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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission file number 0-21478
THERAPEUTIC DISCOVERY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 94-3173191
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1454 Page Mill Rd. Suite 220, P.O. Box 10051, Palo Alto, CA 94303-0860
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 496-8200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Class A Common Stock
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]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant, as of March 14, 1997: $80,374,704
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of March 14, 1997:
Title of Class Number of Shares
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Class A Common Stock 7,734,424
Class B Common Stock 100
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III are incorporated by reference to the
definitive proxy statement for the registrant's Annual Meeting of
Stockholders to be held on May 8, 1997.
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THERAPEUTIC DISCOVERY CORPORATION FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS......................................................... 3
ITEM 2. PROPERTIES....................................................... 13
ITEM 3. LEGAL PROCEEDINGS................................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.......................................................... 15
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA).... 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................. 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 20
ITEM 11. EXECUTIVE COMPENSATION.......................................... 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K..................................................... 21
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PART I
NOTICE CONCERNING FORWARD-LOOKING STATEMENTS: Some of the statements made
in this Annual Report on Form 10-K are forward-looking in nature, including
but not limited to statements that are not historical facts and statements
including forms of the words "intend", "believe", "will", "may", "could",
"expect", "anticipate", "possible" and similar terms. The occurrence of the
events described, and the achievement of the intended results, are subject to
the future occurrence of many events which are unpredictable or outside
Therapeutic Discovery Corporation's control and various risk factors that
could cause Therapeutic Discovery Corporation's actual results to be
materially different from those anticipated in any forward-looking
statements. Many of the significant risks are described in this Annual
Report on Form 10-K and include, without limitation, risks associated with
technology and product development, risks relating to clinical development,
changes in the health care marketplace, regulatory risks, risks related to
patent and intellectual property matters, market acceptance of products
(including third-party reimbursement) and competition and the risk of a lack
of funds to complete development of products.
ITEM 1. BUSINESS
INTRODUCTION
Therapeutic Discovery Corporation ("TDC"), a Delaware corporation with its
mailing address at 1454 Page Mill Road, Suite 220, P.O. Box 10051, Palo Alto,
California, 94303-0860, was formed on November 12, 1992 by ALZA Corporation
("ALZA") for the purpose of selecting and developing new human pharmaceutical
products combining the proprietary drug delivery technologies of ALZA with
various drug compounds (the "TDC Products"), and commercializing such TDC
Products, most likely through licensing to ALZA. At the end of 1996, TDC had
a number of products at various stages of development at ALZA, including
several in clinical evaluation. The products under development incorporate
several of ALZA's drug delivery technologies.
On June 11, 1993, ALZA distributed a special dividend of units (each, a
"Unit") to ALZA stockholders (the "Distribution"), each Unit consisting of
one share of TDC Class A Common Stock and one warrant to purchase one-eighth
of one share of ALZA Common Stock at an exercise price of $65 per share.
Holders of record of ALZA Common Stock on May 28, 1993 received one Unit for
every 10 shares of ALZA Common Stock held, with cash distributed in lieu of
fractional Units. A total of 7,734,424 Units were distributed to ALZA
stockholders. In connection with the Distribution, ALZA made a $250 million
cash contribution to TDC's capital, which is being used primarily to fund the
development of TDC Products. For a discussion of the contractual
arrangements between TDC and ALZA, see "Arrangements with ALZA" below.
In accordance with TDC's Restated Certificate of Incorporation, on June
11, 1996, the units separated into their component securities--TDC Class A
Common Stock and ALZA
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warrants. As a result of the separation, both securities are listed and trade
independently on the Nasdaq Stock Market. The trading symbol for the TDC Class
A Common Stock is "TDCA".
1996 PRODUCT DEVELOPMENT ACTIVITIES
From inception through the end of 1996, TDC has invested more than $205
million in product development. During 1996, TDC focused its efforts on the
products in its pipeline with the highest commercial potential, while
reducing development activities on other products due to changes in the
marketplace and the results of initial studies. As is true throughout the
pharmaceutical industry, products in development must overcome a number of
technological, clinical, regulatory, proprietary and commercial hurdles in
order to become successful products. Development of some TDC Products has
been terminated and there can be no assurance that any or all of the products
in development by TDC, including any of those listed below, will reach the
marketplace or will become commercially successful products. In addition, if
expenditures on TDC Products continue at approximately current levels, funds
for product development will be exhausted in the second half of 1997 and at
that time TDC will not have funds to continue or complete development of such
products.
At the end of 1996, a New Drug Application for TDC's
second-generation transdermal testosterone product to follow ALZA's
existing Testoderm-Registered Trademark- product was submitted to the
United States Food and Drug Administration (the "FDA"). This product,
designed to provide physiologic testosterone replacement therapy, is a
single patch that can be worn on the arm or torso. In January of 1997,
ALZA exercised its option to license this product from TDC for 12
European countries, and ALZA entered into an agreement with Ferring N.V.
to market the product in such countries. As a result of the granting of
the license, TDC received a portion of Ferring's upfront payment to ALZA
and will receive payments from ALZA based on sales of the product in the
12 European countries covered by ALZA's agreement with Ferring. See
"Arrangements with ALZA: Product License Option" below.
Significant progress was also made in 1996 in the development of the
DUROS-TM- leuprolide human implant product and, in early 1997, an
Investigational New Drug application was filed for this product with the FDA
in anticipation of commencing clinical trials. The DUROS-TM- leuprolide
product, which is designed to administer leuprolide continuously for an
extended period, is in development for the treatment of prostate cancer.
TDC's OROS-Registered Trademark- oxybutynin product is currently in Phase
III clinical studies. The product, a once-daily dosage form, is intended for
the treatment of urge urinary incontinence and is designed to provide an
equivalent or decreased level of incontinent episodes with reduced side
effects compared to current therapies.
In the area of endocrinology, TDC has in Phase III clinical trials an
intrauterine system for the delivery of progesterone as an adjunctive therapy
to estrogen hormone
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replacement therapy in women. The product is designed to provide local
delivery of progesterone directly to the uterus for 18 up to 24 months, and
is intended to provide protection from endometrial hyperplasia while having
reduced side effects compared to oral progesterone replacement therapy.
In the area of pain management, at the end of 1996 TDC had a once-daily
OROS-Registered Trademark- hydromorphone product in Phase III development. In
February of 1997, ALZA exercised its option to license this product from TDC
for the entire world, and ALZA entered into an agreement with Knoll
Pharmaceutical Company and its parent company Knoll AG (collectively,
"Knoll") for the further clinical development and worldwide commercialization
of this product. Under the terms of its license to ALZA, TDC will receive a
portion of the amounts ALZA receives from Knoll based on worldwide sales of
the product and a portion of certain milestone payments made by Knoll to
ALZA. See "Arrangements with ALZA: Product License Option" below.
In 1996, TDC continued preclinical development on the OROS-Registered
Trademark- methylphenidate product, designed to provide once-daily dosing of
methylphenidate with a uniquely efficacious pattern of delivery for the
treatment of attention deficit disorder. Clinical studies are expected to
begin with this product in the second half of 1997.
In choosing appropriate product candidates for development, TDC and ALZA
have used a market-driven approach under which they have examined unmet
medical needs in selected therapeutic areas and then targeted cost-effective
products for development. The therapeutic areas in which TDC Products are
focused are pain management, urology, supportive therapies in oncology and
AIDS and endocrinology; however, ALZA and TDC have also pursued product
opportunities outside these therapeutic areas where ALZA's drug delivery
systems can add significant value to drug therapy. As TDC's cash available
for product development has decreased, TDC has focused less attention on
choosing additional product candidates, and correspondingly more attention on
its products already under development. By the end of 1996, TDC product
discovery activities were essentially complete.
ARRANGEMENTS WITH ALZA
TECHNOLOGY LICENSE AGREEMENT. TDC and ALZA are parties to a technology
license agreement pursuant to which ALZA granted to TDC, subject to certain
pre-existing rights, an exclusive, worldwide, royalty-free license, in
perpetuity, to use ALZA's drug delivery technology and patents (the "ALZA
Technology") solely for the development and commercialization of TDC
Products. ALZA retains the right to use ALZA Technology in any other manner
and for all other purposes.
PRODUCT DEVELOPMENT. TDC and ALZA are parties to a development agreement
(the "Development Contract") pursuant to which ALZA conducts research and
development activities on behalf of TDC in connection with the development of
TDC Products. Payments to ALZA under the Development Contract consist of the
fully-
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burdened costs (the "Development Costs") of all activities undertaken by ALZA
in connection with the development of TDC Products under work plans approved
by TDC. TDC is required to utilize all funds contributed to TDC by ALZA, plus
any investment income earned thereon, less organization costs and
administrative expenses (including reasonable reserves for TDC operations)
and the costs of the Distribution (the "Available Funds") on the development
of TDC Products. Most of TDC's Available Funds have been and will continue to
be used to reimburse ALZA for activities undertaken with respect to the
development of TDC Products. Based on TDC's current rate of expenditures on
TDC Products, it can be expected that TDC's Available Funds will be exhausted
in the second half of 1997 and product development funding by TDC will cease.
See Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
TDC owns all TDC Products. ALZA owns all technology developed or
otherwise obtained pursuant to the Development Contract ("Developed
Technology"), subject to TDC's right to use Developed Technology solely in
connection with the development and commercialization of TDC Products. Costs
incurred to obtain and maintain patents covering Developed Technology are
shared equally by TDC and ALZA during the term of the Development Contract.
ALZA owns all patents covering Developed Technology; TDC has an exclusive
license to such patents solely for use in connection with the development and
commercialization of TDC Products.
ALZA will pay royalties (the "Technology Royalties") to TDC, on a
country-by-country basis, in respect of sales in the relevant country of any
product, other than a TDC Product, that is covered at the time of sale by one
or more patents issued in such country which are based on Developed
Technology (each, an "Other Royalty-Bearing Product"). The Technology
Royalties will be the sum of (i) 1% of ALZA's net sales of such Other
Royalty-Bearing Product in such country, plus (ii) 10% of any percentage of
sales or other payment received by ALZA with respect to third party sales of
such Other Royalty-Bearing Product in such country. In determining the
Technology Royalties due to TDC for any Other Royalty-Bearing Product, net
sales and other payments will be reduced by the dollar amount of any license
or similar payments due to third parties from ALZA with respect to such Other
Royalty-Bearing Product. If the Other Royalty-Bearing Product is an
electrotransport product, this reduction will include payments due from ALZA
to Medtronic, Inc. ("Medtronic") under an existing agreement between ALZA and
Medtronic covering electrotransport products.
ALZA has the option to buy out the right of TDC to receive Technology
Royalties with respect to any Other Royalty-Bearing Product on either a
country-by-country or worldwide basis at a buy-out price determined according
to formulae specified in the Development Contract.
PRODUCT LICENSE OPTION. TDC has granted to ALZA an option to acquire, on
a product-by-product and country-by-country basis, a perpetual, exclusive,
royalty-bearing license to make, have made, use and sell any or all TDC
Products (the "License Option").
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If ALZA exercises its License Option for any TDC Product (a "Licensed TDC
Product"), ALZA will pay the following royalties ("Product Royalties") to TDC:
(a) if the Licensed TDC Product is sold by ALZA, Product Royalties of up
to a maximum of 5% of ALZA's net sales of the Licensed TDC Product determined
as follows: (i) 1% of net sales, other than sales to distributors or
sublicensees who agree to pay royalties or make percentage of sales payments
to ALZA or any affiliate of ALZA and in respect of which the Product
Royalties are determined as provided in clause (b) below, plus (ii) an
additional 0.1% of such net sales for each full $1 million of the Development
Costs of the Licensed TDC Product paid by TDC; and
(b) if the Licensed TDC Product is sold by a third party, Product
Royalties of up to a maximum of 50% of third party payments to ALZA with
respect to such Licensed TDC Product determined as follows: (i) 10% of such
third party payments, plus (ii) an additional 1% of such third party payments
for each full $1 million of the Development Costs of the Licensed TDC Product
paid by TDC.
In each case, net sales and other third party payments will be reduced by the
dollar amount of any license or similar payments due to third parties from
ALZA with respect to the Licensed TDC Product. If the Licensed TDC Product
is an electrotransport product, this reduction will include the amount of any
payments due from ALZA to Medtronic. It is possible that, in order to
develop a TDC Product, licenses or other arrangements with third parties may
be necessary or appropriate. Such arrangements could require payments by
ALZA which would reduce net sales and other payments in determining payments
owed to TDC.
ALZA may exercise the License Option with respect to any TDC Product, on a
country-by-country basis, at any time until 90 days after the earliest of the
following: (a) approval to market the TDC Product in such country by the
appropriate regulatory agency; (b) approval to market the TDC Product in the
United States by the FDA; or (c) the expiration of the Purchase Option (as
defined below).
ALZA has the option to buy out TDC's right to receive Product Royalties
with respect to any Licensed TDC Product on either a country-by-country or
worldwide basis. The country-by-country buy-out option may be exercised in
respect of any Licensed TDC Product in any country at any time after the
twelfth complete calendar quarter following the first commercial sale of the
Licensed TDC Product in such country. The worldwide buy-out option may be
exercised in respect of any Licensed TDC Product at any time after the
twelfth complete calendar quarter following the first commercial sale of the
Licensed TDC Product in either (x) the United States or (y) two of the
following countries: the United Kingdom, France, Germany, Italy or Japan.
The buy-out price in the case of a country specific buy-out will be 15 times
the Product Royalties paid by or due from ALZA to TDC in respect of such
Licensed TDC Product in such country. The buy-out price in the case of a
worldwide buy-out will be 20 times the worldwide Product Royalties paid by or
due from ALZA to TDC in respect of sales of the Licensed TDC Product (and, in
addition, such
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Product Royalties as would have been paid or due from ALZA to TDC if ALZA had
not exercised any country specific buy-out option with respect to such
Licensed TDC Product), less any amounts previously paid to exercise any
country specific buy-out option with respect to such Licensed TDC Product.
In either case, the buy-out price will be determined with reference to the
most recent four calendar quarters, preceding the date of exercise of the
buy-out option, for which Product Royalties were paid.
As described above under "1996 Product Development Activities," since the
beginning of 1997 ALZA has exercised its License Option with respect to TDC's
transdermal testosterone product for 12 European countries and with respect
to TDC's OROS-Registered Trademark- hydromorphone product on a worldwide
basis. Product Royalties payable to TDC with respect to the OROS-Registered
Trademark- hydromorphone product differ from the standard royalty payment
because TDC and ALZA agreed that, in exchange for TDC foregoing its share of
an upfront payment and the first milestone payment to be received by ALZA
from Knoll, ALZA will pay TDC an additional 1% of net sales and an additional
10% of third party payments plus the standard Product Royalties described
above.
PURCHASE OPTION. ALZA has certain rights pursuant to the Restated
Certificate of Incorporation of TDC to purchase all (but not less than all)
of the TDC Class A Common Stock (the "Purchase Option"). The Purchase Option
may be exercised by written notice to TDC at any time during the period
ending on December 31, 1999; provided that such date will be extended for
successive one year periods if, as of any June 30 beginning with June 30,
1999, TDC has not used at least 90% of all Available Funds pursuant to the
Development Contract. The Purchase Option will in any case terminate on the
60th day after the later of the filing or the due date of a Form 10-K or Form
10-Q of TDC containing a balance sheet showing less than $5 million of cash,
cash equivalents and short-term and long-term investments. Based on TDC's
current rate of expenditures on TDC Products, it can be expected that TDC's
balance sheet will reach this threshold in the second half of 1997. See
Part II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
If the Purchase Option is exercised, the exercise price (the "Purchase
Option Exercise Price") will be the greatest of the following:
(a) $100 million;
(b) the greater of (i) 25 times the worldwide Product Royalties and
Technology Royalties paid by or due from ALZA to TDC with respect to all
Licensed TDC Products and Other Royalty-Bearing Products (and, in addition,
such Product Royalties and Technology Royalties as would have been paid by or
due from ALZA to TDC if ALZA had not exercised its buy-out option with
respect to any Licensed TDC Product or Other Royalty-Bearing Product) during
the most recent four calendar quarters preceding the exercise of the Purchase
Option for which such royalties were paid or due, or (ii) 100 times such
Product Royalties or Technology Royalties paid by or due from ALZA to TDC
during the most recent such calendar quarter, but in either case less any
amounts previously paid to
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exercise any buy-out option with respect to a Licensed TDC Product or an
Other Royalty-Bearing Product;
(c) the fair market value of one million shares of ALZA Common Stock; or
(d) $325 million less all amounts spent by TDC under the Development
Contract.
Based on information available at the end of 1996, the Purchase Option
Exercise Price is expected to be $100 million.
For purposes of calculating the Purchase Option Exercise Price, any
special upfront third party payments will be amortized equally over a period
of 28 calendar quarters beginning with the calendar quarter in which such
payment is made. In each case, the amount payable will be reduced to the
extent, if any, that TDC's liabilities at the time of exercise of the
Purchase Option (other than liabilities under the Development Contract)
exceed TDC's cash and cash equivalents, and short-term and long-term
investments (excluding from such cash and cash equivalents, and short-term
and long-term investments the amount of Available Funds remaining at such
time).
At the time of exercise of the Purchase Option ALZA may decide, in its
discretion, to pay the Purchase Option Exercise Price in cash, in ALZA Common
Stock, or in any combination of cash and ALZA Common Stock.
ALZA has not made a decision as to whether it will exercise the Purchase
Option. ALZA is under no obligation to exercise the Purchase Option and will
do so only if ALZA determines that it is in the best interests of ALZA and
its stockholders at the time the decision is made.
Until the expiration of the Purchase Option, ALZA, as the sole holder of
TDC's Class B Common Stock, is entitled to vote separately as a class with
respect to, and therefore could prevent, any merger or liquidation of TDC,
the sale, lease, exchange, transfer or other disposition of any substantial
asset of TDC, and any amendments to the Restated Certificate of Incorporation
of TDC that would alter the Purchase Option, TDC's capitalization, or the
provisions of the Restated Certificate of Incorporation concerning TDC's
board of directors.
SERVICES AGREEMENT. TDC and ALZA have a services agreement (the "Services
Agreement") pursuant to which ALZA provides TDC with administrative services
on a fully-burdened cost reimbursement basis. TDC may terminate the Services
Agreement at any time upon 60 days' written notice.
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PRODUCT DEVELOPMENT RISKS
All pharmaceutical products require extensive development and clinical
activities before an application can be filed for regulatory approval to
market the product. There are many risks inherent in this process and it
should be expected that some of the products for which development is
initiated ultimately will not become commercial products. Substantial
technical, financial and human resources are required to successfully
complete the development of a product. The proper performance characteristics
for the product must be defined, and the product must be designed and
developed to meet those characteristics. Every product faces significant
technological hurdles, and often one or more of these cannot be achieved.
After the product is manufactured on a pilot scale, clinical safety and
efficacy must be shown. Clinical studies are very costly, and can take many
years to complete. There can be no assurance that the desired outcomes will
be shown in the clinical studies or that regulatory approval for the product
will be obtained. Several years, and millions of dollars, may be spent
before it can be known whether all technical and clinical requirements for a
product can be met. There are further technology risks in converting a pilot
scale manufacturing process to a commercial scale manufacturing process.
Finally, even once a product is developed, approved by regulatory authorities
and manufactured, there can be no assurance of its commercial success. In
order to provide added value and gain medical and commercial acceptance, a
product must show some performance improvements over products incorporating
the same or similar drug compounds. In some cases, these benefits may be
difficult to establish.
As discussed above, if expenditures on TDC Products continue at
approximately current levels, funds for product development will be exhausted
in the second half of 1997 and at that time TDC will not have funds to
complete development of such products.
GOVERNMENTAL REGULATION
Under the United States Food, Drug, and Cosmetic Act, "new drugs" must
obtain clearance from the FDA before they lawfully can be marketed in the
United States. Applications for marketing clearance must be based on
extensive clinical and other testing, the cost of which is very substantial.
The packaging and labeling of all new drug products are also subject to FDA
regulation. Approvals (sometimes including pricing approvals) are required
from health regulatory authorities in foreign countries before marketing of
pharmaceutical products may commence in those countries. Requirements for
approval may differ from country to country, and can involve additional
testing. There can be substantial delays in obtaining required clearances
from both the FDA and foreign regulatory authorities after applications are
filed. Even after clearances are obtained, further delays may be encountered
before the products become commercially available.
All facilities and manufacturing techniques used for the manufacture of
products for clinical use or for sale must conform with "Good Manufacturing
Practices", the FDA
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regulations governing the production of pharmaceutical products, and
comparable regulations of health regulatory authorities in foreign countries.
From time to time, the FDA and other federal, state and local government
agencies (including, without limitation, those agencies mandated to oversee
environmental laws and regulations) may adopt regulations that affect the
manufacturing and marketing of TDC Products.
PATENTS AND PATENT APPLICATIONS
Under the Development Contract, ALZA determines whether and to what extent
to seek patent protection for TDC Products and Developed Technology. If ALZA
declines to seek patent protection for any TDC Product or any Developed
Technology, TDC does not have the right to do so.
Patent protection generally has been important in the pharmaceutical
industry and the commercial success of TDC Products may depend, in part, upon
ALZA's election to seek patent protection and its ability to obtain such
patents both in the United States and abroad. Although ALZA's patents,
pending patent applications, and any patents obtained on future applications
covering any ALZA Technology, Developed Technology or TDC Product, may be
important to future operations, there can be no assurance that any additional
patents will be issued or that any patents, now or hereafter issued, will be
of commercial benefit. In the United States, patents are generally granted
for specified periods of time. Some of ALZA's earlier patents covering
various aspects of ALZA Technology licensed to TDC have begun to expire, or
will expire, over the next several years; however, ALZA Technology is
generally covered by multiple patents.
Although a patent has a statutory presumption of validity in the United
States, the issuance of a patent is not conclusive as to such validity or as
to the enforceable scope of the claims of the patent. There can be no
assurance that ALZA patents covering any ALZA Technology, Developed
Technology or TDC Product will not be successfully challenged in the future.
In some cases, third parties have initiated reexamination by the Patent and
Trademark Office of patents issued to ALZA. The validity or enforceability
of ALZA patents after their issuance have also been challenged in litigation.
If the outcome of such litigation is adverse to ALZA, third parties may then
be able to use the invention covered by the patent, in some cases without
payment. There can be no assurance that ALZA patents will not be infringed
or successfully avoided through design innovation.
It is also possible that third parties may obtain patent or other
proprietary rights that may be necessary or useful to TDC. With numerous
other companies engaged in developing drug delivery technologies, it can be
expected that other parties may in some circumstances file patent
applications or obtain patents that compete in priority with ALZA's patent
applications. Such competition may result in adversarial proceedings such as
patent interferences and oppositions, which can increase the uncertainty of
patent coverage. In cases where third parties are first to invent a
particular product or technology, it is possible that those parties will
obtain patents that will be sufficiently broad so as to prevent TDC from
using certain technology or from further developing or
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commercializing certain products. If licenses from third parties are
necessary but cannot be obtained, commercialization of the TDC Product would
be delayed or prevented.
In addition, TDC utilizes significant unpatented proprietary ALZA
Technology, and there can be no assurance that others will not develop
similar technology.
COMPETITION
All TDC Products and Other Royalty-Bearing Products, if any, will face
competition both from more traditional forms of drug delivery and from
advanced delivery systems being developed by others. In some instances,
because TDC is developing products which incorporate drugs that are
off-patent or being developed by multiple companies, TDC will face
competition from products based on the same drug components. This
competition potentially includes all of the pharmaceutical companies in the
world. Many of these other pharmaceutical companies have greater financial
resources, technical staffs and manufacturing and marketing capabilities than
ALZA or TDC. A number of smaller companies also are developing drug delivery
technologies.
Competition in drug delivery systems is generally based on performance
characteristics and price. Acceptance by hospitals, physicians and patients
is crucial to the success of a product. Health care reimbursement policies
of managed care organizations, insurers and government agencies will continue
to exert pressure on pricing, and various federal and state agencies have
enacted regulations requiring rebates of a portion of the purchase price of
many pharmaceutical products. Cost-effectiveness, although often difficult
to measure, is becoming increasingly critical.
The health care industry has continued to change rapidly as the public,
government, medical practitioners and the pharmaceutical industry focus on
ways to expand medical coverage while controlling the growth in health care
costs. The growth of managed care organizations and the resulting pressures
for cost-containment in the United States health care system are expected to
continue to put pressures on the prices charged for pharmaceutical products.
Prescription drug reimbursement practices and the growth of large managed
care organizations, as well as generic and therapeutic substitution
(substitution of a different product for the same indication), could
significantly affect TDC's business. While TDC believes the changing health
care environment may increase the value of TDC Products over the long term,
it is impossible to predict the impact these changes may have on TDC.
REVENUES AND NET LOSS
Revenues, consisting of net interest and investment income earned on
invested funds and license fees, were approximately $8.2 million in 1996,
$11.5 million in 1995, and $8.7 million in 1994. Revenues were approximately
$34.3 million for the period from inception (November 1992) to December 31,
1996. As TDC's funds have continued to be utilized under the Development
Contract, lower cash balances are available for
12
<PAGE>
investment, and net interest income therefore continues to decrease. Based
on TDC's current rate of expenditures on TDC Products, it can be expected
that TDC's funds will be exhausted in the second half of 1997.
TDC reported a net loss of approximately $94.8 million or $12.25 per
common share for 1996, $59.4 million or $7.68 per common share for 1995, and
$25.7 million or $3.32 per common share for 1994. TDC had a net loss of
approximately $180.2 million for the period from inception (November 1992) to
December 31, 1996. The increasing net loss resulted primarily from the
substantial increase in development activities each year since 1994.
RESEARCH AND DEVELOPMENT EXPENSES
TDC incurred research and development expenses of approximately $100.0
million during 1996, $68.9 million during 1995, and $31.6 million during
1994. Research and development expenses have totaled approximately $205.4
million for the period from inception (November 1992) to December 31, 1996.
The increase in research and development activities is due to an increase in
product development activities and products reaching later stages of
development.
EMPLOYEES
On December 31, 1996, TDC had one employee, Dr. Gary L. Neil, its
President and Chief Executive Officer.
ITEM 2. PROPERTIES
TDC's corporate offices are located in Palo Alto, California. TDC does
not own any facilities.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Principal Occupations for
Name Age Past Five Years
- ----------------------- ----- ------------------------------------------
<S> <C> <C>
Gary L. Neil, PhD 56 June 1993 to present, President and Chief
President and Chief Executive Officer of TDC; April 1990 to May
Executive Officer 1993, Executive Vice President, Wyeth-
Ayerst Research; May 1989 to April 1990,
Senior Vice President, Wyeth-Ayerst
Research; prior to 1989, various scientific
and other management positions with the
Upjohn Company.
David R. Hoffmann* 52 Vice President and Treasurer of ALZA
Vice President, Finance Corporation since 1994; other positions
and Secretary with ALZA, including Vice President,
Finance/Vice President and Controller,
since 1976.
Suzanne C. Martin* 47 Vice President, Development Programs of
Vice President, ALZA Corporation since October 1994;
Research and other positions with ALZA Corporation,
Development including Executive Director, Project
Administration Management and Senior Director of
Research and Development Administration
since 1988.
</TABLE>
* Mr. Hoffmann and Ms. Martin are employees of ALZA who provide services to
TDC under its agreements with ALZA. They do not receive compensation from
TDC.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
TDC Class A Common Stock was originally traded as part of Units, each Unit
consisting of one share of TDC Class A Common Stock and one warrant to
purchase one-eighth of one share of ALZA Common Stock at an exercise price of
$65 per share. The Units were quoted on the Nasdaq Stock Market under the
symbol TDCAZ until June 11, 1996. On June 11, 1996, the Units separated
into their component securities--TDC Class A Common Stock and ALZA warrants.
As a result of the separation, TDC Class A Common Stock is quoted
independently on the Nasdaq Stock Market under the symbol "TDCA". The TDC
Class B Common Stock is not publicly traded. As of December 31, 1996, there
were approximately 5,827 holders of record of TDC Class A Common Stock and
one holder of TDC Class B Common Stock. TDC has not paid any dividends on
its Common Stock and does not intend to do so. In addition, TDC's Restated
Certificate of Incorporation prohibits the payment of dividends with
Available Funds. (Available Funds are defined as all funds contributed to
TDC by ALZA, plus any investment income earned thereon, less the costs of the
Distribution and TDC's reasonable ongoing administrative expenses, including
reasonable reserves for TDC's operations.)
The quarterly high and low sales prices of Units (prior to June 11, 1996)
and TDC Class A Common Stock (after June 11, 1996) for the calendar years
1996 and 1995 as quoted on the Nasdaq Stock Market were as follows:
1996 1995
-------------------- -------------------
High Low High Low
---- --- ---- ---
First Quarter $ 10 5/8 $ 7 1/8 $ 6 1/2 $ 5 1/4
Second Quarter $ 9 7/8 $ 8 7/8 $ 7 7/8 $ 6
Third Quarter $ 10 $ 8 $ 7 3/4 $ 6 3/4
Fourth Quarter $ 11 3/8 $ 9 3/8 $ 7 1/4 $ 6 3/4
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
Year Ended Year Ended Year Ended (November 1992) (November 1992)
December 31, December 31, December 31, to December 31, to December 31,
1996 1995 1994 1993 1996
------------ ------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Total revenues
(net interest and
investment $ 8,215 $ 11,540 $ 8,673 $ 5,908 $ 34,336
income and license fees)
Net loss $ (94,750) $ (59,403) $ (25,661) $ (384) $(180,198)
Net loss per
common share $ (12.25) $ (7.68) $ (3.32) $ (.05)
Total assets $ 88,460 $ 181,437 $ 220,427 $ 251,928
Total liabilities $ 19,316 $ 16,965 $ 7,849 $ 2,454
</TABLE>
No cash dividends were paid from inception (November 1992) through December
31, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
TDC was formed in November 1992 by ALZA and was fully capitalized and
commenced operations in June 1993 with approximately $250 million in cash
contribued by ALZA. TDC had cash and cash equivalents and short-term
investments of approximately $85.3 million at December 31, 1996, as compared
with $176.6 million at December 31, 1995, and $213.7 million at December 31,
1994. During 1994, TDC realized losses of approximately $3.9 million when it
repositioned its investment portfolio to take advantage of higher interest
rates.
TDC's cash expenditures for operating activities were approximately $90.4
million in 1996, as compared with $48.3 million in 1995, and $19.4 million in
1994. Cash expenditures for operating activities were approximately $163.0
million from inception (November 1992) to December 31, 1996, and differ from
TDC's net losses of approximately $180.2 million for the same period due
primarily to the amount payable to ALZA for research and development and
amortization of organization expenses. TDC's remaining cash, plus interest
earned thereon, less administrative expenses (including reasonable reserves
for TDC's operations) will be used primarily to fund the development of TDC
Products under the Development Contract. Funds not immediately required for
development activities and administrative expenses have been invested in low
risk securities. TDC's investment portfolio includes investments in
collateralized mortgage
16
<PAGE>
securities, U.S. Government securities, corporate notes, and asset backed
notes. As TDC's funds continue to be utilized under the Development
Contract, increasingly lower cash balances will be available for investment.
Based on TDC's current rate of expenditures on TDC Products, it is
expected that funds for product development will be exhausted in the second
half of 1997 and product development funding by TDC will cease. However,
several factors could impact the level and timing of TDC funding, including
the discontinuation of the development of any TDC Products, any commercial
arrangements between ALZA and other companies which would cause ALZA to
exercise its License Option with respect to any TDC Product, any change in
the number of projects advancing to or continuing in later stages of
development or any adjustments in the rate of spending on products currently
in development.
When cash available for product development is exhausted, which is
anticipated to occur in the second half of 1997, certain critical timetables
will be triggered. First, ALZA's Purchase Option with respect to all of
TDC's Class A Common Stock will expire on the 60th day after the later of the
filing or the due date of a Form 10-K or Form 10-Q of TDC containing a
balance sheet showing less than $5 million of cash, cash equivalents and
short-term and long-term investments. In addition, ALZA has the right, for
90 days after expiration of the Purchase Option, to license any or all TDC
Products which have not yet been licensed, on a product-by-product and
country-by-country basis. ALZA is under no obligation to exercise the
Purchase Option or the License Option with respect to any TDC Product and
will do so only if ALZA determines that it is in the best interests of ALZA
and its stockholders at the time the decision is made. In the event that
ALZA does not exercise the Purchase Option or the License Option for all TDC
Products, TDC will not have funds to continue or complete development of any
remaining products.
ALZA has undertaken to fund certain TDC Product development
activities which will not be completed before available cash is
exhausted and which are described in work plans approved by TDC. Such
funding by ALZA would begin on a product-by-product basis when TDC no
longer has funds available to pay for such activities. Such funding will
continue only during the period prior to the expiration of the Purchase
Option and the License Option when ALZA has not yet made a determination
whether or not to exercise its Purchase Option or its License Option for
the particular product. However, this undertaking is subject to ALZA's
determination of the continued technical and commercial feasibility of
the product and the compatibility of the product with ALZA's product
portfolio and business objectives.
The Board of Directors of TDC has initiated activities to establish a
contingency plan for the continued operations of TDC in the event that ALZA
chooses not to exercise the Purchase Option. Possible actions under the
contingency plan, which could be implemented individually or in combination,
include the sale or license of TDC Products for which ALZA has not exercised
its License Option, either worldwide or for countries for which ALZA has not
exercised its option; the sale of TDC's rights to future
17
<PAGE>
payments with respect to TDC Products licensed by ALZA; and the sale of
TDC's rights to future payments from ALZA with respect to the Developed
Technology. TDC's Board will review the contingency plan on a regular basis.
In the event that ALZA does not exercise the Purchase Option, there can be
no assurance that the contingency plan will result in returns to TDC
stockholders.
The Board has the right, under its agreements with ALZA, to take necessary
steps to cease development funding and maintain an adequate reserve to ensure
TDC's ability to meet its operating cash needs through at least December 31,
1997.
RESULTS OF OPERATIONS
Revenues, consisting of net interest and investment income earned on
invested funds and license fees, were approximately $8.2 million for the year
ended December 31, 1996, as compared with $11.5 million for the year ended
December 31, 1995, and $8.7 million for the year ended December 31, 1994.
Revenues were approximately $34.3 million for the period from inception
(November 1992) to December 31, 1996. As TDC's funds are utilized under the
Development Contract, lower cash balances are available for investment and
therefore net interest income continues to decrease. During the period in
which products are under development and applications for regulatory approval
are submitted and reviewed, TDC does not anticipate significant revenues.
TDC incurred research and development expenses of approximately
$100.0 million during 1996, as compared with $68.9 million during 1995,
and $31.6 million during 1994. Research and development expenses have
totaled approximately $205.4 million for the period from inception
(November 1992) to December 31, 1996. Research and development
expenditures increased in 1996 over 1995, as expected, as activities
increased and as products reached later stages of development. TDC's
research and development expenses are expected to continue at
approximately current levels during 1997 subject, as discussed above, to
the occurrence of various events which could affect the level and timing
of TDC's expenditures on research and development.
TDC incurred general and administrative expenses of approximately $3.0
million for the year ended December 31, 1996, as compared with $2.3 million
for the year ended December 31, 1995, and $2.7 million for the year ended
December 31, 1994. The increase in general and administrative expenses is due
primarily to the additional activities required to support the increase in
research and development activities. General and administrative expenses
have totaled approximately $9.5 million for the period from inception
(November 1992) to December 31, 1996. TDC incurred approximately $152,000
during 1996, $136,000 during 1995 and $206,000 during 1994 in administrative
expenses under the Services Agreement with ALZA. Administrative expenses
were approximately $614,000 for the period from inception (November 1992) to
December 31, 1996.
TDC reported a net loss of approximately $94.8 million or $12.25 per
common share in the year ended December 31, 1996, as compared with $59.4
million or $7.68 per common share in the year ended December 31, 1995, and
$25.7 million or $3.32 per
18
<PAGE>
common share in the year ended December 31, 1994. TDC had a net loss of
approximately $180.2 million for the period from inception (November 1992) to
December 31, 1996. The increasing net loss resulted primarily from the
substantial increase in development activities each year since 1994. It is
anticipated that TDC will continue to record significant net losses as
products enter or continue in later stages of development, if additional
products are accepted by TDC for development, and as investment income
decreases as funds available for investment are reduced.
For the years ended December 31, 1996, 1995, and 1994, the provision for
income taxes was not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are filed as part of this Annual Report on Form
10-K (see Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
TDC incorporates by reference the information concerning its directors set
forth under the heading "Election of Directors" on pages 1 through 3 in TDC's
definitive proxy statement dated March 27, 1997 for its Annual Meeting of
Stockholders to be held May 8, 1997 (the "Proxy Statement"). Information
concerning TDC's executive officers appears at the end of Part I of this
report on page 14.
ITEM 11. EXECUTIVE COMPENSATION
TDC incorporates by reference the information ("Summary Compensation
Table", "1996 Option Grants" and "1996 Aggregated Option Exercises and Fiscal
Year-End Option Values") set forth under the heading "Executive Compensation"
on page 4 in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
TDC incorporates by reference the information set forth under the heading
"Beneficial Stock Ownership" on pages 7 through 8 in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TDC incorporates by reference the information set forth under the heading
"Certain Transactions" on page 8 in the Proxy Statement.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Annual Report on Form 10-K:
1. Financial Statements (See Index to Financial Statements on page 23)
2. Financial Statement Schedules (None)
3. Exhibits:
3.1 Restated Certificate of Incorporation of Therapeutic Discovery
Corporation filed with the Delaware Secretary of State on
April 1, 1993.
3.2 Restated By-laws of Therapeutic Discovery Corporation dated
January 26, 1994.
10.1 Technology License Agreement between Therapeutic Discovery
Corporation and ALZA Corporation dated March 10, 1993.
10.2 Development Agreement between Therapeutic Discovery
Corporation and ALZA Corporation dated March 10, 1993.
10.3 License Option Agreement between Therapeutic Discovery
Corporation and ALZA Corporation dated March 10, 1993.
10.4 Services Agreement between Therapeutic Discovery Corporation
and ALZA Corporation dated March 10, 1993.
10.5 Amended and Restated 1993 Stock Option Plan.
10.6 Executive Deferral Plan.
10.7 Agreement Regarding Certain Products and Activities and
Amendment No. 1 to Development Agreement between
Therapeutic Discovery Corporation and ALZA Corporation.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1996
21
<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.
Date: March 27, 1997 THERAPEUTIC DISCOVERY CORPORATION
By /s/ Gary L. Neil
------------------------------
Dr. Gary L. Neil
President and
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 and on the dates indicated.
/s/ Gary L. Neil /s/ David R. Hoffmann
- ----------------------------- ---------------------------------
Dr. Gary L. Neil David R. Hoffmann
President, Chief Executive Vice President, Finance
Officer and Director and Principal Financial
Date: March 27, 1997 and Accounting Officer
Date: March 27, 1997
/s/ Allen M. Phipps /s/ William P. Sommers
- ----------------------------- ---------------------------------
Allen M. Phipps Dr. William P. Sommers
Chairman of the Board of Director
Directors Date: March 27, 1997
Date: March 27, 1997
/s/ Terrence F. Blaschke /s/ Paul D. Lairson
- ----------------------------- ---------------------------------
Dr. Terrence F. Blaschke Dr. Paul D. Lairson
Director Director
Date: March 27, 1997 Date: March 27, 1997
22
<PAGE>
Therapeutic Discovery Corporation
Index to Financial Statements
(Item 14(a))
Financial Statement F Page Number
- ------------------- -------------
Report of Ernst & Young LLP, Independent Auditors 1
Balance Sheet at December 31, 1996 and 1995 2
Statement of Operations for the years ended
December 31, 1996, 1995, and 1994 and
for the period from Inception (November 1992)
to December 31, 1996 3
Statement of Stockholders' Equity for the
period from Inception (November 1992) to
December 31, 1993 and for the years ended
December 31, 1994, 1995, and 1996 4-6
Statement of Cash Flows for the years ended
December 31, 1996, 1995, and 1994
and for the period from Inception (November 1992)
to December 31, 1996 7
Notes to Financial Statements 8-15
All schedules have been omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
The above financial statements are included on the following pages F-1
through F-15.
23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Therapeutic Discovery Corporation
We have audited the accompanying balance sheet of Therapeutic Discovery
Corporation (a development stage company) as of December 31, 1996 and 1995,
and the related statements of operations, stockholders' equity and cash flows
for the years ended December 31, 1996, 1995 and 1994 and for the period from
inception (November 1992) to December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Therapeutic Discovery
Corporation (a development stage company) at December 31, 1996 and 1995 and
the results of its operations and its cash flows for the years ended December
31, 1996, 1995 and 1994 and for the period from inception (November 1992) to
December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Palo Alto, California
February 14, 1997
F-1
<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,597 $ 13,314
Short-term investments 74,707 163,294
Interest receivable 809 1,427
Prepaid expenses and other current assets 1,033 278
------------ ------------
Total current assets 87,146 178,313
Long-term assets:
Employee loans, long-term 300 300
Prepaid expenses and other long-term assets - 1,094
Organization costs, (net of accumulated
amortization) 1,014 1,730
------------ ------------
Total assets $ 88,460 $ 181,437
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to ALZA Corporation $ 19,129 $ 16,817
Accounts payable and other liabilities 72 148
------------ ------------
Total current liabilities 19,201 16,965
Long-term liabilities:
Deferred compensation 115 -
Stockholders' equity:
Class A Common Stock, $.01 par value,
12,000,000 shares authorized, 7,734,424
issued and outstanding 77 77
Class B Common Stock, $.01 par value,
100 shares authorized, issued and
outstanding - -
Additional paid-in capital 251,650 251,650
Net unrealized losses on available-for-sale
securities (1,166) (262)
Deficit accumulated during development stage (180,198) (85,448)
Deferred compensation (1,219) (1,545)
------------ ------------
Total stockholders' equity 69,144 164,472
------------ ------------
Total liabilities and stockholders' equity $ 88,460 $ 181,437
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Period From
Year Ended Year Ended Year Ended Inception
December 31, December 31, December 31, (November 1992) to
1996 1995 1994 December 31, 1996
------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C>
REVENUES:
Net interest and investment income $ 8,215 $ 11,540 $ 8,673 $ 34,336
and license fees
EXPENSES:
Research and development
paid to ALZA Corporation 99,953 68,923 31,634 205,379
General and administrative 3,012 2,321 2,700 9,456
---------- ----------- ----------- ----------
Total expenses 102,965 71,244 34,334 214,835
---------- ----------- ----------- ----------
Loss before taxes (94,750) (59,704) (25,661) (180,499)
---------- ----------- ----------- ----------
Income tax - 301 - 301
---------- ----------- ----------- ----------
Net loss $ (94,750) $ (59,403) $ (25,661) $ (180,198)
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Net loss per common share $ (12.25) $ (7.68) $ (3.32)
---------- ----------- -----------
---------- ----------- -----------
Weighted average common shares 7,734,524 7,734,524 7,734,524
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized Deficit
losses on Accumulated
Class A Class B Additional available- During the Total
Common Common Common Paid-in for-sale Development Deferred Stockholders'
Stock Stock Stock Capital securities Stage Compensation Equity
-------- --------- --------- ---------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 100 shares
of Common Stock for
$20 per share to ALZA
Corporation in
November 1992 $ - $ - $ - $ 2 $ - $ - $ - $ 2
Issuance of 7,734,424
shares of Class A
Common Stock for
approximately $32.32
per share to ALZA
Corporation in June
1993, net of issuance
costs of $222 - 77 - 249,699 - - - 249,776
Conversion by ALZA
Corporation of 100
shares of Common Stock
into 100 shares of
Class B Common Stock
in June 1993 - - - - - - - -
Deferred compensation
resulting from grant
of options through
December 31, 1993 - - - 1,686 - - (1,686) -
Amortization of
deferred
compensation - - - - - - 80 80
Net loss - - - - - (384) - (384)
------ ------- ------- -------- --------- --------- --------- ----------
BALANCE,
DECEMBER 31,
1993 - 77 - 251,387 - (384) (1,606) 249,474
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized Deficit
losses on Accumulated
Class A Class B Additional available- During the Total
Common Common Common Paid-in for-sale Development Deferred Stockholders'
Stock Stock Stock Capital securities Stage Compensation Equity
-------- --------- --------- ---------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred compensation
resulting from grant
of options in the year
ended December 31, 1994 - - - 261 - - (261) -
Amortization of
deferred
compensation - - - - - - 158 158
Net change in unrealized
loss on available-for-sale
securities - - - - (11,393) - - (11,393)
Net loss - - - - - (25,661) - (25,661)
------ ------- ------- -------- ------- ------- --------- --------
BALANCE,
DECEMBER 31,
1994 - 77 - 251,648 (11,393) (26,045) (1,709) 212,578
Deferred compensation
resulting from grant
of options in the year
ended December 31, 1995 - - - 2 - - (2) -
Amortization of
deferred
compensation - - - - - - 166 166
Net change in unrealized
loss on available-for-sale
securities - - - - 11,131 - - 11,131
Net loss - - - - - - - (59,403)
------ ------- ------- -------- --------- --------- --------- ----------
BALANCE,
DECEMBER 31,
1995 $ - $ 77 $ - $ 251,650 $ (262) $ (85,448) $ (1,545) $164,472
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized Deficit
losses on Accumulated
Class A Class B Additional available- During the Total
Common Common Common Paid-in for-sale Development Deferred Stockholders'
Stock Stock Stock Capital securities Stage Compensation Equity
-------- --------- --------- ---------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred compensation
resulting from grant
of options in the year
ended December 31, 1996 - - - - - - - -
Amortization of
deferred
compensation - - - - - 326 326
Net change in unrealized
loss on available-for-sale
securities - - - - (904) - - (904)
Net loss - - - - - (94,750) - (94,750)
------ ------- ------- -------- --------- --------- --------- ----------
BALANCE,
DECEMBER 31,
1996 $ - $ 77 $ - $ 251,650 $ (1,166) $(180,198) $ (1,219) $ 69,144
------ ------- ------- -------- --------- --------- --------- ----------
------ ------- ------- -------- --------- --------- --------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Period from
Year Ended Year Ended Year Ended Inception
December 31, December 31, December 31, (November 1992) to
1996 1995 1994 December 31, 1996
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(94,750) $(59,403) $ (25,661) $ (180,198)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization of organization costs 716 716 716 2,566
Amortization of deferred compensation 326 164 158 728
(Increase) decrease in assets:
Interest receivable 618 1,021 127 (809)
Other receivable - - (252) (252)
Organization costs - - - (3,581)
Prepaid expenses and other assets 339 123 130 (781)
Increase (decrease) in liabilities:
Payable to ALZA Corporation 2,312 9,122 5,390 19,129
Accounts payable 4 (2) (47) 5
Other current liabilities (80) (4) 52 67
Long-term liabilities 115 - - 115
-------- -------- ------- ----------
Total adjustments 4,350 11,140 6,274 17,187
-------- -------- ------- ----------
Net cash used in operating activities (90,400) (48,263) (19,387) (163,011)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in available-for-sale securities (25,667) (42,863) (294,121) (1,363,067)
Sale of available-for-sale securities 98,523 81,349 194,134 586,674
Maturities of available-for-sale securities 14,827 3,041 137,918 700,523
Employee loans, long-term - - - (300)
-------- -------- ------- ----------
Net cash provided by (used in) investing
activities 87,683 41,527 37,931 (76,170)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class B Common Stock - - - 2
Issuance of Class A Common Stock, net of
issuance costs - - - 249,776
-------- -------- ------- ----------
Net cash provided by financing
activities - - - 249,778
-------- -------- ------- ----------
Net increase (decrease) in cash and cash
equivalents (2,717) (6,736) 18,544 10,597
Cash and cash equivalents at beginning of period 13,314 20,050 1,506 -
-------- -------- ------- ----------
Cash and cash equivalents at end of period $ 10,597 $ 13,314 $20,050 $ 10,597
-------- -------- ------- ----------
-------- -------- ------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Therapeutic Discovery Corporation ("TDC") was incorporated in Delaware on
November 12, 1992 and commenced operations on June 11, 1993. Since it
commenced operations, TDC has been engaged in selecting and developing new
human pharmaceutical products combining the proprietary drug delivery systems
of ALZA Corporation ("ALZA") with various drug compounds. TDC's principal
activities consist of research and development activities under its
agreements with ALZA. Accordingly, TDC is considered a development stage
company.
TDC incurred research and development expenses of approximately $100.0
million during 1996, $68.9 million during 1995, and $31.6 million during
1994. Research and development expenses have totaled approximately $205.4
million for the period from inception (November 1992) to December 31, 1996.
Based on TDC's current rate of expenditures on TDC products, it is expected
that funds for product development will be exhausted in the second half of
1997 and product development funding by TDC will cease. When cash available
for product development is exhausted, ALZA's purchase option with respect to
all of TDC's Class A Common Stock and option to license TDC products on a
product-by-product basis will be triggered, as described more fully in Note 2
below. The Board of Directors of TDC has initiated activities to establish a
contingency plan for the continued operations of TDC in the event that ALZA
chooses not to exercise the purchase option, and has the right, under its
agreements with ALZA, to take necessary steps to cease development funding
and maintain an adequate level of available funds to ensure TDC's ability to
meet its operating cash needs through at least December 31, 1997.
A summary of the significant accounting policies of TDC follows:
USE OF ESTIMATES:
The preparation of the 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.
F-8
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
CASH AND CASH EQUIVALENTS:
TDC reports all highly liquid debt instruments purchased with a maturity of
three months or less as cash equivalents. The carrying amount reported on
the balance sheet for cash and cash equivalents approximates their fair value.
SHORT-TERM INVESTMENTS:
TDC has classified its entire investment portfolio, including cash
equivalents of approximately $85 million and $177 million at December 31,
1996 and 1995, respectively, as available-for-sale. TDC's investment
portfolio is available for current operations and, therefore, has been
classified as a current asset. Investments in the available-for-sale
category are carried at fair market value with unrealized losses recorded as
a separate component of stockholders' equity. At December 31, 1996, net
unrealized losses on available-for-sale securities were approximately $1.2
million. At December 31, 1995, net unrealized losses on available-for-sale
securities were approximately $0.3 million. Realized gains and losses for
the years ended December 31, 1996 and 1995 were not material. The cost of
securities when sold is based upon specific identification.
The following is a summary of available-for-sale securities at December 31,
1996:
<TABLE>
<CAPTION>
Available-for-Sale Securities
----------------------------------------------------
Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $ 37,921 $ 8 $ (370) $ 37,559
Collateralized mortgage
obligations and asset
backed securities 22,340 4 (517) 21,827
Corporate securities 24,478 7 (298) 24,187
-------- ----- ------- ---------
$ 84,739 $ 19 $(1,185) $ 83,573
-------- ----- ------- ---------
-------- ----- ------- ---------
</TABLE>
F-9
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
The following is a summary of available-for-sale securities at December 31,
1995:
<TABLE>
<CAPTION>
Available-for-Sale Securities
----------------------------------------------------
Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $ 89,526 $ 288 $ (167) $ 89,647
Collateralized mortgage
obligations and asset
backed securities 39,061 11 (363) 38,709
Corporate securities 47,858 47 (78) 47,827
--------- -------- ------- ---------
$ 176,445 $ 346 $ (608) $ 176,183
--------- -------- ------- ---------
--------- -------- ------- ---------
</TABLE>
The amortized cost and estimated fair value of debt and marketable
securities at December 31, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties.
Estimated
Fair
(in thousands) Cost Value
---------- -----------
Due in one year or less $ 36,938 $ 36,611
Due after one year through
four years 40,814 40,118
Due after four years through
eight years 6,987 6,844
---------- -----------
$ 84,739 $ 83,573
---------- -----------
---------- -----------
F-10
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
INVESTMENT RISK:
TDC invests excess cash in money market and fixed income securities of
companies with strong credit ratings, from a variety of industries, and in
U.S. government obligations. These securities typically bear minimal credit
risk and TDC has not experienced any losses on its investments to date due to
credit risk.
ORGANIZATION COSTS:
Organization costs totaling approximately $3.6 million were incurred in
developing TDC's organizational, financial and contractual structures and are
being amortized over 60 months using the straight line method.
STOCK BASED COMPENSATION:
The Company accounts for stock option grants in accordance with APB Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The Company grants certain
stock options for a fixed number of shares to employees, directors and
consultants with an exercise price below the fair value at the date of grant
and, accordingly, recognizes deferred compensation from the date of the grant.
PER SHARE INFORMATION:
Per share information is based on 7,734,524 shares (including Class A and
Class B Common Stock) outstanding for the entire period from inception
(November 1992) to December 31, 1996. Common equivalent shares are excluded
as their effect is antidilutive.
2. ARRANGEMENTS WITH ALZA CORPORATION
TDC was formed by ALZA for the purpose of selecting and developing new
human pharmaceutical products combining ALZA's proprietary drug delivery
technologies with various drug compounds, and commercializing such products,
most likely through licensing to ALZA. In connection with the dividend
discussed below, ALZA made a $250 million cash contribution to TDC's capital,
which is being used primarily to fund activities under the development
contract described below.
F-11
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
In March 1993, ALZA announced a special dividend of units (each, a "Unit")
to ALZA stockholders, each Unit consisting of one share of TDC Class A Common
Stock and one warrant to purchase one-eighth of one share of ALZA Common
Stock at an exercise price of $65 per share. Holders of record of ALZA
Common Stock on May 28, 1993 received one Unit for every 10 shares of ALZA
Common Stock held, with cash distributed in lieu of fractional Units. A
total of 7,734,424 Units were distributed to ALZA stockholders on June 11,
1993. As a result of the distribution, all of the outstanding shares of TDC
Class A Common Stock were distributed to ALZA stockholders. ALZA continues
to hold all of the outstanding shares of TDC Class B Common Stock.
In accordance with TDC's Restated Certificate of Incorporation, on June 11,
1996, the Units separated into their component securities--TDC Class A Common
Stock and ALZA warrants. As a result of the separation, both securities are
listed and trade independently on the Nasdaq Stock Market. The trading symbol
for the TDC Class A Common Stock is "TDCA".
ALZA and TDC are parties to a development agreement (the "Development
Contract") pursuant to which ALZA conducts research and development
activities on behalf of TDC. Under the Development Contract, products have
been proposed by ALZA to TDC for development. For products approved for
development by TDC, ALZA (and/or other third parties) conducts research and
development activities under approved work plans and cost estimates. ALZA
has granted to TDC a royalty-free, exclusive, worldwide perpetual license to
use ALZA's proprietary drug delivery technology to develop and commercialize
TDC products.
For activities under the Development Contract, TDC incurred research and
development expenses of approximately $100.0 million during 1996, as compared
with $68.9 million during 1995, and $31.6 million during 1994. As
development activities continue during 1997, TDC's research and development
expenses are expected to continue until the funds contributed to TDC by ALZA
in 1993, plus any investment income earned thereon, less organization costs
and administrative expenses (including reasonable reserves for TDC
operations) are utilized.
ALZA has an option to license any products developed by TDC, on a
country-by-country product-by-product basis. If ALZA exercises its license
option for any product, ALZA will make the following payments to TDC with
respect to such product:
(a) if the product is sold by ALZA, royalties of up to a maximum of
5% of ALZA's net sales of the product determined as follows: (i) 1%
of net sales, plus (ii) an additional 0.1% of net sales for each full
$1 million of development costs of the
F-12
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
product paid by TDC; and (b) if the product is sold by a third party,
sublicensing fees of up to 50% of ALZA's sublicensing revenues with
respect to the product, determined as follows: (i) 10% of ALZA's
sublicensing revenues, plus (ii) an additional 1% of ALZA's
sublicensing revenues for each full $1 million of development costs of
the product paid by TDC.
ALZA has an option, exercisable on a product-by-product basis, to buy out
its royalty obligation to TDC by making a one-time payment that is a multiple
of royalties and sublicensing fees paid in specified periods. Such option
may be exercised on a country-by-country or worldwide basis. Since the
beginning of 1997, ALZA has exercised its option to license TDC's
second-generation transdermal testosterone product to follow ALZA's existing
Testoderm-Registered Trademark- product from TDC for 12 European countries,
and TDC's OROS-Registered Trademark- hydromorphone product for the entire world.
ALZA also has an option, exercisable in ALZA's sole discretion, to
purchase, according to a predetermined formula, all (but not less than all)
of the outstanding shares of TDC Class A Common Stock (the "Purchase
Option"). The Purchase Option is exercisable at any time until December 31,
1999; provided that such date may be extended for successive one year periods
if, as of any June 30 beginning with June 30, 1999, TDC has not used pursuant
to the Development Contract at least 90% of the cash initially contributed to
TDC by ALZA plus interest earned thereon less organization costs, TDC's
administrative expenses (including reasonable reserves for operations), and
the costs of the distribution to ALZA's stockholders. The Purchase Option
will expire, in any event, on the 60th day after TDC files with the
Securities and Exchange Commission a Form 10-K or Form 10-Q containing a
balance sheet showing less than an aggregate of $5 million in cash and cash
equivalents, short-term investments and long-term investments.
If the Purchase Option is exercised, the exercise price will be the
greatest of:
(a) $100 million;
(b) the greater (i) of 25 times the worldwide royalties and sublicensing
fees paid by ALZA to TDC during four specified calendar quarters or (ii) 100
times such royalties and sublicensing fees during a specified calendar
quarter, in each case, less any amounts previously paid by ALZA to exercise
a buy-out option with respect to any product;
(c) the fair-market value of one million shares of ALZA Common Stock, or
F-13
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
(d) $325 million less all amounts paid by TDC under the Development
Contract.
The purchase price may be paid in cash, in ALZA Common Stock, or any
combination of the two, at the option of ALZA.
Until the expiration of the Purchase Option, ALZA, as the sole holder of
TDC's Class B Common Stock, will be entitled to vote separately as a class
with respect to, and therefore could prevent, any merger or liquidation of
TDC, the sale, lease, exchange, transfer or other disposition of any
substantial asset of TDC, and any amendments to the Restated Certificate of
Incorporation of TDC that would alter the Purchase Option, TDC's
capitalization, or the provisions of the Restated Certificate of
Incorporation concerning TDC's board of directors.
ALZA performs certain administrative services for TDC under an annually
renewable services agreement which is terminable at the option of TDC on 60
days' notice. Under this agreement, TDC reimburses ALZA for its
fully-burdened costs. Expenses incurred by TDC for administrative services
rendered under this agreement were approximately $152,000 in 1996, as
compared with $136,000 in 1995, and $206,000 in 1994. The expenses incurred
for the period from inception (November 1992) to December 31, 1996 were
approximately $614,000.
The arrangements between ALZA and TDC are complex and are incorporated in
various agreements between the parties and in TDC's Restated Certificate of
Incorporation.
3. STOCK OPTIONS
TDC has a stock option plan under which 500,000 shares of Class A Common
Stock have been reserved for issuance to employees, officers, directors
and consultants. During the period from inception (November 1992) to
December 31, 1993, options to purchase 341,500 shares were granted. In the
year ended December 31, 1994, options to purchase 55,000 shares were granted
to consultants. In the year ended December 31, 1995, options to purchase
2,000 shares were granted and options to purchase 1,500 shares were canceled.
In the year ended December 31, 1996, the options to purchase 2,000 shares
that were granted in 1995 were canceled. All outstanding options have an
exercise price of $1.00 per share, are exercisable in four equal annual
installments beginning on June 11, 1996, and expire ten years after the date
of grant. As of December 31, 1996, 395,000 options were outstanding, 98,750
of which were exercisable. The weighted average remaining contractual life
is 6.61 years for options outstanding at December 31, 1996.
F-14
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
STOCK COMPENSATION PLAN
TDC has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. The proforma compensation associated with the options granted
in 1995 (none in 1996) is negligible. TDC has, for financial statement
presentation purposes, recorded deferred compensation expense equal to the
difference, at the date of grant, between the exercise price and the market
value on the date of grant of the Class A Common Stock underlying options
granted during the relevant periods. This deferred compensation amount is
being amortized to expense over the vesting period of the options.
4. INCOME TAXES
Significant components of TDC's deferred tax assets for federal and state
income taxes for the two years ended December 31, 1996 and, 1995 are as follows:
(in thousands)
1996 1995
---------- ---------
Net deferred tax assets:
Capitalized research expenses $ 64,696 $ 28,337
Capital loss carryover 1,434 1,454
SFAS 115 unrealized losses 479 108
Other (39) (39)
---------- ---------
Total deferred tax assets 66,570 29,860
Less: valuation allowance (66,570) (29,860)
---------- ---------
Net deferred tax assets $ - $ -
---------- ---------
---------- ---------
Because of the Company's lack of earnings history, the net deferred tax
assets have been fully offset by a valuation allowance. The valuation
allowance increased by $36,710 in 1996 as compared with 1995 and by $14,719
in 1995 as compared with 1994, and by $14,695 in 1994 as compared with 1993.
F-15
<PAGE>
Therapeutic Discovery Corporation
(a development stage company)
December 31, 1996
EXHIBIT INDEX
EXHIBIT
3.1 Restated Certificate of Incorporation of Therapeutic
Discovery Corporation filed with the Delaware
Secretary of State on April 1, 1993.
3.2 Restated By-laws of Therapeutic Discovery Corporation
dated January 26, 1994.
10.1 Technology License Agreement between Therapeutic
Discovery Corporation and ALZA Corporation dated
March 10, 1993.
10.2 Development Agreement between Therapeutic Discovery
Corporation and ALZA Corporation dated March 10, 1993.
10.3 License Option Agreement between Therapeutic Discovery
Corporation and ALZA Corporation dated March 10, 1993.
10.4 Services Agreement between Therapeutic Discovery
Corporation and ALZA Corporation dated March 10, 1993.
10.5 Amended and Restated 1993 Stock Option Plan.
10.6 Executive Deferral Plan.
10.7 Agreement Regarding Certain Products and Activities
and Amendment No. 1 to Development Agreement
between Therapeutic Discovery Corporation and
ALZA Corporation.
27 Financial Data Schedule
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
THERAPEUTIC DISCOVERY CORPORATION
(ORIGINALLY INCORPORATED ON NOVEMBER 12, 1992)
FIRST: NAME. The name of this corporation is Therapeutic
Discovery Corporation (the "corporation").
SECOND: REGISTERED OFFICE; REGISTERED AGENT. The address of the
registered office of this corporation in the State of Delaware is 1013 Centre
Road, in the City of Wilmington, County of New Castle. The name of the
registered agent of this corporation at such address is Corporation Service
Company.
THIRD: PURPOSE. The purpose of this corporation is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: AUTHORIZED CAPITAL STOCK.
(A) This corporation is authorized to issue two classes of shares,
which shall be known as Class A Common Stock and Class B Common Stock. The
total number of shares of stock of all classes that this corporation is
authorized to issue is 12,000,100. The total number of shares of Class A
Common Stock which this corporation is authorized to issue is 12,000,000.
The total number of shares of Class B Common Stock which this corporation is
authorized to issue is 100. Each share of Class A Common Stock and Class B
Common Stock shall have a par value of $0.01.
Effective immediately upon the filing of this Restated Certificate
of Incorporation, each share of Common Stock, par value $1.00 per share, of
this corporation outstanding immediately prior to such filing shall be
converted into and reclassified as one share of Class B Common Stock.
(B) The powers, designations, preferences, and relative,
participating, optional or other special rights granted to, and the
qualifications, limitations and restrictions imposed upon, the Class A Common
Stock and Class B Common Stock and the respective holders thereof are as
follows:
(1) REDEMPTION. The shares of Class A Common Stock are
redeemable and may be redeemed as provided in (but only as provided in)
ARTICLE FIFTH, Section (F).
(2) DIVIDENDS. The holders of shares of Class A Common Stock
and Class B Common Stock shall be entitled to receive per share and
without preference such dividends as may be declared by the Board of
Directors from time to time
<PAGE>
out of funds legally available therefor. No dividend may be declared on
the Class A Common Stock unless the same per share dividend is declared
on the Class B Common Stock, and no dividend may be declared on the
Class B Common Stock unless the same per share dividend is declared on
the Class A Common Stock. Dividends may not be declared, nor may shares
of Class A Common Stock or Class B Common Stock be repurchased or
redeemed (other than pursuant to Section (F) of Article FIFTH) if, after
payment of such dividend, or after effecting such repurchase or
redemption, the amount of this corporation's cash, cash equivalents,
short and long term investments would be less than the amount of
Available Funds as of the date of such dividend, repurchase or
redemption.
(3) LIQUIDATION. In the event of voluntary or involuntary
liquidation of this corporation, the holders of the Class A Common Stock
and Class B Common Stock of the corporation shall be entitled to
receive, on a pro rata per share basis and without preference, all of
the remaining assets of this corporation available for distribution to
its stockholders.
(4) VOTING RIGHTS. Except as otherwise required by law or
provided herein, the holders of Class A Common Stock and Class B Common
Stock shall vote together as a single class. Each holder of Class A
Common Stock and Class B Common Stock shall have one vote for each share
standing in his or her name on all matters submitted to a vote of
holders of the common shares. At any meeting of the stockholders of this
corporation, the determination of a quorum shall be based upon the
presence of shares of Class A Common Stock and Class B Common Stock
representing a majority of the voting power of all of the shares of
Class A Common Stock and Class B Common Stock. This corporation shall
not, without the affirmative vote of the holders of a majority of the
issued and outstanding shares of Class B Common Stock, voting separately
and as a class, (a) alter or change the powers, designations,
preferences and relative, participating, optional or other special
rights granted to, or the qualifications, limitations and restrictions
imposed upon, the Class A Common Stock or the Class B Common Stock, (b)
alter or change Articles FOURTH, FIFTH, SIXTH, SEVENTH or EIGHTH of this
Restated Certificate of Incorporation, (c) authorize the creation or
issuance of any additional class or series of stock, or otherwise make
any amendment to this Certificate of Incorporation that would alter the
rights of the holders of the Class B Common Stock, (d) undertake the
voluntary dissolution, liquidation or winding up of this corporation,
(e) merge or consolidate this corporation with or into any other
corporation or entity, (f) sell, lease, exchange, transfer or otherwise
dispose of any substantial asset of this corporation or (g) alter the
bylaws of this corporation in a manner
-2-
<PAGE>
described in the last sentence of ARTICLE EIGHTH. Furthermore, from and
after the Purchase Option Exercise Date, as defined in Article FIFTH,
(i) the board of directors of this corporation shall cease to be
classified; (ii) the number of directors of this corporation shall be
increased to a number equal to (a) two times the maximum number of
authorized directors (counting for this purpose both directors in office
and vacant directorships), PLUS (b) one; and (iii) the holders of the
Class B Common Stock shall have the sole right to elect the directors of
this corporation, including directors to fill the new directorships
created pursuant to clause (ii). No vacancy created as a result of the
increase in the size of the board of directors pursuant to the preceding
sentence shall be filled other than by the holders of the Class B Common
Stock.
(5) CONVERSION. The Class B Common Stock shall automatically
convert into fully paid and non-assessable shares of Class A Common
Stock of this corporation at 12:01 a.m. New York time on the day
immediately following the expiration of the Purchase Option granted in
Article FIFTH. The Class B Common Stock shall convert into Class A
Common Stock at the rate of one share of Class A Common Stock for each
share of Class B Common Stock.
(6) TRANSFER OF CLASS A COMMON STOCK. Until the first to
occur of (i) the third anniversary of the date (the "Distribution Date")
upon which certificates representing Units comprised in part of shares
of Class A Common Stock are distributed by ALZA Corporation (together
with its successors and assigns, "ALZA") to the holders of ALZA's Class
A Common Stock or (ii) the Purchase Option Exercise Date, the Class A
Common Stock may be transferred only as part of Units. Each "Unit"
consists of one share of Class A Common Stock and one warrant to acquire
one-eighth of one share of ALZA Common Stock.
FIFTH. PURCHASE OPTION.
(A) DEFINITIONS. For purposes of this Restated Certificate of
Incorporation, the following terms shall have the following definitions:
(1) ALZA COMMON STOCK means the Class A Common Stock of ALZA or,
if such Class A Common Stock is converted into or exchanged for another class
or series of stock of ALZA or any other corporation, such other class or
series of stock.
(2) AVAILABLE FUNDS means, as of any date of determination, the
sum of (a) $250 million (contributed by ALZA in or about March 1993), PLUS
(b) interest and other income earned through investment of such funds until
their expenditure pursuant to the Development Contract through the date of
-3-
<PAGE>
determination, LESS (c) reasonable ongoing administrative expenses of this
corporation, including legal and accounting expenses, incurred through the
date of determination, LESS (d) the costs associated with the distribution to
ALZA's stockholders of the Units.
(3) DEVELOPMENT CONTRACT means the Development Agreement dated as
of March 10, 1993 between ALZA and this corporation, as such contract may be
amended or modified from time to time by amendments approved by ALZA and the
board of directors of this corporation.
(4) FAIR MARKET VALUE means, with reference to ALZA Common Stock,
(a) if ALZA Common Stock is listed on the New York Stock Exchange or any
other securities exchange reporting closing sales prices (including without
limitation the NASDAQ National Market System), the average of the closing
sales price of ALZA Common Stock on such exchange (which shall be the New
York Stock Exchange or, if ALZA Common Stock is not then traded on such
exchange, on the principal exchange on which ALZA Common Stock is then
traded), for the five trading days ending with the trading day that is two
trading days prior to the date of determination, (b) if ALZA Common Stock is
not listed on any securities exchange described in clause (a) but is quoted
on NASDAQ or another quotation system providing bid prices, the average (over
the five day period described in clause (a)) of the bid prices for each day
in such period on NASDAQ (or, if ALZA Common Stock is not then quoted on
NASDAQ, the largest quotation system on which ALZA Common Stock is then
quoted), and (c) if ALZA Common Stock is not listed on any exchange or quoted
on any quotation system, the value thereof as determined in good faith by
ALZA's board of directors.
(5) FINAL PURCHASE OPTION EXERCISE PRICE means the Purchase Option
Exercise Price MINUS (a) the amount by which this corporation's Liabilities
existing at the Purchase Option Exercise Date (other than liabilities
pursuant to the Development Contract) exceed the aggregate of this
corporation's then existing cash, cash equivalents and short-term and
long-term investments (but excluding from such cash, cash equivalents and
short-term and long-term investments the amount of Available Funds determined
as of the Purchase Option Exercise Date which had not, as of such date, been
paid by this corporation in accordance with the Development Contract); and
MINUS (b), if the Purchase Option Exercise Price was determined based upon the
provisions of clause (c) of Section (A)(10) of this Article FIFTH, any
additional amounts paid by this corporation pursuant to the Development
Contract from the date of the last report of such expenditures provided by
this corporation to ALZA pursuant to the Development Contract to the Purchase
Option Exercise Date.
(6) LIABILITIES means, with respect to this corporation, (a) all
liabilities required to be reflected or
-4-
<PAGE>
reserved against in this corporation's financial statements under generally
accepted accounting principles consistently applied ("GAAP"), (b) any
guaranty of any indebtedness of another person and (c) any reimbursement or
similar obligation with respect to any letter of credit issued for the
account of this corporation or as to which this corporation is otherwise
liable. Liabilities of the type described in (b) and (c) shall be valued at
the full amount of the potential liability of the corporation thereon.
(7) LICENSE AGREEMENT means any License Agreement between ALZA and
this corporation entered into upon the exercise by ALZA of the license option
granted to it pursuant to the License Option Agreement.
(8) LICENSE OPTION AGREEMENT means the License Option Agreement
between ALZA and this corporation dated as of March 10, 1993, as such
agreement may be amended or modified from time to time by amendments approved
by ALZA and the board of directors of this corporation.
(9) PURCHASE OPTION EXERCISE DATE means the date upon which ALZA
notifies this corporation in writing of its exercise of the Purchase option
as provided in Section (C) of this Article FIFTH.
(10) PURCHASE OPTION EXERCISE PRICE means the greatest of the
following:
(a) the greater of (i) 25 times the Royalties paid by or due
from ALZA to this corporation, PLUS 25 times any Royalties that would
have been paid by or due from ALZA to this corporation if ALZA had not
exercised its right to buy out its obligation to pay any such Royalties
as provided in Section 7.5 of the Development Contract or Section 3.4 of
any License Agreement, in each case determined with reference to the
most recent four complete calendar quarters preceding the Purchase
Option Exercise Date for which such Royalties were paid by or due from
ALZA or would have been paid by or due from ALZA, or (ii) 100 times such
Royalties paid by or due from ALZA to this corporation during the most
recent complete calendar quarter for which such Royalties were paid or
due; PROVIDED, that in the case of either (i) or (ii) the amount so
determined shall be reduced by any amounts previously paid by ALZA to
this corporation to buy out any obligation to pay Royalties as provided
in the Development Contract or any License Agreement;
(b) the Fair Market Value of one million shares of ALZA
Common Stock (which number of shares shall be proportionately adjusted
for any stock dividend, split-up, combination or reclassification of the
ALZA Common Stock) determined as of the Purchase Option Exercise Date;
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(c) $325 million LESS the total amount paid by this
corporation under the Development Contract as last reported by this
corporation to ALZA through the Purchase Option Exercise Date; and
(d) $100 million.
(11) PURCHASE OPTION EXPIRATION TIME means 11:59 p.m. New York time
on December 31, 1999; provided that such date will be extended for successive
one year periods if, as of any June 30 beginning with June 30, 1999, this
corporation has not paid at least 90% of all Available Funds pursuant to the
Development Contract. Notwithstanding the foregoing sentence, the Purchase
Option Expiration Time will in no event occur later than 11:59 p.m. New York
time on the 60th day after the later of (a) the date of filing with the
Securities and Exchange Commission or (b) the due date of this corporation's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q containing a
balance sheet showing that this corporation has less than an aggregate of $5
million in cash, cash equivalents, and short-term and long-term investments.
(12) ROYALTIES means (a) royalties paid or other payments made by
ALZA to this corporation under a License Agreement in respect of any product
licensed by ALZA from this corporation pursuant to the License Option
Agreement and (b) payments made by ALZA under Section 7.4 of the Development
Contract. In determining the amount of Royalties for purposes of Article
FIFTH, Section (A)(10)(a), all Special Royalty Payments are to be amortized
equally over a period of 28 calendar quarters beginning with the calendar
quarter in which such Special Royalty Payment is made, regardless of the
treatment of such Special Royalty Payments in determining Royalties actually
paid under any License Agreement or the Development Contract.
(13) SPECIAL ROYALTY PAYMENT means front-end distribution fees,
prepaid royalties and similar one-time, infrequent or special payments.
(14) STATUS STATEMENT means, as of any date, a balance sheet dated
as of such date, together with (a) a statement and brief description of all
other liabilities of this corporation constituting Total Liabilities as of
such date not reflected on such balance sheet, (b) a statement of the amount
of Available Funds remaining as of such date, and (c) a statement of the
total amounts paid by this corporation pursuant to the Development Contract
through such date.
(15) TOTAL LIABILITIES means, with respect to this corporation, (a)
all Liabilities and (b) any other debts, liabilities or obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and
expenses relating thereto, and including those debts, liabilities
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and obligations arising under law, rule or regulation, or under any pending
or threatened action, suit or proceeding, or any order or consent decree of
any governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
(B) GRANT OF OPTION. ALZA is hereby granted an exclusive
irrevocable purchase option to purchase all issued and outstanding shares of
Class A Common Stock of this corporation for the Final Purchase Option
Exercise Price (the "Purchase Option"). The Purchase Option, if exercised,
must be exercised as to all, but not less than all, issued and outstanding
shares of Class A Common Stock and may be exercised at any time at or prior
to the Purchase Option Expiration Time. ALZA shall elect, at the time of
exercise of the Purchase Option, to pay all or any portion of the Final
Purchase Option Exercise Price in cash, ALZA Common Stock (valued at its Fair
Market Value determined as of the Purchase Option Exercise Date), or any
combination thereof. The Purchase Option may, at ALZA's option, be assigned
or otherwise transferred to any person or entity, including this corporation.
(C) MANNER OF EXERCISE. The Purchase Option shall be exercised at
or before the Purchase Option Expiration Time by written notice (the
"Exercise Notice") from ALZA to this corporation stating that the Purchase
Option is being exercised and setting forth (1) the Purchase Option Exercise
Price; (2) the portion, if any, of the Purchase Option Exercise Price to be
paid in cash and the portion, if any, of the Purchase Option Exercise Price
to be paid in ALZA Common Stock, and if any portion of the Purchase Option
Exercise Price is to be paid in ALZA Common Stock, stating the Fair Market
Value of such ALZA Common Stock determined as of the Purchase Option Exercise
Date, and (3) a closing date (the "Closing Date") on which all of the issued
and outstanding shares of Class A Common Stock will be purchased. The
Purchase Option shall be deemed to be exercised as of the date of mailing by
first class mail of the Exercise Notice to this corporation.
(D) CLOSING.
(1) CLOSING DATE; COOPERATION. Except as set forth below, the
Closing Date shall be the date specified as such in the Exercise Notice,
which date specified shall be no later than 90 days after the Purchase Option
Exercise Date. The Closing Date may be extended by ALZA if, in the judgment
of ALZA, an extension of the Closing Date is necessary to obtain any
governmental or third party consent to the purchase of the Class A Common
Stock, to permit any necessary registration statement or similar filing to be
declared effective, or to permit the expiration prior to the Closing Date of
any statutory or regulatory waiting period. ALZA may extend the Closing Date
for the reasons set forth in the preceding sentence by delivering written
notice of such extension to this corporation on or prior
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to the previously scheduled Closing Date. This corporation shall cooperate
with ALZA to effect the closing of the Purchase Option, including without
limitation seeking any required third-party or governmental consents, and
filing any applications, notifications, registration statements or the like
which may be necessary to effect the closing.
(2) CERTAIN RESTRICTIONS FOLLOWING PURCHASE OPTION EXERCISE DATE.
From the Purchase Option Exercise Date until the Closing Date, this
corporation will not take any of the following actions (or permit any such
actions to be taken on its behalf) except with the prior written consent of
ALZA:
(a) borrow money, or mortgage, remortgage, pledge,
hypothecate or otherwise encumber any of its assets;
(b) sell, lease, lend, exchange or otherwise dispose of any
of its assets, other than sales of inventory in the ordinary course of
business;
(c) pay or declare any dividends or make any distributions on
or in respect of any shares of its capital stock;
(d) default in its obligations under any material contract,
agreement, commitment or undertaking of any kind or enter into any
material contract, agreement, purchase order or other commitment; or
(e) enter into any other transaction or agreement or
arrangement, or incur any liabilities, not in the ordinary course of
this corporation's business.
(3) DETERMINATION OF FINAL PURCHASE OPTION EXERCISE PRICE. Not
later than 15 business days following the Purchase Option Exercise Date, this
corporation shall deliver a final Status Statement to ALZA prepared as of the
Purchase Option Exercise Date. Following receipt of such Status Statement and
completion of any other investigation as ALZA shall deem necessary or
appropriate, and prior to the Closing Date, ALZA shall determine the Final
Purchase Option Exercise Price by making the adjustments to the Purchase
Option Exercise Price contemplated by Section (A)(5) of this Article FIFTH
and shall notify this corporation of such determination.
(4) PAYMENT OF FINAL PURCHASE OPTION EXERCISE PRICE. On or before
the Closing Date, ALZA shall deposit the full amount of the Final Purchase
Option Exercise Price with a bank or banks or similar entities designated by
ALZA (which may include ALZA's transfer agent if shares of ALZA Common Stock
are being delivered) to pay, on ALZA's behalf, the Final Purchase Option
Exercise Price (the "Payment Agent"). Funds, if any, and ALZA Common Stock,
if any, deposited with the Payment Agent shall be delivered in trust for the
benefit of the holders of Class A
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Common Stock, and ALZA shall provide the Payment Agent with irrevocable
instructions to pay, on or after the Closing Date, the Final Purchase Option
Exercise Price for the shares of Class A Common Stock to the holders of
record thereof determined as of the Closing Date. Payment for shares of
Class A Common Stock shall be mailed to each holder at the address set forth
in this corporation's records or at the address provided by each holder or,
if no address is set forth in this corporation's records for a holder or
provided by such holder, to such holder at the address of this corporation.
At ALZA's request, this corporation shall provide, or shall cause its
transfer agent to provide, to ALZA or to the Payment Agent, free of charge, a
complete list of the record holders of shares of Class A Common Stock,
including the number of shares of Class A Common Stock held of record and the
address of each record holder.
(E) TRANSFER OF TITLE. Transfer of title to all of the issued and
outstanding shares of Class A Common Stock shall be deemed to occur
automatically on the Closing Date and thereafter this corporation shall be
entitled to treat ALZA as the sole holder of all of the issued and
outstanding shares of its Class A Common Stock, notwithstanding the failure
of any holder of Class A Common Stock to tender the certificates representing
such shares to the Payment Agent. This corporation shall instruct its
transfer agent not to accept any shares of Class A Common Stock for transfer
on and after the Closing Date, except for the shares of Class A Common Stock
transferred to ALZA. This corporation shall take all actions reasonably
requested by ALZA to assist in effectuating the transfer of shares of Class A
Common Stock in accordance with this Article FIFTH.
(F) REDEMPTION OF CLASS A COMMON STOCK. At ALZA's election (which
election may be made at any time, provided it is made, by delivery of written
notice thereof to this corporation, not less than five days prior to the
Closing Date), this corporation shall, subject to applicable restrictions in
the Delaware General Corporation Law, redeem on the Closing Date all issued
and outstanding shares of Class A Common Stock for an aggregate redemption
price equal to the Final Purchase Option Exercise Price.
SIXTH. PROTECTIVE PROVISIONS.
(A) LEGEND. Certificates evidencing shares of Class A Common Stock
issued by or on behalf of this corporation shall bear a legend in
substantially the following form:
"The shares of Therapeutic Discovery Corporation evidenced hereby
are subject to an option in favor of ALZA Corporation, its successors and
assigns, as described in the Restated Certificate of Incorporation of
Therapeutic Discovery Corporation to purchase such shares at a purchase price
determined in accordance with Article FIFTH thereof exercisable
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by notice delivered to this Corporation at or prior to the Purchase Option
Expiration Time (as defined in the Restated Certificate of Incorporation of
Therapeutic Discovery Corporation). Copies of the Restated Certificate of
Incorporation of Therapeutic Discovery Corporation are available at the
principal place of business of Therapeutic Discovery Corporation at 1290 Page
Mill Road, P.0. Box 10950, Palo Alto, California 94303-0860 and will be
furnished to any stockholder on request and without cost."
(B) NO CONFLICTING ACTION. This corporation shall not take, nor
permit any other person or entity within its control to take, any action
inconsistent with ALZA's rights under Article FIFTH. This corporation shall
not enter into any arrangement, agreement or understanding, whether oral or
in writing, that is inconsistent with or limits or impairs the rights of ALZA
and the obligations of this corporation hereunder, including without
limitation any arrangement, agreement or understanding which imposes any
obligation upon this corporation, or deprives this corporation of any
material rights, as a consequence of the exercise of the Purchase Option or
the acquisition of the outstanding Class A Common Stock pursuant thereto.
(C) INSPECTION AND VISITATION RIGHTS; STATUS STATEMENTS. ALZA
shall have the right to inspect and copy, on reasonable notice and during
regular business hours, the books and records of this corporation. ALZA shall
also have the right to request from time to time (but not more frequently
than monthly) a Status Statement as of such date as ALZA may request. Each
Status Statement shall be sent within seven days of request by ALZA. ALZA
shall also have the right to send a non-voting representative to attend all
meetings of this corporation's board of directors and any committees thereof.
Such representative shall receive notice of all meetings of this
corporation's board of directors and each committee thereof, as well as
copies of all documents and other materials provided to any directors of this
corporation in connection with any such meeting not later than the time such
materials are provided to other directors. Such representative shall also be
provided with copies of all resolutions adopted or proposed to be adopted by
unanimous written consent not later than the time such resolutions are
provided to other directors.
SEVENTH: BOARD OF DIRECTORS.
(A) The number of directors which shall constitute the whole Board
of Directors of this corporation shall initially be three, but may be
increased or decreased from time to time by a resolution duly adopted by the
Board of Directors.
(B) Nomination of candidates for election to the Board of
Directors shall be made as provided in the bylaws of this corporation.
Election of directors need not be by written ballot.
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(C) The Board of Directors shall be and is divided into three
classes: Class I, Class II and Class III, which shall be as nearly equal in
number as possible. Each director shall serve for a term ending on the date
of the third annual meeting of stockholders following the annual meeting at
which the director was elected; provided, however, that each initial director
in Class I shall hold office until the annual meeting of stockholders in
1994; each initial director in Class II shall hold office until the annual
meeting of stockholders in 1995; and each initial director in Class III shall
hold office until the annual meeting of stockholders in 1996. Notwithstanding
the foregoing provisions of this Article, each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal.
(D) In the event of any increase or decrease in the authorized
number of directors, the newly created or eliminated directorships resulting
from such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to maintain such classes as nearly
equal as possible. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
(E) Except as otherwise provided in Article FOURTH, Section
(B)(4), newly created directorships resulting from any increase in the number
of directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled
by the affirmative vote of a majority of the remaining directors then in
office (and not by stockholders), even though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been elected and qualified.
(F) The name and mailing address of each person who is to serve as
a director until the annual meeting of the stockholders entitled to vote for
the class or until a successor is elected and qualified are as follows:
NAME MAILING ADDRESS CLASS
Dr. Pieter P. Bonsen 950 Page Mill Road, I
Palo Alto, CA 94303
Adrian M. Gerber 950 Page Mill Road, II
Palo Alto, CA 94303
Dr. Felix Theeuwes 950 Page Mill Road, III
Palo Alto, CA 94303
(G) The board of directors of this corporation shall cease to be
classified as provided in this Article SEVENTH from
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and after the Purchase Option Exercise Date. From and after such date all
directors shall be elected to one year terms; provided the term of any
director then in office shall not be reduced.
EIGHTH: BYLAWS. In furtherance and not in limitation of the
powers conferred by statute, and subject to the next sentence, the Board of
Directors and the stockholders of this corporation are each expressly
authorized to adopt, amend or repeal the bylaws of this corporation subject
to any particular provisions concerning amendments set forth in this
Certificate of Incorporation or the bylaws of this corporation. No amendment
to the bylaws may be adopted by the stockholders without the approval of
holders of a majority of the Class B Common Stock voting separately as a
class if such amendment would affect the classification of the Board of
Directors, or would otherwise regulate the conduct of the Board's affairs or
the manner in which it may act.
NINTH: STOCKHOLDER MEETINGS.
(A) SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes whatsoever may be called at any time only by the Board of
Directors, the Chairman of the Board or the President of this corporation.
(B) NO ACTION WITHOUT MEETING. At any time when this corporation
has more than one stockholder of any class of capital stock, no action
required to be taken or which may be taken at any annual or special meeting
of the stockholders may be taken without a meeting, and the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied. Notwithstanding the foregoing, the holder or
holders of the Class B Common Stock may take any action permitted to be taken
by such holders as a class by written consent without a meeting.
TENTH: LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS.
(A) ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. No director of
this corporation shall be personally liable to this corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
this corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper, personal benefit.
(B) INDEMNIFICATION AND INSURANCE.
1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is
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involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), because he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer of this corporation or is or was serving at the request of this
corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise (including
service with respect to employee benefit plans), whether the basis of the
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by this
corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
this corporation to provide broader indemnification rights than that law
permitted this corporation to provide before such amendment), against all
expense, liability and loss (including attorney's fees, judgments, penalties,
fines, Employee Retirement Income Security Act of 1974 excise taxes or
penalties, and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith; provided, however, that
this corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if the proceeding (or part thereof) was authorized by the Board of Directors
of this corporation. Such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators. The right to
indemnification conferred by this Section shall be a contract right which may
not be retroactively amended and shall include the right to be paid by this
corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if the Delaware General
Corporation Law requires the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service with respect to
an employee benefit plan) in advance of the final disposition of the
proceeding, such payment shall be made only upon delivery to this corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if ultimately it shall be determined that such director
or officer is not entitled to be indemnified under this section or otherwise.
This corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of this corporation with the same
scope and effect as the indemnification of directors and officer
2. NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
other right which any
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person may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
3. INSURANCE. This corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
this corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expenses, liability or loss, whether or not
this corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
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IN WITNESS WHEREOF, the undersigned officers have executed this
Restated Certificate of Incorporation on March 30, 1993 and do hereby certify
that this Restated Certificate of Incorporation, which restates and integrates,
and also further amends, the provisions of this Corporation's Certificate of
Incorporation, was duly adopted by the stockholders of this Corporation in
accordance with Sections 242 and 245 of the Delaware General Corporation Law.
THERAPEUTIC DISCOVERY CORPORATION
By: /s/ Pieter P. Bonsen
----------------------------------
Dr. Pieter P. Bonsen,
President, Therapeutic Discovery
Corporation
ATTEST:
/s/ Mary M. Roensch
- -----------------------------------
Mary M. Roensch, Secretary,
Therapeutic Discovery Corporation
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RESTATED BYLAWS
OF
THERAPEUTIC DISCOVERY CORPORATION
REGISTERED OFFICE AND REGISTERED AGENT
l. REGISTERED OFFICE. The registered office of the corporation shall
be in the City of Wilmington, County of New Castle, State of Delaware.
2. OTHER OFFICES. The corporation may also have offices at such other
places, both within or without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the corporation
may require.
MEETINGS OF STOCKHOLDERS
3. TIME AND PLACE OF MEETINGS. All meetings of the stockholders shall
be held at such time and place, either within or without the State of
Delaware, as shall be fixed by the Board of Directors and stated in the
notice or waiver of notice of the meeting.
4. ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting, shall be held on such date and at such time
and place as the Board of Directors shall each year designate.
5. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes prescribed in the notice of meeting, may be called only
by the Board of Directors,
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the Chairman of the Board or the President of the corporation.
6. NO ACTION WITHOUT MEETING. Except as otherwise provided in the
Certificate of Incorporation, at any time when the corporation has more than
one stockholder of any class of capital stock, no action required to be taken
or which may be taken at any annual or special meeting of the stockholders of
such class of capital stock of the corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied. Notwithstanding
the foregoing, the holder or holders of the Class B Common Stock may take any
action permitted to be taken by such holders as a class by written consent
without a meeting.
7. NOTICE.
(a) Written notice of the place, date, and time of all meetings of
the stockholders shall be given, not less than ten nor more than sixty days
before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time
by the Delaware General Corporation Law or the Certificate of Incorporation
of the corporation).
(b) When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the place, date
and time thereof are announced at the meeting at which the adjournment is
taken and the adjournment is
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not for more than thirty days; provided however, that if the date of any
adjourned meeting is more than thirty days after the date for which the
meeting was originally noticed, or if a new record date is fixed for the
adjourned meeting, written notice of the place, date, and time of the
adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at
the original meeting.
8. NOMINATIONS AND PROPOSALS.
(a) The Board of Directors of the corporation may nominate
candidates for election as directors of the corporation and may propose such
other matters for approval of the stockholders as the board deems necessary
or appropriate.
(b) Any stockholder entitled to vote for directors may nominate
candidates for election as directors of the corporation; provided, however,
that so long as the corporation has more than one stockholder, no nominations
for director of the corporation by any person other than the Board of
Directors shall be presented to any meeting of stockholders unless the person
making the nomination is a record stockholder and shall have delivered a
written notice to the Secretary of the corporation no later than the close of
business 60 days in advance of the stockholder meeting or ten days after the
date on which notice of the meeting is first given to the stockholders,
whichever is later. Such notice shall (i) set forth the name and address of
the person advancing such nomination and the nominee, together with such
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information concerning the person making the nomination and the nominee as
would be required by the appropriate Rules and Regulations of the Securities
and Exchange Commission to be included in a proxy statement soliciting
proxies for the election of such nominee, and (ii) shall include the duly
executed written consent of such nominee to serve as director if elected.
(c) No proposal by any person other than the Board of Directors
shall be submitted for the approval of the stockholders at any regular or
special meeting of the stockholders of the corporation unless the person
advancing such proposal shall have delivered a written notice to the
Secretary of the corporation no later than the close of business 60 days in
advance of the stockholder meeting or ten days after the date on which notice
of the meeting is first given to the stockholders, whichever is later. Such
notice shall set forth the name and address of the person advancing the
proposal, any material interest of such person in the proposal, and such
other information concerning the person making such proposal and the proposal
itself as would be required by the appropriate Rules and Regulations of the
Securities and Exchange Commission to be included in a proxy statement
soliciting proxies for the proposal.
9. QUORUM AND REQUIRED VOTE.
(a) At any meeting of the stockholders, the holders of a majority
of all of the shares of the stock entitled to vote on the subject matter at
the meeting, present in person or by proxy, shall constitute a quorum, unless
or except to the extent that
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the presence of a larger number may be required by law. Except as otherwise
provided in these bylaws or as otherwise required by law, the affirmative
vote of a majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders.
(b) If a quorum shall fail to attend any meeting, the chairman of
the meeting or the holders of a majority of the shares of stock entitled to
vote who are present, in person or by proxy, may adjourn the meeting to
another place, date, or time.
(c) If a notice of any adjourned special meeting of stockholders is
sent to all stockholders entitled to vote thereat, stating that it will be
held with those present constituting a quorum, then except as otherwise
provided in these bylaws or as otherwise required by law, those present at
such adjourned meeting shall constitute a quorum, and all matters shall be
determined by a majority of the votes cast at such meeting.
10. ORGANIZATION. The Chairman of the Board or, in his or her absence,
the President of the Corporation or, in the absence of both, such person as
may be designated by the Board of Directors or, if there is no such
designation, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and act as chairman of the meeting.
11. CONDUCT OF BUSINESS. The chairman of any meeting of
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stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order.
12. PROXIES AND VOTING. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedures established for
the meeting.
13. STOCK LIST. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order and showing the
address of each such stockholder and the number of shares of each class
registered in his or her name, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The stock list shall also be kept at the
place of the meeting during the whole time thereof and shall be open to the
examination of any such stockholder present.
BOARD OF DIRECTORS
14. POWERS. The business and affairs of the corporation shall be
managed by or under the direction of its Board of Directors.
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15. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The number of directors
of the corporation who shall constitute the whole board shall be five but may
be increased or decreased from time to time either by a resolution or bylaw
duly adopted by the Board of Directors. The Board of Directors shall be and
is divided into three classes: Class I, Class II and Class III, which shall
be as nearly equal in number as possible. Each director shall serve for a
term ending on the date of the third annual meeting of stockholders following
the annual meeting at which the director was elected; provided, however, that
each initial director in Class I shall hold office until the annual meeting
of stockholders in 1994; each initial director in Class II shall hold office
until the annual meeting of stockholders in 1995; and each initial director
in Class III shall hold office until the annual meeting of stockholders in
1996. Notwithstanding the foregoing, each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal.
16. REMOVAL. During any period when the Board of Directors is divided
into classes, any director may be removed from office only with cause, and
then only by the holders of a majority of the shares entitled to vote in an
election of directors.
17. RESIGNATIONS. A director may resign at any time by giving written
notice to the corporation. Such resignation shall be effective when given
unless the director specifies a later time. The resignation shall be
effective regardless of whether it is accepted by the corporation.
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18. NEWLY-CREATED DIRECTORSHIPS AND VACANCIES. During any period when
the Board of Directors is divided into classes, in the event of any increase
or decrease in the authorized number of directors, any newly-created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors so
as to maintain such classes as nearly equal in number as possible. Whether or
not the board is classified, no decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director. Except as otherwise provided in the corporation's Certificate of
Incorporation, newly-created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then
in office (and not by stockholders), even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
19. REGULAR MEETINGS. Regular meetings of the Board of Directors shall
be held at such place or places, on such date or dates, and at such time or
times as shall have been established by the Board of Directors and publicized
among all directors. A
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notice of each regular meeting shall not be required.
20. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board, the President or any two directors.
21. NOTICE OF MEETINGS.
(a) Special meetings and regular meetings not fixed as provided in
these Bylaws, shall be held upon four days' notice by mail or two days'
notice delivered personally or by telephone or telegraph to each director who
does not waive such notice. The notice shall state the place, date and time
of the meeting. Unless otherwise indicated in the notice, any and all
business may be transacted at a special meeting.
(b) Notice of a reconvened meeting need not be given if the place,
date and time of the reconvened meeting are announced at the meeting at which
the adjournment is taken and the adjournment is not for more than 24 hours.
If a meeting is adjourned for more than 24 hours, notice of the reconvened
meeting shall be given prior to the time of that reconvened meeting to the
directors who were not present at the time of adjournment.
22. ACTION WITHOUT MEETING. Except as required by law, any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting if all members of the
Board of Directors or any committee thereof, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
the
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Board of Directors or committee.
23. MEETING BY TELEPHONE. Except as required by law, members of the
Board of Directors, or of any committee thereof may participate in the
meeting of the Board of Directors or committee by means of conference
telephone or similar communications equipment if all persons who participate
in the meeting can hear each other. Such participation shall constitute
presence in person at such meeting.
24. QUORUM AND MANNER OF ACTING. At any meeting of the Board of
Directors, a majority of the directors then in office shall constitute a
quorum for all purposes. A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of
directors. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without
further notice or waiver thereof. Except as provided herein, the act of the
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors.
25. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors, by a
vote of a majority of the whole Board, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors
to serve as the member or members, designating, if
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it desires, other directors as alternate members who may replace any absent
or disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend or to authorize the issuance of stock if the resolution
which designates the committee or a supplemental resolution of the Board of
Directors shall so provide. The principles set forth in Sections 14 through
24 of these Bylaws shall apply to committees of the Board of Directors and to
actions taken by such committees.
26. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws the Board of Directors shall
have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the Board of
Directors or a committee thereof and may receive fixed fees and other
compensation for their services as directors. No such payment shall preclude
any director from serving the corporation in any other capacity and receiving
compensation for such service.
OFFICERS
27. TITLES. The officers of the corporation shall be chosen by the
Board of Directors and shall include a Chairman of the Board or a President
or both and a Secretary. The Board of Directors may also appoint a Treasurer
and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers
or other
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officers. Any number of offices may be held by the same person. All officers
shall perform their duties and exercise their powers subject to the Board of
Directors.
28. ELECTION, TERM OF OFFICE AND VACANCIES. The officers shall be
elected annually by the Board of Directors at its regular meeting following
the annual meeting of the stockholders and each officer shall hold office
until the next annual election of officers and until the officer's successor
is elected and qualified or until the officers death, resignation or removal.
Any officer may be removed at any time, with or without cause, by the Board
of Directors. Any vacancy occurring in any office may be filled by the Board
of Directors.
29. RESIGNATION. Any officer may resign at any time upon notice to the
corporation without prejudice to the rights, if any, of the corporation under
any contract to which the officer is a party. The resignation of an officer
shall be effective when given unless the officer specifies a later time. The
resignation shall be effective regardless of whether it is accepted by the
corporation.
30. CHIEF EXECUTIVE OFFICER. The Board of Directors shall designate
either the Chairman of the Board or the President as the chief executive
officer and may prescribe the duties and powers of the chief executive
officer. In the absence of such a designation, the Chairman of the Board
shall be the chief executive officer. If there is no Chairman of the Board,
the President shall be the chief executive officer. Subject to the
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provisions of these Bylaws and to the direction of the Board of Directors, the
chief executive officer shall have the responsibility for the general management
and control of the business and affairs of the corporation and shall perform all
duties and have all powers which are commonly incident to the office of chief
executive or which are delegated to him or her by the Board of Directors.
Either the Chairman of the Board or the President and such other officers as
may, from time to time be expressly designated by the Board of Directors shall
have the power to sign all stock certificates, contracts and other instruments
of the Corporation which are authorized.
31. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall issue all
authorized notices for and shall keep minutes of all meetings of the
stockholders and the Board of Directors. He or she shall have charge of the
corporate books and shall perform such other duties as the Board of Directors
may from time to time prescribe. At the request of the Secretary, or in the
Secretary's absence or disability, any Assistant Secretary shall perform any
of the duties of the Secretary and when so acting shall have all the powers
of and be subject to all the restrictions upon, the Secretary.
32. OTHER OFFICERS. The other officers of the corporation, if any,
shall exercise such powers and perform such duties as the Board of Directors
or the chief executive officer shall prescribe.
33. COMPENSATION. The Board of Directors shall fix the
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compensation of the chief executive officer and may fix the compensation of
other employees of the corporation, including the other officers. If the
Board does not fix the compensation of the other officers, the chief
executive officer shall fix such compensation.
34. ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the Chairman of the Board, the
president or any officer of the corporation authorized by the Chairman of the
Board or the president, shall have power to vote and otherwise act on behalf
of the corporation, in person or by proxy, at any meeting of stockholders of,
or with respect to any action of stockholders of, any other corporation in
which the corporation may hold securities and otherwise shall have power to
exercise any and all rights and powers which the corporation may possess by
reason of its ownership of securities in such other corporation.
STOCK AND DIVIDENDS
35. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate signed by, or in the name of, the corporation by the Chairman,
the President or a Vice President, and by the Secretary or an Assistant
Secretary, or a Treasurer or an Assistant Treasurer, certifying the number of
shares owned by him or her. Any or all of the signatures on the certificate
may be facsimile.
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36. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the
transfer books of the corporation kept at an office of the corporation or by
transfer agents designated to transfer shares of the stock of the
corporation. Except where a certificate is issued in accordance with the next
sentence of this Section, an outstanding certificate for the number of shares
involved shall be surrendered for cancellation before a new certificate is
issued therefor. In the event of the loss, theft or destruction of any
certificate of stock, another may be issued in its place pursuant to such
regulations as the Board of Directors may establish concerning proof of such
loss, theft or destruction and concerning the giving of a satisfactory bond
or bonds of indemnity.
37. REGULATIONS. The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
RECORD DATE
38. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix in advance
a record date, which shall not be more than 60 nor
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less than ten days before the date of such meeting, nor more than 60 days
prior to any other action. If no record date is fixed, the record date (1)
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held; and
(2) for determining stockholders for any other purpose shall be at the close
of business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the reconvened meeting.
WAIVER OF NOTICE
39. WAIVER OF NOTICE. Whenever notice is required to be given by law
or these Bylaws, a written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Unless so required by the Certificate of Incorporation or these
Bylaws, neither the
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business to be transacted at, nor the purpose of any regular or special
meeting of the stockholders, directors or members of a committee of directors
need be specified in any written waiver of notice.
AMENDMENTS
40. AMENDMENTS. These Bylaws may be amended or repealed or new bylaws
may be adopted by the stockholders or by the Board of Directors.
MISCELLANEOUS
41. FISCAL YEAR. The fiscal year of the corporation shall be as fixed
by the Board of Directors.
42. TIME PERIODS. In applying any provision of these Bylaws which
requires that an act be done or not done within a specified number of days
prior to an event, calendar days shall be used, the day of doing of the act
shall be excluded, and the day of the event shall be included.
43. FACSIMILE SIGNATURES. In addition, to the provisions for use of
facsimile signature elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the corporation may be
used whenever and as authorized by the Board of Directors.
44. CORPORATE SEAL. The Board of Directors may provide a suitable seal,
containing the name of the corporation, which seal shall be in the charge of
the Secretary. Duplicates of the seal
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may be kept and used by a Treasurer or by an Assistant Secretary or Assistant
Treasurer.
45. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each
member of any committee designated by the Board of Directors, and each
officer of the corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the books of account or other
records of the corporation, including reports made to the corporation by any
of its officers, by an independent certified public accountant or by an
appraiser.
This is to certify that these Bylaws were duly adopted by the Board of
Directors of this corporation on January 26, 1994.
/s/ David R. Hoffmann
----------------------
DAVID R. HOFFMANN
Secretary
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TECHNOLOGY LICENSE AGREEMENT
----------------------------
This Technology License Agreement (this "Agreement") is made as of the 10th
day of March, 1993 between ALZA Corporation, a Delaware corporation ("ALZA") and
Therapeutic Discovery Corporation, a Delaware corporation ("TDC").
R E C I T A L S
- - - - - - - -
A. ALZA has proprietary rights to drug delivery technology.
B. TDC proposes to undertake the development of one or more products
using Alza Proprietary Rights and expects to develop or acquire certain
technology in connection therewith.
C. As of the date hereof, ALZA and TDC are entering into a Development
Agreement.
D. ALZA is willing to grant to TDC a license to practice Alza
Proprietary Rights solely for the purpose of developing and commercializing
Products under the circumstances hereinafter set forth.
NOW THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have
the respective meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party.
"Control" shall mean ownership of at least 50% of the shares of stock
entitled to vote
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for the election of directors in the case of a corporation, and at least 50%
of the interests in profits in the case of a business entity other than a
corporation.
1.2 "ALZA Proprietary Rights" shall mean all Proprietary Rights of
ALZA (including the Developed Technology) to the extent they are owned and
controlled by ALZA now or during the term of the Development Contract.
1.3 "Developed Technology" shall mean Proprietary Rights that (i) are
generated, developed, conceived or first reduced to practice, as the case may
be, by ALZA or others than ALZA under a Product Development Program undertaken
pursuant to the Development Contract or (ii) are acquired by or otherwise
obtained on behalf of TDC during the term of the Development Contract from
persons other than ALZA and necessary or useful to the development or
commercialization of Products.
1.4 "Development Contract" shall mean the Development Agreement
dated as of the date hereof between ALZA and TDC.
1.5 "Infringing Product" shall mean any product sold by a third
party which infringes or is alleged to infringe any patent or patents
licensed to TDC hereunder.
1.6 "License Option Agreement" shall mean the License Option
Agreement dated the date hereof between ALZA and TDC.
1.7 "Pre-Existing Rights" shall mean the rights of Ciba-Geigy
Limited or one of its Affiliates under those certain agreements dated May 2,
1982 between ALZA and Ciba-Geigy Limited or one of its Affiliates.
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1.8 "Product" shall mean a product accepted for development under
the Development Contract. Confirmation of the list of Products shall be made
at any time by either party upon the reasonable request of the other.
1.9 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications for
any of the foregoing, owned or licensed to a person and which such person has
the right to license. Proprietary Rights shall not include trademarks.
1.10 "Purchase Option" shall mean that certain option to purchase
all of the outstanding shares of TDC Class A Common Stock that is granted to
ALZA pursuant to TDC's Certificate of Incorporation, as amended.
2. LICENSE TO ALZA TECHNOLOGY.
2.1 GRANT OF LICENSE. ALZA hereby grants to TDC, on the terms and
conditions of this Agreement, a worldwide, exclusive license (subject to the
Pre-Existing Rights), in perpetuity, with the right to sublicense (as set
forth below), to practice ALZA Proprietary Rights to develop and
commercialize Products, but for no other purpose whatsoever. TDC shall not
sublicense any ALZA Proprietary Rights to, or enter into other arrangements
with respect to any ALZA Proprietary Rights with, any third party for any
purpose, except as set forth in Sections 2.2 and 2.3.
2.2 Permitted Sublicenses.
(a) Except as set forth in clause (b) below, TDC may grant
sublicenses to ALZA and third parties to practice ALZA
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<PAGE>
Proprietary Rights solely for the purpose of conducting activities in
connection with the development of Products; provided that during the term of
the Development Contract, any such sublicenses shall be in accordance with
the terms of the Development Contract.
(b) If ALZA shall fail to exercise its License Option with
respect to any Product in one or more countries, from and after termination
of such License Option in any such country, TDC may sublicense ALZA
Proprietary Rights in or solely to the extent necessary to complete the
development of, or to make, use or sell such Product in such country, to a
third party or third parties for the sole purpose of commercializing such
Product in such country.
2.3 CONDITIONS OF SUBLICENSES. Each sublicensee shall sign such
agreements as ALZA reasonably deems appropriate to protect ALZA Proprietary
Rights and to protect ALZA's rights under all agreements between ALZA and TDC
and under the Purchase Option. Each sublicensee shall have all the duties of
TDC hereunder with respect to such sublicense, and each sublicensee shall
acknowledge these duties to ALZA in writing. No sublicense shall have the
effect of relieving TDC of any of its obligations hereunder.
2.4 PRIOR AND FUTURE GRANTS. TDC understands and acknowledges
that ALZA is in the business of developing products incorporating ALZA
Proprietary Rights for its own account or under arrangements with third
parties, and that as a result, the license granted hereunder is limited
strictly to the development and
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commercialization of Products, and ALZA may grant third party licenses to
ALZA Proprietary Rights for other purposes.
3. EFFORTS OF TDC.
3.1 DILIGENCE. TDC promptly shall commence and shall use diligent
efforts to develop Products under the Development Contract.
4. PATENTS.
4.1 NOTIFICATION OF INFRINGEMENT. TDC shall notify ALZA of any
infringement or alleged infringement known to TDC of any patent covering ALZA
Proprietary Rights or of any unauthorized or alleged unauthorized use known
to TDC of any ALZA Proprietary Rights by the manufacture, use or sale by a
third party of any Infringing Product. In the event of any such alleged
infringement or unauthorized use, ALZA shall have the right, at its own
expense and with the right to all recoveries, to take appropriate action to
restrain such alleged infringement or unauthorized use. If ALZA takes such
action, TDC shall cooperate fully with ALZA in its pursuit thereof, at ALZA's
expense, to the extent reasonably requested by ALZA. If (a) the Infringing
Product is substantially similar to a Product (in that the Infringing Product
incorporates the same drug compound or compounds as its active agent or
agents as such Product and a substantially similar delivery system) for which
ALZA's License Option has expired unexercised, and (b) within six months
after written notice from TDC, ALZA has not commenced any action to restrain
such alleged infringement or unauthorized use, and (c) if, at such time, the
annualized unit sales volume of such Infringing Product in a country equals
or exceeds 25% of the unit sales volume of the related Product in such
country, then TDC shall have the right, at its own expense and
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with the right to all recoveries, to take such action as it deems appropriate
to restrain such alleged infringement or unauthorized use. If TDC takes any
such action, ALZA shall cooperate fully with TDC in its pursuit thereof, at
TDC's expense, as may reasonably be requested by TDC. TDC shall not settle
any such action relating to any alleged infringement or unauthorized use
which in any manner would affect ALZA Proprietary Rights without the prior
written consent of ALZA.
5. CONFIDENTIALITY OF INFORMATION.
5.1 CONFIDENTIALITY. During the term of this Agreement and for a
period of 10 years following its termination, TDC shall maintain in
confidence all ALZA Proprietary Rights; provided, however, that nothing
contained herein shall prevent TDC from disclosing any ALZA Proprietary
Rights to the extent such ALZA Proprietary Rights (a) are required to be
disclosed in connection with securing necessary governmental approvals for
the marketing of Products, or to make, use or sell Products, (b) are required
to be disclosed for the purpose of complying with governmental regulations,
(c) are disclosed in connection with any sublicense permitted hereunder, (d)
are known to or used by TDC prior to the date hereof as evidenced by TDC's
written records, (e) are lawfully disclosed to TDC by a third party having
the right to disclose such information to TDC, or (f) either before or after
the time of disclosure to TDC, become known to the public other than by an
unauthorized act or omission of TDC or any of TDC's employees or agents. Any
disclosure of ALZA Proprietary Rights to third parties shall be made subject
to similar obligations of confidentiality on the part of such third parties.
The obligations pursuant to this Section 5 shall survive the termination of
this
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Agreement for any reason. Any breach of this Section 5.1 shall result in
irreparable harm, and in the event of a breach, the aggrieved party shall be
entitled to injunctive relief (without the need to post a bond) in addition
to any other remedies available at law or in equity.
6. DISCLAIMERS.
6.1 DISCLAIMER CONCERNING ALZA PROPRIETARY RIGHTS. ALZA DISCLAIMS ANY
EXPRESS OR IMPLIED WARRANTY (i) THAT ANY ALZA PROPRIETARY RIGHTS, OR THE USE
THEREOF, OR ANY PRODUCT CANDIDATES OR PRODUCTS INCORPORATING OR MANUFACTURED BY
THE USE THEREOF, WILL BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE
OR UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY THIRD PARTY OR (ii) OF THE
ACCURACY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR
MERCHANTABILITY OF THE ALZA PROPRIETARY RIGHTS OR THEIR SUITABILITY OR FITNESS
FOR ANY PURPOSE WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN,
DEVELOPMENT, MANUFACTURE, USE OR SALE OF PRODUCTS. ALZA DISCLAIMS ALL OTHER
WARRANTIES OF WHATEVER NATURE, EXPRESS OR IMPLIED.
7. REPORTS OF ADVERSE REACTION.
7.1 REPORTS. During the term of this Agreement, each party shall
promptly inform the other party of any information that it obtains or
develops regarding the efficacy or safety of a Product and shall promptly
report to the other party any information or notice of adverse or unexpected
reactions or side effects related to the utilization or medical
administration of a Product. Further, during the term of this Agreement, each
party shall promptly inform the other of any information that it obtains or
develops regarding the safety of any ALZA Proprietary Rights as related to
the Products and shall promptly report to the other party any information or
notice of
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<PAGE>
adverse or unexpected reactions or side effects related to the utilization or
medical administration of Product incorporating ALZA Proprietary Rights.
Each party shall allow the other to comply with the adverse reaction
reporting requirements of the Food, Drug and Cosmetic Act, 21 USC 321 et
seq., and regulations thereunder with respect to the Products by notifying
the other party in writing of any "adverse drug experience" that is
considered "serious" or "unexpected" regardless of source, in a manner so
that the other party shall receive such notice within three working days of
the notifying party's first having "obtained or otherwise received" such
"adverse drug experience...from any source" as those terms are defined in 21
CFR 314.80. Each party shall provide the other party with copies of Adverse
Drug Experience Reports filed with the FDA as to the Products. The
obligations under this 7.1 shall be subject to legal and contractual
obligations prohibiting the disclosure of such information. TDC agrees and
acknowledges that ALZA may provide information it obtains under this Section
7.1 to ALZA's other clients developing and/or marketing products
incorporating the same delivery systems as are incorporated in the Products.
8. TERMINATION.
8.1 TERMINATION FOR BREACH. Either party may terminate this
Agreement effective upon the giving of written notice of such termination to
the other party in the event such other party:
(a) breaches any of its material obligations hereunder or
under the License Option Agreement and such breach continues for a period of
60 days after written notice thereof by the other party; and
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<PAGE>
(b) enters into any proceeding, whether voluntary or
otherwise, in bankruptcy, reorganization, arrangement for the appointment of
a receiver or trustee to take possession of such other party's assets or any
other proceeding under any law for the relief of creditors, or makes an
assignment for the benefit of such other party's creditors.
This Agreement shall automatically terminate upon termination by TDC of
the Development Contract other than due to a breach by ALZA, or upon
termination by ALZA of the Development Contract due to a breach by TDC.
9. FORCE MAJEURE.
9.1 FORCE MAJEURE. Neither party to this Agreement shall be
liable for failure or delay in the performance of any of its obligations
hereunder, if such failure or delay is due to causes beyond its reasonable
control, including, without limitation, acts of God, earthquakes, fires,
strikes, acts of war, or intervention of any governmental authority, but any
such delay or failure shall be remedied by such party as soon as possible
after the removal of the cause of such failure or delay.
10. INDEMNIFICATION.
10.1 INDEMNITY. TDC shall indemnify, defend and hold ALZA harmless
from and against any and all liabilities, claims, demands, damages, costs,
expenses or money judgments incurred by or rendered against ALZA and its
Affiliates, which arise out of the use, design, labeling or manufacture,
processing, packaging, sale or commercialization of the Products by TDC, its
Affiliates, subcontractors and sublicensees. ALZA shall permit TDC's
attorneys,
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<PAGE>
at TDC's discretion and cost, to handle and control the defense of any claims or
suits as to which ALZA may be entitled to indemnity hereunder, and ALZA agrees
not to settle any such claims or suits without the prior written consent of TDC.
10.2 NOTICE. ALZA shall give TDC prompt notice in writing, in the
manner set forth in Section 11.6 below, of any claim or demand made against
ALZA for which ALZA may be entitled to indemnity under Section 10.1. ALZA
shall have the right to participate, at its own expense, in the defense of
any such claim or demand to the extent it so desires.
11. MISCELLANEOUS.
11.1 AMENDMENT. Any waiver by either party hereto of a breach of
any provisions of this Agreement shall not be implied and shall not be valid
unless such waiver is recited in writing and signed by such party. Failure
of any party to require, in one or more instances, performance by the other
party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of
any such terms or conditions or of any other terms and conditions of this
Agreement. A waiver by either party of any term or condition of this
Agreement shall not be deemed or construed to be a waiver of such term or
condition for any other term. All rights, remedies, undertakings,
obligations and agreements contained in this Agreement shall be cumulative
and none of them shall be a limitation of any other remedy, right,
undertaking, obligation or agreement of either party. This Agreement may not
be amended except in a writing signed by both parties.
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11.2 ASSIGNMENT. Neither party may assign its rights and
obligations hereunder without the prior written consent of the other party,
which consent may not be unreasonably withheld; provided, however, that ALZA
may assign such rights and obligations hereunder to any person or entity with
which ALZA is merged or consolidated or which purchases all or substantially
all of the assets of ALZA.
11.3 ARBITRATION.
11.3.1 ARBITRATION. All disputes which may arise under, out
of or in connection with this Agreement shall be settled by arbitration
conducted in the City of San Francisco, State of California, in accordance
with the then existing rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties hereby agree that service of
any notices in the course of such arbitration at their respective addresses
as provided for in Section 11.7 of this Agreement shall be valid and
sufficient.
11.3.2 ARBITRATORS. In any arbitration pursuant to this
Section 11.3, the award shall be rendered by a majority of the members of a
board of arbitration consisting of three members who shall be appointed by
the parties jointly, or if the parties cannot agree as to three arbitrators
within 30 days after the commencement of the arbitration proceeding, then one
arbitrator shall be appointed by ALZA and one arbitrator shall be appointed
by TDC within 60 days after the commencement of the arbitration proceeding.
The third arbitrator shall be appointed by mutual agreement of such two
arbitrators. In the event of failure of the two arbitrators to agree within
75 days after commencement of the arbitration proceeding upon the appointment
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<PAGE>
of the third arbitrator, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then existing rules.
Notwithstanding the foregoing, in the event that any party shall fail to
appoint an arbitrator it is required to appoint within the specified time
period, such arbitrator and the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then existing rules.
For purposes of this Section 11.3, the "commencement of the arbitration
proceeding" shall be deemed to be the date upon which a written demand for
arbitration is received by the American Arbitration Association from one of
the parties.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
11.5 GOVERNING LAW. This Agreement shall be governed by the laws
of the state of California as applied to residents of that state entering
into contracts to be performed in that state.
11.6 HEADINGS. The headings set forth at the beginning of the
various sections of this Agreement are for reference and convenience and
shall not affect the meanings of the provisions of this Agreement.
11.7 NOTICES. Notices required under this Agreement shall be in
writing and sent by registered or certified mail, postage prepaid, or by
telex or facsimile and confirmed by registered or certified mail and
addressed as follows:
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<PAGE>
If to ALZA: ALZA Corporation
950 Page Mill Road
P. 0. Box 10950
Palo Alto, CA 94303-0802
Attention: Vice President, Legal
If to TDC: Therapeutic Discovery Corporation
1290 Page Mill Road
P.O. Box 10051
Palo Alto, CA 94303-0860
Attention: Chief Executive Officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by telex or facsimile (but only if followed
by certified or registered confirmation). Either party may change the
address at which notice is to be received by written notice pursuant to this
Section 11.7.
11.8 PUBLIC DISCLOSURE. Neither party shall disclose to third
parties, nor originate any publicity, news release or public announcement,
written or oral, whether to the public, the press, stockholders or otherwise,
referring to the existence or terms of this Agreement, the subject matter to
which it relates, the performance under it or any of its specific terms and
conditions, except such announcements, as in the opinion of the counsel for
the party making such announcement, are required by law, including United
States securities laws, rules or regulations, without the prior written
consent of the other party. If a party decides to make an announcement it
believes to be required by law with respect to this Agreement, it will give
the other party such notice as is reasonably practicable and an opportunity
to comment upon the announcement.
11.9 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum
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<PAGE>
extent necessary to make it valid and enforceable or, if such modification is
not possible, it shall be stricken and the remaining provisions shall remain
in full force and effect; provided, however, that if a provision is stricken
so as to significantly alter the economic arrangements of this Agreement, the
party adversely affected may terminate this Agreement upon 60 days' prior
written notice to the other party.
11.10 RELATIONSHIP OF THE PARTIES. For all purposes of this
Agreement, TDC and ALZA shall be deemed to be independent contractors and
anything in this Agreement to the contrary notwithstanding, nothing herein
shall be deemed to constitute TDC and ALZA as partners, joint venturers,
co-owners, an association or any entity separate and apart from each party
itself, nor shall this Agreement constitute any party hereto an employee or
agent, legal or otherwise, of the other party for any purposes whatsoever.
Neither party hereto is authorized to make any statements or representations
on behalf of the other party or in any way obligate the other party, except
as expressly authorized in writing by the other party. Anything in this
Agreement to the contrary notwithstanding, no party hereto shall assume nor
shall be liable for any liabilities or obligations of the other party,
whether past, present or future.
11.11 SURVIVAL. The provisions of Sections 1, 2.3, 4, 5, 6, 7, l0,
11.3, 11.5, 11.7, 11.8, 11.9, 11.10 and this Section 11.11 shall survive the
termination for any reason of this Agreement. Any payments due under this
Agreement with respect to any period prior to its termination shall be made
notwithstanding the termination of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their duly authorized
representatives.
ALZA CORPORATION
By: /s/ Jane E. Shaw
-----------------------------------------
Title: President and Chief Operating Officer
--------------------------------------
THERAPEUTIC DISCOVERY CORPORATION
By: /s/ Pieter P. Bonsen
-----------------------------------------
Title: President
--------------------------------------
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<PAGE>
DEVELOPMENT AGREEMENT
BETWEEN
ALZA CORPORATION
AND
THERAPEUTIC DISCOVERY CORPORATION
DATED MARCH 10, 1993
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1
1.1 "Affiliate" . . . . . . . . . . . . . . . . . . . . 1
1.2 "ALZA Proprietary Rights" . . . . . . . . . . . . . 2
1.3 "Available Funds . . . . . . . . . . . . . . . . . 2
1.4 "Developed Technology" . . . . . . . . . . . . . . 2
1.5 "Development Cost(s) " . . . . . . . . . . . . . . 2
1.6 "Distribution" . . . . . . . . . . . . . . . . . . 2
l.7 "Drug" . . . . . . . . . . . . . . . . . . . . . . 3
1 8 "FDA" . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 "License Option" . . . . . . . . . . . . . . . . . 3
1.10 "License Option Agreement" . . . . . . . . . . . . 3
1.11 "Major Market Country" . . . . . . . . . . . . . . 3
l 12 "Net Sales" . . . . . . . . . . . . . . . . . . . . 3
1.13 "0ther Royalty-Bearing Product" . . . . . . . . . . 4
1.14 "Product" . . . . . . . . . . . . . . . . . . . . . 4
1.15 "Product Candidate" . . . . . . . . . . . . . . . . 4
1.16 "Product Development Program" . . . . . . . . . . . 4
1.17 "Proprietary Rights" . . . . . . . . . . . . . . . 4
1.18 "Purchase Option" . . . . . . . . . . . . . . . . . 4
1.19 "Special Royalty Payments" . . . . . . . . . . . . 5
1.20 "Sublicensing Revenues" . . . . . . . . . . . . . . 5
1.21 "System" . . . . . . . . . . . . . . . . . . . . . 5
1.22 "Technology License Agreement" . . . . . . . . . . 6
SECTION 2 PRODUCT DEVELOPMENT PROGRAM . . . . . . . . . . . . 6
2.1 Product Candidate Work Plans . . . . . . . . . . . 6
2.2 Product Selection . . . . . . . . . . . . . . . . . 6
2.3 Product Development . . . . . . . . . . . . . . . . 7
2.4 Later Requests . . . . . . . . . . . . . . . . . . 8
SECTION 3 RESEARCH AND DEVELOPMENT PROGRAMS;
ALZA SERVICES . . . . . . . . . . . . . . . . . . . 8
3.1 Product Development - TDC Obligations . . . . . . . 8
3.2 Product Development - ALZA Obligations;
Other ALZA Activities . . . . . . . . . . . . . . 9
3.3 Work Plans and Cost Estimates . . . . . . . . . . . 9
3.4 Third Party Rights . . . . . . . . . . . . . . . . 10
3.5 Consultation . . . . . . . . . . . . . . . . . . . 10
3.6 No Use of Available Funds After License . . . . . . 10
SECTION 4 PAYMENT FOR SERVICES; TIMING OF PAYMENTS . . . . . 11
4.1 Payment of Development Costs . . . . . . . . . . . 11
4.2 Timing of Payments . . . . . . . . . . . . . . . . 11
4.3 Sufficiency of Funds . . . . . . . . . . . . . . . 11
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<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
SECTION 5 REPORTS AND RECORDS . . . . . . . . . . . . . . . 11
5.1 Quarterly and Final Reports. . . . . . . . . . . . 11
5.2 Available Funds Report . . . . . . . . . . . . . . 12
5.3 Records . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6 LICENSE OF TECHNOLOGY FOR DEVELOPMENT . . . . . . 12
6.1 License to use ALZA Proprietary Rights . . . . . . 12
6.2 Termination of License . . . . . . . . . . . . . . 13
SECTION 7 OWNERSHIP AND LICENSE OF DEVELOPED TECHNOLOGY;
PATENTS . . . . . . . . . . . . . . . . . . . . . 13
7.1 ownership of Products. . . . . . . . . . . . . . . 13
7.2 Ownership of Developed Technology . . . . . . . . 13
7.3 Patents Covering Developed Technology . . . . . . 13
7.4 Royalties on Other Royalty-Bearing Products . . . 13
7.5 Buyout of Other Royalty-Bearing Product
Royalties . . . . . . . . . . . . . . . . . . . 14
7.6 Reports . . . . . . . . . . . . . . . . . . . . . 15
7.7 Review by Accountants . . . . . . . . . . . . . . 15
7.8 Payments . . . . . . . . . . . . . . . . . . . . 16
7.9 Late Payments . . . . . . . . . . . . . . . . . . 17
SECTION 8 ACCESS TO INFORMATION . . . . . . . . . . . . . . 17
8.1 Access . . . . . . . . . . . . . . . . . . . . . 17
8.2 Third Parties . . . . . . . . . . . . . . . . . . 17
8.3 Confidentiality . . . . . . . . . . . . . . . . . 17
SECTION 9 DISCLAIMERS . . . . . . . . . . . . . . . . . . . 19
9.1 Disclaimer . . . . . . . . . . . . . . . . . . . 19
SECTION 10 COVENANTS . . . . . . . . . . . . . . . . . . . . 19
10.1 Use of Available Funds . . . . . . . . . . . . . 19
10.2 Negative Pledge . . . . . . . . . . . . . . . . . 20
10.3 Protection of Available Funds . . . . . . . . . . 20
10.4 No Inconsistent Agreements . . . . . . . . . . . 20
SECTION 11 TERM AND TERMINATION . . . . . . . . . . . . . . 21
11.1 Automatic Termination . . . . . . . . . . . . . . 21
11.2 Other Termination . . . . . . . . . . . . . . . . 21
SECTION 12 FORCE MAJEURE . . . . . . . . . . . . . . . . . . 21
12.1 Force Majeure . . . . . . . . . . . . . . . . . . 21
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<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
SECTION 13 MISCELLANEOUS . . . . . . . . . . . . . . . . . . 22
13.1 Amendment . . . . . . . . . . . . . . . . . . . . 22
13.2 Assignment . . . . . . . . . . . . . . . . . . . 22
13.4 Counterparts . . . . . . . . . . . . . . . . . . 24
13.5 Governing Law . . . . . . . . . . . . . . . . . 24
13.6 Headings . . . . . . . . . . . . . . . . . . . . 24
13.7 Notices . . . . . . . . . . . . . . . . . . . . . 24
13.8 Public Disclosure . . . . . . . . . . . . . . . . 25
13.9 Severability . . . . . . . . . . . . . . . . . . 25
13.10 Relationship of the Parties . . . . . . . . . . . 26
13.11 Survival . . . . . . . . . . . . . . . . . . . . 26
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<PAGE>
DEVELOPMENT AGREEMENT
AGREEMENT made as of the 10th day of March, 1993 between ALZA
Corporation, a Delaware corporation ("ALZA"), and Therapeutic Discovery
Corporation, a Delaware corporation ("TDC").
R E C I T A L S
- - - - - - - -
A. TDC is a corporation organized for the purpose of developing and
commercializing products utilizing ALZA Proprietary Rights (as defined below).
B. ALZA is engaged in the business of research and development of
pharmaceutical products.
C. TDC desires to have ALZA perform, on behalf of TDC, research and
development activities directed toward the development of Products (as
defined below).
NOW, THEREFORE, the parties agree as follows:
SECTION 1
---------
DEFINITIONS
------------
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party.
"Control" shall mean ownership of at least 50% of the shares of stock
entitled to vote for the election of directors in the case of a corporation,
and at least 50% of the interests in profits in the case of a business entity
other than a corporation.
<PAGE>
1.2 "ALZA Proprietary Rights" shall mean all Proprietary Rights of
ALZA (including the Developed Technology) to the extent they are owned and
controlled by ALZA now or during the term of this Agreement.
1.3 "Available Funds" shall mean the sum of (a) $250 million plus
(b) interest and other income earned through temporary investment of such
funds pending their application under this Agreement, minus the sum of (c)
reasonable ongoing administrative expenses of TDC, including legal and
administrative expenses and reasonable reserves for present and future
obligations plus (d) the costs of the Distribution.
1.4 "Developed Technology" shall mean Proprietary Rights that (a)
are generated, developed, conceived or first reduced to practice, as the case
may be, by ALZA or others under a Product Development Program undertaken
pursuant to this Agreement or (b) are in any manner acquired by, or otherwise
obtained on behalf of TDC during the term of this Agreement from persons
other than ALZA and necessary or useful to the development or
commercialization of Products.
1.5 "Development Cost(s)" shall mean the cost of the activities
undertaken pursuant to this Agreement, determined in accordance with Exhibit
A hereto.
1.6 "Distribution" shall mean the distribution by ALZA of units
comprising one share of TDC Class A Common Stock and one warrant to acquire
one-eighth of a share of ALZA Class A Common Stock to ALZA stockholders of
record on May 28, 1993.
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<PAGE>
1.7 "Drug" shall mean a therapeutic compound specified in a work
plan under Section 2.1 or 2.3.
1.8 "FDA" shall mean the United States Food and Drug
Administration or any successor agency whose approval is necessary to market
a Product in the United States.
1.9 "License Option" shall mean the option granted to ALZA under
the License Option Agreement to obtain licenses to Products, on a Product by
Product basis, as described in the License Option Agreement.
1.10 "License Option Agreement" shall mean the License option
Agreement between ALZA and TDC dated as of the date hereof.
1.11 "Major Market Country" shall mean any of the United States,
the United Kingdom, France, Germany, Italy or Japan.
1.12 "Net Sales" shall mean the total amount invoiced in United
States dollars (or converted thereto in accordance with Section 7.8) on sales
by ALZA and its Affiliates to independent, unrelated third parties (other
than distributors or sublicensees who make payments that constitute
Sublicensing Revenues) in bona fide arms' length transactions, less the
following deductions, in each case related specifically to the product in
question and actually allowed and taken by such third parties and not
otherwise recovered by or reimbursed to ALZA or its Affiliates: (i) trade,
cash and quantity discounts; (ii) taxes on sales (such as sales or use taxes)
to the extent added to the sales price and set forth separately as such in
the total amount invoiced; (iii)
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<PAGE>
freight, insurance and other transportation charges to the extent added to
the sales price and set forth separately as such in the total amount
invoiced; and (iv) amounts repaid or credited by reason of rejections,
defects or returns or because of retroactive price reductions, or due to
government laws or regulations requiring rebates. Net Sales shall not
include sales between or among ALZA and its Affiliates or Sublicensing
Revenues.
1.13 "Other Royalty-Bearing Product" shall mean, in any country,
any human pharmaceutical product (other than a Product) covered in such
country at the time of sale by an ALZA Patent covering Developed Technology.
1.14 "Product" shall mean a Product Candidate that is accepted for
development pursuant to Section 2.3.
1.15 "Product Candidate" shall mean a Drug combined with a System
for which a work plan is proposed by ALZA in accordance with Section 2.1.
1.16 "Product Development Program" shall mean a program to develop
a Product.
1.17 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
covering any of the foregoing, owned by or licensed to a person and which
such person has the right to license. Proprietary Rights shall not include
trademarks.
1.18 "Purchase Option" shall mean that certain option to purchase
all of the outstanding shares of TDC Class A Common
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<PAGE>
Stock that is granted to ALZA pursuant to TDC's Certificate of Incorporation,
as amended as of the date hereof.
1.19 "Special Royalty Payments" shall mean "front-end" distribution
fees, prepaid royalties and similar one-time, infrequent or special payments.
Solely for purposes of calculating a buyout price under Section 7.5, any
Special Royalty Payments will be amortized over a period of 28 calendar
quarters, beginning with the quarter in which such payment is made.
1.20 "Sublicensing Revenues" shall mean (a) any royalties or
percentage of sales payments received by ALZA or any of its Affiliates under
either (i) any sublicense for the manufacture, use or sale of the product in
question or (ii) any distribution agreement entered into with a distributor
who agrees to pay royalties or make percentage of sales payments to ALZA or
any of its Affiliates in respect of the manufacture, use or sale of such
product and (b) any Special Royalty Payments received by ALZA or its
Affiliates in respect of such product, in each case excluding amounts paid to
reimburse ALZA for research and development or manufacturing costs.
1.21 "System" shall mean a delivery system for the controlled
release of a Drug, based upon, utilizing or arising out of ALZA Proprietary
Rights. The term "System" shall include anything incorporated in or used in
connection with, or which is an attribute of, a Product, other than a
therapeutic agent (including anything which affects or may affect the
pharmacodynamics, pharmacokinetics, stability or absorption of a
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<PAGE>
therapeutic agent or the formulation, stabilization or use of a therapeutic
agent in the System).
1.22 "Technology License Agreement" shall mean the Technology
License Agreement dated as of the date hereof between ALZA and TDC.
SECTION 2
---------
PRODUCT DEVELOPMENT PROGRAM
---------------------------
2.1 PRODUCT CANDIDATE WORK PLANS. Within 60 days after the date
hereof, and from time to time hereafter, ALZA shall provide TDC with a list
of possible Product Candidates together with initial work plans that provide
for each Product Candidate an estimate of the total Development Costs to
determine the likelihood that the System included in such Product Candidate
could meaningfully enhance the therapeutic value of the Drug included in such
Product Candidate, and any other factors that the parties deem appropriate to
determine whether to select a Product Candidate for development. Within 45
days after ALZA provides TDC with such a proposed work plan for a Product
Candidate, TDC shall notify ALZA of its acceptance or rejection of such work
plan.
2.2 PRODUCT SELECTION. TDC hereby hires ALZA to perform all
activities under work plans approved under Section 2.1. ALZA diligently shall
perform or cause to be performed the activities under each accepted work
plan, as amended from time to time so as to remain a best estimate of the
work to be performed to complete the work plan for each Product Candidate and
of the Development Costs thereof.
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<PAGE>
2.3 PRODUCT DEVELOPMENT. Within 45 days after completion of a
work plan under Section 2.2 for a Product Candidate, ALZA shall provide TDC
with a written report of ALZA's assessment of the technical and economic
feasibility of development of such Product Candidate and, based thereon,
ALZA's good faith recommendation of whether to proceed with development of
such Product Candidate. If ALZA does not recommend development of a Product
Candidate, TDC shall have no rights with respect to such Product Candidate;
provided that ALZA may not further develop any such Product Candidate during
the term of this Agreement unless it first recommends it to TDC for
development in accordance with the other terms of this Agreement. If ALZA
recommends development for a Product Candidate, then such report to TDC shall
include initial work plans that provide for such Product Candidate an
estimate of the total Development Costs for a Product Development Program
through the filing for FDA approval to market the Product, milestones
(including the timetable for the development of the Product), and detailed
work plans and cost estimates for the first 12 months of the Product
Development Program. Within 45 days after ALZA provides TDC with a proposed
work plan for a Product Development Program for a Product Candidate, TDC
shall notify ALZA in writing of its acceptance or rejection of such work
plan. Upon written acceptance of a work plan under this Section 2.3 for a
Product Candidate, such Product Candidate shall be deemed to be a "Product."
ALZA and TDC shall maintain a complete list of the Products at all times.
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<PAGE>
2.4 LATER REQUESTS. If TDC fails to accept a recommended Product
Candidate for development as a Product within the 45 day period specified in
Section 2.3, then, at any time during the term of this Agreement, TDC may
request ALZA to perform a Product Development Program for such Product
Candidate and ALZA shall undertake its duties with respect to such Product
Development Program, all in accordance with this Section 2, unless, at the
time of such request, ALZA is then undertaking the development of such
Product Candidate for its own account or with a third party, or ALZA is
otherwise not permitted to undertake such development hereunder because of an
arrangement with a third party.
SECTION 3
----------
RESEARCH AND DEVELOPMENT PROGRAMS;
ALZA SERVICES
-------------
3.1 PRODUCT DEVELOPMENT - TDC OBLIGATIONS. Once a Product is
selected pursuant to Section 2.3, TDC shall use diligent efforts to develop
such Product. TDC shall request that ALZA perform, or shall use diligent
efforts to cause a third party to perform, the activities under each approved
work plan; provided, however, that ALZA's prior written consent shall be
required for a third party to perform any activities that involve ALZA
Proprietary Rights or that could affect ALZA's rights under any agreement
between ALZA and TDC or ALZA's rights as holder of the Class B Common Stock
of TDC. TDC shall use diligent efforts to cause each contractor other than
ALZA diligently to perform the activities assigned it under a work plan.
-8-
<PAGE>
3.2 PRODUCT DEVELOPMENT - ALZA OBLIGATIONS; OTHER ALZA ACTIVITIES.
TDC hereby hires ALZA to perform certain research, development and
experimentation activities to develop Products in accordance with the tasks
assigned to ALZA under the work plans approved under Section 2.3, and to
undertake such other activities as the parties may agree. ALZA diligently
shall perform or cause to be performed such activities. In connection
therewith, ALZA shall make available such of its scientific, engineering,
manufacturing and other personnel, and shall take such steps, as it deems
necessary in order to perform its obligations in accordance with the terms
hereof, but ALZA is not obligated to devote any specific amount of time or
resources to activities hereunder. ALZA shall have full discretion to
determine from time to time the allocation of resources of ALZA (facilities,
equipment and personnel) that are available to TDC for Product Development
Programs, and to determine from time to time the allocation of resources of
ALZA among Product Development Programs. TDC understands, acknowledges and
agrees that ALZA may devote substantial time and resources to research and
development activities for other persons and for its own account, and as a
result, ALZA may develop and commercialize, or have commercialized, products
competitive with the Products.
3.3 WORK PLANS AND COST ESTIMATES. The parties understand and
acknowledge that it is difficult to predict accurately the activities that
will be necessary to develop any Product, or the Development Costs thereof,
and that significant uncertainties exist in any Product development effort.
TDC and
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<PAGE>
ALZA shall cooperate in good faith with respect to mutually acceptable work
plans and cost estimates for Product Development Programs and for such other
activities as the parties may agree. Such work plans and cost estimates
shall be subject to review and revision from time to time, at least on a
semi-annual basis. Each party diligently shall execute such work plans and
shall report significant deviations therefrom in a timely manner. TDC shall
not be obligated to pay Development Costs in excess of those provided in
approved work plans and cost estimates, and ALZA shall not be obligated to
perform work which would result in Development Costs exceeding approved cost
estimates.
3.4 THIRD PARTY RIGHTS. Subject to the terms and conditions of
this Agreement, TDC shall have discretion to attempt to obtain, using
Available Funds, any Proprietary Rights from any third party that TDC
reasonably determines to be necessary or useful to conduct Product
Development Programs under this Agreement. Such Proprietary Rights shall be
included in the Developed Technology.
3.5 CONSULTATION. TDC shall consult with ALZA and shall review
with ALZA from time to time the progress toward completion of each work plan
for each Product under development, including without limitation, the status
in each country for which marketing approval is being sought.
3.6 NO USE OF AVAILABLE FUNDS AFTER LICENSE. After such time as
either (i) ALZA exercises the License Option for a Product in a country or
(ii) such License Option expires
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<PAGE>
unexercised in such country, no additional Available Funds shall be expended
with respect to such Product in such country.
SECTION 4
---------
PAYMENT FOR SERVICES; TIMING OF PAYMENTS
----------------------------------------
4.1 PAYMENT OF DEVELOPMENT COSTS. In consideration of the work to
be carried out by ALZA hereunder, TDC shall reimburse ALZA for all of its
Development Costs in accordance with approved work plans and costs estimates.
4.2 TIMING OF PAYMENTS. TDC shall pay to ALZA monthly, in
arrears, all Development Costs incurred by ALZA during the preceding calendar
month, within 30 days after ALZA's invoice therefor.
4.3 SUFFICIENCY OF FUNDS. Neither TDC nor ALZA makes any
warranty, express or implied, that Available Funds will be sufficient to
complete the development of any Product or Products.
SECTION 5
---------
REPORTS AND RECORDS
-------------------
5.1 QUARTERLY AND FINAL REPORTS. Within 45 days after the end of
each calendar quarter, ALZA shall provide to TDC, and TDC shall require each
third party contractor to provide to TDC and to ALZA, a reasonably detailed
report setting forth (a) a summary of the work performed hereunder by ALZA
and any third party contractor, as appropriate, and their respective
employees and agents during such quarter; and (b) the total Development Costs
of such activities during such quarter and cumulatively to date, on a Product
by Product basis.
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<PAGE>
5.2 AVAILABLE FUNDS REPORT. Within 45 days after the end of each
calendar quarter, TDC shall provide to ALZA a reasonably detailed report
setting forth a reconciliation of the use of all Available Funds to the date
of such request.
5.3 RECORDS. Each of TDC and ALZA shall keep and maintain, in
accordance with generally accepted accounting principles, proper and complete
records and books of account documenting all Development Costs. Each of TDC
and ALZA shall have the right, at all reasonable times during regular
business hours, and at its own expense, to examine or to have examined by a
certified public accountant or similar person reasonably acceptable to the
other party, pertinent books and records of one another, for the sole purpose
of determining the correctness of Development Costs invoiced by ALZA
hereunder and the application of Available Funds by TDC. Such examination
shall take place not later than two years following the year in question, and
only one examination may take place with respect to any period as to which
such books and records are examined. TDC shall obtain, for itself and for
ALZA, similar reasonable rights to audit the Development Costs of each third
party contractor.
SECTION 6
---------
LICENSE OF TECHNOLOGY FOR DEVELOPMENT
-------------------------------------
6.1 LICENSE TO USE ALZA PROPRIETARY RIGHTS. TDC hereby grants to
ALZA a sublicense under the Technology License Agreement solely for the
purpose of conducting the activities contemplated hereunder.
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<PAGE>
6.2 TERMINATION OF LICENSE. Termination of the license granted
under the Technology License Agreement automatically shall terminate the
sublicense to the Licensed Technology granted to ALZA under this Agreement.
SECTION 7
----------
OWNERSHIP AND LICENSE OF DEVELOPED TECHNOLOGY;
PATENTS; ROYALTIES ON OTHER ROYALTY-BEARING PRODUCTS
----------------------------------------------------
7.1 OWNERSHIP OF PRODUCTS. TDC shall own all Products, subject to
the License Option.
7.2 OWNERSHIP OF DEVELOPED TECHNOLOGY. ALZA shall own all
Developed Technology.
7.3 PATENTS COVERING DEVELOPED TECHNOLOGY. ALZA shall determine
whether and to what extent to seek and maintain United States and/or foreign
patents with respect to any inventions included in Developed Technology. Any
such patents and applications therefor shall be in ALZA's name and shall be
owned by ALZA. TDC and ALZA each shall pay one-half of the costs of
obtaining and maintaining any such patents during the term of this Agreement.
7.4 ROYALTIES ON OTHER ROYALTY-BEARING PRODUCTS. ALZA shall pay
TDC royalties in respect of sales of each other Royalty-Bearing Product.
Such royalties shall equal the sum of (a) 1% of the Net Sales in the relevant
country or countries of such Other Royalty-Bearing Product; and (b) 10% of
Sublicensing Revenues in the relevant country or countries with respect to
such Other Royalty-Bearing Product; provided, however, that in determining
payments due under this Section 7.4, Net Sales and Sublicensing Revenues
shall be reduced by the dollar amount of
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<PAGE>
any license or similar payments due to third parties from ALZA with respect
to any such sales and Sublicensing Revenues of such other Royalty-Bearing
Product. Only one royalty under this Section 7.4 shall be payable by ALZA to
TDC with respect to any particular Net Sales or Sublicensing Revenues of each
Other Royalty-Bearing Product in any country, regardless of the number of
patents covering such Other Royalty-Bearing Product in such country.
7.5 BUYOUT OF OTHER ROYALTY-BEARING PRODUCT ROYALTIES. ALZA shall
have the option, in its discretion, at any time from and after the end of the
twelfth full calendar quarter following the first commercial sale in each
country of any Other Royalty-Bearing Product, to buy out its remaining
obligation to make payments under Section 7.4 with respect to sales of such
other Royalty-Bearing Product in such country. The buyout price shall be an
amount equal to 15 times the payments made by or due to TDC from ALZA under
Section 7.4 with respect to sales of such other Royalty-Bearing Product in
such country during the four most recent calendar quarters preceding the date
of exercise of the buyout option for which royalties were paid or were due in
respect of such country. ALZA shall have the option, in its discretion, at
any time from and after the end of the twelfth full calendar quarter
following the first commercial sale of any Other Royalty-Bearing Product as
to which payments are due under Section 7.4 in either the United States or
two other Major Market Countries, to buy out its remaining worldwide
obligations to make payments under Section 7.4 with respect to such Other
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<PAGE>
Royalty-Beating Product. The buyout price shall be an amount equal to 20
times the payments made by or due to TDC from ALZA under Section 7.4 during
the four most recent calendar quarters preceding the date of exercise of the
buyout option for which royalties were paid or were due on a worldwide basis
with respect to such Other Royalty-Bearing Product under Section 7.4 (and, in
addition, such payments as would have been paid by or due from ALZA to TDC if
ALZA had not exercised any country-specific buyout option with respect to
such Other Royalty-Bearing Product) less any amounts previously paid to
exercise any country-specific buyout option with respect to such Other
Royalty-Bearing Product.
7.6 REPORTS. Within 90 days after the end of each calendar
quarter for which royalties are due under Section 7.4, ALZA shall render an
accounting to TDC, on a country-by-country basis, with respect to all
payments due for such quarter under Section 7.4. Such report shall indicate
for such quarter, the quantity and dollar amount of sales of each Other
Royalty-Bearing Product by ALZA and its Affiliates, and Sublicensing Revenues
received by ALZA with respect to which payments are due; provided, however,
that if ALZA shall not have received from any foreign sublicensee or
distributor a report of its sales for such quarter, then such sales shall be
included in the next quarterly report. In case no payment is due for any
calendar quarter, ALZA shall so report. ALZA shall keep accurate records in
sufficient detail to enable the payments due hereunder to be determined.
7.7 REVIEW BY ACCOUNTANTS. At TDC's request, ALZA shall permit an
independent public accountant selected by TDC to
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<PAGE>
have access, once in each calendar year during regular business hours and
upon reasonable notice to ALZA, to such of the records of ALZA as may be
necessary to verify the accuracy of the payments and reports made under
Sections 7.4 and 7.6, but said accountant shall not disclose to TDC any
information except that which should have been properly contained in such
reports. The right of review with respect to any quarterly accounting shall
terminate two years after TDC's receipt of the royalties due with respect to
such quarter.
7.8 PAYMENTS. Payments shown by each calendar quarter report to
have accrued shall be due and payable on the date the report is due and shall
be paid in United States dollars. Any and all taxes due or payable on such
payments or with respect to the remittance thereof shall be deducted from
such payments and shall be paid by ALZA to the proper taxing authorities, and
proof of payment shall be secured and sent to TDC as evidence of such
payment. The rate of exchange to be used in computing the amount of United
States dollars due to TDC in satisfaction of payment obligations with respect
to sales in foreign countries shall be calculated by converting the amount
due in such foreign currency into United States dollars based on the rate for
the purchase of United States dollars with such currency as published in the
WALL STREET JOURNAL on the last business day of the calendar quarter for
which payment is being made. If governmental regulations prevent remittance
from any foreign country of any amounts due under Section 7.4 in respect of
that country, ALZA shall so notify TDC in writing, and the obligation under
this Agreement to
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<PAGE>
make payments in respect of sales in that country shall be suspended (but the
amounts due but not paid shall continue to accrue) until such remittances are
possible. TDC shall have the right, upon written notice to ALZA to receive
payment in any such country in the local currency.
7.9 LATE PAYMENTS. Any payments due hereunder that are not made
when due shall accrue interest at the lesser of 10% per annum or the maximum
rate as may be allowed by law, beginning on the date when TDC notifies ALZA
that such payments are overdue.
SECTION 8
----------
ACCESS TO INFORMATION
---------------------
8.1 ACCESS. Subject to the terms of this Agreement, each party
shall be permitted access to the premises of the other during normal business
hours, for the purpose of monitoring the progress of activities under this
Agreement. Each party shall keep full and complete records and notebooks
containing all experiments performed during its work under this Agreement and
the results thereof. Such items and copies of all documentation shall be
available during normal business hours for inspection by the other party. In
addition, each party shall provide to the other such other information as
reasonably may be requested.
8.2 THIRD PARTIES. TDC shall cause each third party contractor to
provide access similar to that to be provided pursuant to Section 8.1, for
the benefit of both TDC and ALZA.
8.3 CONFIDENTIALITY. During the term of this Agreement and for a
period of 10 years following its termination,
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<PAGE>
each party shall maintain in confidence all Proprietary Rights of the other;
provided, however, that nothing contained herein shall prevent either party
from disclosing any Proprietary Rights to the extent that such Proprietary
Rights (a) are required to be disclosed in connection with the development of
or securing necessary governmental authorization for the marketing of
Products, or to make, use and sell Products as permitted or provided in the
agreements between the parties, (b) are required to be disclosed by law for
the purpose of complying with governmental regulations, (c) are disclosed to
sublicensees permitted under the Technology License Agreement in connection
with the development, manufacturing or marketing of Products, subject to
similar obligations of confidentiality on the part of such third parties as
required by the Technology License Agreement, (d) are known to the recipient
prior to the date hereof as evidenced by the recipient's written records; (e)
are lawfully disclosed to the recipient by a third party having the right to
disclose such information to the recipient; or (f) either before or after the
time of disclosure to the recipient, become known to the public other than by
an unauthorized act or omission of the recipient or any of the recipient's
employees or agents. ALZA Proprietary Rights may be disclosed to third
parties only in accordance with the provisions of Section 10.4 hereof and in
accordance with the provisions of the Technology License Agreement. The
obligations of each of the parties pursuant to this Section 8.3 shall survive
the termination of this Agreement for any reason. Any breach of this Section
8.3
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<PAGE>
shall result in irreparable harm, and in the event of a breach, the aggrieved
party shall be entitled to injunctive relief (without the need to post a
bond) in addition to any other remedies available at law or in equity.
SECTION 9
---------
DISCLAIMERS
-----------
9.1 DISCLAIMER. ALZA DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY
(i) THAT ALZA PROPRIETARY RIGHTS (INCLUDING ANY DEVELOPED TECHNOLOGY), OR THE
USE THEREOF, OR PRODUCT CANDIDATES OR PRODUCTS INCORPORATING OR MANUFACTURED
BY THE USE THEREOF, WILL BE FREE FROM CLAIMS OF PATENT INFRINGEMENT,
INTERFERENCE OR UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY THIRD PARTY
AND (ii) OF THE ACCURACY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE,
COMPREHENSIVENESS OR MERCHANTABILITY OF ALZA PROPRIETARY RIGHTS AND DEVELOPED
TECHNOLOGY OR THEIR SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER
INCLUDING, WITHOUT LIMITATION, THE DESIGN, DEVELOPMENT, MANUFACTURE, USE OR
SALE OF PRODUCTS. ALZA DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE,
EXPRESS OR IMPLIED.
SECTION 10
----------
COVENANTS
---------
10.1 USE OF AVAILABLE FUNDS. TDC agrees to expend all Available
Funds for activities undertaken pursuant to this Agreement, unless ALZA
agrees otherwise. Pending application of all Available Funds as set forth
above, Available Funds shall be invested in securities issued or guaranteed
as to principal and interest by the United States, or by a person controlled
or
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<PAGE>
supervised by or acting as an instrumentality of the government of the United
States pursuant to authority granted by the Congress of the United States, or
any certificate of deposit for any of the foregoing, or any other investment
that is approved by ALZA in its sole discretion.
10.2 NEGATIVE PLEDGE. TDC shall not create, incur, assume or
suffer to exist any lien upon or with respect to, or otherwise take any
action with respect to, Available Funds so as to prevent or interfere with
full expenditure of such funds for activities under this Agreement in
accordance with Section 10.1.
10.3 PROTECTION OF AVAILABLE FUNDS. As soon as practicable
following execution of this Agreement, TDC shall make arrangements
satisfactory to ALZA to ensure that Available Funds will remain available for
expenditure under this Agreement.
10.4 NO INCONSISTENT AGREEMENTS. Without the written consent of
ALZA, TDC shall not enter into any agreement or arrangement that is in any
way inconsistent with or that could adversely affect ALZA's rights under any
agreement between ALZA and TDC, or that is in any way inconsistent with or
that could adversely affect ALZA's rights as holder of the Class B Common
Stock of TDC. TDC must include in any agreement between TDC and a third
party relating to Products, Developed Technology and/or activities hereunder
such provisions as ALZA reasonably deems appropriate to protect ALZA
Proprietary Rights and to protect ALZA's rights under all agreements between
ALZA and TDC and under the Purchase Option.
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<PAGE>
SECTION 11
----------
TERM AND TERMINATION
--------------------
11.1 AUTOMATIC TERMINATION. This Agreement shall terminate upon
expiration of the Purchase Option, except that ALZA's obligations to make
payments to TDC with respect to Other Royalty-Bearing Products shall continue
as provided in Section 7 hereof.
11.2 OTHER TERMINATION. Either party may, in its discretion,
terminate this Agreement and its term in the event that the other party:
(a) breaches any material obligation hereunder or under the
Technology License Agreement, the License Option Agreement, or any license
thereunder, and such breach continues for a period of 60 days after written
notice thereof by the terminating party to the other party; or
(b) enters into any proceeding, whether voluntary or
otherwise, in bankruptcy, reorganization or arrangement for the appointment
of a receiver or trustee to take possession of its assets or any other
proceeding under any law for the relief of creditors, or makes an assignment
for the benefit of its creditors.
SECTION 12
----------
FORCE MAJEURE
-------------
12.1 FORCE MAJEURE. Neither party to this Agreement shall be
liable for delay in the performance of any of its obligations hereunder if
such delay is due to causes beyond its reasonable control including, without
limitation, acts of God,
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<PAGE>
fires, strikes, acts of war, or intervention of any governmental authority,
but any such delay or failure shall be remedied by such party as soon as
possible.
SECTION 13
----------
MISCELLANEOUS
-------------
13.1 AMENDMENT. Any waiver by either party hereto of a breach of
any provisions of this Agreement shall not be implied and shall not be valid
unless such waiver is recited in writing and signed by such party. Failure
of any party to require, in one or more instances, performance by the other
party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of
any such terms or conditions or of any other terms and conditions of this
Agreement. A waiver by either party of any term or condition of this
Agreement shall not be deemed or construed to be a waiver of such term or
condition for any other term. All rights, remedies, undertakings,
obligations and agreements contained in this Agreement shall be cumulative
and none of them shall be a limitation of any other remedy, right,
undertaking, obligation or agreement of either party. This Agreement may not
be amended except in a writing signed by both parties.
13.2 ASSIGNMENT. Neither party may assign its rights and
obligations hereunder without the prior written consent of the other party,
which consent may not be unreasonably withheld; provided, however, that ALZA
may assign such rights and obligations hereunder to any person or entity with
which ALZA is
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<PAGE>
merged or consolidated or which purchases all or substantially all of the
assets of ALZA. ALZA may subcontract all or any portion of its duties
hereunder to third parties, in its sole discretion.
13.3 ARBITRATION.
13.3.1 ARBITRATION. All disputes which may arise under, out
of or in connection with this Agreement shall be settled by arbitration
conducted in the city of San Francisco, State of California, in accordance
with the then existing rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties hereby agree that service of
any notices in the course of such arbitration at their respective addresses
as provided for in Section 13.7 of this Agreement shall be valid and
sufficient.
13.3.2 ARBITRATORS. In any arbitration pursuant to this
Section 13.3, the award shall be rendered by a majority of the members of a
board of arbitration consisting of three members who shall be appointed by
the parties jointly, or if the parties cannot agree as to three arbitrators
within 30 days after the commencement of the arbitration proceeding, then one
arbitrator shall be appointed by ALZA and one arbitrator shall be appointed
by TDC within 60 days after the commencement of the arbitration proceeding.
The third arbitrator shall be appointed by mutual agreement of such two
arbitrators. In the event of failure of the two arbitrators to agree within
75 days after commencement of the arbitration proceeding upon the appointment
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<PAGE>
of the third arbitrator, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then existing rules.
Notwithstanding the foregoing, in the event that any party shall fail to
appoint an arbitrator it is required to appoint within the specified time
period, such arbitrator and the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then existing rules.
For purposes of this Section 13.3, the "commencement of the arbitration
proceeding" shall be deemed to be the date upon which a written demand for
arbitration is received by the American Arbitration Association from one of
the parties.
13.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute this Agreement.
13.5 GOVERNING LAW. This Agreement shall be governed by the laws
of the state of California as applied to residents of that state entering
into contracts to be performed in that state.
13.6 HEADINGS. The headings set forth at the beginning of the
various sections of this Agreement are for reference and convenience and
shall not affect the meanings of the provisions of this Agreement.
13.7 NOTICES. Notices required under this Agreement shall be in
writing and sent by registered or certified mail, postage prepaid, or by
telex or facsimile and confirmed by registered or certified mail and
addressed as follows:
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<PAGE>
If to ALZA: ALZA Corporation
950 Page Mill Road
P.0. Box 10950
Palo Alto, CA 94303-0802
Attention: Vice President, Legal
If to TDC: Therapeutic Discovery Corporation
1290 Page Mill Road
P.O. Box 10051
Palo Alto, CA 94303-0860
Attention: Chief Executive officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by telex or facsimile (but only if followed
by certified or registered confirmation). Either party may change the
address at which notice is to be received by written notice pursuant to this
Section 13.7.
13.8 PUBLIC DISCLOSURE. Neither party shall disclose to third
parties, nor originate any publicity, news release or public announcement,
written or oral, whether to the public, the press, stockholders or otherwise,
referring to the existence or terms of this Agreement, the subject matter to
which it relates, the performance under it or any of its specific terms and
conditions, except such announcements, as in the opinion of the counsel for
the party making such announcement, are required by law, including United
States securities laws, rules or regulations, without the prior written
consent of the other party. If a party decides to make an announcement it
believes to be required by law with respect to this Agreement, it will give
the other party such notice as is reasonably practicable and an opportunity
to comment upon the announcement.
13.9 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or
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<PAGE>
unenforceable, it shall be modified, if possible, to the minimum extent
necessary to make it valid and enforceable or, if such modification is not
possible, it shall be stricken and the remaining provisions shall remain in
full force and effect; provided, however, that if a provision is stricken so
as to significantly alter the economic arrangements of this Agreement, the
party adversely affected may terminate this Agreement upon 60 days' prior
written notice to the other party.
13.l0 RELATIONSHIP OF THE PARTIES. For all purposes of this
Agreement, TDC and ALZA shall be deemed to be independent entities and
anything in this Agreement to the contrary notwithstanding, nothing herein
shall be deemed to constitute TDC and ALZA as partners, joint ventures,
co-owners, an association or any entity separate and apart from each party
itself, nor shall this Agreement constitute any party hereto an employee or
agent, legal or otherwise, of the other party for any purposes whatsoever.
Neither party hereto is authorized to make any statements or representations
on behalf of the other party or in any way obligate the other party, except
as expressly authorized in writing by the other party. Anything in this
Agreement to the contrary notwithstanding, no party hereto shall assume nor
shall be liable for any liabilities or obligations of the other party,
whether past, present or future.
13.11 SURVIVAL. The provisions of Sections 1, 5, 7, 8, 9, 11,
13.3, 13.5, 13.7, 13.8, 13.9, 13.10 and this Section 13.11 survive the
termination for any reason of this Agreement. Neither party shall be liable
to the other due to the
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<PAGE>
termination of this Agreement as provided herein, whether in loss of good
will, anticipated profits or otherwise. In addition, any payments due under
this Agreement with respect to any period prior to its termination shall be
made notwithstanding the termination of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above by their duly authorized
representatives.
ALZA CORPORATION
By: /s/ Jane E. Shaw
------------------------------------------
Title: President and Chief Operating Officer
---------------------------------------
THERAPEUTIC DISCOVERY CORPORATION
By: /s/ Pieter P. Bonsen
----------------------------
Title: President
-------------------------
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<PAGE>
EXHIBIT A
DEVELOPMENT COSTS
-----------------
Development Costs are equal to the sum of (i) Research Expenses, (ii) General
and Administrative Expenses and (iii) Capital Asset Expenditures.
(i) Research Expenses include both Direct Expenses and Indirect Expenses,
with the cost elements outlined on Exhibit A-1.
(a) Direct Expenses include Direct Research Salaries,
Clinical Expenses, Supplies and other expenses incurred
specifically in connection with the Program.
(b) Indirect Expenses include Research Management and support
costs of the research and product development
organization. (Indirect Expenses are allocated to all
projects and billed to clients at a fixed rate* of 160%
of Direct Research Salaries.)
(ii) General and Administrative Expenses include cost elements
outlined on Exhibit A-2. (General and Administrative Expenses
are allocated among the research and product development,
manufacturing and marketing organizations. The portion
allocated to the research and product development organization
is then allocated to all projects and billed to clients at a
fixed rate* of 80% of Direct Research Salaries.)
(iii) Capital Asset Expenditures are the actual costs of new capital
assets acquired specifically for the project.
- -------------------------
* This fixed billing rate will not be changed prior to January 1,
1994 and, if changed on or after January 1, 1994, such
changes will be limited to not more than one change per
calendar year and shall be a maximum of 10% of the rate in
effect at the time of the increase.
<PAGE>
EXHIBIT A-1
Research Expenses
-----------------
DIRECT EXPENSES
Direct Research Salaries*
Project Clinical Expenses and Outside Services
Project Specific Supplies
Project Travel and Related Expenses
Miscellaneous Project Expenses
INDIRECT EXPENSES
Research Management and Indirect Salaries*
General Research Supplies and Materials
General Research Consulting and Outside Services
Facilities Expenses
Telephone and Communications
Equipment Depreciation, Rent, Maintenance and Services
Research Travel and Related Expenses
Patent and Trademark Expenses
Miscellaneous Indirect Research Expenses
*Salaries include Benefits
<PAGE>
EXHIBIT A-2
General and Administrative Expense
----------------------------------
Corporate Management, Administrative, and Indirect Salaries*
Telephone and Communications
Equipment Depreciation, Rent, Maintenance and Services
Board of Directors and Corporate Consulting
Annual Audit, Accounting and Legal Expenses
Facilities Expenses
Net Interest Expense
Miscellaneous General and Administrative Expenses
*Salaries include Benefits
<PAGE>
LICENSE OPTION AGREEMENT
AGREEMENT made as of the 10th day of March, 1993 by and between ALZA
Corporation, a Delaware corporation ("ALZA") and Therapeutic Discovery
Corporation, a Delaware corporation ("TDC").
RECITALS
A. As of the date hereof, ALZA and TDC have entered into a Technology
License Agreement and a Development Contract.
B. Pursuant to the Development Agreement, TDC will employ ALZA and
possibly third party contractors to perform the research and development work
described therein, which is anticipated to result in Products.
C. In order to carry out the commercial exploitation of Products and in
consideration of the agreements described above, TDC desires to grant to ALZA an
option as set forth herein.
NOW, THEREFORE, the parties agree as follows:
l. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
1.1 "Development Contract" shall mean the Development Agreement dated
as of the date hereof between TDC and ALZA.
1.2 "License Agreement" shall mean an exclusive license agreement for
a particular Product between ALZA and TDC in the form of Exhibit A to this
Agreement.
<PAGE>
1.3 "License Option" shall mean the option granted to ALZA, pursuant
to Section 2 of this Agreement, to enter into License Agreements for Products,
on a Product by Product basis.
1.4 "NDA" shall mean a new drug application as that term is defined
in the Federal Food, Drug and Cosmetic Act or any successor application filed
with the FDA requesting permission to market a Product.
1.5 "Product" shall mean a product accepted for development under the
Development Contract.
1.6 "Purchase Option" shall mean that certain option to purchase all
of the outstanding shares of TDC Class A Common Stock that is granted to ALZA
pursuant to TDC's Certificate of Incorporation, as amended.
1.7 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
covering any of the foregoing, owned by or licensed to a person and which such
person has the right to license. Proprietary rights shall not include
trademarks.
1.8 "Technology License Agreement" shall mean the Technology License
Agreement dated as of the date hereof between ALZA and TDC.
2. LICENSE OPTION.
2.1 GRANT OF LICENSE OPTION. On the terms and subject to the
conditions of this Agreement, TDC hereby grants to ALZA a License Option with
respect to each Product, exercisable on a Product by Product and
country-by-country basis as described in Section 2.2. ALZA agrees that, as
long as TDC has Proprietary
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<PAGE>
Rights in a Product, ALZA will not commercialize any Product, for its own
account or with a third party, except pursuant to a License Agreement executed
pursuant to the terms hereof.
2.2 TIME FOR EXERCISE. ALZA may exercise the License option with
respect to any Product on a country-by-country basis at any time during the
period beginning on the date hereof and ending 90 days after written
notification to ALZA of the earlier of (i) approval to market such Product in
such country by the appropriate regulatory agency or (ii) approval to market
the Product in the United States by the FDA. The License Option for any
Product in any country automatically will expire if not exercised within the
time periods described above. TDC will notify ALZA in writing within 10
business days of receipt of each approval to market any Product in any
country.
2.3 MANNER OF EXERCISE. ALZA shall exercise its License Option by
delivering to TDC, within the time period described in Section 2.2 above, a
notice of exercise specifying the Product and the country or countries as to
which the License Option is exercised. A License Agreement for such Product
shall be deemed to be effective in such country or countries as of the date
of such notice of exercise, without the necessity of any additional action by
the parties. For the convenience of the parties, however, TDC shall, upon
receipt of ALZA's notice, forward to ALZA two executed copies of a License
Agreement dated the effective date and containing completed Attachments A and
B; ALZA shall execute both copies and return one to TDC as soon as possible.
Failure of either or both of the parties to execute
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<PAGE>
such License Agreement shall not, however, affect the effectiveness of the
license granted thereby. The parties shall enter into a separate License
Agreement for each Product as to which ALZA elects to exercise a License
Option. For convenience, the parties shall amend Attachment B to a License
Agreement to add countries in cases where a License Option is being exercised
for a Product for which a License Option already has been exercised in
another country or countries.
3. NO CONFLICT.
TDC agrees that no license, sale or other commercial exploitation of
any Product has been or shall be made or offered to any person or entity on any
basis that is or will be in conflict with this Agreement or any License
Agreement.
4. ACCESS TO INFORMATION.
4.1 INFORMATION AVAILABLE. TDC shall make available to ALZA, at
all reasonable times, all available information relating to all Products, so
as to enable ALZA to determine whether and when to exercise its License
Option.
4.2 CONSULTATION. TDC shall consult with ALZA and inform ALZA on a
continuing basis of development and the current state of all Products and
will review from time to time with ALZA the progress towards completion of
the Products.
5. TERMINATION.
This Agreement shall terminate on the earlier of (a) the date of expiration
of the License Option for all of the Products and (b) 90 days after expiration
of the Purchase Option.
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<PAGE>
6. MISCELLANEOUS.
6.1 AMENDMENT. Any waiver by either party hereto of a breach of
any provisions of this Agreement shall not be implied and shall not be valid
unless such waiver is recited in writing and signed by such party. Failure
of any party to require, in one or more instances, performance by the other
party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of
any such terms or conditions or of any other terms and conditions of this
Agreement. A waiver by either party of any term or condition of this
Agreement shall not be deemed or construed to be a waiver of such term or
condition for any other term. All rights, remedies, undertakings,
obligations and agreements contained in this Agreement shall be cumulative
and none of them shall be a limitation of any other remedy, right,
undertaking, obligation or agreement of either party. This Agreement may not
be amended except in a writing signed by both parties.
6.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that ALZA may assign
such rights and obligations hereunder to any person or entity with which ALZA
is merged or consolidated or which purchases all or substantially all of the
assets of ALZA.
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<PAGE>
6.3 ARBITRATION.
6.3.1 ARBITRATION. All disputes which may arise under, out of or
in connection with this Agreement shall be settled by arbitration conducted
in the City of San Francisco, State of California, in accordance with the
then existing rules of the American Arbitration Association, and judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The parties hereby agree that service of any notices in
the course of such arbitration at their respective addresses as provided for
in Section 6.7 of this Agreement shall be valid and sufficient.
6.3.2 ARBITRATORS. In any arbitration pursuant to this Section 6.3,
the award shall be rendered by a majority of the members of a board of
arbitration consisting of three members who shall be appointed by the parties
jointly, or if the parties cannot agree as to three arbitrators within 30
days after the commencement of the arbitration proceeding, then one
arbitrator shall be appointed by ALZA and one arbitrator shall be appointed
by TDC within 60 days after the commencement of the arbitration proceeding.
The third arbitrator shall be appointed by mutual agreement of such two
arbitrators. In the event of failure of the two arbitrators to agree within
75 days after commencement of the arbitration proceeding upon the appointment
of the third arbitrator, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then existing rules.
Notwithstanding the foregoing, in the event that any party shall fail to
appoint an arbitrator it is required to
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<PAGE>
appoint within the specified time period, such arbitrator and the third
arbitrator shall be appointed by the American Arbitration Association in
accordance with its then existing rules. For purposes of this Section 6.3,
the "commencement of the arbitration proceeding" shall be deemed to be the
date upon which a written demand for arbitration is received by the American
Arbitration Association from one of the parties.
6.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute this Agreement.
6.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state of California as applied to
residents of that state entering into contracts wholly to be performed in
that state.
6.6 HEADINGS. The section headings contained in this Agreement are
included for convenience only and form no part of the Agreement between the
parties.
6.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by telex or
facsimile and confirmed by registered or certified mail and addressed as
follows:
If to ALZA: ALZA Corporation
950 Page Mill Road
P. 0. Box 10950
Palo Alto, CA 94303-0802
Attention: Vice President, Legal
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<PAGE>
If to TDC: Therapeutic Discovery Corporation
1290 Page Mill Road
P.O. Box 10051
Palo Alto, CA 94303-0860
Attention: Chief Executive Officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by telex or facsimile (but only if followed
by certified or registered confirmation). Either party may change the
address at which notice is to be received by written notice pursuant to this
Section 6.7.
6.8 PUBLIC DISCLOSURE. Neither party shall disclose to third
parties, nor originate any publicity, news release or public announcement,
written or oral, whether to the public, the press, stockholders or otherwise,
referring to the existence or terms of this Agreement, including its
existence, the subject matter to which it relates, the performance under it
or any of its specific terms and conditions, except such announcements, as in
the opinion of the counsel for the party making such announcement, are
required by law, including United States securities laws, rules or
regulations, without the prior written consent of the other party. If a
party decides to make an announcement it believes to be required by law with
respect to this Agreement, it will give the other party such notice as is
reasonably practicable and an opportunity to comment upon the announcement.
6.9 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum extent necessary to make it valid and
enforceable or, if such
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<PAGE>
modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect; provided, however, that if
a provision is stricken so as to significantly alter the economic
arrangements of this Agreement, the party adversely affected may terminate
this Agreement upon 60 days' prior written notice to the other party.
6.10 RELATIONSHIP OF THE PARTIES. For all purposes of this
Agreement, TDC and ALZA shall be deemed to be independent entities and
anything in this Agreement to the contrary notwithstanding, nothing herein
shall be deemed to constitute TDC and ALZA as partners, joint venturers,
co-owners, an association or any entity separate and apart from each party
itself, nor shall this Agreement constitute any party hereto an employee or
agent, legal or otherwise, of the other party for any purposes whatsoever.
Neither party hereto is authorized to make any statements or representations
on behalf of the other party or in any way obligate the other party, except
as expressly authorized in writing by the other party. Anything in this
Agreement to the contrary notwithstanding, no party hereto shall assume nor
shall be liable for any liabilities or obligations of the other party,
whether past, present or future.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
ALZA CORPORATION
By: /s/ Jane E. Shaw
-----------------------------------------
Title: President and Chief Operating Officer
--------------------------------------
THERAPEUTIC DISCOVERY CORPORATION
By: /s/ Pieter P. Bonsen
-----------------------------------------
Title: President
--------------------------------------
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EXHIBIT A
LICENSE AGREEMENT
This LICENSE AGREEMENT is made this ____ day of _______________ ,
19__, by and between ALZA Corporation, a Delaware corporation ("ALZA"), and
Therapeutic Discovery Corporation ("TDC"), a Delaware corporation.
RECITALS
A. TDC and ALZA have entered into a License Option Agreement and certain
other agreements dated as of March 10, 1993.
B. Section 2 of the License Option Agreement provides for a license, the
terms of which are to be set forth herein.
NOW, THEREFORE, the parties agree as follows:
l. DEFINITIONS.
For purposes of this Agreement, the following terms will have the
respective meanings set forth below.
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Developed Technology" shall mean Proprietary Rights that (a) are
generated, developed, conceived or first
<PAGE>
reduced to practice, as the case may be, by ALZA or others under a product
development program undertaken pursuant to the Development Contract or (b) are
in any manner acquired by or otherwise obtained on behalf of TDC from persons
other than ALZA and are necessary or useful to the development of the Licensed
Product during the term of the Development Contract.
1.3 "Development Contract" shall mean the Development Agreement
between the parties dated as of March 10, 1993.
1.4 "Development Cost(s)" shall mean the cost of the activities
undertaken pursuant to the Development Contract with respect to the Licensed
Product, determined in accordance with Exhibit A thereto.
1.5 "Infringing Product" shall mean any product sold by a third
party, other than pursuant to a sublicense or distribution agreement with TDC or
ALZA, which consists of the drug compound or compounds incorporated in the
Licensed Product as the active agent or agents and a delivery system
substantially similar to that incorporated in the Licensed Product, and which
product infringes or is alleged to infringe any ALZA patent or patents covering
the Licensed Product.
1.6 "License Option Agreement" shall mean the License Option
Agreement between the parties dated as of March 10, 1993.
1.7 "Licensed Product" shall mean the product listed on Exhibit A
hereto.
1.8 "Major Market Country" shall mean any of the United States, the
United Kingdom, France, Germany, Italy or Japan.
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<PAGE>
1.9 "Net Sales" shall mean the total amount invoiced in United States
dollars (or converted thereto in accordance with section 5.2) on sales by ALZA
and its Affiliates to independent, unrelated third parties (other than
distributors or sublicensees who make payments that constitute Sublicensing
Revenues) in bona fide arms' length transactions, less the following deductions,
in each case related specifically to the product in question and actually
allowed and taken by such third parties and not otherwise recovered by or
reimbursed to ALZA or its Affiliates: (i) trade, cash and quantity discounts;
(ii) taxes on sales (such as sales or use taxes) to the extent added to the
sales price and set forth separately as such in the total amount invoiced; (iii)
freight, insurance and other transportation charges to the extent added to the
sales price and set forth separately as such in the total amount invoiced; and
(iv) amounts repaid or credited by reason of rejections, defects or returns or
because of retroactive price reductions, or due to government laws or
regulations requiring rebates. Net Sales shall not include sales between or
among ALZA and its Affiliates or Sublicensing Revenues.
1.10 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
covering any of the foregoing, owned by or licensed to a person and which such
person has the right to license. Proprietary Rights shall not include
trademarks.
1.11 "Special Royalty Payments" shall mean "front-end" distribution
fees, prepaid royalties and similar one-time,
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infrequent or special payments. Solely for purposes of calculating a buy-out
price under Section 3.3 hereof, any Special Royalty Payments will be amortized
over a period of 28 calendar quarters, beginning with the quarter in which such
payment is made.
1.12 "Sublicensing Revenues" shall mean (a) any royalties or
percentage of sales payments received by ALZA or any Affiliate under either (i)
any sublicense for the manufacture, use or sale of the product in question or
(ii) any distribution agreement entered into with a distributor who agrees to
pay royalties or make percentage of sales payments to ALZA or any Affiliate in
respect of the manufacture, use or sale of such product and (b) any Special
Royalty Payments received by ALZA or its Affiliates in respect of such product,
in each case excluding amounts paid to reimburse ALZA for research and
development or manufacturing costs.
1.13 "Territory" shall mean the country or countries listed on Exhibit
B hereto, as amended from time to time by the parties in connection with the
exercise by ALZA of its option for additional countries under the License Option
Agreement.
2. GRANT OF LICENSE.
TDC hereby grants to ALZA the exclusive, perpetual, right and license
in the Territory to develop, make, have made, use and sell the Licensed Product.
ALZA (at no cost to TDC) agrees to use its reasonable efforts to complete or
have completed any remaining activities necessary to complete the development of
the Licensed Product in the Territory and to
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<PAGE>
promote the commercialization of the Licensed Product in each Major Market
Country of the Territory through the manufacture and sale or the sublicensing of
the Licensed Product. ALZA may use reasonable discretion in the allocation of
its technological and monetary resources in performing its obligations
hereunder, taking into account not only the Licensed Product but also activities
for its own account and its obligations under third party agreements.
3. ROYALTIES AND OTHER PAYMENTS.
3.1 PAYMENTS. In consideration of the grant of the license, ALZA
shall pay TDC royalties with respect to the Licensed Product as follows:
(a) up to a maximum of 5% of Net Sales of the Licensed Product
in the Territory determined as follows: 1% of such Net Sales, plus an additional
0.1% of such Net Sales for each full one million dollars of Development Costs of
the Licensed Product paid by TDC; plus
(b) up to a maximum of 50% of Sublicensing Revenues in respect
of sales of the Licensed Product in the Territory determined as follows: 10% of
such Sublicensing Revenues, plus an additional 1% of such Sublicensing Revenues
for each full one million dollars of Development Costs of the Licensed Product
paid by TDC.
In determining payments due under this Section 3.1, Net Sales and
Sublicensing Revenues shall be reduced by the dollar amount of any license or
similar payments made to third parties
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<PAGE>
by ALZA or its Affiliates with respect to sales of such Licensed Product in the
Territory. In determining payments under this Section 3.1, Development Costs
shall be determined as of December 31 of each calendar year, in order to
determine the rates payable for the next calendar year for all countries
included in the Territory as of January 1 of such next year, and for any country
added to the Territory during such next year.
3.2 TERM OF PAYMENTS. The obligation to make payments hereunder
shall continue for 15 years after the date of the first commercial
introduction of the Licensed Product in any Major Market Country.
3.3 BUY-OUT OF PAYMENTS. ALZA shall have the option, in its
discretion, at any time from and after the end of the twelfth calendar
quarter following the quarter in which the first commercial sale in any
country of the Licensed Product occurs, to buy out its remaining obligations
to make payments under Section 3.1 with respect to sales of such Licensed
Product in such country. The buy-out price shall be an amount equal to 15
times the payments made by or due to TDC from ALZA under Section 3.1 with
respect to sales of such Licensed Product in such country during the four
most recent calendar quarters preceding the date of exercise of the buy-out
option for which royalties were paid or were due in respect of such country.
ALZA shall have the option, in its discretion, at any time from and after the
end of the twelfth calendar quarter following the quarter in which the first
commercial sale of any Licensed Product occurs in either the United States or
two other Major
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<PAGE>
Market Countries to buy out its remaining worldwide obligations to make payments
under Section 3.1 with respect to such Licensed Product. The buy-out price
shall be an amount equal to 20 times the payments made by or due to TDC from
ALZA under Section 3.1 on a worldwide basis with respect to such Licensed
Product during the four most recent calendar quarters preceding the date of
exercise of the buy-out option for which royalties were paid or were due (and,
in addition, such payments as would have been paid by or due from ALZA to TDC if
ALZA had not exercised any country specific buy-out option with respect to such
Licensed Product less any amounts previously paid to exercise any country-
specific buy-out option with respect to such Licensed Product. For calculating
the buy-out price, any Special Royalty Payments will be amortized over a period
of 28 quarters, beginning with the quarter in which such payment is made.
4. ACCOUNTING.
4.1 REPORTS. Within 90 days after the end of each calendar
quarter for which royalties are due under Section 3.1, ALZA shall render an
accounting to TDC, on a country-by-country basis, with respect to all
payments due for such quarter under Section 3.1. Such report shall indicate
for such quarter, the quantity and dollar amount of sales of the Licensed
Product by ALZA, its Affiliates, sublicensees and distributors with respect
to which such payments are due; provided, however, that if ALZA shall not
have received from any foreign sublicensee or distributor a report of its
sales for any quarter, then such sales shall be included in the next
quarterly report. In case no
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<PAGE>
payment is due for any calendar quarter, ALZA shall so report. ALZA shall keep
accurate records in sufficient detail to enable the payments due hereunder to be
determined.
4.2 REVIEW BY ACCOUNTANTS. At TDC's request, ALZA shall permit an
independent public accountant selected by TDC to have access, once in each
calendar year during regular business hours and upon reasonable notice to
ALZA, to such of the records of ALZA as may be necessary to verify the
accuracy of the reports and payments made under this Agreement, but said
accountant shall not disclose to TDC any information except that which should
properly have been contained in such reports. The right of review with
respect to any quarterly account shall terminate two years after TDC's
receipt of the royalties due with respect to such quarter.
5. TIMES AND CURRENCIES OF PAYMENTS.
5.1 PAYMENTS. Payments shown by each calendar quarter report to
have accrued shall be due and payable on the date such report is due and
shall be paid in United States dollars. Any and all taxes due or payable on
such payments or with respect to the remittance thereof shall be deducted
from such payments and shall be paid by ALZA to the proper taxing
authorities, and proof of payment shall be secured and sent to TDC as
evidence of such payment. The rate of exchange to be used in computing the
amount of the United States dollars due to TDC in satisfaction of payment
obligations with respect to sales in foreign countries shall be calculated by
converting the amount due in such foreign currency into United States dollars
based on the rate for the
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<PAGE>
purchase of United States dollars with such currency as published in the WALL
STREET JOURNAL on the last business day of the calendar quarter for which
payment is being made.
5.2 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent
remittance from any foreign country of any amounts due under Section 3.1 in
respect of that country, ALZA shall so notify TDC in writing, and the
obligation under this Agreement to make payments in respect of sales in that
country shall be suspended (but the amounts due but not paid shall continue
to accrue) until such remittances are possible. TDC shall have the right,
upon written notice to ALZA, to receive payment in any such country in the
local currency.
5.3 LATE PAYMENTS. Any payments due hereunder that are not made
when due shall bear interest at the lesser of ten percent per annum or the
maximum rate as may be allowed by law, beginning on the date when TDC has
notified ALZA that such payments are overdue.
6 PATENTS.
6.1 PATENT INFRINGEMENT.
(a) If a third party infringes, by the manufacture or sale of an
Infringing Product, any patent covering the Licensed Product, ALZA may, at its
own expense and with the right to all recoveries, bring legal action to restrain
such infringement and for damages. If ALZA fails to take the necessary steps to
restrain such infringement by litigation or otherwise, and if such Infringing
Product achieves a sales volume in the country of infringement equal to 25% of
the sales volume
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<PAGE>
of the Licensed Product sold by ALZA and its Affiliates, sublicensees and
distributors in such country, then TDC may institute, in its own name, at its
own expense and with the right to all recoveries, such litigation or other
appropriate action as it may deem necessary to terminate such infringement,
provided that TDC has first given to ALZA 60 days advance notice of its
intention to take such action and provided further, that ALZA has not itself
taken appropriate action during such 60 day period.
(b) If TDC desires to bring such action in accordance with this
Section 6.1, ALZA agrees to cooperate with TDC. TDC shall indemnify ALZA
against liability for any costs, damages or other amounts awarded to the third
party. If the third party in any such action brings a counteraction for
invalidation or misuse of a patent covering the Licensed Product, TDC promptly
shall notify ALZA and ALZA may, within six months of the notification, join and
participate in such action at its own expense.
(c) Each party agrees not to settle any action it brings in a
manner that is prejudicial to any patent or proprietary rights of the other
party without the other party's prior written approval.
7. EFFECTIVE DATE AND TERM.
This Agreement will become effective in accordance with Section 2.3
of the License Option Agreement and, unless terminated in accordance with any
of the provisions hereof, shall remain in full force and effect thereafter;
provided, however,
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<PAGE>
that the obligation to make payments under Section 3 hereof shall terminate as
set forth in Section 3.
8. DISCLAIMERS.
TDC DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (i) THAT THE LICENSED PRODUCT
OR ANY TECHNOLOGY INCORPORATED THEREIN WILL BE FREE FROM CLAIMS OF PATENT
INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY
THIRD PARTY AND (ii) OF THE ACCURACY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL
VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE LICENSED PRODUCT OR ANY
TECHNOLOGY INCORPORATED THEREIN OR THEIR SUITABILITY OR FITNESS FOR ANY PURPOSE
WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE DESIGN, DEVELOPMENT, MANUFACTURE,
USE OR SALE OF THE LICENSED PRODUCT. TDC DISCLAIMS ALL OTHER WARRANTIES OF
WHATEVER NATURE, EXPRESS OR IMPLIED.
9. TERMINATION.
9.1 TERMINATION BY TDC. TDC may, in its discretion, terminate
this Agreement in the event that ALZA:
(a) breaches any material obligation hereunder and such breach
continues for a period of 60 days after written notice thereof; or
(b) enters into any proceeding, whether voluntary or otherwise,
in bankruptcy, reorganization or arrangement for the appointment of a receiver
or trustee to take possession of ALZA's assets or any other proceedings under
any law for the relief of creditors or makes an assignment for the benefit of
its creditors.
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<PAGE>
9.2 TERMINATION BY ALZA. ALZA may terminate this Agreement with
respect to one or more countries included in the Territory upon thirty days'
prior written notice to TDC if ALZA elects for any reason to discontinue
commercialization of the Licensed Product.
9.3 CONSEQUENCES OF TERMINATION. Termination of this Agreement
for any reason in accordance with the terms hereof shall be without prejudice
to:
(a) TDC's right to receive all payments accrued under Section 3
prior to the effective date of such termination; and
(b) any other remedies which either party may then or thereafter
have hereunder or otherwise.
If this Agreement terminates pursuant to this Section 9, ALZA shall discontinue
production and sales of the Licensed Product. In the event of any termination
under this Section 9, ALZA may sell its inventory in stock on the date of
termination and shall remit payments to TDC in respect thereto in accordance
with this Agreement.
10. MISCELLANEOUS.
10.1 AMENDMENT. Any waiver by either party hereto of a breach of
any provisions of this Agreement shall not be implied and shall not be valid
unless such waiver is recited in writing and signed by such party. Failure of
any party to require, in one or more instances, performance by the other
party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future
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<PAGE>
performance of any such terms or conditions or of any other terms and conditions
of this Agreement. A waiver by either party of any term or condition of this
Agreement shall not be deemed or construed to be a waiver of such term or
condition for any other term. All rights, remedies, undertakings, obligations
and agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement of either party. This Agreement may not be amended except in a
writing signed by both parties.
10.2 ASSIGNMENT. Neither party may assign its rights and
obligations hereunder without the prior written consent of the other party,
which consent may not be unreasonably withheld; provided, however, that ALZA
may assign such rights and obligations hereunder to any person or entity with
which ALZA is merged or consolidated or which purchases all or substantially
all of the assets of ALZA.
10.3 ARBITRATION.
10.3.1 ARBITRATION. All disputes which may arise under, out
of or in connection with this Agreement shall be settled by arbitration
conducted in the City of San Francisco, State of California, in accordance
with the then existing rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties hereby agree that service of
any notices in the course of such arbitration at their
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<PAGE>
respective addresses as provided for in Section 10.7 of this Agreement shall be
valid and sufficient.
10.3.2 ARBITRATORS. In any arbitration pursuant to this
Section 10.3, the award shall be rendered by a majority of the members of a
board of arbitration consisting of three members who shall be appointed by
the parties jointly, or if the parties cannot agree as to three arbitrators
within 30 days after the commencement of the arbitration proceeding, then one
arbitrator shall be appointed by ALZA and one arbitrator shall be appointed
by TDC within 60 days after the commencement of the arbitration proceeding.
The third arbitrator shall be appointed by mutual agreement of such two
arbitrators. In the event of failure of the two arbitrators to agree within
75 days after commencement of the arbitration proceeding upon the appointment
of the third arbitrator, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then existing rules.
Notwithstanding the foregoing, in the event that any party shall fail to
appoint an arbitrator it is required to appoint within the specified time
period, such arbitrator and the third arbitrator shall be appointed by the
American Arbitration Association in accordance with its then existing rules.
For purposes of this Section 10.3, the "commencement of the arbitration
proceeding" shall be deemed to be the date upon which a written demand for
arbitration is received by the American Arbitration Association from one of
the parties.
10.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall
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be deemed to be an original and all of which when taken together shall
constitute this Agreement.
10.5 GOVERNING LAW. This Agreement shall be governed by the laws
of the state of California as applied to residents of that state entering
into contracts to be performed in that state.
10.6 HEADINGS. The headings set forth at the beginning of the
various sections of this Agreement are for reference and convenience and
shall not affect the meanings of the provisions of this Agreement.
10.7 NOTICES. Notices required under this Agreement shall be in
writing and sent by registered or certified mail, postage prepaid, or by
telex or facsimile and confirmed by registered or certified mail and
addressed as follows:
If to ALZA: ALZA Corporation
950 Page Mill Road
P. 0. Box 10950
Palo Alto, CA 94303-0802
Attention: Vice President, Legal
If to TDC: Therapeutic Discovery Corporation
1290 Page Mill Road
P.O. Box 10051
Palo Alto, CA 94303-0860
Attention: Chief Executive Officer
All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by telex or facsimile (but only if followed by certified
or registered confirmation). Either party may change the address at which
notice is to be received by written notice pursuant to this Section 10.7.
10.8 PUBLIC DISCLOSURE. Neither party shall disclose to third
parties, nor originate any publicity, news release or public announcement,
written or oral, whether to the public, the
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press, stockholders or otherwise, referring to the existence or terms of this
Agreement, the subject matter to which it relates, the performance under it or
any of its specific terms and conditions, except such announcements, as in the
opinion of the counsel for the party making such announcement, are required by
law, including United States securities laws, rules or regulations, without the
prior written consent of the other party. If a party decides to make an
announcement it believes to be required by law with respect to this Agreement,
it will give the other party such notice as is reasonably practicable and an
opportunity to comment upon the announcement.
10.9 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it shall be stricken
and the remaining provisions shall remain in full force and effect; provided,
however, that if a provision is stricken so as to significantly alter the
economic arrangements of this Agreement, the party adversely affected may
terminate this Agreement upon 60 days' prior written notice to the other
party.
10.10 RELATIONSHIP OF THE PARTIES. For all purposes of this
Agreement, TDC and ALZA shall be deemed to be independent contractors and
anything in this Agreement to the contrary notwithstanding, nothing herein
shall be deemed to constitute TDC and ALZA as partners, joint venturers,
co-owners, an association or any entity separate and apart from each party
itself, nor
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shall this Agreement constitute any party hereto an employee or agent, legal
or otherwise, of the other party for any purposes whatsoever. Neither party
hereto is authorized to make any statements or representations on behalf of
the other party or in any way obligate the other party, except as expressly
authorized in writing by the other party. Anything in this Agreement to the
contrary notwithstanding, no party hereto shall assume nor shall be liable
for any liabilities or obligations of the other party, whether past, present
or future.
10.11 SURVIVAL. The provisions of Sections 1, 3, 4, 5, 6, 8, 9,
10.3, 10.5, 10.7, 10.8, 10.9, 10.10, and this Section 10.11 shall survive the
termination for any reason of this Agreement. Neither party shall be liable
to the other due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or otherwise. Any payments
due under this Agreement with respect to any period prior to its termination
shall be made notwithstanding the termination of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
ALZA CORPORATION
By:
------------------------------
Title:
---------------------------
THERAPEUTIC DISCOVERY CORPORATION
By:
------------------------------
Title:
---------------------------
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EXHIBIT A
LICENSED PRODUCT
<PAGE>
EXHIBIT B
TERRITORY
<PAGE>
SERVICES AGREEMENT
This Services Agreement is made as of the 10th day of March, 1993 between
ALZA Corporation ("ALZA") and Therapeutic Discovery Corporation ("TDC").
RECITALS
TDC desires that ALZA provide certain services to TDC and ALZA desires to
provide such services, on the terms and conditions set forth herein.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1. SERVICES.
Upon request, ALZA will supply TDC with one or several of the following
services: accounting, legal, stockholder relations and similar management and
administrative services as mutually agreed. Such services will be provided at
reasonable times and upon reasonable notice, as mutually agreed.
2. COMPENSATION.
TDC shall pay ALZA's Costs in providing such services, monthly in
arrears within 30 days of the date of the invoice received by TDC from ALZA.
ALZA's "Costs" shall include reimbursement for its direct expenses associated
with the Distribution of Units covered by the Information Statement dated March
10, 1993, and ALZA's direct and indirect expenses as defined in Schedule A
hereto, and the cost of assets purchased for use solely on behalf of TDC, the
purchase of which is approved by TDC.
<PAGE>
3. TERM AND TERMINATION.
The initial term of this Agreement shall commence on the date hereof
and shall terminate on December 31, 1993, unless renewed as provided herein.
Thereafter, this Agreement shall automatically be renewed for successive terms
of one year each unless written notice of termination is given by the
terminating party to the other party at least 30 days in advance of the
expiration of any term; provided, however, that in no event shall the renewal
term extend past the date that is 180 days after the expiration of the Purchase
Option granted to ALZA pursuant to TDC's Certificate of Incorporation. TDC may,
in its discretion, terminate this Agreement at any time upon 60 days' written
notice to ALZA. Either party may, in its discretion, terminate this Agreement
by written notice to the other party in the event that the other party (a)
breaches any materials obligation hereunder or under the Technology License
Agreement, the Development Agreement, or the License Option Agreement between
ALZA and TDC, or any license granted to ALZA under the License Option Agreement,
which breach continues for a period of 60 days after written notice thereof, or
(b) enters into any proceeding, whether voluntary or involuntary, in bankruptcy,
reorganization or arrangement for the appointment of a receiver or trustee to
take possession of such party's assets or any other proceeding under any law for
the relief of creditors, or makes an assignment for the benefit of its
creditors.
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<PAGE>
4. INDEMNIFICATION OF ALZA.
TDC hereby agrees to indemnify, protect and hold ALZA harmless from
any and all liabilities, costs or expenses incurred by ALZA as a result of
services rendered by it under this Agreement, including, without limitation,
lawsuits of and claims by third parties, except for liabilities, costs or
expenses resulting from ALZA's gross negligence or willful misconduct.
5. FORCE MAJEURE.
ALZA shall not be liable for delay in performance of any of its
obligations hereunder if such delay is due to causes beyond its reasonable
control including, without limitation, acts of God, fires, strikes, acts of
war, or intervention of any government or authority, but any such delay or
failure shall be remedied by ALZA as soon as possible.
6. MISCELLANEOUS.
6.1 AMENDMENT. Any waiver by either party hereto of a breach of
any provisions of this Agreement shall not be implied and shall not be valid
unless such waiver is recited in writing and signed by such party. Failure
of any party to require, in one or more instances, performance by the other
party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of
any such terms or conditions or of any other terms and conditions of this
Agreement. A waiver by either party of any term or condition of this
Agreement shall not be deemed or construed to be a waiver of such term or
condition for any other term. All rights, remedies, undertakings, obligations
and
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<PAGE>
agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement of either party. This Agreement may not be amended except in a
writing signed by both parties.
6.2 ASSIGNMENT. Neither party may assign its rights and
obligations hereunder without the prior written consent of the other party,
which consent may not be unreasonably withheld; provided, however, that ALZA
may assign such rights and obligations hereunder to any person or entity with
which ALZA is merged or consolidated or which purchases all or substantially
all of the assets of ALZA. ALZA may subcontract all or any portion of its
duties hereunder to third parties, in its sole discretion.
6.3. ARBITRATION.
6.3.1 ARBITRATION. All disputes which may arise under, out of
or in connection with this Agreement shall be settled by arbitration
conducted in the City of San Francisco, State of California, in accordance
with the then existing rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties hereby agree that service of
any notices in the course of such arbitration at their respective addresses
as provided for in Section 6.7 of this Agreement shall be valid and
sufficient.
6.3.2 ARBITRATORS. In any arbitration pursuant to this
Section 6.3, the award shall be rendered by a majority of
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<PAGE>
the members of a board of arbitration consisting of three members who shall be
appointed by the parties jointly, or if the parties cannot agree as to three
arbitrators within 30 days after the commencement of the arbitration proceeding,
then one arbitrator shall be appointed by ALZA and one arbitrator shall be
appointed by TDC within 60 days after the commencement of the arbitration
proceeding. The third arbitrator shall be appointed by mutual agreement of such
two arbitrators. In the event of failure of the two arbitrators to agree within
75 days after commencement of the arbitration proceeding upon the appointment of
the third arbitrator, the third arbitrator shall be appointed by the American
Arbitration Association in accordance with its then existing rules.
Notwithstanding the foregoing, in the event that any party shall fail to appoint
an arbitrator it is required to appoint within the specified time period, such
arbitrator and the third arbitrator shall be appointed by the American
Arbitration Association in accordance with its then existing rules. For
purposes of this Section 6.3, the "commencement of the arbitration proceeding"
shall be deemed to be the date upon which a written demand for arbitration is
received by the American Arbitration Association from one of the parties.
6.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute this Agreement.
-5-
<PAGE>
6.5 GOVERNING LAW. This Agreement shall be governed by the laws of
the state of California as applied to residents of that state entering into
contracts to be performed in that state.
6.6 HEADINGS. The headings set forth at the beginning of the
various sections of this Agreement are for reference and convenience and
shall not affect the meanings of the provisions of this Agreement.
6.7 NOTICES. Notices required under this Agreement shall be in
writing and sent by registered or certified mail, postage prepaid, or by
telex or facsimile and confirmed by registered or certified mail and
addressed as follows:
If to ALZA: ALZA Corporation
950 Page Mill Road
P. 0. Box 10950
Palo Alto, CA 94303-0802
Attention: Vice President, Legal
If to TDC: Therapeutic Discovery Corporation
1290 Page Mill Road
P.O. Box 10051
Palo Alto, CA 94303-0860
Attention: Chief Executive Officer
All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by telex or facsimile (but only if followed by certified
or registered confirmation). Either party may change the address at which
notice is to be received by written notice pursuant to this Section 6.7.
6.8 PUBLIC DISCLOSURE. Neither party shall disclose to third
parties, nor originate any publicity, news release or public announcement,
written or oral, whether to the public, the press, stockholders or otherwise,
referring to the existence or terms of this Agreement, including its
existence, the subject
-6-
<PAGE>
matter to which it relates, the performance under it or any of its specific
terms and conditions, except such announcements, as in the opinion of the
counsel for the party making such announcement, are required by law, including
United States securities laws, rules or regulations, without the prior written
consent of the other party. If a party decides to make an announcement it
believes to be required by law with respect to this Agreement, it will give the
other party such notice as is reasonably practicable and an opportunity to
comment upon the announcement.
6.9 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it shall be stricken
and the remaining provisions shall remain in full force and effect; provided,
however, that if a provision is stricken so as to significantly alter the
economic arrangements of this Agreement, the party adversely affected may
terminate this Agreement upon 60 days' prior written notice to the other
party.
6.10 RELATIONSHIP OF THE PARTIES. For all purposes of this
Agreement, TDC and ALZA shall be deemed to be independent entities and
anything in this Agreement to the contrary notwithstanding, nothing herein
shall be deemed to constitute TDC and ALZA as partners, joint venturers,
co-owners, an association or any entity separate and apart from each party
itself, nor shall this Agreement constitute any party hereto an employee or
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<PAGE>
agent, legal or otherwise, of the other party for any purposes whatsoever.
Neither party hereto is authorized to make any statements or representations on
behalf of the other party or in any way obligate the other party, except as
expressly authorized in writing by the other party. Anything in this Agreement
to the contrary notwithstanding, no party hereto shall assume nor shall be
liable for any liabilities or obligations of the other party, whether past,
present or future.
6.11 SURVIVAL. The provisions of Sections 4, 6.3, 6.5, 6.7, 6.8,
6.9, 6.10 and this Section 6.11 survive the termination for any reason of
this Agreement. Any payments due under this Agreement with respect to any
period prior to its termination shall be made notwithstanding the termination
of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
ALZA CORPORATION
By: /s/ Jane E. Shaw
----------------------------------------
Title: President and Chief Operating Officer
--------------------------------------
THERAPEUTIC DISCOVERY CORPORATION
By: /s/ Pieter P. Bonsen
----------------------------------------
Title: President
--------------------------------------
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<PAGE>
SCHEDULE A
MANAGEMENT AND ADMINISTRATIVE SERVICES EXPENSES
DIRECT EXPENSES
- ---------------
Direct Salaries*
Temporary Help
Telephone and Communications
Board of Directors and Corporate Consulting
Travel and Entertainment
Annual Audit and Independent Accounting
Equipment Expenses
Data Processing Services and Expenses
Corporate Legal Expense
Supplies
Miscellaneous General Administrative Expenses
INDIRECT EXPENSES**
- -----------------
Management and Administrative Salaries
Equipment Depreciation, Rent, Maintenance and Services
Corporate Consulting and Temporary Help
Legal Expense
Facilities Expense
Corporate Data Processing Services and Expenses
Interest Expense
Miscellaneous General and Administrative Overhead
- -----------------
*Salaries include benefits.
**Indirect Expenses are billed at a rate of 50% of Direct Salaries.
<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Therapeutic Discovery Corporation
Amended and Restated 1993 Stock Option Plan (the "Plan") is to attract,
retain and motivate directors, officers, employees (including employees who
are also directors), and consultants of Therapeutic Discovery Corporation
(the "Company") and its subsidiaries by giving them the opportunity to
acquire stock ownership in the Company. Grants under this Plan will consist
of nonstatutory stock options ("options").
2. EFFECTIVE DATE AND TERM OF PLAN. The effective date of this Plan
is March 30, 1993, the date of its approval by the Company's then sole
stockholder. This Plan shall terminate automatically on the earlier of (i)
ten (10) years after its effective date or (ii) the date on which ALZA
Corporation, a Delaware corporation ("ALZA"), exercises the Purchase Option
(as described in Section 11), unless terminated earlier by the Board of
Directors (the "Board") under Section 13 hereof (the "Termination Date"). No
option grant shall be made after the Termination Date, but all grants made
prior to the Termination Date shall remain in effect in accordance with their
terms.
3. SHARES SUBJECT TO THE PLAN.
(a) Number and Source of Shares. Subject to the provisions of
Section 9, the total number of shares of Class A Common Stock of the Company
(the "Stock") reserved for grants under this Plan is 500,000 shares of Stock.
If any option terminates or expires without being exercised in full, the shares
issuable under
<PAGE>
such option shall become available again for grant under this Plan. The shares
to be issued hereunder may consist of authorized and unissued shares or treasury
shares.
(b) INDIVIDUAL LIMITATION. The Company may not grant options covering
in the aggregate more than 100,000 shares of Stock (subject to adjustments
and substitutions under Section 9) to any one participant in the Plan in any
one-year period, except that, at the time of an offer of employment as Chief
Executive Officer of the Company, the Company may grant options covering in
the aggregate up to 200,000 shares of Stock (subject to adjustments and
substitutions under Section 9).
4. ADMINISTRATION OF THE PLAN. This Plan shall be administered by the
Board or by a committee that meets the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934 as in effect from time to time (in either
case, the "Administrator"). The Administrator may delegate nondiscretionary
administrative duties to such employees or agents of the Company or a
subsidiary as it deems proper. The Administrator may also make rules and
regulations which it deems useful to administer this Plan. Any decision or
action of the Administrator in connection with this Plan or any options
granted or shares of Stock purchased under this Plan shall be final and
binding. No member of the Board shall be liable for any decision, action or
omission respecting this Plan, or any options granted or shares issued under
this Plan.
2
<PAGE>
5. ELIGIBILITY.
(a) Options may be granted to directors, officers, employees
(including employees who are also directors), consultants and potential
employees (in contemplation of and subject to employment) of the Company or any
subsidiary of the Company; provided, however, that grants to directors who are
not also employees of the Company or the Chief Executive Officer of the Company
may be made only in accordance with Section 5(b) below. Participants in this
Plan shall be approved by the Administrator. Determination by the Administrator
as to eligibility shall be conclusive.
(b) Notwithstanding any other provision of this Plan, directors
who are not also employees of the Company or the Chief Executive Officer of
the Company (each an "Eligible Director") may receive grants under this Plan
only in accordance with this Section 5(b). Automatically and in connection
with the offer of directorship to an Eligible Director, and subject to that
person becoming a director of the Company within the time period set forth in
the offer, the Eligible Director shall be granted an option to purchase
40,000 shares of Stock; provided, however, that the grant to the Chairman of
the Board shall be 60,000 shares. The exercise price for options granted on
or prior to December 31, 1994 shall be $1.00; thereafter, the exercise price
shall be eighty-five percent (85%) of the fair market value of the Stock on
the date of grant. Such options shall vest as follows: (i) for an Eligible
Director who first attends a meeting of the Board following his or her
3
<PAGE>
election as a director (as to each Eligible Director, a "Service Date") which
meeting is held on or before June 11, 1995, the option shall vest in four equal
annual increments of 10,000 shares (15,000 shares for the Chairman of the Board)
for each increment, beginning on June 11, 1996; and (ii) for an Eligible
Director who first attends a meeting of the Board following his or her Service
Date which meeting is held after June 11, 1995, the option shall vest in four
equal annual increments of 10,000 shares (15,000 shares for the Chairman of the
Board) for each increment, beginning on the first anniversary of his or her
Service Date. All options granted pursuant to this Section 5(b) shall be
exercisable until the date that is ten years after the date of grant. The
Service Date for a director who is not an Eligible Director but who later
becomes an Eligible Director shall, for purposes of this Section 5(b), be
deemed to be the date on which such director first attends a meeting of the
Board following the date on which he or she first becomes an Eligible Director.
6. OPTIONS.
(a) GRANT. The Administrator may, in its discretion, grant
options under this Plan at any time and from time to time before the
Termination Date of this Plan. The Administrator shall specify the date of
grant or, if it fails to, the date of grant shall be the date of the action
taken by the Administrator to grant the option (in either case, the "Grant
Date").
(b) OPTION AGREEMENTS. As soon as practicable after the Grant
Date, the Company will provide the optionee a written stock
4
<PAGE>
option agreement (the "Option Agreement"). The Option Agreement shall identify
the Grant Date, the number of shares of Stock covered by the option, the option
price and the terms and conditions for exercise of the option.
(c) TERMS AND CONDITIONS OF OPTIONS. Options granted under this Plan
shall be subject to the following additional terms and conditions and such
other terms and conditions not inconsistent with this Plan as the
Administrator may impose:
(i) EXERCISE OF OPTION. In order to exercise all or any
portion of an option which, by its terms, so requires, an optionee must
remain an employee or a director of, or a consultant to, the Company or a
subsidiary of the Company until the date on which the option (or portion
thereof) becomes exercisable (the "Vesting Date"). An option shall be
partially exercisable on or after each Vesting Date with respect to the
percentage of total shares of Stock covered by the option set out in the
Option Agreement. If an option (or portion thereof) is not exercised on the
earliest Vesting Date on which it becomes exercisable, it may be exercised
thereafter at any time prior to its expiration date. Except as otherwise
provided in this Plan or in the Option Agreement evidencing the option,
options granted under this Plan shall be exercisable until ten years after
the Grant Date.
(ii) OPTION PRICE. The option price shall be determined in
good faith by the Administrator; provided, however, that for options granted
prior to December 31, 1994, the exercise price shall be $1.00; and provided,
further, that after December
5
<PAGE>
31, 1994, in no event shall the exercise price be less than 85% of the fair
market value of the Stock on the Grant Date.
(iii) METHOD OF EXERCISE. To the extent the right to purchase shares
has accrued, an option (or portion thereof) may be exercised from time to time
in accordance with its terms by written notice from the optionee to the Company
stating the number of shares with respect to which the option is being exercised
and accompanied by payment in full of the exercise price of the shares. Payment
may be made in cash, by check, or by delivery of shares of Stock (duly endorsed
in favor of the Company or accompanied by a duly endorsed stock power), by a
combination of the above, or any other form of consideration approved by the
Administrator (including payment in accordance with a cashless exercise program
as permitted under Regulation T promulgated by the Federal Reserve Board, as
amended from time to time). Any shares delivered to the Company as payment upon
exercise of an option shall be valued at their fair market value as of the date
of exercise of the option determined in good faith by the Administrator.
Options may not be exercised by any optionee by the delivery of shares of Stock
more frequently than once every six (6) months.
(iv) RESTRICTIONS ON OPTION SHARES. At the time it grants options
under this Plan, the Company may retain for itself (or others) rights to
purchase the shares acquired under the option or impose other restrictions on
the shares. The terms and conditions of any such rights or other restrictions
shall be set forth in the Option Agreement evidencing the option.
6
<PAGE>
(v) NONASSIGNABILITY OF OPTION RIGHTS. No option shall be
transferable other than by will or by the laws of descent and distribution or
a qualified domestic relations order and, otherwise during the lifetime of an
optionee, only the optionee may exercise an option.
(vi) EXERCISE AFTER TERMINATION OF SERVICE OR DEATH. If for
any reason other than permanent and total disability or death, an optionee
ceases to be employed by, or a consultant or director to (if such
relationship forms the sole basis for the grant), the Company or a
subsidiary, options held at the date of such termination (to the extent then
exercisable) may be exercised at any time within three (3) months after the
date of such termination (but in no event after the expiration date of the
option as set forth in the Option Agreement). If an optionee becomes
permanently and totally disabled (within the meaning of Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended (the "Code") or dies while
employed by, or a consultant or director to, the Company or a subsidiary,
(or, if the optionee dies within the period that the option remains
exercisable after termination of service, consultancy or directorship),
options then held (to the extent then exercisable) may be exercised by the
optionee, the optionee's personal representative, or by the person to whom
the option is transferred by will or the laws of descent and distribution, at
any time within one year after the disability or death or any lesser period
specified in the Option Agreement (but
7
<PAGE>
in no event after the expiration date of the option as set forth in the Option
Agreement).
7. TAXES.
(a) Regardless of the form of payment for exercise of an option, the
exercise of an option shall be conditioned upon payment in cash, or provision
satisfactory to the Administrator for payment to the Company, of any federal and
state withholding taxes which, in the Administrator's judgment, are payable in
connection therewith.
(b) If and to the extent consented to by the Administrator in its
sole discretion at any time after an election pursuant to this Section 7(b)
is made, an optionee may elect in writing to have Stock to be obtained upon
exercise of an option withheld by the Company on behalf of the optionee to
pay the amount of tax required by law (as determined by the Company) to be
withheld. Any such election by an optionee subject (in the view of the
Company) to the "short swing" profit rules of the Securities and Exchange
Commission shall be subject to the following limitations: (i) such election
must be made at least six (6) months before the date that the amount of tax
to be withheld in connection with such exercise is determined (the "Tax
Date") and shall be irrevocable; or (ii) such election (A) must be made in
(or made earlier to take effect in) any ten-day period beginning on the third
business day following the date of release for publication of the Company's
quarterly or annual summary statements of earnings and (B) the option must be
held at least six (6) months prior to
8
<PAGE>
the Tax Date. Any shares or other securities so withheld will be valued by the
Company as of the Tax Date. The right to so withhold shares shall relate
separately to each option or any increment thereof.
(c) If and to the extent consented to by the Administrator in the
manner described in the foregoing Section 7(b), an optionee may elect at any
time to deliver previously-owned shares of Stock to satisfy the tax obligations
in connection with such options.
8. COMPLIANCE WITH SECURITIES LAWS. The Company shall not be
obligated to issue any shares hereunder unless the shares are at that time
effectively registered or exempt from registration under federal securities
laws and the offer and sale of the shares are otherwise in compliance with
all applicable securities laws. The Company shall have no obligation to
register the shares under federal securities laws or to take whatever other
steps may be necessary to enable the shares to be offered and sold under
federal or other securities laws. Upon exercise of all or any portion of an
option, an optionee may be required to furnish representations or
undertakings deemed appropriate by the Company to enable the offer and sale
of the subject shares or subsequent transfers of any interest in the shares
to comply with applicable securities laws. Stock certificates evidencing
such shares shall bear any legend required by, or useful for purposes of
compliance with, applicable securities laws, this Plan or the optionee's
option agreement.
9
<PAGE>
9. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of
outstanding options shall not affect the Company's right to effect
adjustments, recapitalizations, reorganizations, or other changes in its or
any other corporation's capital structure or business, any merger or
consolidation, any issuance of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Stock, the dissolution or
liquidation of the Company's, or any other corporation's assets or business
or any other corporate act whether similar to the events described above or
otherwise. Subject to Section 10, if the number of outstanding shares of
Stock is increased or decreased in number or changed into or exchanged for a
different number or kind of securities of the Company or any other
corporation by reason of a recapitalization, reclassification, stock split,
combination of shares, stock dividend, or other event, the number and kind of
securities with respect to which options may be granted under this Plan, the
individual limitations under Section 3(b) hereof, the number and kind of
securities as to which outstanding options may be exercised, and the option
price at which outstanding options may be exercised hereunder shall be
proportionately adjusted.
10. DISSOLUTION, LIQUIDATION, MERGER. In the event of a dissolution or
liquidation of the Company, a merger or consolidation in which the Company is
not the surviving corporation, a reverse merger in which the Company is the
surviving corporation but in which more than fifty percent (50%) of the
shares of its Stock outstanding before the merger are held, after
10
<PAGE>
the merger, by holders different from those immediately prior to the merger, or
a sale of more than eighty percent (80%) of the assets of the Company, the time
at which each outstanding option may be exercised shall be accelerated to a time
such that the optionee (upon exercise of the option) would be eligible to
receive the consideration payable to holders of Stock in connection with such
liquidation, dissolution, merger, consolidation, reverse merger or sale.
Notwithstanding any provision of the Option Agreement to the contrary, each
outstanding option shall expire on the fifth business day immediately preceding
the effective date of such liquidation, dissolution, merger, consolidation,
reverse merger or sale.
11. PURCHASE OPTION.
All Stock issuable pursuant to the Plan is and will be subject to
an option (the "Purchase Option") of ALZA as described in the Restated
Certificate of Incorporation of the Company to purchase such Stock at a
purchase price determined in accordance with Article Fifth thereof. Copies
of the Restated Certificate of Incorporation are available at the principal
place of business of the Company at 950 Page Mill Road, Palo Alto, CA, 94304
and will be furnished to any optionee on request and without cost. In the
event that ALZA exercises the Purchase Option, the time at which each
outstanding option may be exercised shall be accelerated to a time such that
the optionee (upon exercise of the option) would be eligible to receive the
consideration payable by ALZA to holders of Stock if and to the extent such
option is exercised in a timely
11
<PAGE>
manner. Notwithstanding any provision of the Option Agreement to the contrary,
each outstanding option shall expire on the fifth business day immediately
preceding the closing of the exercise of the Purchase Option.
12. RIGHTS AS STOCKHOLDER. An optionee shall have no rights as a
stockholder with respect to any shares covered by an option until the date of
exercise in accordance with the provisions of this Plan and the applicable
Option Agreement. Subject to Sections 9, 10 and 11, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
date of exercise.
13. TERMINATION OR AMENDMENT. The Board may at any time terminate or
amend this Plan except that no amendment or termination of this Plan shall
(i) adversely affect any rights of an optionee under the terms of an option
granted before the date of such termination or amendment, (ii) increase the
number of shares of Stock which may be covered by options under this Plan,
except under Section 9 above or with the approval of the stockholders of the
Company, or (iii) extend the Termination Date of this Plan. In addition, the
Board may not otherwise amend or alter the Plan to increase materially the
benefits accruing to optionees under the Plan or to modify materially the
requirements as to eligibility for participation in the Plan without the
approval of the stockholders of the Company if the Board deems such
stockholder approval appropriate to comply with Section 16b-3 under the
Securities Exchange Act of 1934 as in effect from time to time.
Notwithstanding the foregoing, except as may be necessary to
12
<PAGE>
conform with changes in the Code, the Employee Retirement Income Security Act,
or the rules thereunder, the Plan shall not be amended more than once every six
months if any such amendment would have the effect of amending in any way the
provisions set forth in Section 5(b) of the Plan relating to automatic option
grants to Eligible Directors.
14. PARENT AND SUBSIDIARY. As used in this Plan, "parent" and
"subsidiary" mean any corporation in an unbroken chain of corporations which
includes the Company if, at the relevant time, each of the corporations other
than the last corporation in the chain owns stock possessing more than fifty
percent (50%) of the total combined voting power of all classes of stock of
one of the other corporations in the chain.
15. GOVERNING LAW. This Plan and the rights of all persons under this
Plan shall be construed in accordance with and under applicable provisions of
the Code and the laws of the State of California.
* * * * *
The Board and the Company's then sole stockholder adopted the Plan on
March 30, 1993. The Board amended and restated the Plan (subject to
stockholder approval) on March 3, 1995 and the stockholders approved the
amendments to and restatement of the Plan on May 11, 1995.
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<PAGE>
EXHIBIT 10.6
THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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- --------------------------------------------------------------------------------
<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
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Article 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Article 2 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Selection By Committee. . . . . . . . . . . . . . . . . . . . . 5
2.2 Plan Agreement, Election Form and Beneficiary Election Form . . 5
Article 3 Commitments, Interest and Participation . . . . . . . . . . . . 5
3.1 Participant Deferral Amount Commitment. . . . . . . . . . . . . 5
3.2 Deferral Amounts. . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Pre-Distribution Crediting Rate . . . . . . . . . . . . . . . . 6
3.4 Distribution Rate . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Termination of Participation. . . . . . . . . . . . . . . . . . 6
3.6 Unforeseeable Financial Emergency . . . . . . . . . . . . . . . 6
Article 4 7th Year Distribution . . . . . . . . . . . . . . . . . . . . . 7
4.1 7th Year Distribution . . . . . . . . . . . . . . . . . . . . . 7
4.2 Timing of Election. . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Payment of Distribution . . . . . . . . . . . . . . . . . . . . 7
4.4 Secondary Account Balance . . . . . . . . . . . . . . . . . . . 7
Article 5 Retirement Benefit. . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Retirement Benefit. . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Rate of Interest for Retirement Benefit; Vesting. . . . . . . . 8
5.3 Commencement of Retirement Benefits . . . . . . . . . . . . . . 8
5.4 Death Prior to Completion of Retirement Benefits. . . . . . . . 8
5.5 Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . 8
Article 6 Survivor Benefit. . . . . . . . . . . . . . . . . . . . . . . . 9
6.1 Survivor Benefit. . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Amount of Survivor Benefit. . . . . . . . . . . . . . . . . . . 9
6.3 Benefit Period. . . . . . . . . . . . . . . . . . . . . . . . . 9
6.4 Eligibility Requirements for Survivor Benefit . . . . . . . . . 9
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Executive Deferral Plan (EDP)
Master Plan Document
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Article 7 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Primary Account Balance . . . . . . . . . . . . . . . . . . . . 10
7.3 Secondary Account Balance . . . . . . . . . . . . . . . . . . . 10
7.4 Payment of Benefit. . . . . . . . . . . . . . . . . . . . . . . 10
Article 8 Disability Benefit. . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Amount of Disability Benefit. . . . . . . . . . . . . . . . . . 11
Article 9 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . 11
9.1 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . 11
9.2 Change of Beneficiary Designation . . . . . . . . . . . . . . . 11
9.3 No Participant Designation. . . . . . . . . . . . . . . . . . . 11
9.4 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . . 11
Article 1O Plan Termination, Amendment or Modification. . . . . . . . . . 12
10.1 Plan Termination. . . . . . . . . . . . . . . . . . . . . . . . 12
10.2 Amendment or Modification . . . . . . . . . . . . . . . . . . . 12
10.3 Change in Control . . . . . . . . . . . . . . . . . . . . . . . 12
10.4 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . . 12
Article 11 Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11.1 Establishment of the Trust; Premium . . . . . . . . . . . . . . 13
11.2 Interrelationship of the Plan and the Trust . . . . . . . . . . 13
Article 12 Claims Procedures. . . . . . . . . . . . . . . . . . . . . . . 13
12.1 Presentation of Claim . . . . . . . . . . . . . . . . . . . . . 13
12.2 Notification of Decision. . . . . . . . . . . . . . . . . . . . 13
12.3 Review of a Denied Claim. . . . . . . . . . . . . . . . . . . . 14
12.4 Decision on Review. . . . . . . . . . . . . . . . . . . . . . . 14
12.5 Legal Action. . . . . . . . . . . . . . . . . . . . . . . . . . 14
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Executive Deferral Plan (EDP)
Master Plan Document
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Article 13 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 15
13.1 Unsecured General Creditor. . . . . . . . . . . . . . . . . . . 15
13.2 Nonassignability. . . . . . . . . . . . . . . . . . . . . . . . 15
13.3 Not a Contract of Employment. . . . . . . . . . . . . . . . . . 15
13.4 Protective Provisions . . . . . . . . . . . . . . . . . . . . . 15
13.5 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.6 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.8 Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.9 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.10 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.11 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . . 16
13.12 Distribution in the Event of Taxation . . . . . . . . . . . . . 17
13.13 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Article 14 Administration . . . . . . . . . . . . . . . . . . . . . . . . 17
14.1 Committee Duties. . . . . . . . . . . . . . . . . . . . . . . . 17
14.2 Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.3 Binding Effect of Decision. . . . . . . . . . . . . . . . . . . 18
14.4 Indemnity of Committee. . . . . . . . . . . . . . . . . . . . . 18
14.5 Company Information . . . . . . . . . . . . . . . . . . . . . . 18
14.6 Change in Payments. . . . . . . . . . . . . . . . . . . . . . . 18
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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THERAPEUTIC DISCOVERY CORPORATION
EXECUTIVE DEFERRAL PLAN
Purpose
The primary purpose of the Executive Deferral Plan (the "EDP" or "Plan") of
Therapeutic Discovery Corporation, a Delaware corporation ("TDC") is to help
attract and maintain high caliber management. It is the intention of TDC that
the Plan be unfunded for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended.
Article I
Definitions
For purposes hereof, unless otherwise clearly apparent from the context,
the following phrases or terms shall have the following indicated meanings:
1.1 "Affiliate" shall mean any corporation or entity in which TDC has at least
twenty-five percent (25%) of the voting control through ownership of equity
securities or otherwise.
1.2 "Base Rate" shall be the greater of ten percent (10%) or Moody's Seasoned
Corporate Bond Rate, measured on the November 1 prior to that Plan Year.
1.3 "Beneficiary" shall mean the person or persons, or the entity designated by
a Participant to receive any benefits payable under this Plan upon the
death of such Participant.
1.4 "Beneficiary Designation Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and returns to
the Committee to designate one or more Beneficiaries.
1.5 "Bonus Award" shall mean any cash bonus awarded to the Participant under
the provisions of any of the Company's bonus plans relating to the calendar
year prior to the Plan Year. Such Bonus Award shall be credited to the
Participant's EDP Account as of January 1 of the Plan Year.
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Executive Deferral Plan (EDP)
Master Plan Document
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1.6 "Change in Control" shall mean the first to occur of the following events:
a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the
Securities Exchange Act of 1934 ("Exchange Act")) is or becomes the
beneficial owner (as that term is used in Section 13(d) of the Exchange
Act), directly or indirectly, of 50% or more of TDC's capital stock
entitled to vote in the election of directors (however, the option of
ALZA Corporation ("ALZA") to acquire the shares of TDC (the "Purchase
Option") shall not be deemed, for purposes of this Plan, to be a
"Change of Control," unless or until the Purchase Option is
exercised.);
b) During any period of two consecutive years, individuals who at the
beginning of such period constitute the board of directors of TDC cease
for any reason to constitute at least a majority thereof, unless the
election or the nomination for election by TDC's stockholders of each
new director was approved by a vote of at least three-quarters of the
directors still in office of TDC who were directors at the beginning of
the period;
c) Any consolidation or merger of TDC, other than a merger of TDC in
which the holders of the common stock of TDC immediately prior to the
merger hold more than 50% of the common stock of the surviving
corporation immediately after the merger;
d) The stockholders of TDC approve any plan or proposal for the
liquidation or dissolution of TDC; or
e) Substantially all of the assets of TDC are sold or otherwise
transferred to parties that are not within a "controlled group of
corporations" (as defined in Section 1563 of the Internal Revenue Code
of 1986, as amended) in which TDC is a member.
1.7 "Committee" shall mean the administrative committee appointed to manage and
administer the Plan in accordance with its provisions pursuant to Article
14, which Committee shall be the Compensation Committee of the Board of
Directors unless otherwise determined by the Board of Directors.
1.8 "Company" shall mean Therapeutic Discovery Corporation, a Delaware
corporation, and any subsidiary or Affiliate thereof.
1.9 "Deferral Amounts" shall mean the amount of Salary and Bonus Award for a
calendar year deferred by a Participant pursuant to the election made on
the Election Form.
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Executive Deferral Plan (EDP)
Master Plan Document
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1.10 "Disability" shall mean a period of disability during which a Participant
qualifies for benefits under the Company's group long-term disability plan
or, if a Participant does not participate in such plan, a period of
disability during which the Participant would have qualified for benefits
under such plan had the Participant been a participant in such plan, as
determined in the sole discretion of the Committee.
1.11 "EDP Account" shall mean the account comprised of the Participant's
Deferral Amounts and interest credited thereon, which shall be equal to the
sum of the Primary Account Balance and the Secondary Account Balance. EDP
Accounts shall be maintained for each Participant. A Participant's EDP
Account shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to the Participant pursuant to this
Plan. A Participant's EDP Account shall not constitute or be treated as a
trust fund.
1.12 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.13 "Moody's Seasoned Corporate Bond Rate" shall mean the applicable "Seasoned
Corporate Bond" rate, which is an arithmetic average of yields of
representative bonds, including industrials, public utilities, Aaa, Aa, A
and Baa bonds as published by Moody's Investors Service, Inc. or any
successor to that service.
1.14 "Participant" shall mean directors of the Company and senior level
management who are selected for participation in the Plan by the Committee
and who elect to participate by executing and delivering to the Committee
the Plan Agreement, the Election Form and the Beneficiary Designation Form.
1.15 "Plan" shall mean the Executive Deferral Plan of the Company, which shall
be defined by this instrument and by the Plan Agreement, as may be amended
from time to time.
1.16 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between the Company and a
Participant. Each Plan Agreement executed by a Participant shall provide
for the entire benefit to which such Participant is entitled to under the
Plan, and the Plan Agreement bearing the latest date of acceptance by the
Committee shall govern such entitlement.
1.17 "Plan Year" shall mean calendar year 1996 and subsequent calendar years
thereafter.
1.18 "Preferred Rate" shall mean 125% of the Base Rate. The Preferred Rate for
the 1996 Plan Year shall be twelve and one half percent (12.5%).
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Executive Deferral Plan (EDP)
Master Plan Document
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1.19 "Primary Account Balance" shall equal the Participant's Deferral Amounts,
plus compounded interest credited yearly thereon at the Standard Rate, all
as determined in accordance with Section 3.3 below.
1.20 "Retirement" and "Retire" shall mean termination of employment or severance
of a directorship with the Company (i) on or after the attainment of age
sixty-five (65) or (ii) at a time when the sum of age at last birthday
("Rule of 70") plus Years of Service equal 70 or more.
1.21 "Salary" shall mean annual salaries and wages before 401(k) and other
qualified plan reductions and amounts deferred pursuant to this Plan
excluding, however, moving allowances, participation in clinical studies,
income arising from stock option plans, imputed income due to fringe
benefits, bonuses (including Bonus Awards) or similar items paid to the
Participant.
1.22 "Secondary Account Balance" shall equal that portion of the cumulative
interest on the EDP Account, determined in accordance with Section 3.3
below, that is equal to the sum of (i) the difference between the interest
on the Primary Account accrued at the Preferred Rate and the interest on
the Primary Account accrued at the Standard Rate, and (ii) the yearly
interest at the Preferred Rate on the Secondary Account itself.
1.23 "Standard Rate" shall mean fifty percent (50%) of the Preferred Rate. The
Standard Rate for the 1996 Plan Year shall be six and one quarter percent
(6.25%).
1.24 "Termination of Employment" shall mean the ceasing of employment or
directorship with the Company, voluntarily or involuntarily, for any reason
other than Retirement, Disability, or death. If a Participant is both an
employee and a Director, a Termination of Employment shall occur only upon
the termination of the last position held.
1.25 "Trust" shall mean the trust that may be established by the Company, in its
sole discretion, to which assets may be transferred to for the purpose of
paying benefits under this Plan.
1.26 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that would
result in severe financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant or a dependent
of the Participant, (ii) a loss of the Participant's property due to
casualty, or (iii) such other extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee."
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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1.27 "Years of Service" shall mean the total number of years in which a
Participant has been employed by the Company and has completed in each of
those years 1,000 hours of service. For purposes of this definition only,
a year of employment shall be a 365 day period (or 366 day period in the
case of a leap year) that for the first year of employment commences on the
employee's date of hiring and that, for any subsequent year, commences on
an anniversary of that hiring date. For a non-employee Director
Participant, "Years of Service" shall mean service as a Director during any
part of a calendar year.
Article 2
Eligibility
2.1 SELECTION BY COMMITTEE. The Committee shall have the sole discretion to
determine the individuals who, in accordance with the purpose of the Plan,
will be eligible to become Participants.
2.2 PLAN AGREEMENT, ELECTION FORM AND BENEFICIARY ELECTION FORM. As a
condition of participation, each Participant shall complete, execute and
return to the Committee prior to the commencement of the Plan Year for
which the Participant is to commence participation in the Plan, a Plan
Agreement, an Election Form and a Beneficiary Designation Form. In
subsequent Plan Years, a Participant shall complete, execute and return to
the Committee an Election Form.
Article 3
Commitments, Interest and Participation
3.1 PARTICIPANT DEFERRAL AMOUNT COMMITMENT. Pursuant to the Election Form
delivered to the Committee prior to the commencement of a Plan Year, the
Participant may elect for each Plan Year to defer up to fifty percent (50%)
of his/her Salary and up to one hundred percent (100%), in each case in
full percentage points, of his/her Bonus Award, subject to the limitations
of Section 3.2 below.
3.2 DEFERRAL AMOUNTS. If Salary is deferred by a Participant, the minimum rate
of deferral shall be $200 per month ($2,400/calendar year) Deferral Amounts
must be in increments of one hundred dollars ($100). Bonus Awards may be
deferred independently of Salary deferrals.
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Executive Deferral Plan (EDP)
Master Plan Document
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3.3 PRE-DISTRIBUTION CREDITING RATE. Subject to the provisions and limitations
of the Plan, interest shall be credited at the Preferred Rate on the EDP
Account balance annually on the last day of each Plan Year as though all
Deferral Amounts, if any, for that Plan Year were made on July 1 of the
Plan Year. Despite the foregoing, in the event of a Participants death,
Retirement or Termination of Employment prior to the last day of a Plan
Year, interest for that Plan Year shall be credited on the EDP Account
balance up to the day prior to the Participant's death, Retirement or
Termination of Employment as though all Deferral Amounts, if any, for that
Plan Year were made on January 1 of the Plan Year.
3.4 DISTRIBUTION RATE. If, pursuant to the terms of the Plan, a Participant or
Beneficiary is entitled to receive his or her benefit (other than the 7th
Year Distribution) in installments, the crediting rate on the undistributed
portion of the benefits for all periods following the last day of the month
prior to the date upon which the Participant is no longer an employee or
Director shall be one of two fixed rates as specified in the Plan. The
"Preferred Distribution Rate" shall be composed of the average Preferred
Rate for the last five (5) Plan Years prior to the commencement of the
installment payments, including the Plan Year in which the Participant
terminates employment, or if the Participant has participated in the Plan
for less than five (5) Plan Years, the average of such rates for the number
of Plan Years that the Participant has participated in the Plan. The
"Standard Distribution Rate" shall be composed of the average Standard Rate
for the last five (5) Plan Years prior to the commencement of the
installment payments, including the Plan Year in which the Participant
terminates employment, or if the Participant has participated in the Plan
for less than five (5) Plan Years, the average of such rates for the number
of Plan Years that the Participant has participated in the Plan.
3.5 TERMINATION OF PARTICIPATION. A Participant who remains an employee or
director of the Company may not terminate participation in the Plan for any
reason other than those outlined in Section 3.6, Article 5, Article 6,
Article 7, Article 8 or Section 10.1.
3.6 UNFORESEEABLE FINANCIAL EMERGENCY. In the case of Unforeseeable Financial
Emergency, the Committee may, at its discretion, allow the Participant to
discontinue deferrals, terminate participation or receive a payout from the
Plan. The amount of such payout shall be at the discretion of the
Committee, provided that such payout shall not exceed the lesser of (i) the
Participant's EDP Account balance, or (ii) the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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Article 4
7th Year Distribution
4.1 7TH YEAR DISTRIBUTION. Except as provided in this Article 4, no
distribution shall be made to a Participant or his or her Beneficiary under
the Plan until death, Retirement, Disability, Termination of Employment, or
Unforeseeable Financial Emergency. In connection with each election to
defer an annual Deferral Amount (as provided in Section 4.2 below), a
Participant may elect to receive a future "7th Year Distribution" from the
Plan with respect to that annual Deferral Amount.
4.2 TIMING OF ELECTION. Prior to December 31 of the Plan Year immediately
preceding the Plan Year for which a deferral election is being made, the
Participant shall elect to:
a) receive that Deferral Amount plus interest (as specified below) as a
7th Year Distribution, or
b) leave that Deferral Amount in the EDP Account until such time as
distributions are required by the other provisions of the Plan.
Such election shall be made on the Election Form. If the Participant
chooses to receive the 7th Year Distribution, he/she shall receive from the
EDP Account an amount equal to the Primary Account Balance as of the last
day of the Plan Year that is seven years after the last day of the calendar
year prior to the first Plan Year in which he or she commences
participation in the Plan.
4.3 PAYMENT OF DISTRIBUTION. The payment shall be made in a lump sum within 90
days of the last day of the Primary Account Balance measurement date
provided in Section 4.2 above.
4.4 SECONDARY ACCOUNT BALANCE. If the Primary Account Balance is fully
distributed in accordance with this Article 4, the Secondary Account
Balance shall constitute the entire EDP Account and shall be paid in
accordance with the terms and provisions of this Plan.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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Article 5
Retirement Benefit
5.1 RETIREMENT BENEFIT. A Participant who Retires shall become eligible to
receive, in accordance with this Article, his or her EDP Account (the
"Retirement Benefit").
5.2 RATE OF INTEREST FOR RETIREMENT BENEFIT; VESTING. Upon a Participant's
Retirement, the interest on his/her unpaid EDP Account will be based on
the Preferred Distribution Rate. If it has not already done so, a
Participant's Secondary Account Balance shall vest upon his or her
Retirement.
5.3 COMMENCEMENT OF RETIREMENT BENEFITS. Retirement Benefits shall be paid
over a fifteen (15) year period, payable annually. Other methods of
payment shall be at the sole discretion of the Committee. The initial
annual Retirement Benefit payment shall commence within thirty (30) days of
actual Retirement. All subsequent annual payments shall be made prior to
February 28 of each calendar year thereafter until the Participant's EDP
Account balance is paid in full.
5.4 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS. If a retired Participant
dies before the applicable Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and be paid
to that Participant's Beneficiary.
5.5 WITHDRAWAL ELECTION. A Participant who is eligible to and is receiving a
Retirement Benefit under the Plan may elect, at any time, to withdraw the
then remaining unpaid portion of his or her EDP Account balance less a 10%
withdrawal penalty (the net amount shall be referred to as the "Withdrawal
Amount"). No partial withdrawals of that balance shall be allowed. The
Participant shall make this election by giving the Committee advance
written notice of the election in a form determined from time to time by
the Committee. The penalty shall be equal to 10% of the Participant's
remaining EDP Account Balance determined immediately prior to the
withdrawal. The Participant shall be paid the Withdrawal Amount within 60
days of his or her election. Once the Withdrawal Amount is paid, the
Participant's participation in the Plan shall terminate and the Participant
shall not be eligible to participate in the Plan in the future.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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Article 6
Survivor Benefit
6.1 SURVIVOR BENEFIT. If a Participant dies before Retirement, Termination of
Employment or a Disability, the Company will pay the benefit described in
this Article (the "Survivor's Benefit") to the designated Beneficiary of
the Participant, in lieu of the Retirement Benefits.
6.2 AMOUNT OF SURVIVOR BENEFIT. The Survivor Benefit shall equal the existing
EDP Account Balance at the time of death.
6.3 BENEFIT PERIOD. The Survivor Benefit shall be paid in a lump sum or over a
period of time not to exceed 15 years, with interest credited on the unpaid
balance at the Standard Distribution Rate, as follows:
Balance of EDP Account Payment
------------------------ -----------
Up to $100,000 One Lump Sum
$100,001 - $250,000 5 Years
$250,001 - $500,000 10 Years
$500,001 or More 15 Years
The Committee shall have the sole discretion to decide the number of
benefit payments. The lump sum payment, or the initial installment payment, of
the Survivor Benefit shall commence within ninety (90) days of the Participant's
death. Any subsequent annual installment payments shall be made prior to
February 28 of each calendar year thereafter until the Participant's EDP Account
balance is paid in full.
6.4 ELIGIBILITY REQUIREMENTS FOR SURVIVOR BENEFIT. The obligation of the
Company to pay the Survivor Benefit to any Beneficiary shall exist only if:
a) at the time of death, the Participant (i) was employed by the Company
or was a director of the Company, (ii) was on an authorized leave of
absence, or (iii) was absent from employment due to Disability, and, in
each such case, had not yet begun receiving the Retirement Benefit; and
b) proof of death, in such form as reasonably deemed acceptable by the
Committee, is furnished.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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Article 7
Termination Benefit
7.1 TERMINATION BENEFIT. The Participant who for any reason experiences a
Termination of Employment prior to his or her Retirement, death or
Disability shall be entitled to a Termination Benefit in accordance with
this Article.
7.2 PRIMARY ACCOUNT BALANCE. The Participant terminating at any time shall be
entitled to his or her Primary Account Balance.
7.3 SECONDARY ACCOUNT BALANCE. The terminating Participant shall be entitled
to the vested portion of his or her Secondary Account Balance in accordance
with the vesting schedule contained below, which describes the vesting of
the accrued interest on each annual Deferral Amount:
Vested Percentage of
Accrued Interest With
Respect to Each Annual
Deferral Amount in
Date of Termination Secondary Account Balance
------------------- -------------------------
Prior to the beginning of
the eighth Plan Year
following the Plan Year in
which an Annual Deferral
Amount is Deferral 0%
On or after the beginning
of the eighth Plan Year
following the Plan Year in
which an Annual Deferral
Amount is Deferred 100%
Unvested Secondary Account Balances are forfeited at the date of
Termination of Employment.
7.4 PAYMENT OF BENEFIT. Payment of the Primary Account Balance and the
Secondary Account balance shall be made in a lump sum within ninety (90)
days of the Participant's Termination of Employment.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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Article 8
Disability Benefit
8.1 AMOUNT OF DISABILITY BENEFIT. In the case of the Disability of the
Participant, the Committee may, at anytime during the Disability period and
in its sole discretion, allow the Participant to discontinue deferrals and
to continue to be eligible for benefits under Articles 4, 5, 6 or 7 (in
accordance with those Articles), or terminate participation and receive a
"Disability Benefit" in accordance with this Article 8. The amount of the
Disability Benefit shall be equal to the Participant's existing EDP Account
balance, as of the date the Committee makes a determination to terminate
the Participant's participation in the Plan. The Disability Benefit payout
shall be at the discretion of the Committee, provided that such payout
shall begin within ninety (90) days of such determination and shall not
exceed 15 years in total. The unpaid balance shall be credited with
interest at the Standard Distribution Rate from the date of the
determination through completion of payout.
Article 9
Beneficiary Designation
9.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any
time, to designate any person or persons as Beneficiary or Beneficiaries
(both principal as well as contingent) to whom benefits under this Plan
shall be paid in the event of the Participant's death prior to complete
distribution of the benefits due under this Plan.
9.2 CHANGE OF BENEFICIARY DESIGNATION. Any Beneficiary designation may be
changed by a Participant at any time by filing a new Beneficiary
Designation Form with the Committee and shall become effective only when
received, accepted and acknowledged by the Company in writing. The filing
and acceptance of a new Beneficiary Designation Form will cancel all
Beneficiary Designations previously filed. The Committee shall be entitled
to rely on the last designation filed by the Participant prior to death.
Despite the foregoing, if the Participant names someone other than his or
her spouse as a Beneficiary, a spousal consent, in the form designated by
the Committee, must be signed by that Participant's spouse and returned to
the Committee.
9.3 NO PARTICIPANT DESIGNATION. If a Participant fails to designate a
Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, or die prior to complete distribution of the
Participant's benefits, then the Participant's designated Beneficiary shall
be deemed to be the surviving spouse. If the Participant has no surviving
spouse, the benefits remaining under the Plan shall be payable to the
Participant's estate.
9.4 EFFECT OF PAYMENT. The payment of benefits under the Plan to the deemed
Beneficiary shall completely discharge the Company's obligations under
this Plan.
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11
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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Article 10
Plan Termination, Amendment or Modification
10.1 PLAN TERMINATION. The Company reserves the right to terminate the Plan at
any time. Upon termination of the Plan, the Participants' then existing EDP
Accounts, including interest earned through the date of such termination,
shall be paid out as if each Participant Retired on the date of
termination. Prior to a Change in Control, the Company reserves the right,
at its sole discretion and notwithstanding any elections made by the
Participant, to pay such benefits in a lump sum or in annual installments
for up to 15 years, with interest credited on the unpaid balance using the
Preferred Distribution Rate. The termination of the Plan shall not
adversely affect any Participant or Beneficiary who has become entitled to
the payment of any benefits under the Plan as of the date of termination;
provided, however, that the Company shall have the right to pay any
remaining EDP Account balance in a lump sum.
10.2 AMENDMENT OR MODIFICATION. The Company may, at any time, amend or modify
the Plan in whole or in part, provided, however, that no amendment or
modification shall be effective to decrease or restrict any EDP Account
balance, calculated as if the Participant experienced a Termination of
Employment as of the effective date of the amendment or modification, or if
the Participant was eligible to Retire, the Participant had Retired as of
the effective date of the amendment or modification. The amendment or
modification of the Plan shall not affect any Participant or Beneficiary
who has become entitled to the payment of benefits under the Plan as of the
date of the amendment or modification, provided that the Committee has the
right to make a lump sum payment of all remaining balances.
10.3 CHANGE IN CONTROL. If a Change in Control occurs, a Participant shall
immediately become vested in his or her Secondary Account Balance. If the
Change of Control is due to the exercise of the Purchase Option by ALZA and
the Participant becomes an employee of ALZA in connection with the Change
of Control, then the Participant will no be deemed to have "Retired" or to
have a "Termination of Employment" from the Company for purposes of this
Plan, and this Plan will continue, with respect to such Participant, as an
ALZA plan, subject to the approval of ALZA's Board of Directors. If (i)
the Participant does not become an ALZA employee upon such Change of
Control or (ii) the ALZA Board of Director does not approve the
continuation of this Plan as an ALZA plan, then the Participant's EDP
Account shall be paid to the Participant in three equal annual
installments, the first within sixty days of the decision of the ALZA Board
of Directors, or the last day of employment with the Company, whichever is
applicable. Interest shall accrue at the Preferred Rate on all unpaid
amounts.
10.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under
Articles 5, 6, 7 or 8 of the Plan shall completely discharge all
obligations to a Participant and his or her Beneficiaries under this Plan
and the Participant's Plan Agreement shall terminate.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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Article 11
Trust
11.1 ESTABLISHMENT OF THE TRUST; PREMIUM. The Company may establish, in its
sole discretion, the Trust and, if so established, shall at least annually
transfer over to the Trust such assets as the Committee determines, in its
sole discretion, are necessary to provide for some or all of the Company's
future liabilities under the Plan.
11.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
and each Plan Agreement shall govern the rights of a Participant to receive
distributions pursuant to the Plan. The provisions of the Trust, if the
Trust is established, shall govern the rights of the Company, a
Participant, a Participants' Beneficiary and the Company's creditors as to
the assets of the Trust. The Company shall at all times remain liable to
carry out its obligations under the Plan. The Company's obligations under
the Plan may be satisfied with Trust assets distributed pursuant to the
terms of the Trust.
Article 12
Claims Procedures
12.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. All other claims must be made within
180 days of the date on which the event that caused the claim to arise
occurred. The claim must state with particularity the determination
desired by the Claimant.
12.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim
within 60 days of receipt of that claim, and shall notify the Claimant in
writing:
a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or that the Committee has reached a
conclusion contrary, in whole or in part, to the Claimant's requested
determination, and such notice must set forth in a manner calculated to
be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) the specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is necessary;
and
(iv) an explanation of the claim review procedure set forth in
Section 12.3 below.
12.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the
Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant's duly authorized representative) may file with the Committee
a written request for a review of the denial of the claim. Thereafter, but
not later than 30 days after the review procedure began, the Claimant (or
the Claimant's duly authorized representative):
c) may review pertinent documents;
d) may submit written comments or other documents; and/or
e) may request a hearing, which the Committee, in its sole discretion,
may grant.
12.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written request
for review of the denial, unless a hearing is held or other special
circumstances require additional time, in which case the Committee's
decision must be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the Claimant,
and it must contain:
d) specific reasons for the decision;
e) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
f) such other matters as the Committee deems relevant.
12.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions
of this Article 12 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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Article 13
Miscellaneous
13.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs
and successors shall have the status of general unsecured creditors of the
Company, and the Plan constitutes a mere promise by the Company to make
benefit payments in the future.
13.2 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate, alienate, or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or any
part thereof, which are, and all rights to which are, expressly declared to
be unassignable and non-transferable. No part of the amounts payable
shall, prior to actual payment, be subject to seizure, attachment,
garnishment or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person,
nor be transferable by operation of law in the event of a Participant's or
any other person's bankruptcy or insolvency.
13.3 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall
not be deemed to constitute a contract of employment between the Company
and the Participant, and the Participant (or Beneficiary) shall have no
rights against the Company except as may otherwise be specifically provided
herein. Such employment is acknowledged to be an "at will" employment
relationship that can be terminated at any time for any reason, with or
without cause, unless expressly provided in a written employment agreement.
Moreover, nothing in this Plan shall be deemed to give a Participant the
right to be retained in the service of the Company or to interfere with the
right of the Company to discipline or discharge him at any time.
13.4 PROTECTIVE PROVISIONS. A Participant will cooperate with the Company by
furnishing any and all information requested by the Company in order to
facilitate the payment of benefits hereunder, and by taking such physical
examinations as the Company may deem necessary, and taking such other
action as may be requested by the Company.
13.5 TERMS. Whenever any words are used herein in the masculine, they shall be
construed as though they were used in the feminine in all cases where they
would so apply; and wherever any words are used herein in the singular or
in the plural, they shall be construed as though they were used in the
plural or in the singular, as the case may be, in all cases where they
would so apply.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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13.6 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
13.7 GOVERNING LAW. The provisions of this Plan shall be construed and
interpreted according to the laws of the State of California.
13.8 VALIDITY. In case any provision of this Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as
if such illegal and invalid provision had never been inserted herein.
13.9 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail or facsimile
transmission, to:
Therapeutic Discovery Corporation
Executive Deferral Plan Committee
1375 California
P.O. Box 10051
Palo Alto, CA 94303-0806
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
13.10 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Company and its successors and assigns. The term
successors as used herein shall include any corporate or other business
entity which shall, whether by merger, consolidation, purchase or
otherwise, acquire all, or substantially all, of the business and assets
of the Company, and successors or any such corporation or other business
entity.
13.11 SPOUSE'S INTEREST. Interest in the benefits hereunder of a spouse of a
Participant who has predeceased the Participant shall automatically pass
to the Participant and shall not be transferable by such spouse in any
manner, including but not limited to such spouse's will, nor shall such
interest pass under the laws of intestate succession.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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13.12 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any
portion of a Participant's benefit under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the Committee for
a distribution of assets sufficient to meet the Participant's tax
liability (including additions to tax, penalties and interest). Upon the
grant of such a petition, which grant shall not be unreasonably withheld,
the Company shall distribute to the Participant funds in an amount equal
to that Participant's federal, state and local tax liability associated
with such taxation (which amount shall not exceed a Participant's accrued
benefit under the Plan), which liability shall be measured by using that
Participant's then current highest federal, state and local marginal tax
rate, plus the rates or amounts for the applicable additions to tax,
penalties and interest. If the petition is granted, the tax liability
distribution shall be made within 90 days of the date when the
Participant's petition is granted. Such a distribution shall affect and
reduce the benefits to be paid under this Plan.
13.13 INCOMPETENT. In the event that it shall be found upon evidence
satisfactory to the Committee that any Participant or Beneficiary to whom
a benefit is payable under this Plan is unable to care for his or her
affairs because of illness or accident, any payment due (unless prior
claim had been made by a duly authorized guardian or other legal
representative) may be paid, upon appropriate indemnification of the
Committee, to the spouse of such person or any other person deemed by the
Committee to have incurred expense for such Participant. Any such payment
shall be a payment out of the account of the Participant and shall be a
complete discharge of any liability of the Plan for such payment amount.
Article 14
Administration
14.1 COMMITTEE DUTIES. This Plan shall be administered by the Committee. The
Committee shall also have the authority to make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of
this Plan and decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the Plan.
14.2 AGENTS. In the administration of this Plan, the Committee may, from time
to time, employ agents and delegate to them such administrative duties as
it sees fit and may from time to time consult with counsel who may be
counsel to the Company.
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THERAPEUTIC DISCOVERY CORPORATION
Executive Deferral Plan (EDP)
Master Plan Document
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14.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with
respect to any question arising out of or in connection with the
administration, interpretation, and application of the Plan, and the rules
and regulations promulgated hereunder, shall be final and conclusive, and
binding upon all persons having any interest in the Plan.
14.4 INDEMNITY OF COMMITTEE. The Company shall indemnify and hold harmless the
members of the Committee against any and all claims, loss, damage, expense
or liability arising from any action or failure to act with respect to
this Plan, except in the case of willful misconduct by the Committee or
any of its members.
14.5 COMPANY INFORMATION. To enable the Committee to perform its functions, the
Company shall supply full and timely information to the Committee on all
matters relating to the salary of all Participants, the date and
circumstances of the retirement disability, death, or termination of
employment of all Participants, and such other pertinent information as the
Committee may reasonably require.
14.6 CHANGE IN PAYMENTS. The Committee shall have the power, at its sole
discretion, to change the manner and timing of payments to be made to a
Participant or Beneficiary from that which would be otherwise payable.
IN WITNESS WHEREOF the Company has signed this Master Plan Document
this_____day of________________,1996.
Company: Therapeutic Discovery Corporation,
a Delaware corporation
By: /s/ Gary L. Neil
--------------------------------
Its: President
-------------------------------
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<PAGE>
EXHIBIT 10.7
AGREEMENT REGARDING CERTAIN
PRODUCTS AND ACTIVITIES AND
AMENDMENT NO. 1 TO DEVELOPMENT AGREEMENT
DATED AS OF MARCH 10, 1993
This Agreement Regarding Certain Products and Activities and Amendment No.
1 to Development Agreement dated as of March 10, 1993 (the "Agreement") is made
effective as of October 25, 1994 by and between ALZA Corporation, a Delaware
corporation ("ALZA"), and Therapeutic Discovery Corporation, a Delaware
corporation ("TDC").
RECITALS
WHEREAS, ALZA and TDC have entered into that certain Development Agreement
dated as of March 10, 1993 (the "Development Contract") pursuant to which ALZA
performs research and development activities on behalf of TDC directed toward
the development of pharmaceutical products; and
WHEREAS, ALZA is marketing, on its own behalf, a Testoderm-Registered
Trademark- Testosterone Transdermal System, consisting of a multilayered
patch for the delivery of testosterone ("Testoderm-Registered Trademark-");
and
WHEREAS, Testoderm-Registered Trademark- has been approved in the United
States by the United States Food and Drug Administration (the "FDA") for
marketing only as a treatment for testosterone deficiency in hypogonadal
males; and
WHEREAS, TDC and ALZA desire that TDC fund a program, including further
clinical testing, to be conducted by ALZA with respect to Testoderm-Registered
Trademark-, with the goal of receiving clearance to market
Testoderm-Registered Trademark- for the treatment of AIDS wasting syndrome
(the "Testoderm-Registered Trademark- Development Program"); and
WHEREAS, such an arrangement is not currently contemplated within the terms
of the Development Contract; and
WHEREAS, under the terms of the Development Contract, ALZA is currently
performing research and development activities on behalf of TDC directed
toward the development of an additional product or products for the delivery
of testosterone (any such product is hereby referred to as a "Second
Generation Testoderm-Registered Trademark- Product"); and
WHEREAS, ALZA desires to expand the use of its drug delivery technologies
to biotechnology, gene therapy and other areas and, to this end, would like to
evaluate proprietary compounds without extensive business negotiations with the
third party who owns the rights to such compounds before determining whether
ALZA's drug delivery technologies will be useful with such compounds; and
<PAGE>
WHEREAS, TDC and ALZA desire that TDC fund such material evaluation
activities, on a project-by-project basis; and
WHEREAS, such an arrangement is not currently contemplated within the terms
of the Development Contract:
NOW, THEREFORE, in consideration of the foregoing and the agreements
contained herein, ALZA and TDC hereby agree as follows:
1. FUNDING OF TESTODERM-REGISTERED TRADEMARK- DEVELOPMENT PROGRAM.
In consideration of the royalty payments set forth in Section 4 of this
Agreement, TDC hereby agrees to fund the Testoderm-Registered Trademark-
Development Program in amounts as approved by TDC from time to time (the
"Development Payments"). The Testoderm-Registered Trademark- Development
Program shall be set forth in a work plan prepared by ALZA which is subject
to the approval of TDC, and the parties agree to revise such work plan from
time to time so that it remains a faithful best estimate of the work to be
done under the Testoderm-Registered Trademark- Development Program as agreed
upon by ALZA and TDC. TDC shall not be obligated to make Development
Payments in excess of those expressly approved by TDC and ALZA shall not be
obligated to perform work on the Testoderm-Registered Trademark- Development
Program which would result in Development Payments exceeding amounts
expressly approved by TDC. ALZA and TDC agree that the Development Payments
shall be made on the same basis as "Development Cost" (as defined in the
Development Contract) and shall constitute "Development Costs" within the
meaning of Sections 4.2, 5.1 and 5.3 of the Development Contract and that the
funding of the Testoderm-Registered Trademark- Development Program constitutes
an activity undertaken pursuant to the Development Contract within the
meaning of Section 10.1 thereof; as such, Development Payments are intended
to be included as part of the "total amount paid by this corporation under
the Development Contract" for purposes of Article FIFTH, Section (A)(10)(c)
of the Restated Certificate of Incorporation of TDC, as part of
"expenditure[s] pursuant to the Development Contract" for purposes of Article
FIFTH, Section (A)(2) of the Restated Certificate of Incorporation of TDC, as
part of "the total amounts paid by this corporation pursuant to the
Development Contract" for purposes of Article FIFTH, Section (A)(14) of the
Restated Certificate of Incorporation of TDC, and as part of "any additional
amounts paid by this corporation pursuant to the Development Contract" for
purposes of Article FIFTH, Section (A)(5) of the Restated Certificate of
Incorporation of TDC. Notwithstanding the foregoing, TDC and ALZA confirm
and agree that Testoderm-Registered Trademark- shall not be considered a
"Product" within the meaning of the Development Contract, the Technology
License Agreement between ALZA and TDC dated as of March 10, 1993 (the
"Technology License Agreement") and the License Option Agreement between ALZA
and TDC dated as of March 10, 1993 (the "License Option Agreement").
2
<PAGE>
2. DEVELOPMENT OF SECOND GENERATION TESTODERM-REGISTERED TRADEMARK-
PRODUCT. Except with respect to the royalty payments set forth in Section 4
of this Agreement, TDC and ALZA hereby confirm that the Second Generation
Testoderm-Registered Trademark- Product is being developed by ALZA for TDC
under, and the relationship of the parties with respect to the Second
Generation Testoderm-Registered Trademark- Product is governed by the terms
of, the Development Contract, the Technology License Agreement and the
License Option Agreement.
3. MATERIAL EVALUATION PROJECTS.
(a) ACCEPTANCE OF MATERIAL EVALUATION PROJECTS. From time to time,
ALZA will provide TDC with work plans and cost estimates for evaluations of
identified proprietary compounds ("Material Evaluation Candidates"). Such
evaluations will include the preparation of preliminary, abbreviated commercial
assessments and an examination of technical feasibility. Within 45 days after
ALZA provides TDC with such a recommendation for a Material Evaluation
Candidate, TDC shall notify ALZA in writing of its acceptance or rejection of
such Material Evaluation Candidate. Upon written acceptance of a Material
Evaluation Candidate by TDC, such Material Evaluation Candidate shall be deemed
to be a "Material Evaluation Project."
(b) FUNDING OF MATERIAL EVALUATION PROJECTS. In consideration of the
royalty payments set forth in Section 4 of this Agreement, TDC hereby hires ALZA
to perform the Material Evaluation Projects and agrees to fund the Material
Evaluation Projects in amounts to be approved by TDC from time to time (the
"Project Payments"). The Material Evaluation Projects shall be set forth in
work plans prepared by ALZA which are subject to the approval of TDC, and the
parties agree to revise approved work plans from time to time so that they
remain faithful best estimates of the work to be done under the Material
Evaluation Projects as agreed upon by ALZA and TDC. TDC shall not be obligated
to make Project Payments in excess of those expressly approved by TDC, and ALZA
shall not be obligated to perform work on the Material Evaluation Projects which
would result in Project Payments exceeding amounts expressly approved by TDC.
ALZA and TDC agree that the Project Payments shall be made on the same basis as
"Development Costs" (as defined in the Development Contract) and shall
constitute "Development Costs" within the meaning of Sections 4.2, 5.1 and 5.3
of the Development Contract and that the funding of the Material Evaluation
Projects constitutes an activity undertaken pursuant to the Development Contract
within the meaning of Section 10.1 thereof; as such, Project Payments are
intended to be included as part of the "total amount paid by this corporation
under the Development Contract" for purposes of Article FIFTH, Section
(A)(10)(c) of the Restated Certificate of Incorporation of TDC, as part of
"expenditure[s] pursuant to the Development Contract" for purposes of Article
FIFTH, Section (A)(2) of the Restated Certificate of Incorporation of TDC, as
part of "the total amounts paid by this corporation pursuant to the Development
Contract" for purposes
3
<PAGE>
of Article FIFTH, Section (A)(14) of the Restated Certificate of
Incorporation of TDC, and as part of "any additional amounts paid by this
corporation pursuant to the Development Contract" for purposes of Article
FIFTH, Section (A)(5) of the Restated Certificate of Incorporation of TDC.
Notwithstanding the foregoing, TDC and ALZA confirm and agree that such
Material Evaluation Projects are not "Products" within the meaning of the
Development Contract, the Technology License Agreement and the License Option
Agreement, unless and until accepted for development as a "Product" under the
terms set forth in the Development Contract.
4. NEW SECTION 7.4A OF THE DEVELOPMENT CONTRACT. In consideration of the
foregoing, a new Section 7.4A is hereby added to the Development Contract as
follows:
"7.4A ROYALTIES ON CERTAIN PRODUCTS AND ACTIVITIES. For purposes of this
Section 7.4A only, capitalized terms not otherwise defined in this Agreement
shall have the meanings ascribed to them in that certain Agreement Regarding
Certain Products and Activities and Amendment No. 1 to Development Agreement
(the "Amendment"), which Amendment is effective as of October 25, 1994.
(a) TESTODERM-REGISTERED TRADEMARK-. In consideration of
TDC's making Development Payments with respect to Testoderm-Registered
Trademark- pursuant to the Amendment, upon receiving clearance from
the FDA to market Testoderm-Registered Trademark- as a treatment for
AIDS wasting syndrome, ALZA shall pay TDC royalties with respect to
Testoderm-Registered Trademark- as follows: (i) up to a maximum of 5%
of worldwide Net Sales of Testoderm-Registered Trademark- determined
as follows: 1% of such Net Sales, plus an additional 0.1% of such Net
Sales for each full one million dollars of Development Payments with
respect to Testoderm-Registered Trademark- paid by TDC; plus (ii) up
to a maximum of 50% of worldwide Sublicensing Revenues in respect of
sales of Testoderm-Registered Trademark- determined as follows: 10%
of such Sublicensing Revenues, plus an additional 1% of such
Sublicensing Revenues for each full one million dollars of
Development Payments with respect to Testoderm-Registered Trademark-
paid by TDC. In determining payments due under this Section 7.4A(a),
Net Sales and Sublicensing Revenues shall be reduced by the dollar
amount of any license or similar payments made to third parties by
ALZA or its Affiliates with respect to the sales of
Testoderm-Registered Trademark-. In determining payments under this
Section 7.4A(a) for any year, the amount of applicable Development
Payments shall be determined as of December 31 of the preceding
calendar year.
(b) SECOND GENERATION TESTODERM-REGISTERED TRADEMARK- PRODUCT. If
ALZA exercises its License Option with respect to the Second Generation
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<PAGE>
Testoderm-Registered Trademark- Product, ALZA shall pay TDC royalties as
follows: (i) in any calendar quarter in which worldwide Net Sales of
Testoderm-Registered Trademark- are greater than worldwide Net Sales of
the Second Generation Testoderm-Registered Trademark- Product, then ALZA
shall pay TDC royalties under the terms set forth in the License
Agreement in the form attached as Exhibit A to the License Option
Agreement and (ii) in any calendar quarter in which worldwide Net Sales
of Testoderm-Registered Trademark- are less than worldwide Net Sales of
the Second Generation Testoderm-Registered Trademark- Product, then ALZA
shall pay TDC the royalties set forth in Section 7.4A(b)(i) PLUS the
royalties set forth in Section 7.4A(a). Notwithstanding the terms of the
License Option Agreement and the License Agreement in the form attached
as Exhibit A thereto, ALZA and TDC hereby agree that any License
Agreement entered into with respect to the Second Generation
Testoderm-Registered Trademark- Product will reflect the foregoing
revised royalty structure.
(c) ROYALTIES IN CONNECTION WITH MATERIAL EVALUATION PROJECTS. In
consideration of TDC making Project Payments with respect to Material
Evaluation Projects pursuant to the Amendment, if any Material Evaluation
Project results in an arrangement whereby the third party who holds the
rights to the proprietary compound being studied funds the ongoing costs of
a development program conducted by ALZA for a product incorporating such
compound (a "Project Product"), ALZA shall pay TDC royalties with respect
to each such Project Product as follows: (i) up to a maximum of 5% of
worldwide Net Sales of such Project Product determined as follows: 2% of
such Net Sales, plus an additional 0.1% of such Net Sales for each full
one million dollars of Project Payments paid by TDC with respect to such
Project Product; plus (ii) up to a maximum of 50% of worldwide Sublicensing
Revenues with respect of sales of such Project Product determined as
follows: 20% of such Sublicensing Revenues, plus an additional 1% of such
Sublicensing Revenues for each full one million dollars of Project Payments
paid by TDC with respect to such Project Product. If any Material
Evaluation Project results in an arrangement whereby TDC funds the ongoing
costs of a development program conducted by ALZA and TDC for a Project
Product accepted for development as a "Product" under the terms set forth
in the Development Contract, such Project Product shall in all respects be
a "Product" within the meaning of the Development Contract, the Technology
License Agreement and the License Option Agreement and, if ALZA exercises
its License Option for such Project Product, ALZA shall pay TDC royalties
for such Project Product under the terms set forth in the License Agreement
in the form attached as Exhibit A to the License Option Agreement (and
Project Payments with respect to such Project Product shall be included in
Development Cost for purposes of
5
<PAGE>
calculating the royalties due to TDC thereunder.) If any Material
Evaluation Project results in a product development and commercialization
arrangement other than an arrangement whereby either (i) the third party
who owns the rights to the proprietary compound being studied, or (ii)
TDC, funds the ongoing costs of a development program conducted by ALZA
for a Project Product, ALZA and TDC agree to negotiate in good faith an
alternative payment structure or other economic arrangement to compensate
TDC for making Project Payments with respect to the Material Evaluation
Project. In determining payments due under this Section 7.4A(c), Net
Sales and Sublicensing Revenues shall be reduced by the dollar amount of
any license or similar payments made to third parties by ALZA or its
Affiliates with respect to sales of the relevant Project Product. In
determining payments under this Section 7.4A(c) for any year, the amount
of applicable Project Payments shall be determined as of December 31 of
the preceding calendar year."
ALZA and TDC hereby confirm and agree that the royalties or other payments
to TDC described in Section 7.4A of the Development Contract, as amended by this
Agreement, are intended to be included within the definition of "Royalties" as
such term is defined in the Restated Certificate of Incorporation of TDC.
5. AMENDMENTS TO SECTIONS 7.6 OF THE DEVELOPMENT CONTRACT. Section
7.6 of the Development Contract is hereby amended so that each reference to
"Section 7.4" is deleted and replaced with a reference to "Sections 7.4,
7.4A(a) and 7.4A(c)" and to add the words "Testoderm-Registered Trademark-
and Project Product" after the term "Other Royalty-Bearing Product."
6. APPROVAL OF BOARDS OF DIRECTORS. ALZA and TDC represent and
warrant, each to the other, that the foregoing amendments to the Development
Contract have been approved by their respective Boards of Directors prior to
execution of this Agreement.
7. INDEMNIFICATION. ALZA shall indemnify, defend and hold TDC
harmless from and against any and all liabilities, claims, demands, damages,
costs, expenses or money judgments rendered against TDC and its Affiliates
(as defined in the Development Contract), which arise out of the use, design,
labeling or manufacture, processing, packaging, sale or commercialization of
Testoderm-Registered Trademark- by ALZA, its Affiliates (as defined in the
Development Contract), subcontractors and sublicensees. TDC shall permit
ALZA's attorneys, at ALZA's discretion and cost, to handle and control the
defense of any claims or suits as to which TDC may be entitled to indemnity
hereunder, and TDC agrees not to settle any such claims or suits without the
prior written consent of ALZA. TDC shall give ALZA prompt notice in writing,
in the manner set forth in Section 13.7 of the Development Contract, of any
claim or
6
<PAGE>
demand made against TDC for which TDC may be entitled to indemnity hereunder.
TDC shall have the right to participate, at its own expense, in the defense of
any such claim or demand to the extent it so desires.
8. MISCELLANEOUS. This Agreement shall terminate upon termination of
the Development Contract. Except as otherwise expressly provided herein, the
terms of the Development Contract, the Technology License Agreement and the
License Option Agreement shall remain in full force and effect. This
Agreement may not be amended except in a writing signed by both parties. If
any provision of this Agreement is held by a court of competent jurisdiction
to be invalid or unenforceable, it shall be modified, if possible, to the
minimum extent necessary to make it valid and enforceable or, if such
modification is not possible, it shall be stricken and the remaining
provisions remain in full force and effect; provided, however, that if a
provision is stricken so as to significantly alter the economic arrangements
of this Agreement, the Development Contract or the "Purchase Option" as
defined in the Restated Certificate of Incorporation of TDC, the party
adversely affected may terminate this Agreement upon 60 days' prior written
notice to the other party. Neither party may assign its rights or
obligations hereunder without the prior written consent of the other party,
which consent may not be unreasonably withheld; provided, however, that ALZA
may assign such rights and obligations hereunder to any person or entity with
which ALZA is merged or consolidated or which purchases all or substantially
all of the assets of ALZA. This Agreement shall be governed by the laws of
the State of California as applied to residents of that state entering into
contracts to be performed in that state. The headings set forth at the
beginning of the various sections of this Agreement are for reference and
convenience and shall not affect the meanings of the provisions of this
Agreement.
IN WITNESS WHEREOF, ALZA and TDC have caused this Agreement to be executed
as of the date first set forth above by their duly authorized representatives.
ALZA CORPORATION THERAPEUTIC DISCOVERY
CORPORATION
By: /s/ Peter D. Staple By: /s/ Gary L. Neil
----------------------------------- ---------------------------------
Title: Vice President and General Counsel Title: President and Chief Executive
Officer
Date: March 27, 1996 Date: 27 March 1996
----------------------------------- -------------------------------
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN ITEM I OF FORM 10-K DATED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11
<SECURITIES> 75
<RECEIVABLES> 1
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 87
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 88
<CURRENT-LIABILITIES> 19
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 69
<TOTAL-LIABILITY-AND-EQUITY> 88
<SALES> 0
<TOTAL-REVENUES> 8
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (95)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95)
<EPS-PRIMARY> (12.25)
<EPS-DILUTED> (12.25)
</TABLE>
