<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PHYTERA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8731 04-3159045
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
377 PLANTATION STREET
WORCESTER, MASSACHUSETTS 01605
(508) 792-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MALCOLM MORVILLE, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PHYTERA, INC.
377 PLANTATION STREET
WORCESTER, MASSACHUSETTS 01605
(508) 792-6800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
LYNNETTE C. FALLON, ESQ. ALAN L. JAKIMO, ESQ.
PALMER & DODGE LLP BROWN & WOOD LLP
ONE BEACON STREET ONE WORLD TRADE CENTER
BOSTON, MASSACHUSETTS 02108 58TH FLOOR
(617) 573-0100 NEW YORK, NEW YORK 10048
(212) 839-5300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $0.01 par value per share... $34,500,000 $9,591.00
</TABLE>
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(1) Includes shares which the Underwriters may purchase to cover
overallotments, if any. Estimated solely for the purpose of calculating
the registration fee pursuant to Rule 457(o) under the Securities Act of
1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one to be
used in connection with an offering in the United States and Canada (the "US
Prospectus") and (ii) the other to be used in connection with a concurrent
offering outside of the United States and Canada (the "European Prospectus").
The European Prospectus will be produced in English and Danish. The US
Prospectus and the European Prospectus are identical in all respects except for
the front cover page and back cover page of the European Prospectus, both of
which are included herein after the final page of the US Prospectus as pages X-
1 and X-2 and are labeled "Alternate Pages for European Prospectus." Final
forms of each of the Prospectuses will be filed with the Securities and
Exchange Commission under Rule 424 (b).
Additionally, an Application Form included as page X-3 will be delivered with
the Danish version of the European Prospectus to investors in the European
offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS +
+NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO +
+BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT +
+PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1998
US PROSPECTUS
SHARES
PHYTERA, INC.
[PHYTERA LOGO]
COMMON STOCK
This is an initial public offering of the shares of Common Stock of Phytera,
Inc. There is currently no public market for these shares. Phytera expects that
the public offering price will be between [$ AND $ ] PER SHARE.
In the United States and Canada, we are offering , , shares of Common
Stock. In Europe, we are offering , , shares of Common Stock. The offering
in the United States and Canada will be limited to qualified institutional
investors.
We have applied for listing of the Common Stock on the European Association
of Securities Dealers Automated Quotation system, called EASDAQ, and on the
Copenhagen Stock Exchange, called the CSE. We expect that these listings will
become effective and that trading in the shares of Common Stock will begin
promptly after the initial public offering price is determined through
negotiations between the Company and the Underwriters. Our trading symbol on
EASDAQ and our short name on the CSE will be PHYT.
In our business we use proprietary combinatorial drug discovery technology to
search for new medicines derived from nature. This business involves
significant risks. These risks are described under the caption "Risk Factors"
beginning on page 7.
NONE OF EASDAQ, THE CSE, THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts and commissions.............................. $ $
Proceeds, before expenses, to Phytera............................... $ $
</TABLE>
The US Underwriters may also purchase up to an additional shares of
Common Stock and the European Managers may also purchase up to an additional
shares of Common Stock, at the public offering price, less the Underwriting
discounts and commissions, within 30 days from the date of this Prospectus to
cover over-allotments.
------------
We expect that delivery of the Common Stock will be made in New York, New
York on or about January [ ,] 1999.
SG COWEN
CARNEGIE INC.
BANCBOSTON ROBERTSON STEPHENS
[ , 1999]
<PAGE>
[Graphic: The graphic illustrates the various elements of Phytera's
Combinatorial Drug Discovery Program. Along the length of the page will be a
series of photographs, artist's renderings and other graphics, each
illustrating one of the elements of Phytera's Combinatorial Drug Discovery
Program.
Caption:
The above diagram illustrates the various elements of our Combinatorial Drug
Discovery Program. We have identified several lead structures and are
developing one candidate drug. To date, however, we have not conducted any
clinical trials, obtained any requisite regulatory approvals, or commercialized
any drug product. Drug discovery and development involves a broad range of
technological, managerial and commercial risks. Our Combinatorial Drug
Discovery Program and related product development activities could fail because
of any one or more of these risks.
ExPAND(R) and (u)MARINE(R) are registered trademarks of the Company.
ENRICH(TM) and PINACLE(TM) are trademarks of the Company for which there are
applications for registration pending in the US Patent and Trademark Office.
MANIFOLD(TM) is a trademark of the Company for which there is an application
for registration pending in the European Trademark Office. All other trademarks
and registered trademarks used in this Prospectus are the property of their
respective owners.
----------------
In connection with this offering, the Underwriters may over-allot or effect
transactions on EASDAQ which stabilize or maintain the market price of the
Common Stock at a level which might not otherwise prevail on EASDAQ. Such
stabilizing, if commenced, may be discontinued at any time. See "Underwriting."
<PAGE>
THE COMPANY
The Company was incorporated in Delaware in May 1992 and operates three
wholly-owned subsidiaries, Phytera Ltd. in the United Kingdom and Phytera A/S
and Phytera Symbion ApS in Denmark. The Company's headquarters and executive
offices are located at 377 Plantation Street, Worcester, Massachusetts 01605,
US and its telephone number is (508) 792-6800.
On September 17, 1998, the Board of Directors of Phytera authorized this
offering.
APPROVAL BY THE BELGIAN BANKING AND FINANCE COMMISSION
This Prospectus has been approved by the Belgian Banking and Finance
Commission ("Commission Bancaire et Financiere/Commissie voor het Bank-en
Financiewezen") ("CBF") on [ ], 1999 in accordance with Article 29ter,
(S)1, par. 1 of Royal Decree n(degrees) 185 of July 9, 1935 and Article 11 of
the Royal Decree of October 31, 1991 on the prospectus to be published for
public issues of securities. The approval of this Prospectus by the CBF does
not imply any judgment as to the appropriateness or the quality of this
offering, the Common Stock nor of the situation of the Company. The notice
prescribed by Article 29, (S) 1 of the Royal Decree n(degrees) 185 of July 9,
1935 will appear in the financial press on or prior to the date of admission to
trading on EASDAQ.
RESPONSIBILITY FOR THE PROSPECTUS AND
DECLARATION OF CONFORMITY
The Company, here represented by the Board of Directors, confirms that, to
the best of its knowledge, the information given in this Prospectus is in
accordance with the facts in all material respects and contains no omissions
likely to affect the import of the Prospectus in any material respect.
In the case of any doubt about the contents or the meaning of the information
of this document, an authorized or professional person who specializes in
advising on the acquisition of financial instruments should be consulted.
PREPARATION OF THE PROSPECTUS
This Prospectus has been prepared in accordance with the rules and
regulations of the US Securities and Exchange Commission and EASDAQ. This
Prospectus has been produced in English and Danish for use in connection with
this offering. In the event of any inconsistency between the Danish version,
which has been prepared in accordance with Danish law, and the English version,
the English version shall prevail.
Copies of the English Prospectus will be made available, at no cost, upon
prior written request addressed to SG Cowen International L.P., One Angel
Court, London ECZR 7HJ, United Kingdom or upon telephoning +44 (171) 696-0034.
In addition, copies of both the English and Danish Prospectuses will be made
available, at no cost, upon prior written request addressed to Carnegie Bank
A/S, Overgaden neden Vandet 9b, DK-1414, Copenhagen K, Denmark, or upon
telephoning +45 32 88 02 00.
CURRENCIES
In this Prospectus, references to "USD', "$', or "dollars' are to United
States dollars, "DKK' or "kroner' are to Danish kroner, "(Pounds)' or "pounds'
are to British pounds and "BEF" are to Belgian francs.
3
<PAGE>
PROSPECTUS SUMMARY
The following is just a summary. Potential investors should carefully read
the more detailed information contained in this Prospectus, including the
Consolidated Financial Statements and the related notes. The shares of Common
Stock offered hereby involve a high degree of risk. Investors should carefully
consider the information set forth under the heading "Risk Factors." We urge
potential investors to read this Prospectus in its entirety.
THE COMPANY
Phytera, Inc. is an international biopharmaceutical company engaged in
identifying and optimizing novel chemical lead structures through its
Combinatorial Drug Discovery Program. We conduct operations in the United
States, Denmark and the United Kingdom. Our Combinatorial Drug Discovery
Program enhances the pharmaceutical industry's ability to use nature as a
source of chemical diversity by applying proprietary combinatorial biology,
pharmaceutical screening and combinatorial chemistry techniques. We use
combinatorial biology to create novel chemical diversity libraries from two
relatively untapped natural resources, plant cells and marine microbes, that we
grow and manipulate in cell culture. Our combinatorial manipulations
substantially increase the variety and novelty of chemical compounds produced
in cell culture beyond that found in the native specimen. We have entered into
partnerships with Eli Lilly and Company, Chiron Corporation, Tsumura & Co.,
NeuroSearch A/S, Galileo Laboratories, Inc. and Nycomed Amersham plc. Together
with these partners, we test our chemical diversity libraries for therapeutic
utility in pharmaceutical screens for diseases such as fungal infections,
cancer, inflammation, allergy, asthma, depression, memory and attention deficit
disorders, diabetes, stroke and myocardial infarction. Our internal drug
discovery efforts are focused on drug-resistant bacterial, fungal and viral
infections. In particular, we have developed bacterial and fungal screens in
which Multiple Drug Resistance pumps have been inactivated. We believe that
these "MDR knockout-based" screens offer significant advantages in discovering
novel antibacterial and antifungal drugs. We use proprietary combinatorial
chemistry techniques to optimize lead structures identified through screening
into candidate drugs for further development.
Nature is a source of a substantial portion of new medicines, but a number of
factors has limited the systematic exploration of nature as a source of
chemical diversity. These factors include access to sufficient quantity of
novel source material, difficulty in reaccessing source material, limited and
fixed chemical diversity, chemistry which is not easily reproducible or
scalable, difficulties associated with screening complex extract mixtures and
limited ability to optimize natural product lead structures. Our Combinatorial
Drug Discovery Program encompasses a number of technologies that provide an
integrated solution to these limitations.
Our combinatorial biology program produces chemical diversity libraries from
plant cell cultures using our ExPAND(R) technology and from marine microbe
cultures using our (u)MARINE(R) technology. We have established an extensive
network of species sourcing collaborations in order to access plants and marine
microorganisms. Our combinatorial biology technologies facilitate access and
reaccess to novel plant and marine microbial source material. We increase the
chemical diversity of our cell cultures by applying proprietary manipulations,
such as genetic, hormonal, infection-related, environmental or chemical
treatments. The combinatorial manipulations substantially increase the variety
and novelty of chemical compounds produced in cell culture beyond that found in
the native specimen. The resulting chemical expression states are highly
reproducible, ensuring that increased quantities of interesting chemical
compounds can be produced to facilitate drug discovery and development. To
date, we have produced over 60,000 high quality cell culture extracts through
our ENRICH(TM) extraction technology and a pilot library of individual natural
chemical compounds by applying our PINACLE(TM) chemical isolation methodology.
We are applying our proprietary MANIFOLDTM combinatorial chemistry
technologies to optimize lead structures and select candidate drugs for
preclinical and clinical development. MANIFOLD is particularly suited for
optimizing natural product lead structures, many of which are not amenable to
conventional combinatorial chemistry techniques. We have produced one candidate
drug and several lead structures. Marinovir, our candidate drug derived from a
marine microbe, is aimed at treating herpes infections and is currently
scheduled to enter clinical studies in 1999.
4
<PAGE>
Our objective is to be the leader in the application of combinatorial drug
discovery technology to the search for new medicines derived from nature. To
achieve this objective, we intend to capitalize on both revenue-generating
partnerships and joint research and development partnerships with retained
product rights, advance our drug-resistant infectious diseases program, and
enhance our technology platform through internal innovation, in-licensing and
acquisitions of additional technologies and products.
Except in the Consolidated Financial Statements of the Company or as
otherwise noted, all information in this Prospectus assumes: (i) the conversion
of all outstanding shares of the Company's Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred
Stock, Series D Convertible Preferred Stock and Series E Convertible Preferred
Stock (the "Existing Preferred Stock") into an aggregate of 7,274,833 shares of
Common Stock immediately prior to the closing of this offering (assuming the
Series E Convertible Preferred Stock converts to Common Stock at a rate of one-
to-one), (ii) the exercise of outstanding warrants to purchase an aggregate of
106,089 shares of Common Stock at $0.01 per share prior to the closing of this
offering, (iii) that the Underwriters' over-allotment option is not exercised;
and (iv) all financial data is stated in US dollars.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby.......... [ ,000 shares] (1)
Common Stock to be outstanding after
the offering........................ [ ] shares (2)
Use of proceeds...................... To fund research and product development
programs, to repay indebtedness and for
general corporate purposes. See "Use of
Proceeds."
Proposed EASDAQ and CSE symbol....... [PHYT]
</TABLE>
- -------
(1) Includes shares to be offered in the European offering and shares to
be offered in the US offering.
(2) Includes the exercise of outstanding warrants to purchase 106,089 shares of
Common Stock at $0.01 per share prior to the closing of this offering.
Excludes an aggregate of 1,464,973 shares of Common Stock issuable upon
exercise of stock options and warrants outstanding as of September 30, 1998
with a weighted average exercise price of $1.24 per share.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS MAY 27, 1992
ENDED (INCEPTION)
YEAR ENDED DECEMBER 31, SEPTEMBER 30, THROUGH
------------------------------------------- ---------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
------- ------- ------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Collaborative revenue.. $ 68 $ 34 $ 50 $ 247 $ 1,053 $ 730 $ 1,100 $ 2,552
Loss from operations... (1,764) (4,266) (5,339) (8,158) (9,972) (7,880) (6,447) (37,694)
Interest income
(expense), net........ (125) 115 (106) (30) 228 231 14 101
Net loss............... $(1,876) $(4,227) $(5,439) $(8,289) $(9,754) $(7,662) $(6,585) $(37,689)
======= ======= ======= ======= ======= ======= ======= ========
Pro forma basic and
diluted net loss per
share (1)............. $ (1.42) $ (0.96)
Shares used in
computing pro forma
basic and diluted net
loss per share (1).... 7,175 7,709
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA (2) AS ADJUSTED (3)
-------- ------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.......................... $ 6,988 $ 6,988 $
Working capital...................... 5,051 5,051
Total assets......................... 9,315 9,315
Current portion of long-term debt.... 289 289
Long-term debt less current portion.. 2,189 2,189
Redeemable convertible preferred
stock............................... 41,139 --
Deficit accumulated during
development stage................... (39,648) (39,648)
Total stockholders' equity
(deficit)........................... (36,245) 4,894
</TABLE>
- -------
(1) Computed as described in note 3(n) of notes to Consolidated Financial
Statements.
(2) Presented on a pro forma basis to give effect to the automatic conversion,
upon the closing of this offering, of all outstanding shares of Existing
Preferred Stock into an aggregate of 7,274,833 shares of Common Stock.
(3) As adjusted to reflect the sale of [ ] shares of Common Stock offered
by the Company at an assumed initial public offering price of [$ ] per
share and the application of the estimated net proceeds therefrom, after
deducting the Underwriting discounts and commissions and estimated offering
expenses payable by the Company. Includes the exercise of outstanding
warrants to purchase 106,089 shares of Common Stock at $0.01 per share
prior to the closing of this offering. See "Use of Proceeds",
"Capitalization" and "Description of Capital Stock."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock will be subject to a high degree
of financial risk. In deciding whether to invest, prospective investors should
consider carefully the following risk factors as well as the other information
in this document. The list of risks set out below may not be exhaustive.
It is especially important to keep these risk factors in mind when reading
forward-looking statements. These are statements that relate to future periods
and include statements about our lead structure and candidate drug discovery
efforts, product development and receipt of regulatory approvals. Generally,
the words "anticipates," "expects," "intends," "seeks," "plans" and similar
expressions identify such forward-looking statements. Forward-looking
statements involve risks and uncertainties, and our actual results could differ
significantly from the results discussed in the forward-looking statements.
HISTORY OF OPERATING LOSSES; DEVELOPMENT STAGE COMPANY; UNCERTAINTY OF FUTURE
PROFITABILITY
Phytera was incorporated in 1992 and has a limited operating history. We have
never made a profit in any fiscal period and, as of September 30, 1998, have an
accumulated deficit of approximately $39.6 million. We had a net loss in 1996
of $8.3 million, a net loss in 1997 of $9.8 million, and a net loss for the
nine months ended September 30, 1998 of $6.6 million. In addition, we expect to
incur operating losses over the next several years. To date, our only sources
of revenue have been up-front payments and research and development funding
from our corporate partners. For the foreseeable future, we expect that our
level of revenues and operating results will depend upon our ability to enter
into new partnerships while maintaining existing partnerships. We have not
received any revenues from the discovery, development or sale of a commercial
product and we may not realize any such revenues in the future. We are not able
to predict when, or if, we will become profitable, nor are we able to predict
whether such profitability will be sustained if it is achieved. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DRUG DISCOVERY AND DEVELOPMENT RISKS
Drug discovery and development involves a broad range of technological,
managerial and commercial risks. To date, we have identified several lead
structures and are developing one candidate drug, but we have not entered into
or completed clinical trials, or obtained regulatory approval for or marketed
any product.
The discovery of lead structures from natural product sources depends upon
many activities, including sourcing of natural species, gaining access to their
chemistry, effective pharmaceutical screening and isolation and identification
of active chemical compounds. These activities involve complex processes and we
may fail to identify lead structures.
After discovery, lead structures usually require optimization prior to the
identification of a candidate drug. Subsequent development of a candidate drug
depends on its successful evaluation in preclinical and clinical studies.
Results of preclinical studies are not necessarily indicative of results that
will be obtained in clinical trials. Furthermore, during such studies and
trials, we may discover significant technological obstacles that must be
overcome before continuing the drug development effort.
Our product development efforts may fail for many reasons, including:
. we fail to develop lead structures into candidate drugs;
. the candidate drug or potential product fails in preclinical studies;
. a potential product is not shown to be safe and effective in clinical
studies;
. required regulatory approvals are not obtained;
. a potential product cannot be produced in commercial quantities at an
acceptable cost; or
. a product does not gain market acceptance.
DEPENDENCE ON PARTNERSHIPS
Our strategy for identifying and developing lead structures and candidate
drugs includes entering into partnerships with third parties. To date, we have
entered into six such arrangements. Our current or future partnerships may not
ultimately be successful. Our success depends in part upon the acceptance of
our chemical diversity libraries, natural product chemistry expertise,
pharmaceutical screening, combinatorial chemistry and other technologies by
potential partners as effective tools in the discovery and development of lead
structures
7
<PAGE>
and candidate drugs. Each of our partnership agreements has an initial term of
three years or less. Any of these agreements could be terminated or expire
before any related lead structures are identified or any related candidate
drugs are developed. The termination or expiration of any or all of these
agreements could have a material adverse effect on our business. In addition,
we may not be able to establish additional partnerships, and we cannot
guarantee that any such additional partnerships will be established on
commercially acceptable terms.
The efforts of our partners affect our revenues. Much of the revenue that we
may receive under these partnerships depends upon our partners' successful
development and commercial introduction of new products derived from our
chemical diversity libraries or pharmaceutical screens. This revenue is thus
subject to drug discovery and development risks. Not all aspects of drug
discovery and development will be under our control. To the extent our partners
control aspects of drug discovery, development and commercialization, we will
depend upon their expertise and resources. Our current or future partners may
develop alternative technologies or products outside of their partnerships with
us, and such technologies or products may be used to develop treatments for the
diseases targeted by our partnerships. This could have a material adverse
effect on our business. See "--Drug Discovery and Development Risks."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The net proceeds from this offering, together with our existing capital
resources and revenue from operations, are not expected to be adequate to fund
operations beyond December 31, 2000. We will require substantial funds to: (i)
fulfill our research and development obligations to our partners, (ii) continue
our internal research and development programs, (iii) in-license or acquire
additional technologies and (iv) conduct preclinical studies and clinical
trials. We may be required to repeatedly raise additional capital to fund our
operations. Such capital may be raised through public or private equity
financings, partnerships, debt financings, bank borrowings, or other sources.
Our capital requirements will depend upon numerous factors, including the
following:
. the establishment of additional partnerships;
. the development of competing technologies or products;
. changing market conditions;
. the cost of protecting our intellectual property rights;
. the purchase of capital equipment;
. the progress of our drug discovery and development programs;
. the progress of our partnerships and receipt of any option/license,
milestone and royalty payments resulting from those partnerships; and
. in-licensing and acquisition opportunities.
Additional funding may not be available on favorable terms or at all. If
adequate funds are not otherwise available, we may be required to curtail
operations significantly. To obtain additional funding, we may need to enter
into arrangements that require us to relinquish rights to certain technologies,
candidate drugs, products and/or potential markets. To the extent that
additional capital is raised through the sale of equity, or securities
convertible into equity, you may experience dilution of your proportionate
ownership in Phytera. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly
evolving technology and intense competition. We compete against major
pharmaceutical companies and specialized biotechnology companies providing
chemical diversity libraries, pharmaceutical screening systems, combinatorial
chemistry technologies and other expertise. In addition, in pursuing our
internal drug discovery program, we compete against pharmaceutical and
biotechnology companies developing drugs against infectious diseases, and our
partners face similar competition in the respective markets for which they are
developing drugs. Many of these competitors have greater financial and human
resources and more experience in research and development than we have.
Competitors that identify lead structures, develop candidate drugs, complete
clinical trials, obtain regulatory approvals, and begin commercial sales of
their products before us will enjoy a significant competitive advantage. We
anticipate that we will face increased competition in the future as new
companies enter the market and alternative technologies become available. See
"Business--Competition."
8
<PAGE>
IN-LICENSING RISK
We have an issued patent on the antiviral use of marinovir. To commercialize
marinovir, we must exercise our option to obtain an exclusive license to other
patent rights from an academic institution. We are currently negotiating with
this academic institution to determine the terms of this license. The proposed
license would cover an issued US composition of matter patent on marinovir and
a use patent covering its anti-inflammatory properties and any counterparts
issued outside the US. While we believe that we will obtain such a license on
terms consistent with pharmaceutical industry standards, we cannot guarantee
that we will obtain the license on commercially acceptable terms or at all. See
"Business--Products Under Development" and "Business--Patents and Proprietary
Rights."
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
Our success will depend, in large part, on our ability to obtain and maintain
patent or other proprietary protection for our technologies, products, and
processes, and our ability to operate without infringing the proprietary rights
of other parties. We may not be able to obtain patent protection for the
composition of matter of discovered compounds, processes developed by our
employees, or uses of compounds discovered through our technology. Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under such patents are
still developing. There is no consistent policy regarding the breadth of claims
allowed in biotechnology patents. The patent position of a biotechnology firm
is highly uncertain and involves complex legal and factual questions.
We have been issued three patents and currently have eight patent
applications pending in the US and/or Denmark, with counterparts in several
other countries. We may not receive any issued patents based on currently
pending or any future applications. Any issued patents may not contain claims
sufficiently broad to protect against competitors with similar technology. In
addition, our patents, our partners' patents, and those patents for which we
have license rights may be challenged, narrowed, invalidated or circumvented.
Furthermore, rights granted under patents may not provide us with any
competitive advantage.
We may have to initiate litigation to enforce our patent and license rights.
If our competitors file patent applications that claim technology also claimed
by us, we may have to participate in interference or opposition proceedings to
determine the priority of invention. An adverse outcome could subject us to
significant liabilities to third parties and require us to cease using the
technology or to license the disputed rights from third parties. We may not be
able to obtain any required licenses on commercially acceptable terms or at
all.
The cost to us of any litigation or proceeding relating to patent rights,
even if resolved in our favor, could be substantial. Some of our competitors
may be able to sustain the costs of complex patent litigation more effectively
than we can because of their substantially greater resources. Uncertainties
resulting from the initiation and continuation of any pending patent or related
litigation could have a material adverse effect on our ability to compete in
the marketplace.
We also rely on certain proprietary trade secrets and know-how that are not
patentable. We have taken measures to protect our unpatented trade secrets and
know-how, including the use of confidentiality agreements with our employees,
consultants, and certain contractors. It is possible that the agreements may be
breached, that we would have inadequate remedies for any such breach, or that
our trade secrets will otherwise become known or be independently developed or
discovered by competitors. See "Business--Patents and Proprietary Rights."
RISK OF LIBRARY LOSS
Our chemical diversity libraries, cell cultures, cell culture extracts and
chemical compound libraries are critical assets. If the libraries are damaged
or destroyed by any event or series of events, such as a major fire,
earthquake, contamination or other casualty, it could have a material adverse
effect on our business, financial condition and results of operations. Due to
the nature of this risk, we have not been able to obtain adequate casualty
insurance against a loss of this type on commercially reasonable terms. We
believe appropriate loss control measures can provide protection against such a
casualty, but to date we have not been able to fully implement these measures.
We intend to implement these loss control measures as quickly as feasible, but
our chemical diversity libraries, cell cultures, cell culture extracts and
chemical compound libraries will always be subject to some degree of
vulnerability.
SOURCING AGREEMENTS
We rely on our agreements with botanical gardens, countries rich in
biodiversity, plant and marine research institutions, and commercial seed
companies to provide us with access to the natural species required
9
<PAGE>
for our programs. Sourcing arrangements can be difficult and time-consuming to
establish and, once established, can be affected by changing commercial,
political and environmental circumstances. We may not be able to maintain
existing sourcing arrangements or establish any new agreements that may be
required to implement our business plan.
The 1992 Convention on Biological Diversity (the "Convention") provides that
each nation has a sovereign right over its genetic resources. The Convention
has been ratified by a number of countries with significant biodiversity. Our
policy is to comply with the terms of the Convention in sourcing plant
materials or marine microorganisms, even where the source country is not a
Convention signatory. While we believe that the Convention successfully
addresses many of the issues that arise in the area of biodiversity sourcing,
many of the Convention's signatories have not yet adopted mechanisms to
implement its provisions. This has added to the complexity of negotiating
sourcing agreements. We may not be able to negotiate such agreements on
commercially reasonable terms or at all. If we fail to successfully negotiate
such sourcing agreements, it could have a material adverse effect on our
sourcing strategy and on our ability to achieve our business objectives. See
"Business--Biodiversity Sourcing Agreements."
DEPENDENCE ON KEY EMPLOYEES
We are highly dependent on the principal members of our scientific and
management staff. Our success will depend in part on our ability to identify,
attract and retain qualified managerial and scientific personnel. There is
intense competition for such personnel. We may not be able to continue to
attract and retain personnel with the advanced technical qualifications or
managerial expertise necessary for the development of our business. If we fail
to attract and retain key personnel, it could have a material adverse effect on
our business, financial condition and results of operations. See "Business--
Organization."
REGULATION
Virtually all pharmaceutical products that we or our partners develop will
require regulatory approval prior to their commercial sale. Regulation in the
US, the European Union (the "EU") and its member states and other countries
will be a significant factor in the development, production, labeling and
marketing of any pharmaceutical products that we may develop alone or with one
of our partners. The nature and the extent to which these regulations will
apply to us or our partners will vary by country and by product. Human
pharmaceutical products are subject to rigorous testing and other procedures
prior to approval by the Food and Drug Administration in the US (the "FDA"),
the European Medicines Evaluation Agency in the EU (the "EMEA"), and the
regulatory authorities of the EU member states and other countries. The
requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from jurisdiction to jurisdiction. The
process of obtaining these approvals and subsequent compliance with appropriate
statutes and regulations are time consuming and require the expenditure of
substantial resources. Approvals may not be granted on a timely basis or at
all. Even if we obtain regulatory clearances, a marketed product is subject to
continual review. Later discovery of previously unknown problems, or failure to
comply with applicable regulatory requirements, may result in restrictions on
the marketing of a product or withdrawal of a product from the market as well
as possible civil or criminal sanctions.
POTENTIAL LIABILITY REGARDING HAZARDOUS MATERIALS
Our research and development processes involve the controlled use of
hazardous materials. We are subject to national, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and certain waste products. We currently incur costs to
comply with environmental laws and regulations. We cannot eliminate completely
the risk of accidental contamination or injury from hazardous materials. If an
accident of this type occurs, we could be liable for damages that result and
such liability could exceed our resources. If we fail to control these risks it
could result in loss of permits that allow us to use hazardous materials, which
could result in a material adverse effect on our business, financial condition
and results of operations. See "Business--Regulation."
MANAGING INTERNATIONAL OPERATIONS
Our operations include facilities in the US, the UK and Denmark. In addition
to managing the international aspects of our operations, we also must
successfully structure and manage collaborative relationships with other
companies around the world. We may not be able to manage successfully our
10
<PAGE>
international operations. If we fail to do so it would have a material adverse
effect on our business, financial condition and results of operations. See
"Business--Organization."
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
Upon completion of this offering, assuming the conversion of the Series E
Convertible Preferred Stock to Common Stock at a rate of one-to-one and the
exercise of warrants to purchase 106,089 shares of Common Stock, our
significant stockholders, executive officers, Directors, and affiliated
entities together will beneficially own approximately [ ]% of the outstanding
shares of Common Stock ([ %] if the Underwriters' over-allotment option is
exercised in full). As a result, these stockholders, acting together, will be
able to influence significantly and possibly control most matters requiring
stockholder approval. This concentration of ownership may have the effect of
delaying or preventing a change in control of Phytera, including transactions
in which stockholders might otherwise receive a premium for their shares over
then current market prices. See "Principal Stockholders" and "Description of
Capital Stock."
DILUTIVE EFFECT OF SERIES E CONVERTIBLE PREFERRED STOCK CONVERSION RATE
PROVISION
For the purposes of this Prospectus, we have assumed that all outstanding
Existing Preferred Stock will convert to Common Stock at the rate of one-to-
one. The outstanding shares of Series E Convertible Preferred Stock have a
special conversion rate adjustment that is triggered by the timing and pricing
of our initial public offering. The Series E Convertible Preferred Stock will
convert to Common Stock immediately prior to the closing of this offering at
the rate of one-to-one if (i) the offering is closed on or before June 25,
1999, and (ii) the price per share in this offering is not less than the
"Minimum Price" which, as of September 30, 1998, was $10.66. The Minimum Price
increases, up to a maximum of $12.50, over the period ending June 25, 1999. If
the offering is closed after June 25, 1999, or if the price per share in this
offering is less than the Minimum Price, more than one share of Common Stock
will be issued upon conversion of each share of Series E Convertible Preferred
Stock. This would result in a greater number of shares outstanding at the time
of the closing of this offering. See "Description of Capital Stock," "--Shares
Eligible for Future Sale and Potential Adverse Effect on Market Price" and
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
Future sales of Common Stock in the public market could adversely affect the
stock's market price. Upon completion of this offering there will be [ ]
shares of Common Stock outstanding, assuming no currently outstanding options
or warrants are exercised (other than warrants to purchase 106,089 shares of
Common Stock with an exercise price of $0.01 per share that otherwise expire
upon the closing of this offering) and that the Series E Convertible Preferred
Stock converts at the rate of one-to-one. The shares of Common Stock
outstanding after this offering and the [ ] shares sold in this offering
(plus any additional shares sold upon exercise of the Underwriters' over-
allotment option) will be freely transferable, subject to limitations on
principal stockholders and certain reporting and other requirements, without
restriction in Denmark and other member states of the EU.
Certain of our stockholders, holding in the aggregate approximately [ ]
shares of Common Stock (plus approximately [ ] shares issuable upon exercise
of vested options), have agreed, subject to certain limited exceptions, not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this Prospectus. At the end of the 180 day period, those shares of
Common Stock will be eligible for immediate resale in Denmark and other member
states of the EU, subject to certain reporting and other requirements.
The holders of 7,380,922 shares of Common Stock have the right, in certain
circumstances, to require us to register their shares under the US Securities
Act of 1933, as amended (the "Securities Act"), for resale to the public
beginning at the end of the 180 day lock-up period. If such holders, by
exercising their demand registration rights, cause a large number of shares to
be registered and sold in the public market, such sales could have an adverse
effect on the market price for the stock. We may be required to include in any
subsequent registration initiated by us shares held by such holders pursuant to
the exercise of their piggyback registration rights. These sales may also have
an adverse effect on our ability to raise needed capital. See "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."
11
<PAGE>
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock.
An active public market for the Common Stock may not develop or be sustained
after the offering. We and the Underwriters will, through negotiations,
determine the initial public offering price. The initial public offering price
is not necessarily indicative of the market price at which the Common Stock
will trade after this offering. The market prices for securities of companies
comparable to us have been highly volatile and the market has experienced
significant price and volume fluctuations that are unrelated to the operating
performance of the individual companies. Many factors may have a significant
adverse effect on the market price of the Common Stock, including:
. announcements of technological innovations or new commercial products by
us or our competitors;
. developments concerning proprietary rights, including patent and
litigation matters;
. publicity regarding actual or potential results with respect to products
or compounds under development by us or our partners;
. unexpected terminations of partnerships; regulatory developments in the
US, the EU and its member states, and other countries;
. general market conditions; and
. quarterly fluctuations in our revenues and other financial results.
In particular, the realization of any of the risks described in these "Risk
Factors" could have a dramatic and adverse impact on the market price of the
Common Stock. See "Underwriting."
PHARMACEUTICAL PRICING ENVIRONMENT
Our ultimate ability to commercialize any products that we or our partners
develop depends on the extent to which reimbursements to patients for the cost
of such products and related treatments will be available from government
health administration authorities, private health insurance providers, and
other organizations. It is uncertain whether third party payers will reimburse
patients for newly approved health care products or will do so at a level that
will enable us to obtain a satisfactory price for our products. Healthcare
reform is an area of increasing attention and is a priority of many government
officials. Any such reform measures, if adopted, could adversely affect the
pricing of therapeutic or diagnostic products in the US, the EU or elsewhere
and the amount of reimbursement available from governmental agencies or third
party insurers. We cannot predict the effect of such measures upon our
business.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW
We have proposed to amend and restate our Certificate of Incorporation (the
"Restated Certificate") to authorize the Board of Directors to issue, without
stockholder approval, up to 1,000,000 shares of Preferred Stock. The Board of
Directors will determine the voting, conversion and other rights and
preferences for any issued shares of Preferred Stock. These rights could
adversely affect your voting power and other rights as a holder of Common
Stock. The issuance of Preferred Stock or of rights to purchase Preferred Stock
could be used to discourage an unsolicited acquisition proposal. In addition,
the potential issuance of Preferred Stock could: (i) discourage a proxy
contest, (ii) make the acquisition of a substantial block of Common Stock more
difficult and/or (iii) limit the price that investors might be willing to pay
for shares of Common Stock. The Restated Certificate will also provide for
staggered terms for the members of the Board of Directors. A staggered Board of
Directors, certain provisions of our By-Laws and certain provisions of Delaware
law could delay or make more difficult a merger, tender offer or proxy contest
involving us. In addition, we may not be able to enter into certain
transactions and business combinations with certain interested stockholders for
a period of three years from the date the stockholder becomes an interested
stockholder. These provisions may have the effect of delaying or preventing a
change of control without action by the stockholders and, therefore, could
adversely affect the price of the Common Stock. See "Management," "Description
of Capital Stock--Preferred Stock" and "Description of Capital Stock--Anti-
Takeover Measures."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in this offering will experience immediate and substantial dilution
in the value of their investment. This dilution will equal the difference
between the initial public offering price and the per share net book value of
the Company immediately after this offering. Investors will experience
additional dilution upon the exercise of outstanding options and warrants. See
"Dilution" and "Shares Eligible for Future Sale."
12
<PAGE>
YEAR 2000 COMPLIANCE
We use a significant number of computer software programs and operating
systems in our internal operations, including applications used in support of
research and development activities, accounting, and various administrative
functions. Although we believe that our internal software applications contain
software source code that is able to interpret appropriately the dates
following December 31, 1999, our failure to make or obtain necessary
modifications to our software could result in systems interruptions or failures
that could have a material adverse effect on our business. We do not anticipate
that we will incur material expenses to make our computer software programs and
operating systems Year 2000 compliant. Unanticipated costs necessary to update
software or potential systems interruptions could exceed our present
expectations and consequently have a material adverse effect on our business.
In addition, if our key service providers fail to make their respective
computer software programs and operating systems Year 2000 compliant it could
have a material adverse effect on our business. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Year 2000."
NEW TRADING MARKET; MARKET RISK; ADMISSION TO TRADING
We have applied for admission to trading on EASDAQ, which has a limited
operating history. We cannot guarantee that EASDAQ will develop into a stable
and liquid market for securities. Price fluctuations may have a negative impact
on the market price of the Common Stock. In addition, EASDAQ's goal is to
provide a trading forum for companies with growth potential. The risk profile
of such companies is greater than you can reasonably expect from companies
listed on more established stock exchanges.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby are estimated to be [$ ,000,000 ($ ,000,000)] if the
Underwriters' over-allotment option is exercised in full), based on an assumed
initial public offering price of [$ ] per share and after deducting
Underwriters' discounts and commissions and estimated offering expenses payable
by the Company.
The Company intends to use the net proceeds of this offering as follows:
$20,000,000 for the continued development and expansion of the Company's
Combinatorial Drug Discovery Program, $6,000,000 for clinical development,
$816,000 for repayment of debt due upon the closing of this offering and the
remainder for general corporate purposes. Such general corporate purposes may
include acquisitions of other businesses, technologies, product rights or
distribution rights. The amount and timing of the Company's actual expenditures
will depend upon a number of factors, including the Company's ability to enter
into additional partnership or licensing arrangements, as well as the timing of
and terms governing such arrangements. In addition, the Company's research and
development expenditures will vary with the progress of programs and as a
result of variability in funding from its partners. The Company's management
will have broad discretion to allocate proceeds of this offering to uses that
it believes are appropriate.
The Company currently believes the net proceeds of the offering, together
with the Company's existing cash, cash equivalents, short-term investments and
cash generated from operations and research funding from corporate partners,
will enable the Company to maintain its current and planned operations until
December 31, 2000. See "Risk Factors--Future Capital Needs; Uncertainty of
Additional Funding" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Pending such uses, the Company intends to invest the net proceeds of this
offering primarily in interest-bearing investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common Stock
and does not anticipate doing so in the foreseeable future. The Company
currently intends to retain future earnings, if any, for the development of its
technologies and future products.
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1998, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to (a) the increase in the number of authorized shares of
Common Stock to 25,000,000 and the authorization of 1,000,000 shares of
undesignated Preferred Stock and (b) the conversion of all issued and
outstanding Existing Preferred Stock into 7,274,833 shares of Common Stock and
(iii) the pro forma capitalization as adjusted to reflect the sale of the
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share after deducting Underwriting discounts and commissions
and estimated offering expenses and the application of the estimated net
proceeds therefrom of the Company as set forth in "Use of Proceeds" and the
exercise of outstanding warrants to purchase 106,089 shares of Common Stock at
$0.01 per share prior to the closing of this offering. This table should be
read in conjunction with the Consolidated Financial Statements of the Company,
notes thereto and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA (1) ADJUSTED (1)(2)
-------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt..... $ 289 $ 289 $ 289
======== ======== =======
Long-term debt, less current portion.. $ 2,189 $ 2,189 $ 1,373
-------- -------- -------
Redeemable convertible preferred
stock, par value $0.01 per share,
14,446,382 shares authorized and
7,274,833 issued and outstanding,
actual; no shares authorized, issued
or outstanding, pro forma and pro
forma as adjusted.................... 41,139 -- --
-------- -------- -------
Stockholders' equity (deficit):
Preferred Stock, par value $0.01 per
share, no shares authorized, issued
or outstanding, actual; 1,000,000
shares authorized and none issued
and outstanding, pro forma and pro
forma as adjusted.................. -- -- --
Common Stock, par value $0.01 per
share, 13,000,000 shares authorized
and 1,085,549 issued and
outstanding actual; 25,000,000
shares authorized and 8,360,382
shares issued and outstanding pro
forma; [ ] shares issued and
outstanding pro forma as adjusted
(1)(2)............................. 11 84
Additional paid-in capital.......... 5,203 46,269
Deficit accumulated during
development stage.................. (39,648) (39,648) (39,648)
Deferred compensation............... (1,811) (1,811) (1,811)
-------- -------- -------
Total stockholders' equity
(deficit)........................ (36,245) 4,894
-------- -------- -------
Total capitalization.............. $ 7,083 $ 7,083 $
======== ======== =======
</TABLE>
- --------
(1) Presented on a pro forma basis to give effect to the automatic conversion,
upon the closing of this offering, of all outstanding shares of Existing
Preferred Stock into an aggregate of 7,274,833 shares of Common Stock. See
"Description of Capital Stock."
(2) As adjusted to reflect the sale of [ ] shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of [$ ]
per share and the application of estimated net proceeds therefrom after
deducting Underwriting discounts and commissions and estimated offering
expenses payable by the Company. Includes the exercise of outstanding
warrants to purchase 106,089 shares of Common Stock at $0.01 per share
prior to the closing of this offering. Excludes an aggregate of 1,464,973
shares of Common Stock issuable upon exercise of stock options and warrants
outstanding as of September 30, 1998 with a weighted average exercise price
of $1.24 per share.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30, 1998
was $4,894,000 or approximately $0.59 per share of Common Stock. Pro forma net
tangible book value per share represents the total tangible assets of the
Company, less total liabilities, divided by 8,360,382 shares of Common Stock to
be outstanding after giving effect to the conversion of all outstanding shares
of Existing Preferred Stock into 7,274,833 shares of Common Stock upon the
closing of this offering. Assuming the receipt by the Company of the net
proceeds from the sale of the shares of Common Stock offered hereby at an
assumed public offering price of $[ ] per share and the exercise of
outstanding warrants to purchase 106,089 shares of Common Stock at $0.01 per
share prior to the closing of this offering, the pro forma net tangible book
value of the Company as of September 30, 1998 would have been $ , or $[ ]
per share. This represents an immediate increase in the pro forma net tangible
book value of $ per share to existing stockholders of the Company and an
immediate dilution of $ per share to new investors purchasing Common Stock in
this offering. The following table illustrates the per share dilution to be
incurred by new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value per share before this
offering...................................................... $0.59
Increase per share attributable to new investors...............
-----
Pro forma net tangible book value per share after this offering..
----
Dilution per share to new investors.............................. $
====
</TABLE>
The following table sets forth, as of September 30, 1998 (after giving effect
to the conversion of all outstanding shares of Existing Preferred Stock into
7,274,833 shares of Common Stock and the exercise of outstanding warrants to
purchase 106,089 shares of Common Stock at $0.01 per share prior to the closing
of this offering and assuming the Series E Stock converts to Common Stock at a
rate of one-to-one), the differences between the existing stockholders and the
new investors with respect to the number of shares of Common Stock acquired
from the Company, the total consideration paid and the average price per share
(assuming a public offering price of $[ ] per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 8,466,471 % $43,944,000 % $5.19
New investors............... % $ % $
--------- --- ----------- ---
Total..................... % $ % $
========= === =========== ===
</TABLE>
The above information excludes, as of September 30, 1998, an aggregate of
1,464,973 shares of Common Stock issuable upon exercise of stock options and
warrants outstanding as of September 30, 1998 with a weighted average exercise
price of $1.24 per share. To the extent that such options and warrants are
exercised, there will be further dilution to new investors. See "Description of
Capital Stock."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data set forth below, as of December
31, 1996 and 1997, and the consolidated statements of operations data for each
of the three years in the period ended December 31, 1997, are derived from the
Company's Consolidated Financial Statements which have been audited by Arthur
Andersen LLP, independent public accountants, and which are included elsewhere
in this Prospectus. The selected consolidated financial data as of December 31,
1993, 1994 and 1995 and for the years ended December 31, 1993 and 1994 are
derived from the Company's Consolidated Financial Statements not included in
this Prospectus, all of which have been audited by Arthur Andersen LLP,
independent public accountants. The selected financial data as of September 30,
1998 and for the nine months ended September 30, 1997 and 1998 and for the
period from inception (May 27, 1992) to September 30, 1998 are derived from the
Company's unaudited Consolidated Financial Statements which are included
elsewhere in this Prospectus and which include, in the opinion of the Company,
all adjustments (consisting only of normal recurring adjustments) that are
necessary for a fair presentation of its financial position and the results of
its operations for those periods. Operating results for the nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1998. The selected
consolidated financial data should be read in conjunction with, and are
qualified by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS MAY 27, 1992
ENDED (INCEPTION)
YEAR ENDED DECEMBER 31, SEPTEMBER 30, THROUGH
------------------------------------------- ---------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
------- ------- ------- ------- ------- ------- ------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Collaborative revenue.. $ 68 $ 34 $ 50 $ 247 $ 1,053 $ 730 $ 1,100 $ 2,552
Operating expenses:
Research and
development........... 1,230 3,270 3,964 5,232 7,673 5,711 5,638 27,191
General and
administrative........ 602 1,030 1,425 1,675 1,740 1,287 1,909 8,633
Charge for acquired
research and
development........... -- -- -- 1,498 1,612 1,612 -- 4,422
------- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses............. 1,832 4,300 5,389 8,405 11,025 8,610 7,547 40,246
------- ------- ------- ------- ------- ------- ------- --------
Loss from operations... (1,764) (4,266) (5,339) (8,158) (9,972) (7,880) (6,447) (37,694)
Interest income
(expense), net........ (125) 115 (106) (30) 228 231 14 101
Foreign currency
translation gain
(loss)................ 13 (76) 6 (101) (10) (13) (152) (96)
------- ------- ------- ------- ------- ------- ------- --------
Net loss............... $(1,876) $(4,227) $(5,439) $(8,289) $(9,754) $(7,662) $(6,585) $(37,689)
======= ======= ======= ======= ======= ======= ======= ========
Historical basic and
diluted net loss per
share (1)............. $ (6.99) $(10.63) $(10.09) $(13.07) $(12.77) $(10.19) $ (8.16)
Pro forma basic and
diluted net loss per
share (1)............. $ (1.42) $ (0.96)
Shares used in
computing historical
basic and diluted net
loss per share (1).... 268 398 540 665 797 783 908
Shares used in
computing pro forma
basic and diluted net
loss per share (1).... 7,175 7,709
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
---------------------------------------------- -----------------------
1993 1994 1995 1996 1997 ACTUAL PRO FORMA (2)
------- ------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities............ $ 8,107 $ 4,383 $ 470 $ 10,117 $ 3,792 $ 6,988 $ 6,988
Working capital........ 8,933 2,789 (797) 8,976 2,586 5,051 5,051
Total assets........... 9,439 6,924 2,704 12,396 6,289 9,315 9,315
Current portion of
long-term debt........ 19 1,092 825 301 300 289 289
Long-term debt, less
current portion....... 710 752 745 1,274 1,550 2,189 2,189
Redeemable convertible
preferred stock....... 11,863 11,879 11,894 30,945 34,186 41,139 --
Deficit accumulated
during development
stage................. (3,417) (7,659) (13,113) (22,055) (32,233) (39,648) (39,648)
Deferred compensation.. -- -- -- -- -- (1,811) (1,811)
Stockholders' equity
(deficit)............. (3,410) (7,648) (13,101) (21,210) (30,886) (36,245) 4,894
</TABLE>
- --------
(1) Computed as described in note 3(n) of notes to Consolidated Financial
Statements.
(2) Presented on a pro forma basis to give effect to the automatic conversion,
upon the closing of this offering, of all outstanding shares of the
Existing Preferred Stock into an aggregate of 7,274,833 shares of Common
Stock.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Phytera, Inc. was incorporated as a Delaware corporation on May 27, 1992. The
Company is a development stage biopharmaceutical company focused on applying
its proprietary Combinatorial Drug Discovery Program to the identification and
optimization of new lead structures and candidate drugs for pharmaceutical
application. The Company's operations have been funded primarily through the
sale of equity securities and revenues generated from research partnerships
with pharmaceutical and biotechnology companies. As of September 30, 1998, the
Company has signed partnership agreements with Eli Lilly and Company, Chiron
Corporation, Tsumura & Co., NeuroSearch A/S, Galileo Laboratories, Inc. and
Nycomed Amersham plc. See "Business--Corporate Partnerships."
The Company has not been profitable since its inception and has an
accumulated deficit of approximately $39,648,000 as of September 30, 1998.
Losses have resulted primarily from expenses related to research and
development programs focused on expanding the Company's Combinatorial Drug
Discovery Program, which includes combinatorial biology, pharmaceutical
screening, combinatorial chemistry and preclinical development of a novel
candidate drug. The Company has also incurred costs related to the
administrative activities required to support these research and development
efforts. The Company's ability to fund its operations and achieve profitability
is dependent on its near-term ability to market the Company's broad technology
base to and enter into research partnerships with pharmaceutical and
biotechnology companies, and on the longer-term development and
commercialization of products derived from these partnerships and the Company's
independent discovery programs.
Phytera has built and expanded its technology base via the acquisition of
three companies. Plant Science Limited, a UK-based plant cell culture company,
was acquired in September 1992 and is now a wholly-owned subsidiary, Phytera
Ltd. Neptune Pharmaceuticals, Inc., a US-based marine microbiology company, was
acquired in July 1996 and has been integrated into the operations of Phytera,
Inc. Auda Pharmaceutical ApS, a Danish combinatorial chemistry company, was
acquired in March 1997 and is now a wholly-owned subsidiary, Phytera Symbion
ApS. Each of these transactions was accounted for as a purchase with
approximately $1,312,000, $1,498,000 and $1,612,000, respectively of the
purchase price charged to operations as the cost of acquired research and
development. The results of operations of each of the acquired companies are
included in the Consolidated Statements of Operations since the date of
acquisition.
In addition to the above acquisitions, the Company established Phytera A/S, a
wholly-owned Danish subsidiary, in February 1996 with an equity investment of
approximately $89,500 in order to expand the Company's plant cell culture
capabilities. The results of operations of Phytera A/S are included in the
Consolidated Statements of Operations since its date of incorporation.
The Consolidated Financial Statements include the accounts of Phytera, Inc.
and its wholly-owned subsidiaries, Phytera Ltd., Phytera Symbion ApS and
Phytera A/S. For the remainder of this discussion Phytera, Inc. and its
subsidiaries together will be referred to as "Phytera" or "the Company."
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 and 1997
Revenues from research and development partnership agreements were $1,100,000
and $730,000 for the nine months ended September 30, 1998 and 1997,
respectively. For the nine months ended September 30, 1998, all of the revenue
recognized by the Company was derived from its partnerships with Tsumura & Co.,
Chiron Corporation and Eli Lilly and Company. For the nine months ended
September 30, 1997, revenues were derived entirely from the Company's
partnership with Tsumura & Co., as payment for access to Phytera's extract
libraries and in support of the Company's research activities under
the partnership.
Research and development expenses decreased by 1% to $5,638,000 for the nine
months ended September 30, 1998 from $5,711,000 for the nine months ended
September 30, 1997, due to reduced outside research support for preclinical
development and decreased laboratory supplies expense in the US. These
decreases were partially offset by an increase in research and development
expenses by the Company's Danish
18
<PAGE>
subsidiaries, reflecting a full nine months of operations in 1998 for Phytera
Symbion ApS, which was acquired in March 1997, and increased plant sourcing
costs in support of Phytera A/S' plant cell culture activity.
General and administrative expenses increased by 48.3% to $1,909,000 for the
nine months ended September 30, 1998 from $1,287,000 for the nine months ended
September 30, 1997. This increase resulted from compensation expense
attributable to options granted, additional staff-related costs, and a full
nine months of expenses related to Phytera Symbion ApS. General and
administrative expenses at Phytera Symbion ApS during this period included
salary related costs, travel and other costs associated with the Managing
Director of Phytera A/S and Phytera Symbion ApS who joined the Company at the
time of the Auda acquisition.
Net interest income was $14,000 for the nine months ended September 30, 1998,
compared to $231,000 for the same period in 1997. Interest income in 1998
decreased as a result of a decreasing cash balance resulting from the use of
cash for operations, while interest expense for the nine months ended September
30, 1998 increased due to interest accrued for additional debt funding received
from VdkstFonden of Copenhagen, Denmark.
Years Ended December 31, 1997, 1996 and 1995
The Company's collaborative revenues for the years ended December 31, 1997,
1996 and 1995 were $1,053,000, $247,000 and $50,000, respectively and were
derived from research and development partnership and marketing agreements. In
1997 and 1996, such revenues were derived entirely from the partnership with
Tsumura & Co., while revenue in 1995 was derived from the Nycomed Amersham plc
research partnership in the area of plant culture-derived enzymes.
Research and development expenses increased to $7,673,000 in 1997 from
$5,232,000 in 1996 and $3,964,000 in 1995, primarily as a result of the
expansion of the Company's plant cell culture, marine microbiology,
combinatorial chemistry and general drug discovery capabilities through the
acquisitions of Neptune Pharmaceuticals, Inc. and Auda Pharmaceutical ApS, the
establishment of Phytera A/S, and through the addition of resources at the
Company's Worcester facility.
General and administrative expenses were $1,740,000, $1,675,000, and
$1,425,000 for 1997, 1996 and 1995, respectively. The increase in 1997 compared
to 1996 was approximately 3.8% and was primarily due to normal cost increases.
The increase in 1996 compared to 1995 was approximately 17.6% and related
principally to general and administrative expenses incurred at Phytera A/S, and
to increased staff-related costs at Phytera, Inc.
Net interest income was $228,000 in 1997, compared to net interest expense of
$30,000 and $106,000 in 1996 and 1995, respectively. This increase in 1997
resulted from a larger cash balance available for investment during the year as
a result of the sale of Series D Convertible Preferred Stock that occurred in
late 1996.
LIQUIDITY AND CAPITAL RESOURCES
Phytera has experienced net losses and negative cash flow from operations
each year since its inception and, as of September 30, 1998, had an accumulated
deficit of $39,648,000. The Company has financed its operations primarily
through private equity financings. As of September 30, 1998, net proceeds from
equity financings were $39,044,000. The Company received total research
payments from its corporate partnerships of $3,161,000 through September 30,
1998. Phytera has entered into several loan agreements to fund leasehold
improvements, the acquisition of equipment, for working capital purposes and
the acquisition of Phytera Ltd.
In 1992, the Company issued a promissory note in the principal amount of
(Pounds)480,000 (approximately $816,000 at the September 30, 1998 exchange
rate) note payable to the University of Sheffield, bearing interest at 10% per
annum, in connection with the acquisition of Phytera Ltd. The note will be
payable on the closing of this offering. Interest on the unpaid principal
balance is due each October 1.
In July 1994, the Company entered into a $1,100,000 equipment line of credit
with a United States bank. The Company borrowed the maximum amount through
December 31, 1994, at which time the amount outstanding under the equipment
line of credit was converted into a promissory note. The note is payable in 48
equal monthly installments, beginning in January 1995 and is scheduled to end
in December 1998, bearing
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<PAGE>
interest at the bank's prime rate (8.5% at September 30, 1998) plus 2%.
Borrowings under the note are secured by substantially all of the Company's
assets. The note contains certain covenants, including minimum levels of
liquidity and net worth. The Company was in compliance with all covenants at
September 30, 1998. As of September 30, 1998, $68,750 was outstanding under
this note.
In 1996, Phytera entered into an agreement with VdkstFonden to obtain funding
for the Company's Danish subsidiaries. This agreement was originally focused on
providing partial funding for the development of Phytera A/S, but was recently
expanded to include Phytera Symbion ApS. Under the agreement, VdkstFonden
provides a research and development loan of approximately DKK 13.2 million
(approximately $2,087,000 at the September 30, 1998 exchange rate) over a three
year period to finance approximately 45% of the operations of both Phytera A/S
and Phytera Symbion ApS. The loan accrues interest at an annual interest rate
of 7.98% and will be repaid over a five year period beginning in April 1999.
The loan was granted subject to certain conditions, each of which has been met
by Phytera. The loan is secured by a guarantee from Phytera, Inc. and by way of
a pledge of certain rights in the projects funded by the loan. As of September
30, 1998, approximately DKK 8,546,000 (approximately $1,347,000 at the
September 30, 1998 exchange rate) has been received from VdkstFonden.
During the nine months ended September 30, 1998 and the years ended December
31, 1997, 1996 and 1995, the Company made purchases of equipment and leasehold
improvements in the amounts of approximately $297,000, $913,000, $627,000 and
$150,000, respectively. In addition to the VdkstFonden loan, the Company
entered into several loans and operating leases that provided aggregate
financing of DKK 2,800,000 (approximately $442,000 at the September 30, 1998
exchange rate) to the Company's Danish subsidiaries during 1996 and 1997 and
the nine months ended September 30, 1998.
In September 1998, Phytera entered into a $1,000,000 equipment line of credit
with a United States finance company. This agreement provides for the funding
of equipment purchases made by the Company through July 15, 1999. Separate
loans are created each time funding is provided, and each loan is to be repaid
over 48 months from the date of the funding with a final payment of 12.5% of
the initial principal amount. The repayment amount is based on a percentage of
the outstanding principal of the loan. The percentage rate can vary prior to
each funding, but is then fixed for the term of the specific loan created by
the specific funding event. There was no outstanding balance under this line of
credit at September 30, 1998.
Management estimates that the proceeds from this offering, along with
existing cash balances, amounts to be received under existing partnership
agreements and funds available under existing borrowing arrangements, will be
sufficient to fund operations until December 31, 2000. The Company's cash
requirements may vary materially from those now planned, depending upon the
results of its research and development strategies, the ability of the Company
to enter into any corporate partnerships, the results of research and
development, competitive and technological advances, in-licenses and
acquisitions and other factors. If the Company experiences increased losses, it
may have to seek additional financing from public or private sale of its
securities, including equity securities.
There have been no material events or significant changes in the financial or
other conditions of the Company since September 30, 1998.
TAX MATTERS
At December 31, 1997, the Company had available net operating loss
carryforwards of approximately $25,200,000 for US federal income tax purposes,
which expire at various dates beginning in 2009. The Company also has available
US federal tax credits of approximately $330,000 expiring through the year
2010. The Company's non-US subsidiaries have approximately $690,000 of
available net operating loss carryforwards for non-US income tax reporting
purposes as of December 31, 1997. The Company has recorded a full valuation
allowance against its deferred tax asset due to uncertainties surrounding the
realization of these assets.
The US Internal Revenue Code of 1986, as amended (the "Code"), contains
provisions that may limit the US net operating loss and tax credit
carryforwards available to be used in any given year upon the occurrence of
certain events, including changes in the ownership interests of significant
stockholders. In the event of a cumulative change in ownership in excess of 50%
over a three year period, the amount of the US net
20
<PAGE>
operating loss carryforwards that the Company can utilize in any one year may
be limited. In the event of a change in ownership, as defined, the annual
limitation on the use of the existing net operating loss carryforwards is equal
to an amount determined by multiplying the value of the Company at the time of
the ownership change by the US federal applicable rate of interest as
determined by the US Internal Revenue Service.
YEAR 2000
The Company has reviewed all of its information systems to assess what steps,
if any, are required to achieve full Year 2000 compliance. The Company relies
upon microprocessor-based personal computers and commercially available
applications software. These technologies have been put into service recently,
and our review indicates that virtually all the Company's systems are currently
Year 2000 compliant. The Company has begun to address the small number of
systems that are not yet Year 2000 compliant, and expects to achieve full
compliance by the end of 1999. The Company is currently discussing Year 2000
readiness with its material supply and service vendors. To date, those vendors
that have been contacted have indicated that their hardware or software is or
will be Year 2000 compliant in time frames that meet the Company's
requirements. However, the Company intends to continue to assess its exposure
to Year 2000 noncompliance on the part of any of its material vendors and there
can be no assurance that their systems will be Year 2000 compliant. We do not
anticipate that we will incur material expenses to make our computer software
and operating systems Year 2000 compliant. The Company believes that the Year
2000 issue will not pose significant operational problems for the Company's
systems. The Company currently does not have any contingency plan in the event
Year 2000 compliance cannot be achieved in a timely manner. See "Risk Factors--
Year 2000 Compliance."
NEW ACCOUNTING PRONOUNCEMENTS
Recently issued accounting standards may affect the Company's Consolidated
Financial Statements in the future. See note 3(o) of notes to Consolidated
Financial Statements.
21
<PAGE>
BUSINESS
OVERVIEW
Phytera is an international biopharmaceutical company engaged in identifying
and optimizing novel chemical lead structures through its Combinatorial Drug
Discovery Program. The Company conducts operations in the United States,
Denmark, and the United Kingdom. The Company's Combinatorial Drug Discovery
Program enhances the pharmaceutical industry's ability to use nature as a
source of chemical diversity by applying proprietary combinatorial biology,
pharmaceutical screening and combinatorial chemistry techniques. The Company
uses combinatorial biology to create novel chemical diversity libraries from
two relatively untapped natural resources, plant cells and marine microbes,
that it grows and manipulates in cell culture. The combinatorial manipulations
substantially increase the variety and novelty of chemical compounds produced
in cell culture beyond that found in the native specimen. Phytera has entered
into partnerships with Eli Lilly and Company, Chiron Corporation, Tsumura &
Co., NeuroSearch A/S, Gallileo Laboratories, Inc. and Nycomed Amersham plc.
Together with these partners, Phytera tests its chemical diversity libraries
for therapeutic utility in pharmaceutical screens for diseases such as fungal
infections, cancer, inflammation, allergy, asthma, depression, memory and
attention deficit disorders, diabetes, stroke and myocardial infarction. The
Company's internal drug discovery efforts are focused on drug-resistant
bacterial, fungal and viral infections. In particular, the Company has
developed bacterial and fungal screens in which Multiple Drug Resistance pumps
("MDR pumps") have been inactivated. The Company believes that these "MDR
knockout-based" screens offer significant advantages in discovering novel
antibacterial and antifungal drugs. Phytera uses proprietary combinatorial
chemistry techniques to optimize lead structures identified through screening
into candidate drugs for further development.
Nature is a source of a substantial portion of new medicines, but a number of
factors has limited the systematic exploration of nature as a source of
chemical diversity. These factors include access to sufficient quantity of
novel source material, difficulty in reaccessing source material, limited and
fixed chemical diversity, chemistry which is not easily reproducible or
scalable, difficulties associated with screening complex extract mixtures and
limited ability to optimize natural product lead structures. Phytera's
Combinatorial Drug Discovery Program encompasses a number of technologies to
provide an integrated solution to these limitations.
The Company's combinatorial biology program produces chemical diversity
libraries from plant cell cultures using its ExPAND(R) technology and from
marine microbe cultures using its (u)MARINE(R) technology. The Company has
established an extensive network of species sourcing collaborations in order to
access plants and marine microorganisms for its combinatorial biology program.
The Company's combinatorial biology technologies facilitate access and reaccess
to novel plant and marine microbial source material. The chemical diversity of
cell cultures is increased by applying proprietary manipulations, such as
genetic, hormonal, infection-related, environmental or chemical treatments. The
resulting chemical expression states are highly reproducible, ensuring that
increased quantities of interesting chemical compounds can be produced to
facilitate drug discovery and development. To date, the Company has produced
over 60,000 high quality cell culture extracts through its ENRICH(TM)
extraction technology and a pilot library of individual natural chemical
compounds by applying its PINACLE(TM) chemical isolation methodology.
The Company is applying its proprietary MANIFOLD(TM) combinatorial chemistry
technologies to optimize lead structures and select additional candidate drugs
for preclinical and clinical development. MANIFOLD is particularly suited for
optimizing natural product lead structures, many of which are not amenable to
conventional combinatorial chemistry techniques. Phytera has produced one
candidate drug and several lead structures. Marinovir, the Company's candidate
drug from a marine microbe, is aimed at treating herpes infections and is
currently scheduled to enter clinical studies in 1999.
CORPORATE STRATEGY
Phytera's objective is to be the leader in the application of combinatorial
drug discovery technology to the search for new medicines derived from nature.
To achieve this objective, the Company will leverage its broad range of
proprietary technologies in the following ways:
. Capitalize on Revenue-Generating Partnerships. The Company has
established several revenue-generating partnerships, such as its
antifungal alliance with Eli Lilly and Company, and is continuing to
pursue additional such relationships. These revenue-generating
partnerships provide Phytera with both
22
<PAGE>
near-term and potential longer-term revenues through up-front payments,
option/license fees, research funding, milestone payments and royalties
and provide its partners with access to Phytera's novel chemical diversity
libraries, proprietary screens and other proprietary technologies and
resources. See "--Corporate Partnerships."
. Capitalize on Joint Research and Development Partnerships with Retained
Product Rights. The Company retains substantial product rights under a
number of joint research and development partnerships, such as its
alliance with NeuroSearch A/S, and is continuing to pursue additional
relationships of this type with other partners. These retained product
rights partnerships combine the Company's novel chemical diversity
libraries and other proprietary resources with pharmaceutical screens
developed by the Company's partners. Lead structures and candidate drugs
identified by the screening of the Company's libraries are expected to be
the focus of joint development and commercialization efforts. See "--
Corporate Partnerships."
. Advance the Company's Drug-Resistant Infectious Diseases Program. Phytera
intends to continue its internal drug discovery efforts, with particular
focus on the use of its proprietary screen portfolio for drug-resistant
infectious diseases. Included in this portfolio are antibacterial screens
based on the Company's MDR knockout technology which offer advantages in
screening for new drugs to treat resistant infections. The Company is
currently seeking to advance one preclinical candidate drug to the clinic
and is currently optimizing several lead structures identified within the
program. See "--Phytera's Resistant Infectious Diseases Screening
Program."
. Broaden and Leverage the Company's Technology Platform. The Company
believes its intellectual property position represents a substantial
barrier to entry by competitors. Phytera intends to broaden and leverage
this position through further internal innovation and in-licensing and
acquisitions of new technologies and novel products. The Company is also
pursuing application of its current technologies to other business areas,
such as agriculture.
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<PAGE>
NATURE AS A SOURCE OF CHEMICAL DIVERSITY
Historically, natural products have represented a major source of medicines
used to treat human disease and, together with medicinal synthetic chemistry,
continue to generate a substantial number of pharmaceuticals. Drugs can be
derived from natural sources either directly or, more commonly, indirectly.
Direct derivation occurs when the natural chemical compound is used as a
pharmaceutical, as in the case of Taxol(R), a cancer drug from the Pacific yew
tree. Indirect derivation occurs when a lead structure from a natural source is
used as a chemical basis or conceptual starting point for a drug analog and
optimization program that results in a commercial product. An example of this
is Zocor(R), a cholesterol-lowering drug derived from a fungal lead structure.
A recent study from the US National Institutes of Health reported that
natural product-derived drugs accounted for 39% of all approvals by the US FDA
from 1983 to 1994 across all therapeutic categories. In the case of infectious
diseases, 56% of all FDA-approved drugs were derived from natural products.
Many of today's most commercially important drugs were derived from a natural
product starting point, as illustrated below.
DERIVATION OF CERTAIN COMMERCIALLY SIGNIFICANT DRUGS
<TABLE>
<CAPTION>
1997 WORLDWIDE THERAPEUTIC
BRAND NAME SALES RANK(1) INDICATION NATURAL PRODUCT DERIVATION
- --------------------------------------------------------------------------
<S> <C> <C> <C>
High
Zocor(R) 1 cholesterol Fungal lead structure
Vasotec(R) 4 Hypertension Snake venom lead structure
Zantac(R) 5 Ulcers Based on histamine-derived
structure
Augmentin(R) 9 Fungal lead structure and
Bacterial bacterial product
infection combination
High
Pravachol(R) 13 cholesterol Fungal lead structure
High
Mevalotin(R) 14 cholesterol Fungal lead structure
Biaxin(R) 15 Bacterial Bacterial lead structure
infection
Sandimmune(R) 16 Transplant Fungal product
rejection
Taxol(R) 30 Cancer Plant product
</TABLE>
(1) Medical Advertising News, 17(5) 1998 and Biodiversity and Human Health,
Island Press, 1997.
As the table above illustrates, two natural product sources, terrestrial
fungi and bacteria, have played a prominent role in the development of new
drugs in the recent past. The Company believes, however, that because the
pharmaceutical industry has extensively evaluated these sources for potential
new drugs, the future of natural product drug discovery depends on the
industry's ability to access new sources of natural chemical diversity.
Plants and marine microorganisms represent two relatively untapped natural
sources of novel chemicals that may be useful in the discovery of new drugs.
According to scientific literature, less than 5% of the estimated 250,000
species of plants has been evaluated as a source of new pharmaceuticals. The
Company believes that the pharmaceutical industry's evaluation of plants for
drug discovery has been limited by the use of traditional sourcing approaches.
These approaches require large amounts of plant material so that species that
are available only in small quantities or are subject to conservation efforts
cannot be readily sampled. An additional problem is the difficulty of
reaccessing the source material to obtain greater quantities for further
discovery and development once the plant extract is found to contain a
pharmaceutically active chemical compound. Reaccessing the source material can
be logistically difficult and time consuming, and it is often not possible to
successfully reaccess the species, or its pharmaceutically important chemistry.
24
<PAGE>
Marine microorganisms are a genetically and chemically distinct class of
organisms that are only just beginning to be examined as a source of lead
structures or candidate drugs. Marine microorganisms have never been
systematically sourced by the pharmaceutical industry. In the cases where
marine microorganisms have been sourced, both their isolation and subsequent
culture have been constrained by the failure to recognize their dependence on
specific marine nutrients for growth.
The most significant limitation in traditional natural product drug discovery
is the inability to access much of the potential chemical diversity of a
sourced species. Traditional natural product drug discovery technologies sample
a species from a single environment and therefore access only a minor portion
of the chemical potential of that species. Changing environmental conditions
cause a plant or marine microbe to express different chemical compounds. In
order to fully access the chemical potential of a sourced species, living
tissue or cells from the sample must be exposed to a wide array of
environmental and other conditions. The Company believes this is best
accomplished under the controlled laboratory conditions of cell culture by
applying certain technologies collectively termed "combinatorial biology".
In addition, pharmaceutical screening of complex extract mixtures
traditionally derived from natural products requires difficult chemical
isolation and identification steps after screening. The presence of nuisance
and dilutive chemical compounds in such mixtures creates problems for the
screening process and can also hinder the isolation and identification process.
Finally, optimization of natural product-derived lead structures has relied on
traditional and relatively slow medicinal chemistry approaches as many of the
methods used in conventional combinatorial chemistry are not easily applicable
to such situations.
COMBINATORIAL BIOLOGY
Historically, the term combinatorial biology has referred to the manipulation
of cells using recombinant DNA techniques, which involve the insertion of
genetic material from one type of organism into the genome of a second
organism. Such gene manipulation can enable the latter organism to produce
different chemistry than was possible in its original state. A more expansive
definition of combinatorial biology also encompasses the manipulation of the
genetic and enzymatic machinery of an organism. Such manipulation may include
chemical and environmental stresses, infection-related or hormonal
perturbations, the introduction of substances that chemically change the
organism's DNA, and various combinations of the foregoing. Applied in this way,
combinatorial biology allows cells to produce an extremely wide variety of
chemical compounds, many of which may not be produced by the organism in its
natural state. As such, combinatorial biology is an attractive method for
gaining access to a far greater portion of a species' chemical diversity than
is currently possible using traditional approaches.
25
<PAGE>
PHYTERA'S COMBINATORIAL DRUG DISCOVERY PROGRAM
The worldwide pharmaceutical industry depends upon the continuing discovery
of new lead structures and candidate drugs to maintain its drug development
pipeline. This requires, among other things, (i) multiple sources of novel
chemicals, (ii) innovative means of screening those chemicals for
pharmaceutical activity and (iii) efficient methods of optimizing the chemical
structures of pharmaceutically active compounds (lead structures) for
preclinical and clinical development.
Phytera's Combinatorial Drug Discovery Program integrates these three
elements by combining combinatorial biology, pharmaceutical screening and
combinatorial chemistry to exploit the diversity of chemistry from plants and
marine microorganisms more effectively than traditional approaches. The Company
believes that this program addresses many of the significant problems and
limitations of traditional natural product drug discovery programs.
PHYTERA'S SOLUTIONS TO NATURAL PRODUCT DRUG DISCOVERY PROBLEMS
<TABLE>
<CAPTION>
PHYTERA SOLUTION
PROBLEM APPROACH TECHNOLOGY(1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Access to "novel" source Cell culture technology requires ExPAND
material only a seed or leaf/stem clipping,
permitting access to those plant
species that are available in
limited quantity
Isolation and cell culture (u)MARINE
technology permits access to marine
microorganisms not previously
isolated
Difficulty in Cell culture storage technology ExPAND and (u)MARINE
reaccessing source eliminates need to reaccess source
material material
Limited and fixed Combinatorial biology expands ExPAND and (u)MARINE
chemical diversity chemical diversity in cell culture
Chemistry not easily Cell culture results in reproducible ExPAND and (u)MARINE
reproducible or scalable and scalable chemistry
Difficulties associated Extraction technology creates ENRICH
with screening of refined cell culture extracts for
complex extract mixtures screening
Individual chemical compounds are PINACLE
isolated prior to screening
Limited optimization of Proprietary combinatorial chemistry MANIFOLD
natural product lead techniques are used to optimize
structures natural product lead structures
</TABLE>
(1) Phytera's technological acronyms are:
EXPAND EXpanded Phytochemistry Aimed at Novel Discovery
(u)MARINE Broad access to the chemical diversity of MARINE micro(u)organisms
ENRICH ENRICHed chemical extraction of natural species
PINACLE Pre-isolated Individual NAtural Chemical Library Elements
MANIFOLD Multiple Analoging of Natural Isolates For Optimal Lead
Development
26
<PAGE>
The following diagram illustrates the various elements of Phytera's
Combinatorial Drug Discovery Program:
PHYTERA'S COMBINATORIAL DRUG DISCOVERY PROGRAM
----------------------------------------------
WORLDWIDE SOURCING OF DIVERSE
PLANT AND MARINE SPECIMENS
. Botanical gardens . Commercial seed suppliers
. Biodiversity-rich countries . Marine sourcing expeditions
----------------------------------------------
|
\|/
----------------------------------------------
GENERATE CHEMICAL DIVERSITY LIBRARIES
. Establish and manipulate cell cultures using combinatorial biology
. EXPAND (plant) and (u)MARINE (marine microorganisms)
. Produce extracts using ENRICH
. Isolate individual chemical compounds using PINACLE
----------------------------------------------
|
\|/
----------------------------------------------
PHARMACEUTICAL SCREENING
. Phytera's resistent infecctious diseases screening program
- bacterial, fungal, viral and MDR-based screens
. Partnership programs
- screens for cancer, inflammation, allergy, asthma, stroke,
myocardial infarction, diabetes, memory and attention deficit
disorders and depression
----------------------------------------------
|
\|/
----------------------------------------------
CANDIDATE DRUG IDENTIFICATION
. Isolate and identify lead structures
. Optimize lead structures using combinatorial chemistry (MANIFOLD)
----------------------------------------------
|
\|/
----------------------------------------------
PHARMACEUTICAL DEVELOPMENT
. Preclinical and future clinical development of candidate drugs
----------------------------------------------
27
<PAGE>
SOURCING OF PLANTS AND MARINE MICROORGANISMS
Phytera has established worldwide sourcing programs for plant and marine
specimens. The Company believes that its sourcing arrangements, combined with
its proprietary technology for establishing plant and marine microbial cell
cultures, represent an important strategic asset and a substantial barrier to
entry for potential competitors. Further, the Company believes that its
reputation and proprietary technologies provide it with important advantages in
forming additional sourcing collaborations. See "--Biodiversity Sourcing
Agreements."
COMBINATORIAL BIOLOGY PROGRAM
Phytera uses combinatorial biology to generate unique access to the chemistry
inherent in plant and marine samples obtained under its extensive sourcing
arrangements. The Company's combinatorial biology program involves the
manipulation of the genetic and enzymatic machinery of an organism by exposing
it to chemical and environmental stresses, infection-related or hormonal
perturbations or the introduction of substances that chemically change the
organism's DNA and, various combinations of the foregoing. This program is
comprised of two novel and proprietary cell culture-based technologies, ExPAND
(for plants) and (u)MARINE (for marine microorganisms).
The Company's culture libraries currently contain over 3,000 plant species
and over 8,000 marine microbial isolates and, to the Company's knowledge, are
unequaled in the number and diversity of species.
EXPAND and (u)MARINE technologies enable:
. Initial establishment of cell cultures from sourced species. This
overcomes difficulties in culturing plant cells and creating novel marine
microbial cell cultures.
. Combinatorial manipulation of genes, enzymes and metabolic pathways. This
broadens access to the chemical diversity and novelty in each species
beyond what is expressed in the native sample.
. Maintenance and long-term storage of cell cultures. This facilitates
reaccess to the plant cell or marine microorganism.
. Reproducible and scalable reaccess to interesting chemical
compounds. This enables access to pharmaceutically active chemical
compounds at all stages of the discovery and early development process.
ExPAND Technology
Phytera's ExPAND technology program establishes plant cell cultures from
sourced plant species. This is a multi-stage process that establishes a cell
culture made up of finely dispersed plant cells in liquid medium. Successful
production of cell cultures from plants requires optimal culture conditions for
each species.
Once established in cell culture, plant cells are subjected to multiple,
proprietary manipulations in the form of genetic, hormonal, infection-related,
environmental or chemical treatments, applied singly and in combination. The
combinatorial matrix of manipulations substantially increases the variety and
novelty of chemical compounds in the cell culture by modulating the expression
of genes, enzymes and metabolic pathways. Interactions of the products of
manipulated genes and pathways also generate chemical compounds not otherwise
produced by the plant species. The Company routinely applies various
combinations from a panel of as many as 15 manipulations to each plant cell
culture and has created libraries of very large numbers of reproducible cell
culture extracts.
Sunillin, the structurally novel prototype for a series of antifungal
compounds, is a product identified by the Company's ExPAND technology. Sunillin
is only produced by certain combinatorial manipulations of a plant cell
culture. Sunillin was not detected in numerous samples of the native plant
species used to generate the cell cultures. See figure below. [FIGURE TO
FOLLOW.] See "--Products Under Development--Sunillin Antifungal Series."
In addition to enabling broader access to novel chemical diversity, Phytera's
ExPAND technology addresses other significant problems associated with
traditional natural product drug discovery, including access and reaccess to
species source material and reproducibility and scalability of species
chemistry.
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Small quantities of plant material, such as a seed or leaf or stem clipping,
are required to establish a cell culture. This enables access to plant species
available from botanical gardens and commercial seed vendors. It also provides
access to species in limited supply due to conservation concerns, sourcing
logistics or other issues. The Company believes that these advantages will
facilitate access to the majority of the world's plant species.
Reaccess to source material can be a major problem with traditional
approaches and often requires new sourcing expeditions to harvest larger
quantities of the original plant material. This can present significant
logistical hurdles, require a great deal of time and often results in a failure
to reaccess the source or its pharmaceutically important chemistry. By
contrast, Phytera's ability to preserve and store its plant cell cultures,
primarily by cryopreservation or freezing, obviates the need for reaccess to
the source. Further, the ExPAND process is reproducible and scalable, providing
the increased quantities of chemical compounds required for further
pharmaceutical evaluation and preclinical development.
Phytera has developed its expertise and know-how in the area of plant cell
culture over more than 15 years and has successfully cultured thousands of
diverse plant species. The Company believes that this expertise and the
resultant cell culture libraries represent significant barriers to entry for
competitors. The Company is seeking to broaden its chemical diversity libraries
through the sourcing of additional species and development of additional
manipulation techniques.
(u)MARINE Technology
Marine microorganisms represent a promising and largely unexplored source of
lead structures and candidate drugs. The isolation and culture of marine
microorganisms has historically been limited by an incomplete understanding of
the environmental niches they occupy in the oceans. Traditional marine
microorganism isolation media are only minor modifications of those used for
terrestrial microorganisms and fail to reproduce the natural marine
environment. As a result, such media typically enable the isolation of only a
small percentage of the microorganisms present in a given marine sample.
Phytera's (u)MARINE technology significantly increases isolation success rates
by utilizing microbial isolation conditions which more closely replicate the
growth conditions of marine microbes in their natural environment. Phytera
believes that its (u)MARINE technology may provide access to many species of
marine microorganisms that have never before been isolated.
The (u)MARINE program is driven by broad sourcing of microbe-containing marine
specimens such as sediment, plant and animal macroorganisms and seawater.
Phytera's (u)MARINE culture library emphasizes the most chemically prolific
classes of marine microbes, fungi and actinomycetes, rather than more commonly
sampled and less chemically diverse organisms such as eubacteria. Each
microbial cell culture is fermented under a variety of proprietary, marine
nutrient-based conditions to induce multiple genetic and enzymatic changes
which modify its chemistry. As in the case of plant cell cultures,
combinatorial manipulations of marine microbial cell culture conditions result
in diverse chemical expression states, providing access to novel chemical
compounds. Marine microorganism cell cultures can be successfully stored by
cryopreservation (freezing) and reaccessed for future use. The Company's
antiviral candidate, marinovir, is a marine microbial product that is not
produced by the originating cell culture under non-(u)MARINE conditions. See
"--Products Under Development--Marinovir--Preclinical Candidate for Herpes
Infections."
GENERATION OF CHEMICAL DIVERSITY LIBRARIES
ENRICH Extraction Technology
One limiting factor in natural product-based drug discovery has been the use
of overly crude extracts which have not been processed to remove nuisance and
dilutive compounds prior to screening. To overcome this limitation, Phytera has
developed its ENRICH technology which refines extracts to generate high-quality
pharmaceutical screening samples. Studies have confirmed that ENRICH extraction
selectively increases the abundance of potentially important chemicals in
pharmaceutical screening samples and removes a substantial number of nuisance
and dilutive compounds.
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To date, Phytera has generated over 60,000 ENRICH cell culture extracts,
22,000 from its ExPAND program and 38,000 from its (u)MARINE program, and
expects to increase its extract libraries further in the future. Numerous
samples of these extracts are stored in a format that is compatible with the
high-throughput screening methods used by Phytera and other pharmaceutical and
biotechnology companies. Each stored sample is capable of supporting hundreds of
pharmaceutical screenings, enabling long term access to the Company's novel
chemical diversity libraries. In the event that these extract libraries become
depleted, Phytera can replenish each sample by regrowth, re-manipulation and re-
extraction of the respective plant or marine microbial culture from its storage
bank.
PINACLE Technology
While Phytera believes that its novel extract-based technologies overcome
many of the key limitations to successful natural product-based drug discovery,
the approach involves screening mixtures of natural chemical compounds.
Phytera's PINACLE technology is designed to solve many of the problems
associated with the screening of complex mixtures. The objective of Phytera's
PINACLE technology is to combine the high degree of chemical diversity
available from its combinatorial biology technology with the benefits of a one-
chemical-compound-per-screening-sample format. The Company has established a
pilot library of PINACLE compounds, and is further developing this program in
order to produce a larger-scale library to be made available to commercial
partners in 1999.
The PINACLE process begins by subjecting plant cell and marine microbial
cultures to as many as thirty manipulations using ExPAND and (u)MARINE
technologies. The resulting extracts then undergo multiparameter analysis using
techniques such as liquid chromatography, ultraviolet absorption, mass
spectrometry and nuclear magnetic resonance spectroscopy. These are applied in
a proprietary fashion to generate a unique chemical profile for each extract.
The profiles are compared to identify those cell culture extracts containing
the largest amounts of the most novel and diverse chemistry. Selected cell
cultures are regrown on a larger scale, re-manipulated and re-extracted. The
resulting large-scale extracts are subjected to a series of proprietary
separation methods, currently being refined, to isolate individual chemical
compounds. Individual chemical compounds that are not already represented in
Phytera's libraries are analytically characterized, catalogued in an extensive
database and placed in microtiter plates for later screening in a one-chemical-
compound-per-screening-sample format. See "Risk Factors--Drug Discovery and
Development Risks."
PHARMACEUTICAL SCREENING
For a novel chemical compound to be identified as a lead structure or
candidate drug, it must first exhibit activity in a pharmaceutical screen that
acts as a surrogate for the human disease state. In order to leverage its novel
chemical diversity libraries, the Company has built an extensive pharmaceutical
screen portfolio that combines an internal program of screens for resistant
infectious diseases with partnership screens that span a wide variety of
disease areas. Phytera's screen portfolio is evolving over time as new
pharmaceutical screens are incorporated to replace certain existing screens and
to expand the portfolio to address new therapeutic targets.
Phytera's Resistant Infectious Diseases Screening Program
Escalating drug resistance is now considered by many the single most
important issue in the management of human infectious diseases. The Company
believes that the area of resistant infectious diseases is particularly suited
to screening Phytera's plant and marine microbial combinatorial biology-derived
libraries. Both plants and microbes are attacked by bacterial, fungal and viral
pathogens that have much in common with human pathogens. Plants and microbes
have, therefore, evolved chemical defense mechanisms that combat pathogen
invasion and reproduction. Further, they have developed approaches that deal
with the problem of resistance development in the invading pathogen. Phytera's
plant- and marine microbe-derived chemical diversity libraries thus offer a
potentially rich source of novel antimicrobial agents that may not be
susceptible to the current resistance problems encountered in the human
therapeutic area.
Phytera believes that this area represents a particularly attractive focus
for its internal drug discovery program due to:
. Critical and growing medical need not addressed by existing therapies:
particularly important in this regard is the continued emergence of new
drug resistant pathogens;
. Large commercial markets for effective new agents;
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<PAGE>
. Reduced development risk due to a strong correlation between laboratory
screening systems and clinical activity; and
. Relatively rapid and cost-effective clinical studies due to the short
duration of study required and the definitive clinical endpoints
involved.
Phytera's resistant infectious diseases screening program consists of over 20
molecular targets and whole cell screens which act as surrogates for human
diseases. Molecular target-based screens enable the testing of samples against
the increasing number and variety of important enzymes, receptors or ion
channels being identified via genomic studies as relevant to key diseases. By
contrast, whole cell screens offer the opportunity to discover drugs which act
by entirely new mechanisms, independent of existing knowledge of molecular
targets. This is particularly important in view of the novel chemistry that is
contained in Phytera's chemical diversity libraries because it increases the
odds of discovering agents which act by novel mechanisms. Finally, information
generated from screening efforts is tracked, analyzed and integrated with
upstream sourcing and culturing activities and downstream natural product
chemistry through a computerized database and bioinformatics system.
MDR Knockout-Based Screens
Among the most innovative of Phytera's screens are those based on its
proprietary MDR pump technology. One way pathogens effectively defend
themselves against antimicrobial drugs is through the operation of MDR pumps,
which remove the drug from the cell. These pumps, discovered in the 1980s, are
responsible for a significant percentage of drug resistance in both bacteria
and fungi. For example specific MDR pumps have been identified that expel the
leading antifungal drug, fluconazole (active ingredient in Diflucan(R)), from
the fungal cell.
The Company believes that the presence of MDR pumps in strains of pathogens
used as screening tools over the last several decades may have resulted in a
failure to detect whole classes of potential antimicrobial chemical compounds.
Phytera has established an MDR pump-based genomics program which combines its
internal resources with those of a number of leading academic centers in the US
and Europe. In this program, the Company uses genetic engineering techniques to
generate a proprietary library of fungal and bacterial mutants that have one or
more of their MDR pumps selectively inactivated (or "knocked out"). Knowledge
of the MDR pump gene sequence(s) for certain microbial pathogens enables
identification of related sequences in a broader range of pathogens and
facilitates the construction of further MDR knockout strains. This approach has
generated numerous MDR knockout strains of microbial pathogens or related
organisms, each of which displays hypersensitivity to a wide range of
antimicrobial agents.
Based on these MDR knockouts, Phytera has developed high-sensitivity, high-
throughput pharmaceutical screens. Within its internal drug discovery program,
the Company is using bacterial MDR knockouts; in one revenue generating
partnership, the Company is using fungal MDR knockouts. The Company's library
of MDR knockouts includes, among others, several major bacterial pathogens such
as Staphylococcus aureus and Escherichia coli (E. coli) and important fungal
pathogens such as Candida albicans.
Phytera's efforts to date clearly demonstrate that MDR knockout strains are
capable of detecting the antimicrobial activity of chemical compounds that is
undetected in screens using the corresponding wild-type strain of the pathogen
with normal MDR pump(s). Traditional antimicrobial screens used by the
pharmaceutical industry employ these wild-type strains. Thus, MDR knockout
pathogen strains offer the opportunity to discover chemically and
mechanistically novel classes of antibacterials and antifungals.
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MDR KNOCKOUT-BASED SCREENS CAN DETECT NOVEL ANTIMICROBIAL DRUGS
[Graphic representation of a "Wild-type Microbe" that has functioning MDR pumps
with the following adjacent text:
. Drug largely removed from microbe by MDR pump
. Microbial screen does not detect the activity of novel antimicrobial drugs
Graphic representation of an "MDR Knockout Microbe" in which there are no
functioning MDR pumps with the following adjacent text:
. Drug not removed from microbe
. Microbial screen detects the activity of novel antimicrobial drugs]
Partnership Screens
Phytera is leveraging its chemical diversity libraries through a number of
corporate partnerships that expose this chemistry to a wide array of innovative
screening targets across numerous important therapeutic areas. Phytera's
partnership screens currently span 12 therapeutic areas. See "--Corporate
Partnerships."
COMBINATORIAL CHEMISTRY PROGRAM
Lead structures identified by pharmaceutical screening rarely possess all the
properties required to be selected as a candidate drug. Usually, a lead
structure needs to be optimized to improve efficacy, safety, drug delivery
characteristics, pharmacokinetics or manufacturing procedures, prior to its
advancement as a candidate drug.
Recently, combinatorial chemistry has emerged as an important and powerful
ancillary technology in the optimization of lead structures into candidate
drugs. Combinatorial chemistry is a chemical synthesis technology that, in many
ways, is analogous to the methods that living cells use to produce chemical
diversity. The basic concept involves the chemical reaction of a family of
closely related chemical structures (for example, family A/1/, A/2/ and A/3/)
with a different family of closely related structures (for example, family
B/1/, B/2/, and B/3/) to produce a number of combinatorial chemical analogs
(A/1/B/1/, A/1/B/2/, A/1/B/3/, A/2/B/1/, . . ., A/3/B/3/). If each chemical
family is large, then the resultant chemical library will be exponentially
larger. Two families of 100 chemicals will yield 10,000 new chemical compounds
when optimally combinatorialized. Thus, once a lead structure is identified,
combinatorial chemistry can be applied to produce large numbers of structural
analogs, which can be examined for the improved properties required in a
candidate drug. Together with medicinal synthetic chemistry and computer
assisted design, combinatorial chemistry now plays an important role in the
process of optimization of a lead structure.
The Company's combinatorial chemistry program, MANIFOLD, integrates solid
phase combinatorial chemistry techniques with other proprietary methods for
analoging natural product structures. These technologies greatly facilitate the
optimization of lead structures derived from the Company's combinatorial
biology-based screening program. Certain of these natural product lead
structures may not be easily approachable by conventional combinatorial
chemistry. The Company further applies its proprietary MANIFOLD technologies in
the generation of combinatorial libraries based on novel natural product
structures isolated within the PINACLE program and other interesting lead
structures identified from the literature or by Phytera's academic
collaborators.
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Among the structures to which Phytera has applied MANIFOLD are Actinomycin D,
balanol and a number of others that have been identified through the Company's
combinatorial biology program. Actinomycin D is a potent but non-selective
natural inhibitor of DNA repair that is currently used for cancer therapy,
analogs of which could have wider indications in cancer and infectious
diseases. Balanol is a potent but non-selective inhibitor of the enzyme protein
kinase C, isoforms of which have been implicated in a wide variety of diseases.
Among structures identified within the Company's combinatorial biology program
are PHY400 and PHY1100, both discovered from screening of Phytera's ExPAND
plant cell culture-derived chemical library. PHY400 is the prototype of a novel
series of antibacterial compounds which inhibit a specific molecular target
found in important pathogenic bacteria such as Staphylococcus spp. Inhibition
of the molecular target is correlated with in vitro activity against bacterial
pathogens. The objective of the associated MANIFOLD combinatorial chemistry
effort is to identify an analog of PHY400 which displays potent antibacterial
activity in vivo. Enhancement of in vivo activity is also the goal of a
MANIFOLD analog program around PHY1100, a potent, structurally novel inhibitor
of human angiogenesis in in vitro models, which was identified in partnership
with Tsumura & Co. Other lead structures identified in internal screening
programs or from external publications will enter the MANIFOLD analog program
in 1999.
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CORPORATE PARTNERSHIPS
Phytera is actively seeking to develop revenue-generating and retained
product rights partnerships with pharmaceutical and biotechnology companies.
The table below summarizes the focus of each of Phytera's current corporate
partnerships:
PHYTERA'S CORPORATE PARTNERSHIPS
<TABLE>
<CAPTION>
TYPE OF PARTNERSHIP
------------------------------------------
CORPORATE PARTNER PARTNERSHIP FOCUS REVENUE-GENERATING RETAINED PRODUCT RIGHTS
----------------- ----------------- ------------------ -----------------------
<S> <C> <C> <C>
Eli Lilly and Company Fungal Diseases X
Chiron Corporation Cancer and other areas X
Tsumura & Co. Inflammation and allergy X X
NeuroSearch A/S Asthma, depression, diabetes, X
memory and attention deficit
disorders
Galileo Laboratories, Stroke and myocardial X
Inc. infarction
Nycomed Amersham plc. Plant derived enzymes for X X
research laboratory use or
clinical diagnostics
</TABLE>
ELI LILLY AND COMPANY
In July 1998, Phytera entered into a revenue-generating partnership with Eli
Lilly and Company ("Lilly"), a US pharmaceutical company, to discover novel
agents for the diagnosis, treatment and prevention of infectious fungal
diseases in humans and animals. The partnership involves several of the
Company's proprietary technologies, including chemical diversity libraries, MDR
knockout-based antifungal screens and the isolation and identification of
active chemical compounds. Lilly will also provide chemical compounds for
screening and will be responsible for lead structure optimization and candidate
drug development and commercialization. The initial term of the agreement is
two years, and Lilly has the right to extend the program for three additional
years, in one year increments. Lilly is obligated to make certain payments to
the Company to support ongoing research and to make milestone payments at
certain points in the development process. In addition, royalty payments are
due on the sales of any products derived from this partnership. Lilly has made
an initial equity investment in connection with this agreement and will make a
further equity payment if a specific research milestone is triggered.
CHIRON CORPORATION
In May 1998, the Company entered into a revenue-generating partnership with
Chiron Corporation ("Chiron"), a US biotechnology company, to discover novel
agents for the treatment of various forms of cancer and other diseases. Phytera
has provided chemical diversity libraries to Chiron for screening in certain of
Chiron's proprietary high throughput screening systems and will carry out the
isolation and identification of active chemical compounds. Under the terms of
this agreement, Phytera has received an up-front payment, will receive funding
for research activities, and may receive option and license fees based on
Chiron's selection of certain chemical compounds for further development.
Phytera is also entitled to future milestone payments at certain specified
points in the development process and royalties on sales of marketed products
derived from the partnership. The Chiron partnership terminates upon the
completion of screening and the isolation and identification of any active
chemical compounds. The agreement with Chiron contemplates an initial
collaboration term of up to 15 months, during which time Chiron will screen
Phytera's chemical diversity libraries. After the 15 month collaboration,
Chiron may, at its option, enter into an exclusive license to commercialize one
or more lead structures upon payment of an additional fee to Phytera, or
terminate this agreement upon 30 days' notice.
TSUMURA & CO.
In June 1996, the Company entered into a revenue-bearing and retained product
rights partnership with Tsumura & Co. ("Tsumura"), a Japanese pharmaceutical
company, to discover novel agents for the treatment of inflammation and
allergies. Under the terms of the agreement, Phytera provides access to its
chemical
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<PAGE>
diversity libraries for screening against selected allergy and inflammation
targets. Phytera and Tsumura share responsibilities for the discovery and
development of chemical compounds from this partnership. Tsumura is responsible
for primary screening and lead structure optimization, while Phytera is
responsible for the isolation and identification of active chemical compounds.
Phytera and Tsumura will jointly own any patents resulting from the
partnership. Phytera has retained North American development and marketing
rights to any discoveries emanating from the partnership and Tsumura has been
granted development and marketing rights outside North America. The parties
have agreed to work together to facilitate the optimal development of candidate
drugs in their respective territories. The agreement was originally entered
into for a three-year period and has been extended for an additional year, now
remaining in effect until June 2000. Under the agreement, Tsumura makes annual
extract library access payments and provides other research funding to Phytera
and will make milestone payments at certain specified points in the drug
development process. Royalty payments are due on marketed products derived from
the partnership.
NEUROSEARCH A/S
In May 1998, the Company entered into a retained product rights partnership
with NeuroSearch A/S ("NeuroSearch"), a Danish biotechnology company, to
discover novel agents that interact with potassium ion channels. These agents
may prove useful in the treatment or prevention of a wide array of diseases,
such as memory and attention deficit disorders, depression, asthma, and
diabetes. The Company is providing extracts from its chemical diversity
libraries for screening in NeuroSearch's proprietary potassium ion channel
assay systems. Phytera will also conduct the isolation and identification of
active chemical compounds. The parties share equally both the rights to and the
costs of the discovery and development of chemical compounds identified from
this partnership and will collaborate on lead structure optimization
activities. The parties will negotiate in good faith with respect to a
development strategy once lead structures have been identified. In the event
the parties are not able to reach agreement with respect to a development
strategy, Phytera will retain exclusive commercial rights in North America,
NeuroSearch will retain exclusive commercial rights in Europe, and the parties
will share commercial rights in the rest of the world equally. The agreement
remains in effect for a three year term, subject to extension by mutual
agreement.
GALILEO LABORATORIES, INC.
In April 1998, Phytera entered into a retained product rights partnership
with Galileo Laboratories, Inc. ("Galileo"), a US biotechnology company. Under
the terms of this agreement, Phytera will provide chemical diversity libraries
to Galileo for screening in Galileo's proprietary assay systems for the purpose
of discovering chemical compounds that are useful for the prevention or
treatment of diseases such as stroke and myocardial infarction. The parties
share equally both the rights to and the costs of the discovery and development
of chemical compounds identified from this partnership. Phytera is responsible
for providing cell culture extracts for screening and for the isolation and
identification of active chemical compounds. Galileo is responsible for
conducting the primary and secondary pharmaceutical screening of the extracts.
The parties have agreed to collaborate on lead structure optimization
activities and will negotiate in good faith with respect to a development
strategy once lead structures have been identified. In the event the parties
are not able to reach agreement with respect to a development strategy, Phytera
will retain exclusive commercial rights in Europe, Galileo will retain
exclusive commercial rights in North America, and the parties will share
commercial rights in the rest of the world equally. The agreement terminates
upon the execution of a final agreement regarding one or more candidate drugs
identified pursuant to this partnership.
NYCOMED AMERSHAM PLC
In July 1993, the Company established a revenue-bearing and retained product
rights partnership with Nycomed Amersham plc ("Amersham"), a UK company. Under
this partnership, Phytera and Amersham pursued a research and development
program in the area of plant cell culture-derived enzymes for application
within Amersham's Life Science Group. Amersham provided research support to
Phytera and agreed to make royalty payments based on Amersham's net sales of
products derived from the partnership. The parties will equally share any
royalties derived from licensing any inventions made by the partnership for
clinical diagnostic applications. In addition, Phytera retained rights to any
inventions made by the partnership for applications other than laboratory
testing, forensics testing and clinical diagnostics.
Phytera successfully completed this research program in 1995 with the
identification and bulk supply to Amersham of several novel enzymes meeting the
project specification. The agreement was amended in
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[November] 1998 to set forth the terms under which these enzymes will be
marketed to potential licensees and/or development partners in the clinical
diagnostics area.
PRODUCTS UNDER DEVELOPMENT
MARINOVIR--PRECLINICAL CANDIDATE FOR HERPES INFECTIONS
Marinovir (formerly known as cyclomarin-A) is a novel chemical compound
isolated from a marine microbial cell culture utilizing Phytera's (u)MARINE
technology. Marinovir's dual antiviral/anti-inflammatory activity addresses two
important components of herpes pathology. As such, it has the potential of
providing a superior overall therapeutic effect in herpes virus infections. The
Company is currently carrying out preclinical studies with the objective of
commencing clinical studies in 1999. See "Risk Factors--Drug Discovery and
Development Risks."
Preclinical tests have indicated that marinovir inhibits proliferation of
HSV-1 and HSV-2 in vitro with potencies similar to that of acyclovir, the
leading marketed product for the treatment of herpes infections. Marinovir
displays in vivo topical activity in two animal models of human herpes
infection and has also demonstrated anti-inflammatory action in the same animal
species. In a mouse model of vaginal herpes infection, topical application of
marinovir had a significant impact across all endpoints under study, including
herpes-related mortality, vaginal herpes levels, inflammatory indices and
neural deficits resulting in excessive urination. Phytera believes marinovir
may work through a novel mechanism of action because it is structurally
distinct from all other antiviral and anti-inflammatory agents known to the
Company and is effective against acyclovir-resistant strains of HSV-2.
Marinovir was initially identified by academic collaborators as a novel anti-
inflammatory chemical compound using technology ultimately incorporated into
Phytera's (u)MARINE program. Subsequently, Phytera demonstrated that marinovir
had activity against the herpes virus. Phytera holds a use patent on the
application of marinovir as a treatment of viral infections and has exclusive
rights to license composition of matter and anti-inflammatory use patents on
marinovir from the originating academic institution. See "--Patents and
Proprietary Rights."
SUNILLIN ANTIFUNGAL SERIES
Sunillin, the lead structure for a series of over 8,000 analogs generated by
Phytera's MANIFOLD technology, was isolated from manipulated plant cell
cultures using the Company's ExPAND technology. Phytera's extensive preclinical
development work with sunillin demonstrated that it is not suitable for
commercial development. The Company believes, however, that the series of
sunillin analogs is a potential source of a mechanistically novel antifungal
drug. Sunillin and its analogs are structurally distinct from all other
antifungal agents known to the Company. Phytera is currently in the process of
selecting a candidate drug for preclinical development from this series.
The sunillin series has demonstrated a broader in vitro spectrum of
antifungal activity than fluconazole, the active ingredient in the leading
systemic antifungal drug, Diflucan(R). Sunillin and certain of its analogs
suppress growth of strains of fungal pathogens resistant to fluconazole and
have demonstrated the ability to protect mice in vivo from a lethal challenge
with Candida albicans or Aspergillus fumigatus, two human fungal pathogens.
Such compounds have also demonstrated the ability to inhibit an identified
molecular target within the fungal cell which appears to play a role in fungal
pathology. Other known antifungal drugs do not inhibit this target, indicating
that members of the sunillin series produce at least some of their antifungal
effects through a distinct mechanism of action. The fact that members of the
series have produced synergistic antifungal effects in conjunction with known
antifungal drugs has reinforced the concept of a distinct mechanism of action
for sunillin and its analogs.
BIODIVERSITY SOURCING AGREEMENTS
The Company believes that its extensive arrangements to source biological
material are an important asset and competitive advantage. The small amount of
plant material required to establish plant cell cultures has enabled the
Company to enter into a number of sourcing arrangements with botanical gardens
and with certain countries or their appointed designees. Plant source material
may be a leaf or stem clipping or a seed. As a result, Phytera can access a
much larger number and variety of plant species than traditional approaches
which
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<PAGE>
require large amounts of plant material. Phytera's policy is to conduct all of
its sourcing activities in compliance with the requirements of the 1992
Convention on Biological Diversity.
INBIO AGREEMENT
In July 1998, Phytera entered into a two-year collaborative research
agreement with Instituto Nacional de Biodiversidad ("INBio") in Costa Rica.
INBio is a private, non-profit organization empowered by the government of
Costa Rica to develop and implement viable approaches to manage the country's
biodiversity resources. Under this joint research effort, access to a portion
of indigenous plant species that could not otherwise be investigated is made
possible through the unique combination of Phytera's ExPAND technology and
INBio's inventory and bioprospecting approach. Phytera will provide research
funding to INBio during the term of the agreement and INBio will be entitled to
royalties on the sales of products derived from the cultures provided to
Phytera. Ten percent of research funding and fifty percent of royalties
received by INBio shall be donated to the Ministry of Environment and Energy in
Costa Rica for biodiversity conservation.
OTHER PLANT SOURCING
In addition to commercial seed sources, the Company has established plant
sourcing agreements with a number of botanical gardens that provide Phytera
with access to a quantity and diversity of plant species sufficient to support
continued production of ExPAND extracts and PINACLE libraries. Although
specimens in the collections of such gardens that pre-date the Convention are
not governed by its terms, Phytera nonetheless structures its agreements with
the gardens to honor the tenets of the Convention whenever possible. As part of
those agreements, Phytera will make certain payments to the country of origin
from which specimens were originally sourced by the botanical garden, if such
country can be identified. If a country of origin cannot be determined, Phytera
will contribute funds to a non-profit trust established by the Company for the
purpose of promoting research and conservation of biodiversity resources.
MARINE SOURCING
The Company also maintains an active program to acquire samples of marine
microorganisms from US territorial waters. Phytera acquires samples through a
variety of approaches, including charters, contract diving companies and
collaborations with academic groups conducting marine biology research
expeditions. The Company expects that marine sourcing expeditions outside of US
territorial waters may be conducted in the future.
PATENTS AND PROPRIETARY RIGHTS
Phytera seeks to protect its core enabling technologies and drug discoveries
through patents or trade secrets, depending on the nature of the technology or
discovery, and in consultation with its external intellectual property
advisors. The Company holds three patents, an issued US patent on the use of
marinovir to treat viral infections and two issued US use patents on the
production of novel enzymes in plant cell culture. The Company is pursuing
counterpart patents in other jurisdictions. Novel chemical compounds isolated
from natural sources are potentially patentable as composition of matter
patents, even if a crude natural product (for example, an extract or blend of
extracts) containing the chemical compound claimed has previously been used or
marketed by others. In addition, the Company has eight patent applications
pending in the US or Denmark with counterpart filings in other countries. One
of these applications covers the identification and use of MDR knockouts. This
invention was a joint discovery by Phytera and an academic institution. Phytera
has licensed the academic institution's rights so that it now holds exclusive
rights to this invention. In connection with this license, Phytera is obligated
to pay a portion of research and development revenue deriving from the patented
technology to the academic institution. The Company is also obligated to pay
certain milestone and royalty payments to the institution as products are
identified, developed and commercialized.
Phytera has an option from an academic institution to an exclusive license
with respect to an issued US composition of matter patent on marinovir and an
issued US use patent on its anti-inflammatory use and all associated foreign
patent applications. The Company is currently negotiating the terms of its
exclusive license with the academic institution. Phytera believes that a
license will be obtained under terms that are consistent with pharmaceutical
industry standards, in part because the Company holds an issued patent on the
use of marinovir in the treatment of viral infections. However, there can be no
guarantee that the Company will obtain the license on commercially acceptable
terms or at all.
37
<PAGE>
Patent law, as it relates to inventions in the pharmaceutical and
biotechnology fields, is still evolving and involves complex legal and factual
questions for which legal principles are not firmly established. Moreover,
because (i) patent applications in the United States are maintained in secrecy
until patents issue, (ii) patent applications in certain other countries
generally are not published until more than 18 months after they are filed,
(iii) publication of technological developments in the scientific or patent
literature often lags behind the date of such developments and (iv) searches of
prior art may not reveal all relevant prior inventions, the Company cannot be
certain that it was the first to invent the subject matter covered by its
patent applications or that it was the first to file patent applications for
such inventions. Accordingly, there can be no assurance that patents will be
granted with respect to any of the Company's pending patent applications or
with respect to any patent applications filed by the Company in the future.
There can be no assurance that patent applications filed by Phytera will
result in patents being issued, that the claims of such patents will offer
significant protection for the Company's technology, or that any patents issued
to or licensed by Phytera will not be challenged, narrowed, invalidated or
circumvented. The Company may also be subject to proceedings that result in the
revocation of patent rights previously owned by or licensed to Phytera, as a
result of which the Company may be required to obtain licenses from others to
continue to develop, test or commercialize its products. There can be no
assurance that Phytera will be able to obtain such licenses on acceptable terms
or at all. In addition, there may be pending or issued patents held by parties
not affiliated with Phytera that relate to the technology utilized by Phytera.
As a result, Phytera may need to acquire licenses, to assert infringement of,
or contest the validity of, such patents or other similar patents which may be
issued. Phytera could incur substantial costs in defending itself against
patent infringement claims, interference proceedings, opposition proceedings or
other challenges to its patent rights made by third parties, or in bringing
such proceedings or enforcing any patent rights of its own.
The Company also relies upon trade secrets, know-how and continuing
technological advances to develop and maintain its competitive position. Such
information may become available to the Company's competitors. In an effort to
maintain the confidentiality and ownership of trade secrets and proprietary
information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company. These agreements are
intended to enable the Company to protect its proprietary information by
controlling the disclosure and use of technology to which it has rights and
provide for ownership by the Company of proprietary technology developed at the
Company or with the Company's resources. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's
trade secrets or other confidential information in the event of unauthorized
use or disclosure of such information or that adequate remedies would exist in
the event of such unauthorized use or disclosure. The loss or exposure of trade
secrets possessed by Phytera could adversely affect its business.
The Company relies upon common law trademark protection for its trademarks as
well as registration of trademarks with the US Patent and Trademark Office ("US
PTO") and the European Trademark Office. Trademark registrations have been
issued by the US PTO for the ExPAND and (u)MARINE marks. Applications have been
filed with the US PTO for the PINACLE and ENRICH marks and with the European
Trademark Office for the MANIFOLD mark, but registrations have not yet issued.
There can be no assurance that any registered or unregistered trademarks or
trade name of the Company may not infringe upon a third party's rights. The
requirement to change the trademark or trade name of the Company could entail
significant expenses and could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors--
Dependence on Patents and Proprietary Rights."
REGULATION
Phytera's preclinical studies and future clinical trials, as well as the
manufacturing and marketing of its potential products, are subject to extensive
regulation by numerous governmental authorities, including the US Food and Drug
Administration ("FDA") and the European Medicines Evaluation Agency ("EMEA").
The Company will be subject to similar regulation by agencies in other
countries where the Company and its collaborators may test and market products.
These regulatory authorities require certain steps including preclinical
studies in animal models to assess a candidate drug's efficacy and to identify
potential health problems resulting from use of a drug. Preclinical safety
tests must be conducted by laboratories that comply with applicable regulations
regarding Good Laboratory Practices ("GLP"). The results of these studies are
submitted to the appropriate regulatory
38
<PAGE>
authorities as part of an Investigational New Drug Application ("IND") which is
filed to comply with FDA and EMEA regulations, prior to beginning clinical
testing.
Clinical trials are typically conducted in three sequential phases, which
sometimes overlap. In Phase I, clinical trials are conducted with a small
number of subjects to determine the early safety profile and the pattern of
drug distribution and metabolism. In Phase II, clinical trials are conducted
with groups of patients afflicted with a specified disease in order to
determine efficacy, optimal dosages and provide additional safety data. In
Phase III, large scale, multicenter comparative clinical trials are conducted
with patients afflicted with a target disease, in order to provide enough data
for the statistical proof of efficacy and safety required by the regulatory
authorities. The human trials must be adequate and well controlled to establish
the safety and efficacy of the drug for its intended use.
The results of the preclinical testing and clinical trials are then submitted
to the FDA for a pharmaceutical product in the form of an New Drug Application
("NDA"), for approval to commence commercial sales. In responding to an NDA,
the FDA may grant marketing approval, request additional information, or deny
the application if it determines that the application does not satisfy its
regulatory approval criteria. Preparing an NDA involves considerable data
collection, verification, analysis and expense.
At the European level, the EMEA assists in the operation of two new
procedures for obtaining marketing authorization in Europe--a centralized
community procedure and a decentralized procedure--the latter being based on
the principle of mutual recognition pursuant to which approval by the relevant
regulatory authority of one member state is recognized by those of others. As
such, the Company can choose to file for full authorization of pharmaceutical
products in the European community as a whole, or authorization in single
European countries can be sought by filing authorization applications with the
respective countries' regulatory authorities.
In the European Union, pharmaceutical legislation requires that a Marketing
Authorization Application ("MAA") for a drug produced through the use of
biotechnology be submitted for review in accordance with a centralized
procedure administered by the EMEA. Similar to the requirements of the FDA, the
pharmaceutical legislation of the European Union requires that the safety and
efficacy of a drug be demonstrated in clinical trials prior to approval of an
MAA for that drug. If approved by the EMEA, an MAA is recommended for
acceptance by the European Union.
In addition to obtaining FDA and EMEA approval for each type of product, each
manufacturing establishment for new drugs must receive approval by the FDA and
EMEA. Manufacturing facilities, both within and outside the US, are subject to
inspections by, or under the authority of, the FDA and EMEA and by other
federal, state or local agencies. Manufacturing facilities also must comply
with the FDA's current Good Manufacturing Practice regulations and parallel
manufacturing regulations of the EMEA.
Approval of a product by regulatory authorities outside the US and Europe
must be obtained prior to the commencement of commercial sales of the product
in such countries. The requirements governing the conduct of clinical trials
and product approvals vary widely from country to country, and the time
required for approval may be longer or shorter than that required for FDA or
EMEA approval. Although there are some procedures for unified regulatory
filings for certain countries, in general, each country at this time has its
own procedures and requirements. See "Risk Factors--Regulation."
COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly
evolving technology and intense competition. The Company competes against major
pharmaceutical companies and specialized biotechnology companies providing
chemical diversity libraries, pharmaceutical screening systems, combinatorial
chemistry technologies and other expertise. In addition, in pursuing its
internal drug discovery program, Phytera competes against pharmaceutical and
biotechnology companies developing drugs against infectious diseases. Many of
these competitors have greater financial and human resources and more
experience in research and development than Phytera. Competitors that identify
lead structures, develop candidate drugs, complete clinical trials, obtain
regulatory approvals, and begin commercial sales of their products before
Phytera will have a significant competitive advantage. These companies also
compete with Phytera in recruiting and retaining highly qualified scientific
and management personnel. Products currently exist for the treatment of many of
the disease conditions that the Company is targeting with its internal
discovery programs and partnerships, and additional products are under
development for these conditions. The existence of these products may adversely
affect the commercialization or marketability of products which Phytera and its
partners may develop.
39
<PAGE>
The Company anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies become
available. The Company's processes may be rendered obsolete or uneconomical by
technological advances or entirely different approaches developed by one or
more of the Company's competitors. The existing approaches of Phytera's
competitors or new approaches or technology developed by Phytera's competitors
may be more effective than those developed by the Company. See "Risk Factors--
Competition."
FACILITIES
The Company has approximately 26,000 square feet of laboratory and office
space in Worcester, Massachusetts, US pursuant to a lease that expires in
March 2004. Phytera's subsidiaries also lease approximately 10,000 square feet
in Sheffield, UK, approximately 4,600 square feet in Taastrup, Denmark and
approximately 4,100 square feet in Copenhagen, Denmark. Phytera believes its
current facilities are adequate for its current operations. The Company
believes that suitable additional space will be available, when needed, on
commercially reasonable terms.
LITIGATION; LEGAL PROCEEDINGS
Phytera is not a party to any litigation or material legal proceedings.
ORGANIZATION
As of September 30, 1998, Phytera employed 75 people. Of these, 64 were
engaged in research and development and 11 were engaged in general
administration. As of each of December 31, 1997 and December 31, 1996, Phytera
employed 74 and 53 people, respectively. None of Phytera's employees are
covered by collective bargaining agreements. Phytera believes its employee
relations are good.
The Company conducts operations in Denmark, the United Kingdom and the
United States. The activities comprising the Company's Combinatorial Drug
Discovery Program and preclinical development program conducted at each of
these locations are illustrated in the following chart.
----------------------------------------
Phytera, Inc.
(Worcester, MA, US)
. Combinatorial biology
. Marine microorganism culture
. Pharmaceutical screening
. Preclinical development
----------------------------------------
|
-----------------------------------------------------------
| | |
- -------------------- ------------------------ -----------------------
Phytera Ltd. Phytera Symbion ApS Phytera A/S
(Sheffield, UK) (Copenhagen, Denmark) (Taastrup, Denmark)
. Combinatorial biology . Combinatorial chemistry . Combinatorial biology
. Plant cell culture . Plant cell culture
- -------------------- ------------------------ -----------------------
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding the executive
officers, key employees and Directors of the Company as of October 15, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert G. Foster (1)............. 60 Chairman of the Board of Directors
Malcolm Morville, Ph.D. ......... 53 Director, President and Chief Executive
Officer
Christopher J. Pazoles, Ph.D. ... 48 Vice President of Research
Stephen J. DiPalma .............. 39 Chief Financial Officer and Vice
President
Neil Goldsmith................... 35 Managing Director of Phytera Symbion ApS
and Phytera A/S
Uffe Bundgaard-Jorgensen, Ph.D. 53 Director
(2)..............................
Gustav A. Christensen............ 51 Director
Graham K. Crooke, MB. BS. (1).... 39 Director
Steven J. Roth (1)(2)............ 50 Director
Poul Schluter.................... 69 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Robert G. Foster is a founder of the Company and has served as Chairman of
the Board since August 1995. Mr. Foster is a founder of Commonwealth
BioVentures, Inc. ("CBI") and has served as Chairman, President and Chief
Executive Officer of CBI since November 1987. Through CBI, he was a founding
investor in Alpha-Beta Technology, Inc., EcoScience Corp., and TSI Corp., among
others. Prior to founding CBI, Mr. Foster served as Chairman, President and
Chief Executive Officer of Ventrex Laboratories, Inc. from 1976 to 1987. Mr.
Foster is also a director of several other biotechnology companies.
Malcolm Morville, Ph.D. has served as President, CEO and Director since he
joined the Company in 1993. From 1988 to 1993, Dr. Morville held senior
management positions at ImmuLogic Pharmaceutical Corp., most recently as
Division Vice President, Allergic Diseases Strategic Business Unit. From 1970
to 1988, Dr. Morville held scientific and management positions at Pfizer, Inc.,
both in the US and UK. Dr. Morville is also a member of the Boards of Directors
of Interneuron Pharmaceuticals, Inc. and the Massachusetts Biotechnology
Council. He received his Ph.D. in Biochemistry from the University of
Manchester, UK.
Christopher J. Pazoles, Ph.D. has served as Vice President of Research since
he joined the Company in 1994. From 1981 to 1994, Dr. Pazoles served at Pfizer,
Inc., most recently as Director of Early Development Planning and Assistant
Director, Department of Immunology and Infectious Diseases. Dr. Pazoles
received his Ph.D. in microbiology from the University of Notre Dame and
conducted post-doctoral studies at the National Institutes of Health.
Stephen J. DiPalma has served as Chief Financial Officer and Vice President
since he joined the Company in 1997. Mr. DiPalma previously served as Chief
Financial Officer of Aquila Biopharmaceuticals, Inc. (formerly Cambridge
Biotech Corporation) from 1996 to 1997. Prior to joining Aquila
Biopharmaceuticals, Mr. DiPalma served as Chief Operating Officer at The Picker
Institute and Chief Financial Officer of Genica Pharmaceuticals Corporation
(currently Athena Diagnostics, Inc.). He holds an MBA from Babson College.
Neil Goldsmith has served since 1997 as Managing Director of Phytera Symbion
ApS and Phytera A/S. He also provides senior management support to Phytera Ltd.
under a consulting agreement with Prospero Biotech Ltd. From 1996 to 1997, Mr.
Goldsmith served as Managing Director of Auda Pharmaceuticals ApS ("Auda") and
joined the Company when Phytera acquired Auda. Prior to his service at Auda,
Mr. Goldsmith served as Managing Director at GX BioSystems A/S from 1995 to
1996 and PNA Diagnostics A/S in 1996. Mr. Goldsmith was Vice President,
Business Development at Pharmacia Biosensor AB from 1992 to 1993.
41
<PAGE>
Uffe Bundgaard-Jorgensen, Ph.D. has served as Managing Director of Danish
Venture Finance A/S since 1988. Dr. Bundgaard-Jorgensen worked for Hoff &
Overgaard Consultants as a Planning Consultant from 1970 to 1979 and Komgas
(Energy) as Managing Director (Denmark) from 1979 to 1988. Dr. Bundgaard-
Jorgensen is Chairman of SAXoTech A/S and HTC A/S and a director of Data Flight
Europe A/S and PPU Management A/S. Dr. Bundgaard-Jorgensen received his Ph.D.
from the University of Copenhagen.
Gustav A. Christensen is a founder of the Company and has served as a
Director of Phytera, Inc. since 1992. He is also a part-time consultant to
Phytera, Inc. Mr. Christensen has served as Chairman of Alpha-Beta Technology,
Inc. since 1991. From 1988 to 1990, Mr. Christensen served as President and
Chief Executive Officer of ImmuLogic Pharmaceutical Corp. From 1983 to 1988, he
served as Senior Vice President, Commercial Affairs at Genetics Institute.
Prior to joining Genetics Institute, Mr. Christensen held a variety of
management positions at Baxter International Inc. Mr. Christensen is also a
director of several privately held biotechnology companies and Diatide, Inc., a
publicly held biotechnology company. Mr. Christensen holds an MBA from Harvard
Business School and a M.Sc. in economics from the University of Aarhus.
Graham K. Crooke, MB. BS. is a partner at Ticonderoga Capital, Inc. (formerly
Dillon, Read Venture Capital). Prior to joining Dillon, Read Venture Capital in
1992, Dr. Crooke worked as a consultant for Booz, Allen & Hamilton, Inc. from
1990 to 1991. He served as Product Manager at Molecular Devices Corporation
from 1988 to 1990. Dr. Crooke is a Director of Centaur Pharmaceuticals, InsMed
Pharmaceuticals, Epic Therapeutics and ProScript. Dr. Crooke earned his medical
degree from the University of Western Australia in 1983 and his MBA from
Stanford Business School in 1988.
Steven J. Roth has been a private equity investor since 1984 and a Partner
and Principal of CR Management Associates, Inc. since 1990. Prior to 1990, Mr.
Roth held senior positions with Bartex Publishing Group, Heublein, Inc.,
Corning, Inc. and Touche Ross & Co., Inc. He holds an MBA with distinction from
Harvard Business School.
Poul Schluter was a member of the Danish parliament from 1964 through 1994,
and served as Prime Minister of Denmark from 1982 to 1993. Since 1994, Mr.
Schluter has served as a member of the European Parliament, holding the office
of Vice President from 1994 to 1996. Mr. Schluter also serves as a director for
several organizations, including Bayer A/S, and Henke-Ecolab. In addition, he
is an advisor to the Republic National Bank of New York and Waste Management
International.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Restated Certificate, to be filed concurrently with the closing
of this offering, provides for a staggered Board of Directors consisting of
three classes, with each class being as nearly equal in number as possible. At
each annual meeting of the Company's stockholders, the term of one class
expires and their successors are elected for a term of three years. The Company
has designated two Class I Directors (Dr. Crooke and Mr. Schluter), two Class
II Directors (Messrs. Foster and Roth) and three Class III Directors (Dr.
Morville, Mr. Christensen and Dr. Bundgaard-Jorgensen). These Class I, Class II
and Class III Directors will serve until the annual meetings of stockholders to
be held in 1999, 2000 and 2001, respectively, and until their respective
successors are duly elected and qualified, or until their earlier resignation
or removal. The Restated Certificate provides that Directors may be removed
only for cause by a majority of stockholders. There are no family relationships
among any of the Directors or executive officers. See "Description of Capital
Stock--Anti-Takeover Measures."
BOARD COMMITTEES
The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee, consisting of Dr. Bundgaard-Jorgensen and Mr.
Roth, held two meetings in 1997. The primary function of the Audit Committee is
to assist the Board of Directors in the discharge of its duties and
responsibilities by providing the Board with an independent review of the
financial health of the Company and of the reliability of the Company's
financial controls and financial reporting systems. The Audit Committee reviews
the general scope of the Company's annual audit, the fee charged by the
Company's independent accountants and other matters relating to internal
control systems.
The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee also
42
<PAGE>
administers the Company's 1998 Equity Incentive Plan (which amended and
restated the Company's 1992 Stock Option Plan), including the grant of stock
options and other awards under such plans. The Compensation Committee held four
meetings during 1997. The Compensation Committee is currently composed of
Messrs. Foster and Roth and Dr. Crooke.
SCIENTIFIC ADVISORS
The Company's scientific advisors are individuals with demonstrated expertise
in various fields who advise the Company on long-term scientific planning,
research and development. Members also evaluate the Company's research program,
recommend personnel to the Company and advise the Company on technology
matters. While the scientific advisors have not met as an entire group,
individual advisors and small groups have been available to advise the Company
on specific scientific and technical issues. The scientific advisors are
compensated on a time and expenses basis and, in some cases, have received
shares of Common Stock, stock options or warrants of the Company. The Company
has entered into consulting agreements with a number of scientific advisors.
No scientific advisor is employed by the Company and individual members may
have other commitments to or consulting or advisory contracts with their
employers or other entities that may conflict or compete with their obligations
to the Company. Accordingly, such persons are expected to devote only a small
portion of their time to the Company. The Company's scientific advisors are:
<TABLE>
<CAPTION>
SCIENTIFIC ADVISORS ACADEMIC INSTITUTION/AFFILIATION
------------------- --------------------------------
<C> <S>
MARINE SCIENCE
Arnold L. Demain, Ph.D. .......... Massachusetts Institute of Technology,
Massachusetts, US
William Fenical, Ph.D. ........... Scripps Institution of Oceanography,
California, US
MOLECULAR BIOLOGY
Kim Lewis, Ph.D. ................ Tufts University, Massachusetts, US
Dominique Sanglard, Ph.D. ....... Centre Hospitalier Universitaire Vaudois,
Lausanne, Switzerland
PHARMACEUTICAL DEVELOPMENT
Ze'ev Shaked, Ph.D. ............. ZS & Associates, Massachusetts, US
Cornelius Wortel, M.D., Ph.D. .... Clinquest Inc., Massachusetts, US
PLANT SCIENCE
Charles Arntzen, Ph.D. ........... Boyce Thompson Institute for Plant Research,
Cornell University, New York, US
Michael W. Fowler, Ph.D. ......... High Value Horticulture Ltd., Oxford, UK
Robert Verpoorte, Ph.D. .......... Leiden/Amsterdam Center for Drug Research,
Leiden,
Netherlands
CHEMISTRY
Robert Langer, Ph.D. ............. Massachusetts Institute of Technology,
Massachusetts, US
Lester Mitscher, Ph.D. ........... University of Kansas, Kansas, US
John Nielsen, Ph.D. .............. The Technical University of Denmark,
Copenhagen, Denmark
INFECTIOUS DISEASES
Gary Doern, Ph.D. ................ University of Massachusetts Medical Center,
Massachusetts, US
Robert C. Moellering, Jr., M.D. .. Deaconess Hospital & Harvard Medical School,
Massachusetts, US
Alan H. Sugar, M.D. .............. Boston University School of Medicine,
Massachusetts, US
</TABLE>
The Company's Directors and consultants are eligible to participate in the
1998 Equity Incentive Plan. See "--1998 Equity Incentive Plan."
43
<PAGE>
EXECUTIVE COMPENSATION
The following tables summarizes the compensation paid to or earned during the
fiscal year ended December 31, 1997 by the Company's Chief Executive Officer
and all of the other executive officers of the Company whose salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ---------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING RESTRICTED STOCK ALL OTHER
NAME AND 1997 PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) AWARD(S) ($) COMPENSATION ($)
- -------------------------------- ---------- --------- ---------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Morville,
Ph.D................... 250,000 30,000 -- -- -- --
President and Chief
Executive Officer,
Director
Stephen J. DiPalma (1).. 9,231 -- -- 75,000 18,750 --
Vice President, Finance
Christopher J. Pazoles,
Ph.D................... 181,715 -- -- -- -- --
Vice President of
Research
John S. McBride (2)..... 63,144 -- -- -- -- --
</TABLE>
- --------
(1) Mr. DiPalma commenced employment with the Company on December 8, 1997.
Restricted stock was awarded in December 1997, but was not purchased until
March 1998. The restricted stock is subject to a repurchase right for those
shares unvested should Mr. DiPalma cease to be employed with the Company.
(2) Mr. McBride served as Vice President, Business Development to the Company
until May 1997.
1997 Option Grants
The following table contains certain information regarding stock option
grants during the twelve months ended December 31, 1997 by the Company to the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (1)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- ---------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Morville,
Ph.D. ................. -- -- -- -- -- --
Stephen J. DiPalma (2).. 75,000 27% 0.75 12/09/07 35,375 89,648
Christopher J. Pazoles,
Ph.D. ................. -- -- -- -- -- --
John S. McBride......... -- -- -- -- -- --
</TABLE>
- --------
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, in the price of the underlying Common Stock. No gain to the optionees
is possible without an increase in price of the Common Stock, which will
benefit all stockholders proportionately. In order to realize the potential
values set forth in the 5% and 10% columns of this table, the per share
price of the Common Stock would have to be $1.22 and $1.95, or
approximately 63% and 160% above the respective exercise or base price
shown.
(2) Represents an option grant on December 9, 1997 covering 75,000 shares,
exercisable with respect to 25,000 of the underlying shares on December 8
in each of the years 1999, 2000 and 2001.
44
<PAGE>
Option Exercises and Year-End Option Values
The following table provides information about the number of shares issued
upon option exercises by the Named Executive Officers during the year ended
December 31, 1997, and the value realized by the Named Executive Officers. The
table also provides information about the number and value of options held by
the Named Executive Officers at December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR END ($)
YEAR-END (#) (1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Morville, Ph.D.
(2).................... -- -- 135,250 137,250
Stephen J. DiPalma...... -- -- 0 75,000
Christopher J. Pazoles,
Ph.D. (2).............. 20,625 24,625 57,250
John S. McBride (3)..... 13,000 -- --
</TABLE>
- --------
(1) Based on the difference between the option exercise price and an assumed
initial public offering price of $ per share of the underlying Common
Stock.
(2) Certain unvested options are subject to acceleration of vesting upon the
occurrence of milestone events.
(3) All unvested options held by Mr. McBride were terminated upon his departure
from the Company on May 19, 1997. Vested options not exercised have lapsed.
LOANS TO INSIDERS
The Company has not made any loans to its Directors or executive officers.
1998 EQUITY INCENTIVE PLAN
The Company's 1998 Equity Incentive Plan, which amends and restates the
Company's 1992 Stock Option Plan, authorizes the grant of incentive stock
options within the meaning of Section 422 of the US Internal Revenue Code of
1986, as amended (the "Code"), non-qualified stock options, stock grants and
other stock-based awards ("Awards") for the purchase of an aggregate of up to
2,400,000 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock to employees, consultants and Directors of the Company
or any Affiliate (as defined in the 1998 Equity Incentive Plan) capable of
contributing to the Company's performance. Grants of Awards under the 1998
Equity Incentive Plan and all questions of interpretations with respect to the
1998 Equity Incentive Plan are determined by the Board of Directors of the
Company. The Board of Directors has appointed the Compensation Committee to
administer the 1998 Equity Incentive Plan. In the event of a consolidation or
merger of the Company or the sale of substantially all of its assets, the Board
of Directors may terminate outstanding options after a 20 day notice to the
option holders. If the Board does not take such action, the holders of
outstanding options will be entitled to an option for securities of the
successor corporation.
EMPLOYEE STOCK PURCHASE PLAN
The Company has also adopted an employee stock purchase plan (the "Purchase
Plan") under which employees may purchase shares of Common Stock at a discount
from fair market value. There are 250,000 shares of Common Stock reserved for
issuance under the Purchase Plan. To date, no shares of Common Stock have been
issued under the Purchase Plan. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Code.
Rights to purchase Common Stock under the Purchase Plan are granted at the
discretion of the Compensation Committee, which determines the frequency and
duration of individual offerings under the Plan and the dates when stock may be
purchased. Eligible employees participate voluntarily and may withdraw from any
offering at any time before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price per share of
Common Stock in an offering is 85% of the lesser of its fair market value at
the beginning of the offering period or on the applicable exercise date and may
be paid through payroll deductions, periodic lump sum payments or a combination
of both. The Purchase Plan terminates on September 17, 2008.
45
<PAGE>
COMPENSATION OF DIRECTORS
The Company currently reimburses its Directors for out-of-pocket expenses
incurred in connection with their rendering of services as Directors. The
Company's Directors generally receive no cash remuneration for their services,
with the exception of Mr. Schluter who receives $1,000 per board meeting. Mr.
Christensen receives a stipend for consulting services provided to the
Company. For the 12 months ended December 31, 1997, Mr. Christensen was paid
$160,000 for his consulting services.
Directors who are not currently receiving compensation as officers or
employees of the Company are eligible to receive options under the 1998 Equity
Incentive Plan in consideration for their service as Directors. During the
twelve months ended December 31, 1997, the Company granted options to purchase
15,000 shares of Common Stock to each of Mr. Foster and Dr. Crooke and
warrants to purchase 15,000 shares of Common Stock to each of Mr. Schluter and
Danish Venture Finance A/S (for Dr. Bundgaard-Jorgensen's service as a member
of the Board of Directors). See "Principal Stockholders."
EXECUTIVE EMPLOYMENT AGREEMENTS
Under an Employment Agreement dated June 5, 1996, the Company agreed to
employ Dr. Morville as President and Chief Executive Officer of the Company
for a period of three years at a minimum annual salary of $250,000, plus
incentive bonuses as determined by the Compensation Committee. If Dr. Morville
is terminated without cause (including a failure to renew the agreement) or if
Dr. Morville terminates his employment for good reason (as defined in the
agreement), he will be entitled to receive a lump sum payment equal to six
months base salary, plus any benefits to which he is entitled for a period of
up to six months and a portion of the options granted to, and restricted stock
held by, Dr. Morville which would have otherwise vested on the next vesting
date following termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for Directors, executive officers
and other employees of the Company. The Compensation Committee also
administers various incentive compensation and benefit plans. The Compensation
Committee currently consists of Messrs. Foster and Roth and Dr. Crooke.
Commonwealth BioVentures, Inc., of which Mr. Foster is President, is a general
partner of both Commonwealth BioVentures IV Limited Partnership and
Commonwealth BioVentures V Limited Partnership, each of which is a venture
capital fund and a principal stockholder of the Company. Dr. Crooke is a
partner of Ticonderoga Capital, Inc., a venture capital firm and the general
partner of Venture Associates II, L.P., which is the general partner of
Concord Partners II, L.P., a principal stockholder of the Company. CR
Management Associates, of which Mr. Roth is a partner and principal, is a
general partner of CR Management Capital Partners I, L.P., a principal
stockholder of the Company. See "Principal Stockholders" and "Certain
Transactions."
46
<PAGE>
CERTAIN TRANSACTIONS
In September and December 1995 each of BancBoston Ventures, Inc.,
Commonwealth BioVentures V Limited Partnership ("CBIV"), Concord Partners II,
L.P. and CR Management Capital Partners I, L.P. (the "Bridge Investors")
purchased a Convertible Term Note in the principal amount of $250,000, except
in the case of CBIV, which purchased a Convertible Term Note of $900,000 (the
"1995 Bridge Financing"). In connection with the 1995 Bridge Financing, the
Company issued to each of the Bridge Investors warrants to purchase 22,727
shares of Common Stock at an exercise price of $5.50 per share; CBIV received a
warrant to purchase 54,546 shares of Common Stock at an exercise price of $5.50
per share. In January 1996, the Bridge Investors and Danish Development Finance
Corporation (now known as Danish Venture Finance A/S) purchased shares of
Series C Convertible Preferred Stock and warrants to purchase Common Stock as
set forth below:
<TABLE>
<CAPTION>
INVESTOR SERIES C SHARES(#) WARRANT SHARES(#)
-------- ------------------ -----------------
<S> <C> <C>
Danish Venture Finance A/S............... 288,000 39,744
BancBoston Ventures, Inc................. 41,035 5,663
Commonwealth BioVentures V Limited
Partnership............................. 146,419 20,206
Concord Partners II, L.P. (and
affiliates)............................. 155,974 21,525
CR Management Capital Partners I, L.P.... 129,035 17,807
</TABLE>
On March 11, 1997, the Company completed the acquisition of Auda
Pharmaceuticals ApS ("Auda") (later renamed Phytera Symbion ApS), a Danish
biotechnology company headquartered in Copenhagen. Danish Venture Finance A/S,
a principal stockholder of the Company, of which Dr. Bundgaard-Jorgensen is a
Director, owned approximately 92.4% of the outstanding share capital of Auda
prior to its acquisition. As consideration for its interest in Auda, Danish
Venture Finance A/S received 402,000 shares of the Company's Series D
Convertible Preferred Stock, valued at $7.50 per share, for total compensation
valued at $3,015,000.
In separate closings as of each of May 26 and June 25, 1998, the Company
issued an aggregate of 712,586 shares of its Series E Convertible Preferred
Stock, $0.01 par value per share (the "Series E Stock") to certain "accredited
investors" as defined by Rule 501 under Regulation D promulgated under the
Securities Act. Shares of Series E Stock were purchased for $10.00 per share.
Danish Venture Finance A/S and Concord Partners II, L.P., principal
stockholders of the Company, purchased 19,416 and 24,020 shares of Series E
Stock, respectively. In addition, Mr. Steven J. Roth, a member of the Board of
Directors, purchased 10,000 shares of Series E Stock for his own account.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's Common Stock as of September 30, 1998,
by (i) each person known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each Director of the Company, (iii) each Named Executive
Officer and (iv) all Directors and Named Executive Officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER (1) OWNED (2) OFFERING OFFERING (2)
-------------------- ------------ -------- ------------
<S> <C> <C> <C>
5% STOCKHOLDERS
Commonwealth BioVentures IV Limited
Partnership............................... 1,342,953 16.18%
Commonwealth BioVentures V Limited
Partnership (3)
4 Milk Street
Portland, ME 04301, US
Concord Partners II, L.P. (4).............. 742,642 8.88%
535 Madison Avenue
New York, NY 10022, US
Danish Development Finance Corporation
Denmark (5)............................... 655,160 7.82%
(now known as Danish Venture Finance A/S)
Gladsaxevej 376
DK-2860 Soborg, Denmark
DIRECTORS
Robert G. Foster (6)....................... 1,396,412 16.50%
c/o Commonwealth BioVentures, Inc.
4 Milk Street
Portland, ME 04301, US
Graham K. Crooke, M.D. (7)................. 864,283 10.27%
c/o Ticonderoga Capital, Inc.
555 California Street, Suite 4360
San Francisco, CA 94104, US
Uffe Bundgaard-Jorgensen, Ph.D. (8)........ 655,160 7.82%
c/o Danish Venture Finance A/S
Gladsaxevej 376
DK-2860 Soborg, Denmark
Steven J. Roth (9)......................... 323,140 3.84%
192 E. Emerson Road
Lexington, MA 02173, US
Gustav A. Christensen (10)................. 202,425 2.40%
c/o Alpha-Beta Technology, Inc.
One Innovation Drive
Worcester, MA 01605, US
Poul Schluter.............................. 0 *
Frederiksberg Alle 66
DK-1820 Frederiksberg C, Denmark
NAMED EXECUTIVE OFFICERS
Malcolm Morville, Ph.D. (11)............... 395,427 4.67%
Christopher J. Pazoles, Ph.D. (12)......... 55,875 *
John S. McBride............................ 33,000 *
5 Olde Connecticut Path
Westborough, MA 01581
Stephen J. DiPalma (13).................... 25,000 *
ALL DIRECTORS AND NAMED EXECUTIVE OFFICERS
AS A GROUP
(10 persons) (14)......................... 3,950,722 44.87%
</TABLE>
- --------
*Indicates less than 1%
(1) Unless otherwise indicated, the address of each shareholder is Phytera,
Inc., 377 Plantation Street, Worcester, MA 01605, US. Except as indicated
by footnote, each of the parties listed above has sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
48
<PAGE>
(2) Reflects the conversion of the Existing Preferred Stock of the Company
into an aggregate of 7,274,833 shares of Common Stock upon the closing of
this offering. The number of shares of Common Stock deemed outstanding
after this offering includes an additional shares of Common Stock of
the Company which are being offered for sale by the Company in this
offering. Share numbers for each beneficial owner include shares of Common
Stock issuable pursuant to outstanding options and warrants that may be
exercised by such beneficial owner within 60 days after September 30,
1998.
(3) Includes (i) 734,295 shares held by Commonwealth BioVentures IV Limited
Partnership ("CBI IV") and (ii) 618,650 shares held by Commonwealth
BioVentures V Limited Partnership ("CBI V"), 82,051 shares of which are
issuable on exercise of warrants, all of which will terminate upon the
closing of this offering if not exercised.
(4) Includes 44,183 shares issuable on exercise of warrants, all of which will
terminate upon the closing of this offering if not exercised.
(5) Includes 6,000 shares issuable on exercise of warrants exercisable as of
September 30, 1998 or within 60 days thereafter.
(6) Includes (i) 734,295 shares held by CBI IV and (ii) 618,650 shares, 82,051
of which are issuable on exercise of warrants which will terminate upon
the closing of this offering if not exercised, held by CBI V. Mr. Foster,
President and Chief Executive Officer of CBI IV and CBI V, disclaims
beneficial ownership of the shares and warrants held by CBI IV and CBI V,
except to the extent of his proportional pecuniary interests therein. Also
includes stock options to purchase 20,000 shares exercisable as of
September 30, 1998 or within 60 days thereafter.
(7) Includes (i) 106,912 shares, 5,181 of which are issuable on exercise of
warrants which will terminate upon the closing of this offering if not
exercised, held by Ticonderoga Capital, Inc. (formerly Dillon, Read &
Co.), (ii) 2,729 shares, 221 of which are issuable on exercise of warrants
which will terminate upon the closing of this offering if not exercised,
held by Lexington Partners IV, L.P. and (iii) 742,642 shares, 44,183 of
which are issuable on exercise of warrants which will terminate upon the
closing of this offering if not exercised, held by Lexington Concord
Partners II, LP. Dr. Crooke is a partner of Ticonderoga Capital, Inc. He
disclaims beneficial ownership of the shares held by Ticonderoga Capital,
Inc., Lexington Partners IV, L.P. and Lexington Concord Partners II, LP,
except to the extent of his proportional pecuniary interests therein. Also
includes stock options to purchase 6,000 shares exercisable as of
September 30, 1998 or within 60 days thereafter.
(8) Consists of 664,160 shares, 6,000 of which are issuable on exercise of
warrants exercisable as of September 30, 1998 or within 60 days
thereafter, held by Danish Venture Finance A/S of which Dr. Bundgaard-
Jorgensen is the Managing Director. Dr. Bundgaard-Jorgensen disclaims
beneficial ownership of the shares held by Danish Venture Finance A/S,
except to the extent of his proportional pecuniary interest therein.
(9) Includes 304,140 shares, 47,833 of which are issuable on exercise of
warrants which will terminate upon the closing of this offering if not
exercised, held by CR Management Capital Partners I, L.P., of which Mr.
Roth is a general partner. Mr. Roth disclaims beneficial ownership of the
shares and warrants held by CR Management Capital Partners I, L.P., except
to the extent of his proportional pecuniary interest therein. Also
includes stock options to purchase 15,000 shares exercisable as of
September 30, 1998 or within 60 days thereafter.
(10) Includes (i) 5,821 shares, 221 of which are issuable on exercise of
warrants which will terminate upon the closing of this offering if not
exercised, held in trust for the benefit of Mr. Christensen and (ii)
45,000 shares held in trust for the benefit of his children. Also includes
76,875 shares subject to stock options exercisable as of September 30,
1998 or within 60 days thereafter. Also includes 20,000 shares of Common
Stock subject to a repurchase right held by the Company.
(11) Includes 60,000 shares held by Dr. Morville's wife and 30,000 shares held
by Dr. Morville's children, as to which Dr. Morville disclaims beneficial
ownership, and 28,000 shares held in trust for his benefit by Delaware
Charter Guarantee & Trust Co. Also includes 105,000 shares subject to
stock options exercisable as of September 30, 1998 or within 60 days
thereafter.
(12) Includes 35,250 shares subject to stock options exercisable as of
September 30, 1998 or within 60 days thereafter.
(13) Includes 25,000 shares of Common Stock subject to a repurchase right held
by the Company.
(14) See notes 6 through 13 above.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, $0.01 par value per
share, and 1,000,000 shares of Preferred Stock, $0.01 par value per share,
after giving effect to the amendment and restatement of the Company's Restated
Certificate. At September 30, 1998, there were outstanding an aggregate of (i)
1,085,549 shares of Common Stock and (ii) 7,274,833 shares of Existing
Preferred Stock, which shares will automatically convert into an equal number
of shares of Common Stock upon the closing of this offering, assuming the
Series E Stock converts to Common Stock on a one-to-one basis. As of the date
of this Prospectus, the Company had 226 shareholders. Assuming the conversion
of the Series E Stock to Common Stock at the rate of one-to-one and the
exercise of warrants to purchase 106,089 shares of Common Stock, upon the
closing of this offering, the Company will have [ ] shares of Common Stock
outstanding.
The following summary of certain provisions of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Restated Certificate, the form of
which is included as an exhibit to the Registration Statement, and by the
provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive dividends when, as and if declared by
the Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution or winding up of the Company, holders of Common Stock
share ratably in the assets of the Company available for distribution to its
stockholders, subject to the preferential rights of any then outstanding shares
of Preferred Stock. There will be no shares of Preferred Stock outstanding
immediately following the effective date of the Registration Statement. The
Common Stock outstanding upon the effective date of the Registration Statement,
and the shares offered by the Company hereby, upon issuance and sale, will be
fully paid and nonassessable.
CONTINGENT SERIES E CONVERSION ADJUSTMENT
The Series E Stock will convert to Common Stock on a one-to-one basis if this
offering (i) is closed on or before June 25, 1999 (the "Series E Anniversary")
and (ii) the price per share in the offering is not less than $10.00 plus $2.50
multiplied by a fraction, the numerator of which is the number of days elapsed
from June 25, 1998 up to and including the closing date of this offering and
the denominator of which is 365 (the "Minimum Price"). In the event that either
the offering is closed after the Series E Anniversary or the price per share in
the offering is less than the Minimum Price, the number of shares of Common
Stock outstanding after the offering will increase as a result of a greater
number of shares being issued upon conversion of the currently outstanding
shares of Series E Stock.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to fix the relative rights,
preferences, privileges, qualifications, limitations and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Board of Directors could,
without the approval of the stockholders, issue Preferred Stock having voting
or conversion rights that could adversely affect the voting power of the
holders of Common Stock and the issuance of Preferred Stock could be used,
under certain circumstances, to render more difficult or discourage a hostile
takeover of the Company. The Company has no present plans to issue any shares
of Preferred Stock.
STOCK PURCHASE WARRANTS
From September through December 1995, the Company, in connection with the
issuance of certain Convertible Term Notes, issued warrants to purchase an
aggregate of 130,944 shares of Common Stock (the "Bridge Warrants"). The Bridge
Warrants are exercisable at $5.50 per share and expire on the earlier of (i)
January 31, 1999 or (ii) the closing of this offering. As of September 30,
1998, all of the Bridge Warrants remained outstanding. For the purpose of this
Prospectus, we have not assumed these warrants will be exercised prior to this
offering.
50
<PAGE>
In January and July of 1996, the Company, in connection with the issuance of
certain Series C Convertible Preferred Stock, issued warrants to purchase an
aggregate of 148,041 shares of Series C Stock at an exercise price of $0.01 per
share and warrants to purchase an aggregate of 18,247 shares of Series C Stock
at an exercise price of $5.50 per share (collectively, the "Series C
Warrants"). The Series C Warrants expire on the earlier of (i) four years from
the respective date of the issuance of the Series C Warrant or (ii) the closing
of this offering. As of September 30, 1998, 124,336 Series C Warrants were
outstanding and 41,952 had been exercised. Of the outstanding Series C
Warrants, 106,089 are exercisable at the price of $0.01 per share. For the
purposes of this Prospectus, we have assumed the Series C Warrants with a $0.01
exercise price will be exercised prior to the closing of this offering and that
the remaining Series C Warrants will not be exercised prior to this offering.
In December 1997, the Company issued warrants to purchase an aggregate of
60,846 shares of Common Stock to selected employees and directors in Denmark.
These warrants have an exercise price of $0.75 per share, vest over a three to
five year period beginning on January 1, 1999 and expire on December 9, 2003.
The Company also issued warrants to DACC ApS to purchase an aggregate of 35,000
shares of Common Stock at an exercise price of $0.65. These warrants vest over
a two year period beginning on January 1, 1999, and expire on December 9, 2003.
ANTI-TAKEOVER MEASURES
In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate and the By-laws of the Company contain several
other provisions that are commonly considered to discourage unsolicited
takeover bids. Under the Restated Certificate and By-laws, the Board of
Directors may enlarge the size of the Board and fill any vacancies on the
Board. The By-laws also provide that special meetings of the Company's
stockholders may be called only by the President, the Chairman of the Board,
the Board of Directors, any officer, stockholders holding a majority of the
outstanding voting capital stock, or any stockholder or stockholders holding at
least 10% of any series of Preferred Stock, and require advance notice of
business to be brought by a stockholder before such special meeting.
The Company may be subject to a Delaware law regulating corporate takeovers
(the "Anti-Takeover Law"). In certain circumstances, the Anti-Takeover Law
prevents certain public Delaware corporations, from engaging in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with an "interested stockholder" (a stockholder who owns
15% or more of the corporation's outstanding voting stock) for three years
following the date on which such stockholder became an "interested stockholder"
subject to certain exceptions, unless the transaction is approved by the Board
of Directors and the holders of at least 66 2/3% of the outstanding voting
stock of the corporation (excluding shares held by the interested stockholder).
The statutory ban does not apply if, upon consummation of the transaction in
which any person becomes an interested stockholder, the interested stockholder
owns at least 85% of the outstanding voting stock of the corporation (excluding
shares held by persons who are both directors and officers or by certain
employee stock plans). A Delaware corporation subject to the Anti-Takeover Law
may "opt out" of the Anti-Takeover Law with an express provision either in its
certificate of incorporation or by-laws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares;
such an amendment is effective following expiration of twelve months from
adoption. The Anti-Takeover Law applies to Delaware corporations with a class
of stock listed on a national securities exchange or Nasdaq. It is not clear
whether the Anti-Takeover Law would apply to the Company if the stock is not
listed on Nasdaq or another US exchange but is listed on foreign exchanges. The
Company has not "opted out" of the Anti-Takeover Law.
The foregoing provisions of Delaware law and the Restated Certificate and By-
laws could have the effect of discouraging others from attempting a hostile
takeover of the Company and, as a consequence, they may also inhibit temporary
fluctuations in the market price of the Common Stock that might result from
actual or rumored hostile takeover attempts. Such provisions may also have the
effect of preventing changes in the management of the Company. It is possible
that such provisions could make it more difficult to accomplish transactions
which stockholders may otherwise deem to be in their best interests.
EQUITY
The table below shows the changes to equity capital in the Company since its
formation. The data are for the three years ended December 31, 1995, 1996 and
1997 and the nine months ended September 30, 1998. The net proceeds from
capital issues were derived from the sale of the Existing Preferred Stock, the
sale of
51
<PAGE>
Common Stock and the exercise of options and warrants to purchase Common
Stock.
EQUITY CAPITAL
<TABLE>
<CAPTION>
ACCUMULATED
AS OF PAID IN CAPITAL TOTAL VALUE OF SHARES NET LOSS STOCKHOLDERS EQUITY
----- --------------- --------------------- ------------- -------------------
<S> <C> <C> <C> <C>
December 31, 1995....... $ 834 $ 11,854,317 $ (13,061,259) $ (1,206,942)
December 31, 1996....... 19,231,008 31,085,325 (21,350,139) 9,735,186
December 31, 1997....... 3,319,439 34,404,764 (31,104,151) 3,300,614
September 30, 1998...... 6,212,611 46,352,279 (37,688,864) 4,893,766
</TABLE>
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock in the public market could adversely affect the
stock's market price. Upon completion of this offering there will be [ ]
shares of Common Stock outstanding, assuming no currently outstanding options
or warrants (other than the warrants for 106,089 shares with a price of $0.01
per share which expire on the closing of this offering) are exercised and that
the Series E Convertible Preferred Stock converts at the rate of one-to-one.
The shares of Common Stock outstanding after this offering and the [ ]
shares sold in this offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely transferable, subject
to limitations on principal stockholders and certain reporting requirements,
without restriction in Denmark and other member states of the EU.
Certain Phytera stockholders, Directors and employees holding in the
aggregate approximately [ ] shares of Common Stock (plus approximately
[ ] shares issuable upon exercise of vested options), have agreed,
subject to certain limited exceptions, not to sell or otherwise dispose of any
of their shares for a period of 180 days after the date of this Prospectus
without the prior written consent of SG Cowen Securities Corporation. At the
end of the 180 day period, such shares of Common Stock will be eligible for
immediate resale in Denmark and other member states of the EU, subject to
certain reporting and other requirements.
For US securities law purposes, the [ ] outstanding shares of Common
Stock owned by existing stockholders are deemed "Restricted Shares" pursuant
to Rule 144 ("Rule 144") under the Securities Act ("Securities Act"). These
shares may not be resold in the US, except pursuant to an effective
registration statement or an applicable exemption from registration. If the
Company establishes a public market for its Common Stock in the US, the
holders of the Restricted Shares may sell such shares into the US public
market relying on the exemptions from registration under Rule 144 and Rule 701
under the Securities Act ("Rule 701"). Upon expiration of the 180 day lock-up
agreements described above, shares will be eligible for immediate sale
in the US under Rules 144 and 701. The remaining Restricted Shares will become
eligible from time to time thereafter upon the expiration of the minimum one-
year holding period prescribed by Rule 144. In general, under Rule 144, as
currently in effect, a person (or persons whose shares are aggregated),
including an affiliate, who has beneficially owned Restricted Shares for at
least one year from the later of the date such Restricted Shares were acquired
from the Company and (if applicable) the date they were acquired from an
affiliate, is entitled to sell in the US, within any three-month period, a
number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock ( shares based on the number of shares
to be outstanding after this offering) or the average weekly trading volume in
the public market during the four calendar weeks preceding such sale. Sales in
the US under Rule 144 are also subject to certain requirements as to the
manner and notice of sale and the availability of public information
concerning the Company. Affiliates may sell shares not constituting Restricted
Shares in accordance with the foregoing volume limitations and other
restrictions, but without regard to the one-year holding period. All sales of
Restricted Shares held by affiliates of the Company must be sold under Rule
144, subject to the foregoing volume limitations and other restrictions.
Further, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date Restricted Shares were acquired from the Company
or an affiliate of the Company, a holder of such Restricted Shares who is not
an affiliate of the Company at the time of the sale and has not been an
affiliate of the Company for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume
limitations or other conditions described above.
52
<PAGE>
Rule 701 under the Securities Act provides an exemption from the registration
requirements of the Securities Act for offers and sales of securities issued
pursuant to certain compensatory benefit plans or written contracts of a
company not subject to the reporting requirements of Sections 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any
employee, officer or director of or consultant to the Company who acquired
shares of Common Stock from the Company prior to this offering or on exercise
of a stock option granted prior to this offering is entitled to rely on the
resale provisions of Rule 701, which permit non-affiliates to sell such shares
without having to comply with the public information, holding period, volume
limitation, or notice requirements of Rule 144 and permit affiliates to sell
their Rule 701 shares without having to comply with the holding period
requirements of Rule 144 commencing, in each case, 90 days after the date of
this Prospectus.
No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. Nevertheless, sales of
substantial amounts of Common Stock in the public market may have an adverse
impact on the market price for the Common Stock. See "Risk Factors--Immediate
and Substantial Dilution."
REGISTRATION RIGHTS
Pursuant to the terms of an Amended and Restated Investors' Rights Agreement
dated as of May 26, 1998, the holders of the 7,274,833 shares of Common Stock
to be issued on conversion of the Existing Preferred Stock (the "Registrable
Shares") and the holders of 106,089 shares expected to be issued on exercise of
warrants expiring in connection with the offering are entitled to certain
rights with respect to registration under the Securities Act of the Registrable
Shares. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders, the Company is obligated to use its best efforts to include the
Registrable Shares in such registration. These shares will not form a part of
the shares of Common Stock registered in this offering. In addition, such
stockholders have certain demand registration rights with respect to the
Registrable Shares.
SETTLEMENT AND CLEARANCE
The following summarizes the Company's understanding of the operation of the
clearing system which will be in place after this offering. Persons proposing
to trade the Common Stock should inform themselves about the costs of such
trading.
The Common Stock sold in this offering will be represented by one global
share certificate (or book entry) that will be deposited with the international
settlement agency Euroclear. Transactions executed on EASDAQ or the CSE will be
settled by delivery through Euroclear, either directly or through the Danish
Settlement Centre ("DSC") or Depository Trust Company, a US clearing system
("DTC"). Euroclear holds securities for its direct participants, which include
banks, securities brokers and dealers, other professional intermediaries and
foreign depositories, and facilitates the clearance and settlement of
securities transactions between Euroclear participants through electronic book-
entry changes in the accounts of participants. DSC and DTC are direct
participants in Euroclear and have made arrangements with Euroclear to have the
Common Stock credited to their accounts.
Book-entry settlement is mandatory for all financial instruments traded on
EASDAQ and the CSE. Physical certificates cannot be used to settle a market
transaction. Investors must hold a securities account with a financial
institution which directly or indirectly has access to Euroclear. Euroclear
conducts a real-time gross payment system in connection with its clearance
operation, with payments made simultaneously with the book-entry transfers
between securities accounts.
Euroclear also offers facilities which enable participants to operate
accounts in connection with orders for clearance and settlement and in
connection with payments due in respect of safe custody. Each participant may
maintain accounts with Euroclear in US dollars, DKK, the currency of any other
EU member state or in certain other currencies. Euroclear facilitates payment
by making arrangements in the city in which the central bank for the relevant
currency is situated. Where a participant's order states that payment is to be
made in a currency in which the participant maintains an account with
Euroclear, payment will be made in such currency. Where a participant maintains
an account in a currency in which a safe custody payment receivable by
Euroclear and due to the participants is made, Euroclear will account for the
payment in the same currency.
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<PAGE>
Euroclear will, on behalf of participants, collect all dividends, interests,
distributions and any other payments due and received and will notify
participants as to the amounts to which they are entitled and the dates when
such amounts are due. Dividends, interest, commissions, charges and taxes will
be credited or debited when due and received. It will be the responsibility of
Euroclear participants to pass on all dividends, interest, distributions and
other yields and payments and any information received from Euroclear to their
clients.
TAX CONSIDERATIONS
The following is a general discussion of the tax consequences of an
investment in the Common Stock under US Federal, Danish and Belgian
regulations. This discussion is based on provisions of the law and the
regulations, administrative rulings and judicial discussions thereunder now in
effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision to acquire, hold, or dispose of the Common Stock. This discussion
is provided for general information purposes only, and does not constitute, and
should not be considered as, legal or tax advice to any prospective holder of
the Common Stock. Each prospective purchaser of the Common Stock is urged to
consult its own tax advisor with respect to the tax consequences of acquiring,
holding and disposing of Common Stock, the laws of any national, state or local
taxing jurisdiction.
UNITED STATES TAX CONSIDERATIONS
The following is a general discussion of the material US federal income
consequences of the ownership and disposition of Common Stock by a person that
for United States federal income tax purposes is: (i) a non-resident alien
individual, (ii) a foreign corporation, (iii) a foreign partnership, or (iv) an
estate or trust which is not subject to US federal income tax without regard to
the source of its income (a "non-US holder"). This discussion does not address
the US federal income tax consequences that may be relevant to particular non-
US holders subject to special treatment under the federal income tax law as a
result of their personal circumstances, and does not address the treatment of
non-US holders of Common Stock under the laws of any state, local or foreign
taxing jurisdiction.
DIVIDENDS
Distributions paid to a non-US holder of Common Stock which constitute
dividends for US federal income tax purposes generally will be subject to
withholding of US federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty (such as that between the US and
Belgium), unless the dividends are effectively connected with the conduct of a
trade or business carried by the non-US holder within the US (and are
attributable to a US permanent establishment or fixed base of such holder, if
an applicable income tax treaty so requires as a condition for the non-US
holder to be subject to US income tax on a net income basis with respect to
such dividends). Such "effectively connected" dividends are generally subject
to tax at rates applicable to US citizens, resident aliens and domestic US
corporations, and are not generally subject to withholding (provided that the
non-US holder provides certain appropriate certification). Any such effectively
connected dividends received by a non-US corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
Under the "Convention Between the United States of America and the Kingdom of
Belgium For the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion With Respect to Taxes on Income" (the "Belgium Treaty"), a non-US
holder that qualifies as a "resident of Belgium" may, as long as the shares of
Common Stock held by such person are not attributable to the conduct of a trade
or business or the rendering of independent personal services in the US through
a permanent establishment or fixed base situated therein, be entitled to a
reduced withholding tax rate on dividends paid by the Company equal to 15%,
rather than 30% as discussed above. For this purpose, the term "resident of
Belgium" generally means (i) a Belgian corporation and (ii) any person other
than a corporation (including an individual, a partnership, an estate, a trust,
or any body of persons) who is a resident of Belgium for purposes of its tax
status. In addition, the Belgium Treaty provides that if a non-US holder
entitled to a reduced rate of withholding under the above test is a Belgian
company that owns at least ten percent of the voting stock of the Company, the
withholding tax rate is further reduced to five percent. Furthermore, under the
Notice 87-56, the additional 30% branch profits tax described
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<PAGE>
above may be eliminated for "qualified residents" of Belgium (the term
qualified resident having the meaning set forth in Section 884(e)(4) of the
Code).
Under currently effective US Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussion above and, under the current interpretation of US
Treasury Regulations, for purposes of determining the applicability of a tax
treaty rate. Under recently finalized US Treasury Regulations that will
generally be effective for distributions after December 31, 1998 (extended,
under certain transition rules, until December 31, 1999) (the "Final
Withholding Regulations"), however, a non-US holder of Common Stock who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification requirements. In addition, under the Final Withholding
Regulations, in the case of Common Stock held by a foreign partnership among
other things, (i) the certification requirement would generally be applied to
the partners of the partnership and (ii) the partnership would be required to
provide certain information, including a US taxpayer identification number or
be subject to withholding at the full 30% rate. The final Withholding
Regulations also provide look-through rules for tiered partnerships.
A non-US holder of Common Stock that is eligible for a reduced rate of US
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by the timely filing of an appropriate claim for
refund with the US Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A non-US holder generally will not be subject to US federal income tax in
respect of gain recognized on a disposition of Common Stock except in the
following circumstances: (i) where the gain is effectively connected with the
conduct of a trade or business in the US by such non-US holder (and is
attributable to a permanent establishment or fixed base maintained in the US by
such non-US holder if an applicable income tax treaty so requires as a
condition for such non-US holder to be subject to United States taxation on a
net income basis with respect to such gain), (ii) in the case of a non-US
holder who is an individual and holds the Common Stock as a capital asset, such
holder is present in the United States for 183 or more days in the taxable year
of the sale and certain other conditions exist, (iii) in some cases where the
Company is or has been a "US real property holding corporation" for US federal
income tax purposes (which the Company believes it is not currently and will
not become) or (iv) the non-US holder is subject to tax pursuant to certain
provisions of the Code applicable to US expatriates. Effectively connected
gains realized by a corporate non-US holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current law, US information reporting requirements (other than
reporting of dividend payments for purposes of the withholding tax noted above)
and backup withholding tax generally will not apply to dividends paid to non-US
holders that are either subject to the 30% withholding tax discussed above or
that are not so subject because an applicable tax treaty (such as the Belgium
Treaty) reduces such withholding. Otherwise, backup withholding of US federal
income tax at a rate of 31% may apply to dividends paid with respect to Common
Stock to non-US holders that are not "exempt recipients" and that fail to
provide certain information (including the holder's US taxpayer identification
number). Generally, unless the payor of dividends has definite knowledge that
the payee is a United States person (as such term is defined in the Code and
attendant regulations), the payor may treat dividend payments to a payee with a
foreign address as exempt from information reporting and backup withholding.
However, under the Final Withholding Regulations, dividend payments generally
will be subject to information reporting and backup withholding unless
applicable certification requirements are satisfied. See the discussion above
with respect to the rules applicable to foreign partnerships under the Final
Withholding Regulations.
In general, US information reporting and backup withholding requirements also
will not apply to a payment made outside the US of the proceeds of a sale of
Common Stock through an office outside the United States of a non-United States
broker. However, US information reporting (but not backup withholding)
requirements will apply to a payment made outside the US of the proceeds of a
sale of Common Stock through an office outside the US of a broker (i) that is a
United States person, (ii) that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the US, (iii) that
is a "controlled foreign corporation" as to the US or (iv) (effective beginning
January 1, 1999) that is a foreign partnership with certain
55
<PAGE>
connections to the US, unless the broker has documentary evidence in its
records that the holder or beneficial owner is a non-US person or the holder or
beneficial owner otherwise establishes an exemption. Payment of the proceeds of
the sale of Common Stock to or through a US office of a broker is currently
subject to both US backup withholding and information reporting unless the
holder certifies its non-US status under penalties of perjury or otherwise
establishes an exemption.
Non-US holders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular situations,
the availability of an exemption therefrom, and the procedure for obtaining
such an exemption, if available. Any amounts withheld from a payment to a non-
US holder under the backup withholding rules will be allowed as a credit
against such holder's US federal income tax liability provided the required
information is furnished to the US Internal Revenue Service. A non-US holder
generally may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the US
Internal Revenue Service.
DANISH TAX CONSIDERATIONS
The following discussion summarizes certain Danish tax consequences relating
to an investment in Common Stock by a Danish resident investor. This summary
deals only with Common Stock held by portfolio investors with less than 25% of
the share capital of the Company.
DIVIDENDS
For Danish resident shareholders, the US withholding tax on dividend payments
by the Company is in principle reduced from 30% to 15% pursuant to the US-
Danish income tax treaty. Special rules apply to the calculation of the relief
available under this treaty in different circumstances.
Residents
The gross amount of distributions by the Company will be treated as taxable
income for resident shareholders. The dividend is deemed acquired as of the
date of the shareholders' meeting where the decision regarding distribution is
taken. For Danish resident individuals, dividends on Common Stock are taxed as
share income. For the 1999 tax year, the first DKK 36,000 (DKK 72,000 if
married) of share income is taxed at a rate of 25%, any dividend income over
that amount is taxed at a rate of 40%. These share income levels are subject to
change in subsequent tax years. The US-Danish income tax treaty provides that
any US withholding tax can be set-off against the Danish tax. Dividend income
is not subject to local income taxes. For information regarding individual
pension accounts, see below.
For Danish resident companies holding less than 25% of a company's share
capital, 66% of the total dividend is taxed as ordinary income; 34% of the
dividend is tax-exempt. Given that the Danish corporation tax rate is currently
34%, the effective tax rate on dividends is approximately 22%. In addition,
Danish resident companies are entitled to a reduction in share income for the
US tax withheld. Dividend income is not subject to local income taxes.
Dividends received by Danish banks and other entities in the business of
share investment are taxed as ordinary business income at a rate of 34%. No
part of the dividend is tax-exempt.
Pension funds are tax exempt, but must pay a real interest rate duty on
dividend income. Pension funds, life insurance companies, and other entities
subject to the Danish real interest duty are subject to a five percent duty on
dividends. The US withholding tax can be set-off against the five percent duty
on the dividend. The real interest rate rules apply to all pension capital
arising from tax deductible pension schemes, including pension accounts of
individuals held by banks.
Non-residents
If a non-resident holds Common Stock other than through a business that is a
permanent establishment in Denmark, no Danish tax is levied on dividends.
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<PAGE>
CAPITAL GAINS TAX
Residents
Shares of Phytera Common Stock disposed of by Danish residents will be
subject to the same capital gains tax as shares of Danish listed companies.
Gains and losses on shares are calculated as the difference between the market
value in DKK at the time of purchase and the market value in DKK at the time
of disposal. Accordingly, the capital gains tax is affected by changes in the
exchange rate between US dollars and Danish kroner.
Capital gains received on the disposal of Common Stock by an individual are
taxed as investment income (approximately 40%-59%) or share income (25%-40%).
If the shares were held for less than three years, capital gains on the
disposal of shares are taxed as investment income (approximately 40%-59%).
Such gains and losses are computed according to the so-called "share-for-share
method." Under this method, gains and losses are calculated as the difference
between the purchase price and the corresponding disposal price for each
separate share. Any losses on shares held for less than three years may be
offset against similar gains or, if no such gains are available, may be
carried forward for five years.
Gains on shares held for three years or longer are tax-exempt if the market
value of the individual's total portfolio of listed shares, listed investment
fund certificates, and the like, within the last three years, has not exceeded
a certain level, which is DKK 113,300 for the 1999 tax year. For married
couples the aggregate value of both spouses' portfolios cannot exceed this
level. The market value of an individual's or married couples' portfolio is
generally measured immediately after each purchase and immediately prior to
each disposal of a listed share, and again at the end of each calendar year.
Gains on the disposal of listed shares are tax-exempt only if the market value
of the portfolio does not exceed the limit at any of the measurement dates.
If the shares are held for at least three years, and the portfolio exceeds
DKK 113,300, capital gains are taxed as share income (25%-40%). Gains and
losses on shares held for three years or longer are calculated in accordance
with the "average method." Under this method, the gain or loss is calculated
as the difference between the purchase price of the shares, which is
calculated as a fraction of the total purchase price for all of the shares in
the same company held for at least three years, and the disposal price of the
shares. Any losses on listed shares held for more than three years may be
offset against similar gains (assuming the portfolio exceeds the DKK 113,300
limit), or may be carried forward for five years.
For information regarding individual pension accounts, see below.
The taxation of capital gains upon the disposal of shares of Common Stock by
a resident individual is outlined as follows:
<TABLE>
<CAPTION>
OWNERSHIP FOR THREE YEARS OR LONGER
-------------------------------------------------
VALUE LESS THAN OR VALUE GREATER THAN
DISPOSAL OF SHARES OWNERSHIP FOR LESS THAN THREE YEARS EQUAL TO DKK 113,300 DKK 113,300
- ------------------ ----------------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Capital gains Investment income Tax exempt Share income
Capital losses . Offset against taxable Capital losses cannot be . Offset against taxable
gains on the sale of set off gains on listed shares
shares held for less held for three years
than three years or more (incl.
(incl. spouses' spouses' shares).
shares).
. Carried forward for . Carried forward for
five years. five years
Calculation method Share-for-share method Average method
</TABLE>
Capital gains on Common Stock held by a company for less than three years
are taxed as ordinary income at a rate of 34%. Gains and losses are calculated
in accordance with the average method, as discussed above. Losses realized on
the sale of shares held by a company for less than three years can be deducted
from taxable gains on the sale of other shares owned for less than three
years, or can be carried forward for five years. Losses are reduced by the
amount of tax exempt dividends received in connection with such shares.
Gains on Common Stock held for more than three years are tax exempt and
losses are not deductible.
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<PAGE>
The taxation of capital gains upon the disposal of shares of Common Stock by
a resident company is outlined as follows:
<TABLE>
<CAPTION>
DISPOSAL OF SHARES OWNERSHIP FOR LESS THAN THREE YEARS OWNERSHIP FOR THREE YEARS OR LONGER
- ------------------ ----------------------------------- -----------------------------------
<S> <C> <C>
Capital gains Ordinary income (34%) Tax exempt
Capital losses . Offset against taxable gains on disposal of .No set-off
other shares held for less than three years.
. Tax-exempt dividends are deducted from the .No tax deduction
loss.
. Carried forward for five years.
</TABLE>
For Danish banks and other entities in the business of share investment,
capital gains received on the disposal of Common Stock are taxed as ordinary
business income at a rate of 34% irrespective of the period of ownership. Any
corresponding losses are deductible.
Life insurance companies are subject to both a corporate tax and a real
interest rate duty on capital gains. In order to avoid double taxation, the
real interest rate duty is reduced by a percentage of the taxable income. The
deduction of provisions, insurance payments and the like may be reduced to the
extent the company has tax exempt dividends or capital gains on shares
(realized or unrealized). Thus, the benefits of the exempt 34% of the total
dividends received (100%-66%) and the tax exempt gains on the shares of Common
Stock may indirectly trigger corporate taxation.
Pension funds are tax exempt, but must pay a real interest rate duty of five
percent on any capital gains on listed shares. The capital gain is calculated
annually using the "mark-to market" method. Capital losses on listed shares are
calculated using the same method and are deductible against capital gains. The
real interest rate rules apply to all pension capital arising from tax
deductible pension schemes, including pension accounts of individuals held by
banks.
The proceeds from the sale of shares to the issuing company are taxed as a
deemed dividend distribution whether the sale is made by an individual or a
company. In certain circumstances and upon application to the tax authorities,
permission can be obtained to subject the sale to normal capital gains tax
rules.
Non-residents
If a non-resident holds Common Stock other than through a business that is a
permanent establishment in Denmark, no Danish tax is levied on capital gains.
TRANSFER DUTY
On the disposal of Common Stock by a Danish resident, a duty of 0.5% is
assessed based upon the market value of the transferred shares. Non-residents
are not subject to the share transfer tax.
BELGIAN TAX CONSIDERATIONS
The following is a summary of the material Belgian income and stamp tax
consequences of the acquisition, ownership and disposition of Common Stock. The
summary uses the term, "Belgian Holders," to refer to beneficial owners of
Common Stock of the Company whose ownership of such Common Stock is not
attributable to a permanent establishment or a fixed base in another country
and who are considered residents of Belgium for the purposes of Belgian law.
DIVIDENDS
Belgian Withholding Tax
Dividends distributed on Common Stock are subject to a withholding tax at the
rate of 25%, when paid or attributed through a professional intermediary in
Belgium. However, no dividend withholding tax is due if no Belgian professional
intermediary is used to pay or attribute the dividend. The Company has no
intention to use a Belgian professional intermediary to pay or attribute
dividends to non-Belgian Holders. No withholding tax is due on dividends paid
on the Common Stock to a company with its fiscal residence in Belgium.
In a case where dividends are paid outside Belgium without any intervention
of a paying agent in Belgium, no dividend withholding tax is, in principle,
due. However, where the Belgian Holder is a Belgian
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resident or entity subject to the tax on legal entities (for example, a pension
fund), the Belgian Holder itself must pay the dividend withholding tax at the
rate of 25%.
In certain cases, the above-mentioned 25% rate of dividend withholding tax
will be reduced to 15%. The reduced rate applies, in particular, to (i)
dividends distributed on shares publicly issued after January 1, 1994, and (ii)
dividends distributed on shares that have been privately issued after January
1, 1994, in exchange for cash contributions, provided the shares are registered
or bearer shares placed in "open custody" with a financial institution in
Belgium as of the date of their issuance. This reduced rate will apply to
dividends distributed on the Common Stock issued by the Company. To the extent
that certain shares were issued privately prior to January 1, 1994, the reduced
rate will not apply.
Income Tax
In the hands of a Belgian Holder who is an individual holding common stock as
a private investment, the Belgian dividend withholding tax is a final tax and
the dividends need not be reported in the individual's annual income tax
return. If no withholding tax has been levied (i.e., in case of payment or
attribution outside of Belgium), the individual must report the dividends in
his or her tax return. Thus, in the case of the Company, such Belgian Holder
will be taxed at the separate rate of 15%, to be increased with a municipal
surcharge (varying, as a rule, from six percent to nine percent).
In the hands of an individual Belgian Holder whose holding of Common Stock is
effectively connected with a business, the dividends are taxable at the
ordinary rates for business income (i.e., varying from 25% to 55%, to be
increased by a crisis contribution of three percent of the tax due and the
appropriate municipal surcharge). Any Belgian withholding tax is creditable
against the final income tax due by the Belgian Holder, provided that the
Belgian Holder has the full legal ownership of the Common Stock at the time of
payment or attribution of any dividends, and provided further that the dividend
distribution does not entail a reduction in value of or a capital loss on the
Common Stock.
Dividends received by Belgian Holders which are resident companies are, in
principle, subject to corporate income tax at the rate of 40.17% (i.e., the
standard rate of 39% increased by the crisis contribution of three percent of
the corporate income tax due). Lower rates may be applicable to Belgian
resident companies which, among other conditions, are not 50% or more owned by
another company and which derive taxable income below certain thresholds fixed
by law.
However, provided that the dividends benefit from the so-called "dividend-
received deduction," only five percent of the dividends received will be
taxable. In order to benefit from this deduction, the Company must not fall
within one of the categories in which the distributed dividends are expressly
excluded from the "dividend-received deduction" (for example, dividends which
are distributed by tax-haven countries or are paid out of income has benefited
from a special tax regime) and the beneficiary should hold, at the time of
payment of the dividends, a participation of at least five percent in the
Company or a participation which has an acquisition value of at least BEF 50
million.
For Belgian resident entities subject to the Belgian Tax on Juridical
Entities (for example, pension funds), the Belgian dividend withholding tax is
a final tax.
CAPITAL GAINS
Individual Belgian Holders holding the Common Stock as a private investment
and entities subject to Belgian tax on legal entities are not subject to
Belgian capital gains tax on the disposal of the Common Stock. Individual
Belgian Holders may, however, be subject to a 33% tax (to be increased by the
three percent crisis, contribution and the appropriate municipal surcharge) if
the capital gain is deemed to be "speculative" in nature, as defined by Belgian
case law.
Individual Belgian Holders whose holding of Common Stock may be considered as
effectively connected with a business will be taxable at ordinary (progressive)
rates on any capital gains realized upon a disposal of Common Stock if they
have held it for five years or less, but will be taxed at 16.5% (to be
increased by the three percent crisis contribution and the appropriate
municipal surcharge) on such gains if they have held the Common Stock for more
than five years before disposing of same.
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Belgian resident companies are not subject to capital gains taxation,
provided that the dividends received on the shares which such companies have
disposed of would qualify for the "dividend-received deduction" (except for the
minimum holding requirement). As noted above, it is the Company's view that any
dividends it may distribute might qualify.
INDIRECT TAXES
In principle, a stamp tax is levied upon the subscription of new Common Stock
and the purchase and sale in Belgium of Common Stock, if effected by means of a
professional intermediary. The rate applicable to subscriptions of new Common
Stock is 0.35%, but there is a limit of 10,000 BEF per transaction. The rate
applicable for secondary sales and purchases in Belgium of Common Stock through
a professional intermediary is 0.17%, but there is a limit of 10,000 BEF per
transaction.
An exemption is available to professional intermediaries (e.g., credit
institutions), insurance companies, pension funds, and collective investment
vehicles which are acting for their own account. A non-resident holder of
Common Stock who is acting for his or her own account will also be entitled to
an exemption from this stamp tax, provided that he or she delivers to the
issuer or the professional intermediary in Belgium, as the case may be, an
affidavit confirming his or her non-resident status vis-a-vis Belgium.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting agreement
(the "European Underwriting Agreement"), the Company has agreed to sell to each
of the European managers named below (the "European Managers"), and each of the
European Managers, for whom SG Cowen Securities International L.P., Carnegie
Bank A/S and BancBoston Robertson Stephens International Ltd are acting as lead
managers (the "Lead Managers"), has severally agreed to purchase from the
Company, the respective number of shares of Common Stock set forth opposite the
name of such European Manager below:
<TABLE>
<CAPTION>
NUMBER
EUROPEAN MANAGER OF SHARES
---------------- ---------
<S> <C>
SG Cowen International L.P. .......................................
Carnegie Bank A/S..................................................
BancBoston Robertson Stephens International Ltd....................
----
Total............................................................
====
</TABLE>
Subject to the terms and conditions set forth in an Underwriting agreement
(the "US Underwriting Agreement"), the Company has agreed to sell to each of
the Underwriters named below (the "US Underwriters"), and each of the US
Underwriters, for whom SG Cowen Securities Corporation, Carnegie Inc. and
BancBoston Robertson Stephens Inc. are acting as representatives (the "US
Representatives"), has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite the name of such
US Underwriter below:
<TABLE>
<CAPTION>
NUMBER
US UNDERWRITER OF SHARES
-------------- ---------
<S> <C>
SG Cowen Securities Corporation....................................
Carnegie Inc.......................................................
BancBoston Robertson Stephens Inc. ................................
----
Total............................................................
====
</TABLE>
The US Underwriters and the European Managers are collectively referred to as
the "Underwriters" and the US Representatives and the Lead Managers are
collectively referred to as the "Representatives." The European Underwriting
Agreement and the US Underwriting Agreement are collectively referred to as the
"Underwriting Agreements." The offering price and aggregate Underwriting
discounts and commissions per share for the European offering and the US
offering are identical. The completion of each offering is contingent upon the
completion of the other.
The Underwriting Agreements provide that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the
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<PAGE>
receipt of certain certificates, opinions and letters from the Company and its
counsel and independent auditors, and that the Underwriters are committed to
purchase all shares of Common Stock offered hereby and covered by the
respective Underwriting Agreements (other than those covered by the over-
allotment options described below) if any such shares are purchased.
The Underwriters propose to offer shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share to certain other brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the offering price and other selling terms may from time to time be varied by
the Representatives.
Pursuant to the Agreement Among US Underwriters and European Managers (the
"Intersyndicate Agreement"), each US Underwriter has represented and agreed
that, with certain exceptions: (i) it is not purchasing any Shares (as defined
herein) for the account of anyone other than a United States or Canadian Person
(as defined herein) and (ii) it has not offered or sold, and will not offer or
sell, directly or indirectly, any Shares or distribute any prospectus relating
to the Shares outside the United States or Canada or to anyone other than a
United States or Canadian Person. Pursuant to the Intersyndicate Agreement,
each European Manager has represented and agreed that, with certain exceptions:
(i) it is not purchasing any Shares for the account of any United States Person
or Canadian and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute any prospectus relating to the
Shares in the United States or Canada or to any United States or Canadian
Person. With respect to any underwriter or manager that is both a US
Underwriter and a European Manager, the foregoing representations and
agreements (i) made by it in its capacity as a US Underwriter apply only to it
in its capacity as a US Underwriter and (ii) made by it in its capacity as a
European Manager apply only to it in its capacity as a European Manager. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Intersyndicate Agreement. As used herein,
"United States or Canadian Person" means any national or resident of the United
States or Canada or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States or Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person.
Pursuant to the Intersyndicate Agreement, sales may be made between the US
Underwriters and the European Managers of such number of shares of Common Stock
as may be mutually agreed. The price of any shares so sold shall be the public
offering price, less an amount not greater than the selling concession.
The Company has granted to the US Underwriters and the European Managers
options, exercisable for up to 30 days after the date of this Prospectus, to
purchase up to [ and ] additional shares of Common Stock, respectively,
to cover over-allotments, if any. If the Underwriters exercise the over-
allotment options, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares of Common Stock to be purchased by each of them as shown in
the foregoing tables bears to the total number of shares of Common Stock
offered hereby. The Underwriters may exercise such options only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.
The Company, the Company's officers, all Directors who own shares of Common
Stock and certain other stockholders, warrantholders and optionholders of the
Company have agreed that for a period of 180 days following the date of this
Prospectus, without the prior consent of SG Cowen Securities Corporation, they
will not, directly or indirectly, offer, sell, assign, transfer, encumber,
pledge, contract to sell, grant an option to purchase or otherwise dispose of,
other than by operation of law, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Common Stock,
including, without limitation, options, warrants and the like which are owned
either of record or beneficially or which are acquired on or prior to the date
of this Prospectus or which are received upon the exercise of options and
warrants. SG Cowen Securities Corporation has advised the Company that it has
no present intention of releasing any of the Company's stockholders or
optionholders from such lock-up agreements until the expiration of the 180-day
period.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments the Underwriters may be required to make
in respect thereof.
61
<PAGE>
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of five percent of the shares of Common Stock
offered hereby to any account over which they exercise discretionary authority.
Until the distribution of Common Stock is completed, rules of the US
Securities and Exchange Commission and EASDAQ may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Representatives are permitted
to engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock. Under EASDAQ rules, the
maximum price at which any such stabilizing transactions may be made may not
exceed the initial public offering price.
If the Underwriters create a short position in the Common Stock in connection
with this offering, i.e., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the Representatives may reduce that
short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
The Representatives may impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representatives purchase Common
Stock in the open market to reduce the Underwriters' short positions or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters who sold those shares of Common Stock
as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of a security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Prior to this offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price was determined by negotiations
between the Company and the Representatives. Among the factors considered in
such negotiations were prevailing market conditions, the results of operations
of the Company in recent periods, the market capitalizations and the stages of
development of other companies that the Company and the Representatives believe
to be comparable to the Company, estimates of the business potential of the
Company, the present state of the Company's development and other factors
deemed relevant.
Although the shares of Common Stock offered for sale by the Underwriters will
be registered under the Securities Act, the Company does not intend to apply
for listing of its Common Stock on any securities exchange in the United States
or for quotation through the National Association of Securities Dealers
Automated Quotation System. The US Underwriters have advised the Company that
they intend to offer or sell shares of Common Stock only to United States or
Canadian Persons that they reasonably believe to be "qualified institutional
buyers" ("QIBs") as defined in Rule 144A under the Securities Act. Therefore,
US purchasers of shares of Common Stock may be required to seek liquidity for
their shares outside of the United States on EASDAQ or on the Copenhagen Stock
Exchange.
Carnegie Bank A/S, one of the Lead Managers and an affiliate of Carnegie
Inc., one of the U.S. Representatives, acted as placement agent for the sale of
the Company's Series E Stock and received a placement fee in connection
therewith.
62
<PAGE>
SUBSCRIPTION PROCEDURES
The offerings of the Common Stock will commence on the date that the
Underwriters and the Company determine the initial public offering price for
the Common Stock. The closing of the issuance and sale of the Common Stock by
the Company is expected to occur on the third day following the determination
of the initial public offering price (fourth day, if the determination is made
after 4:30 P.M. Eastern Standard time). In the event that the offerings are
oversubscribed, the available shares will be apportioned by the Underwriters
among the subscriptions received.
In Denmark, the offering of the shares of Common Stock will be subject to the
following subscription procedures:
The subscription period is expected to commence on , 1999 and
terminate at :00 [A.M./P.M.] Central European time on the date that the
initial public offering price is determined, unless terminated earlier. The
Copenhagen Stock Exchange will be notified of the termination of the
subscription period. The initial public offering price will be announced in
Denmark through the Copenhagen Stock Exchange.
Certain selling agents in Denmark may request that investors use a
subscription application form which is included with the Danish version of
this Prospectus. This form, if requested, must be received by the Selling
agent from whom it was obtained prior to the termination of the
subscription period and is subject to the written instructions included
therein.
Names and addresses of investors must be disclosed to the International
Managers who are entitled to pass on such information to the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Lynnette C.
Fallon, a partner of Palmer & Dodge LLP, is the Secretary of the Company.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Brown & Wood LLP, New York, New York. Certain legal matters
in connection with the Company's patents will be passed upon for the Company by
Clark & Elbing, LLP, Boston, Massachusetts. Certain matters of Danish law,
including, among other things, the statements of Danish law included in this
Prospectus under the caption "Income Tax Considerations--Danish Tax
Considerations" will be passed upon by Dragsted & Helmer Nielsen, Copenhagen,
Denmark, and Bech-Bruun & Trolle, Copenhagen, Denmark, for the Company and the
Underwriters, respectively. Certain matters of English law will be passed upon
by Denton Hall, London, England, for the Company. Palmer & Dodge LLP and Brown
& Wood LLP will rely upon Dragsted & Helmer Nielsen and Bech-Bruun & Trolle
with respect to certain matters governed by Danish law and upon Denton Hall
with respect to certain matters governed by English law.
EXPERTS
The audited Consolidated Financial Statements of the Company as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto and are included
herein upon the authority of said firm as experts in auditing and accounting.
63
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC")
a Registration Statement on Form S-1 (together with all amendments and
exhibits, the "Registration Statement") under the Securities Act. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto certain parts of
which are omitted in accordance with the rules and regulations of the SEC. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements in this Prospectus as to the contents of any
contract or other document are not necessarily complete and reference is made
in each instance to the copy of such contract or other document filed as an
exhibit to the Registration Statement. Each statement is qualified in all
respects by this reference to the exhibit. The Registration Statement,
including exhibits, may be inspected and copied without charge at the SEC's
principal office located at 450 Fifth Street, Judiciary Plaza, N.W.,
Washington, D.C. 20549. Copies of such material may be obtained by mail from
the Public Reference Section of the SEC at 450 Fifth Street, Judiciary Plaza,
N.W., Washington, D.C. 20549 upon payment of prescribed fees. The SEC also
maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements, as well as other information regarding registrants that
file electronically with the SEC.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing interim unaudited financial
information.
The Company will ensure that a summary of the Company's quarterly and annual
financial statements will be provided to shareholders in Europe across the
EASDAQ Company Reporting System. A hard copy of the annual report will be
provided to shareholders promptly after it becomes available. Complete
quarterly statements will either be sent by the Company to its shareholders or
will be available upon request from the Company at its executive offices at 377
Plantation Street, Worcester, MA, 01605, US. Copies of all documents filed with
the Commission by the Company can be obtained by request to the Company at such
offices.
Copies of the Company's Restated Certificate and By-laws will be available
for inspection at the offices of EASDAQ, 56 Rue de Colonies, Bte. 15, B-1000
Brussels, Belgium.
Companies approved for trading on EASDAQ and CSE are required to publish
relevant financial and other information regularly and to keep the public
informed of all events likely to affect the market price of their securities.
Price sensitive information will be made available to investors in Europe
through the EASDAQ-Reuters Regulatory Company Reporting System, the CSE's
internal information system and other international information vendors.
Investors who do not have direct access to such information systems should ask
their financial intermediary for the terms on which such information will be
provided to them by that financial intermediary.
64
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1996, 1997 and September
30, 1998 (unaudited) and Pro Forma September 30, 1998 (unaudited)........ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997, for the Nine Months Ended September 30, 1997 and
1998 (unaudited) and for the Period from Inception (May 27, 1992) to
September 30, 1998 (unaudited)........................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the Period from Inception (May 27, 1992) to December 31, 1997, and for
the Nine Months Ended September 30, 1998 (unaudited) and Pro Forma
September 30, 1998 (unaudited)........................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997, for the Nine Months Ended September 30, 1997 and
1998 (unaudited) and for the Period from Inception (May 27, 1992) to
September 30, 1998 (unaudited)........................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Phytera, Inc.:
We have audited the accompanying consolidated balance sheets of Phytera, Inc.
(a Delaware corporation in the development stage) and subsidiaries as of
December 31, 1996 and 1997, the related consolidated statements of operations
and cash flows for each of the three years in the period ended December 31,
1997, and the related statement of stockholders' equity (deficit) for the
period from inception (May 27, 1992) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phytera, Inc. and subsidiaries
as of December 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with United States generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 20, 1998
F-2
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 4,011,527 $ 3,342,130 $ 5,887,649 $ 5,887,649
Marketable
securities........... 6,105,391 450,000 1,100,000 1,100,000
Prepaid expenses and
other current
assets............... 246,327 232,788 295,288 295,288
------------ ------------ ------------ ------------
Total current
assets............. 10,363,245 4,024,918 7,282,937 7,282,937
------------ ------------ ------------ ------------
Equipment and
Improvements, at cost:
Laboratory equipment.. 2,331,802 2,985,962 2,974,963 2,974,963
Leasehold
improvements......... 603,518 751,899 905,019 905,019
Office equipment...... 465,792 584,930 739,703 739,703
------------ ------------ ------------ ------------
3,401,112 4,322,791 4,619,685 4,619,685
Less--Accumulated
depreciation and
amortization......... 1,448,540 2,153,328 2,717,617 2,717,617
------------ ------------ ------------ ------------
1,952,572 2,169,463 1,902,068 1,902,068
------------ ------------ ------------ ------------
Other Assets............ 79,695 94,633 129,649 129,649
------------ ------------ ------------ ------------
$ 12,395,512 $ 6,289,014 $ 9,314,654 $ 9,314,654
============ ============ ============ ============
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED
STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Current portion of
long-term debt (note
4)................... $ 300,993 $ 299,536 $ 289,278 $ 289,278
Accounts payable...... 199,868 243,790 431,368 431,368
Accrued expenses...... 339,860 363,340 862,633 862,633
Deferred revenue...... 546,079 531,898 648,529 648,529
------------ ------------ ------------ ------------
Total current
liabilities........ 1,386,800 1,438,564 2,231,808 2,231,808
------------ ------------ ------------ ------------
Long-Term Debt, less
current portion (note
4)..................... 1,273,526 1,549,836 2,189,080 2,189,080
------------ ------------ ------------ ------------
Commitments (note 8)
Redeemable Convertible
Preferred Stock, $0.01
par value--
Authorized--14,446,382
shares; no shares pro
forma
Issued and
outstanding--
6,025,591 shares,
6,460,591 shares,
7,274,833 shares and
no shares as of
December 31, 1996 and
1997, September 30,
1998 and pro forma
September 30, 1998,
respectively......... 30,945,219 34,186,184 41,138,563 --
------------ ------------ ------------ ------------
Stockholders' Equity
(Deficit) (note 6):
Preferred stock, $0.01
par value--
Authorized--1,000,000
shares pro forma
Issued and
outstanding--no
shares -- -- -- --
Common stock, $0.01
par value--
Authorized--13,000,000
shares actual;
25,000,000 shares pro
forma
Issued and
outstanding--810,027
shares, 929,332
shares, 1,085,549
shares and 8,360,382
shares as of December
31, 1996 and 1997,
September 30, 1998
and pro forma
September 30, 1998,
respectively......... 8,100 9,293 10,855 83,603
Additional paid-in
capital.............. 837,117 1,338,319 5,202,861 46,268,676
Deficit accumulated
during the
development stage.... (22,055,250) (32,233,182) (39,647,629) (39,647,629)
Deferred
compensation......... -- -- (1,810,884) (1,810,884)
------------ ------------ ------------ ------------
Total stockholders'
equity (deficit)... (21,210,033) (30,885,570) (36,244,797) 4,893,766
------------ ------------ ------------ ------------
Total liabilities,
redeemable
preferred stock and
stockholders'
equity (deficit)... $ 12,395,512 $ 6,289,014 $ 9,314,654 $ 9,314,654
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
NINE MONTHS ENDED (MAY 27,
YEARS ENDED DECEMBER 31, SEPTEMBER 30, 1992) TO
------------------------------------- ------------------------ SEPTEMBER 30,
1995 1996 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Collaborative Revenue... $ 49,632 $ 247,000 $ 1,052,657 $ 730,311 $ 1,100,257 $ 2,551,963
----------- ----------- ----------- ----------- ----------- ------------
Operating Expenses:
Research and
development.......... 3,964,007 5,231,383 7,672,748 5,711,002 5,638,715 27,191,166
General and
administrative....... 1,424,539 1,675,317 1,739,806 1,287,038 1,908,900 8,632,962
Charge for acquired
research and develop-
ment................. -- 1,498,339 1,611,728 1,611,728 -- 4,421,517
----------- ----------- ----------- ----------- ----------- ------------
5,388,546 8,405,039 11,024,282 8,609,768 7,547,615 40,245,645
----------- ----------- ----------- ----------- ----------- ------------
Loss from
operations......... (5,338,914) (8,158,039) (9,971,625) (7,879,457) (6,447,358) (37,693,682)
Other:
Interest income....... 100,801 142,413 383,591 319,702 167,610 1,035,765
Interest expense...... (207,135) (172,505) (155,793) (89,115) (152,833) (935,285)
Foreign currency
translation gain
(loss)............... 6,720 (100,749) (10,185) (13,496) (152,132) (95,662)
----------- ----------- ----------- ----------- ----------- ------------
Net loss............ $(5,438,528) $(8,288,880) $(9,754,012) $(7,662,366) $(6,584,713) $(37,688,864)
=========== =========== =========== =========== =========== ============
Net Loss per Share:
Basic and Diluted..... $ (10.09) $ (13.07) $ (12.77) $ (10.19) $ (8.16)
Pro Forma Basic and
Diluted.............. $ (1.42) $ (.96)
Weighted Average Common
Shares Outstanding:
Basic and Diluted..... 540,435 664,833 796,908 782,887 907,572
Pro Forma Basic and
Diluted.............. 7,175,266 7,708,745
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL DURING THE TOTAL
NUMBER OF $0.01 PAR PAID IN DEVELOPMENT DEFERRED STOCKHOLDERS'
SHARES VALUE CAPITAL STAGE COMPENSATION EQUITY (DEFICIT)
--------- --------- ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Initial Sale of Common
Stock.................. 300,000 $ 3,000 $ -- $ -- $ -- $ 3,000
Exercise of stock
options............... 20,000 200 -- -- -- 200
Accretion of preferred
stock................. -- -- -- (6,093) -- (6,093)
Net loss............... -- -- -- (1,519,500) -- (1,519,500)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1992................... 320,000 3,200 -- (1,525,593) -- (1,522,393)
Sale of common stock... 392,500 3,925 -- -- -- 3,925
Exercise of stock
options............... 20,000 200 -- -- -- 200
Accretion of preferred
stock................. -- -- -- (15,332) -- (15,332)
Net loss............... -- -- -- (1,876,218) -- (1,876,218)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1993................... 732,500 7,325 -- (3,417,143) -- (3,409,818)
Sale of common stock... 7,500 75 4,050 -- -- 4,125
Exercise of stock
options............... 20,675 207 -- -- -- 207
Accretion of preferred
stock................. -- -- -- (15,332) -- (15,332)
Net loss............... -- -- -- (4,227,013) -- (4,227,013)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1994................... 760,675 7,607 4,050 (7,659,488) -- (7,647,831)
Exercise of stock
options............... 2,375 24 810 -- -- 834
Accretion of preferred
stock................. -- -- -- (15,332) -- (15,332)
Net loss............... -- -- -- (5,438,528) -- (5,438,528)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1995................... 763,050 7,631 4,860 (13,113,348) -- (13,100,857)
Exercise of stock
options............... 36,550 366 216 -- -- 582
Exercise of Series C
Warrants (note 6(f)).. -- -- -- (251,447) -- (251,447)
Issuance of stock
options to
consultants........... -- -- 4,890 -- -- 4,890
Repurchase of
restricted stock...... (16,250) (163) -- -- -- (163)
Issuance of restricted
stock for consulting
services.............. 26,677 266 14,406 -- -- 14,672
Accretion of preferred
stock................. -- -- -- (401,575) -- (401,575)
Warrants issued in
connection with
issuance of Series C
preferred stock (note
6(c))................. -- -- 812,745 -- -- 812,745
Net loss............... -- -- -- (8,288,880) -- (8,288,880)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1996................... 810,027 8,100 837,117 (22,055,250) -- (21,210,033)
Exercise of stock
options............... 55,600 556 24,560 -- -- 25,116
ESOP purchases......... 8,705 87 6,442 -- -- 6,529
Sale of common stock... 55,000 550 35,200 -- -- 35,750
Issuance of Series D
redeemable convertible
preferred stock in
connection with Auda
Pharmaceuticals ApS
acquisition........... -- -- 435,000 -- -- 435,000
Accretion of preferred
stock................. -- -- -- (423,920) -- (423,920)
Net Loss............... -- -- -- (9,754,012) -- (9,754,012)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1997................... 929,332 9,293 1,338,319 (32,233,182) -- (30,885,570)
Deferred compensation
related to grants or
common stock options.. -- -- 2,115,350 -- (2,115,350) --
Amortization of
deferred
compensation.......... -- -- -- -- 304,466 304,466
Issuance of common
stock options......... -- -- 35,600 -- -- 35,600
Exercise of stock
options............... 131,217 1,312 69,920 -- -- 71,232
Exercise of Series C
redeemable convertible
preferred stock
warrants (note 6(f)).. -- -- -- (10,333) -- (10,333)
Sale of restricted
common stock.......... 25,000 250 18,500 -- -- 18,750
Value of discount
ascribed to the
guaranteed rate of
return on Series E
redeemable convertible
preferred stock....... -- -- 1,625,172 -- -- 1,625,172
Accretion of preferred
stock................. -- -- -- (413,108) -- (413,108)
Accretion of discount
ascribed to the
guaranteed rate of
return on Series E
redeemable convertible
preferred stock....... -- -- -- (406,293) -- (406,293)
Net Loss............... -- -- -- (6,584,713) -- (6,584,713)
--------- ------- ----------- ------------ ----------- -----------
Balance, September 30,
1998 (unaudited)....... 1,085,549 10,855 5,202,861 (39,647,629) (1,810,884) (36,244,797)
Conversion of
redeemable convertible
preferred stock into
common stock
(unaudited)........... 7,274,833 72,748 41,065,815 -- -- 41,138,563
--------- ------- ----------- ------------ ----------- -----------
Pro Forma Balance,
September 30, 1998
(unaudited)........... 8,360,382 $83,603 $46,268,676 $(39,647,629) $(1,810,884) $ 4,893,766
========= ======= =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED INCEPTION
YEARS ENDED DECEMBER 31, SEPTEMBER 30, (MAY 27, 1992) TO
------------------------------------- ------------------------ SEPTEMBER 30,
1995 1996 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss............... $(5,438,528) $(8,288,880) $(9,754,012) $(7,662,366) $(6,584,713) $(37,688,864)
Adjustments to
reconcile net loss to
net cash used in
operating activities--
Charge for acquired
research and
development, net of
cash paid............ -- 1,459,651 1,611,728 1,611,728 -- 4,103,038
Stock issuance in
exchange for
interest on bridge
financing loan....... -- 10,622 -- -- -- 70,074
Stock issuance in
exchange for rent.... -- -- -- -- -- 93,500
Stock issuance in
exchange for
consulting
services............. -- 14,406 -- -- -- 14,406
Compensation related
to issuance of
common stock
options.............. -- 4,890 -- -- 340,293 345,183
Depreciation and
amortization......... 485,286 553,878 704,788 493,562 564,289 2,850,531
Changes in assets and
liabilities--
Accounts receivable,
prepaid expenses and
other current
assets.............. 210,404 (110,054) 26,041 (188,400) (62,500) (273,724)
Accounts payable..... (270,888) (225,625) 4,702 264,848 187,576 244,329
Accrued expenses..... (812) 76,499 18,133 97,298 499,293 855,439
Deferred revenue..... 528,421 (14,181) 288,743 116,630 648,528
----------- ----------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities......... (5,014,538) (5,976,192) (7,402,801) (5,094,587) (4,939,132) (28,737,560)
----------- ----------- ----------- ----------- ----------- ------------
Cash Flows from
Investing Activities:
Purchases of equipment
and improvements...... (149,604) (626,723) (913,422) (892,106) (296,894) (4,689,058)
Decrease (increase) in
marketable
securities............ 1,547,640 (6,105,391) 5,655,391 3,455,638 (650,000) (1,100,000)
(Increase) decrease in
restricted cash....... (220,000) 220,000 -- -- -- --
Increase in other
assets................ (19,561) (60,134) (13,803) (17,933) (35,016) (128,514)
Net cash acquired in
acquisition of Auda
Pharmaceuticals ApS,
net of acquisition
costs................. -- -- 1,662,990 1,662,990 -- 1,662,990
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) investing
activities......... 1,158,475 (6,572,248) 6,391,156 4,208,589 (981,910) (4,254,582)
----------- ----------- ----------- ----------- ----------- ------------
Cash Flows from
Financing Activities:
Net (payments of)
proceeds from notes
payable............... (266,606) (139,554) (295,420) (228,972) (227,911) 162,115
Proceeds from long-term
debt.................. -- 67,073 627,244 429,140 769,342 1,386,835
Proceeds from
convertible debt...... 1,762,236 -- -- -- -- 1,762,236
Net proceeds from sale
(repurchase) of
preferred stock....... -- 16,058,311 -- -- 7,747,576 35,494,761
Proceeds from sale of
common stock.......... -- (163) 35,750 35,750 18,750 64,387
Proceeds from the
exercise of stock
options and warrants.. 834 985 25,116 20,489 71,249 98,791
Proceeds from ESOP
purchases............. -- -- 6,529 -- -- 6,529
Proceeds from the
issuance of stock in
exchange for
consulting services... -- 266 -- -- -- 266
Net effect of foreign
currency translation
adjustments........... (6,096) 103,039 (56,971) (68,756) 87,555 (96,129)
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 1,490,368 16,089,957 342,248 187,651 8,466,561 38,879,791
----------- ----------- ----------- ----------- ----------- ------------
Net (decrease) increase
in cash and cash
equivalents............ (2,365,695) 3,541,517 (669,397) (698,347) 2,545,519 5,887,649
Cash and Cash
Equivalents, beginning
of period.............. 2,835,705 470,010 4,011,527 4,011,527 3,342,130 --
----------- ----------- ----------- ----------- ----------- ------------
Cash and Cash
Equivalents, end of
period................. $ 470,010 $ 4,011,527 $ 3,342,130 $ 3,313,180 $ 5,887,649 $ 5,887,649
=========== =========== =========== =========== =========== ============
Supplemental Disclosure
of Noncash
Transactions:
Acquisition of Phytera
Ltd.--
Assumed liabilities.... $ -- $ -- $ -- $ -- $ -- $ (1,073,327)
Fair value of assets
acquired.............. -- -- -- -- -- 42,668
Issuance of stock in
connection with
Phytera Ltd.
acquisition........... -- -- -- -- -- 1,000
Acquisition of Neptune
Pharmaceuticals,
Inc.--
Assumed liabilities.... $ -- $ (128,394) $ -- $ -- $ -- $ (128,394)
Fair value of assets
acquired.............. -- 22,018 -- -- -- 22,018
Issuance of stock in
connection with
Neptune
Pharmaceuticals,
Inc................... -- 1,353,275 -- -- -- 1,353,275
Acquisition of Auda
Pharmaceuticals ApS--
Assumed liabilities.... $ -- $ -- $ (44,569) $ (44,569) $ -- $ (44,569)
Fair value of assets
acquired.............. -- -- 1,739,370 1,739,370 -- 1,739,370
Issuance of stock in
connection with Auda
Pharmaceuticals ApS... -- -- 3,262,500 3,262,500 -- 3,262,500
Conversion of
convertible debt and
interest into
preferred stock....... $ -- $ 1,799,038 $ -- $ -- $ -- $ 1,799,038
Supplemental Disclosure
of Cash Flow
Information:
Cash paid for
interest.............. $ 181,079 $ 187,474 $ 134,355 $ 32,113 $ 21,285 $ 692,973
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
Phytera, Inc. and subsidiaries (the Company) was incorporated on May 27,
1992. The Company is an international biopharmaceutical Company engaged in
identifying and optimizing novel chemical lead structures through its
Combinatorial Drug Discovery Program.
The Company is in the development stage. Under United States generally
accepted accounting principles ("US GAAP"), a development stage enterprise is
defined as an enterprise which is devoting substantially all of its efforts
toward developing products, raising capital and marketing products under
development. Under US GAAP, development stage enterprises are required to
provide certain additional disclosure in their financial statements. The
Company is subject to a number of risks similar to those of other development
stage companies, including dependence on key individuals, competition from
substitute products and larger companies, the development of commercially
usable products and the need to obtain adequate additional financing necessary
to fund the development of its products.
(2) ACQUISITIONS
On July 31, 1996, the Company issued 246,050 shares of its Series B
redeemable convertible preferred stock for 100% of the outstanding capital
stock of Neptune Pharmaceuticals, Inc. ("Neptune"). These shares were valued at
$5.50 per share which represented the fair market value based upon comparable
sales of Series B redeemable convertible preferred stock. The acquisition was
accounted for as a purchase in accordance with Accounting Principles Board
Opinion ("APB") No. 16. The assets acquired from Neptune consisted primarily of
intellectual property. In order for the intellectual property acquired from
Neptune to be commercialized, the Company needs to expend a substantial amount
on additional research and development, preclinical testing and clinical
trials, regulatory clearances, and manufacturing, distribution and marketing
arrangements. Accordingly, the net realizable value of the acquired
intellectual property is uncertain. The portion of the purchase price allocated
to intellectual property, totaling $1,498,339, was charged to operations in the
year ended December 31, 1996 as in-process research and development. The
results of operations of Neptune have been included in the accompanying
Consolidated Financial Statements since the date of acquisition.
On March 11, 1997, the Company issued 435,000 shares of its Series D
redeemable convertible preferred stock for 100% of the outstanding capital
stock of Auda Pharmaceuticals ApS ("Auda"). These shares were valued at $7.50
per share which represented the fair market value based upon comparable sales
of Series D redeemable convertible preferred stock. The acquisition was
accounted for as a purchase in accordance with APB No. 16. The assets of Auda
consisted primarily of $1,662,990 of cash and intellectual property. In order
for the intellectual property acquired from Auda to be commercialized, the
Company needs to expend a substantial amount on additional research and
development, preclinical testing and clinical trials, regulatory clearances,
and manufacturing, distribution and marketing arrangements. Accordingly, the
net realizable value of the intellectual property is uncertain. The portion of
the purchase price allocated to intellectual property, totaling $1,611,728, was
charged to operations in the year ended December 31, 1997 as in-process
research and development. The results of Auda's operations have been included
in the accompanying Consolidated Financial Statements since the date of
acquisition.
The following unaudited pro forma summary information presents the combined
results of operations of the Company, Neptune and Auda as if the acquisitions
had occurred at the beginning of 1996 and 1997, respectively. This unaudited
pro forma financial information is presented for informational purposes only
and may not be indicative of the results of operations as they would have been
if the Company, Neptune and Auda had been a single entity, nor is it
necessarily indicative of the results of operations that may occur in the
future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER NINE MONTHS
31, ENDED
------------------------ SEPTEMBER 30,
1996 1997 1997
----------- ----------- -------------
<S> <C> <C> <C>
Collaborative revenues........... $ 267,200 $ 1,052,657 $ 730,311
Net loss......................... (8,758,011) (9,854,791) (7,763,146)
Basic and diluted net loss per
share........................... (13.78) (12.90) (10.32)
</TABLE>
F-7
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements reflect the application of
certain significant accounting policies as described in this note and elsewhere
in the notes to Consolidated Financial Statements.
(a) Summary of Certain Differences Between US GAAP, Danish generally accepted
accounting principles ("Danish GAAP") and International Accounting
Standards ("IAS")
In preparing its Consolidated Financial Statements for each of the years
ended December 31, 1995, 1996 and 1997 and nine-month periods ended
September 30, 1997 and 1998, the Company has applied accounting principles
which are in accordance with US GAAP. These accounting principles differ in
some respects from Danish GAAP and IAS. The more significant differences
have been summarized below. The following sections list only the material
differences in accounting principles and related presentation and
disclosure items which apply to the Company.
IAS and Danish GAAP differ in certain respects from US GAAP in such
regards as the classification and presentation of items in the balance
sheet and income statement as well as disclosure in the notes. The Company
has utilized the alternative approaches which exist under US GAAP that, if
applied, minimize such differences. However, the explanatory notes to the
income statement do differ both in terms of extent and content. US GAAP
require specific disclosures to be made related to the consolidated
statements of operations, consolidated balance sheets, and accompanying
notes. However, IAS tend to be less specific regarding the form of
presentation and structure of such disclosure.
In the balance sheet, US GAAP requires assets and liabilities to be
classified in ascending order, starting with current assets and current
liabilities, whereas the Danish GAAP requires a mandatory line by line
presentation, based on the European Union fourth directive. This structure
lists fixed assets and equity first and current assets and current
liabilities last (in descending order). Further differences relate to the
classification of assets on a line by line basis. US GAAP statements
usually display fixed assets at historical cost and total accumulated
depreciation as a separate line in the balance sheet. Danish GAAP
statements show fixed assets at net book value in the balance sheet with an
accompanying note explaining the "difference" between historical cost and
accumulated depreciation. Furthermore, Danish GAAP classifies current
assets differently on a line by line basis on the balance sheet. US GAAP
classifies leasehold improvements as tangible fixed assets, whereas these
are included in intangible fixed assets according to Danish GAAP. Similarly
the grouping and classification of debt and payables can vary under US GAAP
and Danish GAAP presentation rules.
US GAAP requires research and development costs to be charged to the
profit and loss account as incurred. IAS recognize development costs as an
asset provided that certain conditions are met. Phytera has not recognized
any such assets under IAS, and the development costs are expensed as
incurred in the same way as research costs.
Under US GAAP, a company such as Phytera and subsidiaries is deemed to be
a "development stage company", which requires very strict reporting forms,
including certain aggregate amounts from its inception until the most
recent reporting period to be reported in the consolidated statements of
operations and consolidated statements of cash flows and consolidated
statement of stockholders' equity (deficit). Accounting policy footnotes
require special disclosure explaining accounting for development stage
companies. IAS is less specific regarding the form of presentation and
structure of such disclosure.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-8
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(c) Consolidation
The accompanying Consolidated Financial Statements include the accounts
of the Company and its wholly owned subsidiaries, Phytera Ltd., Phytera A/S
and Phytera Symbion ApS. All material intercompany accounts and
transactions have been eliminated in consolidation.
(d) Unaudited Pro Forma Presentation
The unaudited Pro Forma Consolidated Balance Sheet as of September 30,
1998 reflects the automatic conversion of all outstanding shares of
redeemable convertible preferred stock into 7,274,833 shares of common
stock which will occur upon the closing of the Company's proposed initial
public offering.
(e) Interim Financial Statements
The accompanying Consolidated Financial Statements as of September 30,
1998 and for the nine-month periods ended September 30, 1997 and 1998 are
unaudited, but in the opinion of management, include all adjustments
consisting of normal recurring adjustments necessary for a fair
presentation of results for the interim periods. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although the Company believes that the disclosures included are adequate to
make the information presented not misleading. Results for the nine months
ended September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
(f) Revenue Recognition
Substantially all of the Company's revenues have been derived from
research and development partnerships (see note 9). Revenue is recognized
as the terms of the partnership agreements are fulfilled. Deferred revenue
represents amounts received prior to recognition as revenue.
(g) Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market.
The Company considers highly liquid investments with maturities of 90 days
or less at the time of acquisition to be cash equivalents. Cash and cash
equivalents include money market accounts that are readily convertible to
cash and commercial paper purchased with a maturity of 90 days or less.
(h) Marketable Securities
The Company accounts for marketable securities under Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company has classified its
marketable securities as held-to-maturity and they are recorded at
amortized cost, which approximates fair market value.
At December 31, 1996, 1997 and September 30, 1998, the Company's
marketable securities consist of corporate bonds that mature within one
year of the balance sheet date.
(i) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of equipment and
improvements over their estimated useful lives on a straight-line basis as
follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Laboratory equipment... 5 years
Leasehold
improvements.......... Life of lease
Office equipment....... 3-7 years
</TABLE>
(j) Research and Development Expenses
The Company charges research and development expenses to operations as
incurred.
F-9
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(k) Foreign Currency Translation
The financial statements of the Company's non US subsidiaries are
translated in accordance with SFAS No. 52, Foreign Currency Translation.
All assets and liabilities of the foreign subsidiaries are translated using
the exchange rate at the balance sheet date, except for prepaid expenses,
equipment and improvements and stockholders' equity (deficit), which are
translated at historical rates. Revenues and expenses are translated at
average rates during the period, except for depreciation and amortization,
which are translated at historical rates. Translation gains and losses
arising from the translations are included in the consolidated statements
of operations, since the functional currency is the US dollar for all
operations.
(l) Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, marketable securities, accounts
payable and debt. The estimated fair value of these financial instruments
approximates their carrying value.
(m) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk, requires disclosure of any significant off-balance-sheet and
credit risk concentration. The Company has no significant off-balance-sheet
concentration of credit risk such as foreign exchange contracts or other
hedging arrangements. Financial instruments that subject the Company to
credit risk consist of cash and cash equivalents and marketable securities.
(n) Net Loss per Share
Basic and diluted net loss per common share was determined by dividing
net loss attributable to common shareholders, which reflects the accretion
of preferred stock to redemption value, by the weighted average vested
common shares outstanding during the period. The computation of basic and
diluted net loss per share reflects adjustments to net loss of $15,332,
$401,575, $423,920, $317,940 and $819,401 for the accretion of preferred
stock to its redemption value for the years ended December 31, 1995, 1996,
1997 and the nine months ended September 30, 1997 and 1998, respectively.
Basic and diluted net loss per share are the same, as outstanding common
stock options and warrants and convertible preferred stock are considered
antidilutive as the Company has recorded a net loss for all periods
presented. Options and warrants to purchase a total of 394,619, 987,119,
1,143,353, 1,105,655, and 1,574,062 common shares have been excluded from
the computation of diluted weighted average shares outstanding for the
years ended December 31, 1995, 1996, 1997, and for the nine months ended
September 30, 1997 and 1998, respectively. Shares of common stock issuable
upon the conversion of outstanding redeemable convertible preferred stock
have also been excluded for all periods presented.
The calculation of pro forma net loss per common share assumes that all
series of redeemable convertible preferred stock had been converted to
common stock as of the original issuance dates. The calculation also
assumes that the Series E redeemable convertible preferred stock converts
to common stock at a rate of one-to-one (See note 6(c)).
(o) New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 requires
disclosure of all components of comprehensive income on an annual and
interim basis. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstance from non-operating sources. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company has adopted
this statement, however as of September 30, 1998, the Company does not have
any material components of comprehensive income.
F-10
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain
financial and supplementary information to be disclosed on an annual and
interim basis for each reportable segment of an enterprise. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. The Company
will adopt this statement in their 1998 year end financial statements.
(4) LONG-TERM DEBT
Long-term debt obligations consist of the following as of December 31, 1996
and 1997 and September 30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1996 1997 1998
---------- ---------- -------------
<S> <C> <C> <C>
Note payable to University of
Sheffield........................... $ 822,000 $ 792,384 $ 816,000
Note payable to a Danish
organization........................ 67,073 685,257 1,510,656
Note payable to a United States
bank................................ 550,000 275,000 68,750
Note payable to an unrelated third
party............................... 100,691 73,990 64,656
Note payable to a Danish bank........ 34,755 22,741 18,296
---------- ---------- ----------
1,574,519 1,849,372 2,478,358
Less--Current portion................ 300,993 299,536 289,278
---------- ---------- ----------
$1,273,526 $1,549,836 $2,189,080
========== ========== ==========
</TABLE>
Long-term debt includes a (Pounds)480,000 (approximately $816,000 at the
September 30, 1998 exchange rate) note payable to the University of Sheffield,
bearing interest at 10% per annum, issued in connection with the acquisition of
Phytera Ltd. The note is payable on the closing of a qualified initial public
offering of the Company's common stock, as defined, but may be accelerated upon
the sale or transfer of all or substantially all of the Company's assets or
upon a voluntary petition of bankruptcy. Interest on the unpaid principal
balance is due each October 1.
In 1996, the Company established a credit facility with a Danish organization
to fund the Company's Danish operations. The maximum loan is DKK 13,232,700
($2,086,797 at the September 30, 1998 exchange rate), and is disbursed to the
Company quarterly, based on a percentage of the operating expenses incurred by
the Company's operations in Denmark through December 31, 1998. Interest accrues
from the time of disbursement at a rate of 7.98% per annum. The note and
interest accrued are payable quarterly beginning April 1, 1999. The loan
balance outstanding at December 31, 1996, 1997 and September 30, 1998, was
DKK 397,350, DKK 4,693,541 and DKK 9,564,726, respectively ($67,073, $685,257
and $1,510,656 at the December 31, 1996, and 1997 and September 30, 1998
exchange rates, respectively).
In July 1994, the Company entered into a $1,100,000 equipment line of credit
with a US bank. The Company borrowed the maximum amount through December 31,
1994, at which time the amount outstanding under the equipment line of credit
was converted into a promissory note. The note is payable in 48 equal monthly
installments, beginning in January 1995 and bearing interest at the bank's
prime rate (8.5% at September 30, 1998) plus 2%. Borrowings under the note are
secured by substantially all of the Company's assets. The note contains certain
covenants, including minimum levels of liquidity and net worth. The Company was
in compliance with all covenants at December 31, 1997 and September 30, 1998.
In October 1996, the Company entered into a DKK 619,580 ($97,708 at the
September 30, 1998 exchange rate) note payable with a third party for the
purpose of funding leasehold improvements. During 1997, additional leasehold
improvements for the amount of DKK 13,750 ($2,168 at September 30, 1998) were
completed and the amount was added to the existing note balance without any
change in payment terms. The note is payable quarterly over five years
beginning October 1996. The note bears interest at 6% plus a discount rate,
which was 3.25% at September 30, 1998.
F-11
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In September 1996, the Company entered into a DKK 217,700 ($34,331 at the
September 30, 1998 exchange rate) note payable with a Danish bank for the
purchase of a vehicle. The note is payable in 48 equal monthly installments,
beginning in October 1996 and bearing interest at 6.75%. The note is secured by
the vehicle.
In September 1998, the Company entered into a $1,000,000 equipment line of
credit with a United States finance company. This agreement provides for the
funding of equipment purchases made by the Company through July 15, 1999.
Separate loans are created each time funding is provided, and each loan is to
be repaid over 48 months from the date of the funding with a final payment of
12.5% of the initial principal amount. The repayment amount is based on a
percentage of the outstanding principal of the loan. The percentage rate can
vary prior to each funding, but is then fixed for the term of the specific loan
created by the specific funding event. The line is secured by all equipment
purchased under this agreement. There was no outstanding balance under this
line of credit at September 30, 1998.
(5) CONVERTIBLE DEBT
During 1995, the Company borrowed $1,762,236 from existing investors and
affiliates under convertible promissory notes bearing interest at 7% per annum.
On January 31, 1996, these notes plus accrued interest were converted into
287,846 shares of the Company's Series C convertible preferred stock in
conjunction with the financing discussed in note 6(c).
(6) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Recapitalization
Upon the closing of the Company's proposed initial public offering, the
Company's certificate of incorporation will be amended and restated to,
among other things, change its authorized capital stock to 25,000,000
shares of $0.01 par value common stock and 1,000,000 shares of $0.01 par
value preferred stock.
(b) Common Stock
As of September 30, 1998, the Company had authorized 13,000,000 shares of
common stock, $0.01 par value and had issued 1,085,549 of such shares.
The Company has authorized the issuance of up to 664,177 shares of common
stock pursuant to restricted stock agreements, of which 656,677 have been
issued at September 30, 1998. A portion of these shares vested immediately,
and the remaining shares vest ratably through 2003. All unvested stock, as
defined, is subject to repurchase at its original issuance price by the
Company upon the employee leaving the Company. In January 1996, the Company
exercised its repurchase right to purchase 16,250 shares of common stock.
As of December 31, 1997 and September 30, 1998, 73,500, and 88,000 shares
of restricted common stock, respectively, were unvested and subject to
repurchase right.
F-12
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(c) Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock activity since inception is as
follows:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E
-------------------- --------------------- -------------------- --------------------- --------------------
NUMBER CARRYING NUMBER CARRYING NUMBER CARRYING NUMBER CARRYING NUMBER CARRYING
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
--------- ---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of Series A
redeemable
convertible
preferred
stock........... 908,602 $1,697,381 -- $ -- -- $ -- -- $ -- -- $ --
Accretion of
preferred
stock.......... -- 6,093 -- -- -- -- -- -- -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance December
31, 1992........ 908,602 1,703,474 -- -- -- -- -- -- -- --
Sale of Series B
redeemable
convertible
preferred
stock.......... -- -- 1,857,884 10,144,445 -- -- -- -- -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- -- -- -- -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance December
31, 1993........ 908,602 1,709,567 1,857,884 10,153,684 -- -- -- -- -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- -- -- -- -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance, December
31, 1994........ 908,602 1,715,660 1,857,884 10,162,923 -- -- -- -- -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- -- -- -- -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance, December
31, 1995........ 908,602 1,721,753 1,857,884 10,172,162 -- -- -- -- -- --
Conversion of
bridge
financing loan
and interest
into preferred
stock.......... -- -- -- -- 287,846 1,799,038 -- -- -- --
Sale of Series C
redeemable
convertible
preferred
stock.......... -- -- -- -- 784,913 4,011,900 -- -- -- --
Issuance of
Series B
redeemable
convertible
preferred stock
in connection
with Neptune
Pharmaceuticals,
Inc.
acquisition.... -- -- 246,050 1,353,275 -- -- -- -- -- --
Sale of Series D
redeemable
convertible
preferred
stock.......... -- -- -- -- -- -- 1,900,000 11,233,666 -- --
Exercise of
warrants to
purchase Series
C redeemable
convertible
preferred stock
(note 6(f)).... -- -- -- -- 40,296 251,850 -- -- -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- 162,976 -- 223,267 -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance, December
31, 1996........ 908,602 1,727,846 2,103,934 11,534,676 1,113,055 6,225,764 1,900,000 11,456,933 -- --
Issuance of
Series D
redeemable
convertible
preferred stock
in connection
with Auda
Pharmaceuticals
ApS
acquisition.... -- -- -- -- -- -- 435,000 2,817,045 -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- 182,707 -- 225,881 -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance, December
31, 1997........ 908,602 1,733,939 2,103,934 11,543,915 1,113,055 6,408,471 2,335,000 14,499,859 -- --
Sale of Series E
redeemable
convertible
preferred
stock.......... -- -- -- -- -- -- -- -- 812,586 6,122,629
Amortization of
discount
ascribed to the
guaranteed rate
of return on
Series E
redeemable
convertible
preferred stock
............... -- -- -- -- -- -- -- -- -- 406,293
Exercise of
warrants to
purchase Series
C redeemable
convertible
preferred stock
(note 6(f)).... -- -- -- -- 1,656 10,350 -- -- -- --
Accretion of
preferred
stock.......... -- 4,569 -- 6,929 -- 137,030 -- 170,064 -- 94,515
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance,
September 30,
1998 ........... 908,602 $1,738,508 2,103,934 $11,550,844 1,114,711 $6,555,851 2,335,000 $14,669,923 812,586 $6,623,437
======= ========== ========= =========== ========= ========== ========= =========== ======= ==========
</TABLE>
As of September 30, 1998, the Company had authorized the issuance of up
to 14,446,382 shares of preferred stock, $0.01 par value. The authorized
shares have been designated as follows: 908,602 shares of Series A
redeemable convertible preferred stock ("Series A"), 2,194,843 shares each
of Series B and Series BB redeemable convertible preferred stock ("Series
B"), 1,239,047 shares each of Series C and Series CC redeemable convertible
preferred stock ("Series C"), 2,335,000 shares each of Series D and Series
DD redeemable convertible preferred stock ("Series D") and 1,000,000 shares
of Series E and Series EE redeemable convertible preferred stock ("Series
E"), in the aggregate ("the Preferred Stock").
F-13
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In January 1996, the Company issued 838,359 shares of Series C and
warrants to purchase 115,694 shares of Series C at $0.01 per share in
exchange for cash of $3,440,706 and the conversion of bridge notes payable
of $1,762,236 and accrued interest thereon of $36,802. The Company has
recorded the value attributed to the warrants as additional paid in
capital. The total value attributed to these warrants of approximately
$635,000 will be accreted to the redemption value of the Series C over the
period to its earliest redemption date. In addition, the Company granted
warrants to purchase 18,247 shares of Series C at $5.50 per share in
exchange for a guarantee commitment from certain stockholders. During the
year ended December 31, 1996, certain stockholders exercised warrants to
purchase 40,296 shares of Series C at $0.01 per share.
In July 1996, the Company issued 234,400 shares of Series C and warrants
to purchase 32,347 shares of Series C at $0.01 per share for $1,465,000.
Total net proceeds for the issuance of Series C totaled $6,623,683. The
Company has recorded the value attributed to the warrants as additional
paid in capital. The total value attributed to these warrants of
approximately $177,600 will be accreted to the redemption value of the
Series C over the period to its earliest redemption date. During the nine
months ended September 30, 1998, certain stockholders exercised warrants to
purchase 1,656 shares of Series C at $0.01 per share.
In October 1996, the Company issued 1,900,000 shares of Series D at a
price of $6.50 per share for total net proceeds of $11,233,666.
In March 1997, the Company issued 435,000 shares of its Series D for 100%
of the outstanding capital stock of Auda. The Company recorded these shares
at a value of $7.50 per share pursuant to this transaction.
On May 26, 1998, June 25, 1998, and September 18, 1998, the Company
issued 580,086 and 182,500, and 50,000 shares, respectively, of Series E at
a price of $10.00 per share for total net proceeds of $7,747,576.
The rights and privileges of the Preferred Stock are listed below:
Conversion
The Preferred Stock is convertible into common stock at the rate of one
share of common stock for each share of Preferred Stock, adjustable for
certain dilutive events. Conversion is at the option of the preferred
stockholder but is mandatory upon the closing of an initial public offering
("IPO") of the Company's common stock at a per share price of at least
$9.65, with gross proceeds to the Company in excess of $10,000,000.
The Series E is entitled to a contingent conversion price adjustment
under certain circumstances. In the event the Company closes an IPO on or
prior to June 25, 1999, but at a price per share to the public less than a
value reflecting a 25% annualized return above the per share of $10.00, the
conversion price shall be automatically adjusted so that the Series E will
be converted into a number of common shares that would equal a 25%
annualized return. In the event that an IPO is not closed prior to June 25,
1999, the conversion rate of the Series E into common shares will be
adjusted to a rate of one and one half shares of common stock for each
share of Series E. In the event that an IPO is not closed prior to November
25, 1999, the conversion rate of Series E to common shares will be adjusted
to a rate of two shares common stock for each share of Series E. In the
event that an IPO is not closed prior to April 25, 2000, the conversion
rate of Series E to common shares will be adjusted to a rate of two-and-
one-half shares of common stock for each share of Series E. The terms of
this contingent conversion price adjustment are applicable when the Series
E converts to common stock under any circumstances.
The Company has recorded the value attributed to the contingent
conversion price adjustment of the Series E as additional paid in capital.
This amount was determined to be equal to $2.00 per share which will be
accreted to the redemption value of the Series E over the estimated
outstanding period of one year. The Company has determined that $2.00
represents the estimate of the value of the guaranteed return as it
anticipates conversion within one year.
F-14
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Voting Rights
The holders of Preferred Stock are entitled to vote on all matters and
are entitled to the number of votes equal to the number of shares of common
stock into which the Preferred Stock is convertible.
Dividends
The holders of the Series A shall be entitled to receive, when and if
declared by the Board of Directors, cumulative cash dividends at the annual
rate of $0.1544 per share. Such dividends shall accrue after the first
calendar quarter when the Company's net after-tax income exceeds $100,360.
The holders of the Series B, C, D and E Preferred stock shall be entitled
to receive, when and if declared by the Board of Directors, cumulative cash
dividends at the annual rate of $0.44, $0.50, $0.52 and $0.80 per share,
respectively. Such dividends shall accrue after the first calendar quarter
when the Company's net after-tax income exceeds $500,000. In addition, the
holders of the Preferred Stock shall be entitled to receive a dividend
equal to any dividend paid on common stock.
Liquidation Preference
The holders of the Preferred Stock have preference in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company. The holders of the Series A are entitled to a preference of $1.93
per share, plus any accrued but unpaid dividends. The holders of the Series
B are entitled to a preference of $5.50 per share plus any accrued but
unpaid dividends. The holders of the Series C are entitled to a preference
of $6.25 per share, plus any accrued but unpaid dividends. The holders of
the Series D are entitled to a preference of $6.50 per share, plus any
accrued but unpaid dividends. The holders of the Series E are entitled to a
preference of $10.00 per share, plus any accrued but unpaid dividends.
Redemption
Preferred Stock is redeemable at the option of the holder over a three-
year period commencing on January 1, 2001. On January 1, 2001, 2002 and
2003, the Company shall offer to each holder of the Preferred Stock,
redemption of a maximum of 33 1/3%, 50% and 100%, respectively, of the
total number of shares of Preferred Stock held by such holder on such
redemption date. The redemption price per share shall be equal to $1.93,
$5.50, $6.25, $6.50 and $10.00 for each share of Series A, B, C, D and E,
respectively, plus all accrued and unpaid dividends.
(d) Stock Option Plans
The Company's 1992 Stock Option Plan ("the Plan") provides for the grant
of incentive stock options ("ISOs") and nonqualified options to purchase up
to 1,400,000 shares of common stock to key employees and consultants. Under
terms of the Plan, the exercise price of options granted shall be
determined by the Compensation Committee and for ISOs, shall not be less
than the fair market value of the stock on the date of grant. The term of
each stock option shall be determined by the Board of Directors but shall
not exceed ten years from the date of grant.
The Company's 1998 Equity Incentive Plan ("the 1998 Plan"), which amends
and restates the Company's 1992 Stock Option Plan, authorizes the grant of
incentive stock options, nonqualified stock options, stock grants and other
stock-based awards for the purchase of an additional 1,000,000 shares of
Common Stock to employees, consultants and directors of the Company or any
affiliate capable of contributing to the Company's performance. Grants of
Awards under the 1998 Equity Incentive Plan and all questions of
interpretations with respect to the 1998 Plan are determined by the Board
of Directors of the Company. The Board of Directors has appointed the
Compensation Committee to administer the 1998 Plan. This plan has been
adopted by the Board of Directors subject to shareholder approval.
F-15
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A summary of option activity under the Plan for the years ended December
31, 1996, 1997 and the nine-months ended September 30, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
PRICE PER EXERCISE
SHARES SHARE PRICE
--------- ---------- --------
<S> <C> <C> <C>
Outstanding, December 31, 1995.............. 263,675 $0.01-0.55 $0.32
Granted.................................... 639,800 0.55-0.65 0.60
Exercised.................................. (36,550) 0.01-0.55 0.02
Forfeited.................................. (10,750) 0.01-0.55 0.51
--------- ---------- -----
Outstanding, December 31, 1996.............. 856,175 $0.01-0.65 $0.54
Granted.................................... 181,169 0.65-0.75 0.74
Exercised.................................. (55,600) 0.01-0.65 0.45
Forfeited.................................. (65,801) 0.01-0.75 0.35
--------- ---------- -----
Outstanding, December 31, 1997.............. 915,943 $0.01-0.75 $0.60
Granted.................................... 465,500 0.75-5.00 1.02
Exercised.................................. (131,217) 0.01-0.75 0.57
Forfeited.................................. (30,290) 0.01-0.75 0.62
--------- ---------- -----
Outstanding, September 30, 1998............. 1,219,936 $0.01-5.00 $0.76
========= ========== =====
Exercisable, September 30, 1998............. 364,596 $0.01-1.00 $0.66
========= ========== =====
</TABLE>
The range of exercise prices for options outstanding and options
exercisable at September 30, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.01 32,975 5.06 years $0.01 26,000 $0.01
$0.55--$1.00 1,183,461 8.26 years 0.77 338,596 0.71
$5.00 3,500 9.96 years 5.00 -- --
--------- ---------- ----- ------- -----
1,219,936 7.89 years $0.76 364,596 $0.66
========= ========== ===== ======= =====
</TABLE>
In connection with certain stock option grants during the nine months
ended September 30, 1998, the Company recorded deferred compensation of
$2,115,350, which represents the aggregate difference between the exercise
price and the fair market value of the common stock determined for
accounting purposes. The deferred compensation will be recognized as an
expense over the vesting period of the underlying stock options. The
Company recorded compensation expense of $304,466 in the nine months ended
September 30, 1998 related to these options.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock
options or warrants to be included in the statement of income or disclosed
in the notes to the financial statements. The Company has determined that
it will continue to account for stock-based compensation for employees
under APB No. 25 and elected the disclosure-only alternative under SFAS No.
123 for options granted in 1995, 1996, 1997 and the nine
F-16
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
months ended September 30, 1998 using the Black-Scholes option pricing
model prescribed by SFAS No. 123. The assumptions used are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
----------------------------- SEPTEMBER 30,
1995 1996 1997 1998
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Risk-free interest rate...... 5.7%-7.8% 5.7%-6.9% 5.8%-6.9% 4.6%-5.7%
Expected dividend yield...... -- -- -- --
Expected lives............... 10 years 10 years 10 years 3-10 years
Expected volatility.......... 60% 60% 60% 60%
Weighted average fair value
per share of options
granted..................... $0.36 $0.40 $0.49 $4.39
Weighted average remaining
contractual life of options
outstanding................. 8.52 8.49 8.21 7.89
</TABLE>
Had compensation cost for the Company's stock plan been determined based
on the fair value at the grant dates, as prescribed in SFAS No. 123, the
Company's net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss
As reported............ $5,438,528 $8,288,880 $ 9,754,012 $7,662,366 $6,584,713
Pro forma.............. 5,457,616 8,744,691 10,266,151 8,046,471 7,566,982
Basic and diluted net
loss per common share
As reported............ $ 10.09 $ 13.07 $ 12.77 $ 10.19 $ 8.16
Pro forma.............. 10.10 13.15 12.88 10.28 8.27
</TABLE>
The Black-Scholes option pricing 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 pricing models
require the input of highly subject assumptions, including expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
(e) Employee Stock Purchase Plan
In December 1997, the Company established an Employee Share Ownership
Program ("ESOP") for the Company's employees based in Denmark. This plan
authorizes the Company to issue and sell up to an aggregate of 9,899 shares
of common stock, of which 8,705 shares of common stock were purchased at
fair market value as of December 31, 1997.
The Company has also adopted an Employee Stock Purchase Plan ("the
Purchase Plan") under which employees may purchase shares of common stock
at a discount from fair market value. There are 250,000 shares of common
stock reserved for issuance under the Purchase Plan. To date, no shares of
common stock have been issued under the Purchase Plan. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning
of Section 423 of the Internal Revenue Code. Rights to purchase common
stock under the Purchase Plan are granted at the discretion of the
Compensation Committee, which determines the frequency and duration of
individual offerings under the Purchase Plan and the dates when stock may
be purchased. Eligible employees participate voluntarily and may withdraw
from any offering at
F-17
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
any time before stock is purchased. Participation terminates automatically
upon termination of employment. The purchase price per share of common
stock in an offering is 85% of the lesser of its fair market value at the
beginning of the offering period or on the applicable exercise date and may
be paid through payroll deductions, periodic lump-sum payments or a
combination of both. The Purchase Plan terminates on September 17, 2008.
This plan has been adopted by the Board of Directors subject to shareholder
approval.
(f) Warrants
In connection with certain promissory notes, the Company issued warrants
to purchase 130,944 shares of common stock. These warrants are exercisable
for shares of common stock at an exercise price of $5.50 per share. The
warrants shall be exercisable prior to the earlier of January 31, 1999 or
the effective date of an initial public offering.
As of September 30, 1998 the Company has outstanding 106,089 and 18,247
warrants for the purchase of Series C at $0.01 and $5.50 per share,
respectively, which were issued in connection with the issuance of
convertible debt, as discussed in Note 5.
In December 1997, the Company granted warrants to purchase 60,846 shares
of common stock to selected employees and directors in Denmark. Such
warrants have an exercise price of $0.75 per share, and vest over a three
to five year period beginning on January 1, 1999.
On December 9, 1997 warrants to purchase 35,000 shares of common stock
were granted to a consultant of the Company in Denmark. These warrants have
an exercise price of $0.65 per share and become fully exercisable as of
January 1, 2000.
(7) INCOME TAXES
The Company follows SFAS No. 109, Accounting for Income Taxes, by providing
for income taxes under the liability method. Deferred taxes are determined
based on the difference between the financial statement and tax bases of assets
and liabilities, as measured by the current tax rates. The principal
differences between assets and liabilities for financial reporting and tax
return purposes result primarily from start-up costs and of purchased research
and development costs that have been capitalized for income tax purposes.
The components of the net deferred tax asset with the approximate income tax
effect of each type of temporary difference are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Net operating loss carryforwards.............. $ 7,398,000 $ 10,096,000
Research and development tax credit
carryforwards................................ 270,000 330,000
Purchased research and development............ 600,000 640,000
Temporary differences......................... 74,000 (238,000)
----------- ------------
8,342,000 10,828,000
Valuation allowance........................... (8,342,000) (10,828,000)
----------- ------------
Net deferred tax asset........................ $ -- $ --
=========== ============
</TABLE>
The Company has recorded a full valuation allowance against its deferred tax
assets due to uncertainties surrounding the realization of these assets.
The Company has available net operating loss carryforwards of approximately
$18,495,000 and $25,200,000 at December 31, 1996 and 1997, respectively, for US
federal income tax purposes, which expire at various dates beginning in 2009.
The Company also has available US federal tax credits of approximately $270,000
and $330,000 at December 31, 1996 and 1997, respectively, expiring through the
year 2010. The Company's foreign subsidiaries have approximately $690,000 of
available net operating loss carryforwards for
F-18
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
foreign income tax reporting purposes as of December 31, 1997. These
carryforwards expire on various dates beginning in 2001.
The US Internal Revenue Code of 1986, as amended (the "Code"), contains
provisions that may limit the US net operating loss and tax credit
carryforwards available to be used in any given year upon the occurrence of
certain events, including changes in the ownership interests of significant
stockholders. In the event of a cumulative change in ownership in excess of 50%
over a three year period, the amount of the US net operating loss carryforwards
and tax credit carryforwards that the Company can utilize in any one year may
be limited. In the event of a change in ownership, as defined, the annual
limitation on the use of the existing net operating loss carryforwards is equal
to an amount determined by multiplying the value of the Company at the time of
the ownership change by the US federal applicable rate of interest as
determined by the US Internal Revenue Service.
(8) COMMITMENTS
The Company leases certain equipment and conducts its operations in leased
facilities under noncancelable operating leases that expire through 2004. Rent
expense was approximately $694,000, $957,000 and $1,132,000, during the years
ended December 31, 1995, 1996 and 1997, respectively. Rent expense for the nine
months ended September 30, 1997 and September 30, 1998 amounted to
approximately $842,000 and $915,000, respectively. The minimum rental payments
under these lease agreements are approximately as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1998.............................. $1,219,000
1999.............................. 1,161,000
2000.............................. 963,000
2001.............................. 885,000
2002.............................. 865,000
Thereafter........................ 1,354,000
----------
$6,447,000
==========
</TABLE>
(9) PARTNERSHIP AGREEMENTS
(a) Tsumura & Co.
In June 1996, the Company entered into a partnership with Tsumura & Co.
("Tsumura") focused on the discovery of novel agents for the treatment of
inflammation and allergies. The Company received $780,000, $1,002,500 and
$652,125 for the years ended December 31, 1996, 1997 and the nine months
ended September 30, 1998, respectively, in consideration of the Company's
agreement to provide certain extracts and perform research activities for
Tsumura. The Company recognized $247,000 and $1,052,657 of revenue for the
years ended December 31, 1996 and 1997 and $730,311 and $605,737 for the
nine-month periods ended September 30, 1997 and 1998, respectively,
relating to the fulfillment of the terms as defined in the research
collaboration agreement.
(b) Chiron Corporation
In May 1998, the Company entered into a collaboration agreement with
Chiron Corporation ("Chiron"), whereby the Company provides certain
extracts to Chiron in order to facilitate the research and development of
certain pharmaceutical products. For the nine months ended September 30,
1998, the Company recognized $150,000 of revenue relating to this
collaboration agreement.
(c) Eli Lilly and Company
In July 1998, the Company entered into a research collaboration agreement
with Eli Lilly and Company ("Lilly") pursuant to which the Company will
collaborate with Lilly on the discovery of novel
F-19
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
agents for the diagnosis, treatment and prevention of infectious fungal
disease in humans and animals. Under the terms of this two-year agreement,
the Company will receive research funding, an equity investment, and
potential future milestone and royalty payments. In August 1998, the
Company received $428,028 for research funding. In September, 1998 the
Company received $500,000 from the purchase by Lilly of 50,000 shares of
the Company's Series E. The Company has recognized $344,520 of this
research funding as revenue in the nine months ended September 30, 1998.
(10) ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1997 and September 30, 1998 consist
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1996 1997 1998
-------- -------- -------------
<S> <C> <C> <C>
Accrued payroll and payroll related
expenses............................... $ 70,248 $181,074 $296,204
Other accrued expenses.................. 269,612 182,266 566,429
-------- -------- --------
$339,860 $363,340 $862,633
======== ======== ========
</TABLE>
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFOR-
MATION THAT IS DIFFERENT. THIS PROSPECTUS RELATES ONLY TO THE COMMON STOCK AND
IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN
ANY UNLAWFUL CIRCUMSTANCES. THE DELIVERY OF THIS PROSPECTUS AND THE SALE OF
THE COMMON STOCK DOES NOT MEAN THAT THE AFFAIRS OF THE COMPANY HAVE NOT
CHANGED SINCE THE DATE OF THIS PROSPECTUS OR THAT THIS PROSPECTUS WOULD NOT BE
REVISED IF ISSUED ON A DATE LATER THAN THE DATE BELOW.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 22
Management............................................................... 41
Certain Transactions..................................................... 47
Principal Stockholders................................................... 48
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Settlement and Clearance................................................. 53
Tax Considerations....................................................... 54
Underwriting............................................................. 60
Subscription Procedures.................................................. 63
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 64
Index to Financial Statements............................................ F-1
</TABLE>
------------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[PHYTERA, INC. LOGO]
COMMON STOCK
------------------
US PROSPECTUS
------------------
SG COWEN
CARNEGIE INC.
BANCBOSTON
ROBERTSON STEPHENS
[DATE]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGES FOR EUROPEAN PROSPECTUS]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS +
+NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO +
+BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT +
+PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1998
EUROPEAN PROSPECTUS
SHARES
PHYTERA, INC.
[PHYTERA LOGO]
COMMON STOCK
This is an initial public offering of the shares of Common Stock of Phytera,
Inc. There is currently no public market for the shares. Phytera expects that
the public offering price will be between [$ AND $ ] PER SHARE.
In Europe, we are offering , , shares of Common Stock. In the United
States and Canada, we are offering , , shares of Common Stock. The
offering in the United States and Canada will be limited to qualified
institutional investors.
We have applied for listing of the Common Stock on the European Association
of Securities Dealers Automated Quotation system, called EASDAQ, and on the
Copenhagen Stock Exchange, called the CSE. Our trading symbol on EASDAQ and our
short name on the CSE will be PHYT. We expect that these listings will become
effective and that trading in the shares of Common Stock will begin promptly
after the initial public offering price is determined through negotiations
between the Company and the Underwriters.
In our business we use proprietary combinatorial drug discovery technology to
search for new medicines derived from nature. This business involves
significant risks. These risks are described under the caption "Risk Factors"
beginning on page 7.
NONE OF EASDAQ, THE CSE, THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts and commissions.............................. $ $
Proceeds, before expenses, to Phytera............................... $ $
</TABLE>
The US Underwriters may also purchase up to an additional shares of
Common Stock and the European Managers may purchase up to an additional
shares of Common Stock, at the public offering price, less the Underwriting
discounts and commissions, within 30 days from the date of this Prospectus to
cover over-allotments.
------------
We expect that delivery of the Common Stock will be made in [ ] on or
about January [ ,] 1999.
SG COWEN INTERNATIONAL
CARNEGIE BANK A/S
BANCBOSTON ROBERTSON STEPHENS
INTERNATIONAL LTD
[ , 1999]
X-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFOR-
MATION THAT IS DIFFERENT. THIS PROSPECTUS RELATES ONLY TO THE COMMON STOCK AND
IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN
ANY UNLAWFUL CIRCUMSTANCES. THE DELIVERY OF THIS PROSPECTUS AND THE SALE OF THE
COMMON STOCK DOES NOT MEAN THAT THE AFFAIRS OF THE COMPANY HAVE NOT CHANGED
SINCE THE DATE OF THIS PROSPECTUS OR THAT THIS PROSPECTUS WOULD NOT BE REVISED
IF ISSUED ON A DATE LATER THAN THE DATE BELOW.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 22
Management............................................................... 41
Certain Transactions..................................................... 47
Principal Stockholders................................................... 48
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Settlement and Clearance................................................. 53
Tax Considerations....................................................... 54
Underwriting............................................................. 60
Subscription Procedures.................................................. 63
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 64
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[PHYTERA, INC. LOGO]
COMMON STOCK
---------------------
EUROPEAN PROSPECTUS
---------------------
SG COWEN INTERNATIONAL
CARNEGIE BANK A/S
BANCBOSTON
ROBERTSON STEPHENS
INTERNATIONAL LTD
[DATE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
X-2
<PAGE>
DANISH
APPLICATION FORM PHYTERA, INC
SECURITIES CODES Existing shares Temporary
SUBSCRIPTION , 1999 to the date of determination of the initial
PERIOD public offering price
OFFER PRICE Announced , 1999
INTERVAL
INITIAL PUBLIC To be announced
OFFERING PRICE
SELLING AGENTS SG Cowen International L.P., Carnegie Bank A/S and
BancBoston Robertson Stephens International Ltd
PAYMENT DATE The third day following the determination of the initial
public offering price (fourth day, if the determination is
made after 4:30 p.m. New York time)
LISTING [The day following the determination of the initial public
offering price]
The offer price will be determined through bookbuilding,
see "Underwriting" in the prospectus dated , 1999.
Applications for subscription for amounts of up to and
including DKK 2 million can be submitted using this form.
Applications for subscription for amounts of more than DKK
2 million can be made by contacting the account-holding
institution. If the total number of applications for shares
exceeds the number of shares offered, an allocation will be
made among the applications received as detailed in the
offering circular.
Pursuant to the prospectus dated I/We hereby apply
for subscription of the number of shares of Common Stock of
Phytera, Inc., $0.01 par value, as indicated below.
UP TO AND INCLUDING THE VALUE OF DKK 2 MILLION. SUBMITTED
AS AN IRREVOCABLE APPLICATION.
MAXIMUM PRICE PER SHARE:
------------------------------------------------------------
DKK VALUE:
------------------------------------------------------------
NO. OF SHARES:
------------------------------------------------------------
If no maximum price is indicated the application is
considered to be made at the initial public offer price,
i.e. without limitation.
INVESTOR DECLARES
This application is made pursuant to the conditions
detailed in the prospectus dated , 1999.
This application is irrevocable.
I/We am/are obligated to pay an amount corresponding to the
value of the allocated shares at the offer price. Payment
will take place on , 1999 subsequent to invoice
that is to be sent to me/us, against registration of the
allocated shares in the Danish Securities Centre,
"Vaerdipapircentralen". If the applications exceed the
number of shares offered, an allocation of the shares will
take place as detailed in the prospectus.
INFORMATION AND SIGNATURE
Name VP-account
------------------------------------------------------------
Address Account for settlement
------------------------------------------------------------
Postal code and city Account-holding institution
------------------------------------------------------------
Date To be registered by name in the
company's stock register [_]
(check)
------------------------------------------------------------
Telephone The application has been submitted
through
------------------------------------------------------------
Signature Registration no.
------------------------------------------------------------
CD-ident.
-----------------------------------
Date
-----------------------------------
Company stamp
Telephone
------------------------------------------------------------
THE APPLICATION FORM MUST BE SUBMITTED TO THE ACCOUNT-
HOLDING INSTITUTION ON , 1999 AT 4.00 P.M. AT THE
LATEST.
<TABLE>
<S> <C> <C>
SG Cowen International Carnegie Bank A/S BancBoston Robertson Stephens International Ltd
</TABLE>
X-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered under this registration statement. Except for the SEC registration
fee and the NASD filing fees, all expenses have been estimated and are subject
to future contingencies:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 9,591
EASDAQ listing fee............................................... [93,800]
Copenhagen Stock Exchange filing fee............................. 5,434
NASD filing fees................................................. 3,980
Printing and engraving expenses.................................. 150,000
Accounting fees and expenses..................................... 150,000
Legal fees and expenses.......................................... 250,000
Transfer agent and registrar fees................................ 5,000
Miscellaneous expenses........................................... 82,195
--------
Total.......................................................... $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the Company to
indemnify any present or former Director, officer, employee and agent of the
Company against actual and reasonable expenses (including attorneys' fees)
incurred by such person in connection with any action, suit or proceeding
brought against such person by reason of such person's status or service as a
Director, officer, employee or agent by or on behalf of the Company, and, in
the case of a present or former Director or officer of the Company, against
expenses (including attorneys' fees), judgments, fines and settlements actually
and reasonably incurred by such person in connection with any such action, suit
or proceeding, if (i) the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Company, and (ii) in the case of a criminal proceeding, the person had no
reasonable cause to believe such person's conduct was unlawful. Except as
ordered by a court, no indemnification shall be made in connection with any
proceeding brought by or in the right of the corporation where the person
involved is adjudged to be liable to the Company.
Article TENTH of the Company's Certificate of Incorporation as proposed to be
amended and restated effective immediately prior to the closing of this
offering (the "Restated Certificate") provides that the Company shall, to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative by reason of the fact that he is or was, or has agreed to become
a Director or officer of the Company or is or was serving, or has agreed to
serve, at the request of the Company, as a Director, officer or trustee of, or
in a similar capacity with, another corporation, partnership, joint venture,
trust or other enterprise. The indemnification provided for in Article TENTH is
expressly not exclusive of any other rights to which those seeking
indemnification may be entitled under any law, agreement or vote of
shareholders or Directors or otherwise, and shall inure to the benefit of the
heirs, executors and administrators of such persons. Article TENTH also permits
the Board of Directors to authorize the grant of indemnification rights to
other employees and agents of the Company and such rights may be equivalent to,
or greater or less than, those set forth in Article TENTH.
Article V, Section 2 of the Company's By-laws provides that the Company shall
have the power to purchase and maintain insurance on behalf of its officers,
Directors, employees and agents, against any liability asserted against and
incurred by such persons in any such capacity.
The Company has entered into indemnification agreements with each of its
Directors and executive officers and has obtained insurance covering the
officers and Directors of the Company against certain losses and insuring the
Company against certain of its obligations to indemnify its Directors and
officers.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
Director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a Director, provided that such provisions shall not
eliminate or limit the
II-1
<PAGE>
liability of a Director (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 the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the Director derived an
improper personal benefit. No such provision shall eliminate or limit the
liability of a Director for any act or omission occurring prior to the date
when such provision becomes effective.
Pursuant to the Delaware General Corporation Law, Article NINTH of the
Restated Certificate eliminates a Director's personal liability for monetary
damages to the Company and its shareholders for breach of fiduciary duty as a
Director, except in circumstances involving a breach of the Director's duty of
loyalty to the Company or shareholders, acts or omissions not in good faith,
intentional misconduct, knowing violations of the law, self-dealing or the
unlawful payment of dividends or repurchase of stock.
The Company believes that courts in Europe and the US may have jurisdiction
in an action against the Company, its Directors or officers. Such jurisdiction
will be delivered by the laws of the jurisdiction in effect at that time.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1995, the Company has issued and sold the following
securities, in each case in reliance on an exemption from required registration
pursuant to the Securities Act of 1933, as amended (the "Securities Act"):
1995 Bridge Financing
From September through December 1995, the Company issued certain Convertible
Term Notes (the "Bridge Notes"), for an aggregate principal amount of
$1,762,236 bearing interest on unpaid principal at a rate of 7% per annum and
convertible into Series C Convertible Preferred Stock $0.01 par value per share
("Series C Stock") at the conversion price of $6.25 per share, and certain
warrants to purchase 130,944 shares of Common Stock (the "Bridge Warrants"),
exercisable at the price of $5.50 per share, to certain current stockholders of
the Company (collectively, the "Bridge Financing").
Series C Private Placement
In January and July 1996, and the Company sold an aggregate of 1,113,055
shares of Series C Stock at a price of $6.25 per share, and issued warrants to
purchase an aggregate of 148,041 shares of Series C Stock at an exercise price
of $0.01 per share. In addition, warrants for an aggregate of 18,247 shares of
Series C Stock were issued in consideration of certain financing guaranties by
principal stockholders at an exercise price of $5.50 per share (collectively,
the "Series Private Placement").
Both the 1995 Bridge Financing and the Series C Private Placement were exempt
from the registration requirements of the Securities Act pursuant to the
private offering exemption under Section 4(2) thereof.
Neptune Acquisition
On July 31, 1996, as consideration for the acquisition by the Company of
Neptune Pharmaceuticals, Inc. ("Neptune"), a US pharmaceutical company, the
Company issued 246,050 shares of Series B Convertible Preferred Stock, $0.01
par value per share ("Series B Stock"), to the stockholders of Neptune. Shares
of Series B Stock were valued at $5.50 per share.
The shares issued in connection with the Neptune acquisition were exempt from
the registration requirements of the Securities Act pursuant to the private
offering exemption under Section 4(2) thereof.
Series D Private Placement
In separate closings as of each of October 30 and November 29, 1996, the
Company issued an aggregate of 1,900,000 shares of its Series D Convertible
Preferred Stock, $0.01 par value per share ("Series D Stock") to a large number
of institutional and individual investors. All purchasers of Series D Stock
were "Non-US Persons" as defined by Rule 902 under Regulation S under the
Securities Act, primarily resident in Scandinavia. Shares of Series D Stock
were purchased for $6.50 per share, which represents the initial
II-2
<PAGE>
conversion price at which shares of Series D Stock convert into Common Stock.
Carnegie Bank A/S, ("Carnegie") acted as placement agent for the sale of the
Series D Stock and, pursuant to the terms of a placement agreement between
Carnegie and the Company dated as of October 5, 1996, received a placement fee
equal to 7% of the aggregate proceeds raised, plus accountable expenses.
Auda Acquisition
On March 11, 1997, as consideration for the acquisition by the Company of
Auda Pharmaceuticals ApS ("Auda"), a Danish pharmaceutical company, the Company
issued additional shares of Series D Stock to the selling stockholders of Auda.
The Company issued 402,000 shares to Danish Venture Finance A/S (previously
known as Danish Development Finance Corporation) and 33,000 shares to GJK
Holding ApS, a Danish corporation. Shares of Series D Stock were valued at
$7.50 per share.
The private placement of the Series D Stock and the shares issued in
connection with the Auda acquisition were exempt from the registration
requirements of the Securities Act pursuant to Regulation S.
Series E Private Placement
In separate closings as of each of May 26 and June 25, 1998, the Company
issued an aggregate of 712,586 shares of its Series E Convertible Preferred
Stock, $0.01 par value per share ("Series E Stock") to certain "accredited
investors" as defined by Rule 501 under Regulation D promulgated under the
Securities Act. Shares of Series E Stock were purchased for $10.00 per share.
Carnegie acted as placement agent for the sale of the Series E Stock and,
pursuant to the terms of a placement agreement between Carnegie and the Company
dated March 23, 1998, received a placement fee equal to 7% of the gross
proceeds from the subscription of Series E Stock by new investors and 2% of the
gross proceeds from the subscription of Series E Stock by existing investors of
the Company.
An additional 50,000 shares of Series E Stock was purchased by Eli Lilly and
Company ("Lilly") on September 18, 1998 at a price of $10.00 per share. The
issuance to Lilly did not involve any compensation to Carnegie.
The sale of the Series E Stock and the sale to Lilly were exempt from the
Securities Act pursuant to Regulation D.
Employee, Director and Consultant Issuances
The following securities have been sold in reliance on an exemption from
registration pursuant to Section 4(2) of the Securities Act:
Since inception, the Company has granted employees and consultants options
under its Amended and Restated 1992 Stock Option Plan which have a ten-year
term and are exercisable at a price equal to the fair market value of the
Common Stock at the date of grant, as determined in good faith by the
Compensation Committee of the Board of Directors. As of September 30, 1998,
options for 1,219,936 shares of the Company's Common Stock were outstanding. As
of such date, options for 286,417 shares of Common Stock had been exercised at
an average price of $0.36 per share.
In December 1997, the Company issued warrants to purchase an aggregate of
60,846 shares of its Common Stock to its Danish employees and certain members
of the Board of Directors based in Denmark which vest over a three to five year
period beginning on January 1, 1999 and are exercisable at $0.75 per share,
being a price equal to the fair market value of the Common Stock at the date of
grant, as determined in good faith by the Compensation Committee of the Board
of Directors. The Company also issued warrants to DACC ApS to purchase an
aggregate of 35,000 shares of Common Stock at an exercise price of $0.65 per
share. Such warrants vest over a two-year period beginning on January 1, 1999.
In addition, from inception through September 30, 1998, the Company made
grants of an aggregate of 656,677 shares of Common Stock to certain employees,
Directors and consultants to the Company. Such shares were sold at fair market
value and are subject to repurchase rights held by the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of European Underwriting Agreement. To be filed by
amendment.
1.2 Form of US Underwriting Agreement. To be filed by amendment.
3.1 Amended and Restated Certificate of Incorporation of Phytera,
Inc., as amended through
May 26, 1998. Filed herewith.
3.2 Form of Amended and Restated Certificate of Incorporation of
Phytera, Inc. to be filed immediately prior to the closing of
this offering. Filed herewith.
3.3 By-laws of Phytera, Inc. Filed herewith.
3.4 Form of Amended and Restated By-laws to become effective
immediately prior to the closing of this offering. Filed
herewith.
4 Specimen Common Stock Purchase Warrant, together with a list of
holders. To be filed by amendment.
5 Opinion of Palmer & Dodge LLP as to the legality of the shares
being registered. To be filed by amendment.
10.1* 1998 Equity Incentive Plan. Filed herewith.
10.2* 1998 Employee Stock Purchase Plan. Filed herewith.
10.3* Form of Employment Agreement between Phytera, Inc. and Malcolm
Morville dated as of June 5, 1996. Filed herewith.
10.4 Form of Indemnification Agreement between Phytera, Inc. and its
Directors and executive officers. Filed herewith. Such
agreements are materially different only as to the signing
Directors and executive officers and the dates of execution.
10.5 Amended and Restated Investors' Rights Agreement among Phytera,
Inc. and certain stockholders of the Company dated May 26, 1998.
Filed herewith.
10.6 Confidentiality Agreement between Phytera, Inc. and Malcolm
Morville dated March 1, 1998. Filed herewith.
10.7 Confidentiality Agreement between Phytera, Inc. and Stephen
DiPalma dated November 11, 1997. Filed herewith.
10.8 Confidentiality Agreement between Phytera, Inc. and Christopher
Pazoles dated May 24, 1994. Filed herewith.
10.9 Noncompetition Agreement between Phytera, Inc. and Malcolm
Morville dated October 28, 1993. Filed herewith.
10.10 Noncompetition Agreement between Phytera, Inc. and Stephen
DiPalma dated November 7, 1997. Filed herewith.
10.11 Noncompetition Agreement between Phytera, Inc. and Christopher
Pazoles dated May 24, 1994. Filed herewith.
10.12 Lease Agreement, dated November 1, 1993, between Phytera, Inc.
and Worcester Business Development Corporation. Filed herewith.
10.13 Lease Agreement, dated , 1994, between Phytera, Inc. and
the University of Sheffield. To be filed by amendment.
10.14 Lease Agreement, dated July 26, 1996, between Phytera, Inc. and
Dansk Teknologisk Institut. Filed herewith.
10.15 Lease Agreement, dated April 1, 1997, between Phytera, Inc. and
Auda Pharmaceuticals ApS and Symbion A/S. Filed herewith.
10.16+ Research Collaboration Agreement between Phytera, Inc. and
Tsumura & Co., dated June 28, 1996, as amended on July 11, 1998.
Filed herewith.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.17+ Research Collaboration and License Agreement between Phytera,
Inc. and Galileo Laboratories, Inc., dated April 21, 1998. Filed
herewith.
10.18+ Research Collaboration and License Agreement between Phytera,
Inc. and NeuroSearch A/S, dated May 1, 1998. Filed herewith.
10.19+ Research Collaboration Agreement between Phytera, Inc. and
Chiron Corporation, dated May 20, 1998. Filed herewith.
10.20+ Research Collaboration Agreement between Phytera, Inc. and Eli
Lilly and Company, dated July 21, 1998. Filed herewith.
10.21+ Research Collaboration Agreement between Phytera, Inc. and
Nycomed Amersham plc, dated July 30, 1993. Filed herewith.
23.1 Consent of Arthur Andersen LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed by
amendment as Exhibit 5.
24 Power of attorney. Included on the signature page hereto.
27 Financial Data Schedule. Filed herewith.
</TABLE>
- --------
*Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements (filed
herewith as Exhibits 1.1 and 1.2), certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such Director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
WORCESTER, COMMONWEALTH OF MASSACHUSETTS, ON OCTOBER 28, 1998.
Phytera, Inc.
/s/ Malcolm Morville, Ph.D.
By: _________________________________
MALCOLM MORVILLE, PH.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
We, the undersigned officers and directors of Phytera, Inc., hereby severally
constitute and appoint Malcolm Morville, Stephen DiPalma and Lynnette C.
Fallon, and each of them singly, our true and lawful attorneys-in-fact, with
full power to them in any and all capacities, to sign any amendments to this
Registration Statement, and any related Rule 462(b) registration statement or
amendment thereto, 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 each of said attorneys-in-fact may do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Malcolm Morville, Ph.D. President, Chief Executive October 28, 1998
______________________________________ Officer and Director
MALCOLM MORVILLE, PH.D. (Principal Executive
Officer)
/s/ Stephen DiPalma Vice President, Finance October 28, 1998
______________________________________ (Principal Financial and
STEPHEN DIPALMA Accounting Officer)
/s/ Steven J. Roth Director October 28, 1998
______________________________________
STEVEN J. ROTH
/s/ Uffe Bundegaard-Jorgensen, Ph.D. Director October 28, 1998
______________________________________
UFFE BUNDGAARD-JORGENSEN, PH.D.
/s/ Poul Schluter Director October 28, 1998
______________________________________
POUL SCHLUTER
/s/ Robert G. Foster Director October 28, 1998
______________________________________
ROBERT G. FOSTER
/s/ Graham K. Crooke, M.D. Director October 28, 1998
______________________________________
GRAHAM K. CROOKE, M.D.
/s/ Gustav A. Christensen Director October 28, 1998
______________________________________
GUSTAV A. CHRISTENSEN
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of European Underwriting Agreement. To be filed by
amendment.
1.2 Form of US Underwriting Agreement. To be filed by amendment.
3.1 Amended and Restated Certificate of Incorporation of Phytera,
Inc., as amended through
May 26, 1998. Filed herewith.
3.2 Form of Amended and Restated Certificate of Incorporation of
Phytera, Inc. to be filed immediately prior to the closing of
this offering. Filed herewith.
3.3 By-laws of Phytera, Inc. Filed herewith.
3.4 Form of Amended and Restated By-laws to become effective
immediately prior to the closing of this offering. Filed
herewith.
4 Specimen Common Stock Purchase Warrant, together with a list of
holders. To be filed by amendment.
5 Opinion of Palmer & Dodge LLP as to the legality of the shares
being registered. To be filed by amendment.
10.1* 1998 Equity Incentive Plan. Filed herewith.
10.2* 1998 Employee Stock Purchase Plan. Filed herewith.
10.3* Form of Employment Agreement between Phytera, Inc. and Malcolm
Morville dated as of June 5, 1996. Filed herewith.
10.4 Form of Indemnification Agreement between Phytera, Inc. and its
Directors and executive officers. Filed herewith. Such
agreements are materially different only as to the signing
Directors and executive officers and the dates of execution.
10.5 Amended and Restated Investors' Rights Agreement among Phytera,
Inc. and certain stockholders of the Company dated May 26, 1998.
Filed herewith.
10.6 Confidentiality Agreement between Phytera, Inc. and Malcolm
Morville dated March 1, 1998. Filed herewith.
10.7 Confidentiality Agreement between Phytera, Inc. and Stephen
DiPalma dated November 11, 1997. Filed herewith.
10.8 Confidentiality Agreement between Phytera, Inc. and Christopher
Pazoles dated May 24, 1994. Filed herewith.
10.9 Noncompetition Agreement between Phytera, Inc. and Malcolm
Morville dated October 28, 1993. Filed herewith.
10.10 Noncompetition Agreement between Phytera, Inc. and Stephen
DiPalma dated November 7, 1997. Filed herewith.
10.11 Noncompetition Agreement between Phytera, Inc. and Christopher
Pazoles dated May 24, 1994. Filed herewith.
10.12 Lease Agreement, dated November 1, 1993, between Phytera, Inc.
and Worcester Business Development Corporation. Filed herewith.
10.13 Lease Agreement, dated , 1994, between Phytera, Inc. and
the University of Sheffield. To be filed by amendment.
10.14 Lease Agreement, dated July 26, 1996, between Phytera, Inc. and
Dansk Teknologisk Institut. Filed herewith.
10.15 Lease Agreement, dated April 1, 1997, between Phytera, Inc. and
Auda Pharmaceuticals ApS and Symbion A/S. Filed herewith.
10.16+ Research Collaboration Agreement between Phytera, Inc. and
Tsumura & Co., dated June 28, 1996, as amended on July 11, 1998.
Filed herewith.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.17+ Research Collaboration and License Agreement between Phytera,
Inc. and Galileo Laboratories, Inc., dated April 21, 1998. Filed
herewith.
10.18+ Research Collaboration and License Agreement between Phytera,
Inc. and NeuroSearch A/S, dated May 1, 1998. Filed herewith.
10.19+ Research Collaboration Agreement between Phytera, Inc. and
Chiron Corporation, dated May 20, 1998. Filed herewith.
10.20+ Research Collaboration Agreement between Phytera, Inc. and Eli
Lilly and Company, dated July 21, 1998. Filed herewith.
10.21+ Research Collaboration Agreement between Phytera, Inc. and
Nycomed Amersham plc, dated July 30, 1993. Filed herewith.
23.1 Consent of Arthur Andersen LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed by
amendment as Exhibit 5.
24 Power of attorney. Included on the signature page hereto.
27 Financial Data Schedule. Filed herewith.
</TABLE>
- --------
*Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PHYTERA, INC.
INCORPORATED PURSUANT TO AN ORIGINAL CERTIFICATE OF INCORPORATION OF
PLANT SCIENCE, INC. FILED WITH THE SECRETARY OF STATE, MAY 27, 1992
-------------------------------------------------------------------
The undersigned, for the purpose of further amending and restating the
Restated Certificate of Incorporation, as heretofore amended, of Phytera, Inc.
(the "Corporation") under the laws of the State of Delaware, hereby certifies as
follows:
FIRST. The name of the Corporation is Phytera, Inc.
SECOND. The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, State of
Delaware. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
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 Delaware.
FOURTH.
Section 1. CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation shall
have authority to issue is Twenty Seven Million, Four Hundred Forty Six Thousand
Three Hundred Eighty Two (27,446,382), consisting of Thirteen Million
(13,000,000) shares of common stock, par value $0.01 per share (the "Common
Stock"), and Fourteen Million, Four Hundred Forty Six Thousand Three Hundred
Eighty Two (14,446,382) shares of preferred stock, par value $0.01 per share
(the "Preferred Stock").
Section 2. COMMON STOCK
Section 2.1. Voting Rights. The holders of shares of Common Stock shall be
-------------
entitled to one vote for each share so held with respect to all matters voted on
by the shareholders of the Corporation, subject in all cases to Sections 3.5 and
3.7 of this Article Fourth.
Section 2.2. Liquidation Rights. Subject to the prior and superior right of
------------------
the Preferred Stock, upon any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, the holders of Common Stock
shall be entitled to receive that portion of the remaining funds to be
distributed to holders of Common Stock, subject to and as provided in Section
3.2 of this Article Fourth.
Section 2.3. Dividends. Dividends may be paid on the Common Stock as and
---------
when declared by the Board of Directors; provided, however, that no cash
dividends may be declared or paid on the Common Stock unless dividends shall
first have been declared and paid with respect to the Preferred Stock, as
provided in Section 3.6 of this Article Fourth.
Section 3. PREFERRED STOCK
Section 3.1. Designation. Of the 14,446,382 shares of Preferred Stock which
-----------
the Corporation has authority to issue, 908,602 shall be designated and known as
"Series A Convertible Preferred Stock"
1
<PAGE>
("Series A Preferred"), 2,194,843 shall be designated and known as "Series B
Convertible Preferred Stock" ("Series B Preferred"), 2,194,843 shall be
designated and known as "Series BB Convertible Preferred Stock" ("Series BB
Preferred"), 1,239,047 shall be designated and known as "Series C Convertible
Preferred Stock" ("Series C Preferred"), 1,239,047 shall be designated and known
as "Series CC Convertible Preferred Stock" ("Series CC Preferred"), 2,335,000
shall be designated and known as "Series D Convertible Preferred Stock" ("Series
D Preferred"), 2,335,000 shall be designated and known as "Series DD Convertible
Preferred Stock" ("Series DD Preferred"), 1,000,000 shall be designated and
known as "Series E Convertible Preferred Stock" ("Series E Preferred") and
1,000,000 shall be designated and known as "Series EE Convertible Preferred
Stock" ("Series EE Preferred").
Section 3.2. Liquidation Rights. In the event of any voluntary or
------------------
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, each holder of a share of Preferred Stock shall be entitled to
receive, prior to and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of Common Stock by reason of
their ownership thereof, an amount equal to the accrued but unpaid dividends on
such share of Preferred Stock to and including the date full payment is so
tendered to the holders of the Preferred Stock with respect to such liquidation,
dissolution or winding up, plus an amount equal to (i) One and 93/100 Dollars
($1.93) per share of Series A Preferred, (ii) Five and 50/100 Dollars ($5.50)
per share of Series B Preferred or Series BB Preferred, (iii) Six and 25/100
Dollars ($6.25) per share of Series C Preferred or Series CC Preferred, (iv) Six
and 50/100 Dollars ($6.50) per share of Series D Preferred or Series DD
Preferred and (v) Ten Dollars ($10.00) per share of Series E Preferred or Series
EE Preferred. The liquidation amounts set forth in this Section 3.2 shall also
be subject to equitable adjustment whenever there shall occur a stock split,
stock dividend, combination, reorganization, recapitalization, reclassification
or other similar event involving a change in the Preferred Stock.
If the assets or surplus funds to be distributed to the holders of the
Preferred Stock are insufficient to permit the payment to such holders of their
full preferential amount, the assets and surplus funds legally available for
distribution shall be distributed ratably among the holders of the Preferred
Stock in proportion to the full preferential amount each such holder is
otherwise entitled to receive.
All of the preferential amounts to be paid to the holders of the Preferred
Stock pursuant to this Section 3.2 shall be paid or set apart for payment before
the payment or setting apart for payment of any amount for, or the distribution
of any assets of the Corporation to, the holders of the Common Stock in
connection with such liquidation, dissolution or winding up. After payment or
the setting apart of payment to the holders of the Preferred Stock of the
preferential amounts so payable to them, all remaining assets available for
distribution (after payment or provision for payment of all debts and
liabilities of the Corporation) shall be distributed to the respective holders
of the Preferred Stock and Common Stock ratably in proportion to the number of
shares of Common Stock they then hold or into which their Preferred Stock is
then convertible.
A sale of all or substantially all of the assets of the Corporation or the
consolidation or merger of the Corporation shall be regarded as a liquidation,
dissolution or winding up of the affairs of the Corporation within the meaning
of this Section 3.2, but only if the holders of the outstanding stock of the
Corporation immediately prior to the closing of such sale, merger or
consolidation hold, immediately after such closing, less than a majority in
interest of the issued and outstanding shares of voting securities (as measured
by voting power) of the corporation purchasing all or substantially all of the
Corporation's assets or of the corporation (including without limitation the
Corporation) surviving or resulting from such merger or consolidation, as the
case may be; provided, however, that (i) any holder of Preferred Stock may
elect, by notice to the Corporation no later than 5 days before the effective
date of such event, to be treated under the provisions of Section 3.3(d)(vii) in
lieu of this Section 3.2 in connection with such sale, merger or consolidation
and (ii) in the event the consideration payable to the Corporation or to the
2
<PAGE>
holders of its outstanding stock in connection with any such sale, merger or
consolidation (the "Transaction Consideration") does not consist entirely of
cash, then the Corporation may satisfy its obligations under this Section 3.2 by
paying to the holders of Preferred Stock a portion of the Transaction
Consideration with a fair market value equal to the amount required to be
distributed pursuant to this Section 3.2. The fair market value of the
Transaction Consideration shall be determined by mutual agreement of the
Corporation and the holders of a majority of the outstanding shares of Preferred
Stock. If the Transaction Consideration consists of more than one type of
consideration, then each type of consideration shall be distributed to each
holder of Preferred Stock in the same proportions as such type of consideration
represents of the total Transaction Consideration.
Section 3.3. Conversion. The holders of Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible at the option of the holder thereof at any time after the date of
issuance and without the payment of any additional consideration therefor into
that number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Purchase Price for the series of Preferred Stock
being converted (as defined below) by the Conversion Price (as defined below) as
adjusted pursuant to this Section 3.3 and in effect at the time of conversion.
The Purchase Price and the initial Conversion Price of (i) Series A Preferred
shall be One and 93/100 Dollars ($1.93), (ii) Series B Preferred and Series BB
Preferred shall be Five and 50/100 Dollars ($5.50), (iii) Series C Preferred and
Series CC Preferred shall be Six and 25/100 Dollars ($6.25), (iv) Series D
Preferred and Series DD Preferred shall be Six and 50/100 Dollars ($6.50) and
(v) Series E Preferred and Series EE Preferred shall be Ten Dollars ($10.00).
Subject to Section 3.3(e) below, the Conversion Price for each series of
Preferred Stock shall also be subject to further adjustment (in order to adjust
the number of shares of Common Stock into which the Preferred Stock is
convertible) as hereinafter provided. Each person so converting shares of
Preferred Stock shall be entitled to all accrued but unpaid dividends up to the
time of the conversion. Such dividends shall be calculated pursuant to Section
3.6 and shall be paid to each such person within thirty (30) days of the date of
conversion. Upon the occurrence of (i) the Series E Price Adjustment Event or
(ii) each IPO Delay Event (each as defined below), the Conversion Price of the
Series E Preferred and the Series EE Preferred shall be subject to adjustment as
follows (in addition to equitable adjustment whenever there shall occur a stock
split, stock dividend, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the Preferred
Stock or any other adjustment provided for herein):
(i) If the Corporation consummates an initial public offering of
its securities (an "IPO") on or before the twelve month anniversary (the
"Anniversary") of the final closing of the private placement of the Series E
Preferred (the "Series E Offering") but at a per share offering price to the
public of less than the Guaranteed Return Amount defined below (the "Series E
Price Adjustment Event"), effective immediately prior to the closing of the IPO,
the Conversion Price shall be reduced so that the number of shares of Common
Stock issuable upon conversion of each share of Series E Preferred or Series EE
Preferred as of the closing date of such IPO shall have a value (determined by
reference to the per share price paid by the public in the IPO) equal to the
Guaranteed Return Amount. The "Guaranteed Return Amount" shall mean the Series E
Purchase Price plus an amount equal to the product of (x) 25% of the Series E
Purchase Price multiplied by (y) a fraction, the numerator of which is the
number of days elapsed from the date of the final closing of the Series E
Offering up to and including the IPO closing date and the denominator of which
is 365.
(ii) If the Corporation has not consummated an IPO (x) on or before
the Anniversary (the "First IPO Delay Date") but prior to the date five months
following the Anniversary (the "Second IPO Delay Date"), (y) on or before the
Second IPO Delay Date but prior to the date ten months following the Anniversary
(the "Third IPO Delay Date"), or (z) on or before the Third IPO Delay Date
3
<PAGE>
(the failure of the Company to consummate an IPO on or prior to any IPO Delay
Date being referred to herein as an "IPO Delay Event"), the Conversion Price of
the Series E Preferred and the Series EE Preferred shall be subject to
adjustment as follows. On the occurrence of the First IPO Delay Date, the
Conversion Price then in effect shall be adjusted to a price of $6.67. On the
occurrence of the Second IPO Delay Date, the Conversion Price then in effect
shall be adjusted to a price of $5.00. On the occurrence of the Third IPO Delay
Date, the Conversion Price then in effect shall be adjusted to a price of $4.00.
Such $6.67, $5.00 or $4.00 amount, as the case may, shall be increased or
decreased as appropriate to account for any equitable adjustment whenever there
shall occur a stock split, stock dividend, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the Preferred Stock. In the event that during the period from the date of
issuance of the Series E Preferred Stock until the occurrence of any IPO Delay
Event there has been an event resulting in an adjustment to the Conversion Price
of the Series E Preferred Stock pursuant to Section 3.3(d) hereof (a "Dilutive
Issuance"), on each such IPO Delay Event the Conversion Price shall be adjusted
as set forth above and the impact of the Dilutive Issuance shall be redetermined
in accordance with Section 3.3(d) as if the Conversion Price at the time of the
Dilutive Issuance was the Conversion Price as adjusted as a result of the IPO
Delay Event. Other than such redetermination, no further adjustment to the
Conversion Price shall be required on account of such Dilutive Issuance. The
adjustments set forth in this Section 3.3(a)(ii) shall be in addition to any
other adjustment provided for herein, and in no event shall such adjustments
(other than equitable adjustments) result in a Conversion Price that is higher
than that that would otherwise result on each IPO Delay Event.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon:
(i) the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock for the account of
the Corporation to the public at a public offering price of at least $9.65 per
share (with such amount to be appropriately adjusted in the event of any stock
dividend, stock distribution or subdivision as provided in Section 3.3(d)(vi))
and having an aggregate offering price to the public resulting in gross proceeds
to the Corporation of not less than $10,000,000; or
(ii) the written consent of holders in interest of 80% or more of
the Preferred Stock then outstanding.
The person(s) entitled to receive Common Stock issuable upon a conversion of
Preferred Stock hereunder shall not be deemed to have converted the Preferred
Stock until immediately prior to the closing of such offering or the receipt by
the Corporation of such consent. Each person who holds of record Preferred Stock
immediately prior to an automatic conversion shall be entitled to all accrued
but unpaid dividends up to the time of the automatic conversion. Such dividends
shall be calculated pursuant to Section 3.6 and shall be paid to all such
holders within thirty (30) days of the automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
-----------------------
be issued upon conversion of Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective applicable Conversion
Price. Before any holder of Preferred Stock shall be entitled to convert the
same into full shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to the Corporation at such office that such holder elects to
convert the same and shall state therein his name or the name or names of his
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued, together with the applicable federal taxpayer
identification number. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such
4
<PAGE>
office to such holder of Preferred Stock, or to his nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which he
shall be entitled, together with cash in lieu of any fraction of a share. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues:
---------------------------------------------------
(i) Special Definitions. For purposes of this Section 3.3(d), the
-------------------
following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to subscribe
------
for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Original Issue Date" shall mean May 26, 1998.
-------------------
(3) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than Common Stock, Series A Preferred, Series B
Preferred, Series BB Preferred, Series C Preferred, Series CC Preferred, Series
D Preferred, Series DD Preferred, Series E Preferred and Series EE Preferred) or
other securities directly or indirectly convertible into or exchangeable for
Common Stock.
(4) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Section 3.3(d)(iii), deemed to be issued)
by the Corporation after the Original Issue Date, other than shares of Common
Stock issued or issuable:
(A) upon conversion of shares of Preferred Stock or by way
of dividend or distribution on shares of Series A Preferred, Series B Preferred,
Series BB Preferred, Series C Preferred, Series CC Preferred, Series D
Preferred, Series DD Preferred, Series E Preferred or Series EE Preferred;
(B) to officers, directors or employees of, or consultants
to, the Corporation pursuant to action by the Board of Directors prior to the
Original Issue Date, pursuant to the Corporation's Stock Option Plan in
existence as of the Original Issue Date or pursuant to any other stock purchase
or option plan or other employee or director stock incentive or compensation
program (collectively, the "Plans") approved by a majority of the members of the
Board of Directors designated by the holders of Preferred Stock;
(C) upon the issuance of shares of Series B Preferred to
the former stockholders of Neptune Pharmaceuticals, Inc., a Delaware corporation
("Neptune"), upon the merger of Neptune with and into the Corporation; and
(D) upon the exercise of any warrants outstanding on the
Original Issue Date.
(ii) No Adjustment of Conversion Price. No adjustment in the number
---------------------------------
of shares of Common Stock into which any series of Preferred Stock is
convertible shall be made by adjustment in the Conversion Price of such series
of Preferred Stock in respect of the issuance of Additional Shares of Common
Stock or otherwise, unless the consideration per share for such Additional
Shares of Common Stock issued or deemed to be issued by the Corporation is less
than the Conversion Price of such series of Preferred Stock in effect on the
date of, and immediately prior to, the issue of such Additional Shares.
5
<PAGE>
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
---------------------------------------------------------------
Stock.
- -----
(1) Options and Convertible Securities. In the event the
----------------------------------
Corporation at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 3.3(d)(v)) of such Additional Shares
of Common Stock would be less than the Conversion Price of any series of
Preferred Stock in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price of any
series of Preferred Stock shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price of any series of Preferred Stock computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price of any series of Preferred Stock computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based thereon shall, upon such
expiration, be recomputed as if:
(I) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to
6
<PAGE>
have been received by the Corporation (determined pursuant to Section 3.3(d)(v))
upon the issue of the Convertible Securities with respect to which such Options
were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price of any series of
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
of such series of Preferred Stock on the original adjustment date, or (ii) the
Conversion Price of such series of Preferred Stock that would have resulted from
any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(E) in the case of any Options which expire by their terms
not more than thirty (30) days after the date of issue thereof, no adjustment of
the Conversion Price of any series of Preferred Stock shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall be
made in the same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price of any series of Preferred
Stock which became effective on such record date shall be cancelled as of the
close of business on such record date, and thereafter the Conversion Price of
such series of Preferred Stock shall be adjusted pursuant to this Section
3.3(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and Subdivisions. In
-----------------------------------------------------
the event the Corporation at any time or from time to time after the Original
Issue Date of any series of Preferred Stock shall declare or pay any dividend or
make any other distribution on the Common Stock payable in Common Stock, or
effect a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
then and in any such event, Additional Shares of Common Stock shall not be
deemed to have been issued, but the Conversion Price of each series of Preferred
Stock shall be adjusted in accordance with Section 3.2(d)(vi).
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock.
- ----------------------
Subject to the provisions of Section 3.3(e), in the event the
Corporation shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 3.3(d)(iii))
without consideration or for a consideration per share less than the Conversion
Price of any series of Preferred Stock in effect on the date of and immediately
prior to such issue, then and in such event, in order to increase the number of
shares of Common Stock into which such series of Preferred Stock is convertible,
concurrently with such issuance, the Conversion Price of such series of
Preferred Stock shall be reduced to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction (x) the numerator
of which shall be (A) the number of shares of Common Stock outstanding
immediately prior to such issue (including shares of Common Stock issuable upon
conversion of any outstanding Preferred Stock or Convertible Securities), plus
(B) the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and (y) the denominator
of which shall be (A) the number of shares of Common Stock outstanding
immediately prior to such issue (including shares of Common Stock issuable upon
conversion of any outstanding Preferred Stock or Convertible Securities), plus
(B) the number of such Additional Shares of Common Stock so issued, provided
that the Conversion Price shall not be so reduced at such time if the amount of
such reduction would be an amount less than $0.05, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent
7
<PAGE>
reduction which, together with such amount and any other amount or amounts so
carried forward, shall aggregate $0.05 or more.
Until shares of Series BB Preferred are issued and outstanding, the
Conversion Price of Series BB Preferred shall be adjusted as and when the
Conversion Price of the Series B Preferred is adjusted, regardless of the
Original Issue Date of the Series BB Preferred. Until shares of Series CC
Preferred are issued and outstanding, the Conversion Price of Series CC
Preferred shall be adjusted as and when the Conversion Price of the Series C
Preferred is adjusted. Until shares of Series DD Preferred are issued and
outstanding, the Conversion Price of Series DD Preferred shall be adjusted as
and when the Conversion Price of the Series D Preferred is adjusted. Until
shares of Series EE Preferred are issued and outstanding, the Conversion Price
of Series EE Preferred shall be adjusted as and when the Conversion Price of the
Series E Preferred is adjusted.
(v) Determination of Consideration. For purposes of this Section
------------------------------
3.3(d), the consideration received by the corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined in
good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration per
----------------------------------
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section 3.3(d)(iii)(1), relating to Options and
Convertible Securities, shall be determined by dividing (x) the total amount, if
any, received or receivable by the corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration until such subsequent adjustment occurs) payable to the
corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (y) the maximum number
of shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such number until such subsequent adjustment occurs) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions,
------------------------------------------------------
Combinations or Consolidation of Common Stock.
- ---------------------------------------------
8
<PAGE>
(1) Stock Dividends, Distributions or Subdivisions. In the
----------------------------------------------
event the Corporation at any time or from time to time shall declare or pay any
dividend or make any other distribution on the Common Stock payable in Common
Stock, or effect a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
the Conversion Price on each series of Preferred Stock in effect immediately
prior to such stock dividend, stock distribution or subdivision shall,
concurrently with the effectiveness of such stock dividend, stock distribution
or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event the
------------------------------
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price of each series of Preferred Stock in effect immediately
prior to such combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
(vii) Adjustment for Merger or Reorganization. Subject to the last
---------------------------------------
sentence of this Section 3.3(d)(vii), in case of any consolidation or merger of
the Corporation with or into another corporation or the conveyance of all or
substantially all of the assets of the Corporation to another corporation, each
share of Preferred Stock shall thereafter be convertible, at the option of the
holder thereof in the manner described in the last sentence of this Section,
into the number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Preferred Stock would have been entitled upon such
consolidation, merger or conveyance. In any such case, appropriate adjustment
(as determined by the Board of Directors) shall be made in the application of
these provisions set forth with respect to the rights and interest thereafter of
the holders of the Preferred Stock, to the end that these provisions (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Preferred Stock. In the event that such merger or
consolidation of the Corporation or the sale of all or substantially all its
assets and properties as such events are more fully set forth in the first
paragraph of this Section 3.3(d)(vii), shall also be subject to the provisions
of Section 3.2 above, each holder of Preferred Stock may elect to obtain the
treatment of such holder's shares of Preferred Stock under this Section
3.3(d)(vii) in lieu of that described in Section 3.2, notice of which election
shall be submitted in writing to the Corporation at its principal offices no
later than five (5) days before the effective date of such event.
(e) Mandatory Conversion of Series B Preferred, Series C Preferred,
---------------------------------------------------------------
Series D Preferred and Series E Preferred to New Series of Preferred Stock.
- --------------------------------------------------------------------------
(i) For purposes of this Section 3.3(e), the following
definitions shall apply:
(A) "Pro Rata Share" shall mean that portion of a Dilutive
Issuance which equals the product of (1) the ratio of (x) the number of issued
and outstanding shares of Series B Preferred (or Preferred Stock issued on
conversion of Series B Preferred pursuant to this Section 3.3(e)) (calculated on
an as-converted basis), Series C Preferred (or Preferred Stock issued on
conversion of Series C Preferred pursuant to this Section 3.3(e)) (calculated on
an as-converted basis), Series D Preferred (or Preferred Stock issued on
conversion of Series D Preferred pursuant to this Section 3.3(e)) (calculated on
an as-converted basis) and Series E Preferred (or Preferred Stock issued on
conversion of Series E Preferred pursuant to this Section 3.3(e) (calculated on
an as-converted basis) held by the subject holder to (y) the total number of
shares of Preferred Stock (calculated on an as-converted basis) then issued and
outstanding, times (2) the lesser of $5,000,000 or the gross consideration
received by the Corporation in connection with a Dilutive Issuance.
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<PAGE>
(B) "Dilutive Issuance" shall mean the issuance of New
Securities (as defined in the Investor Rights Agreement) without consideration
or for a consideration per share less than the highest Conversion Price in
effect immediately prior to such issuance.
(C) "Diluted Stock" shall mean shares of Series B Preferred (or
Preferred Stock issued on conversion of Series B Preferred Stock pursuant to
this Section 3.3(e)), shares of Series C Preferred (or Preferred Stock issued on
conversion of Series C Preferred pursuant to this Section 3.3(e)), shares of
Series D Preferred (or Preferred Stock issued on conversion of Series D
Preferred Stock pursuant to this Section 3.3(e)) or shares of Series E Preferred
(or Preferred Stock issued on conversion of Series E Preferred Stock pursuant to
this Section 3.3(e)) that have a Conversion Price per share greater than the
consideration per share to be received in a Dilutive Issuance.
(D) "Investor Rights Agreement" shall mean the Amended and
Restated Investor Rights Agreement among the Corporation and certain of its
stockholders dated as of May 26, 1998.
(E) "Participating Investor" shall mean any holder of Diluted
Stock who, together with the Affiliates of such holder (regardless of whether
such holder actually purchases), agrees to purchase such holder's Pro Rata Share
of a Dilutive Issuance on or before the later of (i) the last day of the 30-day
period specified in Section 1.8 of the Investor Rights Agreement which is given
in connection with a Dilutive Issuance or (ii) such later date which may be
approved by the holders of more than 60% of the Diluted Stock (determined on an
as-converted basis).
(F) "Affiliate" shall mean any person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with a holder of Diluted Stock.
(ii) Subject to paragraph (vii) of this Section 3.3(e), each share of
Diluted Stock held by a person other than a Participating Investor ("Converted
Shares") shall automatically be converted simultaneously with the closing of the
Dilutive Issuance into one share of a new series of Preferred Stock pursuant to
the terms hereof. The Purchase Price of a new series of Preferred Stock issued
on conversion of Series B Preferred or a new series of Preferred Stock issued on
conversion of Series B Preferred pursuant to this Section 3.3(e) (a "Series B
Preferred Derivative") shall be Five and 50/100 Dollars ($5.50) for the purposes
of Section 3.3(a), and the Conversion Price of such new series of Preferred
Stock issued on conversion of Series B Preferred or Series B Preferred
Derivative, immediately after the date of the Dilutive Issuance shall equal the
Conversion Price of the Series B Preferred or Series B Preferred Derivative
which was so converted, without giving effect to adjustments arising from such
Dilutive Issuance. The Purchase Price of a new series of Preferred Stock issued
on conversion of Series C Preferred or a new series of Preferred Stock issued on
conversion of Series C Preferred pursuant to this Section 3.3(e) (a "Series C
Preferred Derivative") shall be Six and 25/100 Dollars ($6.25), and the
Conversion Price of such new series of Preferred Stock issued on conversion of
Series C Preferred or Series C Preferred Derivative, immediately after the date
of the Dilutive Issuance shall equal the Conversion Price of the Series C
Preferred or Series C Preferred Derivative which was so converted, without
giving effect to adjustments arising from such Dilutive Issuance. The Purchase
Price of a new series of Preferred Stock issued on conversion of Series D
Preferred or a new series of Preferred Stock issued on conversion of Series D
Preferred pursuant to this Section 3.3(e) (a "Series E Preferred Derivative")
shall be Six and 50/1000 Dollars ($6.50), and the Conversion Price of such new
series of Preferred Stock issued on conversion of Series D Preferred or Series D
Preferred Derivative, immediately after the date of the Dilutive Issuance shall
equal the Conversion Price of the Series D Preferred or Series D Preferred
Derivative which was so converted, without giving effect to adjustments arising
from such Dilutive Issuance. The Purchase Price of a new series of Preferred
Stock issued on conversion of Series E Preferred or a new series of Preferred
Stock issued on conversion of Series E
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Preferred pursuant to this Section 3.3(e) (a "Series E Preferred Derivative")
shall be Ten Dollars ($10.00), and the Conversion Price of such new series of
Preferred Stock issued on conversion of Series E Preferred or Series E Preferred
Derivative, immediately after the date of the Dilutive Issuance shall equal the
Conversion Price of the Series E Preferred or Series E Preferred Derivative
which was so converted, without giving effect to adjustments arising from such
Dilutive Issuance. Other than as set forth in this Section 3.3(e)(ii), such new
series of Preferred Stock shall have the same rights and preferences as the
series of Preferred Stock of the Converted Shares, including the provisions for
future adjustment in the Conversion Price in accordance with Section 3.3(d)
above, and for further automatic conversion under this Section 3.3(e) if not
held by a Participating Investor in a future Dilutive Issuance. In the event
that Series B Preferred is Diluted Stock and no shares of Series B Preferred
have previously been converted under this Section 3.3(e)(ii) then each Converted
Share shall automatically be converted into one share of Series BB Preferred,
which series shall conform to the foregoing terms. In the event that Series C
Preferred is Diluted Stock and no shares of Series C Preferred have previously
been converted under this Section 3.3(e)(ii) then each Converted Share shall
automatically be converted into one share of Series CC Preferred, which series
shall also conform to the foregoing terms. In the event that Series D Preferred
is Diluted Stock and no shares of Series D Preferred have previously been
converted under this Section 3.3(e)(ii) then each Converted Share shall
automatically be converted into one share of Series DD Preferred, which series
shall also conform to the foregoing terms. In the event that Series E Preferred
is Diluted Stock and no shares of Series E Preferred have previously been
converted under this Section 3.3(e)(ii), then each Converted Share shall
automatically be converted into one share of Series EE Preferred, which series
shall also conform to the foregoing terms. After such initial conversion,
Converted Shares (whether shares of Series B Preferred, Series BB Preferred,
Series C Preferred, Series CC Preferred, Series D Preferred, Series DD
Preferred, Series E Preferred, Series EE Preferred or any new series authorized
hereafter to effect further conversion under this Section 3.3) shall be
converted into shares of new series of Preferred Stock to be authorized in
accordance with this Section 3.3(e).
(iii) The Corporation, the Board of Directors and the holders of
the outstanding Preferred Stock and Common Stock shall take all necessary
actions to designate such a new series of Preferred Stock to the extent
necessary to accomplish the conversions described in this Section 3.3(e),
including any amendment to this Restated Certificate of Incorporation.
(iv) Any shares of Series B Preferred, Series C Preferred,
Series D Preferred or Series E Preferred which are issuable pursuant to any
outstanding right, option, warrant or other convertible security shall remain
shares of Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred, as the case may be, without regard to whether the holder of such
right, option, warrant or other convertible security is a Participating
Investor, provided that such shares of Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred shall become subject to this Section
3.3(e) after issuance thereof.
(v) Upon the conversion of Diluted Stock as set forth herein,
such Converted Shares shall no longer be outstanding on the books of the
Corporation and the holder of such Converted Shares shall be treated for all
purposes as the record holder on the date of closing of the Dilutive Issuance of
the shares of Series BB Preferred, Series CC Preferred, Series DD Preferred and
Series EE Preferred, or, as applicable, such other new series of Preferred Stock
authorized in accordance with this Section 3.3(e), issued upon conversion of
such outstanding shares of Diluted Stock.
(vi) Until the first Dilutive Issuance in which there are
Converted Shares, the Corporation shall reserve and keep available (i) out of
its authorized but unissued Series BB Preferred such number of shares of Series
BB Preferred as shall from time to time be sufficient to effect conversion of
all outstanding shares of Series B Preferred, (ii) out of its authorized but
unissued Series CC Preferred
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<PAGE>
such number of shares of Series CC Preferred as shall from time to time be
sufficient to effect conversion of all outstanding shares of Series C Preferred,
(iii) out of its authorized but unissued Series DD Preferred such number of
shares of Series DD Preferred as shall from time to time be sufficient to effect
conversion of all outstanding shares of Series D Preferred and (iv) out of its
authorized but unissued Series EE Preferred such number of shares of Series EE
Preferred as shall from time to time be sufficient to effect conversion of all
of the outstanding shares of Series E Preferred. The Corporation shall not in
any event, issue any shares of Series BB Preferred, Series CC Preferred, Series
DD Preferred or Series EE Preferred except as provided in this Section 3.3(e).
(vii) The provisions of this Section 3.3(e) shall not apply in
the event that (A) the holders of Diluted Stock are not entitled to purchase
their Pro Rata Share of the Dilutive Issuance under the provisions of Section
1.8(b) of the Investor Rights Agreement, or terms substantially similar to such
provisions, or (B) the Corporation shall fail to comply with its obligation to
offer and sell such New Securities (as defined in the Investor Rights Agreement)
in accordance with such provisions or terms.
(f) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(g) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of any Conversion Price pursuant to this Section 3.3
and upon any conversion of shares of Preferred Stock under Section 3.3(e), the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with these terms and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment, readjustment or
conversion and showing in detail the facts upon which such adjustment,
readjustment or conversion is based; provided that the failure to promptly
provide such notice shall not affect the effectiveness of such adjustment,
readjustment or conversion. The Corporation shall, upon the written request at
any time of any holder of Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price of any series of Preferred Stock at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of any series of Preferred Stock.
(h) Notices of Record Date. In the event of (i) any taking by the
----------------------
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, or (ii) any capital reorganization of
the Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to any
other corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Preferred Stock at least 30 days prior
to the record date specified therein, a notice specifying (A) the date on which
any such record is to be taken for the purpose of such dividend or distribution
and a description of such dividend or distribution, (B) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and (C)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
12
<PAGE>
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
(i) Common Stock Reserved. The Corporation shall reserve and keep
---------------------
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Preferred Stock (provided, however, that the Corporation shall not be
obligated to reserve any shares of Common Stock for issuance on conversion of
the Series BB Preferred, Series CC Preferred, Series DD Preferred or Series EE
Preferred until shares of Series BB Preferred, Series CC Preferred, Series DD
Preferred or Series EE Preferred are issued and outstanding in accordance with
Section 3.3(e)).
Section 3.4. Redemption.
----------
(a) There shall be a three year period of redemption (the "Redemption
Period") for each share of Preferred Stock commencing on [January 1, 2001]. On
the commencement date of the Redemption Period and on the first and second
anniversaries thereof (each, a "Redemption Date"), the Corporation shall offer
to each holder of shares of Preferred Stock to redeem shares of Preferred Stock
having a Redemption Price (as defined below) equal to thirty-three and one third
percent (33-1/3%), fifty percent (50%), and one hundred percent (100%),
respectively, of the Redemption Price of the total number of shares of Preferred
Stock held by such holder on such Redemption Date. The Preferred Stock shall be
redeemed by the Corporation paying cash, out of funds legally available
therefor, an amount equal to (the "Redemption Price") the Purchase Price of such
series of Preferred Stock (as defined in Section 3.3(a) above), plus in each
case, all accrued but unpaid dividends payable in accordance with Section 3.6 on
each such share of Preferred Stock tendered for redemption. Should the
Corporation not have sufficient funds legally available for redeeming all shares
to be redeemed on any Redemption Date, the Corporation shall redeem a pro rata
portion (based on the aggregate Redemption Price held by each holder requesting
redemption) of each holder's shares of Preferred Stock who has requested
redemption out of funds legally available therefor and shall redeem the
remaining shares requested to have been redeemed as soon as practicable after
the Corporation has funds legally available therefor. The Corporation shall
offer to redeem shares of Preferred Stock by giving written notice thereof to
each holder of shares of Preferred Stock, which notice shall state the aggregate
Redemption Price for Preferred Stock to be redeemed by such holder and shall
specify a Redemption Date not less than forty-five (45) days nor more than sixty
(60) days after the date of such written notice. Any holder of shares of
Preferred Stock to be redeemed may redeem all or part of such shares by giving
written notice thereof to the Corporation, no less than fifteen (15) days prior
to the Redemption Date specified in the Corporation's written offer of
redemption, which notice shall specify the number of shares of each series of
Preferred Stock which such holder wishes to redeem, and by surrendering to the
Corporation on or before the redemption date the share certificates for the
number of shares of Preferred Stock to be redeemed in accordance with such
notice. If less than all of the shares represented by such certificates are
redeemed, a new certificate shall be issued for the unredeemed shares as
promptly as possible. Notwithstanding the foregoing, the holders of sixty
percent (60%) or more of the Preferred Stock shall have the right to postpone
for a specified period of time or waive such rights of redemption of all holders
by written notice to the Corporation and to all such holders.
(b) The Redemption Prices set forth in this Section 3.4 shall be
subject to equitable adjustment whenever there shall occur a stock split, stock
dividend, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the Preferred Stock.
Section 3.5. Voting Rights.
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<PAGE>
(a) The holders of shares of Preferred Stock shall be entitled to
notice of any stockholders' meeting and to vote upon any matter submitted to a
stockholder for a vote, as though the Common Stock and the Preferred Stock
constituted a single class of stock, except with respect to those matters on
which the Delaware Corporation Law requires that a vote must be by a separate
class or classes or by separate series, as to which each such class or series
shall have the right to vote in accordance with such law, and except as provided
in Section 3.5(b), on the following basis: holders of Preferred Stock shall have
that number of votes per share as is equal to the number of shares of Common
Stock into which each such share of Preferred Stock held by such holder is then
convertible.
(b) (i) If any of the events described in Section 3 of the Investor
Rights Agreement, as defined in Section 3.3(e)(i)(D), (the terms of which are
deemed incorporated by reference) occur, then the holders of Preferred Stock
shall, upon notice from holders of at least fifty percent (50%) of the
outstanding shares of Preferred Stock, have, in each instance, the right to call
a special meeting of stockholders of the Corporation at which the holders of the
Preferred Stock represented in person or by proxy at such meeting shall have the
right to elect a sufficient number of directors to the Board of Directors of the
Corporation so that the representatives of the Preferred Stock on the Board of
Directors (the "Preferred Directors") represent a majority of the Board. The
number of the members of the Board of Directors shall accordingly be increased
at the meeting and the Preferred Directors shall seek to expeditiously correct
or nullify the action giving rise to their election (the "Initiating Action"),
at which time any director who shall have been newly elected pursuant to this
Section 3.5 shall (so long as no other Initiating Action shall have occurred and
be continuing) resign or be subject to removal by all of the stockholders of the
Corporation. The contingent rights of the holders of Preferred Stock under this
Section 3.5 shall thereupon cease and expire, subject to renewal from time to
time upon the same terms and conditions contained in this Section and the number
of the members of the Board of Directors shall be accordingly reduced.
(ii) Any director who shall have been elected by holders of
Preferred Stock (or by any director so elected) pursuant to this Section 3.5,
may be removed at any time prior to correction or nullification of the
Initiating Action, either with or without cause, by, and only by, the
affirmative votes of the holders of a majority of the outstanding shares of
Preferred Stock given at a special meeting of such stockholders called for the
purpose, and any vacancy thereby created may be filled during such period by the
holders of Preferred Stock, present in person or represented by proxy at such
meeting. Any director to be elected by the Board of Directors of the Corporation
to replace a director elected by holders of Preferred Stock pursuant to this
Section 3.5, or elected by a director as in this sentence provided, and who
dies, resigns, or otherwise ceases to be a director shall, except as otherwise
provided in the preceding sentence, be elected by the remaining directors
theretofore elected by the holders of Preferred Stock.
(c) The holders of Preferred Stock and the holders of Common Stock
shall be entitled to vote upon the election of directors in accordance with the
Amended and Restated Shareholders Agreement dated as of May 26, 1998, as it may
be amended from time to time.
Section 3.6. Dividend Rights.
---------------
(a) The holders of the then outstanding shares of Series A Preferred
shall be entitled to receive, when and as declared by the Board of Directors,
out of funds legally available therefor, cumulative cash dividends at the annual
rate of $0.1544 per share. Such dividends shall commence to accrue on a
quarterly basis after the first calendar quarter when the corporation's net
after-tax income, calculated in accordance with generally accepted accounting
principles, exceeds $100,360. Such dividends shall be cumulative and shall
accrue on a quarterly basis, whether or not declared, from and after such
calendar quarter.
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<PAGE>
(b) The holders of the then outstanding shares of Series B Preferred
and Series BB Preferred shall be entitled to receive, when and as declared by
the Board of Directors, out of funds legally available therefor, cumulative cash
dividends at the annual rate of $0.44 per share. Such dividends shall commence
to accrue after the first calendar quarter when the Corporation's net after-tax
income, calculated in accordance with generally accepted accounting principles,
exceeds $500,000. Such dividends shall be cumulative and shall accrue on a
quarterly basis, whether or not declared, from and after such calendar quarter.
(c) The holders of the then outstanding shares of Series C Preferred
and Series CC Preferred shall be entitled to receive, when and as declared by
the Board of Directors, out of funds legally available therefor, cumulative cash
dividends at the annual rate of $0.50 per share. Such dividends shall commence
to accrue after the first calendar quarter when the Corporation's net after-tax
income, calculated in accordance with generally accepted accounting principles,
exceeds $500,000. Such dividends shall be cumulative and shall accrue on a
quarterly basis, whether or not declared, from and after such calendar quarter.
(d) The holders of the then outstanding shares of Series D Preferred
and Series DD Preferred shall be entitled to receive, when and as declared by
the Board of Directors, out of funds legally available therefor, cumulative cash
dividends at the annual rate of $0.52 per share. Such dividends shall commence
to accrue after the first calendar quarter when the Corporation's net after-tax
income, calculated in accordance with generally accepted accounting principles,
exceeds $500,000. Such dividends shall be cumulative and shall accrue on a
quarterly basis, whether or not declared, from and after such calendar quarter.
(e) The holders of the then outstanding shares of Series E Preferred
and Series EE Preferred shall be entitled to receive, when and as declared by
the Board of Directors, out of funds legally available therefor, cumulative cash
dividends at the annual rate of $0.80 per share. Such dividends shall commence
to accrue after the first calendar quarter when the Corporation's net after-tax
income, calculated in accordance with generally accepted accounting principles,
exceeds $500,000. Such dividends shall be cumulative and shall accrue on a
quarterly basis, whether or not declared, from and after such calendar quarter.
(f) The dividends provided for in clauses (a), (b), (c), (d) and (e)
of this Section 3.6 shall be payable on liquidation, conversion and redemption
in accordance with Sections 3.2, 3.3 and 3.4 hereof. In the event that the Board
of Directors declares and/or pays such dividends other than in such events, it
shall do so on a pari passu basis among each series of Preferred Stock, pro
rata, based on the aggregate amount of dividends accrued to each holder of
Preferred Stock on the date of such declaration (or, if the Board makes no
declaration, on the date of payment).
(g) In addition to the cumulative dividends described in paragraphs
(a), (b), (c), (d) and (e) above, the holders of outstanding Preferred Stock
shall be entitled to receive a dividend (determined on the basis of the number
of shares of Common Stock into which a share of Preferred Stock is then
convertible) equal to any dividend paid on Common Stock.
Section 3.7. Covenants. In addition to Section 3.5 and any vote which any
---------
series of Preferred Stock may have under Delaware law, so long as any shares of
Preferred Stock shall be outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of not less than sixty percent
(60%) of such outstanding shares of Preferred Stock:
15
<PAGE>
(a) amend or repeal any provision of, or add any provision to, the
Corporation's Restated Certificate of Incorporation or By-Laws if such action
would change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Preferred Stock generally;
(b) reclassify any Common Stock into shares having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Preferred Stock;
(c) pay or declare any dividend or distribution on any shares of
Common Stock or apply any of its assets to the redemption, retirement, purchase
or other acquisition directly or indirectly, through subsidiaries, if any, or
otherwise, of any shares of Common Stock or Preferred Stock except from
officers, directors or employees of or consultants to the Corporation upon
termination of employment, except as required by the Corporation's Restated
Certificate of Incorporation and except as pursuant to the Corporation's rights
of first refusal as set forth in the Corporation's Bylaws;
(d) create or issue any other class or classes of stock or series of
Preferred Stock (other than pursuant to Section 3.3(e)) having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Preferred Stock; or
(e) authorize (i) any merger or consolidation of the Corporation with
or into any other corporation or entity (except into or with a wholly-owned
subsidiary with the requisite shareholder approval), (ii) the sale of all or
substantially all of the assets of the Corporation or (iii) the liquidation or
reorganization of the Corporation; unless, upon the consummation of any such
event, each holder of the Corporation's Preferred Stock will receive proceeds
(consisting of cash and/or publicly traded securities) per share equal to at
least $9.65 (as adjusted for stock splits, stock dividends, distributions,
subdivisions and similar events).
Section 3.8. Converted, Redeemed or Otherwise Acquired Shares. Any share
------------------------------------------------
of Preferred Stock that is converted under Section 3.3, redeemed under Section
3.5 or otherwise acquired by the Corporation will be canceled and will not be
reissued, sold or transferred.
Section 3.9. Residual Rights. All rights accruing to the outstanding
---------------
shares of the Corporation not expressly provided for to the contrary shall be
vested in the Common Stock.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. The Board of Directors is authorized to adopt, amend or repeal the
by-laws of the Corporation.
SEVENTH. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
EIGHTH. 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
provisions of (S)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 the provision of (S)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 of 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 in
16
<PAGE>
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 or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the 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.
NINTH. The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of any undertaking by the person indemnified
to repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayments.
The Corporation shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
The indemnification rights provided in this Article (i) shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
No amendment or repeal of this Article shall deprive any person of the
benefits hereof with respect to any act or omission occurring prior to such
amendment or repeal.
TENTH. A director shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is
prohibited under the Delaware General Corporation Law as in effect when such
liability is determined. No amendment or repeal of this provision shall deprive
a director of the benefits hereof with respect to any act or omission occurring
prior to such amendment or repeal.
ELEVENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or thereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
This Restated Certificate of Incorporation of the Corporation has been duly
adopted in accordance with the provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State
17
<PAGE>
of Delaware and written notice of the adoption of this Restated Certificate of
Incorporation has been given as provided by Section 228 of the General
Corporation Law of the State of Delaware to the stockholders entitled to such
notice.
Signed this 26th day of May, 1998.
/s/ Malcolm Morville
--------------------------
Malcolm Morville, President
Attest:
/s/ Lynnette C. Fallon
- ---------------------------------
Lynnette C. Fallon, Secretary
18
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EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PHYTERA, INC.
The undersigned, Malcolm Morville and Lynnette C. Fallon, do hereby
certify:
A. They are the duly elected and acting President and Secretary,
respectively, of Phytera, Inc., a Delaware corporation (the "Corporation").
B. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State on May 27, 1992, and the name under which the
Corporation was originally incorporated was Plant Science, Inc.
C. The Certificate of Incorporation, as previously amended, is further
amended and restated to read in full as follows:
FIRST: The name of the Corporation is Phytera, Inc.
SECOND: The address of the registered office of the Corporation in the
state of Delaware is 1013 Center Road, City of Wilmington, County of New Castle,
State of Delaware. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
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 all classes of stock which the
Corporation shall have authority to issue is twenty six million (26,000,000)
shares, consisting of: (i) twenty-five million (25,000,000) shares of Common
Stock, $.01 par value per share ("Common Stock"), and (ii) one million
(1,000,000) shares of Preferred Stock, $.01 par value per share ("Preferred
Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. PREFERRED STOCK
---------------
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article FOURTH, to provide by resolution for the
issuance of the shares of Preferred Stock in one or more series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each
<PAGE>
such series, and to fix the designations, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof.
The authority of the Board with respect to each series shall include, but
shall not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(h) Any other relative rights, preferences and limitations of that series.
B. COMMON STOCK
------------
The Common Stock is subject to the rights and preferences of the Preferred
Stock as hereinbefore set forth or authorized.
Subject to the provisions of any applicable law or of the By-laws of the
Corporation, as from time to time amended, with respect to the fixing of a
record date for the determination of stockholders entitled to vote, and except
as otherwise provided herein or by law or by the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of
outstanding shares of Common Stock shall have exclusive voting rights for the
election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in his name on the books of the Corporation.
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<PAGE>
Subject to the rights of any one or more series of Preferred Stock, the
holders of Common Stock shall be entitled to receive such dividends from time to
time as may be declared by the Board of Directors out of any funds of the
Corporation legally available for the payment of such dividends.
In the event of the liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have been
made to the holders of the Preferred Stock of the full amount to which they are
entitled, the holders of Common Stock shall be entitled to share ratably
according to the number of shares of Common Stock held by them, in all remaining
assets of the Corporation available for distribution to its stockholders.
C. ISSUANCE
--------
Subject to the provisions of this Restated Certificate of Incorporation and
except as otherwise provided by law, the shares of stock of the Corporation,
regardless of class, may be issued for such consideration and for such corporate
purposes as the Board of Directors may from time to time determine.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The Board of Directors shall consist of not less than three
directors, the exact number to be determined from time to time by resolution
adopted by the affirmative vote of a majority of the directors then in office.
The directors shall be divided into three classes, as nearly equal in number as
the then total number of directors constituting the entire Board of Directors
permits, with the term of office of one class expiring each year. The initial
directors of the first class shall be elected to hold office for a term expiring
at the next succeeding annual meeting following the filing of this Restated
Certificate of Incorporation, the initial directors of the second class shall be
elected to hold office for a term expiring at the second succeeding annual
meeting and the initial directors of the third class shall be elected to hold
office for a term expiring at the third succeeding annual meeting. At each
succeeding annual meeting of stockholders beginning in the first year following
the election of such staggered Board of Directors, successors to the class of
directors whose term expires at that meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional directors of any class
elected to fill a vacancy resulting from an increase in the size of such class
shall hold office for a term that shall coincide with the remaining term of that
class, but in no event will a decrease in the number of directors shorten the
term of any incumbent director. Any vacancies in the Board of Directors for any
reason, and any directorships resulting from any increase in the number of
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum, and any directors so
chosen shall hold office until the next election of the class for which such
directors shall have been chosen. Notwithstanding the foregoing, and except as
otherwise required by law, whenever the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the election, term of office and other
features of such directorships shall be governed by the terms of this Restated
Certificate of Incorporation and certificates of designation applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
3
<PAGE>
Article SIXTH unless expressly provided by such terms. Subject to the
foregoing, at each annual meeting of stockholders the successors to the class of
directors whose terms shall then expire shall be elected to hold office for a
term expiring at the annual meeting for the year in which their term expires and
until their successors shall be elected and qualified, subject to prior death,
resignation, retirement or removal.
Except as otherwise determined by the Board of Directors in establishing a
series of Preferred Stock as to directors elected by holders of such series, at
any special meeting of the stockholders called at least in part for the purpose,
any director or directors may, by the affirmative vote of the holders of at
least a majority of the stock entitled to vote for the election of directors, be
removed from office for cause. The provisions of this subsection shall be the
exclusive method for the removal of directors. This Article SIXTH may not be
amended, revised or revoked, in whole or in part, except by the affirmative vote
of the holders of 66 2/3% of the voting power of the shares of all classes of
stock of the Corporation entitled to vote for the election of directors,
considered for the purposes of this Article SIXTH as one class of stock.
SEVENTH: The Board of Directors shall have the right to make, alter or
repeal the By-laws of the Corporation.
EIGHTH: Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
NINTH: A director shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is not
permitted under the General Corporation Law of the State of Delaware as in
effect when such liability is determined. No amendment or repeal of this
provision shall deprive a director of the benefits hereof with respect to any
act or omission occurring prior to such amendment or repeal.
TENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article TENTH, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayments.
4
<PAGE>
The Corporation shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
The indemnification rights provided in this Article TENTH (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article TENTH.
ELEVENTH: No action required to be taken or that may be taken at any
annual or special meeting of stockholders of the Corporation may be taken by
written consent without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is specifically denied.
This Article ELEVENTH may not be amended, revised or revoked, in whole or
in part, except by the affirmative vote of the holders of 66 2/3% of the voting
power of the shares of all classes of stock of the Corporation entitled to vote
for the election of directors, considered for the purposes of this Article
ELEVENTH as one class of stock.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
D. The foregoing Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of the Corporation in accordance with Section
245 of the Delaware General Corporation Law.
E. The foregoing Restated Certificate of Incorporation was approved by the
written consent of the holders of a majority of the outstanding shares of Common
Stock in accordance with Sections 228, 242, and 245 of the Delaware General
Corporation Law.
5
<PAGE>
IN WITNESS WHEREOF, Phytera, Inc. has caused this Restated Certificate of
Incorporation to be signed by Malcolm Morville, its President, and attested by
Lynnette C. Fallon, its Secretary, this ___ day of __________ 1998.
PHYTERA, INC.
By:
------------------------------
Malcolm Morville
President
ATTEST:
By:
--------------------------------
Lynnette C. Fallon
Secretary
6
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
PHYTERA, INC.
As Amended as of November 4, 1992
As Further Amended as of December 15, 1993
As Further Amended as of January 30, 1996
As Further Amended as of October 7, 1996
As Further Amended as of April 30, 1998
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of stockholders shall be held
-----------------
at the principal office of the corporation or at such other place as may be
named in the notice.
SECTION 2. Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date and at such hour and place as
the directors or an officer designated by the directors may determine. If the
annual meeting is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the stockholders may be
----------------
called at any time by the President, the Chairman of the Board, if any, or the
Board of Directors, or by the Secretary, or any other officer upon the written
request of (i) one or more stockholders holding of record at least a majority of
the outstanding shares of stock of the corporation entitled to vote at such
meeting or (ii) the holder of 10% or more of the outstanding Preferred Stock or
the shares of Common Stock issuable upon conversion of such shares of Preferred
Stock, or any combination thereof. Such written request shall state the purpose
or purposes of the proposed meeting. Business transacted at any special meeting
of stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of the meeting.
<PAGE>
SECTION 4. Notice of Meetings. Except where some other notice is required
------------------
by law, written notice of each meeting of stockholders, stating the place, date
and hour thereof and the purposes for which the meeting is called, shall be
given by or under the direction of the Secretary, not less than ten (10) nor
more than sixty (60) days before the date fixed for such meeting, to each
stockholder entitled to vote at such meeting of record at the close of business
on the day fixed by the Board of Directors as a record date for the
determination of the stockholders entitled to vote at such meeting or, if no
such date has been fixed, of record at the close of business on the day before
the day on which notice is given. Notice shall be given personally to each
stockholder or left at his or her residence or usual place of business or mailed
postage prepaid and addressed to the stockholder at his or her address as it
appears upon the records of the corporation. In case of the death, absence,
incapacity or refusal of the Secretary, such notice may be given by a person
designated either by the Secretary or by the person or persons calling the
meeting or by the Board of Directors. A waiver of such notice in writing, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent to such notice. Attendance of a
person at a meeting of stockholders shall constitute a waiver of notice of such
meeting, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of stockholders need be specified in any written waiver of notice. Except as
required by statute, notice of any adjourned meeting of stockholders shall not
be required.
SECTION 5. Voting List. The officer who has charge of the stock ledger
-----------
of the corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a
2
<PAGE>
complete list of stockholders, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this section or the books of the corporation, or to vote at any meeting of
stockholders.
SECTION 6. Quorum of Stockholders. At any meeting of the stockholders,
----------------------
the holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the consideration
of such question, but a smaller group may adjourn any meeting from time to time.
When a quorum is present at any meeting, a majority of the stock represented
thereat and entitled to vote shall, except where a larger vote is required by
law, by the certificate of incorporation, or by these by-laws, decide any
question brought before such meeting. Any election by stockholders shall be
determined by a plurality of the vote cast by the stockholders entitled to vote
at the election.
SECTION 7. Proxies and Voting. Unless otherwise provided in the
------------------
certificate of incorporation, each stockholder shall at every meeting of
stockholders be entitled to one (1) vote in person or by proxy for each share of
the capital stock held of record by such stockholder, but no proxy shall be
voted or acted upon after three years from its date, unless said proxy provides
3
<PAGE>
for a longer period. Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held, and persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation the pledgee shall have been expressly empowered to vote thereon, in
which case only the pledgee or the pledgee's proxy may represent said stock and
vote thereon. Shares of the capital stock of the corporation belonging to the
corporation or to another corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes.
SECTION 8. Conduct of Meeting. Meetings of stockholders shall be presided
------------------
over by one of the following officers in the order of seniority and if present
and acting: the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, a chairman to be chosen by the stockholders. The
Secretary of the corporation, if present, or an Assistant Secretary, shall act
as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman of the meeting shall appoint a secretary of
the meeting.
SECTION 9. Action Without Meeting. Any action required or permitted to be
----------------------
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders or by
proxy for the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote on such action were present and
voted. Prompt notice of the taking of corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
4
<PAGE>
ARTICLE II
DIRECTORS
SECTION 1. General Powers. The business and affairs of the corporation
--------------
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation which are not by law required to
be exercised by the stockholders. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
SECTION 2. Number; Election; Tenure and Qualification. The initial Board
------------------------------------------
of Directors shall consist of one (1) person and shall be elected by the
incorporator. Thereafter, except as otherwise provided by the certificate of
incorporation, the number of directors which shall constitute the whole Board
shall be fixed by resolution of the Board of Directors, but in no event shall be
less than one. Except as otherwise provided by the certificate of incorporation,
each director shall be elected by the stockholders at the annual meeting and all
directors shall hold office until the next annual meeting and until their
successors are elected and qualified, or until their earlier death, resignation
or removal. Except as otherwise provided by the certificate of incorporation,
the number of directors may be increased or decreased by action of the Board of
Directors. Directors need not be stockholders of the corporation.
SECTION 3. Enlargement of the Board. Except as otherwise provided by the
------------------------
certificate of incorporation, the number of the Board of Directors may be
increased at any time, such increase to be effective immediately, by vote of a
majority of the directors then in office.
SECTION 4. Vacancies. Except as otherwise provided by the certificate of
---------
incorporation, unless and until filled by the stockholders, any vacancy in the
Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board and an
5
<PAGE>
unfilled vacancy resulting from the removal of any director for cause or without
cause, may be filled by vote of a majority of the directors then in office
although less than a quorum, or by the sole remaining director. A director
elected to fill a vacancy shall hold office until the next annual meeting of
stockholders and until his or her successor is elected and qualified or until
his or her earlier death, resignation, or removal. Except as otherwise provided
by the certificate of incorporation, when one or more directors shall resign
from the Board, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. If at any time there are no directors in
office, then an election of directors may be held in accordance with the General
Corporation Law of the State of Delaware.
SECTION 5. Resignation. Any director may resign at any time upon written
-----------
notice to the corporation. Such resignation shall take effect at the time
specified therein, or if no time is specified, at the time of its receipt by the
President or Secretary.
SECTION 6. Removal. Except as may otherwise be provided by the General
-------
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, at an annual meeting or at a special meeting called for
that purpose, by the holders of a majority of the shares then entitled to vote
at an election of directors, provided that the directors of a class elected by a
particular class of stockholders may be removed only by the vote of the holders
of a majority of the shares of the particular class of stockholders entitled to
vote for the election of such directors. Except as otherwise provided by the
certificate of incorporation, the vacancy or vacancies thus created may be
filled by the stockholders at the meeting held for the
6
<PAGE>
purpose of removal or, if not so filled, by the directors in the manner provided
in Section 4 of this Article II.
SECTION 7. Committees. The Board of Directors may, by resolution or
----------
resolutions passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of such absent or
disqualified member.
A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. The Board of Directors shall have the power to change the
members of any such committee at any time, to fill vacancies therein and to
discharge any such committee, either with or without cause, at any time.
Any such committee, unless otherwise provided in the resolution of the
Board of Directors, or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority denied it by Section 141 of the General Corporation Law
of the State of Delaware.
7
<PAGE>
Each committee shall keep regular minutes of its meetings and make such
reports as the Board of Directors may from time to time request.
SECTION 8. Meetings of the Board of Directors. Regular meetings of the
----------------------------------
Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at the
same place as the annual meeting of the stockholders, or any special meeting of
the stockholders at which a Board of Directors is elected.
Special Meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by (i) the
Chairman of the Board of Directors, (ii) the President, (iii) the Treasurer,
(iv) the Secretary, (v) any one director designated by the holders of the
Company's Preferred Stock pursuant to a shareholders agreement executed by the
Company, or (vi) any two or more directors. Reasonable notice of the time and
place of a special meeting shall be given to each director unless such notice is
waived by attendance or by written waiver in the manner provided in these by-
laws for waiver of notice by stockholders. Notice may be given by, or by a
person designated by, the Secretary, the person or persons calling the meeting,
or the Board of Directors. No notice of any adjourned meeting of the Board of
Directors shall be required. In any case it shall be deemed sufficient notice
to a director to send notice by mail at least seventy-two hours, or by telegram
at least forty-eight hours, before the meeting, addressed to such director at
his or her usual or last known business or home address.
Directors or members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of
conference
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telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
SECTION 9. Quorum and Voting. A majority of the total number of directors
-----------------
shall constitute a quorum, except that when a vacancy or vacancies exist in the
Board, a majority of the directors then in office (but not less than one-third
(1/3) of the total number of the directors) shall constitute a quorum. A
majority of the directors present, whether or not a quorum is present, may
adjourn any meeting from time to time. The vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, except where a different vote is required or permitted by
law, by the certificate of incorporation, or by these by-laws.
SECTION 10. Compensation. The Board of Directors may fix fees for their
------------
services and for their membership on committees, and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. Action Without Meeting. Any action required or permitted to be
----------------------
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, and without notice, if a written consent thereto is
signed by all members of the Board of Directors, or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE III
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OFFICERS
SECTION 1. Titles. The officers of the corporation shall consist of a
------
President, a Secretary, a Treasurer, and such other officers with such other
titles as the Board of Directors shall determine, including without limitation a
Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice-
Presidents, Assistant Treasurers, or Assistant Secretaries.
SECTION 2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders. Each officer shall hold office
until his or her successor is elected and qualified, unless a different term is
specified in the vote electing such officer, or until his or her earlier death,
resignation or removal.
SECTION 3. Qualification. Unless otherwise provided by resolution of the
-------------
Board of Directors, no officer, other than the Chairman or Vice-Chairman of the
Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. Removal. Any officer may be removed, with or without cause, at
-------
any time, by resolution adopted by the Board of Directors.
SECTION 5. Resignation. Any officer may resign by delivering a written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt or at such later
time as may be specified therein.
SECTION 6. Vacancies. The Board of Directors may at any time fill any
---------
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary.
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SECTION 7. Powers and Duties. The officers of the corporation shall have
-----------------
such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors, and shall have
such additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. President and Vice-Presidents. The President shall be the chief
-----------------------------
executive officer of the corporation, shall preside at all meetings of the
stockholders and the Board of Directors unless a Chairman or Vice-Chairman of
the Board is elected by the Board, empowered to preside, and present at such
meeting, shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
In the absence of the President or in the event of his or her inability or
refusal to act, the Vice-President if any (or in the event there be more than
one Vice-President, the Vice-Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President and, when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors.
SECTION 9. Secretary and Assistant Secretaries. The Secretary shall attend
-----------------------------------
all meetings of the Board of Directors and of the stockholders and record all
the proceedings of such meetings in a book to be kept for that purpose, shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
11
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custody of the corporate seal which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the corporation.
The Assistant Secretary if any (or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors of if there be no
such determination, then in the order of their election) shall, in the absence
of the Secretary or in the event of the Secretary's inability or refusal to act,
perform the duties and exercise the powers of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers. The Treasurer shall have
----------------------------------
the custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board of Directors or the President, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or whenever they may require it, an account
of all transactions and of the financial condition of the corporation.
The Assistant Treasurer if any (or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors or if there be no
such determination, then in the order of their election) shall, in the absence
of the Treasurer or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the Treasurer.
12
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SECTION 11. Bonded Officers. The Board of Directors may require any officer
---------------
to give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of the duties of such officer and for the restoration
to the corporation of all property in his or her possession or control belonging
to the corporation.
SECTION 12. Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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ARTICLE IV
STOCK
SECTION 1. Certificates of Stock. One or more certificates of stock, signed
---------------------
by the Chairman or Vice-Chairman of the Board of Directors or by the President
or Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying, in the aggregate, the number of shares owned by the stockholder in
the corporation. Any or all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature shall have been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the certificate of incorporation, the by-laws, applicable
securities laws, or any agreement among any number of stockholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
SECTION 2. Right of First Refusal.
----------------------
(a) No stockholder shall sell, assign, transfer, exchange, pledge or
otherwise dispose of any shares of common stock of the corporation unless prior
to any sale or other transfer thereof, such stockholder (or his, her or its
representative, as the case may be) shall provide the corporation with written
notice describing the number of shares of such stock intended to be sold or
transferred, the price and the general terms of the proposed sale or transfer.
14
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(b) Except in the case of a Permitted Transfer, as defined in Section 2(k)
below, the corporation shall have the right (the "First Refusal Right") at any
time within sixty (60) days after receipt of the notice required by Section 2(a)
above to purchase from the stockholder (or his, her or its representative, as
the case may be) up to but not exceeding the number of shares of common stock,
at the price (the "First Refusal Price") and upon the general terms, specified
in such notice. If the corporation does not exercise the First Refusal Right,
then each holder of no fewer than 250,000 shares of any class of the Company's
Preferred Stock (a "Preferred Stockholder") shall have the right to exercise its
pro rata portion of the First Refusal Right at any time within thirty (30) days
after the expiration of said 60-day period. For the purposes of this Section, a
Preferred Stockholder's pro rata portion of the First Refusal Right shall be a
right to purchase the number of shares of common stock subject to the First
Refusal Right multiplied by a fraction, the numerator of which is the number of
shares of Common Stock issued or issuable upon conversion of any shares of
Preferred Stock held by such Preferred Stockholder, and the denominator of which
shall be the number of shares of Common Stock issued or issuable upon conversion
of any shares of Preferred Stock held by all Preferred Stockholders exercising
such First Refusal Right.
(c) If the First Refusal Right is not exercised with respect to some or all
the shares of common stock specified in the notice required by Section 2(a)
hereof, then for a period of one hundred and twenty (120) days, the stockholder
(or his, her or its representative, as the case may be) shall be free to sell,
or otherwise transfer up to but not exceeding the number of shares of common
stock specified in the notice required by Section 2(a) hereof, minus the number
of shares of common stock with respect to which the First Refusal Right was
exercised,
15
<PAGE>
at a price and upon general terms no more favorable to purchasers or transferees
thereof than specified in the notice required by Section 2(a) hereof.
(d) In the event that any shares of common stock which are free to be sold or
otherwise transferred under the terms of Section 2(c) above are not sold or
otherwise transferred within said 120-day period, such shares of common stock
shall again be subject to the First Refusal Right and the stockholder (or his,
her or its representative, as the case may be) shall comply with all the
provisions of this Section 2 prior to selling or otherwise transferring any such
shares of common stock.
(e) Failure to exercise the First Refusal Right with respect to any shares of
common stock shall not constitute a waiver of the First Refusal Right with
respect to any other shares of common stock.
(f) The First Refusal Right shall continue after the death of a stockholder,
shall be binding upon each stockholder's heirs, representatives, successors or
permitted assigns, as the case may be, and shall terminate only upon the closing
of an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of shares of common stock of the corporation to the public at a public
offering price of not less than nine dollars and sixty-five cents ($9.65) per
share (as adjusted for stock splits, stock dividends, distributions or
subdivisions) and resulting in gross proceeds to the corporation of not less
than Ten Million Dollars ($10,000,000).
(g) The First Refusal Right shall be exercised by written notice signed by an
officer of the corporation. The First Refusal Price shall be payable, at the
option of the corporation, in cancellation of all or a portion of any
outstanding indebtedness of the stockholder to the corporation or in cash (by
check) or both.
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<PAGE>
(h) The corporation or any Preferred Stockholder may assign its rights under
this Section 2, but only after obtaining the prior written consent of all the
other parties holding such First Refusal Right.
(i) If from time to time during the term of the First Refusal Right:
(i) there is any stock dividend or liquidating dividend of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the corporation; or
(ii) there is any consolidation, merger or sale of all, or substantially
all, of the assets of the corporation, unless such consolidation, merger or sale
is with a publicly-owned corporation and the aggregate market value of the
securities or other property the stockholders of the corporation receive is in
excess of Ten Million Dollars ($10,000,000);
then, in such event, any and all new, substituted or additional securities or
other property (other than cash) to which stockholder is entitled by reason of
his ownership of common stock shall be immediately subject to the First Refusal
Right, as the case may be, and be included in the word "common stock" for all
purposes of the First Refusal Right with the same force and effect as the shares
of common stock subject to the First Refusal Right under the terms of Section 2
hereof.
(j) All certificates representing any shares of common stock subject to the
provisions hereof shall have endorsed thereon the following legends:
(i) "Any disposition of any interest in the securities represented by this
certificate is subject to restrictions, and the securities represented by this
certificate are subject to a first refusal right, as set forth in the by-laws of
the corporation, a copy of which will be mailed to any holder of this
certificate without charge within five (5) days of receipt by the corporation of
a written request therefor."
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(ii) Any legend required to be placed thereon by federal or state
securities laws.
(k) For the purposes of this Section 2, a "Permitted Transfer" shall mean any
transfer to (i) the spouse, ancestor, lineal descendants and other family
members (including adopted descendants) of the stockholder, and any trust for
the benefit of the foregoing, (ii) any entities established principally for
charitable purposes to which the stockholder transfers any shares by way of gift
and (iii) any person or entity to whom the shares are transferred by virtue of a
pledge by the stockholder to secure a borrowing from such pledgee. Shares
transferred in a Permitted Transfer shall continue to be subject to this Section
2 in the hands of the transferee.
SECTION 3. Transfers of Shares of Stock. Subject to the restrictions set
----------------------------
forth in Section 2 of this Article IV, shares of stock may be transferred on the
books of the corporation by the surrender to the corporation or its transfer
agent of the certificate representing such shares properly endorsed or
accompanied by a written assignment or power of attorney properly executed, and
with such proof of authority or the authenticity of signature as the corporation
or its transfer agent may reasonably require. The corporation shall be entitled
to treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect to that stock, regardless of any transfer, pledge or other
disposition of that stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these by-laws.
SECTION 4. Lost Certificates. A new certificate of stock may be issued in
-----------------
the place of any certificate theretofore issued by the corporation and alleged
to have been lost, stolen, destroyed, or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen,
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<PAGE>
destroyed or mutilated certificate, or the owner's legal representatives, to
give the corporation a bond, in such sum as they may direct, to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, destruction or mutilation of any such certificate, or the
issuance of any such new certificate.
SECTION 5. Record Date. The Board of Directors may fix in advance a record
-----------
date for the determination of the stockholders entitled to notice of or to vote
at any meeting of stockholders or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action. Such record date shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting, nor more
than sixty (60) days prior to any other action to which such record date
relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. Unless otherwise fixed by the Board of
Directors, the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed. The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
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<PAGE>
A determination of stockholders of record entitled to notice of or to vote at
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. Fractional Share Interests. The corporation may, but shall not
--------------------------
be required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (l) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the corporation in
the event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void if not exchanged
for certificates representing full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
SECTION 7. Dividends. Subject to the provisions of the certificate of
---------
incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the common
stock of the corporation as and when they deem expedient.
ARTICLE V
20
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INSURANCE
SECTION 1. Insurance. The corporation shall have power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of the General Corporation Law of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Fiscal Year. Except as otherwise designated from time to time by
-----------
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January and end on the last day of December.
SECTION 2. Corporate Seal. The corporate seal shall be in such form as
--------------
shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal. The Board of Directors may authorize a duplicate seal to
be kept and used by any other officer.
SECTION 3. Certificate of Incorporation. All references in these by-laws to
----------------------------
the certificate of incorporation shall be deemed to refer to the certificate of
incorporation of the corporation, as in effect from time to time.
21
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SECTION 4. Execution of Instruments. The Chairman and Vice-Chairman of the
------------------------
Board of Directors, if any, the President, any Vice-President, and the Treasurer
shall have power to execute and deliver on behalf and in the name of the
corporation any instrument requiring the signature of an officer of the
corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts, and other orders for the payment of money. In addition, the
Board of Directors may expressly delegate such powers to any other officer or
agent of the corporation.
SECTION 5. Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or stockholders of any other corporation or organization the
securities of which may be held by this corporation.
SECTION 6. Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
that reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors
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which authorizes the contract or transaction or solely because the vote of any
such director is counted for such purpose, if:
(a) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(b) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of the time
it is authorized, approved or ratified by the Board of Directors, a committee of
the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
SECTION 8. Books and Records. The books and records of the corporation
-----------------
shall be kept at such places within or without the State of Delaware as the
Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
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SECTION 1. By the Board of Directors. Except with respect to Section 2 of
-------------------------
Article IV, these by-laws may be altered, amended or repealed or new by-laws may
be adopted by the affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a quorum is
present.
SECTION 2. By the Stockholders. These by-laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
24
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EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
OF
PHYTERA, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of stockholders shall be held at
-----------------
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or, if not so designated, at the
principal office of the corporation.
SECTION 2. Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date and at such hour and place as
the directors or an officer designated by the directors may determine. If the
annual meeting is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the stockholders may be
----------------
called at any time by the President or the Board of Directors.
SECTION 4. Notice of Meetings. Except where some other notice is required by
------------------
law, written notice of each meeting of stockholders, stating the place, date and
hour thereof and the purposes for which the meeting is called, shall be given by
or under the direction of the Secretary, not less than 10 nor more than 60 days
before the date fixed for such meeting, to each stockholder entitled to vote at
such meeting of record at the close of business on the day fixed by the Board of
Directors as a record date for the determination of the stockholders entitled to
vote at such meeting or, if no such date has been fixed, of record at the close
of business on the day before the day on which notice is given. Notice shall be
given personally to each stockholder or left at his or her residence or usual
place of business or mailed postage prepaid and addressed to the stockholder at
his or her address as it appears upon the records of the corporation. In case
of the death, absence, incapacity or refusal of the Secretary, such notice may
be given by a person designated either by the Secretary or by the person or
persons calling the meeting or by the Board of Directors. A waiver of such
notice in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
such notice. Attendance of a person at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders need be specified in any
written waiver of notice.
<PAGE>
Notice of any meeting of the stockholders shall be deemed to have been given
to any person who may become a stockholder of record after the mailing of such
notice and prior to such meeting. Except as required by statute, notice of any
adjourned meeting of the stockholders shall not be required.
SECTION 5. Stockholder Nominations of Directors. Only persons who are
------------------------------------
nominated in accordance with the following procedures shall be eligible for
election as directors at any annual or special meeting. Nominations of persons
for election as directors may be made by or at the direction of the Board of
Directors, or by any stockholder entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this Section
5. Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Chairman, if any, the
President, the Secretary or the Treasurer. To be timely, a stockholder's notice
shall be delivered to or mailed and received at the principal executive offices
of the corporation not less than 50 days nor more than 75 days prior to the
meeting; provided, however, that if less than 65 days' notice or prior public
-------- -------
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of capital stock
of the corporation which are beneficially owned by the person and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder and (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by such stockholder. No person shall
be eligible for election as a director at any annual or special meeting of
stockholders unless nominated in accordance with the procedures set forth
herein. Nothing in this Section 5 shall be deemed to grant stockholders the
right have such nominations included on the agenda or in the notice or proxy
materials for such meeting except as otherwise required by law.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
SECTION 6. Record Date. The Board of Directors may fix in advance a record
-----------
date for the determination of the stockholders entitled to notice of or to vote
at any meeting of stockholders, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action. Such record date shall not be more than 60
days nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the
2
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day on which notice is given, or, if notice is waived, at the close of business
on the day before the day on which the meeting is held. The record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating to
such purpose. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
-------- -------
date for the adjourned meeting.
SECTION 7. Advance Notice of Stockholder-Proposed Business at Annual
---------------------------------------------------------
Meetings. At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be brought
properly before an annual meeting, business must be either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the President or the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board or (c) otherwise properly
brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be brought properly before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Chairman, if any, the President, the Secretary or the
Treasurer. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation not earlier
than 120 days prior to the annual meeting and not later than the earlier of:
(a) 45 days before the date on which the corporation first mailed its
proxy materials for the prior year's annual meeting of the stockholders;
provided, however, that this subsection (a) shall not apply if (i) there
--------- -------
was no annual meeting in the prior year or (ii) the date of the current
year's annual meeting is more than 30 days from the date of the prior
year's annual meeting; or
(b) 60 days prior to the annual meeting; provided, however, that if
-------- -------
less than 65 days' notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on
the 15th day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made.
A stockholder's notice shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and record address
of the stockholder proposing such business, (c) the class and number of shares
of the corporation which are beneficially owned by the stockholder and (d) any
material interest of the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 7, provided, however, that nothing in this Section 7 shall
-------- -------
be deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting in accordance with said procedure; provided,
--------
further, that nothing in this Section 7 shall be deemed to grant stockholders
- -------
the right have such business included on the agenda or in the notice or proxy
materials for such meeting except as otherwise required by law.
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<PAGE>
The chairman of an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 7, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
SECTION 8. Voting List. The officer who has charge of the stock ledger of
-----------
the corporation shall make or have made, at least 10 days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
SECTION 9. Quorum of Stockholders. At any meeting of the stockholders, the
----------------------
holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the consideration
of such question, but a smaller group may adjourn any meeting from time to time.
When a quorum is present at any meeting, a majority of the stock represented
thereat and entitled to vote shall, except where a larger vote is required by
law, by the Certificate of Incorporation, or by these by-laws, decide any
question brought before such meeting. Any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
at the election.
SECTION 10. Proxies and Voting. Unless otherwise provided in the Certificate
------------------
of Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
held of record by such stockholder, but no proxy shall be voted or acted upon
after three years from its date, unless said proxy provides for a longer period.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held, and persons whose stock is pledged shall be entitled to vote,
unless in the transfer by the pledgor on the books of the corporation the
pledgee shall have been expressly empowered to vote thereon, in which case only
the pledgee or the pledgee's proxy may represent said stock and vote thereon.
Shares of the capital stock of the corporation belonging to the corporation or
to another corporation, a majority of whose shares entitled to vote in the
election of directors is owned by the corporation, shall neither be entitled to
vote nor be counted for quorum purposes.
SECTION 11. Conduct of Meeting. Meetings of the stockholders shall be
------------------
presided over by one of the following officers in the order of seniority and if
present and acting: the President, a Vice President, the Chairman of the Board,
if any, the Vice Chairman of the Board, if any, or, if none of the foregoing is
in office and present and acting, a chairman to be chosen by the stockholders.
The Secretary of the corporation, if present, or an Assistant
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<PAGE>
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the chairman of the meeting shall appoint
a secretary of the meeting.
ARTICLE II
DIRECTORS
SECTION 1. General Powers. The business and affairs of the corporation shall
--------------
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation which are not by law or the Certificate of
Incorporation required to be exercised by the stockholders. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law, may exercise the powers of the full Board until the vacancy is
filled.
SECTION 2. Number, Election, Tenure and Qualification. Subject to any
------------------------------------------
restrictions contained in the Certificate of Incorporation, the number of
directors that shall constitute the Board of Directors shall be fixed by
resolution of the Board of Directors but in no event shall be less than three.
Directors shall be elected in the manner provided in the Certificate of
Incorporation by such stockholders as have the right to vote thereon. The
number of directors may be increased or decreased by action of the Board of
Directors. Directors need not be stockholders of the corporation.
SECTION 3. Enlargement of the Board. Subject to the restrictions contained
------------------------
in the Certificate of Incorporation, the number of the Board of Directors may be
increased at any time, such increase to be effective immediately, by vote of a
majority of the directors then in office.
SECTION 4. Vacancies. Unless and until filled by the stockholders, any
---------
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director for cause, may be filled in the manner provided
in the Certificate of Incorporation. When one or more directors shall resign
from the Board, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. If at any time there are no directors in
office, then an election of directors may be held in accordance with the General
Corporation Law of the State of Delaware.
SECTION 5. Resignation. Any director may resign at any time upon written
-----------
notice to the corporation. Such resignation shall take effect at the time
specified therein, or if no time is specified, at the time of its receipt by the
President or Secretary.
SECTION 6. Removal. Directors may be removed from office only as provided in
-------
the Certificate of Incorporation. The vacancy or vacancies thus created may be
filled by the stockholders at the meeting held for the purpose of removal or, if
not so filled, by the directors in the manner provided in Section 4 of this
Article II.
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<PAGE>
SECTION 7. Committees. The Board of Directors may, by resolution or
----------
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of such absent or
disqualified member.
A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. The Board of Directors shall have the power to change the
members of any such committee at any time, to fill vacancies therein and to
discharge any such committee, either with or without cause, at any time.
Any such committee, unless otherwise provided in the resolution of the Board
of Directors, or in these By-laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have
such power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending a dissolution of the corporation
or a revocation of a dissolution, or amending the By-laws of the corporation,
and, unless the resolution or these By-laws expressly so provide, no such
committee shall have the power or the authority to declare a dividend or to
authorize the issuance of stock.
Each committee shall keep regular minutes of its meetings and make such
reports as the Board of Directors may from time to time request.
SECTION 8. Meetings of the Board of Directors. Regular meetings of the Board
----------------------------------
of Directors may be held without call or formal notice at such places either
within or without the State of Delaware and at such times as the Board may by
vote from time to time determine. A regular meeting of the Board of Directors
may be held without call or formal notice immediately after and at the same
place as the annual meeting of the stockholders, or any special meeting of the
stockholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by the Chairman
of the Board of Directors, if any, the President, Treasurer, Secretary, or two
or more directors. Reasonable notice of the time and place of a special meeting
shall be given to each director unless such notice is waived by attendance or by
written waiver in the manner provided in these By-laws for waiver of notice by
stockholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of Directors.
No notice of any adjourned meeting of the Board of Directors shall be required.
In any case it shall be deemed
6
<PAGE>
sufficient notice to a director to send notice by mail at least 72 hours, or by
telegram at least 48 hours, before the meeting, addressed to such director at
his or her usual or last known business or home address.
Directors or members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting
SECTION 9. Quorum and Voting. A majority of the total number of directors
-----------------
shall constitute a quorum, except that when a vacancy or vacancies exist in the
Board, a majority of the directors then in office (but not less than one-third
of the total number of the directors) shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn any
meeting from time to time. The vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except where a different vote is required or permitted by law, by the
Certificate of Incorporation, or by these by-laws.
SECTION 10. Compensation. The Board of Directors may fix fees for their
------------
services and for their membership on committees, and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. Action Without Meeting. Any action required or permitted to be
----------------------
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, and without notice, if a written consent thereto is
signed by all members of the Board of Directors, or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE III
OFFICERS
SECTION 1. Titles. The officers of the corporation shall consist of a
------
President, a Secretary, a Treasurer, and such other officers with such other
titles as the Board of Directors shall determine, including without limitation a
Chairman of the Board, a Vice Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers, or Assistant Secretaries.
SECTION 2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of the stockholders. Each officer shall hold
office until his or her successor is elected and qualified, unless a different
term is specified in the vote electing such officer, or until his or her earlier
death, resignation or removal.
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<PAGE>
SECTION 3. Qualification. Unless otherwise provided by resolution of the
-------------
Board of Directors, no officer, other than the Chairman or Vice Chairman of the
Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. Removal. Any officer may be removed, with or without cause, at
-------
any time, by resolution adopted by the Board of Directors.
SECTION 5. Resignation. Any officer may resign by delivering a written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt or at such later
time as may be specified therein.
SECTION 6. Vacancies. The Board of Directors may at any time fill any
---------
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary.
SECTION 7. Powers and Duties. The officers of the corporation shall have
-----------------
such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors, and shall have
such additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. President and Vice Presidents. The President shall be the chief
-----------------------------
executive officer of the corporation, shall preside at all meetings of the
stockholders and the Board of Directors unless a Chairman or Vice Chairman of
the Board is elected by the Board, empowered to preside, and present at such
meeting, shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
In the absence of the President or in the event of his or her inability or
refusal to act, the Vice President if any (or in the event there be more than
one Vice President, the Vice Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice President the title of
Executive Vice President, Senior Vice President or any other title selected by
the Board of Directors.
SECTION 9. Secretary and Assistant Secretaries. The Secretary shall attend
-----------------------------------
all meetings of the Board of Directors and of the stockholders and record all
the proceedings of such meetings in a book to be kept for that purpose, shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the corporation.
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<PAGE>
The Assistant Secretary if any (or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors or if there be no
such determination, then in the order of their election) shall, in the absence
of the Secretary or in the event of the Secretary's inability or refusal to act,
perform the duties and exercise the powers of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers. The Treasurer shall have the
----------------------------------
custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board of Directors or the President, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or whenever they may require it, an account
of all transactions and of the financial condition of the corporation.
The Assistant Treasurer if any (or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors or if there be no
such determination, then in the order of their election) shall, in the absence
of the Treasurer or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the Treasurer.
SECTION 11. Bonded Officers. The Board of Directors may require any officer
---------------
to give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of the duties of such officer and for the restoration
to the corporation of all property in his or her possession or control belonging
to the corporation.
SECTION 12. Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE IV
STOCK
SECTION 1. Certificates of Stock. One or more certificates of stock, signed
---------------------
by the Chairman or Vice Chairman of the Board of Directors or by the President
or Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying, in the aggregate, the number of shares owned by the stockholder in
the corporation. Any or all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature shall have been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
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Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the By-laws, applicable
securities laws, or any agreement among any number of stockholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
SECTION 2. Transfers of Shares of Stock. Subject to the restrictions, if
----------------------------
any, stated or noted on the stock certificates, shares of stock may be
transferred on the books of the corporation by the surrender to the corporation
or its transfer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of signature as
the corporation or its transfer agent may reasonably require. The corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to that stock, regardless of any transfer, pledge
or other disposition of that stock, until the shares have been transferred on
the books of the corporation in accordance with the requirements of these By-
laws.
SECTION 3. Lost Certificates. A new certificate of stock may be issued in
-----------------
the place of any certificate theretofore issued by the corporation and alleged
to have been lost, stolen, destroyed, or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss,
theft, destruction or mutilation of any such certificate, or the issuance of any
such new certificate.
SECTION 4. Fractional Share Interests. The corporation may, but shall not be
--------------------------
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (a) arrange for the disposition of fractional
interests by those entitled thereto, (b) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined or (c) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the corporation in
the event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void if not exchanged
for certificates representing full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
SECTION 5. Dividends. Subject to the provisions of the Certificate of
---------
Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the common
stock of the corporation as and when they deem expedient.
10
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ARTICLE V
INSURANCE
SECTION 1. Indemnification. The corporation shall, to the full extent
---------------
permitted by the General Corporation Law of the State of Delaware, as amended
from time to time, the Certificate of Incorporation, and any agreement of the
Corporation, indemnify each person whom it may indemnify pursuant thereto.
SECTION 2. Insurance. The corporation shall have power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of the General Corporation Law of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Fiscal Year. Except as otherwise designated from time to time by
-----------
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January and end on the last day of December.
SECTION 2. Corporate Seal. The corporate seal shall be in such form as shall
--------------
be approved by the Board of Directors. The Secretary shall be the custodian of
the seal. The Board of Directors may authorize a duplicate seal to be kept and
used by any other officer.
SECTION 3. Certificate of Incorporation. All references in these By-laws to
----------------------------
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as in effect from time to time.
SECTION 4. Execution of Instruments. The Chairman and Vice Chairman of the
------------------------
Board of Directors, if any, the President, any Vice President, and the Treasurer
shall have power to execute and deliver on behalf and in the name of the
corporation any instrument requiring the signature of an officer of the
corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts, and other orders for the payment of money. In addition, the
Board of Directors may expressly delegate such powers to any other officer or
agent of the corporation.
SECTION 5. Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization the
securities of which may be held by this corporation.
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SECTION 6. Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
that reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because the vote of any such director is counted for such purpose, if:
(a) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(b) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 8. Books and Records. The books and records of the corporation shall
-----------------
be kept at such places within or without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. By the Board of Directors. These By-laws may be altered, amended
-------------------------
or repealed or new by-laws may be adopted by the affirmative vote of a majority
of the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
SECTION 2. By the Stockholders. These By-laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of
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the shares of the capital stock of the corporation issued and outstanding and
entitled to vote at any regular meeting of stockholders, or at any special
meeting of stockholders provided notice of such alteration, amendment, repeal or
adoption of new by-laws shall have been stated in the notice of such special
meeting.
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EXHIBIT 10.1
PHYTERA, INC.
1998 EQUITY INCENTIVE PLAN
AMENDING AND RESTATING THE 1992 STOCK OPTION PLAN: APPROVED BY THE
BOARD OF DIRECTORS ON SEPTEMBER 17, 1998 AND ADOPTED BY THE
STOCKHOLDERS ON _________, 1998
Section 1. Purpose
-------
The purpose of the Phytera, Inc. 1998 Equity Incentive Plan (the "Plan") is
to attract and retain key employees and directors and consultants of the Company
and its Affiliates, to provide an incentive for them to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company by granting Awards with respect to the Company's Common Stock.
Section 2. Definitions
-----------
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock, Stock Unit or Other Stock-Based Award awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor to such Code.
"Committee" means a committee comprised of not less than two members of the
Board appointed by the Board to administer the Plan or a specified portion
thereof. If the Committee is authorized to grant Awards to a Reporting Person
or a Covered Employee, each member shall be a "Non-Employee Director" or the
equivalent within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 or any successor provision, as applicable to the Company at the time ("Rule
16b-3"), or an "outside director" or the equivalent within the meaning of
Section 162(m) of the Code, respectively. In the event no such Committee is
appointed, then "Committee" means the Board.
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of the
Company.
"Company" means Phytera, Inc.
"Covered Employee" means a person whose income is subject to Section 162(m)
of the Code.
<PAGE>
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, "Designated Beneficiary"
shall mean the Participant's estate.
"Effective Date" means September 17, 1998.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Other Stock-Based Award" means an Award, other than an Option, Stock
Appreciation Right, Performance Share, Restricted Stock or Stock Unit, having a
Common Stock element and awarded to a Participant under Section 11.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock, which may be earned by
the achievement of performance goals, awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time during which an Award may be
forfeited to the Company pursuant to the terms and conditions of such Award.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
2
<PAGE>
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
"Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
Section 3. Administration
--------------
The Plan shall be administered by the Committee, provided that the Board
may in any instance perform any of the functions delegated to the Committee
hereunder. The Committee shall select the Participants to receive Awards and
shall determine the terms and conditions of the Awards. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons and all
determinations under the Plan with respect thereto, provided that the Committee
shall fix the maximum amount of such Awards for all such Participants and a
maximum for any one Participant.
Section 4. Eligibility
-----------
All employees and, in the case of Awards other than Incentive Stock
Options, directors and consultants of the Company or any Affiliate, capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible, are eligible to be
Participants in the Plan. Incentive Stock Options may be awarded only to persons
eligible to receive such Options under the Code.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b), Awards may be made under
the Plan for up to 2,400,000 shares of Common Stock. If any Award in respect of
shares of Common Stock expires or is terminated unexercised or is forfeited, the
shares subject to such Award, to the extent of such expiration, termination or
forfeiture, shall again be available for award under the Plan. Common Stock
issued through the assumption or substitution of outstanding grants from an
acquired company shall not reduce the shares available for Awards under the
Plan. Shares issued under the Plan may consist in whole or in part of authorized
but unissued shares or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee (subject, in the case of Incentive
Stock Options, to any limitation required under the Code) shall
3
<PAGE>
equitably adjust any or all of (i) the number and kind of shares in respect of
which Awards may be made under the Plan, (ii) the number and kind of shares
subject to outstanding Awards, and (iii) the award, exercise or conversion price
with respect to any of the foregoing, and if considered appropriate, the
Committee may make provision for a cash payment with respect to an outstanding
Award, provided that the number of shares subject to any Award shall always be a
whole number.
Section 6. Stock Options
-------------
(a) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The
Committee may impose such conditions with respect to the exercise of Options,
including conditions relating to applicable federal and state securities laws,
as it considers necessary or advisable. The terms and conditions of Incentive
Stock Options shall be subject to and comply with Section 422 of the Code or any
successor provision and any regulations thereunder, and no Incentive Stock
Option may be granted hereunder more than ten years after the Effective Date.
(b) The Committee shall establish the option price at the time each
Option is awarded, which price shall not be less than 100% of the Fair Market
Value of the Common Stock on the date of award with respect to Incentive Stock
Options. Nonstatutory Stock Options may be granted at such prices as the
Committee may determine.
(c) Until the completion of an initial public offering of the Common Stock,
each optionholder shall execute a Stock Purchase and Right of Repurchase
Agreement, substantially in the form of Exhibit 1 hereto, prior to the purchase
---------
of any Stock pursuant to the exercise of Options. Each Option shall be
exercisable at such times and subject to such additional terms and conditions as
the Committee may specify in the applicable Award or thereafter. The Committee
may impose such conditions with respect to the exercise of Options, including
conditions relating to applicable federal or state securities laws, as it
considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, or by
retaining shares otherwise issuable pursuant to the Option, in each case valued
at their Fair Market Value on the date of delivery or retention, or such other
lawful consideration as the Committee may determine.
4
<PAGE>
(e) The Committee may provide that, subject to such conditions as it
considers appropriate, upon the delivery or retention of shares to the Company
in payment of an Option, the Participant automatically be awarded an Option for
up to the number of shares so delivered.
Section 7. Stock Appreciation Rights
-------------------------
(a) Subject to the provisions of the Plan, the Committee may award SARs in
tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. The Committee shall
determine at the time of grant or thereafter whether SARs are settled in cash,
Common Stock or other securities of the Company, Awards or other property, and
may define the manner of determining the excess in value of the shares of Common
Stock.
(b) The Committee shall fix the exercise price of each SAR or specify the
manner in which the price shall be determined. SARs granted in tandem with
Options shall have an exercise price not less than the exercise price of the
related Option. SARs granted alone and unrelated to an Option may not have an
exercise price less than 100% of the Fair Market Value of the Common Stock on
the date of grant, provided that such a SAR granted to a new employee or
consultant within 90 days of the date of employment may have a lower exercise
price so long as it is not less than 100% of the Fair Market Value on the date
of employment.
(c) An SAR related to an Option, which SAR can only be exercised upon or
during limited periods following a change in control of the Company, may entitle
the Participant to receive an amount based upon the highest price paid or
offered for Common Stock in any transaction relating to the change in control or
paid during the thirty-day period immediately preceding the occurrence of the
change in control in any transaction reported in the stock market in which the
Common Stock is normally traded.
Section 8. Performance Shares
------------------
(a) Subject to the provisions of the Plan, the Committee may award
Performance Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of Performance Shares shall
be equal to the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the Committee, on the
date the Committee determines that the Performance Shares have been earned.
(b) The committee shall establish performance goals for each Cycle, for
the purpose of determining the extent to which Performance Shares awarded for
such Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
5
<PAGE>
(c) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares that have been earned
on the basis of performance in relation to the established performance goals.
The payment values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.
Section 9. Restricted Stock
----------------
(a) Subject to the provisions of the Plan, the Committee may award
shares of Restricted Stock and determine the duration of the Restricted Period
during which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Notwithstanding the foregoing, in the Committee's
discretion, Awards in the form of Restricted Stock may be made transferable to a
limited liability company controlled solely by the Participant. Shares of
Restricted Stock shall be evidenced in such manner as the Committee may
determine. Any certificates issued in respect of shares of Restricted Stock
shall be registered in the name of the Participant and unless otherwise
determined by the Committee, deposited by the Participant, together with a stock
power endorsed in blank, with the Company. At the expiration of the Restricted
Period, the Company shall deliver such certificates to the Participant or if the
Participant has died, to the Participant's Designated Beneficiary.
Section 10. Stock Units
-----------
(a) Subject to the provisions of the Plan, the Committee may award Stock
Units subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules as the Committee shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit Award
shall be issued for no cash consideration or such minimum consideration as may
be required by applicable law.
Section 11. Other Stock-Based Awards
------------------------
(a) Subject to the provisions of the Plan, the Committee may make other
awards of Common Stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, Common Stock, including without
limitation convertible preferred stock, convertible debentures, exchangeable
securities and Common Stock awards or options. Other Stock-Based Awards may be
granted either alone or in tandem with other Awards granted under the Plan
and/or cash awards made outside of the Plan.
(b) The Committee may establish performance goals, which may be based on
performance goals related to book value, subsidiary performance or such other
criteria as the
6
<PAGE>
Committee may determine, Restricted Periods, Performance Cycles, conversion
prices, maturities and security, if any, for any Other Stock-Based Award. Other
Stock-Based Awards may be sold to Participants at the face value thereof or any
discount therefrom or awarded for no consideration or such minimum consideration
as may be required by applicable law.
Section 12. General Provisions Applicable to Awards
---------------------------------------
(a) Limitations on Grants of Options and SARs. Subject to adjustment
under Section 5(b), the number of shares subject to Options and SARs granted to
any one individual during any fiscal year may not exceed 1,000,000 shares.
(b) Reporting Person Limitations. Notwithstanding any other provision
of the Plan, to the extent required to qualify for the exemption provided by
Rule 16b-3, Awards made to a Reporting Person shall not be transferable by such
person other than by will or the laws of descent and distribution or, if then
permitted by Rule 16b-3, pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder, and are exercisable during such person's lifetime only by
such person or by such person's guardian or legal representative.
(c) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.
(d) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(e) Settlement. The Committee shall determine whether Awards are settled
in whole or in part in cash, Common Stock, other securities of the Company,
Awards or other property. The Committee may permit a Participant to defer all or
any portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock.
(f) Dividends and Cash Awards. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(g) Termination of Employment. The Committee shall determine the effect
on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
7
<PAGE>
(h) Change in Control. In order to preserve a Participant's rights
under an Award in the event of a change in control of the Company, the Committee
in its discretion may, at the time an Award is made or at any time thereafter,
take one or more of the following actions: (i) provide for the acceleration of
any time period relating to the exercise or realization of the Award, (ii)
provide for the purchase of the Award upon the Participant's request for an
amount of cash or other property that could have been received upon the exercise
or realization of the Award had the Award been currently exercisable or payable,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the change in control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such other provision as the
Committee may consider equitable and in the best interests of the Company.
(i) Loans. The Committee may authorize the making of loans or cash
payments to Participants in connection with any Award under the Plan, which
loans may be secured by any security, including Common Stock, underlying or
related to such Award (provided that such Loan shall not exceed the Fair Market
Value of the security subject to such Award), and which may be forgiven upon
such terms and conditions as the Committee may establish at the time of such
loan or at any time thereafter.
(j) Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(k) Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.
(l) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Section 13. Miscellaneous
-------------
(a) No Right To Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
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<PAGE>
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the stockholders of the
Company, this 1998 Equity Incentive Plan will become effective on September 17,
1998. Prior to such approval, Awards may be made under the Plan expressly
subject to such approval.
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, subject to any stockholder approval
that the Board determines to be necessary or advisable.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
_________________________________________
This Plan was approved by the Board of Directors on September 17, 1998.
The Plan was approved by the stockholders on October __, 1998.
9
<PAGE>
EXHIBIT 10.2
PHYTERA, INC.
1998 Employee Stock Purchase Plan
---------------------------------
1. Purpose.
-------
The purpose of this 1998 Employee Stock Purchase Plan (the "Plan") is to
provide employees of Phytera, Inc. (the "Company"), who wish to become
shareholders of the Company an opportunity to purchase Common Stock of the
Company (the "Shares"). The Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended (the "Code").
2. Eligible Employees.
-------------------
Subject to the provisions of Sections 7, 8 and 9 below, any individual who
is a full-time employee (as defined below) of the Company, or any of its
subsidiaries (as defined in Section 424(f) of the Code) the employees of which
are designated by the Board of Directors as eligible to participate in the Plan,
is eligible to participate in any Offering of Shares (as defined in Section 3
below) made by the Company hereunder. Full-time employees shall include all
employees whose customary employment is:
(a) 20 hours or more per week and
(b) more than five months
in the calendar year during which said Offering Date occurs or in the calendar
year immediately preceding such year.
3. Offering Dates.
--------------
From time to time, the Company, by action of the Board of Directors, will
grant rights to purchase Shares to employees eligible to participate in the Plan
pursuant to one or more offerings (each of which is an "Offering" on a date or
series of dates (each of which is an "Offering Date") designated for this
purpose by the Board of Directors).
4. Prices.
------
The price per share for each grant of rights hereunder shall be the lesser
of:
(a) eighty-five percent (85%) of the fair market value of a Share on
the Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share on
the date such right is exercised.
At its discretion, the Board of Directors may determine a higher price for a
grant of rights.
5. Exercise of Rights and Method of Payment.
----------------------------------------
<PAGE>
(a) Rights granted under the Plan will be exercisable periodically on
specified dates as determined by the Board of Directors.
(b) The method of payment for Shares purchased upon exercise of rights
granted hereunder shall be through regular payroll deductions or by lump sum
cash payment or both, as determined by the Board of Directors. No interest
shall be paid upon payroll deductions unless specifically provided for by the
Board of Directors.
(c) Any payments received by the Company from a participating employee
and not utilized for the purchase of Shares upon exercise of a right granted
hereunder shall be promptly returned to such employee by the Company after
termination of the right to which the payment relates.
6. Term of Rights.
--------------
The total period from an Offering Date to the last date on which rights
granted on that Offering Date are exercisable (the "Offering Period") shall in
no event be longer than twenty-seven (27) months. The Board of Directors when it
authorizes an Offering may designate one or more exercise periods during the
Offering Period. Rights granted on an Offering Date shall be exercisable in full
on the Offering Date or in such proportion on the last day of each exercise
period as the Board of Directors determines.
7. Shares Subject to the Plan.
--------------------------
No more than 250,000 Shares may be sold pursuant to rights granted under
the Plan. Appropriate adjustments in the above figure, in the number of Shares
covered by outstanding rights granted hereunder, in the exercise price of the
rights and in the maximum number of Shares which an employee may purchase
(pursuant to Section 8 below) shall be made to give effect to any mergers,
consolidations, reorganizations, recapitalizations, stock splits, stock
dividends or other relevant changes in the capitalization of the Company
occurring after the effective date of the Plan, provided that no fractional
Shares shall be subject to a right and each right shall be adjusted downward to
the nearest full Share. Any agreement of merger or consolidation will include
provisions for protection of the then existing rights of participating employees
under the Plan. Either authorized and unissued Shares or issued Shares
heretofore or hereafter reacquired by the Company may be made subject to rights
under the Plan. If for any reason any right under the Plan terminates in whole
or in part, Shares subject to such terminated right may again be subjected to a
right under the Plan.
8. Limitations on Grants.
---------------------
(a) No employee shall be granted a right hereunder if such employee,
immediately after the right is granted, would own stock or rights to purchase
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company, or of any subsidiary, computed in
accordance with Section 423(b)(3) of the Code.
(b) No employee shall be granted a right which permits his right to
purchase shares under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) (or such other maximum as may be
2
<PAGE>
prescribed from time to time by the Code) of the fair market value of such
Shares (determined at the time such right is granted) for each calendar year in
which such right is outstanding at any time in accordance with the provisions of
Section 423(b)(8) of the Code.
(c) No right granted to any participating employee under an Offering,
when aggregated with rights granted under any other Offering still exercisable
by the participating employee, shall cover more shares than may be purchased at
an exercise price equal to fifteen percent (15%) of the employee's annual rate
of compensation on the date the employee elects to participate in the Offering
or such lesser percentage as the Board of Directors may determine.
9. Limit on Participation.
----------------------
Participation in an Offering shall be limited to eligible employees who
elect to participate in such Offering in the manner, and within the time
limitations, established by the Board of Directors when it authorizes the
Offering.
10. Cancellation of Election to Participate.
---------------------------------------
An employee who has elected to participate in an Offering may cancel such
election as to all (but not part) of the unexercised rights granted under such
Offering by giving written notice of such cancellation to the Company before the
expiration of any exercise period. Any amounts paid by the employee for the
Shares or withheld for the purchase of Shares from the employee's compensation
through payroll deductions shall be paid to the employee, without interest,
unless otherwise determined by the Board of Directors, upon such cancellation.
11. Termination of Employment.
-------------------------
Upon the termination of employment for any reason, including the death of
the employee, before the date on which any rights granted under the Plan are
exercisable, all such rights shall immediately terminate and amounts paid by the
employee for the Shares or withheld for the purchase of Shares from the
employee's compensation through payroll deductions shall be paid to the employee
or to the employee's estate, without interest unless otherwise determined by the
Board of Directors.
12. Employees' Rights as Shareholders.
---------------------------------
No participating employee shall have any rights as a shareholder in the
Shares covered by a right granted hereunder until such right has been exercised,
full payment has been made for the corresponding Shares and the Share
certificate is actually issued.
13. Rights Not Transferable.
-----------------------
Rights under the Plan are not assignable or transferable by a participating
employee and are exercisable only by the employee.
14. Amendments to or Discontinuation of the Plan.
--------------------------------------------
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<PAGE>
The Board of Directors of the Company shall have the right to amend, modify
or terminate the Plan at any time without notice; provided, however, that the
then existing rights of all participating employees shall not be adversely
affected thereby, and provided further that, subject to the provisions of
Section 7 above, no such amendment to the Plan shall, without the approval of
the shareholders of the Company, increase the total number of Shares which may
be offered under the Plan.
15. Effective Date and Approvals.
----------------------------
This Plan became effective on September 17, 1998, the date it was adopted
by the Board of Directors, provided that it is approved by the shareholders of
the Company within twelve (12) months before or after the date of adoption.
The Company's obligation to offer, sell and deliver its Shares under the
Plan is subject to (i) the approval of any governmental authority required in
connection with the authorized issuance or sale of such Shares, (ii)
satisfaction of the listing requirements of any national securities exchange on
which the Shares are then listed and (iii) compliance, in the opinion of the
Company's counsel with, all applicable federal and state securities and other
laws.
16. Term of Plan.
------------
No rights shall be granted under the Plan after September 17, 2008.
17. Administration of the Plan.
--------------------------
The Board of Directors or any committee or person(s) to whom it delegates
its authority (the "Administrator") shall administer, interpret and apply all
provisions of the Plan as it deems necessary to meet special circumstances not
anticipated or covered expressly by the Plan. Nothing contained in this Section
shall be deemed to authorize the Administrator to alter or administer the
provisions of the Plan in a manner inconsistent with the provisions of Section
423 of the Code.
4
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
(Malcolm Morville)
This Agreement, dated as of June 5, 1996, is between Phytera, Inc.
("Phytera"), a Massachusetts corporation with its principal offices at Four
Biotech Park, 377 Plantation Street, Worcester, Massachusetts 01605 and Malcolm
Morville (the "Executive") residing at 449 West Main Street, Shrewsbury,
Massachusetts 01545.
Phytera desires to employ the Executive as President and Chief Executive
Officer of Phytera for the period and upon the terms and conditions hereinafter
set forth.
Executive desires to serve in such capacities for such period and upon such
terms.
Accordingly, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF EXECUTIVE.
1.1 Employment. Subject to the terms and conditions of this Agreement,
----------
Phytera agrees to employ Executive as President and Chief Executive Officer of
Phytera. Executive shall perform such specific duties as are commensurate with
such positions, and as may reasonably be assigned to the Executive from time to
time by the Board of Directors of Phytera, for the period commencing on the date
hereof and terminating on June 5, 1999, unless earlier terminated as herein
provided. Executive hereby accepts such employment for the term hereof.
Neither Phytera nor Executive shall have any obligation to continue employment
after the term hereof. If Executive remains employed by Phytera after the term
hereof, Executive's employment and compensation may be terminated at will, with
or without cause and with or without notice, at any time at the option of
Phytera or Executive, subject to the terms set forth in Section 4.2 hereof.
SECTION 2. COMPENSATION. For all services to be rendered by Executive to
Phytera during the term of this Agreement, Phytera shall pay to, and provide the
Executive with, the following compensation and benefits:
2.1 Base Salary and Bonus. For the period from the date hereof until
---------------------
December 31, 1996, Phytera shall pay to Executive (i) a base salary of not less
than $250,000 per year, pro rated for such portion of a year and payable in
substantially equal installments in accordance with Phytera practice as in
effect from time to time, and (ii) incentive and compensatory bonuses, if any,
as may be awarded in accordance with the written consent of the Phytera's
Compensation Committee dated January 11, 1996. With respect to subsequent
periods during the term of this Agreement, Phytera will review Executive's base
salary and bonus from time to time and may make adjustments to such base salary
and determine such bonus based upon, among other factors: (a) Executive's
performance, (b) Phytera's performance, (c) changes in costs of living, (d)
changes in Executive's responsibilities, and (e) the benefit to Phytera of
Executive's efforts on its behalf; provided that Executive's base salary shall
not be less than $250,000 per year during the term of this Agreement.
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2.2 Participation in Benefit Plans. Executive shall be entitled to
------------------------------
participate in all employee benefit plans or programs of Phytera. For the
purpose of determining Executive's eligibility for such plans and programs,
Executive's tenure shall be calculated from Executive's original date of hire at
Phytera (or any affiliate or predecessor of Phytera). Phytera may, from time to
time, grant Executive stock options under Phytera's stock option plans. Phytera
does not guarantee the adoption or continuance of any particular employee
benefit or stock plan or other program during the term of this Agreement, and
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto. Executive shall be
entitled to paid vacation each year in accordance with applicable Phytera
policy. Health and dental plans shall cover Executive and his dependents as
they do for other Phytera executives. Such health and dental plans comply with
ERISA and COBRA to the extent applicable. Under current health insurance
policies, such COBRA rights will commence on termination of the period over
which severance payments are made under Section 4.2.
2.3 Expenses. Phytera shall reimburse Executive for all ordinary and
--------
necessary business expenses incurred in the performance of Executive's duties
under this Agreement, provided that Executive accounts properly for such
expenses to Phytera in accordance with the general corporate policies of Phytera
and in accordance with the requirements of the Internal Revenue Service
regulations relating to substantiation of expenses.
SECTION 3. CONFIDENTIAL INFORMATION AND NON-COMPETITION AGREEMENTS. As a
condition to Phytera's obligations hereunder, the Executive has executed a
Confidentiality and Proprietary Information Agreement pertaining to the
intellectual property and confidential information of Phytera an Agreement Not
to Compete, in favor of Phytera.
The obligations of Executive under this section and the agreements
referenced in the preceding paragraph shall survive termination of this
Agreement for any reason.
SECTION 4. TERMINATION AND SEVERANCE PAYMENT.
4.1 Early Termination. Prior to the expiration of the term specified in
-----------------
Section 1.1:
(a) Executive's employment hereunder shall terminate upon Executive's
death or inability, by reason of physical or mental impairment, to perform
substantially all of Executive's duties as contemplated herein for a continuous
period of 120 days or more;
(b) Executive's employment hereunder may be terminated by the
Executive without Good Reason, as defined below;
(c) Executive's employment hereunder may be terminated by the
Executive with Good Reason;
(d) Executive's employment hereunder may be terminated by Phytera
without Cause, as defined below; or
(e) Executive's employment hereunder may be terminated by Phytera with
Cause.
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4.2 Definitions. For the purposes of this Section 4, the following terms
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shall apply:
(a) "Cause" shall mean Executive's breach of any material duty or
obligation hereunder, or intentional or grossly negligent conduct that is
materially injurious to Phytera, as reasonably determined by Phytera's Board of
Directors, or willful failure to follow the reasonable directions of Phytera's
Board of Directors.
(b) "Good Reason" shall mean (1) during the nine (9) month period
following a Change in Control, a good faith determination by the Executive that
as a result of such Change in Control, he is not able to discharge his duties
effectively or (2) without the Executive's express written consent, the
occurrence after a Change in Control of any of the following circumstances:
(i) the assignment to the Executive of any duties inconsistent
(except in the nature of a promotion) with the position in Phytera that he
held immediately prior to the Change in Control or a substantial adverse
alteration in the nature or status of his position or responsibilities or
the conditions of his employment from those in effect immediately prior to
the Change in Control;
(ii) a reduction by Phytera in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from
time to time;
(iii) Phytera's requiring the Executive to be based more than
twenty-five (25) miles from Phytera's offices at which he was principally
employed immediately prior to the date of the Change in Control except for
required travel on Phytera's business to an extent substantially consistent
with his present business travel obligations;
(iv) the failure by Phytera to pay to the Executive any portion
of his current compensation or compensation under any deferred compensation
program of Phytera, within seven (7) days of the date such compensation is
due;
(v) the failure by Phytera to continue in effect any material
compensation or benefit plan in which the Executive participates
immediately prior to the Change in Control unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by Phytera to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of his participation relative to other
participants, than existed at the time of the Change in Control;
(vi) the failure by Phytera to continue to provide the Executive
with benefits substantially similar to those enjoyed by him under any of
Phytera's pension, life insurance, medical, health and accident, or
disability plans in which he was participating at the time of the Change in
Control, the taking of any action by Phytera which would directly or
indirectly materially reduce any of such benefits or deprive the Executive
of any material fringe benefit enjoyed by him at the time of the Change in
Control, or the failure by Phytera to provide the Executive with the number
of paid vacation days to which he is entitled on the basis of his years of
service with Phytera in accordance with Phytera's normal vacation policy in
effect at the time of the Change in Control; or
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(vii) the failure of Phytera to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 hereof.
The Executive's right to terminate his employment pursuant to this
Subsection shall not be affected by his incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
(c) "Change in Control" shall mean:
(i) the acquisition from any party other than Phytera of 40% or
more of Phytera's Common Stock (including shares convertible into Common Stock)
by any "person" (as such term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934);
(ii) a merger or similar combination after which 49% or more of
the voting stock of the surviving corporation is held by persons who were not
stockholders of Phytera immediately prior to such merger or combination; and
(iii) after termination of the Shareholders Agreement dated
January 31, 1996, the election by the stockholders of Phytera of 20% or more of
the directors of Phytera other than pursuant to nomination by Phytera's
management.
4.3 Severance Payment; Benefits.
---------------------------
(a) Termination Events Resulting in Severance Payments and Option and
-----------------------------------------------------------------
Restricted Stock Vesting Acceleration. In the event of the termination of the
- -------------------------------------
Executive's employment by Phytera without Cause or by the Executive with Good
Reason, whether before or after the expiration of the term specified in Section
1.1 (including a failure of the Phytera to enter into a renewal of this
Agreement):
(i) Phytera shall make severance payments to Executive equal to (A)
six (6) months of the Executive's base salary at the time of such
termination, payable in a lump sum within ten days after the
termination date and (B) an amount equal to the Executive's maximum
incentive bonus that would be payable to him at any time within the
six month period following such termination and would otherwise be due
to Executive if such termination had not occurred and the maximum
amount of such bonus had been fully earned, pro rated on the basis of
the number of days that have elapsed between the beginning of the
bonus period in which such termination occurs and the termination
date, payable in a lump sum within ten (10) days after the termination
date; and
(ii) any options then held by Executive to purchase shares of the
Common Stock of Phytera, which options are then subject to vesting
based on continued employment only, shall, notwithstanding any
contrary provision in the agreement or plan pursuant to which such
options had been granted, a portion of the number of shares which
would otherwise become exercisable on the next vesting date ("Next
Option Vest Date") under such option shall be deemed fully vested and
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<PAGE>
exercisable on the date immediately preceding the effective date of
such termination for the duration of the term of such options, such
portion to be calculated by multiplying the number of shares which
would otherwise become exercisable on the Next Option Vest Date by a
fraction, (i) the numerator of which is the number of calendar days
which elapsed from the last vesting date of such option or the date of
grant of such option if there is no last vesting date (the "Option
Base Date") through the date of termination and (ii) the denominator
of which is the total number of calendar days from the Option Base
Date to the Next Option Vest Date; and
(ii) any Common Stock of Phytera then held by Executive pursuant to
Restricted Stock Purchase Agreements providing Phytera with a right of
repurchase upon termination of employment subject to vesting
provisions, shall, notwithstanding any contrary provision in the
agreement pursuant to which such shares had been issued, a portion of
the number of shares which would otherwise become free from such
repurchase right on the next vesting date ("Next Stock Vest Date")
under such agreement shall be deemed fully vested on the date
immediately preceding the effective date of such termination, such
portion to be calculated by multiplying the number of shares which
would otherwise become vested on the Next Stock Vest Date by a
fraction, (i) the numerator of which is the number of calendar days
which elapsed from the last vesting date of such shares under such
agreement or the date of such agreement if there is no last vesting
date (the "Stock Base Date") through the date of termination and (ii)
the denominator of which is the total number of calendar days from the
Stock Base Date to the Next Stock Vest Date.
In the event that Executive's employment is terminated pursuant to Section
4.1(a), (b) or (d), no severance shall be payable, Executive's options shall be
exercisable in accordance with their terms and Executive's shares of Common
Stock shall be subject to repurchase in accordance with the terms of any
applicable Restricted Stock Purchase Agreement.
(b) Benefits. In the event of any termination of Executive,
--------
Executive's coverage under Phytera's life, health and dental insurance plans
will remain in effect and Executive will be entitled to continue to participate
in Phytera's retirement plans, all at Phytera's expense, during the six months
following the termination date, unless Executive notifies Phytera in writing
that such coverage is no longer necessary. If because of limitations required by
third parties or imposed by law, Executive cannot be provided such benefits
through Phytera's plans, then Phytera will provide Executive with substantially
equivalent benefits on an aggregate basis, at its expense.
SECTION 5. MISCELLANEOUS.
5.1 Assignment. This Agreement may not be assigned, in whole or in part,
----------
by any party without the prior written consent of the other party, except that
Phytera may, without the consent of Executive, assign its rights and obligations
under this Agreement to any corporation, firm or other business entity with or
into which Phytera may merge or consolidate, or to which Phytera may sell or
transfer all or substantially all of its assets, or of which 50% or more of the
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<PAGE>
equity investment and of the voting control is owned, directly or indirectly,
by, or is under common ownership with, Phytera. After any such assignment by
Phytera, Phytera shall be discharged from all further liability hereunder and
such assignee shall have all the rights and obligations of Phytera under this
Agreement.
5.2 Notices. All notices, requests, demands and other communications to
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be given pursuant to this Agreement shall be in writing and shall be deemed to
have been duly given if delivered by hand or mailed by registered or certified
mail, return receipt requested, postage prepaid, to the addresses set forth at
the beginning of this Agreement or such other address as a party shall have
designated by notice in writing to the other party, provided that notice of any
change in address must actually have been received to be effective hereunder.
5.3 Integration. This Agreement is the entire agreement of the parties
-----------
with respect to the subject matter hereof and supersedes any prior agreement or
understanding relating to Executive's employment with or compensation by
Phytera. This Agreement may not be amended, supplemented or otherwise modified
except by a writing signed by Executive and Phytera.
5.4 Binding Effect. Subject to Section 5.1, this Agreement shall inure to
--------------
the benefit of and be binding upon the parties hereto and their successors,
assigns, heirs and personal representatives.
5.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and shall together
constitute one and the same instrument.
5.6 Severability. If any provision hereof shall, for any reason, be held
------------
to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid or unenforceable provision had not been
included herein. If any provision hereof shall for any reason be held by a
court to be excessively broad as to duration, geographical scope, activity or
subject matter, it shall be construed by limiting and reducing it to make it
enforceable to the extent compatible with applicable law as then in effect.
5.7 Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Massachusetts, without regard to its conflict of law provisions.
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IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the date first stated above.
EXECUTIVE
/s/ Malcolm Morville
----------------------------
Malcolm Morville
PHYTERA, INC.
By: /s/ Robert Foster
-------------------------
Title:
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EXHIBIT 10.4
PHYTERA, INC.
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement dated ______________________ is between Phytera, Inc. (the
"Company"), a Delaware corporation, and ______________________ (the
"Indemnitee"), who is [an officer][a director][an officer and director] of the
Company. Its purpose is to provide the maximum protection for the Indemnitee
against personal liability arising out of his or her service to the Company so
as to encourage the continuation of such service and the effective exercise of
his or her business judgment in connection therewith.
The parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings hereafter assigned to them:
(a) CHANGE IN CONTROL: a change in control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not the Company is in fact required to
comply therewith; provided, that, without limitation, such a change in control
shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting power of the
Company's then outstanding securities; or
(ii) during any period of twenty-four (24) consecutive months
(not including any period prior to the date of this Agreement), individuals
who at the beginning of such period constitute the Company's Board of
Directors (the "Board") and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in paragraphs (i), (ii) or (iii) of this
Section 1(a)) whose election by the Board or nomination for election by the
stockholders of the Company was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities of the
Company outstanding
<PAGE>
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires 30% or more of the combined
voting power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether instituted by the Company
or any other party that the Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, expenses
and obligations paid or incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing to
defend, be a witness in or participate in, any Claim relating to any
Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence related to the fact
that the Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by the Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(ii) any person (as hereinabove defined), including the Company,
publicly announces an intention to take or consider taking actions which if
consummated would constitute a Change in Control;
(iii) any person (as hereinabove defined), other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company (A) is or becomes
the beneficial owner, (B) discloses directly or indirectly to the Company
or publicly a plan or intention to become the beneficial owner, or (C)
makes a filing under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, with respect to securities to become the beneficial
owner, directly or indirectly, of securities representing 9.9% or more of
the combined voting power of the outstanding voting securities of the
Company; or
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(iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a potential change in control of the Company
has occurred.
(f) REVIEWING PARTY: The person or body appointed by the Board
pursuant to Section 2(b), which shall not be or include a person who is a party
to the particular Claim for which the Indemnitee is seeking indemnification.
2. Basic Indemnification Arrangement. (a) In the event that the
Indemnitee was, is or becomes a party to or witness or other participant in, or
is threatened to be made a party to or witness or other participant in, a Claim
by reason of (or arising in part out of) an Indemnifiable Event, the Company
shall indemnify the Indemnitee to the fullest extent permitted by law as soon as
practicable, but in any event no later than thirty days after written demand is
presented to the Company, against all Expenses, judgments, fines, penalties and
amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses,
judgments, fines, penalties or amounts paid in settlement) of such Claim. If so
requested by the Indemnitee, the Company shall advance (within ten business days
of such request) all Expenses to the Indemnitee (an "Expense Advance").
Notwithstanding anything in this Agreement to the contrary, prior to a Change in
Control, the Indemnitee shall not be entitled to indemnification pursuant to
this Agreement in connection with any Claim initiated by the Indemnitee against
the Company or any director or officer of the Company (otherwise than to enforce
his or her rights under this Agreement) unless the Company has consented in
writing to the initiation of such Claim.
(b) In the event of any demand by the Indemnitee for indemnification
hereunder or under the Company's Restated Certificate of Incorporation or By-
laws, the Board shall designate a Reviewing Party, who shall, if there has been
a Change of Control of the Company, be the special independent counsel referred
to in Section 3 hereof. The obligations of the Company under Section 2(a) shall
be subject to the condition that the Reviewing Party shall not have determined
(in a written opinion, in any case in which the special independent counsel
referred to in Section 3 hereof is involved) that the Indemnitee is not
permitted to be indemnified under applicable law, and the obligation of the
Company to make an Expense Advance pursuant to Section 2(a) shall be subject to
the condition that, if, when and to the extent that the Reviewing Party
determines that the Indemnitee is not permitted to be so indemnified under
applicable law, the Company shall be entitled to be reimbursed by the Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid. If the Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that the Indemnitee may be indemnified
under applicable law, any determination made by the Reviewing Party that the
Indemnitee is not permitted to be indemnified under applicable law shall not be
binding, and the Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that the Indemnitee is not permitted to be
indemnified in whole or in part under applicable law, the Indemnitee shall have
the right to commence litigation in any court in the state of Delaware having
subject matter jurisdiction thereof and in which venue is proper seeking an
initial determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, and the Company hereby
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consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and the Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under the Company's
Restated Certificate of Incorporation or By-laws now or hereafter in effect
relating to Claims for Indemnifiable Events, the Company shall seek legal advice
only from special independent counsel selected by the Indemnitee and approved by
the Company (which approval shall not be unreasonably withheld) who has not
otherwise performed services for the Company within the last ten years (other
than in connection with such matters) or for the Indemnitee. Such counsel,
among other things, shall render its written opinion to the Company and the
Indemnitee as to whether and to what extent the Indemnitee is permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the special independent counsel and to indemnify such counsel against any and
all expenses (including attorneys' fees), claims, liabilities and damages
relating to this Agreement or its engagement pursuant hereto.
4. Establishment of Trust. In the event of a Potential Change in Control,
the Company may create a trust for the benefit of the Indemnitee (either alone
or together with one or more other indemnitees) and from time to time fund such
trust in such amounts as the Board may determine to satisfy Expenses reasonably
anticipated to be incurred in connection with investigating, preparing for and
defending any Claim relating to an Indemnifiable Event, and all judgments,
fines, penalties and settlement amounts of all Claims relating to an
Indemnifiable Event from time to time paid or claimed, reasonably anticipated or
proposed to be paid. The terms of any trust established pursuant hereto shall
provide that upon a Change in Control (i) the trust shall not be revoked or the
principal thereof invaded, without the written consent of the Indemnitee, (ii)
the trustee shall advance, within ten business days of a request by the
Indemnitee, all Expenses to the Indemnitee (and the Indemnitee hereby agrees to
reimburse the trust under the circumstances under which the Indemnitee would be
required to reimburse the Company under Section 2(b) of this Agreement), (iii)
the trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (iv) all unexpended funds in such trust shall revert to the
Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee shall be a person or
entity satisfactory to the Indemnitee. Nothing in this Section 4 shall relieve
the Company of any of its obligations under this Agreement.
5. Indemnification for Additional Expenses. The Company shall indemnify
the Indemnitee against all expenses (including attorneys' fees) and, if
requested by the Indemnitee, shall (within ten business days of such request)
advance such expenses to the Indemnitee, which are incurred by the Indemnitee in
connection with any claim asserted against or action brought by the Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-law or provision of the Company's
Restated Certificate of Incorporation now or hereafter in effect relating to
Claims for Indemnifiable Events or (ii) recovery under any directors' and
officers' liability insurance
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policies maintained by the Company, regardless of whether the Indemnitee
ultimately is determined to be entitled to such indemnification, advance expense
payment or insurance recovery, as the case may be.
6. Partial Indemnity, Etc. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not for the total amount thereof, the Company shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of Claims
relating to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. Burden of Proof. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that the
Indemnitee is not so entitled.
8. No Presumption. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that the Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether the Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that the Indemnitee has not met such standard of conduct or did
not have such belief, prior to the commencement of legal proceedings by the
Indemnitee to secure a judicial determination that the Indemnitee should be
indemnified under applicable law shall be a defense to the Indemnitee's claim or
create a presumption that the Indemnitee has not met any particular standard of
conduct or did not have any particular belief.
9. Non-exclusivity, Etc. The rights of the Indemnitee hereunder shall be
in addition to any other rights the Indemnitee may have under the Company's
Restated Certificate of Incorporation and By-laws or the Delaware General
Corporation Law or otherwise. To the extent that a change in the Delaware
General Corporation Law (whether by statute or judicial decision) permits
greater indemnification by agreement than would be afforded currently under the
Company's Restated Certificate of Incorporation and By-laws and this Agreement,
it is the intent of the parties hereto that the Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change.
10. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer.
5
<PAGE>
11. Amendments, Etc. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
12. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all such papers and do all such
things as may be necessary or desirable to secure such rights.
13. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against the
Indemnitee to the extent the Indemnitee has otherwise received payment (under
any insurance policy, provision of the Company's Restated Certificate of
Incorporation, Company By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
14. Binding Effect, Etc. This Agreement shall be binding and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, liquidation or otherwise) to all
or substantially all of the business or assets of the Company by written
agreement expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
or assets aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise. This Agreement shall continue in effect
regardless of whether the Indemnitee continues to serve as an officer or
director of the Company or of any other enterprise at the Company's request.
15. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
16. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
PHYTERA, INC.
6
<PAGE>
By:_________________________
Title ______________________
----------------------------
(Indemnitee)
7
<PAGE>
EXHIBIT 10.5
PHYTERA, INC.
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
_______________________
As of May 26, 1998
_______________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SECTION 1 2
1.1 Basic Financial Information..................................................... 2
1.2 Reports to the Board of Directors............................................... 2
1.3 Inspection Rights............................................................... 2
1.4 Operating Plan.................................................................. 3
1.5 Additional Information.......................................................... 3
1.6 Shareholders' Agreement......................................................... 3
1.7 Observation Rights.............................................................. 3
1.8 Participation Right............................................................. 3
1.9 Compensation Committee.......................................................... 5
1.10 Prompt Payment of Taxes......................................................... 5
1.11 Maintenance of Properties and Leases............................................ 5
1.12 Insurance....................................................................... 6
1.13 Key Man Life Insurance.......................................................... 6
1.14 Accounts and Records............................................................ 6
1.15 Independent Accountants......................................................... 6
1.16 Compliance with Requirements of Governmental Authorities........................ 7
1.17 Maintenance of Corporate Existence.............................................. 7
1.18 Availability of Common Stock for Conversion..................................... 7
1.19 Confidential and Proprietary Information Agreements; Agreements Not to Compete.. 7
1.20 Consulting Agreements........................................................... 7
1.21 Restricted Stock Purchase Agreements............................................ 7
1.22 Amendment of Charter and By-Laws................................................ 8
1.23 Financings...................................................................... 8
1.24 Restricted Activities........................................................... 8
1.25 Litigation...................................................................... 9
1.26 Termination of Covenants........................................................ 9
SECTION 2 9
2.1 Restrictions on Transferability................................................. 9
2.2 Certain Definitions............................................................. 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
2.3 Restrictive Legends............................................................. 10
2.4 Notice of Proposed Transfers.................................................... 11
2.5 Requested Registration.......................................................... 11
2.6 Company Registration............................................................ 13
2.7 Expenses of Registration........................................................ 15
2.8 Registration on Form S-3........................................................ 16
2.9 Registration Procedures......................................................... 16
2.10 Indemnification................................................................. 17
2.11 Information by Holder........................................................... 18
2.12 Limitation on Registration of Issues of Securities.............................. 18
2.13 Rule 144 Reporting.............................................................. 19
2.14 Transfer or Assignment of Registration Rights................................... 19
2.15 "Market Stand-off" Agreement.................................................... 20
SECTION 3............................................................................. 20
SECTION 4............................................................................. 20
4.1 Governing Law................................................................... 21
4.2 Survival........................................................................ 21
4.3 Successors and Assigns.......................................................... 21
4.4 Entire Agreement; Amendment and Waiver.......................................... 21
4.5 Notices......................................................................... 21
4.6 Delays or Omissions............................................................. 21
4.7 Rights; Separability............................................................ 22
4.8 Information Confidential........................................................ 22
4.9 Expenses........................................................................ 22
4.10 Titles.......................................................................... 22
4.11 Counterparts.................................................................... 22
</TABLE>
EXHIBITS
A - Schedule of Investors
B - Form of Confidential and Proprietary Information Agreement (U.S.)
C - Form of Confidential and Proprietary Information Agreement (U.K.)
D - Form of Agreement Not to Compete
E - Form of Restricted Stock Purchase Agreement
ii
<PAGE>
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
----------------------------------------------
THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this "Agreement") dated
as of May 26, 1998 is among Phytera, Inc., a Delaware corporation formerly known
as Plant Pharmaceuticals, Inc. (the "Company"), and the investors listed on
Exhibit A to this Agreement (the "Investors").
- ---------
WHEREAS the Company and the Investors holding shares of the Company's Series A
Convertible Preferred Stock ("Series A Shares") entered into a Series A
Preferred Stock Purchase Agreement dated as of August 31, 1992, as amended as of
November 9, 1992, February 10, 1993 and October 22, 1993 (the "Series A
Agreement");
WHEREAS the Company and the Investors holding shares of the Company's Series B
Convertible Preferred Stock ("Series B Shares") entered into a Series B
Preferred Stock Purchase Agreement dated as of December 16, 1993 (the "Series B
Agreement");
WHEREAS the Company and the Investors holding shares of the Company's Series C
Convertible Preferred Stock ("Series C Shares") entered into a Series C
Preferred Stock Purchase Agreement dated as of January 31, 1996 and most
recently amended as of May 31, 1996 (as amended, the "Series C Agreement");
WHEREAS the Company entered into Subscription Agreements of various dates with
each of the Investors holding shares of the Company's Series D Convertible
Preferred Stock ("Series D Shares") pursuant to an Information Memorandum dated
as of October 30, 1996;
WHEREAS the Company and the Investors holding the Series A Shares, the Series
B Shares, the Series C Shares and the Series D Shares entered into an Amended
and Restated Investor Rights Agreement dated as of October 30, 1996 and most
recently amended pursuant to a Master Amendment dated as of March 10, 1997 (as
so amended, the "1996 Restated Investor Rights Agreement");
WHEREAS the Company wishes to sell shares of its Series E Convertible
Preferred Stock ("Series E Shares") to certain Investors (the "Series E
Investors") beginning May ___, 1998; and
WHEREAS it is a condition to the purchase of the Series E Shares by the Series
E Investors that certain rights and obligations arising from the terms of the
1996 Restated Investor Rights Agreement be amended and restated and that certain
similar rights and obligations be granted to the Series E Investors, in each
case as such rights and obligations are set forth herein;
NOW THEREFORE, each of the parties hereto agrees as follows:
<PAGE>
SECTION 1
-------
Covenants of the Company
------------------------
The Company hereby covenants and agrees, so long as any Investor owns any
Series A Shares, Series B Shares, Series C Shares, Series D Shares, Series E
Shares or any shares of the Company's Preferred Stock issued upon conversion
thereof (the "Conversion Shares") (the Series A Shares, the Series B Shares, the
Series C Shares, the Series D Shares, the Series E Shares and the Conversion
Shares, collectively, the "Shares") or any shares of the Company's Common Stock
(the "Common Stock") issued upon conversion of the Shares, as follows:
1.1 Basic Financial Information. The Company shall furnish the following
---------------------------
reports to each Investor holding Shares or any shares of the Company's Common
Stock issued upon conversion of the Shares:
(a) as soon as practicable after the end of each fiscal year of the
Company, and in any event within 180 days thereafter, a consolidated balance
sheet of the Company and its subsidiaries (if any), as at the end of such fiscal
year and consolidated statements of income and cash flows of the Company and its
subsidiaries for such year, prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and certified by independent public accountants of recognized national
standing selected by the Company, which certification shall state that (i) such
financial reports have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of the preceding
fiscal year and (ii) the audit by such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards; and
(b) from the date the Company becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act'), and in lieu of the financial information required pursuant to Section
1.1(a), copies of its annual report on Form 10-K and its quarterly reports on
Form 10-Q, respectively.
1.2 Reports to the Board of Directors. Prior to each meeting of the
---------------------------------
Board of Directors, the Company shall deliver to the Board of Directors a
consolidated balance sheet of the Company and its subsidiaries as at the end of
the month ended not less than 15 nor more than 31 days prior to such meeting and
consolidated statements of income and of cash flows of the Company and its
subsidiaries for each month and for the current fiscal year of the Company
through such month-end, prepared in accordance with generally accepted
accounting principles consistently applied subject to year-end audit
adjustments.
1.3 Inspection Rights. The Company shall permit representatives of each
-----------------
Investor who, together with its affiliates, holds an aggregate of 250,000 Shares
(treated as if converted and including any shares of Common Stock into which any
Shares have been converted) (such Investors are referred to herein as
"Substantial Investors"), to visit and inspect any of the properties and assets
of the Company and its subsidiaries, including their books of account and
records, to discuss their affairs, finances and accounts with the Company's or
any subsidiary's
2
<PAGE>
officers and their independent public accountants, and to consult with and
advise the management of the Company and its subsidiaries as to their affairs,
finances and accounts, all at such reasonable times and as often as any such
Substantial Investor may reasonably request. The provisions of this Section 1.3
shall not be in limitation of any rights which an Investor may have with respect
to the books of account and records of the Company and its subsidiaries or to
inspect their properties and assets or discuss their affairs, finances and
accounts, under the laws of the jurisdictions in which they are incorporated.
1.4 Operating Plan. The Company shall deliver to each Investor who, together
--------------
with its affiliates, holds an aggregate of 90,000 Shares (treated as if
converted and including any shares of Common Stock into which any Shares have
been converted) as soon as available, and in any event within 90 days after the
commencement of the Company's fiscal year, a summary of the financial plan of
the Company as contained in its operating plan approved by the Company's Board
of Directors, with any material changes in such financial plan to be furnished
as promptly as practicable after such changes have been approved by the Board of
Directors.
1.5 Additional Information. Until the earlier of (a) the date on which the
----------------------
Company is subject to the reporting requirements of Section 13(a) or Section
15(d) of the Exchange Act or (b) the date on which quotations for the Common
Stock are reported by the automated quotations system operated by the National
Association of Securities Dealers, Inc. or by an equivalent quotations system,
the Company shall furnish with reasonable promptness such information and data
with respect to the Company and its subsidiaries as any Investor may from time
to time reasonably request.
1.6 Shareholders' Agreement. The Company agrees not to take any action or
-----------------------
fail to object to any action which would be inconsistent with the obligations of
the parties to the Amended and Restated Shareholders Agreement of even date
herewith (the "Shareholders Agreement").
1.7 Observation Rights. The Company shall furnish to one representative
------------------
designated by BancBoston Ventures Inc. (the "BancBoston Representative") timely
notice of, and permit the BancBoston Representative to attend as a nonvoting
observer, all meetings of the Board of Directors of the Company and shall
deliver to the BancBoston Representative, as and when delivered to the Company's
directors, copies of all notices, minutes, consents, corporate reports and any
other materials that the Company provides to its directors.
1.8 Participation Right. The Company hereby grants to each Investor the
-------------------
right (the "Participation Right") to purchase, on a pro-rata basis, all (or any
part) of the New Securities (as defined below) which the Company may, from time
to time, propose to issue and sell. An Investor's pro-rata share, for purposes
of the Participation Right, is the ratio of the number of Shares purchased by
such Investor to the total number of Shares. Each Investor shall have a right
of over-allotment such that if any Investor fails to exercise its right
hereunder to purchase its pro-rata portion of New Securities, the other
Investors may elect to purchase the non-purchasing Investor's portion on a pro-
rata basis within five days from the date such non-purchasing Investor fails to
exercise its right hereunder to purchase its pro-rata share of New Securities.
The Participation Right shall be subject to the following provisions:
3
<PAGE>
(a) "New Securities" shall mean any capital stock (including the
Common Stock, the Shares or any other class or series of preferred stock) of the
Company whether now authorized or not, and warrants, options or other rights to
purchase capital stock, and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New Securities"
does not include (i) securities issued upon conversion of the Shares; (ii)
Common Stock offered in an underwritten public offering on a firm commitment
basis pursuant to an effective registration statement filed under the Securities
Act of 1933 (the "Act") covering the offer and sale of the Common Stock at a per
share offering price to the public of at least $9.65 (as adjusted for stock
splits, stock dividends, distributions or subdivisions), resulting in gross
proceeds to the Company (without deduction of commissions) of not less than
$10,000,000 (a "Qualified Public Offering"); (iii) securities issued to any
entity, which is not a financial institution and whose principal business is not
the making of equity or similar investments, in a corporate partnering
arrangement approved by the Board of Directors, including the CBI Director, the
Concord Director, the DDFC Director and the Preferred Director (all as defined
in the Shareholders Agreement) (each individually an "Investor Representative"
and collectively the "Investor Representatives"); (iv) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of shares, purchase of substantially all the assets or other
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such corporation (including, but not limited, to the merger
of Neptune Pharmaceuticals, Inc. with and into the Company); (v) any borrowings,
direct or indirect, from financial institutions or other persons by the Company,
whether or not presently authorized, including any type of loan or payment
evidenced by any type of debt instrument, provided such borrowings do not have
any equity features, including warrants, options or other rights to purchase
capital stock, and are not convertible into capital stock of the Company; (vi)
options, warrants, rights or other securities issued to employees, consultants
or directors of the Company pursuant to any stock option plan or stock purchase
or stock bonus arrangement approved by the Board of Directors or by the
Compensation Committee in accordance with Section 1.9, or securities issued upon
the exercise of conversion thereof; or (vii) options or warrants to purchase the
Company's capital stock outstanding as of the date of the final closing of the
offering of the Series E Shares.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Investor 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 Investor shall have 30 days
from the date of receipt of any such notice to agree to purchase the Investor's
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 the Investors fail to exercise the Participation
Right within said 30-day period and after the expiration of the five-day period
for the exercise of the over-allotment provisions of this Section 1.8, the
Company shall have 120 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 120 days from the date of any such agreement) to sell those
New Securities as to which the Investors' Participation Right was not exercised
at a price and upon general terms no more favorable to the purchasers thereof
than specified in the Company's notice
4
<PAGE>
to each Investor pursuant to Section 1.8(b) above. In the event the Company has
not sold or entered into an agreement to sell the New Securities within the 120-
day period (or sold and issued New Securities in accordance with the foregoing
within 120 days from the date of any such agreement), the Company shall not
thereafter issue or sell any New Securities, without first offering such
securities to the Investors in the manner provided above.
(d) The Participation Right granted hereunder (i) is assignable by
each Investor to any wholly-owned subsidiary or parent of, or to any corporation
or entity which is, within the meaning of the Act, controlling, controlled by or
under common control with, any such Investor, (ii) is assignable among any of
the Investors, (iii) is assignable to any successor in interest of an Investor
upon the sale of all or substantially all of the assets or upon the merger,
consolidation or dissolution of any corporate Investor, (iv) shall pass to the
receiving partner upon a distribution of Shares (or shares of Common Stock
issued upon conversion of the Shares) by a partnership Investor, and (v) upon
the death of an Investor, such right shall pass to the beneficiaries under the
deceased Investor's last will and testament or to the distributees of the
deceased Investor's estate.
1.9 Compensation Committee. The Company shall cause to be established a
----------------------
Compensation Committee of the Board of Directors, a majority of the members of
which Committee shall be the Investor Representatives or other non-employee
members of the Board of Directors as the Investor Representatives may designate.
No compensation or other remuneration at an annualized rate in excess of
$100,000 shall be paid to, nor shall any capital stock of the Company be issued
to or options to purchase any of its capital stock granted to, any director,
officer or employee of the Company or any of its subsidiaries without the
approval of the Compensation Committee. No compensation or other remuneration
at an annualized rate in excess of $40,000 shall be paid to, nor shall any
capital stock of the Company be issued to or options to purchase any of its
capital stock be granted to, any consultant to the Company or any of its
subsidiaries, without the approval of the Compensation Committee.
1.10 Prompt Payment of Taxes. The Company shall promptly pay and
-----------------------
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall be contested in good faith by appropriate proceedings by
the Company and if the Company shall have set aside on its books of accounts
adequate reserves with respect thereto, and provided, further, that the Company
shall pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefor. The Company shall promptly pay or cause to be paid when due,
or in conformance with customary trade terms, all other indebtedness incident to
the operations of the Company and any of its subsidiaries.
1.11 Maintenance of Properties and Leases. The Company shall keep its
------------------------------------
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and make all proper repairs,
renewals, replacements, additions and improvements thereto. The Company and its
subsidiaries shall at all times comply with each provision of all leases to
which any of them is a party or under which any of them occupies property if the
5
<PAGE>
breach of such provision might have a material adverse effect on the operations
or the condition, financial or otherwise, of the Company.
1.12 Insurance. The Company shall keep its assets and those of its
---------
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's business. The
Company and its subsidiaries shall maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses and similarly situated.
1.13 Key Man Life Insurance. The Company shall maintain key man term life
----------------------
insurance with a financially sound and reputable insurer on the life of Malcolm
Morville in the amount of at least $1,000,000, with the Company named
beneficiary thereof, so long as Dr. Morville remains an employee of the Company.
In addition, the Company shall maintain term life insurance on such other key
employees and in such amounts as the Investor Representatives on the Board of
Directors deem appropriate. The Company will not cause or permit any assignment
of the proceeds of the life insurance policies specified in the preceding
sentences, and will not borrow against any of such policies. The Company will
add the Presidents of Commonwealth BioVentures Inc., Dillon, Read Inc. and
Danish Development Finance Company as notice parties to such policies and will
request that the issuer(s) of such policies provide such designees with 30 days
notice before any of such policies is terminated (for failure to pay premiums or
otherwise) or assigned, or before any change is made in the designation of the
beneficiary thereof. Such policies shall not be cancelable by the Company
except upon 60 days prior written notice to each of the Investor Representatives
and upon the consent a majority of the Investor Representatives.
1.14 Accounts and Records. The Company and its subsidiaries shall keep true
--------------------
books of accounts and records in which full, true and correct entries will be
made of all dealings or transactions in relation to their business and affairs
in accordance with generally accepted accounting principles applied on a
consistent basis.
1.15 Independent Accountants. The Company shall retain a firm of independent
-----------------------
public accountants of recognized national standing who shall certify the
Company's and its subsidiaries financial statements at the end of each fiscal
year. In the event the services of the firm of independent public accountants,
so selected, or any firm of independent public accountants hereafter employed by
the Company are terminated, the Company shall promptly thereafter notify the
Investors and shall request the firm of independent public accountants whose
services are terminated to deliver to the Investors a letter of such firm
setting forth the reasons for the termination of their services. In the event
of such termination, the Company shall promptly thereafter engage another such
firm of independent public accountants of recognized national standing. In its
notice to the Investors, the Company shall state whether the change of
accountants was recommended or approved by the Board of Directors or any
committee thereof.
6
<PAGE>
1.16 Compliance with Requirements of Governmental Authorities. The Company
--------------------------------------------------------
and its subsidiaries shall duly observe and conform to all valid requirements of
governmental authorities relating to the conduct of their businesses or to their
properties or assets.
1.17 Maintenance of Corporate Existence. The Company shall maintain in full
----------------------------------
force and effect (and cause each subsidiary to preserve and maintain, except
that any subsidiary may be merged into the Company or another subsidiary
thereof) its corporate existence, rights and franchises and all licenses and
other rights to use patents, processes, licenses, trademarks, trade names or
copyrights owned or possessed by it or any subsidiary and deemed by the Company
to be necessary to the conduct of their businesses.
1.18 Availability of Common Stock for Conversion. The Company shall, from
-------------------------------------------
time to time and in accordance with the laws of the State of Delaware, increase
the authorized amount of Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall be insufficient
to permit conversion of all the then outstanding Shares.
1.19 Confidential and Proprietary Information Agreements; Agreements Not to
----------------------------------------------------------------------
Compete. The Company and each person now or hereafter employed by it or any
- -------
subsidiary on a full-time or part-time basis with access to confidential
information shall enter into a Confidential and Proprietary Information
Agreement in substantially the form attached as Exhibit B for persons now or
---------
hereafter employed by the Company or any U.S. Subsidiary and in substantially
the Form attached as Exhibit C for persons now or hereafter employed by any U.K.
---------
Subsidiary of the Company. The Company shall enter into an Agreement Not to
Compete in substantially the form attached as Exhibit D with all present and
---------
future "key employees" of the Company as determined by the Board of Directors.
1.20 Consulting Agreements. The Company and any subsidiaries and all of
---------------------
their present and future consultants shall enter into consulting agreements
which will, at a minimum, contain covenants regarding confidential and
proprietary information similar to those contained in Exhibit B or Exhibit C, as
--------- ---------
applicable.
1.21 Restricted Stock Purchase Agreements. Except for grants of options to
------------------------------------
purchase Common Stock granted by the Compensation Committee pursuant to the
Company's 1992 Stock Option Plan or any other plan adopted by the Board of
Directors, and the issuance of such Common Stock upon the exercise thereof, the
Company shall not issue any of its capital stock, or grant an option to purchase
any of its capital stock, to any employee, officer or director of, or any
consultant to, the Company or a subsidiary unless (i) the Company requires as a
condition to the issuance of stock pursuant thereto the execution of an
agreement embodying terms substantially similar to the terms embodied in the
Restricted Stock Purchase Agreement attached as Exhibit E, and (ii) the
---------
provisions of such agreement governing the vesting of shares thereunder shall
have been approved by the Compensation Committee of the Board of Directors in
accordance with Section 1.9. All such issuances and grants shall be subject to
approval by the Compensation Committee of the Board of Directors as provided in
Section 1.9.
7
<PAGE>
1.22 Amendment of Charter and By-Laws. The Company's Restated Certificate of
--------------------------------
Incorporation and By-Laws shall not be amended in any manner unless prior
thereto any such amendment shall have been approved by a majority of the
Investor Representatives.
1.23 Financings. The Company shall promptly, fully and in detail, inform the
----------
Board of Directors in advance of any material commitments or contracts relating
to financing of any nature for the Company or any pledge of corporate assets.
1.24 Restricted Activities.
---------------------
(a) Without the approval of a majority of the members of the Board of
Directors of the Company, neither the Company nor its subsidiaries shall,
together or alone:
(i) borrow, guarantee or otherwise incur any indebtedness or
commit itself to pay in excess of $100,000 in any transaction or series of
similar transactions;
(ii) lease, purchase or otherwise acquire, or sell or otherwise
dispose of, any property or services having a value in excess of $100,000 in
any transaction or series of similar transactions, other than dispositions of
equipment in the ordinary course of business, or license, sell or otherwise
dispose of any United States Letters Patents, foreign patents, patent rights,
invention disclosures, know-how, trademarks, trade names, trade name rights,
copyrights or other proprietary information;
(iii) collaterally assign, mortgage, pledge or otherwise encumber
any assets having a value of more than $100,000 or any United States Letters
Patents, foreign patents, patent rights, invention disclosures, know-how,
trademarks, trade names, trade name rights, copyrights or other proprietary
information;
(iv) disclose any proprietary information to any person other
than as shall be necessary to the conduct of the ordinary business of the
Company or its subsidiaries, unless the Company has the written agreement of
the party to whom the disclosure is made to retain the confidentiality of the
Company's proprietary information and not to disclose it to others;
(v) except as otherwise approved by the Compensation Committee
in accordance with Section 1.9, enter into any employment, consulting or
similar agreement obligating the Company or any subsidiary to pay in excess of
$40,000 per annum which the Company or its subsidiaries shall be unable to
cancel, without penalty or other cost, upon notice of ninety (90) dates or
less, or any collective bargaining agreement;
(vi) make any loan or extend any credit to, guaranty any
indebtedness of, pledge or hypothecate any asset to secure the indebtedness
of, or forgive or otherwise change the terms of any indebtedness of any
director, officer or holder of securities of the Company or its subsidiaries;
or
(vii) make any loan, extend any credit or guaranty any
indebtedness, or forgive or otherwise change the terms of any indebtedness, in
excess of $25,000.
8
<PAGE>
(b) As long as 50,000 Shares remain outstanding, without the approval
of a majority of the Investor Representatives, neither the Company nor its
subsidiaries shall, together or alone:
(i) relocate a material part of its business operations;
(ii) purchase or otherwise acquire the securities of any other
corporation, partnership or other entity or enter into any partnership, joint
venture or other similar agreement;
(iii) consolidate or merge with or into another corporation or
convey all or substantially all of the assets of the Company or any of its
subsidiaries to another corporation; or
(iv) authorize or issue any debt or equity securities (other than
securities issued pursuant to the Company's 1992 Stock Option Plan or in
accordance with Section 1.21).
1.25 Litigation. The Company, promptly upon becoming aware thereof, shall
----------
notify each Substantial Investor in writing of any claim or litigation in which
it is involved and of any proceedings before any governmental or regulatory
authority which may materially and adversely affect the Company, any of its
technology or any of its key employees.
1.26 Termination of Covenants. The covenants set forth in this Section 1
------------------------
shall expire upon the earlier of (i) the closing of a Qualified Public Offering
or (ii) the conversion of the Shares in accordance with Section 3.3(b)(ii) of
the Company's Restated Certificate of Incorporation.
SECTION 2
-------
Restrictions on Transferability of
----------------------------------
Securities; Compliance with Securities Act
------------------------------------------
2.1 Restrictions on Transferability. The Shares shall not be transferable,
-------------------------------
except upon the conditions specified in this Section 2, which conditions are
intended to ensure compliance with the provisions of the Act or, in the case of
Section 2.15, to assist in an orderly distribution. Each Investor will cause
any proposed transferee of Shares held by that Investor to agree to take and
hold those securities subject to the provisions and upon the conditions
specified in this Section 2.
2.2 Certain Definitions. As used in this Section 2, the following terms
-------------------
shall have the following meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Act.
"Holder" shall mean any holder of outstanding shares of Registrable
Securities.
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<PAGE>
"Initiating Holders" shall mean any Investors, or their assignees under
Section 2.14, who in the aggregate are Holders of forty percent (40%) or more of
the Registrable Securities, the Shares or any combination thereof.
"Other Shareholders" shall mean any holders of securities of the Company who
are entitled, by agreement with the Company, to have securities included in a
requested registration of securities pursuant to Section 2.5 or 2.6.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and applicable rules and regulations thereunder and the
declaration of ordering of the effectiveness of such registration statement.
"Registrable Securities" shall mean (i) shares of Common Stock issued or
issuable pursuant to the conversion of the Shares and (ii) any Common Stock
issued in respect of, in exchange for or in replacement of the Shares or other
securities issued pursuant to the conversion of the Shares upon any stock split,
dividend, recapitalization, merger, consolidation or similar event.
"Registration Expenses" shall mean all expenses incurred in compliance with
Sections 2.5, 2.6 and 2.8, including without limitation all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, fees and disbursements of a single counsel
for all the selling Holders and other security holders, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Restricted Securities" shall mean the securities of the Company required to
bear or bearing the legend set forth in Section 2.3.
2.3 Restrictive Legends. Each certificate representing the Shares or the
-------------------
Registrable Securities shall (unless otherwise permitted or unless the
securities evidenced by such certificate shall have been registered under the
Act) be stamped or otherwise imprinted with a legend in substantially the
following form (in addition to any other legend required under applicable state
or federal securities laws):
THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER NAMED HEREON
FOR HIS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO
BE MADE ANY PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF; AND SUCH
SECURITIES MAY NOT BE PLEDGED, SOLD OR IN ANY OTHER WAY TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS IN EFFECT AT THAT TIME, OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT.
Each certificate representing Series D Shares shall also bear the following
legend:
10
<PAGE>
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED, THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (i) AS
PART OF THEIR DISTRIBUTION AT ANY TIME OR (ii) OTHERWISE UNTIL THE FIRST
ANNIVERSARY AFTER THE DATE OF ISSUANCE, EXCEPT IN EITHER CASE IN ACCORDANCE
WITH REGULATION S UNDER THE SECURITIES ACT. TERMS USED ABOVE HAVE THE MEANING
GIVEN TO THEM BY REGULATION S.
Upon request of a holder of such a certificate, the Company shall remove the
foregoing legends from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Company shall
have received either the opinion referred to in clause (a) of Section 2.4 or the
"no action" letter referred to in clause (b) of Section 2.4 to the effect that
any transfer by such holder of the securities evidenced by such certificate will
not violate the Act. Upon such removal, such securities shall no longer be
Restricted Securities.
2.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 2.4. Prior to any proposed
transfer of any Restricted Securities (other than under circumstances described
in Sections 2.5, 2.6 and 2.8), the holder thereof shall give written notice to
the Company of such holder's intention to effect such transfer. Each such
notice shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144 under the Act) by either (a) a written opinion of legal
counsel who shall be reasonably satisfactory to the Company, addressed to the
Company and reasonably satisfactory in form and substance to the Company's
counsel, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Act, or (b) a "no-action" letter
from the Commission to the effect that the distribution of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder to
the Company. Each certificate evidencing the Restricted Securities transferred
as provided above shall bear the appropriate restrictive legend set forth in
Section 2.3, unless such legend may be removed in accordance with Section 2.3.
2.5 Requested Registration.
----------------------
(a) Request for Registration. If the Company shall receive from
------------------------
Initiating Holders, at any time or times after the earlier of (i) January 1,
2000 or (ii) the date six months after the closing of the Company's first
registered offering of its securities to the public, a written request that the
Company effect any registration with respect to all or a part of the Registrable
Securities, the Company will:
(i) promptly give written notice of the proposed registration to
all other Holders at least 45 days prior to the date the Company anticipates
filing the
11
<PAGE>
registration statement covering the Registrable Securities so requested to be
registered; and
(ii) as soon as practicable, use its diligent best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Act) as may be so requested and
which 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
or Holders joining in such request as are specified in a written request given
within 30 days after receipt of such written notice from the Company; provided
that the Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 2.5:
(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 Act or applicable rules or regulations thereunder; or
(B) after the Company has effected three such registrations
pursuant to this Section 2.5(a) and such registrations have been declared
or ordered effective by the Commission.
Subject to the foregoing, 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.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 2.5(b), include securities of
the Company for its own account, or other securities of the Company which are
held by officers or directors of the Company or which are held by persons who,
by virtue of agreements with the Company, are entitled to securities in any such
registration.
(b) Underwriting. 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
this Section 2.5 and the Company shall include such information in the written
notice referred to in Section 2.5(a)(i). The right of any Holder to
registration pursuant to this Section 2.5 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 with respect to
such participation and inclusion) to the extent provided in this Section. A
Holder may elect to include in such underwriting all or a part of the
Registrable Securities it holds.
12
<PAGE>
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to this Section
2.5, or if Other Shareholders request such inclusion, the Initiating Holders
shall, on behalf of all Holders, offer to include the securities of such
officers, directors or Other Shareholders in the underwriting and may further
condition such offer on the acceptance of the applicable provisions of this
Section 2 by such officers, directors and Other Shareholders. The Company shall
(together with all Holders, officers, directors and Other Shareholders proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company. If
the representative of the underwriter advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
underwritten, then the securities of the Company (other than Registrable
Securities) held by officers or directors of the Company shall be excluded from
such registration to the extent so required by such limitation, and if a
limitation of the number of shares is still required, the Initiating Holders
shall so advise all Holders of Registrable Securities and Other Shareholders
whose securities would otherwise be underwritten pursuant to the request
described in this Section, 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 such Holders and Other Shareholders in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
and other securities which they had requested to be included in such
registration at the time of filing the registration statement, except that
Registrable Securities shall be the last to be limited. No Registrable
Securities or any other securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Holder of Registrable Securities, officer, director or Other
Shareholder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities held by such person shall then be withdrawn from
registration; provided, that, if by the withdrawal of such securities a greater
number of Registrable Securities held by other participating Holders may be
included in such registration (up to the maximum of any limitation imposed by
the underwriter), then the Company shall allocate such greater number of
Registrable Securities to such Holders in proportion, as nearly as practicable,
to the respective amount of Registrable Securities held by such participating
Holders. If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the underwriter so agrees
and if the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting has not
thereby been limited.
(c) Availability of Rule 144. The Company shall not be obligated to
------------------------
effect a registration pursuant to this Section 2.5 for any Holder who could at
the time of such request for registration then sell all of the Registrable
Securities which such Holder then holds at one time pursuant to Rule 144 under
the Act without regard to or violation of the volume limitations imposed by Rule
144.
2.6 Company Registration.
--------------------
13
<PAGE>
(a) Notice of Registration. If, at any time or from time to time, the
----------------------
Company shall determine to register any of its securities either for its own
account or the account of a security holder or holders exercising their
respective demand registration rights, other than a registration relating solely
to a Commission Rule 145 transaction, or a registration on any registration form
which does not permit secondary sales or 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:
(i) promptly give to each Holder written notice thereof which shall
include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other
state securities laws; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written
request or requests, made by any Holder within 30 days after receipt of
the written notice from the Company described in clause (i) above, except
as set forth in Section 2.6(b). Such written request may specify that all
or a part of a Holder's Registrable Securities be included in the
Company's registration.
(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
2.6(a)(i). In such event the right of any Holder to registration pursuant to
this Section 2.6 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 in this Section. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the Other Shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or representative of the underwriters selected for such underwriting
by the Company. If the representative of the underwriter determines that
marketing factors require a limitation on the number of shares to be
underwritten, and (i) if such registration is the first registered offering of
the Company's securities to the public, then the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant to the notice described in this Section, and (ii) if such
registration is other than the first registered offering of the sale of the
Company's securities to the public, then the underwriter may limit the number of
Registrable Securities to be included in the registration and underwriting to
not less than fifty percent (50%) of the securities included therein (based on
aggregate market values), subject to the allocation priority set forth below;
provided, that the underwriter may further limit the number of Registrable
Securities as provided by Section 2.6(c). The Company shall advise all holders
of securities requesting registration promptly after such determination by the
underwriter, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated in the
following manner: The securities of the Company (other than Registrable
Securities) held by officers and directors of the Company shall be excluded from
such registration and underwriting to the extent required by
14
<PAGE>
such limitation, and if a limitation of the number of shares is still required,
the number of shares that may be included in the registration and underwriting
shall be allocated among all such Holders and Other Shareholders in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
and other securities which they had requested to be included in such
registration at the time of filing the registration statement, except that
Registrable Securities shall be the last to be limited. If any Holder of
Registrable Securities or any officer, director or Other Shareholder disapproves
of the terms of any such underwriting, he may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration; provided, that, if by the withdrawal of such securities
a greater number of Registrable Securities held by other participating Holders
may be included in such registration (up to the maximum of any limitation
imposed by the underwriter), then the Company shall allocate such greater number
of Registrable Securities to such Holders in proportion, as nearly as
practicable, to the respective amount of Registrable Securities held by such
participating Holders.
(c) Additional Limitation of Registrable Securities. If the
-----------------------------------------------
registration is other than the first registered offering of the sale of the
Company's securities to the public, and the representative of the underwriter
determines that marketing factors require a limitation on the number of
Registrable Securities to be included in the registration and underwriting to
less than fifty percent (50%) of the securities included therein (based on
aggregate market values), then the representative of the underwriter shall give
written notice to all Holders. Such notice shall set forth the marketing factors
so requiring such additional limitation, and the percentage of the registration
and underwriting which the underwriter proposes to consist of Registrable
Securities. Any Holder voluntarily withdrawing from such registration shall be
entitled to one additional request for registration pursuant to Section 2.5
(notwithstanding the provisions of Section 2.5(a)(ii)(B)), in which other
Holders shall also have the right to participate in accordance with such
section. Such right shall be exercisable at any time after nine months from the
effective date of the registration from which such Holder voluntarily withdrew.
If more than one Holder so withdraws, the right to one additional request for
registration shall be held by all such Holders. If the Registrable Securities so
withdrawn exceed the number of shares requested by the underwriter to be
withdrawn, then the number of shares to be excluded shall be allocated pro rata
among all Holders voluntarily withdrawing.
2.7 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 2 shall be borne by the Company, and all selling expenses, including
underwriting discounts, selling commissions and the fees and expenses of the
selling Holder's own counsel (other than one counsel selected to represent all
selling Holders) shall be borne by the holders of the securities so registered
pro rata on the basis of the number of their shares so registered; provided,
however, that the Company shall not be required to pay any Registration Expenses
if, as a result of the withdrawal of a request for registration by Initiating
Holders (unless such withdrawal is due to material adverse information which was
not previously known to the Holders), the registration statement does not become
effective, in which case the Holders and Other Shareholders requesting
registration shall bear such Registration Expenses pro-rata on the basis of the
number of their shares so included in
15
<PAGE>
the registration request, and provided, further, that such registration shall
not be counted as a requested registration pursuant to Section 2.5(a) (ii) (B).
2.8 Registration on Form S-3. The Company shall use its best efforts to
------------------------
qualify for registration of its securities on Form S-3 or any comparable or
successor form; the Company shall register (whether or not required by law to do
so) the Common Stock under the Exchange Act in accordance with the provisions
thereof, following the effective date of the first registration of any
securities of the Company on Form S-1 or Form 1-SB or any comparable or
successor form or forms. After the Company has qualified for the use of Form S-
3, in addition to the rights contained in the foregoing provisions of this
Section 2, the Holders of Registrable Securities shall have the right to request
registration on Form S-3. Such requests shall be in writing and the Company
shall state the number of shares of Registrable Securities to be disposed of and
the intended methods of disposition of such shares by such Holder or Holders.
The Company shall promptly give notice of such proposed registration to all
Holders of Registrable Securities, and the Company shall, as expeditiously as
possible, use its best efforts to effect the registration on Form S-3 of the
Registrable Securities which the Company has been requested to register (a) in
each request and (b) in any response given within thirty (30) days to a notice
from the Company pursuant to this Section 2.8. The Company shall not be
obligated to effect a registration pursuant to this Section 2.8 for any Holder
who could at the time of such request for registration then sell all of the
Registrable Securities which such Holder then holds at one time pursuant to Rule
144 under the Act without regard to or violation of the volume limitations
imposed by Rule 144. The Company shall not be required to effect more than two
registrations pursuant to this Section 2.8 in any twelve-month period.
2.9 Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Section 2, the Company will keep each Holder
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 effective for a period of six months or
until all of the securities included in such registration shall have been sold,
whichever shall be the earlier to occur; provided, however, that (i) such six-
month period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration in
accordance with the provisions of Section 2.15, 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 six-month 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 the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (A) includes any prospectus required by Section 10(a)(3) of the
Act or (B) 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 (A) and (B)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act in the registration statement;
16
<PAGE>
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) in connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2.5, the Company will enter
into an underwriting agreement reasonably necessary to effect the offer and sale
of the Registrable Securities requested to be included in such registration;
provided, however, that such underwriting agreement contains customary
underwriting provisions and provided further that if the underwriter so requests
the underwriting agreement will contain customary contribution provisions.
2.10 Indemnification.
---------------
(a) The Company will, and does hereby undertake to, indemnify and
hold harmless each Holder, each of its officers, directors and partners, and
each person who controls such Holder, on whose behalf registration,
qualification or compliance has been effected pursuant to Section 2, and each
underwriter, if any, and each person who controls any underwriter (within the
meaning of the Act and the rules and regulations thereunder) from and 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 registration statement, prospectus, offering
circular or other document incident to any such registration, qualification or
compliance, or based on 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, or any violation by the Company of the Act or any rule
or regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person who controls such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and other expenses reasonably incurred in connection with investigating
and 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 from or is based on any untrue
statement or omission or alleged untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, and each Other Shareholder who has the right to
register its securities pursuant to Section 2 will be required by the Company
to, indemnify and hold harmless the Company, each of its directors and officers
and each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
(within the meaning of the Act and the rules and regulations thereunder), each
other such Holder and Other Shareholder and each of their officers, directors
and partners, and each person who controls such Holder or Other Shareholder,
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
17
<PAGE>
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and such Holders, Other Shareholders, directors,
officers, partners, persons, underwriters or controlling persons for any legal
and 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 registration document in
reliance upon and in conformity with written information furnished to the
Company by such Holder or Other Shareholder and stated to be specifically for
use therein; provided, however, that the obligations of such Holders and Other
Shareholders hereunder shall be limited to an amount equal to the proceeds to
each such Holder or Other Shareholder of securities sold as contemplated in this
Section.
(c) Each party entitled to indemnification under this Section 2.10
(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 any litigation resulting
therefrom, 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 in this Section shall not relieve
the Indemnifying Party of its obligations under Section 2. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party (which consent shall not unreasonably be
withheld), 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. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
2.11 Information by Holder. Each Holder of Registrable Securities, and
---------------------
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder and the distribution proposed by such Holder or Other Shareholder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in Section 2.
2.12 Limitation on Registration of Issues of Securities. From and after
--------------------------------------------------
the date of this Agreement, the Company shall not enter into any agreement with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder the right to require the Company to initiate any
registration of any securities of the Company, provided that this Section 2.12
shall not limit the right of the Company to enter any agreements with any holder
or prospective holder of any securities of the Company giving such holder or
prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder if
18
<PAGE>
such agreement includes a provision that such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of its securities will not reduce the amount of the Registrable
Securities of the Holders which would otherwise be included pursuant to this
Agreement. Any right given by the Company to any holder or prospective holder of
the Company's securities in connection with the registration of securities shall
be conditioned such that it shall be consistent with the provisions of Section 2
and with the rights of the Holders provided in this Agreement.
2.13 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the Act (and any successor rule to Rule
144) at all times from and after 90 days following the effective date of the
first registration statement under the Act filed by the Company for an offering
of its securities to the public;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act at any time
after it has become subject to such reporting requirements;
(c) so long as an Investor owns any Restricted Securities, furnish to
the Investor as promptly as possible upon its request a written statement by the
Company confirming its compliance with the reporting requirements of Rule 144
(at any time from and after 90 days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the public), and of the 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 as an Investor may reasonably request in availing itself of any rule or
regulation of the Commission allowing an Investor to sell any such securities
without registration; and
(d) register its Common Stock under Section 12(g) of the Exchange
Act, as amended, not later than ninety (90) days after the close of the
Company's first fiscal year following the effective date of the first
registration statement covering shares of Common Stock filed by the Company
relating to a public offering other than to employees of the Company under an
employee option plan or employee stock purchase plan.
2.14 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register the Registrable Securities granted by the Company under
Sections 2.5, 2.6 and 2.8 may be transferred or assigned by a Holder to a
transferee or assignee of any of the Holder's Restricted Securities; provided
that the Company is given written notice by a Holder at the time of or within a
reasonable time after said transfer or assignment, stating the name and address
of said transferee or assignee and the securities with respect to which such
registration rights are being transferred or assigned and provided further that
the transferee or assignee of such rights assumes the obligations of such Holder
under Section 2.
19
<PAGE>
2.15 "Market Stand-off" Agreement. Each Investor agrees, if requested by
----------------------------
the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by it during the 90-day period following
the effective date of a registration statement filed under the Act, provided
that:
(a) such agreement only applies to the first such registration
statement of the Company including securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all other Holders, Other Shareholders and officers and directors
of the Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of the 90-day period.
SECTION 3
-------
Certain Voting Rights
---------------------
If at any time so long as long as 50,000 Shares are outstanding:
(a) the Company shall violate any provisions of its Restated
Certificate of Incorporation as then in effect relating to the payment of
dividends,
(b) the Company shall fail to comply with, or shall breach or
violate (i) any material covenant contained in this Agreement or the
Shareholders Agreement or (ii) Section 3.4, Section 3.5 or Section 3.7 of
Article Fourth of the Company's Restated Certificate of Incorporation (provided
that the Investor Representatives shall not have caused, or that each of the
Investor Representative shall not have consented to, such failure, breach or
violation), or
(c) Dr. Morville should breach either the Confidential and
Proprietary Information Agreement dated as of March 1, 1993 or the Agreement Not
to Compete dated as of October 23, 1993, as either of such agreements may be
amended or superseded, and the Company shall have failed to institute
appropriate legal or other remedial action;
and such failure or breach shall have continued for 30 days after written notice
thereof to the Company or to Dr. Morville by Investors holding in the aggregate
fifty percent (50%) or more of the Shares or such number of shares of Common
Stock issued to the Investors upon conversion of fifty percent (50%) of the
Shares or any combination thereof, then the Investors shall have the special
----
voting rights as set forth in Article Fourth, Section 3.5(b) of the Company's
Restated Certificate of Incorporation.
SECTION 4
-------
20
<PAGE>
Miscellaneous
-------------
4.1 Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the State of Delaware without giving effect to principles of conflicts
of law thereunder. It is acknowledged that it will be impossible to measure in
money the damages that would be suffered if the parties fail to comply with any
of the obligations imposed on them by this Agreement and that in the event of
any such failure an aggrieved party will be irreparably damaged and will not
have an adequate remedy at law. Any such party shall, therefore, be entitled to
injunctive relief and/or specific performance to enforce such obligations, and
if any action should be brought in equity to enforce any of the provisions of
this Agreement, none of the parties hereto shall raise the defense that there is
an adequate remedy at law.
4.2 Survival. The representations, warranties, covenants and agreements made
--------
in this Agreement shall survive any independent investigation made by any
Investor and the closing of the transactions contemplated hereby.
4.3 Successors and Assigns. Except as otherwise expressly provided in this
----------------------
Agreement, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the successors, heirs, executors and administrators of the
parties; provided, however, the Company may not assign its rights or delegate
its duties under this Agreement.
4.4 Entire Agreement; Amendment and Waiver. This Agreement constitutes the
--------------------------------------
full and entire understanding and agreement between the parties with regard to
the subject matter hereof. Neither this Agreement nor any term hereof may be
amended, discharged or terminated, except by a written instrument signed by the
Company and the holders of sixty percent (60%) or more of the Shares (calculated
on an as converted basis and including any shares of Common Stock into which any
Shares have been converted that have not been sold); provided, however, that the
effect of any such amendment will be such that all of the Investors will be
treated equally. The addition of parties to this Agreement who acquire Series E
Shares after the date hereof shall not require the consent of any other
Investor.
4.5 Notices. All notices and other communications required or permitted
-------
under this Agreement shall be in writing and shall be deemed effectively given
upon personal delivery, upon delivery by a nationally or internationally
recognized overnight courier service, or upon deposit with the United States
Post Office (or other appropriate national postal service), by registered or
certified mail, postage prepaid, addressed to the Company at its address set
forth on the signature page of this Agreement and to an Investor at its address
provided on Exhibit A or at such other address as any party may designate by ten
---------
days prior written notice to the other party.
4.6 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 in any similar breach or default
occurring thereafter; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring.
21
<PAGE>
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 made 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.
4.7 Rights; Separability. Unless otherwise expressly provided in this
--------------------
Agreement, each Investor's rights are several rights, not rights jointly held
with any of the other Investors. In case any provision of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
4.8 Information Confidential. Each Investor agrees that it will not use any
------------------------
confidential information received by it pursuant to this Agreement in violation
of the Exchange Act or reproduce, disclose or disseminate such information to
any other person (other than to its employees, agents or attorneys having a need
to know the contents of such information), except in connection with the
exercise of rights under this Agreement, unless (a) the Company has made such
information available to the public generally; (b) an Investor is required to
disclose such information by a governmental body; (c) the Investor possessed
such information before the date of this Agreement; (d) the Investor received
such information from a third party after the date of this Agreement; or (e) the
Investor discloses such information of a non-technical nature (including
financial information) to its partners, shareholders or advisors which such
Investor discloses to its partners, shareholders and/or advisors generally.
4.9 Expenses. Except as provided in Section 2, the Company shall bear its
--------
own expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated by this Agreement.
4.10 Titles. The titles of the Sections of this Agreement are for
------
convenience of reference only and are not to be considered in construing this
Agreement.
4.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one Agreement.
[the remainder of this page is intentionally left blank]
22
<PAGE>
IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as
of date first above written.
PHYTERA, INC.
By: /s/ Malcolm Morville
--------------------
Malcolm Morville
President
REPRESENTING AT LEAST 60% OF SHARES HELD BY THE INVESTORS:
CR MANAGEMENT CAPITAL PARTNERS I
L.P.
By: /s/ Stephen J. Roth
-------------------
Steven J. Roth
General Partner
DILLON, READ & CO., as Agent
By: /s/ Peter H. Imhoff
--------------------
Name: Peter H. Imhoff
Title: Managing Director
CONCORD PARTNERS II, L.P.
By: Venture Associates II, L.P., General Partner
By: Dillon, Read Inc., General Partner
By: /s/ Peter A. Leidel
--------------------
Name: Peter A. Leidel
----------------
Title: Attorney-in-Fact
23
<PAGE>
LEXINGTON PARTNERS IV, L.P.
By: DRMC, Inc., General Partner
By: /s/ Peter H. Imhoff
-------------------
Name: Peter H. Imhoff
-----------------
Title: Managing Director
BANCBOSTON VENTURES, INC.
By: /s/ Marcia P. Bates
-------------------
Name: Marcia P. Bates
----------------
Title: Managing Director
DANISH DEVELOPMENT FINANCE
COMPANY
By:/s/ Uffe Bundgaard-Jrgensen Frederick Mrck
-------------------------------------------
Name: Uffe Bundgaard-Jrgensen
-------------------------
Title: CEO
Name: Frederick Mrck
--------------
Title: CFO
COMMONWEALTH BIOVENTURES IV
LIMITED PARTNERSHIP
By: BioVentures Partners Limited Partnership,
General Partner
By: Commonwealth BioVentures Inc.,
General Partner
By: /s/ Gloria W. Doubleday
-----------------------
Name: Gloria W. Doubleday
--------------------
Title: Vice President
24
<PAGE>
COMMONWEALTH BIOVENTURES V
LIMITED PARTNERSHIP
By: BioVentures Partners Limited Partnership,
General Partner
By: Commonwealth BioVentures Inc., General
Partner
By: /s/ Gloria W. Doubleday
-----------------------
Name: Gloria W. Doubleday
--------------------
Title: Vice President
25
<PAGE>
A/S FORSIKRINGSSELSKABET CODAN
PENSION
By: /s/ Ole K. Sorensen
---------------------
Name: Ole K. Sorensen
Title:
A/S FORSIKRINGSSELSKABET CODAN LIV
By: /s/ Ole K. Sorensen
---------------------
Name: Ole K. Sorensen
Title:
26
<PAGE>
KIRKBI A/S
By: /s/ Bjarne Ammitzboll Bent Pedersen
-------------------------------------
Name: Bjarne Ammitzboll
Title: Finanschef
Name: Bent Pedersen
Title: Managing Director
27
<PAGE>
CARNEGIE BANK A/S
By: /s/ Kim Bttkjaer
-----------------
Name: Kim Bttkjaer
-------------
Title:
28
<PAGE>
The following purchasers of Series E Preferred Stock are deemed to have
executed this Agreement by execution of a Subscription Agreement bearing the
dates set forth below:
Name Date of Subscription
- ---- --------------------
29
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
Concord Partners II, L.P.
Address:
535 Madison Avenue
New York, NY 10022
Lexington Partners IV, L.P.
Address:
535 Madison Avenue
New York, NY 10022
Dillon, Read & Co. Inc., as Agent
Address:
535 Madison Avenue
New York, NY 10022
Commonwealth BioVentures IV
Limited Partnership
Address:
4 Milk Street
Portland, ME 04101
Commonwealth BioVentures V
Limited Partnership
Address:
4 Milk Street
Portland, ME 04101
Kummell Investments Limited
Address:
P.O. Box 71
Craigmuir Chambers
Road Town
Tortola, British Virgin Islands
(Effective notice to Kummell Investments Limited requires a copy to one of the
following as well as the above address: Morningside North America Limited, 1188
Centre Street, Newton Centre, MA 02159, attention Jay Levine; or Belinda Ho,
Kummell Investments Limited, c/o
30
<PAGE>
Morningside Asia, Hang Lung Centre, 22nd Floor, 2-20 Paterson Street, Causeway
Bay, Hong Kong, fax 011-852-576-3105)
Clariden Bank
Address:
Claridenstrasse 26
Zurich, Switzerland
CH-8002
Attn: Jurg Wiesendanger
Clariden Asset Management, Inc.
Address:
Clariden Asset Management
540 Madison Avenue
New York, NY 10022
Attn: Joann Moncada
CR Management Capital
Partners I L.P.
Address:
CR Management Associates, Inc.
92 Hayden Avenue
Lexington, MA 02173
BancBoston Ventures, Inc.
Address:
100 Federal Street
Boston, MA 02110
Ronald C. Agel
Address:
c/o Agel Associates
279 Marlborough Street
Boston, MA 02116
Deltec Asset Management Corp.
Address:
535 Madison Avenue
26th Floor
New York, NY 10022
1935 Smyth Trust - Gamble Share
Address:
c/o Lennart Lindberg
81 Technology Drive
E. Falmouth, MA 02535
31
<PAGE>
1935 Smyth Trust - Carper Share
Address:
c/o Lennart Lindberg
81 Technology Drive
E. Falmouth, MA 02535
Randolph and Veronica Hearst
Address:
43 66th Street
6th Floor
New York, NY 10021
Gabriel Schmergel
Address:
15 Lowell Road
Wellesley, MA 02180
Gustav A. Christensen
Address:
3 Idylwilde Road
Lexington, MA 02173
Commonwealth BioVentures Inc.
Profit Sharing Plan UAD 7-7-92
FBO Gustav A. Christensen
Address:
4 Milk Street
Portland, ME 04101
Michael E. Porter
Address:
C. Roland Chritensen Professor
of Business Administration
Harvard Business School
Soldiers Field Road
Boston, MA 02163
32
<PAGE>
BioTrust General Partnership
Address:
c/o Abraham W. and Linda F. Haddad
25 Westwood Drive
Worcester, MA 01609
ELTAG
Address:
FL-9490
Vaduz
Liechtenstein
Mailing Address:
c/o Gustav A. Christensen
Alha-Beta Technologies, Inc.
One Innovation Drive
Worcester, MA 01605
Robert Kamen
Address:
50 Woodmere Drive
Sudbury, MA 01776
Joseph R. Carter
Address:
770 Salisbury Street, Apt. 304
Worcester, MA 01609
Steven D. King
Address:
177 Buckminster Road
Brookline, MA 02146
Robert J. Carpenter
Address:
9 Lowell Road
Wellesley Hills, MA 02182
Thomas P. Espy
Address
Paine Weber
1600 Broadway, Suite 2200
Denver, CO 80202
William J. Corkery, Jr.
Address:
16 Berkshire Drive
33
<PAGE>
Winchester, MA 01890
Schuyler E. Grey III
Address:
Paine Weber
1600 Broadway, Suite 2200
Denver, CO 80202
Modl Ventures
Address:
Mirick, O'Connell, DeMallie and Lougee
1700 Mechanics Tower
Worcester, MA 01608
Attn: David Lougee
Robert P. and Dolores M. Lombardi
Address:
263 Salisbury Street
Worcester, MA 01609
Raymond J. and Sonia McGowan
Address:
10001 Avenel Farm Drive
Potomac, MD 20854
PNC Bank, New England, Custodian for Geraldine McGowan IRA
Address:
[PNC Address]
Massachusetts Biotechnology Research
Institute, Inc., A Massachusetts Non-Profit
Corporation
Address:
One Innovation Drive
Worcester, MA 01605
Attn: Marc Goldberg
Joseph M. Siegman
Address:
41 Burning Tree Lane
Deerfield, IL 60015
Danish Development Finance Company
Address:
Gladsaxe VeJ 376
DK-2860 Soborg
DENMARK
34
<PAGE>
Mason Irving, III
Address:
c/o Massachusetts Biotechnology
Research Institute
One Innovation Drive
Worcester, MA 01605
Pamela Girouard
Address:
c/o Massachusetts Biotechnology
Research Institute
One Innovation Drive
Worcester, MA 01605
Susan K. Moulton
Address:
c/o Massachusetts Biotechnology
Research Institute
One Innovation Drive
Worcester, MA 01605
Peter Levine
Address:
9 Aylesbury Road
Worcester, MA 01609
Thomas Ebert
Address:
18 Malden Street
West Boylston, MA 01583
Ashton Hawkins
Address:
151 Central Park West
Apt. 10N
New York, NY 10023
35
<PAGE>
I.A.R. Inc. [Nominees]
c/o Wilson H. Kidde
526 West 26th Street
Suite 601
New York, NY 10001
Robert G. Foster
c/o Commonwealth BioVentures, Inc.
4 Milk Street
Portland, ME 04101
Gloria W. Doubleday
c/o Commonwealth BioVentures, Inc.
4 Milk Street
Portland, ME 04101
Alexander Klibanov
Massachusetts Institute of Technology
Department of Chemistry
77 Massachusetts Avenue
Building 16-209
Cambridge, MA 02139
Anatole A. Klyosov
c/o Alexander Klibanov
Massachusetts Institute of Technology
Department of Chemistry
77 Massachusetts Avenue
Building 16-209
Cambridge, MA 02139
Paul Jensen
3517 Park Boulevard
San Diego, CA 92103
Arnold Demain
Massachusetts Institute of Technology
77 Massachusetts Avenue
Building 68-223
Cambridge, MA 02139
36
<PAGE>
William Fenical
1128 Highland Drive
Del Mar, CA 92014
Harlyn Halvorson
Fay Road
Woods Hole, MA 02543
Holgar Jannasch
67 Church Street
Woods Hole, MA 02543
John Naples
12 Ontario Street
Worcester, MA 01606
Melissa Derby
310 EdgeBrook Drive
Boylston, MA 01505
David Mitchell
153 Ruggles Street
Westborough, MA 01581
Alfred Rudolph, M.D.
One Wingate Lane
Acton, MA 01720
John Nelson
Address:
Wyman-Gordon Company
244 Worcester Street
North Grafton, MA 01536
Technology Development, Inc.
c/o Mr. Kenneth M. Strong, Chairman
Address:
Environmental Capital Corporation
207 Queens Quay West, Suite 510
Toronto, Ontario M5J 1A7
Canada
37
<PAGE>
Mr. Robert Whitehead
RR1, Box 141A
Yarmouth, ME 04096
Mr. Lennart Lindberg
440 Main Street
Worcester, MA 01605
Mr. Paul Glenn, Trustee
Paul F. Glenn Revocable Trust
P.O. Box 50310
Santa Barbara, CA 93150
Mr. Malcolm Morville
c/o Phytera, Inc.
377 Plantation Street
Worcester, MA 01605
SERIES D INVESTORS:
A/S Forsikringsseslkabet Codan Pension
Address:
c/o Ole K. Sorensen
Codanhus
Gammel Kongeverj 60
1790 Kobenhavn V
Denmark
A/S Forsikringsseslkabet Codan Liv
Address:
c/o Ole K. Sorensen
Codanhus
Gammel Kongeverj 60
1790 Kobenhavn V
Denmark
Kirkbi A/S
Address:
c/o Finanschef Bjarne Ammitzball
Aastevej 1
7190 Billund
Denmark
Uni Invest
38
<PAGE>
Address:
c/o Henrik Hjort
Vesterbrogade 4a, 1. sal
1630 Kobenhavn V
Denmark
Becada A/S
Address:
Amaliegade 14
1256 Kobenhavn X
Denmark
Lis Henriques
Address:
Sovej 7A
2840 Holte
Denmark
Nordisk Re
Address:
c/o ERC Frankona A/S
Attn: Jesper Gronvold
Maria Theresienstrasse 35
81675 Munchen
Germany
Peter Johansen Holding
Address:
Niels W. Gadesvej 1
8000 Arhus C
Denmark
Erik Malmsten
Address:
Hildingavagen 33
182 62 Djursholm
Sweden
39
<PAGE>
Scandinavian Merchant Group AB
Address:
c/o Gerania AB
Norrmalmstorg 14
111 45 Stockholm
Sweden
Ingemar Lagerlof
Address:
Radarvagen 17, 5 tr
183 61 Taby
Sweden
Christer Ranje
Address:
Nathorstvagen 19-21
121 47 Johanneshov
Sweden
Thomas Ranje
Address:
Scheelegatan 4
112 23 Stockholm
Sweden
Stephan Karlsson
Address:
Sveavigen 107
113 47 Stockholm
Sweden
Peter Sall
Address:
Mariehillsvagen 3
133 37 Saltsjobaden
Sweden
Per Bjorkman
Address:
Lindhs Advokatbyra
Box 7315
103 90 Stockholm
Sweden
SEB, Luxembourg
Address:
40
<PAGE>
P.O. Box 487
L-2014 Luxembourg
Remsle Invest AB
Address:
c/o Anders Sjoberg
Remslegatan 15
88 150 Solleftea
Sweden
Schwartz Stiftelse
Address:
Gronbergs Adv. byra
Box 7418
103 91 Stockholm
Sweden
Quadrofolium
Address:
Gronbergs Adv. byra
Box 7418
103 91 Stockholm
Sweden
Ove Sundvik
Address:
Birger Jarlsgatan 8
114 34 Stockholm
Sweden
Annika Sundvik
Address:
c/o Adv. firma Ove Sundvik
Birger Jarlsgatan 8
114 34 Stockholm
Sweden
Charlotte Sundvik
Address:
Birger Jarlsgatan 8
114 34 Stockholm
Sweden
Niels Sundvik
Address:
Kungsholmstorg 14
112 21 Stockholm
41
<PAGE>
Sweden
Marianne Sundvik-Abergh
Address:
Finstaholmsgard
746 94 Balsta
Sweden
Claes Fellander
Address:
Emblavagen 33 B
182 63 Djursholm
Sweden
Aso Ingenjorsfortbildning
Address:
Stallvagen 1
131 50 Saltajo-Duvnas
Sweden
Sveriges Tandlakares Hjalpfondsnamnd
Address:
c/o Lotten Bergstrom
Box 5843
102 48 Stockholm
Sweden
Sveriges Tandlakares TT
Address:
c/o Bo Kristoffersson
Box 5843
102 48 Stockholm
Sweden
Sveriges Tandlakares Forbund
Address:
c/o Bo Kristoffersson
Box 5843
102 48 Stockholm
Sweden
Lars Edlund
Address:
Villa Udden
737 30 Fagersta
Sweden
42
<PAGE>
Vilunda Ekonomi
Address:
Centralvagen 2-4
194 82 Upplands Vasby
Sweden
Orebro Svagstromsbyra
Address:
Sodra Allen 25
702 24 Orebro
Sweden
Pal Kallsen
Address:
Tradgardsgatan 17 B:50
753 09 Uppsala
Sweden
Simon Sjo
Address:
Ostra Agatan 37A
753 22 Uppsala
Sweden
Sture Lunden
Address:
Hildur Ottelinsgatan 2 A
752 31 Uppsala
Sweden
Wasa Frost AB
Address:
Polhemsgatan 29
112 30 Stockholm
Sweden
43
<PAGE>
Sade Berger
Address:
Ceremoninastarvagen 18
181 40 Lidingo
Sweden
Mirjam Mosesson
Address:
Tegnergatan 45
111 61 Stockholm
Sweden
Anders Anderson
Address:
Djurgardsvagen 125
115 21 Stockholm
Sweden
Eric Rahmqvist AB
Address:
Box 1
181 73 Lidingo
Sweden
Eric Danielsson Consult AB
Address:
Strandpromensden 3
756 53 Uppsala
Sweden
Svenska Metall
Address:
c/o Ola Thornqvist
Olof Palmes gata 11
105 52 Stockholm
Sweden
Berno Wessman
Address:
Box 37
561 21 Husvarna
Sweden
Lotten Bergstrom
Address:
Skogsliden 6 A
44
<PAGE>
187 41 Taby
Sweden
Adpoprio AB
Address:
Ekebyhovsgatan 3
178 30 Ekero
Sweden
Irene Eriksson
Address:
Ekebyhovsgatan 3
178 30 Ekero
Sweden
Hedensberg Godsforvaltning AB
Address:
Hedensberg
725 95 Vasteras
Sweden
Caroline Hamilton
Address:
Hedensberg
725 95 Vasteras
Sweden
Didrik Hamilton
Address:
Verdandigatan 3
114 24 Stockholm
Sweden
Osten Nilsson
Address:
Strandvagen 3A
182 62 Djursholm
Sweden
45
<PAGE>
Lars Andersson
Address:
Fredrikshovagatan 10
115 22 Stockholm
Sweden
Leif Bergstrom
Address:
Sturevagen 14
182 74 Stocksund
Sweden
Lars Lindgren
Address:
Karlbergsvagen 45
113 37 Stockholm
Sweden
Aktieklubben Fyrklovern
Address:
Gasortsstigen 30
165 72 Hasselby
Sweden
Frans von Sydow
Address:
Attn: Petter von Sydow
Torsvi Gard
745 99 Enkoping
Sweden
Lars Sjoborg
Address:
Box 80
701 41 Orebro
Sweden
Bjorn Taras-Wahlberg
Address:
Herserudsvagen 14
181 34 Lidingo
Sweden
Filip Forsgren
Address:
Ostermalmsgatan 52
46
<PAGE>
114 26 Stockholm
Sweden
Birgitta Forsgren Meyerson
Address:
Skersnasvagen 14
182 63 Djursholm
Sweden
Katarina Stenfelt Forsgren
Address:
Ostermalmsgatan 52
114 26 Stockholm
Sweden
B Omentum Consulting AB
Address:
Klovervagen 6
133 36 Saltsjobaden
Sweden
A/S Korn og Foderstof Kompagniet
Address:
Attn: Albert Beckenkamp
Adm. Direktor
Grondalsvej
8260 Viby
Denmark
Orkla ASA
Address:
Attn: Ola Uhre
Lilleakerveien 2
N-1324 Lysaker
Norway
47
<PAGE>
Harmony Holding (Panama) S.A.
Address:
Attn: David S.Y. Wong
3106 Dah Sing Financial Centre
108 Gloucester Road
Hong Kong
Christian Konigsfeldt
Address:
Kong Georgsvej 25
2950 Vedbaek
Denmark
Herbert Fritzsche
Address:
Linnegatan 77
114 60 Stockholm
Sweden
Carnegie Bank A/S
Address:
Overgaden Neden Vandet 9B
DK-1414 Copenhagen K
Denmark
GJK Holding APS
[Address]
SERIES E INVESTORS:
48
<PAGE>
EXHIBIT 10.6
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
In consideration of my employment by Plant Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), I hereby agree as follows:
1. I will make full and prompt disclosure to the Company of all
inventions, improvements, modifications, discoveries, methods, biological
materials and developments (all of which are collectively termed "developments"
hereinafter), whether patentable or not, made or conceived by me or under my
direction during my employment, whether or not made or conceived during normal
working hours or on the premises of the Company. I do not have any developments
other than those I have already disclosed to you.
2. I agree that all developments covered by Paragraph 1 shall be the sole
property of the Company and its assigns, and the Company and its assigns shall
be the sole owner of all patents and other rights in connection therewith. I
hereby assign to the Company any rights I may have or acquire in all
developments. I further agree as to all developments to assist the Company in
every proper way (but at the Company's expense) to obtain and from time to time
enforce patents on developments in any and all countries, and to that end I will
execute all documents for use in applying for and obtaining such patents thereon
and enforcing same, as the Company may desire, together with any assignments
thereof to the Company or persons designated by it, and I hereby appoint the
Company as my attorney to execute and deliver any such documents or assignments
on my behalf in the event I fail or refuse to execute and deliver any such
documents or assignments requested by the Company. My obligation to assist the
Company in obtaining and enforcing patents for developments in any and all
countries shall continue beyond the termination of my employment, but the
Company shall compensate me at a reasonable rate after such termination for time
actually spent by me at the Company's request on such assistance.
I understand that this Paragraph 2 does not apply to developments (a) for
which no equipment, supplies, facilities or trade secret information of the
Company were used, (b) which were developed entirely on my own time, (c) which
do not relate (i) to the business of the Company or (ii) to the Company's actual
or demonstrably anticipated research or development, and (d) which do not result
from any work performed by me for the Company.
3. I hereby represent that, to the best of my knowledge, I have no present
obligation to assign to any former employer or any other person, corporation or
firm, any developments covered by Paragraph 2. I represent that my performance
of all the terms of this Agreement and as an employee of the Company does not
and will not breach any agreement to keep in confidence proprietary information
acquired by me in confidence or in trust prior to my employment by the Company.
I have not entered into, and I agree I will not enter into, any agreement
(either written or oral) in conflict herewith.
4. I will also assign to the Company any and all copyrights and
reproduction rights to any material prepared by me in connection with my
employment.
<PAGE>
5. I understand as part of the consideration for the offer of employment
extended to me by the Company and of my employment or continued employment by
the Company, that I have not brought and will not bring with me to the Company
or use in the performance of my responsibilities at the Company any materials or
documents of a former employer which are not generally available to the public,
unless I have obtained written authorization from the former employer for their
possession and use. Accordingly, this is to advise the Company that the only
materials or documents of a former employer which are not generally available to
the public that I have brought or will bring to the Company or have used or will
use in my employment are identified on Exhibit A, and, as to each such item, I
---------
represent that I have obtained prior to the effective date of my employment with
the Company written authorization for their possession and use in my employment
with the Company.
6. During the course of my employment by the Company, I may learn of the
Company's confidential information or confidential information entrusted to the
Company by other persons, corporations, or firms. The Company's confidential
information includes matters not generally known outside the Company, such as
developments relating to existing and future products and services marketed or
used by the Company and data relating to the general business operations of the
Company (e.g., concerning sales, costs, profits, organizations, customer lists,
pricing methods, etc.) and any reagents, chemical compounds, cell lines, or
subcellular constituents, organisms or other biological materials. I agree not
to disclose any confidential information of the Company or of such other
persons, corporations, or firms to others or to make use of it, except on the
Company's behalf, whether or not such information is produced by my own efforts.
Also, I may learn of developments, ways of business, etc., which in themselves
are generally known but whose use by the Company is not generally known, and I
agree not to disclose to others such use, whether or not such use is due to my
own efforts.
7. At the time I begin my employment and during the term of my employment
by the Company, I will not become employed by or act on behalf of any other
person, corporation, or firm which is engaged in any business or activity
similar to or competitive with that of the Company, unless such employment has
been approved by the Company in writing and signed by an appropriate personnel
manager of the Company.
8. In the event that my employment is transferred by the Company to a
subsidiary or affiliated company (as the case may be), my employment by such
company will, for the purposes of this Agreement, be considered as continued
employment by the Company, unless I execute an agreement, substantially similar
in substance to this Agreement, and until the effective date of said agreement
in any such company for which I become employed.
9. Upon termination of my employment, unless my employment is transferred
to a subsidiary or affiliated company of the Company, I agree to leave with the
Company all records, drawings, notebooks, and other documents pertaining to the
Company's confidential information, whether prepared by me or others, and also
any equipment, tools or other devices owned by the Company, then in my
possession however such items are obtained, and I agree not to reproduce any
document or data relating thereto.
-2-
<PAGE>
10. My obligations under this Agreement shall survive the termination of
my employment regardless of the manner of such termination, and shall be binding
upon my heirs, executors, and administrators.
11. Prior to entering the employ of the Company I have terminated
employment with all past employers.
12. As a matter of record I have identified on Exhibit B all developments
---------
relevant to the subject matter of my employment by the Company which have been
made or conceived or first reduced to practice by me alone or jointly with
others prior to my engagement by the Company which I desire to remove from the
operation of this Agreement; and I covenant that such list is complete. If
there is no such list on Exhibit B, I represent that I have made no such
---------
developments at the time of signing this Agreement.
13. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforcement of my obligations hereunder by court injunction.
14. If any provisions of this Agreement shall be declared invalid, illegal
or unenforceable, then such provision shall be enforceable to the extent that a
court shall deem it reasonable to enforce such provision. If such provision
shall be unreasonable to enforce to any extent, such provision shall be severed
and all remaining provisions shall continue in full force and effect.
15. This Agreement shall be effective as of the date set forth below next
to my signature.
16. This Agreement shall be governed in all respects by the laws of the
Commonwealth of Massachusetts.
-3-
<PAGE>
IN WITNESS WHEREOF, I have executed this Agreement under seal as of the
date below.
Dated: 3/1/93 By: /s/ Malcolm Morville
------ -------------------------
Dr. Malcolm Morville
ACCEPTED AND AGREED TO:
Plant Pharmaceuticals, Inc.
By: /s/ Malcolm Morville
-----------------------
Title: President & CEO
---------------
-4-
<PAGE>
EXHIBIT A
TO
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
-5-
<PAGE>
EXHIBIT B
TO
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
-6-
<PAGE>
EXHIBIT 10.7
------------
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
In consideration of my employment by Phytera, Inc., a Delaware corporation
(the "Company"), I hereby agree as follows:
1. I will make full and prompt disclosure to the Company of all
inventions, improvements, modifications, discoveries, methods, biological
materials and developments (all of which are collectively termed "developments"
hereinafter), whether patentable or not, made or conceived by me or under my
direction during my employment, whether or not made or conceived during normal
working hours or on the premises of the Company. I do not have any developments
other than those I have already disclosed to you.
2. I agree that all developments covered by Paragraph 1 shall be the sole
property of the Company and its assigns, and the Company and its assigns shall
be the sole owner of all patents and other rights in connection therewith. I
hereby assign to the Company any rights I may have or acquire in all
developments. I further agree as to all developments to assist the Company in
every proper way (but at the Company's expense) to obtain and from time to time
enforce patents on developments in any and all countries, and to that end I will
execute all documents for use in applying for and obtaining such patents thereon
and enforcing same, as the Company may desire, together with any assignments
thereof to the Company or persons designated by it, and I hereby appoint the
Company as my attorney to execute and deliver any such documents or assignments
on my behalf in the event I fail or refuse to execute and deliver any such
documents or assignments requested by the Company. My obligation to assist the
Company in obtaining and enforcing patents for developments in any and all
countries shall continue beyond the termination of my employment, but the
Company shall compensate me at a reasonable rate after such termination for time
actually spent by me at the Company's request on such assistance.
I understand that this Paragraph 2 does not apply to developments (a) for
which no equipment, supplies, facilities or trade secret information of the
Company were used, (b) which were developed entirely on my own time, (c) which
do not relate (i) to the business of the Company or (ii) to the Company's actual
or demonstrably anticipated research or development, and (d) which do not result
from any work performed by me for the Company.
3. I hereby represent that, to the best of my knowledge, I have no present
obligation to assign to any former employer or any other person, corporation or
firm, any developments covered by Paragraph 2. I represent that my performance
of all the terms of this Agreement and as an employee of the Company does not
and will not breach any agreement to keep in confidence proprietary information
acquired by me in confidence or in trust prior to my employment by the Company.
I have not entered into, and I agree I will not enter into, any agreement
(either written or oral) in conflict herewith.
4. I will also assign to the Company any and all copyrights and
reproduction rights to any material prepared by me in connection with my
employment.
<PAGE>
5. I understand as part of the consideration for the offer of employment
extended to me by the Company and of my employment or continued employment by
the Company, that I have not brought and will not bring with me to the Company
or use in the performance of my responsibilities at the Company any materials or
documents of a former employer which are not generally available to the public,
unless I have obtained written authorization from the former employer for their
possession and use. Accordingly, this is to advise the Company that the only
materials or documents of a former employer which are not generally available to
the public that I have brought or will bring to the Company or have used or will
use in my employment are identified on Exhibit A, and, as to each such item, I
---------
represent that I have obtained prior to the effective date of my employment with
the Company written authorization for their possession and use in my employment
with the Company.
6. During the course of my employment by the Company, I may learn of the
Company's confidential information or confidential information entrusted to the
Company by other persons, corporations, or firms. The Company's confidential
information includes matters not generally known outside the Company, such as
developments relating to existing and future products and services marketed or
used by the Company and data relating to the general business operations of the
Company (e.g., concerning sales, costs, profits, organizations, customer Lists,
pricing methods, etc.) and any reagents, chemical compounds, cell lines, or
subcellular constituents, organisms or other biological materials. I agree not
to disclose any confidential information of the Company or of such other
persons, corporations, or firms to others or to make use of it, except on the
Company's behalf, whether or not such information is produced by my own efforts.
Also, I may learn of developments, ways of business, etc., which in themselves
are generally known but whose use by the Company is not generally known, and I
agree not to disclose to others such use, whether or not such use is due to my
own efforts.
7. At the time I begin my employment and during the term of my employment
by the Company, I will not become employed by or act on behalf of any other
person, corporation, or firm which is engaged in any business or activity
similar to or competitive with that of the Company, unless such employment has
been approved by the Company in writing and signed by an appropriate personnel
manager of the Company.
8. In the event that my employment is transferred by the Company to a
subsidiary or affiliated company (as the case may be), my employment by such
company will, for the purposes of this Agreement, be considered as continued
employment by the Company, unless I execute an agreement, substantially similar
in substance to this Agreement, and until the effective date of said agreement
in any such company for which I become employed.
9. Upon termination of my employment, unless my employment is transferred
to a subsidiary or affiliated company of the Company, I agree to leave with the
Company all records, drawings, notebooks, and other documents pertaining to the
Company's confidential information, whether prepared by me or others, and also
any equipment, tools or other devices owned by the Company, then in my
possession however such items are obtained, and I agree not to reproduce any
document or data relating thereto.
-2-
<PAGE>
10. My obligations under this Agreement shall survive the termination of
my employment regardless of the manner of such termination, and shall be binding
upon my heirs, executors, and administrators.
11. Prior to entering the employ of the Company I have terminated
employment with all past employers.
12. As a matter of record I have identified on Exhibit B all developments
---------
relevant to the subject matter of my employment by the Company which have been
made or conceived or first reduced to practice by me alone or jointly with
others prior to my engagement by the Company which I desire to remove from the
operation of this Agreement; and I covenant that such list is complete. If
there is no such list on Exhibit B, I represent that I have made no such
---------
developments at the time of signing this Agreement.
13. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforcement of my obligations hereunder by court injunction.
14. If any provisions of this Agreement shall be declared invalid, illegal
or unenforceable, then such provision shall be enforceable to the extent that a
court shall deem it reasonable to enforce such provision. If such provision
shall be unreasonable to enforce to any extent, such provision shall be severed
and all remaining provisions shall continue in full force and effect.
15. This Agreement shall be effective as of the date set forth below next
to my signature.
16. This Agreement shall be governed in all respects by the laws of the
Commonwealth of Massachusetts.
-3-
<PAGE>
IN WITNESS WHEREOF, I have executed this Agreement under seal as of the
date below.
Dated: 11/7/97 By: /s/ Stephen J. DiPalma
---------------------------- -----------------------
ACCEPTED AND AGREED TO:
Phytera, Inc.
By: /s/ Malcolm Morville
-----------------------
Title: President
--------------------
-4-
<PAGE>
EXHIBIT A
TO
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
-5-
<PAGE>
EXHIBIT B
TO
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
-6-
<PAGE>
EXHIBIT 10.8
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
In consideration of my employment by Phytera, Inc., a Delaware corporation
(the "Company"), I hereby agree as follows:
1. I will make full and prompt disclosure to the Company of all
inventions, improvements, modifications, discoveries, methods, Biological
Materials (as defined below) and developments (all of which are collectively
termed "developments" hereinafter), whether patentable or not, made or conceived
by me or under my direction during my employment, whether or not made or
conceived during normal working hours or on the premises of the Company. I do
not have any developments other than those I have already disclosed to you on
Exhibit B pursuant to Section 12. As used herein, "Biological Materials" shall
- ---------
include, without limitation, any and all reagents, substances, chemical
compounds, subcellular constituents, cells or cell lines, organisms and progeny,
mutants, derivatives or replications thereof or therefrom.
2. I agree that all developments covered by Paragraph 1 shall be the sole
property of the Company and its assigns, and the Company and its assigns shall
be the sole owner of all patents and other rights in connection therewith. I
hereby assign to the Company any rights I may have or acquire in all
developments. I further agree as to all developments to assist the Company in
every proper way (but at the Company's expense) to obtain and from time to time
enforce proprietary protection (including copyrights, reproduction rights and
patents) on developments in any and all countries, and to that end I will
execute all documents for use in applying for and obtaining such proprietary
protection thereon and enforcing same, as the Company may desire, together with
any assignments thereof to the Company or persons designated by it, and I hereby
appoint the Company as my attorney to execute and deliver any such documents or
assignments on my behalf in the event I fail or refuse to execute and deliver
any such documents or assignments requested by the Company. My obligation to
assist the Company in obtaining and enforcing patents for developments in any
and all countries shall continue beyond termination of my employment, but the
Company shall compensate me at a reasonable rate after such termination for time
actually spent by me at the Company's request on such assistance.
I understand that this Paragraph 2 does not apply to developments (a) for
which no equipment, supplies, facilities or trade secret information of the
Company were used, (b) which were developed entirely on my own time, (c) which
do not relate (i) to the business of the Company or (ii) to the Company's actual
or demonstrably anticipated research or development, and (d) which do not result
from any work performed by me for the Company.
3. I hereby represent that, to the best of my knowledge, I have no present
obligation to assign to any former employer or any other person, corporation or
firm, any developments covered by Paragraph 2. I represent that my performance
of all the terms of this Agreement and as an employee of the Company does not
and will not breach any agreement to keep in confidence proprietary information
acquired by me in confidence or in trust prior to my
<PAGE>
employment by the Company. I have not entered into, and I agree I will not enter
into, any agreement (either written or oral in conflict herewith.
4. I understand as part of the consideration for the offer of employment
extended to me by the Company and of my employment or continued employment by
the Company, that I have not brought and will not bring with me to the Company
or use in the performance of my responsibilities at the Company any materials or
documents of a former employer which are not generally available to the public,
unless I have obtained written authorization from the former employer for their
possession and use. Accordingly, this is to advise the Company that the only
materials or documents of a former employer which are not generally available to
the public that I have brought or will bring to the Company or have used or will
use in my employment are identified on Exhibit A , and, as to each such item, I
----------
represent that I have obtained prior to the effective date of my employment with
the Company written authorization for their possession and use in my employment
with the Company.
5. During the course of my employment by the Company, I may learn of the
Company's confidential information or confidential information entrusted to the
Company by other persons, corporations, or firms. The Company's confidential
information includes matters not generally known outside the Company, such as
developments relating to existing and future products and services marketed or
used by the Company and data relating to the general business operations of the
Company (e.g., concerning sales, costs, profits, organizations, customer lists,
pricing methods, etc.) and Biological Materials. Confidential Information is
contained in various media, including without limitation, patent applications,
computer programs in object and/or source code, flow charts and other program
documentation, manuals, plans, drawings, designs, technical specifications,
laboratory notebooks, supplier and customer lists, internal financial data and
other documents and records of the Company, whether or not in writing and
whether or not labeled or identified as confidential or proprietary. I agree
not to disclose any confidential information of the Company or of such other
persons, corporations, or firms to others or to make use of it, except on the
Company's behalf, whether or not such information is produced by my own efforts.
Also, I may learn of developments, ways of business, etc., which in themselves
are generally known but whose use by the Company is not generally known, and I
agree not to disclose to others such use, whether or not such use is due to my
own efforts.
6. At the time I begin employment and during the term of my employment by
the Company, I will not become employed by or act on behalf of any other person,
corporation, or firm which is engaged in any business or activity similar to or
competitive with that of the Company, unless such employment has been approved
by the Company in writing and signed by an appropriate personnel manager of the
Company.
7. In the event that my employment is transferred by the Company to a
subsidiary or affiliated company (as the case may be), my employment by such
company will, for the purposes of this Agreement, be considered as continued
employment by the Company, unless I execute an agreement, substantially similar
in substance to this Agreement, and until the effective date of said agreement
in any such company for which I become employed.
2
<PAGE>
8. Upon termination of my employment, unless my employment is transferred
to a subsidiary or affiliated company of the Company, I agree to leave with the
Company all records, drawings, notebooks, and other documents pertaining to the
Company's confidential information, whether prepared by me or others, and also
any Biological Materials, equipment, tools or other devices owned by the
Company, then in my possession however such items are obtained, and I agree not
to reproduce any document or data relating thereto.
9. I agree that during my employment and for a period of one year after
the termination or cessation of my employment for any reason, I shall not
directly or indirectly recruit, solicit or hire any employee of the Company, or
induce or attempt to induce any employee of the Company to discontinue his or
her employment relationship with the Company.
10. I understand that this Agreement does not constitute a contract of
employment or create an obligation on the part of the Company to continue my
employment with the Company. I understand that my employment is "at will" and
that my obligations under this Agreement shall not be affected by any change in
my position, title or function with, or compensation, by the Company.
11. My obligations under this Agreement shall survive the termination of
my employment regardless of the manner of such termination, and shall be binding
upon my heirs, executors, and administrators.
12. Prior to entering into the employ of the Company I have terminated
employment with all past employers.
13. As a matter of record I have identified on Exhibit B all developments
---------
relevant to the subject matter of my employment by the Company which have been
made or conceived or first reduced to practice by me alone or jointly with
others prior to my engagement by the Company which I desire to remove from the
operation of this Agreement; and I covenant that such list is complete. If
there is no such list on Exhibit B, I represent that I have made no such
---------
developments at the time of signing this Agreement.
14. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforcement of my obligations hereunder by court injunction.
15. If any provisions of this Agreement shall be declared invalid, illegal
or unenforceable, then such provision shall be enforceable to the extent that a
court shall deem it reasonable to enforce such provision. If such provision
shall be unreasonable to enforce to any extent, such provision shall be severed
and all remaining provisions shall continue in full force and effect.
16. This Agreement shall be effective as of the date set forth below next
to my signature.
3
<PAGE>
17. This Agreement shall be governed in all respects by the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, I have executed this Agreement under seal as of the
date below.
Dated: May 24, 1994 By: /s/ Christopher J. Pazoles
------------ --------------------------
Print Name: Christopher J. Pazoles
----------------------
ACCEPTED AND AGREED TO:
Phytera, Inc.
By: /s/ Malcolm Morville
--------------------
Title: President
---------
4
<PAGE>
EXHIBIT A
TO
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
5
<PAGE>
EXHIBIT B
TO
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
--------------------------------------------------
6
<PAGE>
EXHIBIT 10.9
AGREEMENT NOT TO COMPETE
I recognize that Phytera, Inc. a Delaware corporation (the "Company", which
term shall include its subsidiaries and affiliated entities) desires to retain
me in its employ and that the Company wishes to ensure that I do not compete
with the Company, as specified below, in the event my employment with the
Company is terminated.
In consideration of the Company's employment or continued employment of me,
I agree as follows:
1. I will not, for a period of one (1) year commencing with the
termination of my employment with the Company, engage (directly or indirectly)
in any activities or render any services similar or reasonably related to those
in which I have engaged or those which I have rendered as an employee of the
Company during any part of the two-year period preceding my termination for any
trade or business which directly competes with the Company in the discovery,
development or marketing of plant-derived pharmaceuticals or other plant-derived
product areas, in which the Company is engaged at the time of my departure, nor
shall I engage in such activities nor render such services for any other person
or entity engaged or about to become engaged in such activities to, for on
behalf of any such trade or business.
2. I agree that for a period of one (1) year following termination of my
employment with the Company, I will not solicit or in any manner encourage
employees of the Company to leave their employ. I further agree that during such
period I will not offer or cause to be offered employment to any person who was
employed by the Company at any time during the six (6) months prior to the
termination of my employment with the Company.
3. I understand that nothing in this Agreement shall affect my obligations
under the "Confidential and Proprietary Information Agreement" between the
Company and myself of even date herewith.
4. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforcement of my obligations hereunder by court injunction.
5. If any provision of this Agreement shall be declared invalid, illegal
or unenforceable, then such provision shall be enforceable to the extent that a
court shall deem it reasonable to enforce such provision. If such provision
shall be unreasonable to enforce to any extent, such provision shall be severed
from this Agreement and all remaining provisions shall continue in full force
and effect.
This Agreement shall be governed in all respects by the laws of the Commonwealth
of Massachusetts.
<PAGE>
IN WITNESS WHEREOF I have executed this Agreement under seal as of the date
below.
Dated 10/28/93 By: /s/ Malcolm Morville
-------- --------------------
Malcolm Morville
ACCEPTED AND AGREED TO:
PHYTERA, INC.
By: /s/ Malcolm Morville
----------------------
Title: President
---------
2
<PAGE>
EXHIBIT 10.10
AGREEMENT NOT TO COMPETE
I recognize that Phytera, Inc., a Delaware corporation (the "Company",
which term shall include its subsidiaries and affiliated entities) desires to
retain me in its employ and that the Company wishes to ensure that I do not
compete with the Company, as specified below, in the event my employment with
the Company is terminated.
In consideration of the Company's employment or continued employment of me,
I agree as follows:
1. I will not, for a period of one (1) years commencing with the
termination of my employment with the Company, engage (directly or indirectly)
in any activities or render any services similar or reasonably related to those
in which I shall have engaged or those which I shall have rendered as an
employee of the Company during any part of the two-year period preceding my
termination for any trade or business which directly competes with the Company
in the discovery, development or marketing of natural product-derived
pharmaceuticals or other natural product-derived product areas, in which the
Company is engaged at the time of my departure, not shall I engage in such
activities nor render such services for any other person or entity engaged or
about to become engaged in such activities to, for on behalf of any such trade
or business.
2. I agree that for a period of one (1) year following the termination of
my employment with the Company, I will not solicit or in any manner encourage
employees of the Company to leave their employ. I further agree that during such
period I will not offer or cause to be offered employment to any person who was
employed by the Company at any time during the six (6) months prior to the
termination of my employment with the Company.
3. I understand that nothing in this Agreement shall affect my
obligations under the "Confidential and Proprietary Information Agreement"
between the Company and myself of even date herewith.
4. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforcement of my obligations hereunder by court injunction.
5. If any provision of this Agreement shall be declared invalid, illegal
or unenforceable, then such provision shall be enforceable to the extent that a
court shall deem it reasonable to enforce such provision. If such provision
shall be unreasonable to enforce to any extent, such provision shall be severed
from this Agreement and all remaining provisions shall continue in full force
and effect.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
<PAGE>
IN WITNESS WHEREOF I have executed this Agreement under seal as of the date
below.
Dates: 11/7/97 By: /s/ Stephen J. DiPalma
----------------- ----------------------
Employee
ACCEPTED AND AGREED TO:
PHYTERA, INC.
By: /s/ Malcolm Morville
---------------------
Title: President
---------
-2-
<PAGE>
EXHIBIT 10.11
AGREEMENT NOT TO COMPETE
I recognize that Phytera, Inc., a Delaware corporation (the "Company"),
which term shall include its subsidiaries and affiliated entities) desires to
retain me in its employ and that the Company wishes to ensure that I do not
compete with the Company, as specified below, in the event my employment with
the Company is terminated.
In consideration of the Company's employment or continued employment of me,
I agree as follows:
1. I will not, for a period of two (2) years commencing with the
termination of my employment with the Company, engage (directly or indirectly)
in any activities or render any services similar or reasonably related to those
in which I shall have engaged or those which I shall have rendered as an
employee of the Company during any part of the two-year period preceding my
termination for any trade or business which directly competes with the Company
in any place where the Company does or may do business in any line of business
engaged in (or planned to be engaged in) by the Company, whether now existing or
hereafter established, nor shall I engage in such activities nor render such
services for any other person or entity engaged or about to become engaged in
such activities to, for or on behalf of any such trade or business.
2. I agree that for a period of one (1) year following the termination of
my employment with the Company, I will not solicit or in any manner encourage
employees of the Company to leave their employ. I further agree that during such
period I will not offer or cause to be offered employment to any person who was
employed by the Company at any time during the six (6) months prior to the
termination of my employment with the Company.
3. I understand that nothing in this Agreement shall affect my obligations
under the "Confidential and Proprietary Information Agreement" between the
Company and myself of even date herewith.
4. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforcement of my obligations hereunder by court injunction.
5. If any provision of this Agreement shall be declared invalid, illegal
or unenforceable to the extent that a court shall deem it reasonable to enforce
such provision. If such provision shall be unreasonable to enforce to extent,
such provision shall be severed from this Agreement and all remaining provisions
shall continue in full force and effect.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
<PAGE>
IN WITNESS WHEREOF I have executed this Agreement under seal as of the date
below.
Dates: May 24, 1994 By: /s/ Christopher J. Pazoles
-------------- --------------------------
Employee
ACCEPTED AND AGREED TO:
PHYTERA, INC.
By: /s/ Malcolm Morville
---------------------
Title: President
---------
2
<PAGE>
EXHIBIT 10.12
MASSACHUSETTS BIOTECHNOLOGY RESEARCH PARK
Worcester, Massachusetts
FOUR BIOTECH PARK
SPACE LEASE
WORCESTER BUSINESS DEVELOPMENT CORPORATION
to
PHYTERA, INC.
1993
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE 1 REFERENCE DATA AND DEFINITIONS.................................. 1
Section 1.01 Terms and Titles Referred To............................ 1
Section 1.02 General Provisions...................................... 3
Section 1.03 Definitions............................................. 3
ARTICLE 2 PREMISES........................................................ 9
Section 2.01 Premises................................................ 9
Section 2.02 Appurtenances........................................... 9
Section 2.03 Landlord's Fixtures..................................... 9
ARTICLE 3 TERM............................................................ 10
Section 3.01 Term Commencement....................................... 10
Section 3.02 Termination............................................. 10
Section 3.03 Estoppel Certificate.................................... 10
ARTICLE 4 RENT............................................................ 10
Section 4.01 Basic Rent.............................................. 10
Section 4.02 Adjustment of Basic Rent................................ 10
ARTICLE 5 USE OF PREMISES................................................. 10
Section 5.01 Use Restricted.......................................... 10
ARTICLE 6 OPERATING EXPENSES; TAXES....................................... 10
Section 6.01 Operating Expenses and Taxes............................ 10
Section 6.02 Monthly Payments of Additional Rent..................... 11
Section 6.03 Annual Statements....................................... 11
Section 6.04 Assessments and Other Taxes............................. 11
Section 6.05 Accounting Periods...................................... 12
Section 6.06 Abatement of Taxes...................................... 12
Section 6.07 Exemption From Taxes.................................... 12
ARTICLE 7 IMPROVEMENTS.................................................... 12
Section 7.01 Tenant Fit-up........................................... 12
Section 7.02 Time for Completion..................................... 13
Section 7.03 Notice of Substantial Completion Date................... 13
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Section 7.04 Delays.................................................. 13
Section 7.05 Tenant's Access to the Premises......................... 13
Section 7.06 Improvements by Tenant.................................. 14
ARTICLE 8 BUILDING SERVICES............................................... 15
Section 8.01 Basic Services.......................................... 15
Section 8.02 Other Janitors.......................................... 15
Section 8.03 Additional Services..................................... 15
Section 8.04 Limitations on Landlord's Liability..................... 15
Section 8.05 Electric Service........................................ 15
ARTICLE 9 TENANT'S COVENANTS.............................................. 16
Section 9.01 Pay Rent................................................ 16
Section 9.02 Occupancy of the Premises............................... 16
Section 9.03 Rules and Regulations................................... 16
Section 9.04 Safety.................................................. 16
Section 9.05 Equipment............................................... 16
Section 9.06 Pay Taxes............................................... 17
Section 9.07 Maintenance............................................. 17
Section 9.08 Redelivery.............................................. 17
Section 9.09 Tenant Financial Information............................ 17
ARTICLE 10 COMPLIANCE WITH REQUIREMENTS.................................... 17
Section 10.01 Legal Requirements...................................... 17
Section 10.02 Contests................................................ 18
Section 10.03 Land Disposition Agreement.............................. 18
Section 10.04 Environmental Legal Requirements........................ 18
ARTICLE 11 COVENANT AGAINST LIENS.......................................... 18
Section 11.01 No Liens................................................ 18
Section 11.02 Discharge............................................... 18
ARTICLE 12 ACCESS TO PREMISES.............................................. 19
Section 12.01 Access.................................................. 19
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ARTICLE 13 ASSIGNMENT AND SUBLETTING: OCCUPANCY ARRANGEMENTS............ 19
Section 13.01 Assignment and Subletting............................... 19
Section 13.02 Procedure............................................... 19
ARTICLE 14 INDEMNITY..................................................... 20
Section 14.01 Tenant's Indemnity...................................... 20
Section 14.02 Claims by Landlord...................................... 21
Section 14.03 Landlord's Liability.................................... 21
ARTICLE 15 INSURANCE..................................................... 21
Section 15.01 Tenant's Insurance...................................... 21
Section 15.02 General Insurance Requirements.......................... 22
Section 15.03 Landlord's Insurance.................................... 23
ARTICLE 16 WAIVER OF SUBROGATION......................................... 23
Section 16.01 Waiver of Subrogation................................... 23
Section 16.02 Waiver of Rights........................................ 23
ARTICLE 17 DAMAGE AND RESTORATION........................................ 23
Section 17.01 Substantial Damage...................................... 23
Section 17.02 Restoration............................................. 24
ARTICLE 18 EMINENT DOMAIN................................................ 24
Section 18.01 Total Taking............................................ 24
Section 18.02 Partial Taking.......................................... 24
Section 18.03 Awards and Proceeds..................................... 24
ARTICLE 19 QUIET ENJOYMENT............................................... 25
Section 19.01 Landlord's Covenant..................................... 25
Section 19.02 Subordination and Non-Disturbance....................... 25
Section 19.03 Notice to Mortgagee and Ground Lessor................... 25
Section 19.04 Other Provisions Regarding Mortgagees................... 26
ARTICLE 20 DEFAULTS; EVENTS OF DEFAULT................................... 26
Section 20.01 Defaults................................................ 26
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Section 20.02 Tenant's Best Efforts................................... 27
Section 20.03 Elimination of Default.................................. 27
ARTICLE 21 LANDLORD'S REMEDIES; DAMAGES ON DEFAULT....................... 27
Section 21.01 Landlord's Remedies..................................... 27
Section 21.02 Possession.............................................. 27
Section 21.03 Right to Relet.......................................... 28
Section 21.04 Survival of Covenants, Etc.............................. 28
Section 21.05 Right to Equitable Relief............................... 28
Section 21.06 Right to Self Help; Interest On Overdue Rent............ 29
ARTICLE 22 NOTICES....................................................... 29
Section 22.01 Notices and Communications.............................. 29
ARTICLE 23 WAIVERS....................................................... 29
Section 23.01 No Waivers.............................................. 29
ARTICLE 24 SECURITY DEPOSIT.............................................. 30
Section 24.01 Security Deposit........................................ 30
ARTICLE 25 GENERAL PROVISIONS............................................ 30
Section 25.01 Unavoidable Delays...................................... 30
Section 25.02 Estoppel Certificates................................... 30
Section 25.03 Right to Relocate....................................... 30
Section 25.04 Holding Over............................................ 31
Section 25.05 Governing Law........................................... 31
Section 25.06 Partial Invalidity...................................... 31
Section 25.07 Notice of Lease......................................... 31
Section 25.08 Interpretation.......................................... 31
Section 25.09 Consents................................................ 31
Section 25.10 Entire Agreement; Changes............................... 31
Section 25.11 Binding Effect.......................................... 32
Section 25.12 Time of the Essence..................................... 32
Section 25.13 Table of Contents....................................... 32
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EXHIBIT A: LANDLORD'S SERVICES
EXHIBIT B: LEASE PLAN
EXHIBIT C: WORK LETTER
EXHIBIT D: ESTOPPEL CERTIFICATE
EXHIBIT E: RENT RIDER
EXHIBIT: RIDER AND ADDENDUM
</TABLE>
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<PAGE>
MASSACHUSETTS BIOTECHNOLOGY RESEARCH PARK
FOUR BIOTECH PARK
SPACE LEASE
THIS LEASE is made in Worcester, Massachusetts effective on the Date of
Lease stated in Article 1 between the Landlord and the Tenant named in Article
1.
In consideration of the Rent payable by Tenant and of the agreements to be
performed and observed by Tenant, Landlord hereby leases the Premises to Tenant,
and Tenant hereby takes the Premises from Landlord, subject to the provisions
and for the term stated below:
ARTICLE 1
Reference Data and Definitions
------------------------------
Section 1.01 Terms and Titles Referred To. Each reference in this lease to
----------------------------
any of the following terms and titles incorporates the data stated for that term
or title in this Section 1.01:
DATE OF LEASE: November 1, 1993
LANDLORD: WORCESTER BUSINESS DEVELOPMENT CORPORATION, a Massachusetts
corporation established pursuant to the provisions of Chapter 600 of the Acts of
1965, its successors and assigns.
LANDLORD'S ADDRESS: One Innovation Drive
Worcester, Massachusetts 01605
TENANT: PHYTERA, INC., a corporation organized under the laws of Delaware.
TENANT'S ADDRESS: After the Term Commencement Date, Tenant's address will be
the Premises; before the Term Commencement Date, Tenant's address will be:
One Innovation Drive
Worcester, MA 01605
TERM COMMENCEMENT DATE: Premises A - March 1, 1994 or as defined in Section
1.03, if different. Premises B - June 1, 1994 or as defined in Section 1.03, if
different.
STATED EXPIRATION DATE: February 29, 2004 or as defined in Section 1.03, if
different.
LAND: Land owned by Waldo Corporation as Trustee of Four Biotech Realty Trust
under Declaration of Trust dated April 15, 1993, recorded with Worcester
District
<PAGE>
Registry of Deeds (the "Registry") in Book 15199, Page 67, being Parcel
10A on the plan entitled "Plan of Property Owned by Worcester Business
Development Corporation of Parcels 10A, 10B, 10C, Plantation Street, Worcester,
Massachusetts", dated December 16, 1992 and recorded with the Registry in Plan
Book 670, Plan 70, containing a total area of 4.2929 acres, more or less,
described in a deed from Worcester Business Development Corporation to Waldo
Corporation as Trustee Four Biotech Realty Trust dated May 3, 1993 and recorded
with the Registry in Book 15199, Page 72.
PREMISES: Premises A - That portion of the second floor of the
Building shown as outlined or hatched on the Lease Plan attached as Exhibit B-1.
Premises B - That portion of the first floor of the Building shown as
outlined or hatched on the Lease Plan attached as Exhibit B-2.
RENTABLE AREA OF THE PREMISES: Premises A - 11,800 square feet
Premises B - 14,000 square feet
------
TOTAL 25,800 square feet
RENTABLE AREA OF THE BUILDING: 93,000 square feet
TENANT'S SHARE:* Premises A - 12.7%
Premises B - 15.1%
-----
TOTAL 27.8%
DESIGN START DATE: June 1, 1993 (See Exhibit C - Work Letter)
LEASE TERM: Ten (10) Lease Years plus the partial month, if any, between the
Term Commencement Date and the first day of the next calendar month.
BASIC RENT:* For each Lease Year of the first Fixed Rental Period, an amount
equal to the product of (a) the Rentable Area of the Premises multiplied by (b)
the sum of (i) $9.00 plus (ii) an amount determined by multiplying that portion
of Tenant's Cost paid by Landlord by 17% and dividing the product by the number
of square feet of Rentable Area of the Premises.
FIXED RENTAL PERIOD: Each successive period of three (3) Lease Years beginning
on the Term Commencement Date.
ESTIMATED OPERATING EXPENSES: $4.50 per square foot of Rentable Area for the
calendar year in which the Lease Term begins.
ESTIMATED TAXES: $1.00 per square foot of Rentable Area for the calendar year
in which the Lease Term begins.
__________________________________
* See Rider and Addendum - #1
2
<PAGE>
INITIAL MONTHLY PAYMENT: $11,825.00
SECURITY DEPOSIT: Not Applicable
GUARANTOR: Alpha-Beta Technology, Inc. as to Premises B, only
PERMITTED USE: Research and development; general office and limited light
manufacturing to the extent authorized under the City of Worcester Zoning
Ordinance.
Section 1.02 General Provisions. For all purposes of this Lease, unless the
------------------
context otherwise requires:
(a) A pronoun in one gender includes and applies to the other genders
as well.
(b) Each definition stated in Section 1.01 or 1.03 of this Lease
applies equally to the singular and the plural forms of the word or term
defined.
(c) Any reference to a document defined in Section 1.03 of this Lease
is to the document as originally executed, or, if amended or supplemented
as provided in this Lease, to the document as amended or supplemented and
in effect at the relevant time of reference.
(d) All accounting terms not otherwise defined in this Lease have the
meanings assigned to them under generally accepted accounting principles.
(e) All references in Section 1.01 are subject to the specific
definitions (if any) in Section 1.03.
Section 1.03 Definitions. Each underlined word or term in this Section 1.03
-----------
has the meaning stated immediately after it.
Additional Rent. All Taxes, Operating Expenses, costs, expenses and other
---------------
charges (other than Basic Rent) due from Tenant to Landlord or incurred by
Landlord as the result of a Default.
Additional Services. Services provided to Tenant or in respect of the
-------------------
Premises which are not Basic Services described in Exhibit A.
Authorizations. All franchises, licenses, permits and other governmental
--------------
consents issued by Governmental Authorities under Legal Requirements which are
or may be required for the occupancy of the Premises and the conduct of a
Permitted Use on the Premises.
Basic Services. The Landlord's services described in Exhibit A.
--------------
Building. The building on or to be constructed or under construction
--------
on the Land.
3
<PAGE>
Business Day. A day which is not a Saturday, Sunday or other day on
------------
which banks in Worcester, Massachusetts, are authorized or required by law or
executive order to remain closed.
Common Areas. All areas of the Building devoted to the common use of
------------
the occupants of the Building or all occupants of multi-tenant floors or the
provision of Basic or Additional Services to occupants of the Building,
including but not limited to air shafts pipes, wires, ducts, conduits, elevator
shafts and elevators, stairwells and stairs, restrooms, mechanical rooms,
janitor closets, vending areas, loading docks and loading facilities.
Default. Any event or condition specified in Article 20 so long as
-------
any applicable requirements for the giving of notice or lapse of time or both
have not been fulfilled.
Event of Default. Any event or condition specified in Article 20 if
----------------
all applicable requirements for the giving of notice or lapse of time or both
have been fulfilled.
Governmental Authority. United States of America, Commonwealth of
----------------------
Massachusetts, City of Worcester, County of Worcester, and any political
subdivision, agency, department, commission, board, bureau or instrumentality of
any of them.
Ground Lease. The lease of the Land (a) from WBDC to Landlord, or if
------------
that lease has not been executed as of the date of this Lease, (b) to be entered
into between WBDC and its assignee of Landlord's interest under this Lease.
Ground Lessor. WBDC or any successor under or assignee of the Ground Lease.
-------------
Hazardous Substances. "Oil", "hazardous materials", "hazardous
--------------------
wastes" and "hazardous substances" as those terms are defined under the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq., as amended, the Resource Conservation and Recovery Act of
------
1976, 42 U.S.C. Section 6901, et seq., as amended, Massachusetts General Laws,
------
Chapters 21C and 21E, as amended, and the regulations from time to time adopted
under those laws.
Improvements. All (i) structures located in and forming a part of the
------------
Premises, including but not limited to, walls, ceilings, doors and floor
covering, (ii) pipes, wires, conduits, controls and fixtures relating to
utilities located in and serving the Premises, (iii) casework, including but not
limited to, benches, tables, cabinets and storage facilities, connected to a
utility or affixed to the Premises or the Building and (iv) fixtures, equipment
and personal property of any kind installed on the Premises in such a manner
that they become part of the Premises or the Building under law or that they
cannot be removed without material damage to the structure, fixtures, equipment
or personal property or to the Premises or the Building.
Insurance Requirements. All terms of any policy of insurance maintained by
----------------------
Landlord or Tenant and applicable to the Land, the Building or the Premises; all
requirements of the issuer of any such policy; and all orders, rules,
regulations and other requirements of the National Fire Protection Association
(or any other body exercising
4
<PAGE>
similar functions) applicable to any condition, operation, use or occupancy of
all or any part of the Premises.
Land Disposition Agreement. The agreement dated June 13, 1984 between
--------------------------
the Commonwealth of Massachusetts, Division of Capital Planning and operations,
and WBDC relating to the acquisition by WBDC of the land in the Park.
Landlord's Fixtures. All fixtures and equipment paid for by Landlord
-------------------
and installed in the Building or the Premises for use by Tenant, whether before
or during the Lease Term and whether or not shown in the Working Drawings,
irrespective of whether or how the fixtures or equipment may be affixed to the
Premises, or the Building.
Landlord's Work. The work to be done by Landlord with respect to the
---------------
Premises described in the Work Letter.
Lease. This document, all exhibits and riders attached and referred to in
-----
this document and all amendments to this document, the exhibits and riders.
Lease Term. The period stated in Section 1.01 beginning on the Term
----------
Commencement Date. The Lease Term includes the period of any extension exercised
by Tenant as provided in this Lease.
Lease Termination Date. The earliest to occur of (a) the Stated
----------------------
Expiration Date, (b) the termination of this Lease by Landlord as the result of
an Event of Default or (c) the termination of this Lease under Article 17
(Damage or Destruction) or Article 18 (Eminent Domain).
Lease Year. Each twelve consecutive calendar month period ending on the day
----------
before an anniversary of the Term Commencement Date (or on the day before the
first day of the next succeeding calendar month if the Term Commencement Date
occurs other than on the first day of a month); provided that (a) the first
Lease Year includes the partial month, if any, between the Term Commencement
Date and the first day of the next calendar month and (b) the last Lease Year
will end on the Lease Termination Date.
Legal Requirements. (a) All statutes, codes, ordinances (and rules
------------------
and regulations thereunder) and all executive, judicial and administrative
orders, judgments, decrees and injunctions of or by any Governmental Authority
which are applicable to any condition or use of the Premises, Building or Land,
and (b) the provisions of all Authorizations.
Occupancy Arrangement. With respect to all or any part of the
---------------------
Premises or this Lease, and whether (a) written or unwritten or (b) for all or
any portion of the Lease Term, an assignment, a sublease, a tenancy at will, a
tenancy at sufferance or any other arrangement (including but not limited to a
license or concession) under which a Person occupies the Premises for any
purpose.
Operating Expenses. All expenses, costs, and disbursements of every
------------------
kind which Landlord pays or becomes obligated to pay in connection with the
operation, management, repair, cleaning and maintenance of the Land and the
Building (including
5
<PAGE>
all facilities and equipment in operation on the Term Commencement Date and such
additional facilities and equipment in subsequent years as may be determined by
Landlord to be necessary or beneficial in reducing Operating Expenses) and the
provision of Basic Services, including, but not limited to (a) wages, salaries
and fees, including taxes, insurance, and benefits of all Persons engaged in
connection with Basic Services, (b) the cost of (i) all supplies and materials,
electricity and lighting, for Common Areas, (ii) water, heat, air conditioning,
and ventilating for the Building, (iii) all maintenance, janitorial, and service
agreements, (iv) snow removal and maintenance of parking and landscaped areas,
(v) all insurance, including the cost of casualty and liability insurance
applicable to the Building and Landlord's personal property used in connection
with the Building, (vi) repairs and general maintenance, (vii) capital items
which are primarily for the purpose of reducing Operating Expenses or which may
be required by a Governmental Authority, amortized over the reasonable life of
the capital items with the reasonable life and amortization schedule being
determined by Landlord in accordance with generally accepted accounting
principles, (viii) pursuing an application for an abatement of Taxes to the
extent not deducted from the abatement, if any, received, (ix) independent
auditors, (x) that portion of Landlord's central accounting functions allocable
to the Building and (xi) office space for the manager of the Building, (c)
management fees, not to exceed eight percent (8%) of Basic Rent in any Lease
Year, and (d) maintenance charges with respect to the Land imposed on the
Landlord under the Ground Lease. Operating expenses will be determined on the
accrual basis in accordance with generally accepted accounting principles
consistently applied.
Operating Expenses do not include (i) costs of services in excess of
Basic Services billed to and payable by specific Tenants; (ii) Taxes, any sales
tax, gross receipt tax or similar tax based on Rent, and any income, profits or
similar tax imposed on Landlord; (iii) expenditures for capital improvements,
and any depreciation or amortization, except amortization of certain capital
expenditures as provided in clause (vii) above; (iv) executive salaries above
the grade of building manager; (v) advertising and promotional expenses; (vi)
brokerage commissions; (vii) interest, principal and other amounts payable under
any mortgage, and rent payable under the Ground Lease; (viii) expenditures for
correcting construction defects in the Building; (ix) expenditures for any
alteration, renovation, redecoration, subdivision, layout or finish of any
tenant space in the Building; (x) cost of any curative action required to remedy
damage caused by or resulting from the negligence or willful act of Landlord,
its agents, servants or employees; (xi) legal and other professional fees
incurred by Landlord in connection with the leasing of space in the Building and
in connection with enforcing leases, or for any other matters not directly
connected to the administration or operation of the Building; (xii) costs of any
type relating to the development of the Building and (xiii) any fines or
penalties imposed upon Landlord under any Legal Requirement.
Park. Massachusetts Biotechnology Research Park created by WBDC
----
pursuant to the provisions of Chapter 317 of the Acts of 1983, as it may be
expanded by amendment of Chapter 317 or by virtue of any other legislation or
acquisition by WBDC.
Permitted Exceptions. Any liens or encumbrances on the Premises of
--------------------
the following character:
6
<PAGE>
(a) Provisions of Chapter 317 of the Acts of 1983, as amended;
(b) Provisions of the Land Disposition Agreement;
(c) Rights, easements and restrictions in the deed dated June 13,
1984 from the Commonwealth of Massachusetts, Division of Capital Planning and
Operations, to WBDC recorded with Worcester District Registry of Deeds in Book
8233, Page 106;
(d) Present and future zoning laws, ordinances, resolutions and
regulations of the City of Worcester, including, without limitation,
Chapter 17 of the Revised Ordinances of 1986 - Regulations Relative to
Biomedical Research in the City of Worcester;
(e) The lien of any Taxes assessed but not yet due and payable;
(f) The Ground Lease;
(g) Mortgages of record;
(h) The rights of Landlord and other Persons to whom Landlord has
granted rights to use the Common Areas in common with Tenant;
(i) The easements created by instruments recorded with Worcester
District Registry of Deeds in Book 9538, Page142 (as modified by Release in
Book 12860, Page 119), Book 12717, Page 3 and Book 12860, Page 123, insofar
as they affect the Land;
(j) All declarations, covenants, conditions, restrictions,
reservations, rights, rights-of-way, easements and other matters of record
or apparent affecting the Land or the use of the Land now or in the future
in force and applicable; and
(k) Provisions of the Declaration of Protective Covenants, Conditions
and Restrictions recorded with the Worcester District Registry of Deeds in
Book 12860, Page 145, as they may from time to time in the future be
amended.
Person. An individual, a corporation, a company, a voluntary
------
association, a partnership, a trust, an unincorporated organization or a
Governmental Authority.
Premises. The space referred to in Section 1.01 located in the
--------
Building shown outlined or hatched on Exhibit B (the Lease Plan), excluding
exterior walls of the building except the inner surfaces thereof and excluding
any Common Areas located within such space.
Rent. Basic Rent and all Additional Rent.
----
Rentable Area of the Premises. The number of square feet stated in
-----------------------------
Section 1.01, irrespective of whether the number should be more or less as a
result of minor variations resulting from actual construction of the Building or
the Premises so long as such construction is done in accordance with the
provisions of this Lease.
7
<PAGE>
Stated Expiration Date. The later to occur of (i) date as stated in
----------------------
Section 1.01, or (ii) last day of the final Lease Year of the Lease Term.
Substantial Completion Date. The later to occur of (i) the date on
---------------------------
which a certificate of occupancy for the Premises is issued by the City of
Worcester, or (ii) the date on which Tenant Fit-up, together with the
appurtenant areas of the Building necessary for access and service to the
Premises, have been completed as provided in Article 7, except for items of work
and adjustment of equipment and fixtures which are not necessary to make the
Premises reasonably tenantable for the Permitted Use and because of season or
weather or nature of the, item cannot practicably be done at the time.
Taking. The taking or condemnation of title to all or any part of the
------
Land or Building or of possession or use of the Land, the Building or the
Premises by a Governmental Authority for any public use or purpose, or any
proceeding or negotiations which might result in such a taking, or any sale or
lease in lieu of such a taking.
Taxes. All (i) taxes (or payments in lieu of taxes), special or
-----
general assessments, water and sewer charges, and other charges of every nature
imposed by Governmental Authorities which are assessed, become due or become
liens upon or with respect to the Land, the Building, the Premises, Landlord's
Fixtures, equipment owned by Landlord on the Land or in the Building or the
Premises, or this Lease under all present or future Legal Requirements, and (ii)
taxes based on a percentage fraction or capitalized value of the Rent (whether
in lieu of or in addition to the taxes described above) computed as if the Land
and the Building were the only property of Landlord subject to such tax. Taxes
do not include (a) inheritance, estate, excise, succession, transfer, gift,
franchise, income, gross receipt, or profit taxes except to the extent they are
in substitution for Taxes now imposed on the Building, the Land, the Premises or
this Lease, or (b) assessments for streets, water or sewer installations or
other municipal improvements made in connection with the initial development of
the Building or the Park.
Tenant Fit-up. All Improvements and other work necessary to prepare
-------------
the Premises for Tenant's initial occupancy other than Landlord's Work.
Tenant's Cost. The cost of designing and constructing Tenant Fit-up.
-------------
Term Commencement Date. The earliest to occur of (a) the Substantial
----------------------
Completion Date, (b) any other date for commencement of the Term determined as
provided in Article 7 or (c) the date on which Tenant first occupies the
Premises for the Permitted Use.
Total Taking . (i) a Taking of: (a) the fee interest in all or
-------------
substantially all of the Land or the Building or (b) such title to or easement
in, over, under or such rights to occupy and use any part of the Land or the
Building to the exclusion of Landlord as, in the good faith judgment of
Landlord, unreasonably restricts access to the Building by vehicle or renders
the portion of the Building remaining after such Taking (even if restoration
were made) unsuitable or uneconomical for the continued use and occupancy of the
Building for the Permitted Use or (ii) a Taking of all or substantially all of
the Premises or such title to or easement in, on or over the Premises to the
exclusion of
8
<PAGE>
Tenant which in the good faith judgment of Landlord prohibits access to the
Premises or the exercise, to any material extent, by Tenant of its rights under
this Lease.
Unavoidable Delays. Acts of God, strikes, lock-outs, labor troubles,
------------------
inability to procure materials, failure of power, riots and insurrection, acts
of the public enemy, wars, earthquakes, hurricanes and other natural disasters,
fires, explosions, any act, failure to act or default of the other party to this
Lease or any other reason (except lack of money) beyond the control of any party
to this Lease.
Work Letter. The agreement between Landlord and Tenant with respect to
-----------
Tenant Fit-up, substantially in the form of Exhibit C.
Working Drawings. The detailed plans and specifications developed by
----------------
Landlord and Tenant as provided in the Work Letter, prepared in compliance with
all applicable Legal Requirements, stamped by registered Massachusetts
professionals, and consisting of all architectural and engineering plans which
are required to construct Tenant Fit-up and to obtain any Authorization required
for the Premises.
WBDC. Worcester Business Development Corporation, a Massachusetts
----
corporation established pursuant to the provisions of Chapter 600 of the Acts of
1965.
ARTICLE 2
Premises
--------
Section 2.01 Premises.* Landlord hereby leases the Premises to Tenant, and
--------
Tenant hereby takes the Premises from Landlord, subject to the provisions of
this Lease and the Permitted Exceptions. Landlord reserves the right to relocate
within or without the Premises pipes, ducts, vents, flues, conduits, wires and
appurtenant fixtures which service other parts of the Building; provided that
such work is done in a manner that it does not unreasonably interfere with
Tenant's use of the Premises.
Section 2.02 Appurtenances. Tenant may use the Common Areas and the Land as
-------------
appurtenant to the Premises for the purposes for which they were designed.
Tenant, its employees and business invitees have the non-exclusive right to use
the parking areas on the Land.
Section 2.03 Landlord's Fixtures. Tenant may use the Landlord's Fixtures
-------------------
during the Lease Term. Landlord's Fixtures remain the property of Landlord and
may not be removed by Tenant whether or not they are affixed to the Building.
___________________________________
* See Rider and Addendum - #2
9
<PAGE>
ARTICLE 3
Term
----
Section 3.01 Term Commencement. The Lease Term will begin on the Term
-----------------
Commencement Date.
Section 3.02 Termination. The Lease Term will end on the Lease Termination
-----------
Date.
Section 3.03 Estoppel Certificate. If either the Term Commencement Date or
--------------------
the Stated Expiration Date occurs on a date other than as stated in Section
1.01, Landlord and Tenant agree to execute a certificate in the form of the
estoppel certificate referred to in Section 25.02 or such other form as either
may request, establishing the Term Commencement Date and the Stated Expiration
Date.
ARTICLE 4
Rent
----
Section 4.01 Basic Rent. Tenant agrees to pay Landlord the Basic Rent as
----------
annual rent for the Premises for each Lease Year, without offset or deduction
and without previous demand. Tenant agrees to pay Basic Rent in equal monthly
installments in advance on the first day of each calendar month during the Lease
Term, except that the first installment of Basic Rent, pro-rated for the partial
month, if any, at the beginning of the Lease Term, will be paid on the Term
Commencement Date.
Section 4.02 Adjustment of Basic Rent. The Basic Rent for each Lease Year
------------------------
during the first Fixed Rental Period will be as stated in Section 1.01. The
Basic Rent for each Lease Year of each successive Fixed Rental Period, if any,
will be as stated in Exhibit E, the Rent Rider.
ARTICLE 5
Use of Premises
---------------
Section 5.01 Use Restricted. The Premises may be used for the Permitted Use
--------------
and for no other purpose. Tenant agrees not to make any use of the Premises that
would cause the Premises to be considered a "place of public accommodation"
under the Americans with Disabilities Act of 1990. No Improvements, alterations
or additions may be made in or to the Premises except as provided in this Lease.
ARTICLE 6
Operating Expenses; Taxes
-------------------------
Section 6.01 Operating Expenses and Taxes. Tenant agrees to pay Landlord,
----------------------------
as Additional Rent, (i) Tenant's Share of Operating Expenses and Taxes as
provided in this
10
<PAGE>
Article 6, prorated for any partial calendar year falling within the Lease Term,
and (ii) all Taxes assessed with respect to Improvements or structures anywhere
in the Park constructed by or on behalf of Tenant after the Substantial
Completion Date.
Section 6.02 Monthly Payments of Additional Rent. Tenant agrees to pay to
-----------------------------------
Landlord in advance for each calendar month of the Lease Term, as Additional
Rent, Operating Expenses and Taxes in an amount equal to (a) 1/12th of the
product of (i) Estimated Operating Expenses for the then current calendar year
times (ii) the Rentable Area of the Premises, plus (b) 1/12th of the product of
(i) Estimated Taxes for the then current calendar year times (ii) the Rentable
Area of the Premises. Tenant agrees to pay the amount payable under this Section
6.02 with Tenant's monthly payments of Basic Rent. The amounts paid will be
credited by Landlord to Tenant's obligations under Section 6.01. For the
balance of the first calendar year at the beginning of the Lease Term the amount
payable by Tenant each month with respect, to Tenant's Share of Estimated
Operating Expenses and Estimated Taxes will be the Initial Monthly Payment
stated in Section 1.01, which amount will be pro-rated for the partial month, if
any, at the beginning of the Lease Term and paid beginning on the Term
Commencement Date.
Section 6.03 Annual Statements. Within sixty (60) days after the end of
-----------------
each calendar year, Landlord agrees to render to Tenant a statement, prepared in
accordance with generally accepted accounting practices, showing in reasonable
detail (i) for the calendar year just ended (if any) (a) the amount of Taxes,
(b) the amount of Operating Expenses and (c) a calculation of Tenant's Share of
Taxes and Operating Expenses, and (ii) for the then current calendar year, the
amount of Estimated Operating Expenses and Estimated Taxes determined by
Landlord in the reasonable exercise of its judgment. Estimated operating
Expenses and Estimated Taxes for the calendar year in which the Lease Term
begins are the sums set forth in Section 1.01. If the total amount paid by
Tenant on account of Operating Expenses or Taxes or both in any calendar year
exceeds the actual amount of Tenant's Share of Operating Expenses or Taxes for
the year, then the excess will be credited by Landlord against the monthly
installments of Additional Rent next falling due or refunded to Tenant upon the
expiration or termination of this Lease, if earlier (unless such expiration or
termination is the result of an Event of Default). If the total amount of
Operating Expenses or Taxes or both paid by Tenant in any calendar year is less
than the actual amount of Tenant's Share of Operating Expenses or Taxes for the
year, then Tenant agrees to pay the difference to Landlord within thirty (30)
days after receipt by Tenant of Landlord's statement. Not more frequently than
once each Lease Year, Tenant may, at its expense and after ten (10) Business
Days prior notice, audit Landlord's records relating to Operating Expenses.
Section 6.04 Assessments and Other Taxes. Landlord agrees that all special
---------------------------
and general assessments will be paid in installments over the longest period
permitted by law and that the amount of Taxes shown on each annual statement
will include only the portion due in that year. Nothing in this Lease shall be
construed to require Tenant to pay any inheritance, estate, excise, succession,
transfer, gift, franchise, income, gross receipt, or profit taxes that are, or
may be, imposed upon Landlord, its successors or assigns, except to the extent
such taxes are in substitution for Taxes as now imposed on the Building, the
Land, the Premises or this Lease.
11
<PAGE>
Section 6.05 Accounting Periods. Landlord may from time to time change the
------------------
periods of accounting under this Lease to any annual period other than a
calendar year. Upon any such change, all items referred to in this Article 6
will be appropriately apportioned. In all statements rendered under Section
6.03, amounts for periods partially within and partially outside of the
accounting periods will be appropriately apportioned. Any items which are not
determinable at the time of a statement will be included on the basis of
Landlord's estimate. Promptly after determination, Landlord will render a
supplemental statement in which appropriate adjustment will be made.
Section 6.06 Abatement of Taxes. Landlord may at any time and from time to
------------------
time make application to the appropriate Governmental Authority for an abatement
of Taxes. Landlord agrees to make such an application at any time tenants
occupying more than 60% of the Rentable Area of the Building under written
Occupancy Arrangements directly with the Landlord request that Landlord do so.
If (i) such an application is successful and (ii) Tenant has made any payment in
respect of Taxes under this Article 6 for the period with respect to which the
abatement was granted, Landlord agrees (a) to deduct from the amount of the
abatement all expenses incurred by it in connection with the application (b)
within thirty (30) days after receipt of the abatement amount, to pay to Tenant
Tenant's Share (adjusted for any period for which Tenant had made a partial
payment) of the abatement, with interest, if any, paid by the Governmental
Authority on such abatement, and (c) retain the balance, if any.
Section 6.07 Exemption From Taxes. As provided in Section 6 of Chapter 317
--------------------
of the Acts of 1983, Landlord may be or become exempt from the obligation to pay
Taxes if it leases any part of the Building to an organization exempt from taxes
under the United States Internal Revenue Code. If Tenant is able to establish to
Landlord's satisfaction the amount of the reduction in Taxes during any calendar
year which is a result of this Lease and Tenant's tax-exempt status, Tenant's
obligation to pay Taxes for such calendar year as provided in this Article 6
will abate in the same amount, or the amount, if previously paid, will be
refunded to Tenant. If Tenant is not tax-exempt but Landlord's obligation to pay
Taxes is abated because of the tax-exempt status of any other tenant or tenants
of the Building, Landlord reserves the right to increase Tenant's Share as it
relates to Taxes so that the Taxes payable "With respect to the Land and the
Building for any calendar year during the Lease Term are equitably apportioned
among the tenants of the Building who are not exempt from taxation.
ARTICLE 7
Improvements
------------
Section 7.01 Tenant Fit-up.* In connection with the preparation of the
-------------
Premises for Tenant's initial occupancy, Landlord agrees to do Landlord's Work
and Tenant Fit-up as described in the Working Drawings. Landlord agrees to
perform all work in a good
___________________________________
* See Rider and Addendum - #3
12
<PAGE>
and workmanlike manner and in compliance with all Legal Requirements and
Insurance Requirements, subject to the provisions of the Work Letter. Unless
otherwise agreed, Tenant agrees to pay Tenant's Cost as Additional Rent in
installments as the work progresses as provided in the agreement with the
contractor performing the work and in any event on or before the Term
Commencement Date.
Section 7.02 Time for Completion. Landlord agrees to use due diligence to
-------------------
have the Premises ready for occupancy on or before the Term Commencement Date
referred to in Section 1.01. Reference is made to the Work Letter for details of
the completion process.
Section 7.03 Notice of Substantial Completion Date. Approximately fifteen
-------------------------------------
(15) days before it occurs, Landlord agrees to give Tenant a notice stating the
Substantial Completion Date.
Section 7.04 Delays. If Landlord is delayed in substantially completing
------
Tenant Fit-up as the result of
(a) delay by Tenant or any Person employed by Tenant in delivery to
Landlord of any plans, design work and detailed drawings, or
(b) Tenant's requests for special work not part of the work described
in the Working Drawings or for changes to the Working Drawings after
approval by Tenant (notwithstanding Landlord's approval of such changes),
or
(c) delays in performance by Tenant or any Person employed by Tenant
which cause delays in the completion of any work to be done by Landlord or
which otherwise delay the substantial completion of the Premises, or
(d) any fault, negligence, omission, or failure to act on the part of
Tenant or its agents, contractors, workmen, mechanics, suppliers or
invitees,
provided Tenant has been given notice of each such delay, the Premises will be
substantially completed on (and the Term Commencement Date will be) that date
determined by Landlord, in the reasonable exercise of its judgment, on which the
Substantial Completion Date would have occurred but for the delays referred to
in this Section 7.04.
Section 7.05 Tenant's Access to the Premises. Tenant and Tenant's agents,
-------------------------------
at Tenant's sole risk, may, with Landlord's prior consent, enter the Premises
before the Term Commencement Date in order to (a) install its furniture,
furnishings and equipment and (b) perform or inspect work necessary to make the
Premises ready for Tenant's use and occupancy. If Landlord permits entry before
the Term Commencement Date, the permission is conditioned upon (i) Tenant
delivering to Landlord evidence of the insurance required under Section 15.01
and (ii) Tenant and Tenant's agents, contractors, workmen, mechanics, suppliers
and invitees, working in harmony with Landlord and contractors working for
Landlord and with other tenants of the Building. If at any time Tenant's entry
causes or threatens to cause disharmony or interfere with the orderly
13
<PAGE>
completion or operation of the Building, Landlord may withdraw the permission
upon notice to Tenant. Any entry by Tenant will be deemed to be under all of the
provisions of this Lease except the covenant to pay Rent. Except for negligence
of Landlord and its employees, if Tenant or its agents enter the Premises before
the Term Commencement Date, Landlord will not be liable for and Tenant agrees to
assume the entire risk for any loss or damage which may occur to any
Improvements or to any property placed in the Premises before the Term
Commencement Date.
Section 7.06 Improvements by Tenant.* Tenant agrees not to hang shades,
----------------------
curtains, signs, awnings or other materials in any window, attach any materials
to or make any change in the appearance of any glass visible from outside of the
Premises, add any window treatment of any kind or make Improvements or install
furniture visible from outside of the Premises, without Landlord's prior written
consent. Tenant agrees not to make any Improvements before or during the Lease
Term, except according to plans and specifications and using contractors first
approved by the Landlord. Tenant agrees not to make any Improvements which
would (a) delay completion of the Premises or the Building, or (b) require
unusual expense to readapt the Premises to normal research and development,
general office and limited light manufacturing use upon termination of this
Lease or (c) increase (i) the cost of Landlord's Work or insurance or (ii)
Taxes. All Improvements will become part of the Premises and property of
Landlord upon their completion or installation except to the extent Landlord
specifies that they must be removed at Tenant's expense on the Lease Termination
Date as an express condition to Landlord's approval of their initial
installation. The construction of Improvements by Tenant and the installation
of Tenant's furniture, furnishings and equipment will be coordinated with any
work being performed by Landlord and will be performed in such manner as to
maintain harmonious labor relations and not to damage the Building or the
Premises or interfere with Building operation. Except for work done by or
through Landlord before making any Improvements, Tenant will: secure all
necessary Authorizations; deliver to Landlord a statement of the names of all
its contractors and subcontractors and the estimated cost of all labor and
material to be furnished by them; cause each contractor to carry (1) worker's
compensation insurance in statutory amounts covering all the contractor's and
subcontractor's employees, (2) comprehensive public liability insurance with
such limits as Landlord may reasonably require, but in no event less than
$1,000,000, and (3) property damage insurance with limits of not less than
$300,000 (all such insurance to be written by companies approved by Landlord and
insuring Landlord and Tenant as well as the contractors), and to deliver to
Landlord certificates of all such insurance; and secure casualty insurance
against loss or damage to the Improvements pending completion and deliver
evidence of such insurance to Landlord. Tenant agrees to pay promptly when due
the entire cost of any work done in the Premises by Tenant, its agents,
employees, or independent contractors, and not to cause or permit any liens for
labor or materials performed or furnished in connection with its work to attach
to the Premises and immediately to discharge any such liens which may
__________________________________
* See Rider and Addendum - #4
14
<PAGE>
attach. All construction work done by Tenant, its agents, employees or
independent contractors will be done in a good workmanlike manner and in
compliance with all Legal Requirements and Insurance Requirements. Landlord may
inspect the work at any time and will promptly give notice to Tenant of any
observed defects.
ARTICLE 8
Building Services
-----------------
Section 8.01 Basic Services. During the Lease Term, Landlord agrees to
--------------
furnish, or cause to be furnished, the Basic Services.
Section 8.02 Other Janitors. No Person will be employed by Tenant to do
--------------
janitorial work in the Premises and no Person other than the janitors of the
Building will clean the Premises unless first approved in writing by Landlord.
Any Person employed by Tenant with Landlord's approval to do janitorial work
will, while in the Building, either inside or outside the Premises, be subject
to and under the control and direction of the superintendent of the Building
(but not as agent or servant of the superintendent or of Landlord).
Section 8.03 Additional Services. Tenant agrees to pay Landlord a
-------------------
reasonable charge for any extra cleaning of the Premises required because of the
carelessness or indifference of Tenant and for any Additional Services rendered
at the request of Tenant. If the cost of cleaning the Premises is increased due
to the installation in the Premises, at Tenant's request, of any unique or
special materials, finish or equipment, Tenant agrees to pay the Landlord an
amount equal to the increase in cost. All charges for Additional Services will
be payable within ten (10) days after the date on which they are billed.
Section 8.04 Limitations on Landlord's Liability.* Landlord will not be
-----------------------------------
liable in damages nor in default under this Lease for any failure or delay in
furnishing Basic Services or Additional Services when the failure or delay is
caused by Unavoidable Delays. No failure or delay by Landlord in furnishing
Basic Services or Additional Services caused by Unavoidable Delays may be
claimed or pleaded as an eviction or disturbance of Tenant's possession or give
Tenant any right to terminate this Lease or give rise to any claim for set-off
or abatement of Rent or excuse Tenant from the performance of any of its
obligations under this Lease.
Section 8.05 Electric Service. Tenant agrees to make its own arrangements
----------------
for the provision of electricity to the Premises and to pay the full cost (as
shown on a separate electric meter to be installed at Landlord's expense)
directly to the utility company providing the electricity. Tenant's use of
electricity in the Premises will not at any time exceed the capacity of any of
the electrical conductors or equipment in or serving the Premises. In order to
insure that such capacity is not exceeded and to avert
___________________________
* See Rider and Addendum - (P)5
15
<PAGE>
possible adverse effect upon the Building electric service, Tenant agrees it
will not, without prior written notice to Landlord in each instance, connect to
the Building electric distribution system any fixtures, appliances or equipment
which operate on a voltage in excess of 120 volts nominal or make any alteration
or addition to the electric system of the Premises. Unless Landlord objects to
the connection of any such fixtures, appliances or equipment, all additional
risers or other equipment required for, the connection will be provided by
Landlord, and the cost will be paid by Tenant on Landlord's demand.
ARTICLE 9
Tenant's Covenants
------------------
Section 9.01 Pay Rent. Tenant agrees to pay when due all Rent and all
--------
charges for utility services rendered to the Premises not included in Rent and,
as Additional Rent, all charges of Landlord for Additional Services.
Section 9.02 Occupancy of the Premises. Tenant agrees to occupy the
-------------------------
Premises continuously from the Term Commencement Date for the Permitted Use
only. Tenant will not (i) injure or deface the Premises or the Building, (ii)
install any sign in or on any window, demising wall, corridor, elevator foyer or
other Common Area, (iii) permit in the Premises any inflammable fluids or
chemicals not reasonably related to the Permitted Use, nor (iv) permit any
nuisance or use of the Premises which is improper, offensive, contrary to any
Legal Requirement or Insurance Requirement or liable to render necessary any
alteration or addition to the Building.
Section 9.03 Rules and Regulations. Tenant agrees not to obstruct in any
---------------------
manner any portion of the Building or the Land. Tenant agrees to comply with all
reasonable rules and regulations of which Tenant has notice promulgated by
Landlord and uniformly applicable to Persons occupying the Building regulating
the details of the operation and use of the Building.
Section 9.04 Safety. Tenant agrees to keep the Premises equipped with all
------
safety appliances required by Legal Requirements or Insurance Requirements
applicable to Tenant specifically because of any use made by Tenant and not
applicable generally to all other tenants of the Building. Tenant agrees to
procure all Authorizations required because of Tenant's use of the Premises and
to do any work required under any Authorization because of such use, it being
understood that the provisions of this Section may not be construed to broaden
in any way the Permitted Use.
Section 9.05 Equipment. Tenant agrees not to place a load upon the floor
---------
of the Premises exceeding the live load for which the floor has been designed.
Tenant agrees not to move any safe or other heavy equipment into, about or out
of the Premises except in the manner and at the time authorized by Landlord in
each instance. Tenant agrees to isolate and maintain all of Tenant's equipment
which causes or may cause airborne or structure-borne vibration or noise,
whether or not it may be transmitted to any other part of the Building, so as to
eliminate such vibration or noise.
16
<PAGE>
Section 9.06 Pay Taxes. Tenant agrees to pay promptly when due all Taxes
---------
upon personal property (including, without limitation, fixtures and equipment)
in the Premises irrespective of the Person to whom the Taxes may be assessed.
Section 9.07 Maintenance. Tenant agrees, at all times during the Lease
Term, and at its own expense, (i) to maintain the Premises in good repair and
condition (except for (a) ordinary wear and tear, (b) damage by fire or casualty
and (c) any defect in material or workmanship performed by Landlord in
connection with initial preparation of the Premises for Tenant's use and
occupancy), (ii) to use all reasonable precautions to prevent waste, damage or
injury to the Premises or any other part of the Building and (iii) to repair all
damage to any part of the Building caused by Tenant or any of Tenant's agents,
employees or invitees, to the extent that such damage is not covered by
Landlord's insurance.
Section 9.08 Redelivery.* On the Lease Termination Date, Tenant agrees to
----------
leave the Premises and surrender possession to Landlord free of (i) all tenants
or occupants claiming through or under Tenant, and (ii) all liens encumbrances,
restrictions or reservations caused or consented to by Tenant. Tenant agrees,
subject to the provisions of Articles 17 and 18, to surrender the Premises,
including all Landlord's Fixtures and all Improvements except those which Tenant
is required to remove as provided in Section 7.06, to Landlord broom clean and
in good condition and repair (ordinary wear and tear and damage by fire or other
casualty only excepted) with all damage resulting from removal of (i) Tenant's
furniture, furnishings and equipment and (ii) any Improvements which Tenant is
required to remove as provided in Section 7.06 repaired at Tenant's expense to
Landlord's reasonable satisfaction.
Section 9.09 Tenant Financial Information. Whenever requested by Landlord
----------------------------
in connection with financing of the Building or its own operations, Tenant
agrees to provide to Landlord all information currently available relating to
Tenant's existing and future financial condition, including but not limited to
internally and externally prepared financial statements and reports,
prospectuses and offering circulars, underwriting agreements private placement
memoranda and similar documents involving public and private funding sources.
Landlord agrees to maintain all the information in strictest confidence except
to the extent necessary to share it with lenders in connection with financing of
the Building or its own operations.
ARTICLE 10
Compliance With Requirements
----------------------------
Section 10.01 Legal Requirements. Tenant agrees, at its expense, promptly
------------------
to observe and comply with all Legal Requirements relating to it specifically or
its use of the Premises and not applicable generally to all other tenants of the
Building. Tenant
____________________________
* See Rider and Addendum - (P)6*
17
<PAGE>
agrees to day all costs, liabilities, losses, damages, fines, penalties, claims
and demands, that may arise out of or be imposed because of the failure of
Tenant to comply with the covenants of this Article 10.
Section 10.02 Contests. Tenant has the right to contest by appropriate
--------
legal proceedings diligently conducted in good faith, in the name of Tenant or
Landlord (if legally required) or both (if legally required), without expense or
liability to Landlord, the validity or application of any Legal Requirement. If
compliance with the terms of any Legal Requirement may legally be delayed
pending the prosecution of any such proceeding, Tenant may delay compliance
until the final determination of the proceeding.
Section 10.03 Land Disposition Agreement. As required under the Land
--------------------------
Disposition Agreement, Tenant, working with the public and private higher
educational institutions of Worcester and existing or future federal, state and
local job training programs, agrees to endeavor to establish education and
training programs to assist Worcester residents and women and minority group
members in developing skills necessary for future employment within or ancillary
to the Park and to establish fair and equitable procedures to provide employment
opportunities for qualified residents of the City of Worcester and women and
minority group members on a priority basis.
Section 10.04 Environmental Legal Requirements. Except to the extent
--------------------------------
permitted under applicable Legal Requirements, Tenant agrees not to cause or
permit any Hazardous Substances to be released on the Land or in the Building or
the Premises or into the air, or to be introduced into the sewage or other waste
disposal system serving the Premises. Tenant agrees to generate, store or
dispose of Hazardous Substances in the Premises or dispose of Hazardous
Substances from the Premises to any other location only in compliance with all
applicable Legal Requirements and to notify Landlord of any incident which would
require the filing of a notice under any Legal Requirement. Tenant agrees to
provide Landlord with such information required by Governmental Authorities as
Landlord may reasonably request from time to time with respect to compliance
with this Section.
ARTICLE 11
Covenant Against Liens
----------------------
Section 11.01 No Liens. Tenant agrees not to create any lien on the
--------
Premises, the Building or the Land and to discharge any lien on the Premises,
the Building or the Land arising out of any act or omission by Tenant, including
but not limited to any tax, mechanic's, laborer's or materialman's lien or lien
arising under Massachusetts General Laws, Chapter 21E.
Section 11.02 Discharge. If any lien is filed against the Premises, the
---------
Building or the Land as a result of any act or omission by Tenant, Tenant agrees
to cause the lien to be discharged of record by payment, deposit, bond, order of
a court of competent jurisdiction or otherwise, within sixty (60) days after (i)
Tenant has actual or constructive notice that it is filed, or (ii) final
judgment in favor of the holder of the lien. If Tenant
18
<PAGE>
fails to cause the lien to be discharged, then, in addition to any remedies
available to Landlord in case of an Event of Default, Landlord may, but is not
obligated to, discharge the lien either by paying the amount claimed to be due
or by procuring the discharge of the lien by deposit or by bonding proceedings.
Any amount paid by Landlord and all costs incurred by Landlord in connection the
removal of any lien will constitute Additional Rent and will be paid by Tenant
to Landlord on demand with interest as provided in Section 21.06.
ARTICLE 12
Access to Premises
------------------
Section 12.01 Access.* Landlord or Landlord's agents and designees will
------
have the right, but not the obligation, to enter the Premises at all reasonable
times during ordinary business hours, after reasonable notice except in the case
of an emergency, to examine the Premises, to make necessary repairs and
replacements and to exhibit the Premises to prospective purchasers, mortgagees,
and, during the last six (6) months of the Lease Term, prospective tenants.
Except in the case of an emergency, any Person entering the Premises under this
Section 12.01 will be accompanied by a Person designated by Tenant, if Tenant
requires.
ARTICLE 13
Assignment and Subletting: Occupancy Arrangements
--------------------------------------------------
Section 13.01 Assignment and Subletting.* Tenant agrees not to enter
-------------------------
into any Occupancy Arrangement, either voluntarily or by operation of law,
(other than with a Person who is affiliated with Tenant and for a period ending
when and if such Person ceases to be affiliated with Tenant) without the prior
written consent of Landlord. For purposes of this Article 13, a Person will be
considered to be affiliated with Tenant if such Person, directly or indirectly,
controls, is controlled by or is under common control with Tenant.
Section 13.02 Procedure. If Tenant intends to enter into an Occupancy
---------
Arrangement which requires Landlord's consent, Tenant agrees to give Landlord
notice of the name of (and a financial statement with respect to) the proposed
occupant, the exact terms of the Arrangement and a precise description of the
portion of the Premises intended to be subject to the Occupancy Arrangement.
Within thirty (30) days after receipt of the notice, Landlord will (i) consent
to the Occupancy Arrangement, or (ii) refuse to consent to the occupancy
Arrangement, or (iii) notify Tenant of Landlord's election to terminate this
Lease with respect to so much of the Premises as is intended to
_______________________________
* See Rider and Addendum - (P)7
* See Rider and Addendum - (P)8
19
<PAGE>
be subject to the Occupancy Arrangement. If Landlord consents to the Occupancy
Arrangement, Tenant agrees (i) to enter into the Arrangement on the exact terms
described to Landlord within thirty (30) days after Landlord's consent and to
deliver to Landlord and to the holder of any first mortgage on the Building an
executed original counterpart of the Occupancy Arrangement and (ii) to remain
liable for the payment and performance of the provisions of this Lease. If
Tenant enters into an Occupancy Arrangement, Tenant agrees to pay to Landlord
when received the excess, if any, of amounts received in respect of the
Occupancy Arrangement over the Rent. Any Occupancy Arrangement will expressly
incorporate and be subject to the terms of this Lease, which terms will be
binding on all parties to the Occupancy Arrangement. If Landlord consents to and
Tenant does not enter into the Arrangement within the thirty (30) day period,
such consent will be deemed revoked and Tenant will again comply with the terms
of this Section. If Landlord elects to terminate this Lease with respect to that
portion of the Premises to be subject to the Occupancy Arrangement, this Lease
will terminate as of the date specified in the election, which date will be not
less than thirty (30) days nor more than sixty (60) days after the date of the
election; provided that Tenant may, at any time before the date of termination,
withdraw its request for Landlord's consent to an Occupancy Arrangement. Such
withdrawal by Tenant will nullify Landlord's election to terminate, and this
Lease will remain in effect as if no election by Landlord had been made. If
Landlord terminates this Lease, all Rent due will be adjusted as of the day the
Premises (or the portion affected by the termination) are redelivered to
Landlord. Any portion of the Premises redelivered to Landlord will be in the
condition specified in Section 9.08.
ARTICLE 14
Indemnity
---------
Section 14.01 Tenant's Indemnity. Except to the extent waived by Landlord
------------------
under the provisions of Section 16.02, Tenant agrees to indemnify Landlord
against all claims, losses and expenses, including reasonable attorneys' fees,
which may be imposed upon or incurred by Landlord by reason of any of the
following occurrences:
(a) any act or omission on the Premises by Tenant or any Person other
than Landlord, its agents, contractors, licensees or invitees;
(b) any use, non-use, possession, occupation, condition, operation,
maintenance or management of the Premises;
(c) any act or omission on the part of Tenant, or any of its agents,
contractors, licensees or invitees, whether or not occurring on the
Premises;
(d) any accident, injury or damage to any Person or property
occurring in the Premises, not due to any act or omission of Landlord, its
agents, contractors or licensees;
20
<PAGE>
(e) any failure on the part of Tenant to comply with any of its
obligations under this Lease, whether or not such failure constitutes a
Default or Event of Default;
(f) any untrue or misleading statement of a material fact or any
misrepresentation of a material fact made by or on behalf of Tenant in
connection with the negotiation of this Lease; or
(g) any release or threat of release of Hazardous Substances by
Tenant, or any of its agents, contractors, licensees or invitees, whether
or not occurring on the Premises.
Section 14.02 Claims by Landlord. If any proceeding is brought against
------------------
Landlord arising out of any occurrence described in Section 14.01, upon notice
from Landlord Tenant agrees, at its expense, to defend the proceeding using
legal counsel reasonably satisfactory to Landlord or, if applicable, Tenant's
insurer, provided that Tenant has not been prejudiced in any way by failure or
delay on the part of Landlord to give Tenant prompt notice of the proceeding.
If Tenant has supplied Landlord with insurance covering any of the risks
described in Section 14.01, no claim may be made against Tenant unless the
insurer fails or refuses to defend and/or pay all claims, losses and expenses
incurred by Landlord. Notwithstanding the foregoing, Landlord has the right to
make claims, institute legal proceedings, or otherwise seek redress against
Tenant before the expiration of any statute of limitations or other limitation
on the time or manner in which Landlord may seek redress regardless of whether
or not any insurer is responding.
Section 14.03 Landlord's Liability. Except for its intentional acts or
--------------------
negligence or the intentional acts or negligence of its agents, contractors or
licensees, Landlord will not be responsible or liable for any loss, damage or
injury to the Premises or to any Person or property at any time on the Land or
in the Building or the Premises.
ARTICLE 15
Insurance
---------
Section 15.01 Tenant's Insurance. Tenant agrees to provide, at its
------------------
expense, and to keep in force:
(a) Comprehensive general liability insurance against claims for
personal injury, death and property damage occurring with respect to Tenant's
occupancy of the Premises having primary combined single limit coverage of at
least $1,000,000 for bodily injury and property damage.
(b) Casualty insurance against loss or damage to (i) all inventory,
furniture, furnishings and equipment other than Landlord's Fixtures owned,
controlled or in use by Tenant and situated in the Building, (ii) all
Improvements made by Tenant pending completion and (iii) all Improvements made
by Tenant which Tenant is required to remove on the Lease Termination Date under
Section 7.06, under a so-called "All
21
<PAGE>
Risk" policy in an amount sufficient to replace the same without allowance for
depreciation, if available, and if not, in the amount necessary to avoid the
effect of co-insurance provisions under the applicable policies.
(c) Worker's compensation insurance for all Tenant's employees
working in the Premises in an amount sufficient to comply with Legal
Requirements.
(d) Such greater limits and such other insurance and in such amounts
as may from time to time be reasonably required by Landlord against other
insurable hazards which at the time are customarily insured against in the case
of buildings similarly situated and used.
Section 15.02 General Insurance Requirements.
------------------------------
(a) All risk insurance provided for in Section 15.01 will be written
as primary policies (without "contribution" or "solely in excess of coverage
carried by Lessor" provisions) and will be effected under valid and enforceable
policies, issued by insurers of recognized responsibility authorized to write
such insurance in Massachusetts and having a Best's financial rating of B or
better. Not less than five (5) days before the Term Commencement Date, and
thereafter not less than ten (10) days before the expiration dates of the
expiring policies furnished under to Section 15.01, binders, certificates or
other evidence of such insurance satisfactory to Landlord bearing notations
evidencing the payment of premiums or accompanied by other evidence satisfactory
to landlord of such payment, will be delivered by Tenant to Landlord.
(b) Nothing in this Article 15 will prevent Tenant from taking out
insurance of the kind and in the amounts provided for under this Article under a
blanket insurance policy or policies covering other properties as well as the
Premises. Any policy or policies of blanket insurance (i) will specify, or
Tenant will furnish Landlord with a written statement from the insurers
specifying, the amounts of the total insurance allocated to the premises, which
amounts will not be less than the amounts required by Section 15.01 and will be
sufficient to prevent any of the insureds from becoming a coinsurer within the
terms of the applicable policy or policies, (ii) will contain an "Agreed Amount"
clause as to the Premises and (iii) will otherwise comply as to endorsement and
coverage with the provisions of this Article.
(c) All policies of insurance provided for in Section 15.01 will name
the Landlord and Tenant as the insured, as their respective interest may appear,
and also the Ground Lessor and any mortgagee, when requested, as their
respective interests may appear, except that Landlord, the Ground Lessor and any
such mortgagee will have no interest in the insurance on Tenant's personal
property. Each such policy or certificate issued by the insurer will, to the
extent obtainable, contain an agreement by the insurer that the insurance will
not be cancelled without at least twenty (20) days prior written notice to
Landlord and to any other named insureds. Landlord agrees not to carry any
insurance concurrent in coverage and contributing in the event of loss with any
insurance required to be furnished by Tenant if the effect of such separate
insurance would be to reduce the protection or the payment to be made under
Tenant's insurance.
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<PAGE>
Section 15.03 Landlord's Insurance. Landlord agrees to cause the Building
--------------------
(including Landlord's Fixtures but excluding any Improvements and leasehold
improvements (a) by any tenant prior to their completion, or (b) which any
tenant may be required to remove upon termination of its lease) to be insured
for the benefit of Landlord, the Ground Lessor and any mortgagee of the
Landlord, as their respective interests may appear, against loss or damage under
a so-called "All Risk" policy in an amount equal to (i) the replacement value or
(ii) the amount necessary to avoid the effect of co-insurance provisions of the
applicable policies. Landlord also agrees to maintain comprehensive form boiler
insurance, rental value insurance and such other insurance-;against such perils
and in such amounts as may be required by the Ground Lessor or any mortgagee of
Landlord or as Landlord may consider prudent. The cost of such insurance will
be part of the Operating Expenses.
ARTICLE 16
Waiver of Subrogation
---------------------
Section 16.01 Waiver of Subrogation. If available, all insurance policies
---------------------
carried by either party covering the Building and/or the Premises will contain a
clause or endorsement expressly waiving any right on the part of the insurer to
make any claim against the other party and against the Ground Lessor. The
parties agree to use reasonable efforts to insure that their policies will
include such waiver clause or endorsement.
Section 16.02 Waiver of Rights. Landlord and Tenant each waive all
----------------
claims, causes of action and rights of recovery against the other and against
the Ground Lessor and their respective partners, agents, officers and employees,
for any loss or damage to persons, property or business which occurs on or about
the Premises or the Buildings and results from any of the perils insured under
any policy of insurance maintained by Landlord and/or Tenant, regardless of
cause. This waiver includes the negligence and intentional wrongdoing of either
party and their respective agents, officers and employees but is effective only
to the extent of recovery, if any, under any such policy. This waiver will be
void to the extent that any such insurance is invalidated by reason of this
waiver.
ARTICLE 17
Damage and Restoration
----------------------
Section 17.01 Substantial Damage. If the Building is damaged by fire or
------------------
other casualty, Tenant agrees to give prompt written notice to Landlord. If as a
result of fire or other casualty, (i) the Building is so damaged that
substantial alteration or reconstruction of the Building is, in Landlord's sole
opinion, required (whether or not the Premises have been damaged), or (ii) the
Ground Lease is terminated, or (iii) any mortgagee of the Building requires that
all or a substantial portion of insurance proceeds payable be used to retire the
mortgage debt, Landlord may, at its option, terminate this Lease by giving
notice to Tenant within sixty (60) days after the date of the damage. If, within
sixty (60) days after the date of the damage, Landlord does not begin to restore
the Building as provided in Section 17.02 or notify Tenant of its election to
terminate this Lease, Tenant
23
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may terminate this Lease by giving notice to Landlord within ten (10) days
after the expiration of the sixty (60) day period. If this Lease is terminated
by Landlord or Tenant as provided in this Section 17.01, Rent will be abated as
of the date of the damage.
Section 17.02 Restoration. If Landlord does not terminate this Lease as
-----------
provided in Section 17.01 within sixty (60) days after the date of the damage,
Landlord agrees to begin to restore the Building to substantially the same
condition in which it was immediately before the damage, and, subject to
Unavoidable Delays, to continue the restoration with reasonable diligence.
Landlord's restoration work will include Landlord's Fixtures, the scope of the
work done by Landlord in originally finishing the Premises according to the
working Drawings and subsequent Improvements made by Tenant under the provisions
of Section 7.06 which are to remain part of the Premises. Landlord will not be
required to rebuild, repair, or replace (i) any part of Tenant's furniture,
furnishings or equipment, or (ii) any Improvements made by Tenant which Tenant
is required to remove on the Lease Termination Date under Section 7.06. Landlord
will not be liable for any inconvenience or annoyance to Tenant or injury to the
business of Tenant resulting from the damage to or the repair of the Building,
except that Landlord will allow Tenant a fair reduction of Rent to the extent
the Premises are unfit for occupancy from the date of the occurrence of the
damage to a date thirty (30) days after completion of Landlord's repairs.
ARTICLE 18
Eminent Domain
--------------
Section 18.01 Total Taking. If there is a Total Taking, then this Lease
------------
will terminate as of the earlier to occur of (i) the date when physical
possession of the Building or the Premises is taken by the condemning authority
or (ii) the date when title vests in the condemning authority.
Section 18.02 Partial Taking. If there is a Taking of the Premises which
--------------
is not a Total Taking, Landlord may terminate this Lease by giving notice to
Tenant within sixty (60) days after receiving notice of the Taking, in which
event this Lease will terminate as of the earlier to occur of (i) the date where
physical possession of such portion of the Premises is taken by the condemning
authority or (ii) the date when title vests in the condemning authority. If this
Lease is not terminated, Rent will be abated from the date the Premises are
rendered unfit for occupancy by an amount representing that part of the Rent
properly allocable to the portion of the Premises taken, and Landlord will, at
Landlord's expense, restore the Building and the Premises to substantially their
former condition to the extent that restoration, in Landlord's judgment, may be
feasible. Landlord's restoration work will not exceed the scope of Tenant Fit-up
as shown in the Working Drawings and subsequent Improvements made by Tenant
under the provisions of Section 7.06 which are to remain part of the Premises.
Section 18.03 Awards and Proceeds. All proceeds payable in respect of a
-------------------
Taking will be the property of Landlord. Tenant hereby assigns to Landlord all
rights of Tenant in or to such awards and proceeds, provided that Tenant will be
entitled to separately
24
<PAGE>
petition the condemning authority for a separate award for its moving expenses
and trade fixtures but only if such a separate award will not diminish the
amount of award or proceeds payable to Landlord.
ARTICLE 19
Quiet Enjoyment
---------------
Section 19.01 Landlord's Covenant. Landlord covenants that it has good
-------------------
title to the Premises and the Common Areas, subject to the Permitted Exceptions,
and that it has sufficient authority to enter into this Lease. Landlord also
covenants that if Tenant pays Rent and performs all of its obligations under
this Lease, subject to the Permitted Exceptions, it will quietly have and enjoy
the Premises during the Lease Term, without interference from any Person
lawfully claiming under Landlord or by paramount title. Landlord agrees that it
will pay and perform all of its obligations under the Ground Lease.
Section 19.02 Subordination and Non-Disturbance. This Lease is
---------------------------------
subordinate to (i) the Ground Lease and (ii) any mortgage now or hereafter on
the Building and to each advance made under any such mortgage, and to all
renewals, modifications, consolidations, replacements and extensions of such
mortgage. This Section 19.02 is self-operative and no further instrument of
subordination will be required, provided that before a future subordination is
effective Landlord will cause the mortgagee or Ground Lessor to deliver to
Tenant a non-disturbance agreement, binding upon itself and any successor in
interest, to the effect that no foreclosure of the mortgage or termination of
the Ground Lease will disturb the possession of Tenant under this Lease so long
as no Event of Default exists. In confirmation of such subordination, Tenant
agrees to execute and deliver promptly any certificate that Landlord or the
Ground Lessor or any mortgagee may request. If any mortgagee or Ground Lessor
succeeds to the interest of Landlord and agrees to recognize the interest of
Tenant under this Lease, Tenant agrees to attorn to such mortgagee or Ground
Lessor and to recognize such mortgagee or Ground Lessor as its landlord.
Section 19.03 Notice to Mortgagee and Ground Lessor. No act or failure to
-------------------------------------
act on the part of Landlord which would entitle Tenant under the terms of this
Lease, or by law, to be relieved of Tenant's obligations under or to terminate
this Lease, will result in a release or termination of such obligations or
termination of this Lease unless (i) Tenant first gives written notice of
Landlord's act or failure to act to Landlord's first mortgagee of record, if
any, and to the Ground Lessor specifying the act or failure to act on the part
of Landlord which could or would give basis to Tenant's rights; and (ii) the
mortgagee or Ground Lessor, after receipt of such notice, fails or refuses to
correct or cure the condition complained of within a reasonable time. Nothing
contained in this Section 19.03 will be deemed to impose any obligation on any
mortgagee or Ground Lessor to correct or cure any condition. "Reasonable time"
means a period of not less than thirty (30) Business Days and includes (but is
not limited to) a reasonable time to obtain possession of the Building if the
mortgagee or Ground Lessor elects to do so and a reasonable time to correct or
cure the condition if the condition is determined to exist.
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<PAGE>
Tenant has no obligation to give notice under this Section 19.03 until the
mortgagee or the Ground Lessor has given Tenant notice of its interest as such
and the address to which notices under this Section 19.03 are to be sent.
Section 19.04 Other Provisions Regarding Mortgagees. If this Lease or the
-------------------------------------
Rent is assigned to a mortgagee as collateral security for any obligation, the
mortgagee will not be deemed to have assumed any of Landlord's obligations under
this Lease solely as a result of the assignment. A mortgagee to whom this Lease
has been assigned will be deemed to have assumed such obligations only if (i) by
the terms of the assignment the mortgagee specifically elects to assume the
obligations, or (ii) the mortgagee has (a) foreclosed its mortgage, (b) accepted
a deed in substitution of foreclosure, or (c) taken possession of the Premises.
Even if the mortgagee assumes the obligations of Landlord, the mortgagee will be
liable for breaches of any of Landlord's obligations only to the extent the
breaches occur during the period of ownership by the mortgagee after foreclosure
(or any conveyance by a deed in substitution of foreclosure) or after entry, and
the mortgagee will have no liability for any act or omission or for any
obligations incurred by any prior Landlord, including liability with respect to
any Security Deposit except to the extent actually received by such mortgagee.
ARTICLE 20
Defaults; Events of Default
---------------------------
Section 20.01 Defaults. The following will (i) if any requirement for
--------
notice or lapse of time or both has not been met, constitute Defaults, and (ii)
if there are no such requirements or if such requirements have been met,
constitute Events of Default:
(a) The failure of Tenant to pay Rent when due, and the continuation
of such failure for a period of ten (10) days after notice from Landlord
specifying the failure;
(b) The failure of Tenant to perform any of its obligations under
this Lease, other than its obligation to pay Rent, and the continuation of
such failure for a period of twenty (20) days after notice from Landlord
specifying in reasonable detail the nature of such failure;
(c) The occurrence with respect to Tenant or any Guarantor of one or
more of the following events: the death, dissolution, termination of
existence (other than by merger or consolidation), insolvency, appointment
of a receiver for all or substantially all of its property, the making of a
fraudulent conveyance or the execution of an assignment or trust mortgage
for the benefit of creditors by it, or the filing of a petition of
bankruptcy or the commencement of any proceedings by or against it under a
bankruptcy, insolvency or other law relating to the relief or the
adjustment of indebtedness, rehabilitation or reorganization of debtors;
provided that if such petition or commencement is involuntarily made
against it and is dismissed within sixty (60) days of the date of such
filing or commencement, such events will not constitute an Event of
Default; and
26
<PAGE>
(d) The issuance of any execution or attachment against Tenant or any
other occupant of the Premises as a result of which the Premises are taken
or occupied by a Person other than Tenant.
Section 20.02 Tenant's Best Efforts. If the Default of which Landlord
---------------------
gives notice is of such a nature that it cannot be cured within twenty (20)
days, then the Default will not be deemed to continue so long as Tenant, after
receiving notice of the Default, begins to cure the Default as soon as
reasonably possible and continues to take all steps necessary to complete the
curing of the Default within a period of time which, under all prevailing
circumstances, is reasonable. No Default will be deemed to continue so long as
Tenant is acting to cure the Default in good faith or is delayed in or prevented
from curing the Default by reason of Unavoidable Delays.
Section 20.03 Elimination of Default. If any Default is cured as provided
----------------------
in this Lease, the Default will be deemed never to have occurred and Tenant's
rights under this Lease will continue unaffected by the Default.
ARTICLE 21
Landlord's Remedies; Damages on Default
---------------------------------------
Section 21.01 Landlord's Remedies. Landlord may, at its option:
-------------------
(a) Whenever an Event of Default exists, give Tenant a notice
terminating this Lease on a date specified in the notice, which date will
be not less than three (3) Business Days after the date of receipt by
Tenant of the notice. On the date specified in the notice, this Lease and
all rights of Tenant under this Lease will end without further notice or
lapse of time, but Tenant will continue to be liable to Landlord as
provided in this Article 21.
(b) If an Event of Default results from Tenant's failure to pay
Tenant's Cost as required by Section 7.01 and the Work Letter, in addition
to or in substitution of the other remedies available to Landlord, refuse
Tenant access to the Premises. In such event the Term Commencement Date
will be the earlier of (i) the date determined under Section 7.04 or (ii)
the Substantial Completion Date.
(c) If an Event of Default results from Tenant's failure to pay a
charge for Additional Services, without further notice to Tenant, discontinue
any or all Additional Services.
Section 21.02 Possession. Upon any termination of this Lease as the
----------
result of an Event of Default, Tenant agrees to leave the Premises peacefully
and surrender possession to Landlord as provided in Section 9.08. Landlord may,
at any time after any termination of this Lease and without further notice,
enter the Premises and recover possession by summary proceedings or any other
manner permitted by law, and may remove Tenant and all other Persons and
property from the Premises and may hold the Premises and the right to receive
all rental income from the Premises.
27
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Section 21.03 Right to Relet. At any time after termination of this Lease
--------------
as a result of an Event of Default, Landlord may relet all or any part of the
Premises in the name of Landlord or otherwise, for such term (which may be
greater or less than the period which would otherwise have constituted the
balance of the Lease Term) and on such conditions (which may include concessions
or free rent) as Landlord, in its reasonable discretion, may determine. Landlord
agrees to use reasonable efforts but will not be liable for failure to relet the
Premises or for failure to collect any rent due upon any such reletting, and
Landlord will not be obligated to show the Premises in preference to other space
available in the Building.
Section 21.04 Survival of Covenants, Etc. If this Lease is terminated as
--------------------------
provided in Section 21.01:
(a) The termination will not relieve Tenant of its obligations under
this Lease which obligations will survive the termination. Tenant agrees to
indemnify Landlord against all claims, losses and expenses arising out of
the termination.
(b) At the time of the termination, Tenant agrees to pay to Landlord
the Rent up to the date of termination. Tenant also agrees to pay to
Landlord, on demand, as liquidated damages for Tenant's Default, the
difference between
(1) the total Rent that would have been payable under this Lease by
Tenant from the date of the termination until the Stated Expiration Date,
less
----
(2) the fair and reasonable rental value of the Premises for the same
period reduced by Landlord's reasonable estimate of expenses to be incurred
in connection with reletting the Premises, including, without limitation,
all repossession costs, brokerage commissions, legal expenses, reasonable
attorneys' fees, alteration costs, and expenses of preparation for such
reletting.
(c) If all or any part of the Premises are relet by Landlord for any
portion of the unexpired Lease Term, before presentation of proof of such
liquidated damages to any court, commission or tribunal, the amount of rent
reserved upon the reletting will be, prima facie, the fair and reasonable
rental value for the part or the whole of the Premises relet during the
term of the reletting.
(d) Nothing contained in this Section 21.04 will limit or prejudice
the right of Landlord to prove and obtain as liquidated damages by reason
of the termination, an amount equal to the maximum allowed by any statute
or rule of law in effect at the time when, and governing the proceedings in
which, such damages are to be proved, whether or not such amount is
greater, equal to, or less than the amount of the difference referred to in
clause (b) above.
Section 21.05 Right to Equitable Relief. If a Default occurs, Landlord
-------------------------
will be entitled to enjoin the Default and may invoke any remedy allowed at law
or in equity or by statute or otherwise as though re-entry, summary proceedings
and other remedies were not provided for in this Lease.
28
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Section 21.06 Right to Self Help; Interest On Overdue Rent. If an Event of
--------------------------------------------
Default occurs, Landlord has the right, but not the obligation, to enter the
Premises and to perform any obligation of Tenant under this Lease
notwithstanding the fact that no specific provision for such substituted
performance by Landlord is made in this Lease. In performing such obligation,
Landlord may make any payment of money or perform any other act. The total of
(i) all sums paid by Landlord (ii) interest (at the rate of 1 1/2% per month or
the highest rate permitted by law, whichever is less) on such sums plus all Rent
not paid when due and (iii) all expenses in connection with the performance of
the obligation by Landlord, will be deemed to be Rent under this Lease and
payable to Landlord on demand. Landlord may exercise the foregoing rights
without waiving any other of its rights or releasing Tenant from any of its
obligations under this Lease.
ARTICLE 22
Notices
-------
Section 22.01 Notices and Communications. All notices, demands, requests
--------------------------
and other communications provided for or permitted under this Lease must be in
writing, either delivered by hand or sent by first-class mail, postage prepaid,
to the following addresses:
(a) if to Landlord, at the address stated in Section 1.01 (or at such
other address as Landlord designates in writing to Tenant), with a copy to such
Persons as Landlord designates in writing to Tenant, or
(b) if to Tenant, at the address stated in Section 1.01 (or at such
other address as Tenant designates in writing to Landlord), with a copy to such
Persons as Tenant designates in writing to Landlord.
Any communication provided for in this Lease will become effective only
upon receipt by the Person to whom it is given, unless mailed by first-class,
registered or certified mail, in which case it will be deemed to be received on
(i) the third Business Day after being mailed or (ii) the day of its receipt, if
a Business Day, or the next succeeding Business Day, whichever of (i) or (ii) is
the earlier.
ARTICLE 23
Waivers
-------
Section 23.01 No Waivers. Failure of Landlord or Tenant to complain of any
----------
act or omission on the part of the other no matter how long the act or omission
may continue, will not be deemed to be a waiver by either Landlord or Tenant of
any of its rights under this Lease. No waiver by Landlord or Tenant at any time,
expressed or implied, of the breach of any provision of this Lease will be
deemed a waiver of a breach of any other provision of this Lease or a consent to
any subsequent breach of the same or any other provision. No acceptance by
Landlord of any partial payment will constitute an accord or satisfaction but
will only be deemed a partial payment on account. None of Tenant's
29
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obligations under this Lease and no Default or Event of Default may be waived or
modified except in writing by Landlord.
ARTICLE 24
Security Deposit
----------------
Section 24.01 Security Deposit. Tenant has deposited with Landlord the
----------------
Security Deposit in the amount, if any, stated in Section 1.01. Landlord will
hold the Security Deposit as security for the payment or performance by Tenant
of its obligations under this Lease and not as a prepayment of Rent. Landlord
may commingle the Security Deposit with other funds of Landlord. Landlord will
not be liable to Tenant for the payment of interest. Landlord may expend such
amounts from the Security Deposit as may be necessary to cure any Default or
Event of Default and, in such case, Tenant agrees to pay to Landlord the amount
expended, on demand. Landlord may assign the Security Deposit to any subsequent
owner of the Building and thereafter Landlord will have no liability to Tenant
with respect to the Security Deposit. As soon as reasonably practicable after
the Lease Termination Date, Landlord agrees (i) to inspect the Premises, (ii) to
make such payments from the Security Deposit as may be required to cure any
Default or Event of Default and (iii) if no Default or Event of Default exists,
pay the balance of the Security Deposit to Tenant.
ARTICLE 25
General Provisions
------------------
Section 25.01 Unavoidable Delays. If Landlord or Tenant is delayed,
------------------
hindered in or prevented from the performance of any act required under this
Lease by reason of Unavoidable Delays, then performance of the act will be
excused for the period of the delay and the period for the performance of the
act will be extended for a period equivalent to the period of the delay.
Section 25.02 Estoppel Certificates. Tenant agrees to deliver to Landlord
---------------------
within five (5) Business Days after the Term Commencement Date an estoppel
certificate substantially in the form of Exhibit D. Within five (5) Business
Days after receipt of a request from Landlord, Tenant agrees to deliver to any
prospective purchaser, mortgagee or other Person specified in the request an
estoppel certificate substantially in the form of Exhibit D or in such other
form as the purchaser, mortgagee or other Person may reasonably prescribe. Each
estoppel certificate will be (i) signed by a duly authorized representative of
Tenant, (ii) delivered without charge to the party requesting it and (iii)
binding as to its contents on Tenant.
Section 25.03 Right to Relocate. Landlord may, at its option, upon not
-----------------
less than six (6) months prior notice to Tenant, relocate Tenant (effective as
of the date specified in the notice) to other space in the Building or in
another building in the Park having a rentable area approximately the same as
the Rentable Area of the Premises. Landlord agrees to place the other space in
substantially the same condition as the Premises are
30
<PAGE>
then in and to pay all costs associated with the move. If Tenant is relocated
under this provision (i) the other space will be substituted for the Premises
under this Lease (ii) the terms and provisions of this Lease will remain in full
force and effect and (iii) Tenant agrees (a) to relocate as requested by
Landlord and (b) to execute all documents (including but not limited to a
termination or amendment of this Lease with respect to the Premises) as Landlord
may reasonably request.
Section 25.04 Holding Over. If Tenant occupies the Premises after the
------------
Lease Termination Date without having entered into a new lease of the Premises
with Landlord, Tenant will be a tenant-at-sufferance only, subject to all of the
terms and provisions of this Lease at twice the then effective Basic Rent. Such
a holding over, even if with the consent of Landlord, will not constitute an
extension or renewal of this Lease.
Section 25.05 Governing Law. This Lease and the performance of its
-------------
provisions will be governed and construed under the laws of the Commonwealth of
Massachusetts.
Section 25.06 Partial Invalidity. If any provision of this Lease or its
------------------
application to any Person or circumstance is held to be invalid or
unenforceable, the remainder of this Lease, or the application of the provision
to Persons or circumstances other than those as to which it is held invalid or
unenforceable, will not be affected, and each provision of this Lease will be
enforced to the fullest extent permitted by law.
Section 25.07 Notice of Lease. The parties will at any time at the request
---------------
of either one, promptly execute duplicate originals of a statutory notice of
lease, in recordable form, setting forth a description of the Premises, the
Lease Term and any other terms of this Lease, excepting the rental provisions,
as may be required by law or as either party may request.
Section 25.08 Interpretation. The section headings used in this Lease are
--------------
for reference and convenience only, and do not enter into the interpretation of
this Lease. This Lease may be signed in several counterparts, each of which is
an original, but all of which constitute a single instrument. The term
"Landlord" means only the owner at the time of the Building. Upon any sale of
the Building or assignment (other than as collateral security for an obligation)
of the interest of Landlord in this Lease, Landlord will be relieved of all
liability under this Lease and its successor in interest and/or assign will be
deemed to be Landlord so long as it owns the Building. The liability of Landlord
under this Lease is limited to Landlord's interest in the Building.
Section 25.09 Consents. Except for the consents of Landlord required under
--------
Section 7.06 and Article 13, consents or approvals required or requested of
either Landlord or Tenant shall not be unreasonably withheld or delayed.
Section 25.10 Entire Agreement; Changes. All prior agreements between the
-------------------------
parties are merged within this Lease, which alone fully states the entire
understanding and agreement of the parties. This lease may not be changed or
terminated orally or in any manner other than by an agreement in writing and
signed by the party against whom enforcement of the change or termination is
sought.
31
<PAGE>
Section 25.11 Binding Effect. The provisions of this Lease are binding on
--------------
and inure to the benefit of Landlord, its successors and assigns, and Tenant,
its successors and assigns and any Person claiming under Tenant.
Section 25.12 Time of the Essence. Any provision of law or equity to the
-------------------
contrary notwithstanding, it is agreed that time is of the essence of this
Lease.
Section 25.13 Table of Contents. The table of contents preceding this
-----------------
lease but under the same cover is for the purpose of convenience and reference
only and is not to be deemed or construed in any way as part of this lease.
32
<PAGE>
EXECUTED as a sealed instrument as of the Date of Lease specified in
Section 1.01.
LANDLORD:
--------
WORCESTER BUSINESS DEVELOPMENT CORPORATION
By: /s/ John D. Hunt
----------------
John D. Hunt
Chairman
TENANT:
------
PHYTERA, INC.
By: /s/ Malcolm Morville
--------------------
Malcolm Morville
Chief Executive Officer
33
<PAGE>
EXHIBIT A
LANDLORD'S SERVICES
-------------------
I. CLEANING
A. General
1. All cleaning work will be performed during non-business hours,
Monday through Friday, unless otherwise necessary for stripping, waxing,
etc.
2. Abnormal waste removal (e.g., computer installation paper, bulk
packaging, wood or cardboard crates, refuse from cafeteria operation, etc.)
will be Tenant's responsibility.
B. Daily Operations (on Business days only)
1. Tenant Areas
a. Empty and clean all waste receptacles; wash receptacles as
necessary.
b. Vacuum all rugs and carpeted areas.
c. Empty, damp-wipe and dry all ashtrays.
2. Lavatories
a. Sweep and wash floors with disinfectant.
b. Wash both sides of toilet seats with disinfectant.
c. Wash all mirrors, basins, bowls, urinals.
d. Spot clean toilet partitions.
e. Empty and disinfect sanitary napkin disposal receptacles.
f. Refill toilet tissue, towel, soap, and sanitary napkin
dispensers.
3. Public Common Areas
a. Wipe down entrance doors and clean glass (interior and
exterior).
b. Vacuum elevator carpets and wipe down doors and walls.
c. Clean water coolers.
<PAGE>
C. Operations as Needed (but not less than every other day)
1. Tenant and Public Common Areas
a. Buff all resilient tile floor areas.
D. Weekly Operations
1. Tenant Areas, Lavatories, Public Common Areas
a. Hand-dust and wipe clean all horizontal surfaces within
normal reach with treated cloths (including furniture, office
equipment, windowsills, venetian blinds, door ledges, chair
rails, baseboards, etc.).
b. Sweep all stairways.
E. Monthly Operations
1. Tenant and Public Common Areas
a. Thoroughly vacuum seat cushions on chairs, sofas, etc.
b. Vacuum and dust grillwork.
2. Lavatories
a. Wash down interior walls and toilet partitions.
F. As Required and Weather Permitting
1. Entire Building
a. Clean inside of all windows.
b. Clean outside of all windows.
G. Yearly
1. Tenant and Common Areas
a. Strip and wax all resilient tile floor areas.
II. HEATING, VENTILATING, AND AIR CONDITIONING
1. Heating, ventilating, and air conditioning ("IWACII) as required
to provide reasonably comfortable temperatures for normal occupancy at all
times.
<PAGE>
2. Maintenance of any additional or special air conditioning
equipment and the associated operating cost will be at Tenant's expense.
III. WATER AND WASTE
Hot water for lavatory purposes and cold water for drinking, lavatory and
toilet purposes. Liquid laboratory and sanitary waste disposal and
maintenance of related plumbing systems.
IV. ELEVATORS
Elevators for the use of all tenants and the general public for access to
and from all floors of the Building. Programming of elevators (including,
but not limited to, service elevators) will be as Landlord, from time to
time, determines best for the Building as a whole.
V. RELAMPING OF LIGHT FIXTURES
Tenant will reimburse Landlord for the cost of replacement lamps, ballasts
and starters within the Premises.
VI. CAFETERIA AND VENDING INSTALLATIONS
1. Any space to be used primarily for lunchroom or cafeteria
operation within the Premises will be Tenant's responsibility to keep
clean and sanitary, it being understood that Landlord's approval of such
use must be first obtained in writing.
2. Vending machines or refreshment service installations by Tenant
must be approved by Landlord in writing and will be restricted to use by
employees and business invitees. All cleaning necessitated by such
installations shall be at Tenant's expense.
VII. STRUCTURAL AND EXTERIOR MAINTENANCE
Landlord will maintain the Building (excluding the Premises and other
tenant areas but including structural components, roof, exterior and
foundation, elevators, HVAC, pipes, wires and other building systems,
common areas, parking areas, sidewalks and access areas, etc.) in good
condition and working order. Landlord will remove snow and maintain
landscaped areas of the Land as necessary.
VIII. SECURITY
Landlord will control access to the Building during non-business hours
through use of a card access system or equivalent.
<PAGE>
EXHIBIT B
LEASE PLAN
----------
1
<PAGE>
EXHIBIT C
WORK LETTER
-----------
This Work Letter is attached to and incorporated by reference into a Lease
(the "Lease") of the Premises in the Building known as Four Biotech Park between
Worcester Business Development Corporation ("Landlord") and Phytera, Inc.
("Tenant"). Terms in this Work Letter not otherwise defined have the same
meanings as in the Lease.
1. The provisions of Sections 7.01, 7.02, 7.03, 7.04, 7.05 and 7.06 of
the Lease are made part of this Work Letter.
2. In preparing the Premises for occupancy by Tenant, Landlord will
provide the following work ("Landlord's Work"): the shell space
including interior face of exterior wall taped and sanded; sprinkler
mains including branches and related work; HVAC system, up to main
distribution points; control work as indicated on base building
drawings, electrical power up to and including distribution panels as
shown on base building drawings. in the Common Areas, Landlord's Work
includes entrances, main corridor, elevators and lavatory facilities.
3. At least ten (10) days before the Design Start Date, Landlord will
give Tenant a list of information required by Landlord's architect to
prepare a schematic space plan of the Premises ("Space Plan"). Tenant
agrees to meet with Landlord and its architect on or before the Design
Start Date and deliver all information necessary to prepare the Space
Plan.
4. Within fifteen (15) days after the Design Start Date, or the date on
which Tenant delivers the necessary information, if later, Landlord
will deliver to Tenant a copy of the Space Plan and an estimate of
Tenant's Cost for the work shown on the Space Plan. Within seven (7)
days after receipt of the Space Plan and estimate, Tenant will confirm
to Landlord that they are approved or give Landlord a detailed
explanation of why they are unacceptable. Landlord and Tenant agree to
repeat the procedure outlined in this paragraph 4 until Tenant
approves both the Space Plan and the estimate of Tenant's Cost.
5. Within thirty (30) days after approval by Tenant of the Space Plan and
estimate of Tenant's Cost, Landlord will deliver to Tenant the Working
Drawings prepared by Landlord's architect. The cost of preparing the
Working Drawings and any subsequent changes requested by Tenant will
be included in Tenant's Cost.
6. Within seven (7) days after receipt by Tenant of the Working Drawings,
Tenant will notify Landlord either (i) that the Working Drawings
correctly depict the proper layout and design of all Tenant Fit-up
desired by Tenant and Tenant approves the Working Drawings, or (ii)
that the Working Drawings vary in design from the approved Space Plat,
in which
1
<PAGE>
case Landlord will correct the Working Drawings, or (iii) that Tenant
wishes to modify the Working Drawings, in which case Tenant will
include with the notification to Landlord a written list of
modifications to the Working Drawings.
7. Promptly upon receipt of Tenant's approval of the Working Drawings,
Landlord agrees to obtain from a qualified contractor a guaranteed
maximum price to construct Tenant Fit-up as shown in the Working
Drawings, and to submit to Tenant the final Tenant's Cost together
with a schedule for completion of the work. If Tenant's Cost, as
finally determined, does not exceed Landlord's estimate by more than
ten percent (10k), Tenant agrees to accept the final determination and
authorizes Landlord to proceed with construction of Tenant Fit-up. If
Tenant's Cost exceeds Landlord's estimate by more than ten percent
(10k), the process outlined in paragraph 6 above will be repeated
until Tenant approves Tenant's Cost.
8. If Tenant's Cost exceeds the amount of any allowance agreed to by
Landlord, within seven (7) days after the final determination of
Tenant's Cost, Tenant agrees (i) to deposit an amount equal to that
excess in an escrow account which provides for the payment of Tenant's
Cost on terms satisfactory to Landlord, or at Landlord's option, (ii)
to make other arrangements acceptable to Landlord for the payment of
the excess. Landlord will be under no obligation to begin construction
of Tenant Fit-up until Tenant has complied with the provisions of this
paragraph.
9. Tenant may request changes in Tenant Fit-up after approval of the
Working Drawings and Tenant's Cost Changes to the Working Drawings and
the work made by Tenant will be priced at the cost of (i) making such
changes to the Working Drawings and (ii) the cost of the work shown
thereon (including any contractor's overhead profit and general
conditions). Tenant agrees to pay the cost of all changes made by it.
10. Landlord may rely on Tenant's representative with respect to all
matters which pertain to this Work Letter, Tenant having authorized
Tenant's representative to make decisions binding upon Tenant with
respect to such matters.
11. If Landlord exercises its right to terminate this Lease because of
Tenant's failure to perform any of its obligations, including its
obligations under this Work Letter, and if the termination occurs
before the Term Commencement Date, Tenant agrees to pay Landlord, as
Additional Rent, (i) an amount equal to the sum of all expenses
incurred by Landlord for architectural, engineering, consulting, legal
and other professional services relating to the Premises and this
Lease, plus (ii) Basic Rent for the period from the date Tenant
accepted Landlord's letter of intent to lease the Premises through the
Lease Termination Date.
2
<PAGE>
EXHIBIT D
ESTOPPEL CERTIFICATE
--------------------
, 19
Gentlemen:
Reference is made to the Lease dated , 19 , from Worcester Business
Development Corporation, as Landlord to Phytera, Inc., as Tenant with respect to
the Premises in the Building known as Four Biotech Park (the "Lease"). Terms
used in this Certificate which are defined in or by reference to the Lease have
the same meanings in this Certificate as in the Lease.
The undersigned hereby ratifies the Lease and certifies that:
1. The Term Commencement Date is .
2. The Stated Expiration Date is .
3. The Premises are presently occupied by .
4. Basic Rent is currently payable at the rate of $ per year.
5. Basic Rent has been paid through , 19 .
6. Additional Rent for Taxes and Operating Expenses has been paid through
, 19 .
7. The Lease is in full force and effect and has not been assigned, modified,
supplemented or amended in any way (except by agreement(s) dated
___________) and represents the entire agreement between Landlord and
Tenant.
8. No Default or Event of Default has been asserted by either party to the
Lease and, to the knowledge of the undersigned, no Default or Event of
Default exists on the part of either party to the Lease (except ).
9. On this date, to the knowledge of the undersigned, there are no existing
defenses or offsets which Tenant has against the enforcement of the Lease by
the Landlord (except ).
10. No Rent has been paid in advance of its due date under the Lease.
Very truly yours,
_______________________
By:____________________(Title)
1
<PAGE>
EXHIBIT E
RENT RIDER
----------
This Rent Rider is attached to and incorporated by reference into a Lease
(the "Lease") of the Premises in the Building known as Four Biotech Park between
Worcester Business Development Corporation ("Landlord") and Phytera, Inc.
("Tenant"). Terms not otherwise defined have the same meanings in this Rent
Rider as in the Lease.
1. Definitions. Each term set forth in this paragraph 1 has the meaning
-------------
stated immediately after it.
C.P.I. "Consumer Price Index - All Urban Consumers (CPI-U)-U.S. City
-------
Average--All Items (1982-84 = 100)" as published by the U.S. Department of
Labor.
Market Rental Value. The rent per square foot per year which a Person
-------------------
not affiliated with either Landlord or Tenant would pay as Basic Rent as of
the time of determination (i) for the same number of square feet of
Rentable Area as the Premises, located in the Building (or a comparable
building comparably located), (ii) assuming similar terms and concessions,
if any, to those prevailing at the time, (iii) for a term of years equal to
that for which the determination is being made and (iv) for space which is
finished in a manner similar to that of the Premises. For purposes of
determining market Rent, space in the Park leased to tax-exempt
organizations or tenants sponsored by Commonwealth BioVentures, Inc. will
not be considered comparable. All Additional Rent, such as Taxes and
Operating Expenses, will be in addition to the rent per square foot so
determined.
2. Adjustment of Basic Rent. Basic Rent for each Lease Year of each
------------------------
successive Fixed Rental Period, if any, after the first Fixed Rental Period will
be the greatest of
(i) an amount determined by (A) multiplying eighty percent (80%) of
Basic Rent for the final Lease Year of the most recent Fixed
Rental Period by a fraction, the numerator of which is the
C.P.I. for the last month or other reporting period of the most
recent Fixed Rental Period and the denominator of which is the
C.P.I. for the last month or other reporting period immediately
preceding the Term Commencement Date, and (B) adding the result
to the remaining twenty percent (20%;) of such Basic Rent; or
(ii) an amount determined by increasing Basic Rent as stated in
Article 1.01 by three percent (3%) per year, compounded annually
for the period beginning on the Term Commencement Date and
ending on the last day of the most recent Fixed Rental Period;
or
(iii) the Market Rental Value of the Premises determined as provided
in paragraph 4 below at the end of each Fixed Rental Period.
1
<PAGE>
Basic Rent determined as provided in this paragraph 2 will in no event be
less than Basic Rent for each Lease Year of the preceding Fixed Rental Period
and will be exclusive of (and in addition to) amounts due for Taxes and
operating Expenses.
3. Change in C.P.I.; Substituted Index. If the United States Department
-----------------------------------
of Labor changes the base reference period for determining the C.P.I., the
adjustment of Basic Rent will continue to be calculated with 1982-84 as the base
reference period using such figures or conversion formulas as the United States
Department of Labor may publish at the time the base reference period is
changed. If publication of the C.P.I. is discontinued, Landlord and Tenant
agrees to accept comparable statistics on the cost of living as they are
computed and published by a Governmental Authority or if such statistics are not
published by a Governmental Authority, comparable statistics published by a
responsible financial periodical of recognized authority selected by Landlord.
If comparable statistics are used in place of the C.P.I., Landlord will make
such reasonable revisions in the method of computation of Basic Rent as the
circumstances may require to carry out the intent of this Rent Rider and will
give Tenant notice of the revisions before using them.
4. Market Rental Value; Arbitration.
--------------------------------
(a) At least ninety (90) (but not earlier than one hundred twenty (120)
days before the end of each Fixed Rental Period, Landlord will notify Tenant of
Landlord's estimate of the Market Rental Value of the Premises. Landlord and
Tenant will attempt to negotiate and determine by agreement the Market Rental
Value of the Premises. If a dispute arises between Landlord and Tenant with
respect to the determination of Market Rental Value or if Landlord and Tenant
have not agreed on such amount by the date which is sixty (60) days before the
end of the then current Fixed Rental Period, such dispute will be determined
exclusively by the arbitrators appointed under this paragraph 4.
(b) If Market Rental Value is to be determined by the arbitrators, either
Landlord or Tenant may give the other party a notice appointing an arbitrator
and demanding arbitration under this paragraph. Within fifteen (15) days after
receipt of such notice, the other party will, by notice to the original party,
appoint a second arbitrator on its behalf. If within thirty (30) days after the
appointment of the second arbitrator, the two arbitrators have not agreed upon
the Market Rental Value, the two arbitrators will appoint a third and give
notice of the appointment to each party. Each arbitrator must be a
disinterested person of recognized competence in the field of commercial real
estate leasing. The three arbitrators will, as promptly as possible, determine
the Market Rental value, provided, however, that
(i) if the second arbitrator is not appointed in the manner
prescribed, the first arbitrator may determine the matter
alone; and
(ii) if the two arbitrators appointed by the parties are
unable to agree, within thirty (30) days after the
2
<PAGE>
appointment of the second arbitrator, upon the appointment
of a third arbitrator, they must give notice of such failure
to agree to the parties, and, if the parties fail to agree
upon the selection of such third arbitrator within fifteen
(15) days after notice from the arbitrators, then the third
arbitrator will be the person appointed by the President of
the Greater Worcester Board of Realtors, Inc., or if within
fifteen (15) days the President fails to appoint an
arbitrator, then within ten (10) days thereafter, either of
the parties upon notice to the other party may request such
appointment by a judge of the Superior Court, Worcester
County, Commonwealth of Massachusetts, or of any other court
having jurisdiction and exercising functions similar to
those now exercised by the Superior Court.
(c) Arbitration proceedings will be conducted in Worcester in accordance
with the rules of the American Arbitration Association then in effect, but only
so far as consistent with the provisions of this paragraph 4. The arbitrators
will be sworn to determine the questions at issue faithfully and fairly. They
will afford each party a hearing and the right to submit evidence with the
privilege of cross-examination on the questions at issue and will, with all
possible speed, make their determination in writing and give the parties written
notice of their determination. If the first two arbitrators fail to decide, the
third arbitrator shall make an independent determination of the Market Rental
Value. The determination of each of the three arbitrators shall be submitted in
writing to Landlord and Tenant. The Market Rental Value shall be the average of
the two closest determinations submitted by the Arbitrators and shall be final
and binding on the parties.
(d) Landlord and Tenant will each be solely responsible for the payment of
all fees and expenses of the arbitrator it appointed, and will share equally the
payment of all fees and expenses of the American Arbitration Association (if
any) and of the third arbitrator.
3
<PAGE>
MASSACHUSETTS BIOTECHNOLOGY RESEARCH PARK
SPACE LEASE
to
PHYTERA, INC.
RIDER AND ADDENDUM
------------------
The Space Lease from Worcester Business Development Corporation to Phytera,
Inc. to which this Rider and Addendum is attached is modified and amended by
incorporation of the following additional provisions:
1. Rentable Area of the Premises Upon completion of Landlord's Work, the
-----------------------------
Rentable Area of the Premises will be determined by Landlord by actual
measurement and application of Landlord's standard method for determining
rentable area of buildings in the Park. Landlord agrees to give Tenant notice of
the determination of Rentable Area of the Premises together with a computation
of the resulting adjustments in Basic Rent, Tenant's Share and Initial Monthly
Payment.
2. Relocation of Building Service Fixtures. Landlord agrees that, except
---------------------------------------
in the case of an emergency, it will exercise its right reserved in Section 2.01
to relocate Building service fixtures only after reasonable notice to Tenant and
that it will repair any damage to the Premises resulting from the relocation
work.
3. Tenant's Allowance and Payment of Tenant's Cost. Landlord agrees to
-----------------------------------------------
pay up to $1,540,000 of Tenant's Cost in preparing the Premises for Tenant's
occupancy, which amount is referred to in this Lease as "Tenant's Allowance."
Therefore, notwithstanding the provisions of Section 7.01 and the Work Letter to
the contrary, Tenant will not be obligated to pay Tenant's Cost for preparing
the Premises for Tenant's occupancy, except to the extent that Tenant's Cost
exceeds Tenant's Allowance as a result of changes to the Working Drawings or
additional improvements requested by Tenant after the final determination of
Tenant's Cost as provided in the Work Letter.
4. Improvements by Tenant. Notwithstanding the provisions of Section 7.06
----------------------
to the contrary, Tenant may make Improvements during the Term without obtaining
Landlord's approval of the plans and specifications and the contractor, provided
that (i) the cost of the Improvements made during any one Lease Year may not
exceed $10,000 and (ii) Tenant will comply with all other provisions of Section
7.06.
5. Tenant's Self-Help. Notwithstanding any limitations contained in
------------------
Section 8.04, if Landlord fails to perform any of its obligations as provided in
this Lease, and the failure continues for a period of thirty (30) days after
notice from Tenant, Tenant may perform those obligations specified in the
notice, and Landlord agrees to reimburse Tenant for any costs incurred by Tenant
in performing those obligations.
6. Removal of Tenant's Equipment on Redelivery. Any equipment installed
-------------------------------------------
in the Building by Tenant at its expense which does not constitute an
Improvement, may be removed by Tenant on or before the Lease Termination Date.
1
<PAGE>
7. Landlord's Access. For purposes of Section 12-01 reasonable, notice is
-----------------
considered to be at least twenty-four (24) hours before entry.
8. Assignment and Subletting. For purposes of Section 13.01, a Person is
-------------------------
affiliated with Tenant if that Person is (i) Tenant's parent corporation or (ii)
a wholly owned subsidiary of Tenant or Tenant's parent corporation, or (iii) an
Affiliate. The term "Affiliate" means any corporation which, directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with Tenant. The term "control" means the right to
exercise, directly or indirectly, more than fifty percent (50%) of the voting
rights attributable to the shares of the controlled corporation. The term
"Affiliate" also includes any Person into which Tenant merges or with whom
Tenant consolidates or to whom Tenant sees all or substantially all of its
assets, provided that Tenant provides Landlord with evidence reasonably
satisfactory to Landlord that such Person is financially responsible and capable
of performing Tenant's obligations under this Lease.
9. Alpha-Beta Sublease and Guaranty. Notwithstanding the provisions of
--------------------------------
Section 13.01, Tenant may sublet Premises B to Alpha-Beta Technology, Inc.
("Alpha - Beta 11) upon terms mutually acceptable to Tenant and Alpha-Beta and
without complying with the provisions of Section 13.02, provided that before
entering into any sublease with Alpha-Beta, Tenant agrees to cause Alpha-Beta to
execute and deliver a guaranty of this Lease in the form of Exhibit R-A attached
to this Rider and Addendum which guaranty will relate to Tenant's obligations
with respect to Premises B and will remain in effect so long as the sublease
exists or, if later, so long as Alpha-Beta occupies Premises B.
2
<PAGE>
EXHIBIT R-A
GUARANTY OF LEASE
-----------------
IN CONSIDERATION of One Dollar ($1.00) and other valuable consideration
paid to the undersigned ("Guarantor") by WORCESTER BUSINESS DEVELOPMENT
CORPORATION, a Massachusetts nonprofit corporation having a place of business at
One Innovation Drive, Worcester, Massachusetts ("Landlord"), the receipt and
sufficiency of which are acknowledged, the Guarantor unconditionally guaranties
to Landlord (a) payment when due of the Rent, as that term is defined in the
lease dated October 1, 1993 (the "Lease") of the premises in the building known
as "Four Biotech Park" having the address of 377 Plantation Street Worcester,
Massachusetts 01605 from Landlord to PHYTERA, INC. ("Tenant") and (b) the
performance of all obligations to be performed or observed by Tenant under the
Lease, provided that (1) this Guaranty is limited to the payment of Rent and the
performance of Tenant's obligation under the Lease only insofar as they relate
to Premises B described in the Lease and (2) this Guaranty will become effective
only when Guarantor enters into a sublease of Premises B or occupies any part of
Premises B, whichever is earlier, and will terminate when the sublease of
Premises B terminates or Guarantor vacates Premises B, whichever is later.
The Guarantor agrees to take or to refrain from taking any action which may
be required to assure that no Default or Event of Default (as defined in the
Lease) with respect to Premises B occurs or continues. The Guarantor waives
notice of all Defaults and Events of Default, except as specifically provided
below, and of all extensions and indulgences granted by Landlord to Tenant.
The Guarantor agrees that this is a guaranty of payment and not a guaranty
of collection, and that the liability of the Guarantor is immediate and is not
contingent on the exercise or enforcement by Landlord of whatever remedies it
has against Tenant or any other guarantor or with respect to the Premises. In
order to hold the Guarantor liable under this Guaranty, Landlord will have no
obligation to proceed against Tenant or any other guarantor, their respective
property or assets, or to resort to any collateral, the Premises or other rights
or remedies.
The liability of the Guarantor under this Guaranty is independent, absolute
and unconditional and will not be reduced or impaired by (i) the lack of
validity or enforceability of any provision of the Lease, (ii) any change of
ownership of Tenant, (iii) the bankruptcy, insolvency or reorganization of, or
similar proceedings involving, Tenant, (iv) the waiver by Landlord at any time
of any of its rights against Tenant arising out of a Default, (v) any extensions
or indulgences granted by Landlord to Tenant, (vi) the subletting, assignment or
other transfer of the Lease or any interest in the Lease by Landlord or Tenant,
(vii) the subordination of the Lease to any mortgage or ground lease, (viii) the
acceptance by Landlord of any security for or other guarantors of the
obligations under the Lease, (ix) the failure or neglect by Landlord to enforce
against Tenant, against any other, guarantor or against the Premises, any of the
obligations guarantied by the Guarantor, or (x) any other circumstance that
might constitute a defense available to, or a
1
<PAGE>
discharge of, Tenant in respect of its obligations under the Lease or the
Guarantor in respect of this Guaranty.
Landlord has the exclusive right to determine how, when and what
application of payments and credits, if any, is to be made with respect to the
obligations guarantied by this Guaranty.
The Guarantor is fully aware of the financial condition of Tenant. The
Guarantor delivers this Guaranty based solely upon his own independent
investigation and not in reliance upon any representation or statement by
Landlord. The Guarantor is in a position to obtain, and assumes full
responsibility for obtaining, any additional information concerning the
financial condition of Tenant which the Guarantor considers material to his
obligations under this Guaranty, and the Guarantor is not relying upon Landlord
to furnish any information concerning the financial condition of Tenant.
This Guaranty is binding upon the Guarantor, his executors, administrators,
heirs and assigns, and is for the benefit of Landlord, its successors and
assigns. This Guaranty and the rights of the Guarantor and Landlord are to be
governed and construed under the laws of the Commonwealth of Massachusetts. The
Guarantor irrevocably submits to the nonexclusive jurisdiction of any
Massachusetts or Federal Court sitting in Worcester, Massachusetts, in any
proceeding for the enforcement of the obligations of the Guarantor under this
Guaranty. The Guarantor irrevocably agrees that all claims in respect of any
enforcement proceeding may be heard and determined by a Massachusetts or Federal
Court sitting in Worcester, Massachusetts. The Guarantor agrees that service of
process in any enforcement proceeding may be made by mailing a copy of the
process, certified mail, postage prepaid, addressed to the Guarantor at its
address specified below his signature, provided that service will be effective
only upon actual receipt.
If the Lease is terminated before the end of the term of the sublease to
Guarantor, Landlord agrees to give Guarantor notice of the termination together
with. a statement of all sums due under this Guaranty. Guarantor will have the
option for a period of thirty (30) days after receipt of Landlord's notice to
enter into a new lease of Premises B which lease will be (i) effective as of the
termination of the Lease, (ii) for the remainder of the term of the sublease to
Guarantor and (iii) for the same Rent and upon all of the other terms contained
in the Lease to the extent applicable to Premises B. Upon the execution of the
new lease, Guarantor agrees (a) to pay all Rent and other sums due Landlord
under the Lease with respect to Premises B, including reasonable counsel fees
and other costs incurred by Landlord in connection with the termination,
recovery of possession of Premises B and the preparation and execution of the
new lease and (b) to perform all other obligations of Tenant under the Lease as
they relate to Premises, B which are reasonably susceptible of being performed
by Guarantor. Any notice or other communication under this Guaranty will be
governed by the provisions of Section 22 of the Lease and if to Guarantor will
be delivered or sent to it at its address as indicated below or such other
address as Guarantor designates in writing to Landlord.
2
<PAGE>
EXECUTED under seal this 1st day of October, 1993.
ALPHA-BETA TECHNOLOGY, INC.
By:________________________________
Spiros Jamas, President
One Innovation Drive
Worcester, MA 01605
COMMONWEALTH OF MASSACHUSETTS
Worcester, SS October 1, 1993
Then personally appeared the above-named Spiros Jamas, its president, and
acknowledged the foregoing instrument to be his free act and deed, before me.
________________________________
Notary Public
My Commission Expires:
3
<PAGE>
PHYTERA, INC.
SECRETARY'S CERTIFICATE
I, Lynnette C. Fallon, hereby certify that I am the duly elected and
qualified
Secretary of Phytera, Inc., a Delaware corporation whose principal place of
business is in
Worcester, Massachusetts, and that the following vote was duly adopted by its
Board of
Directors:
VOTED: That the President and any Vice President, acting singly, is
hereby authorized to execute and deliver a lease of certain
premises at Four BioTech Park, Worcester, Massachusetts, as
described in the draft lease presented to the Board of Directors
with Worcester Business Development Corporation and having such
terms and otherwise in such form as shall be approved by the
executing officer, with his execution thereof to be conclusive
evidence of such approval.
I further certify that the foregoing vote is in full force and effect.
Dated: November 9, 1993
/s/ Lynnette C. Fallon
-------------------------------
Lynnette C. Fallon, Secretary
1
<PAGE>
MASSACHUSETTS BIOTECHNOLOGY RESEARCH PARK
FOUR BIOTECH PARK
SECOND AMENDMENT TO LEASE
-------------------------
This SECOND AMENDMENT TO LEASE dated as of June 18, 1996 is between
-------
WORCESTER BUSINESS DEVELOPMENT CORPORATION ("Landlord") and PHYTERA, INC.
("Tenant") and amends the Lease dated November 1, 1993 between Landlord and
Tenant as amended by First Amendment dated March 23, 1994 (the "Lease"). The
purposes of this Second Amendment are to increase Tenant's Allowance by $34,000,
to make the appropriate adjustment to Basic Rent and to eliminate the
distinction between Premises B-1 and B-2.
1. AMENDMENT OF RIDER AND ADDENDUM. Paragraph 3 of the Rider and
-------------------------------
Addendum, as amended by the First Amendment, is amended by increasing Tenant's
Allowance from $1,540,000 to $1,574,000 and allocating the increase to the
entire Premises.
2. AMENDMENT OF SECTION 1.01. Section 1.01 of the Lease as amended by the
-------------------------
First Amendment is amended by substituting the following new definitions for the
corresponding definitions in the First Amendment:
TERM COMMENCEMENT DATE:
PREMISES A April 1, 1994
PREMISES B July 1, 1994
RENTABLE AREA OF THE PREMISES:
PREMISES A 11,993 square feet
PREMISES B 13,752 square feet
TOTAL 25,745 square feet
TENANT'S SHARE: 27.8%
BASIC RENT:
Before full expenditure of Tenant's Allowance, effective as
of the first day of each month during each Lease Year of the
first Fixed Rental Period, Basic Rent for the month will be
calculated by 1) multiplying the amount of Tenant's
Allowance previously expended by Landlord by 17%, 2)
dividing the product by the Rentable Area of the Premises
(25,745 square feet), 3) adding $9.00 to the result, 4)
multiplying the sum by the Rentable Area of the Premises and
5) dividing the product by 12.
After full expenditure of Tenant's Allowance for each Lease
Year of the first Fixed Rental Period, Basic Rent will be as
follows:
<PAGE>
$499,285.00 per Lease Year
$ 41,607.08 Monthly Installment
3. RATIFICATION OF LEASE. This Amendment will prevail over any other
---------------------
provisions of the Lease which are inconsistent with this Amendment or the state
of facts contemplated by this Amendment. As amended by this Second Amendment,
the Lease is ratified and confirmed in all respects.
Executed as a sealed instrument as of the date first above written.
LANDLORD:
---------
WORCESTER BUSINESS DEVELOPMENT
CORPORATION
By: /s/ John D. Hunt
----------------------
John D. Hunt, Chairman
TENANT:
-------
PHYTERA, INC.
By: /s/ Malcolm Morville
---------------------
Malcolm Morville, Chief Executive
Officer
-2-
<PAGE>
MASSACHUSETTS BIOTECHNOLOGY RESEARCH PARK
FOUR BIOTECH PARK
FIRST AMENDMENT TO LEASE
------------------------
This FIRST AMENDMENT TO LEASE dated as of March 23, 1994 is between
WORCESTER BUSINESS DEVELOPMENT CORPORATION ("Landlord") and PHYTERA, INC.
("Tenant") and amends the Lease dated November 1, 1993 between Landlord and
Tenant (the "Lease") The purpose of this First Amendment is to establish the
Term Commencement Date, to establish the actual Rentable Area of the Building
and the Premises by application of Landlord's standard method, to establish the
resulting adjustments in Tenant's Share and Initial Monthly Payment, to
subdivide the Premises into three (3) areas rather than two (2) and to clarify
the computation of Basic Rent and the allocation of Tenant's Allowance.
1. AMENDMENT OF SECTION 1.01. Section 1.01 of the Lease is amended by
-------------------------
substituting the following new definitions for the corresponding definitions in
the original Lease:
TERM COMMENCEMENT DATE:
PREMISES A April 1, 1994
PREMISES B-1 July 1, 1994) or as defined in
PREMISES B-2 July 1, 1995) Section 1.03, if different
RENTABLE AREA OF THE PREMISES:
PREMISES A 11,993 square feet
PREMISES B-1 10,415 square feet
PREMISES B-2 3,337 square feet
------
TOTAL 25,745 square feet
RENTABLE AREA OF THE BUILDING: 92,711 square feet
TENANT'S SHARE: PREMISES A 12.9%
PREMISES B-1 11.2%
PREMISES B-2 3.6%
-----
TOTAL 27.8%
LEASE TERM: Ten (10) Lease Years beginning April 1, 1994
and ending March 31, 2004
BASIC RENT: Annual Monthly Installment
------ -------------------
PREMISES A $ 230,337 $ 19,194.75
PREMISES B-1 $ 219,535 $ 18,294.58
PREMISES B-2 $43,633 * $3,636.08 *
* SEE AMENDED RIDER AND ADDENDUM - PARAGRAPH "FIXED"
<PAGE>
FIXED RENTAL PERIOD: Each successive period of three Lease
years beginning on the Commencement Date
of Premises A. (3) Term
2. AMENDMENT OF RIDER AND ADDENDUM. Paragraph 3 of the Rider and Addendum
-------------------------------
is amended by substituting the following new paragraph 3:
3. THE PREMISES AND TENANT'S ALLOWANCE. Although the Rentable Area
-----------------------------------
of the Premises is 25,745 square feet, the Premises is subdivided
into three (3) areas called Premises A, Premises B-l, and
Premises B-2. Landlord has agreed to pay up to $1,540,000 of
Tenant's Cost in preparing the Premises for Tenant's occupancy,
which amount is referred to in the Lease as "Tenant's Allowance".
Landlord and Tenant have agreed to allocate Tenant's Allowance
among the areas of the Premises as follows:
Premises A $720,000
Premises B-1 $740,000
Premises B-2 $ 80,000
Therefore, notwithstanding the provisions of Section 7.01 and the
Work Letter to the contrary, Tenant will not be obligated to pay
Tenant's Cost for preparing the Premises for Tenant's occupancy
except to the extent that Tenant's Cost for a particular Premises
exceeds Tenant's Allowance allocated to that Premises. Premises
A is currently occupied by Tenant. The preparation of Premises
B-1 for Tenant's occupancy is currently under way. Landlord will
have no obligation to begin preparation of Premises B-2 for
Tenant's occupancy until Tenant gives Landlord notice specifying
the Design Start Date with respect to that Premises. Subject to
extension as a result of delays of the type described in Section
7.04, Landlord agrees that the Substantial Completion Date with
respect to Premises B-2 will occur not more than one hundred
fifty (150) days after the Design Start Date specified by Tenant.
Irrespective of when the Premises are ready for occupancy, Tenant
agrees to begin paying Basic Rent, Operating Expenses and Taxes
according to the following schedule:
(a) On the Term Commencement Date of Premises A, Basic Rent
at the rate of $19.21 per square foot of Rentable Area of
Premises A and Operating Expenses and Taxes with respect to
Premises A;
(b) On the Term Commencement Date of Premises B-1, Basic
Rent at the rate of $21.08 per square foot of Rentable Area of
Premises B-1 and $9.00 per square foot of Rentable Area of
Premises B-2 and Operating Expenses and Taxes with respect to
both Premises B-1 and B-2; and
(c) On the Term Commencement Date of Premises B-2, Basic
Rent will increase from $9.00 to the rate of $13.08 per square
foot of Rentable Area of Premises B-2.
-2-
<PAGE>
3. RATIFICATION OF LEASE. This Amendment will prevail over any other
---------------------
provisions of the Lease which are inconsistent with this Amendment or the state
of facts contemplated by this Amendment. As amended by this First Amendment, the
Lease is ratified and confirmed in all respects.
Executed as a sealed instrument as of the date first above written.
LANDLORD:
---------
WORCESTER BUSINESS DEVELOPMENT
CORPORATION
By: /s/ John D. Hunt
-----------------
John D. Hunt, Chairman
TENANT:
-------
PHYTERA, INC.
By: /s/ Malcolm Morville
---------------------
Malcolm Morville, Chief Executive Officer
-3-
<PAGE>
EXHIBIT 10.14
LEASE
Dansk Teknologisk Institut
Gregersensvej
P.O. Box 141
DK-2630 Taastrup
as lessor (hereinafter called DTI)
and
Phytera A/S
Gregersensvej
DK-2630 Taaistrup
as lessee (hereinafter called Phytera)
have entered into the following lease today:
1.
THE SIZE AND LOCATION OF THE PREMISES
The premises comprise a total of 425 sq.m. gross floorage in building no. 4
belonging to DTI, situated at Gregersensvej, DK-2630 Taastrup.
Please see the attached floor plan (Annex 1) which describes the leased floorage
in more detail.
<PAGE>
2.
OUTDOOR AREAS
DTI shall ensure that the outdoor areas are cleaned, gravelled and cleared for
snow to the extent necessary.
The employees and visitors of Phytera may park private cars according to the
rules applying to DTI.
3.
THE USE OF THE PREMISES
The premises shall be used as laboratories and offices. The premises may not be
used for any other purposes without the written consent of DTI.
Phytera shall be entitled to use the canteen facilities free of charge.
Phytera may also use DTI's class and meeting rooms to the extent that they are
not used by DTI.
4.
LIABILITY TO THIRD PARTIES, INCLUDING PUBLIC AUTHORITIES
The premises may be used within the limits of current legislation and in
accordance with the directions given by the authorities. Phytera has sole
liability for the use of the premises and a duty to free DTI from any liability
and indemnify any expenses incurred by DTI as a consequence of Phytera's use of
the premises in relation to the public authorities as well as private persons.
The premises shall not be used in a way which may be of inconvenience to others
or the building as such, caused by odeur, noise, overloading of installations
etc.
5.
COMMENCEMENT AND TERMINATION OF THE LEASE
The lease commences on 1 September 1996 and runs until terminated by either of
the parties with 6 month's written notice calculated from the first day of a
month. Unless either of the parties commits breach of contract, the lease cannot
terminate before 1 August 2001.
6.
SIZE AND ADJUSTMENT OF THE RENT
The annual rent amounts to DKK 207,250, two hundred and seven thousand and two
hundred fifty Danish Kroner. The rent is to be paid quarterly in advance with
addition of VAT.
2
<PAGE>
The annual rent has been calculated on the following basis:
Office floorage 195 sq. m. at DKK 650 per sq. m.
Workshop floorage 230 sq. m. at DKK 350 per sq. m.
The basic rent shall be adjusted annually on 1 January in line with the net
price index, but no less than 2%. The adjustment shall be made on the basis of
the developments in the net price index in the period from 1 October to the next
1 October prior to the time of adjustment. The rent shall be adjusted once on 1
January 1997 on the basis of the change in the net price index in the period
from 1 October 1995 to 1 October 1996. In case of a drop in the net price index
the rent will not be reduced.
The price index adjustment appears from the calculation example (Annex 2)
included in pursuance to section 9 (4) of the Act of Rent Adjustment in business
premises etc.
In addition, the DTI may increase the rent irrespective of granted
interminability, if property taxes or any new public authority duties or taxes
increase.
7.
EXPENSES DEPENDENT ON CONSUMATION
As part of the rent, Phytera shall contribute to the consumption-dependent
expenses for electricity, water and heating.
The charges for electricity, water and heating shall be calculated according to
consumption in relation to the leased space and shall be payable quarterly with
DKK 11,925 on account. VAT shall be added to the amount.
The above amount is estimated and may be increased or reduced.
8.
TELEPHONE AND TELEFAX
At its own expense, Phytera shall be entitled to install and use its own
telephone and telefax without using DTI's switching system.
9.
DEPOSIT
As security for Phytera's obligations, a deposit of DKK 51,813, + VAT equivalent
to three month's rent, shall be paid when the contract is signed.
10.
MAINTENANCE
Phytera shall be responsible for the maintenance of the interior of the
premises.
In this respect, Phytera shall among other things maintain or renew/replace
paint, flooring, locks, keys, sanitary and electrical installations and fittings
as well as carry out the necessary maintenance as laid down in section 20 of the
Danish Rent Act.
3
<PAGE>
DTI shall be responsible for the maintenance of the exterior.
11.
ON DELIVERY OF THE PREMISES
At the commencement of the lease, the premises are taken over as inspected with
the agreed changes to the building, cf. Annex 3. At the end of the lease, the
premises shall be delivered up in the same condition as they were in at the
commencement of the lease, deprediation due to wear and tear excepted, i.e. in
good order and repair with installations in working order and flooring and
fittings intact.
12.
REDECORATION AND OTHER CHANGES
With DTI's prior written consent, Phytera shall be entitled to redecorate or
make changes to the premises. Unless otherwise stated in DTI's written consent,
Phytera shall remove any changes and fully re-establish the premises at the end
of the lease.
13.
DISPLAYS
Phytera shall be entitled to conventional displays if their presentation and
placing are approved by DTI in advance.
14.
INSURANCE
Phytera shall have a duty of maintenance as regards the windows and any glass
doors of the premises. Phytera shall take out its own glass insurance if they
want glass coverage. Fire insurance and other insurance in respect of the
building shall be taken out and kept effective by DTI.
If Phytera's special activities imply unusual increases in the insurance
premiums concerning the property according to written statement from the
insurance company, DTI shall be entitled to add this increase to the rent.
15.
FINANCING OF BUILDOUT
DTI agrees to finance the cost of the buildout of the premises. Phytera shall
repay DTI for the buildout costs over five (5) years. Such repayments shall be
included with Phytera's quarterly rent payments. Interest on the financial costs
must be paid at the rate of the discount rate + 6% p.a. Security for payment of
the financial costs is required. Phytera agrees to fully repay DTI for the
buildout costs prior to vacating the premises. At its discretion, Phytera may
accelerate its repayment of the buildout costs without any penalty.
4
<PAGE>
16.
SUB-LEASE
Phytera shall be entitled to sublease subject to DTI's approval of the
subleasee.
17.
BREACH OF CONTRACT
As regards breach of contract on the part of Phytera, confer the provisions of
the legislation on rent.
18.
FORM CONDITIONS
In addition to above, the conditions of the attached form A 1994, approved by
the Danish Housing Agency (Annex 4), shall apply.
19.
COSTS
Stamp duties on this lease shall be paid by Phytera.
Taastrup On 26. July 1996 On
- -------- ------------- ---------------- ----------------
Dansk Teknologisk Institut Phytera A/S
/s/ Peter C. Nielsen /s/ Malcolm Morville
- --------------------------- ---------------------------------
5
<PAGE>
ANNEX 1: DIAGRAM OF FLOOR PLAN OF LEASED PREMISES
- -------- ----------------------------------------
<PAGE>
ANNEX 2: ILLUSTRATION OF POSSIBLE ADJUSTMENT OF THE RENT
- -------- -----------------------------------------------
According to section 6 in the lease and according to the Danish Rent act,
section 9, 4, possible consequences, of the adjustment act are to be listed as
follows:
If the net price index increases with 2% annually, the rent will be as follows
in the period listed:
<TABLE>
<CAPTION>
<S> <C>
1996 207250,00
1997 211395,00
1998 215622,90
1999 219935,36
2000 224334,07
2001 228820,75
2002 233397,16
2003 238065,10
2004 242826,41
2005 247682,93
2006 252636,59
2007 257689,33
2008 262843,11
</TABLE>
This is just a consultative calculation, as the change in the net price index
may go up as well as down.
<PAGE>
ANNEX 3: DIAGRAM OF CHANGES TO THE BUILDING
- -------- ----------------------------------
<PAGE>
SUMMARY OF PHYTERA COOLING/HEATING REQUIREMENTS
-----------------------------------------------
<PAGE>
Annex 4: DANISH HOUSING AGENCY FORM CONDITIONS
- -------- -------------------------------------
<PAGE>
EXHIBIT 10.15
SCIENCE CENTRE
LEASE
PARTIES AND PREMISES UNDER THE LEASE
- ------------------------------------
(S)l
We, the undersigned SYMBION A/S (hereinafter referred to as SYMBION),
Fruebjergvej 3/Gribskovvej 4, DK-2100 Copenhagen 0, hereby lease unto the co-
signatory AUDA PHARMACEUTICALS ApS (hereinafter referred to as THE SCIENCE PARK
LESSEE), the premises indicated on the plans annexed hereto and located in the
property Fruebjergvej 3/Gribskovvej 4, DK-2100 Copenhagen 0.
The total floorage of the leased premises comes to 236 sq.m., to which should be
added the lessee's share in core areas, corridors, etc. The gross floorage for
rent calculation purposes thus appears by multiplying the above net area by
factor 1.6, which gives a total gross floorage of 377,60 sq.m.
COMMENCEMENT AND TERMINATION OF THE TERM UNDER THE SCIENCE PARK LEASE
- ---------------------------------------------------------------------
(S)2
The leased premises shall be taken by the SCIENCE PARK LESSEE from 1st of April
1997 to hold for a fixed term of 3 years, i.e. until 31st of March 2000, when
the lease shall cease without any further notice unless it is renewed for
another 3-year term not later than 2 months before its expire.
USE AND SPECIAL NATURE OF THE SCIENCE PARK TENANCY
- --------------------------------------------------
(S)3
THE SCIENCE PARK LESSEE may use the premises only for such activities as fall
under the objective of the Science Park, i.e. for research and office purposes,
including development work, but not exclusively for production or for trading
activities alone. The authority to determine the scope and extent of those
activities which fall under the objectives and framework of the Science Park
shall be vested in SYMBION'S Board of Directors alone.
SYMBION shall be entitled to lease premises in the property to all other kinds
of undertaking, including undertakings engaging in the same kind of activities
as THE SCIENCE PARK LESSEE, direct competitors, etc. Whenever practicable and
upon request, SYMBION will endeavor to set up the individual tenancies in the
Science Park in an appropriate manner so as to ensure that e.g. lessees that
must be considered to be competitors arc placed at some distance. However,
there shall be no commitment upon SYMBION in this respect, and SYMBION shall
have the final say in the placing of the individual tenancies in the Science
Park.
<PAGE>
(S)4
THE SCIENCE PARK LESSEE shall be responsible for any necessary arrangements in
connection with the preservation of all kinds of business secrets, such as e.g.
the locking of the leased facilities, entry control to the leased premises, etc.
THE SCIENCE PARK LESSEE shall be obliged to fully respect other Science Park
lessees' sovereignty over their own premises, and no SCIENCE PARK LESSEE may
violate such sovereignty uninvitedly or without prior permission.
The Science Park Secretariat shall always have free and unrestricted access to
the premises leased by THE SCIENCE PARK LESSEE and may secure access for itself,
if it proves necessary. All Science Park Secretariat staff are required to sign
a separate confidentiality statement in connection with their employment.
(S)5
THE SCIENCE PARK LESSEE shall be obliged to endure any inconvenience and allow
access to the leased premises for workmen or technicians whenever required by
the property's condition for the purpose of i.a. viewing, inspecting, repairing,
rebuilding, improving, replacing or controlling the property's installations and
parts, or whenever required in connection with the establishment of other
tenancies in the Science Park.
Such access shall be given subject to prior notice thereof and as agreed upon
with THE SCIENCE PARK LESSEE, and in its organization of such work SYMBION shall
endeavor to give due consideration to THE SCIENCE PARK LESSEE. SYMBION disclaims
any liability for loss of profits or other losses sustained as a consequence of
such work.
(S)6
The leased premises shall be taken in their present condition and as inspected
by THE SCIENCE PARK LESSEE. The leased premises have been prepared for such
special installations as may be required by a Science Park tenancy, but the
final furnishing details and special installations must be made by, and at the
expense of, THE SCIENCE PARK LESSEE.
THE SCIENCE PARK LESSEE shall be solely responsible for ensuring that the use of
the premises under the present lease complies with the current provisions of the
Danish legislation and Danish public authorities, and SYMBION shall be exempt
from all liability in this respect.
SYMBION alone shall be responsible for ensuring that the actual leasing of the
premises under the present Science Park lease does not constitute a violation of
any easements or encumbrances on the property or of other private or public
limitations of SYMBION'S right of disposal, including in particular that leasing
may be made for Science Park purposes.
2
<PAGE>
RENT AND RENT ADJUSTMENTS
- -------------------------
(S)7
The annual rent payable for the leased premises and agreed upon by the parties
amounts to DKK 1,144.86 per sq.m. gross (inclusive of land tax as at January 1,
1997), cf. (S)1 of the present Science Park lease, thus totaling DKK 226.560,00
annually, compare with allonge.
The rent shall be payable in advance in quarterly installments on each January
1, April 1, July 1 and October 1.
Upon taking possession of the leased premises THE SCIENCE PARK LESSEE shall pay
DKK 56,640,00 for the period 1st of April 1997 until 30th of June 1997.
Henceforth rent shall be payable for the first time on 1st of July 1997 for the
period 1st of July 1997 until 30th of September 1997.
The annual rent shall be linked to the net price index in proportion to the
gross floorage under the lease as follows:
The above annual rent is fixed in accordance with the net price index as at
October 1, 1996, cf. Executive Order no. 529 of July 10, 1995.
In the event that the net price index is discontinued or subjected to material
changes, which makes it an inappropriate measure, or if it becomes customary to
use other indexes or adjustment rnechanisms which are adopted for use by a
considerable part of the market, SYMBION too shall be entitled to use a
different index or adjustment mechanism.
Adjustment shall be made of the rent less such part of it as is calculated to
account for the local land tax, cf. paragraph 1 above.
The rent of the previous year shall be adjusted by 100% of the calculated
increase in the net price index.
The annual increase shall constitute a minimum of 3% of the annual rent
(exclusive of increases in local land tax) which applies at the time of the net
price index adjustment.
The 3% increase or the net price index adjustment shall take place once a year,
on January 1, based upon the October net price index. The first adjustment,
which will be made on January 1, 1998, shall be based upon the difference
between the 1996 October net price index and the 1997 October net price index
(cf. also annex 1 of the present lease).
Concurrent with the rent adjustment a similar adjustment of the deposit shall be
effected, cf. below.
SYMBION shall further be entitled to claim any other possible rent increase
obtainable under the current Danish rent legislation.
3
<PAGE>
(S)8
Following an increase of the rent under (S)7, par. 13 of the present Science
Park lease, a net price index adjustment or a 3% increase shall be made in
relation to such increased rent, provided that notice thereof has been given not
less than 3 months before a January 1.
Where less than 3 months have elapsed since the entry into force of a rent
increase under (S)7, par. 13 above, no net price index adjustment or 3%
increase shall be effected for that year, provided that the rent from the entry
into force has been increased by an amount which equals or exceeds the amount
under a net price index adjustment or a 3% increase.
(S)9
The rent shall include the land tax payable to the local authority as at January
1, 1996 cf. (S)7, par. 1 above.
In addition to the above rent and the aforementioned increase, THE SCIENCE PARK
LESSEE shall pay the increase in land tax to the local authority as well as any
other taxes and public charges payable on the entire property in which THE
SCIENCE PARK LESSEE'S leased premises are situated, including all kinds of new
taxes and public charges. Likewise, in case of any reductions in taxes and
public charges the rent shall be reduced accordingly to the extent that such
charges are not including in the heating accounts, cf. (S)11 below or the joint
accounts, cf. (S)12 below.
The adjustment shall be made in proportion to the gross floorage under the
lease.
DEPOSIT
- -------
(S)10
THE SCIENCE PARK LESSEE shall pay a general deposit equaling four months' rent
or DKK 75.520.00, compare with allonge. Payment of the deposit shall be
effected upon the setting up of the lease.
The deposit shall constitute security for all the commitments of THE SCIENCE
PARK LESSEE under the present lease, including the payment of rent, heating
charges, contributions to the running expenses, obligations upon moving out,
etc., as well as costs payable to the Secretariat for the consumption of sundry
services, cf. (S)14 below.
HEATING CHARGES
- ---------------
(S)11
SYMBION shall be in charge of the provision of heating and hot water to the
leased premises.
In accordance with (S)46, cf. (S)36, of the Danish Rent Act, SYMBION includes in
the heating accounts all costs payable for the supply of district heating, water
and drainage charges, boiler man, electricity consumption, administration,
supervision by engineer and repair work which does not take the form of new
installations. Also included in the heating accounts are any costs
4
<PAGE>
for the heating of core areas and the costs for the preparation of heating
accounts. Reference is made to annex 2 of the present lease.
The heating account period shall begin every year on June 1.
The total heating costs shall be apportioned upon the individual leases in
proportion to their gross floorage.
SYMBION shall determine the expected share in the above costs of the individual
leases, and THE SCIENCE PARK LESSEE shall be obliged together with the rent to
pay on-account contributions therefor.
On-account contributions are payable in quarterly installments on each January
1, April 1, July 1 and October 1.
Upon the commencement of the lease the quarterly on-account contribution comes
to DKK 10.195,20.
RUNNING EXPENSES
- ----------------
(S)12
In addition to the rent, THE SCIENCE PARK LESSEE shall pay certain running
expenses. These are partly individual expenses which relate to the separate
lease, but which cover work performed for all lessees on a joint basis by order
of the Secretariat or consumption charges which are apportioned on the
individual Science Park leases by the Secretariat on a pro rata basis, partly
expenses which relate to the core areas, including consumption charges.
A. Individual expenses
- -----------------------
Ordinary consumption charges for the individual lease, such as e.g. electricity
consumption shall be payable in accordance with the registrations of the meter
in tenancies provided with a separate meter. Where no separate meter exists in
the individual tenancy and, thus, several Science Park tenancies share a meter,
apportionment shall be made on the basis of gross floorage.
The Secretariat shall arrange for the joint cleaning of all leases in the
Science Park, and the total cleaning costs shall be apportioned, on the Science
Park lessees in proportion to their gross floorage.
B. Running expenses proper
- ---------------------------
In addition to the rent and based on its gross floorage, THE SCIENCE PARK LESSEE
shall pay a pro rata share of SYMBION'S costs for joint cleaning, joint
electricity, minor maintenance work on the property's core areas, etc., snow
clearing and maintenance of outdoor areas, commercial property tax and sprinkler
charges, the preparation of joint accounts, etc. Reference is made to annex 3
of the present lease.
5
<PAGE>
SYMBION shall determine the estimated share in the expenses payable by the lease
and THE SCIENCE PARK LESSEE shall be obliged to effect payment of such on-
account contributions either on a monthly or quarterly basis together with the
rent.
VAT
- ---
(S)13
SYMBION has effected voluntary VAT registration of the property both in relation
to rent and all other services under the lease.
VAT shall be charged on all payments, irrespective of their nature. The present
VAT rate is 25%.
It is further noted that under the current rules, THE SCIENCE PARK LESSEE shall
pay VAT on the deposit.
SYMBION'S SECRETARIAT
- ---------------------
(S)14
On the Science Park premises SYMBION has set up an array of activities and
services which, on certain conditions, are available to THE SCIENCE PARK LESSEE,
with settlement of the individual consumption thereof by Science Park lessees
being effected in the way chosen by SYMBION alone.
SYMBION will endeavor to arrange for an ongoing expansion of the facilities and
services made available to the Science Park lessees.
MAINTENANCE AND CLEANING
- ------------------------
(S)15
Responsibility for all maintenance of the interior of the leased premises,
including the maintenance of floors, windows, walls, ceilings, installations,
etc., and also including the maintenance and cleaning of installations for the
supply to the leased premises of water, electricity and drainage, shall be
vested in THE SCIENCE PARK LESSEE.
Where as a result of the activities of the SCIENCE PARK LESSEE acids and any
other harmful substances are discharged, the maintenance obligation upon THE
SCIENCE PARK LESSEE shall include the discharge system therefor as well as waste
pipes and all kinds of equipment fixed into the leased premises.
In the event that SYMBION discovers insufficient maintenance in cases where such
maintenance is the responsibility of THE SCIENCE PARK LESSEE, THE SCIENCE PARK
LESSEE shall immediately upon demand by SYMBION arrange for the execution of the
maintenance and repair work for which he is responsible.
6
<PAGE>
(S)16
THE SCIENCE PARK LESSEE shall not without prior consent from SYMBION perform any
building alterations of the leased premises. SYMBION'S reply to, and possible
approval of, a request therefor shall be given at the earliest possible
convenience.
Where building alterations have been made by THE SCIENCE PARK LESSEE with the
consent of SYMBION, the former shall arrange for the restoration to their
original state of the leased premises upon his moving out, unless a special
agreement is entered into to the effect that SYMBION shall take over the
alterations and the related installations or other material related thereto.
Similarly, THE SCIENCE PARK LESSEE shall be obliged to repair all holes and
other marks caused by the fastening of fittings, operating equipment, etc.
(S)17
For the purpose of coordination of the different installations, THE SCIENCE PARK
LESSEE shall be obliged to, and shall agree to, have any special fittings
performed by consultant technicians appointed by SYMBION. The technicians' fee
shall be paid by THE SCIENCE PARK LESSEE.
THE ENVIRONMENT
- ---------------
(S)18
It is specifically stated that, both in relation to SYMBION and to public
authorities and third parties, responsibility for obtaining the necessary and
sufficient environmental permits for the activities undertaken on the leased
premises and all their installations shall be vested in THE SCIENCE PARK LESSEE
who shall also be responsible for the operation of the undertaking within this
framework.
SIGN DISPLAY, ETC.
- ------------------
(S)19
To allow guests and visitors to the premises to get an overview of the building,
THE SCIENCE PARK LESSEE shall be obliged to effect sign display in accordance
with the instructions of SYMBION in the general sign display areas designated
for that purpose.
In order to allow for i.a. public regulations, sign display on the property
shall be effected only as indicated by SYMBION.
All costs arising out of the display of signs by THE SCIENCE PARK LESSEE shall
be paid by THE SCIENCE PARK LESSEE.
No installations of any kind, including sunblinds, signs and the like, and radio
and television aerials, shall be affixed to the exterior of the building without
explicit prior consent thereto from SYMBION. Such consent shall be given by
SYMBION only if the requests comply with the general rules fixed by SYMBION for
the Science Park lessees. Where such installations have
7
<PAGE>
been affixed by THE SCIENCE PARK LESSEE, all traces thereof shall be removed
upon his moving out if SYMBION so requires.
INTERNAL RELOCATION OF LESSEE
- -----------------------------
(S)20
Because of the special nature of the Science Park it is of vital importance that
Science Park tenancies be arranged in an appropriate manner, both in relation to
existing installations and floorage requirements, competition, etc., and SYMBION
shall endeavour to arrange a suitable lay-out for the Science Park property.
Where circumstances of importance to SYMBION speak in favour of the relocation
of a Science Park Lessee to another tenancy in the property, SYMBION may request
THE SCIENCE PARK LESSEE to undertake such relocation at 4 months' notice.
All documented costs arising out of such relocation and the furnishing of the
new tenancy to correspond to the one surrendered shall be paid by SYMBION, with
costs being incurred subject to agreement with SYMBION.
In the event that THE SCIENCE PARK LESSEE does not wish to accept such
relocation, he may claim termination of the Science Park lease on the date
notified, in which case SYMBION shall be obliged to effect reimbursement for all
documented costs paid by THE SCIENCE PARK LESSEE in relation to furnishings of
the Science Park premises surrendered and all expected relocation costs, subject
to documentation therefor.
SUB-LEASES, COMPENSATION
- ------------------------
(S)21
In no respect shall THE SCIENCE PARK LESSEE be entitled to assign sub-leases in
the leased premises, wholly or partially, nor shall THE SCIENCE PARK LESSEE be
entitled to compensation.
MOVING OUT
- ----------
(S)22
Upon the termination of the Science Park lease, the leased premises and
attendant installations and equipment shall be emptied and yielded up in a clean
and tidy condition and in good and tenantable repair. THE SCIENCE PARK LESSEE
shall not be obliged to yield up the leased premises in a better condition than
when he took them.
When he moves out, any furnishing and fittings of the leased premises and their
installations made by THE SCIENCE PARK LESSEE shall go to SYMBION free of
charge, unless restoration of the premises is claimed by SYMBION.
THE SCIENCE PARK LESSEE shall reimburse to SYMBION any costs arising out of the
cleaning and tidying of the leased premises and any repair or restoration work
necessary for them to
8
<PAGE>
appear in a good and tenantable condition. Also, THE SCIENCE PARK LESSEE shall
pay rent for the period required for such work.
INSURANCE AND RISK
- ------------------
(S)23
SYMBION shall be responsible for taking out an insurance against fire on the
property. Insurance of chattels and furnishings belonging to THE SCIENCE PARK
LESSEE shall be of no concern to SYMBION.
Where due to their nature the activities undertaken by THE SCIENCE PARK LESSEE
require payment of an additional insurance premium, THE SCIENCE PARK LESSEE
shall be obliged upon request to reimburse SYMBION for such additional premium.
SYMBION disclaims all liability in relation to any losses of profit or other
losses sustained, by THE SCIENCE PARK LESSEE due to the destruction or
deterioration of the property, the furniture or the equipment because of fire,
burglary or otherwise, and SYMBION disclaims all liability for the furniture and
equipment of the lessee.
DEPARTURE FROM THE PROVISIONS OF THE DANISH RENT ACT
- ----------------------------------------------------
(S)24
As regards any matters in the legal relationship between lessor and lessee for
which no provisions are made in the present lease, reference is made to the
provisions of the Danish Rent Act. Thus, the lessee is aware that the
provisions of the present lease deviate from those of the Danish Rent Act to the
effect that the present lease places upon the lessee more far-reaching
obligations and less far-reaching rights vis-a-vis the lessor than those
provided by the above Act. It is emphasized in this connection that a Science
Park lease has a special nature and that in particular the character of the
activities undertaken by THE SCIENCE PARK LESSEE within the framework of the
Science Park shall determine whether such lease may continue.
To the extent that no special provision has been made in the above individual
lease, reference is made to the enclosed specimen lease form approved by the
Ministry of Housing on November 19, 1979.
COSTS
- -----
(S)25
All costs arising out of the drafting of the present lease in relation to
stamping, shall be paid by THE SCIENCE PARK LESSEE.
9
<PAGE>
DATE: 14/4/97 DATE: 6/4/97
ADMINISTRATOR: LESSEE:
10
<PAGE>
ANNEX. 1.
In accordance with (S) (S) 7-9 of the lease the annual rent for a lease of
377,60 gross sq.m. will increase on the following scale when a rise of 3% p.a.
is taken into account:
<TABLE>
<CAPTION>
Initial rent DKK ........... 432.299,14
<S> <C> <C>
As of 1st. of January 1998 DKK ........... 445.268,11
As of 1st. of January 1999 DKK ........... 458.626,15
As of 1st. of January 2000 DKK ........... 472.384,93
As of 1st. of January 2001 DKK ........... 486.556,48
As of 1st. of January 2002 DKK ........... 501.153,17
As of 1st. of January 2003 DKK ........... 516.187,77
As of 1st. of January 2004 DKK ........... 531.673,40
As of 1st. of January 2005 DKK ........... 547.623,60
As of 1st. of January 2006 DKK ........... 564.052,31
As of 1st. of January 2007 DKK ........... 580.973,88
As of 1st. of January 2008 DKK ........... 598.403,10
As of 1st. of January 2009 DKK ........... 616.355,19
</TABLE>
11
<PAGE>
ANNEX. 2.
In accordance with (S) 11 of the lease the following expenses are estimated in
connection with the heating accounts.
<TABLE>
<S> <C> <C>
Fuel costs DDK ........... 1.157.000
Maintenance and supervision DDK ........... 82.000
Administration of heating accounts DDK ........... 11.000
Boiler man DDK ........... 231.000
Water and drainage taxes DDK ........... 93.000
VKO arrangement DKK ........... 5.000
Total heating expenses DDK ........... 1.579.000
---------
</TABLE>
Heating expenses are paid according to the number of gross sq.m. which is
calculated in proportion to the rented heated area, and estimated at DKK 108,00
per gross sq.m. p.a.
12
<PAGE>
JOINT EXPENSES
ANNEX. 3 A
ESTIMATES, INDIVIDUAL EXPENSES
- ------------------------------
In accordance with (S) 12 A of the lease individual expenses are estimated as
follows:
The charge for cleaning is at present DKK 10,35 per net sq.m. per month.
Window cleaning - at present DKK 35,00 per Window (quarterly).
Cost of electricity depends on consumption.
ANNEX. 3 B
ESTIMATES, JOINT RUNNING EXPENSES PROPER
- ----------------------------------------
In accordance with (S) 12 B of the lease joint running expenses are estimated as
follows:
<TABLE>
<S> <C> <C>
Cleaning of core areas.......................... DDK ....... 390.000
Window cleaning DDK ....... 25.000
Electricity consumption DDK ....... 470.000
Security system and burglar alarm DDK ....... 180.000
Maintenance of the property's core areas DDK ....... 186.000
Snow clearing and maintenance of outside areas DDK ....... 85.000
Preparation of joint accounts DDK ....... 10.000
Insurance, contribution to the
public fire brigade DDK ....... 185.000
Subscription to various property
maintenance services DDK ....... 90.000
Commercial property tax DDK ....... 1.000.000
Caretaker DKK ....... 360.000
Sprinkler charges DDK ....... 9.000
--- ---------
Total joint running expenses DDK ....... 2.990.000
--- ---------
</TABLE>
Joint expenses are paid in proportion to gross sq.m. at present DKK 200.00 per
----------
gross sq.m. p.a.
13
<PAGE>
SYMBION SCIENCE PARK
FRUEBJERGVEJ 3 DK-2100 COPENHAGEN PHONE: +45 3917 9999 FAX: +45 3927 5521
ALLONGE
to the Lease dated 1st of April 1997
between Symbion A/S and the Lessee: AUDA Pharmaceuticals ApS.
We, the undersigned SYMBION A/S Fruebjergvej 3, DK-2100 Copenhagen, (hereinafter
referred to as SYMBION), and the lessee and the co-signatory AUDA
PHARMACEUTICALS ApS (hereinafter referred to as THE SCIENCE PARK LESSEE), have
agreed to following modifications to the Lease Agreement:
Because of the special nature of the Science Park Lessee, Symbion will allow a
discount of DKK 544.86 per sq.m. gross (re: (S)7 in the lease agreement) excl.
VAT; cost for supply of heating and running expenses.
As an exemption, the Lessee can be released from the Science Centre Lease to the
end of month with a 6 month written notice.
Date: 14/4-97 DATE: 6/4/97
/s/
---------------------------
LESSEE: AUDA
PHARMACEUTICALS ApS
For Symbion A/S
/s/ Morten W. Wandborg
- -----------------------
14
<PAGE>
EXHIBIT 10.16
RESEARCH COLLABORATION AGREEMENT
This Research Collaboration Agreement (this "Agreement") dated as of June
28, 1996 (the "Effective Date") is made between Phytera, Inc. ("Phytera"), a
Delaware corporation having its principal place of business at 377 Plantation
Street, Worcester, Massachusetts 01605, USA, and Tsumura & Co., a corporation
organized under the laws of Japan and having its principal place of business at
12-7 Nibancho, Chiyoda-ku, Tokyo 102 Japan.
RECITALS
WHEREAS, Phytera has established scientific research programs directed
towards the discovery of novel products from natural products;
WHEREAS, Tsumura has experience and capabilities in pharmaceutical
screening;
WHEREAS, Phytera and Tsumura entered into a Mutual Confidentiality
Agreement on January 17, 1996 ("Confidentiality Agreement");
WHEREAS, Phytera and Tsumura now mutually desire to enter into a research
collaboration to evaluate the pharmaceutical potential of certain plant cell
culture extracts with the primary purpose of discovering compounds for use in
therapeutic drugs for the treatment of allergies and rheumatoid arthritis;
WHEREAS, Phytera and Tsumura have agreed that (i) they will jointly own
certain patent and other intellectual property rights which arise from the
performance of this Agreement, (ii) they will cross-license each other in regard
to the use of those rights, (iii) each party will have a specific territory in
which to exercise those rights, and (iv) they will pay each other royalties in
regard to the use of those rights and products developed therefrom;
WHEREAS, Phytera and Tsumura cannot predict in advance whether their
collaborative efforts will result in the discovery of any compound which can be
successfully developed or used in a product that can be taken to market in
either party's respective territory or the marketability or profitability of any
such compound or product in those territories; and
WHEREAS, Phytera and Tsumura have agreed that, in the event that any
compound discovered during the performance of this Agreement is deemed by the
parties to be a development candidate, the parties will negotiate in good faith
the specific terms and conditions of a product development agreement concerning
the development of such compound.
NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained, the parties hereto mutually agree as follows:
1
<PAGE>
ARTICLE 1 - DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Affiliate" of a party shall mean any corporation or other entity
---------
which controls, is controlled by, or is under common control with such party. A
corporation or other entity shall be regarded as in control of another
corporation or entity if it owns or directly or indirectly controls more than
fifty percent (50%) of the voting stock or other ownership interest of the other
corporation or entity, or if it possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of the corporation
or other entity or the power to elect or appoint more than fifty percent (50%)
of the members of the governing body of the corporation or other entity.
1.2 "Collaboration Assays" shall mean the assays in which the Extracts are
--------------------
to be tested by Tsumura as further described herein. The initial Collaboration
Assays are listed in Appendix B attached hereto. Tsumura may substitute one or
more of the Collaboration Assays in accordance with the terms of Section 2.8
below.
1.3 "Collaboration Patent Rights" shall mean all patent applications
----------------------------
heretofore or hereafter filed and having legal force in any country that are
jointly owned by Phytera and Tsumura pursuant to this agreement, or to which
Phytera and Tsumura otherwise acquire joint rights, which claim a Product or any
Compound contained in a Product, or the process of manufacture or any human
pharmaceutical use of a Product or any Compound contained in a Product, together
with any and all patents that have issued or in the future issue therefrom,
including utility model and design patents, certifications of invention and any
and all divisions, continuations, continuations-in-part but only to the extent
that the claims of such continuation-in-part cover the subject matter of this
Agreement, reissues, additions, extensions or supplementary protection
certificates to any of the aforesaid patents and patent applications; all to the
extent and only to the extent that Phytera and Tsumura now has or hereafter will
have the right to grant licenses, immunities or other rights thereunder.
1.4 "Compound" shall mean (a) a chemical compound that is isolated from an
--------
Extract as a result of the parties' performance of activities under this
Agreement, and (b) any derivative or analog of such compound regardless of
whether such derivative or analog is isolated from an Extract or chemically
synthesized.
1.5 "Extracts" shall mean the plant cell culture extracts based on
--------
Phytera's ExPAND(TM) technology provided to Tsumura pursuant to this Agreement
which technology Phytera has filed a patent application in the United States and
is currently filing patent applications in the United Kingdom and Japan.
1.6 "First Commercial Sale" of any Product shall mean the first sale for
---------------------
use or consumption by the general public of such Product in a country after
required marketing and pricing approval has been granted by the governing health
or other appropriate regulatory authority of such country.
2
<PAGE>
1.7 "Licensee" shall mean any corporation, partnership or business
--------
organization to whom Phytera or Tsumura, pursuant to the Collaboration Patent
Rights and the rights granted under Article 4, licenses their development or
marketing rights for any Compound or Product.
1.8 "Net Sales" shall mean the gross receipts from sales of Products by a
---------
party and its Affiliates less deductions for: (a) transportation charges,
including insurance; (b) sales and excise taxes and duties paid by a selling
party and any other governmental charges imposed upon the production,
importation, use or sale of such Products; (c) normal and customary trade,
quantity and cash discounts allowed; and (d) allowances or credits to customers
on account of rejection or return of Product. Sales of Products between or
among a party and its Affiliates are excluded from the computation of Net Sales,
but Net Sales shall include the subsequent sales of such Products to Third
Parties.
1.9 "Phytera Territory" shall mean North America.
------------------
1.10 "Product" shall mean any composition developed by Phytera, Tsumura
-------
or any of their respective Affiliates or Licensees that contains one or more
Compounds. Such Product may be a tablet, capsule, ointment or other drug
delivery system or pharmaceutical preparation.
1.11 "Research Collaboration Period" shall mean the period described in
------------------------------
Article 2.11.
1.12 "Research Operations Committee" shall mean the joint committee
-----------------------------
described in Article 6.2.
1.13 "Stage 3 Extract" shall have the meaning ascribed to it in Section
---------------
2.3.4.
1.14 "Steering Committee" shall mean the joint committee described in
------------------
Article 6.1.
1.15 "Support" shall mean the support in the areas of natural product
-------
chemistry and plant cell culture regrowth to be provided to Tsumura by Phytera
as described in Section 2.7 below and Appendix A attached hereto and
incorporated herein.
1.16 "Third Party" shall mean any party other than a party to this
-----------
Agreement or an Affiliate.
1.17 "Tsumura Disease Targets" shall mean rheumatoid arthritis and anti-
------------------------
allergy.
1.18 "Tsumura Territory" shall mean all countries other than those
------------------
located in North America.
1.19 "Validated Hit Extract" shall mean an Extract which (i) displays at
---------------------
least a defined level of potency activity in a Collaboration Assay (such level
to be determined
3
<PAGE>
by Tsumura in consultation with Phytera) and (ii) displays such activity in a
reproducible and dose-responsive fashion.
1.20 "Year 1" shall mean the one year period commencing on the Effective
------
Date.
1.21 "Year 2" shall mean the one year period commencing on the first
------
anniversary of the Effective Date.
1.22 "Year 3" shall mean the one year period commencing on the second
------
anniversary of the Effective Date.
ARTICLE 2 - RESEARCH COLLABORATION
2.1 Selection of Collaboration Assays. Tsumura and Phytera have mutually
---------------------------------
agreed that the Collaboration Assays shall initially be comprised of the assays
identified and described in Appendix B attached hereto and incorporated herein.
2.2 Stage 1 - Pilot Testing. Following the execution of this Agreement,
-----------------------
Phytera shall select and deliver to Tsumura [ ]* Extracts, each in a
quantity of approximately [ ]*, together with samples of extracts of culture
growth media. Promptly following receipt of such materials, Tsumura shall test
such Extracts in the Collaboration Assays and examine such Extracts and likely
culture extract constituents for activity to ensure that the Collaboration
Assays are optimally configured for screening plant culture extracts. Phytera
shall supply Tsumura with a reasonable number of additional samples of extracts
for pilot testing if requested by Tsumura. Based on the results of such testing,
(a) Tsumura shall promptly make such changes to the Collaboration Assays as are
reasonably necessary to optimally configure such assays and (b) the parties
shall determine the quantity of each Extract to be provided by Phytera to
Tsumura hereunder sufficient to enable Tsumura to conduct screening of such
Extract across each Collaboration Assay. Tsumura shall use diligent efforts to
complete the pilot testing no later than [ ]* following the date the last of all
such Extracts are received by Tsumura.
______________
* This portion of the Exhibit has been omitted pursuant to a request for
Confidential Treatment under Rule 406 of the Securities Act of 1033, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
2.3 Stage 2 - Supply and Testing of Extracts.
----------------------------------------
2.3.1 Following completion of Stage 1 and in consideration of
Tsumura's payment of the fees specified in Section 12.1.1 below, Phytera shall
select and deliver to Tsumura Extracts in accordance wit the following schedule:
Year 1: [ ]* Extracts
Year 2: [ ]* Extracts
Year 3: [ ]* Extracts
Pythera shall deliver Extracts to Tsumura once at the beginning of each [ ]*
during Year 1, Year 2 and Year 3 unless the Research Collaboration Period is
terminated earlier. [ ]* of the annual total of Extracts shall be delivered to
Tsumura each [ ]* provided that all Year 3 Extracts shall be delivered in the [
]* of Year 3 by delivering [ ]* of the Year 3 Extracts on each [ ]*. The
quantity of each Extract to be delivered to Tsumurs shall be determined by the
parties during stage 1. All shipments of Extracts shall be in compliance with
the terms of CITES Convention.
2.3.2 Phytera shall identify each Extract with a code. The list of
plant species comprising each shipment of extracts shall accompany each shipment
of extracts. For each Validated Hit Extract, Phytera shall provide Tsumura with
the identity of the plant from which such Validated Hit Extract was derived.
Phytera shall supply all additional information reasonably requested by Tsumura
for customs clearance in Japan or any other country in the Tsumura Territory.
2.3.3 Promptly following receipt of each delivery of Extracts,
Tsumura shall screen each Extract provided by Phytera across each Collaboration
Assay and shall perform appropriate follow-up analysis on each Extract which
shows initial activity to identify whether such Extract represents a Validated
Hit Extract. Tsumura shall promptly notify Phytera of each Extract which is
determined to be a Validated Hit Extract.
2.3.4 The parties shall work together and Tsumura shall select those
Validated Hit Extracts which shall proceed to Stage 3 (collectively, "Stage 3
Extracts"). If (a) Tsumura notifies Phytera that Tsumura does not wish to
submit a particular Validated Hit Extract to Stage 3 or (b) during the [ ]*
period following Tsumura's identification of a particular Extract as a Validated
Hit Extract, Tsumura fails to select such Validated Hit Extract as one of the
Extracts to proceed to Stage 3, then (i) Tsumura's rights in such Extract under
Section 3.2.1 shall terminate, (ii) Tsumura shall
______________
* This portion of the Exhibit has been omitted pursuant to a request for
Confidential Treatment under Rule 406 of the Securities Act of 1033, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
5
<PAGE>
grant Phytera the sole and exclusive, worldwide, royalty-bearing license under
Tsumura's Collaboration Patent Rights to develop, make, have made, use,
distribute for sale and sell Compounds and Products derived from such Extract
and the right to sublicense such rights to one or more Affiliates or Third
Parties subject to Sections 7.2, 7.3 and 7.4, and (iii) Phytera shall have the
obligation to pay royalties to Tsumura in accordance with the terms of Appendix
C with respect to all sales in any country of any Product developed from such
Extract.
2.4 Stage 3 - Fractionation and Analytical Characterization of Validated
--------------------------------------------------------------------
Hit Extracts
- ------------
2.4.1 Following Tsumura's selection of each Stage 3 Extract, Phytera
shall increase production of such extract to up to [ ]* to provide sufficient
quantities for the parties' ongoing chemical isolation and identification and
shall provide Tsumura with additional quantities of each Stage 3 Extract as
necessary for Tsumura's continued screening and testing of such extract as soon
as reasonably possible.
2.4.2 Tsumura shall conduct secondary screens and other tests on each
Stage 3 Extract as Tsumura deems reasonably necessary to obtain a broader
biological profile of the Stage 3 Extract and its activity and specificity.
2.4.3 Phytera shall be responsible for isolating and identifying the
active Compound(s) in each Stage 3 Extract and the chemical composition of each
such compound as soon as possible. Phytera shall keep Tsumura appraised of its
progress by providing Tsumura with monthly progress reports within seven (7)
days of the end of each month. Tsumura shall provide Phytera with screening
protocols, key reagents and other information related to each Stage 3 Extract
sufficient to enable Phytera to perform bioassay guided fractionation of such
extract.
2.4.4 Promptly following Phytera's isolation and identification of a
Compound and notice thereof to Tsumura, Tsumura shall notify Phytera in writing
as to whether Tsumura elects to have such Compound proceed into either the lead
optimization program (Stage 4) or directly into product development (Stage 5).
If (a)Tsumura notifies Phytera that Tsumura does not wish to submit a particular
Compound into the lead optimization program (Stage 4) and does not wish to
submit such Compound into product development (Stage 5), or (b) during the [
]* period following Phytera's isolation and identification of such Compound and
notice thereof to Tsumura, Tsumura fails to notify Phytera that Tsumura elects
to submit such Compound into either the lead optimization program (Stage 4) or
directly into product development (Stage 5), then (i)
______________
* This portion of the Exhibit has been omitted pursuant to a request for
Confidential Treatment under Rule 406 of the Securities Act of 1033, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
6
<PAGE>
the licenses granted to Tsumura by Phytera pursuant to Section 4.1.1 below with
respect to such Compound shall terminate, (ii) Tsumura shall grant Phytera the
sole and exclusive, worldwide, royalty-bearing license under Tsumura's
Collaboration Patent Rights to develop, make, have made, use, distribute for
sale and sell such Compounds and Products derived from such Compounds and the
right to sublicense such rights to one or more Affiliates or Third Parties
subject to Sections 7.2, 7.3 and 7.4, and (iii) Phytera shall have the
obligation to pay royalties to Tsumura in accordance with the terms of Appendix
C with respect to all sales in any country of any Product developed from such
Compound.
7
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2.5 Stage 4 - Lead Optimization.
----------------------------
2.5.1 Tsumura shall perform all medicinal chemistry lead optimization
activities related to each Compound submitted to the lead optimization program,
unless otherwise requested by Phytera.
2.5.2 Upon request by Tsumura, Phytera shall perform lead
optimization activities related to plant or cell cultures, including obtaining
related plant species to search for alternative or improved compounds and
conducting additional cell culture manipulations on active plant species to
search for alternative or improved compounds. Such activities shall be
performed by Phytera only at the request of Tsumura for a fee, the amount and
payment terms of which shall be agreed upon by the parties in writing prior to
Phytera undertaking any such activity. The fee for such activity shall be
calculated on a pro-rata basis for actual services rendered and shall be based
on the full-time equivalent rates set forth in Section 12.1.2. Phytera shall
provide Tsumura with monthly progress reports within seven (7) days of the end
of each month concerning all such activities.
2.6 Stage 5 - Product Development. Stage 5 will commence when either (i)
-----------------------------
Phytera or Tsumura elects to submit a given Compound directly from Stage 3 into
product development in accordance with Section 2.4.4, or (ii) the lead
optimization stage with respect to a given Compound has been completed. The
parties expressly agree that Stage 5 Product Development shall be governed by
the terms of the specific Product Development Agreements which shall be
separately negotiated and agreed to and which shall be consistent with the
licenses and rights granted herein. Such agreements shall not affect the
obligations (financial or other) of either party under this Agreement.
2.7 Support. During the Research Collaboration Period, Phytera shall make
-------
available to Tsumura Support subject to Section 2.11 and as more fully described
in Appendix A. The committed amount of Support for Year 1, Year 2 and Year 3
and the fees associated with the same are specified in Section 12.1.2 and such
fees shall be paid in advance by Tsumura. For the purposes of this Section, the
"Prior Year's Unused Support" shall mean the lessor of (i) one-half (1/2) of the
committed amount of Support specified in Section 12.1.2 for the prior year and
(ii) the difference between the committed amount of Support specified in Section
12.1.2 for the prior year and the amount of Support actually provided by Phytera
during the prior year. The amount of the Prior Year's Unused Support shall be
cumulative. In Year 2 and Year 3, in addition to the committed amount of
Support specified in Section 12.1.2, Tsumura shall be entitled at no additional
charge, to additional Support in the amount of the accumulated Prior Year's
Unused Support, if any. In addition, during the two (2) year period following
the third anniversary of the Effective Date, Tsumura shall be entitled at no
additional charge, to additional Support in the amount of the accumulated Prior
Year's Unused Support, if any. Except as set forth in the preceding two
sentences, Tsumura shall not be entitled to any refund or credit in the event
the amount of Support provided during any period of time in response to
Tsumura's requests is less than the committed amount of support specified above
for such period. The Support fees are fully inclusive and include the costs of
all reagents, supplies and equipment necessary for Phytera to provide the
8
<PAGE>
Support. Phytera may provide additional Support to Tsumura on an as-available
basis in response to Tsumura's request for such Support. The fee for such
additional Support shall be calculated based on the full-time equivalent rates
set forth in Section 12.1.2. and include the costs of all reagents, supplies and
equipment. Within thirty (30) days of the end of each quarter, Phytera shall
provide Tsumura with a written report itemizing the amount of Support provided
during such quarter.
2.8 Substitution of Collaboration Assays. Tsumura acknowledges that
------------------------------------
Phytera may grant a Third Party the exclusive right to screen one or more of the
Extracts against one or more assays other than the Collaboration Assays.
However, Phytera shall not (i) grant any Third Party the right to screen
Extracts in the Collaboration Assays without the prior written consent of
Tsumura, nor (ii) grant any Third Party the right to screen any other plant
cell culture extracts based upon the ExPAND Technology in the Collaboration
Assays while Tsumura is conducting Stage 2 screening as described in Section
2.3 above without the prior written consent of Tsumura. If Tsumura wishes to
substitute a particular assay for one of the Collaboration Assays, Tsumura shall
notify Phytera in writing of its desire to substitute a particular assay for one
of the Collaboration Assays and such notice shall be accompanied by such
information, including the proposed assay protocol, as is reasonably required by
Phytera to evaluate the proposed substitution. Only assays in the Tsumura
Disease Targets may be substituted for the Collaboration Assays. Within twenty
(20) business days of its receipt of Tsumura's notice, Phytera shall notify
Tsumura of its decision with respect to the proposed assay substitution.
Phytera may withhold its consent to such proposed substitution only if the
proposed substitute assay is part of a collaboration between Phytera and a Third
Party or part of the internal screening program of Phytera or its Affiliates.
2.9 Data. Each party shall maintain records in sufficient detail and in
----
good scientific manner appropriate for regulatory filings and patent purposes
and as will properly reflect all work done and results achieved in the
performance of such party's activities under this Agreement (including all data
in the form required to be maintained under any applicable governmental
regulations). Such records shall include books, records, time sheets, reports,
research notes, charts, graphs, comments, computations, analyses, recordings,
photographs, computer programs and documentation thereof, computer information
storage means, samples of materials and other graphic or written data generated
in connection with the performance of such party's activities under this
Agreement. Each party shall provide the other party with the right to inspect
such records, and shall provide the other party with copies of all requested
records, to the extent reasonably required for the performance of the other
party's obligations under this Agreement and for the verification of the
performance of the party's obligation under this Agreement; provided, however,
that the other party shall maintain such records and the information contained
therein in confidence in accordance with Article 8 hereof and shall not use such
records or information except to the extent otherwise permitted by this
Agreement. In satisfying their obligations under this section, Phytera and
Tsumura shall maintain their records in English and Japanese respectively.
9
<PAGE>
2.10 Reports. Within twenty (20) business days following the end of each
-------
calendar quarter, or at the reasonable request (with mutually agreed advance
notice) of the Steering Committee, each party shall provide to the members of
the Steering Committee a written report which shall summarize in reasonable
detail the work such party has performed under this Agreement during the
preceding calendar quarter. Such reports shall be prepared in English.
2.11 Research Collaboration Period. The Research Collaboration Period
------------------------------
shall commence on the Effective Date and shall continue until all of the
Extracts delivered to Tsumura which have been selected for Stage 4 have
completed Stage 4 unless terminated earlier as provided for in Section 9.2
below. Phytera's obligation to provide Support shall continue until the earlier
of (i) the [ ]* and (ii) the [ ]*. Six months prior to
the third anniversary of the Effective Date, the Steering Committee shall meet
to discuss the possible extension of the Research Collaboration Period. The
terms of such a possible extension shall be negotiated at that time.
ARTICLE 3 - RIGHTS IN EXTRACTS
3.1 Phytera. Except for the rights expressly granted herein to Tsumura,
-------
Phytera retains all rights, title and interest in and to the Extracts provided
to Tsumura. Tsumura acknowledges that Phytera may grant one or more Third
Parties the right to (i) screen one or more of the Extracts against one or more
assays other than the Collaboration Assays, (ii) screen one or more plant cell
culture extracts other than the Extracts against one or more of the
Collaboration Assays after Tsumura has completed its Stage 2 screening
activities, or (iii) continue the research, development and commercialization of
one or more of those Validated Hit Extracts which Tsumura elects not to
continue to pursue under this Agreement subject to Sections 7.2, 7.3 and 7.4.
3.2 Rights Granted to Tsumura.
-------------------------
3.2.1 Extracts. Phytera hereby grants Tsumura the exclusive right to
--------
screen the Extracts against the Collaboration Assays. No other right, title or
interest in or to the Extracts is granted to Tsumura. Tsumura acknowledges that
its right to use the Extracts is limited to screening such extracts against the
Collaboration Assays and Tsumura agrees that it shall not use the Extracts for
any other purpose.
3.2.2 Termination of Rights. Tsumura acknowledges that the rights
-----------------------
granted under Section 3.2.1 may be terminated in accordance with the provisions
of Section 2.3.4 or Article 9 of this Agreement. The termination of any rights
granted
______________
* This portion of the Exhibit has been omitted pursuant to a request for
Confidential Treatment under Rule 406 of the Securities Act of 1033, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
10
<PAGE>
hereunder with respect to a particular Extract, shall not affect Tsumura's
rights hereunder with respect to any other Extract .
ARTICLE 4 - RIGHTS IN COMPOUNDS AND PRODUCTS
4.1 Grant of Rights to Tsumura.
--------------------------
4.1.1 In exchange for Tsumura's agreement to pay the milestone
payments and royalties specified in Appendix C below, Phytera hereby grants
Tsumura (i) an exclusive royalty-bearing license under Phytera's
Collaboration Patent Rights to develop, make, have made, use, distribute for
sale and sell Compounds and Products in the Tsumura Territory and (ii) the right
to sublicense to an Affiliate or Third Party the aforementioned rights within
the Tsumura Territory, provided that with respect to any such sublicense to a
Third Party, Tsumura shall have obtained the prior written consent of Phytera.
Such consent shall not be unreasonably be withheld. Upon Phytera's request,
Tsumura shall provide a copy of such sublicenses to Phytera.
4.1.2 Should Tsumura's rights to any particular Compound terminate,
Tsumura shall offer to sell to Phytera all of the data it generated about such
Compound. The parties shall negotiate in good faith the terms of sale of such
data for each such Compound.
4.2 Grant of Rights to Phytera.
--------------------------
4.2.1 In exchange for Phytera's agreement to pay the royalties
specified in Appendix C below, Tsumura hereby grants Phytera (i) an exclusive
royalty-bearing license under Tsumura's Collaboration Patent Rights to develop,
make, have made, use, distribute for sale and sell Compounds and Products in the
Phytera Territory and (ii) the right to sublicense to an Affiliate or Third
Party the aforementioned rights within the Phytera Territory, provided that with
respect to any such sublicense to a Third Party, Phytera shall have obtained the
prior written consent of Tsumura. Such consent shall not be unreasonably
withheld. Upon Tsumura's request, Phytera shall provide a copy of such
sublicenses to Tsumura.
4.2.2 If Phytera fails to initiate product development for the
Phytera Territory with respect to any Compound within [ ]*following the
(i) [ ]* or (ii) the [
______________
* This portion of the Exhibit has been omitted pursuant to a request for
Confidential Treatment under Rule 406 of the Securities Act of 1033, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
11
<PAGE>
]*, whichever is applicable, then the licenses granted to Phytera by
Tsumura pursuant to Section 4.2.1 above with respect to such Compound shall
terminate, Phytera shall irrevocably assign to Tsumura all of its rights,
including without limitations, its Collaboration Patent Rights, in and to such
Compound, Tsumura shall have the sole and exclusive worldwide right to undertake
any and all further research, development and commercialization activities
related to such Compound and to license such rights to one or more Affiliates or
Third Parties and Tsumura shall have the obligation to pay royalties to Phytera
in accordance with the terms of Section Appendix C with respect to all sales in
any country of any Product for human pharmaceutical use developed from such
Compound.
4.3 Termination of Rights. Each party acknowledges that the rights granted
---------------------
under this Article 4 may be terminated in accordance with the provisions of
Section 2.4.4, 4.2.2 or Article 9 of this Agreement. The termination of any
rights granted hereunder with respect to any other Compound.
4.4 Satisfaction of Development Obligation. Each party may satisfy its
---------------------------------------
respective obligations with respect to product development of Compounds by
having one or more Affiliates or Licensees fulfill such obligations.
ARTICLE 5 - DUE DILIGENCE
5.1 Diligent Efforts. Phytera and Tsumura each represent that each shall
----------------
use its reasonable best efforts to bring each Compound it elects to enter into
product development (Stage 5) to the marketplace through a diligent and
aggressive program of development, production and distribution and each party
acknowledges that the exclusive license granted by the other party pursuant to
Section 4 above was granted based on such representation. However, in so doing
and otherwise meeting its obligations hereunder with respect to the development,
production and distribution of Products, Phytera and Tsumura shall each be
entitled to exercise prudent and reasonable business judgement, and shall be
considered to be meeting such obligations so long as each is reporting to the
other party and the Steering Committee as provided herein and is providing the
necessary financial, personnel and other resources which are reasonably required
to maintain progress in accomplishing the development, production and
distribution of Products, and conducts the activities reasonably required to
maintain scheduled progress in accomplishing the same. Neither Phytera nor
Tsumura shall be responsible for any failure which arises as a direct result of
(i) unanticipated technical or scientific problems or other causes outside the
direct control of the parties and their Affiliates and Licensees, (ii)
failure of the other party to meet its obligations hereunder, or (iii) action
______________
* This portion of the Exhibit has been omitted pursuant to a request for
Confidential Treatment under Rule 406 of the Securities Act of 1033, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
12
<PAGE>
or inaction of any federal, state or other governmental agency whose approval is
required for clinical investigation or commercial sales of the Products where
such activity or inactivity does not arise from the intentional or negligent
acts or failures to act on the part of Phytera or Tsumura, their Affiliates or
Licensees.
ARTICLE 6 - MANAGEMENT OF THE COLLABORATION
6.1 Steering Committee.
------------------
6.1.1 Description. Promptly after the Effective Date, a Steering
-----------
Committee comprised of up to [ ]* named representatives of Phytera and up
to [ ]* named representatives of Tsumura shall be appointed. The Steering
Committee shall have the responsibilities of monitoring and coordinating the
activities of the parties under the terms of this Agreement and ensuring that
appropriate resources are available to carry out the objectives of this
Agreement provided, however that (i) the express terms of this Agreement shall
govern the Steering Committee's activities and the decisions allocated to a
respective party hereunder shall be made by that party and (ii) the Steering
Committee shall have no authority to increase a party's financial or other
obligations hereunder. The Steering Committee shall be co-chaired by a Phytera
representative and a representative of Tsumura. Each party shall designate its
representatives to the Steering Committee within forty-five (45) days of the
effective date of this Agreement. Meetings of the Steering Committee shall be
held at least two ( 2) times per year, once in Japan and once in the U.S. Each
party may change one or more of its representatives to the Steering Committee at
any time by providing prior written notice to the other party. Members of the
Steering Committee may be represented at any meeting by another member of the
Steering Committee so designated by the absent member, or by a deputy.
6.1.2 Minutes. The Steering Committee shall keep accurate minutes
-------
of its deliberations. Each co-chair shall be responsible for the preparation of
draft minutes for every other meeting or in such other manner as the co-chairs
shall agree. Draft minutes shall be sent to all members of the Steering
Committee within twenty ( 20) business days after each meeting. All records of
the Steering Committee shall be available to both parties. Such minutes and
records shall be in English.
6.1.3 Disagreements. Subject to Article 6.1.1 above, all
-------------
disagreements within the Steering Committee shall be subject to the following
(a) The representatives of the Steering Committee shall promptly present the
disagreement to a designated representative of Phytera and a designated
representative of Tsumura (the "Designated Representatives"); (b) The
Designated Representatives shall meet or discuss in a
______________
* This portion of the Exhibit has been omitted pursuant to a request for
Confidential Treatment under Rule 406 of the Securities Act of 1033, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
13
<PAGE>
telephone or video conference each party's view and explain the basis for such
disagreement; (c) If the Designated Representatives cannot promptly resolve such
disagreement, then such disagreement shall be submitted to arbitration in
accordance with the provisions of Section 13.6 below. The Designated
Representatives shall be named promptly after the Effective Date of this
Agreement.
14
<PAGE>
6.2 Research Operations Committee.
-----------------------------
6.2.1 Description. Promptly after the Effective Date, a Research
-----------
Operations Committee comprised of up to [ ]* named representatives of
Phytera and up to [ ]* named representatives of Tsumura shall be
appointed. The Steering Committee shall have the responsibilities of monitoring
and coordinating the activities of the parties under the terms of this Agreement
and ensuring that appropriate resources are available to carry out the
objectives of this Agreement provided, however that (i) the express terms of
this Agreement shall govern the Steering Committee's activities and the
decisions allocated to a respective party hereunder shall be made by that party
and (ii) the Steering Committee shall have no authority to increase a party's
financial or other obligations hereunder. The Steering Committee shall be co-
chaired by a Phytera representative and a representative of Tsumura. Each
party shall designate its representatives to the Steering Committee within
forty-five (45) days of the effective date of this Agreement. Meetings of the
Steering Committee shall be held at least two ( 2) times per year, once in
Japan and once in the U.S. Each party may change one or more of its
representatives to the Steering Committee at any time by providing prior written
notice to the other party. Members of the Steering Committee may be represented
at any meeting by another member of the Steering Committee so designated by the
absent member, or by a deputy.
6.2.2 Minutes. The Research Operations Committee shall keep accurate
--------
minutes of its deliberations. Each co-chair shall be responsible for the
preparation of draft minutes for every other meeting or in such other manner as
the co-chairs shall agree. Draft minutes shall be sent to all members of the
Research Operations Committee within twenty ( 20) business days after each
meeting. All records of the Research Operations Committee shall be available to
both parties. Such minutes and records shall be in English.
6.2.3 Disagreements. Subject to Article 6.2.1 above, all
-------------
disagreements that cannot be resolved by the members of the Research Operations
Committee shall be presented to the Steering Committee for resolution.
ARTICLE 7 - INTELLECTUAL PROPERTY RIGHTS
7.1 Ownership of Extracts. Phytera shall own all right, title and interest
---------------------
in and to all Extracts and, except as expressly provided in Article 3, no rights
of any kind to any
______________
* This portion of the Exhibit has been omitted pursuant to a request for
Confidential Treatment under Rule 406 of the Securities Act of 1033, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
15
<PAGE>
Extract shall pass to Tsumura as a result of this Agreement or any activity
conducted pursuant to this Agreement.
7.2 Ownership of Compounds, Products and Inventions. Phytera and Tsumura
-----------------------------------------------
shall jointly and equally co-own all right, title and interest in and to all
Compounds and Products whether discovered jointly or severally by Phytera or
Tsumura or any Licensee. In addition, Phytera and Tsumura shall jointly and
equally co-own all right, title and interest in all ideas, methods, writings,
inventions, discoveries, improvements and other technology, whether or not
patentable or copyrightable, and any patent applications, patents or copyrights
based thereon that are discovered, made or conceived during the term of this
Agreement by employees or Licensees of Phytera or Tsumura as a result of the
screening program conducted pursuant to this Agreement (collectively,
"Inventions").
7.3 Disclosure; Cooperation. During the term of this Agreement, each
-----------------------
party shall disclose to the other the making, conception or reduction to
practice of Inventions by employees or others acting on behalf of such party.
Each party represents and agrees that its employees and consultants and
Licensees shall be obligated under a binding written agreement to assign to
either (i) such party individually or (ii) Phytera and Tsumura jointly all
rights in all Inventions made or conceived during the term of this Agreement as
a result of any activity conducted pursuant to this Agreement by such employees,
consultants or Licensees. In the event that under any such agreement, such
rights are assigned to one party individually, that party hereby assigns and
agrees to assign joint ownership of such rights to the other party. Each party
agrees to sign or cause to have signed all documents relating to such
assignment. Each party agrees to enforce such agreements with employees,
consultants and Licensees, including, where appropriate, by legal action.
7.4 Patent Applications. Each party shall have the exclusive right and
-------------------
responsibility, subject to the terms of this Section, to file, prosecute and
maintain patent applications included in the Collaboration Patent Rights in all
countries of its respective Territory. All such patent applications shall be in
the name of Phytera and Tsumura jointly. For the purposes of this Section, the
"Primary Patenting Party" shall mean Tsumura in the Tsumura Territory and
Phytera in the Phytera Territory. In the event that the Primary Patenting
Party fails or elects not to file, prosecute or maintain such patent
applications in a specific country in its Territory, then such party shall
notify the other of its decision and the other party shall have the right but
not the obligation to file, prosecute or maintain any such patent applications
in such country in the joint names of Tsumura and Phytera. If the other party
chooses to file, prosecute or maintain any such patent applications in such
country, then (i) the license granted to the Primary Patenting Party pursuant to
Article 4 with respect to any Compound or Product identified in any such patent
application shall terminate for such country, (ii) the other party shall have
the right to undertake development and commercialization activities related to
such Compound or Product in such country and (iii) the other party shall have
the obligation to pay royalties to the Primary Patenting Party in accordance
with Appendix C with respect to all sales in such country of any Product
identified in such patent application. Each Primary Patenting Party shall to
the extent reasonably possible notify the other party of
16
<PAGE>
its intention not to pursue such patent applications with sufficient time to
allow the other party to protect such patent rights prior to the expiration or
abandonment of such rights. In addition, when the Primary Patenting Party's
rights granted under Article 4 with respect to any particular Compound or
Product terminate pursuant to Sections 2.4.4 or 4.2.2 or when Tsumura's rights
to any Extract granted under Section 3.2.1 terminate pursuant to Section 2.3.4,
the other party shall have the right but not the obligation to file, prosecute
or maintain any patent applications with respect to such Compound or Product or
any discoveries with respect to such Extract in any country in the world. For
avoidance of any doubt, the parties acknowledge that, in any event and under any
circumstance, any and all patent applications shall be made in the joint names
of Phytera and Tsumura. Each patenting party shall be responsible for all costs
associated with the preparation, filing, prosecution and maintenance of such
patent applications filed, or to be filed, in the countries in which the party
is filing patent applications. Each party shall make available to the other
party or its authorized attorneys, agents or representatives, employees, agents
or consultants to the extent necessary or appropriate to enable such party to
file, prosecute and maintain patent applications and resulting patents for its
respective Territory with respect to Inventions and for periods of time
sufficient for such party to obtain the assistance it needs from such personnel.
Where appropriate, each party shall sign or cause to have signed all documents
relating to said patent applications or patents at no charge to the other party.
7.5 Cooperation. The parties shall, at their expense, cooperate as
-----------
necessary to enable the other to establish and protect its rights under this
Article 7.
7.6 No Other Technology Rights. Except as otherwise expressly provided in
--------------------------
this Agreement, under no circumstances shall a party hereto, as a result of this
Agreement, obtain any ownership interest in or other right to any technology,
know-how, patents, pending patent applications, products, vaccines, antibodies,
cell lines or cultures, or animals of the other party, including items owned,
controlled or developed by the other party, or transferred by the other party to
said party at any time pursuant to this Agreement. It is understood and agreed
by the parties that this Agreement does not grant to either party any license or
other right in basic technology of the other party.
7.7 Enforcement of Collaboration Patent Rights. Each party shall promptly
------------------------------------------
notify the other in writing of any alleged or threatened infringement of the
Collaboration Patent Rights of which it becomes aware. Each party is responsible
for the enforcement of the Collaboration Patent Rights in its respective
Territory except for the countries in which the other party has filed patent
applications and in its sole discretion may choose to prosecute any such
infringement in which case any recovery or damages received by such party shall
be retained by and be the sole property of such party. In the event that one
party brings an infringement action, such party shall control the litigation and
the
17
<PAGE>
other party shall cooperate fully , including, if required to bring such action,
the furnishing of a power of attorney. Each party agrees that (i) if more than
[ ]* passes following the date such party first becomes aware of any actual or
alleged infringement and during such time such party is not successful in
causing such actual or alleged infringer to desist and such party does not file
an infringement action in a court of competent jurisdiction, or (ii) prior to
the end of such [ ]* period, such party notifies the other party of its
intention not to bring suit against such infringer, then the other party shall
have the right, but not the obligation, to prosecute at its own expense such
actual or alleged infringement and any recovery or damages received by such
party shall be retained by such party.
7.8 Trademarks. Phytera and Tsumura, each at their own expense, shall be
----------
responsible for the selection, registration and maintenance of all trademarks,
tradenames and service marks that such party employs in connection with the
Products and shall individually own and control such trademarks, tradenames and
service marks.
ARTICLE 8 - CONFIDENTIALITY
8.1 Confidential Information. From time to time during the term of this
------------------------
Agreement, and in order to carry out the provisions of this Agreement, it may be
necessary for one of the parties to disclose confidential information
("Confidential Information") to the other. For the purposes of this Agreement,
Confidential Information shall include the Extracts, including the identity of
the Extracts, supplied by Phytera under this Agreement, the data generated by
the Collaboration or any other activity conducted pursuant to this Agreement,
the Compounds, the Products, the Inventions, Phytera's cell culture techniques
and any strategies, plans or developments relating to any of the foregoing, the
identity of the Collaboration Assays and Tsumura's protocols for the
Collaboration Assays, the business, financials, technology, research strategy,
employees, infrastructure, collaborators, advisors, consultants, Board of
Directors and Scientific Advisory Board of Phytera and its Affiliates and the
business, financials, technology, research and research strategy of Tsumura and
its Affiliates.
8.2 Non-Disclosure Obligations.
--------------------------
(a) The recipient of such Confidential Information (the "Recipient")
undertakes to treat any and all of such Confidential Information as the other
party may disclose (the "Discloser") to the Recipient during the term of this
Agreement and for a period of [ ]* thereafter as strictly confidential and
shall not divulge it to any Third Party for any purpose whatsoever and shall not
make use of such Confidential
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
18
<PAGE>
Information or any part thereof for any purpose other than carrying out the
terms of this Agreement without the Discloser's prior written consent. Any data
or information generated by or as a result of the Collaboration or any other
activity conducted pursuant to this Agreement or any data or information with
respect to the Compounds, the Products or the Inventions shall not be disclosed
to any Third Party nor be used for any purpose other than carrying out the terms
of this Agreement without the other party's written consent. Notwithstanding the
foregoing, either party may disclose Confidential Information to consultants,
preclinical and clinical development organizations and investigators and
contract manufacturers to the extent reasonably necessary to develop and
manufacture the Compounds and Products derived from this Collaboration provided
such consultants, development organizations and investigators and contract
manufacturers have entered into a written confidentiality agreement containing
provisions at least as restrictive as those set forth in Section 8 of this
Agreement prior to such disclosure.
(b) In the event that the Recipient visits any of the establishments
of the Discloser, the Recipient undertakes that any further Confidential
Information which may come to the Recipient's knowledge, as a result of any such
visit, shall be deemed to be Confidential Information and shall be subject to
the provisions of Paragraph (a) of this Section 8.2.
8.3 Limitations. The undertakings in Paragraphs (a) and (b) of Section 8.2
-----------
shall not apply to information that (i) at the time of disclosure is published
or otherwise generally available to the public; (ii) after disclosure by
Discloser is published or becomes generally available to the public otherwise
than through any act or omission on the part of Recipient; (iii) the Recipient
can establish by written documentation that such information was in its
possession at the time of disclosure and that such information was not acquired
directly or indirectly from the Discloser; (iv) was rightfully acquired from a
third party who did not obtain it under pledge of secrecy to the Discloser or
another party; or (e) was required to be disclosed by law.
8.4 Samples. Neither Phytera nor Tsumura shall supply or send any samples
-------
of Compounds to any Third Party, other than to regulatory agencies or for use in
pre-clinical testing or clinical trials, unless such samples are protected by
an appropriate form of materials transfer agreement approved by Phytera and
Tsumura.
8.5 Publications.
------------
8.5.1 Procedure. Phytera and Tsumura recognize the need to obtain
---------
valid patent protection. Consequently, Phytera, Tsumura and their respective
employees and consultants and any other Third Party wishing to make a
publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed by such party as part of the
collaboration described in this Agreement (the "Publishing Party") shall deliver
to the other party (the "Reviewing Party") a copy of the proposed written
publication at least ninety (90) days prior to submission for publication, or an
abstract of such oral disclosure at least thirty (30) days prior to submission
of the abstract or the oral disclosure, whichever is earlier. The Reviewing
Party shall have the right (a)
19
<PAGE>
to propose modifications to the publication for patent reasons, (b) to request a
delay in publication or presentation in order to protect patentable information,
or (c) to request that the information be maintained as a trade secret and, in
such case, the Publishing Party shall not make such publication or disclosure.
If the Reviewing Party requests a delay as described in clause (b) in the
preceding sentence, the Publishing Party shall delay submission or presentation
of the publication for a period sufficient to enable protection of the Reviewing
Party's rights in such information to be filed.
8.5.2 Resolution. Only upon the receipt of written approval of the
----------
Reviewing Party may the Publishing Party proceed with the written publication or
the oral presentation.
8.6 Injunctive Relief. The parties hereto understand and agree that
-----------------
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 8 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 8. It is understood that such injunctive relief
is intended solely as provisional relief pending the dispute resolution
procedures described in Section 13.6.
ARTICLE 9 - EXPIRATION AND TERMINATION
9.1 Expiration. Unless earlier terminated pursuant to Section 9.2, the
----------
rights and obligations of each party and the terms and conditions related to the
research collaboration shall terminate at the close of the Research
Collaboration Period, but all other rights and obligations of each party and the
remaining terms and conditions of this Agreement and the licenses granted
hereunder shall expire on the last to occur of (i) [
]*, or (ii) the [
]*.
9.2 Right of Termination.
--------------------
9.2.1 For Convenience. Commencing [ ]* following the Effective
---------------
Date, Tsumura shall have the right to terminate this Agreement at any time by
delivering written notice to Phytera at least [ ]* prior to the effective date
of such termination. If Tsumura elects to terminate this Agreement pursuant to
the terms of this Section 9.2.1, then Tsumura shall remit to Phytera all
payments that become due
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
20
<PAGE>
and payable in accordance with the terms of this Agreement prior to the
effective date of such termination, and each such payment shall be made in
accordance with the applicable payment terms set forth herein. Unless otherwise
expressly indicated by Tsumura, the termination of the Agreement by Tsumura
under this Section 9.2.1 shall not affect any rights and obligations of the
parties under this Agreement with respect to any Extracts delivered to Tsumura
before the termination of this Agreement. Further, pursuant to this Section
9.2.1, Tsumura may terminate this Agreement for convenience at its sole
discretion with respect to particular one or more Extracts and/or Compounds. In
such case, this Agreement shall be terminated to the extent that it applies to
such particular Extracts and/or Compounds, and shall remain effective and in
full force with respect to other Extracts and Compounds
9.2.2 For Cause. Each party shall have the right to terminate this
---------
Agreement by giving to the other party not less than [ ]* prior written notice
in the event that the other party commits a material breach of any of its
material obligations hereunder and fails to cure such breach during such notice
period. For purposes of this Section, the occurrence of any of the following
shall be deemed to be a material breach of this Agreement but material breaches
shall not be limited to the following:
(i) failure to make any payment when such payment is due and
payable, provided such payment is not the subject of a good faith dispute
between the parties and the amount of such payment exceeds [ ]*; or
(ii) failure by either party to use diligent efforts, as described in
Section 5.1 above, to commercialize Products.
(iii) failure by Phytera to deliver the Extracts or provide Support to
Tsumura in accordance with the terms of this Agreement.
In addition, either party shall have the right to terminate this Agreement
effective immediately upon giving notice to the other party upon the occurrence
of any of the following events: (a) an assignment by the other party for the
benefit of creditors; or (b) the filing of a petition in bankruptcy or
comparable debtor's relief law by the other party; or (c) the filing of a
petition in bankruptcy or comparable debtor's relief law against the other party
by its creditors which petition is not dismissed within sixty (60) days; or (d)
the appointment of a receiver, trustee, liquidator, receiver-manager or similar
custodian for the other party and the appointment is not dismissed within sixty
(60) days; or (e) the other party has voluntarily or involuntarily commenced
proceedings for dissolution,
________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
21
<PAGE>
liquidation or winding up, or has ceased to carry on its business in the
ordinary course; or (f) the institution of any other proceeding involving the
insolvency of the other party or the protection of, or from, its creditors,
which proceeding remains undismissed for a period of sixty (60) consecutive
days.
9.3 Effect of Expiration or Termination.
-----------------------------------
9.3.1 If this Agreement is terminated for convenience by Tsumura or
for cause by Phytera, Tsumura shall immediately cease performing all its
screening activities associated with this Agreement and return all of the
Extracts in its possession at that time for which this Agreement is terminated
(as described in Section 9.2.1) or, upon election by Phytera, Tsumura shall
destroy all such Extracts. Each party shall promptly return to the other party
all materials, including all Confidential Information of the other party,
previously delivered to such party to the extent that this Agreement is
terminated, and within ten (10) business days following the effective date of
such expiration or termination of this Agreement, an officer of each party shall
certify in writing to the other party that such party has complied with its
obligations set forth in this Section 9.3.1.
9.3.2 If this Agreement is terminated for cause by Tsumura, Phytera
shall immediately cease performing all its Support activities associated with
this Agreement. Tsumura shall have the right to retain any Extracts, Compounds,
Products and any data and information relating thereto then in its possession
and to use such Extracts, Compounds, Products and any data and information
relating thereto for the purposes set forth in this Agreement. Phytera shall
return to Tsumura all payments made to it pursuant to Section 12.1 on a pro rata
basis based on the actual number of Extracts delivered to Tsumura and the actual
amount of Support provided to Tsumura without prejudice to Tsumura's rights set
forth in the second sentence of this Section 9.3.2. Each party shall promptly
return to the other party all materials, including all Confidential Information
of the other party, previously delivered to such party, and within ten (10)
business days following the effective date of such expiration or termination of
this Agreement, an officer of each party shall certify in writing to the other
party that such party has complied with its obligations set forth in this
Section 9.3.2.
9.3.3 Subject to Section 9.2.2 (i), if Tsumura fails to make
milestone payments for any Compound or Product as required by Section C1 below
or either party fails to make royalty payments for any Compound or Product as
required by Section C2 below, then such party shall (i) cease all research and
development activities associated with such Compound or Product, (ii) cease
manufacturing, marketing and selling such Compound or Product, (iii) irrevocably
assign its Collaboration Patent Rights to such Compound or Product to the other
party and (iv) the license granted to such party under Section 4 with respect to
such Compound or Product shall terminate.
9.3.4 Upon termination or expiration of this Agreement, each party
shall retain its respective Collaboration Patent Rights, except to the extent
such rights have been irrevocably assigned to the other party pursuant to this
Agreement. The expiration of this Agreement or the termination of this Agreement
by either party for any reason
22
<PAGE>
shall not relieve either party from any obligation that matured prior to the
effective date of the expiration or termination.
ARTICLE 10 - REPRESENTATIONS AND WARRANTIES
10.1 General. Each party warrants and represents to the other that it has
-------
the legal right and power to enter into this Agreement, to extend the rights and
licenses granted to the other in this Agreement, and to perform fully its
obligations hereunder, and that it has not made nor will it make any commitments
to others in conflict with or in derogation of such rights or this Agreement.
10.2 Services. Each party warrants and represents to the other that it
--------
shall conduct its activities in a good scientific manner and in compliance with
all applicable good laboratory and manufacturing practices and all applicable
legal requirements.
10.3 Phytera's Technology. Phytera warrants and represents that it has
--------------------
filed patent applications for the ExPAND(TM) Technology in the United States and
is currently filing patent applications for the ExPAND(TM) Technology in the
United Kingdom and Japan.
10.4 Extracts. Phytera warrants and represents that all shipments of
--------
Extracts shall be in compliance with the terms of the CITES Convention.
ARTICLE 11- INDEMNITY; INSURANCE
11.1 Indemnity Obligations. Each party shall indemnify and hold harmless
---------------------
the other party and its officers, directors, employees and agents from and
against all liabilities, claims, actions and proceedings and all expenses
arising in connection therewith (including without limitation, damages,
judgments, awards, costs and attorney's fees and disbursements) which they may
incur or which may be asserted against them arising out of or by reason of the
activities of such party, its Affiliates or Licensees, or by their respective
officers, directors, employees or agents pursuant to this Agreement with the
exception of those arising from the intentional wrongful actions or gross
negligence of the other party or any of its employees or agents or from the
breach of any representation, warranty or obligation of the other party as
specified herein.
11.2 Procedure. Promptly after learning of the occurrence of any event
---------
which gives rise to its rights under the provisions of Section 11.1, the
indemnified party shall notify the other party in writing of any such matter.
The indemnified party shall cooperate with the other party in the negotiation,
compromise and defense of any such matter. The indemnifying party shall be in
charge of and control such negotiations, compromise and defense. In no event
shall the indemnified party compromise or settle any such matter without the
prior consent of the other party and such party shall not be bound by any such
compromise or settlement without its prior written consent.
23
<PAGE>
11.3 Insurance. For the period starting with the initiation of clinical
---------
trials of a Product by Phytera, Tsumura or an Affiliate or Licensee of either ,
such party shall maintain product liability insurance in an amount acceptable to
the other party with respect to the development, manufacture and sale of the
Products developed pursuant to this Agreement for the term of this Agreement (if
such insurance is an occurrence-basis policy) or for an additional [ ] after
the expiration or termination of this Agreement (if such insurance is a claims-
made basis policy).
ARTICLE 12 - RESEARCH PAYMENTS
12.1 Research Payments.
-----------------
12.1.1 Extracts. In consideration of Phytera's agreement to
--------
provide the Extracts to Tsumura under the terms of this Agreement, Tsumura
agrees to pay Phytera as follows:
Year 1 ( []* Extracts) - [ ]*
Year 2 ( []* Extracts) - [ ]*
Year 3 ( []* Extracts) - [ ]*
12.1.2 Support. In consideration of Phytera's agreement to provide
-------
Support to Tsumura under the terms of this Agreement, Tsumura agrees to pay
Phytera for Support in the area of [ ]* of Stage 3 Extracts as follows:
Year 1 ([]* Full-time equivalent) - [ ]*
Year 2 ([]* Full-time equivalent) - [ ]*
Year 3 ([]* Full-time equivalent) - [ ]*
and Tsumura agrees to pay Phytera for Support in the area of [ ]* as
follows:
Year 1 ([]* Full-time equivalent) - [ ]*
Year 2 ([]* Full-time equivalent) - [ ]*
Year 3 ([]* Full-time equivalent) - [ ]*
These fees are fully inclusive and include the cost of all reagents, supplies,
and equipment.
________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
24
<PAGE>
The fee for additional Support provided by Phytera at Tsumura's request in
Year 1 shall be [ ]* per United States full-time equivalent and [ ]*
per United Kingdom full-time equivalent calculated on a pro-rata basis for
actual services rendered. Thereafter, such amounts may be adjusted once per year
provided that any increase in such amounts shall not exceed the percentage by
which the Consumer Price Index for all Urban Consumers, U.S. City Average (as
published by the U.S. Department of Labor, Bureau of Labor Statistics) increased
during the 12-month period prior to the date of the notice of such increase.
12.1.3 Timing of Payments. The payments specified above shall be
------------------
paid annually in advance and shall be due and payable as follows:
(i) Payments associated with Year 1 shall be due and
payable within [ ]*;
(ii) Payments associated with Year 2 shall be due and
payable within [ ]*; and
(iii) Payments associated with Year 3 shall be due and
payable within [ ]*.
12.1.4 Time Records. Phytera shall keep accurate and reliable
------------
records of Support specifying the area of Support and the time spent by each
employee of Phytera on a daily basis and shall send a summary of such monthly
records to Tsumura within seven (7) days following the end of each calendar
month.
ARTICLE 13 - MISCELLANEOUS
13.1 Force Majeure. Neither party shall be held liable or responsible to
-------------
the other party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any term of this Agreement when
such failure or delay is caused by or results from causes beyond the reasonable
control of the affected party including but not limited to fire, floods,
embargoes, war, acts of war (whether war is declared or not), insurrections,
riots, civil commotions, strikes, lockouts or other labor disturbances, acts of
God or acts, omissions or delays in acting by any governmental authority or the
other party.
13.2 Severability. Should one or more provisions of this Agreement be or
------------
become invalid, the parties hereto shall substitute, by mutual consent, valid
provisions for such invalid provisions which valid provisions in their economic
effect are sufficiently
_________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
25
<PAGE>
similar to the invalid provisions that it can be reasonably assumed that the
parties would have entered into this Agreement with such valid provisions. In
case such valid provisions cannot be agreed upon, the invalidity of one or
several provisions of this Agreement shall not affect the validity of this
Agreement as a whole, unless the invalid provisions are of such essential
importance to this Agreement that it is to be reasonably assumed that the
parties would not have entered into this Agreement without the invalid
provisions.
13.3 Notices. Any consent, notice or report required or permitted to be
-------
given or made under this Agreement by one of the parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery or courier) or courier, postage prepaid (where
applicable), addressed to such other party at its address indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor and shall be effective upon receipt by the addressee.
If to Phytera: Phytera, Inc.
377 Plantation Street
Worcester, Massachusetts 01605
USA
Attention: President and CEO
Fax: 001 508 792 1339
If to Tsumura: Tsumura & Co.
12-7 Nibancho
Chiyoda-ku
Tokyo 102 Japan
Attention: General Manager, Research & Development
Fax: 81 3 3221 5105
13.4 Assignment. This Agreement may not be assigned or otherwise
----------
transferred by either party without the prior written consent of the other
party; provided, however, that either party may, without such consent, assign
this Agreement and its rights and obligations hereunder to its Affiliates or in
connection with the transfer or sale of all or substantially all of its business
or in the event of its merger or consolidation or change in control or similar
transaction. Any purported assignment in violation of the preceding sentence
shall be void. Any permitted assignee shall assume all obligations of its
assignor under this Agreement.
13.5 Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of law provisions thereof.
13.6 Dispute Resolution. Except as provided in Section 6.1.3, any
------------------
disputes arising between the parties relating to, arising out of or in any way
connected with this Agreement or any term or condition hereof, or the
performance by either party of its obligations hereunder, whether before or
after termination of this Agreement, shall be promptly presented to the
Designated Representatives for resolution and if such persons
26
<PAGE>
or their designees cannot promptly resolve such disputes, then such dispute
shall be finally resolved by binding arbitration in accordance with following
provisions. Whenever a party shall decide to institute arbitration proceedings,
it shall give written notice to that effect to the other party. The party giving
such notice shall refrain from instituting the arbitration proceedings for a
period of sixty (60) days following such notice. Any arbitration hereunder shall
be conducted pursuant to the Japan-American Trade Arbitration Agreement of
September 16, 1952, by which each party is bound. If the request for arbitration
is initiated by Phytera, the arbitration shall take place in Tokyo, Japan. If
the request for arbitration is initiated by Tsumura, the arbitration shall take
place in Boston, MA, USA
13.7 Exports. The parties acknowledge that the export of technical data,
--------
materials or products is subject to the exporting party receiving any necessary
export licenses and that the parties cannot be responsible for any delays
attributable to export controls which are beyond the reasonable control of
either party. Each party agrees not to export or re-export, directly or
indirectly, any materials, information, technical data, the direct product of
such data, samples or equipment received or generated under this Agreement in
violation of any governmental regulations which may be applicable, including,
but not limited to, the Export Administration Act of 1979, as amended, its rules
and regulations, including, but not limited to, Part 779 of the United States
Export Control Regulations, published by the United States Department of
Commerce (collectively the "U.S. Export Laws"), and other applicable export
control laws. Each party agrees to obtain similar covenants from each of their
Affiliates and Licensees with respect to the subject matter of this Section.
Phytera shall make a commercially reasonably effort to provide Tsumura with such
information as Phytera deems important for Tsumura to comply with the U.S.
Export Laws.
13.8 Waiver. The waiver by either party hereto of any right hereunder or
------
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
13.9 Survival. The provisions of Articles 7, 8, 10 and 11, and Sections
--------
9.3, , 13.3, 13.5, 13.6 and C2.4 and any other obligation under this Agreement
that is expressly stated to survive or to be performed after the expiration or
termination of this Agreement shall survive the expiration or termination of
this Agreement.
13.10 Entire Agreement. This Agreement, together with all appendices
----------------
attached hereto and incorporated herein, contains the entire understanding of
the parties with respect to the subject matter hereof. This Agreement supersedes
all express or implied agreements, representations and understandings, either
oral or written, heretofore made between or by the parties with respect to the
subject matter hereof. This Agreement may be amended, or any term hereof
modified, only by a written instrument duly executed by both parties hereto.
27
<PAGE>
13.11 Independent Contractors. It is expressly agreed that Tsumura and
-----------------------
Phytera shall be independent contractors and that the relationship between the
two parties shall not constitute a partnership, joint venture or agency. Neither
Phytera nor Tsumura shall have the authority to make any statement,
representation or commitment of any kind, or to take any action which shall be
binding on the other without the prior written consent of the other party.
13.12 Headings. The captions to the articles and sections of this
--------
Agreement are not a part of this Agreement, but are merely guides or labels to
assist in locating and reading the several articles and sections hereof.
13.13 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first set
forth above.
PHYTERA, INC. TSUMURA & CO.
By:/s/ Malcolm Morville By: /s/ Hachizaemon Kazama
---------------------- ------------------------------
Malcolm Morville Hachisaemon Kazama
- ---------------- ------------------------------
Name Name
President and CEO President
- ----------------- ------------------------------
Title Title
28
<PAGE>
APPENDIX A - SUPPORT
--------------------
Phytera shall provide Tsumura with support in the areas of [
]*.
Phytera shall provide the following committed level of support to Tsumura:
- --------------------------------------------------------------------------------
YEAR [ ]* SUPPORT [
---- ------------------ --------------
]* SUPPORT
-------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1 [ ]* FTE [ ]* FTE
- --------------------------------------------------------------------------------
2 [ ]* FTE [ ]* FTE
- --------------------------------------------------------------------------------
3 [ ]* FTE [ ]* FTE
- --------------------------------------------------------------------------------
Phytera shall provide additional support to Tsumura on an as-available basis if
so requested by Tsumura. The fees for such additional support shall be
calculated on a pro-rata basis for actual services rendered as described in
Section 12.1.2 of the Agreement.
_____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
29
<PAGE>
APPENDIX B - COLLABORATION ASSAYS
The initial Collaboration Assays are:
[
- -
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
30
<PAGE>
APPENDIX C - MILESTONES AND ROYALTIES
C1. Milestones. In consideration of the rights and licenses granted
----------
to Tsumura, Tsumura shall pay to Phytera the milestone payments shown in Table
C1 for the first Compound or Product to reach each of the defined milestones
which have not been reached by a previous Compound or Product. Tsumura shall
make [ ]* payments for the second Compound or Product to reach each milestone.
For the third and subsequent Compounds or Products to reach each milestone,
Tsumura shall pay [ ]* of the milestone payments specified in Table C1. However,
Tsumura shall only pay each of the milestones once for any Compound or Product
regardless of the number of countries in which the milestone may occur. Each
milestone payment shall be payable within [ ]* following the achievement of such
milestone. For the purpose of clarification, examples of Tsumura's milestone
obligations under three different scenarios are shown in Appendix D.
Table C1
- --------
- -------------------------------------------------------------------------------
Milestone Net Payment
--------- -----------
===============================================================================
1. [ [ ]*
]*.
2. [ [ ]*
]*.
3. [ [ ]*
]*.
4. [ ]*. [ ]*
- -------------------------------------------------------------------------------
C2. Royalties on Net Sales.
----------------------
C2.1 Royalties Payable by Tsumura. In consideration of the rights and
----------------------------
licenses granted to Tsumura hereunder, Tsumura shall pay to Phytera a royalty on
Net Sales of each Product sold by Tsumura or its Affiliates at the rates set
forth below. For the purpose of determining royalty payments, the Net Sales of
all Products sold by Tsumura and its Affiliates containing the same Compound
shall be aggregated.
C2. Royalties on Net Sales.
----------------------
C2.1 Royalties Payable by Tsumura. In consideration of the
rights and licenses granted to Tsumura hereunder, Tsumura shall pay to Phytera a
royalty on Net Sales of each Product sold by Tsumura or its Affiliates at the
rates set forth below. For the purpose of determining royalty payments, the Net
Sales of all Products sold by Tsumura and its Affiliates containing the same
Compound shall be aggregated.
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
31
<PAGE>
In the event that [ ]*. Tsumura shall pay royalties of [ ]* Tsumura's Net
sales. In the event that [ ]*, Tsumura shall pay royalties of [ ]* Tusumura's
Net Sales.
C2.2 Royalties Payable by Phytera. In consideration of the rights and
----------------------------
licenses granted to Phytera hereunder, Phytera shall pay to Tsumura a royalty on
Net Sales of each Product sold by Phytera or its Affiliates as set forth below.
For the purpose of determining royalty payments, the Net Sales of all Products
sold by Phytera and its Affiliates containing the same Compound shall be
aggregated. For all Products, Phytera shall pay royalties of [ ]* of Phytera's
Net Sales.
C2.3 Sublicense Royalties. If either party grants a license or sublicense
--------------------
to any Third Party to make, use or sell a Product or Compound, , such party
shall provide the other party with written notice of such license or sublicense,
as the case may be, and shall pay to the other party in lieu of the royalties
payable under Section C2.1 or C2.2, as the case may be, [ ]* of each milestone
and royalty payments and other fees received from such Third Party as a result
of such license or sublicense.
C2.4 Survival of Obligation to Pay Milestones and Royalties.
------------------------------------------------------
Tsumura's obligation to pay milestones as set forth in Section C1 above and
each party's respective obligation to pay royalties as set forth in this Section
C2 shall survive the termination of this Agreement or any of the licenses and
rights granted hereunder.
C2.5 Other Business Terms. Each product development agreement covering
--------------------
Compounds and Products discovered pursuant to the activities under this
Agreement shall contain those business terms typically present in pharmaceutical
licensing agreements. Such business terms, which shall include the timing of
payment of royalties, method of royalty payments and the right to audit, shall
be consistent with the norms of pharmaceutical licensing agreements subject to
the parties' good faith negotiations.
C2.6 Net Payments. All payments pursuant to this Agreement except royalty
------------
payments are exclusive of any and all withholding or similar taxes imposed or
assessed by reason of this Agreement or the transactions contemplated hereby and
the party making such payment shall pay any and all such taxes, and any
penalties, interest and collection or withholding costs associated with such
taxes, at the time the payment of such tax is due. Royalty payments are
inclusive of any and all withholding or similar taxes imposed or assessed by
reason of this Agreement or the transactions contemplated
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
32
<PAGE>
hereby and the party making such payment may deduct and pay any and all such
taxes, and any penalties, interest and collection or withholding costs
associated with such taxes, at the time the payment of such tax is due, and
shall be borne by the party receiving such payment.
C2.7 Incorporation of Appendix C into the Agreement. The parties agree that
----------------------------------------------
this Appendix C is an integral part of, and incorporated by reference into, the
Research Collaboration Agreement, dated as of May 22, 1996, between Phytera,
Inc. and Tsumura & Co. As used in this Appendix, the term "Agreement" shall
mean the aforementioned agreement together with all appendices thereto. Each
capitalized term used in this Appendix and not defined in this Appendix shall
have the meaning ascribed to it in the Agreement. Each reference herein to
section numbers other than to those beginning with the letter "C" shall refer to
the applicable section in this Agreement.
_________________ ___________________
Initial (Tsumura) Initial (Phytera)
33
<PAGE>
APPENDIX D - EXAMPLES OF TSUMRUA'S MILESTONE OBLIGATIONS
34
<PAGE>
Senario 1
---------
[
]*
_________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
35
<PAGE>
Senario 2
---------
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
36
<PAGE>
Senario 3
---------
[
]*
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
37
<PAGE>
AMENDMENT
THIS AMENDMENT TO, THE RESEARCH COLLABORATION AGREEMENT (hereinafter
referred to as the "AMENDMENT") dated as of _____________, ____ 1998, is made
between Phytera, Inc. (hereinafter referred to as "PHYTERA"), a Delaware
corporation having its principal place of business at 377 Plantation Street,
Worcester, Massachusetts 01605, USA, and Tsumura & Co. (hereinafter referred to
as "TSUMURA"), a corporation organized under the laws of Japan and having its
principal place of business at 12-7 Niban-cho, Chiyoda-ku, 102-8422 Tokyo,
Japan.
WHEREAS, Phytera and Tsumura are parties to the Research Collaboration
Agreement dated as of June 28, 1996 (hereinafter referred to as the "ORIGINAL
AGREEMENT"), pursuant to which Phytera and Tsumura established a research,
development and marketing collaboration to discover and develop compounds with
applications to certain disease targets; and
WHEREAS, Phytera and Tsumura each desire to amend and/or supplement certain
provisions of the Original Agreement.
NOW THEREFORE, each of Phytera and Tsumura hereby agrees that the Original
Agreement shall be amended and/or supplemented as follows:
1. ARTICLE 1.5 OF THE ORIGINAL AGREEMENT SHALL BE AMENDED TO READ AS FOLLOWS:
"EXTRACTS shall mean the plant cell culture extracts based on Phytera's
--------
ExPAND(R) technology provided to Tsumura pursuant to this Agreement which
technology Phytera has filed a patent applications in the United States and
is currently filing patent applications in the United Kingdom and Japan
provided always that, as agreed upon following the Steering Committee
meeting in Worcester, USA, on July 21, 1997, the marine microbial extracts
based on Phytera's proprietary uMARIINE(R) technology may serve as a
substitute for a portion of the above mentioned plant cell culture extracts
(as defined below)."
2. SECTION 2.3.1 OF THE ORIGINAL AGREEMENT SHALL BE AMENDED TO READ AS
FOLLOWS:
"Following completion of Stage 1 and in consideration of Tsumura's payment
of fees specified Section 12.1.1 below, Phytera shall select and deliver to
Tsumura Extracts in accordance with the following schedule:
38
<PAGE>
Year 1: [ ]* Extracts
Year 2: [ ]* Extracts
Year 3: [ ]* Extracts
Year 4: [ ]* Extracts
The schedule for Extract delivery in Years 2, 3 and 4 shall be determined
by the Steering Committee."
3. SECTION 2.7 OF THE ORIGINAL AGREEMENT SHALL BE AMENDED TO READ AS FOLLOWS:
"SUPPORT. During the Research Collaboration Period, Phytera shall make
-------
available to Tsumura Support subject to Section 2.11 and as more fully
described in Appendix A. The committed amount of Support for Year 1, Year
2, Year 3 and Year 4, and the fees associated with the same are specified
in Section 12.1.2 and such fees shall be paid in advance by Tsumura. In
Year 2 and Year 3, in addition to the committed amount of Support specified
in Section 12.1.2, Tsumura shall be entitled at no additional charge, to
additional Support in the amount of the accumulated Prior Year's Unused
Support, if any. In addition, during the two (2) year period following
the third anniversary of the Effective Date, Tsumura shall be entitled at
no additional charge, to additional Support in the amount of the
accumulated Prior Year's Unused Support, if any. Except as set forth in
the preceding two sentences, Tsumura shall not be entitled to any refund or
credit in the event the amount of Support provided during any period of
time in response to Tsumura's requests is less than the committed amount of
support specified above for such period. For the purposes of this Section,
the "PRIOR YEAR'S UNUSED SUPPORT" shall mean the lessor of (i) one-half
(1/2) of the committed amount of Support specified in Section 12.1.2 for
the prior year and (ii) the difference between the committed amount of
Support specified in Section 12.1.2 for the prior year and the amount of
Support actually provided by Phytera during the prior year. The amount of
the Prior Year's Unused Support shall be cumulative. The Support fees are
fully inclusive and include the costs of all reagents, supplies and
equipment necessary for Phytera to provide the Support. Phytera may
provide additional Support to Tsumura on an as-available basis in response
to, Tsumura's request for such Support. The fee for such additional
Support shall be calculated based on the full-time equivalent rates set
forth in Section 12.1.2 and include the costs of all reagents, supplies and
equipment. Within thirty (30) days of the end of each quarter, Phytera
shall provide Tsumura with a written report itemizing the amount of Support
provided during such quarter.
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
39
<PAGE>
Furthermore, in order to assist Phytera's work under this Agreement,
Tsumura shall dispatch [ ]*("[ ]*full-time
equivalents") to the program at Phytera's US facilities in Year 3 and Year
4. Phytera shall provide facilities, equipment, training and supervision
for the above mentioned personnel of Tsumura, and Tsumura shall reimburse
Phytera for the associated overhead costs as defined in Section 12.1.2
herein and Appendix A attached hereto."
4. SECTION 9.2.1 OF THE ORIGINAL AGREEMENT SHALL BE AMENDED TO READ AS
FOLLOWS: -
"FOR CONVENIENCE. Commencing [ ]* following the Effective Date,
---------------
Tsumura shall have the right to terminate this Agreement at any time by
delivering written notice to Phytera at least [ ]* prior to the
effective date of such termination. If Tsumura elects to terminate this
Agreement pursuant to the terms of this Section 9.2.1, then Tsumura shall
remit to Phytera all payments that become due and payable in accordance
with the terms of this Agreement prior to the effective date of such
termination, and each such payment shall be made in accordance with the
applicable payment terms set forth herein. Unless otherwise expressly
indicated by Tsumura, the termination of the Agreement by Tsumura under
this Section 9.2.1 shall not affect any rights and obligations of the
parties under this Agreement with respect to any Extracts delivered to
Tsumura before the termination of this Agreement. Further, pursuant to
this Section 9.2.1, Tsumura may terminate this Agreement for convenience at
its sole discretion with respect to particular one or more Extracts and/or
Compounds. In such case, this Agreement shall be terminated to the extent
that it applies to such particular Extracts and/or Compounds, and shall
remain effective and in full force with respect to other Extracts and
Compounds."
5. SECTION 12.1.1 OF THE ORIGINAL AGREEMENT SHALL BE AMENDED TO READ AS
FOLLOWS:
"EXTRACTS. In consideration of Phytera s agreement to provide the Extracts
--------
to Tsumura under the provisions of this Agreement, Tsumura agrees to pay
Phytera as follows:
Year 1 ([ ]* Extracts) [ ]*
Year 2 ([ ]* Extracts) [ ]*
Year 3 ([ ]* Extracts) [ ]*
Year 4 ([ ]* Extracts) [ ]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
40
<PAGE>
6. SECTION 12.1.2 OF THE ORIGINAL AGREEMENT SHALL BE AMENDED TO READ AS
FOLLOWS:
"SUPPORT. In consideration of Phytera's agreement to provide Support to
-------
Tsumura under the provisions of this Agreement, Tsumura agrees to pay
Phytera for support in the area of [ ]* as follows:
Year 1 ([ ]* full-time equivalent) [ ]*
Year 2 ([ ]* full-time equivalent) [ ]*
Year 3 ([ ]* full-time equivalent) [ ]*
Year 4 ([ ]* full-time equivalent) [ ]*
and Tsumura agrees to pay Phytera for Support in the area of [ ]* as
follows:
Year 1 ([ ]* full-time equivalent) [ ]*
Year 2 ([ ]* full-time equivalent) [ ]*
Year 3 ([ ]* full-time equivalent) [ ]*
Year 4 ([ ]* full-time equivalent) [ ]*
The fees are fully inclusive and include the cost of all reagents,
supplies, and equipment.
The justification for the aforementioned fees which Tsumura has agreed to
pay Phytera are indicated in Appendix E (Support in the area of [ ]*) attached
hereto.
The reference fee for additional support provided by Phytera at Tsumura's
request in Years 1 and 2 shall be [
]* per United States full-time equivalent and [
]* per United Kingdom
full-time equivalent, calculated on a pro-rata bais for actual services
rendered. For Years 3 and 4, the reference fee shall be increased to [
]* per United States full-time
equivalent and [
]*per United Kingdom full-time equivalent or per United States
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
41
<PAGE>
full-time equivalent engaged in [ ]* calculated on a pro-rata
basis for actual services rendered."
7. APPENDIX A - SUPPORT OF THE ORIGINAL AGREEMENT SHALL BE AMENDED TO READ AS
FOLLOWS:
"Phytera shall provide Tsumura with support in the areas of [
]*. Phytera shall conduct assays in support of the [
]* activities for such Collaboration Assays as indicated in Appendix B
except that Tsumura shall conduct assays in support of the [
]*.
Phytera shall provide the following committed level of support to Tsumura:
Year [ ]* Support [ ]/
[ ]* Support
1 [ ]* FTE [ ]* FTE
2 [ ]* FTE [ ]* FTE
3 [ ]* FTE [ ]* FTE
4 [ ]* FIFE [ ]* FTE
In order to assist Phytera's work under this Agreement, Tsumura shall
dispatch [ ]* ([ ]* full-time equivalents) to
the program at Phytera's US facilities in Year 3 and Year 4. Tsumura shall
be responsible for all travel, accommodation, relocation and subsistence
costs associated with the said full-time equivalents. Phytera shall provide
the above mentioned personnel of Tsumura with laboratory space, appropriate
equipment, supplies and appropriate supervision for an overhead charge to
Tsumura of [ ]* per full-time equivalent in
Year 3. The overhead charge for Year 4 shall be determined by the Steering
Committee prior to the commencement thereof taking into account such
charges incurred in the previous Year 3.
Phytera shall provide additional support to Tsumura on an as-available
basis if so requested by Tsumura. The fees for such additional support
shall be calculated on a pro-rata basis for actual services rendered as
described in Section 12.1.2 of the Agreement".
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
42
<PAGE>
8. The following language shall be inserted and attached to the Original
Agreement as Appendix E - Support in the Area of [ ]*:
"For convenience purposes only, the fees for the Support provided by
Phytera to-Tsumura in Year 1 (equivalent to [ ]* United
Kingdom fulltime equivalent) shall be divided in [ ]*
United Kingdom full-time equivalent and each of such installments shall be
applied to the fees charged in Year 2 and Year 3, respectively.
Consequently, the fees to be paid by Tsumura to Phytera in Year 1 shall be
Zero.
The fees to be paid by Tsumura to Phytera in Year 2 are calculated by adding
[ ]* United Kingdom full-time equivalent of Year 1 [
]* to the Year 2's[ ]* United Kingdom full time
equivalent [ ]*.
The fees to be paid by Tsumura to Phytera in Year 3 are calculated by adding
[ ]* United Kingdom full-time equivalent of Year 1 [ ]* to the
[ ]* United Kingdom full-time equivalent or United States full-time
equivalent engaged in [ ]*[
]* of year 1 plus the equivalent of [ ]*
United Kingdom full time equivalent or United States full-time equivalent
engaged in [ ]*[ ]*of Year 1.
In this Amendment, the additional of [ ]* of [ ]* United Kingdom full-
time equivalent or United States full time equivalent engaged in [
] of Year 1 shall mean the percentage increase
determined by the Steering Committee at the Hawaii meeting of February 11,
1998, USA, and which is aimed at adjusting the increase of the associated
costs arising in the course of the collaborative research activities pursuant
to the provisions of Section 12.1.1 of this Agreement.
The fees to be paid by Tsumura to Phytera in Year 4 is [ ]
per United Kingdom full-time equivalent or United States fulltime equivalent
engaged in [ ]*."
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
43
<PAGE>
9. Capitalized terms utilized and not otherwise defined herein shall have the
meanings ascribed to such terms in the Original Agreement.
10. All of the remaining Sections in the Original Agreement other than the
changes made and agreed to under this Amendment shall remain effective.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Amendment in duplicate, original counterparts as
of the day and year first appearing hereinabove. Each party shall retain one
signed counterpart.
PHYTERA, INC. TSUMURA & CO.
By: /s/ Malcolm Morville By: /s/ Hachizaemon Kazama
---------------------- ------------------------
Hachizaemon Kazama
Title: President Title: President
------------------- ---------------------
July 14, 1998 June 30, 1998
- ------------------------- ----------------------------
Date Date
44
<PAGE>
APPENDIX E -- SUPPORT IN THE AREA OF [ ]*
"For convenience purposes only, the fees for the Support provided by Phytera to
Tsumura in Year 1 (equivalent to [ ]* United Kingdom full-time equivalent)
shall be divided in [ ]* United Kingdom full-time equivalent and each of
such installments shall be applied to the fees charged in Year 2 and Year 3,
respectively. Consequently, the fees to be paid by Tsumura to Phytera in Year 1
shall be Zero.
The fees to be paid by Tsumura to Phytera in Year 2 are calculated by adding [
]* United Kingdom full-time equivalent of Year 1 [
]* to the Year 2's [ ]* United Kingdom full-time equivalent
[ ]*.
The fees to be paid by Tsumura to Phytera in Year 3 are calculated by adding [
]* United Kingdom full-time equivalent of Year 1 [
]* to the [ ]* United Kingdom full-time equivalent or
United States full-time equivalent engaged in [
]*[
]* of Year 1 plus the equivalent of [ ]* of [ ]* United Kingdom
full-time equivalent or United States full-time equivalent engaged in [
]*[
]* of Year 1. In this Amendment, the additional of [ ]* of [ ]*
United Kingdom full-time equivalent or United States full-time equivalent
engaged in [
]*[
]* of Year 1 shall mean the percentage increase
determined by the Steering Committee at the Hawaii meeting of February 11, 1998,
USA, and which is aimed at adjusting the increase of the associated costs
arising in the course of the collaborative research activities pursuant to the
provisions of Section 12.1.1 of this Agreement.
The fees to be paid by Tsumura to Phytera in Year 4 is [
]* per United Kingdom full-time equivalent or United States
full-time equivalent engaged in [
]*"
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
45
<PAGE>
Exhibit 10.17
RESEARCH COLLABORATION AND LICENSE AGREEMENT
--------------------------------------------
This Research Collaboration and License Agreement (this "Agreement") is
entered into as of April 21, 1998 (the "Effective Date") by and between Phytera,
Inc. ("Phytera"), a Delaware corporation, and Galileo Laboratories, Inc.
("Galileo"), a California corporation.
R E C I T A L S
---------------
WHEREAS, Phytera owns an inventory of distinct natural product extracts
("Extracts") derived from plant or marine microbes, including a library of [ ]*
such Extracts (the "Library") that is the subject matter of this Agreement
(Extracts from the Library are sometimes referred to herein as "Library
Extracts");
WHEREAS, Galileo has certain expertise related to the identification of
compounds and mixtures of compounds capable of modulating cell energy
metabolism; and
WHEREAS, Phytera wishes to provide its Library to Galileo for screening
and Galileo wishes to screen the Library in order to identify and develop
pharmaceutical agents for the treatment and prevention of ischemia in humans.
NOW, THEREFORE, Phytera and Galileo hereby each agree as follows:
1. Certain Definitions.
-------------------
1.1 "Affiliate" means any legal entity (such as a corporation,
---------
partnership, or limited liability company) that is controlled by a party. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.
1.2 "Assay" means tests, methods and know-how employed by Galileo to
-----
identify compounds or mixtures of compounds capable of modulating cell energy
metabolism.
1.3 "Candidate Compound" means a Lead Molecule or a compound
------------------
synthesized, identified or produced on the basis of a Lead Molecule that, in the
reasonable determination of the Steering Committee pursuant to Section 2.4 (i),
a) exhibits an in vitro activity and profile acceptable for Development, b)
exhibits an in vivo activity and profile in a relevant animal model of disease
acceptable for Development, c) is potentially patentable or otherwise
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
p.1
<PAGE>
protectable and does not infringe the intellectual property rights of third
parties, d) is one for which a plausible manufacturing strategy can be devised,
and e) exhibits an acceptable therapeutic ratio in a 14-day toxicity model
compared to the efficacy dose required in an animal model of disease.
1.4 "Collaborative Research Program" means the collaborative research
------------------------------
program described in Article 3 of this Agreement.
1.5 "Committee" means the Steering Committee charged with oversight of
---------
the Collaborative Research Program, as described in Section 2.1 of this
Agreement.
1.6 "Confidential Information" means certain proprietary information
------------------------
which may be disclosed by either party to the other pursuant to this Agreement,
as described in Section 9.1 hereof.
1.7 "Development" or "Development Strategy" means the processes, steps
-------------------------------------
and activities required to advance the pre-clinical or clinical assessment of a
Candidate Compound as a potential product, either inside or outside the Field.
1.8 "Evaluation Period" means, for each distinct batch of Library
-----------------
Extracts delivered to Galileo, the period of time beginning when the batch is
delivered and ending when the Committee determines which Extracts from the batch
are to be designated as "Lead Extracts" in accordance with Section 3.6(c)
hereof.
1.9 "Field" means pharmaceutical agents for the treatment and
------
prevention of ischemia in humans.
1.10 "Lead Extract" means a Library Extract that the Committee has,
------------
based on its review of the Assays performed by Galileo, determined to possess
Requisite Activity.
1.11 "Lead Molecule" means the specific chemical entity responsible for
-------------
identified Requisite Activity in a Lead Extract and/or any analogs, derivatives
and homologs of such a specific chemical entity which are synthesized,
identified or produced on the basis of such specific chemical entity or Lead
Molecule derived above.
1.13 "Patent Rights" means any United States patent application and any
-------------
divisional, continuation, or continuation-in-part of such patent application (to
the extent the claims are directed to subject matter specifically described
therein), as well as any patent issued thereon and any reissue or reexamination
of such patent, and any foreign counterparts to such patents and patent
applications. "Phytera Patent Rights" means Patent Rights that are either (i)
---------------------
owned solely by Phytera, (ii) owned jointly by Phytera and a party other than
Galileo, (iii) licensed solely to Phytera or (iv) licensed jointly to Phytera
and a party other than Galileo, in each case to the extent that Phytera has the
ability to license or sublicense the rights required
p.2
<PAGE>
under this Agreement. "Galileo Patent Rights" means Patent Rights that are
---------------------
either (i) owned solely by Galileo, (ii) owned jointly by Galileo and a party
other than Phytera, (iii) licensed solely to Galileo or (iv) licensed jointly to
Galileo and a party other than Phytera, in each case to the extent that Galileo
has the ability to license or sublicense the rights required under this
Agreement. "Joint Patent Rights" means Patent Rights owned by both Phytera and
-------------------
Galileo as joint owners. Joint Patent Rights will include (i) Patent Rights
claiming Joint Technology and (ii) Patent Rights claiming both Phytera
Technology and Galileo Technology in a single filing.
1.14 "Progression" or "Progression Strategy" means the processes, steps
-------------------------------------
and activities required to advance a Lead Molecule into a Candidate Compound,
either inside or outside the Field. These steps may include various studies to
assess the preclinical credentials of a Lead Molecule in terms of in vitro and
in vivo activity in relevant pharmacology/disease models, initial studies
relating to the synthesis, production, manufacture, formulation,
pharmacokinetics, metabolism and toxicity of the Lead Molecule and investigation
of the intellectual protection opportunities around the Lead Molecule. Such
studies will be reasonably consistent in nature and cost to studies normally
conducted within the pharmaceutical and biotechnology industries in order to
advance a Lead Molecule into a Candidate Compound. These steps may also include
synthesis, acquisition or production of analogs, derivatives and homologs of the
Lead Molecule in order to optimize the pharmaceutical credentials of the Lead
Molecule and to define and optimize the intellectual protection opportunities
stemming from the Lead Molecule.
1.15 "Requisite Activity" means desired biological activity observed in
------------------
Library Extracts during Assays, as determined by the Committee pursuant to
Section 2.4(f) of this Agreement.
1.16 "Technology" means any proprietary development, idea, design,
----------
concept, technique, process, invention, research material, discovery, or
improvement, whether or not patentable or copyrightable. "Phytera Technology"
------------------
means Technology that is either (i) owned or invented or discovered solely by
Phytera, (ii) owned jointly by Phytera and a party other than Galileo, (iii)
licensed solely to Phytera or (iv) licensed jointly to Phytera and a party other
than Galileo, in each case to the extent that Phytera has the ability to license
or sublicense the rights required under this Agreement. "Galileo Technology"
------------------
means Technology that is either (i) owned or invented or discovered solely by
Galileo, (ii) owned jointly by Galileo and a party other than Phytera, (iii)
licensed solely to Galileo or (iv) licensed jointly to Galileo and a party other
than Phytera, in each case to the extent that Galileo has the ability to license
or sublicense the rights required under this Agreement. "Joint Technology" means
----------------
Technology that is developed or discovered jointly by one or more employees or
consultants of Galileo and one or more employees or consultants of Phytera in
connection with and pursuant to the Collaborative Research Program, including
specifically but without limitation all Lead Extracts, Lead Molecules and
Candidate Compounds.
p.3
<PAGE>
2. Management of Collaborative Research Program.
--------------------------------------------
2.1 Steering Committee. The parties hereby create a Steering Committee
------------------
(the "Committee") which shall consist of [ ]* members, [ ]* of whom shall be
designated by Phytera and [ ]* of which shall be designated by Galileo. The
members initially designated by Phytera are [ ]*, and the members initially
designated by Galileo are [ ].* If any member of the Committee dies,
resigns, or becomes incapacitated, the party which designated such member shall
designate his or her successor (whose term shall commence immediately), and any
party may withdraw the designation of any of its members of the Committee and
designate a replacement (whose term shall commence immediately) at any time by
giving notice of the withdrawal and replacement to the other party. The
Committee shall designate one or more of its members to act as secretary for the
Committee.
2.2 Meetings of the Committee. Regular meetings of the Committee shall
-------------------------
be held within forty-five (45) days of the end of each calendar quarter, or at
such other times as the parties may deem appropriate, at such times and places
as the members of the Committee shall from time to time agree. Special meetings
of the Committee may be called by either party on fourteen (14) days written
notice to the other party unless notice is waived by the parties. All meetings
shall alternate between the offices of the parties unless the parties otherwise
agree. Discussions among Committee members shall not constitute an official
Committee meeting unless either (i) written notice has been furnished to each
Committee member at least fourteen (14) business days prior to such meeting or
(ii) each Committee member executes a written waiver of such notice.
2.3 Actions By the Committee. A quorum of the Committee shall be
------------------------
present at any meeting of the Committee if at least three members are present at
such meeting in person or by telephone. If a quorum exists at any meeting, the
unanimous consent of all members of the Committee present at such meeting is
required to take any action on behalf of the Committee. In no event shall any
action (other than a determination not to proceed to Phase II, as described in
Section 3.7 below, which may occur upon the vote of any two Committee members)
be taken by the Committee if there is other than unanimous consent. Unless
otherwise specifically stated to the contrary herein, no individual party shall
purport to act on behalf of the other party unless and then only to the extent
authorized to do so by the Committee.
2.4 Responsibilities of The Committee. The Committee shall be
---------------------------------
responsible for the day-to-day conduct, progress and evaluation of the
Collaborative Research Program and its activities, including, without
limitation:
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for wich confidential treatment has
been requested, has been filed separately with the Securities and Exchange
Commission.
p.4
<PAGE>
(a) managing all technical aspects of the Collaborative Research
Program;
(b) resolving matters involving scientific questions;
(c) review of results of Assays performed by Galileo on the initial
[ ]* Extracts from the Library through Phase I of the
Collaborative Research Program, as described in Section 3.6
below;
(d) following the conclusion of Phase I, determining
whether to proceed with screening of the remaining [ ]*
Library Extracts in Phase II, as described in Section 3.8 below;
(e) determining the criteria of significant biological activity
("Requisite Activity") necessary for a Library Extract following
the completion of Assays to qualify as a Lead Extract and
determining whether any given Library Extract qualifies as a
Lead Extract;
(f) in the event that Requisite Activity is identified in any
Library Extract and any such Library Extract is designated by
the Committee as a Lead Extract, to determine whether and how to
initiate Deconvolution (as defined below) of such Lead
Extract(s);
(g) rank ordering of Lead Extracts based upon various criteria,
including without limitation potency, scale-up potential and
toxicity, the purpose of which will be to subject the highest
ranked Lead Extracts to successive chemical isolation and
identification technologies ("Deconvolution") to identify
specific chemical entities ("Lead Molecules") that are
responsible for the observed Requisite Activity;
(h) responsibility for Progression tactics and commercialization
strategy for Lead Molecules or Candidate Compounds, including
the determination of whether to enter into a development
agreement between the parties for any Lead Molecules or
Candidate Compounds;
(i) determining the criteria for acceptance, in general, of a Lead
Molecule as a Candidate Compound acceptable for Development,
including (i) in vitro activity and profile, (ii) in vivo
activity and profile in a relevant animal model of disease,
(iii) potential to patent or otherwise protect the intellectual
property rights around the Lead Molecule without
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for wich confidential treatment has
been requested, has been filed separately with the Securities and Exchange
Commission.
p.5
<PAGE>
infringing the intellectual property rights of third parties,
(iv) the likelihood of devising a plausible manufacturing
strategy for the Lead Molecule, and (v) the therapeutic ratio
for toxicity in a 14-day toxicity model compared to the efficacy
dose required in an animal model of disease. Such determinations
shall be consistent with usual and customary practices in the
pharmaceutical and biotechnology industries.
(j) subsequent to the receipt of notice pursuant to Section 5.2,
determination of whether a Lead Molecule or compound satisfies
the criteria established for a Candidate Compound
2.5 Committee Reports. Within ten (10) days following each meeting of
-----------------
the Committee held pursuant to Section 2.2, the secretary of the Committee shall
prepare and send to each party a written report of actions taken at the meeting
in such form and containing such detail as shall be determined by the Committee.
2.6 Deadlock. In the event that the Committee cannot reach agreement
--------
within sixty (60) days as to any matter that is subject to its decision-making
authority, the matter shall be referred to binding arbitration in accordance
with the procedures set forth in Article 12; provided, however, that such
arbitration shall not apply to any deadlock in connection with whether to
proceed with Phase II screening of Extracts, as described in Section 3.8 below.
3. Conduct of Collaborative Research Program.
-----------------------------------------
3.1 Objective of Collaboration. The overall objective of this Agreement
--------------------------
is to discover and develop compounds that demonstrate potential as human
pharmaceutical agents for treatment and prevention of ischemia (sometimes also
referred to herein as the "Program").
3.2 Responsibilities of Each Party. Each of the parties shall have the
------------------------------
general responsibilities for research and development tasks as are described in
detail in Appendix A. However, the Committee shall have discretion to allocate
----------
specific research and development tasks in a particular situation to the party
that has the best current capability, capacity, and desire to complete the task
and advance the objectives of the Program, irrespective of whether that task
comes within the general responsibilities assigned to that party. If the members
of the Committee disagree on whether a party should participate in a particular
task, the task will be assigned to the party who has general responsibility for
such activities as set forth on Appendix A. Galileo agrees to conduct all Assays
----------
of the delivered Extracts, its assigned Deconvolution tasks and all other
actions required of it in connection with the Program expeditiously and in a
scientifically sound manner. Phytera also agrees to deliver all Extracts
p.6
<PAGE>
on a timely basis and to conduct its assigned Deconvolution tasks and all other
actions required of it in connection with the Program expeditiously and in a
scientifically sound manner.
3.3 Reports and Records. Each party agrees to promptly and regularly
-------------------
communicate to the other party all research results from the Program, including
quarterly reports to the Committee detailing all tests conducted and results
obtained by such party in connection with the Program. Each party shall prepare
and maintain adequate records, including bound laboratory notebooks maintained
in accordance with standard scientific procedures, containing all appropriate
data reflecting all research results from the Program. In addition, each party
shall retain under appropriate conditions any necessary or desirable samples of
research materials that are developed or used in the Program.
3.4 Grant of License. For the duration of the term of this Agreement,
----------------
Phytera hereby grants to Galileo an exclusive, worldwide license in the Field
(without the right to sublicense) under the Phytera Patent Rights and the
Phytera Technology to (i) test Library Extracts for assay interference prior to
the initiation of Phase I (as described in Section 3.5 below), (ii) test, screen
and perform Assays on any and all Library Extracts in order to determine which,
if any, of the Library Extracts (or combinations thereof) possesses Requisite
Activity and (iii) if duly authorized by the Committee, to perform necessary
research and development tasks associated with Deconvolution of Lead Extracts,
each as set forth in detail on Appendix A.
----------
3.5 Pilot Phase.
-----------
(a) Commencement of Pilot Phase/Delivery of Extracts. The
------------------------------------------------
parties agreed that it is desirable to test the compatibility of the Assays and
the Extracts prior to committing resources to the full research program
contemplated by this Article 3. Consequently, in order to facilitate such
testing, Phytera delivered [ ]* Extracts (the "Pilot Extracts") to Galileo
on or about [ ]*, and Galileo acknowledges receipt thereof.
(b) Conduct of Initial Screens. Promptly following receipt of
--------------------------
the Pilot Extracts, Galileo did (i) test such Pilot Extracts for activity to
ensure that Assays are optimally configured for screening and (ii) begin to
evaluate the Pilot Extracts for assay interference. In the event that such
interference is identified, Galileo shall attempt to modify its Assays as
necessary in order to enable successful completion. Galileo shall promptly
notify the Committee of any modification so implemented. As of the Effective
Date, the Pilot Extract evaluation has not been completed, but sufficient
analysis has been conducted to ensure that there is adequate compatibility
between the Assays and Pilot Extracts to conclude that the Program can be
successfully pursued and should proceed. Upon the completion of the
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for wich confidential treatment has
been requested, has been filed separately with the Securities and Exchange
Commission.
p.7
<PAGE>
evaluation of the Pilot Extracts, Galileo shall promptly provide to the
Committee a detailed description of all evaluations performed and all Assays
successfully conducted. All such information disclosed by Phytera and Galileo
shall be deemed Confidential Information and, as such, is subject to the
restrictions set forth in Article 7 hereof.
3.6 Phase I.
-------
(a) Delivery of Phase I Extracts. Phase I of the Collaborative
----------------------------
Research Program shall commence as soon as is practical following the delivery
of the Initial Phase I Extracts by Phytera to Galileo. It is anticipated that
the initial portion of Phase I shall commence on or about [ ]*, although
Phase I may commence on such other date as shall be designated by the Committee.
Prior to the Effective Date, Phytera has delivered and Galileo hereby
acknowledges receipt of [ ]* Extracts, including [ ]* Pilot
Extracts. As soon as is practical following the Effective Date, Phytera shall
promptly deliver an additional [ ]* plant cell and marine microbe culture
extracts for a total of [ ]* Extracts (the "Initial Phase I Extracts") to
Galileo. Phytera shall then deliver an additional [ ]* plant and marine
extracts (the "Final Phase I Extracts" and, collectively with the Initial Phase
I Extracts, the "Phase I Extracts") on or about [ ]*, or such other date
as shall be specified by the Committee. Phase I shall consist of (i) Assays
(Phase I Assays") on Phase I Extracts and (ii) if determined in the sole
discretion by the Committee, Deconvolution of Lead Extracts identified from
Phase I Extracts.
(b) Conduct of Phase I Assays. Promptly following the receipt
-------------------------
of each batch of Phase I Extracts, Galileo shall screen such Extracts in
accordance with the procedures set forth on Appendix A hereto. Galileo shall
----------
promptly report to Phytera each Extract in which its Assays detect signs of
Requisite Activity.
(c) Identification and Labeling of Lead Extracts. Promptly
--------------------------------------------
following the conclusion of Phase I Assays on each of the Initial Phase I
Extracts and the Final Phase I Extracts, respectively, Galileo shall provide a
detailed report of all Assays conducted to the Committee. Within thirty (30)
days from the date of Galileo's report described above, the Committee shall meet
to review the results of all of the Assays conducted up to that point and
evaluate the overall progress of the Program. The Committee shall in its sole
discretion label each Library Extract (or combination thereof) determined by the
Committee to possess Requisite Activity as a "Lead Extract", provided, however,
that in no event may more than [ ]* Extracts from Phase I be labeled as
Lead Extracts without Phytera's written consent. At such time as a Library
Extract is labeled a "Lead Extract," Phytera shall no longer provide such
Library Extract to any third party without Galileo's prior written consent.
3.7 Continuation of Program Following Phase I Assays. At the final
------------------------------------------------
meeting held
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for wich confidential treatment has
been requested, has been filed separately with the Securities and Exchange
Commission.
p.8
<PAGE>
to evaluate the Final Phase I Extracts (or at one or more meetings to be held on
a later date) the Committee shall select, in its sole discretion, one of the
following actions:
(i) to proceed only with the Deconvolution of any or all of the Lead
Extracts identified from the Assays conducted to date;
(ii) to proceed with the Deconvolution of any or all of the Lead
Extracts identified from the Assays conducted to date and to
initiate the screening of the [ ]* Extracts remaining
from the Library ("Phase II," as described in Section 3.8
below); or
(iii) regardless of whether or not any Lead Extracts have been
identified following completion of the Phase I Assays, to forego
the Deconvolution of such Lead Extracts and proceed directly to
screening of the remaining [ ]* Library Extracts in Phase
II.
3.8 Phase II.
--------
(a) Commencement of Phase II. In the event that the Committee
------------------------
determines to proceed with Phase II of the Collaboration Program, Phase II shall
commence within 30 days following the Committee's determination to so proceed.
Phase II shall consist of (i) Assays ("Phase II Assays") on the Phase II
Extracts (as defined in subsection (b) below) and (ii) if determined in the sole
discretion of the Committee, Deconvolution of Lead Extracts identified from the
Phase II Extracts.
(b) Conduct of Phase II Assays. In the event that the
--------------------------
Committee elects to proceed with the Phase II Assays, Phytera shall deliver
promptly to Galileo in one batch all of the [ ]* remaining Library
Extracts (the "Phase II Extracts"). Galileo shall use all reasonable efforts to
conduct the Phase II Assays in an expeditious and scientifically sound manner.
(c) Identification and Labeling of Lead Extracts. Promptly
--------------------------------------------
following the conclusion of Phase II Assays on each of the Phase II Extracts,
respectively, Galileo shall provide a detailed report of all Assays conducted to
the Committee. Within thirty (30) days from the date of Galileo's report
described above, the Committee shall meet to review the results of all of the
Assays conducted up to that point and evaluate the overall progress of the
Program. The Committee shall in its sole discretion label each Library Extract
(or combination thereof) determined by the Committee to possess Requisite
Activity as a "Lead Extract", provided, however, that in no event may more than
[ ]* Extracts from Phase II be labeled as Lead Extracts without Phytera's
written consent. At such time as a
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for wich confidential treatment has
been requested, has been filed separately with the Securities and Exchange
Commission.
p.9
<PAGE>
Library Extract is labeled a "Lead Extract," Phytera shall no longer provide
such Library Extract to any third party without Galileo's prior written consent.
3.9 Deconvolution of Lead Extracts. In the event the Committee
------------------------------
determines to undertake Deconvolution activities, those Lead Extracts designated
for Deconvolution by the Committee, whether during Phase I or Phase II, shall be
rank ordered by the Committee based upon certain criteria developed in advance
by the Committee, which criteria shall include without limitation potency,
scale-up potential and toxicity. In descending rank-order, each such Lead
Extract shall be subjected to Deconvolution in order to identify the specific
chemical entities ("Lead Molecules") that are responsible for the desired Lead
Extract biological activity. Responsibilities of each party during the
Deconvolution process are set forth in detail on Appendix A. Following
structural identification of Lead Molecules, further development of Lead
Molecules shall be subject to the provisions of Section 5 below. In the event
that, following Deconvolution, a Lead Extract is determined not to contain a
Lead Molecule or if, after reasonable effort a Lead Molecule cannot be
deconvoluted, or in the event a Lead Extract has not entered into Deconvolution
within [ ]* of designation by the Committee as a Lead Extract, any
encumbrances placed upon Phytera's use of such Lead Extract outside this
Agreement shall lapse and Phytera shall be free to use the Lead Extract in other
research programs.
4. Term; Early Termination of Program.
----------------------------------
4.1 Term. This Agreement shall commence on the Effective Date and shall
----
continue until the earliest to occur of (i) the execution and delivery by both
parties of a final agreement regarding the development of Candidate Compounds
identified pursuant to the Program in accordance with Sections 5.2 or 5.3 below
or (ii) the termination of the Program pursuant to this Sections 4.2, 4.3, 4.4
or 4.5 below.
4.2 Lack of Merit. The Program shall terminate immediately in the event
-------------
of a decision by the Committee to terminate the Program for lack of scientific
or business merit. For purposes of this Section 4.2, in the event the activities
described in Article 3 are completed and an agreement regarding the development
of Candidate Compounds, as described in Section 4.1(i) has not been executed and
is not being actively negotiated, the conditions constituting such lack of
scientific or business merit shall be deemed to have been met and either party
may terminate this Agreement upon [ ]* written notice.
4.3 Termination Upon Default. In the event that either party commits a
------------------------
material breach of its obligations under this Agreement and fails to cure that
breach within [ ]* after receiving written notice thereof, the nonbreaching
party may terminate this Agreement immediately upon written notice to the party
in breach.
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for wich confidential treatment has
been requested, has been filed separately with the Securities and Exchange
Commission.
p.10
<PAGE>
4.4 Force Majeure. Neither party will be responsible for or considered
-------------
in breach of this Agreement because of delays resulting from acts beyond the
control of such party, provided that the nonperforming party uses commercially
reasonable efforts to avoid or remove such causes of nonperformance and
continues performance hereunder with reasonable dispatch whenever such causes
are removed.
4.5 Bankruptcy. If during the term of this Agreement, either party
----------
files a voluntary petition in bankruptcy, is adjudicated as bankrupt, makes a
general assignment for the benefit of creditors, admits in writing that it is
insolvent or fails to discharge within 60 days after an involuntary petition in
bankruptcy filed against it, then this Agreement may be immediately terminated
by the other party, with notice.
4.6 Effect of Termination. Except as otherwise agreed by the parties,
---------------------
upon the expiration or termination of this Agreement, all of the provisions of
this Agreement shall immediately terminate, except that this Section 4.6 and
Articles 5 (Development of Joint Technology), 7 (Intellectual Property) and 9
(Confidentiality) of this Agreement shall survive in their entirety. Further, in
the event that issues arise or decisions must be reached subsequent to the
termination of this Agreement that would, were this Agreement still in effect,
fall within the authority of the Steering Committee, then the party that first
becomes aware of such issue or need for a decision shall so notify the other in
writing, and the parties shall meet within 60 days of such notice to address
such issue or reach such decision in accordance with the responsibilities and
authorities of the Steering Committee as defined in this Agreement. Upon
termination, except as may otherwise be agreed by the parties:
(i) In the event that either party terminates this Agreement pursuant to
Sections 4.2 or 4.4 above,
(a) Galileo shall have no further rights under the Phytera Patent
Rights or Phytera Technology;
(b) Phytera shall have no further rights under the Galileo Patent
Rights or Galileo Technology, and;
(c) Each party shall retain its equal one-half (1/2) joint ownership
interest in any Joint Patent Rights or Joint Technology in the
Field.
(ii) In the event that Phytera shall terminate this Agreement pursuant to
Sections 4.3 or 4.5 above, Galileo
(a) hereby grants to Phytera an exclusive, perpetual, worldwide,
royalty-free license (with the right to sublicense) in the Field
under Galileo's interest in the Joint Patent Rights and the Joint
Technology for
P.11
<PAGE>
research, development, and to make, have made, use, sell and
import Joint Technology and products comprising or derived from
or developed utilizing the Joint Patent Rights or the Joint
Technology; and
(b) agrees to use reasonable commercial efforts at such time to
assist Phytera's use of such Joint Patent Rights and Joint
Technology.
(iii) In the event that Galileo shall terminate this Agreement
pursuant to Sections 4.3 or 4.5 above, Phytera shall grant to Galileo,
(a) a nonexclusive, perpetual, worldwide, royalty-free license (with
right to sublicense) in the Field under Phytera's interest in
the Phytera Patent Rights and the Phytera Technology to make,
have made and use those Lead Extracts delivered to Galileo on or
----
prior to the date of such termination by Galileo; and
(b) an exclusive, perpetual, worldwide, royalty-free license (with
the right to sublicense) in the Field under Phytera's interest
in the Joint Patent Rights and the Joint Technology for
research, development, and to make, have made, use, sell and
import Joint Technology and products comprising or derived from
or developed utilizing the Joint Patent Rights or the Joint
Technology.
5. Development of Joint Technology.
-------------------------------
5.1. Progression of Lead Molecules. Within ninety (90) days following the
-----------------------------
identification of one or more Lead Molecules, and upon notice by one party to
the other, the Committee shall determine a Progression Strategy for applications
of such Lead Molecules. Such Progression Strategy may involve one of the
following with respect to each such Lead Molecule:
(i) joint Progression of such Lead Molecules by Galileo and Phytera into
one or more Candidate Compounds; or
(ii) independent Progression of such Lead Molecules by either Galileo and
/or Phytera into one or more Candidate Compounds.
In the event that the Committee cannot agree on the appropriate Progression
Strategy, Galileo and Phytera shall each be free to elect to proceed under
clause 5.1(ii) above.
5.2 Development of Candidate Compounds. Regardless of the Progression
----------------------------------
Strategy agreed upon pursuant to Section 5.1 above, at any time a party
determines that a Lead Molecule has developed into a Candidate Compound, such
party shall promptly notify the
P.12
<PAGE>
other party and within 90 days of such notice the parties shall attempt to agree
upon the Development Strategy to be employed with respect to such Candidate
Compound. The Development Strategy to be employed may include any one of the
following:
(i) joint Development of one or more selected Candidate Compounds;
(ii) independent Development of the same Candidate Compound by each party;
or
(iii) independent Development of a different Candidate Compound by a
party.
In the event the parties cannot agree on the appropriate Development
Strategy, each party shall be free to independently develop such Candidate
Compound under Section 5.2(iii) above.
5.3 Support during Progression of a Lead Molecules. The parties agree to
----------------------------------------------
support each other during Progression of Lead Molecules, regardless of the
Progression Strategy agreed upon pursuant to Section 5.1 above, as follows:
(i) Phytera will use reasonable commercial efforts to provide extracts
and natural products chemistry support to Galileo; and
(ii) Galileo will use reasonable commercial efforts, (i) to perform Assays
on Lead Molecules and analogs of compounds derived from Lead
Molecules by acquisition, medicinal chemistry, combinatorial
chemistry synthesis or other technologies provided by Phytera, and
(ii) at Galileo's discretion, to perform such testing in relevant
animal models.
Neither party shall be required to provide support in excess of [ ]* full time
equivalents ("FTEs") per year to render the support contemplated in this Section
5.3, provided that, in the event that either party does not have the in-house
capacity at the time support is requested to provide such support, such party
will have a reasonable amount of time to secure or acquire the needed capacity,
including but not limited to the recruitment of additional staff.
5.4 Cost Reimbursement for Support during Progression of Lead Molecules.
-------------------------------------------------------------------
Each party shall reimburse the other its reasonable costs incurred in providing
the support described above during Progression of a Lead Molecules to a
Candidate Compounds. Each party that provides such support shall prepare and
submit invoices to the other according to a schedule agreed upon by the
Committee, such invoices to be due and payable within thirty (30) days of
receipt.
_________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
p.13
<PAGE>
5.5 Reimbursement of Costs Incurred during Progression of Lead Molecules;
--------------------------------------------------------------------
Payment of Development Costs. In the event the parties agree to proceed with the
- ----------------------------
Development of one or more Candidate Compounds pursuant to Section 5.2 (i) or
Section 5.2 (ii) above, the party responsible for Progression of the chosen
Candidate Compounds from a Lead Molecule will be reimbursed 50% of its total,
fairly allocated costs incurred during such Progression by the other party,
including but not limited to costs incurred related to support provided by the
other party during such Progression. In the event the parties agree to jointly
proceed with Development of a Candidate Compound pursuant to Section 5.2 (i),
each party shall be obligated to pay fifty percent (50%) of the costs of
Development. In the event the parties agree to independently proceed with
Development of the same Candidate Compound, each party shall pay its own costs
of such Development. In the event the parties do not agree on the Development
Strategy and a party elects to independently proceed with the Development of
Candidate Compound pursuant to Section 5.2 (iii) above, such party shall pay the
costs of Development and no reimbursement will be due with regard to such
Candidate Compound (either for its Progression or its Development) provided that
if either party elects to Develop a Candidate Compound that was progressed from
a Lead Molecule to a Candidate Compound by the other party, who does not agree
to proceed with the Development of such Candidate Compound, the party
responsible for Progression of the chosen Candidate Compounds from a Lead
Molecule will be reimbursed 50% of its total, fairly allocated costs incurred
during such Progression by the party electing to Develop said Candidate
Compound, including but not limited to costs incurred related to support
provided by the other party during such Progression, and the party electing to
Develop said Candidate Compound shall pay all costs of Development.
5.6 Support during Pre-Clinical Development of a Candidate Compounds.
----------------------------------------------------------------
In the event the parties elect to proceed with the Development of Candidate
Compounds pursuant to Section 5.2 (i) or Section 5.2 (ii) above, the parties
agree to provide the support described in Section 5.3 above to each other during
the pre-clinical Development of a Candidate Compounds to the point of filing an
Investigational New Drug ("IND") application with the Food and Drug
Administration ("FDA"), or equivalent filing outside the United States. The
following provisions shall apply in the event the parties elect to proceed with
the Development of Candidate Compounds pursuant to Section 5.2 (iii) above;
(i) if the Development programs being pursued by the parties are
considered by either party to be competitive (defined as targeting the
same or very similar clinical indications), the parties shall be under
no obligation to provide the support described in Section 5.3 with
regard to such Candidate Compounds,
(ii) if the Development programs being pursued by the parties are not
considered by either party to be competitive (defined as in 5.6(i)
above), the parties shall provide the support described in Section 5.3
with regard to such Candidate Compounds.
5.7 Support during Clinical Development of Candidate Compounds. In the
----------------------------------------------------------
event the
p.14
<PAGE>
parties elect to proceed with the Development of Candidate Compounds pursuant to
Section 5.2 (i) or Section 5.2 (ii) above, the parties agree to provide the
support described in Section 5.3 above to each other during the clinical
Development of Candidate Compounds. The following provisions shall apply in the
event the parties elect to proceed with the Development of Candidate Compounds
pursuant to Section 5.2 (iii);
(i) if the Development programs being pursued by the parties are
considered by either party to be competitive (defined as targeting the
same or very similar clinical indications) the parties shall be under
no obligation to provide the support described in Section 5.3 with
regard to such Candidate Compounds,
(ii) if the Development programs being pursued by the parties are not
considered by either party to be competitive (defined as in 5.7(i)
above) the parties shall provide the support described in Section 5.3
with regard to such Candidate Compounds.
5.8 Cost Reimbursement for Support during Development of Candidate
--------------------------------------------------------------
Compounds. Each party shall reimburse the other its fairly allocated costs
- ---------
incurred in providing the support described in Sections 5.6 and 5.7 above during
the Development of Candidate Compounds. Each party that provides such support
shall prepare and submit invoices to the other according to a schedule agreed
upon by the Committee, such invoices to be due and payable within thirty (30)
days of receipt.
5.9 Rights to Joint Technology. The parties shall share rights to Joint
--------------------------
Technology as follows:
(i) in the event the parties continue to jointly collaborate on the
Development of Candidate Compounds each party will have an equal one-
half (1/2) ownership interest in the Joint Technology related to such
Candidate Compounds, and the parties shall agree on the appropriate
commercialization strategy.
(ii) in the event the parties elect to Develop the same chosen Candidate
Compounds independently pursuant to Section 5.2 (ii) above or cannot
agree on the appropriate commercialization strategy under Section 5.9
(i) above, the rights to commercialize products derived from such
Candidate Compounds, including but not limited to the right to license
third parties and subject to the license agreement described in
Section 5.10 below, shall be as follows:
(a) Galileo shall have exclusive commercialization rights in the
Field in North America and outside the Field in Europe;
(b) Phytera shall have exclusive commercialization rights in the
Field in Europe and outside the Field in North America (subject to
Section 5.11 below); and
p.15
<PAGE>
(c) the parties shall have coexclusive commercialization rights
equally in the rest of the world.
(iii) in the event a party elects to Develop a Candidate Compound
independently pursuant to Section 5.2 (iii) above, such party shall have
exclusive worldwide rights (including the right to sublicense) to products
derived from such Candidate Compound(s) it has independently developed subject
to the license agreement described in Section 5.10 below, provided that, in the
event that such party enters into any agreement of any type with a third party
related to the Development or commercialization of said Candidate Compounds (the
"Third Party Agreement"), the following terms shall apply;
(a) in the event the Third Party Agreement is entered into prior to the
initiation of Phase II clinical trials in the U.S. or the equivalent
outside the U.S. for such Candidate Compounds, the other party to
this Agreement shall be entitled to [ ]* of the consideration,
including but not limited to upfront payments, milestone payments and
royalties, to which the licensing party becomes entitled pursuant to
the Third Party Agreement, excluding only a) the sale of equity or
debt securities by the licensing party to the third party pursuant to
the Third Party Agreement or b) funding received by the licensing
party in direct support of research and development activities or
reimbursement of expenses directed to the Candidate Compounds; and
(b) in the event the Third Party Agreement is entered into subsequent to
the initiation of Phase II clinical trials in the U.S. or the
equivalent outside the U.S. for such Candidate Compounds, the other
party to this Agreement shall be entitled to royalties as described
in Section 5.10(ii) below.
5.10 License Agreement. In the event that the parties become entitled to
-----------------
commercialization rights as described in Sections 5.9 (ii) or 5.9 (iii) above,
the parties shall enter into a License Agreement that provides that a royalty
shall be payable as follows:
(i) in the event that commercialization rights are governed by
Section 5.9 (ii) above, the royalty rate shall reflect each
party's relative contribution to the development of the
Candidate Compounds. In the event either party licenses its
rights to a third party, the royalty rate so determined shall
apply to the net sales of such third party.
(ii) in the event rights are governed by Section 5.9 (iii) above and
(a) if no support (as described in Section 5.3) has been
provided pursuant to
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
p.16
<PAGE>
Sections 5.6(ii) or 5.7(ii), the royalty rate shall reflect
industry standard terms taking into account each party's
relative contribution to the development of such Candidate
Compounds, or:
(b) if support (as described in Section 5.3) has been provided
pursuant to Sections 5.6(ii) or 5.7(ii) and the party
receiving such support does not enter into a Third Party
Agreement or enters into a such an agreement pursuant to
Section 5.9(iii)(b) above, the royalty rate shall reflect
industry standard terms taking into account each party's
relative contribution to the development of such Candidate
Compounds, increased by [ ]* to reflect the additional
contribution made by the party providing such support. In
the event such support has been provided and the party
receiving such support enters into a Third Party Agreement
pursuant to Section 5.9(iii)(a) above, the party providing
such support shall be entitled to [ ]* of the royalty to
which the licensing party becomes entitled pursuant to the
Third Party Agreement.
5.11 Development of Nutritional and Organ Preservation Applications.
--------------------------------------------------------------
Phytera hereby grants to Galileo an option to exclusively license for
development and commercialization Phytera's interest in any Lead Extracts, Lead
Molecules, Candidate Compounds or other Joint Technology for nutritional, organ
and tissue preservation applications. Upon written notice by Galileo of its
exercise of such option, which shall be received by Phytera within sixty (60)
days following the designation by Galileo of such Lead Extract, Lead Molecules,
Candidate Compounds or other Joint Technology having such applications, Phytera
and Galileo shall enter into good faith negotiations with respect to such
exclusive license. The terms of such license agreement to be negotiated shall
contain customary and commercially reasonable terms, in light of typical license
agreements in the particular industry involved. In the event that the parties
are unable reach final agreement on the terms of the license agreement within
one hundred twenty (120) days following the commencement of good faith
negotiations, the matter shall be submitted to binding arbitration in accordance
with Section 12 below.
6. Allocation of Program Expenses through Identification of Lead Molecules.
-----------------------------------------------------------------------
6.1 Extract Production and Screening Costs. Each party shall bear the
--------------------------------------
costs of its own activities performed in connection with the initial screening
of and performance of Assays on Library extracts. Phytera shall be responsible
for all costs associated with the production of Library Extracts and the
furnishing of such Extracts to Galileo for evaluation. Galileo shall be
responsible for all costs associated with performance of the Assays and
______________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which Confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
p.17
<PAGE>
reporting results to the Committee.
6.2 Deconvolution. Each party shall pay fifty percent (50%) of the
-------------
aggregate costs incurred in connection with the conduct of Deconvolution on Lead
Extracts and the designation of Lead Molecules, including without limitation
fully loaded costs of all employees and/or consultants and all out-of-pocket
expenses (collectively, "Deconvolution Costs"). After the commencement of
Deconvolution activities, each party shall on a calendar quarter basis prepare a
report to the Committee detailing all Deconvolution Costs incurred by it during
such quarter and aggregate Deconvolution Costs less reimbursements hereunder. To
the extent that any such report shows aggregate Deconvolution Costs incurred by
one party in an amount exceeding those incurred by the other by at least [ ]*,
the party incurring the lesser Deconvolution Costs shall, within [ ]* after
receipt of such report, reimburse the party incurring the greater costs to the
extent that such other party's Deconvolution Costs exceed 50% of the aggregate
Deconvolution Costs incurred by both parties. Estimates of costs associated with
their respective tasks, as such tasks are set forth in detail on Appendix A,
----------
shall be furnished by both Phytera and Galileo as soon as practicable following
a determination by the Committee to undertake Deconvolution with respect to a
Lead Extract. Such estimates shall be approved in advance by the Committee, and
precise terms of cost reimbursement shall be stated in writing by the Committee
prior to commencement of Deconvolution.
7. Ownership and Management of Intellectual Property.
-------------------------------------------------
7.1 Intellectual Property Developed Outside of the Program. Except as
------------------------------------------------------
expressly set forth in this Agreement, neither party shall have any rights in
Patent Rights and Technology that is developed or discovered by the other party
prior to the Effective Date or outside of the context of the Program. For
example, Phytera shall have sole ownership of all right, title, and interest in
Library Extracts provided to Galileo, and Galileo shall have sole ownership of
all right, title and interest in Assays developed by Galileo. Each party shall
have sole responsibility for and control over Patent Rights claiming any of its
Technology that was developed or discovered prior to the Effective Date or
outside of the Program. Neither party shall have any right to review and comment
on such Patent Rights of the other party.
7.2 Ownership of Intellectual Property Arising From the Program.
-----------------------------------------------------------
Ownership of Patent Rights and Technology arising from the Program shall be
allocated in the following manner:
(i) Phytera shall have sole ownership of all right, title, and
interest in Phytera Patent Rights and Phytera Technology;
________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
p.18
<PAGE>
(ii) Galileo shall have sole ownership of all right, title, and interest
in Galileo Patent Rights and Galileo Technology; and
(iii) Phytera and Galileo shall have joint ownership of all right, title,
and interest in Joint Patent Rights and Joint Technology, which shall
be subject to the provisions of Article 5 hereof.
Each party shall ensure that its employees, consultants, agents, and
representatives are contractually required to assign to such party all Patent
Rights and other rights in Technology arising from the Program and to promptly
disclose to such party all patentable inventions within that Technology.
7.3 Notice of Intellectual Property Arising From the Program. Each party
--------------------------------------------------------
shall provide prompt written notice to the Committee of the internal disclosure
of any significant Technology developed by its personnel in connection with the
Program.
7.4 Responsibility for Patent Rights Arising from the Program. Phytera
---------------------------------------------------------
shall be responsible for and shall control, at its expense, the preparation,
filing, prosecution, grant, and maintenance of any Patent Rights claiming only
Phytera Technology and shall consult with Galileo on, and give Galileo a
reasonable opportunity to review, all such filings to the extent they directly
relate to the Collaborative Research Program. Galileo shall be responsible for
and shall control, at is expense, the preparation, filing, prosecution, grant,
and maintenance of all Patent Rights claiming only Galileo Technology and shall
consult with Phytera on, and give Phytera a reasonable opportunity to review,
all such filings to the extent they relate directly to the Collaborative
Research Program. In the case of Joint Technology, the Committee will decide
whether to seek Joint Patent Rights claiming that Technology or to maintain that
Technology as a trade secret. The Committee will also decide whether to seek
Patent Rights claiming both Phytera Technology and Galileo Technology in one
filing, which also constitutes a Joint Patent Right. If the Committee decides to
seek any Joint Patent Rights, the parties shall jointly prepare, file,
prosecute, and maintain such Patent Rights, and all related expenses shall be
borne equally by the parties.
7.5 Assumption of Rights by Other Party. In the event that a party
-----------------------------------
desires to decline responsibility for obtaining or maintaining Patent Rights in
a country for any of its Technology that is developed or discovered in
connection with the Program, such party will notify the other party before
taking such action and, upon request, will allow the other party to assume
responsibility for, and all expenses relating to, the relevant Patent Rights in
those countries; provided, however, that neither party shall have the right to
seek patent protection for any Technology that a party has decided, in its
discretion, to maintain as a trade secret. In the event that a party desires to
cease further payment of patent-related expenses for a Joint Patent Right in any
country, such party may assign to the other party all rights in that Joint
Patent Right in such country and thereafter have no further obligation to pay
such expenses.
p.19
<PAGE>
7.6 Cooperation. Each party agrees to cooperate fully in the preparation,
-----------
filing, prosecution, and maintenance of all Patent Rights claiming Technology
arising from the Program. Such cooperation includes, without limitation, (i)
promptly executing all papers and instruments, or requiring its employees,
consultants, and agents to execute such papers and instruments, as reasonable
and appropriate so as to enable one or both parties to file, prosecute, and
maintain such Patent Rights in any country; (ii) promptly informing the other
party of matters that may affect the preparation, filing, prosecution, or
maintenance of any such Patent Rights; and (iii) undertaking no actions that are
potentially deleterious to the preparation, filing, or prosecution of any such
Patent Rights.
7.7 Abandonment of Joint Patent Rights. In the event that the parties fail
----------------------------------
to complete the Program due to lack of merit pursuant to Section 4.2 above, the
parties shall discuss in good faith whether to abandon any unpublished patent
applications within the Joint Patent Rights relating to the Program. The parties
recognize that publication of such Joint Patent Rights could adversely affect
each of their interests after reversion occurs under such Section 4.2.
8. Research Materials.
------------------
8.1 Ownership of Research Materials. In the course of the Program, one
-------------------------------
party (the "Provider") may transfer to the other party (the "Recipient") certain
of its research materials. The Recipient acknowledges and agrees that such
research materials are and shall be owned by the Provider. The Recipient agrees
to execute and deliver any documents of assignment or conveyance to effectuate
the ownership rights of the Provider in such research materials. Specifically,
Galileo acknowledges and agrees that all Library Extracts provided to Galileo in
the Program are proprietary to and owned by Phytera and are or may be covered by
claims of Phytera Patent Rights.
8.2 Use and Transfer of Research Materials. Except as otherwise agreed by
--------------------------------------
the Committee, the Recipient agrees to use research materials provided by the
Provider solely for purposes set forth in this Agreement and shall not
distribute such research materials to any third party other than its employees
and consultants who are working on the Program.
8.3 Additional Restrictions for Proprietary Research Materials. In the
----------------------------------------------------------
case of proprietary research materials furnished by a Provider, Recipient agrees
(i) not to transfer such proprietary research materials to any third party
without the prior written consent of the Provider, (ii) to permit access to the
proprietary research materials only to its employees and consultants requiring
such access, (iii) to inform such employees and consultants of the proprietary
nature of the proprietary research materials, and (iv) to take reasonable
precautions, at least as stringent as those observed by Recipient to protect its
own proprietary materials, to ensure that such employees and consultants observe
the obligations of Recipient under this Section 8.3.
p.20
<PAGE>
8.4 Disposition of Unused Research Materials. At the request of Provider,
----------------------------------------
Recipient will return or destroy any unused research materials furnished by
Provider.
8.5 Compliance with Law. Recipient agrees to comply with all federal,
-------------------
state, and local laws and regulations applicable to the use, storage, disposal,
and transfer of research materials furnished by Provider, including without
limitation the Toxic Substances Control Act (15 USC 2601 et seq.) and
------
implementing regulations (in particular, 40 CFR 720.36 [Research and Development
Exemption]), the Food, Drug, and Cosmetic Act (21 USC 301 et seq.) and
------
implementing regulations, and all Export Administration Regulations of the
Department of Commerce. Recipient assumes sole responsibility for any violation
of such laws or regulations by Recipient or any of its Affiliates or
Sublicensees.
8.6 Limitation of Liability. Galileo and Phytera specifically disclaim any
-----------------------
guarantee that the collaboration contemplated by this Agreement will be
successful, in whole or in part. The failure of the parties to successfully
develop Lead Molecules or Candidate Compounds will not constitute a breach of
any representation or warranty or other obligation under this Agreement. Neither
Galileo nor Phytera makes any representation or warranty or guaranty that the
collaboration contemplated by this Agreement will be successful. Any research
materials delivered pursuant to this Agreement are understood to be experimental
in nature and may have hazardous properties. Recipient of such research
materials should assume that the compounds are dangerous and should use
appropriate precautions. PHYTERA AND GALILEO MAKE NO REPRESENTATIONS, AND
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
THE RESEARCH MATERIALS FURNISHED TO RECIPIENT AND THE ASSAYS. THERE ARE NO
EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR THAT THE USE OF THE RESEARCH MATERIALS OR THE ASSAYS WILL NOT
INFRINGE ANY PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY.
9. Confidentiality.
---------------
9.1 Confidential Information. From time to time during the term of this
------------------------
Agreement, and in order to carry out the provisions of this Agreement, it may be
necessary for one of the parties to disclose Confidential Information to the
other. For the purposes of this Agreement, Confidential Information shall
include the Extracts, including the identity of the Extracts, supplied by
Phytera under this Agreement, the data generated by the Collaboration or any
other activity conducted pursuant to this Agreement, the Lead Extracts, the Lead
Molecules, Phytera's cell culture techniques and any strategies, plans or
developments relating to any of the foregoing, the identity of the Assays and
Galileo's protocols for the Assays, the business, financials, technology,
research strategy, employees, infrastructure, collaborators, advisors,
consultants, Boards of Directors and Scientific Advisory Boards of Phytera and
Galileo, respectively, and their respective Affiliates.
p.21
<PAGE>
9.2 Non-Disclosure Obligations.
--------------------------
(a) The recipient of such Confidential Information (the "Recipient")
undertakes to treat any and all of such Confidential Information as the other
party may disclose (the "Discloser") to the Recipient during the term of this
Agreement and for a period of [ ]* thereafter as strictly confidential and shall
not divulge it to any third party for any purpose whatsoever and shall not make
use of such Confidential Information or any part thereof for any purpose other
than carrying out the terms of this Agreement without the Discloser's prior
written consent. Any data or information generated by or as a result of the
Collaboration or any other activity conducted pursuant to this Agreement or any
data or information with respect to the Library Extracts, or the Patent Rights
hereunder shall not be disclosed to any third party nor be used for any purpose
other than carrying out the terms of this Agreement without the other party's
written consent.
(b) In the event that the Recipient visits any of the establishments
of the Discloser, the Recipient undertakes that any further Confidential
Information which may come to the Recipient's knowledge, as a result of any such
visit, shall be deemed to be Confidential Information and shall be subject to
the provisions of Paragraph (a) of this Section 9.2.
9.3 Limitations. The undertakings in Paragraphs (a) and (b) of this
-----------
Section 9.2 shall not apply to information that (i) at the time of disclosure is
published or otherwise generally available to the public; (ii) after disclosure
by Discloser is published or becomes generally available to the public otherwise
than through any act or omission on the part of Recipient; (iii) the Recipient
can establish by written documentation that such information was in its
possession at the time of disclosure and that such information was not acquired
directly or indirectly from the Discloser; (iv) was rightfully acquired from a
third party who did not obtain it under pledge of secrecy to the Discloser or
another party; or (v) was required to be disclosed by law.
9.4 Samples. Galileo shall not supply or send any samples of Extracts to
-------
any third party, other than to regulatory agencies as required by law, unless
the sending of such samples shall have been approved by the Committee and such
samples are subject to Section 8 of this Agreement.
9.5 Publications.
------------
(a) Procedure. Phytera and Galileo recognize the need to obtain valid
---------
patent protection. Consequently, Phytera, Galileo and their respective employees
and consultants and any other Third Party wishing to make a publication
(including any oral disclosure made
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
p.22
<PAGE>
without obligation of confidentiality) relating to work performed by such party
as part of the collaboration described in this Agreement (the "Publishing
Party") shall deliver to the other party (the "Reviewing Party") a copy of the
proposed written publication at least ninety (90) days prior to submission for
publication, or an abstract of such oral disclosure at least thirty (30) days
prior to submission of the abstract or the oral disclosure, whichever is
earlier. The Reviewing Party shall have the right (i) to propose modifications
to the publication for patent reasons, (ii) to request a delay in publication or
presentation in order to protect patentable information, or (iii) to request
that the information be maintained as a trade secret and, in such case, the
Publishing Party shall not make such publication or disclosure. If the Reviewing
Party requests a delay as described in clause (ii) in the preceding sentence,
the Publishing Party shall delay submission or presentation of the publication
for a period sufficient to enable protection of the Reviewing Party's rights in
such information to be filed.
(b) Resolution. Only upon the receipt of written approval of the
----------
Reviewing Party may the Publishing Party proceed with the written publication or
the oral presentation.
9.6 Injunctive Relief. The parties hereto understand and agree that
-----------------
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 9 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 9. It is understood that such injunctive relief
is intended solely as provisional relief pending the dispute resolution
procedures described in Section 12 below.
10. Representations and Warranties
------------------------------
10.1 General. Each party warrants and represents to the other that it has
-------
the legal right and power to enter into this Agreement, to extend the rights and
licenses granted to the other in this Agreement, and to perform fully its
obligations hereunder, and that it has not made nor will it make any commitments
to others in conflict with or in derogation of such rights or this Agreement.
10.2 Services. Each party warrants and represents to the other that it
--------
shall conduct its activities in a good scientific manner and in compliance with
all applicable good laboratory and manufacturing practices and all applicable
legal requirements.
11. Indemnity.
---------
11.1 Indemnity Obligations. Each party shall indemnify and hold harmless
---------------------
the other party and its officers, directors, employees and agents from and
against all liabilities, claims, actions and proceedings and all expenses
arising in connection therewith (including without limitation, damages,
judgments, awards, costs and attorney's fees and disbursements)
p.23
<PAGE>
which they may incur or which may be asserted against them arising out of or by
reason of the activities of such party, its Affiliates or Licensees, or by their
respective officers, directors, employees or agents pursuant to this Agreement
with the exception of those arising from the intentional wrongful actions or
gross negligence of the other party or any of its employees or agents or from
the breach of any representation, warranty or obligation of the other party as
specified herein.
11.2 Procedure. Promptly after learning of the occurrence of any event
---------
which gives rise to its rights under the provisions of Section 11.1, the
indemnified party shall notify the other party in writing of any such matter.
The indemnified party shall cooperate with the other party in the negotiation,
compromise and defense of any such matter. The indemnifying party shall be in
charge of and control such negotiations, compromise and defense. In no event
shall the indemnified party compromise or settle any such matter without the
prior consent of the other party and such party shall not be bound by any such
compromise or settlement without its prior written consent.
12. Arbitration
-----------
12.1 Selection of the Arbitrator. Other than the decision to proceed with
---------------------------
Phase II, which shall in all events require the unanimous determination of the
Committee, any controversy or dispute between Phytera and Galileo arising out of
or relating to this Agreement or the breach by either party thereof that cannot
be resolved by mutual accord shall be settled by binding arbitration in
accordance with this Section 12. The Committee shall institute these arbitration
provisions in the event it becomes deadlocked by giving notice to each of the
parties that it is electing to arbitrate the matter or matters in dispute. Such
arbitration shall take place in Boston, Massachusetts. The Committee shall
select an arbitrator during the 30 days following the notice of arbitration. If
the Committee is not able to agree on an arbitrator, an arbitrator shall be
chosen by the American Arbitration Association in accordance with its Commercial
Arbitration Rules. The parties shall facilitate the arbitration by participating
in discovery and permitting depositions to be taken. All such discovery and
depositions shall be completed within 90 days after the arbitrator is chosen.
12.2 Decisions of the Arbitrator. All decisions and awards rendered by the
---------------------------
arbitrator shall be binding upon the parties hereto and will be final as to all
questions submitted to the arbitrator. The parties hereto shall execute promptly
all decisions and awards of the arbitrator. The arbitrator shall have authority
to award expenses (including fees of counsel and any experts) in such manner as
the arbitrator determines is just and equitable. The decision of the arbitrator
may be entered in any court having jurisdiction over either or both parties.
13. Miscellaneous.
-------------
13.1 Publicity. Except as provided in Section 9.5 above, no press release,
---------
advertising,
p.24
<PAGE>
promotional sales literature, or other promotional oral or written statements to
the public in connection with or alluding to work performed under this Agreement
or the relationship between the parties created by it, having or containing any
reference to Phytera or Galileo, shall be made by either party without the prior
written approval of the other party, except for restatements of previously
approved statements and disclosures required by applicable law or regulation.
13.2 Relationship of Parties. For the purposes of this Agreement, each
-----------------------
party is an independent contractor and not an agent or employee of the other
party. Neither party shall have authority to make any statements,
representations, or commitments of any kind, or to take any action which shall
be binding on the other party, except as may be explicitly provided for herein
or authorized in writing. In particular, (i) neither party shall represent to
creditors or vendors that such party has any authority to obligate or bind the
other party, and shall affirmatively correct any misconception to that effect
and (ii) neither party shall use the name of the other party in connection with
such transactions without the prior written consent of the other party, which
consent may be withheld in its sole discretion.
13.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
13.4 Headings. All headings in this Agreement are for convenience only and
--------
shall not affect the meaning of any provision hereof.
13.5 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties and their respective lawful successors and assigns.
13.6 Assignment. This Agreement may not be assigned by either party without
----------
the prior written consent of the other party, except that either of the parties
may assign this Agreement to a successor in connection with the merger,
consolidation, or sale of all or substantially all of its assets or that portion
of its business pertaining to the subject matter of this Agreement. Each Party
under this Agreement shall have the right to assign to an Affiliate all rights
and obligations under this Agreement.
13.7 Notices. All notices, requests, demands and other communications
-------
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized national overnight courier, confirmed facsimile
transmission, or registered or certified mail, return receipt requested, postage
prepaid, to the following addresses or facsimile numbers:
If to Galileo:
Galileo Laboratories, Inc.
935 E. Arques Avenue
Sunnyvale, CA 94086
p.25
<PAGE>
Attn: Dr. Guy Miller, Chairman & CEO
Tel: (408) 524-6200
Fax: (408) 524-6210
with a copy (which shall not constitute notice) to:
Wilson, Sonsini, Goodrich & Rosati
1117 California Avenue
Palo Alto, CA 94304
Attn: Michael O'Donnell, Esq.
Tel: (650) 493-9300
Fax: (650) 493-6811
If to Phytera:
Phytera, Inc.
377 Plantation Street
Worcester, MA 01605
Attn: Dr. Malcolm Morville, President
Tel: (508) 792-6800
Fax: (508) 792-1339
with a copy (which shall not constitute notice) to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attn: Lynnette C. Fallon, Esq.
Tel: (617) 573-0220
Fax: (617) 227-4420
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section 13.8.
13.9 Amendment and Waiver. This Agreement may be amended, supplemented, or
--------------------
otherwise modified at any time, but only by means of a written instrument signed
by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.
13.10 Governing Law. This Agreement and the legal relations among the
-------------
parties shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, irrespective of any conflict of laws principles.
p.26
<PAGE>
13.11 Severability. In the event that any provision of this Agreement
------------
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed as if such invalid or unenforceable
provision had not been included herein.
13.12 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and supersedes any
and all prior or contemporaneous oral and prior written agreements and
understandings between the parties.
p.27
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.
GALILEO LABORATORIES, INC.
By: /s/ Guy Miller
--------------------------------------
Dr. Guy Miller
Chairman and Chief Executive Officer
PHYTERA, INC.
By: /s/ Malcolm Morville
--------------------------------------
Dr. Malcolm Morville
President and Chief Executive Officer
p.28
<PAGE>
Appendix A
Statement of Work
-----------------
[
]*
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
p.29
<PAGE>
Exhibit 10.18
RESEARCH COLLABORATION AND LICENSE AGREEMENT
This Research Collaboration and License Agreement (this "Agreement") is
entered into as of May 1, 1998 (the "Effective Date") by and between Phytera,
Inc. ("Phytera"), a Delaware corporation, and NeuroSearch A/S ("NeuroSearch"), a
Danish corporation (together, the "Parties").
R E C I T A L S
---------------
WHEREAS, Phytera owns an inventory of distinct natural product extracts
("Extracts") derived from plant or marine microbes, including a library of [ ]*
such Extracts (the "Library") that is the subject matter of this Agreement
(Extracts from the Library are sometimes referred to herein as "Library
Extracts");
WHEREAS, NeuroSearch has certain expertise and know-how related to the
identification of compounds and mixtures of compounds capable of interacting
with K+ channels (the "Assays"); and
WHEREAS, Phytera wishes to provide its Library to NeuroSearch for
screening and NeuroSearch wishes to screen the Library in order to identify and
develop pharmaceutical agents for the treatment and prevention of diseases which
interact with K+ channels in humans (the "Field").
NOW, THEREFORE, Phytera and NeuroSearch hereby each agree as follows:
1. Certain Definitions.
--------------------
1.1. "Affiliate" means any legal entity (such as a corporation,
---------
partnership, or limited liability company) that is controlled by a party. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.
1.2. "Assay" means tests, methods and know-how employed by NeuroSearch
-----
to identify compounds or mixtures of compounds capable of interacting with K+
channels as defined in Appendix A.
1.3. "Collaboration Compounds" means an individual compound as to which
------------------------
Phytera has completed NPCII, has identified the compound's chemical structure
and NeuroSearch has
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
<PAGE>
verified its biological activity in primary and secondary screens. By
definition, all Collaboration Compounds constitute Joint Technology.
1.4 "Collaborative Research Program" or the "Program" means the
------------------------------
collaborative research program described in Article 3 of this Agreement.
1.5 "Committee" means the Steering Committee charged with oversight of
---------
the Collaborative Research Program, as described in Section 2.1. of this
Agreement
1.6 "Confidential Information" means certain proprietary information
------------------------
which may be disclosed by either party to the other pursuant to this Agreement,
as described in Section 9.1 hereof.
1.7 "Development Compound" means a Collaboration Compound from the
--------------------
screening or lead optimization programs that has been selected by the Committee
for entry into a pre-clinical or clinical development program.
1.8. "Development" or "Development Strategy" means the processes,
-------------------------------------
steps and activities required to advance the pre-clinical or clinical assessment
of a Development Compound as a potential product in the Field.
1.9 "Evaluation Period" means, for each distinct batch of Library
-----------------
Extracts delivered to NeuroSearch, the period of time beginning when the batch
is delivered and ending when the Committee determines which Extracts from the
batch are to be designated as "Validated Hit Extracts" in accordance with
Section 3.6(c) hereof.
1.10 "Field" means pharmaceutical agents for the treatment of diseases
-----
which interact with K+ channels in humans.
1.11 "Natural Products Chemistry Isolation and Identification" or
-------------------------------------------------------
"NPCII" means the process whereby Extracts agreed upon pursuant to Section 3.6
are analyzed by Phytera for the identification of Collaboration Compounds.
1.12 "Patent Rights" means any United States patent application and any
-------------
divisional, continuation, or continuation-in-part of such patent application (to
the extent the claims are directed to subject matter specifically described
therein), as well as any patent issued thereon and any reissue or reexamination
of such patent, and any foreign counterparts to such patents and patent
applications. "Phytera Patent Rights" means Patent Rights that are (i) owned
---------------------
solely by Phytera, (ii) owned jointly by Phytera and a party other than
NeuroSearch, (iii) licensed solely to Phytera or (iv) licensed jointly to
Phytera and a party other than NeuroSearch, in each case to the extent that
Phytera has the ability to license or sublicense the rights required under this
Agreement. "NeuroSearch Patent Rights" means Patent Rights that are (i) owned
-------------------------
solely by NeuroSearch, (ii) owned jointly by NeuroSearch and a party other than
Phytera, (iii) licensed
-2-
<PAGE>
solely to NeuroSearch or (iv) licensed jointly to NeuroSearch and a party other
than Phytera, in each case to the extent that NeuroSearch has the ability to
license or sublicense the rights required under this Agreement. "Joint Patent
------------
Rights" means Patent Rights owned by both Phytera and NeuroSearch as joint
- ------
owners. Joint Patent Rights will include (i) Patent Rights claiming Joint
Technology and (ii) Patent Rights claiming both Phytera Technology and
NeuroSearch Technology in a single filing.
1.13. "Progression" or "Progression Strategy" means the processes,
-------------------------------------
steps and activities required to advance the assessment of a Collaboration
Compound as a potential Development Compound.
1.14 "Requisite Activity" means desired biological activity observed
------------------
in Library Extracts during Assays, as determined by the Committee pursuant to
Section 2.4(c) of this Agreement.
1.15 "Technology" means any proprietary development, idea, design,
----------
concept, technique, process, invention, research material, discovery, or
improvement, whether or not patentable or copyrightable. "Phytera Technology"
------------------
means Technology that is (i) owned solely by Phytera, (ii) owned jointly by
Phytera and a party other than NeuroSearch, (iii) licensed solely to Phytera or
(iv) licensed jointly to Phytera and a party other than NeuroSearch, in each
case to the extent that Phytera has the ability to license or sublicense the
rights required under this Agreement. "NeuroSearch Technology" means Technology
----------------------
that is (i) owned solely by NeuroSearch, (ii) owned jointly by NeuroSearch and a
party other than Phytera, (iii) licensed solely to NeuroSearch or (iv) licensed
jointly to NeuroSearch and a party other than Phytera, in each case to the
extent that NeuroSearch has the ability to license or sublicense the rights
required under this Agreement. "Joint Technology" means Technology that is
----------------
developed or discovered jointly by one or more employees or consultants of
NeuroSearch and one or more employees or consultants of Phytera in connection
with the Collaborative Research Program, including specifically but without
limitation all Validated Hit Extracts and Lead Molecules.
1.16 "Validated Hit Extract" means a Library Extract that the Committee
---------------------
has, based on its review of the Assays performed by NeuroSearch, determined to
possess Requisite Activity. By definition all Validated Hit Extracts constitute
Joint Technology.
2. Management of Collaborative Research Program.
--------------------------------------------
2.1. Steering Committee. The Parties hereby create a Steering Committee
------------------
(the "Committee") which shall consist of [ ]* members, [ ]* of whom shall
be
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
-3-
<PAGE>
designated by Phytera and [ ]* of which shall be designated by NeuroSearch. The
members initially designated by Phytera are [
]*, and the members initially designated by NeuroSearch
are [ ].* A Committee member may resign, provided that if any
member of the Committee dies, resigns, or becomes incapacitated the party which
designated such member shall designate his or her successor (whose term shall
commence immediately), and any party may withdraw the designation of any of its
members of the Committee and designate a replacement (whose term shall commence
immediately) at any time by giving notice of the withdrawal and replacement to
the other party. The Committee shall designate one or more of its members to act
as secretary for the Committee.
2.2. Meetings of the Committee. Regular meetings of the Committee shall
-------------------------
be held within forty-five (45) days of the end of each calendar quarter, or at
such other times as the Parties may deem appropriate, at such times and places
as the members of the Committee shall from time to time agree. Special meetings
of the Committee may be called by either party on fourteen (14) days written
notice to the other party unless notice is waived by the parties. All meetings
shall alternate between the offices of the parties unless the parties otherwise
agree. Although informal and more frequent interactions between Committee
members will occur as necessary for the efficient conduct of the Collaboration,
discussions among Committee members shall not constitute an official Committee
meeting unless either (i) written notice has been furnished to each Committee
member at least fourteen (14) business days prior to such meeting or (ii) each
Committee member executes a written waiver of such notice.
2.3. Actions By the Committee. A quorum of the Committee shall be
------------------------
present at any meeting of the Committee if at least three members are present at
such meeting in person or by telephone. If a quorum exists at any meeting, the
unanimous consent of all members of the Committee present at such meeting is
required to take any action on behalf of the Committee. In no event shall any
action be taken by the Committee if there is other than unanimous consent.
Unless otherwise specifically stated to the contrary herein, no individual party
shall purport to act on behalf of the other party unless and then only to the
extent authorized to do so by the Committee.
2.4. Responsibilities of The Committee. The Committee shall be
---------------------------------
responsible for the day-to-day conduct, progress and evaluation of the
Collaborative Research Program (the "Program") and its activities, including,
without limitation:
(a) planning and efficient prosecution of the Program
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
-4-
<PAGE>
(b) preparation of Quarterly Reports of Program activities
(c) selection and prioritization of Validated Hit Extracts for
NPCII and agreeing to the work plan and budget for these
activities, including the determination of the criteria of
significant biological activity ("Requisite Activity")
necessary for a Library Extract following the completion of
Assays to qualify as a Validated Hit Extract;
(d) selection and prioritization of Collaboration Compounds for
entry into early preclinical studies and agreeing to the
work plan and budget for these activities
(e) selection and prioritization of Collaboration Compounds for
entry into lead optimization and agreeing to the work plan
and budget for these activities
(f) nomination and prioritization of Development Compounds for
entry into development and agreeing to the work plan and
budget for these activities
(g) deciding on the long-term development plan for any
Development Compound and/or on the appropriate stage and
program to seek an outlicense partner
(h) agreeing on any publication strategy for any results, data,
discoveries or compounds from the Program
2.5. Committee Reports. Within ten (10) days following each meeting of
-----------------
the Committee held pursuant to Section 2.2, the secretary of the Committee shall
prepare and send to each party a written report of actions taken at the meeting
in such form and containing such detail as shall be determined by the Committee.
2.6. Deadlock. In the event that the Committee cannot reach agreement
--------
within sixty (60) days as to any matter that is subject to its decision-making
authority, either party may request that the matter be referred to the Chief
Executive Officers ("CEO's") of the parties for resolution. If, in the sole
discretion of either CEO, a meeting between the CEO's is advisable or required
to resolve the matter, such a meeting shall be requested in writing and the
CEO's will endeavor in good faith to meet at the earliest possible time and in a
place of mutual convenience. In the event that the CEO's cannot reach agreement
on the matter in question, the parties agree to submit the dispute to binding
arbitration in accordance with the procedures set forth in Article 13.
3. Conduct of Collaborative Research Program.
-----------------------------------------
3.1. Objective of Collaboration. The overall objective of this
--------------------------
Agreement is to discover
-5-
<PAGE>
and develop compounds that demonstrate potential as human pharmaceutical agents
for treatment and prevention of diseases which interact with K+ channels.
3.2. Responsibilities of Each Party. Each of the parties shall have the
------------------------------
general responsibilities for research and development tasks as are described in
detail in Appendix A. However, the Committee shall have discretion to allocate
----------
specific research and development tasks in a particular situation to the party
that has the best current capability, capacity, and desire to complete the task
and advance the objectives of the Program, irrespective of whether that task
comes within the general responsibilities assigned to that party. If the members
of the Committee disagree on whether a party should participate in a particular
task, the task will be assigned to the party who has general responsibility for
such activities as set forth on Appendix A. NeuroSearch agrees to conduct all
----------
Assays of the delivered Extracts and all other actions required of it in
connection with the Program expeditiously and in a scientifically sound manner.
Phytera also agrees to deliver all Extracts on a timely basis and to conduct
NPCII on Validated Hit Extracts and all other actions required of it in
connection with the Program expeditiously and in a scientifically sound manner.
3.3. Reports and Records. Each party agrees to promptly and regularly
-------------------
communicate to the other party all research results from the Program, including
quarterly reports to the Committee detailing all tests conducted and results
obtained by such party in connection with the Program. Each party shall prepare
and maintain adequate records, including bound laboratory notebooks maintained
in accordance with standard scientific procedures, containing all appropriate
data reflecting all research results from the Program. In addition, each party
shall retain under appropriate conditions any necessary or desirable samples of
research materials that are developed or used in the Program.
3.4. Grant of License. For the duration of the term of this Agreement,
----------------
Phytera hereby grants to NeuroSearch a license (without the right to sublicense)
under the Phytera Patent Rights and other rights in Phytera Technology to (i)
test Library Extracts for assay interference (as described in Section 3.5(b)
below), (ii) test, screen and perform Assays on any and all Library Extracts in
order to determine which, if any, of the Library Extracts (or combinations
thereof) possesses Requisite Activity and (iii) if duly authorized by the
Committee, to perform necessary research and development tasks associated with
NPCII of Validated Hit Extracts, each as set forth in detail on Appendix A.
----------
3.5. Pilot Phase.
-----------
(a) Delivery of Extracts. The Pilot Phase of the Program
--------------------
shall commence
-6-
<PAGE>
Pilot Phase, Phytera shall promptly deliver a total of approximately [ ]*
Extracts, approximately [ ]* each of plant and marine origin (the "Pilot
Extracts"), to NeuroSearch.
(b) Conduct of Initial Screens. Promptly following receipt of
--------------------------
the Pilot Extracts, NeuroSearch shall (i) test such Pilot Extracts for activity
to ensure that Assays are optimally configured for screening and (ii) evaluate
the Pilot Extracts for assay interference. In the event that such interference
is identified, NeuroSearch shall attempt to modify its Assays as necessary in
order to enable successful completion. NeuroSearch shall promptly notify the
Committee of any modification so implemented. NeuroSearch shall promptly provide
to the Committee a detailed description of all evaluations performed and all
Assays successfully conducted. All such information disclosed by Phytera and
NeuroSearch shall be deemed Confidential Information and, as such, is subject to
the restrictions set forth in Article 10 hereof.
(c) Termination of Research. In the event that NeuroSearch is
-----------------------
unable to perform successful Assays of any of the Pilot Extracts during the
Pilot Phase (as such Assays may be modified by NeuroSearch), either party may
(but shall have no obligation to) terminate this Agreement upon [ ]* written
notice to the other party; provided, however, that such termination must occur
prior to the commencement of the Program, as described in Section 3.6 below.
3.6. Commencement of the Collaborative Research Program
--------------------------------------------------
(a) Delivery of Extracts. The Program shall commence
-------------------
following the successful evaluation of Pilot Extracts in the Assays by
NeuroSearch. It is anticipated that, assuming that one or more Pilot Extracts is
successfully Assayed during the Pilot Phase, the Program shall commence on or
about [ ]*, although the Program may commence on such other date as
shall be designated by the Committee. Upon commencement of the Program Phytera
shall promptly deliver an additional [ ]* plant cell and marine microbe
culture extracts (the "Year One Extracts") to NeuroSearch.
(b) Conduct of Year One Assays. As soon as is reasonably
--------------------------
practical following the receipt of the Year One Extracts, NeuroSearch shall
initiate screening of such Extracts in accordance with the procedures set forth
on Appendix A hereto. NeuroSearch shall report to Phytera each Extract in which
----------
its Assays detect signs of Requisite Activity. Phytera shall, in a reasonable
period of time thereafter, provide NeuroSearch with information as to species
(plant) or isolate type (marine microbe) and extract type for each Extract with
Requisite Activity.
(c) Identification and Labeling of Validated Hit Extracts.
-----------------------------------------------------
Within 30 days of completion of the Assays on each of the Year One Extracts,
NeuroSearch shall provide a
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
-7-
<PAGE>
detailed report of all Assays conducted to the Committee. The Committee shall in
its sole discretion label each Library Extract (or combination thereof)
determined by the Committee to possess Requisite Activity as a "Validated Hit
Extract."
(d) Evaluation Meetings. Within thirty (30) days following
-------------------
NeuroSearch's completion of Assays on each of the Year One Extracts, the
Committee shall meet to review the results of all of the Assays and evaluate the
overall progress of the Program. The Committee shall determine, based upon the
results of the Assays performed by NeuroSearch whether any of such Extracts
possesses Requisite Activity. If so, the Committee shall then designate between
[ ]* Extracts that have been determined to possess Requisite Activity as
Validated Hit Extracts.
(e) Conduct of NPCII Activities. Within 30 days of the
---------------------------
Committee designation of Validated Hit Extracts, the Parties will proceed to
conduct NPCII activities on the Validated Hit Extracts. Phytera will conduct
regrowth of cultures to facilitate NPCII and for the fractionation, analytical
characterization and structural identification of compounds responsible for the
Requisite Activity seen in the Assays (such fractionation, analytical
characterization and structural identification constituting the "Chemistry
Effort"). NeuroSearch will conduct Assays as needed to enable Phytera to conduct
NPCII. In addition, NeuroSearch will conduct Assays as needed to validate the
biological activity of isolated active compounds resulting from NPCII
activities. In the event the parties mutually agree that it is preferable to
transfer the Assays from NeuroSearch to Phytera in order to facilitate NPCII,
the parties shall use best efforts to complete such transfer and NeuroSearch
shall grant Phytera a limited-use license to permit Phytera to use the Assays
for the sole purpose of conducting NPCII under this Agreement. In the event the
parties mutually agree that it is preferable to transfer the Chemistry Effort
from Phytera to NeuroSearch in order to facilitate NPCII, the parties shall use
best efforts to complete such transfer and Phytera shall grant NeuroSearch a
limited-use license, to the extent such license may be necessary, to permit
NeuroSearch to conduct the Chemistry Effort for the sole purpose of conducting
NPCII under this Agreement. In the event of Early Termination of this Agreement,
pursuant to Section 5.2, the obligations of the Parties to continue to fund
NPCII activities that are underway, with respect to specific Validated Hit
Extracts at the time notice of Early Termination is received shall survive such
termination. Phytera will identify those Validated Hit Extracts which are
undergoing NPCII at the time of such notice, and no new Validated Hit Extracts
shall be entered into NPCII under this Agreement subsequent to receipt of such
notice of termination.
3.7 Year Two Extracts. At approximately the first anniversary of the
-----------------
Effective Date of this Agreement, the Parties shall meet to discuss and agree
upon the expansion of the Program to include additional Extracts (the "Year Two
Extracts"). The Parties may agree to conduct the
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
-8-
<PAGE>
Program on any number of Extracts that Phytera has available (thereby altering
the number of Extracts in the Library), but it is currently anticipated that
[ ]* Extracts would be designated as Year Two Extracts.
4. Exclusivity
-----------
During the term of this Agreement, Phytera will collaborate exclusively
with NeuroSearch on the K+ channel screens and NeuroSearch will collaborate
exclusively with Phytera with respect to screening natural products extracts
against the K+ channel targets. Notwithstanding the foregoing, the Parties
recognize that it may become necessary or desirable for either party to
collaborate with a third party in a manner that would violate the exclusivity
described above. In such an event, the party seeking to enter into such a third
party collaboration shall notify the other party to that effect and request that
party's consent to the third party collaboration. Notwithstanding the
obligations of the Parties to collaborate exclusively, as described above, [
]*.
5. Term; Early Termination of Program.
----------------------------------
5.1. Term. This Agreement shall commence on the Effective Date and
----
shall continue until the earliest to occur of (i) termination of research under
Section 3.5(c), (ii) with respect to the Research Collaboration, the third
anniversary of the Effective Date, subject to extension by mutual agreement
(iii) with respect to activities involving the development and marketing of any
Collaboration Compound, the completion of all such activities related to any
such Collaboration Compound or termination by mutual consent (iv) the
termination of the Program pursuant to Sections 5.2, 5.3 or 5.4 below.
5.2 Early Termination. Either party may terminate this Agreement upon
-----------------
providing written notice to the other party no less than [ ]* of the
effective date of such termination. Any obligations of the terminating party
that exist at the time of early termination pursuant to this paragraph shall
survive such termination, including but not limited to the obligation to remit
to the other party all payments that become due and payable in accordance with
the terms of this Agreement prior to the effective date of such termination and
to those obligations defined in Section 5.5 and Section 5.6.
5.3 Termination Upon Default. In the event that either party commits
------------------------
a material
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
-9-
<PAGE>
breach of its obligations under this Agreement and fails to cure that breach
within [ ]* after receiving written notice thereof, the nonbreaching party may
terminate this Agreement immediately upon written notice to the party in breach.
5.4 Force Majeure. Neither party will be responsible for or
-------------
considered in breach of this Agreement because of delays resulting from acts
beyond the control of such party, provided that the nonperforming party uses
commercially reasonable efforts to avoid or remove such causes of nonperformance
and continues performance hereunder with reasonable dispatch whenever such
causes are removed.
5.5 Effect of Termination. Except as otherwise agreed by the parties,
---------------------
upon the expiration or termination of this Agreement, all of the provisions of
this Agreement shall immediately terminate, except that this Section and
Sections 6 (Development of Joint Technology), 8 (Intellectual Property) and 10
(Confidentiality) of this Agreement shall survive in their entirety. Upon
termination, except as may otherwise be agreed by the parties:
(a) NeuroSearch shall have no further rights under the Phytera Patent
Rights or Phytera Technology;
(b) Phytera shall have no further rights under the NeuroSearch Patent
Rights or NeuroSearch Technology;
(c) NeuroSearch shall grant Phytera an exclusive, worldwide, royalty-
free license (with the right to sublicense) under any Joint
Patent Rights and other rights in Joint Technology to the extent
applicable to the composition or use of the Library Extracts
within the Field;
(d) Phytera shall grant NeuroSearch an exclusive, worldwide, royalty-
free license (with the right to sublicense) under any Joint
Patent Rights and other rights in Joint Technology to the extent
applicable to the Assays within the Field.
5.6 Continuing Development under Early Termination. In the event this
----------------------------------------------
Agreement is terminated pursuant to Section 5.2 above, the Parties shall
continue the joint development of Collaboration Compound(s) and/or Development
Compound(s) identified prior to such termination, including any such compound(s)
that is or are identified through NPCII activities that are ongoing at the time
of such termination, pursuant to Section 3.6(e). With respect to any identified
Collaboration Compound(s) and/or Development Compound(s), all other terms,
conditions, obligations and agreements related to joint development under this
Agreement shall survive such termination.
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
-10-
<PAGE>
6. Development of Joint Technology.
-------------------------------
6.1 Exploitation of Collaboration/Development Compounds. Within
---------------------------------------------------
ninety (90) days following the identification of one or more Collaboration
Compounds, the Committee shall determine a Progression Strategy for applications
of such Collaboration Compound(s), the objective of which Progression Strategy
is to enable the Committee to assess the Collaboration Compound(s) for possible
entry into pre-clinical development (at which point the Collaboration
Compound(s) would be designated a Development Compound). The intent of the
parties is to progress such Development Compounds through Phase I clinical
trials (or equivalent) prior to seeking a licensing partner. Following Phase I
studies, the Committee shall mutually agree on licensing strategy and tactics
and commercial terms for a license or licenses to a third party or parties.
Licensing activities will be funded on a 50:50 basis and all proceeds from any
license will be shared equally by the Parties.
6.2 Alternative Plans for Exploitation of Development Compounds. The
-----------------------------------------------------------
Parties may mutually agree to deviate from the intent stated in Section 6.1 as
follows:
(i) to jointly develop a Development Compound beyond Phase I to any
further stage of development, continuing to share costs and
rights on a 50:50 basis, prior to licensing rights to a third
party
(ii) to jointly develop a Development Compound beyond Phase I and
complete the registration and approval requirements for the
product in one or more regions of the world, prior to marketing
jointly, individually or via a marketing partner, continuing to
share costs and rights on a 50:50 basis
(iii) to enable one party (the "Developing Party") to pursue further
development and potential marketing and outlicensing
opportunities in one or more regions of the world, on terms
acceptable to the Non-Developing Party
6.3 Default Mechanism for Development. In the event that the
---------------------------------
Committee is unable to agree on a development strategy, outlicensing tactics, or
commercial terms for a Development Compound within ninety (90) days after the
notice initiating such determination under Section 6.1 above, the impasse will
be resolved by:
(i) NeuroSearch will retain exclusive commercial rights to the
Development Compound in Europe
(ii) Phytera will retain exclusive commercial rights to the
Development Compound in North America
(iii) the Parties will share commercial rights to the Development
Compound in the rest of
-11-
<PAGE>
the world and will agree on a strategy to license rights to a
third party or parties. Proceeds from such license or licenses
shall be shared equally by the Parties
(iv) the Parties will share relevant information to assist with the
development of the Development Compound in the respective party's
exclusive territories, or in the non- exclusive territory
(v) each party will receive a royalty of [ ]* on the net sales of the
other party and will receive [ ]* of the other party's outlicense
proceeds in such party's exclusive territory
6.4 Development Outside of the Field. In the event that it is
--------------------------------
discovered that a Collaboration Compound(s) or a Development Compound(s) may
have potential application outside the Field, the Parties will, within 90 days
of such discovery, agree upon a development strategy for such application, which
may involve one or more of the following: (i) co-development of such
Collaboration Compound(s) or Development Compound(s) by the Parties, (ii)
licensing by either party to the other party, or (iii) licensing of such
Collaboration Compound(s) or Development Compound(s) to a third party.
6.5 Election not to Proceed. In the event that either party elects
-----------------------
not to proceed with or to fund its fairly allocated portion of the cost of the
Program at any time prior to the identification of any Development Compound (the
"Non-Developing Party"), the other party shall be entitled to an exclusive
license to pursue the discovery and development and commercialize any resulting
product (the "Developing Party"). Such license shall provide a royalty to the
Non-Developing Party of [ ]* of the Developing Party's net sales and [ ]* of any
outlicense proceeds received by the Developing Party, after deducting the
Developing Party's development costs from such net sales or outlicense proceeds.
Such license shall further provide that the Non-Developing Party shall transfer
to the Developing Party such technology as is required by the Developing Party
to continue development of Development Compound(s), (the "Transferred
Technology") provided that the Developing Party's right to use the Transferred
Technology shall be limited to internal use for the sole purpose of developing
the Development Compound(s), with the right to sublicense or assign the
Transferred Technology to a third party for the sole purpose of developing the
Development Compound(s). In the event the Developing Party desires to sublicense
or assign the Transferred Technology to a third party, it shall so notify the
Non-Developing Party and request the Non-Developing Party's consent to such
sublicense or assignment, such consent not to be unreasonably withheld or
delayed.
7. Allocation of Program Expenses.
------------------------------
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
-12-
<PAGE>
7.1 Extract Production and Screening Costs. Each party shall bear the
--------------------------------------
costs of its own activities performed in connection with the initial screening
of and performance of Assays on Library extracts. Phytera shall be responsible
for all costs associated with the production of Library Extracts and the
furnishing of such Extracts to NeuroSearch for evaluation. NeuroSearch shall be
responsible for all costs associated with performance of the Assays and
reporting of results to the Committee.
7.2 NPCII. Prior to the initiation of NPCII activities, the Committee
-----
shall review and approve a budget that will reflect all the relevant direct
costs associated with NPCII (collectively, "NPCII Costs"). Budget estimates
shall be furnished by both Phytera and NeuroSearch as soon as practicable
following a determination by the Committee to undertake NPCII with respect to
one or more Validated Hit Extracts. At the time the budget is approved, the
Committee shall agree upon and state in writing the precise terms of cost
reimbursement prior to commencement of NPCII. The intent of the Parties is that
each party shall pay approximately fifty percent (50%) of the NPCII Costs, which
shall reflect the direct cost per full time equivalent ("FTE") to be incurred by
each party and shall be between [ ]* per FTE per twelve (12) month
period (equal to approximately [ ]* Danish kroner).
7.3 Expense Reporting. After the commencement of NPCII activities, each
-----------------
party shall on a calendar quarter basis prepare a report to the Committee
detailing all NPCII Costs incurred by it during such quarter and aggregate NPCII
Costs less reimbursements hereunder. To the extent that any such report shows
aggregate NPCII Costs incurred by one party in an amount exceeding those
incurred by the other by at least [ ]*, the party incurring the lesser
NPCII Costs shall, within [ ]* after receipt of such report, reimburse the
party incurring the greater costs. In the event that the difference between the
NPCII Costs incurred by each party is less, in the aggregate, than [ ]* during
any twelve (12) month period beginning on the Effective Date, the party
incurring the lesser NPCII Costs shall reimburse the party incurring the greater
costs within [ ]* following the receipt of such report of NPCII Costs
incurred during such period. In the event that either party anticipates a
material deviation from the approved budget, such party shall immediately notify
the Committee of such anticipated deviation, specifying the expected amount of
the deviation, the reason(s) for the deviation, and any alternative or remedial
actions that are available. As soon as practical following such notification,
the Committee will decide whether the deviation should be permitted.
8. Ownership and Management of Intellectual Property.
-------------------------------------------------
8.1 Intellectual Property Developed Outside of the Program. Except as
------------------------------------------------------
expressly set forth in this Agreement, neither party shall have any rights in
Patent Rights and Technology that is developed or discovered by the other party
prior to the Effective Date or outside of the context
_________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
-13-
<PAGE>
of the Program. For example, Phytera shall have sole ownership of all right,
title, and interest in Library Extracts provided to NeuroSearch, and NeuroSearch
shall have sole ownership of all right, title and interest in Assays developed
by NeuroSearch. Each party shall have sole responsibility for and control over
Patent Rights claiming any of its Technology that was developed or discovered
prior to the Effective Date or outside of the Program. Neither party shall have
any right to review and comment on such Patent Rights of the other party.
8.2 Ownership of Intellectual Property Arising From the Program.
-----------------------------------------------------------
Ownership of Patent Rights and Technology arising from the Program shall be
allocated in the following manner:
(i) Phytera shall have sole ownership of all right, title, and
interest in Phytera Patent Rights and Phytera Technology;
(ii) NeuroSearch shall have sole ownership of all right, title, and
interest in NeuroSearch Patent Rights and NeuroSearch
Technology; and
(iii) Phytera and NeuroSearch shall have joint ownership of all right,
title, and interest in Joint Patent Rights and Joint Technology,
which shall be subject to the provisions of Section 6 hereof.
Each party shall ensure that its employees, consultants, agents, and
representatives are contractually required to assign to such party all Patent
Rights and other rights in Technology arising from the Program and to promptly
disclose to such party all patentable inventions within that Technology.
8.3 Notice of Intellectual Property Arising From the Program. Each party
--------------------------------------------------------
shall provide prompt written notice to the Committee of the internal disclosure
of any significant Technology developed by its personnel in connection with the
Program.
8.4 Responsibility for Patent Rights Arising from the Program.
---------------------------------------------------------
(i) Phytera shall be responsible for and shall control, at its expense,
the preparation, filing, prosecution, grant, and maintenance of any
Patent Rights claiming only Phytera Technology and shall consult with
NeuroSearch on, and give N NeuroSearch a reasonable opportunity to
review all such filings to the extent they directly relate to the
Program.
(ii) NeuroSearch shall be responsible for and shall control, at its
expense, the preparation, filing, prosecution, grant, and maintenance
of all Patent Rights claiming only NeuroSearch Technology and shall
consult with Phytera on, and give Phytera a reasonable opportunity to
review all such filings to the extent they relate directly to the
Program.
-14-
<PAGE>
(iii) in the case of Joint Technology, NeuroSearch shall be responsible for
and shall facilitate, through its Patent Department, the preparation,
filing, prosecution, grant, and maintenance of all Joint Patent
Rights in Denmark, and for ensuring that such patent activities are
conducted in full compliance with United States requirements, such
that intellectual property rights in the United States are prosecuted
and maintained to the full extent possible. The Committee shall
govern all such patent activities, and Phytera's representatives
shall have the right to comment on patent strategy, the preparation,
filing and prosecution of all patent applications related to Joint
Patent Rights. Further, Phytera shall have the right to take whatever
actions it deems, in its sole discretion, to be necessary to protect
U.S. rights under any patent applications prepared, filed or
prosecuted in Denmark by NeuroSearch, provided that Phytera shall
notify NeuroSearch prior to taking any such action and shall,
whenever possible without comprising Phytera's ability, in Phytera's
sole discretion, to protect said rights, provide NeuroSearch the
opportunity to comment on the actions Phytera is contemplating.
(iv) regarding Patent Rights, it will be the responsibility of the
Committee to decide how all material patent matters related to or
resulting from the Program shall be resolved, including without
limitation (a) whether to seek Joint Patent Rights claiming that
Joint Technology or to maintain that Joint Technology as a trade
secret (b) whether to seek Patent Rights claiming both Phytera
Technology and NeuroSearch Technology in one filing, which also
constitutes a Joint Patent Right
(v) all expenses related to the preparation, filing, prosecution, grant,
and maintenance of all Joint Patent Rights shall be borne equally by
the parties.
8.5 Assumption of Rights by Other Party. In the event that a party
-----------------------------------
desires to decline responsibility for obtaining or maintaining Patent Rights in
a country for any of its Technology that is developed or discovered in
connection with the Program, such party will notify the other party before
taking such action and, upon request, will allow the other party to assume
responsibility for, and all expenses relating to, the relevant Patent Rights in
those countries; provided, however, that neither party shall have the right to
seek patent protection for any Technology that a party has decided, in its
discretion, to maintain as a trade secret. In the event that a party desires to
cease further payment of patent-related expenses for a Joint Patent Right in any
country, such party may assign to the other party all rights in that Joint
Patent Right in such country and thereafter have no further obligation to pay
such expenses.
8.6 Cooperation. Each party agrees to cooperate fully in the preparation,
-----------
filing, prosecution, and maintenance of all Patent Rights claiming Technology
arising from the Program. Such cooperation includes, without limitation, (i)
promptly executing all papers and instruments, or requiring its employees,
consultants, and agents to execute such papers and instruments, as reasonable
and appropriate so as to enable one or both parties to file, prosecute,
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<PAGE>
and maintain such Patent Rights in any country; (ii) promptly informing the
other party of matters that may affect the preparation, filing, prosecution, or
maintenance of any such Patent Rights; and (iii) undertaking no actions that are
potentially deleterious to the preparation, filing, or prosecution of any such
Patent Rights.
8.7 Abandonment of Joint Patent Rights. In the event that the parties
----------------------------------
fail to complete the Program , for whatever reason, the parties shall discuss in
good faith whether to abandon any pending or unpublished patent applications
within the Joint Patent Rights relating to the Program. The parties recognize
that publication of such Joint Patent Rights could adversely affect each of
their interests after reversion occurs under such Section 5.5.
9. Research Materials.
------------------
9.1 Ownership of Research Materials. In the course of the Program, one
-------------------------------
party (the "Provider") may transfer to the other party (the "Recipient") certain
-------- ---------
of its research materials. The Recipient acknowledges and agrees that such
research materials are and shall be owned by the Provider. The Recipient agrees
to execute and deliver any documents of assignment or conveyance to effectuate
the ownership rights of the Provider in such research materials. Specifically,
NeuroSearch acknowledges and agrees that all Library Extracts provided to
NeuroSearch in the Program are proprietary to and owned by Phytera and are or
may be covered by claims of Phytera Patent Rights.
9.2 Use and Transfer of Research Materials. Except as otherwise agreed
--------------------------------------
by the Committee, the Recipient agrees to use research materials provided by the
Provider solely for purposes set forth in this Agreement and shall not
distribute such research materials to any third party other than its employees
and consultants who are working on the Program.
9.3 Additional Restrictions for Proprietary Research Materials. In the
----------------------------------------------------------
case of proprietary research materials furnished by a Provider, Recipient agrees
(i) not to transfer such proprietary research materials to any third party
without the prior written consent of the Provider, (ii) to permit access to the
proprietary research materials only to its employees and consultants requiring
such access, (iii) to inform such employees and consultants of the proprietary
nature of the proprietary research materials, and (iv) to take reasonable
precautions, at least as stringent as those observed by Recipient to protect its
own proprietary materials, to ensure that such employees and consultants observe
the obligations of Recipient under this Section 9.3.
9.4 Disposition of Unused Research Materials. At the request of
----------------------------------------
Provider, Recipient will return or destroy any unused research materials
furnished by Provider.
9.5 Compliance with Law. Recipient agrees to comply with all laws and
-------------------
regulations applicable to the use, storage, disposal, and transfer of research
materials furnished by Provider. Recipient assumes sole responsibility for any
violation of such laws or regulations by Recipient or any of its Affiliates or
Sublicensees.
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<PAGE>
9.6 Limitation of Liability. Any research materials delivered pursuant
-----------------------
to this Agreement are understood to be experimental in nature and may have
hazardous properties. Recipient should assume that the compounds are dangerous
and should use appropriate precautions. PROVIDER MAKES NO REPRESENTATIONS, AND
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
THE RESEARCH MATERIALS FURNISHED TO RECIPIENT. THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE
USE OF THE RESEARCH MATERIALS WILL NOT INFRINGE ANY PATENT OR OTHER INTELLECTUAL
PROPERTY RIGHTS OF A THIRD PARTY.
10. Confidentiality.
---------------
10.1 Confidential Information. From time to time during the term of
------------------------
this Agreement, and in order to carry out the provisions of this Agreement, it
may be necessary for one of the parties to disclose Confidential Information to
the other. For the purposes of this Agreement, Confidential Information shall
include the Extracts, including the identity of the Extracts, supplied by
Phytera under this Agreement, the data generated by the Collaboration or any
other activity conducted pursuant to this Agreement, the Validated Hit Extracts,
the Lead Molecules, Phytera's cell culture techniques and any strategies, plans
or developments relating to any of the foregoing, the identity of the Assays and
NeuroSearch's protocols for the Assays, the business, financials, technology,
research strategy, employees, infrastructure, collaborators, advisors,
consultants, Boards of Directors and Scientific Advisory Boards of Phytera and
NeuroSearch, respectively, and their respective Affiliates.
10.2 Non-Disclosure Obligations.
--------------------------
(a) The recipient of such Confidential Information (the "Recipient")
undertakes to treat any and all of such Confidential Information as the other
party may disclose (the "Discloser") to the Recipient during the term of this
Agreement and for a period of [ ]* thereafter as strictly confidential and
shall not divulge it to any third party for any purpose whatsoever and shall not
make use of such Confidential Information or any part thereof for any purpose
other than carrying out the terms of this Agreement without the Discloser's
prior written consent. Any data or information generated by or as a result of
the Collaboration or any other activity conducted pursuant to this Agreement or
any data or information with respect to the Library Extracts, or the Patent
Rights hereunder shall not be disclosed to any third party nor be used for any
purpose other than carrying out the terms of this Agreement without the other
party's written consent.
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for the
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
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<PAGE>
(b) In the event that the Recipient visits any of the establishments
of the Discloser, the Recipient undertakes that any further Confidential
Information which may come to the Recipient's knowledge, as a result of any such
visit, shall be deemed to be Confidential Information and shall be subject to
the provisions of Paragraph (a) of this Section 10.2.
10.3 Limitations. The undertakings in Paragraphs (a) and (b) of this
-----------
Section 10.2 shall not apply to information that (i) at the time of disclosure
is published or otherwise generally available to the public; (ii) after
disclosure by Discloser is published or becomes generally available to the
public otherwise than through any act or omission on the part of Recipient;
(iii) the Recipient can establish by written documentation that such information
was in its possession at the time of disclosure and that such information was
not acquired directly or indirectly from the Discloser; (iv) was rightfully
acquired from a third party who did not obtain it under pledge of secrecy to the
Discloser or another party; or (v) was required to be disclosed by law.
10.4 Samples. NeuroSearch shall not supply or send any samples of
-------
Extracts to any third party, other than to regulatory agencies as required by
law, unless the sending of such samples shall have been approved by the
Committee and such samples are subject to Section 9 of this Agreement.
10.5 Publications.
------------
(a) Procedure. Phytera and NeuroSearch recognize the need to
---------
obtain valid patent protection. Consequently, Phytera, NeuroSearch and their
respective employees and consultants and any other Third Party wishing to make a
publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed by such party as part of the
collaboration described in this Agreement (the "Publishing Party") shall deliver
to the other party (the "Reviewing Party") a copy of the proposed written
publication at least ninety (90) days prior to submission for publication, or an
abstract of such oral disclosure at least thirty (30) days prior to submission
of the abstract or the oral disclosure, whichever is earlier. The Reviewing
Party shall have the right (i) to propose modifications to the publication for
patent reasons, (ii) to request a delay in publication or presentation in order
to protect patentable information, or (iii) to request that the information be
maintained as a trade secret and, in such case, the Publishing Party shall not
make such publication or disclosure. If the Reviewing Party requests a delay as
described in clause (ii) in the preceding sentence, the Publishing Party shall
delay submission or presentation of the publication for a period sufficient to
enable protection of the Reviewing Party's rights in such information to be
filed.
(b) Resolution. Only upon the receipt of written approval of the
----------
Reviewing Party may the Publishing Party proceed with the written publication or
the oral presentation.
10.6 Injunctive Relief. The parties hereto understand and agree that
-----------------
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 10 by
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<PAGE>
either party or their employees, agents, officers or directors or any other
person acting in concert with it or on its behalf. Accordingly, each party shall
be entitled to the granting of injunctive relief by a court of competent
jurisdiction against any action that constitutes any such breach of this Article
10. It is understood that such injunctive relief is intended solely as
provisional relief pending the dispute resolution procedures described in
Section 13 below.
11. Representations and Warranties.
------------------------------
11.1 General. Each party warrants and represents to the other that it
-------
has the legal right and power to enter into this Agreement, to extend the rights
and licenses granted to the other in this Agreement, and to perform fully its
obligations hereunder, and that it has not made nor will it make any commitments
to others in conflict with or in derogation of such rights or this Agreement.
11.2 Services. Each party warrants and represents to the other that it
--------
shall conduct its activities in a good scientific manner and in compliance with
all applicable good laboratory and manufacturing practices and all applicable
legal requirements.
12. Indemnity.
---------
12.1 Indemnity Obligations. Each party shall indemnify and hold harmless
---------------------
the other party and its officers, directors, employees and agents from and
against all liabilities, claims, actions and proceedings and all expenses
arising in connection therewith (including without limitation, damages,
judgments, awards, costs and attorney's fees and disbursements) which they may
incur or which may be asserted against them arising out of or by reason of the
activities of such party, its Affiliates or Licensees, or by their respective
officers, directors, employees or agents pursuant to this Agreement with the
exception of those arising from the intentional wrongful actions or gross
negligence of the other party or any of its employees or agents or from the
breach of any representation, warranty or obligation of the other party as
specified herein.
12.2 Procedure. Promptly after learning of the occurrence of any event
---------
which gives rise to its rights under the provisions of Section 12.1, the
indemnified party shall notify the other party in writing of any such matter.
The indemnified party shall cooperate with the other party in the negotiation,
compromise and defense of any such matter. The indemnifying party shall be in
charge of and control such negotiations, compromise and defense. In no event
shall the indemnified party compromise or settle any such matter without the
prior consent of the other party and such party shall not be bound by any such
compromise or settlement without its prior written consent.
13. Arbitration.
-----------
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<PAGE>
Licensor and Licensee shall devote all reasonable efforts to amicably
resolve any disputes between them concerning their respective rights and
obligations under the Agreement. However, if the parties are unable to resolve a
dispute within sixty (60) days following the day on which either party provides
written notice of the dispute to the other party, the dispute will be resolved
or settled at the request of either party by arbitration to be conducted in
London, in accordance with the rules of the International Chamber of Commerce by
three (3) arbitrators selected by the parties in conformity with those rules. In
addition to dealing with the merits of the case, the arbitration award shall fix
the costs of the arbitration and decide which of the parties shall bear such
costs or in which proportion such costs shall be borne by the parties. The
language of the arbitration shall be the English language. The decision of the
arbitrators shall be final and binding upon the parties and their respective
Affiliates and the parties hereby waive their respective rights to any form of
appeal therefrom. Notwithstanding anything contained above to the contrary,
issues involving the validity of patents will be decided by the courts or patent
offices of the country which issued the patents in question. Both parties shall.
continue their respective obligations under the Agreement during any such
arbitration proceedings.
14. Miscellaneous.
-------------
14.1. Publicity. Except as provided in Section 9.5 above, no press
---------
release, advertising, promotional sales literature, or other promotional oral or
written statements to the public in connection with or alluding to work
performed under this Agreement or the relationship between the parties created
by it, having or containing any reference to Phytera or NeuroSearch, shall be
made by either party without the prior written approval of the other party,
except for restatements of previously approved statements and disclosures
required by applicable law or regulation.
14.2 Relationship of Parties. For the purposes of this Agreement,
-----------------------
each party is an independent contractor and not an agent or employee of the
other party. Neither party shall have authority to make any statements,
representations, or commitments of any kind, or to take any action which shall
be binding on the other party, except as may be explicitly provided for herein
or authorized in writing. In particular, (i) neither party shall represent to
creditors or vendors that such party has any authority to obligate or bind the
other party, and shall affirmatively correct any misconception to that effect
and (ii) neither party shall use the name of the other party in connection with
such transactions without the prior written consent of the other party, which
consent may be withheld in its sole discretion.
14.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
14.4 Headings. All headings in this Agreement are for convenience only and
--------
shall not affect the meaning of any provision hereof.
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<PAGE>
14.5 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties and their respective lawful successors and assigns.
14.6 Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party, except that either of the
parties may assign this Agreement to a successor in connection with the merger,
consolidation, or sale of all or substantially all of its assets or that portion
of its business pertaining to the subject matter of this Agreement. Each Party
under this Agreement shall have the right to assign to an Affiliate all rights
and obligations under this Agreement.
14.7 Notices. All notices, requests, demands and other communications
-------
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized national overnight courier, confirmed facsimile
transmission, or registered or certified mail, return receipt requested, postage
prepaid, to the following addresses or facsimile numbers:
If to NeuroSearch:
NeuroSearch A/S
26B Smedeland
DK-2600
Glostrup, Denmark
Attn: Dr. J0rgen Buus Lassen, President
If to Phytera:
Phytera, Inc.
377 Plantation Street
Worcester, MA 01605
Attn: Dr. Malcolm Morville, President
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section 14.7.
14.8 Amendment and Waiver. This Agreement may be amended, supplemented,
--------------------
or otherwise modified at any time, but only by means of a written instrument
signed by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.
14.9 Governing Law. This Agreement and the legal relations among the
-------------
parties shall be governed by and construed in accordance with the laws of the
United Kingdom, irrespective of any conflict of laws principles.
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<PAGE>
14.10 Severability. In the event that any provision of this Agreement
------------
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed as if such invalid or unenforceable
provision had not been included herein.
14.11 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and supersedes any
and all prior or contemporaneous oral and prior written agreements and
understandings between the parties.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.
NEUROSEARCH A/S
By: /s/ Jorgen Buus Lassen
----------------------------------------
Dr. Jorgen Buus Lassen
President and Chief Executive Officer
PHYTERA, INC.
By: /s/ Stephen DiPalma
----------------------------------------
Stephen DiPalma
Vice President and Chief Financial Officer
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<PAGE>
Appendix A
[
]*
_____________________
* This portion of the Exhibit has been omitted pursuant to a Request for the
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
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<PAGE>
EXHIBIT 10.19
PHYTERA, INC.
and
CHIRON CORPORATION
________________________________________________________________________________
COLLABORATION
AGREEMENT
________________________________________________________________________________
THIS AGREEMENT is made on May 20, 1998 between:
1. PHYTERA, INC., incorporated in Delaware, and located at 377 Plantation
Street, Worcester, Massachusetts 01605 ("PHYTERA") and
2. CHIRON CORPORATION, incorporated in Delaware, and located at 4560 Horton
Street, Emeryville, California 94608 ("CHIRON").
RECITALS
Phytera has an extensive library of natural product extracts derived from
plants and marine organisms, including, without limitation, the ExPAND and
uMARINE extracts.
Chiron is an international pharmaceutical company experienced in
discovering, developing, registering and marketing pharmaceutical products and
is able to facilitate the research and development of such products.
Chiron wishes to collaborate with Phytera in the area of identifying
healthcare products associated with the Targets referenced herein with both
parties participating in the proceeds of commercialization of such products.
IT IS AGREED as follows.
1. DEFINITIONS AND INTERPRETATION
The following definitions apply unless the context requires otherwise.
1.1 "ADDITIONAL EXTRACTS" has the meaning referenced in Section 3.6.
1.2 "AFFILIATE" means, with respect to any party hereto, any entity that
directly or indirectly controls, is controlled by, or under common control with,
that party. For such purpose the terms "control" means ownership or control of
at least 50% of the voting interest in the entity in question. Without limiting
the generality of the foregoing, the Affiliates of Chiron expressly exclude
Novartis AG, a Switzerland corporation, or any Affiliates of Novartis AG, or any
successors in interest thereof, ("Novartis"), unless and until such time as
Novartis exercises its rights to control Chiron in accordance with the terms and
conditions of the November 20, 1994 Governance Agreement between Chiron and
Novartis' predecessor Ciba Geigy Limited.
1
<PAGE>
1.3 "AGREEMENT TERM" has the meaning referenced in Section 14.4.
1.4 "ASSAYS" means the assays to be utilized for identification of
molecules by screening against targets in the Research Field, including any
primary or secondary assay or test proposed by Chiron for the purposes of this
Agreement.
1.5 "COLLABORATION TERM" shall have the meaning referenced in Section
14.1.
1.6 "DERIVATIVE COMPOUND SERIES" means homologs, isomers, analogs and
derivatives, substitutions or formulations of a Licensed Compound, as those
terms are defined below in this Section. "Homolog" means a compound differing
by one to three (1-3) R groups (e.g., ethyl, propyl, methylene group or ethylene
group, or similar or equivalent combinations thereof). "Isomer" means a
compound differing by position isomery, geometric isomery, or stereochemical
isomery. "Analog" shall have the meaning generally understood by practitioners
of the art (e.g., a compound differing by removal of one or two (1 or 2)
individual small elements or one larger element thereof and/or addition of zero
to three (0-3) suggested small elements). Small elements include substituent
groups such as OH, OCH3, N02, NH2, halogen, S03H and similar groups. A larger
element may include up to 10 carbons and up to 3 heteroatoms. "Derivative"
means a compound derived by one to three (1-3) substitutions, deletions or
additions or simple oxidations or reductions made to a Licensed Compound or any
compound within a Derivative Compound Series. Salts, formulations and prodrugs
of a Licensed Compound or any compound within a Derivative Compound Series shall
also be included within the Derivative Compound Series.
1.7 "EFFECTIVE DATE" means the date of signing of this Agreement.
1.8 "EXEMPT PRODUCT" means a compound which is based on a Licensed
Compound, which arises as a result of the activities referenced in this
Agreement, which is not a Tertiary Product, and which is discovered more than
five (5) years after the LC Declaration Date for the relevant Licensed Compound
in question, irrespective of whether such compound is inside or outside the
Derivative Compound Series for such Licensed Compound, and for which Chiron, its
Affiliate or licensee has received governmental health regulatory approval to
market and sell in a country(s).
1.9 "EXTRACT" means a solution or suspension of chemicals derived from
fermenting a plant or marine microorganism, or the residue remaining from the
evaporation of solvent from such a solution or suspension.
1.10 "INFORMATION" has the meaning set out in Article 12.
1.11 "INITIAL EXTRACTS" has the meaning referenced in Section 3.1.
1.12 "LICENSE" has the meaning set forth in Section 5.2.
1.13 "LICENSED COMPOUND" OR "LC" means a compound within a Licensed
Compound Series.
2
<PAGE>
1.14 "LICENSED COMPOUND SERIES" OR "LCS" means all compounds contained
within a Optioned Validated Lead Structure Series, and analogues or derivatives
thereof, which are the subject of Chiron's Licensed Compound Declaration in
accordance with Section 5. 1.
1.15 "LC DECLARATION DATE" shall mean, with respect to any Licensed
Compound Series (and any Licensed Compounds within such Series), the date upon
which Chiron declares its intent to secure a License to such Licensed Compound
Series pursuant to Section 5. 1.
1.16 "NET SALES" means, in relation to a Product, the actual invoiced
price at which the Product is sold by Chiron or any of its sub-licensees to an
independent third party in a bona fide arms length transaction less the
following deductions to the extent actually allowed and taken:
(i) all trade, cash and quantity credits, discounts, refunds or rebates;
and
(ii) allowances or credits for returns; and
(iii) packaging and handling fees (if charged separately); and
(iv) prepaid freight and insurance; and
(v) sales tax and other governmental charges (including a value added
tax) actually paid in connection with the sale (but excluding what
are commonly known as income taxes).
In the event that Products are sold in combination with another product or
active component, (a "Combination Product") for a single price, Net Sales from
sales of Combination Product for purposes of calculating royalties due under
this Agreement shall be calculated by multiplying the Net Sales of that
Combination Product by the fraction A/(A+B), where A is the gross selling price
of the Product sold separately in the country of sale and B is the gross selling
price of the other product(s) or component(s) sold separately in the country of
sale. In the event that no such separate sales are made, Net Sales, for purposes
of determining royalty payments on such Combination Products, shall be a
reasonable apportionment of the gross amount invoiced therefor based upon the
relative contribution of the Products to the price of the Combination Product.
Such apportionment shall be negotiated in good faith between the parties and
such apportionment shall be established prior to the time that a party hereto
shall have the right to sell such Combination Products.
1.17 "NATURAL PRODUCTS CHEMISTRY ISOLATION AND IDENTIFICATION" OR "NPCH"
means the process whereby Extracts agreed upon by Chiron and Phytera pursuant to
Section 3.3 are analyzed by Phytera for the identification of Validated Lead
Structures.
1.18 "OPTIONED VALIDATED LEAD STRUCTURE" OR "OVLS" means a compound as to
which the parties have identified a Validated Lead Structure, and is contained
within a Optioned Validated Lead Structure Series.
1.19 "OPTIONED VALIDATED LEAD STRUCTURE SERIES" OR "OVLSS" means the
compound series which contains all Validated Lead Structures for any Target,
which compound series is the subject of Chiron's OVLS Declaration referenced in
Article 5.
1.20 "OVLS EVALUATION LICENSE AND OPTION TERM" shall have the meaning
referenced in Article 5 and Section 14.3 herein.
3
<PAGE>
1.21 "PATENT" means a governmental grant in any country, and any
provisional or regular application therefor and any divisions or continuations
in whole or in part thereof, of exclusive rights to the practice of an invention
or discovery. Any subsequent addition, extension, registration, confirmation,
reexamination, reissue, supplementary protection certificate or renewal of such
governmental grant is included. Patents include any Patent owned, licensed or
otherwise acquired by Phytera which is useful or necessary in the development or
commercialization of Optioned Validated Lead Structures, Licensed Compounds or
Products, including, without limitation, Pre-LC Declaration Patents, Post-LC
Declaration Patents, or Phytera Independent Patents. Expressly excluded from
Patents are any patents claiming inventions discovered or reduced to practice by
Chiron outside of this Agreement and the collaboration contemplated herein,
including, without limitation, Chiron patents covering libraries or compounds
outside the scope of this Agreement.
1.22 "POST-LC DECLARATION PATENTS" means, with respect to any Licensed
Compound, all Patents claiming Products or Licensed Compounds, and any and all
derivatives thereof, and methods of making or using Licensed Compounds or
formulations of Licensed Compounds and Products, which are filed after the LC
Declaration Date, regardless of inventorship.
1.23 "PRE-LC DECLARATION PATENT" means, with respect to any Licensed
Compound and its precursor or related compounds and any analogues or derivatives
thereof (including, without limitation, Optioned Validated Lead Structures), all
Patents claiming such precursor or related compounds and any analogues or
derivatives thereof and methods of making or using Licensed Compounds or
formulations of Licensed Compounds filed prior to the LC Declaration Date,
regardless of inventorship.
1.24 "PRIMARY PRODUCT" means a compound which is a Licensed Compound or a
compound within the Derivative Compound Series of such Licensed Compound, which
arises as a result of the activities referenced in this Agreement and is
discovered within five years after the LC Declaration Date for the Licensed
Compound in question, for which Chiron, its Affiliate or licensee has received
governmental health regulatory approval to market and sell in a country(s).
1.25 "PRODUCT" means a Primary Product, Secondary Product, Tertiary
Product or Exempt Product.
1.26 "PRODUCT PATENT" means, with respect to a Product, an issued Patent
containing valid issued claims directed to such Product or methods of making or
using a Product or formulations of a Product, which patent claims are directed
to subject matter conceived or reduced to practice as a result of the activities
referenced in this Agreement.
1.27 "RESEARCH FIELD" means the screening of natural products against
Targets, for the identification and commercialization of compounds useful as
healthcare products.
1.28 "SCIENTIFIC COMMITTEE" means the committee referenced in Article 11.
1.29 "SECONDARY PRODUCT" means a compound which is based on a Licensed
Compound but which is outside the Derivative Compound Series for such Licensed
Compound, which arises as a result of the activities referenced in this
Agreement and which is discovered within five (5) years after the LC Declaration
Date for the relevant Licensed Compound in
4
<PAGE>
question, for which Chiron, its Affiliate or licensee has received governmental
health regulatory approval to market and sell in a country(s).
1.30 "PHYTERA INDEPENDENT PATENT" means an issued patent owned by Phytera
which contains issued valid claims directed to a process, method or composition
of matter practiced by Chiron in making or using a Tertiary Product, which
process, method or composition of matter was discovered by Phytera independently
of this Agreement.
1.31 "TERTIARY PRODUCT" means a compound which is not a Primary or
Secondary Product, but which is covered by a Phytera Independent Patent.
1.32 "TARGETS" means the Targets referenced in Exhibit A.
1.33 "VALIDATED HIT EXTRACT" OR "VHE" means an Extract with appropriate
evidence of biological activity in an Assay sufficient to warrant progression to
NPCII as determined by the Scientific Committee from time to time.
1.34 "VALIDATED LEAD STRUCTURE" means an individual compound as to which
Phytera (or, if applicable, Chiron) has completed NPCII, has identified the
compound's chemical structure and verified its biological activity in primary
and secondary screens.
1.35 "VLS EVALUATION TERM" shall have the meaning referenced in Section
14.2 herein.
2. SCOPE OF THE COLLABORATION
2.1 Exclusive Collaboration.
During the Collaboration Term, Phytera shall collaborate exclusively with
Chiron in the Research Field. Further, Phytera agrees that its rights to (a)
undertake any natural product screening or other drug discovery and development
activity against Targets in the Research Field for any third party or on its own
behalf, or (b) supply any Extracts to or undertake any screening activities for
any third party for screening against any Targets in the Research Field shall be
subject to the Non-Competition Covenants referenced in Article 9 herein.
3. COLLABORATION WORKPLAN
This Article 3 outlines the schedule of activities associated with Extract
delivery, screening, compound identification, structural analysis, reporting of
compound data and other activities to be undertaken by the parties hereto, which
schedule shall be reviewed and updated by the Scientific Committee from time to
time. Phytera shall notify Chiron of any problems or projected delays in
meeting the timelines referenced herein.
3.1 DELIVERY OF EXTRACTS.
5
<PAGE>
No later than [ ]* after the Effective Date Phytera will deliver to
Chiron for natural product screening [ ]* ExPAND and uMARINE Extracts (the
"Initial Extracts") with appropriate corresponding documentation. With respect
to ExPAND Extracts, such documentation shall indicate the number of extracts
from various plant orders (as represented on a phylogenic tree) and the number
of species represented in the Extracts. With respect to uMARINE Extracts, the
documentation shall indicate the geographic locations from which the samples
used to derive the Extracts were sourced and the type of microorganisms (e.g.,
fungus, actinomycetes or eubacterium) represented in the Extracts. Such
Extracts shall be selected by Phytera from its library of existing Extracts in
an effort to achieve the broadest possible chemical diversity, taking into
consideration phylogenic and habitat characteristics. Extracts selected by
Phytera shall be supplied in a form generally compatible with Chiron's assay
protocols based on Chiron's test of controls previously supplied by Phytera.
3.2 SCREENING AND SECONDARY TESTS.
(a) Chiron shall conduct primary screening of the Initial Extracts
against the Targets. The parties agree that Chiron shall have
the right to screen any or all of the Extracts provided by
Phytera hereunder against any or all of the Targets. It is
anticipated that Chiron will use commercially reasonable efforts
to conclude primary screening within [ ]* following Chiron's
receipt of the Initial Extracts, and shall attempt to conclude
primary screening of approximately [ ]* of the Initial Extracts
against [ ]* Targets within [ ]* following Chiron's receipt of
the Initial Extracts.
(b) Chiron shall conduct secondary in vitro or in vivo evaluation of
the Initial Extracts, or fractions thereof as necessary, to
better define activity and specificity parameters for the
selection of Validated Hit Extracts for submission to NPCII.
(c) When necessary and mutually agreed, Chiron will transfer
appropriate assays, protocols, and reagents to Phytera, solely
for Phytera's internal use in carrying out NPCH pursuant to this
Agreement. In the event that both parties agree to a transfer
pursuant to this Section 3.2(c), Chiron shall reimburse
Phytera's fairly allocable out of pocket travel and equipment
costs (e.g., excluding FTE costs under Section 6.2) attributable
to such transfer and subsequent performance of assays and NPCH
activities conducted by Phytera pursuant to this Agreement. As a
condition of such reimbursement, Phytera shall submit its
estimate of such costs prior to such transfer. Further, Phytera
shall deliver extracts and other necessary reagents to Chiron's
facilities, and Chiron shall have the right to conduct assays in
support of NPCII activities at its own facilities, in the event
that Chiron determines in its reasonable discretion that the
costs associated
________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
6
<PAGE>
with the transfer of assays, protocols and reagents to Phytera
referenced in this Section 3.2 (c) are unreasonable or
unacceptable to Chiron. Chiron grants Phytera no other right or
license to any Chiron materials, Patents or Information.
3.3 NPCHII.
(a) In conjunction with Chiron's conduct of the activities
referenced in Section 3.2 above with respect to other Targets,
Chiron and Phytera shall review the screening data generated
pursuant to Section 3.2 for each Target, and the parties shall
jointly select [ ]* Extracts which demonstrate sufficient
activity, specificity or other characteristics for entry into
NPCH ("Validated Hit Extracts.")
(b) On a Target by Target basis, with respect to the Validated Hit
Extracts, Phytera shall undertake all activities reasonably
necessary to obtain Validated Lead Structures for each of the [
]* Validated Hit Extracts, which activities shall commence
subsequent to the joint selection of Validated Hit Extracts from
[ ]* Targets. Phytera shall provide up to [
]* to perform such activities, subject to receipt of the R&D FTE
Support payment referenced in Section 6.2(a). It is anticipated
that the activities referenced in this Section 3.3 (b) shall be
completed within the Collaboration Term. The parties will
mutually agree to extend the Collaboration as reasonably
necessary to complete these activities.
3.4 REPORTING.
As soon as practicable, but in no event less than thirty (30) days after
the completion of each phase of the Collaboration Workplan referenced above for
each Target, each party shall provide the other party with a written report in
reasonable detail summarizing the activities undertaken during that phase. In
the case of Phytera, such reports shall include documentation describing the
biological sources of hit extracts under review, along with available
information describing the chemical characterization of such extracts, fractions
or isolates thereof. The parties shall confer together through the Scientific
Committee by mutually acceptable means, including, including, without
limitation, by telephone or by means of a video conference facility for the
purpose of discussing the report and recommending further activities.
3.5 OTHER DELIVERABLES.
________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
7
<PAGE>
(a) At any time during the Collaboration Term, in addition to the
reports referenced in Section 3.4 Phytera will, if requested by
Chiron, exercise best efforts to provide to Chiron reasonable
additional quantities of Validated Hit Extracts for Chiron's use
in (i) confirming activity in primary and secondary assays; and
(ii) confirming selectivity and other pharmacologically relevant
characteristics, subject to Chiron's reimbursement of Phytera's
fairly allocable costs.
(b) At any time prior to expiration of the VLS Evaluation Term,
Phytera will, if requested by Chiron, exercise best efforts to
provide larger amounts of Validated Lead Structures or Validated
Hit Extracts, subject to Chiron's reimbursement of Phytera's
fairly allocable costs.
(c) At any time prior to expiration of the OVLS Evaluation License
and Option Term, if requested by Chiron, Phytera shall transfer
to Chiron its cell culture materials and protocols necessary for
scale-up and production of OVLS, solely for Chiron's evaluation
purposes, subject to Chiron's reimbursement of Phytera's fairly
allocable costs and Chiron's compliance with the confidentiality
provisions of Article 12 herein. Phytera grants Chiron no other
rights or licenses to materials referenced in this Section 3.5
(c).
3.6 PURCHASE OF ADDITIONAL EXTRACTS.
At any time prior to the expiration of the OVLS Evaluation License and
Option Term, on a Target by Target basis, Chiron shall have the right to order
and screen, and Phytera shall have the obligation to deliver additional ExPAND
and uMARINE Extracts (the "Additional Extracts"), subject to availability of
such Extracts. Such Additional Extracts shall be subject to the terms of this
Agreement as if included in the Initial Extracts, subject to the provisions of
Section 6.4 regarding payment for the Additional Extracts.
4. OPTIONED VALIDATED LEAD STRUCTURES
4.1 Declaration of Optioned Validated Lead Structure Series by Chiron..
For a period of [ ]* after Chiron receives from
Phytera a complete report detailing all information relevant to the Validated
Lead Structures for the Target in question, (the "VLS EVALUATION TERM") Chiron
shall have the right to undertake whatever activities it deems necessary to
determine the suitability of the Validated Lead Structures for its commercial
activities, and shall have the right to declare by notice to Phytera that it
wishes to acquire the OVLS Evaluation
_________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
8
<PAGE>
License referenced in Section 4.2 below with respect to any or all Validated
Lead Structures for the given Target (the "OVLS DECLARATION"). Upon Chiron's
exercise of the OVLS Declaration, and subject to Section 4. 1 (a) and Chiron's
payment obligations referenced in Section 6.5, the entire series of compounds
which are the subject of such OVLS Declaration, and any analogs or derivatives
thereof, shall be deemed the Optioned Validated Lead Structures Series, and all
compounds contained within the Optioned Validated Lead Structure Series shall be
deemed Optioned Validated Lead Structures.
(a) In the event that Phytera or a third party collaborator of
Phytera independently of this Agreement discovers verifiable
biological activity for a Validated Lead Structure declared by
Chiron, and such discovery has occurred before the discovery of
biological activity for the VLS by Phytera or Chiron under this
Agreement (a "Prior Discovery"), and such VLS is therefore
encumbered, either by virtue of a pre-existing obligation to a
third party or under an internal Phytera discovery program,
Chiron shall not have the right to obtain an OVLS Evaluation
License with respect to such Validated Lead Structure(s) (an
"Exempt VLS"), provided that:
(1) Phytera shall notify Chiron in writing within [
]* following Phytera's characterization of such VLS
that any such Exempt VLS is the subject of a Prior
Discovery, and
(2) Phytera shall provide Chiron a written report which
identifies when such Prior Discovery occurred, and which
otherwise substantiates Phytera's claim that such compound
is an Exempt VLS (e.g., a structural data as shown by NMR or
HPLC analysis in a report showing the date such data was
discovered.)
4.2 OVLS EVALUATION LICENSE.
Once Chiron has made the OVLS Declaration pursuant to Section 4. 1, Phytera
shall grant Chiron an exclusive worldwide license, with right to suublicense,
under all Patents and Information owned, licensed, acquired or controlled by
Phytera, to undertake research and development activities with respect to all
Optioned Validated Lead Structures which are the subject of the OVLS Declaration
and derivatives and analogues thereof (the "OVLS EVALUATION LICENSE") for a
period of [ ]* after the OVLS Declaration (the "OVLS EVALUATION LICENSE AND
OPTION TERM") During such OVLS Evaluation License Option Term, and any relevant
term of non-competition referenced in Article 9, Phytera shall not engage in any
screening, research or development activities with respect to any Optioned
Validated Lead Structures on its own or enter into any third party agreements
with respect to such activities, or grant any other parties rights to any
Optioned Validated Lead Structures.
_____________________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately wiht the Securities and Exchange
Commission.
9
<PAGE>
5. LICENSED COMPOUNDS
5.1 CHIRON'S LICENSED COMPOUND DECLARATION AND EXERCISE OF OPTION TO
LICENSED COMPOUND.
(a) At any time within the OVLS Evaluation License and Option
Term., Chiron may secure the License referenced in Section
5.2 with respect to any or all compounds contained within a
Optioned Validated Lead Structure Series by notifying
Phytera of Chiron's interest in obtaining the License
referenced in Section 5.2 (the "LC DECLARATION") Chiron's
provision of the LC Declaration to Phytera shall constitute
Chiron's exercise of its option to the Optioned Validated
Lead Structure Series in question, and upon Phytera's
receipt of Chiron's LC Declaration (the "LC DECLARATION
DATE"), any and all compounds which are the subject of
Chiron's LC Declaration will be deemed to be a Licensed
Compound(s) subject to the License referenced in Section
5.2.
(b) Phytera shall execute (and shall ensure that any of its
employees execute and that any third party involved in the
discovery or invention over whom they have control executes)
all necessary documents to perfect Chiron's rights pursuant
to this Article 5.
5.2 LICENSED COMPOUND AND PRODUCT LICENSE.
(a) In consideration of the License Fee referenced in Section
6.6, upon Phytera's receipt of the LC Declaration referenced
in Section 5.1, Phytera shall immediately grant and does
hereby grant to Chiron an exclusive worldwide license, with
right to sublicense, to make, have made, use, import, offer
for sale, sell, have sold or otherwise commercialize any
Product based on or derived from a Licensed Compound and any
analogues or derivatives thereof under any and all Patents,
other intellectual property and Information owned, licensed,
acquired or controlled by Phytera as of the LC Declaration
Date, and any other Patent(s) or Information owned,
licensed, acquired or controlled by Phytera before or after
the LC Declaration Date (the "LICENSE").
6. PAYMENTS
Chiron shall make payments to Phytera as follows:
10
<PAGE>
6.1 EXTRACT DELIVERY PAYMENT. For Phytera's delivery to Chiron of the
Initial Extracts referenced in Section 3.1, [ ]* payable within
[ ]* following such delivery.
6.2 R&D FTE SUPPORT. Subject to Sections 6.2(a)(b) and (c), for Phytera's
provision of [ ]* in Phytera's performance of the NPCII Program
(the "Total FTE Payment"), Chiron shall pay Phytera a total of up to [
]*, as follows:
(a) Chiron shall pay Phytera [ ]* of the Total FTE
Payment within [ ]* after the parties have selected
Validated Hit Extracts pursuant to Section 3.3
(b) Chiron shall pay to Phytera [ ]* of FTE Payment
upon [
]*
(c) Phytera shall keep and provide Chiron with accounting
records for its FTE efforts undertaken pursuant to this
Section 6.2. In the event that Phytera does not utilize
[ ]* in its performance of the NPCII Program,
Chiron may elect to apply such unused FTE effort to other
activities performed by Phytera under this Agreement, as
mutually agreed by the parties. In the event that the
parties are unable to mutually agree upon other activities
to be performed by Phytera, Phytera shall provide Chiron
with a cash payment equivalent to such unused FTE effort
within [ ]* following the conclusion of the Collaboration
Term.
6.3 SCALE-UP. In the event that Phytera engages in scale up manufacturing
of VHEs or OVLSs pursuant to Section 3.5, Chiron shall reimburse Phytera for its
fairly allocated costs associated with such scale up manufacturing.
6.4 ADDITIONAL EXTRACTS. In the event that Chiron purchases Additional
Extracts pursuant to Section 3.6, Phytera shall deliver such Extracts to Chiron.
For each Additional Extract delivered by Phytera to Chiron, and the right to
screen such Additional Extract against one (1) Target, Chiron shall pay Phytera
[ ]*. Chiron shall have the right to screen any and all such Additional
Extracts against any and all of the Targets, but shall pay Phytera an additional
[ ]* for each additional Target (i.e, second, third, fourth and fifth
Targets) against which the Additional Extract is screened. All payments made by
Chiron under this Section 6.4 shall be creditable, on a Target by Target basis,
against the non-competition fee referenced in Section 9.4.
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
11
<PAGE>
6.5 OVLS EVALUATION LICENSE AND OPTION FEE.
Within [ ]* following the OVLS Declaration by Chiron referenced
in Section 4. 1, Chiron shall pay to Phytera a non-refundable fee of [ ]*
(the "OVLS Evaluation License and Option Fee") for the exclusive right to
evaluate such Optioned Validated Lead Structure(s) and derivatives and analogues
thereof as a potential Licensed Compound until the conclusion of the OVLS
Evaluation License and Option Term. Such fee shall be a one time only obligation
per Optioned Validated Lead Structure Series and shall not be credited against
any royalty or other payment payable by Chiron to Phytera under this Agreement.
6.6 LICENSE FEE.
With respect to each Licensed Compound Series for which Chiron has taken a
License by making the LC Declaration referenced in Section 5.1, Chiron shall pay
Phytera within [ ]* after procuring such License a fee of [ ]* (the
"License Fee"). The License Fees paid by Chiron for Licensed Compounds shall not
be credited against any royalty payable by Chiron to Phytera under this
Agreement.
6.7 PAYMENT TERMS AND ARRANGEMENTS. All payments due by Chiron to Phytera
pursuant to this Agreement shall be (a) made payable to Phytera; and (b) made by
bank draft or telegraphic transfer to a bank account nominated by Phytera; and
(c) payable in United States currency, converted in accordance with Chiron's
standard accounting procedures, as modified by Chiron from time to time and (d)
unless otherwise agreed pursuant to this Agreement paid within [ ]* of any
notification or declaration pursuant to this Agreement.
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
12
<PAGE>
7. MILESTONE PAYMENTS
7.1 MILESTONE PAYMENTS.
Chiron shall pay to Phytera the milestone payments referenced below in
Section 7.2 with respect to the Licensed Compounds, subject to the foregoing:
(a) Chiron's milestone payment obligations shall apply only to
Licensed Compounds which are submitted as a product for an
indication which is separate and distinct from indications for
which other Licensed Compounds were submitted (e.g., in the event
that two Licensed Compounds are submitted to clinical evaluation
for the same indication, the second Licensed Compound shall not
be subject to additional milestone payments).
(a) With respect to the [ ]* Licensed Compounds
submitted to clinical evaluation as separate and distinct
products which satisfy the conditions referenced in Section
7.1(a), Chiron's milestone payments shall be [ ]* of the
payments referenced in Section 7.2. With respect to the [ ]*
Licensed Compound submitted to clinical evaluation as a separate
product for separate indication, the milestones payments
referenced in Section 7.2 shall be reduced by [ ]*. With
respect to the [ ]* Licensed Compound submitted to clinical
evaluation as a separate product for a separate indication, and
[ ]* Licensed Compounds submitted to clinical evaluation
as separate products for separate indications, the milestone
payments referenced in Section 7.2 shall be reduced by [ ]*.
(b) In the event that any Licensed Compound has been submitted to
clinical evaluation once for any indication, Chiron shall have no
obligation to pay any milestone fees in the event that the same
Licensed Compound is submitted to any subsequent clinical
evaluations for any indication.
(b) With respect to derivative compounds of Licensed Compounds which
are discovered more than [ ]* after the Declaration Date for the
Licensed Compound in question, Chiron shall have no obligation to
make the milestone payments referenced in this Article 7.
7.2 Subject to Sections 7.1 and 7.3, Chiron shall make the following
milestone payments within [ ]* of the occurrence of the following events:
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
13
<PAGE>
(a) [ ]* upon either (a) the [
]* or (b) the [
]* whichever occurs first; and
(b) [ [ * upon [
]*; and
(c) [ ]* upon [
]*; and
(d) [ ]* upon [
]*; and
(e) [ ]* at such time as [
]*.
7.3 APPLICATION OF MILESTONE PAYMENTS AS CREDITS AGAINST ROYALTIES.
(a) [
]*, and;
(b) [
]*.
8. ROYALTIES
8.1 PAYMENTS ON NET SALES OF PRODUCTS. Chiron shall pay to Phytera
royalties on the Net Sales of Products sold by Chiron, its Affiliates or any of
its sublicensees on a country by country basis, during the royalty terms
specified in Section 8.2, at the following royalty rates:
(a) [ ]* of Net Sales of [ ]*;
(b) [ ]* of Net Sales of [ ]*; and
(c) [ ]* of Net Sales of [ ]*.
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
14
<PAGE>
No royalty shall be payable by Chiron with respect to Exempt Products.
Chiron's payment obligations under this Section 8.1 shall be due concurrently
with the statement referenced in Section 8.3.
8.2 TERM OF ROYALTY OBLIGATION.
(a) Subject to Section 8.2(b) and 8.2(c), Chiron's royalty
obligations to Phytera as to each Primary Product, Secondary
Product or Tertiary Product (excluding Exempt Products) as
provided in Section 8.1 shall terminate on a country-by-
country basis, on the [
]*.
(b) Subject to Section 8.2(d), Chiron shall pay royalties on
Primary Products and Secondary Products pursuant to Section
8.1 in any country(s) where no Product Patent has issued,
regardless of whether or not there are pending unissued
Product Patent claims in such country, provided that
Chiron's royalty obligations to Phytera as to each Primary
Product and Secondary Product sold in such country shall
terminate on the [ ]*. If, and at such time as, a
Product Patent issues in such country after such [ ]*,
Chiron's royalty obligation shall be revived and shall
thereafter terminate with respect to Primary Product(s) and
Secondary Product(s) sold in such country upon the [
(c) If no Product Patent including at least one claim covering
the Primary Product or Secondary Product has been granted in
the country of sale within [ ]* from the filing date
of such Product Patent in that country, and at such time any
product is sold in that country which (i) would infringe a
claim of the Product Patent(s) or (ii) has the same or
closely related chemical formula as the Product
("Competitive Product"), then the royalties owing to Phytera
with respect to the Primary Product or Secondary Product
shall be reduced by [ ]* (the "Reduced Royalty"). If no
Product Patent issues in such country prior to the [ ]*,
upon such anniversary Chiron's obligation to pay the Reduced
Royalty on Net Sales of Primary Product or Secondary Product
in such country shall terminate, unless and until such time
as a Product Patent issues in such
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
15
<PAGE>
country, in which case Chiron's royalty obligation shall
terminate upon [
]*.
Upon expiration of Chiron's royalty obligations referenced in this Section
8.2 on a Product by Product and country by country basis, Chiron shall have a
fully paid up license under all Patents and intellectual property of Phytera
with respect to such Product in such country.
8.3 STATEMENT RELATING TO ROYALTIES.
For the purpose of notifying and paying royalties under Section 8.1 Chiron
shall, within [ ]* after each six month period from the date of the first
sale of each Product, furnish to Phytera a statement showing the Net Sales of
Products sold by Chiron, Affiliates of Chiron or its sublicensees during the six
months immediately preceding the end of such six month period and the royalties
and their method of calculation. The amount due as royalty in accordance with
the statement referred to in this Section 8.3 shall be paid by bank draft
accompanying the statement or by telegraphic transfer to an account nominated by
Phytera and shall be paid to Phytera by Chiron in United States currency.
8.4 RETENTION OF RECORDS.
At its usual place of business, Chiron shall keep true and accurate records
of all matters connected with the manufacture and sale of Products and shall
also keep proper books of account relating to money payable to Phytera hereunder
containing such true entries complete in every particular as may be necessary
for enabling the amount of such money to be conveniently ascertained.
8.5 RIGHT OF INSPECTION.
Phytera shall have the right at its own expense to appoint an independent
certified public accounting firm reasonably acceptable to Chiron and under
customary confidentiality obligations to Chiron, to audit the records and books
of account referred to in Section 8.4 solely for the purpose of verifying the
royalty payments made by Chiron to Phytera. Chiron shall give such accounting
firm all necessary assistance, including access to facilities and other
documents, subject to reasonable prior notice and during normal business hours,
to enable the amount of any royalty payable under this Agreement to be
ascertained or verified. Phytera's right of audit may be exercised no more
frequently than once in any calendar year. The accounting firm shall disclose to
Phytera only information relating solely to the accuracy of the royalties paid
and associated royalty reports.
9. NON-COMPETITION COVENANTS
9.1 During the Collaboration Term Phytera shall, without the payment of any
additional consideration by Chiron, refrain from engaging in research and
development activities, internally
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
16
<PAGE>
or in collaboration with other parties, with respect to the use of any Phytera
Extracts against any Targets.
9.2 Until the expiration of the VLS Evaluation Term, on a Target by Target
basis, Phytera shall, without the payment of any additional consideration from
Chiron, refrain from engaging in research and development activities, internally
or in collaboration with other parties, with respect to the use of any Extracts
purchased by Chiron pursuant to Article 3 against any Targets for which Chiron
is evaluating Validated Lead Extracts or Validated Lead Structures.
9.3 During the OVLS Evaluation License and Option Term, on a Target by
Target basis, Phytera shall:
(a) without payment of additional consideration from Chiron,
refrain from engaging in research and development activities, internally or in
collaboration with other parties, with respect to the use of any Extracts
purchased by Chiron pursuant to Article 3 against any Targets for which Chiron
has exercised its OVLS Declaration, and
(b) refrain from engaging in research and development
activities, internally or in collaboration with other parties, with respect to
the use of any and all Phytera extracts against a specified Target, on a Target
by Target basis, for which Chiron has exercised its OVLS Declaration pursuant to
Article 4, provided that Chiron paid Phytera a non-competition fee of [ ]* in
lieu of the OVLS Evaluation License and Option Fee referenced in Section 6.5
(the "OVLS Non-Competition Covenant").
9.4 Following the conclusion of the OVLS Evaluation License and Option
Term, on a Target by Target basis, Phytera shall for a period of [ ]* refrain
from engaging in research and development activities, internally or in
collaboration with other parties, with respect to the use of any and all Phytera
extracts against any specified Target, on a Target by Target basis, for which
Chiron has exercised its OVLS Declaration/Option, provided that Chiron pays
Phytera a non-competition fee in the amount of [ ]*, which fee shall be
in lieu of the License Fee referenced in Section 6.6 and shall be subject to the
credit referenced in Section 6.4 herein (the "Commercial Non-Competition
Covenant").
10. PATENTS
10.1 FILING AND PROSECUTION OF PATENTS.
(a) Ownership of Patents and Prosecution of Pre-LC Declaration
----------------------------------------------------------
Patents. All Patents, including Pre-LC Declaration Patents and
--------
Post-LC Declaration
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
17
<PAGE>
Patents, shall be owned by and filed in the name of the party to
whom inventorship is attributed under United States Patent Law
(i.e., patents claiming sole Phytera inventions shall be in the
name of Phytera, patents claiming sole Chiron inventions shall be
in the name of Chiron, and patents claiming joint inventions
shall be in the name of Phytera and Chiron), subject to any
assignment obligations referenced herein. The owner of any Pre-LC
Declaration Patent shall be responsible for preparing, filing,
prosecuting and maintaining its Pre-LC Declaration Patents.
(b) Assignment of Pre-LC Declaration Patents. Within thirty (30) days
----------------------------------------
following the LC Declaration Date Phytera shall assign to Chiron
at Chiron's cost all of Phytera's interest in any Pre-LC
Declaration Patents which claim compositions of matter or uses
which relate primarily to Licensed Compounds, or which claim
methods of manufacturing compounds which relate exclusively to
Licensed Compounds.
(c) Assignment of Post-LC Declaration Patents. After the LC
-----------------------------------------
Declaration Date, initial ownership of all inventions relating to
the Licensed Compound shall be based upon inventorship as
determined by U.S. Patent Law, and Post-LC Declaration Patents
shall initially be owned by and filed in the name of the party to
whom inventorship is attributed under United States Patent Law.
After the LC Declaration Date, and upon Chiron's request, Phytera
shall assign to Chiron all of Phytera's interest in any and all
Post-LC Declaration Patents which claim compositions of matter or
uses which relate primarily to Licensed Compounds, or which claim
methods of manufacturing compounds which relate exclusively to
Licensed Compounds.
(d) Prosecution of Post-LC Declaration Patents. Chiron shall be
------------------------------------------
responsible for preparing, filing, prosecuting to grant and
maintaining any Post-LC Declaration Patents claiming inventions
invented solely by Chiron, and any Post-LC Declaration Patents
which are assigned to Chiron, including, without limitation,
Post-LC Declaration Patents claiming inventions invented solely
by Phytera or jointly invented by Chiron and Phytera. Chiron
shall be obligated to pay for the preparation, filing,
prosecution or maintenance of any Patents which are assigned to
Chiron or exclusively licensed to Chiron under this Agreement, to
the extent provided in Section 10.1(g).
(e) It is the intent of the parties that intellectual property shall
be protected as effectively as possible for the mutual benefit of
Phytera and Chiron and in support of such intent each party shall
supply to the other party any and all data generated by either
party in respect of any compound to which Chiron has rights under
this Agreement.
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(f) The parties shall collaborate so that the most effective
patenting strategy is implemented to give Chiron exclusivity in
respect of any Optioned Validated Lead Structure, Licensed
Compound, Licensed Compound or Product, both in respect of time
before publication and scope of patent claims. Further, to
facilitate the assignment of Phytera Patents to Chiron pursuant
to Section 10. 1 (b) and 10. 1 (c), in the event a Phytera Patent
contains subject matter directed to the composition, use or
making of Licensed Compounds, and also contains subject matter
not directed to the Licensed Compounds (i.e., subject matter
which relates generally to Phytera's business activities outside
the scope of this Agreement) the patent counsels of Phytera and
Chiron shall, where possible and practical, cooperate to develop
patenting strategies to generate a set of Patent(s) which contain
only subject matter directed to the composition, use or making of
Licensed Compounds (e.g., divisional practice and the like) which
patent(s) shall be assigned to Chiron in accordance with this
Section, and a set of patent(s) which claim the subject matter
not directed to the Licensed Compounds. In the event that (1) a
Post LC Declaration Patent or Pre-LC Declaration Patent contains
claims directed to compositions of matter or uses or
manufacturing methods which relate to Licensed Compounds, and
also contains claims which do not relate to Licensed Compounds;
(a "Mixed Patent") and (2) it is not practical or feasible to
divide the Mixed Patent to generate a set of Patents which
contain only subject matter directed to the composition, use or
making of Licensed Compounds; and (3) the claims of the Mixed
Patent which do not relate to the Licensed Compound are of
importance or relevance to Phytera's business activities and
third party obligations outside of this Agreement; and (4) there
is a good faith dispute between the parties as to whether the
claims of such Mixed Patent is subject to an assignment
obligation pursuant to Sections 10.1(b) and (c), (i.e, whether
the claims of such Mixed Patent relate primarily to Licensed
Compounds) (the "Mixed Patent Assignment Dispute") the parties
shall discuss in good faith whether such Mixed Patent should be
assigned to Chiron, and Phytera shall have no obligation to
assign such Mixed Patent unless both parties have agreed to such
assignment, provided that Phytera shall not unreasonably withhold
its agreement to such assignment.
(g) Responsibility for Patent Prosecution Costs. Chiron shall
-------------------------------------------
reimburse Phytera for its costs incurred in prosecuting Phytera
owned Pre-LC Declaration Patents pursuant to Section 10.1(a),
provided that:
(1) Such Phytera owned Pre-LC Declaration Patents relate
primarily to the Licensed Compounds (i.e., the claims of
such Patents are directed primarily to the composition, uses
or methods of making the Licensed Compounds, and are not
directed primarily to methods of making compounds which have
broad applicability to Phytera's business outside the scope
of this Agreement).
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(2) Phytera shall consult with Chiron prior to undertaking
significant patent prosecution activities which would incur
significant expense; and
(3) Phytera shall submit to Chiron customary invoices setting
forth in reasonable detail the patent prosecution expenses
for which Phytera seeks reimbursement; and
(4) Chiron's obligation to pay for patenting activities for any
Pre-LC Declaration Patent shall cease at such time as
Chiron's right to acquire a License to such Pre-LC
Declaration Patent under this Agreement expires, or Chiron
indicates to Phytera that it does not wish to obtain a
License to such Pre-LC Declaration Patent. After the LC
Declaration Date, Chiron shall bear the costs of patenting
activities with respect to any Pre-LC Declaration Patents or
Post-LC Declaration Patents which are assigned to Chiron
(5) Further, Chiron shall bear the costs of patenting activities
with respect to Pre-LC Declaration Patents or Post-LC
Declaration Patents which are exclusively licensed to Chiron
and which relate primarily to the Licensed Compounds (i.e.,
Patents in which the claims are directed primarily to the
composition, uses or methods of making the Licensed
Compounds, and are not directed primarily to methods of
making compounds which have broad applicability to Phytera's
business outside the scope of this Agreement).
10.2 INFRINGEMENT.
(a) Each party shall promptly notify the other party in writing of
any alleged or threatened infringement of an issued Patent of
which such party becomes aware, provided that Chiron is
commercializing a Product under such Patent. Chiron shall have
the right to bring and control any action or proceeding with
respect to such alleged or threatened infringement (a
"PROCEEDING") at its own expense and represented by legal
advisers of its own choice.
(b) In the event Chiron brings a Proceeding, Phytera shall reasonably
cooperate with Chiron including, if required, undertaking any
action or agreeing to be joined as a party to such Proceeding,
the reasonable costs of which shall be at Chiron's expense.
(c) In the event Chiron commences a Proceeding, and the subject of
such Proceeding is a Product Patent, any recovery realized as a
result of such Proceeding which is directly attributable to
infringement of the Product Patent, after reimbursement of any
and all litigation expenses and reasonable costs of Chiron, shall
be treated as Net Sales under this Agreement.
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(d) With respect to an actual infringement, if within one hundred
twenty (120) days following the notice of infringement referenced
in Section 10.2(a), Chiron has not brought a Proceeding or
commenced licensing negotiations to abate such actual
infringement, Phytera shall have the. following rights:
(1) In the event that Chiron possesses a sole or joint ownership
interest in the Patent which is the subject of such
infringement, or such Patent is solely owned by Phytera but
covers (i.e., contains claimsdirected to) a Chiron Product
(a "Phytera Owned Product Patent"), Phytera may propose to
Chiron that Chiron and Phytera participate in such
Proceeding as partners, with the understanding that Phytera
and Chiron shall share equally all costs and all recoveries
arising from the Proceeding unless otherwise mutually
agreed(the "Joint Proceeding"). If Chiron does not elect to
proceed with Phytera in a Joint Proceeding within sixty (60)
days after receiving Phytera's Joint Proceeding proposal,
Phytera may undertake a Proceeding on its own with respect
to a Phytera Owned Product Patent, provided that Phytera
shall consult with Chiron and shall obtain Chiron's consent
prior to undertaking any actions which would affect Chiron's
commercial interests with respect to such Phytera Owned
Product Patent, such consent not to be unreasonably withheld
or delayed, provided that Chiron shall be under no
obligation to consent to actions which would materially
affect Chiron's commercial interests.
10.3 INFRINGEMENT OF THIRD PARTY RIGHTS.
In the event that any allegation of infringement of any third party patent
rights is raised by a third party by reason of the exercise by Chiron or any of
its sub-licensees of any rights pursuant to this Agreement ("Third Party
Infringement Action") Chiron, or any sub-licensee of Chiron, as may be
determined by Chiron, shall have the right to control any defense of any such
Third Party Infringement Action at its own expense and represented by legal
advisers of its own choice. In the event that Phytera is named as a defendant or
otherwise becomes involved in such Third Party Infringement Action, Phytera
shall have the right, at its own expense, to be represented in any such action
by legal advisers of its own choice. In the event of such Third Party
Infringement Action, Phytera shall cooperate in good faith with Chiron or any
sub-licensee of Chiron (as the case may be) on a reasonable basis to negotiate
and settle any dispute with a Third Party in relation to such infringement or
alleged infringement of any Alleged Third Party Patent Rights and otherwise
resolve any such infringement or alleged infringement and secure Chiron's
continued rights to the Alleged Third Party Patent Rights, if necessary or
desirable.
10.4 COOPERATION IN CONNECTION WITH INFRINGEMENT DISPUTES.
In any suit or dispute involving infringement or alleged infringement by a
third party of a Product Patent (including Pre-LC Declaration Patents and Post-
LC Declaration Patents), or Third Party Infringement Action, the parties shall
cooperate fully and, upon the request and at the reasonable expense of Chiron,
Phytera shall make available to Chiron or its sub-licensees at reasonable times
and under appropriate conditions all relevant personnel, and the like which are
in its possession or control provided, however, that Phytera shall not be
obliged to provide such assistance if to do so would materially disrupt its
normal business activities.
11. SCIENTIFIC COMMITTEE AND REPORTING
11.1 ESTABLISHMENT AND PURPOSES.
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Phytera and Chiron shall coordinate the activities to be undertaken
pursuant to this Agreement by means of a joint committee consisting of an agreed
equal number of representatives from Chiron and Phytera (the "Scientific
Committee"). Decisions of the Scientific Committee shall be by consensus. The
Scientific Committee will meet at least during the Collaboration Term, VLS
Evaluation Term, or OVLS Evaluation License and Option Term at such times or at
such other locations as may be determined by Phytera and Chiron (including by
means of telephone or video conference) for the purpose of:
(a) reviewing the progress and the results of screening, NPCII and
related information and collaboration activities;
(b) discussing inventions arising from the collaboration and
patenting strategy for the benefit of both parties;
(c) discussing any reports made in the previous six months in
connection with any activities undertaken under this Agreement.
11.2 MINUTES OF SCIENTIFIC COMMITTEE.
Minutes of any meeting of the Scientific Committee shall be taken by a
representative of Phytera and/or Chiron and shall be circulated promptly after
the meeting for any comment by Phytera and Chiron. Once consensus has been
reached as to the contents of the minutes, the minutes shall represent the
formal decisions of the Scientific Committee.
12. CONFIDENTIALITY AND PUBLICATIONS
12.1 CONFIDENTIAL INFORMATION.
Except as otherwise provided in this Article 12, during the Agreement
Term, and thereafter for [ ]*, both parties shall maintain in confidence
and use only for purposes of this Agreement all information and data (herein
referred to as "Information") resulting from or related to or arising from the
activities of the parties hereunder which is supplied by the other party under
this Agreement.
The obligations of confidentiality shall not apply to any part of such
Information that:
(a) is or becomes published or otherwise part of the public domain
other than by acts of the party obligated not to disclose such
Information in the contravention of this Agreement;
(b) is disclosed to the receiving party by a third party, provided
such Information was not obtained by such third party directly or
indirectly from the other party under this Agreement;
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
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(c) prior to disclosure under this Agreement, was already in the
possession of the receiving party, provided such Information was
not obtained directly or indirectly from the other party under
this Agreement;
(d) is developed independently of the Information obtained from the
disclosing party, as demonstrated by written evidence;
(e) is required to be disclosed under any applicable legislation or
other legal requirement or under the rules or regulations of any
recognized stock exchange which are applicable to the disclosing
party or any of its Affiliates but only to the extent required;
or
(f) is disclosed by a party with the prior written consent of the
other party; or
(g) is otherwise agreed by the Parties can be disclosed.
12.2 PERMITTED DISCLOSURES.
To the extent it is reasonably necessary or appropriate to fulfill its
obligations or exercise its rights under this Agreement, a party may disclose
Information it is otherwise obligated under this Article not to disclose, to a
Affiliate or a potential licensee or sub-licensee on a need-to-know basis on
condition that such entities or persons agree to keep the Information
confidential for the same time periods and to the same extent as such party is
required to keep the Information confidential; and a party or any potential
licensee may disclose such Information to government or other regulatory
authorities to the extent that such disclosure is reasonably necessary to obtain
a Patent, or to secure authorization to conduct a clinical trial, or to market a
Product commercially.
12.3 PUBLICATION.
Notwithstanding the confidentiality obligations contained in this Article
12, each party recognizes the interest of the other in publishing results of its
scientific research to obtain recognition within the scientific community and to
advance the state of scientific knowledge. Both Parties also recognize their
mutual interest in obtaining valid Patent protection. Consequently, during the
term of this Agreement and thereafter until the date of expiration of the last
of the Patents, if any employee of a party (the Publishing Party) wishes to make
a publication (including any oral disclosure made without obligation of
confidentiality) relating to or arising out of the performance of that party's
obligations under this Agreement, the Publishing Party shall transmit to the
other party (the Reviewing Party) a copy of the proposed written publication at
least 60 days prior to submission for publication, or a summary in writing of
such oral disclosure at least 30 days prior to presentation. The Reviewing Party
shall have the right:
(a) to request modifications to the publication for Patent reasons;
and
(b) to request a delay in the proposed publication or oral
presentation in order to protect patentable information. If the
Reviewing Party requests such a delay, the Publishing Party shall
delay submission or presentation of the publication for a period
of 90 days to enable Patent applications protecting such
information to be filed. If the Reviewing Party reasonably claims
that such information, whether or not patentable, may have
significant commercial value and can be maintained as a trade
secret, the Publishing
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Party shall publish or disclose only such Information which would
not adversely affect such commercial value.
Upon the expiration of sixty (60) days from transmission to the Reviewing
Party, the Publishing Party shall be free to proceed with the written
publication or the presentation, respectively, unless the Reviewing Party has
requested the delay described above.
13. INDEMNITY BY CHIRON
13.1 Indemnity by Chiron.
Chiron shall indemnify and hold harmless Phytera and the officers,
directors employees and agents of Phytera from and against any and all
liability, loss, and damages they may suffer as the result of claims, demands,
costs or judgments which may be made or instituted against them arising directly
from the manufacture, use or sale by Chiron of Optioned Validated Lead
Structures, Licensed Compounds, or Products, or any negligent acts or omissions
by Chiron or third parties who are Chiron sub-licensees of the License
referenced in Section 5.2.
14. TERM AND EARLY TERMINATION
14.1 Collaboration Term. The Collaboration Term shall commence on [ ]*
and shall conclude on the date [ ]* after such date of delivery, unless
otherwise mutually agreed.
14.2 VLS EVALUATION TERM. With respect to each Target and on a Target by
Target basis, the VLS Evaluation Term shall commence on the date [ ]* and shall
conclude [ ]* after such date, unless otherwise mutually agreed.
14.3 OVLS EVALUATION LICENSE AND OPTION TERM. With respect to each Target,
and on a Target by Target basis, the OVLS Evaluation License and Option Term
shall commence on the date [ ]*, and shall conclude [ ]* after such date, unless
otherwise mutually agreed.
14.4 AGREEMENT TERM. Subject to Section 14.8 (Survival), and on a Target
by Target basis, this Agreement shall terminate upon [ ]* (the "AGREEMENT
TERM").
14.5 EXTENSION OF TERM.
_____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
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In the event that the Parties agree to extend the Term of this Agreement,
or any of the terms referenced in Sections 14.1, 14.2, 14.3 or 14.4, the parties
will negotiate mutually agreed terms and conditions to govern the relationship
during the period of any extension.
14.6 EARLY TERMINATION FOR BREACH.
During the Term, either party may terminate this Agreement upon the
occurrence of any of the following:
(a) upon or after the bankruptcy, insolvency, dissolution or winding
up of the other party (other than dissolution or winding up for
the purposes of reconstruction or amalgamation); or
(b) upon or after the breach of any material provision of this
Agreement by the other party if the breaching party has not
commenced to cure such breach within [ ]* after written notice
thereof by the other party and thereafter proceeded diligently to
cure such breach within a reasonable time. In no event shall such
reasonable time to cure such breach exceed [ ]* from the date
of such notice.
14.7 VOLUNTARY TERMINATION OF AGREEMENT.
Chiron shall be entitled to terminate this Agreement at any time after the
conclusion of the Collaboration Term. Such termination shall be effective [
]* after Chiron provides Phytera notice of its intent to terminate. Chiron
shall pay costs incurred by Phytera pursuant to this Agreement prior to
Phytera's receipt of Chiron's termination notice. Chiron shall also pay costs
associated with noncancellable commitments undertaken by Phytera prior to
Chiron's receipt of Chiron's termination notice, provided such costs are
reasonable and Phytera undertakes best efforts to mitigate such costs.
14.8 SURVIVAL OF ACCRUED OBLIGATIONS.
Expiration or termination of this Agreement shall not relieve the parties
of any obligation accruing prior to such expiration or termination. In addition
Articles 5, 7, 8, 9, 10, 12, 13, 14.9, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24
and 25 shall survive termination of this Agreement, where applicable in
accordance with their respective terms.
14.9 BANKRUPTCY.
All rights and licenses granted under or pursuant to this Agreement by
Phytera to Chiron are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual
property" as defined under Section 101(52) of the Bankruptcy Code. The parties
agree that Chiron, as licensee of such rights under this Agreement, shall retain
and may
____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
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fully exercise all of its rights and elections under the Bankruptcy Code. The
parties further agree that, in the event of the commencement of a bankruptcy
proceeding by or against Phytera under the Bankruptcy Code, Chiron shall all be
entitled to a complete duplicate of all embodiments of such intellectual
property, and same, if not already in its possession, shall be promptly
delivered to Chiron (i) upon any such commencement of a bankruptcy proceeding
unless Phytera elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, immediately upon the
rejection of this Agreement by or on behalf of Phytera.
14.10 FORCE MAJEURE.
Neither party shall be liable or considered in breach of this Agreement for
delays which are the direct result of acts or events beyond the control of such
party, (i.e., delays occasioned by acts of God, industrial disputes, war
declared or undeclared, civil disturbance, acts or omissions of Government or
other competent authority, fire, lightning, earthquake, explosion or flood)
provided that the nonperforming party is in compliance with this Section 14.10.
(a) In the event that either party wishes to claim Force Majeure,
such party shall provide the other party prompt notice of the
Force Majeure with a description of the cause of the Force
Majeure and, wherever possible, an estimate of the extent and
duration in its delay in performance, or its inability to
perform; and
(b) The party claiming Force Majeure shall use all possible diligence
to remove the Force Majeure and/or the impairment in its
performance as quickly as possible; and
(c) If the delay caused by the Force Majeure continues beyond fifteen
(15) days after provision of the notice referenced in Section 14.
10(a), the parties shall meet to discuss in good faith a mutually
satisfactory resolution of the problem. If the parties are
unable to reach such a resolution within a further forty five
(45) days, the other party may elect to terminate this Agreement
subject to the provision of thirty (30) days prior written
notice, provided that such termination shall not be effective if
the Force Majeure is removed prior to the effective date of such
termination.
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15. RESOLUTION OF DISPUTES
15.1 EXCLUSIVE DISPUTE RESOLUTION MECHANISM.
The parties further agree that matters of business judgment shall be
resolved between the parties without recourse to arbitration. The parties agree
the procedures set forth in this Article 15 shall be the exclusive mechanism for
resolving any non-business judgment bona fide disputes that arise from time to
time pursuant to this Agreement relating to any party's rights and/or
obligations hereunder that cannot be resolved through good faith negotiation
between the parties.
15.2 SCIENTIFIC COMMITTEE MEDIATION.
Any such dispute must first be submitted to the Scientific Committee or
their successors, for attempted resolution by good faith negotiations for a
period of at least thirty (30) days. In the event the designated Scientific
Committee members are not able to resolve such dispute within such thirty (30)
day period, the dispute shall be referred to Executive Mediation as referenced
in Section 15.3 below.
15.3 EXECUTIVE MEDIATION.
In the event that the dispute can not be resolved by mediation at the
Scientific Committee pursuant to Section 15.2, such dispute shall be submitted
to the appropriate designated officers of each party, for attempted resolution
by good faith negotiation for a period of at least thirty (30) days. In the
event the designated officers are not able to resolve such dispute within such
thirty (30) day period, and such dispute does not relate to a matter of business
judgment, any party may invoke the mediation provisions of Section 15.4 below.
15.4 MEDIATION.
If the dispute cannot be resolved by the mechanism referenced in Section
15.3, the dispute shall be referred to non-binding mediation. The
mediation shall be conducted by an independent mediator acceptable to both
parties. Subject to Section 15.2 and Section 15.3, either party may serve
upon the other a written demand for mediation. Such mediation shall
commence within thirty (30) days following the other party's receipt of
such demand, unless otherwise agreed in writing by the parties. Each party
shall make available to the mediation an authorized representative with the
capacity to bind such party, and the mediation shall be conducted as deemed
appropriate by the mediator.
15.5 INITIATION OF ARBITRATION.
In the event that such dispute is not resolved within thirty (30) days
after the matter is referred to mediation pursuant to Section 15.4, and if a
party intends to initiate an arbitration (or other ADR mechanism) to resolve a
dispute, such party shall provide written notice (the "ADR Request") to counsel
for the other party informing such other party of such intention and the issues
to be resolved. From the date of the ADR Request and until such time as any
matter has been finally settled by ADR, the running of the time periods
contained in this Agreement within which party must cure a breach of this
Agreement shall be suspended as to the subject matter of the dispute.
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15.6 ARBITRATION.
If it is not otherwise possible to settle a dispute within thirty (30) days
from the referral of the dispute then either party shall have the right to
submit the same to binding arbitration in accordance with, and subject to the
American Arbitration Association. If initiated by Chiron, such arbitration
shall be conducted in Worcester, Massachusetts. If initiated by Phytera, such
arbitration shall be conducted in San Francisco, California.
15.7 BINDING NATURE OF DECISION.
The decision of the arbitrator shall be binding upon the Parties and
judgment upon the award rendered by the arbitrator may be enforced in accordance
with the provisions hereof.
16. WARRANTY
16.1 POWER TO ENTER AGREEMENT.
Phytera and Chiron warrant to the other that it has the power to enter into
and perform its obligations under this Agreement. Phytera represents and
warrants no third party possesses any option or license rights with respect to
any intellectual property which would impair Chiron's rights under this
Agreement.
16.2 PHYTERA WARRANTY TO CHIRON.
Phytera warrants to Chiron that:
(a) it is the legal and beneficial owner of the Extracts;
(b) to the best of its information knowledge and belief Phytera has
the necessary rights in respect to satisfy its obligations under
this Agreement.
16.3 ACKNOWLEDGMENTS BY PHYTERA.
With respect to any agreements executed prior to the Effective Date of this
Agreement which relate to Phytera Patents which are the subject of Chiron's
rights hereunder (the "Original Agreements") including, without limitation,
Phytera agreements with third party providers of material, including, without
limitation, rights to plant and organism samples and protocols, or intellectual
property embodied or contained in Phytera's extracts (the "Original Parties")
Phytera warrants, acknowledges and agrees that as of the Effective Date:
(a) there are no outstanding breaches of the Original Agreements;
(b) there are no acts, facts, circumstances or omissions of which it
is presently aware, which would give the Original Parties, either
presently or with the passage of time, the right to terminate the
Original Agreements.
16.4 GENERAL WARRANTIES.
Each party represents and warrants to the other that:
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(a) this agreement does not contravene any law, regulation or
official directive or any obligations or undertakings by which it
or any of its assets are bound or cause a limitation on its
powers to be exceeded; and
(b) it is not a party to any pending or threatened action or
proceeding affecting it or any of its assets before a court,
governmental agency, commission or arbitrator where an adverse
outcome could reasonably be expected to adversely impact upon the
performance of its obligations under this agreement; and
(c) it has no immunity from the jurisdiction of a court or from legal
process (whether through service of notice, attachment prior to
judgment, attachment in aid of execution, execution or
otherwise).
17. NOTICES
Any notice, demand, consent or other communication (the Notice) given or
made under this Agreement other than communications made under Article 11
hereof:
(a) must be in writing and signed by a person duly authorized by the
sender;
(b) must either be delivered to the intended recipient by prepaid
post (if posted to an address in another country, by airmail) or
by hand or fax to the address or fax number below or the address
or fax number_last notified by the intended recipient to the
sender:
(1) to Phytera: Phytera Inc.
377 Plantation Street
Worcester, NlA 01605
Attention:
Fax Number:
(2) to Chiron: Chiron Corporation
4560 Horton Street
Emeryville, California 94608
United States of America
Attention: President, Chiron Technologies
Fax Number: (510) 923 7460; and
with copies to: General Counsel
Fax No: (510) 654-5360
(c) will be taken to be duly given or made:
(1) in the case of delivery in person, when delivered;
(2) in the case of delivery by post, two business days after the
date of posting (if posted to an address in the same
country) or seven business days after the date of posting
(if posted to an address in another country); and
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(3) in the case of fax, on receipt by the sender of a
transmission control report from the dispatching machine
showing the relevant number of pages and the correct
destination fax machine number or name of recipient and
indicating that the transmission has been made without
error, but if the result is that a Notice would be taken to
be given or made on a day that is not a business day in the
place to which the Notice is sent or is later than 4:00 p.m.
local time) it will be taken to have been duly given or made
at the commencement of business on the next business day in
that place.
18. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the Parties with
respect to its subject matter and supersedes all prior agreements,
understandings and communications between the Parties in connection with it.
19. AMENDMENT
No amendment or variation of this Agreement is valid or binding on a party
unless made in writing executed by all parties.
20. ASSIGNMENT
Neither party may, or will have the power to, assign this Agreement without
the prior written consent of the other, except that either party may assign its
rights and obligations under this Agreement without the approval of the other,
to a successor in interest or any of its Affiliates which expressly assumes such
party's obligations and responsibilities hereunder, provided that the assigning
party remains fully liable for and shall not be relieved from the full
performance of all obligations under this Agreement.
21. NO WAIVER
No failure to exercise nor any delay in exercising any right, power or
remedy by a party operates as a waiver. A single or partial exercise of any
right, power or remedy does not preclude any other or further exercise of that
or any other right, power or remedy. A waiver is not valid or binding on the
party granting that waiver unless made in writing.
22. FURTHER ASSURANCES
Each party agrees to do all things and execute all deeds, instruments,
transfers or other documents as may be necessary or desirable to give full
effect to the provisions of this Agreement and the transactions contemplated by
it.
23. GOVERNING LAW AND JURISDICTION
This Agreement is governed by the laws of California, and subject to
Article 15, the parties submit to the non-exclusive jurisdiction of the courts
of that state.
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24. INTERPRETATION
Headings are for convenience only and do not affect interpretation. The
following rules apply unless the context requires otherwise.
(a) The singular includes the plural and conversely.
(b) A gender includes all genders.
(c) If a word or phrase is defined, its other grammatical forms have
a corresponding meaning.
(d) A reference to an agreement or document (including, without
limitation, a reference to this Agreement) is to the agreement or
document as amended, varied, supplemented, novated or replaced,
except to the extent prohibited by this Agreement or that other
agreement or document.
(e) A reference to a party to this Agreement or another agreement or
document includes the party's successors, permitted substitutes
and permitted assigns (and, where applicable, the party's legal
personal representatives).
(f) A reference to legislation or to a provision of legislation
includes a modification or re-enactrnent of it, a legislative
provision substituted for it and a regulation or statutory
instrument issued under it.
(g) A reference to an agreement includes any undertaking, deed,
agreement and legally enforceable arrangement, and a reference to
a document includes an agreement (as so defined) in writing and
any certificate, notice, instrument and document of any kind.
A reference to dollars and $ is to United States currency.
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25. COUNTERPARTS
This Agreement may be executed in any number of counterparts. All
counterparts together will be taken to constitute one instrument.
IN WITNESS HEREOF, the parties have executed this Agreement of the Effective
Date.
SIGNED FOR AND BEHALF OF SIGNED FOR AND BEHALF OF
PHYTERA, INC. CHIRON CORPORATION
By: /s/ Malcolm Morville By: /s/ [ILLEGIBLE SIGNATURE]
-------------------------- ----------------------------------
Name:_________________________ Name:________________________________
Title: President Title: PRESIDENT, CHIRON TECHNOLOGIES
------------------------ ------------------------------
32
<PAGE>
EXHIBIT A
---------
Targets
-------
[
]*
_________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
33
<PAGE>
EXHIBIT 10.20
ANTIFUNGAL RESEARCH COLLABORATION
RESEARCH AGREEMENT
between
PHYTERA, INC.
and
ELI LILLY AND COMPANY
<PAGE>
RESEARCH AGREEMENT
THIS RESEARCH AGREEMENT ("AGREEMENT") is entered into as of the 21st
day of July, 1998 ("EFFECTIVE DATE") between ELI LILLY AND COMPANY, a
corporation of the State of Indiana, having its principal place of business at
Lilly Corporate Center, Indianapolis, Indiana 46285, hereinafter called,
together with its Affiliates, "LILLY."
AND
Phytera, Inc., a corporation of the State of Delaware, having its
principal place of business at 377 Plantation Street, Worcester, Massachusetts
01605, hereinafter called, together with its Affiliates, "PHYTERA."
RECITALS
WHEREAS, Phytera is a natural products biopharmaceutical company that
has developed screening technologies for antifungal drugs involving multiple
drug resistance gene knockouts and natural product libraries; and
WHEREAS, Lilly is interested in collaborating with Phytera in the
further development and exploitation of Phytera technologies, including its
natural product libraries, in order to discover Compounds with Antifungal
Activity for development and commercialization by Lilly; and
WHEREAS, Phytera and Lilly believe that each Party can bring
significant and complementary strengths to a research collaboration and wish to
proceed in accordance with the terms of the following Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter recited, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
When used in this Agreement, each of the following terms shall have
the meanings as set forth below:
1.1 "AFFILIATE" shall mean any company or entity controlled by,
controlling, or under common control with a Party hereto and shall include
without limitation any company fifty percent (50%) or more of whose voting stock
(or other comparable ownership interest for an entity other than a corporation)
is owned or controlled, directly or indirectly, by a Party, and any company
which owns or controls, directly or indirectly, fifty percent (50%) or more of
the voting stock (or other comparable ownership interest for an entity other
than a corporation) of a Party.
Page 2
<PAGE>
1.2 "ANALOGS" shall mean Compounds which are structurally related to
another compound. An analog is obtained by structural modification (either by a
chemist or by a microorganism or by a plant cell) pursuant to structure activity
relationship studies of a Compound.
1.3 "ANTIFUNGAL ACTIVITY" shall mean evidence that an Extract or
Compound tests positive in a Program Screen in accordance with the criteria for
"hits" as set forth and defined in the Research Plan.
1.4 "CALENDAR QUARTER" shall mean the three month period ending on
March 31, June 30, September 30, or December 31.
1.5 "CALENDAR YEAR" shall mean the twelve month period ending on
December 31.
1.6 "CLOSELY RELATED DERIVATIVE" shall mean a Compound that is
structurally related to and developed using a Research Compound as a lead
structure for SAR Studies.
1.7 "COMPOUND" shall mean a discrete chemical entity of known
structure.
1.8 "CONFIDENTIAL INFORMATION" shall mean each Party's confidential
information, inventions, know-how and data, and shall include, without
limitation, manufacturing, marketing, financial, regulatory, personnel and other
business information and plans, whether in oral, written, graphic or electronic
form and whether in existence as of the Effective Date or developed or acquired
in the future, except where such information (i) is public knowledge at the time
of disclosure by the disclosing Party, (ii) becomes public knowledge through no
fault of the receiving Party, (iii) was in the possession of the receiving Party
at the time of disclosure by the disclosing Party as evidenced by proper
business records or (iv) is disclosed to the disclosing Party by a Third Party,
to the extent such Third Party's disclosure was not in violation of any
obligation of confidentiality.
1.9 "COVER" (including variations of thereof such as "Covering",
"Covered", and "Coverage") shall mean that the identification, manufacture, use,
import, offer for sale or sale of Program Screens, Research Compounds, Closely
Related Derivatives or Products would infringe a Valid Claim; provided, with
respect to a process, screening or manufacturing patent, that such a Valid Claim
therein effectively precludes Third Parties from identifying, manufacturing,
using, importing, offering for sale, and selling Program Screens, Research
Compounds, Closely Related Derivatives or Products. The determination of
whether Program Screens, Research Compounds, Closely Related Derivatives or
Products are covered by a particular Valid Claim shall be made on a country by
country basis. A Valid Claim shall be deemed to provide effective preclusion
hereunder where (i) there is no competing product being marketed or (ii) if a
product is being marketed by a competitor, it infringes the Valid Claim
(including any period in which, and provided that, the Valid Claim is being
litigated).
1.10 "EFFECTIVE DATE" shall mean the date indicated at the beginning
of this Agreement.
1.11 "EXCLUDED COMPOUNDS" shall mean a Compound which (i) is in
development or is being marketed by Lilly or Phytera or a sublicensee of either
Party anywhere in the world prior to the Effective Date of this Agreement, or
(ii) is derived
Page 3
<PAGE>
from the Lilly Compound Library and is subject to Third Party restrictions
preventing Lilly from using such Compound in the Program. Each Party shall
promptly notify the other Party upon determining that a Compound being
researched or developed in the Program is an Excluded Compound. Consistent with
the obligations of confidentiality under Section 5.1 and except as otherwise
provided in this Agreement, neither Lilly nor Phytera shall use Confidential
Information derived from the Program in connection with the development of
Excluded Compounds.
1.12 "EXTRACT" shall mean a subset of Compounds solubilized from a
culture by a defined solvent.
1.13 "FDA" shall mean the United States Food and Drug Administration.
1.14 "FIELD" shall mean the diagnosis, treatment or prevention of
fungal infectious diseases in humans and animals.
1.15 "FIRST COMMERCIAL SALE" shall mean, in any particular country,
the first sale for use by the general public of a particular Product after
receipt of Regulatory Approval in that country.
1.16 "FIRST RIGHT [ ] * PROGRAMS" shall mean the [ ]*
which are designated in APPENDIX E as subject to a Lilly first right of
----------
negotiation under Section 2.23 of this Agreement.
1.17. "FTE" shall mean the equivalent of the scientific work of one
scientific person full time for one year (consisting of a total of [
]* per year (excluding vacations and holidays) of scientific work on or directly
related to the Program), carried out by a Phytera employee or Third Party
mutually agreed upon by the Research Team, where at least [ ]* of all such
scientific persons have completed at least a doctorate of philosophy (Ph.D.) or
its equivalent in a relevant scientific field or having an equivalent level of
scientific training and/or experience.
1.18 "GAAP" shall mean U.S. Generally Accepted Accounting Principles,
consistently applied.
1.19 "GOOD CLINICAL PRACTICE" shall mean the regulations and
guidelines established by the FDA, the Declaration of Helsinki, and the
regulating bodies of countries and economic affiliations worldwide that relate
to the standard of Good Clinical Practice for trials of medicinal products in
human beings.
1.20 "IN-LICENSED THIRD PARTY COMPOUND" shall mean a defined Compound
which is at least at the stage of animal pre-clinical studies in preparation for
trials and licensed in or acquired from a Third Party by Phytera for further
development in the Field. For the avoidance of doubt, a Compound or Compound
series that requires SAR studies prior to identification of a development
candidate shall not qualify.
______________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 4
<PAGE>
1.21 "LILLY COMPOUND LIBRARY" shall mean Compounds contained in the
Lilly research records libraries and individual Compounds or mixtures of small
numbers of Compounds, synthesized by combinatorial chemistry methods, contained
in Lilly's combinatorial chemistry libraries.
1.22 "LILLY NATURAL PRODUCTS LIBRARY" shall mean Extracts available
for screening at Lilly that have been prepared from cultures of organisms or
Extracts from plant materials.
1.23 "LILLY PATENTS" shall mean all patents, both foreign and
domestic (including without limitation, all substitutions, extensions, reissues,
renewals, reexaminations, patents of addition, supplementary protection
certificates and inventors' certificates thereof and pediatric data package
exclusivity extensions), and all pending patent applications (including
provisional applications, divisions, continuations and continuations-in-part)
which, as of the Effective Date, are owned, controlled, or licensed in (with the
right to disclose and sublicense), in whole or in part, by Lilly or any
Affiliate of Lilly and that contain or result in a Valid Claim which Covers the
identification, manufacture, use, import, offer for sale or sale of Program
Screens, Research Compound(s), Closely Related Derivatives, or Products
including but not limited to those patents and patent applications listed on
APPENDIX B attached hereto.
- ----------
1.24 "LILLY PROGRAM PATENTS" shall mean all patents, both foreign and
domestic (including without limitation, all substitutions, extensions, reissues,
renewals, reexaminations, patents of addition, supplementary protection
certificates and inventors' certificates thereof and pediatric data package
exclusivity extensions), and all pending patent applications (including
provisional applications, divisions, continuations and continuations-in-part)
owned, in whole or in part, by Lilly or licensed in by Lilly (with the right to
disclose and sublicense) that contain or result in a Valid Claim which Covers an
invention conceived during the Research Term and as a result of the Research
Program.
1.25 "LILLY PROGRAM TECHNOLOGY" shall mean all tangible or intangible
(whether or not patentable) know-how, trade secrets, inventions , data, clinical
and preclinical results, information, and any physical, chemical or biological
material, or any replication of any part of such material, which is developed or
acquired (with the right to disclose and sublicense) by Lilly after the
Effective Date and on or before the end of the Research Term, to the extent such
Technology relates to the identification, manufacture, use, import, offer for
sale or sale of Program Screens, Research Compound(s), Closely Related
Derivatives or Products in the Field.
1.26 "LILLY SCREEN" shall mean a high throughput screen developed by
Lilly independent of this Program for the identification of antifungal compound
leads.
1.27 "LILLY TECHNOLOGY" shall mean all tangible or intangible
(whether or not patentable) know-how, trade secrets, inventions, data, clinical
and preclinical results, information, and any physical, chemical or biological
material, or any replication of any part of such material reasonably necessary
for the development and manufacture of Program Screens, Research Compound(s),
Closely Related Derivatives or Products, that Lilly or any Affiliate of Lilly
owns, controls or has a license to (with the right to disclose and sublicense)
as of the Effective Date.
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<PAGE>
1.28 "MAJOR EUROPE" shall mean the United Kingdom, France, Germany,
Italy and/or Spain.
1.29 "MDR KNOCKOUTS" shall mean fungal organisms in which multiple
drug resistance genes (one or more) that have the function of pumping toxins out
of the cell have been genetically disabled.
1.30 "NATURAL PRODUCT CHEMISTRY" shall mean the process of isolating
Compounds from Extracts, elucidating their structures, and obtaining these
Compounds in sufficient amounts and purity for chemical and biological
evaluation.
1.31 "NDA" shall mean with respect to any particular Product, the New
Drug Application filed with the FDA pursuant to 21 U.S.C. Section 357 and 21
C.F.R. Section 314 with respect to that Product, together with all additions,
deletions and supplements thereto.
1.32 "NET SALES" shall mean, with respect to a Product, [
Page 6
<PAGE>
]*
1.33 "PHASE I CLINICAL TRIALS" shall mean human clinical trials
conducted anywhere in the world in accordance with Good Clinical Practice in a
small number of healthy volunteers or patients to establish an initial safety
profile and the pharmacokinetics/pharmacodynamics of a Research Compound,
Closely Related Derivative or Product.
1.34 "PHASE II CLINICAL TRIALS" shall mean human clinical trials
conducted in patients anywhere in the world in accordance with Good Clinical
Practice to achieve a statistically significant data regarding a Research
Compound, Closely Related Derivative or Product in the particular indication
tested, as well as to obtain a preliminary indication of the limit and/or daily
dosage regimen required.
1.35 "PHASE III CLINICAL TRIALS" shall mean large scale human
clinical trials conducted in patients anywhere in the world in accordance with
Good Clinical Practice and intended to generate data concerning the safety and
efficacy of a Research
____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 7
<PAGE>
Compound, Closely Related Derivative or Product in the particular indication
tested sufficient to support registration of the Product with health regulatory
authorities.
1.36 "PHYTERA BIODIVERSITY LIBRARIES" shall mean all natural product
Extracts that Phytera owns as of the Effective Date of this Agreement or
acquires or creates during the Research Term.
1.37 "PHYTERA PATENTS" shall mean all patents, both foreign and
domestic (including without limitation, all substitutions, extension, reissues,
renewals, reexaminations, patents of addition, supplementary protection
certificates and inventors' certificates thereof and pediatric data package
exclusivity extensions), and all pending patent applications (including
provisional applications, divisions, continuations and continuations-in-part)
which, as of the Effective Date, are owned, controlled, or licensed in (with the
right to disclose and sublicense), in whole or in part, by Phytera or any
Affiliate of Phytera and that contain or result in a Valid Claim which Covers
the identification, manufacture, use, import, offer for sale or sale of Program
Screens, Research Compound(s), Closely Related Derivatives or Products,
including but not limited to those patents and patent applications listed on
APPENDIX C attached hereto.
- ----------
1.38 "PHYTERA PROGRAM PATENTS" shall mean all patents, both foreign
and domestic (including without limitation, all substitutions, extensions,
reissues, renewals, reexaminations, patents of addition, supplementary
protection certificates and inventors' certificates thereof and pediatric data
package exclusivity extensions), and all pending patent applications (including
provisional applications, divisions, continuations and continuations-in-part)
owned, in whole or in part, by Phytera or licensed in by Phytera (with the right
to disclose and sublicense) that contain or result in a Valid Claim which Covers
an invention conceived during the Research Term and as a result of the Research
Program.
1.39 "PHYTERA PROGRAM TECHNOLOGY" shall mean all tangible or
intangible (whether or not patentable) know-how, trade secrets, inventions,
data, clinical and preclinical results, information, and any physical, chemical
or biological material, or any replication of any part of such material, which
is developed or acquired (with the right to disclose and sublicense) by Phytera
after the Effective Date and on or before the end of the Research Term, to the
extent such Technology relates to the identification, manufacture, use, import,
offer for sale or sale of Program Screens, Research Compound(s), Closely Related
Derivatives or Products in the Field.
1.40 "PHYTERA TECHNOLOGY" shall mean all tangible or intangible
(whether or not patentable) know-how, trade secrets, inventions, data, clinical
and preclinical results, information, and any physical, chemical or biological
material, or any replication of any part of such material, reasonably necessary
for the development and manufacture of Program Screens, Research Compound(s),
Closely Related Derivatives or Products, that Phytera or any Affiliate of
Phytera owns, controls or has a license to (with the right to disclose and
sublicense) as of the Effective Date.
1.41 "[ ]* PROGRAMS" shall mean Phytera's current [ ]*
programs listed in APPENDIX E, including, without limitation, the First Right
----------
[
__________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 8
<PAGE>
]* Programs, which programs are (i) in existence as of the
Effective Date, and (ii) directly related to research and development of
specific leads generated or identified by Phytera prior to the Effective Date.
APPENDIX E attached hereto and incorporated herein by reference.
- ----------
1.42 "PRODUCT" shall mean any product that contains a Research
Compound or a Closely Related Derivative that is ready for ultimate commercial
sale or use.
1.43 "PROGRAM" shall mean the program to be conducted jointly by
Phytera and Lilly to discover, evaluate and identify chemical entities and
biological materials which may be useful in the Field. A description of the
Program is provided in the Research Plan, which is incorporated herein by
reference and made a part of this Agreement. The Research Plan and the scope
and goals of the Program are subject to modification as provided herein.
1.44 "PROGRAM PATENTS" shall mean Lilly Program Patents and Phytera
Program Patents, collectively, whether or not developed solely or jointly by
Phytera and/or Lilly. For avoidance of doubt, Program Patents shall include any
patents Covering Closely Related Derivatives, notwithstanding when such patents
are filed.
1.45 "PROGRAM SCREENS" shall mean any screen or assay approved by the
Research Team for use in the Program.
1.46 "PROGRAM TECHNOLOGY" shall mean Lilly Program Technology and
Phytera Program Technology, collectively, whether or not developed solely or
jointly by Phytera and/or Lilly.
1.47 "QUARTERLY RESEARCH ACCOUNTING REPORT" shall have the meaning as
set forth in Section 2.9 of this Agreement.
1.48 "QUARTERLY RESEARCH ACTIVITY REPORT" shall have the meaning as
set forth in Section 2.6 of this Agreement.
1.49 "REGULATORY APPROVAL" shall mean all authorizations by the
appropriate governmental entity or entities necessary for commercial sale of
Product (including exports) in each jurisdiction in which Lilly elects to market
the Product including, without limitation, approval of labeling, price,
reimbursement and manufacturing.
1.50 "RESEARCH COMPOUND" shall mean any Compound which during the
Research Term and as a part of the Program, is identified, conceived,
synthesized, structurally characterized and/or demonstrated to have Antifungal
Activity in the Field. Research Compound shall also encompass any Extract which
during the Research Term and as a part of the Program is shown to have
Antifungal Activity and which is selected by the Research Team for Natural
Product Chemistry. For avoidance of any doubt, Research Compounds shall
include, but not be limited to, those Lilly Compounds designated as Research
Compounds under Section 2.11 of this Agreement. Research Compounds shall not
include Excluded Compounds or derivatives thereof.
1.51 "RESEARCH FUNDS" shall mean the FTE funding being paid by Lilly
to Phytera pursuant to Section 2.7 herein.
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<PAGE>
1.52 "RESEARCH PLAN" shall have the meaning set forth in Section
2.2(b) of this Agreement.
1.53 "RESEARCH TEAM" shall have the meaning assigned in Section
2.2(a) of this Agreement.
1.54 "RESEARCH TERM" shall be the period commencing on the Effective
Date and ending two (2) years thereafter plus any extensions thereof, as
provided for in Section 2.14, unless earlier terminated by Lilly pursuant to
Section 2.18 or Article 10 hereof.
1.55 "RESEARCH YEAR" means a twelve-month period during the term of
the Program. The first Research Year shall be deemed to have commenced on the
Effective Date.
1.56 "SAR STUDIES" shall mean structure activity relationship studies
in which chemical modifications are made to Research Compounds in an attempt to
obtain or improve desirable feature or features such as activity against a
molecular target or target organism, efficacy in animal models of disease,
pharmacokinetic properties, or toxicity profile.
1.57 "TECHNOLOGY" shall mean all tangible or intangible know-how,
trade secrets, inventions (whether or not patentable), data, information,
including and without limitation any physical, chemical, or biological material.
1.58 "THIRD PARTY" shall mean any entity which is not a Party or an
Affiliate of either Party to this Agreement.
1.59 "VALID CLAIM" shall mean any claim issued in an unexpired patent
which has not been held unenforceable, unpatentable or invalid by a decision of
a court or other governmental agency of competent jurisdiction following
exhaustion of all possible appeal processes, and which has not been admitted to
be invalid or unenforceable through reissue, reexamination or disclaimer. If in
any country there should be two or more such decisions conflicting with respect
to the validity of the same claim, the decision of the higher or highest
tribunal shall thereafter control; however, should the tribunals be of equal
rank, then the decision or decisions upholding the claim shall prevail when the
decisions are equal in number, and the majority of decisions shall prevail when
the conflicting decisions are unequal in number.
ARTICLE 2
COLLABORATION SCOPE AND GOVERNANCE
2.1 PURPOSE AND SCOPE.
(A) Consistent with the terms described herein, the Parties intend
to collaborate in the research and discovery of Research Compounds or Closely
Related Derivatives for development and commercialization by Lilly. In
accordance with the Research Plan, Phytera shall develop, validate and use
Program Screens to screen Phytera Biodiversity Libraries and the Lilly Natural
Products Library for Extracts demonstrating Antifungal Activity. Additionally,
if requested, Phytera shall enable use by Lilly of the
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<PAGE>
Program Screens to screen the Lilly Compound Library to identify Lilly Compounds
demonstrating Antifungal Activity.
(B) As more fully described below, Phytera and Lilly through the
Research Team will have joint responsibility for conducting the Program in
accordance with the Research Plan and the terms described herein. Lilly will
have sole responsibility for the development and commercialization of Research
Compounds and Closely Related Derivatives, as well as the filing and maintenance
of any and all regulatory documents necessary for applicable Regulatory
Approvals. Additionally, Lilly will have sole responsibility for distribution
and marketing of the Product. All pricing for Product shall be determined
solely by Lilly. Except as otherwise provided in this Agreement, it is expected
that any Product will be marketed by Lilly or its Affiliates (or in selected
territories, by Third Parties selected by Lilly) in each jurisdiction in which
it is determined by Lilly to be feasible and commercially attractive.
2.2 RESEARCH TEAM.
(A) Within thirty (30) days following signature of this Agreement by
both Parties, Phytera and Lilly shall each appoint three (3) representatives to
serve as members of the Research Team ("Research Team"). Phytera
representatives shall consist of a biologist, molecular biologist, and a natural
products chemist. Lilly representatives shall consist of a microbiologist, a
chemist, and a natural products chemist. The respective individual
representatives of each Party may be changed from time to time at the discretion
of Phytera or Lilly upon written notification by the Party making such change to
the other.
(B) Phytera and Lilly have agreed upon an initial Research Plan for
research under the Program which is set forth in APPENDIX A ("Research Plan").
----------
By execution of this Agreement, the initial Research Plan is hereby approved by
each Party and incorporated herein by reference.
(C) The Research Team shall provide general oversight and direction
for the Program. As part of providing such oversight and direction, the
Research Team specifically shall review (i) the personnel assigned to the
Program, (ii) all spending of Research Funds, (iii) all proposed modifications
or additions to the Research Plan, (iv) all proposed research collaborations
with a Third Party related to the Program and its cost, (v) all proposed
additions to APPENDIX B and APPENDIX C, (vi) quarterly additions to the list of
---------- ----------
Program Technology created in the Program, and (vii) all research results
related to the Program.
(D) Decisions of the Research Team shall be made by unanimous
consent; provided, however, that in the event the Research Team is unable to
arrive at a decision, Lilly's Vice President, Infectious Diseases Research, or
his/her successor shall confer with Phytera's Vice President of Research and
seek to resolve the disagreement. In the event the disagreement cannot be
resolved in this manner, Lilly's Vice President, Infectious Diseases Research
shall decide based on reasonable economic and scientific factors not
inconsistent with this Agreement. Notwithstanding the foregoing, decisions by
the Research Team with respect to inclusion of a Lilly Screen as Program Screen
shall be made by unanimous consent.
2.3 CONDUCT OF PROGRAM. Each Party agrees to conduct the Program
according to the Research Plan, as amended from time to time by the Research
Team. All
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<PAGE>
research done in connection with the Program shall be carried out in strict
compliance with any federal, state, or local laws, regulations, or guidelines
governing the conduct of such research. The Parties do not intend Excluded
Compounds to be developed in the Program. Each Party shall advise the other
promptly upon becoming aware that a Compound being researched or developed in
the Program is an Excluded Compound, whereupon each Party shall cease to have
any obligation or right to work on such Excluded Compound as part of the
Program.
2.4 EFFORT. Both Phytera and Lilly shall use their best efforts to
conduct work on the Program so as to achieve the agreed-to-goals for the Program
as described in the Research Plan. During the first Research Year, Phytera
shall devote to the Program and Lilly shall fund [ ]* FTEs, unless
otherwise agreed by the Parties in writing. The number of FTEs to be dedicated
to the Program for subsequent Research Years shall be determined by Lilly in its
sole discretion; provided, however, that (i) the effort of Phytera funded by
Lilly for the second Research Year can be no less than [ ]* FTEs, and (ii)
Lilly's decision with respect to the number of FTEs to be dedicated to the
Program and to thereby be funded by Lilly for Research Years after the first
Research Year shall be communicated in writing to Phytera at least [ ]*
prior to the end of the preceding Research Year. The FTEs dedicated by Phytera
to the Program shall have an optimal combination of experience and training in
the Field. Lilly shall provide reasonable scientific effort as required by the
Research Team during the course of the Program. Such scientific effort shall be
consistent with sound scientific and business judgment as determined by Lilly.
2.5 KEY PERSONNEL. Phytera agrees that so long as the individuals
identified as key Phytera personnel in APPENDIX D continue to be employed by
----------
Phytera, Phytera shall maintain a level of direct involvement appropriate for
the successful conduct of the Program of such key personnel in the Program. In
the event any such individuals cease to be Phytera employees or to be directly
involved in the Program, Lilly shall have a right to terminate the Program
consistent with Section 2.18 herein. In the event a replacement of such Key
Personnel becomes necessary for any reason and Lilly does not exercise its right
to terminate under Section 2.18, Phytera shall consult with Lilly concerning
such replacements and Lilly shall have a right to approve replacement
candidates, which approval shall not be unreasonably withheld.
2.6 RESEARCH TEAM MEETINGS AND REPORTS. Except as the Research Team
may otherwise agree, during the Research Term, the Research Team shall meet
formally at least four (4) times each year to review the Program, to modify the
strategy and goals of the Program if deemed necessary by the Research Team, and
to prepare the reports required under Section 4.1(a). The times and places for
such meetings shall be mutually agreed upon by the Parties, alternating between
Indianapolis and Worcester, or such other location as members of the Research
Team shall agree. Each Party shall also bear its own costs associated with
holding and attending such meetings. Any modification to the strategy and goals
of the Program as described in the Research Plan shall require the approval of
the Research Team as reflected in written minutes, and an appropriate written
amendment to the Research Plan. The Research Team shall keep minutes of all
meetings at which a decision is made and shall circulate such minutes to all
members of the Research Team. Minutes shall be deemed approved unless any
member of the Research
___________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 12
<PAGE>
Team objects to the accuracy of such minutes within ten (10) days of receipt.
Additionally, Phytera and Lilly, to the extent each is involved in the Program,
shall each provide the Research Team with a written quarterly status report
regarding the quarterly research activity of each in connection with the Program
(the "Quarterly Research Activity Report"). The Quarterly Research Activity
Report shall be furnished to the Research Team within thirty (30) days following
the end of each Calendar Quarter.
2.7 RESEARCH FUNDING. During the Research Term and subject to the
fulfillment of all terms and conditions of this Agreement, Lilly shall fund the
Program at a rate of [ ] *per FTE. The relevant number of FTE's for any
Research Year shall be determined in accordance with Section 2.4 herein. It is
understood by the Parties that the Research Team shall have the right to
allocate an appropriate amount of FTE funding support to reasonable costs
associated with culture regrowth required in connection with the Program
2.8 SCHEDULING PAYMENT OF RESEARCH FUNDS. Research Funds during the
Research Term shall be paid to Phytera by Lilly in U.S. Dollars. The payment of
Research Funds due in each Research Year will be made in [ ]* installments
within [ ]*, provided that the first such payment
hereunder shall be made on a prorated basis and within [ ]* of the
Effective Date hereof.
2.9 ACCOUNTING.
(A) Phytera shall maintain complete and accurate books and records of
all monies expended by it for research under the Program and shall provide
Lilly, within sixty (60) days after the end of each Calendar Quarter during the
Research Term, with a report ("Quarterly Research Accounting Report")
accompanied by a certificate signed by the Chief Financial Officer of Phytera
stating (i) the dollar amount of Research Funds that were expended on research
activities during any Calendar Quarter for which the report is made; (ii) a
general description of the research activities conducted; (iii) the name of each
Phytera employee (with job title) who worked on the Program during that Calendar
Quarter, along with the functional department in which each employee worked and
the actual number of hours (including the source of such hourly data) each such
employee worked on the Program during that Calendar Quarter; and (iv) whether
Phytera provided the FTEs required under this Agreement or the Research Plan for
that Calendar Quarter of the Program. In the event Phytera has not provided the
required FTE's and there has consequently been an overpayment by Lilly, Phytera
shall remit the amount of such overpayment to Lilly with the Quarterly Research
Accounting Report or Lilly shall be entitled to apply such overpayment as a
credit against future Research Funds payments. Lilly shall be entitled to any
tax credits due on account of research and development expenses, to the extent
permitted by law, for the Research Funds paid by Lilly. Phytera shall cooperate
with Lilly to provide any information or documentation necessary or useful for
Lilly to claim such credits.
(B) Upon reasonable written notice to Phytera, Lilly shall have the
right, either itself or using Lilly's independent certified public accountant,
at its own expense and not more than annually in or in respect of any Calendar
Year, and during normal business hours, to audit those books and records as may
be reasonably necessary to verify the
___________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 13
<PAGE>
accuracy of the Quarterly Research Accounting Reports furnished by Phytera to
Lilly pursuant to this Section 2.9, in respect of any Calendar Year ending not
more than one (1) year prior to the date of such notice. If an independent
certified public accountant is used by Lilly for the conduct of such audits, the
report prepared by the independent public accountant, shall be provided to
Phytera at the same time it is sent or otherwise provided to Lilly and shall
contain the conclusions of the independent public accountant regarding the
audit. In the event an audit conducted by an independent public accountant
concludes there has been any overpayment by Lilly, Phytera shall remit to Lilly
within thirty (30) days after Phytera's receipt of the auditor's report, (i) the
amount of such overpayment and (ii) if such overpayment exceeds ten percent
(10%) of the total amount paid or payable for the Calendar Year then being
audited, the reasonable and necessary fees and expenses of the independent
public accountant performing the audit, subject to reasonable substantiation.
Any Phytera information received or obtained by Lilly in connection with an
audit under this Section 2.9 is Confidential Information and Lilly shall retain
and cause its auditors to retain all such information in confidence.
2.10 PROGRAM COSTS. [
]*
2.11 SCREENING LILLY COMPOUND LIBRARIES. The Program includes the
possibility of screening by Phytera of up to [ ]* Compounds from the Lilly
Compound Libraries using the Program Screens. If Lilly elects to have additional
screening performed by Phytera, there shall be either (i) an adjustment to the
FTE effort funded by Lilly sufficient to enable Phytera to conduct such
screening without adversely impacting Phytera's ability to satisfy its existing
obligations under the Program or (ii) Phytera's existing obligations under the
Program shall be evaluated and adjusted appropriately so that Phytera can
reasonably achieve all its obligations, including such new screening activities,
with the same FTE effort as existed prior to Lilly's election to request such
additional screening be done by Phytera. In the event that screening of Lilly
Compound Libraries by Lilly or Phytera results in the identification of a
Compound demonstrating Antifungal Activity, such Compound shall be included in
the Program for research consistent with the Research Plan and shall become and
be designated a Research Compound under the Agreement upon written designation
by the Research Team of such Compound as a Research Compound and appendage of
such written designation to this Agreement, such written designation not to be
unreasonably withheld or delayed. For avoidance of any doubt, in the event that
such written designation does not occur, a Compound from the Lilly Compound
Libraries shall not become a Research Compound. Additionally, notwithstanding
anything to the contrary in this Agreement, under no circumstance shall (a)
Phytera receive any license, rights, or other interest in the Lilly Compound
Libraries or Lilly owned Excluded Compounds; or (b) an Excluded Compound ever
become or be deemed a Research Compound.
2.12 EXCLUSIVITY. During the Research Term, Phytera shall work
exclusively with Lilly in the Field except to the extent that such work pertains
to [ ]*.
___________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 14
<PAGE>
Furthermore, during the Research Term, Phytera agrees to provide Lilly with
exclusive (even as to Phytera) use of and access to the Phytera Biodiversity
Libraries, MDR Knockouts, and Program Screens for research and development in
the Field; provided that (1) Phytera shall have the right to use and access such
for purposes of complying with its obligations under this Agreement; and (2)
commencing on the third anniversary of the Effective Date and every anniversary
thereafter, Lilly's exclusivity with respect to individual Extracts in the
Phytera Biodiversity Libraries shall expire if [
]*.
Additionally, Phytera shall not use Program Technology for In-Licensed Third
Party Compounds or in any other manner for the benefit of Third Parties.
Otherwise, Phytera shall be free to use other Phytera Technology in connection
with [ ]*. For [ ]*
following the end of the Research Term, Phytera shall not use or access or
permit Third Parties to use or access the Phytera Biodiversity Libraries, MDR
Knockouts, and/or Program Screens for research or development in the Field.
2.13 THIRD PARTY TECHNOLOGY. Neither Lilly nor Phytera will bring
into or use in the Program any Technology in which a Third Party has ownership
rights unless specifically authorized to do so under a written agreement with
such Third Party. Unless the Parties specifically agree in a written document
signed by their respective authorized representatives to share the royalty or
other expenses associated with using any Technology of a Third Party, then any
royalties or other obligations associated with using the Third Party Technology
shall be borne solely by the Party who entered into the agreement with the Third
Party containing such obligations, or, if there is no such agreement, then all
expenses associated with using Third Party technology shall be borne solely by
the Party who brought the Third Party Technology into the Program.
2.14 EXTENSION OF PROGRAM. Lilly shall have the option to extend the
Research Term for up to three (3) additional years in one-year increments by
giving written notice not later than three (3) months prior to the end of the
initial Research Term and each one-year extension. Lilly shall specify in such
notice the level of Research Funding it will pay to Phytera during the extended
term, provided, however, such Research Funding shall at a minimum support [
]* FTEs.
2.15 STAFF AVAILABILITY. Each Party shall make its employees,
consultants, subcontractors engaged in the Program reasonably available upon
reasonable notice during normal business hours at their respective places of
employment to consult with the other Party on issues arising during the Program
and in connection with any request from any regulatory agency, including those
relating to regulatory, scientific, and technical issues.
2.16 LILLY OPTION REGARDING RESEARCH COMPOUNDS AND CLOSELY RELATED
DERIVATIVES. Lilly shall have the option to develop and commercialize, either
by itself or in conjunction with one or more sublicensees, on an exclusive basis
throughout the world
___________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 15
<PAGE>
any Research Compound or Closely Related Derivative. Lilly shall notify Phytera
promptly of its decision to develop any such Research Compound or Closely
Related Derivative. Upon such selection, Lilly shall be responsible for
undertaking, at Lilly's sole expense, all activities necessary for the
development, preclinical and clinical testing and the commercialization of the
Research Compound and/or Closely Related Derivative. After the expiration or
termination of the Program, Lilly shall provide an annual written report to
Phytera describing in reasonable detail and specificity (a) Lilly's development
activities during the prior calendar year on Research Compound(s), Closely
Related Derivatives and/or Products; and (b) the development activities for
Research Compounds, Closely Related Derivatives and/or Products planned by Lilly
for the current year.
2.17 FACILITY VISITS. Representatives of Lilly and Phytera may, upon
reasonable notice during normal business hours, (a) visit the facilities where
the Program is being conducted, (b) consult informally, during such visits and
by telephone, with personnel for the other Party performing work on the Program,
and (c) with the other Party's prior approval, which approval shall not be
unreasonably withheld, visit the sites of any experiments or tests being
conducted by such other Party in connection with the Program. On such visits,
an employee of the Party conducting the research shall accompany the employee(s)
of the visiting Party. If requested by the other Party, Phytera and Lilly shall
cause appropriate individuals working on the Program to be reasonably available
for meetings at times and places reasonably convenient to the Party responding
to such request.
2.18 TERMINATION OF PROGRAM.
(A) WITHOUT CAUSE. After the second anniversary of the Effective
Date, Lilly may terminate the Program and related Research Funding at any time
without cause upon sixty (60) days prior written notice to Phytera, which notice
may be provided prior to the second anniversary of the Effective Date.
(B) FOR MATERIAL BREACH. Lilly may terminate the Program and related
Research Funding at any time for material breach by Phytera, upon thirty (30)
days prior to written notice and opportunity to cure during the notice period.
Phytera may terminate the Program for material breach by Lilly upon thirty (30)
days prior written notice and opportunity to cure during the notice period.
(C) LOSS OF KEY PERSONNEL. Lilly may terminate the Program and
related Research Funding at any time upon thirty (30) days prior written notice
to Phytera, if any one or more of Phytera Key Personnel leave the employment of
Phytera for any reason and Phytera is unable to find replacements acceptable to
Lilly within six (6) months from the last day of such employment. Approval by
Lilly of replacement candidates shall not be unreasonably withheld.
(D) TERMINATION DUE TO CHANGE OF CONTROL. Lilly may terminate the
Program and related Research Funding at any time upon thirty (30) days prior
written notice if majority control of Phytera is acquired by any health care
company or any other party reasonably deemed by Lilly to be a competitor of
Lilly.
2.19 RIGHTS OF PARTIES FOLLOWING TERMINATION OR EXPIRATION OF THE
PROGRAM (EXCEPT FOR MATERIAL BREACH). Whenever the Program terminates for
reasons other than material breach or expires, each of the Parties shall have
the following rights and obligations:
Page 16
<PAGE>
(A) CONTRIBUTED TECHNOLOGY. Each Party shall cease using and return
to the other Party and thereafter maintain in confidence pursuant to Article 5
all Technology that was contributed by the other Party that is reflected on the
form of APPENDIX B or APPENDIX C in effect as of the end of the Program, but
---------- ----------
only to the extent such Technology is not necessary or useful to Lilly for the
manufacture, use or development of Research Compounds, Closely Related
Derivatives or Products.
(B) PRE-EXISTING TECHNOLOGY. Each Party shall continue to have the
right to use and to disclose in any manner all Technology that it owned or had a
license under prior to the Program, except to the extent such Technology is
subject to the exclusivity requirements of Section 2.12.
(C) PROGRAM TECHNOLOGY.
(1) OWNERSHIP. Ownership of Program Technology shall continue to be
governed by Section 4.1(b) of this Agreement; provided, however, that Lilly
shall transfer and hereby does transfer all of its right, title and
interest in jointly owned Program Technology to Phytera, subject only to
the retention by Lilly of a license in accordance with Section 3.1(b).
(2) USE. With respect to Program Technology and Program Patents
which (i) are owned by Phytera solely or jointly with Lilly and (ii) are
not necessary or useful to Lilly for the manufacture, use, or development
of Research Compounds, Closely Related Derivatives or Products, Phytera
shall be free to use, transfer, commercialize or collaborate with Third
Parties in any manner that Phytera elects. With respect to all other
Program Technology or Program Patents, Lilly shall retain an exclusive
license in accordance with Section 3.1(b).
(D) PAYMENT OBLIGATIONS. Lilly shall continue to have the payment
obligations set forth in Section 2.7 for any accrued but unpaid FTE costs as of
the date of termination and in Article 6 with respect to any Research Compound,
Closely Related Derivative or Product that it develops or commercializes
pursuant to Section 2.16.
(E) OTHER TERMS OF THE AGREEMENT. All terms and conditions of this
Agreement unrelated specifically to Research Program activities shall otherwise
continue in full force and effect, including, without limitation,
confidentiality obligations and all rights and obligations concerning the
development and commercialization of Research Compounds, Closely Related
Derivatives and Products and any future Compounds arising therefrom.
2.20 RIGHTS OF PARTIES FOLLOWING TERMINATION OF THE PROGRAM FOR MATERIAL
BREACH. In the event of termination of the Program by Lilly for material breach
by Phytera, all licenses granted under this Agreement to Lilly shall not be
affected and shall continue in full force and effect, and Lilly shall have the
right to exercise all such licenses. All licenses granted under this Agreement
by Lilly to Phytera shall automatically terminate upon such termination by
Lilly. In the event of termination of the Program by Phytera for material breach
by Lilly, all licenses granted under this Agreement to Phytera shall not be
affected and shall continue in full force and effect, and Phytera shall have the
right to exercise all such licenses. In the event that termination by Phytera is
based upon a breach for non-payment, all licenses granted under this Agreement
by Phytera to Lilly shall automatically terminate upon such termination by
Page 17
<PAGE>
Phytera. In the event that termination by Phytera under this Section 2.20 occurs
for any other reason, licenses granted under this Agreement by Phytera to Lilly
that are necessary for the continuing development or commercialization by Lilly
of Research Compounds, Closely Related Derivatives or Products pursuant to
Section 2.16 of this Agreement shall continue in full force and effect.
2.21 PUBLICATIONS. While it is understood that employees of Lilly and
Phytera at some point shall be free to publish the results of their studies
carried out under the Program, each Party agrees to provide the other the
opportunity to review any proposed manuscripts at least sixty (60) days prior to
their intended submission for publication and, upon request, shall delay
submission for a period sufficient to permit adequate steps to be taken to
secure patent protection for any patentable subject matter referred to therein.
The disclosing party shall avoid disclosure of any trade secret information of
the other Party. Each Party agrees to respond to requests for review within
sixty (60) days of receipt. In the event the Parties disagree with respect to
the nature of the disclosure to be made in a proposed publication, the Parties
shall refer such disagreement to the Research Team for resolution. All
publications shall give due credit to all individuals contributing to the
developments described in the publication.
2.22 [ ]* PROGRAMS. Lilly acknowledges that prior to the Effective
Date of this Agreement, Phytera had (and continues to have) [ ]* Programs.
Phytera agrees that as of the Effective Date it shall not screen Extracts from
the Phytera Biodiversity Libraries in connection with any [ ]* target except
those covered by the Program; provided, however, Phytera shall be entitled to
use its chemical libraries or libraries of Third Parties in connection with the
[ ]* Programs.
2.23 RIGHT OF FIRST NEGOTIATION. In the event that Phytera seeks a
research, development or commercialization collaboration with a Third Party
relating to the First Right [ ]* Programs or a Third Party commences
discussions with Phytera which Phytera intends to seriously consider in
connection with Compounds resulting from the First Right [ ]* Programs,
Phytera hereby grants to Lilly a right of first negotiation to (i) fund, in
whole or in part, any research development, or commercialization collaboration
or program ("Relevant Program") to be undertaken by Phytera with a Third Party
with respect to a First Right [ ]* Program Compound and (ii) obtain certain
license rights to any intellectual property that results from such Relevant
Program. This right shall be effective during the Research Term and shall
operate as follows:
(a) Phytera shall promptly send to Lilly a reasonably detailed written
notification of any Relevant Program contemplated by Phytera using a First Right
[ ]* Program Compound;
(b) Lilly shall respond to Phytera within [ ]* of its receipt of
such notification indicating its interest in funding, in whole or in part, the
Relevant Program and in obtaining rights to any intellectual property resulting
therefrom.
- ----------------------------
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 18
<PAGE>
(c) For a period of up to [ ]* after Phytera receives notice of
Lilly's interest in funding, in whole or in part, the Relevant Program and
obtaining license rights to any intellectual property resulting therefrom, the
Parties shall negotiate in good faith a reasonable agreement based upon the
anticipated contributions of the Parties to the Relevant Program and any
products that result from such Relevant Program. If, after good faith
negotiations, an agreement cannot be reached between Lilly and Phytera on the
Relevant Program, Phytera shall be free to pursue such Relevant Program and
commercialize any products that result from such Relevant Program, either
independently or with one or more Third Parties.
(d) In the event that Lilly (i) fails to respond to Phytera within
[ ]* of notification by Phytera of the contemplated Relevant Program, or
(ii) indicates that it is not interested in funding such Relevant Program and
obtaining rights to any intellectual property resulting therefrom, Phytera shall
be free to pursue such Relevant Program and commercialize any products that
result from such Relevant Program, either independently or with one or more
Third Parties.
ARTICLE 3
---------
3.1 LICENSES TO LILLY.
(a) Except as otherwise provided in Sections 2.12 and 2.22 herein,
during the Research Term and the term of this Agreement and subject to the other
provisions of this Agreement, Phytera hereby grants to Lilly an exclusive,
worldwide license in the Field, with the right to sublicense, under the Phytera
Patents, Phytera Technology, Program Patents (to the extent Phytera has an
interest in such Patents) and Program Technology (to the extent Phytera has an
interest in such Technology) (i) to make, have made, use, import, offer for
sale, sell and have sold Research Compounds, Closely Related Derivatives and
Products; (ii) to conceive, discover, evaluate, identify, characterize,
research, develop, market and sell the Research Compounds, Closely Related
Derivatives and Products and (iii) to otherwise comply with its obligations
under this Agreement. Notwithstanding the foregoing grant, Phytera shall have
the right to practice under Phytera Patents, Phytera Technology, Phytera Program
Patents, and Phytera Program Technology as necessary to comply with its
obligations and exercise its rights under this Agreement. Phytera shall retain
all rights under Phytera Patents and Phytera Technology outside the Field.
(b) Upon termination or expiration of the Program, Phytera shall
grant and hereby does grant to Lilly a worldwide, perpetual, royalty-free (i)
exclusive license, with a right to sublicense, to make, have made, use, offer
for sale, sell, have sold and import any and all Phytera Patents, Phytera
Technology, and Program Technology (to the extent Phytera has an interest) and
Program Patents (to the extent Phytera has an interest) that is necessary or
useful for the manufacture, use or development of Research Compounds, Closely
Related Derivatives or Products; and (ii) non-exclusive license, with a right to
sublicense, to make, have made, use, offer for sale, sell, have sold and import
any and all other Program Technology (to the extent Phytera has an interest) and
Program Patents (to the extent Phytera has an interest).
- ------------------------
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 19
<PAGE>
(C) Upon expiration or termination of the Agreement, except
termination by Phytera pursuant to sections 10.2 or 10.4, Phytera shall grant
and hereby does grant to Lilly a worldwide, perpetual, non-exclusive, royalty-
free license, with a right to sublicense, to make, have made, use, offer for
sale, sell, have sold and import any and all Program Technology (to the extent
Phytera has an interest) and Program Patents (to the extent Phytera has an
interest).
3.2 LICENSES TO PHYTERA. During the Research Term and subject to the
other provisions of this Agreement, Lilly hereby grants to Phytera a
nonexclusive, worldwide license in the Field during the Research Term under the
Lilly Patents, Lilly Technology, Program Patents (to the extent Lilly has an
interest) and Program Technology (to the extent Lilly has an interest) for the
sole purpose of conceiving, discovering, evaluating, identifying,
characterizing, and researching Research Compounds or Closely Related
Derivatives in connection with the Program and otherwise complying with its
obligations under this Agreement.
ARTICLE 4
---------
INTELLECTUAL PROPERTY
---------------------
4.1 PATENTABLE INVENTIONS AND KNOW-HOW
(A) DISCLOSURES AND REPORTS. Phytera and Lilly shall disclose to one
another promptly the results achieved in conducting the Program and all Program
Technology developed in the Program. Disclosure shall be in sufficient detail
to permit each Party to employ such results and Program Technology as provided
herein. Such disclosures may take the form of limited visits by Lilly and
Phytera personnel to the facilities being utilized for the Program to permit
observation of the procedures being employed pursuant to Section 2.17. While
the Program is being conducted, the Research Team shall submit to Phytera and
Lilly a detailed written quarterly report on the progress of the Program.
Within ninety (90) days after completion of the Program, the Research Team shall
provide Phytera and Lilly with a comprehensive final written report.
(B) OWNERSHIP. Any Program Technology made by either Party will be
disclosed to the other Party promptly after the disclosing Party recognizes the
significance thereof. All Program Patents and Program Technology, except
patents Covering Research Compounds, Closely Related Derivatives or Products,
shall be owned by the Party making the invention claimed or contained therein
or, if such invention is made jointly, shall be jointly owned all as determined
in accordance with U.S. laws of inventorship. Patents Covering Research
Compounds, Closely Related Derivatives and Products shall be, and hereby are,
assigned to and owned solely by Lilly.
(C) PATENT PROSECUTION. Phytera shall be responsible for preparing,
filing, prosecuting, maintaining and taking such other actions as are reasonably
necessary or appropriate with respect to the Phytera Patents and any patentable
inventions encompassed by Phytera Technology and Phytera Program Technology,
excluding jointly invented Program Technology. Lilly shall be responsible for
preparing, filing, prosecuting, maintaining and taking such other actions as are
reasonably necessary or
Page 20
<PAGE>
appropriate with respect to the Lilly Patents and any patentable inventions
encompassed by Lilly Technology and Lilly Program Technology, which shall
include, without limitation, patents which Cover Research Compounds, Closely
Related Derivatives and Products and jointly invented Program Technology. The
Parties shall agree upon the countries for which patent coverage as described in
this Article 4 should be sought and the responsible Party shall prepare, file,
prosecute and maintain patents in accordance with that agreement, subject to the
provisions of Section 4.1(e) below; provided, however, that the responsible
Party shall at a minimum be required to seek patent coverage in the United
States, Japan and the European Economic Community. To the extent either Party
desires to engage external counsel in connection with activities described in
this Section 4.1(c), the engaging Party will consult the other Party with
respect to its choice of external patent counsel. Each Party shall also keep the
other Party continuously informed of all significant matters relating to the
preparation, filing, prosecution and maintenance of patents and patent
applications covered by this Agreement. Each Party shall provide the other Party
with copies of any substantial prosecution papers within thirty (30) days of
receipt. Each Party shall endeavor in good faith to coordinate its efforts with
those of the other Party to minimize or avoid interference with the prosecution
of the other Party's patent applications. To the extent practicable, each Party
shall provide the Research Team with a copy of any patent application which
first discloses any specific Program Technology, prior to filing the first of
such applications in any jurisdiction, for review and comment by the Research
Team. Each Party shall minimally provide the other Party with written notice
regarding the subject matter within Program Technology that such Party plans to
claim in a patent application or provisional.
(D) COSTS. Subject to the provisions of subsection (e) below, Lilly
shall bear all costs incurred in the preparation, filing, prosecution and
maintenance of Lilly Patents and Lilly Program Patents, and Phytera shall bear
all costs incurred in the preparation, filing, prosecution and maintenance of
Phytera Patents and Phytera Program Patents owned solely by Phytera; provided,
however, that Phytera shall pay [ ]* of all reasonable external expenses
incurred by Lilly while prosecuting and maintaining jointly invented Program
Patents. External expenses will include patent office fees and taxes in
connection with the filing, prosecution and maintenance of any patent or patent
application and the reasonable fees of any patent attorneys or agents external
to Lilly, in connection with the ex parte preparation, filing, prosecution and
-- -----
maintenance thereof. The allocation of such expenses will occur on an annual
basis at the end of the last quarter of each Calendar Year, at which time Lilly
will provide Phytera with an itemized list of external expenses denominated in
United States dollars incurred during the previous annual period in prosecuting
and maintaining jointly owned Program Patents. Phytera will then reimburse
Lilly's reasonable expenses within [ ]* of the date of receipt of this
itemized list. Notwithstanding the foregoing, upon written notice to Lilly,
Phytera may elect not to share in the prosecution or maintenance costs as
described in this Section 4.1(d) related to a patent or patent application in a
particular country and incurred by Lilly after receipt of that notice; and in
such event Phytera will grant to Lilly
____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 21
<PAGE>
all of its patent rights associated with such patent in such country.
(E) DISCONTINUANCE OF PATENT PROSECUTION. The Party initially
responsible for preparation, filing, prosecution and maintenance (including the
costs or reimbursement of costs related thereto) of a particular Program Patent,
Lilly Patent or Phytera Patent (the "Initial Responsible Party") shall give
thirty (30) days advance notice (the "Discontinuance Election") to the other
Party of any decision to cease preparation, filing, prosecution and maintenance
of that Patent (a "Discontinued Patent") provided, however, that abandonment of
a patent application in favor of a continuation or a continuation-in-part
thereof shall not constitute discontinuance of the patent application. In such
case, the other Party may elect at its sole discretion to continue preparation,
filing, prosecution or maintenance of the Discontinued Patent at its sole
expense. The Party so continuing shall own any such patent application and
patents maturing therefrom; and the Initial Responsible Party shall execute such
documents and perform such acts as may be reasonably necessary for the other
Party to file or to continue prosecution or maintenance, including assigning
ownership of such patents and inventions to such electing Party. Discontinuance
may be on a country-by-country basis or for a patent application or patent
series in total. In the event that Lilly exercises its Discontinuance Election
with respect to a Discontinued Patent in a particular country, Lilly's license
hereunder with respect to that Discontinued Patent shall terminate with respect
to such country.
4.2 SAMPLES. Phytera shall provide Lilly with samples of any
materials, including cell lines, animals, reagents, lead Compounds, Research
Compounds or Closely Related Derivatives which are produced or developed within
the scope of the Program.
4.3 INFRINGEMENT CLAIMS BY THIRD PARTIES.
(a) If the manufacture, use or sale of Research Compounds,
Closely Related Derivatives or Products or the execution of the Research Plan
results in a claim against a Party for patent infringement or for inducing or
contributing to patent infringement ("Infringement Claim"), the Party first
having notice of an Infringement Claim shall promptly notify the other in
writing. The notice shall set forth the facts of the Infringement Claim in
reasonable detail.
(b) In the event that the execution of the Research Plan
necessarily involves working within the scope of a Third Party's patent, then
Phytera will use diligent efforts to obtain a required license under the Third
Party's patents with a right to sublicense to Lilly, under terms reasonably
acceptable to both Lilly and Phytera. If the required license is either
unavailable or its terms are unacceptable, then Phytera and Lilly will agree
upon alternatives for proceeding with the Research Plan or to undertake the
defense of a patent infringement action with respect to the Third Party patents.
(c) In the event that the sale of a Product in any country
necessarily involves working within the scope of a Third Party's patent, then
Lilly will use diligent efforts to obtain a required license under the Third
Party's patents with a right to sublicense to Phytera, under terms reasonably
acceptable to Lilly and Lilly will bear any royalty obligation payable under
such license. If the required license is either unavailable or its terms are
unacceptable, then Lilly may elect in its sole discretion to discontinue sales
of the Product in such country or to undertake the defense of a patent
infringement action with respect to the Third Party patents.
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<PAGE>
(d) Except as provided in subsection (e) below, the Parties shall
share all reasonable out-of-pocket costs and expenses (including reasonable
attorney fees) incurred in conducting the defense of such Infringement Claims,
including the investigation and settlement thereof, equally. To the extent
either Party desires to engage external counsel in connection with activities
described in this Section 4.3, the engaging Party will consult the other Party
with respect to its choice of external patent counsel. Each Party shall also
keep the other Party continuously informed of all significant matters relating
to infringement claims of Third Parties. Except as otherwise provided in this
Agreement, any and all royalties, amounts paid in settlement and damages
resulting from settlement or a final nonappealable judgment pursuant to
litigation relating to an Infringement Claim shall be shared equally by the
Parties, except as otherwise provided in subsection (e) below.
(e) Phytera shall bear all costs, expenses (including reasonable attorney
fees) and royalty obligations associated with obtaining a license under Section
4.3(b) and defending any related Infringement Claim, including the investigation
and settlement thereof; provided, however, Lilly shall bear royalty obligations
associated with any license that is required to settle or avoid an Infringement
Claim related to Technology contributed by Lilly to the Program.
4.4 INFRINGEMENT CLAIMS AGAINST THIRD PARTIES.
(a) Phytera and Lilly each agree to take reasonable actions to
protect their respective patents and technology from infringement and from
unauthorized possession or use.
(b) If any Phytera Technology, Lilly Technology, Program Patents or
Program Technology is infringed or misappropriated, as the case may be, by a
Third Party, the Party to this Agreement first having knowledge of such
infringement or misappropriation, shall promptly notify the other in writing.
The notice shall set forth the facts of such infringement or misappropriation in
reasonable detail. Subject to the rights of Third Parties, the owner of the
Patent or Technology shall have the primary right, but not the obligation, to
institute, prosecute, and control any action or proceeding with respect to
infringement or misappropriation of such Patent or Technology by its own counsel
and the other Party shall have the right, at its own expense, to be represented
in such action by its own counsel. The Research Team shall determine which
Party shall have the primary responsibility to institute, prosecute, and control
any action or proceeding with respect to infringement or misappropriation of
jointly owned Patents or Technology and the other Party shall have the right, at
its expense, to be represented by its counsel.
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<PAGE>
(c) The costs and expenses of all infringement suits brought by a
Party under this Section 4.4 shall be reimbursed to such filing Party and the
participating Party, pro rata, out of any damages or other monetary awards
recovered therein in favor of Phytera or Lilly. [
]*. If the Party having the primary
right or responsibility to institute, prosecute, and control such action or
prosecution fails to do so within a period of [ ]* after receiving notice of the
infringement, the other Party, subject to the prior rights of any Third Party,
shall have the right to bring and control any such action by counsel of its own
choice, and the other shall not have the right to participate in such action or
proceeding, except that such Party may be joined as a Party plaintiff and, in
case of joining, such Party agrees to give the other Party reasonable assistance
and authority to file and to prosecute such suit. All costs and expenses of any
suit brought by the Party not having the primary right or responsibility to
institute, prosecute, and control such action or prosecution (including the
costs and expenses incurred by the other Party in providing reasonable
assistance to the Party initiating the action or proceeding) shall be paid, and
all damages or other monetary rewards recovered therein shall be retained, by
the Party initiating, the action or proceeding. No settlement or consent
judgment or other voluntary final disposition of a suit under this Section 4.4
may be entered into without the joint consent of Phytera and Lilly (which
consent shall not be unreasonably withheld or delayed).
4.5 NOTICE OF CERTIFICATION. Phytera and Lilly each shall immediately
give notice to the other of any certification filed under the U.S. "Drug Price
Competition and Patent Term Restoration Act of 1984" claiming that a Program
Patent, Phytera Patent or Lilly Patent is invalid or that any infringement will
not arise from the manufacture, use or sale of any product by a Third Party. If
Phytera decides not to bring infringement proceedings against the entity making
such a certification with respect to a Phytera Patent or Program Patent, Phytera
shall give notice to Lilly of its decision not to bring suit within twenty-one
(21) days after receipt of notice of such certification. Lilly may then, but is
not required to, bring suit against the Party that filed the certification. If
Lilly decides not to bring infringement proceedings against the entity making
such a certification with respect to a Lilly Patent, Lilly shall give notice to
Phytera of its decision not to bring suit within twenty-one (21) days after
receipt of notice of such certification. Phytera may then, but is not required
to, bring suit against the Party that filed the certification. Any suit by Lilly
or Phytera shall either be in the name of Lilly or in the name of Phytera, or
jointly by Lilly and Phytera, as may be required by law. For this purpose, the
Party not bringing suit shall execute such legal papers necessary for the
prosecution of such suit as may be reasonably requested by the Party bringing
suit. Any costs incurred or benefits received as a result of proceeding under
this Section 4.5 shall be paid or received entirely by the Party who pursued the
action.
4.6 PATENT TERM EXTENSIONS. The Parties shall cooperate with each other
in gaining patent term extension wherever applicable to Phytera Patents, Lilly
Patents or Program Patents covering Research Compounds and Closely Related
Derivatives. Lilly shall determine which patents shall be extended. All filings
for such extension shall be made by the Party to whom the patent is assigned,
provided, however, that in the event that the Party to whom the patent is
assigned elects not to file for an extension, such Party
_____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 24
<PAGE>
shall (i) inform the other Party of its intention not to file, (ii) grant the
other Party the right to file for such extension, and (iii) cooperate as
necessary to assist the other Party in filing such extension.
4.7 AUDIT OF COSTS. Upon reasonable written notice to Phytera, Lilly
shall have the right at its own expense and not more than annually in or in
respect of any Calendar Year, and during normal business hours, to audit those
books and records as may be reasonably necessary to verify the accuracy and
reasonableness of any costs incurred by Phytera and for which Phytera is seeking
or has received partial reimbursement from Lilly pursuant to this Article 4, in
respect of any Calendar Year ending not more than one (1) year prior to the date
of such notice. Any Phytera information received or obtained by Lilly in
connection with an audit under this Section 4.7 is Confidential Information and
Lilly shall retain all such information in confidence.
ARTICLE 5
---------
CONFIDENTIALITY AND PUBLICATION
-------------------------------
5.1 CONFIDENTIALITY. Unless otherwise set forth in this Agreement,
for a period from the Effective Date until [ ]* following the later
of: (a) the expiration or termination of this Agreement or (b) if Lilly is
marketing a Product, the date on which Lilly ceases to market any Product, Lilly
and Phytera shall maintain in confidence all Confidential Information disclosed
by the other Party or generated during the Program, and shall not, except as
contemplated by this Agreement, use it for its benefit or the benefit of others,
without the written consent of the disclosing Party. Lilly and Phytera agree not
to disclose any trade secret information belonging to the other Party for so
long as the trade secret remains confidential, provided that any disclosure of
such trade secret is in no way through the fault of the of the other Party to
this Agreement. Documents made available to the receiving Party shall remain the
property of the disclosing Party and shall be returned upon written request,
except that one copy of all such information may be retained for legal archival
purposes by the receiving Party.
5.2 AUTHORIZED DISCLOSURE. Each Party may disclose Confidential
Information disclosed by the other Party or generated during the Program for the
purpose of making various regulatory filings and complying with applicable
governmental regulations, and to consultants and others having a need to know
for the purposes of development, manufacture or marketing of Research Compounds
or Product(s) pursuant to this Agreement, provided that such consultants and
others shall also agree to appropriate and comparable confidentiality and non-
use provisions. In addition, each Party shall be entitled to disclose
Confidential Information to the extent required by applicable law, orders of
court, regulatory authorities or similar bodies having jurisdiction over the
Party ("Legal Process"). The Receiving Party shall promptly notify the
Disclosing Party of any request or demand by Legal Process for disclosure of
Confidential Information. With respect to any disclosure of Confidential
Information, including the text of this Agreement, for the purpose of complying
with applicable government regulations, the Disclosing Party shall give the
other Party an opportunity to review and comment upon the extent of any such
disclosure of Confidential Information prior to disclosure.
_____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 25
<PAGE>
5.3 NONDISCLOSURE OF AGREEMENT. Neither Party shall disclose any
information about this Agreement without the prior written consent of the other.
Consent shall not be required, however, for (a) disclosures to tax authorities
or to bona fide potential sublicensees, to the extent required or contemplated
by this Agreement, provided, that in connection with such disclosure, each Party
agrees to use its commercially reasonable efforts to secure confidential
treatment of such information, (b) disclosures of information for which written
consent has previously been obtained, or (c) information which had previously
been publicly disclosed. Each Party shall have the further right to disclose the
terms of this Agreement as required by applicable law, including the rules and
regulations promulgated by the Securities and Exchange Commission and/or the
regulatory bodies/authorities governing securities issues in foreign
jurisdictions and to disclose such information to shareholders or potential
investors as is customary for privately or publicly-held companies (as the case
may be at the time of disclosure), provided the disclosing Party provides to the
other Party, to the extent practicable, a copy of the information to be
disclosed and an opportunity to comment thereon prior to such disclosure, and,
to the extent practicable, consults within a reasonable time in advance of the
proposed disclosure with the other on the necessity for the disclosure and the
text of the proposed release. Any copy of this Agreement to be filed with the
Securities and Exchange Commission shall be redacted to the satisfaction of both
Parties; provided, however, in the event that the Securities and Exchange
Commission objects to the redaction of any portion of the Agreement after the
initial submission, the filing Party shall inform the other Party of the
objections and shall in good faith respond to the objections in an effort to
limit the disclosure required by the Securities and Exchange Agreement, but in
any event the filing Party shall be free to include any portions of the
Agreement it deems necessary to respond to the objections in any future filings.
5.4 SURVIVAL. The confidentiality obligations of this Article 5 shall
survive the termination or expiration of the Agreement.
5.5 PRESS RELEASES. Attached hereto as APPENDIX F is a form of press
----------
release which Phytera intends to release upon the execution of this Agreement or
shortly thereafter, which is hereby approved by Lilly. All press releases or
other public communication by either Party relating to the collaboration
contemplated by this Agreement shall be approved in advance by each Party which
approval shall not be unreasonably withheld, except for those communications
required by law. To the extent a disclosure is required by law, each Party shall
provide the other with prior written notification of such disclosure.
5.6. INQUIRIES FROM MEDIA AND FINANCIAL ANALYSTS. During and after the
term of this Agreement, Phytera may receive inquiries from reporters or
financial analysts related to the Program or Products. Phytera shall confer
with Lilly's corporate communications department (317-276-3655) before
responding to such inquiries and shall receive approval from Lilly for its
planned response to such inquiries.
5.7 USE OF NAMES, LOGOS OR SYMBOLS. No Party hereto shall use the name,
trademarks, logos, physical likeness, employee names or owner symbol of any
other Party for any purpose, including, without limitation, private or public
securities placements, without the prior written consent of the affected Party,
such consent not to be unreasonably withheld or delayed so long as such use of
name is limited to objective statements of fact, rather than for endorsement
purposes. Nothing contained herein shall
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<PAGE>
be construed as granting either Party any rights or license to use any of the
other Party's trademarks or tradenames without separate, express written
permission of the owner of such trademark or tradename.
ARTICLE 6
---------
EQUITY INVESTMENT, MILESTONES AND ROYALTIES
-------------------------------------------
6.1 UPFRONT EQUITY INVESTMENT. In consideration of Phytera entering into
this Agreement and allowing Lilly the use of the Phytera Technology, within
sixty (60) business days of Lilly receiving a fully executed original of this
Agreement, Lilly shall purchase and Phytera shall sell to Lilly for an
aggregate price of Five Hundred Thousand Dollars ($500,000) that number of
shares of Phytera Series E Preferred Stock referenced in the Stock Subscription
Agreement dated as of the same date hereof.
6.2. MILESTONE BASED FEES AND INVESTMENT. In further consideration of
Phytera entering into this Agreement and provided that Phytera is not then in
breach of any of its obligations under this Agreement, Lilly shall, upon the
achievement of one or more of the milestones listed below for a Research
Compound, Closely Related Derivative, or Product, (a) notify Phytera promptly of
such achievement and (b) pay a milestone fee as listed below to Phytera within [
]* of such achievement:
Milestone 1: [ ]*
[
]*. This milestone
shall be triggered and paid only once during
the term of the Agreement and shall be made
in the form of an equity investment. The
equity investment shall be based then-
prevailing market price of Phytera stock or
upon terms substantially similar to the then-
most recent placement of equity by Phytera.
The per recent private share price of Phytera
equity shall be based on the following: (1)
if Phytera stock is being publicly traded,
the per share price shall be based on the
average of the last sale prices of a share of
common stock on the relevant market for the [
]* as documented in Research Team minutes or
(2) if Phytera stock is not being publicly
traded, the per share price shall be based on
the then-prevailing market price of Phytera
stock or the price of issuance during
Phytera's then most recent private placement
______________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
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<PAGE>
or such other price as agreed upon by the
Parties in writing.
Milestone 2: [ ]*
[ ]*.
Milestone 3: [ ]*
[ ]*.
Milestone 4: [ ]*
[ ]*.
Milestone 5: [ ]*
[ ]*
Milestone 6: [ ]*
[ ]*.
Each milestone is independent, so that the achievement of any one milestone
with respect to a Research Compound or Product does not require payment of lower
numbered unachieved milestones with respect to that Compound or Product.
All milestone payments previously paid with respect to Research Compounds
or Products that later fail prior to First Commercial Sale in the United States,
Japan or Major Europe, whichever occurs first, shall be creditable against
future milestones payment(s) for the next Research Compound(s) or Product(s) to
trigger any milestone(s). "Failure" for purposes of this provision shall mean a
decision by Lilly to terminate further development of a Research Compound or
Product due to efficacy, safety or tolerance data or such other reasons that are
commercially reasonable, given the then current industry standards.
6.3 ROYALTIES.
____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 28
<PAGE>
(a) Subject to the terms and conditions of this Agreement, in
consideration for the licenses provided hereunder, Lilly shall pay Phytera
royalties ("Royalty Payments") for each Product based upon [
]*, as follows:
Annual Net Sales Royalty Rate (on that
---------------- ---------------------
portion of net sales)*
----------------------
[
]*
*subject to a reduction equal to [ ]* % of any royalties payable to Third
Parties, provided that the royalty rate shall never fall below [ ]* %.
**MM - million U.S. Dollars
(b) For the purposes of this Article, the annual Net Sales of Product
figures set out above shall be in 1998 U.S. Dollars. Such numbers shall then be
adjusted upward on a Calendar Year basis commencing January 1,1999 (and on
January 1 of each year thereafter) using the Consumer Price Index (as calculated
by the Bureau of Labor Statistics for all U.S. urban consumers) to account for
inflation. Royalties shall be calculated on a Product by Product basis, and
sales of various Products shall not be aggregated for purposes of determining
the applicable royalty rate. For this purpose, all formulations of a Compound
shall be regarded as one Product. Royalty rates shall be applied only to that
portion of sales in a given Calendar Year that fall within the triggering sales
tier.
6.4 ROYALTY PAYMENTS. Royalty payments under this Agreement shall be made
to the receiving Party within [
]*. Royalties shall be payable on a [
]*. All payments shall be made in U.S.
Dollars. If at any time legal restrictions prevent the prompt remittance of any
payments with respect to any country where Products are sold, Lilly shall have
the right and option to make such payments by depositing the amount thereof in
local currency to Phytera's account in a bank or depository in such country.
6.5 SINGLE ROYALTY. Royalties payable under this Article will be payable
only once with respect to a particular unit of Product and will be paid only
once regardless of there being more than one Patent applicable to such Product.
6.6 SALES REPORTS.
(a) During the term of this Agreement and after the First Commercial Sale
of a Product, Lilly shall furnish or cause to be furnished to Phytera on a
quarterly basis a written report or reports covering each Calendar Quarter (each
such Calendar Quarter being sometimes referred to herein as a "reporting
period") showing (i) the Net Sales of
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 29
<PAGE>
each Product in each country during the Royalty Term by Lilly or its Affiliates,
and; (ii) the royalties, which shall have accrued under Section 6.3 hereof in
respect of such sales and the basis for calculating those royalties. With
respect to sales of Products invoiced in U.S. Dollars calculated by using
Lilly's then-current standard procedures and methodology, the Net Sales amounts
and the amounts due to Phytera hereunder shall be expressed in Dollars. With
respect to sales of Products invoiced in a currency other than Dollars, the Net
Sales and amounts due to Phytera hereunder shall be expressed in the Dollar
equivalent of the amount payable to Phytera, calculated using Lilly's then
current standard exchange rate methodology for the translation of foreign
currency sales into Dollars. In each report, the exchange rate methodology will
be identical to that employed by Lilly in its external financial reporting, as
reviewed and approved by its independent auditors and will be in conformity with
generally accepted accounting principles consistently applied. Lilly will at
Phytera's reasonable request, but not more frequently than once a year, inform
Phytera as to the specific exchange rate translation methodology used for a
particular country or countries. Each quarterly report shall be due seventy-five
(75) days following the close of each reporting period. Lilly shall keep
accurate records in sufficient detail to enable the amounts due hereunder to be
determined and to be verified by the independent auditors described hereunder.
Lilly shall furnish annually to Phytera appropriate evidence of payment of any
tax or other amount required by applicable laws or regulations to be deducted
from any royalty payment, including any tax or withholding levied by a foreign
taxing authority in respect of the payment or accrual of any royalty.
(b) Amounts shown to have accrued by each sales report provided for under
Section 6.6(a) of this Agreement shall be due and payable on the date such sales
report is due.
(c) Upon written notice to Lilly, Phytera shall have the right at its own
expense using Lilly's independent certified public accountant, and not more than
annually in or in respect of any Calendar Year, to audit Lilly's books and
records during normal business hours as may be reasonably necessary to verify
the accuracy of the sales reports furnished by Lilly pursuant to Section 6.6(a),
in respect of any Calendar Year ending not more than one (1) year prior to the
date of such notice. Such audit shall be conducted by staff of Lilly's
independent public accountant other than those staff responsible for or involved
in ongoing general audit activities at Lilly. Phytera shall have the right to
have the audit work papers prepared by Lilly's independent public accountant
pursuant to this audit reviewed by Phytera's own independent certified public
accountant. Upon the expiration [ ]*, the calculation of
amounts payable with respect to such fiscal year shall be binding and conclusive
upon Phytera, and Lilly shall be released from any liability or accountability
with respect to payments for such year. The report prepared by the independent
public accountant, a copy of which shall be sent or otherwise provided to Lilly
by such independent public accountant at the same time it is sent or otherwise
provided to Phytera, shall contain the conclusions of the independent public
accountant regarding the audit and will specify that the amounts paid to Phytera
pursuant thereto were correct or, if incorrect, the amount of any underpayment
or overpayment. If the independent public accountant's report shows any
underpayment, Lilly shall remit to Phytera within thirty (30) days after Lilly's
receipt of such report, (i) the amount of such underpayment and (ii) if such
underpayment
______________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 30
<PAGE>
exceeds ten percent (10%) of the total amount owed for the Calendar Year then
being audited, the reasonable and necessary fees and expenses of the independent
public accountant performing the audit, subject to reasonable substantiation
thereof. Any overpayments shall be refunded to Lilly by Phytera within thirty
(30) days of receipt of the audit report or may be creditable, at Lilly's
option, against amounts payable in subsequent payment periods. Phytera agrees
that all information subject to review under this Section 6.6(d) is Confidential
Information and that Phytera shall retain and cause the accountant to retain all
such information in confidence.
ARTICLE 7
INDEMNITY
SECTION 7.1
(a) CLAIMS. Each Party hereby agrees to indemnify, defend and hold
harmless the other Party and its Affiliates, and their respective officers,
directors, agents and employees from and against any and all suits, claims,
actions, demands, liabilities, expenses and/or losses, including reasonable
attorneys' fees and other costs of defense other than claims for infringement
(which shall be resolved pursuant to Sections 4.3 and 4.4) ("Claims"), (a)
resulting directly or indirectly from the manufacture, use, handling, storage,
sale or other disposition of Research Compounds or Product by the indemnifying
Party, its Affiliates, agents or sublicensees, but only to the extent such
Claims result from the negligence or intentional misconduct of the indemnifying
Party or its employees and agents and do not result from the negligence or
intentional misconduct of the Party seeking indemnification, or (b) resulting
directly from a breach of any representation or warranty of the indemnifying
Party contained in Article 8 of this Agreement.
(b) DEFENSE. Any entity entitled to indemnification under this Article
shall give prompt written notice to the indemnifying Party of any Claims with
respect to which it seeks indemnification, and the indemnifying Party shall have
the option to assume the defense of such Claims with counsel reasonably
satisfactory to the indemnified Party. If such defense is assumed by the
indemnifying Party with counsel so selected, the indemnifying Party will not be
obligated to pay the fees and expenses of any separate counsel retained by the
indemnified Party with respect to such Claims. Except with the prior consent of
the indemnified Party, which consent shall not be unreasonably withheld, the
indemnifying Party may not enter into any settlement of such litigation unless
such settlement includes an unqualified release of the indemnified Party.
(c) INSURANCE. Phytera and Lilly shall each have and maintain such type
and amounts of liability insurance covering the manufacture, supply, use and
sale of Research Compounds, Program Candidates, Rejected Candidates,
Discontinued Products and Products as is normal and customary in the
pharmaceutical industry generally for parties similarly situated, and will upon
request provide the other Party with a copy of relevant certificates of
insurance or self-insurance in that regard, along with any amendments and
revisions thereto.
Page 31
<PAGE>
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 CORPORATE EXISTENCE AND POWER. Each of Phytera and Lilly represents
and warrants to the other that as of the Effective Date it (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
state in which it is incorporated, and (b) has full corporate power and
authority and the legal right to own and operate its property and assets and to
carry on its business as it is now being conducted and is contemplated in this
Agreement, including the right to grant the licenses granted hereunder.
8.2 AUTHORITY. As of the Effective Date, each Party (i) has the corporate
power and authority and the legal right to enter into this Agreement and perform
its obligations hereunder, and (ii) has taken all necessary corporate action on
its part required to authorize the execution and delivery of the Agreement and
the performance of its obligations hereunder. The Agreement has been duly
executed and delivered on behalf of such Party, and constitutes a legal, valid,
binding obligation of such Party and is enforceable against it in accordance
with its terms subject to the effects of bankruptcy, insolvency or other laws of
general application affecting the enforcement of creditor rights and judicial
principles affecting the availability of specific performance and general
principles of equity whether enforceability is considered a proceeding at law or
equity.
8.3 ABSENCE OF LITIGATION. As of the Effective Date, each Party
represents and warrants to the other that it is not aware of any pending or
threatened litigation (and has not received any communication) which alleges
that such Party's activities related to this Agreement have violated, or that by
conducting the activities as contemplated herein such Party would violate, any
of the intellectual property rights of any other person. To the best of
Phytera's and Lilly's knowledge, there is no material unauthorized use,
infringement or misappropriation of any of its intellectual property rights
licensed hereunder.
8.4 NO APPROVALS OR CONSENTS. Except as otherwise described in this
Agreement each Party represents and warrants to the other that all necessary
consents, approvals and authorizations of all governmental authorities and other
persons or entities required to be obtained by such Party in connection with
this Agreement have been obtained.
8.5 PATENTS; PRIOR ART. Except as each Party has otherwise advised the
other Party in writing, each of Phytera and Lilly represents and warrants to the
other that as of the Effective Date, to the best of its knowledge, it has
sufficient legal and/or beneficial title and ownership under its intellectual
property rights necessary for it to fulfill its obligations under this Agreement
and that it is not aware of any communication alleging that it has violated or
by conducting its business as contemplated by this Agreement would violate any
of the intellectual property rights of any other person, and that to the best of
its knowledge there is no material unauthorized use, infringement or
misappropriation of any of its intellectual property rights relevant to this
Agreement. As used herein, "intellectual property rights" means all patent
rights, copyrights, trademarks, trade secret rights, chemical and biological
material rights and know-how rights necessary or useful to make, use or sell
Research Compounds and Products. Phytera further warrants and represents that
prior to the date of this Agreement, no license or covenant not to sue under any
Phytera Patent in the Field has been granted to any Third
Page 32
<PAGE>
Party.
8.6 NO CONFLICT. The execution and delivery of the Agreement and the
performance of each Party's obligations hereunder (i) do not conflict with or
violate any requirement of applicable law or regulation or any provision of
articles of incorporation or bylaws of such Party in any material way, and (ii)
do not conflict with, violate or breach or constitute a default or require any
consent under, any contractual obligation or court or administrative order by
which such Party is bound.
8.7 YEAR 2000 COMPLIANCE. Phytera represents and warrants that its
operations, including without limitation the provision of any services, products
and/or information to or on behalf of Lilly, will not be materially delayed,
interrupted or otherwise adversely affected to the detriment of Lilly due to the
failure of Phytera's business systems and/or computer systems to be "Year 2000
Compliant". For purposes of this paragraph, a system shall be considered "Year
2000 Compliant" only if (i) the occurrence in or use by that system of dates on
or after January 1, 2000 ("Millennial Dates") does not adversely affect that
system's performance, including without limitation performance with respect to
date-dependent data, computations, output, or other functions (including,
without limitation, calculating, comparing and sequencing), and (ii) that system
creates, stores, processes and outputs information (as applicable) related to or
including Millennial Dates without errors or omissions.
8.8 NO DEBARMENT. Each party represents and warrants to the other that it
will comply at all times with the provisions of the Generic Drug Enforcement Act
of 1992 and will upon request certify in writing to the other that none of it,
its employees, or any person providing services to such party in connection with
the collaboration contemplated by this Agreement have been debarred under the
provisions of such Act.
ARTICLE 9
GOVERNING LAW AND DISPUTE RESOLUTION
9.1 GOVERNING LAW. The Agreement shall be governed by the laws of the
State of Indiana, without regard to Indiana choice of law provisions.
9.2 DISPUTE RESOLUTION PROCESS. In the event of any dispute relating to
this Agreement, the Parties shall prior to instituting any lawsuit, arbitration
or other dispute resolution process on account of such dispute, follow the
procedures for dispute resolution set forth in Section 2.2(d) of this Agreement
if such dispute is within the jurisdiction of the Research Team, as contemplated
by Section 2.2(c). In the event of any dispute relating to or arising from this
Agreement which a Party does not believe is covered by Section 2.2(d), the
Parties shall attempt in good faith to settle such dispute first by negotiation
and consultation between themselves, including referral of such dispute to the
Chief Executive Officer of Phytera and the Vice President, Infectious Diseases
Research of Lilly. In the event said executives are unable to resolve such
dispute or agree upon a mechanism to resolve such dispute within sixty (60) days
of the first written request for dispute resolution under this Article 9, the
Parties shall then consider other forms of alternative dispute resolution as a
means of resolving any such dispute. Thereafter, either Party shall be free to
institute litigation and seek such remedies as may be available.
Notwithstanding anything in this Agreement to the contrary, either Party shall
be entitled to institute litigation immediately if the same shall
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<PAGE>
be necessary to prevent irreparable harm to either Party.
ARTICLE 10
TERM AND TERMINATION OF AGREEMENT
10.1 TERM. This Agreement shall become effective on the Effective Date and
shall continue in effect, unless terminated earlier as described hereunder or by
mutual written agreement of the Parties, until the later of either: (1) the [
]*; or (2) in the event that Lily is developing a Research or marketing a
product in accordance with the terms of this Agreement but there is no issued
Phytera Patent or Program Patent having a valid claim Covering such Research
Compound or Product, then [ ]* from the date of the First Commercial
Sale with respect to the Product, if any. Upon expiration of the Agreeement
under Section 10.1, Lily shall and hereby does assign all right, title and
interest that Lilly has in Program Technology and Program Patents, excluding its
interest in Research Compounds and Closely Related Derivatives ( and any claims
or know-how Covering such Research Compounds and Lilly's prior ownership
interest) and Phytera shall grant and hereby does grant to Lilly (with respect
to Phytera's prior ownership interest) a worldwide, non-exclusive, royalty-free
license (with the right to sublicense) to all Program Technology and Program
Patents in accordance with Section 3.1(c).
10.2 TERMINATION FOR MATERIAL BREACH. Either Party shall have the right to
terminate this Agreement after [ ]* written notice to the other in the
event the other is in material breach of this Agreement, unless the other Party
cures the breach before the expiration of such period of time. Such notice
shall set forth in reasonable detail the specifics of the breach. In the event
of termination hereunder by Lilly, all licenses granted under this Agreement to
Lilly and its Affiliates shall not be affected and shall continue in full force
and effect, and Lilly and its Affiliates shall have the right to exercise all
licenses provided under this Agreement. All licenses granted under this
Agreement to Phytera and its Affiliates shall automatically terminate upon such
termination by Lilly. In the event of termination hereunder by Phytera, all
licenses granted under this Agreement to Phytera and its Affiliates shall not be
affected and shall continue in full force and effect, and Phytera and its
Affiliates shall have the right to exercise all licenses provided under this
Agreement. All licenses granted under this Agreement to Lilly and its
Affiliates shall automatically terminate upon such termination by Phytera.
Notwithstanding the foregoing, Lilly shall be permitted to make, have made, use,
have used, import, offer for sale, sell, and have sold, all supplies of Product
in its inventory at the time of termination until such supplies are exhausted.
For purposes of this Agreement, insolvency as set forth in Section 10.4 shall be
deemed a material breach.
10.3 LILLY VOLUNTARY TERMINATION. Any time after the [ ]* of the
Effective Date, Lilly may terminate this Agreement by giving Phytera [
______________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 34
<PAGE>
]* written notice of its intent to terminate, which notice may be
provided prior to the [ ]* of the Effective Date. Upon termination by
Lilly under this Section 10.3 and subject to the terms set forth herein, (i) the
licenses granted under this Agreement shall terminate, except as otherwise
provided in Section 3.1(c); (ii) Lilly shall and hereby does transfer to Phytera
all right, title and interest in the Research Compounds and Closely Related
Derivatives except those Research Compounds or Closely Related Derivatives which
shall have been derived from the Lilly Natural Products Library or the Lilly
Compound Library; and (iii) Lilly shall transfer and hereby does transfer all of
its right, title and interest in jointly owned Program Patents and jointly owned
Program Technology, subject to the retention by Lilly of a non-exclusive license
in accordance with Section 3.1(c). In consideration for the transfer of rights
from Lilly to Phytera to occur pursuant to this Section 10.3, Phytera shall pay
Lilly a [ ]* royalty on the annual Net Sales of any Products sold by Phytera
or its Affiliates or any sublicensee thereof until Lilly has received an amount
equal to its payments to Phytera hereunder (including, but not limited to,
Research Funds, milestone payments and patent costs) and to any unaffiliated
Third Party contractors retained by it in connection herewith, plus interest on
any unpaid balances as set forth below. Until Lilly is fully reimbursed, any
balance not reimbursed shall accrue interest from that date commencing four
years after the Effective Date until paid, at the prime rate as quoted in The
Wall Street Journal plus [ ]* as determined on the date that interest first
accrues, compounded quarterly.
10.4 TERMINATION UPON INSOLVENCY. This Agreement may be terminated by
either Party upon notice to the other should the other Party:
(a) become insolvent; or
(b) file or consent to the filing of a petition under any bankruptcy
or insolvency law or have any such petition filed against it which has not been
stayed within 60 days of such filing.
10.5 TERMINATION DUE TO ISSUANCE OF BLOCKING PATENTS. Lilly shall have the
right to terminate this Agreement upon thirty (30) days written notice at any
time in the event that the execution of the Research Plan necessarily involves
working within the scope of a Third Party's patent.
10.6 ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Upon the expiration or early
termination of this Agreement and except as provided herein to the contrary, all
rights and obligations of the Parties shall cease, except as follows:
(a) obligations to pay costs accruing hereunder up to the effective
date of termination;
(b) the right to complete the manufacture and sale of Products which
qualify as "work in process" under GAAP or which are in stock at the date of
termination, and the obligation to pay royalties on Net Sales of such Products;
(c) obligations to pay milestones and royalties with respect to
___________________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 35
<PAGE>
Research Compounds, Closely Related Derivatives and/or Products;
(d) obligations of confidentiality and non-use;
(e) obligations for record-keeping and accounting reports for so long
as Products are sold, plus one (1) year. At such time after termination of this
Agreement when sales or other dispositions of Products have ceased, Lilly or
Phytera, as the case may be, shall render a final report along with any royalty
payment due;
(f) the Parties' right to inspect books and records;
(g) the obligations of defense and indemnity;
(h) any cause of action or claim of a Party accrued or to accrue
because of any breach or default by the other Party hereunder (subject to
applicable statutes of limitations); and
(i) in the event of expiration of this Agreement under Section 10.1,
Lilly shall have a fully paid-up, perpetual license to the rights granted
pursuant to Section 3.1(c); and
(j) all other terms, provisions, representations, rights and
obligations contained in this Agreement that by their sense and content are
intended to survive.
10.7 ADDITIONAL RIGHTS UPON TERMINATION FOR BREACH. If a Party (the "Non-
Breaching Party") terminates this Agreement under Section 10.2 hereof following
material breach by the other Party (the "Breaching Party"), (a) the Breaching
Party shall return to the Non-Breaching Party all Confidential Information and
materials received from the Non-Breaching Party during the Agreement, except
that the Breaching Party may keep a copy of all documents for record keeping
purposes only, (b) the Breaching Party shall cease all use of the Confidential
Information and materials received from the Non-Breaching Party for any purpose,
and (c) the Breaching Party shall deliver to the Non-Breaching Party all data
and information developed by the Breaching Party prior to such termination as a
result of the activities under this Agreement which can reasonably be viewed as
necessary or useful to obtain governmental regulatory approvals.
ARTICLE 11
----------
MISCELLANEOUS PROVISIONS
11.1 NOTICES. All notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed given, upon receipt, if mailed
by registered or certified mail (return receipt requested), postage prepaid, or
sent by overnight delivery (receipt verified) to the address below, or given
personally or transmitted by facsimile to the number indicated below (with
confirmation).
If to Phytera: Phytera Inc.
377 Plantation Street
Worcester, MA 01605
Attn: Malcolm Morville, Ph.D.
President and CEO
Page 36
<PAGE>
If to Lilly: Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46258
Attn: General Patent Counsel
Either Party may, by written notice to the others, designate a new address or
fax number to which notices to the Party giving the notice shall thereafter be
mailed or faxed.
11.2 FOREIGN EXCHANGE. Except as otherwise specified herein, sales and
expenses of the Parties under this Agreement which are in currencies other than
U.S. Dollars shall be translated into U.S. Dollars in accordance with GAAP,
consistently applied.
11.3 FORCE MAJEURE. If the performance of either Party under this
Agreement is affected by any extraordinary, unexpected and unavoidable event
such as acts of God, floods, fires, riots, war, accidents, or by reason of any
law, order, proclamation, regulation, ordinance, demand or requirement of the
relevant government or any sub-division, authority or representative thereof, or
by reason of any other cause whatsoever (provided that in all such cases the
Party claiming relief on account of such event can demonstrate that such event
was extraordinary, unexpected and unavoidable by the exercise of reasonable
care) ("Force Majeure") it shall as soon as reasonably practicable notify the
other Party of the nature and extent thereof and take all reasonable steps to
overcome the Force Majeure and to minimize the loss occasioned to that other
Party. Neither Party shall be deemed to be in breach of this Agreement or
otherwise be liable to the other Party by reason of any delay in performance or
nonperformance of any of its obligations hereunder to the extent that such delay
and nonperformance is due to any Force Majeure of which it has notified the
other Party and the time for performance of that obligation shall be extended
accordingly.
11.4 WITHHOLDING TAXES. If either Party is required by the United States
government or other authorities to withhold any tax on the amounts payable by
that Party to the other Party under this Agreement, that Party shall be allowed
to do so, and shall in such case remit payments to the other Party net of such
withheld amount, provided that the withholding Party furnishes the other Party
with reasonable evidence of such withholding payment in electronic or written
form as soon as practicable after such withholding in order that the other Party
may use the withholding tax paid as a tax credit.
11.5 ENTIRETY OF AGREEMENT. This Agreement, its appendices and the Stock
Purchase Agreement of even date herewith, set forth the entire Agreement and
understanding of the Parties relating to the subject matter contained herein and
merges all prior discussions and agreements between them. No Party shall be
bound by any representation other than as expressly stated in this Agreement, or
by a written amendment to this Agreement signed by authorized representatives of
both Parties.
11.6 NON-WAIVER. The failure of a Party in any one or more instances to
insist upon strict performance of any of the terms and conditions of this
Agreement shall not be construed as a waiver or relinquishment, to any extent,
of the right to assert or rely upon any such terms or conditions on any future
occasion.
11.7 DISCLAIMER OF AGENCY. This Agreement shall not constitute either
Party
Page 37
<PAGE>
the legal representative or agent of the other, nor shall either Party have the
right or authority to assume, create, or incur any Third Party liability or
obligation of any kind, express or implied, against or in the name of or on
behalf of the other except as expressly set forth in this Agreement.
11.8 SEVERABILITY. If any term, covenant or condition of this Agreement or
the application thereof to either Party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (i) the remainder of this Agreement,
or the application of such term, covenant or condition to Parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (ii) the Parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the Parties that the basic purposes of this Agreement are to be effectuated.
11.9 ASSIGNMENT. Either Party may discharge any obligations and exercise
any right hereunder through an Affiliate, although each Party shall remain
ultimately responsible for the proper discharge of all obligations hereunder
notwithstanding any assignment or delegation to any such Affiliate. References
to a Party shall include any Affiliate of a Party to whom such an assignment or
delegation has been made or ratified. Except as provided in this Section or
otherwise expressly provided in the Agreement, neither Lilly nor Phytera shall
delegate duties of performance, assign or transfer, in whole or in part, rights
or obligations under this Agreement without the prior written consent of the
other Party, not to be unreasonably withheld, and any attempted delegation,
assignment or transfer, without such written consent shall be of no force or
effect. Subject to the restrictions contained in the preceding sentence, this
Agreement shall be binding upon the successors and assigns of the Parties.
11.10 HEADINGS. The headings contained in this Agreement have been added
for convenience only and shall not be construed as limiting or defining the
content of said sections or paragraphs.
11.11 LIMITATION OF LIABILITY. No Party shall be liable to another for
indirect, incidental, consequential or special damages, including but not
limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of the possibility of such damages. Nothing
in this Section is intended to limit or restrict the indemnification rights or
obligations of any Party.
11.12 INTERPRETATION. This Agreement has been jointly prepared by the
Parties and their respective legal counsel and shall not be strictly construed
against either Party.
11.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
11.14 COMPLIANCE WITH LAWS. Each Party shall, and shall cause its
respective Affiliates to, comply in all material respects with all federal,
state, local and foreign laws, statutes, rules and regulations applicable to the
Parties and their respective activities under this Agreement.
Page 38
<PAGE>
11.15 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 to carry out the purposes and intent of this Agreement.
11.16 PAYMENT IN U.S. DOLLARS. Unless otherwise provided in this
Agreement, all amounts due and payable hereunder shall be due and payable in
U.S. Dollars.
11.17 INTEREST ON LATE PAYMENTS. In case of any delay in a payment due by
a Party to the other Party, which delay is not occasioned by Force Majeure,
interest at the rate of [ ]* per month, assessed from the [ ]* after
the due date of said payment, shall be due by the late paying Party without any
special notice.
IN WITNESS WHEREOF, the Parties have executed this Agreement, in duplicate
originals, by their respective officers thereunto duly authorized, the day and
year herein written.
ELI LILLY AND COMPANY PHYTERA, INC.
By: /s/ Dr. August M. Watanabe By: /s/ Malcolm Morville
-------------------------- --------------------
Dr. August M. Watanabe
Executive Vice President, Name: Dr. Malcolm Morville
--------------------
Science and Technology
Title: President
---------
____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 39
<PAGE>
Attachments:
- ------------
Appendix A - Research Plan
Appendix B - Lilly Patents
Appendix C - Phytera Patents
Appendix D - Key Personnel
Appendix E - [ ]* Programs
Appendix F - Press Release
_____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 40
<PAGE>
APPENDIX A
RESEARCH PLAN FOR PHYTERA, INC. & ELI LILLY
AND COMPANY ANTIFUNGAL RESEARCH COLLABORATION
OVERALL OBJECTIVE:
------------------
[
]*.
APPROACH:
--------
[
]*
[
]*
_________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 41
<PAGE>
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 42
<PAGE>
[
]*
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 43
<PAGE>
[
]*
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 44
<PAGE>
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 45
<PAGE>
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 46
<PAGE>
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 47
<PAGE>
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 48
<PAGE>
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 49
<PAGE>
[
]*
_________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 50
<PAGE>
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission
Page 51
<PAGE>
APPENDIX B
LILLY PATENTS
DKT# SHORT TITLE INV NAME FILED APP# ISSUED PAT#
- --------------------------------------------------------------------------------
[
]*.
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 52
<PAGE>
APPENDIX C
PHYTERA PATENTS
[
]*
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 53
<PAGE>
APPENDIX D
PHYTERA KEY PERSONNEL
[
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 54
<PAGE>
APPENDIX E
[ ]* PROGRAMS
(1) [
]*
(2) [
]*
(3) [
]*
__________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
Page 55
<PAGE>
APPENDIX F
----------
Press Release
July 21, 1998
PHYTERA AND LILLY SIGN RESEARCH COLLABORATION AGREEMENT TO DISCOVER AND DEVELOP
INFECTIOUS DISEASE PRODUCTS
Phytera, Inc. and Eli Lilly and Company (NYSE:LLY) announced today that they
have entered into a research collaboration to discover novel agents for the
diagnosis, treatment and prevention of infectious fungal diseases. The alliance
encompasses human and animal veterinary diagnostics and therapeutics.
Phytera is contributing to the collaboration both novel antifungal screens based
on its genomics technologies as well as natural product extracts from its ExPAND
plant cell culture and uMARINE marine microbial libraries. Phytera will also
provide its natural product chemistry expertise for the bioassay-guided
fractionation, isolation and structural characterization of its proprietary
active extracts. Lilly will provide compounds for screening and will be
responsible for downstream profiling, lead optimization, development and
commercialization.
As part of the agreement, Phytera will receive an up-front equity investment and
funding for research activities, as well as future milestone payments and
royalties on sales of products discovered and developed through the
collaboration. Lilly, which will provide all funding for research and
development, receives worldwide rights to commercialize products emerging from
the collaboration.
"The agreement capitalizes on our capabilities in screening, molecular biology,
natural product chemistry, and marine and plant culture," said Malcolm Morville,
Ph.D., president and chief executive officer of Phytera. "We are particularly
excited to collaborate with Lilly to address the problem of increasing
resistance of fungal pathogens to currently available drugs. Lilly brings to
this program broad chemistry assets in addition to enormous experience and a
strong track record as an innovator in the discovery and development of
antifungal drugs."
"Phytera's unique natural product libraries and screening systems will reinforce
our capabilities and strong commitment towards the discovery and development of
novel antifungal drugs," said Gail H. Cassell, Ph.D., vice president of
infectious diseases discovery research and clinical investigation for Lilly.
"Worldwide sales of antifungal agents exceeded an estimated $3 billion in 1996
and continue to grow rapidly. Fungal infections have emerged in recent years as
a major cause of disease and mortality, in part as a consequence of the increase
in immunosuppressive diseases and the use of immune system suppressing drugs
such as chemotherapy. In addition, resistance to the relatively few current
therapies is becoming an important clinical issue."
Phytera's proprietary techniques enable the Company to "manipulate" plant cells
and marine microbes in culture in order to modulate genomic expression and
change metabolic pathways. The range of manipulations employed optimizes
chemical diversity and often results in the production of chemicals not found in
the originating species. In addition, Phytera has developed strong capabilities
in the design and implementation of high-throughput screening systems for
<PAGE>
infectious disease targets. Genetic and protein engineering technologies are
allied with bioinformatics and robotics to produce a portfolio of cellular and
molecular target-based screens.
Phytera, Inc. is a biotechnology company headquartered in Worcester,
Massachusetts with wholly owned subsidiaries in Sheffield, U.K, Copenhagen,
Denmark and Tastrup, Denmark. The company is focused on applying novel
technology platforms to the identification and optimization of new lead
structures and drug candidates for pharmaceutical application. Phytera has
allied its plant and marine microbial culture technologies with innovative high-
throughput screening and combinatorial chemistry capabilities to create an
integrated discovery platform. Infectious disease products from the program are
currently in preclinical development.
Lilly is a global research-based pharmaceutical corporation headquartered in
Indianapolis, Ind., that is dedicated to creating and delivering innovative
pharmaceutical-based health care solutions that enable people to live longer,
healthier and more active lives.
<PAGE>
EXHIBIT 10.21
AGREEMENT BETWEEN
AMERSHAM INTERNATIONAL PLC,
PHYTERA, INC
AND
PHYTERA LIMITED
<PAGE>
COLLABORATION AGREEMENT
-----------------------
THIS AGREEMENT (reference number S930519C.L5) is made on the day of
of 1993
BETWEEN
(1) AMERSHAM INTERNATIONAL public limited company of Amersham Place, Little
Chalfont, Buckinghamshire HP7 9NA, England ("AMERSHAM");
(2) PHYTERA, INC (formerly PLANT PHARMACEUTICALS, INC) of One Innovation Drive,
Worcester, MA 01605, U.S.A.; and
(3) PHYTERA LIMITED (formerly PLANT SCIENCE LIMITED) of Firth Court, Western
Bank, Sheffield SL0 2TN, England (together called hereafter "PHYTERA")
WHEREAS
A) AMERSHAM is engaged inter alia in the business of carrying out research
development and manufacture of products in the Life Science market.
B) PHYTERA is engaged in screening plant extracts and materials for potential
therapeutics.
C) The parties wish to collaborate with a view primarily to identifying novel
proprietary peroxidases and second to be able to screen for novel alkaline
phosphatases.
1. DEFINITIONS
-----------
In this agreement the following expressions shall bear the following
meanings:
1.1 "Confidential Information" shall mean any information, knowledge or
material of a confidential or secret nature of or concerning a party
hereto or its associated companies (the "Discloser") provided to
another party hereto (the "Recipient") which shall include but not be
limited to information, knowledge or material:
(a) of a technical or scientific nature relating to or concerning
know-how, technical data, computer programs and systems, designs,
data bases, inventions, manufacturing or engineering techniques
or procedures, equipment, materials, product designs and
specifications, test and quality assurance procedures, research
and research projects, and plans for future development;
(b) of a business nature such as marketing plans, product plans,
business strategies, costs, profits, formulae, markets, sales,
lists of customers and suppliers, distributors, agents,
consultants, information concerning or relating to any of its
employees, training methods and the like; and
1
<PAGE>
(c) entrusted to the Discloser by third parties on a confidential
basis.
1.2 "Improvements" means all improvements in the Products made by AMERSHAM
whether patentable or otherwise;
1.3 "Net Sales Price" means the gross invoice price of any product which
incorporates any of the Technology as sold by Amersham or any of its
Subsidiaries in an arms length transaction exclusively for money after
deduction of:
1.3.1 the cost of Packaging, transport and insurance;
1.3.2 all taxes and duties (including but not limited to value added
tax);
1.3.3 trade discounts, commissions and allowances and credits for
defective goods.
1.4 "New Product" means any product sold by AMERSHAM which incorporates an
enzyme the subject of the programme of research set out in Schedule I
of this agreement.
1.5 "Old Product" means any product manufactured by AMERSHAM which
incorporates a peroxidase enzyme not the subject of the programme of
research set out in Schedule I of this agreement.
1.6 "Packaging" means the outer containers for transporting the New
Product or the Old Product excluding vial, vial box, kit box or
anything else associated with such product itself.
1.7 "Subsidiary" means
(a) any company of which either party is a member and controls the
composition of its board of directors or holds more than half in
nominal value of its equity share capital or
(b) any company which is a subsidiary of any company which is a
subsidiary of that party.
1.8 "Life Sciences" means use of new products in fundamental and applied
scientific research and development in universities, research
institutes and pharmaceutical and biotechnology companies world wide.
2
<PAGE>
2. PERIOD OF AGREEMENT
---------------------------
This Agreement shall commence on the date hereof and shall last for a period of
[ ]* expiring without further notice unless otherwise agreed.
3. OBLIGATIONS OF AMERSHAM
---------------------------
3.1 AMERSHAM agrees to carry out its part of the programme of research set
out in schedule I of this agreement.
3.2 AMERSHAM agree to pay PHYTERA, Inc the following sums:-
3.2.1 [ ]*.
3.2.2 [ ]*
3.2.3 [ ]*
3.2.4 [ ]*.
3.2.5 [ ]*.
3.2.6 To pay the deferred consideration set out in clause 4 below.
4. DEFERRED CONSIDERATION
----------------------
4.1 Subject to the following provisions of this clause AMERSHAM agrees to
pay PHYTERA, Inc deferred consideration as follows:-
4.1.1 [ ]* of Net Sales Price of any New Product [ ]*
4.1.2 [ ]* of Net Sales Price of any New Product [ ]*.
____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been requested, has been filed separately with the
Securities and Exchange Commission.
3
<PAGE>
4.2 [ ]*.
AMERSHAM agrees during such period to pay PHYTERA, Inc deferred
consideration as follows:-
4.2.1 [ ]* of Net Sales Price of such New Product [ ]*.
4.2.2 [ ]* of New Sales Price of such New Product [ ]*.
4.3 [ ]* it agrees to pay PHYTERA, Inc deferred consideration as follows:-
4.3.1 [ ]*.
4.3.2 [ ]*.
4.4.1 [ ]*.
4.4.2 [ ]*.
4.5.1 [ ]*.
4.5.2 [ ]*.
____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been requested, has been filed separately with the
Securities and Exchange Commission.
4
<PAGE>
5. OBLIGATIONS OF PHYTERA
---------------------------
PHYTERA agrees to carry out its part of the programme of research set out
in schedule I of this agreement.
6. OWNERSHIP OF INTELLECTUAL PROPERTY
----------------------------------
All intellectual property including without limitation that involving or
relating to trade-names, trade-marks, patentable inventions, non-patentable
processes or know-how, computer software, designs or copyright arising out
of the programme of research set out in schedule I of this agreement shall
be the sole property of AMERSHAM. PHYTERA shall promptly execute any
document to secure such rights and to vest any such property legally in
AMERSHAM or its nominee and hereby appoints AMERSHAM as attorney in that
regard.
7. GRANT OF LICENCE TO PHYTERA, Inc
--------------------------------
AMERSHAM hereby grants PHYTERA, Inc an exclusive world wide royalty free
licence under any patents, patent applications or know-how which may arise
from the programme of research set out in schedule I of this agreement in
all fields other than that of LIFE SCIENCES, clinical diagnostics, forensic
testing and assays for microbiological contamination of food, water and the
environment.
8. GRANT OF LICENCES TO THIRD PARTIES
----------------------------------
8.1 AMERSHAM agrees to use its best efforts to grant licences under any
patents, patent applications or know-how which may arise from the
programme of research set out in schedule I of this agreement in the
field of clinical diagnostics on terms which are commercially
reasonable and agreed by Phytera, Inc but the parties agree that
Amersham may offer Eastman Kodak Ltd or its affiliates the right of
first refusal to an exclusive world wide licence on terms to be
agreed.
8.2 AMERSHAM agrees to pay PHYTERA, Inc half of any royalties it may
receive under the terms of any licence which AMERSHAM may grant under
the provisions of sub-clause 1 above of this clause.
9. CONFIDENTIALITY
---------------
9.1 The Recipient undertakes to treat any and all of such Confidential
Information as either may disclose to the other during the term of
this agreement as strictly confidential and not to divulge it to any
third party for any purpose whatsoever and not to make use of such
Confidential Information or any part thereof for any purpose other
than carrying out the terms of this agreement without the Discloser's
prior written consent.
9.2 In the event of the Recipient visiting any of the establishments of
the Discloser, the Recipient undertakes that any further Confidential
Information which may come to the Recipient's knowledge, as a result
of any such visit, shall be kept
5
<PAGE>
strictly confidential and that any such Confidential Information will
not be divulged to any third party and will not be made use of in any
way by the Recipient under any circumstances.
9.3 The undertakings in subclauses 1 and 2 shall not apply to:
(a) Confidential Information which at the time of disclosure is
published or otherwise generally available to the public.
(b) Confidential Information which after disclosure by the Discloser
is published or becomes generally available to the public,
otherwise than through any act or omission on the part of the
Recipient.
(c) Confidential Information which the Recipient can show by
reasonable written record was in its possession at the time of
disclosure and which was not acquired directly or indirectly from
the Discloser.
(d) Confidential Information rightfully acquired from a third party
who did not obtain it under pledge of secrecy to the Discloser or
another.
10. WARRANTIES
----------
Each party warrants and represents to the other that the Recitals of this
Agreement are true and that, by entering into and performing this
Agreement, it will not be in breach of any fiduciary or other contractual
duty to any third party, will not be creating any conflict of interest, has
the power to enter into this Agreement and has obtained all necessary
approvals to do so and that none of the results or products of the services
hereunder will infringe any third party's rights.
11. TERMINATION
-----------
11.1 Either party shall be entitled to terminate this Agreement:
11.1.1 upon giving [ ]* written notice to the other specifying the
nature of the breach in the event that the other party
commits a breach of a material term of this Agreement and
fails to remedy such breach (if capable of being remedied)
within the period of notice; or
11.1.2 immediately upon written notice in the event that the other
shall become insolvent or make any arrangement with its
creditors or has a receiver or administrator appointed to
the whole or any part of its assets or if an order
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
6
<PAGE>
shall be made or a resolution passed for its winding up
unless such order or resolution is part of a scheme for its
amalgamation or reconstruction.
12. FORCE MAJEURE
-------------
12.1 Neither party shall be liable for its failure to perform hereunder
(other than the obligation to make payments of amounts due) as a
result of any events of force majeure beyond the party's reasonable
control including, but not limited to, acts of God, fire, flood, wars,
sabotage, civil strife or demonstrations, accidents, strikes, lockouts
or other labour disputes, shortages, government actions, governmental
laws, rules or regulations, inability to obtain supplies, raw
materials or transportation. If either party's performance is
prevented in whole or part by any such event, such party shall be
excused any of its obligations hereunder during the period of delay of
performance resulting from such event.
12.2 Promptly following the date of commencement of any event of force
majeure, the party affected by such event shall advise the other party
in writing of such date and the nature of such event of force majeure.
The term of the Agreement shall then be suspended for a period of time
equal to the total period of said party's delay in performance. If the
period of suspension of the agreement shall last for a period of six
months either party may give one months' written notice to the other
terminating this Agreement.
13. NON ASSIGNMENT
--------------
Neither party shall assign, subcontract or otherwise dispose of the whole
or any part of its rights and obligations under this Agreement without the
consent of the other except that
(i) AMERSHAM may assign the benefit of this Agreement to any of its
Subsidiaries or to the purchaser of the entire part of its
business of which the New Product forms part and
(ii) PHYTERA, Inc may delegate its obligations hereunder to PHYTERA
LIMITED, and may assign its right to receive payment under
Sections 3 and 4 and its license under Section 7 to the purchaser
of substantially all of its assets.
14. INDEMNITY
---------
14.1 Each of PHYTERA, Inc and AMERSHAM (each an "Indemnitor") warrants to
the other that:
(i) such party's contribution to the programme of research set out in
Schedule 1,
(ii) in the case of PHYTERA, Inc any results of PHYTERA's contribution
to such programme of research which are incorporated into a New
Product, and
7
<PAGE>
(iii) in the case of AMERSHAM, any results of AMERSHAM's contribution
to such programme of research which are licensed to PHYTERA, Inc
hereunder,
do not and will not infringe any patent, registered design, trademark
or other intellectual property right of any third party and agrees to
indemnify the other (the "Indemnitee") in respect of any claims,
costs, losses, expenses or damages it may incur as a result of the
breach of this warranty.
14.2 The provisions of subclause 1 of this clause shall not apply in
respect of infringement arising as a result of an Indemnitor having
followed a design or instruction furnished by the Indemnitee or
arising out of the independent negligence of the Indemnitee.
14.3 In the event of PHYTERA, Inc as an Indemnitor is liable to AMERSHAM as
an Indemnitee under this clause 14, PHYTERA, Inc in addition to
discharging its indemnification obligations, shall use its best
efforts to either:
14.3.1 procure the right for AMERSHAM to continue to sell the
infringing new Product; or
14.3.2 replace aspect of the new Product which has been deemed to be
infringing with a suitable non-infringing aspect.
15. NOTICES
-------
All notices provided for in this Agreement shall be in writing and shall be
deemed validly sent when sent by first class post or air mail postage
prepaid, addressed to the respective parties as follows:
If to AMERSHAM:
Attention: Company Secretary
Amersham International plc
Amersham Place
Little Chalfont
Buckinghamshire
England HP7 9NA
If to PHYTERA:
Attention: President and CEO
PHYTERA, Inc
c/o MBRI
One Innovation Drive
Worcester, MA 01605
USA
8
<PAGE>
Notices under this Agreement shall also deemed be validly sent if sent by
telex or facsimile to the telex or facsimile number of the parties as each
last gave written notice of to the other. Telexed or facsimile notices
shall be confirmed by first class post or airmail postage prepaid, but
failure to do so shall not render any notice invalid. Notices may also be
sent by leaving the same at the above addresses of the parties. Notices
sent by registered airmail shall be deemed to have been delivered on the
fourth day after posting excluding Saturdays and Sundays and public
holidays in England and the United States of America.
16. ENTIRE AGREEMENT
----------------
This Agreement supersedes all prior agreements, arrangements and
undertakings relating to the subject matter hereof between the parties. No
addition to or modification of any provision of this Agreement shall be
binding upon the parties unless made by a written instrument signed by a
duly authorised representative of each of the parties.
17. SEVERABILITY
------------
17.1 If any provision of this Agreement or the application of any such
provision to any person or circumstance shall be invalid under the law
of any jurisdiction, the remainder of this Agreement or the
application of such provision to persons or circumstances other than
those as to which it is invalid shall not be affected thereby.
17.2 In the event a court of competent jurisdiction rules any provision of
this Agreement to be invalid, such ruling shall have no effect on the
remaining provisions of this Agreement and they shall continue in full
force and effect.
18. WAIVER
------
The failure of either party to enforce its rights under this Agreement at
any time for any period shall not be construed as a waiver of such rights.
19. CHANGES AND MODIFICATIONS TO AGREEMENT
--------------------------------------
No changes or modification are to be made to this Agreement unless
evidenced in writing and signed for and on behalf of both parties.
20. LAW AND JURISDICTION
--------------------
This Agreement shall be governed by and construed in accordance with
English law and the parties hereby submit to the exclusive jurisdiction of
the English courts.
21. HEADINGS
--------
The clause headings herein are for convenience only and shall not effect
the construction of interpretation of this Agreement.
9
<PAGE>
IN WITNESS WHEREOF the parties have set their hands the day and year first
before written.
Signed for and on behalf of Signed for and on behalf of
AMERSHAM INTERNATIONAL PLC PHYTERA, INC
Signature /s/ J. Brown Signature /s/ Malcolm Morville
------------------------ ---------------------------
Name (capitals) Dr. J. Brown Name (capitals) M. Morville
----------------------------- ----------------------
Position Head Business Development Position President
-------------------------- -----------------------------
Date 19/7/93 Date July 26, 1993
------------------------------ ---------------------------------
Signed for and on behalf of
PHYTERA LIMITED
Signature /s/ J. E. Eardley
-------------------------
Name (capitals) J. E. Eardley
-------------------
Position Chairman
--------------------------
Date 30/7/93
------------------------------
10
<PAGE>
AMERSHAM/PLS COLLABORATIVE PROGRAMME Schedule 1
As agreed 10.3.93 at Amersham Laboratories
[
]*
____________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
11
<PAGE>
[
]*
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
12
<PAGE>
CONFIDENTIALITY AGREEMENT "TWO WAY"
THIS AGREEMENT (reference number J930318E.E3) is made on the day of
19
BETWEEN
(1) AMERSHAM INTERNATIONAL public limited company of Amersham Place, Little
Chalfont, Buckinghamshire HP7 9NA, England ("AMERSHAM");
(2) PLANT PHARMACEUTICALS INC of One Innovation Drive, Worcester, MA 01605,
USA; and
(3) PLANT SCIENCE LIMITED of Firth Court, Western Bank, Sheffield S10 2TN,
England (together known as "PLANT")
WHEREAS
(a) AMERSHAM possesses or has access to valuable information, technical
knowledge, experience and data of a secret and confidential nature,
specified in the First Schedule, all of which are regarded by AMERSHAM as
commercial assets of considerable value;
(b) PLANT possesses valuable information, technical knowledge, experience and
data of a secret and confidential nature, specified in the Second Schedule,
all of which are regarded by PLANT as commercial assets of considerable
value;
(c) Each party is willing to consider disclosing its information as
respectively set out in the First and Second Schedules (the "CONFIDENTIAL
INFORMATION") to the other on the condition that the Recipient does not
disclose the same to any third party nor make use thereof in any manner
except as set out below.
In consideration of either party ("the DISCLOSER") disclosing any information of
which it is the possessor to the other party ("the RECIPIENT"), IT IS AGREED as
follows:
1. The RECIPIENT undertakes to treat any and all of such CONFIDENTIAL
INFORMATION as strictly confidential and not to divulge it to any third
party for any purpose whatsoever and not to make use of such CONFIDENTIAL
INFORMATION or any part thereof for any purpose other than that specified
in the Third Schedule without the DISCLOSER's prior written consent. For
the avoidance of doubt, the RECIPIENT has no right to use any part of the
CONFIDENTIAL INFORMATION to develop its own technology or seek patent
protection therefor.
2. In the event of the RECIPIENT visiting any of the establishments of the
DISCLOSER, the RECIPIENT undertakes that any further information of a
confidential nature which may come to the RECIPIENT's knowledge, as a
result of any such visit, shall deemed to be CONFIDENTIAL INFORMATION and
shall be kept strictly confidential and will not
13
<PAGE>
be divulged to any third party or made use of in any way by the RECIPIENT
under any circumstances.
3. The undertakings in Clauses 1 and 2 shall not apply to:
(a) information which at the time of disclosure is published or otherwise
generally available to the public; or
(b) information which after disclosure by the DISCLOSER is published or
becomes generally available to the public otherwise than through any
act or omission on the part of the RECIPIENT; or
(c) information which the RECIPIENT can show by reasonable written record
was in its possession at the time of disclosure and which was not
acquired directly or indirectly from the DISCLOSER; or
(d) information rightfully acquired from a third party who did not obtain
it under pledge of secrecy to the DISCLOSER or another.
4. This Agreement shall be governed by and construed in accordance with
English law and the parties hereby submit to the non-exclusive jurisdiction
of the English courts.
THE FIRST SCHEDULE
(CONFIDENTIAL INFORMATION disclosed by AMERSHAM
referred to in recital (a))
[
]*
THE SECOND SCHEDULE
(CONFIDENTIAL INFORMATION disclosed by PLANT
referred to in recital (b))
[
]*
___________________
* This portion of the Exhibit has been omitted pursuant to a Request for
Confidential Treatment under Rule 406 of the Securities Act of 1933, as amended.
The complete Exhibit, including the portions for which confidential treatment
has been requested, has been filed separately with the Securities and Exchange
Commission.
14
<PAGE>
THE THIRD SCHEDULE
(Purpose of Use referred to in Clause 1)
The RECIPIENT is permitted to use the CONFIDENTIAL INFORMATION for the
purpose only of research into the discovery of peroxidase enzymes which may
be of use in the techniques described in the first schedule and for
discussions with the DISCLOSER concerning possible future research
collaboration.
Signed for and on behalf of Signed for and on behalf of
AMERSHAM INTERNATIONAL PLC PHYTERA, INC
Signature /s/ M. H. Barnes Signature /s/ Malcolm Morville
--------------------------- ---------------------------
Name (capitals) M. H. Barnes Name (capitals) M. Morville
-------------------------------- ----------------------
Position Head LS Business Development Position President
----------------------------- -----------------------------
Date 1 April 1993 Date 12 April 1993
--------------------------------- ---------------------------------
Signed for and on behalf of
PHYTERA LIMITED
Signature /s/ J. E. Eardley
----------------------------
Name (capitals) J. E. Eardley
----------------------
Position Director
-----------------------------
Date 21 April 1993
---------------------------------
15
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Boston, Massachusetts
October 22, 1998
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<INTEREST-EXPENSE> 155,793 152,833
<INCOME-PRETAX> (9,754,012) (6,584,713)
<INCOME-TAX> 0 0
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