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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 0-28272
AVIGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3647113
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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1201 HARBOR BAY PARKWAY, SUITE 1000
ALAMEDA, CALIFORNIA 94502
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(510) 748-7150
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of September 21, 1999, was approximately $119,784,849 based upon
the closing sale price of the registrant's Common Stock as reported on the
Nasdaq National Market System on such date. The number of outstanding shares of
the Registrant's Common Stock as of September 21, 1999 was 9,778,355.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Parts
III and IV of this Form 10-K Report: The definitive Proxy Statement for the
Registrant's Annual Meeting of Stockholders scheduled to be held on November 12,
1999.
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* Excludes approximately 1,218,200 shares of common stock held by Directors,
Officers and holders of 5% or more of the registrant's outstanding Common
Stock at September 21, 1999. Exclusion of shares held by any person should not
be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of
the registrant, or that such person is controlled by or under common control
with the registrant.
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 11
Item 2. Properties.................................................. 21
Item 3. Legal Proceedings........................................... 21
Item 4. Submission of Matters to a Vote of Security Holders......... 22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 22
Item 6. Selected Financial Data..................................... 23
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 23
Item 7A Quantitative and Qualitative Disclosure About Market Risk... 26
Item 8 Financial Statements........................................ 26
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 27
Item 11 Executive Compensation...................................... 27
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 27
Item 13 Certain Relationships and Related Transactions.............. 27
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 27
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Except for the historical information contained herein, this report
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under the heading "Risk Factors."
PART I
RISK FACTORS
This section briefly discusses certain risks that should be considered by
stockholders and prospective investors in Avigen. Many of these risks are
discussed in other contexts in other sections of this report.
WE EXPECT TO CONTINUE TO OPERATE AT A LOSS AND WE MAY NEVER ACHIEVE
PROFITABILITY
We cannot be certain that we will ever achieve and sustain profitability.
To date, we have been engaged in research and development activities and have
not generated any revenues from product sales. As of June 30, 1999, we had an
accumulated deficit of $36.8 million. The process of developing our products
will require significant research and development, preclinical testing and
clinical trials, as well as regulatory approval. We expect these activities,
together with our general and administrative expenses, to result in operating
losses for the foreseeable future. Our ability to achieve profitability is
dependent, in part, on our ability to successfully complete development of our
proposed products, obtain required regulatory approvals and manufacture and
market our products directly or through partners.
WE MUST SECURE ADDITIONAL FINANCING, OTHERWISE WE WILL NOT BE ABLE TO DEVELOP
OUR PRODUCTS AND MAINTAIN OUR NASDAQ LISTING
We will require substantial additional funding to complete the research and
development activities currently contemplated, to commercialize our proposed
products and to maintain minimum Nasdaq continued listing requirements. If we do
not obtain such funds, we will not be able to develop our products or maintain
our Nasdaq listing.
Our future operating and capital requirements. We anticipate that our
existing capital resources will be adequate to fund our needs for at least the
next 12 months. Our future operating and capital requirements will depend on
many factors, including:
- continued scientific progress in 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 involved in filing, prosecuting and enforcing patent claims;
- competing technological developments;
- the cost of manufacturing scale-up;
- the cost of commercialization activities; and
- other factors which may not be within our control.
We intend to seek additional funding through public or private equity or
debt financing, when market conditions allow. If we raise additional funds by
issuing equity securities, there may be further dilution to existing
stockholders. We cannot assure you that we will be able to enter into such
financing arrangements on acceptable terms or at all. Without such additional
funding, we may be required to delay, reduce the scope of or eliminate one or
more of our research or development programs.
Our need to maintain our Nasdaq listing. We believe that maintaining our
listing on the Nasdaq National Market is central to our ability to raise
additional funds as well as to provide liquidity to investors.
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We failed temporarily to meet the Nasdaq net tangible asset listing requirement
at June 30, 1998. However, the proceeds from a recent financing allowed us to
meet the Nasdaq net tangible asset listing requirement, on a proforma basis, for
the first quarter of fiscal 1999. We may be required to generate sufficient
revenue or raise additional capital to maintain Nasdaq listing requirements in
fiscal year 2000.
OUR PRODUCTS MUST UNDERGO RIGOROUS CLINICAL TESTING AND REGULATORY APPROVALS,
WHICH COULD SUBSTANTIALLY DELAY OR PREVENT US FROM MARKETING OUR PRODUCTS
We are engaged in the development of gene therapy products derived from
adeno-associate virus ("AAV") for the treatment of inherited and acquired
diseases. Prior to marketing in the United States, any drug developed by us must
undergo rigorous preclinical and clinical testing and an extensive regulatory
approval process implemented by the FDA. If we do not receive these necessary
approvals, we will not be able to generate substantial revenues and will not
become profitable. At the present time, we believe that our products will be
regulated as biologics by the FDA. We cannot be certain that our products will
be cleared for marketing by the FDA or that any approved products can be
successfully marketed. Satisfaction of such regulatory requirements, which
includes satisfying the FDA that the product is both safe and efficacious,
typically takes several years or more depending on the type, complexity and
novelty of the product, and requires a substantial commitment of resources. We
may encounter significant delays or excessive costs in our efforts to secure
regulatory approvals. Factors that raise uncertainty in obtaining such
regulatory approvals include:
- gene therapy is a new and rapidly evolving technology;
- to date, there has been only limited research and development in gene
therapy using AAV vectors;
- we are not aware of any gene therapy products that have obtained
marketing approval from the United States Food and Drug Administration;
- before obtaining regulatory approval for the commercial sale of any of
our products under development, we must demonstrate through preclinical
studies and clinical trials that the proposed product is safe and
efficacious for its intended use;
- the regulatory requirements governing gene therapy products are uncertain
and are subject to change;
- none of our proposed products has been tested in humans; and
- data obtained from preclinical and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory
approvals.
Preclinical studies must be conducted in conformance with the FDA's Good
Laboratory Practices regulations. Before commencing clinical trials, we must
submit to and receive FDA authorization of an investigational new drug
application ("IND"). We cannot be certain that submission of an IND would result
in FDA authorization to begin clinical trials.
Limitations once regulatory approval has been obtained. If regulatory
approval is granted for a product, such approval will be limited to those
disease states and conditions for which the product is useful, as demonstrated
through clinical trials. Furthermore, approval may require ongoing requirements
for postmarketing studies. Even if a product is approved for marketing, the
product, its manufacturer and its manufacturing facilities are continuously
subject to review and periodic inspections. Discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. We may encounter problems with the clinical trials which will require us
to delay, suspend or terminate these trials. All of our products in research and
development may prove to have undesirable and unintended side effects or other
characteristics that may prevent or limit their commercial use. Because there is
only limited research regarding the safety and efficacy of AAV vectors, we
believe that clinical trials will proceed more slowly than clinical trials
involving traditional drugs and biologics.
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Consequences of failure to comply with applicable FDA or other regulatory
requirements. Failure to comply with applicable FDA or other regulatory
requirements may result in the following:
- criminal prosecution;
- civil penalties;
- recall or seizure of products;
- total or partial suspension of production or injunction; and
- other legal or regulatory actions.
Any such action would have a material adverse effect on our business.
WE MAY NOT BE SUCCESSFUL IN OBTAINING REQUIRED FOREIGN REGULATORY APPROVALS,
WHICH WOULD PREVENT US FROM MARKETING OUR PRODUCTS INTERNATIONALLY
We cannot be certain that we will obtain any regulatory approvals in other
countries. In order to market our products outside of the United States, we also
must comply with numerous and varying foreign regulatory requirements
implemented by foreign health authorities. The approval procedure varies among
countries and can involve additional testing. The time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process includes all of the risks associated with obtaining
FDA approval set forth above, and approval by the FDA does not ensure approval
by the health authorities of any other country.
WE DO NOT HAVE EXPERIENCE IN CONDUCTING CLINICAL TRIALS, WHICH MAY CAUSE DELAYS
IN COMMENCING AND COMPLETING CLINICAL TRIALS OF OUR PRODUCTS
Clinical trials must meet FDA regulatory requirements for Institutional
Review Board oversight and informed consent and good clinical practice
regulations. We have limited experience in conducting preclinical studies and no
experience in conducting clinical trials necessary to obtain regulatory
approval. We may not be able to conduct those clinical trials at preferred
sites, obtain sufficient test subjects or begin or successfully complete
clinical trials in a timely fashion, if at all. Furthermore, the FDA may suspend
clinical trials at any time if it believes the subjects participating in such
trials are being exposed to unacceptable health risks or if it finds
deficiencies in the IND or conduct of the investigation. We may encounter
problems in clinical trials which cause us or the FDA to delay, suspend or
terminate such trials.
In addition to the FDA requirements, the National Institutes of Health
("NIH") has established guidelines for research involving recombinant DNA
molecules, which we use in our research. These guidelines apply to recombinant
DNA research which is conducted at or supported by the NIH. Under current
guidelines, proposals to conduct clinical research involving gene therapy at
institutions supported by the NIH must be approved by the NIH's Recombinant DNA
Advisory Committee.
WE HAVE NO EXPERIENCE IN MANUFACTURING, MARKETING OR SELLING OUR PRODUCTS, WHICH
RAISES UNCERTAINTY IN OUR ABILITY TO COST-EFFECTIVELY MANUFACTURE OUR PRODUCTS
Even if we are able to develop our products and obtain necessary regulatory
approvals, we have no experience in, and currently lack the resources and
capability to, manufacture or market any of our proposed products on a
commercial basis. In addition, we have not yet implemented the FDA's regulations
concerning current Good Manufacturing Practices. We may not be able to develop
adequate commercial manufacturing capabilities either on our own or through
third parties. If we are unable to manufacture our products in a cost-effective
manner, we will not become profitable. Initially, we anticipate that we will be
dependent to a significant extent on collaborative partners or other entities
for commercial scale manufacturing of our products. If we decide to establish a
commercial scale manufacturing facility, we will need substantial additional
funds and personnel and will be required to comply with extensive regulations
applicable to such facility. In addition, we do not anticipate establishing our
own sales and marketing capabilities in the
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foreseeable future. We may not be able to develop adequate marketing
capabilities either on our own or through third parties.
WE NEED TO ATTRACT AND RETAIN A CORPORATE PARTNER, OTHERWISE WE MAY NOT BE ABLE
TO DEVELOP OUR PRODUCTS
We do not currently have a corporate partner relationship with respect to
any of our technologies or potential products. Given the very high cost of
funding clinical trials and bringing a proposed product through the governmental
approval process to the commercial market, we believe that successful
development and commercialization of our technologies and products will depend
in large part on our ability to establish one or more such relationships. We may
not be able to establish relationships on favorable terms, if at all. In
addition, if we fail to raise needed future capital we could be at a
disadvantage in negotiating favorable terms with potential corporate partners.
WE MAY BE REQUIRED TO OBTAIN RIGHTS TO PROPRIETARY GENES AND OTHER TECHNOLOGIES
TO FURTHER DEVELOP OUR BUSINESS, WHICH MAY NOT BE AVAILABLE OR MAY BE COSTLY
We currently investigate and use certain gene sequences or proteins encoded
by those sequences that are or may become patented by others. As a result, we
may be required to obtain licenses to such gene sequences or proteins or other
technology in order to test, use or market such products. For example, in
connection with our anemia program, we may need to obtain a license to a gene
for erythropoietin. We may not be able to obtain such a license on terms
favorable to us, if at all. In connection with our efforts to obtain rights to
such gene sequences or proteins, we may find it necessary to convey rights to
our technology to others. Some of our gene therapy products may require the use
of multiple proprietary technologies. Consequently, we may be required to make
cumulative royalty payments to several third parties. Such cumulative royalties
could be commercially prohibitive. We may not be able to successfully negotiate
such royalty adjustments.
IF WE DO NOT ACHIEVE CERTAIN MILESTONES WE MAY NOT BE ABLE TO RETAIN CERTAIN
LICENSES TO OUR INTELLECTUAL PROPERTY
We have entered into agreements for the license from third parties of
certain technologies related to our gene therapy product development programs.
Certain of these license agreements provide for the achievement of development
milestones. All developmental milestones to date have been met with the next
milestone due August 2001. If we fail to achieve such milestones or to obtain
extensions, the licensor may terminate certain of the license agreements with
relatively short notice to us. Termination of any of our license agreements
could have a material adverse effect on our business.
IF OUR PRODUCTS ARE NOT ACCEPTED BY PHYSICIANS AND INSURERS, WE WILL NOT BE
SUCCESSFUL
Our success is dependent on acceptance of our gene therapy products. We
cannot assure you that our products will achieve significant market acceptance
among patients, physicians or third party payors, even if we obtain necessary
regulatory and reimbursement approvals. Failure to achieve significant market
acceptance will have a material adverse effect on our business, financial
condition and results of operations. We believe that recommendations by
physicians and health care payors will be essential for market acceptance of our
gene therapy products. In the past, there has been concern regarding the
potential safety and efficacy of gene therapy products derived from pathogenic
viruses such as retroviruses and adenoviruses. While our proposed gene therapy
products are derived from AAV which is a non-pathogenic virus, we cannot be
certain that physicians and health care payors will conclude that the technology
is safe. In addition, health care payors can indirectly affect the
attractiveness of our proposed products by regulating the maximum amount of
reimbursement they will provide for such proposed products.
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EVEN IF WE BRING OUR PRODUCTS TO MARKET, WE MAY BE UNABLE TO EFFECTIVELY PRICE
OUR PRODUCTS OR OBTAIN ADEQUATE REIMBURSEMENT FOR SALES OF OUR PRODUCTS, WHICH
WOULD PREVENT OUR PRODUCTS FROM BECOMING PROFITABLE
If we succeed in bringing our proposed products to the market, we cannot
assure you that these products will be considered cost-effective and that
reimbursement to the consumer will be available or will be sufficient to allow
us to sell our products on a competitive basis. The business and financial
condition of Avigen is affected by the efforts of government and third party
payors to contain or reduce the cost of health care through various means. In
the United States, there have been and will continue to be a number of federal
and state proposals to implement government control on pricing. In addition, the
emphasis on managed care in the United States has increased and will continue to
increase the pressure on the pricing of pharmaceutical products. We cannot
predict whether any legislative or regulatory proposals will be adopted or the
effect such proposals or managed care efforts may have on our business. In
addition, in both the United States and elsewhere, sales of medical products and
treatments are dependent, in part, on the availability of reimbursement to the
consumer from third-party payors, such as government and private insurance
plans. Third-party payors are increasingly challenging the prices charged for
medical products and services.
WE EXPECT THAT WE WILL FACE INTENSE COMPETITION, WHICH MAY LIMIT OUR ABILITY TO
BECOME PROFITABLE
The field of gene therapy is new and rapidly evolving and is expected to
undergo significant technological change in the future. We expect increased
competition from fully integrated pharmaceutical companies and more established
biotechnology companies. Most of these companies have significantly greater
financial resources and expertise than we do in the following:
- research and development;
- preclinical studies and clinical trials;
- obtaining regulatory approvals;
- manufacturing; and
- marketing and distribution.
Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical
companies. Academic institutions, government agencies and other public and
private research organizations also conduct research, seek patent protection and
establish collaborative arrangements for product development and marketing. In
addition, these companies and institutions compete with us in recruiting and
retaining highly qualified scientific and management personnel. Our competitors
may develop more effective or more affordable products, or achieve earlier
product commercialization than we do.
We are aware that other companies are conducting preclinical studies and
clinical trials for viral and non-viral gene therapy products. The Company
believes its primary competitors to the AAV gene therapy technology and Factor
VIII markets are Chiron Corporation and TKT. One of these companies has
initiated a Phase I study to evaluate the use of gene therapy for delivering
Factor VIII to patients with severe hemophilia A. One of these companies is
supporting clinical studies for use of AAV vectors in the treatment of cystic
fibrosis.
We believe the primary competitive factors for success in the gene therapy
field will be:
- product efficacy;
- safety;
- manufacturing capability;
- the timing and scope of regulatory approvals;
- the timing of market introduction;
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- marketing and sales capability;
- reimbursement coverage; and
- price and patent position.
Our competitors may develop more effective or more affordable products, or
achieve earlier product commercialization than we do.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO EFFECTIVELY PROTECT OUR PATENTS AND
PROPRIETARY RIGHTS, WHICH WE MAY NOT BE ABLE TO DO
Our success will depend to a significant degree on our ability to obtain
patents and licenses to patent rights, preserve trade secrets, and to operate
without infringing on the proprietary rights of others. If we are not successful
in these endeavors, our business will be substantially impaired.
To date, we have filed a number of patent applications in the United States
relating to our technologies. In addition, we have acquired exclusive and
non-exclusive licenses to certain issued patents and pending patent
applications. We cannot assure you that patents will issue from these
applications or that any patent will issue on technology arising from additional
research or, if patents do issue, that claims allowed will be sufficient to
protect our technologies.
The patent application process takes several years and entails considerable
expense. The failure to obtain patent protection on the technologies underlying
our proposed products may have a material adverse effect on our competitive
position and business prospects. Important legal issues remain to be resolved as
to the scope of patent protection for biotechnology products, and we expect that
administrative proceedings, litigation or both will be necessary to determine
the validity and scope of our and others' biotechnology products. Such
proceedings or litigation may require a significant commitment of our resources
in the future. If patents can be obtained, we cannot assure you that any such
patents will provide us with any competitive advantage. For example, others may
independently develop similar technologies or duplicate any technology developed
by us, and patents may be invalidated in litigation. In addition, two of our
patent applications are co-owned with co-inventors. Under the terms of
agreements with the co-inventors, we have an option to obtain an exclusive,
worldwide, transferable, royalty-bearing license for such technology, and are
currently in discussions with one of the co-inventors to obtain such a license.
If we cannot negotiate exclusive rights to such co-owned technology, each
co-inventor may have rights to independently make, use, offer to sell or sell
the patented technology. Commercialization, assignment or licensing of such
technology by a co-inventor could have a material adverse effect on our
business, financial condition and results of operations.
We also rely on a combination of trade secret and copyright law, employee
and third-party nondisclosure agreements and other protective measures to
protect intellectual property rights pertaining to our products and
technologies. We cannot be certain that these measures will provide meaningful
protection of our trade secrets, know-how or other proprietary information in
the event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information. In addition, the laws of
certain foreign countries do not protect our intellectual property rights to the
same extent as do the laws of the United States. We cannot assure you that we
will be able to protect our intellectual property successfully.
OTHER PERSONS MAY ASSERT RIGHTS IN OUR PROPRIETARY TECHNOLOGY, WHICH WOULD BE
COSTLY TO CONTEST OR SETTLE
Third parties may assert patent or other intellectual property infringement
claims against us with respect to our products or technology or other matters.
There may be third-party patents and other intellectual property relevant to our
products and technology which are not known to us. We have not been accused of
infringing any third party's patent rights or other intellectual property, but
we cannot assure you that litigation asserting such claims will not be
initiated, that we would prevail in any such litigation, or that we would be
able to obtain any necessary licenses on reasonable terms, if at all. Any such
claims against us, with or without merit, as well as claims initiated by us
against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve. If our competitors prepare and file patent
applications in the United States that claim technology also claimed by us, we
may have to participate in interference proceedings declared by the Patent
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and Trademark Office to determine priority of invention, which could result in
substantial cost to us, even if the outcome is favorable to us. In addition, to
the extent outside collaborators apply technological information developed
independently by them or by others to our product development programs or apply
our technologies to other projects, disputes may arise as to the ownership of
proprietary rights to such technologies.
WE MAY BE UNABLE TO ATTRACT AND RETAIN THE QUALIFIED EMPLOYEES WE NEED TO BE
SUCCESSFUL
We are highly dependent on certain members of our management and research
and development staff. The loss of any of these persons could have a material
adverse effect on our business. In addition, we rely on consultants and advisors
to assist us in formulating our research and development strategy. Recruiting
and retaining qualified technical and managerial personnel will also be critical
to our success. We cannot assure you that we will be successful in attracting
and retaining skilled personnel who generally are in high demand in the
pharmaceutical and biotechnology industries. The loss of certain key employees
or our inability to attract and retain other qualified employees could have a
material adverse effect on our business. A majority of our scientific advisors
are engaged by us on a consulting basis and are employed on a full-time basis by
employers other than us and some have consulting or other advisory arrangements
with other entities that may conflict or compete with their obligations to us.
WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS WHICH MAY EXCEED THE SCOPE OR
AMOUNT OF OUR INSURANCE COVERAGE
The manufacture and sale of medical products entail significant risk of
product liability claims. The Company currently carries product liability
insurance as it obtained such coverage prior to commencing clinical trials.
There can be no assurance that such coverage will be adequate to protect the
Company from any liabilities it might incur in connection with the use or sale
of the Company's products. In addition, the Company may require increased
product liability coverage as additional products are commercialized. Such
insurance is expensive and in the future may not be available on acceptable
terms, if at all. A successful product liability claim or series of claims
brought against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business and results of operations. The
Company must indemnify certain of its licensors against any product liability
claims brought against them arising out of products developed by the Company
under these licenses.
WE FACE RISKS FROM USING HAZARDOUS AND RADIOACTIVE MATERIALS AND MAY INCUR
ADDITIONAL COSTS TO COMPLY WITH ENVIRONMENTAL REGULATIONS
Our research and development efforts involve the use of hazardous
materials, chemicals and various radioactive compounds. We are subject to
federal, state and local laws and regulations governing the storage, use, and
disposal of such materials and certain waste products. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by federal, state and local regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of an accident, we could be held liable for any damages
that result and any such liability could exceed our resources. We may incur
substantial costs to comply with environmental regulations if we develop our own
commercial manufacturing facility.
OUR BUSINESS MAY BE NEGATIVELY IMPACTED BY COMPUTER FAILURES IN THE YEAR 2000
We are aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. Any year 2000 compliance problems
of either Avigen, our customers or vendors could have a material adverse effect
on our business, results of operations and financial condition. The "year 2000
problem" is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or fail. We are in the
process of working with our software vendors to ensure that the software that we
have licensed from third parties will operate properly in the year 2000 and
beyond. In addition, we are working with our external suppliers and service
providers to ensure that they and their systems will be able to support our
needs and, where necessary, interoperate with our server and networking hardware
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and software infrastructure in preparation for the year 2000. We do not
anticipate that we will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be year 2000 compliant.
However, significant uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER
PROVISIONS AND DELAWARE LAW
The Company's officers, directors and principal stockholders beneficially
own approximately 12.6% of the Company's Common Stock. As a result, such persons
may have the ability to effectively control the Company and direct its affairs
and business. Such concentration of ownership may also have the effect of
delaying, deferring or preventing a change in control of the Company. In
addition, the Company's Board of Directors have the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges 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 materially adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock 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. Furthermore, certain
provisions of the Company's Restated Certificate of Incorporation may have the
effect of delaying or preventing changes in control or management of the
Company, which could adversely affect the market price of the Company's Common
Stock. In addition, the Company is subject to the provisions of Section 203 of
the Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law.
VOLATILITY OF STOCK PRICE
The Company believes that various factors, including announcements of
technological innovations or regulatory approvals, results of clinical trials,
announcements of new products by the Company or by its competitors, healthcare
or reimbursement policy changes by governments or insurance companies,
developments in relationships with corporate partners or a change in securities
analysts' recommendations, may cause the market price of the Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
in general, and the shares of biotechnology and healthcare companies in
particular, have experienced extreme price fluctuations. These broad market and
industry fluctuations may materially adversely affect the market price of the
Company's Common Stock.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding Avigen's drug
development programs, clinical trials, receipt of regulatory approval, capital
needs, intellectual property, expectations and intentions. The words "believe,"
"anticipate," "expect," "intend," and words of similar import are intended to
identify these statements as forward-looking statements. Such forward-looking
statements include the following:
- our belief that AAV vectors can be used to deliver genes for the
treatment of hemophilia, thalassemia, hereditary emphysema and Gaucher's
disease;
- our belief that our TVI system will allow us to pursue more effective
treatments for blood cell-related diseases, including sickle cell anemia,
beta-thalassemia and human immunodeficiency virus infection;
- our belief that identification of new disease-related genes will provide
us with significant opportunities for new gene therapy products;
- our belief that our broad-based proprietary gene delivery technology can
be used to deliver a number of different genes, giving rise to multiple
product and corporate partnering opportunities;
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- our belief that our manufacturing process will simplify manufacturing and
purification of AAV vectors for clinical trials, and that this process
will result in a product that will be safer and, as a result, more
commercially viable than AAV vectors produced by commonly employed
methods;
- our belief that AAV vectors may be useful to deliver the genes for factor
VIII or factor IX and achieve long-term expression in vivo;
- our intent to initiate collaborations to evaluate the use of AAV vectors
to deliver the gene for factor VIII to muscle or liver in animals, and
our intent to initiate parallel animal studies to evaluate the use of AAV
vectors to deliver the gene for factor IX; and
- our expectation that our existing capital resources will be adequate to
fund our needs for at least the next 12 months.
Forward-looking statements necessarily involve risks and uncertainties, and
Avigen's actual results could differ materially from those anticipated in the
forward-looking statements, including those set forth under "Risk Factors" above
and elsewhere in this Annual Report on Form 10-K. The factors set forth under
"Risk Factors" and other cautionary statements made in this Annual Report on
Form 10-K should be read and understood as being applicable to all related
forward-looking statements wherever they appear in this Annual Report on Form
10-K.
ITEM 1. BUSINESS
THE COMPANY
Avigen is a leader in the development of gene therapy products derived from
adeno-associated virus ("AAV") for the treatment of inherited diseases. Avigen's
proposed gene therapy products are designed for in vivo administration to
achieve the production of therapeutic proteins within the body. Avigen has honed
it's strategic focus on developing a broad-based proprietary gene delivery
technology, AAV vector. Avigen believes AAV vectors can be used to deliver genes
for the treatment of hemophilia, thalassemia, hereditary emphysema and Gaucher's
disease.
AAV Vectors. Avigen's gene therapy products are based on gene delivery
systems called vectors. AAV vectors are derived from AAV, a common
non-pathogenic human virus, and take advantage of the natural efficiency with
which viruses deliver genes to cells. To produce an AAV vector, the virus is
modified by removing the viral genes and replacing them with genes for
therapeutic proteins. Avigen believes that AAV vectors combine desirable
properties of viral and non-viral vectors and may offer several potential
advantages over other gene therapy vectors. These advantages include efficient
delivery of genes to both dividing and non-dividing target cells, absence of
viral genes that may be responsible for causing an undesirable immune response,
in vivo administration to patients, higher levels of gene expression and
improved stability allowing AAV vectors to be stored and handled like more
traditional pharmaceutical products. Due to the complex replication cycle of the
natural virus, AAV vectors have been difficult to produce. Avigen believes that
its proprietary manufacturing process will simplify manufacturing and
purification and achieve increased yield of high purity AAV vectors.
In spite of the potential advantages, the use of AAV vectors for gene
therapy also presents potential disadvantages. Since the genome of the natural
AAV virus is relatively small, the amount of the genetic material that can be
included in an AAV vector is limited. Therefore, large genes cannot be delivered
by AAV vectors. In addition, in vivo administration of AAV vectors may result in
the production of antibodies which may limit the effectiveness of repeat dosing
of these vectors. Furthermore, direct administration of AAV vectors may result
in their distribution to inappropriate tissues.
Product Development. Based on encouraging results in animal models and
preclinical studies, Avigen has initiated a clinical trial in humans using AAV
vectors for the treatment of hemophilia B. Additionally, Avigen has a number of
research programs and collaborations intended to generate product development
candidates thalassemia, hereditary emphysema and Gaucher's disease. Avigen
believes that the number of potential applications for gene therapy will
increase significantly as advances are made in the area of genomics.
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These advances are enabling scientists to link diseases to specific gene
defects. As more genes are discovered, the need for improved gene delivery
technologies is expected to increase. With the identification of new
disease-related genes, Avigen believes that its AAV vectors will provide it with
significant opportunities for new gene therapy products.
Corporate Partnering Opportunities. Avigen is seeking to develop long-term
strategic collaborations with pharmaceutical companies that can provide funding
for research and development activities and clinical trials as well as access to
complementary technologies, including gene sequences. Avigen believes that its
broad-based proprietary gene delivery technology can be used to deliver a number
of different genes, giving rise to multiple product and corporate partnering
opportunities.
GENE THERAPY BACKGROUND
Gene therapy is an approach to the treatment of inherited and acquired
diseases whereby genes are delivered into patients' cells in order to direct the
cells to produce therapeutic proteins. Genes are regions of DNA that contain the
instructions that direct cells to produce proteins, one of the basic building
blocks of all cells. Each cell in the body has the ability to produce proteins
necessary for cellular structure, growth and function. The process that results
in protein production by the cell is known as gene expression. By directing the
cells to produce proteins, gene therapy offers the opportunity to correct
defects or diseases at the molecular level. All gene therapy approaches contain
three key components: (i) the vector; (ii) the gene cassette; and (iii) the
target cell.
Vectors. One of the most critical factors for the success of gene therapy
products is the development of vectors that can practically, efficiently and
safely deliver genes into cells. The process of gene transfer may be
accomplished in vivo (by administering the vector directly to patients) or ex
vivo (by removing patients' cells and combining them with vector). Viral vectors
are derived from naturally occurring viruses. Non-viral vectors are produced by
standard recombinant DNA techniques.
Viral vectors take advantage of the natural efficiency with which viruses
transport their own genetic information into cells. Viral vectors are
constructed by removing some or all of the viral genes and replacing them with a
gene cassette. Viral vectors have been the most extensively studied method of
gene delivery, and most gene therapy applications currently undergoing clinical
evaluation involve the use of viral vectors. However, viral vectors currently
under clinical investigation have limitations which may affect their safety or
efficacy. Viral vectors based on retroviruses ("retroviral vectors"), for
example, require that target cells be dividing or multiplying to achieve gene
delivery. Because most target cells in the body are not dividing or divide very
slowly and because retroviruses become rapidly inactivated in the blood, most
clinical applications currently under evaluation employing retroviral vectors
involve a complex and expensive procedure whereby patient cells are removed and
the gene is delivered to these cells ex vivo.
Another type of viral vector is derived from adenovirus. Adenoviral vectors
are capable of efficiently delivering genes to several dividing and non-dividing
cell types. However, adenoviral vectors contain and express genes from the
naturally occurring virus, and as a result, the body's immune system is
triggered following their administration. This immune response is believed to
limit the length of time that gene expression can be maintained in the target
cell.
Additional safety issues have been raised by the use of retroviral and
adenoviral vectors since both vectors are derived from pathogenic viruses.
During the manufacture of these vectors, there is a possibility of generating a
small amount of the natural virus. Although considered a low risk, such a
possibility necessitates additional costly product testing. In addition,
retroviral vectors randomly integrate the gene cassette into the target cell.
Any gene therapy approach that involves the random integration of genetic
material into the target cell's DNA could, theoretically, cause the activation
of another gene involved in the development of cancer or the inactivation of a
beneficial gene. It is generally believed that such events would be rare.
Non-viral vectors are produced by standard recombinant DNA techniques and
are delivered to target cells either unmodified ("naked DNA") or combined with
lipids (e.g., liposomes) or proteins designed to facilitate the entry of DNA
into the cells. Because they have no components derived from viruses, they are
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perceived to be safer. In addition, non-viral vectors are capable of delivering
large segments of DNA to target cells. However, non-viral vectors are relatively
inefficient at delivering genes to cells, and in general, have resulted in
temporary or low levels of gene expression in target cells.
In contrast to retroviral and adenoviral vectors, AAV vectors are derived
from a non-pathogenic human virus to which the majority of the population has
been exposed. In spite of its name, AAV is genetically unrelated to adenovirus.
AAV, as it exists in nature, can only reproduce in the presence of another
virus. AAV vectors are derived from AAV by removing all of the viral genes and
replacing them with an appropriate gene cassette. Avigen believes that AAV
vectors offer several potential advantages over other viral and non- viral
vectors. These advantages include efficient delivery of genes to both dividing
and non-dividing target cells, absence of viral genes that may be responsible
for causing an undesirable immune response, in vivo administration to patients,
higher levels of gene expression and improved stability allowing AAV vectors to
be manufactured, stored and handled like more traditional pharmaceutical
products. Avigen believes that AAV vectors combine the desired properties of
viral and non-viral vectors and may offer a safer and more practical alternative
to the other gene therapy vectors. Avigen is aware of two clinical trials
evaluating AAV vectors manufactured by another company for the treatment of
cystic fibrosis that are currently being conducted.
Gene Cassette. Packaged inside a gene therapy vector is the gene cassette,
containing the gene for a desired therapeutic protein and the control elements
which direct protein production by the cell. The design of the gene cassette
depends on the therapeutic application. The gene may be a naturally occurring
gene for a therapeutic protein (e.g., erythropoietin or factor VIII), one that
sensitizes cancer cells to chemotherapy (a "suicide gene") or a man-made gene
with novel anti-viral properties. The control elements that regulate expression
of the delivered genes are equally important in the success of gene therapy
products. Certain control elements permit gene expression in many cell types
while other cell-specific control elements direct expression only in a
particular type of cell. Avigen believes that inclusion of the cell-specific
control elements in a gene therapy vector may increase safety in certain gene
therapy applications by limiting gene expression to a desired organ or tissue.
AVIGEN TECHNOLOGY
AAV Vectors
AAV vectors are emerging as a promising gene delivery system because they
combine the efficiency with which viral vectors deliver their DNA to cells with
a potential safety profile closer to that of non-viral vectors. A major
limitation in the development of clinical applications for AAV vectors has been
the lack of an efficient production method. Current methods, in general, result
in low yields of AAV vectors and require the input of an infectious virus, most
commonly adenovirus, to initiate vector replication. Avigen has developed a
proprietary manufacturing process which allows for the more efficient production
of larger quantities of AAV vectors and does not require the use of an
infectious virus, thereby eliminating some potentially harmful contaminants.
Avigen believes that its process will simplify manufacturing and purification of
AAV vectors for clinical trials. In addition, Avigen believes that its
proprietary process will result in a product that will be safer and, as a
result, more commercially viable than AAV vectors produced by commonly employed
methods.
PRODUCT DEVELOPMENT PROGRAMS
Avigen has selected its product development programs based on experimental
data that demonstrate the feasibility of gene delivery to specific target cells.
Avigen believes that its technologies may be used with several different genes,
giving rise to multiple product and corporate partnering opportunities. Avigen
believes that further advances in genomics, including the sequencing, mapping
and identification of genes linked to
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diseases, may offer other product opportunities. The following table summarizes
Avigen's current product development programs:
AAV VECTOR-BASED GENE THERAPY PROGRAMS
<TABLE>
<CAPTION>
PROGRAM INDICATION TARGET CELL STATUS(1)
------- -------------------- ------------ --------------
<S> <C> <C> <C>
Blood Diseases Hemophilia B Muscle/Liver Clinical Trial
Hemophilia A Muscle/Liver Research
Gaucher's Disease Muscle/Liver Research
Thalassemia (2) Muscle/Liver Preclinical
Hereditary Emphysema Muscle/Liver Research
</TABLE>
- ---------------
(1) "Research" indicates activities related to designing, constructing and
testing vectors in specific target cell types in order to evaluate gene
expression. "Preclinical" indicates in vitro and animal studies to evaluate
efficacy, pharmacology and toxicology. "Clinical Trial" indicates a first
attempt to treat human patients to evaluate pharmacokinetics and
pharmacological actions in humans.
(2) Includes programs utilizing delivery of an erythropoietin gene for the
treatment of renal failure, sickle cell anemia and beta-thalassemia.
BLOOD DISEASES
Hemophilia. Hemophilia is a hereditary disorder characterized by the
decrease or absence of clotting factor activity in the plasma. The most common
forms are caused by a defect or deficiency in protein coagulation factor VIII
("hemophilia A") or factor IX ("hemophilia B"). Approximately 10,000
individuals, mostly male, are treated for hemophilia A and about 2,800
individuals are treated for hemophilia B in the United States. Worldwide, there
are about 80,000 hemophiliacs. Patients with either disease experience acute and
often life-threatening bleeding episodes and can also suffer joint deformities
from repeated bleeding into joints. Depending on the severity of disease,
treatment consists of either intermittent or chronic administration of clotting
factor which has either been purified from plasma or, more recently, is in the
form of a recombinant DNA-derived protein. Transmissions of viral agents have
been significantly reduced with the increased use of highly purified or
recombinant clotting factors.
Avigen believes that AAV vectors may be useful to deliver the genes for
factor VIII or factor IX and achieve long-term expression in vivo in humans.
Avigen intends has initiated collaborations to evaluate the use of AAV vectors
to deliver the gene for factor VIII to muscle or liver in humans. Avigen has had
successful results in large animals. There has been evidence that the animal
after the initial injection of Factor IX has continued to produce the Factor IX
without additional injections for two years. In addition, Avigen intends to
initiate animal studies to evaluate the use of AAV vectors to deliver the gene
for factor VIII. Avigen is currently in a combined Phase I/Phase II clinical
trials for Factor IX.
Thalassemia. This common genetic disease that affects millions of people
worldwide who suffer from anemia, resulting in a reduction of the number of red
blood cells and hemoglobin, the red blood cell protein that carries oxygen. In
the case of sickle cell anemia and beta-thalassemia, two inherited diseases,
anemia results from the production of inadequate or abnormal hemoglobin
molecules. In acquired cases such as renal failure, AIDS or as the result of the
administration of chemotherapy for cancer, anemia is generally due to the
inadequate production of red blood cells.
Erythropoietin ("EPO") is the protein produced by the kidney that
stimulates cells in the bone marrow to produce red blood cells and is involved
in the production of hemoglobin. Recombinant human EPO, a drug first developed
by Amgen, Inc., is administered several times a week by injection for the
treatment of anemia secondary to renal failure, AIDS or chemotherapy. Currently,
there are approximately 140,000 renal failure patients receiving dialysis in the
United States and an equivalent number in Europe. It is estimated that about
85,000 renal failure patients receiving dialysis are presently receiving EPO
worldwide. In addition, it is estimated that approximately 50,000 AIDS patients
are also currently being treated with EPO. The incidence
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of anemia in the approximately 1 million cancer patients in the United States is
estimated at 14%, providing a potential additional 140,000 patients who also may
be candidates for EPO therapy.
There are an estimated 60,000 patients with sickle cell anemia in the
United States. Avigen believes that there are approximately 8,000 to 10,000
cases of beta-thalassemia in the United States. Currently, there is no effective
and widely available therapy for beta-thalassemia and sickle cell anemia.
Studies in animals and clinical trials in a small number of patients suggest
that administration of large doses of EPO, either alone or in combination with
other agents, in certain individuals with beta-thalassemia and sickle cell
anemia can increase the production of functional hemoglobin molecules and
perhaps ameliorate the symptoms of disease.
Avigen scientists have demonstrated that biologically active levels of EPO
can be achieved in mice following a single intramuscular administration of an
AAV vector containing a gene for human EPO. Mice treated in this study showed a
dose-dependent increase in the amount of EPO in their serum and a proportional
increase in red blood cells. In this ongoing study, increased EPO levels and red
blood cell production have persisted undiminished for greater than five months.
The results of this study have not been independently verified. Preclinical
studies are currently planned to evaluate the efficacy of intramuscularly
administered AAV vectors containing the EPO gene in animal models of renal
failure and beta-thalassemia.
Gaucher's Disease. This inherited genetic disease is caused by the
defective enzyme glucocerebrosidase. This enzyme helps the body break down the
chemical glucocerebroside. The defective enzyme in person's with Gaucher's
disease leads to the accumulation of glucocerebroside in the spleen, liver and
lymph nodes. Currently, enzyme replacement therapy has replaced bone marrow
transplants as the preferred method of ultimate treatment. This form of regular
treatment requires regular infusion of the enzyme into the bloodstream through
the veins. This treatment must be continued chronically, with frequent infusions
and dosage adjustments according to response of the patient. Avigen is in the
early stages of researching the ability of using it's AAV vector to deliver the
enzyme glucocerebrosidase to achieve long-term expression in humans.
Hereditary Emphysema. Most cases of emphysema are caused by smoking or
other environmental factors. However, in a small number of cases of emphysema,
there is a hereditary basis for the disease. Emphysema is characterized by
progressive shortness of breath (dyspnea) and cough. This disease can cause air
to become trapped in the lung, which is called hyperinflation. The inherited
form of emphysema is called alpha-1 proteinase inhibitor deficiency. Alpha-1
proteinase inhibitor is a major protein in the blood. It is produced primarily
in the liver cells but also by some white blood cells. It protects the lung by
blocking the effects of powerful enzymes called elastases. Elastase is normally
carried in white blood cells and protects the delicate tissue of the lung by
killing bacteria and neutralizing tiny particles inhaled into the lung. Once the
protective work of this enzyme is finished, further action is blocked by the
alpha-1 proteinase inhibitor. Without alpha-1 proteinase inhibitor, elastase can
destroy the air sacs of the lung. Avigen is in the early stages of researching
the ability of using it's AAV vector to deliver the Alpha-1 proteinase inhibitor
to achieve long-term expression in humans.
CORPORATE PARTNERING STRATEGY
Avigen is actively seeking to develop long-term strategic collaborations
with pharmaceutical companies that can provide funding for research and
development activities and clinical trials. Avigen believes that its proprietary
technologies are broad-based and can be used with many different genes, giving
rise to multiple product and corporate partnering opportunities.
Avigen has initiated discussions with a number of pharmaceutical companies
in the United States, Europe and Asia. Avigen has not entered into any
definitive agreements with respect to any corporate partnering arrangements.
Avigen's strategy is to contribute both technology and expertise in the gene
therapy field while seeking corporate partners who can provide access to
complementary technologies, including gene sequences. In addition, Avigen
intends to rely on corporate partners, licensees or other entities for marketing
of its products, when and if such products achieve regulatory approval. There
can be no assurance, however, that Avigen will be able to reach satisfactory
arrangements with such parties or that such arrangements will be successful.
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LICENSING AND RESEARCH AGREEMENTS
Research Corporation Technologies. In May 1992, Avigen entered into a
license agreement with Research Corporation Technologies, Inc. ("RCT") for
rights to a patent and patent application relating to a cell-specific promoter
in AAV vectors. The license is exclusive and worldwide. In consideration for the
license, Avigen paid an initial license fee and issued 247,949 shares of its
Common Stock. In addition, Avigen is required under the agreement to pay RCT
royalties based on net sales of products which utilize the licensed technology,
with certain minimum annual royalty payments due beginning in 1999. Avigen must
exercise its best efforts to commercially develop, promote and sell products
covered by the licensed patent rights, and is obligated to file a product
license application or a new drug application by the end of 2000. In the event
Avigen fails to achieve milestones by their applicable deadlines, Avigen has the
right to pay RCT additional fees of up to $250,000 to extend certain of the
deadlines for specified periods. RCT may terminate the agreement if Avigen
becomes insolvent or bankrupt or fails to perform any of its obligations under
the agreement.
Children's Hospital of Philadelphia. In May of 1999, Avigen entered into an
agreement with the Children's Hospital of Philadelphia for rights to a patent
application related to vectors and methods for treating hemophilia B using
recombinant AAV vectors. The license is exclusive and worldwide for the duration
of the patent, 20 years from application in 1997, should the patent be approved.
In consideration for the license Avigen paid an initial license fee. Avigen is
also required to make additional payments at the completion of certain clinical
and regulatory milestones, as well as a royalty based on net sales of product
sales falling within the scope of the license. Under the license, Avigen must
exercise its best efforts to achieve certain research, clinical and commercial
milestones.
Avigen has entered into other exclusive and nonexclusive license agreements
with certain research institutions and their representatives. Although specific
terms of the licenses vary, all of such licenses require Avigen to achieve
certain development milestones. In addition, the agreements require Avigen to
pay certain license fees and royalties to the licensors. All of the licenses
provide for a term which extends for the life of the underlying patent.
The failure to achieve any required development milestones or to negotiate
appropriate extensions of any of Avigen's license agreements or to make all
required milestone and royalty payments when due and the subsequent decision of
any such institution to terminate such license could have a material adverse
effect on Avigen.
Avigen has also entered into agreements with certain research institutions
and corporate entities with respect to its research and development efforts.
Under such agreements Avigen has provided specific vectors and other materials
for research purposes conducted at the direction of a principal investigator.
Generally, the agreements also provide that: (i) Avigen remains the sole and
exclusive owner of the transferred materials; (ii) ownership of improvements
will be determined under patent law principles, based upon the parties' relative
contributions to the improvements; and (iii) Avigen has the right to prosecute
patents on jointly-owned improvements. Although specific terms of each agreement
vary, Avigen is generally granted, with respect to jointly owned improvements,
an irrevocable, nonexclusive, royalty-free license and an option to negotiate in
good faith an exclusive license at royalty rates to be mutually agreed upon.
There can be no assurance that exclusive rights to any such improvements can be
obtained on terms acceptable to Avigen, if at all. In addition, Avigen engages
from time to time in discussions with other prospective academic partners
regarding potential research and development projects and may, in the future,
enter into arrangements in addition to those described above.
RESEARCH REVENUES AND EXPENSES
Research and development expense for the years ended June 30, 1999, 1998
and 1997 for Company-sponsored research was $6.5 million, $6.2 million and $4.0
million, respectively. Of that, $185,000 and $98,000 in 1999 and 1997,
respectively, was reimbursement by third parties and reflected as grant revenues
on the statement of operations.
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John Hopkins University and Avigen have entered into an agreement under
which John Hopkins University has agreed to provide research funding through a
National Institute of Health Grant. The funded project consists of researching
Capsid-Targeted Viral Inactivation in the treatment of HIV.
MANUFACTURING
Avigen has developed a proprietary manufacturing process for AAV vectors.
Avigen believes it currently has the capacity to manufacture AAV vectors in
amounts sufficient to conduct clinical trials, and has implemented cGMP policies
and procedures prior to manufacturing material for preclinical studies and
clinical trials. Avigen believes that its manufacturing process will simplify
manufacturing and purification and will allow Avigen to produce amounts of AAV
vector required for clinical trials. The processes used by Avigen are new,
however, and there can be no assurance that such processes will be feasible or
cost-effective.
Avigen currently does not operate manufacturing facilities for commercial
production of its gene therapy products. Avigen's strategy for the manufacture
of its gene therapy products may be to enter into alliances with pharmaceutical
and other biotechnology companies. In addition, Avigen does not have, and has no
intention of developing, the facilities necessary to perform cell processing
which may be required for TVI. Avigen intends to rely on corporate partners or
others for such cell processing. There can be no assurance that Avigen will be
able to negotiate satisfactory arrangements with such parties, that such
arrangements will be successful or that its corporate partners will be able to
develop adequate manufacturing capabilities for commercial scale production. In
the event Avigen decides to establish a commercial scale manufacturing facility,
Avigen will require substantial additional funds and personnel and will be
required to comply with extensive regulations applicable to such facility.
GOVERNMENT REGULATION
The production and marketing of Avigen's proposed products and its research
and development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and other
countries. In the United States, pharmaceutical products are subject to rigorous
regulation by the FDA under the federal Food, Drug, and Cosmetic Act. Biological
products, in addition to being subject to certain provisions of this act, are
also regulated under the Public Health Service Act. These laws and the
regulations promulgated thereunder govern, among other things, testing,
manufacturing, safety, efficacy, labeling, storage, record keeping, advertising
and promotional practices and import and export of drugs and biological
products. In general, the Center for Biologics Evaluation and Research holds
primary responsibility for the regulation of biological products and has handled
the IND submissions of most gene therapy products to date. At the present time,
Avigen believes that its products will be regulated as biologics by the FDA and
comparable foreign regulatory bodies. Gene therapy is, however, a relatively new
technology and has not been extensively tested in humans. The regulatory
requirements governing gene therapy products are uncertain and are subject to
change. No gene therapy products have been approved to date in the United States
or any foreign country.
Under the NIH Guidelines for Research Involving Recombinant DNA Molecules,
clinical protocols involving human gene transfer conducted at institutions
receiving NIH funds cannot be initiated without simultaneous submission of
information describing the proposed clinical protocol to both NIH/ORDA and the
FDA. Submission to NIH/ORDA shall be for registration purposes and determination
regarding the necessity of full RAC review and approval/disapproval. Full RAC
review of an individual human gene transfer protocol can be initiated by the NIH
Director or recommended to the NIH Director by three or more RAC members or
other Federal agencies. An individual human gene transfer protocol that is
recommended for full RAC review should represent novel characteristics deserving
of public discussion. Prior to submission of a human gene transfer experiment to
NIH/ORDA, the Principal Investigator must obtain Institutional Biosafety
Committee approval from each institution that will handle recombinant DNA
material that is to be administered to human subjects and Institutional Review
Board approval from each institution in which human subjects will undergo gene
transfer. Submission of human gene transfer protocols to the FDA will be in the
form of an IND application. The review process conducted by NIH/ORDA and the FDA
is unpredictable and may result in considerable time and expense to Avigen.
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The steps required before a new drug, including a biologic, may be marketed
in the United States generally include (i) preclinical laboratory tests and
preclinical animal studies, (ii) the submission to the FDA of an IND application
for human clinical testing, which must become effective before human clinical
trials commence, (iii) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the product, (iv) the submission to the FDA
of a Product License Application and Establishment License Application
("PLA/ELA") for a biologic and (v) FDA approval of the PLA/ELA prior to any
commercial sale or shipment of the biologic. The FDA has proposed regulations
that would eliminate the separate requirement for an ELA for certain
biotechnology products, including certain recombinant DNA products, that satisfy
the regulatory definition of a "well-characterized product." The FDA, however,
has indicated that gene therapy products are not considered "well-characterized"
at this time.
Domestic manufacturing establishments are subject to inspections at any
time by the FDA and must comply with cGMP regulations enforced by the FDA
through its facilities inspection program. Manufacturers of biological products
also must comply with FDA general biological product standards. In addition,
Avigen has obtained a drug manufacturing license from the State of California
for any of its products administered to humans, including products intended for
clinical trials.
Preclinical safety studies include laboratory evaluation of the product, as
well as animal studies to assess the potential safety and, if possible, efficacy
of the product. Preclinical studies must be conducted by laboratories that
comply with FDA regulations regarding Good Laboratory Practices. The results of
the preclinical tests, together with manufacturing information and analytical
data, are submitted to the FDA as part of an IND, which must become effective
before human clinical trials may be commenced. The IND will become automatically
effective 30 days after its receipt by the FDA unless the FDA indicates prior to
the end of the 30-day period that it does not wish the trials to proceed as
outlined in the IND. In such case, the IND sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials.
Clinical trials must be conducted in accordance with FDA's Good Clinical
Practice regulations and must be approved by the IRB at the institution where
the study will be conducted. The IRB will consider, among other things, safety
and ethical issues, proper informed consent of the human subjects, possible
issues relating to health care costs and potential liability of the institution.
The IRB may require changes in a protocol, and there can be no assurance that an
IRB will permit any given study to be initiated or completed.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. Phase I typically involves the initial introduction of the
drug into patients primarily to determine the drug's metabolism,
pharmacokinetics and pharmacological actions in humans and the side effects
associated with increasing doses. Phase II typically involves studies in a
limited patient population to (i) determine the efficacy of the drug for
specific indications, (ii) determine dosage tolerance and optimal dosage and
(iii) further identify possible adverse effects and safety risks. If the drug is
found to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to evaluate efficacy and safety
within an expanded patient population typically at geographically dispersed
clinical study sites. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed successfully within any specific time period, if
at all, with respect to any of Avigen's products subject to such testing.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that patients are being exposed to an unacceptable health
risk. FDA regulations also subject sponsors of clinical investigations to
numerous regulatory requirements related to, among other things, selection of
qualified investigators, proper monitoring of investigations, record keeping and
record retention and notice to investigators and FDA of any death or adverse
serious reaction. In addition, the FDA may require post marketing clinical
studies (Phase IV) which will require extensive patient monitoring and
recordkeeping and may result in restricted marketing of the product for an
extended period of time.
The results of the pharmaceutical development, preclinical studies and
clinical trials are submitted to the FDA in the form of a PLA/ELA for approval
of the manufacture, marketing and commercial shipment of the biologic. The
testing and approval process is likely to require substantial time and effort
and there can be no assurance that any approval will be granted on a timely
basis, if at all. The FDA may deny a PLA/ELA if
18
<PAGE> 19
applicable regulatory criteria are not satisfied, require additional testing or
information, or require postmarketing testing and surveillance to monitor the
safety or efficacy of a product. Moreover, if regulatory approval of a biologic
is granted, such approval may entail limitations on the indicated uses for which
it may be marketed. Finally, product approvals may be withdrawn if compliance
with regulatory standards is not maintained or if problems occur following
initial marketing. Among the conditions for PLA/ELA approval is the requirement
that the prospective manufacturer's quality control and manufacturing procedures
conform to cGMP, which must be followed at all times. In complying with
standards set forth in these regulations, manufacturers must continue to expend
time, financial resources and effort in the area of production and quality
control.
In accordance with the Orphan Drug Act, the FDA may grant Orphan Drug
status to certain drugs intended to treat a "rare disease or condition" defined
as a disease or condition which affects fewer than 200,000 people in the United
States, or which affects more than 200,000 people for which the cost of
developing and marketing the drug will not be recovered from sales of the drug
in the United States. An approved Orphan Drug may provide certain benefits
including exclusive marketing rights in the United States to the drug for the
approved indication for seven years following marketing approval and federal
income tax credits for certain clinical trial expenses. Avigen believes that
some of its future products may qualify for Orphan Drug status but there can be
no assurance that such products will receive FDA approval. In addition, there is
no assurance that potential benefits provided by the Orphan Drug Act will not be
significantly limited by amendment by the United States Congress and/or
reinterpretation by the FDA.
For clinical investigation and marketing outside the United States, Avigen
is also subject to foreign regulatory requirements governing clinical trials and
marketing approval for pharmaceutical products. In Europe, the approval process
for the commencement of clinical trials varies from country to country. The
foreign regulatory approval process includes all of the risks associated with
FDA approval set forth above.
In addition to regulations enforced by the FDA, Avigen also is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other federal, state and local regulations. Avigen's research
and development activities involve the controlled use of hazardous materials,
chemicals, biological materials and various radioactive compounds. Although
Avigen believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by state and federal regulations,
it could be held liable for any damages that result from accidental
contamination or injury and any such liability could exceed the resources of
Avigen.
PATENTS AND INTELLECTUAL PROPERTY
Patents and other proprietary rights are important to Avigen's business.
Avigen's policy is to file patent applications and protect technology,
inventions and improvements to inventions that are commercially important to the
development of its business. Patents are good for twenty years form the date of
application for the patent. Avigen also relies on trade secrets, know-how,
continuing technology innovations and licensing opportunities to develop and
maintain its competitive position.
Avigen has eight issued U.S. patents and twenty pending U.S. patent
applications, all of which have been filed internationally. Several of the
patent applications are co-owned with co-inventors. Avigen has one exclusive
worldwide license to a patent, an exclusive license to one U.S. patent and three
worldwide exclusive licenses to patent applications. Avigen also has a
non-exclusive license to one U.S. patent. There is no assurance that patents
will issue from any of the applications by or licensed to Avigen, or that any
patent will issue on technology arising from additional research or, if patents
do issue, that claims allowed will be sufficient to protect Avigen's technology.
The patent application process takes several years and entails considerable
expense. In addition, with respect to each of Avigen's co-owned patent
applications, Avigen has executed or is in discussions with co-inventors to
execute an option to obtain an exclusive, worldwide, transferable,
royalty-bearing license for such technology. In the event Avigen is unable to
negotiate exclusive rights to such co-owned technology, each co-inventor may
have rights to independently make, use, offer to sell or sell the patented
technology. Commercialization, assignment or licensing of such technology by a
co-inventor could have a material adverse effect on Avigen's business, financial
condition and results of
19
<PAGE> 20
operations. The failure to obtain patent protection on Avigen's technologies or
proposed products may have a material adverse effect on Avigen's competitive
position and business prospects.
The patent positions of pharmaceutical and biotechnology firms are
generally uncertain and involve complex legal and factual questions. To date,
there has emerged no consistent policy regarding the breadth of claim allowed in
biotechnology patents. Patent applications in the United States are maintained
in secrecy until a patent issues, and Avigen cannot be certain that others have
not filed applications for technology covered by Avigen's patent applications or
that Avigen was first to file patent applications for such technology.
Competitors may have filed applications for, or may have received patents and
may obtain additional patents and proprietary rights relating to compounds or
processes that block or compete with those of Avigen.
There can be no assurance that third parties will not assert patent or
other intellectual property infringement claims against Avigen with respect to
its products or technology or other matters. There may be third-party patents
and other intellectual property relevant to Avigen's products and technology
which are not known to Avigen. A number of the gene sequences or proteins
encoded by certain of those sequences that Avigen is investigating or may use in
its products are or may become patented by others. As a result, Avigen may be
required to obtain licenses to such gene sequences or other technology in order
to test, use or market products that contain proprietary gene sequences or
encode proprietary proteins. For example, in connection with its anemia program,
Avigen anticipates that it may need to obtain a license to a gene for human
erythropoietin. There can be no assurance that Avigen will be able to obtain
this or any other license on terms favorable to Avigen, if at all.
Patent litigation is becoming more widespread in the biotechnology
industry. Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to Avigen, to protect trade secrets
owned by Avigen, or to determine the scope and validity of proprietary rights of
third parties. Although no third party has asserted that Avigen is infringing
such third party's patent rights or other intellectual property, there can be no
assurance that litigation asserting such claims will not be initiated, that
Avigen would prevail in any such litigation, or that Avigen would be able to
obtain any necessary licenses on reasonable terms, if at all. Any such claims
against Avigen, with or without merit, as well as claims initiated by Avigen
against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve. If competitors of Avigen prepare and file patent
applications in the United States that claim technology also claimed by Avigen,
Avigen may have to participate in interference proceedings declared by the
Patent and Trademark Office to determine priority of invention, which could
result in substantial cost to Avigen, even if the outcome is favorable to
Avigen. In addition, to the extent outside collaborators apply technological
information developed independently by them or by others to Avigen's product
development programs or apply Avigen's technologies to other projects, disputes
may arise as to the ownership of proprietary rights to such technologies.
Avigen also relies on a combination of trade secret and copyright law,
employee and third-party nondisclosure agreements, and other protective measures
to protect intellectual property rights pertaining to its products and
technology. There can be no assurance, however, that these agreements will
provide meaningful protection of Avigen's trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.
In addition, the laws of certain foreign countries do not protect Avigen's
intellectual property rights to the same extent as do the laws of the United
States. There can be no assurance that Avigen will be able to protect its
intellectual property successfully.
PRODUCT LIABILITY INSURANCE
The manufacture and sale of medical products entail significant risk of
product liability claims. Avigen currently negotiates product liability
insurance in the third fiscal quarter, which was prior to beginning our clinical
trials. There can be no assurance that such coverage will be adequate to protect
Avigen from any liabilities it might incur in connection with the sale of
Avigen's products. In addition, Avigen may require increased product liability
coverage as products are commercialized. Such insurance is expensive and in the
future may not be available on acceptable terms, if at all. A successful product
liability claim or series of
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<PAGE> 21
claims brought against Avigen in excess of its insurance coverage could have a
material adverse effect on Avigen's business and results of operations.
EMPLOYEES
As of September 15, 1999, Avigen had 51 full-time employees, 14 of whom
have Ph.D. or M.D. degrees, including 40 employees in research and development,
and 11 in general administration and finance. Avigen also relies on a number of
part-time employees and consultants. None of Avigen's employees are represented
by a collective bargaining agreement nor has Avigen ever experienced a work
stoppage. Avigen believes that its relationship with its employees is good.
SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board, consisting of
experts in the field of medicine, genetics and molecular biology, which reviews
and evaluates the Company's research programs and advises the Company with
respect to technical matters in fields in which the Company is involved. The
members of the Scientific Advisory Board are prominent scholars in their field
and, as a result, may serve as consultants to a wide variety of companies. The
Company's Scientific Advisory Board includes:
Jef D. Boeke, Ph.D., is a professor of Molecular Biology and Genetics at
The Johns Hopkins University School of Medicine. Dr. Boeke co-invented the
capsid targeted viral inactivation technology that provides a basis for Avigen's
antiviral product development program. He has authored more than 100
publications.
Katherine A. High, M.D., is the William H. Bennett Associate Professor of
Pediatrics at the University of Pennsylvania and the Director of Research of the
Hematology Division at Children's Hospital of Philadelphia. Dr. High is world
renowned expert in both the basic science and clinical aspects of hemophilia.
Mark A. Israel, M.D., is Professor of Neurological Surgery and Pediatrics
and Director, the Preuss Laboratory of Molecular Neuro-oncology at the
University of California, San Francisco. Dr. Israel's research focuses on the
molecular and cellular biology of tumors of the nervous system. He has authored
more than 150 publications.
Yuichi Iwaki, M.D., Ph.D., serves as a director of the Company.
Y.W. Kan, M.D., D.Sc., is the Louis K. Diamond Professor of Hematology at
the University of California at San Francisco. He also is an Investigator of the
Howard Hughes Medical Institute. Dr. Kan was the 1991 recipient of the Albert
Lasker Clinical Medical Research Award and is noted as a leader in the fields of
sickle cell anemia and thalassemia.
Mark Kay, M.D., Ph.D., is the Director - Program in Human Gene Therapy, and
Associate Professor - Department of Pediatrics and Genetics at Stanford
University School of Medicine. Dr. Kay was a recipient of the Upjohn Achievement
Award for Excellence in Clinical Pharmacology and the Henry Christian Award for
Excellence in Research. Dr. Kay was honored recently as an electee to the Board
of Directors of the newly formed American Society of Gene Therapy. Dr. Kay is
also a member of the editorial boards at Gene Therapy and Human Gene Therapy.
Keiya Ozawa, M.D., Ph.D., is a professor of Molecular Biology, Institute of
Hematology, at Jichi Medical School in Japan, where he has established a
research and preclinical program in gene therapy. Dr. Ozawa is regarded as one
of the leading authorities on gene therapy in Japan and is responsible for
drafting the Japanese government's gene therapy guidelines.
Jeffrey M. Rosen, Ph.D., is a professor of Cell Biology at Baylor College
of Medicine. Dr. Rosen is an internationally recognized expert in the field of
gene expression, and his research focuses primarily on the mechanisms of
tissue-specific gene expression in the mammary and prostate glands.
21
<PAGE> 22
ITEM 2. PROPERTIES
The Company's facility, located in Alameda, California, is an approximately
23,000 square foot facility leased through May 2003. The Company believes that
it will be able to renew the lease of this facility or find suitable alternate
facilities in the same general area without a material disruption of its
operations.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of the Company's common stock commenced trading in the
over-the-counter market on the Nasdaq National Market on May 22, 1996, under the
symbol "AVGN".
The Company has never paid cash dividends and does not anticipate paying
cash dividends in the foreseeable future.
The following table sets forth, for fiscal periods indicated, the range of
high and low closing sale prices available for the fiscal year 1998 and 1999.
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ------- -------
<S> <C> <C>
Quarter End 9/30/97...................................... $4.6250 $2.5000
Quarter End 12/31/97..................................... $4.2500 $2.2500
Quarter End 3/31/98...................................... $3.1250 $2.0000
Quarter End 6/30/98...................................... $3.7500 $2.0312
</TABLE>
<TABLE>
<CAPTION>
1999 HIGH LOW
---- ------- -------
<S> <C> <C>
Quarter End 9/30/98...................................... $3.4375 $1.6250
Quarter End 12/31/98..................................... $7.8125 $2.0000
Quarter End 3/31/99...................................... $6.7500 $4.6875
Quarter End 6/30/99...................................... $6.4375 $4.6875
</TABLE>
As of September 21, 1999, there were approximately 164 holders of record of
the Company's Common Stock.
On April 15, 1999, Avigen completed the second closing of its private
placement of its common stock and common stock warrants to overseas investors,
raising approximately $13.1 million. In the private placement Avigen issued an
aggregate of 2,198,210 shares of its common stock at prices ranging from $5.50
to $6.00 per share which was the closing Nasdaq National Market price on the
various dates of issuance. For every five shares purchased, the investor also
received a five-year warrant to purchase one share of the Company's common stock
at a twenty-five percent premium to the closing price. The placement was exempt
from the registration requirements of the Securities Act of 1933, as amended,
pursuant to Regulation S promulgated thereunder.
Union d'Etudes et d'Investissements Credit Agricole Group acted as the
placement agent in this sale of securities, and received $613,896 plus a warrant
to purchase 145,557 shares of the Company's common stock at an exercise price of
$6.60 per share.
Americal Securities acted as the placement agent in this sale of
securities, and received $161,000 plus a warrant to purchase 38,173 shares of
the Company's common stock at an exercise price of $6.60 per share.
Iwaki & Associates acted as the placement agent in this sale of securities,
and received $145,915 plus a warrant to purchase 18,084 shares of the Company's
common stock at an exercise price of $6.60 per share and a warrant to purchase
18,000 shares of the Company's common stock at an exercise price of $6.05 per
share.
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<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------------------------- OCTOBER 22, 1992
(INCEPTION)
1999 1998 1997 TO JUNE 30, 1999
------------- ------------- ------------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Grant revenue.......................... $ 185 $ -0- $ 98 $ 548
Expenses:
Research and development............. 6,490 6,235 4,033 25,088
General and administrative........... 3,445 2,990 2,351 13,044
---------- ---------- ---------- --------
9,935 9,225 6,384 38,132
---------- ---------- ---------- --------
Loss from operations................... (9,750) (9,225) (6,286) (37,584)
Interest income (expense) (net)........ 148 365 710 653
Other income (expense) (net)........... (9) (17) (1) 160
---------- ---------- ---------- --------
Net loss............................... $ (9,611) $ (8,877) $ (5,578) $(36,771)
---------- ---------- ---------- --------
Net loss per share..................... $ (0.99) $ (1.22) $ (0.77)
========== ========== ==========
Shares used in per share calculation... 9,684,329 7,298,271 7,286,146
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments
in marketable securities............. $ 14,881 $ 4,477
Working capital........................ 13,471 3,115
Total assets........................... 16,183 5,997
Capital lease obligations:
Current.............................. 697 587
Long-term............................ 112 860
Deficit accumulated during development
stage................................ (36,771) (27,160)
Stockholders' equity................... 14,323 3,583
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause or
contribute to such a differences include, but are not limited to, those
discussed herein and in "Risk Factors" in Part I.
OVERVIEW
Since its inception, the Company has devoted substantially all of its
resources to research and development activities. The Company is a development
stage company and has not received any revenue from the sale of products. The
Company does not anticipate generating revenue from the sale of products in the
foreseeable future. The Company expects its source of revenue, if any, for the
next several years to consist of government grants and payments under
collaborative arrangements. The Company has incurred losses since its inception
and expects to incur substantial losses over the next several years due to
ongoing and planned research and development efforts, including preclinical
studies and clinical trials. At June 30, 1999 the Company had an accumulated
deficit of $36.8 million.
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<PAGE> 24
RESULTS OF OPERATIONS
Fiscal years ended June 30, 1997, 1998 and 1999.
Grant revenue decreased from $98,000 for the year ended June 30, 1997 to
$-0- for the year ended June 30, 1998, and increased to $185,000 for the year
ended June 30, 1999. Grant revenue for fiscal 1996, 1997 and 1998 consisted of
reimbursements under a NIH grant. Revenues earned under research grants are
determined by the timing and amounts of the award from the issuing agency and
achievement of milestones by the Company. As a result, research grant revenue
earned in one period is not predictive of research grant revenue to be earned in
future periods.
The Company's research and development expenses increased from $4.0 million
for the year ended June 30, 1997 to $6.2 million for the year ended June 30,
1998, and increased to $6.5 million for the year ended June 30, 1999. The
increase from fiscal 1997 to fiscal 1998 was due primarily to increases in
personnel, employee related expenses, outside labs, temporary employees and
increases in depreciation expense. The increase from fiscal 1998 to fiscal 1999
was due primarily to the write off of equipment and increase in lab fees and
temporary headcount. The Company expects research and development spending to
increase significantly over the next several years as the Company expands
research and product development efforts.
General and administrative expenses increased from $2.4 million for the
year ended June 30, 1997 to $3.0 million for the year ended June 30, 1998 and
increased to $3.4 million for the year ended June 30, 1999. The increase from
fiscal 1997, fiscal 1998 and fiscal 1999 was due primarily to increases in
executive personnel and the increase travel activities in seeking corporate
partners and legal fees in generating the appropriate documentation for patents.
General and administrative expenses are expected to increase as the level of the
Company's activities increases, but to decrease as a percentage of total
expenses, with the expansion of the research and development efforts.
Interest expense increased from $70,000 for the year ended June 30, 1997 to
$222,000 for the year ended June 30, 1998 and decreased to $178,000 for the year
ended June 30, 1999. The increase from fiscal 1997 to 1998 was due primarily to
the Company's utilization of the equipment lease line. The decrease from fiscal
1998 to fiscal 1999 was due primarily to the Company having paid off the
outstanding balance on the lease line. Interest income decreased from $780,000
for the year ended June 30, 1997 to $587,000 for the year ended June 30, 1998
and further decreased to $326,000 for the year ended June 30, 1999. The
decreases from fiscal 1997 to fiscal 1998 and fiscal 1998 to fiscal 1999 were
due primarily to the decreasing balance of the proceeds of the initial public
offering and private placements.
LIQUIDITY AND CAPITAL RESOURCES
In May 1996, the Company consummated an initial public offering (the
"Offering") of 2,500,000 shares of Common Stock which raised approximately $17.7
million in cash, net of expenses. In July 1996, the Company issued 250,000
additional shares of Common Stock in connection with the exercise of the
underwriters' over-allotment option. Net proceeds from such sale were
approximately $1,850,000 in cash.
Prior to May 1996, the Company financed its operations primarily through
private placements of Common Stock and Preferred Stock and a bridge financing
which was completed on March 29, 1996 (the "1996 Bridge Financing"). Through
March 31, 1996, the Company had raised approximately $11.0 million, net of
financing costs, from the sale of Common Stock and Preferred Stock and $1.9
million from the 1996 Bridge Financing.
In March 1996, the Company completed the 1996 Bridge Financing in which the
Company issued $1,937,500 principal amount of promissory notes (the "Notes") and
warrants to purchase 193,750 shares of Common Stock. The Notes accrued interest
at the rate of 12% per year and were paid in June 1996 with a portion of the
proceeds from the Company's initial public offering. The warrants expire in
March 2001. The warrants were assigned a value of $300,000. This amount was
reflected as a discount on the Notes and was accreted as additional financing
(interest) expense over the term of the Notes. In connection with the 1996
Bridge Financing, the Company paid the placement agent a commission equal to 10%
of the gross proceeds
24
<PAGE> 25
and warrants to purchase 19,375 shares of Common Stock. The placement agent
warrants expire in May, 2001.
In August and September 1998, the Company completed a private placement
raising approximately $2.7 million in cash (net of issuance costs). In
connection with the private placement, the Company issued 1,306,505 shares of
common stock at the closing Nasdaq National Market price on various dates at
exercise prices ranging from $2.25 to $2.94 per share, and five year Warrants in
the amount of 261,301 shares at a twenty-five percent premium of the closing
Nasdaq market price on various dates at exercise prices ranging from $2.81 to
$3.68 per share.
In December 1998, the Company completed a private placement raising
approximately $5.2 million in cash (net of issuance costs). In connection with
the private placement, the Company issued 1,367,280 shares of common stock at
the closing Nasdaq National Market price on various dates at exercise prices
ranging from $3.81 to $4.88 per share, and five year Warrants in the amount of
273,456 shares at a twenty-five percent premium of the closing Nasdaq market
price on various dates at exercise prices ranging from $4.88 to $6.10 per share.
In April 1999, the Company completed a private placement raising
approximately $12.2 million in cash (net of issuance costs). In connection with
the private placement, the Company issued 2,198,210 shares of common stock at
the closing Nasdaq National Market price on various dates at exercise prices
ranging from $5.50 to $6.00 per share, and five year Warrants in the amount of
439,642 shares at a twenty-five percent premium of the closing Nasdaq market
price on various dates at exercise prices ranging from $6.56 to $7.50 per share.
At June 30, 1999, the Company had cash, cash equivalents and investments in
marketable securities of approximately $14.9 million. The Company expects its
cash requirements to increase significantly in future periods. The Company will
require substantial funds to conduct the research and development activities,
preclinical studies and clinical trials of its potential products and to market
any products that are developed. The Company's facility is an approximately
23,000 square foot facility leased through May 2003. The Company believes that
it will be able to renew the lease for this facility or find suitable alternate
facilities in the same general area without a material disruption of its
operations. It is anticipated that the company would be required to pay a
premium for new facilities, as the overall rates in the area haves increased and
are expected to increase, but at a lesser rate. In November 1996, the Company
secured a $2 million revolving line of credit with Wells Fargo Bank which has
been renewed annually. In May 1997 the Company secured a $2 million capital
lease from which $1.4 million was used as a sale-leaseback of existing equipment
and for other leasehold improvements. In Fiscal 1999, the company secured an
additional $1 million under this capital lease facility, of which all is
available at June 30, 1999. To the extent the Company decides to develop its own
manufacturing facilities, the Company would require substantial additional
capital. The Company's cash requirements may vary materially from those now
planned because of the results of research, development and clinical trials, the
time and costs involved in obtaining regulatory approvals, the cost 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 collaborative arrangements, the development of commercialization
activities and arrangements and the purchase of additional capital equipment.
The Company's common stock is traded on the Nasdaq National Market
("Nasdaq"). In order to maintain its listing on Nasdaq, the Company must
maintain net tangible assets, market capitalization and public float at
specified levels, and generally must maintain a minimum bid price of $1.00 per
share. The company believes that maintaining its listing on Nasdaq is central to
its ability to raise additional funds as well as to provide liquidity to
investors.
The Company believes that the available cash and cash equivalents and
short-term investments, will be sufficient to meet the Company's operating
expenses and capital requirements for the next fiscal year ending June 30, 2000.
The company may be required to delay, reduce the scope of or eliminate one or
more of its research or development projects to accomplish meeting the capital
requirements through June 30, 1999. Thereafter, the Company will be required to
seek additional funds through public or private financing or
25
<PAGE> 26
collaborative arrangements with corporate partners. Issuance's of additional
equity securities could result in substantial dilution to stockholders. There
can be no assurance that additional funding will be available on terms
acceptable to the Company, if at all. The failure to fund its capital
requirements would have a material adverse effect on the Company's business.
YEAR 2000
The Company uses computer software programs and operating systems in its
operations, including applications used in financial business systems and
various administrative functions. To the extent that these software applications
contain source code that is unable to appropriately interpret the upcoming
calendar year 2000, some level of modification, or possible replacement of such
source code or applications will be necessary. This condition is commonly
referred to as the Year 2000 Issue.
Any spending for modifications and updates are being expensed as incurred
and is not expected to have a material impact on our results of operations or
cash flows. The cost of the year 2000 project is being funded through available
funds. The Company anticipates that its costs associated with the upgrades
and/or conversion of computer software relating to the year 2000 issue is less
than $30,000. However, there can be no assurance that these estimates will be
achieved, and actual results could differ materially from those anticipated.
All servers, workstations and e-mail systems are running on Windows NT
version 4.0 with a server pac 3.0 which is Year 2000 compliant. There are some
personal computers running Windows 95 or Windows 98 that may not be Year 2000
compliant. The company is in the process of determining which are and which are
not compliant. Those that are not compliant will be upgraded to be compliant by
October 1999. The accounting software, platinum, was upgraded in July 1999,
without any significant disruption to the operation. The in house laboratories
and equipment, such as: plate reader, AKTA, HPLC & image master, are Year 2000
compliant. The badge system and the phone system are not Year 2000 compliant but
are in the process of being updated with a projected completion date of October
1999.
The Company has also initiated communications with its significant
suppliers to determine the extent to which the Company's operations are
vulnerable to those third parties' failure to solve their own Year 2000 issues.
Contingency plans have been installed to utilize vendors whose systems are Year
2000 compliant in the event that the Company's primary vendors fail to
adequately address their Year 2000 issues. However, there can be no assurance
that the systems of other companies with which the Company transacts business
will be converted on a timely basis and will not have an adverse effect on the
Company's operations.
Like most business enterprises, the Company is dependent upon the internal
computer technology and rely upon the timely performance of the
suppliers/vendors. A large-scale Year 2000 failure could impair the ability to
timely complete the research and development, mainly due to problems arising
from the vendors and service providers. The Company is in the process of
identifying and minimizing this risk. The risk that the Year 2000 poses to the
suppliers/vendors and service providers is being continually redefined. This
refinement will continue through the rest of 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold derivative financial investments, derivative
commodity investments or other financial investments or engage in foreign
currency hedging or other transactions that exposes it to material market risk.
The Company has also evaluated the risk associated with its Wells Capital
Management investments in marketable securities and has deemed such risk
minimal.
ITEM 8. FINANCIAL STATEMENTS
The financial statements required by this item are set forth beginning at
page F1 of this report and are incorporated herein by reference.
26
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors and Executive Officers may be found
in the sections entitled "Proposal 1 -- Election of Directors," and "Executive
Officers of the Company," respectively, appearing in the definitive Proxy
Statement to be delivered to stockholders in connection with the solicitation of
proxies for the Company's Annual Meeting of Stockholders to be held on November
12, 1999 (the "Proxy Statement"). Such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Proxy Statement
under the heading "Executive Compensation," which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in the Proxy Statement
under the heading "Security Ownership of Certain Beneficial Owners and
Management," which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the Proxy Statement
under the heading "Certain Transactions," which information is incorporated
herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) Financial Statements:
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statements schedules have been omitted from this report
because the information is provided in the Financial Statements or is not
applicable.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation
3.2(1) Restated Bylaws of the Registrant
4.1(1) Specimen Common Stock Certificate
10.2(1, 2) 1993 Stock Option Plan
10.3 1996 Equity Incentive Plan
10.4(1, 2) Form of Incentive Stock Option Grant
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
10.5(1, 2) Form of Nonstatutory Stock Option Grant
10.6(1, 2) 1996 Non-Employee Director Stock Option Plan
10.7 1997 Employee Stock Purchase Plan
10.8(1) Form of Indemnification Agreement between the Registrant and
its directors and executive officers
10.9(1) Form of Common Stock Warrant
10.10(1) Form of Series A Preferred Stock Warrant
10.11(1) Form of Series B Preferred Stock Warrant
10.12(1) Form of Series C Preferred Stock Warrant
10.13(1) Form of Series D Preferred Stock Warrant
10.19(1) Form of Bridge Warrant
10.20(1) License Agreement between the Registrant and Research
Corporation Technologies, Inc., dated May 15, 1992, as
amended as of March 21, 1996 and April 26, 1996
10.21(1) License Agreement between the Registrant and The Johns
Hopkins University, dated November 23, 1993, as amended as
of March 21, 1996
10.22(1) License Agreement between the Registrant and The University
of Manitoba, dated February 2, 1994
10.23(1) Form of Underwriters' Warrant
10.25(1) Registration Rights Agreement between the Registrant and
certain stockholders named therein, dated November 1992
10.27(1, 2) Employment Agreement dated August 10, 1992, between the
Company and John Monahan.
10.29(8) Employment Agreement dated August 14, 1996, between the
Company and Thomas J. Paulson.
10.30(8) Employment Agreement dated October 23,1996, between the
Company and Robert M. Mauer.
10.32(8) Revolving line of credit signed November 22, 1996 with Wells
Fargo Bank
10.33(8) Equipment lease dated May 22, 1997 with Transamerica
Business Credit Corporation
10.34(3) Common Stock and Warrant Purchase Agreement by and among
Avigen and certain Purchasers listed on the Schedule of
Purchasers attached thereto.
10.35(4) Amendment to Common Stock and Warrant Purchase Agreement by
and among Avigen and certain Purchasers thereunder dated as
of September 25, 1998.
10.36(4) Management Transition Plan
10.36.1(5) Form of Common Stock and Warrant Purchase Agreement, dated
October 30, 1998.
10.37(6) Form of Common Stock and Warrant Purchase Agreement Date
February 15, 1999.
10.38(7) Factor IX patent and know-how exclusive license agreement
between the Childrens Hospital of Philadephia and Avigen,
dated May 20, 1999.
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (Reference to the signature page herein)
27.1 Financial Data Schedule
</TABLE>
- ---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-3220) and incorporated herein by reference.
(2) Management Contract or Compensation Plan.
28
<PAGE> 29
(3) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Annual Report on Form 10-K for the year ended June
30, 1998, as filed with the SEC.
(4) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter year
ended September 30, 1998, as filed with the SEC.
(5) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter year
ended December 31, 1998.
(6) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter year
ended March 31, 1999, as filed with the SEC.
(7) Confidential treatment has been requested for a portion of this exhibit.
(8) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Annual Report on Form 10-K for the year ended June
30, 1997, as filed with the SEC.
(b) The Company filed a report on Form 8-K dated May 12, 1999 reporting
under Item 5 the closing of a private placement.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AVIGEN, INC.
By: /s/ JOHN MONAHAN
------------------------------------
John Monahan, Ph.D.
President, Chief Executive Officer
and Director
Dated: September 27, 1999
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Monahan and Philip J. Whitcome, and
each or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN MONAHAN President, Chief Executive September 27, 1999
- ----------------------------------------------------- Officer and Director
John Monahan, Ph.D. (Principal Executive
Officer)
/s/ THOMAS J. PAULSON Chief Financial Officer September 27, 1999
- ----------------------------------------------------- (Principal Financial and
Thomas J. Paulson Accounting Officer)
/s/ PHILIP J. WHITCOME Chairman of the Board September 27, 1999
- -----------------------------------------------------
Philip J. Whitcome, Ph.D.
/s/ ZOLA HOROVITZ Director September 27, 1999
- -----------------------------------------------------
Zola Horovitz, Ph.D.
/s/ YUICHI IWAKI Director September 27, 1999
- -----------------------------------------------------
Yuichi Iwaki, M.D., Ph.D.
/s/ JOHN K.A. PRENDERGAST Director September 27, 1999
- -----------------------------------------------------
John K.A. Prendergast, Ph.D.
</TABLE>
30
<PAGE> 31
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets at June 30, 1999 and 1998.................... F-3
Statements of Operations for Years Ended June 30, 1999, 1998
and 1997 and inception through June 30, 1999.............. F-4
Statements of Stockholders' Equity for Years Ended June 30,
1999, 1998 and 1997 and inception through June 30, 1999... F-5
Statements of Cash Flows for Years Ended June 30, 1999, 1998
and 1997 and inception through June 30, 1999.............. F-8
Notes to Financial Statements............................... F-9
Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
F-1
<PAGE> 32
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Avigen, Inc.
We have audited the accompanying balance sheets of Avigen, Inc. (a
development stage company) as of June 30, 1999 and 1998 and the related
statements of operations, stockholders' equity and cash flows each of the three
years in the period ended June 30, 1999 and for the period from October 22, 1992
(inception) through June 30, 1999. 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 Avigen, Inc. at June 30,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1999 and for the period from
October 22, 1992 (inception) through June 30, 1999, in conformity with generally
accepted accounting principles.
Palo Alto, California
August 6, 1999
F-2
<PAGE> 33
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,945 $ 1,280
Investments in marketable securities...................... 11,936 3,197
Accounts receivable....................................... 185 --
-------- --------
Total current assets.............................. 15,066 4,477
Property and equipment, net................................. 1,050 1,359
Deposits and other assets................................... 67 161
-------- --------
Total assets...................................... $ 16,183 $ 5,997
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 251 $ 244
Accrued compensation and related expenses................. 343 147
Other accrued liabilities................................. 304 384
Current portion of capital lease obligations.............. 697 587
-------- --------
Total current liabilities................................... 1,595 1,362
Accrued rent................................................ 153 192
Capital lease obligations, less current portion............. 112 860
Commitments
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares
authorized, 12,358,898 shares issued and outstanding at
June 30, 1999; 7,305,858 shares issued and outstanding
at June 30, 1998....................................... 12 7
Additional paid-in capital................................ 51,087 30,782
Deferred compensation..................................... (5) (46)
Deficit accumulated during the development stage.......... (36,771) (27,160)
-------- --------
Total stockholders' equity.................................. 14,323 3,583
-------- --------
Total liabilities and stockholders' equity.................. $ 16,183 $ 5,997
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 34
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
1992
YEAR ENDED JUNE 30, (INCEPTION)
-------------------------------------- THROUGH
1999 1998 1997 JUNE 30, 1999
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Grant revenue............................ $ 185 $ -- $ 98 $ 548
Expenses:
Research and development............... 6,490 6,235 4,033 25,088
General and administrative............. 3,445 2,990 2,352 13,044
---------- ---------- ---------- --------
9,935 9,225 6,385 38,132
---------- ---------- ---------- --------
Loss from operations..................... (9,750) (9,225) (6,287) (37,584)
Interest expense......................... (178) (222) (70) (1,130)
Interest income.......................... 326 587 780 1,783
Other (expense) income, net.............. (9) (17) (1) 160
---------- ---------- ---------- --------
Net loss and comprehensive loss.......... $ (9,611) $ (8,877) $ (5,578) $(36,771)
========== ========== ========== ========
Primary and fully diluted net loss per
share.................................. $ (.99) $ (1.22) $ (.77)
========== ========== ==========
Shares used in historical primary and
fully diluted per share calculation.... 9,684,329 7,298,271 7,286,146
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 35
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM OCTOBER 22, 1992 (INCEPTION) THROUGH JUNE 30, 1999
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
CLASS B
CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- ---------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------ ---------- ------ ------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 22, 1992
(inception)...................... -- $-- -- $-- -- $-- $ -- $ --
Issuance of common stock at $.004
per share in November and
December 1992.................. -- -- 896,062 1 -- -- 4 --
Issuance of common stock at $.554
per share from January to June
1993 for services rendered..... -- -- 20,316 -- -- -- 11 --
Issuance of common stock at $.004
to $.222 per share from
November 1992 to March 1993 for
cash........................... -- -- 1,003,406 1 -- -- 54 --
Issuance of Class B common stock
at $.004 per share in December
1992 for cash.................. -- -- -- -- 90,293 -- 1 --
Issuance of Series A preferred
stock at $4.43 per share from
March to June 1993 for cash
(net of issuance costs of
$410,900)...................... 678,865 1 -- -- -- -- 2,595 --
Issuance of Series A preferred
stock at $3.85 per share in
March 1993 for cancellation of
note payable and accrued
interest....................... 68,991 -- -- -- -- -- 266 --
Issuance of common stock at $.004
per share in November 1993
pursuant to antidilution
rights......................... -- -- 22,869 -- -- -- 1 --
Issuance of Series A preferred
stock at $4.43 per share from
July to November 1993 for cash
and receivable (net of issuance
costs of $187,205)............. 418,284 -- -- -- -- -- 1,665 --
Issuance of Series B preferred
stock at $5.54 per share in
March 1994 for cash (net of
issuance costs of $34,968)..... 128,031 -- -- -- -- -- 674 --
Issuance of Series C preferred
stock at $4.87 per share from
July 1994 to June 1995 for cash
and receivable (net of issuance
costs of $259,620)............. 739,655 1 -- -- -- -- 3,344 --
Issuance of Series C preferred
stock at $4.87 per share in
June 1995 for cancellation of
notes payable.................. 35,500 -- -- -- -- -- 173 --
Net loss and comprehensive loss
from inception to June 30,
1995........................... -- -- -- -- -- -- -- --
---------- --- ---------- --- ------- --- ------- -----
Balance at June 30, 1995........... 2,069,326 2 1,942,653 2 90,293 -- 8,788 --
Issuance of Series C preferred
stock at $4.87 per share in
July 1995 for cash (net of
issuance costs of $26,000)..... 41,042 -- -- -- -- -- 174 --
Issuance of Series D preferred
stock at $7.09 per share from
October 1995 to February 1996
for cash (net of issuance costs
of $25,279).................... 205,351 -- -- -- -- -- 1,430 --
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
----------- -------------
<S> <C> <C>
Balance at October 22, 1992
(inception)...................... $ -- $ --
Issuance of common stock at $.004
per share in November and
December 1992.................. -- 5
Issuance of common stock at $.554
per share from January to June
1993 for services rendered..... -- 11
Issuance of common stock at $.004
to $.222 per share from
November 1992 to March 1993 for
cash........................... -- 55
Issuance of Class B common stock
at $.004 per share in December
1992 for cash.................. -- 1
Issuance of Series A preferred
stock at $4.43 per share from
March to June 1993 for cash
(net of issuance costs of
$410,900)...................... -- 2,596
Issuance of Series A preferred
stock at $3.85 per share in
March 1993 for cancellation of
note payable and accrued
interest....................... -- 266
Issuance of common stock at $.004
per share in November 1993
pursuant to antidilution
rights......................... -- 1
Issuance of Series A preferred
stock at $4.43 per share from
July to November 1993 for cash
and receivable (net of issuance
costs of $187,205)............. -- 1,665
Issuance of Series B preferred
stock at $5.54 per share in
March 1994 for cash (net of
issuance costs of $34,968)..... -- 674
Issuance of Series C preferred
stock at $4.87 per share from
July 1994 to June 1995 for cash
and receivable (net of issuance
costs of $259,620)............. -- 3,345
Issuance of Series C preferred
stock at $4.87 per share in
June 1995 for cancellation of
notes payable.................. -- 173
Net loss and comprehensive loss
from inception to June 30,
1995........................... 8,608 8,608
-------- -------
Balance at June 30, 1995........... (8,608) 184
Issuance of Series C preferred
stock at $4.87 per share in
July 1995 for cash (net of
issuance costs of $26,000)..... -- 174
Issuance of Series D preferred
stock at $7.09 per share from
October 1995 to February 1996
for cash (net of issuance costs
of $25,279).................... -- 1,430
</TABLE>
F-5
<PAGE> 36
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
PERIOD FROM OCTOBER 22, 1992 (INCEPTION) THROUGH JUNE 30, 1999
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
CLASS B
CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- ---------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------ ---------- ------ ------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series D preferred
stock at $7.09 per share in
March 1996 in settlement of
accounts payable............... 22,574 $-- -- $-- -- $-- $ 160 $ --
Issuance of common stock at $.004
per share in March 1996
pursuant to antidilution
rights......................... -- -- 17,630 -- -- -- 1 --
Issuance of stock options in
February 1996 in settlement of
certain accrued liabilities.... -- -- -- -- -- -- 137 --
Conversion of Class B common
stock to common stock.......... -- -- 231,304 1 (90,293) -- (1) --
Issuance of warrants to purchase
common stock in connection with
1996 bridge financing in March
1996........................... -- -- -- -- -- -- 300 --
Conversion of preferred stock to
common stock in May 1996....... (2,338,293) (2) 2,355,753 2 -- -- (1) --
Issuance of common stock at $8.00
per share in connection with
the May 1996 initial public
offering (net of issuance costs
of $798,414 and underwriting
discount of $1,500,000)........ -- -- 2,500,000 2 -- -- 17,699 --
Proceeds from exercise of options
in June 1996................... -- -- 6,178 -- -- -- 3 --
Repurchase of common stock....... -- -- (18,325) -- -- -- (1) --
Deferred compensation............ -- -- -- -- -- -- 164 (128)
Net loss and comprehensive
loss........................... -- -- -- -- -- -- -- --
---------- --- ---------- --- ------- --- ------- -----
Balance at June 30, 1996........... -- -- 7,035,193 7 -- -- 28,853 (128)
Issuance of common stock at $8.00
per share in July 1996 in
connection with the exercise of
underwriters' over-allotment
option (net of underwriting
discount of $150,000).......... -- -- 250,000 -- -- -- 1,850 --
Proceeds from exercise of
options........................ -- -- 3,387 -- -- -- 1 --
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 41
Net loss and comprehensive
loss........................... -- -- -- -- -- -- -- --
---------- --- ---------- --- ------- --- ------- -----
Balance at June 30, 1997........... -- -- 7,288,580 7 -- -- 30,704 (87)
Proceeds from exercise of
options........................ -- -- 17,278 -- -- -- 10 --
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 41
Options granted for services..... -- -- -- -- -- -- 68 --
Net loss and comprehensive
loss........................... -- -- -- -- -- -- -- --
---------- --- ---------- --- ------- --- ------- -----
Balance at June 30, 1998........... -- -- 7,305,858 7 -- -- 30,782 (46)
Proceeds from exercise of
options........................ -- -- 181,045 -- -- -- 222 --
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
----------- -------------
<S> <C> <C>
Issuance of Series D preferred
stock at $7.09 per share in
March 1996 in settlement of
accounts payable............... $ -- $ 160
Issuance of common stock at $.004
per share in March 1996
pursuant to antidilution
rights......................... -- 1
Issuance of stock options in
February 1996 in settlement of
certain accrued liabilities.... -- 137
Conversion of Class B common
stock to common stock.......... -- --
Issuance of warrants to purchase
common stock in connection with
1996 bridge financing in March
1996........................... -- 300
Conversion of preferred stock to
common stock in May 1996....... -- (1)
Issuance of common stock at $8.00
per share in connection with
the May 1996 initial public
offering (net of issuance costs
of $798,414 and underwriting
discount of $1,500,000)........ -- 17,702
Proceeds from exercise of options
in June 1996................... -- 3
Repurchase of common stock....... -- (1)
Deferred compensation............ -- 35
Net loss and comprehensive
loss........................... (4,097) (4,097)
-------- -------
Balance at June 30, 1996........... (12,705) 16,027
Issuance of common stock at $8.00
per share in July 1996 in
connection with the exercise of
underwriters' over-allotment
option (net of underwriting
discount of $150,000).......... -- 1,850
Proceeds from exercise of
options........................ -- 1
Amortization of deferred
compensation................... -- 41
Net loss and comprehensive
loss........................... (5,578) (5,578)
-------- -------
Balance at June 30, 1997........... (18,283) 12,341
Proceeds from exercise of
options........................ -- 10
Amortization of deferred
compensation................... -- 41
Options granted for services..... -- 68
Net loss and comprehensive
loss........................... (8,877) (8,877)
-------- -------
Balance at June 30, 1998........... (27,160) 3,583
Proceeds from exercise of
options........................ -- 222
</TABLE>
F-6
<PAGE> 37
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
PERIOD FROM OCTOBER 22, 1992 (INCEPTION) THROUGH JUNE 30, 1999
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
CLASS B
CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- ---------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------ ---------- ------ ------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amortization of deferred
compensation................... -- $-- -- $-- -- $-- $ -- $ 41
Issuance of common stock at
$2.25 - $2.94 per share and
warrants in August to October
1998 in connection with a
Private Placement (net of
issuance cost of $233,584)..... -- -- 1,306,505 1 -- -- 2,734 --
Issuance of common stock at
$3.81 - $4.88 per share and
warrants in December 1998 in
connection with a Private
Placement (net of issuance cost
of $438,183)................... -- -- 1,367,280 2 -- -- 5,195 --
Issuance of common stock at
$5.50 - $6.00 per share and
warrants in February to May
1999 in connection with a
Private Placement (net of
issuance cost of $1,033,225)... -- -- 2,198,210 2 -- -- 12,154 --
Net loss and comprehensive
loss........................... -- -- -- -- -- -- -- --
---------- --- ---------- --- ------- --- ------- -----
Balance at June 30, 1999........... -- $ 12,358,898 $12 -- $-- $51,087 $ (5)
========== === ========== === ======= === ======= =====
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
----------- -------------
<S> <C> <C>
Amortization of deferred
compensation................... $ -- $ 41
Issuance of common stock at
$2.25 - $2.94 per share and
warrants in August to October
1998 in connection with a
Private Placement (net of
issuance cost of $233,584)..... -- 2,735
Issuance of common stock at
$3.81 - $4.88 per share and
warrants in December 1998 in
connection with a Private
Placement (net of issuance cost
of $438,183)................... -- 5,197
Issuance of common stock at
$5.50 - $6.00 per share and
warrants in February to May
1999 in connection with a
Private Placement (net of
issuance cost of $1,033,225)... -- 12,156
Net loss and comprehensive
loss........................... (9,611) (9,611)
-------- -------
Balance at June 30, 1999........... $(36,771) $14,323
======== =======
</TABLE>
See accompanying notes.
F-7
<PAGE> 38
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22, 1992
YEAR ENDED JUNE 30, (INCEPTION)
----------------------------- THROUGH
1999 1998 1997 JUNE 30, 1999
-------- ------- -------- ----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (9,611) $(8,877) $ (5,578) $(36,771)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 473 678 558 2,827
Amortization of deferred compensation..................... 41 41 41 157
Write-off of organization costs........................... -- -- -- 146
Noncash interest expense.................................. -- -- -- 510
Common stock issued for services.......................... -- -- -- 11
Stock options issued for services......................... -- 68 -- 68
Changes in operating assets and liabilities:
Accounts receivable..................................... (185) -- -- (185)
Prepaids, deposits and other assets..................... 94 (91) (35) (67)
Accounts payable, other accrued liabilities and accrued
compensation and related expenses..................... 123 67 (341) 1,195
Accrued rent............................................ (39) (39) (17) 153
-------- ------- -------- --------
Net cash used in operating activities....................... (9,104) (8,153) (5,372) (31,956)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (164) (387) (1,156) (3,626)
Disposal of property and equipment.......................... -- -- -- 47
Organization costs.......................................... -- -- -- (219)
Purchase of marketable securities........................... (35,263) (7,405) (22,514) (73,532)
Sale of marketable securities............................... 26,524 13,840 21,233 61,597
-------- ------- -------- --------
Net cash (used in) provided by investing activities......... (8,903) 6,048 (2,437) (15,733)
FINANCING ACTIVITIES
Proceeds from notes payable................................. -- -- -- 2,133
Repayment of notes payable.................................. -- -- -- (1,710)
Proceeds from 1996 bridge financing......................... -- -- -- 1,937
Payment of bridge financing costs........................... -- -- -- (194)
Repayment of 1996 bridge financing.......................... -- -- -- (1,937)
Payments on capital lease obligations....................... (638) (522) (165) (1,344)
Proceeds from sale-leaseback of equipment................... -- 490 1,437 1,927
Proceeds from issuance of preferred stock, net of issuance
costs..................................................... -- -- -- 9,885
Proceeds from issuance of common stock, net of issuance
costs and repurchases..................................... 20,310 10 1,852 39,937
-------- ------- -------- --------
Net cash provided by (used in) financing activities......... 19,672 (22) 3,124 50,634
Net Increase (Decrease) In Cash and Cash Equivalents........ $ (1,665) (2,127) (4,685) $ 2,945
Cash and cash equivalents, beginning of period.............. 1,280 3,407 8,092 --
-------- ------- -------- --------
Cash and cash equivalents, end of period.................... $ 2,945 $ 1,280 $ 3,407 $ 2,945
======== ======= ======== ========
SUPPLEMENTAL DISCLOSURE
Issuance of preferred stock for cancellation of accounts
payable, notes payable and accrued interest............... $ -- $ -- $ -- $ 499
Issuance of stock options for repayment of certain accrued
liabilities............................................... -- -- -- 137
Issuance of warrants in connection with bridge financing.... -- -- -- 300
Deferred compensation related to stock option grants........ -- -- -- 163
Purchase of property and equipment under capital lease
financing................................................. -- -- -- 226
Cash paid for interest...................................... 178 222 70 637
</TABLE>
See accompanying notes.
F-8
<PAGE> 39
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Avigen, Inc. (the "Company") was incorporated on October 22, 1992 in
Delaware for the purpose of development and commercialization of gene-based
therapeutic products. The Company's activities since inception have consisted
principally of acquiring product rights, raising capital, establishing
facilities and performing research and development. Accordingly, the Company is
considered to be in the development stage.
The Company expects to continue to incur substantial losses over the next
several years during its development state. The Company plans to meet its
capital requirements primarily through issuance of equity securities, research
and development contract revenue, and in the longer term, revenue from product
sales. The Company intends to seek additional funding through public or private
equity or debt financing, when market conditions allow. However, there can be no
assurance that the Company will be able to enter into financing arrangements on
acceptable terms or at all. Without such additional funding, the Company may be
required to delay, reduce the scope of or eliminate one or more of its research
or development programs. If the Company cannot raise additional capital,
management will reduce its operations to continue as a going concern through at
least June 30, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company accounts
for its marketable securities in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company's marketable securities consist principally of
available-for-sale government and corporate debt securities with a minimum
short-term rating of A1/P1 and a minimum long-term rating of A and with
maturities of less than one year. Realized and unrealized gains and losses have
been insignificant to the results of operations and to the financial position of
the Company. All investments are classified as available for sale. Total cash,
cash equivalents, and marketable securities, at amounts which approximate fair
value, are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1999 1998
------- ------
<S> <C> <C>
Cash in banks............................................... $ 2,945 $1,280
Corporate debt securities................................... 7,437 486
Federal Home Loan Mortgage Obligations...................... 2,499 999
U.S. Treasury Notes......................................... 2,000 1,712
------- ------
$14,881 $4,477
======= ======
</TABLE>
RESTRICTED CASH
Deposits and other assets at June 30, 1999 and 1998 include a $67,000 and
$151,000, respectively, of cash deposits maintained under the terms of an
equipment lease.
F-9
<PAGE> 40
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the respective
assets, which range from five to seven years, using the straight-line method.
Leasehold improvements and assets under capital leases are amortized over
the lives of the related leases or their estimated useful lives, whichever is
shorter, using the straight-line method.
Costs to develop the Company's products are expensed as incurred in
accordance with Statement of Financial Accounting Standards No. 2, "Accounting
for Research and Development Costs."
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") requires use of option
valuation models that were developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable and
not for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of
common shares outstanding during the year. Diluted net loss per share excludes
the effect of the potential shares to be issued upon the assumed exercise of the
options and warrants because the effect of inclusion of such shares would be
antidilutive due to the loss for all periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the financial statements for the year ended June 30, 1999,
the Company adopted Financial Accounting Standards Board's Statement of
Financial Accounting Standard No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 supersedes Statement 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes annual and interim standards an enterprises operating segments in
and related disclosures about products and services, geographic areas and major
customers. The Company operates in one segment. Accordingly, the adoption of
SFAS 131 had no significant impact on the Company's results of operations,
financial position or disclosure of segment information.
2. LICENSING AGREEMENTS
The Company has entered into various license agreements with universities
and medical research centers for the use of certain technologies related to its
gene therapy product development programs. Generally, such agreements require
the Company to pay the licensor a royalty on sales of products incorporating the
licensed technology. Certain of these agreements require the Company to pay
minimum royalties for specified periods and payments upon the achievement of
specified milestones. These agreements are generally cancelable by the Company
upon written notice without significant financial penalty, or by the licenser if
the Company does not
F-10
<PAGE> 41
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. LICENSING AGREEMENTS (CONTINUED)
meet development milestones specified in the agreements. Termination of any of
the Company's license agreements could have a material adverse effect on the
Company's business.
The Company entered into an exclusive license agreement for the use of
patented technology with Research Corporation Technology ("RCT"). This agreement
requires the Company to achieve certain development milestones in order to
continue to use the technology. The Company must exercise its best efforts to
commercially develop, promote and sell products covered by the licensed patent
rights, and is obligated to file an Investigational New Drug application
("IND"), by the end of 1998 and is required to file a product license
application or a new drug application by the end of 2000. In the event the
Company fails to achieve any of these milestones by their applicable deadlines,
the Company has the right to pay RCT additional fees of up to $250,000 to extend
certain of the deadlines for specified periods. RCT may terminate the agreement
if the Company becomes insolvent or bankrupt or fails to perform any of its
obligations under the agreement. The Company successfully filed the IND
application on November 7, 1998.
3. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facility under a noncancelable operating lease
agreement. The lease agreement has variable payment terms; however, the Company
is recognizing rent expense on a straight-line basis over the life of the lease
which expires in May 2003. The Company has also entered into various capital
leases for property and equipment. The Company secured a $2 million capital
lease facility of which approximately $1.4 million was used by the Company in
fiscal 1997 to complete a sale-leaseback transaction for a portion of its
property and equipment. In fiscal 1998, approximately $490,000 of this lease
facility was used to finance equipment under an additional sale-leaseback
transaction. In Fiscal 1999, the company secured an additional $1 million under
this capital lease facility, of which all is available at June 30, 1999. The
property and equipment financed under the sale-leaseback transactions were sold
at net book value; therefore no gain or loss was realized from these
transactions. Future minimum lease payments under noncancelable operating and
capital leases having terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
------- ---------
<S> <C> <C>
Year ending June 30:
2000........................................................ $767 $ 420
2001........................................................ 119 420
2002........................................................ -- 420
2003........................................................ -- 367
2004........................................................ -- --
Thereafter.................................................. -- --
---- ------
Total minimum lease payments................................ 886 $1,626
==== ======
Less amount representing interest........................... (77)
----
Present value of minimum lease payments..................... 809
LESS CURRENT PORTION OF CAPITAL LEASE OBLIGATIONS........... (697)
----
Long-term capital lease obligations......................... $112
====
</TABLE>
Rent expense for fiscal 1999 was $390,000 ($425,000 in fiscal 1998 and
$398,000 in fiscal 1997).
F-11
<PAGE> 42
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The company has a revolving line of credit permitting short-term, fully
secured borrowings of up to $2 million, which may be used from time to time to
facilitate short-term cash flow. There were no borrowings under this agreement
at June 30, 1999, which expires in September 1999.
The Company is party to claims and litigation arising in the ordinary
course of general business activities. In the opinion of management, resolution
of these matters is not expected to have a material adverse effect on the
financial condition of the Company. However, depending on the amount and timing,
an unfavorable resolution could materially affect the company's financial
position, results of operations or cash flows in a particular period.
4. STOCKHOLDERS' EQUITY
WARRANTS
At June 30, 1999, the Company had outstanding warrants to purchase shares
of its common stock as follows (see Note 6 for a description of warrants issued
to related parties):
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE EXPIRATION DATE
--------- -------------- ---------------
<C> <C> <S>
67,915 $ 4.87 December 1999
78,065 $ 5.36 June 2000 - September 2005
14,550 $ 6.11 March 2000
193,750 $ 6.40 March 2001
19,375 $ 7.04 March 2001
4,513 $ 7.09 November 2005
45,272 $ 7.80 March 2001
250,000 $ 9.60 May 2001
261,301 $2.81 - 3.68 August 2003 - October 2003
431,172 $4.77 - 6.10 December 2003
659,456 $6.88 - 7.50 February 2004 - May 2004
--------- ------------ -----------------------------
2,025,369 $2.81 - 9.60 December 1999 - November 2005
========= ============ =============================
</TABLE>
The warrants to acquire 1,351,929 shares of common stock at an exercise
price of 125% of fair market value at the time of issuance were issued in
connection with a series of private placements during fiscal 1999. The warrants
were assigned a value of $91,868 which was reflected as an issuance costs of the
private placement.
STOCK OPTION PLANS
In October 1993, the Company established a Stock Option Plan (the "1993
Plan") under which incentive and nonqualified stock options may be granted to
key employees, directors and consultants of the Company to purchase up to
338,600 shares of common stock. Under the 1993 Plan, options may be granted at a
price per share not less than the fair market value at the date of grant. In May
1996, the 1993 Plan was superseded by the 1996 Stock Option Plan.
In May 1996, the Company established a Stock Option Plan ("1996 Plan")
which provides for grants of options to employees, directors and consultants of
the Company to purchase up to 1,300,000 shares of common stock. Under the 1996
Plan, options may be granted at a price per share not less than the fair market
F-12
<PAGE> 43
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
value at the date of grant. Options granted generally have a maximum term of 10
years from the grant date and become exercisable over 4 years. Option activity
under the 1993 and 1996 Plans was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------
WEIGHTED-
AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES RANGE PER SHARE
-------- -------------- --------------
<S> <C> <C> <C>
Outstanding at June 30, 1996.................. 283,198 $ .44- .71 $ .52
Granted..................................... 551,127 3.63-4.00 3.86
Canceled.................................... (4,066) .44-3.38 .94
Exercised................................... (3,387) .44- .71 .50
-------- ------------ -----
Outstanding at June 30, 1997.................. 826,872 .44-4.00 1.94
Granted..................................... 234,025 2.13-3.88 2.84
Canceled.................................... (74,456) .44-3.88 3.23
Exercised................................... (17,278) .44- .71 .60
-------- ------------ -----
Outstanding at June 30, 1998.................. 969,163 .44-4.00 2.05
Granted..................................... 461,251 1.88-6.31 4.60
Canceled.................................... (281,805) .44-4.31 3.29
Exercised................................... (181,045) .44-4.31 1.22
-------- ------------ -----
Outstanding at June 30, 1999.................. 967,564 $ .44-6.31 $2.68
======== ============ =====
</TABLE>
In July 1995, the Company granted a member of its Board of Directors an
option to purchase 515,248 shares of common stock at $0.49 per share,
exercisable for 5 years from the date of grant. The shares vest in equal monthly
installments over 36 months. The shares issuable upon exercise of such options
may be issued prior to vesting but such shares are subject to repurchase at the
original price per share upon termination of services to the Company. Such grant
was made outside of the 1993 and 1996 Plans.
In March 1996, the Board of Directors adopted and in April 1996 the
stockholders approved the 1996 Equity Incentive Plan (the "Incentive Plan") and
reserved 600,000 shares of common stock for issuance thereunder. The Incentive
Plan provides for grants of incentive stock options to employees and
nonstatutory stock options, restricted stock purchase awards, stock bonuses and
stock appreciation rights to employees and consultants of the Company. No
options, restricted stock awards, stock bonuses or stock appreciation rights
have been granted under the Incentive Plan.
In March 1996, the Board of Directors adopted and in April 1996 the
stockholders approved the 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") and reserved 200,000 shares of common stock for issuance
thereunder. The Directors' Plan provides for automatic grants of options to
purchase shares of common stock to non-employee directors of the Company. The
Directors' Plan was effective upon the closing of the initial public offering.
As of June 30, 1999, options to purchase 85,000 shares of common stock at
$2.00 - $6.00 per share, exercisable for 5 years from the date of grant, have
been granted under the Directors' Plan. None of the options granted under the
Directors' Plan have been exercised at June 30, 1999.
F-13
<PAGE> 44
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information with regard to stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED- --------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES SHARES LIFE PRICE SHARES PRICE
- ----------------- --------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
$ .44 - .71 607,908 6.08 $ .50 599,816 $ .50
1.88 - 3.50 379,405 8.70 2.79 122,725 2.84
3.63 - 4.00 307,001 7.35 3.77 223,512 3.78
5.00 - 6.31 273,500 9.43 6.14 42,667 5.94
--------- -------
1,567,814 998,720
========= =======
</TABLE>
At June 30, 1999, 382,287, 600,000 and 115,000 options were available for
future grant under the 1996 Plan, the Incentive Plan and the Director Plan,
respectively.
The weighted-average grant-date fair value of options granted during fiscal
1999, 1998 and 1997 was $4.56, $2.75 and $2.78, respectively.
The Company applies APB 25, "Accounting for Stock Issued to Employees." Pro
forma information regarding net loss per share is required by SFAS 123,
"Accounting for Stock-Based Compensation," and has been determined as if the
Company had accounted for its employee and director stock options under the fair
value method described in that Statement. The Black-Scholes option pricing model
was used to calculate the fair value of these options for 1999, 1998 and 1997
with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Expected volatility...................................... 2.9242 3.3917 0.8448
Risk free interest rate.................................. 5.00% 5.51% 6.44%
Life of options in years................................. 5 5 5
Expected dividend yield.................................. -- -- --
</TABLE>
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. However, the
Company has presented the pro forma net loss and pro forma basic and diluted net
loss per common share using the assumptions noted above.
F-14
<PAGE> 45
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Had compensation costs for the Company's stock option plans been determined
based upon the fair vale at the grant date for awards under these plans
consistent with the methodology prescribed under SFAS 123, the Company's net
loss and net loss per share for fiscal 1999, 1998 and 1997 would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net loss -- as reported.............................. $ (9,611) $(8,876) $(5,578)
Net loss -- pro forma................................ (10,374) (9,460) (5,936)
Net loss per share basic and diluted -- as
reported........................................... (.99) (1.22) (0.77)
Net loss per share basic and diluted -- pro forma.... (1.07) (1.30) (0.81)
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In September 1997, the Company adopted the 1997 Employee Stock Purchase
Plan ("Purchase Plan"). A total of 360,000 shares of common stock have been
reserved for issuance under the Purchase Plan. As of June 30, 1999, there have
been no employee contributions to the Purchase Plan.
5. BALANCE SHEET DETAIL
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------
1999 1998
---- ----
<S> <C> <C>
Accrued consulting fees..................................... $ 71 $157
Accrued license fees........................................ 60 98
Other....................................................... 173 129
---- ----
$304 $384
==== ====
</TABLE>
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------
1999 1998
------- -------
<S> <C> <C>
Leasehold improvements................................... $ 1,601 $ 1,601
Laboratory equipment..................................... 1,854 1,735
Furniture and fixtures................................... 344 299
------- -------
Property and equipment................................... 3,799 3,635
Accumulated depreciation and amortization................ (2,749) (2,276)
------- -------
Net property and equipment............................... $ 1,050 $ 1,359
======= =======
</TABLE>
Accumulated amortization of assets under capital leases was $1,622,000 and
$1,200,000 at June 30, 1999 and 1998, respectively.
6. RELATED PARTY TRANSACTIONS
As part of its continuous program of research and development, the Company
retains consultants to advise the Company. Certain consultants are holders of
the Company's common stock or options to purchase common stock. Consulting
expenses relating to these stockholders and option holders were $30,000,
$141,000, and $174,000, for fiscal 1999, 1998 and 1997, respectively. The
amounts payable to these consultants at June 30, 1999 and 1998 were $71,000 and
$157,000, respectively.
F-15
<PAGE> 46
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
In fiscal 1999, the Company paid an entity managed by a member $173,000 of
its Board of Directors related to commissions and fund raising services provided
by the entity in relation to Avigen's private placements of common stock.
In fiscal 1998, the Company paid a Board member $100,000 for consulting
services related to services performed for the Company.
A stockholder and Director of the Company (the "Director") is an officer
and sole stockholder of the Placement Agent. In connection with various
preferred stock offerings during fiscal 1999, the Placement Agent received
commissions and expense reimbursements of $815,000, and warrants to purchase up
to 91,415 shares of the Company's common stock at exercise prices ranging from
$4.87 to $7.04 (see Note 4).
During fiscal 1996, entities managed by the Director and another member of
the Board of Directors loaned the Company $200,000 which was repaid in December
31, 1996. In connection with these agreements, the Company issued warrants to
purchase 4,513 shares of its common stock with an exercise price of $7.09 per
share (see Note 4).
A Director has personally guaranteed the Company's lease on the office and
laboratory facilities (see Note 3).
The Company has entered into non-exclusive agreements with an agent for the
purpose of identifying potential investors in Japan. A Director of the Company
is affiliated with this organization. Under the terms of the agreements, the
agent receives commissions, payable in cash and warrants, based on investments
in the Company initiated. Since inception, the agent has earned commissions
under the agreements amounting to $299,000 and warrants for the purchase of
172,682 shares of common stock at prices ranging from $4.87 to $7.80 (see Note
4).
7. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carryforward............................. $ 11,930 $ 8,664
Research and development credit carryforwards............... 1,296 992
Depreciation................................................ -- 546
Capitalized research and development........................ 1,417 1,048
Other....................................................... 798 138
-------- --------
Gross deferred tax assets................................... 15,441 11,388
Valuation allowance......................................... (15,441) (11,388)
Net deferred tax assets..................................... $ -- $ --
======== ========
</TABLE>
Due to the Company's history of losses, a valuation allowance has been
provided against the full amount of deferred tax assets.
The valuation allowance increased by $4,053,000, $3,959,000, and $2,258,000
during fiscal 1999, 1998, and 1997, respectively.
At June 30, 1999, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $33,600,000 and
$8,100,000, respectively, which expire in fiscal years ended
F-16
<PAGE> 47
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
June 30, 1999 through June 30, 2013. At June 30, 1999, the Company has research
and development credit carryforwards for federal tax purposes of approximately
$950,000, which expire in fiscal years ended June 30, 2009 through June 30,
2013.
Because of the "change in ownership" provisions of the Internal Revenue
Code of 1986, utilization of the Company's tax net operating loss carryforwards
and tax credit carryforwards may be subject to an annual limitation in future
periods. As a result of the annual limitation, a portion of these carryforwards
may expire before ultimately becoming available to reduce future income tax
liabilities.
8. EMPLOYEE PROFIT SHARING/401(k) PLAN
In January 1996, the Company adopted a Tax Deferred Savings Plan under
Section 401(k) of the Internal Revenue Code (the "Plan") for all full-time
employees. Eligible employees can contribute amounts to the Plan via payroll
withholding, subject to certain limitations. The Company's contributions to the
Plan are discretionary. The Company has made no contributions to the Plan
through June 30, 1999.
F-17
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
---------- ------------------------------------------------------------ ------------
<S> <C> <C>
3.1(1) Amended and Restated Certificate of Incorporation
3.2(1) Restated Bylaws of the Registrant
4.1(1) Specimen Common Stock Certificate
10.2(1, 2) 1993 Stock Option Plan
10.3 1996 Equity Incentive Plan
10.4(1, 2) Form of Incentive Stock Option Grant
10.5(1, 2) Form of Nonstatutory Stock Option Grant
10.6(1, 2) 1996 Non-Employee Director Stock Option Plan
10.7 1997 Employee Stock Purchase Plan
10.8(1) Form of Indemnification Agreement between the Registrant and
its directors and executive officers
10.9(1) Form of Common Stock Warrant
10.10(1) Form of Series A Preferred Stock Warrant
10.11(1) Form of Series B Preferred Stock Warrant
10.12(1) Form of Series C Preferred Stock Warrant
10.13(1) Form of Series D Preferred Stock Warrant
10.19(1) Form of Bridge Warrant
10.20(1) License Agreement between the Registrant and Research
Corporation Technologies, Inc., dated May 15, 1992, as
amended as of March 21, 1996 and April 26, 1996
10.21(1) License Agreement between the Registrant and The Johns
Hopkins University, dated November 23, 1993, as amended as
of March 21, 1996
10.22(1) License Agreement between the Registrant and The University
of Manitoba, dated February 2, 1994
10.23(1) Form of Underwriters' Warrant
10.25(1) Registration Rights Agreement between the Registrant and
certain stockholders named therein, dated November 1992
10.27(1, 2) Employment Agreement dated August 10, 1992, between the
Company and John Monahan.
10.29(8) Employment Agreement dated August 14, 1996, between the
Company and Thomas J. Paulson.
10.30(8) Employment Agreement dated October 23,1996, between the
Company and Robert M. Mauer.
10.32(8) Revolving line of credit signed November 22, 1996 with Wells
Fargo Bank
10.33(8) Equipment lease dated May 22, 1997 with Transamerica
Business Credit Corporation
10.34(3) Common Stock and Warrant Purchase Agreement by and among
Avigen and certain Purchasers listed on the Schedule of
Purchasers attached thereto.
10.35(4) Amendment to Common Stock and Warrant Purchase Agreement by
and among Avigen and certain Purchasers thereunder dated as
of September 25, 1998.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
---------- ------------------------------------------------------------ ------------
<S> <C> <C>
10.36(4) Management Transition Plan
10.36.1(5) Form of Common Stock and Warrant Purchase Agreement, dated
October 30, 1998.
10.37(6) Form of Common Stock and Warrant Purchase Agreement Date
February 15, 1999.
10.38(7) Factor IX patent and know-how exclusive license agreement
between the Childrens Hospital of Philadephia and Avigen,
dated May 20, 1999.
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (Reference to the signature page herein)
27.1 Financial Data Schedule
</TABLE>
- ---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-3220) and incorporated herein by reference.
(2) Management Contract or Compensation Plan.
(3) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Annual Report on Form 10-K for the year ended June
30, 1998, as filed with the SEC.
(4) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter year
ended September 30, 1998, as filed with the SEC.
(5) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter year
ended December 31, 1998.
(6) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter year
ended March 31, 1999, as filed with the SEC.
(7) Confidential treatment has been requested for a portion of this exhibit.
(8) Incorporated by reference from such document filed with the SEC as an
exhibit to the Company's Annual Report on Form 10-K for the year ended June
30, 1997, as filed with the SEC.
<PAGE> 1
EXHIBIT 10.3
AVIGEN, INC.
1996 EQUITY INCENTIVE PLAN
Adopted March 29, 1996
Approved By Stockholders April 30, 1996
Amended September 12, 1997
Approved by Stockholders November 20, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock,
and (v) Stock Appreciation Rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) Stock
Appreciation Rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Avigen, Inc., a Delaware corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved
<PAGE> 2
by the Board, including sick leave, military leave, or any other personal leave;
or (ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market of The Nasdaq Stock Market, the Fair Market Value of a share of Common
Stock shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange (or the exchange with
the greatest volume of trading in Common Stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable;
(2) If the Common Stock is quoted on The Nasdaq Stock Market (but
not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the bid and asked prices for
the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(3) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "OPTIONEE" means an Employee or Consultant who holds an outstanding
Option.
<PAGE> 3
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PLAN" means this Avigen, Inc. 1996 Equity Incentive Plan.
(x) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(y) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(z) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(aa) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees of the Board composed of two (2) or more members (the "Committee"),
all of the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or such a subcommittee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Notwithstanding
anything to the contrary contained herein, the Board or the Committee may
delegate to a committee of one or more members of the Board the authority to
grant Stock Awards to
<PAGE> 4
eligible persons who (1) are not then subject to Section 16 of the Exchange Act
and/or (2) are either (i) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such Stock
Award, or (ii) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate one million three hundred thousand (1,300,000)
shares of the Company's Common Stock. If any Stock Award shall for any reason
expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Stock Award shall revert to
and again become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan shall not
be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant, or in the case of a restricted stock purchase award, the
purchase price is at least one hundred percent (100%) of the Fair Market Value
of such stock at the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than one hundred thousand (100,000) shares of
the Company's Common Stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of a Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment arrangement, except that payment of the Common
Stock's "par value" (as defined in the Delaware General Corporation Law) shall
not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other Common Stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the
<PAGE> 5
minimum rate of interest necessary to avoid the treatment as interest, under any
applicable provisions of the Code, of any amounts other than amounts stated to
be interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term
<PAGE> 6
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option Agreement, in whole or in part, by surrendering other shares of
common stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and the limits on the grants of Options under subsection
5(c) and shall be subject to such other terms and conditions as the Board or
Committee may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable by the grantee only upon such terms and
conditions as are set forth in the applicable Stock Award Agreement, as the
Board or the Committee shall determine in its discretion, so long as stock
awarded under such Stock Award Agreement remains subject to the terms of the
agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment arrangement, except that payment of the Common Stock's "par
value" (as defined in the Delaware General Corporation Law) shall not be made by
deferred payment, or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Board or the Committee in its discretion. Notwithstanding the foregoing,
the Board or the Committee to which administration of the Plan has been
delegated may award stock pursuant to a stock bonus agreement in consideration
for past services actually rendered to the Company or for its benefit.
<PAGE> 7
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees, Directors and Consultants. To exercise any outstanding Stock
Appreciation Right, the holder must provide written notice of exercise to the
Company in compliance with the provisions of the Stock Award Agreement
evidencing such right. Except as provided in subsection 5(d), no limitation
shall exist on the aggregate amount of cash payments the Company may make under
the Plan in connection with the exercise of a Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will
be granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They shall
be denominated in share equivalents. The appreciation distribution payable on
the exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent
of any adversely affected holders of Options and/or Stock Appreciation Rights,
the cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than:
eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock
Option, one hundred percent (100%) of the Fair
<PAGE> 8
Market Value in the case of an Incentive Stock Option or, in the case of an
Incentive Stock Option held by a 10% stockholder (as described in subsection
5(b)), not less than one hundred ten percent (110%) of the Fair Market Value per
share of stock on the new grant date. Notwithstanding the foregoing, the Board
or the Committee may grant an Option and/or Stock Appreciation Right with an
exercise price lower than that set forth above if such Option and/or Stock
Appreciation Right is granted as part of a transaction to which section 424(a)
of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 9 shall continue to be counted against the maximum award of
Options and Stock Appreciation Rights permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option and/or Stock
Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original and
the substituted Options and Stock Appreciation Rights shall be counted against
the maximum awards of Options and Stock Appreciation Rights permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director nor Consultant nor any person to whom
a Stock Award is transferred in accordance with the Plan shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate or to continue acting as a Consultant or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee with or
without notice and with or without cause, or the right to terminate the
relationship of any Consultant pursuant to the terms of such Consultant's
agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and
<PAGE> 9
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(d), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar Stock
Awards for those outstanding under the Plan, or (ii) such Stock Awards shall
continue in full force and effect. In the event any surviving corporation and
its Affiliates refuse to assume or continue such Stock Awards, or to substitute
similar options for those outstanding under the Plan, then, with respect to
Stock Awards held by persons then performing services as Employees, Directors or
Consultants, the time during which such Stock Awards may be exercised shall be
accelerated and the Stock Awards terminated if not exercised prior to such
event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary in order for the
Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any
Nasdaq of securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible Employees
or Consultants with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options
granted under it into compliance therewith.
<PAGE> 10
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan, as amended, shall become effective on such date, but no
Options granted under the Plan, as amended, shall be exercised unless and until
the Plan, as amended, has been approved by the stockholders of the Company.
<PAGE> 1
EXHIBIT 10.7
AVIGEN, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
Adopted September 12, 1997
Approved by the Stockholders on November 20, 1997
1. PURPOSE.
(a) The purpose of this 1997 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of Avigen, Inc., a Delaware corporation
(the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are
designated as provided in subparagraph 2(b), may be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors (the "Board") of the Company. The
Committee shall have, in connection with the administration of the Plan, all
powers possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. Notwithstanding anything to the foregoing, the Board shall
have full power and authority to take any action that may be taken by the
Committee hereunder.
(b) The Board or the Committee shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
<PAGE> 2
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board or the Committee, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan, in a manner and to
the extent it shall deem necessary or expedient to make the Plan fully
effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board or the Committee deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate three hundred sixty thousand
(360,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the
<PAGE> 3
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall have
the same characteristics as any rights originally granted under that Offering,
as described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board or the Committee may provide in an Offering that certain employees who are
highly compensated employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as by the Board for each Offering) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
<PAGE> 4
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings (as defined
by the Board for each Offering) during the Offering. The payroll deductions made
for each participant shall be credited to an account for such participant under
the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero) or increase such payroll deductions,
and an eligible employee may begin such payroll deductions, after the beginning
of any Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's right
to acquire Common Stock under that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of a participant's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. Unless
otherwise provided for in the applicable Offering, no fractional shares shall be
issued upon the exercise of rights granted under the Plan. The amount, if any,
of accumulated payroll deductions remaining in each participant's account after
the purchase of shares which is less than the amount required to purchase one
share of stock on the final Purchase Date of an Offering shall be held in each
such participant's account for the purchase of shares under the next Offering
under the Plan, unless such participant withdraws from such next Offering, as
provided in subparagraph 7(b), or is no longer eligible to be granted rights
under the Plan, as provided in paragraph 5, in which case such amount shall be
distributed to the participant after such final Purchase Date, without interest.
The amount, if any, of accumulated payroll deductions remaining in any
participant's account on the final Purchase Date of an Offering after the
purchase of shares which is equal to or in excess of the value of one whole
share of common stock shall be distributed in full to the participant after such
Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under
<PAGE> 5
the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall at all times keep available as authorized but unissued shares that number
of shares of stock required to satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock to participants pursuant to rights
granted under the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shares acquired upon exercise
of rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) the acquisition by
any person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
<PAGE> 6
13. AMENDMENT OF THE PLAN.
(a) The Board or the Committee at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before or
after the adoption of the amendment if such amendment requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act.
(b) The Board or the Committee may amend the Plan in any respect the
Board or the Committee deems necessary or advisable to provide eligible
employees with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
employee stock purchase plans and/or to bring the Plan and/or rights granted
under it into compliance therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice in the form prescribed by the Company. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its sole discretion, may deliver such shares and/or cash to the spouse or to
any one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board or the Committee in its discretion, may suspend or
terminate the Plan at any time. No rights may be granted under the Plan while
the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon adoption by the Board (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board, which date may be prior to the Effective Date.
<PAGE> 1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKET BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.38
Factor IX Patent and Know-how Exclusive License Agreement
Between The Children's Hospital of Philadelphia and Avigen, Inc
This License Agreement ("AGREEMENT") is made by and between THE
CHILDREN'S HOSPITAL OF PHILADELPHIA, a Pennsylvania nonprofit corporation
("CHOP"), having a principal place of business at 34th Street and Civic Center
Boulevard, Philadelphia, Pennsylvania 19104-4399 and AVIGEN, a California
business corporation ("LICENSEE"), having a principal place of business at 1201
Harbor Bay Parkway, #1000, Alameda, California 94502.
This AGREEMENT is effective this 20th day of May 1999 ("EFFECTIVE
DATE").
CHOP and LICENSEE agree as follows:
1. BACKGROUND
1.01 In the course of conducting biomedical and behavioral research, CHOP
investigators have made inventions that may have commercial
applicability and have assigned their rights to such inventions to
CHOP.
1.02 CHOP desires to transfer these inventions to the private sector
through commercialization licenses to facilitate the commercial
development of products and processes for public use and benefit.
1.03 LICENSEE desires to acquire commercialization rights to certain of
these inventions in order to develop processes, methods, and/or
marketable products for public use and benefit.
1.04 CHOP represents to the best of its knowledge and belief, without any
independent investigation, that it is the owner of all rights, title
and interest in said patent application and has the right and ability
to grant the license hereinafter described.
2. DEFINITIONS
2.01 "ACCOUNTING PERIOD" shall be the periods for which royalty payments
are due as further set forth in Paragraph 6.10.
2.02 "ACTIVE FUNCTIONAL ELEMENT(S)" shall be defined as a [*]
2.03 "AFFILIATE(S)" shall mean any entity, directly or indirectly,
controlling, controlled by, or under common control with LICENSEE. The
term "control" means the possession, direct or indirect, of the power
to cause
<PAGE> 2
the direction of the management and policies of an entity, whether
through the ownership of voting securities, by contract or otherwise.
2.04 "AGREEMENT" shall mean this Agreement, including all appendices and
attachments hereto.
2.05 "BANKRUPTCY EVENT" shall mean any of the following:
(a) LICENSEE becomes insolvent, or generally fails to pay, or is
generally unable to pay, or admits in writing its inability to
pay, its debts as they become due or applies for, consents to, or
acquiesces in, the appointment of a trustee, receiver of other
custodian for LICENSEE or a substantial part of its property, or
makes a general assignment for the benefit of creditors
(b) LICENSEE commences any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any state or
federal bankruptcy or insolvency law, or any dissolution or
liquidation proceeding.
(c) Any bankruptcy, reorganization, debt arrangement, or other case
or proceeding under any state or federal bankruptcy or
insolvency law, or any dissolution or liquidation proceeding is
involuntarily commenced against or in respect of LICENSEE, and
such involuntary case or proceeding shall remain undismissed and
unstayed for a period of sixty (60) days, or an order for relief
is entered in any such case or proceeding.
(d) A trustee, receiver, or other custodian is appointed for
LICENSEE, or a substantial part of LICENSEE'S property.
2.06 "BENCHMARKS" mean the performance milestones that are set forth in
APPENDIX D.
2.07 "COMPLETION" shall mean the administration of the last dose of
LICENSED PRODUCT to the last enrolled subject of a clinical trial.
2.08 "EFFECTIVE DATE" shall have the meaning set forth in the Preamble.
2.09 "FAIR MARKET VALUE" means the cash consideration that LICENSEE, its
AFFILIATE or its SUBLICENSEE would realize from an unaffiliated,
unrelated buyer in an arm's length sale of an identical item sold in
the same quantity and at the same time and place of the transaction.
2.10 "FIRST COMMERCIAL SALE" shall mean in each country the first sale of
any LICENSED PRODUCT by LICENSEE, its AFFILIATES or SUBLICENSEES,
following approval of its marketing by the appropriate governmental
agency for the country in which the sale is to be made, and when
governmental approval is not required, the first sale in that country.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
2
<PAGE> 3
2.11 "GOVERNMENT" means the Government of the United States of America and
its respective agencies such as the Department of Health and Human
Services.
2.12 "LICENSED FIELD OF USE" means the field of use identified in Appendix
B.
2.13 "LICENSED PATENT RIGHTS" shall mean
a) the U.S. patent application listed in Appendix A, all divisions
and continuations of this application, all patents issuing from
such applications, divisions, and continuations, and any reissues,
reexaminations, and extensions of all such patents;
b) to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a) above:
i) continuations-in-part of a) above; ii) all divisions and
continuations of these continuations-in-part; iii) all patents
issuing from such continuations-in-part, divisions, and
continuations; and iv) any reissues, reexaminations, and
extensions of all such patents;
c) to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a) above:
all counterpart foreign applications and patents to a) and b)
above, including without limitation those listed in Appendix A.
LICENSED PATENT RIGHTS shall [*]
2.14 "LICENSED PRODUCT(S)" means any product that in the course of
manufacture, use, or sale would use the LICENSED TECHNOLOGY or, in the
absence of this AGREEMENT, infringe one or more claims of the LICENSED
PATENT RIGHTS that have not been held invalid or unenforceable by an
unappealed or unappealable judgment of a court of competent
jurisdiction.
2.15 "LICENSED TECHNOLOGY" shall mean all CHOP information and data in the
LICENSED FIELD OF USE that are, or during the term of this AGREEMENT,
become available to CHOP and [*]
2.16 "LICENSED TERRITORY" means the geographical area identified in
Appendix B.
2.17 (a) "NET SALES PRICE" or "NET SALES" shall mean the gross billing
price of any LICENSED PRODUCT received by LICENSEE, its AFFILIATES or
SUBLICENSEE for the sale or distribution of any LICENSED PRODUCT IN
THE LICENSED TERRITORY IN THE LICENSED FIELD OF USE, less the
following amounts actually paid out by LICENSEE, its AFFILIATES or
SUBLICENSEE or credited against the amounts received by them from the
sale or distribution of LICENSED PRODUCT to the extent that such
amounts are reflected in the price charged and do not exceed
reasonable and customary amounts in the country in which the sale or
distribution occurs:
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
3
<PAGE> 4
(i) discounts allowed;
(ii) returns;
(iii) transportation and transportation insurance charges or
allowances;
(iv) custom charges and duties; and
(v) sales, transfer and other excise taxes or other
governmental charges levied on or measured by the sales but
no franchise or income tax of any kind whatsoever.
(b) Transfer of a LICENSED PRODUCT to an AFFILIATE for sale by the
AFFILIATE shall not be considered a sale; in the case of such a
transfer the NET SALES PRICE shall be based on the gross billing
price of the LICENSED PRODUCT by the AFFILIATE or SUBLICENSEE as
invoiced to its customer.
(c) Every commercial use or disposition of any LICENSED PRODUCT
excluding any use:
(i) in assuring product testing or control; or
(ii) for reasonable promotional distribution to physicians; or
(iii) for distribution to researchers for the sole purpose of
industry research by or on behalf of LICENSEE or any of its
AFFILIATES or SUBLICENSEES; or
(iv) in obtaining regulatory approvals;
in addition to a bona fide sale to a bona fide customer (not to
be construed as including LICENSEE or any such AFFILIATE or
SUBLICENSEE), shall be considered a sale of such LICENSED
PRODUCT at the NET SALES PRICE then payable in an arm's length
transaction.
(d) In the event that any LICENSED PRODUCT is sold in combination
with an UNLICENSED PRODUCT(S), NET SALES PRICE for purposes of
determining royalty payments on such combination shall be
calculated by multiplying the NET SALES PRICE of the combination
by the fraction A over A+B, in which "A" is the gross selling
price of the LICENSED PRODUCT when sold separately during the
ACCOUNTING PERIOD in which the sale was made, and "B" is the
gross selling price of the UNLICENSED PRODUCT(S) when sold
separately during the ACCOUNTING PERIOD in question. For
purposes of this subsection (d), all gross selling prices of a
LICENSED PRODUCT shall be calculated as the average gross
selling price of such LICENSED PRODUCTS for the ACCOUNTING
PERIOD as hereafter defined in the country in which the sale is
made.
2.18 "PRACTICAL APPLICATION" means to manufacture in the case of a
composition or product, to practice in the case of a process or
method, or to operate in the case or a machine or system; and in each
case, under such conditions as to establish that the invention is
utilized and that its benefits are to the extent permitted by law or
GOVERNMENT regulations available to the public on reasonable terms.
2.19 "SUBLICENSEE" means any entity to whom the LICENSEE grants a
sublicense pursuant to Paragraph 4.01 of this AGREEMENT.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
4
<PAGE> 5
2.20 "UNLICENSED PRODUCT(S)" means any product, that is not A LICENSED
PRODUCT
3. GRANT OF RIGHTS
3.01 CHOP hereby grants and LICENSEE accepts, subject to the terms and
conditions of this AGREEMENT, the exclusive license to LICENSED
TECHNOLOGY and LICENSED PATENT RIGHTS in the LICENSED TERRITORY to
develop, to make and have made, to use and have used, and to sell and
have sold any LICENSED PRODUCT(S) in the LICENSED FIELD OF USE.
3.02 This AGREEMENT confers no license or rights by implication, estoppel,
or otherwise under any patent applications or patents of CHOP other
than LICENSED PATENT RIGHTS regardless of whether such patents are
dominant or subordinate to LICENSED PATENT RIGHTS.
3.03 The exclusive license granted here in shall terminate upon termination
of this AGREEMENT in accordance with Article 14.
3.04 Promptly following the EFFECTIVE DATE, CHOP shall transfer to LICENSEE
all LICENSED TECHNOLOGY in its possession (to the extent that LICENSEE
does not already possess such LICENSED TECHNOLOGY). Thereafter, CHOP
shall regularly update the LICENSEE with all additions to the LICENSED
TECHNOLOGY during the term of this AGREEMENT.
4. SUBLICENSING
4.01 LICENSEE may sublicense the rights granted in Section 3.01, provided
that such sublicenses shall be at least as favorable to CHOP as the
present AGREEMENT.
4.02 LICENSEE agrees that any sublicenses granted by it shall provide that
the obligations to CHOP of this AGREEMENT shall be binding upon the
SUBLICENSEE as if it were a party to this AGREEMENT. LICENSEE further
agrees to attach copies of this AGREEMENT to all sublicense
AGREEMENTS. LICENSEE shall be responsible for the operations of any
SUBLICENSEE relevant to this AGREEMENT as if such operations were
carried out by LICENSEE itself, including, without limitation, the
payment of royalties or other payments hereunder.
4.03 Any sublicenses granted by LICENSEE under Section 4.01 shall provide
for the termination of the sublicense, or the conversion to a license
directly between such SUBLICENSEES and CHOP, at the option of CHOP
upon termination of this AGREEMENT under Article 14.
4.04 LICENSEE agrees to forward to CHOP a copy of each fully executed
sublicense agreement under Section 4.01 postmarked within thirty (30)
days of the execution of such agreement provided that LICENSEE may
redact from such copy any information that is not relevant to this
AGREEMENT. To the extent permitted by law, CHOP agrees to maintain
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
5
<PAGE> 6
each such SUBLICENSE AGREEMENT in confidence unless SUBLICENSE
AGREEMENT becomes part of the public domain.
4.05 If LICENSEE becomes subject to a BANKRUPTCY EVENT, all payments then
or thereafter due and owing to LICENSEE from its SUBLICENSEE shall,
upon notice from CHOP to any SUBLICENSEE, become payable directly to
CHOP for the account of LICENSEE, provided, however, that CHOP shall
remit to LICENSEE the amount by which such payments exceed the amount
owed by LICENSEE to CHOP.
5. STATUTORY AND CHOP REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS
5.01 CHOP reserves an irrevocable, nonexclusive, nontransferable,
royalty-free license to the LICENSED TECHNOLOGY and to all inventions
licensed under the LICENSED PATENT RIGHTS solely for non-commercial
research, teaching, and clinical purposes. Prior to the FIRST
COMMERCIAL SALE, LICENSEE agrees to provide CHOP reasonable quantities
of LICENSED PRODUCTS for CHOP non-commercial research and teaching use
provided that such quantities do not interfere with the commercial
development of LICENSED PRODUCTS.
5.02 To the extent that any invention included within LICENSED PATENT
RIGHTS has been partially funded by the GOVERNMENT, this AGREEMENT is
subject to the rights of the GOVERNMENT, including, without limitation
those rights under 35 U.S.C. Section 200 et seq. and all regulations
promulgated thereunder, as amended, and any successor statutes or
regulations.
5.03 LICENSEE agrees that LICENSED PRODUCTS used or sold in the United
States shall be manufactured substantially in the United States as
required by United States law at the time of production for inventions
derived from government funded research.
6. ROYALTIES AND REPORTING
6.01 On all sales of LICENSED PRODUCTS anywhere in the world by LICENSEE,
its AFFILIATES or SUBLICENSEES, LICENSEE shall pay CHOP royalties in
accordance with the schedule as set forth in APPENDIX C and milestones
in accordance with the schedule as set forth in APPENDIX E, such
undertaking and schedule having been agreed to for the purpose of
reflecting and advancing the mutual convenience of the parties.
6.02 A claim of a patent or patent application licensed under this
AGREEMENT shall cease to fall within the LICENSED PATENT RIGHTS for
the purpose of computing the earned royalty payments in any given
country on the earliest of the dates that a) the claim has been
abandoned but not continued, b) the patent expires or irrevocably
lapses, or c) the claim has been held to be invalid or unenforceable
by an unappealed or unappealable decision of a court of competent
jurisdiction or administrative agency.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
6
<PAGE> 7
6.03 No multiple royalties shall be payable because any LICENSED PRODUCTS
are covered by more than one of the LICENSED PATENT RIGHTS.
6.04 On sales of LICENSED PRODUCTS by LICENSEE to SUBLICENSEE(S) or
AFFILIATE(S) (OTHER THAN AS SET FORTH IN SECTION 2.17 (b)) or on sales
made in other than an arm's-length transaction, the value of the NET
SALES attributed under this Article 6 to such a transaction shall be
based on the FAIR MARKET VALUE of LICENSED PRODUCTS.
6.05 With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patent applications and patents
included within the LICENSED PATENT RIGHTS incurred by CHOP prior to
the EFFECTIVE DATE of this AGREEMENT, LICENSEE shall reimburse CHOP
within thirty (30) days of CHOP'S submission of a statement and
request for payment to LICENSEE, an amount equivalent to [*]
6.06 With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patent applications and patents
included within the LICENSED PATENT RIGHTS incurred by CHOP on or
after the EFFECTIVE DATE of the AGREEMENT, CHOP, at its sole option,
may require LICENSEE either:
(a) to pay CHOP on an annual basis, within sixty (60) days of CHOP'S
submission of a statement and request for payment, an amount
equivalent to [*]; or
(b) to pay [*] directly to the law firm employed by CHOP to handle
such functions. In such event, however, CHOP and not LICENSEE
shall be the client of such law firm.
6.07 LICENSEE may elect to surrender its rights in any country of the
LICENSED TERRITORY under any LICENSED PATENT RIGHTS upon sixty (60)
days written notice to CHOP and owe no payment obligation under
Paragraph 6.06 for patent-related expenses incurred in that country
after the effective date of such written notice.
6.08 In the event that the royalty paid to CHOP is such a significant
factor in the return realized by LICENSEE as to diminish LICENSEE'S
capability to respond to competitive market pressures, CHOP agrees to
consider in good faith a reasonable reduction in the royalty paid to
CHOP as to each such LICENSED PRODUCT for the period during which such
market condition exists. Factors determining the size of the reduction
will include profit margin on LICENSED PRODUCT and on analogous
products, prices of competitive products, total prior sales by
LICENSEE, and LICENSEE'S expenditures in LICENSED PRODUCT development.
CHOP shall have sole discretion whether to grant a request for royalty
reduction by LICENSEE.
6.09 With each semiannual payment, LICENSEE shall deliver to CHOP a full
and accurate accounting to include at least the following information:
(a) Quantity of each LICENSED PRODUCT sold or leased (by country) by
LICENSEE, and its AFFILIATES or SUBLICENSEES;
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
7
<PAGE> 8
(b) Total receipts for each LICENSED PRODUCT (by country);
(c) Quantities of each LICENSED PRODUCT
(i) used by LICENSEE and its AFFILIATES or SUBLICENSEES unless
such LICENSED PRODUCT is used for the purposes excluded by
Paragraph 2.17(c); or
(ii) sold to the United States Government for which the
government requires a reduction in the NET SALES PRICE as a
result of its license under 35 USC Sec. 204;
(d) Reductions from gross sales as permitted in Paragraph 2.17(a).
6.10 In each year the amount of royalty and other payments due shall be
calculated semiannually as of June 30 and December 31 ("ACCOUNTING
PERIOD") and shall be paid semiannually within the sixty (60) days
next following such date. Every such payment shall be supported by the
accounting prescribed in Paragraph 6.09 and shall be made in United
States currency by check to the "Joseph Stokes Jr. Research Institute
of The Children's Hospital of Philadelphia" and sent to Director,
Technology Transfer, The Children's Hospital of Philadelphia, 34th &
Civic Center Boulevard, Philadelphia, PA. 19104-4318. Whenever for the
purpose of calculating royalties conversion from any foreign currency
shall be required, such conversion shall be at the rate of exchange
thereafter published in the Wall Street Journal for the first business
day closest to the applicable June 30 or December 31, as the case may
be.
6.11 If the transfer of or the conversion into United States dollars of any
such remittance in any such instance is not lawful or possible, the
payment of such part of the royalties as is necessary shall be made by
the deposit thereof, in the currency of the country where the sale was
made on which the royalty was based, to the credit and account of CHOP
or its nominee in any commercial bank or trust company located in that
country, prompt notice of which shall be given to CHOP.
6.12 Any tax required to be withheld by LICENSEE under the laws of any
foreign country for the account of CHOP, shall be promptly paid by
LICENSEE for and on behalf of CHOP to the appropriate governmental
authority, and LICENSEE shall use its best efforts to furnish CHOP
with proof of payment of such tax. Any such tax actually paid on
CHOP'S behalf shall be deducted from royalty payments due CHOP.
6.13 The royalty payments due under the AGREEMENT shall, if overdue, bear
interest until payment at a per annum rate equal to one percent (1%)
above the prime rate in effect at the Bank of New York on the due
date, not to exceed the maximum rate permitted by law. The payments of
such interest shall not preclude CHOP from exercising any other rights
it may have as a consequence of the lateness of any royalty payment.
7. PATENT FILING, PROSECUTION, AND MAINTENANCE
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
8
<PAGE> 9
7.01 CHOP agrees to take responsibility for, but to consult in good faith
with, the LICENSEE in the preparation, filing, prosecution, and
maintenance of any and all patent applications or patents included in
the LICENSED PATENT RIGHTS and shall furnish copies of relevant
patent-related documents to LICENSEE. LICENSEE may request in writing
alternate patent counsel upon presentation of compelling reasons for
dissatisfaction with CHOP patent counsel. Reasonable requests shall be
carefully considered by CHOP and reasonable effort will be made to
provide mutually agreeable counsel.
7.02 Each party shall promptly inform the other as to all matters that come
to its attention that may affect the preparation, filing, prosecution,
or maintenance of the LICENSED PATENT RIGHTS and permit each other to
provide comments and suggestions with respect to the preparation,
filing, and prosecution of LICENSED PATENT RIGHTS, which comments and
suggestions shall be considered by the other party.
8. RECORD KEEPING
8.01 LICENSEE agrees to keep accurate and correct records of LICENSED
PRODUCTS made, used, or sold under this AGREEMENT appropriate to
determine the amount of royalties due CHOP. Such records shall be
retained for at least five (5) years following a given reporting
period. They shall be available during normal business hours for an
annual inspection at the expense of CHOP by an accountant or other
designated auditor selected by CHOP for the sole purpose of verifying
reports and payments hereunder. The accountant or auditor shall only
disclose to CHOP information relating to the accuracy of reports and
payments made under this AGREEMENT. If an inspection shows an
underreporting or underpayment in excess of five percent (5%) for any
twelve (12) month period, then LICENSEE shall reimburse CHOP for the
cost of the inspection at the time LICENSEE pays the unreported
royalties, including any late charges as required by Paragraph 6.13 of
this AGREEMENT. All payments required under this Paragraph shall be
due within thirty (30) days of the date CHOP provides LICENSEE notice
of the payment due.
8.02 LICENSEE agrees to conduct an independent audit of sales and royalties
at least every [*] if annual sales of the LICENSED PRODUCT are over
[*]. The audit shall address, at a minimum, the amount of gross
sales by or on behalf of LICENSEE during the audit period, the amount
of funds owed to CHOP under this AGREEMENT, and whether the amount
owed has been paid to CHOP and is reflected in the records of the
LICENSEE. A report by the auditor shall be submitted promptly to CHOP
when completed. LICENSEE shall pay for the entire cost of the audit.
8.03 CHOP may initiate an annual inspection of LICENSEE records as provided
for under Paragraph 8.01 not less than twelve (12) months following an
independent audit as required under Paragraph 8.02 of this Article.
9. REPORTS ON PROGRESS, BENCHMARKS, SALES, AND PAYMENTS
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 10
9.01 Prior to signing this AGREEMENT, LICENSEE has provided to CHOP the
performance BENCHMARKS as specified in APPENDIX D, under which
LICENSEE shall bring the subject matter of the LICENSED PATENT RIGHTS
to the point of PRACTICAL APPLICATION.
9.02 LICENSEE shall provide written annual progress reports on its LICENSED
PRODUCT(S) for the FIELD OF USE within sixty (60) days after December
31 of each calendar year. These progress reports shall include, but
not be limited to: progress on research and development, status of
applications for regulatory approvals, manufacturing, sublicensing,
marketing, and sales during the preceding calendar year, as well as
plans for the present calendar year. CHOP also encourages these
reports to include information on any of LICENSEE'S public service
activities that relate to the LICENSED PATENT RIGHTS. If reported
progress differs significantly from that projected in the performance
BENCHMARKS, LICENSEE shall explain the reasons for such differences.
In any such annual report, LICENSEE may propose amendments to
performance BENCHMARKS, acceptance of which by CHOP may not be denied
unreasonably. LICENSEE agrees to provide any additional information
reasonably required by CHOP to evaluate LICENSEE'S performance under
this AGREEMENT. LICENSEE may amend the BENCHMARKS at any time upon
written consent by CHOP. CHOP shall not unreasonably withhold approval
of any request of LICENSEE to extend the time periods of this schedule
if such request is supported by a reasonable showing by LICENSEE of
diligence in its performance and toward bringing the LICENSED PRODUCTS
to the point of PRACTICAL APPLICATION.
9.03 LICENSEE shall report to CHOP the date of the FIRST COMMERCIAL SALE in
each country in the LICENSED TERRITORY within thirty (30) days of such
occurrence.
9.04 All plans and reports required by either this Article 9 or Article 6
and marked confidential by LICENSEE shall, to the extent permitted by
law, be treated by CHOP as technical, commercial and financial
information obtained from a person and as privileged and confidential.
10. PERFORMANCE
10.01 LICENSEE shall develop for commercial use and market CHOP LICENSED
PRODUCT(S) as soon as practical, consistent with sound and reasonable
business practices, and in accordance with the performance BENCHMARKS
in APPENDIX D. LICENSEE shall be solely responsible for performing
all clinical trials and obtaining all regulatory approvals necessary
for the commercial development and sale of CHOP LICENSED PRODUCTS in
the LICENSED TERRITORY and for all costs and expenses related to the
foregoing.
10.02 Upon the FIRST COMMERCIAL SALE, until the expiration of this
AGREEMENT, LICENSEE shall [*] to make LICENSED PRODUCTS reasonably
accessible to the United States public.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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11. INFRINGEMENT AND PATENT ENFORCEMENT
11.01 CHOP and LICENSEE agree to notify each other promptly of each
infringement or possible infringement of the LICENSED PATENT RIGHTS,
as well as any facts that may affect the validity, scope, or
enforceability of the LICENSED PATENT RIGHTS of which either party
becomes aware.
11.02 CHOP will protect its LICENSED PATENT RIGHTS from infringement and
bring suit in its own name when, in its sole judgment, such action
may be reasonably necessary, proper and justified.
11.03 If LICENSEE shall have supplied CHOP with written evidence
demonstrating to CHOP'S reasonable satisfaction prima facie
infringement of a claim of a LICENSED PATENT RIGHT by a third party,
CHOP is by notice requested to take steps to protect the LICENSED
PATENT RIGHT, and unless CHOP shall within three (3) months of the
receipt of such notice either (i) cause the infringement to
terminate; or (ii) initiate legal proceeding against the infringing
party. LICENSEE may, upon notice to CHOP, at LICENSEE'S expense,
initiate legal proceedings against the infringing party using CHOP'S
name if so required by law. LICENSEE'S reasonable and customary
expenses for such legal proceedings shall be fully creditable against
royalties owed to CHOP, provided royalties as determined in
accordance with APPENDIX C shall [*] No settlement, consent judgement
or other voluntary disposition of the suit, which invalidates or
restricts the claims of such LICENSED PATENT RIGHTS may be entered
into without the consent of LICENSEE AND CHOP, which consent shall
not be unreasonably withheld. [*] except to the extent that such [*]
11.04 In the event one party shall initiate or carry on legal proceedings
to enforce any LICENSED PATENT RIGHT against any alleged
infringement, the other party shall fully cooperate with and supply
all assistance reasonably requested by the party initiating or
carrying on such proceedings, including without limitation being
joined as a necessary party to the suit. The party which institutes
any suit to protect or enforce a LICENSED PATENT RIGHT shall have
sole control of that suit and shall bear the reasonable expenses
(excluding legal fees) incurred by said other party in providing such
assistance and cooperation as is requested pursuant to this
paragraph. The party initiating or carrying on such legal proceedings
shall keep the other party informed of the progress of such
proceedings and said other party shall be entitled to counsel in such
proceedings but at its own expense. Any award paid by third parties
as the result of such proceedings (whether by way of settlement or
otherwise) shall first be applied to reimbursement of the
unreimbursed legal fees and expenses incurred by either party and
then to the [*] and then the remainder shall be divided between the
parties as follows:
(a) (i) If the amount is [*] shall receive an amount equal to the [*]
less the amount of [*] as a result of the infringement [*] shall
receive an amount equal to [*] or
(b) As to awards other than [*], the amount will be [*]
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 12
11.05 For the purpose of the proceedings referred to in this Article 11,
CHOP and LICENSEE shall permit the use of their names and shall
execute such documents and carry out such other acts as may be
necessary.
12. NEGATION OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION;
12.01 CHOP offers no representations or warranties other than those
specified in Article 1.
12.02 CHOP DOES NOT REPRESENT OR WARRANT THE VALIDITY OF THE LICENSED
PATENT RIGHTS AND MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER
WITH REGARD TO THE SCOPE OF THE LICENSED PATENT RIGHTS, OR THAT THE
LICENSED PATENT RIGHTS MAY BE EXPLOITED WITHOUT INFRINGING OTHER
PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES AND
HEREBY DISCLAIMS THE SAME.
12.03 CHOP MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY OF
THE LICENSED PATENT RIGHTS, LICENSED TECHNOLOGIES, or LICENSED
PRODUCTS AND HEREBY DISCLAIMS THE SAME.
12.04 CHOP does not represent or warrant that it will commence legal
actions against third parties infringing the LICENSED PATENT RIGHTS.
12.05 LICENSEE shall indemnify and hold CHOP, its trustees, officers,
employees, students, fellows, agents, and consultants (collectively,
"INDEMNITEES") harmless from and against all liability, demands,
damages, expenses (including reasonable attorneys fees and expenses
of litigation), and losses, including but not limited to death,
personal injury, illness, or property damage in connection with or
arising out of a) the use by or on behalf of LICENSEE, its
AFFILIATES, SUBLICENSEES, or their directors, employees, or third
parties of any LICENSED PATENT RIGHTS or LICENSED TECHNOLOGIES, or b)
the design, manufacture, distribution, sale or use of any LICENSED
PRODUCTS by LICENSEE, its AFFILIATES or SUBLICENSEES, or other
products or processes developed in connection with or arising out of
the LICENSED PATENT RIGHTS or LICENSED TECHNOLOGIES. An Indemnitee's
right to claim indemnification under Section 12.05 in subject to the
terms of this Section 12.06.
12.06 Any INDEMNITEE which intends to claim indemnification under this
Article 12 shall promptly notify LICENSEE in writing of any claim or
other matter in respect of which the INDEMNITEE intend to claim such
indemnification; provided, however, the failure to provide such
notice within a reasonable period of time shall not relieve the
LICENSEE of any of its obligations hereunder except to the extent
LICENSEE is prejudiced by such failure. The INDEMNITEE shall permit
LICENSEE, at its discretion, to settle any such action, claim or
other matter. The INDEMNITEE agrees to the complete control of such
defense or settlement by LICENSEE; provided
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 13
however, such settlement does not adversely affect the INDEMNITEE'S
rights hereunder or impose any obligations on the INDEMNITEE in
addition to those set forth herein in order for it to exercise such
rights. No such action, claim or other matter shall be settled
without the prior written consent of LICENSEE, and LICENSEE shall
not be responsible for any attorneys' fees or other costs incurred
other than as provided herein. The INDEMNITEE shall have the right,
but not the obligation, to be represented by counsel of its own
selection and at its own expense.
13. INSURANCE
13.01 Beginning at the time any LICENSED PRODUCT is being clinically tested
with human subjects by LICENSEE or by any SUBLICENSEE, AFFILIATE or
agent, LICENSEE shall at its sole cost and expense, procure and
maintain commercial general liability insurance in amounts not less
than [*] per incident and [*] annual aggregate and naming the
INDEMNITEES as additional insureds. Such commercial general liability
insurance shall provide (a) product liability coverage and (b)
contractual liability coverage for LICENSEE'S indemnification under
this AGREEMENT. If LICENSEE elects to self-insure all or part of the
limits described above (including deductibles or retentions that are
in excess of [*] annual aggregate) such self-insurance program must
be acceptable to CHOP. The minimum amounts of insurance coverage
required under this Paragraph 13.01 shall not be construed to create
a limit of LICENSEE'S liability with respect to its indemnification
under Paragraph 12.05 of this AGREEMENT.
13.02 LICENSEE shall provide or shall cause to be provided to CHOP written
evidence of such insurance within thirty (30) days of commencing
clinical trials. LICENSEE shall provide CHOP with written notice at
least fifteen (15) days prior to the cancellation, non-renewal or
material change in such insurance; if LICENSEE does not obtain
replacement insurance providing comparable coverage within such
fifteen (15) day period, CHOP shall have the right to terminate this
AGREEMENT effective at the end of such fifteen (15) day period
without notice or any additional waiting periods.
13.03 LICENSEE shall maintain such comprehensive general liability
insurance during (a) the period that any LICENSED PRODUCT is being
clinical tested in human subjects or is being commercially
distributed or sold (other than for the purposed of obtaining
regulatory approvals) by LICENSEE or by a SUBLICENSEE, AFFILIATE, or
agent of LICENSEE and (b) a reasonable period after the period
referred to in 13.01 above in which no event shall be less that
fifteen years.
13.04 Any SUBLICENSEE shall maintain insurance in favor of CHOP under the
same terms as set forth above.
14. TERM, TERMINATION, AND MODIFICATION OF RIGHTS
14.01 This AGREEMENT is effective when signed by the parties upon the
EFFECTIVE DATE and shall extend to the expiration of the last to
expire of the LICENSED PATENT RIGHTS unless sooner terminated as
provided in this Article 14.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 14
14.02 In the event that LICENSEE is in default in the performance of any
material obligations under this AGREEMENT, including but not limited
to the obligations listed in Paragraph 14.05, and if the default has
not been remedied within [*] days after the date of notice in
writing of such default, or if such default is not capable of remedy
within such [*] day period, then if LICENSEE has not commenced good
faith efforts to cure such default, CHOP may terminate this AGREEMENT
by written notice, and provided that if such breach is specific as to
a given country or countries with respect to a given LICENSED
PRODUCT, such termination shall not be as to whole AGREEMENT, but
only as to such LICENSED RIGHTS as granted hereunder to LICENSEE with
respect to such country or countries and such LICENSED PRODUCT.
14.03 In the event that LICENSEE becomes subject to a BANKRUPTCY EVENT,
LICENSEE shall immediately notify CHOP in writing.
14.04 LICENSEE shall have a unilateral right to terminate this AGREEMENT
and/or any licenses in any country by giving CHOP [*] days written
notice to that effect. Such termination is final and CHOP, at its
sole discretion, shall be free thereafter to license LICENSED PATENT
RIGHTS and LICENSED TECHNOLOGIES to other interested parties in such
country.
14.05 CHOP shall specifically have the right to terminate or modify, at its
option, this AGREEMENT, if CHOP determines that the LICENSEE: 1) has
not achieved the performance BENCHMARKS listed in APPENDIX D and the
LICENSEE cannot otherwise demonstrate to CHOP'S reasonable
satisfaction within [*] days of failing to achieve the performance
BENCHMARKS that the LICENSEE has taken, or can be expected to take
within a reasonable time, effective steps to achieve the performance
BENCHMARKS and PRACTICAL APPLICATION of the LICENSED PRODUCTS; 2) has
become subject to a BANKRUPTCY EVENT; 3) has not paid any royalty or
other payment due CHOP; [*] 5) has committed a material breach of a
covenant or agreement contained in the AGREEMENT; [*] In making this
determination, CHOP will take into account the normal course of such
commercial development programs conducted with sound and reasonable
business practices and judgment and the annual reports submitted by
LICENSEE under Paragraph 9.02. Prior to invoking this right, CHOP
shall give written notice to LICENSEE listing concerns as to the
previous items 1) to 8) and if LICENSEE fails to initiate corrective
action to CHOP'S satisfaction within [*] days of such notice, CHOP
may terminate this AGREEMENT.
14.06 When [*] so require, and after written notice to [*] setting forth
the compelling reasons therefor and providing [*] day opportunity to
respond, [*] shall have the right to [*] unless [*] can reasonably
demonstrate to [*] reasonable satisfaction that the [*] would not
materially [*] of the subject matter of the [*] CHOP will not [*]
unless the responsible [*].
14.07 CHOP reserves the right according to 35 U.S.C.Section 209(f) (4) to
terminate
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 15
or to modify this AGREEMENT if it is determined that such action is
necessary to meet requirements for public use specified by federal
regulations issued after the date of the license and such
requirements are not reasonably satisfied by LICENSEE.
14.08 Within [*] days of receipt of written notice of CHOP's unilateral
decision to modify or terminate this AGREEMENT, LICENSEE may,
consistent with the provisions of 37 CFR 404.11, appeal the decision
by written submission to the designated CHOP official. The decision
of the designated CHOP official shall be the final agency decision.
LICENSEE may thereafter exercise any and all administrative or
judicial remedies that may be available.
14.09 Within ninety (90) days of termination of this AGREEMENT under this
Article 14 or expiration under Paragraph 14.01, a final report in
accordance with Section 6.09 shall be submitted by LICENSEE. Any
royalty and other payments, including those related to patent
expense, due to CHOP shall become immediately due and payable upon
termination or expiration. If terminated under this Article 14, CHOP
may elect to convert SUBLICENSEE sublicenses to direct licenses with
SUBLICENSEE pursuant to Paragraph 4.03.
14.10 Upon any termination of this AGREEMENT, LICENSEE shall permit CHOP to
[*] in order to assist CHOP [*] with respect to those [*].
15. GENERAL PROVISIONS
15.01 Neither Party may waive or release any of its rights or interests in
this AGREEMENT except in writing. The failure of a Party to assert a
right hereunder or to insist upon compliance with any term or
condition of this AGREEMENT shall not constitute a waiver of that
right by such Party or excuse a similar subsequent failure to perform
any such term or condition by the other party.
15.02 This AGREEMENT constitutes the entire AGREEMENT between the Parties
relating to the subject matter of the LICENSED PATENT RIGHTS and
LICENSED TECHNOLOGIES, and all prior negotiations, representations,
agreements, and understandings are merged into, extinguished by, and
completely expressed by this AGREEMENT.
15.03 The provisions of this AGREEMENT are severable, and in the event that
any provision of this AGREEMENT shall be determined to be invalid or
unenforceable under any controlling body of law such determination
shall not in any way affect the validity or enforceability of the
remaining provisions of this AGREEMENT.
15.04 If either Party desires a modification to this AGREEMENT, the Parties
shall, upon reasonable notice of the proposed modification by the
Party desiring the change, confer in good faith to determine the
desirability of such modification. No modification will be effective
until a written amendment is signed by the signatories to this
AGREEMENT or their designees.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 16
15.05 The construction, validity, performance, and effect of this AGREEMENT
shall be governed by the Laws of [*] without regard to any choice
or conflict of laws rule or principles that would result in the
application of the domestic substantive law of any other jurisdiction
other than (i) United States federal law, to the extent applicable
and (ii) in regard to any question affecting the construction or
effect of any patent, the law of the jurisdiction under which such
patent is granted.
15.06 All notices required or permitted by this AGREEMENT shall be given by
prepaid, first class, registered or certified mail properly addressed
to the other Party at the address designated on the following
Signature Page, or to such other address as may be designated in
writing by such other Party, and shall be effective as of the date of
the postmark of such notice.
15.07 This AGREEMENT shall not be assigned by LICENSEE except a) with the
prior written consent of CHOP; or b) as part of a sale or transfer of
substantially the entire business of LICENSEE relating to operations
which concern this AGREEMENT provided that such assignee or
transferee has agreed in writing to be bound by the terms and
provisions of this AGREEMENT and is so bound by operation of law.
LICENSEE shall notify CHOP within ten (10) days of any assignment of
this AGREEMENT by LICENSEE pursuant to this Paragraph 15.07 (b).
15.08 LICENSEE agrees in its use of any CHOP supplied materials to comply
with all applicable statutes, regulations, and guidelines, including
Public Health Service and National Institutes of Health regulations
and guidelines. LICENSEE agrees not to use the materials for research
involving human subjects or clinical trials in the United States
without complying with 21 CFR Part 50 and 45 CFR Part 46. LICENSEE
agrees not to use the materials for research involving human subjects
or clinical trials outside of the United States without notifying
CHOP, in writing, of such research or trials and complying with the
applicable regulations of the appropriate national control
authorities. Written notification to CHOP of research involving human
subjects or clinical trials outside of the United States shall be
given no later than sixty (60) days prior to commencement of such
research or trials.
15.09 LICENSEE acknowledges that it is subject to and agrees to abide by
the United States laws and regulations (including the Export
Administration Act of 1979 and Arms Export Control Act) controlling
the export of technical data, computer software, laboratory
prototypes, biological material, and other commodities. The transfer
of such items may require a license from the cognizant Agency of the
U.S. Government or written assurances by LICENSEE that it shall not
export such items to certain foreign countries without prior approval
of such agency. CHOP neither represents that a license is not
required nor that, if required, it shall be issued.
15.10 LICENSEE agrees to mark the LICENSED PRODUCTS or their packaging sold
in the United States with all applicable U.S. patent numbers and
similarly to indicate "Patent Pending" status. All LICENSED PRODUCTS
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 17
manufactured in, shipped to, or sold in other countries shall be
marked in such a manner as to preserve CHOP patent rights in such
countries.
15.11 By entering into this AGREEMENT, CHOP does not directly or indirectly
endorse any product or service provided, or to be provided, by
LICENSEE whether directly or indirectly related to this AGREEMENT.
LICENSEE shall not state or imply that this AGREEMENT is an
endorsement by CHOP or its employees in any advertising, promotional,
or sales literature without the prior written consent of CHOP.
LICENSEE shall not otherwise use the name of CHOP or its employees in
any advertising, promotional, sales literature or other publicity
without the prior written consent of CHOP.
15.12 The Parties agree to attempt to settle amicably any controversy or
claim arising under this AGREEMENT or a breach of this AGREEMENT,
except for appeals of modifications or termination decisions provided
for in Article 13. LICENSEE agrees first to appeal any such unsettled
claims or controversies to the designated CHOP official, or designee,
whose decision shall be considered the final agency decision.
Thereafter, LICENSEE may exercise any administrative or judicial
remedies that may be available.
15.13 Nothing relating to the grant of a license, nor the grant itself,
shall be construed to confer upon any person any immunity from or
defenses under the antitrust laws or from a charge of patent misuse,
and the acquisition and use of rights pursuant to 37 CFR Part 404
shall not be immunized from the operation of state or Federal law by
reason of the source of the grant.
15.14 For the purposes of this AGREEMENT, each party shall be, and shall be
deemed to be, an independent contractor and not an agent, partner,
joint venturer, or employee of the other party.
15.15 LICENSEE acknowledges that CHOP's investigators are subject to the
applicable policies of CHOP including, without limitation, policies
regarding conflicts of interest and intellectual property. LICENSEE
shall provide CHOP with any AGREEMENT it proposes to enter into with
any CHOP investigator (including, without limitation, any member of
the medical or research staff of CHOP) for CHOP'S prior review and
shall not enter into any oral or written agreement with any such
investigator that conflicts with any such policy. CHOP shall provide
LICENSEE, at LICENSEE's request, with copies of any such policies
applicable to any such employee.
15.16 Paragraphs 4.03, 4.05, 6.10 - 6.13, 8.01, 8.02,12.01-12.05, 14.08
-14.10, and 15.12 of this AGREEMENT shall survive termination of this
AGREEMENT.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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CHOP PATENT LICENSE AGREEMENT -- EXCLUSIVE
SIGNATURE PAGE
For CHOP:
/s/ Robert G. Uris May 20, 1999
- ------------------------------------------- ------------
Robert G. Uris Date:
Vice President, Research Administration
Mailing Address for Notices:
The Children's Hospital of Philadelphia
34th Street and Civic Center Blvd.
Philadelphia, PA 19104-4318
For LICENSEE (Upon information and belief, the undersigned expressly certifies
or affirms that the contents of any statements of LICENSEE made or referred to
in this document are truthful and accurate.):
by:
/s/ John Monahan, Ph.D. May 20, 1999
- ------------------------------------------- ------------
Signature of Authorized Official Date
John Monahan, Ph.D.
- -------------------------------------------
Printed Name
President & CEO
- -------------------------------------------
Title
Mailing Address for Notices:
Avigen, Inc.
1201 Harbor Bay Parkway #1000
Alameda, CA 95402
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 19
APPENDIX A -- PATENT(S) OR PATENT APPLICATION(S)
Patent(s) or Patent Applications:
[*] and the International Application No. PCT/US98/04790 filed March 12,
1998.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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APPENDIX B--LICENSED FIELD OF USE AND TERRITORY
Licensed Fields of Use:
[*]
Licensed Territory:
Worldwide
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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APPENDIX C - ROYALTIES
1. For each LICENSED PRODUCT sold by LICENSEE or its AFFILIATE(S) or its
SUBLICENSEE(S) coming within the scope of LICENSED PATENT RIGHTS in the
country in which such LICENSED PRODUCT is manufactured, used or sold, the
royalty shall be [*] of the NET SALES PRICE.
2. During each of the [*] years next following the FIRST COMMERCIAL SALE
anywhere in the world by LICENSEE, its AFFILIATE(S) or SUBLICENSEE(S) of
each LICENSED PRODUCT not coming within the scope of LICENSED PATENT RIGHTS
in the country in which such LICENSED PRODUCT is manufactured, used or sold,
LICENSEE shall pay CHOP a royalty on the sale of such LICENSED PRODUCT of
[*] percent of the NET SALES PRICE.
3. In the event it is necessary for LICENSEE to pay royalties to unrelated
third parties for the manufacture, sale or use of a CHOP-provided ACTIVE
FUNCTIONAL ELEMENT(S) in a LICENSED PRODUCT(S), LICENSEE may deduct from any
royalties due CHOP under Section 1 and 2 hereof [*] provided, however, that
such [*].
4. LICENSEE agrees to pay CHOP a noncreditable, nonrefundable license issue
royalty of [*] due as follows: [*] within [*] from the EFFECTIVE DATE
of this AGREEMENT, [*] within [*] months from the EFFECTIVE DATE of this
AGREEMENT, and [*] within [*] months from the EFFECTIVE DATE of this
AGREEMENT. Should LICENSEE [*] LICENSEE agrees to pay CHOP the remaining
[*] license issue royalty within [*] of receipt of [*]
5. LICENSEE agrees to pay CHOP a [*] during the term of this AGREEMENT. The [*]
incurred by LICENSEE or reimbursement due CHOP pursuant to Section [*] shall
thereafter be [*], if any. [*].
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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APPENDIX D - BENCHMARKS
LICENSEE agrees to the following BENCHMARKS for its performance under this
AGREEMENT. Within [*] days of achieving a BENCHMARK, shall notify CHOP that the
BENCHMARK has been achieved.
1. [*].
2. [*].
3. [*].
4. [*].
5. [*].
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
22
<PAGE> 23
APPENDIX E - MILESTONE PAYMENTS
1. If LICENSED PRODUCT comes within the scope of LICENSED PATENT RIGHTS, CHOP
shall receive milestone payments according to the schedule below, said
milestone payment being due ninety days (90) following the COMPLETION of
each milestone.
2. If LICENSED PRODUCT does not come within the scope of LICENSED PATENT
RIGHTS, CHOP shall receive milestone payments equal to [*] of the payments
listed in the schedule below, the payment being due ninety days (90)
following the COMPLETION of each milestone.
3. In no event will more than one set of milestone payments be due under this
AGREEMENT.
SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Milestone Payment
- --------------------------------------------------------------------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
- --------------------------------------------------------------------------------
</TABLE>
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
23
<PAGE> 1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 pertaining to the 1993 Stock Option Plan, 1996 Stock Option Plan,
Nonstatutory Stock Option, 1996 Equity Incentive Plan, and the 1996 Non-Employee
Directors Stock Option Plan of Avigen, Inc. of our report dated August 6, 1999,
with respect to the financial statements of Avigen, Inc. included in the Annual
Report on Form 10-K for the year ended June 30, 1999.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,945
<SECURITIES> 11,936
<RECEIVABLES> 185
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,066
<PP&E> 3,799
<DEPRECIATION> 2,749
<TOTAL-ASSETS> 1,050
<CURRENT-LIABILITIES> 1,595
<BONDS> 265
0
0
<COMMON> 12
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,183
<SALES> 0
<TOTAL-REVENUES> 185
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (9,611)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139
<INCOME-PRETAX> (9,602)
<INCOME-TAX> 9
<INCOME-CONTINUING> (9,611)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,611)
<EPS-BASIC> (0.99)
<EPS-DILUTED> 0
</TABLE>
