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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Fiscal Year Ended December 31, 1998
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to .
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Commission file number 0-27976
GalaGen Inc.
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Delaware 41-1719104
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1275 Red Fox Road
Arden Hills, Minnesota 55112-6943
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(Address of principal executive offices) (Zip code)
(651) 634-4230
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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 / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the Common Stock held by
non-affiliates of the registrant as of March 18, 1999 was $12,847,863
based on the closing sale price for the Common Stock on that date as
reported by The Nasdaq Stock Market. For purposes of determining such
aggregate market value, all officers, and directors of the registrant
are considered to be affiliates of the registrant, as well as
stockholders holding 10% or more of the outstanding Common Stock as
reflected on Schedules 13D or 13G filed with the registrant. This
number is provided only for the purpose of this report on Form 10-K
and does not represent an admission by either the registrant or any
such person as to the status of such person.
As of March 18, 1999 the registrant had 8,948,446 shares of
Common Stock issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the annual
meeting of stockholders to be held on May 12, 1999 and the Annual Report to
Stockholders for the year ended December 31, 1998 are incorporated by
reference in Parts II, III and IV of this Annual Report on Form 10-K. (The
Compensation Committee Report and the stock performance graph contained in
the registrant's Proxy Statement are expressly not incorporated by reference
in this Form 10-K).
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
The information presented in this Annual Report on Form 10-K under the
headings "Item 1. Business" and "Item 2. Properties" and incorporated by
reference under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements
within the meaning of the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to
risks and uncertainties, including those discussed under "Risk Factors" below
beginning on page 13 of this Annual Report on Form 10-K, that could cause
actual results to differ materially from those projected. Because actual
results may differ, readers are cautioned not to place undue reliance on
these forward-looking statements. Certain forward-looking statements are
indicated below by an asterisk.
INTRODUCTION
GalaGen Inc. ("GalaGen" or the "Company"), was incorporated in 1992 as a
successor to a wholly-owned subsidiary of Land O'Lakes, Inc. ("Land O'Lakes")
that was incorporated in 1987. GalaGen's mission is to become the leading
presence in foods, beverages and dietary supplements that help enhance the
immune system.* To accomplish this mission, the Company is focusing its
efforts on channels that demand immune-enhancing benefits in certain segments
of the consumer food and beverage product markets and in certain segments of
the clinical nutrition products markets, as described below.
A critical factor for success of the Company is its immune-enhancing
ingredient which is derived from colostrum, the highly nutritious first milk
from a dairy cow after its calf is born, which has been branded
Proventra-TM- Brand Natural Immune Components ("Proventra"). The primary
immune-enhancing components of Proventra are antibodies, which are proteins
that enhance the body's immune system to protect against harmful pathogens.
Secondary immune-enhancing components of Proventra providing further disease
resistance are proteins, such as lactoferrin, and multiple vitamins and
minerals.
The Company believes it is in a position of strategic advantage with its
ingredient, Proventra*, as follows:
ACCESS TO COLOSTRUM. The Company has agreements with Land O'Lakes
which provide the Company with access to the Land O'Lakes dairy system.
This dairy system has approximately 750,000 cows, from which the Company
receives its supply of colostrum. These cows are located primarily in the
upper Midwest and both the East and West coasts.
PROPRIETARY MANUFACTURING PROCEDURES. The Company has patented,
proprietary manufacturing processes that are used to concentrate antibodies
from the colostrum. Standard dairy processing techniques destroy the
activity of most of the antibodies present in milk and colostrum, whereas
the Company's processing retains the antibody's effectiveness.
INGREDIENT PATENT PROTECTION. GalaGen holds exclusive patent licenses
that prevent potential competitors from combining antibodies with fibers or
antibodies with active cultures. The licenses
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provide the Company with a high degree of competitive insulation in
addition to establishing the Company as an innovator.*
ABILITY TO ADDRESS MULTIPLE HEALTH CONDITIONS. Using its proprietary
immunization technologies, including the use of immune system stimulating
adjuvants, the Company can produce antibodies in the cow that target
specific pathogens that may cause problems in the human gastrointestinal
("GI") tract, including bacteria and their toxins, parasites, fungi and
viruses. This technology increases by many fold a dairy cow's natural
production of these targeted antibodies in its colostrum and can be
utilized to enhance the body's normal response to conditions like yeast
infections in women, tooth decay and diarrhea.
The Company is developing, in conjunction with strategic partners, a
portfolio of proprietary consumer and clinical nutritional food and beverage
products which will incorporate Proventra. Additionally, the Company is
supplying Proventra as an ingredient to food companies for incorporation into
dietary supplements or other similar products. These products will target
needs of both consumers and healthcare professionals.
In December 1998, the Company acquired Nutrition Medical, Inc.'s
("NMI") developed line of critical care enteral nutrition products and
formulas. The products were recently introduced by NMI and are being sold to
the hospital and home healthcare industries. GalaGen purchased substantially
all of NMI's critical care enteral nutrition products and formulas, all
related inventory and certain other assets, including the existing customer
base of over 500 hospitals and home healthcare facilities. The sales and
marketing group from NMI joined the Company to provide continuity in
operations and an essential marketing base. The Company is researching ways
in which to incorporate certain of its immune-enhancing ingredients into
selected products acquired from NMI to provide additional proprietary
protection and added benefits that are not currently available in that market
segment.* Additionally, Glutasorb-TM-, one of the acquired products, is
enriched with glutamine, an amino acid important for the support of the
immune system.
BACKGROUND
IMMUNE-ENHANCING TECHNOLOGY
Passive immunity consists of using antibodies produced by one individual
or animal to provide immune protection in another individual. Dairy cows
provide antibodies to their calves through the colostrum, which is the milk
produced during the first several days of lactation. The concentration of
antibodies in colostrum is many times higher than the normal concentration in
milk. Through their natural exposure to the environment, cows have developed
antibodies that recognize and bind to many human pathogens. Clinical studies
performed by GalaGen and others have proven that the antibodies are not
destroyed by passage through the gastrointestinal tract, and they remain
functionally active against these undesirable organisms.
FUNCTIONAL FOODS AND NUTRACEUTICALS
The Company believes that its immune-enhancing technology lends itself
to the creation of food products or dietary supplements, for both consumer
and clinical food and beverage markets, with health claims, often called
"functional foods" or "nutraceuticals".* The Company further believes that
the inclusion of Proventra in functional foods or nutraceuticals, along with
including other components such as active cultures and dietary soluble fiber
for which the Company has licensed certain patents, provide important
benefits and competitive advantages, including (i) a unique immune-enhancing
system, (ii) a fit with consumer needs, and (iii) a safe, proven means to
enhance the body's natural resistance.*
Functional foods and nutraceuticals have been defined as foods which
provide benefits beyond their nutritional value. While there is not a
regulatory definition for the terms "functional food" or "nutraceutical",
these terms are widely used in the marketplace. The Company believes that
the enactment by Congress of the Nutrition Labeling and Education Act
("NLEA") in 1990 and the Dietary Supplement Health and Education
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Act ("DSHEA") in 1994 enabled the regulatory process for marketing foods or
dietary supplements. NLEA permits certain health claims related to the
food's ability to reduce the risk of certain diseases. DSHEA permits such
products to bear "structure-function" claims related to how the product
affects the structure or function of the body, and such claims do not require
Food and Drug Administration ("FDA") review or approval, but must be
supported by scientific evidence. The Company believes that the incorporation
of Proventra in foods or dietary supplements would add benefits to these
products, particularly since there is a significant amount of scientific data
to support the benefits of colostrum.*
According to Frost & Sullivan, a competitive-market analysis firm, the
market for nutraceutical or functional food beverages, into which the
Company's Proventra could be incorporated, now exceeds $20 billion. The
Company believes that this significant market size is due to a number of
factors, including (i) increased interest in healthier lifestyles, (ii) the
publication of research findings supporting the positive health effects of
certain nutritional supplements and (iii) the aging of the "Baby Boom"
generation combined with the tendency of consumers to purchase more
nutritional supplements as they age.*
CRITICAL CARE PRODUCTS
Critically ill or severely injured patients are often unlikely to
consume adequate nutrients, which can exacerbate a patient's condition, cause
complications and prolong hospital stays. Total enteral nutrition delivers,
often via specialized pumps, formulations of protein, carbohydrates, fat and
vitamins via feeding tubes directly into the patient's intestinal tract.
Unless nearly all of the intestinal tract is missing or nonfunctional, most
patients can be fed via this enteral route. One application of enteral
nutrition is in the treatment of critical care patients. The largest single
category of total enteral nutrition products used in critical care are
products that contain unique protein sources referred to as "elemental."
Unlike long-term care formulas that contain "whole protein," which must be
digested before it can be absorbed and utilized by the patient, elemental
formulas contain predigested protein that offers immediately available
nutrition because little or no digestion is required. All of the Company's
recently acquired critical care nutrition products are elemental formulas.
The critical care nutrition formula market is currently dominated by a small
number of established manufacturers of national brands, each of which focuses
on particular segments of the market. These manufacturers include Ross
Laboratories, a division of Abbott Laboratories ("Ross Laboratories"), Mead
Johnson Nutritionals, a Bristol-Myers Squibb Company ("Mead Johnson"),
Novartis, formerly known as Sandoz Corp. ("Novartis"), Nestle Ltd ("Nestle"),
formerly known as Clintec Nutrition Co., and McGaw, Inc. ("McGaw").
Meanwhile, the United States health care system has been under pressure to
control costs. As a result, the medical community and consumers have come to
accept lower cost-effective drugs and private label over-the-counter
products, and the market for these products has grown rapidly. The Company
believes it is the only company that has addressed the critical care medical
nutrition market with lower cost alternatives to established brands.* The
Company is researching ways in which to incorporate certain of its
immune-enhancing ingredients into selected products acquired from NMI to
provide additional proprietary protection and added benefits that are not
currently available in that market segment.* The Company sells its critical
care nutrition formulas under its NMI label.
Business Strategy
GalaGen has determined to focus on two market segments to optimally
capitalize on its immune-enhancing capabilities: (i) nutritional consumer
food and beverage products and (ii) clinical nutrition products. The former
emphasis will yield products containing Proventra, and other immune
components, in grocery and health food stores. The latter will yield
products for hospitals, nursing homes and home healthcare that may contain
Proventra or other immune-enhancing ingredients. The Company will utilize
relationships and collaborations with strategic partners to deliver these
products to the marketplace.*
To advance the introduction of GalaGen's Proventra or other
immune-enhancing ingredients into the two market segments, the Company has
recently entered into several strategic partner agreements, including the
following:
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CONSUMER FOOD AND BEVERAGE PRODUCTS
GENERAL NUTRITION CORPORATION
In December 1998, the Company entered into an agreement with General
Nutrition Corporation ("GNC"). Under this agreement, GalaGen and GNC will
develop and market a range of immune-boosting dietary supplements and sports
nutrition formulas for specialized retail and mass-market retail channels
using certain proprietary formulations of Proventra. The Company will sell
its Proventra to General Nutrition Products, Inc. ("GNP"), the manufacturing
company of GNC, for incorporation into the products for exclusive
distribution and retail marketing in North America by GNC, its affiliates,
franchisees and certain other stores in mass market channels. The agreement
calls for GNC to maintain minimum sales requirements for both the specialty
retail and mass market channels for exclusivity to continue. The first
products are targeted for launch in the second half of 1999, following the
initial product development phase of the collaboration.*
TROPICANA
In March 1999, the Company entered into an agreement with Tropicana
Products, Inc., a division of PepsiCo Inc. Under the agreement, the two
companies will explore development of nutritious beverages for the
health-conscious consumer.
LAND O'LAKES
In April 1998, GalaGen entered into an agreement with Land O'Lakes to
develop and introduce into market a line of yogurt products incorporating
Proventra. Products developed under this arrangement will leverage Land
O'Lakes strength as a dairy producer and marketer. The first products are
targeted for a second half 1999 test market launch.*
LIFEWAY FOODS, INC.
In December 1997, the Company assisted in introducing Basics Plus-TM-, a
dietary supplement product, in conjunction with its marketing and
manufacturing partner, Lifeway Foods, Inc. It contains active kefir
cultures, which are cultures that contain beneficial bacteria strains, and
GalaGen's Proventra. Basics Plus is the first dairy-based dietary supplement
sold in the United States in the refrigerated section of health food stores
and grocery stores. The product was featured in the February 1998 issue of
DAIRY FOODS MAGAZINE and has gained recognition as an industry breakthrough.
DAIRY FOODS MAGAZINE named Basics Plus the top new dairy product in 1998 for
the Functional Foods category (November 1998 issue).
RHONE-POULENC / RHODIA
In June 1998, GalaGen announced a nutritional products collaboration
with Rhodia, Inc., a $6 billion Rhone-Poulenc spin-off. The two companies are
exploring the possible development and marketing of a patent-protected
combination of ingredients for use in nutritional products positioned for the
nutraceutical and functional foods markets. Under this arrangement, products
will contain GalaGen's Proventra and Rhodia's proprietary active cultures.
CLINICAL NUTRITION PRODUCTS
CRITICAL CARE PRODUCTS (NMI)
In September 1998, the Company entered into an asset purchase agreement
with NMI to acquire NMI's developed line of critical care enteral nutrition
products and formulas. The products were recently introduced by NMI and are
being sold to the hospital and home healthcare industries. The asset purchase
agreement was closed in December 1998. GalaGen purchased substantially all of
NMI's critical care enteral nutrition products and formulas, all related
inventory and certain other assets, including the existing customer
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base of over 500 hospitals and home healthcare facilities. The sales and
marketing group from NMI joined the Company to provide continuity in
operations and an essential marketing base. The Company will continue to
have all products associated with this asset purchase manufactured by outside
parties.
Critical care nutrition formulas are used by hospitals and other health
care providers to feed critically ill patients who cannot consume adequate
nutrients orally and consequently require specialized feeding via tubes into
the intestinal tract. The use of critical care nutrition formulas often
continues at home or in a nursing home after a patient is discharged from the
hospital. The Company's strategy is to focus on the development and sale of a
core line of critical care formulas for patients who do not metabolize foods
well and are most likely in intensive care units. Certain unique ingredients
are combined to meet the special nutritional requirements of specific patient
populations. The Company markets its critical care and disease specific
nutrition products to hospitals and other health care providers as cost
effective alternatives to the established products offered by brand name
manufacturers.
The Company is selling nine nutrition products for critical care, liver
failure and moderately stressed patients. Most products contain elemental
protein sources, which contain predigested protein that offers immediately
available nutrition. The first proprietary critical care formula, Glutasorb,
was launched by NMI in February 1998. This formula is the first high
glutamine, ready-to-use liquid elemental diet available in the United States
and, as such, has no specific competing branded product. The following chart
provides information regarding each of the Company's critical care nutrition
products.
<TABLE>
<CAPTION>
DATE
PRODUCT NAME INTRODUCED PRODUCT DESCRIPTION
- ------------ -------------- -------------------
<S> <C> <C>
L-Emental-TM- May 1994 A 100% free amino acid-based elemental nutrition
formula for gastrointestinal ("GI") impaired or
critically ill patients
L-Emental Hepatic-TM- June 1996 A 100% free amino acid and calorie supplement for the
dietary management of chronic liver disease
patients.
L-Emental Pediatric-TM- June 1996 A 100% free amino acid elemental diet for GI impaired
children ages 1 to 10
Pro-Peptide Unflavored-TM- November 1994 A ready-to-use, isotonic, peptide-based diet for GI
impaired patients
Pro-Peptide VHN-TM- November 1995 A high nitrogen, isotonic, peptide-based diet for GI
impaired and critically impaired patients who
require high protein levels
Pro-Peptide Vanilla-TM- November 1995 Vanilla flavored ready-to-use, peptide-based diet for
GI impaired patients who require an oral product
Pro-Peptide For Kids-TM- May 1997 Vanilla flavored ready-to-use, peptide-based diet for
children ages 1 to 10 who are GI impaired
Glutasorb-TM- February 1998 Ready-to-use, high glutamine, amino acid-peptide based
product for patients who have severe catabolic
illness, GI dysfunction, surgery and trauma
Nitro Pro-TM- July 1998 A ready-to-use high-protein tube feeding product for
moderately stressed patients
</TABLE>
With the exception of Glutasorb, the Company generally establishes
target prices for its critical care and disease specific nutrition products
that are below the selling prices of competing established brand name
products. To maintain or increase the gross margin of the products, the
Company is researching ways in which to incorporate certain of its
immune-enhancing ingredients into certain products listed above to provide
additional proprietary protection and added benefits that are not currently
available in that market segment.* Additional products that the Company may
introduce would include proprietary immune-enhancing features.*
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AMERICAN HOME PRODUCTS - WYETH AYERST
In October 1998, the Company entered into a collaboration and license
agreement and a manufacturing and supply agreement with Wyeth-Ayerst, a
division of American Home Products Corporation. The two companies will
develop and commercialize a proprietary ingredient with unique antibacterial
properties for use in pediatric formula and other nutritional products. The
companies will collaborate during the research and development phase of the
product, which will be funded by Wyeth-Ayerst. Additionally, Wyeth-Ayerst
will have financial and oversight responsibilities for all clinical trials
and regulatory compliance related to the use of the ingredient in pediatric
formula products. Wyeth-Ayerst will have worldwide rights to the use of the
ingredient in its pediatric formula and other nutritional products. GalaGen
will retain certain rights to manufacture the ingredient and has the right to
request a sublicense from Wyeth-Ayerst to develop and commercialize
non-pediatric formula nutritional products. GalaGen will also receive
licensing and milestone payments.
HORMEL-AMERICAN INSTITUTIONAL PRODUCTS
In March 1999, the Company announced that it entered into a licensing and
distribution agreement with American Institutional Products, Inc. (AIP), a
subsidiary of Hormel Foods Corporation. Under the agreement, AIP has
exclusively licensed the manufacturing and distribution rights for a new,
clinically tested, cultured dairy beverage developed by GalaGen to improve
the gastrointestinal health of patients in hospitals and nursing homes. The
product will incorporate Proventra and includes an ingredient combination
that is patented. A test market for the product in the Upper Midwest is
scheduled to begin in mid 1999.*
MANUFACTURING SYSTEM
PROVENTRA MANUFACTURING
The Company's manufacturing system produces antibodies for nutritional
products. The Company's system has been designed to access very large
numbers of cows in commercial milking herds, organize them into discrete
product-specific groups and, if needed, immunize them with specific antigens
to heighten the natural production of targeted antibodies in their colostrum,
collect the colostrum and concentrate the antibodies using proprietary
processes. These processes preserve the essential antibody activity and
other immune-enhancing components while reducing unnecessary components,
including microbial contaminants. Modern dairy cows, having been bred for
high volume milk production, produce colostrum in quantities far greater than
their calves can consume. After the calf fulfills its colostrum needs, this
surplus colostrum can then be collected by the Company.
Standard dairy processing techniques destroy the activity of most of the
antibodies present in milk and colostrum and render them inactive. The
proprietary processes used by the Company to concentrate antibodies have been
developed by the Company through many years of research and development.
This work has resulted in processes that use well-tested and efficient dairy
manufacturing techniques, including pasteurization, that have been modified
to preserve the biological activity of the antibodies. The Company has two
patents that have been issued for these processes. The Company is supporting
its proprietary antibody processing system with a quality control system
designed to regulate, monitor and review the processing system. The Company
has obtained Kosher certification for the natural immune components found in
Proventra. Additionally, the Company has obtained the appropriate license
from the Minnesota Department of Agriculture.
Construction of the Company's manufacturing facility within the existing
Land O'Lakes manufacturing complex in Arden Hills, Minnesota was completed in
1996. Land O'Lakes has guaranteed the equipment leases associated with the
manufacturing facility. The Company believes that the capacity of this
facility will be adequate for the production of Proventra for nutritional
products, either for sale or product
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development requirements, through 2000 and believes that contract
manufacturers would be available to increase its production capacity quickly,
if required.*
CRITICAL CARE PRODUCT MANUFACTURING
All of the Company's critical care products acquired from NMI are
manufactured by third parties. These toll manufacturers are subject to FDA
regulatory requirements for food and medical food production, and the
Company's products undergo quality control testing during and after the
production process. By using third party manufacturers, the Company is better
able to introduce new products that require differing manufacturing
processes and maintain a favorable fixed cost structure. Critical care
nutrition products are shipped from the manufacturer to the Company's
distribution facility in Arden Hills, Minnesota. The Company believes that
there are several manufacturers in the United States that could manufacture
the critical care products and that it is not dependent upon one single
manufacturer for its product supply.*
MARKETING, RESEARCH AND RELATIONSHIPS
MARKETING
FUNCTIONAL FOOD AND NUTRACEUTICAL PRODUCTS
To exploit Proventra as broadly as possible in human applications, the
Company's consumer and clinical products strategy, except for those critical
care products acquired from NMI, is to enter into strategic relationships
with food companies to develop products that incorporate Proventra and/or
other immune combinations and/or to sell Proventra to food companies as an
ingredient.* The Company does not anticipate that it will manufacture,
market or distribute any final food product, but will rely upon
collaborations with larger companies to accomplish these goals.*
CRITICAL CARE PRODUCTS
The Company employs its own inside sales personnel to market its
critical care nutrition products. These sales personnel target, via
telephone, the appropriate departments of hospitals, nursing homes and home
health care organizations. This approach reduces the Company's selling costs
by eliminating travel expenses and allowing its sales personnel to contact
and service a larger number of potential and actual customers. The Company
also uses direct mail and trade shows to further promote its products. In
addition, the Veteran's Administration and state and county hospitals have
annual bids for clinical nutrition products, and the Company actively
participates in these bids.
RESEARCH
FUNCTIONAL FOOD AND NUTRACEUTICAL PRODUCTS
The Company's product development strategy is to pursue its own research
programs internally and to complement such programs by establishing
relationships with key external medical, academic, governmental and major
research organizations. Specifically, the Company intends to continue
complementing its extensive immune-enhancing technology base by acquiring
access to additional proprietary technology and patents in the areas of
antibodies, vaccine, molecular biology, and processing and manufacturing
technology.* The Company also may seek collaborative arrangements for
commercialization of its Proventra-based products.* The Company spent
$1.9 million, $3.8 million and $5.3 million for product development in fiscal
years 1998, 1997 and 1996, respectively. The expenses incurred in 1996, 1997
and a portion of 1998 relate to the Company's pharmaceutical program, which
has been discontinued.
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CRITICAL CARE PRODUCTS
As part of NMI, the product development process began with a
determination that a market opportunity existed with respect to a particular
product. NMI then contracted with an outside laboratory to analyze the
ingredients of the competitor's product and to formulate its version of the
product. Certain members of NMI's scientific advisory board consulted with
the contractors during the development process. The Company anticipates that
any future product development may generally follow this procedure, but
anticipates that any new products will incorporate immune-enhancing benefits
to make a product proprietary and have unique features not currently
available in the market so as to maintain or increase gross margins.* The
Company's critical care, disease specific and intact protein nutrition
formulas are not required to undergo clinical testing or obtain FDA approval
for such products, though they are subject to certain FDA guidelines.
LAND O'LAKES RELATIONSHIP
The Company believes that the Company's existing relationship with Land
O'Lakes provides it with certain advantages over existing and potential
competitors.* Land O'Lakes made significant advances in the development and
commercialization of antibody products for treating and preventing diseases
in animals. This technology provides the Company with a solid foundation on
which to base its efforts to develop similar products for human use.
Under a supply agreement with Land O'Lakes, the Company agreed to
purchase all of its commercial requirements for colostrum from Land O'Lakes
through May 7, 2002, subject to Land O'Lakes' option to renew the supply
agreement for an additional ten-year period. The Company must provide
program specifications to Land O'Lakes prior to commencing each of its
commercial programs and Land O'Lakes must notify the Company within a
specified period whether it will supply according to the agreement. If Land
O'Lakes does not confirm during that period that it will supply colostrum
according to the specifications, then the Company has the right to obtain the
colostrum from alternative sources. Commercial production of Proventra could
be delayed if Land O'Lakes does not elect to supply according to the supply
agreement and the Company is required to locate an alternate supplier.
When the Company was formed, it signed a letter of intent with Land
O'Lakes to develop strategic relationships focused on the development of
functional food products. In March 1998, the Company and Land O'Lakes signed
an amended and restated license agreement (the "Restated License") in which
the Company has significantly broadened its rights to develop and market
functional foods. Under the Restated License, the Company can use, improve,
exploit, license or share existing Procor Technology, Inc. (the Company's
predecessor, "Procor") technology, Procor technology improvements and new
technologies, as defined, in all areas of functional foods except under
certain "reserved food product" and "first refusal food product" categories,
as defined. If the Company intends to engage in manufacturing or marketing
any "first refusal food product", the Company must give Land O'Lakes notice
of its intent, in which case Land O'Lakes can negotiate with the Company, in
good faith and within a defined period of time, to undertake any part of the
manufacturing or marketing areas. If the Company intends to engage in
manufacturing or marketing any "reserved food product", the Company must give
Land O'Lakes notice of its intent and must only work with Land O'Lakes to
undertake the manufacturing or marketing of such products. In the original
license agreement with Land O'Lakes, the Company retained rights to pursue
the development of infant formula products containing polyclonal antibody
technology.
In March 1997, Land O'Lakes granted the Company a license (the "Kefir
License") to use existing antibody technology and future improvements in the
development, formulation, manufacture, marketing, distribution and sale of
kefir-based products, as defined in the Kefir License. In consideration of
granting the Kefir License, Land O'Lakes will receive a royalty based on food
components or ingredients sold by the Company to be included in any
kefir-based product and on net receipts from any kefir-based finished product
sold by the Company.
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PROPRIETARY RIGHTS AND PATENTS
FUNCTIONAL FOOD AND NUTRACEUTICAL PRODUCTS
The Company's policy is to protect its proprietary technology as trade
secrets and by filing patent applications on technology for which the Company
believes patent protection is available and is in the best interest of the
Company. The Company also relies upon know-how, continuing technological
innovations and licensing opportunities to develop and maintain its
competitive position.
The Company believes that certain of its process improvements are more
valuable as trade secrets than as patented processes, where the process
improvements would have to be publicly disclosed. The Company relies on
trade secrets and proprietary know-how it developed while manufacturing
antibody products as Procor. The Company believes that substantial barriers
exist for competitors desiring to commercialize antibodies derived from milk
or colostrum that have the features that the Company's antibodies, or
Proventra, have*; however, there can be no assurance that other companies
will not develop production processes or initiate relationships with other
large dairy cooperatives to develop a similar procurement system. The
Company seeks to protect trade secrets and know-how through confidentiality
agreements with employees, consultants and other parties. These agreements
provide that all confidential information developed or made known during the
course of the relationship with the Company is to be kept confidential and
not disclosed to third parties, except in specific circumstances. No
assurance can be given that such agreements will provide meaningful
protection for the Company's unpatented trade secrets or provide adequate
remedies in the event of unauthorized use of such information. Neither can
assurance be given that others will not independently develop substantially
equivalent proprietary information and technology or otherwise gain access to
the Company's trade secrets or disclose such technology.
The Company has been issued four patents from the United States Patent &
Trademark Office. Two patents cover significant processes in its core
manufacturing technology for antibodies for microfiltering milk and colostrum
that reduces contaminants while improving yield. The third patent covers the
therapeutic use of CLOSTRIDIUM DIFFICILE specific bovine antibodies for the
treatment of C. DIFFICILE related diseases such as diarrhea. The fourth
patent covers a vaccine composition for generating specific, high titer
antibodies against CRYPTOSPORIDIUM PARVUM. The Company also has three United
States patent applications pending and has acquired licenses to a number of
patents or patent applications of others. The Company's United States patent
applications are in the area of bovine antibody technology and product
applications. The Company believes that useful, new and unobvious antibody
formulations also may be patentable in support of its immune-enhancing
strategy.* Furthermore, in some cases, patent coverage may be available for
the vaccines or antigens used to provoke the immunological response which
produces the antibodies. The Company has also obtained sole licenses for
enabling patents from Metagenics, Inc relating to the combination of
antibodies and soluble fibers, and antibodies and active cultures for use in
the fields of dietary supplements and medical foods. Metagenics, Inc. retains
the right to use these patents for its own products. The Company has also
acquired a patent from Biotest Pharma GmbH for an alternative antibody
processing technology. The Company's strategy is to pursue patent protection
for each of its products where possible, including their components, as well
as for certain process and formulation improvements, although the Company may
not be successful in achieving broad patent protection for its technology.
The Company has become aware of several patents that may relate to its
antibody technology. In 1991, the Company became aware of one such issued
patent. Land O'Lakes engaged outside patent counsel to review the patent and
such counsel rendered its written opinion to Land O'Lakes that the patent is
not infringed by the Company's technology. The Company engaged its own
outside patent counsel to review the patent and such counsel rendered its
independent opinion that the patent is not infringed by the Company's
technology and that, in any event, the patent would be invalid if it were
interpreted broadly enough so as to cover the Company's technology. While
the Company does not regard the patent as a threat to its business*, there
can be no assurance that the holder of the patent will not pursue litigation
which could be costly to the Company.
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CRITICAL CARE PRODUCTS
The Company is in the process of registering its existing trademarks,
for the products acquired from NMI, with the United States Patent & Trademark
Office. As part of NMI, the products were not registered but instead relied
on NMI's common law trademark rights. The lack of such registration may
impair the ability of the Company to successfully register the trademarks or
to prosecute successfully an infringement action against other users of these
trademarks. There can be no assurance that the Company's marks do not or will
not violate the proprietary rights of others, that the Company's proprietary
rights in the marks would be upheld if challenged, or that the Company would
not be prevented from using its marks, any of which could have an adverse
effect on the Company.* In addition, there can be no assurance that the
Company will have the financial resources necessary to enforce or defend its
trademarks.*
GOVERNMENT REGULATION
FUNCTIONAL FOOD AND NUTRACEUTICAL PRODUCTS
GENERAL
The formulation, manufacturing, processing, packaging, labeling,
advertising, distribution and sale of nutritional supplements such as those
being developed by the Company are subject to regulation by one or more
federal agencies, principally the FDA and the Federal Trade Commission (the
"FTC"), and to a lesser extent the Consumer Product Safety Commission and the
United States Department of Agriculture. These activities are also regulated
by various governmental agencies for the states and localities in which the
Company's products are sold, as well as by governmental agencies in certain
foreign countries in which the Company's products are sold. Among other
matters, regulation of the Company by the FDA and FTC is concerned with
claims made with respect to a product which refer to the value of the product
in treating or preventing disease or other adverse health conditions.
Federal agencies, primarily the FDA and FTC, have a variety of remedies
and processes available to them, including initiating investigations, issuing
warning letters and cease and desist orders, requiring corrective labels or
advertising, requiring consumer redress (for example, requiring that a
company offer to repurchase products previously sold to consumers), seeking
injunctive relief or product seizure and imposing civil penalties or
commencing criminal prosecution. In addition, certain state agencies have
similar authority, as well as the authority to prohibit or restrict the
manufacture or sale of products within their jurisdiction. These federal and
state agencies have in the past used these remedies in regulating
participants in the nutritional products industry, including the imposition
by federal agencies of civil penalties in the millions of dollars against a
few industry participants. There can be no assurance that the regulatory
environment in which the Company operates will not change or that such
regulatory environment, or any specific action taken against the Company,
will not result in a material adverse effect on the Company's business,
financial condition or results of operations.* In addition, increased sales
and publicity of nutritional supplements may result in increased regulatory
scrutiny of the nutritional supplements industry.
DIETARY SUPPLEMENT HEALTH AND EDUCATION ACT
DSHEA was enacted in October 1994, amending the Food, Drug and Cosmetic
Act. The Company believes this law is generally favorable to the dietary
supplement industry.* DSHEA establishes a new statutory class of "dietary
supplements," which includes vitamins, minerals, herbs, amino acids and other
nutritional supplements for human use to supplement the diet and includes in
such class all dietary ingredients
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on the market as of October 15, 1994. Such class of nutritional supplements
will not require the submission by the manufacturer or distributor of
evidence of a history of use or other evidence of safety establishing that
the supplement will reasonably be expected to be safe, but a nutritional
supplement which contains a dietary ingredient which was not on the market as
of October 15, 1994 does require such submission of evidence of a history of
use or other evidence of safety. Among other things, this law prevents the
further regulation of dietary ingredients as "food additives" and allows the
use of statements of nutritional support on product labels. DSHEA allows the
use of "structure/function" claims on the label of a product, which may allow
the Company to communicate advantages of Proventra without the expenses
associated with FDA clinical trials.* The law requires companies to file
label claim information with FDA within 30 days after initiating marketing of
a product, and FDA may respond with a "courtesy letter" commenting on the
claims if it believes they are not appropriate.
OTHER REGULATORY REQUIREMENTS
The Company is also subject to regulation by the Occupational Safety and
Health Administration, the Environmental Protection Agency and the Minnesota
Environmental Quality Board and to regulation under the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, among others, and
other regulations, and may in the future be subject to other federal, state
and local statutes or regulations. The Company is unable to predict whether
any agency will adopt any regulation which would have a material adverse
effect on the Company.
CRITICAL CARE PRODUCTS
The Company's products purchased from NMI are subject to government
regulation. The Company's current critical care products are regulated as
food and medical food by the FDA and are subject to labeling requirements,
current good manufacturing practice regulations and certain other regulations
designed to ensure the safety of the products. Claims made by the Company in
labeling and advertising its products are subject to regulation by the FDA,
the FTC and various state agencies under their general authority to prevent
false, misleading and deceptive trade practices. These regulations involve
more stringent tracking, testing and documentation standards. Failure to
comply with FDA requirements can result in adverse regulatory action,
including injunctions, civil or criminal penalties, product recalls or the
relabeling, reformulation or possible termination of certain products.
COMPETITION
FUNCTIONAL FOOD AND NUTRACEUTICAL PRODUCTS
The nutritional products area is highly fragmented and competitive with
many large nationally known manufacturers and many smaller manufacturers and
marketers of nutritional products. The Company has licensed patents from
Metagenics regarding the incorporation of antibodies combined with active
cultures and antibodies combined with soluble fiber. Many of the nutritional
products the Company anticipates developing, in conjunction with a strategic
partner, will be covered by these patents. Potential competitors, however,
could be larger than the Company, have greater access to capital and may be
better able to withstand volatile market conditions. Moreover, because the
nutritional products industry generally has low barriers to entry, additional
competitors could enter the market at any time. In that regard, although the
nutritional products industry to date has been characterized by many
relatively small participants, national or international companies (which may
include food or pharmaceutical companies or other suppliers to the mass
markets) may seek to enter or to increase their presence in this industry,
which would have a material adverse effect on the Company's competitive
position.
The Company has assessed the factors that may make it competitive in
this environment and believes that its central strength is that the products
it will develop in conjunction with various partners will be unique, distinct
and proprietary in the marketplace.* This distinction is made by offering in
its products direct immune enhancing benefits that include Proventra and a
combination of other key ingredients, such as active
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cultures and soluble fiber, currently not available in the market. Such
products will also be subject to patent protection.* Another strength
includes proprietary technologies that can enhance Proventra by offering
immune protection against specific common disease-causing pathogens.*
Additionally, the Company's collaborative relationships offer financial,
production, sales and distribution synergies beyond those of GalaGen itself
which allow the Company to compete more effectively.*
COLOSTRUM MANUFACTURERS
The Company knows of certain colostrum manufacturers, including New
Zealand Dairy and La Belle, Inc., which supply colostrum in dried or liquid
form. These competitors are larger than the Company, have greater access to
capital and may be better able to withstand volatile market conditions.
Potential competitors could also be larger than the Company, have greater
access to capital and may be better able to withstand volatile market
conditions. The colostrum market requires access to a substantial number of
dairy cows to be commercially successful. The Company has assessed the
factors that may make it competitive in this environment and believe that its
central strengths are: (i) its access to 750,000 dairy cows in the Land
O'Lakes system, (ii) its ability to pasteurize, and/or certify Kosher,
colostrum while still maintaining the effectiveness of the immune-enhancing
components, namely antibodies, which the Company believes no competitor
offers, and (iii) additionally, its ability to enhance Proventra by offering
immune protection against targeted pathogens.*
CRITICAL CARE PRODUCTS
Competition in the critical care nutrition products market primarily
consists of five companies that have established brands in the specialty
markets in which the Company has chosen to compete. These companies,
Novartis, Mead Johnson, Nestle, Ross Laboratories and McGaw, each market
their specialty products through sales personnel who generally use
traditional in-person sales calls rather than the telemarketing approach
historically employed by the Company. Novartis, Mead Johnson, Nestle, Ross
Laboratories and McGaw are all larger than the Company, have greater access
to capital and are likely to be better able to withstand volatile market
conditions. Although the Company believes it is the only company currently
offering low cost alternatives to the established brands, other companies may
enter this market.*
EMPLOYEES
At December 31, 1998, the Company had 19 employees, eight of whom came
from NMI when the Company acquired certain assets of NMI and are in the
sales, marketing and quality control areas. Two employees have Ph.D.
degrees, and one of whom also has an M.D. degree. Five employees are
currently working in product development, including the clinical regulatory
area. The Company believes its employee relationships are good.
RISK FACTORS
Certain statements made in this Annual Report on Form 10-K, including those
indicated by an asterisk above, are forward-looking statements based on our
current expectations, assumptions, estimates and projections about our
business and our industry. These forward-looking statements involve risks
and uncertainties. Our business, financial condition and results of
operations could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, as more fully
described below and elsewhere in this Form 10-K. You should consider
carefully the risks and uncertainties described below, which are not the only
ones facing our Company. Additional risks and uncertainties also may impair
our business operations. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
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GENERAL
WE MAY NOT EVER ACHIEVE A PROFITABLE LEVEL OF OPERATIONS.
Our ability to achieve profitable operations depends in large part on:
- entering into agreements to develop products and establish markets for
those products; and
- making the transition from a research company to an operating and
marketing company.
We cannot be sure we will be successful in ever achieving either result.
We have experienced significant operating losses in each year since our
inception in 1987. We have an accumulated deficit of more than $57 million
as of December 31, 1998. We may continue to lose money in the future.
IF WE CANNOT OBTAIN CONTINUING FUNDING, WE MAY BE UNABLE TO IMPLEMENT
OUR BUSINESS PLANS.
If we cannot find adequate funding, we may have to delay or eliminate
some of our product development plans. We may be required to grant licenses
to others to establish markets for products or technologies that we would
otherwise seek to market ourselves.
Our cash requirements for working capital depend on numerous factors.
These factors include:
- our spending on marketing activities, including clinical marketing
trials;
- our progress in finding partners to help us develop products and
market those products;
- the willingness and ability of our partners to provide funding for our
activities;
- our spending on product development programs;
- the rate of technological advances in the production of our products;
- our spending on facilities, equipment and personnel to make our
products; and
- the status of competitive products.
Our long-term ability to continue funding our planned operations depends
on our ability to obtain additional funds through:
- product revenues;
- equity or debt financing;
- finding partners to help us develop products and market those
products;
- license agreements; or
- other financing sources.
Because of our significant long-term capital requirements, we may seek
to raise funds when conditions are favorable. We may do so even if we do not
have an immediate need for the capital at the time we raise it. If we have
not raised funds prior to when our needs for funding become immediate, we may
be forced to raise funds when conditions are unfavorable. This could result
in significant dilution of our current stockholders.
IF WE DO NOT ACHIEVE A PROFITABLE LEVEL OF OPERATIONS AND CANNOT FIND
FUNDING IN THE FUTURE, WE COULD EVENTUALLY BECOME INSOLVENT OR BANKRUPT.
If we do not achieve a profitable level of operations and we do not
obtain funding necessary from some source other than operations, we could
eventually deplete our cash reserves and become insolvent or bankrupt.
THE RELATIVELY LOW LEVEL OF TRADING IN OUR COMMON STOCK MAY MAKE IT
HIGHLY VOLATILE.
While our Common Stock has been traded on the Nasdaq National Market
since our initial public offering, the volume of shares of Common Stock
traded on that market has been relatively small. Given the small volume of
shares traded, market fluctuations may have a particularly adverse effect on
the market price of our Common Stock. We cannot be sure of the liquidity of
the market for the Common Stock or the price at which any sales may occur.
The volume of trading in our
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Common Stock in the future will depend upon the number of holders of the
Common Stock, the interest of securities dealers in maintaining a market in
the Common Stock and other factors beyond our control. The market price of
our Common Stock could be subject to significant fluctuations in response to:
- our operating results;
- the operating results of our competitors or other biotechnology
companies;
- technological developments;
- government regulations;
- the status of our proprietary rights to potential products;
- litigation;
- public safety concerns; and
- other factors.
Some of these factors are unrelated to our operating performance and
beyond our control.
GALAGEN AND THE OWNERS OF SHARES OF OUR COMMON STOCK MAY HAVE DIFFICULTY
IN SELLING THOSE SHARES IN THE FUTURE IF OUR COMMON STOCK IS REMOVED FROM
LISTING ON THE NASDAQ NATIONAL MARKET.
We must meet specific requirements for our shares to continue to be
listed on the Nasdaq National Market. Although we were meeting all of those
requirement as of December 31, 1998, we cannot be sure that we will continue
to meet them in the future. If we fail to meet the continued listing
requirements, or fail to file a plan acceptable to Nasdaq for meeting those
requirements, Nasdaq may remove our Common Stock from listing on the National
Market. We cannot be sure that our Common Stock will continue to be listed
on the National Market. If in the future our Common Stock fails to qualify
for continued listing on the National Market, we would apply to have its
listing transferred to the Nasdaq SmallCap Market. If the listing of our
Common Stock is transferred from the National Market to the SmallCap Market,
it may be more difficult for owners of our Common Stock to sell it through
brokers. Additionally, we may have more difficulty raising funds through the
sale of our Common Stock or securities convertible into Common Stock.
If trading privileges in our Common Stock on the Nasdaq National Market
were terminated, we would be required to demonstrate compliance with the
applicable requirements for initial inclusion of a security on the Nasdaq
National Market before our Common Stock would be listed again on that
exchange. The requirements for initial inclusion are more stringent than
those for continued listing.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT EXCEED OUR INSURANCE
COVERAGE.
Our business involves exposure to potential product liability risks that
are inherent in the production, manufacture and distribution of consumer and
clinical food products that are designed to be ingested. The successful
assertion or settlement of any uninsured claim, a significant number of
insured claims or a claim exceeding our insurance coverage could have a
material adverse effect on our business and financial condition. We cannot
be sure that we will be able to obtain product liability insurance on
acceptable terms or that provides adequate protection. Furthermore, we cannot
be sure that we will be able to secure increased insurance coverage as the
markets for our products increase.
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IF WE RELY ON INACCURATE MARKET INFORMATION, WE COULD MAKE DECISION THAT
HAS A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
Because we are currently developing our products and markets for those
products, we are particularly reliant on market data. If that data is
inaccurate, we may commit resources to product development and marketing
efforts that do not become profitable. Product development and marketing
efforts that do not become profitable may have a material adverse effect on
our business and financial condition. We have obtained market and related
data from a competitive-market analysis firm. We have not independently
verified the accuracy of that information. In any event, the methodology
typically used in compiling market and related data makes it subject to
inherent uncertainties and estimations. As a result, we cannot be sure as to
the accuracy or completeness of our market information.
INADEQUATE PROVENTRA PRODUCTION COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS AND FINANCIAL CONDITION.
Given our limited experience in manufacturing Proventra, we cannot be
sure that we will be successful in producing Proventra of acceptable quality
on a commercial scale and at acceptable costs in our manufacturing facility.
If we cannot, our business and financial condition could be materially
adversely affected. Our production of Proventra will be regulated by the
Minnesota Department of Agriculture. We believe that our current
manufacturing facility will meet the anticipated requirements for the
production of Proventra for use in consumer and clinical nutritional products
through the year 2000. Further, we believe that contract manufacturers would
be available to increase our Proventra production capacity quickly, if
required. However, until we begin producing Proventra on a commercial scale,
we cannot be sure that our production capabilities will be adequate.
FAILURE OF OUR COLLABORATIONS TO DEVELOP AND MARKET PRODUCTS CONTAINING
PROVENTRA COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL
CONDITION.
We are relying on collaborations with larger more establish companies to
develop and market products containing Proventra. Our collaborators'
inability to bring products to market could have a material adverse effect on
our business and financial condition. We anticipate that products containing
Proventra will be introduced in particular markets in the last half of 1999
through collaborations we have established with other companies. However,
introduction of these products to test markets on schedule depends on our
ability and our collaborators' ability to accomplish the following:
- finalize market research;
- finalize product development;
- establish product manufacturing;
- initiate marketing, sales and distribution activities related to such
products; and
- provide the funding necessary to accomplish such activities.
DELAYS OR HIGH COSTS IN PRODUCT DEVELOPMENT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
If we, or our strategic partners cannot obtain accurate marketing data,
or to develop a product responsive to the needs identified by that data, our
business and financial condition could be materially adversely affected. The
amount of time it will take us, together with our strategic partner, to
develop consumer and clinical nutrition products and the associated costs of
developing those products depends on, among other things, the results of our
market research for consumer and clinical products. It also depends on our
discussions with certain end users or purchasers of the potential products.
Market research and discussions may give us indications of potential
customers, what types of products they may desire and what clinical
information is necessary for effective marketing and sales.
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RISKS SPECIFIC TO FUNCTIONAL FOOD AND NUTRACEUTICAL PRODUCTS
PUBLIC MISPERCEPTION THAT OUR PRODUCTS MAY NOT BE SAFE COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
We are highly dependent upon consumers' perception of the safety and
quality of our products as well as of similar products distributed by other
companies. Thus, for example, the publication of reports asserting that such
products may be harmful could have a material adverse effect on our business
and financial condition, regardless of whether such reports are
scientifically supported and regardless of whether the alleged harmful
effects would be present at the dosages recommended for such products.
INNOVATIVE INGREDIENTS MAY PRODUCE UNWANTED EFFECTS AND EXPOSE US TO
PRODUCT LIABILITY CLAIMS OR LOSS OF CONSUMER CONFIDENCE.
If we develop products with innovative ingredients that over time are
shown to produce unwanted effects, we could be exposed to product liability
claims and lose consumer confidence, which could have a material adverse
effect on our business and financial condition. Some of our future products
may contain innovative ingredients or combinations of ingredients that do not
have a long history of human consumption. While we believe all of our
products will be safe when taken as we direct, there is little long-term
experience with human consumption of certain of these innovative product
ingredients or combinations thereof in concentrated form. Although we
perform research and/or test the formulation and production of our products,
we will sponsor only limited clinical studies or rely on other outside
published data.
IF LARGER COMPANIES WITH GREATER ACCESS TO CAPITAL AND PRODUCT MARKETS
ENTER OUR SEGMENT OF THE NUTRITIONAL PRODUCTS MARKET, WE MAY BE MATERIALLY
ADVERSELY AFFECTED.
Because the nutritional products industry generally has low barriers to
entry, additional competitors could enter the market at any time. Potential
competitors could be larger than we are, have greater access to capital than
we do and may be better able to withstand volatile market conditions than we
are. Although the nutritional products industry to date has been
characterized by many relatively small participants, national or
international companies (which may include pharmaceutical companies or other
suppliers to mass merchandisers) may seek to enter or to increase their
presence in this industry or to consolidate it. Increased competition in the
industry could have a material adverse effect on our business and financial
condition.
OUR FAILURE TO OBTAIN NECESSARY APPROVALS OR OTHERWISE COMPLY WITH
GOVERNMENT REGULATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
AND FINANCIAL CONDITION.
Our current and potential functional foods and nutraceutical products
may become subject to governmental regulation in the future. The burden of
such regulation could add materially to the costs and risks of our
development and marketing efforts. There can be no assurance that we could
obtain the required approvals or comply with new regulations if our products
are subject to additional governmental regulation in the future.
Some of our products in development may be subject to regulation by one
or more federal agencies, principally the Food and Drug Administration and
the Federal Trade Commission, and to a lesser extent the Consumer Product
Safety Commission and the United States Department of Agriculture regarding
the formulation, manufacturing, processing, packaging, labeling, advertising,
distribution and sale of nutritional supplements. These activities are also
regulated by various governmental agencies for the states and localities in
which the Company's products are sold, as well as by governmental agencies in
certain foreign countries in which the Company's products are sold. Among
other matters, regulation of the Company by the FDA and FTC is concerned with
claims made with respect to a product which refer to the value of the product
in treating or preventing disease or other adverse health conditions.
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RISKS SPECIFIC TO CRITICAL CARE NUTRITION PRODUCTS
IF WE DO NOT INCREASE THE SALES VOLUME OF OUR CRITICAL CARE NUTRITION
PRODUCTS, OUR BUSINESS AND FINANCIAL CONDITION MAY BE MATERIALLY ADVERSELY
AFFECTED.
Increasing the sales of our critical care nutrition products is an
important part of our business strategy. If we are not successful in
obtaining these sales increases, our business and financial condition may be
materially adversely affected. We acquired our current critical care enteral
nutrition products from Nutrition Medical on December 23, 1998. Our ability
to increase sales levels of the acquired critical care enteral nutrition
products will depend on our ability to successfully complete certain clinical
marketing studies and on our ability to effectively execute our operating
sales and marketing plans. We cannot be sure that we will succeed in
increasing the sales of these products.
IF OUR MARKETING EFFORTS DO NOT GENERATE THE NAME RECOGNITION FOR OUR
COMPANY AND OUR CRITICAL CARE PRODUCTS NECESSARY TO SIGNIFICANTLY ENHANCE
REVENUES, OUR BUSINESS AND FINANCIAL CONDITION MAY BE MATERIALLY ADVERSELY
AFFECTED
We cannot be sure that our marketing efforts will achieve the name
recognition of our company and of our critical care nutrition products
necessary to significantly enhance revenues. If they do not, our business
and financial condition could be materially adversely affected. Our
products, with the exception of Glutasorb, are designed to be substantially
equivalent to existing branded competitive products. Although we believe
that the quality and efficacy of our critical care nutrition products are
comparable to branded competitive products, no independent comparison between
our critical care nutrition products and competitive products has been
completed. We cannot be sure that the efficacy or quality of our critical
care nutrition products is, or will be, comparable to branded competitive
products. Furthermore, our name and our products are relatively unknown to
large segments of our target markets.
PRICE REDUCTIONS BY COMPETITORS COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS AND FINANCIAL CONDITION.
Much of our marketing strategy for our critical care nutrition products
is focused on the price advantage of our critical care nutrition products.
If a competitor reduces or eliminates the price advantage of our products, we
cannot be sure that we will be able to compete successfully with the
competitor, or operate profitably under such conditions. If we could not,
our business and financial condition could be materially adversely affected.
We believe that the principal advantage of our critical care nutrition
products, with the exception of Glutasorb, is cost effectiveness. Because
these products were only recently acquired, we have not yet experienced any
competitor lowering its prices to offset any price advantage we may have. We
are aware that while the products were owned by NMI, at least one competitor
in the critical care nutrition products market lowered prices to various
customers of some branded products to levels that offset all or part of the
price advantage held by NMI. We believe that any selective price reductions
by a competitor may result in lost sales of our competing products.
IF THE CONTRACT MANUFACTURERS THAT PRODUCE OUR PRODUCTS CANNOT DO SO
ADEQUATELY, OUR BUSINESS AND FINANCIAL CONDITION MAY BE MATERIALLY ADVERSELY
AFFECTED
We rely on contract manufacturers to produce our critical care nutrition
products according to our specifications. Any interruption in supply from
these manufacturers of any of our products could have a material adverse
effect on our business and financial condition. We cannot be sure that
contract manufacturers will consistently supply adequate quantities of our
products on a timely basis or that the quality of such products will be
consistently maintained. We also rely on these manufacturers to comply with
all applicable government regulations and manufacturing guidelines. We
cannot be sure these contract manufacturers will consistently comply with
government regulations. In the event of a sale of a defective product, we
would be
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exposed to product liability claims and could lose customer confidence. In
addition, minimum quantity order requirements imposed by manufacturers may
result in excess inventory levels, requiring additional working capital and
increasing exposure to losses from inventory obsolescence.
BECAUSE THE WAY WE DISTRIBUTE OUR PRODUCTS MAY RESULT IN A RELATIVELY
SMALL NUMBER OF CUSTOMERS, THE LOSS OF PARTICULAR CUSTOMERS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
Our critical care nutrition product sales may become concentrated with a
few large distributors and certain customers. We cannot be sure that orders
from such customers will continue or that our future orders will not
significantly decline, which could have a material adverse effect on our
business and financial condition.
WE MAY BECOME INVOLVED IN LITIGATION WITH COMPETITORS THAT MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
Companies in the private label industry are commonly the subject of
claims and lawsuits brought by brand name competitors alleging that the
private label products have formulas, labeling or packaging similar to
competing brand name products. Such litigation may require the commitment of
substantial management time and legal fees. Accordingly, such litigation may
have a material adverse effect on our business and financial condition.
Certain of the critical care nutrition products we acquired from Nutrition
Medical were the subject of a lawsuit alleging patent infringement. The suit
was favorably resolved before we acquired the products. Similar claims may
be made against us by competitors in the future. Competitors may also
respond to our marketing strategy by more aggressively seeking patents on
their products to limit our future product development efforts. If similar
infringement allegations are made against us in the future, some of our
current and future products may need to be reformulated or repackaged in
order for us to continue to market products that are comparable to
competitors' patented products. We may be unable to effectively reformulate
certain of our products. Furthermore, we cannot be sure that a reformulated
product would be viewed by customers to be essentially equivalent to the
patented product. Moreover, we cannot be sure that any future lawsuits could
be satisfactorily settled by reformulating, relabeling or repackaging a
product.
DIRECT COMPETITION FROM LARGER COMPANIES WITH SIGNIFICANT FINANCIAL
RESOURCES MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL
CONDITION.
Our competitors in the critical care nutrition products market are
established companies with significant financial resources that sell branded
products that have achieved a high level of customer awareness. If we are not
able to compete successfully or operate profitably in this market, our
business and financial condition could be materially adversely affected.
Other companies may also enter this market.
IF WE CANNOT ENFORCE, FOR ANY REASON, THE TRADEMARKS THAT WE ACQUIRED
FROM NUTRITION MEDICAL, OUR BUSINESS AND FINANCIAL CONDITION MAY BE
MATERIALLY ADVERSELY AFFECTED.
We cannot be sure that the trademarks we acquired from Nutrition Medical
do not or will not violate the proprietary rights of others. Nor can we be
sure that our proprietary rights in the marks would be upheld if challenged.
If we were prevented from using the marks for any reason, our business and
financial condition may be materially adversely affected. In addition, we
cannot be sure that we will have the financial resources necessary to enforce
or defend our trademarks, which could also have a material adverse effect on
our business and financial condition. We are in the process of registering
existing trademarks for the products acquired from Nutrition Medical with the
United States Patent & Trademark Office. As part of Nutrition Medical, the
products were not registered. Instead Nutrition Medical relied on common law
trademark rights. The lack of such registration may impair the ability of the
Company to successfully register the trademarks or to prosecute successfully
an infringement action against other users of these trademarks.
19
<PAGE>
OUR FAILURE TO OBTAIN NECESSARY APPROVALS OR OTHERWISE COMPLY WITH
GOVERNMENT REGULATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
AND FINANCIAL CONDITION.
Our critical care products and potential critical care products are, or
will be, subject to government regulation. Our current products are
regulated as food and medical food by the FDA and are subject to certain
labeling requirements, current good manufacturing practice regulations and
certain other regulations designed to ensure the safety of the products.
Our current and potential products may become subject to further
governmental regulation in the future. The burden of such regulation could
add materially to the costs and risks of our development and marketing
efforts. There can be no assurance that we could obtain the required
approvals or comply with new regulations if our products are subject to
additional governmental regulation in the future.
Claims we make in labeling and advertising our products are subject to
regulation by the FDA, the FTC and various state agencies under their general
authority to prevent false, misleading and deceptive trade practices. These
regulations involve stringent tracking, testing and documentation standards.
Failure to comply with such requirements can result in adverse regulatory
action, including injunctions, civil or criminal penalties, product recalls
or the relabeling, reformulation or possible termination of certain products.
20
<PAGE>
ITEM 2. PROPERTIES
The Company leases approximately 5,500 square feet of administrative,
laboratory, and manufacturing space at the Land O'Lakes corporate office
located in Arden Hills, Minnesota. In addition, the Company rents, on an
as-needed basis, public warehouse space to store inventory. Management
believes that the Company's facilities are suitable and adequate for current
office, research, manufacturing and storage requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM X. EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert A. Hoerr, M.D., Ph.D. 49 Chairman of the Board of Directors
and Chief Executive Officer
Henry J. Cardello 47 President and Director
Eileen F. Bostwick, Ph.D. 48 Vice President, Research and
Development
Michael E. Cady 46 Vice President, Manufacturing and
Engineering
Gregg A. Waldon 38 Vice President, Chief Financial
Officer, Secretary and Treasurer
</TABLE>
ROBERT A. HOERR, M.D., PH.D., was named President and Chief Operating
Officer of the Company in February 1994, became President and Chief Executive
Officer in September 1994 and became Chairman of the Board and Chief
Executive Officer in November 1998. He served as Vice President, Medical and
Regulatory Affairs of the Company from January 1993 to December 1993 and
Senior Vice President from December 1993 to February 1994. Dr. Hoerr was
Director of Medical Affairs for Sandoz Nutrition Corporation, a
research-based nutrition company, from March 1990 to January 1993. From 1986
to 1990, Dr. Hoerr was Research Scientist and Assistant Program Director at
the Clinical Research Center, Massachusetts Institute of Technology ("MIT").
Dr. Hoerr received his A.B. in Biology from Indiana University, his M.D. from
Indiana University School of Medicine and his Ph.D. in Nutritional
Biochemistry and Metabolism from MIT.
HENRY J. CARDELLO, has served as President since January 1999. Mr.
Cardello has been advising the Company since April 1998 through Marketing
Ventures of America, Inc. ("MVA"), a consumer-marketing firm that specializes
in commercializing consumer-based products, of which he has been Chairman and
President since July 1987. Prior to July 1987, Mr. Cardello was President of
Sunkist Soft Drinks, Inc., a unit of Cadbury Schweppes, Vice President of
Marketing for Cadbury's Canada Dry business and Director of Marketing for
Coca-Cola USA. Additionally, Mr. Cardello has held several brand management
positions with Anheuser-Busch and General Mills, Inc. Mr. Cardello received
his B.S. degree in engineering from Lehigh University and his M.B.A. from The
Wharton Graduate School of Business.
EILEEN F. BOSTWICK, PH.D., has served as Manager of Research and
Development since July 1992, Director of Research and Development since
September 1993 and Vice President of Research and Development since March
1997. Dr. Bostwick joined the Company's predecessor, Procor Technologies,
Inc. ("Procor") in 1988 as Immunology Group Leader. Prior thereto, Dr.
Bostwick was a Senior Immunologist in the Biotechnology Section at Minnesota
Mining & Manufacturing. Dr. Bostwick received her B.S. and M.S. degrees from
Michigan State University in Dairy Science, and her Ph.D. in immunology and
physiology from the University of Minnesota.
21
<PAGE>
MICHAEL E. CADY has served as Vice President, Manufacturing and
Engineering of the Company since July 1992. From January 1988 to July 1992,
Mr. Cady served as Director of Operations for Procor. From 1979 to 1988, Mr.
Cady held engineering and planning positions within several operating groups
at Land O'Lakes. Mr. Cady was a member of the Land O'Lakes group that
evaluated and implemented the polyclonal antibody technology used as a basis
for the Company's manufacturing process. Prior to joining Land O'Lakes Mr.
Cady was an engineer at Swift & Company, a food processing company. Mr. Cady
received his B.S. in Engineering from the University of Iowa and earned his
M.B.A. from the University of St. Thomas in 1985.
GREGG A. WALDON served as Controller of the Company from April 1992 to
September 1992, and was elected Treasurer in September 1992, Secretary in
March 1993, Vice President in December 1993 and Chief Financial Officer in
November 1994. From April 1989 to April 1992, Mr. Waldon served as an Audit
Manager with Price Waterhouse LLP, a public accounting firm, in its Middle
Market and Emerging Growth Practice in Minneapolis, Minnesota and from 1986
to 1989 was Senior/Staff accountant with Price Waterhouse. Mr. Waldon is
resigning from the Company effective March 31, 1999.
Officers of the Company are chosen by and serve at the discretion of the
Board of Directors. There are no family relationships among any of the
directors, officers or key employees of the Company.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Incorporated herein by reference is the information appearing under the
heading "Market For Registrant's Common Equity and Related Stockholder
Matters" in the Company's Annual Report to Stockholders for the year ended
December 31, 1998 (the "1998 Annual Report").
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference is the information appearing under the
heading "Selected Financial Data" in the 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference is the information appearing under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the 1998 Annual Report.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated herein by reference is the information appearing under the
heading "Quantitative and Qualitative Disclosures About Market Risk" in the
1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference is the information appearing under the
headings "Balance Sheets", "Statements of Operations", "Statement of Changes
in Stockholders' Equity", "Statements of Cash Flows", "Notes to Financial
Statements" and "Report of Independent Auditors" in the 1998 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information appearing under the
headings "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive Proxy Statement for the
annual meeting of stockholders to be held on May 12, 1999 (the "Proxy
Statement"). See also Part I hereof under the heading "Item X. Executive
Officers of Registrant".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing under the
headings "Report of the Compensation Committee", "Executive Compensation" and
"Comparative Stock Performance" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information appearing under the
heading "Security Ownership of Principal Stockholders and Management" in the
Company's Proxy Statement.
23
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information appearing under the
heading "Certain Relationships and Related Transactions" in the Company's
Proxy Statement.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements:
The consolidated financial statements of the Company are
incorporated herein by reference from the information appearing under
the headings "Balance Sheets", "Statements of Operations", "Statement
of Changes in Stockholders' Equity", "Statements of Cash Flows",
"Notes to Financial Statements" and "Report of Independent Auditors"
in the 1998 Annual Report.
2. Financial Statement Schedules:
The following consolidated financial statement schedules of the
Company are included in Item 14(d):
Schedule II Valuation and Qualifying Accounts
(b) Reports on Form 8-K
The Company filed a report on 8K, dated December 23, 1998,
relating to the purchase of certain critical care enteral products,
related inventory and certain fixed assets from NMI.
(c) Exhibits:
The following exhibits are filed as part of this Annual Report on Form
10-K for the year ended December 31, 1998.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
3.2 Restated Certificate of Incorporation of the Incorporated By
Company.(3) Reference
3.4 Restated Bylaws of the Company.(1) Incorporated By
Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated By
Reference
4.6 Form of Common Stock Warrant to purchase shares of Incorporated By
Common Stock of the Company, issued in connection with Reference
the sale of Convertible Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series F-1 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series F-2 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation,
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of Common Stock of Incorporated By
the Company issued to IAI Investment Funds VI, Inc. Reference
(IAI Emerging Growth Fund), dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Incorporated By
Company issued to IAI Investment Funds IV, Inc. (IAI Reference
Regional Fund), dated January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to John Pappajohn, dated February 2, Reference
1996.(1)
4.14 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Edgewater Private Equity Fund, Reference
L.P., dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of Incorporated By
the Company issued to Joseph Giamenco, dated Reference
February 2, 1996.(1)
4.16 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Gus A. Chafoulias, dated Reference
February 2, 1996.(1)
4.17 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to JIBS Equities, dated February 2, Reference
1996.(1)
4.18 Warrant to purchase 25,000 shares of Common Stock of Incorporated By
the Company issued to Land O'Lakes, Inc., dated Reference
February 2, 1996.(1)
4.19 6% Convertible Debenture Purchase Agreement dated Incorporated By
November 18, 1997 among the Company and the Purchasers Reference
named therein.(8)
4.20 Registration Rights Agreement dated November 18, 1997 Incorporated By
among the Company and the Holders named therein.(9) Reference
4.21 6% Convertible Debenture due May 18, 1999 issued to CPR Incorporated By
(USA) Inc. dated November 18, 1997.(10) Reference
4.22 6% Convertible Debenture due May 18, 1999 issued to Incorporated By
Libertyview Plus Fund dated November 18, 1997.(11) Reference
4.23 6% Convertible Debenture due May 18, 1999 issued to Incorporated By
Libertyview Fund, LLC dated November 18, 1997.(12) Reference
4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated Incorporated By
November 18, 1997.(13) Reference
4.25 Stock Purchase Warrant issued to Libertyview Plus Fund Incorporated By
dated November 18, 1997.(14) Reference
4.26 Stock Purchase Warrant issued to Libertyview Fund, LLC Incorporated By
dated November 18, 1997.(15) Reference
4.27 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(16) Reference
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
4.28 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(17) Reference
4.29 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(18) Reference
4.30 Warrant issued to Henry J. Cardello dated as of April Incorporated By
13, 1998.(20) Reference
4.31 Warrant issued to Henry J. Cardello dated as of April Incorporated By
30, 1998.(20) Reference
4.32 Warrant issued to Henry J. Cardello dated as of June 19, Incorporated By
1998.(20) Reference
4.33 Warrant issued to William Young and Rebecca Young dated Electronic
as of August 12, 1998. Transmission
4.34 Warrant issued to Henry J. Cardello dated as of Electronic
September 30, 1998. Transmission
4.35 Warrant issued to American Home Products Corporation Electronic
dated as of October 15, 1998. Transmission
#10.1 License Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Company and Land Incorporated By
O'Lakes dated May 7, 1992.(1) Reference
*10.5 GalaGen Inc. 1992 Stock Plan, as amended.(5) Incorporated By
Reference
10.7 Stock and Warrant Purchase Agreement between the Company Incorporated By
and Chiron Corporation dated March 20, 1995.(1) Reference
#10.8 License and Collaboration Agreement between the Company Incorporated By
and Chiron Corporation dated March 20, 1995.(1) Reference
*10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended.(2) Incorporated By
Reference
10.10 Credit Agreement between the Company and Norwest Bank Incorporated By
Minnesota, N.A., dated as of January 24, 1996.(1) Reference
10.11 Commitment Letter between the Company and Cargill Incorporated By
Leasing Corporation, dated June 5, 1996.(2) Reference
10.12 Master Equipment Lease between the Company and Cargill Incorporated By
Leasing Corporation, dated June 6, 1996.(2) Reference
10.13 Agreement for Progress Payments between the Company and Incorporated By
Cargill Leasing Corporation, dated June 6, 1996.(2) Reference
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
10.14 Agreement for Lease between the Company and Land Incorporated By
O'Lakes, dated June 3, 1996.(2) Reference
*10.15 Letter agreement with John G. Watson dated September 14, Incorporated By
1996.(3) Reference
#10.16 Agreement with Colorado Animal Research Enterprises, Incorporated By
Inc. dated November 1, 1996.(4) Reference
*10.17 Letter agreement with Francois Lebel, M.D., dated Incorporated By
December 27, 1996.(4) Reference
*10.18 Consulting agreement with Stanley Falkow, Ph.D., dated Incorporated By
January 15, 1997.(4) Reference
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Incorporated By
Compensation Plan.(4) Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Incorporated By
Compensation Plan.(4) Reference
*10.21 GalaGen Inc. 1997 Incentive Plan.(6) Incorporated By
Reference
10.22 Master Loan and Security Agreement with TransAmerica Incorporated By
Business Credit Corporation dated June 8, 1997.(7) Reference
10.23 Amended and Restated License Agreement between the Incorporated By
Company and Land O'Lakes dated March 11, 1998.(19) Reference
#10.24 License Agreement between the Company and Metagenics, Incorporated By
Inc. dated April 7, 1998.(20) Reference
10.25 Marketing Agreement between the Company and Nutrition Incorporated By
Medical, Inc., dated September 1, 1998.(21) Reference
10.26 Asset Purchase Agreement between the Company and Incorporated By
Nutrition Medical, Inc., dated September 1, 1998.(21) Reference
*10.27 Letter agreement with John G. Watson dated September 16, Incorporated By
1998.(21) Reference
10.28 Asset Purchase Agreement Amendment 1 between the Company Incorporated By
and Nutrition Medical, Inc., dated October 28, Reference
1998.(22)
10.29 Asset Purchase Agreement Amendment 2 between the Company Incorporated By
and Nutrition Medical, Inc., dated December 23, Reference
1998.(23)
##10.30 Collaboration and License Agreement between the Company Electronic
and American Home Products Corporation acting through Transmission
its Wyeth-Ayerst Laboratories Division, dated October
15, 1998
##10.31 Manufacturing and Supply Agreement between the Company Electronic
and American Home Products Corporation acting through Transmission
its Wyeth-Ayerst Laboratories Division dated October 15,
1998.
##10.32 Product Development Collaboration, Manufacturing and Electronic
Supply, and Retail Marketing Agreement between the Transmission
Company and
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
General Nutrition Corporation, dated December 22, 1998
11.1 Statement re: computation of per share earnings (loss). Electronic
Transmission
13.1 1998 Annual Report to Stockholders Electronic
Transmission
23.1 Consent of Ernst & Young LLP. Electronic
Transmission
27.1 Financial Data Schedule for Year Ended December 31, Electronic
1998. Transmission
27.2 Restated Financial Data Schedule for Quarter ended March Incorporated By
31, 1996.(19) Reference
</TABLE>
(1) Incorporated herein by reference to the same numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No.
333-1032).
(2) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996 (File No. 0-27976).
(3) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 (File No. 0-27976).
(4) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the period ended December 31,
1996 (File No. 0-27976).
(5) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 (File No. 0-27976).
(6) Incorporated herein by reference to Appendix A to the Company's 1997
Definitive Proxy Statement on Schedule 14A (File No. 0-27976).
(7) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997 (File No. 0-27976).
(8) Incorporated herein by reference to Exhibit No. 4.4 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(9) Incorporated herein by reference to Exhibit No. 4.5 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(10) Incorporated herein by reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(11) Incorporated herein by reference to Exhibit No. 4.7 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(12) Incorporated herein by reference to Exhibit No. 4.8 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(13) Incorporated herein by reference to Exhibit No. 4.9 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(14) Incorporated herein by reference to Exhibit No. 4.10 to the Company's
Registration Statement on Form S-3(Registration No. 333-41151).
29
<PAGE>
(15) Incorporated herein by reference to Exhibit No. 4.11 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(19) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the period ended December 31,
1997 (File No. 0-27976).
(20) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1998 (File No. 0-27976).
(21) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended September
30, 1998 (File No. 0-27976).
(22) Incorporated herein by reference to Exhibit No. 2.2 to the Company's
Report on Form 8-K, dated December 23, 1998 (File No. 0-27976).
(23) Incorporated herein by reference to Exhibit No. 2.3 to the Company's
Report on Form 8-K, dated December 23, 1998 (File No. 0-27976).
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
# Contains portions for which confidential treatment has been granted
to the Company.
## Contains portions of which confidential treatment has been applied
for by the Company.
(d) Valuation and Qualifying Accounts:
<TABLE>
<CAPTION>
Balance at Charged to Balance at end
beginning of Costs and of period
period Expenses Deductions
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
Allowance for returns and doubtful accounts - $14,020 - $14,020
----------- ----------- ---------- --------------
Total - $14,020 - $14,020
----------- ----------- ---------- --------------
Year Ended December 31, 1997:
Total - - - -
----------- ----------- ---------- --------------
Year Ended December 31, 1996:
Total - - - -
----------- ----------- ---------- --------------
</TABLE>
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized, on
March 31, 1999.
GALAGEN INC.
By /s/ Robert A. Hoerr
-----------------------------------
Robert A. Hoerr, M.D., Ph.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 31, 1999.
/s/ Robert A. Hoerr
-----------------------------------------------------
Robert A. Hoerr, Chairman and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ Gregg A. Waldon
-----------------------------------------------------
Gregg A. Waldon, Vice President, Chief Financial
Officer, Treasurer and Secretary (Principal Financial
Officer and Principal Accounting Officer)
/s/ Henry J. Cardello
-----------------------------------------------------
Henry J. Cardello, President and Director
/s/ Ronald O. Ostby
-----------------------------------------------------
Ronald O. Ostby, Director
/s/ R. David Spreng
-----------------------------------------------------
R. David Spreng, Director
/s/ Winston R. Wallin
-----------------------------------------------------
Winston R. Wallin, Director
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By
Reference
3.4 Restated Bylaws of the Company.(1) Incorporated By
Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated By
Reference
4.6 Form of Common Stock Warrant to purchase shares of Common Incorporated By
Stock of the Company, issued in connection with the sale Reference
of Convertible Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series F-1 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series F-2 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Reference
Chiron Corporation, dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of Common Stock of the Incorporated By
Company issued to IAI Investment Funds VI, Inc. (IAI Reference
Emerging Growth Fund), dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Incorporated By
Company issued to IAI Investment Funds IV, Inc. (IAI Reference
Regional Fund), dated January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to John Pappajohn, dated February 2, Reference
1996.(1)
4.14 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to Edgewater Private Equity Fund, L.P., Reference
dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of the Incorporated By
Company issued to Joseph Giamenco, dated February 2, Reference
1996.(1)
4.16 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to Gus A. Chafoulias, dated February 2, Reference
1996.(1)
4.17 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to JIBS Equities, dated February 2, Reference
1996.(1)
4.18 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to Land O'Lakes, Inc., dated February 2, Reference
1996.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
4.19 6% Convertible Debenture Purchase Agreement dated Incorporated By
November 18, 1997 among the Company and the Purchasers Reference
named therein.(8)
4.20 Registration Rights Agreement dated November 18, 1997 Incorporated By
among the Company and the Holders named therein.(9) Reference
4.21 6% Convertible Debenture due May 18, 1999 issued to CPR Incorporated By
(USA) Inc. dated November 18, 1997.(10) Reference
4.22 6% Convertible Debenture due May 18, 1999 issued to Incorporated By
Libertyview Plus Fund dated November 18, 1997.(11) Reference
4.23 6% Convertible Debenture due May 18, 1999 issued to Incorporated By
Libertyview Fund, LLC dated November 18, 1997.(12) Reference
4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated Incorporated By
November 18, 1997.(13) Reference
4.25 Stock Purchase Warrant issued to Libertyview Plus Fund Incorporated By
dated November 18, 1997.(14) Reference
4.26 Stock Purchase Warrant issued to Libertyview Fund, LLC Incorporated By
dated November 18, 1997.(15) Reference
4.27 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(16) Reference
4.28 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(17) Reference
4.29 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(18) Reference
4.30 Warrant issued to Henry J. Cardello dated as of April 13, Incorporated By
1998. (20) Reference
4.31 Warrant issued to Henry J. Cardello dated as of April 30, Incorporated By
1998. (20) Reference
4.32 Warrant issued to Henry J. Cardello dated as of June 19, Incorporated By
1998. (20) Reference
4.33 Warrant issued to William Young and Rebecca Young dated Electronic
as of August 12, 1998. Transmission
4.34 Warrant issued to Henry J. Cardello dated as of September Electronic
30, 1998. Transmission
4.35 Warrant issued to American Home Products Corporation Electronic
dated as of October 15, 1998. Transmission
#10.1 License Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
#10.3 Supply Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Company and Land Incorporated By
O'Lakes dated May 7, 1992.(1) Reference
*10.5 GalaGen Inc. 1992 Stock Plan, as amended. (5) Incorporated By
Reference
10.7 Stock and Warrant Purchase Agreement between the Company Incorporated By
and Chiron Corporation dated March 20, 1995.(1) Reference
#10.8 License and Collaboration Agreement between the Company Incorporated By
and Chiron Corporation dated March 20, 1995.(1) Reference
*10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended.(2) Incorporated By
Reference
10.10 Credit Agreement between the Company and Norwest Bank Incorporated By
Minnesota, N.A., dated as of January 24, 1996.(1) Reference
10.11 Commitment Letter between the Company and Cargill Leasing Incorporated By
Corporation, dated June 5, 1996. (2) Reference
10.12 Master Equipment Lease between the Company and Cargill Incorporated By
Leasing Corporation, dated June 6, 1996. (2) Reference
10.13 Agreement for Progress Payments between the Company and Incorporated By
Cargill Leasing Corporation, dated June 6, 1996. (2) Reference
10.14 Agreement for Lease between the Company and Land O'Lakes, Incorporated By
dated June 3, 1996. (2) Reference
*10.15 Letter agreement with John G. Watson dated September 14, Incorporated By
1996. (3) Reference
#10.16 Agreement with Colorado Animal Research Enterprises, Inc. Incorporated By
dated November 1, 1996. (4) Reference
*10.17 Letter agreement with Francois Lebel, M.D., dated Incorporated By
December 27, 1996. (4) Reference
*10.18 Consulting agreement with Stanley Falkow, Ph.D., dated Incorporated By
January 15, 1997. (4) Reference
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Incorporated By
Compensation Plan. (4) Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Incorporated By
Compensation Plan. (4) Reference
*10.21 GalaGen Inc. 1997 Incentive Plan. (6) Incorporated By
Reference
10.22 Master Loan and Security Agreement with TransAmerica Incorporated By
Business Credit Corporation dated June 8, 1997. (7) Reference
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
10.23 Amended and Restated License Agreement between the Incorporated By
Company and Land O'Lakes dated March 11, 1998. (19) Reference
#10.24 License Agreement between the Company and Metagenics, Incorporated By
Inc. dated April 7, 1998. (20) Reference
10.25 Marketing Agreement between the Company and Nutrition Incorporated By
Medical, Inc., dated September 1, 1998. (21) Reference
10.26 Asset Purchase Agreement between the Company and Incorporated By
Nutrition Medical, Inc., dated September 1, 1998.(21) Reference
*10.27 Letter agreement with John G. Watson dated September 16, Incorporated By
1998.(21) Reference
10.28 Asset Purchase Agreement Amendment 1 between the Company Incorporated By
and Nutrition Medical, Inc., dated October 28, 1998.(22) Reference
10.29 Asset Purchase Agreement Amendment 2 between the Company Incorporated By
and Nutrition Medical, Inc., dated December 23, Reference
1998.(23)
##10.30 Collaboration and License Agreement between the Company Electronic
and American Home Products Corporation acting through its Transmission
Wyeth-Ayerst Laboratories Division, dated October 15,
1998
##10.31 Manufacturing and Supply Agreement between the Company Electronic
and American Home Products Corporation acting through its Transmission
Wyeth-Ayerst Laboratories Division dated October 15,
1998.
##10.32 Product Development Collaboration, Manufacturing and Electronic
Supply, and Retail Marketing Agreement between the Transmission
Company and General Nutrition Corporation, dated December
22, 1998
11.1 Statement re: computation of per share earnings (loss). Electronic
Transmission
13.1 1998 Annual Report to Stockholders Electronic
Transmission
23.1 Consent of Ernst & Young LLP. Electronic
Transmission
27.1 Financial Data Schedule for Year Ended December 31, 1998. Electronic
Transmission
27.2 Restated Financial Data Schedule for Quarter ended March Incorporated By
31, 1996. (19) Reference
</TABLE>
(1) Incorporated herein by reference to the same numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No.
333-1032).
(2) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996 (File No. 0-27976).
<PAGE>
(3) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 (File No. 0-27976).
(4) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the period ended December 31,
1996 (File No. 0-27976).
(5) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 (File No. 0-27976).
(6) Incorporated herein by reference to Appendix A to the Company's 1997
Definitive Proxy Statement on Schedule 14A (File No. 0-27976).
(7) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997 (File No. 0-27976).
(8) Incorporated herein by reference to Exhibit No. 4.4 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(9) Incorporated herein by reference to Exhibit No. 4.5 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(10) Incorporated herein by reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(11) Incorporated herein by reference to Exhibit No. 4.7 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(12) Incorporated herein by reference to Exhibit No. 4.8 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(13) Incorporated herein by reference to Exhibit No. 4.9 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(14) Incorporated herein by reference to Exhibit No. 4.10 to the Company's
Registration Statement on Form S-3(Registration No. 333-41151).
(15) Incorporated herein by reference to Exhibit No. 4.11 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(19) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the period ended December 31,
1997 (File No. 0-27976).
(20) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1998 (File No. 0-27976).
(21) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended September
30, 1998 (File No. 0-27976).
<PAGE>
(22) Incorporated herein by reference to Exhibit No. 2.2 to the Company's
Report on Form 8-K, dated December 23, 1998 (File No. 0-27976).
(23) Incorporated herein by reference to Exhibit No. 2.3 to the Company's
Report on Form 8-K, dated December 23, 1998 (File No. 0-27976).
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
# Contains portions for which confidential treatment has been granted to
the Company.
## Contains portions of which confidential treatment has been applied for
by the Company.
<PAGE>
EXHIBIT 4.33
WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
GALAGEN INC.
THIS WARRANT CERTIFIES THAT, for value received, William Young and
Rebecca Young (,herein called "Purchaser") or registered assigns is entitled
to subscribe for and purchase from GalaGen Inc. (herein called the
"Company"), a corporation organized and existing under the laws of the State
of Delaware, at the price specified below (subject to adjustment as noted
below) at any time from and after August 13, 1998 to and including August 13,
2003, Fifty Thousand (50,000) fully paid and nonassessable shares of the
Company's Common Stock, $.01 par value per share ("Common Stock") (subject to
adjustment as noted below). This Warrant granted to the Purchaser is in lieu
of any granted warrants to Investor Network Company or Young, Smith and
Associates.
The warrant purchase price shall be $3.125 per share (subject to
adjustment as noted below).
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by
the holder hereof, in whole or in part, by written notice of exercise, in the
form attached hereto, delivered to the Company ten days prior to the intended
date of exercise and by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it by
check of the purchase price in lawful money of the United States. The
Company agrees that the shares so purchased shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding 10 days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered to
the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall
not be required to deliver any certificate for shares of stock upon exercise
of this Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof and the restrictive legend under the
heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may
be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be duly authorized and issued, fully paid and nonassessable.
The Company further covenants and
<PAGE>
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares
of its Common Stock to provide for the exercise of the rights represented by
this Warrant.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price,
the holder of this Warrant shall thereafter be entitled to purchase, at the
warrant purchase price resulting from such adjustment, the number of shares
obtained by multiplying the warrant purchase price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
warrant purchase price resulting from such adjustment.
(b) In case the Company shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as described
in paragraph (c) below) or any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock (any of
such obligations or shares of stock being hereinafter called "Convertible
Securities"), or in any rights or options to purchase Common Stock or
Convertible Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of earnings or
earned surplus, then thereafter the holder of this Warrant upon the exercise
hereof will be entitled to receive the number of shares of Common Stock to
which such holder shall be entitled upon such exercise, and, in addition and
without further payment therefor, each dividend described in clause (i) above
and each dividend or distribution described in clause (ii) above which such
holder would have received by way of dividends or distributions if
continuously since such holder became the record holder of this Warrant such
holder (x) had been the record holder of the number of shares of Common Stock
then received, and (y) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible Securities, and any
rights or options to purchase any Common Stock or Convertible Securities)
payable in respect of such Common Stock or in respect of any stock or
securities paid as dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the foregoing, a
dividend or distribution other than in cash shall be considered payable out
of earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the Company.
(c) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
warrant purchase price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller
-2-
<PAGE>
number of shares, the warrant purchase price in effect immediately prior to
such combination shall be proportionately increased.
(d) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or sale of all or substantially all of its assets to
another corporation (any such reorganization, reclassification,
consolidation, merger or sale being hereinafter called an "Event") shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, unless lawful and adequate provision shall have been made
whereby the holder hereof shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock of the Company equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had the Event not taken place,
the Board of Directors of the Company shall declare, at least twenty days
prior to the actual effective date of the Event, and provide written notice
to the holder hereof of the declaration, that this Warrant shall be canceled
at the time of, or immediately prior to the occurrence of, the Event (unless
it shall have been exercised prior to the occurrence of the Event) in
exchange for payment to the holder hereof, within twenty days after the
Event, of cash equal to the amount (if any), for each share of Common Stock
issuable upon exercise of this Warrant, by which the Event Proceeds per share
of Common Stock (as hereinafter defined) exceeds the purchase price per share
of Common Stock under this Warrant. In the event of a declaration pursuant
to this paragraph (d), this Warrant, if not exercised prior to the Event,
shall be canceled at the time of, or immediately prior to, the Event, as
provided in the declaration, subject to the payment obligations of the
Company provided in this paragraph (d). For purposes of this paragraph (d),
"Event Proceeds per share of Common Stock" shall mean the cash plus the fair
market value, as determined in good faith by the Board of Directors of the
Company, of the non-cash consideration to be received per share of Common
Stock by the shareholders of the Company upon the occurrence of the Event. If
provision shall be made, pursuant to this paragraph (d), for the right of the
holder hereof to purchase and receive stock, securities or assets of any
successor corporation (other than the Company) upon the occurrence of any
Event, then such successor corporation shall assume, by written instrument
executed and mailed to the registered holder hereof at the last address of
such holder appearing on the books of the Company, the obligation to deliver
to such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to purchase.
(e) Upon any adjustment of the warrant purchase price, then and
in each such case the Company shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company,
which notice shall state the warrant purchase price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such
-3-
<PAGE>
price upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
(f) In case any time:
(1) the Company shall declare any cash dividend on Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
Common Stock or make any distribution (other than regular cash
dividends) to the holders of Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or
other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company, of the date on which (aa) the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights, or (bb) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given at least
20 days prior to the action in question and not less than 20 days prior to
the record date or the date on which the Company's transfer books are closed
in respect thereto.
(g) If any event occurs as to which in the opinion of the Board
of Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in
accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid; provided, however, that the
members of the Board of Directors of the Company shall not be liable to the
holders hereof for any such determination made in good faith.
-4-
<PAGE>
(h) No fractional shares of Common Stock shall be issued upon
the exercise of this Warrant, but, instead of any fraction of a share which
would otherwise be issuable, the Company shall pay a cash adjustment (which
may be effected as a reduction of the amount to be paid by the holder hereof
upon such exercise) in respect of such fraction in an amount equal to the
same fraction of the market price per share of Common Stock as of the close
of business on the date preceding the written notice of exercise required by
paragraph 1 above. "Market price" for purposes of this paragraph 4(h) shall
mean, if the Common Stock is traded on a securities exchange or on The Nasdaq
National Market, the closing price of the Common Stock on such exchange or
The Nasdaq National Market, or, if the Common Stock is otherwise traded in
the over-the-counter market, the closing bid price, in each case averaged
over a period of 20 consecutive business days prior to the date as of which
"market price" is being determined. If at any time the Common Stock is not
traded on an exchange or The Nasdaq National Market, or otherwise traded in
the over-the-counter market, the "market price" shall be deemed to be the
higher of (i) the book value thereof as determined by any firm of independent
public accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and
include the Company's presently authorized Common Stock and shall also
include any capital stock of any class of the Company hereafter authorized
which shall not be limited to a fixed sum or percentage in respect of the
rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company; provided that the shares
purchasable pursuant to this Warrant shall include shares designated as
Common Stock of the Company on the date of original issue of this Warrant or,
in the case of any reclassification of the outstanding shares thereof, the
stock, securities or assets provided for in paragraph 4(d) above.
6. This Warrant shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
7.(a) The holder of this Warrant acknowledges that neither this
Warrant nor any of the shares of Common Stock issuable upon exercise hereof
have been registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and that this Warrant or such shares of
Common Stock may only be transferred in accordance with this paragraph 7.
The holder of this Warrant, by acceptance hereof, represents that it has
acquired this Warrant for investment and not with a view to distribution of
this Warrant or the shares of Common Stock issuable upon exercise hereof
within the meaning of the Act and the rules and regulations thereunder.
(b) The Purchaser realizes that the purchase of this Warrant is
a speculative investment, and that the economic benefits which may be derived
therefrom are uncertain. In determining whether or not to purchase the
Warrant, the Purchaser has relied solely upon the
-5-
<PAGE>
publicly-available materials filed by the Company with the Securities and
Exchange Commission, copies of which have been reviewed by the Purchaser, and
upon independent investigations made by the Purchaser and its representatives.
(c) The holder of this Warrant, by acceptance hereof, agrees to
give written notice to the Company before exercising or transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock
issuable or issued upon the exercise hereof, of such holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Such
holder shall also provide the Company with an opinion of counsel satisfactory
to the Company to the effect that the proposed exercise or transfer of this
Warrant or transfer of shares may be effected without registration or
qualification under the Act and any applicable state securities laws of this
Warrant and the shares of Common Stock issuable or issued upon the exercise
hereof. Upon receipt of such written notice and opinion by the Company, such
holder shall be entitled to exercise this Warrant in accordance with its
terms, or to transfer this Warrant, or to transfer shares of Common Stock
issuable or issued upon the exercise of this Warrant, all in accordance with
the terms of the notice delivered by such holder to the Company, provided
that an appropriate legend respecting the aforesaid restrictions on transfer
may be endorsed on this Warrant or the certificates for such shares. In the
event of a proposed transfer of this Warrant, prior to the transfer the
proposed transferee shall execute and deliver to the Company a warrant
transfer letter in the form attached hereto.
8. Subject to the provisions of paragraph 7 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, at
the principal office of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that the bearer of this Warrant, when endorsed, may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered holder hereof as the
owner for all purposes.
9. The Purchaser shall receive registration rights as follows:
(a) If the Company at any time within five years from the date
of this Warrant (but no more than two (2) years after the date of exercise of
this Warrant), proposes to register under the Securities Act (except by a
Form S-4 or Form S-8 Registration Statement or any successor forms thereto)
any of its securities, it will give written notice to Purchaser hereof, and
on the written request from such Purchaser given within Ten (10) days after
receipt of any such notice (which request shall specify the interest in this
Warrant or the Common Stock from the Warrant to be intended to be sold or
disposed of by such Purchaser (the "Warrant Shares") and describe the nature
of any proposed sale or other disposition thereof), the Company will use its
best efforts to cause all such Warrant Shares, the Purchaser of which shall
have
-6-
<PAGE>
requested the registration or qualification thereof, to be included in such
registration statement proposed to be filed by the Company; provided that:
(i) all Warrant Shares subject to this Warrant must be registered
(no registration of a portion of the Warrant Shares is permitted),
provided, however, if a greater number of Warrant Shares is offered for
participation in the proposed offering than in the reasonable opinion of
the managing underwriter of the proposed offering can be accommodated
without adversely affecting the proposed offering, then the amount of
Warrant Shares proposed to be offered by such Purchaser for registration,
as well as the number of securities of any other selling shareholders
participating in the registration, shall be proportionately reduced to a
number deemed satisfactory by the managing underwriter
(ii) the Company may, at its sole discretion and without the
consent of the Purchaser of the Warrant Shares, withdraw such registration
statement and abandon the proposed offering in which any such holder had
requested to participate;
(iii) if the offering to which the registration statement relates is
to be distributed by or through an underwriter, the Purchaser of the
Warrant Shares shall agree, as a condition to the inclusion of such
Purchaser's securities in such registration, to sell securities held by
such Purchaser through such underwriter on the same terms and conditions as
the underwriter agrees to sell securities on behalf of the Company and not
to sell, transfer, pledge, assign or otherwise dispose of the Warrant
Shares of the Company not sold by such holder in such offering for such
period (up to 180 days after the effective date of the registration
statement) as may be required by the underwriter;
(iv) the Company shall not be obligated to include any Warrant
Shares in any such registration if the Purchaser is able to sell all of the
Warrant Shares in a single transaction pursuant to Rule 144 under the
Securities Act (or any other similar rule or regulation) during the
three-month period beginning on the date such notice is received by such
holder, calculated as of the date of such receipt.
(b) Upon the exercise of registration rights pursuant to this
Section 9, Purchaser agrees to supply the Company with such information as
may be required by the Company to register or qualify the shares to be
registered.
(c) With respect to each inclusion of securities in a
registration statement pursuant to this Section 9, the Company shall bear the
following fees, costs, and expenses: all registration, filing and NASD fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company is required to bear such fees
and disbursements), all internal expenses, and legal fees and disbursements
and other expenses of complying with state securities laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified. Fees and disbursements of special counsel and accountants for
-7-
<PAGE>
the selling Purchaser, underwriting discounts and commissions, and transfer
taxes for selling Purchaser and any other expenses relating to the sale of
securities by the selling Purchaser not expressly included above shall be
borne by the selling Purchaser.
(d) The Company hereby indemnifies the Purchaser of this Warrant
and of any Warrant Shares within the meaning of Section 15 of the Securities
Act, against all losses, claims, damages, and liabilities caused by (i) any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus (and as amended or supplemented if
the Company shall have furnished any amendments thereof or supplements
thereto), any Preliminary Prospectus or any state securities law filings;
(ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages, or liabilities are
caused by any untrue statement or omission contained in information furnished
in writing to the Company by such Purchaser expressly for use therein; and
each such Purchaser by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company, each of its officers who signs such
Registration Statement, each underwriter of the Common Stock so registered,
and each person, if any, who controls the Company or such underwriter, within
the meaning of Section 15 of the Securities Act, with respect to losses,
claims, damages, or liabilities which are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Purchaser expressly for use therein.
10. This Warrant is exchangeable, upon the surrender hereof by
the holder hereof at the principal office of the Company, for new Warrants of
like tenor representing in the aggregate the right to subscribe for and
purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe for
and purchase such number of shares as shall be designated by said holder
hereof at the time of such surrender.
11. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of
March 9, 1999.
GALAGEN INC.
By
-----------------------------------
Its
----------------------------------
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i)
the opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Securities Act of 1933, as
amended, and all applicable state securities laws or (ii) such registration.
-9-
<PAGE>
ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ___________________________________________________________ this
Warrant, and appoints ____________________________________________________ to
transfer this Warrant on the books of GalaGen Inc. with the full power of
substitution in the premises.
Dated:
-------------------------------------
In the presence of:
-------------------------------------
-----------------------------------
(Signature must conform in all
respects to the name of the holder
as specified on the face of this
Warrant without any alteration or
change whatsoever, and the
signature must be guaranteed in the
usual manner)
<PAGE>
FORM OF WARRANT TRANSFER LETTER
To: GalaGen Inc.
Ladies and Gentlemen:
The undersigned is a proposed transferee of the warrant (the "Warrant")
to purchase ____________________ shares of Common Stock, par value $.01
("Common Stock"), of GalaGen Inc., a Delaware corporation (the "Company"),
currently registered in the name of ____________________. In order to induce
the Company to consent to the transfer of the Warrant, the undersigned hereby
represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither the Warrant nor any of
the shares of Common Stock issuable upon exercise thereof have been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and that, accordingly, the Warrant and such shares of
Common Stock may only be transferred in accordance with the terms of
paragraph 7 of the Warrant.
2. The undersigned is acquiring the Warrant for investment and not
with a view to distribution of the Warrant or the shares of Common Stock
issuable upon exercise thereof within the meaning of the Act and the rules
and regulations thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
Signature
- ---------------------------------------
Address
---------------------------------------
Date
------------------------------------------
<PAGE>
FORM OF EXERCISE NOTICE
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: GalaGen Inc. (the "Company")
The undersigned
-------------------------------------------
Please insert Social Security or other
identifying number of Purchaser:
-------------------------------------------
hereby irrevocably elects to exercise the right of purchase represented by
this Warrant for, and to purchase thereunder, ______________________ shares
of the Common Stock provided for therein and tenders payment herewith to the
order of the Company in the amount of $______________________, such payment
being made as provided on the face of this Warrant.
In order to induce the Company to consent to the exercise of this
Warrant, the undersigned hereby represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither this Warrant nor any of
the shares of Common Stock issuable upon exercise hereof have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and that, accordingly, this Warrant may be exercised and the
shares of Common Stock issued pursuant to this exercise may only be
transferred in accordance with the terms of paragraph 7 of this Warrant.
2. The undersigned is acquiring the shares of Common Stock issued
pursuant to this exercise for investment and not with a view to distribution
of such shares within the meaning of the Act and the rules and regulations
thereunder.
<PAGE>
The undersigned requests that certificates for such shares of
Common Stock be issued as follows:
Name:
------------------------------------------------------------------
Address:
------------------------------------------------------------------
Deliver to:
------------------------------------------------------------------
Address:
------------------------------------------------------------------
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance
remaining of the shares of Common Stock purchasable under this Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Address:
------------------------------------------------------------------
Signature
---------------------------------------
(Signature must conform in all respects
to the name of the holder as written
specified on the face of this Warrant
without any alteration or change
whatsoever)
Dated:
------------------------
<PAGE>
EXHIBIT 4.34
WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
GALAGEN INC.
THIS WARRANT CERTIFIES THAT, for value received, Henry J. Cardello
(herein called "Purchaser") or registered assigns is entitled to subscribe
for and purchase from GalaGen Inc. (herein called the "Company"), a
corporation organized and existing under the laws of the State of Delaware,
at the price specified below (subject to adjustment as noted below) at any
time from and after September 30, 1998 to and including September 30, 2003,
Twelve Thousand Five Hundred (12,500) fully paid and nonassessable shares of
the Company's Common Stock, $.01 par value per share ("Common Stock")
(subject to adjustment as noted below).
The warrant purchase price shall be $1.813 per share (subject to
adjustment as noted below).
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise, in the
form attached hereto, delivered to the Company ten days prior to the intended
date of exercise and by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it by
check of the purchase price in lawful money of the United States. The
Company agrees that the shares so purchased shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding l0 days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered to
the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for shares of stock upon exercise of
this Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof and the restrictive legend under the
heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be
<PAGE>
exercised, the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock
to provide for the exercise of the rights represented by this Warrant.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price,
the holder of this Warrant shall thereafter be entitled to purchase, at the
warrant purchase price resulting from such adjustment, the number of shares
obtained by multiplying the warrant purchase price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
warrant purchase price resulting from such adjustment.
(b) In case the Company shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as described
in paragraph (c) below) or any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock (any of
such obligations or shares of stock being hereinafter called "Convertible
Securities"), or in any rights or options to purchase Common Stock or
Convertible Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of earnings or
earned surplus, then thereafter the holder of this Warrant upon the exercise
hereof will be entitled to receive the number of shares of Common Stock to
which such holder shall be entitled upon such exercise, and, in addition and
without further payment therefor, each dividend described in clause (i) above
and each dividend or distribution described in clause (ii) above which such
holder would have received by way of dividends or distributions if
continuously since such holder became the record holder of this Warrant such
holder (x) had been the record holder of the number of shares of Common Stock
then received, and (y) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible Securities, and any
rights or options to purchase any Common Stock or Convertible Securities)
payable in respect of such Common Stock or in respect of any stock or
securities paid as dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the foregoing, a
dividend or distribution other than in cash shall be considered payable out
of earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the Company.
(c) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
warrant purchase price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a
-2-
<PAGE>
smaller number of shares, the warrant purchase price in effect immediately
prior to such combination shall be proportionately increased.
(d) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or sale of all or substantially all of its assets to
another corporation (any such reorganization, reclassification,
consolidation, merger or sale being hereinafter called an "Event") shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, unless lawful and adequate provision shall have been made
whereby the holder hereof shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock of the Company equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had the Event not taken place,
the Board of Directors of the Company shall declare, at least twenty days
prior to the actual effective date of the Event, and provide written notice
to the holder hereof of the declaration, that this Warrant shall be canceled
at the time of, or immediately prior to the occurrence of, the Event (unless
it shall have been exercised prior to the occurrence of the Event) in
exchange for payment to the holder hereof, within twenty days after the
Event, of cash equal to the amount (if any), for each share of Common Stock
issuable upon exercise of this Warrant, by which the Event Proceeds per share
of Common Stock (as hereinafter defined) exceeds the purchase price per share
of Common Stock under this Warrant. In the event of a declaration pursuant
to this paragraph (d), this Warrant, if not exercised prior to the Event,
shall be canceled at the time of, or immediately prior to, the Event, as
provided in the declaration, subject to the payment obligations of the
Company provided in this paragraph (d). For purposes of this paragraph (d),
"Event Proceeds per share of Common Stock" shall mean the cash plus the fair
market value, as determined in good faith by the Board of Directors of the
Company, of the non-cash consideration to be received per share of Common
Stock by the shareholders of the Company upon the occurrence of the Event. If
provision shall be made, pursuant to this paragraph (d), for the right of the
holder hereof to purchase and receive stock, securities or assets of any
successor corporation (other than the Company) upon the occurrence of any
Event, then such successor corporation shall assume, by written instrument
executed and mailed to the registered holder hereof at the last address of
such holder appearing on the books of the Company, the obligation to deliver
to such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to purchase.
(e) Upon any adjustment of the warrant purchase price, then and in
each such case the Company shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company, which notice
shall state the warrant purchase price resulting from
-3-
<PAGE>
such adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(f) In case any time:
(1) the Company shall declare any cash dividend on Common Stock
at a rate in excess of the rate of the last cash dividend theretofore
paid;
(2) the Company shall pay any dividend payable in stock upon
Common Stock or make any distribution (other than regular cash
dividends) to the holders of Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or
other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company, of the date on which (aa) the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights, or (bb) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given at least
20 days prior to the action in question and not less than 20 days prior to
the record date or the date on which the Company's transfer books are closed
in respect thereto.
(g) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in
accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid; provided, however, that the
members of the Board of Directors of the Company shall not be liable to the
holders hereof for any such determination made in good faith.
-4-
<PAGE>
(h) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon
such exercise) in respect of such fraction in an amount equal to the same
fraction of the market price per share of Common Stock as of the close of
business on the date preceding the written notice of exercise required by
paragraph 1 above. "Market price" for purposes of this paragraph 4(h) shall
mean, if the Common Stock is traded on a securities exchange or on The Nasdaq
National Market, the closing price of the Common Stock on such exchange or
The Nasdaq National Market, or, if the Common Stock is otherwise traded in
the over-the-counter market, the closing bid price, in each case averaged
over a period of 20 consecutive business days prior to the date as of which
"market price" is being determined. If at any time the Common Stock is not
traded on an exchange or The Nasdaq National Market, or otherwise traded in
the over-the-counter market, the "market price" shall be deemed to be the
higher of (i) the book value thereof as determined by any firm of independent
public accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include
the Company's presently authorized Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of
the Company; provided that the shares purchasable pursuant to this Warrant
shall include shares designated as Common Stock of the Company on the date of
original issue of this Warrant or, in the case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
paragraph 4(d) above.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
7.(a) The holder of this Warrant acknowledges that neither this
Warrant nor any of the shares of Common Stock issuable upon exercise hereof
have been registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and that this Warrant or such shares of
Common Stock may only be transferred in accordance with this paragraph 7.
The holder of this Warrant, by acceptance hereof, represents that it has
acquired this Warrant for investment and not with a view to distribution of
this Warrant or the shares of Common Stock issuable upon exercise hereof
within the meaning of the Act and the rules and regulations thereunder.
(b) The Purchaser realizes that the purchase of this Warrant is a
speculative investment, and that the economic benefits which may be derived
therefrom are uncertain. In determining whether or not to purchase the
Warrant, the Purchaser has relied solely upon the
-5-
<PAGE>
publicly-available materials filed by the Company with the Securities and
Exchange Commission, copies of which have been reviewed by the Purchaser, and
upon independent investigations made by the Purchaser and its representatives.
(c) The Purchaser represents to the Company that he is an
"accredited investor" as defined in Rule 501(a) of Regulation D promulgated
under the Act, by virtue of being (i) a natural person whose individual net
worth, or joint net worth with his spouse, at the time of the purchase
exceeds $1,000,000 or (ii) a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with
his spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year.
(d) The holder of this Warrant, by acceptance hereof, agrees to
give written notice to the Company before exercising or transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock
issuable or issued upon the exercise hereof, of such holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Such
holder shall also provide the Company with an opinion of counsel satisfactory
to the Company to the effect that the proposed exercise or transfer of this
Warrant or transfer of shares may be effected without registration or
qualification under the Act and any applicable state securities laws of this
Warrant and the shares of Common Stock issuable or issued upon the exercise
hereof. Upon receipt of such written notice and opinion by the Company, such
holder shall be entitled to exercise this Warrant in accordance with its
terms, or to transfer this Warrant, or to transfer shares of Common Stock
issuable or issued upon the exercise of this Warrant, all in accordance with
the terms of the notice delivered by such holder to the Company, provided
that an appropriate legend respecting the aforesaid restrictions on transfer
may be endorsed on this Warrant or the certificates for such shares. In the
event of a proposed transfer of this Warrant, prior to the transfer the
proposed transferee shall execute and deliver to the Company a warrant
transfer letter in the form attached hereto.
8. Subject to the provisions of paragraph 7 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, at the
principal office of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that the bearer of this Warrant, when endorsed, may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered holder hereof as the
owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of
like tenor representing in the aggregate the right to subscribe for and
purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to
-6-
<PAGE>
subscribe for and purchase such number of shares as shall be designated by
said holder hereof at the time of such surrender.
10. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of
March 9, 1999.
GALAGEN INC.
By
-----------------------------------
Its
----------------------------------
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i)
the opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Securities Act of 1933, as
amended, and all applicable state securities laws or (ii) such registration.
-7-
<PAGE>
ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ___________________________________________________________ this
Warrant, and appoints ____________________________________________________ to
transfer this Warrant on the books of GalaGen Inc. with the full power of
substitution in the premises.
Dated:
-------------------------------------
In the presence of:
-------------------------------------
-----------------------------------
(Signature must conform in all
respects to the name of the holder
as specified on the face of this
Warrant without any alteration or
change whatsoever, and the
signature must be guaranteed in the
usual manner)
<PAGE>
FORM OF WARRANT TRANSFER LETTER
To: GalaGen Inc.
Ladies and Gentlemen:
The undersigned is a proposed transferee of the warrant (the "Warrant")
to purchase ____________________ shares of Common Stock, par value $.01
("Common Stock"), of GalaGen Inc., a Delaware corporation (the "Company"),
currently registered in the name of ____________________. In order to induce
the Company to consent to the transfer of the Warrant, the undersigned hereby
represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither the Warrant nor any of
the shares of Common Stock issuable upon exercise thereof have been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and that, accordingly, the Warrant and such shares of
Common Stock may only be transferred in accordance with the terms of
paragraph 7 of the Warrant.
2. The undersigned is acquiring the Warrant for investment and not
with a view to distribution of the Warrant or the shares of Common Stock
issuable upon exercise thereof within the meaning of the Act and the rules
and regulations thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
Signature
- ---------------------------------------
Address
----------------------------------------
Date
-------------------------------------------
<PAGE>
FORM OF EXERCISE NOTICE
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: GalaGen Inc. (the "Company")
The undersigned
--------------------------------------------
Please insert Social Security or other
identifying number of Purchaser:
-------------------------------------------
hereby irrevocably elects to exercise the right of purchase represented by
this Warrant for, and to purchase thereunder, ______________________ shares
of the Common Stock provided for therein and tenders payment herewith to the
order of the Company in the amount of $______________________, such payment
being made as provided on the face of this Warrant.
In order to induce the Company to consent to the exercise of this
Warrant, the undersigned hereby represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither this Warrant nor any of
the shares of Common Stock issuable upon exercise hereof have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and that, accordingly, this Warrant may be exercised and the
shares of Common Stock issued pursuant to this exercise may only be
transferred in accordance with the terms of paragraph 7 of this Warrant.
2. The undersigned is acquiring the shares of Common Stock issued
pursuant to this exercise for investment and not with a view to distribution
of such shares within the meaning of the Act and the rules and regulations
thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
<PAGE>
The undersigned requests that certificates for such shares of
Common Stock be issued as follows:
Name:
------------------------------------------------------------------
Address:
------------------------------------------------------------------
Deliver to:
------------------------------------------------------------------
Address:
------------------------------------------------------------------
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance
remaining of the shares of Common Stock purchasable under this Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Address:
------------------------------------------------------------------
Signature
---------------------------------------
(Signature must conform in all respects
to the name of the holder as written
specified on the face of this Warrant
without any alteration or change
whatsoever)
Dated:
------------------------
<PAGE>
EXHIBIT 4.35
THIS WARRANT HAS NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE WARRANT IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION
UNDER THE PROVISIONS OF THE 1933 ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
STOCK PURCHASE WARRANT
No. _____________
To Purchase 200,000 Shares of Common Stock of
GALAGEN INC.
THIS CERTIFIES that, for value received, American Home Products
Corporation, a Delaware corporation (the "Investor"), is entitled, upon the
terms and subject to the conditions hereinafter set forth, at any time on or
after October 15, 1998 and on or prior to October 15, 2005 (the "Termination
Date") but not thereafter, to subscribe for and purchase from GALAGEN INC., a
corporation incorporated in Delaware (the "Company"), TWO HUNDRED THOUSAND
(200,000) shares (the "Warrant Shares") of Common Stock, par value US$0.01 per
share of the Company (the "Common Stock"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be equal to TWO
DOLLARS AND FORTY FIVE CENTS ($2.45). The Exercise Price and the number of
shares for which the Warrant is exercisable (the "Conversion Shares") shall be
subject to adjustment as provided herein. This Warrant is being issued in
connection with the Collaboration and License Agreement, by and between the
Company and Investor acting through its Wyeth-Ayerst Laboratories Division and
of even date herewith, the "License Agreement".
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and covenants with, the Investor that the following
are true and correct as of the date hereof.
(1) ORGANIZATION; QUALIFICATION. The Company is a corporation duly
organized and validly existing under the laws of Delaware and is in good
standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business as
a foreign corporation in each jurisdiction in the United States in which the
ownership of its property or the nature of its business requires such
qualification, except where failure to so qualify would not have a material
adverse effect on the Company.
(2) AUTHORIZATION. The Company has all requisite corporate right, power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Conversion Shares and the
performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
herein. Upon their issuance and delivery pursuant to this Agreement, the
Conversion Shares will be validly issued, fully paid and nonassessable and will
be free of any liens or encumbrances except for those imposed by or on behalf of
the Investor, its creditors or agents.
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(3) NO CONFLICT. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets.
(4) ACCURACY OF REPORTS AND INFORMATION. The Company is in compliance,
to the extent applicable, with all reporting obligations under either Section
12(b), 12 (g) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"). The Company has registered its Common Stock pursuant to Section 12
of the 1934 Act and the Common Stock is listed and trades on the NASDAQ National
Market.
The Company has filed all material required to be filed pursuant to all
reporting obligations under either Section 13(a) or 15(d) of the 1934 Act for a
period of at least twelve (12) months immediately preceding the date hereof (or
for such shorter period that the Company has been required to file such
material).
(5) COMMISSION FILINGS/FULL DISCLOSURE. For a period of at least twelve
(12) months immediately preceding the date hereof, or such shorter period that
the Company has been required to file Reports (as defined below), (i) none of
the Company's filings with the Commission contain any 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 in light of the circumstances under
which they were made, not misleading, and (ii) the Company has timely filed all
requisite forms, reports and exhibits thereto with the Commission.
(6) GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement.
B. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR. The
Investor represents and warrants to, and covenants with, the Company that the
following are true and correct as of the date hereof.
(1) AUTHORITY. The Investor has all requisite right, power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Investor, its directors, shareholders, members or partners necessary for the
authorization, execution, delivery and performance of this Agreement with regard
to the purchase of the Warrants as well as the conversion and exercise thereof,
and the performance of the Investor's obligations hereunder, has been taken.
The Investor's signatory has all right, power, authority and capacity to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Investor and
will constitute the legal, valid and binding obligation of the Investor,
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy as they may apply to the indemnification
provisions set forth in this Agreement.
(2) INVESTMENT EXPERIENCE. Investor is an "accredited investor" as
defined in Rule 501(a) under the 1933 Act. Investor is aware of the Company's
business affairs and financial condition and has had access to and has acquired
sufficient information about the Company, including but not limited to the
Reports. Investor has such business and financial experience as is required to
give it the capacity to protect its own interests in connection with the
purchase of the Warrants and the Conversion Shares.
(3) INVESTMENT INTENT. Without limiting its ability to resell the
underlying Common Stock pursuant to an effective registration statement,
Investor represents that it is purchasing the Warrants for its own account as
principal for investment purposes, and not with a view to a distribution.
Investor understands that its acquisition of the Warrants have not been
registered under the 1933 Act or registered or qualified under any state
securities law in reliance on specific exemptions therefrom, which exemptions
may
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depend upon, among other things, the bona fide nature of Investor's investment
intent as expressed herein. Investor will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of) of the Warrants, except in
compliance with the 1933 Act and any applicable state securities laws, and the
rules and regulations promulgated thereunder.
(4) REGISTRATION OR EXEMPTION REQUIREMENTS. Investor further
acknowledges and understands that the Conversion Shares may not be resold or
otherwise transferred except in a transaction registered under the 1933 Act and
any applicable state securities laws or unless an exemption from such
registration is available. Investor understands that the Warrants and, if
exercised, the Conversion Shares will be imprinted with a legend that prohibits
the transfer of such securities unless (i) it is registered or such registration
is not required pursuant to an exemption therefrom, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the 1933
Act and Investor provides an opinion of Investor's inside counsel to the
Company, which opinion and which counsel shall be reasonably satisfactory to the
Company to the effect that the transaction is so exempt.
(5) NO REGISTRATION, REVIEW OR APPROVAL. The Investor acknowledges and
understand that the limited private offering and sale of the Warrants and the
Conversion Shares pursuant to this Agreement has not been reviewed or approved
by the Commission or by any state securities commission, authority or agency,
and is not registered under the 1933 Act or under the securities or "blue sky"
laws, rules or regulations of any state. The Investor acknowledges, understands
and agrees that the Conversion Shares are being offered and sold hereunder
pursuant to (i) a private placement exemption to the registration provisions of
the 1933 Act pursuant to Section 3(b) or Section 4(2) of the 1933 Act and
Regulation D promulgated under the 1933 Act, and (ii) a similar exemption to the
registration provisions of applicable state securities laws.
C. GENERAL TERMS OF WARRANT.
(1) TITLE OF WARRANT. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
(2) AUTHORIZATION OF SHARES. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
(3) EXERCISE OF WARRANT. Except as provided in Section C(4) herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times, before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in this Warrant, by
the surrender of this Warrant and the Notice of Exercise Form annexed hereto
duly executed, at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company) and
upon payment of the Exercise Price of the shares thereby; whereupon the holder
of this Warrant shall be entitled to receive a certificate for the number of
shares of Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within ten (10) business days
after the date on which this Warrant shall have been exercised as aforesaid.
Payment of the Exercise Price of the shares may be by certified check or
cashier's check or by wire transfer to an account designated by the Company in
an amount equal to the Exercise Price multiplied by the number of Warrant
Shares.
(4) NO FRACTIONAL SHARES OR SCRIP. No fractional shares of Common Stock
(or other securities deliverable hereunder) or scrip shall be issued to any
Holder in connection with the exercise of this Warrant. Instead of any
fractional share of Common Stock (or other securities deliverable hereunder)
that would otherwise be issuable to such Holder, the Company shall pay to such
Holder a cash adjustment in respect of such fractional interest in an amount
equal to such fractional interest multiplied by the
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Exercise Price per share of Common Stock (or other securities deliverable
hereunder) on the date of such exercise.
(5) CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; PROVIDED, HOWEVER, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and PROVIDED FURTHER, that upon any transfer involved in the issuance or
delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
(6) CLOSING OF BOOKS. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant for
a period of time in excess of five (5) trading days per year.
(7) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as the record owner
of such shares as of the close of business on the later of the date of such
surrender or payment.
(8) ASSIGNMENT AND TRANSFER OF WARRANT. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any expenses of transfer incidental thereto
and that this Warrant may not be resold or otherwise transferred except (i) in a
transaction registered under the 1933 Act, or (ii) in a transaction pursuant to
an exemption, if available, from such registration and whereby, if requested by
the Company, an opinion of counsel reasonably satisfactory to the Company is
obtained by the holder of this Warrant to the effect that the transaction is so
exempt.
(9) LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
certificate or any stock certificate relating to the Warrant Shares, and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.
(10) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
(11) EFFECT OF CERTAIN EVENTS.
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in which
the consideration to be received by the Company or its shareholders consists
solely of cash, then the Warrant shall terminate if the Warrant has not been
exercised by the effective date of such transaction, the Company shall give the
holder of this Warrant thirty (30) days' notice of such termination and of the
proposed effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part
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of consideration other than cash, the holder of this Warrant shall have the
right thereafter to purchase, by exercise of this Warrant and payment of the
aggregate Exercise Price in effect immediately prior to such action, the kind
and amount of shares and other securities and property which it would have owned
or have been entitled to receive after the happening of such transaction had
this Warrant been exercised immediately prior thereto.
(12) REGISTRATION OF COMMON STOCK.
12.1(a) Demand Registration. Upon the written request of the Investor,
which request will state the intended method of disposition by the Investor and
will request that the Company effect the registration under the 1933 Act of all
or part of the Conversion Shares, the Company will, within 10 days after receipt
of such request, give written notice of such requested registration to all
record holders of securities who have registration rights, and thereupon (except
as expressly provided herein) will use its reasonable best efforts to effect the
registration ("Demand Registration") under the 1933 Act of (x) the shares of
Conversion Shares included in the initial request for registration (for
disposition in accordance with the intended method of disposition stated in such
request) and (y) all other shares of securities, the record holders of which
have made written request to the Company for registration thereof within 30 days
after the receipt of such written notice from the Company, provided that:
(a) except as set forth below, the Company shall be required to
effect no more than three Demand Registrations hereunder and Investor shall be
required to register all Conversion Shares underlying this Warrant held at the
time of such demand which shall be no less than 50,000 shares of Common Stock at
a time; provided that the Company shall not be required to effect more than one
registration during any one-year period pursuant to this Section 12.1;
(b) if the Investor intends to sell its Conversion Shares by
means of an underwriting (whether on a "best efforts" or a "firm commitment"
basis), it shall so advise the Company as part of its request, and the Company
shall include such information in the notice to the other record holders of
securities who have registration rights. In that event, such other record
holders shall have the right to include their shares of such registrable
securities in the underwriting. The managing underwriter for such offering
shall be selected by the Investor, who shall be reasonably acceptable to the
Company;
(c) if a Demand Registration under this Section 12.1 is in
connection with an underwritten public offering, and if the managing
underwriters advise the Company in writing that in their reasonable opinion the
amount of Conversion Shares, and securities the holders of which have
registration rights requested to be included in such registration exceeds the
amount of such securities which can be successfully sold in such offering, the
Company will nevertheless include in such registration, prior to the inclusion
of any securities which are not Conversion Shares or share of Common Stock with
similar registration rights which are to be included in such registration, the
amount of Conversion Shares and other shares of Common Stock with similar
registration rights which in the opinion of such underwriters can be sold, pro
rata among the holders of Conversion Shares and other Common Stock requesting
inclusion with similar registration rights on the basis of the number of shares
of Conversion Shares and other Common Stock requested to be included in such
registration; provided, however, that if the Investor is unable to include in
such offering at least seventy-five percent (50%) of the Conversion Shares
sought to be registered in a Demand Registration under this Section 12.1, the
Investor will be entitled to an additional Demand Registration under this
Section;
(d) if the Company shall furnish to the Investor requesting a
registration pursuant to this Section 12.1 a certificate signed by the Chief
Executive Officer of the Company stating that, in the good faith judgment of the
Board of Directors of the Company, it would be materially detrimental to the
Company for a registration statement to be filed as requested, the Company shall
have the right to defer such filing for a period of not more than 120 days after
receipt of the initial request for registration under this Section 12.1;
provided, however, that the Company may not utilize this right more than once in
any one-year period; and
(e) registrations under this Section 12.1 will be on a form
reasonably acceptable to Investor (or it may withdraw its demand without losing
such demand right) permitted by the rules and regulations of the Commission
selected by the underwriters if the Demand Registration is in connection with an
underwritten public offering or otherwise
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by the Company, provided, however, that within 15 days of notice from the
Company of the form selected, the Investor shall confirm in writing to the
Company that the form selected for registration is reasonably acceptable to the
Investor and the Investor shall thereafter be precluded from withdrawing its
demand for such registration on the basis of this Section 12.1(f).
12.1(b) Incidental Registrations.
(a) If the Company at any time proposes to register any of its
securities under the 1933 Act (other than pursuant to Section 12.1(a) hereof,
whether of its own accord or at the demand of any holder of securities pursuant
to an agreement with respect to the registration thereof (provided such
agreement does not prohibit third parties from including additional securities
in such registration), and if the form of registration statement proposed to be
used may be used for the registration of Conversion Shares (and provided such
registration statement in connection with a transaction contemplated by Rule
145(a) under the 1993 Act, or is not on a Form S-4 or S-8), the Company will
give notice to the Investor not less than 5 days nor more than 60 days prior to
the filing of such registration statement of its intention to proceed with the
proposed registration (the "Incidental Registration"), and, upon the written
request of the Investor made within 5 days after the receipt of any such notice
(which request will specify the Conversion Shares intended to be disposed of by
such holder and state the intended method of disposition thereof), the Company
will use its reasonable best efforts to cause all Conversion Shares as to which
registration has been requested to be registered under the 1933 Act, provided
that if such registration is in connection with an underwritten public offering,
the Company may require that the Conversion Shares to be included in such
registration be offered upon the same terms and conditions as apply to any other
securities included in such registration. Notwithstanding the foregoing
provisions or any other obligation of the Company contained in this Section 12,
the Company may withdraw or delay any Registration Statement without incurring
any liability to the holder of Conversion Shares. This provision shall expire
at such time as Investor may freely sell all Conversion Shares without
registration under the 1933 Act and Investor holds Warrants or Conversion Shares
which number less than 75,000 shares of Common Stock.
(b) If an Incidental Registration is a primary registration on
behalf of the Company and is in connection with an underwritten public offering,
and if the managing underwriters advise the Company in writing that in their
reasonable opinion the amount of securities requested to be included in such
registration (whether by the Company, the Investor or other holders of its
securities pursuant to any other rights granted by the Company to demand
inclusion of any such securities in such registration) exceeds the amount of
such securities which can be successfully sold in such offering, the Company
will include in such registration the amount of securities requested to be
included which in the opinion of such underwriters can be sold, in the following
order (i) first, all of the securities the Company proposes to sell, and (ii)
second, all of the Conversion Shares and other shares of Common Stock with
similar registration rights requested to be included in such registration, pro
rata among the holders thereof on the basis of the number of shares requested to
be included in such registration.
(c) If an Incidental Registration is a secondary registration on
behalf of holders of securities of the Company and is in connection with an
underwritten public offering, and if the managing underwriters advise the
Company in writing that in their reasonable opinion the amount of securities
requested to be included in such registration (whether by such holders, by the
Investor or by holders of its securities pursuant to any other rights granted by
the Company to demand inclusion of securities in such registration) exceeds the
amount of such securities which can be sold in such offering, the Company will
include in such registration the amount of securities requested to be included
which in the opinion of such underwriters can be sold, in the following order
(i) first, all of the securities requested to be included by holders initially
demanding or requesting such registration, (ii) second, all of the Conversion
Shares and other shares of Common Stock with similar registration rights
requested to be included in such registration, pro rata among the holders
thereof on the basis of the number of shares requested to be included in such
registration, and (iii) third, any other securities requested to be included in
such registration, pro rata among the holders thereof on the basis of the amount
of such securities then owned by such holders.
(d) Notwithstanding anything to contrary contained in this
Section 12, if securities are registered by the Company pursuant to Section 7.1
of that certain Stock and
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Warrant Purchase Agreement dated March 20, 1995 between the Company and Chiron
Corporation, then Conversion Shares shall be included in such offering and
Registration Statement only to the extent that inclusion of the Conversion
shares will not reduce the amount of securities owned by Chiron Corporation to
be registered in such offering.
(e) Any Conversion Shares which are not included in an
underwritten offering pursuant to the foregoing provisions of this Section (and
all other Conversion Shares held by the Investor) shall be withheld from the
market (which shall not include any private sale transaction, provided the
purchaser in such private sale agrees in writing to be bound by the terms of
this subparagraph (e)) by the Investor for a period not to exceed 120 days, if
the underwriter deems such withholding from the market is reasonably necessary
and Investor shall agree to execute an agreement to this effect which is in
customary form; provided, however, that all Executive Officers (as defined under
the Securities Exchange Act of 1934, as amended) of the Company who are not
registering shares in such underwritten offering and other investors similarly
situated with the Investor with respect to registration rights each execute
similar agreements to refrain from selling shares held on the market for the
same time period.
12.2 Registration Procedures. If and whenever the Company is required
to use its reasonable best efforts to effect or cause the registration of any
Conversion Shares under the 1933 Act as provided in this Section (C)(12), the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such Conversion Shares and use its reasonable best efforts
(which shall not, in any case, require the Company to incur any unreasonable
expense) to cause such registration statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than three months or such shorter period in which the
disposition of all securities in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement shall be completed, and to comply with the provisions of the 1933 Act
(to the extent applicable to the Company) with respect to such dispositions;
(c) furnish to the Investor such number of copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus),
in conformity with the requirements of the 1933 Act, and such other documents,
as the Investor may reasonably request, in order to facilitate the disposition
of the Conversion Shares owned by the Investor;
(d) use its reasonable best efforts (which shall not, in any
case, require the Company to incur any unreasonable expense) to register or
qualify such Conversion Shares covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as the Investor
reasonably requests, except that the Company will not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not, but for the requirements of this Section
(C)(12.2)(d) be obligated to be qualified, to subject itself to taxation in any
such jurisdiction, or to consent to general service of process in any such
jurisdiction;
(e) provide a transfer agent and registrar for all such
Conversion Shares covered by such registration statement not later than the
effective date of such registration statement;
(f) notify the Investor at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading;
(g) use its reasonable best efforts to cause all such Conversion
Shares to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
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(h) use its reasonable best efforts to obtain a cold comfort
letter from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by cold comfort letters in
such transactions;
(i) enter into an underwriting agreement in customary form and if
requested by the managing underwriter in an underwritten public offering and if
deemed advisable by the Company, make the Company management reasonably
available to participate in "Roadshows" with respect to such offering (at the
expense of Investor and any other parties who are registering securities in such
underwritten offering in proportion to the dollar value of securities being sold
by the Investor and all persons who are selling registrable Common Stock which
shall only include out-of-pocket expenses and not salaries or professional
fees); and
(j) subject to Investor executing an appropriate Confidentiality
agreement, make available for inspection by the Investor, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Investor and/or
representative of the Investor or underwriter, all reasonably requested
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by the Investor, underwriter, attorney,
accountant or agent in connection with such registration statement.
12.3 Registration and Selling Expenses.
(a) All expenses incurred by the Company in connection with the
Company's performance of or compliance with this Section (C)(12), including,
without limitation (A) all registration and filing fees (including all expenses
incident to filing with the National Association of Securities Dealers, Inc.),
(B) blue sky fees and expenses, (C) all printing expenses and (D) all fees and
disbursements of counsel and accountants for the Company (including the expenses
of any audit of financial statements) retained by the Company (all such expenses
being herein called "Registration Expenses"), will be paid by the Company except
as otherwise expressly provided in this Section (C)(12.3).
(b) The Company will, in any event, in connection with any
registration statement, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal, accounting or other duties in connection therewith and expenses of audits
of year-end financial statements), and the expenses and fees for listing the
securities to be registered on one or more securities exchanges on which similar
securities issued by the Company are then listed.
(c) The Company shall bear the Registration Expenses of each
Incidental Registration hereunder.
(d) Fees and disbursement of counsel and accountants of Investor,
underwriters discounts and commissions relating to the Conversion Shares
included in any offering by Investor shall be borne by Investor. In conjunction
with any Demand Registration which is effected in the form of an underwritten
public offering, however, Investor agrees that it shall also pay in proportion
to the dollar value of securities being sold by the Investor and all persons who
are selling registrable Common Stock, all reasonable fees for counsel to the
underwriters effecting such underwritten public offering.
12.4 Other Conditions Relating to Registrations. Except as otherwise
provided in this Agreement, the Company shall not be required to furnish any
audited financial statements at the request of the Investor other than those
statements customarily prepared at the end of its fiscal year, unless the
Investor shall agree to reimburse the Company for the out-of-pocket costs
incurred by the Company in the preparation of such other audited financial
statements.
12.5 Indemnification.
(a) The Company hereby agrees to indemnify, to the extent
permitted by law, the Investor, its officers, directors and employees, and each
person, if any, who controls such holder within the meaning of the 1933 Act,
against all losses, claims, damages, liabilities and expenses under the 1933
Act, applicable state securities laws, common law or otherwise (including, as
incurred, legal and other expenses reasonably
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incurred in connection with investigating, preparing or defending any such
claim, except to the extent limited by Section (C)(12.5)(c) below) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus (and as amended or supplemented if the
Company has furnished any amendments or supplements thereto) which registration
statement or prospectus shall be prepared in connection with a Demand
Registration or an Incidental Registration, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement contained in or by any omission or alleged
omission from information furnished in writing to the Company by such holder for
the particular purpose of use in connection with a Demand Registration or an
Incidental Registration, provided the Company will not be liable pursuant to
this Section (C)(12.5) if such losses, claims, damages, liabilities or expenses
have been caused by the Investor's failure to deliver a copy of the registration
statement or prospectus, or any amendments or supplements thereto, after the
Company has furnished the Investor with a sufficient number of copies of the
same.
(b) In connection with any registration statement in which the
Investor is participating, the Investor shall furnish to the Company in writing
such information as is reasonably requested by the Company for the particular
purpose of use in any such registration statement or prospectus and shall
indemnify, to the extent permitted by law, the Company, its directors, officers
and employees and each person, if any, who controls the Company within the
meaning of the 1933 Act, against any losses, claims, damages, liabilities and
expenses under the 1933 Act, applicable state securities laws, common law or
otherwise (including, as incurred, legal and other expenses reasonably incurred
in connection with investigating, preparing or defending any such claim, except
to the extent limited by Section (C)(12.5)(c) below) caused by any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein not misleading, but only to the extent
such losses, claims, damages, liabilities or expenses are caused by an untrue
statement or alleged untrue statement contained in or by an omission or alleged
omission from information so furnished in writing by the Investor for the
particular purpose of use in connection with the Demand Registration or
Incidental Registration. If the offering pursuant to any such registration is
made through underwriters, the Investor agrees to enter into an underwriting
agreement in customary form with such underwriters. Notwithstanding the
foregoing, the Investor shall not be liable under this Section (C)(12.5)(b) for
any amounts exceeding the product of (i) the offering price per share of
Conversion Shares pursuant to the registration statement in which the Investor
is participating (less any underwriting discounts or commissions which reduce
the amount the Investor receives), multiplied by (ii) the number of shares of
Conversion Shares being sold by the Investor pursuant to such registration
statement; it being understood that the Company shall not be in breach of this
Agreement in the event that it is unable to secure an underwriter which is
willing to agree the limitations set forth in this sentence.
(c) Promptly after receipt by an indemnified party under Section
(C)(12.5)(a) or Section (C)(12.5)(b) of notice of the commencement of any action
or proceeding, such indemnified party will, if a claim in respect thereof is or
is to be made against the indemnifying party under such Section, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under such Section. In case
any such action or proceeding is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein, and, to the extent that it
wishes, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under such Section for any legal or any
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof (other than reasonable costs of investigation) unless
incurred at the written request of the indemnifying party. Notwithstanding the
above, the indemnified party will have the right to employ one counsel
(exclusive of local counsel) of its own choice in any such action or proceeding
if the indemnified party has reasonably concluded that there may be defenses
available to it which are different from or additional to those of the
indemnifying party, or counsel to the indemnified party is of the opinion that
it would not be desirable for
9
<PAGE>
the same counsel to represent both the indemnifying party and the indemnified
party because such representation might result in a conflict of interest (in
either of which cases the indemnifying party will not have the right to assume
the defense of any such action or proceeding on behalf of the indemnified party
or parties and such legal and other expenses will be borne by the indemnifying
party). An indemnifying party will not be liable to any indemnified party for
any settlement of any such action or proceeding effected without the consent of
such indemnifying party which consent shall not be unreasonably withheld.
(d) If the indemnification provided for in Section (C)(12.5)(a)
or Section (C)(12.5)(b) is unavailable under applicable law to an indemnified
party in respect of any losses, claims, damages or liabilities referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and of the Investor on the other in connection with the
statements or omissions which resulted in such losses, claims, damages, or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Investor on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the Company or by the Investor and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include, subject to the limitations set forth in
Section (C)(12.5)(c), any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) will be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation.
(e) Promptly after receipt by the Company or the Investor of
notice of the commencement of any action or proceeding, such party will, if a
claim for contribution in respect thereof is to be made against another party
(the "contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit, or proceeding is brought
against any party, and such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party similarly
notified. No party shall be liable for contribution with regard to the
settlement of any action or proceeding effected without its consent.
(13) ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
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<PAGE>
(14) ANTI-DILUTION
14.1 Reorganization Event. Except as set forth in Section (C)(11)(a),
in case of any reorganization event including any merger, sale of substantially
all of the assets of the Company, the Company shall, as a condition precedent to
the consummation of the transaction constituting, or announced as, such
Reorganization Event, cause effective provisions to be made so that the Holder
shall have the right immediately thereafter, by exercising this Warrant, to
receive the aggregate amount and kind of shares of stock and other securities
and property that were receivable upon such Reorganization Event by a holder of
the number of shares of Common Stock that would have been received immediately
prior to such Reorganization Event upon exercise of this Warrant.
14.2 Carryover. Notwithstanding any other provision of this Section
(C)(14.2), no adjustment shall be made to the number of shares of Common Stock
(or other securities deliverable hereunder) to be delivered to each Holder (or
to the Exercise Price) if such adjustment would represent less than one percent
of the number of shares to be so delivered, but any such adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to one percent or more of the number of shares to be so delivered.
14.3 Notices of Certain Events. If at any time after the date hereof
and before the expiration of the Exercise Period:
(a) the Company authorizes the issuance to all holders of its
Common Stock of (i) rights or warrants to subscribe for or purchase shares of
its Common Stock or (ii) any other subscription rights or warrants;
(b) the Company authorizes the distribution to all holders of its
Common Stock of evidences of its indebtedness or assets (other than cash
dividends);
(c) there shall be any capital reorganization of the Company or
reclassification of the Common Stock (other than a change in par value of the
Common Stock or an increase in the authorized capital stock of the Company not
involving the issuance of any shares thereof) or any consolidation or merger to
which the Company is a party (other than a consolidation or merger with a
subsidiary in which the Company is the continuing corporation and that does not
result in any reclassification or change in the Common Stock outstanding) or a
conveyance or transfer of all or substantially all of the properties and assets
of the Company;
(d) there shall be any voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(e) there shall be any other event that would result in an
adjustment pursuant to this Section (C)(14.3) in the Exercise Price or the
number of Warrant Shares that may be purchased upon the exercise hereof;
the Company will cause to be mailed to the Holder, at least fifteen days
(or ten days in any case specified in clauses (a) or (b) above) before the
applicable record or effective date hereinafter specified, a notice stating (i)
the date as of which the holders of Common Stock of record entitled to receive
any such rights, warrants or distributions is to be determined, or (ii) the date
on which any such reorganization, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record will be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
14.4 Failure to Give Notice. The failure to give the notice required by
Subsection (C)(14.3) or any defect therein shall not affect the legality or
validity of any distribution right, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding-up or the vote upon any such
action.
(15) NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by
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<PAGE>
registered or certified mail, return receipt requested, to the holder of this
Warrant notice of such adjustment or adjustments setting forth the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made. Such notice, in absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.
(16) AUTHORIZED SHARES. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Nasdaq National
Market or any domestic securities exchange upon which the Common Stock may be
listed.
(17) MISCELLANEOUS.
(a) ISSUE DATE; JURISDICTION. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of Delaware without regard to its conflict of law,
principles or rules.
(b) RESTRICTIONS. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(c) MODIFICATION AND WAIVER. This Warrant and any provisions hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
(d) NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
(e) COMPETITION LAWS. At the time of exercise of this Warrant, it will be
necessary for the Company to undertake a review of such exercise to determine if
a filing with the U.S. Federal Trade Commission and the U.S. Department of
Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules promulgated thereunder (16 C.F.R. Sections 801.1 ET SEQ.)
is required, and if such filing is required, the Company and Investor (or its
successor) shall promptly make any such required filings.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: October 15, 1998
GALAGEN INC.
BY: /s/ Gregg A. Waldon
-----------------------------------
Chief Financial Officer
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<PAGE>
FORM OF EXERCISE NOTICE
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: GalaGen Inc. (the "Company")
The undersigned
---------------------------
Please insert Social Security or other
identifying number of Purchaser
__________-______-_________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, _______________________shares of the
Common Stock provided for therein and tenders payment herewith to the order of
the Company in the amount of $_______________________, such payment being made
as provided on the face of the Warrant.
In order to induce the Company to consent to the exercise of this
Warrant, the undersigned hereby represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither this Warrant nor any of
the shares of Common Stock issuable upon exercise hereof have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and that, accordingly, this Warrant may be exercised and the
share of Common Stock issued pursuant to this exercise may only be transferred
in accordance with the terms of this Warrant.
2. The undersigned is acquiring the shares of Common Stock issued
pursuant to this exercise for investment and not with a view to distribution of
such shares within the meaning of the Act and the rules and regulations
thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
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<PAGE>
FORM OF WARRANT TRANSFER LETTER
To: GalaGen Inc.
Ladies and Gentlemen:
The undersigned is a proposed transferee of the warrant (the
"Warrant") to purchase ____________________ shares of Common Stock, no par
value ("Common Stock"), of GalaGen, Inc. a Delaware corporation (the
"Company"), currently registered in the name of________________________. In
order to induce the Company to consent to the transfer of the Warrant, the
undersigned hereby represents, warrants and agrees as follows;
1. The undersigned acknowledges that neither the Warrant nor any of
the shares of Common Stock issuable upon exercise thereof have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and that, accordingly, the Warrant and such shares of Common
Stock may only be transferred in accordance with the terms of the Warrant.
2. The undersigned is acquiring the Warrant for investment and not
with a view to distribution of the Warrant or the shares of Common Stock
issuable upon exercise thereof within the meaning of the Act and the rules and
regulations thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
Signature:
------------------------------
Address:
------------------------------
Date:
------------------------------
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<PAGE>
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name:
----------------------------------------------------------------
Address:
----------------------------------------------------------------
Deliver to:
----------------------------------------------------------------
Address:
----------------------------------------------------------------
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated below.
Address:
----------------------------------------------------------------
Signature:
---------------------------------------
(Signature must conform in all respects
to the name of the holder as written
specified on the face of this Warrant
without any alteration or change
whatsoever)
Date:
----------------------------
15
<PAGE>
COLLABORATION AND LICENSE AGREEMENT
BY AND BETWEEN
GALAGEN INC.
AND
AMERICAN HOME PRODUCTS CORPORATION
ACTING THROUGH ITS
WYETH-AYERST LABORATORIES DIVISION
OCTOBER 15, 1998
<PAGE>
COLLABORATION AND LICENSE AGREEMENT
THIS COLLABORATION AND LICENSE AGREEMENT (the "Agreement") is entered into
as of the 15th day of October, 1998 (the "Effective Date"), by and between
GALAGEN INC., a company incorporated under the laws of the State of Delaware,
with its principal place of business at 4001 Lexington Avenue North, Arden
Hills, Minnesota 55126 USA ("GalaGen"), AND AMERICAN HOME PRODUCTS CORPORATION,
acting through its WYETH-AYERST LABORATORIES DIVISION, a company incorporated
under the laws of the State of Delaware, with its principal place of business at
555 East Lancaster Avenue, St. Davids, Pennsylvania 19087, USA
("Wyeth-Ayerst"). Both GalaGen and Wyeth-Ayerst are referred to herein
individually as a "Party" and collectively as the "Parties".
WHEREAS, GalaGen has developed proprietary technology with respect to
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***]; and
WHEREAS, GalaGen and Wyeth-Ayerst desire to collaborate with each other to
utilize GalaGen's proprietary technology to obtain [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] and to develop Pediatric Formula Products and/or Other Products
containing such [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]; and
WHEREAS, Wyeth-Ayerst desires to obtain the worldwide rights to
manufacture and sell such Pediatric Formula Products and/or Other Products.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants and conditions contained in this Agreement, the Parties
agree as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the capitalized terms hereunder shall
have the meanings defined below:
1.1 "AFFILIATE(S)" shall mean, in the case of either Party, any
corporation, joint venture, or other business entity which directly or
indirectly controls, is controlled by, or is under common control with
that Party. "Control", as used in this Section 1.1, shall mean having
the power to direct, or cause the direction of, the management and
policies of an entity, whether through ownership of voting securities,
by contract or otherwise. [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
1
<PAGE>
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***].
1.2 "BUDGET" shall have the meaning set forth in Section 2.6.1 hereof.
1.3 "CALENDAR QUARTER" shall mean the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30
or December 31, for so long as this Agreement is in effect.
1.4 "COLLABORATION" shall mean the research and development program
conducted jointly by the Parties hereunder for the purpose of
optimizing the production of [***CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] and developing and obtaining Regulatory Approval for
Pediatric Formula Products.
1.5 "COMMERCIALLY REASONABLE EFFORTS" shall mean efforts and resources
normally used by a Party for a compound or product owned by it or to
which it has rights, which is of similar market potential at a similar
stage in its product life, taking into account the competitiveness of
the marketplace, the proprietary position of the compound or product,
the regulatory structure involved, the profitability of the applicable
products, and other relevant factors.
1.6 "CONTROL" OR "CONTROLLED" shall mean licensed with the right to grant
sublicenses without violating the terms of any Third Party agreement.
1.7 "DEVELOPMENT PLAN" shall have the meaning set forth in Section 2.1.
1.8 "FIRST COMMERCIAL SALE" shall mean, on a Product by Product basis,
the first sale of such Product in any country of the Territory after
such Product has been granted Regulatory Approval by the competent
authorities in such country.
1.9 "GALAGEN GROSS INCOME" shall mean all income, calculated in
accordance with generally accepted accounting procedures, GalaGen or
its Affiliates receives from Third Parties in connection with an Other
Product to which GalaGen obtains rights pursuant to Section 3.3
hereof, including, without limitation,
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
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<PAGE>
1.10 "GALAGEN KNOW-HOW" shall mean Know-How owned or Controlled by GalaGen
or its Affiliates at any time during the term of this Agreement.
1.11 "GALAGEN PATENT RIGHTS" shall mean all Patent Rights owned or
Controlled by GalaGen. A list of the GalaGen Patent Rights existing
as of the Effective Date is set out in Exhibit A hereto.
1.12 "GALAGEN TRADEMARK" shall mean the trademark(s) used by GalaGen in
connection with the [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***], including, without limitation, Proventra-TM-.
1.13 "GOOD CLINICAL PRACTICE" OR "GCP" shall mean the then current
standards for clinical trials for pharmaceuticals, as set forth in the
United States Federal Food, Drug and Cosmetics Act and applicable
regulations promulgated thereunder, as amended from time to time, and
such standards of good clinical practice as are required by the
European Union and other organizations and governmental agencies in
countries in which the Products are intended to be sold, to the extent
such standards are not inconsistent with United States GCP.
1.14 "GOOD LABORATORY PRACTICE" OR "GLP" shall mean the then current
standards for laboratory activities for pharmaceuticals, as set forth
in the United States Federal Food, Drug and Cosmetics Act and
applicable regulations promulgated thereunder, as amended from time to
time, and such standards of good laboratory practice as are required
by the European Union and other organizations and governmental
agencies in countries in which the Products are intended to be sold,
to the extent such standards are not inconsistent with United States
GLP.
1.15 "GOOD MANUFACTURING PRACTICE" OR "GMP" shall mean the current
standards for the manufacture of pharmaceuticals, as set forth in the
United States Federal Food, Drug and Cosmetics Act and applicable
regulations promulgated thereunder, as amended from time to time, and
such standards of good manufacturing practice as are required by the
European Union and other organizations and governmental agencies in
countries in which the Products are intended to be sold, to the extent
such standards are not inconsistent with United States GMP.
1.16 "INTELLECTUAL PROPERTY RIGHTS" shall mean all Patent Rights,
trademarks, copyrights, Know-How and/or trade secrets which are owned
or Controlled by one Party hereto (with the right to license) or
jointly by the Parties, with regard to the development, manufacture,
importing, use, marketing and/or sale of any Product.
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<PAGE>
1.17 "INVENTION" shall mean an invention conceived in the course of the
performance of and within the scope of this Agreement.
1.18 "JOINT DEVELOPMENT COMMITTEE" OR "JDC" shall mean the committee
appointed by the Parties as set forth in Section 2.2.
1.19 "KNOW-HOW" shall mean all know-how, processes, information and data
including any copyright relating thereto owned or Controlled by either
Party (with the right to have or disclose) as of the Effective Date or
acquired during the term of this Agreement relating to:
(a) [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***];
(b) [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***];
(c) any Product containing (a) or (b);
(d) methods of making any of (a), (b) or (c);
(e) any component of (a), (b) or (c);
(f) any method of using any of (a), (b), (c) or (e); and/or
(g) any use of (a), (b), (c) or (e).
The term "Know-How", however, shall not include any know-how,
processes, information and data which is, as of the Effective Date or
later becomes, generally available to the public.
1.20 [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
1.21 "MANUFACTURING AND SUPPLY AGREEMENT" shall have the meaning set forth
in Section 4.1 hereof.
1.22 "NET SALES" shall mean proceeds from sales of Pediatric Formula
Products by Wyeth-Ayerst, its Affiliates or sublicensees, as
appropriate, to Third Parties, less the sum of (a) and (b) where (a)
is a provision, determined under generally accepted accounting
principles in the United States, for
4
<PAGE>
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***].
Sales of Pediatric Formula Products by and between a Party and its
Affiliates are not sales to Third Parties and shall be excluded from
Net Sales calculations for all purposes.
1.23 "OTHER PRODUCT(S)" shall mean any product, other than Pediatric
Formula Products, which contains [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***]. For the sake of clarity, Other Products shall include
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***].
1.24 "PATENT RIGHTS" shall mean all patents or patent applications, and
all divisional, continuations, continuations-in-part, reissues,
extensions, supplementary protection certificates and foreign
counterparts thereof, existing as of the Effective Date or filed or
issuing during the term of this Agreement, at least one claim of which
covers:
(a) [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***];
(b) [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***];
(c) any Product containing (a) or (b);
(d) methods of making any of (a), (b) or (c);
(e) any component of (a), (b) or (c);
(f) any method of using any of (a), (b), (c) or (e); and/or
(g) any use of (a), (b), (c) or (e).
1.25 "PEDIATRIC FORMULA PRODUCT(S)" shall mean any beverage (whether
supplied in liquid form or as a powder to be mixed with a liquid)
containing [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES
5
<PAGE>
AND EXCHANGE COMMISSION***] for oral consumption by infants and/or
children.
1.26 "PREFERENTIAL OTHER PRODUCT" shall have the meaning set forth in
Section 3.3.1 hereof.
1.27 "PRODUCT" shall mean any Pediatric Formula Product or any Other
Product.
1.28 "R&D EXPENSES" shall mean the sum of (i) the reasonable out-of-pocket
costs incurred by GalaGen in performing its obligations under the
Collaboration and [***CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] per man-hour expended by GalaGen's employees who are
performing activities pursuant to the Development Plan.
1.29 "REGULATORY APPROVAL" shall mean all authorizations by the competent
authorities which are required for the regular marketing, promotion,
pricing and sale of a Product in a given country or regulatory
jurisdiction.
1.30 "REGULATORY AUTHORITY" shall mean any national, supra-national (e.g.,
the European Commission, the Council of the European Union, or the
European Agency for the Evaluation of Medicinal Products), regional,
state or local regulatory agency, department, bureau, commission,
council or other governmental entity involved in the granting of
Regulatory Approval for a Product.
1.31 [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
1.32 "TERRITORY" shall mean the world.
1.33 "THIRD PARTY(IES)" shall mean any person(s) or entity(ies) other than
GalaGen, Wyeth-Ayerst or their Affiliates.
1.34 "TRANSACTION AGREEMENTS" shall mean this Agreement, the Manufacturing
and Supply Agreement and the Warrant Purchase Agreement.
1.35 "USA" shall mean the United States of America, its territories and
possessions and the Commonwealth of Puerto Rico.
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<PAGE>
1.36 "VALID CLAIM" shall mean an unexpired claim of an issued patent
forming part of the GalaGen Patent Rights, which claim has not been
declared invalid by a court or other tribunal of competent
jurisdiction.
1.37 "WARRANT" OR "WARRANT PURCHASE AGREEMENT" shall have the meaning set
forth in Section 5.3 hereof.
1.38 "WYETH-AYERST KNOW-HOW" shall mean Know-How owned or Controlled by
Wyeth-Ayerst.
1.39 "WYETH-AYERST PATENT RIGHTS" shall mean all Patent Rights owned or
Controlled by Wyeth-Ayerst. A list of the Wyeth-Ayerst Patent Rights
existing as of the Effective Date is set out in Exhibit B hereto.
1.40 "WYETH-AYERST TRADEMARK" shall mean the trademark(s) (other than the
GalaGen Trademark) used by Wyeth in connection with the marketing of
any Product.
2. COLLABORATION.
2.1 GENERAL OBLIGATIONS. The Parties have designed and agreed upon a
joint development plan (the "Development Plan") pursuant to which they
will conduct the Collaboration hereunder. A copy of the Development
Plan is attached hereto as Exhibit C. The Development Plan may be
updated or revised, in writing, from time to time by the JDC. During
the term of the Collaboration, each Party agrees to use its respective
Commercially Reasonable Efforts to perform its obligations under the
Development Plan and this Agreement in a timely manner.
2.2 JOINT DEVELOPMENT COMMITTEE. The Parties agree that the Collaboration,
including the development of the [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] and the Pediatric Formula Products, will be managed by
a Joint Development Committee (the "JDC").
2.2.1 COMPOSITION. No later than thirty (30) days after the
Effective Date, each of the Parties will appoint two (2)
representatives to the JDC. The chairperson of the JDC will
be one of the Wyeth-Ayerst representatives. A Party may
change any of its representatives at any time by giving
written notice to the other Party.
2.2.2 RESPONSIBILITIES. The JDC will:
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<PAGE>
(a) monitor the progress of and compliance with the
Development Plan and approve any change in the
Development Plan;
(b) select [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] studies and [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] for
evaluation in animal models and/or human volunteers;
(c) develop research protocols and define the primary
endpoint for the clinical trials;
(d) review and evaluate the results of studies performed in
connection with the Collaboration; and
(e) determine the most appropriate regulatory pathway and
develop appropriate strategy to obtain Regulatory
Approval for the [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION***] and the Pediatric Formula
Product.
2.2.3 MEETINGS OF THE JDC. The chairperson of the JDC shall call
meetings when deemed appropriate, currently anticipated to
be no less frequently than once every three (3) months. If
possible, the meetings shall be held in person, or where
appropriate, by video or telephone conference. When held in
person, the location of such meetings shall alternate
between Wyeth-Ayerst's facilities and GalaGen's facilities.
The chairperson shall determine the form of and agenda for
the meeting. Additional participants may be invited by any
member to attend meetings where appropriate (e.g.,
representatives of regulatory affairs or outside
consultants). Such additional participants shall have no
vote. Minutes of each meeting of the JDC shall be exchanged
for review and comment by the members. Thereafter, they
shall be signed by the chairperson and distributed to each
of the Parties. Each Party shall be responsible for the
expenses incurred by its representatives in attending such
meetings.
8
<PAGE>
2.2.4 VOTING. The JDC shall make decisions by majority vote, with
at least one consenting vote of each Party's JDC members.
If the required majority decision cannot be found and all
the members of each Party take the same opposing positions
in a matter which either Party deems to be of major
importance, the matter shall be handled pursuant to Section
2.2.6. Voting by proxy is permissible. Urgent matters
(including regulatory and adverse event matters) may be
decided by unanimous vote of the chairperson and a
representative designated by GalaGen.
2.2.5 ROLE OF CHAIRPERSON. Except as explicitly set forth herein,
in no event shall the chairperson of the JDC have any
additional powers or responsibilities beyond those delegated
to such person by virtue of such person's membership on the
JDC. Without limiting the foregoing, it is understood that,
except as a voting member of the JDC, the chairperson shall
not have the power to control or dictate decisions or to
veto any decisions reached by the committee under the
decision-making processes set forth in Section 2.2.4.
2.2.6 DISPUTE RESOLUTION. If the JDC is unable to resolve, after
thirty (30) days, a dispute regarding any issue presented to
it or arising in it, such dispute will be referred to
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***].
If such dispute is not resolved by the end of
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
period, the Parties shall be free to pursue any legal or
equitable remedy available to them.
2.3 SUPPLY OF [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]. GalaGen
shall provide Wyeth-Ayerst with [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***], from time to time and in amounts specified by
Wyeth-Ayerst, for use by Wyeth-Ayerst, its Affiliates and sublicensees
in the development of Products, including, without limitation, the
manufacture of Products for use in conducting clinical trials to
obtain Regulatory Approval for Products. [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***]
2.4 RECORDS, REPORTS, AND INFORMATION EXCHANGE.
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<PAGE>
2.4.1 TECHNOLOGY AND INFORMATION TRANSFER. GalaGen will provide
to Wyeth-Ayerst all GalaGen Know-How as Wyeth-Ayerst deems
necessary to carry out its responsibilities in the
Collaboration and to manufacture and obtain Regulatory
Approval for Products. Wyeth-Ayerst will provide to GalaGen
all Wyeth-Ayerst Know-How as Wyeth-Ayerst deems necessary
for GalaGen to carry out its responsibilities in the
Collaboration. All information transferred, provided or
exchanged under this Section 2.4.1 will be subject to the
confidentiality requirements set forth in Article 12 hereof.
2.4.2 RECORD KEEPING. Each Party will maintain records in
sufficient detail and in good scientific manner appropriate
for Regulatory Approval and patent purposes.
2.4.3 COMMUNICATION REGARDING THE DEVELOPMENT PROGRESS. Within
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***],
each Party shall provide the JDC with a written report
summarizing the status of the activities it conducted in
furtherance of the Collaboration during such [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION***].
2.4.4 R&D EXPENSES. Within [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***], GalaGen shall submit to
Wyeth-Ayerst a written report setting forth a detailed
accounting of the R&D Expenses incurred by GalaGen during
such Calendar Quarter and indicating the R&D Expenses which
are to be reimbursed by Wyeth-Ayerst pursuant to Section 2.6
hereof. [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***].
2.4.5 OTHER PRODUCTS. Periodically throughout the term of this
Agreement, Wyeth-Ayerst shall provide the JDC with a list of
Other Products for which Wyeth-Ayerst has either initiated
development activities or plans to initiate development
activities.
2.5 COMPLIANCE. Each of the Parties shall comply with all applicable GLP,
GCP and GMP in the conduct of the Collaboration.
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<PAGE>
2.6 FUNDING OF THE COLLABORATION.
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
2.7 [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
2.8 REGULATORY APPROVALS. Wyeth-Ayerst shall file all regulatory dossiers
for the [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] and the
Product(s) under its or its Affiliates' names. Wyeth-Ayerst shall own
all Regulatory Approvals for the [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] and Product(s), except for those Products to which
GalaGen obtains rights in accordance with Section 3.3 hereof.
Wyeth-Ayerst shall be responsible for all communications with
regulatory agencies with respect to the Product(s) (other than
Products to which GalaGen obtains rights in accordance with Section
3.3 hereof), subject to its obligation to keep the JDC informed. In
the event that GalaGen obtains rights to an Other Product in
accordance with the provisions of Section 3.3 hereof, Wyeth-Ayerst
shall permit GalaGen to have access to such applications for
Regulatory Approval and related documents solely as such applications
and documents relate to the use of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***], PROVIDED, HOWEVER, that GalaGen's use of such
applications and documents shall be limited to obtaining and
maintaining Regulatory Approval for such Other Product.
2.9 EXCLUSIVITY. GalaGen covenants that, except as otherwise permitted in
accordance with the provisions of Section 3.3 hereof, during the term
of this Agreement, it will not conduct any research and development
activities, either independently or with Third Parties, with respect
to Products and that it will not provide [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] to any Third Party for the purpose of
conducting research and development activities or commercializing any
Product. Notwithstanding, the foregoing, GalaGen and Wyeth-Ayerst
each recognize that, from time to time, it may be desirable or
necessary to retain consultants to assist the Parties in the
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<PAGE>
Collaboration. In such event, the Parties together shall enter into a
consulting agreement with each such consultant, which consulting
agreement shall, in both form and substance, be reasonably acceptable
to each of the Parties.
2.10 TERM OF COLLABORATION. The term of the Collaboration shall commence
on the Effective Date and, unless terminated earlier, shall expire
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] or such later date as
may be agreed upon by majority vote of the JDC. The Collaboration
shall automatically terminate upon termination of this Agreement
pursuant to either of Sections 9.2 or 9.3 hereof.
3. GRANT OF RIGHTS.
3.1 EXCLUSIVE LICENSE.
3.1.1 PEDIATRIC FORMULA PRODUCTS. Subject to the other provisions
of this Agreement, GalaGen hereby grants to Wyeth-Ayerst an
exclusive license (exclusive even as to GalaGen) in the
Territory, under GalaGen's Intellectual Property Rights and
GalaGen's interest in any Intellectual Property Rights
jointly owned by the Parties, to develop, manufacture, have
manufactured, import, export, use, market, offer for sale
and sell Pediatric Formula Products and to use the GalaGen
Trademarks on the packaging of and in promotional materials
for Pediatric Formula Products, PROVIDED, HOWEVER, that,
except as provided in Article 4 of the Manufacturing and
Supply Agreement, nothing herein shall confer upon
Wyeth-Ayerst any rights to manufacture [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION***] for use in
Pediatric Formula Products.
3.1.2 OTHER PRODUCTS. Subject to the other provisions of this
Agreement, GalaGen hereby grants to Wyeth-Ayerst an
exclusive license (exclusive even as to GalaGen except as
provided in Section 3.3 hereof) in the Territory, under
GalaGen's Intellectual Property Rights and GalaGen's
interest in any Intellectual Property Rights jointly owned
by the Parties, to develop, manufacture, have manufactured,
import, export, use, market, offer for sale and sell Other
Products and to use the GalaGen Trademarks on the packaging
of and in promotional materials for Other Products,
12
<PAGE>
PROVIDED, HOWEVER, that, except as provided in Article 4 of
the Manufacturing and Supply Agreement, nothing herein shall
confer upon Wyeth-Ayerst any rights to manufacture
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
for use in Other Products.
3.2 SUBLICENSING. Wyeth-Ayerst shall have the right to sublicense all or
any part of the rights granted to it under Section 3.1 to its
Affiliates or Third Parties. Wyeth-Ayerst shall notify GalaGen of its
intent to grant a sublicense to a Third Party prior to granting such
sublicense under this Section 3.2, but Wyeth-Ayerst shall not be
required to obtain GalaGen's consent to grant any such sublicense
except in the case where Wyeth-Ayerst is sublicensing, to a Third
Party, the right to develop and commercialize an Other Product
included in the list of Preferential Other Products established by the
JDC in accordance with Section 3.3.1 hereof, in which event,
Wyeth-Ayerst may grant such sublicense to such Third Party only after
obtaining GalaGen's prior written consent, which consent shall not be
unreasonably withheld. In the event that GalaGen's consent is
required, in accordance with the preceding sentence, for Wyeth-Ayerst
to grant a sublicense to a Third Party to develop and commercialize a
Preferential Other Product and GalaGen elects to withhold such
consent, GalaGen shall notify Wyeth-Ayerst, in writing and within
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] after Wyeth-Ayerst's
request for such consent, that GalaGen is withholding such consent,
which notice shall state the reason(s) such consent is being withheld
and provide documentary or other evidence GalaGen has in support of
its position that such reason(s) reasonably warrant the withholding of
such consent. If Wyeth-Ayerst does not receive such written notice
within such [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] period,
GalaGen shall be deemed to have provided its consent for Wyeth-Ayerst
to grant such sublicense.
3.3 GALAGEN RIGHTS TO OTHER PRODUCTS.
3.3.1 IDENTIFICATION OF PREFERENTIAL OTHER PRODUCTS. GalaGen,
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***],
shall notify the JDC and Wyeth-Ayerst, each in writing, of
those Other Products that GalaGen reasonably believes it
would both desire and have the ability to develop and
commercialize, either itself or in
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<PAGE>
collaboration with a Third Party, PROVIDED, HOWEVER, that
such list of Other Products shall not include
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***].
Each such notice shall include a proposed development plan
for each Other Product included on such list. Within
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
after receiving the first such list the JDC shall meet to
consider the list and proposed development plan(s) provided
by GalaGen and any concerns that Wyeth-Ayerst has with the
inclusion of any particular Other Product(s) on such list,
and based on such considerations, the JDC shall establish a
list of Other Products for which Wyeth-Ayerst must seek
GalaGen's consent, in accordance with Section 3.2 hereof,
prior to granting to one or more Third Parties a
sublicense(s) to develop and commercialize such Other
Products (the "Preferential Other Products"). Once each
year the JDC shall meet [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] (i) to review the then current list
of Preferential Other Products and GalaGen's progress in
developing such Other Product in accordance with the
development plan accepted by the JDC for such Other Product,
and (ii) to consider the list of any Other Products provided
by GalaGen and any concerns that Wyeth-Ayerst has with the
inclusion of any particular Other Product(s) on the list of
Preferential Other Products. Based on such review and
considerations, the JDC shall revise the then current list
of Preferential Other Products, PROVIDED, HOWEVER, that if
GalaGen has failed to use reasonable efforts to develop any
Other Product in accordance with the development plan
accepted by the JDC for such Other Product, such Other
Product shall be removed from the list of Preferential Other
Products unless the JDC agrees to accept from GalaGen a
revised development plan for such Other Product.
3.3.2 ACQUISITION OF SUBLICENSE BY GALAGEN. In the event GalaGen
desires to develop and commercialize an Other Product
(whether or not such Other Product is a Preferential Other
Product), either itself or in collaboration with a Third
Party, GalaGen may, by written notice to Wyeth-Ayerst,
request that Wyeth-Ayerst grant to GalaGen a sublicense of
the rights granted to Wyeth-Ayerst under Section 3.1.2
hereof solely for the development and commercialization of
such Other Product. After the receipt of such
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<PAGE>
notice, Wyeth-Ayerst may elect whether or not to grant such
sublicense and will not unreasonably refuse to grant such a
sublicense to GalaGen, PROVIDED, HOWEVER, that in no event
will Wyeth-Ayerst be required to grant a sublicense to
GalaGen for the development and/or commercialization of such
an Other Product if
(i) Wyeth-Ayerst has initiated the development and/or
commercialization of the same or a similar Other
Product;
(ii) Wyeth-Ayerst has advised the JDC pursuant to
Section 2.4.5 hereof, that it intends to initiate
the development of the same or a similar Other
Product;
(iii) Wyeth-Ayerst has, in accordance with Section 3.2
hereof, granted to a Third Party the right to
develop and/or commercialize the same or a similar
Other Product;
(iv) Wyeth-Ayerst reasonably believes that the
development and/or commercialization of such an
Other Product would adversely affect the
commercial potential of any Pediatric Formula
Product that Wyeth-Ayerst has developed, is
developing, plans to develop, is commercializing
or plans to commercialize;
(v) Wyeth-Ayerst is able to reasonably demonstrate
that the development and/or commercialization of
such an Other Product would have a material
adverse effect on the commercial potential of any
Other Product that Wyeth-Ayerst has developed, is
developing or is commercializing;
(vi) Wyeth-Ayerst is able to reasonably demonstrate
that the development and/or commercialization of
such an Other Product would have a material
adverse effect on the commercial potential of any
Other Product which Wyeth-Ayerst has advised the
JDC, pursuant to Section 2.4.5 hereof, that it
intends to initiate the development of;
(vii) Wyeth-Ayerst is able to reasonably demonstrate
that the development and/or commercialization of
such an Other Product would have a material
adverse
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<PAGE>
effect on the commercial potential of any product
that is being developed or commercialized by
Wyeth-Ayerst in one of Wyeth-Ayerst's core
business areas; or
(viii) [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***]. Wyeth-Ayerst will notify
GalaGen of such election within [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] of receiving such notice from
GalaGen. In the event that Wyeth-Ayerst elects to
grant such a sublicense to GalaGen the Parties
shall use their respective Commercially Reasonable
Efforts to negotiate, in good faith, a definitive
sublicense agreement containing terms and
conditions (including, without limitation, whether
such sublicense will be exclusive even as to
Wyeth-Ayerst or exclusive except as to
Wyeth-Ayerst) mutually acceptable to the Parties,
PROVIDED, HOWEVER, that such sublicense, INTER
ALIA, shall provide that (i) GalaGen shall pay to
Wyeth-Ayerst [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] and (ii)
Wyeth-Ayerst will be granted a right of first
refusal to obtain the right to commercialize such
Other Product(s) in the event GalaGen elects to
license or otherwise transfer such responsibility
to a Third Party, PROVIDED, HOWEVER, that
Wyeth-Ayerst shall be required to waive its right
to exercise such right of first refusal if (x)
GalaGen, in its written notice requesting such
sublicense, identifies a Third Party to whom
GalaGen intends to further sublicense the right to
commercialize such Other Product and (y) GalaGen,
in fact, grants such a further sublicense to such
Third Party within [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION***] after
Wyeth-Ayerst grants to
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<PAGE>
GalaGen a sublicense to develop and/or
commercialize such Other Product. The mechanism
and timing for exercising such right of first
refusal shall be mutually agreed upon by the
Parties and shall be set forth in the definitive
sublicense agreement, provided, however, that such
sublicense agreement shall provide that
Wyeth-Ayerst's acquisition of rights under such
right of first refusal shall be substantially
equivalent to the terms and conditions that
GalaGen had negotiated, in good faith, with a
Third Party. For purposes of this Section 3.3, a
material adverse effect on a product shall
include, without limitation, a forecasted decline
of [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] in unit sales or revenues
from the sale of such product.
3.3.3 FAILURE TO CONCLUDE NEGOTIATION OF SUBLICENSE. If
Wyeth-Ayerst has used its Commercially Reasonable Efforts to
negotiate a sublicense agreement with GalaGen pursuant to
Section 3.3.2 hereof and the Parties fail to sign such a
definitive sublicense agreement within [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION***] after
Wyeth-Ayerst has notified GalaGen of its election to
negotiate such an agreement for the grant to GalaGen of a
sublicense to develop and/or commercialize such Other
Product (or such longer period of time as may be mutually
agreed upon by the Parties in writing), Wyeth-Ayerst may, by
written notice to GalaGen, revoke its election to negotiate
and/or grant such a sublicense to GalaGen.
3.3.4 REFUSAL TO GRANT SUBLICENSE. In the event that Wyeth-Ayerst
elects, for the reasons set forth in Section 3.3.2(ii)
and/or Section 3.3.2(vi) above, not to grant to GalaGen a
sublicense to develop and/or commercialize an Other Product
and within [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] making such election Wyeth-Ayerst fails to
either initiate the development of such Other Product or
sublicense to a Third Party the right to develop and/or
commercialize such Other Product, GalaGen, within
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION
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<PAGE>
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] after the expiration of such [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION***] period, may, by
written notice to Wyeth-Ayerst, request that such sublicense
be granted and, in such event, Wyeth-Ayerst shall thereafter
grant to GalaGen a sublicense to develop and commercialize
such Other Product subject to the negotiation of a
definitive sublicense agreement with GalaGen as provided in
Section 3.3.2 hereof.
3.4 [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
4. MANUFACTURE, SUPPLY AND COMMERCIALIZATION OF PRODUCTS.
4.1 MANUFACTURE AND SUPPLY OF [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***]. GalaGen shall manufacture or have manufactured and
supply to Wyeth-Ayerst and Wyeth-Ayerst shall purchase from GalaGen
its requirements of the [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***], for use in manufacturing Products to be sold to Third
Parties, in accordance with the terms and provisions of the
Manufacturing and Supply Agreement signed by the Parties on even date
with the Effective Date, which agreement shall be substantially in the
form which is attached hereto as Exhibit F.
4.2 MANUFACTURE OF PRODUCTS. Wyeth-Ayerst, either directly or through a
Third Party manufacturer of its choosing, shall be responsible for
manufacturing its requirements of the Products using the
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] supplied by GalaGen
pursuant to Section 4.1 hereof.
4.3 REGISTRATION AND COMMERCIALIZATION OF PRODUCTS. Wyeth-Ayerst shall
use its Commercially Reasonable Efforts to obtain Regulatory Approval
for, and to promote, market and sell a Pediatric Formula Product in
those countries of the Territory where Wyeth-Ayerst, in its sole
discretion, deems it commercially reasonable to do so. If within
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<PAGE>
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***], an application for
Regulatory Approval has not been filed seeking Regulatory Approval for
the sale of a Pediatric Formula Product in the United States, the
Parties, upon GalaGen's written request, shall meet to discuss
Wyeth-Ayerst's plans for obtaining Regulatory Approval for and
commercializing (either directly or through one or more Affiliates,
sublicensees or distributors) Pediatric Formula Products in the United
States, PROVIDED, HOWEVER, that if there has been a delay in either
(a) the completion of the research and development activities to be
performed under the Development Plan or (b) the supply by GalaGen to
Wyeth-Ayerst of Wyeth-Ayerst's requirements of the [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] for use in the development of
Pediatric Formula Products, such [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***]. In addition, if, after having had the discussions
described in the preceding sentence, Wyeth-Ayerst, [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***], fails to either
(i) file an application seeking Regulatory Approval for at least
one (1) Pediatric Formula Product in the United States, or
(ii) grant a sublicense to one or more Third Parties to develop
and/or commercialize at least one (1) Pediatric Formula
Product in the United States,
Wyeth-Ayerst shall, upon GalaGen's written request, grant to GalaGen
an exclusive (exclusive, except as to Wyeth-Ayerst) sublicense of the
rights granted to Wyeth-Ayerst hereunder, to develop, make, have made,
use, import, market, promote, offer for sale, and sell Pediatric
Formula Products (and not any Other Products) in the United States,
PROVIDED, HOWEVER, that if there has been a delay [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] in either (x) the completion of
the research and development activities to be performed under the
Development Plan or (y) the supply by GalaGen to Wyeth-Ayerst of
Wyeth-Ayerst's requirements of [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] for use in the development of Pediatric Formula
Products such [**CONFIDENTIAL TREATMENT
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REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***]. Further, if Wyeth-Ayerst has not made its
First Commercial Sale of a Pediatric Formula Product in the United
States within [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] after
obtaining Regulatory Approval for the first Pediatric Formula Product
in the United States, Wyeth-Ayerst shall, upon GalaGen's written
request, grant to GalaGen an exclusive (exclusive, even as to
Wyeth-Ayerst) sublicense of the rights granted by GalaGen to
Wyeth-Ayerst hereunder, to use GalaGen's Intellectual Property Rights
and GalaGen's interest in any Intellectual Property Rights jointly
owned by the Parties to develop, make, have made, use, import, market,
promote, offer for sale, and sell Pediatric Formula Products (and not
any Other Products) in the United States only. In the event that
Wyeth-Ayerst is required, in accordance with this Section 4.3, to
grant a sublicense to GalaGen the Parties shall within the
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] after GalaGen's
written request, use their respective Commercially Reasonable Efforts
to negotiate, in good faith, a definitive sublicense agreement
containing terms and conditions mutually acceptable to the Parties,
provided, however, that in no event will Wyeth-Ayerst be required to
grant to GalaGen a license under any of Wyeth-Ayerst's Intellectual
Property Rights..
5. CONSIDERATION TO GALAGEN.
5.1 LICENSE FEE. [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
5.2 ADDITIONAL LICENSE FEES. [***CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***]
5.3 PURCHASE OF WARRANTS. Simultaneously with the execution of this
Agreement, GalaGen will issue to Wyeth-Ayerst a stock purchase
warrant(the "Warrant" or the "Warrant Purchase Agreement") permitting
Wyeth-Ayerst to purchase up to two hundred thousand (200,000) shares
of GalaGen's common stock at the price set forth therein. The Warrant
shall be in the form that is attached hereto as Exhibit G.
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5.4 METHOD OF PAYMENT. [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***].
6. ACCOUNTS AND RECORDS; WITHHOLDING TAX.
6.1 RECORD KEEPING BY GALAGEN. GalaGen shall keep accurate books and
accounts of record in connection with the activities conducted by it
as part of the Collaboration in sufficient detail to permit accurate
determination of all figures necessary for verification of the R&D
Expenses incurred by GalaGen in the Collaboration hereunder. GalaGen
shall maintain such records for a period of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] after the end of the year in which they were
generated.
6.2 AUDIT BY WYETH-AYERST. Wyeth-Ayerst, through an independent certified
public accountant reasonably acceptable to GalaGen, shall have the
right, at its own expense, to access the books and records of GalaGen
for the sole purpose of verifying the statements furnished by GalaGen
pursuant to Section 2.4.4. Such access shall be conducted after
reasonable prior written notice to GalaGen and during ordinary
business hours and shall not be more frequent than once per calendar
year. Wyeth-Ayerst agrees to keep in strict confidence all
information learned in the course of such audit, except when it is
necessary to reveal such information in order to enforce its rights
under this Agreement. Wyeth-Ayerst's right to have such records
examined shall survive termination or expiration of this Agreement.
In the event such audit reveals an overpayment GalaGen shall promptly
refund to Wyeth-Ayerst the amount of such overpayment. In the event
such audit reveals an overpayment of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] of the amount actually due, GalaGen shall also
promptly reimburse Wyeth-Ayerst for the reasonable out-of-pocket
expenses incurred by Wyeth-Ayerst in conducting such audit.
6.3 RECORD KEEPING BY WYETH-AYERST. Wyeth-Ayerst shall keep accurate
books and accounts of record in connection with the sale by or for it
of the Products in sufficient detail to permit accurate determination
of all figures necessary for verification of payments required to be
paid hereunder. Wyeth-Ayerst shall maintain such records for a period
of [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND
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EXCHANGE COMMISSION***] after the end of the year in which they were
generated.
6.4 AUDIT BY GALAGEN. GalaGen, through an independent certified public
accountant reasonably acceptable to Wyeth-Ayerst, shall have the
right, at its own expense, to access the books and records of
Wyeth-Ayerst for the sole purpose of determining whether a payment
under either Section 5.1 or Section 5.2 has become due. Such access
shall be conducted after reasonable prior written notice to GalaGen
and during ordinary business hours and shall not be more frequent than
once per calendar year. Wyeth-Ayerst may require such independent
certified public accountant to sign a customary confidential
disclosure agreement prior to permitting such independent certified
public accountant to have access to its books, records or facilities.
The Parties agree that such independent certified public accountant
shall disclose to GalaGen only whether the payments due under Section
5.1 or Section 5.2 hereof were made on time in accordance with the
provisions of Article 5 hereof and the specific details concerning any
late payments. GalaGen agrees to keep in strict confidence all
information learned in the course of such audit, except when it is
necessary to reveal such information in order to enforce its rights
under this Agreement. GalaGen's right to have such records examined
shall survive termination or expiration of this Agreement. In the
event that such an audit reveals that a payment by Wyeth-Ayerst to
GalaGen under Section 5.1 or Section 5.2 hereof was paid to GalaGen
more than [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] to GalaGen
in accordance with Article 5 hereof, Wyeth-Ayerst shall reimburse
GalaGen for the reasonable out-of-pocket expenses incurred by GalaGen
in conducting such audit.
6.5 WITHHOLDING. All taxes, assessments and fees of any nature levied or
incurred on account of any payments accruing under this Agreement, by
national, state or local governments, will be assumed and paid by
Wyeth-Ayerst, except taxes levied thereon as income to GalaGen and if
such taxes are required to be withheld by Wyeth-Ayerst they will be
deducted from payments due to GalaGen and will be timely paid by
Wyeth-Ayerst to the proper taxing authority for the account of
GalaGen. A receipt or other proof of payment therefor shall be
secured and sent to GalaGen as soon as practicable.
6.6 FOREIGN EXCHANGE. For the purpose of computing Net Sales for Products
sold in a currency other than United States Dollars, such currency
shall be converted into United States Dollars in accordance with
Wyeth-Ayerst's customary and usual translation procedures,
consistently applied.
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7. TRADEMARKS.
7.1 TRADEMARKS FOR PRODUCTS. Wyeth-Ayerst shall select and own the
Wyeth-Ayerst Trademarks for marketing Products in the Territory. All
expenses for (i) registration of such Trademarks and (ii) bringing,
maintaining and prosecuting any action to protect or defend such
Trademarks shall be borne by Wyeth-Ayerst and Wyeth-Ayerst shall
retain all recoveries therefrom. At the termination of this
Agreement, Wyeth-Ayerst shall continue to have unrestricted ownership
of such Trademark(s) in the Territory.
7.2 TRADEMARKS [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]. Subject
to the license granted to Wyeth-Ayerst under Section 3.1 hereof,
GalaGen, in consultation with Wyeth-Ayerst, shall select and own the
GalaGen Trademarks for marketing the [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] in the Territory. All expenses for (i)
registration of such Trademarks and (ii) bringing, maintaining and
prosecuting any action to protect or defend such GalaGen Trademarks
shall be borne by GalaGen and GalaGen shall retain all recoveries
therefrom. If permitted by applicable laws and regulations
Wyeth-Ayerst shall signify that the Product includes a [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] by including the GalaGen
Trademark, in a visible and readable form, on the label or package for
the Product and GalaGen shall provide Wyeth-Ayerst with camera ready
artwork of such GalaGen Trademark for such purpose. The location and
size of the GalaGen Trademark on such label or package shall be
determined by Wyeth-Ayerst. Wyeth-Ayerst shall not and shall not
authorize any of its Affiliates or sublicensees to (i) use the GalaGen
Trademarks on any product other than Products or (ii) use any
trademark that is confusingly similar to the GalaGen Trademarks, in
either case without the prior written consent of GalaGen. Each Party
agrees to notify the other Party, in writing, of any claim or action
for infringement or unfair competition relating to the GalaGen
Trademarks which are threatened or brought against such Party by a
Third Party, and of any conflicting uses of, applications or
registrations for, or acts of infringement or unfair competition
involving the GalaGen Trademarks promptly after such Party learns of
any such matter. The Parties shall cooperate in the defense or
prosecution of any
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such claims, which cooperation shall include, without limitation,
providing to the other Party all records, documents and specimens in
its possession relating to such claim or action and causing its
employees to give testimony relating to such claim or action,
8. PROSECUTION, MAINTENANCE AND INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS.
8.1 PATENTABLE INVENTIONS.
8.1.1 OWNERSHIP OF PATENTABLE INVENTIONS. Wyeth-Ayerst shall own
all Inventions made solely by its employees and agents, and
all patent applications and patents claiming such
Inventions. GalaGen shall own all Inventions made solely by
its employees and agents, and all patent applications and
patents claiming such Inventions. All Inventions made
jointly by employees or agents of GalaGen and employees or
agents of Wyeth-Ayerst and all patent applications and
patents claiming such Inventions shall be owned jointly by
GalaGen and Wyeth-Ayerst. All determinations of
inventorship under this Section 8.1.1 shall be in accordance
with United States law.
8.1.2 PATENT PROCUREMENT. Wyeth-Ayerst and GalaGen shall each
disclose to the other and discuss any Inventions and the
desirability of filing a United States patent application
covering the Invention, as well as any foreign counterpart
patent applications. The Party owning the Invention shall
make the final decision with respect to any such filings and
shall have the right to select patent counsel and to take
such other actions as are reasonably appropriate to prepare,
file, prosecute and maintain patent protection with respect
to its Inventions arising under this Section 8.1. With
respect to jointly owned Inventions, the Parties shall meet
to determine in what countries, if any, patent applications
claiming such joint Inventions should be filed. In the
event that either Party does not wish to share in the
expenses of both filing and prosecuting patent applications
claiming such joint Inventions in any country of the
Territory, such Party shall promptly assign or cause to be
assigned to the other Party all of its right, title and
interest in and to such joint Invention and thereafter such
joint Invention shall be treated as an Invention solely
owned by such other Party for all purposes of this
Agreement. In the event both Parties desire to share in the
expenses of applying for, obtaining and maintaining patents
claiming such a joint Invention in one or more countries of
the
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<PAGE>
Territory Wyeth-Ayerst shall file and prosecute any patent
applications thereon in such countries and the out-of-pocket
expenses incurred by Wyeth-Ayerst in preparing, filing, and
prosecuting such joint patent applications and in
maintaining any patents issued therefrom shall be shared
equally by the Parties. GalaGen shall reimburse
Wyeth-Ayerst for its share of such expenses pursuant to
invoices submitted to GalaGen by Wyeth-Ayerst and shall pay
to Wyeth-Ayerst the amount due for each such invoice within
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
of GalaGen's receipt of such invoice.
8.2 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS. Each Party shall be
responsible for prosecuting and maintaining its own Patent Rights
throughout the Territory, subject to Section 8.1.2. To facilitate
such decision-making, each Party will appoint a "patent coordinator",
who will have the authority to make such decision on behalf of such
Party. Except as otherwise provided in Section 8.1.2, all expenses
for filing, prosecuting and maintaining a Party's Patent Rights shall
be borne in full by such Party.
8.3 PATENT EXTENSIONS. The Party holding a Patent Right, if requested by
and with the assistance of the other Party, shall apply in a timely
manner for such patent term extensions or patent term restoration
certificates for such Patent Right as are available under the Federal
Drug Price Competition and Patent Term Restoration Act of 1984 (Pub.
L. No. 98-417), and any amendments thereof or any successor acts
thereto in the USA or similar legislation in other countries of the
Territory. All expenses incurred in connection with such patent term
extensions or patent restoration certificates shall be borne in full
by the Party holding such Patent Right.
8.4 COOPERATION. Each of the Parties shall execute or have executed by
its appropriate employees, representatives, agents and contractors
such documents as may be necessary to obtain, perfect or maintain any
Patent Rights filed or to be filed pursuant to this Agreement, and to
cooperate with the other Party so far as reasonably necessary with
respect to furnishing all information and data in its possession
reasonably necessary to obtain or maintain such Patent Rights.
8.5 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS.
8.5.1 PROSECUTION OF INFRINGEMENT.
(a) If either Party should become aware of any infringement
or
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<PAGE>
threatened infringement or misappropriation, as the
case may be, in any country of the Territory, of any
Intellectual Property Rights of the other Party, it
shall promptly notify such other Party in writing. As
soon as practicable the Parties shall confer on the
particulars of such infringement or misappropriation
and the possible courses of action to be taken. The
Party holding the affected Intellectual Property Rights
shall have the right, but not the obligation, to
institute, prosecute and control any legal proceedings
in its own name by its own counsel and at its own
expense, subject to Section 8.5.1(d), to prevent or
restrain such infringement, and the other Party shall
have the right, at its own expense, to be represented
in such action by its own counsel. If one Party brings
any such action or proceeding, the other Party hereby
consents to being joined as a party plaintiff where
necessary and, in case of joining, such other Party
agrees to give the first Party reasonable assistance
and authority to file and to prosecute such suit, at
the expense of the Party bringing such suit.
(b) Notwithstanding the foregoing, the Parties shall
jointly determine which Party shall have the primary
right and responsibility (but not the obligation) to
institute, prosecute, and control any action or
proceeding with respect to infringement or
misappropriation of jointly owned Intellectual Property
Rights and the other Party shall have the right, at its
expense, to be represented by its counsel. Each Party
hereby consents to the filing of any such action by the
other Party with respect to any jointly owned Patent
Rights in accordance with this Section 8.5.1(b).
(c) If one Party alone prosecutes an infringement or
misappropriation of Intellectual Property Rights, after
payment of its legal costs and expenses, any damages
and costs recovered in any proceedings or by way of
settlement under Sections 8.5.1(a) and 8.5.1(b) above
or Section 8.5.2 shall belong to the Party bringing
such action, subject to payment therefrom to the other
Party of a reasonable sum to compensate the latter for
loss of profits, as applicable.
(d) If both Parties participate in prosecuting an
infringement or misappropriation of Intellectual
Property Rights, any damages and costs recovered in any
proceedings or by way
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<PAGE>
of settlement under this Section 8.5.1 shall be shared
by the Parties as follows:
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
8.5.2 OTHER PARTY'S RIGHT TO PROSECUTE INFRINGEMENT. If the Party
having the primary right to institute, prosecute, and
control such infringement or misappropriation action under
Section 8.5.1 fails to do so within a period of
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
after receiving notice of the infringement, or if that
Party, after initiating an action, determines to discontinue
such action, the other Party shall have the right, but not
the obligation, to bring and control or take over any such
action by counsel of its own choice, and its own expense,
subject to Section 8.5.1(c) unless prevented from doing so
by the laws of the country where the infringement or
misappropriation occurred or is threatened.
8.5.3 SETTLEMENTS. In connection with any proposed settlement in
respect of any infringement or threatened infringement of
any Intellectual Property Rights, the Party intending to
settle shall notify and consult with the other Party as to
the terms of settlement, whose written consent shall be
required prior to any such settlement, such consent not to
be unreasonably withheld.
8.5.4 COOPERATION. In connection with any action taken by either
Party against a Third Party to protect or enforce any
Intellectual Property Rights, the other Party shall, if
requested, consult with the Party taking such action, and
make available as witnesses its employees or as evidence any
materials, and/or data as are reasonably necessary for the
furtherance of such action. The expenses in connection with
the providing of witnesses and/or the making available of
any materials and/or data shall be borne by the Party
incurring them, and reimbursed pursuant to Section 8.5.1(d).
8.6 INFRINGEMENT OF THIRD PARTY PATENT RIGHTS.
8.6.1 INFRINGEMENT OF THIRD PARTY PATENTS. If Wyeth-Ayerst should
be of the opinion that it cannot make, import, use, market
and/or sell a Product in any country of the Territory under
its own Intellectual Property Rights or those licensed to it
by GalaGen under this
27
<PAGE>
Agreement without infringing a Third Party's patent, it
shall notify GalaGen. Both Parties then shall seek an
opinion of patent counsel acceptable to both Parties. If
such patent counsel concurs with Wyeth-Ayerst's opinion,
they shall, at Wyeth-Ayerst's sole option, jointly or
independently endeavor to secure a license from the Third
Party on terms that are reasonably acceptable to both
Parties.
8.6.2 OPINION OF COUNSEL. If, in the opinion of patent counsel
selected under Section 8.6.1, the Third Party patent, if
litigated, would be found invalid or not infringed by the
manufacture, use or sale of Product or if the Parties
otherwise mutually agree to obtain a license to such Third
Party patent, the Parties shall proceed in accordance with
the terms of this Agreement, unless an action for
infringement is brought against one or both Parties.
8.6.3 DEFENSE AGAINST CLAIM OF INFRINGEMENT. If either Party is
sued for infringement of any Third Party patents arising out
of the manufacture, use, sale or importation of a Product in
any country of the Territory, the Parties shall promptly
meet to discuss the course of action to be taken to resolve
or defend any such infringement litigation. Each Party
shall provide the other with such assistance as is
reasonably necessary and shall cooperate in the defense of
any such action. If the allegation of infringement is due
to or based on the use of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] in a Product then,
the cost/expense of defending such action incurred by
Wyeth-Ayerst and any damages and/or other compensation
imposed on Wyeth-Ayerst, by settlement or otherwise, in such
country shall be shared equally by the Parties. GalaGen
shall pay its share of such amounts pursuant to invoices
submitted periodically by Wyeth-Ayerst which invoices shall
be due and payable within thirty (30) days of GalaGen's
receipt thereof. In the event that Wyeth-Ayerst has not
made all payments due to GalaGen under this Agreement,
Wyeth-Ayerst may deduct amounts due to Wyeth-Ayerst from
GalaGen under this Section 8.6.3 from any amounts otherwise
due GalaGen under this Agreement.
9. TERM AND TERMINATION.
9.1 TERM. This Agreement shall be effective as of the Effective Date and
unless terminated earlier by mutual written agreement of the Parties
or pursuant to Sections 9.2 or 9.3 below, the Term of this Agreement
shall
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<PAGE>
continue in effect until the later of (i) expiration of the last to
expire GalaGen Patent Right incorporating a Valid Claim which, but for
the license granted under Section 3.1.1 hereof, would be infringed by
the manufacture, use or sale of a Product by Wyeth-Ayerst hereunder or
(ii) ten (10) years after the First Commercial Sale of a Product. Upon
the expiration of this Agreement pursuant to this Section 9.1,
Wyeth-Ayerst's licenses pursuant to Section 3.1 shall become fully
paid-up, perpetual, exclusive licenses subject only to any sublicenses
granted by Wyeth-Ayerst that are in effect at such time, including,
without limitation, any sublicenses granted to GalaGen under either
Section 3.3 or 4.3 hereof, which sublicenses shall also survive the
expiration of this Agreement in accordance with their respective
terms. The right of GalaGen to obtain additional sublicenses with
respect to Other Products in accordance with Section 3.3 hereof shall
also survive the expiration of this Agreement.
9.2 TERMINATION FOR CAUSE.
9.2.1 TERMINATION FOR CAUSE. This Agreement may be terminated by
written notice by either Party at any time during the Term
of this Agreement:
(a) for material breach by the other Party, which breach
remains uncured for [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] in the case of
nonpayment of any amount due and [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] for all
other breaches, each measured from the date written
notice of such breach is given to the breaching Party,
or, if such breach is not susceptible of cure within
such [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] and the breaching Party uses
diligent good faith efforts to cure such breach, for
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] after written notice to the breaching
Party; or
(b) upon the filing or institution of bankruptcy,
reorganization, liquidation or receivership
proceedings, or upon an assignment of a substantial
portion of the assets for the
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<PAGE>
benefit of creditors by the other Party, or in the
event a receiver or custodian is appointed for such
Party's business, or if a substantial portion of such
Party's business is subject to attachment or similar
process; PROVIDED, HOWEVER, that in the case of any
involuntary bankruptcy proceeding such right to
terminate shall only become effective if the proceeding
is not dismissed within [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] after the filing
thereof.
9.2.2 EFFECT OF TERMINATION FOR CAUSE ON LICENSE.
(a) In the event Wyeth-Ayerst terminates this Agreement
under Section 9.2.1(a), Wyeth-Ayerst's licenses
pursuant to Section 3.1 shall become fully paid-up,
perpetual licenses.
(b) In the event that GalaGen terminates this Agreement
under Section 9.2.1(a), then the rights and licenses
granted to Wyeth-Ayerst under Section 3.1 of this
Agreement shall terminate and all rights to the GalaGen
Patent Rights and [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION***] shall revert to GalaGen.
Additionally, the Parties will negotiate, in good
faith, the grant by Wyeth-Ayerst of a license to
GalaGen, on appropriate commercial terms, of any of
Wyeth-Ayerst's Patent Rights or Know-How solely as such
Patent Rights or Know-How relate to GalaGen's rights to
manufacture and sell the [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] for use in
Products.
(c) In the event Wyeth-Ayerst terminates this Agreement
under Section 9.2.1(b) or this Agreement is otherwise
terminated under Section 9.2.1(b), the Parties agree
that Wyeth-Ayerst, as a licensee of rights to
intellectual property under this Agreement, shall
retain and may fully exercise all of its rights and
elections under Title 11 (as such term is defined in
Section 9.6.1 hereof), including as set forth in
Section 9.6 hereof.
9.3 UNILATERAL TERMINATION BY WYETH-AYERST. Wyeth-Ayerst shall have the
right to unilaterally terminate this Agreement, on a country by
country and
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<PAGE>
Product by Product basis, upon [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] written notice to GalaGen. In the event of such
termination by Wyeth-Ayerst, all Wyeth-Ayerst's rights to use the
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] in such Products in
such country shall revert to GalaGen. If Wyeth-Ayerst terminates this
Agreement with respect to Pediatric Formula Products, Wyeth-Ayerst
shall not be obligated to make any other payments under Section 5.1 of
this Agreement for events which occur after the effective date of such
termination and, in such event payments made by Wyeth-Ayerst to
GalaGen under Article 5 hereof prior to such date shall be
non-refundable.
9.4 GENERAL CONDITIONS OF EXPIRATION AND TERMINATION.
9.4.1 EFFECT ON SUBLICENSEES. Any permitted sublicenses granted
by Wyeth-Ayerst hereunder shall automatically terminate or
expire at the same time as this Agreement expires (insofar
as they have not already terminated), except where, and to
the extent, any license granted hereunder survives
expiration of this Agreement, as expressly provided in this
Agreement. Upon early termination of this Agreement, for
any reason, with respect to a particular Product in a given
country or countries if any permitted sublicensee of such
Product in such country(ies) is not then in default under
its sublicense agreement with Wyeth-Ayerst, then such
sublicensee shall automatically have a license under this
Agreement as a direct licensee of GalaGen with respect to
such Product in such country(ies), on economic terms as are
set forth herein with respect to Wyeth-Ayerst and otherwise
with the same rights and obligations as Wyeth-Ayerst under
this Agreement.
9.4.2 EFFECT ON RIGHTS TO OTHER PRODUCTS. Except for a
termination of this Agreement by GalaGen pursuant to Section
9.2.1(a) hereof, the expiration or termination of this
Agreement shall not affect the rights of GalaGen or
Wyeth-Ayerst under Section 3.3 of this Agreement or under
any sublicense granted to GalaGen under Section 4.3 of this
Agreement.
9.4.3 SURVIVAL. The provisions of Articles 6, 10, 12 and Sections
2.6.3, 2.8, 3.3, 7.1, 8.1, 9.4, 13.6, 13.7, and 13.11 shall
survive termination or expiration of this Agreement.
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9.4.4 PRIOR OBLIGATIONS; REMEDIES. Termination or expiration of
this Agreement shall not operate to deprive either Party of
any rights or remedies either at law or in equity or to
relieve either Party of any of its obligations incurred
prior to the effective date of such termination or
expiration.
9.5 NO LIMIT ON REMEDIES. Nothing herein shall exclude or limit any
remedies or entitlements whatsoever which the law confers to either
Party in the event of a breach of contractual obligations by the other
Party.
9.6 INSOLVENCY.
9.6.1 EFFECT ON LICENSES. All rights and licenses granted under
or pursuant to this Agreement by GalaGen to Wyeth-Ayerst
are, for all purposes of Section 365(n) of Title 11 of the
United States Code ("Title 11"), licenses of rights to
"intellectual property" as defined in Title 11. GalaGen
agrees that Wyeth-Ayerst, as licensee of such rights under
this Agreement shall retain and may fully exercise all of
its rights and elections under Title 11. GalaGen agrees
during the Term of this Agreement to create and maintain
current copies or, if not amenable to copying, detailed
descriptions or other appropriate embodiments, to the extent
feasible, of all such intellectual property. If a case is
commenced by or against GalaGen under Title 11, GalaGen (in
any capacity, including debtor-in-possession) and its
successors and assigns (including, without limitation, a
Title 11 Trustee) shall,
(i) as Wyeth-Ayerst may elect in a written request,
immediately upon such request:
(A) perform all of the obligations provided
in this Agreement to be performed by
GalaGen including, where applicable and
without limitation, providing to
Wyeth-Ayerst portions of such
intellectual property (including
embodiments thereof) held by GalaGen and
such successors and assigns or otherwise
available to them; or
(B) provide to Wyeth-Ayerst all such
intellectual property (including all
embodiments thereof) held by GalaGen and
such successors and assigns or otherwise
available to them; and
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(ii) not interfere with the rights of Wyeth-Ayerst
under this Agreement, or any agreement
supplemental hereto, to such intellectual property
(including such embodiments), including any right
to obtain such intellectual property (or such
embodiments) from another entity.
9.6.2 RIGHTS TO INTELLECTUAL PROPERTY. If a Title 11 case is
commenced by or against GalaGen, and this Agreement is
rejected as provided in Title 11, and Wyeth-Ayerst elects to
retain its rights hereunder as provided in Title 11, then
GalaGen (in any capacity, including debtor-in-possession)
and its successors and assigns (including, without
limitation, a Title 11 Trustee) shall provide to
Wyeth-Ayerst all such intellectual property (including all
embodiments thereof) held by GalaGen and such successors and
assigns, or otherwise available to them, immediately upon
Wyeth-Ayerst's written request. Whenever GalaGen or any of
its successors or assigns provides to Wyeth-Ayerst any of
the intellectual property licensed hereunder (or any
embodiment thereof) pursuant to this Section 9.6,
Wyeth-Ayerst shall have the right to perform the obligations
of GalaGen hereunder with respect to such intellectual
property, but neither such provision nor such performance by
Wyeth-Ayerst shall release GalaGen from any such obligation
or liability for failing to perform it.
9.6.3 WYETH-AYERST'S RIGHTS. All rights, powers and remedies of
Wyeth-Ayerst provided herein are in addition to and not in
substitution for any and all other rights, powers and
remedies now or hereafter existing at law or in equity
(including, without limitation, Title 11) in the event of
the commencement of a Title 11 case by or against GalaGen.
Wyeth-Ayerst, in addition to the rights, power and remedies
expressly provided herein, shall be entitled to exercise all
other such rights and powers and resort to all other such
remedies as may now or hereafter exist at law or in equity
(including, without limitation, Title 11) in such event.
The Parties agree that they intend the foregoing
Wyeth-Ayerst rights to extend to the maximum extent
permitted by law, including, without limitation, for
purposes of Title 11:
(i) the right of access to any intellectual property
(including all embodiments thereof) of GalaGen, or
any Third Party with whom GalaGen contracts to
perform an obligation of GalaGen under this
Agreement, and, in the case of the Third Party,
which is necessary for the development,
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registration, manufacture and marketing of
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] and/or Products; and
(ii) the right to contract directly with any Third
Party described in (i) to complete the contracted
work.
10. INDEMNIFICATION AND INSURANCE.
10.1 INDEMNIFICATION BY WYETH-AYERST. Wyeth-Ayerst shall indemnify, defend
and hold harmless GalaGen and its Affiliates, and each of its and
their respective employees, officers, directors and agents (each, a
"GalaGen Indemnified Party") from and against any and all liability,
loss, damage, cost, and expense (including reasonable attorneys' fees)
(collectively, a "Liability") which the GalaGen Indemnified Party may
incur, suffer or be required to pay resulting from or arising in
connection with (i) the breach by Wyeth-Ayerst of any representation
or warranty contained in this Agreement; (ii) the manufacture,
promotion, distribution, use, testing, marketing, sale or other
disposition of Products by Wyeth-Ayerst, its Affiliates or
sublicensees; or (iii) the successful enforcement by a GalaGen
Indemnified Party of its rights under this Section 10.1.
Notwithstanding the foregoing, Wyeth-Ayerst shall have no obligation
under this Agreement to indemnify, defend or hold harmless any GalaGen
Indemnified Party with respect to claims, demands, costs or judgments
which result from either (x) the failure of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] supplied by GalaGen or its Affiliates or
subcontractors to comply with the specifications as set forth in the
Manufacturing and Supply Agreement or the applicable Regulatory
Approvals or (y) the willful misconduct or negligent acts or omissions
of GalaGen, its Affiliates, or any of their respective employees,
officers, directors or agents.
10.2 INDEMNIFICATION BY GALAGEN. GalaGen shall indemnify, defend and hold
harmless Wyeth-Ayerst and its Affiliates, and each of its and their
respective employees, officers, directors and agents (each, a
"Wyeth-Ayerst Indemnified Party") from and against any Liability which
the Wyeth-Ayerst Indemnified Party may incur, suffer or be required to
pay resulting from or arising in connection with (i) the breach by
GalaGen of any representation or warranty contained in this Agreement;
(ii) the
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discovery, development, manufacture, promotion, sale or use of
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] or Other Products by
GalaGen, its Affiliates or their subcontractors or permitted
sublicensees; or (iii) the successful enforcement by a Wyeth-Ayerst
Indemnified Party of its rights under this Section 10.2.
Notwithstanding the foregoing, GalaGen shall have no obligation under
this Agreement to indemnify, defend, or hold harmless any Wyeth-Ayerst
Indemnified Party with respect to claims, demands, costs or judgments
which result from willful misconduct or negligent acts or omissions of
Wyeth-Ayerst, its Affiliates, or any of their respective employees,
officers, directors or agents.
10.3 CONDITIONS TO INDEMNIFICATION. The obligations of the indemnifying
Party under Sections 10.1 and 10.2 are conditioned upon the delivery
of written notice to the indemnifying Party of any potential Liability
promptly after the indemnified Party becomes aware of such potential
Liability, PROVIDED, HOWEVER, that the failure to give such notice
promptly shall not impair a Party's rights to indemnification under
this Article 10 unless the delay in providing such notice has a
material adverse effect on the ability of the indemnifying Party to
defend against such Liability. The indemnifying Party shall have the
right to assume the defense of any suit or claim related to the
Liability if it has assumed responsibility for the suit or claim in
writing; however, if in the reasonable judgment of the indemnified
Party, such suit or claim involves an issue or matter which could have
a materially adverse effect on the business operations or assets of
the indemnified Party, the indemnified Party may waive its rights to
indemnity under this Agreement and control the defense or settlement
thereof, but in no event shall any such waiver be construed as a
waiver of any indemnification rights such Party may have at law or in
equity. If the indemnifying Party defends the suit or claim, the
indemnified Party may participate in (but not control) the defense
thereof at its sole cost and expense.
10.4 SETTLEMENTS. Neither Party may settle a claim or action related to a
Liability without the consent of the other Party, if such settlement
would impose any monetary obligation on the other Party or require the
other Party to submit to an injunction or otherwise limit the other
Party's rights under this Agreement. Any payment made by a Party to
settle any such claim or action shall be at its own cost and expense
except in the event that such payment was made with the prior written
consent of the indemnifying Party, in which case such payment will be
subject to the indemnification obligations of the Parties as set forth
in this Article 10.
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10.5 INSURANCE. Each Party further agrees to use reasonable commercial
efforts to obtain and maintain, during the term of this Agreement,
Comprehensive General Liability Insurance, including Products
Liability Insurance, with reputable and financially secure insurance
carriers to cover its indemnification obligations under Sections 10.1
or 10.2, as applicable, or, in the case of Wyeth-Ayerst,
self-insurance, in each case with limits of not less than
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***].
11. REPRESENTATIONS AND WARRANTIES.
11.1 REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each of GalaGen and
Wyeth-Ayerst hereby represents, warrants and covenants to the other
Party hereto as follows:
(a) it is a corporation or entity duly organized and validly existing
under the laws of the state or other jurisdiction of
incorporation or formation;
(b) the execution, delivery and performance of this Agreement by such
Party has been duly authorized by all requisite corporate action
and does not require any shareholder action or approval;
(c) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder;
(d) the execution, delivery and performance by such Party of this
Agreement and its compliance with the terms and provisions hereof
does not and will not conflict with or result in a breach of any
of the terms and provisions of or constitute a default under (i)
a loan agreement, guaranty, financing agreement, agreement
affecting a product or other agreement or instrument binding or
affecting it or its property; (ii) the provisions of its charter
or operative documents or bylaws; or (iii) any order, writ,
injunction or decree of any court or governmental authority
entered against it or by which any of its property is bound; and
(e) it shall comply with all applicable material laws and regulations
relating to its activities under this Agreement.
11.2 REPRESENTATIONS AND WARRANTIES OF GALAGEN. In addition to the
representations and warranties made by GalaGen under Section 11.1
above, GalaGen hereby further represents and warrants to Wyeth-Ayerst
that:
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(a) As of the Effective Date, the GalaGen Patent Rights and Know-How
are existing and, to the best of its knowledge, are not invalid
or unenforceable, in whole or in part;
(b) it has the full right, power and authority to grant all of the
right, title and interest in the licenses granted under Article 3
hereof;
(c) it has not, prior to the Effective Date, previously assigned,
transferred, conveyed or otherwise encumbered its right, title
and interest in any of the [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***], Products, the GalaGen Patent Rights or Know-How
or the GalaGen Trademarks, with respect to which Wyeth-Ayerst has
been granted a license or other rights hereunder;
(d) it is the sole and exclusive owner of the GalaGen Patent Rights
and Know-How and GalaGen Trademarks existing as of the Effective
Date, all of which are free and clear of any liens, charges and
encumbrances, and no other person, corporate or other private
entity, or governmental entity or subdivision thereof, has or
shall have any claim of ownership with respect to the GalaGen
Patent Rights or Know-How or the GalaGen Trademarks existing as
of the Effective Date, whatsoever;
(e) to the best of its knowledge the GalaGen Patent Rights and
Know-How, and the development, manufacture, use, distribution,
marketing, promotion and sale of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION***] or Products do not, as of the
Effective Date, interfere or infringe on any intellectual
property rights owned or possessed by any Third Party;
(f) as of the Effective Date, there are no claims, judgments or
settlements against or owed by GalaGen or, to the best of its
knowledge, pending or threatened claims or litigation relating to
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***], the
GalaGen Patent Rights or Know-How and the GalaGen Trademarks;
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<PAGE>
(g) during the Term of this Agreement it will use diligent efforts
not to diminish the rights under the GalaGen Patent Rights and
Know-How and the GalaGen Trademarks licensed to Wyeth-Ayerst
hereunder, including without limitation, by not committing or
permitting any actions or omissions which would cause the breach
of any agreements between itself and Third Parties which provide
for Intellectual Property Rights applicable to the development,
manufacture, use or sale of [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] and/or Products, that it will provide Wyeth-Ayerst
promptly with notice of any such alleged breach, and that as of
the Effective Date, it is in compliance in all material respects
with any agreements with Third Parties relating to the GalaGen
Patent Rights and Know How, the GalaGen Trademarks, the
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] and/or
the Products.
11.3 REPRESENTATIONS AND WARRANTIES OF WYETH-AYERST. In addition to the
representations and warranties made by Wyeth-Ayerst under Section 11.1
above, Wyeth-Ayerst hereby further represents and warrants to GalaGen
that the Products manufactured and sold by Wyeth-Ayerst hereunder,
which Products contain [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***], manufactured by GalaGen in accordance with the
Specifications (as such term is defined in the Manufacturing and
Supply Agreement) and supplied to Wyeth-Ayerst by GalaGen under the
Manufacturing and Supply Agreement, shall:
(a) be manufactured, stored and shipped in accordance with GMPs, as
applicable and all other applicable material laws, rules,
regulations or requirements in effect at the time of the
manufacture of such Product; and
(b) not be adulterated or misbranded as provided for under any
applicable law, order or regulation then in effect in the country
in which such Product is being sold as of the time that
Wyeth-Ayerst sells such Product to a Third Party.
11.4 [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
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<PAGE>
11.5 NO INCONSISTENT AGREEMENTS. Except as otherwise provided in Section
11.4 above, neither Party has in effect and after the Effective Date
neither Party shall enter into any oral or written agreement or
arrangement that would be inconsistent with its obligations under this
Agreement.
11.6 REPRESENTATION BY LEGAL COUNSEL. Each Party hereto represents that it
has been represented by legal counsel in connection with this
Agreement and acknowledges that it has participated in the drafting
hereof. In interpreting and applying the terms and provisions of this
Agreement, the Parties agree that no presumption shall exist or be
implied against the Party which drafted such terms and provisions.
12. CONFIDENTIAL INFORMATION; PUBLICATIONS; PUBLICITY
12.1 NONDISCLOSURE OBLIGATION. Each of GalaGen and Wyeth-Ayerst shall use
only in accordance with this Agreement and shall not disclose to any
Third Party any information received by it from the other Party (the
"Information"), without the prior written consent of the other Party.
The foregoing obligations shall survive [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***]. These obligations shall not apply to
Information that:
(i) is known by the receiving Party at the time of its receipt,
and not through a prior disclosure by the disclosing Party,
as documented by business records;
(ii) is at the time of disclosure or thereafter becomes published
or otherwise part of the public domain without breach of
this Agreement by the receiving Party;
(iii) is subsequently disclosed to the receiving Party by a Third
Party who has the right to make such disclosure;
(iv) is developed by the receiving Party independently of the
Information received from the disclosing Party and such
independent development can be documented by the receiving
Party;
(v) is disclosed to any institutional review board of any entity
conducting clinical trials or any governmental or other
regulatory agencies in order to obtain patents or to gain
approval to conduct clinical trials or to market
[**CONFIDENTIAL TREATMENT REQUESTED;
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<PAGE>
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] and/or Products, but such disclosure
may be made only to the extent reasonably necessary to
obtain such patents or authorizations; and, in which case
reasonable effort shall be taken to maintain the
confidentiality of such Information, or
(vi) is required by law, regulation, rule, act or order of any
governmental authority or agency to be disclosed by a Party,
PROVIDED that notice is promptly delivered to the other
Party in order to provide an opportunity to seek a
protective order or other similar order with respect to such
Information and thereafter the disclosing Party discloses to
the requesting entity only the minimum Information required
to be disclosed in order to comply with the request, whether
or not a protective order or other similar order is obtained
by the other Party.
12.2 PERMITTED DISCLOSURES. Information may be disclosed to employees,
agents, consultants, sublicensees or suppliers of the recipient Party
or its Affiliates, but only to the extent required to accomplish the
purposes of this Agreement and only if the recipient Party obtains
prior agreement from its employees, agents, consultants, sublicensees
or suppliers to whom disclosure is to be made to hold in confidence
and not make use of such Information for any purpose other than those
permitted by this Agreement. Each Party will use at least the same
standard of care as it uses to protect proprietary or confidential
information of its own to ensure that such employees, agents,
consultants, sublicensees or suppliers do not disclose or make any
unauthorized use of the Information.
12.3 DISCLOSURE OF AGREEMENT. Neither GalaGen nor Wyeth-Ayerst shall
release to any Third Party or publish in any way any non-public
information with respect to the terms of this Agreement or concerning
their cooperation without the prior written consent of the other,
which consent will not be unreasonably withheld or delayed, PROVIDED,
HOWEVER, that either Party may disclose the terms of this Agreement to
the extent required to comply with applicable laws, including without
limitation the rules and regulations promulgated by the United States
Securities and Exchange Commission and the Party intending to disclose
the terms of this Agreement shall provide the nondisclosing Party an
opportunity to review and comment on the intended disclosure which is
reasonable under the circumstances. Notwithstanding any other
provision of this Agreement, each Party may disclose the terms of this
Agreement to lenders, investment bankers and other financial
institutions of its choice solely for purposes of financing the
business operations of such Party
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<PAGE>
either (i) upon the written consent of the other Party or (ii) if the
disclosing Party uses reasonable efforts to obtain a signed
confidentiality agreement with such financial institution with respect
to such information on terms substantially similar to those contained
in this Article 12.
12.4 PUBLICITY. Subject to Section 12.3, all publicity, press releases and
other announcements relating to this Agreement or the transactions
contemplated hereby shall be reviewed in advance by, and shall be
subject to the approval of, both Parties.
12.5 PUBLICATION. The Parties shall cooperate in appropriate publication
of the results of research and development work performed pursuant to
this Agreement, but subject to their predominating interest in
obtaining patent protection for any patentable subject matter. The
determination of authorship for any paper shall be in accordance with
accepted scientific practice. Notwithstanding anything in this
Section 12.5 to the contrary, all publication and presentations of the
results of research and development work performed pursuant to this
Agreement must be approved in advance by both Parties.
13. MISCELLANEOUS.
13.1 FORCE MAJEURE. Neither Party shall be liable to the other for delay
or failure in the performance of the obligations on its part contained
in this Agreement if and to the extent that such failure or delay is
due to circumstances beyond its control which it could not have
avoided by the exercise of reasonable diligence. It shall notify the
other Party promptly should such circumstances arise, giving an
indication of the likely extent and duration thereof, and shall use
all Commercially Reasonable Efforts to resume performance of its
obligations as soon as practicable.
13.2 ASSIGNMENT.
13.2.1 ASSIGNMENT BY GALAGEN. GalaGen may assign any of its rights
or obligations under this Agreement in any country to any of
its Affiliates, for so long as they remain Affiliates.
GalaGen may also assign its rights and obligations under
this Agreement in connection with a merger or similar
reorganization or the sale of all or substantially all of
its assets. GalaGen shall not otherwise assign any of its
rights or obligations under this Agreement without the prior
written consent of Wyeth-Ayerst, which consent may be
provided or withheld in Wyeth-Ayerst's sole discretion. Any
assignment under this Section 13.2.1 by GalaGen of its
rights and/or obligations under this Agreement shall not
relieve GalaGen
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<PAGE>
of its responsibilities for the performance of its
obligations under this Agreement.
13.2.2 ASSIGNMENT BY WYETH-AYERST. Wyeth-Ayerst may assign any of
its rights or obligations under this Agreement in any
country to any of its Affiliates or to one or more Third
Parties. Wyeth-Ayerst shall notify GalaGen, in writing,
upon making any such assignment. In the event Wyeth-Ayerst
assigns any of its rights or obligations under this
Agreement in connection with a merger or similar
reorganization or the sale of all or substantially all of
its assets or a sale of that part of its business relating
to the subject matter of this Agreement, no intellectual
property rights of the acquiring corporation shall be
included in the technology licensed hereunder. Any
assignment under this Section 13.2.2 by Wyeth-Ayerst shall
not relieve Wyeth-Ayerst of its responsibilities for the
performance of its obligations under this Agreement.
13.2.3 BINDING NATURE OF ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the successors and
permitted assigns of the Parties. Any assignment not in
accordance with this Section 13.2 shall be void.
13.3 NO WAIVER. The failure of either Party to require performance by
the other Party of any of that other Party's obligations
hereunder shall in no manner affect the right of such Party to
enforce the same at a later time. No waiver by any Party hereto
of any condition, or of the breach of any provision, term,
representation or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of
any such condition or breach, or of any other condition or of the
breach of any other provision, term, representation or warranty
hereof.
13.4 SEVERABILITY. If a court or other tribunal of competent
jurisdiction should hold any term or provision of this Agreement
to be excessive, or invalid, void or unenforceable, the offending
term or provision shall be deleted, and, if possible, replaced by
a term or provision which, so far as practicable achieves the
legitimate aims of the Parties.
13.5 RELATIONSHIP BETWEEN THE PARTIES. Both Parties are independent
contractors under this Agreement. Nothing herein contained shall
be deemed to create an employment, agency, joint venture or
partnership relationship between the Parties hereto or any of
their agents or employees, or any other legal arrangement that
would impose liability upon one Party for the act or failure to
act of the other Party. Neither Party shall have any express or
implied power to enter into any contracts
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or commitments or to incur any liabilities in the name of, or on
behalf of, the other Party, or to bind the other Party in any
respect whatsoever.
13.6 CORRESPONDENCE AND NOTICES.
13.6.1 ORDINARY NOTICES. Correspondence, reports,
documentation, and any other communication in writing
between the Parties in the course of ordinary
implementation of this Agreement shall be delivered by
hand, sent by facsimile, or by airmail to any one
member of the JDC appointed by the Party which is to
receive such written communication, or any other way as
the JDC deems appropriate.
13.6.2 EXTRAORDINARY NOTICES. Extraordinary notices and
communications (including, without limitation, notices
of termination, force majeure, material breach, change
of address) shall be in writing and sent by prepaid
registered or certified air mail, or by facsimile
confirmed by prepaid registered or certified air mail
letter, and shall be deemed to have been properly
served to the addressee upon receipt of such written
communication.
13.6.3 ADDRESSES FOR NOTICES. In the case of GalaGen, the
proper address for communications and for all payments
shall be:
GalaGen Inc.
4001 Lexington Avenue North
Arden Hills, Minnesota 55126 USA
Attn: Chief Executive Officer
Fax: (612) 481-2380
and in the case of Wyeth-Ayerst, the proper address for
communications and for all payments shall be:
Wyeth-Ayerst Laboratories
555 East Lancaster Avenue
St. Davids, Pennsylvania 19087
Attn: Senior Vice President, Global Business
Development
Fax: (610) 688-9498
With a copy to:
American Home Products Corporation
5 Giralda Farms
Madison, New Jersey 07940
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Attn: Senior Vice President and General
Counsel
Fax: (973) 660-7156
13.7 CHOICE OF LAW. This Agreement is subject to and governed by the laws
of the State of Delaware, excluding its conflict of laws provisions.
13.8 ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the other
Transaction Agreements, including the Exhibits and Schedules hereto
and thereto and all the covenants, promises, agreements, warranties,
representations, conditions and understandings contained herein and
therein sets forth the complete, final and exclusive agreement between
the Parties and supersedes and terminates all prior and
contemporaneous agreements and understandings between the Parties,
whether oral or in writing. There are no covenants, promises,
agreements, warranties, representations, conditions or understandings,
either oral or written, between the Parties other than as are set
forth in the Transaction Agreements. No subsequent alteration,
amendment, change, waiver or addition to this Agreement shall be
binding upon the Parties unless reduced to writing and signed by an
authorized officer of each Party. No understanding, agreement,
representation or promise, not explicitly set forth herein, has been
relied on by either Party in deciding to execute this Agreement.
13.9 HEADINGS. The headings and captions used in this Agreement are solely
for the convenience of reference and shall not affect its
interpretation.
13.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be an original and all of which shall
constitute together the same document.
13.11 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all other acts, as may be
necessary or appropriate in order to carry out the purposes and intent
of this Agreement including, without limitation, any filings with any
antitrust agency which may be required.
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the Parties as of the date first set forth above.
AMERICAN HOME PRODUCTS CORPORATION GALAGEN INC.
/s/ Tuan Ha-Ngoc /s/ Robert A. Hoerr
- ----------------------------------- ----------------------------------
Name: Tuan Ha-Ngoc Name: Robert A. Hoerr
Title: Vice President - Strategic Title: President & CEO
Development
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MANUFACTURING AND SUPPLY AGREEMENT
THIS MANUFACTURING AND SUPPLY AGREEMENT (the "Agreement") is entered into
as of the 15th day of October, 1998 (the "Effective Date"), by and between
GALAGEN INC., a company incorporated under the laws of the State of Delaware,
with its principal place of business at 4001 Lexington Avenue North, Arden
Hills, Minnesota 55126 USA ("GalaGen"), AND AMERICAN HOME PRODUCTS CORPORATION,
acting through its WYETH-AYERST LABORATORIES DIVISION, a company incorporated
under the laws of the State of Delaware, with its principal place of business at
555 East Lancaster Avenue, St. Davids, Pennsylvania 19087, USA
("Wyeth-Ayerst"). Both GalaGen and Wyeth-Ayerst are referred to herein
individually as a "Party" and collectively as the "Parties".
WHEREAS, GalaGen has developed proprietary technology with respect to
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***]; and
WHEREAS, GalaGen and Wyeth-Ayerst, pursuant to that certain Collaboration
and License Agreement entered into by the Parties on even date herewith, are
collaborating with each other to utilize GalaGen's proprietary technology to
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] and to develop Pediatric Formula Products
and/or Other Products containing [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]; and
WHEREAS, Wyeth-Ayerst desires for GalaGen to manufacture and supply it
with such [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] for use by Wyeth-Ayerst in the
Manufacture of Pediatric Formula Products and Other Products.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants and conditions contained in this Agreement, the Parties
agree as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the capitalized terms hereunder shall
have the meanings defined below:
1.1 "AFFILIATE(s) shall mean, in the case of either Party, any
corporation, joint venture, or other business entity which directly or
indirectly controls, is controlled by, or is under common control with
that Party. "Control", as used in this Section 1.1, shall mean having
the power to direct, or cause the direction of, the management and
policies of an entity, whether through ownership of voting securities,
by contract or otherwise. [**CONFIDENTIAL TREATMENT REQUESTED;
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PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***].
1.2 "APPROVED FACILITY" shall mean each such Manufacturing facility
referenced in the Regulatory Approvals as an approved site for the
Manufacture of the Ingredient and such term includes all GalaGen's
equipment, machinery and facilities used in the manufacturing, testing
and storage of the Ingredient.
1.3 "BATCH" shall mean a Manufacturing run of Ingredient in an amount to
be agreed upon in writing by the Parties during the course of the
Collaboration.
1.4 "CALENDAR QUARTER" shall mean the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30
or December 31, for so long as this Agreement is in effect.
1.5 "CERTIFICATE OF ANALYSIS" shall mean a document identifying the tests
required for Ingredient release, results of those tests for a
specific lot, and the release specifications, in a form agreed to by
the Parties in writing.
1.6 "COLLABORATION" shall mean the research and development program
conducted jointly by the Parties under the License Agreement for the
purpose of optimizing the production of [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] and developing and obtaining Regulatory
Approval for Pediatric Formula Products.
1.7 "CURRENT GOOD MANUFACTURING PRACTICE" OR "CGMP" shall mean (i) the
current standards for the manufacture of pharmaceuticals, as set forth
in the United States Federal Food, Drug and Cosmetics Act and
applicable regulations promulgated thereunder, as amended from time to
time, and such standards of good manufacturing practice as are
required by the European Union and other organizations and
governmental agencies in countries in which the Products are intended
to be sold, to the extent such standards are not inconsistent with
United States cGMP.
1.8 "FDA" shall mean the United States Food and Drug Administration.
1.9 "FIRST COMMERCIAL SALE" shall mean, on a Product by Product basis, the
first sale of such Product in any country of the Territory after such
Product has been granted Regulatory Approval by the competent
authorities in such country.
1.10 "INGREDIENT" shall mean [***CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] and are in a form(s) to be specified by Wyeth-
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Ayerst, which form(s) are reasonably necessary to meet Wyeth-Ayerst's
or its Affiliates' or sublicensees' needs for the production of
Products.
1.11 "KNOW-HOW" shall have the meaning assigned to such term in the License
Agreement.
1.12 "LICENSE AGREEMENT" shall mean the Collaboration and License Agreement
which has been entered into by the Parties on even date herewith.
1.13 "MANUFACTURE", "MANUFACTURED" OR "MANUFACTURING" shall mean all
activities involved in the production of Ingredient to be supplied to
Wyeth-Ayerst, its Affiliates or sublicensees under this Agreement,
including, without limitation, the [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***].
1.14 "MANUFACTURING COST" shall mean the costs for those items specified in
Exhibit A which have been incurred by GalaGen in Manufacturing the
Ingredient for Wyeth-Ayerst hereunder, which costs are calculated in
accordance with generally accepted accounting principles.
1.15 "NET SALES" shall mean proceeds from sales of Pediatric Formula
Products by Wyeth-Ayerst, its Affiliates or sublicensees, as
appropriate, to Third Parties, less the sum of (a) and (b) where (a)
is a provision, determined under generally accepted accounting
principles in the United States, for [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***].
Sales of Pediatric Formula Products by and between a Party and its
Affiliates are not sales to Third Parties and shall be excluded form
Net Sales calculations for all purposes.
1.16 "NET SELLING PRICE" shall mean, with respect to a particular Pediatric
Formula Product, the total Net Sales of such Pediatric Formula
Product, made during a Calendar Quarter divided by the number of units
of such Pediatric Formula Product sold during such Calendar Quarter.
1.17 "OTHER PRODUCT(S)" shall mean any product, other than Pediatric
Formula Products, which contains Ingredient. [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***].
1.18 "PEDIATRIC FORMULA PRODUCT(S)" shall mean any beverage (whether
supplied in liquid form or as a powder to be mixed with water)
containing Ingredient for oral consumption by infants and/or children.
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1.19 "PRODUCT(S)" shall mean any Pediatric Formula Product or any Other
Product.
1.20 "REGULATORY APPROVAL" shall mean all authorizations by the competent
authorities which are required for the regular marketing, promotion,
pricing and sale of a Product in a given country or regulatory
jurisdiction.
1.21 "REGULATORY AUTHORITY" shall mean any national, supra-national (e.g.,
the European Commission, the Council of the European Union, or the
European Agency for the Evaluation of Medicinal Products), regional,
state or local regulatory agency, department, bureau, commission,
council or other governmental entity involved in the granting of
Regulatory Approval for the Product(s) and/or Ingredient.
1.22 "SPECIFICATIONS" shall mean specifications for or concerning the
Manufacturing, testing, quality assurance and packaging of the
Ingredient as may be agreed upon by the Parties in writing from time
to time, PROVIDED, HOWEVER, that such Specifications shall comply with
all applicable Regulatory Approvals for the manufacture and sale of
Ingredients or Products.
1.23 "THIRD PARTY(IES)" shall mean any person(s) or entity(ies) other than
GalaGen, Wyeth-Ayerst or their Affiliates.
1.24 "TRANSACTION AGREEMENTS" shall mean this Agreement, the License
Agreement and the Warrant Purchase Agreement entered into by the
Parties on even date herewith.
2. MANUFACTURE AND SUPPLY OF INGREDIENT.
2.1 MANUFACTURE OF INGREDIENT. During the term and in accordance with the
provisions of this Agreement, GalaGen shall either manufacture the
Ingredient at GalaGen's own premises, or, upon Wyeth-Ayerst's prior
written consent, sub-contract the Manufacture of the Ingredient to a
Third Party sub-contractor which is acceptable to Wyeth-Ayerst and
which shall have sufficient knowledge and expertise to carry out the
Manufacture of the Ingredient and meet Wyeth-Ayerst's requirements for
the Ingredient.
2.2 SUPPLY OF WYETH-AYERST'S REQUIREMENTS. During the term and in
accordance with the provisions of this Agreement, GalaGen shall
Manufacture and supply to Wyeth-Ayerst and Wyeth-Ayerst shall purchase
from GalaGen its entire requirements of the Ingredient for use in its
manufacture of Products.
2.3 FORECASTS AND ORDERS.
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2.3.1 Not less than twelve (12) months prior to its first purchase
of Ingredient for use in the manufacture of Products to be
sold to Third Parties, Wyeth-Ayerst shall provide GalaGen
with a written forecast (by Calendar Quarter) of the
quantity of Ingredient that Wyeth-Ayerst desires to have
delivered to it during the first twelve (12) month period of
Product sales. Within six (6) months prior to its first
purchase of Ingredient, Wyeth-Ayerst shall provide GalaGen
with an updated forecast for the first twelve (12) month
period (by Calendar Quarter), and by the beginning of such
twelve (12) month period shall provide GalaGen with an
updated forecast for the last three (3) Calendar Quarters of
such twelve (12) month period and for the Calendar Quarter
following immediately thereafter. Thereafter, at least
ninety (90) days before the end of each subsequent Calendar
Quarter, Wyeth-Ayerst shall provide a written updated
forecast (by Calendar Quarter) in accordance with the
provisions of Section 2.3.2 hereof.
2.3.2 Each successive forecast shall update the forecast
previously given for the last three (3) Calendar Quarters
covered and add a forecast for the Calendar Quarter
following immediately thereafter, to enable GalaGen to have
sufficient information to schedule its or its
sub-contractors' manufacturing operations to meet
Wyeth-Ayerst's forecasted requirements of the Ingredient.
GalaGen acknowledges that such forecasts are only estimates
of Wyeth-Ayerst's purchase requirements of the Ingredient
and that Wyeth-Ayerst shall not be bound by any such
estimate, except that after Regulatory Approval the first
Calendar Quarter of each successive forecast so provided
shall represent a binding commitment of Wyeth-Ayerst to
purchase and of GalaGen to supply such forecasted quantity
of Ingredient in a timely manner, subject to adjustment
within the limits set forth in Section 2.3.4 hereof.
2.3.3 Wyeth-Ayerst shall order and maintain reasonable inventories
of the Ingredient, having due regard to its current and
forecasted sales volumes for the Products. Wyeth-Ayerst
shall issue to GalaGen firm purchase orders for each
delivery not later than two (2) months prior to the
requested delivery date. Such purchase orders shall specify
the quantity of Ingredient desired, and the place(s) to
which and the manner and dates by which delivery is to be
made. To the extent the terms of any purchase order or
acknowledgment thereof are inconsistent with the terms of
this Agreement, the terms of this Agreement shall control.
2.3.4 The quantity of Ingredient ordered by Wyeth-Ayerst in any
Calendar Quarter shall not be less than seventy-five percent
(75%) of the quantity specified in the last binding forecast
provided by Wyeth-Ayerst for such Calendar Quarter.
Additionally, GalaGen shall not be obligated to supply that
quantity of Ingredient in any Calendar Quarter that is more
than one hundred and twenty-five percent (125%) of the last
binding forecast provided by Wyeth-Ayerst for the Calendar
Quarter in question; PROVIDED,
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HOWEVER, that GalaGen shall endeavor to take all reasonable
steps to fill purchase orders for the Ingredient in excess
of such amount.
2.3.5 All estimates shall be prepared in good faith in order to
facilitate GalaGen's efficient manufacture and shipment of
the Ingredient in compliance with this Agreement, and except
as set forth in Section 2.3.2 will not be binding upon
Wyeth-Ayerst or GalaGen in any way and Wyeth-Ayerst shall
not be responsible for any loss or expense of GalaGen's
arising from the forecast.
2.3.6 Notwithstanding any other provision of this Agreement,
GalaGen in no event shall be obligated to supply
Wyeth-Ayerst with an amount of Ingredient that exceeds
seventy percent (70%) of GalaGen's total capacity for the
manufacture of Ingredient and all other products. In the
event Wyeth-Ayerst provides GalaGen with good faith
forecasts that exceed such capacity, GalaGen agrees that it
will use its Commercially Reasonable Efforts to seek and
employ subcontractors, as permitted under Section 2.1
hereof, to manufacture such excess amounts of Ingredient on
commercially reasonable terms.
2.4 ALTERNATIVE SUPPLY. At any time, but no later than a reasonable time
(which shall not exceed six (6) months plus any delay associated with
approval of the site of manufacture by a Regulatory Authority) after
Wyeth-Ayerst's annual purchases of the Ingredient attain a level of
fifty percent (50%) of GalaGen's total capacity for the manufacture of
Ingredient and all other products, or if a restriction is imposed upon
(a) Manufacturing that would prevent GalaGen from meeting its supply
obligation hereunder or (b) exporting the Ingredient out of the
country where it is Manufactured, then GalaGen shall use its
Commercially Reasonable Efforts to establish a second source for
supply of the Ingredient which second source of supply must be
reasonably acceptable to Wyeth-Ayerst.
2.5 STORAGE. GalaGen shall cause, at its own expense, the maintenance of
adequate storage accommodations, in accordance with cGMP, for the
quantities of Ingredient being held by or on behalf of GalaGen pending
delivery to a carrier in accordance with Article 4 of this Agreement.
2.6 MANUFACTURING DATE. GalaGen shall conduct appropriate studies in
order to maximize the shelf life of the Ingredient. GalaGen agrees
not to supply Ingredient which was manufactured more than three (3)
months prior to delivery to Wyeth-Ayerst, unless otherwise approved,
in writing, by Wyeth-Ayerst, such approval not to be unreasonably
withheld.
2.7 PERMITTED SUBCONTRACTORS. GalaGen shall ensure that the permitted
subcontractors for the Manufacture of the Ingredient have sufficient
knowledge and expertise to carry out the Manufacture of the Ingredient
and other subcontracted responsibilities. In addition GalaGen shall
ensure that (i) each such subcontractor shall be in
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<PAGE>
compliance with cGMPs and shall be under the inspection of all
relevant Regulatory Authorities and audited to be in compliance
therewith, and (ii) Wyeth-Ayerst will have the right to inspect and
audit each such subcontractor's facilities and records as provided in
Section 3.8 hereof.
3. TESTING AND QUALITY CONTROL.
3.1 FACILITY COMPLIANCE AND RELATED MATTERS.
3.1.1 GalaGen covenants that the Approved Facility shall be
in compliance with all applicable laws, rules and
regulations, including cGMP, at all times during the term of
this Agreement. GalaGen shall be responsible for all costs
and expenses related to the compliance of the Approved
Facility with such laws, rules and regulations related to
the Manufacture of the Ingredient in accordance with the
Specifications. The Ingredient shall be Manufactured at the
Approved Facility and the location thereof shall not be
changed without Wyeth-Ayerst's written consent, which
consent shall not be unreasonably withheld.
3.1.2 For so long as the Approved Facility shall be Manufacturing
the Ingredient, GalaGen shall perform routine audits of the
Approved Facility cleaning, validation and environmental
monitoring programs. GalaGen shall notify Wyeth-Ayerst in
the event of any adverse finding during such audit, or any
cross contamination issue related to the Ingredient.
3.2 SPECIFICATIONS AMENDMENTS. The Specifications shall be amended or
supplemented to comply with cGMPs and to comply with any applicable
Regulatory Authority directive and may also be amended or supplemented
(including, without limitation, for the purpose of incorporating
improvements) from time to time. In the event GalaGen intends to
amend the Specifications, Wyeth-Ayerst shall receive prompt advance
notice of any such amendments. No such amendment shall be filed with
any applicable Regulatory Authority or otherwise become effective
without the prior written mutual approval of Wyeth-Ayerst and GalaGen.
In the event that, after the Parties have initially agreed upon the
Specifications, Wyeth-Ayerst requests that the Specifications be
amended, GalaGen shall receive prompt advance notice of any such
amendment for the purpose of determining what, if any, impact the
proposed amendment would have on the Manufacture of Ingredient for
Wyeth-Ayerst hereunder and Wyeth-Ayerst shall reimburse GalaGen for
the actual costs incurred by GalaGen (provided that such costs are
approved in writing by Wyeth-Ayerst prior to being incurred by
GalaGen) because such amendment requires changes to be made in the
processes, equipment, testing procedures, or components used to
Manufacture the Ingredient for Wyeth-Ayerst hereunder. Such costs may
include, without limitation, validation of new processes, equipment
and facilities, development of testing methods and start-up
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<PAGE>
costs. Any costs incurred by GalaGen in implementing an amendment of
the Specifications under this Section 3.2 shall not be included in
GalaGen's Manufacturing Cost.
3.3 QUALITY CONTROL SYSTEM. GalaGen shall maintain and shall use its
Commercially Reasonable Efforts to cause any permitted subcontractor
manufacturing the Ingredient or any component thereof [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] to maintain a quality control
system consistent with cGMP, as required by the Regulatory Authorities
and applicable laws and regulations, and documentation of such quality
control system, as amended or supplemented, shall be made available to
Wyeth-Ayerst during inspections or audits.
3.4 APPROVAL FOR MANUFACTURING CHANGES; THIRD PARTY MANUFACTURING.
GalaGen agrees that no changes will be made to any materials,
equipment or methods of production or testing which are specified in
the Specifications or any Regulatory Approval by any Regulatory
Authority for the Ingredient without Wyeth-Ayerst's prior written
approval, which approval shall not be unreasonably withheld. Under no
circumstances will GalaGen contract out all or any part of the
manufacturing of the Ingredient to a Third Party without prior written
approval from Wyeth-Ayerst, which approval shall not be unreasonably
withheld.
3.5 PRODUCTION SAMPLES, BATCH RECORDS AND CERTIFICATE OF ANALYSIS.
3.5.1 Each Batch of the Ingredient delivered to Wyeth-Ayerst
hereunder will conform to the Specifications. GalaGen shall
perform release testing in a manner consistent with testing
methods agreed upon by the Parties. GalaGen shall provide
to Wyeth-Ayerst a Certificate of Analysis with each shipment
of the Ingredient to Wyeth-Ayerst or its designated
recipient stating that the Ingredient so shipped conforms to
the Specifications. The Certificate of Analysis shall be in
a format agreed upon by the Parties.
3.5.2 GalaGen shall retain production samples and Batch records
from each Batch of Ingredient for the longer of (i) five (5)
years after the manufacture of each such Batch of Ingredient
or (ii) the time period required under cGMP. Upon request,
GalaGen shall provide Wyeth-Ayerst's Quality Control
Department with production samples of the Ingredient and/or
copies of completed Batch records.
3.5.3 Master Batch process documentation will be prepared and
approved by GalaGen as per its normal procedures. The
Parties agree that deviations from master Batch process
documentation may be necessary from time to time. Such
deviations shall be discussed with Wyeth-Ayerst before any
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<PAGE>
proposed shipment of the Ingredient. Individual Batch
process documentation shall be photocopied from the approval
master and issued for each Batch as per GalaGen's or its
sub-contractor's routine system. Original Batch records
will be filed securely by GalaGen or its sub-contractor.
GalaGen or GalaGen's sub-contractor will perform all
in-process control tests demanded by the approved Batch
process.
3.6 BATCH FAILURE. GalaGen agrees to notify Wyeth-Ayerst within one (1)
working days of discovery of any Batch failure which could result in
GalaGen's inability to meet Wyeth-Ayerst's requested delivery dates.
3.7 NOTIFICATION OF INSPECTIONS. Each Party agrees to notify the other
within [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] days of its
receipt of notification of any inquiries, notifications, or inspection
activity by any Regulatory Authority, governmental agency or authority
in regard to or affecting the Ingredient. The recipient Party shall
provide a reasonable description to the other Party of any such
governmental inquiries, notifications or inspections promptly (but in
no event later than [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] days) after notification of completion of such visit or
inquiry. The recipient Party shall furnish to the other Party, (i)
within [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] days after
receipt, any report or correspondence issued by the Regulatory
Authority or governmental authority in connection with such visit or
inquiry, including but not limited to, any FDA Form 483, Establishment
Inspection Reports or warning letters and (ii) at the same time it
provides to any Regulatory Authority or governmental authority, copies
of any and all documents, responses or explanations relating to items
set forth above, in each case purged only of trade secrets of the
recipient that are unrelated to the obligations under this Agreement
or the License Agreement or are unrelated to the Ingredient. In the
event such governmental agency or authority requests or requires any
action to be taken to address any citations, the recipient agrees,
after consultation with the other Party, to take such action as
necessary to address such citations, and agrees to cooperate with the
other Party with respect to any such citation and/or action taken with
respect thereto.
3.8 INSPECTION BY WYETH-AYERST. GalaGen shall permit or obtain the right
for Wyeth-Ayerst (at its own expense) to visit, during normal business
hours and with reasonable advance notice [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] GalaGen's, or its sub-contractors'
manufacturing facility(ies) and warehouse, and the Approved Facility,
subject to the confidentiality provisions of this Agreement, for the
purposes of (a) observing the
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Manufacturing, packaging, testing and warehousing of the Ingredient
and to inspect for compliance with cGMPs, applicable regulatory
requirements, the requirements of any applicable Regulatory Approvals,
and environmental monitoring, (b) solving technical or quality
problems, (c) examining the premises, equipment, procedures and
personnel used when producing, testing or controlling the Ingredient
and (d) all books and records relating to (a), (b) or (c). GalaGen
representatives shall be entitled to accompany Wyeth-Ayerst
representatives on any such inspection.
3.9 ENVIRONMENTAL AND OTHER LAWS AND REGULATIONS.
3.9.1 In carrying out its obligations under this Agreement,
GalaGen and/or its sub-contractor shall comply with all
applicable environmental, health and safety laws (current or
as amended or added, collectively "Laws"), and shall be
solely responsible for determining how to comply with same.
GalaGen represents and warrants that it and/or its
sub-contractor(s) have the appropriate skills, personnel,
equipment, permits or approvals necessary to perform its
services under this Agreement in compliance with all
applicable Laws.
3.9.2 GalaGen shall notify Wyeth-Ayerst, in writing, no later than
one (1) business day after the event, of any circumstances,
including the receipt of any notice, warning, citation,
finding, report or service of process, relating to
compliance with the Laws, or the occurrence of any release,
spill, upset or discharge of "Hazardous Substances" as
defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, which
relates to GalaGen's or sub-contractor's ability to
Manufacture or supply the Ingredient. Wyeth-Ayerst reserves
the right to conduct an environmental inspection of
GalaGen's or its sub-contractors' facility, during normal
business hours and with reasonable advance notice, for the
purpose of determining compliance with this Section 3.9, no
more frequently than once per year during the term hereof
and under conditions of confidentiality as provided under
Article 10. Upon GalaGen's request Wyeth-Ayerst shall share
the results of any environmental inspection with GalaGen.
Such inspection, if it occurs, does not relieve GalaGen of
its sole obligation to comply with the Laws and does not
constitute a waiver of any right otherwise available to
Wyeth-Ayerst.
4. DELIVERY
4.1 DELIVERY SITES AND RISK OF LOSS. Delivery of each order of Ingredient
shall be D.D.P. (Incoterms, 1990) to those sites specified by
Wyeth-Ayerst from time to time via a carrier that is mutually
agreeable to the Parties. GalaGen shall pay for freight and shipping
charges, per D.D.P., to all designated sites. Title to and risk of
loss of the Ingredient shall pass to Wyeth-Ayerst at the time of
delivery by GalaGen
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to Wyeth-Ayerst. Wyeth-Ayerst agrees to reimburse GalaGen for
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] of the delivery costs
incurred by GalaGen in accordance with this Section 4.1. GalaGen
shall promptly invoice Wyeth-Ayerst for all Ingredient tendered, which
invoice shall set forth the purchase price payable by Wyeth-Ayerst
pursuant to Section 6.1 hereof and Wyeth-Ayerst's share of the
delivery costs pursuant to this Section 4.1. Delivery costs incurred
by GalaGen under this Section 4.1 shall not be included as part of
GalaGen's Manufacturing Cost.
4.2 SCHEDULING OF DELIVERY. Subject to the provisions of Section 2.3
hereof, GalaGen shall schedule the timely Manufacture and shipment of
the Ingredient pursuant to Wyeth-Ayerst's firm purchase orders.
4.3 DELAY AND FAILURE TO SUPPLY. Should GalaGen, at any time during the
course of this Agreement, have reason to believe that it will be
unable to meet Wyeth-Ayerst's requested delivery dates, GalaGen will
promptly notify Wyeth-Ayerst in writing setting forth the reasons for
the delay. Such notification will not be deemed a waiver of GalaGen's
obligation set forth in Section 4.3(b). In connection therewith:
(a) If at any time GalaGen experiences a shortage of Ingredient
supply and the available supplies of Ingredient are not
sufficient to satisfy all of Wyeth-Ayerst's requirements for the
Ingredient, GalaGen shall allocate its available worldwide
supplies (including inventory in excess of customary supplies)
first to Wyeth-Ayerst based on Wyeth-Ayerst's binding forecasts
and any excess supplies of Ingredient may thereafter be allocated
among its own requirements and those of its licensees and
distributors.
(b) If at any time GalaGen is of the opinion that it may not be able
to meet future binding orders from Wyeth-Ayerst for Ingredient
(including, but not limited to a situation where as a result of
any intellectual property litigation GalaGen chooses not to
supply Ingredient) it shall notify Wyeth-Ayerst in writing, and
the Parties shall in good faith cooperate and endeavor to make
appropriate arrangements for a continuous and adequate supply of
Ingredient from GalaGen to Wyeth-Ayerst.
4.4 APPOINTMENT OF WYETH-AYERST AS MANUFACTURER.
4.4.1 Subject to terms and provisions of this Agreement,
including, without limitation, GalaGen's right to
manufacture the Ingredient for supply to Wyeth-Ayerst,
GalaGen hereby grants to Wyeth-Ayerst a non-exclusive,
perpetual, world-wide, royalty-free license to manufacture
the Ingredient for use by Wyeth-Ayerst in accordance with
the provisions of the License Agreement. Consistent with
GalaGen's obligations under Section 2.3.4 if GalaGen is
unable to supply at least [**CONFIDENTIAL TREATMENT
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REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] of the quantities of
Ingredient ordered by Wyeth-Ayerst in any two (2)
consecutive Calendar Quarters, based on Wyeth-Ayerst's good
faith estimates of its future requirements, Wyeth-Ayerst
shall be relieved of its obligation to purchase that portion
of its requirements of Ingredient from GalaGen that GalaGen
is unable to supply, until such inability to supply has
ceased and GalaGen may resume the manufacture of
Wyeth-Ayerst's requirements of the Ingredient pursuant to
Section 4.5 hereof, and Wyeth-Ayerst shall have the right,
under the license granted in this Section 4.4.1, to
manufacture, or have manufactured, such portion of the
Ingredient that GalaGen is unable to supply. GalaGen has
the right to approve, in advance, any Third Party
manufacturer utilized by Wyeth-Ayerst pursuant to this
Section 4.4.1, PROVIDED, HOWEVER, that GalaGen's approval
shall not be unreasonably withheld and shall be communicated
to Wyeth-Ayerst within ten (10) days of notice from
Wyeth-Ayerst to GalaGen. If the quantity of Ingredient that
GalaGen is unable to supply is so limited that it would be
an excessive financial burden on Wyeth-Ayerst to
manufacture, or have manufactured, such limited quantity,
the Parties shall meet, after GalaGen is notified by
Wyeth-Ayerst of such circumstance, and in good faith seek to
reasonably resolve the matter. For purposes of this Section
4.4.1, the provision of such Ingredient to Wyeth-Ayerst by
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
or any permitted subcontractor of GalaGen or
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
shall be deemed for purposes of determining whether
Wyeth-Ayerst may exercise its right to manufacture
Ingredient hereunder to be the provision of such Ingredient
by GalaGen. Notwithstanding any other provision hereof, if
GalaGen's failure to supply Ingredient is attributable
solely to its inability to [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] otherwise complete
the manufacture of Ingredient and its not attributable, in
whole or in part, to its inability to [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION***], Wyeth-Ayerst
shall not [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] and GalaGen shall continue to have the right
to be Wyeth-Ayerst's supplier of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] pursuant to the terms
and conditions of this
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Agreement, including, without limitation, the purchase price
provisions of Section 6.1 (PROVIDED, HOWEVER, that in such
event the calculation of GalaGen's Manufacturing Cost shall
be based only on [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***]). Notwithstanding the foregoing, in
the event GalaGen is continuing to supply Ingredient to
Wyeth-Ayerst as provided herein, Wyeth-Ayerst shall have the
right to [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] if, for two successive calendar quarters,
GalaGen's inventories of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] fall below the amount
of [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] needed to manufacture Wyeth-Ayerst's
forecasted needs (as provided in its most recent binding
forecasts pursuant to Section 2.3) of Ingredient.
4.4.2 In the event that GalaGen is unable to supply Ingredient as
provided above, GalaGen shall be responsible for all costs
to qualify Wyeth-Ayerst, or its designated manufacturer, as
a manufacturer of the Ingredient. Such costs include, but
are not limited to, [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***].
4.5 RESUMPTION OF MANUFACTURING BY GALAGEN. At such time as GalaGen
reasonably demonstrates to Wyeth-Ayerst that it is able to again
supply all of Wyeth-Ayerst's requirements on an ongoing basis,
Wyeth-Ayerst shall be permitted to continue to manufacture, or have
manufactured that amount of Ingredient it had been manufacturing
pursuant to Section 4.4 hereof, for such period of time thereafter as
is reasonably necessary for Wyeth-Ayerst and/or any of its Affiliates
and/or any Third Party manufacturer to fully amortize all expenses
that may have been reasonably incurred under such manufacturing
program, using generally accepted accounting principles normally used
by Wyeth-Ayerst in keeping its own books and records. Thereafter,
Wyeth-Ayerst shall purchase its requirements of Ingredient from
GalaGen in accordance with the terms of this Agreement, PROVIDED,
HOWEVER, that Wyeth-Ayerst shall be permitted to continue
manufacturing or purchasing from such Third Party(ies) Ingredient in
amounts equal to the greater of (i) the amount of Wyeth's requirements
of Ingredient that GalaGen is currently unable to supply or (ii)
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***] of Wyeth's
requirements of Ingredient that Wyeth-Ayerst has manufactured or has
purchased from Third Parties [**CONFIDENTIAL
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TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***].
4.6 DISCLOSURE OF GALAGEN KNOW-HOW; TECHNICAL ASSISTANCE. If, pursuant to
Sections 4.4 or 4.5 hereof, Wyeth-Ayerst elects to commence
manufacturing the Ingredient, either itself or through a Third Party,
GalaGen shall promptly disclose to Wyeth-Ayerst all of its Know-How
that is necessary to enable Wyeth-Ayerst to so manufacture the
Ingredient to the extent permitted hereunder. Additionally, GalaGen
shall, at no cost to Wyeth-Ayerst, provide Wyeth-Ayerst with
reasonable technical assistance that may be necessary or useful for
Wyeth-Ayerst to utilize such Know-How and to commence the manufacture
of the Ingredient to the extent permitted hereunder. If GalaGen
discloses Know-How to Wyeth-Ayerst for the purpose of enabling
Wyeth-Ayerst or its designee to manufacture Ingredient, Wyeth-Ayerst
agrees to use such Know-How only for such purpose and such Know-How
shall be treated as Confidential Information in accordance with
Article 10 hereof.
4.7 QUALITY ASSURANCE.
4.7.1 Prior to the shipment of Ingredient to Wyeth-Ayerst, GalaGen
shall test representative samples of each of the lot(s) to
be shipped in accordance with the methods of analysis
defined in the Specifications. GalaGen shall provide
Wyeth-Ayerst with a certificate of analysis for each lot of
Ingredient shipped to Wyeth-Ayerst.
4.7.2 Wyeth-Ayerst shall have the right to test Ingredient to
verify compliance with Specifications and applicable
Regulatory Approvals and GalaGen shall supply Wyeth-Ayerst
with its testing procedures. Wyeth-Ayerst may, by written
notice provided to GalaGen within [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] of Wyeth-Ayerst's
receipt of a shipment of Ingredient, reject all or part of
such shipment of Ingredient if, based upon the testing of
such Ingredient conducted under this Section 4.7, such
Ingredient does not comply with the Specifications. If
Wyeth-Ayerst fails to notify GalaGen, within such
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
period, that it is rejecting such Ingredient, Wyeth-Ayerst
shall be deemed to have accepted such Ingredient.
4.7.3 If GalaGen, after good faith consultation with Wyeth-Ayerst,
disputes any finding by Wyeth-Ayerst that the Ingredient
does not comply with the Specifications, samples of such
Ingredient shall be forwarded to a Third Party jointly
selected by Wyeth-Ayerst and GalaGen for analysis, which
analysis shall be performed in compliance with applicable
regulatory
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<PAGE>
requirements. The findings of such Third Party regarding
whether the Ingredient complies with the Specifications and
the applicable Regulatory Approvals shall be binding upon
the Parties for purposes of this Section 4.7. The cost of
such analysis by such Third Party shall be borne by the
Party whose findings differed from those generated by such
Third Party.
4.7.4 If, as determined in accordance with this Section 4.7, a
shipment of Ingredient does not conform to the
Specifications, GalaGen shall replace such shipment free of
charge with a substitute shipment which meets such
Specifications according to the following time frame: If
the Ingredient is in inventory then conforming Ingredient
will be shipped so as to arrive as soon as practicable. If
the Ingredient is not in inventory, GalaGen will take all
reasonable steps to ensure expeditious Manufacture of
conforming Ingredient which will be shipped on the next
shipping day after completion of Manufacture so as to arrive
as soon as possible thereafter. In the event that testing
at Wyeth-Ayerst indicates that Ingredient does not conform
with Specifications: (i) Wyeth-Ayerst shall immediately
notify GalaGen; (ii) Wyeth-Ayerst and GalaGen shall mutually
agree on an investigation program to determine the cause of
the discrepancy and the outcome of this investigation shall
be used to determine disposition of the Batch; (iii) where
appropriate, given the timetable for the agreed
investigation program, GalaGen shall take all reasonable
steps to ensure expeditious Manufacture and shipment of
conforming Ingredient; and (iv) shipment of such replacement
Ingredient shall take place the next shipping day following
completion of analytical work to demonstrate conformance
with Specifications. Shipment shall be by the quickest
agreed route. At GalaGen's expense and at Wyeth-Ayerst's
sole option: (i) the non-conforming shipment shall be
returned to GalaGen; or (ii) disposed of by Wyeth-Ayerst,
upon final determination in accordance with this Section 4.7
that it does not meet the Specifications.
5. RECALLS
5.1 NOTIFICATION AND RECALL.
5.1.1 In the event that any governmental agency or authority
requests a recall or takes similar action in connection with
the Ingredient or with the Product because of or in
connection with the presence of the Ingredient therein, or
in the event either Party determines an event, incident or
circumstance has occurred which may result in the need for a
recall or market withdrawal, the Party notified of or
calling such recall or similar action shall, within
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND
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<PAGE>
EXCHANGE COMMISSION***], advise the other Party by telephone
or facsimile.
5.1.2 Following notification of a recall, within [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION***], the Parties'
representatives from business, medical, regulatory, quality
assurance and legal functions (and any others deemed
necessary by a Party) (the "Recall Team") shall discuss
whether or not to conduct a recall, and, if so, the timing
of the recall, the breadth, extent and level of customer to
which the recall shall reach, what strategies and
notifications should be used, the responsibility for the
recall expenses, etc. In the event the Recall Team cannot
agree on such decisions, the issues shall be resolved by
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***].
In the event such [**CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] cannot agree, Wyeth-Ayerst shall
have the final authority to decide whether a recall of the
Product shall be made.
5.2 RECALL EXPENSES. Wyeth-Ayerst shall bear the expenses of any
recall resulting from breach of its obligations hereunder or
under the License Agreement, from negligent manufacturing,
packaging, storage, shipment, marketing, distribution or sale of
the Product by Wyeth-Ayerst or from any manufacturing defect in a
Product manufactured or sold by Wyeth-Ayerst which manufacturing
defect is not a defect in the Ingredient Manufactured or supplied
by or on behalf of GalaGen or its permitted subcontractors
hereunder. GalaGen shall bear the expenses of any recall
resulting from a breach of its obligations hereunder or under the
License Agreement, from negligent Manufacturing, packaging,
storage, shipment, marketing, distribution or sale of the
Ingredient by GalaGen or from any Manufacturing defect in the
Ingredient. The Parties shall equally divide the costs of any
recall resulting from a latent defect (for example, side effects
of the Ingredient not known by the Parties as of the Effective
Date). For the purposes of this Agreement, expenses of recall
include, without limitation, the expenses incurred by the
affected Party for the investigation, notification, regulatory
reporting and/or destruction or return of the recalled Ingredient
or Product, the sum paid by Wyeth-Ayerst to GalaGen for the
Ingredients recalled, Wyeth-Ayerst's costs relating to the
manufacturing, testing, packaging, shipping and supplying the
Products recalled.
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<PAGE>
6. CONSIDERATION
6.1 PRICE. [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
6.2 METHOD OF PAYMENT. GalaGen will invoice Wyeth-Ayerst in United States
Dollars for each and every shipment of Ingredient accepted by
Wyeth-Ayerst. Each such invoice shall be accompanied by a statement
specifying the amount of Ingredient delivered to Wyeth-Ayerst, the
total Manufacturing Cost incurred in manufacturing such Ingredient,
and an itemization by category of the cost for each element included
within the Manufacturing Cost. Payment for all such quantities so
shipped shall be made in United States dollars by check or bank
transfer within [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] of
the date the invoice is received by Wyeth-Ayerst.
6.3 TAXES. GalaGen and Wyeth-Ayerst agree to cooperate reasonably with
each other in connection with the tax (including value-added tax) or
duty-free importation and/or exportation of the Ingredient, whenever
such tax or duty-free treatment is appropriate under the applicable
tax and customs laws and regulations.
6.4 RECORD KEEPING. GalaGen shall keep accurate books and accounts of
record in connection with its Manufacture of the Ingredient in
sufficient detail to permit accurate determination of all figures
necessary for verification of Manufacturing Cost incurred by GalaGen
in the Manufacture of the Ingredient hereunder. GalaGen shall
maintain such records for a period of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] after the end of the year in which they were
generated.
6.5 AUDIT BY WYETH-AYERST. Wyeth-Ayerst, through an independent certified
public accountant reasonably acceptable to GalaGen, shall have the
right, at its own expense, to access the books and records of GalaGen
for the sole purpose of verifying the statements furnished by GalaGen
pursuant to Section 6.2. Such access shall be conducted after
reasonable prior written notice to GalaGen and during ordinary
business hours and shall not be more frequent than twice per calendar
year. Wyeth-Ayerst agrees to keep in strict confidence all
information learned in the course of such audit, except when it is
necessary to reveal such information in order to enforce its rights
under this Agreement. Wyeth-Ayerst's right to have such records
examined shall survive termination or expiration of this Agreement.
In the event such audit reveals an overpayment GalaGen shall promptly
refund to Wyeth-Ayerst the amount of such overpayment. In the event
such audit reveals an overpayment of [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION***] or more of the amount actually
due, GalaGen shall also promptly reimburse Wyeth-Ayerst for the costs
of such audit.
6.6 [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
7. REPRESENTATIONS AND WARRANTIES.
7.1 REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each of GalaGen and
Wyeth-Ayerst hereby represents, warrants and covenants to the other
Party hereto as follows:
(a) it is a corporation or entity duly organized and validly existing
under the laws of the state or other jurisdiction of
incorporation or formation;
(b) the execution, delivery and performance of this Agreement by such
Party has been duly authorized by all requisite corporate action
and do not require any shareholder action or approval;
(c) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder;
(d) the execution, delivery and performance by such Party of this
Agreement and its compliance with the terms and provisions hereof
does not and will not conflict with or result in a breach of any
of the terms and provisions of or constitute a default under (i)
a loan agreement, guaranty, financing agreement, agreement
affecting a product or other agreement or instrument binding or
affecting it or its property; (ii) the provisions of its charter
or operative documents or bylaws; or (iii) any order, writ,
injunction or decree of any court or governmental authority
entered against it or by which any of its property is bound; and
(e) it shall comply with all applicable material laws and regulations
relating to its activities under this Agreement.
7.2 REPRESENTATIONS AND WARRANTIES OF GALAGEN. In addition to the
representations and warranties made by GalaGen under Section 7.1
above, GalaGen hereby further represents and warrants to Wyeth-Ayerst
that:
(a) at the time of delivery of the Ingredient to the specified point
of delivery, the Ingredient shall (i) have been Manufactured,
stored and shipped in accordance with cGMPs, as applicable, and
all other applicable laws, rules,
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<PAGE>
regulations or requirements in effect at the time of Manufacture
in the country of Manufacture (for example, in accordance with
the procedures described in the applicable Regulatory Approval);
(ii) conform to the Specifications; (iii) meet the provisions of
the Specifications; (iv) shall not be adulterated or misbranded
as provided for under any applicable law, order or regulation in
effect in the country of Manufacture and the country in which the
Product is being sold pursuant to the License Agreement; (v)
shall have been Manufactured and have shelf-life in accordance
with the provisions of Section 2.6; and (vi) have been shipped in
accordance with approved procedures agreed between Wyeth-Ayerst
and GalaGen;
(b) it shall have good and marketable title to all Ingredient
delivered to Wyeth-Ayerst;
(c) to the best of its knowledge the Manufacture, use and sale of the
Ingredient supplied to Wyeth-Ayerst under this Agreement do not
infringe any intellectual property rights of any Third Party or
in any country where such Ingredient or Product is manufactured
or sold.
7.3 NO INCONSISTENT AGREEMENTS. Except as otherwise provided in Sections
11.3 and 11.4 of the License Agreements, neither Party has in effect
and after the Effective Date neither Party shall enter into any oral
or written agreement or arrangement that would be inconsistent with
its obligations under this Agreement.
7.4 REPRESENTATION BY LEGAL COUNSEL. Each Party hereto represents that it
has been represented by legal counsel in connection with this
Agreement and acknowledges that it has participated in the drafting
hereof. In interpreting and applying the terms and provisions of this
Agreement, the Parties agree that no presumption shall exist or be
implied against the Party which drafted such terms and provisions.
8. INDEMNIFICATION AND INSURANCE
8.1 INDEMNIFICATION BY WYETH-AYERST. Wyeth-Ayerst shall indemnify, defend
and hold harmless GalaGen and its Affiliates, and each of its and
their respective employees, officers, directors and agents (each, a
"GalaGen Indemnified Party") from and against any and all liability,
loss, damage, cost, and expense (including reasonable attorneys' fees)
(collectively, a "Liability") which the GalaGen Indemnified Party may
incur, suffer or be required to pay resulting from or arising in
connection with (i) the breach by Wyeth-Ayerst of any covenant,
representation or warranty contained in this Agreement, (ii) the
manufacture, promotion, distribution, use, testing, marketing, sale or
other disposition of Products by Wyeth-Ayerst, its Affiliates or
sublicensees, or (iii) the successful enforcement by a GalaGen
Indemnified Party of its rights under this Section 8.1.
Notwithstanding
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<PAGE>
the foregoing, Wyeth-Ayerst shall have no obligation under this
Agreement to indemnify, defend or hold harmless any GalaGen
Indemnified Party with respect to claims, demands, costs or judgments
which result from willful misconduct or negligent acts or omissions of
GalaGen, its Affiliates, or any of their respective employees,
officers, directors or agents.
8.2 INDEMNIFICATION BY GALAGEN. GalaGen shall indemnify, defend and hold
harmless Wyeth-Ayerst and its Affiliates, and each of its and their
respective employees, officers, directors and agents (each, a
"Wyeth-Ayerst Indemnified Party") from and against any Liability which
the Wyeth-Ayerst Indemnified Party may incur, suffer or be required to
pay resulting from or arising in connection with (i) the breach by
GalaGen of any covenant, representation or warranty contained in this
Agreement; (ii) the discovery, development, manufacture, promotion,
sale or use of the Ingredient by GalaGen, its Affiliates or their
subcontractors; or (iii) the successful enforcement by a Wyeth-Ayerst
Indemnified Party of its rights under this Section 8.2.
Notwithstanding the foregoing, GalaGen shall have no obligation under
this Agreement to indemnify, defend, or hold harmless any Wyeth-Ayerst
Indemnified Party with respect to claims, demands, costs or judgments
which result from willful misconduct or negligent acts or omissions of
Wyeth-Ayerst, its Affiliates, or any of their respective employees,
officers, directors or agents.
8.3 CONDITIONS TO INDEMNIFICATION. The obligations of the indemnifying
Party under Sections 8.1 and 8.2 are conditioned upon the delivery of
written notice to the indemnifying Party of any potential Liability
promptly after the indemnified Party becomes aware of such potential
Liability. The indemnifying Party shall have the right to assume the
defense of any suit or claim related to the Liability if it has
assumed responsibility for the suit or claim in writing; however, if
in the reasonable judgment of the indemnified Party, such suit or
claim involves an issue or matter which could have a materially
adverse effect on the business operations or assets of the indemnified
Party, the indemnified Party may waive its rights to indemnity under
this Agreement and control the defense or settlement thereof, but in
no event shall any such waiver be construed as a waiver of any
indemnification rights such Party may have at law or in equity. If
the indemnifying Party defends the suit or claim, the indemnified
Party may participate in (but not control) the defense thereof at its
sole cost and expense.
8.4 SETTLEMENTS. Neither Party may settle a claim or action related to a
Liability without the consent of the other Party, if such settlement
would impose any monetary obligation on the other Party or require the
other Party to submit to an injunction or otherwise limit the other
Party's rights under this Agreement. Any payment made by a Party to
settle any such claim or action shall be at its own cost and expense.
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<PAGE>
8.5 INSURANCE. Each Party further agrees to use reasonable commercial
efforts to obtain and maintain, during the term of this Agreement,
Comprehensive General Liability Insurance, including Products
Liability Insurance, with reputable and financially secure insurance
carriers to cover its indemnification obligations under Sections 8.1
or 8.2, as applicable, or, in the case of Wyeth-Ayerst,
self-insurance, in each case with limits of not less than
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***].
9. TERM AND TERMINATION.
9.1 TERM. This Agreement shall be effective as of the Effective Date and
unless terminated earlier by mutual written agreement of the Parties
or pursuant to Sections 9.2 or 9.3 below, the Term of this Agreement
shall continue in effect until the later of (i) the expiration of the
License Agreement or (ii) fifteen (15) years after the First
Commercial Sale of a Product (the "Initial Term"). The term of this
Agreement may be extended [**CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] (each a "Renewal Term") at Wyeth-Ayerst's option by
providing GalaGen with written notice of such extension at least three
(3) months prior to the expiration of the Initial Term or any Renewal
Term, as applicable. Notwithstanding the foregoing, in the event that
GalaGen is able to reasonably demonstrate that the continued
manufacture and supply to Wyeth-Ayerst of Ingredient during any such
Renewal Term would not be commercially feasible for GalaGen, then
GalaGen may elect not to so extend the term of this Agreement,
PROVIDED, HOWEVER, that GalaGen must notify Wyeth-Ayerst, in writing,
of such election no later than thirty (30) days after receiving from
Wyeth-Ayerst notice that Wyeth-Ayerst has elected to extend the term,
which notice shall set forth those facts and be accompanied by that
supporting documentation that is necessary to demonstrate that the
continued Manufacture and supply of Ingredient to Wyeth-Ayerst would
not be commercially feasible to GalaGen and provided further that
after providing such notice to Wyeth-Ayerst (a) Wyeth-Ayerst may
exercise its right, under the license granted in the first sentence of
Section 4.4.1, to manufacture, either itself or through a Third Party,
Ingredient and (b) GalaGen shall (i) in accordance with Section 4.6
hereof, promptly disclose to Wyeth-Ayerst all Know-How and information
necessary for Wyeth-Ayerst, its Affiliates or subcontractors to
manufacture Ingredient, (ii) provide reasonable technical assistance,
at GalaGen's expense, that may be necessary for Wyeth-Ayerst, its
Affiliates or subcontractors to manufacture the Ingredient and (iii)
continue to Manufacture and supply Ingredient to Wyeth-Ayerst, under
the terms of this Agreement, until the earlier of (x) the time that
Wyeth-Ayerst, its Affiliates or subcontractors are producing
Wyeth-Ayerst's requirements of the Ingredient or (y) [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
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WITH THE SECURITIES AND EXCHANGE COMMISSION***] after the expiration
of the applicable Initial Term or Renewal Term of this Agreement.
9.2 TERMINATION FOR CAUSE. This Agreement may be terminated on at least
thirty (30) days prior written notice by either Party at any time
during the Term of this Agreement:
(a) for material breach by the other Party, which breach remains
uncured for [**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***
in the case of nonpayment of any amount due and [**CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] for all other breaches,
each measured from the date written notice of such breach is
given to the breaching Party, or, if such breach is not
susceptible of cure within such [**CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION***] period and the breaching Party uses
diligent good faith efforts to cure such breach, for
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] after
written notice to the breaching Party; or
(b) upon the filing or institution of bankruptcy, reorganization,
liquidation or receivership proceedings, or upon an assignment of
a substantial portion of the assets for the benefit of creditors
by the other Party, or in the event a receiver or custodian is
appointed for such Party's business, or if a substantial portion
of such Party's business is subject to attachment or similar
process; PROVIDED, HOWEVER, that in the case of any involuntary
bankruptcy proceeding such right to terminate shall only become
effective if the proceeding is not dismissed within
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] after
the filing thereof. In the event Wyeth-Ayerst terminates the
License Agreement under section 9.2.1(b) thereof or this
Agreement is otherwise terminated under this Section 9.2(b), the
Parties agree that Wyeth-Ayerst, as a licensee of rights to
intellectual property under this Agreement, shall retain and may
fully exercise all of its rights and elections under Title 11,
including as set forth in Section 9.6 hereof.
9.3 EFFECT OF TERMINATION OF LICENSE AGREEMENT.
9.3.1 In the event Wyeth-Ayerst terminates the License Agreement under
Section 9.2.1(a) thereof, this Agreement, at Wyeth-Ayerst's sole
option,
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may either (i) be terminated by Wyeth-Ayerst or (ii) remain
in full force and effect. If Wyeth-Ayerst elects to
terminate this Agreement under Section 9.2(a) hereof,
Wyeth-Ayerst shall have the right, pursuant to the license
granted to it in the first sentence of Section 4.4.1 hereof
to manufacture the Ingredient for use in Products and
GalaGen shall, promptly after receipt from Wyeth-Ayerst of
notice that Wyeth-Ayerst is terminating this Agreement in
accordance with Section 9.2(a) hereof (i) in accordance with
Section 4.6 hereof, disclose to Wyeth-Ayerst all Know-How
and information in GalaGen's possession which is or may be
necessary to enable Wyeth-Ayerst, its Affiliates or
subcontractors to manufacture the Ingredient and (ii)
provide reasonable technical assistance, at GalaGen's
expense, that may be necessary for Wyeth-Ayerst, its
Affiliates or subcontractors to manufacture the Ingredient.
9.3.2 In the event that GalaGen terminates the License Agreement
under Section 9.2.1(a) thereof, this Agreement shall
automatically be terminated.
9.3.3 If Wyeth-Ayerst terminates the License Agreement in its
entirety under Section 9.3 thereof, this Agreement shall
automatically be terminated
9.4 GENERAL CONDITIONS OF EXPIRATION AND TERMINATION.
9.4.1 The provisions of Articles 5, 8 and 10 and Sections 3.5.2,
3.5.3, 4.4.1, 4.6 4.7.2, 4.7.3, 6.4, 6.5, 7.2, 9.6, 11.6 and
11.7 shall survive termination or expiration of this
Agreement.
9.4.2 Termination or expiration of this Agreement shall not
operate to deprive either Party of any rights or remedies
either at law or in equity or to relieve either Party of any
of its obligations incurred prior to the effective date of
such termination or expiration.
9.5 NO LIMIT ON REMEDIES. Nothing herein shall exclude or limit any
remedies or entitlements whatsoever which the law confers to either
Party in the event of a breach of contractual obligations by the other
Party.
9.6 INSOLVENCY.
9.6.1 EFFECT ON LICENSES. All rights and licenses granted under
or pursuant to this Agreement by GalaGen to Wyeth-Ayerst
are, for all purposes of Section 365(n) of Title 11 of the
United States Code ("Title 11"), licenses of rights to
"intellectual property" as defined in Title 11. GalaGen
agrees that Wyeth-Ayerst, as licensee of such rights under
this Agreement shall retain and may fully exercise all of
its rights and elections under Title 11. GalaGen agrees
during the Term of this Agreement to create and maintain
current copies or, if not amenable to copying, detailed
descriptions or
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other appropriate embodiments, to the extent feasible, of
all such intellectual property. If a case is commenced by
or against GalaGen under Title 11, GalaGen (in any capacity,
including debtor-in-possession) and its successors and
assigns (including, without limitation, a Title 11 Trustee)
shall,
(i) as Wyeth-Ayerst may elect in a written request,
immediately upon such request:
(A) perform all of the obligations provided
in this Agreement to be performed by
GalaGen including, where applicable and
without limitation, providing to
Wyeth-Ayerst portions of such
intellectual property (including
embodiments thereof) held by GalaGen and
such successors and assigns or otherwise
available to them; or
(B) provide to Wyeth-Ayerst all such
intellectual property (including all
embodiments thereof) held by GalaGen and
such successors and assigns or otherwise
available to them; and
(ii) not interfere with the rights of Wyeth-Ayerst
under this Agreement, or any agreement
supplemental hereto, to such intellectual property
(including such embodiments), including any right
to obtain such intellectual property (or such
embodiments) from another entity.
9.6.2 RIGHTS TO INTELLECTUAL PROPERTY. If a Title 11 case is
commenced by or against GalaGen, and this Agreement is
rejected as provided in Title 11, and Wyeth-Ayerst elects to
retain its rights hereunder as provided in Title 11, then
GalaGen (in any capacity, including debtor-in-possession)
and its successors and assigns (including, without
limitation, a Title 11 Trustee) shall provide to
Wyeth-Ayerst all such intellectual property (including all
embodiments thereof) held by GalaGen and such successors and
assigns, or otherwise available to them, immediately upon
Wyeth-Ayerst's written request. Whenever GalaGen or any of
its successors or assigns provides to Wyeth-Ayerst any of
the intellectual property licensed hereunder (or any
embodiment thereof) pursuant to this Section 9.6,
Wyeth-Ayerst shall have the right to perform the obligations
of GalaGen hereunder with respect to such intellectual
property, but neither such provision nor such performance by
Wyeth-Ayerst shall release GalaGen from any such obligation
or liability for failing to perform it.
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9.6.3 WYETH-AYERST'S RIGHTS. All rights, powers and remedies of
Wyeth-Ayerst provided herein are in addition to and not in
substitution for any and all other rights, powers and
remedies now or hereafter existing at law or in equity
(including, without limitation, Title 11) in the event of
the commencement of a Title 11 case by or against GalaGen.
Wyeth-Ayerst, in addition to the rights, power and remedies
expressly provided herein, shall be entitled to exercise all
other such rights and powers and resort to all other such
remedies as may now or hereafter exist at law or in equity
(including, without limitation, Title 11) in such event.
The Parties agree that they intend the foregoing
Wyeth-Ayerst rights to extend to the maximum extent
permitted by law, including, without limitation, for
purposes of Title 11:
(i) the right of access to any intellectual property
(including all embodiments thereof) of GalaGen, or
any Third Party with whom GalaGen contracts to
perform an obligation of GalaGen under this
Agreement, and, in the case of the Third Party,
which is necessary for the development,
registration, Manufacture and marketing of the
Ingredient and/or Products; and
(ii) the right to contract directly with any Third
Party described in (i) to complete the contracted
work.
10. CONFIDENTIALITY.
10.1 NONDISCLOSURE OBLIGATION. Each of GalaGen and Wyeth-Ayerst shall use
only in accordance with this Agreement and shall not disclose to any
Third Party any information received by it from the other Party in
connection with this Agreement (the "Information"), without the prior
written consent of the other Party. The foregoing obligations shall
survive the expiration or earlier termination of this Agreement
[**CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]. These obligations
shall not apply to Information that:
(i) is known by the receiving Party at the time of its receipt,
and not through a prior disclosure by the disclosing Party,
as documented by business records;
(ii) is at the time of disclosure or thereafter becomes published
or otherwise part of the public domain without breach of
this Agreement by the receiving Party;
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(iii) is subsequently disclosed to the receiving Party by a Third
Party who has the right to make such disclosure;
(iv) is developed by the receiving Party independently of the
Information or other information received from the
disclosing Party and such independent development can be
documented by the receiving Party;
(v) is disclosed to any institutional review board of any entity
conducting clinical trials or any governmental or other
regulatory agencies in order to obtain patents or to gain
approval to conduct clinical trials or to market the
Ingredient and/or Products, but such disclosure may be made
only to the extent reasonably necessary to obtain such
patents or authorizations; and, in which case reasonable
effort shall be taken to maintain the confidentiality of
such Information, or
(vi) is required by law, regulation, rule, act or order of any
governmental authority or agency to be disclosed by a Party,
PROVIDED that notice is promptly delivered to the other
Party in order to provide an opportunity to seek a
protective order or other similar order with respect to such
Information and thereafter the disclosing Party discloses to
the requesting entity only the minimum Information required
to be disclosed in order to comply with the request, whether
or not a protective order or other similar order is obtained
by the other Party.
10.2 PERMITTED DISCLOSURES. Information may be disclosed to employees,
agents, consultants, sublicensees or suppliers of the recipient Party
or its Affiliates, but only to the extent required to accomplish the
purposes of this Agreement and only if the recipient Party obtains
prior agreement from its employees, agents, consultants, sublicensees
or suppliers to whom disclosure is to be made to hold in confidence
and not make use of such Information for any purpose other than those
permitted by this Agreement. Each Party will use at least the same
standard of care as it uses to protect proprietary or confidential
information of its own to ensure that such employees, agents,
consultants, sublicensees or suppliers do not disclose or make any
unauthorized use of the Information.
10.3 DISCLOSURE OF AGREEMENT. Neither GalaGen nor Wyeth-Ayerst shall
release to any Third Party or publish in any way any non-public
information with respect to the terms of this Agreement or concerning
their cooperation without the prior written consent of the other,
which consent will not be unreasonably withheld or delayed, PROVIDED,
HOWEVER, that either Party may disclose the terms of this Agreement to
the extent required to comply with applicable laws, including without
limitation the rules and regulations promulgated by the United States
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Securities and Exchange Commission and the Party intending to disclose
the terms of this Agreement shall provide the nondisclosing Party an
opportunity to review and comment on the intended disclosure which is
reasonable under the circumstances. Notwithstanding any other
provision of this Agreement, each Party may disclose the terms of this
Agreement to lenders, investment bankers and other financial
institutions of its choice solely for purposes of financing the
business operations of such Party either (i) upon the written consent
of the other Party or (ii) if the disclosing Party uses reasonable
efforts to obtain a signed confidentiality agreement with such
financial institution with respect to such information on terms
substantially similar to those contained in this Article 10.
10.4 PUBLICITY. Subject to Section 10.3, all publicity, press releases and
other announcements relating to this Agreement or the transactions
contemplated hereby shall be reviewed in advance by, and shall be
subject to the approval of, both Parties.
11. MISCELLANEOUS
11.1 FORCE MAJEURE. Neither Party shall be liable to the other for delay
or failure in the performance of the obligations on its part contained
in this Agreement if and to the extent that such failure or delay is
due to circumstances beyond its control which it could not have
avoided by the exercise of reasonable diligence. It shall notify the
other Party promptly should such circumstances arise, giving an
indication of the likely extent and duration thereof, and shall use
all commercially reasonable efforts to resume performance of its
obligations as soon as practicable.
11.2 ASSIGNMENT.
11.2.1 ASSIGNMENT BY GALAGEN. GalaGen may assign any of its rights
or obligations under this Agreement in any country to any of
its Affiliates, for so long as they remain Affiliates.
GalaGen may also assign its rights and obligations under
this Agreement in connection with a merger or similar
reorganization or the sale of all or substantially all of
its assets. GalaGen shall not otherwise assign any of its
rights or obligations under this Agreement without the prior
written consent of Wyeth-Ayerst, which consent may be
provided or withheld in Wyeth-Ayerst's sole discretion. Any
assignment under this Section 11.2.1 by GalaGen of its
rights and/or obligations under this Agreement shall not
relieve GalaGen of its responsibilities for the performance
of its obligations under this Agreement.
11.2.2 ASSIGNMENT BY WYETH-AYERST. Wyeth-Ayerst may assign any of
its rights or obligations under this Agreement in any
country to any of its Affiliates or to one or more Third
Parties. Wyeth-Ayerst shall notify
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<PAGE>
GalaGen, in writing, upon making any such assignment. In
the event Wyeth-Ayerst assigns any of its rights or
obligations under this Agreement in connection with a merger
or similar reorganization or the sale of all or
substantially all of its assets or a sale of that part of
its business relating to the subject matter of this
Agreement, no intellectual property rights of the acquiring
corporation shall be included in the technology licensed
hereunder. Any assignment under this Section 11.2.2 by
Wyeth-Ayerst shall not relieve Wyeth-Ayerst of its
responsibilities for the performance of its obligations
under this.
11.2.3 BINDING NATURE OF ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the successors and
permitted assigns of the Parties. Any assignment not in
accordance with this Section 11.2 shall be void.
11.3 NO WAIVER. The failure of either Party to require performance by the
other Party of any of that other Party's obligations hereunder shall
in no manner affect the right of such Party to enforce the same at a
later time. No waiver by any Party hereto of any condition, or of the
breach of any provision, term, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach, or of any other
condition or of the breach of any other provision, term,
representation or warranty hereof.
11.4 SEVERABILITY. If a court or other tribunal of competent jurisdiction
should hold any term or provision of this Agreement to be excessive,
or invalid, void or unenforceable, the offending term or provision
shall be deleted, and, if possible, replaced by a term or provision
which, so far as practicable achieves the legitimate aims of the
Parties.
11.5 RELATIONSHIP BETWEEN THE PARTIES. Both Parties are independent
contractors under this Agreement. Nothing herein contained shall be
deemed to create an employment, agency, joint venture or partnership
relationship between the Parties hereto or any of their agents or
employees, or any other legal arrangement that would impose liability
upon one Party for the act or failure to act of the other Party.
Neither Party shall have any express or implied power to enter into
any contracts or commitments or to incur any liabilities in the name
of, or on behalf of, the other Party, or to bind the other Party in
any respect whatsoever.
11.6 CORRESPONDENCE AND NOTICES.
11.6.1 Correspondence, reports, documentation , and any other
communication in writing between the Parties in the course
of implementation of this Agreement shall be in writing and
sent by prepaid air mail, or by facsimile confirmed by
prepaid registered or certified air mail letter, and shall
be
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<PAGE>
deemed to have been properly served to the addressee upon
receipt of such written communication.
11.6.2 In the case of GalaGen, the proper address for
communications and for all payments shall be:
GalaGen, Inc.
4001 Lexington Avenue North
Arden Hills, Minnesota 55126 USA
Attn: Chief Executive Officer
and it the case of Wyeth-Ayerst, the proper address for
communications and for all payments shall be:
Wyeth-Ayerst Laboratories
555 Lancaster Avenue
St. Davids, Pennsylvania 19087
Attn: Senior Vice President, Global Business
Development
With a copy to:
American Home Products Corporation
5 Giralda Farms
Madison, New Jersey 07940
Attn: Senior Vice President and General Counsel
11.7 CHOICE OF LAW. This Agreement is subject to and governed by the laws
of the State of Delaware, excluding its conflict of laws provisions.
11.8 ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the other
Transaction Agreements, including the Exhibits and Schedules hereto
and thereto and all the covenants, promises, agreements, warranties,
representations, conditions and understandings contained herein and
therein sets forth the complete, final and exclusive agreement between
the Parties and supersedes and terminates all prior and
contemporaneous agreements and understandings between the Parties,
whether oral or in writing. There are no covenants, promises,
agreements, warranties, representations, conditions or understandings,
either oral or written, between the Parties other than as are set
forth in the Transaction Agreements. No subsequent alteration,
amendment, change, waiver or addition to this Agreement shall be
binding upon the Parties unless reduced to writing and signed by an
authorized officer of each Party. No understanding, agreement,
representation or promise, not explicitly set forth herein, has been
relied on by either Party in deciding to execute this Agreement.
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11.9 HEADINGS. The headings and captions used in this Agreement are solely
for the convenience of reference and shall not affect its
interpretation.
11.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be an original and all of
which shall constitute together the same document.
11.11 FURTHER ACTIONS. Each Party agrees to execute, acknowledge
and deliver such further instruments, and to do all other
acts, as may be necessary or appropriate in order to carry
out the purposes and intent of this Agreement including,
without limitation, any filings with any antitrust agency
which may be required.
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the Parties as of the date set forth above.
AMERICAN HOME PRODUCTS CORPORATION GALAGEN INC.
/s/ Tuan Ha-Ngoc /s/ Robert A. Hoerr
- ----------------------------------- -----------------------------------
Name: Tuan Ha-Ngoc Name: Robert A. Hoerr
Title: Vice President - Strategic Title: President & CEO
Development
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<PAGE>
Exhibit 10.32
PRODUCT DEVELOPMENT COLLABORATION,
MANUFACTURING AND SUPPLY,
AND RETAIL MARKETING AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the 22 day
of December, 1998, by and among GALAGEN INC., a Delaware corporation, located at
4001 Lexington Avenue North, Arden Hills, Minnesota 55126-2939 ("GalaGen"),
GENERAL NUTRITION CORPORATION, a Pennsylvania corporation located at 300 Sixth
Avenue, Pittsburgh, Pennsylvania 15222 ("GNC") and GENERAL NUTRITION PRODUCTS,
INC., a South Carolina corporation, located at 1050 Woodruff Road, Greenville,
South Carolina 29607 ("GNP").
RECITALS
WHEREAS, GNC is a retailer of a large line of proprietary brand and third
party dietary supplement and food products; and
WHEREAS, GalaGen is a developer, manufacturer and supplier of proprietary
dietary supplement, clinical nutrition and pharmaceutical products; and
WHEREAS, GNP is a manufacturer of dietary supplement and food products; and
WHEREAS, GalaGen and GNC wish to enter into an exclusive collaboration
relationship to develop and market a range of immune-boosting dietary
supplements for specialized retail channels and mass market retail channels,
subject to the terms and conditions herein; and
WHEREAS, GalaGen wishes to sell its proprietary Proventra-TM- brand natural
immune components to GNP during the term of this Agreement so that GNP may
incorporate Proventra-TM- products, i.e., encapsulate and package, into dietary
supplements and sports nutritional formulas for distribution and retail
marketing by GNC, its affiliates, franchisees [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***];
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, GNC, GNP and GalaGen agree as
follows:
DEFINITIONS
"CPI" shall mean the United States Consumer Price Index-Urban Edition.
"Collaborative Research and Development Program" is defined in
Section 12.b.
"Direct Negotiation" is defined in Section 25.
<PAGE>
"Dispute" is defined in Section 25.
"Expanded Territory" shall mean additional marketing territory outside of
the Territory from time to time granted to GNC by GalaGen in accordance
herewith, either by individual country or region such as Europe.
"Field" shall mean the use of Products in Single Component Dietary
Supplements or Sports Nutritional Formulas. Field shall also mean
Multi-Component Dietary Supplements if after the date hereof GalaGen in its sole
discretion grants in writing to GNP and GNC rights with respect to
Multi-Component Dietary Supplements, and then only to the extent provided in
such written grant of rights, and shall not be construed for purposes of any
provision of this Agreement to include Multi-Component Dietary Supplements
unless and to the extent provided in such written grant of rights.
"Food, Drug and Cosmetic Act" shall mean the United States Food, Drug and
Cosmetic Act, 21 USC 301 et seq.
"Good Manufacturing Practices" means good manufacturing practices
promulgated under the Food, Drug and Cosmetic Act.
"Individual Channel" shall mean any individual retail channel within the
Mass Market Retail Channels including without limitation, discount stores, chain
drug stores, independent retail pharmacies, grocery stores and direct/internet
consumer sales.
"Invention" shall mean any invention conceived in the course of the
Collaborative Research and Development Program authorized by the Joint
Development Committee in accordance with and during the term of this Agreement.
"Joint Development Committee" shall mean a committee formed in accordance
with Section 12.a.
"Joint Inventions" is defined in Section 16.a.
"Mass Market Retail Channel" shall mean any Individual Channel other than a
Specialized Retail Channel.
"Multi-Component Dietary Supplement" shall mean any dietary supplement,
which is not a Single Component Dietary Supplement, whether in pill, capsule,
tablet, gelcap or powdered form, that contains Proventra-TM- [***CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***].
"Option Period" shall mean one (1) year from the date hereof.
"Orders" is defined in Section 2.
"Outlet/Sales Requirements for Mass Market" means [***CONFIDENTIAL
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TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***]
"Outlet/Sales Requirements for Specialized Retail" means [***CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***]
"Party" shall mean either GalaGen or GNC and/or GNP, as the case may be,
while "Parties" shall mean GalaGen, GNC and GNP collectively.
"Product" shall mean [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***].
"Release Specifications" is defined in Section 15.
"Right of First Refusal" is defined in Section 5.
"Single Component Dietary Supplement" shall mean [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***].
"Specialized Retail Channel" shall mean specialty health food, nutrition or
dietary supplement retail stores, including without limitation any store or
franchisee of GNC, including Nature's Northwest Food Stores.
"Sports Nutritional Formula" shall mean a nutritional supplement, whether
in pill, capsule, tablet, gelcap or powdered formula, containing
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***], intended for the nutritional support of
individuals participating in sports activities.
"Territory" shall mean North America, including the United States, Canada
and Mexico.
"Third Party" means a party other than the Party or its affiliates.
"Trademark License" shall be the license granted hereunder for the right
and requirement to use the Proventra-TM- mark shown in EXHIBIT A on all products
sold by GNC, its affiliates, franchisees, [***CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
or sub-licensees which contain Product and "Trademark" shall mean the
Proventra-TM- mark.
TERMS
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1. PURCHASE AND SALE; EXCLUSIVITY.
1.a PURCHASE AND SALE. During the term of this Agreement, GalaGen
shall offer and GNP shall purchase from GalaGen Products in bulk which GNP
shall, at its expense, package and label and make into finished product.
GalaGen shall be the exclusive supplier of Products to GNP and GNP shall be the
exclusive manufacturer of products incorporating such Products for GNC and its
affiliates and franchisees and [***CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***],
provided that nothing herein shall limit GalaGen's right to have Products
manufactured for it. Without GalaGen's prior written consent, GNP will not
manufacture products incorporating such Products for any parties other than GNC,
its affiliates and franchisees and [***CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]. GNC
and its affiliates, and franchisees and [***CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
will not sell products incorporating such Products outside of the Field,
Territory and Specialized Retail Channel and Mass Market Retail Channel.
1.b EXCLUSIVITY. Subject to Sections 1.c, 1.d, 1.e and 3.a., GNC and
its affiliates and franchisees and [***CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] shall
be the exclusive licensee to sell products incorporating such Products in Single
Component Dietary Supplements and in Sports Nutritional Formulas within the
Specialized Retail Channel and Mass Market Retail Channels in the Territory
during the term of this Agreement.
1.c EXCEPTIONS. Except as expressly granted in writing by GalaGen,
neither GNP nor GNC, nor any affiliate, franchisee or [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***], shall have any rights, exclusive or otherwise, to
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] products. Without limiting the
foregoing, but subject to the Right of First Refusal in Section 5, GalaGen
reserves the right to make, use, and sell Products outside of the Field. Except
as expressly granted in writing by GalaGen, neither GNP nor GNC, nor any
affiliate, franchisee or [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***] shall have any
rights to manufacture, sell or otherwise distribute Products in Multi-Component
Dietary Supplements.
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION***].
2. QUANTITIES. GalaGen shall supply and ship Products to GNP in the
quantities
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<PAGE>
ordered on, and pursuant to the terms and conditions contained in, GNP's
Standard Purchase Order, [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]. To the extent
the terms of such Standard Purchase Order are inconsistent with the terms of
this Agreement, this Agreement shall control.
3. ORDERS AND FORECASTS.
3.a ORDERS AND FORECASTS. GNP will place Orders for the purchase of
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] of Products to be delivered by GalaGen
during the calendar year 1999 to maintain the exclusivity rights granted under
Section 1.b. If GNP does not place Orders for such quantities of Products
during 1999, GNP and GNC shall thereafter have a right to manufacture and sell
products incorporating such Products in the Specialized Retail Channel and Mass
Market Retail Channels on a non-exclusive basis until this Agreement terminates
or expires. GNP shall place Orders with GalaGen for Products at least twelve
(12) weeks prior to the anticipated shipment date for the Products, provided
that GalaGen may require a longer lead time for Orders of [***CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] at the time it agrees to make such products available
hereunder.
3.b REVIEWS. The parties shall confer at least quarterly to review
forecasts and to consult on matters relating to the scheduling of manufacturing
and delivery of Products.
4. OPTION FOR EXPANDED TERRITORY.
4.a OPTION EXERCISE. In the event GNC desires to sell products
within the Field incorporating one or more Products in an Expanded Territory,
GNC shall have the right within the Option Period to give GalaGen written notice
of the territory outside of the Territory that GNC desires to sell such products
and the Product or Products that GNC desires to incorporate into such products
(unless GalaGen has previously granted rights to a Third Party to sell products
incorporating such Products within such territory after the failure of GNC to
exercise its Right of First Refusal under Section 5).
4.b GOOD FAITH NEGOTIATIONS. Upon receipt of such notice, the
Parties agree to negotiate in good faith the terms upon which GNC will be
granted the right to sell products incorporating such Products in the Expanded
Territory, including whether such rights will be exclusive and, if exclusive,
the minimum outlet/sales requirements required to maintain such exclusivity, the
price of Products (which shall not be less than the price provided for
hereunder), the delivery terms (which shall not require GalaGen to assume any
expenses associated with delivery of Products in the Expanded Territory greater
than GalaGen's costs associated with delivery of the Products within the
Territory) and such other terms as the Parties deem appropriate, provided,
however, that GalaGen may require as a
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condition to entering into such good faith negotiations that GNC demonstrate to
GalaGen's reasonable satisfaction that GNC has a commercially reasonable plan to
enable it to sell products incorporating such Products in the Expanded Territory
on a competitive basis. For purposes hereof, "competitive basis" shall mean
that GNC has a reasonable prospect of being able to penetrate and sell
substantial quantities of such products in the proposed Expanded Territory
within a reasonable period of time.
4.c FAILURE TO REACH AGREEMENT. In the event that, notwithstanding
such good faith negotiations, the Parties are unable to reach agreement as to
the terms upon which GalaGen will make such Products available to GNC for
incorporation into products to be sold in the Expanded Territory within six (6)
months after GNC's notice to GalaGen of its desire to sell such products, either
Party shall be free to terminate such negotiations and, subject to the Right of
First Refusal, if any, of GNC, GalaGen shall be free to sell Products to Third
Parties for incorporation into products that may be sold in the territory with
respect to which GNC desired to be granted Expanded Territory.
5. RIGHT OF FIRST REFUSAL.
5.a GALAGEN NOTICE. In the event GalaGen desires to sell Product to
a Third Party within the Option Period who intends to incorporate such Product
into products within the Field to be sold outside of the Territory, GalaGen
shall give GNC written notice of its desire to sell such Product to such Third
Party and the material terms and conditions of such proposed sales (including
the Product or Products proposed to be sold, the territory in which such Product
or Products will be sold, the price and other terms of sale of such Product or
Products and any minimum volume purchase commitments by such Third Party).
5.b EXERCISE OF RIGHT. For a period of sixty (60) days thereafter,
GNC shall have a right of first refusal (the "Right of First Refusal") to enter
into an agreement with GalaGen to purchase such Products on the terms and
conditions that such Third Party is willing to purchase such Products (including
without limitation, price and minimum volume commitments) in the territory that
such Third Party proposes to sell products incorporating such Products or on
terms that, when taken as a whole, are at least as favorable to GalaGen as the
terms specified in the written notice provided to GNC. GalaGen may as a
condition to the exercise of such Right of First Refusal require that GNC
demonstrate to GalaGen's reasonable satisfaction that GNC has a commercially
reasonable plan to enable it to sell products incorporating such Products in the
territory on a competitive basis. For purposes of this Section 5, "competitive
basis" shall mean that GNC has a reasonable prospect of being able to sell such
products in the proposed territory on a basis reasonably comparable to the Third
Party's ability to market such products.
5.c FAILURE TO EXERCISE. Failure to exercise such Right of First
Refusal within such sixty (60) day period, shall be deemed a waiver by GNC of
its Right of First Refusal. In the event GNC does not exercise its Right of
First Refusal, GalaGen shall thereafter be free to sell such Products to such
Third Party in accordance with the material terms and conditions of such
proposed sales or on terms that, when taken as a whole, are at
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least as favorable to GalaGen as the terms specified in the written notice
provided to GNC. Moreover, once GalaGen has entered into an agreement to sell
Products to a Third Party outside of the Territory in accordance herewith, GNC
shall no longer have any Right of First Refusal with respect to the right to
sell products incorporating the Product or Products which GalaGen has agreed to
sell to such Third Party in the territory that GalaGen has agreed to permit such
Third Party to sell products incorporating the Product or Products, regardless
of whether such Third Party continues to have a right to sell such products in
such territory or in such Individual Channel or Channels.
6. TERM. The Term of this Agreement shall be for a period of
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION***] years from the date hereof unless earlier
terminated in accordance with Section 20. After the Term, this Agreement will
renew on a yearly basis unless GNC gives GalaGen at least six (6) months prior
written notice that it intends not to extend this Agreement or, if all of the
Products covered by this Agreement are being sold on a non-exclusive basis,
GalaGen gives GNC at least six (6) months prior written notice that it is
terminating this Agreement. In addition, in the event rights to the Specialized
Retail Channel or a Mass Market Retail Channel have become non-exclusive,
GalaGen shall have the right after the Term upon at least six (6) months prior
written notice, to terminate GNC's non-exclusive right to sell products
incorporating Product into the non-exclusive channel or channels Renewal will
be on an exclusive basis in the Specialized Retail Channel if the Outlet/Sales
Requirements for Specialized Retail have been met for the year preceding such
renewal, to the extent that such Rights are exclusive at the time of such
renewal. Renewal will be on an exclusive basis in the applicable Mass Market
Retail Channel if the Outlet/Sales Requirements for Mass Market have been met
for the year preceding such renewal, to the extent that such Rights are
exclusive at the time of such renewal. Minimum Outlet/Sales Requirements for
Specialized Retail and/or Minimum Outlet/Sales Requirements for Mass Market for
the renewal period will be mutually negotiated, provided that if the parties
cannot agree upon such Minimum Outlet/Sales Requirements prior to expiration of
the then current Term, GalaGen shall allow GNC to renew GNC's rights in the
Specialized Retail Channel and/or the Mass Market Retail Channel, as the case
may be, on a non-exclusive basis for an additional one (1) year period.
7. PAYMENT. [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***].
8. WARRANTIES.
8.a GALAGEN. GalaGen expressly represents and warrants that Products
sold hereunder (a) are of good and merchantable quality and fit and safe for
consumer use; (b) have been manufactured, packaged and stored in accordance with
the applicable standards of Good Manufacturing Practices and requirements of all
applicable Federal, state and local laws, rules and regulations; (c) are not
adulterated or misbranded within the meaning of the Food, Drug and Cosmetic Act
nor an article under the provisions of Section
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404 or Section 505 of the Food, Drug and Cosmetic Act which may not be
introduced into interstate commerce; and (d) are not a "new dietary ingredient"
as defined under the Dietary Supplement Health and Education Act of 1994
('DSHEA") or will have complied with such notice or other requirements as may be
applicable to a "new dietary ingredient" under DSHEA. GalaGen further
represents and warrants that (w) use of the Proventra-TM- mark pursuant to the
Trademark License granted hereunder does not violate the trademark rights of any
Third Party; (x) GalaGen is the sole exclusive manufacturer and supplier of
Products in the United States (except to the extent GalaGen may grant rights to
have Products manufactured for it), (y) the Products are free of infringement of
any United States patent rights, provided, however that no representation or
warranty is made if the claim of infringement includes GNC's end product and the
basis of the claim is the mixture of Products with other ingredients and (z) the
consent of any Third Party is not needed or required for GalaGen to sell
Products to GNP or to enter into this Agreement. All such warranties shall
survive inspection, tests, acceptance and payment.
8.b GNP. GNP represents and warrants that it shall store the
Products in strict compliance with all applicable laws, including, without
limitation, the Food, Drug and Cosmetic Act and all relevant establishment and
product licenses. GNP further represents and warrants that, subject to the
representations and warranties of GalaGen herein being true and correct, all
products containing Products will (a) be of good and merchantable quality and
fit and safe for consumer use; (b) be manufactured, packaged, stored and shipped
in accordance with the applicable standards of Good Manufacturing Practices and
requirements of all applicable Federal, state and local laws, rules and
regulations; (c) not be adulterated or misbranded within the meaning of the
Food, Drug and Cosmetic Act nor an article under the provisions of Section 404
or Section 505 of the Food, Drug and Cosmetic Act which may not be introduced
into interstate commerce; and (d) will not infringe any United States patent
rights of any third party.
8.c GNC. GNC represents and warrants that it shall store, ship and
sell all products containing Products in strict compliance with all applicable
laws, including, without limitation, the Food, Drug and Cosmetic Act and all
relevant establishment and product licenses.
9. RECALLS. Without limiting the generality of the representations and
warranties made in Section 8, GNC represents and warrants that it shall observe
at all times the laws and regulations in the United States in order to maintain
an effective system for the recall from the market of any products containing
Products. In the event of any recall of any product containing Products, GalaGen
shall reasonably cooperate with GNC in any related investigation; provided that
GNC shall pay all of GalaGen's reasonable out-of-pocket costs and expenses
associated with the recall unless such recall arises out of failure of Products
supplied hereunder to conform to the Release Specifications or warranties. In
the event any recall of product containing Products arises out of failure of
Products supplied hereunder to conform to the Release Specifications or
warranties, GalaGen shall reasonably cooperate with GNC in any related
investigation and pay all of GNC's reasonable out-of-pocket costs and expenses
associated with the recall, including, but not limited to, costs of packaging,
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transporting and disposing of products containing Products.
10. INDEMNIFICATION.
10.a INDEMNIFICATION BY GNC/GNP. GNC and GNP shall, jointly and
severally, indemnify, defend and hold harmless GalaGen and its affiliates, and
each of its and their respective employees, officers, directors and agents
(each, a "GalaGen Indemnified Party") from and against any and all liability,
loss, damage, cost and expense (including reasonable attorneys' fees)
(collectively, a "Liability"), which the GalaGen Indemnified Party may incur,
suffer or be required to pay resulting from or arising in connection with (i)
the breach by GNC or GNP or their affiliates or franchisees [***CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***] of any covenant, representation or warranty contained in
this Agreement, (ii) willful misconduct or negligent acts or omissions of GNC or
GNP, their respective affiliates, franchisees [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] or any of their employees, officers, directors or agents, or
(iii) the successful enforcement by a GalaGen Indemnified Party of its rights
under this Section 10.a. Notwithstanding the foregoing, GNC/GNP shall have no
obligation under this Agreement to indemnify, defend or hold harmless any
GalaGen Indemnified Party with respect to claims, demands, costs or judgments
which result from willful misconduct or negligent acts or omissions of GalaGen,
its affiliates, or any of their respective employees, officers, directors or
agents.
10.b INDEMNIFICATION BY GALAGEN. GalaGen shall indemnify, defend and
hold harmless GNC, GNP and their franchisees, affiliates [***CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***], and each of their respective employees, officers,
directors and agents (each, a "GNC/GNP Indemnified Party") from and against any
Liability, which the GNC/GNP Indemnified Party may incur, suffer or be required
to pay resulting from or arising in connection with (i) the breach by GalaGen of
any covenant, representation or warranty contained in this Agreement; (ii)
willful misconduct or negligent acts or omissions of GalaGen, its affiliates, or
any of their respective employees, officers, directors or agents; (iii) GNP's or
GNC's use or sale of the Products (except where such Liability was the result of
GNP's or GNC's breach of representations or warranties herein or GNP's or GNC's
negligence or willful misconduct) or (iv) the successful enforcement by a
GNC/GNP Indemnified Party of its rights under this Section 10.b.
Notwithstanding the foregoing, GalaGen shall have no obligation under this
Agreement to indemnify, defend, or hold harmless any GNC/GNP Indemnified Party
with respect to claims, demands, costs or judgments which result from willful
misconduct or negligent acts or omissions of GNC/GNP, their affiliates, or any
of their respective employees, officers, directors or agents.
10.c CONDITIONS TO INDEMNIFICATION. The obligations of the
Indemnifying Party under Sections 10.a and 10.b are conditioned upon the
delivery of written notice to the
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Indemnifying Party of any potential Liability promptly after the Indemnified
Party becomes aware of such potential Liability. The Indemnifying Party shall
have the right to assume the defense of any suit or claim related to the
Liability if it has assumed responsibility for the suit or claim in writing;
however, if in the reasonable judgment of the Indemnified Party, such suit or
claim involves an issue or matter which could have a materially adverse effect
on the business operations or assets of the Indemnified Party, the Indemnified
Party may waive its rights to indemnity under this Agreement and control the
defense or settlement thereof, but in no event shall any such waiver be
construed as a waiver of any future indemnification rights such Party may have
at law or in equity. If the Indemnifying Party defends such suit or claim, the
Indemnified Party may participate in (but not control) the defense thereof at
its sole cost and expense.
10.d SETTLEMENTS. Neither Party may settle a claim or action related
to a Liability without the consent of the other Party, if such settlement would
impose any monetary obligation on the other Party or require the other Party to
submit to an injunction or otherwise limit the other Party's rights under this
Agreement. Any payment made by a Party to settle any such claim or action shall
be at its own cost and expense.
11. INSURANCE. GalaGen shall maintain during the term of this Agreement a
policy of general liability insurance, including products liability insurance,
business interruption insurance and contractual insurance, with limits of no
less than two million dollars, from a reliable insurance carrier acceptable to
GNC, which acceptance may not be unreasonably withheld. GalaGen shall name GNC
and GNP as additional insured under such coverage. GalaGen shall keep and
maintain its general liability insurance in effect during the term of this
Agreement. GalaGen shall notify GNC immediately upon cancellation of, or any
reduction in, its general liability insurance coverage, and cancellation or
reduction of such general liability coverage shall constitute a material breach
of this Agreement, provided however, that GalaGen shall be entitled to cure such
breach within forty-five (45) days provided that, during the forty-five (45) day
cure period, the insurance coverage is maintained, reinstated or re-established
without a lapse. GNC shall name GalaGen as additional insured under the general
liability insurance, including products liability insurance, maintained by GNC.
12. JOINT DEVELOPMENT COMMITTEE.
12.a FORMATION. The Parties agree to establish a joint development
committee (the "Joint Development Committee") within forty-five (45) days after
the Effective Date. The Joint Development Committee will be comprised of four
(4) representatives: two (2) of whom shall be appointed by GalaGen and two (2)
of whom shall be appointed by GNC and GNP. One of the members of the Joint
Development Committee shall be appointed its chairperson.
12.b RESPONSIBILITIES. The Joint Development Committee will:
(i) from time to time develop programs for the collaboration of
the Parties in the development of Products and products that use
Products (the
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"Collaborative Research and Development Program");
(ii) monitor the progress of and compliance with the
Collaborative Research and Development Program;
(iii) develop Release Specifications;
(iv) review and evaluate the results of studies performed in
connection with the Collaborative Research and Development Program.
(v) review and consider whether Proprietary Proventra-TM-
Formulations or [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION***]
products should be added as Products and, if so, the terms on which
such products will be added.
12.c MEETINGS. The Joint Development Committee shall meet no less
than once every three (3) months. The chairperson shall call meetings when
deemed appropriate or when requested by any member of the Joint Development
Committee. If possible, the meetings shall be held in person, or where
appropriate by video or telephone conference. When held in person, the location
of such meetings shall alternate between GalaGen's facilities and GNC's
facilities. Each Party shall be responsible for the expenses incurred by its
representatives in attending such meetings.
13. MARKETING, TECHNICAL AND CLINICAL DEVELOPMENT SUPPORT. GalaGen will
provide research and development for the development of commercially attractive
products approved by the Joint Development Committee, subject to agreement on
funding for such research and development. Funding for such research and
development will be established on a case-by-case basis. GalaGen will support
GNC's marketing of products containing Products with up-to-date technical
information, content for consumer educational material, and design of
appropriate clinical testing protocols, to be conducted and funded as negotiated
by GNC and GalaGen for specific needs. GNC and GalaGen agree to use good faith
efforts to promote GNC products containing Products through publications or
other media outlets. GalaGen agrees to allow GNC to use all information relating
to Products in GNC's labeling and advertisement of products containing Products.
GNC and GalaGen agree to review the feasibility of implementing research studies
on GNC products containing Products either alone or in combination with other
ingredients.
14. TRADEMARKS. GalaGen hereby grants to GNC and GNP the Trademark
License for the purpose specified herein. GalaGen shall provide GNC and GNP
with camera ready artwork of the GalaGen trademark Proventra-TM- and reasonable
guidelines (the "Guidelines") governing the use of the GalaGen Trademark (such
as size, color and placement). The Guidelines will reflect that the GalaGen
Trademark is to be displayed in such a manner so as to convey the impression
that the finished GNC products include Products. GNC and GNP shall not permit
any agent or subdistributor to use the GalaGen Trademark without GalaGen's prior
written approval; use or permit any agent to use any trademark or product
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names confusingly similar to Products; or use or permit any agent to use the
GalaGen Trademark on any objects, other than those containing Products. GNC and
GNP agree to notify GalaGen in writing of any claim or action for infringement
or unfair competition relating to the GalaGen Trademark, which is threatened or
brought against GNC/GNP by a third party and of any conflicting uses of,
application or registrations for, or acts of infringement or unfair competition
involving the GalaGen Trademark promptly after GNC/GNP learns of any such
matter. GNC/GNP shall furnish all records, documents, specimens and testimony
relating to such claim or action to GalaGen (at GalaGen's expense) as GalaGen
may request and shall otherwise cooperate with GalaGen in any such claim or
action.
15. TESTING AND QUALITY CONTROL.
15.a SPECIFICATIONS; INSPECTION. All Products delivered to GNP must
meet the specifications in SCHEDULE 2 (or as otherwise agreed to by the parties
and incorporated herein, the "Release Specifications") and contain a certificate
of analysis. Prior to the initial shipment of Products to GNP, GalaGen agrees
to provide GNP with complete specifications. Further, GalaGen agrees to provide
GNP with analytical test methodology and analytical and technical information on
Products for quality control purposes. GNP shall have the right to inspect
during reasonable business hours GalaGen's production facilities used in
connection with the manufacture of Products. GalaGen agrees to grant GNP
reasonable access to the reports, records and other documents relating to the
manufacture of Products, including copies of all inspection and other reports by
federal, state and local regulatory agencies. GalaGen shall have the right to
inspect GNP's production facilities during reasonable business hours in
connection with production of products incorporating Products.
15.b STABILITY TESTING. Stability testing consistent with GalaGen's
existing program for stability testing will be undertaken at GalaGen's expense
for Products. Any stability testing requested by GNC beyond GalaGen's existing
program will be funded by GNC. GalaGen will bill GNC at cost for additional
stability testing that may be required for combination formula products
developed jointly by the two companies.
16. INVENTIONS.
16.a OWNERSHIP. GalaGen shall own all Inventions made solely by its
employees and agents, and all patent applications and patents claiming such
Inventions. GNC or GNP, as the case may be, shall own all Inventions made
solely by its employees and agents and all patent applications and patents
claiming such Inventions. All Inventions made jointly by employees or agents of
GalaGen and employees or agents of GNC and/or GNP ("Joint Inventions") shall be
owned jointly by GalaGen and GNC and/or GNP. All determinations of inventorship
shall be made in accordance with U.S. law.
16.b JOINT PATENT APPLICATIONS. Each Party shall have the right to
identify any Joint Invention that may be patentable. The Parties shall jointly
take all reasonable steps to seek, maintain and/or prosecute patent applications
for such Joint Inventions and all
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patents relating thereto shall be registered in the names of GalaGen and GNC
and/or GNP, as the case may be, while all costs incurred in connection with
seeking, maintaining and/or prosecuting the patent protection shall be borne
equally by GalaGen and GNC (and/or GNP, as the case may be) except as hereafter
provided. Should either GalaGen or GNC (or GNP, as the case may be) not wish to
pay the costs relating to any patent application filed or to be filed pursuant
to this Section 16.b, then the Party wishing not to pursue such patent
application shall allow the other Party to continue with such application in the
name of the Parties jointly. In such case, the Party seeking, maintaining
and/or prosecuting the patent protections shall bear all costs incurred in
connection therewith, the non-pursuing Party shall provide reasonable
nonpecuniary assistance and the non-pursuing Party shall grant to the pursuing
Party a worldwide, exclusive, even as to itself, perpetual royalty-free license
to use and/or exploit the technology subject to the patent application. Such
license will be with right to sublicense.
16.c USE OF JOINT INVENTIONS. Subject to Section 16.b, either Party
may use Joint Inventions, or grant licenses to Third Parties thereunder, subject
to the following conditions:
(i) To the extent such Joint Invention relates to the manufacture of a
bovine colostrum-based ingredient (which for purposes hereof shall
include, without limitation, the preparation of vaccine, vaccination
of animals, collection and processing of colostrum into bovine
immunoglobulin concentrates, and the testing, packaging and storage of
such ingredient), GalaGen shall have the sole right to use and exploit
such Invention in the manufacture of such ingredients.
17. NOTICES. All demands, notices, and other communications to be given
hereunder, if any, shall be in writing and shall be sufficient for all purposes
if personally delivered, sent by facsimile, sent by nationally-recognized
courier service, or if sent by registered or certified United States mail,
return receipt requested, postage prepaid, and addressed to the respective party
at the postal address set forth herein or to such other address or addresses as
such Party may hereafter designate in writing to the other Party as herein
provided. The present addresses of the Parties hereto are set forth above. If
personally delivered, notice under this Agreement shall be deemed to have been
given and received and shall be effective when personally delivered. Notice by
facsimile and nationally-recognized courier service shall be deemed to have been
given when received. Notice by mail shall be deemed effective and complete upon
deposit in the United States mail.
18. ENTIRE AGREEMENT, AUTHORITY AND GOVERNING LAW. This Agreement, which
includes the Exhibits and Schedules hereto, contains the entire agreement of the
parties relating to its subject matter and the parties agree that this Agreement
supersedes all prior written or oral agreements, representations, and warranties
relating to its subject matter. No modification of this Agreement shall be
valid unless made in writing and signed by the Parties. Each Party represents
to the other Party that it has the full right and authority to enter into this
Agreement and to perform the obligations set forth herein of such Party. This
Agreement shall be enforced in accordance with the laws of the State of
Minnesota and shall
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be construed in accordance therewith.
19. FORCE MAJEURE. No Party shall be responsible or liable for any loss,
damage, detention or delay caused by fire, strike, insurrection or riot,
railroad, marine or air embargoes, lockout, accident, or any other cause which
is unavoidable or beyond its reasonable control, provided that performance
shall, as soon as practicable, recommence upon the cessation of such unavoidable
event.
20. TERMINATION. In the event of a material breach by either Party of the
terms and conditions of this Agreement (a "Default"), the nonbreaching party may
give the other party written notice of such Default. In the event the Default
is remedied within forty-five (45) days following such notice, the notice shall
be null and void. If such Default is not remedied within such forty-five (45)
day period, the nonbreaching Party may terminate this Agreement upon the
expiration of such remedy period. The rights of termination referred to in this
Agreement are not intended to be exclusive and are in addition to any other
rights available to the Parties in law or in equity.
Either Party may terminate this Agreement if there shall be commenced by or
against the other Party any dissolution or any bankruptcy, insolvency or similar
proceedings, or the other Party makes an assignment for the benefit of creditors
or a receiver or trustee shall be appointed for all or substantially all of the
other Party's assets.
21. CONFIDENTIALITY.
21.a CONFIDENTIALITY OBLIGATION. During the term of this Agreement
and after its expiration or termination, each Party agrees to keep confidential,
and to use all commercially reasonable efforts to require its respective
officers, directors, employees and agents to keep confidential all proprietary
information of the other Party, including without limitation any information
specifically identified by either Party prior to disclosure as being
confidential information, plans and data concerning products, marketing, sales,
customers, and technical or business matters. Disclosure of such confidential
information shall be made by either Party only to those of its employees and
agents who need to know such information in order to carry on the purposes of
this Agreement, and who have agreed to abide by confidentiality requirements at
least as restrictive as those set forth herein.
21.b EXCEPTIONS. These obligations shall not apply to information
that is known at the time of its receipt by the receiving Party and not through
prior disclosure by the disclosing Party, as documented by business records; is
developed by the receiving Party independently of the information received from
the disclosing Party and such independent development can be documented by the
receiving Party; is at the time of disclosure or thereafter becomes published or
otherwise part of the public domain without a breach of this Agreement by the
receiving Party; or is required by law, regulation, rule, act or order of any
governmental authority or agency to be disclosed by a Party, provided that such
Party gives the other Party a reasonable opportunity to seek a protective order
or other similar order and the disclosing Party discloses to the requesting
entity only the minimum confidential information required to be disclosed in
order to comply with the request.
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21.c OTHER PRECAUTIONS. Other precautions for protecting proprietary
and confidential information of the Parties that are agreed to in writing by the
Parties shall supplement this section and shall not be substituted for the
restrictions herein provided.
22. PUBLICITY. The Parties agree not to disclose, either directly or
indirectly, the existence of (i) this Agreement with any Third Party or the
media without the consent of the other Party and (ii) any differences between
the Parties, or any disputes that have risen to the level of a matter in Direct
Negotiation or litigation, or any facts, directly or indirectly related to such
matters, to any Third Party or the media, provided, however, that either Party
may disclose the terms of this Agreement to the extent required to enforce this
Agreement or to comply with applicable laws, including without limitation the
rules and regulations promulgated by the Securities and Exchange Commission and
the Party intending to disclose the terms of this Agreement shall provide the
nondisclosing Party an opportunity to review and comment on the intended
disclosure which is reasonable under the circumstances. Notwithstanding any
other provision of this Agreement, either Party may disclose the terms of this
Agreement to lenders, investment bankers and other financial institutions for
purposes of financing operations of such Party, subject to obtaining a
confidentiality agreement from such financial institution.
23. WAIVER, ASSIGNMENT AND SEVERABILITY. The waiver of a breach of any
term or condition of this Agreement shall not be deemed to constitute the waiver
of any further breach of such term or condition or the waiver of any other term
or condition of this Agreement. Neither Party shall have the right to assign
this Agreement or any right or interest herein in part or in whole without the
prior written consent of the other Party.
24. NO PARTNERSHIP. Nothing in this Agreement shall be construed to give
rise to a relationship between the Parties hereto as a joint venture or
partnership or other relationship than that of independent contractors.
25. MANDATORY DIRECT NEGOTIATION OF DISPUTES. The Parties hope there will
be no disputes arising out of their business relationship. However, if a claim
of breach, nonperformance, nonpayment, repudiation or other dispute should arise
related to or connected with this Agreement or any transactions between the
Parties (a "Dispute"), then the Parties agree to attempt to informally resolve
the Dispute by Direct Negotiation before initiating any claim related to such
Dispute in a court of competent jurisdiction. "Direct Negotiation," as used
herein, shall mean a meeting (held either by telephone or in-person) between
senior business principals designated by each Party who have full authority to
address and resolve the Dispute. Direct Negotiation is a prerequisite to
litigation involving all Disputes between the Parties except that either Party
may proceed directly to a court of law or equity to seek emergency injunctive
relief or remedy any safety concerns. To initiate Direct Negotiation, the
complaining Party shall make a written demand on the other by certified mail to
the primary address of record and identify therein the nature of the Dispute and
all issues which, in the opinion of the complaining Party, need to be resolved
to restore the business relationship. Any Disputes not expressly raised in this
notice for Direct Negotiation are waived with respect to subsequent litigation
unless such Disputes are
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subsequently submitted to Direct Negotiation. The Direct Negotiation shall take
place during the thirty (30) days following the date of receipt of the demand,
at a time and place agreed to by the business principals, and each Party agrees
to negotiate in good faith in an attempt to resolve the Dispute. The Parties
agree to exchange relevant information and cooperate in good faith to resolve
the Dispute under this provision and to that end, the non-complaining Party
shall issue a statement which addresses the complaining Party's identified
Dispute and/or raises additional issues for resolution prior to the Direct
Negotiation. If the Dispute remains unresolved following Direct Negotiation or
if the Direct Negotiation is not completed within the specified 30-day time
period, then the moving party may issue a fifteen (15) day written notice, and
if the Direct Negotiation does not resolve the Dispute or is not completed
within the specified 15-day period, then the aggrieved Parties are released to
file suit if they choose to further pursue the Dispute.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first hereinabove set forth.
GENERAL NUTRITION CORPORATION GALAGEN INC.
By: /s/ John P. Troup By: /s/ Gregg A. Waldon
---------------------- -----------------------------
Name: John P. Troup Name: Gregg A. Waldon
---------------------- -----------------------------
Its: Vice President Its: Vice President, Chief
---------------------- -----------------------------
Financial Officer, Treasurer
-----------------------------
and Secretary
-----------------------------
GENERAL NUTRITION PRODUCTS, INC.
By: /s/ James M. Sander
------------------------
Name: James M. Sander
------------------------
Its: Vice President
------------------------
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EXHIBIT 11.1
GALAGEN INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
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1998 1997 1996
------------ ----------- -------------
<S> <C> <C> <C>
BASIC LOSS PER SHARE:
Weighted average shares outstanding 8,067,564 7,184,722 6,604,902
------------ ----------- -------------
------------ ----------- -------------
Net loss applicable to common stockholders $(4,520,229) $(5,635,134) $(14,783,591)
------------ ----------- -------------
------------ ----------- -------------
Basic net loss per share applicable to common
stockholders $(.56) $(.78) $(2.24)
------------ ----------- -------------
------------ ----------- -------------
DILUTED LOSS PER SHARE:
Weighted average shares outstanding 8,067,564 7,184,722 6,604,902
Dilutive potential common shares - - -
------------ ----------- -------------
Total 8,067,564 7,184,722 6,604,902
------------ ----------- -------------
------------ ----------- -------------
Net loss applicable to common stockholders $(4,520,229) $(5,635,134) $(14,783,591)
------------ ----------- -------------
------------ ----------- -------------
Diluted net loss per share applicable to common
stockholders $(.56) $(.78) $(2.24)
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
<PAGE>
EXHIBIT 13.1
GALAGEN INC.
INDEX TO FINANCIAL INFORMATION
1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 1
Quantitative and Qualitative Disclosures About Market Risk......................................................... 5
Balance Sheets..................................................................................................... 6
Statements of Operations........................................................................................... 7
Statement of Changes in Stockholders' Equity....................................................................... 8
Statements of Cash Flows........................................................................................... 10
Notes to Financial Statements...................................................................................... 11
Report of Independent Auditors..................................................................................... 23
Selected Financial Data............................................................................................ 24
Market for Registrant's Common Equity and Related Stockholder Matters.............................................. 26
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information presented in this Annual Report to Stockholders for the
year ended December 31, 1998 (the "Annual Report") contains forward-looking
statements within the meaning of the safe harbor provisions of Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
statements are subject to risks and uncertainties, including those discussed
below under "Disclosure Regarding Forward-Looking Statements" and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998
("Form 10-K") under "Risk Factors", that could cause actual results to differ
materially from those projected. Because actual results may differ, readers
are cautioned not to place undue reliance on these forward-looking statements.
GENERAL
GalaGen's mission is to become the leading presence in foods, beverages
and dietary supplements that help enhance the immune system. To accomplish
this mission, the Company is focusing its efforts on channels that demand
immune-enhancing benefits in certain segments of the consumer food and
beverage products market and in certain segments of the clinical nutrition
products markets. A critical factor for success of the Company is its
immune-enhancing ingredient which is derived from colostrum, the highly
nutritious first milk from a dairy cow after its calf is born, which has been
branded Proventra-TM-Brand Natural Immune Components ("Proventra"). The
primary immune-enhancing components of Proventra are antibodies, which are
proteins that enhance the body's immune system to protect against harmful
pathogens. Secondary immune-enhancing components of Proventra providing
further disease resistance are proteins, such as lactoferrin, as well as
multiple vitamins and minerals. The Company, in conjunction with strategic
partners, continues to expand applications for its technology and is
developing a portfolio of Proventra-based products that target the needs
of consumers and the healthcare market.
In December 1998, the Company acquired a developed line of critical
care enteral nutrition products and formulas from Nutrition Medical, Inc.
("NMI"). These products are being sold to the hospital and home healthcare
industries. The Company is researching ways in which to incorporate certain
of its immune-enhancing ingredients into selected products acquired from NMI
to provide additional proprietary protection and added benefits that are not
currently available in that market segment.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
GENERAL. The net loss applicable to common stockholders decreased by
$1,114,905, or 19.8%, in 1998 to $4,520,229 from $5,635,134 in 1997 and
decreased $9,148,457, or 61.9%, in 1997 from $14,783,591 in 1996. The
decrease in 1998 was primarily due to increased revenue from the Company's
critical care product line acquired from NMI, increased product development
revenue related to a license agreement with Wyeth-Ayerst, decreased product
development costs due to the discontinuation of the pharmaceutical program
and decreased product development expense due to the receipt of a fee
received from the re-licensing of previously licensed technology offset by
increased selling, marketing and general and administrative expense in
support of the consumer and clinical nutrition product development programs
described above. The decrease in 1997 was due primarily to the non-cash
charge to earnings in April 1996 of $7,296,844 for a preferred stock
dividend, as described below, relating to the value of additional shares
issued to holders of certain preferred stock upon conversion into Common
Stock at the closing of the Company's initial public offering (the
"Offering"), which occurred in April 1996.
1
<PAGE>
REVENUES. In 1998 revenues of $876,079 consisted of approximately
$584,000 in sales of the Company's critical care nutrition products,
approximately $32,000 in sales of the Company's Proventra product and
approximately $260,000 of product development revenue relating to a license
and research collaboration agreement with Wyeth-Ayerst (see also Note 6 of
Notes to the Financial Statements).
COST OF GOODS SOLD. For 1998 the cost of goods sold was $244,141, which
consisted of approximately $228,000 from the critical care nutrition product
sales and approximately $16,000 related to the Proventra product sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $694,519, or 45.1%, in 1998 to $2,235,362
from $1,540,843 in 1997 and increased $60,347, or 4.1%, in 1997 from
$1,480,496 in 1996. The increase in 1998 is due to increased sales,
marketing and personnel expense for the Company's consumer and critical care
nutrition products of approximately $739,000 and increased shareholder
relations expense of approximately $42,000 offset by decreased insurance
costs of approximately $40,000, decreased financing expenses of approximately
$24,000, and decreased legal expenses of approximately $22,000 . The
increase in 1997 is due primarily to increased public reporting and
shareholder relations expense of approximately $75,000 and increased
insurance costs of approximately $68,000 offset by decreased outside
consulting expense of approximately $83,000.
PRODUCT DEVELOPMENT EXPENSES. Expenses for product development
decreased $1,845,791, or 49.1%, in 1998 to $1,914,295 from $3,760,086 in 1997
and decreased $1,497,534, or 28.5%, in 1997 from $5,257,620 in 1996.
Approximately $852,000 of the decrease in 1998 was due to the decreased
development expenses related to the terminated pharmaceutical programs,
approximately $684,000 of the decrease was due to decreased associated
personnel and consulting expense, approximately $250,000 of the decrease was
related to the fee received from the re-licensing of previously licensed
technology, which was offset against product development expense, and
approximately $60,000 of the decrease was from decreases in other program
expenses. The decrease in 1997 was due primarily to decreased expenses
associated with the pharmaceutical program of approximately $1,680,000 and
decreased personnel and administration expenses of approximately $280,000
offset primarily by increased manufacturing facility expenses of
approximately $262,000 and increased nutritional product development expense
of approximately $200,000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$166,585, or 27.7%, in 1998 to $767,474 from $600,889 and increased $192,026,
or 47.0%, in 1997 from $408,863 in 1996. The increase in 1998 was due
primarily to increased amortization of warrants issued for services of
approximately $168,000 and increased deferred expense amortization of
approximately $113,000 offset by decreased deferred compensation amortization
of approximately $88,000 and decreased depreciation expense of approximately
$26,000. In 1997 the increase was due to increased depreciation expense of
approximately $196,000, which was primarily depreciation on the Company's
completed manufacturing facility, and increased warrant amortization of
approximately $62,000 offset by decreased deferred compensation amortization
of approximately $66,000.
INTEREST INCOME. Interest income for 1998 decreased $110,315, or
24.6%, to $338,007 from $448,322 in 1997 and decreased $157,226, or 26.0%,
from $605,548 in 1996. The decreases were primarily attributable to the
decreased levels of investable funds.
INTEREST EXPENSE. Interest expense increased $391,405, or 215.5%, in
1998 to $573,043 from $181,638 in 1997 and decreased $763,678, or 80.8%, from
$945,316 in 1996. In 1998 approximately $465,000 of the interest expense was
the amortization of the value of warrants plus the value of the discount in
connection with the convertible debentures the Company issued in November
1997 (see Note 8 in Notes to the Financial Statements) and approximately
$108,000 was line of credit interest expense (see Note 7 in Notes to the
Financial Statements). Interest expense for 1997 consisted primarily of line
of credit interest expense of approximately $92,000 and amortization of the
value of warrants plus the value of the discount in connection with
convertible debentures of approximately $82,000. Interest expense for 1996
was due primarily to warrants valued at $768,064 which were issued to
guarantors of a line of credit for the Company and to
2
<PAGE>
purchasers of the Company's promissory notes and to interest over a period of
approximately three months on the convertible promissory notes (the
"Convertible Promissory Notes") issued by the Company. The Convertible
Promissory Notes converted into Common Stock upon the closing of the Offering.
PREFERRED STOCK DIVIDEND. The non-cash preferred stock dividend of
$7,296,844 in 1996 related to the value of additional Common Stock received
by the holders of Convertible Promissory Notes, Series E and Series F-1
Preferred Stock upon the conversion of such securities into Common Stock at
the closing of the Offering (the Convertible Promissory Notes converting
first into Series D Preferred Stock which in turn converted immediately into
Common Stock at the closing). The Convertible Promissory Notes and the
Series D, Series E and Series F-1 Preferred Stock provided that their
conversion prices be automatically adjusted to reflect the lower of their
currently effective conversion price or 70% of the Offering price.
LIQUIDITY AND CAPITAL RESOURCES; CASH FLOW ANALYSIS
The Company was incorporated in March 1992. On July 24, 1992, Procor,
the Company's predecessor, was merged with and into the Company (the
"Procor-GalaGen Merger"). At the time of the Procor-GalaGen Merger, Procor
was a wholly-owned subsidiary of Land O'Lakes. Since the Company's inception
through December 31, 1998, investments in the Company have totaled
approximately $53.4 million, including approximately $7.1 million of
inter-company obligations payable to Land O'Lakes which were forgiven and
recorded as contributed capital at the time of the Procor-GalaGen Merger,
$17.9 million from the Offering (after deducting underwriting discounts and
offering expenses) and approximately $28.4 million from private placements of
equity and convertible debt and from conversion of accrued interest on such
debt and the exercise of stock options and warrants. The Company has invested
funds received in the Offering and private placements in investment-grade,
interest-bearing obligations.
Cash used in operating activities decreased by $2,511,294, or 41.5%, in
1998 to $3,540,854 from $6,052,148 and decreased $83,664, or 1.4%, in 1997
from $6,135,812 in 1996. Cash used in operations went primarily to fund
operating losses and was offset slightly by changes in operating assets and
liabilities.
The Company redeemed $7,511,619 of available-for-sale securities in
1998 and invested $13,276 in 1997 and $7,498,343 in 1996 in
available-for-sale securities. The Company invested $39,365 in 1998,
$215,320 in 1997 and $1,264,342 in 1996 in equipment and tenant improvements
related to the Company's manufacturing facility, the majority of which is
leased (see Note 7 of Notes to the Financial Statements). The Company
invested $50,475 in 1998, $63,685 in 1997 and $193,012 in 1996 in lab
equipment, computer equipment and software and furniture used primarily to
support the Company's operations. In 1998 the Company invested $141,363 in
fixed assets and inventory received relating to the asset purchase agreement
with NMI (see Note 5 in Notes to the Financial Statements).
The Company converted it's previously established note payable, which
was secured by certain fixed assets, into an operating lease in accordance
with FAS 13 in June 1998 which calls for future minimum monthly payments of
approximately $34,000 through May 2001 with a final payment of $165,000 in
June 2001. The Company's seven-year operating lease for manufacturing
equipment requires annual payments of approximately $131,000 through 2003.
Additionally, the Company's five-year lease agreement with Land O' Lakes for
specified manufacturing space requires future annual payments of
approximately $87,000 through June 2001 (see Note 10 in Notes to the
Financial Statements).
3
<PAGE>
The Company anticipates that its existing resources and interest thereon
will be sufficient to satisfy its anticipated cash requirements through
approximately the first quarter of 2000. The Company's working capital and
capital requirements will depend upon numerous factors, including the
progress of the Company's market research, product development and ability to
obtain partners with the appropriate manufacturing, sales, distribution and
marketing capabilities. The Company's capital requirements also will depend
on the levels of resources devoted to the development of manufacturing
capabilities, technological advances, the status of competitive products and
the ability of the Company to establish partners or strategic alliances to
provide funding to the Company for certain manufacturing, sales, product
development and marketing activities.
The Company expects to incur substantial additional marketing expense
and product development expense. Capital expenditures may be necessary to
establish additional commercial scale manufacturing facilities. The Company
will need to raise substantial additional funds for longer-term product
development, manufacturing and marketing activities that may be required in
the future. The Company's ability to continue funding its planned operations
beyond the first quarter of 2000 is dependent upon its ability to generate
product revenues or to obtain additional funds through equity or debt
financing, strategic alliances, license agreements or from other financing
sources. A lack of adequate revenues or funding could eventually result in
the insolvency or bankruptcy of the Company. At a minimum, if adequate funds
are not available, the Company may be required to delay or to eliminate
expenditures for certain of its product development efforts or to license to
third parties the rights to commercialize products or technologies that we
would otherwise seek to develop itself. Because of the Company's significant
long-term capital requirements, it may seek to raise funds when conditions
are favorable, even if the Company does not have an immediate need for such
additional capital at such time. If the Company has not raised funds prior
to when its needs for funding become immediate, the Company may be forced to
raise funds when conditions are unfavorable, which could result in
significant dilution for current stockholders.
YEAR 2000 ISSUES
The Company began the process of assessing its risks associated with
Year 2000 date conversion in 1998. This assessment included three main areas:
- the business hardware and software applications, mainly certain
accounting applications and office network, the Company's
Information Technology ("IT"),
- manufacturing facilities and
- external third party business partners or suppliers.
Prior to the asset acquisition of NMI's critical care nutrition
products, the Company completed its assessment and concluded that the Year
2000 risk was focused mainly in the area of its business computer hardware
and computer software applications. Subsequent to the NMI asset purchase, the
Company has undertaken a reassessment and has determined that the risk
associated with non-compliant external business partners and suppliers has
significantly increased. The assessment has been completed for the IT and
manufacturing facilities and will be completed for the third party partners
and suppliers in mid 1999.
The Company has addressed these issues by:
- authorizing the installation of new network server hardware and
software, specifically for its accounting applications and office
network. This remediation process has begun and is anticipated to be
completed in early 1999 with total costs of approximately $60,000, of
which approximately $48,000 has been expensed in 1998. The Company
has contracted this work to outside parties. The manufacturers of the
hardware and software have stated that these products are Year 2000
compliant. In planning for the worst case scenarios, the Company has
addressed this issue in its plan. The Company believes that its
hardware and software systems for its business will be operational for
Year 2000, but it may experience isolated incidences of non-
4
<PAGE>
compliance. The testing of the newly installed hardware and
software, along with the Company's older hardware and software, is
anticipated to begin upon completion of the new installation
described above and is anticipated to conclude shortly thereafter; and
- identifying its key business partners and suppliers, particularly
relating to its critical care nutrition business, and assessing their
readiness for Year 2000 to mitigate the risk to the Company if they
are not Year 2000 compliant. The Company has its critical care
nutrition products manufactured by third parties. If certain vendors,
including these critical care product manufacturers, are unable to
deliver product on a timely basis due to their own Year 2000 issues,
the Company anticipates that there will be other companies who will be
able to deliver such product on a timely basis. Upon completion of
this assessment, the Company will determine whether any remediation is
needed. The Company also recognizes the risks to other key suppliers
in utilities, communications, banking and government are not ready for
Year 2000, but does not believe the Company will be materially
adversely impacted.
The Company's manufacturing facility, completed and operational in
mid-1997, has been Year 2000 compliant since inception and no further work is
considered necessary. The most reasonably likely worst case scenario would
be the inability of the Company to have its critical care nutrition products
manufactured on a timely basis which could result in significantly decreased
revenues. The Company is currently in the process of developing its
contingency plans for each of its three main areas and should have them
completed in mid-1999.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report to Stockholders contains certain forward looking
statements within the meaning of Section 21E of the Exchange Act. Such
forward-looking statements are based on the beliefs of the Company's
management as well as on assumptions made by and information currently
available to the Company at the time such statements were made. When used in
this Annual Report, the words "anticipate", "believe", "estimate", "expect",
"intend" and similar expressions, as they relate to the Company, are intended
to identify such forward-looking statements. Although the Company believes
these statements are reasonable, readers of this Annual Report should be
aware that actual results could differ materially from those projected by
such forward-looking statements as a result of the risk factors listed below
and set forth in the Company's Form 10-K under the caption "Risk Factors."
Readers of this Annual Report should consider carefully the factors listed
below and under the caption "Risk Factors" in the Company's Form 10-K, as
well as the other information and data contained in this Annual Report. The
Company cautions the reader, however, that such list of factors under the
caption "Risk Factors" in the Company's Form 10-K and listed below may not be
exhaustive and that those or other factors, many of which are outside of the
Company's control, could have a material adverse effect on the Company and
its results of operations. Factors that could cause actual results to differ
include, without limitation, the Company's ability to generate sufficient
working capital and obtain necessary financing to meet capital requirements,
loss of Nasdaq National Listing, the Company's ability to form strategic
alliances with marketing and distribution partners, the Company's exposure to
product liability claims, consumers' perception of product safety and
quality, the Company's reliance on flawed market research, potential
competitors that are larger and financially stronger, the Company's ability
to receive regulatory approval for its products and the Company's ability to
manufacture an acceptable product on a commercial scale. All forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements set forth
hereunder and under the caption "Risk Factors" in the Company's Form 10-K.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk is unlikely to have a material adverse effect
on the Company's business, results of operations or financial condition.
5
<PAGE>
GALAGEN INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 4,081,733 $ 155,908
Available-for-sale securities....................................................... - 7,511,619
Accounts receivable, net of allowance of $14,020 in 1998 ........................... 314,579 -
Inventory........................................................................... 303,150 -
Prepaid expenses.................................................................... 197,994 196,672
-------------- ---------------
Total current assets.................................................................. 4,897,456 7,864,199
Property and equipment................................................................ 671,796 1,869,974
Less accumulated depreciation....................................................... (270,418) (363,355)
-------------- ---------------
401,378 1,506,619
Deferred expenses..................................................................... 324,659 158,953
Customer list......................................................................... 450,000 -
Goodwill.............................................................................. 219,847 -
-------------- ---------------
994,506 158,953
Total assets.......................................................................... $ 6,293,340 $ 9,529,771
-------------- ---------------
-------------- ---------------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable.................................................................... $ 641,922 $ 559,498
Development contract advance........................................................ 290,089 -
Note payable........................................................................ - 238,250
Accrued expenses.................................................................... 46,903 38,129
Convertible notes- net of discount of $6,667 in 1998................................ 193,333 -
-------------- ---------------
Total current liabilities............................................................. 1,172,247 835,877
Commitments
Convertible notes, net of discount of $428,182 in 1997................................ - 1,071,818
Note payable, long term portion....................................................... - 923,998
Other long-term liabilities........................................................... 45,000 45,000
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - none in 1998 and 1997............................ - -
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 8,948,446 in 1998; 7,234,974 in 1997............. 89,484 72,350
Additional paid-in capital.......................................................... 62,386,292 59,669,586
Accumulated deficit ................................................................ (57,339,283) (52,819,054)
Deferred compensation............................................................... (60,400) (269,804)
-------------- ---------------
Total stockholders' equity.......................................................... 5,076,093 6,653,078
-------------- ---------------
Total liabilities and stockholders' equity............................................ $ 6,293,340 $ 9,529,771
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes.
6
<PAGE>
GALAGEN INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Revenues:
Product sales....................................... $ 616,168 $ - $ -
Product licensing and development revenues.......... 259,911 - -
-------------- ------------ -----------
876,079 -
Operating expenses:
Cost of goods sold.................................. 244,141 - -
Selling, general and administrative................. 2,235,362 1,540,843 1,480,496
Product development................................. 1,914,295 3,760,086 5,257,620
Depreciation and amortization....................... 767,474 600,889 408,863
-------------- ------------ -----------
5,161,272 5,901,818 7,146,979
-------------- ------------ -----------
Operating loss....................................... (4,285,193) (5,901,818) (7,146,979)
Interest income...................................... 338,007 448,322 605,548
Interest expense..................................... (573,043) (181,638) (945,316)
--------------- ------------ ------------
Net loss for the period.............................. (4,520,229) (5,635,134) (7,486,747)
Less preferred stock dividend ....................... - - (7,296,844)
--------------- ------------ ------------
Net loss applicable to common stockholders........... $ (4,520,229) $ (5,635,134) $(14,783,591)
--------------- ------------ ------------
--------------- ------------ ------------
Net loss per share applicable to common stockholders $ (.56) $ (.78)$ (2.24)
Basic and Diluted..................................
Weighted average number of common shares outstanding
Basic and Diluted.................................. 8,067,564 7,184,722 6,604,902
</TABLE>
See accompanying notes.
7
<PAGE>
GALAGEN INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------------------- ------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..................... 2,500,000 $25,000 1,234,748 $12,347 551,000 $5,510
Sale of Series E Preferred Stock.............
Issuance of Series F-1 Preferred Stock.......
Warrant valuation for line of credit and notes
Warrant valuation for Convertible Promissory
Notes.....................................
Conversion of Series A Preferred Stock....... (2,500,000) (25,000)
Conversion of Series B Preferred Stock....... (1,234,748) (12,347)
Conversion of Series C Preferred Stock....... (551,000) (5,510)
Conversion of Series F-1 Preferred Stock.....
Conversion of Series E Preferred Stock.......
Conversion of Convertible Promissory Notes,
net of financing costs of $131,010..........
Initial public offering, net of offering
costs of $2,078,225.........................
Preferred stock dividend.....................
Stock issued through Employee Stock Purchase
Plan......................................
Amortization of deferred compensation........
Deferred compensation adjustment, canceled
options...................................
Exercise of stock options....................
Net loss for the year........................
------------- ------------- ------------ ------------ ----------- -----------
Balance at December 31, 1996..................... - - - - - -
Amortization of deferred compensation........
Deferred compensation adjustment, canceled
options...................................
Exercise of stock options....................
Common stock issued for services.............
Discount valuation for convertible
debentures................................
Valuation of issued options and warrants......
Warrant valuation for note payable............
Stock issued through Employee Stock Purchase
Plan......................................
Net loss for the year........................
------------- ------------- ------------ ------------ ----------- -----------
Balance at December 31, 1997..................... - - - - - -
Amortization of deferred compensation........
Deferred compensation adjustment, canceled
options...................................
Exercise of stock options and warrants.......
Conversion of convertible debentures.........
Valuation of issued warrants.................
Common stock issued for asset purchase.......
Stock issued through Employee Stock Purchase
Plan......................................
Net loss for the year........................
------------- ------------- ------------ ------------ ----------- -----------
Balance at December 31, 1998..................... - $ - - $ - - $ -
------------- ------------- ------------ ------------ ----------- -----------
------------- ------------- ------------ ------------ ----------- -----------
</TABLE>
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
SERIES F-1 SERIES E
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ---------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..................... 17,143 $171 338,461 $3,385 1,952,252 $19,522
Sale of Series E Preferred Stock............. 46,154 461
Issuance of Series F-1 Preferred Stock....... 17,144 171
Warrant valuation for line of credit and notes
Warrant valuation for Convertible Promissory
Notes.....................................
Conversion of Series A Preferred Stock....... 677,063 6,771
Conversion of Series B Preferred Stock....... 543,413 5,434
Conversion of Series C Preferred Stock....... 248,758 2,488
Conversion of Series F-1 Preferred Stock..... (34,287) (342) 85,717 857
Conversion of Series E Preferred Stock....... (384,615) (3,846) 178,568 1,786
Conversion of Convertible Promissory Notes,
net of financing costs of $131,010.......... 1,434,495 14,345
Initial public offering, net of offering
costs of $2,078,225......................... 2,000,000 20,000
Preferred stock dividend.....................
Stock issued through Employee Stock Purchase
Plan...................................... 3,642 36
Amortization of deferred compensation........
Deferred compensation adjustment, canceled
options...................................
Exercise of stock options.................... 39,861 399
Net loss for the year........................
------------ ---------- ------------ --------- ----------- ----------
Balance at December 31, 1996..................... - - - - 7,163,769 71,638
Amortization of deferred compensation........
Deferred compensation adjustment, canceled
options...................................
Exercise of stock options.................... 64,703 647
Common stock issued for services............. 1,493 15
Discount valuation for convertible
debentures................................
Valuation of issued options and warrants.....
Warrant valuation for note payable...........
Stock issued through Employee Stock Purchase
Plan...................................... 5,009 50
Net loss for the year........................
------------ ---------- ------------ --------- ----------- ----------
Balance at December 31, 1997..................... - - - - 7,234,974 72,350
Amortization of deferred compensation........
Deferred compensation adjustment, canceled
options...................................
Exercise of stock options and warrants....... 111,325 1,113
Conversion of convertible debentures......... 1,260,073 12,601
Valuation of issued warrants.................
Common stock issued for asset purchase....... 318,800 3,188
Stock issued through Employee Stock Purchase
Plan...................................... 23,274 232
Net loss for the year........................
------------ ---------- ------------ --------- ----------- ----------
Balance at December 31, 1998..................... - $ - - $ - 8,948,446 $ 89,484
------------ ---------- ------------ --------- ----------- ----------
------------ ---------- ------------ --------- ----------- ----------
ADDITIONAL DEFERRED
PAID-IN COMPEN- ACCUMULATED
CAPITAL SATION DEFICIT TOTAL
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995..................... $23,812,105 $(1,180,734) $(32,400,329) $(9,703,023)
Sale of Series E Preferred Stock............. 149,539 150,000
Issuance of Series F-1 Preferred Stock....... 299,849 300,020
Warrant valuation for line of credit and notes 768,064 768,064
Warrant valuation for Convertible Promissory
Notes..................................... (68,474) (68,474)
Conversion of Series A Preferred Stock....... 18,229 -
Conversion of Series B Preferred Stock....... 6,913 -
Conversion of Series C Preferred Stock....... 3,022 -
Conversion of Series F-1 Preferred Stock..... (515) -
Conversion of Series E Preferred Stock....... 2060 -
Conversion of Convertible Promissory Notes,
net of financing costs of $131,010.......... 8,918,954 8,933,299
Initial public offering, net of offering
costs of $2,078,225......................... 17,901,775 17,921,775
Preferred stock dividend..................... 7,296,844 7,296,844
Stock issued through Employee Stock Purchase
Plan...................................... 13,512 13,548
Amortization of deferred compensation........ 340,066 340,066
Deferred compensation adjustment, canceled
options................................... (261,200) 261,200 -
Exercise of stock options.................... 65,977 66,376
Net loss for the year........................ (14,783,591) (14,783,591)
------------- -------------- -------------- --------------
Balance at December 31, 1996..................... 58,926,654 (579,468) (47,183,920) 11,234,904
Amortization of deferred compensation........ 273,864 273,864
Deferred compensation adjustment, canceled
options................................... (35,800) 35,800 -
Exercise of stock options.................... 79,004 79,651
Common stock issued for services............. 14,376 14,391
Discount valuation for convertible
debentures................................ 318,182 318,182
Valuation of issued options and warrants..... 280,450 280,450
Warrant valuation for note payable........... 78,800 78,800
Stock issued through Employee Stock Purchase
Plan...................................... 7,920 7,970
Net loss for the year........................ (5,635,134) (5,635,134)
------------- -------------- -------------- --------------
Balance at December 31, 1997..................... 59,669,586 (269,804) (52,819,054) 6,653,078
Amortization of deferred compensation........ 185,404 185,404
Deferred compensation adjustment, canceled
options................................... (24,000) 24,000 -
Exercise of stock options and warrants....... 261,097 262,210
Conversion of convertible debentures......... 1,330,882 1,343,483
Valuation of issued warrants................. 488,750 488,750
Common stock issued for asset purchase....... 621,812 625,000
Stock issued through Employee Stock Purchase
Plan...................................... 38,165 38,397
Net loss for the year........................ (4,520,229) (4,520,229)
------------- -------------- -------------- --------------
Balance at December 31, 1998..................... $62,386,292 $(60,400) $(57,339,283) $ 5,076,093
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
</TABLE>
See accompanying notes.
9
<PAGE>
GALAGEN INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $ (4,520,229) $ (5,635,134) $(14,783,591)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation expense................................... 238,918 264,741 68,797
Deferred expense amortization.......................... 112,893 - -
Amortization of warrants issued for services........... 230,259 62,284 768,064
Noncash interest cost of convertible debentures........ 464,998 81,378 -
Deferred compensation amortization..................... 185,404 273,864 340,066
Preferred stock dividend ................................ - - 7,296,844
Stock issued for services and license agreement.......... - 14,391 -
Changes in operating assets and liabilities:
Inventory............................................ (237,634) - -
Accounts receivable.................................. (314,579) - -
Prepaid expenses..................................... (82,171) (31,738) (5,571)
Other assets......................................... - - 123,967
Accounts payable and accrued expenses................ 381,287 (1,081,934) 55,612
------------ ------------ -----------
Net cash used in operating activities.....................
(3,540,854) (6,052,148) (6,135,812)
------------ ------------ -----------
INVESTING ACTIVITIES:
Purchase of property and equipment........................ (89,840) (279,005) (1,457,354)
Payment for asset purchase................................ (141,363) - -
Sale/purchase of available-for-sale securities, net....... 7,511,619 (13,276) (7,498,343)
------------ ------------ -----------
Net cash provided by(used in) investing activities........ 7,280,416 (292,281) (8,955,697)
------------ ------------ -----------
FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of offering costs - - 17,921,775
Proceeds from sale of preferred stock .................... - - 450,020
Proceeds from common stock options exercised............. 262,210 79,651 66,376
Proceeds from borrowings from investors.................. - - 500,000
Proceeds from convertible notes, net of issuance costs.... - 1,380,919 -
Net proceeds(payment) from(on) note payable............... (114,344) 1,162,248 -
Payment to investors on borrowings........................ - - (500,000)
Proceeds from Employee Stock Purchase Plan................ 38,397 7,970 13,548
------------- ------------ -------------
Net cash provided by financing activities................. 186,263 2,630,788 18,451,719
------------ ------------ ------------
Increase (decrease) in cash............................... 3,925,825 (3,713,641) 3,360,210
Cash and cash equivalents at beginning of year............ 155,908 3,869,549 509,339
------------ ------------- --------------
Cash and cash equivalents at end of year.................. $ 4,081,733 $ 155,908 $ 3,869,549
------------ ------------- --------------
------------ ------------- --------------
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Discount valuation for convertible debentures............ $ - $ 318,182 $ -
Valuation of issued options and warrants ................. 488,750 359,250 -
Stock issued for asset purchase........................... 625,000 - -
Conversion of note payable to operating lease............. 1,047,904 - -
Deferred compensation adjustment, canceled options........ 24,000 35,800 261,200
Conversion of convertible promissory notes plus related
accrued interest, to common stock....................... 1,343,483 - 8,864,825
</TABLE>
See accompanying notes.
10
<PAGE>
GALAGEN INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
GalaGen Inc. is a nutritional products company that is utilizing its
proprietary immune-enhancing ingredients and patented manufacturing processes
to commercialize health-promoting foods and beverages. These immune-enhancing
ingredients, including Proventra-TM- Brand Natural Immune Components
("Proventra"), are comprised of antibodies and other proteins that are
derived from the milk collected in the first few milkings of a dairy cow
after its calf is born. The Company continues to expand applications for its
technology and is developing a portfolio of immune-enhancing products that
target the needs of consumers and the healthcare market. In December 1998,
the Company acquired a developed line of critical care enteral nutrition
products and formulas from Nutrition Medical, Inc. ("NMI"). These products
are being sold to the hospital and home healthcare industries. The Company
operates in a single business segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE
Prior to 1998 the Company was a development stage company.
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 financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment.
PRODUCT DEVELOPMENT COSTS
All product development costs are charged to operations as incurred.
NET LOSS PER SHARE
Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
("Statement 128"). Under Statement 128, basic earnings per share is
computed by dividing the net loss by the weighted average number of common
shares outstanding for the year. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock and resulted in
the issuance of common stock. Basic and diluted earnings per share are the
same in all years presented as all potential common shares were antidilutive.
11
<PAGE>
INCOME TAXES
Income taxes are accounted for using the liability method. Deferred
income taxes are provided for temporary differences between financial
reporting and tax bases of assets and liabilities.
CASH EQUIVALENTS
Cash equivalents are available-for-sale and are carried at cost which
approximates fair market value.
INVESTMENTS
Investments in debt securities with a remaining maturity of more than
three months at the date of purchase are classified as marketable securities.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities were classified as available-for-sale as of
December 31, 1997. The book value of the investments approximated their
estimated market value.
INVENTORY
Inventories are stated at the lower of cost or market using the
first-in, first-out method. The Company evaluates the need for reserves
associated with obsolete inventory as needed. Inventory at December 31
consisted of the following:
<TABLE>
<CAPTION>
1998
-------------------
<S> <C>
Finished goods.................................. $ 235,155
Raw materials and supplies...................... 67,995
-------------------
$ 303,150
-------------------
-------------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives of three to seven
years.
IMPAIRMENT
The Company evaluates its long-lived assets for impairment losses when
indicators of impairment are present by comparing the non-discounted cash
flows to the asset's carrying amount. An impairment loss is recorded if
necessary. In management's opinion, no impairment exists on December 31,
1998.
CUSTOMER LIST
Customer list represents the value of the acquired customer database.
The customer list is amortized over the useful life of the asset.
GOODWILL
Goodwill represents the excess of purchase price and related costs over
the value assigned to the net assets acquired. Goodwill is amortized on a
straight-line basis over two-years because of the limited history of the
product line acquired.
12
<PAGE>
STOCK BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION ("Statement 123"), but applies Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and
related interpretations in accounting for its stock plans. Under APB 25,
when the exercise price of stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
3. RELATED PARTY TRANSACTIONS
During 1992, the Company entered into the following agreements with Land
O'Lakes, which are still in effect:
ROYALTY AGREEMENT
The Company will pay to Land O'Lakes a royalty on net receipts from any
product, other than infant formula, which is based on existing technology or
technology improvements, as defined by the agreement. The Company will pay
an additional royalty on net receipts from infant formula based on existing
or improved technology and an additional royalty on net receipts from infant
formula based on new technology, as defined by the agreement. This agreement
will continue until terminated by both parties. Royalty payments range from
one to two percent of net receipts.
LICENSE AGREEMENT
The Company has licensed to Land O'Lakes the rights to use the Company's
existing technologies and technology improvements, as defined by the
agreement, for Land O'Lakes' use in animal products, functional foods and
infant formula. The Company received a lump sum license fee. The Company has
agreed not to compete for fifteen years in the area of animal products and
functional foods based on milk and colostrum based immunoglobulin technology.
Land O'Lakes has agreed not to compete for fifteen years in the areas of
prescription drugs and over-the-counter drugs regulated by the Food and Drug
Administration. The term of this agreement is perpetual.
In March 1997, Land O'Lakes granted a five-year license, an amendment to
the license above, in the area of functional foods to use existing technology
and future technology improvements in the development, formulation,
manufacture, marketing, distribution and sale of kefir-based products, as
defined in the granted license. In consideration of granting the Company
this license, Land O'Lakes will receive a royalty of five percent from food
components or ingredients sold by the Company to be included in a kefir-based
product and one percent of net receipts from a kefir-based finished product
sold by the Company.
In March 1998, the Company and Land O'Lakes signed an amended and
restated license agreement in which the Company has significantly broadened
its rights to develop and market functional foods. Under the restated
license agreement, the Company can use, improve, exploit, license or share
existing technology, technology improvements and new technologies, as
defined, in all areas except under certain "reserved food" and "first refusal
food product" categories.
SUPPLY AGREEMENT
The Company has entered into an agreement with Land O'Lakes whereby the
Company will purchase and Land O'Lakes will supply, at their option, all of
the Company's commercial requirements for colostrum and milk. As part of this
agreement, Land O'Lakes will provide expertise in dairy herd selection,
on-farm management, membership relations and procurement to the Company for
the manufacture of antibody material. The agreement will last for ten years
and Land O'Lakes, at its sole discretion, has the option to extend the
agreement for an additional ten years.
13
<PAGE>
MASTER SERVICES AGREEMENT
The Company has entered into an agreement with Land O'Lakes whereby the
Company may purchase services from Land O'Lakes for certain administrative
and research and development activities. This agreement will enable the
Company to access expertise, on an as-needed basis, from Land O'Lakes. The
agreement terminated on December 31, 1992, but has been renewed annually and
is currently extended through December 31, 1999. The Company was charged
approximately $375,000, $442,000 and $682,000 in 1998, 1997 and 1996,
respectively, in accordance with the Master Services Agreement.
Subsequent to 1992, the Company and Land O'Lakes have entered into other
related party agreements as noted below:
In December 1995 and January 1996, Land O'Lakes purchased 169,230 shares
of Series E preferred stock at $3.35 per share.
In January 1996, the Company entered into a $2.7 million line of credit
agreement with a commercial bank, which expired with the closing of the
Company's initial public offering (the "Offering"). Loans under this line of
credit were guaranteed by six parties and the guarantee was collateralized by
letters of credit posted by them in the aggregate amount of $2.7 million. In
consideration for the guarantees and letters of credit posted by these
parties, the Company issued warrants to purchase an initial aggregate of
162,011 shares of common stock at $7.00 per share. In connection with this
transaction Land O'Lakes guaranteed $500,000 of the $2.7 million line of
credit, and in exchange received a warrant to purchase 30,002 shares of
common stock at $7.00 per share. See Note 9.
In June 1996, the Company entered into a five-year lease agreement with
Land O'Lakes for specified space within the Land O'Lakes facility in
connection with the Company's manufacturing facility. See Note 10.
In December 1996, the Company entered into an equipment operating lease
which was guaranteed by Land O'Lakes. See Note 10.
4. STOCK
INITIAL PUBLIC OFFERING
GalaGen Inc. consummated an initial public offering on April 1, 1996,
which consisted of 2,000,000 shares of common stock at a $10 per share price
to the public. All of the Company's preferred stock mandatorily converted
into common stock immediately prior to the closing of the Offering. The
2,500,000 shares of Series A preferred stock, 1,234,748 shares of Series B
preferred stock and 551,000 shares of Series C preferred stock that were
outstanding prior to the Offering were converted into 677,063, 543,413 and
248,758 shares of common stock, respectively, upon the closing of the
Offering. The $8,275,000 of Convertible Promissory Notes to investors, plus
accrued interest, that were outstanding prior to the Offering converted into
shares of Series D preferred stock and simultaneously into 1,434,495 shares
of common stock upon the closing of the Offering. The 338,461 shares of
Series E preferred stock and 34,287 shares of Series F stock outstanding
prior to the Offering were converted into 178,568 and 85,717 shares,
respectively, of common stock upon the closing of the Offering.
PREFERRED STOCK DIVIDEND
The Series D preferred stock, Series E preferred stock and Series F-1
preferred stock converted into common stock at 70% of the Offering price.
These reductions in the conversion prices to 70% of the Offering price were
valued at $7,296,844 and recorded as a non-cash preferred stock dividend to
arrive at the net loss available to holders of common stock in the
calculation of net loss per share.
14
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
In March 1996, the Company adopted the Employee Stock Purchase Plan
whereby 270,833 shares of common stock have been reserved. All employees who
have met the service eligibility requirements are eligible to participate and
may direct the Company to make payroll deductions of one to 10 percent of
their compensation during a purchase period for the purchase of shares under
the plan. Participants may purchase up to 5,000 shares of common stock for a
given calendar year provided the fair market value of the stock is not more
than $25,000 (determined at the beginning of each purchase period). The plan
provides a participating employee the right, subject to certain limitations,
to purchase the Company's common stock at a price equal to the lower of 85%
of the fair market value of the Company's common stock on the first day, or
the last day, of the applicable purchase period. The first purchase period
commenced on July 1, 1996 and ended on December 31, 1996, of which 3,642
shares of common stock were issued to employees for $13,548. In May 1997, the
Employee Stock Purchase Plan was amended by stockholders to have two six
month purchase periods beginning on January 1 and July 1 of each year. In
1998, 20,004 shares of common stock were purchased and issued to employees
and in 1997, 8,279 shares of common stock were purchased of which 3,270 and
5,009 were issued to employees in 1998 and 1997, respectively.
5. CRITICAL CARE PRODUCTS ASSET PURCHASE
In September 1998, the Company entered into an asset purchase agreement
with NMI to acquire NMI's developed line of critical care enteral nutrition
products and formulas. The asset purchase agreement closed in December 1998.
GalaGen purchased substantially all of NMI's critical care enteral nutrition
products and formulas, all related inventory valued at $65,516, certain other
fixed assets valued at $31,000 and the existing customer base of over 500
hospitals and home healthcare facilities valued at $450,000. Total
consideration for the transaction was $696,516, exclusive of closing costs of
$69,847, comprised of $71,516 cash and 318,800 shares of the Company's common
stock which was valued at $625,000. Goodwill of $219,847 was recorded and
will be amortized over a two-year period beginning in January 1999. The
Company will pay to NMI a royalty of nine percent of net U.S. sales, as
defined, of the critical care products in excess of (i) $5,000,000 during the
year ending December 31, 2000, (ii) $6,000,000 during the year ending
December 31, 2001, and (iii) $7,500,000 during the year ending December 31,
2002. Additionally, the Company will pay to NMI a royalty on international
sales, as defined, of the critical care products of (i) five percent of
net international sales in excess of $200,000 during the year ending on the
first anniversary of the closing date, and (ii) two and one half percent
of net international sales in excess of $200,000 during the year ending on
the second anniversary of the closing date.
6. AMERICAN HOME PRODUCTS CORPORATION AGREEMENT
In October 1998, the Company entered into a collaboration and license
agreement and a manufacturing and supply agreement with Wyeth-Ayerst
Laboratories, a division of American Home Products Corporation ("AHP"). The
two companies will develop and commercialize a proprietary ingredient with
unique antibacterial properties for use in pediatric formula and other
nutritional products. The companies will collaborate during the research and
development phase of the product, which will be funded by Wyeth-Ayerst,
through payments to the Company. Additionally, Wyeth-Ayerst will have
financial and oversight responsibilities for all clinical trials and
regulatory compliance related to the use of the ingredient in pediatric
formula products. Wyeth-Ayerst will have worldwide rights to the use of the
ingredient in its pediatric formula and other nutritional products. The
Company will retain its right to manufacture the ingredient and has the right
to request a sublicense from Wyeth-Ayerst to develop and commercialize
non-pediatric formula nutritional products. The Company received a $250,000
licensing fee and a $300,000 research and development advance from AHP. The
Company has recorded the $250,000 as licensing revenue and the $300,000 as a
contract payable which will be amortized to research and development revenue
when the Company incurs the associated expenses. In 1998, $9,911 of the
advance was amortized and recorded as research and development revenue.
Seven-year warrants were issued to AHP to purchase 200,000 shares of common
stock at $2.45 per share. The fair value of the warrant was $250,000, which
the Company is amortizing over the 2-year term of the research and
15
<PAGE>
development program. In 1998, $31,250 was amortized.
7. OPERATING LEASE
In June 1997, the Company established a note payable for approximately
$1,319,000 for fixed assets with Transamerica Business Credit Corporation
("Transamerica") of which $1,162,248 was outstanding at December 31, 1997.
In June 1998, the Company converted the note payable into an operating lease.
At the time of the conversion the net book value of the associated assets
approximated the note payable balance. Terms of the operating lease include
monthly payments through May 2001 of approximately $36,000 with a final
payment of $165,000 in June 2001. The operating lease is secured by the
Company's property and equipment. Transamerica received a warrant for 40,000
shares of common stock exercisable at $2.50 per share. The warrant was
valued at approximately $79,000 and was amortized to interest expense over
the term of the note payable.
8. CONVERTIBLE DEBENTURES
In November 1997, the Company raised $1,500,000 through the private
placement sale of 6% convertible debentures (the "Debentures") to three
institutional investors pursuant to Regulation D under the Securities Act of
1933. The principal and interest of the Debentures can be converted into
shares of the Company's common stock at 82.5% of the lowest closing bid price
of the Company's common stock three days prior to conversion. An aggregate
maximum of 1,400,000 discounted shares of common stock (the "Discounted
Shares") can be issued upon the conversion of the Debentures, with each
investor owning at any given time a maximum of 4.99% of the then issued and
outstanding shares of common stock. If there remains any unconverted
principal and accrued interest due to all the Discounted Shares being issued,
the Company has the obligation to repay the investors, in the aggregate, a
maximum principal of $500,000. The Debentures automatically convert into the
Discounted Shares eighteen months from the closing date. Five-year warrants
were issued to the investors to purchase, in the aggregate, 200,000 shares of
common stock at 110% of the market value of the common stock on the closing
date. The value of the warrants plus the value of the discount of the
Discounted Shares was $500,182, which the Company is amortizing over the term
of the Debentures to interest expense. In 1998 and 1997, $421,515 and $72,000
was amortized and recorded as interest expense, respectively. A deferred
expense was recorded for $144,467, which represents costs associated with
closing the Debentures. These deferred expenses are being amortized until the
Debentures are converted into Discounted Shares. In 1998 and 1997, $112,893
and $9,378 was amortized and recorded as an expense, respectively. In 1998,
$1,300,000 of Debenture principal plus accrued interest was converted into
1,260,073 shares of common stock. In 1998, 73,000 shares of common stock
were issued pursuant to warrant exercises. The net carrying value of the
Debentures approximates fair market value. In connection with this private
placement, the Company reserved 1,400,000 shares of common stock for issuance
for the Discounted Shares and 200,000 shares of common stock for issuance for
the warrants.
9. OPTIONS AND WARRANTS
STOCK OPTION PLAN
The Company has established a 1992 Stock Plan (the "1992 Plan") and a
1997 Incentive Plan (the "1997 Plan"), under which both incentive and
non-qualified options may be granted, which have reserved 880,210 and
1,250,000 shares of common stock, respectively, for issuance. The Company
uses these plans as an incentive for employees, directors and technical
advisors. Stock awards in the aggregate of 100,000 shares of common stock
may also be granted under the 1997 Plan. Options are granted at fair market
value as determined on the date of grant and normally vest over three to five
years.
16
<PAGE>
The following plan and non-plan options are outstanding at December 31,
1998:
<TABLE>
<CAPTION>
NON WEIGHTED
1992 PLAN 1997 PLAN PLAN AVERAGE
OPTIONS OPTIONS OPTIONS OPTION
OUTSTANDING OUTSTANDING OUTSTANDING PRICE
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995....... 351,133 154,371 $5.67
Granted........................... 477,476 57,003 4.68
Exercised......................... (39,902) - 1.66
Canceled.......................... (118,479) (25,730) 7.36
--------------- --------------
Balance at December 31, 1996....... 670,228 185,644 4.74
Granted........................... - 379,300 - 3.96
Exercised......................... (51,162) - (13,541) 1.23
Canceled.......................... (69,335) (60,000) (4,334) 4.51
--------------- -------------- --------------
Balance at December 31, 1997....... 549,731 319,300 167,769 4.96
Granted........................... 475,088 798,962 166,687 2.70
Exercised......................... (27,248) (10,000) (1,082) 2.37
Canceled.......................... (682,533) (355,540) (208,524) 4.54
--------------- -------------- --------------
Balance at December 31, 1998....... 315,038 752,722 124,850 $2.79
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- --------------------------------
WEIGHTED-AVERAGE WEIGHTED WEIGHTED AVERAGE
RANGE OF EXERCISE NUMBER REMAINING AVERAGE NUMBER EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
------------------- ------------------ ------------------- ----------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 1.50 6,000 9 years $ 1.50 6,000 $ 1.50
2.19 25,000 10 years 2.19 - -
2.38 66,000 10 years 2.38 10,000 2.38
2.56 677,347 7 years 2.56 393,145 2.56
3.13 384,722 10 years 3.13 - -
3.25 20,000 8 years 3.25 15,000 3.25
7.39 13,541 5 years 7.39 13,541 7.39
------------------ --------------
$1.50 - 7.39 1,192,610 $2.79 437,686 $2.72
</TABLE>
Options expire in five years and three months to ten years from the
original grant date. Fully vested and exercisable options were 437,686,
355,349 and 189,986 as of December 31, 1998, 1997 and 1996, respectively. The
weighted average exercise prices for the fully vested and exercisable options
as of December 31, 1998, 1997 and 1996 were $2.72, $4.86 and $3.80,
respectively. In May 1997, the Company granted options for 20,000 shares of
common stock to two consultants for services provided, of which 15,000 are
fully vested. In August 1997, a consultant was granted a stock award, based
upon the value of the common stock at the date of grant, from the 1997 Plan
of 1,493 shares of common stock in exchange for services provided. In
September and October 1998, a consultant was granted ten-year options from
the 1997 Plan for 35,000 shares of common stock at fair market value of the
date of grant for services to be provided, of which 10,000 are fully vested.
WARRANTS
In connection with the June 1994 to October 1995 Convertible Promissory
Notes (the "Notes") issuance of $8,275,000, each Note holder received a
warrant, exercisable at $11.07 per share, to purchase that number of shares
of common stock equal to 20% of the principal amount of such holder's Note
divided
17
<PAGE>
by $11.07. The Company granted warrants to purchase 149,384 shares of the
Company's common stock. These warrants expire five years from the date of
grant, which expiration dates range from June 1999 to October 2000.
In March 1995, Chiron was issued warrants to purchase 200,000 shares of
the Company's Series F preferred stock for which the Company was paid
$150,000. The Company issued the warrants to purchase 200,000 shares of
Series F preferred stock to Chiron as follows: (i) warrant to purchase 17,144
shares of Series F-1 preferred stock, exercise price of $17.50 per share
(pre-Offering) or $24.00 per share (post-Offering); (ii) warrant to purchase
42,856 shares of Series F-2 preferred stock, exercise price of $18.70 per
share (pre-Offering) or $27.00 per share (post-Offering); (iii) warrant to
purchase 60,000 shares of Series F-3 preferred stock, exercise price of
$25.00 per share (pre-Offering) or $33.00 per share (post-Offering); and (iv)
warrant to purchase 80,000 shares of Series F-3 preferred stock, exercise
price of $25.00 per share (pre-Offering) or $36.00 per share (post-Offering).
If, after the Company's Offering, the market value (as defined in the
purchase agreement for the warrants) of a share of common stock is less than
the stated post-Offering exercise price of any such warrant, the exercise
price is reduced to such per share market value and the number of shares of
common stock covered by the warrant are increased proportionately. Based upon
the warrant agreements, the ceiling price for the warrants described in
clauses (ii), (iii) and (iv) above were set at the closing of the Offering at
$10.11, $9.24 and $10.08, respectively, per share of common stock. Chiron
exercised the warrant described in clause (i) above in March 1996 which
converted into 42,860 shares of common stock at the closing of the Company's
Offering. Assuming the remaining three warrants were exercised in full on
December 31, 1998, 3,418,813 shares of the Company's common stock would have
been issued upon such exercise. The exercise price is based upon the twenty
day average of the average of the high and low closing market prices, as
reported by Nasdaq National Market, prior to December 31, 1998, which is
calculated at $1.76 per share. The warrants expire on the earlier of six
years from the date of issuance or 120 days after the warrant holder receives
notice from the Company of the occurrence of certain defined milestone
events.
In January 1996, the Company granted warrants to purchase 162,011 shares
of common stock at $7.00 per share to six parties, one of which is a company
which has a representative on the Company's Board which received a warrant to
purchase 30,002 shares of common stock, in return for their guarantee on the
Company's $2.7 million line of credit. The Company also granted warrants to
purchase 7,500 and 22,501 shares of the Company's common stock at $7.00 per
share to certain investment funds associated with a representative on the
Company's Board in return for their issuance of two convertible promissory
notes totaling $500,000. These warrants expire February 2001. The fair value
of the warrants was $768,064 which was recorded as interest expense in 1996.
In March 1997, the Company issued warrants to purchase 10,000 shares of
common stock, granted at $2.15, which was the fair market value on the date
of grant, for certain services to be rendered. The warrant expires in March
2002. The fair value of the warrant, approximately $5,000, was amortized and
expensed in 1997.
In December 1997, the Company issued five-year warrants to financial
consultants to purchase 25,000 and 40,000 shares of common stock at $2.50 and
$3.00, respectively, which was greater than the market value of the common
stock at the date of grant. These warrants have a fair value of $50,450
which is being amortized over the term of the consulting relationship.
In April, June and September 1998, the Company issued five-year warrants
to purchase 75,000, 25,000, 25,000 and 12,500 shares of common stock at
$1.38, $2.63, $3.00 and $1.81 per share, respectively, to an officer and
director of the Company for services performed while under a consulting
agreement. The fair value of the warrants is $68,750, which the Company has
amortized over the term of the consulting agreement.
18
<PAGE>
In August 1998, five-year warrants were issued to individuals of an
investor relations firm to purchase 50,000 shares of common stock at $3.125
per share. The fair value of the warrants is $100,000, which the Company is
amortizing over the term of the investor relations agreement.
A summary of the warrants follow:
<TABLE>
<CAPTION>
WARRANTS
GRANTED TO: OUTSTANDING EXPIRATION DATE GRANT PRICE
---------------------------------------- ---------------- ----------------------------- -------------------
<S> <C> <C> <C>
Convertible Promissory Note Holders 149,384 June 1999 - October 2000 $11.07
Chiron Corporation 3,418,813 March 2002 $1.76
Line of Credit Guarantors 192,012 February 2001 $7.00
Consultants 10,000 March 2002 $2.13
TransAmerica 40,000 June 2002 $2.50
Debenture Holders 127,000 November 2002 $2.34
Financial Consultants 65,000 December 2002 $2.50 - $3.00
Officer and Director 137,500 April-September 2003 $1.38 - $3.00
Investor Relations 50,000 August 2003 $3.13
American Home Products Corporation 200,000 October 2005 $2.45
----------------
4,389,709
----------------
----------------
</TABLE>
STOCK OPTION AND WARRANT AGREEMENT REVISIONS
In August 1996, the Company canceled all common stock option agreements
totaling 57,715 shares of common stock under the 1992 Plan and 18,958 shares
of common stock outside of the 1992 Plan, with the exception of officer and
director options, that were issued with a grant price greater than the fair
market value at the date of re-grant and issued new stock option agreements
with the same terms and conditions except that the grant prices were $5.375
per share.
In May 1998, the Company canceled all directors and employees common
stock option agreements, totaling 941,075 shares of common stock under the
1992 Plan, the 1997 Plan and nonplan options, that were issued with a grant
price greater than the fair market value at the date of re-grant. New stock
option agreements were issued with an exercise price of $2.56 per share and a
ten year term.
STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 in accounting for its employee
stock options. Under APB 25, if the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net loss and loss per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of Statement 123. The
fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996: risk-free interest rates approximating
5.0%, 6.2% and 6.2%, respectively; volatility factor of the expected market
price of the Company's common stock ranging from .3 to 1.08 for all three
years and a weighted-average expected life of the option of two to seven
years for all three years. The weighted average fair value of the options
granted in 1998, 1997 and 1996 is $2.36, $2.16 and $2.54 per share,
respectively, as computed as described above.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion,
19
<PAGE>
the existing models may not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ ------------------
<C> <C> <C>
Pro forma amortized expense.............. $ 566,859 $ 435,589 $ 165,762
Pro forma net loss applicable
to common stockholder................... $ (5,087,088) $ (6,070,723) $ (14,949,353)
Pro forma net loss per common share,
Basic and Diluted....................... $ (0.63) $ (0.84) $ (2.26)
</TABLE>
The pro forma effect on net loss for 1998, 1997 and 1996 is not
representative of the pro forma effect on net loss in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
DEFERRED COMPENSATION
In December 1995, the Company canceled certain stock option agreements
within the Plan and certain stock options that were outside of the Plan that
had grant prices ranging from $7.38 per share to $11.07 per share and issued
new stock option agreements with the same terms and conditions except that
the grant prices were $3.69 per share. The Company recorded $1,657,000 as
deferred compensation for the difference between the new grant price per
share of common stock and the fair market value of the common stock per share
on the date of grant, as determined by the board of directors, multiplied by
the total number of options affected. In December 1998, 1997 and 1996, the
Company adjusted the deferred compensation balance by $24,000, $35,800 and
$261,200 to account for terminated employee options that were not vested. The
deferred compensation is amortized ratably over the vesting period of the
options. In 1998, 1997 and 1996, $185,404, $273,864 and $340,066 was
amortized, respectively. The remaining deferred compensation of $60,400 will
be amortized in 1999.
10. COMMITMENTS
The Company has commitments under the following agreements:
LICENSE AGREEMENTS
In August 1998, the Company received a $250,000 fee from a company for
the re-licensing of previously licensed technology. Pursuant to this
agreement, the Company is entitled to receive royalties on the net sales of
certain GalaGen ingredients and certain GalaGen nutritional products that
incorporate their technology.
In March 1995, the Company entered into a License and Collaboration
Agreement with Chiron Corporation involving the licensing of Chiron adjuvant
technology for certain products. Pursuant to this agreement, Chiron has
granted an exclusive worldwide license for certain of Chiron's proprietary
adjuvant technology to the Company for which the Company issued 17,143 shares
of its Series F-1 preferred stock to Chiron. See Note 9.
The royalties on the above agreements range from one-half to five
percent, depending on the volume, of certain net sales.
20
<PAGE>
OTHER AGREEMENTS
A three-year service agreement that began in 1996 for specified raw
material preparation assistance requires payments of approximately $14,000
in 1999.
A twelve month contract that began in August 1998 for various consulting
and public relations services requires payments of approximately $56,000 in
1999.
A twelve month contract that began in September 1998 for international
sales consulting services requires payments of approximately $54,000 in 1999.
The contract also calls for sales commissions equal to the lower of 20% of
net international sales of the acquired NMI product line, or 50% of gross
margin on net international sales, as defined in the agreement.
LEASE COMMITMENTS
The Company leases certain office equipment under an operating lease.
During June 1996, the Company entered into a five-year lease agreement
with Land O'Lakes for specified space within the Land O'Lakes facility in
connection with the Company's manufacturing facility. The lease calls for
annual payments of approximately $87,000 and can be extended for additional
one-year periods at the option of the Company.
In December 1996, the Company entered into an operating lease with
Cargill Leasing Corporation for $835,393 of manufacturing equipment for the
Company's plant facility. Lease payments of approximately $11,000 per month
will continue for a period of seven years with the Company's option to extend
for an additional 12 months. The rental percentage was computed on a
weighted average of the 30-day LIBOR rate and the rate on five-year U.S.
Treasury Notes. The lease is guaranteed by Land O'Lakes.
In June 1998 the Company entered into an operating lease with
Transamerica which calls for monthly payments of approximately $36,000 until
May 2001, with a final payment of $165,000 due June 2001. See Note 7.
The total lease expense was $441,972, $199,808 and $3,133, respectively,
for the years ended December 31, 1998, 1997, and 1996. The future minimum
annual lease payments are as follows:
<TABLE>
<S> <C>
1999............................................. $ 628,000
2000............................................. 628,000
2001............................................. 510,000
2002............................................. 131,000
2003............................................. 131,000
-----------------
$2,028,000
-----------------
-----------------
</TABLE>
21
<PAGE>
11. INCOME TAXES
Prior to the effective date of the merger with Procor, GalaGen's losses
were utilized by Land O'Lakes in its consolidated tax return. Subsequent to
the effective date of the merger and through December 31, 1998, GalaGen has
operating loss carryforwards to offset future taxable income of approximately
$36,300,000 which begin to expire in 2007. No benefit has been recorded for
such loss carryforwards, and utilization in future years may be limited, if
significant ownership changes have occurred.
Components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Loss carryforwards......................... $ 13,445,000 $ 12,000,000 $ 9,968,000
Research and development tax credit
carryforwards........................... 894,000 791,000 566,000
Deferred compensation...................... 472,000 403,000 302,000
-------------- -------------- --------------
$ 14,811,000 $ 13,194,000 $ 10,836,000
Less valuation allowance................... (14,811,000) (13,194,000) (10,836,000)
-------------- -------------- --------------
Net deferred tax assets.................... $ - $ - $ -
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
GalaGen Inc.
We have audited the accompanying balance sheets of GalaGen Inc. as of
December 31, 1998, and 1997, and the related statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of GalaGen's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of GalaGen Inc. at
December 31, 1998 and 1997 and the results of its operations and cash flows
for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
January 22, 1999
23
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1998
and 1997 and for each of the three years in the period ended December 31,
1998 are derived from the financial statements of the Company which have been
audited by Ernst & Young LLP, independent auditors, and are included herein.
The selected financial data as of December 31, 1996, 1995 and 1994 and for
each of the two years in the period ended December 31, 1995 are derived from
audited financial statements which are not included herein. The data set
forth below should be read in conjunction with the financial statements and
notes thereto included in the appendix and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", included above.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE NUMBERS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenues....................................... $ 876 $ - $ - $ 150 $ -
Operating costs and expenses:
Cost of goods sold........................... 244 - - - -
Selling, general and administrative.......... 2,235 1,541 1,480 1,417 1,645
Product development.......................... 1,914 3,760 5,258 3,731 3,442
Depreciation and amortization................ 768 601 409 605 75
Operating loss................................. (4,285) (5,902) (7,147) (5,603) (5,162)
Interest income................................ 338 448 605 31 28
Interest expense............................... (573) (181) (945) (507) (260)
Net loss before extraordinary gain............. (4,520) (5,635) (7,487) (6,079) (5,394)
Extraordinary gain on extinguishment of
debt ........................................ - - - 605 -
Net loss for the period........................ (4,520) (5,635) (7,487) (5,474) (5,394)
Preferred stock dividend (1)................... - - (7,297) - -
Net loss applicable to common stockholders..... $ (4,520) $ (5,635) $ (14,784) $ (5,474) $ (5,394)
Net loss per share applicable to common
stockholders
Basic and Diluted............................ $ (.56) $ (.78) $ (2.24) $ (2.87) $ (2.89)
Weighted average number of common shares
outstanding
Basic and Diluted............................ 8,067,564 7,184,722 6,604,902 1,904,059 1,866,561
<CAPTION>
DECEMBER 31
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 4,082 $ 156 $ 3,870 $ 509 $ 430
Available-for-sale securities (2)............ - 7,512 7,498 - -
Accounts receivable, net of allowance...... 315 - - - -
Inventory.................................. 303 - - - -
Working capital (deficiency)............... 3,725 7,028 9,776 (1,033) (846)
Total assets............................... 6,293 9,530 12,959 818 686
Note payable (3)........................... - 1,162 - - -
Accrued expenses payable to Land O'Lakes - - - 225 26
Convertible notes (4)...................... 193 1,072 - 8,199 5,707
Total liabilities.......................... 1,217 2,877 1,724 10,521 7,278
Stockholders' equity (deficiency).......... 5,076 6,653 11,235 (9,703) (6,592)
</TABLE>
- ---------------
Net loss per share applicable to common stockholders has been restated to
comply with the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE. See Note 2 of the Notes to the Financial Statements
for further discussion.
24
<PAGE>
(1) See Note 4 of Notes to Financial Statements for an explanation of the
preferred stock dividend.
(2) See Note 2 of Notes to Financial Statements for an explanation of the
available-for-sale securities.
(3) See Note 7 of Notes to Financial Statements for an explanation of the
note.
(4) See Note 8 of Notes to Financial Statements for an explanation of
convertible notes.
25
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.01 per share, has been publicly
traded since the closing of the Company's initial public offering on April 1,
1996. The common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol GGEN. At March 18, 1999, the number of
holders of the common stock was approximately 1,880, consisting of 220 record
holders and 1,660 stockholders whose stock is being held by a bank, broker or
other nominee. On March 18, 1999, the closing sale price of a share of the
common stock was $1.91.
The high and low sale prices per share of the common stock for the four
quarters during the years ended December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- ---------------------------
HIGH LOW HIGH LOW
------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
First Quarter $ 2.250 $ 0.844 $ 4.625 $ 1.750
Second Quarter $ 3.313 $ 1.563 $ 3.250 $ 2.000
Third Quarter $ 4.000 $ 1.625 $ 2.750 $ 2.000
Fourth Quarter $ 3.000 $ 1.375 $ 2.375 $ 1.500
</TABLE>
The Company has never paid cash dividends on the common stock. The
Board of Directors does not anticipate paying cash dividends in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 1998, the Company has sold the
following equity securities pursuant to exemptions from registration under
the Securities Act of 1933, as amended (the "Securities Act"). All such
sales were made in reliance upon the exemptions from registration provided
under Sections 3(b) and 4(2) of the Securities Act.
1. In April, June and September 1998, the Company issued five-year
warrants to purchase 75,000, 25,000, 25,000 and 12,500 shares of common stock
at $1.38, $2.63, $3.00 and $1.81 per share, respectively, to Henry J.
Cardello, President and a director of the Company, for services performed
while under a consulting agreement with Marketing Venture of America, Inc.
The warrants were valued at fair market value on the date of grant. The fair
value of the warrants is $68,750, which the Company has amortized over the
term of the consulting agreement
2. In August 1998, five-year warrants were issued to William Young and
Rebecca Young, to purchase 50,000 shares of common stock at $3.125 per share.
The warrants were valued at fair market value on the date of grant. The fair
value of the warrants is $100,000, which the Company is amortizing over the
term of the investor relations agreement.
3. In October 1998, seven-year warrants were issued to American Home
Products Corporation to purchase 200,000 shares of common stock at $2.45 per
share, which was greater than the fair market value of the common stock on
the closing date. The fair value of the warrant is $250,000, which the
Company is amortizing over the term of the research and development program.
4. In December 1998, 318,800 shares of common stock were issued to NMI
as part of the total consideration paid for the asset acquisition from NMI.
The shares were issued at $1.96 per share, which was greater than the fair
market of the common stock on the closing date.
26
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP
We consent to the incorporation by reference in this Annual Report on Form
10-K of GalaGen Inc. of our report dated January 22, 1999, included in the
1998 Annual Report to Shareholders of GalaGen Inc.
Our audits also included the financial statement schedule of GalaGen Inc.
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 333-05415, 333-05417, 333-27031 and 333-33357) pertaining
to the GalaGen Inc. 1992 Stock Plan, Employee Stock Purchase Plan,
Non-Statutory Stock Option Agreements and 1997 Incentive Plan and in the
Registration Statements on Form S-3 (Nos. 333-71883, 333-64489 and 333-41551)
of GalaGen Inc. and in the related Prospectus of our report dated January 22,
1999, with respect to the financial statements of GalaGen Inc. incorporated
by reference in this Annual Report on Form 10-K for the year ended December
31, 1998 and the related financial statement schedule included herein, filed
with the Securities and Exchange Commission.
Ernst & Young LLP
Minneapolis, Minnesota
March 25, 1999
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,081,733
<SECURITIES> 0
<RECEIVABLES> 328,599
<ALLOWANCES> 14,020
<INVENTORY> 0
<CURRENT-ASSETS> 4,897,456
<PP&E> 671,796
<DEPRECIATION> 270,418
<TOTAL-ASSETS> 6,293,340
<CURRENT-LIABILITIES> 1,172,247
<BONDS> 0
0
0
<COMMON> 89,484
<OTHER-SE> 4,986,609
<TOTAL-LIABILITY-AND-EQUITY> 5,076,093
<SALES> 616,168
<TOTAL-REVENUES> 876,079
<CGS> 244,141
<TOTAL-COSTS> 244,141
<OTHER-EXPENSES> 4,917,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 573,043
<INCOME-PRETAX> (4,520,229)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,520,229)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,520,229)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
</TABLE>
