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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-22788
AXYS PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 22-2969941
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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180 KIMBALL WAY, SOUTH SAN FRANCISCO, CALIFORNIA 94080
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (650) 829-1000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The approximate aggregate market value of the voting stock held by
nonaffiliates of the Registrant as of February 28, 1998, based upon the last
trade price of the Common Stock reported on the Nasdaq National Market on
February 28, 1998, was $247,814,772.*
The number of shares of Common Stock outstanding as of February 28, 1998
was 29,989,508.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement which will be filed with the
Commission pursuant to Section 14a in connection with the 1998 annual meeting of
stockholders are incorporated herein by reference in Part III of this report.
* Excludes approximately 834,829 shares of the Registrant's outstanding Common
Stock held by directors and officers of the Registrant at February 28, 1998.
Exclusion of shares held by any person should not be construed to indicate
that such person possesses the power, direct or indirect, to direct or cause
the direction of the management or policies of the Registrant, or that such
person is controlled by or under common control with the Registrant.
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PART I.
ITEM 1. BUSINESS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section of Item 1
entitled "Additional Risk Factors" as well as in the remainder of this section
and in the section entitled "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
AXYS Pharmaceuticals, Inc. ("AXYS" or "the Company"), formerly Arris
Pharmaceutical Corporation ("Arris"), is a leader in the integration of drug
discovery technologies from gene identification through clinical development.
AXYS has research collaborations with world-class pharmaceutical companies that
are focused on the discovery of small molecule therapeutics and cover a broad
range of therapeutic areas, including respiratory, cardiovascular, metabolic,
and infectious diseases, as well as oncology and central nervous system
disorders.
On January 8, 1998, Arris acquired Sequana Therapeutics Inc. ("Sequana"), a
genomics company based in La Jolla, California. Since that time, Arris has
operated as AXYS. The financial results reported in this Form 10-K represent the
operations of Arris for the twelve-month period ended December 31, 1997.
However, the discussion contained in this section of this report reflects the
newly created company, AXYS, following the merger of Arris and Sequana. Pro
forma consolidated year-end 1997 financial information describes the financial
results of the combined company as though the acquisition had been in place for
all of 1997. In the section entitled "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations," other than in the
section entitled "Outlook," the discussion relates only to the fiscal year 1997
financial results for Arris prior to the Sequana acquisition and the creation of
AXYS.
THE COMPANY
AXYS is a pharmaceutical company that is focused on small molecule drug
discovery. Its drug discovery platform extends from gene-finding and functional
analysis of genes to chemistry and structure-based drug design driven lead
identification, as well as preclinical and clinical development capabilities.
AXYS currently has a Phase II asthma candidate in clinical development and
several potential clinical programs in advanced preclinical studies.
GENE IDENTIFICATION
Rather than randomly sequencing large numbers of genes with unknown
functions, the focus of AXYS is the identification and characterization of
specific genes associated with common diseases. AXYS uses a gene-finding
methodology known as positional cloning, a technique that entails the collection
of DNA samples from families that have a high incidence of a particular disease.
Positional cloning requires a sequential research program that begins with DNA
collection, proceeds to genotyping and linkage analysis and leads finally to
physical mapping and DNA sequencing and mutation detection. High-throughput
automated DNA analyzers, sophisticated robotics and advanced computer systems
collect and analyze genetic information to attempt to establish a relationship
to disease, enabling AXYS to pursue a number of gene discovery programs
simultaneously.
DNA Collection. Positional cloning is based on the analysis of disease
inheritance patterns. The detection of statistically significant patterns
requires large and well-characterized collections of DNA samples. The
suitability of a particular sample collection is based on a number of factors,
including accurate diagnosis of the underlying disease, familial relationships,
ethnic homogeneity and similar environmental factors among patients. The typical
size for a collection suitable for positional cloning ranges from an estimated
2,000 to 5,000 samples. However, where environmental factors are significant or
genetic factors are complex, AXYS may require substantially more samples to find
genes responsible for common diseases. AXYS actively seeks to identify and
obtain exclusive access to suitable DNA samples through collaborations with
academic
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researchers, clinicians and health care providers. Under the terms of these
collaborations, the collaborators are responsible for collection of DNA samples
from individuals, and AXYS funds the expenses incurred in such collection. AXYS
is often reimbursed for these costs in its collaborations with large
pharmaceutical companies. To support its gene discovery programs the Company
currently has access to approximately 45,000 DNA samples through its existing
collaborations.
Genotyping and Linkage Analysis. Genotyping is the use of markers to
organize the genetic information found in individual DNA samples and to measure
the variation between such samples. After studying genotype variations between
affected and healthy individuals, a process called "linkage analysis" is then
used to determine specific regions of the genome that may be inherited with, or
"linked" to, disease. The two-step process of genotyping and linkage analysis is
applied to isolate disease genes within a genomic region.
AXYS has developed an advanced system to capture and store genotype
information in a computer database for linkage analysis. AXYS has also developed
proprietary genetic marker sets which, together with AXYS' integrated technology
platform, significantly increase the throughput of the genotyping process
compared to traditional methods. To date, the Company has identified several
regions of the human genome containing genes associated with common diseases and
is in the process of further refining these regions and identifying additional
regions linked to common diseases. This work has been done in both partnered and
proprietary research programs.
Physical Mapping. Once the chromosomal region containing a disease gene is
narrowed to a small genetic interval, the Company then looks to identify
individual genes in that region. Such a region typically contains 60 to 100
genes, of which only one or a few will be the disease genes of interest. Part of
this selection of genes is accomplished through the analysis of genetic data
contained in public and proprietary databases. Once mapped, the Company uses a
variety of techniques and proprietary tools to clone genes that are contained in
several regions associated with certain common diseases.
DNA Sequencing and Mutation Detection. Target disease genes identified
through the physical mapping process are then sequenced using samples from a
group of healthy individuals and from a group of individuals with the target
disease. The sequences are statistically analyzed to identify mutations that may
be responsible for the target disease state. AXYS uses automated
instrumentation, together with a variety of molecular biology techniques and
proprietary software developed by AXYS, to identify mutations rapidly and
accurately.
AXYS has developed a proprietary bioinformatics system that integrates the
enormous amount of information produced by each of the gene discovery modules.
Data is collected by highly automated instrumentation, stored in proprietary
relational databases and analyzed by AXYS' scientists using sophisticated
computational tools. In addition, AXYS continuously uses its data to redesign
and improve its systems and analytical techniques and tools to make further gene
discovery efforts more effective and efficient.
AXYS has identified several target disease genes and is currently
attempting to identify the corresponding mutations responsible for disease.
AXYS, together with the National Cancer Institute ("NCI"), identified a gene and
a corresponding mutation associated with hereditary melanoma in January 1996. In
addition, the Company, in collaboration with The Jackson Laboratory, discovered
TULP 1, a gene associated with obesity in mice, in early 1996. The results of
this research were accepted in 1997 for publication by NATURE GENETICS.
AXYS GENE IDENTIFICATION PROGRAMS
The Company's initial focus is on discovering and characterizing disease
genes associated with type II diabetes, asthma, osteoporosis, obesity,
schizophrenia, and manic depression, among other common diseases. The
inheritance patterns of many common diseases are very complex, indicating that
such diseases are probably associated with defects in more than one gene. The
Company believes that identifying disease genes and determining their biological
function will provide insights into the fundamental causes of common diseases
and may facilitate the development of novel prognostic, diagnostic and
therapeutic products, such as small molecule drugs, recombinant proteins, gene
therapy, and antisense therapy. The Company's principal gene discovery programs
are summarized below.
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Asthma. Asthma, characterized by generalized airway inflammation, is
estimated to affect five percent of the United States population, or
approximately 13 million people. The precise causes of asthma are not well
understood, and current treatments for asthma are limited to controlling
inflammation through the administration of steroids or treating symptomatic
airway constriction through the use of bronchodilators.
In June 1995, AXYS announced a collaborative research agreement with
Boehringer Ingelheim aimed at identifying genetic causes of asthma and
developing new therapeutics based on those findings. In May 1997, AXYS announced
an expansion of the program whereby research support for the collaboration was
doubled. Later that month, AXYS announced that it had discovered a gene related
to asthma as part of its collaborative research with Boehringer Ingelheim and
AXYS received a milestone payment for its success.
AXYS has established a research collaboration with the Mount Sinai Hospital
Corporation ("MSHC") in Toronto, Ontario, through which AXYS gained access to a
population of approximately 300 individuals with a 30% incidence of asthma.
These individuals are inhabitants of Tristan da Cunha, an island in the South
Atlantic. The remote location of this island has isolated its inhabitants from
the outside world, offering a unique opportunity for the study of this disease.
All of the inhabitants are closely related through intermarriage, and anecdotal
evidence suggests that one of the island's original settlers suffered from
asthma, resulting in the high incidence of asthma in the current population. In
addition, MSHC has gathered DNA samples from affected families in the Toronto
area and from an extended family of over 150 members that live in a remote
location in China and suffer from a high incidence of asthma.
Oncology. In January 1997, AXYS and Memorial Sloan-Kettering Cancer Center
("Memorial Sloan-Kettering") formed a joint venture known as Genos Biosciences,
Inc., based in La Jolla, California ("Genos"). Genos' focus is the
identification of genes and related genetic sequence information that will be of
value in the prognosis, diagnosis and possible treatment of three of the most
common cancers, specifically, prostate, breast, and colon cancer, which
collectively account for a significant percentage of all new cancer cases. These
types of cancer are usually caused by "somatic" mutations -- non-hereditary
changes occurring in the genes of certain cells that increase the risk for
developing cancer.
AXYS and Memorial Sloan-Kettering believe that the identification of gene
defects in the early stage of cancer and the relationship of such gene defects
to the subsequent treatment may provide information for predicting how tumors
will progress and respond to different therapies. In addition to such prognostic
tests, the novel techniques for the analysis of genetic abnormalities in tumor
cells used in this joint effort should yield better diagnostic tests and
possible targets for improved cancer therapies. The objective of the
collaboration is to improve the ability to diagnose, control, and cure cancers.
Schizophrenia/Bipolar Disorder. Schizophrenia is a form of mental illness
characterized by disturbance in logical thinking, inappropriate emotions,
hallucinations, delusions, catatonic symptoms (exaggerated or severely
suppressed movement), violent behavior, withdrawal from reality or some
combination of these symptoms. Due to the diverse nature of these symptoms,
accurate diagnosis is difficult. Schizophrenia affects approximately one percent
of the worldwide population and usually appears in late adolescence or early
adulthood. Published research suggests that the condition has a strong genetic
component, although environmental factors appear to influence the onset and
severity of the disease. The underlying biochemical mechanisms of the disease
are diverse and not well understood. Current treatments for schizophrenia
include tranquilizers and antipsychotic drugs; electric shock treatment for
severe catatonia, depression, or elation; and psychotherapy.
Bipolar disorder is a psychiatric disorder characterized by mood
fluctuations between mania and depression and is estimated to affect one percent
of the United States population, or 2.5 million people. AXYS entered into a
collaboration with the University of Pittsburgh in Pittsburgh, Pennsylvania in
September 1995 to collect DNA samples from individuals and families with bipolar
disorder. AXYS intends to have collected DNA samples from approximately 500
families through this collaboration. The Company has also entered into
collaborations with other academic institutions to access additional DNA
samples. AXYS is conducting genotyping on these samples and has established
linkage to a region containing candidate disease genes.
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AXYS entered into a collaboration with the State University of New York at
Stony Brook ("SUNY") in July 1995 for the study of schizophrenia. Through the
SUNY collaboration, the Company has access to DNA samples from approximately 400
families affected by schizophrenia. The Company believes that this patient
population is valuable due to its size and to SUNY's utilization of consistent
criteria for the accurate assessment of schizophrenic symptoms. AXYS is
conducting genotyping on the SUNY samples and has established linkage to an area
of the genome containing candidate disease genes. AXYS has also entered into
collaborations with other academic institutions to access additional DNA
samples.
In November 1997, the Company entered into a broad-based genomics alliance
with the Parke-Davis division of Warner-Lambert Company ("Parke-Davis") to
develop novel therapeutic products for the treatment of schizophrenia and
bipolar disorder. The alliance combines AXYS' capabilities in gene discovery,
functional genomics, bioinformatics, screening with Parke-Davis' research,
development and clinical expertise in the central nervous systems area.
Osteoporosis. Osteoporosis is a condition characterized by the loss of
bone mass that generally occurs with aging and progresses rapidly in many women
after menopause. Nearly 25 million people suffer from osteoporosis in the United
States. The primary complications of the disease are compression fractures of
the vertebrae and hip fractures. There are a number of therapies for
osteoporosis, but none of them significantly restores functional bone mass.
However, early treatment is believed to reduce the severity of the disease.
Therefore, the Company believes that early identification of patients
predisposed to osteoporosis presents a significant opportunity.
In May 1995, the Company and Corange International, Ltd., the parent
company of Boehringer Mannheim ("Corange"), entered into a strategic alliance
aimed at identifying the genes involved in osteoporosis. In March 1998, AXYS
reported an expansion of the agreement to accelerate the research. The goal is
to identify discrete genetic regions linked to bone metabolism within the human
genome, as a successor to the work already done with primates.
AXYS has entered into collaborations with several academic institutions to
collect human DNA samples and bone density information for osteoporosis research
to further the investigations with Corange. The Company is currently examining
potential candidate human disease genes. In addition, AXYS has established a
research collaboration with the Southwest Foundation for Biomedical Research
("SFBR") in San Antonio, Texas, to study osteoporosis in baboons. SFBR studies
to date indicate that there is a strong inherited component to bone density in
baboons. The Company believes that the genetic analysis of baboons may provide
leads to candidate genes for human studies. AXYS is conducting genotyping and
physical mapping of human and baboon samples and has developed a proprietary
genetic marker set for genotyping in baboons.
Diabetes. Type II diabetes, also known as adult onset or non-insulin
dependent diabetes mellitus ("NIDDM"), is believed to be the result of a
combination of insulin levels insufficient for the body's needs and resistance
of the body to insulin. As in type I diabetes, in which insulin production has
almost ceased, type II diabetes is characterized by high levels of glucose in
the blood. Complications of the disease include heart disease, circulatory
problems, kidney disease, nerve damage, and blindness. Approximately five
percent of the United States population, or 13 million individuals, is affected
by type II diabetes.
AXYS entered into a strategic alliance with Glaxo-Wellcome ("Glaxo") in
July 1994 to discover genes associated with type II diabetes. Through
collaborative agreements with various academic institutions and health care
providers and through its alliance with Glaxo, AXYS has access to more than
5,000 DNA samples from individuals and families affected by type II diabetes. In
September 1997, as a result of this study which involved genetic analyses of
more than 5,000 individuals from diabetic families, AXYS and Glaxo have
identified distinct regions of DNA which they believe contain genes associated
with NIDDM. AXYS received a milestone payment from Glaxo for achieving this
success. The Company and Glaxo are renegotiating the terms of their agreement.
Obesity. Obesity has become one of the most common disorders of modern
society. In the United States alone, approximately 30 million individuals can be
classified as obese. Obesity is associated with a large number of disease
conditions, including type II diabetes, hypertension, high cholesterol levels,
atherosclerosis,
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ischemic heart disease, osteoarthritis, gall bladder disease, and some forms of
cancer. Published research suggests that genetic factors controlling metabolism
and appetite suppression may be involved in obesity.
In February 1996, Glaxo expanded its strategic alliance with the Company in
the area of type II diabetes to include the study of human obesity. In
collaboration with Glaxo and others, AXYS has access to DNA samples from more
than 1,000 morbidly obese (more than 30% over ideal weight) individuals.
AXYS has also entered into a collaboration with The Jackson Laboratory in
Bar Harbor, Maine, to discover the genes responsible for obesity in two specific
mouse strains. In January 1996, the Company and The Jackson Laboratory announced
the discovery of a gene associated with obesity in mice. The Company plans to
use information regarding mouse obesity genes for research in isolating human
gene counterparts.
Liver Cancer. Liver cancer is the second most common cause of death in
China. In January 1997, AXYS announced that it had signed a letter of intent
with PE Applied Biosystems, a division of The Perkin-Elmer Corporation, to form
a broad-based DNA-sequencing joint venture in Shanghai, China (the "Joint
Venture") called GeneCore. In October 1997, AXYS announced that the Joint
Venture had been expanded to include SiniWest Holdings, Inc. (a 5% equity
holder), and that the Joint Venture had been awarded a research contract from
China's State Science & Technology Commission to sequence human genes involved
in liver cancer. Under the contract, the Joint Venture is applying
high-throughput genomic sequencing and related technologies to a targeted region
of the human genome believed to contain a gene responsible for the disease.
Identification and isolation of this gene is expected to provide potential new
targets for improved diagnostic and therapeutic products.
TRANSFER OF GENE IDENTIFICATION TECHNOLOGIES
In May 1997, AXYS announced the signing of a research agreement with
ZymoGenetics Inc., the United States biotechnology discovery affiliate of Novo
Nordisk A/S, under which AXYS agreed to provide bioinformatics tools and
sequencing technologies to facilitate research into the genetics of
paracrine/endocrine signaling molecules.
GENE FUNCTION
Once the Company has identified genes that may be associated with
particular diseases, it seeks to determine their specific role in the disease
process. AXYS has developed or acquired access to a variety of technologies that
the Company believes are useful in determining gene function, including methods
to examine the role of human disease genes in a variety of model organisms.
The yeast cell, nematode worm, fruit fly, and mouse are well-developed
model organisms and, as a result, the Company believes they are particularly
useful models for the study of human gene function. Each of these organisms
exhibits certain similarities to humans at the genetic, molecular, and cellular
levels, and mechanisms that operate in these organisms may also operate in
humans. Many genes known to cause human disease have close counterparts in one
or more of these organisms. By studying gene function in these model systems,
AXYS believes it can achieve a better understanding of the molecular mechanisms
that cause or predispose individuals to common diseases. Using genes that it
discovers, as well as those discovered by others, AXYS seeks to examine gene
function, determine signaling pathways, and identify additional genes that
interact with known disease genes. The Company believes that this information
will enable AXYS and its partners to choose more effective therapeutic
intervention points for many common human diseases.
Yeast Genetics. AXYS' developing program in yeast genetics uses this
well-characterized genome to examine the function of human genes. Among other
techniques employing this organism, AXYS is using yeast systems for the study of
genes relating to asthma and obesity, among other diseases.
Nematode Genetics. Through its NemaPharm, Inc. subsidiary ("NemaPharm")
currently based in Cambridge, Massachusetts, AXYS has proprietary technologies
for the study of gene function in the nematode worm, or C. elegans; one of the
most thoroughly understood multi-cellular organisms in terms of its anatomy,
development, behavior, and genetics. NemaPharm has applied for patents in the
United States on a proprietary nematode-based screening method. AXYS plans to
employ NemaPharm's technologies to develop
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animal models of human disease and use such models to identify potential new
therapeutic targets. Using NemaPharm's proprietary NemaScreen(R) technology,
AXYS also plans to develop novel high-throughput screens for therapeutic leads.
NemaPharm's operations will be relocated to the Company's headquarters in South
San Francisco in the second half of 1998.
In January 1997, AXYS announced the signing of an agreement between
NemaPharm and Glaxo to apply AXYS' nematode worm C. elegans to evaluate the
function of certain genes provided by Glaxo and identify targets for the
discovery of novel therapeutics.
Drosophila Genetics. AXYS is utilizing Drosophila, or fruit fly, models to
examine gene function and gene expression. The Company believes that the fruit
fly is particularly useful because many human gene families and signaling
pathways are also found in this model organism. AXYS has entered into consulting
agreements with two renowned Drosophila geneticists at the University of
California, San Diego, who serve as scientific advisors to the Company in the
use of Drosophila as a model system. Currently, AXYS is using this model system
to examine the function of certain genes related to obesity.
Mouse Genetics. In the area of mouse genetics, AXYS is examining gene
function in transgenic mice using high-precision gene insertion technologies and
high-throughput gene inactivation technologies. The Company believes that these
technologies may offer a superior method to conventional approaches for
developing animal models of certain human genetic diseases. Currently, the
Company is utilizing its mouse-related technologies in the study of asthma and
obesity. In September 1997, AXYS announced that it had received a Phase I Small
Business Innovation Research grant from the National Institutes of Health for
further development of its Rapid Mouse Model Production, or RAMMP(TM),
technology, used to create transgenic, or knock-out, mice faster than
conventional approaches.
LEAD IDENTIFICATION
The process of identifying lead candidates in the Company's drug discovery
programs encompasses a broad range of scientific capabilities, ranging from
crystallography and structural biology to combinatorial chemistry and high
throughput screening. In crystallography, AXYS scientists provide molecular maps
of the targets against which it is designing drugs. AXYS also uses sophisticated
computer modeling, or computational chemistry, techniques to help design
molecules known to interact with certain protein structures, as well as to
create chemically diverse compound libraries using combinatorial chemistry
techniques. See "Research Technology -- Combinatorial Chemistry."
AXYS utilizes an integrated platform to avoid the limitations of single
solutions. Where molecular structures can be determined, AXYS uses computational
knowledge; where structural information is limited, it uses combinatorial
chemistry and high throughput screening.
DELTA TECHNOLOGY
Among the advanced technologies developed by AXYS for the design of
protease inhibitors is the Company's Delta Technology. In December 1997, the
United States Patent and Trademark Office issued a patent providing broad
coverage on the Company's Delta Technology. The patent, entitled "Metal
Complexed Serine Protease Inhibitors," filed by AXYS in May 1995, encompasses
technology relating to methods useful in research for the discovery of novel
protease inhibitors, for identifying structural activity relationships of
protease inhibitors. AXYS is leveraging this technology by designing multiple
classes of protease inhibitors. AXYS has demonstrated that by using the Delta
Technology, the potency of certain small molecule protease inhibitors can be
increased substantially. Protease inhibitor compounds designed by application of
the Delta Technology are generally simple organic molecules of low molecular
weight. Many of the Company's collaborations use the Delta Technology.
Many of the leads being pursued by the Company are protease inhibitors.
Proteases are enzymes which work with proteins in virtually every biological
process, and their over or under regulation is often associated with a disease.
The Company believes the ability to develop inhibitors of proteases is therefore
important.
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HERPES VIRUS PROTEASES: CMV, HSV, AND HHV
The infectivity of many viral organisms depends on their ability to
replicate within the nucleus of a host cell and "escape" in a special protective
coating called the "capsid." In many instances, the cell's ability to
manufacture the capsid is controlled by a discrete viral protease. It is
believed that if production of the capsid can be inhibited, viral particles
would be prevented from escaping from one cell and infecting others. Indeed,
this is the mechanism targeted by HIV protease inhibitors currently on the
market.
The same process is believed to contribute to the spread of infections by
the herpes family of viruses, including cytomegalovirus ("CMV"), herpes simplex
virus ("HSV") and eight other herpes viruses known collectively as "HHV". With
its collaborative partner, SmithKline Beecham Corporation ("SB"), in June 1996,
AXYS began working on its first infectious disease program. The goal of that
program is the establishment of proof-of-concept ("POC") that a herpes virus
could be inhibited intracellularly using inhibitors designed using the Delta
Technology principle. On December 31, 1997, in accordance with the terms of the
Agreement, SB notified the Company that it would continue the POC phase research
using only internal SB resources.
HEPATITIS C PROTEASE
As many as seven viruses are known to cause hepatitis, which is
characterized by the damage of liver cells, called hepatocytes. Different types
of hepatitis cause acute as well as chronic infection, in addition to cirrhosis
of the liver and jaundice. These manifestations depend upon the viral agent
causing the infection. Distinguished with a letter of the alphabet, the viruses
which cause hepatitis are transmitted through various modes and have varying
degrees of severity. In the 1960's, the first viral agent was identified which
causes hepatitis (hepatitis B). Hepatitis A was isolated in 1973. Despite these
early discoveries, chronic and severe cases of hepatitis proliferated with no
known cause. These cases were referred to as Non-A, Non-B hepatitis. Hepatitis
C, the major cause of Non-A and Non-B hepatitis, was finally discovered in 1987.
In December 1997, the Company entered into an agreement with Bristol-Myers
Squibb ("BMS") to develop protease inhibitors to prevent the growth and spread
of the hepatitis C virus ("HCV"). In conjunction with this agreement, AXYS and
BMS entered into agreements with Chiron Corporation ("Chiron") that granted
non-exclusive licenses under its hepatitis C virus patent portfolio for protease
inhibitor research to AXYS and to BMS. These licenses allow AXYS and BMS to
collaborate in their practice under Chiron's patents with respect to the use of
HCV NS3 protease in protease inhibitor research activities.
CATHEPSIN S
Cathepsin S is a cysteine protease found in antigen-presenting cells of the
immune system. Unlike many other proteases, it is rarely found in other types of
cells. Cathepsin S is believed to function in a pathway that mediates the body's
ability to mount an immune response to foreign antigens, leading to an
inflammatory reaction. As a result, it may be possible to use inhibitors of
cathepsin S to block the pathway and, as a result, protect the body from certain
inflammatory diseases and perhaps autoimmune disorders. AXYS has produced
cathepsin S and has identified several potent and selective cathepsin S
inhibitors that are being tested in cell-based assays and in vivo models of
inflammation.
OTHER PROTEASE TARGETS
The Company also has a number of other early research programs aimed at
identifying potential biological targets among serine and cysteine proteases,
including chymase, evaluating their biological relevance in various diseases,
and designing inhibitors to those protease targets implicated in certain
pathological processes. Using sophisticated genetic mapping techniques, the
Company believes it is able to gain proprietary knowledge about how proteases
contribute to key biological events, in particular, those that play a role in
physiological disorders, such as cancer, inflammatory diseases, and bacterial,
fungal, and viral infections.
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TRANSFER OF LEAD IDENTIFICATION TECHNOLOGIES
In June 1997, AXYS announced a collaboration with Abbott
Laboratories("Abbott") under the terms of which AXYS transferred to Abbott
specialized screening technologies for use in an undisclosed proprietary
research program.
PRECLINICAL DEVELOPMENT
Before qualifying for evaluation in human clinical trials, drug-like
compounds must pass extensive safety and efficacy tests. In pharmacology, models
of human disease often provide important information with respect to the
duration of action of a potential drug, as well as to how it is absorbed by the
body and metabolized. On-site studies take advantage of advanced technologies
such as mass spectrometry to evaluate hundreds of samples, indicating not only
drug concentrations but also the pharmacokinetic and pharmacodynamic
characteristics of drugs nearing human clinical trials.
AXYS PRECLINICAL PROGRAMS
TRYPTASE INHIBITORS FOR PSORIASIS AND INFLAMMATORY BOWEL DISEASE
Tryptase is a serine protease that has been shown by scientists at AXYS to
be a mediator of inflammation. Tryptase is released by mast cells as part of an
immune response to allergens and contributes to a cascade of biological events
which result in inflammation. Inhibition of tryptase is the focus of the
Company's most advanced research and development program. The initial market
opportunity evaluated by the Company was in collaboration with Bayer AG
("Bayer") and focused on asthma. Development of both inhaled and orally
delivered tryptase inhibitors is the focus of the collaboration.
AXYS' tryptase inhibitors are designed to slow or halt the inflammatory
process at an early stage, in an attempt to provide safe and effective therapies
for the treatment of the underlying cause of disease, rather than the symptoms.
In July 1997, AXYS modified its research and development agreement with Bayer,
whereby AXYS re-acquired the rights to exploit tryptase inhibitors against two
indications, inflammatory bowel disease and psoriasis. Later in 1997, the
Company identified a tryptase inhibitor to enter preclinical testing as a
potential treatment for these diseases, both of which are characterized by APC
2059 mast-cell mediated inflammation.
THROMBIN, FACTOR XA AND FACTOR VIIA
Thrombin, Factor Xa, and Factor VIIa are three enzymes involved in the
clotting cascade, a series of biochemical events that contributes to the
formation of blood clots. All three are serine proteases that have been
acknowledged as targets for a host of disorders related to abnormal clotting.
Since September 1995, AXYS has collaborated with Pharmacia & Upjohn, Inc.
("P&U") to develop oral therapeutics based on the inhibition of these proteases.
In 1996 and 1997, AXYS designed and tested a variety of compounds based on
its Delta Technology (See "Delta Technology") and, with its partner, P&U,
identified six families of Delta compounds for study in clotting and
pharmacokinetic tests. In 1998, a compound is expected to be nominated as a
clinical candidate to enter IND-enabling studies. AXYS and P&U are currently in
discussions regarding the future course of development in the program area.
CATHEPSINS K AND L
Cathepsins K and L are cysteine protease targets that are thought to play a
role in osteoporosis. In November 1996, AXYS announced a research and
development collaboration with Merck & Co. ("Merck") to develop small molecule
inhibitors of these enzymes as a treatment for osteoporosis. In February 1997,
AXYS announced it had solved the three-dimensional crystal structure of
cathepsin K. This research was published in NATURE/STRUCTURAL BIOLOGY in
February 1997.
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Specifically, cathepsin K is known to be secreted in excessive amounts by
osteoclasts. In the healthy human body, osteoblast cells are responsible for
bone-building, while osteoclasts are responsible for bone degradation. By
maintaining a careful balance in each type of cell's activity, normal bone
remodeling and skeletal integrity is achieved. However, when the rate at which
bone is destroyed by the osteoclasts exceeds the rate at which new bone is
produced by osteoblasts, the result is excessive bone resorption -- a condition
that results in brittle bones and is characteristic of osteoporosis. By
inhibiting cathepsin K, AXYS and its partner believe that a new drug may be able
to re-balance the activity of osteoclasts and osteoblasts and arrest the
bone-destroying effects of osteoporosis.
CLINICAL DEVELOPMENT
In 1997, AXYS' first clinical compound, APC 366, completed two additional
Phase IIa asthma studies, in the United Kingdom confirming an earlier study for
use in the treatment of asthma. The Company believes that APC 366, in an inhaled
aerosol formulation, is the first drug designed and introduced into humans for
its properties as a tryptase inhibitor.
In June 1997, AXYS announced that results from a second Phase IIa study of
APC 366 reached statistical significance (p < .05) in the achievement of the
study's primary endpoint -- the late airway response, showing a more than 25
percent reduction as compared to placebo. Under the protocol, the study's
subjects, 16 patients who were mild asthmatics, were dosed prophylactically with
either placebo or a nebulized formulation of APC 366 three times daily for four
days, using a double-blind cross-over design. An allergen challenge was
performed after the tenth dose on day four of the study to evaluate the effects
of the treatment. The trial evaluated the subjects' response to allergen
challenge and measured the response using "area under the curve" data.
In September 1997, AXYS announced the results of the third and final Phase
IIa study of APC 366 that showed improvement over the placebo control group in
two-thirds of the trial's asthmatic patients. The study was designed to evaluate
whether the inhibition of tryptase could reduce inflammation in the lungs of
asthmatics after four consecutive days of treatment -- a result that had
previously only been achieved by inhaled steroids administered for a minimum of
six weeks. The results of this crossover study of bronchial hyperresponsiveness,
however, did not reach statistical significance as measured by the amount of
histamine (PD-20) required to produce a drop of 20 percent or more in FEV-1, a
measure of lung function.
Although conducted outside of the United States, the Phase IIa tryptase
studies were designed to meet FDA standards. The clinical trials for APC 366
were conducted under the Company's control and at its expense. Pursuant to the
Company's collaboration agreement with Bayer, research and development expenses
related to the Company's first clinical compound, APC 366, are being borne by
the Company, at least through Phase IIb clinical trials. Once Phase IIb studies
are complete, if the compound meets certain criteria agreed upon by Bayer and
AXYS, Bayer is obligated to assume further development expense for the compound
and to reimburse AXYS for clinical expenses through Phase IIb. If the compound
fails to meet these criteria, neither AXYS nor Bayer will further develop the
drug as a therapeutic for asthma.
All of the clinical data to date has been gathered using a nebulized form
of APC 366. In 1997, the compound was reformulated into a dry powder for
inhalation. Phase IIb clinical trials of APC 366 using the dry powder
formulations are expected to commence in 1998. Other compounds are being studied
for their suitability as inhaled alternatives to APC 366.
RESEARCH TECHNOLOGIES
The Company has created a platform of both commercially available and
proprietary discovery technologies to meet the Company's primary goals: the
identification of genes that are responsible for certain diseases and their
function, the identification of lead compounds that represent potential
treatments for specific diseases, and the conversion of promising leads into
molecules that possess desired drug properties. Research at AXYS encompasses
multiple technologies vital for new drug discovery:
Gene Identification. See "Gene Identification."
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Functional Genomics. See "Gene Function."
Bioinformatics. AXYS has developed a proprietary bioinformatics system
that integrates the enormous amount of information produced by each of the gene
discovery modules. Data is collected by highly automated instrumentation, is
stored in proprietary relational databases, and is analyzed by AXYS' scientists
using sophisticated computational tools. In addition, AXYS continuously
redesigns its systems and analytical tools to improve the efficiencies and
accuracy of its gene discovery efforts. Proprietary software tools, computer
networks, database management systems and computer algorithms exploit the
genetic information contained in publicly available databases to aid the Company
in the identification of candidate genes implicated in common diseases or
located within disease-associated DNA regions identified by the Company.
Medicinal Chemistry. Medicinal chemistry at AXYS plays a central role in
developing organic compounds, as well as in optimizing those identified as
potential clinical candidates. Medicinal chemistry is an iterative process used
to improve the potency, selectivity, oral bioavailability, metabolic stability,
and biological half-life of a drug candidate.
Combinatorial Chemistry. AXYS uses combinatorial chemistry technologies to
produce large numbers of molecules that can be screened against biological
targets of interest. For example, with its partner P & U, the Company is
building a broad diversity screening library of approximately 250,000
individually synthesized compounds, representing approximately 100 different
classes of small molecules.
Structure-Based Design. X-ray crystallography is a physical method that
has been successful in determining the three-dimensional structure of large,
complex proteins. AXYS has advanced X-ray crystallographic instrumentation on
site and has applied this technology to the solution of molecular structures of
several proteases -- both in AXYS' own discovery as well as its partners'
research programs.
Computational Sciences. AXYS uses a proprietary suite of computer
algorithms and computational tools to generate ideas for molecular structures,
to direct combinatorial chemical activity, and to perform virtual screening.
These tools have been used successfully in both the Company's protease and
receptor programs.
High Throughput Screening. Where the structure of a target protein is not
well understood, the screening of libraries of organic compounds provides lead
structures for medicinal chemistry. Thousands of compounds can be screened daily
at AXYS to identify new lead compounds or to optimize existing ones. The Company
has adapted commercially available technologies to meet the needs of its product
development programs.
Protein Biochemistry. In contrast to traditional biotechnology companies,
the Company generally employs the tools of recombinant DNA technology, including
proprietary systems, to produce proteins, not as drugs, but as reagents for
screening and for X-ray crystallography.
PATENTS AND PROPRIETARY RIGHTS
AXYS holds a number of issued United States patents relating to
compositions of matter, methods of treating disease, combinatorial chemistry and
computational technologies, expiring through various dates in 2014. Further,
AXYS has pending patent applications relating to compositions of matter, methods
of treatment, combinatorial chemistry, assay techniques, transgenic animal
models, computational technologies and novel technology for the discovery of
novel protease inhibitors. AXYS intends to file additional patent applications,
when appropriate, relating to its technology and to specific products it
develops.
The Company's policy is to strategically file selected patent applications
to protect technology, inventions and improvements that 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.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions. In
addition, the scope of the claims in a patent application can be significantly
modified during prosecution before the issued patent is issued. Consequently,
the
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Company does not know whether any of its applications will result in the
issuance of patents, or if any of its issued patents will provide significant
proprietary protection or will be circumvented or invalidated. Since patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it was
the first creator of inventions covered by its pending patent applications or
that it was the first to file patent applications for such inventions. Moreover,
the Company may have to participate in interference proceedings declared by the
United States Patent and Trademark Office ("PTO") to determine priority of
invention, which could result in substantial cost to the Company, even if the
eventual outcome is favorable to the Company. There can be no assurance that the
Company's pending patent applications, if issued, or its existing patents, would
be held valid. An adverse outcome could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require the Company to cease or modify its use of such technology.
The development of therapeutic products for applications in the Company's
product fields is intensely competitive. A number of pharmaceutical companies,
biotechnology companies, universities and research institutions have filed
patent applications or received patents in the areas of the Company's programs.
In addition, patent applications relating to the Company's potential products or
technologies may currently be pending. Some of these applications or patents may
limit or preclude the Company's applications and could result in a significant
reduction of the coverage of the Company's patents, or potential patents. The
Company is aware of pending patent applications that have been filed by other
companies that may pertain to certain of the Company's technologies. If patents
are issued to these or other companies containing preclusive or conflicting
claims, and such claims are ultimately determined to be valid, the Company may
be required to obtain licenses to these patents or to develop or obtain
alternative technology. Furthermore, the Company has in the past been, and may
from time to time in the future be, notified of claims that the Company may be
infringing patents or other intellectual property rights owned by third parties.
The Company has obtained one license under a third party's patent, and if
necessary or desirable the Company may seek additional licenses under other
patents or intellectual property rights. There can be no assurance, however,
that such a license will be available on reasonable terms or at all. The Company
could decide, in the alternative, to resort to litigation to challenge such
claims. Such challenges could be extremely expensive and time consuming and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Much of the know-how important to the Company's technology and many of its
processes, which may not be patentable, are dependent upon the knowledge,
experience and skills of key scientific and technical personnel. To protect its
rights to its proprietary know-how and technology, the Company requires all
employees, consultants, advisors and collaborators to enter into confidentiality
agreements that prohibit the disclosure of confidential information to anyone
outside the Company and require disclosure to the Company of ideas,
developments, discoveries and inventions made by these individuals. There can be
no assurance that these agreements will effectively prevent disclosure of the
Company's confidential information or will provide meaningful protection for the
Company's confidential information if there is unauthorized use or disclosure.
The Company's business may be adversely affected by competitors who develop
substantially equivalent technology.
In connection with certain research, the Company has entered into sponsored
research agreements with various researchers and universities. Generally, under
these agreements the Company funds the research of investigators in exchange for
the right or an option to a license to any patentable inventions that may result
in designated areas. The Company is obligated to make certain payments during
the terms of certain of the agreements, to pay royalties on net sales of any
licensed products and, in some cases, to negotiate in good faith the business
terms of any license executed upon exercise of licensing options. There can be
no assurance that these agreements will not be breached or that the Company
would have adequate remedies for any breach.
COMPETITION
The pharmaceutical industry is intensely competitive. Many companies,
including biotechnology, chemical and pharmaceutical companies, are actively
engaged in the research and development of products in the Company's targeted
areas. Many of these companies have substantially greater financial, technical
and
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marketing resources than the Company. In addition, some of these companies have
considerable experience in preclinical testing, clinical trials and other
regulatory approval procedures. Moreover, certain academic institutions,
governmental agencies and other research organizations are conducting research
in areas in which the Company is working. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These institutions
also may market competitive commercial products on their own or through joint
ventures and will compete with the Company in recruiting highly qualified
scientific personnel. The Company is pursuing areas of product development in
which there is a potential for extensive technological innovation in relatively
short periods of time. The Company's first clinical compound, APC 366, is in
clinical trials for the treatment of asthma. Currently, Schering-Plough
Corporation, Astra AB and Glaxo, among others, produce therapeutics for the
treatment of asthma. The Company's competitors may succeed in developing
technologies or products that are more effective than those of the Company.
Rapid technological change or developments by others may result in the Company's
technology or potential products becoming obsolete or noncompetitive. There can
be no assurance that the Company's competitors will not develop more efficacious
or more affordable products, or achieve earlier product development completion,
patent protection, regulatory approval or product commercialization than the
Company, which would have a material adverse affect on the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's proposed products and its
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous United
States Food and Drug Administration ("FDA") regulation. The Federal Food, Drug
and Cosmetic Act, as amended, and the regulations promulgated thereunder, and
other federal and state statutes and regulations, govern, among other things,
the testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising and promotion of the Company's products. Product
development and approval within this regulatory framework takes a number of
years and involves the expenditure of substantial resources. Failure to comply
with applicable regulatory requirements may subject a company to administrative
or judicially imposed sanctions, such as warning letters, civil penalties,
criminal prosecution, injunctions, product seizure, product recalls, total or
partial suspension of production, and FDA refusal to approve pending New Drug
Applications ("NDA") or supplements to approved applications.
The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory tests, in vivo preclinical
studies and formulation studies, (ii) the submission to the FDA of an
application for human clinical testing, an Investigational New Drug Application
("IND"), which must become effective before human clinical trials commence,
(iii) adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug, (iv) the submission of an NDA to the FDA, and (v) FDA
approval of the NDA prior to any commercial sale or shipment of the drug. In
addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with the FDA. Domestic drug
manufacturing establishments are subject to biennial inspections by the FDA and
must comply with Good Manufacturing Practices ("GMP"). To supply products for
use in the United States, foreign manufacturing establishments must comply with
GMP and are subject to periodic inspection by the FDA or by corresponding
regulatory agencies in such countries under reciprocal agreements with the FDA.
Drug product manufacturing establishments located in California also must be
licensed by the State of California in compliance with local regulatory
requirements.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Preclinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding Good Laboratory
Practices. The results of the preclinical tests are submitted to the FDA as part
of an IND and 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
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FDA authorization to commence clinical trials. Clinical trials involve the
administration of the investigational new drug to healthy volunteers or to
patients, under the supervision of a qualified principal investigator. Clinical
trials are 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
("IRB") at the institution at which 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.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy subjects, the drug is tested to determine its metabolism,
pharmacokinetics and pharmacological actions in humans, the side effects
associated with increasing doses and early evidence of efficacy, if possible.
Phase II involves studies in a limited patient population to (i) determine the
efficacy of the drug for specific, targeted indications, (ii) determine dosage
tolerance and optimal dosage, and (iii) identify possible adverse effects and
safety risks. If a compound is found to be effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
further evaluate clinical efficacy and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
There can be no assurance that Phase I, Phase II or Phase III testing will be
completed successfully within any specific time period, if at all, with respect
to any of the Company's products subject to such testing. Furthermore, the
Company or the FDA may suspend or terminate clinical trials at any time if it is
felt that the subjects or patients are being exposed to an unacceptable health
risk or the FDA finds deficiencies in the IND or the conduct of the
investigation. Further, FDA regulations subject sponsors of clinical
investigations to numerous regulatory requirements, including, among other
requirements, selection of qualified investigators, proper monitoring of the
investigations, recordkeeping and record retention, and ensuring that FDA and
all investigators are promptly informed of significant new adverse effects or
risks with respect to the drug, as well as other ongoing reporting requirements.
The results of the pharmaceutical development, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA for clearance of
the marketing and commercial shipment of the drug. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny an NDA if applicable regulatory criteria are not satisfied, may
require additional testing or information, or may require post-marketing testing
and surveillance to monitor the safety of the Company's products if the FDA does
not view the NDA as containing adequate evidence of the safety and efficacy of
the drug. Notwithstanding the submission of such data, the FDA may ultimately
decide that the application does not satisfy its regulatory criteria for
approval. Moreover, if regulatory clearance of a drug is granted, such approval
may entail limitations on the indicated uses for which it may be marketed.
Finally, product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
Among the conditions for NDA 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, money
and effort in the area of production and quality control to ensure full
technical compliance. In addition to regulations enforced by the FDA, the
Company also is subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other present and potential future
federal, state or local regulations. The Company's research and development
involves the controlled use of hazardous materials, chemicals and various
radioactive compounds. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, 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.
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For clinical investigation and marketing outside the United States, the
Company also is subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely for European countries both within, and outside, the European Union
("EU"). The Company's approach to the European regulatory process involves the
identification of clinical investigators in the member states of the EU and
other European countries to conduct clinical studies. The Company intends to
design these studies to meet FDA, EU and other European countries' standards.
Within the EU, while marketing authorizations must be supported by clinical
trial data of a type and extent set out by EU directives and guidelines, the
approval process for the commencement of clinical trials is not currently
harmonized by EU law and varies from country to country. As far as possible, the
studies will be designed to develop a regulatory package sufficient for
multi-country approval in the Company's European target markets, without the
need to duplicate studies for individual country approvals.
Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authority. At present, foreign marketing authorizations are applied
for at a national level, although within the EU certain registration procedures
are available to companies wishing to market the product in more than one EU
member state. If the regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will
be granted. The system for obtaining marketing authorizations within the EU
changed on January 1, 1995 pursuant to EU legislation recently adopted. The new
EU registration system is a dual one in which certain products, such as
biotechnology and high technology products and those containing new active
substances, will have access to a central regulatory system that provides
registration throughout the entire EU. Other products will be registered by
national authorities in individual EU member states, operating on a principle of
mutual recognition. This foreign regulatory approval process includes all of the
risks associated with FDA approval set forth above.
MANUFACTURING
The Company has no manufacturing facilities. The Company's potential
products have never been manufactured on a commercial scale. Furthermore, the
Company must rely on its collaborators, such as Bayer, P&U, Amgen, Inc.
("Amgen"), SB and Merck, Abbott, Boehringer Ingelheim, Corange, Glaxo and
Parke-Davis to manufacture potential products created by the collaborations.
Although the Company believes that it, its collaborators, or contract
manufacturers will be able to manufacture its compounds in a commercially viable
manner, there can be no assurance that such compounds can be manufactured at a
cost or in quantities necessary to make them commercially viable. If the Company
and its collaborators are unable to manufacture or contract with others for a
sufficient supply of its compounds on acceptable terms, or if they should
encounter delays or difficulties in their relationships with third party
manufacturers, the Company's preclinical and clinical testing schedule would be
delayed, resulting in a delay in the submission of products for regulatory
approval or the market introduction and subsequent sales of such products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, the Company and its collaborators
and contract manufacturers must adhere to current GMP regulations enforced by
the FDA through its facilities inspection program. If these facilities cannot
pass a pre-approval plant inspection, the FDA pre-market approval of the
products will not be granted.
MARKETING
The Company currently has no sales, marketing or distribution capability.
The Company will rely on its collaborative relationships, such as those with
Bayer, P&U, Amgen, SB, and Merck, Abbott, Boehringer Ingelheim, Corange, Glaxo
and Parke-Davis to market certain of its potential products, may enter into
future collaborations by which the Company will come to rely on the
collaboration to market its products, and may decide to market other potential
products directly. To market any of its potential products directly, the Company
must develop a marketing and sales force with technical expertise and supporting
distribution capability. There can be no assurance that the Company will be able
to establish in-house sales and distribution capabilities or relationships with
third parties, or that it will be successful in gaining market
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acceptance for its potential products. Under its existing collaborations, and to
the extent that the Company enters into future co-promotion or other licensing
arrangements, any revenues received by the Company under those collaborations
will depend upon the efforts of third parties, and there can be no assurance
that such efforts will be successful.
ADDITIONAL RISK FACTORS
Uncertainty Relating to Integration. The merger of Arris and Sequana
involves the integration of two companies that have previously operated
independently. Such integration will require significant effort from each
company during 1998, including the coordination of their research and
development and business development efforts. There can be no assurance that the
Company will integrate the respective operations of Arris and Sequana without
encountering difficulties or experiencing loss of personnel, or that the
benefits expected from such integration will be realized. The diversion of the
attention of management and any difficulties encountered in the transition
process (including the interruption of, or a loss of momentum in, the Company's
activities and problems associated with the potential loss of key personnel)
could have an adverse impact on the Company's ability to realize anticipated
benefits from the merger.
Early Stage of Development. All of the potential products of the Company
are in an early stage of research and development and will require significant
additional research and development efforts prior to any commercial use,
including extensive preclinical and clinical testing and lengthy regulatory
clearance. The time necessary to achieve market success for any individual
product is long and uncertain. There can be no assurance that the Company's
research or product development efforts or those of its collaborators will be
successfully completed or that interim milestones will be achieved, that the
current research being performed by the Company will result in the
identification of disease genes, that the identification of disease genes will
facilitate the development of potential products, that the products currently
under development by the Company will be successfully made into commercial
products, that required regulatory clearance can be obtained, that products can
be manufactured in adequate quantities at an acceptable cost and with
appropriate quality or that any approved products can be successfully marketed
or achieve customer acceptance. Commercial availability of any of the Company's
products is not expected for a number of years, if at all.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Products that appear to be promising
at early stages of development may not reach the market for a number of reasons.
Such products may be found to be ineffective or cause harmful side effects
during preclinical testing or clinical trials, may fail to receive necessary
regulatory clearance, may be difficult to manufacture on a large scale, may be
uneconomical, may fail to achieve market acceptance or may be precluded from
commercialization by proprietary rights of third parties.
Dependence on Collaborative Relationships. The Company's strategy for the
development, clinical testing, manufacturing and commercialization of certain of
its potential products includes entering into collaborations with corporate
partners, licensors, licensees and others. To date, the Company has entered into
collaborations with Amgen, Bayer, P & U, Merck, SB, Abbott, Boehringer Ingelheim
GmbH, Corange, Glaxo and Parke-Davis, and has formed a joint venture with
Memorial Sloan-Kettering, called Genos. Substantially all of the Company's
revenues to date have resulted from such collaborations, and the Company is
dependent on the activities of its collaborators with respect to the eventual
commercialization of the potential products subject to such collaborations.
The amount and timing of resources to be devoted to research, development,
eventual clinical trials and commercialization activities by the Company's
collaborators are not within the control of the Company. There can be no
assurance that such partners will perform their obligations as expected or that
the Company will derive additional revenue from such arrangements beyond the
minimum contractual commitments. Moreover, the collaboration agreements may be
terminated under certain circumstances. The Company and Glaxo are currently
renegotiating the terms of their collaboration. In addition, the research
funding phase of many of the Company's collaborations will come to an end by the
end of 1998 pursuant to the terms of the collaboration agreements, unless
continued or extended by the collaborators, and certain collaboration agreements
can be terminated in 1998 by the collaborators. The inability of the Company to
continue or renew any of these
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collaborations may have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company entered
into numerous agreements relating to the provision of tissue samples, some of
which are material to the Company. The inability of the Company to maintain or
renew these agreements may adversely affect the Company in the same manner as
described for corporate collaborators.
If any of the Company's collaborators breach or elect to terminate their
agreements with the Company or otherwise fail to conduct their collaborative
activities in a timely manner, the development or commercialization of potential
products or research programs may be delayed, and the Company may be required to
devote additional resources to product development and commercialization, or to
terminate certain development programs. There can be no assurance that disputes
will not arise in the future with respect to the ownership of rights to any
technology developed with third parties. These and other possible disagreements
between collaborators, or tissue sample providers, and the Company could lead to
delays in the achievement of milestones or receipt of payments therefor,
collaborative research, development and commercialization of certain potential
products or could require or result in litigation or arbitration, which could be
time-consuming and expensive and could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's collaborators in some cases are developing, either alone or
with others, products that may compete with the development and marketing of the
Company's potential products. In addition, some of these collaborators currently
derive substantial revenues from products that will compete with the potential
products being developed under the collaborations. Accordingly, there can be no
assurance that the collaborators will not pursue their existing or alternative
technologies in preference to diagnostic or therapeutic products being developed
in collaboration with the Company. There also can be no assurance that the
Company's collaborators will develop and market any potential products under the
collaborations.
Uncertainty Relating to Clinical Trials. Before obtaining regulatory
clearance for the commercial sale of any of its potential products under
development, the Company or its collaborators must demonstrate through
preclinical studies and clinical trials that the potential product is safe and
efficacious for use in humans for each target indication. The results from
preclinical studies and early clinical trials, however, may not be predictive of
results that will be obtained in large-scale testing, and there can be no
assurance that any clinical trials will demonstrate sufficient safety and
efficacy necessary to obtain the requisite regulatory clearance or will result
in marketable products. A number of companies in the pharmaceutical industry,
including biotechnology companies, have suffered significant setbacks in
advanced clinical trials, even after promising results in earlier trials. The
failure to adequately demonstrate the safety and efficacy of a potential product
under development could delay or prevent regulatory approval of the potential
product and would have a material adverse effect on the Company's business,
financial condition and results of operations.
Any drug is likely to produce some toxicities or undesirable side effects
in animals and in humans when administered at sufficiently high doses and/or for
sufficiently long periods of time. There can be no assurance that unacceptable
toxicities or side effects will not occur at any dose level at any time in the
course of toxicological studies or of clinical trials of potential products. The
appearance of any such unacceptable toxicities or side effects in toxicology
studies or in clinical trials could cause the Company or its collaborators or
regulatory authorities to interrupt, limit, delay or abort the development of
any potential products and could ultimately prevent clearance by the FDA or
foreign regulatory authorities for any or all targeted indications. Even after
being cleared by the FDA or foreign regulatory authorities, a product may later
be shown to be unsafe or to not have its purported effect, thereby preventing
widespread use or requiring withdrawal from the market. There can be no
assurance that any potential products under development by the Company or its
collaborators will be safe or effective when administered to patients.
The Company currently has one compound, APC 366, in clinical trials. Phase
IIa studies with APC 366 in a liquid aerosol formulation have been completed.
APC 366 is being reformulated for administration as a dry powder. Once
reformulation is accomplished, clinical trials are expected to be performed to
establish the safety and efficacy of APC 366 in the treatment of asthma. There
can be no assurance that the Company will be able to reformulate APC 366 or to
complete clinical trials of APC 366 successfully, or at all. Nor can there
17
<PAGE> 18
be any assurance that other drug candidates entering clinical trials, if any,
will successfully complete such trials or that the Company will be able to
demonstrate the safety and efficacy of such drug candidates. Clinical trial
results that show insufficient safety or efficacy could have a material adverse
effect on the Company's business, financial condition and results of operations.
Uncertainty Relating to the Company's Ability to Commercialize Gene
Discoveries. There can be no assurance that the Company's positional cloning
technology and approach to gene discovery will enable it to successfully
identify and characterize the specific genes that cause or predispose
individuals to the complex, polygenic (i.e., associated with more than one gene)
diseases that are the targets of its gene discovery programs. Even if the
Company is successful in identifying specific genes, there can be no assurance
that its gene discoveries will lead to the development of commercial products.
Once the Company identifies specific genes, it may rely upon others to complete
characterization of such genes and the Company plans to rely on others to
develop and commercialize products based upon such genes. The Company's success
will depend, in part, upon its ability to focus its research efforts on diseases
that are suitable candidates for gene-based diagnostic and therapeutic products
and that are associated with genes which may be identified and characterized
through the use of positional cloning techniques. The polygenic diseases
targeted by the Company generally are believed to be caused by a number of
genetic as well as environmental factors. There can be no assurance that such
diseases can be successfully addressed through gene-based diagnostic or
therapeutic products.
Dependence on Ability to Attract and Retain Professional Staff. The
Company is highly dependent on the principal members of its scientific and
management staff. Retaining and attracting qualified personnel, consultants and
advisors are critical to the Company's success. One major challenge facing the
combined company after the merger is to integrate the Company without losing key
personnel. There can be no assurance that the Company will successfully
integrate the respective operations without experiencing a loss of such
personnel. The loss of key personnel may adversely affect the Company.
To pursue its product research and development plans, the Company will be
required, and currently is seeking, to hire additional qualified scientific
personnel to perform research and development. Expansion in product development
and clinical testing also is expected to require the addition of management
personnel and the development of additional expertise by existing management
personnel. The Company faces intense 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 or at all.
The Company's academic collaborators are not employees of the Company. As a
result, the Company has limited control over their activities and can expect
that only limited amounts of their time will be dedicated to the activities of
the Company. The Company's academic collaborators may also have relationships
with other commercial entities, some of which could compete with the Company.
Future Capital Needs; Uncertainty of Additional Funding. The Company has
experienced significant operating losses since its inception. The Company has
not generated revenues from any products to date and expects that it will
continue to incur significant operating losses over at least the next several
years as its research and development efforts and preclinical and clinical
testing activities expand. The development of the Company's technology and
potential products will require a commitment of substantial funds to conduct the
costly and time-consuming research and preclinical and clinical testing
activities necessary to develop and optimize such technology and potential
products. The Company's future capital requirements will depend on many factors,
including continued scientific progress in the research and development of the
Company's technology and drug development programs, the ability of the Company
to establish new and maintain existing collaborations with others for product
development, and the ability to achieve any milestones under such
collaborations.
The Company expects that its existing capital resources, including research
and development revenues from existing collaborations, will enable the Company
to maintain current and planned operations for at least the next three years
(assuming appropriate adjustments if existing programs cease being funded).
However, the Company expects to raise substantial additional capital to fund its
operations before the end of this period
18
<PAGE> 19
and will need to continue to raise capital until it achieves substantial product
or royalty revenues, if ever. The Company expects that it will seek such
additional funding through new collaborations, the extension of existing
collaborations, or through public or private equity or debt financings. There
can be no assurance that additional funding will be available on acceptable
terms or at all. If additional funds are raised by issuing equity securities,
further dilution to stockholders may result. If adequate funds are not
available, the Company may be required to delay, reduce the scope of or
eliminate one or more of its research or development programs or to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or products that the
Company would otherwise seek to develop or commercialize itself.
Uncertainty Relating to Intellectual Property Rights. The Company's
success will depend in large part on its ability to obtain patents, maintain
trade secrets and operate without infringing the proprietary rights of others,
both in the United States and in other countries. The patent positions of
biotechnology and pharmaceutical companies can be highly uncertain and involve
complex legal and factual questions, and, therefore, the breadth of claims
allowed in biotechnology and pharmaceutical patents or their enforceability
cannot be predicted. There is substantial uncertainty regarding the
patentability of gene fragments or genes without known function. In addition,
the Company's ability to obtain patent protection on genes which the Company
identifies and characterizes, or products based on such genes, is uncertain.
There can be no assurance that any of the Company's patents, if issued, will not
be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to the
Company.
The commercial success of the Company also will depend, in part, on the
Company not infringing patents issued to others and not breaching the technology
licenses upon which any of the Company's potential products are based. A number
of pharmaceutical companies, biotechnology companies, universities and research
institutions have filed patent applications or received patents in the areas of
the Company's programs. Since patent applications in the United States are filed
in secrecy until the patent's issue, patent applications filed by others
relating to the Company's potential products or technology may currently be
pending. Some of these applications or patents may limit or preclude the
Company's applications, or conflict in certain respects with claims made under
the Company's patents, if issued. Furthermore, the Company has in the past been,
and the Company may from time to time in the future be, notified of claims that
the Company may be infringing patents or other intellectual property rights
owned by third parties. The Company's breach of an existing license or failure
to obtain a license to technology required to commercialize its potential
products could have a material adverse impact on the Company's business,
financial condition or results of operations.
Litigation, which could result in substantial costs to the Company, also
may be necessary to enforce any patents issued to the Company or to determine
the scope and validity of third-party proprietary rights. 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 ("PTO") to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable. The Company may also have to
participate in interference proceedings declared by foreign regulatory
authorities with respect to patents issued by or patent applications filed in
foreign jurisdictions. An adverse outcome could subject the Company to
significant liabilities to third parties and require the Company to license
disputed rights from third parties or to cease using such technology.
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its 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.
Governmental Regulation; No Assurance of Regulatory Clearance. Prior to
marketing in the United States, any diagnostic or therapeutic product developed
by the Company or its collaborators must undergo
19
<PAGE> 20
rigorous preclinical and clinical testing and an extensive regulatory approval
process implemented by the FDA under the federal Food, Drug and Cosmetic Act.
Satisfaction of such regulatory requirements, which includes satisfying the FDA
that the product is both safe and effective, typically takes many years,
depending upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources. Preclinical studies must be conducted in
conformity with the FDA's good laboratory practice regulations. Before
commencing clinical investigations in humans, the Company or its collaborators
must submit to and receive approval from the FDA of an IND. There can be no
assurance that submission of an IND would result in FDA authorization to
commence clinical trials. Clinical testing must meet requirements for
institutional review board oversight, informed consent and good clinical
practice requirements and is subject to continuing FDA oversight. The Company
does not have extensive experience in conducting and managing the clinical
testing necessary to obtain regulatory approval. Clinical trials may require
large numbers of test subjects. Furthermore, the Company, its collaborators or
the FDA may suspend clinical trials at any time if it is believed that the
subjects participating in such trials are being exposed to unacceptable health
risks or the FDA finds deficiencies in the IND or the conduct of the
investigation. Further, FDA regulations subject sponsors of clinical
investigations to numerous regulatory requirements, including, among other
requirements, selection of qualified investigators, proper monitoring of the
investigations, recordkeeping and record retention, and ensuring that FDA and
all investigators are promptly informed of significant new adverse effects or
risks with respect to the drug, as well as other ongoing reporting requirements.
Before receiving FDA approval to market a product, the Company or its
collaborators will also have to demonstrate that the product is safe and
effective on the patient population that will be treated. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
that could delay, limit or prevent regulatory clearance. In addition, delays or
rejections may be encountered based upon additional government regulation from
future legislation or administrative action or changes in FDA policy during the
period of product development, clinical trials and FDA regulatory review.
Similar delays also may be encountered in foreign countries. There can be no
assurance that even after such time and expenditures, regulatory clearance will
be obtained for any products developed by the Company and its collaborators. If
regulatory clearance of a product is granted, such clearance will be limited to
those disease states and conditions for which the product is useful, as
demonstrated through clinical studies. Marketing or promoting a drug for an
unapproved indication is prohibited. Furthermore, clearance may entail ongoing
requirements for postmarketing studies. Even if regulatory clearance is
obtained, the marketed product, the manufacturer and the manufacturing
facilities are subject to continual review and periodic inspections by the FDA.
Discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
costly recalls or withdrawal of the product from the market.
There can be no assurance that any product developed by the Company alone
or in conjunction with others will prove to be safe and efficacious in clinical
trials and will meet all of the applicable regulatory requirements needed to
receive and maintain marketing approval.
Uncertainty of Pharmaceutical Pricing, Health Care Reform and Related
Matters. The business and financial condition of pharmaceutical and
biotechnology companies will continue to be affected by the efforts of
governmental and third-party payors to contain or reduce the cost of health
care. 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. In
addition, an increasing emphasis on managed care in the United States has and
will continue to increase the pressure on pharmaceutical pricing. Although the
Company cannot predict whether any such legislative or regulatory proposals will
be adopted or the effect such proposals or managed care efforts may have on its
business, the announcement of such proposals or efforts could have a material
adverse effect on the Company's ability to raise capital, and the adoption of
such proposals or efforts could have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or efforts have a material adverse effect on other
pharmaceutical companies that are prospective collaborators with the Company,
the Company's ability to establish or maintain a strategic alliance may be
adversely affected.
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<PAGE> 21
In both domestic and foreign markets, sales of the Company's potential
products will depend in part on the availability of reimbursement from
third-party payors, such as government health administration authorities,
private health insurers and other organizations. Third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products. There can be no assurance that the
Company's potential products will be considered cost-effective or that adequate
third-party reimbursement will be available to enable the Company to maintain
price levels sufficient to realize an appropriate return on its investment in
product development.
No Assurance of Market Acceptance. There can be no assurance that, if
cleared for marketing, any of the Company's potential products will achieve
market acceptance. The degree of market acceptance will depend upon a number of
factors, including the receipt of regulatory approvals, the establishment and
demonstration in the medical community of the clinical efficacy and safety of
the Company's product candidates and their potential advantages over existing
treatment methods and reimbursement policies of government and third-party
payors. There is no assurance that physicians, patients, payors or the medical
community in general will accept and utilize any products that may be developed
by the Company.
Risks of Product Liability; Uncertain Availability of Insurance. The use
of any of the Company's potential products in clinical trials, manufacturing and
marketing and the sale of any approved products may expose the Company to
liability claims resulting from the use of such products. These claims might be
made directly by consumers, pharmaceutical companies or others. The Company
maintains product liability insurance coverage for claims arising from the use
of its products. However, coverage is becoming increasingly expensive. No
assurance can be given that the Company or its collaborative partners will be
able to obtain and maintain commercially reasonable product liability insurance
or, if maintained, that such insurance will be in sufficient amounts to protect
the Company against losses due to liability. A successful product liability
claim or series of claims brought against the Company could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Hazardous Materials. The Company's research and development programs
involve the controlled use of hazardous materials, chemicals and various
radioactive compounds. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, 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
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Anti-takeover Provisions. The Company's Certificate of Incorporation and
Bylaws require that any action required or permitted to be taken by stockholders
of the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent. Special meetings of the
stockholders of the Company may be called only by the Company's Board of
Directors, the Chairman of the Board of Directors or the President of the
Company. These and other charter provisions may discourage certain types of
transactions involving an actual or potential change in control of the Company,
including transactions in which the stockholders might otherwise receive a
premium for their shares over then current prices, and may limit the ability of
the stockholders to approve transactions they may deem to be in their best
interests. In addition, the Board of Directors of the Company has the authority,
without action by the stockholders, to fix the rights and preferences of and to
issue shares of Preferred Stock, which also may have the effect of delaying or
preventing a change in control of the Company.
Price Volatility in Public Market. The securities markets have from time
to time experienced significant price and volume fluctuations that may be
unrelated to the operating performance of particular companies. In addition, the
market price of the common stock of many publicly traded biopharmaceutical
companies has in the past been, and can in the future be expected to be,
especially volatile. Announcements of technological innovations or new products
of the Company or its competitors, developments or disputes concerning patents
or proprietary rights, publicity regarding actual or potential medical results
relating to products under
21
<PAGE> 22
development by the Company or its competitors, regulatory developments in both
the United States and foreign countries, public concern as to the safety of
biopharmaceutical products and economic and other external factors, as well as
period-to-period fluctuations in the Company's operating and product development
results, may have a significant impact on the market price of the Company's
Common Stock.
The Company's Common Stock currently trades on the Nasdaq National Market.
See "Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters."
Absence of Dividends. The Company has not paid any cash dividends since
its inception and does not intend to pay any cash dividends in the foreseeable
future.
EMPLOYEES
As of the date of the acquisition, AXYS employed 395 individuals, of whom
119 hold Ph.D. or M.D. degrees and 66 hold other advanced degrees. Approximately
335 employees are engaged in research and development activities, including a
variety of disciplines within the areas of molecular biology and other
biological sciences, medicinal chemistry, genomics and genetics, bioinformatics,
computer sciences and clinical development. Approximately 60 employees are
employed in finance, corporate development and general administrative
activities. None of the Company's employees is covered by collective bargaining
agreements, and management considers relations with its employees to be good.
Additionally, AXYS augments its full time staff through part-time consulting
arrangements with experienced, professional scientists and managers.
ITEM 2. PROPERTIES
AXYS currently occupies approximately 208,000 square feet, which is made up
of leased laboratory, support and administrative space located primarily in
South San Francisco and La Jolla California. Leases expire as follows: July and
October 1999 with respect to approximately 10,800 square feet, October and
December 2001 with respect to approximately 104,300 square feet, August 2006
with respect to approximately 82,900 square feet and March 2009 with respect to
approximately 10,000 square feet. In addition to the above listed facilities,
the Company is subleasing approximately 32,000 square feet to an unrelated third
party, with the lease and sublease expiring in July 2005, and approximately 4400
square feet to a joint venture partner, with the sublease in December 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matters were submitted to a vote of
the stockholders.
On January 7, 1998, the Company held a special meeting of the stockholders
of Arris. The following actions were taken at the meeting:
1.) A proposal to approve the issuance of shares of Arris common stock
pursuant to the Agreement and Plan of Merger and Reorganization, dated as of
November 2, 1997, among Arris, Beagle Acquisition Sub, Inc., a California
corporation and wholly owned subsidiary of Arris ("Merger Sub"), and Sequana
(the "Reorganization Agreement"): 8,286,232 shares were voted in favor of the
proposal, 2,120,296 shares were voted against the proposal, 59,179 shares
abstained, and 4,705,793 shares were broker non-votes.
2.) A proposal to approve the Certificate of Amendment to the Amended and
Restated Certificate of Incorporation of Arris to increase the total number of
shares of capital stock authorized for issuance to 60,000,000 and the number of
shares of common stock authorized for issuance to 50,000,000. The amendment also
changed the name of the corporation to AxyS Pharmaceuticals, Inc. The amendment
also merged a wholly owned subsidiary of Arris with and into Sequana, pursuant
to the Reorganization Agreement:
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<PAGE> 23
8,486,832 shares were voted in favor of the proposal, 2,081,352 shares voted
against the proposal, 79,238 shares abstained, and 4,530,038 shares were broker
non-votes.
3.) A proposal to approve the 1997 Equity Incentive Plan: 8,082,193 shares
were voted in favor of the proposal, 2,219,594 shares voted against the
proposal, 163,965 shares abstained, and 4,705,793 shares were broker nonvotes.
4.) A proposal to approve the 1994 Non-Employee Director's Stock Option
Plan, as amended to increase the number of shares of Common Stock authorized for
issuance under the plan by 350,000 shares: 8,797,288 shares were voted in favor
of the proposal, 1,553,214 shares voted against the proposal, 170,275 shares
abstained, and 4,650,723 shares were broker non-votes.
5.) A proposal to approve the Employee Stock Purchase Plan, as amended to
increase the number of shares of Common Stock authorized for issuance under the
plan by 400,000 shares: 8,868,164 shares were voted in favor of the proposal,
1,678,331 shares voted against the proposal, 156,282 shares abstained, and
4,468,723 shares were broker non-votes.
On January 7, 1998, the following matters were submitted to a vote of the
stockholders at a special meeting of the stockholders of Sequana:
A proposal to (i) adopt and approve the Reorganization Agreement, and
(ii) approve the merger of Merger Sub with and into Sequana pursuant to
which Sequana will become a wholly owned subsidiary of Arris: 6,243,520
shares were voted in favor of the proposal, 462,182 shares voted against
the proposal, 3,937 shares abstained, and 3,789,767 shares were broker
non-votes.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Arris' Common Stock began trading on the Nasdaq National Market under the
symbol "ARRS" on November 19, 1993. Prior to that date, there was no public
market for the Company's Common Stock. The following table sets forth, for the
periods indicated, the high and low sales prices of the Common Stock reported on
the Nasdaq National Market. These over-the-counter quotations reflect
inter-dealer prices, without retail markup, markdown or commission, and may not
necessarily represent the sales prices in actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter............................................... $19.50 $12.50
Second Quarter.............................................. 17.25 11.38
Third Quarter............................................... 14.50 9.50
Fourth Quarter.............................................. 16.25 12.25
1997
First Quarter............................................... $15.88 $12.13
Second Quarter.............................................. 14.00 9.50
Third Quarter............................................... 15.63 11.38
Fourth Quarter.............................................. 14.00 7.50
</TABLE>
On January 12, 1998, the Company's Common Stock began trading on the Nasdaq
National Market under the symbol "AXPH." On March 20, 1998, the last sale price
reported on the Nasdaq National Market for the Company's Common Stock was $8.88
per share.
HOLDERS
As of February 28, 1998, there were approximately 696 stockholders of
record of the Company's Common Stock.
DIVIDENDS
The Company has not paid dividends on its Common Stock and currently does
not plan to pay any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
On November 4, 1997, Sequana issued 151,297 shares of Common Stock, valued
at $2,000,000, to Warner-Lambert Company ("Warner"), in connection with the
collaboration agreement dated October 31, 1997 between Sequana and Parke-Davis.
The issuance and sale of such shares was intended to be exempt from
registration and prospectus delivery requirements under the Securities Act of
1933, as amended (the "Securities Act"), by virtue of Section 4(2) thereof due
to, among other things, (i) the limited number of persons to whom the shares
were issued, (ii) the distribution of disclosure documents to the investor,
(iii) the fact that such person represented and warranted to the Company, among
other things, that such person was acquiring the shares for investment only and
not with a view to the resale or distribution thereof, and (iv) the fact that
certificates representing the shares were issued with a legend to the effect
that such shares had not been registered under the Securities Act or any state
securities laws and could not be sold or transferred in the absence of such
registration or an exemption therefrom.
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ITEM 6. SELECTED FINANCIAL DATA
ARRIS PHARMACEUTICAL CORPORATION
The data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data" which is included
elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS:
Contract revenues......................... $ 2,542 $ 8,304 $ 16,727 $21,560 $ 24,814
Operating expenses:
Research and development.................. 8,910 13,155 14,689 24,319 31,050
General and administrative................ 2,283 4,010 4,247 5,409 7,153
Acquired in-process research and
development............................. -- -- 22,514 230 --
------- ------- -------- ------- --------
Total operating expenses.................. 11,193 17,165 41,450 29,958 38,203
------- ------- -------- ------- --------
Operating loss............................ (8,651) (8,861) (24,723) (8,398) (13,389)
Interest income (expense), net............ 172 522 990 2,470 2,422
------- ------- -------- ------- --------
Net loss.................................. $(8,479) $(8,339) $(23,733) $(5,928) $(10,967)
------- ------- -------- ------- --------
Net loss per share, basic and diluted..... $ (2.10) $ (0.97) $ (2.71) $ (0.45) $ (0.73)
Weighted average number of shares used in
computing basic and diluted net loss per
share................................... 4,031 8,570 8,745 13,177 15,025
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
investments.......................... $ 25,610 $ 30,070 $ 31,105 $ 66,720 $ 53,408
Total assets........................... 31,063 34,786 40,293 80,832 73,584
Long-term obligations.................. 3,352 7,645 16,490 10,676 15,331
Accumulated deficit.................... (24,804) (33,298) (56,876) (62,804) (73,771)
Total stockholders' equity............. 21,654 13,425 7,278 52,900 43,890
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from the
results discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section as
well as under "Item 1. Business," including, "Additional Risk Factors."
OVERVIEW
Since its inception in April 1989, the Company has devoted substantially
all of its resources to its research and development programs. To date, the
Company's primary source of revenue has been its corporate collaborations with
P&U, Amgen, Bayer, SB, Merck, and Abbott. 1997 marked the first time that the
Company received revenue from sales of its combinatorial chemistry compounds, to
P&U. The Company's collaborations have taken a variety of forms including in
each case, certain of the following elements: payments to the Company of an
up-front fee, purchase of an equity position in the Company, research funding
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<PAGE> 26
payments, milestone payments, and royalties upon the sale of any resulting
products. Where appropriate, the up-front fees have been recorded as deferred
revenue until earned.
In December 1997, the Company announced a new collaboration with
Bristol-Myers Squibb ("BMS") to develop protease inhibitors to prevent the
growth and spread of hepatitis C virus infection. The collaboration provides for
an up-front fee, research funding over the initial three-year term, bench mark
payments upon the achievement of mutually agreed upon milestones, and royalties
upon the sale of any resulting products.
As discussed in "Item 1, Business", on January 8, 1998, Arris acquired
Sequana. Since that time Arris has operated as AXYS Pharmaceuticals, Inc. Thus,
the financial results contained in "Item 8. Financial Statements and
Supplementary Data" reflect the financial results of Arris only, and do not
include the effects of the acquisition of Sequana. However, the discussion
contained herein will, where appropriate, include effects of the acquisition
going forward.
The Company has not been profitable since inception and expects to incur
substantial losses for at least the next several years, primarily due to the
cost of its research and development programs, including preclinical studies and
human clinical trials. The Company expects that losses will fluctuate from
quarter to quarter, that such fluctuations may be substantial and that results
from prior quarters may not be indicative of future operating results. As of
December 31, 1997, the Company's accumulated deficit was approximately $73.8
million.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
Contract Revenues
The Company's contract revenues increased to $24.8 million for the year
ended December 31, 1997, from $21.6 million in 1996. All of the Company's
revenues for the year ended December 31, 1997 are attributable to collaborations
with P&U, Amgen, Bayer, SB, Merck, Abbott and BMS. The increase in 1997 was
primarily due to (i) the inclusion of a full year of research and development
funding support under a collaboration with Merck, which commenced in November
1996, to develop small molecule inhibitors of proteases involved in
osteoporosis; (ii) the shipment of small molecule synthetic organic compounds
under the combinatorial chemistry collaboration with P&U, which commenced in
March 1996 (250,000 total compounds are due under the three-year agreement, of
which approximately 100,000 were shipped); (iii) additional research funding
under a collaboration with P&U for the Xa project, which commenced in September
1995; (iv) the commencement of the collaboration with BMS to develop small
molecule inhibitors of proteases involved in hepatitis C virus infection; (v)
the commencement of the collaboration with Abbott to transfer to Abbott
specialized drug discovery technologies for application by Abbott in an
undisclosed proprietary research program; and (vi) the inclusion of a full year
of research and development funding support under a collaboration with SB, which
commenced in June 1996, to develop inhibitors using AXYS' proprietary Delta
Technology to target intracellular viral proteases. The increases were partially
offset by lower revenues recognized under the erythropoietin collaboration with
Amgen, the human growth hormone collaboration with P&U and the oral tryptase
inhibitor collaboration with Bayer, in which the research funded portion of each
of these agreements ended during 1997.
Research and Development
The Company's research and development expenses increased to $31.1 million
for the year ended December 31, 1997, from $24.3 million in 1996, primarily due
to the expansion of the Company's research efforts in new and existing programs,
the expense of two phase IIa clinical trials of APC-366 and investments in
proprietary programs. Research and development expenses as a percentage of total
operating expenses have remained constant at approximately 81% for the year
ended December 31, 1997, compared to the same period in 1996.
26
<PAGE> 27
General and Administrative
The Company's general and administrative expenses increased to $7.2 million
for the year ended December 31, 1997, from $5.4 million in 1996, primarily due
to increased support associated with the Company's expanded research and
development efforts, and the expansion of the Company's facilities and business
development activities. In spite of the overall increase, general and
administrative expenses as a percentage of total expenses have remained constant
at approximately 19% for the year ended December 31, 1997, compared to the same
period in 1996.
Interest Income and Interest Expense
Interest income increased to $3.4 million for the year ended December 31,
1997, from $3.1 million for the same period in 1996. The increase was primarily
due to the increase in average cash balances between the periods, resulting from
the receipt of up-front fees collected under new collaborations and the
collection of revenues from the shipment of compounds under the collaboration
with P&U. Interest expense increased to $1.0 million for the year ended December
31, 1997, from $670,000 in the same period in 1996. The increase was primarily
due to the higher debt balances carried from the previous line of credit with
Bank of America and the Company's new lending arrangement with Sumitomo Bank and
Silicon Valley Bank, discussed below. The Company has used draw downs from its
lending arrangements for capital equipment acquisitions.
Income Tax
The Company incurred a net operating loss in 1997 and, accordingly, no
provision for federal or state income taxes was recorded. As of December 31,
1997, the Company had federal and state net operating tax loss carryforwards of
approximately $26.6 million. The Company's ability to utilize its net operating
loss carryforwards may be subject to an annual limitation in future periods
pursuant to the "change in ownership rules" under Section 382 of the Internal
Revenue Code of 1986, as amended.
OUTLOOK
The following outlook discussion is based on the combined pro forma
operating results (see table below) of the Company and Sequana as if the
acquisition had been effective as of December 31, 1996.
PRO FORMA OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
(IN
THOUSANDS)
--------------
<S> <C>
Revenues.................................................... $ 44,399
Operating expenses:
Research and development.................................. 60,961
General and administrative................................ 12,546
--------
Total operating expenses.................................... 73,507
--------
Operating Loss.............................................. $(29,108)
========
</TABLE>
Revenues
Sequana's revenues for the year ended December 31, 1997 were $19.6 million
and were attributable to its corporate collaborations, primarily with Boehringer
Ingelheim International GmbH, Corange, Parke-Davis and Glaxo. In November 1997,
Sequana announced that Sequana and Glaxo are renegotiating the terms of their
collaboration.
Research and Development
Research and development expenses for Sequana for the year ended December
31, 1997 were approximately $29.9 million. The Company expects to continue to
expand its own existing research programs
27
<PAGE> 28
as well as those of Sequana; therefore, research and development expenses in
1998 are expected to increase as expanded research efforts continue at both
locations.
General and Administrative
General and administrative expenses for Sequana in 1997 were approximately
$5.3 million. The Company expects general and administrative expenses to
increase as research and development activities increase, in order to support
that effort. In addition to the support of the research effort of the newly
combined company, the Company is also anticipating costs associated with the
integration of the two companies. These costs will primarily be charged to
general and administrative functions. However, there are some costs, estimated
to be approximately $1.0 to $3.0 million that may be eliminated.
Acquired In-Process Research and Development
In connection with the Company's acquisition of Sequana on January 8, 1998,
a portion of the purchase price will be allocated to the assets acquired and
liabilities assumed based upon their fair values at the date of acquisition,
including in-process research and development, which will be expensed in the
first quarter ending March 31, 1998. The fair value of these amounts were based
upon an independent valuation. The acquisition was a tax-free reorganization
accounted for as a purchase.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Contract Revenues
The Company's contract revenues increased to $21.6 million for the year
ended December 31, 1996, from $16.7 million in 1995. The increase was due to (i)
the inclusion of a full year of research and development funding support under a
collaboration with P&U, which commenced in August 1995, for the treatment of
blood clotting disorders; (ii) the commencement of the collaboration with P&U in
March 1996, to use combinatorial chemistry to create probe libraries consisting
of 250,000 small molecule synthetic organic compounds; (iii) the commencement of
the collaboration with SB in June 1996, to develop inhibitors using the
Company's proprietary Delta Technology targeting intracellular viral proteases;
(iv) a milestone payment from Bayer in September 1996 for the development of a
tryptase inhibitor for the treatment of asthma; and (v) the commencement of the
collaboration with Merck in November 1996 to develop small molecule inhibitors
of proteases involved in osteoporosis.
Research and Development
The Company's research and development expenses increased to $24.3 million
for the year ended December 31, 1996, from $14.7 million in 1995, primarily due
to the expansion of the Company's research efforts in new and existing programs
and the expenses of programs and facilities added as part of the December 22,
1995 acquisition of Khepri Pharmaceuticals, Inc. ("Khepri") (see "Acquired
in-process research and development" below). Research and development expenses
increased as a percentage of total expenses (without the consideration of
acquired in-process research and development expenses of $230,000 and $22.5
million in 1996 and 1995, respectively) to 82% in 1996, from 78% in 1995.
General and Administrative
The Company's general and administrative expenses increased to $5.4 million
for the year ended December 31, 1996, from $4.2 million in 1995, primarily due
to the addition of programs added as a result of the acquisition of Khepri (see
"Acquired in-process research and development" below), the addition of general
and administrative personnel in support of the Company's expanded research and
development efforts, and the expansion of the Company's facilities, as well as
business development activities. In spite of the overall increase, general and
administrative expenses as a percentage of total expenses (without the
consideration of acquired in-process research and development expenses of
$230,000 and $22.5 million in 1996 and 1995, respectively) decreased to 18% in
1996, from 22% in 1995.
28
<PAGE> 29
Acquired In-Process Research and Development
On December 22, 1995 the Company acquired Khepri Pharmaceuticals, Inc.
("Khepri"), a development stage company focused on the discovery of therapeutic
inhibitors of cysteine proteases. The acquisition was a tax-free reorganization
accounted for as a purchase. The purchase price was allocated to acquired assets
and assumed liabilities based upon the fair value at the date of acquisition.
Approximately $230,000 and $22.5 million of the purchase price was allocated to
in-process research and development and charged to expense at December 31, 1996
and 1995, respectively.
Interest Income and Interest Expense
Interest income increased to $3.1 million for the year ended December 31,
1996, from $1.3 million in 1995. The increase was largely due to the higher
average cash balances in 1996 resulting from receipt of net proceeds of
approximately $36.2 million from the follow-on public offering of 3,000,000
shares of the Company's common stock, which closed on March 27, 1996, and
approximately $5.5 million from the exercise on April 24, 1996 by the
underwriters of the over allotment option in the offering of 450,000 shares, and
from the receipt of a milestone fee from an existing collaboration and up-front
fees collected under new collaborations. Interest expense increased to $670,000
for the year ended December 31, 1996, from $312,000 in 1995, as a result of
higher average debt balances incurred to finance the expansion of the Company's
facilities and acquisition of lab equipment.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
private and public offerings of its capital stock and through corporate
collaborations. As of December 31, 1997, the Company had realized approximately
$93 million in net proceeds from offerings of its capital stock. In addition,
the Company has realized $79 million since inception from its corporate
collaborations (excluding the $5.4 million equity investment in the Company made
by P&U).
The Company's principal sources of liquidity are its cash and investments,
which totaled $53.4 million as of December 31, 1997. In September 1997, the
Company arranged for a $20 million credit facility with Sumitomo Bank and
Silicon Valley Bank, jointly, replacing the previous line of credit with Bank of
America. This new line of credit is available through August 1998. As of
December 31, 1997, the Company had borrowed $13.8 million and had $6.2 million
remaining available under this line of credit.
Operating activities used $14.5 million of cash during the year ended
December 31, 1997, compared to $5.7 million for the same period in 1996.
Purchase of property and equipment of $6.3 million was expended during the year
ended December 31, 1997, compared to $6.9 million for the same period in 1996.
The Company's revenues in 1997 were attributable to collaborations with
P&U, Amgen, Bayer, SB, Merck, Abbott and BMS. The research phase of the PNU
human growth hormone collaboration concluded in December 1997. The research
phase of the Amgen erythropoietin collaboration concluded in February 1997. In
December 1997 SB notified the Company that it would continue the proof of
concept phase of the collaboration for targeting intracellular viral proteases
using only SB's own internal researchers. That phase will conclude in June 1998.
The research phase of the Xa project with P&U is scheduled to continue through
July 1998. However, the Company and P&U are currently in discussions regarding
the future course of development in the program area. The Company's remaining
collaborations extend 12 months beyond December 1997. If the Company is unable
to renew any of these collaborations, it could have a material adverse effect on
the Company's business, financial condition and results of operation. The cash
received by the Company under all collaborations for the year ended December 31,
1997 was approximately $16.8 million. This amount included the license fee from
Abbott in connection with the transfer of specialized drug discovery
technologies for application by Abbott in an undisclosed proprietary research
program, which commenced in 1997; a portion of the up-front payment from BMS in
connection with the development of small molecule inhibitors of proteases
involved in hepatitis C virus infection; and research funding from the on-going
collaborations. There can be no assurance that the research support or any
milestone payments will be realized on a timely basis or at all.
29
<PAGE> 30
OUTLOOK
The Company and Sequana have both financed their operations since inception
primarily through private and public offerings of their capital stock and
through corporate collaborations. Sequana also had a lending arrangement with
Sumitomo bank for a $7 million line of credit. The balance outstanding under the
line at the closing date of the acquisition was $7 million. The principal source
of liquidity for the consolidated company will be its cash and investments,
which would have been $101.5 million on a pro forma basis as of December 31,
1997.
The Company expects that its existing capital resources, including research
and development revenues from existing collaborations, will enable the Company
to maintain current and planned operations for at least three years. The Company
anticipates that it will need to raise substantial additional capital to fund
its operations beyond that period. The Company expects that it will seek such
additional funding through new collaborations, through the extension of existing
collaborations, or through public or private equity or debt financing. There can
be no assurance that additional financing will be available on acceptable terms
or at all. If additional funds are raised by issuing equity securities, further
dilution to stockholders may result. If adequate funds are not available, the
Company may be required to delay, reduce the scope of or eliminate one or more
of its research or development programs or to obtain funds through arrangements
with collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or products that the Company would
otherwise seek to develop or commercialize itself.
IMPACT OF THE YEAR 2000
The Company has initiated modification of its information technology
systems to recognize the year 2000 and has begun converting critical hardware
and data processing systems. The Company expects the project to be substantially
complete by early 1999. The Company does not expect this project to have a
significant effect on operations, and the costs of modification are expected to
be insignificant. The Company is in the process of replacing its finance
information system which will be year 2000 compliant. In addition, the Company
is evaluating significant vendors and other third parties which could have an
effect on the Company's operations to ensure Year 2000 compliance by such
vendors and third parties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
30
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 , 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of Independent Auditors.............................. 32
Consolidated Balance Sheets................................. 33
Consolidated Statements of Operations....................... 34
Consolidated Statement of Stockholders' Equity.............. 35
Consolidated Statements of Cash Flows....................... 36
Notes to Consolidated Financial Statements.................. 38
</TABLE>
31
<PAGE> 32
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
AXYS Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of AXYS
Pharmaceuticals, Inc. (formerly Arris Pharmaceutical Corporation) as of December
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 consolidated financial position of AXYS
Pharmaceuticals, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Palo Alto, California
February 6, 1998
32
<PAGE> 33
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 22,938 $ 10,822
Short-term marketable investments......................... 30,470 37,021
Prepaid expenses and other current assets................. 4,103 2,217
-------- --------
Total current assets........................................ 57,511 50,060
Marketable investments...................................... -- 11,627
Restricted cash and investments............................. -- 7,250
Property and equipment, net................................. 14,454 10,446
Note receivable from officer................................ 775 750
Other assets................................................ 844 699
-------- --------
$ 73,584 $ 80,832
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,622 $ 1,439
Accrued compensation...................................... 1,793 1,480
Other accrued liabilities................................. 2,148 1,570
Current portion of deferred revenue....................... 5,410 10,783
Current portion of notes payable and capital lease
obligations............................................ 3,390 1,984
-------- --------
Total current liabilities................................... 14,363 17,256
Noncurrent portion of deferred revenue...................... 726 1,973
Noncurrent portion of notes payable and capital lease
obligations............................................... 14,605 8,703
COMMITMENTS
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, none issued or outstanding................. -- --
Common stock, $0.001 par value; 30,000,000 shares
authorized, 15,203,089 shares and 14,831,975 shares
issued and outstanding at December 31, 1997 and 1996,
respectively........................................... 117,786 115,904
Note receivable from officer................................ (125) (200)
Accumulated deficit......................................... (73,771) (62,804)
-------- --------
Total stockholders' equity.................................. 43,890 52,900
-------- --------
$ 73,584 $ 80,832
======== ========
</TABLE>
33
<PAGE> 34
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Contract revenue......................................... $ 24,814 $ 21,560 $ 16,727
Operating expenses:
Research and development............................... 31,050 24,319 14,689
General and administrative............................. 7,153 5,409 4,247
Acquired in-process research and development........... -- 230 22,514
-------- -------- --------
Total operating expenses................................. 38,203 29,958 41,450
-------- -------- --------
Operating loss........................................... (13,389) (8,398) (24,723)
Interest income.......................................... 3,436 3,140 1,302
Interest expense......................................... (1,014) (670) (312)
-------- -------- --------
Net loss................................................. $(10,967) $ (5,928) $(23,733)
======== ======== ========
Basic and diluted net loss per share..................... $ (0.73) $ (0.45) $ (2.71)
======== ======== ========
Shares used in computing basic and diluted net loss per
share.................................................. 15,025 13,177 8,745
======== ======== ========
</TABLE>
See accompanying notes.
34
<PAGE> 35
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK NOTE TOTAL
--------------------- RECEIVABLE DEFERRED ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT FROM OFFICER COMPENSATION DEFICIT EQUITY
---------- -------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994................ 8,634,918 $ 47,102 $(200) $(179) $(33,298) $ 13,425
Exercise of options to purchase common
stock at $0.35-$7.00 per share........... 74,484 162 -- -- -- 162
Issuance of common stock at $4.89-$11.50
per share (net of repurchases) for cash
and services............................. 44,915 281 -- -- -- 281
Issuance of common stock and value of
options and warrants issued in connection
with the acquisition of Khepri
Pharmaceuticals, Inc..................... 1,414,759 16,844 -- -- -- 16,844
Amortization of deferred compensation...... -- -- -- 144 -- 144
Recovery of unrealized loss on securities
held as available-for-sale............... -- -- -- -- 155 155
Net loss................................... -- -- -- -- (23,733) (23,733)
---------- -------- ----- ----- -------- --------
Balances at December 31, 1995................ 10,169,076 64,389 (200) (35) (56,876) 7,278
Exercise of options and a warrant to
purchase common stock at $0.32-$13.02 per
share.................................... 466,088 1,425 -- -- -- 1,425
Issuance of common stock at $13.00 per
share net of issuance costs of $3,138.... 3,450,000 41,712 -- -- -- 41,712
Issuance of common stock at $4.89 to $9.46
per share in connection with the Employee
Stock Purchase Plan...................... 66,692 393 -- -- -- 393
Issuance of common stock in connection with
the exercise of the Arris Canada minority
interest option.......................... 161,418 1,800 -- -- -- 1,800
Issuance of common stock in connection with
the acquisition of Khepri
Pharmaceuticals, Inc..................... 518,701 6,185 -- -- -- 6,185
Amortization of deferred compensation...... -- -- -- 35 -- 35
Net loss................................... -- -- -- -- (5,928) (5,928)
---------- -------- ----- ----- -------- --------
Balances at December 31, 1996................ 14,831,975 115,904 (200) -- (62,804) 52,900
Exercise of options and a warrant to
purchase common stock at $0.35-$12.40 per
share.................................... 313,000 1,327 -- -- -- 1,327
Issuance of common stock at $9.46 to $10.20
per share in connection with the Employee
Stock Purchase Plan...................... 58,114 555 -- -- -- 555
Forgiveness of note receivable............. -- -- 75 -- -- 75
Net loss................................... -- -- -- -- (10,967) (10,967)
---------- -------- ----- ----- -------- --------
Balances at December 31, 1997................ 15,203,089 $117,786 $(125) $ -- $(73,771) $ 43,890
========== ======== ===== ===== ======== ========
</TABLE>
See accompanying notes.
35
<PAGE> 36
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................. $(10,967) $ (5,928) $(23,733)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 4,183 3,859 2,454
Loss on disposal of fixed assets....................... -- 209 --
Stock issued and issuable for services................. -- 35 98
Acquired in-process research and development........... -- 230 22,514
Forgiveness of note receivable from officer............ 75 -- --
Changes in assets and liabilities:
Prepaid expenses and other current assets........... (1,886) (1,419) 742
Other assets........................................ (345) (657) (31)
Accounts payable.................................... 183 567 347
Accrued compensation................................ 313 (238) 27
Accrued merger costs................................ -- (762) --
Other accrued liabilities........................... 578 (319) 810
Deferred revenue.................................... (6,620) (1,301) (2,274)
-------- -------- --------
Net cash and cash equivalents (used in) provided by
operating activities................................... (14,486) (5,724) 954
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for-sale-securities:
Purchases.............................................. (22,092) (11,628) (8,808)
Maturities............................................. 3,249 -- 16,853
Held-to-maturity securities:
Purchases.............................................. (9,683) (74,458) (7,890)
Maturities............................................. 46,704 46,837 3,506
Purchase of restricted cash and investments.............. 7,250 (7,250) --
Acquisition, net of cash balances........................ -- -- 2,266
Expenditures for property and equipment.................. (6,297) (6,881) (3,827)
-------- -------- --------
Net cash and cash equivalents provided by (used in)
investing activities................................... 19,131 (53,380) 2,100
-------- -------- --------
</TABLE>
36
<PAGE> 37
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock............... $ 1,882 $ 43,495 $ 345
Proceeds from issuance of note payable and capital lease
obligations............................................ 19,115 9,164 2,707
Principal payments on note payable and capital lease
obligations............................................ (13,526) (4,439) (1,565)
-------- -------- --------
Net cash and cash equivalents provided by financing
activities............................................. 7,471 48,220 1,487
-------- -------- --------
Net increase (decrease) in cash and cash equivalents..... 12,116 (10,884) 4,541
Cash and cash equivalents, beginning of year............. 10,822 21,706 17,165
-------- -------- --------
Cash and cash equivalents, end of year................... $ 22,938 $ 10,822 $ 21,706
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest................... $ 826 $ 623 $ 291
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock and value of options and
warrants issued in acquisition......................... $ -- $ 6,185 $ 16,844
======== ======== ========
Issuance of common stock to Arris Canada minority
interest investors..................................... $ -- $ 1,800 $ --
======== ======== ========
Acquisition of property and equipment through capital
lease financing........................................ $ 1,719 $ -- --
======== ======== ========
</TABLE>
See accompanying notes.
37
<PAGE> 38
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
On January 8, 1998 Arris Pharmaceutical Corporation ("Arris" or the
"Company," as referenced in these notes) acquired Sequana Therapeutics, Inc.
("Sequana"). The Company also changed its name to AXYS Pharmaceuticals, Inc. The
financial results presented herein represent only Arris and do not include the
impact of the acquisition of Sequana (See Note 11).
Arris uses an integrated drug discovery approach combining structure-based
drug design, combinatorial chemistry and its proprietary Delta Technology to
discover and develop a number of diverse synthetic small molecule therapeutics
for commercially important disease categories where existing therapies have
significant limitations. Arris' product development programs include protease
programs targeting the inhibition of enzymes implicated in asthma, inflammatory
disease, blood clotting disorders, infectious diseases, osteoporosis, cancer and
autoimmune disease. The Company's technology platform also includes
receptor-based discovery programs designed to discover small molecule drugs that
mimic important therapeutic proteins that are already successful products.
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, Arris Protease Corporation, Inc. and Arris
Pharmaceuticals Canada, Inc. (See Note 2). All significant intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash equivalents. Investments
with maturities greater than three months and less than one year are classified
as short-term investments.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at amortized cost.
Amortized cost approximates fair market value.
Amortization of premiums and accretion of discounts to maturity are
included in interest income. Realized gains and losses, and declines in value
judged to be other than temporary are also included in interest income. The cost
of securities sold is based on the specific identification method.
DEPRECIATION AND AMORTIZATION
Depreciation is provided for using the straight-line method over the
estimated useful lives of the respective assets. Leasehold improvements are
amortized over the term of the lease or economic useful life, whichever is
shorter.
38
<PAGE> 39
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
REVENUE RECOGNITION
Revenue recognized under the Company's collaborative research agreements is
recorded when earned as defined in the respective agreements. Research funding
and commitment fees are recognized over the research period. Benchmark payments
are recognized as revenue upon achievement of mutually agreed upon milestones.
Payments received in advance are recorded as deferred revenue until earned.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for independent
and collaborative research and development. These costs include direct and
research-related overhead expenses. Research and development expenses under the
collaborative research agreements approximate the revenue recognized under the
agreements in 1997, 1996 and 1995 (exclusive of milestone license and up-front
commitment fees).
STOCK-BASED COMPENSATION
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Company has elected to continue to follow Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock option and purchase plans.
See Note 6 for pro forma disclosures required by SFAS 123.
NET LOSS PER SHARE
In 1997, the Financial Accounting Standard Board issued Statement No. 128,
"Earnings Per Share" (FAS 128). FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earning per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earrings per
share. Loss per share amounts for all periods have been presented, no
restatement was necessary for adoption of FAS 128.
Prior to the application of the treasury stock method, there were options
and warrants to purchase 2,168,860, 1,932,981 and 1,824,912 shares of common
stock outstanding at December 31, 1997, 1996, and 1995, respectively. These
shares were not included in the computation of diluted loss per share because
the effect would be antidilutive.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1997
presentations.
RECENTLY ISSUED ACCOUNTING STANDARDS
COMPREHENSIVE INCOME
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 established
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 15, 1997. The Company
believes that adoption of FAS 130 will not have a material impact on the
Company's consolidated financial statements.
39
<PAGE> 40
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
SEGMENT INFORMATION
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(FAS 131). FAS 131 changes the way companies report selected segment information
in annual financial statements and also requires those companies to report
selected segment information in interim financial reports to stockholders. FAS
131 is effective for fiscal years beginning after December 15, 1997. The Company
has not yet reached a conclusion as to the appropriate segments, if any, it will
be required to report to comply with FAS 131.
2. ACQUISITION OF KHEPRI PHARMACEUTICALS, INC.
On December 22, 1995, the Company acquired all of the outstanding capital
stock of Khepri Pharmaceuticals, Inc. ("Khepri"), a development stage company
engaged in research, development and marketing of protease and protease
inhibitor compounds for the treatment of human diseases and disorders, by
merging Khepri with and into Arris Protease, Inc., a wholly owned subsidiary of
Arris. The transaction was accounted for as a purchase. The Company recorded
acquired in-process research and development of $230,000 in 1996 and $22,514,000
in 1995 in connection with this acquisition.
3. COLLABORATIVE AGREEMENTS
BRISTOL-MYERS SQUIBB
Effective December 1997, the Company signed a collaborative research and
development agreement with Bristol-Myers Squibb ("BMS") to develop protease
inhibitors to prevent the growth and spread of hepatitis C virus (HCV)
infection, a leading cause of chronic liver disease. Arris received an initial
commitment fee (which is being amortized over the initial research period). The
agreement also calls for a license fee and a three year research term which may
be extended at BMS' option, during which Arris receives research funding and
benchmark payments upon the achievement of mutually agreed upon milestones.
Arris granted BMS exclusive development and marketing rights to any HCV protease
inhibitors produced in the collaboration. Arris is to receive royalties on BMS'
sales of any licensed products. Approximately $837,000 in contract revenue was
recognized under this agreement in 1997.
ABBOTT
In May 1997, the Company signed a licensing agreement with Abbott
Laboratories ("Abbott"). Arris has transferred to Abbott specialized drug
discovery technologies for application by Abbott in its proprietary research
program. The agreement calls for a license fee and royalties upon the sale of
any licensed products. Approximately $500,000 in contract revenue was recognized
under this agreement in 1997.
MERCK
In November 1996, the Company signed a collaborative research and
development agreement with Merck & Co. ("Merck") for the development of small
molecule inhibitors of proteases involved in osteoporosis. Arris received an
initial commitment fee (which is being amortized over the initial research
period). The agreement also calls for a two year research term, which may be
extended at Merck's option, during which Arris receives research funding and
benchmark payments upon the achievement of mutually agreed upon milestones.
Arris granted Merck an exclusive license to develop, manufacture and market
certain proteases inhibitors. Arris is to receive royalties on Merck's sales of
any licensed products. Approximately $4,825,000 and $804,000 in contract revenue
was recognized under this agreement in 1997 and 1996, respectively.
40
<PAGE> 41
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
SMITHKLINE BEECHAM
In June 1996, Arris entered into an agreement with SmithKline Beecham
("SB") to develop inhibitors using Arris' proprietary Delta Technology with
certain intracellular viral proteases. The agreement incorporates an initial
proof-of-concept phase and an optional research phase, if elected by SB. Arris
has received a license fee and may receive research funding and payments upon
the achievement of milestones during the proof-of-concept and research phases.
Subject to the initiation of the research phase of the program, Arris granted SB
an exclusive license to develop inhibitors of the target proteases using Arris'
Delta Technology and an exclusive license to manufacture and market any products
developed under the agreement. In return, Arris is to receive royalties on any
product sales. Approximately $1,100,000 and $725,000 in contract revenue was
recognized under this agreement in 1997 and 1996, respectively. In December
1997, in accordance with the terms of the agreement, SB notified the Company
that it would continue the proof-of-concept phase using only internal SB
resources.
BAYER
In November 1994, Arris established a collaborative agreement with Bayer AG
("Bayer") aimed at developing inhibitors of the regulatory enzymes tryptase and
chymase for the treatment of asthma and other inflammatory and auto-immune
diseases. Arris received an initial commitment fee (which was amortized over the
noncancelable portion of the research period), received research funding over
the research period, and may receive benchmark payments upon the achievement of
mutually agreed upon milestones. Arris granted Bayer the exclusive right to
develop inhibitors of tryptase and chymase which result from the program,
worldwide manufacturing and marketing rights to these compounds and assigned to
Bayer certain rights to any patents arising out of the collaboration. Arris is
to receive royalties on Bayer's sales of any licensed products. The Bayer
collaboration provides that clinical development costs related to the Company's
clinical compound, APC 366, will be borne by the Company through Phase IIb. If
the results of the Phase IIb studies meet certain agreed-upon criteria, Bayer
will assume development of APC 366. If the results fail to meet the criteria,
development of APC 366 will be terminated. In September 1996, Bayer elected to
initiate clinical development of an Arris compound, designated BAY 35-8535, the
development costs of which are borne entirely by Bayer. Approximately
$7,028,000, $7,917,000 and $7,667,000 in contract revenue was recognized under
this agreement in 1997, 1996 and 1995, respectively. The research phase of this
collaboration ended in November 1997.
PHARMACIA & UPJOHN
In March 1996, the Company entered into a research agreement with Pharmacia
& Upjohn, Inc. ("Pharmacia & Upjohn") to use combinatorial chemistry to create a
probe library consisting of 250,000 small molecule synthetic organic compounds.
Arris has granted Pharmacia & Upjohn a co-exclusive license to the library being
developed, together with the technologies used for synthesis and screening. In
return for the co-exclusive license, Arris received upfront nonrefundable
license payments (which are being amortized over the expected term of the
agreement) and payments upon the delivery of the compounds.
In August 1995, Arris entered into a research and development agreement
with Pharmacia & Upjohn focused on the development of inhibitors of Thrombin,
Factor Xa and Factor VIIa for the treatment of blood clotting disorders. The
agreement calls for a five-year research collaboration between the parties which
Pharmacia & Upjohn may terminate at its discretion after three years. Arris
received an initial commitment fee (which is being amortized over the
noncancelable portion of the research period), is receiving research funding
over the research period, and will receive benchmark payments upon the
achievement of mutually agreed upon milestones. Arris granted Pharmacia & Upjohn
the exclusive right to develop inhibitors of Thrombin, Factor Xa and Factor VIIa
which result from the program, as well as worldwide manufacturing
41
<PAGE> 42
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
and marketing rights to these compounds. Arris is to receive royalties on
Pharmacia & Upjohn's sales of any licensed products. The Company and P&U are
currently in discussions regarding the future course of development in the
program area.
In January 1994, the Company entered into an agreement with Pharmacia &
Upjohn, which ended in January 1995, to apply the Company's proprietary
computational algorithms to one of Pharmacia & Upjohn's in-house drug discovery
programs.
In March 1993, Arris entered into a research and development agreement with
Pharmacia & Upjohn aimed at developing certain human growth factor mimetics,
initially focusing on human growth hormone. The agreement, as extended, between
Arris and Pharmacia & Upjohn included a four-year research collaboration between
the parties that concluded at the end of 1997. Concurrent with the signing of
the initial agreement, Pharmacia & Upjohn made a $5.4 million equity investment
in Arris. Arris received research funding during the term of the research
collaboration and will receive benchmark payments if mutually agreed upon
milestones are reached. Arris granted Pharmacia & Upjohn the exclusive right to
develop growth factor mimetics discovered, as well as worldwide manufacturing
and marketing rights to these compounds. Arris is to receive royalties on
Pharmacia & Upjohn's sales of any licensed products. Arris retains the rights to
technology developed by the Company and gains licensing rights to certain
technology developed by Pharmacia & Upjohn under the research program that may
have application to other cytokine targets outside the focus of the
collaboration.
Arris has recognized a total of $10,194,000, $8,585,000 and $4,536,000 in
revenues under these agreements with Pharmacia & Upjohn for the years ended
December 31, 1997, 1996 and 1995, respectively.
AMGEN INC.
In May 1993, Arris entered into an agreement with Amgen Inc. ("Amgen")
aimed at the development of synthetic, small molecule mimetics of erythropoietin
("EPO"). The agreement, as amended in 1996, called for a research collaboration
between the parties through February 1997. Further research will be conducted by
Amgen. Arris received an initial commitment fee (which was amortized over the
initial research period), received research funding over the research period and
may receive benchmark payments as certain milestones are achieved. Arris granted
Amgen the exclusive right to develop any EPO mimetic compounds discovered, as
well as worldwide manufacturing and marketing rights to those compounds. Arris
is to receive royalties on Amgen's sales of any licensed products and under
certain circumstances Arris is required to pay royalties to third parties. Arris
has retained the rights to apply all technologies developed solely by the
Company to the development of products outside the EPO field. Either Arris or
Amgen can independently exploit jointly developed technology that does not
pertain to EPO. Approximately $330,000, $3,529,000 and $4,523,000 of contract
revenue was recognized under this agreement in 1997, 1996 and 1995,
respectively.
42
<PAGE> 43
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of available-for-sale securities at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
Debt securities of U.S. corporations........... $21,430 $-- $(45) $21,385
U.S. treasury securities....................... 14,384 27 -- 14,411
Certificates of Deposit........................ 2,999 -- -- 2,999
Securities of foreign corporations............. 2,948 2 -- 2,950
U.S agency securities.......................... 2,121 -- (43) 2,078
------- --- ---- -------
$43,882 $29 $(88) $43,823
======= === ==== =======
AT DECEMBER 31, 1996:
U.S. treasury securities....................... $ 9,909 $-- $ -- $ 9,909
Debt securities of U.S. corporations........... 1,718 -- -- 1,718
------- --- ---- -------
$11,627 $-- $ -- $11,627
======= === ==== =======
</TABLE>
The following is a summary of held-to-maturity securities at December 31,
1996 (none at December 31, 1997):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
U.S. treasury securities....................... $16,550 $ 1 $ -- $16,551
Debt securities of U.S. corporations........... 15,022 1 -- 15,023
U.S agency securities.......................... 5,449 7 -- 5,456
------- --- ---- -------
$37,021 $ 9 $ -- $37,030
======= === ==== =======
</TABLE>
43
<PAGE> 44
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Balance sheet classification:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
Cash equivalents............................... $13,412 $-- $ -- $13,412
Short-term marketable investments.............. 30,470 29 $(88) 30,411
------- --- ---- -------
$43,882 $29 $(88) $43,823
======= === ==== =======
AT DECEMBER 31, 1996:
Short-term marketable investments.............. $37,021 $ 9 $ -- $37,030
Long-term marketable investments............... 11,627 -- -- 11,627
Restricted investments......................... 7,250 7,250
------- --- ---- -------
$55,898 $ 9 $ -- $55,907
======= === ==== =======
</TABLE>
At December 31, 1997 and 1996, the contractual maturities of
available-for-sale securities were due within one year. The contractual
maturities of held-to-maturity securities were due after one year, but within
two years.
The fair value of the notes payable are estimated based on current interest
rates available to the Company for debt instruments with similar terms, degree
of risk and remaining maturities. The carrying value of the notes payable
approximate its fair value.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company would realize in a
current market exchange.
5. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment..................................... $ 16,444 $12,345
Furniture and fixtures...................................... 1,061 487
Office equipment............................................ 336 274
Leasehold improvements...................................... 9,747 5,436
Construction in progress.................................... 204 1,234
-------- -------
27,792 19,776
Less accumulated depreciation and amortization.............. (13,338) (9,330)
-------- -------
$ 14,454 $10,446
======== =======
</TABLE>
Property and equipment includes approximately $12,267,000 and $10,548,000
recorded under capital leases at December 31, 1997 and 1996, respectively.
Amortization is included with depreciation expense, and accumulated amortization
of equipment under capital leases was approximately $8,615,000 and $6,673,000 at
December 31, 1997 and 1996, respectively.
44
<PAGE> 45
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
6. STOCKHOLDERS' EQUITY
COMMON STOCK
At December 31, 1997, common stock was reserved for issuance as follows (in
thousands):
<TABLE>
<S> <C>
Stock options............................................... 3,380
Warrants.................................................... 169
Purchase Plan............................................... 51
-----
3,600
=====
</TABLE>
WARRANTS
The Company has issued warrants to purchase a total of 169,236 shares of
the Company's common stock at prices ranging from $2.46 to $13.46 per share,
which were outstanding at December 31, 1997. These warrants expire at various
dates from 1998 through 2002.
STOCK OPTIONS
In 1997, the board adopted the 1997 Non-officer Equity Incentive Plan,
whereby non-officer employees of and consultants to the Company may be granted
nonqualified stock options to purchase the Company's common stock, at the
discretion of the board of directors.
The Company also has the 1989 Stock Option Plan, whereby directors,
officers, employees, and consultants may be issued restricted stock or granted
incentive stock options or nonqualified stock options to purchase the Company's
common stock, at the discretion of the board of directors, and the 1994 Non-
Employee Directors' Stock Option Plan, whereby nonqualified stock options may be
granted to nonemployee directors of the Company to purchase the company's common
stock.
All options granted under the above plans become exercisable pursuant to
the applicable terms of the grant. For stock option grants issued through
December 31, 1997, the exercise price of the options were computed at the
average market value of the Company's common stock for the 15 days preceding the
grant date, vest ratably over four years and expire ten years from the date of
grant. The compensation expense associated with these grants is immaterial.
45
<PAGE> 46
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Transactions under all of the above equity incentive plans (the "Plans")
are as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
------------------------- WEIGHTED-AVERAGE
SHARES NUMBER OF PRICE PER EXERCISE
AVAILABLE SHARES SHARE PRICE
--------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994.......... 448,077 933,766 $ 0.07-$ 7.00 $ 5.33
Shares reserved...................... 478,460 -- -- --
Options granted...................... (626,425) 626,425 $ 6.19-$13.08 $ 8.12
Options assumed...................... (128,460) 128,460 $ 1.23-$ 2.46 $ 1.90
Options canceled..................... 58,115 (58,115) $ 0.35-$11.60 $ 6.63
Options exercised.................... -- (74,484) $ 0.07-$ 5.95 $ 2.35
Shares repurchased................... 7,142 -- $ 0.07 $ 0.07
--------- ---------
Balances at December 31, 1995.......... 236,909 1,556,052 $ 0.07-$13.08 $ 4.65
Shares reserved...................... 550,000 -- -- --
Options granted...................... (857,076) 857,076 $10.89-$16.12 $13.64
Options exercised.................... -- (431,409) $ 0.70-$13.02 $ 2.11
Options canceled..................... 217,363 (217,363) $ 0.84-$16.12 $ 9.17
--------- ---------
Balances at December 31, 1996.......... 147,196 1,764,356 $ 0.07-$16.12 $ 9.10
Shares reserved...................... 1,750,000 -- --
Options granted...................... (646,744) 646,744 $ 9.56-$15.12 $12.93
Options exercised.................... -- (281,694) $ .35-$12.48 $ 2.91
Options canceled..................... 129,782 (129,782) $ 1.23-$15.53 $11.26
--------- ---------
Balances at December 31, 1997.......... 1,380,234 1,999,624 $ .35-$15.53 $11.06
========= ========= ============= ======
</TABLE>
At December 31, 1997, options to purchase 751,162 shares under the Plans
were exercisable (600,868 and 655,267 at December 31, 1996 and 1995,
respectively). The weighted average fair value of stock options outstanding
under the plans were $11.06, $11.13 and $8.30 in 1997, 1996 and 1995,
respectively.
Options outstanding and exercisable by price range at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
OPTIONS OPTIONS
RANGE OF OUTSTANDING AT WEIGHTED-AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 31, REMAINING WEIGHTED-AVERAGE DECEMBER 31, WEIGHTED-AVERAGE
PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- ------------- -------------- ---------------- ---------------- -------------- ----------------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$ 0.35-$ 7.00 437,606 6.34 $ 5.11 348,355 $ 4.98
$ 8.02-$12.19 555,461 8.44 $10.49 136,095 $10.35
$12.30-$13.64 408,541 9.21 $13.07 71,866 $13.03
$13.70-$14.93 497,599 8.78 $14.38 153,130 $14.50
$14.96-$15.59 100,417 8.41 $15.40 41,716 $15.40
--------- -------
1,999,624 8.24 $11.69 751,162 $11.65
========= =======
</TABLE>
During 1997, the Company granted the chief executive officer an option to
purchase up to 100,000 shares of common stock under the 1989 Stock Option Plan,
the option vests on the second anniversary of the grant or
46
<PAGE> 47
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
upon the Company's achievement of certain market valuation criteria. As of
December 31, 1997 no options had vested.
EMPLOYEE STOCK PURCHASE PLAN
In October 1993, the Company adopted the 1993 Employee Stock Purchase Plan
(the "Purchase Plan") under which employees who meet certain minimum employment
criteria are eligible to participate. Under the Purchase Plan, 58,114 shares
were issued in 1997. Eligible employees may purchase common stock of the Company
at a purchase price of 85% of the lower of the fair market value of the stock at
the offering date or purchase date, within a two year offering period.
STOCK BONUS PLAN
In December 1993, the board adopted the 1993 Employee Stock Bonus Plan,
whereby the Company would reward employees for contributions to the Company and
seek to align the employees' long-term interests with those of the Company
through the grant of stock to certain employees of the Company for no
consideration. Shares granted under this plan do not vest unless the recipient
remains an employee of the Company for two years from the date of grant. Under
the plan, 50,000 shares of common stock were reserved for grant. Grants for
4,350 shares were outstanding under this plan at December 31, 1997.
Additionally, 38,500 shares had vested as of December 31, 1997.
STOCK-BASED COMPENSATION
As of December 31, 1997, the Company had five stock-based compensation
plans, which are described above. The Company has elected to follow APB 25 and
related interpretations in accounting for its employee stock-based awards
because, as discussed below, the alternative fair value accounting provided for
under SFAS 123 requires use of option valuation models that were not developed
for use in valuing employee stock options and employee stock-based awards.
Compensation expense under APB 25 with respect to such awards has been
immaterial.
PRO FORMA DISCLOSURES
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
stock-based awards granted subsequent to December 31, 1994 under the fair value
method of SFAS 123. The fair value for these stock-based awards was estimated at
the date of grant using a Black-Scholes option pricing model for the multiple
option approach. Under this approach, the expected life of the option is defined
as the period from the vesting date to the expected exercise date. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's stock-based awards have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's stock-based awards to its employees.
47
<PAGE> 48
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
The fair value of the Company's stock-based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:
<TABLE>
<CAPTION>
EMPLOYEE
STOCK PURCHASE
OPTIONS PLAN
------------ --------------
1997 1996 1997 1996
---- ---- ----- -----
<S> <C> <C> <C> <C>
Expected life (years)....................................... 1.0 1.0 0.5 0.5
Expected volatility......................................... 0.58 0.63 0.54 0.56
Risk-free interest rate..................................... 6.23% 5.90% 5.67% 5.30%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
stock-based awards are amortized to pro forma net loss over the options' vesting
periods and the purchase plan's six-month purchase period. The Company's as
reported and pro forma information follows (in thousands, except for net loss
per share information):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Net loss
As reported............................................. $(10,967) $(5,928) $(23,733)
Pro forma............................................... $(14,418) $(8,308) $(24,632)
Net loss per share -- basic and diluted
As reported............................................. $ (0.73) $ (0.45) $ (2.71)
Pro forma............................................... $ (0.96) $ (0.63) $ (2.82)
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully realized until 1998.
7. COMMITMENTS
LEASES
The Company leases office and laboratory facilities and equipment. Rent
expense, net of sublease income of $597,000 in 1997 ($32,000 in 1996, none in
1995), for the years ended December 31, 1997, 1996 and 1995 was approximately
$1,622,000, $1,155,000 and $825,000, respectively.
48
<PAGE> 49
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Future minimum lease payments under noncancelable leases, net of
noncancelable subleases, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $ 2,370 $ 972
1999........................................................ 1,770 1,053
2000........................................................ 30 1,128
2001........................................................ 3 1,017
2002........................................................ -- 521
Thereafter.................................................. -- 1,221
------- ------
Total minimum lease payments................................ 4,173 $5,912
======
Less amount representing interest........................... (267)
-------
Present value of future lease payments...................... 3,906
Less current portion........................................ (2,370)
-------
Noncurrent portion of capital lease obligations............. $ 1,536
=======
</TABLE>
NOTES PAYABLE
On September 29, 1997, the Company replaced its Bank of America line of
credit with a new credit agreement with The Sumitomo Bank, Limited and Silicon
Valley Bank, jointly, to provide up to $20 million in debt financing. Interest
only payments are due quarterly until September 30, 1998, at which time
principal and interest become due and payable in 48 monthly installments. The
interest rate at December 31, 1997 was computed on a combination of the bank's
prime rate and the Eurodollar rate, which were approximately 8.5% and 7.8%,
respectively. The loan is subject to certain financial covenants over the course
of the agreement. The Company was in compliance with all covenants at December
31, 1997. The balance outstanding on this loan at December 31, 1997 was $13.8
million.
In February 1997, the Company entered into a lending arrangement with one
of its facility lessors for tenant improvements. The loan amount was for
$350,000, with interest accruing at 9% per annum. Principal and interest are due
monthly through July 1, 2001.
Principal maturities of notes payable at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1998........................................................ $1,222
1999........................................................ 3,528
2000........................................................ 3,535
2001........................................................ 3,504
2002........................................................ 2,300
</TABLE>
8. RELATED PARTY TRANSACTIONS
In August 1997, the Company entered into an employment agreement with its
chief executive officer that extends through December 31, 2000. The agreement
provides for compensation and bonus provisions in exchange for continued service
and an agreement not to compete. In addition, the agreement provides for
49
<PAGE> 50
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
forgiveness on two notes receivable with an aggregate original principal amount
of $950,000, plus accrued interest and partial tax gross-up. The forgiveness
period extends through 2001. The principal portion of the note forgiven in 1997
was $75,000.
9. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) retirement savings plan for all of its
eligible employees. Each participant in the plan may elect to contribute up to
15% of his or her annual salary to the plan, subject to statutory limitations.
The Company matches 50% of the first 6% of the salary contributed by the
employee. The Company's match is made with the Company's common stock. The
expense charged to operations under this plan for fiscal 1997 was $276,000 (none
in 1996 and 1995).
10. INCOME TAXES
As of December 31, 1997, the Company had federal and state net operating
loss carryforwards of approximately $26.6 million. The federal net operating
loss carryforwards will expire at various dates beginning in 2004 through 2012.
Deferred Income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards............................ $ 7,700 $ 7,900
Research credits (expiring 2004-2012)....................... 2,600 2,300
Capitalized research and development........................ 17,200 12,800
Other net................................................... 2,100 1,900
-------- --------
Total deferred tax assets................................... 29,600 24,900
Valuation allowance of deferred tax assets.................. (29,600) (24,900)
-------- --------
Net deferred tax assets..................................... $ -- $ --
======== ========
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by approximately $2,300,000 and $3,500,000 during 1996 and 1995,
respectively.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change provisions of the
Internal Revenue Code of 1986, as amended. The annual limitation may result in
the expiration of net operating losses and credits before utilization.
Approximately $600,000 of the valuation allowance for deferred tax assets
relates to benefits of stock option deductions which, when recognized, will be
allocated directly to contributed capital.
11. SUBSEQUENT EVENT
On January 8, 1998, the stockholders of the Company approved the issuance
of Arris Common Stock under the Agreement and Plan of Merger and Reorganization
with Sequana. The Company issued approximately 14,620,000 shares of Arris Common
Stock in exchange for all the outstanding common stock of
50
<PAGE> 51
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Sequana, on the basis of 1.35 shares of Arris' common stock for one share of
Sequana common stock. The transaction will be accounted for as a purchase and is
structured to qualify as a tax-free reorganization. The anticipated financial
impact of the conforming accounting methods is not expected to be material to
the financial position of the Company. The Company estimates that costs
associated with the acquisition were approximately $5 million. Such expenses
include investment bankers, attorneys, and accountants fees, financial printing
costs and other merger related costs. The purchase price will be allocated to
the assets acquired and liabilities assumed based upon the fair value on the
date of the acquisition including an in-process research and development charge.
This charge will be expensed in the quarter ending March 31, 1998.
The following summary, prepared on a pro forma basis, combines the results
of operation of the Company and Sequana as if the acquisition had been effective
as of the beginning of the fiscal periods presented below (excluding a one-time
in-process research and development charge):
<TABLE>
<CAPTION>
1997 1996
(UNAUDITED) --------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $ 44,399 $ 31,265
Net loss.................................................... $(26,108) $(28,147)
Net loss per share.......................................... $ (0.89) $ (1.08)
</TABLE>
On January 7, 1998, the stockholders of the Company also approved (i) an
amendment to the Company's Certificate of Incorporation to increase in the
number of authorized shares of the Company's capital stock to 60 million, and
the common stock to 50 million; (ii) the 1997 Stock Option Plan; (iii) an
increase of 350,000 shares of common stock authorized for issuance under the
1994 Non-Employee Directors' Stock Option Plan; and (iv) an increase of 400,000
shares of common stock authorized for issuance under the Employee Stock Purchase
Plan.
51
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
information under the captions "Election of Directors" and "Executive Officers
and Key Employees" contained in the Company's definitive proxy statement to be
filed no later than April 30, 1998 in connection with the solicitation of
proxies for the Company's Annual Meeting of Stockholders to be held May 27, 1998
(the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
contained in the Proxy Statement.
52
<PAGE> 53
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Index to Financial Statements
The Financial Statements required by this item are submitted in Part II,
Item 8 of this report.
(2) Index to Financial Statements Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or in the notes thereto.
(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.(1)
10.1 Registration Rights Agreement, among the Registrant and the
other parties therein, dated January 7, 1998.
10.2 1989 Stock Plan, as amended.(2)
10.3 Form of Employee Stock Purchase Plan and Form of Offering
Document.(2)(12)
10.6 Standard Industrial Lease between the Registrant and Shelton
Properties, Inc., dated October 15, 1992, with related
addenda and amendment.(1)
10.7 Third Amendment to Lease between Registrant and Shelton
Properties, Inc., dated March 29, 1994.(4)
10.8 Master Equipment Lease Agreement between the Registrant and
Phoenix Leasing Incorporated, dated as of April 12, 1993,
with related amendments.(1)
10.9 Re-Lease Agreement No. 6132A between the Registrant and
PacifiCorp Credit Inc., dated December 27, 1992, with
related agreements.(1)
10.10 Master Equipment Lease Agreement No. 2982 between the
Registrant and MMC/GATX Partnership No. I, dated as of
January 7, 1992, with related addenda.(1)
10.11** Research and License Agreement between the Registrant and
Amgen Inc., dated May 28, 1993.(1)
10.12** Sponsored Research Agreement between the Registrant, the
Whitehead Institute for Biomedical Research and Dr. Harvey
Lodish, dated May 28, 1993.(1)
10.13** License Agreement between the Registrant, the Whitehead
Institute for Biomedical Research and Massachusetts
Institute of Technology, dated May 28, 1993.(1)
10.14 Consent and Waiver between the Registrant, Amgen Inc., and
the Whitehead Institute for Biomedical Research, dated May
28, 1993.(1)
10.15** Collaboration Agreement between the Registrant and Pharmacia
AB, dated March 29, 1993.(1)
10.16** Project Agreement between the Registrant and Pharmacia AB,
dated March 29, 1993.(1)
10.17 Form of Restricted Stock Purchase Agreement.(1)(2)
10.18 Form of Indemnity Agreement entered into between the
Registrant and its officers and directors.(1)(2)
10.19 Stock Bonus Grant Plan.(2)(3)
10.20 Financing Agreement between Hambrecht and Quist Guaranty
Finance, L.P., dated March 29, 1994, including Security
Agreement and Warrant Purchase Agreement of even date.(4)
10.22 1994 Non-Employee Directors' Stock Option Plan, as amended
on January 7, 1998.
10.23 Fourth Amendment to Lease dated October 15, 1992 between the
Registrant and Shelton Properties, Inc., dated October 1,
1994.(5)
10.24** Collaborative Research and License Agreement between the
Registrant and Bayer AG, dated November 28, 1994.(6)
10.25** Research Agreement between the Registrant and Pharmacia AB,
dated December 21, 1994.(5)
</TABLE>
53
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<S> <C>
10.26 Form of Fifth Amendment to Lease dated October 15, 1992
between the Registrant and Shelton Properties, Inc., dated
August 28, 1996.(6)
10.27 Master Equipment Lease Agreement between the Registrant and
GE Capital, dated August 18, 1995.(6)
10.28** Collaborative Research and License Agreement between the
Registrant and Pharmacia AB, dated August 29, 1995.(6)
10.30 Agreement and Plan of Merger and Reorganization among the
Registrant, Chapel Acquisition Corp. and Khepri
Pharmaceuticals, Inc., dated November 7, 1995.(8)
10.31 Form of Stockholder Agreement between the Registrant and
certain former stockholders of Khepri Pharmaceuticals,
Inc.(8)
10.32 Form of Agreement among the Registrant, Khepri
Pharmaceuticals Canada, Inc. and the holders of Class B
Shares of Khepri Pharmaceuticals Canada, Inc.(8)
10.33 Amendment to Agreement dated March 29, 1993 between the
Registrant and Kabi Pharmacia AB, dated January 31, 1996.(9)
10.34 First Amendment to Research and License Agreement, dated May
28, 1993, between Registrant and Amgen, Inc., dated February
2, 1996.(9)
10.35 Research Agreement between the Registrant and Pharmacia &
Upjohn, Inc., dated February 29, 1996.(9)
10.36 Form of Sixth Amendment to Lease dated October 15, 1992
between the Registrant and Shelton Properties, Inc., dated
March 29, 1996.(9)
10.37 Financing Agreement between Hambrecht and Quist Guaranty
Finance, LLC, dated March 29, 1996, including Security
Agreement and Warrant Purchase Agreement of even date.(9)
10.38 Amendment to Lease Schedule under Master Property Lease
Agreement dated March 29, 1994 between Hambrecht and Quist
Guaranty Finance, L.P., dated March 29, 1996.(9)
10.39 Standard Industrial Lease between the Registrant and The
Equitable Life Assurance Society of the United States, dated
August 5, 1996.(10)
10.40 Business Loan Agreement between Registrant and Bank of
America National Trust and Savings Association, dated
September 24, 1996.(10)
10.41 Sublease Agreement between Registrant and Fibrogen, Inc.,
dated September 30, 1996.(10)
10.42** Research Collaboration and License Agreement between Merck &
Co., Inc. and the Registrant, dated November 6, 1996.(7)
10.44 Collaborative Research and License Agreement between
SmithKline Beecham Corporation and the Registrant, dated
June 27, 1996.(11)
10.46 Loan Agreement among the Registrant, as Borrower, and The
Sumitomo Bank, Limited and Silicon Valley Bank, as Lenders
and The Sumitomo Bank, Limited, as Agent, dated September
29, 1997.(13)
10.47 Sequana 1994 Incentive Stock Plan.(14)
10.48 Sequana 1995 Employee Stock Purchase Plan.(14)
10.49 Sequana 1995 Director Stock Option Plan.(2)(14)
10.50 Master Lease Agreement dated November 1, 1993 by and between
Comdisco, Inc. and Sequana.(14)
10.51** Collaborative Research Agreement dated as of July 27, 1994
by and between Sequana and Glaxo, Inc.(14)
10.52 Expansion Lease by and between Health Science Properties,
Inc. and Sequana dated as of November 20, 1995.(15)
10.53** Collaborative Research Agreement dated as of June 30, 1995
by and between Sequana and Corange International, Ltd.(14)
10.54** Collaborative Research Agreement dated as of June 12, 1995
by and between Sequana and Boehringer Ingelheim
International GmbH.(14)
10.55 Form of Indemnification Agreement between the Registrant and
its officers and directors.(14)
10.57 Letter Agreement dated September 7, 1993 between Sequana and
Timothy J.R. Harris.(14)
</TABLE>
54
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<S> <C>
10.58** Research Agreement dated as of April 2, 1996 by and between
Sequana and Aurora Biosciences Corporation.(16)
10.59 Merger Agreement and Plan of Reorganization Agreement
between Sequana, Sequana Merger Sub, Inc., NemaPharm, Inc.
and the Shareholders of NemaPharm, Inc., dated July 19,
1996.(17)
10.60 Loan Agreement between Sequana and The Sumitomo Bank,
Limited, dated as of October 23, 1996.(18)
10.61** Joint Venture Agreement among Sequana Therapeutics, Inc.,
Memorial Sloan-Kettering Cancer Center and Genos
Biosciences, Inc., dated January 29, 1997.(19)
10.62* Amendment to Collaborative Research Agreement of June 12,
1995 between Sequana and Boehringer Ingelheim International
GmbH, dated June 19, 1997.(20)
10.63 Second Amendment to Expansion Lease by and between Sequana
and Alexandria Real Estate Equities, Inc., dated as of May
20, 1997.(20)
10.64 Agreement and Plan of Merger and Reorganization dated
November 2, 1997, by and among Arris, Beagle Acquisition
Sub, Inc., and Sequana.(21)
10.65 First Amendment to Loan Agreement Between the Registrant and
The Sumitomo Bank, Limited, dated as of January 8, 1998.
10.66 First Amendment to Loan Agreement Between Sequana and The
Sumitomo Bank, Limited, dated as of January 8, 1998.
10.67* Collaboration Agreement dated as of October 1997 by and
between the Registrant and Bristol-Myers Squibb Company.
10.68* Collaboration Agreement dated as of October 31, 1997 by and
between Sequana and Warner-Lambert Company.
10.69 Sequana Common Stock Purchase Agreement, dated October 31,
1997.
10.70 $200,000 Promissory Note, dated September 2, 1997, issued by
John P. Walker to the Registrant.
10.71 $750,000 Promissory Note, dated September 2, 1997, issued by
John P. Walker to the Registrant.
10.72 Employment Agreement, dated August 29, 1997, by and between
John Walker and the Registrant.
10.73 Amended and Restated Severance Agreement by and between the
Registrant and Kevin Kinsella, dated January 7, 1998.
10.74 Amended and Restated Restricted Stock Purchase Agreement by
and between Sequana and Kevin Kinsella, dated January 7,
1998.
10.75 Consulting Agreement by and between Sequana and Kevin
Kinsella, dated January 8, 1998.
10.78 1997 Equity Incentive Plan, dated January 7, 1998.(22)
10.79 First Amendment to Lease Schedules Master Property Lease
Agreement No. 943 dated March 29, 1994, Schedules Nos. 1 and
4 through 59, dated from March 29, 1994, through January 1,
1995.
10.80 First Amendment to Lease Schedule Master Property Lease
Agreement No. 963, dated March 29, 1996, Schedule No. 2,
dated March 29, 1996.
10.81 Second Amendment to Lease Schedule Master Property Lease
Agreement No. 943, dated March 29, 1994, Schedule No. 2,
dated March 29, 1994.
10.82 First Amendment to Lease Schedule Master Property Lease
Agreement No. 943, dated March 29, 1994, Schedule No. 3
dated March 29, 1994.
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (incorporated in the signature page of
this Form 10-K).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Confidential treatment has been requested with respect to certain portions
of this exhibit.
** Confidential treatment has been granted with respect to certain portions of
this exhibit.
(1) Incorporated herein by reference to the Registration Statement on Form S-1
filed October 5, 1993, as amended (file number 33-69972).
55
<PAGE> 56
(2) Compensation plan.
(3) Incorporated herein by reference to the Registration Statement on Form S-8
filed January 31, 1994 (file number 33-69972).
(4) Incorporated herein by reference to the Registrant's Report on Form 10-Q
for the quarter ended March 31, 1994.
(5) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
(6) Incorporated herein by reference to the Registrant's Report on Form 10-Q
for the quarter ended September 30, 1995.
(7) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-K for the fiscal year ended December 31, 1996.
(8) Incorporated herein by reference to the Registrant's Current Report on Form
8-K, filed November 13, 1995.
(9) Incorporated herein by reference to the Registration Report on Form 10-Q
for the quarter ended March 31, 1996.
(10) Incorporated herein by reference to the Registration Report on Form 10-Q
for the quarter ended September 30, 1996.
(11) Incorporated herein by reference to the Registration Statement filed on
Form S-3/A filed September 19, 1996 (file number 333-09307).
(12) Incorporated by reference to the Registration Statement on Form S-8 filed
July 29, 1996 (file number 333-09095).
(13) Incorporated by reference to exhibit 10.47 to the Registrant's Report on
Form 10-Q for the quarter ended October 31, 1997.
(14) Incorporated by reference to exhibits filed with Sequana's Registration
Statement on Form S-1, filed June 14, 1995 as amended (Reg. No. 33-93460).
(15) Incorporated by reference to exhibits filed with Sequana's Registration
Statement on Form S-1, filed February 12, 1996 as amended (Reg. No.
333-01226).
(16) Incorporated by reference to exhibit 10.14 to Sequana's Report on Form 10-Q
for the quarter ended June 30, 1996.
(17) Incorporated by reference to exhibit 10.15 to Sequana's Report on Form 10-Q
for the quarter ended September 30, 1996.
(18) Incorporated by reference to exhibit 10.16 filed with Sequana's Report on
Form 10-K, as amended, for the fiscal year ended December 31, 1996.
(19) Incorporated by reference to exhibit 10.17 to Sequana's Report on Form 10-Q
for the quarter ended March 31, 1997.
(20) Incorporated by reference to exhibit 10.18 to Sequana's Report on Form 10-Q
for the quarter ended June 30, 1997.
(21) Incorporated by reference to exhibit 4.1 to the Schedule 13D filed by the
Registrant on November 12, 1997.
(22) Incorporated by reference to Appendix E to the Registrant's Registration
Statement on Form S-4, filed November 27, 1997.
(b) Reports on Form 8-K
(1) On November 12, 1997 the Company filed a report on Form 8-K with the
Securities and Exchange Commission disclosing under "Item 5 -- Other
Events" that (i) the Company had entered into an agreement with Sequana
pursuant to which the Company would acquire Sequana in a merger, and (ii)
that the Company had entered into voting agreements with certain
stockholders of Sequana whereby such stockholders agreed to take certain
actions to facilitate the merger.
56
<PAGE> 57
(2) On January 23, 1998 the Company filed a report on Form 8-K with the
Securities and Exchange Commission, in conjunction with the Company's
merger with Sequana, which was completed on January 8, 1998.
(c) See Exhibits listed under Item 14(a)(3).
(d) All schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or in the noted
thereto.
57
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 28th day of
March, 1998.
AXYS PHARMACEUTICALS, INC.
BY: /s/ JOHN P. WALKER
------------------------------------
John P. Walker
Chairman And Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the following page constitutes and appoints John P. Walker and Frederick J.
Ruegsegger, or any of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that the said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN P. WALKER Chief Executive Officer and March 28, 1998
- --------------------------------------------- Director (Principal executive
John P. Walker officer)
/s/ FREDERICK J. RUEGSEGGER Senior Vice President, Finance and March 28, 1998
- --------------------------------------------- Corporate Development and Chief
Frederick J. Ruegsegger Financial Officer (Principal
financial and accounting officer)
/s/ BROOK H. BYERS Director March 28, 1998
- ---------------------------------------------
Brook H. Byers
/s/ ANTHONY B. EVNIN, PH.D. Director March 28, 1998
- ---------------------------------------------
Anthony B. Evnin, Ph.D.
/s/ VAUGHN M. KAILIAN Director March 28, 1998
- ---------------------------------------------
Vaughn M. Kailian
/s/ DONALD KENNEDY, PH.D. Director March 28, 1998
- ---------------------------------------------
Donald Kennedy, Ph.D.
Director March , 1998
- ---------------------------------------------
Ann M. Arvin, M.D.
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director March , 1998
- ---------------------------------------------
Kevin J. Kinsella
/s/ IRWIN LERNER Director March 28, 1998
- ---------------------------------------------
Irwin Lerner
/s/ J. LEIGHTON READ, M.D. Director March 28, 1998
- ---------------------------------------------
J. Leighton Read, M.D.
</TABLE>
59
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.(1)
10.1 Registration Rights Agreement, among the Registrant and the
other parties therein, dated January 7, 1998.
10.2 1989 Stock Plan, as amended.(2)
10.3 Form of Employee Stock Purchase Plan and Form of Offering
Document.(2)(12)
10.6 Standard Industrial Lease between the Registrant and Shelton
Properties, Inc., dated October 15, 1992, with related
addenda and amendment.(1)
10.7 Third Amendment to Lease between Registrant and Shelton
Properties, Inc., dated March 29, 1994.(4)
10.8 Master Equipment Lease Agreement between the Registrant and
Phoenix Leasing Incorporated, dated as of April 12, 1993,
with related amendments.(1)
10.9 Re-Lease Agreement No. 6132A between the Registrant and
PacifiCorp Credit Inc., dated December 27, 1992, with
related agreements.(1)
10.10 Master Equipment Lease Agreement No. 2982 between the
Registrant and MMC/GATX Partnership No. I, dated as of
January 7, 1992, with related addenda.(1)
10.11** Research and License Agreement between the Registrant and
Amgen Inc., dated May 28, 1993.(1)
10.12** Sponsored Research Agreement between the Registrant, the
Whitehead Institute for Biomedical Research and Dr. Harvey
Lodish, dated May 28, 1993.(1)
10.13** License Agreement between the Registrant, the Whitehead
Institute for Biomedical Research and Massachusetts
Institute of Technology, dated May 28, 1993.(1)
10.14 Consent and Waiver between the Registrant, Amgen Inc., and
the Whitehead Institute for Biomedical Research, dated May
28, 1993.(1)
10.15** Collaboration Agreement between the Registrant and Pharmacia
AB, dated March 29, 1993.(1)
10.16** Project Agreement between the Registrant and Pharmacia AB,
dated March 29, 1993.(1)
10.17 Form of Restricted Stock Purchase Agreement.(1)(2)
10.18 Form of Indemnity Agreement entered into between the
Registrant and its officers and directors.(1)(2)
10.19 Stock Bonus Grant Plan.(2)(3)
10.20 Financing Agreement between Hambrecht and Quist Guaranty
Finance, L.P., dated March 29, 1994, including Security
Agreement and Warrant Purchase Agreement of even date.(4)
10.22 1994 Non-Employee Directors' Stock Option Plan, as amended
on January 7, 1998.
10.23 Fourth Amendment to Lease dated October 15, 1992 between the
Registrant and Shelton Properties, Inc., dated October 1,
1994.(5)
10.24** Collaborative Research and License Agreement between the
Registrant and Bayer AG, dated November 28, 1994.(6)
10.25** Research Agreement between the Registrant and Pharmacia AB,
dated December 21, 1994.(5)
10.26 Form of Fifth Amendment to Lease dated October 15, 1992
between the Registrant and Shelton Properties, Inc., dated
August 28, 1996.(6)
10.27 Master Equipment Lease Agreement between the Registrant and
GE Capital, dated August 18, 1995.(6)
10.28** Collaborative Research and License Agreement between the
Registrant and Pharmacia AB, dated August 29, 1995.(6)
10.30 Agreement and Plan of Merger and Reorganization among the
Registrant, Chapel Acquisition Corp. and Khepri
Pharmaceuticals, Inc., dated November 7, 1995.(8)
10.31 Form of Stockholder Agreement between the Registrant and
certain former stockholders of Khepri Pharmaceuticals,
Inc.(8)
10.32 Form of Agreement among the Registrant, Khepri
Pharmaceuticals Canada, Inc. and the holders of Class B
Shares of Khepri Pharmaceuticals Canada, Inc.(8)
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.33 Amendment to Agreement dated March 29, 1993 between the
Registrant and Kabi Pharmacia AB, dated January 31, 1996.(9)
10.34 First Amendment to Research and License Agreement, dated May
28, 1993, between Registrant and Amgen, Inc., dated February
2, 1996.(9)
10.35 Research Agreement between the Registrant and Pharmacia &
Upjohn, Inc., dated February 29, 1996.(9)
10.36 Form of Sixth Amendment to Lease dated October 15, 1992
between the Registrant and Shelton Properties, Inc., dated
March 29, 1996.(9)
10.37 Financing Agreement between Hambrecht and Quist Guaranty
Finance, LLC, dated March 29, 1996, including Security
Agreement and Warrant Purchase Agreement of even date.(9)
10.38 Amendment to Lease Schedule under Master Property Lease
Agreement dated March 29, 1994 between Hambrecht and Quist
Guaranty Finance, L.P., dated March 29, 1996.(9)
10.39 Standard Industrial Lease between the Registrant and The
Equitable Life Assurance Society of the United States, dated
August 5, 1996.(10)
10.40 Business Loan Agreement between Registrant and Bank of
America National Trust and Savings Association, dated
September 24, 1996.(10)
10.41 Sublease Agreement between Registrant and Fibrogen, Inc.,
dated September 30, 1996.(10)
10.42** Research Collaboration and License Agreement between Merck &
Co., Inc. and the Registrant, dated November 6, 1996.(7)
10.44 Collaborative Research and License Agreement between
SmithKline Beecham Corporation and the Registrant, dated
June 27, 1996.(11)
10.46 Loan Agreement among the Registrant, as Borrower, and The
Sumitomo Bank, Limited and Silicon Valley Bank, as Lenders
and The Sumitomo Bank, Limited, as Agent, dated September
29, 1997.(13)
10.47 Sequana 1994 Incentive Stock Plan.(14)
10.48 Sequana 1995 Employee Stock Purchase Plan.(14)
10.49 Sequana 1995 Director Stock Option Plan.(2)(14)
10.50 Master Lease Agreement dated November 1, 1993 by and between
Comdisco, Inc. and Sequana.(14)
10.51** Collaborative Research Agreement dated as of July 27, 1994
by and between Sequana and Glaxo, Inc.(14)
10.52 Expansion Lease by and between Health Science Properties,
Inc. and Sequana dated as of November 20, 1995.(15)
10.53** Collaborative Research Agreement dated as of June 30, 1995
by and between Sequana and Corange International, Ltd.(14)
10.54** Collaborative Research Agreement dated as of June 12, 1995
by and between Sequana and Boehringer Ingelheim
International GmbH.(14)
10.55 Form of Indemnification Agreement between the Registrant and
its officers and directors.(14)
10.57 Letter Agreement dated September 7, 1993 between Sequana and
Timothy J.R. Harris.(14)
10.58** Research Agreement dated as of April 2, 1996 by and between
Sequana and Aurora Biosciences Corporation.(16)
10.59 Merger Agreement and Plan of Reorganization Agreement
between Sequana, Sequana Merger Sub, Inc., NemaPharm, Inc.
and the Shareholders of NemaPharm, Inc., dated July 19,
1996.(17)
10.60 Loan Agreement between Sequana and The Sumitomo Bank,
Limited, dated as of October 23, 1996.(18)
10.61** Joint Venture Agreement among Sequana Therapeutics, Inc.,
Memorial Sloan-Kettering Cancer Center and Genos
Biosciences, Inc., dated January 29, 1997.(19)
10.62* Amendment to Collaborative Research Agreement of June 12,
1995 between Sequana and Boehringer Ingelheim International
GmbH, dated June 19, 1997.(20)
10.63 Second Amendment to Expansion Lease by and between Sequana
and Alexandria Real Estate Equities, Inc., dated as of May
20, 1997.(20)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.64 Agreement and Plan of Merger and Reorganization dated
November 2, 1997, by and among Arris, Beagle Acquisition
Sub, Inc., and Sequana.(21)
10.65 First Amendment to Loan Agreement Between the Registrant and
The Sumitomo Bank, Limited, dated as of January 8, 1998.
10.66 First Amendment to Loan Agreement Between Sequana and The
Sumitomo Bank, Limited, dated as of January 8, 1998.
10.67* Collaboration Agreement dated as of October 1997 by and
between the Registrant and Bristol-Myers Squibb Company.
10.68* Collaboration Agreement dated as of October 31, 1997 by and
between Sequana and Warner-Lambert Company.
10.69 Sequana Common Stock Purchase Agreement, dated October 31,
1997.
10.70 $200,000 Promissory Note, dated September 2, 1997, issued by
John P. Walker to the Registrant.
10.71 $750,000 Promissory Note, dated September 2, 1997, issued by
John P. Walker to the Registrant.
10.72 Employment Agreement, dated August 29, 1997, by and between
John Walker and the Registrant.
10.73 Amended and Restated Severance Agreement by and between the
Registrant and Kevin Kinsella, dated January 7, 1998.
10.74 Amended and Restated Restricted Stock Purchase Agreement by
and between Sequana and Kevin Kinsella, dated January 7,
1998.
10.75 Consulting Agreement by and between Sequana and Kevin
Kinsella, dated January 8, 1998.
10.78 1997 Equity Incentive Plan, dated January 7, 1998.(22)
10.79 First Amendment to Lease Schedules Master Property Lease
Agreement No. 943 dated March 29, 1994, Schedules Nos. 1 and
4 through 59, dated from March 29, 1994, through January 1,
1995.
10.80 First Amendment to Lease Schedule Master Property Lease
Agreement No. 963, dated March 29, 1996, Schedule No. 2,
dated March 29, 1996.
10.81 Second Amendment to Lease Schedule Master Property Lease
Agreement No. 943, dated March 29, 1994, Schedule No. 2,
dated March 29, 1994.
10.82 First Amendment to Lease Schedule Master Property Lease
Agreement No. 943, dated March 29, 1994, Schedule No. 3
dated March 29, 1994.
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (incorporated in the signature page of
this Form 10-K).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Confidential treatment has been requested with respect to certain portions
of this exhibit.
** Confidential treatment has been granted with respect to certain portions of
this exhibit.
(1) Incorporated herein by reference to the Registration Statement on Form S-1
filed October 5, 1993, as amended (file number 33-69972).
(2) Compensation plan.
(3) Incorporated herein by reference to the Registration Statement on Form S-8
filed January 31, 1994 (file number 33-69972).
(4) Incorporated herein by reference to the Registrant's Report on Form 10-Q
for the quarter ended March 31, 1994.
(5) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
(6) Incorporated herein by reference to the Registrant's Report on Form 10-Q
for the quarter ended September 30, 1995.
<PAGE> 63
(7) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-K for the fiscal year ended December 31, 1996.
(8) Incorporated herein by reference to the Registrant's Current Report on Form
8-K, filed November 13, 1995.
(9) Incorporated herein by reference to the Registration Report on Form 10-Q
for the quarter ended March 31, 1996.
(10) Incorporated herein by reference to the Registration Report on Form 10-Q
for the quarter ended September 30, 1996.
(11) Incorporated herein by reference to the Registration Statement filed on
Form S-3/A filed September 19, 1996 (file number 333-09307).
(12) Incorporated by reference to the Registration Statement on Form S-8 filed
July 29, 1996 (file number 333-09095).
(13) Incorporated by reference to exhibit 10.47 to the Registrant's Report on
Form 10-Q for the quarter ended October 31, 1997.
(14) Incorporated by reference to exhibits filed with Sequana's Registration
Statement on Form S-1, filed June 14, 1995 as amended (Reg. No. 33-93460).
(15) Incorporated by reference to exhibits filed with Sequana's Registration
Statement on Form S-1, filed February 12, 1996 as amended (Reg. No.
333-01226).
(16) Incorporated by reference to exhibit 10.14 to Sequana's Report on Form 10-Q
for the quarter ended June 30, 1996.
(17) Incorporated by reference to exhibit 10.15 to Sequana's Report on Form 10-Q
for the quarter ended September 30, 1996.
(18) Incorporated by reference to exhibit 10.16 filed with Sequana's Report on
Form 10-K, as amended, for the fiscal year ended December 31, 1996.
(19) Incorporated by reference to exhibit 10.17 to Sequana's Report on Form 10-Q
for the quarter ended March 31, 1997.
(20) Incorporated by reference to exhibit 10.18 to Sequana's Report on Form 10-Q
for the quarter ended June 30, 1997.
(21) Incorporated by reference to exhibit 4.1 to the Schedule 13D filed by the
Registrant on November 12, 1997.
(22) Incorporated by reference to Appendix E to the Registrant's Registration
Statement on Form S-4, filed November 27, 1997.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ARRIS PHARMACEUTICAL CORPORATION
ARRIS PHARMACEUTICAL CORPORATION (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
1. That its Certificate of Incorporation, originally filed with the
Secretary of State of Delaware on April 19, 1989, and its Amended and Restated
Certificate of Incorporation, filed with the Secretary of State on December 17,
1993, is hereby amended and restated in its entirety to read as follows:
"FIRST: The name of the corporation is AXYS PHARMACEUTICALS, INC.
(hereinafter referred to as the "Corporation").
SECOND: The registered office of the Corporation is to be located at
1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware
19801. The name of its registered agent is The Corporation Trust Company, whose
address is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock that the
Corporation shall have the authority to issue shall be 60,000,000 shares, all of
which shall be divided into two classes: Preferred Stock, to consist of
10,000,000 shares, par value $.001 per share, and Common Stock, to consist of
50,000,000 shares, par value $.001 per share.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
FIFTH: The election of directors need not be by written ballot
unless the Bylaws so provide.
SIXTH: The Board of Directors of the Corporation is authorized and
empowered from time to time in its discretion to make, alter, amend or repeal
Bylaws of the Corporation,
1.
<PAGE> 2
except as such power may be restricted or limited by the General Corporation Law
of the State of Delaware.
SEVENTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provision of Section 291 of Title 8 of the Delaware Code, or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders or the corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths (3/4) in value of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise arrangement, the said compromise
arrangement and the said reorganization shall, if sanctioned by the court to
which said application has been made, be binding on all the creditors or class
of creditors, and/or on all the stockholders or class of stockholders, of the
Corporation, as the case may be, and also on the Corporation.
EIGHTH: No director shall be personally liable to the Corporation or
its stockholders for monetary damages for any breach or fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware
Code, or (iv) for any transaction from which the director derived an improper
personal benefit.
NINTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
(a) (i) The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
(ii) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term of
one year. Each director shall serve until his or her successor is duly elected
and qualified or until his or her death, resignation or removal. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
2.
<PAGE> 3
(iii) Subject to the rights of the holders of any series of
Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of the
holders of an majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock").
(iv) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
(b) (i) Subject to Article IX of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
ten-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to make, alter, amend, or repeal Bylaws pursuant to Article
Sixth.
(ii) No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and no action shall be taken by the stockholders by
written consent.
(iii) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
(iv) Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the corporation shall be given in the manner
provided in the Bylaws of the corporation.
TENTH: Subject to the limitations set forth herein, the corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, in the manner now or hereafter prescribed by
law, and all rights and powers conferred herein on stockholders, directors and
officers are subject to this reserved power."
3.
<PAGE> 4
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its President and attested to by its Secretary this 8th day of
January, 1998.
ARRIS PHARMACEUTICAL CORPORATION
/s/ JOHN P. WALKER
-----------------------------------------
John P. Walker
President
ATTEST:
/s/ ALAN C. MENDELSON
- -------------------------------------
Alan C. Mendelson
Secretary
4.
<PAGE> 1
Exhibit 10.01
ARRIS PHARMACEUTICAL CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Agreement is made as of January 7, 1998, by and among Arris
Pharmaceutical Corporation, a Delaware corporation (the "Company"), and the
persons and entities listed on the signature pages hereof (the "Holders"), and
supersedes in its entirety that certain Registration Rights Agreement dated
April 16, 1993 (the "Prior Registration Rights Agreement"), by and among the
Company and the parties listed as signatories thereto (the "Stockholders"). The
Holders include a majority of the Holders, as that term is defined in the Prior
Registration Rights Agreement.
Pursuant to Section 17 of the Prior Registration Rights Agreement, the
registration rights provisions set forth in the Prior Registration Rights
Agreement may be amended by the action of the Stockholders. The Company and the
Stockholders desire to amend such provisions to amend and restate their
obligations with respect to registration rights in this Agreement, which shall
for all purposes subsume, supersede and replace the Prior Registration Rights
Agreement.
Now, therefore, in consideration of the premises and mutual agreements
set forth herein, the Company and the Holders agree as follows:
SECTION 1. [OMITTED]
SECTION 2. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Commission" shall mean the Securities and Exchange Commission,
or any other Federal agency at the time administering the Securities Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar Federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(c) "Holder" shall mean any holder of outstanding Registrable
Securities or anyone who holds outstanding Registrable Securities to whom the
registration rights conferred by Sections 5, 6 or 7 hereof have been transferred
in compliance with Section 14 hereof.
(d) "Initiating Holders" shall mean any Holder or Holders of at
least fifty one percent (51%) of the shares of Registrable Securities (adjusted
after the original issuance thereof for stock splits, stock dividends,
recapitalization or combination).
(e) "Register, "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement, and compliance with applicable
state securities laws of such states in which Holders notify the Company of
their intention to offer Registrable Securities.
1.
<PAGE> 2
(f) "Registrable Securities" shall mean all of the following to the
extent the same have not been sold to the public (i) any and all shares of
Common Stock of the Company issued or issuable upon conversion of shares of the
Company's Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred Stock, or upon exercise of warrants to purchase
shares of Common Stock issued pursuant to the terms of that certain Loan and
Warrant Agreement dated April 17, 1992 by and between the Company and the
parties listed as signatories thereto; (ii) securities added to the terms of
this agreement pursuant to Section 17(a); (iii) stock issued in respect of stock
referred to in (i) or (ii) above in any reorganization; or (iv) stock issued in
respect of the stock referred to in (i), (ii) or (iii) as a result of a stock
split, stock dividend, recapitalization or combination. Notwithstanding the
foregoing, Registrable Securities shall not include otherwise Registrable
Securities sold by a person in a transaction in which his rights under this
Agreement are not properly assigned; provided, however, that Common Stock or
other securities shall only be treated as Registrable Securities if and so long
as (A) they have not been sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction, (B) they have not
been sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions, and restrictive legends with respect thereto, if any, are
removed upon the consummation of such sale or (c) the registration rights
associated with such securities have not been terminated pursuant to Section 16
of this Agreement.
(g) "Rule 144" shall mean Rule 144 under the Securities Act or any
successor or similar rule as may be enacted by the Commission from time to time,
but shall not include Rule 144A.
(h) "Rule 144A" shall mean Rule 144A under the Securities Act or any
successor or similar rule as may be enacted by the Commission from time to time,
but shall not include Rule 144.
(i) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
SECTION 3. [OMITTED]
SECTION 4. LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding anything to the
contrary contained herein, no Holder shall request registration or participate
in a registration pursuant to Sections 5, 6 or 7 hereof after the Effective Time
of the merger (the "Merger") of a wholly owned subsidiary of the Company
("Merger Sub") with and into Sequana Therapeutics, Inc. ("Sequana") pursuant to
the terms of the Agreement and Plan of Merger and Reorganization, dated as of
November 2, 1997, among the Company, Merger Sub and Sequana, as amended (the
"Reorganization Agreement") and prior to the earlier of (a) the date 90 days
after the effective date of a registration statement for the first public
offering of securities by the Company after the Effective Time or (b) the first
anniversary of the Effective Time.
2.
<PAGE> 3
SECTION 5. REQUESTED REGISTRATION.
(a) In case the Company shall receive from Initiating Holders a
written request that the Company effect any registration with respect to all or
at least 33-1/3% of the issued and outstanding Registrable Securities held by
Initiating Holders, the Company shall:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable use its best efforts to register
(including, without limitation, the execution of an undertaking to file
post-effective amendments and any other governmental requirements) all
Registrable Securities which the Holders request to be registered within twenty
(20) days after receipt of such written notice from the Company; provided, that
the Company shall not be obligated to file a registration statement pursuant to
this Section 5:
A. [omitted];
B. in any particular state in which the Company
would be required to execute a general consent to service or, process in
effecting such registration;
C. within 120 days following the effective date of
any registered offering of the Company's securities to the general public;
D. in any registration having an aggregate offering
price (before deduction of underwriting discounts and expenses of sale) of less
than $5,000,000; or
E. after the Company has effected one such
registration pursuant to this Section 5 and such registration has been declared
or ordered effective, except as provided in Section 6 below.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practical, but in any event within ninety (90) days, after
receipt of the request or requests of the Initiating Holders and shall use
reasonable best efforts to have such registration statement promptly declared
effective by the Commission; provided, however, that if the Company shall
furnish to such Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed within such ninety-day (90-day) period and it is therefore
essential to defer the filing of such registration statement, the Company shall
have an additional period of not more than ninety (90) days after the expiration
of the initial ninety-day (90-day) period within which to file such registration
statement; provided, that during such time the Company may not file a
registration statement for securities to be issued and sold for its own account.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to Section 5. In
such event or if an underwriting is required by subsection 5(c), the Company
shall include such information in the written notice referred to in subsection
3.
<PAGE> 4
5(a)(i). In either such event, if so requested in writing by the Company, the
Initiating Holders shall negotiate with an underwriter selected by the Company
with regard to the underwriting of such requested registration; provided,
however, that if a majority in interest of the Initiating Holders have not
agreed with such underwriter as to the terms and conditions of such underwriting
within twenty (20) days following commencement of such negotiations, a majority
in interest of the Initiating Holders may select an underwriter of their choice.
The right of any Holder to registration pursuant to Section 5 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. The Company shall (together with
all Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding any other provision
of this Section 5, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, the Company shall so advise all Holders, and the number of
shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by such Holders; provided, however, that securities to be included in such
registration statement as a result of piggyback registration rights as well as
any securities to be offered by the Company, its officers and employees shall be
excluded from the registration statement prior to the exclusion of any
Registrable Securities held by the Holders. If any Holder disapproves of the
terms of the underwriting, he may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. If, by the
withdrawal of such Registrable Securities, a greater number of Registrable
Securities held by other Holders may be included in such registration (up to the
limit imposed by the underwriters) the Company shall offer to all Holders who
have included Registrable Securities in the registration the right to include
additional Registrable Securities in the same proportion used in determining the
limitation as set forth above. Any Registrable Securities which are excluded
from the underwriting by reason of the underwriter's marketing limitation or
withdrawn from such underwriting shall be withdrawn from such registration.
(c) If the Company is subject to the reporting requirements of
Section 13 or Section 15 of the Exchange Act as a result of the registration of
shares of its Common Stock under the Exchange Act, any registration pursuant to
this Section 5 must be firmly underwritten if the registration exceeds two
percent (2%) of the Company's outstanding Common Stock on an as-converted basis.
SECTION 6. PIGGYBACK REGISTRATION.
(a) If at any time or from time to time, the Company shall determine
to register any of its securities, for its own account or the account of any of
its shareholders, other than a registration relating solely to employee benefit
plans, or a registration relating solely to an SEC Rule 145 transaction, a
transaction relating solely to the sale of debt or convertible debt instruments
or a registration on any form (other than Form S-l, S-2 or S-3, or their
successor forms) which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities, the Company will:
4.
<PAGE> 5
(i) give to each Holder written notice thereof as soon as
practicable prior to filing the registration statement; and
(ii) include in such registration and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within fifteen (15) days after receipt of such written notice
from the Company, by any Holder or Holders, except as set forth in subsection
(b) below.
(b) If the registration is for a registered public offering
involving an underwriting, the Company shall so advise the Holders as a part of
the written notice given pursuant to subsection 6(a)(i). In such event the right
of any Holder to registration pursuant to Section 6 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
6, if the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
may limit the number of Registrable Securities to be included in the
registration and underwriting, or may exclude Registrable Securities entirely
from such registration if the registration is the first registered offering for
the sale of the Company's securities to the general public (provided that no
shares held by officers and directors of the Company, other than Registrable
Securities that may be owned by officers and directors, are included in the
registration and underwriting). The Company shall so advise all Holders and the
other Holders distributing their securities through such underwriting pursuant
to piggy-back registration rights similar to this Section 6, and the number of
shares of Registrable Securities and other securities that may be included in
the registration and underwriting shall be allocated among all Holders and other
holders in proportion, as nearly as practicable, to the-respective amounts of
Registrable Securities held by such Holders and other securities held by other
holders at the time of filing the registration statement. If any Holder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the managing underwriter. If, by
the withdrawal of such Registrable Securities, a greater number of Registrable
Securities held by other Holders may be included in such registration (up to the
limit imposed by the underwriters) the Company shall offer to all Holders who
have included Registrable Securities in the registration the right to include
additional Registrable Securities. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
SECTION 7. FORM S-3. The Company shall use its best efforts to qualify for
registration on Form S-3 or its successor form. After the Company has qualified
for the use of Form S-3, Initiating Holders shall have the right at any time to
request registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of shares by such Holders), subject only to the
following:
(a) The Company shall not be required to file a registration
statement pursuant to this Section 7 within ninety (90) days of the effective
date of any registration referred to in Sections 5 and 6 above.
5.
<PAGE> 6
(b) The Company shall not be required to file a registration
statement pursuant to this Section 7 unless the Holder or Holders requesting
registration propose to dispose of shares of Registrable Securities having an
aggregate disposition price (before deduction of underwriting discounts and
expenses of sale) of at least $1,000,000.
(c) The Company shall not be required to file more than two
registration statements pursuant to this Section 7 within any twelve-month
period.
The Company shall give written notice to all Holders of Registrable Securities
of the receipt of a request for registration pursuant to this Section 7 and
shall provide a reasonable opportunity for other Holders to participate in the
registration; provided, that if the registration is for an underwritten
offering, the following terms shall apply to all participants in such offering.
If the registration is for a registered public offering involving an
underwriting, the right of any Holder to registration pursuant to Section 7
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other Holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 7, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting. The company
shall so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among the Holders in proportion, as nearly as practicable, to
the respective amounts of securities requested by such Holders to be included in
such registration. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. If, by the withdrawal of such Registrable
Securities, a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the limit imposed by the underwriters),
the Company shall offer to all Holders who have included Registrable Securities
in the registration the right to include additional Registrable Securities in
the same proportion used in determining the limitation as set forth above. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration. Subject to the foregoing, the Company will use
its best efforts to effect promptly the registration of all shares of
Registrable Securities on Form S-3 to the extent requested by the Holder or
Holders thereof for purposes of disposition.
SECTION 8. EXPENSES OF REGISTRATION. In addition to the fees and expenses
contemplated by Section 9 hereof, all expenses incurred in connection with one
registration pursuant to Section 5 hereof and all registrations pursuant to
Sections 6 and 7 hereof, including without limitation, all registration, filing
and qualification fees, printing expenses, fees and disbursements of counsel for
the Company and expenses of any special audits of the Company's financial
statements incidental to or required by such registration, shall be borne by the
Company, except that the Company shall not be required to pay underwriters'
fees, discounts or commissions relating to Registrable Securities or fees of a
separate legal counsel of a Holder.
6.
<PAGE> 7
SECTION 9. REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep each Holder
participating therein advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense the Company will:
(a) keep such registration pursuant to Sections 5, 6 and 7
continuously effective for periods of one hundred twenty (120), ninety (90) and
ninety (90) days, respectively, or, in each case, such reasonable period
necessary to permit the Holder or Holders to complete the distribution described
in the registration statement relating thereto, whichever first occurs;
(b) promptly prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of the
Securities Act; and to keep such registration statement effective for that
period of time specified in Section 9(a) above;
(c) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
(d) use reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction, at the earliest possible moment;
(e) register or qualify such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions as any Holder
or underwriter reasonably requires, and keep such registration or qualification
effective during the period set forth in Section 9(a) above;
(f) cause all Registrable Securities covered by such registration to
be listed on each securities exchange, including NASDAQ, on which similar
securities issued by the Company are then listed; and
(g) cause its accountants to issue to the underwriter, if any, or
the Holders, if there is no underwriter, comfort letters and updates thereof, in
customary form and covering matters of the type customarily covered in such
letters with respect to underwritten offerings.
SECTION 10. INDEMNIFICATION.
(a) The company will indemnify and hold harmless each Holder of
Registrable Securities, each of its officers, directors and partners, and each
person controlling such Holder, with respect to which such registration has been
effected pursuant to this Agreement, and each underwriter (as defined in the
Securities Act), if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and liabilities including any of the foregoing
incurred in settlement of any proceeding commenced or threatened (or actions in
respect thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the
7.
<PAGE> 8
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act or any state securities law
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, and will reimburse each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any reasonable legal and any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage or liability arises
out of or is based on any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or issuable
to such Holder are included in the securities as to which such registration is
being effected, indemnify and hold harmless the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company and each
underwriter within the meaning of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, partners, persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
specifically for use therein; provided, however, the total amount for which any
Holder, its officers, directors and partners, and any person controlling such
Holder, shall be liable under this Section 10(b) shall not in any event exceed
the aggregate proceeds received by such Holder from the sale of Registrable
Securities sold by such Holder in such registration.
(c) Each party entitled to indemnification under this Section 10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in actual detriment to
the Indemnifying Party. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by
8.
<PAGE> 9
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that the provisions
on indemnification contained in the underwriting agreement entered into among
the selling Holders, the Company and the underwriters in connection with the
underwritten public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall be controlling as to the
Registrable Securities included in the public offering; provided, however, that
if, as a result of this Section 10(d), any Holder, its officers, directors, and
partners and any person controlling such Holder is held liable for an amount
which exceeds the aggregate proceeds received by such Holder from the sale of
Registrable Securities included in a registration, as provided in Section 10(b)
above, pursuant to such underwriting agreement (the "Excess Liability"), the
Company shall reimburse any such Holder for such Excess Liability.
SECTION 11. LOCKUP AGREEMENT. In consideration for the Company agreeing to its
obligations under this Agreement, each Holder agrees in connection with any
registration of the Company's securities (whether or not such Holder is
participating in such registration) upon the request of the Company and the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 90 days
in the case of the Company's initial public offering) from the effective date of
such registration as the Company and the underwriters may specify, so long as
all Holders or stockholders holding more than one percent of the outstanding
common stock and all officers and directors of the Company are bound by a
comparable obligation; provided, however, that nothing herein shall prevent any
Holder that is a partnership or corporation from making a distribution of
Registrable Securities to the partners or shareholders thereof that is otherwise
in compliance with applicable securities laws, so long as such distributees
agree to be so bound.
SECTION 12. INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration referred to herein.
SECTION 13. RULE 144 AND 144A REPORTING. With a view to making available to
Holders of Registrable Securities the benefits of certain rules and regulations
of the SEC which may permit the sale of the Registrable Securities to the public
without registration, the Company agrees at all times after ninety (90) days
after the effective date of the first registration filed by the Company for an
offering of its securities to the general public to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 and Rule 144A;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
9.
<PAGE> 10
(c) so long as a Holder owns any Registrable Securities, to furnish
to each such Holder forthwith upon such Holder's request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144 and Rule 144A (at any time after ninety (90) days after the effective date
of the first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as each such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such Holder to sell any such securities without
registration.
For purposes of facilitating sales pursuant to Rule 144A, so long as the
Company is not subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, each Holder and any prospective purchaser of such Holder's
securities shall have the right to obtain from the Company, upon request of the
Holder prior to the time of sale, a very brief statement of the nature of the
business of the Company and the products and services it offers; and the
Company's most recent balance sheet and profit and loss and retained earnings
statements, and similar financial statements for the two preceding fiscal years
(the financial statements should be audited to the extent reasonably available).
SECTION 14. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities of a Holder and keep information available
granted to a Holder by the Company under Sections 5, 6, and 7, may be assigned
by a Holder to any partner or shareholder of such Holder, to any other Holder,
or to a transferee or assignee who receives at least the number of shares of
Registrable Securities needed to remain a party to this Agreement under Section
16(a); provided, that the Company is given written notice by the Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned.
SECTION 15. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date these registration rights are granted, the Company shall not, without the
prior written consent of the Holders of not less than fifty percent (50%) of the
Registrable Securities then held by Holders, enter into any agreement with any
holder or prospective holder of any securities of the Company which would allow
such holder or prospective holder to include such securities in any registration
filed under Sections 5, 6 or 7 hereof other than rights identical or subordinate
to the rights of any Holder hereunder.
SECTION 16. TERMINATION OF RIGHTS.
(a) This Agreement shall terminate with respect to any particular
Holder at such time as such Holder holds less than 1% of the outstanding voting
stock of the Company.
(b) This Agreement shall terminate at 5:00 p.m. California time on
November 19, 2000.
10.
<PAGE> 11
SECTION 17. MISCELLANEOUS.
(a) AMENDMENTS. This Agreement may be amended only by a writing
signed by the Holders of more than fifty percent (50%) of the Registrable
Securities, as constituted from time to time. The Holders hereby consent to
future amendments to this Agreement that permit additional parties, other than
employees, officers or directors of the Company, to be made parties hereto and
to become Holders of Registrable Securities and additional securities to become
Registrable Securities; provided, however, that no such future amendment may
materially impair the rights of the Holders hereunder without obtaining the
requisite consent of the Holders, as set forth above. The Holders hereby
specifically consent to future amendments to this Agreement to permit the
addition of certain parties as Holders and the addition of certain securities
issued to such parties as Registrable Securities in connection with the Merger
pursuant to the terms of Section 5.16 of the Reorganization Agreement. For
purposes of this Section 17(a), Registrable Securities held by the Company or
beneficially owned by any officer or employee of the Company shall be
disregarded and deemed not to be outstanding.
(b) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which shall constitute a single instrument.
(c) NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and may be sent initially by facsimile
transmission and shall be mailed by registered or certified mail, postage
prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a
Holder, at such Holder's address set forth on the books of the Company, or at
such other address as such Holder shall have furnished to the Company in
writing, or (b) if to any other holder of any Registrable Securities, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such securities who has so furnished an address to
the Company, or (c) if to the Company, one copy should be sent to the Company's
current address at 180 Kimball Way, South San Francisco, California 94080, or at
such other address as the Company shall have furnished to the Holders. Each such
notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered
personally, or, if sent by first class, postage pre-paid mail, at the earlier of
its receipt or seventy-two (72) hours after the same has been deposited in a
regularly maintained receptacle for the deposit of the United States mail,
addressed and mailed as aforesaid.
11.
<PAGE> 12
(d) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California without regard to principles of
conflict of law.
The foregoing Registration Rights Agreement is executed as of the date first
above written.
COMPANY:
ARRIS PHARMACEUTICAL CORPORATION
By: /s/ Frederick Ruegsegger
-----------------------------------------------
Frederick Ruegsegger
Title: Chief Financial Officer
HOLDERS:
PHARMACIA & UPJOHN A.B. (for shares held
in the name of Kabi Pharmacia A.B.)
By: /s/ Fredrik Berg and /s/ Hans Sievertson
----------------------------------------------
Name: Fredrik Berg and Hans Sievertson
---------------------------------------------
Title: VP Legal Affairs and VP Business Development
---------------------------------------------
12.
<PAGE> 1
EXHIBIT 10.22
ARRIS PHARMACEUTICAL CORPORATION
1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON APRIL 20, 1994
APPROVED BY STOCKHOLDERS ON JUNE 7, 1994
AMENDED ON FEBRUARY 6, 1997
AMENDED ON NOVEMBER 10, 1997
APPROVED BY STOCKHOLDERS ON JANUARY 7, 1998
1. PURPOSE.
(a) The purpose of the 1994 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each new director of Arris
Pharmaceutical Corporation (the "Company") who is not otherwise an employee of
the Company or of any Affiliate of the Company (each such person being hereafter
referred to as a "Non-Employee Director") will be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to secure and retain the
services of persons capable of serving as Non-Employee Directors of the Company,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
<PAGE> 2
(b) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"), all of the
members of which Committee may (but need not) be, in the discretion of the
Board, "non-employee directors" within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
"outside directors" within the meaning of Section 162(m) of the Code. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate four hundred seventy-five
thousand (475,000) shares of the Company's common stock. If any option granted
under the Plan shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such option shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
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<PAGE> 3
(a) Each person who is elected or appointed for the first time to serve
as a Non-Employee Director on or after February 6, 1997 shall, upon the date of
such initial election or appointment, be granted an option to purchase thirty
thousand (30,000) shares of common stock of the Company on the terms and
conditions set forth herein.
(b) On the date of the Company's annual meeting of its stockholders each
year, commencing with the 1997 annual meeting, each person who is then serving
as a Non-Employee Director and has continuously served as a Non-Employee
Director for at least the preceding three (3) months shall be granted an option
to purchase five thousand (5,000) shares of common stock of the Company on the
terms and conditions set forth herein.
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
Director or as an employee of or consultant to the Company or any Affiliate of
the Company terminates for any reason or for no reason, the option shall
terminate on the earlier of the Expiration Date or the date three (3) months
following the date of termination of service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or twelve (12) months following
the date of the optionee's death. In any and all circumstances, an option may be
exercised following termination of the optionee's service as a Director of the
Company only as to that number of shares as to which it was exercisable on the
date of termination of such service under the provisions of subparagraph 6(e).
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<PAGE> 4
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted.
(c) The optionee may elect to make payment of the exercise price under
one of the following alternatives:
(i) Payment of the exercise price per share in cash at the
time of exercise; or
(ii) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at fair market value on
the date preceding the date of exercise; or
(iii) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(i) and 6(c)(ii) above.
Notwithstanding the foregoing, this option may be exercised pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the receipt of cash (or check) by the Company prior to
the issuance of shares of the Company's common stock.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his or her
guardian or legal representative, unless otherwise specified in the option, in
which case the option may be transferred upon such terms and conditions as are
set forth in the option, as the Board or the Committee shall determine in its
discretion, including
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<PAGE> 5
(without limitation) pursuant to a "domestic relations order." Notwithstanding
the foregoing, the person to whom an option is granted may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the optionee, shall thereafter
be entitled to exercise the option.
(e) The option shall become exercisable in installments over a period of
four (4) years from the date of grant at the rate of twenty five percent (25%)
of the total shares granted under such option in four (4) equal annual
installments commencing on the date one year after the date of grant of the
option, provided that the optionee has, during the entire period prior to such
vesting date, continuously served as a Director or as an employee of or
consultant to the Company or any Affiliate of the Company, whereupon such option
shall become fully exercisable in accordance with its terms with respect to that
portion of the shares represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then-applicable securities laws.
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<PAGE> 6
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with
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<PAGE> 7
respect to, any shares subject to such option unless and until such person has
satisfied all requirements for exercise of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee Director with or without cause.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through such Non-Employee
Director, shall have any right, title or interest in or to any option reserved
for the purposes of the Plan except as to such shares of common stock, if any,
as shall have been reserved for such Non-Employee Director pursuant to any
previous option grant.
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal or other withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan
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<PAGE> 8
will be appropriately adjusted in the class(es) and maximum number of shares
subject to the Plan pursuant to subparagraph 3(a), and the outstanding options
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding options. Such adjustments shall
be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation; (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (3) any other capital reorganization in which more than fifty
percent (50%) of the shares of the Company entitled to vote are exchanged, the
time during which options outstanding under the Plan may be exercised shall be
accelerated and the options terminated if not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
Except as provided in paragraph 10 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Rule 16b-3 under the Exchange Act or any Nasdaq or
securities exchange listing requirements.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
8
<PAGE> 9
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on April 1, 2004. No options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
9
<PAGE> 1
Exhibit 10.65
FIRST AMENDMENT TO LOAN AGREEMENT
BETWEEN
ARRIS PHARMACEUTICAL CORPORATION, AS BORROWER
AND
THE SUMITOMO BANK, LIMITED, AS A LENDER
AND
SILICON VALLEY BANK, AS A LENDER
AND
THE SUMITOMO BANK, LIMITED, AS AGENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (the "First Amendment") is made and
entered into as of January 8, 1998 by and between ARRIS PHARMACEUTICAL
CORPORATION, a Delaware corporation ("Arris" or the "Borrower") and THE SUMITOMO
BANK, LIMITED, a Japanese banking corporation and SILICON VALLEY BANK, a
California banking corporation (collectively "Lenders" and individually a
"Lender") and THE SUMITOMO BANK, LIMITED, as agent for the Lenders (in such
capacity, the "Agent").
RECITALS:
A. The Borrower, the Lender and the Agent entered into that certain
loan agreement dated September 29, 1997 (the "Loan Agreement"). Any capitalized
terms which are not defined herein shall have the meaning ascribed to such
capitalized terms in the Loan Agreement.
B. Pursuant to the Loan Agreement, the Lenders together agreed to make
a loan to Arris in the aggregate principal amount of Twenty Million Dollars
($20,000,000) with the sum Eleven Million Eight Hundred Thousand and No/100
Dollars ($11,800,000) being the initial loan disbursement under the Loan
Agreement.
C. Sequana Therapeutics, Inc., a California corporation ("Sequana") and
The Sumitomo Bank, Limited, a Japanese banking corporation ("Sumitomo") entered
into that certain loan agreement dated October 23, 1996 (the "Sequana Loan
Agreement").
D. Pursuant to the Sequana Loan Agreement, Sumitomo agreed to make a
loan to Sequana in the aggregate principal amount of Seven Million Dollars
($7,000,000).
E. Sequana has reached an agreement with Arris pursuant to which Beagle
Acquisition Sub, Inc., a California corporation and wholly owned subsidiary of
Arris formed solely to effect the merger transaction, will merge with and into
Sequana pursuant to the terms of a Reorganization Agreement (the "Merger").
Pursuant to the Merger, Sequana will be the surviving corporation and Sequana
will become a wholly owned subsidiary of Arris. Pursuant to the Loan Agreement,
Arris has requested that the Lenders and the Agent consent to the Merger. The
Lenders and the Agent are is willing to consent to the Merger provided that
certain modifications to the Loan Agreement are made, including without
limitation that the Loan Agreement and Sequana Loan Agreement provide for
cross-trigger events and cross-default events.
1.
<PAGE> 2
F. As a consequence of the proposed Merger, the Lenders, the Agent and
the Borrower desire to make certain modifications to the Loan Agreement which
shall become effective on the Effective Date (as defined in Section 1 below).
After the Effective Date, the Borrower, the Lenders and the Agent intend that
the Loan Agreement together with this First Amendment be construed together as
one fully integrated agreement.
IN CONSIDERATION of the Recitals, the mutual covenants contained herein,
and other good and valuable consideration, the Lenders, the Agent and the
Borrower agree as follows:
AGREEMENT
1. The effective date ("Effective Date") of this First Amendment shall
be the date that the Merger is consummated and Sequana becomes a wholly owned
subsidiary of Arris.
2. Borrower hereby unconditionally reaffirms each and all of its
obligations under the Loan Agreement, the Note, the Restricted Account and
Security Agreement, the Collateral Bailment Agreement, the Irrevocable
Instructions and Power of Attorney, the Custodian Agreement and each of the
other Loan Documents. Without limiting the generality of the foregoing, Borrower
hereby reaffirms its promise to pay the indebtedness evidenced by the Note and
Loan Agreement and to perform each and all of the conditions and covenants
required to be performed by Borrower pursuant to the Note, the Loan Agreement
and other Loan Documents. By executing this First Amendment, Borrower
acknowledges and covenants that, as of the Effective Date, Borrower has no
defenses, claims, counterclaims, causes of action or rights of setoff of any
kind or nature whatsoever against the Lenders or the Agent with respect to or
arising out of or relating to the Loan, the Note, the Loan Agreement or any of
the other Loan Documents.
3. From and after the Effective Date the following provisions shall
apply: This First Amendment and the Loan Agreement shall be construed together
as one fully integrated agreement. Except as specifically amended by this First
Amendment, the terms of the Loan Agreement and other Loan Documents shall remain
unaltered and in full force and effect in accordance with their original terms
and conditions. Any references to the Loan Agreement contained in the Note,
Restricted Account and Security Agreement, the Collateral Bailment Agreement,
the Irrevocable Instructions and Power of Attorney, the Custodian Agreement or
any of the other Loan Documents shall be deemed to refer to the Loan Agreement
as amended by this First Amendment.
4. The effectiveness of this First Amendment and the obligations of the
Lenders and the Agent hereunder shall be subject to the following conditions
precedent:
(a) the Borrower will have executed and delivered to the Lenders
and the Agent this First Amendment;
(b) no Event of Default (after giving effect to the amendments
contemplated in this First Amendment) shall have occurred, and be continuing,
under the Loan Agreement;
2.
<PAGE> 3
(c) the Agent shall have received reimbursement from Borrower of
all costs and expenses incurred by the Agent and/or the Lenders in connection
with this First Amendment, including without limitation, the Agent's and/or the
Lenders' legal fees and expenses incurred in connection with the negotiation and
preparation of this First Amendment and any other fees and expenses of the Agent
and/or the Lenders for UCC searches or filing fees.
(d) the Borrower will have delivered to the Agent the following,
in a form and in substance acceptable to the Agent:
(i) a copy of the certificate of incorporation of Arris
certified by the Secretary of State of Delaware;
(ii) a copy of the bylaws of the Borrower certified by its
Secretary;
(iii) a copy of resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance by the
Borrower of this First Amendment and the reaffirmation of all obligations
under the Loan Documents, certified by the Secretary of the Borrower;
(iv) a good standing certificate for the Borrower, dated as
of the date not more than ten (10) days prior to the Effective Date of
this First Amendment from the Secretary of State of the State of Delaware;
(v) an incumbency certificate with respect to the officers
of the Borrower, certified by the Secretary; and
(vi) evidence that Borrower is qualified to do business in
the State of California and is in good standing as a foreign corporation.
(e) counsel to the Borrower (which may be in-house general
counsel) will have delivered to the Agent, for the benefit of Agent and the
Lenders, such counsel's legal opinion as to the due organization, existence and
qualification to do business, and good standing of the Borrower, due
authorization, execution and enforceability of this First Amendment, the Loan
Agreement and the other Loan Documents, the absence of pending and threatened
litigation, the non-contravention of other documents, instruments, laws and
regulations, and such other matters that the Agent may reasonably require, in
form and substance reasonably satisfactory to the Agent.
(f) Sequana will have executed and delivered to Sumitomo a First
Amendment to the Sequana Loan Agreement in a form and substance satisfactory to
Sumitomo.
(g) The Merger shall have been consummated and Sequana shall have
become a wholly owned subsidiary of Arris.
5. Borrower hereby represents and warrants that all representations and
warranties contained in the Loan Agreement are true and correct as of the date
of execution hereof.
3.
<PAGE> 4
6. From and after the Effective Date, Section 5.10 is amended and
restated in its entirety to read as follows:
"SECTION 5.10. FINANCIAL COVENANTS. The Borrower, on a
consolidated basis with Borrower's Affiliates other than Sequana
Therapeutics, Inc., a California corporation ("Sequana") or
Sequana's subsidiaries, shall at all times maintain:
(i) A maximum ratio of Total Debt to Net Worth, as
calculated on a quarterly basis of 0.5:1;
(ii) A minimum Current Ratio, as calculated on a quarterly
basis, of 1.5:1.0,
(iii) A minimum Net Cash Level equal to the then outstanding
principal balance due under the Note plus the greater of (x) Ten
Million Dollars ($10,000,000) and (y) two (2) times the preceding
six (6) months Actual Cash Burn; and
(iv) A minimum Net Worth, as calculated at the end of each
fiscal quarter, of more than Twenty Million Dollars ($20,000,000).
The failure of the Borrower to maintain any of the covenants set forth in this
Section 5.10(i)-(iv) and/or the failure of Borrower to maintain the covenants
set forth in Section 5.12 and/or the failure of Sequana to maintain any of the
covenants set forth in Section 5.10 of that certain loan agreement dated as of
October 23, 1996 by and among Sequana and The Sumitomo Bank, Limited, a Japanese
banking corporation, as lender, as it may be amended from time to time (the
"Sequana Loan Agreement") and/or the occurrence of an Event of Default under
Section 8.1 of this Agreement shall be a "Trigger Event.""
7. From and after the Effective Date, new Section 5.12 shall be
applicable and read as follows:
"5.12 MAINTENANCE OF SEPARATE CORPORATE EXISTENCE. For
purposes of Borrower's preparing an internal annual report under
Section 6.1, the quarterly reports under Section 6.2, the cash and
covenant reports required under Section 6.4 and determining
Borrower's compliance with the financial covenants set forth in
Sections 5.10(i) through 5.10(iv), Borrower shall maintain its own
financial statements, balance sheets, income statements, statements
of cash flow and other books and records separate from the financial
statements, books and records of Sequana; provided, however, that
such reports and such separate financial statements, balance sheets,
income statements, statements of cash flow and other books and
records of Borrower may be internally prepared by Borrower and need
not be audited by Borrower's outside auditors; provided, further,
that Borrower's outside accountant audited annual reports under
Section 6.1 and Borrower's public reports under Section 6.3 may be
prepared by Borrower on a consolidated basis with Sequana and
Sequana's and Borrower's respective Affiliates. All of Borrower's
assets, including Borrower's Cash and Cash Equivalents, and all of
4.
<PAGE> 5
Borrower's liabilities shall be maintained separate from, and not
commingled or consolidated with, the assets or liabilities of
Sequana. Borrower shall maintain its own corporate existence and
shall not consolidate with, merge into or convey or transfer its
properties substantially as an entirety to any Affiliate (including,
without limitation, Sequana) without the Lenders' prior written
consent."
8. From and after the Effective Date, Section 8.1 is amended and
restated in its entirety to read as follows:
"SECTION 8.1. EVENTS OF DEFAULT. If any one or more of the
following events ("Event of Default") shall occur and be continuing,
the entire unpaid balance of the principal of and interest on the
Note and all other obligations and Indebtedness of the Borrower to
the Lenders arising hereunder and under the other Loan Documents
will (i) in the case of any Event of Default of the types referred
to in subparagraph (f) hereinbelow, immediately become due and
payable without notice and (ii) in the case of any other Event of
Default, immediately become due and payable upon written notice to
that effect given to the Borrower by the Agent, without presentment
or demand for payment, notice of non-payment, protest or further
notice or demand of any kind, all of which are expressly waived by
the Borrower. Upon an Event of Default, the Agent and/or the Lenders
shall have the rights and remedies provided for herein and in the
other Loan Documents and under applicable law and in equity, and the
rights and remedies provided for herein shall be cumulative and in
addition to the rights and remedies provided for therein. Each of
the following shall constitute an Event of Default:
(a) Failure by the Borrower to make any payment within five
(5) days of when due of any amount payable under the Loan Documents.
(b) Failure by the Borrower to make any mandatory payments
under any borrowing agreement (other than the Loan Documents) to
which the Borrower is a party within any applicable grace period
provided in such agreement or any other default by the Borrower
under any such borrowing agreement and the failure of the Borrower
to cure such default within any applicable grace period, provided
that no Event of Default will be deemed to have occurred under this
paragraph (b) with respect to any indebtedness under any borrowing
agreement if payment of such indebtedness, after notice thereof
having been given to the Agent, is being contested by the Borrower
in good faith and by appropriate proceedings and such contest
operates to prevent the other party to such agreement from
exercising its remedies against the Borrower or any of its
properties, or if such other party has agreed in writing not to
exercise its remedies against the Borrower or any of its properties,
and, in any case, the amount in dispute is in the aggregate less
than $100,000.
(c) Failure by the Borrower to perform or observe any term,
condition or covenant set forth in Section 2.6.
5.
<PAGE> 6
(d) Failure by the Borrower to perform or observe any
material term, condition or covenant of this Agreement or of any of
the Loan Documents (other than the covenants set forth in Section
5.10(i) through 5.10(iv) which shall constitute a Trigger Event and
not an Event of Default) which failure (other than a failure which
by its nature is not capable of cure and other than a failure to
perform or observe any term, condition or covenant referred to or
set forth in Subparagraphs (a), (b) and (c) hereinabove) is not
cured within thirty (30) days of the occurrence thereof.
(e) Any representation or warranty made in writing in any of
the Loan Documents or in connection with the making of the Loan or a
certificate, statement or report made or delivered in compliance
with this Agreement, will have been false or misleading in any
material respect when made or delivered.
(f) The Borrower makes an assignment for the benefit of
creditors, files a petition for bankruptcy, petitions or applies to
any tribunal for the appointment of a receiver, custodian, or any
trustee for it or a substantial part of its assets, or commences any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or there will
have been filed any such petition or application, or any such
proceeding has been commenced against it, which remains undismissed
for a period of sixty (60) days or more; or any order for relief is
entered in any such proceeding; or the Borrower by any act or
omission indicates its consent to, approval of or acquiescence in
any such petition, application or proceeding or the appointment of a
custodian, receiver or any trustee for it or any substantial part of
any of its properties; or the Borrower suffers any custodianship,
receivership or trusteeship to continue undischarged for a period of
sixty (60) days or more.
(g) Any single judgment of $100,000 or more or a combination
of unsecured judgments aggregating $100,000 or more against the
Borrower not covered by insurance or any attachment or levy of
execution against any substantial part of the Borrower's properties
for any amount (not covered by insurance) remains unpaid, unstayed
on appeal, undischarged, unbonded or undismissed for a period of
thirty (30) days or more.
(h) Any Loan Document ceases to be in full force and effect
in all material respects for any reason (other than due to the
payment in full of all amounts secured or evidenced thereby or due
to discharge in writing by the Agent).
(i) After the occurrence of a Trigger Event under Section
5.10, the failure of the Borrower and/or the Account Holder to make
the requisite transfer to the Custodian Account as provided in
Section 5.11 such that, not later than 5:00 P.M. in New York, New
York on the first Business Day following the occurrence of the
Trigger Event, the Restricted Account Balance equals or exceeds the
Required Restricted Account Balance.
6.
<PAGE> 7
(j) Upon the occurrence of a Trigger Event under Section
5.10, the failure of the Borrower to execute and deliver, or cause
to be executed and delivered, any additional documents reasonably
requested by the Agent in connection with the transfer by the
Borrower and/or Account Holder to the Custodian Account as provided
in Section 5.11 (including without limitation any additional
documents reasonably requested by the Agent in order to further
implement or perfect the pledge of assets held in the Custodian
Account).
(k) Failure by the Borrower to comply in any material
respect with its "Investment Policy", for investment of all Cash and
Cash Equivalents or the Borrower's making a material change to such
investment policy without the Agent's prior written approval, which
approval shall not be unreasonably withheld.
(l) After the occurrence of a Trigger Event and the initial
transfer to the Custodian Account as provided in Section 5.11, the
failure of the Borrower and/or the Account Holder to make, within
two Business Days following the request of the Agent, such
additional transfers to the Custodian Account as may be necessary,
from time to time, to increase the Restricted Account Balance so
that it equals the Required Restricted Account Balance.
(m) The failure by the Borrower, at any time, to maintain a
Net Cash Level equal to the sum of (i) the then outstanding
principal balance under the Note plus (ii) the greater of (x) Six
Million Dollars ($6,000,000) or (y) two (2) times the amount of the
preceding four (4) months Actual Cash Burn.
(n) The occurrence of an "Event of Default" under the
Sequana Loan Agreement, as defined in Section 8.1 of the Sequana
Loan Agreement.
(o) After the Closing Date, a material adverse change in the
business or financial condition of the Borrower occurs."
9. CONSENT TO MERGER. In consideration of this First Amendment, the
Agent and each of the Lenders hereby consent to the Merger.
10. MISCELLANEOUS.
(a) This First Amendment shall be governed by, construed and
interpreted in accordance with the laws of the State of California without
reference to its conflict of laws rules.
7.
<PAGE> 8
(b) This First Amendment may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same document.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Loan
Agreement to be duly executed as of date first above written.
ARRIS PHARMACEUTICAL CORPORATION,
as Borrower
By: /s/ FRED RUEGSEGGER
---------------------------------------------
Name: Fred Ruegsegger
-------------------------------------------
Title: Chief Financial Officer and Vice President
------------------------------------------
THE SUMITOMO BANK, LIMITED,
as Agent and as a Lender
By: /s/ CAROLE A. DALEY
---------------------------------------------
Name: Carole A. Daley
-------------------------------------------
Title: Vice President and Manager
------------------------------------------
By: /s/ J. WILLIAM BLOORE
---------------------------------------------
Name: J. William Bloore
-------------------------------------------
Title: Vice President
------------------------------------------
SILICON VALLEY BANK,
as a Lender
By: /s/ BARRY REAGAN
---------------------------------------------
Name: Barry Reagan
-------------------------------------------
Title: Vice President
------------------------------------------
8.
<PAGE> 1
Exhibit 10.66
FIRST AMENDMENT TO LOAN AGREEMENT
BETWEEN
SEQUANA THERAPEUTICS, INC.
AND
THE SUMITOMO BANK, LIMITED
THIS FIRST AMENDMENT TO LOAN AGREEMENT (the "First Amendment") is made
and entered into as of January 8, 1998 by and between SEQUANA THERAPEUTICS,
INC., a California corporation ("Sequana" or the "Borrower") and THE SUMITOMO
BANK, LIMITED, a Japanese banking corporation (the "Bank").
RECITALS:
A. The Borrower and the Bank entered into that certain loan agreement
dated October 23, 1996 (the "Loan Agreement"). Any capitalized terms which are
not defined herein shall have the meaning ascribed to such capitalized terms in
the Loan Agreement.
B. Pursuant to the Loan Agreement and the other Loan Documents, Bank
agreed to make the Loan to Borrower in the aggregate principal amount of Seven
Million Dollars ($7,000,000).
C. The Bank, as Agent, and the Bank and Silicon Valley Bank, a
California banking corporation ("SVB"), as Lender entered into that certain loan
agreement dated September 29, 1997 with Arris Pharmaceutical Corporation, a
Delaware corporation ("Arris") (the "Arris Loan Agreement").
D. Pursuant to the Arris Loan Agreement, the Bank and SVB, as Lender,
together agreed to make a loan to Arris in the aggregate principal amount of
Twenty Million Dollars ($20,000,000) with the sum Eleven Million Eight Hundred
Thousand and No/100 Dollars ($11,800,000) being the initial loan disbursement
under the Arris Loan Agreement.
E. Sequana has reached an agreement with Arris pursuant to which Beagle
Acquisition Sub, Inc., a California corporation and wholly owned subsidiary of
Arris formed solely to effect the merger transaction, will merge with and into
Sequana pursuant to the terms of a Reorganization Agreement (the "Merger").
Pursuant to the Merger, Sequana will be the surviving corporation and Sequana
will become a wholly owned subsidiary of Arris. Pursuant to the Loan Agreement,
Sequana has requested that the Bank consent to the Merger. The Bank is willing
to consent to the Merger provided that certain modifications to the Loan
Agreement are made, including without limitation that the Loan Agreement and
Arris Loan Agreement provide for cross-trigger events and cross-default events.
F. As a consequence of the proposed Merger, the Bank and the Borrower
desire to make certain modifications to the Loan Agreement which shall become
effective on the Effective Date (as defined in Section 1 below). After the
Effective Date, the Borrower and the Bank intend that the Loan Agreement
together with this First Amendment be construed together as one fully integrated
agreement.
1
<PAGE> 2
IN CONSIDERATION of the Recitals, the mutual covenants contained herein,
and other good and valuable consideration, the Bank and the Borrower agree as
follows:
AGREEMENT
1. The effective date ("Effective Date") of this First Amendment shall
be the date that the Merger is consummated and Sequana becomes a wholly owned
subsidiary of Arris.
2. Borrower hereby unconditionally reaffirms each and all of its
obligations under the Loan Agreement, the Note, the Restricted Account and
Security Agreement, the Collateral Bailment Agreement, the Irrevocable
Instructions and Power of Attorney, the Custodian Agreement and each of the
other Loan Documents. Without limiting the generality of the foregoing, Borrower
hereby reaffirms its promise to pay the indebtedness evidenced by the Note and
Loan Agreement and to perform each and all of the conditions and covenants
required to be performed by Borrower pursuant to the Note, the Loan Agreement
and other Loan Documents. By executing this First Amendment, Borrower
acknowledges and covenants that, as of the Effective Date, Borrower has no
defenses, claims, counterclaims, causes of action or rights of setoff of any
kind or nature whatsoever against Bank with respect to or arising out of or
relating to the Loan, the Note, the Loan Agreement or any of the other Loan
Documents.
3. From and after the Effective Date the following provisions shall
apply: This First Amendment and the Loan Agreement shall be construed together
as one fully integrated agreement. Except as specifically amended by this First
Amendment, the terms of the Loan Agreement and other Loan Documents shall remain
unaltered and in full force and effect in accordance with their original terms
and conditions. Any references to the Loan Agreement contained in the Note,
Restricted Account and Security Agreement, the Collateral Bailment Agreement,
the Irrevocable Instructions and Power of Attorney, the Custodian Agreement or
any of the other Loan Documents shall be deemed to refer to the Loan Agreement
as amended by this First Amendment.
4. The effectiveness of this First Amendment and the obligations of the
Bank hereunder shall be subject to the following conditions precedent:
(a) the Borrower will have executed and delivered to the Bank this
First Amendment;
(b) no Event of Default (after giving effect to the amendments
contemplated in this First Amendment) shall have occurred, and be continuing,
under the Loan Agreement;
(c) the Bank shall have received reimbursement from Borrower of all
costs and expenses incurred by Bank in connection with this First Amendment,
including without limitation, the Bank's legal fees and expenses incurred in
connection with the negotiation and preparation of this First Amendment and any
other fees and expenses of the Bank for UCC searches or filing fees.
2
<PAGE> 3
(d) the Borrower will have delivered to the Bank the following, in a
form and in substance acceptable to the Bank:
(i) a copy of the certificate of incorporation of Sequana
certified by the Secretary of State of California;
(ii) a copy of the bylaws of the Borrower certified by its
Secretary;
(iii) a copy of resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance by the Borrower of
this First Amendment and the reaffirmation of all obligations under the Loan
Documents, certified by the Secretary of the Borrower;
(iv) a good standing certificate for the Borrower, dated as of
the date not more than ten (10) days prior to the Effective Date of this First
Amendment from the Secretary of State of the State of California; and
(v) an incumbency certificate with respect to the officers of
the Borrower, certified by the Secretary.
(e) counsel to the Borrower (which may be in-house general counsel)
will have delivered to the Bank such counsel's legal opinion as to the due
organization, existence and qualification to do business, and good standing of
the Borrower, due authorization, execution and enforceability of this First
Amendment, the Loan Agreement and the other Loan Documents, the absence of
pending and threatened litigation, the non-contravention of other documents,
instruments, laws and regulations, and such other matters that the Bank may
reasonably require, in form and substance reasonably satisfactory to the Bank.
(f) Arris will have executed and delivered to the Bank a First
Amendment to the Arris Loan Agreement in a form and substance satisfactory to
the Bank and SVB.
(g) The Merger shall have been consummated and Sequana shall have
become a wholly owned subsidiary of Arris.
5. Borrower hereby represents and warrants that all representations and
warranties contained in the Loan Agreement are true and correct as of the date
of execution hereof.
6. From and after the Effective Date, Section 5.10 is amended and
restated in its entirety to read as follows:
"SECTION 5.10. FINANCIAL COVENANTs. The Borrower, on a
consolidated basis with Borrower's subsidiaries (if any) but not
on a consolidated basis with its parent Arris Pharmaceutical
Corporation, a Delaware corporation ("Arris") or its other
Affiliates, shall at all times maintain:
(i) A maximum ratio of Total Debt to Net Worth, as
calculated at the end of each fiscal quarter on the basis of the
average of the ratio of Total Debt to Net Worth for each of the
previous four fiscal quarters, of 0.5:1;
3
<PAGE> 4
(ii) A minimum Current Ratio, as calculated on a
quarterly basis, of 2.0:1;
(iii) A minimum Net Cash Level equal to the then
outstanding principal balance due under the Note plus Fifteen
Million Dollars ($15,000,000);
(iv) Cash and Cash Equivalents, which are not subject to
any Lien or claim of any Person (other than General Tax Liens),
on hand in the Investment Account in an amount not less than the
sum of Ten Million Dollars ($10,000,000) plus restricted cash
and amounts which may be restricted in the future pursuant to
agreements between the Borrower and third parties; and
(v) A minimum Net Worth of Ten Million Dollars
($10,000,000).
The failure of the Borrower to maintain any of the covenants set forth in this
Section 5.10(i)-(v) and/or the failure of Borrower to maintain the covenants set
forth in Section 5.12 and/or the failure of Arris to maintain any of the
covenants set forth in Section 5.10 of that certain loan agreement dated as of
September 29, 1997 by and among Arris, the Bank, as Agent and the Bank and
Silicon Valley Bank, a California banking corporation, as Lender, as it may be
amended from time to time (the "Arris Loan Agreement") and/or the occurrence of
an Event of Default under Section 8.1 of this Agreement shall be a "Trigger
Event.""
7. From and after the Effective Date, new Section 5.12 shall be
applicable and read as follows:
"5.12 MAINTENANCE OF SEPARATE CORPORATE EXISTENCE. For
purposes of Borrower's preparing an internal annual report under
Section 6.1, the quarterly reports under Section 6.2, the cash
and covenant reports required under Section 6.4 and determining
Borrower's compliance with the financial covenants set forth in
Sections 5.10(i) through 5.10(v), Borrower shall maintain its
own financial statements, balance sheets, income statements,
statements of cash flow and other books and records separate
from the financial statements, books and records of Arris;
provided, however, that such reports and such separate financial
statements, balance sheets, income statements, statements of
cash flow and other books and records of Borrower may be
internally prepared by Borrower and need not be audited by
Borrower's outside auditors; provided, further, that Borrower's
outside accountant audited annual reports under Section 6.1 and
Borrower's public reports under Section 6.3 may be prepared by
Borrower on a consolidated basis with Arris and Arris' and
Borrower's respective Affiliates. All of Borrower's assets,
including Borrower's Cash and Cash Equivalents, and all of
Borrower's liabilities shall be maintained separate from, and
not commingled or consolidated with, the assets or liabilities
of Arris. Borrower shall maintain its own corporate existence
and shall not consolidate with, merge into or convey or transfer
its properties substantially as an entirety to any Affiliate
(including, without limitation, Arris) without the Bank's prior
written consent."
4
<PAGE> 5
8. From and after the Effective Date, Section 8.1 is amended and
restated in its entirety to read as follows:
"SECTION 8.1. EVENTS OF DEFAULT. If any one or more of
the following events ("Event of Default") shall occur and be
continuing, the entire unpaid balance of the principal of and
interest on the Note and all other obligations and Indebtedness
of the Borrower to the Bank arising hereunder and under the
other Loan Documents will (i) in the case of any Event of
Default of the types referred to in subparagraph (f)
hereinbelow, immediately become due and payable without notice
and (ii) in the case of any other Event of Default, immediately
become due and payable upon written notice to that effect given
to the Borrower by the Bank, without presentment or demand for
payment, notice of non-payment, protest or further notice or
demand of any kind, all of which are expressly waived by the
Borrower. Upon an Event of Default, the Bank shall have the
rights and remedies provided for herein and in the other Loan
Documents and under applicable law and in equity, and the rights
and remedies provided for herein shall be cumulative and in
addition to the rights and remedies provided for therein. Each
of the following shall constitute an Event of Default:
(a) Failure by the Borrower to make any payment when due
of any amount payable under the Loan Documents, which failure is
not cured within five (5) days of the occurrence thereof.
(b) Failure by the Borrower to make any mandatory
payments under any borrowing agreement (other than the Loan
Documents) to which the Borrower is a party within any
applicable grace period provided in such agreement or any other
default by the Borrower under any such borrowing agreement and
the failure of the Borrower to cure such default within any
applicable grace period, provided that no Event of Default will
be deemed to have occurred under this paragraph (b) with respect
to any indebtedness under any borrowing agreement if payment of
such indebtedness, after notice thereof having been given to the
Bank, is being contested by the Borrower in good faith and by
appropriate proceedings and such contest operates to prevent the
other party to such agreement from exercising its remedies
against the Borrower or any of its properties and the amount in
dispute is in the aggregate less than $250,000.
(c) Failure by the Borrower to perform or observe any
term, condition or covenant set forth in Section 2.6.
(d) Failure by the Borrower to perform or observe any
material term, condition or covenant of this Agreement or of any
of the Loan Documents (other than the covenants set forth in
Section 5.10(i) through 5.10(v) which shall constitute a Trigger
Event instead) which failure (other than a failure which by its
nature is not capable of cure and other than a failure to
perform or observe any term, condition or covenant referred to
or set forth in Subparagraphs (a), (b) and (c) hereinabove) is
not cured within thirty (30) days of the occurrence thereof.
5
<PAGE> 6
(e) Any representation or warranty made in writing to
the Bank in any of the Loan Documents or in connection with the
making of the Loan or a certificate, statement or report made or
delivered in compliance with this Agreement, will have been
false or misleading in any material respect when made or
delivered.
(f) The Borrower makes an assignment for the benefit of
creditors, files a petition for bankruptcy, petitions or applies
to any tribunal for the appointment of a receiver, custodian, or
any trustee for it or a substantial part of its assets, or
commences any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in
effect; or there will have been filed any such petition or
application, or any such proceeding has been commenced against
it, which remains undismissed for a period of sixty (60) days or
more; or any order for relief is entered in any such proceeding;
or the Borrower by any act or omission indicates its consent to,
approval of or acquiescence in any such petition, application or
proceeding or the appointment of a custodian, receiver or any
trustee for it or any substantial part of any of its properties;
or the Borrower suffers any custodianship, receivership or
trusteeship to continue undischarged for a period of sixty (60)
days or more.
(g) Any single judgment of $200,000 or more or a
combination of unsecured judgments aggregating $200,000 or more
against the Borrower not covered by insurance or any attachment
or levy of execution against any substantial part of the
Borrower's properties for any amount (not covered by insurance)
remains unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of thirty (30) days or more.
(h) Any Loan Document ceases to be in full force and
effect in all material respects for any reason (other than due
to the payment in full of all amounts secured or evidenced
thereby or due to discharge in writing by the Bank).
(i) After the occurrence of a Trigger Event under
Section 5.10, the failure of the Borrower and/or the Account
Holder to make the requisite transfer to the Custodian Account
as provided in Section 5.11 such that, not later than 5:00 P.M.
in New York, New York on the first Business Day following the
occurrence of the Trigger Event, the Restricted Account Balance
equals or exceeds the Required Restricted Account Balance.
(j) Upon the occurrence of a Trigger Event under Section
5.10, the failure of the Borrower to execute and deliver, or
cause to be executed and delivered, any additional documents
reasonably requested by the Bank in connection with the transfer
by the Borrower and/or Account Holder to the Custodian Account
as provided in Section 5.11 (including without limitation any
additional documents requested by the Bank in order to further
implement or perfect the pledge of assets held in the Custodian
Account and any additional opinion of the Borrower's counsel on
such matters the Bank may require, in a form and substance
satisfactory to Bank).
6
<PAGE> 7
(k) Failure by the Borrower to comply in any material
respect with its "Investment Policy", for investment of all Cash
and Cash Equivalents or the Borrower's making a material change
to such investment policy without the Bank's prior written
approval, which approval shall not be unreasonably withheld. A
copy of the Borrower's Investment Policy is attached hereto as
Schedule 8.1 .(j).
(l) After the occurrence of a Trigger Event and the
initial transfer to the Custodian Account as provided in Section
5.11, the failure of the Borrower and/or the Account Holder to
make, within one Business Day following the request of the Bank,
such additional transfers to the Custodian Account as may be
necessary, from time to time, to increase the Restricted Account
Balance so that it equals the Required Restricted Account
Balance.
(m) The failure by the Borrower, at any time, to
maintain a Net Cash Level equal to the sum of (i) the then
outstanding principal balance under the Note plus (ii) Ten
Million Dollars ($10,000,000).
(n) The occurrence of an "Event of Default" under the
Arris Loan Agreement, as defined in Section 8.1 of the Arris
Loan Agreement.
(o) After the Closing Date, a material adverse change in
the business or financial condition of the Borrower occurs."
9. CONSENT TO MERGER. In consideration of this First Amendment, the Bank
hereby consents to the Merger.
10. MISCELLANEOUS.
(a) This First Amendment shall be governed by, construed and
interpreted in accordance with the laws of the State of California without
reference to its conflict of laws rules.
7
<PAGE> 8
(b) This First Amendment may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same document.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Loan Agreement to be duly executed as of date first above written.
SEQUANA THERAPEUTICS, INC.
By: /s/ M. SCOTT SALKA
------------------------------------
Name: M. Scott Salka
----------------------------------
Title: Vice President, Chief Financial
Officer
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE SUMITOMO BANK, LIMITED
By: /s/ CAROLE A. DALEY
------------------------------------
Name: Carole A. Daley
----------------------------------
Title: Vice President and Manager
---------------------------------
By: /s/ J. WILLIAM BLOORE
------------------------------------
Name: J. William Bloore
----------------------------------
Title: Vice President
---------------------------------
8
<PAGE> 1
Exhibit 10.67
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (this "Agreement") is
made and entered into by and between ARRIS PHARMACEUTICAL CORPORATION, a
Delaware corporation having its principal place of business at 180 Kimball Way,
South San Francisco, CA 94080 ("Arris"), and BRISTOL-MYERS SQUIBB COMPANY, a
Delaware corporation having its principal place of business at P.O. Box 4000,
Route 206 and Province Line Road, Princeton, NJ 08543-4000 ("BMS"). Arris and
BMS may be referred to herein as a "Party" or, collectively, as "Parties."
RECITALS
A. Arris is engaged in research and development of, inter alia, compounds
that inhibit various proteases, which compounds may be useful for prevention
and/or therapeutic treatment of disease conditions.
B. BMS is engaged in research and development of, inter alia, compounds
with anti-viral activity and has substantial experience in the pre-clinical and
clinical development of therapeutic agents and the distribution, marketing and
sale of such agents as pharmaceuticals.
C. Arris and BMS desire to enter into a research and development
collaboration, under which the Parties shall discover, identify, and evaluate
compounds that inhibit the activity of the hepatitis C virus ("HCV") protease,
and BMS will develop, manufacture, distribute, market and sell worldwide
products containing one or more of such compounds for use in preventing or
treating HCV infection.
NOW, THEREFORE, in consideration of the various promises and undertakings
set forth herein, the Parties agree as follows:
1. DEFINITIONS.
Unless otherwise specifically provided herein, the following terms shall
have the following meanings:
1.1 "AFFILIATE" with respect to any Party, shall mean any Person
controlling, controlled by, or under common control with, such Party. For these
purposes, "control" shall refer to (a) the possession, directly or indirectly,
of the power to direct the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise or (b) the
ownership, directly or indirectly, of at least 50% of the voting securities or
other ownership interest of a Person.
1
<PAGE> 2
1.2 "ARRIS KNOW-HOW" means all information owned or Controlled by Arris at
any time prior to the first anniversary of the end of the Research Term
constituting methods, techniques, materials, know-how, trade secrets, inventions
or data necessary or useful for the identification, development, synthesis,
assaying, manufacture, use or sale of Collaboration Compounds and Collaboration
Products, but excluding Arris Patents, Joint Patents, and Arris Delta Technology
and excluding any information that Arris is restricted from disclosing due to
confidentiality obligations to a Third Party.
1.3 "ARRIS DELTA TECHNOLOGY" means (a) that specific technology, methods,
techniques, materials, know-how, inventions, information and data for the
identification of protease inhibitors and other proteins with similar structures
summarized and described generally in a letter from Arris to BMS of even date
with this Agreement; (b) all cumulative improvements or modifications to or
developments or inventions based upon the technology, methods, techniques,
materials, know how, inventions, information or data described in subsection (a)
above, or any improvements or modifications thereto or developments or
inventions based thereupon, that are made, discovered or reduced to practice
after the Effective Date, whether by Arris and/or BMS (including without
limitation Delta Inventions); and (c) the Patent Rights owned or Controlled by
Arris at any time prior to the first anniversary of the end of the Research Term
covering any of the foregoing, but excluding any information that Arris is
restricted from disclosing due to confidentiality obligations to a Third Party.
Except as expressly set forth in this Agreement, Arris Delta Technology will
remain proprietary to Arris and may not be used by BMS.
1.4 "ARRIS PATENTS" means all Patent Rights owned or Controlled by Arris or
an Affiliate of Arris that claim Collaboration Compounds, the manufacture or use
of Collaboration Compounds, or methods or materials used for discovering,
identifying, or assaying for Collaboration Compounds, where such Patent Rights
claim inventions made prior to the first anniversary of the end of the Research
Term, but excluding any Patent Rights that constitute Arris Delta Technology.
1.5 "BMS EXCLUSIVE COMPOUND" means any composition of matter that BMS
demonstrates, by competent evidence, is a subject of, or is derived from the
results of, any internal research program being conducted as of the Effective
Date, or that is conducted after the Effective Date, by BMS or its Affiliates
independently of the work conducted by BMS pursuant to this Agreement.
1.6 "BMS KNOW-HOW" means all information owned or Controlled by BMS at any
time prior to the first anniversary of the end of the Research Term constituting
methods, techniques, materials, know-how, trade secrets, inventions or data
necessary or useful for the identification, pharmacological development,
synthesis, assaying and use of Collaboration Compounds and Collaboration
Products, but excluding BMS Patents and Joint Patents and excluding any
information that BMS is restricted from disclosing due to confidentiality
obligations to a Third Party.
2
<PAGE> 3
1.7 "BMS PATENTS" means all Patent Rights owned or Controlled by BMS or an
Affiliate of BMS that claim Collaboration Compounds, methods of use of
Collaboration Compounds or methods or materials useful for discovering,
identifying, or assaying for Collaboration Compounds and Collaboration Products,
where such Patent Rights claim inventions made prior to the first anniversary of
the end of the Research Term.
1.8 "CHIRON LICENSE" shall have the meaning ascribed in Section 2.15.
1.9 "COLLABORATION COMPOUND" means any composition of matter (including,
without limitation, any Delta Compound) that:
(a) [*]
(b) [*]
(c) [*]:
(i) [*]
(ii) [*]
(iii) [*]
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
3
<PAGE> 4
[*]:
(w) [*]
(x) [*]
(y) [*]
(z) [*].
1.10 "COLLABORATION PRODUCT" means any product containing a Collaboration
Compound as an active ingredient.
1.11 "CONTROL" means, with respect to an item of information or
intellectual property right, possession of the ability to grant a license or
sublicense as provided for herein under such item or right without violating the
terms of any agreement or other arrangements with any Third Party.
1.12 "CONFIDENTIAL INFORMATION" means a Party's confidential information,
inventions, know-how, data and materials relating to the Research or the
Collaboration Compounds, including without limitation research, technical,
clinical development, manufacturing, marketing, financial, personnel and other
business information and plans, which, if disclosed in written, graphic or
electronic form, is marked or otherwise designated as "confidential" or
"proprietary" and, if disclosed orally, is summarized and designated as
"confidential" or "proprietary" in a writing provided to the receiving Party not
later than sixty (60) days after such disclosure.
1.13 "DELTA COMPOUND" means a composition of matter that (a) is identified,
discovered, designed or synthesized using the Arris Delta Technology or any part
thereof, and/or (b) is covered by a claim in any Patent Right issuing from the
U.S. patent applications Serial No. 08/430,742 and 08/746,986, or any
divisional, continuation, or continuation-in-part application of such
applications.
1.14 "DELTA INVENTIONS" means any inventions, modifications, improvements
or developments comprising, relating to or based upon the Arris Delta Technology
made by or on behalf of BMS and/or its Affiliates (including their respective
employees or agents).
1.15 "EFFECTIVE DATE" shall have the meaning ascribed in Section 2.15 of
this Agreement.
1.16 "FDA" means the United States Food and Drug Administration, or the
successor thereto.
1.17 "FIELD" means the use of compounds that inhibit the activity of HCV
Protease to prevent or treat human hepatitis C virus infections and the disease
manifestations thereof and the use of such compounds for diagnostic purposes in
the course of such prevention or treatment, including, without limitation,
measurement of viral load and/or efficiency of treatment.
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
4
<PAGE> 5
1.18 "FIRST COMMERCIAL SALE" means, with respect to any Collaboration
Product in any country, the first sale for use or consumption by the general
public of such Collaboration Product in such country after all required
marketing and pricing approvals have been granted, or otherwise permitted, by
the appropriate health or other regulatory authority of such country.
1.19 "FTE" means a full-time scientific person dedicated to the Research,
or in the case of less than a full-time dedicated scientific person, a
full-time, equivalent scientific person year, based upon a total of forty-seven
(47) weeks or one thousand eight hundred eighty (1,880) hours per year of
scientific work on or directly related to the Research, carried out by an
employee. Scientific work on or directly related to the Research to be performed
by Arris employees may include, without limitation, and to the extent consistent
with Arris' past practices, experimental laboratory work, recording and writing
up results, reviewing literature and references, holding scientific discussions,
attending appropriate seminars and symposia, managing and directing scientific
staff, and carrying out management duties related to the Research.
1.20 "HCV PROTEASE" means [*].
1.21 "IND" means an investigational new drug application filed with the FDA
for approval to commence human clinical trials, or the equivalent in other
countries or regulatory jurisdictions.
1.22 "JOINT KNOW-HOW" means all Research Technology that is made and owned
(as determined under Section 7.1) jointly by Arris and BMS and/or their
respective Affiliates prior to the first anniversary of the end of the Research
Term, but excluding the Joint Patents and all Patent Rights in the Arris Delta
Technology.
1.23 "JOINT PATENTS" means all Patent Rights that claim or cover inventions
within the Research Technology made and owned (as determined under Section 7.4)
jointly by Arris and BMS and/or or their respective Affiliates prior to the
first anniversary of the end of the Research Term. For clarity, it is agreed
that "Joint Patents" do not include any Patent Rights in the Arris Delta
Technology.
1.24 "JOINT RESEARCH COMMITTEE" OR "JRC" means that committee to be formed
pursuant to Section 4.1.
1.25 "MAJOR COUNTRY" means Canada, Great Britain, France, Germany, Spain,
Italy, or Japan.
1.26 "MATERIALS" shall have the meaning assigned to such term in Section
2.12.
1.27 "NDA" means a New Drug Application or Product License Application, as
appropriate, and all supplements thereto filed pursuant to the requirements of
the FDA, as more fully defined in 21 C.F.R.Section314.5 et seq.
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
5
<PAGE> 6
1.28 "NET SALES" means, [*].
1.29 "PATENT RIGHT" means (i) an issued and existing letters patent,
including any extensions (e.g., supplemental protection certificates),
registration, confirmation, reissue, reexamination or renewal thereof, (ii)
pending applications, including any continuation, divisional,
continuation-in-part application thereof, for any of the foregoing, and (iii)
all counterparts to any of the foregoing issued by or filed in any country or
other jurisdiction.
1.30 "PERSON" means any natural person, corporation, firm, business trust,
joint venture, association, organization, company, partnership of other business
entity, or any government or agency or political subdivision thereof.
1.31 "PHASE I" means that portion of the clinical development program which
generally provides for the first introduction into humans of a product with the
primary purpose of determining safety, metabolism and pharmacokinetic properties
and clinical pharmacology of the product.
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
6
<PAGE> 7
1.32 "PHASE III" means that portion of the clinical development program
which provides for the pivotal trials of a product on sufficient numbers of
patients to establish the safety and efficacy of a product for the desired
claims and indications.
1.33 "POTENTIAL LEAD PRODUCT" OR "PLP" means a Collaboration Compound that
has been approved for development by the BMS Pharmaceutical Group Operating
Committee (or the successor to such committee), as reflected in the minutes of
the meetings of the BMS Pharmaceutical Group Operating Committee, based on the
presentation of a PLP data package with respect to such compound in accordance
with its procedures.
1.34 "PROOF OF CONCEPT" means [*].
1.35 "REGULATORY APPROVAL" means any and all approvals (including price and
reimbursement approvals), licenses, registrations, or authorizations of any
federal, national, state, provincial or local regulatory agency, department,
bureau or other government entity, necessary for the manufacture, use, storage,
import, transport or sale of a Collaboration Product in a country.
1.36 "RESEARCH" means the research program undertaken by the Parties
pursuant to this Agreement to discover, identify, synthesize and evaluate
Collaboration Compounds, which shall be collaborative except as otherwise
provided in Section 2.10.
1.37 "RESEARCH PLAN" means the specific plan for conducting the Research,
as described in Section 2.1.
1.38 "RESEARCH TECHNOLOGY" means all tangible and intangible know-how,
trade secrets, inventions (whether or not patentable), discoveries,
developments, data, clinical and preclinical results, information, and physical,
chemical or biological material, and any replication of or any part of any of
the foregoing, that was made by employees or agents of Arris, BMS, and/or any of
their respective Affiliates, either alone or jointly during the course of and in
the conduct of the Research during the Research Term or during the one-year
period immediately following the end of the Research Term in the course of work
directly based upon or resulting from the Research.
1.39 "RESEARCH TERM" means the period during which the Parties conduct the
Research, commencing on the Effective Date and terminating on (i) the third
anniversary of the Effective Date, or (ii) if extended for one additional year
pursuant to Section 2.11, the fourth anniversary of the Effective Date, or
(iii) such earlier date as of which this Agreement is terminated pursuant to
Section 10.2 or 10.3.
1.40 "SUBLICENSEE" means a Third Party entity to which BMS has granted
sublicense rights under the licenses granted BMS hereunder to make and sell
Collaboration Products. Third Party entities that are permitted only to resell
Collaboration Products or that manufacture or finish for supply to BMS
Collaboration Products are not "Sublicensees."
1.41 "THIRD PARTY" means any entity or individual other than Arris, BMS,
Affiliates of either, or any Sublicensee.
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
7
<PAGE> 8
2. RESEARCH PROGRAM
2.1 COLLABORATIVE RESEARCH PROGRAM. Commencing on the Effective Date, the
Parties shall conduct the Research diligently on a collaborative basis, with the
goal of discovering, identifying and performing pre-clinical research on
Collaboration Compounds that are suitable for developing as Collaboration
Products for commercialization as soon as reasonably practicable. The Parties
shall conduct the Research as generally specified in the Research Plan, attached
hereto as Exhibit A, as such plan may be amended from time to time by the JRC.
The Research Plan, among other things, shall specify scientific direction and
Research milestones and allocate Research responsibilities and resources in a
manner consistent with this Agreement.
2.2 CONDUCT OF THE RESEARCH.
(a) The Research will be managed and directed by the JRC, as discussed
in Article 4 hereof. The JRC will coordinate the Research effort of the Parties,
expedite the progress of work being done under the Research Plan and prevent
duplication of efforts.
(b) All work conducted by either Party in the course of the Research
shall be completely and accurately recorded, in sufficient detail and in good
scientific manner, in separate laboratory notebooks distinct from other work
being conducted by the Parties. During the Research Term and for a period of [*]
thereafter, and upon termination of the Agreement, each Party shall have the
right, on reasonable notice and at reasonable intervals, to inspect and copy all
such records of the other Party to the extent reasonably required to carry out
its respective obligations and to exercise its respective rights hereunder.
Notwithstanding Section 1.11, all such records shall constitute Confidential
Information of the Party that generates such record.
2.3 ARRIS RESEARCH EFFORTS. Commencing on the Effective Date, Arris agrees
to commit the resources set forth in this Section 2.3 and to exert all
commercially reasonable efforts consistent with its normal business practices to
execute and perform diligently its obligations under the Research Plan. In
conducting the Research, Arris shall be responsible for the tasks allocated to
it under the Research Plan. In the performance of such work, Arris shall
maintain and utilize scientific staff, laboratories, offices and other
facilities consistent with such undertaking and shall use personnel with
sufficient skills and experience as are required to accomplish efficiently and
expeditiously the objectives of the Research as set forth in the Research Plan
in good scientific manner and in compliance in all material respects with all
requirements of applicable laws, rules and regulations, and all other
requirements of applicable good laboratory practices. Commencing upon the
Effective Date and continuing during the Research Term, Arris shall commit an
average of ten (10) FTEs in its employ to conducting Arris' obligations under
the Research Plan. However, BMS understands that Arris' initial allocation of
FTEs will be less than ten (10) and that Arris' Research efforts will ramp up
over the first two (2) quarters of the Research Term, so that Arris will achieve
the equivalent of ten (10) scientists working full-time by the end of the second
quarter of the Research Term and that Arris will achieve a total commitment of
ten (10) FTEs for the first year of the Research. Arris
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
8
<PAGE> 9
shall provide BMS with reports on a quarterly basis of the names of the
individual Arris scientists conducting the Research and the portion of time (on
a percentage basis) each such person is devoting to the Research during the
prior period of the Research. At the request of BMS, Arris shall permit an
independent, certified accountant appointed by BMS, at reasonable times and upon
reasonable notice but no more than once per year, to examine the records of
Arris as are necessary to verify such reports, at BMS's expense.
2.4 BMS RESEARCH EFFORTS. Commencing on the Effective Date, BMS agrees to
commit the resources set forth in this Section 2.4 and to exert all commercially
reasonable efforts consistent with its normal business practices to execute and
substantially perform diligently its obligations under the Research Plan. In
conducting the Research, BMS shall be responsible for the tasks allocated to it
under the Research Plan. In the performance of such work, BMS shall maintain and
utilize scientific staff, laboratories, offices and other facilities consistent
with such undertaking and shall use personnel with sufficient skills and
experience as are required to accomplish efficiently and expeditiously the
objectives of the Research as set forth in the Research Plan in good scientific
manner and in compliance in all material respects with all requirements of
applicable laws, rules and regulations, and all other requirements of applicable
good laboratory practices. During the Research Term, BMS shall commit such
number of FTEs in its employ as shall be necessary for conducting BMS's
obligations under the Research Plan, including the average number of FTEs set
forth in the Research Plan.
2.5 RESEARCH FUNDING. BMS will support Arris' Research efforts under the
Research Plan by paying Arris an amount equal to [*] working for Arris on the
Research, during the Research Term, subject to adjustment as set forth below;
provided, however, that BMS shall not be required to support Arris' commitment
of more than [*] to conducting Arris' obligations under this Agreement. Such
amounts shall be payable in equal installments on a quarterly basis, in advance,
on the first day of January, April, July and October of each year during the
Research Term, with adjustments made from time to time as required, subject to
the following: Any payment for a portion of a calendar quarter shall be made on
a pro rata basis; the amounts owed for the initial period of the Research Term
(the Effective Dated to December 31, 1997) shall be paid within ten (10) days of
the Effective Date. Effective January 1, 1999, the FTE reimbursement rate shall
be adjusted for inflation based on charges in the Bureau of Labor Statistics
Consumer Price Index for Urban Wage Earners, San Francisco/Oakland. Effective
each subsequent January 1 during the Research Term, a further adjustment shall
be made based on changes in such index from the previous January 1 to the most
recent monthly index then available. [*].
2.6 Know-How, Research Information and Reports.
(a) Each Party will make available and disclose to the other Party
promptly after the Effective Date all Know-How, and Patent Rights for which
letters patent have not been issued, of such Party as of the Effective Date, to
the extent necessary or useful for the other Party's conduct of the Research
hereunder pursuant to the Research Plan. Subject to restrictions imposed by a
Party's confidentiality obligations to any Third Party, each Party will also
disclose at any time on or before the first anniversary of the end of the
Research Term: (i) any additional Know-How (except that which pertains to Joint
Know-How) learned, acquired or discovered by such Party promptly after such
Know-How is learned, acquired or discovered; and (ii) any additional Patent
Rights (except those that pertain to Joint Patents) for which letters patent
have not been issued, promptly after the filing of any application for the
issuance thereof. Arris shall disclose to BMS, for use consistent with the terms
of this Agreement and for no other purpose, all Arris Delta Technology related
to the identification, development, or synthesis of compounds useful in the
Field that is invented or developed as of the Effective Date, promptly after the
Effective Date. Subject to restrictions imposed by Arris' confidentiality
obligations to any Third Party, Arris will also disclose any such additional
Arris Delta Technology learned, acquired or discovered by Arris at any time
during the Research Term or during the one-year period
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
9
<PAGE> 10
thereafter, promptly after such Arris Delta Technology is learned, acquired or
discovered. Each Party will provide the other with copies of the raw data
generated in the course of the Research, if reasonably necessary to the other
Party's work under the Research.
(b) All discoveries or inventions made by a Party either (i) under the
Research, or (ii) prior to the first anniversary of the end of the Research Term
based on or derived from work done in the Research, which discoveries or
inventions are useful in or relate to the Research or the Field, including,
without limitation, information regarding initial leads, activities of leads,
derivatives, and results of in vitro and in vivo studies, assay techniques and
new assays, will be promptly disclosed to the other Party, with meaningful
discoveries or advances being communicated promptly after such information is
obtained or its significance is appreciated.
(c) After the six (6) month anniversary of the Effective Date, each
Party will give the other written reports on a semi-annual basis summarizing all
research or development work done on Collaboration Compounds or Collaboration
Products during the previous two (2) quarters. Nothing herein shall require
either Party to disclose information received from a Third Party which remains
subject to a binder of confidentiality.
2.7 USE OF ARRIS DELTA TECHNOLOGY DURING RESEARCH. As part of its efforts
under the Research, Arris shall use all reasonable efforts to apply the Arris
Delta Technology to the identification, discovery and synthesis of Collaboration
Compounds. In addition, BMS shall be entitled, pursuant to the license granted
in Section 3.2, to utilize the Arris Delta Technology solely for the
identification, discovery and synthesis of Collaboration Compounds under the
Research. BMS agrees not to make any use of the Delta Technology, except as
permitted under Section 3.2 of this Agreement. Further, the Arris Delta
Technology, and all parts thereof, shall at all times remain proprietary to
Arris. On a regular basis, and in any event at least once per calendar quarter,
during the Research Term and the one-year period thereafter, BMS shall disclose
to Arris all Delta Compounds identified, discovered or synthesized using the
Arris Delta Technology and any and all Delta Inventions made by BMS or its
Affiliates.
2.8 IDENTIFICATION AND TESTING OF COLLABORATION COMPOUNDS. Each Party shall
inform the other Party and the JRC in writing promptly upon the Party's
discovery, identification, synthesis or acquisition of compositions of matter
meeting the criteria for designation as Collaboration Compounds in accordance
with Section 1.8. The notifying Party shall include in such notices to the other
Party the structure of such Collaboration Compounds, the assay information
showing the required HCV Protease inhibition activity, and, in the case of
Arris, any other information relevant to the manufacture or use in the Field of
such Collaboration Compounds. In addition, the Parties shall cooperate
reasonably in disclosing relevant information relating to compositions of matter
discovered, identified, or synthesized under the Research that have significant
activity as inhibitors of HCV Protease, though not at a level sufficient to meet
the requirements of Section 1.8, in order to facilitate each Party's efforts
under the Research.
10
<PAGE> 11
2.9 SELECTION OF BACK-UP TARGET. If the JRC determines that the pursuit of
an HCV Protease inhibitor is commercially impracticable or futile, then the
Parties shall discuss in good faith the selection of a back-up target with
respect to which the Research will be conducted pursuant to this Agreement as if
such back-up target were HCV Protease. In the event of such selection, BMS shall
make all payments pursuant to Section 6.1, and the Parties shall redefine
appropriately the terms "Field" and "Collaboration Compound," and any other
definition that requires amending due to such change, for all purposes of this
Agreement. In no event shall the Parties select as such a back-up target either
(a) a target that Arris is already committed to pursue in collaboration with a
Third Party, or (b) a target that, unless Arris otherwise agrees, Arris is
actively pursuing independently (but provided such independent work is not in
breach of Arris' obligations under this Agreement). [*].
2.10 TERMINATION OF RESEARCH BY BMS.
(a) In the event that Arris materially fails to perform its
obligations with respect to the Research under this Article 2, BMS may give
notice to Arris specifying the nature of such failure, requiring it to cure such
failure and stating BMS's intention to terminate the collaborative Research if
such failure is not cured. If such failure is not cured within 60 days after the
receipt of such notice (or, in the event such failure cannot be cured within
such 60-day period, if Arris does not commence and diligently continue actions
to cure such failure), BMS shall be entitled to terminate the collaborative
Research by giving written notice to Arris, which termination shall cause the
modifications to the Parties' rights and obligations as set forth in subsection
(c) below and shall take effect immediately upon delivery of such notice (except
as provided below in the case of a dispute regarding such alleged failure).
BMS's right to terminate the collaborative Research under this Agreement, as
hereinabove provided, shall not be affected in any way by its waiver or failure
to take action with respect to any previous default. In the event that Arris
disputes BMS's allegation that Arris has materially failed to perform its
obligations with respect to the Research, Arris shall so notify BMS of such
dispute and the Parties shall refer the dispute to arbitration pursuant to
Section 11.11. In the event the arbitration determines that Arris materially
failed to perform its obligations with respect to the Research, and Arris does
not remedy such failure within sixty (60) days of such determination, then BMS
may terminate the collaborative Research as provided herein.
(b) In addition, BMS may terminate the collaborative Research at any
time prior to the end of the Research Term, upon 30 days prior written notice,
in the event that 50% or
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
11
<PAGE> 12
more of the outstanding voting stock of Arris is acquired by, or all or
substantially all of Arris's assets are acquired by, any Third Party (whether
through merger, consolidation, acquisition, or otherwise), which Third Party is
a pharmaceutical company or healthcare company with total annual worldwide sales
prior to such acquisition (including sales of all affiliates thereof) in excess
of $500 million and is, in the good faith determination of BMS, a substantial
competitor of BMS in the Field.
(c) Upon termination of the collaborative Research pursuant to
subsection 2.10(a) or 2.10(b), Arris shall promptly transfer to BMS copies of
all data, reports, records and materials in Arris' Control that were generated
or developed pursuant to the Research and furnish to BMS reasonable quantities
of Materials in Arris' possession developed in connection with the Research as
needed for BMS to proceed with the Research. Thereafter, Arris's rights and
obligations to conduct any activities relating to Research as set forth in this
Article 2 shall immediately terminate; BMS shall have no further obligation to
fund any Research at Arris or collaborate with Arris in conducting the Research;
and BMS shall continue its own independent research efforts, as if the Research
Term continued, including complying with BMS's Research obligations under
Sections 2.4, 2.6(b) and (c), 2.7 and 2.8; provided that BMS's obligation under
Section 2.6(b) to disclose discoveries and inventions shall apply only to those
discoveries and inventions based upon, relating to or deriving from the Arris
Know-How, the Arris Patents or the Arris Delta Technology, and BMS shall
disclose discoveries and inventions based upon, relating to or deriving from
Joint Know-How or Joint Patents with the research reports to be provided by BMS
under Section 2.6(c). In the event of the termination of the collaborative
Research pursuant to subsection 2.10(a) or 2.10(b): (i) BMS shall have a right
and license, under the Arris Patents, the Arris Know-How and the Arris Delta
Technology, solely to discover, synthesize, evaluate, make and use Collaboration
Compounds during the remainder of the original Research Term plus the one (1)
extension year provided in Section 2.11 (as if BMS had elected to extend the
Research Term for such one-year period), ; and (ii) the exclusivity provisions
granted to BMS under subsection 2.14(a) shall continue during the original
Research Term plus the one (1) extension year. BMS's rights under this Section
2.10(c) are subject to BMS's obligation: (a) if BMS terminates the collaborative
Research under subsection 2.10(a), to make payments to Arris as provided under
Section 6.3, and (b) if BMS terminates the collaborative Research under
subsection 2.10(b), to make all payments to Arris as provided under Sections
6.1, 6.2 and 6.3. BMS covenants that it will practice the license rights granted
under the Arris Patents, the Arris Know-How and the Arris Delta Technology
granted in this Section 2.10 solely as permitted herein, and in particular will
not use such rights in any other program of BMS, including without limitation
its other internal research and development programs relating to HCV Protease
inhibitors.
(d) Termination of the Research under this Section 2.10 shall not
terminate any other rights or obligations of the Parties under this Agreement
other than those expressly terminated in subsection 2.10(b). Except as expressly
set provided in this Section 2.10, the remedy provided in this Section 2.10 for
any breach by Arris relating to its material obligations under this Article 2
shall be in lieu of any remedy set forth in Article 10.
12
<PAGE> 13
2.11 EXTENSION OF RESEARCH TERM. By written notice to Arris given at least
one hundred eighty (180) days prior to the third anniversary of the Effective
Date, BMS may extend the Research Term for one (1) year effective on the third
anniversary of the Effective Date. At the end of the Research Term, all
obligations of the Parties to conduct any further Research shall terminate, but
the other rights and obligations under this Agreement shall not otherwise be
affected.
2.12 MATERIAL TRANSFER. In order to facilitate the Research, either Party
may provide to the other Party certain biological materials or chemical
compounds including, but not limited to, Delta Compounds, Collaboration
Compounds, receptors, reagents and screens (collectively, "Materials") owned by
or licensed to the supplying Party (other than under this Agreement) for use by
the other Party in furtherance of the Research. Except as otherwise provided
under this Agreement, all such Materials delivered to the other Party shall
remain the sole property of the supplying Party, shall be used only in
furtherance of the Research as permitted hereunder and solely under the control
of the other Party, shall not be used or delivered to or for the benefit of any
Third Party without the prior written consent of the supplying Party, and shall
not be used in research or testing involving human subjects in connection with
the Research. The Materials supplied under this Section 2.12 must be used with
prudence and appropriate caution in any experimental work, since all of their
characteristics may not be known or understood. THE MATERIALS ARE PROVIDED "AS
IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY
PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE MATERIALS WILL NOT
INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.
2.13 LIABILITY. In connection with conduct of the Research, each Party
shall be responsible for, and hereby assumes, any and all risks of personal
injury or property damage attributable to the negligent or willful acts or
omissions of that Party or its Affiliates, and their respective directors,
officers, employees and agents.
2.14 EXCLUSIVITY.
(a) Arris covenants to BMS that during the period commencing on the
Effective Date and for the period through one year after the end of the Research
Term, it will not conduct, either for its own benefit or with, for the benefit
of or sponsored by any Third Party, any activity concerning discovering,
identifying, researching, developing or marketing compounds useful in the Field
except pursuant to this Agreement.
(b) BMS covenants to Arris that during the period commencing on the
Effective Date and for the period through one year after the end of the Research
Term, it will not conduct, with, for the benefit of or sponsored by any Third
Party, any activity concerning discovering, identifying, researching, developing
or marketing compounds useful in the Field except pursuant to this Agreement.
13
<PAGE> 14
(c) Neither Subsection 2.14(a) nor (b) shall prevent either Party or
its Affiliates from conducting pre-clinical investigations on compounds useful
in the Field on behalf of the Parties under this Agreement for uses outside the
Field.
(d) Subsections 2.14(a) and (b) shall terminate one year after the end
of the Research Term, or immediately upon termination of this Agreement under
Section 10.2 or 10.3. The Parties believe and agree that, because of the high
costs and significant risks involved in discovering and developing Collaboration
Products, and further because the Parties must exchange highly confidential
information in order to conduct the collaboration contemplated hereunder, the
exclusive relationship between them regarding the Research and the Collaboration
Compounds, which is reflected herein, is a fair and efficient means to reach a
satisfactory conclusion from their cooperative efforts.
2.15 CHIRON LICENSE; EFFECTIVE DATE OF AGREEMENT.
(a) Promptly after the execution of this Agreement, BMS shall
undertake good faith, diligent efforts to negotiate with Chiron Corporation to
reach agreement on the terms of a license agreement under the [*]. BMS shall use
diligent efforts to enter into the Chiron License as soon as possible and in any
event by December 31, 1997, provided that BMS shall not be obligated to accept
commercially unreasonable terms for such agreement. Prior to the execution of
the Chiron License, only Sections 2.15 and 10.4 of this Agreement shall be
effective and binding on the Parties. The date of execution of the Chiron
License shall be deemed to be the "Effective Date" for all purposes under this
Agreement, and on such date all the terms and provisions of this Agreement shall
become effective and binding on the Parties.
(b) In addition, Arris shall separately enter into a license agreement
(the "Arris License Agreement") with Chiron Corporation similar to the Chiron
License. BMS shall be responsible for paying to Chiron any payments or other
amounts that Arris may be required to pay to Chiron under the Arris Agreement
based on activities of either Arris or Chiron pursuant to this Agreement, or
otherwise based on any activities of BMS or its affiliates, including without
limitation activities relating to Collaboration Compounds, except that Arris
shall [*]. In addition, BMS hereby agrees to provide, on Arris' behalf, the
defense, indemnification and hold harmless of Chiron that Arris is obligated to
provide under Section 7.1 of the Arris License Agreement, unless the Claim (as
defined in the Arris License Agreement) giving rise to such defense,
indemnification and hold harmless obligation arises out of the negligence,
recklessness or willful misconduct of Arris or any of Arris' directors,
officers, employees, agents or representatives.
3. LICENSES
3.1 RESEARCH LICENSES. Subject to the other provisions of this Agreement,
Arris hereby grants to BMS during the Research Term and the one-year period
thereafter an exclusive (except with regard to Arris) world-wide, paid-up right
and license under the Arris Patents and the Arris Know-How solely to conduct the
Research and to discover, synthesize and, in connection with the Research, make
and use Collaboration Compounds. Subject to the other provisions of this
Agreement, BMS hereby grants to Arris during the Research Term and the one-year
period thereafter an exclusive (except with regard to BMS) world-wide, paid-up
right
14
<PAGE> 15
and license under the BMS Patents and the BMS Know-How solely to conduct the
Research and to discover, synthesize and, in connection with the Research, make
and use Collaboration Compounds. Neither Party may grant sublicenses under the
rights granted by the other Party in this Section 3.1, except to the Party's
Affiliates.
3.2 NONEXCLUSIVE LICENSE UNDER ARRIS DELTA TECHNOLOGY. Subject to the other
provisions of this Agreement, Arris hereby grants to BMS during the Research
Term and the one-year period thereafter a nonexclusive, royalty-free, worldwide
license to use the Arris Delta Technology solely to identify, synthesize and
evaluate Collaboration Compounds. BMS may not grant sublicenses under the rights
granted in this Section 3.2, except to BMS Affiliates.
3.3 COMMERCIALIZATION LICENSE TO BMS. Subject to the other provisions of
this Agreement, Arris hereby grants to BMS an exclusive (including with regard
to Arris), world-wide, royalty-bearing right and license, with the right to
sublicense, under the Arris Patents, the Arris Delta Technology and the Arris
Know-How and under Arris' rights in the Joint Know-How and Joint Patents, solely
to develop, make, have made, import, use, sell and offer for sale Collaboration
Products. To the extent that BMS grants a sublicense to Arris Delta Technology
under this Section 3.3, BMS may only disclose to such sublicensee the Arris
Delta Technology that is necessary, in the business judgment of BMS, for such
Sublicensee to conduct the work contemplated under this Agreement, and such
disclosure must be pursuant to a confidentiality agreement that is reasonably
acceptable to Arris, provided that it shall be unreasonable for Arris not to
accept any confidentiality agreements the terms of which are comparable to the
terms of Article 8 hereof.
3.4 LIMITATION ON LICENSING. Except as permitted in Section 3.3, each Party
agrees that it shall not grant, during the Research Term and for three (3) years
after the end of the Research Term, to any Third Party any right or license
under its interest in the Joint Know-How or Joint Patents to conduct any
research, discovery, development or commercialization activities relating to
compounds for use in the Field.
3.5 KNOW-HOW LICENSES AFTER RESEARCH TERM. Effective after the end of the
Research Term, Arris grants to BMS a non-exclusive, fully-paid license under the
Arris Know-How for any purpose or use, and BMS grants to Arris a non-exclusive,
fully-paid license under the BMS Know-How for any purpose or use.
3.6 FURTHER ASSURANCES. Each Party shall refrain from granting any lien or
encumbrance with respect to any of such Party's intellectual property rights
that are licensed to the other Party hereunder, and from entering into
agreements with Third Parties in a manner in derogation of the exclusive rights
granted hereunder, provided, however, that notwithstanding the foregoing Arris
shall not be prohibited from granting any liens on all, but not less than all,
of its assets in connection with any debt financing that Arris may secure, from
time to time, after the Effective Date or from granting licenses to Third
Parties so long as such licenses are not precluded by the exclusive rights
granted to BMS hereunder. Each Party covenants that it shall not practice or use
any rights licensed to it by the other Party under this Agreement, except as
permitted by the terms hereof. In particular, but without limiting the
foregoing, BMS covenants
15
<PAGE> 16
that it shall not use or practice any of the Arris Patents, Arris Know-How or
Arris Delta Technology in any other project or program of BMS or its Affiliates,
including without limitation any independent BMS research or development program
relating to HCV Protease inhibitors.
4. JOINT RESEARCH COMMITTEE.
4.1 CREATION AND STRUCTURE OF THE JOINT RESEARCH COMMITTEE. The Parties
hereby agree to create a Joint Research Committee of six persons to facilitate
the collaboration called for herein. The JRC shall consist of three
representatives nominated by each Party, which shall include at least two
scientists involved in the Research. Members of the JRC may be represented at
any meeting by a designee appointed by such member for such meeting. Each Party
shall be free to change its representatives on notice to the other or to send a
substitute representative to any JRC meeting. The JRC shall exist until the
termination or expiration of the Research Term.
4.2 REGULAR MEETINGS. During the Research Term, the JRC shall meet at least
once every three months. Meetings may be called by either Party on twenty-one
(21) days notice to the other and, unless otherwise agreed, shall alternate
between the offices of the Parties. The senior representative of the Party
hosting the meeting shall chair that meeting and act as secretary of the meeting
and shall prepare and distribute to all members of the JRC minutes of the
meeting sufficiently in advance of the next meeting to allow adequate review and
comment prior to the meeting. Such minutes shall provide a description in
reasonable detail of the discussions had at the meeting and a list of any
actions, decisions or determinations approved by the JRC. Minutes shall be
approved or disapproved, and revised as necessary, at the next meeting. Final
minutes of each meeting shall be distributed to the members of the JRC by the
chair of such meeting. The JRC may also convene, or be polled or consulted, from
time to time by means of telecommunications, video conferencing or written
correspondence, as deemed necessary or appropriate.
4.3 RESPONSIBILITIES OF THE JOINT RESEARCH COMMITTEE. During the pendency
of the Research, the JRC shall be the primary vehicle for interaction between
the Parties with respect to the Research. Without limiting the foregoing, the
JRC shall be responsible for: (i) reviewing, approving and amending the Research
Plan; (ii) recommending whether patents should be filed jointly or
independently; (iii) reviewing and approving publications proposed by either
Party with respect to results of the Research; (iv) monitoring the progress of
Research; (v) reviewing patent filings; and (vi) selecting the specific
Collaboration Compounds for recommendation to BMS for preclinical development.
Each Party shall disclose to the other proposed agenda items in advance of each
meeting of the JRC. All decisions by the JRC shall require agreement by the
senior representative of each Party present at the meeting; provided, however,
that if such representatives on the JRC cannot agree with respect to a
particular issue, such issue shall be referred to the chief executive officer of
Arris and the Senior Vice President, Drug Discovery at BMS for resolution. If
such individuals cannot resolve the issues within thirty (30) days, the issues
will be referred for binding arbitration pursuant to Section 11.11.
16
<PAGE> 17
4.4 EXPENSES. Each party shall be responsible for all travel and related
costs for its representations to attend meetings of, and otherwise participate
on, the JRC.
5. PRODUCT DEVELOPMENT.
5.1 DEVELOPMENT OF COLLABORATION PRODUCTS. BMS shall have the sole right to
select and approve a Collaboration Compound for further characterization and
pre-clinical development as a lead compound, which occurs when formal assignment
of chemistry resources for a fully integrated discovery program have been
assigned to such Collaboration Compound as reflected in the minutes of the
meetings of the BMS Drug Development Management Committee, after reasonably
considering any recommendations of the JRC. Once a Collaboration Compound is
selected for preclinical development, BMS shall be solely responsible for and
shall have the sole right to develop the Collaboration Compound through
preclinical development, all phases of clinical trials, and making all
applications for and obtaining all Regulatory Approvals on a worldwide basis.
[*].
5.2 DEVELOPMENT INFORMATION AND REPORTING. Commencing upon the first Phase
I trial covering a Collaboration Compound, BMS shall prepare and maintain
complete and accurate information regarding the worldwide clinical development
of Collaboration Products and shall make such information available to Arris in
the form of detailed reports to Arris at least two (2) times per year. Such
reports shall summarize the status and results of all such development efforts.
BMS also will respond to reasonable requests by Arris for additional information
regarding the development of Collaboration Products. Arris also will be entitled
to have a representative review all materials and information relating to such
development, no more than twice per year, and to provide comments to BMS
regarding such development efforts, provided that if BMS (in its discretion)
does not implement actions to accommodate Arris' comments and concerns, Arris
may raise such issues with more senior executives at BMS, including with the
Senior Vice President, Drug Development at BMS. Notwithstanding Arris' right to
review such information and so raise such issues, BMS retains the right, subject
to diligence requirements contained in this Agreement, to develop Collaboration
Products in its sole discretion. An Arris representative also will be invited by
BMS, at Arris' request and expense, to observe meetings of the BMS Project Team
Work Group with responsibility for development of particular Collaboration
Compounds, provided that such representative will not be entitled to observe
during discussions of matters that are proprietary or confidential to BMS or its
Affiliates relating to any project or program other than this collaboration. In
addition, BMS will report to Arris any extraordinary events occurring during the
development of Collaboration Products, promptly after such events occur.
6. PAYMENTS TO ARRIS.
6.1 FEES. In consideration for Arris' commitment to conduct the Research as
provided herein and the access to Arris Know-How and Arris Delta Technology
granted hereunder, (i) BMS shall pay Arris a non-refundable, non-creditable fee
[*].
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
17
<PAGE> 18
6.2 MILESTONE PAYMENTS. BMS shall make the following non-refundable
payments to Arris within sixty (60) days after the occurrence of each of the
listed Milestone Events (but in no event earlier than the date of execution of
the Chiron License):
(a) With respect to the first Collaboration Compound only:
<TABLE>
<S> <C>
Milestone Event Payment Amount
--------------- --------------
[*]
</TABLE>
(b) [*]:
<TABLE>
<S> <C>
Milestone Event Payment Amount
--------------- --------------
[*]
</TABLE>
As used herein, the following definitions apply:
"Initiation" of a trial means when the first patient has been recruited for
such trial.
"Filing of NDA" means when the file has been submitted (confirmational
receipt) to the relevant regulatory authority.
"Back-up Compound" means [*]
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
18
<PAGE> 19
[*].
6.3 ROYALTY PAYMENTS.
(a) Commencing upon the First Commercial Sale by BMS, its Affiliates
or Sublicensees of the first Collaboration Product (the "Initial Collaboration
Product"), BMS shall pay Arris a royalty on sales of such Initial Collaboration
Product equal to a percentage of the Net Sales of the Initial Collaboration
Product, calculated using the royalty rates set forth on the following schedule:
<TABLE>
<S> <C>
Annual Worldwide Net Sales
of Initial Collaboration Product Royalty Rate
------------------------------------------------------------------------------
[*]
</TABLE>
(b) Commencing upon the First Commercial Sale of any Collaboration
Product that does not contain as an active ingredient the Collaboration Compound
contained in the Initial Collaboration Product (a "Subsequent Collaboration
Product"), BMS shall pay Arris a royalty on sales of all such Subsequent
Collaboration Products equal to a percentage of the Net Sales of such Subsequent
Collaboration Products, calculated using the royalty rates set forth on the
following schedule:
<TABLE>
<S> <C>
Aggregate Annual Worldwide Net Sales of All
Collaboration Products Royalty Rate
------------------------------------------------------------------------------
[*]
</TABLE>
(c) The appropriate royalty rate set forth in subsections 6.3(a) and
6.3(b) shall apply to the applicable portion of Net Sales of Collaboration
Products during a particular calendar year using the conversion method set forth
in Section 6.4. The Parties agree that the royalty rates in subsections 6.3(a)
and 6.3(b) reflect an efficient and reasonable blended allocation of the values
of the worldwide know-how and patent rights licensed by Arris hereunder.
6.4 MODE OF PAYMENT. All payments to Arris hereunder shall be made by
deposit of United States Dollars in the requisite amount to such bank account as
Arris may from time to time designate by notice to BMS. Payments shall be free
and clear of any taxes (other than withholding and other taxes imposed on
Arris), fees or charges, to the extent applicable. With respect to sales outside
the United States, payments shall be calculated at BMS's customary internal
corporate monthly exchange rates for the last month of the calendar quarter for
which remittance is made for royalties. For each month and each currency, BMS's
customary internal corporate monthly exchange rate shall equal the arithmetic
average of the daily exchange rates (obtained as described below) during the
period from (i) the 20th day of the preceding month (or, if such 20th day is not
a business day, the immediately preceding business day) through (ii) the 19th
day of the current month (or, if such 19th day is not a business day, the
immediately
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
19
<PAGE> 20
preceding business day); each daily exchange rate shall be obtained from the
Reuters Daily Rate Report or The Wall Street Journal, Eastern U.S. Edition, or,
if not so available, as furnished by BMS's local Affiliates.
6.5 OBLIGATION TO PAY ROYALTIES. BMS's obligation to pay royalties to Arris
under this Article 6 is imposed only once with respect to the same unit of
Collaboration Product regardless of the number of Arris Patent Rights pertaining
thereto. There shall be no obligation to pay royalties to Arris under this
Article 6 on sales of Collaboration Products among BMS, its Affiliates and
Sublicensees so long as such products are then resold to Third Parties, and in
such instances the obligation to pay royalties shall arise upon the resale by
BMS, its Affiliates or Sublicensees, as applicable, to the Third Parties,
including Third Party distributors that are not Sublicensees as defined in this
Agreement. The royalty obligation under Section 6.3 with respect to a particular
Collaboration Product shall be deemed to accrue when Collaboration Products are
shipped or billed, whichever event shall first occur. All royalties obligations
of BMS hereunder that accrue during a particular calendar quarter shall be paid
by BMS within sixty (60) days after the end of such calendar quarter. For the
purpose of calculating royalties, Net Sales shall be determined based on the
gross invoiced sales price as reflected in the books and records of BMS, its
Affiliates and Sublicensees, as applicable, maintained in accordance with the
accounting principles used by the applicable entity consistently applied across
all its products and operations, subject to BMS's obligation to remedy any
arithmetic, data entry or billing errors in such records that are discovered in
the course of an audit conducted hereunder or otherwise. BMS covenants that BMS
and its Affiliates shall accurately reflect the actual gross sales price of
Collaboration Products sold in the invoiced prices recorded in its books and
records. BMS's obligation to pay royalties to Arris under this Article 6 shall
extend to any Collaboration Product that is used in, or offered as part of, a
commercial service business. In such event, the Parties shall negotiate in good
faith and agree on a reasonable mechanism for fairly calculating Net Sales
resulting from commercial use.
6.6 RECORDS RETENTION. For three (3) years after each sale of each
Collaboration Product, BMS shall keep (and shall assure that its Affiliates and
Sublicensees shall keep) records of such sale in sufficient detail to confirm
the accuracy of the royalty calculations hereunder.
6.7 THIRD PARTY ROYALTIES. The Parties agree that [*].
6.8 AUDITS.
(a) Upon the written request of Arris and not more than once in each
calendar year, BMS shall permit an independent certified public accounting firm
of nationally recognized
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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standing selected by Arris and reasonably acceptable to BMS, at Arris' expense,
to have access during normal business hours to such of the records of BMS as may
be reasonably necessary to verify the accuracy of the royalty reports hereunder
for any calendar year ending not more than thirty-six (36) months prior to the
date of such request. The accounting firm shall disclose to Arris and BMS only
whether the royalty reports are correct or incorrect and the specific details
concerning any discrepancies. No other information shall be provided to Arris.
(b) If such accounting firm concludes that additional royalties were
owed during such period, BMS shall pay the additional royalties, with interest
from the date originally due at the prime rate, as published in The Wall Street
Journal (Eastern U.S. Edition) on the last business day preceding such date,
within thirty (30) days after the date Arris delivers to BMS such accounting
firm's written report. If the amount of the underpayment is greater than five
percent (5%) of the total amount owed, then BMS shall in addition reimburse
Arris for all costs related to such audit.
(c) BMS shall include in each sublicense granted by it pursuant to
this Agreement a provision requiring the Sublicensee to make reports to BMS, to
keep and maintain records of sales made pursuant to such sublicense and to grant
access to such records by Arris' independent accountant to the same extent
required by BMS under this Agreement.
(d) Arris shall treat all information subject to review under this
Section 6.7 or under an sublicense agreement in accordance with the
confidentiality provisions of Article 8 of this Agreement, and shall cause its
accounting firm to enter into an acceptable confidentiality agreement with BMS
obligating such firm to retain all such financial information in confidence
pursuant to such confidentiality agreement.
6.9 NO NON-MONETARY CONSIDERATION FOR SALES. Without the prior written
consent of Arris, BMS shall not accept or solicit any non-monetary consideration
in the sale of a Collaboration Product other than as would be reflected in Net
Sales, except for clinical studies and customary promotional samples.
6.10 TAXES. The party receiving royalties and other payments under this
Agreement shall pay any and all taxes levied on account of such payment. If any
taxes are required to be withheld by the paying Party, it shall (a) deduct such
taxes from the remitting payment, (b) timely pay the taxes to the proper taxing
authority, and (c) send proof of payment to the other Party and certify its
receipt by the taxing authority within sixty (60) days following such payment.
7. INVENTIONS AND PATENTS.
7.1 TITLE TO INVENTIONS. Subject to Section 7.2, which shall control, each
Party shall own and retain all right, title and interest in and to all Research
Technology made solely by such Party or its employees or agents during the
course of Research, as determined by the applicable laws of inventorship, and
all intellectual property rights in such Research Technology, and the Parties
shall jointly own any Research Technology made jointly by the Parties.
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7.2 ARRIS DELTA TECHNOLOGY AND DELTA COMPOUNDS.
(a) The Parties understand and agree that in the course of BMS's
research and development activities under the Research, and in particular BMS's
practice of the license rights granted under Section 3.2, BMS and/or its
Affiliates (including their respective employees or agents) may make Delta
Inventions. BMS agrees that any and all such Delta Inventions shall be deemed
part of the Arris Delta Technology and that all right, title and interest in and
to any and all such Delta Inventions shall be owned by Arris. BMS hereby assigns
and agrees to assign to Arris all its right, title and interest in and to any
and all such Delta Inventions.
(b) Subject to the license rights granted to BMS in Sections 3.1, 3.2
and 3.3 of this Agreement, Arris shall own the entire right, title and interest
in and to any and all Delta Compounds, and BMS hereby assigns and agrees to
assign to Arris all right, title and interest in and to all Delta Compounds
identified, designed, synthesized or discovered by or on behalf of BMS or its
Affiliates, including assignment of all intellectual property rights in such
Delta Compounds and the rights to obtain patents. BMS further agrees that BMS
shall require its Affiliates to assign to BMS all right, title and interest of
such Affiliates in and to all Delta Compounds identified, designed, synthesized
or discovered by or on behalf of such Affiliates.
7.3 RIGHTS TO OTHER COMPOUNDS. The parties expect that each of them will
make compounds from its library available for testing for purposes of this
Agreement and that additional compounds may be invented and/or synthesized in
the course of the Research. In respect of such compounds, and except as provided
in Section 7.2, the Parties agree as follows:
(a) Pre-existing compounds which are tested in the Research and are
determined, under the provisions of Section 1.9, not to be Collaboration
Compounds shall revert to the Party that made such compound available, and shall
not be subject to this Agreement.
(b) Compounds (other than Delta Compounds) that are invented in the
course of the Research shall be owned by the Party that invented each such
compound, with compounds invented jointly by the Parties being owned jointly.
All such compounds that are determined under the provisions of Section 1.9 not
to be Collaboration Compounds shall revert to the Party(ies) that owns such
compounds, and shall not be subject to this Agreement.
(c) No implied license under any Patent Rights is granted under this
Section 7.3.
7.4 JOINT PATENTS. Subject to Section 7.2, which shall control, if it is
determined that employees or agents of both Arris and BMS are joint inventors of
an invention within the Research Technology, the Parties shall jointly own
Patent Rights, inventor's certificates and applications therefor covering such
invention. The JRC shall determine which Party shall be responsible for the
filing of associated patent applications claiming such inventions.
7.5 PATENTABLE INVENTIONS. The Parties expect that patent applications will
be filed as required to secure suitable Patent Rights covering inventions within
the Research Technology. The Parties agree as follows with respect to the filing
and prosecution of such applications.
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(a) Except as provided in Section 7.5(b) below, the Party that owns an
invention within the Research Technology may, in its discretion, file such
patent applications and thereafter prosecute and maintain in force the resulting
Patent Rights in the United States. With respect to jointly-owned inventions,
the Party designated by the JRC will file such patent applications and
thereafter prosecute and maintain in force the resulting Patent Rights in the
United States. Subject to the other provisions of this Section 7.5, the filing,
prosecution and maintenance of all patent applications and patents outside the
United States claiming inventions within the Research Technology shall be
conducted through BMS's patent management and affiliates system. If a Party
having the right to file a patent application on an invention hereunder declines
to do so or, having filed, declines to further prosecute and/or maintain in
force any Patent Rights derived from such a patent application in any country,
then, unless the Party declining to file such patent application reasonably
asserts trade secret rights in the subject invention, which trade secret rights
are more commercially viable if maintained as a trade secret rather than as
protected by the potential Patent Rights claiming such invention, the other
Party shall have the right to prepare, file, prosecute and/or maintain such
Patent Rights in any such country, in which event the declining Party shall, at
the other Party's request and expense, provide all reasonable assistance.
(b) The filing Party under Section 7.5(a) shall regularly provide the
other Party with copies of all patent applications filed hereunder and other
material submissions and correspondence with the patent offices, in sufficient
time to allow for review and comment by the other Party. In addition, such
filing Party shall provide the other Party and its legal counsel with an
opportunity to consult with the Party and its patent counsel regarding the
filing and contents of any such application, amendment, submission or response,
and the advice and suggestions of the other Party and its legal counsel shall be
taken into reasonable consideration by such Party and its legal counsel in
connection with such filing. Each Party shall also provide the other Party with
copies of any patentability search reports made by patent counsel with respect
to inventions in the Research Technology, including patents located, a copy of
each patent application, and each patent that issues thereon.
(c) Notwithstanding any of the foregoing, Arris shall have the sole
right, at its discretion, as to all filings and prosecution efforts for
applications for Patent Rights related to Arris Delta Technology, and shall not
be obligated to disclose to BMS such filings and efforts.
7.6 ABANDONMENT OF PATENT RIGHTS. Each Party shall have the right, in its
sole discretion, to abandon any Patent Right owned by it, in whole or in part.
To the extent such Patent Right claims Research Technology (other than any Arris
Delta Technology), in the event that a Party elects to do so, it shall first
offer the other Party the right, at no cost to the former, to assume, prosecute
and maintain such Patent Right in the latter's name.
7.7 PATENT EXPENSES. Except as otherwise provided herein, all costs and
expenses of filing, prosecuting and/or maintaining in force Patent Rights
derived from all patent applications filed under Section 7.5 shall be borne by
the Party that is prosecuting the Patent Rights; provided, however, that BMS
shall bear (directly or by reimbursement of Arris for its reasonable
out-of-pocket costs) all such costs and expenses with respect to such Patent
Rights pertaining to
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<PAGE> 24
any Collaboration Compound(s), unless and until development of such
Collaboration Compound(s) under this Agreement ceases; and provided, further,
that BMS shall bear (directly or by reimbursement of Arris for its reasonable
out-of-pocket costs) all costs and expenses with respect to all Joint Patents.
BMS shall have the right to refuse to make or to cease making such payments or
reimbursements at any time with respect to particular Joint Patents or Arris
Patents. BMS will provide Arris timely advance written notice of its intention
to invoke such right, identifying the affected Patent Rights, and, if Arris
undertakes to file, prosecute and/or maintain such affected Patent Rights at its
expense, all license rights granted to BMS by Arris under this Agreement with
respect to such affected Patent Rights will terminate. BMS may recover such
license rights with respect to such affected Patent Rights by paying to Arris,
prior to the first anniversary of the end of the Research Term, [*].
Notwithstanding the foregoing, Arris shall bear all costs and expenses of
filing, prosecuting and/or maintaining in force all Patent Rights related to the
Arris Delta Technology. Further, BMS shall not have any right to conduct such
prosecution or maintenance on any such Patent Rights related to Arris Delta
Technology, even if Arris ceases to file, prosecute and/or maintain in force any
such Patent Rights.
7.8 ENFORCEMENT OF PATENTS.
(a) If either Party considers that any Arris Patent, BMS Patent or
Joint Patent claiming the manufacture, use or sale of a Collaboration Product is
being infringed by a Third Party by activities in the Field, it shall notify the
other Party and provide it with any evidence of such infringement which is
reasonably available. Subject to any limitations in the license agreements
between Arris and Third Party licensors covering Arris Patents that are licensed
to Arris, BMS shall have the first opportunity at its own expense to attempt to
remove such infringement by commercially appropriate steps, including suit. If
required by law, Arris shall join such suit as a party, at BMS's own expense.
Arris agrees to use reasonable efforts to obtain any consents required by Third
Parties owning Arris Patents licensed to Arris in order for BMS to conduct suits
thereunder for infringement by Third Parties in the Field. In the event BMS
fails to take commercially appropriate steps with respect to an infringement
that is likely to have a material adverse effect on the sale of Collaboration
Products within three (3) months following notice of such infringement, Arris
shall have the right to do so at its expense; provided that BMS shall not be
required to enforce such Patent Right against more than one entity or in more
than one country at any one time.
(b) The Party not enforcing the applicable Patent Rights shall provide
reasonable assistance to the other Party, including providing access to relevant
documents and other evidence and making its employees available, subject to
BMS's reimbursement of any out-of-pocket expenses incurred by Arris.
(c) [*]
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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<PAGE> 25
(d) Except for Third Party infringement activities within the Field
covered by the provisions of subsection 7.8(a), each Party shall retain the sole
and exclusive right to enforce its Patent Rights against all infringers at its
sole cost and expense.
7.9 THIRD PARTY PATENT RIGHTS. If any warning letter or other notice of
infringement is received by a Party, or action, suit or proceeding is brought
against a Party alleging infringement of a Patent Right of any Third Party in
the manufacture, use or sale of a Collaboration Product or in conducting the
Research, the Parties shall promptly discuss and decide the best way to respond.
8. CONFIDENTIALITY.
8.1 CONFIDENTIALITY OBLIGATIONS. Each Party agrees that, for the term of
this Agreement and for five (5) years thereafter, such Party shall keep, and
shall ensure that its officers, directors, employees and agents keep, completely
confidential and shall not publish or otherwise disclose and shall not use for
any purpose except as expressly permitted hereunder any Confidential Information
furnished to it by the other Party pursuant to this Agreement (including,
without limitation, Know-How of the disclosing Party). The foregoing obligations
shall not apply to any information to the extent that it can be established by
such receiving Party that such information:
(a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving Party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving Party by a
Third Party other than in contravention of a confidentiality obligation of such
Third Party to the disclosing Party.
Each Party shall obtain written agreements from each of its employees
and consultants who perform substantial work of the Research, which agreements
shall obligate such persons to similar obligations of confidentiality and to
assign to such Party all inventions made by such persons during the course of
performing the Research. Each Party may disclose the other's Confidential
Information to the extent such disclosure is reasonably necessary in filing or
prosecuting patent applications, prosecuting or defending litigation, complying
with applicable governmental regulations, making a permitted sublicense of its
rights hereunder or conducting clinical trials or otherwise in performing its
obligations or exercising its rights hereunder, provided that if a Party is
required to make any such disclosure of the other Party's Confidential
Information, it will give reasonable advance notice to the latter Party of such
disclosure requirement and, save to the extent inappropriate in the case of
patent applications, will use its
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best efforts to secure confidential treatment of such information prior to its
disclosure (whether through protective orders or confidentiality agreements or
otherwise).
8.2 RESTRICTION ON ARRIS DELTA TECHNOLOGY. Notwithstanding Section 8.1, BMS
agrees to use its best efforts not to disclose Arris Delta Technology to any
Third Party or to any of its employees except to those BMS employees who
reasonably require same for the purposes of this Agreement and who have been
apprised of the confidential nature of such disclosure.
8.3 PUBLICATIONS.
(a) Neither Party shall publish or present the results of the Research
with respect to a Collaboration Compound or of development studies carried out
thereon until after completion of Phase I clinical development with respect
thereto. Subject to the foregoing and the restrictions provided below, either
Party may publish or present the results of the Research or of development
studies carried out on such Collaboration Compound, subject to the prior review
by the other Party for patentability and protection of Confidential Information.
Each Party shall provide to the other Party the opportunity to review any
proposed abstracts, manuscripts or summaries of presentations which cover the
results of the Research or of pre-Phase III clinical development of such
Collaboration Compound. Such other Party shall respond in writing promptly and
in no event later than sixty (60) days after its receipt of the proposed
material with either approval of the proposed material or a specific statement
of concern, based upon either the need to seek patent protection or concern
regarding competitive disadvantage arising from the proposal. In the event of
concern, the submitting Party agrees not to submit such publication or to make
such presentation that contains such information until the other Party is given
a reasonable period of time (not to exceed ninety (90) days) to seek patent
protection for any material in such publication or presentation which it
believes is patentable or to resolve any other issues. This Section 8.3(a) shall
cease to apply with respect to any Collaboration Compound upon the commercial
launch of a Collaboration Product containing such Collaboration Compound as an
active ingredient.
(b) Each Party also agrees to delete from any such proposed
publication any Confidential Information of the other Party upon its reasonable
request. Notwithstanding the foregoing, BMS shall not publish any Confidential
Information comprising or pertaining to Arris Delta Technology or Delta
Compounds without the prior written approval of Arris.
(c) In any publication permitted under this Section 8.3, each Party
shall acknowledge its collaboration with the other Party under this Agreement.
8.4 PRESS RELEASES. Except as required by law, neither Party shall have the
right to make any public announcements concerning this Agreement or the subject
matter hereof without the prior written consent of the other, which shall not be
unreasonably withheld. In the event of a required public announcement, such
Party shall provide the other Party with a reasonable opportunity and the right
to approve the content of such announcement prior to its being made, which
approval shall not be delayed or unreasonably withheld. Each Party agrees that
any filings it makes with the SEC describing the terms of this Agreement shall
be consistent with the prior press releases and other public disclosures of such
terms. BMS agrees that it will not file with
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the SEC the Agreement or any portion thereof. Arris agrees that, prior to its
filing of a copy of the Agreement with the SEC, it shall provide to BMS for
review the proposed redacted copy of the Agreement, and Arris shall give due
respect to any reasonable and timely request by BMS with respect to such filing.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY BMS. BMS shall indemnify, defend and hold Arris and
its agents, employees, officers and directors (the "Arris Indemnitees") harmless
from and against any and all liability, damage, loss, cost or expense (including
reasonable attorneys' fees) arising out of Third Party claims or suits related
to (a) BMS's performance of its obligations under this Agreement; (b) the
manufacture, use or sale of Collaboration Products by BMS and its Affiliates,
Sublicensees, distributors and agents, except to the extent such claims or suits
result from the active negligence or willful misconduct of any of the Arris
Indemnitees; or (c) breach by BMS of its representations and warranties set
forth in subsection 11.4(a). Upon the assertion of any such claim or suit, the
Arris Indemnitees shall promptly notify BMS thereof, and BMS shall appoint
counsel reasonably acceptable to the Arris Indemnitees to represent the Arris
Indemnitees with respect to any claim or suit for which indemnification is
sought. The Arris Indemnitees shall not settle any such claim or suit without
the prior written consent of BMS, unless they shall have first waived their
rights to indemnification hereunder. Notwithstanding the foregoing, BMS shall
have no obligation to indemnify Arris with respect to claims arising out of
breach by Arris of its representations and warranties set forth in subsection
11.4(a) or (b).
9.2 INDEMNIFICATION BY ARRIS. Arris shall indemnify, defend and hold BMS
and its agents, employees, officers and directors (the "BMS Indemnitees")
harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorney's fees) arising out of Third Party claims or
suits related to (a) Arris' performance of its obligations under this Agreement,
except to the extent that such claims or suits result from the active negligence
or willful misconduct of any of the BMS Indemnitees; or (b) breach by Arris of
its representations and warranties set forth in subsection 11.4(a) or (b); or
(c) to the extent required by Section 10.5(e), the development, manufacture,
marketing, use and/or sale of Collaboration Compounds and/or Collaboration
Products by Arris, its Affiliates, sublicensees, distributors or agents. Upon
the assertion of any such claim or suit, the BMS Indemnitees shall promptly
notify Arris thereof and Arris shall appoint counsel reasonably acceptable to
the BMS Indemnitees to represent the BMS Indemnitees with respect to any claim
or suit for which indemnification is sought. The BMS Indemnitees shall not
settle any such claim or suit without the prior written consent of Arris, unless
they shall have first waived their rights to indemnification hereunder.
Notwithstanding the foregoing, Arris shall have no obligation to indemnify BMS
with respect to claims arising out of a breach by BMS of its representations and
warranties set forth in subsection 11.4(a).
10. TERMINATION AND EXPIRATION.
10.1 TERM AND TERMINATION. This Agreement shall commence upon the Effective
Date and, unless earlier terminated as provided herein, shall expire on the
expiration of all
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royalty obligations hereunder. The obligation of BMS to pay royalties shall
expire on a country-by-country and Collaboration Product-by-Collaboration
Product basis on the later to occur of: [*], of the royalty obligation with
respect to a particular Collaboration Product in a particular country, the
licenses granted to BMS under Article 3 with respect to such Collaboration
Product in such country shall expire, and BMS shall have thereafter a
non-exclusive, paid-up license to make, have made, use, import, sell and offer
for sale such Collaboration Products in such country. Upon expiration of this
Agreement under this Section 10.1, the non-exclusive licenses granted under
Section 3.5 and this Section 10.1 shall survive the expiration indefinitely.
10.2 TERMINATION UPON MATERIAL BREACH.
(a) Failure by a Party to comply with any of its material obligations
contained herein shall entitle the Party not in default to give to the Party in
default notice specifying the nature of the default, requiring it to make good
or otherwise cure such default, and stating its intention to terminate if such
default is not cured. If such default is not cured within sixty (60) days after
the receipt of such notice (or, if such default cannot be cured within such
sixty (60) day period, if the Party in default does not commence and diligently
continue actions to cure such default), the Party not in default shall be
entitled, without prejudice to any of its other rights conferred on it by this
Agreement, and in addition to any other remedies available to it by law or in
equity, to terminate this Agreement; provided, however, that such right to
terminate shall be stayed in the event that, during such sixty (60) day period,
the Party alleged to have been in default shall have initiated arbitration in
accordance with Section 11.11 with respect to the alleged default, which stay
shall last so long as the initiating Party diligently and in good faith
cooperates in the prompt resolution of such arbitration proceedings.
(b) The right of a Party to terminate this Agreement, as hereinabove
provided, shall not be affected in any way by its waiver or failure to take
action with respect to any prior default.
10.3 TERMINATION DURING OR AFTER COMPLETION OF THE RESEARCH TERM. BMS may
terminate this Agreement in its entirety on at least ninety (90) days' prior
written notice to Arris (i) during the Research Term under the circumstances set
forth in Section 2.9, or (ii) commencing upon the completion of the Research
Term.
10.4 TERMINATION FOR FAILURE TO EXECUTE CHIRON LICENSE. In the event that
BMS and Chiron Corporation have not entered into the Chiron License by December
31, 1997, then Sections 2.15 and 10.4 of this Agreement (which are the only
effective provisions of the Agreement prior to entry into the Chiron License)
shall terminate immediately as of such date, and the remaining terms and
provisions set forth in this document shall be deemed forever null and void,
never having been effective or binding on either Party.
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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10.5 CONSEQUENCES OF TERMINATION.
(a) Upon termination of this Agreement (but not expiration of its term
under Section 10.1), (i) each Party shall promptly return all relevant records
and materials in its possession or control containing the other Party's Know-How
or other Confidential Information and to which the former Party does not retain
rights hereunder; (ii) all licenses granted by each Party to the other under
Article 3 shall terminate; (iii) all rights in any Collaboration Compounds shall
revert to Arris (except in the case where BMS terminates under Section 10.2, in
which case BMS will retain the Collaboration Compounds owned by BMS to the full
extent of its ownership); (iv) BMS will transmit to Arris all reports and data,
including preclinical data and reports, obtained by BMS pursuant to this
Agreement within sixty (60) days of such termination (except in the case where
BMS terminates under Section 10.2); and (v) any and all claims and payment
obligations that accrued prior to the date of such termination shall survive
such termination.
(b) Further, in the event BMS terminates this Agreement under the
terms of clause (i) of Section 10.3 or Arris terminates this Agreement pursuant
to Section 10.2, BMS shall grant to Arris immediately upon such termination the
exclusive, worldwide license and right, with full rights to sublicense, under
the BMS Patents and BMS Know-How and BMS' interest in the Joint Know-How and
Joint Patents solely to develop, make, have made, use, import, sell and offer
for sale Collaboration Products. BMS shall have no further rights with respect
thereto.
(c) Further, in the event that BMS terminates this Agreement under the
terms of clause (ii) of Section 10.3, BMS shall grant to Arris immediately upon
such termination the exclusive, worldwide license and right, with full rights to
sublicense, under the BMS Patents and BMS Know-How and BMS's interest in the
Joint Know-How and Joint Patents solely to develop, make, have made, use,
import, sell and offer for sale Collaboration Products, subject to the
obligation of Arris to pay to BMS a royalty in the amount of three percent (3%)
of Net Sales of Collaboration Products that are claimed by issued BMS Patents.
(d) In the event this Agreement is terminated by Arris under Section
10.2 or by BMS under Section 10.3, Arris shall have the right of access and
reference, in connection with the development and commercialization of
Collaboration Compounds, to any and all regulatory filings (including
applications for Regulatory Approval) made by BMS covering Collaboration
Compounds, and upon the request of Arris, BMS shall provide appropriate
notification of such right to applicable regulatory authorities within thirty
(30) days after such request. Such right of reference shall continue for so long
as the license rights granted above continue.
(e) In the event that BMS is required, pursuant to this Section 10.5,
to license or transfer to Arris rights BMS has as of the termination of the
Agreement in any BMS Know-How, BMS Patents, Joint Know-How, Joint Patents, or
any data or information relating to any Collaboration Compound or Collaboration
Product, Arris shall indemnify BMS as provided in Section 9.2.
10.6 ACCRUED RIGHTS; SURVIVING OBLIGATIONS.
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(a) Termination, relinquishment or expiration of this Agreement for
any reason shall be without prejudice to any rights which shall have accrued to
the benefit of a Party prior to such termination, or expiration. Such
termination, relinquishment or expiration shall not relieve a Party from
obligations which are expressly indicated to survive termination or expiration
of this Agreement.
(b) Without limiting the foregoing, Sections 2.2(b), 2.12, 2.13, 3.5,
6.4, 6.5, 6.6, 6.8, 6.10, 10.1, 10.5, 10.6, 10.7, 11.3, 11.10, 11.11, 11.12 and
11.14 and Articles 7, 8 and 9 of this Agreement shall survive the expiration or
termination of this Agreement.
10.7 RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by BMS or Arris are, and shall otherwise be deemed to
be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of
right to "intellectual property" as defined under Section 101 of the U.S.
Bankruptcy Code. The Parties agree that the Parties, as licensees of such rights
under this Agreement, shall retain and may fully exercise all of their rights
and elections under the U.S. Bankruptcy Code. The Parties further agree that, in
the event of the commencement of a bankruptcy proceeding by or against either
Party under the U.S. Bankruptcy Code, the Party hereto which is not a party to
such proceeding shall be entitled to a complete duplicate of (or complete access
to, as appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in their possession, shall be
promptly delivered to them (i) upon any such commencement of a bankruptcy
proceeding upon their written request therefor, unless the Party subject to such
proceeding elects to continue to perform all of its obligations under this
Agreement or (ii) if not delivered under (i) above, following the rejection of
this Agreement by or on behalf of the Party subject to such proceeding upon
written request therefor by an non-subject Party.
11. MISCELLANEOUS PROVISIONS.
11.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency or employer-employee
relationship between the Parties. Neither Party shall incur any debts or make
any commitments for the other.
11.2 ASSIGNMENTS. Except as expressly provided herein, neither this
Agreement nor any interest hereunder shall be assignable, nor any other
obligation delegable, by a Party without the prior written consent of the other;
provided, however, that a Party may assign this Agreement to any Affiliate or to
any successor in interest by way of merger or sale of all or substantially all
of its assets in a manner such that the assignor shall remain liable and
responsible for the performance and observance of all such Party's duties and
obligations hereunder. This Agreement shall be binding upon the successors and
permitted assigns of the Parties; provided, however, that in the event that
Arris is acquired, the Arris Know-How and the Arris Patents shall not include
any information or intellectual property rights owned by the acquiring company
as of the date of such acquisition, unless previously licensed to Arris. Any
assignment not in accordance with this Section 11.2 shall be void.
11.3 DISCLAIMER OF WARRANTIES. THE PARTIES EXPRESSLY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
30
<PAGE> 31
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT OF THIRD PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT.
11.4 REPRESENTATIONS AND WARRANTIES.
(a) Each Party represents and warrants to the other Party that, as of
the date of this Agreement:
(i) such Party is duly organized and validly existing under the
laws of the state of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof;
(ii) such Party has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance its
obligations under this Agreement; and
(iii) this Agreement is a legal and valid obligation of such
Party, binding upon such Party and enforceable against such Party in accordance
with the terms of this Agreement, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance. All consents, approvals and authorizations from all
governmental authorities or other Third Parties required to be obtained by such
Party in connection with this Agreement have been obtained.
(b) Arris represents and warrants to BMS that as of the date of this
Agreement:
(i) to Arris' knowledge, the Arris Patents, Know-How and patents
in the Arris Delta Technology existing as of the Effective Date are subsisting
and are not invalid or unenforceable, in whole or in part;
(ii) it has the full right, power and authority to enter into
this Agreement, to perform the Research Program and to grant the licenses
granted under Article 3 hereof;
(iii) to Arris' knowledge, the Arris Patents, Arris Know-How and
Arris Delta Technology practiced as permitted herein do not infringe on any
intellectual property rights owned by any Third Party, and do not result from a
misappropriation by Arris of any property owned by any Third Party;
(iv) the execution, delivery and performance of this Agreement by
Arris does not constitute a material breach under, and is not precluded by the
terms of, any agreement to which Arris is a party or by which Arris is bound;
and
31
<PAGE> 32
(v) there are no claims, judgments or settlements against or owed
by Arris or pending or threatened claims or litigation relating to the Arris
Patents, Arris Know-How and Arris Delta Technology.
(c) BMS represents and warrants to Arris that as of the date of this
Agreement:
(i) it has the full right, power and authority to enter into this
Agreement, to perform the Research Program and to grant the licenses granted
under Article 3 hereof;
(ii) the execution, delivery and performance of this Agreement by
BMS does not constitute a material breach under, and is not precluded by the
terms of, any agreement to which BMS is a party or by which BMS is bound.
11.5 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver
such further instruments and to do all such other acts as may be necessary or
appropriate in order to carry out the purposes and intent of this Agreement.
11.6 FORCE MAJEURE. The failure of a Party to perform any obligation under
this Agreement by reason of acts of God, acts of governments, riots, wars,
strikes, accidents or deficiencies in materials or transportation or other
causes of any nature (whether similar or dissimilar) beyond its control for the
duration thereof and for thirty (30) days thereafter shall not be deemed to be a
breach of this Agreement.
11.7 NO TRADEMARK RIGHTS. No right, express or implied, is granted by this
Agreement to a Party to use in any manner the name or any other trade name or
trademark of a Party in connection with the performance of this Agreement.
11.8 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement and the
exhibits hereto constitute and contain the entire understanding and agreement of
the Parties respecting the subject matter hereof and cancel and supersede any
and all prior negotiations, correspondence, understandings and agreements
between the Parties, whether oral or written, regarding such subject matter. No
waiver, modification or amendment of any provision of this Agreement shall be
valid or effective unless made in writing and signed by a duly authorized
officer of each Party.
11.9 CAPTIONS. The captions to this Agreement are for convenience only, and
are to be of no force or effect in construing or interpreting any of the
provisions of this Agreement.
11.10 APPLICABLE LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York, USA, applicable to
contracts entered into and to be performed wholly within the State of New York,
excluding conflict of laws principles.
11.11 DISPUTES. In the event of any controversy or claim arising out of,
relating to or in connection with any provision of this Agreement, or the rights
or obligations of the Parties
32
<PAGE> 33
hereunder, the Parties shall try to settle their differences amicably between
themselves by referring the disputed matter to the chief executive officer of
Arris and Senior Vice President, Drug Development of BMS for discussion and
resolution. Either Party may initiate such informal dispute resolution by
sending written notice of the dispute to the other Party, and within ten (10)
days after such notice such representatives of the Parties shall meet for
attempted resolution by good faith negotiations. If such personnel are unable to
resolve such dispute within thirty (30) days of initiating such negotiations,
such dispute shall be finally resolved by binding arbitration under this Section
11.11. The arbitration shall be held in Chicago, Illinois according to the
Commercial Arbitration Rules of the American Arbitration Association (the
"Rules"), as amended or modified by the rules and procedures set forth in
Exhibit A attached hereto. To the extent that the Rules are contrary with such
rules and procedures of Exhibit C, Exhibit C shall govern. The arbitration will
be conducted by a panel of three (3) arbitrators appointed as provided in the
Rules.
Any arbitration herewith shall be conducted in the English language to the
maximum extent possible. Judgment on the award so rendered shall be final and
may be entered and enforced in any federal court in the United States.
11.12 NOTICES AND DELIVERIES. Any notice, request, delivery, approval or
consent required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been sufficiently given if delivered in
person, transmitted by telecopier (receipt verified) or by express courier
service (signature required) or five (5) days after it was sent by registered
letter, return receipt requested (or its equivalent), to the Party to which it
is directed at its address shown below or such other address as such party shall
have last given by notice to the other Parties.
If to BMS, addressed to:
Bristol-Myers Squibb Company
P.O. Box 4000
Route 206 & Province Line Road
Princeton, NJ 08543-4000
Telecopier: (609) 252-4232
Attn: Vice President and Senior
Counsel, Pharmaceutical Research
Institute and Worldwide Strategic
Business Development
If to Arris, addressed to:
Arris Pharmaceutical Corporation
180 Kimball Way
South San Francisco, CA USA 94080
Telecopier: (415) 829-1067
Attn: CEO
33
<PAGE> 34
with a copy to:
COOLEY GODWARD LLP
5 Palo Alto Square, 4th Floor
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Robert L. Jones, Esq.
11.13 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY OR ANY OF
ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES
FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT,
WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, including, but not
limited to, loss of profits or revenue, or claims of customers of any of them or
other Third Parties for such or other damages.
11.14 NON-SOLICITATION. During the Research Term, and for a period of one
(1) year thereafter, neither Party shall solicit, induce, encourage or attempt
to induce or encourage any employee of the other Party to terminate his or her
employment with such other Party or to breach any other obligation to such other
Party.
11.15 WAIVER. A waiver by either Party of any of the terms and conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such term or condition for the future, or of any subsequent breach
hereof. All rights, remedies, undertakings, obligations and agreements contained
in this Agreement shall be cumulative and none of them shall be in limitation of
any other remedy, right, undertaking, obligation or agreement of either party.
11.16 COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to
permit a Party to export, reexport or otherwise transfer any Collaboration
Product sold under this Agreement without compliance with applicable laws.
11.17 SEVERABILITY. When possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
11.18 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, any one of which need not contain the signature of more
than one Party but all such counterparts taken together shall constitute one and
the same agreement.
34
<PAGE> 35
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which shall for all purposes be deemed to be
an original.
ARRIS PHARMACEUTICAL CORPORATION BRISTOL-MYERS SQUIBB COMPANY
By: /s/ Daniel H. Petree By: /s/ Marilyn Hartig
------------------------------- ---------------------------
Name: Daniel H. Petree Name: Marilyn Hartig, Ph.D.
------------------------------- ---------------------------
Title: Executive Vice President, Title: Vice President,
Corporate Development External Science &
Technology
------------------------------- ---------------------------
Date: October 24, 1997 Date: October 23, 1997
------------------------------- ---------------------------
35
<PAGE> 36
EXHIBIT A
RESEARCH PLAN
RESEARCH GOAL: [*]
PRIMARY RESPONSIBILITIES OF THE PARTIES:
ARRIS:
Medicinal Chemistry: [*]
Biochemistry: [*]
Crystallography: [*]
BRISTOL-MYERS SQUIBB:
Protein Biochemistry: [*]
Cell Bio/Immunology: [*]
Molecular Biology: [*]
Compound Evaluation: [*]
THE BREAKDOWN OF FTE ALLOCATION TO THE ABOVE FUNCTIONS IS PROJECTED AS FOLLOWS:
ARRIS:
Medicinal Chemistry: [*]
Biochemistry: [*]
Crystallography: [*]
TOTAL FTE OBLIGATION: [*]
BRISTOL-MYERS SQUIBB:
Protein Biochemistry: [*]
Cell Bio/Immunology: [*]
Molecular Biology: [*]
Compound Evaluation [*]
TOTAL FTE OBLIGATION: [*]
<PAGE> 37
EXHIBIT B
BUNDLED PRODUCT NET SALES
With respect to Collaboration Products sold in combination with other
products of BMS as part of a product bundle (the "Bundled Sales") where the
purchaser pays a price based on the entire bundle, rather than based on the
prices of individual products in the bundle, the Net Sales of each Collaboration
Product included in such Bundled Sales during a particular calendar quarter
shall be calculated in accordance with the following formula:
Net Sales = [*]
Where:
[*]
The Average Selling Price shall be the actual average selling price of
the Collaboration Product or other BMS product, as applicable, determined based
on actual sales by BMS or its Affiliates to non-Affiliates during the applicable
calendar quarter.
* Certain confidential information contained in the document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
<PAGE> 38
EXHIBIT C
ADDITIONAL ARBITRATION RULES
For any bona fide dispute as to either Party's rights and/or obligations
under this Agreement that has not been resolved by informal discussions of the
executive officers of the Parties, as required under Section 11.11 of this
Agreement, such dispute shall be resolved by binding arbitration under the Rules
(as defined in Section 11.11 of this Agreement), as modified by the provisions
set forth below.
Any negotiations regarding a dispute shall be treated as settlement
negotiations for purposes of the Federal Rules of Evidence and any similar state
rules of evidence. Such negotiations shall not be admissible in any subsequent
arbitration hearing.
If the matter has not been resolved within thirty (30) days after the
initial notice of dispute provided under Section 11.11 of this Agreement, or if
the Parties fail to meet within such thirty (30) days, either Party may initiate
an arbitration proceeding ("ADR") as provided herein. The Parties shall have the
right to be represented by counsel in such a proceeding.
1. To begin an ADR proceeding, a Party shall provide written notice to the other
Party of the issues to be resolved by ADR. Within fourteen (14) days after its
receipt of such notice, the other Party may, by written notice to the Party
initiating the ADR, add additional issues to be resolved within the same ADR.
2. Within twenty-one (21) days following receipt of the original ADR notice, the
Parties shall select three (3) mutually acceptable neutral arbitrators (the
"neutrals") to preside in the resolution of any disputes in this ADR proceeding.
If the Parties are unable to agree on mutually acceptable neutrals within such
period, the Parties shall request the AAA to select the neutrals pursuant to the
following procedures:
(a) The AAA shall submit to the Parties a list of not less than ten (10)
candidates within fourteen (14) days after receipt of the request from the
Parties, along with a Curriculum Vitae for each candidate. No candidate shall be
an employee, director, or shareholder of either Party or any of their
subsidiaries or Affiliates.
(b) Such list shall include a statement of disclosure by each candidate
of any circumstances likely to affect his or her impartiality.
(c) Each Party shall number the candidates in order of preference (with
the number one (1) signifying the greatest preference) and shall deliver the
list to the AAA within fourteen (14) days following receipt of the list of
candidates. If a Party believes a conflict of interest exists regarding any of
the candidates, that Party shall provide a written explanation of the conflict
to the AAA along with its list showing its order of preference for the
candidates. In addition, each Party, at its sole discretion, shall have the
right to veto up to three (3) candidates. Any Party failing to return a list of
preferences on time shall be deemed to have no order of preference.
<PAGE> 39
(d) Each Party shall number the candidates in order of preference (with
the number one (1) signifying the greatest preference) and shall deliver the
list to the AAA within fourteen (14) days following receipt of the list of
candidates. If a Party believes a conflict of interest exists regarding any of
the candidates, that Party shall provide a written explanation of the conflict
to the AAA along with its list showing its order of preference for the
candidates. In addition, each Party, at its sole discretion, shall have the
right to veto up to three (3) candidates. Any Party failing to return a list of
preferences on time shall be deemed to have no order of preference.
3. The Parties agree that each Party, on making a reasonable showing of the need
therefor to the neutrals, shall have the right to obtain evidence and other
information from the other Party, and from third parties, by all means permitted
under the Federal Rules of Evidence and of Civil Procedure (including without
limitation by depositions, interrogatories, requests for admissions, or
production of documents), but solely to the extent that the neutrals permit such
Party to obtain such evidence and/or information. If one Party makes such a
request to obtain such permission from the neutrals, the other Party will be
entitled to try make a showing why the requesting Party should not be permitted
to obtain such requested evidence or other information. The Parties agree
further that the neutrals shall have the power to compel a Party, to whom such a
request for evidence and/or information is made pursuant to such permission by
the neutrals, to produce such evidence and information to the requesting Party
pursuant to the ADR, within a time frame sufficient to permit the requesting
Party to review and utilize such evidence and information to prepare for and
conduct the ADR as provided herein.
4. Within forty-five (45) days following receipt of the original ADR notice,
each Party shall submit the following to the other Party and the neutrals:
(a) a copy of all documents on which such Party intends to rely in any
oral or written presentation to the neutrals; and
(b) a list of any witnesses such Party intends to call at the hearing,
and a short summary of the anticipated testimony of each witness.
5. At least fourteen (14) days prior to the hearing (as provided in paragraph 6
below), each Party shall submit the following to the other Party and the
neutrals:
(a) a proposed ruling on each issue to be resolved, together with a
request for a specific damage award or other remedy for each issue. The proposed
rulings and remedies shall not contain any recitation of the facts or any legal
arguments and shall not exceed one (1) page per issue; and
(b) a brief in support of such Party's proposed rulings and remedies,
provided that the brief shall not exceed twenty (20) pages. This page limitation
shall apply regardless of the number of issues raised in the ADR proceeding.
6. No earlier than fifty-four (54) days or later than eighty-four (84) days
after selection, the neutrals shall hold a hearing to resolve each of the issues
identified by the Parties. The ADR
<PAGE> 40
proceeding shall take place in Chicago, Illinois, or at such other location
agreed upon by the Parties. The hearing shall be conducted on two (2)
consecutive days and shall be governed by the following rules:
(a) Each Party shall be entitled to five (5) hours of hearing time to
present its case. The neutrals shall determine whether each Party has had the
five (5) hours to which it is entitled.
(b) Each Party shall be entitled, but not required, to make an opening
statement, to present regular and rebuttal testimony, documents or other
evidence, to cross-examine witnesses, and to make a closing argument.
Cross-examination of witnesses shall occur immediately after their direct
testimony, and cross-examination time shall be charged against the Party
conducting the cross-examination.
(c) The Party initiating the ADR shall begin the hearing and, if it
chooses to make an opening statement, shall address not only issues it raised
but also any issues raised by the responding Party. The responding Party, if it
chooses to make an opening statement, also shall address all issues raised in
the ADR. Thereafter, the presentation of regular and rebuttal testimony and
documents, other evidence, and closing arguments shall proceed in the same
sequence.
(d) Except when testifying, witnesses shall be excluded from the hearing
until closing arguments.
(e) Settlement negotiations shall not be admissible under any
circumstances. As to all other matters, the neutrals shall have sole discretion
regarding the admissibility of any evidence.
7. Within seven (7) days following completion of the hearing, each Party may
submit to the other Party and the neutrals a post-hearing brief in support of
its proposed rulings and remedies, provided that such brief shall not contain or
discuss any new evidence and shall not exceed ten (10) pages. This page
limitation shall apply regardless of the number of issues raised in the ADR
proceeding. Within fourteen (14) days following completion of the hearing, each
Party may submit to the other Party and the neutral a post-hearing rebuttal
brief, responding to the matters raised in the other Party's post-hearing brief,
provided that such rebuttal brief shall only respond to matters raised in the
other Party's post-hearing brief, shall not contain or discuss any new evidence,
and shall not exceed five (5) pages.
8. The neutrals shall rule on each disputed issue within twenty-one (21) days
following completion of the hearing. Such ruling shall adopt in its entirety the
proposed ruling and remedy of one of the Parties on each disputed issue but may
adopt one Party's proposed rulings and remedies on some issues and the other
Party's proposed rulings and remedies on other issues. The neutrals shall not
issue any written opinion or otherwise explain the basis of the ruling.
9. The neutrals shall be paid a reasonable fee plus expenses. These fees and
expenses, along with the reasonable legal fees and expenses of the prevailing
Party (including all expert witness
<PAGE> 41
fees and expenses and reasonable attorneys' fees and expenses), the fees and
expenses of a court reporter, and any expenses for a hearing room, shall be paid
as follows:
(a) If the neutrals rule in favor of one Party on all disputed issues in
the ADR, the losing Party shall pay 100% of such fees and expenses.
(b) If the neutrals rule in favor of one Party on some issues and the
other Party on other issues, the neutrals shall issue with the rulings a written
determination as to how such fees and expenses shall be allocated between the
Parties. The neutrals shall allocate fees and expenses in a way that bears a
reasonable relationship to the outcome of the ADR, with the Party prevailing on
more issues, or on issues of greater value or gravity, recovering a relatively
larger share of its legal fees and expenses.
10. The rulings of the neutrals and the allocation of fees and expenses shall be
binding, non-reviewable, and non-appealable, and may be entered as a final
judgment in any court having jurisdiction.
11. Except as provided in paragraph 10 or as required by law, the existence of
the dispute, any settlement negotiations, the ADR hearing, any submissions
(including exhibits, testimony, proposed rulings, and briefs), and the rulings
shall be deemed Confidential Information. The neutrals shall have the authority
to impose sanctions for unauthorized disclosure of Confidential Information.
<PAGE> 1
Exhibit 10.68
COLLABORATION AGREEMENT
WARNER-LAMBERT COMPANY
AND
SEQUANA THERAPEUTICS, INC.
OCTOBER 31, 1997
<PAGE> 2
COLLABORATION AGREEMENT*
This COLLABORATION AGREEMENT (the "Agreement"), effective as of October 31,
1997, is made by and between WARNER-LAMBERT COMPANY, a Delaware corporation,
with a principal place of business at 201 Tabor Road, Morris Plains, New Jersey
07950 ("Warner"). and SEQUANA THERAPEUTICS, INC. a California corporation. with
a principal place of business at 11099 N. Torrey Pines Road. Suite 160, La
Jolla, California 92037 ("Sequana").
BACKGROUND
A. Sequana has expertise in the field of gene discovery, gene functional
analysis and high-throughput screening techniques and has proprietary materials
useful for discovery of genes relating to Schizophrenia and Bipolar Disorder.
B. Warner is in the business of and has expertise in developing,
manufacturing and commercializing pharmaceuticals.
C. Warner and Sequana wish to enter into a collaborative research program
to share such expertise, to conduct research using a variety. of gene discovery,
gene functional analysis and high-throughput screening techniques, to identify
multiple, novel drug targets and active compounds for development and to
commercialize products and services for the treatment of Schizophrenia or
Bipolar Disorder. If such efforts are successful, Warner shall market certain
Warner Products for use in the Field in the Territory., and the Parties may
co-promote certain Other Products for use in the Field.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises. contained herein, Sequana and Warner agree as follows:
1. DEFINITIONS
The following capitalized terms shall have the meanings indicated for
purposes of this Agreement:
1.1 "AFFILIATE" shall mean any corporation, association or other entity
which directly or indirectly controls. is controlled by or is under common
control with the party. in question. As used in this definition of "Affiliate,"
the term "control" shall mean direct or indirect beneficial ownership of more
than fifty percent (50%) of the voting or income interest in such corporation or
other business entity.
1.2 "AGENCY" shall mean the U.S. Food and Drug Administration or an
successor entity (the "FDA"), and agencies of other governments of other
countries having similar jurisdiction over the development, manufacturing and
marketing of pharmaceuticals.
- -----------------
* Certain confidential information in the document, marked by brackets, has
been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1933,
as amended.
1.
<PAGE> 3
1.3 "ANTISENSE" shall mean a nucleic acid or a functional analog,
derivative or homologue thereof which is complementary to a segment of DNA of a
target Gene or such target Gene's cognate RNA and which, upon delivery by any
means, alters the transcription, processing, elaboration, RNA expression, or
protein production of or by such target Gene.
1.4 "AREA" shall mean either of Bipolar Disorder or Schizophrenia.
1.5 "BACKGROUND TECHNOLOGY" shall mean all proprietary inventions, methods.
ideas. know-how. data. software. protocols. techniques and information (a) that
a Party owns or Controls on the Effective Date or develops during the Term of
the Research Program independently and outside the scope of this Agreement and
has the right to contribute to the Research Program and (b) which is necessary
for the research, design, development, testing, use, manufacture or sale of
Warner Products. Other Products or Diagnostic Products for use in the Field.
including, without limitation, all United States and foreign patents and patent
applications relating thereto (including, without limitation, all reissues,
extensions, substitutions, confirmations, registrations, revalidations,
additions, continuations, continuations-in-part and divisions thereof).
1.6 "BIOAGENT DB" shall mean the Software known as BioAgentDB, a system for
integrating and displaying genomic and target related information, including a
database server with an interface to the Worldwide Web, as further described in
Exhibit A hereto.
1.7 "BIPOLAR DISORDER" shall mean bipolar affective disorder, bipolar I
disorder, bipolar II disorder and schizoaffective disorder (bipolar subtype).
1.8 "COLLABORATION TECHNOLOGY" shall mean all Know-How and Patent Rights
that a Party owns or Controls, which is conceived. reduced to practice or
otherwise developed by Sequana (or its agents) or Warner (or its agents) or
jointly by Sequana and Warner (or their respective agents) during the Term of
the Research Program arising out of the Research Program.
1.9 "COMPOUND" means any molecule with a molecular weight of [*] which is
identified by Warner or its Affiliates or Sublicensees during the Term of the
Research Program or prior to the fifth anniversary of the termination of the
Term of the Research Program through application of an assay or animal model
developed based on a Gene or Gene product, which Gene or Gene product was
identified during the Term of the Research Program through the use of Sequana
Background Technology (excluding Sequana Technology) or Collaboration Technology
provided, however, that the term "Compound" shall not include any such molecule
identified by Warner or its Affiliates after the Term of the Research Program
through screening against a specific biochemical target which is in the public
domain at the time of such identification and has been proposed as a target for
a disease.
1.10 "CONFIDENTIAL INFORMATION" means, subject to the limitations set forth
in Article l.1, all Background Technology, all Collaboration Technology and any
Warner data accessible to Sequana through its maintenance of the Sequana
Technology.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
2.
<PAGE> 4
1.11 "CONSUMER PRICE INDEX" or "CPI" means the Consumer Price Index, All
Urban Consumers as published by the U.S. Bureau of Labor Statistics.
1.12 "CONTROL" shall mean possession of the ability to grant the licenses
or sublicenses as provided for herein without violating the terms of any
agreement or other arrangement with any Third Party.
1.13 "DEVELOPMENT" shall mean the development of any Lead Compound from and
after the filing of an IND, through and including product registration.
1.14 "DIAGNOSTIC PRODUCT" shall mean a diagnostic, prognostic or
pharmacogenetic product in the form of a device, compound, kit or service
developed based on information identified through the Research Program.
1.15 "DISEASE GENE" shall mean (a) a Gene identified by a Schizophrenia or
Bipolar Disorder disease associated haplotype that is sufficiently small to
define a single gene product, or (b) a Gene with a mutation which is shown to be
genetically associated with Schizophrenia or Bipolar Disorder and is consistent
with a Schizophrenia or Bipolar Disorder related biological function, in each
case, as determined by the JRPC.
1.16 "DISEASE GENE MILESTONE" means the identification by or on behalf of
Sequana or Warner of a Disease Gene.
1.17 "EFFECTIVE DATE" shall mean the date of this Agreement first written
above.
1.18 "FIELD" shall mean the research and drug discovery, collaboration
aimed at identifying human Genes and Gene sequence information for the purpose
of discovering Compounds, and the development and commercialization of such
Compounds useful for the treatment of Schizophrenia or Bipolar Disease.
1.19 "FULL TIME EQUIVALENT" or "FTE" shall mean a full time scientist (or
in the case of less than a full-time dedicated scientist, a full-time,
equivalent scientist year) dedicated to research under the Research Program
consisting of no less than [*].
1.20 "GENE" means a gene including all its regulatory, sequences, and any
and all variants thereof, including, without limitation, "splice variants,"
polymorphisms, alleles and mutations of the gene.
1.21 "GENE THERAPY" shall mean the introduction of a Gene into a person for
therapeutic purposes by (i) in vivo introduction for incorporation into cells of
such person, or (ii) ex vivo introduction into cells for transfer into a person.
1.22 "INVENTION" shall have the meaning set forth in Section 2.4.1 below.
1.23 "IND" shall mean an Investigational New Drug application, as defined
in the U.S. Food. Drug and Cosmetic Act and the regulations promulgated
thereunder, or any corresponding foreign application, registration or
certification.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
3.
<PAGE> 5
1.24 "JOINT RESEARCH PROGRAM COMMITTEE" or "JRPC" shall have the meaning
set forth in Article 3.1.
1.25 "KNOW-HOW" shall mean all ideas, inventions, data, instructions,
processes, formulas, expert opinions and information, including, without
limitation, biological, chemical, pharmacological, toxicological,
pharmaceutical, physical and analytical, clinical, safety, manufacturing and
quality control data and information, in each case, which are necessary, or
useful for and are specific to the research, design, development, testing, use,
manufacture or sale of Warner Products, Other Products or Diagnostic Products.
Know-How does not include any inventions included in the Patent Rights.
1.26 "LEAD COMPOUND" shall mean a Compound which the lead compound
subcommittee at Warner formally approves for the commencement of activities
designed to assess suitability for clinical development, including preclinical
toxicology studies conducted in accordance with Good Laboratory Practices (GLP),
chemical development and product development studies.
1.27 "LINKAGE MILESTONE" shall mean the first identification by or on
behalf of Sequana of [*].
1.28 "MAPPING MILESTONE" shall mean either [*].
1.29 "NEMASCREEN" shall mean a biological assay developed by or on behalf
of Sequana for high volume chemical screening which utilizes the live nematode C
elegans.
1.30 "NET SALES" shall mean the gross amount invoiced by Warner or Sequana,
or their Affiliates or Sublicensees, as the case may be for sales to Third
Parties (other than Sublicensees) in arm's length transactions of the applicable
Warner Products or Other Products (excluding any Other Products which the
Parties are co-promoting) and any and all services provided in connection with
sales of such Warner Products or Other Products. [*] A "sale" shall include any
transfer or other disposition for consideration, and Net Sales shall include the
fair market value of all other consideration received by the selling Party or
its Affiliates or permitted Sublicensees in respect of any grant of rights to
make, use, sell or otherwise distribute Warner Products or Other Products,
whether such consideration is in cash, payment in kind. exchange or another
form.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
4.
<PAGE> 6
In the case of discounts on "bundles" of products or services which include
Warner Products or Other Products. the selling Party may, [*]
where [*]
1.31 "NEW DRUG APPLICATION" or "NDA" shall mean a New Drug Application, as
defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, and any corresponding foreign application, registration or
certification.
1.32 "OTHER PRODUCT" means a therapeutic product (other than a Warner
Product) which is (i) a Protein. Gene Therapy, Antisense or Vaccine product and
(ii) developed through the application of Sequana Background Technology
(excluding Sequana Technology) or Collaboration Technology as a result of the
Research Program.
1.33 "PARTY" shall mean Warner or Sequana, and the "PARTIES" shall mean
Warner and Sequana.
1.34 "PATENT RIGHTS" shall mean all United States and foreign patents
(including all reissues, extensions, substitutions, confirmations,
re-registrations, re-examinations, revalidations and patents of addition) and
patent applications (including, without limitation, all continuations,
continuations-in-part and divisions thereof) in each case, claiming an invention
which is necessary or useful for the design, development, testing, use,
manufacture or sale of Warner Products, Other Products or Diagnostic Products.
1.35 "PHASE I", "PHASE II" and "PHASE III" shall mean Phase I (or Phase
I/II). Phase II, and Phase III clinical trials, respectively, in each case as
prescribed by the applicable Agency.
1.36 "PRODUCT" shall mean a Warner Product, Other Product or Diagnostic
Product, as applicable.
1.37 "PRODUCT LICENSE AGREEMENT" or "PLA" shall mean Product License
Agreement as defined in the U.S. Food, Drug and Cosmetic Act and the regulations
promulgated thereunder, and any corresponding foreign application, registration
or certification.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
5.
<PAGE> 7
1.38 "PROTEIN" shall mean any of a class of compounds, other than a
Compound, composed of a variety of amino acids joined by peptide linkages,
including aggregates, hybrids, fragments and analogs thereof. as well as
naturally post-translationally modified variants thereof (i.e., glycosylated
proteins) and chemically modified versions thereof (e.g., pegylated or
liposomally encapsulated proteins).
1.39 "RESEARCH PLAN" shall have the meaning set forth in Section 2.1.1.
1.40 "RESEARCH PROGRAM" shall mean that program of research performed by
the Parties pursuant to Article 2.1.
1.41 "SCHIZOPHRENIA" shall mean schizophrenia, schizoaffective disorder
(depressive subtype) and schizophrenic spectrum disorders (schizophreniform
disorder, schizotypal disorders and NOS psychotic disorder).
1.42 "SEQUASEARCH" shall mean the Software known as the SequaSearch Mining
Tools, including Virtual Librarian, ESTagent. Candidate VL, Gene Integrator and
SequaWatcher, improvements to the foregoing. and additional components including
Gene Wizard, Transcript Scanner and SyntenyAgent, as further described in
Exhibit A hereto.
1.43 "SEQUANA TECHNOLOGY" means the following Background Technology owned
or Controlled by Sequana: (i) BioAgentDB and SequaSearch as described on Exhibit
A; (ii) LIMSLite as described on Exhibit A; (iii) high-throughput DNA sequencing
protocols described on Exhibit A; (iv) high-throughput genotyping protocols
described on Exhibit A; and (v) the micro-array technology protocols described
on Exhibit A.
1.44 "SOFTWARE" shall mean computer code (in source or object form) owned
or Controlled by Sequana which. when executed by a digital computer, provides
said computer with the capability of manipulating numbers, text and/or graphics
in a manner defined by said computer code.
1.45 "SUBLICENSEE" shall mean a Third Party to whom Warner has granted a
license or sublicense under the Background Technology or Collaboration
Technology to make, have made, import, use, sell, offer for sale or otherwise
exploit a Warner Product in the Territory. As used in this Agreement.
"Sublicensee" shall also include a Third Party to whom Warner has granted the
right to distribute the Warner Product in the Territory.
1.46 "TERM OF THE AGREEMENT" shall mean the period from the Effective Date
until with respect to each Product, the expiration of the last royalty,
obligation owed by Warner or Sequana as the case may be, to the other with
respect to such Product, or until this Agreement is otherwise terminated earlier
pursuant to its terms.
1.47 "TERM OF THE RESEARCH PROGRAM" shall have the meaning set forth in
Section 2.5.1.
1.48 "TERRITORY" shall mean the entire world.
6.
<PAGE> 8
1.49 "THIRD PARTY" shall mean any party other than Warner or Sequana or an
Affiliate of either of them.
1.50 "VACCINE" shall mean a prophylactic or therapeutic agent that acts by
inducing a humoral and/or cell-mediated immune response directed against an
antigen.
1.51 "VALID CLAIM" means a claim of a pending patent application within the
Patent Rights (provided such application has not been pending for more than five
(5) years from the date it was first filed with the governmental agency with
jurisdiction over patent applications) or an issued and unexpired patent
included within the Patent Rights which has not been held unenforceable or
invalid by a court or other governmental agency of competent jurisdiction, and
which has not been disclaimed or admitted to be invalid or unenforceable through
reissue or otherwise.
1.52 "VALIDATED TARGET MILESTONE" shall mean [*]
1.53 "WARNER PRODUCT" means any therapeutic human product developed by or
under the authority of Warner, an active ingredient of which is a Compound.
2. RESEARCH PROGRAM
2.1 COLLABORATIVE RESEARCH PROGRAM. Subject to the terms and conditions set
forth herein. Warner and Sequana will diligently conduct mutually agreed
collaborative research in the Field pursuant to a Research Plan (the "Research
Program"). The activities conducted in connection with the Research Program will
be overseen and administered by the JRPC.
2.1.1 RESEARCH PLAN. Within 60 days of the Effective Date, the JRPC
will prepare and approve a written plan (the "Research Plan") that will (i)
include a general overview and timetable for each Party's research activities
and appropriate resources and budgets for such research during the next year.
(ii) set specific objectives for such tear, which objectives will be updated or
amended, as appropriate, by the JRPC as research progresses. and (iii) prepare a
preliminary, and non-binding plan for research activities to be conducted by the
Parties in the subsequent year. The JRPC shall review the Research Plan on an
ongoing basis but in no event less than quarterly and may make changes to the
Research Plan then in effect.
2.1.2 EFFORTS; RESOURCES. Warner and Sequana shall each use reasonable
efforts to conduct the Research Program in a professional and diligent manner in
accordance with the Research Plan within the time schedules contemplated
therein. Subject to the terms of this Agreement, each Party agrees to commit the
personnel, facilities, expertise and other resources necessary to perform its
obligations under the Research Plan; provided, however, that neither
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
7.
<PAGE> 9
Party warrants that the Research Program shall achieve any of the research
objectives contemplated by them.
2.1.3 RESEARCH PROGRAM STAFFING. Initially,[*]. The JRPC shall
evaluate the number of Sequana FTEs, and quarterly may adjust such staffing
level upward or downward, [*] Each [*] FTE shall have a primary. assignment to
conduct research in either the Schizophrenia or the Bipolar Disorder Field.
2.1.4 CLUSTER PLATES LIBRARY. Warner will provide Sequana with its
Cluster Plates Library, a subset of Warner's chemical library to perform
screening activities at Sequana exclusively in connection with the Research
Program when the JRPC agrees that appropriate biological targets or screens have
been developed for testing at Sequana.
2.1.5 SOFTWARE SUPPORT; UPGRADES. During the Term of the Research
Program. at Warner's request. Sequana shall provide to Warner. without
additional charge, reasonable support. relating to the use of Sequana
Technology, as described on Exhibit A hereto; provided, Sequana shall have no
obligation to provide Warner any support with regard to any modifications to or
derivative works of the Sequana Technology made by Warner or any changes in
function of the Sequana Technology arising from the foregoing. During the Term
of the Research Program, Sequana shall provide to Warner, without additional
charge, such upgrades and fixes to the Software within the Sequana Technology as
Sequana may develop promptly after such upgrades and fixes are developed and
validated, but Sequana shall have no obligation to develop or make any such
upgrades or fixes or any other changes to the Sequana Technology existing as of
the Effective Date. Such Software shall be available to Warner in object or
source code form, as requested by Warner.
2.2 RESEARCH PROGRAM EXPENSES.
2.2.1 [*]
2.2.2 PATIENT SAMPLE COLLECTION AND OTHER THIRD PARTY COSTS. [*] In
the event payments are required under any such contracts without an invoice from
the Third Party, Sequana shall provide Warner with a copy of the relevant
contract and Warner shall pay to Sequana all amounts due to such Third Party at
least fourteen (14) business days prior to the date the relevant payment is due
to the Third Party or. in the case of any payment due within fourteen (14)
business days of the Effective Date, [*] shall make such payment to [*]
within fourteen (14) business days of [*] written notice to [*] that
such payment will become due.
2.2.3 TECHNOLOGY IMPROVEMENTS: THIRD PARTY INTELLECTUAL PROPERTY. In
the event that the JRPC determines that it is necessary for [*] to acquire
technology or a license from a Third Party with regard to intellectual property,
in each case, which is necessary, or useful for the conduct of the Research
Program. Warner shall be responsible for reimbursing Sequana in accordance with
a schedule and terms and in amounts determined by the JRPC: provided, in the
event that such technology or intellectual property will be used by Sequana
with Third Parties, the amounts payable by Warner shall be reduced pro rata,
based on the total number of such Third Parties which will be using such
technology or intellectual property. It is understood and agreed that Sequana
shall have the principal responsibility for negotiating such agreements. unless
otherwise agreed
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
8.
<PAGE> 10
by the Parties. The Party with principal responsibility for negotiating such
agreements shall keep the other Party fully informed with respect to such
negotiations, and such other Party shall have the right to review and comment on
such agreements prior to execution, provided such review shall be conducted at
such other Party's expense. It is understood and agreed that nothing in this
Section 2.2.3 shall prohibit either Party from acquiring licenses from Third
Parties with regard to intellectual property or technology for use by such Party
outside the Research Program and that the Party acquiring such rights shall be
responsible for negotiating and preparing such agreements and for paying all
costs associated therewith, and that such Party shall have no obligation to keep
the other Party informed of or provide the other Party an opportunity to review
such agreements.
2.2.4 SEQUANA TECHNOLOGY. Notwithstanding Section 2.2.3 above, Warner
shall have the responsibility, at its sole expense, for acquiring any licenses
from Third Parties necessary for Warner to utilize the Sequana Technology.
2.3 THIRD PARTY CONTRACTORS AND COLLABORATORS. During the Term of the
Research Program, Sequana shall be permitted to engage in research
collaborations or scientific contract work to conduct the Research Program with
Third Parties provided that the terms of each such collaboration are approved by
the JRPC and are otherwise consistent with the terms of this Agreement,
including, without limitation, the confidentiality provisions set forth in
Article 11. Any agreement evidencing any such collaboration shall include and
set forth: (i) the financial terms of the Third Party, collaboration, including
the amounts of funding to be provided by each of the Parties to the third party
collaborator; (ii) provisions that rights within the Field developed or received
by either Party in the course of the third party collaboration will be
considered rights of that Party under this Agreement; and (iii) provisions for
any grant of intellectual property rights to the Third Party.
2.4 RECORDS; REPORTS.
2.4.1 RECORDS. The Parties shall maintain records that will properly
reflect all work done and results achieved in the performance of the Research
Program (including all data in the form required under any applicable
governmental regulations and as directed by the JRPC), including laboratory
records sufficient to establish the dates of first conception and reduction to
practice of any patentable Collaboration Technology (an "Invention"). Upon
request, the Parties shall provide each other access to such records relating to
the Research Program during ordinary business hours during the Term of the
Research Program.
2.4.2 REPORTS. The JRPC shall periodically and not less often than
semi-annually during the Term of the Research Program, request and the Parties
shall have the obligation to prepare and provide to the JRPC, written reports
summarizing the progress of the research performed by or sponsored by the
Parties pursuant to the Research Plan during the preceding six months. In
addition, the Parties will exchange at least quarterly verbal or written reports
presenting a meaningful summary of their activities performed in connection with
the Research Program. All Collaboration Technology made by either Party be
promptly disclosed to the other, with significant discoveries or advances being
communicated as soon as practical after such information is obtained or its
significance is appreciated.
9.
<PAGE> 11
2.4.3 RESEARCH PROGRAM EXPENDITURES. During the Term of the Research
Program, Sequana shall provide Warner with a quarterly report regarding Research
Program expenditures by Sequana in the preceding quarter which shall include the
names of the individuals constituting the FTE's, and the number of hours each
individual spent on the Research Program in the aggregate and by Area of the
Field, Sequana shall keep records of all expenses incurred in connection with
the Research Program. During the Term of the Research Program and for one year
thereafter. Warner shall have the right to audit such records no more than once
per year during ordinary business hours, at mutually agreed times, to verify
Sequana's expenditures in connection with the Research Program.
2.5 TERM AND TERMINATION OF RESEARCH PROGRAM.
2.5.1 Term of the Research Program. The term of the Research Program
shall commence on the Effective Date and, unless terminated earlier pursuant to
Section 2.5.2 or Article 13 or extended by mutual agreement of the Parties,
shall terminate on the fifth anniversary of the Effective Date (the "Term of the
Research Program". With notice to Sequana at least one hundred (100) days prior
to the end of the then-current Term of the Research Program. the Term of the
Research Program may, at Warner's option, be extended for up to three additional
one (1) year periods.
2.5.2 FIELD TERMINATION.
(a) With written notice to Sequana during the 45 days after the
end of the thirty-sixth (36th) month of the Term of the Research Program, Warner
may terminate the Research Program with respect to Schizophrenia and/or Bipolar
Disorder ninety (90) days following such notice unless Sequana has achieved any
one of the following on or before the third anniversary, of the Effective Date:
[*].
(b) Upon termination of the Research Program for either the
Schizophrenia or Bipolar Disorder Area pursuant to Section 2.5.2(a): (i) Warner
shall be obligated to fund the Research Program with respect to research in the
terminated Area for ninety (90) day's following notice of such termination:
thereafter. Warner may cease funding of the average number of FTEs actually
working on the Research Program with respect to research in the terminated Area
for the prior six months up to a maximum of [*], of the aggregate number of FTEs
involved in the Research Program during such six (6) month period, [*] (ii) all
rights and licenses granted to Warner by Sequana with respect to research in the
terminated Area shall terminate, and such rights shall revert to Sequana; and
(iii) [*].
(c) In the event of any termination by Warner pursuant to Section
2.5.2(a)(i) each Party shall retain such ownership interest in the Collaboration
Technology as it shall hold on the effective date of such termination: and (ii)
Warner will grant Sequana an exclusive (even as to Warner), worldwide,
fully-paid, perpetual license (with the right to
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
10.
<PAGE> 12
sublicense) under Warner's interest in any Collaboration Technology owned by
Warner necessary or useful to make, have made, import, use, offer for sale and
sell Warner Products, Other Products and Diagnostic Products for use in the
terminated Area (Schizophrenia or Bipolar Disorder, as the case may be), but not
Warner Products or Other Products also being sold by Warner for the other Area,
in the event an Area remains unterminated.
2.6 RESEARCH PROGRAM EXCLUSIVITY. During the Term of the Research Program,
Sequana will not conduct, alone or with any Third Party any research activities
in which genetics and genomics technologies are used specifically to discover
Genes responsible for Schizophrenia or Bipolar Disorder, except as permitted
pursuant to Section 2.3. It is understood and agreed that, subject to Section
4.9, either Party may conduct research and commercialization activities with
respect to (i) pharmacogenetics whether or not related to Schizophrenia or
Bipolar Disorder, (ii) determining the function of Genes identified by Third
Parties whether or not related to Schizophrenia or Bipolar Disorder and in no
event will Sequana utilize Collaboration Technology in such research effort and
further that Sequana shall cease such research with such Third Party in the
event that the function of such Gene(s) is determined to be related to
Schizophrenia or Bipolar Disorder. or (iii) diseases other than Schizophrenia or
Bipolar Disorder, alone or with third parties.
2.7 FURTHER AGREEMENT REGARDING WARNER COMPOUND LIBRARY. [*]
3. JOINT RESEARCH PROJECT COMMITTEE
3.1 MEMBERSHIP. Promptly after the Effective Date, Warner and Sequana will
each appoint three (3) representatives to a committee to oversee the Research
Program (the "JRPC"). A Party may change any of its appointments to the JRPC at
any time with written notice to the other Party. The JRPC shall remain available
after the termination of the Term of the Research Program in order to determine
the completion of the last two milestones listed in Section 5.4.2.
3.2 RESPONSIBILITIES. The JRPC will review, direct and supervise all
operational and scientific aspects of the Research Program. The JRPC shall be
responsible for (i) preparing and approving the Research Plan; (ii)
coordinating. monitoring and reporting research progress and ensuring open and
frequent exchange between the Parties with respect to Research Program
activities; (iii) determining whether to acquire licenses from Third Parties
with respect to intellectual property necessary or useful for the conduct of the
Research Program; (iv) discussing patent matters relating to the Research
Program Activities; (v) approving allocations of tasks and resources required to
carry, out the goals of the Research Program; (vi) approving all plans and
annual budgets for the various projects and programs within the Research
Program; (vii) determining criteria, as appropriate, for the accomplishment of
gene discovery, and functional genomics milestones and determining when such
milestones have been accomplished; (viii) encouraging and facilitating ongoing
cooperation between the Parties; (ix) coordinating and monitoring the payments
and reimbursements to be made by and between the Parties; (x)
* Certain confidential information contained in this document, marked by
brackets, has been ommitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
11.
<PAGE> 13
determining and designating Genes to be Disease Genes or Non-Disease Genes; (xi)
determining the necessity for acquisition or license of third party technology
and/or other intellectual property and the schedule and terms for reimbursement
of the costs thereof; and (xii) performing such other functions as appropriate
to further the purposes of this Agreement. as determined by the Parties.
3.3 MEETINGS. The JRPC will meet at least quarterly, alternating between
the corporate offices of Sequana and Warner (in Ann Arbor, Michigan) and will
otherwise communicate regularly by telephone, electronic mail, facsimile and/or
video conference. The JRPC may meet by telephone or video conference or in
person at such times as are agreeable to the members of the JRPC, but no less
frequently than as specified above. Attendance at meetings shall be at the
respective expense of the participating Parties. The Party hosting the meeting
shall assure that agendas and minutes are prepared for each of its meetings and
distributed to the Parties. Each Party recognizes the importance of the JRPC in
the success of the Research Program and will use diligent efforts to cause all
of its representatives of such committee to attend all meetings of such
committee. If personal attendance is not possible for valid reasons, voting by
proxy is permissible.
3.4 DECISION MAKING; DISPUTES. All actions taken and decisions made by the
JRPC created hereunder shall be by unanimous agreement and recorded in writing.
If the JRPC is unable to resolve after thirty (30) days, a dispute regarding any
issue presented to it or arising in it, such dispute will be referred to the
Chief Executive Officer of Sequana and Warner's Chairman of its Parke-Davis
Pharmaceutical Research Division for good faith resolution, for a period of
ninety (90) days. In the event such individuals are unable to resolve such
dispute, subject to Section 14.1, either Party may pursue any remedies it may
have at law or in equity.
4. LICENSE GRANTS
4.1 GRANT BY SEQUANA. Subject to the terms and conditions of this
Agreement, Sequana hereby grants and agrees to grant to Warner the following
licenses:
4.1.1 an exclusive (even as to Sequana) worldwide license under
Sequana's interest in Sequana's Background Technology (other than the Sequana
Technology) and Collaboration Technology, with the right to sublicense pursuant
to Section 4.4, to the extent necessary for Warner to make, have made, use and
import Compounds and Lead Compounds, and to make, have made use, import, offer
for sale and sell Warner Products in the Territory, and to use, offer for sale,
sell and promote any Other Product in the co-promotion countries, if the Parties
enter into a Co-Promotion Agreement pursuant to Section 8.2;
4.1.2 a non-exclusive, nontransferable, worldwide, royalty-free
license, without the right to sublicense, under the Sequana Technology, to use
and duplicate the Sequana Technology, and to make derivative works of the
Software within the Sequana Technology, in each case solely to conduct internal
research during the Term of the Research Program in any field except research
relating to non-insulin-dependent diabetes mellitus, insulin resistance syndrome
and the complications of the foregoing; and
12.
<PAGE> 14
4.1.3 a non-exclusive, royalty-free license to use data developed by
Sequana in connection with the Research Program solely for Warner's clinical
studies of Warner Products.
It is understood and agreed that, subject to Section 4.9, the licenses granted
above provide no right for Warner to use the Collaboration Technology' or
Background Technology (other than Sequana Technology) for any use outside the
Field. It is further understood and agreed that in the event that Sequana
acquires the right to grant to Warner a license with respect to the use of the
Sequana Technology for research relating to non-insulin-dependent diabetes
mellitus, insulin resistance syndrome and the complications of the foregoing,
Sequana shall promptly provide notice to Warner and thereafter the license
granted to Warner in Sections 4.1.2 and 4.1.3 above shall automatically include
the right to use the Sequana Technology for such internal research.
4.2 GRANT BY WARNER. Subject to the terms and conditions of this Agreement,
Warner hereby grants and agrees to grant to Sequana the following licenses:
4.2.1 an exclusive (except as to Warner) license, with the right to
sublicense under Warner's interest in the Background Technology, Collaboration
Technology, Patent Rights and Know-How to the extent necessary, for Sequana to
use, offer for sale, sell and promote any Other Product in the co-promotion
countries, if the Parties enter into a Co-Promotion Agreement pursuant to
Section 8.2;
4.2.2 an exclusive (even as to Warner) worldwide license, with the
right to sublicense, under Warner's interest in Background Technology.
Collaboration Technology Patent Rights and Know-How to make, have made, use,
import, offer for sale and sell Diagnostic Products.
4.2.3 a non-exclusive, royalty-free, worldwide license, with the right
to sublicense, under Warner's interest in any improvements or enhancements made
by Warner to the Sequana Technology for all purposes.
4.3 CROSS-LICENSES. Each Party hereby grants and agrees to grant to the
other a non-exclusive, non-transferable, royalty-free license to use and
practice such Party's interest in the Background Technology and Collaboration
Technology solely for research purposes in the Field in connection with the
Research Program during the Term of the Research Agreement.
4.4 SUBLICENSES. Warner may sublicense the rights granted in Section 4.1.1
to Third Parties with the prior written consent of Sequana, which consent shall
not be unreasonably withheld or to any of its Affiliates without such consent.
Each sublicense granted by Warner shall be consistent with all the terms and
conditions of this Agreement. Warner shall remain responsible to Sequana for all
of each such Sublicensee's applicable financial and other obligations under this
Agreement.
4.5 RETAINED RIGHTS. It is understood and agreed that. Sequana shall retain
the exclusive right to develop (including pre-clinical and clinical
development), make, have made, use, sell and otherwise commercialize products
other than Warner Products subject to Warners right of first negotiation
regarding Other Products. It is understood and agreed that Sequana may practice
and use its Background Technology and Collaboration Technology to facilitate the
exercise of its rights hereunder. It is further understood and agreed that,
subject to Section 4.9,
13.
<PAGE> 15
Sequana has the right to enter into agreements with Third Parties with respect
to research, development and/or the commercialization of products for areas
outside the Field and may grant such Third Party rights with regard to Sequana's
interest in the Collaboration Technology for use outside the Field.
4.6 NO UNAUTHORIZED USE. Each Party hereby covenants to the other that it
will not practice the Background Technology or Collaboration Technology of the
other Party, and Warner will not use the Sequana Technology for any purpose
other than as expressly permitted in this Agreement.
4.7 NO IMPLIED LICENSES. No rights or licenses with respect to any
intellectual property owned by Sequana or Warner are granted or shall be deemed
granted hereunder or in connection herewith, other than those rights expressly'
granted in this Agreement.
4.8 WARNER PRODUCTS. It is understood and agreed that Warner's obligations
under this Agreement apply to all Warner Products, including, without
limitation, Warner Products sold for use outside the Field.
4.9 RIGHTS OUTSIDE THE FIELD. Warner may develop and commercialize
Compounds for indications outside the Field, and conduct research and
development of Compounds for indications outside the Field using Disease Genes
and Non-Disease Genes, as follows:
4.9.1 COMPOUNDS. Warner shall have the exclusive right to develop any
Compound for indications outside the Field, Warner shall notify Sequana in
writing of each such Compound promptly following identification, and each
indication outside the Field for which Warner intends to develop and/or
commercialize such Compound.
4.9.2 DISEASE GENES. Warner shall have the exclusive right under the
Collaboration Technology to use any Disease Gene identified during the Research
Program to develop Compounds or other molecules with a [*] excluding any [*],
for indications outside the Field. Warner shall notify Sequana in writing of
each Compound and each indication outside the Field for which Warner intends to
develop such Compound. Notwithstanding the foregoing, Sequana shall retain the
right to use any Disease Gene for research purposes and to develop and
commercialize products other than Warner Products.
4.9.3 NON-DISEASE GENES.
(a) DEFINITION. For purposes hereof, "Non-Disease Gene" shall
mean any full length, novel Gene identified in the Research Program which the
JRPC during the Term of the Research Program either (i) determines is not a
Disease Gene, or (ii) fails to determine is a Disease Gene; provided, if a
Non-Disease Gene is subsequently determined to be a Disease Gene during the Term
of the Research Program, or subsequently by agreement of the parties, then such
Non-Disease Gene shall thereafter be treated as a Disease Gene and subject to
Section 4.9.2 hereof.
(b) WARNER OPTION.
* Certain confidential information contained in this document, marked by
brackets, has been ommitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
14.
<PAGE> 16
(i) During the Term of the Research Program, Warner shall
have an exclusive option to obtain the exclusive right to use any Non-Disease
Gene to develop Compounds or other molecules with a [*], excluding any [*],
provided that Warner provides Sequana with written notice of its intention to
pursue development with respect such Non-Disease Gene and a preliminary,
research plan for such development.
(ii) Warner may exercise the foregoing option on a
Non-Disease Gene-by-Non-Disease Gene basis by developing a [*], and paying to
Sequana the [*]. In the event that Warner has not developed a [*], within such
[*], Warner may extend its option for [*] period by pre-paying the [*], payment
which payment shall be credited against [*]. Warner may thereafter exercise its
option by developing a [*], within such additional [*].
(iii) Upon development of a [*], and payment of the [*],
Warner shall have an exclusive license to use the applicable Non-Disease Gene to
develop Compounds or other molecules with [*], excluding any [*].
(iv) If Warner fails to develop such [*], within the initial
[*], period or the [*], option extension period, its option shall expire, and
notwithstanding Section 4.1, each of Sequana and Warner shall thereafter have a
nonexclusive license under the other party's rights in the Collaboration
Technology to use the applicable Non-Disease Gene to develop compounds for
indications outside the Field.
(v) Notwithstanding the foregoing, if at any time during any
option period or extended option period provided above, Warner determines that
it will not pursue development with respect to the applicable Non-Disease Gene,
Warner shall promptly notify, Sequana in writing of such determination, upon
which notice Warner's option shall terminate immediately and each of Sequana and
Warner shall thereafter have a nonexclusive license under the other party's
rights in the Collaboration Technology to use the applicable Non-Disease Gene to
develop compounds for indications outside the Field.
(vi) Subject to Section 4.9.3(c), during the option period,
Warner shall have the exclusive right to use any particular Non-Disease Gene for
research purposes to evaluate whether it wishes to exercise its option for such
Non-Disease Gene.
(c) SEQUANA RIGHTS. Unless and until Warner exercises its option
and acquires an exclusive license to use a particular Non-Disease Gene pursuant
to Section 4.9.3(b) above, Sequana shall have the right to use such Non-Disease
Gene to conduct its own internal research and develop products for any use for
indications outside the Field. If Warner fails or declines to acquire an
exclusive license from Sequana with respect to a particular Non-Disease Gene,
Warner shall grant to Sequana a non-exclusive, royalty-free license, with the
right to sublicense, to use any data developed by or on behalf of Warner
relating to such Non-Disease
* Certain confidential information contained in this document, marked by
brackets, has been ommitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
15.
<PAGE> 17
Gene and its expression, for indications outside the Field. If Warner fails or
declines to acquire an exclusive license and does not intend to proceed with
further research with regard to a particular Non-Disease Gene, then in addition
to the rights subject to the preceding sentence, Sequana shall have an exclusive
option to acquire an exclusive license under Warner's interest in the
Collaboration Technology to use such Non-Disease Gene for any use with regard to
compounds for indications outside the Field, on terms to be negotiated in good
faith by the parties.
4.10 PAYMENT OBLIGATIONS. In addition to the payment of [*] Milestones as
set forth in Section 4.9.3 (b) above, with respect to each indication outside
the Field for which Warner Develops a Lead Compound or Warner Product using a
Disease Gene or Non-Disease Gene for which it has exclusive rights under
Sections 4.9.2 or 4.9.3(b)(iii), Warner shall make [*] payments to Sequana
equivalent to the [*] set forth in Section 5.4, and the [*] set forth in Section
5.5 (subject to Section 5.6), provided however, that Warner will not be
obligated to make any [*] payment more than one time for the same Compound.
Warner shall make royalty payments to Sequana in accordance with Section 5.7 for
each Warner Product, whether for indications within or outside the Field.
5. CONSIDERATION
5.1 TECHNOLOGY ACCESS FEE. In partial consideration for the rights granted
Warner herein, [*] shall be creditable against the reimbursements for patient
sample collection costs due Sequana under Section 2.2.2.
5.2 LICENSE FEE. In partial consideration for the license and rights
granted Warner herein in Section 4.1,2 above. upon the establishment of the
Sequana Technology, excluding the micro-array protocols, and the completion of
training with respect thereto as described in Exhibit A, Warner shall [*]. Such
amount shall not be refundable nor creditable against other amounts due Sequana
under this Agreement.
5.3 RESEARCH PROGRAM PAYMENTS.
5.3.1 FTE-BASED PAYMENTS. Warner agrees to pay to Sequana research
funding during the Term of the Research Program based on the number of Sequana
FTEs involved in the Research Program as established pursuant to Section 2.1.3.
For each such FTE, Warner will [*] at which rate shall [*].
5.3.2 PAYMENT SCHEDULE. The amounts to be paid to Sequana in
connection with the Research Program shall be [paid quarterly, in advance. The
initial payment for the first quarter of Year 1 of the Research Program shall be
made on the Effective Date and subsequent payments shall be made on or before
the first day of January, April, July and October] during the Term of the
Research Program. Such payments shall be made without withholding for taxes or
any other charge and, shall be non-refundable and non-creditable against other
payments due Sequana under this Agreement.
5.4 [*]. The JRPC shall be responsible for determining when each of the
following milestone(s) have been achieved, and shall promptly make such
determination in writing. In the event the JRPC cannot agree whether a milestone
has been achieved, the decision will be subject to the dispute resolution
procedure of Section 3.4.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
16.
<PAGE> 18
5.4.1 [*]. Within thirty (30) days of the date of determination by the
JRPC of the achievement of the applicable milestone during the Term of the
Research Program: Warner will pay to Sequana the following non-refundable
milestone payments:
<TABLE>
<CAPTION>
MILESTONES Amount
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
5.4.2 [*]. Within thirty (30) days of the date of determination by the
JRPC of the achievement of such milestone during the Term of the Research
Program. Warner will pay to Sequana the following non-refundable milestone
payments:
<TABLE>
<CAPTION>
MILESTONES Amount
<S> <C>
[*] [*]
[*] [*]
[*]
[*] [*]
[*] [*]
</TABLE>
5.5 [*]. Within thirty (30) days following the occurrence of the
relevant events specified below, Warner shall pay to Sequana the following
non-refundable amounts:
<TABLE>
<CAPTION>
MILESTONES Amount
<S> <C>
[*] [*]
[*] [*]
</TABLE>
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
17.
<PAGE> 19
<TABLE>
<CAPTION>
MILESTONES Amount
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
5.6 BACKUP WARNER PRODUCTS. The payments due under Section 5.5 above shall
be made with respect to each Warner Product; provided, however, [*].
5.7 ROYALTIES.
5.7.1 WARNER PRODUCT ROYALTIES. In consideration of the rights granted
hereunder, Warner shall pay the following royalties to Sequana with respect to
aggregate Net Sales of Warner Products in the Territory, on a Warner
Product-by-Warner Product basis:
[*]
5.7.2 COMPUTATION OF ROYALTIES. All sales of Warner Products between
Warner and any of its Affiliates and sublicensees shall be disregarded for
purposes of computing Net Sales and royalties under this Section 5.7, and in
such instances royalties shall be payable only upon sales to unlicensed Third
Parties. Nothing herein contained shall obligate either Party to pay the other
Party more than one royalty on any unit of a Warner Product.
5.7.3 ROYALTY TERM. The obligation of Warner to pay royalties under
this Article 5 shall continue for each Warner Product on a Warner
Product-by-Warner Product and country-by-country basis, until such time as there
are no Valid Claims in such country covering a Compound contained in such Warner
Product.
5.8 THIRD PARTY ROYALTIES. [*] shall be responsible for the payment of any
royalties, license fees and milestone and other payments due from [*] to any
other Third Party(ies) under licenses or similar agreements entered into upon
the approval of the JRPC, or entered into by [*], necessary for the manufacture,
use, import, or sale of Warner Products in the Territory (other than the
agreements referred to in Section 2.2.2).
5.9 WITHHOLDING TAXES. Any income or other tax that a Party hereunder, its
Affiliates or sublicensees is required to withhold (the "Withholding Party,")
and pay on behalf of the other Party, hereunder (the "Withheld Party") with
respect to the royalties payable under this
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
18.
<PAGE> 20
Agreement shall be deducted from and offset against said royalties prior to
remittance to the Withheld Party: provided, however. that in regard to any tax
so deducted, the Withholding Party shall give or cause to be given to the
Withheld Party such assistance as may reasonably be necessary, to enable the
Withheld Party to claim exemption therefrom or credit therefor, and in each case
shall furnish the Withheld Party proper evidence of the taxes paid on its
behalf.
5.10 PURCHASE OF SEQUANA STOCK. Pursuant to the terms of the Stock Purchase
Agreement on the Effective Date, Warner shall purchase from Sequana [*].
5.11 POST RESEARCH PROGRAM DEVELOPMENT; MILESTONES AND ROYALTIES. With
respect to the identification by Warner of Compounds, Lead Compounds and Warner
Products after the termination of the Term of the Research Program and on or
prior to the fifth (5th) anniversary of such termination, Warner shall make
milestone and royalty payments to Sequana as follows:
5.11.1 [*]. Within thirty (30) days of the date of determination by
the JRPC of the achievement of events constituting the [*] described in Section
5.4.2, or upon the occurrence of any of the milestones described in Section 5.5,
Warner will pay to Sequana milestone payments equivalent to the corresponding
milestone payments set forth in Sections 5.4.2 and 5.5 (subject to the
application of Section 5.6). The foregoing milestone payments shall be reduced
by [*] for Compounds identified during the period commencing on the [*] and
ending on the [*].
5.11.2 ROYALTIES. With respect to Warner Products developed from
Compounds identified by Warner after the termination of the Term of the Research
Program, Warner shall pay royalties to Sequana based on the aggregate Net Sales
of Warner Products in the Territory, on a Warner Product-by-Warner Product
basis, in accordance with the royalty rates set forth in Section 5.7.1 above.
The foregoing royalty payments shall be reduced by [*] for Compounds identified
during the period commencing on the [*] and ending on the [*].
6. BOOKS AND RECORDS
6.1 ROYALTY REPORTS AND PAYMENTS. The royalties due under Section 5.7 or
Section 5.11 shall be paid quarterly, within sixty (60) days after the close of
each calendar quarter, or earlier, if practical, immediately following each
quarterly period in which such royalties are earned. With each such quarterly
payment, Warner shall furnish Sequana a royalty statement setting forth, on a
country by-country and Warner Product-by-Warner Product basis, the total number
of units of each royalty-bearing Warner Product sold hereunder for the quarterly
period for which the royalties are due. Simultaneously with the delivery of each
such report, Warner shall pay to Sequana the total royalties, if any, due to
Sequana for the period of such report. If no
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
19.
<PAGE> 21
royalties are due, Warner shall so report. In addition, at Sequana's request.
but no more often than once in any twelve (12) month period, Warner shall report
to Sequana on a country-by-country and Warner Product-by-Warner Product basis
the amounts of any deductions and/or adjustments to Net Sales taken by Warner
pursuant to Section 1.22 with respect to Net Sales in the preceding four (4)
calendar quarters.
6.2 PAYMENT METHOD; LATE PAYMENTS. All amounts due Sequana hereunder shall
be paid in U.S. dollars by wire transfer in immediately available funds to a
bank account designated by Sequana. Any payments or portions thereof due
hereunder which are not paid on the date such payments are due under this
Agreement shall bear interest at a rate equal to the lesser of prime rate as
reported by the Citibank (or its successor in interest), New York, New York,
plus two percent (2%), or the maximum rate permitted by law. calculated on the
number of days such payment is delinquent, compounded monthly. This Section 6.2
shall in no way limit any other remedies available to Sequana.
6.3 CURRENCY CONVERSION. Royalties earned shall first be determined in the
currency of the country in which they are earned and then converted to its
equivalent in United States currency. The buying rates of exchange for
converting the currencies involved into the currency of the United States quoted
by Citibank (or its successor in interest) New York, New York at the close of
business on the last business day of the quarterly period in which the royalties
were earned shall be used to determine any such conversion.
6.4 RESTRICTIONS ON PAYMENTS. The obligation to pay royalties under this
Agreement shall be waived and excused to the extent that statutes, laws, codes
or government regulations in a particular country, prevent such royalty,
payments; provided, however, in such event, if legally permissible, Warner shall
pay the royalties owed to Sequana by depositing such amounts in a bank account
in such country that has been designated by Sequana and promptly report such
payment to Sequana.
6.5 RECORDS; INSPECTION. Warner and its Affiliates shall keep (and cause
its Sublicensees to keep) complete, true and accurate books of account and
records for the purpose of determining the royalty amounts payable under Article
5. Such books and records shall be kept reasonably accessible for at least three
(3) years following the end of the calendar quarter to which they pertain. Such
records will be open for inspection during such three (3) year period by a
representative or agent of Sequana reasonably acceptable to Warner, which
approval shall not be unreasonably withheld for the purpose of verifying the
royalty. statements. Such inspections may be made no more than once each
calendar year, at reasonable times mutually agreed by Warner and Sequana.
Sequana's representative or agent will be obliged to execute a reasonable
confidentiality agreement prior to commencing any such inspection and may only
disclose to Sequana the amount of any variance or error. Sequana shall bear the
costs and expenses of inspections conducted under this Section 6.5, unless a
variation or error producing an underpayment in royalties payable exceeding
[*] of the amount payable for any inspection period is
established in the course of any such inspection, whereupon all costs relating
to the inspection and any unpaid amounts that are discovered will be paid by
Warner, together with interest on such unpaid amounts at the rate specified in
Section 6.2 above.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
20.
<PAGE> 22
7. COMMERCIALIZATION
7.1 PRODUCT DEVELOPMENT.
7.1.1 WARNER. Warner shall be responsible for all costs of conducting
Development of Product(s) in the Territory, to which it holds an exclusive
license under this Agreement, including, without limitation, expenses incurred
in conducting clinical trials for such Products. In addition, Warner shall be
responsible, at its sole expense, for all commercialization of such Product(s)
in the Territory so long as Warner retains exclusive rights thereto under this
Agreement. During the term of this Agreement, Warner shall keep Sequana fully
informed of its activities subject to this Agreement, including without
limitation, the achievement of the milestones set forth in Sections 5.4 and 5.5
and the commercialization of the applicable Product(s). On or before January 31
of each year, during the term of this Agreement, Warner shall provide Sequana
with a written report summarizing such events and activities and detailing those
which have not been previously reported. When a registration package requesting
approval for commercial sale of any Product to which Warner holds an exclusive
license under this Agreement is first filed in any country, within the
Territory, and when approval is received therefor, Warner will immediately
notify Sequana in writing.
7.1.2 SEQUANA. Sequana shall be responsible for all costs of
conducting Development of Product(s) in the Territory to which it retains
commercialization rights under this Agreement, including, without limitation,
expenses incurred in conducting clinical trials for such Products. In addition,
Sequana shall be responsible, at its sole expense, for all commercialization of
such Product(s) in the Territory so long as Sequana retains exclusive rights
thereto under this Agreement. During the term of this Agreement. Sequana shall
keep Warner fully informed of its activities subject to this Agreement, and the
commercialization of the applicable Product(s). On or before January, 31 of each
year, during the term of this Agreement, Sequana shall provide Warner with a
written report summarizing such events and activities and detailing those which
have not been previously reported. When a registration package requesting
approval for commercial sale of any Product to which Sequana holds
commercialization rights under this Agreement is first filed in any country,
within the Territory, and when approval is received therefor, Sequana will
immediately notify Warner in writing.
7.2 DUE DILIGENCE.
7.2.1 REASONABLE EFFORTS. Each Party shall, with respect to those
Products which it has the right to develop and commercialize under this
Agreement, use all reasonable efforts to: (i) develop and bring such Products to
the market as soon as reasonably practicable, (ii) obtain regulatory approvals
to market such Products, and (iii) after obtaining regulatory approvals for any
such Product, launch such Product and promote and meet the market demand
therefor. In connection therewith, the applicable Party shall use efforts not
less than those efforts such Party makes with respect to its own comparable
products of comparable commercial potential, stage of development and patent
protection.
21.
<PAGE> 23
7.2.2 LACK OF DILIGENCE.
(a) In the event that Warner (i) fails to use or continue to use
diligent efforts to actively develop and commercialize a particular Lead
Compound (or corresponding Warner Product) as set forth in Section 7.2.1 above,
or (ii) notifies Sequana that it will not conduct further commercialization with
respect to a particular Lead Compound, then Sequana may terminate Warner's
rights under this Agreement with respect to such Lead Compound (and
corresponding Warner Product, Other Product or Diagnostic Product, as the case
may be) in the Territory. In such event, Sequana shall thereafter have the
exclusive rights to commercialize such Lead Compound (or corresponding Warner
Product, Other Product or Diagnostic Product, as the case may be) in the
Territory, alone or with Third Parties, subject to a royalty obligation to
Warner to be negotiated in good faith, which [*]
(b) In the event that Warner (i) fails to use or continue to use
diligent efforts to actively develop and commercialize at least one Lead
Compound (or corresponding Warner Product) for a particular Validated Target, or
(ii) after the term of the Research Program notifies Sequana that it will not
conduct further commercialization with respect to at least one Lead Compound (or
corresponding Warner Product) for a particular Validated Target, then Sequana
may terminate Warner's rights under this Agreement with respect to any and all
Lead Compounds (and corresponding Warner Product, Other Product or Diagnostic
Product, as the case may be) with activity for or against such Validated Target.
In such event, Sequana shall thereafter have the exclusive rights to
commercialize any such Lead Compound (and any corresponding Warner Product,
Other Product or Diagnostic Product. as the case may be) for such Validated
Target in the Territory, alone or with Third Parties, without obligation to
Warner. provided that Sequana will not commercialize a Lead Compound or Warner
Product to which it acquires rights pursuant to this Section 7.2.2(b), intended
for the same indication as another royalty-bearing Warner Product being
commercialized by Warner pursuant to this Agreement at the time Sequana acquires
such rights.
(c) In the event that Sequana, itself or through a Third Party,
(i) fails to use or continue to use diligent efforts to actively develop and
commercialize a particular Other Product as set forth in Section 7.2.1 above
with regard to which it has commenced Phase II clinical trials, or (ii) notifies
Warner that it will not conduct further commercialization with respect to a
particular Other Product, then Warner may acquire a license with respect to such
Other Product as provided in Section 7.2.3(c). If Warner acquires rights to
develop a particular Other Product pursuant to this Section 7.2.2(c) for use in
the Field, Sequana agrees not to commercialize an Other Product of the same
product type (i.e., Antisense, Protein, Gene Therapy or Vaccine) for the same
indication as such Other Product being commercialized by Warner pursuant to this
Agreement at the time Sequana acquires such rights.
7.2.3 LICENSES.
(a) In the event that any of Warner's rights terminate pursuant
to Section 7.2.2(a) above, at Sequana's request, Warner shall grant to Sequana
an exclusive (even as to Warner), worldwide, fully-paid, perpetual license (with
the right to sublicense) under Warner's interest in any Collaboration
Technology, Patent Rights and Know-How owned by Warner to the
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
22.
<PAGE> 24
extent necessary to make, have made, import, use, offer for sale and sell such
Lead Compounds (and corresponding Warner Products, Other Products and Diagnostic
Products).
(b) In the event that any of Warner's rights terminate pursuant
to Section 7.2.2(b) above, at Sequana's request, Warner shall grant to Sequana
an exclusive (even as to Warner), worldwide, fully-paid, perpetual license (with
the right to sublicense) under Warner's interest in any Collaboration
Technology, Patent Rights and Know-How owned by Warner to the extent necessary,
to make, have made, import, use, offer for sale and sell any Lead Compounds (and
corresponding Warner Products, Other Products and Diagnostic Products) with
activity for or against such Validated Target.
(c) In the event that Sequana fails to exercise diligence with
respect to a particular Other Product pursuant to Section 7.2.2(c) above, at
Warner's request, Sequana shall grant to Warner an exclusive (even as to
Sequana), worldwide, royalty bearing license (with the right to sublicense)
under Sequana's interest in any Background Technology, Collaboration Technology,
Patent Rights and Know-How owned by Sequana to the extent necessary, to make,
have made, import, use, offer for sale and sell such Other Product.
7.3 WARNER TRADEMARKS. Warner may select and own one or more trademarks for
marketing a Warner Product in countries in the Territory (the "Warner
Trademarks"), taking into consideration the Trademark(s) selected by the Parties
for any countries in which the Parties are conducting co-promotion, if any. All
expenses for (i) registration of such Warner Trademark and (ii) bringing,
maintaining and prosecuting any action to protect or defend such Warner
Trademark in such countries shall be borne by Warner. If Warner and its
Affiliates and Sublicensees terminate the sale of any Warner Product during the
term of this Agreement, at Sequana's request, Warner shall assign during the
term of this Agreement to Sequana any Warner Trademark which specifically
identifies such Warner Product and no other Warner Products, and Sequana shall
be responsible for any enforcement and/or maintenance thereof thereafter.
7.4 USE OF TRADEMARKS. Except as set forth in this Article 7, nothing
contained in this Agreement shall grant to either Party any right, title, or
interest in or to any trademarks of the other Party, whether or not specifically
recognized or perfected under applicable laws. At no time during or after the
term of this Agreement shall either Party challenge or assist others to
challenge trademarks used in connection with the Warner Products or the
registration thereof or attempt to register any trademarks, marks, or trade
names confusingly similar to such trademarks.
8. OTHER PRODUCTS
8.1 RIGHT OF FIRST NEGOTIATION.
8.1.1 NOTICE; NEGOTIATION PERIOD. Sequana hereby grants to Warner a
right of first negotiation to acquire an exclusive, worldwide license under (i)
the Sequana Technology, and (ii) Sequana's interest in the Collaboration
Technology and Background Technology (other than Sequana Technology) to make,
have made, use, offer for sale, import and sell Other Products. The right of
first negotiation shall apply on an Other Product-by-Other Product basis and
shall commence upon the written notification (which shall specifically refer to
this Section
23.
<PAGE> 25
8.1) by Sequana to Warner of its decision to develop or sublicense a particular
Other Product, and shall terminate within six (6) months thereafter or at such
other time as the Parties may mutually agree in writing. The right of first
negotiation may be exercised by Warner by providing written notice to Sequana of
its interest in entering into a license agreement and the Parties shall
negotiate such an agreement in good faith for a period of six (6) months from
the date of Sequana's initial notice to Warner.
8.1.2 SEQUANA DEVELOPMENT.
(a) If the Parties are unable to negotiate an agreement with
respect to any such Other Product within the period described in Section 8.1.1
above: (i) Warner shall grant to Sequana an exclusive (even as to Warner),
worldwide, license, with right to grant sublicenses, under Warner's interest in
any Collaboration Technology, Patent Rights and Know-How to make, have, made,
use, offer for sale, import and sell such Other Product, and (ii) Sequana shall
be free to develop and/or commercialize such Other Product independently or to
grant rights to develop and/or commercialize such products to any Third Party on
any terms; provided that for the [*] period following the expiration of the
negotiation period provided in Section 8.1.1 above. Sequana shall not enter into
such an agreement with a Third Party on terms which, when considered as a whole,
are more favorable to the Third Party than the last terms offered to Sequana by
Warner during the negotiation period described in Section 8.1.1.
(b) If Sequana develops and/or commercializes any such Other
Products independently, [*]
(c) If Sequana, grants rights to a Third Party, to develop and/or
commercialize any such Other Products.[*]
8.1.3 WARNER DEVELOPMENT. If Warner acquires a license from Sequana
with respect to a particular Other Product pursuant to Section 7.2.3(c) above
[*]
8.2 CO-PROMOTION OPTION. With respect to each Other Product that Warner and
Sequana enter into a further agreement pursuant to Section 8.1.1. Sequana shall
have the option, exercisable on or before [*] prior to the projected filing of a
PLA or NDA, as the case may be, in the United States (as established by the
JRPC) with respect to each Other Product, with written notice to Warner, to
co-develop and co-promote such Other Product for any such indication in any one
or more of the co-promotion countries (the "Co-Promotion Option").
8.2.1 EXERCISE OF OPTION. If Sequana exercises the Co-Promotion Option
with respect to a particular Other Product, Sequana shall have the right to
co-promote such Other Product in the co-promotion country(ies), and the Parties
shall promptly negotiate and enter into a further Co-Promotion Agreement
consistent with this Agreement and which shall include the provisions set forth
on Exhibit A hereto, unless otherwise agreed by the Parties.
8.2.2 ELECTION NOT TO EXERCISE OPTION. If Sequana does not exercise
its option to co-develop and co-promote any such Other Product, [*]
8.3 DIAGNOSTIC PRODUCTS.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
24.
<PAGE> 26
8.3.1 DIAGNOSTIC SERVICES. In the event that Warner notifies Sequana
(i) that Warner believes that the sales of a particular Warner Product could be
significantly increased if there was a service not requiring Agency approval for
(x) the diagnosis of the indication which such Warner Product is intended to
treat, or (y) the selection of a treatment regimen, and Warner provides Sequana
data evidencing such position, and (ii) that Warner has commenced, or intends to
commence within twelve (12) months, Phase I clinical trials with respect to such
Warner Product. Then, if Sequana has not notified Warner within [*] of its
receipt of Warner's notice that it intends, itself or with a third party, to
provide such a diagnostic service, at Warner's request, Sequana will grant to
Warner a non-exclusive worldwide license under Sequana's interest in the
Background Technology (other than the Sequana Technology) and Collaboration
Technology, Patent Rights and Know-How with the right to sublicense, to the
extent necessary, for Warner to make, have made, use, import, offer for sale and
sell such a diagnostic service for such purpose in the Territory. If Sequana
provides Warner notice that it wishes to provide such service the parties shall
negotiate in good faith the terms of an agreement therefore.
8.3.2 REGULATORY APPROVALS. If Warner has commenced Phase III clinical
trials with respect to a particular Warner Product, and notifies Sequana that
Warner believes that the sales of such Warner Product could be significantly
increased if there was an Agency-approved Diagnostic Product for the diagnosis
of the indication which such Warner Product is intended to treat and if Sequana
has not notified Warner within [*] of its receipt of Warner's notice that it
intends, itself or with a third party, to develop such a Diagnostic Product for
such purpose, then at Warner's request, Sequana will grant to Warner a
non-exclusive worldwide license under Sequana's interest in the Background
Technology (other than the Sequana Technology), Collaboration Technology, Patent
Rights and Know-How, with the fight to sublicense, to the extent necessary for
Warner to make, have made, use, import, offer for sale and sell such Diagnostic
Product in the Territory. In such event, such Diagnostic Product shall be
treated as a Warner Product for all purposes of this Agreement. It is understood
and agreed that nothing in this Section 8.3 shall obligate Sequana to develop or
commercialize any Diagnostic Product or service.
8.3.3 ASSAY FORMATS. In the event that Warner acquires a license
pursuant to Section 8.3.1 above with regard to a particular Diagnostic Product.
Sequana agrees that it shall not, directly or indirectly, commercialize in a
single assay format any Diagnostic Product intended to compete with a Diagnostic
Product licensed to Warner: provided, Sequana shall retain the right to
commercialize, directly or indirectly, any such Diagnostic Product in a format
bearing two (2) or more assays (e.g., a panel format).
8.4 SALE OF DIAGNOSTIC PRODUCTS. Sequana agrees to sell to Warner any
Diagnostic Products being sold by Sequana for use in connection with Warner
Products or Other Products which Warner or its Affiliates or Sublicensees is
commercializing hereunder, subject to Sequana's standard terms and conditions of
sale.
9. INTELLECTUAL PROPERTY
9.1 OWNERSHIP OF TECHNOLOGY.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
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9.1.1 BACKGROUND TECHNOLOGY. Except as otherwise set forth herein,
each Party shall retain ownership or Control, as the case may be, over its
Background Technology. The owner of any patentable Background Technology shall
have the fight, at its option and expense, to prepare, file and prosecute in its
own name any patent applications with respect to such Background Technology and
to maintain any patents issued thereon.
9.1.2 COLLABORATION TECHNOLOGY. Title to all inventions and other
intellectual property solely made by employees of Warner or its Affiliates, in
connection with and arising out of the Research Program ("Warner Inventions")
shall be deemed owned by Warner. Title to all inventions and other intellectual
property made solely by employees of Sequana, in connection with and arising out
of with the Research Program ("Sequana Inventions") shall be deemed owned by
Sequana. Title to all inventions and other intellectual property made jointly by
employees of Warner or its Affiliates and Sequana in connection with and arising
out of the Research Program ("Joint Inventions") shall be deemed jointly owned
by Sequana and Warner. Inventorship of inventions and other intellectual
property, rights conceived and/or reduced to practice pursuant to this
Agreement. and rights of ownership with respect thereto. shall be discussed by
patent counsel of Warner and Sequana prior to the filing of each patent
application subject to this Agreement. Inventorship shall be determined in
accordance with the patent laws of the country or countries in which such
inventions or other intellectual property were made. In the event that the
Parties disagree as to inventorship and/or the applicable law with respect to
any invention or patent application, such matter shall be subject to resolution
pursuant to Article 14. Inventorship and rights of ownership of Collaboration
Technology (whether or not patentable) shall be determined in accordance with
United States laws of inventorship or the law of California, as applicable.
9.2 SOLELY-OWNED PATENT RIGHTS.
9.2.1 The sole owner (the "Owner") of any Invention shall have the
right, at its option to prepare, file and prosecute patent applications in its
own name, in such countries as it deems appropriate, and conduct any
interferences, re-examinations, reissues, oppositions or requests for patent
term extensions relating thereto, using counsel of its choice. and to maintain
any patents issued. In connection therewith, the non-Owner Party agrees to
cooperate with the Owner, at the Owner's expense, in the preparation and
prosecution of all such patent applications and in the maintenance of any
patents issued. The Owner shall keep the other Party currently informed of all
steps to be taken in such preparation, prosecution and maintenance of all of its
patent rights which claim an Invention and shall upon request furnish the other
Party with copies of such patent rights and other related correspondence
relating to such Invention to and from patent offices and where feasible, permit
the other Party a period of at least fourteen (14) days to offer its comments
thereon before the Owner makes a submission to a patent office which could
materially affect the scope or validity of the patent coverage that may result,
and promptly provide the other Party copies of any documents relating to
Inventions which the Party conducting such activities receives from such patent
offices, including notice of all interferences, reissues, reexaminations.
oppositions or requests for patent term extensions.
9.2.2 If the Owner fails to (i) fulfill its obligations under this
Section 9.2, or (ii) protect against abandonment of a Patent Right which claims
an Invention, to the extent that the Owner has the right to do so, the Owner
may, at its discretion, permit the non-Owner Party, at its
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<PAGE> 28
option and expense, to undertake such obligations. The Party, not undertaking
such actions shall fully cooperate with the other Party, and shall provide to
the other Party whatever documents that may be needed in connection therewith.
The Party not undertaking such actions may require a suitable indemnity against
all damages, costs and expenses and impose such other reasonable conditions as
such Party's advisors may request. If a non-Owner undertakes the obligations of
"Owner" under this Article 9 with respect to any Patent Rights of the other
Party under this Section 9.2.2, it shall prosecute and maintain the same at its
own expense, and shall not abandon or compromise them or fail to exercise any
rights of appeal without giving the other Party, the right to take over the
prosecuting Party's conduct, at such other Party's own expense.
9.3 JOINTLY OWNED INVENTIONS.
9.3.1 RESPONSIBILITIES. In the case of each Joint Invention the
Parties shall agree which Party will have the rights and responsibilities of the
"Inventor" as described in this Article 9) in respect of any such patentable,
jointly owned Collaboration Technology, and which Party shall have the rights
and responsibilities of a non-Inventor therefor. The Inventor shall use patent
counsel reasonably acceptable to the non-Inventor, and shall keep the
non-Inventor fully informed as to the status of such patent matters, including,
without limitation, by providing the non-Inventor and its patent counsel the
opportunity, at the non-Inventor's expense, to review and comment on any
documents relating to the Joint Invention which will be filed in any patent
office at least thirty (30) days before such filing, and promptly providing the
non-Inventor copies of any documents relating to Joint Invention which the
Inventor receives from such patent offices, including notice of all
interferences, reissues, reexaminations, oppositions or requests for patent term
extensions.
9.3.2 COOPERATION.
(a) The Parties will cooperate to file, prosecute and maintain
patent applications covering the Joint Invention(s) within the Collaboration
Technology in the United States and the European Union (in Europe through a
European Patent Convention application) (collectively, the "Core Countries") and
other countries agreed by the Parties, Warner will pay all expenses and fees
associated with the filing, prosecution, issuance and maintenance of any patent
application and resulting patent for a Joint Invention in the Core Countries and
other agreed countries.
(b) In the event that either Party wishes to seek patent
protection with respect to any Joint Invention outside the Core Countries, it
shall notify the other Party hereto. If both Parties wish to seek patent
protection with respect to such Joint Invention in such country or countries,
the activities to seek such protection shall be subject to Section 9.3.2(a)
above. If only one Party wishes to seek patent protection with respect to such
Joint Invention in such country or countries (including, without limitation.
Japan), it may file, prosecute and maintain patent applications and patents with
respect thereto, at its own expense. Whenever possible, the Parties shall
cooperate to obtain the benefit of international treaties, conventions and/or
agreements (e.g., the Patent Cooperation Treaty) in order to obtain the benefits
afforded thereby. In any such case, the Party declining to participate in such
activities (the "Nonparticipating Party") shall grant to the other party, in the
applicable country or countries, an exclusive (even as to the
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<PAGE> 29
Nonparticipating Party) license, with right to sublicense, the Nonparticipating
Party's interest in the applicable Joint Invention.
9.4 EXPENSES. Warner will reimburse Sequana for all reasonable expenses
incurred after the Effective Date in connection with filing, prosecuting,
maintaining, extending, defending and enforcing the Collaboration Technology
directly arising out of and exclusively related to the Research Program.
9.5 ENFORCEMENT.
9.5.1 NOTICE. Sequana and Warner shall each promptly notify the other
of any infringement or unauthorized use of an Invention which comes to its
attention, describing the facts relating thereto in reasonable detail.
9.5.2 SOLELY OWNED INVENTIONS. Subject to 9.5.3 below, in the event
that any Background Technology or Collaboration Technology solely owned by a
Party (collectively "Technology") necessary, for manufacture, use and sale of a
Warner Product or an Other Product is infringed or misappropriated by a Third
Party in any country, in the Territory, or is subject to a declaratory judgment
action arising from such infringement in such country, Warner or Sequana, as the
case may be, shall promptly notify the other Party hereto. The Party which owns
or Controls such Technology (the "Technology Owner") shall have the initial
right (but not the obligation) to enforce such Technology, or defend any
declaratory, judgment action with respect thereto, at its expense. In the event
that the Technology Owner fails to initiate a suit to enforce such Technology
against a commercially significant infringement in the Field by a Third Party in
any jurisdiction in the Territory within one hundred eighty (180) days of a
request by the other Party (the "Licensee") to do so, if the Licensee has the
right to commercialize such Warner Product or Other Product, the Licensee may,
subject to the Technology Owner's agreements with Third Parties, initiate such
suit in the name of the Technology Owner of such Technology against such
infringement, at the expense of such Licensee. In the event that the Technology
Owner's agreements with a Third Party do not allow the other Party hereto to
initiate a suit as described above to enforce the Technology against a Third
Party, infringer, then the Technology Owner shall be obligated to commence such
a suit and use diligent efforts in connection therewith or obtain for the
Licensee the right to commence suit against the infringer. The Party involved in
any such claim, suit or proceeding, shall keep the other Party' hereto
reasonably informed of the progress of any such claim, suit or proceeding. [*]
9.5.3 JOINT INVENTIONS. In the event Sequana or Warner becomes aware
of any actual or threatened infringement in the Territory of any Patent Right
which claims a Joint Invention, that Party shall promptly notify, the other and
the JRPC shall promptly discuss how to proceed in connection with such actual or
threatened infringement. In the event such infringement relates to a jointly
owned Other Product or Warner Product and only one Party, wishes to participate
in such proceeding, it shall have the right to proceed alone, at its expense,
and may retain any recovered; provided, at the request and expense of the
participating Party, the other Party, agrees to cooperate and join in any
proceedings in the event that a Third Party asserts that the co-owner of such
Joint Invention is necessary or indispensable to such proceedings.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
28.
<PAGE> 30
9.6 ALLEGATIONS OF INFRINGEMENT BY THIRD PARTIES.
9.6.1 RESPONSIBILITIES.
(a) Warner shall be solely responsible for any threatened or
actual claims for Third Party patent infringement or other Third Party
intellectual property rights arising out of the manufacture, use, sale or
importation of a Warner Product to which Warner retains a license pursuant to
Article 8, or a Diagnostic Product to which Warner has acquired and retains a
license pursuant to Sections 8.3.1 or 8.3.2, or an Other Product which Warner is
not co-promoting with Sequana, but has acquired and retains a license from
Sequana pursuant to Section 7.2.3(c).
(b) Sequana shall be solely responsible for any threatened or
actual claims for Third Party patent infringement or other Third Party
intellectual property rights arising out of the manufacture, use, sale or
importation of Diagnostic Products or Warner Products which it is
commercializing and Other Products to which Sequana has exclusive rights.
9.6.2 PROCEDURES.
(a) Upon receiving notice of such actual or threatened claims.
Warner or Sequana, as the case may be, shall promptly meet with the Other Party
to discuss the course of action to be taken to resolve or defend any such
infringement litigation.
(b) With respect to claims subject to Section 9.6.1(a), Warner is
not named as a Party in such a claim, suit or proceeding, Warner may, at its own
expense and through counsel of its own choice, seek leave to intervene in such
claim, suit or proceeding Sequana agrees not to oppose such intervention. If
Warner and not Sequana, is named as a Party to such claim, suit or proceeding,
Warner shall have the right to control the defense and settlement of such claim,
suit or proceeding, at its own expense, using counsel of its own choice, however
Sequana, at its own expense and through counsel of its own choice, may seek to
intervene if the claim, suit or proceeding relates to the commercialization of
the Warner Product in the Field, and in such event, Warner agrees not to oppose
such intervention. If Sequana shall. at any time, tender its defense to Warner,
then Warner shall defend Sequana in such claim, suit or proceeding, at Warner's
own expense and through counsel of its own choice, and Warner shall control the
defense and settlement of any such claim, suit or proceeding; provided, Warner
shall not enter into any agreement which makes any admission regarding (i)
wrongdoing on the part of Sequana, or (ii) the invalidity, unenforceability, or
absence of infringement of any Patent Rights owned solely by Sequana or patent
claiming a Joint Invention, without the prior written consent of Sequana, which
consent shall not be unreasonably withheld.
(c) With respect to claims subject to Section 9.6. l(b), if
Sequana is not named as a Party in such a claim, suit or proceeding, Sequana
may, at its own expense and through counsel of its own choice, seek leave to
intervene in such claim, suit or proceeding. Warner agrees not to oppose such
intervention. If Sequana, and not Warner, is named as a Party to such claim,
suit or proceeding, Sequana shall have the right to control the defense and
settlement of such claim, suit or proceeding, at its own expense, using counsel
of its own choice. however Warner, at its own expense and through counsel of its
own choice, may seek to
29.
<PAGE> 31
intervene if the claim, suit or proceeding relates to the commercialization of
the Product, and in such event, Sequana agrees not to oppose such intervention.
If Warner shall, at any time, tender its defense to Sequana, then Sequana shall
defend Warner in such claim, suit or proceeding, at Sequana's own expense and
through counsel of its own choice, and Sequana shall control the defense and
settlement of any such claim, suit or proceeding; provided, Sequana shall not
enter into any agreement which makes any admission regarding (i) wrongdoing on
the part of Warner, or (ii) the invalidity, unenforceability or absence of
infringement of any Patent Rights owned solely by Warner or patent claiming a
Joint Invention, without the prior written consent of Warner. which consent
shall not be unreasonably withheld.
9.6.3 COOPERATION. The Parties shall cooperate with each other in
connection with any such claim, suit or proceeding and shall keep each other
reasonably informed of all material developments in connection with any such
claim, suit or proceeding.
9.7 INDEPENDENT INVENTIONS. Ownership rights to inventions that do not rely
in material part on technology, data or knowledge contributed by the other Party
and which are not derived under the Research Program and that are made by the
employees of Sequana (but not of Warner) or by the employees of Warner (but not
of Sequana), as the case may be, whether or not made during the Term of this
Agreement, shall reside solely in Sequana or Warner, respectively, as the case
may be. Neither Party will claim or seek ownership rights, licenses or royalties
or other compensation with respect to such inventions of the other Party. The
applicable Party shall have the right, at its option and expense, to prepare in
its own name, file and prosecute any patent applications and to maintain any
patents issued with respect to such inventions. In connection therewith, the
other Party agrees to cooperate with the filing Party at the filing Party's
expense in the preparation and prosecution of all such patent applications
covering such independent inventions to the extent that such Party's cooperation
is reasonably necessary therefor. This obligation shall survive the expiration
or termination of this Agreement.
10. REPRESENTATIONS AND WARRANTIES
10.1 LEGAL AUTHORITY. Each Party represents and warrants to the other that
it has the legal power. authority and right to enter into this Agreement and to
perform its respective obligations set forth herein.
10.2 NO CONFLICTS. Each Party represents and warrants that as of the date
of this Agreement it is not a party to any agreement or arrangement with any
Third Party or under any obligation or restriction, including pursuant to its
Certificate of Incorporation or Bylaws, which in any way limits or conflicts
with its ability to fulfill any of its obligations under this Agreement, and
shall not enter into any such agreement during the term of this Agreement.
10.3 OTHERS BOUND. Each Party covenants that any contract it enters into
with a Third Party, performing services under this Agreement on behalf of such
Party will bind such Third Party to all of the relevant terms and conditions of
this Agreement, unless otherwise agreed by the Parties.
10.4 DISCLAIMER OF WARRANTIES. Sequana and Warner each specifically
disclaim that the Research Program will be successful, in whole or part, SEQUANA
AND WARNER
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EXPRESSLY DISCLAIM ANY WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE. WITH RESPECT TO THE CONFIDENTIAL INFORMATION, BACKGROUND TECHNOLOGY,
WARNER PATENTS OR KNOW-HOW, OR SEQUANA TECHNOLOGY, PATENTS OR KNOW-HOW,
COLLABORATION TECHNOLOGY OR LEAD COMPOUNDS, OR WARNER PRODUCTS, INCLUDING.
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE, VALIDITY OF ANY BACKGROUND TECHNOLOGY OR COLLABORATION TECHNOLOGY,
PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS
OF THIRD PARTIES.
10.5 THIRD PARTY CONTRACTS. As of the Effective Date, the Third Party
Contracts listed on Exhibit C are in full force and effect and no default has
occurred or is ongoing with respect to such contracts.
11. CONFIDENTIALITY
11.1 CONFIDENTIAL INFORMATION. Except as expressly provided herein, the
Parties agree that, for the term of this Agreement and for five (5) years
thereafter, the receiving Party shall keep completely confidential and shall not
publish or otherwise disclose and shall not use for any purpose except for the
purposes contemplated by this Agreement any Confidential Information of the
other Party, or any other data, samples, technical and economic information
(including the economic terms hereof), commercialization, clinical and research
strategies and know-how and other information provided by the other Party (the
"Disclosing Party") during the Term of this Agreement or during the negotiation
of this Agreement, or in connection with the transactions contemplated thereby,
or any Collaboration Technology and all other data, results and information
developed pursuant to the Research Program and solely owned by the Disclosing
Party (collectively the "Confidential Information") furnished to it by the
Disclosing Party hereto pursuant to this Agreement or the transactions
contemplated thereby, except that "Confidential Information" shall not include:
(a) information that is or becomes part of the public domain
through no fault of the non-Disclosing Party or its Affiliates; and
(b) information that is obtained after the date hereof by the
non-Disclosing Party or one of its Affiliates from any Third Party which is
lawfully in possession of such Confidential Information and not in violation of
any contractual or legal obligation to the Disclosing Party, with respect to
such Confidential Information;
(c) information that is known to the non-Disclosing Party or one
or more of its Affiliates prior to disclosure by the Disclosing Party, as
evidenced by the non-Disclosing Party's written records; and
(d) information that is necessary to be disclosed to any
governmental authorities or pursuant to any regulatory filings, but only to the
limited extent of such legally required disclosure; or
(e) information which has been independently developed by the
non-Disclosing Party without the aid or use of any Confidential Information.
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11.2 PERMITTED DISCLOSURES. Confidential Information may be disclosed to
employees, agents, consultants, sublicensees or suppliers of the non-Disclosing
Party or its Affiliates, but only to the extent reasonably required to
accomplish the purposes of this Agreement and only if the non-Disclosing Party
obtains prior agreement from its employees, agents, consultants, sublicensees,
or suppliers to whom disclosure is to be made to hold in confidence and not make
use of such information for any purpose other than those permitted by this
Agreement. Each Party will use at least the same standard of care as it uses to
protect proprietary or confidential information of its own to ensure that such
employees, agents, consultants, sublicensees or suppliers do not disclose or
make any unauthorized use of the Confidential Information. Notwithstanding any
other provision of this Agreement, each Party may disclose the terms of this
Agreement to prospective lenders, investment bankers and other financial
institutions of its choice solely for purposes of financing the business
operations of such Party either (i) upon the written consent of the other Party
or (ii) if the disclosing Party obtains a signed confidentiality, agreement with
such entity or financial institution with respect to such information, upon
terms substantially similar to those contained in this Article I 1.
11.3 PUBLICITY. All publicity, press releases and other announcements
relating to this Agreement or the transaction contemplated hereby shall be
reviewed in advance by, and shall be subject to the approval of, both Parties;
provided, however, that either Party may (i) publicize the existence and general
subject matter of this Agreement without the other Party's approval, and (ii)
disclose the terms of this Agreement only to the extent required to comply with
applicable securities laws and in the case of (ii), the non-disclosing Party
shall have the right to review and comment on such disclosure prior to its
submission, where practicable. Once a particular disclosure described in (i) has
been approved for disclosure, either Party may make disclosures which do not
differ materially therefrom without any need for further consents.
11.4 PUBLICATION. Until the fifth anniversary of the termination of the
Term of the Research Program, the Parties shall cooperate in appropriate
publication of the results of research and development work performed pursuant
to this Agreement, but subject to the predominating interest to obtain patent
protection for any patentable subject matter. To this end, it is agreed that
prior to any public disclosure of such results, the Party proposing disclosure
shall send the other Party a copy of the information to be disclosed and shall
allow the other Party twenty-one (21) days from the date of receipt in which to
determine whether the information to be disclosed contains subject matter for
which patent protection should be sought prior to disclosure, or otherwise
contains Confidential Information of the reviewing Party which such Party,
desires to maintain as a trade secret. If notification is not received during
the twenty-one (21) day period, the Party proposing disclosure shall be free to
proceed with the disclosure. If due to a valid business reason or a reasonable
belief by the non-disclosing Party that the disclosure contains subject matter
for which a patentable invention should be sought, then prior to the expiration
of the twenty-one (21 ) day period, the non-disclosing Party shall so notify the
disclosing Party, who shall then delay public disclosure of the information for
an additional period of up to sixty (60) days to permit the preparation and
filing of a patent application on the subject matter to be disclosed or other
action to be taken. The Party proposing disclosure shall thereafter be free to
publish or disclose the information. The determination of authorship for any
abstract or publication shall be in accordance with accepted scientific
practices.
12. INDEMNIFICATION
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12.1 WARNER. Warner agrees to indemnify and hold harmless Sequana and its
Affiliates and Sublicensees and their respective employees, agents, officers,
directors and permitted assigns (each a "Sequana Indemnity") from and against
any claims by a Third Party resulting in any liabilities, damages, settlements,
claims, actions, suits, penalties, fines, costs or expenses incurred (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
(any of the foregoing, a " Claim") arising out of or resulting from (i)
negligence or willful misconduct by Warner in the conduct of the Research
Program, (ii) a breach of any of the representations or warranties of Warner
hereunder, or (iii) the research and development. Manufacture, use, promotion,
marketing, sale or other distribution of any Lead Compound and/or Warner Product
or Other Product or Diagnostic Product that Warner obtains a license from
Sequana pursuant to Sections 7.2.3(c), 8.1.1, 8.3.1 or 8.3.2 by Warner or its
Affiliates or Sublicensees, except, in each case, to the extent that such Claim
arises out of or results from the negligence or willful misconduct of a Sequana
Indemnity.
12.2 SEQUANA. Sequana agrees to indemnify and hold harmless Warner and its
Affiliates and Sublicensees and their respective employees, agents, officers,
directors and permitted assigns (each a "Warner Indemnity") from and against any
claims by a Third Party resulting in any liabilities, damages, settlements,
claims, actions, suits, penalties, fines, costs or expenses incurred (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
(any of the foregoing, a " Claim") arising out of or resulting from (i) the
negligence or willful misconduct of Sequana in the conduct of the Research
Program, or (ii) a breach of any of the representations or warranties by Sequana
hereunder, (iii) the research, development, manufacturing, use, promotion,
marketing, sale or other distribution of any Diagnostic or Other Product or any
Warner Product which is licensed to Sequana pursuant to Section 7.2 except, in
each case, to the extent that such Claim arises out of or results from the
negligence or willful misconduct of a Warner Indemnity.
12.3 PROCEDURE. A Party or person (the "Indemnity") that intends to claim
indemnification under this Article 12 shall promptly notify, the other Party
(the "lndemnitor") in writing of any loss, claim, damage, liability or action in
respect of which the Indemnitee or any of its Affiliates. Sublicensees or their
directors, officers, employees, agents or counsel intend to claim such
indemnification, and the Indemnitor shall have the right to participate in, and
to the extent the Indemnitor so desires, to assume the defense thereof with
counsel chosen by Indemnitor, with consent of Indemnitee, which consent shall
not be unreasonably withheld. The failure to deliver written notice to the
Indemnitor within a reasonable time after the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitee under this Article 12. At the
Indemnitor's request, the Indemnitee under this Article 12, and its employees
and agents, shall cooperate fully with the Indemnitor and its legal
representatives in the investigation and defense of any action, claim or
liability, covered by this indemnification and provide full information with
respect thereto.
12.4 INSURANCE. During the term of this Agreement [*]
13. TERM AND TERMINATION
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
33.
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13.1 TERM. This Agreement shall be effective as of the Effective Date and.
Unless otherwise terminated earlier pursuant to the other provisions of this
Article 13, shall continue in full force and effect on a Product-by-Product and
country-by-country basis until the date that neither Party nor its Affiliates
and Sublicensees has any remaining royalty obligations to the other Party, in
such country. Following the expiration of royalty obligations in any country
within the Territory with respect to a particular Product subject to a license
granted herein, each Party shall have a non-exclusive, non-transferable, fully
paid license under the other Party's interest (i) in the non-patented Background
Technology, and (ii) the Know-How within the Collaboration Technology, in each
case, solely to commercialize such Product.
13.2 TERMINATION FOR CAUSE. Either Party may terminate this Agreement in
the event the other Party has materially breached or defaulted in the
performance of any of its obligations hereunder, and such default has continued
for sixty (60) days after written notice thereof was provided to the breaching
Party by the nonbreaching Party, or if a cure of such default cannot reasonably
be effected within such sixty (60) day period, the defaulting Party has failed
to deliver within such period a plan for curing such breach or default which is
reasonably sufficient to effect a cure. Any termination shall become effective
at the end of such sixty (60) day period unless the breaching Party has cured
any such breach or default prior to the expiration of the sixty (60) day period,
or has delivered to the other Party a plan for curing such breach which is
reasonably acceptable to the other Party. Notwithstanding the above, in the case
of a failure to pay any amount due hereunder, the period for cure of any such
default following notice thereof shall be ten (10) days and, unless payment is
made within such ten day period, the termination shall become effective at the
end of such period.
13.3 KEY PERSON PROVISIONS. Warner shall have the right to terminate the
Term of the Research Program in the event that (a) either [*] are no longer
employed by Sequana, for any reason and (b) a suitable, appropriately qualified
individual, reasonably acceptable to Warner, is not identified within 180 days
of the effective date of the termination of such employment. Neither Warner nor
its Affiliates shall employ or seek to employ either [*] during the Term of the
Research Program without the prior written consent of Sequana, which shall not
be unreasonably withheld.
13.4 CHANGE IN CONTROL.
13.4.1 DEFINED. For purposes of this Section 13.4, the term "Change in
Control" shall mean the direct or indirect acquisition or accumulation during
the Term of the Research Program of such number of shares of the stock of or
such income interest in Sequana as to give the acquiring or accumulating party
50% or more of the outstanding voting shares of stock or income interest of
Sequana (such acquiring or accumulating party is hereinafter referred to as the
"Acquiring Party").
13.4.2 BY A MAJOR PHARMACEUTICAL COMPANY. Warner shall have the right
to terminate the Term of the Research Program within 60 days of the date of a
Change in Control upon 30 clays prior written notice, in the event that the
Acquiring Party is one of the top 35 pharmaceutical companies ranked in order of
worldwide pharmaceutical sales, as published by
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
34.
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Scrip in its then most recent ranking prior to the date of the Change in Control
(a "Major Pharmaceutical Company").
13.4.3 BY ANY OTHER ENTITY. In the event that the Acquiring Party is
other than a Major Pharmaceutical Company, Warner shall have the right to
terminate the Term of the Research Program upon 90 days prior written notice at
any time prior to the first anniversary of a Change in Control in the event that
it reasonably determines that the qualitative or quantitative commitment or
performance of Sequana is materially adversely affected by such Change in
Control, provided that if the Acquiring Party is Arris Pharmaceutical
Corporation Warner may terminate the Term of the Research Program by 90 days
prior written notice which notice may only be given during the 30 day period
commencing on the first anniversary of such Change in Control. A material
adverse effect on the qualitative or quantitative commitment or performance of
Sequana shall include, without limitation: (a) a material reduction in the
quality of the FTEs provided by Sequana, (b) Sequana's material failure to
maintain appropriate technology in accordance with the standards of the genomics
industry, (c) a material reduction in the time spent by either [*] on the
Research Program or their successors as approved under Section 13.3 or (d) any
other reduction in the diligent pursuit and performance of the Research Program
by Sequana.
13.5 EFFECT OF TERMINATION UNDER SECTION 13.3 OR 13.4. In the event of a
termination of the Term of the Research Program by Warner under Sections 13.3 or
13.4, (a) Warner shall retain the license rights granted to it under Section 4
to Sequana Background Technology and Collaboration Technology and Sequana's
license rights under Section 4 shall terminate except for those rights granted
to it under Sections 4.2, 4.5 and 4.9 and (b) for terminations made pursuant to
Section 13.4.3, Warner shall continue to fulfill its responsibilities under this
Agreement until the effective date of termination. All other terms and
conditions of this Agreement shall remain in full force and effect.
13.6 EFFECT OF BANKRUPTCY. If, during the Term of the Research Program,
either Party, files a voluntary petition in bankruptcy, is adjudicated a
bankrupt, makes a general assignment for the benefit of creditors, admits in
writing that it is insolvent or fails to discharge within sixty (60) days after
an involuntary petition in bankruptcy filed against it, then the Term of the
Research Program and this Agreement may be immediately terminated by the other
Party, with notice.
13.7 EFFECT OF TERMINATION.
13.7.1 ACCRUED RIGHTS AND OBLIGATIONS. Termination of this Agreement
for any reason shall not release any Party hereto from any liability which, at
the time of such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination, nor preclude either Party
from pursuing any rights and remedies it may have hereunder or at law or in
equity which accrued or are based upon any event occurring prior to such
termination.
13.7.2 RERUN OF CONFIDENTIAL INFORMATION. Upon any termination of this
Agreement, Warner and Sequana shall promptly return to the other Party all
Confidential Information received from the other Party (in the case of Software
including all Sequana source
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
35.
<PAGE> 37
and object code) (except one copy of which may be retained by legal counsel
solely for purposes of monitoring compliance with the provisions of Article 11
and archival purposes).
13.7.3 STOCK ON HAND. In the event this Agreement is terminated for
any reason, Warner and its Affiliates and Sublicensees shall have the right in
the Territory to sell the stock of any Warner Products then on hand. subject to
Articles 5 and 6 and the other applicable terms of this Agreement.
13.7.4 LICENSES.
(a) Subject to Sections 13.7.4(e) and 13.8 below, in the event of
any termination of this Agreement by Sequana pursuant to Section 13.2, the
licenses granted Warner in Article 4 shall terminate concurrently.
(b) Subject to Sections 13.7.4(f) and 13.8 below, in the event of
any termination of this Agreement by Warner pursuant to Section 13.2, the
licenses granted Sequana in ,Article 4 shall terminate concurrently.
(c) In the event of any termination of this Agreement by Warner
pursuant to Section 13.6. the licenses granted to Sequana, shall terminate
concurrently.
(d) In the event of any termination of this Agreement by Sequana
pursuant to Section 13.6. the licenses granted to Warner shall terminate
concurrently.
(e) If more than one Warner Product, Other Product or Diagnostic
Product is being commercially developed or exploited by Warner or its Affiliates
and Sublicensees hereunder, and Sequana terminates this Agreement pursuant to
Section l3.2 due to a breach relating only to a single Warner Product, Other
Product or Diagnostic Product, then Sequana shall be entitled to terminate this
Agreement only with respect to the applicable Warner Product, Other Product or
Diagnostic Product.
(f) If more than one Other Product, Warner Product or Diagnostic
Product is being commercially developed or exploited by Sequana or its
Affiliates and Sublicensees hereunder, and Warner terminates this Agreement
pursuant to Section 13.2 due to a breach relating only to a single Other
Product, Warner Product or Diagnostic Product, then Warner shall be entitled to
terminate this Agreement only with respect to the applicable Other Product,
Warner Product or Diagnostic Product.
(g) Except as expressly provided in this Section 13.7.4, in the
event of any termination of this Agreement the licenses granted pursuant to
Sections 2.5.2, 4.2 and 7.2.3 shall remain in effect.
13.8 SURVIVAL. Sections 2.4.1, 2.5.2, 4.5, 4.9, 5.9, 7.4, 8.2, 9.l, 9.3,
9.5.1, 9.5.3, 9.7, 13.l, 13.7 and 13.8, and Article 6 (until all royalty and
reporting obligations relating to the period prior to the date of expiration or
termination have been satisfied) and Articles 10, 11, 12, 14 and 15 shall
survive the expiration or termination of this Agreement for any reason.
14. DISPUTE RESOLUTION
36.
<PAGE> 38
14.1 MEDIATION. If a dispute arises out of or relates to this Agreement, or
the breach thereof, and if said dispute cannot be settled through negotiation,
the Parties agree first to try in good faith to settle the dispute by mediation
under the Commercial Mediation Rules of the American Arbitration Association,
before resorting to arbitration, litigation, or some other dispute resolution
procedure.
14.2 VENUE. The exclusive venue of any dispute arising out of or in
connection with the performance of or any breach of this Agreement, shall be the
state courts or U.S. District Court located in or for Sequana's principal place
of business, and the Parties hereby irrevocably consent to the personal
jurisdiction of such courts.
15. MISCELLANEOUS
15.1 GOVERNING LAW. This Agreement and any dispute arising from the
performance or any breach hereof shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
conflicts of laws principles.
15.2 WAIVER. No failure on the part of Sequana or Warner to exercise and no
delay in exercising any right under this Agreement, or provided by statute or at
law or in equity or otherwise, shall impair, prejudice or constitute a waiver of
any such right, nor shall any partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right.
15.3 ASSIGNMENT. This Agreement shall not be assignable by either Party, to
any third Party hereto without the written consent of the other Party, hereto:
except either Party may assign this Agreement, without such consent, to (i) an
Affiliate of such Party; or (ii) an entity that acquires all or substantially
all of the business or assets of such Party (or with respect to Warner, all of
Warner's pharmaceutical research and development business or assets) to which
this Agreement pertains, whether by merger, reorganization, acquisition, sale,
or otherwise. The terms and conditions of this Agreement shall be binding on and
inure to the benefit of the permitted successors and assigns of the Parties.
15.4 NOTICES. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or sent by nationally
recognized overnight express delivery, service, registered or certified mail,
return receipt requested, postage prepaid, in each case to the respective
address specified below, or such other address as may be specified in writing to
the other Parties hereto:
Warner: Warner-Lambert Company
2800 Plymouth Road
Ann Arbor, Michigan 48105
Attn: Vice President & Chairman
Parke-Davis Pharmaceutical Research
with a copy to:
Warner-Lambert Company
201 Tabor Road
37.
<PAGE> 39
Morris Plains, New Jersey 07950
Attn: Vice President, General Counsel
Sequana: Sequana Therapeutics, Inc.
11099 N. Torrey Pines Road
Suite 160
La Jolla, California 92037
Attn: President
with a copy to: Legal Department
15.5 PERFORMANCE WARRANTY. Each Party hereby warrants and guarantees the
performance of any and all rights and obligations of this Agreement by its
Affiliate(s) and Sublicensees.
15.6 FORCE MAJEURE. Neither Party shall be liable to the other for failure
or delay in the performance of any of its obligations under this Agreement for
the time and to the extent such failure or delay is caused by earthquake, riot,
civil commotion, war, hostilities between nations, governmental law, order or
regulation, embargo, action by the government or any agency thereof, act of God,
storm, fire, accident, labor dispute or strike, sabotage, explosion or other
similar or different contingencies. in each case. beyond the reasonable control
of the respective Party. The Party affected by force majeure shall provide the
other Party, with full particulars thereof as soon as it becomes aware of the
same (including its best estimate of the likely extent and duration of the
interference with its activities), and will use its best endeavors to overcome
the difficulties created thereby and to resume performance of its obligations as
soon as practicable. If the performance of any obligation under this Agreement
is delayed owing to a force majeure for any continuous period of more than six
(6) months. the Parties hereto shall consult with respect to an equitable
solution, including the possible termination of this Agreement.
15.7 INDEPENDENT CONTRACTORS. It is understood that both Parties hereto are
independent contractors and are engaged in the operation of their own respective
businesses, and neither Party hereto is to be considered the agent or partner of
the other Party for any purpose whatsoever. Neither Party has any authority to
enter into any contracts or assume any obligations for the other Party, or make
any warranties or representations on behalf of the other Party, Sequana
acknowledges that neither it nor any of its employees are employees of Warner or
members of any of its benefit plans and that neither it nor any of its employees
are eligible to participate in any such benefit plans even if it is later
determined that its or any of its employees' status during the period of this
Agreement was that of an employee of Warner. In addition. Sequana waives any
claim that it may have under the terms of any such benefit plans or under any
law for participation in or benefits under any of Warner's benefit plans.
15.8 ADVICE OF COUNSEL. Sequana and Warner have each consulted counsel of
their choice regarding this Agreement. and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one Party or another
and will be construed accordingly.
38.
<PAGE> 40
15.9 SEVERABILITY. In the event that any provisions of this Agreement are
determined to be invalid or unenforceable by a court of competent jurisdiction.
the remainder of the Agreement shall remain in full force and effect without
said provision. The Parties shall in good faith negotiate a substitute clause
for any provision declared invalid or unenforceable, which shall most nearly
approximate the intent of the Parties in entering this Agreement; provided, if
the Parties are unable to agree on such a substitute clause and the deletion of
the provision held invalid or unenforceable would produce material adverse
financial consequences for one Party, such Party shall have the right to
terminate the Agreement upon one hundred eighty (180) days notice.
15.10 PATENT MARKING. Each Party agrees to mark and have its Affiliates and
Sublicensees mark all Products they sell or distribute pursuant to this
Agreement in accordance with the applicable statute or regulations in the
country, or countries of manufacture and sale thereof.
15.11 FURTHER ASSURANCES. At any time or from time to time on and after the
date of this Agreement, either Party shall at the request of the other Party (i)
deliver to the requesting Party, such records, data or other documents
consistent with the provisions of this Agreement, (ii) execute, and deliver or
cause to be delivered, all such consents, documents or further instruments of
assignment, transfer or license, and (iii) take or cause to be taken all such
actions, as the requesting Party may reasonably deem necessary or desirable in
order for the requesting Party to obtain the full benefits of this Agreement and
the transactions contemplated hereby.
15.12 COMPLIANCE WITH LAWS. Each party shall furnish to the other Party any
information requested or required by that Party during the term of this
Agreement or any extensions hereof to enable that Party to comply with the
requirements of any U.S. or foreign federal, state and/or government agency.
Each Party shall comply with all applicable U.S., foreign, state, regional and
local laws, rules and regulations relating to its activities to be performed
pursuant to this Agreement, including without limitation, the United States
Foreign Corrupt Practices Act, United States export regulations and such other
United States and foreign laws and regulations as may be applicable, and shall
obtain all necessary approvals, consents and permits required by the applicable
agencies of the government of the United States and foreign jurisdictions.
15.13 NO IMPLIED LICENSES OR WARRANTIES. No right or license under any
patent application, issued patent, know-how or other proprietary, information is
granted or shall be granted by implication. All such rights or licenses are or
shall be granted only as expressly provided in the terms of this Agreement.
15.14 ENTIRE AGREEMENT. This Agreement together with the attached Exhibits
entered by the Parties of even date herewith, constitute the entire agreement,
both written or oral, with respect to the subject matter hereof, and supersede
all prior or contemporaneous understandings or agreements, whether written or
oral, between Warner and Sequana with respect to such subject matter.
39.
<PAGE> 41
15.15 HEADINGS. The captions to the several Sections and Articles hereof
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.
15.16 COUNTERPARTS. This Agreement may be executed in two counterparts.
each of which shall be deemed an original and which together shall constitute
one instrument.
40.
<PAGE> 42
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed by their authorized representatives as of the Effective Date.
<TABLE>
<CAPTION>
WARNER-LAMBERT COMPANY Sequana Therapeutics, Inc.
<S> <C>
By:/s/ R.M. Cresswell By: /s/ Kevin J. Kinsella
----------------------------------- ---------------------------------
Name: R.M. Cresswell Name: Kevin J. Kinsella
--------------------------------- -------------------------------
Title: V.P. & Chairman Pharmaceutical Title: President & CEO
Research
-------------------------------- ------------------------------
</TABLE>
<TABLE>
<CAPTION>
Exhibits
<S> <C>
A: Sequana Technology (1.31 )
B: Co-Promotion Guidelines (8.2)
C: Third Party Contracts
</TABLE>
41.
<PAGE> 43
EXHIBIT A
SEQUANA TECHNOLOGY
This exhibit provides details regarding the Sequana Technology that is defined
in Section 1.37 of the Agreement. Elements of Sequana Technology are:
BioAgentDBTM and SequaSearchTM
LIMSLite
High-throughput DNA sequencing protocols
High-throughput genotyping protocols
Micro-Array technology protocols
Each of these elements is described in more detail below. In addition, for each
element, the following information is provided as appropriate:
A description of "establishment" of the technology at Warner
under Section 5.2 of the Agreement that is required to be
complete before payment of the Technology Access Fee.
Additional technology that will be established at Warner under
this Agreement but which is not required to be complete as a
condition for payment of the Technology Access Fee.
A discussion of the level of support that will be provided to
Warner as a part of this Agreement.
BIOAGENTDB(TM)
Sequana will deliver a database system (BioAgentDBTM), and a package of software
agents (SequaSearchTM) useful for automatically mining public scientific
databases. The immediately available SequaSearch modules will include
Virtual-Librarian, CandidateVL, and SequaWatcher. Additional SequaSearch
modules scheduled for general availability by Q1 1998 include GeneIntegrater and
EST agent. These modules will be made available to Warner promptly after they
are developed and validated.
The BioAgentDB for the Field will be housed at Sequana and a port will be made
available for secure access by Warner from the internet. After approximately one
calendar quarter utilizing the BioAgentDB for the Field at Sequana and
associated familiarization with the product by appropriate Warner staff. Sequana
will transfer one existing BioAgentDB system to the Warner Ann Arbor. MI
research facility for utilization within Warner in other disease areas.
BioAgentDB consists of three parts. [*]
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
A-1.
<PAGE> 44
DESCRIPTION OF SEQUASEARCH MODULES
VIRTUAL-LIBRARIAN
Monitors the PubMed literature which pertains to a disorder of interest. The
information is then retrieved, reformatted, parsed and deposited into the
BioAgentDB. The agent distinguishes new literature from previously reported
literature. E-mail alerts (with URLs) are sent to the scientists informing them
when new information becomes available. PubMed is a National Library of Medicine
("NLM") web-based product which provides free access to MEDLINE which is the
NLM's database of bibliographic citations (e.g., authors, title, and journal
reference) and author abstracts from about 3,800 biomedical journals.
CANDIDATEVL
Monitors the literature (PubMed) pertaining to candidate genes which axe in
common with the disorder. The information is then retrieved, reformatted. parsed
and deposited into the BioAgentDB with hyperlinks to the information on a
candidate gene. The agent distinguishes new literature from previously reported
literature. E-mail alerts (with URLs) are sent to the scientists informing them
when new- information becomes available.
SEQUAWATCHER
Monitors new information on Websites relevant to the user(s). SequaWatcher can
be configured to monitor any number of web pages, and to provide a daily report
on web pages when the content has changed.
ESTAGENT
Monitors the National Center for Biotechnology Information ("NCBI") Integrated
Gene Map for sequences which are newly mapped to genomic regions of interest
(such as a linkage region). It retrieves the mapped sequences together with
higher resolution mapping information, flanking markers, and possible
identification of the mapped sequences. This information is automatically
retrieved, reformatted, and deposited in the BioAgentDB such that genomic maps
are automatically generated. The NCBI's Integrated Gene Map is a map of more
than 16,000 human genes which have been mapped relative to a framework map that
contains about 1000 polymorphic genetic markers. This gene map unifies the
existing genetic and physical maps with the nucleotide and protein sequence
database.
GENEINTEGRATOR
Monitors Swiss-Prot and GenPept for new biological attributes (site of
expression, map location. function, developmental stage, polymorphisms) of
candidate genes. It automatically retrieves, reformats, parses, and deposits the
information into the candidate gene record in BioAgentDB.
GENEWIZARD
[*]
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
A-2.
<PAGE> 45
TRANSCRIPTSCANNER
Monitors the UniGene database at the National Center for Biotechnology
Information for clones and mapped EST contigs for those connected with a
disorder of interest. TranscriptScanner is currently under development.
SYNTENYAGENT
Monitors the mouse genome databases for genes that are syntenic with regions of
interest in the human genome. SyntenyAgent is currently under discussion.
[*]
Sequana will transfer to Warner other agents including but not limited to
GeneWizard, TranscriptScanner, and SyntenyAgent if and when they become
commercially available and other general BioAgentDB system upgrades. These items
are not tied to the License
ACCESS FEE
BioAgentDB will be supported in the following manner at Warner:
(a) At least one Warner employee will be designated the "Super User" and
will be trained at Sequana on the full functionality of BioAgentDB.
(b) At least one Warner employee will be designated "Systems Support" and
will be trained at Sequana on the systems support issues related to
BioAgentDB (i.e. UNIX, Sybase, Mac, web server system administration).
(c) The Super User will handle all user and data support issues and
questions that arise at Warner.
(d) The System Support personnel will handle all system support issues and
questions that arise at Warner.
(e) Any questions or problems that the Super User or System Support cannot
resolve will be forwarded to the Sequana Help Desk which will be open
Monday - Friday, 7 AM to 5 PM PST and staffed by qualified personnel.
(f) Sequana guarantees a response to (but not necessarily complete
resolution of any Warner inquiry within 24 hours, and Sequana and
Warner will cooperate to promptly resolve any such question or
problem.
(g) Customization of BioAgentDB will be done by Warner, or by Sequana
under a separate contract arrangement. However. any changes to the
source code that are made by Warner that result in incompatibilities
with future upgrades provided by Sequana will be the responsibility of
Warner to resolve.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
A-3.
<PAGE> 46
LIMSLITE
The LIMSLite system is the non-microsatellite genotyping components of the
Sequana LIMS system that are necessary to perform basic phenotype/genotype
correlations. [*]
LIMSLite will be "established" at Warner for the purposes of Section 5.2 of the
Agreement upon achievement of the following:
Installation of the database schema and lookup tables on the Warner
Sybase server at Warner facility.
Installation of the 4D server at Warner facility.
Installation of the Web Server at Warner facility.
Installation of 4D client software on DNA intake clients and up to four
(4) additional clients at Warner facility.
Additional installation efforts at Warner related to LIMSLite that are required
under this agreement but which will not be necessary before the payment of the
License Access Fee described in Section 5.2 include:
Super User and System Support on-site training and support during initial
installation.
LIMSLite will be supported in the following manner at Warner:
At least one Warner employee will be designated the "Super User" and
will be trained at Sequana on the full functionality of LIMSLite.
At least one Warner employee will be designated "Systems Support" and
will be trained at Sequana on the systems support issues related to
LIMSLite (i.e. UNIX, Sybase, Mac. web server system administration).
The Super User will handle all user and data support issues and
questions that arise at Warner.
The System Support personnel will handle all system support issues and
questions that arise at Warner.
Any questions or problems that the Super User or System Support cannot
resolve will be forwarded to the Sequana Help Desk which will be open
Monday -Friday, 7 AM to 5 PM PST and staffed by qualified personnel.
Sequana guarantees a response to (but not necessarily complete
resolution of) any Warner inquiry, within 24 hours and Sequana and
Warner will cooperate to promptly resolve any such question or
problem.
Customization of LIMSLite will be done by Warner, or by Sequana under
a separate contract arrangement.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
A-4.
<PAGE> 47
Any changes to the source code that are made by Warner that result in
incompatibilities with future upgrades provided by Sequana will be the
responsibility of Warner to resolve.
HIGH-THROUGHPUT DNA SEQUENCING
Sequana has established a high-throughput, high accuracy DNA sequencing
laboratory through the development and utilization of several novel sequencing
strategies and systems. Strict quality control procedures are developed and
built in each and every important step of high throughput sequence production to
ensure maximum efficiency and accuracy.
Sequana will transfer to Warner Sequana's DNA sequencing Standard Operating
Procedures (SOPs) and provide on-site training of up to three person-weeks
total. The SOPs to be transferred to Warner include:
[*]
Installation of high-throughput sequencing at Warner under Section 5.2 of the
agreement will be considered to be achieved upon transfer of the SOPs and
completion of the training at Sequana.
Sequana is not obligated to provide Warner with additional consulting services
or support with respect to DNA sequencing.
HIGH THROUGHPUT GENOTYPING
Sequana has established a high-throughput, high accuracy polymorphism detection
and non-microsatellite genotyping laboratory through the development and
utilization of several molecular systems. Sequana will transfer to Warner
Sequana's non-microsatellite polymorphism detection and genotype determination
Standard Operating Procedures (SOPs) outlined below and provide on-site training
of Warner scientists for up to three person weeks total. The SOPs to be
transferred to Warner include:
[*]
Installation of high throughput genotyping at Warner under Section 5.2 of the
agreement will be considered to be achieved upon transfer of the SOPs and
completion of the training at Sequana.
Sequana is not obligated to provide Warner with additional consulting services
or support with respect to high-throughput genotyping.
MICRO-ARRAY PROTOCOLS
Sequana is a participant in the Molecular Dynamics/Amersham Microarray
Technology Access Program. As a member of the Early Access Program, Sequana is
gaining considerable lead time in the utilization and development of the
MD/Amersham Microarray System ("System"). [*] During this period, the Microarray
Group within Sequana will be focusing on extending the capabilities of the
System in collaboration with MD/Amersham as follows:
[*]
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
A-5.
<PAGE> 48
Optimizing the immobilization chemistry and labeling protocols to
detect rare mRNAs from small quantities of tissue;
Adapting the Microarray System to work in the "Northern" mode (useful
in monitoring the expression of a set of genes in a large number of
tissue samples) in as well as the more common "reverse Northern" mode;
Developing proprietary bioinformatics tools to analyze the data
generated by the System and present results in a queriable,
user-friendly front-end.
As part of the technology transfer to Warner, Sequana will transfer operating
know-how related to the System to the extent that it is permitted under the
agreement with Molecular Dynamics/Amersham. The objective of this sharing of
proprietary, know-how is to allow Warner to better evaluate the unique features
of this System with respect to the other commercially available chip-based
technologies for gene expression studies. Based on the terms of its agreement
with Molecular Dynamics/Amersham. Sequana will be able to share data generated
by the System with Warner anytime after January 1, 1998.
It will not be necessary, to transfer the micro-array protocols to Warner as a
condition for payment of the License Access Fee described in Section 5.2 of the
Agreement.
A-6.
<PAGE> 49
EXHIBIT B
CO-PROMOTION PRINCIPLES
1. REQUIRED SALES EFFORT. Each Party shall supply the total promotional and
marketing effort (including details, if determined to be an appropriate sales
activity,) for each Other Product being co-promoted by the Parties in each
co-promotion country, as determined by a marketing committee to be established
by the Parties (the "Marketing Committee"). The Parties shall be equally
represented on the Marketing Committee. It is understood and agreed that the
sales effort required from the Parties may differ with respect to the size of
the sales force, number of details and other factors, based on the target market
for which such Party has marketing responsibilities as determined by the
Marketing Committee. The Marketing Committee will determine appropriate written
standards for measuring and accounting procedures to confirm and document each
Party's performance of its required sales effort, prior to the commencement of
the term of co-promotion for any Other Product, and may modify the required
sales effort required by each Party as it deems appropriate: provided that
Sequana's percentage of the total required sales effort established by the
Marketing Committee shall not exceed [*] or be [*]. If Sequana has failed or is
unable to supply [*] of the required sales effort established by the Marketing
Committee then Sequana's right to co-promote the applicable Other Product
hereunder shall terminate in the applicable country and Warner shall thereafter
have the exclusive right to promote such Other Product in such country. If in
any year a Party's actual sales effort falls below its assigned percentage of
the total required sales effort, unless otherwise agreed, such Party's share of
profit shall be reduced for that and all future years, to the percentage of
required sales effort actually provided by such Party in such year, subject to
application of this provision in future years if a Party fails to meet its
required sales effort.
2. MARKETING PLAN AND BUDGET. The co-promotion of each Other Product will
be governed by a marketing plan and budget (the "Marketing Plan and Budget").
The Marketing Committee will be responsible for approving the Marketing Plan and
Budget developed by the Marketing Committee. The Marketing Plan and Budget will
describe fully, to the extent practicable, the proposed plan for
commercialization of the Other Product in each co-promotion country, including
overall marketing strategy, anticipated marketing, sales and promotion efforts
by each Party,, market and sales forecasts, pricing analysis and estimated
launch date, as well as advertising and other promotional materials to be used
in the co-promotion. The Marketing Plan and Budget will be prepared taking into
consideration factors such as market conditions, regulatory factors and
competition, and the budget will include all projected co-promotion expenses for
the Other Product.
3. PROMOTIONAL AND ADVERTISING MATERIALS. The Parties shall disseminate in
the co-promotion countries only those promotional and advertising materials
which have been provided or approved for use by the Marketing Committee. All
such materials shall be consistent with the relevant Marketing Plan and Budget
approved by the Marketing Committee and neither Party shall make any claims or
representations in respect of the Other Products that have not been approved by
the Marketing Committee.
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
B-1.
<PAGE> 50
4. PRICING. The Marketing Plan will include the general operating
guidelines and strategies for the pricing and discounting of Other Products
co-promoted in the co-promotion countries.
5. ORDERS; SALES. All customer orders for Other Products shall be received
and executed by Warner. All sales of Other Products will be billed and booked by
Warner.
6. REIMBURSEMENT OF DEVELOPMENT COSTS. In the event that Sequana exercises
the Co-Promotion Option for a particular Other Product, then at the time of
execution by the Parties of a co-promotion agreement for such Other Product,
Sequana will [*] of the applicable obligation, and its share of profit shall be
reduced correspondingly. In any such event, Sequana shall be entitled to a
credit with respect to any amounts paid by it prior to such date for Development
costs against its share of Development costs incurred after such date to the
extent its prior payments are in excess of the obligations due for its reduced
percentage share of such Development costs. until such time as such credit is
exhausted. In the event that Sequana is unable to pay any of its obligations
with respect to the Development costs in cash and continue to reasonably operate
its business in a prudent manner, Warner agrees to consider alternative forms of
payment (e.g., Sequana capital stock, loans or cash advances). In no event will
Warner be required to accept any alternative form of payment and in no event
will Warner agree to accept Sequana capital stock if, in its sole judgment, the
value of such stock is likely to decrease over time.
7. DETERMINATION OF CO-PROMOTION PAYMENTS. In those countries in which the
Parties are co-promoting an Other Product, Net Sales of the Other Products in
such co-promotion countries shall be allocated first to reimburse each Party for
its co-promotion expenses relating to such Other Product and then to pay each
Party its share of profit. A Party's percentage share of profit in any year
shall equal the percentage of total required sales effort it is obligated to
provide under paragraph 1. In the event of a negative total profit in any year
for a particular Other Product in a particular co-promotion country. Net Sales
shall be distributed to the Parties to reimburse their co-promotion expenses
such that the proportion of such Party's unreimbursed co-promotion expenses to
the total of all unreimbursed co-promotion expenses is equal to such Party's
percentage of total required sales effort for a particular Other Product in a
particular co-promotion country. For purposes of this Agreement, the term
"co-promotion expenses" shall mean the following expenses incurred by a Party or
for its account, to the extent allocable to the preparation for the commercial
launch of an Other Product in a co-promotion country, or the marketing,
promotion and sales of an Other Product in such co-promotion country:
(i) the cost of goods as determined by applying Generally
Accepted Accounting Principles as consistently applied by Warner with respect to
all of its pharmaceutical products; and
(ii) post-Regulatory Approval medical and clinical trial costs.
costs of monitoring adverse drug reactions. costs of quality control complaints
and costs associated with maintenance of the Regulatory Approvals; and
(iii) costs of distribution and shipping of the Other Product to
distributors and customers for the Other Product; and
* Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
B-2.
<PAGE> 51
(iv) direct costs, specifically allocable to the Other Product,
incurred for the sales (including cost of sales forces, speciality sales force,
call reporting and other monitoring/tracking costs, and regional sales
management and marketing management), advertising, promotion and marketing of
the Other Product through any means (including advertisements, promotional
literature, market research, symposia. exhibits and direct mail); and
(v) costs of product liability insurance required to be purchased
by the Marketing Committee and costs associated with the defense and settlement
of product liability claims; and
(vi) costs associated with the registration of the trademark used
in connection with such Other Product or any trademark infringement litigation;
and
(vii) any consideration payable to Third Parties for licenses
required for the manufacture, importing. sale. marketing or use of the Other
Product in the applicable co-promotion country; and
(viii) expenses associated with recalls; and
(ix) any other expenses on which the Parties may mutually agree.
Co-Promotion expenses shall not include general corporate overhead.
8. TERMINATION OF CO-PROMOTION. Either Party shall have the right upon 90
days prior written notice to terminate its participation in the co-promotion of
an Other Product in any co-promotion country. Once a Party terminates its
participation in the co-promotion of an Other Product, it shall grant to the
non-terminating Party such licenses under Collaboration Technology and
Background Technology as shall be necessary for the non-terminating Party to
commercialize such Other Product in such country. Any licenses granted to Warner
shall be on the terms and conditions set forth in the Agreement, and any
licenses granted to Sequana shall be exclusive (even as to Warner), royalty-free
and fully paid, and shall include the right to grant sublicenses.
9. TERMINATION UPON CHANGE OF CONTROL. In the event the Parties enter a
Co-Promotion Agreement, and subsequently (i) fifty (50%) or more of Sequana's
outstanding shares of stock entitled to vote for the election of directors are
acquired by a Major Pharmaceutical Company (by purchase or merger or if control
of Sequana is otherwise acquired by a Major Pharmaceutical Company); or (ii)
this Agreement is assigned to a Major Pharmaceutical Company upon a sale of
substantially all of the assets of Sequana; then in any such case Warner may
terminate Sequana's right to co-promote Other Products in the co-promotion
countries pursuant to this Agreement upon written notice to Sequana provided
that such notice is given within thirty (30) days after the earlier of (x) the
date Sequana gives Warner written notice of an event described in (i)or (ii)or
(y) the date Sequana enters into an agreement obligating Sequana to complete a
transaction described in (i) or (ii). "Major Pharmaceutical Company" shall be
any of the top thirty-five (35) pharmaceutical companies, ranked in order of
worldwide pharmaceutical sales, as published by Scrip in its most recent ranking
prior to the date of the notice of termination.
B-3.
<PAGE> 52
10. TRADEMARKS. The Marketing Committee shall approve all trade dress,
logos, slogans, designs and copyrights used on and in connection with any Other
Product in the co-promotion countries. Warner and Sequana shall be joint owners
of the trade dress, logos, slogans, designs and copyrights specifically
developed for and used on and in connection with any Other Product in the
co-promotion countries (the "Other Product Logos and Copy"). Warner and Sequana
shall each retain sole and exclusive ownership of their own respective and
independently developed and pre-existing trademarks, names, trade dress, logos,
slogans, designs and copyrights regardless of whether such trademarks, names,
trade dress, logos, slogans, designs or copyrights are used on or in connection
with any Other Product.
B-4.
<PAGE> 53
EXHIBIT C
THIRD PARTY CONTRACTS
1. The University of Pittsburgh Research Agreement Regarding the Genetics of
Bipolar Disorder effective as of September 1, 1995.
2. Le Centre Hopitalier Universitaire de Quebec Research Agreement Regarding
the Genetics of Bipolar Disorder effective of as May 1, 1996.
3. The Research Foundation of State University of New York Research Agreement
Regarding the Genetics of Schizophrenia effective September 15, 1995, as
amended by letter dated February 19, 1997 and by letter dated September 13,
1996.
4. The Clark Institute of Psychiatry Collections Agreement Regarding Bipolar
Affective Disorder effective September 15, 1997.
C-1.
<PAGE> 1
Exhibit 10.69
SEQUANA THERAPEUTICS, INC.
COMMON STOCK PURCHASE AGREEMENT
OCTOBER 31, 1997
<PAGE> 2
<TABLE>
<S> <C> <C>
SECTION 1 AUTHORIZATION AND SALE OF COMMON STOCK.....................................1
1.1 Authorization of Common Stock.................................................1
1.2 Purchase and Sale of Common...................................................1
SECTION 2 CLOSING DATE; DELIVERY.....................................................1
2.1 Closing Date..................................................................1
2.2 Delivery......................................................................1
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................2
3.1 Organization and Standing; Articles and Bylaws................................2
3.2 Corporate Power...............................................................2
3.3 Authorization.................................................................2
3.4 Validity of Shares............................................................2
3.5 Litigation, etc...............................................................2
3.6 Registration Rights...........................................................3
3.7 Governmental Consents, etc....................................................3
3.8 Offering......................................................................3
3.9 Disclosure....................................................................3
3.10 SEC Filings...................................................................3
SECTION 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.................3
4.1 Experience; Risk..............................................................4
4.2 Investment....................................................................4
4.3 Restricted Securities; Rule 144...............................................4
4.4 Access to Data................................................................4
4.5 Authorization.................................................................4
4.6 Government Consents...........................................................5
4.7 Further Limitations on Disposition............................................5
4.8 Legends.......................................................................5
SECTION 5 CONDITIONS TO CLOSING; OF PURCHASER........................................5
5.1 Representations and Warranties Correct........................................5
5.2 Covenants.....................................................................6
5.3 Blue Sky......................................................................6
5.4 Collaboration Agreement.......................................................6
5.5 Legal Opinion.................................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 6 CONDITIONS TO CLOSING OF THE COMPANY.......................................6
6.1 Representations...............................................................6
6.2 Blue Sky......................................................................6
6.3 Collaboration Agreement.......................................................6
SECTION 7 COVENANTS..................................................................6
7.1 Registration Rights...........................................................6
7.2 Rule 144 Reporting............................................................7
SECTION 8 MISCELLANEOUS..............................................................7
8.1 Governing Law.................................................................7
8.2 Successors and Assigns........................................................7
8.3 Entire Agreement; Amendment...................................................7
8.4 Notices, etc..................................................................7
8.5 Delays or Omissions...........................................................7
8.6 Expenses......................................................................8
8.7 Counterparts..................................................................8
8.8 Severability..................................................................8
</TABLE>
Exhibits:
A - Purchaser Schedule
B - Shareholder Rights Agreements
C - Legal Opinion
ii
<PAGE> 4
SEQUANA THERAPEUTICS, INC.
COMMON STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 31, 1997, between SEQUANA
THERAPEUTICS, INC., a California corporation (the "Company"), and the purchaser
listed on EXHIBIT A hereto (the "Purchaser"), pursuant to the Collaboration
Agreement between Purchaser and the Company of even date herewith (the
"Collaboration Agreement").
SECTION 1
AUTHORIZATION AND SALE OF COMMON STOCK
1.1 AUTHORIZATION OF COMMON STOCK. The Company has authorized the sale and
issuance of up to $2,000,000 worth of its Common Stock (the "Common"). The
shares of the Common to be sold hereunder are collectively referred to as the
"Shares."
1.2 PURCHASE AND SALE OF COMMON. Subject to the terms and conditions
hereof, on the Closing Date (as hereinafter defined) the Company will issue and
sell to the Purchaser, and the Purchaser will purchase from the Company at a
purchase price per share determined as set forth below, the Shares for a total
of $2,000,000 as set forth in Section 2 below. The per share purchase price (the
"Purchase Price") to be paid by the Purchaser for the Shares to be purchased
from the Company on the Closing Date shall be equal to the average closing sale
price for the Company's Common Stock as reported in the WALL STREET JOURNAL for
the thirty (30) day period ending as of the date three (3) business days prior
to the Closing Date. The number of Shares to be issued to the Purchaser at the
Closing shall be determined by dividing the amount of $2,000,000 by the Purchase
Price and rounding up or down to the nearest whole share.
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall be held at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304-1050 ("WSGR")
within five (5) days after the Effective Date as defined in the Collaboration
Agreement, or at such other time and place upon which the Company and the
Purchaser shall agree (the "Closing Date").
2.2 DELIVERY. At the Closing, the Company will deliver to the Purchaser a
certificate or certificates representing the Shares to be purchased by the
Purchaser at such Closing against payment of the Purchase Price therefor, by
check or wire transfer payable to the Company.
<PAGE> 5
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of California and is in good standing under such laws. The
Company has all requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. The Company is qualified to do business as a foreign corporation
in any jurisdiction in which failure to qualify would have a material adverse
effect on the Company's business. The Company has furnished Purchaser true and
complete copies of its Restated Certificate of Incorporation ("Restated
Certificate") and Bylaws in effect as of the date hereof.
3.2 CORPORATE POWER. The Company will have prior to the Closing Date all
requisite legal and corporate power to execute and deliver this Agreement to
sell and issue the Shares hereunder and to carry out and perform its obligations
under the terms of this Agreement and the transactions contemplated hereby.
3.3 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, the authorization,
sale, issuance and delivery of the Shares and the performance of the Company's
obligations hereunder and thereunder has been taken or will be taken prior to
the Closing Date. This Agreement, when executed and delivered by the Company,
shall constitute the valid and binding obligations of the Company, enforceable
against the Company in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
3.4 VALIDITY OF SHARES. The Shares, when issued, sold and delivered in
compliance with the provisions of this Agreement, will be duly and validly
issued and will be fully paid and nonassessable and free and clear of all liens
and encumbrances and restrictions on transfer other than as set forth in this
Agreement, provided, however, that the Shares may be subject to restrictions on
transfer under state and/or federal securities laws.
3.5 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending or, to the Company's knowledge, threatened against the
Company or its properties before any court or governmental agency arising out of
this Agreement, the Collaboration Agreement or the transactions contemplated
hereby, which, either in any case or in the aggregate, might result in any
material adverse change in the business, prospects, financial condition,
affairs, operations or equity ownership of the Company or any of its properties
or assets, or in any material impairment of the right or ability of the Company
to carry on its business as now conducted, or in any material liability on the
part of the Company, and none which questions the validity of this Agreement or
any action taken or to be taken in connection herewith.
2
<PAGE> 6
3.6 REGISTRATION RIGHTS. Except as set forth in the Company's Shareholder
Rights Agreement dated June 6, 1995, as amended, the Company is not under any
obligation to register any of its presently outstanding securities or any of its
securities that may hereafter be issued.
3.7 GOVERNMENTAL CONSENTS, ETC. No consent, approval, order or
authorization of or designation, declaration or filing with any state or federal
governmental authority on the part of the Company is required in connection with
the valid execution and delivery of this Agreement, or the offer, sale or
issuance of the Shares, or the consummation of any other transaction
contemplated hereby, except qualification (or taking such action as may be
necessary to secure an exemption from qualification, if available) under the
California Corporate Securities Law and other applicable Blue Sky laws, of the
offer and sale of the Shares, which qualification, if required, will be
accomplished in a timely manner prior to or promptly upon completion of the
Closing.
3.8 OFFERING. Based in part upon the accuracy of the Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the Shares
to be issued in conformity with the terms of this Agreement constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act").
3.9 DISCLOSURE. No statement by the Company contained in this Agreement and
the exhibits attached hereto, or in any certificate furnished or to be furnished
to the Purchaser pursuant hereto, when taken as a whole, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
3.10 SEC FILINGS. The Company has made available to the Purchaser accurate
and complete copies of all registration statements, proxy statements and other
statements, reports, schedules, forms and other documents filed by the Company
with the SEC since December 31, 1996 (the "Company SEC Documents"). All
statements, reports, schedules, forms and other documents required to have been
filed by the Company with the SEC have been so filed. As of the time it was
filed with the SEC (or, if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing): (i) each of the Company SEC
Documents complied with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the Company SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Company has not incurred, and will not incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
SECTION 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
The Purchaser hereby represents, warrants and covenants to the Company with
respect to the purchase of the Shares as follows:
3
<PAGE> 7
4.1 EXPERIENCE; RISK. The Purchaser has such knowledge and experience in
financial and business matters that such Purchaser is capable of evaluating the
merits and risks of the purchase of the Shares pursuant to this Agreement and of
protecting the Purchaser's interests in connection therewith. The Purchaser is
able to fend for itself in the transactions contemplated by this Agreement and
has the ability to bear the economic risk of the investment, including complete
loss of the investment. The Purchaser is experienced in evaluating and investing
in new companies such as the Company.
4.2 INVESTMENT. The Purchaser is acquiring the Shares for investment for
its own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof, and the Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The Purchaser understands that the Shares to be purchased
have not been registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of such Purchaser's representations as expressed herein.
4.3 RESTRICTED SECURITIES; RULE 144. The Purchaser understands that the
Shares will be "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
the Shares may be resold without registration under the Securities Act only in
certain limited circumstances. The Purchaser acknowledges that the Shares must
be held indefinitely unless subsequently registered under the Securities Act or
an exemption from such registration is available. The Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f)) and the number of shares being sold during any
three-month period not exceeding specified limitations.
4.4 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and the opportunity to review the Company's facilities and has
received all information requested from the Company regarding the investment in
the Company; provided, however, that such opportunity and receipt shall not
affect or otherwise diminish or obviate in any respect any of the
representations and warranties of the Company under this Agreement.
4.5 AUTHORIZATION. The Purchaser represents that it has the full right,
power and authority to enter into and perform the Purchaser's obligations under
this Agreement, and this Agreement when executed and delivered by the Purchaser
will constitute valid and binding obligations of the Purchaser, enforceable in
accordance with its terms, subject to the laws of general application relating
to bankruptcy, insolvency and the relief of debtors, rules of law governing
specific performance, injunctive relief or other equitable remedies.
4
<PAGE> 8
4.6 GOVERNMENT CONSENTS. No consent, approval or authorization of or
designation, declaration or filing with any state, federal, or foreign
governmental authority on the part of the Purchaser is required in connection
with the valid execution and delivery of this Agreement by the Purchaser and the
consummation by the Purchaser of the transactions contemplated hereby.
4.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, the Purchaser further agrees not to make any
disposition of all or any portion of the Shares unless and until:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) The Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
proposed disposition, and if reasonably requested by the Company, such Purchaser
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
under the Act.
4.8 LEGENDS. It is understood that each certificate representing the Shares
and any securities issued in respect thereof or exchange therefor shall bear
legends in the following forms (in addition to any legend required under
applicable state securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
Purchaser shall have the right to demand removal of the foregoing legend with
respect to any or all of the Shares if, in the opinion of counsel for the
Company, removal of such legend is permitted by the rules and regulations of the
SEC.
SECTION 5
CONDITIONS TO CLOSING; OF PURCHASER
The Purchaser's obligation to purchase the Shares at the Closing is, at
the option of the Purchaser, subject to the fulfillment on or prior to the
Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct on the Closing
Date in all material respects with the same force and effect as if they had been
made on and as of said date.
5
<PAGE> 9
5.2 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.
5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by any
state for the offer and sale of the Shares.
5.4 COLLABORATION AGREEMENT. The Company and the Purchaser shall have
executed the Collaboration Agreement of even date herewith.
5.5 LEGAL OPINION. The Company shall have delivered to Purchaser a legal
opinion from Wilson Sonsini Goodrich & Rosati substantially in the form attached
hereto as EXHIBIT C.
SECTION 6
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to sell and issue the Shares at the Closing is, at
the option of the Company, subject to the fulfillment of the following
conditions:
6.1 REPRESENTATIONS. The representations made by the Purchaser in Section 4
hereof shall be true and correct in all material respects when made, and shall
be true and correct on the Closing Date in all material respects with the same
force and effect as if they had been made on and as of said date.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by any
state for the offer and sale of the Shares.
6.3 COLLABORATION AGREEMENT. The Company and the Purchaser shall have
executed the Collaboration Agreement of even date herewith.
SECTION 7
COVENANTS
7.1 REGISTRATION RIGHTS. Purchaser shall be entitled to those certain
registration rights with respect to the Shares as are set forth in Section 4.2
of the Shareholder Rights Agreement (the "Rights Agreement") attached hereto as
EXHIBIT B. Purchaser shall be included in the definition of "Other Holders" and
the Shares shall be included in the definition of "Registrable Securities" for
purposes of Section 4.2 of the Rights Agreement. The Purchaser shall be entitled
to all of the rights of the Other Holders and subject to all of the obligations
of the Holders as set forth in the Rights Agreement; provided, however, that
Purchaser shall be entitled to all of the rights, duties and obligations of the
Holders with regard to indemnification as set forth in Section 4.7 of the Rights
Agreement.
6
<PAGE> 10
7.2 RULE 144 REPORTING. The Company shall comply with the obligations
regarding Rule 144 reporting as set forth in Section 4.9 of the Rights Agreement
attached hereto as EXHIBIT B.
SECTION 8
MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of California as applied to contracts made and to be fully
performed entirely within that state between residents of that state.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided, however, that the rights of the Purchaser to purchase the Shares shall
not be assignable without the consent of the Company.
8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
This Agreement or any term hereof may be amended, waived, discharged or
terminated solely by a written instrument signed by the Company and the holders
of a majority of the Shares.
8.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to the Purchaser, at the address set forth on EXHIBIT A
attached hereto or at such other address as shall have furnished to the Company
upon not less than ten (10) days notice in writing, or (b) if to the Company, at
the address of its principal office and addressed to the attention of the
President and with a copy to Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California 94304-1050, Attention: Michael J. O'Donnell or at
such other address as the Company shall have furnished to the Purchaser upon not
less than ten (10) days notice in writing. Notwithstanding the above, any notice
or communication to an address outside the United States shall additionally be
given by telecopy and confirmed in waiting sent by two (2) day guaranteed
international courier.
8.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power
or remedy accruing to any holder of any Shares, upon any breach or default of
the Company under this Agreement, shall impair any such right, power or remedy
of such holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
7
<PAGE> 11
8.6 EXPENSES. Each party will pay its own costs and expenses in connection
with the transactions contemplated hereby.
8.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.8 SEVERABILITY. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision.
IN WITNESS WHEREOF, the parties have executed this Common Stock Purchase
Agreement as of the day and date set forth above.
"COMPANY" SEQUANA THERAPEUTICS, INC.,
a California corporation
By:/s/ Kevin J. Kinsella
-----------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
"PURCHASER" WARNER-LAMBERT COMPANY
By:/s/ R.M. Cresswell
-----------------------------------------
Title: Vice President, Pharmaceutical
Research
------------------------------------
8
<PAGE> 12
EXHIBIT A
PURCHASER SCHEDULE
NAME AND ADDRESS OF PURCHASER
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
ATTN: President, Parke Davis Pharmaceutical Division
with a copy to:
Warner-Lambert Company
201 Tabor Road
Morns Plains, NJ 07950
ATTN: Vice President and General Counsel
<PAGE> 13
EXHIBIT B
SEQUANA THERAPEUTICS, INC.
---------------------------------
SHAREHOLDER RIGHTS AGREEMENT
---------------------------------
<PAGE> 14
SEQUANA THERAPEUTICS, INC.
SHAREHOLDER RIGHTS AGREEMENT
The undersigned holders of Series A, Series B, Series C, Series D and
Series E Prepared Stock (collectively, the "Preferred Stock") of Sequana
Therapeutics, Inc. (the "Company") hereby agree to amend that certain
Shareholder Rights Agreement, dated as of October 21, 1994, between the Company
and the persons listed on the schedule of Shareholders attached hereto as
Exhibit A (collectively, the "Shareholders") to read as set forth below,
effective as of June 12, 1995.
SECTION 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "COMMISSION" shall mean the Securities and Exchange commission of the
United States or any other U.S. federal agency at the time administering the
Securities Act.
1.2 "COMMON STOCK" shall mean shares of the Company's Common Stock.
1.3 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar United States federal statute and the rules and
regulations of the Commission promulgated thereunder, all as the same shall be
in effect at the time.
1.4 "COMMON REGISTRABLE SECURITIES" shall mean the Common Stock held by the
Holders.
1.5 "HOLDER" shall mean each of the Shareholders (and their transferees as
permitted by Section 4.10) holding Registrable Securities or securities
convertible into Registrable Securities.
1.6 "INITIATING HOLDERS" shall mean Holders who in the aggregate hold at
least 1,083,250 shares of the Registrable Securities, as adjusted for any stock
split, stock dividend, recapitalization or similar event.
1.7 "OTHER HOLDERS" shall mean holders of Company securities, other than
the Holders, proposing to distribute their securities pursuant to a registration
under Section 4 of this Agreement.
1.8 "PREFERRED" shall mean shares of the Company's Series A Preferred
Stock, Series A-1 Preferred Stock, Series B preferred Stock, Series B-1
Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock, Series D
Preferred Stock, and Series D-1 Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and series F-I Preferred Stock.
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1.9 "PREFERRED REGISTRABLE SECURITIES" means Common Stock issued or
issuable on conversion of the Preferred and any shares of Common Stock issued or
issuable in respect of such Common Stock upon any stock split, stock dividend,
recapitalization, or similar event.
1.10 "REGISTRABLE SECURITIES" means Common Registrable Securities or
Preferred Registrable Securities.
1.11 The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
1.12 "REGISTRATION EXPENSES" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 4.1, 4.2, and
4.3 hereof, including, without limitation, all registration, qualification,
filing and listing fees, printing expenses, escrow fees, fees and disbursements
of counsel for the Company (and fees and disbursements of one special counsel
for Holders, if any), blue sky fees and expenses and the fees and expenses of
independent public accountants retained by the Company in connection with any
such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).
1.13 "SECURITIES" shall mean Common Stock or Preferred.
1.14 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar United States federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.15 "SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
SECTION 2
INFORMATION RIGHTS
2.1 FINANCIAL INFORMATION. The Company will provide each Shareholder the
following reports for so long as the Shareholder is a holder of a minimum of
thirty three thousand three hundred and thirty three (33,333) shares of
Registrable Securities, including for purposes of this Section 2 any such Shares
which have been transferred to a constituent partner or affiliate of a
Shareholder:
(a) As soon as practicable after the end of each fiscal year, and in
any event within one hundred twenty (120) days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
year, and consolidated statements of income, shareholders' equity and cash flows
of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles and setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail and audited without qualification as to scope by independent
auditors of national standing selected by the Company.
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(b) As soon as practicable after the end of each month and fiscal
quarter, and in any event within thirty (30) days and forty-five (45) days,
respectively, thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such period, consolidated statements
of income, consolidated statements of changes in financial condition, a
consolidated statement of cash flow of the Company and its subsidiaries and a
statement of shareholders' equity for such period and for the current fiscal
year to date, and setting forth in each case in comparative form the figures for
corresponding periods in the previous fiscal year, and setting forth in
comparative form the budgeted figures, prepared in accordance with generally
accepted accounting principles (other than for accompanying notes), subject us
changes resulting from year-end audit adjustments, all in reasonable detail and
signed by the principal financial or accounting officer of the Company.
(c) As soon as practicable after its adoption by the Board of
Directors, a copy of the annual operating plan of the Company for the next
fiscal year and an annual budget for the next fiscal year of the Company
containing profit and loss projections, cash flow projections, and capital
expenditures, all on a monthly basis.
2.2 ASSIGNMENT OF RIGHTS. The rights granted pursuant to Section 2.1(a) may
be assigned or otherwise conveyed by a Shareholder to a constituent partner or
affiliate of a Shareholder or to a transferee who acquires (i) at least thirty
three thousand three hundred thirty three (33,333) shares of Preferred or (ii)
all shares of Preferred held by such transferor. Notwithstanding the foregoing,
the rights granted pursuant to Section 2.1(a) may not be assigned or otherwise
conveyed to a competitor of the Company, as reasonably determined by the Board
of Directors of the Company excluding any director with an interest in such
transferee. The Shareholder shall provide the Company with written notice of any
assignment or conveyance of the rights granted pursuant to Section 2.1(a).
2.3 TERMINATION. The information rights provided under this section 2 shall
terminate upon the closing of the Company's initial firmly underwritten public
offering for any securities of the Company.
SECTION 3
RIGHTS OF FIRST REFUSAL ON NEW ISSUANCES
3.1 RIGHTS OF FIRST REFUSAL. The Company hereby grants to each
Shareholder the right of first refusal to purchase such Shareholder's pro rata
portion of New Securities (as defined in Section 3.1(a)) that the Company may,
from time to time, propose to sell and issue. Such Shareholder's pro rata
portion, for purposes of this right of first refusal, is the ratio that the
number of shares of Common Stock held by such Shareholder (including Common
Stock issuable upon conversion of securities convertible into Common Stock of
the Company held by such Shareholder, including the Preferred) bears to the
total number of shares of Common Stock outstanding at the time of issuance of
such New Securities (including common Stock issuable upon conversion of all
outstanding securities convertible into Common Stock, including the Preferred).
This right of first refusal shall be subject to the following provisions:
<PAGE> 17
(a) "New Securities" shall mean any Common Stock of the Company or
securities of any type whatsoever that are, or may become, convertible into or
exchangeable for Common Stock, and any rights, options, or warrants to purchase
said Common Stock or securities, whether now authorized or not; provided,
however, that "New Securities" does not include (i) securities issued pursuant
to the acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization; (ii) shares of the
Company's Common Stock (or related options) issued to employees, officers,
directors, consultants, or other persons performing services for the Company
(including, but not by way of limitation, distributors and sales
representatives) pursuant to any stock offering, plan, or arrangement approved
by the majority of the Board of Directors; (iii) shares of the Company's Common
Stock (or related warrants) granted to financial institutions in connection with
the extension of credit to the Company or in connection with the lease of
equipment and in both cases for other than equity financing purposes approved by
the Board of Directors; or (iv) shares of the Company's Common Stock issued in
connection with any stock split, Company's dividend, or recapitalization by the
Company.
(b) In the event that the Company proposes to issue New Securities, it
shall give each Shareholder written notice of its intention, describing the type
of New Securities, the price, and the general terms upon which the Company
proposes to issue the same. Each Shareholder shall have fifteen (15) days from
the date it receives any such notice to agree to purchase its pro rata share of
such New Securities for the price and upon the general Terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
(c) In the event that a Shareholder fails to exercise in full the
right of first refusal within the fifteen (15) day period, the Company shall
have ninety (90) days thereafter to sell (or enter into an agreement pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within thirty (30) days from the date of said agreement) the New Securities
respecting which the Shareholder's rights were not exercised, at a price and
upon general terms no more favorable to the purchasers thereof than specified in
the Company's notice. In the event the Company has not sold the New Securities
within said ninety (90) day period (or sold and issued New Securities in
accordance with the foregoing within thirty (30) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Shareholders in the manner
provided above.
(d) The Shareholder's failure to exercise this right of first refusal
on any issuance of New Securities shall not adversely affect the Shareholder's
right of first refusal to purchase subsequent issuances of New Securities.
(e) The right of first refusal set forth in this Section 3.1 may not
be assigned or transferred, except that such right is assignable by each
shareholder to any wholly-owned subsidiary or parent of, or to any corporation
or entity that is, within the meaning of the Securities Act, controlling,
controlled by or under common control with, any such shareholder, (ii) such
right is assignable between and among any of the shareholders; and (iii) such
right is assignable in accordance with the provision of Section 2.2 hereof.
<PAGE> 18
SECTION 4
REGISTRATION RIGHTS
4.1 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to at least 1,083,250 shares of the
Registrable Securities, as adjusted for any stock split, stock dividend,
recapitalization or similar event, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder(s)
joining in such request "Joining Holders") as are specified in a written request
received by the Company within twenty (20) days after receipt of such written
notice from the Company; provided, however, that all or such portion of
Preferred Registrable Securities as are specified in such request held by
Initiating Holders and Joining Holders must be registered and qualified prior to
the registration and qualification of any Common Registrable Securities.
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 4.1:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of
process in effecting such registration, qualification or
compliance unless the Company is already subject to service
in such jurisdiction and except as may be required by the
Securities Act;
(B) Prior to the earlier to occur of (i) six (6) months
after the effective date of the Company's first registered
public offering of its stock or (ii) December 31, 1995;
(C) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the
effective date of, any registration statement pertaining to
securities of the Company sold by the Company (other than a
registration of securities in a Rule 145 transaction or with
respect to the plan) provided that the Company is actively
an employee benefit employing in good faith all reasonable
efforts to cause such registration statement to become
effective;
<PAGE> 19
(D) After the Company has effected four registrations
pursuant to this paragraph 4.1, and such registrations have
been declared or ordered effective, provided that all
Registrable Securities requested to be included in each such
registration were in fact included in the registration; or
(E) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or its
shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 4
shall be deferred for a period not to exceed one hundred
twenty (120) days from the late of receipt of written
request from the Initiating Holders, provided, however, that
the Company shall not utilize this right more than once in
any twelve (12) month period.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
(b) UNDERWRITING. In the event that a registration pursuant to Section
4.1 is for a registered public offering involving an underwriting, the
Initiating Holders will so advise the Company as part of the written request
given by such Initiating Holders pursuant to Section 4.1(a), and the Company
shall in turn advise the Holders as part of the notice given pursuant to Section
on 4.1(a)(i). In such event, the right of any Holder to registration pursuant to
Section 4.1 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 4.1, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting and the Other Holders) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Initiating Holders. Notwithstanding any other
provision of this Section 4.1, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise Holders
and Other Holders, and the number of shares that may be included in the
registration and underwriting shall be allocated first among all Holders of
Preferred Registrable securities in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders of preferred
Registrable Securities at the time of filing the registration statement. If,
after the shares of Registrable securities the Holders of Preferred Registrable
Securities desire to be registered are accounted for in the underwriting, more
securities may be underwritten, such additional number of shares that may be
included in the registration and underwriting shall be allocated among the
Holders of Common Stock in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders of Common
Stock at the time of filing the registration statement. If, after all shares of
Common Stock desired to be registered are accounted for in the underwriting,
more securities may be underwritten, such additional shares to be included shall
be allocated among the Other Holders in proportion to the number of shares
proposed to be included in such registration by such Other Holders.
<PAGE> 20
No Registrable Securities or other securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any holder to the nearest one hundred (100) shares.
If any Holder of Registrable Securities or Other Holder disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration.
4.2 COMPANY REGISTRATION.
(a) COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Securities Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after it receives written
notice by the Company, the Company shall, subject to the provisions of Section
4.2(b), cause to be registered under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
however, that all or such portion of Preferred Registrable Securities as are
specified in such request held by Holders must be registered and qualified prior
to the registration and qualification of any Common Registrable securities.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 4.2(a). In such event the right of any Holder to
registration pursuant to Section 4.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall, together with the
Company and the Other Holders, enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 4.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of shares of Registrable Securities to be included in such registration
without requiring any limitation in the number of shares to be registered on
behalf of the Company, provided that if such underwriting is other than an
initial public offering the number of shares of Registrable Securities to be
included in such registration shall not be limited to less than twenty-five
percent (25%) of the total number of shares to be included in such registration.
The Company shall so advise all Holders and Other Holders and the number of
shares that may be included in the registration and underwriting by all Holders
and Other Holders shall be allocated among them, as nearly as practicable,
first, to the Company (or, if applicable, to the holders for whose account the
Company is registering the securities), second,
<PAGE> 21
among the Holders of Preferred Registrable Securities in proportion to the
respective amounts of Preferred Registrable Securities held by such Holders at
the time of filing of the registration statement, third, among the Holders of
Registrable Securities in proportion to the respective amounts of Common
Registrable Securities held by such Holders at the time of filing of the
registration statement, and, fourth, among the Other Holders in proportion to
the number of shares proposed to be included in such registration by such Other
Holders. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the of shares allocated to any Holder or Other
Holder to the hundred (100) shares. If any Holder or Other Holder disapproves of
the terms of any such underwriting, such holder may draw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 4.2
prior to the effectiveness of such registration whether or not any Holder has
elected to include Registrable Securities in such registration, subject to the
right of the Initiating Holders to request that such registration be effected as
a required registration under Section 4.1 hereof.
4.3 REGISTRATION ON FORM S-3.
(a) REQUEST FOR REGISTRATION. If any Holder or Holders request that
the Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities the
reasonably anticipated aggregate price to the public of which would exceed
$1,000,000, and the Company is registrant entitled to use Form S-3 to register
the Registrable Securities for such an offering, the Company shall use its best
efforts to cause such Registrable Securities to be registered for the offering
on such form and to cause such Registrable Securities to be qualified in such
jurisdictions as the Holder or Holders may reasonably request; provided,
however, that all or such portion of Preferred Registrable Securities as are
specified in such request held by Holders must be registered and qualified prior
to the registration and qualification of any Common Registrable Securities. The
substantive provisions of Section 4.1(b) shall be applicable to each
registration initiated under this Section 4.3.
(b) LIMITATIONS. Not withstanding the foregoing, the Company shall not
be obligated to take any action pursuant to this Section 4.3: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of processing effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii) for
a period of ninety (90) days after receipt of the request of the initiating
Holders, if the Company, within ten (10) days asset such receipt, gives notice
of its bona fide intention to effect the filing of a registration statement with
the Commission within ninety (90) days of receipt of such request (other than
with respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities); (iii) during the period
starting with the date sixty (60) days prior to the Company's estimated date of
filing of, and ending on the date six (6) months immediately following the
effective date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee
<PAGE> 22
benefit plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or
(iv) if the Company shall furnish to such Holder a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or the shareholders
as a whole for registration statements to be filed in the bear future, then the
Company's obligation to use its best efforts to file a registration statement
shall be deferred for a period not to exceed ninety (90) days from the receipt
of the request to file such registration by such Holder, provided, however, that
the Company shall not utilize this right more than once in any twelve (12) month
period.
4.4 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date
hereof, the Company will not, without the prior written consent of holders of a
majority of the voting power of the then outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which allows such holder or prospective holder of any securities
of the Company to include such securities in any registration filed under
Sections 4.1, 4.2 or 4.3 hereof, unless, under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of such holder's securities
will not diminish the amount of Registrable Securities which are included.
However, the Company may by agreement grant such holder or prospective holder a
registration right analogous to that set forth in Section 4.1 provided that (i)
such holder or prospective holder may not demand a registration analogous to
that set forth in Section 4.1 at any time earlier than the Holders first have
such right, and (ii) that the Registrable Securities may be included in any such
registration demanded by such holders to the extent such inclusion will not
diminish the amount of securities of such holders which are included.
4.5 EXPENSES OF REGISTRATION.
(a) REGISTRATION EXPENSES. The Company shall bear all Registration
Expenses incurred in connection with all registrations pursuant to Section 4.1
and Section 4.2, and four (4) registrations pursuant to Section 4.3.
(b) SELLERS EXPENSES. Unless otherwise stated in Section 4.5(a), all
Selling Expenses and Registration Expenses relating to securities registered on
behalf of the Holders shall be relating by the Holders pro rata on the basis of
the number of shares so registered.
4.5 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will:
(a) keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof;
(b) as soon as practicable, prepare and file with the commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective until the
earlier of (i) one hundred twenty (120) days from its date of effectiveness or
(ii) the distribution described in the Registration Statement has been
completed; provided, however, that (i) such 120-day period shall be extended for
a period of time equal to the period the Holder refrains from selling any
securities included in such
<PAGE> 23
registration at the request of the Company or an underwriter of Common Stock (or
other securities) of the Company; and (ii) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under ,he Securities Act, permits an offering on a continuous or delayed basis,
and, provided further, that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;
(c) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of working drafts and the filed versions of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
Holders and underwriters may reasonably request in order to facilitate the
public offering of such securities;
(d) promptly prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective for the applicable period provided pursuant to Section 4 of
this Agreement and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement;
(e) in the event of an underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement and each such Holder shall be permitted to request that all
representations and warranties made by the Company in such underwriting
agreement to and for the benefit of the underwriters also be made to and for
their benefit;
(f) promptly notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act by the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements made therein not misleading in the light of the circumstances then
existing;
(g) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
(h) subject to Section 4.1(a)(A), prepare and file in each applicable
jurisdiction all statements, forms and applications necessary to qualify in such
jurisdiction the Registrable Securities being registered with the Commission
pursuant to the registration statement, and to maintain such qualification for a
period of time not shorter than the duration of the effective period of the
registration statement required pursuant to Section 4 of this Agreement;
<PAGE> 24
(i) cooperate with each Holder to insure that no Holder is
specifically identified in any registration statement unless such Holder
consents thereto or such disclosure is required by the Securities Act, and if a
Holder is so identified, the Company shall permit such Holder to require that
qualifying or disclaiming language be included in the registration statement in
conjunction with the naming of such Holder, as may be permitted by the
Securities Act;
(j) cooperate with all Holders to insure that all Registrable
Securities of the same class be offered in the prospectus on the same terms and
conditions as all other Registrable Securities in the same class;
(k) require that officers, directors and/or employees of the Company
be reasonably available to attend any analysts' meetings and participate in
"roadshows" as may be scheduled in connection with a registered offering;
(l) notify each Holder of any comments or communications from the
Commission or any state securities administrator which (i) relate specifically
to such Holder, (ii) assert violations of the Securities Act or Exchange Act or
announce the commencement of any investigation, action or proceeding arising in
connection with the registration statement or prospectus, or (iii) inform of the
issuance or planned issuance of a stop order or suspension of effectiveness of
the registration statement;
(m) provide to each Holder as early as practicable an earnings
statement of the Company which satisfies the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, covering the period of at
least twelve months beginning with the first month after the effective date of
the registration statement; and
(n) use its best efforts to cause the Registrable Securities covered
by the registration statement to be listed, upon official notice of issuance, on
a U.S. national securities exchange.
4.7 INDEMNIFICATION.
(a) BY COMPANY. The Company will indemnify and hold harmless each
Holder, each of its officers and directors and partners, and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities,
joint or several, (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration,
<PAGE> 25
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated herein or necessary to make
the statements herein, in light of herein circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act, the
Exchange Act or any state or federal securities law, or any rule or regulation
promulgated under such Acts or law applicable to the Company in connection with
any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors, and partners,
and each person controlling such Holder, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein. If the Holders are represented by counsel other
than counsel for the Company, the Company will not be obligated under this
Section 4.7(a) to reimburse legal fees and expenses of more than one separate
counsel for all Holders, unless there is a conflict between one or more Holders,
in which case the Company will reimburse the Holders for legal fees and expenses
for more than one counsel. This indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any Holder or any
officer, director or partner thereof or any person controlling such Holder, and
shall survive the transfer of the securities by such Holder.
(b) BY HOLDERS. Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, severally and not jointly,
indemnify and hold harmless the Company, each of its directors, each of its
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who control the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein. Notwithstanding the foregoing, the
liability of each Holder under this subsection (b) shall be limited in an amount
equal to the amount of the proceeds received by such Holder in the offering
giving rise to the liability unless such liability arises out of or is based on
willful misconduct by such Holder. This indemnity shall survive in full force
and effect regardless of any investigation made by or on behalf of the
<PAGE> 26
Company or any officer, director or partner thereof or any person controlling
the Company, and shall survive the transfer of the securities by the Holder.
(c) PROCEDURES. Each party entitled to indemnification under this
Section 4.7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest
between the Indemnifying and indemnified Parties or separate and different
defenses. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) CONTRIBUTION. If the indemnification provided for in this Section
4.7 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to herein; then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and with the indemnified party on the
other in connection with the statements of omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. No Indemnified Party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from the indemnifying Party if the
Indemnifying Party is not guilty of fraudulent misrepresentation.
(e) CONTROLLING AGREEMENT. Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions of this Section 4.7, the
provisions in the underwriting agreement shall control.
(f) All indemnification provided hereunder is in addition to any other
rights of indemnification and contribution available to an Indemnified Party
under law or equity or otherwise.
<PAGE> 27
4.8 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder or Holders, the Registrable Securities held by them and
the distribution proposed by them as the Company may request in writing and only
as shall be necessary to enable the Company to comply with the provisions hereof
in connection with any registration, qualification or compliance referred to in
this Agreement.
4.9 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Registrable Securities of the
Company, the Company agrees to use its best efforts to enable each Holder to
sell its Registrable Securities pursuant to the exemption from registration
requirements provided by Rule 144 of the Securities Act, or any successor rule,
including using its best efforts to do the following:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) Furnish to any Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the company for an offering of its securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934 at
any time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the company, and such other
reports and documents of the Company and ocher information in the possession of
or reasonably obtainable by the Company as such Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Holder
to sell any such securities without registration.
4.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities granted Holders under Sections 4.1, 4.2 and 4.3 may be
assigned in connection with any transfer or assignment by a Holder of
Registrable Securities provided that: (i) such transfer may otherwise be
effected in accordance with applicable securities laws, (ii) such transfer is
effected in compliance with the restrictions on transfer contained in this
Agreement and in any other agreement between the Company and the Holder, and
(iii) such assignee or transferee is a constituent partner or affiliate of a
Shareholder or purchases (i) at least 33,333 shares of Preferred or (ii) all
shares of Preferred held by a Shareholder. No transfer or assignment will divest
a Holder or any subsequent owner of such rights and powers unless all
Registrable Shares are transferred or assigned.
<PAGE> 28
4.11 TERMINATION. The rights granted pursuant to this Section 4 shall
terminate as to any Holder at the later of (i) four years after the Company's
initial public offering of the Company's securities or (ii) after the effective
date of the Company's first registered public offering of its stock, at such
time as such Holder may sell under Rule 144, or a successor rule, in a three
month period all Registrable Securities than held by such Holder.
4.12 LOCKUP AGREEMENT. Each holder agrees that, if, in connection with the
Company's initial public offering of the company's securities, the Company or
the underwriters managing the offering so request, the Holder shall not sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the Company or the underwriters; provided that each officer and
director of the Company who owns stock of the Company also agrees to such
restrictions and that any lockup restrictions requested by the Company or the
underwriters shall be required proportionately, to the extent possible from
among all Holders whose Registrable Securities are included in the initial
public offering. This Section 4.12 shall be binding on all transferees or
assignees of Registrable Securities, whether or not such persons are entitled to
registration rights pursuant to Section 4.10.
SECTION 5
COVENANTS
5.1 PROPRIETARY INFORMATION AGREEMENT. Unless otherwise determined by Board
of Directors, the Company shall require all future officers, directors and
employee of, and consultants to, the Company and its subsidiaries, if any, to
execute a proprietary information agreement providing for the protection of the
Company's proprietary or confidential information and the assignment of
intellectual property rights to the Company.
5.2 STOCK VESTING. Employees who receive the Company's Common Stock or
options to purchase the Company's Common Stock in connection with the
performance of services for the Company shall execute and deliver agreements
providing that such Common Stock shall be subject to a right of the Company to
repurchase such Common Stock at the original purchase price in the event that
the relationship of such employee with the Company is terminated, which right
shall lapse over a four-year period, or providing that such options shall become
exercisable over a four-year period based upon continuing employment, or
providing such other vesting arrangements as determined appropriate by the
Company's Board of Directors.
5.3 VOTING MATTERS.
(a) For so long as the Carlyle Group shall continue to own at least
fifteen percent (15%) of the outstanding capital stock of the Company, the
Carlyle Group shall have the right to designate two members to the Company's
Board of Directors and for so long as the Carlyle Group shall continue to own
less than fifteen percent (15%) but more than one percent (1%) of the
outstanding capital stock of the Company, the Carlyle Group shall have the right
to
<PAGE> 29
designate one member to the Company's Board of Directors. Notwithstanding the
foregoing, in the event that the number of directors elected as representatives
of the Company's venture capital investors (other than the Carlyle Group) shall
be four or less and the size of the Company's Board of Directors shall be eight
or less, the Carlyle Group shall have the right to designate only one member to
the Company's Board of Directors. During the term of this Agreement and to the
extent they are entitled under the Company's Restated Articles of Incorporation
to vote on a particular matter, the Shareholders and the Company agree to vote
all of the shares of the Company's voting securities now or hereafter owned by
them, whether beneficially or otherwise, for such designees of the Carlyle
Group. This Section shall terminate upon the initial public offering of the
Company's securities.
(b) In the event that the Company shall seek to cause the election of
a representative of a major pharmaceutical company to the Company's Board of
Directors pursuant to an agreement with such pharmaceutical company or in the
event that the Shareholders agree to vote their respective shares for the
election of a representative of a major pharmaceutical company to the Company's
Board of Directors, then so long as Boehringer Ingelheim International GmbH is a
Shareholder, the Company and the Shareholders shall seek to cause the election
and vote their shares for the election, respectively, for any designee of
Boehringer Ingelheim International GmbH to the Company's Board of Directors.
SECTION 6
MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of California as applied to contracts made and to be fully
performed entirely within that state between residents of that state. All
disputes arising out of this Agreement shall be subject to the exclusive
jurisdiction and venue of the California state courts of Santa Clara County,
California or the United States District Court for the Northern District of
California and the parties consent to the personal and exclusive jurisdiction
and venue of these courts.
6.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. This Agreement or any term hereof may be amended,
waived, discharged or terminated by a written instrument signed by the Company
and the Holders or transferees of such Holders holding more than fifty percent
(50%) of the Registrable Securities; provided, however, that no amendment,
waiver, discharge or termination which is materially adverse to a Shareholder in
a different manner from that of the other shareholders may be adopted under this
Section 6.2 without the prior consent of such Shareholder.
6.3 AGGREGATION. For the purposes of determining the number of shares of
Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided, that all assignees and transferees who would not qualify
individually for
<PAGE> 30
assignment of registration rights shall have a single attorney-in-fact for the
purpose of exercising any rights, receiving notices or taking any action under
Sections 2 and 4.
6.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be deemed given if in writing and mailed by registered
or certified mail, postage prepaid, or otherwise delivered by hand, by
messenger, or by telecopy, addressed (a) if to a Holder, at such Holder's
address or facsimile number as set forth on Exhibit A to this Agreement, or at
such other address or facsimile number as such Holder shall have furnished to
the Company in writing, or (b) if to any other holder of any Registrable
Securities, at such address or facsimile number as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address or facsimile number to the Company, then to and at the address or
facsimile number of the last holder of such Registrable Securities who has so
furnished an address or facsimile number to the Company, or (c) if to the
Company, at the address or facsimile number of its principal offices and
addressed to the attention of the Corporate Secretary and with a copy to Wilson,
Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304-1050, Facsimile Number 415-493-6811, Attention: Michael J. O'Donnell, or
at such other address or facsimile number as the Company shall have furnished to
the Purchasers. All notices and other communications so sent shall be effective
as follows: (i) if sent by hand, messenger or by mail, upon delivery; (ii) if
sent by telecopy, upon receipt of confirmation of transmission (provided such
notice is sent on a business day during the hours of 9:00 a.m. and 6:00 p.m.
local time of recipient, but if not, then immediately upon the beginning of the
first business day after being transmitted).
6.5 SEVERABILITY. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision; provided; provided that on such Severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
6.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
6.7 RIGHT OF FIRST REFUSAL. Each Shareholder on behalf of itself and all
other Shareholders, agrees that the right of first refusal set forth in Section
3 of the Prior Agreement is hereby waived and shall not apply with regard to the
shares of Series D Preferred Stock sold by the Company pursuant to the Series D
Preferred Stock Purchase Agreement or to the shares of Series F Preferred Stock
proposed to be sold by the Company pursuant to the series F Preferred Stock
Purchase Agreement of even date herewith.
6.8 TERMINATION OF PRIOR AGREEMENT. The Company and the shareholders, as
holders of a majority of the "Registrable Securities" (as defined in the Prior
Agreement), hereby agree that all rights granted and covenants made under the
Prior Agreement are hereby waived, released and terminated in their entirety and
shall have no further force or effect whatsoever. The rights and covenants
provided herein set forth the sole and entire agreement between the Company and
the Shareholders with respect to the subject matter hereof.
<PAGE> 31
The foregoing Shareholder Rights Agreement is hereby executed as of the
date first above written.
"COMPANY" SEQUANA THERAPEUTICS, INC.,
a California corporation
By: /s/ KEVIN KINSELLA
------------------------------------------
Name: Kevin Kinsella
----------------------------------------
Title: President
---------------------------------------
<PAGE> 32
AMENDMENT OF SHAREHOLDER RIGHTS AGREEMENT
1. The undersigned holders of Series A, Series B, Series C, Series D,
Series E, and Series F Preferred Stock (collectively the "Preferred Stock") of
Sequana Therapeutics, Inc. (the "Company") hereby agree, on behalf of themselves
and all other holders of Preferred Stock, that the Company's Shareholder Rights
Agreement dated October 21, 1994 as amended effective as of June 12, 1995 (the
"Rights Agreement") shall be amended as set forth below:
(a) Exhibit A to the Rights Agreement, the Schedule of Shareholders,
is hereby amended to add thereto Comdisco, Inc. ("Comdisco") who has received
warrants exercisable for up to 401,265 pre-split shares of the Company's Series
A Preferred Stock, 132,490 pre-split shares of the Company's Series B Preferred
Stock, 54,809 pre-split shares of the Company's Series C Preferred Stock, and
159,072 pre-split shares of the Company's Series D Preferred Stock (which shares
are in the aggregate convertible into approximately 62,300 shares of Common
Stock (the "Warrant Shares") after giving effect to the Company's one-for-twelve
reverse stock split) in connection with the Company's equipment lease line
financing provided by Comdisco with the effect that Comdisco shall be deemed to
be a "Shareholder" and the Warrant Shares shall be deemed to be "Registrable
Securities" for purposes of the Rights Agreement. Comdisco, as holder of the
Warrant Shares, shall be entitled to the registration rights set forth in
Section 4 of the Rights Agreement and shall be subject to all of the terms and
conditions thereof.
(b) A new Section 3.2 is hereby added to the Rights Agreement reading
as follows:
"3.2 Exclusion of Shares Sold in IPO Termination. The right of
first refusal set forth in Section 3.1 above shall not apply to
the purchase of any shares of the Company's Common Stock (the
"Shares") which may be sold pursuant to the Company's initial
public offering of its Common Stock (the "IPO"), including any
shares which the Company may issue to the underwriters in the IPO
pursuant to their over-allotment option; the right of first
refusal set forth in Section 3.1 above shall terminate and be of
no further force and effect effective upon the closing of the IPO
with regard to all Shareholders other than Boehringer Ingelheim
International Gmbh ("BI"). With regard to BI, the right of first
refusal set forth in Section 3.1 shall not apply to the IPO as
set forth above but shall apply to the subsequent sale of
securities by the Company following the IPO."
2. This Amendment shall be effective with regard to all holders of
Preferred Stock upon execution by the Company and the holders of a majority of
the Common Stock issuable upon conversion of the outstanding Preferred Stock as
provided in Section 6.2 of the Rights Agreement. This Amendment may be executed
in one or more counterparts, each of which shall be deemed an original, and all
of which together shall continue one instrument. This Amendment is executed
effective as of July 17, 1995.
<PAGE> 33
THE COMPANY:
SEQUANA THERAPEUTICS, INC.
By: /s/ KEVIN KINSELLA
----------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
THE HOLDERS OF PREFERRED STOCK:
AVALON BIOVENTURES II, L.P.
By: /s/ KEVIN KINSELLA
----------------------------------------
Title: General Partner
--------------------------------------
AVALON MEDICAL PARTNERS, L.P.
By: /s/ KEVIN KINSELLA
----------------------------------------
Title: General Partner
--------------------------------------
BIOTECHVEST, INC.
By:
----------------------------------------
Title:
--------------------------------------
<PAGE> 34
EXHIBIT C
October 31, 1997
Warner-Lambert Co.
201 Tabor Road
Morris Plains, NJ 07950
ATTN: President, Parke-Davis Pharmaceutical Division
Ladies and Gentlemen:
Reference is made to the COMMON STOCK PURCHASE AGREEMENT, dated as of
October 31, 1997 (the "Agreement"), complete with all listed exhibits thereto,
by and among SEQUANA THERAPEUTICS, INC., a California corporation (the
"Company") and WARNER-LAMBERT COMPANY (the "Investor"), which provides for the
issuance by the Company to the Investor of shares of Common Stock of the Company
(the "Shares"). This opinion is rendered to you pursuant to Section 5.5 of the
Agreement, and all terms used herein have the meanings defined for them in the
Agreement unless otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Agreement and the issuance of the Shares. As such counsel, we
have made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion. In addition,
we have examined, among other things, originals or copies of such corporate
records of the Company, certificates of public officials and such other
documents and questions of law that we consider necessary or advisable for the
purpose of rendering this opinion. In such examination we have assumed the
genuineness of all signatures on original documents, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to due
execution and delivery by the Company) where due execution and delivery are a
prerequisite to the effectiveness thereof.
As used in this opinion, the expression "to our knowledge" with
reference to matters of fact means that, after an examination of documents made
available to us by the Company, and after inquiries of officers of the Company,
but without any further independent factual investigation, we find no reason to
believe that the opinions expressed herein are factually incorrect. Further, the
expression "to our knowledge" with reference to matters of fact refers to the
current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreement and the
transactions contemplated thereby. Except to the extent expressly set forth
herein or as we otherwise believe to be necessary to our opinion, we have not
undertaken any independent investigation to determine the existence or absence
of any fact, and no inference as to our knowledge of the existence or absence of
any fact should be drawn from our representation of the Company or the rendering
of the opinion set forth below.
For purposes of this opinion, we are assuming that you have all
requisite power and authority, and have taken any and all necessary corporate or
partnership action, to execute and
<PAGE> 35
deliver the Agreement, and we are assuming that the representations and
warranties made by the Investor in the Agreement and pursuant thereto are true
and correct. We are also assuming that the Investor has acquired the Shares for
value, in good faith and without notice of any adverse claims within the meaning
of the California Uniform Commercial Code.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) We express no opinion as to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar federal or state laws
affecting the rights of creditors and secured parties, including, without
limitation, federal, state or other laws regarding fraudulent transfers;
(b) We express no opinion as to the effect or availability of rules of law
governing specific performance, injunctive relief or other equitable remedies
(regardless of whether any such remedy is considered in a proceeding at law or
in equity);
(c) We express no opinion as to compliance with applicable anti-fraud
provisions of federal or state securities laws;
(d) We express no opinion as to the enforceability of the indemnification
provisions of Section 4.7 of the Shareholder Rights Agreement dated June 6,
1995, as amended (the "Shareholder Rights Agreement") to the extent the
provisions thereof may be subject to limitations of public policy and the effect
of applicable statutes and judicial decisions; and
(e) We are members of the Bar of the State of California, and we are not
expressing any opinion as to any matter relating to the laws of any jurisdiction
other than the federal laws of the United States of America and the laws of the
State of California. To the extent this opinion addresses applicable securities
laws of states other than the State of California, we have not retained or
relied upon the opinions of counsel admitted to the bars of such states, but
rather have relied upon compilations of the securities laws of such states
contained in reporting services currently available to us.
Based upon and subject to the foregoing, and except as set forth in the
Agreement, we advise you that in our opinion:
1. The Company is a corporation duly organized and validly existing under,
and by virtue of, the laws of the State of California and is in good standing
under such laws. The Company has all requisite corporate power to own and
operate its properties and assets, and to carry on its business as presently
conducted. The Company is qualified to do business as a foreign corporation in
any jurisdiction in which failure to qualify would have a material adverse
effect on the Company's business. The Company has furnished Purchaser true and
complete copies of its Restated Certificate of Incorporation and Bylaws in
effect as of the date hereof.
2. The Company will have prior to the Closing Date all requisite legal and
corporate power to execute and deliver the Agreement to sell and issue the
Shares hereunder and to carry out and perform its obligations under the terms of
the Agreement and the transactions contemplated hereby.
<PAGE> 36
3. All corporate action on the part of the Company, its officers, directors
and shareholders necessary for the authorization, execution, delivery and
performance of the Agreement by the Company, the authorization, sale, issuance
and delivery of the Shares and the performance of the Company's obligations
hereunder and thereunder has been taken or will be taken prior to the Closing
Date. The Agreement, when executed and delivered by the Company, shall
constitute the valid and binding obligations of the Company, enforceable against
the Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
4. The Shares, when issued, sold and delivered in compliance with the
provisions of the Agreement, will be duly and validly issued and will be fully
paid and nonassessable and free and clear of all liens and encumbrances and
restrictions on transfer other than as set forth in the Agreement, provided,
however, that the Shares may be subject to restrictions on transfer under state
and/or federal securities laws.
5. No consent, approval, order or authorization of or designation,
declaration or filing with any state or federal governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of the Agreement, or the offer, sale or issuance of the Shares, or the
consummation of any other transaction contemplated hereby, except qualification
(or taking such action as may be necessary to secure an exemption from
qualification, if available) under the California Corporate Securities Law and
other applicable Blue Sky laws, of the offer and sale of the Shares, which
qualification, if required, will be accomplished in a timely manner prior to or
promptly upon completion of the Closing. Our opinion herein is otherwise subject
to the timely and proper completion of all filings and other actions
contemplated herein where such filings and actions are to be undertaken on or
after the date hereof.
6. Subject to the accuracy of the Investor's representations in Section 4
of the Agreement and their responses (if any) to the Company's inquiries, we are
of the opinion that the offer, sale and issuance of the Shares in conformity
with the terms of the Agreement constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended.
This opinion is furnished to the Investor solely for its benefit in
connection with the purchase of the Shares, and may not be relied upon by any
other person or for any other purpose without our prior written consent.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
Exhibit 10.70
PROMISSORY NOTE
$200,000 South San Francisco, California
September 2, 1997
THIS NOTE IS ISSUED BY THE UNDERSIGNED IN EXCHANGE FOR THAT CERTAIN NOTE WITH A
PRINCIPAL AMOUNT OF TWO HUNDRED THOUSAND DOLLARS ($200,000) ISSUED BY THE
UNDERSIGNED TO THE COMPANY ON APRIL 15, 1993. FROM AND AFTER THE DATE OF THIS
NOTE, THAT APRIL 15, 1993 NOTE SHALL BE NULL AND VOID.
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of ARRIS PHARMACEUTICAL CORPORATION, a Delaware corporation
(the "Company"), at the offices of the Company, 385 Oyster Point Boulevard,
South San Francisco, California, or at such other place as the holder hereof may
designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Two Hundred Thousand Dollars
($200,000) together with interest accrued from the date hereof on the unpaid
principal at the rate of 6.23% per annum, or the maximum rate permissible by law
(which under the laws of the State of California shall be deemed to be the laws
relating to permissible rates of interest on commercial loans), whichever is
less, compounded annually, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder
shall be DUE AND PAYABLE IN FULL ON JANUARY 2, 2001; and
INTEREST PAYMENTS. Interest shall be compounded annually
(calculated on the basis of a 365-day year for the actual number of days
elapsed) and shall be payable IN ARREARS ON THE PRINCIPAL REPAYMENT
DATE.
In addition, and notwithstanding anything to the foregoing, in the event
the undersigned either (i) ceases providing services to the Company, whether as
an employee, consultant or member of the Company's Board of Directors, for any
reason or no reason or (ii) breaches the restrictive covenant not to compete
with the Company set forth in Section 5 of that employment agreement entered
into between the undersigned and the Company, the principal and all accrued
interest due under this Note shall immediately become due and payable.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of that
Pledge Agreement of September 2, 1997 between the undersigned and the Company, a
copy of which is attached as Exhibit A.
1
<PAGE> 2
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
/s/ JOHN P. WALKER
-----------------------------------------
John P. Walker
2
<PAGE> 3
EXHIBIT A
PLEDGE AGREEMENT DATED SEPTEMBER 2, 1997
PLEDGE AGREEMENT
1. As collateral security for the payment of that certain $200,000
promissory note issued this date to Arris Pharmaceutical Corporation ("Pledgee")
by the undersigned (hereinafter called "indebtedness"), the undersigned hereby
assigns, transfers to and pledges with the Pledgee the securities listed on
Exhibit A hereto which were previously delivered to be deposited with Pledgee,
accompanied by an instrument of assignment, in blank, substantially in the form
of Exhibit B hereto, together with any stock rights, rights to subscribe,
dividends paid in cash or other property in connection with the complete or
partial liquidation of Pledgee, stock dividends, dividends paid in stock, new
securities or other property except cash dividends other than liquidating
dividends to which the undersigned is or may hereafter become entitled to
receive on account of such property, and in the event that the undersigned
receives any such, the undersigned will immediately deliver it to Pledgee to be
held by Pledgee hereunder in the same manner as the property originally pledged
hereunder, accompanied by appropriate duly executed instruments of transfer or
assignment, in blank, substantially in the form of Exhibit B hereto. All
property assigned, transferred to and pledged with Pledgee under this paragraph
is hereinafter called "collateral."
2. At any time, without notice, and at the expense of the
undersigned, Pledgee in its name or in the name of its nominee or of the
undersigned may, but shall not be obligated to: (1) collect by legal proceedings
or otherwise all dividends (except cash dividends other than liquidating
dividends), interest, principal payments and other sums now or hereafter payable
upon or on account of said collateral; (2) enter into any extension,
reorganization, deposit, merger, or consolidation agreement, or any agreement in
any wise relating to or affecting the collateral, and in connection therewith
may deposit or surrender control of such collateral thereunder, accept other
property in exchange for such collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (3) insure, process and preserve the
collateral; (4) cause the collateral to be transferred to its name or to the
name of its nominee; (5) exercise as to such collateral all the rights, powers,
and remedies of an owner, except that so long as the indebtedness is not in
default the undersigned shall retain all voting rights as to the collateral.
3. The undersigned agrees to pay prior to delinquency all taxes,
charges, liens and assessments against the collateral, and upon the failure of
the undersigned to do so Pledgee at its option may pay any of them and shall be
the sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
4. All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this
<PAGE> 4
agreement, or in the enforcement thereof, shall become a part of the
indebtedness secured hereunder and shall be paid to Pledgee by the undersigned
immediately and without demand.
5. At the option of Pledgee and without necessity of demand or
notice, all or any part of the indebtedness of the undersigned shall immediately
become due and payable irrespective of any agreed maturity, upon the happening
of any of the following events: (1) failure to keep or perform any of the terms
or provisions of this agreement; (2) default in the payment of principal or
interest when due; (3) the levy of any attachment, execution or other process
against the collateral; or (4) the insolvency, commission of an act of
bankruptcy, general assignment for the benefit of creditors, filing of any
petition in bankruptcy or for relief under the provisions of Title 11, United
States Code, Bankruptcy, of, by, or against the undersigned.
6. In the event of the nonpayment of any indebtedness when due,
whether by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding paragraph, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash in
the hands of Pledgee in whole or in part, with or without any previous demands
or demand of performance or notice or advertisement, the whole or any part of
the collateral in such order as Pledgee may elect, and any such sale may be made
either at public or private sale at its place of business or elsewhere, or at
any broker's board or securities exchange, either for cash or upon credit or for
future delivery; provided, however, that if such disposition is at private sale,
then the purchase price of the collateral shall be equal to the public market
price then in effect, or, if at the time of sale no public market for the
collateral exists, then, in recognition of the fact that the sale of the
collateral would have to be registered under the Securities Act of 1933 and that
the expenses of such registration are commercially unreasonable for the type and
amount of collateral pledged hereunder, Pledgee and the undersigned hereby agree
that such private sale shall be at a purchase price mutually agreed to by
Pledgee and the undersigned or, if the parties cannot agree upon a purchase
price, then at a purchase price established by a majority of three independent
appraisers knowledgeable of the value of such collateral, one named by the
undersigned within 10 days after written request by the Pledgee to do so, one
named by Pledgee within such 10 day period, and the third named by the two
appraisers so selected, with the appraisal to be rendered by such body within 30
days of the appointment of the third appraiser. The cost of such appraisal,
including all appraiser's fees, shall be charged against the proceeds of sale as
an expense of such sale. Pledgee may be the purchaser of any or all collateral
so sold and hold the same thereafter in its own right free from any claim of the
undersigned or right of redemption. Demands of performance, notices of sale,
advertisements and presence of property at sale are hereby waived, and Pledgee
is hereby authorized to sell hereunder any evidence of debt pledged to it. Any
sale hereunder may be conducted by any officer or agent of Pledgee.
7. The proceeds of the sale of any of the collateral and all sums
received or collected by Pledgee from or on account of such collateral shall be
applied by Pledgee to the payment of expenses incurred or paid by Pledgee in
connection with any sale, transfer or delivery of the collateral, to the payment
of any other costs, charges, attorneys' fees or expenses mentioned herein, and
to the payment of the indebtedness or any part hereof, all in such order and
manner as Pledgee in its discretion may determine. Pledgee shall pay any balance
to the undersigned.
<PAGE> 5
8. Pledgee shall be under no duty or obligation whatsoever to make
or give any presentments, demands for performance, notices of non-performance,
protests, notices of protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by Pledgee as collateral, or in
connection with any obligations or evidences of indebtedness which constitute in
whole or in part the indebtedness secured hereunder.
9. Pledgee may at any time deliver the collateral or any part
thereof to the undersigned and the receipt of the undersigned shall be a
complete and full acquittance for the collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
10. Upon the transfer of all or any part of the indebtedness Pledgee
may transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
11. Until all indebtedness shall have been paid in full the power of
sale and all other rights, powers and remedies granted to Pledgee hereunder
shall continue to exist and may be exercised by Pledgee at any time and from
time to time irrespective of the fact that the indebtedness or any part thereof
may have become barred by any statute of limitations, or that the personal
liability of the undersigned may have ceased.
12. The rights, powers and remedies given to Pledgee by this
agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Pledgee may exercise its
Pledgee's lien or right of setoff with respect to the indebtedness in the same
manner as if the indebtedness were unsecured. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
Dated: September 2, 1997
/s/ JOHN P. WALKER
-----------------------------------------
John P. Walker
ATTACHMENTS:
Exhibit A - Pledged Securities
Exhibit B - Assignment Separate from Certificate
<PAGE> 6
EXHIBIT A
PLEDGED SECURITIES
Shares of Common Stock of Arris Pharmaceutical Corporation, a Delaware
corporation, represented by the following certificates:
Certificate No. SFU 5070 in the amount of 23,174 shares
<PAGE> 7
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge Agreement dated
as of September 2, 1997, John P. Walker hereby sells, assigns and transfers unto
Arris Pharmaceutical Corporation Twenty Three Thousand One Hundred Seventy Four
(23,174) shares of common stock of Arris Pharmaceutical Corporation, a Delaware
corporation (the "Company"), standing in the undersigned's name on the books of
said corporation represented by Certificate No. SFU 5070 herewith, and does
hereby irrevocably constitute and appoint __________________________ attorney to
transfer the said stock on the books of the said corporation with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Pledge Agreement, in
connection with the pledge of shares of Common Stock held by the undersigned and
pledged pursuant to the Pledge Agreement, and only to the extent that such
shares remain subject to the Company's rights under the Pledge Agreement.
Dated:
/s/ JOHN P. WALKER
-----------------------------------------
John P. Walker
<PAGE> 1
Exhibit 10.71
PROMISSORY NOTE
$750,000 South San Francisco, California
September 2, 1997
THIS NOTE IS ISSUED BY THE UNDERSIGNED IN EXCHANGE FOR THAT CERTAIN NOTE WITH A
PRINCIPAL AMOUNT OF SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS ($750,000) ISSUED
BY THE UNDERSIGNED TO THE COMPANY ON SEPTEMBER 3, 1996. FROM AND AFTER THE DATE
OF THIS NOTE, THAT SEPTEMBER 3, 1996 NOTE SHALL BE NULL AND VOID.
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of ARRIS PHARMACEUTICAL CORPORATION, a Delaware corporation
(the "Company"), at the offices of the Company, 385 Oyster Point Boulevard,
South San Francisco, California, or at such other place as the holder hereof may
designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Seven Hundred Fifty Thousand
Dollars ($750,000) together with interest accrued from the date hereof on the
unpaid principal at the rate of 6.23% per annum, or the maximum rate permissible
by law (which under the laws of the State of California shall be deemed to be
the laws relating to permissible rates of interest on commercial loans),
whichever is less, compounded annually, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder
shall be DUE AND PAYABLE IN FULL ON JANUARY 2, 2001; and
INTEREST PAYMENTS. Interest shall be compounded annually
(calculated on the basis of a 365-day year for the actual number of days
elapsed) and shall be payable IN ARREARS ON THE PRINCIPAL REPAYMENT
DATE.
In addition, and notwithstanding anything to the foregoing, in the event
the undersigned either (i) ceases providing services to the Company, whether as
an employee, consultant, or member of the Company's Board of Directors, for any
reason or no reason or (ii) breaches the restrictive covenant not to compete
with the Company set forth in Section 5 of that employment agreement entered
into between the undersigned and the Company, the principal and all accrued
interest due under this Note shall immediately become due and payable.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of that
Pledge Agreement of September 2, 1997 between the undersigned and the Company, a
copy of which is attached as Exhibit A.
1.
<PAGE> 2
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ JOHN P. WALKER
----------------------------------
John P. Walker
2.
<PAGE> 3
EXHIBIT A
PLEDGE AGREEMENT DATED SEPTEMBER 2, 1997
PLEDGE AGREEMENT
1. As collateral security for the payment of that certain $750,000
promissory note issued this date to Arris Pharmaceutical Corporation ("Pledgee")
by the undersigned (hereinafter called "indebtedness"), the undersigned hereby
assigns, transfers to and pledges with the Pledgee the securities listed on
Exhibit A hereto which were previously delivered to be deposited with Pledgee,
accompanied by an instrument of assignment, in blank, substantially in the form
of Exhibit B hereto, together with any stock rights, rights to subscribe,
dividends paid in cash or other property in connection with the complete or
partial liquidation of Pledgee, stock dividends, dividends paid in stock, new
securities or other property except cash dividends other than liquidating
dividends to which the undersigned is or may hereafter become entitled to
receive on account of such property, and in the event that the undersigned
receives any such, the undersigned will immediately deliver it to Pledgee to be
held by Pledgee hereunder in the same manner as the property originally pledged
hereunder, accompanied by appropriate duly executed instruments of transfer or
assignment, in blank, substantially in the form of Exhibit B hereto. All
property assigned, transferred to and pledged with Pledgee under this paragraph
is hereinafter called "collateral."
2. At any time, without notice, and at the expense of the undersigned,
Pledgee in its name or in the name of its nominee or of the undersigned may, but
shall not be obligated to: (1) collect by legal proceedings or otherwise all
dividends (except cash dividends other than liquidating dividends), interest,
principal payments and other sums now or hereafter payable upon or on account of
said collateral; (2) enter into any extension, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any wise relating to or
affecting the collateral, and in connection therewith may deposit or surrender
control of such collateral thereunder, accept other property in exchange for
such collateral and do and perform such acts and things as it may deem proper,
and any money or property received in exchange for such collateral shall be
applied to the indebtedness or thereafter held by it pursuant to the provisions
hereof; (3) insure, process and preserve the collateral; (4) cause the
collateral to be transferred to its name or to the name of its nominee; (5)
exercise as to such collateral all the rights, powers, and remedies of an owner,
except that so long as the indebtedness is not in default the undersigned shall
retain all voting rights as to the collateral.
3. The undersigned agrees to pay prior to delinquency all taxes,
charges, liens and assessments against the collateral, and upon the failure of
the undersigned to do so Pledgee at its option may pay any of them and shall be
the sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
4. All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this
<PAGE> 4
agreement, or in the enforcement thereof, shall become a part of the
indebtedness secured hereunder and shall be paid to Pledgee by the undersigned
immediately and without demand.
5. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of the undersigned shall immediately become
due and payable irrespective of any agreed maturity, upon the happening of any
of the following events: (1) failure to keep or perform any of the terms or
provisions of this agreement; (2) default in the payment of principal or
interest when due; (3) the levy of any attachment, execution or other process
against the collateral; or (4) the insolvency, commission of an act of
bankruptcy, general assignment for the benefit of creditors, filing of any
petition in bankruptcy or for relief under the provisions of Title 11, United
States Code, Bankruptcy, of, by, or against the undersigned.
6. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding paragraph, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash in
the hands of Pledgee in whole or in part, with or without any previous demands
or demand of performance or notice or advertisement, the whole or any part of
the collateral in such order as Pledgee may elect, and any such sale may be made
either at public or private sale at its place of business or elsewhere, or at
any broker's board or securities exchange, either for cash or upon credit or for
future delivery; provided, however, that if such disposition is at private sale,
then the purchase price of the collateral shall be equal to the public market
price then in effect, or, if at the time of sale no public market for the
collateral exists, then, in recognition of the fact that the sale of the
collateral would have to be registered under the Securities Act of 1933 and that
the expenses of such registration are commercially unreasonable for the type and
amount of collateral pledged hereunder, Pledgee and the undersigned hereby agree
that such private sale shall be at a purchase price mutually agreed to by
Pledgee and the undersigned or, if the parties cannot agree upon a purchase
price, then at a purchase price established by a majority of three independent
appraisers knowledgeable of the value of such collateral, one named by the
undersigned within 10 days after written request by the Pledgee to do so, one
named by Pledgee within such 10 day period, and the third named by the two
appraisers so selected, with the appraisal to be rendered by such body within 30
days of the appointment of the third appraiser. The cost of such appraisal,
including all appraiser's fees, shall be charged against the proceeds of sale as
an expense of such sale. Pledgee may be the purchaser of any or all collateral
so sold and hold the same thereafter in its own right free from any claim of the
undersigned or right of redemption. Demands of performance, notices of sale,
advertisements and presence of property at sale are hereby waived, and Pledgee
is hereby authorized to sell hereunder any evidence of debt pledged to it. Any
sale hereunder may be conducted by any officer or agent of Pledgee.
7. The proceeds of the sale of any of the collateral and all sums
received or collected by Pledgee from or on account of such collateral shall be
applied by Pledgee to the payment of expenses incurred or paid by Pledgee in
connection with any sale, transfer or delivery of the collateral, to the payment
of any other costs, charges, attorneys' fees or expenses mentioned herein, and
to the payment of the indebtedness or any part hereof, all in such order and
manner as Pledgee in its discretion may determine. Pledgee shall pay any balance
to the undersigned.
<PAGE> 5
8. Pledgee shall be under no duty or obligation whatsoever to make or
give any presentments, demands for performance, notices of non-performance,
protests, notices of protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by Pledgee as collateral, or in
connection with any obligations or evidences of indebtedness which constitute in
whole or in part the indebtedness secured hereunder.
9. Pledgee may at any time deliver the collateral or any part thereof
to the undersigned and the receipt of the undersigned shall be a complete and
full acquittance for the collateral so delivered, and Pledgee shall thereafter
be discharged from any liability or responsibility therefor.
10. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
11. Until all indebtedness shall have been paid in full the power of
sale and all other rights, powers and remedies granted to Pledgee hereunder
shall continue to exist and may be exercised by Pledgee at any time and from
time to time irrespective of the fact that the indebtedness or any part thereof
may have become barred by any statute of limitations, or that the personal
liability of the undersigned may have ceased.
12. The rights, powers and remedies given to Pledgee by this agreement
shall be in addition to all rights, powers and remedies given to Pledgee by
virtue of any statute or rule of law. Pledgee may exercise its Pledgee's lien or
right of setoff with respect to the indebtedness in the same manner as if the
indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing executed by Pledgee. Dated: September 2, 1997
/s/ JOHN P. WALKER
--------------------------------
John P. Walker
ATTACHMENTS:
Exhibit A - Pledged Securities
Exhibit B - Assignment Separate from Certificate
<PAGE> 6
EXHIBIT A
PLEDGED SECURITIES
Shares of Common Stock of Arris Pharmaceutical Corporation, a Delaware
corporation, represented by the following certificates:
Certificate No. SFU0385 in the amount of 5,682 shares
Certificate No. SFU6250 in the amount of 100,000 shares
Certificate No. SFU5816 in the amount of 24,554 shares
<PAGE> 7
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge Agreement dated as
of September 2, 1997, John P. Walker hereby sells, assigns and transfers unto
Arris Pharmaceutical Corporation _____________________________________________
(_________) shares of common stock of Arris Pharmaceutical Corporation, a
Delaware corporation (the "Company"), standing in the undersigned's name on the
books of said corporation represented by Certificates Nos. herewith, and does
hereby irrevocably constitute and appoint __________________________ attorney to
transfer the said stock on the books of the said corporation with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Pledge Agreement, in
connection with the pledge of shares of Common Stock held by the undersigned and
pledged pursuant to the Pledge Agreement, and only to the extent that such
shares remain subject to the Company's rights under the Pledge Agreement.
Dated:
/s/ John P. Walker
--------------------------------
John P. Walker
<PAGE> 1
Exhibit 10.72
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 29th
day of August, 1997, by and between JOHN WALKER ("Executive") and ARRIS
PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the Company desires to continue to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for such future services; and
WHEREAS, Executive wishes to continue to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY
1.1 The Company agrees to employ Executive in the position
of President and Chief Executive Officer of the Company for the term commencing
on the date of this Agreement and ending December 31, 2000. This Agreement shall
automatically renew on January 1, 2001 and every January 1 thereafter unless
notice (in accordance with Section 7.1 of this Agreement) is provided by either
party prior to October 1, 2000 or any October 1 thereafter. During Executive's
employment with the Company, Executive will devote his best efforts and
substantially all of his business time and attention to the business of the
Company.
1.2 Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then current titles,
consistent with the Bylaws of the Company and as required by the Company's Board
of Directors (the "Board").
1.3 The employment relationship between the parties shall
also be governed by the general employment policies and practices of the
Company, including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
1.4 The Company and Executive each acknowledge that either
party has the right to terminate Executive's employment with the Company at any
time for any reason whatsoever, with or without cause or advance notice. This
at-will employment relationship cannot be changed except in a writing signed by
both Executive and a majority of the Board.
2. Compensation
2.1 SALARY. Executive shall receive, for services to be
rendered under this Agreement, an annualized base salary ("Base Salary") equal
to $380,000. Such Base Salary shall be retroactive to June 1, 1997, and shall be
payable in installments consistent with the
1.
<PAGE> 2
Company's payroll policies. Executive's Base Salary shall be reviewed at least
annually by the Board, and in the Board's sole discretion, may be increased at
any time.
In the event Executive's employment terminates for any reason
other than death, disability, a voluntary termination not for Good Reason, or a
termination for Cause, Executive shall continue to receive his Base Salary and
an amount equal to his Target Bonus (as defined below) for the remainder of the
term of this Agreement, paid in installments consistent with the Company's then
current payroll policies. In the event that Executive's employment terminates
during a fiscal year of the Company, the amount of the Target Bonus to which
Executive shall be entitled under the terms of this paragraph for such partial
fiscal year shall be reduced by any amount already paid by the Company pursuant
to Section 2.3 with respect to such fiscal year. In addition, the Company shall
reimburse Executive for all costs associated with the continuation of benefits
pursuant to COBRA for the shorter of: (x) the term of this Agreement or (y) the
maximum legal period for which COBRA would be available to Executive at the time
of his termination.
For purposes of this Agreement, "Good Reason" means that any of
the following are undertaken without Executive's express written consent: (a)
the assignment to Executive of any duties or responsibilities which result in
any diminution or adverse change of Executive's position, status or
circumstances of employment; (b) a reduction by the Company in Executive's Base
Salary; (c) the taking of any action by the Company which would adversely affect
Executive's participation in, or reduce Executive's benefits under, the
Company's benefit plans (including equity benefits) as of the time this
Agreement is executed, except to the extent the benefits of all other executive
officers of the Company are similarly reduced; (d) a relocation of Executive's
principal office to a location more than forty (40) miles from the location at
which Executive was performing his duties at the time this Agreement is
executed, except for required travel by Executive on the Company's business; (e)
any breach by the Company of any provision of this Agreement; or (f) any failure
by the Company to obtain the assumption of this Agreement by any successor or
assign of the Company. For purposes of this Agreement, "Cause" means: (a) an
intentional action or intentional failure to act by Executive which was
performed in bad faith and to the material detriment of the Company; (b)
Executive intentionally refuses or intentionally fails to act in accordance with
any lawful and proper direction or order of the Board; (c) Executive willfully
and habitually neglects the duties of employment; (d) Executive violates Section
5 or Section 6 of this Agreement or (e) Executive is convicted of a felony crime
involving moral turpitude; provided, however, that in the event that any of the
foregoing events under clauses (a), (b), (c) or (d) above is capable of being
cured, the Company shall provide written notice to Executive describing the
nature of such event and Executive shall thereafter have ten (10) business days
to cure such event.
2.2 STOCK OPTIONS. Executive shall be granted a stock option
under the Company's 1989 Stock Plan in accordance with the following terms and
evidenced by the Company's standard form of Stock Option Agreement:
(a) The stock option shall be exercisable for
100,000 shares of the Company's common stock;
2.
<PAGE> 3
(b) The stock option shall have a term of ten (10)
years, measured from the grant date and shall have an exercise price equal to
the fair market value of the Company's common stock on the date of grant;
(c) The option shall vest and become fully
exercisable on December 31, 2000; provided, however, that the vesting shall
accelerate upon the twentieth (20th) consecutive trading day in which the
Company's common stock closes at or above $20.00 per share, as reported on the
Nasdaq National Market System (or other stock exchange or automated quotation
system on which the trading volume of the Company's common stock is the
greatest); and
(d) Notwithstanding any provision in a compensatory
stock plan of the Company under which Executive has received or may in the
future receive a stock option, in the event of a Change in Control, the option
(and all other stock options which have been granted to Executive or may be
granted to Executive in the future) shall immediately vest and become
exercisable in its entirety. A "Change in Control" shall occur upon any of the
following events: (i) a dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the Company's assets, (iii) a merger,
consolidation, or reorganization of the Company with or into another corporation
or other legal person, other than a merger, consolidation or reorganization in
which more than fifty percent (50%) of the combined voting power of the
then-outstanding securities of the surviving entity (or if more than one entity
survives the transaction, the controlling entity) immediately after such a
transaction are held in the aggregate by holders of voting securities of the
Company immediately prior to such transaction, (iv) the acquisition by any
person (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") of beneficial
ownership (within the meaning of Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing fifty percent
(50%) or more of the combined voting power of the then-outstanding securities of
the Company, or (v) during any period of two (2) consecutive years, individuals
who at the beginning of any such period constitute the directors of the Company
(the "Incumbent Directors") cease for any reason to constitute at least a
majority thereof unless the election or the nomination for election by the
Company's shareholders of a director of the Company first elected during such
period was approved by the vote of at least two-thirds of the Incumbent
Directors, whereupon such director shall also be classified as an Incumbent
Director.
2.3 ANNUAL BONUS. Beginning with the Company's fiscal year
ending December 31, 1997, Executive will be eligible for an annual bonus of up
to fifty percent (50%) of Executive's then current annualized Base Salary upon
achievement of goals specified by the Board (the "Target Bonus"), and up to an
additional fifty percent (50%), for an aggregate of one hundred percent (100%)
of Executive's then current annualized Base Salary, upon overachievement of
goals specified by the Board. Such goals shall be set forth in writing by the
Board prior to the close of the first quarter of each fiscal year of the
Company.
2.4 Debt Forgiveness.
(a) The Company and Executive agree that as of the
date of this Agreement, the Executive currently is obligated to pay the Company
principal and accrued but unpaid interest under two promissory notes as follows:
(i) a $200,000 note issued by Executive
3.
<PAGE> 4
to the Company in April 1993, the proceeds of which were used to purchase shares
of the Company's Series D preferred stock (the "1993 Note") and (ii) a $750,000
note issued by the Executive to the Company in September 1996 (the "1996 Note").
The 1993 Note is full-recourse and secured by the purchased shares of Series D
preferred, bears interest at the rate of 7.00% per annum and is payable in full
in February 1999. The 1996 Note is full-recourse and secured by certain
additional shares of Company stock owned by Executive, bears interest at the
rate of 6.02% per annum and is payable in full in September 1998.
(b) Company and Executive hereby agree that
effective September 2, 1997, Executive will issue two new notes in exchange for
the cancellation of the existing 1993 Note and 1996 Note. Such new notes (the
"1993X Note" and the "1996X Note," and, collectively, the "New Notes") will
contain substantially the same terms and conditions of the 1993 Note and the
1996 Note, respectively, except that: (i) the term of the New Notes will be
January 2, 2001, (ii) the interest rate of the New Notes shall equal 6.23% per
annum, interest compounding annually and (iii) the principal and all accrued
interest under the New Notes shall become immediately due and payable upon
Executive's termination of service for any reason or upon Executive's breach of
the restrictive covenant not to compete with the Company set forth in Section 5.
(c) Provided that Executive continues to render
services to the Company through each of the respective dates listed in the
"Effective Date" column below, a proportionate amount of the principal of the
1993X Note and 1996X Note, respectively, together with interest accrued upon
such respective principal amounts, shall be forgiven as follows:
<TABLE>
<CAPTION>
EFFECTIVE DATE DEBT FORGIVENESS TAX GROSS-UP TOTAL
-------------- ---------------- ------------ -----
<S> <C> <C> <C>
10/12/1997 $ 75,000 $ 30,000 $ 105,000
02/02/1998 155,000 62,000 217,000
02/01/1999 160,000 64,000 224,000
02/01/2000 160,000 64,000 224,000
01/02/2001 400,000 -0- 400,000
------- -------- -------
$ 950,000 $220,000 $ 1,170,000
</TABLE>
Any amounts under the 1993X Note or 1996X Note not otherwise forgiven or
previously paid by Executive shall be paid by Executive to the Company on
January 2, 2001.
(d) The "Tax Gross-Up" payments provided for in the
table above shall be paid by the Company in a lump-sum payment within three (3)
days following each respective "Effective Date."
2.5 MEDICAL AND DENTAL COVERAGE. The Company shall continue
to provide Executive with coverage that is commensurate with coverage currently
provided to Executive and which is provided to similarly situated executives of
the Company.
4.
<PAGE> 5
2.6 LIFE INSURANCE. The Company shall procure a voluntary
supplemental life insurance policy or policies in the name of Executive (subject
to Executive's insurability) which will provide aggregate death benefits of no
less than $3,000,000.
2.7 STANDARD COMPANY BENEFITS. Executive shall be entitled
to all other rights and benefits for which he is eligible under the terms and
conditions of such benefits which may be in effect from time to time and
provided by the Company to its employees generally and to its management and
executive employees in particular.
2.8 EXPENSES. Executive shall be entitled to receive prompt
reimbursement of all reasonable expenses incurred by Executive in performing
Company services. Executive agrees to furnish the Company reasonably adequate
records and other documentary evidence of such expenses for which Executive
seeks reimbursement. Such expenses shall be accounted for under the policies and
procedures established by the Company.
2.9 VACATION AND SICK LEAVE. Executive shall be entitled to
vacation and to sick leave in accordance with policies as periodically
established by the Company for similarly situated executives. In addition,
Executive shall be entitled, without loss of pay, to be absent voluntarily from
the performance of employment duties for such periods of time and for such valid
and legitimate reasons as the Board in its discretion may determine.
3. CONFIDENTIAL INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Except as otherwise specifically modified by
this Agreement, Executive agrees to execute and abide by the relevant terms
concerning confidential information and inventions set forth in Executive's
Employment, Confidential Information and Invention Assignment Agreement
("Confidentiality Agreement"), a copy is attached hereto as Exhibit A.
3.2 REMEDIES. Executive's duties under the Confidentiality
Agreement shall survive termination of his employment with the Company.
Executive acknowledges that a remedy at law for any breach or threatened breach
by him of the provisions of the Confidentiality Agreement would be inadequate,
and he therefore agrees that the Company shall be entitled to injunctive relief
in case of any such breach or threatened breach.
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior consent of the Board, Executive
will not during the term of this Agreement undertake or engage in any other
employment, occupation or business enterprise, other than ones in which
Executive is a passive investor. Executive may engage in civic and
not-for-profit activities so long as such activities do not materially interfere
with the performance of his duties hereunder.
4.2 Except as permitted by Section 4.3, Executive agrees not
to acquire, assume, or participate in (directly or indirectly) any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business, or its prospects, financial or otherwise.
5.
<PAGE> 6
4.3 During the term of his employment by the Company, except
on behalf of the Company, Executive will not have any direct or indirect
business connection or interest, in any capacity whatsoever, with any other
person or entity known by him to compete directly with the Company, throughout
the world, in any line of business engaged in (or planned to be engaged in) by
the Company. Nothing in this paragraph shall bar Executive from owning
securities of any competitor corporation as a passive investor, so long as his
aggregate direct holdings in any one such corporation shall not constitute more
than 1% of the voting stock of that corporation.
5. RESTRICTIVE COVENANT. While employed by the Company, and for two
(2) years immediately following the termination of Executive's employment,
Executive shall not, without the prior written approval of the Company, directly
or indirectly engage or prepare to engage in any activities in competition with
the Company, or accept employment or establish a business relationship with a
business engaged in or preparing to engage in competition with the Company, in
any geographical location in which the Company as of the termination date either
conducts or plans to conduct business. Executive agrees that this restriction is
reasonably necessary to protect the Company's legitimate business interests in
its trade secrets, and valuable confidential business information. In the event
Executive violates the provisions of this Section 5, then (i) Executive's stock
option (as set forth in Section 2.2) shall, to the extent not previously
exercised, immediately terminate and cease to remain outstanding and (ii) the
payment schedule under the New Notes shall immediately accelerate and the New
Notes shall become immediately due and payable in full.
6. NONINTERFERENCE. While employed by the Company, and for one (1)
year immediately following the termination of Executive's employment, Executive
agrees not to interfere with the Company's business by:
(a) soliciting, attempting to solicit, inducing, or
otherwise causing any employee of the Company to terminate his or her employment
in order to become an employee, consultant, or independent contractor to or for
any competitor of the Company; or
(b) directly or indirectly soliciting the business or
services of any customer, client, vendor, or distributor of the Company which
was a customer, client, vendor, or distributor of the Company at the time of
termination or at any time in the year immediately preceding that date.
Executive agrees that this restriction is reasonably necessary to
protect the Company's legitimate business interest in its substantial
relationships with specific customers, and its valuable confidential business
information.
7. GENERAL PROVISIONS.
7.1 NOTICES. Any notices provided hereunder must be in
writing and shall be deemed effective upon the earlier of (i) personal delivery
(including personal delivery by fax) or (ii) the third day after mailing by
first-class mail to the Company at its primary office location and to Executive
at his address as then listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any
6.
<PAGE> 7
provision of this Agreement is held to be invalid, illegal, or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality, or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal, or unenforceable
provisions had never been contained herein.
7.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, that party shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits
constitute the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by both the Executive and at
least one member the Compensation Committee of the Board.
7.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
7.6 HEADINGS. The headings of the sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and the
Company, and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any duties hereunder and
may not assign any rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
7.8 CHOICE OF LAW. All questions concerning the
construction, validity and interpretation of this Agreement will be governed by
the law of the State of California, without regard to such state's
conflict-of-laws rules.
7.9 NON-PUBLICATION. The parties mutually agree not to
disclose publicly the terms of this Agreement except to the extent that
disclosure is mandated by applicable law or such disclosure is to the parties'
respective attorneys, accountants and other advisors.
7.10 CONSTRUCTION OF AGREEMENT. In the event of a conflict
between the text of the Agreement and any summary, description or other
information regarding the Agreement, including but not limited to any term sheet
prepared with respect to Executive's compensation and benefits, the text of the
Agreement shall control.
7.11 ATTORNEYS' FEES. If either party hereto brings any
action to enforce his or its rights hereunder, each party in any such action
shall be responsible for his or its costs and attorneys fees incurred in
connection with such action.
7.
<PAGE> 8
7.12 TAX WITHHOLDING. All payments made pursuant to this
Agreement shall be subject to all applicable federal, state and local income and
employment tax withholding.
7.13 ARBITRATION. To ensure rapid and economical resolution
of any and all disputes which may arise under this Agreement, the Company and
Executive each agree that any and all disputes or controversies, whether of law
or fact of any nature whatsoever (including, but not limited to, all state and
federal statutory and common law discrimination claims), with the sole exception
of those disputes which may arise from Executive's Confidentiality Agreement,
arising from or regarding the interpretation, performance, enforcement or breach
of this Agreement, or any other disputes or claims arising from or related to
Executive's employment or the termination of his employment, shall be resolved
by final and binding confidential arbitration under the procedures set forth in
Exhibit B to this Agreement and the then existing Judicial Arbitration and
Mediation Services Rules of Practice and Procedure (except insofar as they are
inconsistent with the procedures set forth in Exhibit B).
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
ARRIS PHARMACEUTICAL CORPORATION
By: /s/ FRED RUEGSEGGER
-------------------------------------
Accepted and agreed this 8th day of September , 1997.
--- ---------
/s/ JOHN WALKER
- ---------------------------------------
John Walker, Executive
8.
<PAGE> 9
EXHIBIT A
EMPLOYMENT, CONFIDENTIAL INFORMATION
AND INVENTION ASSIGNMENT AGREEMENT
A-1.
<PAGE> 10
EXHIBIT B
ARBITRATION PROCEDURE
1. The parties agree that any dispute that arises in connection
with this Agreement or the termination of this Agreement shall be resolved by
binding arbitration in the manner described below.
2. A party intending to seek resolution of any dispute under the
Agreement by arbitration shall provide a written demand for arbitration to the
other party, which demand shall contain a brief statement of the issues to be
resolved.
3. The arbitration shall be conducted in San Francisco, California
by a mutually acceptable retired judge from the panel of Judicial Arbitration
and Mediation Services, Inc. ("JAMS"). At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy and, in such
case, all documents, testimony and records shall be received, heard and
maintained by the arbitrator in secrecy under seal, available for inspection
only by the parties to the arbitration, their respective attorneys, and their
respective expert consultants or witnesses who shall agree, in advance and in
writing, to receive all such information confidentially and to maintain such
information in secrecy, and make no use of such information except for the
purposes of the arbitration, unless compelled by legal process.
4. The arbitrator is required to disclose any circumstances that
might preclude the arbitrator from rendering an objective and impartial
determination. In the event the parties cannot mutually agree upon the selection
of a JAMS arbitrator, the President and Vice-President of JAMS shall designate
the arbitrator.
The party demanding arbitration shall promptly request that JAMS conduct
a scheduling conference within fifteen (15) days of the date of that party's
written demand for arbitration or on the first available date thereafter on the
arbitrator's calendar. The arbitration hearing shall be held within thirty (30)
days after the scheduling conference or on the first available date thereafter
on the arbitrator's calendar. Nothing in this paragraph shall prevent a party
from at any time seeking temporary equitable relief, from JAMS or any court of
competent jurisdiction, to prevent irreparable harm pending the resolution of
the arbitration.
5. Discovery shall be conducted as follows: (a) prior to the
arbitration any party may make a written demand for lists of the witnesses to be
called and the documents to be introduced at the hearing; (b) the lists must be
served within fifteen (15) days of the date of receipt of the demand, or one day
prior to the arbitration, whichever is earlier; and (c) each party may take no
more than two (2) depositions (pursuant to the procedures set forth in the
California Code of Civil Procedure) with a maximum of five (5) hours of
examination time per deposition, and no other form of pre-arbitration discovery
shall be permitted.
6. It is the intent of the parties that the Federal Arbitration Act
("FAA") shall apply to the enforcement of this provision unless it is held
inapplicable by a court with jurisdiction over the dispute, in which event the
California Arbitration Act ("CAA") shall apply.
B-1.
<PAGE> 11
7. The arbitrator shall apply California law, including the
California Evidence Code, and shall be able to decree any and all relief of an
equitable nature, including but not limited to such relief as a temporary
restraining order, a preliminary injunction, a permanent injunction, or replevin
of Company property. The arbitrator shall also be able to award actual, general
or consequential damages, but shall not award any other form of damage (e.g.,
punitive damages).
8. Each party shall pay its pro rata share of the arbitrator's fees
and expenses, in addition to other expenses of the arbitration approved by the
arbitrator, pending the resolution of the arbitration. The arbitrator shall have
authority to award the payment of such fees and expenses to the prevailing
party, as appropriate in the discretion of the arbitrator. Each party shall pay
its own attorneys fees, witness fees and other expenses incurred for its own
benefit.
The arbitrator shall render a written award setting forth the reasons for his or
her decision. The decree or judgment of an award rendered by the arbitrator may
be entered and enforced in any court having jurisdiction over the parties. The
award of the arbitrator shall be final and binding upon the parties without
appeal or review except as permitted by the FAA, or if the FAA is not
applicable, as permitted by the CAA.
B-2.
<PAGE> 1
Exhibit 10.73
AMENDED AND RESTATED SEVERANCE AGREEMENT
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement") is made
and entered into effective as of January 7, 1998, by and between KEVIN KINSELLA
(the "Employee"), Arris Pharmaceutical Corporation, a Delaware corporation (the
"Parent") and SEQUANA THERAPEUTICS, INC., a California corporation (the
"Company").
RECITALS
A. The Company and the Employee are parties to that certain
Severance Agreement dated as of October 31, 1997 (the "Severance Agreement").
B. Employee is a key executive, director and significant
shareholder of the Company. Parent, Beagle Acquisition Sub, Inc., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub") and the
Company have entered into an Agreement and Plan of Merger and Reorganization
dated as of November 2, 1997 (the "Reorganization Agreement") providing for the
acquisition by Parent of the Company pursuant to a merger of Merger Sub with and
into the Company (the "Merger"). Employee has agreed not to compete with the
Company and Parent in the manner and to the extent herein set forth and the
Company has agreed to enter into a consulting agreement with Employee (the
"Consulting Agreement"). Employee is entering into this Amendment as an
inducement to Parent and Merger Sub to consummate the Merger, with all of the
attendant financial benefits to Employee as a shareholder of the Company, and in
consideration of the Consulting Agreement.
C. The parties hereto desire to amend the Severance Agreement as
restated herein.
AGREEMENT
In consideration of the mutual covenants herein, the parties agree as
follows:
1. EMPLOYMENT RELATIONSHIP. The Company and the Employee
acknowledge that the Employee's employment is and shall continue to be at-will,
as defined under applicable law. If the Employee's employment terminates for any
reason, the Employee shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.
2. SEVERANCE BENEFITS FOLLOWING A CHANGE OF CONTROL.
(a) VOLUNTARY OR INVOLUNTARY TERMINATION. If the Employee's
employment terminates either voluntarily or involuntarily after a Change in
Control, then the Employee shall be entitled to receive severance pay in an
amount equal to $528,818, to be received no later than 60 days after the date of
consummation of the Change in Control event.
(b) BENEFITS. If Employee is entitled to severance pay as
provided in Section 2(a) above, then the Company shall maintain Employee's
medical, dental and vision benefits,
1.
<PAGE> 2
either on the same or substantially equivalent terms and conditions as if
Employee had continued to render services as an employee of the Company, for a
period ending on the date eighteen months following the date of severance,
provided that such obligation shall sooner terminate on the date Employee shall
be entitled to receive substantially similar benefits from another employer, but
the Company shall not maintain life or accidental dismemberment insurance for
Employee, except that Employee's long term disability coverage with Provident
Life and Accident, policy no. 835622 shall be maintained by the Company for the
period ending 24 months after the date of severance, or until the aggregate cost
of maintaining such coverage reaches $10,000, whichever is earlier.
(c) For purposes of this Agreement, "Cause" shall mean the
discharge resulting from a determination by the Board of Directors of the
Company that the Employee
(i) has been convicted of a misdemeanor or felony
involving dishonesty, fraud, theft or embezzlement or any other felony, or other
crime or offense involving money or property of the Company (in any case in an
amount or at a value in excess of $1,000);
(ii) has failed or refused in any material respect,
to follow reasonable written policies or directives established by the Board of
Directors, or
(iii) has willfully and persistently failed or refused
to attend to material duties or obligations of employment if such failure or
refusal has continued for at least ten (10) days after the Employee's receipt of
notice from the Company specifying the failure or refusal.
3. DEFINITION OF CHANGE OF CONTROL. "Change of Control" shall mean
the occurrence of any of the following events:
(a) The acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Company, of the
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing more than
fifty percent (50%) of the total voting power represented by the Company's then
outstanding voting securities; or
(b) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the approval by the stockholders of the Company of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
2.
<PAGE> 3
4. LIMITATION ON PAYMENTS.
(a) In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 4 would be subject to the excise tax imposed by Section 4999 of the
Code, then the severance compensation under Section 2 shall occur either (i) in
full, or (ii) as to such lesser amount which would result in no portion of such
severance compensation being subject to excise tax under Section 4999 of the
Code, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Employee on an after-tax basis, of the
greatest benefits under this Agreement, notwithstanding that all or some portion
of such severance benefits may be taxable under Section 4999 of the Code.
(b) Unless the Company and the Employee otherwise agree in
writing, any determination required under this Section 4 shall be made in
writing by the Company's independent public accountants (the "Accountants"),
whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations required by
this Section 4, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 4.
5. CERTAIN BUSINESS COMBINATIONS. In the event it is determined by
the Board, upon receipt of a written opinion of the Company's independent public
accountants, that the enforcement of any Section or subsection of this
Agreement, upon a Change of Control, would preclude accounting for any proposed
business combination of the Company involving a Change of Control as a pooling
of interests, and the Board otherwise desires to approve such a proposed
business transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then any such
Section of this Agreement shall be null and void, but only if the absence of
enforcement of such Section would preserve the pooling treatment. For purposes
of this Section 5, the Board's determination shall only require the approval of
a majority of the disinterested Board members.
6. NONCOMPETITION.
(a) Until the date two years after the date of severance,
Employee shall not, without first obtaining the prior written approval of the
Company, directly or indirectly, whether as an officer, director, stockholder,
partner, proprietor, associate, representative, consultant, or in any other
capacity, engage in, become financially interested in or be employed by any
other person, corporation, firm, partnership or other entity which is known by
Employee to be engaged in any research and/or development activities on programs
which compete with those of the Company, the Company's subsidiaries, or Parent
in existence at the time of such severance, those programs listed on Appendix A
attached hereto (a "Competitor"), provided, however, that
3.
<PAGE> 4
(i) anything above to the contrary notwithstanding, Employee may own, as a
passive investor, securities of any Competitor, so long as his direct holdings
in any one such corporation shall not in the aggregate constitute more than 1%
of the voting stock of such corporation; (ii) Employee's involvement with Avalon
Partners shall not be deemed to violate this provision based on any current
investments owned by Avalon Partners; and (iii) Employee may become a member or
partner in a bona fide venture capital investment entity owning, as a
non-controlling investment, debt or equity in a Competitor, so long as Employee
does not, in his capacity as such member or partner, actively participate in the
management of such investment or Competitor or contribute any services to such
Competitor.
(b) Employee acknowledges that the promises and restrictive
covenants he is providing in this Amendment are reasonable and necessary to
Parent's protection of its legitimate interests in its acquisition of the
Company pursuant to the Reorganization Agreement, including but not limited to
the Company's goodwill. Employee further acknowledges that by virtue of his
position with the Company he has developed considerable expertise in the
business operations of the Company and that his services are deemed special,
unique, and extraordinary, and that he has had access to, and will under the
Consulting Agreement continue to have access to, confidential business
information. Employee recognizes that this information will have commercial
value in the business in which Parent is engaged and therefore that Parent and
Merger Sub would be irreparably damaged, and their substantial investment in the
Company materially impaired, if Employee were to enter into an activity
competing or interfering with the Company's or Parent's business in violation of
the terms of this Agreement or if Employee were to disclose or make unauthorized
use of any confidential information concerning the business of the Company.
Accordingly, Employee expressly acknowledges that he is voluntarily entering
into this Agreement and that the terms and conditions of this Agreement are fair
and reasonable to Employee in all respects and that the other parties hereto, in
addition to any other remedies which they may have, shall be entitled, as a
matter of right, to injunctive relief, including specific performance, in any
court of competent jurisdiction with respect to any actual or threatened breach
by Employee of any of the provisions of this Amendment.
7. NONINTERFERENCE. Until the date two years after the date of
severance, Employee agrees not to (i) directly or indirectly solicit, induce,
recruit or encourage any of the Company's or Parent's employees or exclusive
consultants to leave their employment, or take away such employees or exclusive
consultants, or attempt to solicit, induce recruit, encourage or take away
employees or exclusive consultants of the Company, either for the benefit or
Employee or an entity affiliated in any way with Employee, or for any other
person or entity; or (ii) induce or attempt to induce any key supplier or
corporate partner of Parent, the Company or any subsidiary of Parent or the
Company to terminate or materially and adversely modify its relationship with,
Parent, the Company, or any subsidiary of Parent or the Company. Nothing herein
shall preclude Employee from engaging in recruitment efforts directed to the
public or relevant labor market generally.
8. FORGIVENESS OF LOAN. Upon the Closing of a Change of Control,
the Company shall forgive all principal and outstanding interest owed by the
Employee pursuant to a loan provided to the Employee by the Company as evidenced
by the promissory note in the face amount of $187,500 dated March 1, 1995.
4.
<PAGE> 5
9. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any , successor to the Company's
business and assets which executes and delivers the assumption agreement
described in this Section 8.a. or which becomes bound by the terms of this
Agreement by operation of law.
(b) EMPLOYEE'S SUCCESSORS. The terms of this Agreement and
all rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, devisees and legatees.
10. NOTICE. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
11. MISCELLANEOUS PROVISIONS.
(a) WAIVER. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by an authorized officer of
the Company (other than the Employee). No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.
(b) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(c) CHOICE OF LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California.
(d) SEVERABILITY. If any provision of this Agreement shall
be held by a court of competent jurisdiction to be excessively broad as to
duration, activity or subject, it shall be deemed to extend only over the
maximum duration, activity or subject as to which such provision shall be valid
and enforceable under applicable law. If any provisions shall, for any reason,
be held by a court of competent jurisdiction to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not affect
any other provision of this Amendment,
5.
<PAGE> 6
but this Amendment shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
(e) ARBITRATION. Any dispute or controversy arising out of,
relating to or in connection with this Agreement shall be settled exclusively by
binding arbitration in San Francisco, California, in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Company and the
Employee shall each pay one-half of the costs and expenses of such arbitration,
and each shall separately pay its counsel fees and expenses, Punitive damages
shall not be awarded.
(f) NO ASSIGNMENT OF BENEFITS. The fights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this Section 8.f. shall be
void.
(g) ASSIGNMENT BY COMPANY. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs the Employee.
(h) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
6.
<PAGE> 7
IN WITNESS WHEREOF, each of the parties has executed this Amended and
Restated Severance Agreement, in the case of the Company and Parent, by a duly
authorized officer, as of the day and year first above written.
COMPANY: SEQUANA THERAPEUTICS, INC.
By: /s/ John P. Walker
-------------------------------------
Title: Chairman
EMPLOYEE: /s/ Kevin Kinsella
-----------------------------------------
KEVIN KINSELLA
PARENT: ARRIS PHARMACEUTICAL CORPORATION
By: /s/ Fred Ruegsegger
-----------------------------------------
Title: Senior Vice President and
Chief Financial Officer
----------------------------------
7.
<PAGE> 8
APPENDIX A
LIST OF RESTRICTED PROGRAMS
1) Gene identification programs for the following genes:
a) type II diabetes
b) asthma
c) osteoporosis
d) obesity
e) schizophrenia
f) manic depression
g) bi-polar disorder
h) inflammatory bowel disease
2) Functional studies in:
a) IL-1 pathway
b) insulin signaling pathway
c) Alzheimer's disease
3) Protease inhibition programs for:
a) serine proteases, including chymase, tryptease, thrombin, Factor Xa and
Factor VIIa
b) cysteine proteases, including cathepsins B, K, L and S
c) herpes virus proteases, including cytomegalovirus, herpes simplex virus
and the herpes viruses known collectively as HHV
4) Receptor programs in human growth hormone and erythropoietin
8.
<PAGE> 1
Exhibit 10.74
SEQUANA THERAPEUTICS, INC.
AMENDED AND RESTATED
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AMENDED AND RESTATED RESTRICTED STOCK PURCHASE AGREEMENT (the
"Agreement") is made this 7th day of January, 1998 between SEQUANA THERAPEUTICS,
INC., a California corporation (the "Company"), and KEVIN J. KINSELLA (the
"Purchaser" ) .
WHEREAS the Company and the Purchaser are parties to that certain
Restricted Stock Purchase Agreement dated as of March 3, 1995 (the "Original
Agreement"), pursuant to which the parties agreed to certain rights and
restrictions with respect to shares of the company's common stock;
WHEREAS, pursuant to the Original Agreement the Company sold to the
Purchaser and the Purchaser purchased an aggregate of 2,500,000 shares of the
company's common stock (the "Shares"), at the price of $0.075 per share for an
aggregate purchase price of $187,500.00;
WHEREAS, the purchase price for the Shares was paid by delivery to the
Company at the time of execution of the Original Agreement of a check or a duly
executed full recourse promissory note (the "Note");
WHEREAS, the parties desire to amend and restate the Original Agreement
as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. THE NOTE
With respect to the Note, the parties agree to the following:
(a) The Note shall become payable in full ninety (90) days
following the termination or cessation of the Purchaser's employment with or
services to the Company for any reason.
(b) The Purchaser shall deliver to an escrow holder designated by
the Company (the "Escrow Holder") all certificates representing the Shares and
an executed blank stock assignment for use in transferring all or a portion of
said Shares to the Company if, as and when required under this Section 2(b) or
under any other provision of this Agreement including Section 3.
(c) As security for the payment of the Note and any renewal,
extension or modification thereof, the Purchaser hereby grants to the Company a
security interest in and pledges with and delivers to the Company the
certificate or certificates representing the Shares.
(d) In the event of any foreclosure of the security interest, the
Company may sell the Shares at a private sale or may itself repurchase any or
all of the Shares. The parties
1.
<PAGE> 2
acknowledge that, prior to the establishment of a public market for the Shares
of the Company, the securities laws applicable to the sale of the Shares make a
public sale of the Shares commercially unreasonable. The parties agree that the
repurchasing of said Shares by the Company, or by any person to whom the Company
may have assigned its rights hereunder, is commercially reasonable if made at a
price determined by the Board of Directors in its discretion, fairly exercised,
representing what would be the fair market value of the Shares diminished by any
limitation on transferability, whether due to the size of the block of Shares or
the restrictions of applicable securities laws.
(e) In the event of default in payment when due of any
indebtedness under the Note, the Company may elect then, or at any time
thereafter, to exercise all rights available to a secured party under the
California Commercial Code, including the right to sell the Shares at a private
or public sale or repurchase the Shares as provided above. The proceeds of any
sale shall be applied in the following order:
(i) To pay all reasonable expenses of the Company in
enforcing this Agreement, including without limitation reasonable attorneys'
fees and legal expenses incurred by the Company.
(ii) In satisfaction of the remaining indebtedness under
the Note.
(iii) To the Purchaser, any remaining proceeds.
(f) Upon full payment by the Purchaser of all amounts due on
Purchaser's Note, the Escrow Holder shall deliver to the Purchaser the
certificate or certificates representing the Shares in the Escrow Holder's
possession belonging to the Purchaser, the blank stock assignment, and the
executed original of the Note marked "cancelled" by the Company, and the Escrow
Holder shall be discharged of all further obligations hereunder; provided,
however, that the Escrow Holder shall nevertheless retain said certificate or
certificates and stock assignment as escrow agent if so required pursuant to
other restrictions imposed pursuant to this Agreement.
2. REPURCHASE OPTION.
(a) In the event of any voluntary or involuntary termination of
the Purchaser's employment by or services to the Company for any or no reason
(but not including termination as a result of death or disability, and not in
the event that Purchaser is (i) performing consulting services for the Company,
or remains available to perform such services pursuant to the terms of a written
consulting agreement, or (ii) is a director of the Company or any successor
entity, including an entity into which the Company merges or which acquires
(directly or through its Purchasers) more than 50% of the outstanding voting
capital stock of the Company) before all of the Shares are released from the
Company's repurchase option (see Section 4), the Company shall, upon the date of
such termination (as reasonably fixed and determined by the Company) have an
irrevocable, exclusive option for a period of ninety (90) days from such date to
repurchase all (but not less than all) of the Unreleased Shares (as defined in
Section 3) at such time at the original purchase price per share (the
"Repurchase Price")."
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or
2.
<PAGE> 3
shareholders of the Company or other persons or organizations to exercise all or
a part of the Company's purchase rights under this Agreement and purchase all or
a part of such Shares; provided that if the fair market value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the Repurchase Price of the Shares to be repurchased, then each
such designee or assignee shall pay the Company cash equal to the difference
between the Repurchase FMV and the Repurchase Price of the Shares which such
designee or assignee shall have the right to repurchase.
3. RELEASE OF SHARES FROM REPURCHASE OPTION.
(a) One forty-eighth (1/48) of the Shares shall be released from
the Company's repurchase option on the first day of each calendar month
commencing February 1, 1995, provided in each case that the Purchaser's
employment or services have not been terminated prior to the date of any such
release.
(b) In the event the Purchaser dies or becomes disabled, all of
the Shares subject to this Agreement shall be released from the Company's
repurchase option.
(c) Any of the Shares which have not yet been released from the
Company's repurchase option are referred to herein as "Unreleased Shares."
(d) The Shares which (i) have been released from the Company's
repurchase option, (ii) have been paid for in full, and (iii) no longer secure
Shares not yet paid for in full shall be delivered to the Purchaser at the
Purchaser's request (see Section 5).
4. RESTRICTION ON TRANSFER. Except for the pledge and escrow described
in Sections 1 and 5 or transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares or any beneficial interest
therein shall be transferred, encumbered or otherwise disposed of in any way
until the release of such Shares from the Company's repurchase option in
accordance with the provisions of this Agreement, other than by will or the laws
of descent and distribution.
5. ESCROW OF SHARES.
(a) The Shares issued under this Agreement shall be held by the
Escrow Holder, along with a stock assignment executed by the Purchaser in blank,
until the expiration of the Company's option to repurchase such Shares as set
forth above.
(b) The Escrow Holder is hereby directed to permit transfer of
the Shares only in accordance with this Agreement or instructions signed by both
parties. In the event further instructions are desired by the Escrow Holder, the
Escrow Holder shall be entitled to rely upon directions executed by a majority
of the authorized number of the Company's Board of Directors. The Escrow Holder
shall have no liability for any act or omission hereunder while acting in good
faith in the exercise of the Escrow Holder's own judgment.
(c) If the Company or any assignee exercises its repurchase
option hereunder, the Escrow Holder, upon receipt of written notice of such
option exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
3.
<PAGE> 4
(d) When the repurchase option has been exercised or expires
unexercised or a portion of the Shares has been released from such repurchase
option and provided the Note has been paid in full, upon Purchaser's request the
Escrow Holder shall promptly cause a new certificate to be issued for such
released Shares and shall deliver such certificate to the Purchaser.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the Company's repurchase option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Company's repurchase option.
6. INVESTMENT REPRESENTATIONS: RESTRICTIONS ON TRANSFER.
(a) In connection with the purchase of the Shares, the Purchaser
represents to the Company the following:
(i) The Purchaser is aware of the Company's business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Shares. The Purchaser is purchasing these Shares for investment for the
Purchaser's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
(ii) The Purchaser acknowledges and understands that the
Shares constitute "restricted securities" under the Securities Act and must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. The Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Shares. The Purchaser understands that the certificate evidencing the Shares
will be imprinted with a legend which prohibits the transfer of the Shares
unless they are registered or such registration is not required in the opinion
of counsel satisfactory to the Company.
(iii) The Purchaser is familiar with the provisions of
Rule 701 and Rule 144, each promulgated under the Securities Act, which, in
substance, permit limited public resale of "restricted securities" acquired,
directly or indirectly, from the issuer thereof, in a non-public offering
subject to the satisfaction of certain conditions. Rule 701 provides that if the
issuer qualifies under Rule 701 at the time of issuance of the securities to the
Purchaser, such issuance will be exempt from registration under the Securities
Act. In the event the Company later becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter the securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including among other things: (1) the sale being made through a broker in an
unsolicited "broker's transaction" or
4.
<PAGE> 5
in transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, and the amount of
securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), if applicable. Notwithstanding this
paragraph 7(a) (iii), the Purchaser acknowledges and agrees to the restrictions
set forth in paragraph 7(b).
In the event that the Company does not qualify under Rule 701 at the
time of issuance of the securities to the Purchaser, then the securities may be
resold in certain limited circumstances subject to the provisions of Rule 144,
which requires among other things: (1) the availability of certain public
information about the Company: (2) the resale occurring not less than two years
after the party has purchased, and made full payment for, within the meaning of
Rule 144, the securities to be sold; and (3) in the case of an affiliate, or of
a non-affiliate who has held the securities less than three years, the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934) and the amount of securities being sold during
any three month period not exceeding the specified limitations stated therein,
if applicable.
(b) The Purchaser agrees, in connection with the Company's
initial underwritten public offering of the Company's securities, (1) not to
sell, make short sale of, loan, grant any options for the purchase of, or
otherwise dispose of any shares of Common Stock of the Company held by the
Purchaser (other than those shares included in the registration) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for one hundred eighty
(180) days from the effective date of such registration, and (2) further agrees
to execute any agreement reflecting (1) above as may be requested by the
underwriters at the time of the public offering.
7. LEGENDS. The share certificate evidencing the Shares issued hereunder
shall be endorsed with the following legends (in addition to any legends
required under applicable state securities laws ):
(a) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE CALIFORNIA COMMISSIONER OF CORPORATIONS
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE RAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(c) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT
5.
<PAGE> 6
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. TAX CONSEQUENCES. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of this investment or the transactions contemplated
by this Agreement. The Purchaser understands that Section 83 of the Internal
Revenue Code of 1986 (the "Code"), taxes as ordinary income both (i) the
difference between the fair market value of the Shares when the Company granted
the Purchaser the right to purchase the Shares and the fair market value of the
Shares on the date of this Agreement and (ii) the difference between the amount
paid for the Shares and the fair market value of the Shares as of the date any
restrictions on the Shares lapse. In this context, "restriction" includes the
right of the Company to buy back the Shares pursuant to its repurchase option.
In the event the Company has registered under the Exchange Act, "restriction"
with respect to officers, directors and 10% shareholders also means the period
after the purchase of the Shares during which such officers, directors and 10%
shareholders could be subject to suit under Section 16(b) of the Exchange Act.
The Purchaser understands that the Purchaser may elect to be taxed at the time
the Shares are purchased rather than when and as the Company's repurchase option
or 16(b) period expires by filing an election under Section 83(b) of the Code
with the I.R.S. within 30 days from the date of purchase.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83 (b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO
MAKE THIS FILING ON THE PURCHASER' S BEHALF.
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the laws of the State of
California as they apply to contracts entered into and wholly to be performed in
such state. This Agreement represents the entire agreement between the parties
with respect to the purchase of Common Stock by the Purchaser and may only be
modified or amended in writing signed by both parties.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
6.
<PAGE> 7
(c) Any notice to the Escrow Holder shall be sent to the
Company's address with a copy to the other party not sending the notice.
(d) The rights and benefits of the Company under this Agreement
shall be transferable to any one or more persons or entities, and all covenants
and agreements hereunder shall inure to the benefit of, and be enforceable by
the Company's successors and assigns. The rights and obligations of the
Purchaser under this Agreement may only be assigned with the prior written
consent of the Company.
(e) Either party's failure to enforce any provision or provisions
of this Agreement shall not in any way be construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing each
and every other provision of this Agreement. The rights granted both parties
herein are cumulative and shall not constitute a waiver of either party's right
to assert all other legal remedies available to it under the circumstances.
(f) The Purchaser agrees Upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(g) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE
OR CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD,
OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANYTIME, WITH
OR WITHOUT CAUSE.
(h) Purchaser acknowledges receipt of a copy of the Plan, a copy
of which is annexed hereto, represents that Purchaser is familiar with the terms
and provisions thereof, and hereby accepts this Agreement subject to all of the
terms and provisions thereof. Purchase has reviewed the Plan and this Agreement
in their entirety, has had an opportunity to obtain the advice of counsel prior
to executing this Agreement and fully understands all provisions of the
Agreement. Purchase hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board or of the Committee upon any questions
arising under the Plan. Purchaser further agrees to notify the Company upon any
change in the residence address indicated below.
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties have duly executed this Amended and
Restated Restricted Stock Purchase Agreement as of the day and year first set
forth above.
SEQUANA THERAPEUTICS, INC. PURCHASER:
a California corporation
By: /s/ John P. Walker /s/ Kevin J. Kinsella
------------------------------- ---------------------------------
Kevin J. Kinsella
Title: Chairman 1735 Castellana Road
----------------------------
11099 No. Torrey Pines Road La Jolla, CA 92037
La Jolla, CA 92037
8.
<PAGE> 1
Exhibit 10.75
CONSULTING AGREEMENT
January 8, 1998
Sequana Therapeutics, Inc., a California corporation (the "Company") and
Kevin J. Kinsella ("Consultant") hereby agree as follows:
1. Scope and Term of Services. The Consultant shall perform for the
Company the services (the "Services") specified in Exhibit A attached hereto and
incorporated herein for the term specified therein.
2. Payment for Services. The Company agrees to pay Consultant for the
Services in accordance with the fee schedule contained in Exhibit A hereto. The
fees set forth in Exhibit A do not include any sales, use, excise, value added
or similar taxes. The Consultant hereby indemnifies the Company against any
obligation imposed on the Company to pay any such taxes on the payments.
3. Confidentiality.
(a) Consultant shall keep confidential, and shall not (i)
disclose any Confidential Information directly or indirectly to any person or
entity other than an employee, affiliate of or consultant to the Company, who is
acting in that capacity and who is required to keep the Confidential Information
confidential, or (ii) use any Confidential Information other than for the
benefit of the Company. These obligations do not apply to Confidential
Information which (i) has been published or is generally available to the public
(except where publication or availability results from acts or omissions by the
party receiving the Confidential Information), (ii) at the time of disclosure
was already known to Consultant, without an obligation of confidentiality, (iii)
after disclosure, is received by Consultant from an independent source entitled
to disclose such Confidential Information, (iv) later comes into the public
domain, (v) is obtained through sources who are reasonably expected not to be
bound by an obligation of confidentiality to the other party with respect to
such Confidential Information or (vi) is required to be disclosed to a court or
government agency.
(b) The Consultant further agrees promptly upon written request
to return to the Company all written and other material, including copies
thereof, submitted to the Consultant, and its employees or agents, by the
Company.
(c) "Confidential Information" means all information concerning
the business and affairs of the Company and its affiliates, including data,
know-how, formulae, compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past, current, and planned
research and development, current and planned manufacturing or distribution
methods and processes, corporate partner lists, current and anticipated
corporate partner requirements, milestone payment and other payment information,
market studies, business plans, computer software and programs, database
technology, systems, structures, and architectures (and related formulae,
compositions, processes, improvements, devices, know-how,
<PAGE> 2
inventions, discoveries, concepts, ideas, designs, methods and information),
budgets and plans, non-public information about personnel, however documented,
and notes, analyses, compilations, studies, summaries, and other material
prepared by or for the Company containing or based, in whole or in part, on any
information included in the foregoing.
4. Conflicts of Interest. Each party represents that performance of this
Agreement does not and will not conflict with any obligation binding on such
party.
5. Independent Contractor Relationship. The parties are independent
contractors and neither party is the agent of the other for any purpose. Neither
party has authority to assume any obligation or to make any representation on
behalf of the other.
6. Termination. This Agreement shall terminate on February 1, 1999, and
otherwise may not be terminated by either party without the express written
agreement of the other party.
7. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
California.
(b) Any notice under this Agreement shall be in writing and shall
he deemed delivered 5 days after being mailed to the other party at the address
set forth at the end of this Agreement or at such other address given pursuant
to this provision. Notices shall also be considered delivered upon transmission
by facsimile or by electronic mail if a confirming letter is mailed the same
day.
(c) This Agreement and the attached Exhibit constitute the entire
agreement between the parties regarding the subject matter of this Agreement.
This Agreement may be modified only by a subsequent written instrument signed by
Consultant and the Company.
<PAGE> 3
This Consulting Agreement may be signed in any number of counterparts,
each of which shall be considered an original and all of which together shall be
considered a single instrument.
COMPANY: CONSULTANT:
SEQUANA THERAPEUTICS, INC.
/s/ Kevin J. Kinsella
---------------------------------
By: /s/ John P. Walker KEVIN J. KINSELLA
-------------------------------
1735 Castellana Road
Title: Chairman La Jolla, CA 92037
<PAGE> 4
EXHIBIT A
1. Scope of Services.
Consultant shall provide the Company with consulting services with
respect to the Consultant's expertise in serving as the chief executive officer
the Company in connection with Consultant's termination of service as an
employee with the Company. Consultant shall provide to the Company a reasonable
amount of consulting services via telephone, and consulting services in person
in an amount to be agreed between the parties.
2. Term of Services.
Consultant shall perform the Services for the Company until February 1,
1999.
3. Payment.
a. As consideration for performing services under this Agreement, the
Company will pay to Consultant the amount of $10,000 each month for six months,
with the first payment to be made on April 1, 1998 and the last payment to be
made on September 1, 1998, and the amount of $3000 on February 1, 1999.
<PAGE> 1
Exhibit 10.79
FIRST AMENDMENT TO LEASE SCHEDULES
MASTER PROPERTY LEASE AGREEMENT NO. 943 DATED MARCH 29, 1994
SCHEDULES NOS. 1 AND 4 THROUGH 59
DATED FROM MARCH 29, 1994 THROUGH JANUARY 1, 1995
The Initial Term of the Lease for the Units covered by the Schedules Nos. 1
and 4 through 59 to the Master Property Lease Agreement No. 943, is hereby
extended beyond the original expiration date of August 31, 1997, such that the
lease term will continue through NOVEMBER 30, 1999.
The rent per month during the extended term, beginning December 1, 1997 and
continuing through November 30, 1999, shall be $25,031.31, plus applicable
taxes.
The rental payments during the extended lease term shall be made monthly in
advance on the first day of each month, beginning on December 1, 1997.
Section 6 of the Lease Schedules shall be replaced with the following new
Section 6:
Provided that the Lease has not been terminated and that no Event of
Default or event which, with notice or lapse of time or both, would become an
Event of Default shall have occurred and be continuing, and provided that all
rents and other payments due under the Lease shall have been paid, title to the
Units covered by the schedules for Equipment under the Lease shall pass to
Lessee at the end of the extended lease term.
Except as specifically amended hereby, Schedules Nos. 1 and 4 through 59
shall be and remain in full force and effect.
This Amendment has been entered into, and is made a part of the above
referenced Schedules, as of October 29, 1997.
ARRIS PHARMACEUTICAL HAMBRECHT & QUIST
CORPORATION GUARANTY FINANCE, LLC
By: /s/ Frederick Ruegsegger By: /s/ Donald M. Campbell
--------------------------- --------------------------
Name: Frederick Ruegsegger Name: Donald M. Campbell
------------------------- ------------------------
Title: VP & CFO Title: Chief Executive Officer
------------------------ -----------------------
First Amendment to Schedules Nos. 1 and 4-59 to Master Property Lease
Agreement No. 943
<PAGE> 1
Exhibit 10.80
FIRST AMENDMENT TO LEASE SCHEDULE
MASTER PROPERTY LEASE AGREEMENT NO. 963 DATED MARCH 29, 1996
SCHEDULE NO. 2 DATED MARCH 29, 1996
The Initial Term of the Lease for the Units covered by the Schedule No. 2
to the Master Property Lease Agreement No. 963, dated March 29, 1996, is hereby
amended such that the original expiration date of the Lease Schedule, of October
31, 2001, shall now be NOVEMBER 30, 1999.
The rent per month during the amended term, beginning December 1, 1997 and
continuing through November 30, 1999, shall be $63,566.40, plus applicable
taxes.
The rental payments during the amended lease term shall be made monthly in
advance on the first day of each month, beginning on December 1, 1997.
Section 6 of the Lease Schedule shall be replaced with the following new
Section 6:
Provided that the Lease has not been terminated and that no Event of
Default or event which, with notice or lapse of time or both, would become an
Event of Default shall have occurred and be continuing, and provided that all
rents and other payments due under the Lease shall have been paid, title to the
Units covered by the schedule for Trade Fixtures/Tenant Improvements under the
Lease shall pass to Lessee at the end of the amended lease term.
Except as specifically amended hereby, Schedule No. 2 shall be and remain
in full force and effect.
This Amendment has been entered into, and is made a part of the above
referenced Schedule, as of October 29, 1997.
ARRIS PHARMACEUTICAL HAMBRECHT & QUIST
CORPORATION GUARANTY FINANCE, LLC
By: /s/ Frederick Ruegsegger By: /s/ Donald M. Campbell
--------------------------- --------------------------
Name: Frederick Ruegsegger Name: Donald M. Campbell
------------------------- ------------------------
Title: VP & CFO Title: Chief Executive Officer
------------------------ -----------------------
First Amendment to Schedule No. 2 to Master Property Lease Agreement No. 963
<PAGE> 1
Exhibit 10.81
SECOND AMENDMENT TO LEASE SCHEDULE
MASTER PROPERTY LEASE AGREEMENT NO. 943 DATED MARCH 29, 1994
SCHEDULE NO. 2 DATED MARCH 29, 1994
The Initial Term of the Lease for the Units covered by the Schedule No. 2
to the Master Property Lease Agreement No. 943, as first amended on March 29,
1996, is hereby further amended such that the expiration date of the Lease
Schedule shall now be NOVEMBER 30, 1999.
The rent per month during the amended term, beginning December 1, 1997 and
continuing through November 30, 1999, shall be $25,111.94, plus applicable
taxes.
The rental payments during the amended lease term shall be made monthly in
advance on the first day of each month, beginning on December 1, 1997.
Section 6 of the Lease Schedule shall be replaced with the following new
Section 6:
Provided that the Lease has not been terminated and that no Event of
Default or event which, with notice or lapse of time or both, would become an
Event of Default shall have occurred and be continuing, and provided that all
rents and other payments due under the Lease shall have been paid, title to the
Units covered by the schedule for Trade Fixtures/Tenant Improvements under the
Lease shall pass to Lessee at the end of the amended lease term.
Except as specifically amended hereby, Schedule No. 2 shall be and remain
in full force and effect.
This Amendment has been entered into, and is made a part of the above
referenced Schedule, as of October 29, 1997.
ARRIS PHARMACEUTICAL HAMBRECHT & QUIST
CORPORATION GUARANTY FINANCE, LLC
By: /s/ Frederick Ruegsegger By: /s/ Donald M. Campbell
--------------------------- --------------------------
Name: Frederick Ruegsegger Name: Donald M. Campbell
------------------------- ------------------------
Title: VP & CFO Title: Chief Executive Officer
------------------------ -----------------------
Second Amendment to Schedule No. 2 to Master Property Lease Agreement No. 943
<PAGE> 1
Exhibit 10.82
FIRST AMENDMENT TO LEASE SCHEDULE
MASTER PROPERTY LEASE AGREEMENT NO. 943 DATED MARCH 29, 1994
SCHEDULE NO. 3 DATED MARCH 29, 1994
The Initial Term of the Lease for the Units covered by the Schedule No. 3
to the Master Property Lease Agreement No. 943, is hereby extended beyond the
original expiration date of August 31, 1997 of the Lease Schedule such that the
lease term will continue through NOVEMBER 30, 1999.
The rent per month during the extended term, beginning December 1, 1997 and
continuing through November 30, 1999, shall be $3,472.30, plus applicable
taxes.
The rental payments during the extended lease term shall be made monthly in
advance on the first day of each month, beginning on December 1, 1997.
Section 6 of the Lease Schedule shall be replaced with the following new
Section 6:
Provided that the Lease has not been terminated and that no Event of
Default or event which, with notice or lapse of time or both, would become an
Event of Default shall have occurred and be continuing, and provided that all
rents and other payments due under the Lease shall have been paid, title to the
Units covered by the schedule for Special Equipment under the Lease shall pass
to Lessee at the end of the extended lease term.
Except as specifically amended hereby, Schedule No. 3 shall be and remain
in full force and effect.
This Amendment has been entered into, and is made a part of the above
referenced Schedule, as of October 29, 1997.
ARRIS PHARMACEUTICAL HAMBRECHT & QUIST
CORPORATION GUARANTY FINANCE, LLC
By: /s/ Frederick Ruegsegger By: /s/ Donald M. Campbell
--------------------------- --------------------------
Name: Frederick Ruegsegger Name: Donald M. Campbell
------------------------- ------------------------
Title: VP & CFO Title: Chief Executive Officer
------------------------ -----------------------
First Amendment to Schedule No. 3 to Master Property Lease Agreement No. 943
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER
SUBSIDIARY JURISDICTION OF INCORPORATION
---------- -----------------------------
<S> <C>
Arris Protease, Inc. ....................................... Delaware
Sequana Therapeutics, Inc. ................................. California
(dba AxyS Pharmaceuticals, Inc.)
Arris Pharmaceuticals Canada, Inc. ......................... Quebec
NemaPharm, Inc. ............................................ Massachusetts
(dba AxyS Pharmaceuticals, Inc.)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-74720, 33-80852, 333-09095 and 333-44667) pertaining to the
1989 Stock Plan, 1993 Employee Stock Purchase Plan, 1994 Employee Stock Bonus
Plan, 1994 Non-Employee Directors' Stock Option Plan and 1997 Equity Incentive
Plan of AXYS Pharmaceuticals, Inc., of our report dated February 6, 1998 with
respect to the consolidated financial statements of AXYS Pharmaceuticals, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1997,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY AND
CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,938
<SECURITIES> 30,470
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 57,511
<PP&E> 27,792
<DEPRECIATION> (13,338)
<TOTAL-ASSETS> 73,584
<CURRENT-LIABILITIES> 14,363
<BONDS> 0
0
0
<COMMON> 15,203
<OTHER-SE> 43,890
<TOTAL-LIABILITY-AND-EQUITY> 73,584
<SALES> 0
<TOTAL-REVENUES> 24,814
<CGS> 0
<TOTAL-COSTS> 31,050
<OTHER-EXPENSES> 7,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,014
<INCOME-PRETAX> (10,967)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,967)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
