains,
incorporates, or uses a TREGA Compound would in the absence of this Agreement
constitute an act of infringement of a Valid Patent Claim in TREGA Patent Rights
or NOVARTIS Patent Rights; or where a claim of a pending patent application
included with the NOVARTIS Patent Rights or TREGA Patent Rights, which claim was
filed in good faith,[CONFIDENTIAL TREATMENT REQUESTED] (ii) equal to
[CONFIDENTIAL TREATMENT REQUESTED] of Net Sales of each Licensed Product which
is, contains, incorporates, or uses a TREGA Compound by NOVARTIS, its Affiliates
and (sub)licensees where no Patent Rights exist; (iii) [CONFIDENTIAL TREATMENT
REQUESTED] of Net Sales of each Licensed Product for use in the Field which is,
contains, incorporates, or uses a NOVARTIS Compound by NOVARTIS, its Affiliates
and (sub)licensees [CONFIDENTIAL TREATMENT REQUESTED]. NOVARTIS, its Affiliates
and (sub)licensees shall not accept any consideration for the sale of Licensed
Products or NOVARTIS Compounds which is not expressly stated in the invoice for
such Licensed Products or NOVARTIS Compound billed to independent customers who
are not Affiliates.
ARTICLE 5
GRANT OF LICENSES
5.1 NOVARTIS Research and Development License. Subject to the terms
and conditions of this Agreement, TREGA grants and agrees to grant to NOVARTIS
an exclusive license in the Field, in the Territory under the TREGA Technology
to test, evaluate, and develop the TREGA Technology during the Research Period
for the purpose of evaluating its interest in designating ESCs, FSCs, and an EDC
hereunder, and performing its development obligations hereunder. [CONFIDENTIAL
TREATMENT REQUESTED]
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CONFIDENTIAL TREATMENT REQUESTED
5.2 NOVARTIS Commercialization License. Subject to the terms and
conditions of this Agreement, TREGA grants and agrees to grant to NOVARTIS an
exclusive, royalty-bearing license within the Territory under TREGA TECHNOLOGY
and TREGA Patent Rights to make, have made, use, offer for sale, sell, and
import Licensed Products [CONFIDENTIAL TREATMENT REQUESTED], within the Field.
[CONFIDENTIAL TREATMENT REQUESTED]. The foregoing license shall terminate on a
Licensed Product by Licensed Product basis in the event NOVARTIS ceases the
development and commercialization of a Licensed Product.
5.3 TREGA Research and Development License. Subject to the terms and
conditions of this Agreement, NOVARTIS hereby grants to TREGA a nonexclusive
license under the NOVARTIS Technology to test, evaluate, use, and develop
compounds within the TREGA Combinatorial Libraries and the NOVARTIS Compounds
during the Research Period solely for the purpose of (a) performing the Research
Work and (b) performing its obligations hereunder. TREGA may not grant
sublicenses under such license to any Third Party without the prior written
consent of NOVARTIS. In addition, NOVARTIS grants and agrees to grant to TREGA a
nonexclusive non-royalty bearing license (with the right to sublicense) to Joint
Inventions conceived during the Research Period directed to inventions other
than composition of matter inventions for use outside the Field.
5.4 Right of Negotiation. TREGA grants and agrees to grant to
NOVARTIS during the Research Period a first right to negotiate, during the
[CONFIDENTIAL TREATMENT REQUESTED] days following receipt of notice of
opportunity from TREGA to NOVARTIS, a (sub)license to TREGA's interest, as it
may exist, [CONFIDENTIAL TREATMENT REQUESTED] for use in the Field, upon such
terms and subject to such conditions as the parties may agree. The foregoing
notice shall include the disclosure from TREGA to NOVARTIS on a confidential
basis of all data possessed by TREGA (including samples if available and if
requested by NOVARTIS) pertaining to the opportunity and the use of
[CONFIDENTIAL TREATMENT REQUESTED] in the Field.
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CONFIDENTIAL TREATMENT REQUESTED
5.5 TREGA Reservation of Rights. For so long as a TREGA Compound or a
NOVARTIS Compound is (i) an ESC, (ii) an FSC, (iii) an EDC, (iv) an FDC, or (v)
is, is contained in, incorporated in or used in a Licensed Product, TREGA shall
not make, have made, use, offer for sale, sell, import, develop, or commercially
exploit inside or outside the Field (except pursuant to this Agreement), nor
grant any third party the right to make, have made, use, offer for sale, sell,
import, develop, or commercially exploit inside or outside the Field, any such
compound, [CONFIDENTIAL TREATMENT REQUESTED] or develop, use or commercially
exploit inside or outside the Field any Research and Development Results related
thereto, for any purpose except pursuant to this Agreement. NOVARTIS shall keep
TREGA apprised on a timely basis of the status of compounds as ESCs, FSCs, EDCs,
and FDCs. Subject to the foregoing, TREGA expressly reserves the right for
itself, and the right to grant to Affiliates and Third Parties the right to use
the TREGA Technology, the Research and Development Results related to TREGA
Technology and other TREGA property for research, screening, testing,
evaluation, and commercialization purposes outside the Field as long as NOVARTIS
does not materially breach its obligations under this Agreement including those
provisions that survive the termination or expiration of this Agreement. In the
event of an uncured material breach of this Agreement by NOVARTIS, including an
uncured material breach of any of the provisions that survive termination or
expiration of this Agreement, TREGA shall be entitled to exploit on its own
behalf and to grant to Affiliates and Third Parties the right to use the TREGA
Technology for research, screening, testing, evaluation, and commercialization
purposes inside the Field.
5.6 NOVARTIS Reservation of Rights. Notwithstanding anything to the
contrary in this Agreement, NOVARTIS expressly reserves the right for itself,
and the right to grant to Affiliates and Third Parties the right, to use the
NOVARTIS Technology for any purpose.
ARTICLE 6
DEVELOPMENT OF PRODUCTS
6.1 NOVARTIS Development and Commercialization Efforts. Within six
(6) months of receiving a reasonable quantity of one FSC and one backup FSC,
NOVARTIS shall either notify TREGA that it will not pursue further research and
development activities in
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respect of such FSCs or that it will commence good laboratory practices ("GLP")
studies in preparation for an EDP and an IND for human clinical testing and
thereafter use its commercially reasonable efforts (a) to conduct such further
research and development activities as may be necessary or desirable to develop
one or more Licensed Product(s) for use in the Field, (b) to conduct such
preclinical and human clinical testing as necessary or desirable to obtain all
regulatory approvals to manufacture, use and sell such Licensed Product(s) for
use in the Field as NOVARTIS reasonably determines are commercially feasible,
and (c) to file and prosecute such applications in a commercially reasonable
manner with the applicable regulatory authorities to seek all necessary
approvals to manufacture, use and sell such Licensed Products for use in the
Field in such countries as NOVARTIS reasonably determines are commercially
feasible, and (d) to commence marketing as soon as commercially practicable, and
to use commercially reasonable efforts to market thereafter, a Licensed Product
for use in the Field in each country in which it has obtained all necessary
regulatory approvals therefor. NOVARTIS shall be responsible for funding the
costs of all preclinical studies and clinical trials, regulatory approval and
commercial activities for Licensed Products.
6.2 Records. NOVARTIS and TREGA shall maintain records, in sufficient
detail and in good scientific manner appropriate for product registration and
patent purposes, which shall reflect all work done and results achieved in the
performance of their respective research and development activities regarding
TREGA Compounds, NOVARTIS Compounds and Licensed Products (including all data in
the form required under all applicable laws and regulations).
6.3 Reports. In addition to any other research reports due under this
Agreement, during the Development Period and thereafter during the term of this
Agreement, NOVARTIS shall prepare and deliver to TREGA, by no later than each
January 31 (for the period ending December 31 of the prior calendar year) and
July 31 (for the period ending June 30 of the then current calendar year),
written reports which shall update the prior report filed hereunder, including
without limitation, (a) a summary of NOVARTIS development activities performed
to date, and the current schedule of anticipated events or milestones employing
NOVARTIS results or relating to NOVARTIS Compounds and Licensed Products, (b)
the progress of the testing of Licensed Products in human clinical trials, (c)
the status of obtaining
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<PAGE> 22
the necessary approvals to manufacture and market Licensed Products, (d) a
summary of pre-launch marketing plans for Licensed Products, and (e) a summary
of all activities relating to (sub)licensees relating to Licensed Products. In
addition, NOVARTIS shall provide TREGA with written notice of (i) all regulatory
filings and submissions regarding NOVARTIS Compounds and Licensed Products in a
timely manner; and (ii) all approvals obtained within thirty (30) days of
receipt of written notice of approvals.
6.4 NOVARTIS shall own all IND and NDA submissions and equivalent
regulatory submissions in foreign countries for all Licensed Products in the
Territory and the data contained therein, and shall also own all trademarks
relating to Licensed Products. TREGA acknowledges and agrees that, except to the
extent such data is the subject of a license grant pursuant to Section 5.3
above, it shall not have any ownership, license, or access rights in or to such
submissions or other regulatory filings of NOVARTIS for Licensed Products other
than as expressly set forth herein.
6.5 Suspension of Development and Marketing. If NOVARTIS notifies
TREGA pursuant to Section 6.1 that it will not pursue development of an FSC or
EDC containing a TREGA Compound or NOVARTIS abandons or suspends for more than
twelve (12) months the active development or marketing of any such Licensed
Product (other than for material safety, regulatory, medical or legal reasons or
an uncured material breach of TREGA), then the licenses granted to NOVARTIS
under Article 5 above to such item shall terminate, and other information
related to such FSC, EDC or Licensed Product which is, contains, incorporates,
or uses a TREGA Compound, shall revert automatically without further action to
TREGA, and NOVARTIS shall have no further rights hereunder to any such item or
any related information. NOVARTIS shall promptly convey such information to
TREGA.
ARTICLE 7
ROYALTY REPORTS AND ACCOUNTING
7.1 Reports, Exchange Rates. During the term of this Agreement
following the First Commercial Sale of a Licensed Product by NOVARTIS, its
Affiliates or (sub)licensees, NOVARTIS shall furnish to TREGA a quarterly
written report showing in reasonable detail, on a country by country basis, (a)
the gross
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sales of all Licensed Products sold by NOVARTIS, its Affiliates and its
(sub)licensees during the reporting period and the calculation of Net Sales from
such gross sales; (b) the royalties payable in United States dollars which shall
have accrued hereunder based upon Net Sales of Licensed Products; (c) the
withholding taxes, if any, required by law to be deducted in respect of such
sales; (d) the date of the First Commercial Sales of each Licensed Product in
each country during the reporting period; and (e) the exchange rates used in
determining the amount of United States dollars. With respect to sales of
Licensed Products invoiced in United States dollars, the gross sales, Net Sales,
and royalties payable shall be expressed in United States dollars. With respect
to sales of Licensed Products invoiced in a currency other than United States
dollars, the gross sales, Net Sales and royalties payable shall be expressed in
the domestic currency together with the United States dollar equivalent of the
royalty payable, calculated using the average closing buying rate for such
currency quoted in the continental terms method of quoting exchange rates (local
currency per US$1) by Bank of America NT&SA in London, England, or its
successor, on each of the last business day of each month in the quarter prior
to the date of payment. Reports shall be due on the sixtieth (60th) day
following the close of each quarter. NOVARTIS shall keep complete and accurate
records in sufficient detail to properly reflect all gross sales and Net Sales
and to enable the royalties payable hereunder to be determined.
7.2 Audits.
7.2.1 NOVARTIS and TREGA shall keep and maintain proper books and
records as necessary to determine accurately the royalties payable to the other
party hereunder, for a period of three (3) years following the date on which
such royalties are reported and paid hereunder. Upon the written request of
TREGA hereunder and not more than once in each calendar year, NOVARTIS hereunder
shall permit an independent certified public accounting firm of internationally
recognized standing, selected by TREGA and reasonably acceptable to NOVARTIS, to
have access during normal business hours to such of the records of NOVARTIS as
may be reasonably necessary to verify the accuracy of the royalty reports
hereunder. The accounting firm shall disclose to TREGA only whether the royalty
reports are correct or not and the specific details concerning any
discrepancies. No other information shall be shared.
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CONFIDENTIAL TREATMENT REQUESTED
7.2.2 If such accounting firm concludes that additional royalties were
owed during such period, NOVARTIS shall pay the additional royalties within
thirty (30) days of the date TREGA delivers to NOVARTIS such accounting firm's
written report so concluding. The fees and expenses charged by such accounting
firm shall be paid by TREGA; provided, however, if the audit discloses that the
royalties payable for the audited period are more than [CONFIDENTIAL TREATMENT
REQUESTED] of the royalties actually paid for such period, then NOVARTIS shall
[CONFIDENTIAL TREATMENT REQUESTED].
7.3 Confidential Financial Information. The parties shall treat all
financial information subject to review under this Article 7 as confidential,
and shall cause its accounting firm to retain all such financial information in
confidence.
ARTICLE 8
PAYMENTS
8.1 Payment Terms. Royalties shown to have accrued by each royalty
report provided for under Article 7 of this Agreement shall be due and payable
on the date such royalty report is due. Payment of royalties in whole or in part
may be made in advance of such due date.
8.2 Payment Method. Except as provided in this Section 8.2, all
payments under this Agreement shall be paid in United States dollars, and all
such payments shall be originated from a United States or Swiss bank and made by
bank wire transfer in immediately available funds to such account as designated
by the recipient before such payment is due. Such wire transfer shall be made to
the following account:
[CONFIDENTIAL TREATMENT REQUESTED]
Upon such election by a recipient made in writing not less than thirty (30) days
prior to any payment date, the payer shall pay all royalties owing to the
recipient hereunder in the currency in which such royalties accrued, without
conversion into United States dollars.
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CONFIDENTIAL TREATMENT REQUESTED
8.3 Exchange Control. If at any time legal restrictions prevent the
prompt remittance of part or all royalties with respect to any country where a
Licensed Product is sold, payment shall be made through such lawful means or
methods as the recipient reasonably shall determine.
8.4 Taxes. All amounts owing from NOVARTIS under this Agreement are
net amounts, and shall be grossed-up to account for any withholding taxes,
value-added taxes or other taxes, levies, charges or other amounts required to
be withheld with respect to such amounts, other than (a) taxes imposed by
TREGA's jurisdiction on TREGA's income and (b) taxes imposed solely by reason of
TREGA having a permanent establishment in any other country or TREGA otherwise
being subject to taxation by such country (except solely by reason of the
licenses granted under this Agreement).
8.5 Late Payments. Unless otherwise provided in this Agreement, a
payer shall pay interest to the recipient hereunder on the aggregate amount of
any payments that are not paid on or before the fifth U.S. business day after
the date such payments are due under this Agreement, at a rate per annum equal
to the lesser of the prime rate of interest as reported by Bank of America
NT&SA, or its successor, in San Francisco, California, from time to time,
[CONFIDENTIAL TREATMENT REQUESTED] or the highest rate permitted by applicable
law, calculated on the number of days such payment is delinquent. Interest shall
not be charged on portions of payments withheld pending the resolution of a good
faith dispute; provided, however, that only that portion of a payment as to
which a dispute exists may be withheld free of interest pending resolution. All
amounts not in dispute, whether constituting complete or partial payments shall
be paid when due and payable.
ARTICLE 9
CONFIDENTIALITY
9.1 Confidential Information. During the term of this Agreement, and
for a period of five (5) years following the expiration or earlier termination
hereof, each party shall maintain in confidence all information of the other
party disclosed by the other party and identified as, or acknowledged to be,
confidential (the "Confidential Information"), and shall not use, disclose or
grant the use of the Confidential Information except on a need-to-know basis to
those directors,
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officers, affiliates, employees, consultants, clinical investigators or
contractors, to the extent such disclosure is reasonably necessary in connection
with such party's activities as expressly authorized by this Agreement. To be
considered Confidential Information hereunder, oral disclosures shall be
identified as confidential at the time of disclosure, shall be reduced to
written summary form and identified as confidential by the disclosing party, and
provided to the Recipient (as hereinafter defined) within thirty (30) days of
disclosure. To the extent that disclosure is authorized by this Agreement, prior
to disclosure, each party hereto shall obtain agreement of any such Person to
hold in confidence and not make use of the Confidential Information for any
purpose other than those permitted by this Agreement.
9.2 Permitted Disclosures. The confidentiality obligations contained
in Section 9.1 above shall not apply to the extent that (a) any receiving party
(the "Recipient") is required (i) to disclose information by law, order or
regulation of a governmental agency or a court of competent jurisdiction, or
(ii) to disclose information to any governmental agency for purposes of
obtaining approval to test or market a product, provided in either case that the
Recipient shall give written notice thereof to the other party and sufficient
opportunity to prevent or limit to any such disclosure or to request
confidential treatment thereof; provided, further, that the Recipient shall give
reasonable assistance to the disclosing party to preserve the information as
confidential; or (b) the Recipient can demonstrate that (i) the disclosed
information was public knowledge at the time of such disclosure to the
Recipient, or thereafter became public knowledge, other than as a result of
actions of the Recipient in violation hereof; (ii) the disclosed information was
known by the Recipient (as shown by its written records) prior to the date of
disclosure to the Recipient by the other party hereunder; (iii) the disclosed
information was disclosed to the Recipient by a Third Party not under a duty of
confidentiality to the disclosing party or its Affiliates; or (iv) the disclosed
information was independently developed by or for the Recipient or its
Affiliates by persons without access to or use of such information.
9.3 Terms of this Agreement. TREGA and NOVARTIS shall not disclose
any terms or conditions of this Agreement to any Third Party without the prior
consent of the other party, which shall not be unreasonably withheld, except as
required by applicable law, subject to the requirements of Section 9.2 above
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<PAGE> 27
or to Persons with whom NOVARTIS or TREGA has entered into or proposes to enter
into a business relationship in order to perform its obligations under this
Agreement, provided that such Persons shall enter into a confidentiality
agreement with, or otherwise owe a duty of confidentiality to TREGA or NOVARTIS,
as applicable. Notwithstanding the foregoing, prior to execution of this
Agreement, NOVARTIS and TREGA shall agree upon the substance of information that
can be used to describe the terms of this transaction, and NOVARTIS and TREGA
may disclose such information, as modified by mutual agreement from time to
time, without the other party's consent.
9.4 Public Announcement. Except for announcements required by law,
order or regulation of a governmental agency or a court of competent
jurisdiction, subject to the requirements of Section 9.2 above, no other
announcement, public release or notice of any kind may be issued without the
express written consent of both parties, which consent shall not be unreasonably
held, provided, however, the parties shall prepare a joint press release
announcing the transaction set forth in this Agreement to be issued promptly
upon execution and delivery hereof. TREGA shall be entitled to announce the
achievement of milestones hereunder and affirmative EDP decisions by NOVARTIS;
provided, however, that such announcements shall be submitted to NOVARTIS for
review and written consent in advance of release. Such consent shall not be
unreasonably withheld or delayed.
ARTICLE 10
INVENTIONS AND PATENTS
10.1 Ownership of Inventions. The entire right, title, and interest in
all Research and Development Results, and any patent applications, patents or
other intellectual property rights based thereon, shall be owned solely by
NOVARTIS. The entire right, title and interest in all TREGA Compounds, and any
patent applications, patents or other intellectual property rights directed
thereto, shall be owned solely by TREGA. The entire right, title and interest in
all inventions, discoveries and other technology, whether or not patentable, and
any patent applications, patents or other intellectual property rights based
thereon, conceived or reduced to practice during the Research Period and the
Development Period, in connection with the Research Work, other than the
Research and Development Results (collectively the "Inventions"), (a) by
employees or others
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CONFIDENTIAL TREATMENT REQUESTED
acting solely on behalf of TREGA or its Affiliates shall be owned solely by
TREGA (the "TREGA Inventions"), (b) by employees or others acting solely on
behalf of NOVARTIS or its Affiliates shall be owned solely by NOVARTIS (the
"NOVARTIS Inventions"), and (c) jointly by employees or others acting on behalf
of TREGA and by employees or others acting on behalf of NOVARTIS, or their
respective Affiliates, shall be owned solely by NOVARTIS (the "Joint
Inventions"). Each party promptly shall disclose to the other party the
conception or reduction to practice of Inventions by employees or others acting
on behalf of such party. TREGA and NOVARTIS each hereby represents that all
employees and other Persons acting on its behalf in performing its obligations
under this Agreement shall be obligated under a binding written agreement to
assign to it, or as it shall direct, all Inventions made or developed by such
employees or other Persons.
10.2 Patent Prosecution and Maintenance.
10.2.1 [CONFIDENTIAL TREATMENT REQUESTED].
10.2.2 [CONFIDENTIAL TREATMENT REQUESTED].
10.2.3 [CONFIDENTIAL TREATMENT REQUESTED].
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CONFIDENTIAL TREATMENT REQUESTED
10.2.4 [CONFIDENTIAL TREATMENT REQUESTED].
10.2.5 [CONFIDENTIAL TREATMENT REQUESTED].
10.3 Enforcement of Patent Rights.
10.3.1 [CONFIDENTIAL TREATMENT REQUESTED].
10.3.2 [CONFIDENTIAL TREATMENT REQUESTED].
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CONFIDENTIAL TREATMENT REQUESTED
10.3.3 [CONFIDENTIAL TREATMENT REQUESTED].
10.3.4 [CONFIDENTIAL TREATMENT REQUESTED].
10.4 No Other Technology Rights. Except as otherwise provided in this
Agreement, under no circumstances shall a party, as a result of this Agreement,
obtain any ownership interest or other right in any technology, know-how,
patents, pending patent applications, patent or invention disclosures, products,
libraries, vaccines, antibodies, cell lines or cultures, or animals of the other
party, including items owned, controlled or developed by the other, or
transferred by the other to such party at any time pursuant to this Agreement.
It is understood and agreed by the parties that this Agreement does not grant to
either party any license or other right in basic technology of the other party
except to the extent set forth herein or
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CONFIDENTIAL TREATMENT REQUESTED
necessary to enable the parties to carry out their respective obligations
hereunder.
ARTICLE 11
TERM AND TERMINATION
11.1 Expiration. Unless terminated earlier pursuant to Section 11.2
below, the term of this Agreement shall expire on the expiration of the parties'
obligations to pay royalties under this Agreement.
11.2 Termination.
11.2.1 A party may terminate this Agreement upon or after the breach of
any material provision of this Agreement, if the breaching party has not cured
such breach within ninety (90) days after notice thereof from the other party.
In addition, TREGA may terminate this Agreement under this Section 11.2.1 in the
event that NOVARTIS [CONFIDENTIAL TREATMENT REQUESTED]. In the event of
termination under this Section 11.2.1 by NOVARTIS, NOVARTIS shall [CONFIDENTIAL
TREATMENT REQUESTED]. In the event of termination under this Section 11.2.1 by
TREGA, TREGA shall [CONFIDENTIAL TREATMENT REQUESTED].
11.2.2 NOVARTIS shall be entitled to terminate this Agreement effective
at the end of the second year of the Research Period by delivering written
notice of such termination to TREGA.
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<PAGE> 32
CONFIDENTIAL TREATMENT REQUESTED
In order to be effective, such notice shall be delivered no later than 180 days
prior to the second anniversary of this Agreement. Such notice shall terminate
all licenses granted hereunder, and neither party hereto shall have any
obligation to the other as a result of such termination. [CONFIDENTIAL TREATMENT
REQUESTED].
11.2.3 NOVARTIS shall be entitled to terminate this Agreement during the
Development Period or following the First Commercial Sale by delivering written
notice of such termination to TREGA. In order to be effective, such notice shall
be delivered no later than [CONFIDENTIAL TREATMENT REQUESTED] prior to the
effective date of such termination. Such notice shall terminate all licenses
granted hereunder, and NOVARTIS shall promptly convey to TREGA by means of
documentation reasonably satisfactory to TREGA all EDCs or Licensed Products
which are, contain, incorporate, or use a compound from a TREGA Combinatorial
Library and all data and information related to the Research and Development
Results pursuant to this Agreement, related thereto.
11.2.4 NOVARTIS shall have the right to terminate this Agreement, in
whole or on a country by country basis in the event of a significant and
continuing regulatory, medical, efficacy, safety or legal issue resulting in an
inability to market Licensed Products in a commercially reasonable manner. In
order to be effective, such notice shall be in writing and shall be delivered no
later than 60 days prior to the effective date of such termination. Such notice
shall terminate all licenses granted hereunder, and NOVARTIS shall promptly
convey to TREGA by means of documentation reasonably satisfactory to TREGA all
EDCs and Licensed Products which are, contain, incorporate, or use a compound
from a TREGA Combinatorial Library and all data and information related to the
Research and Development results pursuant to this Agreement related thereto.
11.3 Effect of Expiration and Termination. Expiration or termination of
this Agreement shall not relieve the parties of any obligation accruing prior to
such expiration or termination. Upon expiration of this Agreement under Section
11.1 above, the licenses granted to NOVARTIS and TREGA under Article 5 shall
survive and thereafter shall be irrevocable. The provisions of Articles 9, 10
and 12 shall survive the expiration or termination of this Agreement.
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<PAGE> 33
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 12
INDEMNITY
12.1 Direct Indemnity. [CONFIDENTIAL TREATMENT REQUESTED].
12.2 Other Indemnity. [CONFIDENTIAL TREATMENT REQUESTED]
12.3 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article 12 shall promptly notify the other party (the
"Indemnitor") of any claim, demand, action or other proceeding for which the
Indemnitee intends to claim such indemnification, and the Indemnitor shall have
the
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<PAGE> 34
right to participate in, and, to the extent the Indemnitor so desires, jointly
with any other indemnitor similarly noticed, to assume the defense thereof with
counsel selected by the Indemnitor; provided, however, that the Indemnitee shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the Indemnitor, in the event that representation of the Indemnitee by the
counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between the Indemnitee and any other party
represented by such counsel in such proceedings. The indemnity obligations under
this Article 12, to the extent indemnitor is prejudiced by failure of this
notice, shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Indemnitor, which consent shall not be unreasonably withheld or delayed.
The failure to deliver notice to the Indemnitor within a reasonable time after
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve the Indemnitor of any liability to the Indemnitee
under this Article 12, but the omission so to deliver notice to the Indemnitor
will not relieve it of any liability that it may have to the Indemnitee
otherwise than under this Article 12. The Indemnitor may not settle the action
or otherwise consent to an adverse judgment in such action that diminishes the
rights or interests of the Indemnitee without the express written consent of the
Indemnitee. The Indemnitee, its employees and agents, shall cooperate fully with
the Indemnitor and its legal representatives in the investigation and litigation
of any action, claim or liability covered by this indemnification.
12.4 Insurance.
12.4.1 NOVARTIS shall maintain, through self insurance or otherwise,
insurance with respect to the research, development, manufacture and sales of
Products by NOVARTIS in such amounts as NOVARTIS customarily maintains covering
its similar activities and shall require any Affiliates or (sub)licensees
undertaking activities under this Agreement to do the same. NOVARTIS, its
Affiliates, and (sub)licensees shall maintain such insurance for so long as each
continues to conduct research, development, manufacture or sales, and thereafter
for so long as NOVARTIS, customarily maintains insurance for itself covering its
similar activities.
12.4.2 Effective as of the time any Licensed Product enters human
clinical trials, NOVARTIS (and any Affiliate or
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<PAGE> 35
CONFIDENTIAL TREATMENT REQUESTED
(sub)licensee participating in activities hereunder), at its sole cost and
expense, shall obtain, keep in force and maintain insurance, including without
limitation product liability insurance, in amounts sufficient to cover its
obligations under this Article 12 and consistent with reasonable business
practice in the industry. Without limiting the foregoing, coverage shall in no
event be less than the following: Comprehensive or Commercial Form General
Liability Insurance (contractual liability included) with limits as follows:
(a) Each occurrence [CONFIDENTIAL TREATMENT REQUESTED]
(b) Products/Completed Operations Aggregate [CONFIDENTIAL TREATMENT
REQUESTED]
(c) Personal and Advertising Injury [CONFIDENTIAL TREATMENT
REQUESTED]
(d) General Aggregate (commercial form only) [CONFIDENTIAL TREATMENT
REQUESTED]
It should be expressly understood, however, that the coverages and limits
referred to above shall not in any way limit the liability of any party.
NOVARTIS (and its Affiliates and (sub)licensees, if applicable) shall furnish
TREGA with certificates of insurance evidencing compliance with all
requirements.
ARTICLE 13
FORCE MAJEURE
Neither party shall be held liable or responsible to the other party nor
be deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement to the extent, and
for so long as, such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party including but not limited to fire,
floods, embargoes, war, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other party.
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<PAGE> 36
ARTICLE 14
ASSIGNMENT
This Agreement may not be assigned or otherwise transferred, nor, except
as expressly provided hereunder, may any right or obligations hereunder be
assigned or transferred by either party without the consent of the other party;
provided, however, that either TREGA or NOVARTIS may, without such consent,
assign this Agreement and its rights and obligations hereunder (i) in connection
with the transfer or sale of all or substantially all of its business, (ii) in
the event of its merger or consolidation, change in control, or similar
transaction, or (iii) to an Affiliate which conducts bona fide operations and is
capable of meeting such assignor?s obligations under this Agreement, or such
assignor guarantees performance by its assignee. Any permitted assignee shall
assume all obligations of its assignor under this Agreement.
ARTICLE 15
SEVERABILITY
Each party hereby acknowledges that it does not intend to violate any
public policy, statutory or common laws, rules, regulations, treaty or decision
of any government agency or executive body thereof of any country or community
or association of countries. Should one or more provisions of this Agreement be
or become invalid, the parties shall substitute, by mutual consent, valid
provisions for such invalid provisions which valid provisions in their economic
effect are sufficiently similar to the invalid provisions that it can be
reasonably assumed that the parties would have entered into this Agreement with
such provisions. In case such provisions cannot be agreed upon, the invalidity
of one or several provisions of this Agreement shall not affect the validity of
this Agreement as a whole, unless the invalid provisions are of such essential
importance to this Agreement that it is to be reasonably assumed that the
parties would not have entered into this Agreement without the invalid
provisions.
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<PAGE> 37
ARTICLE 16
MISCELLANEOUS
16.1 Notices. Any consent, notice or report required or permitted to
be given or made under this Agreement by one of the parties to the other shall
be in writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery, first class mail or courier), first class mail or courier,
postage prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and (except as otherwise provided in this
Agreement) shall be effective upon receipt by the addressee.
If to TREGA: Trega Biosciences, Inc.
9880 Campus Point Drive
San Diego, California 92121
U.S.A.
Attention: Chief Executive Officer
If to NOVARTIS: Novartis Pharma A.G.
Lichtstrasse 35
CH 4002 Basel
Switzerland
Attention: Head, Novartis Pharma Research
with a copy to: Novartis Pharma A.G.
Lichtstrasse 35
CH 4002 Basel
Switzerland
Attention: Head, Novartis Pharma
Legal Services
16.2 Applicable Law and Language. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to the conflicts of law principles thereof. The English language shall be
the official language of this Agreement and all notices and reports which may be
delivered hereunder.
16.3 Compliance with Applicable Laws. Each party, its Affiliates and
permitted (sub)licensees shall comply in all material respects with all
applicable laws, regulations and governmental orders in connection with their
respective activities related to this Agreement, including without
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<PAGE> 38
limitation the research, development, manufacture, use and sale of items.
Without limiting the foregoing, each party, its Affiliates and (sub)licensees
shall comply in all material respects with all applicable United States and
foreign laws with respect to the transfer of items and related technical data to
foreign countries, including without limitation, the International Traffic in
Arms Regulations and the Export Administration Regulations.
16.4 Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof. All
express or implied agreements and understandings, either oral or written,
heretofore made are expressly superseded by this Agreement. This Agreement may
be amended, or any term hereof modified, only by a written instrument duly
executed by both parties.
16.5 Headings. The captions to the several Articles and Sections
hereof are not a part of this Agreement, but are merely guides or labels to
assist in locating and reading the several Articles and Sections hereof.
16.6 Independent Contractors. It is expressly agreed that TREGA and
NOVARTIS shall be independent contractors and that the relationship between the
two parties shall not constitute a partnership, joint venture or agency. Neither
TREGA nor NOVARTIS shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior consent of the party to do so.
16.7 Waiver. The waiver by either party of any right hereunder or the
failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
16.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
TREGA BIOSCIENCES, INC.
By /s/ ROBERT S. WHITEHEAD
---------------------------------------
Title: Chairman and Chief
Executive Officer
--------------------------------
NOVARTIS PHARMA A.G.
By /s/ PAUL HERRLING
---------------------------------------
Title Head of Global Research
---------------------------------
By /s/ BRUCE SHAPIRO
---------------------------------------
Title Legal Counsel
---------------------------------
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<PAGE> 40
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
CONFIDENTIAL TREATMENT REQUESTED
[EIGHT (8) PAGES OF TEXT HAVE BEEN OMITTED]
-40-
<PAGE> 41
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
[CONFIDENTIAL TREATMENT REQUESTED]
-41-
<PAGE> 42
CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NO. 1
TO
RESEARCH, DEVELOPMENT, AND LICENSE AGREEMENT
WHEREAS, the parties hereto are parties to a certain Research,
Development, and License Agreement entered into between them as of May 26, 1998
(the "Agreement"); and
WHEREAS, the parties now mutually desire to amend said Agreement in
certain regards for the purpose of eliminating certain ambiguities;
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which is hereby acknowledged, the parties intending to be legally
bound, hereby agree as follows:
Subsections 4.1 (c), 4.1(d), and 4.1(e) of the Agreement are hereby
amended in their entirety so as to read as follows:
(c) semi-annually for Research Work to be done during the US [CONFIDENTIAL
initial 12 months by TREGA under this Agreement, following TREATMENT
execution of this Agreement [CONFIDENTIAL TREATMENT REQUESTED]. REQUESTED]
(d) semi-annually for Research Work to be done during the
second 12 months by TREGA under this Agreement, following the US [CONFIDENTIAL
first anniversary of this Agreement [CONFIDENTIAL TREATMENT TREATMENT
REQUESTED]. REQUESTED]
(e) semi-annually for Research Work to be done during the
third 12 months by TREGA under this Agreement, following the US [CONFIDENTIAL
second anniversary of this Agreement [CONFIDENTIAL TREATMENT TREATMENT
REQUESTED]. REQUESTED]
All other terms and conditions of the Agreement shall remain in full force and
effect.
TREGA BIOSCIENCES, INC. NOVARTIS PHARMA AG
By /s/ ROBERT S. WHITEHEAD By /s/ DR. P. HERRLING
--------------------------------- ------------------------------
Robert S. Whitehead Dr. P. Herrling
Chairman and Head of Global Research
Chief Executive Officer
By /s/ B. SHAPIRO
------------------------------
B. Shapiro
Legal Counsel
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