AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1996
REGISTRATION NO. 333-4441
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CADUS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 8731 13-3660391
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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777 OLD SAW MILL RIVER ROAD, TARRYTOWN, NY 10591-6705
(914) 345-3344
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JEREMY M. LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER CADUS PHARMACEUTICAL CORPORATION
777 OLD SAW MILL RIVER ROAD, TARRYTOWN, NY 10591-6705 (914) 345-3344
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications regarding this
Registration Statement should be sent to:
SALOMON R. SASSOON, ESQ. LESLIE E. DAVIS, ESQ.
MORRISON COHEN SINGER & WEINSTEIN, LLP TESTA, HURWITZ & THIBEAULT, LLP
750 LEXINGTON AVENUE, 125 HIGH STREET,
NEW YORK, NEW YORK 10022 BOSTON, MA 02110
(212) 735-8600 (telephone) (617) 248-7000 (telephone)
(212) 735-8708 (facsimile) (617) 248-7100 (facsimile)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
CADUS PHARMACEUTICAL CORPORATION
CROSS-REFERENCE SHEET BETWEEN ITEMS OF FORM S-1 AND
FORM OF PROSPECTUS PURSUANT TO REGULATION S-K, Item 501(b)
<TABLE>
<CAPTION>
ITEM NO. LOCATION IN PROSPECTUS
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<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus .............. Facing Page, Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus ....................................... Inside Front Cover Page,
Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges ........................ Prospectus Summary; Risk Factors
4. Use of Proceeds ..................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price ..................... Outside Front Cover Page;
Risk Factors; Underwriting
6. Dilution ............................................ Risk Factors; Dilution
7. Selling Security Holders ............................ Not Applicable
8. Plan of Distribution ................................ Outside Cover Page; Underwriting
9. Description of Securities to be Registered .......... Outside Cover Page; Prospectus Summary;
Risk Factors; Dividend Policy; Capitalization;
Description of Capital Stock;
Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel ............. Experts
11. Information with Respect to the Registrant ......... Outside Cover Page; Prospectus Summary;
Risk Factors; The Company; Dividend
Policy; Dilution; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ..... Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JULY 17, 1996
PROSPECTUS
2,750,000 Shares
CADUS PHARMACEUTICAL CORPORATION [LOGO]
COMMON STOCK
All of the 2,750,000 shares of Common Stock offered hereby are being sold
by the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol "KDUS."
Bristol-Myers Squibb Company and Solvay Duphar B.V., two of the Company's
collaborative partners, have indicated their interest in purchasing $2.5 million
and $5.0 million, respectively, of shares of Common Stock in this offering.
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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Per Share ......... $7.00 $0.49 $6.51
Total (3) ......... $19,250,000 $1,347,500 $17,902,500
================================================================================
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $675,000.
(3) The Company has granted the Und purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $22,137,500,
$1,549,625 and $20,587,875, respectively. See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about July 22, 1996, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST
MONTGOMERY SECURITIES
GENESIS MERCHANT GROUP
SECURITIES
July 17, 1996
<PAGE>
[Graphical Representation of SSCL]
Cadus exploits similarities between the yeast and human genome to identify
new drug discovery targets. One of Cadus' proprietary technologies, the Self
Selecting Combinatorial Library (SSCL) technology described below, provides a
systematic means to identify the ligand that activates an identified human cell
surface receptor of unknown function (an "orphan receptor"). Once the ligand has
been identified, the biological function of the orphan receptor can be
determined, a necessary prerequisite to a drug discovery program focused on that
receptor.
Self Selecting Combinatorial Library (SSCL)
STEP ONE
Human orphan receptor gene inserted into genome of yeast strain.
STEP TWO
Each cell in strain now expresses the human orphan receptor on the cell surface.
STEP THREE
Millions of different peptide genes are inserted into a yeast strain. Each yeast
cell now produces a single different peptide ligand.
STEP FOUR
The yeast cell that produces a peptide ligand that binds to the human orphan
receptor will replicate continuously, creating an autocrine system.
STEP FIVE
The resulting peptide ligand is then isolated, purified and analyzed.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------
APEX(trademark) and SSCL(trademark) are trademarks of the Company.
Tradenames and trademarks of other companies appearing in this Prospectus are
the property of their respective holders.
2
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. For explanations of the technical terms and processes used
or discussed in the following summary, see "Business".
THE COMPANY
Cadus Pharmaceutical Corporation is engaged in the discovery of novel small
molecule therapeutics that act on targets in human cell signaling pathways. The
Company has developed proprietary drug discovery technologies based on
genetically engineered yeast cells. Cadus uses these and other proprietary
technologies to identify human cell surface receptors and other molecular
targets, to elucidate the function of such targets and to identify lead
compounds that act on such targets. The Company conducts drug discovery programs
both independently and with its collaborative partners, Bristol-Myers Squibb
Company ("Bristol-Myers Squibb") and Solvay Duphar B.V. ("Solvay Duphar").
The Company has not completed development of any products and does not expect
any products that it may develop to be commercially available for many years,
if at all. The Company has not generated any revenues from products or services
and does not expect to do so in the foreseeable future.
Cadus is a leader in the development of proprietary technologies that
exploit the similarities between yeast and human genes to elucidate gene
function and cell signaling pathways. The Company has developed four proprietary
drug discovery technologies. Two of these technologies are used to identify
small molecules that act as agonists or antagonists to cell surface receptors
and other targets in the signal transduction pathway: (i) a hybrid yeast cell
technology that expresses a functioning human receptor and a portion of its
signaling pathway in a yeast cell and (ii) the Autocrine Peptide Expression
("APEX") system that expresses a known human ligand in a hybrid yeast cell as
well as the receptor that is activated by that ligand. The other two
technologies are used to identify and characterize receptors whose ligand and
hence function are not known (which are called orphan receptors), ligands and
key signaling molecules: (i) the Company's Self Selecting Combinatorial Library
("SSCL") technology, which is used to identify a ligand that activates a
targeted orphan receptor and (ii) the Company's signal transduction
technologies, which are used to determine potential molecular targets in the
human cell signaling pathway and to assist in the determination of a receptor's
biological function.
Cadus has focused its research to date on discovering G protein-coupled
receptors, their ligands and resulting cell signaling pathways. G
protein-coupled receptors are involved in the majority of basic cell functions
and are therefore potential targets in the treatment of common human diseases.
The importance of G protein-coupled receptors is demonstrated by the fact that
more than 60% of all commercially available prescription drugs (including the
anti-ulcer agents Zantac and Tagamet and the cardiac drugs Tenormin and
Lopressor) work by interacting with G protein-coupled receptors. There are an
estimated 2,000 to 5,000 G protein-coupled receptors in the human genome. The
function of approximately 100 of these G protein-coupled receptors has been
identified. This knowledge has been used to help identify the sequences of an
additional 100 orphan G protein-coupled receptors. Although the Company believes
that orphan receptors are likely to prove therapeutically important, a receptor
cannot become the subject of a systematic drug discovery program until its
function has been determined. Traditional methods used to determine the function
of an orphan receptor are time consuming and expensive. The Company believes
that its technologies will enable it to determine the function of many orphan
receptors rapidly and cost-effectively.
The Company's technologies can also be applied to other receptors and their
related signaling pathways. For this reason, the Company is pursuing selected
targets such as cytokine receptors and multisubunit immune recognition
receptors. These receptors and their signaling pathways are involved in cell
growth, in the release of biologically active substances such as histamines and
in the regulation of the immune system.
The Company's proprietary drug discovery programs are focused on allergic
inflammation, acute inflammation and cancer. The Company's collaboration with
Bristol-Myers Squibb is focused on cardiovascular disease, acute inflammation,
central nervous system disorders, obesity and diabetes. To date, this
collaboration has resulted in the identification of potential lead compounds in
the area of central nervous system disorders and ligands to an orphan receptor.
The Company's collaboration with Solvay Duphar is also focused on cardiovascular
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3
<PAGE>
disease and central nervous system disorders, as well as gynecological diseases
and gastrointestinal disorders. Through March 31, 1996, the Company had received
an aggregate of approximately $34.9 million in research funding and equity
investments (including a $5.0 million equity investment made as a result of the
achievement of a research milestone in 1995) from its collaborative partners.
The Company was incorporated in Delaware in January 1992. The Company's
corporate headquarters and principal research facilities are located at 777 Old
Saw Mill River Road, Tarrytown, New York 10591, and its telephone number is
(914) 345-3344.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company ................ 2,750,000 Shares
Common Stock to be outstanding after the offering .. 11,633,190 Shares(1)
Use of Proceeds .................................... Research and development, working capital
and general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol ............. KDUS
</TABLE>
RISK FACTORS
Prospective purchasers should carefully consider the information set forth
under the caption "Risk Factors" beginning on page 6, including, but not limited
to, those risks associated with: the absence of a developed product;
technological uncertainties regarding the Company's technologies; the Company's
dependence on collaborative partners; the Company's capital needs and
uncertainty of funding; its history of operating losses; the Company's
dependence on proprietary technology and the unpredictability of patent
protection; and the risk of obsolescence and from competition.
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4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY JANUARY
23, 1992 THREE MONTHS 23, 1992
YEAR ENDED DECEMBER 31, (DATE OF ENDED MARCH 31, (DATE OF
----------------------------- INCEPTION) TO ---------------- INCEPTION) TO
1995 1994 1993 DECEMBER 31, 1992 1996 1995 MARCH 31, 1996
-------- -------- -------- ----------------- ------ -------- ----------------
STATEMENT OF OPERATIONS DATA: -------------(Unaudited)-------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 4,418 $ 1,355 $ -- $ -- $1,625 $1,000 $ 7,397
Operating costs and expenses:
Research and development 5,383 2,246 1,645 753 1,654 1,040 11,683
General and administrative 1,376 937 550 214 318 317 3,394
------- ------- ------- ----- ------ ------ -------
Total operating costs and expenses 6,759 3,183 2,195 967 1,972 1,357 15,077
Operating loss (2,341) (1,828) (2,195) (967) (347) (357) (7,680)
Net loss(2) $(1,482) $(1,393) $(2,148) $(967) $ (43) $ (155) $(6,034)
======= ======= ======= ===== ====== ====== =======
Pro forma net loss per share(3) $ (0.16) $ 0.00
======= ======
Pro forma weighted average shares
outstanding(3) 9,132,577 9,076,960
</TABLE>
MARCH 31, 1996
---------------------------------
ACTUAL AS ADJUSTED(4)
------ --------------
(Unaudited)
BALANCE SHEET DATA:
Cash and cash equivalents(5) ......... $25,086 $42,313
Total assets ......................... 30,585 47,813
Short term debt ...................... 2,397 2,397
Loans payable to bank ................ 25 25
Accumulated deficit .................. (6,034) (6,034)
Total stockholders' equity ........... 27,691 44,919
(1) Gives effect to the automatic conversion of all outstanding shares of
Convertible Preferred Stock into Common Stock upon the closing of this
offering. Excludes 1,289,035 shares of Common Stock issuable upon the
exercise of stock options outstanding as of March 31, 1996, of which
options to purchase 505,756 shares of Common Stock are exercisable. See
"Capitalization" and "Management-Incentive Plans."
(2) The net loss of $1.4 million for the year ended December 31, 1994 includes
an extraordinary gain of approximately $159,000 from the early
extinguishment of a debt obligation.
(3) Computed on the basis described for pro forma net loss per share in Note 2
of Notes to Financial Statements.
(4) Adjusted to reflect the sale of the 2,750,000 shares of Common Stock
offered hereby at the initial offering price of $7.00 per share,
and the receipt of the estimated net proceeds therefrom. See "Use of
Proceeds."
(5) Does not include restricted cash of $2.5 million.
(6) The Company has not paid any dividends since its inception and does not
anticipate paying any dividends on its Common Stock in the foreseeable
future.
Except as otherwise specified, all information in this Prospectus: (i)
assumes no exercise of the Underwriters' over-allotment option; (ii) reflects a
one-for-three reverse stock split of the Company's Common Stock to be effected
immediately prior to closing of this offering; and (iii) reflects, upon the
closing of this offering, the automatic conversion of all outstanding shares of
the Company's Convertible Preferred Stock into an aggregate of 7,551,514 shares
of Common Stock. See "Description of Capital Stock," "Underwriting" and Note 15
of Notes to Financial Statements.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
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5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock being offered by this
Prospectus involves a high degree of risk. Accordingly, prospective investors
should consider carefully the following risk factors, as well as all other
information contained in this Prospectus, before purchasing the shares of Common
Stock offered hereby.
EARLY STAGE OF DEVELOPMENT; ABSENCE OF DEVELOPED PRODUCTS
The Company is at an early stage of development and has not completed
development of any products. The Company does not expect that any products
resulting from its research and development efforts will be commercially
available for a significant number of years, if at all. All of the Company's
potential products will require significant research and development and are
subject to numerous risks. Potential products that appear to be promising at
early stages of development may not reach the market for a number of reasons.
Furthermore, potential products may be found ineffective or cause harmful side
effects during preclinical testing or clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical to produce, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. There can be no
assurance that the Company's or its collaborative partners' product development
efforts will be successfully completed, that required regulatory approvals will
be obtained or that any products, if introduced, will be successfully marketed
or achieve customer acceptance.
TECHNOLOGICAL UNCERTAINTIES
The scientific understanding of yeast genes and yeast cells is at an early
stage. Yeast-based drug discovery has not yet been shown to be successful in the
development of any commercialized drug. There can be no assurance that these
technologies will enable the Company to successfully identify and characterize
receptors, ligands or signaling molecules and understand their roles in disease.
The human genome is not fully represented by the yeast genome, which may inhibit
the Company's ability to use its yeast-based technologies to discover drugs for
those diseases linked to a human gene that has no counterpart in the yeast
genome. There also can be no assurance that the Company's technologies will
result in lead compounds that will be safe and efficacious. Development of new
pharmaceutical products is highly uncertain, and no assurance can be given that
the Company's drug discovery technologies will result in any commercially
successful products.
DEPENDENCE ON COLLABORATIVE PARTNERS
The Company depends on collaborations with pharmaceutical companies for
access to research, drug development, manufacturing, marketing and financial
resources for its drug development programs. To date, the Company has entered
into two such arrangements, one with Bristol-Myers Squibb and the other with
Solvay Duphar. There can be no assurance that the Company will be able to
establish additional collaborative arrangements, that any such arrangements will
be on terms favorable to the Company, or that current or future collaborations
will ultimately be successful in discovering any potential products. To the
extent that the Company chooses not to or is unable to continue its current
collaborations or establish new arrangements, it would require substantially
greater capital to undertake research, preclinical and clinical development, and
manufacturing and marketing of products at its own expense, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Under their collaborative agreements with the Company, Bristol-Myers Squibb
and Solvay Duphar have the right, but not the obligation, to conduct preclinical
testing and clinical trials of compounds developed by them through the use of
the Company's technologies, to seek regulatory approvals and to manufacture and
commercialize any resulting drug candidates. As a result, the Company's receipt
of revenues from drug development milestones or royalties on sales under the
collaborative agreements is dependent upon the activities and the development,
manufacturing and marketing resources of its collaborative partners. The
collaborative agreements allow the Company's collaborative partners significant
discretion in electing whether or not to pursue any of these activities. The
Company cannot control the amount and timing of resources to be dedicated by the
collaborative partners to their respective collaborations with the Company.
There can be no assurance that such partners will pursue the development and
commercialization of such compounds as expected, that any such development or
commercialization would be successful or that the Company will derive any
additional revenue from such arrangements. While the Company's collaborative
arrangements with Bristol-Myers Squibb and Solvay
6
<PAGE>
Duphar provide that the Company will receive milestone payments and
royalties with respect to drugs developed from compounds identified or confirmed
using the Company's technologies, there can be no assurance that disputes will
not arise over whether or not specific compounds were identified or confirmed
using the Company's technologies and are, therefore, covered by such royalty and
milestone provisions. Furthermore, there can be no assurance that Bristol-Myers
Squibb, Solvay Duphar or any other potential future collaborator will not pursue
alternative technologies in preference to those being developed in collaboration
with the Company. In addition, there can be no assurance that the Company's
collaborators will make milestone payments to the Company or that they will
develop and market any products that may result under the agreements. Moreover,
there can be no assurance that the interests of the Company will continue to
coincide with those of its collaborative partners, that some of the Company's
collaborative partners will not develop independently or with third parties
drugs that could compete with drugs of the types covered by the collaborations,
or that disagreements over rights or technology or other proprietary interests
will not occur. Disagreements between the Company and its collaborative partners
could lead to delays in collaborative research or in the development or
commercialization of certain product candidates, or could require or result in
litigation or arbitration, which could be time consuming and expensive. Any of
these factors could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is relying on its collaborative partners to fund a substantial
portion of its research operations over the next several years. The initial term
of the research provisions of the contracts between the Company and each of
Bristol-Myers Squibb and Solvay Duphar expire in July 1997 and December 2000,
respectively. Bristol-Myers Squibb can extend the term of its collaboration for
two years and Solvay Duphar can extend the term of its collaboration from two to
five years. There can be no assurance that these contracts will be extended or
renewed, or that any renewal will be made on terms favorable to the Company.
Moreover, commencing in July 1998, the research provisions of the Solvay Duphar
Agreement may be terminated for nonperformance under certain circumstances,
which termination would result in the Company losing its research funding from
Solvay Duphar. The termination or expiration of the research provisions of
either of such contracts, or the failure by Bristol-Myers Squibb or Solvay
Duphar to provide research funding to the Company, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Collaborative Arrangements."
HISTORY OF OPERATING LOSSES
The Company has incurred net losses every year since its inception in
January 1992. At March 31, 1996, the Company had an accumulated deficit of
approximately $6.0 million. The Company's losses have resulted principally from
costs incurred in connection with research and development activities and from
general and administrative costs associated with the Company's operations. The
Company expects to incur additional operating losses over the next several years
and expects cumulative losses to increase substantially as the Company's
research and development efforts are expanded and preclinical testing is
commenced.
QUARTERLY FLUCTUATIONS
The Company expects that losses will fluctuate from quarter to quarter and
that such fluctuations may be substantial.
UNCERTAINTY OF FUTURE PROFITABILITY
The Company has no products or services available for sale, and no revenues
have been generated from the commercialization by the Company or any of its
collaborative partners of products or services. In addition, the Company does
not anticipate that it will generate revenues from products or services in the
foreseeable future. To date, all of the Company's revenues have resulted from
research funding by its collaborative partners. The Company's ability to
generate significant revenues and become profitable is dependent in large part
on the ability of the Company to enter into additional collaborative
arrangements. The Company's product revenues and profitability is also dependent
on the Company, alone or with others, successfully completing the development of
drug candidates, obtaining the required regulatory approvals and manufacturing
and marketing any potential products. There can be no assurance that the Company
will ever achieve product revenues or profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
7
<PAGE>
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on the Company, its licensors and
its licensees, successfully obtaining patent protection for the technologies
owned by or licensed to the Company and for the compounds and other products, if
any, resulting from the application of such technologies, preserving their
respective trade secrets, preventing third parties from infringing upon their
respective proprietary rights, and operating without infringing on the
proprietary rights of others, both in the United States and in other countries.
Patent matters in biotechnology, and in particular with respect to drug
discovery technologies, are highly uncertain and involve complex legal and
factual questions. Accordingly, the breadth and validity of claims allowed in
biotechnology and pharmaceutical patents cannot be accurately predicted. As of
June 30, 1996, the Company was the exclusive worldwide licensee of two issued
U.S. patents and a field exclusive worldwide licensee of another issued U.S.
patent. In addition, as of such date, the Company had filed or held exclusive
licenses or field exclusive licenses to 47 U.S. patent applications, as well as
related foreign patent applications. There can be no assurance that the Company
will develop technology that is patentable, that patents will issue from any of
the pending applications, or that claims allowed will be sufficient to protect
the Company's technologies. There can be no assurance that the Company or its
collaborative partners will be able to obtain patent protection for
pharmaceutical products discovered using the Company's technologies.
Furthermore, there can be no assurance that any patents issued to the Company or
its collaborative partners, or for which the Company has license rights, will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to the
Company. There can be no assurance that the Company's issued or licensed patents
would be held valid by a court of competent jurisdiction. An assertion of
coinventorship has been made by a third party with respect to one of the patents
relating to a signal transduction protein exclusively licensed by the Company.
There can be no assurance that the Company will retain exclusive rights under
the patent or that the scope and validity of this patent or related patent
applications will not be adversely affected by the assertion.
A number of pharmaceutical companies, biotechnology companies, universities
and research institutions have been issued patents, may have filed patent
applications or may obtain additional patents and proprietary rights for drug
discovery technologies similar to those of the Company. The commercial success
of the Company will depend in part on the Company not infringing patents issued
to competitors. The Company cannot determine with certainty whether any existing
third party patents or the issuance of any third party patents would require the
Company to alter its technologies, obtain licenses or cease certain activities.
If any licenses are required, there can be no assurance that the Company will be
able to obtain any such license on commercially favorable terms, if at all, and
if these licenses are not obtained, the Company might be prevented from using
certain of its technologies. The Company's failure to obtain a license to any
technology that it may require to continue its drug discovery efforts may have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is presently seeking to obtain licenses from
several different third parties. There can be no assurance that any of these
licenses will be obtained or, if obtained, will be on terms favorable to the
Company. Failure to obtain these licenses may require the Company to utilize
alternative technologies and/or to defend against infringement litigation, each
of which could result in substantial costs to and diversion of resources by the
Company.
The patent holder of an aspect of drug screening techniques that is widely
used by many companies in the biotechnology industry has recently filed a patent
infringement action against the Company seeking injunctive relief and monetary
damages. If injunctive relief is granted, certain aspects of the drug discovery
and development efforts of the Company and its collaborative partners could be
delayed. If monetary damages are awarded, the business, financial condition and
results of operations of the Company could be materially adversely affected. The
costs of and the diversion of Company resources associated with infringement
litigation could have a material adverse effect on the business, financial
condition and results of operations of the Company.
Litigation, which could result in substantial costs to the Company, may be
necessary to enforce any patents issued or licensed to the Company or to
determine the scope and validity of third party proprietary rights. Some of the
Company's competitors have, or are affiliated with companies having,
substantially greater resources than the Company, and such competitors may be
able to sustain the costs of complex patent litigation to a greater degree and
for longer periods of time than the Company. Uncertainties resulting from the
initiation and continuation of any patent or related litigation could have a
material adverse effect on the Company. An adverse outcome in connection with an
infringement proceeding brought by a third party could subject the Company to
significant liabilities, require disputed rights to be licensed from third
parties or require the Company to cease using the
8
<PAGE>
disputed technology, any of which could have a material adverse effect on the
Company's business, financial condition or results of operations. If competitors
of the Company prepare and file patent applications in the United States that
claim technology also claimed by the Company, the Company may have to
participate in interference proceedings declared by the Patent and Trademark
Office to determine priority of invention, which could result in substantial
costs to the Company, even if the eventual outcome is favorable to the Company.
The Company is aware of a U.S. patent application related to certain receptors
in yeast cells filed more than three years after one of the patents licensed by
the Company. There can be no assurance that an interference will not be declared
between such U.S. patent application and the patent and related earlier filed
patent applications licensed by the Company.
The Company also relies on trade secrets to protect technology, especially
where patent protection is not believed to be appropriate or obtainable. The
Company attempts to protect its proprietary technology and processes in part by
confidentiality agreements with its collaborative partners, employees,
consultants and certain contractors. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or be independently discovered by competitors. To the extent that the
Company or its consultants or research collaborators use intellectual property
owned by others in their work for the Company, disputes may also arise as to the
rights in related or resulting know-how and inventions, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Patents, Proprietary Technology and Trade
Secrets."
INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
Competition in the pharmaceutical and biotechnology industry is intense.
The Company competes with the research departments of pharmaceutical companies,
biotechnology companies and research and academic institutions. The Company's
technology platform consists principally of genetically engineered yeast cells
and certain signal transduction technologies, which it utilizes to determine the
biological function of orphan receptors and signaling molecules. The Company is
aware of other companies, such as American Home Products Corporation and Glaxo
Wellcome, Plc, that may use yeast as a drug discovery medium. Other companies,
such as Merck & Co., Inc. and SmithKline Beecham, Plc, may be engaged in efforts
to determine the biological function of orphan receptors, and other companies
such as Sandoz Ltd. and Pfizer Inc. may be engaged in research and development
efforts relating to signal transduction. In addition, there are several smaller
companies pursuing these areas of research. Furthermore, many companies have
potential drugs in various stages of development to treat asthma and small-cell
lung carcinoma, two diseases targeted by the Company in its proprietary research
programs. Many of the Company's competitors have greater financial and human
resources, and more experience in research and development, preclinical and
clinical testing, obtaining regulatory approvals, manufacturing and marketing
than the Company. There can be no assurance that competitors of the Company will
not develop competing drug discovery technologies or drugs that are more
effective than those developed by the Company and its collaborative partners or
obtain regulatory approvals of their drugs more rapidly than the Company and its
collaborative partners, thereby rendering the Company's and its collaborative
partners' drug discovery technologies and/or drugs obsolete or noncompetitive.
Moreover, there can be no assurance that the Company's competitors will not
obtain patent protection or other intellectual property rights that would limit
the Company's or its collaborative partners' ability to use the Company's drug
discovery technologies or commercialize drugs, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that some of the Company's
collaborative partners will not develop, independently or with third parties,
products that could compete with drugs of the types covered by the collaboration
or otherwise being developed by the Company. Furthermore, there is intense
competition for access to libraries of compounds to use for screening and any
inability of the Company to maintain access to sufficiently broad libraries of
compounds for screening potential targets would have a material adverse effect
on the Company's business, financial condition and results of operations.
Biotechnology and related pharmaceutical technology have undergone rapid
and significant change. The Company expects the technologies associated with the
Company's research and development will continue to develop rapidly, and the
Company's future success will depend in large part on its ability to maintain a
competitive position with respect to these technologies. Rapid technological
development by the Company or others may result in compounds, products or
processes becoming obsolete before the Company recovers any expenses it
9
<PAGE>
incurs in connection with developing such products. There can be no assurance
that yeast-based drug discovery will be viable or that it will achieve market
acceptance or that it will not be superseded by other drug discovery techniques.
See "Business--Competition."
GOVERNMENT REGULATION
The preclinical testing and clinical trials of compounds developed through
the use of the Company's technologies and the manufacturing and marketing of any
drugs that may result are subject to regulation by numerous Federal, state and
local governmental authorities in the United States, the principal one of which
is the United States Food and Drug Administration ("FDA"), and by similar
agencies in other countries in which drugs developed through the use of the
Company's technologies may be tested and marketed. Any compound developed by the
Company or its collaborative partners must receive regulatory approval before it
may be marketed as a drug in a particular country. The regulatory process, which
includes preclinical testing and clinical trials of each compound in order to
establish its safety and efficacy, can take many years and requires the
expenditure of substantial resources. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations which could
delay, limit or prevent regulatory agency approval. In addition, delays or
rejections may be encountered during the period of drug development, including
delays during the period of review of any application. Delays in obtaining
regulatory approvals could adversely affect the marketing of any drugs developed
by the Company or its collaborative partners, impose costly procedures upon the
Company's and its collaborative partners' activities, diminish any competitive
advantages that the Company or its collaborative partners may attain and
adversely affect the Company's ability to receive royalties. There can be no
assurance that regulatory approvals will be obtained for any compounds developed
by, or in collaboration with, the Company. Moreover, even if regulatory approval
for a compound is granted, such approval may entail limitations on the indicated
uses for which it may be marketed. Further, approved drugs and their
manufacturers are subject to continual review, and discovery of previously
unknown problems with a drug or its manufacturer may result in restrictions on
such drug or manufacturer, including withdrawal of the drug from the market.
Regulatory approval of prices is required in many countries and may be required
for the marketing of any drug developed by the Company or its collaborative
partners. The Company's inability to obtain regulatory approvals in the United
States and foreign markets would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Government Regulation."
FUTURE CAPITAL NEEDS
The Company may be required to raise additional capital over a period of
several years in order to conduct its operations. Such capital may be raised
through additional public or private financings, as well as collaborative
arrangements, borrowings and other available sources. The Company depends upon
its collaborative partners for research funding. As of March 31, 1996, the
Company had received approximately $6.4 million in research funding from
Bristol-Myers Squibb and approximately $1.0 million from Solvay Duphar. There
can be no assurance that the Company will continue to receive funding under the
existing collaborative arrangements. There can be no assurance that the
Company's existing or potential future collaborative arrangements will be
adequate to fund the Company's operating expenses. The Company's capital
requirements depend on numerous factors, including the ability of the Company to
enter into additional collaborative arrangements, competing technological and
market developments, changes in the Company's existing collaborative
relationships, the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, the purchase of additional
capital equipment, the progress of the Company's drug discovery programs and the
progress of the Company's collaborative partners' milestone and royalty
producing activities. The Company may require substantial funds to conduct the
research and development and the preclinical studies and clinical trials for its
potential products. To the extent that additional capital is raised through the
sale of equity or convertible debt securities, the issuance of such securities
could result in dilution to the Company's existing stockholders.
UNCERTAINTY OF ACCESS TO CAPITAL
There can be no assurance that additional funding, if necessary, will be
available on favorable terms, if at all. If adequate funds are not available,
the Company may be required to curtail operations significantly or to obtain
funds through entering into arrangements with collaborative partners or others
that may require the Company to relinquish rights to certain of its
technologies, product candidates, products or potential markets that the
10
<PAGE>
Company would not otherwise relinquish, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NEED TO ATTRACT AND RETAIN KEY OFFICERS, EMPLOYEES AND CONSULTANTS
The Company is highly dependent on the principal members of its scientific
and management staff. The loss of one or more members of the Company's
scientific or management staff could significantly delay or prevent the
achievement of research, development or business objectives. The Company
maintains a $1.0 million key person life insurance policy on the life of each of
Jeremy M. Levin and James R. Broach. Certain key members of the Company's
scientific staff, including James R. Broach, John C. Cambier and Gary L.
Johnson, are consultants who devote a majority of their professional time to
activities unrelated to the Company. In addition, the Company relies
on consultants and advisors, including the members of its Scientific Advisory
Board, to assist the Company in formulating its research and development
strategy. Retaining and attracting qualified personnel, consultants and advisors
is critical to the Company's success. In order to pursue its collaborative
relationships, product development and marketing plans, the Company will be
required to hire additional qualified scientific personnel to perform research
and development, as well as personnel with expertise in clinical testing,
government regulation, manufacturing, and marketing. These requirements are also
expected to demand the addition of management personnel and the development of
additional expertise by existing management personnel. The Company faces
competition for qualified individuals from numerous pharmaceutical and
biotechnology companies, universities and other research institutions. There can
be no assurance that the Company will be able to attract and retain such
individuals on acceptable terms, if at all, and the failure to do so would have
a material adverse effect on the Company's business, including its ability to
conclude collaborations with additional corporate partners.
RELIANCE ON THIRD PARTIES FOR CONDUCT OF CLINICAL TRIALS AND MANUFACTURING
The Company has no preclinical or clinical development expertise and
intends to rely on its collaborative partners and third party clinical research
organizations to design and conduct most of such activities, if required. In
addition, the Company has no manufacturing facilities and intends to rely on its
collaborative partners and contract manufacturers to produce the materials for
preclinical and clinical development purposes. If the Company were unable to
contract for these services on acceptable terms, or if it should encounter
delays or difficulties in its relationships with such providers, the Company's
product development would be delayed, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, contract manufacturers that the Company may use must adhere to Good
Manufacturing Practices ("GMP") regulations enforced by the FDA through its
facilities inspection program. If their facilities cannot pass a pre-approval
plant inspection, the Company's products will not be granted FDA approval.
EXPOSURE TO PRODUCT LIABILITY CLAIMS; LIMITED AVAILABILITY OF INSURANCE
The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of human
therapeutic products. The Company currently has no clinical trial liability
insurance and there can be no assurance that it will be able to obtain and
maintain such insurance for any of its clinical trials if its drug discovery
efforts are successful. In addition, there can be no assurance that the Company
will be able to obtain or maintain product liability insurance in the future on
acceptable terms or with adequate coverage against potential liabilities. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on its business, financial
condition and results of operations.
UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING AND THIRD PARTY REIMBURSEMENT
The Company's and its collaborative partners' realization of revenues and
income with respect to drugs, if any, developed through the use of the Company's
technologies will depend, in part, upon the extent to which reimbursement for
the cost of such drugs will be available from third party payors, such as
government health administration authorities, private health care insurers,
health maintenance organizations, pharmacy benefits management companies and
other organizations. Third party payors are increasingly challenging the prices
charged for pharmaceutical products. Significant uncertainty exists as to the
reimbursement status of newly
11
<PAGE>
approved pharmaceutical products. There can be no assurance that third party
reimbursement will be available or sufficient for any drugs developed through
the use of the Company's technologies. The inability to maintain price levels
for such drugs could adversely affect the Company's business, financial
condition and results of operations. Furthermore, in certain foreign markets,
pricing or profitability of prescription pharmaceuticals is subject to
governmental control. In the United States there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar governmental control.
HAZARDOUS MATERIALS
As with many biotechnology and pharmaceutical companies, the Company's
research and development involves the controlled use of hazardous materials,
chemicals and various radioactive compounds. The Company is subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. The risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT; CONCENTRATION OF STOCK
OWNERSHIP
Upon completion of this offering, four existing stockholders of the Company
will beneficially own approximately 57.4% of the outstanding shares of Common
Stock (approximately 55.5% if the Underwriters' over-allotment option is
exercised in full). As a result, these stockholders, acting together, will be
able to control most matters requiring approval by the stockholders of the
Company, including the election of directors, the adoption of charter
amendments, and the approval of mergers and other extraordinary corporate
transactions. Furthermore, seven out of the twelve current directors were
designated by Carl C. Icahn. In addition, as ofMarch 31, 1996, the management
and scientific officers of the Company owned stock options to purchase an
aggregate of 973,410 shares of Common Stock, of which options to purchase
394,995 shares were exercisable at such time. Such a concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company, including transactions in which stockholders might otherwise receive a
premium for their shares over then current market prices. See "Principal
Stockholders" and "Underwriting."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company's management will have broad discretion to allocate proceeds of
this offering to uses that it believes are appropriate. There can be no
assurance that the proceeds of this offering can or will be invested to yield a
positive return. See "Use of Proceeds".
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE
Future sales of substantial amounts of the Company's Common Stock in the
public market following this offering could adversely affect the market price of
the Common Stock. Upon completion of this offering, the Company will have
11,633,190 shares of Common Stock outstanding (including shares to be issued
upon conversion of the Convertible Preferred Stock upon completion of this
offering), assuming no exercise of the underwriters' over-allotment option or
currently outstanding options. All of the shares being sold pursuant to this
offering (plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) will be freely transferable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), unless they are held
by "affiliates" of the Company as that term is used under the Securities Act and
the regulations promulgated thereunder. The remaining 8,883,190 shares of Common
Stock that will be outstanding upon completion of the offering (the "Restricted
Shares") will be held by officers, directors, employees, consultants and other
stockholders of the Company. The Restricted Shares were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted securities" under the Securities Act. In addition to the
shares of Common Stock offered hereby, up to 475,004 of the Restricted Shares
may currently be eligible for sale in the public market pursuant to Rule 144(k)
under the Securities Act (of which at least 398,335
12
<PAGE>
shares are subject to the agreements not to sell described below). Beginning 90
days after the effective date of this offering (the "Effective Date"), at least
5,250,226 additional shares of Common Stock (including approximately 579,913
shares issuable upon the exercise of vested options) will become eligible for
sale in the public market pursuant to Rule 144 and Rule 701 under the Securities
Act (of which at least 5,088,140 shares are subject to the agreements not to
sell described below). Stockholders of the Company, holding in the aggregate at
least 8,774,852 Restricted Shares, have agreed, subject to certain limited
exceptions, not to sell or otherwise dispose of any of the shares held by them
for a period of 180 days after the Effective Date without the prior written
consent of Hambrecht & Quist LLC. At the end of such 180-day period, at least
6,970,138 shares of Common Stock (including approximately 662,094 shares
issuable upon exercise of vested options) will be eligible for immediate resale,
subject to compliance with Rule 144 and Rule 701. The remainder of the
approximately 8,883,190 shares of Common Stock held by existing stockholders
will become eligible for sale at various times over a period of less than two
years and could be sold earlier if the holders exercise any available
registration rights. The holders of 7,551,514 Restricted Shares have the right
in certain circumstances to require the Company to register their shares under
the Securities Act for resale to the public. If such holders, by exercising
their demand registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were
required to include in a Company initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights, such
sales might have an adverse effect on the Company's ability to raise needed
capital. In addition, the Company expects to file a registration statement on
Form S-8 after the expiration of 180 days following the Effective Date
registering a total of approximately 1,300,000 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the Company's stock
option plans. See "Management--Incentive Plans," "Shares Eligible for Future
Sale--Registration Rights" and "Underwriting."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. The initial offering
price will be determined by negotiations between the Company and the
Underwriters and is not necessarily indicative of the market price at which the
Common Stock of the Company will trade after this offering.
POSSIBLE VOLATILITY OF STOCK PRICE
The market prices for securities of biotechnology companies have been
highly volatile and the market has experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Announcements of technological innovations or new commercial products
by the Company or its competitors, developments concerning proprietary rights,
including patents and litigation matters, publicity regarding actual or
potential results with respect to products or compounds under development by the
Company or its collaborative partners, regulatory developments in both the
United States and foreign countries, changes in reimbursement policies,
developments in the Company's relationship with current or future collaborative
partners, if any, public concern as to the safety and efficacy of drugs
developed by the Company, its collaborative partners and its competitors, public
concern as to the efficacy of new technologies, general market conditions, as
well as quarterly fluctuations in the Company's revenues, if any, and financial
results and other factors, may have a significant effect on the market price of
the Common Stock. In particular, the realization of any of the risks described
in these "Risk Factors" could have an adverse effect on the market price of the
Company's Common Stock. See "Underwriting."
ANTI-TAKEOVER EFFECT OF DELAWARE CORPORATE LAW
Certain provisions of the Delaware corporate law may have the effect of
deterring hostile takeovers or delaying or preventing changes in the control or
management of the Company, including transactions in which stockholders might
otherwise receive a premium for their shares over the then current market
prices. See "Description of Capital Stock--Delaware Takeover Statute."
13
<PAGE>
DILUTION
The initial public offering price will be substantially higher than the
book value per share of Common Stock. Purchasers of the shares of Common Stock
offered hereby will therefore experience immediate and substantial dilution in
the net tangible book value of their investment from the initial offering price.
Additional dilution will occur upon exercise of outstanding options. See
"Dilution" and "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS
The Company has not paid any dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. See "Dividend Policy."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered by the Company hereby, are estimated to be $17,227,500
($19,912,875 if the Underwriters exercise their over-allotment option in full),
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The principal purposes of this offering are to increase the Company's
equity capital and to create a public market for the Company's Common Stock
which will facilitate future access by the Company to public equity markets as
well as create liquidity for its existing shareholders. The Company intends to
use the net proceeds for research and development, working capital and general
corporate purposes. The Company expects to expand its proprietary research, drug
discovery and drug development activities, including the further development of
its yeast-based and signal transduction platform technologies, its genomics
activities and its proprietary product development programs in cancer and
inflammation. The Company also expects to spend funds to recruit and employ
additional scientific and technical staff and to add capability in the area of
pre-clinical testing. Further, the Company plans to expand its facilities to
accommodate these additional staff, as well as to support additional activities
with collaborative partners. The Company also may spend funds on clinical
development activities for its proprietary product candidates, if any. The
Company may use a portion of its available cash to acquire technologies or
products under its strategy to continue to broaden its platform technologies.
The Company may use a portion of its available cash to acquire or invest in
companies complementary to its business. The Company is not currently in any
negotiations with respect to any such acquisitions or investments. Pending
application as described above, the Company intends to invest the net proceeds
of this offering in investment-grade, interest bearing securities.
The amount and timing of the Company's actual expenditures for the purposes
described above will depend upon a number of factors, including the Company's
ability to enter into additional collaborative or licensing arrangements focused
on its drug discovery programs, as well as the timing of and terms governing
such arrangements. In addition, the Company's research and development
expenditures will vary as programs are expanded or abandoned and as a result of
variability in funding from its collaborative partners.
The Company's management will have broad discretion to allocate proceeds of
this offering to uses that it believes appropriate. There can be no assurance
that the proceeds of this offering can or will be invested to yield a positive
return.
The Company believes that the net proceeds from this offering, together
with its existing resources, will be sufficient to satisfy its capital needs
through the end of 1999. Companies in the biotechnology industry generally
expend significant capital resources in product research and development. The
Company expects that additional equity or debt financings will be required to
fund its operations.
DIVIDEND POLICY
The Company has not paid any dividends since its inception and does not
anticipate paying any dividends on its Common Stock in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996: (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the Company,
giving effect to the conversion of all outstanding Convertible Preferred Stock
into Common Stock at the closing of this offering; and (iii) the capitalization
of the Company on an as adjusted basis to reflect the issuance and sale by the
Company of 2,750,000 shares of Common Stock offered hereby at the initial
public offering price of $7.00 per share.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(in thousands)
<S> <C> <C> <C>
Bank loans and line of credit (1) ............................................... $ 2,422 $ 2,422 $ 2,422
-------- -------- --------
Stockholders' equity:
Convertible Preferred Stock, $0.001 par value; 22,201,080 shares authorized,
22,201,080 shares issued and outstanding, actual; no shares issued and
outstanding,
pro forma and as adjusted .................................................... 22 -- --
Common Stock, $0.01 par value; 35,000,000 shares authorized; 1,473,343 shares
issued and 1,331,676 shares outstanding, actual; 9,024,857 shares issued and
8,883,190 outstanding, pro forma; 11,774,857 shares
issued and 11,633,190 outstanding, as adjusted (2) ............................ 15 90 118
Additional paid-in capital ..................................................... 33,988 33,935 51,135
Accumulated deficit ............................................................ (6,034) (6,034) (6,034)
Treasury stock, at cost (141,667 shares) ....................................... (300) (300) (300)
-------- -------- --------
Total stockholders' equity ................................................... 27,691 27,691 44,919
-------- -------- --------
Total capitalization ....................................................... $ 30,113 $ 30,113 $ 47,341
======== ======== ========
</TABLE>
- ----------
(1) As of March 31, 1996, the current portion of the debt included herein
totaled $2,397,459.
(2) Excludes 1,289,035 shares of Common Stock issuable upon the exercise of
stock options outstanding at March 31, 1996, at a weighted average exercise
price of $1.98, of which options to purchase 505,756 shares were
immediately exercisable on such date.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock at March 31,
1996, was approximately $27,452,000, or $3.09 per share. Pro forma net tangible
book value per share represents the amount of total tangible assets of the
Company less total liabilities, divided by 8,883,190, the number of shares of
Common Stock outstanding as of March 31, 1996, after giving effect to the
conversion of all outstanding shares of Convertible Preferred Stock into an
aggregate of 7,551,514 shares of Common Stock upon completion of this offering.
After giving effect to the sale of the 2,750,000 shares of Common Stock offered
hereby at the initial public offering price of $7.00 per share and after
deducting the underwriting discounts and estimated offering expenses, the
adjusted pro forma net tangible book value of the Company at March 31, 1996,
would have been $44,680,000 or $3.84 per share of Common Stock. This represents
an immediate increase in pro forma net tangible book value per share of $0.75 to
existing stockholders and an immediate dilution per share of $3.16 to new
investors purchasing shares in this offering. The following table illustrates
the per share dilution described above:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share ................................... $ 7.00
Pro forma net tangible book value per share at March 31, 1996 ........... $3.09
Increase attributable to new investors .................................. 0.75
----
Adjusted pro forma net tangible book value per share after this Offering .. 3.84
------
Dilution to new investors ................................................. $ 3.16
======
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1996,
the number of shares of Common Stock purchased from the Company, the total cash
consideration paid for such shares and the average consideration paid per share
by the existing stockholders and by investors purchasing shares offered by the
Company hereby. The following computations are based on the initial public
offering price of $7.00 per share before deduction of the underwriting discount
and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
------------------- ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ................ 8,883,190 76.4% $34,453,115 64.2% $3.88
New investors ........................ 2,750,000 23.6 19,250,000 35.8 7.00
---------- ----- ----------- -----
Total ............................... 11,633,190 100.0% $53,703,115 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables exclude 1,289,035 shares of Common Stock reserved as
of March 31, 1996, for issuance upon the exercise of options outstanding as of
such date at a weighted average price per share of $1.98. At March 31, 1996,
options to purchase 505,756 shares of Common Stock were exercisable. To the
extent that options granted in the future become vested and are exercised, there
could be further dilution to new stockholders. See "Capitalization," "Management
- -- Incentive Plans," and "Underwriting."
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1995, 1994,
1993 and 1992, and for each of the years in the three-year period ended December
31, 1995, and for the period from January 23, 1992 (date of inception) to
December 31, 1992, are derived from the financial statements of the Company,
which financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The financial statements as of
December 31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, and the report thereon, are included elsewhere in this
Prospectus. The balance sheet data as of March 31, 1996 and the statement of
operations data for the three months ended March 31, 1996 and 1995 are derived
from unaudited financial statements included elsewhere in this Prospectus. The
unaudited financial statements include all adjustments that the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996. The selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and related notes thereto included elsewhere in this Prospectus. The
historical results are not necessarily indicative of the results of operations
to be expected in the future.
<TABLE>
<CAPTION>
JANUARY 23, JANUARY 23,
1992 THREE MONTHS 1992
(DATE OF ENDED (DATE OF
YEAR ENDED DECEMBER 31, INCEPTION) TO MARCH 31, INCEPTION) TO
------------------------------- DECEMBER 31, ----------------- MARCH 31,
1995 1994 1993 1992 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................... $ 4,418 $ 1,355 $ -- $ -- $ 1,625 $ 1,000 $ 7,397
Operating costs and expenses:
Research and development ................. 5,383 2,246 1,645 753 1,654 1,040 11,683
General and administrative ............... 1,376 937 550 214 318 317 3,394
------- ------- -------- ------ ------- ------- -------
Total operating costs and
expenses ................................. 6,759 3,183 2,195 967 1,972 1,357 15,077
Operating loss ............................. (2,341) (1,828) (2,195) (967) (347) (357) (7,680)
Net loss (1) ............................... $(1,482) $(1,393) $ (2,148) $ (967) $ (43) $ (155) $(6,034)
======= ======= ======== ====== ======= ======= =======
Pro forma net loss per share (2) ........... $ (0.16) $ 0.00
======= =======
Pro forma weighted average
shares outstanding (2) ................... 9,132,577 9,076,960
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------- ---------
1995 1994 1993 1992 1996
---- ---- ---- ---- ----
(in thousands) (Unaudited)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents (3) ..................... $ 25,683 $ 14,406 $ 3,568 $ 4 $ 25,086
Total assets ...................................... 30,725 15,740 3,962 113 30,585
Short-term debt ................................... 2,397 203 6 -- 2,397
Loans payable to bank ............................. 29 46 12 -- 25
Convertible Preferred Stock ....................... 22 18 15 -- 22
Deficit accumulated during the development stage .. (5,991) (4,508) (3,115) (967) (6,034)
Stockholders' equity (deficit) .................... 27,723 14,534 3,491 (963) 27,691
</TABLE>
- ----------
(1) The net loss of $1.4 million for the year ended December 31, 1994 includes
an extraordinary gain of approximately $159,000 from the early
extinguishment of a debt obligation.
(2) Computed as described in Note 2 of Notes to Financial Statements.
(3) Does not include restricted cash of $2.5 million at March 31, 1996 and
December 31, 1995, and $305,000 at December 31, 1994.
(4) The Company has not paid any dividends since its inception and does not
anticipate paying any dividends on its Common Stock in the foreseeable
future.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in 1992 and has devoted substantially all of
its resources to the development and application of novel yeast-based and signal
transduction drug discovery technologies. The Company has financed its
operations primarily through the sale of Convertible Preferred Stock. To date,
all of the Company's revenues have resulted from research funding provided by
its collaborative partners. As of March 31, 1996, the Company had total
stockholders' equity of approximately $27.7 million.
The Company has incurred operating losses in each year since its inception,
including net losses of approximately $1.5 million during the year ended
December 31, 1995. At March 31, 1996, the Company had an accumulated
deficit of approximately $6.0 million. The Company's losses have resulted
principally from costs incurred in research and development and from general and
administrative costs associated with the Company's operations. These costs have
exceeded the Company's revenues and interest income. The Company expects to
incur substantial additional operating losses over the next several years as a
result of increases in its expenses for research and product development.
The Company entered into research collaborations with Bristol-Myers Squibb
and Solvay Duphar in July, 1994 and November, 1995, respectively. These
collaborations have provided the Company with equity investments aggregating
$27.5 million and research funding of $7.4 million through March 31, 1996. The
$7.4 million of research funding was utilized to fund through March 31, 1996
the research projects undertaken with Bristol-Myers Squibb and Solvay Duphar in
accordance with the respective collaboration agreements. In addition, the
Company is entitled to payments upon the achievement of certain milestones and
royalties based upon the net sales of any drugs developed from compounds
identified or confirmed using the Company's technologies.
The Company currently receives research funding under each of these
agreements. Research funding is received quarterly based on predetermined
funding requirements and is recognized as revenue when earned as a result of
work completed. The Company does not expect to receive significant milestone
payments or any royalties for a number of years, if at all. See "Risk
Factors-Dependence on Collaborative Partners", "-History of Operating Losses;
Quarterly Fluctuations; Uncertainty of Future Profitability" and "-Government
Regulation."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and March 31, 1995
Revenues
Revenues for the three months ended March 31, 1996 increased to $1.6
million from $1.0 million for the same period in 1995. This increase was
attributable to the inclusion in 1996 of research funding from Solvay Duphar.
Operating Expenses
The Company's research and development expenses for the three months ended
March 31, 1996 increased to $1.7 million from $1.0 million for the same period
in 1995. This increase was attributable primarily to an increase in staffing
related to implementation of the research collaboration with Solvay Duphar, as
well as expenses in connection with licenses from third parties.
General and administrative expenses for the three months ended March 31,
1996 increased to $318,000 from $317,000 for the same period in 1995.
Interest Income
Net interest income for the three months ended March 31, 1996 increased to
$321,000 from $209,000 for the same period in 1995. This increase related
primarily to interest earned on the net proceeds from the sale of Series B
Convertible Preferred Stock ("Series B Preferred Stock") in September 1995 and
November 1995, net of interest expense on a line of credit and bank loans.
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<PAGE>
Net Loss
The net loss for the three months ended March 31, 1996 decreased to $43,000
from $155,000 for the same period in 1995. The decrease can be attributed to the
increase in interest earned on the net proceeds from the sale of Series B
Preferred Stock in September 1995 and November 1995.
Fiscal Years Ended December 31, 1995 and 1994
Revenues
Revenues for 1995 increased to $4.4 million from $1.4 million in 1994. This
increase was attributable to receipt in 1995 of a full year of research funding
from Bristol-Myers Squibb and the commencement in November 1995 of research
funding from Solvay Duphar.
Operating Expenses
The Company's research and development expenses for 1995 increased to $5.4
million from $2.2 million in 1994. This increase was attributable primarily to
an increase in staffing and laboratory supplies related to implementation of the
research collaborations with Bristol-Myers Squibb and Solvay Duphar, and, to a
lesser extent, to expenses related to facilities and equipment as a result of
the Company's move to expanded facilities in December 1994.
General and administrative expenses for 1995 increased to $1.4 million from
$937,000 in 1994. This increase resulted primarily from an increase in staffing
and facilities expenses related to the Company's expansion of its operations in
conjunction with its relocation to its new facilities.
Interest Income
Net interest income for 1995 increased to $903,000 from $314,000 in 1994.
This increase related primarily to interest earned on the net proceeds from the
sale of Series B Preferred Stock in July 1994, September 1995 and November 1995,
net of interest expense on a line of credit and bank loans.
Net Loss
The net loss for 1995 increased to $1.5 million from $1.4 million in 1994.
The 1994 loss of $1.4 million was net of an extraordinary gain from the early
extinguishment of a debt obligation.
Fiscal Years Ended December 31, 1994 and 1993
Revenues
Revenues in 1994 increased to $1.4 million from $0 in 1993. This increase
was due to the commencement in June 1994 of research funding from Bristol-Myers
Squibb.
Operating Expenses
The Company's 1994 research and development expenses increased to $2.2
million from $1.6 million in 1993. This was primarily attributable to an
increase in staffing and laboratory supplies in conjunction with the
implementation of the research collaboration with Bristol-Myers Squibb, as well
as to increased expenditures in connection with licenses from third parties and
the sponsorship of research at academic institutions.
General and administrative expenses in 1994 increased to $937,000 from
$550,000 in 1993. This increase was due primarily to an increase in corporate
development staffing and activities.
Interest Income
Net interest income in 1994 increased to $314,000 from $48,000 in 1993.
This increase was primarily attributable to interest earned on the net proceeds
from the sale of Series B Preferred Stock in July 1994.
Net Loss
The net loss in 1994 decreased to $1.4 million from $2.1 million in 1993.
The 1994 results were net of an extraordinary gain of $159,000 resulting from
the early extinguishment of a debt obligation.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through the sale
of Convertible Preferred Stock and from research funding from its collaborative
partners. Through March 31, 1996, the Company had sold Convertible Preferred
Stock for $31.9 million in cash and $2.0 million in satisfaction of
indebtedness. In addition, the Company had received $7.4 million in revenues for
research funding.
The Company also has established a $2.5 million secured line of credit with
a bank, of which borrowings of $2.4 million were outstanding as of March 31,
1996. All obligations of the Company with respect to this line of credit are
secured pursuant to a security agreement granting the bank a first and prior
security interest in the Company's negotiable certificates of deposit held by
the bank. Such certificates of deposit have been recorded in the balance sheet
as "Restricted Cash." The right to borrow additional amounts under the line of
credit expired on June 30, 1996. The $2.4 million outstanding at June 30,
1996 is payable on demand.
As of March 31, 1996, the Company had cash and cash equivalents of $25.1
million and restricted cash of $2.5 million.
The Company has invested $3.1 million in property and equipment, including
purchases amounting to $198,000 in the three months ended March 31, 1996, $1.9
million in 1995, $605,000 in 1994 and $249,000 in 1993. The Company expects
capital expenditures to increase over the next several years as it expands
facilities to support the planned expansion of research and development efforts.
The Company leases laboratory and office facilities in Tarrytown, New York
and Lakewood, Colorado under agreements expiring December 30, 1997 and March 9,
1997, respectively. The aggregate minimum annual payment under the leases is
$684,000.
The Company intends to increase its expenditures substantially over the
next several years to enhance its technologies and pursue internal proprietary
drug discovery programs. The Company believes that its existing capital
resources, together with the net proceeds from this offering, interest income
and future payments due under its research collaborations, will be sufficient to
support its current and projected funding requirements through the end of 1999.
The Company's capital requirements may vary as a result of a number of factors,
including the progress of its drug discovery programs, competitive and
technological developments, the continuation of its existing collaborative
agreements and the establishment of additional collaborative agreements, and the
progress of the development efforts of the Company's corporate partners. The
Company expects that it will require significant additional financing in the
future, which it may seek to raise through public or private equity offerings,
debt financings or additional corporate partnerships. No assurance can be given
that such additional financing will be available when needed or that, if
available, such financing will be obtained on terms favorable to the Company. To
the extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities could result in
dilution to the Company's stockholders.
At December 31, 1995, the Company had tax net operating loss carryforwards
of approximately $5.4 million and research and development credit carryforwards
of approximately $431,000 which expire in years 2007 through 2011. The Company's
ability to utilize such net operating loss and research and development credit
carryforwards is subject to certain limitations due to ownership changes as
defined by rules enacted with the Tax Reform Act of 1986.
Recently issued accounting standards may affect the Company's Financial
Statements in the future. See Note 14 of Notes to Financial Statements.
21
<PAGE>
BUSINESS
Cadus Pharmaceutical Corporation is engaged in the discovery of novel small
molecule therapeutics that act on targets in human cell signaling pathways. The
Company has developed proprietary drug discovery technologies based on
genetically engineered yeast cells. Cadus uses these and other proprietary
technologies to identify human cell surface receptors and other molecular
targets, to elucidate the function of such targets and to identify lead
compounds that act on such targets. The Company conducts drug discovery programs
both independently and with its collaborative partners, Bristol-Myers Squibb
Company ("Bristol-Myers Squibb") and Solvay Duphar B.V. ("Solvay Duphar").
Cadus is a leader in the development of proprietary technologies that
exploit the similarities between yeast and human genes to elucidate gene
function and cell signaling pathways. The Company has developed four proprietary
drug discovery technologies. Two of these technologies are used to identify
small molecules that act as agonists or antagonists to cell surface receptors
and other targets in the signal transduction pathway: (i) a hybrid yeast cell
technology that expresses a functioning human receptor and a portion of its
signaling pathway in a yeast cell and (ii) the Autocrine Peptide Expression
("APEX") system that expresses a known human ligand in a hybrid yeast cell as
well as the receptor that is activated by that ligand. The other two
technologies are used to identify and characterize receptors whose ligand and
hence function are not known (which are called orphan receptors), ligands and
key signaling molecules: (i) the Company's Self Selecting Combinatorial Library
("SSCL") technology, which is used to identify a ligand that activates a
targeted orphan receptor and (ii) the Company's signal transduction
technologies, which are used to determine potential molecular targets in the
human cell signaling pathway and to assist in the determination of a receptor's
biological function.
BACKGROUND
The human body is comprised primarily of specialized cells that perform
different physiological functions and that are organized into organs and
tissues. All human cells contain DNA, which is arranged in a series of subunits
known as genes. It is estimated that there are approximately 100,000 genes in
the human genome. Genes are responsible for the production of proteins. Proteins
such as hormones, enzymes and receptors are responsible for managing most of the
physiological functions of humans, including regulating the body's immune
system. Thus, genes are the indirect control center for all physiological
functions. Over the last few decades, there has been a growing recognition that
many major diseases have a genetic basis. It is now well established that genes
play an important role in cancer, cardiovascular disease, psychiatric disorders,
obesity, and metabolic diseases. Significant resources are being focused on
genomics research based on the belief that the sequence and function of a gene,
and the protein that gene expresses, will lead to an understanding of that
gene's role in the functioning and malfunctioning of cells. This understanding
is expected in turn to lead to therapeutic and diagnostic applications focused
on molecular targets associated with the gene and the protein it expresses.
Cell surface receptors are an important class of proteins involved in
cellular functioning because they are the primary mediators of cell to cell
communication.Their location on the cell surface also makes them the most
accessible targets for drug discovery. Cellular communication occurs when one
cell releases a chemical messenger, called a "ligand," which communicates with
another cell by binding to and activating the receptor on the exterior of the
second cell. Typically, a ligand binds only with one specific receptor. This
binding event activates the receptor triggering the transmission of a message
through a cascade of signaling molecules from the exterior to the interior of
the cell. This process is called signal transduction. When the signal is
transmitted into the interior of the cell, it may, among other things, activate
or suppress specific genes that switch on or switch off specific biological
functions of the cell. The biological response of the cell, such as the
secretion of a protein, depends primarily on the specific ligand and receptor
involved in the communication.
22
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[GRAPHICAL REPRESENTATION OF CELL MEMBRANE]
DIAGRAM: SIGNAL TRANSDUCTION IS THE PROCESS BY WHICH A SIGNAL IS
TRANSMITTED FROM THE EXTERIOR OF THE CELL TO ITS INTERIOR, CAUSING THAT
CELL TO CHANGE ITS BIOLOGICAL BEHAVIOR. LIGAND-RECEPTOR BINDING LEADS TO A
SIGNAL BEING TRANSMITTED TO THE INTERIOR OF THE CELL VIA A CASCADE OF
SIGNALING MOLECULES. THE SIGNAL CAN CAUSE A DIRECT BIOLOGICAL RESPONSE BY
THE CELL WITHOUT ACTIVATING THE CELL'S GENES OR CAN ACTIVATE OR DEACTIVATE
GENES IN THE NUCLEUS, WHICH IN TURN TRIGGER A BIOLOGICAL RESPONSE.
Many diseases, such as cancer, stem from the malfunctioning of cellular
communication. Efforts to treat a particular disease often concentrate on
developing drugs that interact with the receptor or signaling pathway believed
to be associated with the malfunction. These drugs work by inhibiting or
enhancing the transmission of a signal through the cascade of signaling
molecules triggered by the receptor. Drugs that inhibit signal transduction by
blocking a receptor or the intracellular proteins that carry the signal sent by
a receptor are called antagonists and those that enhance signal transduction by
stimulating a receptor or associated intracellular proteins are called agonists.
Human cells carry many different types of receptors. Receptors are
classified into groups based upon similarities in their chemistry and structure.
Some of the major receptor groups involved in signal transduction are: G
protein-coupled receptors, cytokine receptors, tyrosine kinase coupled receptors
and multisubunit immune recognition receptors. G protein-coupled receptors,
which are located on the surface of the cell, constitute the largest group of
receptors. In humans, G protein-coupled receptors are involved in many of the
body's most basic functions, including heartbeat, sight, sense of smell,
cognition and behavior and also mediate most of the body's basic responses such
as secretion from glands, contractility of blood vessels, movement of cells,
growth and cell death. Tyrosine kinase coupled receptors are involved in cell
growth and differentiation. Multisubunit immune recognition receptors activate
the body's immune defense system.
There are an estimated 2,000 to 5,000 genes encoding G protein-coupled
receptors in the human genome. The sequences and functions of approximately 100
of these genes have been identified. This knowledge has been used to help
identify the sequence of an additional approximately 100 genes encoding orphan G
protein-coupled receptors. As a result of the sequences being identified as part
of the Human Genome Project, it is expected that all remaining G protein-coupled
receptor genes will be sequenced over the next few years. Even after the gene
sequence of an orphan receptor has been identified, it generally cannot become
the subject of drug discovery efforts until its biological function is
determined and its role in disease processes identified.
The importance of G protein-coupled receptors is demonstrated by the fact
that more than 60% of all commercially available prescription drugs work by
interacting with G protein-coupled receptors. These drugs include the anti-ulcer
agents Zantac and Tagamet, as well as the cardiac drugs Tenormin and Lopressor.
Many of these drugs were developed through the application of time consuming and
expensive trial and error methods without an understanding of the chemistry and
structure of the G protein-coupled receptors with which they
23
<PAGE>
interact. More efficient drug discovery methods are available once the gene
sequence, biological function and role in disease processes of a G
protein-coupled receptor have been determined. The Company believes that the
identification of the gene sequences and functions of the remaining receptors
will yield a substantial number of potential drug discovery targets.
Traditional Drug Discovery
Drug discovery consists of three key elements: (i) the target, such as a
receptor, on which the drug will act, (ii) the potential drug candidates, which
include organic chemicals, proteins or peptides, and (iii) the assays or tests
to screen these compounds to determine their effect on the target.
Historically, drug discovery has been an inefficient and expensive process.
Traditional drug discovery has been hampered by the limited number of known
targets and a reliance on in vitro assays as a format in which to test
compounds. Until scientists began to define the molecular structure of receptors
and ligands, there was no simple method to determine the function of such
molecules in the cell and, therefore, their utility as drug discovery targets.
Even when the target's molecular structure is known, incorporating that target
effectively into an in vitro assay can be difficult. For example, all known G
protein-coupled receptors are woven through the cell membrane seven times in a
very complex, looped structure that cannot be maintained when the isolated
protein is put into an in vitro assay format. If an assay does not accurately
replicate the structure of a target receptor, the compounds identified in the
assay may not function as expected when applied to the target receptor on a
living cell. Furthermore, receptors, signal transduction proteins and other
molecular targets for therapeutic intervention do not exist in isolation in the
cell. Their functional activity results from a complex interrelationship with
numerous other molecules within the cell. Consequently, traditional drug
screening assays often identify compounds as potential drug candidates which,
when tested in living cells, prove to have no useful activity or are even toxic.
A variety of methods have been developed to address these problems, including
using living cells in assays. However, most live cell assays are slow, complex
and expensive to maintain.
In recent years, scientific advances have created new and improved tools
for drug discovery. For example, molecular biology is identifying a growing
number of targets and their gene sequences. Cells have been genetically
engineered to produce assays that more effectively replicate the physiological
environment of a living organism. Robotics have enabled the creation of
high-throughput screening systems. Combinatorial chemistry has enhanced the
ability to optimize lead compounds by improving their pharmacological
characteristics. However, due to the complexity of G protein-coupled receptors
and limited knowledge of their gene sequences and function, these advances do
not offer a comprehensive, rapid and cost effective approach to the
identification of drug discovery candidates targeted at G protein-coupled
receptors.
Yeast
Yeast is a single-celled microorganism that is commonly used to make bread,
beer and wine. In the 1980's, scientists discovered structural and functional
similarities between yeast cells and human cells. Both yeast and human cells
consist of a membrane, an intracellular region and a nucleus containing genes.
Basic cellular processes, including metabolism, cell division, DNA and RNA
synthesis and signal transduction, are the same in both human and yeast cells.
Yeast also have signal transduction pathways that function similarly to human
cell pathways. More than 40 percent of all human gene classes have functional
equivalents in yeast. The genes in yeast express proteins, including
cell-surface receptors such as G protein-coupled receptors and signaling
molecules such as protein kinases, that are similar to human proteins.
The Company believes that yeast cells have several important
characteristics that are useful in drug discovery.
o The strong correlation between human and yeast gene classes enables the
evaluation of the biological function of human proteins, including
receptors and signaling molecules, of unknown function. Proteins with
comparable gene sequences frequently carry out similar functions. This fact
can be used to determine the function of a human gene by genetically
engineering a yeast cell to replace a yeast gene coding for a known
function with the human gene suspected of having a comparable function. If
the yeast cell retains its normal function, it suggests that the human gene
and its protein have a biological function similar to that of their yeast
counterparts. Consequently, genetically-engineered yeast cells can
replicate human gene function and provide a biologically
24
<PAGE>
relevant context for evaluating interactions between receptors and their
related signaling pathways.
o Recently, the yeast genome has been fully sequenced. This knowledge will
enable full analysis of the correlation between yeast and human gene
structure and may aid in the definition of human gene functions.
o While the yeast signaling mechanism bears many similarities to the human
signaling mechanism, the yeast intracellular environment is less complex,
thus eliminating much of the ancillary and redundant intracellular
signaling pathways that exist in human cells.
o Yeast have the ability to absorb DNA fragments and incorporate them into
their genome. As a result, their genetic structure can be easily
manipulated using common genetic engineering techniques.
o Yeast cells replicate rapidly. Speed of replication is particularly
important because creating a new yeast strain that successfully
incorporates new genetic material and adapts to new conditions may take
several generations and the strain that so adapts is identifiable by
growth. In addition, because a yeast cell reproduces itself every two
hours, compared with 24 to 48 hours for mammalian cells, a drug screening
process using yeast can be developed and evaluated much faster than one
using human cell assays.
o Yeast can be easily and inexpensively grown in the laboratory using
standard microbiological techniques and, as a consequence, can readily be
used in automated screening systems.
o Yeast are resistant both to the solvents often needed to dissolve
potentially active compounds and the toxins often found in natural
products. Consequently, hybrid yeast cells can be used to screen libraries
of synthetic compounds, combinatorial chemicals or natural products.
CADUS' DRUG DISCOVERY AND DEVELOPMENT STRATEGY
The Company's goal is to discover and develop novel small molecule drugs
targeted to receptors and signaling molecules. The following are the key
elements of the Company's strategy:
o Develop Proprietary Yeast-Based Drug Discovery Technologies. The Company
manipulates the yeast genome by inserting human genes into yeast cells to
create hybrid yeast strains as a novel drug discovery platform.
o Identify Novel Orphan Receptor Targets. The Company uses its proprietary
yeast-based and signal transduction technologies to determine the
biological function of orphan receptors in human cells and to determine
whether they are appropriate drug discovery targets.
o Identify Novel Targets in Signal Transduction Pathways. The Company uses
its proprietary signal transduction technologies to identify new signaling
molecules in signal transduction pathways and to determine whether they are
appropriate drug discovery targets.
o Conduct Proprietary Drug Discovery and Development Programs. The Company
conducts proprietary drug discovery programs to identify novel targets and
lead compounds. The Company intends to develop selected lead compounds
through the preclinical testing stage.
o Collaborate with Pharmaceutical Companies. The Company collaborates with
pharmaceutical companies in order to combine its drug discovery
capabilities with its collaborators' research, drug development,
manufacturing, marketing and financial resources. The Company is currently
engaged in collaborations with Bristol-Myers Squibb and Solvay Duphar.
CADUS' DRUG DISCOVERY PLATFORM
The Company has developed a novel platform for drug discovery that
addresses many of the limitations of traditional drug discovery methods. This
platform consists of four proprietary drug discovery technologies: two that are
used to screen for compounds that act as agonists or antagonists to cell surface
receptors and other molecules in the signal transduction pathway, and two that
are used to identify and characterize orphan receptors, ligands and key
signaling molecules.
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Hybrid Yeast Cells
The Company has developed a proprietary technology to insert human genes
into yeast cells to create hybrid yeast cells. Initially, the Company has
focused its hybrid yeast cell technology primarily on G protein-coupled
receptors. The Company's scientists typically create hybrid yeast cells by
replacing yeast G protein-coupled receptor genes and certain signaling molecules
with their human equivalents. As a result, these hybrid yeast cells express a
human G protein-coupled receptor and a portion of its signaling pathway. The
Company uses these hybrid yeast cells to identify those compounds that act as
agonists or antagonists to that receptor or a molecule that is in its signaling
pathway. The Company has also created hybrid yeast cells using other classes of
human cell-surface receptors that have a functional equivalent in yeast. Because
different yeast strains accept particular human proteins more readily than
others, the Company has designed and developed tens of thousands of genetically
different yeast strains that are used to build novel hybrid yeast cells.
The Company believes that hybrid yeast cells are highly effective for
screening compounds. Hybrid yeast cells can be used to measure the biological
activity of the human signaling pathway in which intervention is desired. In
addition, hybrid yeast cells contain a single human receptor which connects to a
defined signaling pathway. Accordingly, a specific change in cell behavior, such
as replication, is easily monitored and can be attributed to the compound being
tested. Also, because the Company is able to insert different human genes into
yeast, hybrid yeast cells enable the Company to identify compounds that act at
virtually any site in the human cell signaling pathway. These sites include the
ligand binding site on the receptor, as well as other sites on the receptor, and
the protein components of individual signaling pathways. Moreover, because yeast
are resistant to solvents and toxins often used to dissolve test compounds,
hybrid yeast cells can be used to screen synthetic organic libraries,
combinatorial libraries and natural product libraries. Finally, the Company uses
hybrid yeast cells to perform inexpensive high throughput screening of compound
libraries.
Autocrine Peptide Expression System (APEX)
The Company has extended its hybrid yeast cell technology to develop a
novel drug screening technology. Biological signaling frequently involves the
concerted behavior of at least two cells: one that sends the signal and a second
that receives and responds to that signal. The Company's scientists have
converted this natural multi-cell process into a single cell process by
inserting into a hybrid yeast cell both the gene for a human G protein-coupled
receptor and the gene for the ligand that naturally binds to the receptor being
expressed by the same hybrid yeast cell. As a result, the Company's scientists
have made the cell self-stimulating, or "autocrine," in that it both sends a
signal through production and secretion of a ligand and responds, by
replication, to that same signal through the receptor. The Company believes that
the autocrine nature of the APEX system makes it an effective tool for the
identification of compounds that act as agonists or antagonists with respect to
that receptor or a molecular target in its signaling pathway. As a result, drug
screening may be conducted in an accelerated, cost effective process as compared
to conventional screening techniques.
Self Selecting Combinatorial Library Technology (SSCL)
The Company has developed and is using a systematic approach to determine
the biological function of orphan receptors and demonstrate their value as drug
discovery targets. The critical first step in this approach is to identify a
ligand that activates the orphan receptor. The Company accomplishes this by
using its proprietary SSCL technology. The SSCL technology involves the creation
of a library of peptides encoded in DNA, called a combinatorial peptide
expression library. This library is inserted into a strain of hybrid yeast
cells. All of the cells in this strain express the same orphan receptor. As a
result, each of the millions of yeast cells in the strain incorporates a
different peptide encoded in DNA, resulting in the expression or production of a
different peptide by each yeast cell. This peptide is then secreted through the
cell membrane. Most of the secreted peptides have no effect on the orphan
receptor and the hybrid yeast cells producing these peptides do not replicate.
The Company estimates that one in a million hybrid yeast cells generates a
peptide ligand that activates the orphan receptor. These particular hybrid yeast
cells replicate and, therefore, are readily identified. Thus, the SSCL
technology uses self selection to identify the ligand that binds to the targeted
orphan receptor. The sequence of the peptide ligand can then be rapidly
identified and undergo further evaluation. The Company's combinatorial peptide
expression libraries contain approximately one hundred million peptides. One to
ten million peptides can be tested in a matter of hours. The Company has used
its SSCL technology to successfully identify ligands to orphan receptors in less
than a week, significantly accelerating traditional drug discovery efforts.
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Once the Company has identified a ligand that activates an orphan receptor,
the Company uses a number of different approaches to determine the biological
significance of the orphan receptor. These include testing the ligand on human
cells, in animals and on human tissue. In addition, the Company uses its signal
transduction technologies to determine the human cell signaling pathway that is
linked to the orphan receptor in order to thereby determine whether to focus
drug discovery efforts at the receptor or in the signaling pathway.
Signal Transduction Technologies
The Company has developed signal transduction technologies, based on
genetically engineered human cells, to complement its yeast-based technologies.
The Company uses these signal transduction technologies to dissect human cell
signaling pathways from the receptor to the interior of the cell. As a result,
the Company can confirm the effectiveness of compounds identified through the
use of hybrid yeast cells and ligands identified by the SSCL technology and
determine where and how compounds and ligands modulate the signaling pathway.
Potential sites of action by a compound include the receptor itself or molecules
downstream in the receptor's signal transduction pathway. Accordingly, each
molecule in the signaling pathway may be a potential target for drug discovery.
Traditional drug discovery has resulted in several successful drugs that are now
known to target such molecules in the signaling pathway, including the
immunosuppressants Cyclosporin A and FK506. For this reason, the Company is
pursuing such molecules as potential targets for drug discovery. The Company's
scientists have used the Company's signal transduction technologies to develop
proprietary assays to identify antagonists of specific molecular targets, as
well as to identify new molecular targets in the signaling pathway. The Company
also uses its yeast-based and human cell-based technologies to determine the
function of such newly identified signaling molecules.
The Company's scientists have used the Company's signal transduction
technologies to discover, sequence and characterize a series of related MEKK
enzymes that are part of the inflammatory signaling pathway in human white blood
cells. MEKK enzymes regulate the synthesis and secretion from white blood cells
of cytokines, some of which are inflammation inducing proteins. MEKK enzymes
have also been shown to play a central role in regulating cell growth and cell
death in a variety of cell types, including cancer. The Company is the exclusive
worldwide licensee of a patent on a MEKK enzyme. The Company believes that MEKK
enzymes are important targets for drug discovery.
Other Drug Discovery Technologies
Information technology is an important tool in the Company's drug discovery
strategy. The gene sequence of the entire yeast genome and large portions of the
human genome are available on public databases. The Company uses a variety of
software in combination with its extensive knowledge of the structure of G
protein-coupled and other receptors to search these databases for previously
unrecognized human receptors that represent potential drug discovery targets and
for correspondences between gene sequences in the human and yeast genomes. The
Company believes that this use of information technology will result in more
focused and productive drug discovery programs.
The Company uses a variety of other drug discovery tools, such as high
throughput screening and combinatorial chemistry. High throughput screening is
the practice of rapidly testing thousands of compounds against a target assay by
using computer controlled robotics. Cadus has developed a proprietary laboratory
information system to handle the vast quantity of data generated. Combinatorial
chemistry techniques optimize a compound's pharmacological characteristics once
it has been identified as a drug candidate. Optimization involves improving the
potency, stability, bioavailability and toxicity characteristics of a lead
compound by synthesizing new compound analogs.
The Company's drug discovery strategy includes the screening of compound
libraries. Access to large libraries of diverse compounds is, therefore, an
important aspect of the Company's drug discovery efforts. The Company assembles
combinatorial chemical libraries from readily available and inexpensive chemical
building blocks. In addition, the Company has acquired its own synthetic organic
compound library. The Company also has access to the compound libraries of
Bristol-Myers Squibb and Solvay Duphar and the combinatorial libraries of
Houghten Pharmaceuticals, Inc. ("Houghten").
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CADUS' PROPRIETARY DRUG DISCOVERY PROGRAM
The Company is conducting proprietary drug discovery programs to identify
novel targets and lead compounds. The Company has directed these efforts to G
protein-coupled receptors, G proteins, tyrosine kinase coupled receptors,
multisubunit immune recognition receptors, cytokine receptors, phosphotyrosine
phosphatases and certain other intracellular signaling molecules, including MEKK
enzymes, as potential targets for a variety of therapeutic areas. These
therapeutic areas are allergic inflammation, acute inflammation and cancer, with
a specific focus on allergic asthma and small-cell lung carcinoma. There can be
no assurance that the Company's drug discovery efforts will lead to the
discovery of lead compounds in these therapeutic areas.
Allergic Inflammation. Approximately 20% of the population of the United
States suffers from time to time from some form of allergic inflammation. The
best known form of allergic inflammation is asthma. Approximately 14 million
people each year suffer from asthma in the United States. Asthma and other
allergic responses result from a complex series of physiological events
involving signaling by chemokine, IgE and cytokine receptors, with IgE receptor
signaling initiating the allergic response. Chemokine receptors are G
protein-coupled receptors. IgE receptors and cytokine receptors are coupled to
specific tyrosine kinases, which are proteins in the signaling cascade.
The Company has used its signal transduction technologies to define a small
molecule agonist which stimulates an enzyme that blocks IgE receptor signaling.
This prevents the release of histamine and other substances which cause allergic
inflammation. The Company is currently optimizing an analog of this compound
to improve its pharmaceutical characteristics, although no assurance can be
given that such efforts will result in a product candidate.
SCLC. Approximately 20% of all lung cancer is small-cell lung carcinoma
("SCLC"), and approximately 35,000 people each year are diagnosed with this
disease in the United States. The disease is characterized by rapid tumor growth
and metastasis, and the mean survival of untreated patients is only two to three
months. SCLC generally cannot be surgically removed and chemotherapy has not
been effective. Certain G protein-coupled receptors stimulate SCLC growth. Based
on this knowledge, the Company has used its signal transduction technologies and
identified peptides that selectively cause the death of SCLC cells in vitro. The
Company is using its hybrid yeast cells and other technologies in efforts to
identify small molecules that mimic the action of SCLC-death promoting peptides
and believes this approach, if successful, may lead to a novel therapeutic for
SCLC.
Houghten Joint Discovery Program. In January 1995, the Company and Houghten
commenced a joint discovery effort, with acute inflammation as the initial
therapeutic focus for the collaboration. Houghten provides combinatorial
libraries to the Company and the Company screens such combinatorial libraries
against hybrid yeast cells for the purpose of identifying candidates for drug
development. Houghten and the Company may jointly develop or sell or license any
such compounds identified by the Company as candidates for drug development to
corporate partners of the Company or others. Either Houghten or the Company may
develop any such compound on its own if the other party elects not to pursue
joint development.
COLLABORATIVE ARRANGEMENTS
As a key part of its business strategy, the Company pursues collaborations
with pharmaceutical companies to combine the Company's drug discovery
capabilities with the collaborators' research, drug development, manufacturing,
marketing and financial resources. The Company has existing collaborative
arrangements with two pharmaceutical companies and is currently in discussions
with several other pharmaceutical companies regarding potential collaborations.
The Company structures its collaborations around specific targets, such as
receptors and signaling molecules, rather than in specific therapeutic areas.
This approach enables the Company to broadly exploit its drug discovery
technologies, while retaining maximum flexibility in pursuing additional
collaborations. There can be no assurance, however, that the current
collaborations will result in the development of drugs, any new collaboration
will be established or, if a collaboration is established, it will be on terms
favorable to the Company. Failure either to maintain its existing, or enter into
any new, collaborations could limit the scope of the Company's drug discovery
and development activities, particularly if alternative sources of funding are
unavailable. Such failure could have a material adverse effect on the Company's
business, financial condition and results of operations.
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The Company's existing collaborations are as follows:
The Bristol-Myers Squibb Collaboration
In July 1994, the Company and Bristol-Myers Squibb entered into a
three-year drug discovery collaboration. Currently, the collaboration focuses on
certain G protein-coupled receptors whose functions are known, certain orphan
receptors and certain other molecular targets as targets for drug discovery in a
variety of therapeutic areas. These therapeutic areas include cardiovascular
disease, acute inflammation, central nervous system disorders, obesity and
diabetes. Bristol-Myers Squibb's use of the Company's yeast-based technologies
has resulted in the identification of potential lead compounds in the area of
central nervous system disorders. The collaboration has also resulted in the
identification of a ligand for an orphan receptor that acts on human cells in
vitro and that has been delivered to Bristol-Myers Squibb for further evaluation
in animal models.
During the term of the research program, Bristol-Myers Squibb is required
to provide the Company with research funding of up to $4.0 million each year.
From July 1994 through March 31, 1996, Bristol-Myers Squibb paid the Company
approximately $6.4 million in research funding. Bristol-Myers Squibb is required
to make payments to the Company upon the achievement by Bristol-Myers Squibb of
certain drug development milestones and to pay the Company royalties on the sale
of any drugs developed as a result of the research program or through the use of
the Company's drug discovery technologies. The research program expires in July
1997 and it cannot be terminated by Bristol-Myers Squibb unless the Company
breaches a material obligation and does not cure such breach for a period of 60
days after receiving notice. The research program may be extended by
Bristol-Myers Squibb, on essentially the same terms adjusted for inflation, for
an additional two years by notice to the Company given prior to February 1997.
Bristol-Myers Squibb purchased $12.5 million of the Company's Series B
Preferred Stock in July 1994 and an additional $5.0 million of such Series B
Preferred Stock in September 1995 upon the Company achieving a research
milestone. In connection with its sale of Series B Preferred Stock to
Bristol-Myers Squibb, the Company granted to Bristol-Myers Squibb certain
registration rights with respect to the shares of Common Stock issuable upon the
conversion of the shares of Series B Preferred Stock owned by it.
The Solvay Duphar Collaboration
In November 1995, the Company and Solvay Duphar (an indirect wholly-owned
subsidiary of Solvay S.A.) entered into a drug discovery collaboration. The
collaboration focuses on certain G protein-coupled receptors whose functions are
known, certain orphan receptors and certain other molecular targets as targets
for drug discovery in a variety of therapeutic areas. These therapeutic areas
include cardiovascular disease, central nervous system disorders, gynecological
diseases and gastrointestinal indications. The Company is in the initial phase
of this collaboration and is cloning, identifying and confirming targets related
to these therapeutic areas.
During the term of the research program, which expires in December 2000,
Solvay Duphar is required to provide the Company with research funding of up to
$2.5 million each year, adjusted for inflation. Solvay Duphar has an option to
increase its funding commitment up to $3.8 million, commencing in 1997. Such
option must be exercised prior to October 1996. From November 1995 through March
31, 1996, Solvay Duphar paid the Company approximately $1.0 million in research
funding. Solvay Duphar is required to make payments to the Company upon the
achievement by Solvay Duphar of certain drug development milestones and to pay
the Company royalties on the sale of drugs developed through the use of the
Company's drug discovery technologies.
The term of the research program may be extended by Solvay Duphar for
between two and five years by notice to the Company given at least two years
(and in some circumstances at least 18 months) prior to January, 2001. Solvay
Duphar has the right under certain circumstances to terminate the program after
July 1998, if the Company fails to meet certain minimum performance objectives
in connection with the conduct of the research program. In the event of such
termination, Solvay Duphar has no further obligation to provide the Company with
funding for the research program. There can be no assurance that the Company
will be able to meet the minimum performance objectives or that the
collaboration with Solvay Duphar will be extended or if extended, that such
collaboration will result in the development of any drugs.
The Company has reserved the right to use certain hybrid yeast cells that
are part of the research program for its own benefit in the discovery of drugs
relating to cancer, autoimmune, allergic and inflammatory diseases, with
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certain specific exclusions. The Company is required to make payments to Solvay
Duphar upon the achievement by the Company of certain drug development
milestones and to pay Solvay Duphar royalties on the sale of such drugs.
In November 1995, Physica B.V., an indirect wholly-owned subsidiary of
Solvay S.A. (the "Solvay Subsidiary"), purchased $10.0 million of the Company's
Series B Preferred Stock. In connection with its sale of Series B Preferred
Stock to the Solvay Subsidiary, the Company granted to the Solvay Subsidiary
certain registration rights with respect to the shares of Common Stock issuable
upon the conversion of the shares of Series B Preferred Stock owned by it.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
The Company believes that patents and other proprietary rights are
important to the development of its business. The Company also relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. As of June 30,
1996, the Company was the exclusive worldwide licensee of two issued U.S.
patents and a field exclusive worldwide licensee of another issued U.S. patent.
In addition, as of such date, the Company had filed or held exclusive or field
exclusive licenses to 47 U.S. patent applications, as well as related foreign
patent applications.
The Company seeks to protect its proprietary technology at every stage of
development. The Company files patent applications which claim inventions
arising from each of the various aspects of the Company's drug discovery and
development process including: gene sequences encoding novel targets and
ligands, amino acid sequences of protein targets, methods of treating a disease
based on the Company's knowledge of how signaling molecules interact with one
another and how this causes an abnormal condition, and specific chemical
compositions that may be useful as therapeutics, as well as novel methods of
manufacture. In addition, the Company files patent applications claiming its
proprietary methodologies, such as drug discovery techniques, unless it believes
that keeping an invention a trade secret is preferable. This approach may give
the Company multiple opportunities of proprietary protection.
The Company has obtained from Duke University an exclusive worldwide
license to an issued U.S. patent and U.S. and international patent applications
covering hybrid yeast cell technologies. In consideration for such license, the
Company pays a minimum annual royalty and is required to make payments upon the
achievement by the Company of certain drug development milestones and to pay
royalties (net of minimum royalties) on the sale of drugs by the Company which
were initially identified by the Company through the use of the licensed
technology. In lieu of milestones and royalty payments on sales of drugs by
sublicensees initially identified by sublicensees through the use of the
licensed technology, the Company pays an annual fee (net of the minimum annual
royalty) for each sublicense granted by it to such technology. This patent and
these patent applications are directed to hybrid yeast cells engineered to
express human G protein-coupled receptors and to methods of their use.
The Company has also filed patent applications based on inventions by
Cadus' scientists directed to hybrid yeast cells and yeast cells engineered to
produce both peptide libraries and human proteins that can function in certain
signal transduction pathways of the engineered yeast cell. These applications
seek to protect aspects of the APEX and SSCL technologies. The Company has also
filed patent applications directed to methods, constructs and reagents,
including engineered cells, for discovering ligands to orphan receptors.
Peptides, and mimetics thereof, which have been discovered using the SSCL
technology are also covered in these patent applications both as compositions
and for their therapeutic use.
The Company is the exclusive worldwide licensee of an issued U.S. patent
relating to an MEKK enzyme and U.S. and international patent applications in the
field of signal transduction in human cells from National Jewish Center for
Immunology and Respiratory Medicine. In consideration for such license, the
Company pays an annual maintenance fee and is required to make payments upon the
achievement by the Company of certain drug development milestones and to pay
royalties (net of annual fees and milestone payments) on the sale of drugs by
the Company whose utility was identified by the Company through the use of the
licensed technology. In lieu of milestone and royalty payments on sales of drugs
by sublicensees initially identified by sublicensees through the use of the
licensed technology, the Company pays an annual fee (net of the annual
maintenance fee) for each sublicense in effect. Certain of these patent
applications are directed to novel genes and gene products and methods of their
use, including as therapeutic targets in drug screening assays. Certain other
patent applications
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are directed to certain small molecule agents and their uses in modulating
cellular signal transduction, particularly as therapeutic agents.
The Company has granted certain rights under several of its patents and
patent applications relating to its yeast-based technologies to Bristol-Myers
Squibb and Solvay Duphar.
In addition to patent protection, the Company relies upon trade secrets,
proprietary know-how and technological advances to develop and maintain its
competitive position. To maintain the confidentiality of its trade secrets and
proprietary information, the Company requires its employees, consultants and
collaborative partners to execute confidentiality agreements upon the
commencement of their relationships with the Company. In the case of employees
and consultants, the agreements also provide that all inventions resulting from
work performed by them while in the employ of the Company will be the exclusive
property of the Company.
Patent law as it relates to inventions in the biotechnology field is still
evolving, and involves complex legal and factual questions for which legal
principles are not firmly established. Accordingly, no predictions can be made
regarding the breadth or enforceability of claims allowed in the patents that
have been issued to the Company or its licensors or in patents that may be
issued to the Company or its licensors in the future. Accordingly, no assurance
can be given that the claims in such patents, either as initially allowed by the
United States Patent and Trademark Office or any of its foreign counterparts or
as may be subsequently interpreted by courts inside or outside the United
States, will be sufficiently broad to protect the Company's proprietary rights,
will be commercially valuable or will provide competitive advantages to the
Company and its present or future collaborative partners or licensees. Further,
there can be no assurance that patents will be granted with respect to any of
the Company's pending patent applications or with respect to any patent
applications filed by the Company in the future. There can be no assurance that
any of the Company's issued or licensed patents would ultimately be held valid
or that efforts to defend any of its patents, trade secrets, know-how or other
intellectual property rights would be successful.
The field of gene discovery has become intensely competitive. A number of
pharmaceutical companies, biotechnology companies, universities and research
institutions have filed patent applications or received patents covering their
gene discoveries. Some of these applications or patents may be competitive with
the Company's applications or conflict in certain respects with claims made
under the Company's applications. Moreover, because patent applications in the
United States are maintained in secrecy until patents issue, because patent
applications in certain other countries generally are not published until more
than eighteen months after they are filed and because publication of
technological developments in the scientific or patent literature often lags
behind the date of such developments, the Company cannot be certain that it was
the first to invent the subject matter covered by its patents or patent
applications or that it was the first to file patent applications for such
inventions. If an issue regarding priority of inventions were to arise with
respect to any of the patents or patent applications of the Company or its
licensors, the Company might have to participate in litigation or interference
proceedings declared by the United States Patent and Trademark Office or similar
agencies in other countries to determine priority of invention. Any such
participation could result in substantial cost to the Company, even if the
eventual outcome were favorable to the Company.
In some cases, litigation or other proceedings may be necessary to defend
against or assert claims of infringement, to enforce patents issued to the
Company or its licensors, to protect trade secrets, know-how or other
intellectual property rights owned by the Company, or to determine the scope and
validity of the proprietary rights of third parties. Such litigation could
result in substantial costs to and diversion of resources by the Company. An
adverse outcome in any such litigation or proceeding could subject the Company
to significant liabilities, require the Company to cease using the subject
technology or require the Company to license the subject technology from the
third party, all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. If any licenses are
required, there can be no assurance that the Company will be able to obtain any
such license on commercially favorable terms, if at all, and if these licenses
are not obtained, the Company might be prevented from using certain of its
technologies. The Company's failure to obtain a license to any technology that
it may require to continue its drug discovery efforts may have a material
adverse effect on the Company's business, financial condition and results of
operations.
The patent holder of an aspect of drug screening techniques that is widely
used by many companies in the biotechnology industry has recently filed a patent
infringement action against the Company seeking injunctive
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relief and monetary damages. The Company believes, based on advice of counsel,
that none of its operations infringes any valid claim of the patent and intends
to vigorously defend the action. The Company also believes that if its
operations were found to infringe any valid claim of the patent, the Company has
adequate technical alternatives that would not infringe this patent. If
injunctive relief is granted, certain aspects of the drug discovery and
development efforts of the Company and its collaborative partners could be
delayed. If monetary damages are awarded, the business, financial condition
and results of operations of the Company could be materially adversely affected.
The costs of and the diversion of Company resources associated with infringement
litigation could have a material adverse effect on the business, financial
condition and results of operations of the Company.
COMPETITION
The biotechnology and pharmaceutical industries are intensely competitive.
Many companies, including large, multinational biotechnology and pharmaceutical
companies, are actively engaged in drug discovery similar to that of the
Company. The Company's technology platform consists principally of genetically
engineered yeast cells and certain signal transduction technologies, which it
utilizes to determine the biological function of orphan receptors and signaling
molecules. The Company is aware of other companies, such as American Home
Products Corporation and Glaxo Wellcome, Plc, that may use yeast as a drug
discovery medium, other companies, such as Merck & Co., Inc. and SmithKline
Beecham, Plc, that may be engaged in efforts to determine the biological
function of orphan receptors, and other companies such as Sandoz Ltd. and Pfizer
Inc. that may be engaged in research and development efforts relating to signal
transduction. In addition, there are several smaller companies pursuing these
areas of research. Furthermore, many companies have potential drugs in various
stages of development to treat asthma and small-cell lung carcinoma, two
diseases targeted by the Company in its proprietary research programs. Many of
the Company's competitors have greater financial and human resources, and more
experience in research and development, preclinical and clinical testing,
obtaining regulatory approvals, manufacturing and marketing than the Company.
There can be no assurance that competitors of the Company will not develop
competing drug discovery technologies or drugs that are more effective than
those developed by the Company and its collaborative partners or obtain
regulatory approvals of their drugs more rapidly than the Company and its
collaborative partners, thereby rendering the Company's and its collaborative
partners' drug discovery technologies and/or drugs obsolete or noncompetitive.
Moreover, there can be no assurance that the Company's competitors will not
obtain patent protection or other intellectual property rights that would limit
the Company's or its collaborative partners' ability to use the Company's drug
discovery technologies or commercialize drugs, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that some of the Company's
collaborative partners will not develop independently or with third parties
drugs that could compete with drugs of the types covered by the collaboration or
otherwise being developed by the Company. Furthermore, there is intense
competition for access to libraries of compounds to use for screening and any
inability of the Company to maintain access to sufficiently broad libraries of
compounds for screening potential targets would have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company also expects to encounter significant competition with respect
to any drugs that may be developed using its technologies. Companies that
complete clinical trials, obtain required regulatory approvals and commence
commercial sales of their drugs before their competitors may achieve a
significant competitive advantage. In order to compete successfully, the
Company's goal is to obtain patent protection for its gene discoveries and drug
discovery technologies and to make these technologies available to
pharmaceutical companies through collaborative and licensing arrangements for
use in discovering drugs. There can be no assurance, however, that the Company
will obtain patents covering its technologies that protect it against
competitors. Moreover, there can be no assurance that the Company's competitors
will not succeed in developing technologies that circumvent the Company's
technologies or that such competitors will not succeed in developing
technologies and drugs that are more effective than those developed by the
Company and its collaborative partners or that would render technology or drugs
of the Company and its collaborators less competitive or obsolete.
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GOVERNMENT REGULATION
The development, manufacturing and marketing of drugs developed through the
use of the Company's technologies are subject to regulation by numerous
governmental agencies in the United States and in other countries. To date, none
of the Company's technologies has resulted in any clinical drug candidates. The
FDA and comparable regulatory agencies in other countries impose mandatory
procedures and standards for the conduct of certain preclinical testing and
clinical trials and the production and marketing of drugs for human therapeutic
use. Product development and approval of a new drug are likely to take a number
of years and involve the expenditure of substantial resources.
The steps required by the FDA before new drugs may be marketed in the
United States include:(i) preclinical studies; (ii) the submission to the FDA of
a request for authorization to conduct clinical trials on
an investigational new drug (an "IND"); (iii) adequate and well-controlled
clinical trials to establish the safety and
efficacy of the drug for its intended use; (iv) submission to the FDA of a
new drug application (an "NDA"); and (v) review and approval of the NDA by the
FDA before the drug may be shipped or sold commercially.
In the United States, preclinical testing includes both in vitro and in
vivo laboratory evaluation and characterization of the safety and efficacy of a
drug and its formulation. Laboratories involved in preclinical testing must
comply with FDA regulations regarding Good Laboratory Practices. Preclinical
testing results are submitted to the FDA as part of the IND and are reviewed by
the FDA prior to the commencement of human clinical trials. Unless the FDA
objects to an IND, the IND will become effective 30 days following its receipt
by the FDA. There can be no assurance that submission of an IND will result in
the commencement of human clinical trials.
Clinical trials, which involve the administration of the investigational
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator, are typically conducted in three sequential phases,
although the phases may overlap with one another. Clinical trials must be
conducted in accordance with Good Clinical Practices under protocols that detail
the objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the IND. Further, each clinical study must be conducted under the
auspices of an independent Institutional Review Board (the "IRB") at the
institution where the study will be conducted. The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution. Compounds must be formulated according to the
FDA's Good Manufacturing Practices ("GMP").
Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with the targeted disease or disorder. The goal
of Phase I clinical trials is typically to test for safety (adverse effects),
dose tolerance, absorption, bio-distribution, metabolism, excretion and clinical
pharmacology and, if possible, to gain early evidence regarding efficacy.
Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the efficacy of the drug for specific
targeted indications, to determine dose tolerance and the optimal dose range and
to gather additional information relating to safety and potential adverse
effects.
Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish further clinical safety and efficacy of the
investigational drug in a broader sample of the general patient population at
geographically dispersed study sites in order to determine the overall
risk-benefit ratio of the drug and to provide an adequate basis for all
physician labeling. The results of the research and product development,
manufacturing, preclinical testing, clinical trials and related information are
submitted to the FDA in the form of an NDA for approval of the marketing and
shipment of the drug.
Timetables for the various phases of clinical trials and NDA approval
cannot be predicted with any certainty. The Company, its collaborative partners
or the FDA may suspend clinical trials at any time if it is believed that
individuals participating in such trials are being exposed to unacceptable
health risks. Even assuming that clinical trials are completed and that an NDA
is submitted to the FDA, there can be no assurance that the NDA will be reviewed
by the FDA in a timely manner or that once reviewed, the NDA will be approved.
The approval process is affected by a number of factors, including the severity
of the targeted indications, the availability of alternative treatments and the
risks and benefits demonstrated in clinical trials. The FDA may deny an NDA if
applicable regulatory criteria are not satisfied, or may require additional
testing or information with respect to the
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investigational drug. Even if initial FDA approval is obtained, further studies,
including post-market studies, may be required in order to provide additional
data on safety and will be required in order to gain approval for the use of a
product as a treatment for clinical indications other than those for which the
product was initially tested. The FDA will also require post-market reporting
and may require surveillance programs to monitor the side effects of the drug.
Results of post-marketing programs may limit or expand the further marketing of
the drug. Further, if there are any modifications to the drug, including changes
in indication, manufacturing process or labeling, an NDA supplement may be
required to be submitted to the FDA.
Each manufacturing establishment for new drugs is also required to receive
some form of approval by the FDA. Among the conditions for such approval is the
requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to GMP, which must be followed at all times. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance. Manufacturing establishments, both
foreign and domestic, are also subject to inspections by or under the authority
of the FDA and may be subject to inspections by foreign and other Federal, state
or local agencies.
There can be no assurance that the regulatory framework described above
will not change or that additional regulations will not arise that may affect
approval of or delay an IND or an NDA. The Company has no preclinical or
clinical development expertise and intends to rely on its collaborative partners
and third party clinical research organizations to design and conduct most of
such activities if required. Moreover, because the Company's present
collaborative partners are, and it is expected that the Company's future
collaborative partners will be, responsible for preclinical testing, clinical
trials, regulatory approvals, manufacturing and commercialization of drugs, the
ability to obtain and the timing of regulatory approvals are not within the
control of the Company.
Prior to the commencement of marketing a product in other countries,
regulatory approval in such countries is required, whether or not FDA approval
has been obtained for such product. The requirements governing the conduct of
clinical trials and product approvals vary widely from country to country, and
the time required for approval may be longer or shorter than the time required
for FDA approval. Although there are some procedures for unified filings for
certain European countries, in general, each country has its own procedures and
requirements.
The Company is also subject to regulation under other Federal laws and
regulation under state and local laws, including laws relating to occupational
safety, laboratory practices, the use, handling and disposition of radioactive
materials, environmental protection and hazardous substance control. Although
the Company believes that its safety procedures for handling and disposing of
radioactive compounds and other hazardous materials used in its research and
development activities comply with the standards prescribed by Federal, state
and local regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of any such accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company.
MANUFACTURING
The Company has no manufacturing facilities and intends to rely on its
collaborative partners and contract manufacturers to produce the materials
required for preclinical and clinical development purposes. If the Company were
unable to contract for these services on acceptable terms, or if it should
encounter delays or difficulties in its relationships with such providers, the
Company's product development would be delayed, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SCIENTIFIC CONSULTANTS
The Company has consulting arrangements with a number of leading academic
scientists. The consultants routinely attend project meetings and are available
to the scientific staff and management of the Company. Most of the Company's
consultants are paid for their services on a per diem basis and are reimbursed
for their travel expenses and other expenses incurred at the request of the
Company pursuant to the terms of their consulting arrangements with the Company.
Certain other consultants are paid fixed fees for their services on a monthly or
quarterly basis. Several of the Company's consultants serve on the Company's
Scientific Advisory Board. None of the consultants is an employee of the
Company. Most of the consultants have other commitments to, or consulting or
advisory contracts with, their employers and other institutions.
34
<PAGE>
The Company is highly dependent on three consultants, Dr. James R. Broach,
Dr. John C. Cambier and Dr. Gary L. Johnson, in the conduct of its research
programs. Dr. Broach is the Director of Research, Dr. Cambier is the Director of
Immunology and Dr. Johnson is the Director of Cell Biology at the Company. In
December 1995, the Company granted Dr. Broach an option outside of its 1993
Stock Option Plan, as amended (the "1993 Stock Option Plan"), to purchase
141,667 shares of Common Stock. Such option will vest upon completion of this
offering. In November 1994, the Company granted to each of Dr. Cambier and Dr.
Johnson an option, outside of the 1993 Stock Option Plan, to purchase 166,667
shares of Common Stock. Each such option vests in equal annual installments of
41,667 shares over four years commencing March 11, 1996. The consulting
agreement with Dr. Broach contains an exclusivity provision that restricts him
from providing service to a competitor of the Company, without the Company's
consent. The consulting agreements with Drs. Cambier and Johnson contain
exclusivity provisions that restrict them from providing service to any
pharmaceutical or other biotechnology company, without the Company's consent.
SCIENTIFIC ADVISORY BOARD
The Company has assembled a Scientific Advisory Board (the "SAB") presently
comprised of five individuals (the "Scientific Advisors") who are leaders in the
fields of drug discovery, molecular biology, yeast biology, immunology, oncology
and pharmacology.
Members of the SAB review the Company's research, development and operating
activities and are available for consultation with the Company's management and
staff relating to their respective areas of expertise. The SAB holds regular
meetings. Several of the individual Scientific Advisors meet more frequently, on
an individual basis, with the Company's management and staff to discuss the
Company's ongoing research and development projects. The Scientific Advisors are
reimbursed for their expenses in connection with their service. In addition, the
Scientific Advisors own Common Stock or hold options to purchase Common Stock.
The Scientific Advisors are expected to devote only a small portion of their
time to the business of the Company.
The Scientific Advisors are all employed by entities other than the
Company. Each Scientific Advisor has entered into a consulting agreement with
the Company that contains confidentiality and non-disclosure provisions that
prohibit the disclosure of confidential information to anyone outside the
Company. Such consulting agreement also provides that all inventions,
discoveries or other intellectual property that come to the attention of or are
discovered by the Scientific Advisor while performing services under a
consulting agreement with the Company will be assigned to the Company. The
current members of the SAB are as follows:
Thomas F. Deuel, M.D., Chairman of the Scientific Advisory Board, is the
Director of the Division of Growth Regulation at Beth Israel Hospital and
Professor of Medicine at Harvard University. He is widely known for his work in
cell growth and development and is an international expert on the biology of
platelet derived growth factor and transforming growth factor beta. He conducted
post-doctoral training at Harvard Medical School and the NIH and completed his
M.D. at Columbia University's College of Physicians and Surgeons.
Norman R. Klinman, M.D., Ph.D. is a member of the Department of Immunology
in the Research Institute of Scripps Clinic and an Adjunct Professor in the
Department of Biology of the University of California at San Diego. Previously
he served as Professor of Pathology and Microbiology in the School of Medicine
at the University of Pennsylvania. He is widely known for his work on
immunoregulation, humoral immunity and B cell maturation, and repertoire
expression. Dr. Klinman has had numerous editorial appointments. He received his
Ph.D. from the University of Pennsylvania and his M.D. from Jefferson Medical
College.
Arnold J. Levine, Ph.D., a scientific founder of the Company, is Chairman
and Weiss Professor in Life Sciences of the Department of Molecular Biology at
Princeton University. Dr. Levine, a member of the National Academy of Sciences
and the Institute of Medicine, is a world-renowned expert in the biology of
tumor suppressor genes and oncogenes. He is noted for his fundamental research
on the function of the p53 gene, implicated in a wide variety of human cancers.
Dr. Levine is the recipient of many honors, including the Bristol-Myers Squibb
Award for Distinguished Achievement in Cancer Research, and is a member of a
number of scientific advisory boards including the Memorial Sloan Kettering
Cancer Center and the Howard Hughes Medical Institute. He received his Ph.D.
from the University of Pennsylvania.
Elliot M. Ross, Ph.D. is a Professor of Pharmacology at the University of
Texas Southwestern Medical Center. Dr. Ross' research focuses on G
protein-mediated signal transduction, where he is best known for direct
35
<PAGE>
biochemical studies of the mechanisms whereby receptors regulate G protein
activation. His other interests include the structure of G protein-coupled
receptors, the action of GTPase-activating proteins in G protein signaling
pathways and the impact of the membrane environment on regulatory interactions
among proteins. He received his Ph.D. in Biochemistry from Cornell University.
Jeremy W. Thorner, Ph.D. holds the William V. Power Endowed Chair in
Biology and is a Professor in the Department of Molecular and Cell Biology at
the University of California at Berkeley. He is coauthor, with R.J. Lefkowitz,
of the seminal paper published in Science in 1990 that forms the basis of the
initial yeast-related drug discovery technology within the Company. His research
interests include the structure and function of peptide ligands, receptors and
other components of signal transduction pathways and their role in the biology
of saccharomyces cerevisiae (bakers yeast). Dr. Thorner is the Program Director
for an NIH Training Grant in Cellular and Molecular Science. He conducted
post-doctoral research at Stanford University School of Medicine and received
his Ph.D. in Biochemistry from Harvard University.
EMPLOYEES
As of April 30, 1996, the Company had 62 full-time employees, 26 of whom
hold Ph.D. or M.D. degrees. Of the Company's full-time employees, 51 are engaged
directly in scientific research and 11 are engaged in general and administrative
functions. The Company's scientific staff members have diversified experience
and expertise in a wide variety of disciplines, including molecular and cell
biology, biochemistry, molecular pharmacology and chemistry.
All employees have entered into agreements with the Company pursuant to
which they are prohibited from disclosing to third parties the Company's
proprietary information and they are obligated to assign to the Company all
rights to inventions made by them during their employment with the Company. See
"-Patents, Proprietary Technology and Trade Secrets."
The Company's employees are not covered by a collective bargaining
agreement, and the Company believes that its relationship with its employees is
good.
FACILITIES
The Company currently subleases approximately 25,776 square feet of
laboratory and office space at 777 Old Saw Mill River Road in Tarrytown, New
York, under an agreement expiring at the end of December 1997. The Company has
the option to lease such facilities for a five year period commencing January 1,
1998, and a further option to renew such lease for a five year period commencing
January 1, 2003. The Company also subleases 3,524 square feet of laboratory and
office facilities at the Colorado Bio/Medical Venture Center in Lakewood,
Colorado, under an agreement expiring on March 9, 1997. The Company plans to
expand its facilities to accommodate additional staff and increased research
activities as it expands its proprietary research, drug discovery and drug
development activities and its activities with collaborative partners. See "Use
of Proceeds."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, other than the patent
infringement litigation described in "Business--Patents, Proprietary Technology
and Trade Secrets."
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Information with respect to the executive officers, directors, key
employees and consultants of the Company as of May 15, 1996 is set forth below:
NAME AGE POSITION
- ---- --- --------
Jeremy M. Levin, D.Phil., MB.BCHIR ...... 42 Chief Executive Officer,
President and Chairman of
the Board of Directors
David R. Webb, Ph.D. .................... 51 Vice President of Research
and Chief Scientific Officer
Philip N. Sussman ....................... 44 Vice President of Corporate
Development
James R. Broach, Ph.D. .................. 48 Director of Research
John C. Cambier, Ph.D. .................. 48 Director of Immunology
Gary L. Johnson, Ph.D. .................. 46 Director of Cell Biology
Arlindo L. Castelhano, Ph.D. ............ 43 Director of Chemistry
Algis Anilionis, Ph.D. .................. 45 Director of Intellectual
Property
James S. Rielly ......................... 33 Director of Finance,
Controller, Treasurer
and Secretary
Carl C. Icahn ........................... 60 Director
Theodore Altman ......................... 54 Director
Harold First (1)(2) ..................... 60 Director
Peter S. Liebert, M.D. .................. 60 Director
Robert J. Mitchell(2) ................... 49 Director
Lawrence D. Muschek, Ph.D. .............. 53 Director
Mark H. Rachesky, M.D. .................. 37 Director
William A. Scott, Ph.D. ................. 56 Director
Thomas E. Shenk, Ph.D. (1) .............. 49 Director
Samuel D. Waksal, Ph.D. (2) ............. 48 Director
Jack G. Wasserman (1) ................... 59 Director
- ----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Jeremy M. Levin, D.Phil., MB.BCHIR, Chief Executive Officer, President and
Chairman of the Board of Directors, joined the Company in December 1992 as its
Chief Executive Officer and became a Director in January 1993. In May 1995, Dr.
Levin became a Co-Chairman of the Board of Directors and in May 1996, Dr. Levin
became Chairman of the Board of Directors of the Company. From December 1990 to
December 1992, Dr. Levin was Vice President of Corporate Development for Genzyme
Corp.'s majority-owned subsidiary, IG Laboratories, Inc., a public laboratory
testing company. Prior to that Dr. Levin served in a number of positions at
biotechnology companies and at major teaching hospitals in Europe. Dr. Levin is
a member of the Board of Directors of Xenometrix, Inc., a public biotechnology
company, and Takhus, Inc., a private biotechnology company. Dr. Levin holds a
D.Phil. in Molecular Biology from the University of Oxford and an MB. BCHIR from
University of Cambridge.
David R. Webb, Ph.D., Vice President of Research and Chief Scientific
Officer, joined the Company in such capacities in July 1995. From January 1987
to July 1995, Dr. Webb was a Distinguished Scientist at Syntex Inc., a public
pharmaceutical company, in the Department of Molecular Immunology. From April
1990 to January 1995, Dr. Webb was also Director of Syntex Inc.'s Institute of
Immunology and Biological Sciences. Prior to that Dr. Webb was a member of the
Department of Cell Biology at the Roche Institute of Molecular Biology. From
January 1989 to the present, Dr. Webb has also been a Consulting Professor of
Cancer Biology at Stanford University. Dr. Webb holds a Ph.D. in Microbiology
from Rutgers University, an M.A. and a B.A. in Biology from California State
University at Fullerton.
Philip N. Sussman, Vice President of Corporate Development, joined the
Company in such capacity in September 1993. From December 1990 to September
1993, Mr. Sussman was Director of Strategy and Business Development for the
Pharmaceuticals Division of Ciba-Geigy Corporation, a public pharmaceutical
company.
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<PAGE>
Mr. Sussman holds an S.M. from the Sloan School of Management at the
Massachusetts Institute of Technology and a B.S. from the State University of
New York at Stony Brook.
James R. Broach, Ph.D., a scientific founder of the Company and inventor of
the Company's yeast-based drug discovery technology, has been Director of
Research of the Company since its inception. He is and has been since 1984 a
Professor at Princeton University in the Department of Molecular Biology. In
1984, Dr. Broach and his collaborators were the first ones to demonstrate that
human genes could be successfully implanted into yeast cells. He received his
Ph.D. in Biochemistry from University of California at Berkeley and his B.S.
from Yale University.
John C. Cambier, Ph.D., inventor of certain of the Company's signal
transduction technologies, has been Director of Immunology of the Company since
November 1994. He is Chief of the Division of Basic Sciences in the Department
of Pediatrics at the National Jewish Center for Immunology and Respiratory
Medicine. Dr. Cambier is also Professor of Immunology at the University of
Colorado Health Sciences Center. He is internationally known for his work on
transmembrane signal transduction, especially antigen and immunoglobulin Fc
receptors. Dr. Cambier conducted his postdoctoral training at the University of
Texas Southwestern Medical School, completed his Ph.D. in Immunology and
Virology at the University of Iowa, and received his B.S. from Southwest
Missouri State University.
Gary L. Johnson, Ph.D., inventor of certain of the Company's signal
transduction technologies, has been Director of Cell Biology of the Company
since November 1994. He is Director of the Program in Molecular Signal
Transduction at the National Jewish Center for Immunology and Respiratory
Medicine. He is also Professor of Pharmacology at the University of Colorado
School of Medicine and a Senior Member of its Cancer Center where he serves on
the executive board. Dr. Johnson's research focuses on receptor activation of G
proteins and the integration of signal transduction pathways regulated by G
proteins and tyrosine kinases. He received his Ph.D. in Pharmacology from the
University of Colorado and his B.S. from California State University.
Arlindo L. Castelhano, Ph.D. has been Director of Chemistry of the Company
since September 1995. He was a scientist at Syntex Inc., a public pharmaceutical
company, from 1982 to 1995 and served as Principal Scientist from 1993 to 1995.
He received his Ph.D. in Chemistry from McMaster University and his B.A. from
University of Toronto.
Algis Anilionis, Ph.D. has been Director of Intellectual Property of the
Company since November 1994. He was Patent Manager at Oncogene Science Inc., a
public biotechnology company, from 1991 to 1994 and Manager of Molecular Biology
and Genetics Research at Praxis Biologics, Inc. (now known as Lederle/Praxis, a
division of American Home Products), a public vaccine manufacturer and research
and development company, from 1986 to 1991. Dr. Anilionis has nine issued U.S.
patents and four granted European patents. He is a registered Patent Agent. He
received his Ph.D. in Molecular Biology from Edinburgh University and a B.A.
Hons. degree from University of Oxford.
James S. Rielly, Director of Finance, Controller, Treasurer and Secretary,
joined the Company in September 1992 as its Controller, became its Treasurer and
Secretary in September 1993 and became its Director of Finance in February 1996.
From November 1989 to September 1992, Mr. Rielly was the Controller and
Treasurer of Baring Brothers & Co., Inc., an investment banking firm. Mr. Rielly
is a certified public accountant and holds a B.S.B.A. from Bucknell University.
Carl C. Icahn became a director of the Company in July 1993. He was a
Co-Chairman of the Board of Directors from May 1995 to May 1996. Mr. Icahn has
been Chairman of the Board and Chief Executive Officer of ACF Industries Inc., a
privately-held railcar leasing and manufacturing company, since 1984, ACF
Industries Holding Corp., a privately-held holding company for ACF Industries
Inc. since August 1993, and, since 1968, Icahn & Co., Inc., a registered
broker-dealer and until 1995 a member firm of the New York Stock Exchange, Inc.
Since November 1990, Mr. Icahn has been Chief Executive Officer and Chairman of
the Board of American Property Investors, Inc., the general partner of American
Real Estate Partners, L.P., a public limited partnership that invests in real
estate. Since 1990, Mr. Icahn has been Chief Executive Officer and Chairman of
the Board of Starfire Holding Corporation, a privately-held holding company.
From 1990 to January 1993, Mr. Icahn was Chief Executive Officer and Chairman of
the Board of Trans World Airlines, Inc., a public airline company. Mr. Icahn
also serves as a Director of Culligan Water Technologies, Inc., a public water
purification company and Samsonite Corp., a public luggage manufacturing
company. Mr. Icahn was the Chief Executive Officer and Chairman of the Board of
Trans World Airlines, Inc. when it filed for reorganization under Chapter 11 of
the United States Bankruptcy Code, as amended, in January 1992. Mr. Icahn
received his B.A. from Princeton University.
38
<PAGE>
Theodore Altman became a director of the Company in May 1996. For the past
five years, Mr. Altman has been a senior partner in the law firm of Gordon
Altman Butowsky Weitzen Shalov & Wein, concentrating his areas of practice in
securities law and litigation. Mr. Altman received a B.A. from Bucknell
University and an LL.B. from New York University.
Harold First became a director of the Company in April 1995. Mr. First has
been since January 1993 an independent financial consultant. From December 1990
through January 1993, Mr. First served as Chief Financial Officer of Icahn
Holding Corp, a privately-held investment holding company, and related entities.
He has been a director of Trump Taj Mahal Realty Corp., a privately-held, real
estate company, since October 1991; a member of the Supervisory Board of
Directors of Memorex Telex N.V., a public technology company, since February
1992; and a director of Tel-Save Holdings, Inc., a public long-distance
telephone service company, since September 1995. Mr. First was a director of
Trans World Airlines, Inc., a public airline company, from December 1990 through
January 1993; a director of ACF Industries, Inc., a privately-held railcar
leasing and manufacturing company, from February 1991 through December 1992; and
Vice Chairman of the Board of Directors of American Property Investors, Inc.,
the general partner of American Real Estate Partners, L.P., a public limited
partnership that invests in real estate from March 1991 through December 1992.
Mr. First was a director of Trans World Airlines, Inc. when it filed for
reorganization under Chapter 11 of the United States Bankruptcy Code, as
amended, in January 1992. He is a certified public accountant and holds a B.S.
from Brooklyn College.
Peter S. Liebert, M.D. became a director of the Company in April 1995. Dr.
Liebert has been a pediatric surgeon in private practice since 1968 and is
affiliated with Babies Hospital of Columbia Presbyterian. He is also Clinical
Associate Professor of Surgery, College of Physicians and Surgeons, Columbia
University. Dr. Liebert holds an M.D. from Harvard University Medical School and
a B.A. from Princeton University.
Robert J. Mitchell became a director of the Company in May 1996. Mr.
Mitchell has been Senior Vice President-Finance of ACF Industries Inc. since
March 1995 and was Treasurer of ACF Industries Inc. from December 1984 to March
1995. Mr. Mitchell has also served as President and Treasurer of ACF Industries
Holdings Inc. since August 1993 and as Vice President, Liaison Officer of Icahn
& Co., Inc. since November 1984. From 1987 to January 1993, Mr. Mitchell served
as Treasurer of Trans World Airlines, Inc. and was the Treasurer of Trans World
Airlines, Inc. when it filed for reorganization under Chapter 11 of the United
States Bankruptcy Code, as amended, in January 1992.
Lawrence D. Muschek, Ph.D. became a director of the Company in February
1996. Dr. Muschek has been the Senior Vice President for Research and
Development of the Human Health Division of Solvay S.A., a public Belgium
chemical pharmaceutical company since 1994 and has worldwide responsibilities
for research and development for Solvay S.A. From April 1990 to January 1994,
Dr. Muschek served as the Senior Vice President for Research and Development of
Solvay Pharmaceuticals, Inc., a public U.S. pharmaceutical subsidiary of Solvay
S.A. Prior to joining Solvay Pharmaceuticals, Inc., Dr. Muschek spent 18 years
in pharmaceutical research and development at Johnson & Johnson., a public
manufacturer of health care products. Dr. Muschek conducted post-doctoral
research in Pharmacology at Michigan State University and holds a Ph.D. in
Biochemistry from Michigan State University and a B.Sc. from The Philadelphia
College of Pharmacy and Science.
Mark H. Rachesky, M.D. became a director of the Company in July 1993. Since
June 1996, Dr. Rachesky has been the President of MHR Advisors LLC, the sole
general partner of an investment partnership. In February 1990, Dr. Rachesky
became senior investment advisor to Carl C. Icahn and from shortly thereafter to
June 1996, acted as his chief investment officer. From May 1990 to June 1996,
Dr. Rachesky was the sole Managing Director of Starfire Holding Corp., which is
responsible for substantially all of Mr. Icahn's investment activities. Dr.
Rachesky has been a director of Samsonite Corp., a public luggage manufacturing
company, since June 1993 and a director of Culligan Water Technologies, Inc., a
public water purification company, since its spin-off from Samsonite Corp. in
December 1995. From November 1990 to June 1996, Dr. Rachesky served as a
director and officer of American Property Investors, Inc., the general partner
of American Real Estate Partners, L.P., a public limited partnership that
invests in real estate. From June 1987 to February 1990, Dr. Rachesky was
employed by an affiliate of the Robert M. Bass Group, Inc., a privately-held
financial company. Dr. Rachesky received an M.D. and an M.B.A. from Stanford
University and his B.S. from the University of Pennsylvania.
William A. Scott, Ph.D. became a director of the Company in July 1994. Dr.
Scott has been Senior Vice President of Exploratory and Drug Discovery Research
at Bristol-Myers Squibb's Pharmaceutical Research Institute since March 1991.
From March 1990 to March 1991, Dr. Scott was Senior Vice President of Drug
Discovery Research at Bristol-Myers Squibb's Pharmaceutical Research Institute.
From September 1983 to March 1990, he
39
<PAGE>
held a number of senior positions at The Squibb Institute for Medical Research.
Dr. Scott has been since 1983 an Adjunct Professor at The Rockefeller University
and was the Associate Dean at the Rockefeller University from 1979 to 1982. Dr.
Scott conducted post-doctoral research at The Rockefeller University and holds a
Ph.D. in Biochemistry from California Institute of Technology and a B.S. from
the University of Illinois.
Thomas E. Shenk, Ph.D., a scientific founder of the Company, has been a
director of the Company since its inception. In 1996 he was elected to the U.S.
National Academy of Science. Dr. Shenk has been a Professor of Molecular Biology
at Princeton University since 1984. He is currently endowed Professor of
Molecular Biology at Princeton University, an American Cancer Society Professor
and Investigator for the Howard Hughes Medical Institute. He also serves as a
Director of Somatix Therapy Corporation, a public biotechnology company. Dr.
Shenk conducted post-doctoral research at Stanford University and holds a Ph.D.
in Virology from Rutgers University and received his B.S. from the University of
Detroit.
Samuel D. Waksal, Ph.D., a founder of the Company, has been a director of
the Company since its inception and was a Co-Chairman of the Board of Directors
from May 1995 to May 1996. Dr. Waksal was Chief Executive Officer of the Company
from June 1992 to December 1992 and was its Chairman of the Board of Directors
from June 1992 to May 1995. Dr. Waksal has been the Chief Executive Officer and
a director of ImClone Systems Incorporated, a public biotechnology company,
since 1985. Dr. Waksal is a member of the Board of Directors of Somatix Therapy
Corporation, a public biotechnology company. Dr. Waksal received his Ph.D. in
Immunology from Ohio State University College of Medicine.
Jack G. Wasserman became a director of the Company in May 1996. For the
past five years, Mr. Wasserman has been a senior partner in Wasserman, Schneider
& Babb, a New York law firm which concentrates its practice in legal matters
relating to international trade. Mr. Wasserman is a director of American
Property Investors, Inc., the general partner of American Real Estate Partners,
L.P., a public limited partnership. Mr. Wasserman received a B.A. from Adelphi
University, a J.D. from Georgetown University and a Diploma from the Johns
Hopkins University School of Advanced International Studies.
Directors are elected by the stockholders of the Company at each annual
meeting of stockholders and serve until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
removal or resignation. A Voting Agreement among the Company, High River Limited
Partnership, Carl C. Icahn, The Global Health Sciences Fund, Bristol-Myers
Squibb and the Solvay Subsidiary requires the signatories thereto (other than
Bristol-Myers Squibb) to vote their shares for a Board of Directors comprised of
the following: up to a majority designated by High River Limited Partnership
(presently Messrs. Altman, First, Icahn, Mitchell and Wasserman and Drs. Liebert
and Rachesky); the Chief Executive Officer of the Company (presently, Dr.
Levin); an individual (presently undesignated) designated by The Global Health
Sciences Fund; an individual (presently Dr. Scott) designated by Bristol-Myers
Squibb; an individual (presently Dr. Muschek) designated by the Solvay
Subsidiary; and an individual (presently Dr. Shenk) designated by certain
founders of the Company. The number of directors comprising the entire Board of
Directors has been fixed at twelve by resolution of the Board of Directors. The
Voting Agreement will terminate upon the closing of this offering.
Dr. Rachesky has agreed to tender his resignation as a director of the
Company if so requested by Mr. Icahn.
ImClone Systems Incorporated ("ImClone") has agreed with High River Limited
Partnership to vote all shares of Common Stock it acquires from High River
Limited Partnership pursuant to the option to acquire 1,079,395 shares of Common
Stock granted to it by High River Limited Partnership as directed by High River
Limited Partnership.
The Board of Directors has (i) a Compensation Committee, consisting of
Messrs. First and Wasserman and Dr. Shenk, which makes recommendations regarding
salaries and incentive compensation for employees of and consultants to the
Company and which administers the 1993 Stock Option Plan and the 1996 Incentive
Plan and (ii) an Audit Committee, consisting of Messrs. First and Mitchell and
Dr. Waksal, which oversees actions taken by the Company's independent auditors
and reviews the Company's internal accounting controls.
In September 1995, the Board of Directors granted to each director then in
office a 30-day option to purchase 8,334 shares of Common Stock at an exercise
price of $2.25 per share. In October 1995, each of Harold First, Carl C. Icahn,
Peter S. Liebert, Mark H. Rachesky, Thomas E. Shenk and Samuel D. Waksal
exercised his option and purchased 8,334 shares of Common Stock at $2.25 per
share. To date, directors have not received any other compensation for serving
on the Board of Directors and have not been reimbursed for expenses incurred by
them in attending meetings of the Board of Directors or any committee thereof.
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<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth certain information concerning the
compensation paid or accrued by the Company for services rendered to the Company
in all capacities for the fiscal year ended December 31, 1995, by its Chief
Executive Officer and each of the Company's other executive officers whose total
salary and bonus exceeded $100,000 during such fiscal year (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) ($)
- --------------------------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Jeremy M. Levin ................................. $175,260 $65,000 -- $ 12,842(1)
President and Chief Executive Officer
Philip N. Sussman ............................... 110,260 70,000 33,333 12,563(2)
Vice President of Corporate Development
David R. Webb ................................... 94,868(3) 30,000 66,666 128,021(4)
Vice President of Research and
Chief Scientific Officer
</TABLE>
- ----------
(1) All Other Compensation includes: (i) $11,725 in health care premiums and
reimbursements paid by the Company and (ii) $1,117 in short-term and
long-term disability premiums and life insurance premiums paid by the
Company.
(2) All Other Compensation includes: (i) $11,725 in health care premiums and
reimbursements paid by the Company and (ii) $838 in short-term and
long-term disability premiums and life insurance premiums paid by the
Company.
(3) Dr. Webb joined the Company in June 1995 and receives a salary at the rate
of $175,000 per annum.
(4) All Other Compensation includes: (i) $121,754 of relocation expenses, (ii)
$5,880 in healthcare premiums and reimbursements paid by the Company and
(iii) $387 in short term and long-term disability premiums and life
insurance premiums paid by the Company.
EMPLOYMENT AGREEMENTS
Dr. Jeremy M. Levin
Dr. Levin is employed as Chief Executive Officer under a two-year
employment agreement with the Company entered into effective as of December 12,
1995. Pursuant to his agreement, Dr. Levin receives a minimum annual base salary
of $225,000, is guaranteed an annual bonus equal to 20% of his base salary, and
is eligible to receive an additional annual bonus at the discretion of the
Compensation Committee of the Board of Directors. If the Company terminates Dr.
Levin's employment without "cause," as defined in his agreement, or if the
Company fails to renew his agreement upon terms acceptable to him and Dr. Levin
terminates his employment with the Company after December 12, 1997, the Company
will pay to Dr. Levin a lump sum severance payment equal to one year's base
salary then in effect and guaranteed bonus and all unvested stock options issued
to him will immediately vest as of the date of termination. If Dr. Levin's
employment with the Company is terminated under certain circumstances in
connection with a "change in control" (as defined in the employment agreement),
the Company will pay to Dr. Levin a lump sum severance payment equal to one
year's base salary then in effect and guaranteed bonus and all unvested stock
options issued to him will immediately vest as of the date of termination.
41
<PAGE>
Philip N. Sussman
Mr. Sussman is an employee at will but has a severance agreement with the
Company which provides that if he is terminated without cause (i) the Company
will continue to pay him his then salary and provide him with medical benefits
until the earlier of twelve months from the date of termination or his
commencement of comparable new employment with another company and (ii) all
unvested stock options issued to him will immediately vest as of the date of
termination.
Dr. David R. Webb
Dr. Webb is an employee at will but has a severance agreement with the
Company which provides that if he is terminated without cause he will receive
severance equal to (i) one year's salary if such termination is within twelve
months of commencement, (ii) 9 months' salary if such termination is after 12
months but before the 25th month after commencement, (iii) 6 months' salary if
such termination is after 24 months but before the 37th month after
commencement, or (iv) whatever is deemed appropriate for other officers of the
Company at the time of termination if such termination is more than 36 months
after commencement.
OPTION GRANTS
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1995 by the Company to the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERMS ($)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------
NAME GRANTED(#) IN FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ------------------------- --------- -------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Jeremy M. Levin ............. -- -- -- -- -- --
Philip N. Sussman ........... 33,333 13.01 3.60 12/19/05 75,468 191,253
David R. Webb ............... 66,666 26.03 2.25 5/5/05 94,334 239,062
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning each exercise
of stock options during the fiscal year ended December 31, 1995, by the Named
Executive Officers and unexercised stock options held by the Named Executive
Officers as of the end of such fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(1)
ACQUIRED ON AGGREGATE VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeremy M. Levin ....... -- -- 281,159 33,912 $435,497 $50,868
Philip N. Sussman ..... -- -- 16,667 50,001 27,150 27,150
David R. Webb ......... -- -- -- 66,667 -- 50,000
</TABLE>
- ----------
(1) Based on the deemed fair market value of the Common Stock at December 31,
1995 ($3.00 per share as determined by the Board of Directors) less the
exercise price per share.
42
<PAGE>
INCENTIVE PLANS
1993 Stock Option Plan
The 1993 Stock Option Plan provides for the grant of options to purchase
shares of Common Stock to officers, employees and consultants of the Company.
The maximum number of shares of Common Stock that may be issued pursuant to the
1993 Stock Option Plan is 666,667 (plus any shares that are the subject of
canceled or forfeited awards). Effective as of May 10, 1996, the 1993 Stock
Option Plan was replaced by the 1996 Incentive Planwith respect to all future
awards to the Company's employees and consultants. See "-- 1996 Incentive Plan."
The 1993 Stock Option Plan was adopted by the Board of Directors on January
13, 1993 and approved by the stockholders of the Company in April, 1993. The
1993 Stock Option Plan was amended by the Board of Directors on July 28, 1993 in
order to increase the number of shares of Common Stock covered thereby to its
current level, which amendment was approved by the stockholders of the Company
as of July 28, 1993.
The 1993 Stock Option Plan is currently administered by the Compensation
Committee which is presently comprised of Harold First, Thomas E. Shenk and Jack
G. Wasserman. The Compensation Committee determines which of the Company's
officers, employees and consultants will be granted options, the time or times
when grants will be made, whether options to be granted will be options intended
to qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or non-qualified stock options,
the terms governing the grants, the exercise date of any options and the number
of shares for which options are to be granted. Directors who are neither
employees of nor consultants to the Company and members of the Compensation
Committee are not eligible to receive awards under the 1993 Stock Option Plan.
In addition, incentive stock options may be granted only to officers and
employees.
Under the 1993 Stock Option Plan, the Compensation Committee may establish
with respect to each option granted such vesting provisions as it determines to
be appropriate or advisable. In general, options granted under the 1993 Stock
Option Plan have a ten-year term, and such options vest or have vested over
four-year periods at various rates. Unexercised options automatically terminate
upon the termination of the holder's relationship with the Company. However, the
Compensation Committee may accelerate a vesting schedule and/or extend the time
for exercise of all or any part of an option in the event of the termination of
the holder's relationship with the Company. In addition, the 1993 Stock Option
Plan includes a provision authorizing the Compensation Committee to adjust the
number of shares of Common Stock available for grant, the number of shares of
Common Stock subject to outstanding awards thereunder and the per share exercise
price thereof in the event of any stock dividend, stock split, recapitalization,
merger or certain other events. The Compensation Committee may terminate the
1993 Stock Option Plan at any time but any such termination will not adversely
affect options previously granted.
The exercise price of options granted and the purchase price of shares sold
under the 1993 Stock Option Plan are determined by the Compensation Committee,
but may not, (i) in the case of incentive stock options, be less than the fair
market value of the Common Stock on the date of grant (or, in the case of
incentive stock options granted to a holder of more than 10% of the total
combined voting power of all classes of stock of the Company on the date of
grant, 110% of such fair market value), or (ii) in the case of non-qualified
stock options, be less than 85% of the fair market value of the Common Stock on
the date of grant, as determined by the Compensation Committee.
Options granted under the 1993 Stock Option Plan are nontransferable except
by will or the laws of descent and distribution.
During 1995, stock options to purchase an aggregate of 84,337 shares of
Common Stock at an exercise price of $2.25 per share and an aggregate of 40,523
shares of Common Stock at an exercise price of $3.00 per share were granted
under the 1993 Stock Option Plan to officers, employees and consultants of the
Company. As of April 30, 1996, all of such stock options were outstanding, of
which options to purchase 6,864 shares were exercisable at such time.
As of April 30, 1996, an aggregate of 642,734 shares of Common Stock were
subject to outstanding stock options granted under the 1993 Stock Option Plan.
As of April 30, 1996, options to purchase 427,005 shares were exercisable at
prices ranging from $1.37 to $3.51 per share.
43
<PAGE>
Stock Option Agreements
In addition to stock options granted under the 1993 Stock Option Plan, the
Company has also granted non-qualified stock options to directors, officers,
employees and consultants of the Company by means of stock option agreements.
During 1995, stock options to purchase an aggregate of 141,667 shares of Common
Stock at an exercise price of $2.57 per share and an aggregate of 171,300 shares
of Common Stock at an exercise price of $3.60 per share were granted pursuant to
stock option agreements to officers, employees and consultants of the Company.
As of April 30, 1996, all of such stock options were outstanding and none of
such options were exercisable. As of April 30, 1996, an aggregate of 646,301
shares of Common Stock were subject to outstanding stock options granted under
stock option agreements. As of April 30, 1996 options to purchase 83,334 shares
under such option agreements were exercisable at $1.50 per share.
1996 Incentive Plan
The Company's 1996 Incentive Plan (the "1996 Incentive Plan") was adopted
by the Board of Directors and approved by the stockholders of the Company in May
1996. The 1996 Incentive Plan replaced the 1993 Stock Option Plan, effective as
of May 10, 1996, with respect to all future awards by the Company to its
employees and consultants. However, while all future awards will be made under
the 1996 Incentive Plan, awards made under the 1993 Stock Option Plan will
continue to be administered in accordance with the 1993 Stock Option Plan. See
"Incentive Plans -- 1993 Stock Option Plan." The maximum number of shares of
Common Stock that may be the subject of awards under the 1996 Incentive Plan is
333,334 (plus any shares that are the subject of canceled or forfeited awards).
The 1996 Incentive Plan is administered by the Compensation Committee,
which has the power and authority under the 1996 Incentive Plan to determine
which of the Company's employees and consultants will receive awards, the time
or times at which awards will be made, the nature and amount of the awards, the
exercise or purchase price, if any, of such awards, and such other terms and
conditions applicable to awards as it determines to be appropriate or advisable.
Options granted under the 1996 Incentive Plan may be either non-qualified
stock options or options intended to qualify as incentive stock options under
Section 422 of the Code. The term of incentive stock options granted under the
1996 Incentive Plan cannot extend beyond ten years from the date of grant (or
five years in the case of a holder of more than 10% of the total combined voting
power of all classes of stock of the Company on the date of grant).
Shares of Common Stock may either be awarded or sold under the 1996
Incentive Plan and may be issued or sold with or without vesting and other
restrictions, as determined by the Compensation Committee.
Under the 1996 Incentive Plan, the Compensation Committee may establish
with respect to each option or shares awarded or sold such vesting provisions as
it determines to be appropriate or advisable. Unvested options will
automatically terminate within a specified period of time following the
termination of the holder's relationship with the Company and in no event beyond
the expiration of the term. The Company may either repurchase unvested shares of
Common Stock at their original purchase price upon the termination of the
holder's relationship with the Company or cause the forfeiture of such shares,
as determined by the Compensation Committee. All options granted and shares sold
under the 1996 Incentive Plan to employees of the Company may, in the discretion
of the Compensation Committee, become fully vested upon the occurrence of
certain corporate transactions if the holders thereof are terminated in
connection therewith.
The exercise price of options granted and the purchase price of shares sold
under the 1996 Incentive Plan are determined by the Compensation Committee, but
may not, in the case of incentive stock options, be less than the fair market
value of the Common Stock on the date of grant (or, in the case of incentive
stock options granted to a holder of more than 10% of the total combined voting
power of all classes of stock of the Company on the date of grant, 110% of such
fair market value), as determined by the Compensation Committee.
The Compensation Committee may also grant, in combination with
non-qualified stock options and incentive stock options, stock appreciation
rights ("Tandem SARs"), or may grant Tandem SARs as an addition to outstanding
non-qualified stock options. A Tandem SAR permits the participant, in lieu of
exercising the corresponding option, to elect to receive any appreciation in the
value of the shares subject to such option directly from the Company in shares
of Common Stock. The amount payable by the Company upon the exercise of a Tandem
SAR is measured by the difference between the market value of such shares at the
time of exercise and the option exercise price. Generally, Tandem SARs may be
exercised at any time after the underlying option vests. Upon the exercise of a
44
<PAGE>
Tandem SAR, the corresponding portion of the related option must be surrendered
and cannot thereafter be exercised. Conversely, upon exercise of an option to
which a Tandem SAR is attached, the Tandem SAR may no longer be exercised to the
extent that the corresponding option has been exercised. Nontandem stock
appreciation rights ("Nontandem SARs") may also be awarded by the Compensation
Committee. A Nontandem SAR permits the participant to elect to receive from the
Company that number of shares of Common Stock having an aggregate market value
equal to the excess of the market value of the shares covered by the Nontandem
SAR on the date of exercise over the aggregate base price of such shares as
determined by the Compensation Committee. With respect to both Tandem and
Nontandem SARs, the Compensation Committee may determine to cause the Company to
settle its obligations arising out of the exercise of such rights in cash or a
combination of cash and shares, in lieu of issuing shares only.
Under the 1996 Incentive Plan, the Compensation Committee may also award
tax offset payments to assist employees in paying income taxes incurred as a
result of their participation in the 1996 Incentive Plan. The amount of the tax
offset payments will be determined by applying a percentage established from
time to time by the Compensation Committee to all or a portion of the taxable
income recognizable by the employee upon: (i) the exercise of a non-qualified
stock option or an SAR; (ii) the disposition of shares received upon exercise of
an incentive stock option; (iii) the lapse of restrictions on Restricted Shares;
or (iv) the award of unrestricted shares.
The number and class of shares available under the 1996 Incentive Plan may
be adjusted by the Compensation Committee to prevent dilution or enlargement of
rights in the event of various changes in the capitalization of the Company. At
the time of grant of any award, the Compensation Committee may provide that the
number and class of shares issuable in connection with such award be adjusted in
certain circumstances to prevent dilution or enlargement of rights.
The Board of Directors may suspend, amend, modify or terminate the 1996
Incentive Plan. However, the Company's stockholders must approve any amendment
that would (i) materially increase the aggregate number of shares issuable under
the 1996 Incentive Plan, (ii) materially increase the benefits accruing to
employees under the 1996 Incentive Plan or (iii) materially modify the
requirements for eligibility to participate in the 1996 Incentive Plan. Awards
made prior to the termination of the 1996 Incentive Plan shall continue in
accordance with their terms following such termination. No amendment, suspension
or termination of the 1996 Incentive Plan shall adversely affect the rights of
an employee or consultant in awards previously granted without such employee's
or consultant's consent.
Since the adoption of the 1996 Incentive Plan on May 10, 1996, no stock
options were granted under the 1996 Incentive Plan.
401(K) PLAN
In November, 1993, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering the Company's employees. Generally,
employees may elect to contribute to the 401(k) Plan, through payroll
deductions, up to 20% of their compensation for services rendered in any year,
not to exceed a statutorily prescribed annual limit. The trustee under the
401(k) Plan, at the direction of each participant, invests the assets of the
401(k) Plan in any of seven investment options. The 401(k) Plan is intended to
qualify under Section 401 of the Code so that contributions by employees to the
401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn. The Company has not made matching contributions to
participants under the 40l(k) Plan.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May 15, 1996, on a pro forma basis to
reflect the automatic conversion of all outstanding shares of Convertible
Preferred Stock into Common Stock upon the closing of this offering, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, with
respect to (i) each person known by the Company to be the beneficial owner of
more than 5% of the Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers and (iv) all directors and officers as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
AMOUNT AND NATURE OF PERCENTAGES OF TOTAL(2)
BENEFICIAL -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP BEFORE OFFERING AFTER OFFERING
--------------------------------------- -------------------- --------------- --------------
<S> <C> <C> <C>
Carl C. Icahn ..............................
114 West 47th Street 3,361,216(3) 37.84% 28.89%
New York, New York 10036
Bristol-Myers Squibb Company ............... 1,706,673 19.21% 14.67%
P.O. Box 4000
Route 206 and Province Line Road
Princeton, New Jersey 08543-4000
Physica B.V.(4) ............................ 884,942 9.96% 7.61%
C.J. van Houtenlaan 36
1381 CP Weesp
The Netherlands
The Global Health Sciences Fund ............ 729,395(5) 8.21% 6.27%
c/o INVESCO Trust Company
7800 East Union Ave, Suite 800
Denver, Colorado 80237
ImClone Systems Incorporated ............... 1,079,395(6) 10.84% 8.50%
180 Varick Street
New York, New York 10014
Jeremy M. Levin, D. Phil., MB. BCHIR ....... 281,159(7) 3.07% 2.36%
Philip N. Sussman .......................... 16,667(8) * *
David R. Webb, Ph.D. ....................... 16,667(9) * *
Theodore Altman ............................ -- * *
Harold First ............................... 8,334 * *
Peter S. Liebert, M.D. ..................... 8,334 * *
Robert J. Mitchell ......................... -- * *
Lawrence D. Muschek, Ph.D. ................. 884,942(10) 9.96% 7.61%
Mark H. Rachesky, M.D. ..................... 190,683 2.15% 1.64%
William A Scott, Ph.D. ..................... 1,706,673(11) 19.21% 14.67%
Thomas E. Shenk, Ph.D. ..................... 175,001(12) 1.97% 1.50%
Samuel D. Waksal, Ph.D. .................... 1,087,729(13) 10.92% 8.56%
Jack G. Wasserman .......................... -- * *
All executive officers and directors as a .. 7,742,405(14) 75.30% 59.41%
group (15 persons)
</TABLE>
- ----------
* Less than one percent.
46
<PAGE>
(1) Except as otherwise indicated above, the address of each stockholder
identified above is c/o the Company, 777 Old Saw Mill River Road,
Tarrytown, NY 10591-6705. Except as indicated in the other footnotes to
this table, the persons named in this table have sole voting and investment
power with respect to all shares of Common Stock.
(2) Share ownership in the case of each person listed above includes shares
issuable upon the exercise of options held by such person as of May 15,
1996, that may be exercised within 60 days after such date for purposes of
computing the percentage of Common Stock owned by such person, but not for
purposes of computing the percentage of Common Stock owned by any other
person.
(3) Includes 2,258,790 shares of Common Stock held by High River Limited
Partnership (including the 1,079,395 shares of Common Stock owned by High
River Limited Partnership that ImClone has the right to acquire). Mr. Icahn
is the sole shareholder of the sole general partner of High River Limited
Partnership.
(4) Physica B.V. is referred to in this Prospectus as the Solvay Subsidiary.
(5) Consists of 729,395 shares of Common Stock held by The Global Health
Sciences Fund. INVESCO Trust Company acts as the investment adviser to The
Global Health Sciences Fund and therefore may be deemed to share beneficial
ownership of these shares.
(6) Consists of 1,079,395 shares of Common Stock which ImClone currently has
the right to acquire from High River Limited Partnership, upon exercise of
an option granted to it by High River Limited Partnership.
(7) Consists of 281,159 shares of Common Stock which Dr. Levin currently has
the right to acquire upon the exercise of stock options. See
"Management--Incentive Plans."
(8) Consists of 16,667 shares of Common Stock which Mr. Sussman currently has
the right to acquire upon the exercise of a stock option. See
"Management--Incentive Plans."
(9) Consists of 16,667 shares of Common Stock which Dr. Webb currently has the
right to acquire upon the exercise of a stock option. See
"Management--Incentive Plans."
(10) Consists of 884,942 shares of Common Stock held by Physica B.V., an
indirect wholly owned subsidiary of Solvay S.A. Dr. Muschek is the Senior
Vice President for Research and Development of the Human Health Division of
Solvay S.A. Dr. Muschek may be deemed the beneficial owner of the 884,942
shares of Common Stock held by Physica B.V., but disclaims such beneficial
ownership.
(11) Consists of 1,706,673 shares of Common Stock held by Bristol-Myers Squibb.
Dr. Scott is Senior Vice President of Exploratory and Drug Discovery
Research at Bristol-Myers Squibb's Pharmaceutical Research Institute. Dr.
Scott may be deemed the beneficial owner of the 1,706,673 shares of Common
Stock held by Bristol-Myers Squibb, but disclaims such beneficial
ownership.
(12) Consists of (a) 91,667 shares of Common Stock held by Dr. Shenk, a director
of the Company, and (b) 83,334 shares of Common Stock held by Susan Shenk,
Dr. Shenk's wife.
(13) Consists of (a) 8,334 shares of Common Stock held by Dr. Waksal, and (b)
1,079,395 shares of Common Stock which ImClone has the right to acquire.
Dr. Waksal is the Chief Executive Officer and a director of ImClone. Dr.
Waksal may be deemed the beneficial owner of the 1,079,395 shares which
ImClone has the right to acquire, but disclaims such beneficial ownership.
(14) Includes (a) 319,493 shares of Common Stock issuable upon exercise of
options, (b) 1,706,673 shares of Common Stock held by Bristol-Myers Squibb,
(c) 884,942 shares of Common Stock held by Physica B.V., and (d) 1,079,395
shares of Common Stock owned by High River Limited Partnership that ImClone
has the right to acquire. See footnotes (3), (6), (7), (8), (9), (10), (11)
and (13).
47
<PAGE>
CERTAIN TRANSACTIONS
In July 1992, founders of the Company purchased an aggregate of 1,400,005
shares of the Company's Common Stock at a price of $.003 share. Dr. Shenk, a
director of the Company, and his wife purchased an aggregate of 166,668 of such
shares of Common Stock. ImClone, whose Chief Executive Officer, Dr. Waksal, is a
director of the Company, purchased 700,000 of such shares of Common Stock. Dr.
Broach, a consultant to the Company and a member of the SAB, and members of his
family purchased an aggregate of 166,669 of such shares of Common Stock. Drs.
Dana Fowlkes and Jeffry Stock, former members of the SAB, each purchased 166,667
of such shares of Common Stock. Dr. Arnold Levine, a member of the SAB,
purchased 33,334 of such shares of Common Stock.
In July 1993, the Company issued and sold an aggregate of 14,879,651 shares
of Series A Convertible Preferred Stock, $.001 par value (the "Series A
Preferred Stock), at $0.457 per share, to a group of 34 new and existing
investors as part of a private financing. The shares were sold for an aggregate
consideration of $6,800,000. An affiliate of Carl C. Icahn, a director of the
Company, purchased 3,282,276 of such shares of Series A Preferred Stock. Two
daughters of Samuel D. Waksal, a director of the Company, purchased an aggregate
of 328,228 of such shares of Series A Preferred Stock. ImClone purchased
4,376,368 of such shares of Series A Preferred Stock through the cancellation of
$2,000,000 of debt owed to it by the Company. The Global Health Sciences Fund
purchased 2,188,184 of such shares of Series A Preferred Stock.
In July 1994, the Company entered into a research collaboration with
Bristol-Myers Squibb. In connection with such collaboration, the Company issued
and sold 3,571,429 shares of Series B Preferred Stock at $3.50 per share to
Bristol-Myers Squibb. In August and September 1995, the Company issued and sold
an aggregate of 1,250,000 shares of Series B Preferred Stock at $4.00 per share
to Bristol-Myers Squibb, when Bristol-Myers Squibb became obligated to purchase
such shares upon the Company's achievement of a research milestone.
Bristol-Myers Squibb became a beneficial owner of more than five percent of the
shares of Common Stock to be outstanding upon completion of this offering when
it purchased the 3,571,429 shares of Series B Preferred Stock in July 1994.
During the period from July 1994 through December 1994 and for the fiscal year
ended December 31, 1995, Bristol-Myers Squibb provided research funding to the
Company in an amount which constituted in excess of five percent of the
Company's gross revenues for each of such periods. In connection with its sale
of Series B Preferred Stock to Bristol-Myers Squibb, the Company granted to
Bristol-Myers Squibb certain registration rights with respect to the shares of
Common Stock issuable upon the conversion of the shares of Series B Preferred
Stock owned by it. See "Business -- Collaborative Arrangements -- The
Bristol-Myers Squibb Collaboration." Dr. Scott, a director of the Company, is
the Senior Vice President of Exploratory and Drug Discovery Research at
Bristol-Myers Squibb's Pharmaceutical Research Institute.
In September 1995, the Board of Directors granted to each director then in
office a 30-day option to purchase 8,334 shares of Common Stock at an exercise
price of $2.25 per share. In October 1995, each of Harold First, Carl C. Icahn,
Peter S. Liebert, Mark H. Rachesky, Thomas E. Shenk and Samuel D. Waksal
exercised his option and purchased 8,334 shares of Common Stock at $2.25 per
share.
In November 1995, the Company entered into a research collaboration with
Solvay Duphar. In connection with such collaboration, the Company issued and
sold an aggregate of 2,500,000 shares of Series B Preferred Stock at $4.00 per
share to the Solvay Subsidiary, which then became a beneficial owner of more
than five percent of the shares of Common Stock to be outstanding upon
completion of this offering. During the period from November 1995 through
December 1995, Solvay Duphar provided research funding to the Company in an
amount which constituted in excess of five percent of the Company's gross
revenues for fiscal year 1995. In connection with its sale of Series B Preferred
Stock to the Solvay Subsidiary, the Company granted to the Solvay Subsidiary
registration rights with respect to the shares of Common Stock issuable upon the
conversion of the shares of Series B Preferred Stock owned by it. See "Business
- -- Collaborative Arrangements -- the Solvay Duphar Collaboration." Dr. Muschek,
a director of the Company, is Senior Vice President for Research and Development
of the Human Health Division of Solvay S.A.
In December 1994, the Company prepaid in full a $408,648 debt to ImClone
with a payment of $250,000.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, the authorized capital stock of the
Company will consist of 35,000,000 shares of Common Stock, par value $0.01 per
share.
COMMON STOCK
As of April 30, 1996, there were 8,883,190 shares of Common Stock
outstanding (assuming the conversion of all outstanding shares of Convertible
Preferred Stock into Common Stock) and held of record by 55 stockholders. As of
April 30, 1996, options to purchase an aggregate of 1,289,035 shares of Common
Stock were also outstanding. See "Management--Incentive Plans."
Holders of Common Stock are entitled to receive such dividends as may from
time to time be declared by the Board of Directors of the Company out of funds
legally available therefor. Holders of Common Stock are entitled to one vote per
share on all matters on which the holders of Common Stock are entitled to vote
and do not have any cumulative voting rights. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby when issued will be, fully paid and nonassessable.
At present, there is no established trading market for the Common Stock.
Upon completion of this offering, the Common Stock will be approved for listing
on the Nasdaq National Market under the symbol "KDUS."
DELAWARE TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law (the "DGCL") prevents
an "interested stockholder" (defined in Section 203, generally, as a person
owning 15% or more of a corporation's outstanding voting stock) from engaging in
a "business combination" (as defined in Section 203, generally, to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock) with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination, (ii) upon consummation of the transaction
that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock of
the corporation outstanding at the time the transaction commenced (excluding
voting stock held by directors who are also officers of the corporation and by
employee benefit plans that do not provide employees with the right to determine
confidentially whether shares held by the plan will be voted or tendered in a
tender or exchange offer) or (iii) following the transaction in which such
person became an interested stockholder, the business combination is approved by
the board of directors of the corporation and ratified at a meeting of
stockholders by the affirmative vote of the holders of two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
CHARTER AND BY-LAW PROVISIONS
The Certificate of Incorporation of the Company, as amended, contains
provisions which eliminate the personal liability of directors for monetary
damages resulting from breaches of their fiduciary duty other than liability for
breaches of the duty of loyalty to the Company or its stockholders, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, violations under Section 174 of the DGCL or any transaction
from which the director derived an improper personal benefit. The Certificate of
Incorporation of the Company, as amended, and the By-Laws, as amended, contain
provisions requiring the indemnification of the Company's directors and officers
to the fullest extent permitted by Section 145 of the DGCL, including
circumstances in which indemnification is otherwise discretionary. The Company
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Herman Group,
Inc.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
11,633,190 shares of Common Stock (including shares to be issued upon conversion
of the Convertible Preferred Stock upon completion of this offering), assuming
no exercise of the Underwriters' over-allotment option or currently outstanding
options. All of the shares sold in this offering (plus any additional shares
sold upon exercise of the Underwriters' over-allotment option) will be freely
transferable as of the date of this Prospectus by persons other than
"affiliates" of the Company without restriction or further registration under
the Securities Act. The remaining 8,883,190 shares of Common Stock to be
outstanding (the "Restricted Shares") are held by officers, directors,
employees, consultants and other stockholders of the Company. The Restricted
Shares were sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act, are "restricted securities" within the
meaning of Rule 144 under the Securities Act and may not be sold in the absence
of registration under the Securities Act unless an exemption from registration
is available including an exemption contained in Rule 144 or Rule 701 under the
Securities Act. In addition to the shares of Common Stock offered hereby, up to
475,004 of the Restricted Shares may currently be eligible for sale in the
public market pursuant to Rule 144(k) under the Securities Act (of which at
least 398,335 shares are subject to the lock-up agreements described below).
Beginning 90 days after the Effective Date, at least 5,250,226 additional
shares of Common Stock (including 579,913 shares of Common Stock issuable
pursuant to the exercise of vested options) will be or will become eligible for
sale in the public market, subject to the provisions of Rule 144 or Rule 701 (of
which at least 5,088,140 shares are subject to the agreements not to sell
described below). The officers, directors, employees, consultants and certain
stockholders of the Company, who together hold at least 8,774,852 Restricted
Shares, have agreed not to sell or otherwise dispose of their shares without the
prior written consent of Hambrecht & Quist LLC, subject to certain limited
exceptions, for a period of 180 days from the Effective Date. At the end of such
180-day period, at least 6,970,138 shares of Common Stock (including
approximately 662,094 shares issuable upon exercise of vested options) will be
eligible for immediate resale, subject to compliance with Rule 144 and Rule 701.
The remainder of the shares held by existing stockholders will become eligible
for sale at various times thereafter, subject to the provisions of Rule 144 or
Rule 701.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any person who may be deemed an
"affiliate" of the Company, is entitled to sell within any three-month period a
number of restricted securities that does not exceed the greater of 1% of the
then outstanding shares of Common Stock and the average weekly trading volume in
the over-the-counter market during the four calendar weeks preceding such sale,
provided that at least two years have elapsed since such shares were acquired
from the Company and certain manner of sale, notice requirements and
requirements as to the availability of current public information about the
Company are satisfied. Any person who is deemed to be an affiliate of the
Company must comply with the provisions of Rule 144 (other than the two-year
holding period requirement) in order to sell shares of Common Stock which are
not restricted securities (such as shares acquired by affiliates in this
offering). In addition, under Rule 144(k), a person who is not an affiliate of
the Company, and who has not been an affiliate of the Company at any time during
the 90 days preceding any sale, is entitled to sell such shares without regard
to the foregoing limitations, provided at least three years have elapsed since
the shares were acquired from the Company.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of Common Stock originally purchased from the Company, or issuable
upon the exercise of options originally granted by the Company, by its
employees, directors, officers, consultants or advisers before the date the
Company becomes subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such persons.
Securities issued in reliance on Rule 701 are deemed to be restricted securities
within the meaning of Rule 144 and, beginning 90 days after the Effective Date
(unless subject to the lock-up agreements described above), may be sold by
persons other than affiliates without having to comply with the
public-information, holding-period, volume limitation or notice provisions of
Rule 144 and by affiliates without having to comply with the two-year minimum
holding-period provision ofRule 144.
The Company intends to file a registration statement on Form S-8 under the
Securities Act after the expiration of 180 days following the Effective Date
registering approximately 1,300,000 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the Company's stock
option plans. Such
50
<PAGE>
registration statement will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will be
available for sale in the open market, subject to vesting conditions contained
in the option agreements to which they are subject and, in certain cases, to the
lock-up agreements referred to above. At April 30, 1996, options to purchase
642,734 shares of Common Stock were outstanding under the 1993 Stock Option
Plan, of which 427,005 were exercisable at such time. At April 30, 1996, no
options were outstanding under the 1996 Incentive Plan. In addition, at April
30, 1996, options to purchase 646,301 shares of Common Stock were outstanding
under stock option agreements with officers, employees and consultants, of which
83,334 were exercisable at such time.
Prior to the Offering, there has been no public market for the Common Stock
and no predictions can be made as to the effect, if any, that public sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market, or the perception that such sales could
occur, could have an adverse impact on the market price.
REGISTRATION RIGHTS
The holders of an aggregate of 7,551,514 shares of Common Stock (including
shares to be issued upon the conversion of all outstanding shares of Convertible
Preferred Stock upon completion of this offering) have certain registration
rights under agreements among such holders and the Company which will continue
to apply to the shares of Common Stock into which any such shares will be
converted upon completion of this offering.
Subject to certain conditions, the holders of 20% or more of the aggregate
of the shares of Common Stock issued or issuable upon the conversion of the
Series A Preferred Stock (the "Series A Holders") may request that the Company
file a registration statement under the Securities Act covering their shares. In
addition, subject to certain conditions, Bristol-Myers Squibb and the Solvay
Subsidiary may each make the same request of the Company. Upon its receipt of
any such request, the Company generally will be required to use its best efforts
to effect the registration of the shares owned by all persons who have
registration rights and who request inclusion of their shares in such
registration. The Company is not required to effect any registration requested
by the Series A Holders if it has effected a registration statement requested by
the Series A Holders within the previous twelve months, or any registration
(other than on Form S-3 or any successor form relating to secondary offerings)
within six months prior to such request. The Company is only obligated to effect
two registrations requested by the Series A Holders, except that the two Series
A Holders that purchased more than $1,000,000 worth of Series A Preferred Stock
have the right to request one additional registration and, in certain instances,
a second additional registration. The Company is not required to effect any
registration requested by Bristol-Myers Squibb or the Solvay Subsidiary if it
has effected two registration statements requested by Bristol-Myers Squibb or
the Solvay Subsidiary, as the case may be, a registration statement requested by
Bristol-Myers Squibb or the Solvay Subsidiary, as the case may be, within the
previous twelve months, or any registration (other than on Form S-3 or any
successor form relating to secondary offerings) within six months prior to such
request. The Company is generally obligated to bear the expenses, other than
underwriting discounts and sales commissions, of all such registrations.
The stockholders who are parties to such agreements also have certain
piggyback registration rights. Accordingly, if the Company proposes to register
any of its securities, either for its own account or for the account of other
stockholders, with certain exceptions, the Company is required to so notify such
stockholders and to include in such registration all of the shares of Common
Stock requested to be included by them, subject to rejection of such shares
under certain circumstances by an underwriter. The Company has so notified such
stockholders and none of them has exercised its registration rights with respect
to this offering.
Each of Dr. John C. Cambier and Dr. Gary L. Johnson is the holder of an
option to purchase 166,667 shares of Common Stock. As of April 30, 1996, each of
such options was exercisable with respect to 41,667 shares. The Company has
agreed that if it grants registration rights to its scientific founders or to
any of its officers, it will grant the same registration rights to Drs. Cambier
and Johnson. The Company has not granted registration rights to its scientific
founders or its officers. The Company has also agreed to include in any
registration statement on Form S-8 that it files, on a pro rata basis with
securities owned by or securities subject to options owned by employees of the
Company, any such shares if they are then registrable on Form S-8.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
the Underwriters named below through their Representatives, Hambrecht & Quist
LLC, Montgomery Securities and Genesis Merchant Group Securities, have severally
agreed to purchase from the Company the following respective number of shares of
Common Stock:
NUMBER OF
NAME SHARES
- ---- ------
Hambrecht & Quist LLC ....................................... 1,237,500
Montgomery Securities ....................................... 962,500
Genesis Merchant Group Securities ........................... 550,000
---------
Total ..................................................... 2,750,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $0.25 per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $0.10 per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 412,500
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
The officers, directors, consultants and certain stockholders of the
Company who will own an aggregate of 8,623,714 shares of Common Stock after the
offering have agreed that they will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock owned by them during
the 180 day period following the date of this Prospectus. The Company has agreed
that it will not, without the prior written consent of Hambrecht & Quist LLC,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180 day period following the
date of this Prospectus, except that the Company may issue shares upon the
exercise of options granted prior to the date hereof and may grant
52
<PAGE>
additional options under its stock option plans, provided that without the prior
written consent of Hambrecht & Quist LLC, such additional options shall not be
exercisable during such period.
The Underwriters do not intend to confirm sales of Common Stock offered
hereby to accounts over which they exercise discretionary authority.
Prior to the offering there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation among the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, market
valuation of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operation, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this preliminary prospectus is subject to change as a
result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain legal
matters will be passed upon for the Company by Morrison Cohen Singer &
Weinstein, LLP, New York, New York. Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts, has acted as counsel for the Underwriters in connection with this
offering.
EXPERTS
The financial statements of Cadus Pharmaceutical Corporation (a development
stage corporation) as of December 31, 1995 and 1994, and for each of the years
in the three-year period ended December 31, 1995, and for the period from
January 23, 1992 (date of inception) to December 31, 1995, have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The statements in this Prospectus relating to patents under the captions
"Risk Factors -- Uncertainty of Protection of Patents and Proprietary Rights"
and "Business -- Patents, Proprietary Technology and Trade Secrets" and other
references herein concerning patents have been examined by and passed upon for
the Company by LaHive & Cockfield, and are included in reliance upon such
examination and upon the authority of such counsel as experts on patents.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is hereby made to the Registration Statement and such exhibits
and schedules filed as a part thereof, which may be inspected, without charge,
at the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048 and its Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of all or any portion of the Registration Statement may be
obtained from the Public Reference Section of the Commission, upon payment of
prescribed fees. The Commission maintains a web site that contains reports,
proxy and information statements and other information regarding the Company;
the address of such site is http://www.sec.gov. This Prospectus contains
summaries of the material terms of certain contracts or other documents filed as
exhibits to the Registration Statement. Such summaries are qualified in all
respects by reference to the copies of such contracts or other documents filed
as exhibits to the Registration Statement.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
53
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report ................................. F-2
Balance Sheets ............................................... F-3
Statements of Operations ..................................... F-4
Statements of Stockholders' Equity ........................... F-5
Statements of Cash Flows ..................................... F-6
Notes to Financial Statements ................................ F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cadus Pharmaceutical Corporation:
We have audited the accompanying balance sheets of Cadus Pharmaceutical
Corporation (a development stage corporation) as of December 31, 1995 and 1994,
and the related statements of operations, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1995 and the
period from January 23, 1992 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cadus Pharmaceutical
Corporation (a development stage corporation) as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 1995 and the period from January 23,
1992 (date of inception) to December 31, 1995 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 29, 1996,
except as to note 15,
which is as of May 10, 1996
F-2
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(a development stage corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, MARCH 31,
------------------- MARCH 31, 1996
1995 1994 1996 (NOTE 15)
---- ---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................ $25,682,920 $14,405,678 $25,085,978
Restricted cash (note 5) ............................................. 2,380,000 187,000 2,380,000
Prepaid and other current assets ..................................... 76,810 87,137 405,932
----------- ----------- -----------
Total current assets .............................................. 28,139,730 14,679,815 27,871,910
Restricted cash (note 5) .............................................. 118,000 118,000 118,000
Fixed assets, net of accumulated depreciation and
amortization of $649,016 at December 31, 1995, $144,257
at December 31, 1994 and $825,501 at March 31, 1996 (note 3) ......... 2,219,851 846,318 2,241,323
Deferred tax asset, less valuation allowance of $2,621,000
at December 31, 1995, $2,033,000 at December 31, 1994 and
$2,638,000 at March 31, 1996 (note 6) ................................ -- -- --
Due from stockholder (note 4) ......................................... 13,736 21,499 11,796
Other assets, net (note 2) ............................................ 233,874 73,980 342,011
----------- ----------- -----------
Total assets ...................................................... $30,725,191 $15,739,612 $30,585,040
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue (note 7) ............................................ $ -- $ 645,381 $ --
Accounts payable ..................................................... 154,463 257,058 211,928
Accrued expenses and other current liabilities (note 10) ............. 421,155 54,166 259,493
Line of credit and loans payable to bank-current portion (note 5) .... 2,397,459 203,403 2,397,459
Total current liabilities ......................................... 2,973,077 1,160,008 2,868,880
Loans payable to bank (note 5) ........................................ 29,002 45,999 24,790
----------- ----------- -----------
Total liabilities ................................................. 3,002,079 1,206,007 2,893,670
=========== =========== ===========
Commitments and contingencies (note 11)
Stockholders' equity (notes 7 and 8):
Preferred Stock, $.001 par value. Authorized 22,201,080 shares at
December 31, 1995 and March 31, 1996, issuable in series.
Convertible Preferred Stock, Series A. 14,879,651 shares designated;
issued and outstanding at December 31, 1995 and 1994 and March 31, 1996,
14,879,651 shares (preference in liquidation, $6,800,000); no shares
authorized, issued and outstanding on a pro forma basis ........... 14,880 14,880 14,880 $ --
Convertible Preferred Stock, Series B. 7,321,429 shares designated;
issued and outstanding at December 31, 1995 and March 31, 1996, 7,321,429
shares, (preference in liquidation, $27,500,000); at December 31, 1994,
3,571,429 shares; no shares authorized, issued and outstanding on a
pro forma basis ................................................... 7,321 3,571 7,321 --
Common stock, $.01 par value. Authorized 35,000,000 shares at December 31,
1995 and March 31, 1996; issued 1,465,009 shares at December 31, 1995,
1,405,005 shares at December 31, 1994 and 1,473,343 shares at March 31,
1996; outstanding 1,323,342 shares at December 31, 1995, 1,380,005 shares
at December 31, 1994 and 1,331,676 shares at March 31, 1996;
issued 9,024,857 shares and outstanding 8,883,190 shares on a pro
forma basis ......................................................... 14,650 14,050 14,733 90,249
Additional paid-in capital ........................................... 33,976,940 19,009,293 33,988,282 33,934,967
Deficit accumulated during the development stage (note 1) ............ (5,990,604) (4,508,114) (6,033,771) (6,033,771)
Treasury stock, 141,667 shares of common stock at December 31, 1995
and March 31, 1996, 25,000 shares of common stock at December 31, 1994,
at cost; 141,667 shares of common stock on a pro forma basis ........ (300,075) (75) (300,075) (300,075)
----------- ----------- ----------- -----------
Total stockholders' equity ........................................ 27,723,112 14,533,605 27,691,370 $27,691,370
=========== =========== =========== ===========
Total liabilities and stockholders' equity ........................ $30,725,191 $15,739,612 $30,585,040
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(a development stage corporation)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 23, JANUARY 23,
1992 1992
(DATE OF THREE MONTHS (DATE OF
INCEPTION) TO ENDED MARCH 31, INCEPTION) TO
DECEMBER 31, ----------------- MARCH 31,
1995 1994 1993 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues, principally
from related parties
(notes 2 and 7) .............. $ 4,417,809 $(1,354,619 $ -- $ 5,772,428 $1,625,001 $1,000,000 $ 7,397,429
----------- ----------- ----------- ----------- ---------- --------- -----------
Costs and expenses:
Research and development
costs ....................... 5,383,285 2,246,207 1,645,552 10,028,522 1,654,391 1,040,375 11,682,913
General and administrative
expenses .................... 1,376,126 936,762 549,571 3,076,390 317,677 317,165 3,394,067
----------- ----------- ----------- ----------- ---------- --------- -----------
Total costs and expenses ... 6,759,411 3,182,969 2,195,123 13,104,912 1,972,068 1,357,540 15,076,980
----------- ----------- ----------- ----------- ---------- --------- -----------
Operating loss ................ (2,341,602) (1,828,350) (2,195,123) (7,332,484) (347,067) (357,540) (7,679,551)
----------- ----------- ----------- ----------- ---------- --------- -----------
Interest income ............... 980,567 318,868 48,038 1,347,473 359,335 215,511 1,706,808
Interest expense .............. 77,866 5,063 -- 82,929 37,855 6,328 120,784
----------- ----------- ----------- ----------- ---------- --------- -----------
Interest income, net ....... 902,701 313,805 48,038 1,264,544 321,480 209,183 1,586,024
----------- ----------- ----------- ----------- ---------- --------- -----------
Loss before income taxes
and extraordinary item ....... (1,438,901) (1,514,545) (2,147,085) (6,067,940) (25,587) (148,357) (6,093,527)
State and local taxes (note 6) 43,589 36,994 729 81,312 17,580 6,470 98,892
----------- ----------- ----------- ----------- ---------- --------- -----------
Loss before extraordinary item (1,482,490) (1,551,539) (2,147,814) (6,149,252) (43,167) (154,827) (6,192,419)
Extraordinary gain from early
extinguishment of debt
(note 4) ..................... -- 158,648 -- 158,648 -- -- 158,648
----------- ----------- ----------- ----------- ---------- --------- -----------
Net loss ...................... $(1,482,490) $(1,392,891) $(2,147,814) $(5,990,604) $ (43,167) $(154,827) $(6,033,771)
=========== =========== =========== =========== ========== ========= ===========
Pro forma net loss per share
(unaudited--note 2) .......... $ (0.16) $ 0.00
=========== ==========
Shares used in calculation of
pro forma net loss per share
(unaudited--note 2) .......... 9,132,577 9,076,960
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(a development stage corporation)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE CONVERTIBLE ACCUMULATED
PREFERRED STOCK, PREFERRED STOCK, ADDITIONAL DURING THE
SERIES A SERIES B COMMON STOCK PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
---------- ------- --------- ------- --------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares issued from January 23, 1992
(date of inception) to December 31,
1992 at $.01 per share in connection
with initial offering .................... 1,400,005 $14,000 $ (9,800)
Net loss for period January 23, 1992 to
December 31, 1992 ........................ $ (967,409)
---------- ------- --------- ------- --------- ------- ----------- -----------
Balance at December 31, 1992 .............. 1,400,005 14,000 (9,800) (967,409)
Repurchase of stock from founder for cash . (25,000)
Issuance of common stock for cash in
connection with exercise of options ...... 1,667 17 2,483
Issuance of Convertible Preferred Stock,
Series A for cash, net of issuance
costs of $200,299 in July 1993 ........... 14,879,651 $14,880 6,584,821
Net loss for year ended December 31, 1993 . (2,147,814)
---------- ------- --------- ------- --------- ------- ----------- -----------
Balance at December 31, 1993 .............. 14,879,651 14,880 1,376,672 14,017 6,577,504 (3,115,223)
Issuance of Convertible Preferred Stock,
Series B for cash, net of issuance
costs of $72,742, in connection with
corporate partnering transaction in
July 1994 ................................ 3,571,429 $ 3,571 12,423,687
Issuance of common stock for cash in
connection with exercise of options 3,333 33 8,102
Net loss for year ended December 31, 1994 . (1,392,891)
---------- ------- --------- ------- --------- ------- ----------- -----------
Balance at December 31, 1994 .............. 14,879,651 14,880 3,571,429 3,571 1,380,005 14,050 19,009,293 (4,508,114)
Issuance of Convertible Preferred Stock,
Series B for cash, in connection with
achievement of scientific milestone ...... 1,250,000 1,250 4,998,750
Issuance of Convertible Preferred Stock,
Series B for cash, net of issuance
costs of $154,858, in connection with
corporate partnering transaction in
November 1995 ............................ 2,500,000 2,500 9,842,642
Issuance of common stock for cash in
connection with exercise of options ...... 60,004 600 126,255
Repurchase of stock from founder for cash . (116,667)
Net loss for year ended December 31, 1995 . (1,482,490)
---------- ------- --------- ------- --------- ------- ----------- -----------
Balance at December 31, 1995 .............. 14,879,651 14,880 7,321,429 7,321 1,323,342 14,650 33,976,940 (5,990,604)
Issuance of common stock for cash in
connection with exercise of options
(Unaudited) .............................. 8,334 83 11,342
Net loss for three months ended March 31, .
1996 (Unaudited) (43,167)
---------- ------- --------- ------- --------- ------- ----------- -----------
Balance at March 31, 1996 (Unaudited) ..... 14,879,651 $14,880 7,321,429 $ 7,321 1,331,676 $14,733 $33,988,282 $(6,033,771)
========== ======= ========= ======= ========= ======= =========== ==========
</TABLE>
TREASURY STOCK
SHARES AMOUNT TOTAL
-------- --------- -----------
Shares issued from January 23, 1992
(date of inception) to December 31,
1992 at $.01 per share in connection
with initial offering .................... $ 4,200
Net loss for period January 23, 1992 to
December 31, 1992 ........................ (967,409)
-------- --------- -----------
Balance at December 31, 1992 .............. (963,209)
Repurchase of stock from founder for cash . (25,000) $ (75) (75)
Issuance of common stock for cash in
connection with exercise of options ...... 2,500
Issuance of Convertible Preferred Stock,
Series A for cash, net of issuance
costs of $200,299 in July 1993 ........... 6,599,701
Net loss for year ended December 31, 1993 . (2,147,814)
-------- --------- -----------
Balance at December 31, 1993 .............. (25,000) (75) 3,491,103
Issuance of Convertible Preferred Stock,
Series B for cash, net of issuance
costs of $72,742, in connection with
corporate partnering transaction in
July 1994 ................................ 12,427,258
Issuance of common stock for cash in
connection with exercise of options 8,135
Net loss for year ended December 31, 1994 . (1,392,891)
-------- --------- -----------
Balance at December 31, 1994 .............. (25,000) (75) 14,533,605
Issuance of Convertible Preferred Stock,
Series B for cash, in connection with
achievement of scientific milestone ...... 5,000,000
Issuance of Convertible Preferred Stock,
Series B for cash, net of issuance
costs of $154,858, in connection with
corporate partnering transaction in
November 1995 ............................ 9,845,142
Issuance of common stock for cash in
connection with exercise of options ...... 126,855
Repurchase of stock from founder for cash . (116,667) (300,000) (300,000)
Net loss for year ended December 31, 1995 . (1,482,490)
-------- --------- -----------
Balance at December 31, 1995 .............. (141,667) (300,075) 27,723,112
Issuance of common stock for cash in
connection with exercise of options
(Unaudited) .............................. 11,425
Net loss for three months ended March 31, .
1996 (Unaudited) (43,167)
-------- --------- -----------
Balance at March 31, 1996 (Unaudited) ..... (141,667) $(300,075) $27,691,370
======== ========= ===========
See accompanying notes to financial statements.
F-5
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(a development stage corporation)
Statements of Cash Flows
<TABLE>
<CAPTION>
January 23,
1992
(date of
inception)
to December 31,
1995 1994 1993 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................. $ (1,482,490)$ (1,392,891)$ (2,147,814) $(5,990,604)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .......... 544,855 103,428 94,123 745,218
Loss on trade in of equipment .......... 2,658 -- -- 2,658
Extraordinary gain from early
extinguishment of debt ................ -- (158,648) -- (158,648)
Changes in assets and liabilities:
Decrease (increase) in prepaid and
other current assets ................. 10,327 (69,717) (17,420) (76,810)
Decrease (increase) in other assets ... 5,088 ( 6,794) ( 3,299) ( 5,005)
(Decrease) increase in deferred
revenue ............................. (645,381) 645,381 -- --
(Decrease) Increase in accounts
payable.............................. (102,595) 238,850 (1,000) 154,463
Increase (decrease) in accrued
expenses and other current
liabilities.......................... 366,989 28,266 (3,514) 421,155
----------- ----------- ----------- -----------
Net cash used in operating
activities ......................... (1,300,549) (612,125) (2,078,924) (4,907,573)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets .............. (1,893,858) (605,096) (249,274) (2,859,298)
Increase in restricted cash .............. (2,193,000) (287,000) (18,000) (2,498,000)
Stockholder borrowing..................... 7,763 (1,626) (19,873) (13,736)
Patent Costs ............................. (192,170) (16,552) (53,576) (262,298)
----------- ----------- ----------- -----------
Net cash used in investing
activities ........................... (4,271,265) (910,274) (340,723) (5,633,332)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from bank line of credit ........ 2,193,000 187,000 -- 2,380,000
Payments on bank loan .................... (15,941) (12,598) -- (28,539)
(Payment to) proceeds from stockholder ... -- (250,000) 1,381,454 2,158,648
Proceeds from issuance of common stock
and exercise of stock options ........... 126,855 8,135 2,500 141,690
Net proceeds from issuance of convertible
preferred stock ......................... 14,845,142 12,427,258 4,599,701 31,872,101
Purchase of treasury stock ............... (300,000) -- (75) (300,075)
----------- ----------- ----------- -----------
Net cash provided by financing
activities ........................... 16,849,056 12,359,795 5,983,580 36,223,825
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents ..................... 11,277,242 10,837,396 3,563,933 25,682,920
Cash and cash equivalents at beginning
of period ................................ 14,405,678 3,568,282 4,349 --
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $25,682,920 $14,405,678 $ 3,568,282 $25,682,920
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
January 23,
Three Months 1992
Ended (date of
March 31, inception)
------------------ to March 31,
1996 1995 1996
---- ---- ----
----------(Unaudited)------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................. $ (43,167) $ (154,827)$ (6,033,771)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .......... 157,198 57,900 902,416
Loss on trade in of equipment .......... -- -- 2,658
Extraordinary gain from early
extinguishment of debt ................ -- -- (158,648)
Changes in assets and liabilities:
Decrease (increase) in prepaid and
other current assets ................. (329,122) (56,792) (405,932)
Decrease (increase) in other assets ... (97,895) (30,435) (102,900)
(Decrease) increase in deferred
revenue .............................. -- (493,751) --
(Decrease) increase in accounts
payable .............................. 57,465 292,149 211,928
Increase (decrease) in accrued
expenses and other current
liabilities ......................... (161,662) (39,932) 259,493
----------- ----------- -----------
Net cash used in operating
activities .......................... (417,183) (425,688) (5,324,756)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets .............. (197,957) (892,807) (3,057,255)
Increase in restricted cash .............. -- (640,000) (2,498,000)
Stockholder borrowing .................... 1,940 1,941 (11,796)
Patent costs ............................. 9,045 (5,304) (253,253)
----------- ----------- -----------
Net cash used in investing
activities ........................... (186,972) (1,536,170) (5,820,304)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from bank line of credit ........ -- 640,000 2,380,000
Payments on bank loan .................... (4,212) (3,879) (32,751)
(Payment to) proceeds from stockholder ... -- -- 2,158,648
Proceeds from issuance of common stock
and exercise of stock options ........... 11,425 -- 153,115
Net proceeds from issuance of convertible
preferred stock ......................... -- -- 31,872,101
Purchase of treasury stock ............... -- -- (300,075)
----------- ----------- -----------
Net cash provided by financing
activities ........................... 7,213 636,121 36,231,038
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents ..................... (596,942) (1,325,737) 25,085,978
Cash and cash equivalents at beginning
of period ................................ 25,682,920 14,405,678 --
----------- ----------- -----------
Cash and cash equivalents at end of period $25,085,978 $13,079,941 $25,085,978
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(1) ORGANIZATION AND BASIS OF PREPARATION
Cadus Pharmaceutical Corporation (the "Company") was incorporated on
January 23, 1992 under the laws of the State of Delaware. The Company is focused
on the development and application of novel yeast-based and signal transduction
drug discovery technologies.
The Company has accumulated a loss of $6,033,771 from January 23, 1992
(date of inception) to March 31, 1996. Management intends to continue research
toward the development of commercial products in order to generate future
revenues from license fees, royalties, direct sales and performance of contract
research. The Company has financed its operations through the sale of
convertible preferred stock and through revenues resulting from research funding
provided by its collaborative partners (note 7).
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Development Stage Enterprise
The efforts of the Company since inception have been devoted to research
and development and raising capital. Accordingly, the financial statements are
presented under the guidelines stipulated by the Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting
and Reporting by Development Stage Enterprises."
(b) Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. At
March 31, 1996, December 31, 1995 and 1994, cash equivalents consist of
$24,849,377, $25,324,631 and $14,353,359, respectively.
(c) Fixed Assets
Fixed assets are stated at cost. Depreciation of equipment and furniture
and fixtures is calculated using the straight-line method over estimated useful
lives of five to seven years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful lives of the
improvements or the remaining term of the lease.
(d) Other Assets, Net
"Other assets, net" include capitalized patent costs which are amortized on
a straight-line basis over fifteen years. At March 31, 1996, December 31, 1995
and 1994, accumulated amortization is $14,142, $33,429 and $6,237, respectively.
(e) Income Taxes
The Company accounts for income taxes in accordance with the principles set
forth in SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires that
the Company recognize deferred tax assets and liabilities for the expected
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
F-7
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(2) SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(f) Research and Development
Research and development costs are expensed as incurred and include direct
costs of research scientists and equipment and an allocation of shared
facilities and services.
(g) Revenue Recognition
The Company has entered into research agreements which provide for the
payment of nonrefundable fees during the term of the research programs. In
addition, the agreements provide for payment of fees when both parties concur
that certain milestone events have occurred. These fees are reflected as revenue
when earned as related costs are incurred or when agreement is reached that
milestone events have occurred.
Revenue recognized in the accompanying statements of operations is not
subject to repayment. Revenue received that is related to future performance
under such contracts is deferred and recognized as revenue when earned.
(h) Pro Forma Net Loss Per Share (Unaudited)
All common share data has been restated to give effect to a one-for-three
reverse stock split to be effected immediately prior to closing of the proposed
initial public offering (see note 15). Except as noted below, pro forma net loss
per share is computed using the weighted average number of shares of common
stock outstanding. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, the Series B Convertible Preferred Stock (using the
if-converted method) and stock options (using the treasury stock method and the
anticipated initial public offering price) issued at prices substantially below
the anticipated public offering price during the 12-month period prior to the
proposed offering have been included in the calculation as if they were
outstanding for all periods presented. Furthermore, common equivalent shares
from convertible preferred stock issued prior to the 12-month period preceding
the proposed offering that will convert upon the completion of the Company's
proposed initial public offering are included in the calculation (using the
if-converted method) from the original date of issuance. Common equivalent
shares from stock options issued prior to the 12-month period preceding the
proposed offering are excluded from the computation as their effect is
anti-dilutive. Historical earnings per share have not been presented because
such amounts are not meaningful due to the significant change in the Company's
capital structure that will occur in connection with the Company's proposed
initial public offering.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) Fair Value of Financial Instruments
For cash, due from stockholder, accounts payable and accrued expenses and
line of credit, the carrying amount approximates the fair value because of the
short maturities of those instruments.
For loans payable to bank the difference between the carrying value and
fair value is not material.
F-8
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(2) SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(k) Unaudited Interim Financial Information
The financial information at March 31, 1996 and for the three-month periods
ended March 31, 1996 and 1995 and for the period from January 23, 1992 (date of
inception) to March 31, 1996 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Results for the three-month
period ended March 31, 1996 are not necessarily indicative of results that may
be expected for the year ending December 31, 1996.
(3) FIXED ASSETS
Fixed assets, at cost, are summarized as follows:
DECEMBER 31,
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1994 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Equipment ........................................................... $2,123,959 $964,928 $2,318,334
Furniture and fixtures .............................................. 167,875 25,647 168,240
Leasehold improvements .............................................. 577,033 -- 580,250
---------- -------- ----------
2,868,867 990,575 3,066,824
Less accumulated depreciation and amortization ...................... 649,016 144,257 825,501
---------- -------- ----------
$2,219,851 $846,318 $2,241,323
========== ======== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and 1993,
and the period from January 23, 1992 (date of inception) to December 31, 1995
amounted to approximately $517,700, $99,200, $92,100 and $711,800, respectively.
(4) DUE FROM STOCKHOLDER AND RELATED PARTY TRANSACTIONS
A stockholder of the Company funded the Company's operations until the
Company was able to support its own activities. At the closing of the
convertible preferred stock offering in July 1993, $2 million in debt to such
stockholder was cancelled as consideration for the issuance of 4,376,368 shares
of Series A Convertible Preferred Stock (the "Series A Preferred Stock") (note
7). The remaining debt of $408,648 continued interest free until December 1994
when such debt was repaid for $250,000. As a result of this early extinguishment
of indebtedness, the Company recorded an extraordinary gain of $158,648 in the
1994 statement of operations.
In addition, this stockholder and certain of its directors and executive
officers (who were also directors and officers of the Company) provided certain
services to the Company for the period ended December 31, 1992 and for the first
three months in the year ended December 31, 1993. These services included
purchase ordering, bookkeeping and legal counsel, and have been provided to the
Company at no cost, other than direct expense reimbursement.
A founder of the Company entered into an agreement pursuant to which he was
entitled to borrow up to $25,000, drawn at a maximum rate of $5,000 per month,
beginning April 1993. Interest accrues on outstanding borrowings at 8% per
annum. The outstanding balance was $11,796 at March 31, 1996, $13,736 at
December 31, 1995 and $21,499 at December 31, 1994. The loan is currently being
repaid at $646 per month. The loan is secured by 13,334 shares of the founder's
common stock in the Company.
See note 7 for further discussion of transactions with related parties.
F-9
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(5) LINE OF CREDIT AND LOANS PAYABLE TO BANK
The Company obtained an $18,000 loan from a bank for the purchase of
equipment in December 1993. The loan bears interest at the rate of 9.50% per
annum. Principal and interest payments of approximately $560 per month commenced
in January 1994 and continue for a period of 36 months. As of March 31, 1996,
December 31, 1995 and 1994, the balance of this loan was $5,349, $6,866 and
$12,555, respectively. The loan is secured by cash on deposit with such bank,
which is reflected as restricted cash in the accompanying balance sheet.
The Company obtained a $57,000 loan from a bank for the purchase of
equipment in March 1994. The loan bears interest at the rate of 8% per annum.
Principal and interest payments of approximately $1,156 per month commenced in
April 1994 and continue for a period of 60 months. As of March 31, 1996,
December 31, 1995 and 1994, the balance of this loan was $36,900, $39,595 and
$49,847, respectively. The loan is secured by a certificate of deposit with such
bank, which is reflected as restricted cash in the accompanying balance sheet.
In September 1994, the Company obtained a $1,500,000 secured line of credit
with the Bank of New York. In June 1995, the Company increased this secured line
of credit from $1,500,000 to $2,500,000. Advances under the line of credit bear
interest at a rate of 1% above the rate earned on the collateral. All
obligations of the Company with respect to this line of credit are secured
pursuant to a security agreement granting the bank a first and prior security
interest in the Company's negotiable certificates of deposit held by the bank.
The right to borrow additional amounts under the line of credit expires on June
30, 1996. The amounts outstanding are payable on demand.
Advances under this line of credit at March 31, 1996, December 31, 1995 and
1994 totaled $2,380,000, $2,380,000 and $187,000, respectively. The advances are
secured by certificates of deposit with varying maturities which are reflected
as restricted cash in the accompanying balance sheet.
The aggregate maturities of the line of credit and loans payable to the
bank for each of the five years subsequent to December 31, 1995 are as follows:
1996, $2,397,459; 1997, $11,787; 1998, $12,766; 1999, $4,449; 2000, $0.
(6) INCOME TAXES
Deferred tax assets of approximately $2,638,000, $2,621,000 and $2,033,000
at March 31, 1996, December 31, 1995 and 1994, respectively, relate principally
to tax net operating loss carryforwards of $5,434,000, $5,391,000 and $4,333,500
and research credit carryforwards of $431,400, $431,400 and $290,400 at March
31, 1996, December 31, 1995 and 1994, respectively. An offsetting valuation
allowance has been established for the full amount of the deferred tax assets to
reduce such assets to zero, as a result of the significant uncertainty regarding
their ultimate realization. The aggregate valuation allowance increased $17,000,
$588,000 and $455,000 during the periods ended March 31, 1996, December 31, 1995
and 1994, respectively.
The Company's net operating loss carryforwards and research and development
tax credit carryforwards noted above expire in various years from 2007 to 2011.
The Company's ability to utilize such net operating loss and research and
development tax credit carryforwards is subject to certain limitations due to
ownership changes, as defined by rules enacted with the Tax Reform Act of 1986.
The Company is subject to New York State and City tax on capital.
(7) PREFERRED STOCK PURCHASE AND RESEARCH COLLABORATION AND LICENSE AGREEMENTS
In September 1995, the Company increased its authorized capitalization to
7,321,429 shares of Series B Convertible Preferred Stock ("Series B Preferred
Stock"), par value $.001 per share, and 35,000,000 shares of Common Stock, par
value $.01 per share. The authorized capitalization of the Series A Preferred
Stock was
F-10
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(7) PREFERRED STOCK PURCHASE AND RESEARCH COLLABORATION AND LICENSE
AGREEMENTS--(CONTINUED)
14,879,651 shares at December 31, 1995. As of December 31, 1995, the Company had
reserved 4,959,899 shares of Common Stock for the conversion of the Series A
Preferred Stock and 2,440,477 shares of Common Stock for the conversion of the
Series B Preferred Stock.
On July 30, 1993, the Company issued 14,879,651 shares of Series A
Preferred Stock, $.001 par value, at a purchase price of $.457 per share for
aggregate consideration of $4,800,000 in cash and $2,000,000 in satisfaction of
indebtedness to a stockholder, before issuance costs of approximately $200,000.
On July 26, 1994, the Company entered into a Preferred Stock Purchase
Agreement with Bristol-Myers Squibb Company ("BMS") and issued 3,571,429 shares
of Series B Preferred Stock to BMS at a purchase price of $3.50 per share for
aggregate consideration of $12,500,000, before issuance costs of approximately
$73,000.
In accordance with a related Research Collaboration and License Agreement,
BMS has agreed to provide funding to the Company for the conduct of research
programs in the amount of up to $4,000,000 each year during the term of the
research programs. For the year ended December 31, 1995, the Company received
$3,354,619 in cash and recorded revenue of $4,000,000 pursuant to this
agreement. For the year ended December 31, 1994, the Company received $2,000,000
pursuant to this agreement and recorded revenue of $1,354,619 and deferred
revenue of $645,381. In August and September 1995, the Company issued an
aggregate of 1,250,000 shares of Series B Preferred Stock at $4.00 per share for
$5,000,000 in cash to BMS upon the Company's achievement of a research
milestone. In addition, BMS is obligated to make payments to the Company upon
the achievement of certain scientific and commercial milestones and to pay
royalties on sales of products developed under the agreement.
In November 1995, the Company entered into a Preferred Stock Purchase
Agreement with Physica B.V., a subsidiary of Solvay Duphar B.V. ("Solvay
Duphar"), and issued 2,500,000 shares of Series B Preferred Stock at a purchase
price of $4.00 per share for aggregate consideration of $10,000,000 before
issuance costs of approximately $155,000.
In accordance with a related Research Collaboration and License Agreement,
Solvay Duphar will provide funding to the Company for the conduct of research
programs in an amount of up to $2,500,000 each year, adjusted for inflation,
during the term of the research programs. For the year ended December 31, 1995,
the Company received and recorded revenue of $417,809 pursuant to this
agreement. In addition, Solvay is obligated to make payments to the Company upon
the achievement of certain scientific and commercial milestones and to pay
royalties on sales of products developed under the agreement. No such payments
were received during 1995. The Company has reserved the right to use certain
hybrid yeast cells that are part of the research program for its own benefit in
the discovery of drugs relating to cancer, autoimmune, allergic and inflammatory
diseases, with certain specific exclusions. The Company is required to make
payments to Solvay Duphar upon the achievement by the Company of certain drug
development milestones and to pay Solvay Duphar royalties on the sale of such
drugs.
The holders of Series A and Series B Preferred Stock are entitled to
receive non-cumulative cash dividends on the same basis as dividends declared on
the common stock. Holders also have one vote per share of stock, and can request
that their shares be registered at any time after the earlier of an initial
public offering or three years after the closing of the respective Preferred
Stock Purchase Agreement, if certain conditions are met.
The holders of Series A and Series B Preferred Stock have the right to
convert such shares into Common Stock; the current conversion rate (assuming the
consummation of the one-for-three reverse stock split of the Company's Common
Stock to be effected immediately prior to closing of this offering) is three
shares of Series A or Series B Preferred Stock are convertible into one share of
Common Stock. Should the Company file a public offering for its Common Stock at
any price in excess of $4.14 per share, resulting in aggregate proceeds to the
Company of at least $7,500,000, the Series A and Series B Preferred Stock will
automatically convert to Common Stock at the then applicable conversion rate.
The conversion rate is subject to certain anti-dilution provisions,
F-11
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
which are triggered for the Series A Preferred Stock if Common Stock is sold for
less than $1.37 per share and for the Series B Preferred Stock if Common Stock
is sold for less than $8.40 per share.
(8) STOCK OPTIONS
The 1993 Stock Option Plan ("Plan") was adopted in January 1993. The Plan
provides for the grant of options to reward executives, consultants and
employees in order to foster in such personnel an increased personal interest in
the future growth and prosperity of the Company. The options granted under this
Plan may be either incentive stock options or nonqualified options. An aggregate
of 666,667 common shares were reserved for issuance under this Plan.
Options granted under this Plan expire no later than ten years from the
date of grant. The option price is required to be at least 100% and 85% of the
fair market value on the date of grant as determined by the Board of Directors
for incentive stock options and nonqualified options, respectively. The options
generally become exercisable according to a schedule of vesting as determined by
the Compensation Committee of the Board of Directors. The schedule prescribes
the date or dates on which the options become exercisable, and may provide that
the option rights accrue or become exercisable in installments over a period of
months or years.
Activity under the Plan through March 31, 1996 is as follows:
OPTIONS OUTSTANDING
--------------------------
NUMBER OPTION
OF PRICE RANGE
SHARES PER SHARE
------- -----------
Balance at December 31, 1992 ............ -- $ --
1993 activity:
Granted ................................. 453,346 1.37-3.51
Exercised ............................... (1,667) 1.50
Cancelled ............................... (5,000) 1.50
------- ---------
Balance at December 31, 1993 ............ 446,679 1.37-3.51
------- ---------
1994 activity:
Granted ................................. 115,490 1.50
Exercised ............................... (3,334) 1.37-3.51
Cancelled ............................... (10,334) 1.37-3.51
------- ---------
Balance at December 31, 1994 ............ 548,501 1.37-3.51
------- ---------
1995 activity:
Granted ................................. 124,860 2.25-3.00
Exercised ............................... (10,000) 1.37-1.50
Cancelled ............................... (11,668) 1.37-1.50
------- ---------
Balance at December 31, 1995 ............ 651,693 1.37-3.51
------- ---------
1996 activity (unaudited):
Granted ................................. -- --
Exercised ............................... (8,334) 1.37
Cancelled ............................... (625) --
------- ---------
Balance at March 31, 1996 (unaudited) ... 642,734 $1.37-3.51
======= =========
At March 31, 1996 and December 31, 1995, options pursuant to the Plan to
purchase 422,422 and 426,159 shares, respectively, were exercisable.
F-12
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(8) STOCK OPTIONS--(CONTINUED)
The Company entered into stock option agreements not pursuant to the Plan
with certain employees, founders and consultants. These options generally become
exercisable according to a schedule of vesting as determined by the Compensation
Committee of the Board of Directors. The options become exercisable in
installments over a period of months or years. As of December 31, 1995, an
aggregate of 475,001 shares of common stock were reserved for issuance pursuant
to stock option agreements.
In September 1995, the Board of Directors granted to each director then in
office a 30-day option to purchase 8,334 shares of Common Stock at an exercise
price of $2.25 per share. In October 1995, six directors exercised their options
and purchased 8,334 shares each of Common Stock at $2.25 per share.
Activity for all of the above grants through March 31, 1996 is as follows:
OPTIONS OUTSTANDING
--------------------------
NUMBER OPTION
OF PRICE RANGE
SHARES PER SHARE
------- ----------
Balance at December 31, 1993 ............ -- $ --
1994 activity:
Granted ................................. 333,334 1.50
Exercised ............................... -- --
Cancelled ............................... -- --
------- ---------
Balance at December 31, 1994 ............ 333,334 1.50
------- ---------
1995 activity:
Granted ................................. 379,639 2.25-3.60
Exercised ............................... (50,004) 2.25
Cancelled ............................... (16,668) --
------- ---------
Balance at December 31, 1995 ............ 646,301 1.50-3.60
------- ---------
1996 activity (unaudited):
Granted ................................. -- --
Exercised ............................... -- --
Cancelled ............................... -- --
------- ---------
Balance at March 31, 1996 ............... 646,301 $1.50-3.60
======= =========
At March 31, 1996 and December 31, 1995, options to purchase 83,334 and no
shares, respectively, under such stock option agreements were exercisable.
F-13
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(9) LICENSE AND SPONSORED RESEARCH AGREEMENTS
The Company has entered into several agreements with third parties as part
of its program to develop novel classes of therapeutics that target cellular
signal transduction pathways. Generally, the agreements provide that the Company
will make research payments and will pay license fees and/or maintenance
payments, in return for the use of technology and information and the right to
manufacture, use and sell future products. These agreements provide for payments
based on the completion of milestone events, as well as royalty payments based
upon a percentage of product or assay sales. License fees and maintenance
payments for the years ended December 31, 1995, 1994 and 1993, and the period
from January 23, 1992 (date of inception) to December 31, 1995 amounted to
approximately $250,000, $236,000, $57,000 and $593,000, respectively.
(10) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities include the following:
DECEMBER 31,
------------------- MARCH 31,
1995 1994 1996
-------- -------- --------
(UNAUDITED)
Accrued rent .................................. $130,845 $ -- $114,489
Accrued bonuses ............................... 100,000 -- --
Other accrued expenses and current liabilities 190,310 54,166 145,004
-------- -------- --------
$421,155 $ 54,166 $259,493
======== ======== ========
(11) COMMITMENTS AND CONTINGENCIES
Lease Commitments
In October 1994, the Company entered into a sublease agreement with Union
Carbide Corporation to sublease approximately 18,400 rentable square feet of
laboratory/office space in Tarrytown, New York. The term of this agreement is
for a period of approximately three years commencing on May 15, 1995 and
expiring on December 30, 1997. Pursuant to this agreement, the Company received
the first four months rent free, which is being amortized so as to produce a
level amount of rent expense over the life of the lease. The unamortized portion
has been included in accounts payable and accrued expenses in the accompanying
balance sheet. In addition, the Company delivered an irrevocable letter of
credit to Union Carbide in the amount of $40,000 as security for the Company's
performance of its obligations under this lease. The letter of credit is secured
by a one-year certificate of deposit, which is reflected as restricted cash in
the accompanying balance sheet. The Company has the option to lease these
facilities directly from the landlord for a five-year period commencing January
1, 1998 and a further option to renew such lease for a five-year period
commencing on January 1, 2003.
In October 1994, the Company entered into an agreement to sublease
approximately 4,567 rentable square feet of laboratory/office space on a
month-to-month basis in Tarrytown, New York. In December 1994, the Company
entered into an agreement to lease approximately 3,299 rentable square feet of
office space and approximately 1,265 square feet of storage space in Tarrytown,
New York. On May 15, 1995, each of these agreements terminated with the
exception of the agreement for storage space which expires in December 1997.
F-14
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(11) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In November 1994, the Company entered into an agreement to sublease 2,989
square feet of laboratory/office space, in Lakewood, Colorado, from Colorado
Biomedical Venture Center, Inc. ("CBVC") for a period of 21 months ending on
July 9, 1996. In March 1996, the Company extended the sublease agreement for
eight additional months.
Future minimum lease payments are as follows:
YEARS ENDING DECEMBER 31,
-------------------------
1996 .............................. $ 575,782
1997 .............................. 539,867
----------
$1,115,649
==========
Until October 1994, the Company did not have a long-term rental agreement.
Rent expense for the years ended December 31, 1995, 1994 and 1993, and the
period from January 23, 1992 (date of inception) to December 31, 1995 amounted
to approximately $434,600, $100,500, $72,000 and $614,300, respectively.
In May 1996, the Company amended its sublease agreement with Union Carbide
Corporation and the landlord to sublease an additional 7,376 square feet of
laboratory/office space in Tarrytown, New York and agreed to sublease an
additional 535 square feet under its sublease with CBVC. Future minimum lease
payments for the years ending December 31, 1996 and 1997 of $107,945 and
$208,066, respectively, relating to these amendments are not included in the
amounts enumerated above.
Employment Agreements
The Company entered into a two-year employment agreement with its Chief
Executive Officer effective as of December 12, 1995. Pursuant to this agreement,
the Chief Executive Officer receives a minimum annual base salary of $225,000,
is guaranteed an annual bonus equal to 20% of his base salary, and is eligible
to receive an additional annual bonus at the discretion of the Compensation
Committee of the Board of Directors. The Chief Executive Officer and certain
other officers are entitled to termination benefits under certain circumstances.
Consulting Agreements
The Company has entered into various consulting agreements, the terms of
which do not exceed four years. These agreements generally require the Company
to pay consulting fees on a quarterly or per diem basis. These agreements are
generally terminable at the Company's or the consultant's option.
(12) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
PERIOD FROM ENDED PERIOD FROM
JANUARY 23, 1992 MARCH 31, JANUARY 23, 1992
(DATE OF INCEPTION) TO ---------------- (DATE OF INCEPTION) TO
1995 1994 1993 DECEMBER 31, 1995 1996 1995 MARCH 31, 1996
------- ------- ---- --------------------- ------- ------ ----------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash payments for:
Interest ............. $77,866 $ 5,063 $ -- $82,929 $37,855 $6,328 $120,784
======= ======= ==== ======= ======= ====== ========
Income taxes ......... $21,694 $36,994 $729 $81,312 $17,580 $6,470 $ 98,892
======= ======= ==== ======= ======= ====== ========
</TABLE>
In 1993, in connection with the issuance of the Series A Preferred Stock,
$2 million in debt to a stockholder was canceled as consideration for issuance
of 4,376,368 shares of Series A Preferred Stock. The remaining debt of
F-15
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
$408,648 was converted into a long-term note payable at that time. In December
1994, such debt was settled in full for a cash payment of $250,000.
In 1994 and 1993, the Company obtained financing of $57,000 and $18,000,
respectively, for the purchase of equipment.
(13) RISKS AND UNCERTAINTIES
The Company is at an early stage of development and therefore faces certain
risks and uncertainties which are present in a young biotechnology company. The
Company's yeast-based and signal transduction technologies are novel as drug
discovery methods and have not yet been shown to be successful in the
development of any commercialized drug. The Company has not completed
development of any drugs and does not expect that any drugs resulting from its
and its collaborative partners' research and development efforts will be
commercially available for a significant number of years, if at all. The Company
is dependent on its collaborative partners to fund a substantial portion of its
activities over the next several years. To date, the Company has entered into
two collaborative arrangements, however there can be no assurance that the
Company will be able to establish additional collaborative arrangements, or that
these contracts will be renewed, or that any renewal will be made on terms as
favorable to the Company as those contained in the existing contracts.
Commencing in July 1998, the research provisions of the Solvay Duphar contract
may be terminated for nonperformance under certain circumstances, which
termination would result in the Company losing its research funding from such
collaborative partner. The termination or expiration of the research provisions
of these contracts, or failure by BMS or Solvay Duphar to provide research
funding to the Company in breach of its obligations under its contract, could
have a material adverse effect on the Company.
In addition, the Company faces risks and uncertainties regarding the future
profitability of the Company, ability to obtain additional funding, protection
of patents and property rights, competition and technological change, government
regulations including the need for product approvals and the changing health
care marketplace, and attracting and retaining key officers, employees and
consultants.
(14) RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" was issued which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain intangibles to be disposed of. SFAS
No. 121 requires that long-lived assets and certain intangibles to be held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. SFAS No. 121 must be implemented by the Company no later than the
year ended December 31, 1996. The adoption of SFAS No. 121 is not expected to
have material impact on the Company's financial position or operating results.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued which establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, SFAS No. 123 permits the Company to
continue to measure compensation costs for its stock option plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". If the Company
elects to remain with its current accounting, in 1996 the Company must make pro
forma disclosures of 1995 and 1996 net income (loss) and earnings (loss) per
share as if the fair value based method of accounting had been applied. The
Company has not yet determined the valuation method it will employ or the effect
on operating results of implementing SFAS No. 123. In addition, SFAS No. 123
requires that transactions whereby the Company issues its equity instruments to
acquire goods or services from nonemployees entered into after December 15, 1995
must be accounted for based on the fair value
F-16
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993 AND MARCH 31, 1996
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measured.
(15) SUBSEQUENT EVENTS
Proposed Public Offering of Common Stock
On May 10, 1996, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for an
initial public offering of the Company's Common Stock. If the offering is
consummated under the terms presently anticipated, all outstanding shares of the
Series A and Series B Preferred Stock will be converted into an aggregate of
7,551,514 shares of Common Stock, and the entire class of Convertible Preferred
Stock of the Company will be canceled and withdrawn from the authorized capital
stock of the Company. As a result, upon completion of the offering, the
Company's authorized capital stock will consist of 35,000,000 shares of Common
Stock.
Reverse Stock Split
On May 10, 1996, the Board of Directors authorized a one-for-three reverse
Common Stock split and changed the par value of the Common Stock to $.01 from
$.001 which will be effected immediately prior to closing of the proposed
initial public offering. All Common Stock data have been restated to give effect
to this reverse stock split and change in par value for all periods presented.
F-17
<PAGE>
DRUG DISCOVERY PROCESS
[GRAPHIC REPRESENTATION OF DRUG DISCOVERY PROCESS]
GENE IDENTIFICATION
Informatics
Cloning
Sequencing
Orphan receptors
GENE FUNCTION
Yeast genetics
Human genetics
Self Selecting Combinatorial
Library (SSCL)
Ligand identification
TARGET VALIDATION
Signal transduction
technology
BIOASSAY & SCREENING
Yeast systems
Mammalian cell systems
Cell free systems
Animal models
Robotics
CHEMISTRY
Automated synthesis
Combinatorial chemistry
Rational drug design
Medicinal chemistry
THERAPEUTIC PROGRAM AREAS
Inflammation
Immunology
Cancer
Cardiovascular
Central Nervous System
Gastroenterology
Endocrinology
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 6
Use of Proceeds ........................................................... 15
Dividend Policy ........................................................... 15
Capitalization ............................................................ 16
Dilution .................................................................. 17
Selected Financial Data ................................................... 18
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................................................... 19
Business .................................................................. 22
Management ................................................................ 37
Principal Stockholders .................................................... 46
Certain Transactions ...................................................... 48
Description of Capital Stock .............................................. 49
Shares Eligible for Future Sale ........................................... 50
Underwriting .............................................................. 52
Legal Matters ............................................................. 53
Experts ................................................................... 53
Additional Information .................................................... 53
Index to Financial Statements ............................................. F-1
UNTIL AUGUST 11, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
<PAGE>
================================================================================
2,750,000 SHARES
[LOGO]
CADUS
PHARMACEUTICAL
CORPORATION
COMMON STOCK
----------
PROSPECTUS
----------
HAMBRECHT & QUIST
MONTGOMERY SECURITIES
GENESIS MERCHANT GROUP
SECURITIES
JULY 17, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee.
PAYABLE BY
REGISTRANT
----------
SEC registration fee .......................................... $ 13,631
National Association of Securities Dealers, Inc. filing fee ... 4,453
Blue Sky fees and expenses .................................... 15,000
Nasdaq listing fee ............................................ 46,205
Accounting fees and expenses .................................. 110,000
Legal fees and expenses ....................................... 300,000
Printing and engraving expenses ............................... 100,000
Registrar and Transfer Agent's fees ........................... 1,000
Miscellaneous fees and expenses ............................... 84,711
--------
Total ....................................................... $675,000
========
ITEM 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article Twelfth of the
Registrant's Certificate of Incorporation, as amended, and Section 6.4 of the
Registrant's By-Laws provides for indemnification to the fullest extent
authorized by the Delaware General Corporation Law. The Registrant has also
entered into agreements with each of its directors (other than Mr. Icahn and Dr.
Rachesky) that provide forthe indemnification of and the advancement of expenses
to such persons to the greatest extent permitted by Delaware law.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant where
indemnification will be required or permitted. The Registrant is not aware of
any threatened litigation or proceeding that may result in a claim for
indemnification by any director, officer, employee or other agent.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant and its directors and officers for certain
liabilities, including liabilities arising under the Act.
ITEM 15. Recent Sales of Unregistered Securities
Within the past three years, the Registrant has sold and issued the
following securities that were not registered under the Act:
(1) On July 30, 1993, the Registrant issued an aggregate of 14,879,651
shares of its Series A Preferred Stock to investors at a price of $0.457
per share for an aggregate consideration of $6,800,000.50.
(2) On July 26, 1994, the Registrant issued 3,571,429 shares of its
Series B Preferred Stock to Bristol-Myers at a price of $3.50 per share for
an aggregate consideration of $12,500,001.00.
(3) In August 1995 and September 1995, the Registrant issued an
aggregate of 1,250,000 shares of its Series B Preferred Stock at a price of
$4.00 per share to Bristol-Myers for an aggregate consideration of
$5,000,000.00.
(4) In September 1995, the Board of Directors granted to each director
then in office a 30-day option to purchase 8,334 shares of Common Stock at
an exercise price of $2.25 per share. In October 1995, six directors
II-1
<PAGE>
exercised their options and purchased an aggregate of 50,000 shares of
Common Stock at $2.25per share.
(5) On November 1, 1995, the Registrant issued 2,500,000 shares of its
Series B Preferred Stock at a price of $4.00 per share to Physica B.V. for
an aggregate consideration of $10,000,000.00.
(6) At April 30, 1996, options to acquire 23,335 shares of the
Registrant's Common Stock had been exercised pursuant to the Registrant's
1993 Stock Option Plan. The exercise price of such options ranged from
$1.371 to $3.51.
The sale and issuance of securities in the transactions described above in
paragraphs (1) through (5) were deemed to be exempt from registration under the
Act by virtue of Section 4(2) thereof or Regulation D thereunder as transactions
not involving any public offering. The purchasers of the above-described shares
represented their intention to acquire the shares for investment only and not
with a view to the distribution thereof. Appropriate legends were affixed to the
certificates representing securities issued in such transactions. Similar
representations of investment intent were obtained and similar legends imposed
in connection with any subsequent sales of any such securities. All purchasers
had adequate access, through employment or other relationships, to information
about the Registrant. No registration was required with respect to the grants of
the options described above in paragraph (6) (and other options granted under
the Registrant's 1993 Stock Option Plan, 1996 Incentive Plan or otherwise)
because no sale under Section 2(3) of the Act was involved; however, sales
pursuant to the exercise of options granted under the 1993 Stock Option Plan,
including all sales described above in paragraph (6), were deemed to be exempt
from registration under the Act by virtue of Rule 701 thereunder (note that no
shares have yet been issued pursuant to the exercise of options granted under
the 1996 Incentive Plan.)
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
1.1# Form of Underwriting Agreement.
3.1# Certificate of Incorporation of Cadus Pharmaceutical Corporation,
as amended.
3.2# Proposed Certificate of Amendment of Certificate of Incorporation of
Cadus Pharmaceutical Corporation, as amended.
3.3# Proposed Restated Certificate of Incorporation of Cadus
Pharmaceutical Corporation.
3.4# By-laws of Cadus Pharmaceutical Corporation, as amended.
4.1# Specimen of Common Stock Certificate of Cadus Pharmaceutical
Corporation.
5.1# Opinion of Morrison Cohen Singer & Weinstein, LLP.
10.1# Form of Indemnification Agreement entered into between Cadus
Pharmaceutical Corporation and its directors and officers.
10.2# 1993 Cadus Pharmaceutical Corporation Stock Option Plan.
10.3# 1996 Cadus Pharmaceutical Corporation Incentive Plan.
10.4# Form of Agreement Regarding Assignment of Inventions,
Confidentiality and Non-Competition.
10.5# The 401(k) Plan of Cadus Pharmaceutical Corporation.
10.6# Employment Agreement between Jeremy M. Levin and Cadus
Pharmaceutical Corporation dated December 12, 1995.
10.7# Preferred Stock Purchase Agreement dated as of July 30, 1993 between
Cadus Pharmaceutical Corporation and the purchasers of Series A
Preferred Stock (exhibits have been omitted and Cadus Pharmaceutical
Corporation agrees to furnish copies thereof to the Commission upon
its request), together with the First and Second Amendments thereto
dated as of July 26, 1994 and October 31, 1995, respectively.
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
10.8# Preferred Stock Purchase Agreement dated as of July 26, 1994 between
Cadus Pharmaceutical Corporation and Bristol-Myers Squibb Company
("Bristol-Myers") concerning Series B Preferred Stock (exhibits have
been omitted and Cadus Pharmaceutical Corporation agrees to furnish
copies thereof to the Securities and Exchange Commission upon its
request), together with the First Amendment thereto dated as of
October 31, 1995.
10.9#(+) Preferred Stock Purchase Agreement dated as of November 1, 1995
between Cadus Pharmaceutical Corporation and Physica B.V. concerning
Series B Preferred Stock (exhibits have been omitted and Cadus
Pharmaceutical Corporation agrees to furnish copies thereof to the
Securities and Exchange Commission upon its request).
10.10#(+) Research Collaboration and License Agreement, dated as of July 26,
1994, between Cadus Pharmaceutical Corporation and Bristol-Myers.
10.11#(+) Screening and Option Agreement, dated as of July 26, 1994, between
Cadus Pharmaceutical Corporation and Bristol-Myers.
10.12#(+) Research Collaboration and License Agreement, dated as of November
1, 1995, between Cadus Pharmaceutical Corporation and Solvay Duphar
B.V.
10.13# Voting Agreement, dated as of April 26, 1995, among Cadus
Pharmaceutical Corporation and certain stockholders, together with
the First Amendment thereto dated as of November 1, 1995.
10.14# Co-Sale Agreement, dated as of July 30, 1993, among Cadus
Pharmaceutical Corporation and certain stockholders.
10.15# Sublease Agreement, dated as of October 19, 1994, between Cadus
Pharmaceutical Corporation and Union Carbide Corporation.
10.16# Lease, dated as of June 20, 1995, between Cadus Pharmaceutical
Corporation and Keren Limited Partnership.
10.17# Letter, dated September 28, 1994 from The Bank of New York to Cadus
Pharmaceutical Corporation confirming a $1,500,000 secured line of
credit; Promissory Note, dated January 9, 1995, issued by Cadus
Pharmaceutical Corporation to The Bank of New York in the amount of
$1,500,000 and a letter dated June 22, 1995 from The Bank of New
York to Cadus Pharmaceutical Corporation increasing the secured line
of credit to $2,500,000.
10.18 Consulting Agreement between Cadus Pharmaceutical Corporation and
James R. Broach, dated February 1, 1994.
10.19(+) Amended and Restated License Agreement between Cadus Pharmaceutical
Corporation and Duke University, dated May 10, 1994.
10.20(+) License Agreement between Cadus Pharmaceutical Corporation and
National Jewish Center for Immunology and Respiratory Medicine dated
November 1, 1994.
10.21 Stock Option Agreement, dated as of November 1, 1994, between Cadus
Pharmaceutical Corporation and John C. Cambier.
10.22 Stock Option Agreement, dated as of November 1, 1994, between Cadus
Pharmaceutical Corporation and Gary L. Johnson.
10.23(+) Consulting Agreement, dated as of November 1, 1994, between Cadus
Pharmaceutical Corporation and John C. Cambier.
10.24(+) Consulting Agreement, dated as of November 1, 1994, between Cadus
Pharmaceutical Corporation and Gary L. Johnson.
10.25#(+) Research Collaboration Agreement, dated as of January 9, 1995,
between Cadus Pharmaceutical Corporation and Houghten
Pharmaceuticals, Inc., together with the Amendment thereto dated as
of March 1996.
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
10.26 Stock Option Agreement, dated as of December 18, 1995, between
Cadus Pharmaceutical Corporation and James R. Broach.
10.27# Waiver, dated May 17, 1996, of Section 1.05 of the Preferred Stock
Purchase Agreement dated as of July 26, 1994 between Cadus
Pharmaceutical Corporation and Bristol-Myers Squibb Company, as
amended by the First Amendment thereto dated as of October 31, 1995.
10.28# Waiver, dated May 17, 1996, of Section 1.04 of the Preferred Stock
Purchase Agreement dated as of November 1, 1995 between Cadus
Pharmaceutical Corporation and Physica B.V.
11 Computation of Pro Forma Net Loss per Share
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2# Consent of Morrison Cohen Singer & Weinstein, LLP (included in
Exhibit 5.1).
23.3 Consent of LaHive & Cockfield.
24# Powers of Attorney of the Board of Directors.
27# Financial Data Schedule
- ----------
# Previously filed.
(+) The Registrant has been granted confidential treatment of certain portions
of these agreements.
ITEM 17. Undertakings
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on July 17, 1996.
CADUS PHARMACEUTICAL CORPORATION
BY /s/ JEREMY M. LEVIN
-------------------------------------
JEREMY M. LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ JEREMY M. LEVIN
- ------------------------ President and Chief Executive July 17, 1996
JEREMY M. LEVIN Officer (Principal Executive
Officer) and Chairman of
the Board of Directors
/s/ JAMES S. RIELLY
- ------------------------ Director of Finance, Controller, July 17, 1996
JAMES S. RIELLY Treasurer and Secretary (Principal
Financial and Accounting Officer)
- ------------------------ Director July , 1996
CARL C. ICAHN
- ------------------------ Director July , 1996
THEODORE ALTMAN
*
- ------------------------ Director July 17, 1996
HAROLD FIRST
*
- ------------------------ Director July 17, 1996
PETER LIEBERT
*
- ------------------------ Director July 17, 1996
ROBERT MITCHELL
*
- ------------------------ Director July 17, 1996
LAWRENCE MUSCHEK
- ------------------------ Director July , 1996
MARK H. RACHESKY
*
- ------------------------ Director July 17, 1996
WILLIAM A. SCOTT
*
- ------------------------ Director July 17, 1996
THOMAS E. SHENK
*
- ------------------------ Director July 17, 1996
SAMUEL D. WAKSAL
*
- ------------------------ Director July 17, 1996
JACK G. WASSERMAN
- ----------
*By /s/ JEREMY M. LEVIN
------------------------------
JEREMY M. LEVIN
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ----
1.1# Form of Underwriting Agreement.
3.1# Certificate of Incorporation of Cadus Pharmaceutical
Corporation, as amended.
3.2# Proposed Certificate of Amendment of Certificate of
Incorporation of Cadus Pharmaceutical Corporation, as
amended.
3.3# Proposed Restated Certificate of Incorporation of Cadus
Pharmaceutical Corporation.
3.4# By-laws of Cadus Pharmaceutical Corporation, as amended.
4.1# Specimen of Common Stock Certificate of Cadus
Pharmaceutical Corporation.
5.1# Opinion of Morrison Cohen Singer & Weinstein, LLP.
10.1# Form of Indemnification Agreement entered into between
Cadus Pharmaceutical Corporation and its directors and
officers.
10.2# 1993 Cadus Pharmaceutical Corporation Stock Option Plan.
10.3# 1996 Cadus Pharmaceutical Corporation Incentive Plan.
10.4# Form of Agreement Regarding Assignment of Inventions,
Confidentiality and Non-Competition.
10.5# The 401(k) Plan of Cadus Pharmaceutical Corporation.
10.6# Employment Agreement between Jeremy M. Levin and Cadus
Pharmaceutical Corporation dated December 12, 1995.
10.7# Preferred Stock Purchase Agreement dated as of July 30,
1993 between Cadus Pharmaceutical Corporation and the
purchasers of Series A Preferred Stock (exhibits have been
omitted and Cadus Pharmaceutical Corporation agrees to
furnish copies thereof to the Commission upon its
request), together with the First and Second Amendments
thereto dated as of July 26, 1994 and October 31, 1995,
respectively.
10.8# Preferred Stock Purchase Agreement dated as of July 26,
1994 between Cadus Pharmaceutical Corporation and
Bristol-Myers Squibb Company ("Bristol-Myers") concerning
Series B Preferred Stock (exhibits have been omitted and
Cadus Pharmaceutical Corporation agrees to furnish copies
thereof to the Securities and Exchange Commission upon its
request), together with the First Amendment thereto dated
as of October 31, 1995.
10.9#(+) Preferred Stock Purchase Agreement dated as of November 1,
1995 between Cadus Pharmaceutical Corporation and Physica
B.V. concerning Series B Preferred Stock (exhibits have
been omitted and Cadus Pharmaceutical Corporation agrees
to furnish copies thereof to the Securities and Exchange
Commission upon its request).
10.10#(+) Research Collaboration and License Agreement, dated as of
July 26, 1994, between Cadus Pharmaceutical Corporation
and Bristol-Myers.
10.11#(+) Screening and Option Agreement, dated as of July 26, 1994,
between Cadus Pharmaceutical Corporation and
Bristol-Myers.
10.12#(+) Research Collaboration and License Agreement, dated as of
November 1, 1995, between Cadus Pharmaceutical Corporation
and Solvay Duphar B.V.
10.13# Voting Agreement, dated as of April 26, 1995, among Cadus
Pharmaceutical Corporation and certain stockholders,
together with the First Amendment thereto dated as of
November 1, 1995.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ----
10.14# Co-Sale Agreement, dated as of July 30, 1993, among Cadus
Pharmaceutical Corporation andcertain stockholders.
10.15# Sublease Agreement, dated as of October 19, 1994, between
Cadus Pharmaceutical Corporation and Union Carbide
Corporation.
10.16# Lease, dated as of June 20, 1995, between Cadus
Pharmaceutical Corporation and Keren Limited Partnership.
10.17# Letter, dated September 28, 1994 from The Bank of New York
to Cadus Pharmaceutical Corporation confirming a
$1,500,000 secured line of credit; Promissory Note, dated
January 9, 1995, issued by Cadus Pharmaceutical
Corporation to The Bank of New York in the amount of
$1,500,000 and a letter dated June 22, 1995 from The Bank
of New York to Cadus Pharmaceutical Corporation increasing
the secured line of credit to $2,500,000.
10.18 Consulting Agreement between Cadus Pharmaceutical
Corporation and James R. Broach, dated February 1, 1994.
10.19(+) Amended and Restated License Agreement between Cadus
Pharmaceutical Corporation and Duke University, dated May
10, 1994.
10.20(+) License Agreement between Cadus Pharmaceutical Corporation
and National Jewish Center for Immunology and Respiratory
Medicine dated November 1, 1994.
10.21 Stock Option Agreement, dated as of November 1, 1994,
between Cadus Pharmaceutical Corporation and John C.
Cambier.
10.22 Stock Option Agreement, dated as of November 1, 1994,
between Cadus Pharmaceutical Corporation and Gary L.
Johnson.
10.23(+) Consulting Agreement, dated as of November 1, 1994,
between Cadus Pharmaceutical Corporation and John C.
Cambier.
10.24(+) Consulting Agreement, dated as of November 1, 1994,
between Cadus Pharmaceutical Corporation and Gary L.
Johnson.
10.25#(+) Research Collaboration Agreement, dated as of January 9,
1995, between Cadus Pharmaceutical Corporation and
Houghten Pharmaceuticals, Inc., together with the
Amendment thereto dated as of March 1996.
10.26 Stock Option Agreement, dated as of December 18, 1995,
between Cadus Pharmaceutical Corporation and James R.
Broach.
10.27# Waiver, dated May 17, 1996, of Section 1.05 of the
Preferred Stock Purchase Agreement dated as of July 26,
1994 between Cadus Pharmaceutical Corporation and
Bristol-Myers Squibb Company, as amended by the First
Amendment thereto dated as of October 31, 1995.
10.28# Waiver, dated May 17, 1996, of Section 1.04 of the
Preferred Stock Purchase Agreement dated as of November 1,
1995 between Cadus Pharmaceutical Corporation and Physica
B.V.
11 Computation of Pro Forma Net Loss per Share
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2# Consent of Morrison Cohen Singer & Weinstein, LLP (included in
Exhibit 5.1).
23.3 Consent of LaHive & Cockfield.
24# Powers of Attorney of the Board of Directors.
27# Financial Data Schedule
- ----------
# Previously filed.
(+) The Registrant has been granted confidential treatment of certain portions
of these agreements.
CONSULTING AGREEMENT
AGREEMENT dated as of February 1, 1994 by and between CADUS PHARMACEUTlCAL
CORPORATION (the "Corporation"), a Delaware corporation having its offices at
180 Varick Street, New York, New York 10014-4606 and James R. Broach
("Consultant").
WITNESSETH:
WHEREAS, the Corporation desires to retain Consultant to perform
consulting services on its behalf, and Consultant desires to render such
services on behalf of the Corporation, upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
1. RETENTION OF SERVICES.
The Corporation hereby retains Consultant to perform
consulting services, and Consultant agrees to render such services to the
Corporation, upon the terms and conditions hereinafter set forth.
2. TERM.
The retension of Cosultant by the Corporation hereunder shall
be effective and shall commence on the date hereof.
3 EXTENT OF SERVICES.
Upon the request of the Corporation, and on such dates and at
such times during the term hereof as are agreed upon by the Corporation and
Consultant, Consultant would continue to serve as the full time Director of
Research. Consultant would be needed at least one day per week in the offices of
Cadus or attending outside meetings. This agreement is addition to the
obligations set forth in the Consultant's agreements as a founder and SAB
member.
4. COMPENSATION.
As full and complete compensatrion for the consulting services
to be rendered by Consultant, the Corporation shall pay to Consultant a
consulting fee of $2,916.66 per month plus travel expenses.
5. REIMBURSEMENT OF EXPENSES.
The Corporation will reimburse Consultant for reasonable
out-of-pocket expenses properly incurred by Consultant on behalf of and directly
for the benefit of the Corporation in rendering his services hereunder;
provided, however, that Consultant shall submit written vouchers to the
Corporation evidencing such expenses and the purpose for which the same were
incurred.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
Consultant acknowledges and agrees that his rendering, of
consulting services to the Corporation will necessarily involve his
understanding of and access to 'trade secrets" (as hereinafter defined) and
confidential information pertaining to the Corporation, its proprietary
technology and its business. Accordingly, Consultant agrees that during the term
of his retention,
<PAGE>
and at all other times thereafter, he will not disclose to any unauthorized
third party or use for his own benefit any of the trade secrets or confidential
information pertaining to the Corporation, its proprietary technology or its
business. For the purposes hereof, "trade secrets" is information, not generally
known to the trade, which gives the Corporation an advantage over its
competitors. Trade secrets include, without limitation, research being planned
and developed, research methods and processes, materials used in research,
inventions, information concerning the filing or pendency of patent
applications, and the Company's business and legal plans, finances, competitive
position, customers and vendors. This Paragraph 6 shall not apply to information
which (i) is in the public domain at the time of disclosure, (ii) is properly in
the possession of Consultant prior to the time of disclosure, or (iii) after
disclosure enters the public domain through no act or omission of Consultant.
7. THE CORPORATION'S PROPERTY
Consultant further agrees that all memoranda, notes, records,
notebooks, letters, instruments, drawings designs, models, prototypes,
specifications, customer lists, proposals, business plans, materials, other
documents, databases or copies thereof, or any other confidential information of
any type or description, made or compiled by Consultant, or made available to
Consultant, concerning the Corporation, its proprietary technology or its
business, shall be the Corporation's sole property and shall be delivered to the
Corporation upon the termination of the Consultant's retention or at any other
time on request.
8. OWNERSHIP OF INVENTIONS.
Consultant agrees that any inventions, improvements,
processes, designs, materials, products, developments or discoveries (whether
or not subject to patent, copyright or trademark protection) (all of the
foregoing being hereinafter referred to as "Intangible Property") that he may
conceive, make, invent, develop, suggest or reduce to practice during the course
of his retention by the Corporation (whether individually or jointly with any
other person or persons), at the facilities of the Corporation or in pursuit of
projects delegated to him by the Corporation, relating in any way to the
business of the Corporation or the general biotechnology industry of which the
Corporation is a part, shall be the sole, exclusive and absolute property of the
Corporation. Consultant will immediately disclose in writing any such Intangible
Property to the Corporation and will, at any time, whether during or following
his retention by the Corporation, at the Corporation's request and without
additional compensation, execute and deliver to the Corporation such
assignments, certificates or other instruments as the Corporation may from time
to time deem necessary or desirable to effect disclosure thereof and/or to
evidence, establish, maintain, perfect, protect, enforce or defend the
Corporation's right, title and interest in and to such Intangible Property.
Consultant further agrees, upon the request of the Corporation, to execute any
patent, trademark or copyright documents covering such Intangible Property, as
well as any documents which may be considered necessary or helpful by the
Corporation in the prosecution of applications for patent, trademark or
copyright protection thereon in the United States and/or any foreign countries,
and in the prosecution of applications for the reissue or renewal of such
patents, copyrights or trademarks, or which may relate to any litigation or
controversy in connection therewith, all expenses incident to the filing of such
applications, the prosecution thereof and the conduct of any such litigation to
be borne by the Corporation. Upon request by the Corporation, Consultant shall
assist in locating writings and other physical evidence relating to the
Intangible Property, shall provide unrecorded information relating to such
Intangible Property, and shall give testimony in any
<PAGE>
proceeding in which any of the Intangible Property, or any application or
patent, copyright or trademark relating thereto, may be involved.
9. COPYRIGHTS.
Consultant shall promptly disclose to the Corporation any and
all publishable and/or copyrightable material which he produces, composes, or
writes, individually or in collaboration with others, which arises out of work
delegated to him by the Corporation. Consultant shall assign to the Corporation
all his interest in such copyrightable materials, and will sign documents and do
all other acts necessary to assist the Corporation in obtaining copyrights on
such material in any and all countries
10. NON-SOLICITATION OF EMPLOYEES.
During the term of this Agreement and for a period of one (1)
year thereafter, Consultant will not directly or indirectly: (i) employ, hire,
or cause to be employed or hired, any person who is then employed by the
Corporation or was employed within six (6) months prior thereto; or (ii) cause,
invite, solicit, entice or induce any such person to terminate his employment
with the Corporation.
11. NON-COMPETITION.
During the term of this Agreement and for a period of two
years thereafter, Consultant shall not, without the prior written consent of the
Board of Directors of the Corporation, either directly or indirectly through any
other person, firm corporation engage or participate in, tender advisory or
other services to or make any financial investment in any firm, corporation or
other business enterprise engaged in developing yeast based assays for drug
discovery in G coupled receptor signaling or ABC transporters. Nothing contained
herein, however, shall restrict Consultant from (i) acquiring any debt security
of any publicly-held company so long as such investment does not give him the
right to control or influence the policy or decisions of any such business or
enterprise or (ii) acquiring or holding stock in any publicly-held company so
long as such ownership does not exceed 5% of the total outstanding stock of such
company. If consultant becomes employed within the commercial and/or for-profit
sector during the term of this agreement, then the Corporation and the
Consultant each reserve the right to terminate this agreement
12. INJUNCTIVE AND OTHER EQUITABLE RELIEF
Consultant acknowledges that, in the event of his breach or
threatened breach of any of the provisions of this Agreement, the Corporation
would sustain great and irreparable injury and damage. Therefore, in addition to
any other remedies which the Corporation may have under this Agreement or
otherwise, the Corporation shall be entitled to the remedies of injunction,
specific performance and other equitable relief for a breach or threatened
breach by Consultant of any of the provisions of this Agreement. This Paragraph
12 shall not however, be construed as a waiver of any of the rights which the
Corporation have for damages or otherwise.
13. NO CONFLICTING AGREEMENTS.
Consultant represents and warrants that he is not a party to
any agreement, contract or understanding, whether employment or otherwise, which
would in any way restrict or prohibit him from performing services or entering
into any other obligations in accordance with the terms and conditions of this
Agreement.
<PAGE>
14. RELATIONSHIP OF THE PARTIES.
(a) In all activities hereunder, Consultant shall be an
independent contractor and the Corporation shall have no Liability whatsoever
for withholding, collection or payment of income taxes or for taxes of any other
nature on behalf of Consultant or any of his employees who shall furnish
services hereunder.
(b) Nothing contained herein shall be deemed to (i) make
either party or any employee of such party agent, employee, joint venturer or
partner of the other party or (ii) provide either party or any employee of such
party, with the power or authority to act on behalf of the other party or to
bind the other party to any contract, agreement or arrangement with any other
person.
(c) All personnel employed or otherwise engaged by either
party shall be the agents, servants, employees of such party only, and the other
party shall incur no obligations or liabilities, express or implied, by reason
of, or with respect to, the conduct of such personnel.
15. ASSIGNMENT.
This Agreement may not be assigned by either party, and no
obligation owed or performable by either party hereunder may be delegated,
without the prior written consent of the other party. Any attempted assignment
or delegation either party without any such requisite prior written consent of
the other party shall be void and ineffective for all purposes.
16. NOTICES.
All notices, requests, consents or other communications given
by either party hereto shall be in writing and shall be deemed duly given if
personally delivered or mailed by registered or certified mail, return receipt
requested, postage prepaid, to the other party at its address set forth below or
at such other address as such other party may hereafter designate in manner
herein provided. If to the Corporation, at:
Cadus Pharmaceutical Corporation
Attn: President
180 Varick Street
New York, New York 10014-4606
If to Consultant, at:
James R. Broach
360 E. 88th Street, Apt. 2A
NY, NY 10128
17. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement represents the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior negotiations representations and agreements made by and
between such
<PAGE>
parties. No alteration, amendment or modification of any of the terms or
provisions of this Agreement shall be valid unless made pursuant to an
instrument in writing, signed by each of the parties hereto.
18. GOVERNING LAW.
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York.
19. CONSENT TO EXCLUSIVE JURISDICTION AND SERVICE OF
PROCESS.
The Corporation and Consultant hereby agree that any dispute
which may arise between them out of or in connection with this Agreement, its
construction, interpretation, effect, performance or nonperformance, or the
consequences, thereof, shall be litigated exclusively in a state court of the
State of New York or the United States District Court for the South District of
New York. Accordingly, to the extent the parties are not otherwise subject to
any such court's personal jurisdiction, acceptance of the terms and conditions
of this Agreement constitutes consent by both parties to sue and be sued in such
court. Each of the Corporation and Consultant agrees that any and all process
directed to it in any such litigation may be served upon it outside of the State
of New York with the same force and effect as if service had been made within
the State of New York.
20. PARAGRAPHS HEADINGS.
The paragraph headings contained in this Agreement are for
reference purposes only and shall not effect any way the meaning or
interpretation of this Agreement.
21. SEVERABILITY; REFORMATION.
If at any time subsequent to the date hereof any provisions of
this Agreement shall be held by any court competent jurisdiction to be illegal,
void, or unenforceable, such provisions shall be of no force and effect, but the
illegality unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any provision of the Agreement.
Furthermore, if any provision of this Agreement shall for any reason be held to
be excessively broad as to duration, geographical scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be enforceable to the
fullest extent compatible with then existing, applicable law.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
CADUS PHARMACEUTICAL CORPORATION CONSULTANT
By: /s/ JEREMY LEVIN By: /s/ JAMES R. BROACH
------------------------------- ----------------------------
Jeremy Levin, President and CEO James R. Broach
[Note: Certain portions of this document have been marked [c.i.] to indicate
that confidentiality has been requested for this confidential information. The
confidential portions have been omitted and filed separately with the Securities
and Exchange Commission.]
AMENDED AND RESTATED LICENSE AGREEMENT
This Agreement is made this the 10th day of May, 1994, by and between Duke
University ("DUKE"), a nonprofit educational and research organization organized
under the laws of North Carolina, and having its principal office at Durham,
North Carolina, and Cadus Pharmaceutical Corporation ("CADUS"), a corporation
organized under the laws of Delaware and having its principal place of business
at 180 Varick Street, New York, New York.
WHEREAS, Robert Lefkowitz, Marc Caron, Henrik G. Dohlman and Klim King have
invented "G-Protein Coupled Receptor Screening Technology" (the "Invention"),
and DUKE owns all rights, title, and interest in and to such Invention,
including related patents, patent applications, and unpatented technology; and
WHEREAS, DUKE has the right to grant licenses to the foregoing Invention, and
wishes to have the Invention utilized in the public interest; and
WHEREAS, DUKE has granted an exclusive license to CADUS to the Invention and
related patent rights and technology pursuant to a License Agreement, dated
March 12, 1993, (the "Original License Agreement"); and
WHEREAS, DUKE and CADUS wish to amend the Original License Agreement in
certain respects and to restate it in its entirety;
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.01. "Invention" shall mean the Yeast based G-Protein Coupled Receptor
Screening Technology, as invented by Robert Lefkowitz, Marc Caron, Henrik G.
Dohlman and Klim King and described in King et al, "Control of Yeast Mating
Signal Transduction by a Mammalian beta-2 Adrenergic Receptor and Gs alpha
subunit, Science, pp121-123, October 5, 1990, and in PCT patent application WO
92/05244, published 2 April 1992.
<PAGE>
1.02. "Patent Rights" shall mean any and all United States and foreign patent
applications now or hereafter filed and any patent now or hereafter issued on
any such patent applications, and substitutes, reexaminations, extensions, or
reissues thereof. As of the date hereof no patent has issued. US. Patent
Application Serial No. 07,581,714 has been filed.
1.03. "Subject Technology" shall mean the technology licensed hereunder
described in detail in documents referenced in Paragraph 1.01, alterations
thereto that are and are hereafter during the term of this Agreement conceived
and/or reduced to practice by DUKE, its employees, faculty members, or students
as evidenced by written records.
1.04. "Product" shall mean any human medical therapeutic compound whose
utility was initially identified by CADUS utilizing a process that infringes one
or more claims of the Patent Rights.
1.05. "Net Sales" shall mean the amount billed and received by CADUS or an
Affiliate from the sale for commercial use of Products to independent third
parties, less five percent (5%) of the billed amount to cover discounts,
credits, returned goods, freight charges, taxes and similar adjustments. In the
event a Product is sold in the form of a combination product containing one or
more active ingredients other than such Product (combination products), Net
Sales from such combination products shall be calculated by multiplying actual
Net Sales of such Products by the fraction A/(A+B) where A is the invoice price
of the given Product if sold separately by CADUS or an Affiliate, and B is the
total invoice price of any other active component or components in the
combination if sold separately by CADUS or an Affiliate. If the given Product
and the other active component or components in the combination are not sold
separately by CADUS or an Affiliate, Net Sales for purposes of determining
royalties of the combination shall be calculated by multiplying Net Sales of the
combination by the fraction C/(C+D) where C is number of Products and D is
number of other active ingredients. However, at no time shall the value of the
fraction A/(A+B) or the fraction C/(C+D) be less than 1/3 for the purposes of
calculating Net Sales.
1.07. "Affiliate" or "Affiliates" shall mean any company in which CADUS owns
or controls at least fifty-one (51) percent of the stock entitled to vote in
election of members of the Board of Directors.
1.08. "Effective Date" shall mean March 1, 1993.
2
<PAGE>
1.09. "Licensed Know-how" shall mean all data, confidential information or
articles representing confidential information on the part of DUKE relating to
the Invention including, but not limited to, laboratory and human clinical data,
technical information, knowledge, techniques, processes, systems, formulae,
results of experimentation, and records pertaining thereto in which DUKE has any
rights on the Effective Date or which shall be subsequently acquired by DUKE
during the term of this Agreement.
1.10. "New Chemical Entity" shall mean any compound that has not been
previously sold as a pharmaceutical product at the time of first sale by CADUS.
1.11. "CADUS Technology" shall mean all data, information, technology, or
special ability on the part of the CADUS relating to the Invention including,
but not limited to, laboratory and clinical data, technical information,
knowledge, techniques, processes, systems, formulae, results of experimentation,
and records pertaining thereto in which CADUS has any rights on the Effective
Date or which shall be subsequently acquired by CADUS during the term of this
Agreement.
1.12. "Clinical Milestone Payment" shall mean cash revenues received by CADUS
from a third party, pursuant to a license agreement, upon the licensee achieving
specific milestones in the FDA approval process for a Product. Any and all other
payments received by CADUS from third parties, including, but not limited to,
proceeds from the sale of stock or research and development payments shall not
be considered Clinical Milestone Payments.
ARTICLE 2 - LICENSE
2.01. DUKE hereby grants to the CADUS and CADUS hereby accepts from DUKE,
upon the terms and conditions herein specified, an exclusive, worldwide license
to use Subject Technology during the term of this Agreement. CADUS shall have
the right to sublicense its rights hereunder without the consent of DUKE. The
term of the license granted hereunder is as set forth in Section 7.01 hereof.
2.02. Should this Agreement be terminated for any reason whatsoever, CADUS
and DUKE agree that all sublicenses shall remain in effect and shall be assigned
directly to DUKE, subject to approval of the sublicensee.
3
<PAGE>
2.03. Within thirty (30) days following the Effective Date of this Agreement
and thereafter during the period of this Agreement, DUKE agrees to provide CADUS
with copies of all Licensed Know-how it may have or later obtain, and copies of
any and all patents or patent applications owned or controlled by the DUKE
covering the Invention or the use of the Invention or processes for the
manufacture of the Invention, including all Patent Office actions received and
amendments filed, if any, relative thereto and all documents relevant to
prosecution of the patent(s).
2.04. CADUS agrees to use the Subject Technology to seek to identify
Products. CADUS also agrees to develop Products so identified in accordance with
the development schedule set forth on attached Exhibit A. CADUS will also test,
seek to obtain required government approvals for, and thereafter make reasonable
efforts to market any such Product. Variations from that plan must be approved
by DUKE in writing. Such approval shall not be unreasonably withheld.
Notwithstanding the foregoing, CADUS shall have the right to license any Product
to a third party which undertakes to develop, test, seek to obtain government
approvals for, and thereafter market such Product.
ARTICLE 3 - PAYMENTS
3.01. In consideration of the rights granted to CADUS by DUKE under Article 2
hereof, CADUS will make payments to DUKE as follows:
- --------------------------------------------------------------------------------
a. Upon signing and execution of the License [c.i.]
Agreement dated March 12, 1993, (paid March 19, 1993).
- --------------------------------------------------------------------------------
b. Upon demonstration of
[c.i.] [c.i.]
- --------------------------------------------------------------------------------
c. Upon demonstration of
[c.i.] [c.i.]
- --------------------------------------------------------------------------------
d. Upon issuance of a patent to DUKE relating [c.i.]
to the Patent Rights, but no sooner than the
date payment under subsection 3.01(c) is
made.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
e. Upon approval for the first New Drug [c.i.]
Application ("NDA") by the US. Food and Drug
Administration ("FDA") for any Product not
licensed by CADUS to a third party, but no sooner
than the date payment under subsection 3.01(d) is
made.
- --------------------------------------------------------------------------------
f. Upon approval of each subsequent NDA by [c.i.]
FDA for any Product not licensed by
CADUS to a third party, but no sooner than
the date payment under subsection 3.01(d) is
made.
- --------------------------------------------------------------------------------
ARTICLE 4 - ROYALTIES. RECORDS. AND REPORTS
4.01(a). In consideration of the exclusive license granted CADUS herein,
CADUS shall pay to DUKE a royalty based on a percentage of Net Sales by CADUS of
any FDA approved Product:
- --------------------------------------------------------------------------------
New Chemical Entity [c.i.] of the first [c.i.]
in Net Sales,
and [c.i.] of Net Sales in
excess of
[c.i.]
- --------------------------------------------------------------------------------
Non-New Chemical Entity [c.i.] of Net Sales
- --------------------------------------------------------------------------------
4.01(b). MINIMUM ROYALTIES. Beginning in calendar year 1995, if the royalties
calculated in accordance with Paragraphs 4.01(a) above and 4.02 below do not
total at least [c.i.] in a given year, CADUS shall pay to DUKE the difference
between [c.i.] and the amount so calculated.
4.02. With respect to sublicenses granted by CADUS for use of Subject
Technology, CADUS shall pay royalties to DUKE at the rate of the lesser of
[c.i.] per year per sublicense or [c.i.] of the annual fees and royalties
received each year from each sublicensee which is not an Affiliate. With respect
to licenses granted by CADUS for each Product, CADUS shall pay to DUKE [c.i.] of
the Clinical Milestone Payments and royalties that CADUS receives from each
licensee which is not an Affiliate.
5
<PAGE>
4.03. If CADUS is obligated to pay royalties with respect to a Product to
more than one entity and all such other entities agree to the same percentage
reduction in CADUS's royalty obligation to them with respect to such Product,
DUKE shall accept an identical percentage reduction in the royalties payable
under this Agreement.
4.04. All Payments made by CADUS pursuant to Section 3.01 hereof shall be
fully credited against royalties payable pursuant to sections 4.01 and 4.02;
provided, however, that the amount of such credit for any one royalty period
shall not exceed [c.i.] percent of the royalties which would otherwise be
payable to DUKE for such royalty period.
4.05. CADUS shall render to DUKE on an annual basis a written account of Net
Sales. CADUS and its Affiliates shall keep full, true, and accurate books of
accounts and other records containing all particulars which may be necessary to
reasonably ascertain and verify properly such Net Sales. Upon DUKE's request and
at DUKE's sole expense, CADUS and its Affiliates shall permit an independent
Certified Public Accountant selected by DUKE (except one to whom CADUS has some
reasonable objections) to have access during ordinary business hours to such of
CADUS's or its Affiliates' records as may be necessary to determine, in respect
of any quarter ending not more than two (2) years prior to the date of such
request, the correctness of any report made under this Agreement.
4.06. During the term of this Agreement, representatives of DUKE will meet
with representatives of CADUS at times and places mutually agreed upon to
discuss the progress and results, as well as ongoing plans, with respect to the
evaluation and development of Inventions licensed to CADUS. Provided, however
that should DUKE's personnel be required by CADUS to consult with CADUS outside
of Durham, North Carolina, CADUS will reimburse reasonable travel and living
expenses incident thereto.
4.07. FORCE MAJEURE - GOVERNMENT INTERFERENCE. In the event CADUS is unable
to make, have made, use or sell Products or Subject Technology because it is
prevented, restricted, or interfered with by reason of any cause beyond the
control of CADUS, including but not limited to fire, strikes or labor disputes,
or any law, regulation or policy of the Federal or any State or local government
or any agency thereof, CADUS, upon written notice to the DUKE, shall be excused
from making the payments provided for in paragraph 3 and from adhering to
commitments provided for in paragraph 4, during the time of such prevention,
restriction or interference. CADUS shall make a diligent effort to correct any
restrictions thereto. Failure to do so shall be considered a breach of this
Agreement.
6
<PAGE>
4.08. MANDATORY LICENSES. In the event local laws or regulation in any
country shall require DUKE to enter into a mandatory, royalty-free license, no
royalties shall be due DUKE from CADUS with respect to Net Sales in such
country.
4.09. Royalties shall be payable from the country in which they are earned
and subject to foreign exchange regulations then prevailing in such country,
paid at such place as DUKE may, from time to time, designate and shall be
payable to DUKE. Unless otherwise agreed to by the parties hereto, royalties
shall be remitted in United States Dollars. When, and if, all parties hereto
agree that royalties shall be paid in a currency other than the currency of the
country in which the royalties are earned, such royalties shall be first
determined in the currency of the country in which they are earned and then
converted to their equivalent in the currency of the country for which the
parties have agreed royalties shall be paid. Such conversion shall be made using
the buying rates of exchange quoted by CITIBANK (or its successor in interest )
in New York, New York as of the close of the last business day of the calendar
quarterly period in which the royalties were earned.
4.10. In the event that CADUS, its Affiliates, or its third party
sublicensees are unable as a result of legal or government restrictions to remit
royalties from any country in which sales of Products are made, CADUS, its
Affiliates, or its third party sublicensees, as the case may be, shall deposit,
if possible, the appropriate royalties in a bank account in such country agreed
by DUKE, such agreement not to be unreasonably withheld. For so long as such
restriction applies, CADUS, its Affiliates, or third party sublicensees shall be
relieved of any further obligations to DUKE in respect of such royalties except
that of reporting to DUKE under paragraph 3.10 of this Agreement the amounts of
royalty payable and so deposited.
4.11. TAXES WITHHELD. Any income or other tax that CADUS, its Affiliates, or
its third party sublicensees are required to withhold on behalf of the DUKE with
respect to the royalties payable to the DUKE under this Agreement shall be
deducted from said royalties prior to remittance to the DUKE; provided however,
that in regard to any tax so deducted, CADUS, its Affiliates, and its third
party sub-licensees shall give or cause to be given to the DUKE such assistance
as may reasonably be necessary to enable the DUKE to claim exemption therefrom
or credit therefore, and in each case shall furnish the DUKE proper evidence of
the taxes paid on its behalf.
4.12. In the event of a judgment in any suit requiring CADUS to pay a royalty
to a third party, or in the event of a settlement of such suit requiring royalty
payments to be made, applicable royalty payments due the DUKE under this
Agreement shall be correspondingly reduced by the amount due under the
requirement of such judgment or under the terms of such settlement.
7
<PAGE>
ARTICLE 5 - PATENTS
5.01. Beginning upon the Effective Date of this Agreement, CADUS shall have
responsibility for the filing, prosecuting, and maintaining of the appropriate
United States patent protection for the Subject Technology, and all of the
expenses of such protection shall be paid by CADUS. CADUS shall reimburse DUKE
for all patent administration expenses, including legal expenses, which have
been incurred through January 31, 1993, up to a maximum amount of $20,000, and
all such expenses incurred by DUKE from February 1, 1993, through the effective
date of this Agreement. CADUS shall keep DUKE advised as to the prosecution of
such applications by forwarding to DUKE copies of all official correspondence
relating thereto. DUKE agrees to cooperate with CADUS in the prosecution of all
patent applications to insure that such applications reflect, to the best of
DUKE's knowledge, all items of commercial and technical interest and importance
including, but not limited to, disclosing material art, commenting on patent
office actions and executing all lawful declarations deemed desirable by CADUS.
As of the date of this Agreement, CADUS has paid to DUKE a total of $43,888.54
for patent administration expenses.
5.02. CADUS shall designate the foreign countries, if any, in which CADUS
desires patent protection, and CADUS shall proceed to obtain such protection.
CADUS shall pay all expenses with regard to such foreign patent protection. DUKE
may elect to seek patent protection in countries not so designated by CADUS, in
which case DUKE shall be responsible for all expenses attendant thereto. In such
instances, however, CADUS shall forfeit its rights under this license agreement
as to those countries unless CADUS shall agree to pursue such protection within
thirty (30) days after receiving written notice that DUKE intends permanently to
cancel CADUS's rights with respect to that country.
5.03. CADUS shall give DUKE prompt notice of such claim or allegation
received by it that the use of Subject Technology constitutes an infringement of
a third party patent or patents. If CADUS is obligated to make payments to a
third party for the purpose of obtaining a license required by CADUS for use of
the Subject Technology, all such payments may be deducted by CADUS from the
royalties due to the DUKE under this Agreement, except that the amount of such
deduction for any one royalty period shall not exceed [c.i.] of the royalties
which would otherwise be payable to DUKE for such royalty period. CADUS shall
have the primary right and responsibility at its own expense to defend and
control the defense of any such claim against CADUS, by counsel of its choosing.
DUKE agrees to cooperate with CADUS in any reasonable manner deemed by CADUS to
be necessary in defending or prosecuting such action. CADUS shall reimburse DUKE
for all reasonable expenses incurred in providing such assistance.
Notwithstanding the foregoing, DUKE shall, in its sole discretion and at its own
costs, be entitled to participate through counsel of its own choosing in any
such action.
8
<PAGE>
5.04. In the event, in its sole discretion, CADUS elects to obtain additional
patent coverage on subject matter relating to Subject Technology not referenced
in 1.02, in the United States and in foreign countries in the name of the
inventor or in the name of DUKE, as the case may be, CADUS shall so advise DUKE,
in writing, and the provisions of paragraphs 5.01 and 5.02 shall apply.
Conversely, in the event CADUS elects not to obtain patent coverage on subject
matter relating to Subject Technology, it shall so advise DUKE in writing and
DUKE shall have the option to file such patent application on its own behalf, at
its own cost and expense, and CADUS shall thereafter have no rights under such
applications and resulting patents.
ARTICLE 6 - GOVERNMENT CLEARANCE. PUBLICATION. OTHER USE.
EXPORT
6.01. CADUS agrees to use reasonable efforts to have Subject Technology
cleared for marketing in those countries in which CADUS intends to sublicense
the Subject Technology by the responsible government agencies requiring such
clearance. To accomplish such clearances at the earliest possible date, CADUS
agrees to file, according to the usual practice of CADUS, any necessary data
with such government agencies.
6.02. CADUS further agrees that the right of publication of the Invention and
such Subject Technology shall reside in the inventor and other staff of DUKE.
DUKE shall provide a copy of such publications sixty (60) days in advance of
such submission for publication for review by CADUS, but such review will be in
no way construed as a right to restrict such publication. CADUS shall also have
the right to publish and/or co-author any publication regarding the application
of the Subject Technology.
6.03. It is agreed that, notwithstanding any provisions herein, DUKE shall
have a non-transferable right to make and use, but not to sell the Subject
Technology and Patent Rights for its own educational, teaching, research, and
clinical purposes without restriction and without payment of royalties or other
fees. However, all commercial applications arising from such uses are
exclusively licensed to CADUS hereunder and are subject to terms of this
Agreement
6.04. This Agreement is subject to all of the United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes, and other commodities and technology.
9
<PAGE>
ARTICLE 7 - DURATION AND TERMINATION
7.01. Subject to earlier termination as provided in paragraphs 7.02, 7.03,
and 7.04, this Agreement shall begin on the Effective Date and shall continue
until the earliest to occur of (i) the expiration of all issued claims under the
Patent Rights, (ii) the determination (by a court of competent jurisdiction from
which no appeal is or can be taken) of the invalidity or unenforceability of all
issued claims under the Patent Rights, or (iii) the abandonment by DUKE of all
claims under the Patent Rights. Notwithstanding the foregoing, when and as any
claim under said Patent Rights is abandoned, expires, or is declared invalid or
unenforceable (by a court or tribunal of competent jurisdiction from which no
appeal is or can be taken), CADUS shall be entitled to use, practice, and
sublicense each such abandoned, expired or invalid claim without restriction or
further obligation or liability to DUKE hereunder or at law.
7.02. CADUS may terminate this Agreement at any time by giving DUKE written
notice at least [c.i.] prior to such termination.
7.03. Either party may immediately terminate this Agreement for fraud,
willful misconduct, or illegal conduct of the other party upon written notice of
same to that other party. Except as provided above, if either party fails to
fulfill any of its obligations under this Agreement, the non-breaching party may
terminate this Agreement, upon written notice to the breaching party, as
provided below. Such notice must contain a full description of the event or
occurrence constituting a breach of the Agreement. The party receiving notice of
the breach will have the opportunity to cure that breach within thirty (30) days
of receipt of notice. If the breach is not cured within that time, the
termination will be effective as of the forty-fifth (45th) day after receipt of
notice. A party's ability to cure a breach will apply only to the first two
breaches properly noticed under the terms of this Agreement, regardless of the
nature of those breaches. Any subsequent breach by that party will entitle the
other party to terminate this Agreement upon proper notice.
7.04. If during the term of this Agreement, CADUS shall become bankrupt or
insolvent or if the business of CADUS shall be placed in the hands of a receiver
or trustee, whether by the voluntary act of CADUS or otherwise, or if CADUS
shall cease to exists as an active business, this Agreement shall to the extent
permitted by law, immediately terminate.
10
<PAGE>
ARTICLE 8 - GOVERNING LAW
This Agreement shall be construed as having been entered into the State of
North Carolina and shall be interpreted in accordance with and its performance
governed by the laws of the State of North Carolina.
ARTICLE 9 - ASSIGNABILITY
This Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
ARTICLE 10 - NOTICES
It shall be a sufficient giving of any notice, request, report, statement,
disclosure or other communication hereunder, if the party giving the same shall
deposit a copy thereof in the Post Office in certified mail, postage prepaid,
addressed to the other party at its address hereinafter set forth or at such
other address as the other party shall have theretofore in writing designated:
DUKE
Duke University
Office of Science and Technology
001 Allen Building
Durham, North Carolina 27706
CADUS
Cadus Pharmaceutical Corporation
President and CEO
180 Varick Street
New York, NY 10014
The date of giving any such notice, request, report, statement, disclosure or
other communications, and the date of making any payment hereunder required
(provided such payment is received), shall be the US. postmark of such envelope
if marked or actual date of receipt if delivered otherwise.
11
<PAGE>
ARTICLE 11 - INDEMNITY. INSURANCE. REPRESENTATIONS. STATUS
11.01. CADUS agrees to indemnify, hold harmless, and defend DUKE, its
trustees, officers, employees, and agents, against any and all claims, suits,
losses, damages, costs, fees, and expenses, including attorney fees, resulting
from or arising out of the exercise of this license. CADUS shall not be
responsible for the negligence or intentional wrongdoing of DUKE. However, DUKE
does warrant that it has complied with the duty of disclosure to the U.S. Patent
and Trademark Office.
11.02. At time of sales of Product in accordance with this Agreement, CADUS
shall maintain in force at its sole cost and expense with reputable insurance
companies, general liability insurance and products liability insurance coverage
in an amount reasonably sufficient to protect against liability under Article
11.01 above. DUKE shall have the right to ascertain from time to time that such
coverage exists, such right to be exercised in a reasonable manner.
11.03. Nothing in this Agreement shall be deemed to be a representation or
warranty by DUKE of the validity of any of the patents or the accuracy, safety,
efficacy, or usefulness for any purpose of any Subject Technology. DUKE shall
have no obligation, express or implied, to supervise, monitor, review, or
otherwise assume responsibility for the production, manufacture, testing,
marketing, or sale of any Product, and DUKE shall have no liability whatsoever
to CADUS or any third parties for or on account of any injury, loss, or damage,
of any kind or nature, sustained by, or any damage assessed or asserted against,
or any other liability incurred by or imposed upon CADUS or any other person or
entity arising out of or in connection with or resulting from:
a. the production, use, or sale of any Product
b. the use of any Subject Technology or any advertising or other
promotional activities with respect to any of the foregoing.
11.04. Neither party hereto is an agent of the other party for any purpose
whatsoever.
ARTICLE 12 - USE OF A PARTY'S NAME
12.01. Neither party will, without the prior written consent of the other
party, use in advertising, publicity, or otherwise, any trade-name, trademark,
trade device, service mark, symbol, or any abbreviation contraction, or
simulation thereof owned by the other party, use the name of any employee or
agent of the other party in any publication,
12
<PAGE>
publicity, advertising, or otherwise or represent, either directly or
indirectly, that any product or service of the other party is a product or
service of the representing party, or that it is made in accordance with or
utilizes the information or documents of the other party.
12.02. EXCEPTIONS TO 12.01. Each party may acknowledge the existence of this
agreement and the parties hereto, publicly or privately, as necessary for
carrying out its business or as required by law.
ARTICLE 13 - SEVERANCE
Each clause of this Agreement is a distinct and severable clause and if any
clause is deemed illegal, void, or unenforceable, the validity, legality, or
enforceability of any other clause or portion of this Agreement will not be
affected thereby.
ARTICLE 14 - ENTIRE AGREEMENT
This Agreement, including any schedules or other attachments which are
incorporated herein by reference, contain the entire agreement between the
parties as to its subject matter. This Agreement merges all prior discussions
between the parties and neither party shall be bound by conditions, definitions,
warranties, understandings, or representations concerning such subject matter
except as provided in this Agreement as or as may be specified later in writing
and signed by the properly authorized representatives of the parties. This
Agreement supersedes the Original License Agreement. This Agreement can be
modified or amended only by written agreement duly signed by persons authorized
to sign agreements on behalf of the parties.
ARTICLE 15 - WAIVER
The failure of a party in any instance to insist upon the strict performance
of the terms of this Agreement shall not be construed to be a waiver or
relinquishment of any of the terms of this Agreement, either at the time of the
party's failure to insist upon strict performance or at any time in the future,
and such term or terms shall continue in full force and effect.
13
<PAGE>
ARTICLE 16 - TITLES
All titles and article headings contained in this Agreement are inserted only
as a matter of convenience and reference. They do not define, limit, extend, or
describe the scope of this Agreement or the intent of any of its provisions.
ARTICLE 17 - CONFIDENTIALITY
17.01. All CADUS technology which shall be disclosed to the DUKE to fulfill
the intent and objective of this Agreement shall be held in confidence by the
DUKE and shall remain the property of CADUS. DUKE hereby agrees to maintain the
confidentiality of all communications from CADUS to DUKE relating to CADUS
Technology for a period of three (3) years from the date of receipt by the DUKE.
17.02. EXCEPTIONS TO CONFIDENTIALITY. The obligations of paragraph 18.01
shall not apply to written disclosures of CADUS Technology by CADUS to DUKE
which:
(i) were in the receiving party's possession prior to receipt from the
transferring party as evidenced by the receiving party's written records; or,
(ii) were in the public domain at the time of receipt from the
transferring party; or,
(iii) become part of the public domain through no fault of the receiving
party; or,
(iv) shall be required to be disclosed in a judicial or administrative
proceeding after legal remedies for maintaining the subject matter in confidence
have been exhausted; or,
(v) shall be lawfully required to be disclosed by the receiving party to
the United States Food & Drug Administration or other regulatory governmental
agency.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
SEAL DUKE UNIVERSITY
By /s/ Robert Taber
--------------------------------
Director, Office of Science and Technology
ATTEST:
By: /s/
--------------------------------
Assistant Secretary
SEAL CADUS PHARMACEUTICAL
CORPORATION
By: /s/ Jeremy Levin
--------------------------------
President
ATTEST:
By: /s/ Philip N. Sussman
--------------------------------
15
<PAGE>
Exhibit A:
CADUS shall use reasonable efforts, commensurate with standards commonly
followed in the pharmaceutical industry and the requirements imposed upon
manufacturers by governmental agencies, to proceed diligently with the
development, manufacture and sale of Products and shall earnestly and diligently
offer and continue to offer for sale such Products once developed and approved
for commercial use, both under reasonable conditions and consistent with sound
business practices, including those specifically adopted by the management of
CADUS for the conduct of its overall business, during the term of this
Agreement.
PERFORMANCE INDICATORS
The parties agree that CADUS shall use reasonable effort to meet the following
performance indicators for Products for in vivo uses:
(i) Twelve (12) months to complete preclinical studies and toxicology,
commencing on the date on which the first Product has been identified as a
candidate for commercial development.
(ii) Following the completion of (i) and the decision by CADUS that the
Product in question will be taken into clinical trials, nine (9) months for the
completion of an IND submission.
(iii) Twelve (12) months to complete Phase I/II clinical studies for IN
VIVO diagnostic uses and thirty (30) months for therapeutic uses, where the
twelve-month and thirty-month time span, respectively, begins when the first
patient is enrolled in Phase I/II.
(iv) Twelve (12) months to compete Phase III clinical studies for IN VIVO
diagnostic uses and thirty-six (36) months for therapeutic uses, where the
twelve and thirty-six month time span, respectively, begins when the first
patient is enrolled in Phase III.
(v) Six (6) months to prepare and file a PLA or NDA, commencing on the
date on which the Phase III clinical studies, as provided in (iv), have been
completed.
It is agreed that the performance indicators listed above are based on current
estimates. The proposed time intervals refer to active clinical trials exclusive
of delays due to regulatory findings by appropriate authorities, manufacturing
of Products or other special clinical issues relating to indication and clinical
endpoints, and also to any changes in regulatory laws and practices. CADUS will
keep DUKE informed about any delays, and reasons for such delays, throughout the
course of the activities described here within Exhibit A.
16
[Note: Certain portions of this document have been marked [c.i.] to indicate
that confidentiality has been requested for this confidential information. The
confidential portions have been omitted and filed separately with the Securities
and Exchange Commission.]
LICENSE AGREEMENT
This Agreement is made this the 1st day of November, 1994, by and between
National Jewish Center for Immunology and Respiratory Medicine ("NJC"), a
non-profit educational and research organization organized under the laws of
Colorado and having its principal office at 1400 Jackson Street, Denver,
Colorado, and Cadus Pharmaceutical Corporation ("CADUS"), a corporation
organized under the laws of Delaware and having its principal place of business
at 180 Varick Street, New York, New York.
WHEREAS, Gary L. Johnson and John C. Cambier have developed various
technologies relating to signal transduction within cells, and NJC owns all
rights, title and interest in and to such technologies, including related
patents, patent applications and unpatented technology, and
WHEREAS, NJC has the right to grant licenses to the foregoing technologies;
and
WHEREAS, NJC is willing to provide CADUS with an exclusive license to
certain of NJC's technologies subject to the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1. "NJC Technical Information" shall mean all proprietary information
relating to products, processes, know-how, inventions
<PAGE>
(conceived of or reduced to practice), and improvements and modifications
thereto, relating to mammalian cell and/or enzyme- based assays useful in
identifying compounds that regulate cellular transduction pathways that is owned
or possessed by NJC (without restrictions from any third party which would
preclude a license to CADUS), that was or is conceived or reduced to practice
either solely or jointly by Dr. Gary Johnson and/or Dr. John Cambier, and that
infringes on one or more claims, as they may be amended and as they may issue,
as set forth in any of the [c.i.] U.S. Patent Applications listed in Exhibit A,
and any substitutions, extensions, continuations, continuations-in-part and
divisions to such applications.
1.2. "Product(s)" shall mean any compound, formulation or composition whose
utility is identified using an Assay.
1.3. "Assay" shall mean one or more mammalian cell and/or enzyme-based
assays relating to the regulation of cellular transduction pathways, including G
protein-coupled and/or tyrosine kinase-coupled receptor signal transduction
pathways, which incorporates or utilizes NJC Technical Information.
1.4. "First Commercial Sale" shall mean the initial transfer by or on
behalf of CADUS of Product(s) in exchange for cash or some equivalent to which
value can be assigned for the purpose of determining Net Sales. First Commercial
Sale shall not encompass the sale of a Product for compassionate uses that are
sold at cost.
1.5. "Net Sales" shall mean the total gross revenues (when received) from
the sale of Product(s) to third party customers,
-2-
<PAGE>
less returns and allowances actually granted, discounts, credits, returned
goods, transportation and delivery charges (including insurance on shipments),
private sector or government rebates and taxes. No deductions shall be made for
commissions paid to individuals, whether they be independent sales agents or
regularly employed by CADUS, or for the costs of collections.
1.6. "Combination Products" shall mean a combination of a Product(s) with
at least one other active ingredient, such other active ingredient being one
that is either proprietary to CADUS or licensed by CADUS from a third party.
1.7. "Future Technologies" shall mean all proprietary information owned or
possessed by NJC (without restriction from any third party which would preclude
a license to CADUS) relating to products, processes, know-how and inventions
that relate to mammalian cell and/or enzyme-based assays useful in identifying
compounds that regulate cellular transduction pathways, that is conceived of or
reduced to practice during the term of this Agreement and that is either solely
invented by Dr. Gary Johnson and/or Dr. John Cambier, or jointly invented by
either or both Doctors Johnson and Cambier and any third party, and further that
does not infringe one or more claims, as they may be amended and as they may
issue, as set forth in any of the [c.i.] U.S. patent applications listed in
Exhibit A.
1.8. "Affiliate" or "Affiliates" shall mean any company or business entity
in which CADUS owns or controls at least fifty-one (51) percent of the
outstanding stock, or any entity over which
-3-
<PAGE>
CADUS, directly or indirectly, exercises effective control, or any individual or
company which owns, directly or indirectly, 51% or more of the outstanding stock
of CADUS.
1.9. "Effective Date" shall mean the date of execution of this Agreement.
1.10. "Option Period" shall mean the period commencing with the Effective
Date and ending upon [c.i.]
1.11. "Fields of Use" shall mean all agricultural, veterinary and human
therapeutic and diagnostic uses for NJC Technical Information.
ARTICLE 2 - LICENSE GRANT
2.1. EXCLUSIVE LICENSE. During the term of this Agreement and in
consideration of the royalties and payments set forth herein, NJC hereby grants
to CADUS and CADUS hereby accepts from NJC, upon the terms and conditions herein
specified:
a. an exclusive, worldwide license in the Fields of Use to practice
NJC Technical Information to develop, identify, make, use and sell Product(s);
and
b. an exclusive, worldwide license to practice NJC Technical
Information to develop, make, use, license and sell Assays that utilize or
incorporate NJC Technical Information.
2.2. RIGHT TO SUBLICENSE. CADUS shall have the right to sublicense its
rights hereunder with the prior written consent of
-4-
<PAGE>
NJC, such consent not to be unreasonably withheld or delayed. In order to obtain
NJC's written consent, CADUS shall advise NJC in writing as to the entity to
which it wishes to sublicense its rights under this Agreement. NJC shall respond
to CADUS's request within ten (10) days of receipt of CADUS's notice. If NJC
shall refuse to provide its consent, it shall provide its reasons in writing.
Failure by NJC to respond within said ten (10) day period shall be deemed
consent to CADUS's request. Notwithstanding the foregoing, CADUS shall have the
right to sublicense its rights hereunder to any entity with a net worth in
excess of $50,000,000 without NJC's consent. If this Agreement is terminated for
any reason whatsoever, all sublicenses shall remain in effect and shall be
assigned directly to NJC and the rights of the sublicensees thereunder shall not
be affected. NJC shall not assume any affirmative obligations to sublicensees
other than those already contained in this Agreement.
ARTICLE 3 - RESERVATION OF RIGHTS TO NJC AND GRANT BACK
3.1. Notwithstanding any other provision of this Agreement, NJC hereby
reserves the perpetual, royalty-free right to conduct research and other
academic, non-commercial activities with respect to all or any portion of NJC
Technical Information licensed hereunder to CADUS, it being the intent of the
parties that NJC shall be entitled to use and enjoy NJC Technical Information to
the fullest extent consistent with academic and research missions, including the
right of NJC to contract with third parties to obtain
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funding for further research and development, provided that such third parties
are not granted any rights or licenses to NJC Technical Information licensed to
CADUS hereunder. In the event this License Agreement is terminated or expires,
NJC is hereby granted a non-exclusive, world-wide, royalty free, irrevocable and
perpetual right to practice all technology conceived of or reduced to practice
by Doctors Johnson and Cambier pursuant to their respective consulting
agreements with CADUS, or its Affiliates, with the right to sublicense, as long
as such technology infringes one or more claims, as they may be amended and as
they may issue, as set forth in any of the [c.i.] U.S. Patent Applications
listed in Exhibit A.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF NJC
4.1. NJC hereby represents and warrants to CADUS that:
a. It is the owner of all of the patent applications listed on Exhibit
A and has the exclusive right to grant licenses therefor;
b. It is the owner of all of the NJC Technical Information and has the
exclusive right to grant licenses therefor;
c. To the best of its knowledge as of the Effective Date (without any
investigation whatsoever), the practice of the NJC Technical Information does
not infringe upon or conflict with any patent or other proprietary rights of any
third party; and
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d. It has not entered into any agreement with any third party which is
in conflict with the rights granted to CADUS pursuant to this Agreement.
e. To the best of its knowledge as of the Effective Date (without any
investigation whatsoever), no NJC Technical Information or biological materials
based on or utilizing NJC Technical Information were purchased or offered for
sale by NJC prior to April 15, 1993.
ARTICLE 5 - OPTION TO LICENSE FUTURE TECHNOLOGIES
5.1. CADUS OPTION. Provided that CADUS has paid the option fee set forth in
Section 5.2 for each applicable year, NJC hereby grants to CADUS an option to
acquire an exclusive license to Future Technologies conceived or reduced to
practice during the Option Period. The term of each such option grant shall be
for a period of [c.i.] commencing on the date NJC provides CADUS with a notice
of the development of Future Technologies, together with an invention disclosure
relating to any new invention. CADUS shall be deemed to have effectively
exercised any such option if CADUS sends written notice of its exercise of such
option to NJC within the [c.i.] option period. During the [c.i.] period
commencing on the date of the notice of such exercise, NJC and CADUS shall
negotiate in good faith to reach a definitive agreement for such license. NJC
shall not negotiate with third parties with respect to such Future Technologies
during such [c.i.] period.
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5.2. OPTION FEE. CADUS shall pay [c.i.] to NJC for each year of the Option
Period for which CADUS desires the option set forth in Section 5.1, within
thirty (30) days after the beginning of each such year.
ARTICLE 6 - MILESTONES AND PAYMENTS
6.1. In partial consideration of the rights granted to CADUS by NJC under
Article 2 hereof, CADUS will make the following payments to NJC upon
accomplishing the following milestones:
================================================================================
a. Within 30 days after the First Commercial [c.i.]
Sale by CADUS of a Product(s)
- --------------------------------------------------------------------------------
b. Within 30 days after approval of the New [c.i.]
Drug Application ("NDA") by the US. Food
and Drug Administration ("FDA") for the
first Product made by CADUS and/or its
Affiliates
- --------------------------------------------------------------------------------
c. Within 30 days after approval of the NDA by [c.i.]
the FDA for each subsequent Product made by
CADUS and/or its Affiliates
- --------------------------------------------------------------------------------
d. Within 30 days after approval (equivalent [c.i.]
to NDA approval) by a foreign government
(up to a maximum of 10) of each Product
made by CADUS and/or its Affiliates
================================================================================
6.2. PAYMENTS CREDITED AGAINST ROYALTIES. Payments made by CADUS to NJC
pursuant to Sections 6.1 and 8.1(c) shall be credited against amounts payable
pursuant to Section 8.1(a) hereof, except that the first [c.i.] paid under
Section 8.1(c) shall not be credited.
6.3. ANTI-SHELVING. CADUS shall use reasonable efforts to earnestly and
diligently proceed with the use or sublicense of, and
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to seek to advance, NJC Technical Information in all four areas within the Field
of Use to achieve maximum commercial advantage therefore, such efforts to be
consistent with sound business practices (including those specifically adopted
by the management of CADUS for the conduct of its overall business during the
term of this Agreement) so that Products, Assays and compounds which incorporate
or utilize NJC Technical Information can be developed for commercial uses and,
once approved for use, if required, can be offered for sale or license under
appropriate conditions. If NJC believes that CADUS has failed to devote
reasonable resources to exploit the commercial potential in NJC Technical
Information within one or more areas in the Field of Use, it shall provide
written notice thereof to CADUS. CADUS shall have a period of thirty (30) days
from its receipt of such notice to commence devoting reasonable resources to
such area or areas in the Field of Use. If CADUS fails to so commence devoting
reasonable resources during such thirty (30) day period, NJC shall have the
right to require CADUS to sublicense the NJC Technical Information for such area
or areas in the Field of Use to a sublicensee designated by NJC on terms
reasonably acceptable to CADUS, unless CADUS has commenced to devote reasonable
resources prior to receiving notice of such designation. The foregoing remedy
shall be NJC's sole remedy for CADUS's failure to perform its obligations set
forth in this Section 6.3.
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ARTICLE 7 - RESPONSIBILITIES OF PARTIES
7.1. PROVISION OF NJC TECHNICAL INFORMATION. Subject to the confidentiality
provisions of Article 22, within thirty (30) days following the Effective Date
of this Agreement and thereafter during the period of this Agreement, NJC agrees
to provide CADUS with copies of any and all NJC Technical Information,
including, without limitation, copies of all patent applications covering NJC
Technical Information and all Patent Office actions received and amendments
filed, if any, relative thereto and all documents relevant to prosecution of the
patent(s) covering NJC Technical Information licensed hereunder.
7.2. DEVELOPMENT OF PRODUCT(S). CADUS agrees to seek to develop Assays and
to use them to seek to identify Product(s). CADUS also agrees to seek to develop
Product(s) identified by Assays in accordance with the development schedule set
forth in attached Exhibit B. CADUS will also test, seek to obtain required
government approvals for, and thereafter make reasonable efforts to market any
such Product(s) that CADUS owns or has rights to, consistent with sound business
practices. Significant variations from the foregoing must be approved by NJC in
writing. Such approval shall not be unreasonably withheld or delayed. If NJC
shall refuse to provide its approval, it shall provide its reasons in writing.
Failure by NJC to respond within ten (10) days of a request for such variation
shall be deemed approval of CADUS's request.
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7.3. CADUS RESPONSIBILITIES IN DEVELOPMENT AND TESTING. In accordance with
the terms and conditions of the consulting agreements between CADUS and each of
Dr. Gary Johnson and Dr. John Cambier, CADUS shall provide them with adequate
physical research facilities, skilled personnel at the Ph.D. level, appropriate
equipment and adequate laboratory supplies. In accordance with the first year
budget annexed as an Exhibit to the consulting agreements between CADUS and each
of Drs. Johnson and Cambier, CADUS shall make available a minimum of one million
dollars during the first year of their research program. CADUS shall use
reasonable efforts to achieve the milestones set forth on Exhibit C, such
efforts to include those generally accepted by the biomedical science community
as reasonable for the accomplishment of such goals and objectives.
7.4. MEETINGS TO DISCUSS PROGRESS. During the term of this Agreement,
representatives of NJC will meet with representatives of CADUS at times and
places mutually agreed upon to discuss the progress and results, as well as
ongoing plans, with respect to the evaluation and development of technology
licensed to CADUS hereunder. In the event the parties agree that meetings are
required outside of Denver, Colorado, CADUS agrees to be responsible for all
reasonable travel and living expenses incident thereto.
7.5. GOVERNMENT APPROVALS. It is understood that CADUS shall be responsible
for obtaining any government approvals which may be necessary to manufacture and
sell Product(s). CADUS shall use
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reasonable diligent efforts to obtain such government approvals for such
Product(s) and upon receipt thereof, to cause Product(s) to be manufactured and
sold. For the purpose hereof "reasonable diligent efforts" shall mean efforts no
less diligent than CADUS puts forth in pursuing government approvals and
commercialization of its other products and processes.
ARTICLE 8 - ROYALTIES, RECORDS AND REPORTS
8.1.(a) ROYALTY. In consideration of the exclusive license granted CADUS
herein, CADUS shall pay to NJC royalties based on the following schedule:
(i) For Products that are sold to third parties by CADUS and/or its
Affiliates and that have received FDA approval and/or other foreign
government approval - [c.i.] of Net Sales, except that the royalty shall be
[c.i.] of Net Sales of such Products identified by CADUS or its Affiliates
using an Assay that is substantially completed as of the Effective Date and
that measures
[c.i.]
(ii) For Products that have not received FDA approval and/or any other
foreign government approval and that are sold by CADUS or its Affiliates to
third parties - [c.i.] of all Net Sales, except that the royalty shall be
[c.i.] of Net Sales of such Products identified by CADUS or its Affiliates
using an Assay that is substantially completed as of the Effective Date
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and that measures [c.i.]
(iii) For Products that have not received FDA approval and/or any
other foreign government approval that are licensed by CADUS and/or its
Affiliates to third parties - [c.i.] of all licensing income, royalties,
and milestone payments, whether up-front or subsequent, received by CADUS
and/or its Affiliates from such third parties with respect to such
Products.
(iv) For Products identified by a sublicensee of CADUS using an Assay
that is substantially completed as of the Effective Date and that measures
[c.i.]
- [c.i.] of licensing income, royalties, and milestone payments,
whether up-front or subsequent, relating to such Products that are received
by CADUS and/or its Affiliates from such sublicensee.
(v) For Assays that are sold by CADUS and/or its Affiliates - [c.i.]
of Net Sales of such Assays.
(vi) Where CADUS and/or its Affiliates use an Assay to test compounds
owned by a third party - [c.i.] of royalties, and milestone payments, and
[c.i.] of service payments, whether up-front or subsequent, that are
received by CADUS and/or its Affiliates from such third party.
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CADUS shall not intentionally attempt to avoid royalty payments to NJC by
avoiding the use of an Assay. An Assay shall be deemed substantially completed
if CADUS does not have to spend more than [c.i.] in research and development
costs to refine and automate such Assay so that it provides at least a [c.i.]
fold measurable difference between a positive control and a negative control, in
which no more than [c.i.] micromolar concentration of at least one of every
[c.i.] test compounds is required to generate a significant response. A
significant response is [c.i.] of the maximal response. The cells used in the
Assay must be reproducibly culturable and require no more than 24 hours of
incubation with the test compounds to obtain a readout that does not vary more
than [c.i.] between identical samples.
8.1.(b) COMBINATION PRODUCT ROYALTY. Net Sales from Combination Products
shall be calculated by multiplying actual Net Sales of such Product(s) by the
fraction A/(A+B) where A is the invoice price of the given Product(s) if sold
separately by CADUS or an Affiliate, and B is the total invoice price of any
other active ingredient in the combination if the invoice price of any other
active ingredient in the combination is sold separately by CADUS or an
Affiliate. If the given Product(s) and the other active ingredient in the
Combination Product are not sold separately by CADUS or an Affiliate, Net Sales
for purposes of determining royalties of the Combination Product shall be
calculated by multiplying Net Sales of the Combination Product by the fraction
(C/(C+D) where C is number of Product(s) and D is
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number of other active ingredients. However, at no time shall the value of the
fraction A/(A+B) or the fraction C/(C+D) be less than 1/3 for the purposes of
calculating Net Sales.
8.1.(c) ANNUAL MAINTENANCE PAYMENTS. During the term of this Agreement,
CADUS shall pay to NJC annual maintenance payments as follows: (i) $100,000 on
the Effective Date, (ii) $100,000 on the first anniversary of the Effective
Date, (iii) $70,000 on each of the second and third anniversaries of the
Effective Date, (iv) $60,000 on the fourth anniversary of the Effective Date,
and (v) $40,000 on each of the fifth through the ninth anniversaries of the
Effective Date. During the term of this Agreement, if CADUS obtains a commitment
for significant research funding to develop technology based on NJC Technical
Information, prior to the second anniversary of the Effective Date, CADUS shall
pay to NJC $100,000 within thirty (30) days of such commitment.
8.1.(d) If CADUS is obligated to pay royalties with respect to a Product to
more than one entity and all such other entities agree to the same percentage
reduction in CADUS's royalty obligation to them with respect to such Product,
NJC shall accept an identical percentage reduction in the royalties payable
under this Agreement; provided, however, such royalties shall not be less than
50% of the payment CADUS and/or its Affiliates would otherwise be obligated to
pay NJC.
8.2. SUBLICENSE PAYMENTS. CADUS shall pay NJC [c.i.] per year per
sublicensee for each sublicense to a third party which is not an Affiliate of
CADUS in excess of [c.i.] in effect during each
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year. If CADUS grants a sublicense to Dr. Gary Johnson or Dr. John Cambier to
enable him to continue his research using NJC Technical Information for academic
research purposes at a not-for-profit entity other than NJC, such sublicense
shall not be considered a sublicense to a third party for purposes of this
Section 8.2.
8.3. REPORTS. CADUS shall render to NJC within thirty (30) days after the
end of each calendar quarter a written account including quantities and monetary
amounts of CADUS's and CADUS's Affiliates' Net Sales subject to royalty
payments, as well as the royalties and other payments received by CADUS from its
sublicensees to the extent that NJC is entitled to receive payments thereon.
Cadus shall submit with such report the amount of royalties and other payments
due to NJC for such period. CADUS shall remit to NJC the total payments owed
during such period and such payments shall accompany the report. CADUS and its
Affiliates shall keep full, true and accurate books of accounts and other
records containing all particulars which may be necessary to reasonably
ascertain and verify properly such Net Sales. Upon NJC's request and at NJC's
sole expense, CADUS and its Affiliates shall permit an independent Certified
Public Accountant selected by NJC (except one to whom CADUS has some reasonable
objections) to have access during ordinary business hours to such of CADUS's and
its Affiliates' records as may be necessary to determine, in respect of any
quarter ending not more than three (3) years prior to the date of such request,
the correctness of any report made under this Agreement. CADUS shall remain
responsible for all
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payments due hereunder by any CADUS Affiliate. If a discrepancy in royalty
payments favoring CADUS and its Affiliates is discovered, and the amount of such
discrepancy is more than ten percent of the total royalties paid by CADUS and
its Affiliate during the period covered by the audit, CADUS shall pay for the
cost of the audit.
8.4. INTEREST ON PAST DUE AMOUNTS. CADUS shall pay NJC interest on all
payments and royalties past due, at an annual rate of 10%, compounded on each
anniversary of the payment due date.
8.5. FOREIGN EXCHANGE RATES. Royalties shall be payable from the country in
which they are earned and subject to foreign exchange regulations then
prevailing in such country, paid at such place as NJC may, from time to time,
designate and shall be payable to NJC. Unless otherwise agreed to by the parties
hereto, royalties shall be remitted in United States Dollars. When, and if, all
parties hereto agree that royalties shall be paid in a currency other than the
currency of the country in which the royalties are earned, such royalties shall
be first determined in the currency of the country in which they are earned and
then converted to their equivalent in the currency of the country for which the
parties have agreed royalties shall be paid. Such conversion shall be made using
the average of the selling and buying rates of exchange quoted by CITIBANK (or
its successor in interest) in New York, New York as of the close of the last
business day of the calendar quarterly period in which the royalties were
earned.
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8.6. REMISSION OF FOREIGN ROYALTIES. In the event that CADUS and its
Affiliates are unable as a result of legal or government restrictions to remit
royalties from any country in which Product(s) are made, used or sold, CADUS or
its Affiliates, as the case may be, shall deposit the appropriate royalties in a
bank account in such country agreed by NJC, such agreement not to be
unreasonably withheld.
8.7. TAXES WITHHELD. Any income or other tax that CADUS and its Affiliates
are required to withhold on behalf of NJC with respect to the royalties payable
to NJC under this Agreement, shall be deducted from said royalties prior to
remittance to NJC; provided, however, that in regard to any tax so deducted,
CADUS, its Affiliates, and its third party sublicensees shall give or cause to
be given to NJC such assistance as may reasonably be necessary to enable NJC to
claim exemption therefrom or credit therefor, and in each case shall furnish NJC
proper evidence of the taxes paid on its behalf.
8.8. SUIT BY THIRD PARTY. In the event of a judgment in any suit requiring
CADUS to pay a royalty to a third party due to the use by CADUS and/or its
Affiliates of a technology which utilizes or incorporates NJC Technical
Information, or in the event of a settlement of such suit requiring royalty
payments to be made, CADUS and its Affiliates shall be entitled to reduce the
amount of royalties payable to NJC under Section 8.1(a) by 50% of any such
judgment and/or settlement amount, (excluding any amounts payable solely by
reason of willful infringement on the part of CADUS
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and/or its Affiliates), except that the amount of such reduction for any one
royalty period shall not exceed fifty percent (50%) of the royalties which would
otherwise be payable to NJC for such royalty period.
ARTICLE 9 - PATENTS
9.1. RESPONSIBILITIES FOR FILING, PROSECUTING AND MAINTAINING PATENTS.
Beginning upon the Effective Date of this Agreement, CADUS shall have
responsibility for filing, prosecuting and maintaining in NJC's name, the
appropriate United States patent protection for NJC Technical Information and
all related expenses of such protection (other than those incurred prior to the
Effective Date for the patent applications listed on Exhibit A) shall be paid by
CADUS. Notwithstanding the foregoing, CADUS shall not file any
continuation-in-part applications derived from any of the [c.i.] patent
applications listed in Exhibit A based on inventions made at NJC, without the
prior written consent of NJC. Moreover, NJC shall, in its sole discretion,
decide whether or not to file any of its future patent applications as
continuation-in- part applications with respect to inventions made at NJC. NJC
shall be entitled, at its expense, to review and comment on the preparation of
patent applications by CADUS prior to the filing thereof (except in
circumstances where a statutory bar exists and/or where such review is
impracticable), and CADUS shall reasonably address all reasonable concerns
raised by NJC. The parties will endeavor in good faith to exchange their ideas
with
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respect to the preparation of patent applications in sufficient time to permit
the timely filing of such patent applications in the United States and foreign
countries. In the event CADUS does not diligently pursue prosecution of any of
the [c.i.] patent applications listed in Exhibit A, CADUS will have no rights to
the technology described in any such patent application and/or the patent issued
therefrom and NJC shall have the right to freely license such technology to
third parties, unless patent counsel for CADUS has advised CADUS that it is
unlikely that a patent will issue and NJC counsel agrees with this assessment.
CADUS shall reimburse NJC for all patent administration expenses, including
legal expenses, which are incurred after the Effective Date, as well as future
filing and prosecution expenses, for all patent applications exclusively
licensed to CADUS hereunder. CADUS shall keep NJC advised as to the prosecution
of any and all patent applications for which CADUS is responsible by promptly
forwarding to NJC copies of all official correspondence relating thereto. At
CADUS's request, NJC agrees to cooperate with CADUS in the prosecution of all
such patent applications to insure that such applications reflect, to the best
of NJC's knowledge, all items of commercial and technical interest and
importance including, but not limited to, disclosing material art, commenting on
patent office actions and executing all lawful declarations deemed desirable by
CADUS, and all legal expenses incurred by NJC related thereto shall be
reimbursed by CADUS.
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9.2. FOREIGN PATENT PROTECTION. CADUS shall designate the foreign
countries, if any, in which CADUS desires patent protection and CADUS shall
proceed to obtain such protection. CADUS shall pay all expenses with regard to
such foreign patent protection for the patents covering NJC Technical
Information. NJC may elect to seek patent protection in countries not so
designated by CADUS, in which case NJC shall be responsible for all expenses
attendant thereto. In such instances, CADUS shall forfeit its rights under this
License Agreement as to those countries unless CADUS shall agree to pursue such
protection within thirty (30) days after receiving written notice that NJC
intends permanently to cancel CADUS's rights with respect to that country. CADUS
shall give notice to NJC of any decision to cease prosecution and maintenance of
any patent covering NJC Technical Information, and, in such case, NJC, at its
sole discretion, shall be entitled to continue prosecution or maintenance of
such patent(s) at its own expense for the benefit of NJC. If NJC elects, at
NJC's expense, to continue such prosecution or maintenance, CADUS shall execute
such documents and perform such acts as may be reasonably necessary for NJC to
continue prosecution or maintenance of such patent(s) for the benefit of NJC.
9.3. INFRINGEMENT. CADUS shall give NJC prompt notice of any claim or
allegation received by it that the use of NJC Technical Information constitutes
an infringement of a third party patent or patents. If CADUS is obligated to
make payments to a third party for the purpose of obtaining a license required
by CADUS for use of
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NJC Technical Information, [c.i.] of such payments may be deducted by CADUS from
royalties due to NJC pursuant to Section 8.1(a) of this Agreement, except that
the amount of such deduction for any one royalty period shall not exceed [c.i.]
of the royalties which would otherwise be payable to NJC for such royalty
period. CADUS shall have the primary right and responsibility at its own expense
to defend and control the defense of any such claim against CADUS, by counsel of
its choosing. NJC agrees to cooperate with CADUS in any reasonable manner deemed
by CADUS to be necessary in defending or prosecuting such action. CADUS shall
reimburse NJC for all reasonable legal expenses incurred in providing such
assistance. Notwithstanding the foregoing, NJC shall, in its sole discretion and
at its own costs, be entitled to participate through counsel of its own choosing
in any such action.
9.4. PATENT ENFORCEMENT.
a. With respect to any alleged infringement involving a claim(s) of
any patents covering NJC Technical Information, CADUS shall have the first
right, but not the duty, to institute patent infringement actions against third
parties. If CADUS does not institute an infringement proceeding against an
offending third party, NJC shall have the right, but not the duty, to institute
such an action.
b. The costs and expenses of any action instituted pursuant to this
Section 9.4 (including fees of attorneys and other professionals) shall be borne
by the party instituting the action, or, if the parties elect to cooperate in
instituting and
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maintaining such action, such costs and expenses shall be borne by the parties
in such proportions as they may agree in writing. Each party shall execute all
necessary and proper documents and take such actions as shall be appropriate to
allow the other party to institute and prosecute such infringement actions (if
such other party has the right to institute and prosecute such infringement
actions pursuant to this Section 9.4). Any award paid by third parties as a
result of such an infringement action (whether by way of settlement or
otherwise) shall be paid to the party who instituted and maintained such action,
or, if both parties instituted and maintained such action, such award shall be
allocated among the parties in proportion to their respective contributions to
the costs and expenses incurred in such action, or as they may have otherwise
agreed. Notwithstanding the above, NJC shall receive 5% of any such award by way
of settlement or otherwise after deducting legal and other reasonable expenses.
9.5. COMPULSORY LICENSES. In any country where a compulsory license must be
granted involving patents covering NJC Technical Information, the exclusive
rights and license granted to CADUS hereunder shall not prohibit or prevent the
granting of a compulsory license under the patents covering NJC Technical
Information and any royalty payable by CADUS shall be equal to the royalty
payable by the compulsory licensee if less than that payable hereunder.
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ARTICLE 10 - GOVERNMENT CLEARANCE AND EXPORT
10.1. MARKETING CLEARANCE. CADUS agrees to use reasonable efforts to have
NJC Technical Information cleared for marketing in those countries in which
CADUS intends to sublicense the NJC Technical Information by the responsible
government agencies requiring such clearance. To accomplish such clearances at
the earliest possible date, CADUS agrees to file, according to the usual
practice of CADUS, any necessary data with government agencies requiring such
clearance.
10.2. EXPORT CONTROL LAWS. CADUS agrees to abide by all of the United
States laws and regulations controlling the export of technical data, computer
software, biological materials, laboratory prototypes and other commodities and
technology.
ARTICLE 11 - DURATION AND TERMINATION
11.1. TERM. Subject to earlier termination as provided in Paragraphs 11.2,
11.3 and 11.4, this Agreement shall begin on the Effective Date and shall
continue until the earliest to occur of (i) the expiration of all issued claims
under the patents covering NJC Technical Information, (ii) the determination (by
a court of competent jurisdiction from which no appeal is or can be taken) of
the invalidity or unenforceability of all issued claims under the patents
covering NJC Technical Information, or (iii) the abandonment by NJC of all
claims under the patent applications and patents covering NJC Technical
Information. Notwithstanding the foregoing, when and as any claim under any said
patent covering NJC
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Technical Information is abandoned, expires or is declared invalid or
unenforceable (by a court or tribunal of competent jurisdiction from which no
appeal is or can be taken), CADUS shall be entitled to use, practice and
sublicense each such abandoned, expired or invalid claim without restriction or
further obligation or liability to NJC hereunder or at law.
11.2. EARLY TERMINATION. CADUS may terminate this Agreement at any time by
giving NJC written notice of at least [c.i.] prior to such termination.
Termination of this Agreement shall not relieve CADUS of the obligations to pay
royalties with respect to Product(s) disposed of before such termination, nor
the obligation to pay royalties with respect to sales or disposals made after
such termination for Product(s) manufactured prior to but sold or otherwise
disposed of after such termination. Termination of this License Agreement will
also occur if either of the Consulting Agreements of even date between CADUS and
each of Dr. Johnson and Dr. Cambier is terminated by them pursuant to
subparagraph 25(a) thereof, or, if such Agreements automatically terminate
pursuant to subparagraph 25(b) thereof, prior to the third anniversary of the
Effective Date, as provided in subparagraph 8(c) of the Stock Option Agreements
of even date between CADUS and each of Dr. Johnson and Dr. Cambier. If this
Agreement is terminated as provided in the preceding sentence, CADUS shall not
license from NJC, and NJC shall not license to CADUS or any of its Affiliates,
any NJC Technical Information for a period of two years following such
termination.
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11.3. TERMINATION BY BREACH OR FRAUD. Either party may immediately
terminate this Agreement for fraud, willful misconduct or illegal conduct of the
other party upon written notice of same to the other party. Except as provided
above, if either party fails to fulfill any of its obligations under this
Agreement, the non-breaching party may terminate this Agreement, upon written
notice to the breaching party, as provided below. Such notice must contain a
full description of the event or occurrence constituting a breach of the
Agreement. The party receiving notice of the breach will have the opportunity to
cure that breach within thirty (30) days of receipt of notice. If the breach is
not cured within that time, the termination will be effective as of the
forty-fifth (45th) day after receipt of notice.
11.4. TERMINATION UPON BANKRUPTCY. If, during the term of this Agreement,
CADUS shall become bankrupt or insolvent or if the business of CADUS shall be
placed in the hands of a receiver or trustee, whether by the voluntary act of
CADUS or otherwise, or if CADUS shall cease to exist as an active business, this
Agreement shall, to the extent permitted by law, immediately terminate.
ARTICLE 12 - DISPUTE RESOLUTION
12.1. DISPUTE RESOLUTION. If one of the parties hereto declares that a
dispute between the parties has arisen related to this Agreement, such dispute
shall, in the first instance, be the subject of good faith negotiations between
the parties to resolve such dispute. Meetings to resolve disputes shall be held
in the
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jurisdiction of the party that did not first allege the existence of a dispute.
Should the negotiations not lead to a settlement of the dispute within thirty
(30) days of the date of the meeting, the parties shall refer the dispute to a
mutually acceptable mediation service to resolve the dispute. The mediation
shall be attended by individuals from within each party who have decision-making
authority with respect to the matter in question. If the mediation does not lead
to a settlement of the dispute within forty-five (45) days of the date of the
meeting, then the parties shall submit the issue to arbitration before a panel
of arbitrators under the rules of the American Arbitration Association. Unless
the parties otherwise agree, if CADUS first alleged the existence of a dispute
the arbitration will be held in Denver, Colorado and if NJC first alleged the
existence of a dispute the arbitration will be held in New York, New York. The
panel of arbitrators shall consist of three parties: one selected by each party,
as well as a disinterested third party that the two arbitrators shall name. The
third arbitrator shall be a person who has had experience in the business of
pharmaceutical licensing. If a qualified person in this field cannot be found
and agreed upon, the two arbitrators shall use their own discretion and select a
third arbitrator with qualifications as they deem appropriate. The three
arbitrators shall be given full power to hear and finally determine and dispose
of all disputes between the parties that may arise from or that are related to
this Agreement. The arbitrators will make their ruling in writing no later than
thirty (30) days after the hearing. The
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decision of two of the three arbitrators will be binding on the parties. No
party has a right to appeal the ruling, to any court or otherwise. Judgment upon
the decision rendered may be entered in any court having jurisdiction or
application may be made to such court of a judicial acceptance of the award and
an order of enforcement, as the case may be. Each party shall pay its own
attorney's fees. All fees and expenses payable with respect to the mediation and
arbitration proceedings shall be shared by both parties during the course of the
mediation and arbitration proceedings, but, in the case of the arbitration,
shall be reimbursed in favor of the prevailing party after the arbitration
ruling is rendered.
ARTICLE 13 - GOVERNING LAW
This Agreement shall be construed as having been entered into the State of
Colorado and shall be interpreted in accordance with and its performance
governed by the laws of the State of Colorado.
ARTICLE 14 - ASSIGNABILITY
This Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto, however, a party may
only assign its rights hereunder with the prior written consent of the other
party, such consent not to be unreasonably withheld or delayed. In order to
obtain the other party's written consent, the assigning party shall advise the
other party in writing as to the entity to which it wishes to assign this
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Agreement. The other party shall respond to the assigning party's request within
ten (10) days of receipt of the assigning party's notice. If the other party
shall refuse to provide its consent, it shall provide its reasons in writing.
Failure by the other party to respond within said ten (10) day period shall be
deemed consent to the assigning party's request. Notwithstanding the foregoing,
CADUS shall have the right to assign this Agreement without the prior written
consent of NJC in connection with the sale of all or substantially all of its
assets.
ARTICLE 15 - NOTICES
It shall be a sufficient giving of any notice, request, report, statement,
disclosure or other communication hereunder, if the party giving the same shall
deposit a copy thereof in the United States Post Office in certified mail,
postage prepaid, addressed to the other party at its address hereinafter set
forth or at such other address as the other party shall have theretofore in
writing designated:
NJC:
National Jewish Center for Immunology and Respiratory Medicine
Executive Vice President
Office of Academic Affairs
1400 Jackson Street
Denver, CO 80206
CADUS:
Cadus Pharmaceutical Corporation
President and CEO
180 Varick Street
New York, NY 10014
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<PAGE>
The date of giving any such notice, request, report, statement, disclosure
or other communications, and the date of making any payment hereunder required
(provided such payment is received), shall be the U.S. postmark of such
envelope, if marked, or actual date of receipt if delivered otherwise.
ARTICLE 16 - INDEMNITY, INSURANCE, REPRESENTATIONS, STATUS
16.1. INDEMNITY. CADUS agrees to indemnify, hold harmless and defend NJC,
its trustees, officers, employees and agents against any and all claims, suits,
losses, damages, costs, fees and expenses, including attorney fees, resulting
from or arising out of the exercise of this license. CADUS shall not be
responsible for the negligence or intentional wrongdoing of NJC. However, NJC
does warrant that it has complied with the duty of disclosure to the U.S. Patent
and Trademark Office.
16.2. INSURANCE. At the time of its sale of Product(s) in accordance with
this Agreement, CADUS shall maintain in force at its sole cost and expense, with
reputable insurance companies, general liability insurance and products
liability insurance coverage that names NJC as a beneficiary and insures for
losses in an amount reasonably sufficient to protect against liability under
Paragraph 16.1 above, such amount as is customary in the industry, but not to be
less than one million dollars. NJC shall have the right to ascertain from time
to time that such coverage exists, such right to be exercised in a reasonable
manner.
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16.3. WARRANTIES AND REPRESENTATIONS. Nothing in this Agreement shall be
deemed to be a representation or warranty by NJC of the validity of any of the
patents or the accuracy, safety, efficacy or usefulness for any purpose of any
technology licensed hereunder. NJC shall have no obligation, express or implied,
to supervise, monitor, review or otherwise assume responsibility for the
production, manufacture, testing, marketing or sale of any Product(s), and,
except as set forth in Sections 8.8 and 9.3 hereof, NJC shall have no liability
whatsoever to CADUS or any third parties for or on account of any injury, loss
or damage, of any kind or nature, sustained by, or any damage assessed or
asserted against, or any other liability incurred by or imposed upon CADUS, its
Affiliates or sublicensees, or any other person or entity arising out of or in
connection with or resulting from:
a. the production, use or sale of any Product(s); or
b. the use of any NJC Technical Information or any advertising or
other promotional activities with respect to any of the foregoing.
16.4. STATUS OF PARTIES. Neither party hereto is an agent of the other
party for any purpose whatsoever.
ARTICLE 17 - USE OF A PARTY'S NAME
17.1. USE OF PARTY'S NAMES. Neither party will, without the prior written
consent of the other party, use in advertising, publicity or otherwise, any
trade name, trademark, trade device, service mark, symbol, or any abbreviation,
contraction or
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simulation thereof owned by the other party, use the name of any employee or
agent of the other party in any publication, publicity, advertising or
otherwise, or represent, either directly or indirectly, that any product or
service of the other party is a product or service of the representing party, or
that it is made in accordance with or utilizes the information or documents of
the other party.
17.2. EXCEPTIONS TO PARAGRAPH 17.1. Each party may acknowledge the
existence of this Agreement and the parties hereto, publicly or privately, as
necessary for carrying out its business or as required by law.
ARTICLE 18 - SEVERANCE
Each clause of this Agreement is a distinct and severable clause and if any
clause is deemed illegal, void or unenforceable, the validity, legality or
enforceability of any other clause or portion of this Agreement will not be
affected thereby.
ARTICLE 19 - ENTIRE AGREEMENT
This Agreement, including any schedules or other attachments which are
incorporated herein by reference, contain the entire agreement between the
parties as to its subject matter. This Agreement merges all prior discussions
between the parties and neither party shall be bound by conditions, definitions,
warranties, understandings or representations concerning such subject matter
except as provided in this Agreement or as may be
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specified later in writing and signed by the properly authorized representatives
of the parties. This Agreement can be modified or amended only by written
agreement duly signed by persons authorized to such agreements on behalf of the
parties.
ARTICLE 20 - WAIVER
The failure of a party in any instance to insist upon the strict
performance of the terms of this Agreement shall not be construed to be a waiver
or relinquishment of any of the terms of this Agreement, either at the time of
the party's failure to insist upon strict performance or at any time in the
future, and such term or terms shall continue in full force and effect.
ARTICLE 21 - TITLES
All titles and article headings contained in this Agreement are inserted
only as a matter of convenience and reference. They do not define, limit, extend
or describe the scope of this Agreement or the intent of any of its provisions.
ARTICLE 22 - CONFIDENTIALITY
22.1. NJC TECHNICAL INFORMATION. All NJC Technical Information that is
disclosed to CADUS shall be maintained in confidence and shall not be disclosed
to any other person, firm or agency, governmental or private, or used for
purposes other than those set forth in this Agreement, without the prior written
consent of NJC, except to the extent that such information:
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a. is known at the time of its receipt by CADUS as documented by
written records dated prior to such disclosure; or
b. is in the public domain other than through the fault of CADUS; or
c. is subsequently disclosed to CADUS by a third party who may
lawfully do so and who is not under an obligation of confidentiality to NJC; or
d. disclosed to the Securities and Exchange Commission in filings by
CADUS therewith or to other governmental agencies to facilitate the issuance of
marketing approvals for Assays or Product(s); or
e. is disclosed to potential sublicensees, potential investors,
potential business partners, agents, consultants, Affiliates, and/or other third
parties for the research, development, manufacture, sale or marketing, external
testing and marketing trials of Assays or Product(s) under this Agreement, which
entities and individuals shall first agree to be bound by the confidentiality
obligations contained in this Agreement; or
f. is required to be disclosed in a judicial or administrative
proceeding after legal remedies for maintaining the subject matter in confidence
have been exhausted.
22.2. DURATION OF CONFIDENTIALITY OBLIGATIONS. CADUS's obligations of
confidentiality shall extend until such time as the information in question
falls within one of the exceptions set forth in Section 22.1.
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<PAGE>
22.3. FINANCIAL TERMS OF THIS AGREEMENT. Neither party shall disclose the
financial terms of this Agreement to any third party (other than employees of
either party) without the prior written consent of the other party, unless such
disclosure is otherwise required by law or other applicable regulation.
ARTICLE 23 - MISCELLANEOUS PROVISIONS
23.1. FORCE MAJEURE. No failure or omission by the parties hereto in the
performance of any obligation of this Agreement shall be deemed a breach of this
Agreement or create any liability if the same shall arise from any cause or
causes beyond the control of the parties, including, but not limited to, the
following: act of God, acts or omissions of any government; any rules,
regulations or orders issued by any governmental authority or by any officer,
department, agency or instrumentality thereof; fire; storm; flood; earthquake;
accident; war; rebellion; insurrection; riot; invasion; strike; and lockouts;
and provided that such failure or omission resulting from one of the above
causes is cured as soon as is practicable after the occurrence of one or more of
the above-mentioned causes.
23.2. PUBLICATIONS. Both parties recognize that each may wish to publish
the results of their work relating to the NJC Technical Information. However,
both parties also recognize the importance of acquiring patent protection on
inventions. Consequently, any proposed publication by either party shall comply
with this Section 23.2. At least 15 days before a manuscript is to
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be submitted to a publisher, the publishing party will provide the other party
with a copy of the manuscript. If the publishing party wishes to make an oral
presentation, it will provide the other party with a copy of the abstract (if
one is submitted) at least 15 days before it is to be submitted. The publishing
party will also provide to the other party a copy of the text of the
presentation, including all slides, posters, and any other visual aids, at least
15 days before the presentation is made. The receiving party will review the
manuscript, abstract, text or any other material provided under this Section
23.2 to determine if patentable subject matter is disclosed. The reviewing party
will notify the publishing party within 15 days of receipt of the proposed
publication if the reviewing party, in good faith, determines that patentable
subject matter is or may be disclosed, or if the reviewing party, in good faith,
believes confidential or proprietary information is or may be disclosed. If it
is determined by the reviewing party that patent applications should be filed,
the publishing party shall delay its publication or presentation for a period
not to exceed 45 days from the reviewing party's receipt of the proposed
publication to allow time for the filing of patent applications covering
patentable subject matter. In the event that the delay needed to complete the
filing of any necessary patent application will exceed the 45 day period, the
parties will discuss the need for obtaining an extension of the publication
delay beyond the 45 day period. If it is determined in good faith by the
reviewing party that confidential or proprietary
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<PAGE>
information is being disclosed, the parties will consult in good faith to arrive
at an agreement on mutually acceptable modifications to the proposed publication
to avoid such disclosure.
23.3. CONFLICTS WITH OTHER AGREEMENTS. In the event any dispute or conflict
arises with respect to the terms and conditions of the present Agreement as
compared with agreements entered into between CADUS or its Affiliates and NJC
employees, specifically Dr. Johnson and Dr. Cambier, the terms and conditions of
this Agreement shall govern. CADUS acknowledges that all consulting agreements
between CADUS and any NJC employee must be in compliance with NJC's policies in
effect at the time they are entered into. NJC's current policies with respect to
consulting agreements with its employees is annexed hereto as Exhibit D. NJC
hereby acknowledges that the Consulting Agreements and the Stock Option
Agreements between CADUS and each of Dr. Johnson and Dr. Cambier are in
compliance with NJC's current policies.
23.4. OWNERSHIP OF TECHNOLOGY. The parties acknowledge and agree that all
NJC Technical Information are now and shall be solely owned by NJC and that
CADUS and its Affiliates shall have no right, title or interest therein except
as explicitly set forth in this Agreement.
23.5. SURVIVABILITY. In the event of termination of this Agreement, the
following provisions will survive: 9.4, 11.2, 12.1, 13, 16, 22.1, 22.2, 22.3 and
23.4.
23.6. ARMS-LENGTH TRANSACTION. This Agreement is the product of arms-length
negotiations by and between the parties. Each of
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the parties hereto has obtained the advice of independent counsel before signing
this Agreement. The parties execute this Agreement freely and voluntarily with
full knowledge of its significance. Each party has participated in the review
and drafting of this Agreement such that no construction of the terms or effect
of this Agreement shall be made against either party on the basis of such
party's capacity as the principal drafter hereof. In executing this Agreement,
the parties rely upon no inducements, promises or representations made by any
other party other than as set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
NATIONAL JEWISH CENTER FOR
IMMUNOLOGY AND RESPIRATORY
MEDICINE
By: /s/
--------------------------------
Executive Vice President and
Chief Operating Officer
ATTEST:
By: 11/7/94
-------------------------
CADUS PHARMACEUTICAL CORPORATION
By:/s/ Jeremy Levin
--------------------------------
President
ATTEST:
By:/s/ James S. Rielly
-------------------------
James S. Rielly, Secretary
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EXHIBIT A
PATENT APPLICATIONS COVERING NJC TECHNICAL INFORMATION
1. U.S. Patent Application Serial No. 08/049,254 entitled "METHOD AND PRODUCT
FOR REGULATING CELL RESPONSIVENESS TO EXTERNAL SIGNALS" filed April 15,
1993;
2. U.S. Patent Application Serial No. [c.i.] entitled "USING TYROSINE
PHOSPHORYLATION OF MAP KINASE AND CHARACTERIZATION OF THE COMPONENTS OF THE
MAP KINASE ACTIVATION PATHWAY AS A DRUG DISCOVERY ASSAY SYSTEM", filed
[c.i.].
[c.i.]
3. U.S. Patent Application Serial No. 08/215,116, entitled "PRODUCT AND
PROCESS FOR REGULATING SIGNAL TRANSDUCTION PATHWAYS", filed March 17, 1994.
4. PCT Patent Application Serial No. US94/04178 entitled "METHOD AND PRODUCT
FOR REGULATING CELL RESPONSIVENESS TO EXTERNAL SIGNALS", filed April 15,
1994.
[c.i.]
<PAGE>
EXHIBIT B
CADUS shall use reasonable efforts, commensurate with standards commonly
followed in the pharmaceutical industry and the requirements imposed upon
manufacturers by governmental agencies, to proceed diligently with the
development, manufacture and sale of Product(s) and shall earnestly and
diligently offer and continue to offer for sale such Product(s) once developed
and approved for commercial use, both under reasonable conditions and consistent
with sound business practices, including those specifically adopted by the
management of CADUS for the conduct of its overall business, during the term of
this Agreement.
PERFORMANCE INDICATORS
The parties agree that CADUS shall use its reasonable efforts to meet the
following performance indicators for Product(s) for IN VIVO uses:
(i) Twenty-four (24) months to complete preclinical studies, including
optimizing the Product(s) through medicinal chemistry, commencing on the date on
which the first Product(s) has been identified as a candidate for commercial
development.
(ii) Following the completion of (i) and the decision by CADUS that
the Product(s) in question will be taken into clinical trials, nine (9) months
for the completion of an IND submission.
(iii) Twelve (12) months to complete Phase I/II clinical studies for
IN VIVO diagnostic uses and thirty (30) months for therapeutic uses, where the
twelve-month and thirty-month time span, respectively, begins when the first
patient is enrolled in Phase I/II.
(iv) Twelve (12) months to complete Phase III clinical studies for IN
VIVO diagnostic uses and thirty-six (36) months for therapeutic uses, where the
twelve and thirty-six month time span, respectively, begins when the first
patient is enrolled in Phase III.
(v) One (1) year to prepare and file a PLA or NDA, commencing on the
date on which the Phase III clinical studies, as provided in (iv), have been
completed.
It is agreed that the performance indicators listed above are based on
current estimates. The proposed time intervals refer to active clinical trials
exclusive of delays due to regulatory findings by appropriate authorities,
manufacturing of Product(s) or other special clinical issues relating to
indication and clinical endpoints, and also to any changes in regulatory laws
and practices. CADUS will keep NJC informed about any delays, and
<PAGE>
reasons for such delays, throughout the course of the activities described here
within Exhibit A.
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EXHIBIT C
MILESTONES
- --------------------------------------------------------------------------------
[c.i.]
<PAGE>
EXHIBIT D
NATIONAL JEWISH CENTER FOR IMMUNOLOGY
AND RESPIRATORY MEDICINE
Policy Regarding Conflicts of Interest
I. GENERAL STATEMENT
This policy Regarding Conflicts of Interest shall apply to the following
individuals: the officers of the Center, the members of the Center's Faculty,
and all other employees of the Center who have responsibilities to the Center,
the performance of which may be influenced by those employee's conflicting
interests.
The Center recognizes that all individuals subject to this Policy have a
duty of loyalty to the Center. The purpose of this Policy is to identify certain
requirements of that duty of loyalty and to establish limitations and procedures
to ensure that those requirements are met.
II. THE DUTY OF LOYALTY TO THE CENTER
Although the duty of loyalty is broad in scope and is not capable of
precise definition that encompasses all of its requirements, the following
requirements may be stated:
1. The duty of loyalty includes the duty to act in good faith toward the
Center in the performance of one's responsibilities to the Center and
in all other activities that may affect the interests of the Center.
2. The duty of loyalty includes the duty to be strictly honest with the
Center in all matters.
3. The duty of loyalty includes the duty to deal fairly with the Center
in all matters.
4. The duty of loyalty includes the duty to abstain from any transaction
or relationship in which one has, directly or indirectly, an interest
that is adverse to the interests of the Center.
The Center recognizes that occasions may arise in which an individual who
is subject to this Policy has interests that may conflict with the interests of
the Center. The Center believes that full disclosure of the circumstances of
such occasions, and resolution of the conflicts by persons with authority to act
on behalf of the Center, and who are without conflicts of their own in the
circumstances, can provide an appropriate means of dealing with those occasions.
<PAGE>
The balance of this Policy sets forth limitations and procedures to ensure
that the duty of loyalty owed to the Center by the individuals subject to this
Policy can be met in circumstances involving conflicts of interest.
The term "Responsible Person" used in this Policy means a supervisor, a
department chairman, any Vice President, or the President of the Center.
However, no one who is subject to this Policy shall have complied with this
Policy by making disclosure to or securing approval from any Responsible person
who is known by that individual to have the same or a similar conflict of
interest, involving one or more of the same parties, as that which is disclosed
or for which approval is sought.
III. OTHER EMPLOYMENT AND CONSULTING ACTIVITIES
It is expected that all full-time employees and Faculty members of the
Center will regard the Center as their primary employment activity and that they
will not permit any other employment or any consulting activity to interfere
with their discharge of their full-time service obligations to the Center.
Individuals covered by this policy, may, with the prior approval of a
Responsible Person, engage in external consulting activity up to thirty-three
(33) days per fiscal year provided such effort does not represent a conflict of
interest.
Any individual subject to this Policy who is employed by any other entity
on either a part-time or a full-time basis or who consults for any entity other
than the Center shall report that employment or consulting activity to a
superior Responsible Person. Any such employment or activity that is in
existence at the time of the adoption of this Policy shall be so reported
promptly after such adoption, and any employment or consulting activity that is
to be entered into or engaged in after the adoption of this Policy shall be so
reported before the employment or activity commences. In each case, the full
particulars of the employment or consulting activity shall be reported in order
that a determination may be made concerning the impact of the employment or
activity upon the interests of the Center. The provisions of this paragraph
shall not apply to consulting activities that are provided without direct or
indirect compensation and do not involve a disclosure of information about the
Center and do not significantly infringe upon the time required to meet one's
responsibilities to the Center.
Any individuals subject to this Policy who is employed by any other entity
or who consults for any other entity other than the Center shall comply with the
following requirements:
1. The individual shall advise the person providing the employment or for
whom the consulting services are rendered that (i) the individual is
acting, in the role of employee or consultant, solely on his or her
own account and not as the agent or employee of, or under the
sponsorship, auspices, or control of, the Center; (ii) the
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Center has no liability whatsoever for the individual's actions or
omissions as such an employee or consultant; and (iii) the individual
is subject to the Center's patent policy governing the rights to
inventions resulting from activities that are supported by the Center
or that utilize its resources or facilities; and
2. The individual shall not use the Center's resources or facilities for
any significant personal purposes and shall not use any such resources
or facilities for any purpose that may benefit another employer or
person to whom the individual may render consulting activities, unless
prior approval of a superior Responsible Person is obtained.
IV. OWNERSHIP OF OTHER ENTITIES
The Center believes that while ownership by individuals who are subject to
this Policy of entities that may have interests in conflict with those of the
Center may pose difficulties, it is not presently necessary to preclude such
ownership but merely to require disclosure of its existence to responsible
authorities of the Center in order that circumstances can be monitored to avoid
adverse impacts upon the interests of the Center.
Accordingly, each individual who is subject to this Policy shall report to
a superior Responsible Person all ownership interests that he or she may have,
directly or indirectly, in any entity whose interests do, or conceivably may in
the future, conflict with any interests of the Center. No such reporting shall
be required, however, of ownership of less than five percent of the outstanding
ownership interests in any entity in which such ownership interests are publicly
traded.
V. RECEIPT OF GIFTS: CONTRACTING WITH OTHER ENTITIES
The receipt of gifts or the like, by one who is empowered to act for the
Center, from a person who may have business with the Center, can give rise at
least to the appearance of impropriety and oftentimes to an actual impairment of
one's duty of loyalty to the Center. Accordingly, any individual who is subject
to this Policy who receives from any entity any hospitalities, courtesies,
remunerations, or gifts that he or she reasonably believes to be of more than
$100 in value, either singly or in the aggregate, shall report such
hospitalities, courtesies, remunerations, or gifts to a superior Responsible
Person if he or she has the responsibility or power to contract with that entity
on behalf of the Center.
Furthermore, no individual who is subject to this Policy shall accept any
hospitality, courtesy, remuneration, or gift from any entity if such acceptance
could influence or might reasonably appear to influence any action that the
individual might or could take on behalf of the Center.
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<PAGE>
National Jewish resources will not normally be used for consulting under
this penalty. If facilities or personnel are to be used in conjunction with such
consulting or related research, this must be disclosed in writing through the
Internal Grant Review Procedure; and if approved, full direct and indirect costs
will be recovered including fees for research or other services supplemented by
the Center.
VI. DUTIES OF RESPONSIBLE PERSONS
It shall be the duty of each Responsible Person to whom a disclosure is
made, or of whom an approval is requested, pursuant to this Policy to evaluate
the matter and determine whether he or she may appropriately resolve the matter
or whether the matter should be referred to a more senior Responsible Person. In
all determinations made by Responsible Persons under this Policy, protection and
furtherances of the interests of the Center shall be of paramount importance.
VII. PERIODIC DISCLOSURE
The President of the Center shall annually send to all individuals who are
subject to this Policy a copy of this Policy, together with an appropriate
explanation and a questionnaire designed to provoke disclosure of all activities
or interests that could give rise to conflicts of interest or to other breaches
of the duty of loyalty. Such questionnaire shall be completed by each recipient
and returned to the appropriate superior Responsible Person. Each Responsible
Person shall deliver the returned questionnaires to the President, accompanied
by a report summarizing the returned questionnaires and containing such other
observations on the subjects he or she may care to make.
The President of the Center shall comply with this Policy and provide a
completed questionnaire annually to the Chairman of the Board.
Each new officer, Faculty member, or other individual who hereafter becomes
subject to this Policy shall complete such a questionnaire promptly following
the event by which he or she becomes subject to this Policy.
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STOCK OPTION AGREEMENT
AGREEMENT made as of November 1, 1994 by and between CADUS PHARMACEUTICAL
CORPORATION (the "Corporation"), a Delaware corporation with offices located at
180 Varick Street, New York, New York 10014, and JOHN C. CAMBIER (the
"Consultant") having an office at National Jewish Center for Immunology &
Respiratory Medicine ("NJC"), 1400 Jackson Street, Denver, Colorado 80206.
W I T N E S S E T H:
WHEREAS, in order to induce Consultant to provide consulting services to
the Corporation in connection with a research program to be undertaken by the
Corporation at a facility (other than Consultant's laboratory at NJC) to be
established in or close to Denver or Boulder (the "Colorado Facility") and
involving technology to be licensed from NJC (the "Research Program"), the
Corporation desires to grant to Consultant the right and option, subject to
certain conditions, to purchase shares of the Common Stock, $.001 par value, of
the Corporation (the "Common Stock");
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. GRANT OF STOCK OPTION.
As an additional inducement to provide consulting services to the
Corporation, the Corporation hereby grants to Consultant the right and option
(the "Option"), to purchase from the Corporation five hundred thousand (500,000)
shares of Common Stock (the "Shares"), subject to adjustment as provided in
Paragraph 7 hereof, on the terms and subject to the conditions hereinafter set
forth.
2. PURCHASE PRICE.
Subject to adjustment as provided in Paragraph 7 hereof, the purchase price
(the "Option Purchase Price") to be paid upon exercise of the Option shall be
fifty cents ($.50) per Share.
3. EXERCISABILITY OF OPTION.
(a) The Option shall be exercisable, on a cumulative basis, during a period
of ten (10) years commencing from the date hereof and terminating at the close
of business on October 31, 2004, as follows:
(i) up to 125,000 Shares subject to the Option may be purchased by
Consultant after the first anniversary of the
<PAGE>
date (the "Effective Date") the Colorado Facility is first occupied by the
Corporation's employees;
(ii) up to an additional 125,000 Shares subject to the Option may be
purchased by Consultant after the second anniversary of the Effective Date;
(iii) up to an additional 125,000 Shares subject to the Option may be
purchased by Consultant after the third anniversary of the Effective Date; and
(iv) up to an additional 125,000 Shares subject to the Option may be
purchased by Consultant after the fourth anniversary of the Effective Date.
(b) Notwithstanding anything to the contrary contained herein, but subject
to subparagraph 3(c) hereof, if the Corporation at any time terminates the
Research Program, the portion of the Option which has not yet become exercisable
shall automatically terminate and become null and void; provided, however, that
the Corporation agrees not to terminate the Research Program before a date which
is at least 352 days after the Effective Date. The Corporation shall have the
right, at any time after 352 days after the Effective Date, to terminate the
Research Program for any reason whatsoever. The Corporation shall give
Consultant prompt written notice of such termination.
(c) Notwithstanding subparagraphs 3(a) and 3(b) hereof, the Option shall
become immediately exercisable as to all of the Shares if the Corporation
terminates the Research Program, after the occurrence of any of the following
events (and the Corporation shall give Consultant prompt written notice of the
occurrence of any such event):
(i) the closing of an underwritten public offering on a firm
commitment basis pursuant to an effective registration statement filed pursuant
to the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock for the account of the Corporation in which the Corporation actually
receives gross proceeds equal to or greater than $7,500,000 (calculated after
deducting underwriters' discounts and commissions but before calculation of
expenses), and in which the price per share of Common Stock equals or exceeds
$1.38 (such price subject to equitable adjustment in the event of any stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the Common Stock);
(ii) the merger or consolidation of the Corporation with or into
another Corporation or other entity or person, or any other transaction or
series of related transactions by the Corporation, in which in excess of fifty
percent (50%) of
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the voting power held by the holders of the Corporation's issued and outstanding
capital stock is transferred, or the sale of all or substantially all of the
Corporation's properties and assets to any other person; or
(iii) the consummation of a transaction with a third party pursuant to
which such third party will provide at least $10,000,000 of funding to the
Corporation to pay for research to be conducted by the Corporation relating to
the Research Program.
(d) If the Consulting Agreement between the Corporation and Consultant (the
"Consulting Agreement"), of even date herewith, is terminated by the Corporation
pursuant to subparagraph 25(a) thereof, the Option will terminate upon the
expiration of three (3) months from the date of such termination. The Option
will be exercisable during such three-month period only to the extent that it
was exercisable immediately prior to the termination of the Consulting
Agreement.
4. EXERCISE OF OPTION.
(a) The Option may be exercised by Consultant with respect to all or part
of the Shares (but not as to a fractional share of Common Stock) as to which the
Option has become exercisable, within the applicable period specified in
Paragraph 3 hereof, by the giving of written notice of the exercise thereof to
the Corporation in the manner provided in Paragraph 13 hereof and substantially
in the form annexed hereto as Exhibit A, which notice shall be accompanied by
payment in full of the purchase price therefor by certified or bank cashier's
check. Such exercise shall be effective upon receipt by the Corporation of such
written notice and payment; and Consultant, to the extent permitted by law,
shall be deemed the owner of the Shares as of the close of business on the date
of such exercise, payment and delivery. The Corporation shall cause a
certificate or certificates representing the Shares to be delivered to
Consultant within ten (10) days after the effective date of such exercise.
Consultant agrees that such certificate or certificates shall bear such legend
or legends as the Board of Directors of the Corporation, in its reasonable
discretion, determines to be necessary or appropriate to prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act").
(b) In lieu of the certified or bank cashier's check provided for in
subparagraph 4(a) above, Consultant may, at his sole option and to the extent
permitted by applicable law, pay for the purchase price of the Shares being
purchased by the exercise of the Option, by delivering to the Corporation shares
of Common Stock (in proper form for transfer and accompanied by all requisite
stock transfer tax stamps or cash in lieu thereof) owned by Consultant
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<PAGE>
having a Fair Market Value (as hereinafter defined in subparagraph 4(c) hereof)
equal to such purchase price. Consultant may elect to make such delivery to the
Corporation of shares of Common Stock from Shares he is purchasing pursuant to
his exercise of the Option by including such election in his notice of exercise.
(c) The Fair Market Value of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Corporation's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, then the closing or last sale
price, respectively, reported for the last business day immediately preceding
the Determination Date.
(ii) If the Corporation's Common Stock is not traded on an exchange or
on the NASDAQ National Market System but is traded in the over-the-counter
market, then the mean of the closing bid and asked prices reported for the last
business day immediately preceding the Determination Date.
(iii) Except as provided in subsections 4(c)(iv) and 4(c)(v) below, if
the Corporation's Common Stock is not publicly traded, then as determined in
good faith by the Corporation's Board of Directors upon a review of relevant
factors.
(iv) If the Determination Date is the date on which the Corporation's
Common Stock is first sold to the public by the Corporation in a firm commitment
public offering under the Securities Act, then the initial public offering price
(before deducting commissions, discounts or expenses) at which the Common Stock
is sold in such offering.
(v) If the Determination Date is the date of a liquidation,
dissolution or winding up of the Corporation, then all amounts to be payable per
share to holders of the Common Stock in the event of such liquidation,
dissolution or winding up.
5. PURCHASE FOR INVESTMENT.
Consultant agrees that at the request of the Corporation (prior to the time
the Shares have been registered under the Securities Act) and upon exercise of
the Option, he shall execute and deliver to the Corporation a written statement,
in form satisfactory to the Corporation, representing and warranting that he is
purchasing the Shares for his own account, for investment only and not with a
view to the resale or distribution thereof and that any subsequent offer for
sale or sale of any of such shares shall be made either pursuant to (a) a
registration statement on an appropriate form under the Securities Act, which
registration statement has become effective and is current with respect to the
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shares being offered and sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption Consultant
shall, prior to any offer for sale or sale of such shares, obtain a written
legal opinion satisfactory to the Corporation as to the availability of such
exemption.
6. NON-TRANSFERABILITY OF OPTION.
The Option shall not be transferable by Consultant other than by will or
the laws of descent and distribution.
7. ADJUSTMENT OF SHARES; ADVANCE NOTICE OF CERTAIN TRANSACTIONS.
If any change is made in the Shares deliverable upon exercise of the Option
(through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, split-up, spin-off, split-off, subdivision or combination
of shares, exchange of shares, issuance of rights to subscribe, change in
capital structure or similar event), such adjustments or substitutions shall be
made by the Board of Directors of the Corporation in or for the Shares
(including adjustments in the number of Shares and in the per share price of
Shares subject to the Option) as the Board of Directors of the Corporation
reasonably shall determine to be appropriate and equitable to prevent dilution
or enlargement of Consultant's rights hereunder. After the Option has become
exercisable as to any of the Shares, the Corporation shall provide Consultant
with 10 days' prior written notice of the consummation of any of the
transactions described in subparagraph 3(c)(ii) hereof, so as to enable
Consultant to exercise the Option prior to the consummation of any such
transaction.
8. COVENANTS OF THE CORPORATION.
The Corporation hereby covenants and agrees that:
(a) During the period within which the Option may be exercised, the
Corporation shall at all times reserve and keep available by all necessary
corporate action out of its shares of Common Stock for the purpose of issuance
or transfer upon exercise of the Option the number of shares of Common Stock
included in the Shares and such additional securities as may from time to time
be deliverable hereunder. Such shares may be authorized but unissued shares, or
may be shares held in the treasury of the Corporation or a combination thereof,
at the option of the Corporation.
(b) All shares which may be issued upon exercise of the Option or delivered
pursuant to this Agreement will, upon issuance and payment therefor as provided
herein, be validly issued, fully paid, nonassessable and free from all liens and
charges with respect to the issue thereof.
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(c) Notwithstanding anything to the contrary set forth in this Agreement or
the Consulting Agreement, if Consultant terminates the Consulting Agreement
pursuant to subparagraph 25(a) thereof or if the Consulting Agreement
automatically terminates pursuant to subparagraph 25 (b) thereof, prior to the
third anniversary of the Effective Date, and if the Option has not become
exercisable as to all of the Shares as of the date of such termination, then the
Corporation shall (i) upon the written request of Consultant and Gary L. Johnson
("Johnson"), assign exclusively to a corporation or other entity designated by
Consultant and Johnson and of which either or both of them are the principal
equity owners (the "Consultants' Corporation") all of its right, title and
interest in and to any and all "Intangible Property" (as defined in the
Consulting Agreement) owned by the Corporation and developed pursuant to the
Research Program, and (ii) terminate the license agreement (the "NJC License"),
of even date, pursuant to which NJC has granted an exclusive license to certain
technologies to the Corporation. In order to effectuate the assignment of such
Intangible Property to Consultants' Corporation, the Corporation shall execute
such assignments, certificates or other instruments as Consultants' Corporation
may reasonably deem necessary or desirable to evidence, establish, maintain,
perfect, protect, enforce or defend its right, title and interest in and to such
Intangible Property. Consultants' Corporation shall assume and hold the
Corporation harmless with respect to any and all expenses and liabilities
arising from the Corporation's execution and delivery of such assignments,
certificates and instruments. If the Consulting Agreement so terminates prior to
the second anniversary of the Effective Date, the Consultants' Corporation shall
pay to the Corporation $1.00 in consideration for such assignment. If the
Consulting Agreement so terminates on or after the second anniversary of the
Effective Date and prior to the third anniversary of the Effective Date, the
Consultants' Corporation shall deliver to the Corporation in consideration for
such assignment a non-interest bearing, non-recourse promissory note (the
"Note") in an amount equal to the expenditures made by the Corporation to fund
the Research Program from the second anniversary of the Effective Date to the
date of termination of the Consulting Agreement. The Note shall be payable on
the tenth anniversary of its issuance and shall be convertible into capital
stock of the Consultants' Corporation at the time of its next arms-length equity
financing in excess of $750,000, at the same price at which the Consultants'
Corporation's capital stock is sold to investors in such financing. If the
Consultant's Corporation does not consummate such an equity financing within two
(2) years after the aforementioned assignment, the Note shall be convertible
into a percentage of the outstanding capital stock of the Consultants'
Corporation determined by dividing the principal amount of the Note by the total
expenditures made by the Corporation to fund the Research Program.
Notwithstanding the foregoing, the Corporation shall have no obligation to
assign to the Consultants' Corporation: (i) any technology that does not involve
signal transduction pathways and the use of mammalian cells and (ii) any license
agreement with a third party. For a period of two years commencing on the date
the Corporation terminates the
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NJC License pursuant to this subparagraph 8(c), the Corporation and its
affiliates shall not license "NJC Technical Information" (as defined in the NJC
License from NJC.
(d) If the Corporation shall grant registration rights to its scientist
founders (I.E., James R. Broach, Dana Fowlkes and Thomas Shenk) or to any of its
officers with respect to any securities of the Corporation owned by them, the
Corporation shall grant the same registration rights to Consultant with respect
to the Shares owned by him or which are subject to the Option.
(e) If the Corporation registers any of its securities pursuant to a Form
S-8 (or successor to such Form) filed under the Securities Act and if the Shares
are then registrable on Form S-8, the Corporation shall cause to be registered
pursuant to such Form S-8 the same proportion of the Shares as that of
securities owned by and securities subject to options owned by other employees
of the Corporation. If the Shares are not eligible for registration on such Form
S-8, the Corporation and the Consultant will use reasonable efforts to achieve
such eligibility so as to enable their registration on such Form S-8.
(f) The Corporation shall ensure that if and when the Consultant exercises
the Option and acquires Shares, such Shares shall be deemed securities issued
pursuant to Rule 701 promulgated under the Securities Act. In order to do so,
the Corporation shall limit, as necessary, its issuing of stock or options to
its employees and consultants pursuant to Rule 701. The Corporation shall also
take such action as may be reasonably necessary to enable the Consultant's
resale of the Shares pursuant to Rule 701(c)(3) and any applicable state
securities laws, including certifying to the Consultant and/or to a broker
retained by Consultant, at such time or times that the Consultant exercises the
Option or sells the Shares, that the Shares are securities issued pursuant to
Rule 701 and that all conditions to the availability of Rule 701 have been met
with respect to the issuance of the Shares.
(g) If the Corporation becomes subject to the reporting requirements (the
"Reporting Requirements") of either Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, if the Shares have not been registered under
the Securities Act, and if they cannot be sold by Consultant pursuant to an
exemption from the registration requirements thereof, the Corporation shall use
its reasonable best efforts to ensure that adequate "current public information"
is available with respect to it within the meaning of Rule 144(c) promulgated
under the Securities Act.
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(h) The Corporation shall indemnify the Consultant and provide insurance
coverage to the Consultant to the same extent and subject to the same
limitations as are set forth for NJC in Article 16 of the NJC License.
9. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
The Corporation hereby represents and warrants to Consultant that: (i) this
Agreement and the grant of the Option to Consultant have been duly authorized by
all required corporate action on the part of the Corporation, (ii) the
Corporation is not a party to any agreement which would restrict or prohibit it
from issuing the Option to Consultant (or, to the extent such restrictions or
prohibitions exist, they have been waived by the beneficiaries thereof), (iii)
the anti-dilution protection provided in Paragraph 7 hereof is no less than that
provided under any and all of the option agreements and plans pursuant to which
the Corporation's officers have been granted stock options, (iv) the
capitalization of the Corporation as of the date hereof, on a fully diluted
basis, is as set forth on Exhibit B annexed hereto, (v) this Agreement is
enforceable against the Corporation in accordance with its terms, (vi) the grant
of the Option pursuant to this Agreement is exempt from the registration
requirements of the Securities Act and any applicable state securities laws,
(vii) the issuance of Shares to Consultant upon his exercise of the Option shall
be exempt from the registration requirements of the Securities Act, and (viii)
ninety (90) days after the Corporation becomes subject to the Reporting
Requirements, Consultant shall be able to resell the Shares acquired by him upon
exercise of the Option in accordance with Rule 701(c)(3) promulgated under the
Securities Act.
10. NO FRACTIONAL SHARES.
Upon the exercise of the Option, the Corporation shall not be required to
issue any fractional shares or scrip certificates evidencing any fractional
interest in shares. In any case where, pursuant to the terms of the Option,
Consultant would be entitled, except for the provisions of this Paragraph 10, to
receive a fractional share, the number of shares issuable upon such exercise
shall be rounded to the next larger whole share if such fractional share
interest is a major fraction; if such fractional share interest is not a major
fraction, it shall be disregarded.
11. "LOCK-UP" AGREEMENT.
The Consultant, if so requested by the Corporation and an underwriter of
Common Stock or other securities of the Corporation, shall not sell, grant any
option or right to buy or sell, or otherwise transfer or dispose of in any
manner, whether in privately-negotiated or open-market transactions, any Common
Stock or other securities of the Corporation held by him or which he has
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the right to acquire during the 180-day period following the effective date of a
registration statement of the Corporation filed with the Securities and Exchange
Commission in connection with such offering or such shorter period as such
underwriter shall have advised the Corporation in writing is adequate to permit
the successful and orderly distribution of such Common Stock or other
securities; provided, however, that such "lock-up" agreement shall be in writing
and in form and substance satisfactory to the Corporation and such underwriter.
The Corporation may impose stop-transfer instructions with respect to the shares
subject to the foregoing restrictions until the end of said 180-day period. In
connection with the preparation and filing of any such registration statement,
the Corporation shall use its reasonable best efforts (i) to enforce the
obligations of its stockholders (and any person who shall have the right to
acquire capital stock of the Corporation) who have agreed with the Corporation
to enter into "lock-up" or "market stand-off" agreements and (ii) to obtain a
"lock-up" or "market stand-off" agreement from all of its other stockholders and
all other such persons.
12. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, and no statement, representation, warranty
or covenant has been made by either party except as expressly set forth herein.
This Agreement supersedes and cancels all prior agreements between the parties,
whether written or oral, with respect to the subject matter hereof. No
alteration, amendment or modification of any of the terms and provisions hereof
shall be valid unless made pursuant to a written instrument signed by all of the
parties hereto.
13. NOTICES.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, first class, postage prepaid, certified mail, return receipt
requested, to the other party at its or his address as set forth at the
beginning of this Agreement or as either of the parties may designate in
conformity with the foregoing.
14. APPLICABLE LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware.
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15. PARAGRAPH HEADINGS.
The paragraph headings set forth in this Agreement are for reference
purposes only and shall not considered as part of this Agreement in any respect
nor shall they in any way affect the substance of any provisions contained in
this Agreement.
16. SUCCESSORS AND ASSIGNS.
This Agreement shall not be assignable by Consultant, but the rights
hereunder may be transferred as described in Paragraph 6 hereof. All of the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by Consultant, the Corporation, the heirs and
personal representatives of Consultant and the successors and assigns of the
Corporation.
17. ARBITRATION.
(a) The parties hereto agree that they shall use their best efforts to
settle amicably any disputes, differences or controversies arising between the
parties out of or in connection with this Agreement. However, subject to the
limitations set forth in the final sentence of this subparagraph 17(a) and in
subparagraph 17(b) below, any such disputes, differences or controversies, if
not so settled within thirty (30) days after the occurrence thereof, shall be
finally and exclusively determined by arbitration. Unless the parties otherwise
agree, arbitration initiated by the Corporation shall be held in Denver,
Colorado, and arbitration initiated by the Consultant shall be held in New York,
New York. Any such arbitration shall be conducted by three arbitrators who are
appointed and who shall conduct such arbitration in accordance with the
Commercial Rules of the American Arbitration Association then obtaining. The
parties hereby empower such arbitrators to grant equitable relief as necessary
to resolve any dispute between the parties. Judgment upon the award rendered may
be entered in any court having jurisdiction or application may be made to such
court for a judicial acceptance of the award and an order of enforcement, as the
case may be. Notwithstanding the foregoing, either party may, without recourse
to arbitration, assert against the other party a third-party claim or
cross-claim in any action brought by a third party to which the subject matter
of this Agreement may be relevant.
(b) Notwithstanding subparagraph 17(a) above, Consultant may seek emergency
injunctive relief, emergency specific performance or other emergency equitable
relief in a state court of the State of New York or the United States District
Court for the Southern District of New York with respect to a breach or
threatened breach by the Corporation of Paragraphs 3, 4, 7 or 8 hereof. The
Corporation hereby consents to the personal jurisdiction of any such court and
agrees to be sued in such court
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in the circumstances described in the preceding sentence. The Corporation agrees
that any and all process directed to it in any such litigation may be served
upon its agents outside of the State of New York with the same force and effect
as if service had been made within the State of New York.
18. SURVIVAL.
The rights and obligations of the parties arising under Paragraphs 8, 9, 11
and 17 hereof shall survive the termination of the Option.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CADUS PHARMACEUTICAL CORPORATION
By: /s/ Jeremy Levin
--------------------------
Jeremy M. Levin, President
/s/ John C. Cambier
--------------------------
JOHN C. CAMBIER
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EXHIBIT A
[Date of Exercise]
Cadus Pharmaceutical Corporation
180 Varick Street
New York, New York 10014
Attention: Corporate Secretary
Re: STOCK OPTION
Dear Sir:
I am the holder of a Stock Option granted to me by Cadus Pharmaceutical
Corporation (the "Corporation"), pursuant to a Stock Option Agreement dated as
of November 1, 1994, to purchase 500,000 shares of Common Stock of the
Corporation ("Shares"). I hereby exercise such option with respect to
____________ Shares, the total purchase price for which is $______________, and
[I enclose a certified or bank cashier's check payable to the order of the
Corporation in the amount of $______________, representing the total purchase
price for the Shares] [I hereby elect to pay the purchase price by delivering to
the Corporation _________ shares of Common Stock of the Corporation having a
fair market value equal to $______________ from the Shares I am purchasing
pursuant to the exercise of such option]. The certificate or certificates
representing the Shares should be registered in my name and should be forwarded
to me at ____________________________________________________.
Please acknowledge receipt of the exercise of my stock option on the
attached copy of this letter.
Very truly yours,
JOHN C. CAMBIER
RECEIPT ACKNOWLEDGED:
CADUS PHARMACEUTICAL CORPORATION
By: ____________________________
<PAGE>
EXHIBIT B
CAPITALIZATION OF
CADUS PHARMACEUTICAL CORPORATION
AS OF OCTOBER 31, 1994
Common Stock: 4,140,000
Series A Preferred Stock: 14,879,651 shares
Series B Preferred Stock: 3,571,429 shares
Options to acquire Common Stock: 1,620,459
STOCK OPTION AGREEMENT
AGREEMENT made as of November 1, 1994 by and between CADUS PHARMACEUTICAL
CORPORATION (the "Corporation"), a Delaware corporation with offices located at
180 Varick Street, New York, New York 10014, and GARY L. JOHNSON (the
"Consultant") having an office at National Jewish Center for Immunology &
Respiratory Medicine ("NJC"), 1400 Jackson Street, Denver, Colorado 80206.
W I T N E S S E T H:
WHEREAS, in order to induce Consultant to provide consulting services to
the Corporation in connection with a research program to be undertaken by the
Corporation at a facility (other than Consultant's laboratory at NJC) to be
established in or close to Denver or Boulder (the "Colorado Facility") and
involving technology to be licensed from NJC (the "Research Program"), the
Corporation desires to grant to Consultant the right and option, subject to
certain conditions, to purchase shares of the Common Stock, $.001 par value, of
the Corporation (the "Common Stock");
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. GRANT OF STOCK OPTION.
As an additional inducement to provide consulting services to the
Corporation, the Corporation hereby grants to Consultant the right and option
(the "Option"), to purchase from the Corporation five hundred thousand (500,000)
shares of Common Stock (the "Shares"), subject to adjustment as provided in
Paragraph 7 hereof, on the terms and subject to the conditions hereinafter set
forth.
2. PURCHASE PRICE.
Subject to adjustment as provided in Paragraph 7 hereof, the purchase price
(the "Option Purchase Price") to be paid upon exercise of the Option shall be
fifty cents ($.50) per Share.
3. EXERCISABILITY OF OPTION.
(a) The Option shall be exercisable, on a cumulative basis, during a period
of ten (10) years commencing from the date hereof and terminating at the close
of business on October 31, 2004, as follows:
(i) up to 125,000 Shares subject to the Option may be purchased by
Consultant after the first anniversary of the
<PAGE>
date (the "Effective Date") the Colorado Facility is first occupied by the
Corporation's employees;
(ii) up to an additional 125,000 Shares subject to the Option may be
purchased by Consultant after the second anniversary of the Effective Date;
(iii) up to an additional 125,000 Shares subject to the Option may be
purchased by Consultant after the third anniversary of the Effective Date; and
(iv) up to an additional 125,000 Shares subject to the Option may be
purchased by Consultant after the fourth anniversary of the Effective Date.
(b) Notwithstanding anything to the contrary contained herein, but subject
to subparagraph 3(c) hereof, if the Corporation at any time terminates the
Research Program, the portion of the Option which has not yet become exercisable
shall automatically terminate and become null and void; provided, however, that
the Corporation agrees not to terminate the Research Program before a date which
is at least 352 days after the Effective Date. The Corporation shall have the
right, at any time after 352 days after the Effective Date, to terminate the
Research Program for any reason whatsoever. The Corporation shall give
Consultant prompt written notice of such termination.
(c) Notwithstanding subparagraphs 3(a) and 3(b) hereof, the Option shall
become immediately exercisable as to all of the Shares if the Corporation
terminates the Research Program, after the occurrence of any of the following
events (and the Corporation shall give Consultant prompt written notice of the
occurrence of any such event):
(i) the closing of an underwritten public offering on a firm
commitment basis pursuant to an effective registration statement filed pursuant
to the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock for the account of the Corporation in which the Corporation actually
receives gross proceeds equal to or greater than $7,500,000 (calculated after
deducting underwriters' discounts and commissions but before calculation of
expenses), and in which the price per share of Common Stock equals or exceeds
$1.38 (such price subject to equitable adjustment in the event of any stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the Common Stock);
(ii) the merger or consolidation of the Corporation with or into
another Corporation or other entity or person, or any other transaction or
series of related transactions by the Corporation, in which in excess of fifty
percent (50%) of
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the voting power held by the holders of the Corporation's issued and outstanding
capital stock is transferred, or the sale of all or substantially all of the
Corporation's properties and assets to any other person; or
(iii) the consummation of a transaction with a third party pursuant to
which such third party will provide at least $10,000,000 of funding to the
Corporation to pay for research to be conducted by the Corporation relating to
the Research Program.
(d) If the Consulting Agreement between the Corporation and Consultant (the
"Consulting Agreement"), of even date herewith, is terminated by the Corporation
pursuant to subparagraph 25(a) thereof, the Option will terminate upon the
expiration of three (3) months from the date of such termination. The Option
will be exercisable during such three-month period only to the extent that it
was exercisable immediately prior to the termination of the Consulting
Agreement.
4. EXERCISE OF OPTION.
(a) The Option may be exercised by Consultant with respect to all or part
of the Shares (but not as to a fractional share of Common Stock) as to which the
Option has become exercisable, within the applicable period specified in
Paragraph 3 hereof, by the giving of written notice of the exercise thereof to
the Corporation in the manner provided in Paragraph 13 hereof and substantially
in the form annexed hereto as Exhibit A, which notice shall be accompanied by
payment in full of the purchase price therefor by certified or bank cashier's
check. Such exercise shall be effective upon receipt by the Corporation of such
written notice and payment; and Consultant, to the extent permitted by law,
shall be deemed the owner of the Shares as of the close of business on the date
of such exercise, payment and delivery. The Corporation shall cause a
certificate or certificates representing the Shares to be delivered to
Consultant within ten (10) days after the effective date of such exercise.
Consultant agrees that such certificate or certificates shall bear such legend
or legends as the Board of Directors of the Corporation, in its reasonable
discretion, determines to be necessary or appropriate to prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act").
(b) In lieu of the certified or bank cashier's check provided for in
subparagraph 4(a) above, Consultant may, at his sole option and to the extent
permitted by applicable law, pay for the purchase price of the Shares being
purchased by the exercise of the Option, by delivering to the Corporation shares
of Common Stock (in proper form for transfer and accompanied by all requisite
stock transfer tax stamps or cash in lieu thereof) owned by Consultant
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having a Fair Market Value (as hereinafter defined in subparagraph 4(c) hereof)
equal to such purchase price. Consultant may elect to make such delivery to the
Corporation of shares of Common Stock from Shares he is purchasing pursuant to
his exercise of the Option by including such election in his notice of exercise.
(c) The Fair Market Value of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Corporation's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, then the closing or last sale
price, respectively, reported for the last business day immediately preceding
the Determination Date.
(ii) If the Corporation's Common Stock is not traded on an exchange or
on the NASDAQ National Market System but is traded in the over-the-counter
market, then the mean of the closing bid and asked prices reported for the last
business day immediately preceding the Determination Date.
(iii) Except as provided in subsections 4(c)(iv) and 4(c)(v) below, if
the Corporation's Common Stock is not publicly traded, then as determined in
good faith by the Corporation's Board of Directors upon a review of relevant
factors.
(iv) If the Determination Date is the date on which the Corporation's
Common Stock is first sold to the public by the Corporation in a firm commitment
public offering under the Securities Act, then the initial public offering price
(before deducting commissions, discounts or expenses) at which the Common Stock
is sold in such offering.
(v) If the Determination Date is the date of a liquidation,
dissolution or winding up of the Corporation, then all amounts to be payable per
share to holders of the Common Stock in the event of such liquidation,
dissolution or winding up.
5. PURCHASE FOR INVESTMENT.
Consultant agrees that at the request of the Corporation (prior to the time
the Shares have been registered under the Securities Act) and upon exercise of
the Option, he shall execute and deliver to the Corporation a written statement,
in form satisfactory to the Corporation, representing and warranting that he is
purchasing the Shares for his own account, for investment only and not with a
view to the resale or distribution thereof and that any subsequent offer for
sale or sale of any of such shares shall be made either pursuant to (a) a
registration statement on an appropriate form under the Securities Act, which
registration statement has become effective and is current with respect to the
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shares being offered and sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption Consultant
shall, prior to any offer for sale or sale of such shares, obtain a written
legal opinion satisfactory to the Corporation as to the availability of such
exemption.
6. NON-TRANSFERABILITY OF OPTION.
The Option shall not be transferable by Consultant other than by will or
the laws of descent and distribution.
7. ADJUSTMENT OF SHARES; ADVANCE NOTICE OF CERTAIN TRANSACTIONS.
If any change is made in the Shares deliverable upon exercise of the Option
(through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, split-up, spin-off, split-off, subdivision or combination
of shares, exchange of shares, issuance of rights to subscribe, change in
capital structure or similar event), such adjustments or substitutions shall be
made by the Board of Directors of the Corporation in or for the Shares
(including adjustments in the number of Shares and in the per share price of
Shares subject to the Option) as the Board of Directors of the Corporation
reasonably shall determine to be appropriate and equitable to prevent dilution
or enlargement of Consultant's rights hereunder. After the Option has become
exercisable as to any of the Shares, the Corporation shall provide Consultant
with 10 days' prior written notice of the consummation of any of the
transactions described in subparagraph 3(c)(ii) hereof, so as to enable
Consultant to exercise the Option prior to the consummation of any such
transaction.
8. COVENANTS OF THE CORPORATION.
The Corporation hereby covenants and agrees that:
(a) During the period within which the Option may be exercised, the
Corporation shall at all times reserve and keep available by all necessary
corporate action out of its shares of Common Stock for the purpose of issuance
or transfer upon exercise of the Option the number of shares of Common Stock
included in the Shares and such additional securities as may from time to time
be deliverable hereunder. Such shares may be authorized but unissued shares, or
may be shares held in the treasury of the Corporation or a combination thereof,
at the option of the Corporation.
(b) All shares which may be issued upon exercise of the Option or delivered
pursuant to this Agreement will, upon issuance and payment therefor as provided
herein, be validly issued, fully paid, nonassessable and free from all liens and
charges with respect to the issue thereof.
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(c) Notwithstanding anything to the contrary set forth in this Agreement or
the Consulting Agreement, if Consultant terminates the Consulting Agreement
pursuant to subparagraph 25(a) thereof or if the Consulting Agreement
automatically terminates pursuant to subparagraph 25 (b) thereof, prior to the
third anniversary of the Effective Date, and if the Option has not become
exercisable as to all of the Shares as of the date of such termination, then the
Corporation shall (i) upon the written request of Consultant and John Cambier
("Cambier"), assign exclusively to a corporation or other entity designated by
Consultant and Cambier and of which either or both of them are the principal
equity owners (the "Consultants' Corporation") all of its right, title and
interest in and to any and all "Intangible Property" (as defined in the
Consulting Agreement) owned by the Corporation and developed pursuant to the
Research Program, and (ii) terminate the license agreement (the "NJC License"),
of even date, pursuant to which NJC has granted an exclusive license to certain
technologies to the Corporation. In order to effectuate the assignment of such
Intangible Property to Consultants' Corporation, the Corporation shall execute
such assignments, certificates or other instruments as Consultants' Corporation
may reasonably deem necessary or desirable to evidence, establish, maintain,
perfect, protect, enforce or defend its right, title and interest in and to such
Intangible Property. Consultants' Corporation shall assume and hold the
Corporation harmless with respect to any and all expenses and liabilities
arising from the Corporation's execution and delivery of such assignments,
certificates and instruments. If the Consulting Agreement so terminates prior to
the second anniversary of the Effective Date, the Consultants' Corporation shall
pay to the Corporation $1.00 in consideration for such assignment. If the
Consulting Agreement so terminates on or after the second anniversary of the
Effective Date and prior to the third anniversary of the Effective Date, the
Consultants' Corporation shall deliver to the Corporation in consideration for
such assignment a non-interest bearing, non-recourse promissory note (the
"Note") in an amount equal to the expenditures made by the Corporation to fund
the Research Program from the second anniversary of the Effective Date to the
date of termination of the Consulting Agreement. The Note shall be payable on
the tenth anniversary of its issuance and shall be convertible into capital
stock of the Consultants' Corporation at the time of its next arms-length equity
financing in excess of $750,000, at the same price at which the Consultants'
Corporation's capital stock is sold to investors in such financing. If the
Consultant's Corporation does not consummate such an equity financing within two
(2) years after the aforementioned assignment, the Note shall be convertible
into a percentage of the outstanding capital stock of the Consultants'
Corporation determined by dividing the principal amount of the Note by the total
expenditures made by the Corporation to fund the Research Program.
Notwithstanding the foregoing, the Corporation shall have no obligation to
assign to the Consultants' Corporation: (i) any technology that does not involve
signal transduction pathways and the use of mammalian cells and (ii) any license
agreement with a third party. For a period of two years commencing on the date
the Corporation terminates the
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NJC License pursuant to this subparagraph 8(c), the Corporation and its
affiliates shall not license "NJC Technical Information" (as defined in the NJC
License) from NJC.
(d) If the Corporation shall grant registration rights to its scientist
founders (I.E., James R. Broach, Dana Fowlkes and Thomas Shenk) or to any of its
officers with respect to any securities of the Corporation owned by them, the
Corporation shall grant the same registration rights to Consultant with respect
to the Shares owned by him or which are subject to the Option.
(e) If the Corporation registers any of its securities pursuant to a Form
S-8 (or successor to such Form) filed under the Securities Act and if the Shares
are then registrable on Form S-8, the Corporation shall cause to be registered
pursuant to such Form S-8 the same proportion of the Shares as that of
securities owned by and securities subject to options owned by other employees
of the Corporation. If the Shares are not eligible for registration on such Form
S-8, the Corporation and the Consultant will use reasonable efforts to achieve
such eligibility so as to enable their registration on such Form S-8.
(f) The Corporation shall ensure that if and when the Consultant exercises
the Option and acquires Shares, such Shares shall be deemed securities issued
pursuant to Rule 701 promulgated under the Securities Act. In order to do so,
the Corporation shall limit, as necessary, its issuing of stock or options to
its employees and consultants pursuant to Rule 701. The Corporation shall also
take such action as may be reasonably necessary to enable the Consultant's
resale of the Shares pursuant to Rule 701(c)(3) and any applicable state
securities laws, including certifying to the Consultant and/or to a broker
retained by Consultant, at such time or times that the Consultant exercises the
Option or sells the Shares, that the Shares are securities issued pursuant to
Rule 701 and that all conditions to the availability of Rule 701 have been met
with respect to the issuance of the Shares.
(g) If the Corporation becomes subject to the reporting requirements (the
"Reporting Requirements") of either Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, if the Shares have not been registered under
the Securities Act, and if they cannot be sold by Consultant pursuant to an
exemption from the registration requirements thereof, the Corporation shall use
its reasonable best efforts to ensure that adequate "current public information"
is available with respect to it within the meaning of Rule 144(c) promulgated
under the Securities Act.
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(h) The Corporation shall indemnify the Consultant and provide insurance
coverage to the Consultant to the same extent and subject to the same
limitations as are set forth for NJC in Article 16 of the NJC License.
9. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
The Corporation hereby represents and warrants to Consultant that: (i) this
Agreement and the grant of the Option to Consultant have been duly authorized by
all required corporate action on the part of the Corporation, (ii) the
Corporation is not a party to any agreement which would restrict or prohibit it
from issuing the Option to Consultant (or, to the extent such restrictions or
prohibitions exist, they have been waived by the beneficiaries thereof), (iii)
the anti-dilution protection provided in Paragraph 7 hereof is no less than that
provided under any and all of the option agreements and plans pursuant to which
the Corporation's officers have been granted stock options, (iv) the
capitalization of the Corporation as of the date hereof, on a fully diluted
basis, is as set forth on Exhibit B annexed hereto, (v) this Agreement is
enforceable against the Corporation in accordance with its terms, (vi) the grant
of the Option pursuant to this Agreement is exempt from the registration
requirements of the Securities Act and any applicable state securities laws,
(vii) the issuance of Shares to Consultant upon his exercise of the Option shall
be exempt from the registration requirements of the Securities Act, and (viii)
ninety (90) days after the Corporation becomes subject to the Reporting
Requirements, Consultant shall be able to resell the Shares acquired by him upon
exercise of the Option in accordance with Rule 701(c)(3) promulgated under the
Securities Act.
10. NO FRACTIONAL SHARES.
Upon the exercise of the Option, the Corporation shall not be required to
issue any fractional shares or scrip certificates evidencing any fractional
interest in shares. In any case where, pursuant to the terms of the Option,
Consultant would be entitled, except for the provisions of this Paragraph 10, to
receive a fractional share, the number of shares issuable upon such exercise
shall be rounded to the next larger whole share if such fractional share
interest is a major fraction; if such fractional share interest is not a major
fraction, it shall be disregarded.
11. "LOCK-UP" AGREEMENT.
The Consultant, if so requested by the Corporation and an underwriter of
Common Stock or other securities of the Corporation, shall not sell, grant any
option or right to buy or sell, or otherwise transfer or dispose of in any
manner, whether in privately-negotiated or open-market transactions, any Common
Stock or other securities of the Corporation held by him or which he has
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the right to acquire during the 180-day period following the effective date of a
registration statement of the Corporation filed with the Securities and Exchange
Commission in connection with such offering or such shorter period as such
underwriter shall have advised the Corporation in writing is adequate to permit
the successful and orderly distribution of such Common Stock or other
securities; provided, however, that such "lock-up" agreement shall be in writing
and in form and substance satisfactory to the Corporation and such underwriter.
The Corporation may impose stop-transfer instructions with respect to the shares
subject to the foregoing restrictions until the end of said 180-day period. In
connection with the preparation and filing of any such registration statement,
the Corporation shall use its reasonable best efforts (i) to enforce the
obligations of its stockholders (and any person who shall have the right to
acquire capital stock of the Corporation) who have agreed with the Corporation
to enter into "lock-up" or "market stand-off" agreements and (ii) to obtain a
"lock-up" or "market stand-off" agreement from all of its other stockholders and
all other such persons.
12. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, and no statement, representation, warranty
or covenant has been made by either party except as expressly set forth herein.
This Agreement supersedes and cancels all prior agreements between the parties,
whether written or oral, with respect to the subject matter hereof. No
alteration, amendment or modification of any of the terms and provisions hereof
shall be valid unless made pursuant to a written instrument signed by all of the
parties hereto.
13. NOTICES.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, first class, postage prepaid, certified mail, return receipt
requested, to the other party at its or his address as set forth at the
beginning of this Agreement or as either of the parties may designate in
conformity with the foregoing.
14. APPLICABLE LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware.
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15. PARAGRAPH HEADINGS.
The paragraph headings set forth in this Agreement are for reference
purposes only and shall not considered as part of this Agreement in any respect
nor shall they in any way affect the substance of any provisions contained in
this Agreement.
16. SUCCESSORS AND ASSIGNS.
This Agreement shall not be assignable by Consultant, but the rights
hereunder may be transferred as described in Paragraph 6 hereof. All of the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by Consultant, the Corporation, the heirs and
personal representatives of Consultant and the successors and assigns of the
Corporation.
17. ARBITRATION.
(a) The parties hereto agree that they shall use their best efforts to
settle amicably any disputes, differences or controversies arising between the
parties out of or in connection with this Agreement. However, subject to the
limitations set forth in the final sentence of this subparagraph 17(a) and in
subparagraph 17(b) below, any such disputes, differences or controversies, if
not so settled within thirty (30) days after the occurrence thereof, shall be
finally and exclusively determined by arbitration. Unless the parties otherwise
agree, arbitration initiated by the Corporation shall be held in Denver,
Colorado, and arbitration initiated by the Consultant shall be held in New York,
New York. Any such arbitration shall be conducted by three arbitrators who are
appointed and who shall conduct such arbitration in accordance with the
Commercial Rules of the American Arbitration Association then obtaining. The
parties hereby empower such arbitrators to grant equitable relief as necessary
to resolve any dispute between the parties. Judgment upon the award rendered may
be entered in any court having jurisdiction or application may be made to such
court for a judicial acceptance of the award and an order of enforcement, as the
case may be. Notwithstanding the foregoing, either party may, without recourse
to arbitration, assert against the other party a third-party claim or
cross-claim in any action brought by a third party to which the subject matter
of this Agreement may be relevant.
(b) Notwithstanding subparagraph 17(a) above, Consultant may seek emergency
injunctive relief, emergency specific performance or other emergency equitable
relief in a state court of the State of New York or the United States District
Court for the Southern District of New York with respect to a breach or
threatened breach by the Corporation of Paragraphs 3, 4, 7 or 8 hereof. The
Corporation hereby consents to the personal jurisdiction of any such court and
agrees to be sued in such court
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in the circumstances described in the preceding sentence. The Corporation agrees
that any and all process directed to it in any such litigation may be served
upon its agents outside of the State of New York with the same force and effect
as if service had been made within the State of New York.
18. SURVIVAL.
The rights and obligations of the parties arising under Paragraphs 8, 9, 11
and 17 hereof shall survive the termination of the Option.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CADUS PHARMACEUTICAL CORPORATION
By:/s/ Jeremy Levin
---------------------------------
Jeremy M. Levin, President
/s/ Gary L. Johnson
---------------------------------
GARY L. JOHNSON
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EXHIBIT A
[Date of Exercise]
Cadus Pharmaceutical Corporation
180 Varick Street
New York, New York 10014
Attention: Corporate Secretary
Re: STOCK OPTION
Dear Sir:
I am the holder of a Stock Option granted to me by Cadus Pharmaceutical
Corporation (the "Corporation"), pursuant to a Stock Option Agreement dated as
of November 1, 1994, to purchase 500,000 shares of Common Stock of the
Corporation ("Shares"). I hereby exercise such option with respect to ________
Shares, the total purchase price for which is $________, and [I enclose a
certified or bank cashier's check payable to the order of the Corporation in the
amount of $________, representing the total purchase price for the Shares] [I
hereby elect to pay the purchase price by delivering to the Corporation ________
shares of Common Stock of the Corporation having a fair market value equal to
$________ from the Shares I am purchasing pursuant to the exercise of such
option]. The certificate or certificates representing the Shares should be
registered in my name and should be forwarded to me at
__________________________________________.
Please acknowledge receipt of the exercise of my stock option on the
attached copy of this letter.
Very truly yours,
GARY L. JOHNSON
RECEIPT ACKNOWLEDGED:
CADUS PHARMACEUTICAL CORPORATION
By: ____________________________
<PAGE>
EXHIBIT B
CAPITALIZATION OF
CADUS PHARMACEUTICAL CORPORATION
AS OF OCTOBER 31, 1994
Common Stock: 4,140,000
Series A Preferred Stock: 14,879,651 shares
Series B Preferred Stock: 3,571,429 shares
Options to acquire Common Stock: 1,620,459
[Note: Certain portions of this document have been marked [c.i.] to indicate
that confidentiality has been requested for this confidential information. The
confidential portions have been omitted and filed separately with the Securities
and Exchange Commission.]
CONSULTING AGREEMENT
AGREEMENT dated as of November 1, 1994, by and between Cadus
Pharmaceutical Corporation ("Cadus"), a Delaware corporation having its offices
at 180 Varick Street, New York, New York 10014 and John C. Cambier, Ph.D.
("Consultant"), having an office at National Jewish Center for Immunology &
Respiratory Medicine ("NJC"), 1400 Jackson Street, Denver, Colorado 80206.
W I T N E S S E T H:
WHEREAS, Cadus desires to retain Consultant to perform consulting
services on its behalf, and Consultant desires to render such services on behalf
of Cadus, upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
1. RETENTION OF SERVICES.
Cadus hereby retains Consultant to perform
consulting services, and Consultant agrees to render such services to Cadus,
upon the terms and conditions hereinafter set forth.
2. TERM.
The retention of Consultant by Cadus hereunder shall be
effective and shall commence on the date hereof and shall continue thereafter
until the fourth anniversary of the date Consultant's Facility (as hereinafter
defined in subparagraph 4(b) below) is first occupied by Cadus employees (the
"Effective Date"), unless sooner terminated pursuant to Paragraph 25 hereof.
3. ACKNOWLEDGMENT OF CONSULTANT'S OTHER EMPLOYMENT.
Cadus acknowledges that Consultant is employed by NJC, and
that such employment imposes certain restrictions on Consultant. Specifically,
NJC requires that Consultant devote a minimum of ninety percent (90%) of his
professional time to his duties to NJC, and NJC claims certain proprietary
rights with respect to Consultant's work on behalf of NJC. In the event of any
conflict between NJC and Cadus regarding the respective obligations of
Consultant to each such entity, Cadus and Consultant shall use reasonable
efforts to resolve such conflict.
4. EXTENT OF SERVICES.
(a) Upon the request of Cadus, and on such dates and at such
times during the term hereof as are agreed upon by Cadus and Consultant,
Consultant shall render consulting services related to the development and
commercialization of the technologies (the "Technologies") described in the
Research Program attached hereto as Exhibit A (the "Research Program"). Cadus
hereby acknowledges that it has, as of the date of this Agreement,
<PAGE>
obtained an exclusive license from NJC to certain proprietary rights as set
forth in that certain License Agreement between Cadus and NJC (the "NJC License
Agreement"). Consultant hereby acknowledges that he has reviewed the NJC License
Agreement.
(b) The Consultant shall direct scientists at a facility (the
"Consultant's Facility") that Cadus agrees to establish and fund (in accordance
with the budgets described in Paragraph 7 hereof) in or close to Denver or
Boulder (other than Consultant's laboratory at NJC). This facility shall be
sufficient to support the Consultant, Gary Johnson ("Johnson") and a team of at
least one senior scientist, two junior scientists, two Post Docs or technicians,
and support staff. Cadus agrees to hire all of the foregoing personnel and work
with Consultant to identify the appropriate team. Cadus agrees to pay salary and
grant stock options to such personnel in the same range that salary is paid and
stock options granted to comparable employees at Cadus's facility in New York.
(c) Within thirty (30) days following the end of each calendar
quarter, Consultant shall furnish Cadus with fully-detailed, written reports on
all activities, during such quarter, under the Research Program or related to
the development and commercialization of the Technologies. Consultant shall meet
periodically with Cadus's Scientific Advisory Board at its reasonable request to
discuss such activities, the research to be undertaken in the next twelve (12)
months and the budgetary requirements for such twelve (12) month period.
(d) Consultant will be granted the title of Director of
Immunology at Cadus.
(e) Consultant agrees to make available to Cadus no less than
10% of his professional time and effort.
5. COMPENSATION.
(a) As compensation for the consulting services to be rendered
by Consultant, Cadus shall pay to Consultant a consulting fee of two thousand
eighty four dollars ($2,084) per month payable quarterly.
(b) Simultaneous with the execution of this Agreement, Cadus
and Consultant are entering into a Stock Option Agreement (the "Stock Option
Agreement") pursuant to which Cadus is granting to Consultant an option to
purchase from Cadus shares of the Common Stock, $.001 par value, of Cadus.
6. REIMBURSEMENT OF EXPENSES.
Cadus will reimburse Consultant for reasonable out-of-pocket
expenses properly incurred by Consultant on behalf of and for the benefit of
Cadus in rendering his services hereunder;
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provided, however, that Consultant shall submit written vouchers to Cadus
evidencing such expenses and the purposes for which the same were incurred; and
provided further that Consultant has obtained the prior approval of the Chief
Executive Officer of Cadus for any single expenditure in excess of $2,500 and
expenditures which when aggregated with other expenditures during a calendar
year will exceed $15,000.
7. ANNUAL RESEARCH PLAN AND BUDGET.
Commencing with the first anniversary of the date of this
Agreement, Cadus, Consultant and Johnson shall prepare an annual research plan,
for each year during the term of this Agreement, which details the specific
research to be undertaken during the upcoming year, including a reasonably
detailed description of the goals and scope of such research. Each annual
research plan shall be prepared with a view to achieving the goals of the
Research Program within the timetable set forth in Exhibit A annexed hereto.
Cadus, Consultant and Johnson shall also prepare a budget to support the
research described in each such annual research plan, which budget shall detail
the personnel, equipment, materials and space requirements and the cost thereof.
The budget for the first year, commencing as of the Effective Date, is annexed
hereto as Exhibit B. Cadus shall fund the budget for the first year and each
subsequent budget agreed to by it; PROVIDED, HOWEVER, that such obligation shall
cease upon termination of the Research Program. Cadus shall have the right, at
any time after 352 days after the Effective Date, to terminate the Research
Program for any reason whatsoever. Cadus shall give Consultant prompt written
notice of such termination.
8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Consultant acknowledges and agrees that his rendering of
consulting services to Cadus will necessarily involve his understanding of and
access to "trade secrets" (as hereinafter defined) and confidential information
pertaining to Cadus, its proprietary technology and its business. Accordingly,
Consultant agrees that during the term of this Agreement, and at all times
thereafter, he will not disclose to any unauthorized third party or use for his
own benefit any of the trade secrets or confidential information pertaining to
Cadus, its proprietary technology or its business, including the "Intangible
Property" (as hereinafter defined in Paragraph 10 hereof), the "NJC Technical
Information" (as defined in and subject to the NJC License Agreement) and all
other proprietary rights licensed by Cadus from NJC and other third parties
(subject to the terms of such licenses), but excluding other proprietary rights
of NJC and other third parties. For the purposes hereof, "trade secrets" is
information which is proprietary to or licensed by Cadus, not generally known to
the trade and which gives Cadus an advantage over its competitors. Trade secrets
include, without limitation, research being planned and developed by Cadus,
research methods and processes used by Cadus, materials used in research by
Cadus, inventions by Cadus,
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information concerning the filing or pendency of patent applications by Cadus,
and Cadus's business and legal plans, finances, competitive position, customers
and vendors. Trade secrets do not include, and this Paragraph 8(a) shall not
apply to, information which: (i) is in the public domain at the time of
disclosure, (ii) is properly in the possession of Consultant prior to the time
of disclosure (except information relating to NJC Technical Information to the
extent of Cadus's rights thereto), (iii) after disclosure enters the public
domain through no act or omission of Consultant, (iv) after disclosure is
received by Consultant from a third party unless Consultant knows the third
party is not entitled to transfer the information, (v) is developed by
Consultant independent of his consulting services rendered pursuant to this
Agreement and which is not then licensed to Cadus, including information
(whether or not pertaining to the Technologies or the Research Program)
developed by Consultant while he is working on behalf of NJC or another
employer, and (vi) constitutes the Intangible Property and related information,
if and only to the extent that Cadus's rights thereto have been terminated or
transferred as described in subparagraph 8(c) of the Stock Option Agreement.
(b) Cadus acknowledges and agrees that: (i) the NJC Technical
Information is the proprietary and confidential information of NJC and its use
by Cadus is governed by the NJC License Agreement and (ii) the respective rights
of Cadus and NJC with respect to Technologies that are developed at NJC are
subject to the terms of the NJC License Agreement. The Confidentiality Agreement
between the parties, dated April 6, 1994, has been superseded by the terms of
the NJC License Agreement.
9. CADUS'S PROPERTY
Consultant further agrees that all memoranda, notes, records,
notebooks, letters, instruments, drawings, designs, models, prototypes,
specifications, customer lists, proposals, business plans, materials, other
documents, databases or copies thereof, containing confidential information of
any type or description, made or compiled by Consultant, or made available to
Consultant, concerning Cadus, its proprietary technology or its business, shall
be Cadus's sole property and shall be delivered to Cadus upon the termination of
this Agreement or at any time during the term of this Agreement upon request of
Cadus.
10. OWNERSHIP OF INVENTIONS.
Consultant agrees that any inventions, improvements,
processes, designs, materials, products, developments or discoveries (whether or
not subject to patent, copyright or trademark protection) (all of the foregoing
being hereinafter referred to as "Intangible Property") that he may conceive,
make, invent, develop, suggest or reduce to practice during the time he is
working on behalf of Cadus (whether individually or jointly with
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any other person or persons), at the facilities of Cadus or in pursuit of
projects undertaken by him on behalf of Cadus, relating in any way to the
business of Cadus or the general biotechnology industry of which Cadus is a part
(but excluding any such Intangible Property that he may conceive, make, invent,
develop, suggest or reduce to practice while working at his laboratory at NJC),
shall be the sole, exclusive and absolute property of Cadus (subject to the
terms of the NJC License Agreement). Consultant will immediately disclose in
writing any such Intangible Property owned by Cadus to Cadus and will, at any
time, whether during or following his retention by Cadus, at Cadus's reasonable
request and without additional compensation, execute and deliver to Cadus such
assignments, certificates or other instruments as Cadus may from time to time
reasonably deem necessary or desirable to effect disclosure thereof and/or to
evidence, establish, maintain, perfect, protect, enforce or defend Cadus's
right, title and interest in and to such Intangible Property. Cadus shall assume
and hold Consultant harmless with respect to any and all expenses and
liabilities arising from Consultant's execution and delivery of such
assignments, certificates and instruments. Consultant further agrees, upon the
reasonable request of Cadus, to execute any patent, trademark or copyright
documents covering such Intangible Property owned by Cadus, as well as any
documents which reasonably may be considered necessary or helpful by Cadus in
the prosecution of applications for patent, trademark or copyright protection
thereon in the United States and/or any foreign countries, and in the
prosecution of applications for the reissue or renewal of such patents,
copyrights or trademarks, or which may relate to any litigation or controversy
in connection therewith, all expenses and liabilities (including, without
limitation, any arising from claims made or threatened against
Consultant)incident to the filing of such applications, the prosecution thereof
and the conduct of any such litigation to be borne by Cadus. Upon request by and
at the expense and risk of Cadus, Consultant shall assist in locating writings
and other physical evidence relating to the Intangible Property owned by Cadus
and produced by Consultant, shall provide unrecorded information relating to
such Intangible Property, and shall give testimony in any proceeding in which
any of such Intangible Property, or any application or patent, copyright or
trademark relating thereto, may be involved.
11. COPYRIGHTS.
Consultant shall promptly disclose to Cadus any and all
publishable and/or copyrightable material which he produces, composes, or
writes, individually or in collaboration with others, which arises out of work
undertaken by him on behalf of Cadus. Consultant shall assign to Cadus all his
interest in such copyrightable materials, and will sign all documents and do all
other acts necessary to assist Cadus in obtaining copyrights on such material in
any and all countries, all at the expense and risk of Cadus.
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12. NON-SOLICITATION OF EMPLOYEES.
During the term of this Agreement and for a period of one (1)
year thereafter, Consultant will not directly or indirectly: (i) employ, hire,
or cause to be employed or hired, any person who is then employed by Cadus or
was so employed within six (6) months prior thereto; or (ii) cause, invite,
solicit, entice or induce any such person to terminate his employment with
Cadus. Notwithstanding the foregoing, if Consultant terminates this Agreement
pursuant to subparagraph 25(a) hereof or if this Agreement automatically
terminates pursuant to subparagraph 25(b), the restrictions set forth in this
Paragraph 12 automatically shall cease to apply and shall become null and void.
13. NON-COMPETITION.
During the term of this Agreement, Consultant shall not,
without the prior written consent of the Board of Directors of Cadus, either
directly or indirectly through any other person, firm or corporation engage or
participate in, render advisory or other services to or make any financial
investment in any firm, corporation or other business enterprise engaged, for
profit, in research, development or marketing of pharmaceutical products or
biological reagents. Cadus hereby represents that the Board of Directors of
Cadus has consented in writing to the Consultant retaining his relationships
with Tomohiro Kurosaki, Steve Penner and Pharmingen, Inc. described in
Consultant's letter to Dr. Jeremy Levin of Cadus, dated October 27, 1994.
Nothing contained herein, however, shall restrict Consultant from (i) acquiring
any debt security of any publicly-held company so long as such investment does
not give him the right to control or influence the policy or decisions of any
such business or enterprise, (ii) acquiring or holding stock in any
publicly-held company so long as such ownership does not exceed 5% of the total
outstanding stock of such company, (iii) working for NJC as described in
paragraph 3 above, or (iv) working for any other non-profit institution or
organization, such as another academic institution or organization such as the
National Institutes of Health, the American Heart Association, the American
Cancer Society or the National Lung Society. If Consultant becomes employed or
renders services within the commercial and/or for-profit sector during the term
of this Agreement (other than on behalf of Cadus) in breach of this Paragraph
13, then Cadus, in addition to any other remedies it may have under this
Agreement or otherwise, shall have the right to terminate this Agreement in
accordance with subparagraph 25(a) hereof.
14. INJUNCTIVE AND OTHER EQUITABLE RELIEF.
Each party acknowledges that, in the event of a breach or
threatened breach of any of Paragraphs 8, 9, 10, 11, 12 and 13 of this Agreement
by such party, the other party would sustain irreparable injury and damage.
Therefore, in addition to any other remedies which a party may have under this
Agreement or otherwise, each party shall be entitled to the remedies of
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injunction, specific performance and other equitable relief for a breach or
threatened breach by the other party of any of Paragraphs 8, 9, 10, 11, 12 and
13 of this Agreement. This Paragraph 14 shall not, however, be construed as a
waiver of any of the rights which either party may have for damages or
otherwise.
15. NO CONFLICTING AGREEMENTS.
(a) Consultant represents and warrants that he is not a party
to any agreement, contract or understanding, whether employment or otherwise,
which would in any way restrict or prohibit him from performing services in
accordance with the terms and conditions of this Agreement.
(b) Cadus represents and warrants that it is not a party to
any agreement, contract or understanding, which would in any way restrict or
prohibit it from performing its obligations hereunder in accordance with the
terms and conditions of this Agreement.
16. RELATIONSHIP OF THE PARTIES.
(a) In all activities hereunder, Consultant shall be an
independent contractor and Cadus shall have no liability whatsoever for
withholding, collection or payment of income taxes or for taxes of any other
nature on behalf of Consultant.
(b) Nothing contained herein shall be deemed to (i) make
either party or any employee of such party the agent, employee, joint venturer
or partner of the other party or (ii) provide either party or any employee of
such party with the power or authority to act on behalf of the other party or to
bind the other party to any contract, agreement or arrangement with any other
person.
(c) All personnel employed or otherwise engaged by either
party shall be the agents, servants and employees of such party only, and the
other party shall incur no obligations or liabilities, express or implied, by
reason of, or with respect to, the conduct of such personnel. The parties
acknowledge and agree that the scientists, Post Docs, technicians, support staff
and any other persons to be hired pursuant to Paragraph 4(b) above, shall be the
employees or independent contractors of Cadus and not of Consultant.
17. ASSIGNMENT.
This Agreement may not be assigned by either party, and no
obligation owed or performable by either party hereunder may be delegated (other
than the delegation by Consultant of certain work to the persons described in
Paragraph 4(b) above), without the prior written consent of the other party. Any
attempted assignment or delegation by either party without any such requisite
prior written consent of the other party shall be void and ineffective for all
purposes.
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18. NON-DISPARAGEMENT.
Each party expressly agrees to refrain from uttering any
disparaging remarks concerning the other or making any other statement, oral or
written, which portrays the other in an unfavorable light or subjects the other
to scorn, obloquy or ridicule.
19. NOTICES.
All notices, requests, consents or other communications given
by either party hereto shall be in writing and shall be deemed duly given if
personally delivered or mailed by registered or certified mail, return receipt
requested, postage prepaid (effective upon delivery thereof as evidenced by such
return receipt), to the other party at its address set forth below or at such
other address as such other party may hereafter designate in the manner herein
provided.
If to Cadus, at:
Cadus Pharmaceutical Corporation
180 Varick Street
New York, New York 10014-4606
Attn: President
If to Consultant, at:
Dr. John C. Cambier
National Jewish Center for Immunology
& Respiratory Medicine
1400 Jackson Street
Denver, CO 80206
20. FINAL AGREEMENT; AMENDMENTS.
This Agreement supersedes all prior negotiations,
representations and agreements made by and between the parties respecting the
subject matter hereof. No alteration, amendment or modification of any of the
terms or provisions of this Agreement shall be valid unless made pursuant to an
instrument in writing signed by each of the parties hereto.
21. GOVERNING LAW.
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, with giving
effect to the choice of law principles thereof.
22. DISPUTE RESOLUTION.
(a) The parties hereto agree that they shall use their best
efforts to settle amicably any disputes, differences or controversies arising
between the parties out of or in connection with this Agreement. However,
subject to the limitations set forth in the final sentence of this subparagraph
22(a) and in subparagraph 22(b) below, any such disputes, differences or
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controversies, if not so settled within thirty (30) days after the occurrence
thereof, shall be finally and exclusively determined by arbitration. Unless the
parties otherwise agree, arbitration initiated by Cadus shall be held in Denver,
Colorado, and arbitration initiated by the Consultant shall be held in New York,
New York. Any such arbitration shall be conducted by three arbitrators who are
appointed and who shall conduct such arbitration in accordance with the
Commercial Rules of the American Arbitration Association then obtaining. The
parties hereby empower such arbitrators to grant the equitable relief described
in Paragraph 14 hereof as necessary to resolve any dispute between the parties.
Judgment upon the award rendered may be entered in any court having jurisdiction
or application may be made to such court for a judicial acceptance of the award
and an order of enforcement, as the case may be. Notwithstanding the foregoing,
either party may, without recourse to arbitration, assert against the other
party a third-party claim or cross-claim in any action brought by a third party
to which the subject matter of this Agreement may be relevant.
(b) Notwithstanding subparagraph 22(a) above, Cadus may seek
emergency injunctive relief, emergency specific performance or other emergency
equitable relief in a state court of the State of Colorado or the United States
District Court for the District of Colorado with respect to a breach or
threatened breach by Consultant of Paragraph 8, 10 or 13 hereof. Consultant
hereby consents to the personal jurisdiction of any such court and agrees to be
sued in such court in the circumstances described in the preceding sentence.
Consultant agrees that any and all process directed to it in any such litigation
may be served upon him outside of the State of Colorado with the same force and
effect as if service had been made within the State of Colorado.
23. PARAGRAPH HEADINGS.
The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
24. SEVERABILITY; REFORMATION.
If at any time subsequent to the date hereof any provisions of
this Agreement shall be held by any court or arbitration panel of competent
jurisdiction to be illegal, void, or unenforceable, such provisions shall be of
no force and effect, but the illegality or unenforceability of such provision
shall have no effect upon and shall not impair the enforceability of any other
provision of this Agreement. Furthermore, if any provision of this Agreement
shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be construed by limiting and
reducing it, so as to be enforceable to the fullest extent compatible with then
existing applicable law.
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25. TERMINATION.
(a) Either party shall have the right to terminate this
Agreement upon a breach of the Agreement by the other party as described in this
Paragraph. The party wishing to terminate this Agreement shall provide the other
party with written notice describing the alleged breach, and the recipient shall
have 30 days after receipt of such notice in which to cure the alleged breach.
If the breach is not cured within such 30-day period, the non-breaching party
shall then have the right to terminate this Agreement at any time after the end
of such 30-day period by written notice to the other party.
(b) If Cadus terminates the Research Program, this Agreement
shall automatically terminate; provided, however, that Cadus agrees not to
terminate the Research Program before a date which is at least 352 days after
the Effective Date.
26. EFFECTS OF TERMINATION.
Termination of this Agreement shall not release the Consultant
or Cadus from any obligation or liability to the other which shall have matured
prior to termination, nor shall termination rescind or require repayment of any
payment or consideration made or given by either party, except as otherwise
provided herein. The rights and obligations of the parties set forth in
Paragraphs 7, 8, 9, 10, 11, 12 (subject to the limitations set forth therein),
14, 18 and 22 hereof shall survive termination of this Agreement, except that
the rights of Cadus and the obligations of Consultant under Paragraphs 10 and 11
hereof shall not survive termination if this Agreement is terminated pursuant to
subparagraph 25(b) hereof prior to the third anniversary of the Effective Date.
27. USE OF TECHNOLOGIES BY CONSULTANT.
Notwithstanding any other provision of this
Agreement, as long as the NJC License Agreement is in effect and Consultant is
working on behalf of NJC, a university or other not-for-profit entity, Cadus
shall permit the Consultant to use the Technologies in his own academic
laboratory at such not-for-profit entity solely for academic research purposes.
28. NO THIRD PARTY BENEFICIARIES.
This Agreement is entered into for the sole
protection and benefit of Consultant and Cadus, and no other person shall have
any rights under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
CADUS PHARMACEUTICAL CORPORATION
By:/s/ JEREMY LEVIN
-----------------------
Jeremy M. Levin,
President
/s/ JOHN CAMBIER
-----------------------
JOHN C. CAMBIER
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Exhibit A
[c.i.]
12
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[c.i.]
13
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[c.i.]
14
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[c.i.]
15
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[c.i.]
16
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[c.i.]
17
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[c.i.]
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Exhibit B
CADUS PHARMACEUTICAL CORPORATION
FIRST YEAR BUDGET FOR COLORADO FACILITY
Personnel Related Costs (Salaries & Benefits) [c.i.]
Laboratory Supplies [c.i.]
Equipment Lease (A) [c.i.]
Other [c.i.]
Rent [c.i.]
[c.i.]
(A) Equipment will be leased for a five year term. Lease payments will be in 60
equal monthly installments. [c.i.] is the estimated aggregate first year
payments.
The foregoing budget does not include the personnel and other costs which
Cadus shall fund prior to the time the Consultant's Facility is first occupied
by Cadus employees.
Cadus shall fund the foregoing budget at such times as Consultant shall
require in order for Consultant to undertake the Research Program described in
the Consulting Agreement. Cadus acknowledges that some of the equipment must be
ordered well in advance of the date the Consultant's Facility is expected to be
first occupied by Cadus employees, so that there is sufficient time for such
equipment to be assembled prior to that date.
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[Note: Certain portions of this document have been marked [c.i.] to indicate
that confidentiality has been requested for this confidential information. The
confidential portions have been omitted and filed separately with the Securities
and Exchange Commission.]
CONSULTING AGREEMENT
AGREEMENT dated as of November 1, 1994, by and between Cadus
Pharmaceutical Corporation ("Cadus"), a Delaware corporation having its offices
at 180 Varick Street, New York, New York 10014 and Gary L. Johnson, Ph.D.
("Consultant"), having an office at National Jewish Center for Immunology &
Respiratory Medicine ("NJC"), 1400 Jackson Street, Denver, Colorado 80206.
W I T N E S S E T H:
WHEREAS, Cadus desires to retain Consultant to perform consulting
services on its behalf, and Consultant desires to render such services on behalf
of Cadus, upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
1. RETENTION OF SERVICES.
Cadus hereby retains Consultant to perform consulting
services, and Consultant agrees to render such services to Cadus, upon the terms
and conditions hereinafter set forth.
2. TERM.
The retention of Consultant by Cadus hereunder shall be
effective and shall commence on the date hereof and shall continue thereafter
until the fourth anniversary of the date Consultant's Facility (as hereinafter
defined in subparagraph 4(b) below) is first occupied by Cadus employees (the
"Effective Date"), unless sooner terminated pursuant to Paragraph 25 hereof.
3. ACKNOWLEDGMENT OF CONSULTANT'S OTHER EMPLOYMENT.
Cadus acknowledges that Consultant is employed by NJC, and
that such employment imposes certain restrictions on Consultant. Specifically,
NJC requires that Consultant devote a minimum of ninety percent (90%) of his
professional time to his duties to NJC, and NJC claims certain proprietary
rights with respect to Consultant's work on behalf of NJC. Consultant, however,
agrees to take a six-month sabbatical from NJC, in his laboratory at NJC,
commencing on or about the Effective Date. During such sabbatical, Consultant
will be excused from various administrative duties in connection with his work
at NJC and will reduce the amount of time he ordinarily devotes to other
non-profit institutions or organizations (e.g., the National Institutes of
Health and the American Cancer Society). In the event of any conflict between
NJC and Cadus regarding the respective obligations of Consultant to each such
entity, Cadus and Consultant shall use reasonable efforts to resolve such
conflict.
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4. EXTENT OF SERVICES.
(a) Upon the request of Cadus, and on such dates and at such
times during the term hereof as are agreed upon by Cadus and Consultant,
Consultant shall render consulting services related to the development and
commercialization of the technologies (the "Technologies") described in the
Research Program attached hereto as Exhibit A (the "Research Program"). Cadus
hereby acknowledges that it has, as of the date of this Agreement, obtained an
exclusive license from NJC to certain proprietary rights as set forth in that
certain License Agreement between Cadus and NJC (the "NJC License Agreement").
Consultant hereby acknowledges that he has reviewed the NJC License Agreement.
(b) The Consultant shall direct scientists at a facility (the
"Consultant's Facility") that Cadus agrees to establish and fund (in accordance
with the budgets described in Paragraph 7 hereof) in or close to Denver or
Boulder (other than Consultant's laboratory at NJC). This facility shall be
sufficient to support the Consultant, John Cambier ("Cambier") and a team of at
least one senior scientist, two junior scientists, two Post Docs or technicians,
and support staff. Cadus agrees to hire all of the foregoing personnel and work
with Consultant to identify the appropriate team. Cadus agrees to pay salary and
grant stock options to such personnel in the same range that salary is paid and
stock options granted to comparable employees at Cadus's facility in New York.
(c) Within thirty (30) days following the end of each calendar
quarter, Consultant shall furnish Cadus with fully-detailed, written reports on
all activities, during such quarter, under the Research Program or related to
the development and commercialization of the Technologies. Consultant shall meet
periodically with Cadus's Scientific Advisory Board at its reasonable request to
discuss such activities, the research to be undertaken in the next twelve (12)
months and the budgetary requirements for such twelve (12) month period.
(d) Consultant will be granted the title of Director of Cell
Biology at Cadus.
(e) Consultant agrees to make available to Cadus no less than
10% of his professional time and effort.
5. COMPENSATION.
(a) As compensation for the consulting services to be rendered
by Consultant, Cadus shall pay to Consultant a consulting fee of two thousand
eighty four dollars ($2,084) per month payable quarterly.
(b) Simultaneous with the execution of this Agreement, Cadus
and Consultant are entering into a Stock Option
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Agreement (the "Stock Option Agreement") pursuant to which Cadus is granting to
Consultant an option to purchase from Cadus shares of the Common Stock, $.001
par value, of Cadus.
6. REIMBURSEMENT OF EXPENSES.
Cadus will reimburse Consultant for reasonable out-of-pocket
expenses properly incurred by Consultant on behalf of and for the benefit of
Cadus in rendering his services hereunder; provided, however, that Consultant
shall submit written vouchers to Cadus evidencing such expenses and the purposes
for which the same were incurred; and provided further that Consultant has
obtained the prior approval of the Chief Executive Officer of Cadus for any
single expenditure in excess of $2,500 and expenditures which when aggregated
with other expenditures during a calendar year will exceed $15,000.
7. ANNUAL RESEARCH PLAN AND BUDGET.
Commencing with the first anniversary of the date of
this Agreement, Cadus, Consultant and Cambier shall prepare an annual research
plan, for each year during the term of this Agreement, which details the
specific research to be undertaken during the upcoming year, including a
reasonably detailed description of the goals and scope of such research. Each
annual research plan shall be prepared with a view to achieving the goals of the
Research Program within the timetable set forth in Exhibit A annexed hereto.
Cadus, Consultant and Cambier shall also prepare a budget to support the
research described in each such annual research plan, which budget shall detail
the personnel, equipment, materials and space requirements and the cost thereof.
The budget for the first year, commencing as of the Effective Date, is annexed
hereto as Exhibit B. Cadus shall fund the budget for the first year and each
subsequent budget agreed to by it; PROVIDED, HOWEVER, that such obligation shall
cease upon termination of the Research Program. Cadus shall have the right, at
any time after 352 days after the Effective Date, to terminate the Research
Program for any reason whatsoever. Cadus shall give Consultant prompt written
notice of such termination.
8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Consultant acknowledges and agrees that his rendering of
consulting services to Cadus will necessarily involve his understanding of and
access to "trade secrets" (as hereinafter defined) and confidential information
pertaining to Cadus, its proprietary technology and its business. Accordingly,
Consultant agrees that during the term of this Agreement, and at all times
thereafter, he will not disclose to any unauthorized third party or use for his
own benefit any of the trade secrets or confidential information pertaining to
Cadus, its proprietary technology or its business, including the "Intangible
Property" (as hereinafter defined in Paragraph 10 hereof), the "NJC Technical
Information" (as defined in and subject to the NJC License Agreement) and all
other proprietary rights licensed by Cadus from NJC and other third parties
(subject to the terms of such licenses), but excluding other proprietary rights
of NJC and other third
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parties. For the purposes hereof, "trade secrets" is information which is
proprietary to or licensed by Cadus, not generally known to the trade and which
gives Cadus an advantage over its competitors. Trade secrets include, without
limitation, research being planned and developed by Cadus, research methods and
processes used by Cadus, materials used in research by Cadus, inventions by
Cadus, information concerning the filing or pendency of patent applications by
Cadus, and Cadus's business and legal plans, finances, competitive position,
customers and vendors. Trade secrets do not include, and this Paragraph 8(a)
shall not apply to, information which: (i) is in the public domain at the time
of disclosure, (ii) is properly in the possession of Consultant prior to the
time of disclosure (except information relating to NJC Technical Information to
the extent of Cadus's rights thereto), (iii) after disclosure enters the public
domain through no act or omission of Consultant, (iv) after disclosure is
received by Consultant from a third party unless Consultant knows the third
party is not entitled to transfer the information, (v) is developed by
Consultant independent of his consulting services rendered pursuant to this
Agreement and which is not then licensed to Cadus, including information
(whether or not pertaining to the Technologies or the Research Program)
developed by Consultant while he is working on behalf of NJC or another
employer, and (vi) constitutes the Intangible Property and related information,
if and only to the extent that Cadus's rights thereto have been terminated or
transferred as described in subparagraph 8(c) of the Stock Option Agreement.
(b) Cadus acknowledges and agrees that: (i) the NJC Technical
Information is the proprietary and confidential information of NJC and its use
by Cadus is governed by the NJC License Agreement and (ii) the respective rights
of Cadus and NJC with respect to Technologies that are developed at NJC are
subject to the terms of the NJC License Agreement. The Confidentiality Agreement
between the parties, dated April 6, 1994, has been superseded by the terms of
the NJC License Agreement.
9. CADUS'S PROPERTY
Consultant further agrees that all memoranda, notes, records,
notebooks, letters, instruments, drawings, designs, models, prototypes,
specifications, customer lists, proposals, business plans, materials, other
documents, databases or copies thereof, containing confidential information of
any type or description, made or compiled by Consultant, or made available to
Consultant, concerning Cadus, its proprietary technology or its business, shall
be Cadus's sole property and shall be delivered to Cadus upon the termination of
this Agreement or at any time during the term of this Agreement upon request of
Cadus.
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10. OWNERSHIP OF INVENTIONS.
Consultant agrees that any inventions, improvements,
processes, designs, materials, products, developments or discoveries (whether or
not subject to patent, copyright or trademark protection) (all of the foregoing
being hereinafter referred to as "Intangible Property") that he may conceive,
make, invent, develop, suggest or reduce to practice during the time he is
working on behalf of Cadus (whether individually or jointly with any other
person or persons), at the facilities of Cadus or in pursuit of projects
undertaken by him on behalf of Cadus, relating in any way to the business of
Cadus or the general biotechnology industry of which Cadus is a part (but
excluding any such Intangible Property that he may conceive, make, invent,
develop, suggest or reduce to practice while working at his laboratory at NJC),
shall be the sole, exclusive and absolute property of Cadus (subject to the
terms of the NJC License Agreement). Consultant will immediately disclose in
writing any such Intangible Property owned by Cadus to Cadus and will, at any
time, whether during or following his retention by Cadus, at Cadus's reasonable
request and without additional compensation, execute and deliver to Cadus such
assignments, certificates or other instruments as Cadus may from time to time
reasonably deem necessary or desirable to effect disclosure thereof and/or to
evidence, establish, maintain, perfect, protect, enforce or defend Cadus's
right, title and interest in and to such Intangible Property. Cadus shall assume
and hold Consultant harmless with respect to any and all expenses and
liabilities arising from Consultant's execution and delivery of such
assignments, certificates and instruments. Consultant further agrees, upon the
reasonable request of Cadus, to execute any patent, trademark or copyright
documents covering such Intangible Property owned by Cadus, as well as any
documents which reasonably may be considered necessary or helpful by Cadus in
the prosecution of applications for patent, trademark or copyright protection
thereon in the United States and/or any foreign countries, and in the
prosecution of applications for the reissue or renewal of such patents,
copyrights or trademarks, or which may relate to any litigation or controversy
in connection therewith, all expenses and liabilities (including, without
limitation, any arising from claims made or threatened against
Consultant)incident to the filing of such applications, the prosecution thereof
and the conduct of any such litigation to be borne by Cadus. Upon request by and
at the expense and risk of Cadus, Consultant shall assist in locating writings
and other physical evidence relating to the Intangible Property owned by Cadus
and produced by Consultant, shall provide unrecorded information relating to
such Intangible Property, and shall give testimony in any proceeding in which
any of such Intangible Property, or any application or patent, copyright or
trademark relating thereto, may be involved.
11. COPYRIGHTS.
Consultant shall promptly disclose to Cadus any and all
publishable and/or copyrightable material which he produces,
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composes, or writes, individually or in collaboration with others, which arises
out of work undertaken by him on behalf of Cadus. Consultant shall assign to
Cadus all his interest in such copyrightable materials, and will sign all
documents and do all other acts necessary to assist Cadus in obtaining
copyrights on such material in any and all countries, all at the expense and
risk of Cadus.
12. NON-SOLICITATION OF EMPLOYEES.
During the term of this Agreement and for a period of one (1)
year thereafter, Consultant will not directly or indirectly: (i) employ, hire,
or cause to be employed or hired, any person who is then employed by Cadus or
was so employed within six (6) months prior thereto; or (ii) cause, invite,
solicit, entice or induce any such person to terminate his employment with
Cadus. Notwithstanding the foregoing, if Consultant terminates this Agreement
pursuant to subparagraph 25(a) hereof or if this Agreement automatically
terminates pursuant to subparagraph 25(b), the restrictions set forth in this
Paragraph 12 automatically shall cease to apply and shall become null and void.
13. NON-COMPETITION.
During the term of this Agreement, Consultant shall not,
without the prior written consent of the Board of Directors of Cadus, either
directly or indirectly through any other person, firm or corporation engage or
participate in, render advisory or other services to or make any financial
investment in any firm, corporation or other business enterprise engaged, for
profit, in research, development or marketing of pharmaceutical products or
biological reagents. Nothing contained herein, however, shall restrict
Consultant from (i) acquiring any debt security of any publicly-held company so
long as such investment does not give him the right to control or influence the
policy or decisions of any such business or enterprise, (ii) acquiring or
holding stock in any publicly-held company so long as such ownership does not
exceed 5% of the total outstanding stock of such company, (iii) working for NJC
as described in paragraph 3 above, or (iv) working for any other non-profit
institution or organization, such as another academic institution or
organization such as the National Institutes of Health, the American Heart
Association, the American Cancer Society or the National Lung Society. If
Consultant becomes employed or renders services within the commercial and/or
for-profit sector during the term of this Agreement (other than on behalf of
Cadus) in breach of this Paragraph 13, then Cadus, in addition to any other
remedies it may have under this Agreement or otherwise, shall have the right to
terminate this Agreement in accordance with subparagraph 25(a) hereof.
14. INJUNCTIVE AND OTHER EQUITABLE RELIEF.
Each party acknowledges that, in the event of a breach or
threatened breach of any of Paragraphs 8, 9, 10, 11, 12 and 13 of this Agreement
by such party, the other party would
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sustain irreparable injury and damage. Therefore, in addition to any other
remedies which a party may have under this Agreement or otherwise, each party
shall be entitled to the remedies of injunction, specific performance and other
equitable relief for a breach or threatened breach by the other party of any of
Paragraphs 8, 9, 10, 11, 12 and 13 of this Agreement. This Paragraph 14 shall
not, however, be construed as a waiver of any of the rights which either party
may have for damages or otherwise.
15. NO CONFLICTING AGREEMENTS.
(a) Consultant represents and warrants that he is not a party
to any agreement, contract or understanding, whether employment or otherwise,
which would in any way restrict or prohibit him from performing services in
accordance with the terms and conditions of this Agreement.
(b) Cadus represents and warrants that it is not a party to
any agreement, contract or understanding, which would in any way restrict or
prohibit it from performing its obligations hereunder in accordance with the
terms and conditions of this Agreement.
16. RELATIONSHIP OF THE PARTIES.
(a) In all activities hereunder, Consultant shall be an
independent contractor and Cadus shall have no liability whatsoever for
withholding, collection or payment of income taxes or for taxes of any other
nature on behalf of Consultant.
(b) Nothing contained herein shall be deemed to (i) make
either party or any employee of such party the agent, employee, joint venturer
or partner of the other party or (ii) provide either party or any employee of
such party with the power or authority to act on behalf of the other party or to
bind the other party to any contract, agreement or arrangement with any other
person.
(c) All personnel employed or otherwise engaged by either
party shall be the agents, servants and employees of such party only, and the
other party shall incur no obligations or liabilities, express or implied, by
reason of, or with respect to, the conduct of such personnel. The parties
acknowledge and agree that the scientists, Post Docs, technicians, support staff
and any other persons to be hired pursuant to Paragraph 4(b) above, shall be the
employees or independent contractors of Cadus and not of Consultant.
17. ASSIGNMENT.
This Agreement may not be assigned by either party, and no
obligation owed or performable by either party hereunder may be delegated (other
than the delegation by Consultant of certain work to the persons described in
Paragraph 4(b) above), without the prior written consent of the other party. Any
attempted assignment
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or delegation by either party without any such requisite prior written consent
of the other party shall be void and ineffective for all purposes.
18. NON-DISPARAGEMENT.
Each party expressly agrees to refrain from uttering any
disparaging remarks concerning the other or making any other statement, oral or
written, which portrays the other in an unfavorable light or subjects the other
to scorn, obloquy or ridicule.
19. NOTICES.
All notices, requests, consents or other communications given
by either party hereto shall be in writing and shall be deemed duly given if
personally delivered or mailed by registered or certified mail, return receipt
requested, postage prepaid (effective upon delivery thereof as evidenced by such
return receipt), to the other party at its address set forth below or at such
other address as such other party may hereafter designate in the manner herein
provided.
If to Cadus, at:
Cadus Pharmaceutical Corporation
180 Varick Street
New York, New York 10014-4606
Attn: President
If to Consultant, at:
Dr. Gary L. Johnson
National Jewish Center for Immunology
& Respiratory Medicine
1400 Jackson Street
Denver, CO 80206
20. FINAL AGREEMENT; AMENDMENTS.
This Agreement supersedes all prior negotiations,
representations and agreements made by and between the parties respecting the
subject matter hereof. No alteration, amendment or modification of any of the
terms or provisions of this Agreement shall be valid unless made pursuant to an
instrument in writing signed by each of the parties hereto.
21. GOVERNING LAW.
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, with giving
effect to the choice of law principles thereof.
22. DISPUTE RESOLUTION.
(a) The parties hereto agree that they shall use their best
efforts to settle amicably any disputes, differences or
8
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controversies arising between the parties out of or in connection with this
Agreement. However, subject to the limitations set forth in the final sentence
of this subparagraph 22(a) and in subparagraph 22(b) below, any such disputes,
differences or controversies, if not so settled within thirty (30) days after
the occurrence thereof, shall be finally and exclusively determined by
arbitration. Unless the parties otherwise agree, arbitration initiated by Cadus
shall be held in Denver, Colorado, and arbitration initiated by the Consultant
shall be held in New York, New York. Any such arbitration shall be conducted by
three arbitrators who are appointed and who shall conduct such arbitration in
accordance with the Commercial Rules of the American Arbitration Association
then obtaining. The parties hereby empower such arbitrators to grant the
equitable relief described in Paragraph 14 hereof as necessary to resolve any
dispute between the parties. Judgment upon the award rendered may be entered in
any court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be. Notwithstanding the foregoing, either party may, without recourse to
arbitration, assert against the other party a third-party claim or cross-claim
in any action brought by a third party to which the subject matter of this
Agreement may be relevant.
(b) Notwithstanding subparagraph 22(a) above, Cadus may seek
emergency injunctive relief, emergency specific performance or other emergency
equitable relief in a state court of the State of Colorado or the United States
District Court for the District of Colorado with respect to a breach or
threatened breach by Consultant of Paragraph 8, 10 or 13 hereof. Consultant
hereby consents to the personal jurisdiction of any such court and agrees to be
sued in such court in the circumstances described in the preceding sentence.
Consultant agrees that any and all process directed to it in any such litigation
may be served upon him outside of the State of Colorado with the same force and
effect as if service had been made within the State of Colorado.
23. PARAGRAPH HEADINGS.
The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
24. SEVERABILITY; REFORMATION.
If at any time subsequent to the date hereof any provisions of
this Agreement shall be held by any court or arbitration panel of competent
jurisdiction to be illegal, void, or unenforceable, such provisions shall be of
no force and effect, but the illegality or unenforceability of such provision
shall have no effect upon and shall not impair the enforceability of any other
provision of this Agreement. Furthermore, if any provision of this Agreement
shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be
9
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construed by limiting and reducing it, so as to be enforceable to the fullest
extent compatible with then existing applicable law.
25. TERMINATION.
(a) Either party shall have the right to terminate this
Agreement upon a breach of the Agreement by the other party as described in this
Paragraph. The party wishing to terminate this Agreement shall provide the other
party with written notice describing the alleged breach, and the recipient shall
have 30 days after receipt of such notice in which to cure the alleged breach.
If the breach is not cured within such 30-day period, the non-breaching party
shall then have the right to terminate this Agreement at any time after the end
of such 30-day period by written notice to the other party.
(b) If Cadus terminates the Research Program, this Agreement
shall automatically terminate; provided, however, that Cadus agrees not to
terminate the Research Program before a date which is at least 352 days after
the Effective Date.
26. EFFECTS OF TERMINATION.
Termination of this Agreement shall not release the Consultant
or Cadus from any obligation or liability to the other which shall have matured
prior to termination, nor shall termination rescind or require repayment of any
payment or consideration made or given by either party, except as otherwise
provided herein. The rights and obligations of the parties set forth in
Paragraphs 7, 8, 9, 10, 11, 12 (subject to the limitations set forth therein),
14, 18 and 22 hereof shall survive termination of this Agreement, except that
the rights of Cadus and the obligations of Consultant under Paragraphs 10 and 11
hereof shall not survive termination if this Agreement is terminated pursuant to
subparagraph 25(b) hereof prior to the third anniversary of the Effective Date.
27. USE OF TECHNOLOGIES BY CONSULTANT.
Notwithstanding any other provision of this Agreement, as long
as the NJC License Agreement is in effect and Consultant is working on behalf of
NJC, a university or other not-for-profit entity, Cadus shall permit the
Consultant to use the Technologies in his own academic laboratory at such
not-for-profit entity solely for academic research purposes.
28. NO THIRD PARTY BENEFICIARIES.
This Agreement is entered into for the sole protection and
benefit of Consultant and Cadus, and no other person shall have any rights under
this Agreement.
10
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
CADUS PHARMACEUTICAL CORPORATION
By:/s/ JEREMY LEVIN
-----------------------
Jeremy M. Levin,
President
/s/ GARY L. JOHNSON
-----------------------
GARY L. JOHNSON
11
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Exhibit A
[c.i.]
12
<PAGE>
[c.i.]
13
<PAGE>
[c.i.]
14
<PAGE>
[c.i.]
15
<PAGE>
[c.i.]
16
<PAGE>
[c.i.]
17
<PAGE>
[c.i.]
18
<PAGE>
Exhibit B
CADUS PHARMACEUTICAL CORPORATION
FIRST YEAR BUDGET FOR COLORADO FACILITY
Personnel Related Costs (Salaries & Benefits) [c.i.]
Laboratory Supplies [c.i.]
Equipment Lease (A) [c.i.]
Other [c.i.]
Rent [c.i.]
[c.i.]
(A) Equipment will be leased for a five year term. Lease payments will be in 60
equal monthly installments. [c.i.] is the estimated aggregate first year
payments.
The foregoing budget does not include the personnel and other costs which
Cadus shall fund prior to the time the Consultant's Facility is first occupied
by Cadus employees.
Cadus shall fund the foregoing budget at such times as Consultant shall
require in order for Consultant to undertake the Research Program described in
the Consulting Agreement. Cadus acknowledges that some of the equipment must be
ordered well in advance of the date the Consultant's Facility is expected to be
first occupied by Cadus employees, so that there is sufficient time for such
equipment to be assembled prior to that date.
19
STOCK OPTION AGREEMENT
AGREEMENT made as of December 18, 1995 by and between CADUS
PHARMACEUTICAL CORPORATION (the "Corporation"), a Delaware corporation having
offices at 777 Old Saw Mill River Road, Tarrytown, New York 10591-8705, and
JAMES R. BROACH ("Broach"), residing at 6 Andrews Lane, Princeton, New Jersey
08540.
W I T N E S S E T H:
WHEREAS, in order to induce Broach to continue providing scientific
advisory services to the Corporation, the Corporation is willing to grant to
Broach the right and option, subject to certain conditions, to purchase shares
of the common stock, $.001 par value, of the Corporation (the "Common Stock");
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. GRANT OF STOCK OPTION.
As an additional inducement to Broach to continue providing
scientific advisory services to the Corporation, the Corporation hereby grants
to Broach the right and option (the "Option") to purchase from the Corporation
Four Hundred Twenty-Five Thousand (425,000) shares of Common Stock (the
"Shares"), subject to adjustment as provided in Paragraph 7 hereof, on the terms
and subject to the conditions hereinafter set forth.
2. PURCHASE PRICE.
Subject to adjustment as provided in Paragraph 7 hereof, the
purchase price (the "Option Purchase Price") to be paid upon exercise of the
Option shall be $0.857 per share.
3. EXERCISABILITY OF OPTION.
(a) The Option shall be exercisable by Broach during a period
of five years commencing from the "Vesting Date" (as hereinafter defined) and
terminating at the close of business on the fifth anniversary of the Vesting
Date.
(b) "Vesting Date" shall mean the earliest date on which any
of the following events shall occur:
<PAGE>
(i) the closing of an underwritten public offering on a
firm commitment basis pursuant to an effective registration statement filed
pursuant to the Securities Act of 1933, as amended (the "Securities Act"),
covering the offer and sale of Common Stock for the account of the Corporation;
(ii) the merger or consolidation of the Corporation with
or into another corporation or other entity or person, or any other transaction
or series of related transactions by the Corporation, in which in excess of
fifty percent (50%) of the voting power held by the holders of the Corporation's
issued and outstanding capital stock is transferred; or
(iii) the sale of all or substantially all of the
Corporation's properties and assets to any other person.
(c) The unexercised portion of the Option will automatically
and without notice terminate and become null and void at the close of business
on the fifth anniversary of the Vesting Date. If, however, Broach voluntarily
ceases providing scientific advisory services to the Corporation at any time
prior to the fifth anniversary of the Vesting Date, the unexercised portion of
the Option will terminate at the close of business on the date on which Broach
voluntarily ceases providing scientific advisory services to the Corporation.
4. EXERCISE OF OPTION.
(a) The Option may be exercised by Broach as to all or a
portion of the Shares (but not as to a fractional share of Common Stock) at any
time within the applicable period specified in Paragraph 3 hereof by the giving
of written notice of the exercise thereof to the Corporation in the manner
provided in Paragraph 15 hereof and substantially in the form annexed hereto as
Exhibit A, which notice shall be accompanied by payment in full of the purchase
price therefor by certified or bank cashier's or other acceptable check. Such
exercise shall be effective upon receipt by the Corporation of such written
notice and payment; and Broach, to the extent permitted by law, shall be deemed
the owner of the Shares being purchased as of the close of business on the date
of such exercise and payment. The Corporation shall cause a certificate or
certificates representing the Shares purchased to be delivered to Broach within
ten (10) days after the effective date of such exercise. Broach agrees that such
certificate or certificates shall bear such legend or legends as the Board of
Directors of the Corporation, in its sole discretion, determines to be necessary
or appropriate to prevent a violation of, or to perfect an exemption from, the
registration requirements of the Securities Act.
(b) In lieu of the check provided for in subparagraph 4(a)
above, Broach may, at his sole option and to the
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extent permitted by applicable law, pay for the purchase price of the Shares
being purchased by the exercise of the Option, by delivering to the Corporation
shares of Common Stock (in proper form for transfer and accompanied by all
requisite stock transfer tax stamps or cash in lieu thereof) owned by Broach
having a Fair Market Value (as hereinafter defined in subparagraph 4(c) hereof)
equal to such purchase price. Broach may elect to make such delivery to the
Corporation of shares of Common Stock from Shares he is purchasing pursuant to
his exercise of the Option by including such election in his notice of exercise.
(c) The Fair Market Value of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(i) If the Corporation's Common Stock is traded on an
exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System, then the closing or last
sale price, respectively, reported for the last business day immediately
preceding the Determination Date.
(ii) If the Corporation's Common Stock is not traded on
an exchange or on the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the closing bid and asked prices
reported for the last business day immediately preceding the Determination Date.
(iii) Except as provided in subparagraph 4(c)(iv) and
4(c)(v) below, if the Corporation's Common Stock is not publicly traded, then as
determined in good faith by the Corporation's Board of Directors upon a review
of relevant factors.
(iv) If the Determination Date is the date on which the
Corporation's Common Stock is first sold to the public by the Corporation in a
firm commitment public offering under the Securities Act, then the initial
public offering price (before deducting commissions, discounts or expenses) at
which the Common Stock is sold in such offering.
(v) If the Determination Date is the date of a
liquidation, dissolution or winding up of the Corporation, then all amounts to
be payable per share to holders of the Common Stock in the event of such
liquidation, dissolution or winding up.
5. PURCHASE FOR INVESTMENT.
Broach agrees that at the request of the Corporation and upon
exercise of the Option, he shall execute and deliver to the Corporation a
written statement, in form satisfactory to the Corporation, representing and
warranting that he is purchasing the Shares for his own account, for investment
only and not with a view
3
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to the resale or distribution thereof and that any subsequent offer for sale or
sale of any of such Shares shall be made either pursuant to (a) a registration
statement on an appropriate form under the Securities Act, which registration
statement has become effective and is current with respect to the shares being
offered and sold, or (b) a specific exemption from the registration requirements
of the Securities Act, but in claiming such exemption Broach shall, prior to any
offer for sale or sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Corporation as to the availability of such
exemption.
6. NON-TRANSFERABILITY OF OPTION.
The Option shall not be transferable by Broach other than by
will or the laws of descent and distribution.
7. ADJUSTMENT OF SHARES.
If any change is made in the Shares deliverable upon exercise
of the Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, split-up, spin-off, split-off, subdivision or
combination of shares, exchange of shares, issuance of rights to subscribe,
change in capital structure or similar event), such adjustments or substitutions
shall be made by the Board of Directors of the Corporation in or for the Shares
(including adjustments in the number of Shares and in the per share price of
Shares subject to the Option) as the Board of Directors of the Corporation
reasonably shall determine to be appropriate and equitable to prevent dilution
or enlargement of Broach's rights hereunder.
8. COVENANTS OF THE CORPORATION.
The Corporation hereby covenants and agrees that:
(a) During the period within which the Option may be
exercised, the Corporation shall at all times reserve and keep available by all
necessary corporate action out of its shares of Common Stock for the purpose of
issuance or transfer upon exercise of the Option the number of shares of Common
Stock included in the Shares and such additional securities as may from time to
time be deliverable hereunder. Such shares may be authorized but unissued
shares, or may be shares held in the treasury of the Corporation or a
combination thereof, at the option of the Corporation.
(b) All shares which may be issued upon exercise of the Option
or delivered pursuant to this Agreement will, upon issuance and payment therefor
as provided herein, be validly issued, fully paid, nonassessable and free from
all liens and charges with respect to the issue thereof.
4
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9. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
The Corporation represents and warrants to Broach as follows:
(a) The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
(b) The Corporation has all requisite legal and
corporate power to execute this Agreement. The execution, delivery and
performance by the Corporation of this Agreement and the consummation of the
transactions contemplated hereby have been authorized by all necessary corporate
action on the part of the Corporation.
(c) This Agreement has been duly executed by the
Corporation and, assuming due and valid execution and delivery of the same by
Broach, constitutes the valid and legally binding obligation of the Corporation
enforceable in accordance with its terms.
10. NO FRACTIONAL SHARES.
Upon the exercise of the Option, the Corporation shall not be
required to issue any fractional shares or scrip certificates evidencing any
fractional interest in shares. In any case where, pursuant to the terms of the
Option, Broach would be entitled, except for the provisions of this Paragraph
10, to receive a fractional share, the number of shares issuable upon such
exercise shall be rounded to the next larger whole share if such fractional
share interest is a major fraction; if such fractional share interest is not a
major fraction, it shall be disregarded.
11. "LOCK-UP" AGREEMENT.
Broach, if so requested by the Corporation and an underwriter
of Common Stock or other securities of the Corporation, shall not sell, grant
any option or right to buy or sell, or otherwise transfer or dispose of in any
manner, whether in privately-negotiated or open-market transactions, any Common
Stock or other securities of the Corporation held by him or which he has the
right to acquire during the 180-day period following the effective date of a
registration statement of the Corporation filed with the Securities and Exchange
Commission in connection with such offering or such shorter period as such
underwriter shall have advised the Corporation in writing is adequate to permit
the successful and orderly distribution of such Common Stock or other
securities; provided, however, that such "lock-up" agreement shall be in writing
and in form and substance satisfactory to the Corporation and such underwriter.
The Corporation may impose stop-
5
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transfer instructions with respect to the shares subject to the foregoing
restrictions until the end of said 180-day period. In connection with the
preparation and filing of any such registration statement, the Corporation shall
use its reasonable best efforts (i) to enforce the obligations of its
stockholders (and any person who shall have the right to acquire capital stock
of the Corporation) who have agreed with the Corporation to enter into "lock-up"
or "market stand-off" agreements and (ii) to obtain a "lock-up" or "market
stand-off" agreement from all of its other stockholders and all other such
persons. This Paragraph 11 shall survive the termination or exercise of the
Option.
12. SCIENTIFIC ADVISORY SERVICES.
(a) In consideration of the grant of the Option, Broach hereby
agrees to provide to the Corporation scientific advisory services, from the date
hereof until the earliest of (i) his death, (ii) his "disability" (as
hereinafter defined in subparagraph 12(b) hereof), (iii) the fifth anniversary
of the Vesting Date or (iv) the third anniversary of the full exercise of the
Option, to the same extent and on the same basis as he is currently providing
such services to the Corporation. Notwithstanding the foregoing, Broach shall
not be obligated to provide scientific advisory services to the Corporation if
(i) ImClone Systems Incorporated or an affiliate thereof becomes the holder of
more than fifty percent (50%) of the voting power of the Corporation's issued
and outstanding capital stock or (ii) Dr. Sam Waksal becomes the President or
Chief Executive Officer of the Corporation.
(b) For the purposes hereof, the "disability" of Broach shall
mean such physical or mental disability as shall prevent Broach from performing
his scientific advisory services in the manner previously performed for a period
of 120 consecutive days or an aggregate of 180 days in any 365 day period.
13. ENTIRE AGREEMENT AMENDMENTS.
This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, and no statement,
representation, warranty or covenant has been made by either party except as
expressly set forth herein. This Agreement supersedes and cancels all prior
agreements between the parties, whether written or oral, with respect to the
subject matter hereof. No alteration, amendment or modification of any of the
terms and provisions hereof shall be valid unless made pursuant to a written
instrument signed by all of the parties hereto.
14. APPLICABLE LAW.
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware.
6
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15. NOTICES.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or mailed, first class, postage prepaid, certified mail,
return receipt requested, to the other party at its address as set forth at the
beginning of this Agreement or as either of the parties may designate in
conformity with the foregoing.
16. PARAGRAPH HEADINGS.
The paragraph headings set forth in this Agreement are for
reference purposes only and shall not be considered as part of this Agreement in
any respect nor shall they in any way affect the substance of any provisions
contained in this Agreement.
17. SUCCESSORS AND ASSIGNS.
This Agreement shall not be assignable by Broach, but the
rights hereunder may be transferred as described in Paragraph 6 hereof. All of
the terms and provisions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by Broach, the Corporation, the heirs and
personal representatives of Broach and the successors and assigns of the
Corporation.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
CADUS PHARMACEUTICAL CORPORATION
By:/s/ JEREMY M. LEVIN
-----------------------
Jeremy M. Levin, President
/s/ JAMES R. BROACH
-----------------------
JAMES R. BROACH
7
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EXHIBIT A
[Date of Exercise]
Cadus Pharmaceutical Corporation
777 Old Saw Mill River Road
Tarrytown, NY 10591-6705
Attention: Corporate Secretary
Re: STOCK OPTION
Dear Sir:
I am the holder of a Stock Option granted to me by Cadus Pharmaceutical
Corporation (the "Corporation"), pursuant to a Stock Option Agreement dated as
of December __, 1995, to purchase 425,000 shares of Common Stock of the
Corporation ("Shares"). I hereby exercise such option with respect to _________
Shares, the total purchase price for which is $________, and [I enclose a
certified or bank cashier's or other acceptable check payable to the order of
the Corporation in the amount of $________, representing the total purchase
price for the Shares] [I hereby elect to pay the purchase price by delivering to
the Corporation _____ shares of Common Stock of the Corporation having a fair
market value equal to $________ from the Shares I am purchasing pursuant to the
exercise of such option]. The certificate or certificates representing the
Shares should be registered in my name and should be forwarded to me at
______________________________.
Please acknowledge receipt of the exercise of my stock option on the
attached copy of this letter.
Very truly yours,
JAMES R. BROACH
RECEIPT ACKNOWLEDGED:
CADUS PHARMACEUTICAL CORPORATION
By:_____________________________
Exhibit 11
Cadus Pharmaceutical Corporation
(A development stage enterprise corporation)
Computation of Pro Forma Net
Loss per Share (unaudited)
------------------------------
Three Months
Year Ended Ended
December 31, March 31,
1995 1996
----------- ---------
Net loss $(1,482,490) $ (43,167)
=========== ==========
Weighted average number of shares of
common stock outstanding during the
periods after giving effect to the one-for-
three reverse stock split 1,382,139 1,326,522
Common equivalent shares from stock options
issued during the 12-month period prior to the
proposed offering using the treasury
stock method 198,924 198,924
Conversion of Series A Convertible Preferred
Stock using the if-converted method 4,959,901 4,959,901
Conversion of Series B Convertible Preferred
Stock using the if-converted method 2,591,613 2,591,613
----------- ----------
Shares used in calculation of pro forma
net loss per share 9,132,577 9,076,960
=========== ==========
Pro forma net loss per share $ (O.16) $ 0.00
=========== ==========
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cadus Pharmaceutical Corporation:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
New York, New York
July 17, 1996
EXHIBIT 23.3
[LETTERHEAD LAHIVE & COCKFIELD]
July 17, 1996
The Board of Directors
Cadus Pharmaceutical Corporation
777 Old Saw Mill River Road
Tarrytown, NY 10591-6705
Re: Registration Statement on Form S-1
Dear Sirs:
We hereby consent to the reference to our firm under the caption "Experts"
in the prospectus which is a part of Cadus Pharmaceutical Corporation's
Registration Statement on Form S-1 as amended by Pre-effective Amendment No. 3.
Very truly yours
/s/ LAHIVE & COCKFIELD
-------------------------
LaHive & Cockfield
