<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1996.
REGISTRATION NO. 33-95654
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------------
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------
INGENEX, INC.
(Name of small business issuer as specified in its charter)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2836 94-3163294
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1505 O'BRIEN DRIVE
MENLO PARK, CALIFORNIA 94025
(415) 617-9570
(Address and telephone number of principal executive offices)
- -----------------------------------------------------------------------------
MARK E. FURTH, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INGENEX, INC.
1505 O'BRIEN DRIVE
MENLO PARK, CALIFORNIA 94025
(415) 617-9570
(Name, address and telephone number of agent for service)
- -----------------------------------------------------------------------------
Copies to:
<TABLE>
<CAPTION>
<S> <C>
CHARLES I. WEISSMAN, ESQ. MARTIN H. LEVENGLICK, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP JULIE M. ALLEN, ESQ.
919 THIRD AVENUE O'SULLIVAN GRAEV & KARABELL, LLP
NEW YORK, NEW YORK 10022 30 ROCKEFELLER PLAZA
(212) 758-9500 NEW YORK, NEW YORK 10112
(212) 408-2400
</TABLE>
- -----------------------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
- --------------------------------- -------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value(2) 2,127,500 $10.50 $22,338,750.00 $7,703.02
- --------------------------------- -------------- ---------------- ---------------- ----------------
</TABLE>
[FN]
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(2) Includes 277,500 shares which the Underwriters have the option to
purchase from the Company to cover over-allotments, if any.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
INGENEX, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER
AND HEADING LOCATION IN PROSPECTUS
- ---------------------------------------------- ----------------------------------------------
<S> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus .................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus .............................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors ...... Prospectus Summary; Risk Factors
4. Use of Proceeds ............................ Use of Proceeds
5. Determination of Offering Price ............ Underwriting
6. Dilution ................................... Dilution
7. Selling Security Holders ................... Not Applicable
8. Plan of Distribution ....................... Outside Front Cover Page of Prospectus; Risk
Factors; Underwriting
9. Legal Proceedings .......................... Business--Litigation
10. Directors, Executive Officers, Promoters
and Control Persons ....................... Management
11. Security Ownership of Certain Beneficial
Owners and Management ..................... Principal Stockholders
12. Description of Securities ................. Description of Capital Stock
13. Interest of Named Experts and Counsel .... Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ............................... Management --Indemnification of Directors and
Officers
15. Organization Within Last Five Years ...... Business
16. Description of Business ................... Prospectus Summary; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business
17. Management's Discussion and Analysis or
Plan of Operation ......................... Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property ................... Business --Facilities
19. Certain Relationships and Related
Transactions .............................. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters ....................... Prospectus Summary; Risk Factors; Dividend
Policy; Business; Principal Stockholders
21. Executive Compensation .................... Management --Executive Compensation
22. Financial Statements ...................... Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure ................................ Changes in Accountants
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1996
PROSPECTUS
#############################################################################
GRAPHIC OMITTED
IGT: "INGEN"
#############################################################################
1,850,000 SHARES
INGENEX, INC.
COMMON STOCK
The 1,850,000 shares of Common Stock, $.001 par value per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Ingenex,
Inc. Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price of
the Common Stock will be between $9.50 and $10.50 per share. See
"Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for inclusion on The Nasdaq National Market under the symbol "INGX",
subject to the satisfaction of certain conditions.
Titan Pharmaceuticals, Inc. ("Titan"), a Delaware corporation that owns
approximately 81% of the outstanding Common Stock, has expressed an interest
in purchasing approximately 200,000 of the shares of Common Stock offered
hereby at the initial public offering price. In addition, in consideration of
a payment to the Company of $100,000, the Company has issued to Titan an
option to purchase approximately an additional 300,000 shares of Common Stock
at an exercise price per share equal to the initial public offering price
(the "Titan Option") and an additional option and a right of first refusal
with respect to future issuances of voting capital stock of the Company in
order for Titan to maintain ownership of a majority of the outstanding voting
capital stock of the Company. See "Certain Transactions."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------- ---------- ----------------- ------------
<S> <C> <C> <C>
Per Share ..... $ $ $
- -------------- ---------- ----------------- ------------
Total(3) ...... $ $ $
- -------------- ---------- ----------------- ------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Excludes (i) a non-accountable expense allowance payable to the
representative of the Underwriters (the "Representative") equal to 2%
of the gross proceeds of the Offering, of which $25,000 has been paid
to date, and (ii) warrants to be issued to the Representative to
purchase up to 185,000 shares of Common Stock (the "Representative's
Warrants"). In addition, the Company has agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company,
estimated at $1,020,000, including the Representative's
non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 30-day option to
purchase up to 277,500 additional shares of Common Stock on the same
terms as set forth above, solely to cover over-allotments, if any. If
the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered hereby are being offered by the
Underwriters named herein, subject to prior sale and acceptance by the
Underwriters and subject to their right to reject any order in whole or in
part. It is expected that the certificates for the shares of Common Stock
will be available for delivery on or about , 1996 at the offices of
Kaufman Bros., L.P., New York, New York.
KAUFMAN BROS., L.P.
The date of this Prospectus is , 1996
<PAGE>
MDRx1: Genetic Enhancement of Chemotherapy
Gene therapy with MDR-1, a human multidrug resistance gene, is
intended to protect normal blood cells from damage by drugs used to
treat cancer, potentially enabling more aggressive chemotherapy and
improved treatment outcomes.
Cancer Patient with Chemotherapy Sensitive Bone Marrow.
[INSERT FIGURE HERE]
The initial clinical trial of MDRx1 involves patients with ovarian and
breast cancer. Blood progenitor or stem cells are removed and purified
from the cancer patient's bone marrow or blood.
The MDR-1 gene is introduced to these cells using a viral delivery
system.
The photograph shows darkly stained blood cells, indicating successful
delivery of the gene to blood cell precursors taken from a cancer
patient in an ongoing clinical trial of MDRx1.
The genetically modified progenitor cells are given back to the
patient, where they can engraft in the bone marrow, multiply, and
produce protected blood cells.
Same Cancer Patient with Protected Bone Marrow.
[INSERT FIGURE HERE]
Elevated expression of MDR-1 protects blood cells by increasing their
ability to pump out various cytotoxic drugs used to treat cancer. This
may allow patients to tolerate higher and/or more frequent doses of
chemotherapy.
DNA analysis confirms the presence of the newly introduced MDR-1 gene in blood
cells of a clinical trial patient.
[INSERT FIGURE HERE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
RB94: Genetic Tumor Suppression
Injection of a tumor suppressor gene is intended to cause regression
of localized, malignant tumors, such as those of the prostate gland.
Introduce RB94 gene into tumor using a viral delivery system
[INSERT FIGURE HERE]
RB94 protein acts to inhibit the proliferation of cancer cells
RB protein prevents the production of other proteins needed for
cells to multiply. RB94, a shortened form of RB, appears more
stable than the full-length protein and shows enhanced
suppressive activity against tumors.
Production of RB94 Protein in Human Tumor Cells
1. Human tumor cells with defective RB genes lack
RB protein, as shown by absence of brown
staining. These cells form tumors (marked by
arrows in bottom photograph) when injected into
immune deficient mice.
[INSERT FIGURE HERE]
2. After the injection of a virus carrying RB94
into tumors, the RB94 protein is found in cell
nuclei, as shown by dark staining using an
antibody. This leads to regression of certain
human tumors in the mouse test system.
[INSERT FIGURE HERE]
RB94 tumor suppressor gene therapy reverses growth of human
tumors in mice.
Treatment not only appears effective against cancer cells that
have lost their normal RB genes, but also against certain cancer
cells that retain a normal RB gene, suggesting the potential use
of RB94 to treat a broad range of solid tumors.
[INSERT FIGURE HERE] [INSERT FIGURE HERE]
<PAGE>
GSX System: Selection of Gene-Specific Inhibitors
This system identifies genes based on the specific inhibition of their function
and is designed to pinpoint key steps in disease pathways for therapeutic
intervention.
Find DNA fragments that inhibit function of corresponding gene.
1. General random gene fragment expression library
oInsert small gene fragments into delivery vector
[INSERT FIGURE HERE]
2. Transfer library into target cells
oCells receive and express random gene fragments
3. Select cells with desired property
oResulting from specific inhibition of gene function
<TABLE>
<CAPTION>
Cell with ineffectual fragment Selected cell Cell with ineffectual fragment
<S> <C> <C>
[INSERT FIGURE HERE] [INSERT FIGURE HERE] [INSERT FIGURE HERE]
</TABLE>
4. Recover and characterize effective inhibitory gene fragments
oIdentify target gene(s) by sequencing DNA fragments
oDetermine inhibitory mechanisms
Develop Gene-Specific Inhibitory Drugs
<TABLE>
<CAPTION>
[INSERT FIGURE HERE] [INSERT FIGURE HERE] [INSERT FIGURE HERE]
<S> <C> <C>
Antisense RNA Protein fragment interferes Small molecule mimics
(oligonucleotide) blocks with activity or interactions inhibitory protein fragment
synthesis of target protein of target protein
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including information
under "Risk Factors" and the Financial Statements and Notes thereto. Unless
otherwise indicated, all information contained in this Prospectus (i)
reflects a 1.875-for-one stock split of the Common Stock effected in
September 1994, (ii) reflects a 3.438924545-for-one reverse stock split of
the Common Stock and the Series A Preferred Stock of the Company and a
2.328840417-for-one reverse stock split of the Series B Preferred Stock of
the Company effected in May 1995, (iii) gives effect to the conversion (the
"Preferred Stock Conversion") of all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock of the Company (collectively, the
"Preferred Stock") into 1,291,234 shares of Common Stock upon the
consummation of the Offering, (iv) assumes no exercise of the
Representative's Warrants and (v) assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Ingenex, Inc. ("Ingenex" or the "Company") is a biopharmaceutical company
engaged in the development of proprietary gene-based therapies and the
application of functional genetics to pharmaceutical discovery. The Company's
initial commercial strategy is to develop gene therapy products for the
oncology market. The Company currently is sponsoring a Phase I/II clinical
trial of MDRx1, a gene therapy product aimed at limiting the destruction by
cytotoxic drugs of normal blood-forming cells in the bone marrow of cancer
patients undergoing chemotherapy. The Company believes that MDRx1 will permit
the administration of increased doses of cytotoxic drugs to cancer patients,
resulting in the increased efficacy of chemotherapy. Ingenex also is
developing a gene therapy product based on RB94, a modified form of RB, a
tumor suppressor gene. This product is intended to cause the regression of
localized, malignant cancers. In addition, the Company is building a new,
proprietary genomics technology, the GSX System, which identifies genes based
on the specific inhibition of their function and is designed to pinpoint key
steps in a disease pathway for therapeutic intervention. Ingenex believes
that the GSX System may be used to develop treatments for a wide range of
diseases through the discovery of both gene therapy products and small
molecule drugs.
Genomics entails the identification and sequencing of human genes and the
identification of genes implicated in particular diseases. Certain scientists
in the public and private sectors are seeking to identify and sequence the
approximately 100,000 human genes and to discover genes associated with human
diseases. However, the knowledge of a gene's DNA sequence alone does not
identify its biological role. Furthermore, the association of a gene with a
disease process usually does not suggest a way to treat that disease.
Ingenex's functional genetics strategy focuses on the identification of genes
and fragments of genes that are capable of altering the genetic program of a
cell or organism to facilitate the discovery of effective solutions to
medical problems through gene therapy or drug discovery.
MDRx1 Program. A significant limitation of cancer chemotherapy is the
destruction by cytotoxic drugs of certain normal cells in the body,
especially blood progenitor or stem cells in the bone marrow, which are
responsible for the production of white blood cells, red blood cells and
platelets. Ingenex is developing a product based on the insertion and
expression of MDR-1, the human multidrug resistance gene, into blood
progenitor or stem cells purified from bone marrow or blood. MDR-1 produces a
protein that actively pumps many cytotoxic drugs out of cells. The
introduction of MDR-1 into blood progenitor or stem cells is intended to make
them less sensitive to such drugs, thereby potentially enabling more
aggressive chemotherapy. In an ongoing Phase I/II clinical trial of MDRx1,
the investigators sponsored by the Company at The University of Texas M.D.
Anderson Cancer Center ("MD Anderson") have introduced MDR-1 into blood
progenitor or stem cells removed from 20 patients with ovarian or breast
cancer who have then undergone bone marrow transplantation with their own
modified cells. The trial is intended to assess whether cells genetically
modified for multidrug resistance can be safely reintroduced and maintained
in patients as they undergo multiple cycles of chemotherapy at increasing
doses. In addition, the results of such clinical trial may suggest whether
the modified cells will improve cancer patients' ability to tolerate
chemotherapy.
3
<PAGE>
RB94 Program. Tumor suppressor genes are generally believed to block
cancer progression. The loss or inactivation of certain tumor suppressor
genes, including RB, has been observed frequently in most of the common human
cancers, and various scientists have proposed that the reintroduction of a
functional tumor suppressor may halt the proliferation of such cancers. The
investigators sponsored by Ingenex at MD Anderson, formerly affiliated with
Baylor College of Medicine ("Baylor"), have reported that RB94 produces a
shorter, more stable protein (the "RB94 protein") than the
naturally-occurring, full-length RB gene. In preclinical studies conducted by
these scientists, the addition of RB94 to RB-deficient cancer cells prevented
tumor growth more completely than the addition of a full-length RB gene.
Furthermore, the Company believes that RB94 may have broader clinical utility
than RB because RB94 also blocks the growth of certain tumors that still
contain a naturally-occurring, full-length RB gene. Ingenex believes that an
important medical use of RB94 gene therapy may be as a supplemental or
alternative procedure to surgery in the treatment of certain regionalized
tumors.
The GSX System. The GSX System identifies genes based on their functional
roles in a biological or disease process. This system selects short gene
fragments that inhibit a biological or disease process and confer a medically
desirable cellular property, such as increased resistance of cells to a
virus. Ingenex believes that the GSX System, because it selects genetic
elements by virtue of their specific functions, represents an important
advance over methods that identify gene sequences or disease-associated genes
having no known cellular function. The GSX System has been employed by the
Company and its scientific collaborators at the University of Illinois at
Chicago ("UIC") both to gain insight into the specific functions of
previously identified genes and to discover new genes and gene fragments.
Ingenex has utilized the GSX System to identify gene fragments capable of
blocking the replication of the Human Immunodeficiency Virus ("HIV"). The
Company is also exploring the use of the GSX System to discover novel
therapeutics for cancer and other diseases characterized by aberrant cellular
function. In addition to identifying therapeutic genetic elements, the
Company believes that information obtained using the GSX System may promote
pharmaceutical discovery by demonstrating that intervention in a specific
biochemical process will have a desired outcome.
The Company's gene therapy products are currently in preclinical and
clinical development. MDRx1 is being tested in a Phase I/II clinical trial.
However, none of the Company's other proposed products is being tested in
clinical trials or has been submitted for regulatory approval. While the
Company anticipates that it will file an Investigational New Drug Application
(an "IND") in late 1997 for the use of RB94 to treat prostate cancer, there
can be no assurance that an IND will be filed within such anticipated time
period, or at all. There also can be no assurance that the results of the
clinical trial of MDRx1 or any future clinical trials will demonstrate the
safety or efficacy of MDRx1 or RB94, or that any of the Company's proposed
products will be successfully developed or will receive the necessary
regulatory approvals, or that, even if such approvals are received, that such
products will be commercialized. In addition, there can be no assurance that
the GSX System will provide the basis for the development of additional
gene-based therapeutic products. See "Risk Factors."
Ingenex is a majority-owned subsidiary of Titan. Titan participates in the
management of five operating biopharmaceutical companies, four of which are
majority-owned subsidiaries, in the fields of central nervous system
disorders, cancer therapy, blood and immune disorders and other
life-threatening diseases. Titan has expressed an interest in purchasing
approximately 200,000 of the shares of Common Stock offered hereby at the
initial public offering price. Following the Offering, assuming Titan
purchases these shares, Titan will own approximately 54% of the outstanding
Common Stock (or approximately 51% if the Underwriters' over-allotment option
is exercised in full). The Company has also granted to Titan the Titan Option
and an additional option and a right of first refusal with respect to future
issuances of voting capital stock of the Company in order for Titan to
maintain ownership of a majority of the outstanding voting capital stock of
the Company. Titan has agreed to certain restrictions with respect to its
influence over the Company. See "Business --Relationship to Titan
Pharmaceuticals, Inc." and "Underwriting."
The Company was originally incorporated in New York under the name
Pharm-Gen Systems, Ltd. in July 1991 and was reincorporated in April 1993 in
Delaware as Ingenex, Inc. The Company's corporate headquarters are located at
1505 O'Brien Drive, Menlo Park, California 94025, and its telephone number is
(415) 617-9570.
4
<PAGE>
THE OFFERING
Common Stock offered
hereby ................. 1,850,000 shares
Common Stock to be
outstanding after the
Offering ............... 4,844,391 shares (1)
Use of proceeds ........ Repayment of indebtedness, research and
development, working capital and other
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market
symbol ................. INGX
- ------------
(1) Excludes (i) 449,830 shares of Common Stock issuable upon the exercise
of outstanding stock options at June 30, 1996, at a weighted average
exercise price of $2.38 per share, (ii) 300,000 shares of Common Stock
issuable upon the exercise of outstanding warrants, at an exercise
price of $2.50 per share, (iii) 185,000 shares of Common Stock issuable
upon the exercise of the Representative's Warrants and (iv)
approximately 300,000 shares of Common Stock issuable upon the exercise
of the Titan Option. See "Management --1994 Stock Option Plan,"
"Certain Transactions" and "Underwriting."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
- -----------------------------------------------------------------------------
MDRx1(Trademark) and GSX(Trademark) are trademarks of the Company.
Taxol(Registered Trademark) is a registered trademark of Bristol-Myers Squibb
Company.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>PTION>
PERIOD FROM
YEAR ENDED SIX MONTHS ENDED COMMENCEMENT
DECEMBER 31, JUNE 30, OF OPERATIONS
---------------------- ---------------------- (JULY 25, 1991)
TO
1994 1995 1995 1996 JUNE 30, 1996
--------- ----------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ......................... $ -- $ 140 $ -- $ 46 $ 186
Loss from operations ............ (4,907) (3,886) (1,987) (1,569) (12,979)
Net loss ........................ (4,884) (4,995) (2,199) (1,897) (14,425)
Pro forma net loss per share(1) (1.56) (0.53)
Shares used in per share
computations (1) ............... 3,211,192 3,258,571
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(2) ADJUSTED(3)
---------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......................... $ -- $ -- $ 14,311
Working capital (deficiency) ....................... (925 ) (925) 13,924
Total assets ....................................... 199 199 14,510
Technology financing ............................... 1,504 1,504 --
Deficit accumulated during the development stage .. (14,425) (14,425) (14,425)
Total stockholders' equity (net capital deficiency) (1,699) (1,699) 14,116
</TABLE>
- ------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing net
loss per share.
(2) Gives pro forma effect to the Preferred Stock Conversion.
(3) Adjusted to give effect to the sale of the 1,850,000 shares of Common
Stock by the Company in the Offering at an assumed initial public
offering price of $10.00 per share (after deducting underwriting
discounts and commissions and estimated offering expenses) and the
initial application of the net proceeds therefrom as set forth in "Use
of Proceeds." See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk, and the Common Stock should not be purchased by persons who cannot
afford the loss of their entire investment. In addition to the other
information in this Prospectus, the following factors should be considered
carefully in evaluating an investment in the Common Stock offered hereby.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed
below and under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
EARLY STAGE OF DEVELOPMENT. The Company's products are under development,
with only one of the Company's planned products in the clinical trial phase.
To date, no revenues have been generated by the Company from product sales
nor are any product revenues expected for the foreseeable future. As a
result, the Company must be evaluated in light of the problems, delays,
uncertainties and complications encountered in connection with a development
stage biopharmaceutical business, which include, but are not limited to, the
possibilities that any or all of the Company's potential products will be
found to be ineffective or toxic, or will fail to receive necessary
regulatory clearances. To achieve profitable operations, the Company must
successfully develop, obtain regulatory approvals for, introduce and
commercialize products that are currently in the research and development
phase. The substantial majority of the preclinical research and clinical
development work and testing for the Company's product candidates remains to
be completed. Moreover, the results of preclinical testing do not necessarily
predict or prove safety or efficacy in humans. The Company currently is not
profitable, and no assurance can be given that the Company's research and
development efforts will be successful, that required regulatory approvals
will be obtained, that any of the Company's proposed products will be safe
and effective, that any such products, if developed and introduced, will be
commercialized or that the Company will ever become profitable. Failure of
the Company to successfully develop, obtain regulatory approvals for,
introduce and commercialize its products under development would have a
material adverse effect on the Company. See "Business."
HISTORY OF OPERATING LOSSES; NEED FOR SUBSTANTIAL ADDITIONAL FINANCING.
The Company has experienced significant operating losses since its inception
in July 1991. As of June 30, 1996, the Company had incurred cumulative net
operating losses of approximately $14,425,000 and its working capital
deficiency was approximately $925,000. The Company will continue to incur
substantial operating losses for the foreseeable future. Such losses have
been and will be principally the result of the various costs associated with
the Company's research and development activities. The Company's products are
still in research and development, and the Company has not generated any
revenues from the sale of products to date. The Company is dependent upon the
net proceeds from the Offering to continue its business operations for the
next 18 months, and it will be required to seek additional financing in the
future to continue its research and development activities thereafter. The
Company will seek to obtain additional funds through public or private equity
or debt financings, collaborative or other arrangements with corporate
partners or from other sources. The Company does not have any commitments or
arrangements to obtain such financing, and there can be no assurance that the
Company will not require additional financing prior to the end of such
18-month period or that it can obtain such financing on satisfactory terms,
or at all. If such financing is not available, the Company may be required to
modify its business development plans or reduce or cease certain or all of
its operations. The Company also intends to seek and enter into collaborative
arrangements with corporate partners to fund its research and development
activities, but there can be no assurance that the Company will be able to
find any such corporate partners or, if the Company finds any such partners,
that it will be able to form a collaborative relationship on favorable terms.
A failure by the Company to obtain additional financing or to enter into
collaborative arrangements to fund its research and development activities
would have a material adverse effect on the Company. See "--Dependence on
License and Sponsored Research Agreements," "Use of Proceeds" and "Business."
The report of the Company's independent accountants with respect to the
Company's financial statements for the fiscal year ended December 31, 1995
includes an explanatory paragraph
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indicating that certain conditions raise substantial doubt as to the ability
of the Company to continue as a going concern, although the Company believes
that this explanatory paragraph would have been omitted if the Offering had
been completed as of the date of such report. See Report of Ernst & Young
LLP, Independent Auditors.
DEPENDENCE ON LICENSE AND SPONSORED RESEARCH AGREEMENTS. The Company is
dependent upon the license and/or sponsored research agreements that it has
entered into with academic or other institutions, in particular Baylor, UIC,
MD Anderson and the Massachusetts Institute of Technology ("MIT"). The
Company is dependent upon its license agreements as the basis of its
proprietary technology and on its sponsored research agreement with MD
Anderson for the clinical trial of MDRx1.
The license agreements that have been entered into by the Company
typically require the payment of license fees and royalties based on sales of
licensed products and processes with minimum annual royalties, the use of due
diligence in bringing products to market, the achievement of funding
milestones and, in some cases, the issuance of Common Stock to the licensor.
The Company is also obligated under the licenses to indemnify its licensors
against certain liabilities, including liabilities arising out of product
liability claims. In those cases where the technology licensed to the Company
was developed, at least in part, with federal funds, the license to the
Company is subject to a statutory non-exclusive, non-transferable,
irrevocable, paid-up license retained by the U.S. government for use by, or
on behalf of, the U.S. government. The sponsored research agreement between
the Company and MD Anderson currently requires periodic payments on a monthly
basis. If the Company does not meet its financial or other obligations under
its license agreements or its sponsored research agreement in a timely
manner, the Company could lose the rights to its proprietary technology or
the right to have MD Anderson conduct the clinical trial of MDRx1. From time
to time in the past, the Company has failed to make payments to MD Anderson
on a timely basis, although the Company is now current under its sponsored
research agreement with MD Anderson and its license agreements. The Company
anticipates that the net proceeds from the Offering will enable the Company
to satisfy its financial obligations under its license and sponsored research
agreements, as well as other anticipated operating expenses, for a period of
18 months after the consummation of the Offering. Upon the expiration of such
18-month period, substantial additional financing will be necessary for,
among other things, the Company to timely honor its financial obligations
under its license and sponsored research agreements. There can be no
assurance that the Company will continue to have the funds necessary to
satisfy its obligations under its license and sponsored research agreements.
See "--History of Operating Losses; Need for Substantial Additional
Financing." If the rights of the Company under its license and sponsored
research agreements are terminated because it does not have the funds to
timely meet its financial obligations thereunder, or for any other reason,
such termination would have a material adverse effect on the Company.
Further development of the Company's proposed products depends upon the
Company's ability to maintain existing and establish new sponsored research
relationships with scientific and corporate collaborators. The Company's
MDRx1 product is currently being clinically tested by the investigators
sponsored by the Company at MD Anderson. The Company's other gene therapy
product, RB94, is in preclinical development, and the Company intends to
continue to develop this product in collaboration with a partner with
expertise in gene delivery. The Company's in-house research program is
utilizing the GSX System to identify genes and/or gene fragments that
potentially could lead to the development of additional gene therapy products
and may seek to collaborate with other companies in such research and
development. The Company is not able to exercise direct control over the
conduct of its sponsored research and most likely will not be able to
exercise direct control over the conduct of any other sponsored research
relationships it may establish in the future. No assurance can be given as to
the success of any sponsored research program of the Company or that the
Company will be able to maintain or establish new sponsored research
relationships. The failure by the Company to establish and maintain
satisfactory sponsored research relationships would have a material adverse
effect on the Company. See "Business --Product Research and Development" and
"--Proprietary Rights."
UNCERTAINTY RELATING TO PATENTS AND PROPRIETARY TECHNOLOGY. At the present
time, Ingenex does not own any patents, although it does have one pending
U.S. patent application. Currently, the Company relies on third-party
licenses to obtain rights in respect of certain patents and patent
applications and
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other proprietary rights owned by such third parties that are essential to
the research and development of its proposed processes and products. See
"--Dependence on License and Sponsored Research Agreements." The Company may,
in the future, seek to patent other technologies and seek rights from third
parties to other patents and patent applications. The success of the Company
will depend in part on the ability of the Company and its licensors to obtain
and maintain patent protection for any processes and products developed by
the Company and on the ability of the Company to preserve its trade secrets.
Patent positions in the field of biotechnology are generally highly uncertain
and involve complex legal and scientific questions. To date, no consistent
policy has been developed in the U.S. Patent and Trademark Office regarding
the breadth of claims allowed in biotechnology patents. In addition, since
patent applications in the U.S. are maintained in secrecy until patents are
issued and since publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, the Company cannot be
certain that it or its licensors were the first creators of the subject
matter covered by the Company's patent application or licensed patents and
patent applications, or that it or such licensors were the first to file
patent applications in respect of such subject matter. Accordingly, there can
be no assurance that patent applications owned by or licensed to the Company
will result in the issuance of patents, or that, if issued, such patents will
be valid or will afford the Company protection against competitors with
similar technologies. In addition, no assurance can be given that any issued
patents will provide competitive advantages for the processes and products of
the Company or will not be successfully challenged or circumvented by
competitors. Further, there can be no assurance that the patents of others
will not be infringed by the Company's processes and products or that others
will not independently develop processes and products similar to the
Company's processes and products. The Company also relies upon unpatented
proprietary technology. No assurance can be given that the Company can
meaningfully protect its rights with regard to such unpatented proprietary
technology or that competitors will not duplicate or independently develop
substantially equivalent technology. Each of the Company's employees and
service providers, and those of the Company's consultants and advisors who,
to the Company's knowledge, have access to the Company's proprietary
information, have entered into a proprietary information and inventions
agreement with the Company. There can be no assurance that the obligation to
maintain the confidentiality of such trade secrets or proprietary know-how
set forth in such agreements will not be breached by such employees, service
providers, consultants and advisors, or that the Company's trade secrets or
proprietary know-how will not otherwise become known or be independently
developed by competitors. Any failure (as described above or otherwise) by
the Company to protect its rights to any product or process it develops could
have a material adverse effect on the Company.
The Company believes that there may be a significant amount of litigation
in the industry involving patent and other intellectual property rights. If
the Company were to become involved in such litigation, regardless of the
outcome, a substantial portion of the Company's financial and human resources
could be diverted. The Company's processes and products may be found to
infringe patents which have been or will be granted to competitors or
research institutions. The possibility of infringement becomes a growing
concern as the biotechnology industry expands and more patents are issued.
Should infringement occur, legal action could be brought against the Company,
damages could be sought and certain of the Company's research, development
and commercialization activities could be enjoined. If such actions were
successful, in addition to any potential liability for damages, the Company
could be required either to obtain a license to continue using the affected
process or manufacturing or selling the affected product, or to cease using
such process or manufacturing or selling such product. There can be no
assurance that the Company could obtain any license required on terms
acceptable to the Company, if at all. Alternatively, the Company's licensed
patents could be infringed. There can be no assurance that the Company would
prevail in (or have adequate resources to commence) any litigation based on
the infringement of such licensed patents. A failure by the Company to obtain
any such necessary licenses or to prevail in any such litigation could have a
material adverse effect on the Company.
The Company is aware of a U.S. patent issued to a third party (U.S. Patent
4,912,039) (the "Riordan patent") relating to multidrug resistance. The
Riordan patent describes the isolation of two DNA molecules that code for
fractional portions of the hamster protein associated with multidrug
resistance (the "hamster MDR-1 gene"), whereas a patent licensed by the
Company (U.S. Patent 5,206,352) (the "Roninson patent") describes (and
claims) the entire human MDR-1 gene, which is the DNA that codes
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for the entire protein associated with multidrug resistance in human cells.
Nonetheless, the Riordan patent claims a DNA molecule coding for a protein,
or a fragment of a protein, that is associated with multidrug resistance in
living cells, including human cells. The Riordan patent has an earlier
effective filing date than the Roninson patent, and there can be no assurance
that the Riordan patent will not be asserted against the Company. Thus, it
may be necessary for the Company to obtain a license under the Riordan patent
to pursue commercialization of its proposed gene therapy products utilizing
the MDR-1 gene. There can be no assurance that such a license, if required,
will be made available to the Company, if at all, on terms acceptable to the
Company. Failure to obtain such a license, if required, could have a material
adverse effect on the Company.
The Company also is aware of a U.S. patent issued to a third party (U.S.
Patent 5,399,346) (the "Anderson patent") relating to ex vivo (outside the
body) gene therapy. The Anderson patent is reported to be exclusively
licensed to Genetics Therapy, Inc. The Company believes that the Anderson
patent could be asserted to cover gene therapeutics developed by the Company,
to the extent that the introduction of a gene into a subject's cells is
performed ex vivo. In January 1996, it was reported that an interference
proceeding had been instituted in the U.S. Patent and Trademark Office
between the issued Anderson patent and two pending patent applications.
Depending on the outcome of the interference, it may or may not be necessary
for the Company to obtain a license from a party to the interference (or its
licensee) to pursue commercialization of its proposed gene therapy products
utilizing ex vivo gene therapy. There can be no assurance that such a
license, if required, will be made available to the Company, if at all, on
terms acceptable to the Company. Failure to obtain such a license, if
required, could have a material adverse effect on the Company.
The Company has received notice that three companies, Chiron Corporation,
Sandoz AG, and Introgene NV, are opposing the grant of a European patent
corresponding to the Roninson patent, which the Company has licensed from
UIC, with claims directed to the human MDR-1 gene and gene fragments. While
the Company, through its licensor, intends to vigorously respond to the
oppositions, no assurance can be given as to the scope of the claims, if any,
which the European Patent Office ultimately will find patentable.
The Company is aware of the existence of a prior art reference (European
Patent Application 0 259 031) ("EP 0 259 031"), which discloses a DNA
sequence corresponding to the sequence of the RB94 DNA molecule that is
claimed in an issued U.S. patent licensed by the Company from Baylor (U.S.
Patent 5,496,731) (the "Baylor patent"). The Baylor patent also contains
claims directed to specific expression vectors containing the RB94 DNA
molecule. Although an issued patent is presumed valid, there can be no
assurance that the claims of the Baylor patent, if challenged, will not be
found invalid. In any event, given that EP 0 259 031 relates to DNA sequences
but not to methods of gene therapy, the existence of this reference alone
would not, as a matter of U.S. law, be expected to affect the patentability
of claims directed to the use of the RB94 DNA molecule in gene therapy for
certain cancers, which gene therapy claims presently are pending in a related
patent application licensed by the Company from Baylor. EP 0 259 031 further
discloses the deduced amino acid sequence encoded by the disclosed DNA
sequence, which amino acid sequence corresponds to that of the RB94 protein.
The U.S. Patent and Trademark Office, in a Final Office Action rejection, has
cited this reference as anticipating the claim directed to the RB94 protein,
which claim presently is pending in a second, related patent application
licensed by the Company from Baylor.
TECHNOLOGICAL UNCERTAINTY. Gene therapy is a new and rapidly evolving
field, and there is only limited preclinical and clinical data on the safety
and efficacy of gene therapy. Data relating to the Company's specific gene
therapy approaches is even more limited. There can be no assurance that
unacceptable side effects will not be discovered during preclinical and
clinical testing of the Company's potential products. Possible serious side
effects of gene therapy include viral infections and the initiation of
cancers in the patient. The Company's potential products are, or will be,
delivered by a viral vector to patients' cells, and certain safety issues
have been raised by the use of viral vectors for gene therapy. For example,
it is possible that regeneration of an infectious virus may occur during the
production or use of such vectors. Thus, production and quality assurance
processes must be designed to reduce the possibility of infectious virus
regeneration. In addition, any gene therapy approach that involves the random
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insertion of genetic material into the target cell's DNA could cause the
activation of a gene involved in the development or spread of cancer or other
harmful cells or the inactivation of a beneficial gene. Further, as with most
other biopharmaceutical products, there is also a possibility of toxicity
associated with a host immune response toward the vector. The possibility of
such response may be increased if there is a need to deliver the vector
repeatedly. There can be no assurance that the Company will be able to
utilize viral vector enabling technology in a form, and in a manner, that
mitigates such risks. In addition, the Company may begin development of in
vivo (inside the body) approaches to gene therapy that will target specific
cells. There can be no assurance that the desired specificity will be
attained or that the Company's proposed products will not have serious side
effects. If the Company's potential products have serious side effects, it
would have a material adverse effect on the Company.
There are many reasons why potential products that appear promising at an
early stage of research or development do not result in commercialization.
There can be no assurance that the Company will be permitted to undertake
further clinical trials of any of its proposed products or that the results
of such testing will demonstrate safety or efficacy. Even if clinical trials
are successful, there is no assurance that the Company will obtain regulatory
approval for any indication, or that an approved product can be produced in
commercial quantities at reasonable costs or be commercialized at all. A
failure by the Company to obtain such regulatory approval or to commercialize
its proposed products would have a material adverse effect on the Company.
See "Business."
GOVERNMENT REGULATION. Because gene therapy is a relatively new technology
and has not been extensively tested in humans, the regulatory requirements
governing gene therapy products are uncertain and may be subject to change by
various regulatory authorities in the U.S. and abroad. This uncertainty may
result in extensive delays in initiating clinical trials and in the
regulatory approval process. Regulatory requirements ultimately imposed could
adversely affect the Company's ability to clinically test or commercialize
products.
The research, preclinical development and clinical trials conducted by the
Company, and the manufacturing and marketing of its gene therapy products,
are subject to regulation by the U.S. Food and Drug Administration (the
"FDA") and similar health authorities in foreign countries. FDA approval of
the Company's proposed products, as well as of the manufacturing processes
and facilities used to produce such products, will be required before such
products may be marketed in the U.S. The process of obtaining approvals from
the FDA is costly, time consuming and often subject to unanticipated delays.
There can be no assurance that required approvals of the Company's proposed
products, processes or facilities will be granted on a timely basis, or at
all. Many academic institutions and companies doing research in the gene
therapy field are using a variety of approaches and technologies. Any adverse
results obtained by such researchers in preclinical or clinical studies, even
if not related to the Company's potential products, could adversely affect
the regulatory environment for gene therapy products generally and possibly
lead to delays in the approval process for the Company's potential products.
Any future failure to obtain or delay in obtaining any such approvals will
materially and adversely affect the ability of the Company to commercialize
its proposed products. Moreover, even if such regulatory approvals are
granted, such approvals may include significant limitations on indicated uses
for which any such products could be marketed. Further, even if such
regulatory approvals are obtained, a marketed drug or biological compound and
its manufacturer are subject to continuous regulatory oversight, and later
discovery of previously unknown problems may result in restrictions on such
product or manufacturer, including withdrawal of the product from the market.
In addition, new government regulations may be established that could delay
or prevent regulatory approvals of the Company's products, processes or
facilities. Failure of the Company to obtain and maintain regulatory
approvals of its products, processes or facilities would have a material
adverse effect on the Company.
On October 25, 1993, the vaccines and related biological products advisory
committee to the Center for Biologics Evaluation and Research of the FDA met
to review issues related to gene therapy, including the use of retroviruses
and adenoviruses as viral vectors. The committee made certain recommendations
that were expected to form a component of a revision of the FDA's 1991
"Points to Consider on Human Somatic Cell Therapy and Gene Therapy" document
related to gene therapies and somatic cell therapies, but the committee made
no formal recommendations limiting the use of viral vectors. In January 1996,
the
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FDA released a draft "Addendum to the Points to Consider on Human Somatic
Cell and Gene Therapy (1991)." This draft document contains guidelines
concerning the production and testing of vectors used in gene therapy. There
can be no assurance, however, that new guidelines will not be instituted
limiting the use of viral vectors, or that the Company will be able to
continue to comply with existing or future regulations.
The Company's research and development activities involve the controlled
use of hazardous materials. The Company is subject to federal, state and
local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the
Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by such laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result, and any such
liability could exceed the financial resources of the Company. Although the
Company believes that it is currently in compliance in all material respects
with applicable environmental laws and regulations, there can be no assurance
that the Company will not be required to incur significant costs to comply
with such laws and regulations in the future, or that the Company will not be
materially adversely affected by current or future environmental laws or
regulations.
The Company's proposed products, processes and facilities may also be
subject to certain other federal, state and local government (as well as
foreign) regulations, including, but not limited to, the Public Health
Service Act, the Occupational Safety and Health Act and state, local and
foreign counterparts to such acts. The Company cannot predict the extent of
the adverse effect on its business or the financial and other costs that
might result from any such existing or future government regulations. See
"Business --Government Regulation."
COMPETITION; RAPID TECHNOLOGICAL CHANGE. Competition in the
biopharmaceutical industry from pharmaceutical companies, biotechnology
companies, universities and others is intense and is expected to increase.
Furthermore, related technologies are subject to rapid and significant
change. Many of the Company's competitors and potential competitors have
significantly greater research and development capabilities, experience in
obtaining regulatory approvals, manufacturing and marketing expertise and
technological, financial and managerial resources than the Company.
Acquisitions of, or investments in, competing biotechnology companies by
large pharmaceutical companies could enhance such competitors' financial and
other resources. The Company also competes with universities and other
research institutions in the development of technologies, processes and
products. There can be no assurance that competitors of the Company will not
succeed in developing technologies, processes or products that are more
effective than those of the Company or that will render the Company's
technologies, processes or proposed products obsolete or uneconomical. In
addition, certain of the Company's competitors may achieve patent protection
or product commercialization earlier than the Company. See "--Uncertainty
Relating to Patents and Proprietary Technology."
The Company is aware of a number of competitors that have commenced, or
that are likely to commence shortly, clinical trials of the effects of the
transfer of the MDR-1 gene into progenitor or stem cells. The Company
believes that the focus of such trials and potential trials generally is the
same as the clinical trial commenced by the investigators sponsored by the
Company at MD Anderson in December 1994 (with respect to ovarian cancer) and
January 1995 (with respect to breast cancer), in each case with respect to
the MDR-1 gene and its effects on the suppression of multidrug resistance.
There can be no assurance that competitors of the Company will not complete
their clinical trials and obtain additional approvals required for later
phases of development prior to the Company, or that the results of the
Company's clinical trial will result in the issuance of such additional
approvals for the Company's MDRx1 gene therapy product. Moreover, there can
be no assurance that the Company will be able to keep pace with technological
developments on a timely basis. The failure of the Company to compete
successfully in the research, development and commercialization of its
products, processes and technologies would have a material adverse effect on
the Company. See "Business --Competition."
DEPENDENCE ON KEY EMPLOYEES. The Company is highly dependent on its
scientific staff, the loss of one or more of whom could substantially impair
the Company's ability to achieve its goals as planned.
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Because of the specialized nature of the Company's business, the Company's
ability to maintain its competitive position will depend, in large part, upon
its ability to attract and retain qualified scientific personnel. Competition
for such personnel is intense. There can be no assurance that the Company
will be able to hire sufficient qualified personnel on a timely basis or
retain such personnel given the competition among numerous pharmaceutical and
health care companies, universities and nonprofit research institutions for
experienced scientists. The Company's future success also depends on its
continuing ability to attract and retain highly qualified managerial and
other personnel, especially since the Company's anticipated growth is
expected to place increased demands on its resources, which will require the
addition of new personnel. Competition for such personnel also is intense.
The Company is currently seeking to hire a Vice President-Finance. The
Company has an employment agreement with Dr. Mark E. Furth, its President and
Chief Executive Officer; however, such agreement is terminable by either
party without cause at any time and it does not assure the services of Dr.
Furth. The Company does not currently maintain any "key person" insurance for
any of its personnel. There can be no assurance that the Company can retain
its key scientific, managerial and other employees or that it will be able to
attract, assimilate or retain other highly qualified scientific, managerial
and other personnel in the future. The failure to attract, assimilate or
retain such persons would have a material adverse effect on the Company. See
"Business --Employees" and "Management."
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING AND MARKETING. To date, the
Company has not completed the development of or commercialized any products.
To be commercialized, the Company's proposed products under development must
be manufactured in compliance with regulatory requirements at acceptable
costs and successfully marketed. The Company does not have any manufacturing
or marketing experience nor does the Company anticipate having the resources
in the foreseeable future to allocate to the commercial manufacture or
marketing of its proposed products and, therefore, the Company intends to
pursue collaborative arrangements with other companies with respect to the
manufacture and marketing of such products in the future. The future success
of the Company will depend, in part, on its ability to enter into and
maintain relationships with such corporate collaborators and their success in
manufacturing and marketing any such products. To the extent that the Company
determines not to, or is unable to, enter into collaborative arrangements
with respect to the manufacture and marketing of its proposed products,
significant capital expenditures, management resources and time will be
required for the Company to establish a manufacturing facility and develop a
sales and marketing force. The Company has no experience in manufacturing or
marketing. There can be no assurance that the Company will be able to enter
into collaborative arrangements with respect to the manufacture and marketing
of its proposed products, or, in lieu thereof, to establish a manufacturing
facility or develop a sales and marketing force, or be successful in gaining
market acceptance of its proposed products. The failure by the Company to
enter into collaborative arrangements to manufacture and market its proposed
products or to develop its own manufacturing and marketing capabilities would
have a material adverse effect on the Company. See "Business --Manufacturing
and Marketing."
RISK OF PRODUCT LIABILITY. In the event that the Company successfully
develops any products, the Company may face the risk of product liability
claims alleging that such products produce adverse effects. The Company does
not presently carry product liability insurance and product liability
insurance for the biopharmaceutical industry, if available, generally is
expensive. The Company expects to obtain product liability insurance prior to
the commercial distribution or sale of any of its proposed products and, in
most cases, is required to obtain such insurance prior to the commencement of
production, sale or transfer of any products covered by its license
agreements. There can be no assurance that the Company will avoid significant
product liability claims and the attendant adverse publicity, or be able to
obtain and retain product liability insurance at an acceptable cost, or, if
obtained, that such insurance will be adequate to cover any or all litigation
expenses and damage claims. The failure by the Company to avoid significant
product liability claims or obtain and maintain adequate product liability
insurance could have a material adverse effect on the Company.
UNCERTAINTY OF HEALTH CARE REIMBURSEMENT. In both domestic and foreign
markets, sales of the Company's potential products will depend in part upon
the availability and amount of reimbursement from third-party health care
payor organizations, including government agencies, private health care
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insurers and other health care payors. Third-party payors are attempting to
control rising health care costs by limiting coverage of products and
treatments and the level of reimbursement for products and services. There is
considerable pressure to reduce the cost of drug products, and reimbursement
may become more restricted in the future. The Company expects that the costs
associated with its proposed products will be substantial. There can be no
assurance that the Company's products, if successfully developed, will be
considered cost-effective by third-party payors, or that reimbursement will
be available, or, if available, that reimbursement will be at levels
sufficient to allow the Company to sell such products on a profitable basis.
GUARANTEES OF OBLIGATIONS OF OTHERS. In February 1994, the Company, along
with Ansan, Inc., Geneic Sciences, Inc. and Theracell, Inc., subsidiaries of
Titan (collectively, the "Sublessees"), entered into a sublease agreement
(the "Sublease") with Titan whereby the Sublessees agreed to sublease from
Titan certain equipment that Titan leases pursuant to a Master Equipment
Lease (the "Master Lease"). Geneic Sciences, Inc. ceased operations in
September 1995. Under the terms of the Master Lease, Titan is obligated to
make monthly payments currently totaling approximately $31,000 per month. As
of June 30, 1996, the amount outstanding under the Master Lease was
approximately $865,000. The Sublessees have jointly and severally guaranteed
all amounts payable by Titan and all other obligations of Titan under the
Master Lease. Each of Titan and each Sublessee has experienced significant
operating losses to date and is expected to continue to do so for the
foreseeable future. The failure by Titan or any Sublessee to fulfill its
obligations with respect to the Master Lease would have a material adverse
effect on the Company. See "Business --Relationship to Titan Pharmaceuticals,
Inc."
CONTROL BY EXISTING STOCKHOLDER; RELATIONSHIP TO TITAN. Following the
Offering, assuming that Titan purchases approximately 200,000 of the shares
of Common Stock offered hereby, Titan will own approximately 54% of the
outstanding Common Stock (51% if the Underwriters' over-allotment option is
exercised in full). The Company and Titan have entered into a shareholders'
agreement in which the Company and Titan have agreed that, among other
things, (i) a majority of the Board of Directors of the Company shall consist
of members who are unaffiliated with Titan (collectively, the "Independent
Directors"); (ii) all future transactions between Titan , or any of its
executive officers or directors, or any of its or their respective affiliates
(collectively, the "Titan Affiliates"), and the Company must be approved by a
majority of the Independent Directors; (iii) Titan shall have a right of
first refusal with respect to future issuances of the Company of its voting
capital stock (and securities convertible into or exchangeable for voting
capital stock) in order to maintain a majority interest in the outstanding
voting capital stock of the Company; (iv) no additional assets shall be added
to the Master Lease; (v) neither Titan nor any of the Titan Affiliates will
engage in a "going private transaction" with the Company unless such
transaction is first approved by a majority of the Independent Directors
following their receipt of a fairness opinion; (vi) the Board of Directors of
the Company shall maintain a Nominating Committee of three directors, one of
whom shall be designated by Titan; and (vii) Titan will not take any action
to amend the Certificate of Incorporation of the Company unless such
amendment is first approved by a majority of the Board of Directors of the
Company and a majority of the Independent Directors. In addition, in
consideration of a payment to the Company of $100,000, the Company has issued
to Titan the Titan Option pursuant to the shareholders' agreement. Finally,
pursuant to the shareholders' agreement, the Company has granted Titan an
option, exercisable for a period of 60 days from the date upon which Titan's
ownership interest in the outstanding voting capital stock of the Company
falls below a majority, to purchase such number of shares of voting capital
stock as necessary for Titan to maintain its majority interest at an exercise
price per share equal to the then current fair market value of such
securities. Titan has also agreed that, prior to the consummation of the
Offering, the Certificate of Incorporation of the Company will be amended to
provide, among other things, that the Company shall not merge or consolidate
with, or sell, assign, lease or otherwise dispose of all or substantially all
of its assets to Titan or any of its parents, subsidiaries and affiliates
without the affirmative vote of stockholders holding at least two-thirds of
the issued and outstanding shares of Common Stock (and such vote would also
be required to amend such provision). Louis R. Bucalo, M.D., the Chairman of
the Board of Directors of Ingenex, is the President, Chief Executive Officer
and a director of Titan; a member of the Board of Directors of Theracell,
Inc. ("Theracell"), a subsidiary of Titan; and the Chairman of the Board of
Directors of each of Ansan, Inc. ("Ansan"), ProNeura, Inc. ("ProNeura") and
Trilex Pharmaceuticals, Inc. ("Trilex"), each
14
<PAGE>
a subsidiary of Titan. John K.A. Prendergast, Ph.D., another director of the
Company, is a Managing Director of The Castle Group Ltd., a principal
stockholder of Titan. While Ingenex does not believe that such companies
currently have any interests in conflict with those of the Company, there can
be no assurance that such companies will not in the future have such
conflicting interests. In July 1996, the Company and Titan also entered into
a one-year Corporate Services Agreement wherein Titan has agreed to provide
certain managerial, administrative and financial services to the Company for
a fee of $10,000 per month. Furthermore, the Company is also indebted to
Titan in the amount of $1,000,000 for certain working capital loans. See
"Business --Relationship to Titan Pharmaceuticals, Inc.," "Certain
Transactions" and "Principal Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; ARBITRARY
DETERMINATION OF OFFERING PRICE OF THE COMMON STOCK. Prior to the Offering,
there has been no public market for the Common Stock. Although the Common
Stock has been approved for inclusion on The Nasdaq National Market, subject
to the satisfaction of certain conditions, there can be no assurance that an
active trading market will develop or be sustained after the Offering. The
absence of an active trading market would reduce the liquidity of an
investment in the Common Stock. The initial public offering price of the
Common Stock will be determined by the Company and the Representative, based
in part on market factors, and may not necessarily be related to the
Company's assets, book value, results of operations or other established and
quantifiable criteria of value and should not be regarded as any indication
of the future market price of the Common Stock. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The trading price of the Common Stock could be subject to
wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or
its competitors and other events or factors. In addition, the stock market
has experienced volatility that has particularly affected the market prices
of equity securities of many biotechnology companies and that often has been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of substantial
amounts of Common Stock in the public market, or the perception that such
sales may occur, could adversely affect the prevailing market price of the
Common Stock and the ability of the Company to raise capital through a public
offering of its equity securities. Of the 4,844,391 shares of Common Stock to
be outstanding upon consummation of the Offering, the 1,850,000 shares of
Common Stock offered hereby (2,127,500 shares if the Underwriters'
over-allotment option is exercised in full) will be immediately freely
tradeable without restriction (except by affiliates of the Company, including
Titan) or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). Any shares of Common Stock purchased in the Offering
by Titan or any other affiliate of the Company will be subject to certain of
the resale limitations of Rule 144 under the Securities Act ("Rule 144"). The
remaining 2,994,391 shares of Common Stock will be "restricted" securities
within the meaning of Rule 144 and may only be sold if registered under the
Securities Act or pursuant to an exemption from such registration
requirement, including the exemption provided by Rule 144. Holders of
2,927,159 shares of Common Stock, including each director, officer, member of
the Company's Scientific Advisory Board and principal stockholder of the
Company (including Titan), have agreed that they will not offer to sell,
contract to sell, sell, distribute, grant any option to purchase, pledge,
hypothecate or otherwise dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock for a period of 360 days after the
date of this Prospectus without the prior written consent of the
Representative. Taking into account the restrictions of Rule 144 and the
lock-up agreements, 68,079 of the restricted shares will become eligible for
sale in the public market beginning 90 days after the date of this Prospectus
and 1,923,059 will become eligible for sale in the public market beginning
360 days after the date of this Prospectus. Additional shares of Common
Stock, including shares issuable upon the exercise of options and warrants,
will also become available for sale in the public market from time to time in
the future.
Certain of the holders of Common Stock and all of the holders of warrants
to purchase shares of the Common Stock, including the Representative's
Warrants, have demand and piggy-back registration rights.
15
<PAGE>
If such holders, by exercising their registration rights, cause a large
number of shares of Common Stock to be registered and sold in the public
market, such sales could have an adverse effect on the market price of the
Common Stock. In addition, the exercise of such registration rights could
involve substantial expense to the Company. Holders of the warrants to
purchase an aggregate of 300,000 shares of Common Stock and holders of
1,463,695 shares of Common Stock have agreed not to exercise their
registration rights prior to the expiration of one year from the date of this
Prospectus. See "Shares Eligible for Future Sale" and "Underwriting."
ANTI-TAKEOVER EFFECTS OF RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW. Upon the consummation of the Offering, the Board of Directors
of the Company will have the authority to issue up to 4,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any
further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and for other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue shares of preferred stock. Further,
certain provisions of the Company's Restated Certificate of Incorporation and
Bylaws and of Delaware law could delay or make more difficult a merger,
tender offer or proxy contest involving the Company. See "Description of
Capital Stock --Preferred Stock" and "--Anti-takeover Effects of Provisions
of the Restated Certificate of Incorporation, Bylaws and Delaware Law."
DILUTION. The Offering will result in immediate dilution of $7.09 or 71%
in the pro forma net tangible book value per share to new investors, assuming
an initial public offering price of $10.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses. To
the extent that currently outstanding or subsequently granted options or
warrants to purchase shares of Common Stock are exercised, there will be
further dilution. See "Dilution."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Substantially all of the
estimated net proceeds from the Offering have been allocated to fund the
Company's research and development activities and for working capital and
other general corporate purposes. Accordingly, the Company will have broad
discretion as to the application of the net proceeds from the Offering. See
"Use of Proceeds."
NO DIVIDENDS. The Company has not paid any cash dividends on the Common
Stock since its inception and does not anticipate paying such dividends in
the future. The Company anticipates that all earnings and other resources of
the Company, if any, will be retained by the Company for investment in its
business. See "Dividend Policy."
LACK OF UNDERWRITING HISTORY. The Representative became registered as a
broker-dealer in July 1995 and to date has co-managed one public offering.
Prospective purchasers of shares of Common Stock offered hereby should
consider the limited experience of the Representative in evaluating the
Offering. See "Underwriting."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,850,000 shares of
Common Stock offered by the Company hereby are estimated to be $15,815,000
($18,284,750 if the Underwriters' over-allotment option is exercised in
full), at an assumed initial public offering price of $10.00 per share and
after deducting underwriting discounts and commissions and estimated offering
expenses.
The Company intends to use approximately $1,504,000 of the net proceeds to
repay all of its outstanding indebtedness under a License Agreement and
License Assignment, dated January 31, 1995, as amended (the "ACM Agreement"),
between the Company and Aberlyn Capital Management Limited Partnership
("ACM"). Pursuant to the ACM Agreement, the Company assigned its rights under
four licenses (the "Assigned Licenses") to ACM in exchange for the payment of
$2,000,000 from ACM to the Company. The Company's products that are being
developed using technology covered by the Assigned Licenses include MDRx1 and
the GSX System. Under the ACM Agreement, the rights under the Assigned
Licenses are sublicensed-back to Ingenex by ACM in consideration for the
Company making six monthly payments of $25,000 beginning in February 1995 and
42 monthly payments of $60,060 thereafter (collectively, the "License
Payments"). As of June 30, 1996, the unpaid balance of the License Payments
aggregated approximately $1,504,000.
The remainder of the net proceeds are expected to be used to fund the
Company's research and development activities, including clinical trials of
the MDRx1 gene therapy product, preclinical studies of the RB94 gene therapy
product and further development of the GSX System, and for working capital
and other general corporate purposes, including the opening of an additional
research and development facility in North Carolina.
Over the next 18 months, the Company intends to engage in both clinical
trials and research and development activities. The Company estimates (based
on its current operating budget) that approximately $7,800,000 will be
expended over the next 18 months in the clinical trial relating to MDRx1 and
further research and development of RB94 and of the GSX System. There can be
no assurance, however, that such budgeted amounts will not be adjusted in the
future. Further, the Company expects to pay approximately $180,000 under its
services agreement with Titan over the next 18 months and approximately
$360,000 under the Sublease over the next 18 months. In addition, the Company
anticipates paying approximately $500,000 in the aggregate over the next 18
months for the opening of an additional research and development facility in
North Carolina. The Company will use the balance of the net proceeds for
working capital and other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- --Liquidity and Capital Resources" and "Business--Product Research and
Development," "--Proprietary Rights" and "--Relationship to Titan
Pharmaceuticals, Inc."
The cost, timing and amount of funds required for specific uses by the
Company cannot be determined precisely at this time and will be based on the
rate of the Company's progress in research and development, the results of
preclinical studies and clinical trials, the timing of regulatory approvals,
payments due under existing and any future license, sponsored research or
other collaborative agreements, competitive developments and the availability
of alternate methods of financing. Pending such uses, the net proceeds from
the Offering will be invested in short-term, investment-grade,
interest-bearing securities.
Future events, including the problems, delays, expenses and complications
frequently encountered by development stage companies, as well as changes in
economic, regulatory or competitive conditions, or changes in the Company's
planned business and the success or lack thereof, or changes in the Company's
research and development activities, may require reallocation of funds or may
require the delay, abandonment or reduction of the Company's research and
development efforts. There can be no assurance that the Company's estimates
will prove accurate, that research and development efforts will not require
considerable additional expenditures or that unforeseen expenses will not be
incurred.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock since its
inception. The Company does not expect to pay cash dividends on the Common
Stock in the future. The payment of dividends, if any, in the future is
within the discretion of the Company's Board of Directors and will depend on
the Company's earnings, capital requirements and financial condition. See
"Risk Factors --No Dividends."
17
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
June 30, 1996; (ii) the pro forma capitalization of the Company as of such
date to reflect the Preferred Stock Conversion; and (iii) the pro forma
capitalization of the Company as of such date as adjusted to reflect the sale
of the 1,850,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share (after deducting underwriting
discounts and commissions and estimated offering expenses) and the initial
application of the proceeds therefrom as set forth in "Use of Proceeds." See
"Use of Proceeds." This table should be read in conjunction with the
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
(IN THOUSANDS)
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED(1)
---------- ----------- --------------
<S> <C> <C> <C>
Technology financing(2) ........................... $ 1,504 $ 1,504 $ --
---------- ----------- --------------
Stockholders' equity (capital deficiency)(2):
Preferred Stock: $.001 par value, 7,465,866 shares
authorized (4,000,000 shares authorized pro forma
as adjusted); 1,291,234 shares issued and
outstanding actual; no shares issued and
outstanding pro forma as adjusted ................ 6,565 -- --
Common Stock: $.001 par value, 25,000,000 shares
authorized; 1,703,157 shares issued and
outstanding actual; and 4,844,391 shares issued
and outstanding pro forma as adjusted ............ 5,561 2,126 27,941
Additional capital .............................. 600 600 600
Accumulated deficit ............................. (14,425) (14,425) (14,425)
---------- ----------- --------------
Total stockholders' equity (net capital
deficiency) ................................... (1,699) (1,699) 14,116
---------- ----------- --------------
Total capitalization (net deficiency) ........ $ (195) $ (195) $ 14,116
========== =========== ==============
</TABLE>
- ------------
(1) Excludes (i) 449,830 shares of Common Stock issuable upon the exercise
of outstanding stock options, at a weighted average exercise price of
$2.38 per share, (ii) 300,000 shares of Common Stock issuable upon the
exercise of outstanding warrants, at an exercise price of $2.50 per
share, (iii) 185,000 shares of Common Stock issuable upon the exercise
of the Representative's Warrants and (iv) approximately 300,000 shares
of Common Stock issuable upon the exercise of the Titan Option. See
"Management --1994 Stock Option Plan," "Certain Transactions" and
"Underwriting."
(2) See Note 4 of Notes to Financial Statements.
18
<PAGE>
DILUTION
Dilution represents the difference between the initial public offering
price paid by the purchasers in the Offering and the net tangible book value
per share immediately after consummation of the Offering. Net tangible book
value per share represents the amount of the Company's total assets minus the
amount of its intangible assets and liabilities, divided by the number of
shares of Common Stock outstanding (assuming conversion of the Preferred
Stock). At June 30, 1996, the Company had a negative net tangible book value
of $(1,699,000) or $(0.57) per share. After giving retroactive effect to the
sale of 1,850,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share (after deducting underwriting
discounts and commissions and estimated offering expenses) and the initial
application of the proceeds therefrom as set forth in "Use of Proceeds," the
net tangible book value of the Company, as adjusted, at June 30, 1996 would
have been $14,116,000 or $2.91 per share, resulting in an immediate dilution
to the public investors of $7.09 per share (or 71%). The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share ....................... $10.00
Negative net tangible book value per share as of June 30,
1996 ........................................................ $(0.57)
Increase per share attributable to new investors ............ 3.48
---------
Pro forma net tangible book value per share after the Offering 2.91
--------
Dilution per share to new investors(1) ........................ $ 7.09
========
</TABLE>
- ------------
(1) If the over-allotment option is exercised in full, the net tangible
book value after the Offering would be approximately $3.24 per share,
resulting in dilution to new investors in the Offering of $6.76 per
share (or 68%).
The following table summarizes, on a pro forma basis, the differences
between existing stockholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration
paid to the Company (before deducting costs of issuance) and the average
price per share paid by existing stockholders and by new investors at an
assumed initial public offering price of $10.00 per share (before deducting
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PAID PER
---------------------- ------------------------ SHARE
NUMBER PERCENT AMOUNT PERCENT
----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,994,391 61.8% $12,436,000 40.2% $ 4.15
New investors ......... 1,850,000 38.2% $18,500,000 59.8% $10.00
----------- --------- ------------- --------- ---------------
Total ................. 4,844,391 100.0% $30,936,000 100.0%
=========== ========= ============= =========
</TABLE>
The foregoing does not give effect to the exercise of any outstanding
options or warrants and excludes (i) 449,830 shares of Common Stock issuable
upon the exercise of outstanding stock options, at a weighted average
exercise price of $2.38 per share, (ii) 300,000 shares of Common Stock
issuable upon the exercise of outstanding warrants, at an exercise price of
$2.50 per share, (iii) 185,000 shares of Common Stock issuable upon the
exercise of the Representative's Warrants and (iv) approximately 300,000
shares of Common Stock issuable upon the exercise of the Titan Option. See
"Management --1994 Stock Option Plan," "Certain Transactions" and
"Underwriting."
19
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except share and per share data)
The following selected financial data should be read in conjunction with
the Financial Statements and Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere
in this Prospectus. The statement of operations data for the fiscal years
ended December 31, 1994 and 1995 and the balance sheet data as of December
31, 1995 are derived from, and are qualified by reference to, the financial
statements of the Company which have been audited by Ernst & Young LLP,
Independent Auditors, included elsewhere in this Prospectus. The statements
of operations data for the six-month periods ended June 30, 1995 and 1996 and
for the period from the Company's inception through June 30, 1996 and the
balance sheet data as of June 30, 1996 have been derived from unaudited
financial statements of the Company and, in the opinion of the Company's
management, include all normal, recurring adjustments necessary for a fair
presentation of the Company's financial position and results of operations
for those periods. Operating results for the six months ended June 30, 1996
are not necessarily indicative of the results which may be expected for the
entire fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS COMMENCEMENT
YEAR ENDED ENDED OF OPERATIONS
DECEMBER 31, JUNE 30, (JULY 25, 1991)
----------------------- ---------------------- TO
1994 1995 1995 1996 JUNE 30, 1996
---------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue .................................. $ -- $ 140 $ -- $ 46 $ 186
Cost and expenses:
Research and development ................ 3,988 2,501 1,436 1,067 9,318
Research and development--stockholders . 369 321 133 -- 1,437
General and administrative .............. 550 1,204 418 548 2,410
---------- ----------- ---------- ---------- ---------------
Total costs and expenses ................. 4,907 4,026 1,987 1,615 13,165
---------- ----------- ---------- ---------- ---------------
Loss from operations ..................... (4,907) (3,886) (1,987) (1,569) (12,979)
Interest income (expense), net ........... 23 (1,109) (212) (328) (1,446)
---------- ----------- ---------- ---------- ---------------
Net loss ................................. $(4,884) $ (4,995) $(2,199) $ (1,897) $(14,425)
========== =========== ========== ========== ===============
Pro forma net loss per share (1) ........ $ (1.56) $ (0.53)
=========== ==========
Shares used in per share computations (1) 3,211,192 3,258,571
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ........................... $ 38 $ --
Working capital (deficiency) ........................ (4,091) (925)
Total assets ........................................ 209 199
Payable to parent ................................... 1,313 --
Technology financing ................................ 1,783 1,504
Deficit accumulated during the development stage ... (12,528) (14,425)
Total stockholders' equity (net capital deficiency) (5,209) (1,699)
</TABLE>
- ------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing net
loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a development stage company. Since its inception in July
1991, the Company's efforts have been principally devoted to research and
development and raising capital to fund these activities. To date, the
Company has not generated any revenues from the sale of products nor does it
expect to generate any revenues from the sale of products for the foreseeable
future, if at all. The Company has experienced significant operating losses
since its inception. As of June 30, 1996, the Company had incurred cumulative
net operating losses of approximately $14,425,000. Such losses have been
principally the result of the various costs associated with the Company's
research and development activities. The Company expects to continue to incur
substantial research and development costs in the future due to ongoing
research and development programs, patent and regulatory related expenses and
preclinical and clinical testing of the Company's products. The Company also
expects that general and administrative costs (including legal and other
professional fees) related to financing activities necessary to support its
research and development activities will increase in the future. Accordingly,
the Company expects to incur increasing operating losses for the foreseeable
future. There can be no assurance that the Company will ever achieve
profitable operations.
The Company estimates that the proceeds from the sale of the Common Stock
offered hereby will be sufficient to fund its operations for 18 months,
depending on the amount of research and development actually conducted by the
Company during such period. The Company will require additional funds to
support its continued research and development activities, preclinical
studies and clinical trials and to obtain regulatory approvals for and to
commercialize its proposed products. The Company will seek to obtain
additional funds through public or private equity or debt financings,
collaborative or other arrangements with corporate partners or from other
sources. There can be no assurance that such additional financing can be
obtained on desirable terms, if at all. See "Risk Factors --History of
Operating Losses; Need for Substantial Additional Financing."
RESULTS OF OPERATIONS
Six months ended June 30, 1996 compared to six months ended June 30, 1995
Revenue. The Company's revenue consists of revenue from government grants
that support the Company's research efforts in specific research projects.
These grants generally provide for reimbursement of approved costs incurred
as defined in the various grants. The Company recognizes revenue when paid.
For the six months ended June 30, 1996, the Company recognized revenue of
approximately $46,000 relating to its Phase I Small Business Innovation
Research ("SBIR") grant from the National Institutes of Health ("NIH")
associated with its MDRx1 program. The Company did not recognize any revenue
for the six months ended June 30, 1995.
Research and Development Expenses. During the six months ended June 30,
1996 and June 30, 1995, the Company expended approximately $1,067,000 and
$1,569,000, respectively, on its research and development activities.
Approximately $120,000 and $293,000 of these expenses, respectively, was paid
to Titan. See "Certain Transactions." The decrease was primarily due to
reduced scientific payroll and personnel expenses in connection with the
implementation of cost reductions as a result of financing constraints and a
decrease in lab lease payments related to the termination in March 1995 of
the lease of a certain research facility.
General and Administrative Expenses. General and administrative expenses
for the six months ended June 30, 1996 and June 30, 1995 were approximately
$548,000 and $418,000, respectively. Such expenses primarily reflect legal,
accounting and other professional expenses principally related to the
Company's financing activities and non-scientific personnel expenses.
Interest Expense. Interest expense for the six months ended June 30, 1996
and June 30, 1995 was approximately $329,000 and $239,000, respectively. The
increase primarily represents interest payable on
21
<PAGE>
certain bridge notes issued in May 1995, interest payable on certain
indebtedness of the Company to Titan in connection with its repayment in
January and February 1996 of such bridge notes and interest payable under the
ACM Agreement.
Fiscal year ended December 31, 1995 compared to fiscal year ended December
31, 1994
Revenue. For the fiscal year ended December 31, 1995, the Company
recognized revenue of approximately $140,000 relating to its Phase I SBIR
grants from the NIH associated with its MDRx1 program and GSX System. The
Company did not recognize any revenue for the fiscal year ended December 31,
1994.
Research and Development Expenses. During the fiscal years ended December
31, 1995 and December 31, 1994, the Company expended approximately $2,821,000
and $4,357,000, respectively, on its research and development activities.
Approximately $471,000 and $515,000 of these expenses, respectively, was paid
to Titan. See "Certain Transactions." The decrease was primarily due to
reduced expenditures related to the Company's sponsored research agreement
with MD Anderson in accordance with the terms of such agreement and decreases
in lab supplies expenses and lab lease payments related to the termination in
March 1995 of the lease of a certain research facility.
General and Administrative Expenses. General and administrative expenses
for the fiscal years ended December 31, 1995 and December 31, 1994 were
approximately $1,204,000 and $550,000, respectively. Such expenses primarily
reflect legal, accounting and other professional expenses principally related
to the Company's financing activities and non-scientific personnel expenses.
The increase primarily relates to expenses incurred as a result of a bridge
financing in May 1995 and the initial public offering contemplated in 1995.
See "Certain Transactions."
Interest Expense. Interest expense for the fiscal year ended December 31,
1995 was approximately $1,150,000. The Company did not incur any interest
expense for the fiscal year ended December 31, 1994. Such expense primarily
represents amortization of the debt discount relating to certain bridge
warrants issued in May 1995, amortization of deferred financing costs and
interest payable under the ACM Agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception principally
through advances from and investments by Titan and private placements of its
securities, which placements resulted in net proceeds of approximately
$3,199,000 to date; the assignment and sublicense-back transaction entered
into by the Company in January 1995 with ACM; and SBIR grants from the NIH,
which grants have aggregated approximately $186,000 to date. Titan's advances
and investments and the proceeds from the private placements, the ACM
Agreement and the SBIR grants have been used to fund approximately
$13,165,000 of the Company's operating expenses as of June 30, 1996,
including approximately $3,392,000 in payments associated with its license,
sponsored research and consulting agreements.
Under the ACM Agreement, the Company assigned its rights under four
licenses to ACM in exchange for ACM's payment to the Company of $2,000,000.
Under the ACM Agreement, the Company is obligated to make 48 monthly license
payments (which commenced in February 1995), the first six of which are in
the amount of $25,000 each and the last 42 of which are in the amount of
$60,060 each. As of June 30, 1996, the outstanding balance of the Company's
payment obligations (including interest) under such agreement was
approximately $1,504,000. The Company intends to use approximately $1,504,000
of the net proceeds from the Offering to repay all of its outstanding
indebtedness under the ACM Agreement. See "Use of Proceeds."
The Company has also financed the lease of certain equipment pursuant to
the Sublease. In February 1994, the Company, together with the other
Sublessees, entered into the Sublease with Titan whereby the Sublessees
agreed to sublease from Titan certain equipment that it leases pursuant to
the Master Lease. Under the terms of the Master Lease, Titan is obligated to
make monthly payments currently totaling approximately $31,000 per month. As
of June 30, 1996, the amount outstanding under the Master Lease
22
<PAGE>
was approximately $865,000. The Sublessees have jointly and severally
guaranteed all amounts payable by Titan and all other obligations of Titan
under the Master Lease. Each of Titan and each Sublessee has experienced
significant operating losses to date and is expected to continue to do so for
the foreseeable future. The failure by Titan or any Sublessee to fulfill its
obligations in respect of the Master Lease would have a material adverse
effect on the Company. See "Risk Factors --Guarantees of Obligations of
Others" and "Business --Relationship to Titan Pharmaceuticals, Inc."
During the period from July through September 1996, the Company borrowed
an aggregate of $1,000,000 from Titan for working capital purposes. This loan
is evidenced by a convertible note (the "Titan Note") that bears interest at
the rate of 9% per annum and is due and payable on September 30, 1998. For a
one-year period commencing on the consummation of this Offering, Titan is
entitled to convert the Titan Note into shares of Common Stock at a
conversion price per share equal to the initial public offering price in
conjunction with Titan's exercise of the Titan Option. See "Risk Factors
- --Control by Existing Stockholder; Relationship to Titan" and "Business
- --Relationship to Titan Pharmaceuticals, Inc."
At June 30, 1996, the Company had no cash and cash equivalents, and a
working capital deficit of approximately $925,000.
The Company is a party to several license agreements and a sponsored
research agreement. See "Business --Product Research and Development" and
"--Proprietary Rights." The Company may terminate its rights under such
license agreements at any time upon prior notice to the relevant licensors.
In the event that Ingenex elects to continue to license the technology
covered by all such existing licenses, the fixed annual license fees payable
by it would be $89,000 in fiscal 1996, $126,500 in fiscal 1997, $148,500 in
fiscal 1998, $163,500 in fiscal 1999, $188,500 in fiscal 2000 and $231,000
per fiscal year thereafter. The actual fixed annual license fees paid by
Ingenex may vary if Ingenex terminates any of its current license agreements
and/or enters into new license agreements. In addition to such annual license
fees, Ingenex is obligated to pay approximately $240,000 (in the aggregate)
under its extended sponsored research agreement with MD Anderson related to
the clinical trials of MDRx1.
The Company expects its cash requirements to increase significantly in
future periods. The Company will require substantial funds to conduct its
research and development programs, preclinical studies and clinical trials of
its potential pharmaceutical products (including MDRx1 and RB94), and the
commercialization of pharmaceutical products that are developed, if any. The
Company's capital requirements will depend on numerous factors, including the
progress of its research and development programs, the scope and results of
preclinical studies and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs of filing, prosecuting, defending
and enforcing patent claims and other intellectual property rights, competing
technological and market developments, changes in the Company's existing
research relationships, the ability of the Company to establish and maintain
collaborative arrangements and the development of commercialization
activities and arrangements.
The report of the Company's independent accountants with respect to the
Company's financial statements for the fiscal year ended December 31, 1995
includes an explanatory paragraph indicating that certain conditions raise
substantial doubt as to the ability of the Company to continue as a going
concern, although the Company believes that this explanatory paragraph would
have been omitted if the Offering had been completed as of the date of such
report. The Company expects that the net proceeds from the Offering will be
sufficient to fund its planned operations for the next 18 months. Over the
next 18 months, the Company intends to engage in both clinical trials and
research and development activities. The Company estimates (based on its
current operating budget) that approximately $7,800,000 will be expended over
the next 18 months in the clinical trial relating to MDRx1 and further
research and development of RB94 and of the GSX System. There can be no
assurance, however, that such budgeted amounts will not be adjusted in the
future. Further, the Company expects to pay approximately $180,000 under its
services agreement with Titan over the next 18 months and approximately
$360,000 under the Sublease over the next 18 months. In addition, the Company
anticipates paying approximately $500,000 in the aggregate over the next 18
months for the opening of an additional research and development
23
<PAGE>
facility in North Carolina. The Company will use the balance of the net
proceeds for working capital and other general corporate purposes. See "Use
of Proceeds," "Business --Product Research and Development," "--Proprietary
Rights" and "--Relationship to Titan Pharmaceuticals, Inc."
The Company will be required to seek additional financing in the future to
continue its research and development activities. The Company will seek to
obtain additional funds through public or private equity or debt financings,
collaborative or other arrangements with corporate partners or from other
sources. The Company does not have any commitments or arrangements to obtain
such financing, and there can be no assurance that the Company will not
require such additional financing prior to the end of the next 18 months, or
that it can obtain such financing on satisfactory terms, or at all. In the
event that the Company fails to raise any funds it requires, it may be
necessary for the Company to significantly curtail its activities or cease
operations. See "Risk Factors --History of Operating Losses; Need for
Substantial Additional Financing" and "Use of Proceeds."
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," which requires an asset and liability approach for financial
accounting and reporting for income taxes. There was no effect on the
Company's financial statements as a result of its adoption of this SFAS since
the Company has incurred losses since its inception.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $11,600,000 and research and development tax credit
carryforwards of approximately $300,000 for federal income tax purposes
available to offset future taxable income. Such carryforwards expire at
various dates between fiscal 2007 and 2010. The Tax Reform Act of 1986
contains certain provisions that may limit the Company's ability to utilize
net operating loss and tax credit carryforwards in any given year if certain
events occur, including cumulative changes in ownership interests in excess
of 50% over a three-year period. Assuming Titan purchases 200,000 shares of
Common Stock in the Offering, consummation of the Offering will not result in
such change in ownership.
In October 1995, the FASB also issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which established financial accounting and
reporting standards for stock-based employee compensation plans. Companies
are encouraged, rather than required, to adopt a new method that accounts for
stock compensation awards based on their fair value using an option pricing
model. Companies that do not adopt this new standard for financial statement
reporting will have to make pro forma disclosure of net loss and net loss per
share in the footnotes to the financial statements as if the fair value-based
method of accounting required by this standard had been applied. The
accounting requirements of this standard are effective for fiscal 1996. The
pro forma disclosures are required for fiscal 1995 and 1996. The Company
expects to adopt the pro forma disclosure requirements.
24
<PAGE>
BUSINESS
Ingenex is a biopharmaceutical company engaged in the development of
proprietary gene-based therapies and the application of functional genetics
to pharmaceutical discovery. The Company's initial commercial strategy is to
develop gene therapy products for the oncology market. The Company currently
is sponsoring a Phase I/II clinical trial of MDRx1, a gene therapy product
aimed at limiting the destruction by cytotoxic drugs of normal blood-forming
cells in the bone marrow of cancer patients undergoing chemotherapy. The
Company believes that MDRx1 will permit the administration of increased doses
of cytotoxic drugs to cancer patients, resulting in the increased efficacy of
chemotherapy. Ingenex also is developing a gene therapy product based on
RB94, a modified form of RB, a tumor suppressor gene. This product is
intended to cause the regression of localized, malignant cancers. In
addition, the Company is building a new, proprietary genomics technology, the
GSX System, which identifies genes based on the specific inhibition of their
function and is designed to pinpoint key steps in a disease pathway for
therapeutic intervention. Ingenex believes that the GSX System may be used to
develop treatments for a wide range of diseases through the discovery of both
gene therapy products and small molecule drugs.
GENE DISCOVERY AND GENE THERAPY
Gene Discovery: Genomics and Functional Genetics
The activities of all living cells are controlled by the genetic programs
encoded within their DNA. DNA is organized into segments called genes, with
each gene containing the information required to express, or produce, a
specific protein. The DNA code contained in a gene is copied to first produce
an intermediate, called "messenger RNA," which serves as a template to direct
the correct assembly of the appropriate protein. Proteins are the fundamental
components of living cells and are essential to their structure, growth,
metabolism and specialized function. In higher organisms, which contain a
variety of types of cells (such as nerve, muscle, blood and epithelial), many
proteins are produced only in particular sets of cells.
Abnormalities in genes and their expression contribute to many diseases.
Some diseases, such as cystic fibrosis, can be attributed to specific genetic
abnormalities, or mutations, in one out of the approximately 100,000 human
genes. Such gene mutations may cause the production of aberrant proteins or
the complete absence of particular proteins. Other diseases, such as cancer,
cardiovascular disease, diabetes and Alzheimer's Disease, appear to involve
mutations or variations in multiple genes. Cancer, in particular, displays a
very strong genetic influence. Some individuals inherit mutations that
predispose them to develop various cancers, such as those of the breast,
colon or kidney. In addition, mutations can occur in growing cells of the
body that cause the transformation of normal cells into cancer cells and that
promote the progressive growth and spread of malignant tumors. There is also
a strong genetic influence in the progression of viral diseases. Viruses
introduce their own genes into host cells in order to reproduce. Mutations in
such viral genes may allow the virus to overcome both host defense mechanisms
and anti-viral drugs.
Numerous scientists in the public and private sectors are currently
working to identify and patent genes and gene sequences involved in disease
processes. In particular, some companies and academic laboratories are using
high-throughput automated DNA sequencing and computerized database techniques
in an attempt to sequence all expressed human genes and to catalogue the
types of cells in which particular genes are expressed. Other companies and
academic laboratories are concentrating primarily on the use of genetic
mapping and "positional cloning" strategies to find genetic mutations or
variants associated with increased susceptibility to various diseases.
Collectively, such studies of gene organization, structure and disease
association are referred to as "genomics." Despite the recent dramatic
advances in human genomics, the knowledge of a gene's DNA sequence alone does
not identify its biological role. Furthermore, the identification of a gene
that appears to be associated with a disease process usually does not suggest
a way to treat that disease.
A gene is a discrete DNA sequence with a specific biological function. A
short piece or fragment of a gene may also exert a specific biological
effect. Gene fragments may act via any of several mechanisms
25
<PAGE>
to suppress or inhibit a biological process. Some produce "antisense" RNA
molecules that interfere with the proper expression of the corresponding
full-length gene. Others appear to produce short RNA molecules or fragments
of proteins that interfere or compete with the action of intact proteins.
Functional genetics focuses on the identification of genetic elements
displaying properties thought to be predictive of a beneficial therapeutic
outcome. The isolation of functional genetic elements capable of affecting a
disease process does not depend on having prior knowledge of the genetic
basis of that disease.
Gene Therapy
Gene therapy involves the insertion of genetic material into cells in an
attempt to produce a medically beneficial outcome. In some cases, the goal of
gene therapy is to produce a specific protein needed to correct or modulate a
disease condition. For instance, if a disease results from a mutation that
inactivates a particular human gene, then the goal of gene therapy would be
to insert a normal copy of that gene into those cells in which the
corresponding protein is required. Such gene replacement may not be effective
for the treatment of infectious diseases or for many other major human
diseases that generally do not arise from mutations in a single gene.
However, a gene or gene fragment capable of introducing a new functional
capacity to a cell or actively blocking a key step in a disease process may
provide the basis for effective gene therapy.
Gene therapy products require both a therapeutic genetic element and a
delivery system, or "vector," to transfer that element into, and allow it to
be expressed by, the correct target cells. The process of gene transfer can
be accomplished ex vivo, in which cells are removed from the body,
genetically modified and then restored to the patient, or in vivo, in which
the vector carrying the therapeutic gene is injected directly into the
patient's circulation or into a specific organ or tumor. A number of gene
therapy vectors have been derived from viruses, including retroviruses,
adenoviruses, adeno-associated viruses and herpes viruses, among others, and
nonviral delivery systems also are under development. To ensure safety, viral
vectors generally are crippled to prevent replication in the patient's body,
while still allowing the efficient transfer of therapeutic genes. See "Risk
Factors --Technological Uncertainty."
TECHNOLOGICAL AND COMMERCIAL STRATEGY
Ingenex's functional genetics strategy is designed not only to discover
novel therapeutic genetic elements, but also to enable the discovery of small
molecule drugs. The Company focuses on the identification of genes and gene
fragments that are capable of altering the genetic program of a cell or
organism so as to effect a desired change in its properties or behavior.
Ingenex's proprietary GSX System utilizes functional selection to identify
gene fragments that may confer medically useful properties to cells, such as
resistance to viruses, or increased sensitivity to therapeutic drugs. In some
instances, the application of such discoveries may be as gene therapy
products. However, in other cases it may prove more effective to employ the
information obtained from the GSX approach to screen for chemical inhibitors
that mimic the effect of a selected gene fragment on a disease process. In
such a drug discovery strategy, the principal value of the genetic
information is to define and validate biochemical targets and assays prior to
the inception of expensive and time-consuming searches for chemical leads.
Ingenex intends to develop gene therapy products, primarily for the
oncology market. Because of the substantial financial requirements to support
larger scale clinical testing, the Company anticipates that it will seek
alliances with larger corporations for later stage development programs. In
its development of gene therapy products, Ingenex concentrates on the
identification of therapeutic genetic elements. The Company believes that
various vectors have advantages and disadvantages for particular
applications, and that it will be beneficial to choose a delivery system
well-matched to each therapeutic genetic element and anticipated use. Ingenex
therefore intends to access multiple delivery systems by seeking
collaborative relationships and/or licensing agreements with institutions or
companies developing such systems. With respect to small molecule discovery
programs, the Company intends to enter into collaborative relationships with
biopharmaceutical companies engaged in drug discovery in order to access
their medicinal chemistry resources.
26
<PAGE>
PRODUCT RESEARCH AND DEVELOPMENT
Ingenex currently has one gene therapy product for cancer, MDRx1, in
clinical development and a second, RB94, in preclinical development. The
Company also is utilizing its GSX System in an in-house research program to
attempt to identify genetic suppressors of HIV replication that potentially
could lead to the development of a gene therapy product for the treatment of
Acquired Immunodeficiency Syndrome ("AIDS"). The following table summarizes
the potential target indications and status of the Company's current research
and development programs. Due to the early stage of the research and
development of the Company's potential products and the new and evolving
nature of gene therapy technology generally, the Company cannot predict with
any certainty when it will be able to commercialize any of its potential
products, if at all. Moreover, the Company's research and development
activities are dependent upon the Company maintaining existing, and
establishing new, collaborative arrangements, and there can be no assurance
that the Company will be able to maintain or enter into such collaborative
arrangements or that any such collaborative arrangements will lead to the
development of a successful product. There can also be no assurance that,
even if a product is developed, required regulatory approvals will be
obtained, such product will be safe and effective or such product will be
commercialized. See "Risk Factors," including "--Early Stage of Development,"
"--Dependence on License and Sponsored Research Agreements," "--Technological
Uncertainty" and "--Government Regulation."
<TABLE>
<CAPTION>
PROGRAM DEVELOPMENT STATUS INITIAL INDICATION
- -------------------- -------------------------------- --------------------------------------
<S> <C> <C>
MDRx1 Phase I/II Clinical Testing(1) Protection against toxicity of
Gene Therapy chemotherapeutic drugs in patients
with ovarian and breast cancer
RB94 Preclinical Development(2) Treatment of prostate cancer
Tumor Suppressor
GSX System Research(3) Treatment of viral infections (HIV)
</TABLE>
- ------------
(1) Initial clinical testing of MDRx1 at MD Anderson commenced in December
1994 (in connection with the treatment of ovarian cancer) and January
1995 (in connection with the treatment of breast cancer). The purpose
of such testing is to determine whether cells modified by MDRx1 can be
safely reintroduced and maintained in cancer patients as they undergo
multiple cycles of chemotherapy at increasing doses. The Company
expects such trial to be completed in late 1996 or early 1997.
(2) Preclinical development includes pharmacological testing in animals,
toxicology testing, formulation work and manufacturing scale-up.
(3) Research includes research related to identification of drugs and/or
therapeutic genetic elements.
MDRx1
Chemotherapy has been one of the oncologists' primary weapons in combating
cancer. There is, however, wide variation in tumor susceptibility to
chemotherapy. Some cancers, such as childhood acute lymphocytic leukemia,
choriocarcinoma, Hodgkin's disease and diffuse large cell lymphoma, are
relatively sensitive to cytotoxic drugs. Other cancers, such as melanoma,
renal cancer and pancreatic cancer, appear much more resistant to
chemotherapy. However, many of the most common cancers, such as bladder,
breast, colon, lung and ovarian cancer, display moderate sensitivity to
chemotherapy and would potentially respond more completely to higher doses of
cytotoxic drugs, if such higher doses could be tolerated by the patient.
27
<PAGE>
The major impediment to administering higher, potentially more efficacious
doses of available cytotoxic drugs is that, in addition to destroying cancer
cells, such drugs also damage certain healthy cells in the body. The drugs
used in cancer therapy often are particularly toxic to those normal cells
that proliferate most actively, especially progenitor or stem cells of white
blood cells, red blood cells and platelets. As a result, significant side
effects of cancer chemotherapy include infection, bleeding and anemia.
Another significant problem that limits the effectiveness of current
chemotherapy is the simultaneous resistance of certain tumor cells to several
structurally unrelated classes of cytotoxic drugs, such as doxorubicin,
etoposide (VP-16), Taxol(Registered Trademark) (paclitaxel) and vinca
alkaloids, while other tumors develop similarly broad resistance during the
course of treatment. The phenomenon of cross resistance to multiple classes
of drugs is known as "multidrug resistance."
The gene responsible for the multidrug resistance of many human cancer
cells, MDR-1, has been identified largely through the work of Dr. Igor
Roninson, a consultant to the Company and an original member of its
Scientific Advisory Board, and his collaborators. See "--Scientific Advisory
Board." A characteristic feature of multidrug resistance is the decreased
intracellular accumulation of cytotoxic drugs due to the pumping of these
drugs back across the cell membrane. This active extrusion of drugs out of
potentially susceptible cells is mediated by a transport protein,
P-glycoprotein, which is produced by the MDR-1 gene. The resistance of many
cancer cells to chemotherapeutic drugs appears to result from overproduction
of P-glycoprotein.
The identification and molecular cloning of the human MDR-1 gene suggests
a potential gene therapy to facilitate more effective chemotherapy. Normal
cells that are especially susceptible to destruction by chemotherapeutic
drugs appear to express low or undetectable levels of P-glycoprotein. Ingenex
believes that if normal bone marrow progenitor or stem cells could be
genetically modified so as to produce significantly elevated levels of
P-glycoprotein, then such cells, and the mature blood cells they produce,
would become less susceptible to destruction by cytotoxic drugs. This, in
turn, might allow more aggressive chemotherapy and improved treatment
outcomes for certain cancers. MDRx1 is based on the insertion and expression
of MDR-1 into progenitor or stem cells, purified from bone marrow or blood,
in order to produce P-glycoprotein. The introduction of MDR-1 into bone
marrow progenitor or stem cells is intended to make blood cells less
sensitive to destruction by cytotoxic drugs, thereby potentially enabling
more aggressive chemotherapy. There can be no assurance, however, that MDRx1
will allow such protection, that other dose-limiting toxicities of the
chemotherapeutic drugs will not occur or that the MDR-1 gene will not be
inadvertently delivered to tumor cells, thereby enhancing the resistance of
such cells to the relevant chemotherapeutic drug.
As the following graph illustrates, a preclinical study in mice performed
by the investigators sponsored by Ingenex at MD Anderson demonstrated that
the treatment of bone marrow stem cells with MDRx1 led to a significant
increase in the resistance of white blood cell production to treatment with
the cytotoxic drug, Taxol(Registered Trademark).
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<PAGE>
INSERTION OF INGENEX'S MDRX1 INTO BONE MARROW STEM CELLS PROTECTS AGAINST
DESTRUCTION OF WHITE BLOOD CELLS IN MICE TREATED WITH TAXOL(REGISTERED
TRADEMARK)
#############################################################################
GRAPHIC OMITTED
IGT: "67202ch1"
#############################################################################
Mice were given transplants of bone marrow cells genetically modified with
the human MDR-1 gene. These mice were treated with Taxol(Registered
Trademark), and white blood cell counts were measured. After recovery,
bone marrow cells were transplanted into a new mouse, and Taxol(Registered
Trademark) treatment was repeated. This process was repeated for up to six
cycles. Increased resistance to destruction of white blood cells by
Taxol(Registered Trademark) was observed after each treatment cycle,
indicating that MDRx1-modified stem cells retained the ability to
repopulate the bone marrow.
Based on these preclinical studies, the United States Recombinant DNA
Advisory Committee (the "RAC") and the FDA approved the commencement of a
clinical trial of MDRx1 in patients with ovarian and breast cancer. This
Phase I/II clinical trial began in December 1994 (with respect to ovarian
cancer) and January 1995 (with respect to breast cancer). The investigators
sponsored by the Company at MD Anderson have introduced MDR-1 via a
retrovirus vector into blood progenitor or stem cells removed from 20
patients with ovarian or breast cancer who have then undergone bone marrow
transplantation with their own modified cells in order to assess whether
cells genetically modified for multidrug resistance can be safely
reintroduced and maintained in cancer patients as they undergo multiple
cycles of chemotherapy with Taxol(Registered Trademark). The results of such
clinical trial may suggest whether the modified cells will improve patients'
ability to tolerate chemotherapy. The Company expects such trial to be
completed in late 1996 or early 1997.
The Phase I/II clinical trial of MDRx1 at MD Anderson is funded by the
Company pursuant to a sponsored research program with MD Anderson. Dr. Albert
Deisseroth, an original member of the Company's Scientific Advisory Board, is
the principal investigator of the trial. See "--Scientific Advisory Board."
Pursuant to the Company's sponsored research agreement with MD Anderson, the
initial term of which was set to expire in March 1996, the Company has paid
MD Anderson approximately $1,240,000 for costs and expenses of the program.
The Company and MD Anderson have agreed to extend the sponsored research
agreement from March 1996 through December 1996 in return for the Company's
payment of $240,000 in ten equal monthly installments beginning in March
1996. If Ingenex fails to make such payments in accordance with the terms of
the sponsored research agreement or fails to comply with certain other terms
and conditions, MD Anderson may terminate the agreement. Through its
sponsored research agreement with MD Anderson, Ingenex has an option to
exclusively license any patentable technology that may be developed by MD
Anderson under the program. The sponsored research agreement with MD Anderson
will expire in December 1996 unless extended by the Company, in its sole
discretion, to March 1998. See "Risk Factors --Dependence on License and
Sponsored Research Agreements."
29
<PAGE>
RB94
Normal cell division is tightly controlled by the interaction of growth
promoting signals counterbalanced by growth constraining signals. Cancer is
thought to result from the accumulation in growing cells of mutations that
disrupt this genetic system of checks and balances, so that cells can
proliferate in an uncontrolled manner. Altered genes that actively drive the
growth of cancer cells are called oncogenes. Genes that help to maintain
normal regulation of cellular proliferation are called tumor suppressors. The
development of many types of cancers appears to result from both the
activation of oncogenes and the inactivation of tumor suppressor genes. The
mutation or loss of specific tumor suppressor genes has been linked to the
progression of several common human cancers. For example, inactivation of the
RB tumor suppressor gene has been observed in a significant fraction of a
diverse group of common solid tumors. Mutations affecting other tumor
suppressor genes, such as p53, also appear in many human cancers.
It is widely believed that a potential gene therapy for the treatment of
cancer would be to restore to malignant cells a normal, functional copy of a
specific tumor suppressor gene that had been inactivated during the
progression of a particular tumor. Studies in cell cultures and in animal
models have provided encouraging support for this approach. Various
scientists have demonstrated that the transfer of a normal tumor suppressor
gene (e.g., RB or p53) to certain cancer cell lines in which that gene had
been inactivated results in growth inhibition and tumor suppression.
Growth arrest by tumor suppressor genes is often transient or incomplete.
This phenomenon, termed "tumor suppressor gene resistance," represents a
significant challenge to cancer treatment based on the restoration of tumor
suppressor genes. As shown in the figures below, the investigators sponsored
by the Company at MD Anderson, formerly affiliated with Baylor, have reported
that cancer cells treated with RB94, a truncated form of the RB tumor
suppressor gene, appear much less susceptible to tumor suppressor gene
resistance than cells treated with the naturally-occurring, full-length RB
gene. Furthermore, these scientists have reported that RB94 appears to block
the growth of other human tumors that retain the naturally-occurring,
full-length RB gene.
EFFECTIVENESS OF INGENEX'S RB94 IN CAUSING REGRESSION OF AN RB-NEGATIVE
HUMAN TUMOR
#############################################################################
GRAPHIC OMITTED
IGT: "67202ch2"
#############################################################################
Human cancer cells lacking a functional RB gene were grown in mice, and
the tumors were injected with either the RB gene or RB94, each using the
same delivery vector. "Control" refers to tumors injected with no tumor
suppressor gene.
30
<PAGE>
INGENEX'S RB94 CAUSES REGRESSION OF AN RB-POSITIVE HUMAN TUMOR
#############################################################################
GRAPHIC OMITTED
IGT: "67202ch3"
#############################################################################
Human cancer cells containing a functional RB gene were injected with
RB94. "Control" refers to tumors injected with no tumor suppressor gene.
There can be no assurance that the positive results of these studies would
correlate to similar results in human subjects.
Ingenex has exclusively licensed patent rights relating to RB94 from
Baylor and is developing a product that incorporates RB94 into a suitable
delivery system, such as one based on a human adenovirus, for the treatment
of localized tumors. Ingenex believes that an important medical use of RB94
gene therapy may be as a supplemental or alternative procedure to surgery in
the treatment of certain regionalized tumors such as those of the prostate
gland and bladder. The Company intends to focus its research and development
efforts on methods to introduce effective doses of RB94 into such tumors.
Ingenex intends to continue to develop RB94 in collaboration with a partner
with expertise in gene delivery and anticipates filing an IND in late 1997
for the use of RB94 to treat prostate cancer. However, there can be no
assurance that an IND will be filed within the anticipated time period, or at
all.
THE GSX SYSTEM
The Company's proprietary platform technology in functional genetics, the
GSX System, identifies genes based on their functional roles in a biological
or disease process through the isolation of short gene fragments that confer
a medically desirable cellular property, such as increased resistance of
cells to a virus. Ingenex believes that the GSX System, because it selects
genetic elements by virtue of their specific functions, represents an
important advance over methods that identify gene sequences or
disease-associated genes having no known cellular function.
Gene fragments selected by the GSX System may be utilized to develop new
gene therapy products. In addition, Ingenex believes that the GSX System can
facilitate the discovery of small molecule drugs. One of the key steps in
many drug discovery programs is the choice of a biochemical target, usually a
specific protein such as an enzyme or a receptor, that a drug may inhibit or
activate to cause a pharmacological effect. However, target selection is an
uncertain trial and error process, often based on best guesses and unproven
assumptions about how to intervene to slow or halt a disease process. Because
the GSX System selects from a random collection of fragments only those gene
fragments that effect desired changes in cellular properties, the Company
believes that it provides a tool for the unbiased
31
<PAGE>
selection of valid drug targets. The Company believes that a fragment of a
given gene acting to block a disease process can facilitate the discovery of
small molecule drugs that are capable of achieving the same outcome and are
directed against the protein encoded by that gene.
The Company has initially focused its efforts to develop and validate the
GSX System on the discovery and characterization of protective gene fragments
capable of interfering with the replication of HIV. The Company has employed
functional selection to identify specific, potentially therapeutic genetic
suppressor elements ("GSEs") from libraries of random fragments of the HIV
genome. The Company believes that such GSEs could potentially be incorporated
into a gene therapy product to protect cells of the immune system in patients
with AIDS. A key goal of future research will be to identify the most potent
gene fragments, derived from the HIV genome and/or human genes, capable of
blocking either the activation of HIV in latently infected cells or the
replication of HIV in previously uninfected cells. The Company believes that
a particular benefit of the GSX System is that GSEs of short length can be
identified so that it may be possible to combine several therapeutic genetic
elements in a single product without exceeding the capacity of available
delivery systems. As illustrated in the graph below, several gene fragments,
each derived from a different HIV gene, limit HIV infection in human cells.
The three examples shown in this illustration are representative of a larger
set and were not necessarily chosen to be the most effective. The Company
believes that a combination in a single product of multiple GSEs directed at
different target genes of HIV in a single product potentially could increase
such product's efficacy and reduce the chances of acquired viral resistance
by mutation.
INGENEX'S ANTI-HIV GSES LIMIT HIV INFECTION OF HUMAN CELLS IN CULTURE
#############################################################################
GRAPHIC OMITTED
IGT: "67202ch4"
#############################################################################
Three different anti-HIV GSEs derived from HIV (IGX-009, IGX-004 and
IGX-230) were inserted into uninfected human cells in culture. The cells
were then exposed to a virulent strain of HIV, and the percentage
remaining free of active virus was measured over time. "Control" refers to
a cell culture lacking a protective GSE.
32
<PAGE>
The Company has recently been awarded by the NIH a two year Phase II SBIR
grant in the amount of approximately $716,000 to fund its development of a
gene therapy product for AIDS. The Company intends to collaborate with
scientists at the Duke University School of Medicine, Durham, N.C., including
Dr. Eli Gilboa, a member of the Company's Scientific Advisory Board, in
connection with such development, and a portion of the grant was designated
for such collaboration. See "--Scientific Advisory Board."
Ingenex believes that the GSX System may have other important medical
applications, including the identification of novel antiviral targets useful
in drug discovery. The Company has carried out preliminary experiments to
demonstrate the feasibility of selecting gene fragments protective against
the Hepatitis B Virus. In addition, studies utilizing the GSX technology to
identify genetic elements and drug targets of potential value for the
treatment of cancer already have been reported by Ingenex's academic
collaborators at UIC, and the Company has licensed certain of their
inventions. In an in-house research project supported by a Phase I SBIR grant
from the NIH, the Company has selected GSEs that appear to reverse multidrug
resistance in human cells.
The Company anticipates that it will continue to apply the GSX System to
attempt to identify novel targets for the treatment of cancer and other
diseases, both in-house and in collaboration with academic institutions and
other companies. It is likely that other disease targets also will be chosen,
as appropriate libraries, selection strategies and academic and corporate
collaborations are developed. However, there can be no assurance that the
discoveries, if any, made with the GSX System will result in the successful
development of gene therapies or drugs.
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board ("SAB") comprised of
individuals with extensive experience in the Company's fields of interest.
The SAB members meet as a board with management and key scientific employees
of the Company on a semi-annual basis and in smaller groups or individually
on an informal basis from time to time. The members of the SAB are not
compensated for attending meetings (except that each of Drs. J. Levy, R.
Levy, D. Nathan and A. Varshavsky receives $2,000 for each SAB meeting
attended), are not employees of the Company and are not obligated to devote
any specified amount of time to the affairs of the Company. See "Management
- --Consulting Agreements." The Company anticipates that the SAB members will
assist the Company in identifying scientific and product development
opportunities, in reviewing and evaluating with management the progress of
research programs and in recruiting and evaluating scientists and other
employees. Certain members of the SAB have been granted options to purchase
shares of Common Stock. See "Management --1994 Stock Option Plan."
The SAB presently consists of the following members:
RICHARD L. DAVIDSON, PH.D., is the Benjamin Goldberg Professor and the
Head of the Department of Genetics at UIC. Dr. Davidson is an original member
of the SAB. Dr. Davidson's laboratory at UIC is currently investigating
molecular mechanisms of gene regulation and mutagenesis in mammalian cells.
Dr. Davidson's research involves a combination of the techniques of somatic
cell genetics with those of molecular biology. Dr. Davidson was the recipient
of the University of Illinois College of Medicine Faculty of the Year Award
in 1991. He has been the Editor-in-Chief of the journal entitled Somatic Cell
and Molecular Genetics since 1983. Dr. Davidson is also the editor of the
book entitled Somatic Cell Hybridization and has been an Associate Editor of
the journal entitled Cancer Research since 1991. He was the Editor-in-Chief
of the journal entitled Somatic Cell Genetics from 1974 to 1983. Dr. Davidson
received both his B.A. in Chemistry and his Ph.D. in Biology from Case
Western Reserve University.
ALBERT DEISSEROTH, M.D., PH.D., is the Ensign Professor of Medicine and
Chief of the Medical Oncology Section in the Department of Medicine at the
Yale University School of Medicine. He is also the Associate Director for
Clinical Research at the Yale Cancer Center. Before joining Yale in September
1995, Dr. Deisseroth was the Anderson Professor of Cancer Treatment and
Research and Chairman of the Department of Hematology at MD Anderson. Dr.
Deisseroth is an original member of the SAB. He has published over 300
scientific papers and has written extensively in the area of bone marrow and
peripheral
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blood transplantation and in the area of leukemias, lymphomas and solid
tumors. Dr. Deisseroth received his B.A. in Chemistry, his Ph.D. in
Biochemistry and his M.D. from the University of Rochester.
ELI GILBOA, PH.D., is a Professor in the Departments of Surgery and
Immunology at the Duke University Medical Center. Dr. Gilboa's work is
currently focused in the area of gene therapy applications to HIV and cancer.
Dr. Gilboa is the author of numerous scientific publications. He received the
CapCURE Foundation Research Award for Gene Therapy for Prostate Cancer in
1993 and the NIH M.E.R.I.T. Award in 1992. Dr. Gilboa received his B.S. in
Biochemistry from Hebrew University in Israel and his Ph.D. in Molecular
Biology from the Weizmann Institute in Israel.
ANDREI GUDKOV, PH.D., is an Assistant Professor in the Department of
Genetics at UIC. Dr. Gudkov is the former Head of the Laboratory of Molecular
Genetics at the Cancer Research Center in Moscow. He has published over 60
scientific articles and reviews. Dr. Gudkov received his M.S. in Virology
from Moscow State University, his Ph.D. in Experimental Oncology from the
Cancer Research Center in Moscow and his D.Sci. in Molecular Biology from
Moscow State University.
JAY A. LEVY, M.D., is a Professor of Medicine at the Cancer Research
Institute at the University of California School of Medicine in San
Francisco. He is an original member of the SAB. Dr. Levy has received
numerous awards and honors as a distinguished lecturer, most recently as the
Henry T. Finch, Jr. Lecturer at the Regional HIV AIDS Consortium in
Charlotte, North Carolina in 1995. He received the Award of Distinction from
the American Foundation for AIDS Research in 1994. Dr. Levy is the editor of
a textbook on AIDS and has served on the editorial boards of numerous
scientific journals. Dr. Levy received his B.A. from Wesleyan University and
his M.D. from Columbia University.
RONALD LEVY, M.D., is a Professor of Medicine and the Chief of the
Division of Oncology at the Stanford University School of Medicine. Dr. Levy
is an original member of the SAB. Dr. Levy has published over 200 scientific
papers. He received his A.B. in Biochemistry from Harvard University and his
M.D. from Stanford University School of Medicine.
DAVID G. NATHAN, M.D., is a Professor of Pediatrics and holds the Richard
and Susan Smith Professor of Medicine Chair at Harvard Medical School. Dr.
Nathan is an original member of the SAB. He has been the President of the
Dana-Farber Cancer Institute since 1995 and served as the Physician-in-Chief
at Children's Hospital in Boston from 1984 to 1995. Dr. Nathan was awarded
the National Medal of Science in 1990. He is the author of over 250
scientific papers and has served on the editorial board of many medical
journals, including the Journal of Clinical Investigation, Blood and the New
England Journal of Medicine. He is the hematology editor for Cecil's Textbook
of Medicine and is the primary editor of a textbook entitled Hematology of
Infancy and Childhood, now in its fourth edition. Dr. Nathan received his
B.A. in English Literature from Harvard College and his M.D. from Harvard
Medical School.
IGOR B. RONINSON, PH.D., is the Chairman, and an original member, of the
SAB. He is a Professor in the Department of Genetics and the Head of the
Division of Molecular Oncology at UIC. Dr. Roninson is currently researching
the molecular biology of cancer. Dr. Roninson is one of the scientists
credited with the discovery of the multidrug resistance gene, MDR-1, and the
inventor of the subject matter covered by certain patents licensed to the
Company by UIC. He is the author of over 80 articles and book chapters and
the editor of a book on multidrug resistance in cancer. Dr. Roninson was the
1994 recipient of the C.P. Rhoads Award from the American Association for
Cancer Research. He received his Ph.D. in Biochemistry from MIT.
ALEXANDER J. VARSHAVSKY, PH.D., is the Howard and Gwen Laurie Smits
Professor of Cell Biology at the California Institute of Technology. Dr.
Varshavsky has published over 120 scientific papers on topics such as gene
expression and chromosome structure, DNA replication, drug resistance and
gene amplification. Dr. Varshavsky received his B.S. in Chemistry from Moscow
University and his Ph.D. in Biochemistry from the Institute of Molecular
Biology in Moscow.
Members of the SAB may be employed by, or have consulting agreements with,
entities other than the Company, some of which may conflict or compete with
the Company, or which may limit a particular member's availability to the
Company. In particular, certain of the institutions with which the SAB
members are affiliated may have regulations or policies with respect to the
ability of such personnel to act
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as part-time consultants or in other capacities for a commercial enterprise.
Regulations or policies now in effect or adopted in the future might limit
the ability of the SAB members to consult with the Company. The loss of the
services of certain of the SAB members could adversely affect the Company.
Inventions or processes discovered by any SAB member, unless otherwise
agreed, will not become the property of the Company but will remain the
property of such person or of such person's full-time employers. However,
each current SAB member has entered into a consulting agreement with the
Company that provides that any inventions discovered by the consultant while
performing services for the Company will be the sole property of the Company
(except as may otherwise be provided by the policies of such SAB member's
full-time employer). See "Management --Consulting Agreements." The
institutions with which the SAB members are affiliated may make available the
research services of their scientific and other skilled personnel, including
the SAB members, to entities other than the Company. In rendering such
services, such institutions may be obligated to assign or license to a
competitor of the Company patents and other proprietary information which may
result from such services.
PROPRIETARY RIGHTS
At the present time, Ingenex does not own any patents, although it does
have pending one U.S. patent application filed in December 1995 relating to
certain GSEs associated with HIV. Currently, the Company relies on
third-party licenses to obtain rights in respect of certain patents and
patent applications and other proprietary rights owned by such third parties
that are essential to the research and development of its proposed processes
and products. The license agreements that have been entered into by the
Company typically require the payment of license fees and royalties based on
sales of licensed products and processes with minimum annual royalties, the
use of due diligence in bringing products to market, the achievement of
funding milestones and, in some cases, the issuance of Common Stock to the
licensor. The Company intends to enter into collaborative arrangements with
respect to the manufacturing and marketing of its proposed products. See
"--Manufacturing and Marketing." The Company is also obligated under the
licenses to indemnify its licensors against certain liabilities, including
liabilities arising out of product liability claims. In those cases where the
technology licensed to the Company was developed, at least in part, with
federal funds, the license to the Company is subject to a statutory
non-exclusive, non-transferable, irrevocable, paid-up license retained by the
U.S. government for use by, or on behalf of, the U.S. government. A summary
of the Company's material licenses is set forth below. The Company's failure
to comply with the terms of the licenses could lead to their termination.
Termination of one or more of the licenses would have a material adverse
effect on the Company. See "Risk Factors--Dependence on License and Sponsored
Research Agreements."
UIC Licenses
In May 1992, the Company acquired two exclusive worldwide licenses (the
"May 1992 UIC Licenses") from UIC regarding patent properties relating to the
GSX System and the human MDR-1 gene. Each of the May 1992 UIC Licenses
continues in effect until the expiration of the last to expire patent covered
by such license or, if earlier, termination by UIC for cause or by Ingenex
upon notice to UIC. The exclusive nature of the May 1992 UIC Licenses is
subject to certain reservations, including the use of all or part of the
subject matter of the licenses for research, educational and other
non-commercial purposes. In addition, Ingenex's rights under the license
relating to the human MDR-1 gene are subject to a non-exclusive right granted
to Glaxo-Wellcome, PLC to introduce the MDR-1 gene into the cell lines by
transfection and to use such transfectants to conduct research in producing
drugs for research purposes. Glaxo does not, however, have the right to sell
or transfer to any third party the transfectants, or any derivatives thereof,
without the written authorization of UIC. The May 1992 UIC Licenses provide
for the payment of license issue fees totaling, in the aggregate,
approximately $145,000 (all of which have been paid through June 30, 1996),
royalties based on sales of products and processes incorporating the licensed
technology, subject to certain minimum royalty payments, royalties based on
sublicensing income, a percentage of revenues from research relating to the
subject matter of each May 1992 UIC License that is performed on a contract
basis for third parties and all costs and expenses associated with patent
prosecution and maintenance. Under the May 1992 UIC Licenses, Ingenex must
use its best efforts
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to bring any products developed under the May 1992 UIC Licenses to market,
deliver and comply with a detailed business plan, obtain all necessary
government approvals and timely pay all license and royalty fees.
Additionally, the Company must use its best efforts to ensure that products
incorporating the licensed technology which are sold in the U.S. are
substantially manufactured or assembled in the U.S.
MIT License
In September 1992, Ingenex acquired an exclusive license (the "MIT
License") under a patent (issued in March 1993) assigned to MIT. The patent
covers the use of MDR genes for creating and selecting drug resistant
mammalian cells. The MIT License continues in effect until the expiration of
the underlying patent covered by such license or, if earlier, termination by
MIT for cause or by Ingenex upon notice to MIT. The MIT License is subject to
prior grants of non-exclusive licenses to Eli Lilly & Co. and Genetics
Institute, Inc. (a biotechnology company) for research purposes and
non-exclusive, commercial licenses that may be granted pursuant to options
granted to Eli Lilly and Genetics Institute to use aspects of the licensed
technology solely to manufacture and sell products that do not incorporate
genes claimed in the patent, proteins expressed by such genes or probes,
antibodies and inhibitors to such genes. The MIT License provides for the
payment of royalties based on net sales of products and processes
incorporating the licensed technology, subject to certain minimum annual
amounts, and a percentage of sublicensing income arising from the license of
such products and processes. In connection with the execution of the MIT
License, the Company issued to MIT 13,630 shares of Common Stock. An
aggregate of $13,500 has been paid to MIT in connection with the MIT License
through June 30, 1996. Under the MIT License, Ingenex must also use its
reasonable best efforts to bring any products developed under the MIT License
to market, deliver and comply with a detailed business plan and make timely
payment of all license and royalty fees.
Baylor License
In October 1992, Ingenex acquired an exclusive worldwide license (the
"Baylor License") under U.S. and foreign patent applications assigned to
Baylor relating to a modified tumor suppressor gene. The Baylor License
continues in effect until the expiration of the last to expire patent covered
by such license, or, if earlier, termination by Baylor for cause or by
Ingenex upon notice to Baylor. The Baylor License provides for royalties
based on net sales of products and processes incorporating the licensed
technology, subject to certain minimum annual amounts, and a percentage of
sublicensing income arising from the license of such products and processes.
In connection with the execution of the Baylor License, the Company issued to
Baylor and its designees an aggregate of 34,011 shares of Common Stock. An
aggregate of $38,000 has been paid to Baylor under the Baylor License through
June 30, 1996. Under the Baylor License, Ingenex must use its reasonable best
efforts to bring any products developed under the Baylor License to market,
deliver and comply with a detailed business plan, make timely payment of all
royalty fees and pay all costs and expenses incurred in patent filing,
prosecution and maintenance.
Proprietary Rights of Others
The Company is aware of a U.S. patent issued to a third party (U.S. Patent
4,912,039) (the "Riordan patent") relating to multidrug resistance. The
Riordan patent describes the isolation of two DNA molecules that code for
fractional portions of the hamster protein associated with multidrug
resistance (the "hamster MDR-1 gene"), whereas a patent licensed by the
Company (U.S. Patent 5,206,352) (the "Roninson patent") describes (and
claims) the entire human MDR-1 gene, which is the DNA that codes for the
entire protein associated with multidrug resistance in human cells.
Nonetheless, the Riordan patent claims a DNA molecule coding for a protein,
or a fragment of a protein, that is associated with multidrug resistance in
living cells, including human cells. The Riordan patent has an earlier
effective filing date than the Roninson patent, and there can be no assurance
that the Riordan patent will not be asserted against the Company. Thus, it
may be necessary for the Company to obtain a license under the Riordan patent
to pursue commercialization of its proposed gene therapy products utilizing
the MDR-1 gene. There can be no assurance that such a license, if required,
will be made available to the Company, if at all, on terms acceptable to the
Company. Failure to obtain such a license, if required, could have a material
adverse effect on the Company.
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The Company also is aware of a U.S. patent issued to a third party (U.S.
Patent 5,399,346) (the "Anderson patent") relating to ex vivo gene therapy.
The Anderson patent is reported to be exclusively licensed to Genetics
Therapy, Inc. The Company believes that the Anderson patent could be asserted
to cover gene therapeutics developed by the Company, to the extent that the
introduction of a gene into a subject's cells is performed ex vivo. In
January 1996, it was reported that an interference proceeding had been
instituted in the U.S. Patent and Trademark Office between the issued
Anderson patent and two pending patent applications. Depending on the outcome
of the interference, it may or may not be necessary for the Company to obtain
a license from a party to the interference (or its licensee) to pursue
commercialization of its proposed gene therapy products utilizing ex vivo
gene therapy. There can be no assurance that such a license, if required,
will be made available to the Company, if at all, on terms acceptable to the
Company. Failure to obtain such a license, if required, could have a material
adverse effect on the Company.
The Company has received notice that three companies, Chiron Corporation,
Sandoz AG, and Introgene NV, are opposing the grant of a European patent
corresponding to the Roninson patent, which the Company has licensed from
UIC, with claims directed to the human MDR-1 gene and gene fragments. While
the Company, through its licensor, intends to vigorously respond to the
oppositions, no assurance can be given as to the scope of the claims, if any,
which the European Patent Office ultimately will find patentable.
The Company is aware of the existence of a prior art reference (European
Patent Application 0 259 031) ("EP 0 259 031"), which discloses a DNA
sequence corresponding to the sequence of the RB94 DNA molecule that is
claimed in an issued U.S. patent licensed by the Company from Baylor (U.S.
Patent 5,496,731) (the "Baylor patent"). The Baylor patent also contains
claims directed to specific expression vectors containing the RB94 DNA
molecule. Although an issued patent is presumed valid, there can be no
assurance that the claims of the Baylor patent, if challenged, will not be
found invalid. In any event, given that EP 0 259 031 relates to DNA sequences
but not to methods of gene therapy, the existence of this reference alone
would not, as a matter of U.S. law, be expected to affect the patentability
of claims directed to the use of the RB94 DNA molecule in gene therapy for
certain cancers, which gene therapy claims presently are pending in a related
patent application licensed by the Company from Baylor. EP 0 259 031 further
discloses the deduced amino acid sequence encoded by the disclosed DNA
sequence, which amino acid sequence corresponds to that of the RB94 protein.
The U.S. Patent and Trademark Office, in a Final Office Action rejection, has
cited this reference as anticipating the claim directed to the RB94 protein,
which claim presently is pending in a second, related patent application
licensed by the Company from Baylor.
Further development of the Company's products depends upon the Company's
ability to maintain existing and establish new relationships with scientific
and corporate collaborators. The Company's MDRx1 product is currently being
clinically tested by the investigators sponsored by the Company at MD
Anderson. The Company's other gene therapy product, RB94, is in preclinical
development, and the Company intends to continue to develop this product in
collaboration with a partner with expertise in gene delivery. The Company's
in-house research program is utilizing the GSX System to identify genes
and/or gene fragments that potentially could lead to the development of
additional gene therapy products and may seek to collaborate with other
companies in such research and development. There can be no assurance that
the Company will be able to maintain or enter into any such collaborations,
or that any commercially valuable products or processes will be developed as
a result of any existing or proposed collaborations, or that Ingenex will be
able to successfully commercialize, exploit or protect any inventions or
discoveries arising out of such collaborations. Further, there can be no
assurance that any of Ingenex's licensed patent applications will result in
issued patents or that, upon issuance, any of its licensed patents will
afford protection against a competitor. Such competitors may include
companies with substantially greater financial and other resources than those
of the Company, and, therefore, with a potentially greater ability to
commercialize, exploit or protect their inventions and discoveries. See "Risk
Factors --Dependence on License and Sponsored Research Agreements" and
"--Competition; Rapid Technological Change."
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MANUFACTURING AND MARKETING
The Company does not have any manufacturing or marketing experience nor
does the Company anticipate having the resources in the foreseeable future to
allocate to the commercial manufacture or marketing of its proposed products
and, therefore, the Company intends to pursue collaborative arrangements with
other companies with respect to the manufacture and marketing of its proposed
products in the future. The future success of the Company will depend, in
part, on its ability to enter into and maintain relationships with such
corporate collaborators and their success in manufacturing and marketing any
products developed by the Company. To the extent that the Company determines
not to, or is unable to, enter into collaborative arrangements with respect
to the manufacture and marketing of its proposed products, significant
capital expenditures, management resources and time will be required for the
Company to establish a manufacturing facility and develop a sales and
marketing force. The Company has no experience in manufacturing or marketing.
There can be no assurance that the Company will be able to enter into
collaborative arrangements with respect to the manufacture and marketing of
its proposed products or, in lieu thereof, to establish a manufacturing
facility or develop a sales and marketing force, or be successful in gaining
market acceptance of its proposed products. The failure by the Company to
enter into collaborative arrangements to manufacture and market its proposed
products or to develop its own manufacturing and marketing capabilities would
have a material adverse effect on the Company.
GOVERNMENT REGULATION
The research, preclinical development and clinical trials conducted by the
Company, and the product manufacturing and marketing to be conducted for or
by the Company, are subject to regulation by the FDA and similar health
authorities in foreign countries. Preclinical testing in the U.S. is
generally conducted in the laboratory to evaluate the potential safety and
efficacy of a biological product. The results of these tests must be
submitted to the FDA as part of an IND before clinical testing can begin.
Typically, clinical testing involves a three-phase process, although in some
cases a single study may encompass more than one phase. Phase 1 consists of
testing the product in a small number of humans to determine its preliminary
safety and tolerable dose range. Phase 2 involves larger studies to evaluate
the effectiveness of the product in humans having the disease or medical
condition for which the product is indicated and to identify possible common
side effects in a larger group of subjects. Phase 3 consists of additional
controlled testing to establish clinical safety and effectiveness in an
expanded patient population of geographically dispersed test sites, to
evaluate the overall benefit-risk relationship for administering the product
and to provide an adequate basis for product labeling.
Among the conditions for clinical studies and IND approval is the
requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to "good manufacturing practices" that must
be followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, monies and effort in
the area of production and quality control to ensure full technical
compliance.
FDA approval of the Company's proposed products, as well as the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the U.S. The process of
obtaining approvals from the FDA is costly, time consuming and often subject
to unanticipated delays. There can be no assurance that required approvals of
the Company's proposed products, processes or facilities will be granted on a
timely basis, or at all. Many academic institutions and companies doing
research in the gene therapy field are using a variety of approaches and
technologies. Any adverse results obtained by such researchers in preclinical
or clinical studies, even if not related to the Company's potential products,
could adversely affect the regulatory environment for gene therapy products
generally and possibly lead to delays in the approval process for the
Company's potential products. Any future failure to obtain or delay in
obtaining such approvals will materially and adversely affect the ability of
the Company to commercialize its proposed products. Moreover, even if
regulatory approvals are granted, such approvals may include significant
limitations on indicated uses for which any such products could be marketed.
Further, even if such regulatory approvals are obtained, a marketed drug or
biological compound and its manufacturer are subject to continuous regulatory
oversight, and
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later discovery of previously unknown problems may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. In addition, new government regulations may be established that could
delay or prevent regulatory approval of the Company's products, processes or
facilities. Failure of the Company to obtain and maintain regulatory
approvals of its products, processes or facilities would have a material
adverse effect on the Company.
The Company's research and development activities involve the controlled
use of hazardous materials. The Company is subject to federal, state and
local laws and regulations governing the use, manufacture, storage, handling
and disposing of such materials and certain waste products. Although the
Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by such laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result, and any such
liability could exceed the financial resources of the Company. Although the
Company believes that it is currently in compliance in all material respects
with applicable environmental laws and regulations, there can be no assurance
that the Company will not be required to incur significant costs to comply
with such laws and regulations in the future, or that the Company will not be
materially adversely affected by current or future environmental laws or
regulations.
The proposed products, processes and facilities of the Company may also be
subject to certain other federal, state and local government (as well as
foreign) regulations, including, but not limited to, the Public Health
Service Act, the Occupational Safety and Health Act and state, local and
foreign counterparts to certain of such acts. The Company cannot predict the
extent of the adverse effect on it or the financial and other costs that
might result from any such existing or future government regulations.
For marketing outside of the United States, the Company is also subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country
to country.
Under guidelines established by the NIH, deliberate transfers of
recombinant DNA into human subjects conducted within NIH laboratories or with
NIH funds must be approved by the Director of the NIH (the "NIH Director").
The NIH Director may approve a procedure if it is determined that no
significant risk to health or the environment is presented. The NIH has
established the RAC to advise the NIH Director concerning approval of
NIH-supported research involving the use of recombinant DNA. A proposal will
be considered by the RAC only after the protocol has been approved by a
clinical investigator's local Institutional Review Board and other
committees. Although the jurisdiction of the NIH applies only when NIH-funded
research or facilities are involved in any aspect of the protocol, the RAC
encourages all gene transfer protocols to be submitted for its review. The
Company intends to comply with RAC and NIH guidelines.
See also "Risk Factors --Government Regulation" and "--Uncertainty of
Health Care Reimbursement."
COMPETITION
The Company faces competition both from companies investigating gene
therapy and companies that have developed or are developing treatments for
diseases targeted by the Company. The Company is aware of several development
stage and established enterprises that are exploring the field of human gene
therapy, such as Genetics Therapy, Inc., Somatix Therapy Corp. and Targeted
Genetics Inc., or are actively engaged in research and development in areas
including multidrug resistance and tumor suppressor genes, such as
subsidiaries of Chiron Corporation and Sandoz AG (multidrug resistance) and
Intragene and Schering-Plough Corporation (tumor suppressors). Other
companies, such as Systemix, Inc. and Viagene, Inc., are also developing
gene-based therapies for the treatment of HIV. Numerous other companies, such
as Human Genome Sciences Inc., InCyte Pharmaceuticals Inc., Millenium
Pharmaceuticals Inc., Myriad Genetics, Inc. and Sequana Therapeutics, Inc.,
are engaged in gene discovery. As the field of human gene therapy receives
increasing public exposure and as human trials proposed or now underway
become increasingly visible, other competitors may enter the field, and
competition in this field will intensify.
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Certain competitors and potential competitors of the Company, including
major multinational pharmaceutical and biotechnology firms and other
companies, non-profit research institutions and U.S. or foreign
government-financed entities, have substantially greater research and
development capabilities and financial, scientific, manufacturing, marketing
and human and other corporate resources than the Company. These competitors
may succeed in discovering genes and developing products faster than the
Company or its collaborators, obtaining local, state and federal approvals
for such products more rapidly or developing products that are more effective
or less costly than those developed by the Company or its collaborators.
Certain of these competitors at the current time may be further advanced in
product development than the Company is with its proposed products. Moreover,
potential competitors have or may have patent or other rights with respect to
genes and technology which may be used in gene therapy, some of which may
conflict with the patent position of the Company. See "--Proprietary Rights."
It may be difficult or impossible for the Company to obtain appropriate
licenses covering such genes and technology, which would thereby hamper or
prevent the commercialization of the Company's proposed products. The failure
to obtain such licenses could have a material adverse effect on the Company.
In addition, other companies may succeed in developing and commercializing
products earlier than the Company. There can be no assurance that the Company
will be able to keep pace with technological developments on a timely basis,
that the efforts of others will not render the Company's proposed products
obsolete or uneconomical or result in treatments or cures superior to any
therapy that may be developed by the Company, or that any therapy that may be
developed by the Company will be preferred to any existing or newly developed
technologies.
Competition is based on product efficacy, safety, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. See "Risk Factors
- --Technological Uncertainty" and "--Competition; Rapid Technological Change."
RELATIONSHIP TO TITAN PHARMACEUTICALS, INC.
Titan is a biopharmaceutical holding company founded to advance
therapeutic product development and commercialization for cancer, central
nervous system disorders, blood and immune disorders and other
life-threatening diseases. Titan currently has four operating companies in
which it owns a majority interest, Ingenex, ProNeura, Theracell and Trilex,
and one operating company, Ansan, in which it owns a 44% interest. Titan has
provided initial financing and management services to its operating
companies.
As of June 30, 1996, Titan has provided approximately $10,724,000 in
financing for Ingenex and currently owns approximately 81% of the outstanding
Common Stock. See "Risk Factors --Control by Existing Stockholder;
Relationship with Titan." Ingenex's association with Titan helps the Company
obtain management resources, facilities and capital equipment and other
assets in a cost-effective manner, but there can be no assurance that Titan
will provide direct financing to the Company in the future. Dr. Bucalo, the
Chairman of the Company's Board of Directors, is the President, Chief
Executive Officer and a director of Titan; a member of the Board of Directors
of Theracell: and the Chairman of the Board of Directors of each of Ansan,
ProNeura and Trilex. Dr. Prendergast, another director of the Company, is a
Managing Director of The Castle Group Ltd., a principal stockholder of Titan.
In February 1994, the Company, together with the other Sublessees, entered
into the Sublease with Titan whereby the Sublessees agreed to sublease from
Titan certain equipment which it leases from Phoenix Leasing Incorporated
("Phoenix") pursuant to the Master Lease. Under the terms of the Master
Lease, Titan is obligated to make monthly payments to Phoenix currently
totaling approximately $31,000 per month. As of June 30, 1996, the amount
outstanding under the Master Lease was approximately $865,000. The Sublessees
have jointly and severally guaranteed all amounts payable by Titan and all
other obligations of Titan under the Master Lease. Each of Titan and each
Sublessee has experienced significant operating losses to date and is
expected to continue to do so for the foreseeable future. The failure by
Titan or any Sublessee to fulfill its obligations in respect of the Master
Lease would have a material adverse effect on the Company. See "Risk Factors
- --Guarantees of Obligations of Others."
On August 1, 1994, the Company entered into an Amended Services Agreement
with Titan pursuant to which Titan, at the request of and under the direction
of the Company, provided executive and administrative, financial, human
resources, business development and regulatory services to the Company.
40
<PAGE>
The Company paid Titan for such services on a quarterly basis. The amount
billed to the Company for each quarter was based on the total operating
expenses of each department of Titan to the extent such expenses were
allocable to the services provided by such department under the Services
Agreement. Such allocation was based on the percentage of time expended by
each such department's personnel and the percentage of each such department's
other resources utilized in providing the services. The percentage was
determined at the beginning of each calendar year by the head of each such
department of Titan providing the services to the Company. The Company also
paid for any out-of-pocket expenses incurred by Titan in providing the
services to the Company. In October 1995, the allocation was changed to a
flat fee per year of approximately $119,500. In July 1996, the Company and
Titan entered into a new one-year Corporate Services Agreement pursuant to
which the Company will pay Titan a fee of $10,000 per month for such
managerial, administrative and financial services.
In addition, the Company previously used certain facilities leased by
Titan and reimbursed Titan on a quarterly basis for the expenses incurred by
Titan with respect to such use. Moreover, the Company reimburses Titan on a
quarterly basis for its use of certain equipment leased by Titan pursuant to
the Master Lease. During fiscal 1994 and 1995, the Company made payments
aggregating $948,000 and $839,000, respectively, to Titan for corporate
services and the lease of such facilities and equipment. In March 1996, the
Company entered into a lease directly with the lessor of such facilities.
The Company and Titan have entered into a shareholders' agreement in which
the Company and Titan have agreed that, among other things, (i) a majority of
the Board of Directors of the Company shall consist of Independent Directors;
(ii) all future transactions between Titan or any Titan Affiliate and the
Company must be approved by a majority of the Independent Directors; (iii)
Titan shall have a right of first refusal with respect to future issuances of
the Company of its voting capital stock (and securities convertible into or
exchangeable for voting capital stock) in order to maintain a majority
interest in the outstanding voting capital stock of the Company; (iv) no
additional assets shall be added to the Master Lease; (v) neither Titan nor
any of the Titan Affiliates will engage in a "going private transaction" with
the Company unless such transaction is first approved by a majority of the
Independent Directors following their receipt of a fairness opinion; (vi) the
Board of Directors of the Company shall maintain a Nominating Committee of
three directors, one of whom shall be designated by Titan; and (vii) Titan
will not take any action to amend the Certificate of Incorporation of the
Company unless such amendment is first approved by a majority of the Board of
Directors of the Company and a majority of the Independent Directors. In
addition, in consideration of a payment to the Company of $100,000, the
Company has issued to Titan the Titan Option pursuant to the shareholders'
agreement. Finally, pursuant to the shareholders' agreement, the Company has
granted Titan an option, exercisable for a period of 60 days from the date
upon which Titan's ownership interest in the outstanding voting capital stock
of the Company falls below a majority, to purchase such number of shares of
voting capital stock as necessary for Titan to maintain its majority interest
at an exercise price per share equal to the then current fair market value of
such securities. The shareholders' agreement remains in effect so long as
Titan owns at least 33 1/3% of the outstanding voting capital stock of the
Company on a fully-diluted basis. Titan has also agreed that, prior to the
consummation of the Offering, the Certificate of Incorporation of the Company
will be amended to provide, among other things, that the Company shall not
merge or consolidate with, or sell, assign, lease or otherwise dispose of all
or substantially all of its assets to Titan or any of its parents,
subsidiaries and affiliates without the affirmative vote of stockholders
holding at least two-thirds of the issued and outstanding shares of Common
Stock (and such vote would also be required to amend such provision).
During the period from July through September 1996, the Company borrowed
an aggregate of $1,000,000 from Titan for working capital purposes. This loan
is evidenced by the Titan Note. For a one-year period commencing on the
consummation of this Offering, Titan is entitled to convert the Titan Note
into shares of Common Stock at a conversion price per share equal to the
initial public offering price in conjunction with Titan's exercise of the
Titan Option. See "Certain Transactions."
EMPLOYEES
As of June 24, 1996, the Company had a total of 16 employees, 14 of whom
were full-time employees. Of the total, 14 were in research and development
and 2 were in administration and finance. The
41
<PAGE>
Company's future success depends in significant part upon the continued
service of its key scientific and senior management personnel and its
continuing ability to attract and retain highly qualified scientific and
managerial personnel. See "Risk Factors --Dependence on Key Employees."
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its key scientific and managerial employees or that it
can attract, assimilate or retain other highly qualified scientific and
managerial personnel in the future. None of the Company's employees is
represented by a labor union. The Company has not experienced any work
stoppages and considers its relations with its employees to be satisfactory.
Each of the Company's employees are parties to a confidentiality agreement
with the Company.
FACILITIES
The Company's principal administrative, sales, marketing, support,
research and development facility is currently located in a building in Menlo
Park, California providing approximately 22,000 square feet of available
space. The Company's current monthly lease payment for this facility is
approximately $27,200 per month. The Company intends to lease an additional
research and development facility in North Carolina within the next several
months. The Company has not entered into any arrangements or understandings
in connection with such lease nor has it identified any potential facilities.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources."
LITIGATION
The Company is not a party to any material legal proceedings.
42
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of the Company, and their ages as of July 1,
1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- ----- ----------------------------------------------
<S> <C> <C>
Mark E. Furth, Ph.D. 45 President, Chief Executive Officer and Director
Louis R. Bucalo, M.D. 37 Chairman of the Board of Directors
Robert T. Abbott, Ph.D. (2) 49 Director
Vincent T. DeVita, Jr., M.D. (1) 61 Director
John K.A. Prendergast, Ph.D. (1) 42 Director
Wilhelm F. Schaeffler, Ph.D.,
D.V.M. (2) 64 Director
</TABLE>
- ------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
MARK E. FURTH, PH.D., became the President and Chief Executive Officer of
the Company effective August 14, 1995 and a director of the Company in
November 1995. Until the Company hires a Vice President-Finance, Dr. Furth is
also the acting Principal Financial and Accounting Officer. From May 1993 to
August 1995, Dr. Furth was Vice President, Molecular Sciences, of Glaxo
Wellcome, Inc., a multinational pharmaceutical company. From January 1992 to
May 1993, Dr. Furth was Vice President, Technology, of Regeneron
Pharmaceuticals, Inc., a biotechnology company ("Regeneron"). From July 1988
to January 1992, Dr. Furth was Program Director, Molecular and Cell Biology,
of Regeneron. From January 1987 to July 1988, Dr. Furth was Program Director,
Diagnostics, of Oncogene Science, Inc., a biotechnology company. From
November 1982 to December 1986, Dr. Furth was an assistant member of the
Sloan-Kettering Institute of the Memorial Sloan-Kettering Cancer Center and,
concurrently, an assistant professor at the Sloan-Kettering Division of the
Cornell University Graduate School of Medical Sciences. He held post-graduate
fellowships with the National Cancer Institute in Bethesda, Maryland and the
Medical Research Council Laboratory of Molecular Biology in Cambridge,
England. Dr. Furth received his Ph.D. in Molecular Biology from the
University of Wisconsin-Madison and B.A. in Biochemical Sciences from Harvard
University.
LOUIS R. BUCALO, M.D., is a co-founder of the Company and has served as a
director of the Company since February 1993 and as the Chairman of the Board
of Directors of the Company since May 1994. From February 1993 to August 14,
1995, Dr. Bucalo was the Company's President and Chief Executive Officer.
Since January 1993, Dr. Bucalo has been the President and Chief Executive
Officer and a director of Titan, and is also a director of Theracell and the
Chairman of the Board of Directors of Ansan, ProNeura and Trilex. From July
1990 to April 1992, Dr. Bucalo was the Associate Director of Clinical
Research at Genentech, Inc., a biotechnology company. Dr. Bucalo received his
M.D. from Stanford University and B.A. in Biochemistry from Harvard
University.
ROBERT T. ABBOTT, PH.D., has served as a director of the Company since
February 1996. Since January 1996, Dr. Abbott has been the President and
Chief Executive Officer and a director of Angiotech Pharmaceuticals, Inc., a
biotechnology company. From January 1991 to December 1995, Dr. Abbott was the
President and Chief Executive Officer and a director of Viagene, Inc., a gene
therapy company that was acquired by Chiron Corporation in September 1995.
From May 1984 to May 1990, Dr. Abbott was the President and Chief Executive
Officer of NeoRx Corporation, a biotechnology company that he founded and
that was involved in the development of monoclonal antibody-based cancer
imaging and therapeutic products. Dr. Abbott received his Ph.D. in Pathology
from McGill University and M.B.A. from the University of Missouri at St.
Louis.
43
<PAGE>
VINCENT T. DEVITA, JR., M.D., has served as a director of the Company
since June 1996. Since July 1993, Dr. DeVita has been the Director of the
Yale Cancer Center. From September 1988 to July 1993, he was successively
Physician-in-Chief, Attending Physician and Member in the Program of
Molecular Pharmacology and Therapeutics at Memorial Sloan-Kettering Cancer
Center. From July 1980 to September 1988, Dr. DeVita was the Director of the
National Cancer Institute. Dr. DeVita has been the recipient of numerous
scientific awards, including the Medal of Honor from the American Cancer
Society in 1985 and the Albert and Mary Lasker Medical Research Award in
1972. In 1985, he was elected to the Institute of Medicine at the National
Academy of Sciences. Dr. DeVita has been a member of the Board of Directors
of ImClone Systems Incorporated, a biotechnology company, since 1991. Dr.
DeVita received his B.S. in Chemistry from the College of William and Mary
and M.D. with Distinction from The George Washington University School of
Medicine.
JOHN K.A. PRENDERGAST, PH.D., is a co-founder of the Company and has
served as a director since February 1993. Since October 1991, Dr. Prendergast
has been a Managing Director of The Castle Group Ltd., a biotechnology
venture capital firm ("The Castle Group"). Prior to joining The Castle Group,
Dr. Prendergast was an associate of D.H. Blair & Co., Inc., an investment
bank, for several months. Dr. Prendergast also is a co-founder and director
of a number of other corporations, including the following publicly-held
corporations: Avigen Inc.; Atlantic Pharmaceuticals Inc.; Avax Technologies
Inc.; Palatin Technologies Inc.; and Xenometrix Inc. Dr. Prendergast received
his M.Sc. in Microbiology and Ph.D. in Molecular Pathology from the
University of New South Wales, Sydney, Australia and C.S.S. in Administration
and Management from Harvard University. Dr. Prendergast held post-doctoral
fellowships at Harvard University with Dr. Jack Strominger, who was awarded
the 1995 Lasker Award for Medicine, and with Dr. Jean Dausset, the 1980 Nobel
Prize winner in Physiology and Medicine.
WILHELM F. SCHAEFFLER, PH.D., D.V.M., has served as a director of the
Company since September 1994. Since September 1994, Dr. Schaeffler has been a
private consultant to biotechnology and pharmaceutical companies. From
January 1986 to August 1994, Dr. Schaeffler was an Executive Vice President,
Business Development of Miles, Inc., the U.S. subsidiary of Bayer AG, a
German pharmaceutical company. Dr. Schaeffler received his D.V.M. from the
University of Giessen and M.Sc. and Ph.D., each in Veterinary Medicine, from
the University of Illinois.
Certain of the officers and directors of the Company may from time to time
serve as officers and/or directors of other biopharmaceutical or
biotechnology companies. There can be no assurance that such other companies
will not in the future have interests in conflict with those of the Company.
The number of directors of the Company is presently fixed at six. Each
director holds office until the next annual meeting of stockholders or until
his successor is duly elected and qualified. The Company's officers serve at
the discretion of the Board of Directors.
SIGNIFICANT EMPLOYEES
Significant employees of the Company include the following persons:
TANYA HOLZMAYER, PH.D., 41, became the Director of Research of the Company
in June 1995. From August 1993 to June 1995, Dr. Holzmayer was a Senior
Scientist for the Company. From July 1989 to August 1993, Dr. Holzmayer was
an Instructor in the Department of Genetics at UIC. She received her Ph.D. in
Molecular Biology from the Institute of Genetics and Selection of
MicroOrganisms in Moscow.
ANDREW DAYN, PH.D., 35, became the Director of Development of the Company
in June 1995. From October 1994 to June 1995, Dr. Dayn was a Group Leader at
Pangene Corporation, a biotechnology company. From June 1992 to October 1994,
Dr. Dayn was a Senior Scientist in the Division of Research and Development
of Abbott Laboratories, a multinational pharmaceutical company. From June
1990 to June 1992, Dr. Dayn conducted post-doctoral research in the
Department of Genetics at UIC. Dr. Dayn received his Ph.D. in Microbiology
from the Institute of Epidemiology and Microbiology of the Russian Academy of
Sciences.
44
<PAGE>
BOARD COMMITTEES
The Company's Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee sets (subject to the approval of the
full Board of Directors) the compensation for certain of the Company's
personnel and administers the Company's 1994 Stock Option Plan. See "--1994
Stock Option Plan." The Compensation Committee consists of Drs. Abbott and
Schaeffler.
The Audit Committee reviews, with the Company's independent auditors and
management, the scope and results of the annual audit, the scope of other
services provided by the Company's independent auditors, the Company's
significant accounting principles, policies and practices and the Company's
policies and procedures with respect to its internal accounting, auditing and
financial controls and makes recommendations to the Board of Directors on the
engagement of the independent auditors, as well as other matters that may
come before it or as directed by the Board of Directors. The Audit Committee
consists of Drs. DeVita and Prendergast.
DIRECTOR COMPENSATION
Directors of the Company do not receive compensation for services provided
as a director (except for grants of stock options under the Company's 1994
Stock Option Plan and except that each of Drs. Abbott, DeVita and Schaeffler
receive $2,500 for each meeting of the Board of Directors he attends). The
Company also does not pay compensation for committee participation or special
assignments undertaken by a director at the request of the Board of Directors
(except that during fiscal 1995 the Company paid $5,000 to Dr. Schaeffler for
certain consulting services).
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation eliminates in certain
circumstances the liability of directors of the Company for monetary damages
for breach of their fiduciary duty as directors. This provision does not
eliminate the liability of a director (i) for breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions by
the director not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for willful or negligent declaration of an
unlawful dividend, stock purchase or redemption or (iv) for transactions from
which the director derived an improper personal benefit. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company believes that it is the position of the Securities and
Exchange Commission (the "SEC") that, insofar as the foregoing provision may
be invoked to disclaim liability for damages arising under the Securities
Act, such provision is against public policy as expressed in the Securities
Act and is therefore unenforceable. Such limitation of liability also does
not affect the availability of equitable remedies such as injunctive relief
or rescission.
The Company intends to enter into indemnification agreements (the
"Indemnification Agreements") with each of its directors and officers prior
to the consummation of the Offering. Each such Indemnification Agreement will
provide that the Company will indemnify the indemnitee against any and all
expenses (including attorneys' fees), witness fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, arbitral, administrative or
investigative (including an action by or in the right of the Company) to
which he is, was or at any time becomes a party, or is threatened to be made
a party, by reason of the fact that he is, was, or at any time becomes a
director, officer, employee or agent of the Company, or is or was serving, or
at any time serves, at the request of the Company, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. Such indemnification will be
available, subject to certain exceptions, if the indemnitee's conduct is not
finally adjudged to have been knowingly fraudulent or deliberately dishonest,
or to constitute willful misconduct or a breach of his duty of loyalty to the
Company, or to have resulted in him personally having gained a financial
profit or other advantage to which he was not legally entitled. The
Indemnification Agreements will also require that the Company indemnify the
director or officer in all cases to the fullest extent permitted by
applicable law. Each Indemnification Agreement will permit the
45
<PAGE>
director or officer that is a party thereto to bring suit to seek recovery or
amounts due under the Indemnification Agreement and to recover the expenses
of such a suit if successful.
The Company's Bylaws provide that the Company shall indemnify its
directors, officers, employees or agents to the fullest extent permitted by
the Delaware General Corporation Law ("DGCL"), and the Company shall have the
right to purchase and maintain insurance on behalf of any such person whether
or not the Company would have the power to indemnify such person against the
liability. The Company has not currently purchased any such insurance policy
on behalf of any of its directors, officers, employees or agents but intends
to do so prior to, or as soon as possible after, the consummation of the
Offering.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that may result in a claim for indemnification.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation
earned in fiscal 1994 and 1995 by certain former and present executive
officers of the Company (collectively, the "Named Officers") for services
rendered in all capacities to the Company for such fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- --------------
AWARDS
--------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($) OPTIONS(#)
------------------ ------ ----------- --------------- --------------
<S> <C> <C> <C>
Dr. Mark E. Furth ................. 1994 -- -- --
President and Chief 1995 73,125 -- 144,000
Executive Officer since
August 1995
Dr. Louis R. Bucalo ............... 1994 48,351(1) -- 25,099
former President and 1995 45,269 -- --
Chief Executive Officer (from
January 1993 to August 1995)
Dr. Gregory R. Reyes .............. 1994 144,585 68,142(2) 13,967
former Vice President, 1995 85,809 49,165(2) 32,737
Research and Development
(from September 1993 to June
1995)
</TABLE>
- ------------
(1) Dr. Bucalo's cash compensation for fiscal 1994 and 1995 was paid by
Titan pursuant to an employment agreement between Dr. Bucalo and Titan.
Titan was reimbursed by the Company for such compensation. The amount
listed herein does not include compensation paid to Dr. Bucalo by Titan
for services rendered other than with respect to the Company.
(2) Represents moving and relocation costs paid by the Company on Dr.
Reyes' behalf.
46
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option
grants made to each of the Named Officers for the fiscal year ended December
31, 1995. No stock appreciation rights were granted to these individuals
during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE
NAME GRANTED (#) FISCAL YEAR(2) ($/SH)(3) EXPIRATION DATE
- ----------------------- ------------ -------------- ---------- ---------------
<S> <C> <C> <C> <C>
Dr. Mark E. Furth(1) .. 144,000 52.3% 2.00 7/31/05
Dr. Louis R. Bucalo ... -- -- -- --
Dr. Gregory R. Reyes(1) 27,737 11.9% 0.86 EXPIRED
5,000 3.50 11/01/05
</TABLE>
- ------------
(1) Dr. Furth's options were granted on July 31, 1995 and Dr. Reyes'
options were granted on January 20, 1995 and November 1, 1995,
respectively. All of the options are immediately exercisable upon
grant; however, the shares of Common Stock purchasable thereunder are
subject to a right of repurchase by the Company at the original
exercise price paid per share upon the optionee's cessation of service
prior to his vesting in such shares. Such shares vest over a four-year
period. The repurchase right has lapsed as to the following number of
shares as of June 30, 1996: Dr. Furth --0 and Dr. Reyes --5,000. Dr.
Reyes' options to purchase 27,737 shares of Common Stock were
terminated upon his resignation in June 1995. See "--1994 Stock Option
Plan."
(2) The percentage of options granted to each Named Officer is based on a
total number of options granted during fiscal 1995 of 275,361.
(3) The exercise price may be paid in cash, in shares of Common Stock
valued at their fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares, together with any federal and state income tax liability
incurred by the optionee in connection with such exercise. The exercise
prices equalled the fair market value of the Common Stock on the grant
date as determined by the Compensation Committee of the Company's Board
of Directors.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1995 with respect to
each of the Named Officers. No stock appreciation rights were exercised
during such year or were outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#)(2) FY-END($)(3)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED(1)($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dr. Mark E. Furth -- -- 144,000/0 72,000/0
Dr. Louis Bucalo -- -- 25,099/0 60,444/0
Dr. Gregory Reyes 4,422 10,649 5,000/0 --/0
</TABLE>
- ------------
(1) Market value at exercise less exercise price.
(2) Options are immediately exercisable for all the underlying shares, but
any shares purchased under the options will be subject to a right of
repurchase by the Company at the original exercise price per share upon
the optionee's cessation of service prior to vesting in such shares.
See "--1994 Stock Option Plan." The repurchase right has lapsed as to
the following number of shares as of June 30, 1996: Dr. Furth --0; Dr.
Bucalo --13,073; and Dr. Reyes --5,000.
(3) Represents the value of unexercised, in-the-money options at December
31, 1995 using the $2.50 fair market value as of such date as
determined by the Compensation Committee of the Company's Board of
Directors.
EMPLOYMENT AGREEMENTS
Ingenex has entered into an employment agreement, dated as of July 25,
1995, with Dr. Mark E. Furth (the "Furth Employment Agreement"), the
Company's President and Chief Executive Officer. Such agreement is terminable
by Dr. Furth or Ingenex at any time. Pursuant to the terms of the Furth
Employment Agreement, Dr. Furth is entitled to an annual salary of $195,000
and an annual performance bonus of 15% to 25% of his base salary upon the
Company's achievement of certain targets. In addition, in connection with the
execution of the Furth Employment Agreement, Dr. Furth received options to
acquire 144,000 shares of Common Stock at an exercise price of $2.00 per
share. Dr. Furth is also eligible to be awarded additional options based upon
outstanding performance. In the event of a sale or transfer of substantially
all of the assets of Ingenex, the vesting of the shares of Common Stock
underlying Dr. Furth's options will automatically accelerate immediately
prior to such event such that 100% of such shares will become vested. The
Furth Employment Agreement also prohibits Dr. Furth from engaging in any
activity that is competitive with the Company during the term of his
employment with the Company.
The Company entered into an employment agreement with Dr. Gregory R. Reyes
in September 1993 (the "Reyes Employment Agreement"). Dr. Reyes resigned from
his position as Vice President, Research and Development of the Company in
June 1995. Pursuant to the terms of the Reyes Employment Agreement, during
his employment, Dr. Reyes received an annual salary of $145,000 and was
eligible to receive an annual performance bonus up to 10% of his base salary.
In addition, Dr. Reyes received certain stock options.
1994 STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by the
Company's directors in December 1993 and the Company's stockholders in
December 1994. In October 1996, the Company amended the 1994 Plan so that
options granted thereunder would meet the requirements of Rule 16b-3,
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act"), for exemption from the restrictions of Section 16(b) of the 1934 Act
and increased the number of shares of Common Stock authorized for issuance
under the 1994 Plan to 847,500. The 1994 Plan provides for grants of stock
48
<PAGE>
options to directors, employees and consultants of the Company, its parent
and subsidiaries. As of June 30, 1996, options to purchase an aggregate of
433,069 shares of Common Stock were outstanding under the 1994 Plan at a
weighted average price of $2.47, all of which were immediately exercisable.
All options granted under the Plan are immediately exercisable; however,
shares of Common Stock purchasable upon the exercise of options are generally
subject to repurchase by the Company at the original price paid per share
upon the optionee's cessation of service prior to his vesting in such shares.
Such shares generally vest in 25% increments over four years. There is no
limitation on the number of options which may be granted to any individual
under the Plan. As of June 30, 1996, 373,236 of the shares of Common Stock
issuable upon the exercise of such options are subject to a right of
repurchase by the Company at the original exercise price in the event of
termination of employment of the option holder.
As amended, the 1994 Plan is administered by the Compensation Committee of
the Company's Board of Directors that will consist of at least two
non-employee directors (as defined by Rule 16b-3 promulgated under the 1934
Act); provided, however, that grants of options under the 1994 Plan to the
members of the Compensation Committee will be determined and administered by
the full Board of Directors of the Company. Eligible individuals may, at the
discretion of the Compensation Committee, be granted incentive stock options
to purchase shares of Common Stock at not less than the fair market value
(110% of the fair market value in the case of 10% stockholders) of such
shares on the grant date or non-statutory options to purchase shares of
Common Stock at not less than 85% of the fair market value of such shares on
the grant date. The Compensation Committee will determine the vesting or
exercise schedule (if any) for each granted option (which vesting or exercise
schedule shall not be more restrictive than 20% per year beginning one year
after the date of grant). The Compensation Committee may accelerate the
vesting and/or exercisability of any outstanding option in whole or in part
at any time.
Each option granted under the 1994 Plan has a maximum term of ten years,
subject to earlier termination following the optionee's cessation of service
with the Company. Options are not assignable or transferable by the optionee
except by will or the laws of inheritance following the optionee's death or
as otherwise permitted by the 1994 Plan. An optionee will have no stockholder
rights with respect to the shares subject to his or her outstanding options
until such options are exercised and the purchase price is paid for the
shares.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the 1994 Plan which is not to be assumed or replaced
with a comparable option from the successor corporation will automatically
terminate. The Company's outstanding repurchase rights under the 1994 Plan
also will terminate, and the shares subject to those repurchase rights will
become fully vested upon the merger or asset sale, unless such repurchase
rights are assigned to the successor corporation.
The Compensation Committee has the authority to effect, at any time and
from time to time, with the consent of the affected option holder, the
cancellation of outstanding options under the 1994 Plan in return for the
grant of new options for the same or different number of shares with an
exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
The Company's Board of Directors may amend or modify the 1994 Plan at any
time, provided that no such amendment or modification may adversely affect
the rights and obligations of the participants with respect to their
outstanding options without their consent. In addition, to the extent
required under applicable law or by any securities exchange on which the
securities of the Company are traded, no amendment of the 1994 Plan may,
without the approval of the Company's stockholders, (i) materially increase
the benefits accruing to participants or modify the class of individuals
eligible for participation or otherwise materially modify the 1994 Plan, or
(ii) increase the number of shares available for issuance, except in the
event of certain changes to the Company's capital structure. The 1994 Plan
will terminate on December 2003, unless sooner terminated in accordance with
its terms.
CONSULTING AGREEMENTS
The Company has entered into consulting agreements with the following
individuals who are experts in their fields of interest (in each case subject
to the approval of such person's full-time employer, if applicable). Such
individuals generally will consult with the Company on such projects as may
be
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<PAGE>
specifically agreed. The consultants work for the Company on an as required
basis and receive compensation in the form of cash, shares of Common Stock,
or options to purchase shares of Common Stock under the 1994 Plan. The
Company may retain additional special consultants as the need arises.
William F. Benedict, M.D., is a member of the staff of MD Anderson. In
August 1993, the Company entered into a two-year consulting agreement with
Dr. Benedict, which was renewed for an additional one-year period in August
1995. The agreement will be extended for an additional one-year period unless
either party provides prior notice of non-renewal. Annual compensation under
the agreement is $22,000.
Richard Davidson, Ph.D., is a member of the SAB. See "Business
- --Scientific Advisory Board." In May 1992, the Company entered into a
three-year consulting agreement with Dr. Davidson, which was renewed for an
additional three-year term in May 1995. Annual compensation under the
agreement is $25,000. The agreement may be terminated by either party under
certain circumstances. Pursuant to the agreement, the Company issued 28,743
shares of Common Stock to Dr. Davidson, which shares are subject to a right
of repurchase by the Company upon the occurrence of certain events, including
Dr. Davidson's termination for cause as a consultant to the Company.
Eli Gilboa, Ph.D., is a member of the SAB. See "Business --Scientific
Advisory Board." In January 1994, the Company entered into a three-year
consulting agreement with Dr. Gilboa. The agreement will be automatically
extended for consecutive periods of one-year each unless either party gives
prior notice of non-renewal. The agreement may be terminated by either party
upon written notice. Annual compensation under the agreement is $15,000.
Additionally, in connection with the execution of the agreement, Dr. Gilboa
was granted options to purchase 1,888 shares of Common Stock at an exercise
price of $0.918 per share for a three-year period under the 1994 Plan. See
"--1994 Stock Option Plan."
Richard E. Giles, Ph.D., is a member of the staff at MD Anderson. In
September 1993, the Company entered into a one-year consulting agreement with
Dr. Giles which was renewed for two consecutive one-year periods and expired
in September 1996. The Company intends to extend the agreement beyond that
date. Either party may terminate the agreement upon prior notice. Annual
compensation under the agreement is $40,000.
Andrei Gudkov, Ph.D., is a member of the SAB. See "Business --Scientific
Advisory Board." In September 1993, the Company entered into a one-year
consulting agreement with Dr. Gudkov, which was renewed for an additional
two-year period in September 1994. The Company intends to extend the
agreement beyond the current expiration date of September 1996. Annual
compensation under the agreement is $15,000 (subject to increase by the
Company's Board of Directors).
Igor B. Roninson, Ph.D., is a member of the SAB. See "Business --
Scientific Advisory Board." In May 1992, the Company entered into a
three-year consulting agreement with Dr. Roninson, which was renewed for an
additional three-year period in May 1995. Annual compensation under the
agreement is $30,000. Additionally, the Company paid Dr. Roninson's legal
fees aggregating $12,900 incurred in connection with the agreement. The
agreement may be terminated by either party under certain circumstances.
Pursuant to the agreement, the Company issued 143,718 shares of Common Stock
to Dr. Roninson, which shares are subject to a right of repurchase by the
Company upon the occurrence of certain events, including Dr. Roninson's
termination for cause as a consultant to the Company.
Hong J. Xu, M.D., is a member of the staff of MD Anderson. In August 1993,
the Company entered into a two-year consulting agreement with Dr. Xu, which
was renewed for an additional one-year period in August 1995. Annual
compensation under the agreement is $22,500.
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CERTAIN TRANSACTIONS
The Company believes that all of the transactions set forth below were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. The Company anticipates that all future
transactions, including loans, between the Company and its officers,
directors and principal stockholders (and their respective affiliates) will
be approved by a majority of the Board of Directors, including a majority of
the independent and disinterested outside directors on the Board of
Directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
In May 1994, Titan purchased 1,007,834 shares of the Company's Series A
Preferred Stock for $5.28 per share. See "Principal Stockholders." In
connection with Titan's purchase of the Series A Preferred Stock, Titan was
granted the right, exercisable in prescribed circumstances, to demand or to
participate in certain registrations of the Company's securities under the
Securities Act. Titan has waived such right to the extent that it may have
been exercisable in connection with the Offering and has agreed not to
exercise such registration rights for a period of one year from the date of
this Prospectus. See "Shares Eligible for Future Sale --Registration Rights."
In September 1994, four purchasers purchased an aggregate of 283,400
shares of the Company's Series B Preferred Stock for $2.50 per share. Such
purchasers included certain entities affiliated with Invesco Trust Company
who purchased 257,637 of such shares and who, as a result thereof,
collectively beneficially own in excess of 9% of the outstanding Common
Stock. See "Principal Stockholders." In connection with such purchase, such
purchasers were granted the right, exercisable in prescribed circumstances,
to demand or to participate in certain registrations of the Company's
securities under the Securities Act. Such purchasers have waived such right
to the extent that it may have been exercisable in connection with the
Offering and have agreed not to exercise such registration rights for a
period of one year from the date of this Prospectus. See "Shares Eligible for
Future Sale --Registration Rights."
On August 1, 1994, the Company entered into an Amended Services Agreement
with Titan pursuant to which Titan, at the request of and under the direction
of the Company, provided executive and administrative, financial, human
resources, business development and regulatory services to the Company. The
Company paid Titan for such services on a quarterly basis. The amount billed
to the Company for each quarter was based on the total operating expenses of
each department of Titan to the extent such expenses were allocable to the
services provided by such department under the Services Agreement. Such
allocation was based on the percentage of time expended by each such
department's personnel and the percentage of each such department's other
resources utilized in providing the services. The percentage was determined
at the beginning of each calendar year by the head of each such department of
Titan providing the services to the Company. The Company also paid for any
out-of-pocket expenses incurred by Titan in providing the services to the
Company. In October 1995, the allocation was changed to a flat fee per year
of approximately $119,500. In July 1996, the Company and Titan entered into a
new one-year Corporate Services Agreement pursuant to which the Company will
pay Titan a fee of $10,000 per month for such managerial, administrative and
financial services.
In addition, the Company previously used certain facilities leased by
Titan and reimbursed Titan on a quarterly basis for the expenses incurred by
Titan with respect to such use. Moreover, the Company reimburses Titan on a
quarterly basis for its use of certain equipment leased by Titan pursuant to
the Master Lease. During fiscal 1994 and 1995, the Company made payments
aggregating $948,000 and $839,000, respectively, to Titan for corporate
services and the lease of such facilities and equipment. In March 1996, the
Company entered into a lease directly with the lessor of such facilities.
The Company and Titan have entered into a shareholders' agreement in which
the Company and Titan have agreed that, among other things, (i) a majority of
the Board of Directors of the Company shall consist of Independent Directors;
(ii) all future transactions between Titan or any Titan Affiliate and the
Company must be approved by a majority of the Independent Directors; (iii)
Titan shall have a right of first refusal with respect to future issuances of
the Company of its voting capital stock (and securities convertible into or
exchangeable for voting capital stock) in order to maintain a majority
interest in the outstanding voting capital stock of the Company; (iv) no
additional assets shall be added to the Master
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<PAGE>
Lease; (v) neither Titan nor any of the Titan Affiliates will engage in a
"going private transaction" with the Company unless such transaction is first
approved by a majority of the Independent Directors following their receipt
of a fairness opinion; (vi) the Board of Directors of the Company shall
maintain a Nominating Committee of three directors, one of whom shall be
designated by Titan; and (vii) Titan will not take any action to amend the
Certificate of Incorporation of the Company unless such amendment is first
approved by a majority of the Board of Directors of the Company and a
majority of the Independent Directors. In addition, in consideration of a
payment to the Company of $100,000, the Company has issued to Titan the Titan
Option pursuant to the shareholders' agreement. Finally, pursuant to the
shareholders' agreement, the Company has granted Titan an option, exercisable
for a period of 60 days from the date upon which Titan's ownership interest
in the outstanding voting capital stock of the Company falls below a
majority, to purchase such number of shares of voting capital stock as
necessary for Titan to maintain its majority interest at an exercise price
per share equal to the then current fair market value of such securities. The
shareholders' agreement remains in effect so long as Titan owns at least 33
1/3% of the outstanding voting capital stock of the Company on a
fully-diluted basis. Titan has also agreed that, prior to the consummation of
the Offering, the Certificate of Incorporation of the Company will be amended
to provide, among other things, that the Company shall not merge or
consolidate with, or sell, assign, lease or otherwise dispose of all or
substantially all of its assets to Titan or any of its parents, subsidiaries
and affiliates without the affirmative vote of stockholders holding at least
two-thirds of the issued and outstanding shares of Common Stock (and such
vote would also be required to amend such provision). See "Business
- --Relationship to Titan Pharmaceuticals, Inc." and "Principal Stockholders."
During the period from July through September 1996, the Company borrowed
an aggregate of $1,000,000 from Titan for working capital purposes. This loan
is evidenced by the Titan Note which bears interest at the rate of 9% per
annum and is due and payable on September 30, 1998. For a one-year period
commencing on the consummation of this Offering, Titan is entitled to convert
the Titan Note into shares of Common Stock at a conversion price per share
equal to the initial public offering price in conjunction with Titan's
exercise of the Titan Option. See "Risk Factors --Control by Existing
Stockholder; Relationship to Titan" and "Business --Relationship to Titan
Pharmaceuticals, Inc."
On May 31, 1995, the Company consummated a private placement of its
securities pursuant to which the Company issued notes in the aggregate
principal amount of $1,500,000 (the "Bridge Notes") and warrants to acquire
an aggregate of 300,000 shares of Common Stock at an exercise price of $2.50
per share, subject to anti-dilution adjustment (the "Bridge Warrants"). The
Bridge Notes bore interest at the rate of 9% per annum and were due on the
earlier of December 31, 1995 or the fifth business day following the closing
of an initial public offering of securities of the Company. In connection
with such purchase, the holders of the Bridge Warrants were granted the
right, exercisable in prescribed circumstances, to demand or to participate
in certain registrations of the Company's securities under the Securities
Act. Such holders have waived such right to the extent that it may have been
exercisable in connection with the Offering and have agreed not to exercise
such registration rights for a period of one year from the date of this
Prospectus. See "Shares Eligible for Future Sale --Registration Rights." In
January and February 1996, Titan used $1,588,000 of the net proceeds from an
initial public offering of its securities to repay the Bridge Notes on behalf
of the Company. In June 1996, the Company issued an aggregate of 981,818
shares of Common Stock to Titan in consideration of such repayment and the
cancellation by Titan of certain other indebtedness of the Company
aggregating $5,400,000.
In February 1994, the Company entered into the Sublease with Titan whereby
the Sublessees agreed to sublease from Titan certain equipment that Titan
leases pursuant to the Master Lease. Under the terms of the Master Lease,
Titan is obligated to make monthly payments currently totaling approximately
$31,000 per month. As of June 30, 1996, the amount outstanding under the
Master Lease was approximately $865,000. The Sublessees have jointly and
severally guaranteed all amounts payable by Titan and all other obligations
of Titan under the Master Lease. Each of Titan and each Sublessee has
experienced significant operating losses to date and is expected to continue
to do so for the foreseeable future. The failure by Titan or any Sublessee to
fulfill its obligations with respect to the Master Lease would have a
material adverse effect on the Company. See "Business --Relationship to Titan
Pharmaceuticals, Inc."
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<PAGE>
In connection with the purchase of the Company's Class B Common Shares in
May 1992 (which class has since been eliminated and all of which shares have
been converted into shares of Common Stock), Drs. Roninson and Davidson were
granted the right to have 65,427 shares of Common Stock included in any
registration of the Company's securities under the Securities Act, except for
an initial public offering of the Company's securities and subject to certain
underwriter cutbacks. Drs. Roninson and Davidson have agreed not to exercise
such registration rights for a period of one year from the date of this
Prospectus. See "Shares Eligible for Future Sale --Registration Rights."
Ray Dirks Research Advisory ("RDRA") received a $140,000 finders' fee in
connection with the ACM Agreement. Michael Hsu, a director of Titan, is also
the Director of Corporate Finance for RDRA.
In connection with the ACM Agreement, Titan issued to ACM a warrant to
purchase 112,375 shares of Titan's common stock at a price of $3.56 per
share. The warrant expires January 31, 2002. Titan also guaranteed payment of
Company's obligations under the ACM Agreement and issued warrants to RDRA and
Mr. Hsu to purchase an aggregate of 7,395 shares of Titan's common stock at
an exercise price of $3.25 per share. The warrants expire in January 2002.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of August 31, 1996, and as adjusted to
reflect the sale of the 1,850,000 shares of Common Stock offered hereby, by
(i) each person who is known by the Company to own beneficially more than 5%
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
Named Officers and (iv) all current executive officers and directors of the
Company as a group. In addition to information regarding direct ownership of
the Common Stock, information regarding the ownership of Titan's common stock
has been included in the footnotes to the following table to reflect any
indirect ownership of the Common Stock through direct ownership of Titan's
common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY PERCENT BENEFICIALLY
OWNED (2) OWNED (3)
------------------------------ ----------------------
BEFORE THE AFTER THE BEFORE AFTER
NAME OF BENEFICIAL OWNER (1) OFFERING OFFERING OFFERING OFFERING
- ------------------------------------ -------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Titan Pharmaceuticals, Inc. ......... 2,416,024(4) 2,916,024(5) 81% 57%
400 Oyster Point Boulevard,
Suite 315
South San Francisco, CA 94080
Funds controlled by INVESCO Trust
Company(6) ......................... 257,637 257,637 9% 5%
7800 East Union Avenue,
Suite 800
Denver, CO 80237
Dr. Igor Roninson ................... 143,718 143,718 5% 3%
University of Illinois at Chicago
Department of Genetics
(M/C 669)
880 S. Wood Street
Chicago, IL 60612
Dr. Mark E. Furth(7) ................ 200,000 200,000 6% 4%
Dr. Louis R. Bucalo ................. 2,456,024(8) 2,956,024(9) 81% 57%
Dr. Gregory R. Reyes(10) ............ 9,422 9,422 * *
Dr. Robert T. Abbott(11) ............ 15,000 15,000 * *
Dr. Vincent T. DeVita, Jr.(12) ..... 15,000 15,000 * *
Dr. John K.A. Prendergast(13) ...... 40,000 40,000 1% *
Dr. Wilhelm F. Schaeffler(14) ...... 20,000 20,000 * *
All executive officers and directors
as a group (6 persons)(15) ......... 2,746,024 3,272,339 83% 60%
</TABLE>
- ------------
* Less than 1%.
(1) Unless otherwise indicated, the address of all persons named in the
table is c/o the Company, 1505 O'Brien Drive, Menlo Park, California
94025.
(2) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the
footnotes to the table.
(3) Applicable percentage of ownership of the Common Stock is based on
2,994,391 shares of Common Stock outstanding as of August 31, 1996,
together with applicable exercisable options or warrants for such
stockholder. Assumes conversion of 1,007,834 shares of Series A
Preferred Stock and 283,400 shares of Series B Preferred Stock into
shares of Common Stock on a one-for-one basis.
(4) Includes 1,007,834 shares of Common Stock issuable upon conversion of
the same number of shares of Series A Preferred Stock upon
consummation of the Offering.
(Footnotes continued on next page)
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<PAGE>
(5) Includes 1,007,834 shares of Common Stock issuable upon conversion of
the same number of shares of Series A Preferred Stock upon
consummation of the Offering. Assumes Titan's purchase of 200,000
shares of Common Stock in the Offering. Includes 300,000 shares of
Common Stock which may be acquired upon exercise of the Titan Option
within 60 days of August 31, 1996. See "Risk Factors --Control by
Existing Stockholder; Relationship to Titan."
(6) Includes 103,055 shares of Common Stock owned by Global Health
Sciences Fund, 103,055 shares of Common Stock owned by Invesco
Strategic Portfolios, Inc. --Health Sciences and 51,527 shares of
Common Stock owned by Invesco Strategic Portolios, Inc. --Technology
(in each case issuable upon conversion of the same number of shares
of Series B Preferred Stock upon consummation of the Offering).
INVESCO Trust Company is also a principal stockholder of Titan.
(7) Represents 200,000 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. 155,187 of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --1994 Stock Option
Plan."
(8) Includes 40,000 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. 25,882 of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --1994 Stock Option
Plan." Includes 2,416,024 shares held by Titan, which Dr. Bucalo, as
the President and Chief Executive Officer and a director of Titan,
may be deemed to beneficially own. Dr. Bucalo is the holder of record
and beneficial owner of approximately 2.7% of Titan's common stock.
See footnote (4) above.
(9) Includes 40,000 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. 25,882 of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --1994 Stock Option
Plan." Includes 2,916,024 shares deemed to be beneficially held by
Titan, which Dr. Bucalo, as the President and Chief Executive Officer
and a director of Titan, may be deemed to beneficially own. Dr.
Bucalo is the holder of record and beneficial owner of approximately
2.7% of Titan's common stock. See footnote (5) above.
(10) Includes 5,000 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. None of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --Executive
Compensation" and " --1994 Stock Option Plan."
(11) Represents 15,000 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. 11,250 of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --1994 Stock Option
Plan."
(12) Represents 15,000 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. 13,750 of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --1994 Stock Option
Plan."
(13) Includes 21,463 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. All of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --1994 Stock Option
Plan."
(14) Represents 20,000 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. 11,171 of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --1994 Stock Option
Plan."
(15) Includes 321,463 shares of Common Stock which may be acquired upon
exercise of options within 60 days of August 31, 1996. 217,240 of the
shares issuable upon exercise of such options are subject to the
Company's right of repurchase. See "Management --1994 Stock Option
Plan." See footnotes (4), (5), (7), (8), (9), (11), (12), (13), (14)
and (15) above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.001 par value per share. After giving effect to the
amendment of the Company's Certificate of Incorporation to delete references
to the Series A and Series B Preferred Stock, which will occur upon
conversion of such Preferred Stock into Common Stock upon the consummation of
the Offering, the Company will have authorized 4,000,000 shares of preferred
stock.
As of August 31, 1996, there were 2,994,391 shares of Common Stock
outstanding, which were held of record by 23 stockholders (after giving
effect to the conversion of the Series A and Series B Preferred Stock into
Common Stock upon the consummation of the Offering). No shares of preferred
stock will be outstanding upon the consummation of the Offering.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the holders of Common Stock. The holders of
Common Stock are not entitled to cumulative voting rights. Subject to
preferences that may be applicable to any outstanding preferred stock, the
holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Company's Board of Directors
out of funds legally available therefor. The Company does not intend to pay
any dividends in the foreseeable future. See "Dividend Policy." In the event
of the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are fully paid and non-assessable, and the shares of
Common Stock to be issued upon consummation of the Offering will be fully
paid and non-assessable.
PREFERRED STOCK
The authorized preferred stock of the Company is currently divided into
two series. The first series consists of 3,465,866 shares of Series A
Preferred Stock. The second series consists of 4,000,000 shares of Series B
Preferred Stock. All the issued and outstanding shares of Series A and Series
B Preferred Stock are to be converted into an aggregate of 1,291,234 shares
of Common Stock upon the consummation of the Offering. At such time, pursuant
to the Company's Restated Certificate of Amendment which will then become
effective, the Board of Directors of the Company will have the authority to
issue up to 4,000,000 shares of preferred stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be affected
by, the rights of the holders of any preferred stock that may be issued in
the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company. Because
the terms of the preferred stock may be fixed by the Board of Directors of
the Company without stockholder action, the preferred stock could be issued
with terms calculated to defeat or delay a proposed takeover of the Company,
or to make the removal of the management of the Company more difficult. Under
certain circumstances, this would have the effect of decreasing the market
price of the Common Stock. The Company has no present plans to issue shares
of preferred stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
Restated Certificate of Incorporation and Bylaws
In addition to the ability of the Company's Board of Directors to issue
preferred stock without further stockholder approval, the Company's Amended
and Restated Certificate of Incorporation and
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<PAGE>
Amended and Restated Bylaws (the "Bylaws") (each to become effective upon
consummation of the Offering) contain several provisions that may be deemed
to have the effect of making more difficult the acquisition of control of the
Company by means of a hostile tender offer, open market purchases, a proxy
contest or otherwise. The provisions of the Amended and Restated Certificate
of Incorporation and Bylaws discussed below are designed to help to ensure
that holders of Common Stock are treated fairly and equally in a multi-step
acquisition. In addition, they are intended to encourage persons seeking to
acquire control of the Company to initiate such an acquisition through
arm's-length negotiations with the Company's Board of Directors.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. The Bylaws require not less than 20 nor more than 60 days' notice
to the Company with regard to stockholder proposals and the nomination, other
than by or at the direction of the Board of Directors, of candidates for
election as directors. Such notice must provide specified information,
including information regarding the ownership of Common Stock by the person
giving the notice, information regarding the proposal or the nominees and
information regarding the interest of the proponent in the proposal or the
nominations.
Stockholder Meetings. The Bylaws provide that a special meeting of the
stockholders may be called by the President and shall be called by the
President or Secretary at the request of a majority of the Board of
Directors, and may not be called absent such a request. In addition, pursuant
to the Company's Amended and Restated Certificate of Incorporation,
stockholders may not take any action by written consent.
Delaware Takeover Statute
Upon consummation of the Offering, the Company will become subject to
Section 203 of the DGCL ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (x) by persons who are directors and also officers and (y) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such
date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines a business combination to include, among other things:
(i) any merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, lease, exchange, mortgage, transfer, pledge or
other disposition of 10% or more of the assets of the corporation involving
the interested stockholder; (iii) subject to certain exceptions, any
transaction that results in the issuance or transfer by the corporation of
any stock of the corporation to the interested stockholder; (iv) any
transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the prevailing
market price of the Common Stock and the ability of the Company to raise
capital through a public offering of its equity securities. Of the 4,844,391
shares of Common Stock to be outstanding upon consummation of the Offering,
the 1,850,000 shares of Common Stock offered hereby (2,127,500 shares if the
Underwriters' over-allotment option is exercised in full) will be immediately
freely tradeable without restriction (except as to affiliates of the Company,
including Titan) or further registration under the Securities Act. The
remaining 2,944,391 shares of Common Stock will be "restricted" securities
within the meaning of Rule 144 and may only be sold if registered under the
Securities Act or pursuant to an exemption from such registration
requirement, including the exemption provided by Rule 144. Any shares of
Common Stock purchased in the Offering by Titan or any other affiliate of the
Company will be subject to certain of the resale limitations of Rule 144.
Holders of 2,927,159 shares of Common Stock, including each director,
officer, member of the SAB and principal stockholder of the Company
(including Titan), have agreed that they will not offer to sell, contract to
sell, sell, distribute, grant any option to purchase, pledge, hypothecate or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into, or exercisable or exchangeable for, shares
of Common Stock for a period of 360 days after the date of this Prospectus
without the prior written consent of the Representative, on behalf of the
Underwriters. Taking into account the restrictions of Rule 144 and the
lock-up agreements, 68,079 of the restricted shares will become eligible for
sale in the public market beginning 90 days after the date of this Prospectus
and 1,923,059 will become eligible for sale in the public market beginning
360 days after the date of this Prospectus. Additional shares of Common
Stock, including shares issuable upon the exercise of options and warrants,
will also become available for sale in the public market from time to time in
the future.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Offering, a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least two years, including a
person who may be deemed an affiliate of the Company, is entitled to sell
within any three-month period a number of such restricted shares of Common
Stock that does not exceed the greater of 1% of the then outstanding shares
of Common Stock (approximately 48,444 shares after giving effect to the
Offering) or the average weekly trading volume of the Common Stock on The
Nasdaq National Market during the four calendar weeks preceding the filing of
a Form 144 relating to such sale. Sales under Rule 144 are subject to certain
restrictions relating to manner of sale, notice and the availability of
current public information about the Company. Under clause (k) of Rule 144, a
person who is not an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned restricted shares for at
least three years, would be entitled to sell such shares immediately
following the Offering without regard to the volume limitations, manner of
sale provisions or notice or other requirements of Rule 144.
Prior to the Offering, there has been no public market for the Common
Stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such restricted shares in the public market, or the perception that such
sales could occur, could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
OPTIONS
As of August 31, 1996, options to purchase a total of 433,069 shares of
Common Stock granted under the 1994 Plan were outstanding and exercisable. An
additional 414,431 shares of Common Stock were available for future option
grants under the 1994 Plan, as amended. In addition, as of August 31, 1996,
options to purchase a total of 16,761 shares of Common Stock, which were
granted to certain officers of the Company outside of the 1994 Plan, were
outstanding and exercisable. An aggregate of 353,738 of the shares of Common
Stock purchasable upon exercise of such options are subject to lock-up
agreements that apply for a 360-day period from the date of this Prospectus.
See "Underwriting."
58
<PAGE>
Rule 701 under the Securities Act generally provides that shares of Common
Stock acquired on the exercise of outstanding options awarded pursuant to
certain written compensation benefit plans for employees, directors,
officers, consultants or advisors may be resold by persons other than
"affiliates," beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by "affiliates"
beginning 90 days after the date of this Prospectus, subject to all
provisions of Rule 144 except its two-year minimum holding period. The
Company intends to file one or more registration statements on Form S-8 under
the Securities Act to register all shares of Common Stock purchasable upon
exercise of options granted under the 1994 Plan and outside of the 1994 Plan
to certain officers. Such registration statements are expected to become
effective upon filing. Shares covered by these registration statements will
thereupon be eligible for sale in the public markets, subject to the lock-up
agreements that apply for a 360-day period from the date of this Prospectus,
if applicable. See "Underwriting."
BRIDGE WARRANTS
As of August 31, 1996, Bridge Warrants to purchase a total of 300,000
shares of Common Stock were outstanding and exercisable. An aggregate of
300,000 of the Bridge Warrants and the shares of Common Stock underlying the
Bridge Warrants are subject to lock-up agreements that apply for a 360-day
period from the date of this Prospectus. See "Underwriting."
REGISTRATION RIGHTS
After the Offering, the beneficial holders of 1,763,695 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares under the Securities Act, including the holders of the Bridge
Warrants. Under the terms of the agreements between the Company and the
holders of such registrable securities, 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 exercising registration rights,
such holders are entitled to notice of such registration and are entitled to
include shares of such Common Stock therein. Certain of such holders
benefitting from these rights may also require the Company to file a
registration statement under the Securities Act at the Company's expense with
respect to their shares of Common Stock, and the Company is required to use
its diligent reasonable efforts to effect such registration. Further, holders
may require the Company to file additional registration statements on Form
S-3 at the Company's expense. These rights are subject to certain conditions
and limitations, among them the right of the underwriters of an offering to
limit the number of shares included in such registration in certain
circumstances. All of the holders of such securities have agreed not to
exercise their registration rights prior to the expiration of one year from
the date of this Prospectus. See "Certain Transactions."
Furthermore, the holders of the Representative's Warrants and the
securities underlying the Representative's Warrants have certain registration
rights with respect to such securities. See "Underwriting."
59
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Kaufman Bros., L.P. is acting as
the Representative (the "Representative"), have severally agreed, subject to
the terms and conditions contained in the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock set forth below
opposite their respective names:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ------------------------- --------------------
<S> <C>
Kaufman Bros., L.P. .....
--------------------
Total ................... 1,850,000
====================
</TABLE>
The Underwriting Agreement provides that the several Underwriters are
obligated to purchase all of the 1,850,000 shares of Common Stock offered by
the Underwriters hereby (other than shares which may be purchased under the
over-allotment option), if any are purchased. The Representative has advised
the Company that the Underwriters propose to offer the shares to the public
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession
of $ per share and that such dealers may reallow a concession of $
per share to certain other dealers. After the Offering, the offering
price and the concessions may be changed by the Representative.
The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary
authority.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of the Underwriting
Agreement, to purchase up to 277,500 additional shares of Common Stock at the
initial public offering price less underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. The Underwriters may
exercise the option only to cover over-allotments, if any, in the sale of
shares of Common Stock in the Offering. To the extent that the Underwriters
exercise the option, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage thereof
that the number of shares to be purchased by each of them as shown in the
foregoing table bears to the 1,850,000 shares of Common Stock initially
offered hereby.
The Company has agreed to pay to the Representative, individually and not
in its capacity as Representative, a non-accountable expense allowance of two
percent of the gross proceeds of the Offering ($ if the
Underwriters' over-allotment option is not exercised and $ if the
Underwriters' over-allotment option is exercised in full), of which $25,000
has been paid to date. If the Offering is not consummated, the Representative
will be entitled to be reimbursed for actual out-of-pocket expenses, on an
accountable basis only, up to $50,000, inclusive of the amount paid to date.
The Company has also agreed to pay all expenses in connection with
registering or qualifying the Common Stock offered hereby for sale under the
laws of the states in which the Common Stock is sold by the Underwriters
(including expenses of counsel retained for such purposes by the
Underwriters) as well as certain expenses associated with information
meetings.
The Company has agreed to sell to the Representative, or its designees,
warrants (the "Representative's Warrants") to purchase 185,000 shares of
Common Stock at an aggregate purchase price of $185.00. The exercise price
per Representative's Warrant, subject to anti-dilution adjustment, is equal
to 165% of the initial public offering price per share of Common Stock
offered hereby. The Representative's Warrants are exercisable for a period of
five years beginning one year from the date of the consummation of the
Offering (the "Warrant Exercise Term"). The Representative's Warrants may not
be transferred, sold, assigned or hypothecated for a period of one year
commencing from the date of the consummation of the Offering, except that
they may be transferred during such period to officers of the Representative
60
<PAGE>
or members of the underwriting or selling group and/or their officers or
partners, if any. During the Warrant Exercise Term, the holders of the
Representative's Warrants are given, at nominal cost, the opportunity to
profit from an increase in the market price of the Common Stock without
assuming the risk of ownership, with a resulting dilution in the interest of
other security holders of the Company. The Company has granted the
Representative certain registration rights with respect to the
Representative's Warrants. All registration rights will terminate seven years
from the date of the consummation of the Offering.
The Company and holders of 2,927,159 shares of Common Stock, including
each director, officer, member of the SAB and principal stockholder of the
Company (including Titan), have agreed that they will not offer to sell,
contract to sell, sell, distribute, grant any option to purchase, pledge,
hypothecate or otherwise dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock for a period of 360 days after the
date of this Prospectus without the prior written consent of the
Representative.
Pursuant to the Underwriting Agreement, the Representative will have the
right to designate an observer to attend all of the meetings of the Company's
Board of Directors (at the expense of the Company) for a period of three
years after the consummation of the Offering.
The initial public offering price of the Common Stock offered hereby will
be determined through negotiations between the Company and the
Representative. Among the factors to be considered in making such
determination will be the prevailing market conditions, the Company's fiscal
and operating history and condition, the Company's prospects and the
prospects of its industry, the management of the Company, the market price of
securities for companies in businesses similar to that of the Company and
other relevant factors. There can be no assurance that an active trading
market will develop for the Common Stock or that the Common Stock will trade
in the public market subsequent to the Offering at or above the initial
offering price.
The Representative became registered as a broker-dealer in July 1995 and
to date has co-managed one public offering. See "Risk Factors --Lack of
Underwriting History."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
CHANGES IN ACCOUNTANTS
Ernst & Young LLP, which has been and is the independent auditors for
Titan and for each of Titan's subsidiaries, declined, for reasons unrelated
to the Company, in July 1995 to consent to the use of its report in the
Registration Statement on Form SB-2 (the "Registration Statement") to which
this Prospectus forms a part as originally filed. As a result, the Company
engaged Richard A. Eisner & Company, LLP as independent auditors effective
July 1995 for the purpose of auditing and reporting on the Company's
financial statements for the periods from July 25, 1991 (inception) through
December 31, 1994. The report of Richard A. Eisner & Company, LLP on such
financial statements, which report was dated July 21, 1995 and was included
in the Registration Statement as originally filed and in Amendment No. 1
thereto, did not contain an adverse opinion or a disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope, or accounting
principles. However, such report contained an explanatory paragraph that
described the substantial doubt as to the ability of the Company to continue
as a going concern.
Ernst & Young LLP now has consented to the use of its report, which is
dated February 23, 1996 (except as to certain subsequent events) and which
relates to the Company's financial statements for the periods from July 25,
1991 (inception) through December 31, 1995, in Amendment No. 2 to the
Registration Statement. Such report contains an explanatory paragraph that
describes the substantial doubt as to the ability of the Company to continue
as a going concern.
The report of Richard A. Eisner & Company, LLP has been removed from the
Registration Statement effective with Amendment No. 2. In connection with its
audit of the Company's financial statements for the period from July 25, 1991
(inception) through December 31, 1994 and subsequent
61
<PAGE>
thereto until the commencement by Ernst & Young LLP of its audit of the
Company's financial statements of the year ended December 31, 1995, there
were no disagreements between Richard A. Eisner & Company, LLP and the
Company on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved
to the satisfaction of Richard A. Eisner & Company, LLP, would have caused
Richard A. Eisner & Company, LLP to make reference to the matter in its
report.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Shereff, Friedman, Hoffman & Goodman, LLP, New York, New York
and for the Underwriters by O'Sullivan Graev & Karabell, LLP, New York, New
York.
EXPERTS
The financial statements of Ingenex at December 31, 1994 and 1995, and for
each of the years then ended, and for the period from July 25, 1991
(inception) through December 31, 1995 appearing in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon (which contains an explanatory
paragraph with respect to the uncertainty surrounding the Company's ability
to continue as a going concern) appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
The statements relating to United States patent matters, under the
headings "Risk Factors--Uncertainty Relating to Patents and Proprietary
Technology" and "Business--Proprietary Rights," except those statements
qualified as being based on the Company's belief, have been reviewed and
approved by Pennie & Edmonds, New York, New York, special patent counsel to
the Company, and have been included herein in reliance upon the review and
approval by such firm as experts in United States patent law.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form SB-2
(the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. 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 filed as a part thereof. Statements
contained in this Prospectus concerning the contents of any contract or any
other document referred to are not necessarily complete; reference is made in
each instance to the copy of such contract or document filed as an exhibit to
the Registration Statement. Each such statement is qualified in all respects
by such reference to such exhibit. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the SEC's
principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part thereof may be obtained from such office after
payment of fees prescribed by the SEC.
Upon consummation of the Offering, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act
and in accordance therewith will be required to file reports and other
information with the SEC. Such reports and other information can be inspected
and copied at the public reference facilities maintained by the SEC at its
principal offices. In addition, the Company is required to file electronic
versions of such reports and other information with the SEC through the SEC's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) System. The SEC
maintains a World Wide Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors ... F-2
Balance Sheets ....................................... F-3
Statements of Operations ............................. F-4
Statement of Net Capital Deficiency .................. F-5
Statements of Cash Flows ............................. F-6
Notes to Financial Statements ........................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Ingenex, Inc.
We have audited the accompanying balance sheets of Ingenex, Inc. (a
development stage company) as of December 31, 1994 and 1995, and the related
statements of operations, net capital deficiency, and cash flows for the
years then ended and for the period from July 25, 1991 (commencement of
operations) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ingenex, Inc. (a
development stage company) at December 31, 1994 and 1995, and the results of
its operations and its cash flows for the years then ended and for the period
from July 25, 1991 (commencement of operations) to December 31, 1995 in
conformity with generally accepted accounting principles.
As more fully described in Note 1 to the financial statements, the Company
is in the development stage, has incurred losses since inception of
approximately $12.5 million and expects to incur substantial and increasing
operating losses over the next several years. At December 31, 1995, the
Company had a working capital deficit and a net capital deficiency of
approximately $4.1 million and $5.2 million, respectively. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans as to these matters are also described in Note 1.
The 1995 financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ ERNST & YOUNG LLP
Palo Alto, California
February 23, 1996, except for
Note 8 as to which the date is September 27, 1996.
F-2
<PAGE>
INGENEX, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED PRO
FORMA
LIABILITIES AND
NET CAPITAL
DECEMBER 31, DECEMBER 31, DEFICIENCY AT
1994 1995 JUNE 30, 1996 JUNE 30, 1996
-------------- -------------- -------------- ---------------
(UNAUDITED) (NOTE 8)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 693,538 $ 37,938 $ 168
Prepaid sponsored research ........................ 76,844 -- --
Other current assets .............................. 16,198 -- 6,709
-------------- -------------- --------------
Total current assets ............................ 786,580 37,938 6,877
Furniture and equipment, net ........................ -- 3,760 8,333
Deferred offering costs ............................. -- 25,000 27,483
Deferred financing costs ............................ -- 142,604 119,474
Other assets ........................................ 14,323 -- 37,212
-------------- -------------- --------------
Total assets .................................... $ 800,903 $ 209,302 $ 199,379
============== ============== ==============
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable .................................. $ 409,179 $ 376,172 $ 255,237
Note payable--bridge financing .................... -- 1,500,000 --
Payable to parent ................................. 592,331 1,313,214 31,613
Accrued sponsored research ........................ 522,824 197,622 --
Other accrued liabilities ......................... 91,975 248,291 107,640
Current portion of technology financing ........... -- 494,107 537,447
-------------- -------------- --------------
Total current liabilities ....................... 1,616,309 4,129,406 931,937
Noncurrent portion of technology financing .......... -- 1,289,313 966,430
Commitments
Net capital deficiency:
Preferred stock, $.001 par value; issuable in series,
at amounts paid in; 7,465,866 convertible shares
authorized (4,000,000 pro forma):
Series A--1,007,834 shares issued and outstanding at
December 31, 1994 and 1995, and June 30, 1996,
respectively (none pro forma); liquidation
preference of $5,341,520 at December 31, 1995 and
June 30, 1996 ...................................... 5,323,570 5,323,570 5,323,570 $ --
Series B--283,400 shares issued and outstanding at
December 31, 1994 and 1995, and June 30, 1996,
respectively (none pro forma); liquidation
preference of $1,643,720 at December 31, 1995 and
June 30, 1996 ...................................... 1,241,032 1,241,032 1,241,032 --
Common stock, $.001 par value, at amounts paid in;
25,000,000 shares authorized; 585,807, 708,537, and
1,703,157 shares issued and outstanding at December
31, 1994 and 1995, and June 30, 1996, respectively
(2,994,391 pro forma) ............................. 24,457 154,085 5,561,764 12,126,366
Additional capital .................................. 128,805 600,000 600,000 600,000
Deficit accumulated during the development stage .... (7,533,270) (12,528,104) (14,425,354) (14,425,354)
-------------- -------------- -------------- ---------------
Total net capital deficiency .................... (815,406) (5,209,417) (1,698,988) $ (1,698,988)
-------------- -------------- -------------- ---------------
Total liabilities and stockholders' equity ...... $ 800,903 $ 209,302 $ 199,379
============== ============== ============== ===============
</TABLE>
See accompanying notes.
F-3
<PAGE>
INGENEX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
COMMENCEMENT OF COMMENCEMENT
YEAR ENDED DECEMBER 31, OPERATIONS (JULY SIX MONTHS ENDED JUNE 30, OF OPERATIONS
------------------------------ 25, 1991) TO ------------------------------ (JULY 25, 1991)
1994 1995 DECEMBER 31, 1995 1995 1996 TO JUNE 30, 1996
-------------- -------------- ----------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE $-- $139,522 $139,522 $ -- $46,418 $185,940
Costs and expenses:
Research and development (1) . 3,988,139 2,500,817 8,250,972 1,435,932 1,066,877 9,317,849
Research and
development-stockholders (2) 368,684 320,543 1,437,240 132,874 -- 1,437,240
General and administrative (1) 549,663 1,204,166 1,861,827 417,850 548,260 2,410,087
-------------- -------------- ----------------- -------------- -------------- ----------------
Total cost and expenses ..... 4,906,486 4,025,526 11,550,039 1,986,656 1,615,137 13,165,176
-------------- -------------- ----------------- -------------- -------------- ----------------
Loss from operations ......... (4,906,486) (3,886,004) (11,410,517) (1,986,656) (1,568,719) (12,979,236)
Other income (expense):
Interest income ............... 22,885 41,036 63,921 27,621 42 63,963
Interest expense .............. -- (1,149,866) (1,181,508) (239,468) (328,573) (1,510,081)
-------------- -------------- ----------------- -------------- -------------- ----------------
Net loss ..................... $(4,883,601) $(4,994,834) $(12,528,104) $(2,198,503) $(1,897,250) $(14,425,354)
============== ============== ================= ============== ============== ================
Pro forma net (loss) per share $ (1.56) $ (0.53)
============== =============
Shares used in computing
pro forma net (loss) per share 3,211,192 3,258,571
============== =============
</TABLE>
- ------------
(1) See Note 6 for description of related party transactions.
(2) See Note 2 for description of sponsored research agreements with
certain stockholders (3 universities).
See accompanying notes.
F-4
<PAGE>
INGENEX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF NET CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
--------------------- --------------------- --------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to parent for amount
receivable in February 1993 at $0.0018 per
share ........................................ -- $ -- 426,372 $ 782 -- $ --
Issuance of common stock to directors for cash
and amount receivable in February 1993 at
$0.0018 per share ............................ -- -- 37,074 67 -- --
Issuance of common stock to a university for
cash in February 1993 at $0.072 per share ... -- -- 16,356 1,508 -- --
Issuance of common stock for cash to
consultants in February 1993 for $0.072 per
share ........................................ -- -- -- -- 65,427 4,800
Issuance of common stock to a college of
medicine for cash in April 1993 and November
1993 at $0.0018 per share .................... -- -- 26,948 50 -- --
Forgiveness of note payable to related party . -- -- -- 10,000 -- --
Net loss--from incorporation (July 25, 1991)
to December 31, 1993 ......................... -- -- -- -- -- --
--------- ---------- --------- ---------- -------- -------
BALANCE at December 31, 1993 .................. -- -- 506,750 12,407 65,427 4,800
Receipt of cash for stockholder receivable ... -- -- -- -- -- --
Issuance of Series A convertible preferred
stock to parent for cash and settlement of
payable in May 1994 at $5.28 per share ...... 1,007,834 5,323,570 -- -- -- --
Issuance of common stock as partial
consideration for a license to an institute
in May 1994 at $0.53 per share ............... -- -- 13,630 7,250 -- --
Issuance of Series B convertible preferred
stock to investors for cash in September 1994
at $5.82 per share (net of issuance costs of
$408,968) .................................... 283,400 1,241,032 -- -- -- --
Conversion of Class B common into common stock -- -- 65,427 4,800 (65,427) (4,800)
Common stock to be issued to a college of
medicine and pursuant to antidilutive
provisions ................................... -- -- -- -- -- --
Net loss ...................................... -- -- -- -- -- --
--------- ---------- --------- ---------- -------- -------
BALANCE at December 31, 1994 .................. 1,291,234 6,564,602 585,807 24,457 -- --
Issuance of antidilutive common stock in
February 1995 ................................ -- -- 107,034 99,562 -- --
Issuance of common stock to a college of
medicine in April 1995 ....................... -- -- 7,063 29,243 -- --
Issuance of common stock upon exercise of
stock option grants in November 1995 ........ -- -- 5,725 556 -- --
Issuance of common stock upon exercise of
stock option grant in December 1995 .......... -- -- 2,908 267 -- --
Issuance of warrants in connection with a
bridge financing ............................. -- -- -- -- -- --
Net loss ...................................... -- -- -- -- -- --
--------- ---------- --------- ---------- -------- -------
BALANCE at December 31, 1995 .................. 1,291,234 6,564,602 708,537 154,085 -- --
Issuance of common stock upon exercise of
stock option grants in March 1996 (unaudited) -- -- 12,503 7,651 -- --
Issuance of common stock upon exercise of
stock option grants in June 1996 (unaudited) -- -- 299 28 -- --
Issuance of common stock to parent for cash
and settlement of payable in June 1996 at
$5.50 per share .............................. -- -- 981,818 5,400,000 -- --
Net loss--six months ended June 30, 1996
(unaudited) .................................. -- -- -- -- -- --
----------- ---------- --------- ---------- -------- -------
BALANCE at June 30, 1996 (unaudited) ......... 1,291,234 $6,564,602 1,703,157 $5,561,764 -- $ --
=========== ========== ========= ========== ======== =======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RECEIVABLE DURING THE
FROM COMMON STOCK ADDITIONAL DEVELOPMENTAL NET CAPITAL
STOCKHOLDERS TO BE ISSUED CAPITAL STAGE DEFICIENCY
------------ ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to parent for amount
receivable in February 1993 at $0.0018 per
share ........................................ $(782) $ -- -- $ -- $ --
Issuance of common stock to directors for cash
and amount receivable in February 1993 at
$0.0018 per share ............................ (34) -- -- -- 33
Issuance of common stock to a university for
cash in February 1993 at $0.072 per share ... -- -- -- -- 1,508
Issuance of common stock for cash to
consultants in February 1993 for $0.072 per
share ........................................ -- -- -- -- 4,800
Issuance of common stock to a college of
medicine for cash in April 1993 and November
1993 at $0.0018 per share .................... -- -- -- -- 50
Forgiveness of note payable to related party . -- -- -- -- 10,000
Net loss--from incorporation (July 25, 1991)
to December 31, 1993 ......................... -- -- -- (2,649,669) (2,649,669)
------------ ------------ ---------- ------------- -----------
BALANCE at December 31, 1993 .................. (816) -- -- (2,649,669) (2,633,278)
Receipt of cash for stockholder receivable ... 816 -- -- -- 816
Issuance of Series A convertible preferred
stock to parent for cash and settlement of
payable in May 1994 at $5.28 per share ...... -- -- -- -- 5,323,570
Issuance of common stock as partial
consideration for a license to an institute
in May 1994 at $0.53 per share ............... -- -- -- -- 7,250
Issuance of Series B convertible preferred
stock to investors for cash in September 1994
at $5.82 per share (net of issuance costs of
$408,968) .................................... -- -- -- -- 1,241,032
Conversion of Class B common into common stock -- -- -- -- --
Common stock to be issued to a college of
medicine and pursuant to antidilutive
provisions ................................... -- 128,805 -- -- 128,805
Net loss ...................................... -- -- -- (4,883,601) (4,883,601)
------------ ------------ ---------- ------------- -----------
BALANCE at December 31, 1994 .................. -- 128,805 -- (7,533,270) (815,406)
Issuance of antidilutive common stock in
February 1995 ................................ -- (99,562) -- -- --
Issuance of common stock to a college of
medicine in April 1995 ....................... -- (29,243) -- -- --
Issuance of common stock upon exercise of
stock option grants in November 1995 ........ -- -- -- -- 556
Issuance of common stock upon exercise of
stock option grant in December 1995 .......... -- -- -- -- 267
Issuance of warrants in connection with a
bridge financing ............................. -- -- 600,000 -- 600,000
Net loss ...................................... -- -- -- (4,994,834) (4,994,834)
------------ ------------ ---------- ------------- -----------
BALANCE at December 31, 1995 .................. -- -- 600,000 (12,528,104) (5,209,417)
Issuance of common stock upon exercise of
stock option grants in March 1996 (unaudited) -- -- -- -- 7,651
Issuance of common stock upon exercise of
stock option grants in June 1996 (unaudited) -- -- -- -- 28
Issuance of common stock to parent for cash
and settlement of payable in June 1996 at
$5.50 per share .............................. -- -- -- -- 5,400,000
Net loss--six months ended June 30, 1996
(unaudited) .................................. -- -- -- (1,897,250) (1,897,250)
------------ ------------ ---------- ------------- -----------
BALANCE at June 30, 1996 (unaudited) ......... $ -- $ -- $600,000 $(14,425,354) $(1,698,988)
============ ============ ========== ============= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
INGENEX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(JULY 25, 1991)
TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1994 1995 1995
------------ ------------ ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ..................................... $(4,883,601) $(4,994,834) $(12,528,104)
Adjustments to reconcile net loss to net cash
used in operating activities ................
Amortization and depreciation ............... 10,837 555 14,101
Amortization of debt discount ............... -- 600,000 600,000
Amortization of debt issue costs ............ -- 237,396 237,396
Common stock issued or subsequently issued
in exchange for consulting services and
license agreements .......................... 136,055 -- 136,055
Changes in operating assets and liabilities:
Prepaid sponsored research .................. 54,107 76,844 --
Due from parent ............................. 324,136 -- --
Other current assets ........................ (16,198) 16,198 --
Other assets ................................ -- 14,323 (13,546)
Accounts payable ............................ 275,134 (33,007) 376,172
Accrued sponsored research .................. 414,364 (325,202) 197,622
Other accrued liabilities ................... 61,878 156,316 248,291
------------ ------------ ----------------
Net cash used in operating activities ....... (3,623,288) (4,251,411) (10,732,013)
------------ ------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment ........ -- (4,315) (4,315)
------------ ------------ ----------------
Net cash used in investing activities ...... -- (4,315) (4,315)
------------ ------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to related
parties ..................................... -- -- 435,000
Payments of notes payable to related parties -- -- (425,000)
Net proceeds from issuance of preferred
stock ....................................... 3,199,017 -- 3,199,017
Proceeds from issuance of common stock ..... 816 823 8,030
Payable to parent ........................... 1,113,797 720,883 4,678,799
Proceeds from technology financing ......... -- 2,000,000 2,000,000
Payment of principal on technology financing -- (216,580) (216,580)
Proceeds from bridge financing .............. -- 1,500,000 1,500,000
Payment of principal on bridge financing ... -- -- --
Deferred offering costs ..................... -- (25,000) (25,000)
Deferred financing costs .................... -- (380,000) (380,000)
------------ ------------ ----------------
Net cash provided by financing activities ... 4,313,630 3,600,126 10,774,266
------------ ------------ ----------------
Net increase (decrease) in cash and cash
equivalents ................................. 690,342 (655,600) 37,938
Cash and cash equivalents, beginning of
period ...................................... 3,196 693,538 --
------------ ------------ ----------------
Cash and cash equivalents, end of period .... $ 693,538 $ 37,938 $ 37,938
============ ============ ================
SUPPLEMENTAL CASH FLOW DISCLOSURE
Forgiveness of note payable to a related
party ....................................... $ 10,000 $ -- $ 10,000
============ ============ ================
Issuance of Series A preferred stock for
settlement payable to Parent ............... $ 3,365,585 $ -- $ 3,365,585
============ ============ ================
Interest paid ............................... $ -- $ 233,720 $ 233,720
============ ============ ================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(JULY 25, 1991)
TO
SIX MONTHS ENDED JUNE 30, JUNE 30,
1995 1996 1996
------------ ------------ ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ..................................... $(2,198,503) $(1,897,250) $(14,425,354)
Adjustments to reconcile net loss to net cash
used in operating activities ................
Amortization and depreciation ............... -- 1,076 15,177
Amortization of debt discount ............... 85,713 -- 600,000
Amortization of debt issue costs ............ 47,128 23,130 260,526
Common stock issued or subsequently issued
in exchange for consulting services and
license agreements .......................... -- -- 136,055
Changes in operating assets and liabilities:
Prepaid sponsored research .................. 24,414 -- --
Due from parent ............................. -- -- --
Other current assets ........................ 16,198 (6,709) (6,709)
Other assets ................................ 14,323 (37,212) (50,758)
Accounts payable ............................ (335,865) (120,936) 255,236
Accrued sponsored research .................. (156,328) (197,622) --
Other accrued liabilities ................... 112,206 (140,651) 107,640
------------ ------------ ---------------
Net cash used in operating activities ....... (2,390,714) (2,376,174) (13,108,187)
------------ ------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment ........ -- (5,649) (9,964)
------------ ------------ ---------------
Net cash used in investing activities ...... -- (5,649) (9,964)
------------ ------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to related
parties ..................................... -- -- 435,000
Payments of notes payable to related parties -- -- (425,000)
Net proceeds from issuance of preferred
stock ....................................... -- -- 3,199,017
Proceeds from issuance of common stock ..... -- 7,679 15,709
Payable to parent ........................... (196,176) 4,118,400 8,797,199
Proceeds from technology financing ......... 2,000,000 -- 2,000,000
Payment of principal on technology financing (29,625) (279,543) (496,123)
Proceeds from bridge financing .............. 1,500,000 -- 1,500,000
Payment of principal on bridge financing ... -- (1,500,000) (1,500,000)
Deferred offering costs ..................... (151,682) (2,483) (27,483)
Deferred financing costs .................... (380,000) -- (380,000)
------------ ------------ ---------------
Net cash provided by financing activities ... 2,742,517 2,344,053 13,118,319
------------ ------------ ---------------
Net increase (decrease) in cash and cash
equivalents ................................. 351,803 (37,770) 168
Cash and cash equivalents, beginning of
period ...................................... 693,538 37,938 --
------------ ------------ ---------------
Cash and cash equivalents, end of period .... $1,045,341 $ 168 $ 168
============ ============ ===============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Forgiveness of note payable to a related
party ....................................... $ -- $ -- $ 10,000
============ ============ ===============
Issuance of Series A preferred stock for
settlement payable to Parent ............... $ -- $ 5,400,000 $ 8,765,585
============ ============ ===============
Interest paid ............................... $ -- $ -- $ --
============ ============ ===============
</TABLE>
F-6
<PAGE>
INGENEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Ingenex, Inc. (the "Company") is a biopharmaceutical company engaged in
the development of proprietary gene-based therapies and the application of
functional genetics to pharmaceutical discovery. The Company's initial
commercial strategy is to develop gene therapy products for the oncology
market. The Company is currently a majority-owned subsidiary of Titan
Pharmaceuticals, Inc. ("Titan" or "Parent").
The Company is dependent on its Parent to provide working capital,
facilities and equipment and certain administrative, financial, regulatory,
business development and human resource services. The Company and the Parent
have members of their boards of directors in common. The Company also depends
on third parties for the license of certain technologies and for sponsored
research. All of the Company's current products under development are the
subject of license agreements which will require the payment of future
royalties.
BASIS OF PRESENTATION
The Company's activities since incorporation have primarily consisted of
establishing its offices and research facilities, recruiting personnel,
conducting research and development, performing business and financial
planning and raising capital. Accordingly, the Company is considered to be in
the development stage and expects to incur increasing losses and require
additional financial resources to achieve commercialization of its products.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Since inception, the Company has
incurred cumulative net operating losses of approximately $12.5 million and
has a working capital deficiency of approximately $4.1 million as of December
31, 1995. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management expects the Company to
incur additional losses for the next several years and recognizes the need
for an infusion of cash during 1996. The Parent has committed to funding the
Company in the amount of $2.6 million in addition to its repayment of the
bridge financing referred to in Note 4. The Company is actively pursuing
various options which include securing additional equity financing and
believes that sufficient funding will be available to achieve its planned
business objectives. However, if the Company is unable to obtain necessary
cash, other more substantial restructuring options may be necessary, which
would have a material adverse effect on the Company's business, results of
operations and prospects. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities
that may result.
In September 1994, the Company effected a 1.875-for-one split of all
outstanding common and preferred stock. In May 1995, the Company effected a
3.4389-for-one reverse stock split of the Company's Series A convertible
preferred stock and common stock, and a 2.3288-for-one reverse stock split of
the Company's Series B convertible preferred stock. All share and per share
amounts included in the accompanying financial statements have been
retroactively adjusted to reflect the stock split and reverse stock splits.
INTERIM FINANCIAL INFORMATION
The financial information at June 30, 1996 and for the six months ended
June 30, 1995 and June 30, 1996 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the
F-7
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
Company considers necessary for a fair presentation of its financial
position at such date and of its operating results and cash flows for those
periods. Results of the 1996 interim period are not necessarily indicative of
results expected for the entire year.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from
date of purchase of 90 days or less to be cash equivalents. At December 31,
1994 and 1995, the Company had $662,935 and $7,244, respectively, in money
market mutual funds which invest in various U.S. government securities
including Treasury bills, notes and bonds. The funds seek to maintain a
constant $1 net asset value per share. These amounts are included in cash and
cash equivalents.
The Company's investment policy is to maintain liquidity and ensure the
safety of principal.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets ranging
from three to five years.
REVENUE
Revenue consists of revenue from government grants which support the
Company's research efforts in specific research projects. These grants
generally provide for reimbursement of approved costs incurred as defined in
the various agreements. Revenues are recognized as earned.
SPONSORED RESEARCH AND LICENSES
Research and development expenses under sponsored research arrangements
are recognized as the related services are performed, generally ratably over
the period of service. Payments for license fees are expensed as incurred.
STOCK-BASED COMPENSATION
For stock awards and options granted for a fixed number of shares to
employees at prices not less than fair value at award or grant date, the
Company does not record compensation expense.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NET LOSS PER SHARE
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares (resulting primarily from
stock options and amounts
F-8
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
payable to the Parent) arising during the period commencing 12 months prior to a
proposed public offering at prices below the assumed public offering
price have been included in the calculation as if they were outstanding for
all periods presented (using the treasury stock method for stock options and
the if-converted method for amounts payable to Parent). Per share information
calculated on the above noted basis is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net loss per share ................. $ (2.94) $ (2.83) $ (1.26) $ (1.06)
=========== =========== =========== ===========
Shares used in calculating net
loss per share ................... 1,658,860 1,763,157 1,746,582 1,794,107
=========== =========== =========== ===========
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect, pursuant to SEC policy, to common equivalent shares from
convertible preferred stock and additional amounts payable to Parent.
2. SPONSORED RESEARCH AND LICENSE AGREEMENTS
WITH STOCKHOLDERS
In May 1992, the Company acquired three exclusive worldwide licenses from
the University of Illinois at Chicago ("UIC") regarding certain patent
properties. In connection with the license agreements, the Company agreed to
pay royalties based on sales of products and processes incorporating the
licensed technology, subject to certain minimum royalty payments, royalties
based on sublicensing income, a percentage of revenues from research relating
to the subject matter of each license that is performed on a contract basis
for third parties and all costs and expenses associated with patent
prosecution and maintenance. The Company also paid UIC and expensed fees for
various UIC licenses totaling $45,000, $73,000 and $149,000 in 1993, 1994 and
1995, respectively. In conjunction with the licenses, the Company and UIC
entered into a one-year sponsored research agreement pursuant to which the
Company paid UIC an aggregate of $400,000 over 1992 and 1993. Additionally,
UIC purchased 16,356 shares of the common stock of the Company ("common
stock") in February 1993. In January 1995, these licenses were assigned by
the Company to a capital management partnership (see Note 4). However, the
Company is still responsible for making minimum royalty and other payments as
stipulated in the aforementioned agreements.
In September 1992, the Company acquired an exclusive license under a
patent (issued in March 1993) assigned to the Massachusetts Institute of
Technology ("MIT"). Under the license agreement, the Company agreed to pay
MIT royalties based on net sales of products and processes incorporating the
licensed technology, subject to certain minimum annual amounts ranging from
$3,000 in 1993 to $15,000 in 1997, and $25,000 per year thereafter to
maintain the license. In connection with the execution of the license
agreement, the Company issued to MIT 13,630 shares of common stock as partial
consideration for the license, for which the Company expensed $7,250. In
January 1995, this license was assigned by the Company to a capital
management partnership (see Note 4). However, the Company is still
responsible for making the payments required under the license agreement.
In October 1992, the Company acquired an exclusive worldwide license under
U.S. and foreign patent applications assigned to the Baylor College of
Medicine ("Baylor"). Under the license agreement,
F-9
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
the Company agreed to pay Baylor royalties based on net sales of products
and processes incorporating the licensed technology, subject to certain
minimum annual amounts ranging from $8,000 in 1993 to $36,000 in 1997 and
each year thereafter to maintain the exclusivity of the license, and a
percentage of sublicensing income arising from the license of such products
and processes. Pursuant to the research agreement with Baylor also entered
into in October 1992, the Company was obligated to pay a total of $797,254 to
Baylor for its research efforts. The Company recorded expenses of $242,691
and $239,543 in 1994 and 1995, respectively, and $132,874 and $0 for the
periods ended June 30, 1995 and 1996, respectively. As more fully described
in the license agreement, the Company also agreed to issue shares of common
stock to Baylor over the three-year period following the execution of the
agreement. None of these shares were issued as of December 31, 1992, and
26,948 shares were issued in the year ended December 31, 1993. At December
31, 1994, an additional 7,063 shares were issuable to Baylor. These shares
were issued in April 1995. The Company recorded research and development
expenses of $29,243 in 1994 as consideration for the stock to be issued and
included this amount as common stock in the Company's balance sheet at
December 31, 1994.
WITH OTHER PARTIES
In March 1993, the Company entered into a research agreement with the
University of Texas M.D. Anderson Cancer Center ("MD Anderson"). Under the
research agreement, the Company agreed to pay MD Anderson $500,574 over a
two-year period for research activities. The Company exercised its option
under the agreement to provide working space for the researchers and fund
related expenditures up to $740,000. Pursuant to the agreement, $414,011 and
$826,563 were included in research and development expenses in 1993 and 1994,
respectively. The original term of the agreement expired in 1995. However,
the Company has agreed to fund an additional $240,000 at the rate of $24,000
per month commencing March 1996.
The Company is a party to several other license agreements, which involve
lesser funding commitments by the Company.
3. RENT EXPENSE
Total rent expense, including a certain research facility, was $229,154
and $97,686 for 1994 and 1995, respectively, and $14,323 and $138,565 for the
periods ended June 30, 1995 and 1996, respectively. In March 1995, the
Company terminated the lease of a certain research facility. There are no
remaining payments due and the Company is no longer using the facility.
Additionally, included in the cost allocation from Parent (see Note 6), the
Company incurred additional occupancy charges of $174,056 and $189,928 for
1994 and 1995, respectively, and $123,238 and $33,345 for the periods ended
June 30, 1995 and 1996, respectively.
4. DEBT OBLIGATIONS
TECHNOLOGY FINANCING AGREEMENT
In January 1995, the Company assigned its rights under certain of its
technology license agreements to Aberlyn Capital Management Limited
Partnership ("Aberlyn") in exchange for $2,000,000. The Company has
licensed-back the technology for research and development purposes and has
agreed to make monthly payments of $25,000 through July 1995 and $60,060 from
August 1995 through January 1999. Each payment includes implicit interest at
approximately 11.6% per annum. At the end of the payment term, the assigned
license rights can be reacquired by the Company for $1.00. As part of the
F-10
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
financing agreement, the Parent issued to Aberlyn a warrant to purchase
112,375 shares of the Parent's common stock at a price of $3.56 per share.
The warrant expires January 31, 2002. The Company incurred a finder's fee of
$140,000 related to this transaction, which has been capitalized as deferred
financing costs and is being amortized over 48 months. The Parent has
guaranteed payment of the loan and has issued finder and director warrants to
purchase an aggregate of 7,395 shares of the Parent's common stock at an
exercise price of $3.25 per share. The warrants expire in January 2002.
BRIDGE FINANCING NOTES
In May 1995, the Company completed a bridge financing pursuant to which
the Company issued $1,500,000 principal amount of bridge notes payable and
warrants to purchase an aggregate of 300,000 shares of common stock (the
"bridge warrants"). Net proceeds from the bridge financing were approximately
$1,305,000 (after expenses of the offering). The bridge notes payable were
due, together with interest at the rate of 9% per annum, on the earlier of
December 31, 1995 or upon the consummation of an initial public offering of
the common stock. The Company did not complete an initial public offering
prior to the December 31, 1995 due date of the bridge notes and was not
otherwise able to repay the bridge notes by that date. Therefore, the Company
and the Parent negotiated an extension of the bridge notes until February 28,
1996. The bridge notes were subsequently repaid by the Parent with proceeds
from the Parent's initial public offering in January 1996. The bridge
warrants entitle the holders thereof to purchase up to 300,000 shares of the
common stock until May 30, 2000 at a price of $2.50 per share. The bridge
warrants were assigned a value of $600,000. This amount was reflected as a
discount on the bridge notes and was accreted as additional financing
(interest) expense over the initial term of the bridge notes.
FAIR VALUE OF DEBT OBLIGATIONS
The carrying amounts of the Company's technology financing and bridge
notes approximate fair value, which was estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements.
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The following table describes information with respect to various series
of convertible preferred stock ("preferred stock") outstanding as of December
31, 1995 and June 30, 1996:
<TABLE>
<CAPTION>
PRIMARY
LIQUIDATION PRIMARY TOTAL
SHARES SHARES ISSUED ISSUANCE PRICE PREFERENCE PER LIQUIDATION
AUTHORIZED AND OUTSTANDING PER SHARE SHARE PREFERENCE
------------ --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Series A .. 3,465,866 1,007,834 $5.28 $5.30 $5,341,520
Series B .. 4,000,000 283,400 $5.82 $5.80 $1,643,720
</TABLE>
The holders of the Series A and B convertible preferred stock are entitled
to receive noncumulative dividends, when and if declared by the Company's
board of directors, out of legally available assets at a rate of $0.52 and
$0.58 per share, respectively, per annum. No dividends have been declared by
the board of directors.
Each share of preferred stock can be converted at the option of the holder
into one share of common stock, subject to certain adjustments. The preferred
stock will be automatically converted into common stock upon a vote by a
majority of each class of preferred shareholders or upon consummation of an
F-11
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
underwritten public offering in which the offering price equals or exceeds
$4.50 per share and the aggregate public offering proceeds equal or exceed
$5,000,000. Each share of the preferred stock has voting rights equal to the
number of shares of common stock into which it is convertible.
The Series A and B convertible preferred stock have primary liquidation
preferences of $5.30 and $5.80 per share, respectively, plus all dividends
declared and unpaid. After payment of these liquidation preferences, any
remaining assets will be distributed on a pro rata basis to the holders of
the Series A and B convertible preferred stock and the holders of the common
stock, based on the number of shares of common stock held by each stockholder
(assuming conversion of all such Series A and B convertible preferred stock
into common stock) until the holders of the Series A and B convertible
preferred stock have received an aggregate of $26.50 per share and $29.00 per
share, respectively, including amounts distributed to the holders of such
preferred stock prior to the pro rata distribution to all stockholders. Any
remaining assets will be distributed on a pro rata basis to the holders of
common stock.
COMMON STOCK
The Company has reserved a sufficient number of shares of common stock to
permit conversion of the preferred stock.
In February 1993, 65,427 shares of common stock were issued to two
consultants (Drs. Roninson and Davidson); such shares are subject to certain
repurchase rights of the Company if they cease being consultants to the
Company prior to the vesting of such shares. These shares were subject to
certain antidilution privileges, pursuant to which an additional 107,034
shares of common stock became issuable in May 1994 and were issued in
February 1995. At December 31, 1994, the Company recorded research and
development expenses of $99,562 as consideration for the shares to be issued
and included this amount in common stock in the balance sheet at December 31,
1994.
STOCK OPTIONS
In October 1993, the Company granted options to purchase an aggregate of
33,522 shares of common stock at an exercise price of $0.018 per share to
employees. These options are immediately exercisable, but are subject to
repurchase rights which lapse ratably over four years, with the first
increment after one year. At December 31, 1995 and June 30, 1996, 13,968 and
4,889 shares, respectively, of common stock underlying the options would be
subject to repurchase by the Company if all options were exercised.
In December 1993, the Company's board of directors adopted a stock option
plan (the "Plan") and initially reserved 85,827 shares of common stock for
issuance pursuant to the exercise of options. Under the Plan, incentive stock
options may be granted to employees, and nonstatutory stock options may be
granted to employees, directors and consultants of the Company, its Parent
and subsidiary corporations.
Options granted under the Plan expire no later than ten years from the
date of the grant, except when the grantee receives an incentive stock option
and is a 10% stockholder of the Company, its Parent or subsidiary
corporations, in which case the maximum term is five years from the date of
the grant. The exercise price shall be at least 100%, 85% and 110% of the
fair market value of the stock subject to the option on the grant date, as
determined by the board of directors, for incentive stock options,
nonstatutory stock options and incentive stock options granted to 10%
stockholders of the Company (or its Parent or subsidiary corporations),
respectively. The options are exercisable immediately upon grant; however,
the shares issuable upon exercise of the options are subject to the Company's
right of repurchase. Such repurchase rights will lapse as the shares vest
over periods of up to five years from the date of grant.
F-12
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
Plan transactions from Plan inception (December 1993) to June 30, 1996
were as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
SHARES ------------------------------
AVAILABLE NUMBER OF PRICE PER
FOR GRANT SHARES SHARE
----------- ----------- -----------------
<S> <C> <C> <C>
Shares reserved as of December 31, 1993 85,827 -- --
Shares reserved ......................... 50,480 -- --
Options granted ......................... (120,390) 120,390 $0.02 --$0.45
----------- -----------
BALANCE at December 31, 1994 ............ 15,917 120,390 $0.02 --$0.45
Shares reserved ......................... 344,561 -- --
Options granted ......................... (275,361) 275,361 $0.85 --$3.50
Options canceled ........................ 99,267 (99,267) $0.0918 --$0.8597
Options exercised ....................... -- (4,422) $0.0918
----------- -----------
BALANCE at December 31, 1995 ............ 184,384 292,062 $0.02 --$3.50
Shares reserved ......................... 367,132 -- --
Options granted ......................... (157,244) 157,244 $2.00 --$5.00
Options canceled ........................ 13,212 (13,212) $0.85 --$2.50
Options exercised ....................... -- (3,025) $0.0184
----------- -----------
BALANCE at June 30, 1996 ................ 407,484 433,069 $0.02 --$5.00
=========== ===========
</TABLE>
As of December 31, 1994 and 1995 and June 30, 1996, 100,338 shares,
248,314 shares and 373,236 shares, respectively, of common stock underlying
the options would be subject to repurchase by the Company if all options were
exercised.
6. RELATED PARTY TRANSACTIONS
On August 1, 1994, the Company entered into an agreement with the Parent
regarding the allocation of costs by Titan to the Company for certain
services provided in managing the affairs of the Company, consisting
primarily of occupancy and equipment charges. These expenses are allocated
among Titan and Titan's majority-owned subsidiaries based upon the relative
percentage of effort expended by Titan on each subsidiary's affairs and
relative use of assets held by Titan, including those under a master capital
equipment lease (see below). Prior to this agreement, these costs were being
allocated using a similar methodology. In October 1995, the allocation was
changed to a flat fee per year of $119,500. Management believes that the
expense allocation used by Titan is reasonable and does not believe that the
expenses would be materially different on a stand-alone basis.
Research and development expenses allocated by Titan to the Company were
$514,733, $470,983, $293,090 and $153,410 for 1994 and 1995, and for the six
months ended June 30, 1995 and 1996, respectively. General and administrative
expenses allocated by Titan to the Company were $433,308, $367,997, $275,274
and $59,737 for 1994 and 1995, and for the six months ended June 30, 1995 and
1996, respectively.
F-13
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
No interest has been charged on the net payable to Parent prior to
December 1995. Activity under the payable to Parent is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
ENDED
---------------------------- JUNE 30,
1994 1995 1996
------------- ------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Beginning balance ................... $ 2,519,983 $ 592,331 $ 1,313,214
Corporate cost allocations ......... 948,000 838,980 213,147
Cash disbursements made on behalf
of or payments made to Parent .... -- (1,023,581) --
Accrued interest ................... -- -- 155,036
Cash disbursements made on behalf
of the Company ($324,136 applied
to receivable from Parent in 1994) 489,933 905,484 3,750,216
Conversion of payable to Parent to
common stock ...................... (3,365,585) -- (5,400,000)
------------- ------------- ---------------
Ending balance ...................... $ 592,331 $ 1,313,214 $ 31,614
============= ============= ===============
</TABLE>
The average balances outstanding for the years ended December 31, 1994 and
1995 and the six months ended June 30, 1996 were approximately $1,314,000,
$614,000, and $3,324,154, respectively.
Effective December 1995, the Parent and the Company executed a debt
conversion agreement whereby the Parent had the right, exercisable until July
3, 1996, to convert up to an aggregate of $1,400,000 of indebtedness
(including any accrued interest) payable by the Company to the Parent into
shares of common stock at a conversion rate of $5.50 per share (which the
Company's board of directors had determined to be the then fair value of
common stock). In May 1996, the Parent and the Company executed an additional
debt conversion agreement whereby the Parent had the right, exercisable until
July 3, 1996, to convert up to $4,000,000 of additional indebtedness
(including any accrued interest) into shares of common stock at a conversion
rate of $5.50 per share (which the Company's board of directors had
determined to be the then fair value of the common stock). In the event that
the Company consummates, on or before July 3, 1996, an initial public
offering of its securities which includes the sale of warrants to purchase
common stock for each $5.50 of indebtedness actually converted, Titan has the
right to purchase for $0.10 a five year warrant to purchase one share of the
common stock at $6.60 per share. Furthermore, pursuant to the December 1995
conversion agreement, all amounts owed to Titan bear interest at 9% per annum
beginning December 1995 (See Note 8). In June 1996, the Company converted an
aggregate of $5,400,000 of indebtedness payable by the Company to the Parent
into 981,818 shares of common stock.
LEASE COMMITMENT
Titan is party to a master capital equipment lease pursuant to which the
Company and other Titan subsidiaries are jointly and severally liable under a
sublease and assignment agreement and guaranty for monthly payments
(currently totaling $30,459) under the lease, should Titan be unable to
satisfy its obligations under the equipment lease. As of December 31, 1995
and June 30, 1996, the amounts outstanding under the lease were $973,851 and
$864,964, respectively.
CONSULTING AGREEMENTS
The Company incurred research and development expenses of $52,835,
$54,998, $29,499 and $29,499 for the years ended December 31, 1994 and 1995,
and the periods ended June 30, 1995 and 1996, respectively, pursuant to
consultant arrangements with two stockholders (Drs. Roninson and Davidson).
F-14
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
7. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under Statement
109, the liability method is used in accounting for income taxes. There was
no effect of adoption, as the Company has incurred losses since inception.
As of December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $11,600,000. The Company also had federal
research and development tax credit carryforwards of approximately $300,000.
The net operating loss and credit carryforwards expire at various dates
beginning on 2007 through 2010, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
Significant components of the Company's deferred tax assets for federal
and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
------------- -------------
<S> <C> <C>
Net operating loss carryforwards .... $ 2,400,000 $ 4,100,000
Research credit carryforwards ....... 200,000 400,000
Capitalized research and development 300,000 500,000
Other ................................ 100,000 200,000
------------- -------------
Deferred tax asset ................... 3,000,000 5,200,000
Valuation allowance .................. (3,000,000) (5,200,000)
------------- -------------
Total ................................ $ -- $ --
============= =============
</TABLE>
During the year ended December 31, 1994, the valuation allowance increased
$2,100,000.
8. PROPOSED PUBLIC OFFERING AND OTHER MATTERS
In August 1995, the Company filed a registration statement with the SEC in
connection with a possible public offering of shares of common stock and
warrants to purchase shares of common stock. The possible offering was
subsequently deferred. General and administrative expenses for 1995 include a
charge of $360,799 in connection with the deferred offering.
On June 28, 1996, the Company's board of directors authorized management
to amend the registration statement originally filed in August 1995, which is
not yet effective. If the registration statement is declared effective by the
SEC, the Company expects to offer shares of common stock to the public (the
"Offering"). If the Offering is consummated under the terms presently
anticipated, all of the preferred stock outstanding will automatically
convert into 1,291,234 shares of common stock. In addition, upon the
conversion of the Series A and Series B convertible preferred stock, the
Company's Amended and Restated Certificate of Incorporation will be amended
such that the Company will be authorized to issue 4,000,000 shares of $0.001
par value preferred stock.
Unaudited pro forma liabilities and net capital deficiency gives effect to
the assumed conversion of the Series A and Series B convertible preferred
stock as if such transactions occurred as of June 30, 1996.
F-15
<PAGE>
INGENEX, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited)
During the period from July through September 1996, the Company borrowed an
aggregate of $1,000,000 from Titan for working capital purposes. This loan
is to be evidenced by a convertible note (the "Titan Note") that bears
interest at the rate of 9% per annum and is due and payable on September 30,
1998. For a one-year period commencing on the consummation of the Offering,
Titan will be entitled to convert the Titan Note into shares of common stock
at a conversion price per share equal to the initial public offering price.
F-16
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ....................... 3
Risk Factors ............................. 7
Use of Proceeds .......................... 17
Dividend Policy .......................... 17
Capitalization ........................... 18
Dilution ................................. 19
Selected Financial Data .................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 21
Business ................................. 25
Management ............................... 43
Certain Transactions ..................... 51
Principal Stockholders ................... 54
Description of Capital Stock ............. 56
Shares Eligible for Future Sale .......... 58
Underwriting ............................. 60
Change in Accountants .................... 61
Legal Matters ............................ 62
Experts .................................. 62
Additional Information ................... 62
Index to Financial Statements ............ F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
1,850,000 SHARES
COMMON STOCK
#############################################################################
GRAPHIC OMITTED
IGT: "INGEN"
#############################################################################
INGENEX, INC.
PROSPECTUS
KAUFMAN BROS., L.P.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers
The Registrant's Certificate of Incorporation eliminates in certain
circumstances the liability of directors of the Registrant for monetary
damages for breach of their fiduciary duty as directors. This provision does
not eliminate the liability of a director (i) for breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions by the director not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent
declaration of an unlawful dividend, stock purchase or redemption or (iv) for
transactions from which the director derived an improper personal benefit.
Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
The Registrant believes that it is the position of the Securities and
Exchange Commission that, insofar as the foregoing provision may be invoked
to disclaim liability for damages arising under the Securities Act of 1933,
as amended (the "Securities Act"), such provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such
limitation of liability also does not affect the availability of equitable
remedies such as injunctive relief or rescission.
The Registrant intends to enter into indemnification agreements (the
"Indemnification Agreements") with each of its directors and officers prior
to the consummation of the Offering. Each such Indemnification Agreement will
provide that the Registrant will indemnify the indemnitee against any and all
expenses (including attorneys' fees), witness fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, arbitral, administrative or
investigative (including an action by or in the right of the Registrant) to
which he is, was or at any time becomes a party, or is threatened to be made
a party by reason of the fact that he is, was or at any time becomes a
director, officer, employee or agent of the Registrant, or is or was serving,
or at any time serves, at the request of the Registrant, as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise. Such
indemnification will be available, subject to certain exceptions, if the
indemnitee's conduct is not finally adjudged to have been knowingly
fraudulent or deliberately dishonest, or to constitute willful misconduct or
a breach of his duty of loyalty to the Registrant, or to have resulted in him
personally having gained a financial profit or other advantage to which he
was not legally entitled. The Indemnification Agreements will also require
that the Registrant indemnify the director or officer in all cases to the
fullest extent permitted by applicable law. Each Indemnification Agreement
will permit the director or officer that is a party thereto to bring suit to
seek recovery or amounts due under the Indemnification Agreement and to
recover the expenses of such a suit if successful.
The Registrant's Bylaws provide that the Registrant shall indemnify its
directors, officers, employees or agents to the fullest extent permitted by
the Delaware General Corporation Law, and the Registrant shall have the right
to purchase and maintain insurance on behalf of any such person whether or
not the Registrant would have the power to indemnify such person against the
liability. The Registrant has not currently purchased any such insurance
policy on behalf of any of its directors, officers, employees or agents but
intends to do so prior to, or as soon as possible after, the consummation of
the Offering.
ITEM 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered. All amounts
are estimates except the SEC registration fee and the NASD filing fee.
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SEC Registration fee ..................... $ 7,703.02
Nasdaq National Market Listing fee ...... 28,365.64
NASD fee ................................. 2,021.13
Printing and engraving ................... 75,000.00
Legal fees and expenses of the Registrant 300,000.00
Accounting fees and expenses ............. 120,000.00
Blue sky fees and expenses ............... 15,000.00
Transfer agent fees ...................... 3,500.00
Representative's expense
(non-accountable) ....................... 370,000.00
Miscellaneous ............................ 98,410.21
--------------
Total .................................. $1,020,000.00
==============
</TABLE>
ITEM 26. Recent Sales of Unregistered Securities
Since June 15, 1992, the Registrant has issued and sold the following
securities (as adjusted to reflect (i) a 1.875-for-one stock split effected
in September 1994 and (ii) a 3.438924545-for-one reverse stock split of the
Common Stock and Series A Preferred Stock and a 2.328840417-for-one reverse
stock split of the Series B Preferred Stock effected in May 1995):
1. In May 1994, the Registrant issued and sold 1,007,834 shares of its
Series A Preferred Stock to Titan Pharmaceuticals, Inc., its parent
company, for an aggregate purchase price of $5,324,000.
2. In September 1994, the Registrant issued and sold 283,400 shares of its
Series B Preferred Stock to four purchasers for an aggregate purchase
price of $1,650,000. Montgomery Securities acted as placement agent for
this financing and received fees and expenses of $168,000.
3. On May 31, 1995, the Registrant issued to ten purchasers an aggregate
of $1,500,000 principal amount of the Registrant's promissory notes
(the "Bridge Notes") due the earlier of December 31, 1995 or the fifth
business day following consummation of an initial public offering of
securities of the Registrant (the "Maturity Date"). The Bridge Notes
bore interest at 9% per annum payable on the Maturity Date. The Bridge
Notes were sold as Units consisting of (a) a promissory note in the
principal amount of $100,000 and (b) warrants to purchase 20,000 shares
of the Registrant's Common Stock (the "Bridge Warrants"). The price per
Unit was $100,000 and all fifteen Units that were offered were sold.
The Bridge Notes were repaid in January and February 1996 by the
Registrant's parent, and there are presently outstanding Bridge
Warrants to purchase 300,000 shares of the Registrant's Common Stock.
A. R. Baron acted as the Registrant's placement agent for the sale of
the Units and received from the Registrant a placement fee of $150,000
and a non-accountable expense allowance of $45,000.
4. In December 1995 and June 1996, the Registrant granted Titan the right
to convert up to an aggregate of $5,400,000 of its indebtedness into
the Registrant's Common Stock at $5.50 per share. In June 1996, Titan
converted such indebtedness into an aggregate of 981,818 shares of the
Registrant's Common Stock. Certain of such indebtedness related to
Titan's repayment of the Bridge Notes.
5. In September 1996, the Registrant issued to Titan a convertible note in
the principal amount of $1,000,000 (the "Titan Note") due on September
30, 1998. The Titan Note bears interest at 9% per annum, payable at
maturity. Pursuant to the terms of the Titan Note, Titan has the right,
on or before the first anniversary of the initial public offering of
the Registrant's securities, to convert the entire outstanding
principal amount of the Titan Note and any accrued and unpaid interest
thereunder into shares of the Registrant's Common Stock at the price
per share at which the Registrant offers shares of its Common Stock in
its initial public offering (the "IPO Price"). To the extent that Titan
exercises its right of conversion under the Titan Note, the number of
shares of the Registrant's Common Stock that Titan is entitled to
purchase pursuant to an option (the "Titan Option") granted to it by
the Registrant to purchase approximately 300,000 shares of the
Registrant's Common Stock at the IPO Price
II-2
<PAGE>
shall be decreased by the number of shares of the Registrant's Common
Stock that Titan receives pursuant to such conversion. Titan shall only
be entitled to exercise its conversion rights under the Titan Note in
connection with the exercise of the Titan Option.
The issuances described above were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Act as
transactions by an issuer not involving any public offering. In addition, the
recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant.
ITEM 27. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement, including form of Representative's Warrant (preliminary forms).
3.1* Certificate of Incorporation of the Company, as amended to date.
3.2 Form of Amended and Restated Certificate of Incorporation to be filed after the closing of the
offering made pursuant to this Registration Statement.
3.3* Amended and Restated Bylaws of the Company.
3.4 Form of Amended and Restated Bylaws to be effective upon the closing of the offering made
pursuant to this Registration Statement.
4.2* Specimen Common Stock certificate.
4.3 Form of Representative's Warrant. Reference is made to Exhibit 1.1.
4.6* Form of Subscription Agreement, dated as of May 31, 1995, by and between the Company and certain
purchasers.
4.7* Form of Bridge Warrant.
4.9* Registration Rights Agreement, dated May 20, 1992, by and among the Company, Dr. Igor Roninson
and Dr. Richard Davidson.
4.10* Amended and Restated Investors' Rights Agreement, dated September 27, 1994, by and between the
Company and certain investors, and related Waiver of Certain Investor's Rights.
4.11 Convertible Note, dated September 1996, issued by the Company in favor of Titan Pharmaceuticals,
Inc.
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.
10.1 Form of Indemnification Agreement between the Company and its directors and officers.
10.2 Amended and Restated 1994 Stock Option Plan.
10.3* Employment Agreement, dated July 25, 1995, between the Company and Mark E. Furth, Ph.D.
10.4+ Sponsored Research Agreement, dated March 23, 1993, between the Company and the University of
Texas M.D. Anderson Cancer Center.
10.6* GSE Research Agreement, dated May 6, 1992, between Pharm-Gen Systems, Ltd. and the Board of
Trustees of the University of Illinois.
II-3
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
10.7*+ GSE Exclusive License Agreement, dated May 6, 1992, between Pharm-Gen Systems, Ltd. and the Board
of Trustees of the University of Illinois. (Incorporated by reference to Exhibit 10.8 to the
Registration Statement (File No. 33-9938) on Form SB-2 of Titan Pharmaceuticals, Inc. (the "Titan
Registration Statement").)
10.8*+ MDR Exclusive License Agreement, dated May 6, 1992, between Pharm-Gen Systems, Ltd. and the Board
of Trustees of the University of Illinois. (Incorporated by reference to Exhibit 10.9 to the
Titan Registration Statement.)
10.17*+ License Agreement by and between the Company and the Massachusetts Institute of Technology, dated
September 11, 1992. (Incorporated by reference to Exhibit 10.16 to the Titan Registration
Statement.)
10.18*+ License Agreement by and between the Company and Baylor College of Medicine, dated October 21,
1992 (including Research Agreement of the same date attached as Appendix I). (Incorporated by
reference to Exhibit 10.16 to the Titan Registration Statement.)
10.19*+ License Assignment and License Agreement dated January 31, 1995 by and between Aberlyn Capital
Management Limited Partnership and the Company, and First Amendment dated January 31, 1995.
(Incorporated by reference to Exhibit 10.17 to the Titan Registration Statement.)
10.20* Amended Services Agreement dated August 1, 1994, by and between the Company and Titan
Pharmaceuticals, Inc.
10.23* Consulting Agreement between Dr. Igor Roninson and the Company dated May 1992.
10.24* Consulting Agreement between Dr. Richard Davidson and the Company dated May 1992.
10.25* Consulting Agreement between Eli Gilboa, Ph.D. and the Company dated January 1994.
10.26* Consulting Agreement between Andrei Gudkov, Ph.D. and the Company dated September 1994.
10.27* Consulting Agreement between Dr. William F. Benedict and the Company dated August 1993.
10.28* Consulting Agreement between Dr. Hong J. Xu and the Company dated August 1993.
10.29 Consulting Agreement between Richard E. Giles, Ph.D. and the Company dated September 1993.
10.30 Letter Agreement between the University of Texas M.D. Anderson Cancer Center and the Company
dated May 1996.
10.31* Master Equipment Lease between Titan Pharmaceuticals, Inc. and Phoenix Leasing Incorporated dated
February 1994. (Incorporated by reference to Exhibit 10.7 to the Titan Registration Statement.)
10.32 Sublease and Acknowledgment of Assignment between Titan Pharmaceuticals, Inc., Ingenex, Inc.,
Geneic Sciences, Inc., Theracell, Inc. and Ansan, Inc. dated February 1994.
10.33 Continuing Guaranty Agreement between Ingenex, Inc., Geneic Sciences, Inc., Theracell, Inc.,
Ansan, Inc., Phoenix Leasing Incorporated and Titan Pharmaceuticals, Inc. dated February 1994.
10.34 Shareholders' Agreement between the Company and Titan Pharmaceuticals, Inc. dated September 1996.
10.35 Corporate Services Agreement between the Company and Titan Pharmaceuticals, Inc. dated July 1996.
II-4
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
10.36 Amended and Restated Conversion Agreement between the Company and Titan Pharmaceuticals, Inc.
dated December 4, 1995.
10.37 Conversion Agreement between the Company and Titan Pharmaceuticals, Inc. dated May 23, 1996.
10.38 Menlo Park Lease, dated March 6, 1996.
11.1 Statement of Pro Forma Net Loss Per Share.
16.1 Letter of Richard A. Eisner & Company, LLP regarding change in certifying accountant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Shereff, Friedman, Hoffman & Goodman, LLP. Reference is made to Exhibit 5.1.
23.3 Consent of Pennie & Edmonds.
27 Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
** To be supplied by amendment.
*+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
ITEM 28. Undertakings
The Registrant hereby undertakes to provide to the Underwriter, at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
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 Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws of the Registrant, Indemnification Agreements
entered into between the Registrant and its officers and directors, the
Underwriting Agreement, 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 hereunder, 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 of 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.
The Registrant hereby undertakes:
(1) that, for the 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) that, 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.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Menlo Park, State of California, on
this 3rd day of October, 1996.
INGENEX, INC.
By: /s/ Mark E. Furth
-------------------------------
Mark E. Furth
President and Chief Executive Officer
(Principal Executive Officer)
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated on this 3rd day of October 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------- -----------------------------------------------------------
<S> <C>
/S/ MARK E. FURTH
- ------------------------------ PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR (PRINCIPAL
MARK E. FURTH EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Director
- ------------------------------
Robert T. Abbott
* Director
- ------------------------------
Louis R. Bucalo
Director
- ------------------------------
Vincent T. DeVita, Jr.
/s/ John K. A. Prendergast Director
- ------------------------------
John K. A. Prendergast
* Director
- ------------------------------
Wilhelm F. Schaeffler
*By:/s/ Mark E. Furth
- ------------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ---------------------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement, including form of Representative's Warrant (preliminary forms).
3.1* Certificate of Incorporation of the Company, as amended to date.
3.2 Form of Amended and Restated Certificate of Incorporation to be filed after the closing of
the offering made pursuant to this Registration Statement.
3.3* Amended and Restated Bylaws of the Company.
3.4 Form of Amended and Restated Bylaws to be effective upon the closing of the offering made
pursuant to this Registration Statement.
4.2* Specimen Common Stock certificate.
4.3 Form of Representative's Warrant. Reference is made to Exhibit 1.1.
4.6* Form of Subscription Agreement, dated as of May 31, 1995, by and between the Company and certain
purchasers.
4.7* Form of Bridge Warrant.
4.9* Registration Rights Agreement, dated May 20, 1992, by and among the Company, Dr. Igor Roninson
and Dr. Richard Davidson.
4.10* Amended and Restated Investors' Rights Agreement, dated September 27, 1994, by and between
the Company and certain investors, and related Waiver of Certain Investor's Rights.
4.11 Convertible Note, dated September 1996, issued by the Company in favor of Titan Pharmaceuticals,
Inc.
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.
10.1 Form of Indemnification Agreement between the Company and its directors and officers.
10.2 Amended and Restated 1994 Stock Option Plan.
10.3* Employment Agreement, dated July 25, 1995, between the Company and Mark E. Furth, Ph.D.
10.4+ Sponsored Research Agreement, dated March 23, 1993, between the Company and the University
of Texas M.D. Anderson Cancer Center.
10.6* GSE Research Agreement, dated May 6, 1992, between Pharm-Gen Systems, Ltd. and the Board of
Trustees of the University of Illinois.
10.7*+ GSE Exclusive License Agreement, dated May 6, 1992, between Pharm-Gen Systems, Ltd. and the
Board of Trustees of the University of Illinois. (Incorporated by reference to Exhibit 10.8
to the Registration Statement (File No. 33-9938) on Form SB-2 of Titan Pharmaceuticals, Inc.
(the "Titan Registration Statement").)
10.8*+ MDR Exclusive License Agreement, dated May 6, 1992, between Pharm-Gen Systems, Ltd. and the
Board of Trustees of the University of Illinois. (Incorporated by reference to Exhibit 10.9
to the Titan Registration Statement.)
10.17*+ License Agreement by and between the Company and the Massachusetts Institute of Technology,
dated September 11, 1992. (Incorporated by reference to Exhibit 10.16 to the Titan Registration
Statement.)
10.18*+ License Agreement by and between the Company and Baylor College of Medicine, dated October
21, 1992 (including Research Agreement of the same date attached as Appendix I). (Incorporated
by reference to Exhibit 10.16 to the Titan Registration Statement.)
10.19*+ License Assignment and License Agreement dated January 31, 1995 by and between Aberlyn Capital
Management Limited Partnership and the Company, and First Amendment dated January 31, 1995.
(Incorporated by reference to Exhibit 10.17 to the Titan Registration Statement.)
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ---------------------------------------------------------------------------------------- ------------
10.20* Amended Services Agreement dated August 1, 1994, by and between the Company and Titan
Pharmaceuticals, Inc.
10.23* Consulting Agreement between Dr. Igor Roninson and the Company dated May 1992.
10.24* Consulting Agreement between Dr. Richard Davidson and the Company dated May 1992.
10.25* Consulting Agreement between Eli Gilboa, Ph.D. and the Company dated January 1994.
10.26* Consulting Agreement between Andrei Gudkov, Ph.D. and the Company dated September 1994.
10.27* Consulting Agreement between Dr. William F. Benedict and the Company dated August 1993.
10.28* Consulting Agreement between Dr. Hong J. Xu and the Company dated August 1993.
10.29 Consulting Agreement between Richard E. Giles, Ph.D. and the Company dated September 1993.
10.30 Letter Agreement between the University of Texas M.D. Anderson Cancer Center and the Company
dated May 1996.
10.31* Master Equipment Lease between Titan Pharmaceuticals, Inc. and Phoenix Leasing Incorporated
dated February 1994. (Incorporated by reference to Exhibit 10.7 to the Titan Registration
Statement.)
10.32 Sublease and Acknowledgment of Assignment between Titan Pharmaceuticals, Inc., Ingenex, Inc.,
Geneic Sciences, Inc., Theracell, Inc. and Ansan, Inc. dated February 1994.
10.33 Continuing Guaranty Agreement between Ingenex, Inc., Geneic Sciences, Inc., Theracell, Inc.,
Ansan, Inc., Phoenix Leasing Incorporated and Titan Pharmaceuticals, Inc. dated February 1994.
10.34 Shareholders' Agreement between the Company and Titan Pharmaceuticals, Inc. dated September
1996.
10.35 Corporate Services Agreement between the Company and Titan Pharmaceuticals, Inc. dated July
1996.
10.36 Amended and Restated Conversion Agreement between the Company and Titan Pharmaceuticals, Inc.
dated December 4, 1995.
10.37 Conversion Agreement between the Company and Titan Pharmaceuticals, Inc. dated May 23, 1996.
10.38 Menlo Park Lease, dated March 6, 1996.
11.1 Statement of Pro Forma Net Loss Per Share.
16.1 Letter of Richard A. Eisner & Company, LLP regarding change in certifying accountant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Shereff, Friedman, Hoffman & Goodman, LLP. Reference is made to Exhibit 5.1.
23.3 Consent of Pennie & Edmonds.
27 Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
** To be supplied by amendment.
*+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
Exhibit 1.1
1,850,000 Shares (1)
Ingenex, Inc.
Common Stock
UNDERWRITING AGREEMENT
, 1996
--------------
KAUFMAN BROS., L.P.
800 Third Avenue
New York, New York 10022
Ladies and Gentlemen:
Ingenex, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell 1,850,000 shares (the "Firm Shares") of Common Stock of the
Company, $.001 par value (the "Common Stock"), to you (the "Underwriters") as
set forth on Schedule I hereto. In addition, the Company has agreed to grant to
you an option (the "Option") to purchase up to an additional 277,500 shares of
Common Stock (the "Option Shares") on the terms and for the purposes set forth
in Section 1(b) below. The Firm Shares and the Option Shares are referred to
collectively herein as the "Shares."
It is understood that, subject to the conditions hereinafter stated,
the Firm Shares will be sold to you. The Company confirms its agreement with
the Underwriters as follows:
1. AGREEMENT TO SELL AND PURCHASE
(a) On the basis of the representations, warranties and agreements herein
contained and subject to all the terms and conditions of this Agreement, (i)
the Company agrees to issue and sell the Firm Shares to the several
Underwriters and (ii) each of the Underwriters, severally and not jointly,
agrees to purchase from the Company the respective number of Firm Shares set
forth opposite that Underwriter's name in Schedule I hereto, at the purchase
price of $__ for each Firm Share.
(b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally
and not jointly, up to the maximum number of Option Shares at the same price
per share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or
- ------------------------
(1) Plus an option to purchase up to an additional 277,500 shares to cover
over-allotments.
<PAGE>
in part at any time and from time to time on or before the 30th day after the
date of this Agreement upon written or telegraphic notice (each, an "Option
Shares Notice") by the Underwriters to the Company no later than 12:00 noon,
New York City time, at least two and no more than three business days before
the date specified for closing in the Option Shares Notice (each, an "Option
Closing Date"), setting forth the aggregate number of Option Shares to be
purchased and the time and date for such purchase. On the Option Closing Date,
the Company will sell to the Underwriters the number of Option Shares set forth
in the Option Shares Notice, and each Underwriter will purchase such percentage
of the Option Shares as is equal to the percentage of the Firm Shares that such
Underwriter is purchasing, as adjusted by the Underwriters in such manner as
they deem advisable to avoid fractional shares.
(c) Subject to the terms and conditions herein set forth, on the Closing
Date (as defined below), the Company shall issue to Kaufman Bros., L.P. in its
individual capacity, warrants in the form attached hereto as Exhibit A (the
"Representative's Warrants") to purchase 185,000 shares of Common Stock at an
exercise price equal to 120% of the price per Firm Share.
2. DELIVERY AND PAYMENT
Delivery of the Firm Shares shall be made to the Underwriters against
payment of the purchase price by certified or official bank check payable in
same day funds to the order of the Company at the offices of O'Sullivan Graev &
Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, at 10:00 a.m.,
New York Time, on the third (or, if the Firm Shares are priced, as contemplated
by Rule 15c6-1(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), after 4:30 p.m. New York Time), the fourth full business day
following the commencement of the offering contemplated by this Agreement, or
at such time on such other date, not later than five business days after the
date of this Agreement, as may be agreed upon by the Company and the
Underwriters (such date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and shall
be registered in such names and in such denominations as the Underwriters shall
request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company. For the
purpose of expediting the checking and packaging of certificates for the
Shares, the Company agrees to make such
-2-
<PAGE>
certificates available for inspection at least 24 hours prior to the Closing
Date or the Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Shares by the Company to the respective
Underwriters shall be borne by the Company. The Company will pay and save each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or the
sale to such Underwriter of the Shares sold by such entity.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and covenants to each Underwriter that:
(a) A registration statement (Registration No. 33-95654) on Form SB-2
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder; and has been filed with the
Commission. The term "preliminary prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A of the Rules
and Regulations included at any time as part of the registration statement.
Copies of such registration statement, amendments and exhibits thereto and of
each related preliminary prospectus have been delivered to the Representative.
If such registration statement has not become effective, a further amendment to
such registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly
by the Company with the Commission. If the registration statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule
424(b) of the Rules and Regulations. The term "Registration Statement" means
the registration statement as amended at the time it becomes or became
effective (the "Effective Date"), including financial statements and schedules
and all exhibits and any information deemed to be included by Rule 430A. The
term "Prospectus" means (i) if the Company relies on Rule 434 of the Rules and
Regulations, the Term Sheet that is first filed pursuant to Rule 424(b)(7)
under the Act, together with the preliminary prospectus identified therein that
such Term Sheet supplements; (ii) if the Company does not rely on Rule 434 of
the Rules and Regulations,
-3-
<PAGE>
the prospectus first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations; or (iii) if the Company does not rely on Rule 434 of the
Rules and Regulations and if no prospectus is required to be filed pursuant to
Rule 424(b) of the Rules and Regulations, the prospectus included in the
Registration Statement. The term "Term Sheet" means any term sheet that
satisfies the requirements of Rule 434 of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. When any Preliminary Prospectus was filed
with the Commission it complied in all material respects with the applicable
requirements of the Act and the Rules and Regulations and did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. On the
Effective Date, the date the Term Sheet, if utilized, is first filed with the
Commission pursuant to Rule 424(b), the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times subsequent
to and including the Closing Date and, if later, the Option Closing Date and
when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did and will comply with all applicable provisions of the Act and
the Rules and Regulations and did and will contain all statements required to
be stated therein in accordance with the Act and the Rules and Regulations. On
the Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement, the
Prospectus or any such amendment or supplement did or will contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Term Sheet, the Prospectus or
any amendment or supplement to the Prospectus is filed with the Commission and
at the Closing Date and, if later, the Option Closing Date, the Prospectus did
not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The foregoing
representations and warranties in this Section 3(b) do not apply to any
statements or omissions made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company by the
Underwriters specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. The Company acknowledges
that the statements set forth in the first three paragraphs under the heading
-4-
<PAGE>
"Underwriting" in the Prospectus constitute the only information relating to
any Underwriter furnished in writing to the Company by the Underwriters
specifically for inclusion in the Registration Statement.
(c) The Company is, and at the Closing Date and, if later, the Option
Closing Date will be a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. The Company has,
and at the Closing Date and, if later, the Option Closing Date will have, full
power and authority to conduct all the activities conducted by it, to own or
lease all the assets owned by or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company is, and
at the Closing Date and, if later, the Option Closing Date it will be, duly
licensed or qualified to do business and in good standing as a foreign
corporation in all jurisdictions in which the nature of the activities
conducted by it or the character of the assets owned or leased by it makes such
license or qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not materially and adversely affect
the Company, its business, properties, business prospects, condition (financial
or otherwise) or results of operations. The Company has no subsidiaries (as
defined in the Rules and Regulations) that are required to be listed as
subsidiaries in Exhibit 21 to the Registration Statement. Except as set forth
in the Prospectus, the Company (i) does not own, and at the Closing Date and,
if later, the Option Closing Date will not own, directly or indirectly, any
shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any corporation, firm, partnership,
joint venture, association or other entity and (ii) is not, and at the Closing
Date and, if later, the Option Closing Date will not be, engaged in any
discussions or a party to any agreement or understanding, written or oral,
regarding the acquisition of an interest in any corporation, firm, partnership,
joint venture, association or other entity. Complete and correct copies of the
certificate of incorporation, the bylaws or other organizational documents of
the Company and all amendments thereto have been delivered to the
Representative, and no changes therein will be made subsequent to the date
hereof and prior to Closing Date or, if later, the Option Closing Date.
(d) The Company has authorized, issued and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus. All of the
outstanding shares of capital stock of the Company have been duly authorized
and validly issued, are fully paid and nonassessable, were issued in compliance
with all applicable state and Federal securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities and conform to the description thereof contained in
the Prospectus; the Shares have been duly authorized and when issued and paid
for as contemplated
-5-
<PAGE>
herein will be validly issued, fully paid and nonassessable and the Shares will
conform to the description thereof contained in the Prospectus; the shares of
Common Stock issuable by the Company upon the exercise of the Representative's
Warrants have been duly authorized, and, when issued and paid for in accordance
with, the terms of the Representative's Warrants, will be validly issued, fully
paid and nonassessable; and no preemptive rights or other rights to subscribe
for or purchase exist with respect to the issuance and sale of the Shares or
with respect to the Common Stock issuable upon the exercise of the
Representative's Warrants. The Company has reserved and will keep available for
the exercise of the Representative's Warrants such number of authorized but
unissued shares of Common Stock to permit the exercise in full of the
Representative's Warrants. The description of the capital stock of the Company
in the Registration Statement and the Prospectus is, and at the Closing Date
and, if later, the Option Closing Date will be, complete and accurate in all
respects. Except as set forth in the Prospectus, the Company does not have
outstanding, and at the Closing Date and, if later, the Option Closing Date
will not have outstanding, any options to purchase, or any rights or warrants
to subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of Common Stock, or any
such warrants, convertible securities or obligations. The description of the
Company's stock option and other stock plans or arrangements, and the options
or other rights granted or exercised thereunder, set forth in the Prospectus,
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights. No further approval or
authority of the stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Shares by the Company as contemplated
herein. No holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the Company
because of the filing of the Registration Statement or consummation of the
transactions contemplated by this Agreement.
(e) The financial statements and schedules included in the Registration
Statement or the Prospectus present fairly the financial condition of the
Company as of the respective dates thereof and the results of operations,
changes in stockholders' equity and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire
period involved. No other financial statements or schedules of the Company are
required by the Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Ernst & Young LLP, who has reported
on such financial statements and schedules, are independent accountants with
respect to the Company as required by the Act and the Rules and Regulations.
The summary financial and statistical data included in the Registration
Statement present fairly the
-6-
<PAGE>
information shown therein and have been compiled on a basis consistent with the
financial statements presented therein.
(f) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing Date
and, if later, the Option Closing Date, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) there has not been and
will not have been any change in the capitalization of the Company (other than
in connection with the exercise of outstanding options to purchase the
Company's Common Stock granted pursuant to the Company's stock option plans
from the reserves as described in the Registration Statement, which shares
received upon exercise will be subject to the lock-up agreements described in
Section 5(i) below), or any material adverse change, or any development which
the Company reasonably believes could reasonably be expected to involve a
prospective material adverse change, in the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company arising for any reason whatsoever, (ii) the Company has not incurred
nor will it incur, except in the ordinary course of business as described in
the Prospectus, any material liabilities or obligations, direct or contingent,
nor has it entered into nor will it enter into, except in the ordinary course
of business as described in the Prospectus, any material transactions other
than pursuant to this Agreement and the transactions referred to herein, and
(iii) the Company has not and will not have paid or declared any dividends or
other distributions of any kind on any class of its capital stock.
(g) The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
(h) There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its officers in their capacity as such, nor any basis therefor, before or by
any Federal or state court, commission, regulatory body, administrative agency
or other governmental body, domestic or foreign, wherein an unfavorable ruling,
decision or finding would materially and adversely affect the Company or its
business, properties, business prospects, condition (financial or otherwise) or
results of operations.
(i) The Company has, and at the Closing Date and, if later, the Option
Closing Date will have, performed all its obligations required to be performed
by it as of such date, and the Company is not, and at the Closing Date and, if
later, the Option Closing Date will not be, nor with the passage of time or the
giving of notice or both would it be, in violation of any law, ordinance,
administrative or governmental rule or regulation
-7-
<PAGE>
applicable to the Company or of any judgment, order or decree of any court or
governmental agency or body or of any arbitrator having jurisdiction over the
Company or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any mortgage, loan agreement,
note, bond, debenture, credit agreement or any other evidence of indebtedness
to which it is a party or by which its property is bound or affected, which
violation or default might materially and adversely affect the Company or its
business, properties, business prospects, condition (financial or otherwise) or
results of operations. To the Company's best knowledge, no other party under
any contract or other instrument to which the Company is a party is in default
in any respect thereunder, which default would materially and adversely affect
the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations. The Company is not, and at
the Closing Date and, if later, the Option Closing Date will not be, in
violation of any provision of its certificate of incorporation, bylaws or other
organizational documents.
(j) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part contemplated herein
and in the Representative's Warrants, except such as have been obtained under
the Act or the Rules and Regulations and such as may be required under state
securities or Blue Sky laws or the bylaws and rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriters of the Shares.
(k) The Company has full corporate power and authority to enter into this
Agreement and the Representative's Warrants. Each of this Agreement and the
Representative's Warrants has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms. The performance
of this Agreement and the Representative's Warrants and the consummation of the
transactions contemplated hereby and thereby will not, with or without notice,
the passage of time or both, result in the imposition of any lien, charge or
encumbrance upon any of the assets of the Company pursuant to the terms or
provisions of, or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under the certificate of incorporation, bylaws or other
organizational documents of the Company, any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, bond, debenture, note agreement
or other evidence of indebtedness, lease, contract or other agreement or
instrument to which the Company is a party or by which the Company or any of
its properties is bound or affected, or violate or conflict with any judgment,
ruling,
-8-
<PAGE>
decree, order, statute, rule or regulation of any court or other governmental
agency or body applicable to the business or properties of the Company
presently in effect, a breach or violation of which, a default under which, a
termination of which, an acceleration under which or a conflict with which
would materially and adversely affect the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations.
(l) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such liens, charges, encumbrances
or restrictions as are described in the Prospectus and those which,
individually and in the aggregate, are not material in amount or which,
individually and in the aggregate, do not adversely affect the use made or
proposed to be made of such properties and assets by the Company. The Company,
as lessee, has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it. The agreements to which the
Company is a party described in the Prospectus are valid agreements,
enforceable by the Company, except as the enforcement thereof may be limited by
bankruptcy and laws relating to the rights and remedies of creditors generally
or by the availability of general equitable remedies. Except as otherwise
described in the Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be
conducted.
(m) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company is a party have been duly
authorized, executed and delivered by the Company, constitute valid and binding
agreements of the Company and are enforceable against the Company and by the
Company against the other parties thereto in accordance with the terms thereof,
except as to (i) bankruptcy and laws relating to the rights and remedies of
creditors generally and (ii) the availability of equitable remedies.
(n) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
Section 5 of this Agreement to be delivered to the Underwriters was or will be,
when made, inaccurate, untrue or incorrect.
(o) Neither the Company nor any of its directors, officers or controlling
persons has taken, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result, under the Act or otherwise, in, or
which has constituted, stabilization or manipulation of the price
-9-
<PAGE>
of any security of the Company to facilitate the sale or resale of the Shares.
(p) No holder of securities of the Company has rights to the registration
of any securities of the Company because of the filing of the Registration
Statement, which rights have not been waived by the holder or otherwise
satisfied as of the date hereof.
(q) The Common Stock is listed and duly admitted to trading on the Nasdaq
National Market (the "Nasdaq/NMS"), and the Company has received notification
that the quotation by the Nasdaq/NMS of the Shares has been approved, subject
to official notice of issuance of the Shares.
(r) (i) The Company owns and possesses all right, title and interest in,
or has duly licensed from third parties a valid and enforceable right to use,
all trademarks, trade names, patent rights, copyrights, licenses, inventions,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) or other rights
or interests in intellectual property (collectively, "Intellectual Property
Rights") necessary for the conduct of its business as described in the
Prospectus, except where the failure to have any such right would not have a
material and adverse effect on the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations; (ii) the Company is not infringing any Intellectual Property Rights
of others where such infringement would have a material and adverse effect on
the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations; and (iii) no claim has been
made against the Company regarding infringement of Intellectual Property Rights
which would have a material and adverse effect on the Company or its business,
properties, business prospects, condition (financial or otherwise) or results
of operations.
(s) The Company has filed all Federal, state and foreign income tax
returns which have been required to be filed, which returns are complete and
correct in all material respects, and has paid all taxes and assessments
received by it to the extent that such taxes or assessments have become due.
The Company has no tax deficiency which has been or might be asserted or
threatened against the Company which could have a material and adverse effect
on the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations.
(t) The Company owns or possesses all authorizations, approvals, orders,
licenses, registrations, certificates and permits of and from, and has made all
declarations and filings with, all governmental regulatory officials and bodies
necessary
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to conduct its business as contemplated in the Prospectus, except where the
failure to own or possess all such authorizations, approvals, orders, licenses,
registrations, certificates and permits or make such declarations and filings
would not materially and adversely affect the Company or its business,
properties, business prospects, condition (financial or otherwise) or results
of operations. There is no proceeding pending or, to the knowledge of the
Company, threatened, or any basis therefor known to the Company, which may
cause or allow any such authorization, approval, order, license, registration,
certificate or permit to be revoked, withdrawn, canceled, suspended or not
renewed or result in any material impairment of the rights thereunder; and the
Company is conducting its business in compliance with all laws, rules and
regulations applicable thereto, except where any such failure to comply would
not have a material adverse effect on the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations. None of such authorizations, approvals, orders, licenses,
registrations, certificates or permits contains any restriction that is
materially burdensome to the Company.
(u) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect. The Company has not been refused any insurance coverage sought or
applied for; and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a material adverse effect
on the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations.
(v) The Company is (i) in compliance with any and all applicable foreign,
Federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) has received
all permits, licenses or other approvals required of it under applicable
Environmental Laws to conduct its business and (iii) is in compliance with all
terms and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations.
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(w) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on its business, operations
and properties of the Company in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or in
the aggregate, have a material adverse effect on the Company or its business,
properties, business prospects, condition (financial or otherwise) or results
of operations.
(x) Neither the Company nor, to the Company's knowledge, any of its
employees or agents have at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment
to any Federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(y) The Company has not distributed and, prior to the later to occur of
(i) the Closing Date or (ii) completion of the distribution of the Shares, will
not distribute without the prior written consent of the Underwriters any
offering material in connection with the offering and sale of the Shares other
than the Registration Statement, any Preliminary Prospectus, the Prospectus or
other materials, if any, permitted by the Act and the Rules and Regulations.
The Company is not involved in any labor dispute and, to the knowledge of the
Company, no such dispute is threatened.
(z) Neither the Company nor any of its officers, directors, employees or
agents has taken or will take, directly or indirectly, (i) any action designed
to cause or to result in, or that has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares, or (ii)
since the filing of the Registration Statement, except in connection with the
sale of the Shares, (A) sold, bid for, purchased, attempted to induce any
person to purchase or paid anyone any compensation for soliciting purchase of
the Shares or (B) paid or agreed to pay any person any compensation for
soliciting another to purchase any other securities of the Company.
(aa) The Company has obtained from the holders of an aggregate of
________ shares of Common Stock and ________ options and warrants to purchase
Common Stock (including, without
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limitation, each director, officer, Scientific Advisory Board member and
principal stockholder), written agreements (collectively, the "Lockup
Agreements"), in form and substance satisfactory to counsel for the
Underwriters, that, for a period of 360 days from the date of the Prospectus,
he, she or it will not, without Kaufman Bros., L.P.'s prior written consent,
offer, sell, contract to sell, grant any option for the sale of or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any security
convertible into, or exchangeable or exercisable for, shares of Common Stock or
other securities of the Company.
(ab) The Company has complied with all provisions of Florida Statutes,
517,075, relating to issuers doing business with Cuba.
(ac) The Company has no liability or obligation of any nature (absolute,
accrued, contingent or otherwise) that is not fully reflected or adequately
reserved against in the balance sheet at March 31, 1996, except for liabilities
(A) incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected on the balance sheet,
(B) incurred since March 31, 1996 in the ordinary course of business and
consistent with past practice or (C) described in the Prospectus. The Company
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with
management's general or specific authorizations, (B) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accounting for assets,
(C) access to assets is permitted only in accordance with management's general
or specific authorization, (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences and (E) reserves for obsolete
inventory, bad debts and sales returns and allowances are adequate.
Any certificate signed by an officer of the Company and delivered to
the Underwriters or counsel for the Underwriters at a closing hereunder shall
be deemed a representation and warranty of the Company to each Underwriter as
to the matters covered thereby as of the date thereof.
4. AGREEMENTS OF THE COMPANY
The Company agrees with the several Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or
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supplement to the Registration Statement or the Prospectus, unless a copy
thereof shall first have been submitted to the Underwriters within a reasonable
period of time prior to the filing thereof and the Underwriters shall not have
objected thereto in good faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Underwriters and will
confirm such advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective, (ii)
of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (iii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (iv) of the happening of
any event during the period mentioned in the third sentence of Section 4(e)
that makes any statement made in the Registration Statement or the Prospectus
untrue or that requires the making of any changes in the Registration Statement
or the Prospectus in order to make the statements therein not misleading and
(v) of receipt by the Company or any representative or attorney of the Company
of any other communication from the Commission relating to the Company, the
Registration Statement, any preliminary prospectus or the Prospectus. If at any
time the Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company
has omitted any information from the Registration Statement pursuant to Rule
430A of the Rules and Regulations, the Company will use its best efforts to
comply with the provisions of, and make all requisite filings with the
Commission pursuant to, said Rule 430A and, if a Term Sheet is used, Rule 434
and to notify the Underwriters promptly of all such filings.
(c) The Company will furnish to the Underwriters without charge, three
signed copies of the Registration Statement and of any post-effective amendment
thereto, including financial statements and schedules, and all exhibits
thereto, and will furnish to the Underwriters, without charge, for transmittal
to each of the other Underwriters, a copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
but without exhibits.
(d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the Company
will deliver to each of the Underwriters, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as the Representative may
reasonably request. The Company consents, subject to the provisions of the
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following sentence, to the use of the Prospectus or any amendment or supplement
thereto by the several Underwriters and by all dealers to whom the Shares may
be sold, both in connection with the offering or sale of the Shares and for any
period of time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during the nine month period referred to
in Section 10(a)(3) of the Act any event shall occur which in the judgment of
the Company or counsel to the Underwriters should be set forth in the
Prospectus in order to make any statement therein, in light of the
circumstances under which it was made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with law, the Company will
forthwith prepare and duly file with the Commission an appropriate supplement
or amendment thereto, and will deliver to each of the Underwriters, without
charge, such number of copies of such supplement or amendment to the Prospectus
as the Representative may reasonably request and, in case any Underwriter is
required to deliver a prospectus after such nine month period, the Company upon
request, but at the expense of such Underwriter, will promptly prepare such
amendment or amendments to the Registration Statement and Prospectus as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(f) Prior to any public offering of the Shares, the Company will
cooperate with the Underwriters and counsel to the Underwriters in connection
with the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Underwriters may
request; provided that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.
(g) During the period of five years commencing on the Effective Date, the
Company will furnish to the Representative, and each other Underwriter who may
so request, copies of such financial statements and other periodic and special
reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representative, and each other Underwriter who may so request, a copy of each
annual or other report it shall be required to file with the Commission.
(h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for the applicable 12-month period
after the Effective Date, satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
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(i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by the Underwriters all costs and expenses incident to the performance
of the obligations of the Company under this Agreement, including but not
limited to costs and expenses of or relating to (i) any experts retained by the
Company, (ii) the preparation, printing and filing with the Commission of the
Registration Statement and exhibits to it, each preliminary prospectus,
Prospectus and any amendment or supplement to the Registration Statement or
Prospectus, (iii) the preparation and delivery of certificates representing the
Shares, (iv) the printing of this Agreement, the Agreement among Underwriters,
any Selected Dealer Agreements and any Underwriters' Questionnaires and Powers
of Attorney, (v) furnishing (including costs of shipping and mailing) such
copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as may be requested for
use in connection with the offering and sale of the Shares by the Underwriters
or by dealers to whom Shares may be sold, (vi) the listing of the Shares on the
Nasdaq/NMS, (vii) any filings required to be made by the Underwriters with the
NASD and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (viii) the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 4(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (ix) fees, disbursements and other charges of counsel
to the Company (but not those of counsel for the Underwriters, except as
otherwise provided herein), (x) the transfer agent for the Shares, (xi) the
"tombstone" advertisement in the Wall Street Journal and two other newspapers
as reasonably requested by the Representative with respect to the Shares and
(xii) the "road show" or any other selling efforts. In addition to the
Company's responsibility for payment of the foregoing expenses, the Company
shall pay to the Underwriters a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds of the offering ($25,000 of which has been
paid to date), including in such amount the proceeds from any sale of the
Option Shares. The non-accountable expense allowance due shall be paid at the
Closing Date and any Option Closing Date, as applicable. If the offering is not
consummated, the Underwriters will be entitled to reimbursement for actual
out-of-pocket expenses, on an accountable basis only, up to $50,000, inclusive
of the amount paid to date.
(j) If this Agreement shall be terminated by the Company pursuant to any
of the provisions hereof (otherwise than pursuant to Section 8 hereof) or if
for any reason the Company shall be unable to perform its obligations
hereunder, the Company will reimburse the several Underwriters for all
reasonable out-of-pocket expenses (including the fees, disbursements and
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other charges of counsel to the Underwriters) reasonably incurred by them in
connection herewith.
(k) The Company will not at any time, directly or indirectly, take any
action designed, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering and sale of
the Shares in the manner set forth in the Prospectus under "Use of Proceeds,"
and shall file such reports with the Commission with respect to the sale of the
Shares and the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(m) During the period of 360 days from the date of the Prospectus,
without the prior written consent of Kaufman Bros., L.P., which consent may be
withheld in Kaufman Bros., L.P.'s sole discretion and other than pursuant to
the exercise of outstanding warrants and stock options or otherwise pursuant to
the Company's stock option plans disclosed in the Prospectus, the Company will
not issue, offer, sell, grant options to purchase or otherwise dispose of any
of the Company's equity securities or any other securities convertible into or
exchangeable for its Common Stock or other equity security. During a period of
360 days from the date of the Prospectus, the Company will not file a
registration statement for the purpose of registering any securities of the
Company without the prior written consent of Kaufman Bros., L.P., which consent
may be withheld in their sole discretion. The Company will not, for a period of
two years from the date hereof, without the prior written approval of Kaufman
Bros., L.P., propose or enter into any arrangement not existing on the date
hereof, for the granting or awarding of stock options.
5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS
The obligations of each Underwriter hereunder are subject to the
following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Underwriters not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Underwriters and all filings required by Rule
424, Rule 430A and Rule 434 of the Rules and Regulations shall have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for the purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of
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the Shares under the securities or Blue Sky laws of any jurisdiction shall be
in effect and no proceeding for such purpose shall be pending before or
threatened or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with
to the satisfaction of the staff of the Commission or such authorities and (iv)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed unless a copy thereof was first
submitted to the Underwriters and the Underwriters do not object thereto in
good faith, and the Underwriters shall have received certificates, dated the
Closing Date and the Option Closing Date and signed by the Chief Executive
Officer and the Controller of the Company (who may, as to proceedings
threatened, rely upon the best of their knowledge), to the effect of clauses
(i), (ii) and (iii) of this Section 5(b).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change, or any development involving a prospective material
adverse change, in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as described in or
contemplated by the Registration Statement and the Prospectus, and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood, earthquake or other
casualty, whether or not covered by insurance, or from any labor dispute or any
court of legislative or other governmental action, order or decree, which is
not described in the Registration Statement and the Prospectus, if in the
judgment of the Underwriters any such development makes it impracticable or
inadvisable to consummate the sale and delivery of the Shares by the
Underwriters at the public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted or threatened against the Company or any of its
officers or directors in their capacities as such, before or by any Federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would materially and adversely
affect the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.
(e) Each of the representations and warranties of the Company contained
herein shall be true and correct in all material respects at the Closing Date
and, with respect to the
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Option Shares, at the Option Closing Date, and all covenants and agreements
contained herein to be performed on the part of the Company and all conditions
contained herein to be fulfilled or complied with by the Company at or prior to
the Closing Date and, with respect to the Option Shares, at or prior to the
Option Closing Date, shall have been duly performed, fulfilled or complied
with.
(f) The Underwriters shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters, from Shereff, Friedman, Hoffman & Goodman, LLP, counsel to the
Company, covering the following matters:
(i) the Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification;
(ii) to such counsel's knowledge, the Company does not have any
subsidiaries or own or control any other corporation, association or other
business entity;
(iii) the authorized capital stock of the Company conforms to the
description thereof contained in the Prospectus;
(iv) the authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the
Prospectus as of the date therein; the shares of Common Stock outstanding
prior to the issuance of the Firm Shares (or, with respect to the opinion
to be delivered on the Option Closing Date, prior to the issuance of the
Option Shares) have been duly authorized and are validly issued, fully paid
and nonassessable, have been issued pursuant to exemptions from the
registration and qualification requirements of federal and applicable state
securities laws, were not issued in violation of or subject to any
preemptive rights or, to the best of such counsel's knowledge, other rights
to subscribe for or purchase any securities, and conform to the description
thereof contained in the Prospectus;
(v) the form of certificate evidencing the Shares is in due and
proper form under Delaware law; the Shares have been duly authorized and,
when the certificates evidencing the Shares have been issued and delivered
in accordance with
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the terms of this Agreement, the Shares will be validly issued, fully paid
and nonassessable; and the issuance of such Shares is not subject to any
preemptive rights or, to the best of such counsel's knowledge, other rights
to subscribe for or purchase securities;
(vi) the Representative's Warrants have been duly authorized,
executed and delivered by the Company and the Company has all requisite
corporate power and authority to execute the Representative's Warrants; the
Representative's Warrants are enforceable against the Company in accordance
with their terms; the shares of Common Stock issuable upon the exercise of
the Representative's Warrants have been reserved for such issuance and,
when issued in accordance with the terms of the Representative's Warrants,
will be duly authorized validly issued, fully paid and nonassessable and
free of preemptive rights or, to the best of such counsel's knowledge,
other rights to subscribe for or purchase securities; and the
Representative's Warrants conform in all material respects to the
description thereof contained in the Prospectus;
(vii) the Registration Statement has become effective under the Act,
and no stop order suspending the effectiveness of the Registration
Statement or preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending or, to the
best of such counsel's knowledge, threatened by the Commission; any
required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) or Rule 434 of the Rules and Regulations has been made in the
manner and within the time period required by such Rule 424(b) and Rule
434;
(viii) the Registration Statement and the Prospectus and any
supplements or amendments thereto (except for financial statements,
schedules and financial information included therein, as to which such
counsel need not express any opinion) comply as to form in all material
respects with the Act and the Rules and Regulations;
(ix) this Agreement has been duly authorized, executed and
delivered by the Company, and the Company has all requisite corporate power
and authority to enter into this Agreement and consummate the transactions
contemplated hereby;
(x) this Agreement is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as to (A) rights to indemnity and contribution thereunder which may
be limited by applicable law, (B) bankruptcy and laws relating to the
rights and remedies of creditors generally and (C) the
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availability of equitable remedies; the execution and delivery by the
Company of, and the performance by the Company of its obligations under,
this Agreement and the Representative's Warrants do not contravene any
provision of applicable law, statute, rule or regulation or the certificate
of incorporation, bylaws or other organizational documents of the Company
or any agreement or other instrument binding upon the Company that is filed
as an exhibit to the Registration Statement or, to the best of such
counsel's knowledge, any agreement or other instrument that is otherwise
material to the Company or, to the best of such counsel's knowledge, any
judgment or decree of any governmental body, agency or court having
jurisdiction over the Company presently in effect and a breach or violation
of which, a default under which, a termination of which, an acceleration
under which or a conflict with which would materially and adversely affect
the Company or its business, properties, business prospects, financial
condition or results of operations, and no consent, approval or
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement and the Representative's Warrants, except such as may
have been obtained under the Act and such as required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares by the Underwriters;
(xi) the statements in the Prospectus under the captions "Risk
Factors -- Dependence on License and Sponsored Research Agreements," "Risk
Factors -- Uncertainty Relating to Patents and Proprietary Technology,"
"Risk Factors -- Government Regulation," "Risk Factors -- Dependence on Key
Employees," "Risk Factors -- Guarantees of Obligations of Others," "Risk
Factors -- Control by Existing Stockholder; Relationship to Titan," "Risk
Factors -- Shares Eligible for Future Sale; Registration Rights," "Risk
Factors -- Anti-takeover Effects of Restated Certificate of Incorporation,
Bylaws and Delaware Law," "Business -- Product Research and Development,"
"Business -- Proprietary Rights," "Business -- Government Regulation,"
"Business -- Relationship to Titan Pharmaceuticals, Inc.," "Management,"
"Certain Transactions," "Description of Capital Stock" and "Shares Eligible
for Future Sale" and in the Registration Statement in Item 14 and Item 15,
insofar as such statements constitute a summary of documents referred to
therein or matters of law, fairly summarize in all material respects the
information called for with respect to such documents and matters of law;
(xii) to such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened to which the Company is a party or to
which any of the properties of
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the Company is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described;
(xiii) to such counsel's knowledge, no holder of securities of the
Company has rights which have not been waived to require the Company to
register with the Commission shares of Common Stock or other securities as
part of the offering contemplated hereby;
(xiv) such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described
in the Registration Statement or Prospectus or any supplements or
amendments thereto which are not so filed and described as required, and
each description of such contracts and documents as is contained in the
Registration Statement and Prospectus fairly presents in all material
respects the information required under the Act and the Rules and
Regulations; and
(xv) as of the Effective Date, the Shares were duly authorized for
quotation on the Nasdaq/NMS subject to official notice of issuance.
Such counsel shall also state that such counsel has participated in conferences
with representatives of the Underwriters, officers and representatives of the
Company and representatives of the independent certified public accountants of
the Company, at which conferences the contents of the Registration Statement
and the Prospectus and related matters were discussed and that, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (except as set forth in Section
5(f)(xi)), on the basis of the foregoing, nothing has come to the attention of
such counsel that leads them to believe that (except for financial statements,
schedules and financial information, as to which such counsel need not express
any belief), the Registration Statement, at the time that it became effective,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and the Prospectus, as of the date it was filed pursuant
to the Rules and Regulations and as of the Closing Date, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
In rendering the foregoing opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably acceptable
to Underwriters' counsel as to matters governed by patent laws and laws
governing
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<PAGE>
the testing, manufacturing, marketing and labeling of pharmaceutical products,
and as to matters of fact, upon certificates of officers of the Company and of
government officials; provided that such counsel shall state that the opinion
of any other counsel is in form satisfactory to such counsel and, in such
counsel's opinion, such counsel and the Underwriters are justified in relying
on such opinions of other counsel. Copies of all such opinions and certificates
shall be furnished to counsel to the Underwriters on the Closing Date.
(g) The Underwriters shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date, from
Pennie & Edmonds, patent counsel to the Company, satisfactory in form and
substance to the Underwriters and counsel for the Underwriters.
(h) The Underwriters shall have received from the Company the duly
executed Representative's Warrants.
(i) The Underwriters shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date, from
O'Sullivan Graev & Karabell, LLP, counsel to the Underwriters, with respect to
the Registration Statement, the Prospectus and this Agreement, which opinion
shall be satisfactory in all respects to the Underwriters.
(j) The Lockup Agreements shall remain in full force and effect.
(k) At the Effective Date and concurrently with the execution and
delivery of this Agreement, Ernst & Young LLP shall have furnished to the
Underwriters a letter, dated the date of its delivery, addressed to the
Underwriters and in form and substance satisfactory to the Underwriters
confirming that they are independent accountants with respect to the Company as
required by the Act and the Rules and Regulations and with respect to certain
financial and other statistical and numerical information contained in the
Registration Statement. At the Closing Date, and, as to the Option Shares, the
Option Closing Date, Ernst & Young LLP shall have furnished to the Underwriters
a letter, dated the date of its delivery, which shall confirm, on the basis of
a review in accordance with the procedures set forth in the letter from each
accountant, that nothing has come to their attention during the period from the
date of each letter referred to in the prior sentence to a date (specified in
each letter) not more than five days prior to the Closing Date and the Option
Closing Date, as the case may be, which would require any change in their
letter dated the date hereof if it were required to be dated and delivered at
the Closing Date and the Option Closing Date, as the case may be.
(l) At the Closing Date and, with respect to the Option Shares, the
Option Closing Date, there shall be furnished to the
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Underwriters a certificate, dated the date of its delivery, signed by the Chief
Executive Officer and the Controller of the Company, in form and substance
satisfactory to the Underwriters, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, the Registration Statement and the Prospectus do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading and (B) in the case of the certificate delivered at
the Closing Date and the Option Closing Date, since the Effective Date, no
event has occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein not
untrue or misleading in any material respect.
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct.
(iii) Each of the covenants required to be performed by the Company
herein on or prior to the date of such certificate has been duly, timely
and fully performed and each condition herein required to be satisfied or
fulfilled on or prior to the date of such certificate has been duly, timely
and fully satisfied or fulfilled.
(m) The Shares shall be qualified for sale in such jurisdictions as the
Underwriters may, pursuant to the provisions of Section 4(f), reasonably
request, and each such qualification shall be in effect and not subject to any
stop order or other proceeding on the Closing Date or the Option Closing Date.
(n) Prior to the Closing Date, the Shares shall have been duly authorized
for listing on the Nasdaq/NMS, subject to official notice of issuance.
(o) The Company shall have furnished to the Underwriters such
certificates, in addition to those specifically mentioned herein, as the
Underwriters may have reasonably requested as to the accuracy and completeness
at the Closing Date and the Option Closing Date of any statement in the
Registration Statement or the Prospectus, as to the accuracy at the Closing
Date and the Option Closing Date of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder or as to the fulfillment of the conditions concurrent and precedent
to the obligations hereunder of the Underwriters or as to such other matters
related to the execution, delivery and performance of this Agreement as the
Underwriters may have reasonably requested.
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<PAGE>
6. INDEMNIFICATION
(a) The Company will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person,
if any, who controls, within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, each Underwriter from and against any and all losses,
claims, liabilities, expenses and damages (including any and all investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted) to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages (i)
arise out of or are based on any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading, (ii) arise out of or are based in whole or
in part on any inaccuracy in the representations and warranties of the Company
contained herein or (iii) arise out of or are based upon any failure of the
Company to perform its obligations hereunder or under law in connection with
the transactions contemplated hereby; provided that the Company will not be
liable to the extent that such loss, claim, liability, expense or damage arises
from the sale of the Shares in the public offering to any person by an
Underwriter and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company expressly for
inclusion in the Registration Statement, the preliminary prospectus or the
Prospectus, or any amendment or supplement thereto. The Company acknowledges
that the statements set forth in the first three paragraphs under the heading
"Underwriting" in the preliminary prospectus and the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the
Company expressly for inclusion in the Registration Statement, the preliminary
prospectus or the Prospectus. This indemnity will be in addition to any
liability that the Company might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company, and
each director of the Company and each officer of the Company who signs the
Registration Statement and each person, if any, who controls, within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, the Company
to the same extent as the foregoing indemnity from the Company to each
Underwriter, as set forth in Section 6(a), but only insofar as losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or
-25-
<PAGE>
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company expressly for use in the Registration Statement, the preliminary
prospectus or the Prospectus, or any amendment or supplement thereto. The
Company acknowledges that the statements set forth in the first three
paragraphs under the heading "Underwriting" in the preliminary prospectus and
the Prospectus constitute the only information relating to any Underwriter
furnished in writing to the Company by the Underwriters expressly for inclusion
in the Registration Statement, the preliminary prospectus or the Prospectus.
This indemnity will be in addition to any liability that each Underwriter might
otherwise have.
(c) Any party that proposes to assert the right to be indemnified under
this Section 6 shall, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 6, notify each such
indemnifying party in writing of the commencement of such action, enclosing
with such notice a copy of all papers served, but the omission so to notify
such indemnifying party will not relieve it from any liability that it may have
to any indemnified party under the foregoing provisions of this Section 6
unless, and only to the extent that, such omission results in the loss of
substantive rights or defenses by the indemnifying party. If any such action is
brought against any indemnified party and it notifies the indemnifying party of
its commencement, the indemnifying party will be entitled to participate in
and, to the extent that it elects by delivering written notice to the
indemnified party promptly after receiving notice of the commencement of the
action from the indemnified party, jointly with any other indemnifying party
similarly notified, to assume the defense of the action, with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be liable to the indemnified party for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified
party in connection with the defense. The indemnified party will have the right
to employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(i) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (ii) there are legal defenses available to
it or other indemnified parties that are different from or in addition to those
available to the indemnifying party, (iii) the indemnified party has reasonably
concluded that a conflict or potential conflict exists (based on advice of
counsel to the indemnified party) between the indemnified party and the
indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified party)
or (iv) the indemnifying party has not in
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<PAGE>
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be
at the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm admitted
to practice in such jurisdiction at any one time for all such indemnified party
or parties. All such fees, disbursements and other charges will be reimbursed
by the indemnifying party promptly as they are incurred. Any indemnifying party
will not be liable for any settlement of any action or claim effected without
its written consent (which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms, but
for any reason is held to be unavailable from the Company or the Underwriters,
the indemnifying party will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and
directors of the Company, who also may be liable for contribution) to which the
Company and any one or more of the Underwriters may be subject in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and the Underwriters. The relative benefits received by the Company
and the Underwriters shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses) received by the
Company and bears to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing sentence, but also the relative
fault of the Company and the Underwriters with respect to the statements or
omissions which resulted in such loss, claim, liability, expense or damage, or
action in respect thereof, as well as any other relevant equitable
considerations with respect to such offering. Such relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Underwriters, the intent of the
parties and their relative knowledge, access to
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<PAGE>
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 6(d) were to be determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, liability, expense or
damage, or action in respect thereof, referred to above in this Section 6(d)
shall be deemed to include, for purpose of this Section 6(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), no Underwriter shall be required to contribute
any amount in excess of the underwriting discounts and commissions received by
it and no person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) will be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 6(d) are
several in proportion to their respective underwriting obligations and not
joint. For purposes of this Section 6(d), any person who controls a party to
this Agreement within the meaning of the Act will have the same rights to
contribution as that party, and each officer of the Company who signed the
Registration Statement will have the same rights to contribution as the
Company, subject in each case to the provisions hereof. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 6(d), will notify any such party or parties from whom
contribution may be sought from any other obligation it or they may have under
this Section 6(d). No party will be liable for contribution with respect to any
action or claim settled without its written consent (which consent will not be
unreasonably withheld).
(e) The indemnity and contribution agreements contained in this Section 6
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of the Underwriters, (ii) acceptance of
any of the Shares and payment therefor or (iii) any termination of this
Agreement.
7. REIMBURSEMENT OF CERTAIN EXPENSES
In addition to its other obligations under Section 6(a) of this
Agreement, the Company hereby agrees to reimburse on a quarterly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon in whole or part, (i) as
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<PAGE>
described in Section 6(a), any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading, (ii) any inaccuracy in the representations
and warranties of the Company contained herein or (iii) any failure of the
Company to perform its obligations hereunder or under law in connection with
the transactions contemplated hereby, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 7 and the possibility that such payment might later be held to be
improper; provided, however, that, to the extent any such payment is ultimately
held to be improper, the persons receiving such payments shall promptly refund
them.
8. Termination
The obligations of the several Underwriters under this Agreement may be
terminated at any time on or prior to the Closing Date (or, with respect to the
Option Shares, on or prior to the Option Closing Date), by notice to the
Company from the Underwriters, without liability on the part of any Underwriter
to the Company if, prior to delivery and payment for the Firm Shares or Option
Shares, as the case may be, in the sole judgment of the Underwriters, (a)
trading in any of the equity securities of the Company shall have been
suspended by the Commission or by the Nasdaq/NMS, (b) trading in securities
generally on the New York Stock Exchange or the Nasdaq/NMS shall have been
suspended or limited or minimum or maximum prices shall have been generally
established on such exchange, or additional material governmental restrictions,
not in force on the date of this Agreement, shall have been imposed upon
trading in securities generally by such exchange or by order of the Commission
or any court or other governmental authority, (c) a general banking moratorium
shall have been declared by either Federal or New York State authorities, (d)
any material adverse change in the financial or securities markets in the
United States, or in political, financial or economic conditions in the United
States or any outbreak or material escalation of hostilities or other calamity
or crises, shall have occurred, the effect of which is such as to make it, in
the sole judgment of the Underwriters, impracticable to market the Shares, (e)
there shall have been a material adverse change since the respective dates as
of which information is given in the Registration Statement and the Prospectus
in the general affairs, business, business prospects, properties, management,
condition (financial or otherwise) or results of operations of the Company,
whether or not arising from transactions in the ordinary course of business, in
each case other than as described in or contemplated by the Registration
Statement and the Prospectus, or (f) the Company shall have
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<PAGE>
sustained any material loss or interference with its business or properties
from fire, explosion, flood, earthquake or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other government action, order or decree, which is not described in the
Registration Statement and the Prospectus, if in the judgment of the
Underwriters any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the Underwriters at the
public offering price.
9. SUBSTITUTION OF UNDERWRITERS
If any one or more of the Underwriters shall fail or refuse to purchase
the Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares, the other Underwriters shall be obligated,
severally, to purchase the Shares that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase, in the proportions which
the number of Shares that they have respectively agreed to purchase pursuant to
Section I bears to the aggregate number of Shares that all such nondefaulting
Underwriters have so agreed to purchase, or in such other proportions as the
Underwriters may specify, provided that in no event shall the maximum number of
Shares which any Underwriter has become obligated to purchase pursuant to
Section 1 be increased pursuant to this Section 9 by more than one-ninth of
such number of Shares without the prior written consent of such Underwriter. If
any Underwriter or Underwriters shall fail or refuse to purchase any Shares and
the aggregate number of Shares that such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase exceeds one-tenth of the aggregate
number of the Shares and arrangements satisfactory to the Underwriters and the
Company for the purchase of such Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
nondefaulting Underwriter or the Company for the purchase or sale of any Shares
under this Agreement. In any such case, either the Underwriters or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Any action taken pursuant to this Section 9 shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
10. REPRESENTATIVE'S OBSERVER RIGHTS
For a period of three years from the Closing Date, the Representative
shall have the right, but not the obligation, to designate a representative
(the "Observer") whom the Company shall permit to attend as an observer at all
meetings of the
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Board of Directors of the Company; provided, however, that the
Observer shall have no right to vote on any action to be taken by the Board of
Directors of the Company. The Company shall give the Observer notice of all
meetings of the Board of Directors in the same manner in which notice of such
meetings is duly given to the directors and shall provide the Observer with a
copy of all written materials and other information given to directors in
connection with such meetings at the same time and in the same manner such
materials and information are provided to the directors of the Company. If the
Board of Directors proposes to take any action by written consent in lieu of a
meeting of the Board of Directors, the Company shall give actual notice thereof
to the Observer prior to the effective date of such consent describing in
reasonable detail the nature and substance of such action. The Company shall
pay or reimburse all reasonable travel expenses and other out-of-pocket
disbursements incurred by the Observer in connection with attending meetings of
the Board of Directors.
11. MISCELLANEOUS
Notice given pursuant to any of the provisions of this Agreement shall be
in writing and, unless otherwise specified, shall be mailed or delivered (a) if
to the Company, at the offices of the Company, 1505 O'Brien Drive, Suite B,
Menlo Park, California 94025, Attention: President, with a copy to Shereff,
Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York
10022-9998, Attention: Charles I. Weissman, Esq., and (b) if to the
Underwriters, c/o Kaufman Bros., L.P., 800 Third Avenue, New York, New York
10022, Attention: Corporate Finance Department, with a copy to Julie M. Allen,
Esq., O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New
York 10112. Any such notice shall be effective only upon receipt. Any notice
may be made by telex or telephone, but if so made shall be subsequently
confirmed in writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company and the controlling persons, directors and officers
referred to in Section 6, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" as used in this Agreement shall
not include a purchaser, as such, of Shares from any of the several
Underwriters.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
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<PAGE>
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Please confirm that the foregoing correctly sets forth the Agreement
among the Company and the several Underwriters.
Very truly yours,
INGENEX, INC.
By:
---------------------------
Title:
------------------------
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
KAUFMAN BROS., L.P.
By:
-------------------------------
Title:
----------------------------
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SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF
FIRM SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
Kaufman Bros., L.P. ..................................
-------------
Total .......................... 1,850,000
=========
<PAGE>
EXHIBIT A
[REPRESENTATIVE'S WARRANT]
<PAGE>
WARRANT
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON [insert date of sixth
anniversary of closing], 2002, OR IF NOT A BUSINESS DAY, AS
DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT
FOLLOWING BUSINESS DAY.
WARRANT TO PURCHASE
[ ]
SHARES OF COMMON STOCK
OF INGENEX, INC.
No. W-___
This certifies that, for and in consideration of services rendered and
in connection with the initial public offering of Common Stock of the Company
named below (the "Offering") and other good and valuable consideration, Kaufman
Bros., L.P. and its registered, permitted assigns (collectively, the
"Warrantholder"), is entitled to purchase from Ingenex, Inc., a corporation
incorporated under the laws of the State of Delaware (the "Company"), subject
to the terms and conditions hereof, at any time on or after 9:00 a.m., New York
time, on [insert first anniversary of date of closing], 1997 and before 5:00
p.m., New York time on [insert date of sixth anniversary at closing], 2002 (or,
if such day is not a Business Day, at or before 5:00 p.m., New York time, on
the next following Business Day), up to 185,000 fully paid and nonassessable
shares of Common Stock of the Company at the Exercise Price (as defined
herein). The Exercise Price and the number of shares purchasable hereunder are
subject to adjustment from time to time as provided in Article 3 hereof.
A-1
<PAGE>
ARTICLE 1
DEFINITION OF TERMS
As used in this Warrant, the following capitalized terms shall have the
following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or other day on
which banks in the State of New York are authorized by law to remain closed.
(b) Common Stock: Common Stock, $.001 par value, of the Company.
(c) Common Stock Equivalents: Securities that are convertible into or
exercisable for shares of Common Stock.
(d) Demand Registration: See Section 6.2.
(e) Exchange Act: The Securities Exchange Act of 1934, as amended.
(f) Exercise Price: $__ per Warrant Share, equal to 120% of the initial
price to public in the offering as set forth on the cover page of the
prospectus, dated _____, 1996, with respect to the initial public offering of
the Company's Common Stock, as such price may be adjusted from time to time
pursuant to Article 3 hereof.
(g) Expiration Date: 5:00 p.m., New York time, on [sixth anniversary of
closing], 2002, or if such day is not a Business Day, the next succeeding day
which is a Business Day.
(h) Holder: A Holder of Registrable Securities.
(i) NASD: National Association of Securities Dealers, Inc.
(j) Net Issuance Exercise Date: See Section 2.3.
(k) Net Issuance Right: See Section 2.3.
(l) Net Issuance Warrant Shares: See Section 2.3.
(m) Original Issuance Date: [closing date], 1996.
(n) Person: An individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
(o) Piggyback Registration: See Section 6.1.
A-2
<PAGE>
(p) Prospectus: Any prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement, or to which a Term Sheet
(as defined in Rule 434 under the Securities Act) relates, with respect to the
terms of the offering of any portion of the Registrable Securities covered by
such Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments and all materials incorporated
by reference in such Prospectus.
(q) Public Offering: A public offering of any of the Company's equity or
debt securities pursuant to Registration Statement under the Securities Act.
(r) Registrable Securities: Any Warrant Shares issued to Kaufman Bros.,
L.P. and/or its designees or transferees and/or other securities that may be or
are issued by the Company upon exercise of the Warrants, including those which
may thereafter be issued by the Company in respect of any such securities by
means of any stock splits, stock dividends, recapitalizations,
reclassifications or the like, and as adjusted pursuant to Article 3 hereof;
provided, however, that as to any particular security contained in Registrable
Securities, such securities shall cease to be Registrable Securities when (i) a
Registration Statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such Registration Statement; or (ii) they shall
have been sold to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act.
(s) Registration Expenses: Any and all expenses incurred in connection
with any registration or action incident to performance of or compliance by the
Company with Article 6, including, without limitation, (i) all SEC, national
securities exchange and NASD registration and filing fees; all listing fees and
all transfer agent fees, (ii) all fees and expenses of complying with state
securities or blue sky laws (including the fees and disbursements of counsel of
the underwriters in connection with blue sky qualifications of the Registrable
Securities); (iii) all printing, mailing, messenger and delivery expenses; (iv)
all fees and disbursements of counsel for the Company and of its accountants,
including the expenses of any special audits and/or "cold comfort" letters
required by or incident to such performance and compliance; and (v) any
disbursements of underwriters customarily paid by issuers or sellers of
securities including the reasonable fees and expenses of any special experts
retained by the underwriters in connection with the requested registration, but
excluding underwriting discounts and commissions, brokerage fees and transfer
taxes, if any, and fees of counsel or accountants retained by the holders of
Registrable Securities to advise them in their capacity as Holders of
Registrable Securities.
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(t) Registration Statement: Any registration statement of the Company
filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including all
amendments (including post-effective amendments) and supplements thereto, all
exhibits thereto and all material incorporated therein by reference.
(u) SEC: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act and the Exchange Act.
(v) Securities Act: The Securities Act of 1933, as amended.
(w) 25% Holders: At any time as to which a Demand Registration is
requested, the Holder and/or the holders of any other Warrants and/or the
holders of Warrant Shares who have the right to acquire or hold, as the case
may be, not less than 25% of the combined total of Warrant Shares issuable and
Warrant Shares outstanding (other than Warrant Shares which are no longer
Registrable Securities by reason of the proviso to the definition of the term
"Registrable Securities") at the time such Demand Registration is requested.
(x) Warrant Shares: Common Stock, Common Stock Equivalents and other
securities purchased or purchasable upon exercise or conversion of the
Warrants.
(y) Warrantholder: The person(s) or entity(ies) to whom this Warrant is
originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(z) Warrants: This Warrant, all other warrants issued on the date hereof
and all other warrants that may be issued in its or their place (together
evidencing the right to purchase an aggregate of up to 185,000 shares of Common
Stock), originally issued as set forth in the definition of Registrable
Securities.
ARTICLE 2
DURATION AND EXERCISE OF WARRANT
2.1. DURATION OF WARRANT
The Warrantholder may exercise this Warrant at any time and from time to
time after 9:00 a.m., New York time, on [first anniversary of closing], 1997
and before 5:00 p.m., New York time, on the Expiration Date. If this Warrant is
not exercised
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on the Expiration Date, it shall become void, and all rights hereunder shall
thereupon cease.
2.2. METHOD OF EXERCISE
(a) The Warrantholder may exercise this Warrant, in whole or in part, by
presentation and surrender of this Warrant to the Company at its corporate
office at 1505 O'Brien Drive, Suite B, Menlo Park, California 94025, or at the
office of its stock transfer agent, if any, with the Exercise Form annexed
hereto duly executed and, in the event of an exercise for cash pursuant to
Section 2.3(a), accompanied by payment of the full Exercise Price for each
Warrant Share to be purchased.
(b) Upon receipt of this Warrant with the Exercise Form fully executed
and, in the event of an exercise for cash pursuant to Section 2.3(a),
accompanied by payment of the aggregate Exercise Price for the Warrant Shares
for which this Warrant is then being exercised, the Company shall cause to be
issued certificates for the total number of whole shares of Common Stock for
which this Warrant is being exercised (adjusted to reflect the effect of the
anti-dilution provisions contained in Article 3 hereof, if any, and as provided
in Section 2.4 hereof) in such denominations as are requested for delivery to
the Warrantholder, and the Company shall thereupon deliver such certificates to
the Warrantholder. A net issuance exercise pursuant to Section 2.3(b) shall be
effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Net Issuance Exercise Date"), and, at the election of the Holder hereof, may
be made contingent upon the closing of the sale of the Warrant Shares in a
Public Offering. The Warrantholder shall be deemed to be the holder of record
of the shares of Common Stock issuable upon such exercise as of the time of
receipt of the Exercise Form and payment in accordance with the preceding
sentence, in the case of an exercise for cash pursuant to Section 2.3(a), or as
of the Net Issuance Exercise Date, in the case of a net issuance exercise
pursuant to Section 2.3(b), notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Warrantholder. If
at the time this Warrant is exercised, a Registration Statement is not in
effect to register under the Securities Act the Warrant Shares issuable upon
exercise of this Warrant, the Company may, in the case of an exercise for cash
pursuant to Section 2.3(a) or in the case of a net issuance exercise prior to
the satisfaction of any holding period required by Rule 144 promulgated under
the Securities Act, require the Warrantholder to make such representations, and
may place such legends on certificates representing the Warrant Shares, as may
be reasonably required in the opinion of counsel to the Company to permit the
Warrant Shares to be issued without such registration.
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(c) In case the Warrantholder shall exercise this Warrant with respect to
less than all of the Warrant Shares that may be purchased under this Warrant,
the Company shall execute as of the exercise date (or, if later, the Net
Issuance Exercise Date) a new warrant in the form of this Warrant for the
balance of such Warrant Shares and deliver such new warrant to the
Warrantholder within 10 days following the exercise date (or, if later, the Net
Issuance Exercise Date).
(d) The Company shall pay any and all stock transfer and similar taxes
which may be payable in respect of the issuance of any Warrant Shares.
2.3. EXERCISE OF WARRANT
(a) Right to Exercise for Cash. This Warrant may be exercised by the
Holder by delivery of payment to the Company, for the account of the Company,
by cash, by certified or bank cashier's check or by wire transfer, of the
Exercise Price for the number of Warrant Shares specified in the Exercise Form
in lawful money of the United States of America.
(b) Right to Exercise on a Net Issuance Basis. In lieu of exercising this
Warrant for cash pursuant to Section 2.3(a), the Holder shall have the right to
exercise this Warrant or any portion hereof (the "Net Issuance Right") for
shares of Common Stock as provided in this Section 2.3(b) at any time or from
time to time during the period specified in Section 2.1 hereof by the surrender
of this Warrant to the Company with a duly executed and completed Exercise Form
marked to reflect net issuance exercise. Upon exercise of the Net Issuance
Right with respect to a particular number of shares subject to this Warrant and
noted on the Exercise Form (the "Net Issuance Warrant Shares"), the Company
shall deliver to the Holder (without payment by the Holder of any Exercise
Price or any cash or other consideration) (X) that number of shares of fully
paid and nonassessable Common Stock equal to the quotient obtained by dividing
the value of this Warrant (or the specified portion hereof) on the Net Issuance
Exercise Date, which value shall be determined by subtracting (A) the aggregate
Exercise Price of the Net Issuance Warrant Shares immediately prior to the
exercise of the Net Issuance Right from (B) the aggregate fair market value of
the Net Issuance Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Net Issuance Exercise Date by (Y) the fair
market value of one share of Common Stock on the Net Issuance Exercise Date (as
herein defined).
Expressed as a formula, such net issuance exercise shall be computed as
follows:
X= B-A
---
Y
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Where: X = the number of shares of Common Stock that may be issued to the
Holder
Y = the fair market value ("FMV") of one share of Common Stock as of
the Net Issuance Exercise Date
A = the aggregate Exercise Price (i.e., the product determined by
multiplying the Net Issuance Warrant Shares by the Exercise
Price)
B = the aggregate FMV (i.e., the product determined by multiplying
the FMV by the Net Issuance Warrant Shares)
(c) Determination of Fair Market Value. For purposes of this Section 2.3,
"fair market value" of a share of Common Stock as of the Net Issuance Exercise
Date shall mean:
(i) if the Net Issuance Right is exercised in connection with and
contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering has been declared effective by
the SEC, then the initial "Price to Public" specified in the final
Prospectus with respect to such offering; and
(ii) if the Net Issuance Right is not exercised in connection with
and contingent upon a Public Offering, then as follows:
(A) if traded on a securities exchange, the fair market value of
the Common Stock shall be deemed to be the average of the closing prices of
the Common Stock on such exchange over the 30-day period ending five
business days prior to the Net Issuance Exercise Date;
(B) if traded on the Nasdaq National Market or the Nasdaq
SmallCap Market, the fair market value of the Common Stock shall be deemed
to be the average of the last reported sales prices of the Common Stock on
such Market over the 30-day period ending five business days prior to the
Net Issuance Exercise Date;
(C) if traded over-the-counter other than on the Nasdaq National
Market or the Nasdaq SmallCap Market, the fair market value of the Common
Stock shall be deemed to be the average of the closing bid prices of the
Common Stock over the 30-day period ending five business days prior to the
Net Issuance Exercise Date; and
(D) if there is no public market for the Common Stock, then fair
market value shall be determined by mutual agreement of the Warrantholder
and the Company, and if the
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Warrantholder and the Company are unable to so agree, at the Company's sole
expense, by an investment banker of national reputation selected by the
Company and reasonably acceptable to the Warrantholder.
2.4. RESERVATION OF SHARES
The Company hereby agrees that at all times there shall be reserved for
issuance and delivery upon exercise of this Warrant such number of shares of
Common Stock or other shares of capital stock of the Company from time to time
issuable upon exercise of this Warrant. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully
paid and non-assessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale (except as contemplated
by Sections 2.2(b) and 5.2) and free and clear of all preemptive and other
similar rights.
2.5. FRACTIONAL SHARES
The Company shall not be required to issue any fraction of a share of its
capital stock in connection with the exercise of this Warrant, and in any case
where the Warrantholder would, except for the provisions of this Section 2.5,
be entitled under the terms of this Warrant to receive a fraction of a share
upon the exercise of this Warrant, the Company shall, upon the exercise of this
Warrant, pay to the Warrantholder an amount in cash equal to the fair market
value (determined in the manner set forth in Section 2.3(c) hereof) of such
fractional share as of the exercise date (or, if applicable and a later date,
the Net Issuance Exercise Date).
2.6. LISTING
Prior to the issuance of any shares of Common Stock upon exercise of this
Warrant, the Company shall secure the listing of such shares of Common Stock
upon each national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice
of issuance upon exercise of this Warrant) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares of
Common Stock from time to time issuable upon the exercise of this Warrant; and
the Company shall so list on each national securities exchange or automated
quotation system, and shall maintain such listing of, any other shares of
capital stock of the Company issuable upon the exercise of this Warrant if and
so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system.
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ARTICLE 3
ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE AND OF
EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article 3.
3.1. MECHANICAL ADJUSTMENTS
(a) If at any time prior the exercise of this Warrant in full, the
Company shall (i) declare a dividend or make a distribution on the Common Stock
payable in shares of its capital stock (whether shares of Common Stock or of
capital stock of any other class); (ii) subdivide, reclassify or recapitalize
its outstanding Common Stock into a greater number of shares; (iii) combine,
reclassify or recapitalize its outstanding Common Stock into a smaller number
of shares; or (iv) issue any shares of its capital stock by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or a merger in which the Company is the continuing corporation),
the number of Warrant Shares issuable upon exercise of the Warrant and/or the
Exercise Price in effect at the time of the record date of such dividend,
distribution, subdivision, combination, reclassification or recapitalization
shall be adjusted so that the Warrantholder shall be entitled to receive the
aggregate number and kind of shares which, if this Warrant had been exercised
in full immediately prior to such event, the Warrantholder would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
distribution, subdivision, combination, reclassification or recapitalization.
Any adjustment required by this Section 3.1 (a) shall be made successively
immediately after the record date, in the case of a dividend or distribution,
or the effective date, in the case of a subdivision, combination,
reclassification or recapitalization, to allow the purchase of such aggregate
number and kind of shares.
(b) If at any time prior to the exercise of this Warrant in full, the
Company shall fix a record date for the issuance or making of a distribution to
all holders of the Common Stock (including any such distribution to be made in
connection with a consolidation or merger in which the Company is to be the
continuing corporation) of evidences of its indebtedness, any other securities
of the Company or any cash, property or other assets (excluding a combination,
reclassification or recapitalization referred to in Section 3.1(a), regular
cash dividends or cash distributions paid out of net profits legally available
therefor and in the ordinary course of business if the full amount thereof,
together with the value of other dividends and distributions made substantially
concurrently therewith or pursuant to a plan which includes payment thereof, is
equivalent
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to not more than 5% of the Company's net worth, or subscription rights, options
or warrants for Common Stock or Common Stock Equivalents (excluding those
referred to in Section 3.1(b)) (any such nonexcluded event being herein called
a "Special Dividend")), the Exercise Price shall be decreased immediately after
the record date for such Special Dividend to a price determined by multiplying
the Exercise Price then in effect by a fraction, the numerator of which shall
be the then current market price of the Common Stock (as defined in Section
3.1(e)) on such record date less the fair market value (as determined by the
Company's Board of Directors) of the evidences of indebtedness, securities or
property or other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock or of such subscription rights or
warrants applicable to one share of Common Stock and the denominator of which
shall be the then current market price per share of Common Stock (as so
determined). Any adjustments required by this Section 3.1(b)shall be made
successively whenever such a record date is fixed and in the event that such
distribution is not so made, the Exercise Price shall again be adjusted to be
the Exercise Price that was in effect immediately prior to such record date.
(c) If at any time prior to the exercise of this Warrant in full, the
Company shall make a distribution to all holders of the Common Stock of stock
of a subsidiary or securities convertible into or exercisable for such stock,
then in lieu of an adjustment in the Exercise Price or the number of Warrant
Shares purchasable upon the exercise of this Warrant, each Warrantholder, upon
the exercise hereof at any time after such distribution, shall be entitled to
receive from the Company, such subsidiary or both, as the Company shall
determine, the stock or other securities to which such Warrantholder would have
been entitled if such Warrantholder had exercised this Warrant immediately
prior thereto, all subject to further adjustment as provided in this Article 3,
and the Company shall reserve, for the life of the Warrant, such securities of
such subsidiary or other corporation; provided, however, that no adjustment in
respect of dividends or interest on such stock or other securities shall be
made during the term of this Warrant or upon its exercise.
(d) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to one or more of paragraphs (a) and (b) of this Section 3.1,
the Warrant Shares shall simultaneously be adjusted by multiplying the number
of Warrant Shares initially issuable upon exercise of each Warrant by the
Exercise Price in effect on the date thereof and dividing the product so
obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under this Section 3.1, the
current market price per share of Common Stock at any date shall be deemed to
be the average of the daily closing prices for 20 consecutive trading days
commencing 30 trading days
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before such date. The closing price for each day shall be the last sale price
regular way or, in case no such reported sales take place on such day, the
average of the last reported bid and asked prices regular way, in either case
on the principal national securities exchange on which the Common Stock is
admitted to trading or listed, or if not listed or admitted to trading on such
exchange, the representative closing bid price as reported by Nasdaq, or other
similar organization if Nasdaq is no longer reporting such information, or if
not so available, the fair market price as determined in good faith by the
Board of Directors of the Company.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($.05)
in such price; provided, however, that any adjustments which by reason of this
paragraph (f) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
3.1 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Notwithstanding anything in this Section 3.1 to the
contrary, the Exercise Price shall not be reduced to less than the then
existing par value of the Common Stock as a result of any adjustment made
hereunder.
(g) In the event that at any time, as a result of any adjustment made
pursuant to Section 3.1(a), the Warrantholder thereafter shall become entitled
to receive any shares of the Company other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in this Section 3.1.
(h) In case any event shall occur as to which the other provisions of
this Article 3 are not strictly applicable but as to which the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof then, in
each such case, the Warrantholders representing the right to purchase a
majority of the Warrant Shares subject to all outstanding Warrants may appoint
a firm of independent public accountants of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Warrantholder and shall make the
adjustments described therein. The fees and expenses of such independent public
accountants shall be borne by the Company.
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(i) If, as a result of an adjustment made pursuant to this Article 3, the
Holder of any Warrant thereafter surrendered for exercise shall become entitled
to receive shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a written notice to
the Holder of any Warrant promptly after such adjustment) shall determine the
allocation of the adjusted Exercise Price between or among shares or such
classes of capital stock or shares of Common Stock and other capital stock.
3.2. NOTICES OF ADJUSTMENT
Whenever the number of Warrant Shares or the Exercise Price is adjusted
as herein provided, the Company shall prepare and deliver forthwith to the
Warrantholder a certificate signed by its President, and by any Vice President,
Treasurer or Secretary, setting forth the adjusted number of shares purchasable
upon the exercise of this Warrant and the Exercise Price of such shares after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which adjustment was made.
3.3. NO ADJUSTMENT FOR DIVIDENDS
Except as provided in Section 3.1 of this Agreement, no adjustment in
respect of any cash dividends shall be made during the term of this Warrant or
upon the exercise of this Warrant.
3.4. PRESERVATION OF PURCHASE RIGHTS IN CERTAIN TRANSACTIONS
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock (other than a subdivision or combination
of the outstanding Common Stock and other than a change in the par value of the
Common Stock) or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger in which the Company is the
continuing corporation and that does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock of
the class issuable upon exercise of this Warrant) or in the case of any sale,
lease, transfer or conveyance to another corporation of the property and assets
of the Company as an entirety or substantially as an entirety, the Holder of
this Warrant shall have the right thereafter to receive on the exercise of this
Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the
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application of the provisions set forth in this Article 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Article 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The provisions of this Section 3.4 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holders of the
Warrants not less than 30 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
3.5. FORM OF WARRANT AFTER ADJUSTMENTS
The form of this Warrant need not be changed because of any adjustments
in the Exercise Price or the number or kind of the Warrant Shares, and Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this Warrant, as initially issued.
3.6. TREATMENT OF WARRANTHOLDER
Prior to due presentment for registration of transfer of this Warrant,
the Company may deem and treat the Warrantholder as the absolute owner of this
Warrant (notwithstanding any notation of ownership or other writing hereon) for
all purposes and shall not be affected by any notice to the contrary.
ARTICLE 4
OTHER PROVISIONS RELATING TO RIGHTS OF WARRANTHOLDER
4.1. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANTHOLDERS
Nothing contained in this Warrant shall be construed as conferring upon
the Warrantholder or his or its transferees the right to vote or to receive
dividends or to consent or to receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or of any
other matter, or any rights whatsoever as stockholders of the Company. The
Company shall give notice to the Warrantholder by registered
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mail if at any time prior to the expiration or exercise in full of the
Warrants, any of the following events shall occur:
(a) the Company shall authorize the payment of any dividend payable in
any securities upon shares of Common Stock or authorize the making of any
distribution (other than a cash dividend subject to the parenthetical set forth
in Section 3.1(b)) to all holders of Common Stock;
(b) the Company shall authorize the issuance to all holders of Common
Stock of any additional shares of Common Stock or Common Stock Equivalents or
of rights, options or warrants to subscribe for or purchase Common Stock or
Common Stock Equivalents or of any other subscription rights, options or
warrants;
(c) a dissolution, liquidation or winding up of the Company shall be
proposed; or
(d) a capital reorganization or reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock and
other than a change in the par value of the Common Stock) or any consolidation
or merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or change of Common Stock
outstanding) or in the case of any sale or conveyance to another corporation of
the property of the Company as an entirety or substantially as an entirety.
Such giving of notice shall be initiated (i) at least 10 Business Days
prior to the date fixed as a record date or effective date or the date of
closing of the Company's stock transfer books for the determination of the
stockholders entitled to such dividend, distribution or subscription rights, or
for the determination of the stockholders entitled to vote on such proposed
merger, consolidation, sale, conveyance, dissolution, liquidation or winding
up. Such notice shall specify such record date or the date of closing the stock
transfer books, as the case may be. Failure to provide such notice shall not
affect the validity of any action taken in connection with such dividend,
distribution or subscription rights, or proposed merger, consolidation, sale,
conveyance, dissolution, liquidation or winding up.
4.2. LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS
If this Warrant is lost, stolen, mutilated or destroyed, the Company may,
on such terms as to indemnity or otherwise as it may in its reasonable judgment
impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as, and in
substitution for, this Warrant.
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ARTICLE 5
SPLIT UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS AND
WARRANT SHARES
5.1. SPLIT UP, COMBINATION AND EXCHANGE OF WARRANTS
This Warrant may be split up, combined or exchanged for another Warrant
or Warrants containing the same terms to purchase a like aggregate number of
Warrant Shares. If the Warrantholder desires to split up, combine or exchange
this Warrant, he or it shall make such request in writing delivered to the
Company and shall surrender to the Company this Warrant and any other Warrants
to be so split up, combined or exchanged. Upon any Such surrender for split up,
combination or exchange, the Company shall execute and deliver to the person
entitled thereto a Warrant or Warrants, as the case may be, as so requested.
The Company shall not be required to effect any split up, combination or
exchange which will result in the issuance of a Warrant entitling the
Warrantholder to purchase upon exercise a fraction of a share of Common Stock
or a fractional Warrant. The Company may require such Warrantholder to pay a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination or exchange of Warrants.
5.2. RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS
Except as otherwise permitted by this Section 5.2, each Warrant shall
(and each Warrant issued upon direct or indirect transfer or in substitution
for any Warrant pursuant to Section 5.1 shall) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 5.2, each stock certificate
for Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR
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OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company
to issue a Warrant or a stock certificate for Warrant Shares without a legend,
if (i) the issuance of such Warrant Shares has been registered under the
Securities Act, (ii) such Warrant or such Warrant Shares, as the case may be,
have been registered for resale under the Securities Act or sold pursuant to
Rule 144 under the Securities Act (or a successor thereto) or (iii) the
Warrantholder has received an opinion of counsel (who may be in-house counsel
for such Warrantholder) reasonably satisfactory to the Company that such
registration is not required with respect to such Warrant or such Warrant
Shares, as the case may be.
ARTICLE 6
REGISTRATION UNDER THE SECURITIES ACT OF 1933
6.1. PIGGYBACK REGISTRATION
(a) Right to Include Registrable Securities. If at any time or from time
to time prior to the seventh anniversary of the Original Issuance Date, the
Company proposes to register any of its securities under the Securities Act on
any form for the registration of securities under such Act, whether or not for
its own account (other than by a registration statement on Form S-4, Form S-8
or other form which does not include substantially the same information as
would be required in a form for the general registration of securities or would
not be available for the Registrable Securities) (a "Piggyback Registration"),
it shall as expeditiously as possible give written notice to all Holders of its
intention to do so and of such Holders' rights under this Section 6.1. Such
rights are referred to hereinafter as "Piggyback Registration Rights." Upon the
written request of any such Holder made within 20 days after receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by such Holder), the Company shall include in the Registration
Statement the Registrable Securities which the Company has been so requested to
register by the Holders thereof and the Company shall keep such registration
statement in effect and maintain compliance with each Federal and state law or
regulation for the period necessary for such Holder to effect the proposed sale
or other disposition (but in no event for a period greater than 90 days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time
after giving written notice of its intention to
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APITAL PRINTING SYSTEMS]
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register any securities in a Piggyback Registration but prior to the effective
date of the related Registration Statement, the Company shall determine for any
reason not to register such securities, the Company shall give notice of such
determination to each Holder and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
Piggyback Registration. All best efforts obligations of the Company pursuant to
Section 6.4 shall cease if the Company determines to terminate prior to such
effective date any registration where Registrable Securities are being
registered pursuant to this Section 6.1.
(c) Piggyback Registration of Underwritten Public Offering. If a
Piggyback Registration involves an offering by or through underwriters, then
(i) all Holders requesting to have their Registrable Securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling stockholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than three Business Days prior to the effectiveness of the
Registration Statement filed in connection with such registration, not to have
his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
Company shall pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to a Piggyback
Registration Right contained in this Section 6.1.
(e) Priority in Piggyback Registration. If a Piggyback Registration
involves an offering by or through underwriters, the Company, except as
otherwise provided herein, shall not be required to include Registrable Shares
therein if and to the extent that the underwriter managing the offering
reasonably believes in good faith and advises each Holder requesting to have
Registrable Securities included in the Company's Registration Statement that
such inclusion would materially adversely affect such offering; provided that
(i) if other selling stockholders without contractual registration rights have
requested registration of securities in the proposed offering, the Company will
reduce or eliminate such securities held by selling stockholders without
registration rights before any reduction or elimination of Registrable
Securities; and (ii) any such reduction or elimination (after taking into
account the effect of clause (i)) shall be pro rata to all other selling
stockholders with contractual registration rights.
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6.2. DEMAND REGISTRATION
(a) Request for Registration. If, at any time prior to the fifth
anniversary of the Original Issuance Date, any 25% Holders request that the
Company file a registration statement under the Securities Act, as soon as
practicable thereafter the Company shall use its best efforts to file a
registration statement with respect to all Warrant Shares that it has been so
requested to include and obtain the effectiveness thereof, and to take all
other action necessary under Federal or state law or regulation to permit the
Warrant Shares that are held and/or that may be acquired upon the exercise of
the Warrants specified in the notices of the Holders or holders hereof to be
sold or otherwise disposed of, and the Company shall maintain such compliance
with each such Federal and state law and regulation for the period necessary
for such Holders or Holders to effect the proposed sale or other disposition;
provided, however, that the Company shall be entitled to defer such
registration for a period of up to 60 days if and to the extent that its Board
of Directors shall in good faith determine that such registration would require
disclosure of information not otherwise then required to be disclosed and that
such disclosure would adversely affect any material business transaction or
negotiation then proposed, contemplated or being engaged in by the Company. The
Company shall also promptly give written notice to the Holders and the holders
of any other Warrants and/or the holders of any Warrant Shares who or that have
not made a request to the Company pursuant to the provisions of this Section
6.2(a) of its intention to effect any required registration or qualification,
and shall use its best efforts to effect as expeditiously as possible such
registration or qualification of all such Other Warrant Shares that are then
held and/or that may be acquired upon the exercise of the Warrants, the Holder
or holders of which have requested such registration or qualification, within
15 days after such notice has been given by the Company, as provided in the
preceding sentence. The Company shall be required to effect a registration or
qualification pursuant to this Section 6.2(a) on one occasion only.
(b) Payment of Registration Expenses for Demand Registration. The Company
shall pay all Registration Expenses in connection with the Demand Registration.
(c) Selection of Underwriters. If any Demand Registration is requested to
be in the form of an underwritten offering, the managing underwriter shall be
Kaufman Bros., L.P. and the co-manager (if any) and the independent price
required under the rules of the NASD (if any) shall be selected and obtained by
the Holders of a majority of the Warrant Shares to be registered. Such
selection shall be subject to the Company's consent, which consent shall not be
unreasonably withheld. All fees and expenses (other than Registration Expenses
otherwise required to be paid) of any managing underwriter, any co-manager
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or any independent underwriter or other independent price required under the
rules of the NASD shall be paid for by such underwriters or by the Holders or
holders whose shares are being registered. If Kaufman Bros., L.P. should
decline to serve as managing underwriter, the Holders of a majority of the
Warrant Shares to be registered may select and obtain one or more managing
underwriters. Such selection shall be subject to the Company's consent, which
shall not be unreasonably withheld.
(d) Procedure for Requesting Demand Registration. Any request for a
Demand Registration shall specify the aggregate number of the Registrable
Securities proposed to be sold and the intended method of disposition. Within
10 days after receipt of such a request, the Company will give written notice
of such registration request to all Holders, and, subject to the limitations of
Section 6.2(b), the Company will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 Business Days after the date on which such notice
is given. Each such request shall also specify the aggregate number of
Registrable Securities to be registered and the intended method of disposition
thereof.
6.3. BUY-OUTS OF REGISTRATION DEMAND
In lieu of carrying out its obligations to effect a Piggyback
Registration or Demand Registration of any Registrable Securities pursuant to
this Article 6, the Company may carry out such obligation by offering to
purchase and purchasing such Registrable Securities requested to be registered
in an amount in cash equal to the difference between (a) 95% of the last sale
price of the Common Stock on the day the request for registration is made and
(b) the Exercise Price in effect on such day; provided, however, that the
Holder or Holders may withdraw such request for registration rather than accept
such offer by the Company.
6.4. REGISTRATION PROCEDURES
If and whenever the Company is required to use its best efforts to take
action pursuant to any Federal or state law or regulation to permit the sale or
other disposition of any Registrable Securities that are then held or that may
be acquired upon exercise of the Warrants in order to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Article 6, the Company shall, as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within 60 days
after the end of the period within which requests for registration may be given
to the Company (but subject to the provision for deferral contained in Section
6.2(a) hereof) a Registration Statement or Registration Statements relating to
the
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registration on any appropriate form under the Securities Act, which form shall
be available for the sale of the Registrable Securities in accordance with the
intended method or methods of distribution thereof, and use its best efforts to
cause such Registration Statements to become effective; provided that before
filing a Registration Statement or Prospectus or any amendment or supplement
thereto, including documents incorporated by reference after the initial filing
of any Registration Statement, the Company will furnish to the Holders of the
Registrable Securities covered by such Registration Statement and the
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holders and underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for 180 days if the offering is not
underwritten, provided that such 180 day period shall be extended by the number
of days a Prospectus is not available pursuant to Section 6.4(k) because of the
occurrence of an event set forth in Section 6.4(c)(vi); cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement or supplement to such
Prospectus;
(c) notify the selling Holders of Registrable Securities and the managing
underwriters, if any, promptly, and (if requested by any such Person) confirm
such advice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iv) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below cease to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purposes; and (vi) of the happening of any event that makes
any statement of a material fact made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement or Prospectus
so that they will not contain any untrue statement of a material
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fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters, immediately
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters believe (on advice of counsel) should
be included therein as required by applicable law relating to such sale of
Registrable Securities, including, without limitation, information with respect
to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(f) furnish to each selling Holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each preliminary prospectus) any amendment or
supplement thereto as such Persons may reasonably request; and the Company
consents to the use of such Prospectus or any amendment or supplement thereto
by each of the selling Holders of Registrable Securities and the underwriters,
if any, in connection with the offering and sale of the Registrable Securities
covered by such Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, cooperate
with the selling Holders of Registrable Securities, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder or underwriter reasonably requests in writing, keep each
such registration or qualification effective during the period such
Registration Statement is required to be kept effective and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided that the Company will
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<PAGE>
not be required to qualify to do business in any jurisdiction where it not then
so qualified or to take any action which would subject the Company to general
service of process in any jurisdiction where it is not at the time so subject;
(i) cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be
in such denominations and registered in such names as the managing underwriters
may request at least two Business Days prior to any sale of Registrable
Securities to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered by
the applicable Registration Statement to be registered with or approved by such
other governmental agencies or authorities within the United States as may be
necessary to enable the seller or sellers thereof or the underwriters, if any,
to consummate the disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by Section 6.4(c)(vi)
above, prepare a supplement or post-effective amendment to the applicable
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold
thereunder, such Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading;
(l) with respect to each issue or class of Registrable Securities, use
its best efforts to cause all Registrable Securities covered by the
Registration Statements to be listed on each securities exchange or automated
quotation system, if any, on which similar securities issued by the Company are
then listed if requested by the Holders of a majority of such issue or class of
Registrable Securities;
(m) enter into such agreements (including an underwriting agreement) and
take all such other action reasonably required in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the registration is in connection with an underwritten
offering (i) make such representations and warranties to the underwriters (or
the Holders of the Registrable Securities if such offering is not
underwritten), in such form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions in form, scope and substance shall be
reasonably satisfactory to the underwriters) addressed to the underwriters (or
the Holders of the Registrable Securities if such offering is not underwritten)
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such
underwriters (or the Holders of
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<PAGE>
the Registrable Securities if such offering is not underwritten); (iii) obtain
"cold comfort" letters and updates thereof from the Company's accountants
addressed to the underwriters (or the Holders of the Registrable Securities if
such offering is not underwritten), such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with underwritten offerings; (iv) set forth in full
in any underwriting agreement entered into the indemnification provisions and
procedures of Section 6.5 hereof with respect to all parties to be indemnified
pursuant to said Section; and (v) deliver such documents and certificates as
may be reasonably requested by the underwriters to evidence compliance with
clause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company; the
above shall be done at each closing under such underwriting or similar
agreement or as and to the extent required hereunder;
(n) make available for inspection by one or more representatives of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such representatives, in connection with such; and
(o) otherwise use its best efforts to comply with all applicable Federal
and state regulations; and take such other action as may be reasonably
necessary or advisable to enable each such Holder and each such underwriter to
consummate the sale or disposition in such jurisdiction or jurisdiction in
which any such Holder or underwriter shall have requested that the Registrable
Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
The Company may require each Seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the
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distribution of such securities and such other information as may otherwise be
required by the Securities Act to be included in such Registration Statement.
6.5. INDEMNIFICATION
(a) Indemnification by Company. In connection with each Registration
Statement relating to the disposition of Registrable Securities, the Company
shall indemnify and hold harmless each Holder, its officers, directors and
agents and each underwriter of Registrable Securities and each Person, if any,
who controls such Holder or underwriter (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) against any and all
losses, claims, damages and liabilities, joint or several (including any
reasonable investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or regulation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
Prospectus or preliminary prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon 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; provided, however, that such
indemnity shall not inure to the benefit of any Holder or underwriter (or any
Person controlling such Holder or underwriter within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) on account of any
losses, claims, damages or liabilities arising from the sale of the Registrable
Securities if such untrue statement or omission or alleged untrue statement or
omission was made in such Registration Statement, Prospectus or preliminary
prospectus, or such amendment or supplement, in reliance upon and in conformity
with information furnished in writing to the Company by such Holder or
underwriter specifically for use therein. The Company shall also indemnify
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above
with respect to the indemnification of the Holders of Registrable Securities,
if requested. This indemnity agreement shall be in addition to any liability
that the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
Statement, each selling Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 6.5(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the
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Company (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act) but only insofar as such losses, claims, damages and
liabilities arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which was made in the Registration
Statement, the Prospectus or preliminary prospectus or any amendment thereof or
supplement thereto, in reliance upon and in conformity with information
furnished in writing by such Holder to the Company specifically for use
therein. In no event shall the liability of any selling Holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation. The Company shall be entitled
to receive indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution, to
the same extent as provided above, with respect to information so furnished in
writing by such Persons specifically for inclusion in any Prospectus,
Registration Statement or preliminary prospectus or any amendment thereof or
supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 6.5(a) or 6.5(b) shall be available to
any party who shall fail to give notice as provided in this Section 6.5(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice, but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, except as provided below and except for the reasonable costs
of investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such
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indemnified party unless (i) the employment of counsel by such indemnified
party has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be a conflict
of interest between the indemnifying parties and the indemnified party in the
conduct of the defense of such action (in which case the indemnifying parties
shall not have the right to direct the defense of such action on behalf of the
indemnified party) or (iii) the indemnifying parties shall not have employed
counsel to assume the defense of such action within a reasonable time after
notice of the commencement thereof, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying parties. An
indemnified party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
(d) Contribution. In connection with each Registration Statement relating
to the disposition of Registrable Securities, if the indemnification provided
for in subsection (a) hereof is unavailable to an indemnified party thereunder
in respect to any losses, claims, damages or liabilities referred to therein,
then the indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 6.5 in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
Notwithstanding anything to the contrary in this Section 6.5(d), no selling
Holder of Registrable Securities shall be required to contribute any amount in
excess of the net proceeds it received in connection with its sale of
Registrable Securities.
(e) Underwriting Agreement to Control. Notwithstanding the foregoing
provisions of this Section 6.5, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement
entered into in connection with the underwritten public offering of the
Registrable Securities are in conflict with the foregoing provisions, the
provisions in such underwriting agreement shall control.
(f) Specific Performance. The Company and the Holder acknowledge that
remedies at law for the enforcement of this
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Section 6.5 may be inadequate and intend that this Section 6.5 shall be
specifically enforceable.
(g) Survival of Obligations. The obligations of the Company and the
Holder under this Section 6.5 shall survive the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this Article
6, and otherwise.
6.6. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the
SEC that may at any time permit a Holder to sell securities of the Company to
the public without registration or pursuant to a registration on Form S-3, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined under SEC Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after 90 days after the effective date of the first registration statement
filed by the Company), the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company and (iii) such other information as may be reasonably requested
in availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
ARTICLE 7
OTHER MATTERS
7.1. BINDING EFFECTS; BENEFITS
This Warrant shall inure to the benefit of and shall be binding upon the
Company and the Warrantholder and their
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respective heirs, legal representatives, successors and assigns. Nothing in
this Warrant, expressed or implied, is intended to or shall confer on any
person other than the Company and the Warrantholder, or their respective heirs,
legal representatives, successors or assigns, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
7.2. NO INCONSISTENT AGREEMENTS
The Company will not on or after the date of this Warrant enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the Holders in this Warrant or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to holders
of the Company's securities under any other agreements.
7.3. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES
The Company will not take any action outside the ordinary course of
business, or permit any change within its control to occur outside the ordinary
course of business, with respect to the Registrable Securities which is without
a bona fide business purpose, and which is intended to interfere with the
ability of the Holders of Registrable Securities to include such Registrable
Securities in a registration undertaken pursuant to this Agreement.
7.4. INTEGRATION/ENTIRE AGREEMENT
This Warrant is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the Warrants.
This Warrant supersedes all prior agreements and understandings between the
parties with respect to such subject matter (other than warrants previously
issued by the Company to the Warrantholder).
7.5. AMENDMENTS AND WAIVERS
The provisions of this Warrant, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given unless the Company
has obtained the written consent of holders of at least a majority of the
outstanding Registrable Securities. Holders shall be bound by any consent
authorized by this Section whether or not certificates
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representing such Registrable Securities have been marked to indicate such
consent.
7.6. COUNTERPARTS
This Warrant may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
7.7. GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
7.8. SEVERABILITY
In the event that any one or more of the provisions contained herein, or
the application thereof in any circumstances, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provisions
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
7.9. Attorneys' Fees
In any action or proceeding brought to enforce any provisions of this
Warrant, or where any provision hereof is validly asserted as a defense, the
successful party shall be entitled to recover reasonable attorneys' fees and
disbursements in addition to its costs and expenses and any other available
remedy.
7.10. COMPUTATIONS OF COMMENT
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by
the Company or its affiliates (other than the Warrantholder or subsequent
Holders if they are deemed to be such affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
7.11. NOTICE
Any notices or certificates by the Company to the Holder and by the
Holder to the Company shall be deemed delivered if in writing and delivered in
person or by registered mail (return receipt requested) to the Holder addressed
to him in care of
A-29
<PAGE>
Kaufman Bros., L.P., 800 Third Avenue, New York, New York 10022, or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and if to the Company, addressed to it at: 1505 O'Brien
Drive, Suite B, Menlo Park, California 94025, Attention: Secretary, with a copy
to Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022-9998, Attention: Charles I. Weissman, Esq., or if the Company has
designated, by notice in writing to the Holder, any other address, to such
other address.
7.12. TRANSFER
Notwithstanding anything to the contrary contained herein, the
Warrantholder will not sell, assign, pledge, or transfer this Warrant, except
to its officers or partners, or to the officers or partners of an underwriter
of the Offering for a period of one year from the Original Issuance Date.
The Company may change its address by written notice to the Holder and
the Holder may change its address by written notice to the Company.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the __ day of ________, 1996.
INGENEX, INC.
By:
----------------------------
Title:
-------------------------
Attest:
---------------------------
Secretary
A-30
<PAGE>
EXERCISE FORM
(To be executed upon exercise of Warrant)
Ingenex, Inc.
1505 O'Brien Drive, Suite B
Menlo Park, California 94025
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[ ] herewith tenders payment for _________ of the Warrant Shares to the
order of Ingenex, Inc. in the amount of $_______ in accordance with
the terms of this Warrant; or
[ ] herewith tenders this Warrant for Warrant Shares pursuant to the net
issuance exercise provisions of Section 2.3(b) of this Warrant.
Please issue a certificate or certificates for such Warrant Shares in the
name of, and pay any cash for any fractional share to:
Name
---------------------------------
---------------------------------
---------------------------------
---------------------------------
(Please print Name, Address
and Social Security No.)
Signature
-----------------------
Note: The above signature should
correspond exactly with the name
on the first page of this Warrant
Certificate or with the name of
the assignee appearing in the
assignment form below.
If said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in
the name of said undersigned for the balance remaining of the shares
purchasable thereunder.
A-31
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of Warrant)
For value received, hereby sells, assigns and transfers unto
the within Warrant, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
attorney, to transfer said Warrant on the books of the within-named Company
with respect to the number of Warrant Shares set forth below, with full power
of substitution in the premises:
Name(s) of No. of
Assignee(s) Address Warrant Shares
- ----------- ------- --------------
And if said number of Warrant Shares shall not be all the Warrant Shares
represented by the Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the Warrant Shares registered by said
Warrant.
Dated: , 19
---------- --
Signature
--------------------
Note: The above signature
should correspond
exactly with the name
on the face of this
Warrant
A-32
Exhibit 3.2
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF INGENEX, INC.
a Delaware Corporation
(Pursuant to Sections 242, 245 and 228 of
the Delaware General Corporation Law)
INGENEX, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is Ingenex, Inc.
SECOND: The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of Delaware on June 29, 1992,
restated on September 10, 1992, restated on April 6, 1993, restated on May 19,
1994, restated on September 26, 1994 and restated on May 31, 1995.
THIRD: The Board of Directors of the Corporation, at a meeting
duly called and held, adopted resolutions proposing to amend and restate the
Restated Certificate of Incorporation of the Corporation (the "Certificate"),
declaring said amendment and restatement to be advisable and in the best
interests of the Corporation and its stockholders and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment
and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the
Corporation (the "Certificate") be amended and restated in its entirety as
follows:
ARTICLE I
The name of this corporation is Ingenex, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted 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.
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that the Corporation is authorized to issue
is Twenty-Nine Million (29,000,000) shares. Twenty-Five Million (25,000,000)
shares shall be Common Stock, par value $.001 per share, and Four Million
(4,000,000) shares shall be Preferred Stock, par value $.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The Board
of Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any series of Preferred
Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with applicable
protective voting rights that may be granted to the Preferred Stock or series
thereof in Certificates of Designations or the Corporation's Amended and
Restated Certificate of Incorporation ("Protective Provisions"), but
notwithstanding any other rights of the Preferred Stock or any series thereof,
the rights, privileges, preferences and restrictions of any such series may be
subordinated to, pari passu with (including, without limitation, inclusion in
provisions with respect to liquidation and acquisition preferences, redemption
and/or approval of matters by vote), or senior to any of those of any present
or future class or series of Preferred Stock or Common Stock. Subject to
compliance with applicable Protective Provisions, the Board of Directors is
also authorized to increase or decrease the number of shares of any series,
prior or subsequent to the issue of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders
of all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, after
distribution in full of the preferential amounts to be distributed to the
holders of shares of the Preferred Stock, the holders of shares of the Common
Stock shall be entitled to receive all of the remaining assets of the
Corporation available for distribution to its stockholders, ratably in
proportion to the number of shares of the Common Stock held by them.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock
shall have the right to one vote, shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized to
make, repeal, alter, amend and rescind any or all of the Bylaws of the
Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE VIII
Stockholders of the Corporation shall take action by meetings
held pursuant to this Amended and Restated Certificate of Incorporation and the
Bylaws and shall have no right to take any action by written consent without a
meeting. The affirmative vote of stockholders holding at least 2/3 of the
issued and outstanding shares of the Common Stock of the Corporation shall be
required to amend, repeal or adopt any provision inconsistent with the
foregoing provision of this Article VIII. Meetings of stockholders may be held
within or without the State of Delaware, as the Bylaws may provide. The books
of the Corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.
ARTICLE IX
The Corporation shall not merge or consolidate with, or sell,
assign, lease, or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets or the assets or
stock of any of its subsidiaries (whether now owned or hereafter acquired) to
Titan Pharmaceuticals, Inc. or any of its parents, subsidiaries or affiliates
(whether such affiliation now exists or hereafter comes into existence) without
the affirmative vote of stockholders holding at least 2/3 of the issued and
outstanding shares of the Common Stock of the Corporation. The affirmative vote
of stockholders holding at least 2/3 of the issued and outstanding shares of
the Common Stock of the Corporation shall be required to amend, repeal or adopt
any provision inconsistent with the foregoing provision of this Article IX.
ARTICLE X
A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to 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 any improper personal benefit. If after the Corporation's
stockholders approve this Article, the General Corporation Law of the State of
Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware as so
amended.
Any repeal or modification of the foregoing provisions of this
Article X by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE XI
To the fullest extent permitted by applicable law, this
Corporation is also authorized to provide indemnification of (and advancement
of expenses to) such agents (and any other persons to which Delaware law
permits the Corporation to provide indemnification) through Bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law
of the State of Delaware, subject only to limits created by applicable Delaware
law (statutory or non-statutory), with respect to actions for breach of duty to
the Corporation, its stockholders, and others.
Any repeal or modification of any of foregoing provisions of
this Article XI shall not adversely affect any right or protection of such
agents or other persons existing at the time of,
or increase the liability of any such agents or other persons of the
Corporation with respect to any acts or omissions of such agents or other
persons occurring prior to such repeal or modification.
ARTICLE XII
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by this Amended and
Restated Certificate of Incorporation or by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation."
FOURTH: Thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of the
General Corporation Law of the State of Delaware by written consent of the
stockholders holding the requisite number of shares required by statute given
in accordance with and pursuant to Section 228 of the General Corporation Law
of the State of Delaware with written notice given to those stockholders who
did not consent as provided in that section.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed in its name by its
President and attested to by its Secretary, this __ day of __________________,
1996, and the statements contained herein are affirmed as true under penalties
of perjury.
INGENEX, INC.
By: ______________________
President
ATTEST:
By: _____________________
Secretary
Exhibit 3.4
BYLAWS
OF
INGENEX INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware or in such other place within the State
of Delaware as the Board of Directors may from time to time designate.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of stockholders shall be held at such place, either
within or without the State of Delaware, as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting. In the
absence of any such designation, stockholders' meetings shall be held at the
principal executive offices of the corporation.
Section 2. Annual meetings of stockholders shall be held at such date and
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which the stockholders shall elect by a
plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
APITAL PRINTING SYSTEMS]
<PAGE>
Section 3. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors, and may not be called absent such a request. Such request shall
state the purpose or purposes of the proposed meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, or cause a third party to prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, 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.
Section 5. All notices of meetings with stockholders shall be in writing
and shall be sent or otherwise given in accordance with Article IV of these
Bylaws not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. The notice
shall specify the place, date, and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
2
<PAGE>
Section 6. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, then either (i) the chairman of the meeting or
(ii) the holders of a majority of the stock entitled to vote thereat, present
in person or represented by proxy, shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted that
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 7. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the Certificate of Incorporation or of these Bylaws a different vote is
required, in which case such express provision shall govern and control the
decision of such question, and except for the election of directors.
Section 8. 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 having voting
power held by such stockholder, but no
3
<PAGE>
proxy shall be voted on after three (3) years from its date, unless the proxy
provides for a longer period.
Section 9. Nominations for election to the Board of Directors must be made
by the Board of Directors or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of
directors. Nominations, other than those made by the Board of Directors, must
be preceded by notification in writing received by the Secretary not less than
twenty (20) days nor more than sixty (60) days prior to any meeting of
stockholders called for the election of directors. Such notification shall
contain the written consent of each proposed nominee to serve as a director if
so elected and the following information as to each proposed nominee and as to
each person, acting alone or in conjunction with one or more other persons as a
partnership, limited partnership, syndicate or other group, who participates or
is expected to participate in making such nomination or in organizing,
directing or financing such nomination or the solicitation of proxies to vote
for the nominee:
(a) the name, age, residence address, and business address of each
proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially, either
directly or indirectly, by each proposed nominee and each such person; and
4
<PAGE>
(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded. Notwithstanding the foregoing provisions of this Section 9, a
stockholder shall also comply with all applicable requirements of the
Securities and Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section 9.
Section 10. At any meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Section 10, who
shall be entitled to vote at such meeting and who complies with the notice
procedures set forth in this Section 10.
For business to be properly brought before any meeting by a stockholder
pursuant to clause (c) of this Section 10, the stockholder must have given
timely notice thereof in writing to the Secretary. To be timely, a
stockholder's notice must be received by the Secretary not less than twenty
(20) days nor more than sixty (60) days prior to the date of the meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (b) the name and address,
5
<PAGE>
as they appear on the corporation's books, of the stockholder proposing such
business, and the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, (c) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder of
record and by the beneficial owner, if any, on whose behalf of the proposal is
made and (d) any material interest of such stockholder of record and the
beneficial owner, if any, on whose behalf the proposal is made regarding such
business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 10. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 10, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 10, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 10.
ARTICLE III
DIRECTORS
Section 1. The number of directors that shall constitute the whole Board
of Directors shall be determined by resolution of the Board of Directors or by
the stockholders at the annual meeting of the stockholders, except as provided
in Section 2 of this Article, and each director
6
<PAGE>
elected shall hold office until his or her successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and each director so chosen shall hold office until the next annual
election and until his or her successors are duly elected and qualified or
until his or her earlier resignation or removal. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
Section 3. The business of the corporation shall be managed by or under
the direction of the Board of Directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors may hold meetings, both regular and
special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held immediately following the annual meeting of the stockholders and
no notice of such meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a quorum shall be present. In
the event such meeting is not held at such time, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
7
<PAGE>
Section 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
Section 7. Special meetings of the Board of Directors may be called by the
President or Chairman on four (4) days' notice to each director by mail or
forty-eight (48) hours notice to each director either personally or by
telephone, telegram or facsimile; special meetings shall be called by the
President or Secretary in like manner and on like notice on the written request
of two directors unless the Board of Directors consists of only one director,
in which case special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of the sole director. A
written waiver of notice, signed by the person or persons entitled thereto,
whether before or after the time of the meeting stated therein, shall be deemed
equivalent to notice.
Section 8. At all meetings of the Board of Directors a majority of the
directors then in office shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors of
Directors, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation or by these Bylaws or otherwise. If a quorum
shall not be present at any meeting of the Board of Directors, a majority of
the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
Section 9. Unless otherwise restricted by the Certificate of Incorporation
or these Bylaws, 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, if all members of the Board of
8
<PAGE>
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 10. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any 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 such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a majority
of the whole Board of Directors, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
The Board of Directors may designate one (1) 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 a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or she or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, 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 that may require it; but no such committee shall have the
9
<PAGE>
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 to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
these Bylaws; and, unless the resolution or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of the State of Delaware. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
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REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
stock entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder at his or her address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telephone, telegram or
facsimile.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto. The written waiver need not specify the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors unless
otherwise required by the Certificate of
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Incorporation or these Bylaws. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the 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.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Secretary and a Chief Financial Officer
or Treasurer. The Board of Directors may elect from among its members a
Chairman of the Board of Directors and a Vice Chairman of the Board of
Directors. The Board of Directors may also choose one or more vice presidents,
assistant secretaries and assistant financial officers or treasurers. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 2. The Board of Directors, at its first meeting after each annual
meeting of stockholders, shall choose a President, a Secretary and a Chief
Financial Officer or Treasurer and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
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Section 4. The salaries of all officers of the corporation shall be fixed
by the Board of Directors. The salaries of other employees and agents of the
corporation shall, unless fixed by the Board of Directors, be fixed by the
President or any Vice President of the corporation.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN AND VICE CHAIRMAN OF THE BOARD OF DIRECTORS
Section 6. The Chairman of the Board of Directors, if any, shall preside
at all meetings of the Board of Directors and of the stockholders at which he
or she shall be present. He or she shall have and may exercise such powers as
are, from time to time, assigned to him or her by the Board of Directors and as
may be provided by law.
Section 7. In the absence of the Chairman of the Board of Directors, the
Vice Chairman of the Board of Directors, if any, shall preside at all meetings
of the Board of Directors and of the stockholders at which he or she shall be
present. He or she shall have and may exercise such powers as are, from time to
time, assigned to him or her by the Board of Directors and as may be provided
by law.
THE PRESIDENT AND VICE PRESIDENT
Section 8. The President shall be the chief executive officer of the
corporation, and in the absence of the Chairman and Vice Chairman of the Board
of Directors he or she shall preside at all meetings of the stockholders and the
Board of Directors. The President shall have general and
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active management of the business of the corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
Section 9. The President or any Vice President shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 10. 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 Vice Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He or she shall give, or cause to be given, notice of
all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or President, under whose supervision he or she shall be. He
or she shall have custody of the corporate seal of the
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corporation and he or she, or an Assistant Secretary, shall have authority to
affix the same to any instrument requiring it and, when so affixed, it may be
attested by his or her signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature.
Section 12. The Assistant Secretary, 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 his or her inability or refusal
to act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
THE CHIEF FINANCIAL OFFICER AND ASSISTANT FINANCIAL OFFICER
Section 13. The Chief Financial Officer or Treasurer shall be the chief
financial officer of the corporation, 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.
Section 14. The Chief Financial Officer or Treasurer shall disburse the
funds of the corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President and
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his or her transactions as Chief Financial
Officer or Treasurer and of the financial condition of the corporation.
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Section 15. If required by the Board of Directors, the Chief Financial
Officer or Treasurer shall give the corporation a bond (which shall be renewed
every six (6) years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or
her possession or under his or her control belonging to the corporation.
Section 16. The Assistant Financial Officer or Assistant Treasurer, or if
there shall be more than one, the Assistant Financial Officers or 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 Chief Financial Officer or Treasurer or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Chief Financial Officer or Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the President or a Vice
President and the Chief Financial Officer or Treasurer or an Assistant
Financial Officer or Assistant Treasurer, or the Secretary or an Assistant
Secretary, certifying the number of shares of the corporation owned by him or
her.
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Certificates may be issued for partly paid shares and, in such case, upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate that the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has 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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LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his or
her legal representative, to give the corporation a bond in such sum as the
Board of Directors may direct sufficient to indemnify the Corporation against
any claim that may be made against the corporation on account of the alleged
loss, theft or destruction of such certificate or certificates or the issuance
of such new certificate or certificates.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any
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other lawful action, the Board of Directors may fix, in advance, a record date,
which 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.
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.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by law.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in
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their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purposes as the directors shall
think conducive to the interest of the corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the maximum extent and in the matter
permitted by the General Corporation Law of the State of Delaware, as those
laws may be amended and supplemented from time to time, indemnify its officers
and directors made, or threatened to be made, a party to an action or
proceeding, whether civil, criminal, administrative or investigative, by reason
of being an officer or director of the corporation or a predecessor corporation
or, at the
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corporation's request, a director or officer of another corporation, provided,
however, that the corporation shall indemnify any such officer or director in
connection with a proceeding initiated by such officer or director only if such
proceeding was authorized by the Board of Directors. The indemnification
provided for in this Section 6 shall: (i) not be deemed exclusive of any other
rights to which those indemnified may be entitled under any provision of these
Bylaws, Agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who
has ceased to be an agent, and (iii) inure to the benefit of the heirs,
executors and administrators of such a person. The corporation's obligation to
provide indemnification under this Section 6 shall be offset to the extent of
any other source of indemnification or any otherwise applicable insurance
coverage under a policy maintained by the corporation or any other person.
Expenses incurred by an officer or director of the corporation in
defending a civil, criminal, administrative or investigative action, suit or
proceeding by reason of the fact that he or she is or was an officer or
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of the State of Delaware. Notwithstanding the
foregoing, the corporation shall not be required to advance such expenses to an
officer or director if such officer or director: (i) commences any action, suit
or proceeding as a plaintiff unless such advance is
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specifically approved by a majority of the Board of Directors; (ii) is a party
to an action, suit or proceeding brought by the corporation and approved by a
majority of the Board of Directors that alleges willful misappropriation of
corporate assets by such officer or director, disclosure of confidential
information in violation of such officer or director's fiduciary or contractual
obligations to the corporation or any other willful and deliberate breach in
bad faith of such officer or director's duty to the corporation or its
stockholders; or (iii) has or will be reimbursed for such expenses under any
directors and officers liability insurance policy owned by the corporation.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each officer and director who serves in
such capacity at any time while this Bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
The Board of Directors, in its discretion, shall have power on behalf of
the corporation to indemnify any person, other than an officer or director,
made a party to any action, suit or proceeding by reason of the fact that such
person or his or her testator or intestate is or was an employee or agent of
the corporation.
To assure indemnification under this Section 6 of all directors, officers
and employees who are determined by the corporation or otherwise to be or to
have been "fiduciaries" of any employee benefit plan of the corporation that
may exist from time to time, Section 145 of the General Corporation Law of the
State of Delaware shall, for the purposes of this Section 6, be
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interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan, including without limitation, any plan of the
corporation that is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his or her duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines."
INSURANCE
Section 7. The corporation may 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 him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of the General Corporation Law of the State
of Delaware.
RECORDS AND REPORTS
Section 8. The corporation shall, either at its principal executive office
or at such place or places as designated by the Board of Directors, keep a
record of its stockholders listing their names and addresses and the number and
class of shares held by each stockholder, a copy of these Bylaws as amended to
date, accounting books, and other records.
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Any stockholder of record, in person or by attorney or other agent, shall
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney
or such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
Section 9. Any director shall have the right to examine the corporation's
stock ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Delaware Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether
a director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the list of stockholders and to make copies or
extracts therefrom. Such Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such other
and further relief as such Court may deem just and proper.
Section 10. The Chairman of the Board of Directors, the President, any
Vice President, the Chief Financial Officer or the Treasurer, the Secretary or
Assistant Secretary or any other person authorized by the Board of Directors or
the President or a Vice President, is authorized to vote, represent, and
exercise on behalf of this corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of this
corporation. The authority
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granted herein may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by such
person having the authority.
ARTICLE VIII
AMENDMENTS
Section 1. Except as otherwise provided in the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed or new Bylaws
may be adopted by the stockholders or a majority of the Board of Directors,
when such power is conferred upon the Board of Directors by the Certificate of
Incorporation, at any regular meeting of the stockholders or of the Board of
Directors, or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting.
25
Exhibit 4.11
INGENEX, INC.
9% Convertible Note
Due September 30, 1998
----------------------
$1,000,000
New York, New York
September 27, 1996
THIS NOTE (THE "NOTE") HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION OF THIS NOTE OR ANY INTEREST HEREIN MAY BE MADE UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR UNLESS INGENEX, INC. HAS
RECEIVED A SATISFACTORY OPINION OF COUNSEL THAT SUCH SALE, TRANSFER, ASSIGNMENT
OR HYPOTHECATION DOES NOT REQUIRE REGISTRATION UNDER THE ACT.
----------------------
INGENEX, INC., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to Titan Pharmaceuticals, Inc., a Delaware
corporation (the "Holder") the principal amount of One Million Dollars
($1,000,000).
This Note has been issued pursuant to a Shareholders' Agreement
between the Company and the Holder dated September 27, 1996 (the "Shareholders'
Agreement").
Capitalized terms used herein but not otherwise defined shall have the
meanings ascribed to them in the Shareholders' Agreement.
1. Principal. The Company will pay to Holder the principal sum of One
Million Dollars ($1,000,000), plus all unpaid and accrued interest thereon,
on September 30, 1998.
2. Interest. Interest on the unpaid principal amount hereof shall accrue from
the date hereof at the rate of nine percent (9%) per annum, computed on the
basis of a 365-day year.
<PAGE>
Interest shall become due and payable on the earlier of (i) the maturity date
of this Note, (ii) the conversion of this Note, as to accrued interest on the
principal amount so converted, or (iii) prepayment by the Company of this Note,
as to accrued interest on the principal amount so prepaid. In the event this
Note is converted by the Holder, then the Holder, at its option, may elect on
or prior to the conversion date to request the Company to either pay in cash
the accrued and unpaid interest on the Note to Holder or to credit the accrued
and unpaid interest on the Note toward the amount owed by Holder in connection
with its exercise of the Titan Option (as defined in the Shareholders'
Agreement).
3. Prepayment. At any time after the first anniversary of the consummation by
the Company of its initial public offering (the "IPO"), the Company may prepay
all or part of the principal amount of this Note upon fifteen (15) days'
written notice to the Holder at a price equal to the principal amount of this
Note so prepaid, plus all accrued and unpaid interest on the principal amount
so prepaid to the date of prepayment.
4. Conversion of Note.
4.1 Right of Conversion. Subject to this Section 4.1, all or part of
the outstanding principal amount of this Note shall be convertible into fully
paid and non-assessable shares of common stock, par value $.001, of the Company
("Common Stock") on or before the first anniversary of the consummation of the
IPO. To the extent that the Holder exercises its right of conversion hereunder,
the number of shares of Common Stock that the Holder is entitled to purchase
pursuant to the Titan Option shall be decreased by the number of shares of
Common Stock the Holder receives pursuant to such conversion. The Holder shall
only be entitled to its right of conversion hereunder to the extent of the
outstanding amount due in connection with its exercise of the Titan Option.
4.2 Conversion Rate. The basis for any conversion pursuant to Section
4.1 hereof shall be the principal amount of this Note to be converted and,
subject to Section 2 hereof, the accrued and unpaid interest on this Note to be
converted, divided by the Conversion Price (as hereinafter defined) in effect
at the time of such conversion. The Conversion Price shall be the price per
share at which the Company offers shares of Common Stock in the IPO.
4.3 Method of Conversion. In order to convert all or part of the
principal amount of this Note and, if it so desires, the accrued and unpaid
interest on the Note into shares of Common Stock, the Holder shall: (i)
surrender this Note, duly endorsed, at the principal office of the Company;
(ii) notify the Company of its election to convert all or part of the
outstanding principal amount of this Note, the principal amount to be so
converted and, if it so desires, the accrued and unpaid interest on the Note by
completing, executing and delivering to the Company at its principal office the
conversion notice annexed hereto as Attachment 1; (iii) state in writing the
name or names in which it wishes the certificate or
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certificates for shares of Common Stock to be issued; and (iv) pay all transfer
and similar taxes, if required pursuant to Section 4.5 hereof.
4.4 Effective Date and Effect of Conversion. The conversion of any
amount of principal or interest on this Note shall be deemed to have been
effected on the date notice is given pursuant to Section 4.3 hereof, and, at
such time, the rights of the Holder as such shall cease and the Holder shall be
deemed, for all purposes, to have the rights of a holder of record of the
shares of Common Stock deliverable upon such conversion.
4.5 Transfer Taxes. The Company shall pay all issue taxes (which shall
not include any income taxes), if any, incurred in respect of the issue of
shares of Common Stock upon conversion of this Note; provided, however, that if
the Holder specifies that the shares of Common Stock to be issued upon
conversion are to be issued in a name or names other than the name of the
Holder, the Company shall not be required to pay any transfer or other taxes
incurred by reason of the issuance of such shares of Common Stock to the name
of another, and if the appropriate transfer taxes shall not have been paid to
the Company at the time of surrender of this Note, the shares of Common Stock
issued upon conversion thereof may be registered in the name of the Holder,
despite the instructions to the contrary.
4.6 Reservation of Shares. The Company will at all times reserve and
keep available out of its authorized shares of Common Stock, solely for the
purpose of issue upon the conversion of this Note, such number of shares of
Common Stock as shall then be issuable upon the conversion of this Note. The
Company covenants that all shares of Common Stock which shall be issuable upon
conversion of this Note shall be duly and validly issued and fully paid and
nonassessable.
5. Default. An "Event of Default" shall exist under this Note if any of the
following occurs and is continuing:
(a) default by the Company in the payment of any amount of this Note
that becomes due and payable pursuant to the provisions hereof;
(b) failure on the part of the Company duly to observe or perform any
of the covenants or agreements contained in this Note (other than (a) above)
and continuance of such failure for a period of thirty (30) days after the date
on which written notice of such failure shall have been given to the Company by
the Holder;
(c) the Company shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the appointment of
or
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taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due; or
(d) an involuntary case or other proceeding shall have been commenced
against the Company seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property and shall fail to have been dismissed within
thirty (30) days of its filing or commencement;
then and in each and every case, the Holder may declare the entire principal
amount of this Note outstanding and the interest accrued thereon to be due and
payable immediately, and upon any such declaration the same shall become
immediately due and payable, anything contained in this Note to the contrary
notwithstanding; provided, however, that if an Event of Default shall occur as
specified in Section 5(c) and 5(d) hereof, this Note shall become immediately
due and payable, without any action on the part of Holder.
6. Replacement of Note.
6.1 Replacement. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note, and of
indemnity or security reasonably satisfactory to it, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
for cancellation of this Note, if mutilated, the Company will make and deliver
a new Note of like terms, in lieu of this Note. Any Note made and delivered in
accordance with the provisions of this Section 6.1 shall be dated the date
hereof.
6.2 No Service Charge. No service charge shall be made for any
replacement of Notes, but the Company may require payment of a sum sufficient
to cover any tax or governmental charge that may be imposed in connection
therewith.
7. Miscellaneous.
7.1 Governing Law. This Note shall be governed by and construed in
accordance with the local laws of the State of Delaware without giving effect
to the principles of conflicts of laws thereof.
7.2 Consent to Jurisdiction. The Company and the Holder hereby consent
to the jurisdiction of the state or federal courts of Delaware for all disputes
arising under this Note.
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7.3 Notices. Any notice, request or other communication required or
permitted by this Note shall be in writing and shall be given or made by
physical delivery, facsimile transmission, or by registered or certified mail,
return receipt requested, or by overnight carrier to the Company at 1505
O'Brien Drive, Suite B, Menlo Park, California 94025, Attn: President, or to
the Holder hereof at 400 Oyster Point Boulevard, Suite 505, South San
Francisco, CA 94080, Attn: President or at such other address of which Holder
shall have given notice to the Company in the manner herein provided.
7.4 Binding Effect. This Note shall be binding upon and inure to the
benefit of the Company and its successors and assigns and the Holder and its
successors and assigns.
7.5 Amendment. No provision of this Note may be waived, altered or
amended, except by written agreement between the parties.
7.6 Assignment. Neither party, without the written consent of the
other party, shall assign or transfer this Note or any rights or obligations
hereunder.
7.7 Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Note shall not operate or be construed as a waiver of any
subsequent breach of the same of any other provision hereof.
7.8 Waiver of Presentment. The Company hereby waives presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Company with respect to this Note.
7.9 Entire Agreement. This Note and the Shareholders' Agreement set
forth the entire agreement between the parties with respect to this Note and
supersede any prior oral or written agreement between the parties with respect
to this Note.
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7.10 Gender and Number. Whenever used in this Note, the singular
number shall include the plural, the plural the singular, and the use of any
gender shall be applicable to all genders.
IN WITNESS WHEREOF, the Company has duly caused this Note to be duly
executed as of this 27th day of September, 1996.
INGENEX, INC.
By: /s/ Mark E. Furth
----------------------------
Name: Mark E. Furth
Title: President
6
Exhibit 5.1
October 3, 1996
Ingenex, Inc.
1505 O'Brien Drive
Menlo Park, California 94025
Dear Ladies and Gentlemen:
On the date hereof, Ingenex, Inc., a Delaware corporation (the
"Company"), intends to transmit for filing with the Securities and Exchange
Commission, Amendment No. 3 to a Registration Statement on Form SB-2 (the
"Registration Statement"), relating to the sale by the Company of up to
2,127,500 shares (the "Shares") of common stock, par value $.001 per share
("Common Stock"), of the Company, (including 277,500 shares subject to the
underwriters' over-allotment option). This opinion is an exhibit to the
Registration Statement.
We note that we are members of the Bar of the State of New York and
do not represent ourselves to be experts in the laws of any other state or
jurisdiction. Insofar as this opinion may involve the laws of the State of
Delaware, our opinion is based solely upon our reading of the Delaware General
Corporation Law as reported in the Prentice-Hall Corporation Law Service,
except that our opinion as to the due incorporation and valid existence of the
Company is based solely upon a Certificate of Good Standing obtained from the
Secretary of State of the State of Delaware. We have acted as special
securities counsel to the Company with respect to certain corporate and
securities matters, and in such capacity we have participated in various
corporate and other proceedings taken by or on behalf of the Company in
connection with the proposed offer and sale by the Company of the Common Stock
as contemplated by the Registration Statement. We have examined copies (in
each case signed, certified or otherwise proven to our satisfaction to be
genuine) of the Company's Certificate of Incorporation and all amendments
thereto, its By-Laws as presently in effect, minutes and other instruments
evidencing actions taken by its directors and stockholders, the Registration
Statement and exhibits thereto and such other documents and instruments
relating to the Company and the proposed offering as we have deemed necessary
under the circumstances.
<PAGE>
Ingenex, Inc.
October 3, 1996
Page 2
Based on the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is validly existing
under the laws of the State of Delaware and, after consummation of the
proposed public offering, will have authorized capital stock consisting of
25,000,000 shares of Common Stock, par value $0.001 per share, and 4,000,000
shares of Preferred Stock, par value $0.001 per share.
2. The maximum of 2,127,500 shares of Common Stock to be sold by
the Company pursuant to the Registration Statement have been duly authorized
and, subject to the effectiveness of the Registration Statement and compliance
with applicable securities or other laws of various states of the United
States in which the Shares will be offered and/or sold in the proposed public
offering, when issued and delivered against payment therefor in accordance
with the terms set forth in the Registration Statement, will be legally
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and as an exhibit to any application under the
securities or other laws of any state of the United States, which relates to
the offering which is the subject of this opinion, and to the reference to
this firm appearing under the heading "Legal Matters" in the prospectus which
is contained in the Registration Statement.
This opinion is furnished to you in connection with the filing of
the Registration Statement and is not to be used, circulated, quoted or
otherwise relied upon for any other purpose, except as expressly provided in
the preceding paragraph.
Very truly yours,
/s/SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
--------------------------------------------
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
SFH&G,LLP:CIW:GA:JPF
Exhibit 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ____
day of ____________________, 1996 between Ingenex, Inc., a Delaware corporation
(the "Corporation"), and ___________________ ("Indemnitee").
RECITALS:
A. Indemnitee performs a valuable service to the Corporation; and
B. The Bylaws of the Corporation (the "Bylaws") provide for the
indemnification of its officers, directors, agents and employees to the maximum
extent authorized by Section 145 of the Delaware General Corporation Law, as
amended (the "DGCL"); and
C. The Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its officers, directors, agents and
employees with respect to indemnification of such persons; and
D. There exists general uncertainty as to the extent of protection
afforded by such Bylaw and other statutory indemnification provisions; and
E. In order to induce and encourage Indemnitee to continue to serve the
Corporation, and after due consideration and investigation of the terms and
provisions hereof and the various other options available to the Corporation
and Indemnitee in lieu of this Agreement, the Corporation has made a
determination that this agreement is not only reasonable and prudent but
necessary to promote and ensure the best interests of the Corporation and its
stockholders.
NOW, THEREFORE, upon the mutual covenants and agreements set forth
below and based on the premises set forth above, and in consideration of
Indemnitee's continued service to the Corporation after the date hereof, the
parties hereto agree as follows:
1. INDEMNITY. The Corporation hereby agrees to hold harmless and
indemnify Indemnitee to the fullest extent authorized or permitted by the
provisions of the DGCL and the Bylaws, as may be amended from time to time (but
only to the extent that any such amendment permits the Corporation to provide
broader indemnification rights than the DGCL or Bylaws permitted prior to
adoption of such amendment).
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 3 hereof, and subject to a determination pursuant to Section 8 hereof,
the Corporation hereby further agrees to hold harmless and indemnify
Indemnitee:
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a. against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitral,
administrative or investigative (including an action by or in the right of the
Corporation) to which Indemnitee is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Indemnitee is, was or
at any time becomes a director, officer, employee or agent of the Corporation,
or is or was serving or at any time serves at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
b. otherwise to the fullest extent not prohibited by the Bylaws
or the DGCL.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by the Corporation:
a. except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which the Indemnitee
is validly indemnified pursuant to Section 1 hereof or pursuant to any
Directors and Officers Liability Insurance ("D & O Insurance") purchased and
maintained by the Corporation;
b. in respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
c. on account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
d. on account of Indemnitee's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct or a breach of Indemnitee's duty of loyalty to the
Corporation, or to have resulted in Indemnitee personally having gained in fact
a financial profit or other advantage to which Indemnitee was not legally
entitled;
e. on account of Indemnitee's conduct which is the subject of an
action, suit or proceeding described in Section 7(b)(ii) hereof;
f. on account of any action, claim or proceeding (other than a
proceeding referred to in Section 9(b) hereof) initiated by the Indemnitee
against the Corporation or its directors, officers, employees or other agents
unless such action, claim or proceeding was
2
<PAGE>
authorized in the specific case by action of the Board of Directors of the
Corporation or the proceeding is required by law; or
g. if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both the Corporation and Indemnitee have been advised that the
Securities and Exchange Commission believes that indemnification for
liabilities arising under the federal securities laws is against public policy
and is, therefore, unenforceable and that claims for indemnification should be
submitted to appropriate courts for adjudication).
4. CONTRIBUTION. If the indemnification provided in Sections 1 and 2
hereof is unavailable by reason of a Court decision described in Section 3(g)
hereof based on grounds other than any of those set forth in paragraphs (b)
through (f) of Section 3 hereof, then, in respect of any threatened, pending or
completed action, suit or proceeding in which the Corporation is jointly liable
with Indemnitee (or would be if joined in such action, suit or proceeding), the
Corporation shall contribute to the amount of expenses (including attorneys'
fees), witness fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred and paid or payable by Indemnitee in such proportion as
is appropriate to reflect: (i) the relative benefits received by the
Corporation on the one hand and Indemnitee on the other hand from the
transaction from which such action, suit or proceeding arose; and (ii) the
relative fault of the Corporation on the one hand and of Indemnitee on the
other in connection with the events which resulted in such expenses, judgments,
fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of the Corporation on the one hand and of
Indemnitee on the other shall be determined by reference to, among other
things, the parties' relevant intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. The Corporation agrees that it would
not be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation or any other method of allocation which does
not take account of the foregoing equitable considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of the Corporation (or is serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed actions, suit
or proceeding, whether civil, criminal, arbitral, administrative or
investigative, by reason of the fact that Indemnitee has served in the capacity
referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. No later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit
or proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Corporation under this Agreement, notify the Corporation of the
commencement thereof; however, the omission to so
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<PAGE>
notify the Corporation will not relieve it from any liability which it may have
to Indemnitee otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which Indemnitee notifies the Corporation of
the commencement thereof:
a. the Corporation will be entitled to participate therein at
its own expense;
b. except as otherwise provided below, to the extent that it may
wish, the Corporation, jointly with any other indemnifying party similarly
notified, will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by Indemnitee in connection with the defense
thereof other than reasonable cost of investigation or as otherwise provided
below. Indemnitee shall have the right to employ its own counsel in such
action, suit or proceeding but the fees and expenses of such counsel incurred
after notice from the Corporation of its assumption of the defense thereof
shall be at the expense of Indemnitee unless: (i) the employment of counsel by
Indemnitee has been authorized by the Corporation in connection with the
defense of such action; (ii) Indemnitee shall have reasonably concluded (based
upon the advice of counsel) that there may be a conflict of interest between
the Corporation and Indemnitee in the conduct of the defense of such action; or
(iii) the Corporation shall not, in fact, have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
Indemnitee's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Indemnitee
shall have made the conclusion provided for in clause (ii) above; and
c. The Corporation shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without its prior written consent. The Corporation shall be permitted
to settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty or limitation on Indemnitee without
Indemnitee's prior written consent. Neither the Corporation nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
a. The Corporation shall advance to Indemnitee, prior to any
final disposition of any threatened or pending action, suit or proceeding,
whether civil, criminal, arbitral, administrative or investigative, any and all
reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Indemnitee for such
expenses provided that the Corporation shall first receive an undertaking by or
on behalf of Indemnitee to repay such amount in the event and only to the
extent it shall be ultimately determined by a final judicial decision (from
which there is no right of appeal) that Indemnitee is not entitled, under
4
<PAGE>
the provisions of the DGCL, the Bylaws, this Agreement or otherwise, to be
indemnified by the Corporation for such expenses.
b. Notwithstanding the foregoing, the Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors of the Corporation; or (ii) is
a party to an action, suit or proceeding brought by the Corporation and
approved by a majority of the Board of Directors of the Corporation that
alleges willful misappropriation of corporate assets by Indemnitee, disclosure
of confidential information in violation of Indemnitee's fiduciary or
contractual obligations to the Corporation, or any other willful and deliberate
breach in bad faith of Indemnitee's duty to the Corporation or its
shareholders; or (iii) has or will be reimbursed for such expenses under any
D&O Insurance owned by the Corporation.
8. DETERMINATION BY THE CORPORATION. To the extent required by the
DGCL, promptly after receipt of a request for indemnification hereunder made by
the Indemnitee (and in any event within 90 days of receipt of such request),
the Corporation shall make a reasonable, good faith determination as to whether
Indemnitee is entitled to indemnification under the DGCL, the Bylaws or this
Agreement. Such determination shall be made:
a. by a majority vote of a quorum consisting of directors who
are not parties to such action, suit or proceeding;
b. or, if such quorum is not obtainable, by independent legal
counsel in a written opinion; or
c. by the affirmative vote of the holders of a majority of the
outstanding shares of the Corporation entitled to vote thereon represented and
voting at a duly held meeting in which a quorum is present (which holders
voting affirmatively also constitute at least a majority of the required
quorum) or by written consent of a majority of the outstanding shares entitled
to vote thereon, where in each case the shares owned by the person to be
indemnified shall not be considered entitled to vote thereon.
Such determination shall be reasonably made in good faith by the
decision-making party or parties based upon the facts known to the decision
making party or parties at the time such determination is made.
9. ENFORCEMENT.
a. The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed herein in order
to induce Indemnitee to continue to serve the Corporation, and acknowledges
that Indemnitee is relying upon this Agreement in continuing to serve the
Corporation.
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<PAGE>
b. In the event that Indemnitee is required to bring any action,
suit or proceeding to enforce rights or to collect monies due under this
Agreement and is successful, in whole or in part, in such action, the
Corporation shall reimburse Indemnitee for all Indemnitee's reasonable fees and
expenses in bringing and pursuing such action.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by
this Agreement shall not be exclusive or in limitation of any other right which
Indemnitee may have or hereinafter acquire under any statute, provision of the
Corporation's Certificate of Incorporation, Bylaws or any other agreement, vote
of stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office.
12. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Corporation and shall inure to the benefit of
Indemnitee's heirs, executors and personal representatives.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
or all of the provisions hereof shall be held to be invalid or unenforceable
for any reason, such invalidity or unenforceability shall not effect the
validity or enforceability of the other provisions hereof or the obligation of
the Corporation to indemnify Indemnitee to the full extent provided by the
Bylaws or the DGCL.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware without giving effect to
conflict of laws principles.
15. BINDING EFFECT. This Agreement shall be binding upon Indemnitee
and upon the Corporation, its successors and assigns, and shall inure to the
benefit of Indemnitee and his heirs, executors and personal representatives and
to the benefit of the Corporation and its successors and assigns.
16. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
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17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed:
a. If to Indemnitee, at the address indicated below such
person's signature hereunder;
b. If to the Corporation, to
Ingenex, Inc.
1505 O'Brien Street, Suite B
Menlo Park, CA 94025
Attention: President
or to such other address as may have been furnished to Indemnitee by the
Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
CORPORATION: INGENEX, INC.,
a Delaware corporation
By: _____________________________________
Print Name: _____________________________
Title: _________________________________
INDEMNITEE: Print Name: _____________________________
Address:__________________________________
__________________________________________
7
Exhibit 10.2
INGENEX, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
I. PURPOSES OF THE PLAN
This Plan is intended to promote the interests of Ingenex, Inc., a
Delaware corporation, by providing a method whereby eligible individuals who
provide valuable services to the Corporation (or any Parent or Subsidiary) may
be offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation and continue to render services to the Corporation (or any Parent
or Subsidiary).
II. DEFINITIONS
For the purposes of this Plan, the following definitions shall be in
effect:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of the Board designated by the
Board to administer the Plan and composed of not less than two directors, each
of whom is a "Non- Employee Director" within the meaning of Rule 16b-3
promulgated under the Exchange Act.
D. COMMON STOCK shall mean the Corporation's common stock, par value
$.001 per share.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder approved transactions to which the Corporation is a party:
(1) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those who held those
securities immediately prior to such transaction, or
(2) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Ingenex, Inc., a Delaware corporation.
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<PAGE>
G. DISABILITY shall mean the inability of an individual to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Committee on the
basis of such medical evidence as the Committee deems warranted under the
circumstances. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation or any Parent or Subsidiary, subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXCHANGE ACT shall mean the Securities Exchange Act of 1934, as
amended.
J. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
under the Plan shall be the value determined in accordance with the following
provisions:
(1) If the Common Stock is at the time listed or admitted to
trading on any Stock Exchange, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Committee to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(2) If the Common Stock is not at the time listed or admitted to
trading on any Stock Exchange but is included on The Nasdaq Stock
Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers, Inc.
through The Nasdaq Stock Market or any successor system. If there is
no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(3) If the Common Stock is at the time neither listed nor
admitted to trading on any Stock Exchange nor included on The Nasdaq
Stock Market, then such Fair Market Value shall be determined by the
Committee after taking into account such factors as the Committee
shall deem appropriate.
L. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of Code Section 422.
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<PAGE>
M. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Code Section 422.
N. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
O. PLAN shall mean the Corporation's Amended and Restated 1994 Stock
Option Plan, as set forth in this document.
P. SERVICE shall mean the provision of services to the Corporation or
any Parent or Subsidiary by an individual in the capacity of an Employee or a
consultant.
Q. STOCK EXCHANGE shall mean the American Stock Exchange, the New
York Stock Exchange or any other registered securities exchange.
R. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each such corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
S. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation or any Parent or
Subsidiary at the time of the grant of the option, assuming its immediate
exercise.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Committee. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
stock option granted hereunder shall be within the sole discretion of the
Committee, may be made at any time, and shall be final, conclusive, and binding
upon all persons, including the Corporation, any Parent or Subsidiary, any
holder or beneficiary of any stock option granted hereunder, any stockholder of
the Corporation or of any Parent or Subsidiary thereof, and any employee of the
Corporation or of any Parent or Subsidiary.
B. The Committee shall have full power and authority (subject to the
provisions of the Plan and applicable law) to establish such rules and
regulations as it may deem appropriate for proper administration of the Plan
and to make such determinations under, and issue
- 3 -
<PAGE>
such interpretations of, the Plan and any outstanding stock options granted
hereunder as it may deem necessary or advisable.
C. The Committee shall have full authority to determine which
eligible individuals are to receive option grants under the Plan, the number of
shares to be covered by each such grant, the status of the granted option as
either an Incentive Option or a Non-Statutory Option, the time or times at
which each option is to become exercisable, the vesting schedule (if any)
applicable to the option shares and the maximum term for which the option is to
remain outstanding.
D. Notwithstanding anything contained herein to the contrary, the
Board shall make any and all determinations and other decisions with respect to
option grants under the Plan to the members of the Committee (including,
without limitation, with respect to eligibility, number of shares to be
covered, status, exercisability, vesting and term).
IV. ELIGIBILITY FOR OPTION GRANTS
The persons eligible to receive option grants under the Plan are as
follows:
(1) Employees,
(2) directors of the Corporation or any Parent or Subsidiary,
and
(3) consultants who provide services to the Corporation (or any
Parent or Subsidiary).
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of the
Corporation's authorized but unissued or reacquired Common Stock. The maximum
number of shares which may be issued over the term of the Plan shall not exceed
847,500 shares, subject to adjustment from time to time in accordance with the
provisions of this Article V and Article VIII of the Plan, each of which may be
the subject of Incentive Options or Non-Statutory Options in the discretion of
the Committee.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent option grants under the Plan to the extent (1) the
options expire or terminate for any reason prior to being exercised in full or
(2) the options are cancelled in accordance with the cancellation and regrant
provisions of Article IX of the Plan. All shares issued under the Plan, whether
or not those shares are subsequently repurchased by the Corporation pursuant to
its repurchase rights under the Plan, shall reduce on a share-for-share basis
the number of shares of Common Stock available for subsequent option grants.
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<PAGE>
C. In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (1) the maximum number
and/or class of securities issuable under the Plan and (2) the number and/or
class of securities and the exercise price per share in effect under each
outstanding option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Committee shall be final, binding
and conclusive. Without limiting the foregoing, in no event shall any
adjustments be made for the conversion of one or more outstanding shares of the
Corporation's preferred stock into shares of Common Stock.
VI. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action of
the Committee and may, at the Committee's discretion, be either Incentive
Options or Non-Statutory Options. Each granted option shall be evidenced by one
or more instruments in the form approved by the Committee, provided, however,
that each such instrument shall comply with the terms and conditions specified
below. Each instrument evidencing an Incentive Option shall, in addition, be
subject to the applicable provisions of Article VII of the Plan.
A. EXERCISE PRICE.
(1) The exercise price per share shall be fixed by the
Committee. In no event, however, shall the exercise price per share
be less than eighty-five percent (85%) of the Fair Market Value per
share of Common Stock on the grant date.
(2) The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of
Article X of the Plan and the agreement evidencing the grant, be
payable in cash or check made payable to the Corporation. Should the
Corporation's outstanding Common Stock be registered under Section
12(b) or (g) of the Exchange Act at the time the option is exercised,
then the exercise price may also be paid as follows:
(i) in shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date, or
(ii) through a special sale and remittance procedure
pursuant to which the optionee shall concurrently provide
irrevocable written instructions (a) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for
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<PAGE>
the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such purchase and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan
shall be exercisable at such time or times, during such period and for such
number of shares as shall be determined by the Committee and set forth in the
agreement evidencing the grant. However, no option shall have a term in excess
of ten (10) years measured from the grant date. The option shall be exercisable
during the original optionee's lifetime only by the original optionee (unless,
subject to Code Section 422, otherwise permitted with the consent of, or in
accordance with rules and procedures established by, the Committee) and shall
not be assignable or transferable other than (1) by will or by the laws of
descent and distribution following the optionee's death or (2) subject to Code
Section 422, with the consent of, or in accordance with rules and procedures
established by, the Committee.
C. EFFECT OF TERMINATION OF SERVICE.
(1) Except to the extent otherwise provided pursuant to
subsection C.2 below, the following provisions shall govern the
exercise period applicable to any options held by an optionee at
the time of the original optionee's cessation of Service or
death:
(i) Should the original optionee cease to remain in
Service for any reason other than death or Disability, then
the period during which each outstanding option granted to
such optionee is to remain exercisable shall be limited to
the three (3)-month period following the date of such
cessation of Service.
(ii) Should such Service terminate by reason of
Disability, then the period during which each outstanding
option granted to the original optionee is to remain
exercisable shall be limited to the six (6)-month period
following the date of such cessation of Service. However,
should such Disability be deemed to constitute Permanent
Disability, then the period during which each outstanding
option granted to such optionee is to remain exercisable
shall be extended by an additional six (6) months so that
the exercise period shall be limited to the twelve
(12)-month period following the date of the original
optionee's cessation of Service by reason of such Permanent
Disability.
(iii) Should the original optionee die while one or
more options granted to such optionee remain outstanding,
then the period during which each such option is to remain
exercisable shall be limited to the twelve (12)-month
period
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<PAGE>
following the date of the original optionee's death. During
such limited period, the option may be exercised by the
personal representative of the original optionee's estate
or by the person or persons to whom the option is
transferred pursuant to the original optionee's will or in
accordance with the laws of descent and distribution or,
subject to Code Section 422, as otherwise permitted with
the consent of, or in accordance with rules and procedures
established by, the Committee.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration date
of the option term.
(v) During the applicable post-Service exercise period
as described in clauses (i)-(iii) above, the option may not
be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the
date of the original optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option
shall terminate and cease to be exercisable for any vested
shares for which the option has not been exercised.
However, the option shall, immediately upon the original
optionee's cessation of Service, terminate and cease to be
outstanding with respect to any option shares for which the
option is not at that time exercisable or in which the
optionee is not otherwise at that time vested.
(2) The Committee shall have full power and authority to
extend the period of time for which the option is to remain
exercisable following the original optionee's cessation of
Service or death from the limited period in effect under
subsection C.1 of this Article VI to such greater period of time
as the Committee shall deem appropriate; provided, that in no
event shall such option be exercisable after the specified
expiration date of the option term.
D. STOCKHOLDER RIGHTS. An optionee shall have no stockholder rights
with respect to the shares subject to the option until such individual shall
have exercised the option and paid the exercise price.
E. UNVESTED SHARES. The Committee shall have the discretion to
authorize the issuance of unvested shares of Common Stock under the Plan.
Should the original optionee cease Service and all or any of such shares remain
unvested, the Corporation shall have the right to repurchase, at the exercise
price paid per share, all or (at the discretion of the Corporation and with the
consent of the holder) any of those unvested shares. The terms and conditions
upon which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Committee and set forth in the agreement
evidencing such repurchase right. In no event, however, may the Committee
impose a vesting schedule upon any option granted under the Plan or any shares
of Common Stock subject to the option which is more restrictive than twenty
percent (20%) per year vesting, beginning one (1) year after the grant date.
All outstanding repurchase rights under the
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Plan shall terminate automatically upon the occurrence of any Corporate
Transaction, except to the extent the repurchase rights are expressly assigned
to the successor corporation (or parent thereof) in connection with the
Corporate Transaction.
F. FIRST REFUSAL RIGHTS. Until such time as the Corporation's
outstanding shares of Common Stock are first registered under Section 12(b) or
(g) of the Exchange Act, the Corporation shall have the right of first refusal
with respect to any proposed sale or other disposition by the optionee (or any
successor in interest by reason of purchase, gift or other transfer) of any
shares of Common Stock issued under the Plan. Such right of first refusal shall
be exercisable in accordance with the terms and conditions established by the
Committee to the extent set forth in the agreement evidencing such right.
G. LIMITS ON TRANSFER. Except as otherwise permitted with the consent
of, or in accordance with the rules and procedures established by, the
Committee and subject to Code Section 422, no option granted hereunder, and no
right under any such option, shall be assignable, alienable, saleable or
transferable by a participant otherwise than by will or by the laws of descent
and distribution. Each option, and each right under any such option, shall be
exercisable during the participant's lifetime only by the participant or, if
permissible under applicable law with respect to any option that is not an
Incentive Option, by the participant's guardian or legal representative or, as
provided herein, by any permitted assignee of the participant. Except as
specifically provided herein, no option, and no right under such option, may be
pledged, alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable
against the Corporation or any Parent or Subsidiary.
VII. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Except as modified by the provisions
of this Article VII, all the provisions of the Plan shall be applicable to
Incentive Options. Incentive Options may only be granted to individuals who are
Employees. Options which are specifically designated as Non- Statutory shall
not be subject to such terms and conditions.
A. EXERCISE PRICE. The exercise price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the date
of grant. If the individual to whom the option is granted is a 10% Stockholder,
then the exercise price per share shall not be less than one hundred ten
percent (110%) of the Fair Market Value per share of Common Stock on the grant
date.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the Common
Stock (determined as of the respective date or dates of grant) for which one
(1) or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or any Parent
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<PAGE>
or Subsidiary) may for the first time become exercisable as Incentive Options
during any one (1) calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more
such options which become exercisable for the first time in the same calendar
year, the foregoing limitation on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which such
options are granted. Should the applicable One Hundred Thousand Dollar
($100,000) limitation in fact be exceeded in any calendar year, then the option
shall nevertheless become exercisable for the excess number of shares in such
calendar year as a Non-Statutory Option.
C. TERM IN CASE OF 10% STOCKHOLDER. If any individual to whom an
Incentive Option is granted is a 10% Stockholder, then the option term shall
not exceed five (5) years measured from the grant date.
VIII. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, each option at the
time outstanding under the Plan shall terminate and cease to be exercisable,
except to the extent assumed by the successor corporation or parent thereof.
B. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to remain outstanding shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been
issuable to the optionee in the consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (1) the class and number of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (2) the exercise price payable per share,
provided the aggregate exercise price payable for such securities shall remain
the same.
C. The grant of options under this Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IX. CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but with an exercise price per share not less
than (1) one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the new grant date in the case of a grant of an Incentive
Option, (2) one hundred ten percent
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<PAGE>
(110%) of such Fair Market Value in the case of an Incentive Option grant to a
10% Stockholder or (3) eighty-five percent (85%) of such Fair Market Value in
the case of all other grants.
X. LOANS
A. The Committee may assist any optionee in the exercise of one or
more options granted under the Plan by:
(1) authorizing the extension of a loan from the Corporation to
the optionee or
(2) permitting the optionee to pay the exercise price in
installments over a period of years.
B. The terms of any loan or installment method of payment (including
the interest rate and terms of repayment) shall be established by the Committee
in its sole discretion. Loans or installment payments may be authorized with or
without security or collateral. The maximum credit available to each optionee
may not exceed the sum of (1) the aggregate exercise price payable for the
purchased shares (less the par value of such shares) plus (2) any Federal,
state and local income and employment tax liability incurred in connection with
such exercise.
C. The Committee may, in its absolute discretion, determine that one
or more loans extended under this Article X shall be subject to forgiveness by
the Corporation in whole or in part upon such terms and conditions as the
Committee may in its discretion deem appropriate.
XI. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the original optionee any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary) or of the original optionee, which rights are hereby expressly
reserved by each, to terminate the original optionee's Service at any time for
any reason, with or without cause.
XII. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall, without the consent of the option holders,
adversely affect their rights and obligations under their outstanding options.
In addition, to the extent required under applicable law or by any securities
exchange on which the securities of the Corporation are traded, the Board shall
not, without the approval of the Corporation's stockholders, (1) increase the
maximum number of shares issuable under the Plan, except for permissible
adjustments under Article V, (2) materially modify the eligibility requirements
for option grants, (3) materially modify the Plan, within the
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meaning of Code Section 162(m) and the Treasury Regulations thereunder, or (4)
otherwise materially increase the benefits accruing to option holders.
XIII. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan shall become exercisable unless and until the
Plan shall have been approved by the Corporation's stockholders. If such
stockholder approval is not obtained within twelve (12) months after the date
of the Board's adoption of the Plan, then all options previously granted under
the Plan shall terminate and no further options shall be granted. Subject to
such limitation, the Committee may grant options under the Plan at any time
after the effective date and before the date fixed herein for termination of
the Plan.
B. The Plan shall terminate upon the earliest of (1) December 31,
2003, (2) the date on which all shares available for issuance under the Plan
shall have been issued or (3) the termination of all outstanding options under
Article VIII of the Plan. Upon such Plan termination, each option and unvested
share issuance outstanding under the Plan shall continue to have full force and
effect in accordance with the provisions of the agreements evidencing that
option or share issuance.
XIV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
XV. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise of
any options granted under the Plan shall be subject to the satisfaction by the
optionee of all applicable Federal, state and local income and employment tax
withholding requirements.
XVI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder
and the issuance of Common Stock upon the exercise of any option shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the options
granted under it and the Common Stock issued pursuant to it.
XVII. FINANCIAL REPORTS
The Corporation shall deliver at least annually to each individual
holding an outstanding option under the Plan the same financial information
furnished to holders of the
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<PAGE>
Common Stock, unless the optionee is a key employee whose duties in connection
with the Corporation assure such individual access to equivalent information.
XVIII. DEDUCTIBILITY OF COMPENSATION UNDER THE PLAN
If, after the adoption of the Plan or any modification thereto, the
Corporation becomes a "publicly-held corporation," within the meaning of Code
Section 162(m), then prior to the termination of the "reliance period" set
forth in Treasury Regulation Section 1.162-27(f)(2), the Committee shall
determine whether and what actions to take to ensure that options granted under
the Plan after the expiration of the "reliance period" constitute
"performance-based compensation" within the meaning of Code Section 162(m).
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Exhibit 10.4
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
SPONSORED RESEARCH AGREEMENT
Agreement, made this 23rd day of March, 1993, by and between THE
UNIVERSITY OF TEXAS M.D. ANDERSON CANCER CENTER (hereinafter referred to as
"CANCER CENTER"), a component institution of The University of Texas System
(hereinafter referred to as "SYSTEM"), located in Houston, Texas, and Ingenex,
Inc., a California corporation (hereinafter referred to as "SPONSOR"), located
at 400 Oyster Point Road, Suite #315, San Francisco, California 94080.
WITNESSETH:
WHEREAS, SPONSOR is the licensee of the technology described in the
patent applications shown in Exhibit III attached hereto, which has potential
utilization in patient care and treatment; and
WHEREAS, CANCER CENTER has research facilities and situations which
would allow investigation and study the technology for use in the treatment of
cancer as described in Exhibit I hereinafter referred to as ("Research"), a
copy of which is attached hereto and incorporated herein by reference; and
WHEREAS, both SPONSOR and CANCER CENTER consider it necessary and
desirable to perform the Research; and
WHEREAS, both SPONSOR and CANCER CENTER desire to cooperate in the
design construction, and use of a retroviral production facility to be located
at, and owned by CANCER CENTER to enable the clinical development of new
therapeutic pharmaceuticals;
NOW, THEREFORE, the parties agree as follows:
1. Evaluation. SPONSOR agrees to engage the services of CANCER CENTER
as an independent contractor to perform the Research. The Research will be
under the supervision of Albert B. Deisseroth, M.D., Ph.D. (Principal
Investigator) at CANCER CENTER, with the assistance of appropriate associates
and colleagues at CANCER CENTER as may be required. In the event that Albert
B. Deisseroth, M.D., Ph.D. is unable to act as Principal Investigator in the
STUDY for any reason, SPONSOR shall decide whether to terminate the STUDY,
subject to the provisions of Article 14, or whether to continue the STUDY
under the supervision of a substitute Principal Investigator who is mutually
acceptable to both CANCER CENTER and SPONSOR.
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<PAGE>
2. Research.
a. CANCER CENTER agrees as an independent contractor to conduct the
Research. Such Research was originally approved by CANCER CENTER in accordance
with CANCER CENTER policy and may be subsequently amended only in accordance
with CANCER CENTER policy and the written agreement of CANCER CENTER and
SPONSOR as provided for in Article 16 herein below.
b. The Retroviral Production Facility referenced in Exhibit 1("FACILITY"),
will be provided and operated by CANCER CENTER with funding initially from
SPONSOR. SPONSOR will have the right to use the FACILITY for five (5) years,
subject to Article 14 herein, for the development and production of gene
therapy agents for clinical testing based on the human MDR1 gene, modified RB
genes, and other genetic therapy elements as may be evaluated in collaboration
with the Principal Investigator. CANCER CENTER agrees to limit access to the
FACILITY to persons directly involved in the performance of sponsored research
conducted on behalf of SPONSOR'S and to CANCER CENTER's own employees engaged
in academic research as permitted herein. CANCER CENTER will take the
necessary steps, including obtaining nondisclosure agreements from persons
having access to the FACILITY, to protect SPONSOR's proprietary information
and materials. CANCER CENTER may utilize the FACILITY for its own non-profit
educational and research purposes and agrees not to utilize the FACILITY to
conduct research directly or indirectly for the benefit of any third party
with rights in excess of the Federal Government without the prior written
approval of SPONSOR.
c. The purpose of the FACILITY will be to support the basic and clinical
research programs of the CANCER CENTER, and particularly of the Principal
Investigator, by providing a resource for the GMP (Good Manufacturing
Practices) production of clinical grade retroviral pharmaceutical reagents for
investigational use in humans to obtain United States Food and Drug
Administration (FDA) approval. The FACILITY will not be a commercial
enterprise.
3. Invention and Patents.
a. For all purposes herein, "Invention" shall man any discovery, concept
or idea whether or not patentable or copyrightable, which (i) arises
out of work performed pursuant to the obligations of, and funded
under, this Agreement; (ii) is conceived and reduced to practice
during the term of the Agreement as defined in Article 14 hereinbelow;
and (iii) includes but is not limited to processes, methods, software,
formulae, techniques, compositions of matter, devices, and
improvements thereof and know-how relating thereto.
Inventions made solely by the Principal Investigator and/or other
CANCER CENTER personnel as identified in Article 1 hereinabove, or
agents of CANCER CENTER, shall be the sole property of CANCER CENTER.
Inventions made jointly by employees or agents CANCER CENTER and
SPONSOR shall be jointly owned by CANCER CENTER and SPONSOR.
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<PAGE>
b. In the event that an Invention is made, either solely by employees or
agents of CANCER CENTER or jointly by employees or agents of CANCER
CENTER and SPONSOR, CANCER CENTER and SPONSOR agree to give written
notice of such Invention to each other within thirty (30) days of the
identification of such Invention. Within thirty (30) days of notice of
Invention, CANCER CENTER and SPONSOR will thereupon exert their best
reasonable efforts in cooperation with each other to investigate,
evaluate and determine to the mutual satisfaction of both parties, the
disposition of rights to the Invention, including whether, by whom,
and where any patent applications are to be filed.
c. If, after consultation with SPONSOR, it is agreed by the parties that
a patent application should be filed, or if SPONSOR determines it
would like to file a patent application, SPONSOR will prepare and file
appropriate United States and foreign patent applications on
Inventions made under this Agreement, and pay the cost of preparing,
filing, prosecution and maintenance thereof. SPONSOR intends, and is
hereby authorized, to use the services of the law firm of Pennie &
Edmonds, of New York, in the preparing, filing and prosecution of all
such patent applications. SPONSOR agrees to consult with CANCER CENTER
in the preparation and prosecution of all such patent applications and
will provide CANCER CENTER'S a copy of all applications filed for
which SPONSOR has paid the cost of filing, as well as copies of any
documents received or filed during prosecution thereof. If SPONSOR
notifies CANCER CENTER that it does not intend to pay the cost of an
application, or if SPONSOR does not respond to CANCER CENTER,
notification that an invention has been made within thirty (30) days
after receipt of such notification, then CANCER CENTER may file such
application at its own expense, and with the attorneys of its choice,
and SPONSOR shall have no rights to such Invention. SPONSOR agrees to
maintain any such application in confidence until it is published by
CANCER CENTER or by the respective patent office. Any patent
application filed by SPONSOR which names a CANCER CENTER employee as
an inventor shall be filed at least in the name of BOARD, and CANCER
CENTER agrees to cooperate in the filing of all patent applications
filed pursuant to this agreement.
d. (i) CANCER CENTER agrees to grant SPONSOR an exclusive, worldwide,
royalty-bearing license to make, have made, use, and sell Inventions
(as well as patent applications, patents, and copyrights thereon) for
commercial purposes, under the terms and conditions set forth in the
form License Agreement attached hereto as Exhibit II (the "License
Agreement"), provided that SPONSOR shall pay all costs and expenses
associated with patent and copyright filing, prosecution, issuance,
and maintenance. The License Agreement shall become effective upon the
request of SPONSOR to activate the License Agreement, after the CANCER
CENTER has notified SPONSOR that an Invention has been made. SPONSOR
shall have thirty (30) days from the date of written notice of
Invention from CANCER CENTER pursuant to Article 3(b) hereinabove, to
give written
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notice to CANCER CENTER to activate the Agreement. The License
Agreement shall be activated and made effective by providing (1) the
description of the Invention to the licensed (including title,
inventors, patent application filing date, and serial number if
available), (2) the effective date, and (3) all of the required
signatures and approvals of both parties.
(ii) CANCER CENTER grants SPONSOR an exclusive right of first refusal
to take a license under the License Agreement, pursuant to Section
1.3.2 and 4.1.1 (B) of the License Agreement, to inventions made with
funding from the federal Government (or from another source that does
not claim rights to intellectual property in excess of those of the
federal Government) and which were developed with the use of the
FACILITY. Within thirty (30) days after receipt of notice from the
CANCER CENTER that such an invention has been made, SPONSOR must
notify CANCER CENTER in writing of SPONSOR's intent to exercise this
right of first refusal. The right of first refusal becomes a
non-exclusive option if SPONSOR fails to exercise the right of first
refusal within the thirty (30) day period provided.
(iii) Subject to Article 2(b), above, CANCER CENTER grants SPONSOR a
non-exclusive option to negotiate a license to inventions made with
use of the FACILITY and with funding from a third party with
intellectual property rights that conflict with SPONSOR's rights under
this Agreement. This option, and any license granted to SPONSOR from
the CANCER CENTER pursuant to it, is expressly subject to the rights
of said third party. Within thirty (30) days after receipt of notice
from the CANCER CENTER in writing of SPONSOR's intent exercise this
option.
e. In the event Sponsor does not notify CANCER CENTER in writing of
SPONSOR's intent to exercise its rights under section 3(d), above,
within the thirty (30) day period provided, CANCER CENTER shall have
the right to enter into license agreements, including exclusive
license agreements, with third parties concerning the same Invention.
4. Confidentiality. Because CANCER CENTER and SPONSOR will be cooperating
with each other in this Research, and because each may reveal to the other
in the course of this Research certain confidential information, CANCER
CENTER and SPONSOR agree to hold any confidential information which (a) is
obtained during the course of this work and (b) is related thereto and (c)
is marked as "CONFIDENTIAL" in confidence, and each party will not
disclose same to any third party without the express written consent of
the other party to this Agreement. This requirement shall remain in force
for a period of five (5) years following completion of work under this
Agreement. Nothing in this paragraph shall in any way restrict the rights
of either CANCER CENTER or SPONSOR to use, disclose or otherwise deal with
any information which:
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a. Can be demonstrated to have been in public domain as of the effective
date of this Agreement or comes into the public domain through the
term of this Agreement through no act of the recipient; or
b. Can be demonstrated to have been known to the recipient prior to the
execution of this Agreement; or
c. Can be demonstrated to have been rightfully received by the recipient
after disclosure under this Agreement from a third party who did not
require the recipient to hold it in confidence or limit its use and
who did not acquire it, directly or indirectly, under obligation of
confidentiality to the disclosing party; or
d. Shall be required for disclosure to Federal regulatory agencies
pursuant to approval for use; or
e. Is independently invented by researchers of the recipient, which in
the case of CANCER CENTER includes SYSTEM, who have not had access to
the information provided to the recipient hereunder.
Nothing herein is intended to give either party the right to use for
any purpose pre-existing confidential information of the other party.
Notwithstanding the confidentiality obligations of this Agreement,
nothing herein shall prevent CANCER CENTER and any other component of
SYSTEM from using any information generated hereunder for ordinary
research and educational purposes of a university.
5. Publication Rights. Notwithstanding the provisions of Article 4 of this
Agreement, CANCER CENTER may publish scientific papers relating to the
collaborative research performed under this Agreement. In the event that
CANCER CENTER wishes to publish, CANCER CENTER shall notify SPONSOR of its
desire to publish at last sixty (60) days in advance of publication and
shall furnish to SPONSOR a written description of the subject matter of
the publication in order to permit SPONSOR to review and comment thereon.
6. Publicity. CANCER CENTER acknowledges SPONSOR's intention to distribute
periodically informational releases and announcements to the news media
regarding the progress of research hereunder. SPONSOR shall not release
such materials containing the name of CANCER CENTER or any of its
employees without prior written approval by an authorized representative
of CANCER CENTER, and said approval shall not be unreasonably withheld.
Should CANCER CENTER reject the news release, CANCER ENTER and SPONSOR
agree to discuss the reasons for CANCER CENTER's rejection, and every
effort shall be made to develop an appropriate informational news release
within the bounds of accepted academic practices. SPONSOR reserves the
same right in the event that CANCER CENTER desires to distribute a news
release concerning the
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research program. Nothing herein shall be construed as prohibiting CANCER
CENTER or SPONSOR from reporting on this study to a governmental agency.
7. Responsibility. The parties each agree to assume individual responsibility
for the actions and omissions of their respective employees, agents and
assigns in conjunction with this evaluation.
8. Independent Contractor. SPONSOR will not have the right to direct or
control the activities of CANCER CENTER in performing the services
provided herein, and CANCER CENTER shall perform services hereunder only
as an independent contractor, and nothing herein contained shall be
construed to be inconsistent with this relationship or status. Under no
circumstances shall CANCER CENTER be considered to be an employee or agent
of SPONSOR. This Agreement shall not constitute, create or in any way be
interpreted as a joint venture, partnership or formal business
organization of any kind.
9. Title to Equipment. CANCER CENTER shall retain title to all equipment
purchased and/or fabricated by it with funds provided by SPONSOR under
this Agreement.
10. Survivorship. The provisions of Article 3, 4, 5, 6, and 12 shall survive
any expiration or termination of this Agreement.
11. Assignment. This Agreement may not be assigned by either party without the
prior written consent of the other party; provided, however, that SPONSOR
may assign this Agreement to any purchaser or transferee of all or
substantially all of SPONSOR's business upon prior written notice to
CANCER CENTER.
12. Indemnification. CANCER CENTER shall, to the extent authorized under the
Constitution and the laws of the State of Texas, hold SPONSOR harmless
from liability resulting from the negligent acts or omissions of CANCER
CENTER, its agents or employees pertaining to the activities to be carried
out pursuant to the obligations of this Agreement; provided, however, that
CANCER CENTER shall not hold SPONSOR harmless from claims arising out of
the negligence of SPONSOR, its officers, agents or any person or entity
not subject to CANCER CENTER's supervision or control.
SPONSOR shall indemnify and hold harmless SYSTEM, CANCER CENTER, their
regents, officers, agents and employees from any liability or loss
resulting from judgments or claims against them arising out of the
activities to be carried out pursuant to the obligations of this Agreement
or the use by SPONSOR of the results of the Research, provided, however,
that the following is excluded from SPONSOR's obligation to indemnify and
hold harmless:
a. the negligent failure of CANCER CENTER to comply with any applicable
governmental requirements; or
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b. the negligence or willful malfeasance by a regent, officer, agent or
employee of CANCER CENTER or SYSTEM.
13. Award. SPONSOR agrees to pay CANCER CENTER One Million four Hundred
Ninety-Nine Thousand Five Hundred Fifty-Eight and No/100 Dollars
($1,499,558.00) for expenses and other related costs incurred in
conjunction with the Research. This amount, as shown by approximate
category of expense in the attached Exhibit I which is attached hereto and
is incorporated herein by reference, for information only, shall be
payable according to the following schedule: one payment of two Hundred
Fifty Thousand Two Hundred Eighty-Seven and No/100 Dollars ($250,287.00)
shall be due within sixty (60) days of the date of execution of this
Agreement; a second payment of two Hundred Fifty Thousand Two Hundred
Eighty-Seven and No/100 Dollars ($250,287.00) shall be due January 31,
1994; upon the achievement of mutually agreeable milestones as set forth
in Appendix IV of this Agreement.
Sponsor shall also provide payment of $999,608. for establishment and
operation of the Retroviral Production Facility. This payment shall occur
as follows: one payment of $300,000 due within thirty (30) days after
receipt of notice by Sponsor from the Recombinant Advisory Committee that
Cancer Center has completed the animal experiment necessary for RAC
approval; a second payment of $100,000 due ninety (90) days after the
first payment; a third payment of $100,000 due one hundred and eighty
(180) days after the first payment, a fourth payment of $250,000 due one
year after the first payment, and $249,608 due eighteen (18) months after
the first payment.
14. Alternative Production Facility. Sponsor and Cancer Center agree that in
the event Sponsor is able to provide a retroviral production facility
acceptable to the Principal Investigator through Sponsor's lease or
purchase of such a facility, but which is not located at or owned by
Cancer Center, Sponsor may choose to conduct the retroviral production
research and development under this agreement at such alternative
facility. In such event Sponsor shall not provide payment of $999,608 as
described in Article 13 above, but Sponsor shall provide all operating
expenses necessary to provide for the same scope, extent, and timely
performance of work to be performed at the Retroviral Production Facility.
These total operating expenses are currently estimated at $740,000, but
may be adjusted by mutual agreement of Sponsor and Cancer Center. The
alternative production facility would be operated or owned by Sponsor, and
Sponsor would provide all access necessary to the facility for Principal
Investigator and Cancer Center employees directly involved in the
Sponsored Research. Sponsor would also make the alternate facility
available for the non-profit educational and research purposes of the
Cancer Center. Inventions and patents made by Cancer Center employees and
its agents utilizing the alternate facility would be governed by Article 3
of this agreement. Inventions made by Sponsor's employees and its agents
in the alternate facility would be the sole property of Sponsor and not
governed or subject to Article 3 of this agreement. Inventions made by
both Cancer Center employees or its agents and sponsor, or its agents in
the alternate facility, will be governed by Article 3 of this agreement.
Sponsor's rights under Article 3
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shall continue, in the event of utilization of this alternate facility,
for the duration of collaboration with and utilization of the alternate
facility by Cancer Center, and shall not expire on the sixth anniversary
of this agreement, as described in Article 15 below. Sponsor would have
the full right to use such alternate facility for its own research and
development purposes, and Sponsor's duration of use, occupancy and/or
ownership of such alternate facility will not be limited by Article 2b,
Article 14, or any other part of this Agreement.
15. Basic Term. (i) This Agreement shall become effective as of the date first
hereinabove written and, unless earlier terminated as hereinafter
provided, shall continue in force for a period of two (2) years after the
same, provided, however, that the term of this Agreement may be extended,
contingent upon continued collaboration between SPONSOR and the Principal
Investigator, at the option of SPONSOR (exercised by written notice to
CANCER CENTER) for one (1) year periods, for three (3) consecutive years
after the second anniversary of this Agreement. (ii) SPONSOR's rights
under Article 3 (d) (ii) and (iii), above, shall terminate on the sixth
anniversary of the effective date of this Agreement, regardless of whether
this Agreement is otherwise extended beyond that date.
16. Default and Termination. In the event that either party to this Agreement
shall be in default of any of its material obligations hereunder and shall
fail to remedy such default within thirty (30) days after receipt of
written notice thereof, the party not in default shall have the option of
terminating this Agreement by giving written notice thereof,
notwithstanding anything to the contrary contained in this Agreement.
SPONSOR shall have the right to termination of this Agreement, with proper
notice as described above, if the milestones, as outlined in Exhibit III
attached hereto, are not achieved, unless CANCER CENTER justifies to the
satisfaction of SPONSOR, the failure to achieve the milestone, or
otherwise cures the breach. Termination of this Agreement shall not affect
the rights and obligations of the parties which accrued prior to the
effective date of termination. SPONSOR shall pay CANCER CENTER for all
reasonable expenses incurred or committed to be expended as of the
effective termination date, subject to the maximum amount as specified in
Article 13.
17. Entire Agreement. The parties acknowledge that this Agreement and the
attached Exhibits hereto represent the sole and entire Agreement between
the parties hereto pertaining to the Research and that such supersedes all
prior Agreements, understandings, negotiations and discussions between the
parties regarding same, whether oral or written. There are no warranties,
representations or other Agreements between the parties in connection with
the subject matter hereof except as specifically set forth herein. No
supplement, amendment, alteration, modification, waiver or termination of
this Agreement shall be binding unless executed in writing by the parties
hereto.
18. Reform of Agreement. If any provision of this Agreement is, becomes or is
deemed invalid, illegal or unenforceable in any United States
jurisdiction, such provision shall be deemed amended to conform to
applicable laws so as to be valid and enforceable; or if it
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<PAGE>
cannot be so amended without materially altering the intention of the
parties, it shall be stricken, and the remainder of this Agreement shall
remain in full force and effect.
19. Notices. Any notices, statements, payments, or reports required by this
Agreement shall be considered given if sent by United States Certified
Mail, postage prepaid and addressed as follows:
If to CANCER CENTER:
Michael J. Best
Chief Financial Officer
The University of Texas M.D. Anderson Cancer Center
1515 Holcombe Blvd.
Houston, Texas 77030
(713) 792-7550
If to SPONSOR:
Dr. Lou Bucalo
Ingenex, Inc.
400 Oyster Point Boulevard, Suite 315
San Francisco, California 94080
(415) 244-4950
20. Captions. The captions in this Agreement are for convenience only and
shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
21. Governing Law. This Agreement shall be governed and interpreted in
accordance with the substantive laws of the State of Texas and with
applicable laws of the United States of America.
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<PAGE>
IN WITNESS WHEREOF, CANCER CENTER and SPONSOR entered into this
Agreement effective as of the date first hereinabove written and have executed
three (3) originals each of which are of equal dignity.
INGENEX, INC. THE UNIVERSITY OF TEXAS
M.D. ANDERSON CANCER CENTER
BY: /s/ Louis R. Bucalo BY: /s/ Michael J. Best
---------------------- ------------------------
Michael J. Best
TITLE: President Chief Financial Officer
-------------------
I have read this agreement and
understand my obligations
hereunder: CONTENT APPROVED:
BY: /s/ Albert B. Deisseroth BY: /s/ Donna S. Gilberg
---------------------------------- -----------------------------
Albert B. Deisseroth, M.D, Ph.D. Donna S. Gilberg, CPA
Principal Investigator Manager, Sponsored Agreements
FORM APPROVED:
BY: /s/ Irwin H. Krakoff BY: /s/ Matthew E. Burr
----------------------------- ----------------------
Irwin H. Krakoff, M.D. Matthew E. Burr, J.D.
Head, Division of Medicine Legal Services Officer
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EXHIBIT I
PROPOSAL TO INGENEX, INC.
PRINCIPAL INVESTIGATOR: ALBERT DEISSEROTH, M.D.,
PH.D.
THE U.T. M.D. ANDERSON CANCER CENTER, HOUSTON,
TEXAS
OCTOBER 1, 1992
<PAGE>
ABSTRACT:
Fifty-percent of the one out of eight American women diagnosed with breast
cancer are destined to die following the diagnosis of the disease. An
additional 50% of patients diagnosed with ovarian cancer will also die. If one
delays treatment until the time of evolution of advanced disease, only 15% of
these patients can be rescued even with the most intensive therapy. The doses
of therapy which can be used to eradicate this disease, either in the adjuvant
setting for poor prognosis patients or in the advanced disease setting, is
limited by myelosuppression. In resistant gestational malignancies, as well as
in ovarian cancer, depletion of the marrow reserve by therapy leads to
inability to deliver the full doses of therapy which are nenessary to cure the
disease. In order to protect marrow from chemotherapy-induced toxicity, we are
proposing to introduce the multidrug resistance cDNA into the normal
hematopoietic stem cells of patients with carcinomas of the breast and ovary
as well as gestational malignancies and to transplant them before they are
exposed to combination chemotherapy. We will use safety modified retroviruses
which contain the MDR cDNA to modify hematopoietic progenitor cells. We will
then use in vivo selection of the cells which are transduced and therefore
resistant to chemotherapy. This will permit the delivery of effective doses of
combination chemotherapy to which the disease will be sensitive. Project 1A
will deal with the development of preclinical data for retroviruses which
carry MDR-1 for use in genetic modification of hematopoietic cells. Projects
1B and 1C contain proposals for clinical implementation of the programs for
chemoprotection of the carcinoma of the breast and ovary. Project 1D contains
a proposal for setting up a production facility for clinical grade
safety-modified retroviruses to enable the U.T. M.D. Anderson Cancer Center in
partnership with Ingenex, Inc. to quickly take laboratory grade materials from
the lab to the clinic. Finally, Project IE contains a proposal for clinical
implementation for the prevention of recurrence of human papilloma virus
positive carcinoma of the cervix by regional exposure to safety-modified
retroviruses which contain the Rb and p53 cDNAs.
A. SPECIFIC AIMS
We are proposing a partnership with Ingenex, Inc. to establish programs
for the introduction of chemotherapy resistance genes into the normal
hematopoietic stem cells of poor prognosis patients with carcinomas of the
ovary, breast, and trophoblastic disease of pregnancy. This is designed to
result in the less myelosuppression following chemotherapy and to permit the
safe delivery of higher doses of chemotherapy than are usually permissible
over prolonged periods of time in settings in which the tolerance of the
marrow to chemotherapy is limited: after autologous transplant or in the
adjuvant setting. In addition, we will apply this genetic chemoprotection to
primary refractory patients with trophoblastic disease of pregnancy. In poor
prognosis advanced ovarian cancer, and in the trophoblastic disease of
pregnancy, the chemotherapy needed to induce cures often results in reduction
of the marrow reserve which then results in a prolongation of the intervals
between successive doses of chemotherapy. This is often not correctable by the
administration of growth factors. The longer intervals between chemotherapy
provide more time for recovery of the abnormal cells, leading to relapse and
escape from curative therapy. Although advanced disease patients with relapsed
carcinoma of the breast often exhibit striking responses to a single dose of
autologous transplantation, the patients often relapse and cannot receive
therapy
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The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
following transplant to prevent relapse due to the sensitivity of the graft to
the suppressive effects of chemotherapy. The high dose adjuvant therapy also
may induce a reduction of the marrow stem cell reserve.
[ ***
]
SPECIFIC AIM 1: Development of Vectors: Construction of vectors and
producer cell lines which contain the MDR-1 cDNA in a safety-modified
retrovirus (Deisseroth, Hanania and Fu).
SPECIFIC AIM 2: Testing of the virus in cells to determine its
transduction frequency and the stability of the change in phenotype
(chemotherapy resistance) induced by its transduction in cells following
transplantation. MDR viruses will be tested.
SPECIFIC AIM 3: Testing of the significance of the change in phenotype
induced in the cells transduced by this retrovirus in animal models. The MDR
vectors will be tested by Drs. Deisseroth, Hanania and Fu in a breast cancer
mouse model.
SPECIFIC AIM 4: Evaluation of the producer cell lines and retroviral
supernatants so as to produce a clinical grade retroviral supermatant.
SPECIFIC AIM 5: Development of a clinical trial for the in vivo selection
of genetically modified hematopoietic cells and the testing of the clinical
impact of genetic modification of the resistance of sensitivity of cells to
chemotherapy in carcinomas of the breast and ovary.
SPECIFIC AIM 6: Presentation of the clinical programs for review through
the regulatory process to the local IRB, the NIH RAC, and the FDA. The time
line for implementation of these specific aims is reviewed in Table II.
[ ***
]
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B. BACKGROUND
SECTION ON RATIONALE FOR MDR CHEMOPREVENTION IN CARCINOMAS OF THE OVARY,
BREAST, AND TROPHOBLASTIC DISEASE OF PREGNANCY:
During the past 40 years, two factors have limited the safe delivery of
doses of chemotherapy which can eradicate breast cancer or ovarian cancer in
poor prognosis patients: (1) Resistance of the carcinoma cells to the doses of
chemotherapy which are non-toxic to the normal tissues of most patients; and
(2) the sensitivity of the bone marrow to the doses of chemotherapy which are
necessary to eradicate the neoplastic disease.
Several strategies have been attempted to circumvent these two
limitations. One strategy involved drugs which will inhibit the molecules
which contribute to drug resistance. These studies have involved primarily
drugs which may inhibit the efflux drug pumps MDR-1, which has been found to
be present in the neoplastic cells of relapsed patients. Unfortunately, since
the normal hematopoietic cells depend upon one of these molecules, MDR1, for
whatever resistance they have to chemotherapy (1), and the level of clinical
resistance in the tumor is not always due to MDR-1, these trials have been
unsuccessful.
Another method which has been studied extensively at M.D. Anderson, as
well as at other centers, is the use of dose escalation of the therapy, and
rescue of the patient from hematopoietic toxicity by infusion of the
autologous marrow which is kept out of the body of the patients during the
administration of the intensive chemotherapy (2-5). Our center as well as
workers at the Sydney Farber Cancer Center, Duke University, and at other
institutions have observed striking responses at the higher dose levels (2-5).
However, only 20% of the advanced disease patients have exhibited durable
responses (2-5).
Since these patients usually relapse in the sites of bulky disease which
were present at diagnosis, most experts have concluded that the remissions
induced by a single dose of chemotherapy decrease the tumor burden below the
level which is clinically detectable, but do not eradicate it, and this
residual disease simply regrows. It is uniformly recognized that most patients
who receive intensive systemic therapy followed by an autologous bone marrow
transplantation are extremely sensitive to even conventional dose
chemotherapy, which excludes the administration of continuation cycles of
therapy at conventional doses following transplant to eradicate the residual
disease and prevent tumor regrowth.
Another strategy which has been used to circumvent the propensity of
breast cancer to regrow in the adjuvant setting after regional therapy
(radiation and/or surgery) is the administration of escalating doses of
adjuvant chemotherapy in poor prognosis patients (Stage II or III breast
cancer). Studies at our institution (6-8) have shown in this setting that the
disease-free survival has been directly related to the doses of cytotoxic
therapy given, and the response rate has correlated with the dose intensity in
the advanced disease setting. In this setting, the administration of intensive
FAC chemotherapy (which has a 5 year disease-free survival of 66% for Stage II
and 47% in Stage II disease delivered at conventional doses), has resulted in
higher initial response rates. However,
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therapists have been unable to continue to deliver these intensive doses of
FAC therapy after three cycles of this therapy. Thus, this initial increased
response rate does not translate into increased survival. In this latter
setting, both the duration and depth of the granulocytopenia as well as the
thrombocytopenia become more profound with each successive dose of therapy,
suggesting that the use of hematopoietic growth factors will not rescue
patients from this problem (6-8).
These data, plus the absence of clinically significant elevations of the
MDR pump in the untreated breast or ovarian cancer patients (9) as well as the
presence of only minimal elevations of MDR in the cells of patients with
resistant carcinoma of the ovary and breast (10), have suggested that the
introduction of the MDR-1 cDNA into the normal hematopoietic cells of the
marrow might permit the use of cyclical administration of relatively higher
doses of combination chemotherapy, either in the adjuvant setting in poor
prognosis disease (ovary or breast), or following bone marrow transplantation
in the minimal disease setting of advanced disease (breast or ovarian cancer)
patients who have received intensive therapy.
What is the evidence that chemoprotection will work? Pastan, Gottesman and
their colleagues have reported that transgenic mice overexpressing the human
MDR1 cDNA, which codes for a 107 kDa glycoprotein, a drug efflux pump in the
plasma membrane of cells, exhibit normal patterns of hematopoiesis, expression
of levels of MDR glycoprotein which are 3-fold higher than most MDR resistant
fresh tumor cells or tumor cell lines, and exhibit a 10-fold increase in the
resistance of hematopoietic cells to drugs like Taxol (9-12). Retroviral
vectors have also been used to infect mammalian cells and in populations
selected by FACS for the modified cells, the resistance to MDR drugs increased
up to 26-fold (13). It is clear, however, that in vivo or in vitro selection
is necessary following retroviral transduction to maintain the resistant
phenotype in mammalian cells. Several mouse and large animal model studies
have also been recently reported (14-16), which document the feasibility of
introduction of resistance genes into human marrow.
Clinical trials of chemoprotection have been proposed in carcinomas of the
breast and ovary. It is clear, from published studies, that the human MDR1 is
not naturally expressed in normal breast or ovarian tissue, and that all of
the fresh specimens of breast or ovarian cancer do not exhibit elevated levels
of MDR providing they were not previously exposed to chemotherapy (17-19). The
levels of MDR in ovarian and breast cancers following therapy in the advanced
disease setting are elevated by 2 to 3-fold. Thus, the introduction of MDR1
into the normal hematopoietic cells of patients with poor prognosis disease,
would make possible the testing of therapeutic questions that would not be
possible with drugs like Taxol. Animal model data suggests that the levels of
chemotherapy resistance, which can be achieved with MDR chemoprotection in
marrow stem cells using selection for the modified cells, is 3-fold higher
than that seen in resistant tumors which have been previously exposed to MDR
drugs (5).
In our institutional experience (2-21) and that of others, the toxicity of
Taxol is primarily myelosuppression, when the continuous infusion schedule of
Taxol alone is used. The clinical programs proposed for breast, ovary and a
third model, trophoblastic disease of pregnancy, are summarized in detail in
this project (Projects 1B and 1C). The presence of marrow contamination with
neoplastic cells, which is a problem with breast cancer, is not a significant
risk in ovary or
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trophoblastic disease. The technical details of this program, including marrow
purging before retroviral transduction, will be dealt with in these projects.
In Projects lA-lC, we are proposing to develop preclinical and clinical
models for the testing of the hypothesis that the transduction of marrow cells
by safety-modified retroviruses which contain the MDR-1 cDNA, which would
protect individuals against the higher doses of anthracyclines and Taxol.
Project 1A will deal with the development of the vectors, preclinical, in
vitro and animal models, as well as developing the clinical grade retroviral
supernatants as outlined in Tables I-II, while Projects 1B and 1C will deal
with the clinical programs.
MDR PUMP PROTEINS AND THE MDR DRUGS (PROJECT 1A)
The MDR-1 gene protects cells against the toxic effects of chemotherapy
since it codes for a plasma membrane ATP-dependent efflux pump. This pump
promotes the secretion of the following drugs: actinomycin D, doxorubicin,
vincristine, vinblastine, VP-16, and Taxol. The M.D. Anderson Cancer Center
Breast Section has developed and studied an adjuvant combination chemotherapy
program for carcinoma of the breast which has been associated with a 60%
long-term disease-free survival rate (6-8). As outlined above, patients are
unable to sustain the high doses required to control advanced or poor
prognosis disease in the adjuvant setting (8).
Recently, the plant product Taxol has exhibited significant activity in
previously untreated advanced disease setting of breast cancer (22), and in
those breast cancer patients who have exhibited resistance to adriamycin. This
drug exhibits myelosuppression as its dose-limiting toxicity in eight of the
ten continuous infusion trials which are available for analysis in which Taxol
was used as the only agent (23-32). The dose intervals between the onset of
limiting myelosuppression and other non-hematopoietic toxicities such as
neuropathy or mucositis depends on the schedule of administration and whether
it is used with other drugs such as platinum. The toxic effect of clinically
significant bradycardia is seen only in the pulse schedule. Several studies
have indicated that Taxol is subject to the MDR-1 pumping mechanism and that
the exposure of cells to Taxol may select for cells which exhibit higher
levels of the MDR protein (33). McGuire has shown that ovarian cancer patients
previously treated with platinum are also very sensitive to the
myelosuppressive effect of Taxol and the sensitivity of hematopoietic cells to
Taxol increases with successive cycles of administration (34). Similarly,
previous exposure of patients to radiation therapy produces prohibitive levels
of sensitivity to the myelosuppressive effects of Taxol. The M.D. Anderson
experience with Taxol (DM 106 and NCI T86-0270) has suggested that
myelosuppression is the major dose limiting toxicity in all but two patients
at the 250 m1/m2 per day continuous infusion trial. All the non-hematological
toxicities in the continuous infusion trials were mild, except for a rare
patient with myalgias and bradycardia (22). These data have suggested that the
use of retroviral modification for chemoprotection will be an important
approach to therapy.
The laboratory of Dr. Kuo of M.D. Anderson have shown that the presence of
MDR-1 in human cells and the presence of MDR-3 in mouse cells leads to
protection of the cells from the toxic effects of chemotherapy. Several groups
have used retroviruses to introduce the MDR cDNA into the bone marrow cells
and have shown that this confers upon these cells resistance to daunomycin
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and protects these cells to myelosuppression (35-38). It is clear that the MDR
is expressed in the most primitive hematopoietic precursor cells (1), and that
the level of expression is normally reduced at later stages of myeloid
maturation. Unregulated expression of the MDR cDNA at all stages of myeloid
and erythroid and megakaryocytoid maturation protects against
chemotherapy-induced myelosuppression (39). In fact, transgenic animal model
studies show that the presence of the MDR protects the hematopoietic cells of
the mice from doses of drugs which are 10-fold from those which usually
suppress hematopoiesis (39). Since the primary dose-limiting toxicity of the
MDR drugs is myelosuppression, the use of the genetic modification
chemoprotection strategy is a strategy of great potential importance to breast
cancer patients.
PREVIOUS WORK WITH ANIMAL MODELS WHICH INVOLVES INTRODUCTION OF RESISTANCE
GENES INTO NORMAL HEMATOPOIETIC GENES:
As outlined above, we will use the mouse animal model to test strategies
for the introduction of cDNAs for MDR chemotherapy into the normal marrow
early progenitor cells of a mouse following transplant. I will now review what
experience has been developed for introduction of retroviral vectors carrying
resistance genes into normal marrow cells as part of bone marrow
transplantation.
MOUSE MODEL FOR GENETIC CHEMOPROTECTION:
Arthur Bank of Columbia University in New York City has attempted genetic
modification of mice using several resistance genes (51). The protocol he has
chosen resembles that previously developed by Malcomb Moore of Memorial
Sloan-Kettering Cancer Center. On day 1, 5FU is administered in order to
destroy the late progenitor cells which do not contribute to the
reconstituting capability of the marrow. On day 3, an engrafting dose of
marrow is harvested. The marrow is cocultivated with viral producer cell
lines. The producer cell lines are the triply mutated cell lines in which the
probability of reconstituting a replication competent virus is very low. In
fact, no replication competent helper virus has been detected with these cell
lines in over 250 different laboratories which have used these cell lines. On
day 5, the cells are placed in two mg/ml of G418. On day 6, these cells are
transplanted intravenously into a mouse which has received 1100 rads of
radiotherapy.
In order to assess the percentage of cells which are modified, and to
establish if the earliest cells have been modified by the virus, the animal is
subjected to a laparotomy, and the spleen colonies are collected sterilely,
and transplanted into a new mouse which has been exposed to 1100 rads of total
body irradiation. These spleen colonies are also taken for culture in
methylcellulose and are also analyzed directly for the presence of MDR mRNA
and protein by PCR and FACS analysis.
This cycle is repeated once more and the spleen colonies are harvested and
analyzed for the presence of MDR mRNA and protein. This protocol can be used
for the generation of genetically modified mice. However, several parameters
need to be examined in order to optimize the transduction frequency and the
stability of the retroviral transgenome in the recipient mice.
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DOG MODEL DATA FOR GENETIC MODIFICATION OF NORMAL HEMATOPOIETIC CELLS:
Rainer Storb of the Fred Hutchinson Cancer Center used Ficoll hypaque
density gradient separated cells and co-cultivated them in a 2/1 ratio with
irradiated producer cell lines (52). CFUGM assay in selective media (G418 for
neo and methotrexate for DHFR) were 6% and 12%, respectively. However, five
weeks following transplant, only 2-5 % of CFUGM were viral genome positive,
whereas at 10 weeks, none of the 2/6 colonies studied were positive,
suggesting that only the late myeloid progenitors had been modified.
Transduction protocols which utilized long-term bone marrow culture as an
element of the transduction system showed an increase of the level of
positivity to 43%. This program was organized as follows: on day -12, the dogs
were given therapy with GCSF in combination with kit ligand for seven days. On
day 5, the cells were harvested and co-cultivated in a Dexter culture in the
presence of the vector supernatant. Fresh vector positive medium was added on
day 2. On day 0, 9.2 gray of TBI was administered followed by infusion of the
transduced marrow.
A third protocol involved administration of cyclophosphamide at a dose of
40 mg/kg I.V. on day -8, marrow aspiration and co-cultivation of the Ficoll
hypaque separated marrow for 24 hours on vector producer cell lines for 24
hours, and transplantation following delivery of 9.2 gray of TBI to the
animals on day 0. Between 1-50% of the cells were seen to be positive 50-100
weeks following transplantation when the neo gene was used. No growth factors
or preselection were used. Dr. Storb has indicated that only 25% of the marrow
bearing areas needed to be irradiated, to provide space for the engrafting
marrow. Both of these investigators were using safety modified retroviruses
but were using growth factors and co-cultivation intermittently (52).
MOUSE AND PRIMATE MODELS FOR TRANSFER OF MDR TO NORMAL HEMATOPOIETIC CELLS:
David Bodine and Arthur Nienhuis of the NIH used a safety modified
retrovirus with the packaging cell lines of Arthur Bank to modify the normal
marrow cells of mice, using a protocol similar to that described above in the
work of Dr. Bank (53). Forty-eight hours following 5FU pretreatment, bone
marrow was harvested and modified by incubation in the supernatant of a Bank
producer cell lines which produced virus containing Gottesman's MDR cDNA.
Following transplantation of the modified cells, Bodine and Nienhuis
administered Taxol intraperitoneally at high doses to select for growth of the
modified marrow cells. The marrow cells of the mice were still positive at
eight months after transplant for MDR. These workers could not establish a
dose and schedule of Taxol which would have permitted them to gradually select
for MDR positive marrow cells due to toxicity and treatment deaths generated
in the mice by the treatment schedule they used.
GENETIC THERAPY OF BLADDER CANCER:
Carcinoma of the bladder affects 50,000 individuals every year.
Eventually, two-thirds of these individuals will relapse. Once relapse occurs,
chemotherapy and cystectomy are required.
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Molecular analysis of the primary bladder cancer cells at diagnosis shows that
absence of the retinoblastoma (RB) protein in the primary bladder cancer is
predictive of relapse. The survival of bladder cancer patients whose initial
tumor is negative for the RB protein is 18%, and the survival of patients
whose cells are positive for the RB protein is 55% in at least two studies
(Cordon Cardo et al at Memorial Sloan-Kettering and Logothetis et al at the
U.T. M.D. Anderson Cancer Center, JNCI, 1992). This data has suggested that
replacement of the RB might be of therapeutic value and reduce the probability
of recurrence.
Later on in this grant request, we are proposing to use safety-modified
retroviruses which contain the RB cDNA in a transcription unit. Since the
normal cells on the luminal surface of the bladder are not proliferating but
cancer cells which contribute to relapse are dividing, it is possible that the
RB virus would modify the cancer cells and not the normal luminal cells in the
bladder. This program could result in a decreased incidence of recurrence and
ultimately to organ preservation (no cystectomy). This proposed work will be
described later on in this grant.
CERVICAL CANCER:
Carcinoma of the cervix is a public health problem of world-wide
dimensions. Despite introduction of effective screening procedures, the
development of surgically resectable carcinoma of the cervix occurs all too
frequently. It is estimated that the frequency of frankly invasive carcinoma
of the cervix following resection of carcinoma in situ, or frankly invasive
carcinoma of the cervix which is unresectable in individuals who do not
participate in follow-up pap smear screening following detection of dysplasia
at initial pap smear screening, is estimated at 20,000 cases/year in the
United States. In principle, all of these cases are preventable if the
recurrence rate after diagnosis of initial dysplasia could be reduced to zero.
Carcinoma of the cervix is a disease in which a viral etiological agent
has been established as the human papilloma virus. The mechanism through which
this virus transforms cells is attributed to the production of two virally
transforming proteins, E6 and E7, which bind and functionally inactivate the
p53 and retinoblastoma antioncogene tumor suppressor proteins. Normally,
functioning p53 and Rb restricts the precession of the normal cells through
the G1/S interface in the absence of extracellular growth stimulatory
proteins. Although the exposure of cells to growth factors will increase the
levels of both the p53 and Rb proteins, the regulatory environment of the
proliferating cell functionally inactivates the Rb and p53 antioncogenes, thus
relieving the cell from their growth inhibitory influence.
The presence of the E6 and E7 HPG proteins produces the same result as the
growth factor exposure as they inactivate the Rb and p53 proteins, thus
resulting in disorganized and unregulated cell growth.
In an attempt to develop a molecular approach to the prevention of
recurrence in cervical carcinoma, we are proposing to construct or acquire
safety-modified retroviruses with cDNAs for the normal p53 and Rb antioncogene
proteins. These viruses will be applied topically to the abnormal surface of
the dysplastic cervix to prevent recurrence. Patients eligible for this
program
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will be those not approachable with case resection. The cell-free retroviral
supernatant will be applied weekly for one year in eligible patients whose
disease has been shown to be HPG positive. This program will be conducted with
the U.T. M.D. Anderson surgical GYN Oncology group in collaboration with Dr.
Deisseroth.
C. PRELIMINARY DATA FROM OUR OWN LABORATORY
(I) LEVELS OF MDR IN MOUSE MARROW CELLS AND IN BREAST CANCER CELL LINES (E.
HANANIA, M. BERAN, AND A. DEISSEROTH)
In order to work out the genetic modification of early hematopoietic cells
and to optimize the conditions under which these genetically modified cells
can be selected in vivo with conventional dose chemotherapy, we are proposing
to work with a mouse transplantation model which is described in this section.
This section will describe the insertion of a multidrug resistance (MDR) cDNA
vector into the early progenitor cells of the mouse.
These are two MDR genes in human cells: MDR-1, which confers upon cells
the expression of an efflux pump which reduces intracellular levels of the
following chemotherapeutic agents: actinomycin D, VP-16, vinblastine,
vincristine, anthracyclines and the taxol family of drugs. This pump was
discovered in early hematopoietic progenitor celIs by its ability to pump
rhodamine out of cells (1). The presence of this enzyme in these early cells
suggests that it is playing a role in the protection of these cells from the
effects of toxic compounds such as chemotherapeutic agents, as has been shown
to be the case. MDR-2 does not confer upon the cell an efflux pump. The MDR-1
in man corresponds to MDR-3 in the mouse and glycoprotein 1 in the hamster,
while MDR-2 in man corresponds to MDR-2 in the mouse and glycoprotein 2 in the
hamster. Gottesman has shown that the microinjection of the MDR3 into mouse
blastocytes generate mice in which the resistance to chemotherapy is above
present in the marrow stem cell of the normal mouse (39).
We conducted experiments to establish if normal hematopoietic cells of the
mouse are more sensitive to chemotherapy than the established breast cancer
cell lines. If the MDR levels in the mouse breast cancer were equal to that
present in the hematopoietic cells, then the delivery of the chemotherapy
based on MDR drugs would kill the marrow cells to a degree which is equal to
that seen with the breast cancer cells. In contrast, if the marrow cells were
modified with the MDR cDNA, then the level of resistance of these cells might
be elevated to a level above that which is present in the breast cancer cell.
Then the killing of breast cancer cells would be greater than that seen in the
normal marrow cells. The fact that MDR resistance has not been reported to
play a major role in breast cancer suggests that the introduction of MDR genes
into hematopoietic cells may be of value therapeutically, since if the breast
cancer cell lines were very high with respect to the MDR phenotype, then there
would be very little benefit from modifying the normal marrow cells. In fact,
the incidence of MDR resistance in untreated breast or ovarian cells is very
rare, thus suggesting that the transduction with MDR cDNA containing viruses
would be of help.
In order to test these concepts, we exposed the normal marrow cells, or
breast cancer cell lines from man or mouse to the effects of various
concentrations of adriamycin. As can be seen in
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Figure 1 or in Table III, the breast cancer cell lines vary in their
propensity to grow in the different concentrations of adriamycin. For these
experiments, we used 24 well plates and exposed the cells to the various
concentrations of the cells, and determined the number of colonies which grew
in each well in two weeks in the presence and absence of the drug. The percent
cell growth was obtained by calculating the ratio of the cell colony number in
the presence of the drug divided by the colony number in the absence of the
drug.
As seen in Figure 2, there are two cell lines which are more resistant
than the rest of the cell lines and more resistant than the normal bone marrow
cell lines. However, most of the established cell lines do not exhibit any
high levels of MDR, as judged by chemotherapy resistance, than do normal
cells.
In order to directly test if the varying levels of resistance and
sensitivity were attributable to the presence or absence of the MDR mRNA in
the cells which are resistance or sensitive, Dr. Michael Andreeff of our group
used PCR to determine if there was MDR cDNA in the resistant but not sensitive
cells. As shown in lanes 8 and 9 of Figure 3, the PCR assay detected the
presence of the MDR specific signal in the PCR assay in the two cell lines
which were the most resistant to the chemotherapy, whereas all of the rest of
the breast cancer cell lines and the normal marrow were devoid of detectable
levels of MDR mRNA. This data suggests that the use of the MDR viruses will be
helpful in protecting the normal hematopoietic cells from the effects of
chemotherapy.
We have developed vectors in our laboratory which are safety-modified and
which contain a transcription unit competent to promote the expression of
functional levels of MDR-1 sufficient to confer chemotherapy resistance upon
hematopoietic cells following transplantation with marrow cells which have
been transduced with these viruses.
In order to evaluate these viruses, we harvested marrow cells from BALB C
mice 48 hours following treatment with 150 mg/kg of 5-Fluorouracil. The marrow
was transduced with the supernatant from producer cell lines which contained
our own laboratory MDR-1 virus. Some animals were transduced with a virus
constructed by Michael Gottesman. The latter virus has been published. 0.8 to
1 million of these cells were infused into each mouse following treatment of
that mouse with total body irradiation.
Mice were given chemotherapy following hematopoietic recovery (this
requires 2-3 weeks). The chemotherapy was Taxol, freshly reconstituted at 7,
10, 14, 20, and 30 mg/kg.
The time course of recovery from Taxol-induced myelosuppression was
measured following two or three doses of chemotherapy. The data from these
experiments are shown in Figure 3 in which the following experimental groups
are outlined:
Marrow containing Gottesman virus following:
Curve 1: Two courses of 10 mg/kg Taxol;
Curve 2: Three courses of 7 mg/kg Taxol;
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Curve 3: Three courses of 14 mg/kg Taxol;
Marrow containing our laboratory virus following:
Curve 4: Three courses of 14 mg/kg Taxol;
Curve 5: Three courses of 7 mg/kg Taxol;
Curve 6: Two courses of 10 mg/kg Taxol;
Marrow containing no virus following:
Curve 7: One course of 10 mg/kg Taxol;
Curve 8: One course of 14 mg/kg Taxol;
Curve 9: One course of 20 mg/kg Taxol;
Curve 10: One course of 20 mg/kg Taxol.
The mice died following 20 and 30 mg/kg without virus.
This data shows a faster recovery and a reduction in the degree of
myelosuppression following virus when given our laboratory virus and two or
three courses of Taxol at 10 and 14 mg/kg. The degree of protection given by
the Gottesman virus was similar to that observed with our own laboratory
virus.
D. WORK PROPOSED
SPECIFIC AIMS 1-2: CONSTRUCTION AND DEVELOPMENT OF CLINICAL GRADE RETROVIRUSES
FOR INTRODUCTION OF MDR cDNA IN A SAFETY-MODIFIED VIRUS FOR OVARIAN CANCER
(PROJECT 1A)
We are working in collaboration with Ingenex, Inc. and Targeted Genetics,
Inc. of Seattle, Washington to develop these programs. We have obtained the
MDR cDNA from Michael Gottesman to produce vectors which can be developed into
a clinical grade reagent for testing in clinical programs for treatment of
carcinomas of the breast, ovary, and trophoblastic disease of pregnancy
(Projects 1B and 1C).
We have obtained the MDR producer cell line used by Michael Gottesman and
I. Pastan in the mouse studies which he has conducted and has published
(58-59). The Gottesman plasmid was digested to release the MDR fragment. The
MDR-1 cDNA was then introduced into the HyTK vector from Targeted Genetics.
The producer cell lines for the MDR-1 virus will produce titres of virus
which are suitable for the transduction experiments (at least 100,000 pfu/cc)
and which are replication incompetent. In order to test the potential for the
virus to modify the chemotherapy sensitivity of the human target cells, we
will incubate the supernatant of the virus in the presence of the CD34 cells
isolated from normal individuals or individuals who do not have any evidence
of involvement of the marrow with
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neoplastic cells. The CD34 positive cells will be isolated with CellPro
columns. These cells will be subjected to transduction by the viral
transduction protocol which is summarized in Table IV. This protocol has been
shown by our laboratory and our collaborators to generate levels of
transduction of 60% of the earlier progenitor cells (60).
We will analyze the cells for the integration of the retrovirus by the PCR
assays which are specific for the MDR cDNA. These assays will be used to
identify the presence of the retroviruses in the normal cells. The PCR assay
for the housekeeping sequence actin will be used as an internal control for
these PCR assays. As shown in Figures 4-5, my laboratory has used these assays
in combination to analyze colonies of cells which contain 40 cells (61-62).
Thus, we can identify the integrants bearing the functional retroviral
transgenome in the normal population.
The functional change on the phenotype of the transduced marrow cell will
be tested by the chemotherapy sensitivity assays. Dr. Michael Andreeff and Dr.
Miloslav Beran will assist us with the implementation of these assays. The
cells will be incubated in a concentration series of chemotherapy agents, some
of which are MDR drugs, and some of which are not MDR drugs. Cells before and
after transduction will be tested. The LD 50 will be determined for the cells.
Colony counts will be determined for these two populations as well. Functional
assays of the transduced cells will also be carried out to show the efflux of
the MDR drugs is greater in the cells in which introduction of the MDR drug
has occurred. FACS analysis will also be used for this analysis. Thus, the
relative transduction and chemotherapy resistance of the transduced and
untransduced cells will be determined. When functional resistance to MDR drugs
such as Taxol is established, we will proceed to the production of the
clinical grade retrovirus, as outlined in Table I for time lines for this
program.
SPECIFIC AIMS 3-4: STUDY OF THE TRANSPLANTATION MODEL IN A MOUSE MODEL
USING MOUSE CELLS
The mouse model will be used by E. Hanania of my laboratory to analyze
chemotherapy resistance of the marrow cells before and after transduction. Dr.
Hanania is a Ph.D. who received his degree for a project focused on the use of
a mouse model for characterizing molecular changes in the evolution of breast
cancer. Dr. Beran has extensive experience with the mouse transplantation and
chemotherapy model. Marrow cells will be isolated from mice 48 hours following
administration of 5-FU. The 5-FU is administered to ablate the late myeloid
precursors from the marrow and to permit the isolation of the early
progenitors from the marrow. The marrow from four mice will be exposed to the
supernatant of the PA317-MDR producer cell line following the protocol
outlined in Table IV. The cells will then be incubated for 48 hours in
non-selective medium before imposition of selection.
The transduced cells of four 5-FU treated mice which survive 48 hours of
the selection in suspension culture will be transplanted into the one mouse
which has been exposed to 1100 rads of irradiation. We will sacrifice some
animals at day 12 and analyze the spleen colonies for the presence of cells
which are positive for the MDR retrovirus. We will explant the cells in
methylcellulose assay, pick colonies at day 14 and analyze the cells by PCR
assay for the presence
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of the MDR retrovirus. We have already evaluated our ability to transduce the
cells from mouse marrow with the safety modified MDR virus.
Mice will be treated with 5-FU to destroy the mature marrow stem cells,
which will be collected from the mouse 48 hours following the exposure to the
drug. The femurs and the tibia from 4 mice so treated will be removed and
flushed with PBS to remove the marrow stem cells and placed immediately into
DMEM and 15% fetal calf serum.
The cells will be modified with the Gla MDR vector, into which has been
placed the human MDR cDNA of Gottesman. The 5-FU treated cells will be infused
into a single mouse immediately following completion of 1100 rads of TBI. The
mice will be followed for hematopoietic recovery, and the appearance of the
MDR cDNA and the retroviral transgenome using PCR analysis of the peripheral
blood cells of the mouse, obtained by tail vein phlebotomy. In vitro selection
can be used before infusion to increase the percentage of cells which are
modified and expressing the retroviral transgenome, but in this event,
increased numbers of cells must be collected by treating additional numbers of
mice with the 5-FU. These mice will be followed immediately following
hematopoietic recovery, and at three weekly intervals following
transplantation, in order to determine the percentage of cells in each lineage
which express the retroviral transgenome. These mice will be followed with and
without administration of low dose chemotherapy so as to monitor and establish
the effect of the in vivo selection with chemotherapy on the persistence of
the modified cells. The doses of chemotherapy (doxorubicin), which will not
ablate the transplanted marrow but will result in selection, will be
determined empirically.
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SPECIFIC AIMS 5-6:
PROJECT 1B
"DEVELOPMENT OF CLINICAL PROGRAM FOR CREMOPROTECTION OF
OVARIAN CANCER AND TROPHOBLASTIC TUMOR"
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ABSTRACT
Patients with poor prognosis ovarian cancer (epithelial and germ cell
disease) have been shown to have an 80% probability of relapse. In addition,
the therapies available frequently have a cumulative suppressive effect on the
normal early progenitor cells of the marrow. The results in longer and longer
intervals between successive of chemotherapy due to reduce numbers of
progenitor cells. This results in successive prolongation in the time required
for hematopoietic recovery before successive cycles of chemotherapy can be
administered.`A similar problem is encountered in the patients who do not
respond to therapy for trophoblastic disease of pregnancy. This results in a
situation in which the neoplastic population has longer and longer periods of
time to recover, and the marrow stem cells have fewer and fewer numbers of
cells with which to reconstitute the marrow. This prolongation of the
intervals between successive cycles of chemotherapy cannot be reversed by the
growth factors GMCSF or GCSF. This is due to the fact that the slow
hematopoietic recovery is not due to fewer numbers of late progenitors, which
are.sensitive to the late myeloid growth factors, like GMCSF, but is due to
the loss of the early progenitor cells. Thus, these patients are ideal for the
chemoprotective therapy. The proposed program is designed to apply safety
modified retroviruses to the genetic modification of normal stem cells of
patients with ovarian cancer and trophoblastic disease of pregnancy for
chemoprotection.
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PROGRAM IN OVARIAN CANCER
A. SPECIFIC AIMS:
MDR drugs like Taxol show significant activity in refractory ovarian
cancer but are dose limited by neutropenic myelosuppression.(1,2,3,4) A dose
response phenomena is probably present and the drug is known to be extruded
from cells by the MDR1 transporter (P-Glycoprotein). Mice transfected with MDR
show a quantitative increase in MDR positive stem cells and gene copies per
cell after exposure to Taxol.(20) Thus increasing the presence of MDR in a
patient's stem cells may allow greater dose intensity with Taxol treatment.
1.1 To determine the efficacy of autologous bone marrow transfected
with MDR to prevent myelosuppression in patients with epithelial
ovarian cancer treated with high dose Taxol.
1.2 To assess the safety and toxicities of this therapy.
1.3 To study the efficiency of the gene transfer to the autologous
marrow.
B-C. BACKGROIUND AND PRELIMINARY DATA:
Systemic chemotherapy yields a significant number of objective responses
in patients with advanced ovarian cancer (FIGO stages III and IV). Response
rates greater than 30% have been reported for the following single agents:
melphalan, chlorambucil, thiotepa, cyclophosphamide, and cisplatin.(6-12)
Methotrexate and adriamycin appear to have activity of a lesser degree. (13,
14) Combination chemotherapy has been reported to have increased response
rates. The combination of hexamethylmelamine, cytoxan, methotrexate, and
5-fluorouracil (hexa-CAF) results in response rates of 42% to 75%. (15,16) The
use of cisplatin as part of a chemotherapy combination has had significant
additive effect. One investigator has reported a 67% response rate with
cytoxan, hexamethylmelamine, and adriamycin. The complete response rate was
44% and median survival has not been reached at 23.5 months. (17)
At the University of Texas M.D. Anderson Cancer Center, the
combinationi of cisplatin plus melphalan has produced a remission rate of
approximately 55%.(19) Complete responders had an increased survival and a
small percentage of patients entered into an unmaintained-complete remission.
However, some of the patients never achieve complete remission or suffer
relapse. Furthermore, median survival among nonresponders and partial
responders even with effective combination regimens is only 7-16 months.
(15-17) Thus, there is a need to investigate chemotherapeutic agents with the
aim of increasing the duration and number of complete responses.
Carboplatin, a recently released analogue with different toxicities than
its parent drug, offers an equivalent alternative to the treatment of ovarian
cancer. It is also useful as a reinduction agent for prior platin resporders.
However, it does not resolve the problem of refractory patients or
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significantly improve long term survival.(18-19) The problem of cisplatin or
carboplatin resistant patients is particularly acute.
Patients progressing on cisplatin therapy have median survivals of 6-8
months. Patients with macroscopic residual disease at restaging laparotomy
after cisplatin based therapy have median survivals of approximately 12 months
with no proven salvage therapy.(20)
In patients who develop recurrent and/or resistant disease after cisplatin
containing chemotherapy, the probability of obtaining significant therapeutic
results has traditionally been quite limited.(21) Cisplatin itself has been
used at high dosages (200 mg/m2 or 1 mg/kg/week) as a second- line treatment
in ovarian cancer.(22-25) However, this approach has presented two relevant
limitations: (a) the treatment toxicity, in particular peripheral
neuropathies, has been more severe than usually seen with cisplatin, due to
increased dosages and prolonged prior exposure to the compound; and (b) the
efficacy has been significant only in patients who had not previously
developed resistance to therapy containing cisplatin at standard doses.
A significant antitumor activity in previously treated ovarian cancer has
recently been reported with taxol. A natural product obtained from taxus
brevifolia (26), the compound has had a relatively limited clinical
development due to the scarcity of clinical supplies. After objective
responses have been observed in patients with ovarian cancer receiving taxol
during phase I clinical trials, three independent phase II studies have
confirmed the single agent activity of the compound.(2,3,4) Of particular
intefest, objective responses have been observed in patients who failed to
respond to (or had a rapid relapse after) cisplatin containing chemotherapy.
There has been no clearly established dose response relationship of Taxol.
(1,27) The main toxicities of taxol are myelosuppression, neuropathy and
allergic reactions. Previous trials have utilized doses of >=175 mg/m2.
Analysis of patients at our institution treated at fixed doses of 135 mg/m2
reveal only 1 partial response of 33 patients. Neutropenia requiring G-CSF is
still dose limiting. G-CSF lessens the duration and degree but does not
eliminate neutropenia (Product Monograph).
1.0 Drug Information
1.1 TAXOL, NSC 125973
1.1.1. Chemistry
Taxol is a diterpene plant product derived from Taxus brevifolia
(western yew). Chemical name: Tax-ll-en-g-one, 5, 20-epoxy-1, 2, 4, 7,
10, 13 -hexahydroxy-l, 4, 10-diacetate-2-benzoate-13- (
-phenyl-hippurate). Molecular formula: C47H51NO14. Molecular weight:
853.9.
1.1.2 Molecular structure:
[diagram of molecular structure of Taxol]
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1.1.3 Mechanism of Action:
Taxol has a unique mechanism of action in that rather than inhibiting
tubulin polymerization, it markedly enhances the reaction, and
microtubules formed in the presence of taxol are unusually stable.
Taxal blocks cell replication in HeLa cells, mainly during mitosis.
(13) Studies with purified microtubule protein have demonstrated that
taxol promotes the assembly of tubulin into calcium-stable
microtubules in vitro in the presence or absence of GTP or
microtubule-associated proteins.(13,15,18) Taxol binds directly to
polymerized tubulin (17,18) with saturation occurring at approximate
stoichiometry with tubulin dimer concentration. These activities of
taxol are in contrast to other known mitotic spindle poisons such as
colchicine, podophyllotoxin, and the vinca alkaloids which inhibit
microtubule formation.
Animal Tumor Data:
Taxol has demonstrated good antitumor activity against the murine i.p.
implanted L1210 and P388 leukemias and also CX-1 colon and LX-1 lung
xenografts. Taxol was not effective against the murine s.c. implanted
CDF1 mammary and colon 38 carcinomas and the i.v. implanted Lewis lung
carcinoma. The effect of treatment schedule on the antitumor activity
of taxol was evaluated in the i.p. implanted P388 leukemia system.
Neither toxicity nor activity was observed following oral daily
treatment, or the i.v. single or intermittent and daily
administrations. Intraperitoneal administration of several doses in
one day appeared to be more effective than a single drug injection per
day.(12)
1.1.4 Animal Toxicity:
Preclinical toxicity studies have been conducted with taxol by
intraperitoneal administration in CD2F1 mice (five daily i.p doses)
and by intravenous infusion in beagle dogs (single and daily i.v.
doses).
The main toxic effects of taxol were most evident in the tissues with
high cell turnover: e.g. lymphatic, hematopoietic, gastrointestinal,
and reproductive organs.
Drug-related lymphoid depletion was dose-related and reversible, with
the exception of mandibular lymph node inflammations (rat) and
tonsillitis (dogs), which were secondary to taxol-induced immune
suppression.
Hematopoietic toxicity was evident in all 3 species, although the cell
lines affected and severity varied among species. Dogs showed anemia,
reticulocytopenia, thrombocytopenia, and leukopenia in the lethal and
toxic dose high range. Effects at the toxic dose low and highest
non-toxic dose range were minimal and readily
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The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
reversible. All drug-related lesions reported from bone marrow
evaluations were reversible.
Considerable toxicity to the gasstrointestinal system was seen
following taxol administration. Clinical sings included weight loss,
bloody diarrhea, anorexia, adipsia, emesis, and mucoid stools.
Histological findings in mice and rats included atypical hyperplasia
in the crypts of Lieberkuhn and duadenal lesions and inflammation, all
of which were reversible. In dogs, there was congestion of the ileum,
cecum, and colon, chronic inflammation of the duodenum and
inflammation and necrosis of the colon.
No histological evidence of drug or vehicle-related toxicity to the
central or peripheral nervous system was seen in any species. Clinical
signs suggestive of central effects were noted including lethargy,
tachypnea, ataxia, lacrimation, salivation, hypothermia, nystagmus,
and mydriasis.
Effects on other systems (e.g. cardiovascular, renal, and endocrine)
were relatively minor, with no histological confirmation of toxicities
suggested by clinical signs or clinical pathology.
1.1.5 Human toxicology:
Several phase I studies of taxol have been completed. Dose schedules
included daily x 5 by bolus i.v. injection where MTD was 30 mg/m2/day
and the dose limiting toxicity was myelosuppression, mainly
neutropenia.(19) In a study of one continuous infusion i.v. schedule
MTD was 200 mg/m2 and dose limiting toxicity was leukopenia.(20) A
third study was discontinued at a dose of 230 mg/m2 x dl by 3 hour
infusion due to occurrence of fatal anaphylactic reaction. Two other
patients experienced transient allergic reaction at 190 mg/m2 dose
i.v..(21) Anaphylactic reaction in 2 patients was also observed with
daily x 5 i.v. schedule every 4 weeks from which they recovered.(22)
These allergic reactions as well as occurrence of skin rashes are
attributed to the vehicle cremaphor EL. A total of 12% of patients
have experienced this side effect. None of these allergic reactions
occurred in patients receiving continuous infusion i.v. schedule with
the proposed premedication schedule.
Other toxicities included alopecia, nausea, vomiting, and stomatitis.
[ ***
]
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The following four pages have been omitted pursuant to a request for
confidential treatment. A complete copy of this exhibit containing the omitted
portions has been separately filed with the Securities and Exchange
Commission.
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The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
[ ***
]
F. VERTEBRATE ANIMALS: NONE
G. CONSOLTANTS/COLLABORATORS: NONE
H. CONSORTIUM/CONTRACTUAL ARRANGEMENTS: NONE
I. LITERATURE CITED:
22 Wiernick PH, et al: Phase I clinical and pharmacokinetic study of taxol.
Cancer Res 47:2486, 1987.
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23 McGuire WP, et al: A unique antineoplastic agent with significant activity
in advanced ovarian epithelial neoplasms. Ann Intern Med 111:273, 1989.
24 Einzig AI, et al: Phase II study of taxol in patients with advanced
ovarian cancer. Proc Am Assoc Clin Oncol 8:158, 1989.
25 Thigpen T, et al: Phase II trial of taxol as second-line therapy for
ovarian carcinoma: a Gynecologic Oncology Group Study. Proc Am Asso Clin
Oncol 9:156, 1990.
26 Sorrentino BP, Brandt S, Gottesman M, Pastan I, Bodine D, and Nienhuis AW:
Positive election in vivo for hematopoietic cells expressing the multidrug
resistance gene following retroviral mediated gene transfer. Blood Vol
78(10):191, Suppl 1, 1991.
27 Young RC: Gynecologic malignancies. IN: Cancer Chemotherapy, (ed, HM
Pinedo), Elsevier, New York, Annual I, pp 340-451, 1979.
28 Piver MS, et al: Melphalan chemotherapy in advanced ovarian cancer. Obstet
and Gynecol 51;352, 1978.
29 Smith MP, et al: Chemotherapy in the treatment of cancer of the ovary. Am
J Obstet Gynecol 107:691, 1978.
30 Decker DG, et al: Cyclophosphamide in the treatment of ovarian cancer.
Clin Obstet Gynecol 11:382, 1968.
31 Smith JP: Treatment of ovarian cancer. IN: Advances in Chemotherapy. (eds,
Umezawa N) Baltimore University Park Press, Maryland, pp 493-503, 1978.
32 Parke RR, et al: Cancer of the ovary: survival studies based upon
operative therapy, chemotherapy and radiotherapy. Am J Obstet Gynecol
108:878, 1970.
33 Masterson JG, et al: The role of chemotherapy in the treatment of
gynecologic malignancy. Am J Obstet Gynecol 93:1102, 1965.
34 Greenspan EM: Thiotepa and methotrexate therapy of advanced ovarian
cancer. J Mt Sinai Hosp. 35:52-67, 1968.
35 Bolis G, et al: Adriamycin in ovarian cancer patients resistant to
cyclophosphamide. Eur J Cancer 14:1401, 1978.
36 Young R,H et al: Advanced ovarian adenocarcinoma: A prospective clinical
trial of melphalan (L-PAM) vs combination chemotherapy. NEJM 299:1261,
1978.
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37 DePalo G, et al: Prospective study with Hexa-CAF combination in ovarian
carcinoma. Cancer Chemother and Pharmacol 5:157, 1981.
38 Vogel SE, et al: Cyclophosphamide, hexamethylmelamine, adriamycin, and
diamminedichloroplatinum - "CHAD" vs Melphalan for advanced ovarian cancer
- A randomized prospective trial of the eastern cooperative group. ASCO
(abst. #C-548), 1981.
39 Alberts D, et al: Carboplatin in the treatment of ovarian cancer. Sem
Oncol 16(5):19, 1989.
40 Kavanagh J, et al: Carboplatin in refractory epithelial ovarian cancer.
Sem Oncol 16(2):1, 1989.
41 Berek J: Epithelial ovarian cancer. IN: Practical Gynecologic Oncology,
(ed, J Berek and N Hacker), Williams and Wilkins, Baltimore, p. 352-55,
1989.
42 Canetta RM, et al: Developing new drugs for ovarian cancer: a challenging
task in a changing reality. J Cancer Res Clin Oncol 107:111, 1984.
43 Ozols RF, et al: High-dose cisplatin in hypertonic saline in refractory
ovarian cancer. J Clin Oncol 3:1246, 1985.
44 Piver MS, et al: Effective weekly cis-dichloro diammine platinum (CDDP) as
third line chemotherapy in ovarian carcinoma. Proc Am Soc Clin Oncol
22:467, 1981.
45 Piver MS, et al: Cis-diammine dichloroplatinum (II): Secondline induction
chemotherapy in advanced ovarian adenocarcinoma. J Surg Oncol 24:323,
1983.
46 Gershenson DM, et al: Re-treatment of patients with recurrent epithelial
ovarian cancer with cisplatin-based chemotherapy. Obstet Gynecol 73:798,
1989.
47 Schiff PB, et al: Promotion of microtubule assembly in vitro by taxol.
Nature 22:665, 1979.
48 Donehover RC, et al: Phase I trial of taxol in patients withadvanced
cancer. Cancer Treat Rep 71:1171, 1987.
49 Young CW, et al: Hydroxyurea-induced inhibition of deoxyribonucleotide
synthesis: studies in intact cells. Cancer Res 27:526, 1967.
50 Krakoff IH: Clinical and pharmacological effects of hydroxyurea. IN:
Sartorelli AC, Johns DG (eds): Hanbuch der experimentellen Pharmakologie,
Vol 38/II. Springer, Berlin, pp 789- 792, 1975.
51 Moertel CG, et al: Evaluation of hydroxyurea (NSC-32065) by parenteral
infusion. Cancer Chemother Rep 49:27, 1965.
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52 Krakoff IH, et al: Phase II studies of hydroxyurea (NSC 43065) in adults:
clinical evaluation. Cancer Chemother Rep 40:53, 1964.
53 Belt RJ, et al: Studies of hydroxyurea administered by continuous
infusion. Cancer 46:455, 1980.
54 Veale D, et al: Phase I study of high-dose hydroxyurea in lung cancer.
Cancer Chemother Pharmacol 21:53, 1988.
55 Dennison D, et al: Pharmacokinetics of parenteral hydroxyurea (HU) in rat
and man. Proc Am Asso Cancer Res 32:383, 1990.
56 Blumenreich MS, et al: Long term hydroxyurea intravenous infusion in
patients with advanced cancer: a phase I trial. Proc Am Asso Cancer Res
31:204, 1990.
57 Simon R, et al: Randomized Phase II Clinical Trials, Cancer Treat Rep
69:1375-1381, 1985.
58 Cella DF, et al: Measuring quality of life today: Methodological aspects.
Oncology 4(5):29- 38, 1990.
59 Spitzer WO, et al: Measuring the quality of life of cancer patients: A
concise QL-Index for use by physicians. J Chron Dis 34:585-597, 1981.
60 Simon R: Optimal two-stage designs for phase II clinical trials.
Controlled Clinical Trials. 10:1-10, 1989.
61 Weiss RB, Donehower RC, Wiernik PH, et al: Hypersensitivity reactions from
Taxol. J Clin Oncol 8(7):1236-1268, 1990.
62 Trump DL, Smith DC, Ellis PG, et al: Phase I trial of high dose, 24 hour
continuous infusion hydroxyurea,. Proc Am Assoc Cancer Res 32:200, abst.
1193, 1991, and personal communication.
63 O'Brien Fleming: Biometrics 35:549-556, 1979.
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SPECIFIC AIMS 5-6:
PROJECT 1C
CHEMOPROTECTION OF HEMATOPOIETIC CELLS BY
GENETIC THERAPY IN BREAST CANCER
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ABSTRACT
The project outlines a program with curative intent for cancers of the
breast for development of dose intensive chemotherapy followed by infusion of
involving cells which have been genetically modified so as to make them
resistant to chemotherapy.
Dose intensive chemotherapy, designed to take advantage of the steep
dose-response antitumor effects of many chemotherapeutic agents, is well
documented to increase the complete response rates, a prerequisite for cure of
breast cancer. The challenge for the future is to optimally incorporate these
principles in developing more effective, curative treatment strategies. The
strategy of modifying bone marrow stem cells with mdr-1 (Project 1A) or other
genes mediating resistance to chemotherapy, such as glutathione S transferase
(see Project 2) may allow prolonged, outpatient dose intensive chemotherapy to
improve elimination of the malignancy with little risk, toxicity or cost to
the patient.
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A. SPECIFIC AIMS
1. Utilize high dose chemotherapy with autologous bone marrow
transplantation to establish hematopoiesis derived from genetically
engineered bone marrow cells.
2. Use this approach with safety modified retroviruses to transduce
viruses carrying mdr-1 o glutathione S transferase into hematopoietic
cells to aIlow intensive therapy of poor prognosis carcinoma of the
breast.
B-C. BACKGROUND AND PRELIMINARY DATA
Many common cancers such as leukemias, lymphoma, germ cell malignancies
and cancers of the breast and ovary are sensitive to chemotherapy, yet few
cases are cured with conventional dose treatment. These diseases exhibit a
dose dependent response, and dose intensity over time is an important aspect
of therapy (1,2). The dose of antineoplastic agents that can be administered
clinically is limited by toxicity to normal tissues and bone marrow
suppression is the dose limiting toxicity for most agents. Doses can be
substantially escalated to more effective levels if followed by
transplantation of normal hematopoietic cells, collected either from the bone
marrow or peripheral blood, rescuing the patient from severe and prolonged
myelosuppression (2). This method to produce dose intensity is limited,
however, to administradon of one or two courses of treatment which may not be
sufficient to eradicate the malignancy.
An innovative approach to improve dose intensity would be to induce drug
resistance in the normal bone marrow to reduce myelosuppression and allow
prolonged treatment with higher dose chemotherapy. Many drug resistance
mechanisms have been described in vitro, based mostly on the studies using
cultured tumor cells. Different mechanisms of resistance may develop,
depending upon prior exposure to antitumor agents, type of experimental cell
culture system and culture conditions. In clinical situations, the mechanisms
of drug resistance are more difficult to define. The mechanisms found in
cultured cells may not be operative in vivo. Recent success in molecular
cloning of multidrug-resistance (mdr) genes encoding a group of 170- to 190-kD
membrane protein termed P-glycoproteins or multidrug transporters has revealed
a mechanism for detoxifying a wide spectrum of natural products, including
plant alkaloids (vincristine vinblastine), antibiotics (doxorubicin and
actinomycin) and epipodophyllotoxins (teniposide and etoposide). It is
currently believed that P-gp function as efflux pumps by expelling these
cytotoxic substance, thereby reducing the intracellular drug concentrations to
sublethal levels (for reviews, see 49,50). In animal cells, overexpression of
P-gp via a variety of mechanisms including gene amplification and/or
transcriptional activation resulted in the development of the multidrug
resistance phenotype. In humans, there are two MDR genes, MDRl (51) and MDR2
(52). Transfection experiments using cDNA linked to expression vectors
demonstrated that only MDR1 can confer MDR phenotype in otherwise drug
sensitive cells; whereas MDR2 can not. These results suggest a diverse role of
MDR gene family. Using monoclonal antibody C219 which recognizes both MDR1 and
MDR2 gene products in immunohistochemical study, we previously analyzed the
expression of P-gp in sample from 48 patients with locally advanced breast
cancer P-gp was not expressed in eight tumor specimens obtained at the time of
diagnosis, prior to chemotherapy. The percentage of the tumor
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The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
cell population expressing P-gp varied from <5% to >30%; expression was
observed significantly more often in tumors that showed less than partial
response to the preoperative chemotherapy (53).
Thus, the program in marrow chemoprotection is one which impacts on the
other two areas of suppression of the transformed phenotype and
immunoenhancement. What is the evidence that chemoprotection will work?
Pastan, Gottesman and their colleagues have reported that transgenic mice
overexpressing the human MDR1 cDNA, which codes for the 107 kDa glycoprotein
which codes for a drug efflux pump in the plasma membrane of cells, exhibit
normal patterns of hematopoiesis, expression of levels of MDR glycoprotein
which are 3-fold higher than most MDR resistant fresh tumor cells or tumor
cell lines, and exhibit a 10-fold increase in the resistance of hematopoietic
cells to drugs like Taxol (1-4). Retroviral vectors have also been used to
infect mammalian cells and in populations selected by FACS for the modified
cells, the resistance to MDR drugs increased up to 26-fold (5). It is clear,
however, that in vivo or in vitro selection is necessary following retroviral
transduction to maintain the resistant phenotype in mammalian cells. Several
mouse and large animal model studies have also been recently reported (6-8),
which document the feasibility of introduction of resistance genes into human
marrow.
Clinical trials of chemoprotection have been proposed in carcinomas of the
breast and ovary. It is clear, from published studies, that the human MDR1 is
not naturally expressed in normal breast or ovarian tissue, and that all of
the fresh specimens of breast or ovarian cancer do not exhibit elevated levels
of MDR providing they were not previously exposed to chemotherapy (9-11). The
levels of MDR in ovarian and breast cancers following therapy in the advanced
disease setting are elevated by 2 to 3-fold. Thus, the introduction of MDR1
into the normal hematopoietic cells of patients with poor prognosis disease,
would make possible the testing of therapeutic questions that would not be
possible with drugs like Taxol. [ ***
] In our
institutional experience (12-13) and that of others, the toxicity of Taxol is
primarily myelosuppression. The clinical programs proposed for breast, ovary
and a third model, trophoblastic disease of pregnancy, are summarized in
detail in Project 1. The presence of marrow contamination with neoplastic
cells, which is a problem with breast cancer, is not a significant risk in
ovary or trophoblastic disease. The technical details of this program,
including marrow purging before retroviral transduction, will be dealt with in
Project 1.
Studies conducted at MD Anderson and elsewhere in patients with leukemia,
lymphoma, metastatic breast cancer and ovarian cancer have documented that
high dose combination chemotherapy and autologous bone marrow transplantation
results in a higher complete response rates compared to standard dose
treatment and a fraction of patients surviving disease free beyond 5 years
(3-9). The most effective regimens have included combinations of agents
primarily limited by myelosuppression such as cyclophosphamide, melphalan,
carmustine, thiotepa, busulfan or
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The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
carboplatin. [ ***
] The toxic effect of other drugs, such as Taxol and
doxorubicin, will be educed by introduction of MDR-1. We propose to use high
dose chemotherapy with autologous bone marrow transplantation to induce major
antitumor cytoreduction as well as a method to introduce autologous bone
marrow cells transduced with MDR-1 retrovirus [ ***
] to produce hematopoietic resistance to many chemotherapeutic
agents and allow continued higher dose chemotherapy.
Hematopoietic Growth Factors to Accelerate Hematopoietic Regeneration
The proliferation, differentiation and function of hematopoietic cells is
regulated by a complex family of glycoprotein hormones, collectively described
as hematopoietic growth factors. These factors regulate a hierarchy of stem
cells and progenitors (12,13). Granulocyte colony- stimulating factor (G-CSF)
and granulocyte-macrophage colony-stimulating factor (GM-CSF) have been
extensively studied to accelerate hematopoietic recovery of hematopoiesis
after high dose chemotherapy alone or with autologous marrow transplantation.
Granulocyte recovery is significantly accelerated with each factor (14-18).
Erythrocyte and platelet recovery is unaffected by G-CSF and GM-CSF treatment.
Interleukin-6 appears promising to enhance thrombopoiesis and exhibits
synergism with many other hematopoietic growth factors on other lineages.
Interleukin-3 is a multipotential hematopoietic growth factor which has
recently been evaluated in clinical trials. IL-3 affects early and
intermediate myeloid progenitors (12). Treatment with this agent produces only
modest increases in circulating granulocytes and platelets (19,20). There is a
synergistic interaction, however, with IL-3 and GM-CSF leading to a marked
granulocytosis and importantly, a marked increase in the level of circulating
progenitors (21,22). Treatment with a synergistic combination of hematopoietic
growth factors after Taxol, anthrocyclines or other chemotherapy affected by
mdr-1 may enhance the selective growth of mdr-1 transfected hematopoietic
cells.
Minimal Residual Disease
In this project, a patient's bone marrow is collected, transfected with
mdr-1, cryopreserved, and later reinfused after high dose chemotherapy
treatment. A limitation in this approach is the possible involvement of the
bone marrow by the malignancy. Breast cancer, for example, frequently involves
the bone marrow. Standard diagnostic techniques are relatively insensitive to
identify bone marrow metastases. More sensitive assays have been proposed
including cell culture techniques, monoclonal antibody based
immunofluorescence or immunohistochemistry (23-29). The recent development of
molecular methods using polymerase chain reaction may allow more sensitive
detection of subclinical disease. This has been successfully employed for
detection of minimal residual disease in leukemias and lymphomas (30).
Peterson et al have recently employed a PCR technique for mucin gene
expression for detection of occult breast cancer cells in the marrow (31).
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In this project we will apply this approach to evaluating marrow involvement
both for prognosis and for assessment of bone marrow purging techniques.
Using monoclonal antibodies directed at cell surface antigens of breast
cancer cells and flow cytometry or immunoperoxidase techniques, many patients
with newly diagnosed clinically stage II breast cancer can be shown to have
occult bone marrow involvement; this finding was associated with a relatively
poor prognosis and a short disease free interval (31,32). Several
investigators have reported a high incidence of occult bone marrow involvement
by metastatic breast cancer in patients with histologically normal bone marrow
biopsies. Up to 28 % of patients with normal marrow biopsies by light
microscopy were positive by immuno-cytochemical methods. Other studies
reported that in 40-57% of similar patients, tumor cells can be grown in
tissue culture (27).
Purging and Stem Cell Selection
The clinical implications of occult bone marrow involvement on the risk of
breast cancer relapse following autologous marrow or peripheral blood cell
transplantation is unknown, but malignant cells capable of forming marrow
metastases may be able to reestablish the malignancy following reinfusion with
the autologous marrow. If drug resistance genes are to be transfected into
marrow, it is critical that malignant cells not be present.
Recent advances in technology may make it possible to eliminate malignant
cells from the autologous marrow/stem cell product. A number of methods have
been proposed, to eliminate or "purge" malignant cells, including treatment
with antitumor monoclonal antibodies, antibody-toxin conjugates, chemotherapy
or physical techniques (33-36). These techniques are capable of a 99 - 99.9%
reduction of target cells (two to three logs), but this degree of depletion is
likely insufficient to completely eliminate all malignant cells.
An alternative method is to positively select hematopoietic stem cells.
CD34 positive cells represent < 1% of the bone marrow but encompass
progenitors capable of reconstituting hematopoiesis (37). These cells can be
selectively separated from the remaining marrow by reactivity with a
biotinylated anti-CD34 monoclonal antibody and adherence to a avidin column,
immunomagnetic separation or by panning (37,38). Each of these methods yields
approximately 1% of the starting cell number, but collecting > 60% of CD34
positive cells. We will be collaborating with CellPro, Inc. to implement this
CD34 selection (see letter). One problem is nonspecific contamination by
CD34-negative cells, which constitute approximately 35-50% of the final
product. This procedure results in approximately a 2 log reduction of
malignant cells. Combination of positive selection of CD34 positive cells with
negative depletion of malignant cells would be expected to have an additive
effect. In addition, the reduction in cell number associated with the positive
selection of stem cells may allow a more effective depletion step because of
the lower number of cells. In this project, we will assess the degree of bone
marrow involvement in patients with early and advanced breast an ovarian
cancer, evaluate methods for marrow purging using immunomagnetic separation,
and assess the effect of positive selection of stem cells and purging on the
elimination of malignant cells from the bone marrow.
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The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
D. WORK PROPOSED
The clinical implementation of the work will not take place until all
of the purging risks have been resolved and the regulatory approvals outlined
in Table I have been obtained. We propose to utilize high dose chemotherapy
and autologous bone marrow transplantation as a means to both produce major
anti-tumor cytoreduction and reestablish hematopoiesis with mdr-l transfected
bone marrow to allow continued escalated dose treatment with mdr-l susceptible
drugs. [ ***
]
Patients with selected malignancies including breast cancer, will have
bone marrow collected while in a minimal disease state (bone marrow in
clinical remission). The marrow will be processed by positive selection of
CD34 positive cells followed by a negative depletion of malignant cells using
immunomagnetic separation. The residual cells will be assessed by flow
cytometry, FISH and molecular studies for residual malignant cells.
The stem cell enriched purged bone marrow will then be transduced with....
mdr-l safety modified retroviruses, as described in Project 1A. The frequency
of transduction will be determined.
For preparing probes for MDRI/MDR2, we (Kuo et al) have subcloned a 174
base pair Bst Xl/AccI fragment from human MDR1 cDNA (nucleotide coordination
1594 to 1768 from the translation start site into the EcoRI and AccI site of
pGEM (Promega) vector). Antisense RNA probe will be prepared using SP6 RNA
polymerase. Because a 65-nt sequence in the MDR2 cDNA was identical to a
sequence in this fragment, this probe can simultaneously detect both MDRI and
MDR2 transcripts, yielding protected fragments of 174- and 65-nt,
respectively.
[ ***
]
Clinical trials of dose intensive chemotherapy for breast cancer.
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Approximately 200 patients per year receive dose intensive chemotherapy
with autologous bone marrow transplantation at the MD Anderson Cancer Center,
including 80 for patients with breast and ovarian cancers.
Quantitative PCR assay for Breast Cancer Cells
The tremendous sensitivity of the PCR method permit a detection of mRNA
levels probably at the levels of a few copies in 100 - 1000 cells. Concerns
about its quantitation have been addressed by the recent developments with
this technique. Noonan et al (67) and Murphy et al (68) reported that PCR can
be both sensitive (qualitative) and quantitative in the detection of MDR mRNA
in various tumor samples and in MDR cell lines in which different levels of
mRNA are present. Accurate quantitative were demonstrated in an exponential
range determined by fixed number of cycles on serial dilutions of thee RNA
reverse transcription (cDNA) products or performing the reaction with a
varying number of cycles on a fixed quantity of cDNA. Normalization of the
results can be achieved by independent amplification of a control gene, e.g.,
b2-microglobulin. Quantitative PCR method is particularly useful for detecting
expression of MDR gene in breast cancer because of its low level of
expression. We feel that the method should be applicable for detection of
thymidylate synthetase and GST-pi mRNA.
Complementary DNA will be synthesized from RNA by Moloney murine leukemia
virus reverse transcriptase (Bethesda Research Laboratories). PCR will be
carried out with cDNA derived from 50 ng of RNA according to the method
described by Noonan et al. (67) using AmpliTaq reaction kit purchased from
Perkin-Elmer/Cetus. Paired amplimers used for amplification of MDR1. GST-pi
and thymidylate synthetase will be synthesized separately using the flanking
sequences to the 5' side and 3' (complementary sequence) of the restriction
sites used in the preparations of antisense RNA. Each pair of amplimers will
be tested individually. PCR reactions will be carried out using [-32P] dCTP in
the triplicated reaction mixtures. PCR products will be separated on 12%
polyacrylamide gels and stained with ethidium bromide. Bands corresponding to
each specific PCR product will be excised from the gels and the amount of
incorporated radioactivity will be determined by scintillation counting.
Quantitative PCR will be established using positive controls with known levels
of MDR mRNA and negative controls in which Escherichia coli tRNA will be used.
Once Successful quantitative PCR for each gene product is established, we will
include all three paired amplimers in the same reaction mixture to establish a
simultaneous detection for all the three gene transcripts. The PCR products
for the three mRNA have distinct sizes and can be separated by the same gel
system and quantified.
Assessment of minimal residual disease in the bone marrow
We propose to develop methodology to detect minimal metastatic involvement
in the bone marrow using both immunofluoreseence directed against mucin,
cytokeratins or other breast cancer cell surface proteins not shared by normal
bone marrow cells as well as molecular detection of mucin gene transcripts.
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<PAGE>
A number of monoclonal antibodies to breast cancer cells and
oligonucleotide probes to the mucin gene are available. The sensitivity and
specificity of these techniques for detection of minimal residual disease will
be assessed. This data will be used to evaluate the incidence and clinical
importance of subclinical bone marrow involvement in patients with localized
disease before and after surgery and adjuvant chemotherapy as well as patients
with metastatic breast cancer, including patients receiving bone marrow
transplantation. The presence of marrow involvement by these techniques will
be assessed as a prognostic factor for response and duradon of response. In
preliminary studies, approximately 30% of newly diagnosed patients with stage
I and II breast cancer have marrow involvement detected by immunoperoxidase
with anti-cytokeratin antibodies. In this project we will also develop
methodology using anti breast cancer monoelonal antibodies and immunomagnetic
separation to deplete breast cancer cells from normal bone marrow and to
quantitatively assess the efficacy of this approach for ex vivo elimination of
breast cancer cells from autologous bone marrow.
We also propose to evaluate minimal residual disease in bone marrow using
oligonucleotide probes to the mucin gene and the polymerase chain reaction.
Breast mucin is a highly glycosylated large molecular weight protein present
in breast epithelium and virtually all breast eaneers (69), but absent from
the normal bone marrow. The cDNA sequence for the core protein of breast mucin
has recently been determined and has revealed it to be composed of an extended
series of 20 amino acid tandem repeats (40 to 80) flanked by 3' and 5' unique
sequences. Jerry Peterson, Ph.D., a collaborator on this project (see letter),
synthesized primers for the PCR reaction which would that would amplify a
region of the unique sequence contained by introns. The down stream primer
overlapped an mRNA splice region so that no amplification of contaminating DNA
would occur. Using a reverse transcriptasePCR technique and oligonucleotide
primers for the unique sequence just 3' from the tandem repeat of the breast
mucin mRNA, as little as 50 pg of RNA from MCF-7 or other breast cancer eell
lines can be detected equivalent to approximately 3 cells. This technique was
positive for 5 of 5 breast cancer cell lines, but not in two lymphoblastoid
lines or in 7 normal bone marrows (31). Work is in progress to define the
limit of detection for breast cancer cells in normal marrow, but we anticipate
it will be approximately one in 100,000 cells. In order to use this approach
to quantify the level of bone marrow involvement by tumor cells, and the
effectiveness of bone marrow purging techniques, a competitive PCR procedure
will be employed. This involves cloning the sequence to be amplified into a
plasmid from a genomic clone containing an intron, or alternatively, a
restriction site can be introduced into the sequence to distinguish the
competing DNA from the specific sequence. In order to use this approach to
quantify the level of bone marrow involvement by tumor cells, and the
effectiveness of bone marrow purging, techniques, a competitive PCR technique
will be employed. This involves cloning the sequence to be amplified into a
plasmid from a genomic clone containing an intron, or alternatively, a
restriction site can be introduced into the sequence to distinguish the
competing DNA from the specific sequence. This competing DNA sequence is
amplified by the same primers, but yields a different sized fragment(s). The
competitor is added in different amounts to the PCR reaction mixture. The
samples are analyzed by gel electrophoresis and the relative amounts of the
amplified specific and competing sequence are determined. The concentration of
the competitor which results in both bands being equal is considered to be the
concentration of the specific mRNA.
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This technique will be studied for its sensitivity and specificity to
identify breast cancer cells within normal marrow and peripheral blood stem
cell collections. Normal marrows will be spiked with cells from breast cancer
cells lines and fresh tumor cells to assess the limits of detection. It is
likely that there will be some variability between tumors related to the level
of expression of mucin. This approach promises to be considerably more
sensitive than nonmolecular methods. We will directly compare the sensitivity
of this PCR based approach and its quantitative assessment with
immunohistochemistry and immunofluorescent methods on the same specimens.
Subsequently fresh bone marrow aspiration and biopsy specimens from patients
with breast cancer will be analyzed and results correlated with routine
histology, immunocytochemistry (8) and clonogenic assay (27).
Bone marrow samples from patients with stage one and two disease at
diagnosis as well as metastatic disease eligible for bone marrow
transplantation will be assessed for occult marrow involvement by flow
cytometry using a panel of anti breast cancer reactive antibodies and the for
mucin gene expression by this PCR technique. These assays will be used to
evaluate the presence of contaminating malignant cells in the bone marrow
harvests and peripheral blood progenitor collections used for transplantation,
and to assess the efficacy of the stem cell selection and purging procedures
to be studied to eliminate breast cancer from the hematopoietic cell
infusions. We will validate this detection by sorting the rare breast tumor
cells detected by flow cytometry and confirm their genotype by PCR.
Development of bone marrow purging and stem cell selection to eliminate breast
cancer cells from normal hematopoietic cells for autologous transplantation
As an approach to transplant marrow or peripheral blood progenitors free
of contaminating malignant cells we will initially isolate CD34-positive cells
using the avidin-biotin column separation procedure described by Berenson et
al (38) whose company is participating with us (see letter). In brief, bone
marrow or peripheral blood buffy coat cells are incubated with biotinylated
anti CD34 monoclonal antibody and passed through an avidin column (Cell Pro,
Inc., Seattle WA) (see end for letter of collaboration). The adherent CD34
positive cells are released by agitation and collected. This results in a
yield of approximately 1% of the starting cell number including > 60% of the
CD34-positive cells. The efficacy of the system to deplete malignant cells
from normal marrow will be studied by spiking normal marrow samples with
various numbers of breast cancer cells and assessed for residual cancer cell
involvement of the separated CD34 positive cells. Marrow and peripheral blood
collections intended for transplantation will be processed in using this
technique; assuming > 106 CD34-positive cells/kg are collected, these cells
will be used as a source of hematopoietic progenitors for autologous
transplantation. The pre and post processed collections will be studied as
described above for contamination by malignant cells.
It is likely that the stem cell selection procedure will reduce, but not
totally eliminate malignant cells from the nonnal hematopoietic cells. As a
subsequent step, we study several methods for further depletion of breast
cancer cells. We will initially evaluate the efficacy of purging using
anti-mucin and other anti-breast cancer monoclonal antibodies with
immunomagnetic separation to selectively deplete breast cancer cells from
normal bone marrow and assess the efficacy of this approach for ex vivo
elimination of breast cancer cells from autologous bone marrow. In
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brief, normal marrow or the CD34-positive cell fraction will be spiked with
varying numbers of breast cancer cells or clonogenic breast cancer cell lines
and treated with the immunotoxin in concentrations ranging from 10-6 to 10-2
M, as descubed in project 4. Recovery of normal hematopoietic colonies CFU-GM
vs. breast cancer cells and colonies will be assessed.
Immunomagnetic separation will be studied as an alternative approach for
depleting malignant cells. A number of monoclonal antibodies reactive with
breast cancer cells will be screened for reactivity against a large number of
primary tumors and tumor metastatic to the marrow using immunohistology and
flow cytometry. Candidate antibodies will be uniformly reactive with the
breast cancer cells within a given patient and reactive with breast cancer
cells from > 90% of samples. The antibody Bre3 (52) a murine monoclonal IgG1
antibody reactive with a mucin-like glycoprotein complex, a characteristic
cell surface antigen present on breast cancer cells will be initially studied.
Four other anti mucin antibodies are also available. These antibodies will be
tested for ex vivo depletion of clonogenic breast cancer cells and cell lines
using immunomagnetic separation (70). This immunomagnetic separation procedure
is presently used in our program for purging lymphoid malignancies and is
capable of a 2 to 4 log reduction of tumor cells depending on the model
system. Monoclonal antibodies reactive with breast carcinoma cells which do
not bind to normal bone marrow will be utilized. Percoll separated bone marrow
cells (1 x 108/ml) are incubated with monoclonal antibody in various doses on
ice for 30 minutes and washed. The cells are resuspended with Dynal
immunomagnetic beads conjugated with goat anti-mouse antibody (30 Beads/cell).
The suspension is gently rocked at 4(degree)C. for 30 minutes and passed
through the magnetic separation column. The targeted tumor cells bound by the
anti-breast cancer antibody are bound to the beads and are separated in the
magnetic field. The residual breast cancer cells will be assessed by
immunofluorescence, clonogenic assay and the PCR technique.
Recovery of normal hematopoietic progenitors (CFU-GM) will also be
assessed. As a model, clonogenic breast cancer cell lines or fresh breast
cancer cells (ideally from marrow or a malignant effusion) will be spiked in
various doses into irradiated human marrow with the resulting depletion
assessed by clonogenic assay of the cells pre and post separation. Alternative
antibodies, alone and in combination will also be studied and conditions will
be adjusted to optimize the depletion results.
The techniques which are most successful in eliminating the malignant
cells without toxicity to normal hematopoietic elements in vitro will
subsequently be integrated into the MD Anderson clinical program for
autologous bone marrow and peripheral blood cell transplantation.
Development of Therapeutic Model for Chemoprotection in Breast Cancer:
This program will not be initiated until the retrovirus producer cell
lines undergo the analysis outlined in Tables I and the regulatory review
outlined in Table II and Figure 1.
First, marrow will be taken from advanced disease patients and purged so
as to remove all breast cancer cells by the methods summarized above. PCR for
mucin mRNA will be used to determine if the marrow is devoid of breast cancer
cells. If that assay is negative, the cells will be
-36-
<PAGE>
The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
transduced and infused following intensive preparative therapy
(cyclophosphamide, BCNU and thiotepa. We will have an unmodified marrow as
backup containing 2x108 nucleated cells/kg).
Following hematopoietic recovery of an autologous transplant, patients are
usually very sensitive to receive chemotherapy for maintenance although they
exhibit impressive responses with the intensive therapy. The transduction of
the autologous cells before transplant is designed to make the patient's
marrow more tolerant of maintenance therapy. The presence of MDR-I modified
cells may permit one to deliver intensive doses of drugs like Taxol, or the
combination of Doxorubicin and Velban, all MDR drugs. The delivery of cyclical
therapy over many months may permit one to eradicate the minimal residual
disease which is left after transplant. If this program is successful, we may
attempt to use MDR-1 genetically-modified cells or infusion in the adjuvant
setting in poor prognosis patients (greater than 10 nodes positive at
diagnosis) to support the delivery of multiple cycles of intensive adjuvant
cyclical chemotherapy. The delivery of intensive consolidation
(cyclophosphamide, BCNU and Thiotepa) following initial regional therapy (e.g.
surgery or radiation) for poor prognosis patients followed by the extension of
maintenance therapy (Doxorubicin, Velban, or Taxol) over time in the minimal
residual disease setting may also alter the relapse frequency of poor
prognosis patients after initial therapy. The patients will be followed after
infusion of modified cells to evaluate the persistence of the modified cells,
using the PCR and FACS sorting, and functional assays for MDR outlined in Core
C and above in this project following the outline of assays summarized in
Table III. A major risk is introduction of the MDR virus in breast cancer
cells which are beneath the level of detection of the PCR. However, this level
will be less than 1/1000,000. It is possible that most patients have much
higher levels than this before the purging in advanced disease patients. We
will be able to desect this if it occurs but it is unlikely that this will be
clinically significant as most relapses occur in extramedullary sites.
[ ***
]
-37-
<PAGE>
The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
[ ***
]
F. VERTEBRATE ANIMALS: NONE
G. CONSULTANTS/COLLABORATORS: NONE
H. CONSORTIUM/CONTRACTUAL ARRANGEMENTS: NONE
I. LITERATURE CITED:
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The following seven pages have been omitted pursuant to a request for
confidential treatment. A complete copy of this exhibit containing the omitted
portions has been separately filed with the Securities and Exchange
Commission.
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<PAGE>
Table II
EVALUATION OF RETROVIRAL SUPERNATANTS
- ------------------------------------------------------------------------------
TYPE OF ASSAY YEAR YEAR YEAR YEAR
- ------------------------------------------------------------------------------
1 2 3 4
NORMAL LEVEL OF EXPRESSION OF LOW OR ABSENT IN X X
TRANSGENOME MATURE MYELOID
CELLS
MINIMAL LEVEL OF EXPRESSION SUFFICIENT TO X X
REQUIRED INCREASE RESISTANCE
10-FOLD
MAXIMAL LEVEL OF EXPRESSION TO UNKNOWN X X
BE OBTAINED
CONSEQUENTS OF OVEREXPRESSION UNKNOWN X X
AND INAPPROPRIATE SPECIFICITY
ABSENCE OF HELPER VIRUS S+V LOCUS ASSAY; X X
NIH3T3 AMPLIFICATION
ASSAY + ELUTION
MICROSCOPY
ABSENCE OF INFECTIOUS AGENTS CULTURE X X
(BACTERIA, MYCOPLASMA, VIRUS)
TOXIC EFFECT OF VIRUS MOUSE ASSAY X X
(EXTRANEOUS TOXIN TEST)
ENDOTOXIN ASSAY
ANALYSIS OF STRUCTURE OF SOUTHERN PCR X X
RETROVIRAL TRANSGENOME (IS
RETROVIRUS INTACT IN PRODUCER
CELL LINE?; IS THERE A SINGLE
COPY?)
PROPERTIES OF VIRUS:
TRANSDUCTION FREQUENCY; 10-60% CHEMO- X X
BIOLOGICAL EFFECT OF THE VECTOR RESISTANCE
TRANSDUCTION
EVIDENCE FOR DESIRED PHENOTYPIC CHEMORESISTANCE X X X
CHANGE AFTER TRANSDUCTION
ANIMAL MODEL DATA FOR EFFICACY REDUCTION OF X X X
MYELOSUPPRESSION
- ------------------------------------------------------------------------------
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The following four pages have been omitted pursuant to a request for
confidential treatment. A complete copy of this exhibit containing the omitted
portions has been separately filed with the Securities and Exchange
Commission.
-47-
<PAGE>
Figure 3
Analysis of Chemotherapy Indcued
Myalosuppression in BALB/c Mice
-48-
<PAGE>
Figure 4
ANALYSIS OF NEO AND
BCR-ABL BY PCR
-49-
<PAGE>
Figure 5
PCR OF COLONIES
-50-
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The following six pages have been omitted pursuant to a request for
confidential treatment. A complete copy of this exhibit containing the omitted
portions has been separately filed with the Securities and Exchange
Commission.
-51-
<PAGE>
EXHIBIT II
LICENSE AGREEMENT
This License Agreement (hereinafter referred to as the "License
Agreement"), effective as of the [DAY] of [MONTH], 1992 is by and between the
BOARD OF REGENTS ("BOARD") OF THE UNIVERSITY OF TEXAS SYSTEM ("SYSTEM"), an
agency of the State of Texas whose address is 201 West 7th Street, Austin,
Texas 78701, THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER
("UNIVERSITY"), a component institution of SYSTEM, and INGENEX, INC., a
corporation duly organized and existing under the laws of the State of
California and having a principal place of business at 400 Oyster Point Road,
Suite #315, San Francisco, California 94080 ("LICENSEE").
WHEREAS, BOARD is the owner of U.S. Patent Application
Serial No. _________________________, filed _____________________________
hereinafter referred to as "the initial application", which is based on
inventions and confidential information relating to the Research Program, and
particularly relating to the invention of a genetically engineered retroviral
pharmaceutical reagent incorporating LICENSEE'S MDR-1 gene (or LICENSEE's RB
Tumor Suppressor gene), and whereas LICENSEE now desires to obtain a license,
under the Initial Application, upon the terms and conditions hereinafter set
forth; and
WHEREAS, LICENSEE has represented to UNIVERSITY, to induce UNIVERSITY
to enter into this License Agreement, that it shall commit itself to a
thorough, vigorous and diligent program of exploiting said inventions and
confidential information, including any patent rights which may be obtained
therein, so that public utilization shall result therefrom; and
WHEREAS, UNIVERSITY and LICENSEE have entered into a Research Agreement
and to which this License Agreement is attached contemporaneous herewith,
attached hereto as Exhibit II (the "Research Agreement"), granting LICENSEE an
option to license inventions, know-how, and patent rights arising out of the
Research Program described in the Research Agreement pursuant to the terms and
conditions set forth in this License Agreement.
NOW, THEREFORE, it is agreed as follows:
ARTICLE 1 - DEFINITIONS
For the purpose of this License Agreement, the following words and
phrases shall have the following meanings:
1.1 "LICENSEE" shall mean INGENEX, INC., a corporation duly organized
and existing under the laws of the State of California and having a principal
place of business at 400 Oyster Point Road, Suite #315, San Francisco,
California 94080.
1.2 "AFFILIATE" shall mean any company or entity, the voting control
of which is at least fifty percent (50%), directly or indirectly, owned or
controlled by LICENSEE.
<PAGE>
1.3 "Patent Rights" shall mean:
1.3.1 Any United States and/or foreign, patent applications and/or
patents, arising out of the Research Program as set forth in the Research
Agreement, which may, at Licensee's option, be added to Exhibit III of this
Agreement;
1.3.2 Any later-filed United States and/or foreign patent
applications based on the patent applications and/or patents listed in Exhibit
III, or corresponding thereto, including any continuations,
continuations-in-part, divisional, reissues, reexaminations, or extensions
thereof; and
1.3.3 Any United States and/or foreign patents issuing from any of
the foregoing.
1.4 "Licensed Product(s)" shall mean:
1.4.1 Any product which is covered in whole or in part by a valid
and unexpired claim contained in the Patent Rights in the country in which the
product is made, used, leased or sold;
1.4.2 Any product which is manufactured by using a process which
is covered in whole or in part by a valid and unexpired claim contained in the
Patent Rights in the country in which the process is used;
1.4.3 Any product which is used according to a method which is
covered in whole or in part by a valid and unexpired claimed contained in the
Patent Rights in the country in which the method is used.
1.5 "Licensed Process(es)" shall mean any process or method, which is
covered, in whole, or in part, by a valid and unexpired claim contained in the
Patent Rights in the country in which the process or method is used.
1.6 "First Year Milestone" shall mean the scientific achievement or
commercial development event described in Appendix III, attached hereto.
1.7 "Net Sales" shall mean LICENSEE's or an AFFILIATE's billings for
Licensed Products and Licensed Processes less the sum of the following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and with
reference to particular sales;
(c) outbound transportation prepaid or allowed;
(d) amounts allowed or credited or returns; and
(e) bad debt deductions actually written off during the period.
-2-
<PAGE>
No deductions shall be made for commissions paid to individuals
whether they be independent sales agencies or regularly employed by LICENSEE
or an AFFILIATE and on their payroll. LICENSED PRODUCTS and LICENSED PROCESSES
shall be considered "sold" when billed out or invoiced.
ARTICLE 2 - GRANT
2.1 BOARD hereby grants to LICENSEE a worldwide license to practice
under the Patent Rights, and to make, have made, use, lease and/or sell the
Licensed Products and to practice the Licensed Processes, to the full end of
the term for which the Patent Rights are granted, unless sooner terminated as
hereinafter provided, said license to include the right to sublicense (with
the prior written approval of BOARD and UNIVERSITY, which approval shall not
be unreasonably withheld) and to be exclusive to LICENSEE.
2.2 LICENSEE agrees that any sublicenses granted by it shall provide
for the same obligations as those obligations imposed only by this License
Agreement.
2.3 LICENSEE agrees to forward to UNIVERSITY annually a copy of such
reports received from any sublicensee as may be pertinent to an accounting of
royalties.
2.4 LICENSEE understands that the Patent Rights may have been
developed, in part, under a funding agreement with the Government of the
United States of America and, if so, that the Government may have certain
rights relative thereto. This License Agreement is explicitly made subject to
the Government's rights under any such agreement and any applicable law or
regulation. To the extent that there is a conflict between any such agreement,
applicable law or regulation and this License Agreement, the terms of such
Government agreement, applicable law or regulation shall prevail.
ARTICLE 3 - DUE DILIGENCE
3.1 LICENSEE shall use its reasonable best efforts to bring Licensed
Products or Licensed Processes to market through a thorough, vigorous and
diligent program for exploitation of the Patent Rights and continue active,
diligent marketing efforts for Licensed Products or Licensed Processes
throughout the life of this License Agreement, consistent with the business
plan described in Paragraph 3.2.3, below.
3.2.1 LICENSEE shall fund the research at the UNIVERSITY in
accordance with the funding schedule contained in the Research Agreement;
3.2.2 Within six (6) months of the achievement of the First Year
Milestone, LICENSEE shall develop a business plan setting forth LICENSEE's
detailed commercial development plans and proposed product applications
showing the scheduled development goals, amount of money, number and kind of
personnel and time budgeted and planned for each phase of
-3-
<PAGE>
The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
the clinical trials and regulatory approval processes of the Licensed Products
and/or Licensed Processes.
3.3 LICENSEE'S failure to perform the due diligence obligations
described in Paragraphs 3.2.1 or 3.2.2 shall constitute a material breach or
default for purposes of the termination provisions of Paragraph 7.3.
3.4 In the event LICENSEE fails to meet the scheduled development
goals set forth in the business plan prepared in accordance with Paragraph
3.2.2, UNIVERSITY and LICENSEE shall engage in good faith negotiations to
revise the initial business plan and establish substitute development goals.
In the event LICENSEE fails to meet the substitute scheduled development goals
as set forth in the revised business plan as a result of events or non-events
within the control of LICENSEE, such failure shall constitute a material
breach or default for purposes of the termination provisions of Paragraph 7.3.
ARTICLE 4 - ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay to UNIVERSITY, as set forth below, to the end of the term of the
Patent Rights or until this License Agreement shall be terminated as
hereinafter provided:
4.1.1 In each calendar year, a royalty on Net Sales of the
Licensed Products or Licensed Processes leased or sold, by LICENSEE, or any
AFFILIATE, payable according to the following schedule:
(A) For Licensed Products or Licensed Processes described by Section
1.3.1, above, and which incorporate and/or utilize technology
disclosed in patents and patent applications listed in Exhibit III [
*** ] of Net Sales.
(B) For Licensed Products or Licensed Processes described by Section
1.3.2, above, which do not incorporate and/or utilize technology
disclosed in patents and patent applications listed in Exhibit III.
(a) [ *** ] of Net Sales for annual Net Sales less than or equal ---
to [ *** ]; and ---
(b) [ *** ] of Net Sales for annual Net Sales greater than [ *** ],
but less than or equal to [ *** ];
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The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
(c) [ *** ] of Net Sales for annual Net Sales greater than [ *** ---
--- ] but less than or equal to [*** --- ];
(d) [ *** ] of Net Sales for annual Net Sales greater than [*** ], but
less than or equal to[ *** ];
(e) [ *** ] of Net Sales for annual Net Sales greater than [*** ---
--- ].
4.1.2 In each calendar year, a royalty on Net Sales of the leased
or sold, by LICENSEE, or any AFFILIATE, payable according to the following
schedule:
4.1.3 LICENSEE may reduce the amount of the royalties due to
UNIVERSITY pursuant to 4.1.1, above, by the amount required to be paid to any
third party to avoid infringement of any of such third party's patent rights
required to practice the rights granted under this License Agreement, but in
no event shall UNIVERSITY receive less than one-half (1/2) the applicable
royalty provide in 4.1.1, above.
4.1.4 In each calendar year, a royalty on the consideration
received by LICENSEE from sublicensees, pursuant to the following schedule:
a. for sublicenses within the scope of Article 4.1.1 (A), hereinabove,
CANCER CENTER shall receive one and one-half percent (1.5%) of of all
royalties, fees or other consideration received by LICENSEE; for
sublicenses within the scope of 4.1.1 (B), hereinabove:
b. where LICENSEE receives a royalty less than or equal to ten percent
(10%) and/or fees or other consideration valued less than or equal to
five million dollars ($5,000,000), MDA shall receive twenty percent
(20%) of the total consideration;
c. where LICENSEE receives a royalty greater than ten percent (10%) and
less than or equal to fifteen percent (15%) and/or fees or other
consideration valued greater than five million dollars ($5,000,000)
and less less than ten millio dollars ($10,000,000), MDA shall receive
twenty-five percent (25%) of the total consideration;
d. where LICENSEE receives a royalty greater than [ *** ] and/or fees or
other consideration valued greater than [ *** ], MDA shall receive [
*** ] of the total consideration.
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The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
4.1.5 To maintain the exclusivity of LICENSEE'S license to the
Patent Rights, LICENSEE shall pay minimum annual royalties in accordance with
the following schedule:
(a) In January of the fifth (5th) calendar year after
execution of the license, a minimum of [ *** ]
(b) In January of the sixth (6th) calendar year after
execution of the license, a minimum of [ *** ]
(c) In January of the seventh (7th) calendar year after the
execution of the license, a minimum of [ *** ]
(d) In January of the eighth (8th) calendar year after the
execution of the license, a minimum of [ *** ]
(e) Each calendar year thereafter, a minimum of [ *** ]
4.2 No multiple royalties shall be payable because the use, lease or
sale of any Licensed Product or Licensed Process is, or shall be, covered by
more than one valid and unexpired claim contained in the Patent Rights.
4.3 Royalty payments shall be paid in United States dollars to THE
UNIVERSITY OF TEXAS M.D. ANDERSON CANCER CENTER, 1515 Holcombe Boulevard,
Houston, Texas 77030 or at such other place as UNIVERSITY may reasonably
designate, consistent with the laws and regulations controlling in any foreign
country. Any withholding taxes which LICENSEE or any sublicensee shall be
required by law to withhold on remittance of the royalty payments shall be
deducted from royalty paid to UNIVERSITY. LICENSEE shall furnish UNIVERSITY
the original copies of all official receipts for such taxes. If any currency
conversion shall be required in connection with the payment of royalties
hereunder, such conversion shall be made by using the exchange rate prevailing
a Citibank, N.A. in New York, on the last business day of the calendar
quarterly reporting period to which such royalty payments relate.
ARTICLE 5 - REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing
the amount payable to UNIVERSITY by way of royalty as aforesaid. Said books of
account shall be kept at LICENSEE's principal place of business. Said books
and the supporting data shall be open up to three (3) times per year, upon
reasonable notice to LICENSEE and no more than twice per calendar year, for
five (5) years
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<PAGE>
following the end of the calendar year to which they pertain, for inspection
by the UNIVERSITY Internal Audit Division and/or by an independent certified
public accountant employed by UNIVERSITY, to which LICENSEE has no reasonable
objection, for the purpose of verifying LICENSEE's royalty statement or
compliance in other respects with this License Agreement.
5.2 LICENSEE, within thirty (30) days after the end of each quarter of
each calendar year, shall deliver to UNIVERSITY true and accurate reports,
giving such particulars of the business conducted by LICENSEE during the
preceding quarter under this License Agreement as shall be pertinent to a
royalty accounting hereunder. These shall include at least the following:
(a) All Licensed Products and Licensed Processes used, leased
or sold, by or for LICENSEE, its AFFILIATES and
sublicensees.
(b) Total amounts invoiced for Licensed Products and Licensed
Processes used, leased or sold, by or for LICENSEE, its
AFFILIATES or its sublicensees.
(c) Deductions applicable in computed "Net Sales" as defined
in Paragraph 1.7.
(d) Total royalties due based on Net Sales by or for LICENSEE,
its AFFILIATES or its sublicensees.
(e) Names and addresses of all sublicensees and AFFILIATES of
LICENSEE.
(f) On an annual basis, LICENSEE's Annual Report.
5.3 With each such report submitted, LICENSEE shall pay to UNIVERSITY
the royalties due and payable under this License Agreement. If no royalties
shall be due, LICENSEE SHALL so report.
ARTICLE 6 - PATENT PROSECUTION
In accordance with Paragraph 3 (c) of the Research Agreement, the
LICENSEE, at its own expense and utilizing patent counsel of its choice (and
agreed to by BOARD and UNIVERSITY), shall have the sole right and
responsibility for the filing, prosecution, and maintenance of any patent
applications and patents contained in the Patent Rights. All such patents and
patent applications shall be assigned to BOARD. LICENSEE, or its patent
counsel, shall provide UNIVERSITY with copies of all correspondence and
documents filed with, or received from, the United States Patent and Trademark
Office or any foreign patent office or patent agent. In addition, LICENSEE
agrees that any and all official or "ribbon" copies of issued patents shall be
forwarded to, and retained by, UNIVERSITY.
ARTICLE 7 - TERMINATION
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<PAGE>
7.1 If LICENSEE shall become bankrupt or insolvent, or shall file a
petition in bankruptcy, or if the business of LICENSEE shall be placed in the
hands of a receiver, assignee or trustee for the benefit of creditors, whether
by the voluntary act of LICENSEE or otherwise, this License Agreement shall
automatically terminate.
7.2 Should LICENSEE fail in its payment to UNIVERSITY of royalties due
in accordance with the terms of this License Agreement, UNIVERSITY shall have
the right to serve notice upon LICENSEE, by certified mail to the address
designated in Article 14 hereof, of its intention to terminate this License
Agreement within thirty (30) days after receipt of said notice of termination
unless LICENSEE shall pay to UNIVERSITY, within (30) day period, all such
royalties due and payable. Upon the expiration of the thirty (30) day period,
if LICENSEE shall not have paid all such royalties due and payable, the
rights, privileges and license granted hereunder shall thereupon immediately
terminate.
7.3 Upon any material breach or default of this License Agreement by
LICENSEE, other than those occurrences set out in Paragraphs 7.1 and 7.2
hereinabove, which shall always take precedence in that order over any
material breach or default referred to in this Paragraph 7.3, UNIVERSITY shall
have the right to terminate this License Agreement and the rights, privileges
and license granted hereunder by ninety (90) days' notice to LICENSEE by
certified mail to the address designated in Article 14 hereof. Such
termination shall become effective unless LICENSEE shall have cured any such
breach or default prior to the expiration of the ninety (90) day period from
receipt of the notice of termination.
7.4 LICENSEE shall have the right to terminate this License Agreement
at any time on nine (9) months' notice by certified mail to UNIVERSITY.
7.5 Upon termination of this License Agreement for any reason, nothing
herein shall be construed to release either party from any obligation that
matured prior to the effective date of such termination. LICENSEE and/or any
sublicensee thereof may, however, after the effective date of such
termination, sell all Licensed Products, and complete Licensed Products in the
process of manufacture at the time of such termination, and sell the same,
provided that LICENSEE shall pay to UNIVERSITY the royalties therein as
required by Article 5 of this License Agreement and shall submit the reports
required by Article 5 hereof on the sales of Licensed Products.
ARTICLE 8 - INFRINGEMENT AND OTHER ACTIONS
8.1 LICENSEE and UNIVERSITY shall promptly provide written notice, to
the other party, of any alleged infringement by a third party of the Patent
Rights and provide such other party with any available evidence of such
infringement.
8.2 During the term of this License Agreement, LICENSEE shall have the
right, but not the obligation, to prosecute and/or defend, at its own expense
and utilizing counsel of its choice, any infringement of, and/or challenge to,
the Patent Rights. In furtherance of such right, UNIVERSITY hereby agrees that
LICENSEE may join UNIVERSITY hereby agrees that LICENSEE may join
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<PAGE>
UNIVERSITY as a party in any such suit, without expense to UNIVERSITY. No
settlement, consent judgment or other voluntary final disposition of any such
suit may be entered into without the consent of UNIVERSITY, which consent
shall not unreasonably be withheld. LICENSEE shall indemnify UNIVERSITY
against any order for costs that may be made against UNIVERSITY in any such
suit.
8.3 Any recovery of damages by LICENSEE, in any such suit, shall be
applied first in satisfaction of any unreimbursed expenses and legal fees of
LICENSEE RELATING to the suit. The balance remaining from any such recovery
shall be treated as royalties received by LICENSEE from sublicensees and
shared by UNIVERSITY and LICENSEE in accordance with Paragraph 4.1.2 hereof.
8.4 If within six (6) months after receiving notice of any alleged
infringement, LICENSEE shall have been unsuccessful in persuading the alleged
infringer to desist, or shall not have brought and shall not be diligently
prosecuting an infringement action, or if LICENSEE shall notify UNIVERSITY,
any time prior thereto, of its intention not to bring suit against the alleged
infringer, then, and in those events only, UNIVERSITY shall have the right,
but not the obligation, to prosecute, at its own expense and utilizing counsel
of its choice, any infringement of the Patent Rights, and UNIVERSITY may, for
such purposes, join the LICENSEE as a party plaintiff. The total cost of any
such infringement action commenced solely by UNIVERSITY shall be borne by
UNIVERSITY and UNIVERSITY shall keep any recovery or damages for past
infringement derived therefrom.
8.5 In any suit to enforce and/or defend the Patent Rights pursuant to
this License Agreement, the party not in control of such suit shall, at the
request and expense of the controlling party, cooperate in all respects and,
to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
ARTICLE 9 - PRODUCT LIABILITY
9.1 BOARD, by this License Agreement, makes no representation as to
the patentability and/or breadth of the inventions contained in the Patent
Rights. BOARD, by this License Agreement, makes no representation as to
patents now held or which will be held by others, or by BOARD, in the field of
the Licensed Products for a particular purpose.
9.2 LICENSEE agrees to defend, indemnify and hold BOARD and UNIVERSITY
harmless from and against all liability, demands, damages, expense or losses
for death, personal injury, illness or property damage arising (a) out of use
by LICENSEE or its transferees of inventions licensed or information furnished
under this License Agreement, or (b) out of any use, sale or other disposition
by LICENSEE or its transferees of products made by use of such inventions or
information. As used in this clause, UNIVERSITY includes its Regents,
Officers, Agents, Employees and Students, and "LICENSEE" includes its
Affiliates, Contractors and Sub-Contractors.
ARTICLE 10 - ASSIGNMENT
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LICENSEE may assign or otherwise transfer this License Agreement and
the license granted hereunder and the rights acquired by it hereunder so long
as such assignment or transfer shall be accompanied by a sale or other
transfer of LICENSEE's entire business or of that part of LICENSEE's business
to which the license granted hereunder relates. LICENSEE shall give BOARD and
UNIVERSITY thirty (30) days prior written notice within which to reasonably
object to such assignment or transfer. If within thirty (30) days after the
giving of such notice, no written objection is received by LICENSEE, BOARD and
UNIVERSITY shall be deemed to have approved such assignment or transfer;
provided, however, BOARD shall not be deemed to have approved such assignment
and transfer unless such assignee or transferee shall have agreed in writing
to be bound by the terms and conditions of this License Agreement. Upon such
assignment or transfer and agreement by such assignee or transferee. If
LICENSEE shall sell or otherwise transfer its entire business or that part of
its business to which the license granted hereby relates and the transferee
shall not have agreed in writing to be bound by the terms and conditions of
this License Agreement, or new terms and conditions shall not have been
reasonably agreed upon within sixty (60) days of such sale or transfer, BOARD
shall have the right to terminate this License Agreement.
ARTICLE 11 - NON-USE OF NAMES
LICENSEE shall not use the name of UNIVERSITY or any adaptation
thereof in any advertising, promotional or sales literature without prior
written consent obtained from UNIVERSITY, in each case, except that LICENSEE
may state that it is licensed by UNIVERSITY, under one or more of the patents
and/or applications comprising the Patent Rights.
ARTICLE 12 - PAYMENTS, NOTICE AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this License
Agreement shall be sufficiently made or given on the date of mailing is sent
to such party by certified first class mail, postage prepaid, addressed to it
at its address below or as it shall designate by written notice given to the
other party:
In the case of BOARD:
BOARD OF REGENTS
The University of Texas System
201 West Seventh Street
Austin, Texas 78701
ATTENTION: System Intellectual
Property Office
with copy to: The University of Texas
M.D. Anderson Cancer Center
Office of Technology Development
1020 Holcombe Blvd, Suite 1405
Houston, Texas 77030
Attention: William J. Doty
Director
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<PAGE>
In the case of LICENSEE:
Ingenex, Inc.
400 Oyster Point Road, Suite #315
San Francisco, California 94080
Attention: Louis Bucalo, M.D.,
President
ARTICLE 13 - MISCELLANEOUS PROVISIONS
13.1 This License Agreement shall be construed, governed, interpreted
and applied in accordance with the laws of the State of Texas, U.S.A., and
adjudication may take place in courts of either State, except that questions
affecting the validity, enforceability, or infringement of any patent
contained in the Patent Rights shall be determined by the law of the country
in which the patent was granted.
13.2 The parties hereto acknowledge that this License Agreement sets
forth the entire agreement and understanding of the parties hereto as to the
subject matter hereof, and shall not be subject to any change of modification
except by the execution of a written instrument subscribed to by the parties
hereto.
13.3 The provisions of this License Agreement are severable, and in
the event that any provision of this License Agreement shall be determined to
be invalid or unenforceable under any controlling body of law, such invalidity
or unenforceability shall not in any way affect the validity or enforceability
of the remaining provisions hereof.
13.4 LICENSEE agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed Products
shipped to, or sold in, other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or
sale.
13.5 The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this License Agreement
shall not constitute a waiver of that right or excuse a similar subsequent
failure to perform any such term or condition by the other party.
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IN WITNESS WHEREOF, the parties hereto have executed this License
Agreement, in duplicate by proper persons thereunto duly authorized.
THE UNIVERSITY OF TEXAS BOARD OF REGENTS OF THE
M.D. ANDERSON CANCER CENTER UNIVERSITY OF TEXAS SYSTEM
By By
--------------------------- --------------------------
David J. Bachrach Ray Farabee
Executive Vice President General Counsel
Administration and Finance
APPROVED AS TO CONTENT: APPROVED AS TO FORM
By By
--------------------------- --------------------------
William J. Doty Dudley R. Dobie, Jr.
Director, Technology Manager, Intellectual Property
Development
INGENEX, INC.
By
-------------------------
Louis Bucalo, M.D.
President
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EXHIBIT III
1. United States Patent Application #652311 dated February 6, 1991
entitled "DNA That Confers Multidrug Resistance"
2. United States Patent Application #07/622,836 filed September 24, 1990
entitled "Compositions and Methods for Clones Containing DNA Sequences
Associated with Multidrug Resistance in Human Cells"
3. Pending United States Patent Application entitled "Methods and
Modified Gene Products for Practicing Tumor Suppressor Gene Therapy",
Pennie and Edmonds attorney docket number 7409-025, Pennie and
Edmonds, 1155 Avenue of the Americas, N.Y. N.Y.
-13-
Exhbit 10.29
SCIENTIFIC ADVISORY AND CONSULTING AGREEMENT
THIS AGREEMENT, effective as of September 1, 1993, is by and between
Richard E. Giles, Ph.D., (hereinafter referred to as "CONSULTANT"), and
INGENEX, Incorporated, a Delaware corporation having offices at 400 Oyster
Point Blvd., South San Francisco, CA 94080 ("INGENEX").
W I T N E S S E T H
WHEREAS, CONSULTANT is an expert in technical matters of particular
importance to the advancement if INGENEX's technology; and
WHEREAS, INGENEX desires that it be able to utilize CONSULTANT'S
expertise in its development and manufacturing programs.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereby agree as follows:
ARTICLE I - TERM OF AGREEMENT
This Agreement shall be in effect for a period of one (1) year from
the effective date. During this initial one year period, this Agreement may be
terminated by Consultant or Ingenex upon sixty (60) days notice. The term of
this Agreement shall automatically be extended for two (2) consecutive periods
of one year each, unless either party shall give written notice of
non-renewal, to the other, at least thirty (30) days prior to the expiration
of the initial, or then current renewal, term.
ARTICLE II - SCIENTIFIC ADVISOR
CONSULTANT agrees to serve under the term of this Agreement as a
Scientific Advisor to INGENEX.
ARTICLE III - ADVISORY FUNCTION
CONSULTANT, as a Scientific Advisor to INGENEX, agrees to meet at
least monthly to advise INGENEX of advances in his field of expertise, and to
consult with INGENEX, assessing the feasibility of development and
manufacturing programs under consideration by INGENEX and offering guidance
for current and future development and manufacturing of INGENEX's products. In
addition to these monthly meetings, CONSULTANT further agrees to meet
individually and in groups as called upon from time to time to review and
advise INGENEX on its research, development and commercialization of its
technology, and to consult at reasonable times
1
<PAGE>
and upon reasonable prior notice with INGENEX and INGENEX's management,
agents, employees and other Scientific Advisors on projects. CONSULTANT, as a
Scientific Advisor to INGENEX, is expected to make innovative and valuable
contributions to INGENEX. In order to protect INGENEX's patent rights, any
actual research done by CONSULTANT under this Agreement shall be done at
INGENEX's place of business or at some other location approved in advance by
INGENEX and no such research shall be done by CONSULTANT at his employer's
place of business.
ARTICLE IV - COMPENSATION
In consideration of CONSULTANT'S performance of the Consulting
Services, during the Term the Company shall pay CONSULTANT a consulting fee at
the rate of forty thousand dollars ($40,000) per year for an initial one year
term, to begin on the effective date of this Agreement, and be payable in
equal monthly installments on the last day of each month. Compensation for
CONSULTANT'S services shall be reviewed by the Board of Directors at the end
of each one (1) year period. In no event shall CONSULTANT'S compensation be
reduced below its current level.
ARTICLE V - EXPENSES
INGENEX will promptly reimburse CONSULTANT for all reasonable and
necessary expenses incurred by him in connection with his consulting
hereunder, as approved by INGENEX.
ARTICLE VI - CONFIDENTIALITY AGREEMENT
CONSULTANT recognizes and acknowledges that the technology possessed
and under development by INGENEX is a valuable property right to be kept
confidential and secret, and therefore agrees to keep confidential and not
disclose or use (except in connection with the fulfillment of his consulting
duties with INGENEX under this Agreement) all "Confidential Information" of
INGENEX. "Confidential Information" shall not include, however, information in
the public domain; information disclosed to CONSULTANT by a third party
entitled to disclose it; or, information already known to the CONSULTANT prior
to receipt from INGENEX.
ARTICLE VII - REPRESENTATION OF CONSULTANT
CONSULTANT hereby represents that his current principle place of
employment has received full disclosure as to the CONSULTANT'S acting as a
Scientific Advisor to INGENEX and of the duties required of the CONSULTANT
under this Agreement, and that such employer consents fully to CONSULTANT'S
execution of this Agreement and position of Scientific Advisor for INGENEX.
CONSULTANT further represents that there are no binding agreements to which he
is a party or by which he is bound, forbidding or restricting his activities
herein. In addition, the CONSULTANT consents to being named as a Scientific
Advisor in various reports, brochures or other documents produced by or on
behalf of INGENEX, including any and all documents filed with
2
<PAGE>
the Securities and Exchange Commission.
ARTICLE VIII - OWNERSHIP OF INVENTIONS
In consideration for the compensation paid to CONSULTANT by INGENEX
in Article IV, CONSULTANT hereby:
a. assigns to INGENEX all his right, title and interest in all
inventions which arise from his consulting activities for INGENEX hereunder,
and agrees to cooperate fully in the prosecution of any patent application
resulting from any such invention, at the expense of INGENEX, which
cooperation shall include executing any necessary documents in connection
therewith; and
b. agrees, during the term of this Agreement, not to consult on the
development of retroviral vectors and/or other vectors for gene therapy, and
production systems related thereto for any other commercial, for-profit
entity; or, for any other commercial, for-profit entity whose primary business
is the development of retroviral vectors and/or other vectors for gene
therapy, and production systems related thereto; provided, however, that
nothing in this section shall prevent CONSULTANT from consulting on the
development of retroviral vectors and other vectors, and productions systems
related thereto, for any non-profit, non-commercial entity.
ARTICLE IX - SURVIVAL
The provisions of this Agreement relating to confidentiality,
assignment of inventions, and cooperation during patent prosecution shall
survive any termination or expiration hereof.
ARTICLE X - MISCELLANEOUS
CONSULTANT shall keep confidential from INGENEX all confidential,
technical, scientific, and other confidential information concerning the
business and research plans of CONSULTANT'S employer, M.D. Anderson Cancer
Center.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
by proper persons thereunto duly authorized.
RICHARD E. GILES, PH.D.
By: /s/ Richard E. Giles
----------------------------
Richard E. Giles, Ph.D.
Date:9/15/93
--------------------------
INGENEX, INCORPORATED
By:/s/ Louis R. Bucalo
----------------------------
Title:President and CEO
-------------------------
Date:8/26/93
--------------------------
4
Exhibit 10.30
May 8, 1996
Richard Champlin, M.D.
Professor of Medicine
Chairman, Department of Hematology
Chief, Section of Blood and Marrow Transplantation
University of Texas MD Anderson Cancer Center
1515 Holcombe Boulevard, Box 24
Houston, TX 77030
Tel: (713) 792-8750
Fax: (713) 794-4902
Dear Dick:
I am writing this letter to confirm our recent discussions regarding
completion of the ongoing MDR clinical trial at MD Anderson Cancer Center. We
understand that this study has proceeded well, that the planned number of
patients have been enrolled in the study, and that 19 patients have
successfully undergone bone marrow transplantation with genetically modified
cells, but that it will take somewhat longer to conclude this trial than was
originally estimated. Ingenex therefore agrees to continue its support of this
trial to completion by extending the Sponsored Research Agreement between
Ingenex and MD Anderson Cancer Center dated May 23, 1993.
As we discussed during my last visit to MD Anderson, Ingenex will
provide additional funds in the sum of $240,000 paid in 10 monthly
installments of $24,000 beginning March of 1996. Two payments to cover March
and April have already been sent to MD Anderson. We have understood from you
and your colleagues that this extension should suffice to complete the
<PAGE>
Richard Champlin, M.D.
September 25, 1996
Page 2
ongoing work. We expect these funds to be spent to support the salaries of the
individuals who work on the project in a number of capacities, including:
collecting blood and bone marrow samples; analyzing samples by various PCR
techniques (in situ, in solution, etc.); carrying out some functional studies
of MDR in patients' cells (within limits discussed at our meeting); collecting
and inputting clinical data into the MD Anderson PDMS system; and
statistically analyzing the data at the end of the trial. The Ingenex funding
also covers reagents, laboratory supplies and other expenses, including
secretarial etc., as requested by you. Furthermore, Ingenex intends to
maintain its consulting agreement with Dr. Richard Giles at least through the
end of 1996. In addition to these commitments, Ingenex intends to cover the
cost of conducting quantitative PCR analysis of patients' blood and bone
marrow samples using Specialty Laboratories, Inc. as an outside contractor.
Specialty will develop and perform quantitative DNA and RT-PCR tests. As we
have agreed, we expect that MD Anderson will arrange for the delivery of
specimens for the PCR tests to Specialty on a regular basis, and the data
obtained by Specialty will be freely available to you and your colleagues.
We greatly appreciate the spirit of discovery, collaboration, and
cooperation that has characterized the interactions between MD Anderson and
Ingenex during the course of the planning and implementation of this ambitious
and signficant study. We look forward to a focused effort to bring this
initial clinical trial of MDR-1 gene therapy to a successful conclusion, even
as we embark on a shared task of designing the strategy for future studies.
I look forward with excitement to our planned meeting in Houston at the
end of this month.
Best regards,
/s/ Mark E. Furth
-----------------------
Mark E. Furth, Ph.D.
President & CEO
Exhibit 10.32
EXHIBIT B
SUBLEASE AND ACKNOWLEDGMENT OF ASSIGNMENT
Under this Sublease and Acknowledgment of Assignment (the
"Sublease"), dated as of February 15, 1994, TITAN PHARMACEUTICALS, INC., a
Delaware corporation ("Sublessor"), hereby subleases to GENEIC SCIENCES, INC.,
a Delaware corporation, THERACELL, INC., a Delaware corporation, ANSAN, INC.,
a Delaware corporation, and INGENEX, INC., a Delaware corporation
(collectively "Sublessee"), and Sublessee hereby subleases from Sublessor, the
equipment (the "Equipment") more fully described on the Schedule(s) attached
hereto (the "Equipment Schedule(s)") upon the terms and conditions contained
in this Sublease. Geneic Sciences, Inc., Theracell, Inc., Ansan, Inc. and
Ingenex, Inc. are jointly and severally liable for all obligations of
Sublessee hereunder. As appropriate, the term "Sublessee" means Geneic
Sciences, Inc., Theracell, Inc., Ansan, Inc. and Ingenex, Inc. collectively or
individually. Sublessor, as lessee, is leasing the Equipment from Phoenix
Leasing Incorporated ("PLI") under Schedule 1 to Master Lease Agreement, dated
as of February 15, 1994 (the "Master Lease"). Sublessee and Sublessor hereby
agree that this Sublease shall be subject and subordinate to the terms and
conditions of the Master Lease. PLI hereby consents to Sublessor's sublease of
the Equipment to Sublessee pursuant to the terms hereof. Sublessee hereby
acknowledges assignment of this Sublease to PLI as set forth in Section 16
herein.
1. Term of Agreement. The term of this Sublease begins on the date
set forth above and shall continue thereafter and be in effect so long as and
at any time any Equipment Schedule entered into pursuant to this Sublease is
in effect. The Initial Term and rent payable with respect to each subleased
item of Equipment shall be as set forth in and as stated in the respective
Equipment Schedule(s). The terms of each Equipment Schedule hereto are subject
to all conditions and provisions of this Sublease as may at any time be
amended.
2. Non-Cancelable Sublease. This Sublease cannot be canceled or
terminated except as expressly provided herein. This Sublease is a net
sublease and Sublessee agrees that its obligation to pay all rent and other
sums payable hereunder and the rights of Sublessor and PLI in and to such rent
and other sums are absolute and unconditional and are not subject to any
abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims
which Sublessee may have against Sublessor, any assignee, the manufacturer or
seller of the Equipment, or against any person or entity for any reason
whatsoever.
3. Sublessor Commitment. So long as Sublessee complies with all of
its obligations hereunder and no Event of Default, as defined herein, has
occurred and is continuing, Sublessor agrees to sublease to Sublessee the
groups of Equipment described on the Equipment
1
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Schedule(s) ; provided, however, that Sublessor shall have no obligation
hereunder until the execution and delivery of each such Equipment Schedule by
Sublessor and Sublessee.
4. No Warranties by Sublessor.
(a) SUBLESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO ANY
MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND AS TO
SUBLESSOR, SUBLESSEE SUBLEASES THE EQUIPMENT "AS IS".
(b) If the Equipment is not properly installed, does not
operate as represented or warranted by the supplier of the Equipment
("Vendor") or is unsatisfactory for any reason, Sublessee shall make any claim
on account thereof solely against Vendor and shall, nevertheless, pay
Sublessor all rent payable under this Sublease, Sublessee hereby waiving any
such claims as against Sublessor. Sublessor hereby assigns to Sublessee solely
for the purpose of making and prosecuting any said claim, to the extent
assignable, all of the rights which Sublessor now or hereafter has against
Vendor for breach of warranty or other representation respecting the
Equipment. Sublessor shall have no responsibility for delay or failure to fill
the order.
(c) Sublessee understands and agrees that neither the vendor nor any
salesman or other agent of the Vendor is an agent of Sublessor. No salesman or
agent of Vendor is authorized to waive or alter any term or condition of this
Sublease, and no representations as to the Equipment or any other matter by
the Vendor shall in any way affect Sublessee's duty to pay the rent and
perform its other obligations as set forth in this Sublease.
(d) Sublessee represents and warrants that all credit and financial
information submitted to Sublessor herewith or at any other time is true and
correct.
(e) Sublessee hereby authorizes Sublessor to insert in this Sublease
and each Equipment Schedule hereto the serial numbers and other identification
data of the Equipment when determined by Sublessor.
5. Sublessee's Representations and Warranties. Sublessee represents
and warrants that:
(a) It is a corporation in good standing under the laws of the state
of its incorporation, and duly qualified to do business in each state where
the Equipment will be located;
(b) It has full authority to execute and deliver this Sublease and
perform the terms hereof, and this Sublease has been duly authorized and
constitutes a valid and binding agreement of Sublessee enforceable in
accordance with its terms;
2
<PAGE>
(c) This Sublease will not contravene any law, regulation or
judgment affecting Sublessee or result in any breach of any agreement or other
instrument binding on Sublessee;
(d) No consent of Sublessee's shareholders or holder of any
indebtedness, or filing with, or approval of, any governmental agency or
commission, is a condition to the performance of the terms hereof;
(e) There is no action or proceeding pending or threatened against
Sublessee before any court or administrative agency which might have a
materially adverse effect on the business, financial condition or operations
of Sublessee;
(f) No deed of trust, mortgage or third party interest will attach
to the Equipment; and
(g) The Equipment will remain at all times under applicable law
removable personal property, free and clear of any lien or encumbrance in
favor of Sublessee or any other person or entity, notwithstanding the manner
in which the Equipment may be attached to any real property.
6. Equipment Ordering. Sublessee shall be responsible for all packing,
rigging, transportation and installation charges for the Equipment and
Sublessor may separately invoice Sublessee for such charges, Sublessee shall
arrange for delivery of Equipment so that it can be accepted in accordance
with Section 7 hereof.
7. Sublessee Acceptance. Sublessee shall return to Sublessor the signed
and dated Acceptance Notice attached hereto as Exhibit "A" (a) acknowledging
the Equipment has been received, installed and is ready for use and (b)
accepting it as satisfactory in all respects for the purposes of this
Sublease. Sublessor is authorized to fill in the Rent Start Date on each
Schedule in accordance with the foregoing.
8. Location; Inspection; Labels. Equipment shall be delivered to and
shall not be removed from the "Equipment Location" shown on each Schedule
without Sublessor's and PLI's prior written consent. Sublessor and PLI shall
have the right to inspect Equipment at any reasonable time; provided, however,
that if Sublessee has security procedures at the premises at which Equipment
is located, Sublessor or PLI. as applicable, shall exercise its inspection
right in compliance with such procedures to the extent that they are
reasonable. Sublessee shall be responsible for all labor, material and freight
charges incurred in connection with any removal or relocation of such
Equipment which is requested by the Sublessee and consented to by Sublessor,
as well as for any charges due to the installation or moving of the Equipment.
The rental payments shall continue during any period in which the Equipment is
in transit during a relocation. Sublessee shall mark and label Equipment,
3
<PAGE>
which labels shall state Equipment is owned by PLI, and Sublessee shall affix
such labels to and keep them in a prominent place on the Equipment.
9. Equipment Maintenance.
(a) General. Sublessee will locate or base each item of Equipment
where designated in an Acceptance Notice and will reasonably permit Sublessor
to inspect during normal business hours such item of Equipment and its
maintenance records. Sublessee will at its sole expense comply with all
applicable laws, rules, regulations, requirements and orders with respect to
the use, maintenance, repair, condition, and storage and operation of each
item of Equipment. Except as required herein, Sublessee will not make any
addition or improvement to any item of Equipment that is not readily removable
causing material damage to any item or impairing its original value or
utility. Any addition or improvement that is so required or cannot be so
removed will immediately become the property of Sublessor.
(b) Service and Repair. With respect to computer equipment other
than personal computers, Sublessee has entered into, and will maintain in
effect, Vendor's standard maintenance contract for a period equal to the term
of each Schedule and extensions thereto which provides for the maintenance of
the Equipment in good condition and working order and repair and replacement
of parts thereof, all in accordance with the terms of such maintenance
contract. Sublessee shall have the Equipment certified for the Vendor's
standard maintenance agreement prior to delivery to Sublessor upon expiration
of this Sublease. With respect to any other Equipment, Sublessee will, at its
sole expense, maintain and service, and repair any damage to, each item of
Equipment in a manner consistent with prudent industry practices and
Sublessee's own practice so that such item of Equipment is at all times (i) in
the same condition as when delivered to Sublessee, except for ordinary wear
and tear, and (ii) in good operating order for the function intended by its
manufacturer's warranties and recommendations.
10. Loss or Damage. Sublessee assumes the entire risk of loss to the
Equipment through use, operation or otherwise. Sublessee hereby indemnifies
and holds harmless Sublessor from and against all claims, loss of rental
payments, costs, damages, and expenses relating to or resulting from any loss,
damage or destruction of the Equipment, any such occurrence being hereinafter
called a "Casualty Occurrence". On the first rental payment date following
such Casualty Occurrence, or, if there is no such rental payment date, thirty
(30) days after such Casualty Occurrence, Sublessee shall (i) repair the
Equipment, returning it to good operation condition; or (ii) replace the
Equipment with identical equipment in good condition and repaid, the title to
which shall vest in PLI and which thereafter shall be subject to the terms of
this Sublease; or (iii) pay to Sublessor (a) any unpaid amounts due Sublessor
under this Sublease, (b) an amount equal to the rental payment in respect of
such unit of Equipment, if any, due on such date, and (c) a sum equal to the
Casualty Value (as defined in Exhibit "B" hereto) to such unit. Upon the
making of such payment, the term of this Sublease as to each such unit of
Equipment with respect to which the Casualty Value was paid shall terminate.
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<PAGE>
11. General Indemnity. Sublessee will protect, indemnify and save
harmless Sublessor from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses imposed upon or
incurred by or asserted against Sublessor or any assignee of
Sublessor by Sublessee or any third party by reason of the occurrence or
existence (or alleged occurrence or existence) of any act or event relating to
or caused by the Equipment, including, but not limited to, consequential or
special damages of any kind, or any failure on the part of Sublessee to
perform or comply with any of the terms of this Sublease. In the event that
any action, suit or proceeding is brought against Sublessor by reason of any
such occurrence, Sublessee, upon request of Sublessor, will at Sublessee's
expense resist and defend such action, suit or proceeding or case the same to
be resisted and defended by counsel approved by Sublessor. Sublessee's
obligations under this Section 11 shall survive the expiration of this
Sublease with respect to acts or events occurring or alleged to have occurred
prior to the return of the Equipment to the Sublessor at the end of the
Sublease term.
12. Insurance. Sublessee at its expense shall keep the Equipment
insured for the entire term and any extensions of this Sublease against all
risks for the value of the Equipment and in no event for less than the
Casualty Value of such Equipment as specified on Exhibit"B". Such insurance
shall provide for (a) loss payable endorsement to Sublessor or any assignee of
Sublessor, and (b) public liability and property damage insurance naming
Sublessor as additional insured and shall contain the insurer's agreement to
give thirty (30) days' written notice to Sublessor before cancellation or
material change of any policy of insurance. Sublessee will provide Sublessor
and any assignee of Sublessor with a certificate of insurance from the insurer
evidencing Sublessor's or such assignee's interest in the policy of insurance.
Such insurance shall cover any Casualty Occurrence to any unit of Equipment.
Notwithstanding anything in Section 10 or this Section 12 to the contrary,
this Sublease and Sublessee's obligations hereunder and under each Equipment
Schedule shall remain in full force and effect with respect to any unit of
Equipment which is not subject to a Casualty Occurrence. If Sublessee fails to
provide or maintain insurance as required herein, Sublessor shall have the
right, but shall not be obligated, to obtain such insurance. In that event,
Sublessee shall pay to Sublessor the cost thereof.
13. Taxes. Sublessee shall reimburse Sublessor for (or pay directly if
instructed by Sublessor), and agrees to indemnify and hold Sublessor harmless
from, all fees (including, but not limited to, license, documentation,
recording and registration fees), and all sales, use, gross receipts, personal
property, occupational, value added or other taxes, levies, imposts, duties,
assessments, charges, or withholding of any nature whatsoever, together with
any penalties, fines, additions to tax, or interest thereon (all of the
foregoing being hereafter referred to as "Impositions") except same as may be
attributable to Sublessor's income, arising at any time prior to or during the
term of this Sublease, or upon termination or early termination of this
Sublease and levied or imposed upon Sublessor directly or otherwise by any
Federal, state or local government in the United States or by any foreign
country or foreign or international taxing authority upon or with respect to
(i) the Equipment, (ii) the exportation, importation, registration, purchase,
ownership, delivery, leasing, possession, use, operation, storage,
5
<PAGE>
maintenance, repair, return, sale transfer of title, or other disposition
thereof, (iii) the rentals, receipts, or earnings arising from the Equipment,
or any disposition of the rights to such rentals,. receipts, or earning, (iv)
any payment pursuant to this Sublease, and (v) this Sublease or the
transaction of any part thereof. Sublessee's obligation under this Section 13
shall survive the expiration of this Sublease with respect to acts or events
occurring or alleged to have occurred prior to the return of the Equipment to
Sublessor at the end of the Sublease term; provided, however, that Lessee
shall not be obligated to pay penalties and fines which constitute Impositions
under this Section 13 to the extent that such penalties and fines arise from
Lessor's unreasonable failure to take required or appropriate action with
respect to the related Impositions and Lessee could not itself take such
required or appropriate action.
14. Payment by Sublessor. If Sublessee shall fail to make any payment or
perform any act required hereunder, then Sublessor may, but shall not be
required to, after such notice to Sublessee as is reasonable under the
circumstances, make such payment or perform such act with the same effects as
if made or performed by Sublessee. Sublessee will upon demand reimburse
Sublessor for all sums paid and all costs and expenses incurred in connection
with the performance of any such act.
15. Surrender of Equipment. Upon termination or expiration of this
Sublease with respect to each group of Equipment, Sublessee will forthwith
surrender the Equipment to PLI delivered in as good order and condition as
originally delivered, reasonable wear and tear excepted. PLI may, at its sole
option, arrange for removal and transportation of the Equipment provided that
Sublessee's obligations under Sections 10, 11, and 12 shall not be released.
Sublessee shall bear all expenses of returning (which includes, but is not
limited to, the de- installation, insurance, packaging and transportation of)
the Equipment; provided. however, that with respect to Equipment located in
California Sublessee is required to pay transportation costs only to PLI's
location or other location within California as PLI may request and with
respect to Equipment located in other jurisdictions Sublessee is required to
pay transportation costs to a location as PLI may request only to the extent
that such costs do not exceed the costs that would be incurred in transporting
the Equipment to PLI's location in California. In the event Sublessee fails to
return the Equipment as directed above, all obligations of Sublessee under
this Sublease, including rental payments, shall remain in full force and
effect until Sublessee returns the Equipment to PLI.
16. Assignment. WITHOUT SUBLESSOR'S AND PLI'S PRIOR WRITTEN CONSENT,
SUBLESSEE SHALL NOT (A) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE
DISPOSE OF THIS SUBLEASE, EQUIPMENT, OR ANY INTEREST THEREIN, OF (B) SUBLET OR
LEND EQUIPMENT OR PERMIT IT TO BE USED BY ANYONE OTHER THAN SUBLESSEE OR
SUBLESSEE'S EMPLOYEES OR OTHERS USING THE EQUIPMENT INCIDENTAL TO THE ORDINARY
COURSE OF SUBLESSEE'S OR SUBLESSEE'S EMPLOYEES' USE OF THE EQUIPMENT.
SUBLESSOR SHALL ASSIGN THIS SUBLEASE IN WHOLE TO PLI, AS ASSIGNEE. Sublessee
hereby acknowledges such assignment to PLI by Sublessor. Sublessee agrees to
pay
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PLI all monies due or to become due under this Sublease upon demand by PLI
during the continuance of an Event of Default, as defined herein Sublessee
shall not modify or change the terms of this Sublease in any manner without
PLI's prior written consent, PLI shall have all of the rights, but none of the
obligations, of Sublessor under this Sublease, unless PLI expressly agrees to
assume such obligations in writing. Sublessee shall not assert against PLI any
defense, counterclaim or offset that Sublessee may have against Sublessor.
Notwithstanding any such assignment, and providing the Event of Default has
occured and is continuing, Sublessor, or its assignees, secured parties, or
their agents or assigns, shall not interfere with Sublessee's right to quietly
enjoy use of Equipment subject to the terms of conditions of this Sublease.
Subject to the foregoing, this Sublease inures to the benefit of, and is
binding upon, the successors and assignees of the parties hereto. Sublessee
acknowledges that any assignment by Sublessor will not materially change
Sublessee's duties or obligations under this Sublease or increase any burden
or risk on Sublessee.
17. Default.
(a) Event of Default. Any of the following events or conditions
shall constitute an "Event of Default" hereunder:
i) Sublessee's failure to pay any monies due to Sublessor
hereunder or under any Equipment Schedule beyond the tenth (10th) day after
the same is due;
ii) Sublessee's failure to comply with its obligations under
Section 12 or Section 16;
iii) Sublessee's failure to comply with or perform any term,
covenant, condition, warranty or representation of this Sublease or any
Equipment Schedule hereto or under any other agreement between Sublessee and
Sublessor if such failure to comply or perform is not cured by Sublessee
within ten (10) days of receipt of notice thereof;
iv) Seizure of any of the Equipment under legal process;
v) The filing by or against Sublessee of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment
thereto or under any other insolvency law providing for the relief of debtors;
vi) The voluntary or involuntary making of an assignment
of a substantial portion of the assets of Sublessee for the benefit of its
creditors, the appointment of a receiver or trustee for Sublessee or for any
of Sublessee's assets, the institution by or against Sublessee of any formal
or informal proceeding for dissolution, liquidation, settlement of claims
against or winding up of the affairs of Sublessee;
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<PAGE>
vii) The making by Sublessee of a transfer of all or
a material portion of Sublessee's assets or inventory not in the ordinary
course of business; or
viii) The occurrence of an Event of Default under the
Lease.
(b) Remedies. If any Event of Default shall have occurred:
i) Sublessor may proceed by appropriate court action
or actions either at law or in equity to enforce performance by Sublessee, of
the applicable covenants of this Sublease, or to recover damages therefor; or
ii) Sublessee will, without demand, on the next rent
payment date following the Event of Default pay to Sublessor, as liquidated
damages and not as a penalty, an amount equal to the Casualty Value of the
Equipment set forth in Exhibit "B" together with any rent or other amounts
then due and owing by Sublessee hereunder; and
iii) Sublessor may, without notice to or demand upon
Sublessee;
a) Take possession of the Equipment and lease the same or any
portion thereof, for such period, amount, and to such entity as Sublessor
shall elect. The proceeds of such sublease will be applied by Sublessor (1)
first, to pay all reasonable costs and expenses, including reasonable legal
fees and disbursements, incurred by Sublessor as a result of the Event of
Default and the exercise of its remedies with respect thereto, (2) second, to
pay Sublessor an amount equal to any unpaid rent or other amounts due and
payable plus the Casualty Value, to the extent not previously paid by
Sublessee, and (3) third, to reimburse Sublessee for the Casualty Value to the
extent previously paid. Any surplus remaining thereafter will be retained by
Sublessor; or
b) Take possession of the Equipment and sell the same or any portion
thereof at public or private sale and without demand or notice of intention to
sell. The proceeds of such sale will be applied by Sublessor (1) first, to pay
all reasonable costs and expenses, including reasonable legal fees and
disbursements, incurred by Sublessor as a result of the Event of Default and
the exercise of its remedies with respect thereto, (2) second, to pay
Sublessor an amount equal to any unpaid rent or other amounts due and payable
plus the Casualty Value, to the extent not previously paid by Sublessee, and
(3) third, to reimburse Sublessee for the Casualty Value to the extent
previously paid by Sublessee. Any surplus remaining thereafter will be
retained by Sublessor; and
c) Take possession of the Equipment and hold and keep idle the same
or any portion thereof for so long as the Lessor is unable to procure, on
reasonable terms, a buyer or another lessee for the Equipment.
8
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Sublessee agrees to pay all internal and out-of-pocket costs of
Sublessor related to the exercise of its remedies, including direct costs of
its in-house counsel and out-of-pocket legal fees and expenses. At Sublessor's
request, Sublessee shall assemble the Equipment and make it available to
Sublessor at such location as Sublessor may designate. Sublessee waives any
rights it may have to redeem the Equipment.
Repossession of any or all Equipment shall not terminate this Sublease or any
Equipment Schedule unless Sublessor so notifies Sublessee in writing;
provided, however, that upon the Casualty Value of Equipment becoming due,
rent shall cease to accrue with respect to the Equipment. Any amount required
to be paid under this Section 17 shall bear interest at the rate of 1.5% per
month, or the highest rate of interest permitted by applicable law, whichever
is less, accruing from the date the Casualty Value or other amounts are
payable hereunder until such amounts are paid. All such remedies are
cumulative and may be enforced separately or concurrently and are in addition
to any other rights or remedies available to Sublessor at law or in equity.
In addition to the foregoing remedies, if an Event of Default
hereunder shall have occurred and be continuing, Sublessee shall promptly
provide Sublessor with copies of the minutes of each meeting of Sublessee's
board of directors or any committee thereof and copies of each written consent
taken by the board or such committees to the extent that such minutes and
consents reflect director discussion and actions with respect to this Sublease
and/or the financial condition of Sublessee.
18. Payments. A late payment charge of 1.5% per month, or the
highest rate of interest permitted by applicable law, whichever is less, shall
be paid by Sublessee to Sublessor on all funds owed Sublessor by Sublessee. If
Sublessee shall not have delivered such funds to Sublessor by the date such
funds are due under this Sublease, Sublessor shall bill Sublessee for such
charges. Sublessee acknowledges that invoices for rentals due hereunder are
sent by Sublessor for Sublessee's convenience only. Sublessee's non-receipt of
an invoice will not relieve Sublessee of its obligation to make rent payments
hereunder. Sublessee shall pay PLI all rental payments and all other amounts
due under this Sublease to Phoenix Leasing Incorporated at: P.O. Box 200432,
Dallas, Texas 75320-0432.
19. Sublessor's Expense. Sublessee shall pay Sublessor all
reasonable costs and expenses, including reasonable attorneys' fees and the
reasonable fees of the collection agencies, incurred by Sublessor in enforcing
any of the terms, conditions or provisions hereof.
20. Ownership; Personal Property. The Equipment shall be and remain
personal property of PLI, and Sublessee shall have no right, title or interest
therein or thereto except as expressly set forth in this Sublease,
notwithstanding the manner in which it may be attached or affixed to real
property, and upon termination or expiration of the Sublease term, Sublessee
shall have the duty and Sublessor shall have the right to remove the Equipment
from the premises
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where the same be located whether or not affixed or attached
to the real property or any building, at the costs and expense of Sublessee.
21. Alteration; Attachments. No alterations or attachments shall be
made to the Equipment without Sublessor's prior written consent, which shall
not be unreasonably withheld and which shall not be given for changes that
will affect the reliability and utility of the Equipment
or which cannot be removed without damage to the Equipment, or which in any
way affect the value of the Equipment of purposes of resale or re-lease.
22. Financing Statements. Sublessee will execute financing
statements pursuant to the Uniform Commercial Code. Sublessee authorizes
Sublessor to file financing statements signed only by Sublessor (where such
authorization is permitted by law) at all places where Sublessor deems
necessary.
23. Miscellaneous.
(a) Sublessee shall provide Sublessor with such corporate
resolutions, financial statements, opinions of counsel and other
documents as Sublessor shall reasonably request from time to time.
(b) Sublessee represents that the Equipment is being subleased
hereunder for business purposes.
(c) Time is of the essence with respect to this Sublease.
(d) Sublessee shall keep its books and records in accordance
with generally accepted accounting principles and practices consistently
applied and shall deliver to Sublessor its annual audited financial
statements, unaudited quarterly financial statements and such other
unaudited financial statements as may be reasonably requested by
Sublessor.
(e) Any action by Sublessee against Sublessor for any default
by Sublessor under this Sublease, including breach of warranty or
indemnity, shall be commenced within one (1) year after any such cause of
action accrues.
24. Notices. All notices hereunder shall be in writing, by registered
mail, and shall be directed, as the case may be to Sublessor at: 400 Oyster
Point Boulevard, South San Francisco, California 94080, Attention: Controller,
to Sublessee at : 400 Oyster Point Boulevard, South San Francisco, California
94080, Attention: Controller and to Phoenix Leasing Incorporated at 2401 Kerner
Boulevard, San Rafael, California 94901, Attention: Lease Administration.
Sublessor shall promptly deliver to Sublessee a copy of each notice that
Sublessor delivers to PLI pursuant to the Master Lease. PLI shall not succeed
to Sublessor's notice obligation under the
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immediately preceding sentence, or otherwise become responsible for giving
notices to Sublessee, as a result of Sublessor's assignment of this Sublease
to PLI.
25. Entire Agreement. Sublessee acknowledges that Sublessee has read
this Sublease, understands it and agrees to be bound by its terms, and further
agrees that it and each Equipment Schedule constitute the entire agreement
between Sublessor and Sublessee with respect to the subject matter hereof and
supersedes all previous agreements, promises, or representations. The terms
and conditions hereof shall prevail notwithstanding any variances with the
terms of any purchase order submitted by the Sublessee with respect to any
Equipment covered hereby.
26. Amendment. This Sublease may not be changed, altered or modified
except by an instrument in writing signed by an officer of Sublessor and PLI
and by a duly authorized representative of Sublessee.
27. Waiver. Any failure of Sublessor to require strict performance
by Sublessee or any waiver by Sublessor of any provision herein shall not be
construed as a consent or waiver or any other breach of the same or any other
provision.
28. Severability. If any provision of this Sublease is held invalid,
such invalidity shall not affect any other provisions hereof.
29. Jurisdiction and Waiver of Jury Trial. This Sublease shall be
governed by and construed under the laws of the State of California. It is
agreed that exclusive jurisdiction and venue for any legal action between the
parties arising out of this Sublease shall be in the Superior Court for Marin
County, California, or, in cases where Federal diversity jurisdiction is
available, in the United States District Court for the Northern District of
California. SUBLESSEE, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS
RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS
SUBLEASE, ANY SCHEDULE, OR ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH.
30. Nature of transaction. Sublessor makes no representation
whatsoever, express or implied, concerning the legal character of the
transaction evidenced hereby, for tax or any other purpose.
31. Security Interest.
(a) One executed copy of this Sublease will be marked
"Original" and all other counterparts will be duplicates. To the extent, if
any, that this Sublease constitutes chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction) no
security interest in this Sublease may be created in any other documents other
than the "Original".
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(b) There shall be only one original of each Equipment Schedule
and it shall be marked "Original", and all other counterparts will be
duplicates. To the extent, if any, that any Equipment Schedule(s) to this
Sublease constitutes chattel paper (or as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction) no security
interest in any Equipment Schedule(s) may be created in any documents other
than the "Original."
32. Finance Lease. The parties agree that this sublease is a
"Finance Lease" as defined by Section 10103(a)(7) of the California Commercial
Code (Cal.Com.C.). Sublessee acknowledges either (a) that Sublessee has
reviewed and approved any written Supply Contract (as defined by Cal.Com.C.
Section 10103(a)(25)) covering Equipment purchased from the "Supplier" (as
defined by Cal.Com.C. Section 10103(a) (24)) thereof for sublease to Sublessee
or (b) that Sublessor has informed or advised Sublessee, in writing, either
previously or by this Sublease of the following: (i) the identity of the
Supplier; (ii) that the Sublessee may have rights under the Supply Contract;
and (iii) that the Sublessee may contact the Supplier for a description of any
such rights Sublessee may have under the Supply Contract. Sublessee hereby
waives any rights and remedies Sublessee may have under Cal.Com.C. Sections
10508 through 10522.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as
of the Date below each party's signature.
TITAN PHARMACEUTICALS, INC. GENEIC SCIENCES, INC.
By:/s/ Louis R. Bucalo By:/s/ Louis R. Bucalo
-------------------- -------------------
Louis R. Bucalo Louis R. Bucalo
Title: President and CEO Title: President and CEO
----------------- ------------------
Date: February 15, 1994 Date: February 15, 1994
THERACELL, INC. ANSAN, INC.
By:/s/ Louis R. Bucalo By:/s/ Louis R. Bucalo
-------------------- -------------------
Louis R. Bucalo Louis R. Bucalo
Title: President and CEO Title: President and CEO
------------------ -----------------
Date: February 15, 1994 Date: February 15, 1994
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INGENEX, INC.
By:/s/ Louis R. Bucalo
-------------------
Louis R. Bucalo
Title: President and CEO
-----------------
Date: February 15, 1994
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ACCEPTED AND AGREED TO:
PHOENIX LEASING INCORPORATED
By:/s/ Phoenix Leasing Incorporated
--------------------------------
Title:
-----------------------------
Date: February 15, 1994
14
Exhibit 10.33
EXHIBIT C
CONTINUING GUARANTY
THIS CONTINUING GUARANTY AGREEMENT ("Guaranty") is by and among
Geneic Sciences, Inc., a Delaware corporation, Theracell, Inc., a Delaware
corporation, Ansan, Inc., a Delaware corporation, and Ingenex, Inc., a
Delaware corporation (individually "Guarantor" and collectively "Guarantors"),
Phoenix Leasing Incorporated, a California corporation ("Lessor"), and Titan
Pharmaceuticals, Inc., a Delaware corporation ("Lessee").
WHEREAS, Lessor will acquire and lease certain personal property (the
"Leased Property") to Lessee pursuant to a lease agreement, dated as of
February 15, 1994 ("Lease"), which term and other agreements now or hereafter
executed by Lessee in connection with the Lease between Lessor and Lessee.
WHEREAS, Guarantors acknowledge that Lessor would not enter into the
Lease or lease any equipment to Lessee pursuant thereto, unless Guarantors
enter into and delivers this Guaranty.
WHEREAS, it is of a business benefit to Guarantors that Lessor lease the
equipment under the Lease to Lessee.
NOW, THEREFORE, to induce Lessor to enter into the Lease with Lessee,
and in consideration of the benefits accruing therefrom to Guarantors by
virtue of their business relationships with Lessee and for other good and
valuable consideration, receipt of which is hereby acknowledged, Guarantors
hereby jointly and severally agree as follows:
1. OBLIGATIONS DEFINED. The term "Obligations" is used throughout this
Guaranty in its most comprehensive sense and means and includes, without
limitation, any and all obligations and liabilities of any kind or nature owed
by Lessee to Lessor pursuant to the Lease, heretofore, now or hereafter made,
incurred or related, whether voluntary or involuntary and however arising or
evidenced, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined, whether Lessee may be individually or jointly liable
with others, whether Lessee may be individually or jointly liable with others,
whether statute or limitations and whether such obligations may be or
hereafter become unenforceable. In the event a petition under the U.S.
Bankruptcy Code is filed by or against Lessee, the terms "Lessee" shall also
mean and include Lessee in its status as a "debtor" and "debtor-in-possession"
under the U.S. Bankruptcy Code.
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2. GUARANTOR OBLIGATIONS. Guarantors jointly and severally absolutely
and unconditionally guarantee and promise to perform, on demand, without
set-off or deduction except with respect to amounts already paid by Lessee,
the prompt payment when due, whether by acceleration or otherwise, of all
amounts payable to Lessee pursuant to the Lease, the guaranty under this
clause constituting (a) a guaranty of payment and not of collection; (b) the
punctual performance by lessee of each and every duty, agreement, covenant or
other Obligation of Lessee under the Lease; and (c) all other Obligations of
Lessee to Lessor under the Lease.
3. GUARANTOR LIABILITIES. The liabilities of Guarantors are primary and
independent of the Obligations, and a separate action may be brought against
Lessee or any other guarantor, including another Guarantor, or whether Lessee
is joined in any such action.
The liability under this Guaranty is exclusive of liability under any
other guaranties executed by Guarantor for the benefit of Lessor or any
company related to Lessor.
4. AUTHORIZATION OF GUARANTORS. Each Guarantor authorizes Lessor, in its
discretion, without notice of demand and without impairing, discharging or
affecting its liability hereunder, from time to time, to:
(a) renew, compromise, extend, accelerate or otherwise change the
time for payment of, or any other terms of, the Obligations or any part
thereof pursuant to the terms of the Lease and this Guaranty is intended by
such Guarantor to induce Lessor to grant such renewals, compromises,
extensions, accelerations and changes as Lessor may elect in connection with
the Lease;
(b) take and hold security for the payment of this Guaranty or the
Obligations in connection with the Lease, and exchange, enforce, waive,
subordinate and release any such security in such manner as Lessor may elect
in connection with the Lease;
(c) apply such security and direct the order and manner of sale
thereof as Lessor in its discretion may determine in connection with the
Lease;
(d) consent to a change in the legal structure of Lessee; and/or
(e) release Lessee or any other guarantor of its Obligations under
any other guaranty in connection with the Lease.
5. GUARANTY ABSOLUTE. Each Guarantor waives any right to require Lessor
to (a) proceed against Lessee, (b) proceed against or exhaust any security
held from Lessee, (c) proceed against any other guarantor of the obligations,
including another Guarantor, or (d) pursue any other remedy in Lessor's power
whatsoever. Each Guarantor waives any defense arising by reason of any
disability or other defense of Lessee, including, but not limited to, any
right of set off or counterclaim, the adequacy of any rights the Lessor may
have against any of the collateral
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securing the Obligations or the adequacy of any other means the Lessor may
have of obtaining repayment of the Obligations, the impairment of any
collateral, including the failure to preserve or perfect any rights the Lessor
may have in any such collateral, or by reason of the cessation from any cause
whatsoever (including the running of the statue of limitations) of the
liability of lessee including any defense based on its loss of a right against
Lessee arising from lessor's election of a remedy on the Obligations under the
bankruptcy or other debtor relief laws, or any other act of omission that
might in any manner vary the risk of such Guarantor or otherwise act as a
release of discharge of, or a defense to, such Guarantor, all of which may be
done without notice to such Guarantor. If for any reason the Lessee is under
no legal obligation to discharge any of the Obligations, or if any of the
Obligations have become irrecoverable from the Lessee for any reason, this
Guaranty shall nevertheless to binding on the Guarantors to the same extent as
if the Guarantors at all times had been the primary obligers on all such
Obligations. In the event (i) the Lessee defaults in the payment of any of the
Obligations or (ii) acceleration of the time for payment of any of the
Obligations is stayed upon the insolvency, bankruptcy or reorganization of the
lessee, or for any other reason, all such amounts otherwise subject to the
acceleration under the agreement evidencing such Obligations, shall be
immediately due and payable by the Guarantors. Each Guarantor waives all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, dishonor and acceptance of this Guaranty.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, EACH GUARANTOR
HEREBY IRREVOCABLY WAIVES, AND SHALL NOT SEEK TO EXERCISE, ALL OF THE
FOLLOWING RIGHTS THAT IT MAY HAVE AGAINST LESSEE, ANY OTHER GUARANTOR, OR ANY
COLLATERAL PROVIDED BY LESSEE OR ANY OTHER GUARANTOR, FOR ANY AMOUNTS PAID BY
SUCH GUARANTOR, OR ANY ACTS PERFORMED BY SUCH GUARANTOR, UNDER THIS GUARANTY:
(I) SUBROGATION (INCLUDING ALL RIGHTS ARISING UNDER BANKRUPTCY CODE ss.509 AND
CALIFORNIA CIVIL CODE ss.ss.2848 AND 2849, AS NOW AND HEREAFTER IN EFFECT),
(II) REIMBURSEMENT (INCLUDING ALL RIGHTS ARISING UNDER BANKRUPTCY CODE
ss.502(e) AND CALIFORNIA CIVIL CODE ss.2847, AS NOW AND HEREAFTER IN EFFECT),
(III) PERFORMANCE (INCLUDING ALL RIGHTS ARISING UNDER CALIFORNIA CIVIL CODE
ss.2846, AS NOW AND HEREAFTER IN EFFECT), (IV) INDEMNIFICATION OR CONTRIBUTION
(INCLUDING ALL RIGHTS TO INDEMNIFICATION OR CONTRIBUTION ARISING UNDER
BANKRUPTCY CODE ss.502(e), AS NOW AND HEREAFTER IN EFFECT; (V) PARTICIPATION
IN A CLAIM; AND (VI) ALL SIMILAR RIGHTS ARISING UNDER A CONTRACT, IN EQUITY,
COMMON LAW, STATUES OR OTHERWISE.
6. NO WARRANTIES OR LESSOR. Each Guarantor acknowledges and affirms
that this Guaranty is not made in reliance on any representation or warranty,
express or implied, by Lessor concerning the financial condition of Lessee,
the nature, value or extent of any security for indebtedness, or any other
matter. Each Guarantor warrants and represents to Lessor that it has full
knowledge of the financial condition of Lessee and agrees that it will
continue to be fully cognizant of the financial condition of Lessee for the
entire duration of the indebtedness to Lessor, including any renewals,
extensions or future indebtedness, and Lessor has no obligation
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to advise such Guarantor of any information relating to Lessee's financial
condition or otherwise relating to Lessee or the indebtedness or security
therefor.
7. LESSOR SECURITY. In addition to all liens upon, and rights of set off
against the monies, securities or other property of Guarantors given to Lessor
by law, Lessor shall be a lien upon and a right of set off against all monies,
securities and other property of Guarantors now or hereafter in the possession
of or on deposit with Lessor whether held in a general or special account or
deposit, or for safekeeping or otherwise, and every such lien and right of set
off may be exercised without demand upon or notice to Guarantors. No lien or
right of set off shall be deemed to have been waived by any act or conduct on
the part of Lessor, or by any neglect to exercise such right of setoff or to
enforce such lien, or by any delay in so doing, and every right of setoff and
lien shall continue in full force and effect until such right of setoff or
lien is specifically waived or released by an instrument in writing executed
by Lessor.
Any indebtedness of Lessee now or hereafter held by a Guarantor is
hereby subordinated to the Obligations.
8. LESSOR EXPENSE. Each Guarantor agrees to pay Lessor on demand
reasonable attorney's fees and all other costs and expenses which may be
incurred in the collection or attempted collection from such Guarantor
hereunder.
9. REVIVAL OF PRIOR PAYMENTS. Each Guarantor agrees that to the extent
Lessee makes a payment or payments to, or is credited for any payment or
payments made for or on behalf of Lessee to Lessor, which payment or payments,
or any part thereof, is subsequently invalidated, determined to be fraudulent
or preferential, set aside and/or required to be repaid to any trustee,
receiver, assignee or any other party whether under any Bankruptcy, State or
Federal Law, common law or equitable cause or otherwise, then to the extent
thereof, the Obligation or part thereof intended to be satisfied thereby,
shall be revived, reinstated and continued in full force and effect as if said
payment or payments had not originally been made by or on behalf of Lessee and
this Guaranty shall continue to be effective or shall be reinstated, as
applicable, with respect thereto.
10. GUARANTOR SOLVENCY. Each Guarantor represents and warrants that it
is solvent and has significantly more assets than liabilities, and agrees to
deliver to Lessor financial statements in such form and at such times as
Lessor may require and agrees to immediately notify Lessor of any material
change in its financial condition or change in the nature of title to its
property.
11. LESSEE AUTHORITY. If Lessee is corporation or a partnership, Lessor
shall have not duty to inquire into the powers of Lessee or the officers,
directors, partners, or agents acting or purporting to act on its behalf, and
any document entered into pursuant to the Lease or any other Obligation
incurred upon the purported exercise of such power or authority is hereby
guaranteed hereunder.
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12. NO LESSOR WAIVER. Except as otherwise set forth herein, no failure
or delay on the part of Lessor in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise of any such right, power or remedy hereunder or provided by law or
separate Agreement. No modification or waiver of any provision of this
Guaranty, nor consent to any departure by any Guarantor therefrom or release
of any security or right of setoff granted hereby, shall be effective unless
in a writing signed by Lessor and then such waiver or consent shall be
effective only in the specific instances and for the specific purposes given.
13. GUARANTY BINDING; LESSOR ASSIGNMENT. All parts of this Guaranty
shall be binding upon Guarantors and their successors and assigns; provided,
however, that a Guarantor may not assign its Obligations hereunder, without
the prior written consent of Lessor, given in its sole discretion. This
Guaranty shall inure to the benefit of Lessor and its successors and assigns
and Lessor may assign or otherwise transfer without notice to Guarantors all
of any part of the Obligations and this Guaranty, and may transfer therewith
the whole or any part of any security for the Obligations and this Guaranty.
14. GUARANTOR COMMITMENT. Receipt of a true copy of this Guaranty is
hereby acknowledged by each Guarantor. Each Guarantor understands and agrees
that this Guaranty shall not constitute a commitment of any nature whatsoever
by Lessor to enter into the Lease, to renew or hereafter extend the Lease, to
lease additional Leased Property to Lessee, or extend financial accommodations
to Lessee.
15. SEVERABILITY. Should any one or more provisions of this Guaranty be
determined to be illegal or unenforceable, all other provisions shall remain
effective.
16. CONTINUING GUARANTY. This is a continuing Guaranty. Revocation by a
Guarantor shall be effective only upon the close of the next business day
after written notice thereof is received by an officer of Lessor at 2401
Kerner Boulevard, San Rafael, California 94901, Attention: Lease
Administration by certified mail or registered mail, return receipt required
and, subject to Section 9 hereof, any such revocation shall be effective only
as to Obligations arising after the next business day after the notice of
revocation was received by an officer of the Lessor in accordance with this
Section 16 and for interest and collection expenses accruing or incurred by
the Lessee with respect thereto. Such notice shall be delivered to any other
office of Lessor designated in a written notice mailed by Lessor to Guarantor
at its address set forth below.
17. CALIFORNIA LAW. This Guaranty shall be governed by and construed
under the laws of California without regard to its rules of conflicts of law.
It is agreed that exclusive jurisdiction and venue for any legal action
between the parties arising out of this Guaranty shall be in the Marin County,
California court system.
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IN WITNESS WHEREOF, the undersigned Guarantors have executed this
Guaranty as of February 15, 1994.
GENEIC SCIENCES, INC.
By:/s/ Louis R. Bucalo
--------------------
Name: Louis R. Bucalo
----------------
Title: President and CEO
--------------------
Address: 400 Oyster Point Boulevard, Suite 315
South San Francisco, California 94080
Telephone Number:
-----------------------
THERACELL, INC.,
By:/s/ Louis R. Bucalo
---------------------
Name: Louis R. Bucalo
--------------------
Title: President and CEO
---------------------
Address: 400 Oyster Point Boulevard, Suite 315
South San Francisco, California 94080
Telephone Number:
--------------------------------
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ANSAN, INC.
By:/s/ Louis R. Bucalo
-----------------------
Name: Louis R. Bucalo
--------------------
Title: President and CEO
-------------------------
Address: 400 Oyster Point Boulevard, Suite 315
South San Francisco, California 94080
Telephone Number:
---------------------------
INGENEX, INC.
By:/s/ Louis R. Bucalo
------------------------
Name: Louis R. Bucalo
--------------------------
Title: President and CEO
----------------------------
Address: 400 Oyster Point Boulevard, Suite 315
South San Francisco, California 94080
Telephone Number:
-------------------------
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Exhibit 10.34
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT (this "Agreement"), dated as of September 27,
1996, by and between Ingenex, Inc., a Delaware corporation (the "Company"),
and Titan Pharmaceuticals, Inc., a Delaware corporation ("Titan").
W I T N E S S E T H :
WHEREAS, the Company is proposing to consummate an underwritten initial
public offering (the "IPO") of its common stock, $.001 par value per share
(the "Common Stock;" the Common Stock, together with all other voting capital
stock of the Company, shall be collectively referred to herein as the
"Shares"), pursuant to a registration statement on Form SB-2;
WHEREAS, Titan currently owns 2,416,024 shares of Common Stock, subject to
adjustments for any stock splits, stock dividends or other recapitalizations;
WHEREAS, Titan has expressed an interest in purchasing, in connection with
the IPO, $2,000,000 worth of Common Stock;
WHEREAS, prior to the execution of this Agreement Titan has advanced One
Million Dollars ($1,000,000) to the Company and, in connection with the
execution of this Agreement, Titan has agreed to the issuance by the Company
of a convertible note from the Company with a face value of One Million
Dollars ($1,000,000), payable on or before September 30, 1998 (the
"Convertible Note"); and
WHEREAS, the parties hereto desire to enter into this Agreement to provide
for, among other things, certain rights and restrictions in connection with
the Company.
NOW, THEREFORE, in consideration of the premises and the mutually
dependent covenants and agreements herein contained, and of other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Right of First Refusal; Option.
Subject to the terms and conditions specified in this Agreement, the
Company hereby grants to Titan a right to purchase Shares of the Company, or
securities convertible into or exchangeable for Shares, in connection with
future issuances by the Company of Shares, or securities convertible into or
exchangeable for Shares, after the IPO. Each time the Company proposes to
offer (an "Offer") any Shares, or securities convertible into or exchangeable
for
<PAGE>
Shares, the Company shall offer such securities to Titan in accordance with
the following provisions:
(a) The Company shall deliver a notice by fax and certified mail
("Notice") to Titan stating (i) its bona fide intention to offer such
securities, (ii) the number of such securities to be offered and (iii) the
price and terms, if any, upon which it proposes to offer such securities.
(b) By written notification received by the Company, within twenty (20)
business days after receipt of the Notice, Titan may elect to purchase or
obtain, at the price and on the terms specified in the Notice, up to that
portion of such securities as necessary to preserve Titan's equity interest
(calculated as hereinafter set forth) in the Company at a majority of the
outstanding Shares (the "Majority Interest"). Titan's equity interest in the
Company shall be calculated based on the number of outstanding Shares giving
effect to the securities to be issued by the Company in connection with the
transaction giving rise to Titan's rights hereunder and the securities
purchased by Titan hereunder (including giving effect to the conversion or
exchange of any securities to be so issued or purchased that are convertible
into or exchangeable for Shares). Notwithstanding the foregoing, subject to
the termination provisions contained in Section 7, if the Company delivers a
Notice at any time after Titan has failed to exercise its right to maintain
the Majority Interest, Titan may elect to purchase or obtain, at the price
and on the terms specified in the Notice, one-half of the securities proposed
to be sold in the Notice (the "Minority Interest").
(c) If all securities referred to in the Notice which Titan is entitled to
purchase pursuant to Subsection (b) hereof are not elected to be purchased as
provided in Subsection (b) hereof, the Company may, during the ninety (90)
day period following expiration of the period provided in Subsection (b)
hereof, offer the same number of securities offered to Titan to any person or
persons at a price not less than, and upon terms no more favorable to the
offeree than those, specified in the Notice. In the event of any change in
the number of securities offered in connection with a firm commitment
underwritten offering or in the price or other terms of any other Offer, the
Company shall provide a new notice (the "Revised Notice") to Titan and Titan
shall have five (5) business days to provide the Company with written
notification of its election to purchase securities as provided in Subsection
(b) hereof at the price and on the terms specified in the Revised Notice. If
the Company does not enter into an agreement for the sale of the securities
within the specified period, or if such agreement is not consummated within
thirty (30) days of the execution thereof, the right provided hereunder shall
be deemed to be revived and such securities shall not be offered unless first
reoffered to Titan in accordance herewith.
(d) In the event of a proposed offer or issuance by the Company of any
Shares, or securities convertible into or exchangeable for Shares, in
connection with a bona fide research, licensing, acquisition, or corporate
partner relationship, or in connection with an equipment lease financing
(each a "Transaction Issuance"), the Company shall offer Titan the right to
purchase such number of such securities as necessary to preserve Titan's
Majority Interest or Minority Interest, as the case may be, on the same terms
and conditions as the Transaction Issuance; provided, however, that the
purchase price shall be equal to the fair market
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value of the securities so offered or issued (the "Fair Market Value") on the
date of the Transaction Issuance. Fair Market Value shall mean, in the case
of Common Stock or other publicly traded securities, the averages of the
closing sales prices on The Nasdaq National Market (or if not so traded, the
average of the closing bid and asked prices) of the Common Stock or such
other publicly traded security for the ten (10) business days immediately
preceding the date of the Transaction Issuance and, in the case of
non-publicly traded securities, the fair market value of such securities as
determined in good faith by the Company's Board of Directors. In the event of
a Transaction Issuance, the same procedures set forth in Subsections (a) and
(b) hereof shall be followed as if the Transaction Issuance were any other
Offer.
(e) The Company hereby grants to Titan, for a price of $100,000.00 payable
upon consummation of the IPO, an option (the "Titan Option") to purchase up
to $3,000,000 worth of Common Stock at a price per share equal to the per
share price in the IPO. The Titan Option shall expire one year from the date
of the consummation of the IPO. Titan may pay for a portion of the shares of
Common Stock that may be purchased pursuant to the Titan Option by causing
the Convertible Note to be converted into shares of Common Stock in
accordance with the terms of the Convertible Note. In the event that Titan
causes the Convertible Note to be converted into shares of Common Stock, the
number of shares of Common Stock that Titan may purchase pursuant to the
Titan Option shall be reduced by the number of shares that Titan receives
pursuant to such conversion.
(f) If Titan's Equity Interest falls below the Majority Interest (the
"Trigger Date"), Titan shall have the option, exercisable for a period of
sixty days from the Trigger Date, to purchase such number of Shares at the
then Fair Market Value such that Titan shall maintain the Majority Interest
(the "Continuing Condition"). The right granted to Titan pursuant to this
Section 1(f) shall terminate on the earlier to occur of (i) Titan failing to
exercise its right to maintain the Majority Interest in accordance with
Section 1(b) or 1(f) hereof or (ii) its failure to exercise the option
granted hereunder within sixty days from the Trigger Date (unless Titan
satisfies the Continuing Condition through purchases in the open market).
2. Going Private Transaction.
(a) Titan agrees that neither it nor any of its executive officers or
directors nor any of its or their respective affiliates (collectively, the
"Titan Affiliates;" provided, that for purposes of this Section 2(a), the
Company shall not be deemed to be a Titan Affiliate) will sponsor, support or
participate in, directly or indirectly, any transaction which is subject to
or required to be disclosed on Schedule 13E-3 and the rules and regulations
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), related thereto, unless such transaction has first been
approved by a vote of the majority of the Independent Directors (as defined
herein), following their receipt of an opinion from a nationally recognized
and independent investment banking firm, that the subject transaction is
fair, from a financial point of view, to the stockholders of the Company
other than Titan and the Titan Affiliates.
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(b) Notwithstanding Subsection 2(a) hereof, in the event that Titan
proposes a "Rule 13e-3 transaction" as defined in Rule 13e-3 promulgated
under the Exchange Act, Titan hereby agrees that it will comply with all of
the requisite requirements of such Rule.
3. Voting Agreement.
3.1 The parties agree that the number of members of the Board of Directors
of the Company shall be fixed in accordance with the By-Laws of the Company.
The parties agree that, upon consummation of the IPO, the Board of Directors
of the Company shall include (i) no more than three (3) directors designated
by Titan and (ii) four (4) directors who are not affiliated with Titan (the
"Independent Directors") and have been designated by the members of the Board
of Directors of the Company (other than members affiliated with Titan) then
in office, which members may change from time to time. The parties further
agree that, upon consummation of the IPO, the Board of Directors shall
maintain a Nominating Committee consisting of three people, one of whom shall
be designated by Titan.
3.2 Titan agrees not to take any action to amend the Certificate of
Incorporation of the Company unless such amendment is first approved by a
majority of the Board of Directors of the Company and a majority of the
Independent Directors.
3.3 Titan agrees to cause its Shares (and any of its other securities of
the Company which may be voted for the election of directors) to be voted in
favor of the Independent Directors.
4. Master Lease. Titan agrees that, as of the date hereof, it will not lease
any additional equipment pursuant to that certain Master Equipment Lease,
dated as of February 15, 1994, by and between Phoenix Leasing Incorporated,
as lessor, and Titan, as lessee.
5. Transactions with Titan and Titan Affiliates. Titan agrees that it will
not, and will use its best efforts to cause each of the Titan Affiliates not
to, enter into or be a party to any transaction with the Company without the
prior approval of a majority of the Independent Directors and that such
transaction shall have fair and reasonable terms which are no less favorable
to the Company than the Company would obtain in a comparable arm's-length
transaction with a person or entity which is not an affiliate or stockholder
of the Company.
6. Remedy For Breach. The Company and Titan hereby acknowledge that in the
event of any breach or threatened breach of Section 1, 2, 3 or 5 of this
Agreement, the non-breaching party would have no adequate remedy at law and
could suffer substantial and irreparable damage. Accordingly, the Company and
Titan hereby agree that, in such event, the non-breaching party shall be
entitled, without the necessity of proving damages or posting bond, and
notwithstanding any election by the non-breaching party to claim damages, to
obtain a temporary and/or permanent injunction (without proving a breach
therefor) to restrain any such breach or
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threatened breach or to obtain specific performance of any such provision,
all without prejudice to any and all other remedies which the non-breaching
party may have at law or equity.
7. Term. The term of this Agreement shall commence upon the execution of the
underwriting agreement relating to the IPO and be indefinite, unless
terminated by mutual consent of the parties hereto; provided, however, that
this Agreement shall terminate if the Company fails to consummate the IPO in
accordance with such underwriting agreement or at such time as Titan's
Fully-Diluted Equity Interest in the Company is less than 33 1/3% of the
outstanding Shares on a fully-diluted basis for a period of not less than
sixty consecutive calendar days.
8. Miscellaneous.
8.1 Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, and their respective permitted
successors and assigns. A copy of this Agreement shall be kept at the
principal office of the Company. Except as specifically provided in this
Agreement, this Agreement may not be assigned by any party hereto without the
prior written consent of the other party hereto.
8.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed or sent by facsimile transmission, overnight courier or certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission (provided that a confirmation copy is sent by overnight
courier), or, if sent by overnight courier, one (1) day after deposit with an
overnight courier or, if mailed, three (3) days after the date of deposit in
the United States mails, as follows:
(i) if to Titan, to
Titan Pharmaceuticals, Inc.
400 Oyster Point Boulevard
Suite 505
South San Francisco, CA 94080
Attn: President
Fax: (415) 244-4956
(ii) if to the Company, to:
Ingenex, Inc.
1505 O'Brien Drive, Suite B
Menlo Park, California 94025
Attn: President
Fax: (415) 617-9574
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Any party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
8.3 Complete Agreement. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated hereby and
no party shall be bound by, nor shall any party be deemed to have made, any
covenants, representations, warranties, undertakings or agreements except
those contained in this Agreement. This Agreement supersedes any other
agreement entered into by any of the parties hereto with respect to the
subject matter hereof.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same agreement.
8.5 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
8.6 Amendment. This Agreement may not be amended, changed, waived or
terminated, in whole or in part, without a written instrument signed by the
parties hereto.
8.7 Governing Law. This Agreement and the rights and remedies of the
parties hereto shall be governed by and construed in accordance with the laws
of the State of Delaware applicable to agreements made and to be wholly
performed within such State, without regard to the conflicts of laws
principles of such State. Any legal action, suit or proceeding arising out of
or relating to this Agreement may be instituted in any state or federal court
located within the County of New Castle, State of Delaware, and each party
hereto agrees not to assert, by way of motion, as a defense, or otherwise, in
any such action, suit or proceeding, any claim that it is not subject
personally to the jurisdiction of such court, that the venue of the action,
suit or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court.
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IN WITNESS WHEREOF, this Agreement has been executed on the date first
above written.
INGENEX, INC.
By: /s/ Mark E. Furth
-------------------------------
Name: Mark E. Furth
Title: President and Chief
Executive Officer
TITAN PHARMACEUTICALS, INC.
By: /s/ Louis R. Bucalo
-------------------------------
Name: Louis R. Bucalo
Title: President and Chief
Executive Officer
7
<PAGE>
EXHIBIT 10.35
CORPORATE SERVICES AGREEMENT
Corporate Services Agreement (this "Agreement"), dated as of July 1, 1996,
by and between Titan Pharmaceuticals, Inc., a Delaware corporation ("Titan"),
and Ingenex, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company proposes to offer for sale to the public up to
approximately 37% of its common stock, $.001 par value per share (the "Common
Stock;" the Common Stock, together with all other voting capital stock of the
Company, shall be collectively referred to herein as the "Voting Capital
Stock"), pursuant to an initial public offering (the "Public Offering");
WHEREAS, immediately subsequent to the Public Offering, Titan will
continue to own approximately 51% of the issued and outstanding Voting
Capital Stock; and
WHEREAS, prior to the execution hereof, Titan provided certain managerial,
administrative and financial services to the Company, including, among other
things, financial and treasury functions, tax services, administration of
employee benefit plans and human resources (as more fully described in
Section 1(a) hereof, the "Services"); and
WHEREAS, to facilitate Titan's and the Company's separate ongoing
businesses and to reduce unnecessary additional overhead and personnel costs,
Titan and the Company desire to enter into this Agreement to set forth the
terms upon which Titan will continue to provide the Services to the Company.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Services.
(a) The Company hereby engages Titan to provide, and Titan agrees to
provide, to the Company in conformity with the service requirements and
standards of Titan, as of the date hereof, the following services, which
shall be provided throughout the term of the Agreement, without specific
request, unless otherwise indicated:
(i) Financial/Accounting. Titan shall process bi-weekly and special
payroll checks and shall prepare and file related bi-weekly, monthly,
quarterly and annual payroll tax returns for the Company. The Company
shall use Titan's accounts payable system for processing vendor
invoices and check requests and Titan shall process payments of
accounts payable based upon the due dates the Company provides in
Titan's accounts payable system. Titan shall review tax computations
and prepare for the Company tax filings for excise tax, property tax
and sales tax, income tax, franchise tax and business licenses. Titan
also will maintain a general ledger of the Company and prepare
periodic expense statements, financial statements and other necessary
<PAGE>
documents required in connection with the Company's filings with the
Securities and Exchange Commission. The Company hereby authorizes and
appoints Titan as its attorney-in-fact solely for the purpose of
filing any necessary returns or filings required to be filed by the
Company pursuant to this Agreement. The Company shall, no later than
two (2) days prior to the due date for any tax payment, excluding
payroll taxes, fund the amount of the tax liability previously
communicated in writing to the Company by Titan. The Company shall use
Titan's software to process routing, billing and records, and Titan
shall provide related support as needed.
(ii) Healthcare Claims Processing. Titan shall coordinate healthcare
claims processing and premium billing and shall process periodic
monthly enrollments for the Company. The Company shall, no later than
the tenth (10th) day of each month, fund the amount of all healthcare
insurance premiums as previously communicated in writing to the
Company by Titan by the fifth day of each month. Titan shall assist
the Company in its open enrollment process. Titan shall process
documentation with respect to any Company benefit plan. Titan shall
prepare necessary filings for governmental agencies related to the
Company benefit plans.
(iii) Human Resources. Titan shall provide all human resource
services, including administration of employee benefit programs.
(b) The foregoing list of services shall not be deemed exhaustive and may
be changed upon the mutual agreement of the Company and Titan.
2. Fees.
(a) In consideration of Titan providing the Services to the Company, the
Company shall pay to Titan, or to any of its subsidiaries as Titan shall
designate, the fees set forth in Section 2(b) hereof. Such fees will
hereinafter collectively be referred to as the "Management Fee."
(b)
<TABLE>
<CAPTION>
SERVICE MONTHLY FEE
---------------------------- --------------
<S> <C>
Financial/Accounting ....... $ 6,500.00
Healthcare Claims Processing 2,000.00
Human Resources ............ 1,500.00
--------------
$10,000.00
==============
</TABLE>
3. Indemnification.
(a) The Company agrees to indemnify Titan and/or its subsidiaries
(collectively, the "Titan Group") and the employees of Titan who provide
services hereunder (the "Titan Providers," individually, a "Titan Indemnitee"
and collectively, the "Titan Indemnitees"), if a Titan indemnitee is made, or
threatened to be made, a party to any action, claim or proceeding, whether
civil or criminal, including any action by or in the right of the Company, by
reason of the provision of services by Titan and/or the Titan Providers to
the Company pursuant to the terms of this Agreement (other than any action by
the Company against Titan by reason of a breach of this
2
<PAGE>
Agreement by Titan) against judgments, fines, amounts paid in settlement and
reasonable expenses, including reasonable attorneys' fees (collectively,
"Losses"); provided, however, that the foregoing indemnity shall not apply to
any Losses to the extent such Losses resulted primarily from the willful
misconduct, gross negligence or bad faith of a Titan Indemnitee.
(b) Titan shall be liable for, and agrees to indemnify the Company
against, any claim, damage or loss incurred by the Company resulting from or
arising out of any act or omission by Titan or a Titan Provider in connection
with the performance or non-performance of any of Titan's duties under this
Agreement to the extent that such act or omission resulted from the willful
misconduct, gross negligence or bad faith of Titan or a Titan Provider.
4. Responsibility for Providing Compensation and Fringe Benefits to
Service Providers. Titan shall bear all of the costs and expenses of the
personal compensation, fringe benefits and perquisites, including, without
limitation, pension, life insurance, health insurance, hospitalization and
other forms of insurance, of the Titan Providers, and such persons shall not
be entitled to any compensation or benefit from the Company for services
performed for the Company in any capacity pursuant to this Agreement.
5. Status as Independent Contractor. It is expressly understood between
the parties hereto that all of the Titan Providers shall be independent
contractors with respect to services provided by the Titan Providers to the
Company hereunder, unless and to the extent that such Titan Providers are
employed separately by the Company. It is also expressly agreed that, unless
and to the extent that such Titan Providers are employed separately by the
Company, Titan shall be solely responsible for the withholding and payment of
any and all taxes and other sums required to be withheld or paid by an
employer pursuant to any and all state, federal or other laws with respect to
all Titan Providers rendering services hereunder.
6. Work Product; Confidentiality. Titan agrees, on behalf of itself and
its employees, representatives and agents, including, without limitation, the
Titan Providers, that all memoranda, notes, records or other documents made
or compiled by Titan and its employees, representatives and agents
(including, without limitation, the Titan Providers) in the fulfillment of
Titan's obligations under this Agreement or otherwise, or made available to
any of them concerning any Company Information (as defined below) shall be
the Company's property and shall be delivered to the Company upon the
termination of this Agreement or at any other time upon the Company's
request. None of Titan or its employees, representatives and agents
(including, without limitation, the Titan Providers) shall, directly or
indirectly, knowingly use, for themselves or others, or divulge to others,
other than in the ordinary course and in furtherance of the Services to be
provided hereunder, any secret or confidential information, non-public
information, knowledge, or data of the Company or its collaborators
(collectively, the "Company Information") obtained by any of them as a result
of Titan's performance of this Agreement, unless authorized by the Company.
The provisions of this Section do not extend to any portion of such Company
Information which becomes generally available to the public other than as a
result of a disclosure by the recipient or its representatives, subsidiaries
or affiliates, and will not be deemed to restrict the recipient from
complying with any order, request or decree of any court, government or other
regulatory body to produce any such information, but upon receiving notice
that any such order, request or decree is being sought, the
3
<PAGE>
recipient will promptly give the Company notice thereof and agree to
cooperate with the Company's efforts, if any, to contest the issuance of such
order, request or decree. The provisions of this Section shall survive the
termination or expiration of this Agreement.
7. Term. This Agreement will commence on the date hereof (the
"Commencement Date") and continue for one year from the Commencement Date.
This Agreement shall be extended automatically for additional one year terms
unless terminated by either party hereto upon 60 days prior written notice
given as provided herein to the other party hereto. Notwithstanding the
foregoing, the Company shall have the right to terminate any of the Services
provided by Titan and receive a corresponding pro rata reduction in the
Management Fee and/or the fees payable pursuant to Section 2 hereof upon
thirty (30) days prior written notice to Titan.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
facsimile transmission, overnight courier, or certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally or sent by facsimile transmission (provided that a
confirmation copy is sent by overnight courier), or, if sent by overnight
courier, one (1) day after deposit with an overnight courier, or, if mailed,
three (3) days after the date of deposit in the United States mails, as
follows:
To Titan: Titan Pharmaceuticals, Inc. 400 Oyster
Point Boulevard, Suite 505 South San
Francisco, California 94080 Attention:
President Telecopy No.: (415) 244-4956
To the Company: Ingenex Inc. 1505 O'Brien Drive, Suite B
Menlo Park, California 94025 Attention:
President Telecopy No.: (415) 617-9574
Any party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
9. Complete Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all previous negotiations, oral agreements, commitments and writings with
respect to such subject matter.
10. Amendments. This Agreement may not be modified or amended except by an
agreement in writing signed by both parties.
11. Governing Law. This Agreement and the rights and remedies of the
parties hereto shall be governed by and construed in accordance with the laws
of the State of Delaware applicable
4
<PAGE>
to agreements made and to be wholly performed within such State, without
regard to the conflicts of laws principles of such State. Any legal action,
suit or proceeding arising out of or relating to this Agreement may be
instituted in any state or federal court located within the County of New
Castle, State of Delaware, and each party hereto agrees not to assert, by way
of motion, as a defense, or otherwise, in any such action, suit or
proceeding, any claim that it is not subject personally to the jurisdiction
of such court, that the venue of the action, suit or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or
by such court.
12. Assignment. Neither Titan nor the Company may assign any of its
rights, benefits or duties under this Agreement without the prior written
consent of the other, which consent will not be unreasonably withheld or
delayed. This Agreement is binding on and will inure to the benefit of the
parties and their respective permitted successors and assigns.
13. No Third-Party Beneficiaries. This Agreement is solely for the benefit
of the parties hereto (and the Titan Indemnitees), and should not be deemed
to confer upon third parties any remedy, claim, liability, reimbursement,
claim of action or other right in excess of those existing without reference
to this Agreement.
14. Captions. Captions and section headings are used for convenience of
reference only and are not part of this Agreement and may not be used in
construing it.
15. Enforceability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction will not invalidate or render
unenforceable such provision or remedies otherwise available to any party
hereto.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
TITAN PHARMACEUTICALS, INC.
By: /s/ Louis R. Bucalo
------------------------------
Name: Louis R. Bucalo
Title: President and Chief
Executive Officer
INGENEX, INC.
By: /s/ Mark E. Furth
------------------------------
Name: Mark E. Furth
Title: President and Chief
Executive Officer
6
Exhibit 10.36
AMENDED & RESTATED
CONVERSION AGREEMENT
This amended and restated Conversion Agreement Dated as of December 4,
1995 ("Agreement") between Titan Pharmaceuticals, Inc. ("Titan") and Ingenex,
Inc. ("Ingenex")
WHEREAS, at September 30, 1995, Ingenex had a total of $337,476 of
outstanding indebtedness owed to Titan which amount has increased to date; and
WHEREAS, it is the intention of the parties that Titan will continue to
provide loans to Ingenex in the ensuing months in order to enable Ingenex to
meet its operating requirements; and
WHEREAS, Ingenex and Titan believe it is their mutual best interests to
provide for the conversion to equity of Ingenex, debt to Titan.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is hereby agreed as follows:
1. INTEREST
(A) All outstanding indebtedness owed to Titan will bear interest
at the rate of 9% per annum which will commence accruing on the later of (i)
the date of this agreement; or (ii) the date such indebtedness is incurred.
2. CONVERSION OF DEBT
(A) At any time from and after the date hereof until 5:00 p.m.
Pacific time on July 3, 1996 (the "Expiration Date"), Titan shall have the
right, but not the obligation, to convert up to an aggregate of $1,400,000 of
indebtedness, inclusive of accrued interest (the "Titan Debt"), into shares of
common stock, $.001 par value, of Ingenex ("Ingenex Common Stock") at a
conversion rate of $5.50 per share. The date of such conversion shall be
referred to as the "Conversion Date".
(B) In the event that Ingenex consummated on or prior to the
Expiration Date an initial public offering of its securities which includes
the sale of warrants to purchase Ingenex Common Stock, for each $5.50 of
indebtedness actually converted, Titan shall have the right to purchase for
$0.10, a five-year warrant to purchase one share of Ingenex Common Stock at
$6.60 per share.
(C) From and after the Conversion Date - 2, Ingenex shall have no
further obligation with respect to the Titan Debt; provided, however, that the
foregoing will no way
<PAGE>
affect Ingenex' obligation to repay indebtedness to Titan incurred above and
beyond the Titan Debt
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date above written.
INGENEX, INC.
By:/s/ Mark Furth
--------------------------
Mark Furth, President
TITAN PHARMACEUTICALS, INC.
By:/s/ Louis R. Bucalo
---------------------------
Louis R. Bucalo, President
Exhibit 10.37
CONVERSION AGREEMENT
Agreement Dated May 23, 1996 ("Agreement") between Titan
Pharmaceuticals, Inc. ("Titan") and Ingenex, Inc. ("Ingenex")
WHEREAS, at March 31, 1996, Ingenex had a total of $3,904,619 of
outstanding indebtedness owed to Titan which amount has increased to date; and
WHEREAS, it is the intention of the parties that Titan will continue to
provide loans to Ingenex in the ensuing months in order to enable Ingenex to
meet its operating requirements; and
WHEREAS, Ingenex and Titan believe it is their mutual best interests to
provide for the conversion to equity of Ingenex, debt to Titan.
WHEREAS, pursuant to a Conversion Agreement dated December 4, 1995,
Ingenex has agreed to a 9% per annum interest rate on all indebtedness, and
has granted Titan the right to convert up to an aggregate of $1,400,000 of
indebtedness, inclusive of accrued interest, into shares of common stock of
Ingenex.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, and in addition to the terms of the Conversion
Agreement dated December 4, 1995, it is hereby agreed as follows:
1. CONVERSION OF DEBT
(A) At any time from and after the date hereof until 5:00 p.m.
Pacific time on July 3, 1996 (the "Expiration Date"), Titan shall have the
right, but not the obligation, to convert up to an aggregate of $4,000,000 of
indebtedness, inclusive of accrued interest (the "Titan Debt"), into shares of
common stock, $.001 par value, of Ingenex ("Ingenex Common Stock") at a
conversion rate of $5.50 per share. The date of such conversion shall be
referred to as the "Conversion Date - 2".
(B) In the event that Ingenex consummated on or prior to the
Expiration Date an initial public offering of its securities which includes
the sale of warrants to purchase Ingenex Common Stock, for each $5.50 of
indebtedness actually converted, Titan shall have the right to purchase for
$0.10, a five-year warrant to purchase one share of Ingenex Common Stock at
$6.60 per share.
(C) From and after the Conversion Date - 2, Ingenex shall have no
further obligation with respect to the Titan Debt; provided, however, that the
foregoing will no way
<PAGE>
affect Ingenex' obligation to repay indebtedness to Titan incurred above and
beyond the Titan Debt
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date above written.
INGENEX, INC.
By:/s/ Mark Furth
-----------------------------
Mark Furth, President
TITAN PHARMACEUTICALS, INC.
By:/s/ Louis R. Bucalo
-----------------------------
Louis R. Bucalo, President
Exhibit 10.38
LEASE
BETWEEN
MENLO BUSINESS PARK AND PATRICIAN ASSOCIATES, INC.
("LANDLORD")
AND
INGENEX, INC.,
("TENANT")
BUILDING 14B, MENLO BUSINESS PARK
MARCH 6, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
1. Parties 1
2. Premises 1
3. Definitions 1
4. Lease Term 3
a. Initial Term 3
b. Option to Extend 3
5. Rent 4
a. Monthly Rent 4
b. Additional Rent 4
c. Option Period 4
d. Prorations 5
6. Late Payment Charges 5
7. Security Deposit 6
8. Holding Over 6
9. Intentionally Omitted 7
10. Condition of Premises 7
11. Use of the Premises 7
a. Tenant's Use 7
b. CC&R's 7
c. Compliance 8
12. Quiet Enjoyment 9
13. Alterations 9
a. Permitted Alterations 9
b. Notice 10
c. Fixtures 10
14. Surrender of the Premises 10
15. Real and Personal Property Taxes 11
a. Payment by Tenant 11
b. Tax on Improvements 11
c. Proration 11
d. Payment on Expiration of Term 11
e. Personal Property Taxes 11
f. Failure to Pay 12
16. Utilities and Services 12
17. Building Expenses 12
a. Definition 12
b. Payment 13
c. Tenant's Repairs and Maintenance 13
18. Project Expenses 13
a. Common Areas 13
(i)
<PAGE>
b. Use of Common Areas 13
c. Specific Provisions re: Vehicle Parking 14
d. Maintenance of common Areas 14
e. Tenant's Share and Payment 15
19. Parking 15
20. Landlord's Right to Enter the Premises 15
21. Signs 15
22. Insurance 16
a. Indemnification 16
b. Tenant's Insurance 16
c. Landlord's Insurance 17
d. Deductibles 17
e. Certificates 17
f. Increased Coverage 18
g. Co-Insurer 18
h. Sufficiency of Coverage 18
i. Insurance Requirements 18
j. Landlord's Disclaimer 18
k. Failure to Pay 19
23. Waiver of Subrogation 19
24. Damage or Destruction 19
a. Landlord's Obligation to Rebuild 19
b. Landlord's Right to Terminate 19
c. Limited Obligation to Repair 20
d. Abatement of Rent 20
25. Condemnation 20
a. Total Taking - Termination 20
b. Partial Taking 20
c. No Apportionment of Award 21
d. Temporary Taking 21
e. Sale Under Threat of Condemnation 21
26. Assignment and Subletting 21
a. Landlord's Consent 21
b. Sublease Form 21
c. No Waiver 21
d. Information to be Furnished 21
e. Landlord's Alternatives 22
f. Proration 22
g. Executed Original 22
h. Transfer to Purchaser 23
i. Conditions Reasonable 23
27. Default 23
a. Tenant's Default 23
b. Remedies 23
c. Landlord's Default 25
(ii)
<PAGE>
28. Subordination 25
29. Notices 26
30. Attorneys' Fees 26
31. Estoppel Certificate 27
32. Transfer of the Premises by Landlord 27
33. Landlord's Right to Perform Tenant's Covenants 28
35. Mortgage Protection 28
36. Brokers 28
37. Acceptance 28
38. Recording 29
39. Quitclaim 29
40. Modifications for Lender 29
41. Sewer Fees 29
42. General 29
a. Captions 29
b. Executed Copy 29
c. Time 29
d. Severability 30
e. Choice of Law 30
f. Gender; Singular, Plural 30
g. Binding Effect 30
h. Waiver 30
i. Entire Agreement 30
j. Authority 30
k. Exhibits 30
l. Lease Summary 31
EXHIBIT "A-1" Site Plan - Lot 14
EXHIBIT "A-2" Site Plan - The Project
EXHIBIT "B" Tenant Improvements
EXHIBIT "C" Commencement Date Memorandum
EXHIBIT "D" Fixtures, Equipment, and Personal
Property of Landlord
EXHIBIT "E" Lease Summary
(iii)
<PAGE>
LEASE
1. Parties.
THIS LEASE (the "LEASE"), dated March 6, 1996, is entered into by and
between MENLO BUSINESS PARK, JOINT VENTURE, a California general partnership,
composed of PATRICIAN ASSOCIATES, INC., a California corporation, whose
address is 711 High Street, Des Moines, Iowa 50392, and MENLO BUSINESS PARK, a
California general partnership, whose address is 300 Second Street #109, Los
Altos, California 94022 (collectively, "LANDLORD"), and INGENEX, INC., a
Delaware corporation, whose address is 1505 O'Brien Drive, Menlo Park, CA,
94025 ("TENANT").
2. Premises.
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
those certain premises (the "PREMISES") consisting of 22,677 square feet in
that certain building (the "BUILDING") commonly known as Building 14B, 1505
O'Brien Drive, City of Menlo Park, County of San Mateo, California, as shown
on Exhibit "A-1" attached hereto, together with the right to use the driveways
and walkways for access thereto. Tenant shall have the non-exclusive use of 63
on-site parking spaces serving the Building as shown on Exhibit "A-1" hereto,
and the Common Areas of the Project, as such terms are hereafter defined,
subject to the terms of this Lease.
3. Definitions.
The following terms shall have the following meanings in this Lease:
"ALTERATIONS" shall mean any alterations, additions or improvements
made in, on or about the Building or the Premises after the Commencement Date,
including, but not limited to, lighting, heating, ventilating, air
conditioning and electrical fixtures, equipment, pipes and conduits;
draperies, wall coverings; cabinetry; carpeting and/or other floor covering;
ceiling tile, fixtures and carpentry installations.
"BUILDING" shall mean that certain building shown on
Exhibit "A-1" as Building No. 14 containing approximately 56,460
Page 1
<PAGE>
square feet of floor area, the address of which is 1505 O'Brien Drive, Menlo
Park, California.
"BUILDING EXPENSES" shall mean those expenses related to the Building
as defined in Paragraph 14 of this Lease.
"CC&R'S" shall mean those certain covenants, conditions and
restrictions recorded August 14, 1985, as Instrument No. 85082618, Records of
San Mateo County, California, as the same are amended from time to time.
"CITY" shall mean the City of Menlo Park, State of
California.
"COMMENCEMENT DATE" shall mean March 6, 1996.
"COMMON AREAS" shall mean those areas defined in Paragraph 18 of this
Lease.
"COUNTY" shall mean the County of San Mateo, State of
California.
"HVAC" shall mean the heating, ventilating and air
conditioning system serving the Premises.
"INTEREST RATE" shall mean the maximum rate of interest
permitted by law.
"LANDLORD'S AGENTS" shall mean Landlord's authorized agents,
contractors, partners, subsidiaries, directors, officers and employees.
"The LOT" shall mean the area containing approximately 116,045 square
feet of land upon which the Building is situated.
"MONTHLY RENT" shall mean the rent payable pursuant to Paragraph 5(a),
as adjusted from time to time pursuant to the terms of this Lease.
"PREMISES" shall mean Suite 14B located in the Building consisting of
22,677 square feet, non-exclusive access rights to the Building, and the right
to use 63 parking spaces on the Lot. The Premises shall be deemed to include
the fixtures, equipment, and personal property of Landlord located in the
Building as listed on Exhibit "D" attached hereto. Said fixtures, equipment,
Page 2
<PAGE>
and personal property shall be made available by Landlord in their "as is"
condition as of the Commencement Date of the Term.
"PROJECT" shall mean that certain real property, and all improvements
thereon, including the Building, the other buildings, if any, and related
improvements, as shown on Exhibit "A-2" hereto, and known as "MENLO BUSINESS
PARK."
"PROJECT EXPENSES" shall mean those expenses related to the Project as
defined in Paragraph 18 of the Lease.
"REAL PROPERTY TAXES" shall mean all taxes, assessments, levies, and
other charges of any kind or nature whatsoever, general and special, foreseen
and unforeseen (including all installments of principal and interest required
to pay for any general or special assessments for public improvements,
services, or benefits and any increases resulting from reassessments caused by
any change in ownership, new construction, or change in valuation), now or
hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against or with respect to (1) the
value, occupancy, or use of the Premises (as now constructed or as may at any
time hereinafter be constructed, altered, or otherwise changed), (2) the
fixtures, equipment, and other real or personal property of Lessor that are an
integral part of the Premises, or (3) the use of the areas of the Premises
located outside of the Building, public utilities, or energy within the
Premises; (4) all charges, levies, or fees imposed by reason of environmental
regulation or other governmental control of the Premises; and (5) any new
excise, transaction, sales, privilege, or other tax now or hereafter imposed
upon Lessor as a result of this Lease.
"RENT" shall mean Monthly Rent plus the Additional Rent defined in
Paragraph 5(b).
"SUBLEASE" shall mean any transfer, sublease, assignment, license or
concession agreement, encumbrance or hypothecation of this Lease or the
Tenant's interest in the Lease or in and to all or any portion of the
Premises. In the event that the Tenant shall transfer, all at once, or in a
series of transfers, more than 50% of its voting stock, then Tenant shall
notify Landlord five (5) business days prior of its intent to make such a
transfer, and at the request of Landlord, Tenant shall
Page 3
<PAGE>
demonstrate that such transfer creates a financial solvency equal to or
greater than the condition prior to such transfer.
"SUBRENT" shall mean consideration of any kind received,
or to be received, by Tenant from a Subtenant for a sublease
"SUBTENANT" shall mean the person or entity with whom a Sublease
agreement is proposed to be or is made.
"TENANT IMPROVEMENTS" shall mean those certain improvements to the
Premises to be constructed pursuant to Exhibit "B" attached to this Lease and
incorporated herein by this reference.
"TENANTS PERSONAL PROPERTY" shall mean Tenant's removable trade
fixtures, furniture, equipment and other personal property in the Premises.
"TENANT'S PROPORTIONATE SHARE OF BUILDING EXPENSES" shall
mean 40.17% of the Building Expenses.
"TENANT'S PROPORTIONATE SHARE OF PROJECT EXPENSES" shall mean the
square footage of the Lot (116,045) divided by the square footage of the
leasable Lots in the Project (2,060,693) which equals 5.63%, multiplied by
Tenant's Proportionate Share of Building Expenses which equals 02.26%.
"TERM" shall mean the term of this Lease set forth in Paragraph 4(a),
as it may be extended hereunder pursuant to the proper exercise of the option
to extend the term granted herein.
"TERMINATION DATE" shall mean March 5, 1999.
4. Lease Term.
a. Initial Term.
The term of this Lease shall commence on the Commencement Date and
terminate on the Termination Date, unless earlier terminated pursuant to the
terms hereof.
b. Option to Extend.
Landlord hereby grants to Tenant the option to extend the initial Term
of this Lease, for the longer of (i) twenty-seven
Page 4
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(27) months, or (ii) to a date which is the end of the lease of the mezzanine
of the Building by the tenants thereof under the present lease of such
mezzanine (the "OPTION TERM"). Tenant may exercise the foregoing option to
extend by giving written notice of exercise to Landlord at least six (6)
months, but no more than twelve (12) months, prior to the expiration of the
initial Term of the Lease; provided that if Tenant is in default under this
Lease, beyond any applicable cure period, at the time of exercise of the
option or at the commencement date of the Option Term, such notice shall be
void and of no force or effect. Said option Term, if exercised, shall be upon
the same terms and conditions as the initial Term, except that the Monthly
Rent during the Option Term shall be determined as set forth in Paragraphs
5(c) hereof and there shall be no additional option to extend. If Tenant does
not exercise the option in a timely manner the option shall lapse, time being
of the essence with respect to the exercise of the option.
5. Rent.
a. Monthly Rent.
Tenant shall pay to Landlord, in lawful money of the United States, for
each calendar month of the Term, Monthly Rent, in advance, on the first day of
each calendar month of the Term, without abatement, deduction, claim, offset,
prior notice or demand as follows:
Period Amount/Usable SF/Mo/NNN Monthly Rent
------ ------------------------ ------------
Year 1 $1.20/SF - NNN $27,212.40
Year 2 $1.20/SF - NNN $27,212.40
Year 3 $1.30/SF - NNN $29,480.10
Landlord hereby acknowledges receipt of Tenant's payment of Monthly
Rent for the month of March, 1996 in the amount of $27,212.40.
b. Additional Rent.
All amounts which Tenant is obligated to pay under this Lease in
addition to Monthly Rent, including, without limitation,
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Real Property Taxes payable pursuant to Paragraph 15 hereof, repair and
maintenance charges payable pursuant to Paragraph 17 hereof, and insurance
premiums payable pursuant to Paragraph 22 hereof shall constitute Additional
Rent.
c. Option Period.
(i) The Monthly Rent for the first year of the Option Term
shall be adjusted to the Prevailing Market Rent, as defined herein, in the
manner provided herein; provided, however, that in no event shall the Monthly
Rent for the first year of the Option Term be less than $1.30 per useable
square foot. The "PREVAILING MARKET RENT" fix shall be equal to the prevailing
market rate for properties of equivalent quality, size, utility and location
in Menlo Park, California as of the date which is six (6) months prior to the
scheduled expiration of the Lease Term, taking all relevant factors into
account. If Tenant has timely exercised its right to extend the Lease Term,
Landlord shall notify Tenant in writing of the proposed new Monthly Rent,
which shall be equal to the Prevailing Market Rent, for the first year of the
Option Term at least ninety (90) days prior to the Commencement Date of the
Option Term. Unless Tenant objects to the Prevailing Market Rent as determined
by Landlord within ten (10) days after receipt of such notice, the amount
stated in such notice shall be the new Monthly Rent. If Tenant objects to
Landlord's proposal, then the new Monthly Rent shall be determined by an MAI
appraiser. Landlord shall choose such an appraiser within thirty (30) days
after Tenant notifies Landlord of Tenant's objection to the Prevailing Market
Rate determined by Landlord. If Tenant does not disapprove Landlord's choice
of any appraiser by delivery of written notice of disapproval within five (5)
days after written notice of such choice by Landlord, then Landlord's
appraiser shall be deemed to have been approved by Tenant. If Tenant does not
approve Landlord's choice of an appraiser, then Tenant's notice of disapproval
shall name an MAI appraiser designated by Tenant, and Tenant's appraiser and
Landlord's appraiser shall appoint a third MAI appraiser in which event each
appraiser shall determine the Prevailing Market Rent. The two amounts which
are closer shall be averaged, and such average shall be the Prevailing Market
Rent for purposes of the first year of the Option Term. Landlord and Tenant
shall each make a good faith effort to have any appraiser it chooses prepare
its assessment of the Prevailing Market Rent promptly. The cost of any common
appraiser shall be split equally by Landlord and Tenant, and, if three
appraisers are utilized, Landlord and
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Tenant shall each be responsible for the fees and costs of the appraiser which
it appoints. If the Monthly Rent shall not have been determined by the
Commencement Date of the Option Term, Tenant shall pay Monthly rent when due
during the Option Term at Tenant's proposed Monthly Rent until the new Monthly
Rent is determined. When the actual adjusted Monthly Rent is determined,
Tenant shall promptly pay Landlord any additional rent due for the months
which have elapsed in the Option Term or, alternatively, Landlord shall credit
any excess payment for the elapsed months to the next monthly installments of
Monthly Rent becoming due.
(ii) The Monthly Rent for each succeeding year of the Option Term
shall be as follows:
Period Amount/Useable SF/Mo/NNN
- ------ ------------------------
Year 2 The Prevailing Market Rent, determined as
set forth in Paragraph 5(c)(i) hereof,
plus $.05/sf/mo
Year 3 The Monthly Rent for Year 2 of the Option
Term, plus $.05/sf/mo
d. Prorations.
If the Commencement Date is not the first (1st) day of a month, or
if the Termination Date of this Lease is not the last day of a month, a
prorated installment of Monthly Rent based on a thirty (30) day month shall be
paid for the fractional month during which this Lease commences or terminates.
6. Late Payment Charges.
Tenant acknowledges that late payment by Tenant to Landlord of Rent
and other charges provided for under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult or impracticable to fix. Such costs include, but are not
limited to, processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of any encumbrance and notes secured by any
encumbrance covering the Premises, or late charges and penalties due to late
payment of Real Property Taxes due on the Premises. Therefore, if any
installment of Rent or any other charge due from Tenant is not received by
Landlord within ten
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(10) calendar days after the date such payment is due (the "GRACE PERIOD"),
Tenant shall pay to Landlord an additional sum equal to seven percent (7%) of
the amount overdue as a late charge for every month or portion thereof that
the Rent or other charges remain unpaid. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord
will incur by reason of the late payment by Tenant. Acceptance of any late
charge shall not constitute a waiver by Landlord of Tenant's default with
respect to the overdue amount, and shall not prevent Landlord from exercising
any of the other rights and remedies available to Landlord for any other
breach of Tenant under this Lease. Notwithstanding the foregoing, upon the
second occurrence during any twelve (12) month period of this Lease of
Tenant's failure to pay Monthly Rent or Additional Rent when due or within the
Grace Period (not to exceed a total of eight (8) times during the term of the
Lease), Landlord may condition its acceptance of future Rent upon a
requirement that Tenant concurrently execute an amendment to this Lease which
provides that Monthly Rent for the balance of the Term of this Lease shall be
made in quarterly installments, in advance, in an amount equal to the sum of
the Monthly Rent amounts payable during such three (3) month period.
7. Security Deposit.
Tenant has deposited with Landlord the sum of Twenty Seven Thousand
Two Hundred and Twelve and 40/1OOths Dollars ($27,212.40) as a Security
Deposit for the full and faithful performance of every provision of this Lease
to be performed by Tenant. If Tenant defaults with respect to any provision of
this Lease, beyond any applicable cure period, Landlord may apply all or any
part of the Security Deposit to the payment of any Rent or other sum in
default, the repair of such damage to the Premises or the payment of any other
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default to the full extent permitted
by law. If any portion of the Security Deposit is so applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to its original
amount, and Tenant's failure to do so shall be a default under this Lease.
Landlord shall not be required to keep the Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant is not otherwise in default,
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the Security Deposit or any balance thereof shall be returned to Tenant within
thirty (30) days after the Termination Date.
8. Holding Over.
If Tenant remains in possession of all or any part of the Premises
after the Termination Date, with the prior written consent of Landlord, such
possession shall constitute a month-to-month tenancy only and shall not
constitute a renewal or extension for any further term. In such event, Monthly
Rent shall be increased to an amount equal to (i) if the holding over is
consented to by Landlord, the fair rental value of the Premises as mutually
agreed to by Landlord and Tenant, but not less than $1.30/sf/mo, or (ii) if
such holding over is not consented to by Landlord, one hundred fifty percent
(150%) of the Monthly Rent payable during the last month of the Term, and any
other sums due hereunder shall be payable in the amount and at the times
specified in this Lease. Such month-to-month tenancy shall be subject to every
other term, condition, and covenant contained herein.
9. Intentionally Omitted.
10. Condition of Premises.
At Landlord's expense, on the Commencement Date, the Premises shall
be in broom clean condition with all HVAC, electrical and plumbing systems in
good working order. Additionally, at Landlord's expense, Landlord shall have
performed the work set forth on Exhibit B. Within thirty (30) days after the
Commencement Date, Tenant shall conduct a walk-through inspection of the
Premises with Landlord and complete a punch-list of items needing correction
or additional work, if any, which punch list shall be approved in writing by
Landlord and Tenant. Other than the items specified in the punch-list, by
taking possession of the Premises, Tenant shall be deemed to have accepted the
Premises in a good, clean and completed condition and repair. The punch-list
shall not include any damage to the Premises caused by Tenant's move-in, which
damage shall be repaired or corrected by Tenant, at its expense. Tenant
acknowledges that neither Landlord nor Landlord's Agents has made any
representations or warranties as to the suitability or fitness of the Premises
for the conduct of Tenant's business or for any other purpose, and that
neither Landlord nor Landlord's Agents has agreed to undertake any Alterations
or
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construct any Tenant Improvements to the Premises except as expressly provided
in this Lease and the Exhibits hereto. If Tenant fails to submit a punch-list
to Landlord within such thirty (30) day period, it shall be deemed that there
are no items needing additional work or repair. Upon completion of such
punch-list items, Tenant shall approve such corrected or completed items in
writing to Landlord. If Tenant fails to approve such items within seven (7)
days after completion, such items shall be deemed approved by Tenant.
11. Use of the Premises.
a. Tenant's Use.
Tenant shall use the Premises solely for light manufacturing,
research and development, laboratory use and storage and administrative
offices, and shall not use the Premises for any other purpose without
obtaining the prior written consent of Landlord. Use of the Common Area of the
Project shall be nonexclusive, except for walkways appurtenant to the Building
and designed for the exclusive use of the occupants thereof.
b. CC&R's.
Tenant agrees that the Premises and this Lease are subject and
subordinate to the CC&R'S. Tenant acknowledges that it has read the CC&R's and
knows the contents thereof. Throughout the Term, Tenant shall faithfully and
timely perform all acts required by, and shall otherwise comply with, the
CC&R's and any modification or amendments thereof, including the payment by
Tenant of any periodic or special dues or assessments charged against the
Premises. Tenant shall hold Landlord, Landlord's Agents and the Premises
harmless against any claim, loss, expense, damages, attorneys' fees and costs
or liability arising out of or in connection with the failure of Tenant to so
perform or to comply with the CC&R's.
c. Compliance.
i. Tenant shall not use the Premises or suffer or permit
anything to be done in or about the Premises which will in any way conflict
with any law, statute, zoning restriction, ordinance or governmental law,
rule, regulation or requirement of any duly constituted public authority
having jurisdiction over
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the Premises now in force or which may hereafter be in force, or the
requirements of the Board of Fire Underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises. Tenant shall not commit any public or private nuisance or any
other act or thing which might or would disturb the quiet enjoyment of any
other tenant of Landlord or any occupant of nearby property. Tenant shall not
(1) place loads upon the floors, walls or ceilings in excess of the maximum
designed load specified by Landlord or which may damage the Building or Common
Areas; (2) not place any harmful liquids in the drainage systems; and (3) not
dump or store waste materials, refuse or other materials or allow such to
remain outside the Building proper, except in the enclosed trash areas
provided.
ii. Tenant, at its sole cost, shall comply with all laws relating
to the storage, use and disposal of Hazardous Materials by Tenant, its
employees, agents and invitees, on or about the Premises during the Term of
this Lease. As used herein, the term "HAZARDOUS MATERIALS" shall include any
substance, chemical or mixture (or which contains any substance, chemical,
compound, or mixture) which is: (i) a material which, due to its
characteristics or interaction with one or more other substances, wastes,
chemicals, compounds or mixtures, damages or threatens to damage health,
safety, or the environment or is required by any law or public entity to be
remediated, including remediation which such law or public agency requires in
order for the property to be put to any lawful purpose; (ii) regulated by any
federal, state or local statute, ordinance, code, rule, regulations, order or
decree regulating, relating to, or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or material, or
asbestos, as now or at any time hereinafter in effect or any other hazardous,
toxic or dangerous waste, substance or material; or (iii) hazardous, toxic,
ignitable, radioactive, corrosive, or reactive and which is regulated by any
public entity or under any law. If Tenant does store, use or dispose of any
Hazardous Materials, Tenant shall notify Landlord in writing at least ten (10)
days prior to their first appearance on the Premises and Tenant's failure to
do so shall constitute a default under this Lease. Tenant shall be solely
responsible for and shall defend, indemnify and hold Landlord and Landlord's
Agents harmless from and against all claims, costs and liabilities, including
attorneys' fees and costs, arising out of or in connection with the storage,
use and disposal of Hazardous Materials by Tenant or by Tenant's
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employees, agents contractors, invitees, or by any Subtenant. Tenant shall
further be solely responsible for and shall defend, indemnify and hold
Landlord, Landlord's Agents and the Premises harmless from and against all
claims, costs, and liabilities, including attorneys' fees and costs, arising
out of or in connection with the investigation and remediation of such
Hazardous Materials and the portion of the Premises affected thereby. Tenant's
obligations hereunder shall survive the termination of this Lease. Tenant
shall notify Landlord at its earliest opportunity of any contamination of the
Premises, the Building or the Project.
12. Quiet Enjoyment.
Landlord covenants that Tenant, upon performing the terms,
conditions and covenants of this Lease, shall have quiet and peaceful
possession of the Premises as against any person claiming the same by, through
or under Landlord.
13. Alterations.
a. Permitted Alterations.
After the Commencement Date of this Lease, Tenant shall not make or
permit any Alterations in, on or about the Premises, except for non-structural
Alterations not exceeding approximately $5,000 per occurrence, and $20,000
over the Term of the Lease ("PERMITTED ALTERATIONS"), without the prior
written consent of Landlord which consent shall not be unreasonably withheld.
All Permitted Alterations shall be constructed pursuant to plans and
specifications approved in writing by Landlord prior to commencement of the
work and shall be subject to a reasonable administrative fee payable to
Landlord as a condition to such consent in order to oversee the work of
improvement in the Premises. Notwithstanding the foregoing, Tenant shall not,
without the prior written consent of Landlord, make any:
i. Alterations to the exterior of the Building;
ii. Alterations to or penetrations of the structural
portions of the Building, including, without limitation, the
roof, or which will interfere with the proper functioning of any
mechanical facilities or equipment located in the Building or
Project; or
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iii. Alterations visible from outside the Building to which Landlord
may withhold consent based wholly upon aesthetic grounds.
iv. All Alterations shall be installed at Tenant's sole expense, in
compliance with all applicable laws and the CC&R's, by a licensed contractor.
The work shall be done in a good and workmanlike manner conforming in quality
and design with the Premises existing as of each Commencement Date, and shall
not diminish the value of either the Premises or the Project. Tenant shall, if
required by Landlord, obtain and pay for, at its own expense, a completion and
indemnity bond, the form and amount of which shall be subject to the approval
of Landlord. All Alterations made by Tenant shall be and become the property
of Landlord upon the installation thereof and shall not be deemed Tenant's
Personal Property; provided, however, that Landlord may, at its option,
require that Tenant, upon the termination of this Lease, at Tenant's expense,
remove any or all non-structural Alterations installed by Tenant and return
the Premises to its condition as of each Commencement Date of this Lease,
normal wear and tear excepted. The notification that items should be removed
upon termination of Lease should be given at time Landlord gives approval.
Notwithstanding any other provision of this Lease, Tenant shall be solely
responsible for the maintenance and repair of any and all Alterations made by
Tenant to the Premises.
b. Notice.
Tenant shall give Landlord written notice of Tenant's intention to
perform work on the Premises which might result in any claim of lien at least
ten (10) days prior to the commencement of such work to enable Landlord to
post and record a Notice of Non-responsibility or other notice Landlord deems
proper prior to the commencement of any such work. Tenant shall not permit any
mechanic's, materialmen's or other liens to be filed against the property of
which the Premises are a part, nor against Tenant's leasehold interest in the
Premises. If Tenant fails to remove any lien(s) filed against the Premises or
all or any portion of the Project in connection with any work performed or any
work claimed to have been performed by or at the direction of Tenant within
ten (10) days from the date of the lien filing(s), then Landlord may remove
such liens(s) at Tenant's expense and Tenant shall reimburse Landlord for all
costs incurred by Landlord in connection with the removal of the lien(s),
which amount shall be deemed Additional Rent, and shall
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include, without limitation, all sums disbursed, incurred or deposited by
landlord, including Landlord's costs, expenses and attorneys' fees with
interest thereon at the Interest Rate.
c. Fixtures.
Tenant shall, at its own expense, provide, install and maintain in
good condition all its Personal Property required in the conduct of Tenant's
business in the Premises.
14. Surrender of the Premises. Upon the expiration or earlier
termination of this Lease, Tenant shall surrender the Premises to Landlord in
its condition existing as of the Commencement Date of this Lease with respect
to the Building, normal wear and tear, damage or destruction excepted, with
all interior walls in good repair, all carpets shampooed and cleaned, all
floors cleaned and waxed, and the HVAC equipment in good working condition,
all to the reasonable satisfaction of Landlord. Tenant shall remove from the
Premises all of Tenant's Alterations which Landlord requires Tenant to remove
pursuant to Paragraph 13 and all Tenant's Personal Property, and Tenant shall
promptly repair any damage and perform any restoration work caused by such
removal. If Tenant fails to remove such Alterations and Tenant's Personal
Property which Tenant is authorized and obligated to remove pursuant to the
above, and such failure continues after the termination of this Lease,
Landlord may retain such property and all rights of Tenant with respect to it
shall cease, or Landlord may place all or any portion of such property in
public storage for Tenant's account. Tenant shall pay to Landlord, upon
demand, the costs of removal of any such alterations and Tenant's Personal
Property and storage and transportation costs of same, and the cost of
repairing and restoring the Premises, together with interest at the Interest
Rate from the date of expenditure by Landlord. If the Premise are not so
surrendered at the termination of this Lease, Tenant hereby agrees to
indemnify Landlord and its Agents against all loss or liability resulting from
delay by Tenant in so surrendering the Premises, including, without
limitation, any claims made by any succeeding tenant, losses to Landlord due
to lost opportunities to lease to succeeding tenants, and attorneys' fees and
costs.
15. Real and Personal Property Taxes.
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a. Payment by Tenant. Tenant's Proportionate Share of Building
Expenses, as defined in Paragraph 17 below, includes Tenant's proportionate
share of all Real Property Taxes levied against the Building and all taxes
levied against the fixtures, equipment, and personal property of Landlord.
Landlord agrees to forward to Tenant upon request, a copy of all notices and
tax bills pertaining to the Premises. If Tenant shall fail to pay, as a
portion of Tenant's Proportionate Share of Building Expenses, any such Real
Property Taxes or personal property taxes prior to any penalty or delinquency,
Landlord shall have the right but not the obligation: (i) to pay the same, in
which case Tenant shall immediately repay such amount to Landlord including
interest at the Interest Rate from the date paid by Landlord until the date of
payment by Tenant; and (ii) to exercise any and all remedies available to
Landlord pursuant to Paragraph 27. Tenant may contest the amount or validity
of any Real Property Taxes by appropriate proceeding; provided, that Tenant
shall promptly pay such taxes unless such proceeding shall operate to prevent
or stay the collection of the tax so contested. Landlord shall join in any
such proceeding if any law shall so require, providing that Tenant shall
indemnify Landlord against any liability, cost or expense incurred in
connection therewith, including, without limitation, attorneys' fees and
costs.
b. Tax on Improvements. Tenant shall pay all of any increase in
Real Property Taxes attributable to any Alterations and Tenant Improvements of
any kind whatsoever placed within the Premises for the benefit of, at the
request of, or by Tenant.
c. Proration. Tenant's liability to pay Real Property Taxes and
personal property taxes shall be prorated on the basis of a 365 day year to
account for any fractional portion of a fiscal tax year included at the
commencement or expiration of the Term. With respect to any assessments which
may be levied against or upon the Premises, or which under the laws then in
force may be evidenced by improvements or other bonds which under the law may
be paid in annual installments, only the amount of such annual installment
(with appropriate proration for any partial year) and interest due thereon be
included within the computation of the annual Real Property Taxes levied
against the Premises for such fiscal tax Year.
d. Payment on Expiration of Term. If this Lease terminates on a
date earlier than the end of a fiscal tax year, Landlord shall deliver to
Tenant a statement setting forth the
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amount of Real Property Taxes to be paid by Tenant prorated to the date of
termination. Tenant shall pay to Landlord such prorated amount within five (5)
days of Tenant's receipt of the statement.
e. Personal Property Taxes. Tenant shall pay prior to delinquency
all taxes assessed or levied against Tenant's Personal Property in, on or
about the Premises. When possible, Tenant shall cause its Personal Property to
be assessed and billed separately from the real or personal property of
Landlord.
f. Failure to Pay. Tenant's failure to pay any of the charges
required to be paid by this Paragraph 14 shall constitute a default under this
Lease.
16. Utilities and Services. Tenant shall be responsible for and shall
pay promptly all charges for water, gas, electricity, telephone, refuse
pickup, janitorial service and all other utilities, materials and services
furnished directly to or used by Tenant in, on or about the Premises during
the Term, together with any taxes thereon. Landlord shall not be liable in
damages or otherwise for any failure or interruption of any utility service or
other service furnished to the Premises, unless such interruption is caused by
Landlord or Landlord's agents, exempting Public Utilities. No such failure or
interruption shall entitle Tenant to terminate this Lease or withhold or abate
Rent or other sums due hereunder, except that if any such failure or
interruption is caused by Landlord or Landlord's agents, Tenant shall be
entitled to an abatement of rent for the period of such interruption.
17. Building Expenses.
a. Definition. Tenant shall pay from time to time during the term
of this Lease, within thirty (30) days after presentation of invoices therefor
from Landlord, Tenant's Proportionate Share of Building Expenses, which in
this Lease shall mean and refer to (i) Real Property Taxes relative to the
Building or the Lot, as a whole as defined in Paragraph 3 of this Lease and
all taxes assessed or levied against the fixtures, equipment, and personal
property of Landlord, and (ii) the Costs of Operation and Maintenance of the
Building. "COSTS OF OPERATION AND MAINTENANCE" as used in this Lease shall be
deemed to mean and refer to those expenses incurred by Landlord with respect
to the operation and maintenance of the Building and the
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Lot which, in accordance with accepted principles of sound accounting practice
as applied to the operation, maintenance and security of a first class light
manufacturing/research and development building, are properly chargeable to
the operation and maintenance of the Building and the Lot (other than the
costs of maintenance and repair of the roof (unless such maintenance and/or
repair is necessitated by acts of the Tenant, in which case the Tenant shall
be responsible for the costs of such maintenance and/or repair, which may be
charged to the Tenant as Additional Rent), which costs shall include, without
limitation, the heating, ventilation and air conditioning, parking lot,
landscape services, contracts, supplies, compensation and all fringe benefits,
worker's compensation insurance premiums and payroll taxes paid to, for or
with respect to all persons engaged in the operating, maintaining or cleaning
of the Building or the Lot, costs of Building security, depreciation or rental
of personal property used in such maintenance, the insurance required to be
carried by Landlord with respect to the Building as set forth in this Lease,
and all other charges directly related to the operation and maintenance of the
Building and the Lot. Landlord shall obtain, and keep in full force and
effect, at its sole expense, a service contract with a licensed HVAC
contractor for the maintenance of the HVAC systems in the Building. The cost
of such HVAC contract shall be a Cost of Operation and Maintenance. Costs of
Operation and Maintenance shall specifically exclude any leasing commissions,
advertising and promotion expenditures, legal and auditing fees (other than
reasonable legal and auditing fees necessarily incurred in connection with the
maintenance and operation of the Building and the Lot and all capital
improvements or replacements. In addition, Costs of Operation and Maintenance
shall specifically exclude all expenses for which Landlord is compensated
through proceeds from insurance.
b. Payment. Tenant's payment of Tenant's Proportionate Share of
Building Expenses shall constitute Additional Rent payable by Tenant under
this Lease.
c. Tenant's Repairs and Maintenance. In addition to the payments to
be made by Tenant pursuant to the provisions set forth above, Tenant shall, at
Tenant's sole cost and expense, keep and maintain the Premises, including
without limitation, all floors, subfloors, floor coverings, windows, ceilings,
interior walls, fixtures, doors, electrical and lighting equipment, plumbing
systems, immediate loading areas and Tenant's signs, in
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all respects in good repair and in clean and safe condition, reasonable wear
and tear excepted, and if impractical to repair then the foregoing items shall
be replaced. Tenant shall, at Tenant's sole cost and expense, immediately upon
breakage, replace all glass in the Premises that may be broken during the term
of this Lease with glass at least equal to the specification and quality of
the glass so replaced. Notwithstanding the foregoing, Landlord shall have the
option at any time (if Tenant has not used reasonably diligent efforts to
fulfill its obligations to repair and maintain the Premises as set forth
herein) to assume any or all of the foregoing maintenance and repair
responsibilities, and to require Tenant to reimburse Landlord as Additional
Rent, for the cost of all such services, together with an accounting and
management services fee of five percent (5%) of the cost of such services.
Notwithstanding the foregoing, Tenant shall have no obligation to repair,
maintain or replace any structural portions of the Building, unless damage is
a direct result of Tenant's acts or omissions.
18. Project Expenses.
a. Common Areas. As used in this Lease, "COMMON AREAS" shall mean
the Recreational Area depicted on Exhibit "A-2", the Streetscape, which is a
ten-foot strip of planted area located throughout the Project, and all other
areas within the Project which are available for the common use of tenants of
the Project and which are not leased or held for the exclusive use of Tenant
or other tenants including, but not to, sidewalks, access roads, landscaping
and planted areas. Landlord may from time to time change the size, location,
nature and use of any of the Common Areas, including converting Common Areas
into leasable areas, constructing additional parking facilities (including
parking structures) in the Common Areas, and increasing or decreasing Common
Area land and/or facilities, and Tenant's Proportionate Share of Project
Expenses will be appropriately amended, to the extent that the square footage
of the land in the Project available for lease is changed from the total set
forth in Exhibit "A-2" to this Lease, which total is 2,060,693 square feet,
based upon which total square footage Tenant's Proportionate Share of Project
Expenses is calculated. Tenant acknowledges that the exercise by Landlord of
its right to change the size, location, nature and use of the Common Areas may
result in occasional inconvenience to Tenant from time to time. Such
activities and changes shall be expressly permitted provided that
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they do not have a material adverse affect on Tenant's use of the
Premises.
b. Use of Common Areas. Tenant shall have the nonexclusive right
(in common with other tenants and all others to whom Landlord has granted or
may grant such rights) to use the Common Areas for the purposes intended,
subject to such reasonable rules and regulations as Landlord may establish
from time to time. Tenant shall abide by such rules and regulations and shall
use its best effort to cause others who use the Common Areas with Tenant's
express or implied permission to abide by Landlord's rules and regulations. At
any time, Landlord may close any Common Areas to perform any acts in and to
the Common Areas as, in Landlord's judgment, may be desirable to maintain or
improve the Project. Tenant shall not, at any time, interfere with the rights
of Landlord, other tenants, or any other person entitled to use the Common
Areas.
c. Specific Provisions re: Vehicle Parking. Tenant shall not cause
large trucks or other large vehicles to be parked within the Project or on the
adjacent public streets. Temporary parking of large delivery vehicles in the
Project may be permitted by the rules and regulations established by Landlord.
Vehicles shall be parked only in striped parking spaces on the Lot and not in
driveways, loading areas or other locations not specifically designated for
parking. If Tenant parks more vehicles in its parking areas than the number
set forth pursuant to Paragraph 19 of this Lease, such conduct shall be a
material breach of the Lease. In addition to Landlord's other remedies under
the Lease, Tenant shall pay a reasonable daily charge for each such additional
vehicle.
d. Maintenance of common Areas. Notwithstanding anything in this
Lease to the contrary, Landlord shall maintain the Common Areas in good order,
condition and repair and shall operate the Project as a first class
industrial/commercial real property development. Tenant shall pay Tenant's
Proportionate Share of Project Expenses, which shall include all costs
incurred by Landlord for the operation and maintenance of the Common Areas.
Common Area costs include, but are not limited to, reasonable costs and
expenses for the following: gardening and landscaping; utilities, water and
sewage charges; maintenance of signs (other than Tenant's signs); premiums for
liability, property damage, fire and other types of casualty insurance on the
Common Areas, and Worker's Compensation Insurance;
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compensation and all fringe benefits and payroll taxes paid to, for or with
respect to all persons engaged in the operating, maintaining, or cleaning of
the Building or the Project; all real property taxes and assessments levied on
or attributable to the Common Areas and all Common Area improvements; all
personal property taxes levied on or attributable to personal property used in
connection with the Common Areas; straight line depreciation on personal
property owned by Landlord which is consumed in the operation or maintenance
of the Common Areas; rental or lease payments paid by Landlord for rented or
leased personal property used in the operation or maintenance of the Common
Areas; fees for required licenses and permits; repairing, resurfacing,
repaving, maintaining, painting, lighting, cleaning of parking areas, refuse
removal, security and similar items; appropriate reserves; a fee for
Landlord's supervision of the Common Areas in the amount of five percent (5%)
of the total of all other Common Area costs for the calendar year; and other
charges directly related to the operation and maintenance of the Building and
the Project which are more economically handled by Landlord. Landlord may
cause any or all of such services to be provided by third parties. Common Area
costs shall not include depreciation of real property which forms part of the
Common Areas. Regardless of actual occupancy of the Project, for the purpose
of this Paragraph, the costs for the operation and maintenance of the Common
Areas will be extrapolated as though the Project were 100% leased and
occupied. Landlord may, at Landlord's election, estimate in advance and charge
to Tenant monthly its Common Area costs, all Real Property Taxes and insurance
premiums for which Tenant is liable under the Lease.
e. Tenant's Share and Payment. Tenant shall pay Tenant's
Proportionate Share of Project Expenses, in advance, in monthly installments
on the first day of each month during the Lease Term (prorated for any
fractional month). Landlord may adjust such estimates at any time and from
time to time based upon Landlord's experience and reasonable anticipation of
costs. Such adjustments shall be effective as of the next rent payment date
after notice to Tenant. Within thirty (30) days after the end of each calendar
year of the Lease Term, Landlord shall deliver to Tenant a statement prepared
in accordance with generally accepted accounting principles setting forth, in
reasonable detail, the actual Common Area costs (i.e., Project Expenses) paid
or incurred by Landlord during the preceding calendar year and Tenant's pro
rata share. Upon receipt of such statement, there shall be an adjustment
between Landlord and
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Tenant with payment to or credit given by Landlord (as the case may be) so
that Landlord shall receive the entire amount of Tenant's share of such costs
and expenses for such period. Any changes in the common Area costs and/or the
aggregate area leased or held for lease for the exclusive use of all tenants
of the Project during the Lease Term shall be effective on the first day of
the month after such change occurs.
19. Parking. Landlord hereby grants to Tenant during the term of this
Lease, the non-exclusive right to park in 63 parking spaces located on the
Lot. Tenant shall establish enforceable procedures to ensure that none of its
employees, invitees, agents or contractors park other than on the Lot.
Landlord retains the right to improve, alter, modify and relocate such parking
areas and to regulate access to and the use of the parking areas.
20. Landlord's Right to Enter the Premises. Tenant shall permit Landlord
and Landlord's Agents to enter the Premises at all reasonable times with
reasonable notice, except for emergencies in which case no notice shall be
required, to inspect the same, to post Notices of Non-responsibility and
similar notices and signs indicating the availability of Premises for sale or
lease, to show the Premises to interested parties such as prospective lenders
and purchasers, to make necessary Alterations or repairs, to discharge
Tenant's obligations hereunder when Tenant has failed to do so within a
reasonable time after written notice from Landlord, and at any reasonable time
within one hundred and eighty (180) days prior to the expiration of the Term,
to place upon the Premises such reasonable signs indicating the availability
of Premises for sale or lease and to show the Premises to prospective tenants
and purchasers. The above rights are subject to reasonable security
regulations of Tenant, and to the requirement that Landlord shall at all times
act in a manner to cause the least possible interference with Tenant's
business.
21. Signs. Landlord shall designate the location on the door of the
Building for a Tenant identification door sign. Tenant shall have no right to
maintain a Tenant identification sign in any other location in, on or about
the Premises and Tenant shall not display or erect any other sign, display or
other advertising material that is visible from the exterior of the Building.
The size, design, color and other physical aspects of permitted signs shall be
subject to the Landlord's written approval prior to installation, which
approval shall not be unreasonably withheld, and shall be subject to the Menlo
Park
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Signage Ordinance and the Monument Signage Plan for Menlo Business Park as
approved by the City. The cost of any signage, including the installation,
maintenance and removal thereof shall be at Tenant's sole cost and expense. If
Tenant fails to maintain its signage, or if Tenant fails to remove same upon
termination of this Lease, Landlord may do so at Tenant's expense. Tenant
shall reimburse Landlord for all costs incurred by Landlord to effect such
removal, which amounts shall be deemed Additional Rent, and shall include,
without limitation, all sums disbursed, incurred or deposited by Landlord,
including Landlord's costs, expenses and reasonable attorneys' fees with
interest thereon at the Interest Rate.
22. Insurance.
a. Indemnification. Tenant hereby agrees to defend (with attorneys
acceptable to Landlord), indemnify and hold harmless Landlord and Landlord's
Agents from and against any and all damage, loss, liability and expense
including, without limitation, attorneys' fees and legal costs incurred
directly or by reason of any claim, suit or judgment brought by or on behalf
of any person or persons for damage, loss or expense due to, but not limited
to, bodily injury or property damage sustained by such person or persons which
arise out of, are occasioned by or in any way attributable to the use or
occupancy of the Premises, the acts or omissions of the Tenant, its agents,
employees or any contractors brought onto the Premises by Tenant, except to
the extent caused by the gross negligence or willful misconduct of Landlord or
Landlord's Agents. Tenant agrees that the obligations of Tenant herein shall
survive the expiration or termination of this Lease.
b. Tenant's Insurance. Tenant agrees to maintain in full force and
effect at all times during the Term, at its own expense, for the protection of
Tenant and Landlord, as their interests may appear, policies of insurance
issued by a recognized carrier or carriers acceptable to Landlord which afford
the following coverages:
i. Worker's compensation: statutory limits.
ii. Employer's liability: as required by law.
iii. Comprehensive general liability insurance
including blanket contractual liability, broad form property
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damage, personal injury, completed operations, products liability, and fire
damage: not less than Two Million Dollars ($2,000,000.00) with a combined
single limit for both bodily injury and property damage and naming Landlord,
Landlord's Agents and mortgagees as additional insureds.
iv. "All Risk" property insurance (including, without
limitation, Replacement Cost, Agreed Amount, vandalism, malicious mischief,
flood coverage, inflation, sprinkler leakage, and boiler and machinery
coverage endorsements) on and around the Premises including, without
limitation, the Tenant Improvements, Alterations and Tenant's Personal
Property located on or in the Premises, which shall be in a form providing
coverage comparable to the coverage provided in the standard ISO All-Risk form
and in an amount equal to the full amount of the replacement cost, as the same
may from time to time increase as a result of inflation or otherwise. The
insurance policy or policies shall name Landlord and Landlord's Agents as
named insureds and include a lender's loss payable endorsement in favor of
Landlord's lender (Form 438 BFU Endorsement).
v. Business Interruption insurance covering those risks
referred to in subparagraph (iv) above, in an amount determined by Tenant to
cover its losses due to inability to use and enjoy the Premises due to such
casualties or due to utility failure.
vi. Boiler and machinery insurance including but not limited to
steam pipes, pressure pipes, condensation return pipes and other pressure
vessels and HVAC equipment, with limits per accident of not less than the
replacement cost of all leasehold improvements and of all boilers, pressure
valves, HVAC equipment and miscellaneous electrical and mechanical equipment
in the Premises.
c. Landlord's Insurance. Landlord covenants and agrees that
throughout the Term, it will insure the Building (excluding any property with
respect to which Tenant is obligated to insure pursuant to the provisions of
Subparagraph 22(b) above), against damage by fire and standard extended
coverage perils insurance in such reasonable amounts with such reasonable
deductibles as would be carried by a prudent owner of a similar building in
Northern California, but in no event less than one hundred percent (100%) of
full replacement value of the Building, with rental abatement endorsements
covering rent, insurance and
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taxes payable with respect to the Building for a 12-month period. Landlord
may, but shall not be obligated to, take out and carry any other form or forms
of insurance, including, but not limited to, flood insurance and earthquake
insurance, as Landlord or the mortgagees of Landlord may reasonably determine
advisable or as any such mortgage may require. Notwithstanding any
contribution by Tenant to the cost of insurance premiums, with respect to the
Building or any alterations of the Premises, as provided herein, Tenant
acknowledges that it has no right to receive any proceeds from any such
insurance policies carried by Landlord, although Landlord shall use such
proceeds in the repair and reconstruction of the Building and the Premises
unless the provisions of Subparagraph 23(b) above shall apply. Landlord will
not carry insurance of any kind on Tenant's furniture or furnishings, or on
any fixtures, equipment, improvements or appurtenances of Tenant under this
Lease; and Landlord shall not be obligated to repair any damage thereto or
replace the same.
d. Deductibles. Any policy of insurance required to be carried by
Tenant pursuant to this Lease containing a deductible must be approved in
writing by Landlord prior to the issuance of such policies it being understood
and agreed that Tenant shall be solely responsible for the payment of any such
deductible.
e. Certificates. Tenant shall deliver to Landlord at least fifteen
(15) days prior to the time such insurance is first required to be carried by
Tenant, and thereafter at least fifteen (15) days prior to expiration of each
such policy, certificates of insurance evidencing the above coverage with
limits not less than those specified above. The certificates shall expressly
provide that the interest of Landlord therein shall not be affected by any
breach of Tenant of any provision of any policy evidenced by such
certificate(s).
f. Increased Coverage. Upon demand, Tenant shall provide Landlord,
at Tenant's expense, with such increased amount of existing insurance, and
such other insurance as Landlord or Landlord's lender may reasonably require
to afford Landlord and Landlord's lender adequate protection. Landlord and/or
Landlord's lender shall be deemed to be acting unreasonably if such insurance
cannot be obtained at the market rate for similar properties.
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g. Co-Insurer. If, on account of the failure of Tenant to comply
with the foregoing provisions, Landlord is adjudged a co-insurer by its
insurance carrier, then any loss or damage Landlord shall sustain by reason
thereof, including attorneys' fees and costs, shall be borne by Tenant and
shall be immediately paid by Tenant upon receipt of a bill therefor and
evidence of such loss.
h. Sufficiency of Coverage. Neither Landlord nor Landlord's Agents
makes any representation that the limits of liability specified to be carried
by Tenant under this Lease are adequate to protect Tenant. If Tenant believes
that any such insurance coverage is insufficient, Tenant shall provide, at its
own expense, such additional insurance as Tenant deems adequate.
i. Insurance Requirements. All such insurance shall be in a form
satisfactory to Landlord and its lender and shall be carried with companies
that have a general policyholder's rating of not less than "A" and a financial
rating of not less than Class "X" in the most current edition of Best's
Insurance Reports; shall provide that such policies shall not be subject to
material alteration or cancellation except after at least thirty (30) days'
prior written notice to Landlord; and shall be primary as to Landlord. The
policy or policies, or duly executed certificates for them, together with
satisfactory evidence of payment of the premium therein shall be deposited
with Landlord prior to the Commencement Date, and upon renewal of such
policies not less than fifteen (15) days prior to the expiration of the term
of such coverage. If Tenant fails to procure and maintain the insurance
required hereunder, Landlord may, but shall not be required to, order such
insurance at Tenant's expense and Tenant shall reimburse Landlord for all
costs incurred by landlord with respect thereto. Tenant's reimbursement to
Landlord for such amounts shall be deemed Additional Rent, and shall include
all sums disbursed, incurred or deposited by Landlord including Landlord's
costs, expenses and reasonable attorneys' fees with interest thereon at the
Interest Rate.
j. Landlord's Disclaimer. Landlord and Landlord's Agents shall not
be liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Premises, or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
whatsoever, or any act or omission of Tenant or any
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other tenant or any building of which the Premises is a part, except to the
extent caused by or due to the negligence or willful act of Landlord. Except
as set forth in Paragraph 10(b), Landlord and Landlord's Agents shall not be
liable for interference with light or air, or for any latent defect in the
Premises. Tenant shall give prompt written notice to Landlord in case of a
casualty, accident or repair needed to the Premises or Common Area.
k. Failure to Pay. The failure of Tenant to obtain
and pay for any insurance required to be obtained and paid for by
it hereunder shall be deemed a material default under this Lease.
23. Waiver of Subrogation. Landlord and Tenant each hereby waive all
rights of recovery against the other on account of loss and damage occasioned
to such waiving party for its property or the property of others under its
control to the extent that such loss or damage is insured against under any
insurance policies which may be in force at the time of such loss or damage.
Tenant and Landlord shall, upon obtaining policies of insurance required
hereunder give notice to the insurance carrier that the foregoing mutual
waiver of subrogation is contained in this Lease and Tenant and Landlord shall
cause each insurance policy obtained by such party to provide that the
insurance company waives all right of recovery by way of subrogation against
either Landlord or Tenant in connection with any damage covered by such
policy.
24. Damage or Destruction.
a. Landlord's Obligation to Rebuild. If the Premises is damaged or
destroyed, Landlord shall promptly and diligently repair the Premises unless
it has the right to terminate this Lease as provided in subparagraph (b) next
below and it elects to so terminate.
b. Landlord's Right to Terminate. Either Landlord or Tenant shall
have the right to terminate this Lease with respect to the Premises following
material damage to or destruction of the Premises (material damage being
damage such that Tenant is unable to use 75% of the Premises for the conduct
of its business) if any of the following occurs:
i. the Premises(s) cannot, with reasonable diligence, be fully
repaired by Landlord within 270 days after the date of the damage or
destruction;
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ii. the Premises(s) cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake
faults, radiation, chemical waste and other similar dangers;
iii. the Premises(s) is destroyed or materially damaged during the
last six (6) months of the Term; or
iv. with respect to Landlord's right to terminate only, Tenant is
in default under the terms of this Lease beyond any applicable cure period, at
the time of such damage or destruction.
If Landlord or Tenant elects to terminate this Lease, Landlord may
give Tenant written notice of its election to terminate within 60 days after
it has knowledge of such damage or destruction, and this Lease shall terminate
30 days after the date Tenant receives such notice. If this Lease is
terminated, Landlord shall retain all the insurance proceeds resulting from
such damage, except for those proceeds payable under policies obtained by
Tenant which specifically insure Tenant's Personal Property. If Landlord
elects not to terminate the Lease, Landlord shall promptly, following the date
of such damage or destruction, commence the process of obtaining necessary
permits and approvals, and shall commence repair of the Premises or the
Building as soon as practicable and thereafter prosecute the same diligently
to completion, in which event this Lease will continue in full force and
effect. All insurance proceeds from insurance under Paragraph 22, excluding
proceeds for trade fixtures, equipment and other Personal Property of Tenant,
shall be disbursed and paid to Landlord.
c. Limited Obligation to Repair. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the basic
Building and the Tenant Improvements, and Tenant shall, at its expense,
replace or fully repair all Tenant's Personal Property and any Alterations
installed by Tenant existing at the time of such damage or destruction.
Landlord shall make available to Tenant any portion of insurance proceeds it
receives which are allocable to the Alterations constructed by Tenant pursuant
to this Lease provided Tenant is not then in default.
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d. Abatement of Rent. Rent shall be temporarily abated in
proportion to the degree to which Tenant's use of the Premises is impaired
from the date of such damage to the completion of repairs and restoration.
Except as otherwise provided herein, Tenant shall not be entitled to any
compensation or damages from Landlord for loss of the use of the Premises,
damage to Tenant's Personal Property or any inconvenience occasioned by such
damage, repair or restoration. Tenant hereby waives the provisions of Section
1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil
Code, and the provisions of any similar law hereinafter enacted.
25. Condemnation.
a. Total Taking - Termination. If title to all of the Premises or
so much thereof is taken for any public or quasi-public use under any statute
or by right of eminent domain so that reconstruction of the Premises will not,
in Landlord's and Tenant's mutual opinion, result in the Premises being
reasonably suitable for Tenant's continued occupancy for the uses and purposes
contemplated by this Lease, this Lease shall terminate as of the date
possession of the Premisses or part thereof be taken.
b. Partial Taking. If any part of the Premises is taken and the
remaining part is reasonably suitable for Tenant's continued occupancy for the
purposes and uses permitted by this Lease, this Lease shall, as to the part so
taken, terminate as of the date that possession of such part of the Premises
is taken and the Rent and other sums payable hereunder shall be reduced in the
same proportion that the floor area of the portion of the Premises so taken
(less any addition thereto by reason of any reconstruction) bears to the
original floor area of the Premises. Landlord shall, at its own cost and
expense, make all necessary repairs or alterations to the Premises so as to
make the portion of the Premises not taken a complete architectural unit. Such
work shall not, however, exceed the scope of the work done by Landlord in
originally constructing the Premises. Rent and other sums payable hereunder
shall be temporarily abated during such restoration period in proportion to
the degree to which Tenant's use of Premises is impaired. Each party hereby
waives the provisions of section 1265.130 of the California Code of Civil
Procedure allowing either party to petition the Superior
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Court to terminate this Lease in the event of a partial taking of the Building
or Premises.
c. No Apportionment of Award. No award for any partial or entire
taking shall be apportioned, it being agreed and understood that Landlord
shall be entitled to the entire award for any partial or entire taking. Tenant
assigns to Landlord its interest in any award which may be made in such taking
or condemnation, together with any and all rights of Tenant arising in or to
the same or any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant's Personal Property, for the
interruption of Tenant's business, or its moving costs, or for the loss of its
goodwill.
d. Temporary Taking. No temporary taking of the Premises shall
terminate this Lease or give Tenant any right to any abatement of Rent. Any
award made to Tenant by reason of such temporary taking shall belong entirely
to Tenant and Landlord shall not be entitled to share therein. Each party
agrees to execute and deliver to the other all instruments that may be
required to effectuate the provisions of this subparagraph.
e. Sale Under Threat of Condemnation. A sale by Landlord to any
authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this Paragraph.
26. Assignment and Subletting.
a. Landlord's Consent. Tenant shall not enter into any Assignment
or Sublease without Landlord's prior written consent (Landlord hereby
acknowledges existing the sublease of warehouse space in the Building to
Pharchem), which consent shall not be unreasonably withheld. Any attempted or
purported Sublease of the Premises or any portion thereof without Landlord's
prior written consent shall be void and confer no rights upon any third person
and, at Landlord's election, shall constitute a default by Tenant under this
Lease. Notwithstanding the foregoing, Landlord's consent shall not be required
for any Sublease of the Premises to any entity controlled by or under common
control with Tenant.
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b. Sublease Form. Each sublease to which Landlord has consented
shall be in a form reasonably satisfactory to Landlord, and shall be executed
by Tenant and Subtenant. Each assignee under an assignment shall agree in
writing, for the benefit of Landlord, to assume, to be bound by, and to
perform the terms, conditions and covenants of this Lease to be performed by
Tenant. In no event shall Tenant be released from personal liability for the
performance of each term, condition and covenant of this Lease by reason of
Landlord's consent to an assignment or Sublease unless Landlord specifically
grants such release in writing.
c. No Waiver. Consent by Landlord to any particular assignment or
Sublease shall not be deemed to be a consent to any subsequent Sublease.
d. Information to be Furnished. If Tenant desires at any time to
sublease the Premises or any portion thereof, it shall first notify Landlord
of its desire to do so and shall submit in writing to Landlord: (i) the name
of the proposed Subtenant; (ii) the nature of the proposed Subtenant's
business to be carried on in the Premises; (iii) the terms and provisions of
the proposed Sublease and a copy of the proposed Sublease agreement containing
a description of the premises proposed to be sublet; and (iv) such financial
information, including financial statements, as Landlord may reasonably
request concerning the proposed Subtenant.
e. Landlord's Alternatives. At any time within ten (10) days after
Landlord's receipt of the information specified in Paragraph 26(d), Landlord
may, at Landlord's option, by written notice to Tenant, (i) lease to the
Proposed Subtenant for Landlord's own account the Premises or the portion
thereof so proposed to be subleased by Tenant, upon the same terms as those
offered to the proposed Subtenant but on a form acceptable to Landlord; (ii)
consent to the Sublease by Tenant; or (iv) refuse its consent to the Sublease,
specifying reasonable grounds for such refusal.
If Landlord fails to elect any of the alternatives set forth above
within said ten (10) day period, it shall be deemed that Landlord has approved
the proposed Sublease.
If Landlord elects to proceed in accordance with either
subparagraph 26(e)(i) Landlord and Tenant shall enter
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into a limited release agreement whereby Tenant is relieved of any liability,
including the payment of Rent with respect to such released portion of the
Premises during the term of the Sublease. Upon the expiration of the Sublease
between Landlord and the new tenant for such released space, provided the Term
of this Lease has not expired, Landlord shall return possession of the
released space to Tenant in substantially the same condition, normal wear and
tear excepted, it was in when it was released and delivered to Landlord, and
Tenant shall resume all its obligations under this Lease with respect to such
space, including, without limitation, the payment of Rent attributable to such
space.
If Landlord proceeds with subparagraph 26(e)(i) above, Tenant may
thereafter enter into a valid Sublease of the Premises or portion thereof,
upon the terms and conditions and with the proposed Subtenant set forth in the
information furnished by Tenant to Landlord pursuant to subparagraph 26(d),
subject, however, to the condition that fifty percent (50%) of any excess of
the Subrent over the Rent required to be paid by Tenant hereunder and all
costs incurred by Tenant in connection with such Sublease including broker's
commissions and any alternatives ("Excess Rent") shall be paid to Landlord.
Any such Subrent to be paid to Landlord pursuant hereto shall be payable to
Landlord as and when due and payable to Tenant by the Subtenant to Tenant and
subject to the condition that there shall be no further Sublease without
Landlord's consent.
f. Proration. If a portion of the Premises is subleased, the pro
rata share of the Rent attributable to such partial area of the Premises shall
be determined by Landlord by dividing the Rent payable by Tenant hereunder by
the total leasable square footage of the Premises and multiplying the
resulting quotient (the per square foot rent) by the number of square feet of
the Premises which are subleased.
g. Executed Original. No Sublease shall be valid nor shall any
Subtenant take possession of the Premises until a fully executed original of
the Sublease agreement has been delivered to Landlord
h. Transfer to Purchaser. A transfer of this Lease to a purchaser
of Tenant or the assets of Tenant shall be deemed an assignment.
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i. Conditions Reasonable. Tenant hereby stipulates that the
foregoing limitations on Tenant's right to Sublease the Premises are
reasonable.
27. Default.
a. Tenant's Default. Any of the following events shall constitute a
default by Tenant under this Lease:
i. If Tenant shall fail to pay Rent or any other sum required to be
paid hereunder within five (5) days grace period after such sum is due; or
ii. If Tenant shall fail to perform any term, covenant or condition
of this Lease except those requiring the payment of money, and Tenant shall
have failed to cure such breach within thirty (30) working days after written
notice from Landlord where such breach could reasonably be cured within such
fifteen (15) working day period; provided, however, that where such failure
could not reasonably be cured within the thirty (30) working day period, that
Tenant shall not be in default unless it has commenced such cure within the
fifteen (15) working day period and diligently thereafter prosecutes the same
to completion; or
iii. If Tenant shall assign its assets for the benefit of its
creditors; or
iv. If the sequestration or attachment of or execution on any
material part of Tenant's Personal Property essential to the conduct of
Tenant's business shall have occurred, and Tenant shall fail to obtain a
return or release of such Personal Property within sixty (60) working days
thereafter, or prior to sale pursuant to such sequestration, attachment or
levy, whichever is earlier; or
vi. If a court shall make or enter any decree or order other than
under the bankruptcy laws of the United States adjudging Tenant to be
insolvent; or approving as properly filed a petition seeking reorganization of
Tenant; or directing the winding up or liquidation of Tenant and such decree
or order shall have continued for a period of thirty (30) days; or
vii. If Tenant shall fail to comply with the provisions of
Paragraphs 28 or 31 of this Lease.
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b. Remedies. Upon a default by Tenant, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by
law or otherwise provided in this Lease, to which Landlord may resort
cumulatively or in the alternative:
i. Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord
does not terminate this Lease, and Landlord shall have the right to collect
Rent when due;
ii. Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Tenant shall be liable immediately to Landlord
for all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning,
redecorating, and further improving the Premises and like costs. Reletting may
be for a period shorter or longer than the remaining Term of this Lease. No
act by Landlord other than giving written notice to Tenant shall terminate
this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession. Upon termination, Landlord shall have the right to remove all
of Tenant's Personal Property and store same at Tenant's cost and to recover
from Tenant as damages:
(A) The worth at the time of award of any unpaid Rent and
other sums due and payable which had been earned at the time of termination;
plus
(B) The worth at the time of award of the amount by which the
unpaid Rent and other sums which would have been payable after termination
until the time of award exceeds the amount of such Rent loss that Tenant
proves could have been reasonably avoided; plus
(C) The worth at the time of award of the amount by which the
unpaid Rent and other sums due for the balance of the Term after the time of
award exceeds the amount of such Rent loss for the same period that Tenant
proves could be reasonably avoided; plus
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(D) Any other amounts to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which, in the ordinary course of things,
would be likely to result therefrom, including, without limitation, any costs
or expenses incurred by Landlord: (i) in retaking possession of the Premises;
(ii) in maintaining, repairing, preserving, restoring, replacing, cleaning,
altering or rehabilitating the Premises or any portion thereof, including such
acts for reletting to a new tenant or tenants; (iii) for leasing commissions;
or (iv) for any other costs necessary or appropriate to relet the Premises;
plus
(E) At Landlord's election, such other amounts and remedies in
addition to or in lieu of the foregoing as may be permitted from time to time
by the laws of the State of California including, without limitation, the
remedies provided by California Civil Code Section 1951.4, as amended from
time to time (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).
The "worth at the time of award" of the amounts referred to in
Paragraphs 27(b)(ii)(A) and 27(b)(ii)(B) is computed by allowing interest at
the Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award"
of the amount referred to in Paragraph 27(b)(ii)(C) is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). Tenant waives redemption or relief
from forfeiture under California Code of Civil Procedure Sections 1174 and
1179, or under any other present or future law, in the event Tenant is evicted
or Landlord takes possession of the Premises by reason of any default of
Tenant hereunder; or
iii. Landlord may, with or without terminating this Lease,
reenter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant. No re-entry or taking possession of
the Premises by Landlord pursuant to this subparagraph shall be construed as
an election to terminate this Lease unless a written notice of such election
is given to Tenant.
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c. Landlord's Default. Landlord shall not be deemed to be in
default in the performance of any obligation required to be performed by
Landlord hereunder unless and until it has failed to perform such obligation
within thirty (30) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if the nature
of Landlord's obligation is such that more than thirty (30) days are required
for its performance, then Landlord shall not be deemed to be in default if it
shall commence such performance within such thirty (30) day period and
thereafter diligently prosecute the same to completion.
28. Subordination. Without the necessity or any additional document
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any bona fide mortgagee or deed of trust beneficiary
with a lien on all or portion of the Premises or any ground lessor with
respect to the Project and/or Building, this Lease shall be subject and
subordinate at all times to:
a. all ground leases or underlying leases which may now exist or
hereafter be executed affecting the Lot or the Building which is situated on
the Lot, or both, and
b. the lien of any mortgage or deed of trust which may hereafter be
executed in any amount for which the Lot, the Building, ground leases or
underlying leases, or Landlord's interest or estate in any of said items is
specified as security; provided, however, that such lender offers to enter
into with Tenant its standard non-disturbance and attornment agreement.
Notwithstanding the foregoing, Landlord shall have the right to
subordinate or cause to be subordinated any such ground leases or underlying
leases or any such liens to this Lease provided that the Lessor under such
ground Lease or the holder of any such mortgage or deed of trust expressly
agrees in writing to recognize the rights of Tenant hereunder. In the event
that any ground lease or underlying lease terminates for any reason or any
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, Tenant shall, notwithstanding any subordination,
attorn to and become the Tenant of the successor in interest to Landlord and
such successor shall recognize Tenant's rights hereunder. Subject to the
foregoing, Tenant covenants and agrees to
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execute and deliver, upon demand by Landlord and in the form requested by
Landlord, any additional documents evidencing the priority or subordination of
this Lease with respect to any such ground leases or underlying leases or the
lien of any such mortgage or deed of trust or the agreement of Tenant to
attorn to any mortgage, beneficiary, or Tenant. Tenant's's failure to timely
execute and deliver such additional documents shall constitute an event of
default by Tenant hereunder. Tenant hereby irrevocably appoints Landlord as
attorney-in-fact of Tenant to execute, deliver and record any such documents
in the name and on behalf of Tenant.
29. Notices. Any notice or demand required or desired to be given under
this Lease shall be in writing and shall be personally served or in lieu of
personal service may be given by mail addressed to the party to be served. If
given by mail, such notice shall be deemed to have been given upon receipt as
indicated upon the return receipt. At the date of execution of this Lease, the
addresses of landlord and Tenant are as set forth in Paragraph 1. After the
Commencement Date, the address of Tenant shall be the address of the Premises.
Either party may change its address by giving notice of same in accordance
with this Paragraph.
30. Attorneys' Fees. If either party brings any action or legal
proceeding for damages for an alleged breach of any provision of this Lease,
to recover rent or other sums due, to terminate this Lease or to enforce,
protect or establish any term, condition or covenant of this Lease or the
right of either party hereunder or at law, the prevailing party shall be
entitled to recover as a part of such action or proceedings, or in a separate
action brought for that purpose, reasonable attorneys' fees and costs.
Notwithstanding the foregoing and in addition thereto, Landlord
shall be entitled to the immediate receipt from Tenant in connection with each
breach of the terms of this Lease such reasonable attorneys' fees, but not
less than Fifty Dollars ($50.00), as may be incurred by Landlord or Landlord's
Agents in connection with each notice or demand delivered by Landlord or in
behalf of Landlord to Tenant pursuant to Paragraph 28. Tenant agrees that such
sums constitute reimbursement to Landlord only of the reasonable costs to
Landlord of the preparation and delivery of each notice caused by Tenant's
breach hereunder.
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31. Estoppel Certificate. Tenant shall within seven (7) business
days following written request by Landlord:
a. Execute and deliver to landlord any documents, including
estoppel certificates, in a form prepared by Landlord (i) certifying that this
Lease is unmodified and in full force and effect or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect and the date to which the Rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of the Landlord or
stating the nature of any uncured defaults; (iii) evidencing the status of the
Lease as may be required either by a lender making a loan to Landlord to be
secured by deed of trust or mortgage covering the Premises or a purchaser of
the Premises from Landlord; (iv) certifying the current monthly rent amount
and the amount and form of Security Deposit on deposit with Landlord; and (v)
certifying to such other information as Landlord, Landlord's Agents,
mortgagees, prospective mortgagees and buyers may reasonably request.
Tenant's failure to deliver an estoppel certificate within seven
(7) business days after delivery of Landlord's written request therefor shall
be a conclusive acknowledgment by Tenant (a) that this Lease is in full force
and effect, without modification except as may be represented by Landlord; (b)
that there are now no uncured defaults in Landlord's performance; (c) that no
Rent has been paid in advance; and (d) that the other information requested by
Landlord is correct as stated in the form presented by Landlord.
If Tenant fails to so deliver a requested estoppel certificate
within the prescribed time, such failure shall constitute an irrevocable
appointment of Landlord as Tenant's attorney-in-fact to act in Tenant's name,
place and stead to execute such estoppel certificate on Tenant's behalf.
b. Deliver to Landlord a current balance sheet of Tenant and a
profit and loss statement of Tenant covering the results of operations for
Tenant's most recent fiscal year ("financial statements") for the two (2)
years prior to the current financial statements with an opinion of an
independent certified public accountant, all prepared in accordance with
generally accepted accounting principles consistently applied.
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32. Transfer of the Premises by Landlord. In the event of any conveyance
of the Premises and assignment by Landlord of this Lease, Landlord shall be
and is hereby entirely released from all liability under any and all of its
covenants and obligations contained in or derived from this Lease occurring
after the date of such conveyance and assignment, and Tenant agrees to attorn
to any entity purchasing or otherwise acquiring the Premises.
33. Landlord's Right to Perform Tenant's Covenants. If Tenant shall at
any time fail to make any payment or perform any other act on its part to be
made or performed under this Lease, after any applicable notice and cure
period, Landlord may, but shall not be obligated to and without waiving or
releasing Tenant from any obligation of Tenant under this Lease, provided that
Landlord shall give Tenant reasonable prior notice and Tenant shall not have
made such payment or otherwise performed, make such payment or perform such
other act to the extent Landlord may deem desirable, and in connection
therewith, pay expenses and employ counsel. All sums so paid by Landlord and
all penalties, interest and costs in connection therewith shall be due and
payable by Tenant on the next day after such payment by Landlord, together
with interest thereon at the Interest Rate from such date to the date of
payment thereof by Tenant to Landlord, plus collection costs and attorneys'
fees. Landlord shall have the same rights and remedies for the nonpayment
thereof as in the case of default in the payment of Rent.
34. Tenant's Remedy. The obligations of Landlord do not constitute the
personal obligation of the individual partners, trustees, directors, officers
or shareholders of Landlord. If Landlord shall fail to perform any covenant,
term, or condition of this Lease upon Landlord's part to be performed, Tenant
shall be required to deliver to Landlord written notice of the same. If, as a
consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the right,
title and interest of Landlord in the Premises and out of Rent or other income
from such property receivable by Landlord or out of consideration received by
Landlord from the Sale or other disposition of all or any part of Landlord's
right, title or interest in the Premises, and neither Landlord nor Landlord's
Agents shall be liable for any deficiency.
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<PAGE>
35. Mortgage Protection. In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage covering the
Premises who has provided Tenant with notice of its interest together with an
address for receiving notice, and Tenant, without terminating this Lease,
shall offer such beneficiary or mortgagee a reasonable opportunity to cure the
default, including time to obtain possession of the Premises by power of sale
or a judicial foreclosure, if such should prove necessary to effect a cure.
36. Brokers. Tenant warrants and represents that it has had no dealings
with any real estate broker, agent or finder in connection with the
negotiation of this Lease or the introduction of the parties to this
transaction, except for Cornish and Carey Commercial (Randy Scott) ("CORNISH")
and Tarlton Properties, Inc. (Lorrin C. Tarlton, Jr. and John C. Tarlton)
("TARLTON") and that Tenant knows of no other real estate broker, agent or
finder who is or might be entitled to a commission or fee in connection with
this Lease. Landlord shall pay a commission pursuant to the commission
schedule which has been delivered to Cornish and Carey Commercial, as follows:
twenty-five percent (25%) of the commission shall be paid to Cornish and
seventy-five percent (75%) of the commission shall be paid to Tarlton. One
half of the amounts owed to each of Cornish and Tarlton shall be paid upon the
execution of this Lease and the remainder shall be paid upon the Commencement
Date of this Lease. Tenant agrees to indemnify and hold harmless Landlord and
its Agents from and against any and all liabilities or expenses, including
attorneys' fees and costs, arising out of or in connection with claims made by
any other broker or individual for commissions or fees resulting from Tenant's
execution of this Lease.
37. Acceptance. Delivery of this Lease, duly executed by Tenant,
constitutes an offer to lease the Premises, and under no circumstances shall
such delivery be deemed to create an option or reservation to lease the
Premises for the benefit of Tenant. This Lease shall only become effective and
binding upon full execution hereof by Landlord and delivery of a signed copy
to Tenant. Upon acceptance of Tenant's offer to lease under the terms hereof
and receipt by Landlord of the Security Deposit in connection with Tenant's
submission of said offer, Landlord shall be entitled to retain such deposit
and apply same to damages, costs and expenses incurred by Landlord if
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<PAGE>
Tenant fails to occupy the Premises. If Landlord declines said offer, any such
deposit shall be returned to Tenant.
38. Recording. Neither party shall record this Lease, provided that
at the request of Tenant, the parties shall record a short form memorandum
thereof.
39. Quitclaim. Upon any termination of this Lease, Tenant shall, at
Landlord's request, execute, have acknowledged and deliver to Landlord a
quitclaim deed of the Premises.
40. Modifications for Lender. If, in connection with obtaining financing
for the Premises or any portion thereof, Landlord's lender shall request
reasonable modification to this Lease as a condition to such financing, Tenant
shall not unreasonably withhold, delay or defer its consent thereto, provided
such modifications do not materially adversely affect Tenant's rights
hereunder.
41. Sewer Fees. Tenant acknowledges that Menlo Business Park Joint
venture has paid the connection fees for the entire Project. Tenant shall
promptly reimburse Landlord as Additional Rent, upon presentation of invoice,
for payments made by Landlord to Menlo Business Park Joint Venture for the
fees attributable to Tenant's use of the Premises, based upon a formula
determined by the West Bay Sanitary District on the basis of Tenant's use of
the Premises and the number of Tenant's employees therein.
42. General
a. Captions. The captions and headings used in this Lease are for
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
b. Executed Copy. Any fully executed copy of this Lease shall be
deemed an original for all purposes.
c. Time. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
d. Severability. If any one or more of the provisions contained
herein shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such
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invalidity, illegality, or unenforceability shall not affect any other
provision of this Lease, but this Lease shall be construed as if such invalid,
illegal or unenforceable provision had not been contained herein.
e. Choice of Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California. The language in all parts
of this Lease shall in all cases be construed as a whole according to its fair
meaning and not strictly for or against either Landlord or Tenant regardless
of which party shall be deemed to have prepared this Lease.
f. Gender; Singular, Plural. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, and the singular includes the
plural.
g. Binding Effect. The covenants and agreement contained in this
Lease shall be binding on the parties hereto and on their respective
successors and assigns to the extent this Lease is assignable.
h. Waiver. The waiver by Landlord of any breach of any term,
condition or covenant, of this Lease shall not be deemed to be a waiver of
such provision or any subsequent breach of the same or any other term,
condition or covenant of this Lease. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach at the time of acceptance of such payment. No covenant, term or
condition of this Lease shall be deemed to have been waived by Landlord unless
such waiver is in writing signed by Landlord.
i. Entire Agreement. This Lease is the entire agreement between the
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
j. Authority. If Tenant is a corporation or a partnership, each
individual executing this Lease on behalf of said corporation or partnership,
as the case may be, represents and warrants that he is duly authorized to
execute and deliver
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this Lease on behalf of said entity in accordance with its corporate bylaws,
statement of partnership or certificate of limited partnership, as the case
may be, and that this Lease is binding upon said entity in accordance with its
terms. Landlord, at its option, may require a copy of such written
authorization to enter into this Lease. The failure of Tenant to deliver the
same to Landlord within seven (7) days of Landlord's request therefor shall be
deemed a default under this Lease.
k. Exhibits. All exhibits, amendments riders and addenda attached
hereto are hereby incorporated herein and made a part hereof.
l. Lease Summary. The Lease Summary attached to this Lease is
intended to provide general information only. In the event of any
inconsistency between the Lease Summary and the specific provisions of this
Lease, the specific provisions of this Lease shall prevail. THIS LEASE is
effective as of the date the last signatory necessary to execute the Lease
shall have executed this Lease.
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LANDLORD
PATRICIAN ASSOCIATES, INC.,
a California corporation
By:/s/ Kurt D. Schaeffer
----------------------
Print Name: Kurt D. Schaeffer
--------------------
Its: Vice President
-------------------------
By: /s/ Timothy E. Minton
--------------------------------
Print Name: Timothy E. Minton
-----------------------
Its: Vice President
and Secretary
----------------------
TENANT
INGENEX, INC.
a Delaware corporation
By: /s/ Mark E. Furth
------------------------
Print Name: Mark E. Furth
----------------------
Its: President and CEO
-------------------------------
By:
--------------------------------
Print Name:
------------------------
Its:
--------------------------------
MENLO BUSINESS PARK,
a California general
partnership
By: /s/ John O. Lewis
----------------------------
John O. Lewis,
as general partner
By: Oltmans Investment
Company, as general
partner
By: /s/ J.O. Oltmans II
----------------------------
J.O. Oltmans II
By: /s/ R.M. Holmes
-----------------------------
R.M. Holmes
By: Lorrin C. Tarlton, Jr.,
and Marilyn L. Tarlton,
Trustees UTD 1/23/75, as
general partner
By: /s/ Lorrin C. Tarlton, Jr.
---------------------------------
Lorrin C. Tarlton, Jr.,
Trustee
By: /s/ Marilyn L. Tarlton
---------------------------------
Marilyn L. Tarlton,
Trustee
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<PAGE>
EXHIBIT B
PREPARATION WORK TO BE COMPLETED BY THE LANDLORD
GROUND FLOOR
1. The HVAC system shall be repaired (if necessary), so that it is in good
order and repair, and shall be maintained by Landlord with costs
prorated to both tenants of Suite B on a square foot basis.
2. The conference room ceiling and walls shall be maintained and repaired
(if necessary), so that they are in good order and repair.
3. The ground floor of Suite 14B shall be separated from the mezzanine of
Suite 14 B, in a manner that provides privacy and security for both
areas, subject to the approval of the Menlo Park Fire Department.
4. The utilities to both the Premises and the mezzanine of Suite 14B shall
be sub-metered separately, and gas usage to each space shall be prorated
by an independent licensed engineer based on load calculations
appropriate to each space.
EXHIBIT "2"
<PAGE>
COMMENCEMENT DATE MEMORANDUM
LANDLORD: MENLO BUSINESS PARK and PATRICIAN ASSOCIATES, INC.
TENANT: INGENEX, INC.
LEASE DATE: March 6, 1996
PREMISES: 22,677 square feet located in Building 14, Suite
B, Menlo Business Park, 1505 O'Brien Dr., Menlo
Park, California
Pursuant to Paragraph 4(b) of the above referenced Lease, the
Commencement Date is hereby established as March 6, 1996.
LANDLORD
PATRICIAN ASSOCIATES, INC.,
a California corporation
By: /s/ Kurt D. Schaeffer
--------------------------
Print Name: Kurt D. Schaeffer
--------------------
By:
-----------------------------
By: /s/ Timothy E. Minton
---------------------------
Print Name: Timothy E. Minton
--------------------
Its: Vice President
and Secretary
-------------------------
TENANT
INGENEX, INC.
a Delaware corporation
By: /s/ Mark E. Furth
---------------------------
Print Name: Mark E. Furth
------------------
Its: President and CEO
-------------------------
By:
----------------------------
Print Name:
--------------------
Its:
--------------------------
EXHIBIT "C"
<PAGE>
MENLO BUSINESS PARK,
a California general
partnership
By: /s/ John O. Lewis
------------------------------
John O. Lewis,
as general partner
By: Oltmans Investment
Company, as general
partner
By: /s/ J.O. Oltmans II
------------------------------
J.O. Oltmans II
By: /s/ R.M. Holmes
------------------------------
R.M. Holmes
By: Lorrin C. Tarlton, Jr.,
and Marilyn L. Tarlton,
Trustees UTD 1/23/75, as
general partner
By: /s/ Lorrin C. Tarlton
------------------------------
Lorrin C. Tarlton,
Jr., Trustee
By:/s/ Marilyn L. Tarlton
------------------------------
Marilyn L. Tarlton,
Trustee
<PAGE>
FIXTURES, EQUIPMENT AND PERSONAL PROPERTY
Building 14, Suite B
Menlo Business Park
The following existing items of personal property owned by Landlord are
included "as is" in the Premises referred to as Building 14, Suite B, leased
to Ingenex, Inc.:
The laboratory equipment listed on Schedule I:
Such equipment shall be maintained and repaired in first class equipment for
the term of the Lease, as extended. Tenant's failure to so maintain and repair
said equipment, shall be a default under the Lease. Said equipment shall be
and remain the property of Landlord.
EXHIBIT "D"
<PAGE>
LEASE SUMMARY
Lease Date: March 6, 1996
Landlord: Menlo Business Park, Joint Venture, composed of
Patrician Associates, Inc., a California
corporation and Menlo Business Park, a California
general partnership
For Patrician Associates, Inc.: 711 High Street
Des Moines, Iowa 50392
For Menlo Business Park: Tarlton Properties, Inc.
300 Second Street #109
Los Altos, CA 94022
Attn: Lorrin C. Tarlton, Jr.
With a copy to: The Lewis Company
1250 6th Street
Santa Monica, CA 90401
Attn: John O. Lewis
Tenant: INGENEX, INC.
Address of Tenant: 1505 O'Brien Dr., Suite 14B
Menlo Park, CA 94025
Tenant Contact: Sunil R. Bhonsle, Vice President
Premises: Building 14, Suite B
Building Address: 1505 O'Brien Dr., Menlo Park, California 94025
Square Footage of Leased Premises 22,677
Square Footage of Building: 56,460
Square Footage of all leasable
Lot within the Project: 2,060,693 square feet
Tenant's Percentage Share of
Building Expenses: 40.17%
EXHIBIT "E"
<PAGE>
Tenant's Percentage Share of Project Expenses: 2.26%
Commencement Date: March 6, 1996
Term: Thirty Six (36) months
Signage: One monument sign in common with other tenants,
per Menlo Park Signage Ordinance
<PAGE>
GUARANTY OF LEASE
TITAN PHARMACEUTICALS, INC., a Delaware corporation,
("GUARANTOR"), whose address is 400 Oyster Point Blvd., Suite 505, South San
Francisco, CA 94080 as a material inducement to and in consideration of MENLO
BUSINESS PARK, a California general partnership, and PATRICIAN ASSOCIATES,
INC., a California corporation, ("LANDLORD") entering into a written lease
("LEASE") with INGENEX, INC., a Delaware corporation, ("TENANT"), dated the
same date as this Guaranty, pursuant to which Landlord leased to Tenant and
Tenant leased from Landlord, premises located in Menlo Park, California, as
more particularly described in the Lease, unconditionally guarantees for the
benefit of Landlord, the performance by Tenant, its successors and assigns, of
Tenant's obligations under the Lease.
Guarantor's obligations are independent of Tenant's obligations.
A separate action may be brought or prosecuted against Guarantor whether the
action is brought or prosecuted against Tenant, or both are joined in the
action.
Guarantor waives the benefit of any statute of limitations
affecting Guarantor's liability under this Guaranty.
The provisions of the Lease may be changed by agreement between
Landlord and Tenant at any time, or by course of conduct, without the consent
of notice to Guarantor. This Guaranty shall guarantee the performance of the
Lease as changed. An assignment of the Lease shall not affect this Guaranty.
This Guaranty shall not be affected by Landlord's failure or
delay to enforce any of its rights.
If Tenant defaults under the Lease, Landlord can proceed
immediately against Guarantor or Tenant, or both, or Landlord can enforce
against Guarantor or Tenant, or both, any rights that it has under the Lease,
or applicable laws. If the Lease terminates and Landlord has any rights it can
enforce against Tenant after termination, Landlord can enforce those rights
against Guarantor without giving prior notice to Tenant or Guarantor, or
making any demand on either of them. This Guaranty shall remain in full force
and effect notwithstanding the institution by or against Tenant of bankruptcy,
<PAGE>
reorganization, receivership or insolvency proceedings of any nature and
notwithstanding the rejection, disaffirmation or abandonment of the Lease in
any such proceedings or otherwise.
Guarantor hereby waives any and all benefits and defenses under
Civil Code Sections 2845, 2849 and 2850 including, without limitation the
right to require Landlord to (i) proceed against Tenant; (ii) proceed against
or exhaust any security that Landlord holds from Tenant; or (iii) pursue any
other remedy in Landlord's power. Guarantor waives any defense by reason of
any disability of Tenant, and waives any other defense based on the
termination of Tenant's liability from any cause.
Guarantor waives all benefits and defenses under Civil Code
Sections 2847, 2848 and 2849 and agrees that until all Tenant's obligations to
Landlord have been discharged in full, Guarantor (i) has no right of
subrogation against Tenant; (ii) waives its right to enforce any remedies that
Landlord now has, or later may have, against Tenant; and (iii) waives any
right to participate in any security now or later held by Landlord. To the
extent Guarantor's waiver of these rights of subrogation, reimbursement or
contribution as set forth herein are found, by a court of competent
jurisdiction, to be void or voidable for any reason, Guarantor agrees that its
right of subrogation and reimbursement against Tenant and its right of
subrogation against any collateral or security shall be junior and subordinate
to Landlord's rights against Tenant and to Landlord's rights, title and
interest in such collateral or security. Guarantor waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty, and
waives all notices of the existence, creation, or incurring of new or
additional obligations,
If Landlord disposes of its interest in the Lease, "Landlord" as
used in this Guaranty, shall mean Landlord's successors in interest to the
Premises.
Guarantor represents and warrants that this Guaranty has been
duly authorized by all necessary corporate action on Guarantor's part, has
been duly executed and delivered by a duly authorized officer, and constitutes
Guarantor's valid and legally binding agreement in accordance with its terms.
<PAGE>
All payments, charges, costs and expenses of any kind, including
reasonable attorneys' fees, incurred by Landlord in the enforcement of this
Guaranty shall be paid by Guarantor immediately upon demand, together with
interest at a rate per annum equal to ten percent (10%).
Guarantor's obligations under this Guaranty shall be binding on
Guarantor's successors and assigns. Notwithstanding the foregoing, this
Guaranty and Guarantor's obligations hereunder shall terminate immediately
upon Tenant's receipt of at least Eight Million Dollars ($8,000,000.00) from a
public or private equity financing.
Dated: July 30, 1996 TITAN PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ Sunil Bhonsle
-------------------------------
Its: Executive Vice President
and COO
------------------------------
INGENEX, INC. EXHIBIT 11.1
(a development state company)
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Year ended December 31, Six Months ended June 30,
----------------------------- -------------------------------
Historical 1994 1995 1995 1996
- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss............................................ $(4,883,601) $(4,994,834) $(2,198,503) $(1,897,250)
============ ============ ============ ============
Weighted averaged shares of common
stock outstanding............................... 580,715 685,012 668,437 715,962
Shares related to Staff Accounting
Bulletin topic 4D:
Stock options.............................. 269,558 269,558 269,558 269,558
Conversion of payable to parent..................... 808,587 808,587 808,587 808,587
------------ ------------ ------------ ------------
Shares used in computing net loss per share......... 1,658,860 1,763,157 1,746,582 1,794,107
============ ============ ============ ============
Net loss per share.................................. $(2.94) $(2.83) $(1.26) $(1.06)
Pro Forma
- ---------
Net loss, as above.................................. $(4,994,834) $(1,897,250)
Add back interest on payable to parent.............. 155,036
============ ============
Net loss, as adjusted............................... (4,994,834) (1,742,214)
Shares used in computing net loss per share, as above 1,763,157 1,794,107
Adjusted to reflect the effect of:
Conversion of payable to parent......... 156,801 173,230
Conversion of preferred stock from
the date of issuance.................. 1,291,234 1,291,234
------------ ------------
Shares used in computing pro forma net loss per share 3,211,192 3,258,571
============ ============
Pro Forma net loss per share........................ $ (1.56) $ (0.53)
============ ============
</TABLE>
Exhibit 16.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the section entitled Changes in Accountants in Amendment
No. 3 to Registration Statement on Form SB-2 (File No. 33-95654) of Ingenex,
Inc. and are in agreement with the statements contained therein, insofar as
they relate to our firm.
/s/ Richard A. Eisner & Company, LLP
--------------------------------
Richard A. Eisner & Company, LLP
New York, New York
October 1, 1996
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated February 23, 1996
(except for Note 8, as to which the date is September 27, 1996), in Amendment
No. 3 to the Registration Statement (Form SB-2 33-95654) and related Prospectus
of Ingenex, Inc. for the registration of 2,127,500 shares of Common Stock.
/s/ ERNST & YOUNG LLP
-----------------
ERNST & YOUNG LLP
Palo Alto, California
October 1, 1996
Exhibit 23.3
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name and the
statement with respect to us appearing under the heading "Experts" in
Amendment No. 3 to the Form SB-2 Registration Statement.
/s/Pennie & Edmonds
- ---------------------
PENNIE & EDMONDS
New York, New York
October 3, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 168
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,877
<PP&E> 8,333
<DEPRECIATION> 0
<TOTAL-ASSETS> 199,379
<CURRENT-LIABILITIES> 931,937
<BONDS> 966,430
0
6,564,602
<COMMON> 5,561,764
<OTHER-SE> (13,825,354)
<TOTAL-LIABILITY-AND-EQUITY> 199,379
<SALES> 0
<TOTAL-REVENUES> 46,418
<CGS> 0
<TOTAL-COSTS> 1,615,137
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 328,531
<INCOME-PRETAX> (1,897,250)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,897,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,897,250)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> 0
</TABLE>
