<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1998.
REGISTRATION NO. 333-51475
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 5 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GENVEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 2834 23-2705690
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
CODE NUMBER)
GENVEC, INC.
12111 PARKLAWN DRIVE
ROCKVILLE, MARYLAND 20852
(301) 816-0396
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DR. PAUL H. FISCHER
CHIEF EXECUTIVE OFFICER
GENVEC, INC.
12111 PARKLAWN DRIVE
ROCKVILLE, MARYLAND 20852
(301) 816-0396
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
PAGE MAILLIARD, ESQ. LESLIE E. DAVIS, ESQ.
NAN H. KIM, ESQ. KATHY A. FIELDS, ESQ.
WILSON SONSINI GOODRICH & ROSATI TESTA, HURWITZ & THIBEAULT, LLP
PROFESSIONAL CORPORATION HIGH STREET TOWER
650 PAGE MILL ROAD 125 HIGH STREET
PALO ALTO, CALIFORNIA 94304-1050 BOSTON, MASSACHUSETTS 02110
(650) 493-9300 (617) 248-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share........ 2,875,000 $13.00 $37,375,000 $11,025.63(3)
</TABLE>
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(1) Includes 375,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. Also reflects the proposed 5.9 for 1
reverse stock split of the Company's Common Stock, subject to stockholder
approval, which is anticipated to be consummated prior to the closing of
the offering contemplated hereby.
(2) Estimated solely for the purposes of computing the amount of the
registration fee in accordance with Rule 457(a).
(3) Fee previously paid in connection with original filing on April 30, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 22, 1998
[LOGO OF GENVEC APPEARS HERE]
2,500,000 SHARES
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
GenVec, Inc. ("GenVec" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, upon completion of this
offering, under the symbol "GNVC."
Warner-Lambert Company ("Warner-Lambert") is a party to a strategic alliance
with the Company. Pursuant to an existing agreement with the Company, Warner-
Lambert has agreed to purchase $5,000,000 of the Company's Common Stock in a
private transaction concurrent with this offering at a price per share equal to
125% of the initial public offering price. See "Business--Strategic Alliances--
Corporate Collaborations--Warner-Lambert Company."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $900,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
-----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
J.P. MORGAN & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus is , 1998
<PAGE>
Treatment of Coronary Artery Disease with Gene Therapy
GenVec's lead product candidate, BIOBYPASS angiogen, is designed to induce
new blood vessel formation in tissues with inadequate blood flow. In December
1997, the Company initiated a Phase I/II clinical trial with BIOBYPASS
angiogen for direct injection into the hearts of patients with coronary artery
disease who are undergoing coronary artery bypass graft surgery. The Company
also intends to commence a Phase I/II clinical trial in patients with
peripheral vascular disease in May 1998.
[Two figures of coronary angiograms from pig models of coronary artery disease
illustrate the text immediately below the figures. Figure 1 is taken from the
control subject. Figure 2 is taken from the subject treated with BIOBYPASS
angiogen and shows the induction of new blood vessels relative to Figure 1 and
the refilling of the left circumflex artery beyond the area of blockage.]
BIOBYPASS angiogen was evaluated in a pig model of coronary artery disease.
Blood flow through the left circumflex artery of the pig heart was blocked
with an ameroid constrictor, shown in the upper left corners of both images.
In a single procedure three weeks later, the hearts received multiple
injections around the blockage site with either BIOBYPASS angiogen or a
control. The coronary angiograms above were taken four weeks after the
injections. In the treated heart, BIOBYPASS angiogen induced the formation of
new blood vessels, and refilling of the left circumflex artery beyond the area
of blockage was observed (figure 2). In contrast, no filling of the circumflex
artery was visible in the control case (figure 1). These and other preclinical
data have shown that administration of BIOBYPASS angiogen to the heart
increased the number of blood vessels, improved blood flow and restored
cardiac contractility to normal. Long-term studies on the effects of BIOBYPASS
angiogen have not been conducted. BIOBYPASS angiogen is not currently marketed
by GenVec, and there can be no assurance that the Company will be able to
obtain the necessary regulatory approvals to do so in the future. See "Risk
Factors--Uncertainties Related to Clinical Development."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 27
Management............................................................... 49
Certain Transactions..................................................... 57
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 60
Shares Eligible For Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 67
Experts.................................................................. 67
Additional Information................................................... 67
Index to Financial Statements............................................ F-1
</TABLE>
----------------
BIOBYPASS is a trademark of the Company, and the term angiogen is used to
refer to an angiogenic agent. Tradenames and trademarks of other companies
appearing in this Prospectus are the property of their respective holders.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent certified public accounting
firm and quarterly reports containing unaudited interim financial information
for each of the first three quarters of each year.
The Company was incorporated in Delaware in 1992. The Company's executive
offices are located at 12111 Parklawn Drive, Rockville, Maryland 20852, and
its telephone number is (301) 816-0396.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
GenVec focuses on the development and commercialization of novel gene therapy
products for major disease markets. GenVec's lead product candidate, BIOBYPASS
angiogen, is designed to induce angiogenesis, or new blood vessel formation, in
tissues with inadequate blood flow. BIOBYPASS angiogen uses an adenovirus
vector to deliver and express the gene for vascular endothedial growth factor-
121 ("VEGF/121/"). BIOBYPASS angiogen is being developed for the treatment
of coronary artery disease ("CAD") and peripheral vascular disease ("PVD"), and
is intended to be used either alone or as an adjunct to existing surgical
procedures. In December 1997, the Company initiated a Phase I/II clinical trial
with its BIOBYPASS angiogen for direct injection into the hearts of patients
with CAD who are undergoing coronary artery bypass graft ("CABG") surgery. The
Company also intends to commence a Phase I/II clinical trial in patients with
PVD in May 1998. The Company has entered into a collaboration with the Warner-
Lambert Company ("Warner-Lambert") to develop and commercialize BIOBYPASS
angiogen and other gene therapy products for therapeutic angiogenesis. Under
the terms of the collaboration, Warner-Lambert may pay to the Company a total
of more than $100 million in milestone payments, research funding, equity
purchases and technology access fees, if specified milestones are achieved. As
of April 20, 1998, Warner-Lambert had paid to the Company $13.5 million under
this collaboration, and had purchased $2.0 million of the Company's stock.
Additionally, GenVec is developing product candidates and vector technology
in the areas of cardiovascular disease, oncology and neurology. For the
treatment of restenosis associated with angioplasty and vascular damage
associated with arteriovenous ("A-V") grafts, GenVec is developing Ad.iNOS, an
adenovirus vector containing the inducible nitric oxide synthase ("iNOS") gene.
In oncology, GenVec is developing Ad.TNFa, an adenovirus vector containing the
tumor necrosis factor alpha ("TNFa") gene. Ad.TNFa is designed to enhance the
effectiveness of radiation therapy without increasing toxicity to normal
tissue. In collaboration with Fuso Pharmaceutical Industries, Ltd. ("Fuso"),
GenVec is developing Ad.CD and is conducting research on immunotherapy of
cancer based on the delivery of tumor antigen genes. Ad.CD, an adenovirus
vector containing the cytosine deaminase ("CD") gene, is designed to convert a
nontoxic precursor drug into fluorouracil to effect tumor destruction, either
alone or in combination with radiation therapy. In neurology, GenVec intends to
develop product candidates through the application of its herpes simplex virus
("HSV") vector technology.
To customize gene therapy products for specific medical needs, GenVec is
developing vectors for cell-specific gene delivery and promoters which regulate
the level and duration of gene expression. GenVec's technology portfolio
includes: (i) therapeutic genes such as VEGF/121/, iNOS, TNFa and CD; (ii)
vector systems such as adenovirus and HSV; (iii) receptor mediated targeting
technology and (iv) tissue-specific and inducible promoters.
GenVec intends to successfully develop and commercialize product candidates
by applying the following business strategies: (i) enhance leadership in
therapeutic angiogenesis; (ii) expand its portfolio of products under
development; (iii) broaden its technology platform; (iv) strengthen product
development through corporate collaborations and (v) maintain and expand
intellectual property strength.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company.......... 2,500,000 shares
Common Stock Outstanding after the Offering.. 9,857,784 shares (1)
Use of Proceeds.............................. For research and development,
clinical trials, capital
expenditures, working capital
and general corporate purposes,
including possible acquisitions
of complementary technology,
products or businesses. See "Use
of Proceeds."
Nasdaq National Market Symbol................ GNVC
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ 1,005 $ 698 $10,188 $ -- $ 3,688
Operating expenses:
Research and development.. 6,500 6,355 8,986 1,614 3,093
General and
administrative........... 2,025 2,947 2,720 550 739
Total operating expenses.... 8,967 9,302 11,706 2,164 3,832
Interest income, net........ 413 496 263 74 115
------- ------- -------- --------- ---------
Net loss.................... $(7,549) $(8,108) $ (1,255) $(2,090) $ (29)
======= ======= ======== ========= =========
Pro forma basic net loss per
share (2).................. $ (0.18) $ (0.01)
======== =========
Shares used in computing pro
forma basic
net loss per share (2)..... 6,999 7,019
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (3)
-------- ---------------
(unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments........................................ $ 7,262 $ 39,262
Working capital..................................... 7,883 39,883
Total assets........................................ 10,692 42,692
Accumulated deficit................................. (28,889) (28,889)
Total stockholders' equity ......................... 8,639 40,639
</TABLE>
- --------
(1) Based on number of shares of Common Stock outstanding as of March 31, 1998.
Includes 333,333 shares of Common Stock to be sold to Warner-Lambert at an
assumed price of $15.00 per share. Excludes (i) 1,105,955 shares of Common
Stock issuable upon exercise of outstanding options as of March 31, 1998,
at a weighted average exercise price of $1.95 per share and (ii) 320,416
shares of Common Stock issuable upon exercise of outstanding warrants as of
March 31, 1998, at a weighted average exercise price of $12.65 per share.
(2) See Note 2 of Notes to Financial Statements for a description of the
computation of pro forma basic net loss per share.
(3) As adjusted to give effect to (i) the conversion of all issued and
outstanding shares of Preferred Stock into 6,042,263 shares of Common Stock
upon the completion of this offering; (ii) the sale of 2,500,000 shares of
Common Stock offered hereby at the assumed initial public offering price of
$12.00 per share and (iii) the sale of 333,333 shares of Common Stock to
Warner-Lambert at an assumed price of $15.00 per share. See "Use of
Proceeds" and "Capitalization."
----------------
Unless otherwise indicated, all information in this Prospectus (i) has been
adjusted to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and the conversion of all outstanding
warrants to purchase shares of Preferred Stock into warrants to purchase Common
Stock upon the completion of this offering; (ii) has been adjusted to give
effect to a 5.9 for 1 reverse split of the shares of Common Stock and Preferred
Stock, effected in June 1998 (the "Reverse Split") and (iii) assumes no
exercise of the Underwriters' over-allotment option. See "Capitalization" and
"Underwriting."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
UNCERTAINTIES RELATED TO CLINICAL DEVELOPMENT
Before obtaining regulatory approvals for the commercial sale of its product
candidates, including its BIOBYPASS angiogen, the Company or its corporate
collaborators will be required to demonstrate through preclinical studies and
clinical trials that the product candidates are safe and effective for use in
each target indication. To date, the Company's product candidates have only
undergone limited preclinical evaluation and in some cases, initial clinical
testing. Long term studies have not been conducted for any of the Company's
product candidates. There can be no assurance that the Company will obtain
authorization for human clinical testing of any of its products currently in
research or preclinical development or for further testing of products in
clinical trials. In addition, the results from preclinical studies and early
clinical trials may not be predictive of results that will be obtained in
large-scale testing, and there can be no assurance that the clinical trials
conducted by the Company or its collaborators will demonstrate sufficient
safety and efficacy to obtain the required regulatory approvals. Further, the
Company or regulatory authorities may suspend clinical trials at any time if
it is thought that the participants are being exposed to unacceptable health
risks. Even after regulatory approval, a product may later be shown to be
unsafe or not to have its purported effect, preventing its widespread use or
requiring its withdrawal from the market and exposing the Company to potential
product liability. The Company has limited experience conducting clinical
trials and intends to rely primarily on its corporate collaborators for
clinical testing of its product candidates.
Clinical trials are often conducted with patients having the most advanced
stages of disease. During the course of treatment, these patients can die or
suffer other adverse medical effects for reasons that may not be related to
the proposed product being tested, but which can nevertheless affect clinical
trial results. Various companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after attaining
promising results in earlier trials. Clinical trials for the product
candidates being developed by the Company may be delayed by many factors. Any
delays in, or termination of, the clinical trials of any of the Company's
product candidates, or the failure of any clinical trials to meet applicable
regulatory standards, could have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTIES RELATED TO GENE THERAPY
The Company's products are subject to risks particular to the development of
gene therapy products. Gene therapy is a new and rapidly evolving medical
approach, whose safety and efficacy have not been demonstrated on a widespread
basis. Data relating to the Company's specific approaches to gene therapy are
also limited. Product development involving new therapies is highly uncertain,
and gene therapy generally, or the Company's specific gene therapy products,
may prove to have undesirable and unintended side effects, show unacceptable
toxicity, trigger immune responses, demonstrate inadequate therapeutic
efficacy, or have other characteristics that may prevent or limit their
commercial use.
The Company's product candidates, including its BIOBYPASS angiogen and its
gene delivery technologies, are in the early developmental stage and require
significant additional research and development, testing and regulatory
approval. To date no gene therapy products have been successfully manufactured
on a large scale or commercialized by the Company or others. The Company's
development of products will be subject to other risks of failure including,
among others, the possibilities that any such products will be found to be
ineffective or toxic, or otherwise fail to receive necessary regulatory
approvals; that any of the products, if safe and effective, will prove
difficult or impossible to manufacture on a large scale
6
<PAGE>
or will be uneconomical to market; that the proprietary rights of third
parties will preclude the Company or its collaborators from marketing any
products developed; that the products will fail to achieve market acceptance;
and that third parties will market equivalent or superior products. As a
result, there can be no assurance that the Company or its collaborators will
be able to develop, manufacture and successfully commercialize the Company's
product candidates within a reasonable time frame or ever. Failure to develop
successfully the Company's current product candidates would materially and
adversely affect the Company's business, financial condition and results of
operations.
RELIANCE ON WARNER-LAMBERT AND OTHER CORPORATE COLLABORATORS
The Company's strategy for development and commercialization of therapeutic
products depends, in large part, upon the formation of multiple corporate
collaborations and licensing arrangements with third parties. The Company has
established a corporate collaboration with Warner-Lambert in the area of
therapeutic angiogenesis, and has granted Warner-Lambert the right to conduct
research, development, marketing, commercialization and certain manufacturing
activities relating to gene therapy products incorporating the vascular
endothelial growth factor ("VEGF") gene for therapeutic angiogenesis.
Accordingly, the Company is substantially dependent on Warner-Lambert for the
development, funding and commercial success of any of its therapeutic
angiogenesis product candidates, including BIOBYPASS angiogen. In addition,
payments from Warner-Lambert are expected to constitute a substantial portion
of the Company's revenues for the next several years. The Warner-Lambert
agreement may be terminated by either party for breach. The research program
under the Warner-Lambert agreement may be terminated by Warner-Lambert on six
months prior written notice after July 21, 2000, in which event Warner-Lambert
would have no further research funding obligation to the Company. If Warner-
Lambert were to terminate its agreement with the Company or otherwise fail to
conduct its collaborative activities successfully and in a timely manner, the
preclinical and clinical development or commercialization of BIOBYPASS
angiogen, or any other potential therapeutic angiogenesis product candidates,
would be delayed or terminated. Any such delay or termination could have a
material adverse effect on the Company's business, financial condition and
results of operations. The success of the corporate collaboration with Warner-
Lambert will depend in part upon Warner-Lambert's own competitive, marketing
and strategic considerations, including the relative advantages of alternative
products being developed and marketed by Warner-Lambert and its competitors.
If Warner-Lambert is unsuccessful in commercializing any product candidate for
any reason, the Company's business, financial condition and results of
operations could be materially adversely affected.
The Company has also entered into strategic alliances with Fuso in certain
areas of oncology, and Varian in the area of radiation therapy. Each of these
and any other strategic alliances requires time, resources and management
attention. The Company's strategy includes entering into multiple, concurrent
corporate collaborations. There can be no assurance that the Company will
successfully manage simultaneous collaborative programs. Failure by the
Company to manage existing and future strategic alliances, maintain
confidentiality among corporate collaborators or prevent the occurrence of
conflicts among corporate collaborators could lead to disputes that result in,
among other things, a significant strain on management resources, legal claims
involving significant time, expense and loss of reputation, loss of capital or
loss of revenues, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
the Company has received substantially all of its revenues since inception
from its corporate collaborators and expects to continue to do so in the near
term. There can be no assurance that the Company will successfully establish
additional corporate collaborations or licensing arrangements in the future
under terms acceptable to the Company or that any future corporate
collaborations or licensing arrangements will ultimately be successful.
Failure of the Company to enter into additional corporate collaborations could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company intends to rely primarily on corporate collaborators for
preclinical studies, clinical development, regulatory approval, manufacturing
and marketing of its gene therapy products, if any. Agreements with corporate
collaborators typically allow such collaborators significant discretion in
electing
7
<PAGE>
whether to pursue any of these activities. The Company cannot control the
amount and timing of resources its corporate collaborators may devote to the
Company's programs or potential products, and there can be no assurance that
such collaborators will perform their obligations as expected. A corporate
collaborator's performance under its agreement with the Company could be
materially adversely affected if such collaborator were involved in certain
third-party transactions such as a business combination or in the event that
the corporate collaborator experienced a significant strategic shift in its
business focus. If any corporate collaborator were to breach its agreement
with the Company, otherwise fail to conduct its collaborative activities in a
timely manner or terminate the collaboration agreement early, such action
could have a material adverse effect on the Company's business, financial
condition and results of operations. The failure of a collaborator to develop
or commercialize a product to which it has rights could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Under its current corporate collaborations, the Company has agreed not to
conduct certain research, independently or with other third parties, that is
in the same field as the research conducted under the collaboration agreement.
Consequently, such arrangements have the effect of limiting the areas of
research the Company may elect to pursue, either alone or with others. There
can be no assurance that a corporate collaborator will not develop, either
alone or with others, alternative technologies or products which are
competitive with any that might result from the Company's research program
with the corporate collaborator. Possible disagreements between the Company
and its corporate collaborators, including disputes relating to the ownership
of rights to any technology developed with third parties, could lead to delays
in collaborative research, development or commercialization of certain
products or could require or result in litigation or arbitration, which would
be time consuming and expensive, and could have a material adverse effect on
the Company's business, financial condition and results of operations.
EARLY STAGE OF COMPANY DEVELOPMENT; LIMITED EXPERIENCE
The Company is at an early stage of development and has limited resources
and operating experience. To date, the Company has no experience with respect
to conducting late stage clinical trials, obtaining regulatory approvals for
product commercialization, marketing, product sales and large-scale
manufacturing. The Company will depend, to a significant extent, on the
resources and experience of corporate collaborators in these and related
areas. There can be no assurance that the Company will be able to enter into
arrangements with corporate collaborators on acceptable terms, if at all.
Failure to enter into acceptable collaborative arrangements, or the failure of
collaborators to provide the Company with adequate resources and experience,
may have a material adverse effect on the Company's ability to develop and
deliver products on a timely and competitive basis, if at all. To the extent
the Company directly engages in the late stage clinical trials, marketing,
sales and large-scale manufacturing of its product candidates, it will require
substantial additional funds, personnel and production facilities.
INTELLECTUAL PROPERTY
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. In addition, patent law, and particularly patent
law relating to the gene therapy field, is still evolving. Development and
commercialization of the Company's product candidates and any potential
products will require, among other things, the integration of genes, vectors
and promoters with a delivery mechanism and the development of commercially
viable manufacturing processes. The Company's commercial success will be
dependent in part upon achieving such integration and development without
infringing the proprietary rights of others and upon obtaining intellectual
property protection that will give the Company's products an exclusive market
position.
Certain intellectual property components used in developing gene therapy
products, such as certain vectors and promoters used by the Company and
others, are in the public domain. As a result, the Company is unable to obtain
patent protection with respect to such components and third parties can freely
use such
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components. There can be no assurance that third parties will not develop
products using such components that compete with the Company's potential
products.
There can be no assurance that any of the pending patent applications owned
or licensed by the Company contain patentable and enforceable claims or will
result in valid issued patents, that the claims of any issued patents or any
patents issued in the future are valid and enforceable and will provide
meaningful protection, that the Company or its collaborators will develop
additional proprietary technologies that are patentable, or that any patents
now or in the future licensed or issued to the Company or its collaborators
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
licensed or issued to the Company, design around or otherwise circumvent the
patented technologies or other intellectual property licensed to or developed
by the Company. For example, while the Company has an exclusive license under
two United States patents relating to the VEGF/121/ gene and the use thereof for
gene therapy applications, third parties have patents for other forms of the
VEGF gene and such third parties or their licensees may develop products using
such other forms of the VEGF gene. There can be no assurance that products based
on such other forms of the VEGF gene or based upon other growth factors will not
be functionally equivalent to or better than the Company's proposed products, or
that such other products will not be more commercially successful than any
products commercialized by the Company or its collaborators for other reasons,
such as superior marketing or lower costs. Similarly, other parties hold patents
for other nitric oxide synthase, tumor necrosis factor and CD genes. Patents and
patent applications of the Company, its collaborators and its licensors may
become involved in interferences, oppositions or similar proceedings, and there
can be no assurance that such patents and patent applications will survive, in
whole or in part, such proceedings. No assurance can be given that patents
issued to the Company, its collaborators or its licensors, if any, will not be
contested, narrowed, revoked or invalidated. Academic collaborators and the U.S.
government may retain certain rights in intellectual property, including patents
and patent applications, developed by such academic collaborators.
While the Company has not conducted freedom to use patent searches on
aspects of its product candidates and potential products and may therefore be
unaware of relevant patents and patent applications of third parties, the
Company is aware of several United States patents and patent applications and
foreign patents and patent applications owned by third parties relating to
gene therapy, promoters, cell lines, vectors and delivery mechanisms which do
or may cover aspects of the Company's product candidates and potential
products or their use, or manufacture including BIOBYPASS angiogen, as well as
other aspects of the Company's technology. Because patent applications are
maintained in secrecy in the United States, the Company cannot be certain that
third parties have not filed applications relating to technology being
developed by the Company or its collaborators or technology covered by patents
or patent applications of the Company, its collaborators or its licensors.
Certain third-party patent applications contain broad claims, and it is not
possible to determine whether or not such claims will be narrowed during
prosecution or will issue as patents, even if the claims appear to encompass
prior art or have other defects. The Company, its collaborators or its
licensors may choose to oppose or challenge third-party patents and patent
applications and such an opposition or challenge can be expensive and time
consuming. There can be no assurance that any opposition or challenge will be
successful. There can also be no assurance that the development, manufacture,
use, offer for sale, sale or importation of the Company's product candidates
and potential products by the Company or its collaborators will not infringe
claims of these or other issued patents, or claims that may issue from these
or other applications or that a third party will not threaten or file an
infringement action.
If the Company or one of its collaborators brings a patent infringement
action or otherwise brings an action to protect proprietary rights against
third parties or is required to defend against a charge of patent infringement
or a charge of infringement of other intellectual property rights, substantial
costs could be incurred and such actions could result in a significant
diversion of management's time and attention. In addition to being a potential
party to patent infringement litigation, the Company is involved in an
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interference proceeding relating to a pending patent application pertaining to
the treatment of blood vessel injury licensed by the Company from the National
Institutes of Health ("NIH") and a pending patent application of the
University of Michigan. An adverse resolution of such interference proceeding
would restrict or eliminate the scope of the license granted by NIH to GenVec,
which the Company believes would not have a material adverse effect on the
Company's current product candidates. The Company believes it will become
involved in additional interference proceedings declared by the United States
Patent and Trademark Office or opposition proceedings in a foreign patent
office. The adverse resolution of potential proceedings could have a material
adverse effect on the Company's product candidates. The Company intends to
provoke interference proceedings where it believes such actions to be
necessary to protect its intellectual property rights. There can be no
assurance that the Company will be successful in provoking such proceedings or
that the Company will achieve a favorable outcome. Patent infringement actions
and other intellectual property litigation, as well as participation in
interference or opposition proceedings, can be expensive and time-consuming,
even in those instances in which the outcome is favorable to the Company.
There can be no assurance that the Company or its collaborators will prevail
in any such litigation or proceedings. The Company and its licensors obtain
intellectual property, including biological material and know-how, from third
parties pursuant to various agreements and arrangements. Third parties may
challenge the intellectual property rights of the Company or its licensors or
claim ownership of intellectual property developed by the Company or its
collaborators. The Company could incur substantial expenses in contesting such
claims, whether successful or not.
The Company has certain licenses and believes that it or its collaborators
will be required to obtain additional licenses under third-party patents and
patent applications to continue research and development and to commercialize
the Company's product candidates and potential products, and there can be no
assurance that any such license will be made available on commercially viable
terms, if at all. If the Company is unable to obtain a license it may be
required to use an alternate technology or product and this may result in a
delay in FDA approval. In addition, licensors may terminate existing or future
license agreements, or terminate the exclusive nature of such agreements, if
the Company fails to meet specified milestones or other events. Any
termination of a license, or any failure of the Company or its collaborators
to obtain any required license on reasonable terms or at all, or the failure
to maintain the exclusivity of the Company's exclusive licenses, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's product candidates and potential products
will require several components that may each be the subject of a license
agreement. The cumulative license fees and royalties for these components may
make the commercialization of such product candidates and potential products
uneconomical.
The Company may rely on trade secret protection and confidentiality
agreements to protect its interests. There can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information or
otherwise gain access to the Company's trade secrets, or that the Company can
meaningfully protect its trade secrets. Any material leak of confidential
information into the public domain or to third parties may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Intellectual Property."
INTENSE COMPETITION
Competition among entities attempting to identify and develop new therapies
is intense. The Company faces, and will continue to face, competition from
pharmaceutical and biotechnology companies, academic and research institutions
and government agencies, both in the United States and abroad. Many of the
Company's competitors have substantially greater capital resources, research
and development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than the Company. Future competition
will likely come from existing competitors (including competitors with rights
to proprietary forms of the VEGF gene and other genes the Company currently
uses in its product candidates), as well as other companies seeking to develop
new treatments. Competitors or their academic collaborators may identify
important genes or delivery mechanisms before the Company, or develop gene
therapies that
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are more effective than those developed by the Company or its corporate
collaborators, or obtain regulatory approvals of their drugs more rapidly than
the Company or its corporate collaborators. Moreover, there can be no
assurance that the Company's competitors will not obtain patent protection or
other intellectual property rights that would limit the Company's or its
collaborators' ability to use the Company's gene therapy technologies. Any of
these events could materially and adversely affect the Company's business,
financial condition and results of operations.
The Company will rely on its corporate collaborators for support of certain
of its enabling technologies and intends to rely on its corporate
collaborators for preclinical and clinical development of related potential
products and the manufacturing and marketing of such products. Generally, the
Company's strategic alliance agreements do not preclude the corporate
collaborator from pursuing development efforts utilizing approaches distinct
from that which is the subject of the alliance. Product candidates of the
Company, therefore, may be subject to competition with a potential product
under development by a corporate collaborator. See "--Reliance on Warner-
Lambert and Other Corporate Collaborators."
Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers
development expenses. Products developed by the Company could be made obsolete
by less expensive or more effective technologies, even technologies unrelated
to gene therapy. For example, competitors may also develop small molecule,
protein, antisense or other therapeutic or surgical approaches that may
compete with or obviate the need for the Company's products. There can be no
assurance that the Company will be able to make the enhancements to its
technology necessary to compete successfully with existing or newly emerging
technologies.
MANUFACTURING LIMITATIONS
The Company has limited experience in manufacturing and currently lacks the
resources or capability to manufacture any of its product candidates on a
commercial scale. It currently has a research facility for the production of
its product candidates for preclinical purposes and relies on third-party
manufacturers of its product candidates for clinical purposes. For the
Company's lead product, BIOBYPASS angiogen, Warner-Lambert has the right to
fill and finish the final product. However, production of BIOBYPASS angiogen
for future clinical trials and possible commercialization is currently
intended to be performed primarily through a third-party manufacturer. The
Company currently intends to rely primarily on corporate collaborators and
third-party manufacturers for clinical and commercial purposes. If a third-
party manufacturer cancels or terminates an existing relationship or if the
Company is unable to contract for or obtain a sufficient supply of its product
candidates on acceptable terms, there could be significant reductions in sales
and delays in bringing the Company's product candidates to market, as well as
delays in the Company's clinical testing schedule, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, it is anticipated that production of the
Company's product candidates will be based in part on proprietary technology
of the Company. Successful technology transfer will be necessary. There can be
no assurance that manufacturers will abide by any limitations or
confidentiality restrictions on licenses with the Company. In addition, any
such manufacturer may develop process technology related to the manufacture of
the Company's compounds that such manufacturer owns either independently or
jointly with the Company. This would increase the Company's reliance on such
manufacturer or require the Company to obtain a license from such manufacturer
in order to have its products manufactured. There can be no assurance that any
such license would be available on terms acceptable to the Company, if at all.
Further, there can be no assurance that the arrangements with third-party
manufacturers will be successful.
Successful large-scale manufacturing of gene therapy products has yet to be
demonstrated by any third party, and it is anticipated that significant
process development changes will be necessary for the commercial process. For
example, changes in the current production process will be required for any
commercial manufacture of BIOBYPASS angiogen. There can be no assurance that
the Company or any third party will be able to manufacture commercial-scale
quantities of gene therapy products, or receive appropriate governmental
approvals on a timely basis or at all. Failure to manufacture successfully or
to obtain appropriate
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government approvals on a timely basis would have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, the Company intends to continue to develop its own
manufacturing capability, which will require significant resources and will be
subject to ongoing government approval and oversight. There can be no
assurance that the Company's efforts in this regard will be successful. See
"Business--Manufacturing" and "Business--Government Regulation."
HISTORY OF OPERATING LOSSES; FUTURE CAPITAL REQUIREMENTS
The Company has incurred operating losses in each year since its inception.
Net losses were approximately $7.5 million, $8.1 million and $1.3 million for
the years ended December 31, 1995, 1996 and 1997, respectively, and
approximately $29,000 for the three month period ended March 31, 1998. The
Company had an accumulated deficit of approximately $28.9 million as of March
31, 1998. The Company expects that it will incur additional losses for at
least the next several years and that such losses will increase as the Company
expands its research and development activities. The Company's losses to date
have resulted principally from costs incurred in research and development and
from general and administrative costs associated with the Company's
operations. Substantially all of the Company's revenues to date have been
derived from payments from corporate collaborations, and the Company expects
that substantially all of its revenues for the next several years will result
from payments from corporate collaborations. There can be no assurance that
the Company will be successful in entering into any new corporate
collaboration that results in revenues. The Company expects that it will be
several years, if ever, before the Company will recognize revenue from product
sales or royalties. Failure to achieve significant revenues or profitability
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company believes that the net proceeds from this offering and the sale
of shares to Warner-Lambert, existing cash and short-term securities and
anticipated cash flow from corporate collaborations will be sufficient to
support the Company's operations at least through 1999. However, this
expectation is based on the Company's current operating plan, which could
change as a result of many factors, and the Company could require additional
funding sooner than expected. In addition, the Company may choose to raise
additional capital due to market conditions or strategic considerations even
if it has sufficient funds for its operating plan. The Company's actual future
capital requirements and the adequacy of its available funds will depend on
many factors, including progress of its research and development programs, the
number and breadth of these programs, the results and timing of the Company's
clinical trials, the ability of the Company to establish and maintain
strategic alliance and licensing arrangements and the progress of the
development and commercialization efforts of the Company's corporate
collaborators. These factors also include the level of the Company's
activities relating to the development and commercialization rights it retains
in its corporate collaboration arrangements, competing technological and
market developments and the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual property
rights.
The Company expects that it will require significant additional funding in
the future, which it may seek through public or private equity offerings, debt
financings or additional strategic alliance and licensing arrangements. Upon
the closing of this offering, the Company will have no credit facility or
other committed sources of capital. No assurance can be given that additional
financing or strategic alliances and licensing arrangements will be available
when needed, or that, if available, such financing will be obtained on terms
favorable to the Company or its stockholders. To the extent the Company raises
additional capital by issuing equity or convertible securities, ownership
dilution to stockholders will result. If adequate funds are not available when
needed, the Company may be required to curtail operations significantly or to
obtain funds by entering into strategic alliances and licensing arrangements,
in which case the Company may be required to relinquish rights to certain of
its technologies, discoveries or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Unavailability of adequate funds would have a material
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adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on its scientific and management employees.
The Company also relies heavily on consultants to assist the Company in its
research and development programs. Attracting and retaining qualified
personnel and consultants is critical to the Company's success. The loss of
the services of any of these persons could significantly impede the
accomplishment of the Company's scientific and business objectives. The
Company's success is also dependent upon its ability to attract and retain
additional qualified scientific and managerial personnel. The Company is
actively recruiting additional personnel, including, without limitation, a
Chief Financial Officer. The Company faces substantial competition for
qualified individuals from numerous biotechnology, pharmaceutical and health
care companies, universities and other research organizations. The inability
of the Company to retain its current scientific and managerial personnel and
to attract and retain additional key employees and consultants could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, a significant portion of the Company's research and development
is conducted under sponsored research programs with several universities and
research institutions. The Company depends on the availability of a principal
investigator for such programs, and the Company cannot assure that any of
these individuals or their research staffs will be available to conduct
research and development for the Company. In addition, the Company's academic
collaborators are not employees of the Company. As a result, the Company has
limited control over their activities and can expect that only limited amounts
of their time will be dedicated to the Company's activities. The Company's
academic collaborators may have relationships with other commercial entities,
some of which could compete with the Company.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Prior to marketing, any products developed by the Company or its corporate
collaborators must undergo an extensive regulatory approval process in the
United States and other countries. This regulatory process, which includes
preclinical studies and clinical trials, and may include post-marketing
surveillance of each compound to establish its safety and efficacy, can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Delays
or rejections may also be encountered based upon changes in FDA policies for
drug approval during the period of product development and FDA regulatory
review. Similar delays may also be encountered in obtaining regulatory
approval in foreign countries. Delays in obtaining regulatory approvals could
adversely affect the marketing of any drugs developed by the Company or its
corporate collaborators, impose costly procedures upon the Company's or its
corporate collaborators' activities, diminish any competitive advantages that
the Company or its corporate collaborators may attain and adversely affect the
Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for products developed by the Company or its
corporate collaborators. Furthermore, regulatory approval may entail
limitations on the indicated uses of a proposed product. Because certain of
the Company's product candidates involve the application of new technologies
and may be based upon a new therapeutic approach, such products may be subject
to substantial additional review by various government regulatory authorities,
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon more conventional technologies. The Company's product
candidates may require a delivery device and such product and device may be
subject to separate regulatory review, which could also delay regulatory
approval.
The Company believes that the commercial uses of its products will be
regulated as biologics by the FDA and comparable regulatory bodies of other
countries. Gene therapy is, however, a relatively new technology, and the
regulatory requirements governing gene therapy products are uncertain. This
uncertainty may result in excessive costs or extensive delays in the
regulatory approval process, adding to the already lengthy review process for
human therapeutic products in general. The Company is not aware of any gene
therapy products
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that have received marketing approval from the FDA or any comparable
regulatory body of any other country. The regulation of the Company's products
and its ongoing research is subject to change, and future legislative or
administrative acts in the United States or other countries could have a
material adverse effect on the Company's business, financial condition and
results of operations. Regulatory requirements ultimately imposed could
adversely affect the ability of the Company's corporate collaborators to
clinically test, manufacture or market products, and could significantly delay
or reduce the milestone or royalty payments payable to the Company.
In order to obtain FDA approval of a new biological product, the Company
must submit substantial evidence of safety, purity, potency and efficacy.
The FDA approval process for a new biological drug involves completion of
pre-clinical studies which include laboratory tests and animal studies to
assess safety and effectiveness of the drug. Among other things, the results
of these studies as well as how the product will be manufactured are submitted
to the FDA as part of an Investigational New Drug ("IND") application and,
unless the FDA objects, the IND becomes effective 30 days following receipt by
the FDA. Human clinical trials may then be conducted. There can be no
assurance that submission of an IND will result in FDA authorization to
commence clinical trials or that approval of an IND will result in subsequent
approval of the drug. The results of the clinical trials are submitted to the
FDA as part of a Biologic License Application ("BLA"). Product sales may only
commence if the BLA is approved. Regulatory requirements for obtaining FDA
approval are rigorous and there can be no assurance that such approvals will
be obtained on a timely basis or at all.
Human clinical trials are typically conducted in three sequential phases,
but the phases may overlap. Phase I trials consist of testing the product in a
small number of patients primarily for safety at one or more dosage levels. In
Phase II, in addition to safety, the efficacy of the product is typically
evaluated in a patient population slightly larger than is used in Phase I
trials, and appropriate dosage is established. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
patient population at geographically dispersed test sites, and with the dosage
that will be submitted for approval. A clinical plan, or "protocol,"
accompanied by the approval of the institutional review board at the
institution participating in the trials, and patient-informed consent forms
must be submitted to and approval by the FDA prior to commencement of each
clinical trial. The FDA may order the temporary or permanent discontinuation
of a clinical trial at any time if it believes patient safety is at risk. The
Company's regulatory strategy is to seek input from the FDA at all stages of
clinical testing and manufacturing process development.
The results of the pre-clinical and clinical studies on biological drugs are
submitted to the FDA in the form of a BLA for approval to commence commercial
sales. After completion of the FDA's preliminary review of the BLA submission,
the submission is sent to an FDA selected scientific advisory panel composed
of physicians and scientists with expertise in the particular field. The FDA
scientific advisory panel issues a recommendation to the FDA that may include
conditions for approval of the BLA. Although the recommendation is not
binding, the FDA generally follows an advisory panel's advice. Toward the end
of the BLA review process, the FDA will conduct an inspection of the
manufacturer's facilities to ensure that they are in compliance with the
applicable current Good Manufacturing Practices ("cGMPs") requirements. If the
FDA evaluation of the manufacturing facilities contained in the BLA
application are favorable, the FDA will issue an approval letter, which
usually contains a number of conditions which must be met in order to secure
final approval. In responding to the BLA, the FDA may grant marketing
approval, require additional testing or information, or deny the application.
Governmental approval of products developed by the Company may entail
limitations on the indicated uses for which such products may be marketed.
Continued compliance with all FDA requirements and the conditions in an
approved application, including product specification, manufacturing process,
labeling and promotional material and record keeping and reporting
requirements, is necessary for all products. Failure to comply, or the
occurrence of unanticipated adverse effects during commercial marketing, could
lead to the need for product recall or other FDA-initiated action, which could
delay further marketing until the products are brought into compliance.
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Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, and could have a material adverse effect on the Company's business,
financial condition and results of operations. Violations of regulatory
requirements at any stage during the regulatory process, including preclinical
studies and clinical trials, the approval process, post-approval or in cGMP,
may result in various adverse consequences to the Company, including the FDA's
delay in approval or refusal to approve a product, withdrawal of an approved
product from the market or the imposition of criminal penalties against the
manufacturer and license holder. There can be no assurance that the Company or
its corporate collaborators will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Further, the terms of approval of any marketing application,
including the labeling content, may be more restrictive than the Company
desires and could affect the marketability of the Company's proposed products.
Failure to obtain required governmental approvals will delay or preclude the
Company or its corporate collaborators from marketing products or limit the
commercial use of such products and could have a material adverse effect on
the Company's business, financial condition and results of operations. The
President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the biologic
provisions of the Federal Drug and Cosmetic Act (the "FDC Act"). The Company
cannot predict how or what effect the changes will have on the regulation of
the Company's products. There can be no assurance that the new legislation
will not impose additional costs or lengthen review times for the Company's
products. See "Business--Government Regulation."
UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT
In both domestic and foreign markets, sales of the Company's product
candidates will depend in part upon the availability of reimbursement from
third-party payers, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payers are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
In many major markets outside the United States, pricing approval is required
before sales can commence. There can be no assurance as to what price can be
obtained or whether government-approved prices, once established, may not be
reduced in subsequent years. There can be no assurance that the Company's
product candidates will be considered cost effective or that adequate third-
party reimbursement will be available to enable the Company to maintain price
levels sufficient to realize an appropriate return on its investment in
product development. Legislation and regulations affecting pricing of medical
products may change before the Company's product candidates are approved for
marketing. Adoption of such legislation could further limit reimbursement for
medical products. If adequate coverage and reimbursement levels are not
provided by the government and third-party payers for the Company's potential
products, the market acceptance of these products would be adversely affected,
which would have a material adverse effect on the Company's business,
financial condition and results of operations.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, including variations in payments received or
made by the Company under strategic alliances, which include milestone
payments, royalties, license fees and other revenues, changes in the research
and development budgets of the Company's corporate collaborators and any
potential collaborators, adoption of new technologies, manufacturing
results, regulatory actions, changes in the demand for the Company's product,
the timing of new product introductions, if any, and the introduction of new
products by the Company's competitors and other competitive factors. If
revenue in a particular period does not meet expectations, the Company may not
be able to adjust significantly its level of expenditures in such period,
which would have an adverse effect on the Company's operating results. The
Company believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance. Given these
factors, in some future quarter or quarters the Company's operating results
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock could be materially and
adversely affected.
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RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
The Company's research and development activities involve the controlled use
of certain biological and other hazardous materials, chemicals and various
radioactive materials. The Company is subject to federal, state and local laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by federal, state and local laws and regulations, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result, and any liability could exceed the
resources of the Company and could have a material adverse effect on the
Company's business, financial condition and results of operations.
PRODUCT LIABILITY EXPOSURE
Clinical trials, manufacturing, marketing and sale of any of the potential
products of the Company or its corporate collaborators may expose the Company
to liability claims from the use of such products. Such risks exist even with
respect to products that are manufactured in licensed and regulated facilities
or that otherwise possess regulatory approval for commercial sale. Product
liability insurance coverage is expensive, difficult to obtain and may not be
available in the future on acceptable terms, if at all. There can be no
assurance that the Company or its corporate collaborators will be able to
obtain such insurance for commercial or other applications or, if obtained,
that sufficient coverage can be acquired at a reasonable cost. The inability
to obtain sufficient insurance coverage at an acceptable cost or to otherwise
protect against potential product liability claims could prevent or inhibit
the commercialization of pharmaceutical products developed by the Company or
its corporate collaborators. A product liability claim or recall would have a
material adverse effect on the Company's business, financial condition and
results of operations.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
Upon completion of this offering, the Company's executive officers,
directors and affiliated individuals and entities together will beneficially
own approximately 50.5% of the outstanding shares of Common Stock (48.7% if
the Underwriters' over-allotment option is exercised in full). As a result,
these stockholders, acting together, will be able to exert significant
influence over most matters requiring approval by the stockholders of the
Company, including approvals of amendments to the Company's Certificate of
Incorporation, mergers, a sale of all or substantially all of the assets of
the Company, going private transactions and other fundamental transactions. In
addition, the Company's Certificate of Incorporation, as it is proposed to be
amended and restated concurrently with the closing of this offering (the
"Restated Certificate"), does not provide for cumulative voting with respect
to the election of directors. Consequently, the present executive officers,
directors and affiliated individuals and entities will be able to influence
significantly the election of the members of the Board of Directors of the
Company. Such a concentration of ownership could affect the liquidity of the
Company's Common Stock and have an adverse effect on the price of the Common
Stock, and may have the effect of delaying or preventing a change in control
of the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. See
"Principal Stockholders" and "Description of Capital Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiations between the Company and the Underwriters and is not necessarily
indicative of the market price at which the Common Stock of the Company will
trade after this offering. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
16
<PAGE>
The market prices for securities of biotechnology and pharmaceutical
companies have been highly volatile, and the market has experienced
significant price and volume fluctuations that are often unrelated to the
operating performance of particular companies. Announcements of technological
innovations or new commercial products by the Company or its competitors,
disputes or other developments concerning proprietary rights, including
patents and litigation matters, developments concerning strategic alliance
agreements, publicity regarding actual or potential results with respect to
products or technology under development by the Company, its corporate
collaborators or its competitors, regulatory developments in both the United
States and foreign countries, public concern as to the efficacy of new
technologies, quarterly fluctuations in the Company's operating results,
future sales of substantial amounts of Common Stock by existing stockholders
and comments by securities analysts, as well as general market conditions and
other factors, may have a significant impact on the market price of the Common
Stock. In particular, the realization of any of the risks described in these
"Risk Factors" could have a material adverse impact on such market price.
ANTI-TAKEOVER PROVISIONS
The Restated Certificate authorizes the Board of Directors of the Company,
without stockholder approval, to issue additional shares of Common Stock and
to fix the rights, preferences and privileges of and issue additional shares
of Preferred Stock with voting, conversion, dividend and other rights and
preferences that could adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock, rights to
purchase Preferred Stock or additional shares of Common Stock may have the
effect of delaying or preventing a change in control of the Company. In
addition, the possible issuance of Preferred Stock or additional shares of
Common Stock could discourage a proxy contest, make more difficult the
acquisition of a substantial block of the Company's Common Stock or limit the
price that investors might be willing to pay for shares of the Company's
Common Stock. Further, the Restated Certificate provides that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may
not be effected by written consent. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, by the President of
the Company or by stockholders holding a majority of the shares outstanding
and entitled to vote. These and other provisions contained in the Restated
Certificate and the Company's Amended and Restated Bylaws, as well as certain
provisions of Delaware law, could delay or make more difficult certain types
of transactions involving an actual or potential change in control of the
Company or its management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices)
and may limit the ability of stockholders to remove current management of the
Company or approve transactions that stockholders may deem to be in their best
interests and, therefore, could adversely affect the price of the Company's
Common Stock. See "Description of Capital Stock."
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS
A significant portion of the anticipated net proceeds to the Company from
the offering has not been designated for specific uses. Accordingly,
management of the Company will have broad discretion with respect to the use
of these funds. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
Future sales of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion
of this offering, the Company will have 9,857,784 shares of Common Stock
outstanding, assuming no exercise of currently outstanding options or
warrants. Of these shares, the 2,500,000 shares sold in this offering (plus
any additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act of 1933, as amended (the "Securities Act"), unless they are held by
"affiliates" of the Company as that term is used under the Securities Act and
the regulations promulgated thereunder. The remaining 7,357,784 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144
17
<PAGE>
of the Securities Act (the "Restricted Shares"). Restricted Shares may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act. As a
result of contractual restrictions and the provisions of Rules 144 and 701,
additional shares will be available for sale in the public market as follows:
(i) 49,748 Restricted Shares will be eligible for immediate sale on the date
of this Prospectus; (ii) 76,658 Restricted Shares will be eligible for sale 90
days after the date of this Prospectus and (iii) 7,231,378 Restricted Shares
will be eligible for sale 180 days from the date of this Prospectus upon
expiration of their respective holding periods under Rule 144. In addition,
10,751 shares will be eligible for immediate sale on the date of this
Prospectus upon exercise of vested stock options, and 765,639 shares will be
issuable upon exercise of vested stock options 180 days after the effective
date of this offering upon the expiration of lock-up agreements.
The holders of 6,375,891 shares of Common Stock and the holders of warrants
to purchase 211,864 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning 180 days from the date of
this Prospectus. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders and holders of an
additional 505,809 shares of Common Stock pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. In addition, the Company expects to
file a registration statement on Form S-8 registering a total of 2,326,218
shares of Common Stock subject to outstanding stock options or reserved for
issuance under the Company's equity incentive plans. Such registration
statement is expected to be filed and to become effective 180 days after the
effective date of this offering. Shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the lock-up agreements
described above.
DILUTION; ABSENCE OF CASH DIVIDENDS
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution of $7.88 in the net tangible book value of
their investment from the initial public offering price. Additional dilution
will occur upon exercise of outstanding options and warrants. The Company has
never paid any dividends and does not anticipate paying dividends in the
foreseeable future. See "Dilution," "Dividend Policy" and "Shares Eligible for
Future Sale."
YEAR 2000 COMPLIANCE
The Company uses a number of computer software programs and operating
systems in its internal operations, including applications used in financial
business systems and various administration functions. To the extent that
these software applications, and the software applications of the Company's
vendors, suppliers, financial institutions and service providers, contain
source code that is unable to appropriately interpret the upcoming calendar
year "2000," some level of modification or even possibly replacement of such
source code or applications will be necessary. The Company is in the process
of identifying the software applications that are not "Year 2000" compliant
and it will be communicating with its vendors, suppliers, financial
institutions and service providers regarding their "Year 2000" compliance.
There can be no assurance that the costs necessary to update software or
potential systems interruptions would not have a material adverse effect on
the Company's business, financial condition and results of operations.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company, and
the sale of 333,333 shares of Common Stock to Warner-Lambert at an assumed
offering price of $15.00 per share, are estimated to be approximately $32.0
million ($36.2 million if the Underwriters' over-allotment option is exercised
in full).
The Company intends to use the net proceeds from this offering and the sale
of shares to Warner-Lambert to expand facilities (approximately $5 million),
to purchase equipment (approximately $5 million), to fund its research and
development activities (approximately $20 million) and to use the remainder
for general corporate purposes. The Company's management will retain broad
discretion over the allocation of the net proceeds. The Company may also use a
portion of the net proceeds to fund acquisitions of complementary
technologies, products or businesses, although the Company has no current
agreements or commitments for any such acquisitions. Pending such uses, the
Company intends to invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including progress of the Company's product
programs, the number and breadth of these programs, future revenue growth, if
any, achievement of milestones under corporate collaborations and licensing
arrangements, the ability of the Company to establish and maintain corporate
collaborations and other arrangements, the progress of the development efforts
of the Company's corporate collaborators and the amount of cash, if any,
generated by the Company's operations. Such factors also include the pace and
amount of any acquisitions or investments, and competing technological and
market developments that make the Company's technologies relatively less
attractive to corporate collaborators.
The Company believes that its existing capital resources, together with the
net proceeds from this offering, interest income and future payments due under
its existing corporate collaborations, will be sufficient to satisfy its
current and projected funding requirements at least through 1999. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Resources" and "Risk Factors--History of Operating
Losses; Future Capital Requirements."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since its inception and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain any future
earnings to fund the development of its business.
19
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998, (i) the actual
capitalization of the Company after giving effect to the Reverse Split; (ii)
the pro forma capitalization of the Company after giving effect to the
conversion of all outstanding shares of Preferred Stock into 6,042,263 shares
of Common Stock upon the closing of this offering and the sale of 333,333
shares of Common Stock to Warner-Lambert at an assumed price of $15.00 per
share; and (iii) pro forma as adjusted capitalization giving effect to the
sale of 2,500,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $12.00 per share and the application of the estimated
net proceeds therefrom:
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
PRO PRO FORMA
ACTUAL (1)(2) FORMA(3) AS ADJUSTED (3)(4)
------------- -------- ------------------
(in thousands)
<S> <C> <C> <C>
Current portion of capital leases... $ 131 $ 131 $ 131
======== ======== ========
Long-term capital leases less
current portion.................... $ 26 $ 26 $ 26
Stockholders' equity: (2)(3)
Convertible Preferred Stock,
$0.001 par value; 6,365,785
shares authorized, 6,042,263
shares issued and outstanding,
actual; 6,365,785 shares
authorized, none issued and
outstanding, pro forma and pro
forma as adjusted................ 6 -- --
Preferred Stock, $0.001 par value;
no shares authorized, issued and
outstanding at December 31, 1996
and 1997 and March 31, 1998,
(5,000,000 shares authorized, no
shares issued and outstanding)...
Common Stock, $0.001 par value;
9,553,191 shares authorized,
1,029,488 shares issued and
outstanding, actual; 50,000,000
shares authorized, 7,405,084
shares issued and outstanding,
pro forma, 9,857,784 shares
issued and outstanding, pro forma
as adjusted...................... 1 7 10
Additional paid-in capital........ 37,521 42,521 69,518
Accumulated deficit............... (28,889) (28,889) (28,889)
Treasury stock, at cost, 47,300
common shares.................... -- -- --
-------- -------- --------
Total stockholders' equity...... 8,639 13,639 40,639
-------- -------- --------
Total capitalization.......... $ 8,796 $ 13,796 $ 40,796
======== ======== ========
</TABLE>
- --------
(1) Excludes: (i) 1,105,955 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 31, 1998, at a weighted average
exercise price of $1.95 per share and (ii) 320,416 shares of Common Stock
issuable upon exercise of outstanding warrants, at a weighted average
exercise price of $12.65 per share. See "Management--Equity Incentive
Plans," "Description of Capital Stock--Warrants" and Note 7 of Notes to
Financial Statements.
(2) See the Financial Statements and Note 7 of Notes to Financial Statements
for descriptions of the authorized, issued and outstanding shares,
liquidation preferences and conversion features of the individual classes
of Preferred Stock.
(3) Pro forma to give effect to (i) the conversion of all issued and
outstanding shares of Preferred Stock into 6,042,263 shares of Common
Stock upon the completion of this offering and (ii) the sale of 333,333
shares of Common Stock to Warner-Lambert at an assumed price of $15.00 per
share.
(4) As adjusted to give effect to the sale of 2,500,000 shares of Common Stock
offered hereby at the assumed initial public offering price of $12.00 per
share. See "Use of Proceeds."
20
<PAGE>
DILUTION
The pro forma unaudited net tangible book value of the Company as of March
31, 1998, was $8,639,099 or $1.23 per share of Common Stock. The pro forma
unaudited net tangible book value per share represents the amount of the
Company's total tangible assets less total liabilities, divided by the number
of shares of Common Stock outstanding after giving effect to the Reverse Split
and the conversion of all outstanding shares of Preferred Stock into Common
Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this offering and the net tangible book value per share of the Common
Stock immediately after completion of this offering. After giving effect to
the sale of 333,333 shares of Common Stock to Warner-Lambert at an assumed
offering price of $15.00 per share, the sale by the Company of 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share and after deducting estimated underwriting discounts
and commissions and offering expenses payable by the Company, and assuming no
other changes in the net tangible book value after March 31, 1998, the
Company's pro forma net tangible book value as of March 31, 1998, would have
been $40,639,099 or $4.12 per share. This represents an immediate increase in
pro forma net tangible book value of $2.89 per share to existing stockholders
and an immediate dilution in pro forma net tangible book value of $7.88 per
share to new purchasers of Common Stock in this offering, as illustrated by
the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Pro forma net tangible book value per share as of March 31,
1998....................................................... $1.23
Increase attributable to Warner-Lambert transaction......... .62
Increase attributable to new investors...................... 2.27
-----
Pro forma net tangible book value per share after the offering
as of March 31, 1998......................................... 4.12
------
Dilution per share to new investors........................... $ 7.88
======
</TABLE>
The following table sets forth on a pro forma basis, as of March 31, 1998,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing holders of Common Stock, by Warner-Lambert and by the new
investors, before deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 7,024,451 71.3% $34,881,824 49.9% $ 4.97
New investors........... 2,500,000 25.4% $30,000,000 42.9% $12.00
Warner-Lambert.......... 333,333 3.3% $ 5,000,000 7.2% $15.00
--------- ------ ----------- ------
Total................. 9,857,784 100.0% $69,881,824 100.0%
========= ====== =========== ======
</TABLE>
- --------
(1) Gives effect to the conversion of all outstanding shares of Preferred
Stock into 6,042,263 shares of Common Stock upon the closing of this
offering.
The calculation of net tangible book value and other computations above
assume no exercise of outstanding options and warrants. As of March 31, 1998,
1,426,371 shares of Common Stock were subject to outstanding options and
warrants at a weighted average price of $4.36 per share. To the extent
additional shares are purchased pursuant to the exercise of outstanding
options and warrants, there will be further dilution to new investors. See
"Management--Equity Incentive Plans," "Description of Capital Stock--
Warrants" and Note 7 of Notes to Financial Statements.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and Notes thereto included
elsewhere in the Prospectus. The statement of operations data for the years
ended December 31, 1995, 1996 and 1997, and the balance sheet data at December
31, 1996 and 1997, are derived from the financial statements of the Company
included elsewhere in this Prospectus which have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included elsewhere
in this Prospectus. The statement of operations data for the years ended
December 31, 1993 and 1994, and the balance sheet data as of December 31,
1993, 1994 and 1995, are derived from financial statements audited by KPMG
Peat Marwick LLP, which are not included herein. Financial data as of March
31, 1998, and for the three month periods ended March 31, 1997 and 1998, are
derived from unaudited financial statements included elsewhere herein, and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of its financial position and results of operations for such
periods. The results for the interim periods are not necessarily indicative of
results to be expected for any future period. The Company has not declared or
paid cash dividends on its Common Stock since inception and does not intend to
pay any cash dividends in the foreseeable future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ----------- -------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 750 $ 1,000 $ 1,005 $ 698 $ 10,188 $ -- $ 3,688
Expenses:
Research and
development........... 2,888 5,646 6,500 6,355 8,986 1,614 3,093
General and
administrative........ 1,040 1,605 2,025 2,947 2,720 550 739
Purchase of in-process
technology............ -- 2,581 442 -- -- -- --
------- -------- -------- -------- -------- -------- -------
Total Expenses........ 3,928 9,832 8,967 9,302 11,706 2,164 3,832
------- -------- -------- -------- -------- -------- -------
Loss from operations... (3,178) (8,832) (7,962) (8,604) (1,518) (2,164) (144)
Other income, net...... 136 139 413 496 263 74 115
------- -------- -------- -------- -------- -------- -------
Net loss............... $(3,042) $ (8,693) $ (7,549) $ (8,108) $ (1,255) $ (2,090) $ (29)
======= ======== ======== ======== ======== ======== =======
Pro forma basic net
loss per share (1).... $ (0.18) $ (0.01)
======== =======
Shares used in
computing basic
net loss per share
(1)................... 6,999 7,019
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
------- -------- -------- -------- -------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents and short-
term investments...... $ 6,040 $ 9,037 $ 13,880 $ 7,725 $ 9,364 $ 7,262
Total assets........... 6,738 9,965 15,226 8,638 10,547 10,692
Capital lease
obligations (2)....... -- 799 889 572 221 158
Accumulated deficit.... (3,254) (11,947) (19,496) (27,605) (28,860) (28,889)
Total stockholders'
equity................ 6,107 8,483 13,691 6,864 8,644 8,639
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements for a description of the
computation of the pro forma basic net loss per share.
(2) Includes current portion.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. Actual events and results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
GenVec was incorporated under the laws of the state of Delaware on December
7, 1992. GenVec focuses on the development and commercialization of novel gene
therapy products for major disease markets. GenVec's lead product candidate,
BIOBYPASS angiogen, is currently in Phase I/II clinical trials for the
treatment of CAD. GenVec also intends to initiate a Phase I/II clinical trial
in patients with PVD in May 1998. The Company is developing BIOBYPASS angiogen
as part of its collaboration with Warner-Lambert, under which the Company
could receive payments totaling over $100 million in milestone payments,
research funding, equity purchases and technology access fees, upon the
achievement of specified milestones. As of April 20, 1998, Warner-Lambert had
paid to the Company $13.5 million under this collaboration. The Company is
also pursuing research and development programs in the areas of vascular
damage, oncology and neurology. GenVec has also entered into corporate
collaborations with Varian and Fuso in certain areas of oncology. See
"Business--Strategic Alliances--Corporate Collaborations."
The Company has incurred operating losses each year since inception and, as
of March 31, 1998, had an accumulated deficit of approximately $28.9 million.
The Company's losses have resulted principally from costs incurred in research
and development and from general and administrative costs associated with the
Company's operations. The Company expects to incur substantial additional
operating losses for at least the next few years as a result of increases in
its expenses for research and development capabilities.
The Company's future profitability will depend in part on the successful
development and marketing of its BIOBYPASS angiogen and other products, and
the continued establishment of corporate collaborations. Payments from
corporate collaborators and interest income are expected to be the Company's
only sources of revenue for several years. These payments will include
licensing payments, milestone payments and research and development funding.
Milestone payments under strategic alliances will be subject to significant
fluctuation in both timing and amount, and therefore the Company's results of
operations for any period may not be comparable to the results of operations
for any other period. Royalties or other revenues from commercial sales of
products are not expected for at least several years, if at all. If revenues
in a particular period do not meet expectations, the Company may not be able
to adjust significantly its level of expenditures in such period, which would
have an adverse effect on the Company's operating results. The Company
believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and March 31, 1997
Revenues
Revenues were approximately $3.7 million for the three months ended March
31, 1998. For the same period in 1997, the Company received no revenues.
Revenues recognized for the three month period in 1998 were attributable to
$187,500 received under the Company's research and development agreement with
Fuso and the remainder to payments received under the Company's collaboration
agreement with Warner-Lambert. Revenues from Warner-Lambert included a $2.0
million milestone payment as a result of the Company's investigational new
drug application ("IND") filing with the FDA for PVD.
23
<PAGE>
Operating Expenses
Research and development expenses were approximately $3.1 million and $1.6
million for the three months ended March 31, 1998 and 1997, respectively.
Research and development expenses increased approximately 92% primarily as a
result of the Company's therapeutic angiogenesis product development
activities. License payments constituted approximately one-half of such
increase, and the remainder of the increase was due to increased intellectual
property expenses and expenses related to the Phase I/II trial for CAD.
General and administrative expenses were approximately $739,000 and $550,000
for the three months ended March 31, 1998 and 1997, respectively. The 34%
increase was primarily attributable to increased payroll of approximately
$76,000 and personnel of approximately $118,000 in support of the Company's
collaborations.
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $115,000 and $74,000 for the three months ended
March 31, 1998 and 1997, respectively. The 54% growth in other income was due
to an increase in the Company's cash balances during this period.
As of March 31, 1998, the Company had an accumulated deficit of $28.9
million, and had carried an accumulated deficit since inception, and therefore
had not paid any federal income taxes. Realization of deferred tax assets is
dependent on future earnings, if any, the timing and amount of which is
uncertain. See Note 8 of Notes to Financial Statements.
Years Ended December 31, 1997 and 1996
Revenues
Revenues were approximately $10.2 million and $698,000 in 1997 and 1996,
respectively. Revenues in 1997 were attributable to $187,500 received under
the Company's research and development agreement with Fuso, and the remainder
to milestone payments, research funding and technology access fees received
under the Company's collaboration agreement with Warner-Lambert. Revenues in
1996 were attributable to research and development funding from a prior
collaboration agreement with Genentech.
Operating Expenses
Research and development expenses were approximately $9.0 million and $6.4
million in 1997 and 1996, respectively. Research and development expenses
increased 41.4% from 1996 to 1997 primarily as a result of the Company's
therapeutic angiogenesis product development activities. Approximately 75% of
such increase was due to license payments, as well as increased intellectual
property expenses and acquisitions of technology, and the remainder of such
increase was due to increased payments for sponsored research and outside
consultants, and increased facility costs due to the expansion of research and
development facilities. The Company expects research and development expenses
to increase as the Company continues to expand its product development
programs.
General and administrative expenses were approximately $2.7 million and $2.9
million in 1997 and 1996, respectively. The 7.7% decrease from 1996 to 1997
was primarily attributable to the one-time expense of $270,000 associated with
a termination agreement in 1996 with a former officer of the Company. The
Company expects that general and administrative expenses will increase
slightly in 1998 due to increased personnel in late 1997 and anticipated
administrative hiring in 1998, potentially including a Chief Financial
Officer.
24
<PAGE>
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $263,000 and $496,000 in 1997 and 1996,
respectively. The 47.0% decrease from 1996 to 1997 was due to variations in
the Company's cash balances during this period.
Years ended December 31, 1996 and 1995
Revenues
Revenues were approximately $698,000 and $1.0 million in 1996 and 1995,
respectively. Revenues in 1996 and 1995 were attributable to research and
development funding from a prior collaboration agreement with Genentech.
Operating Expenses
Research and development expenses were approximately $6.4 million and $6.5
million in 1996 and 1995, respectively. Research and development expenses for
1995 and 1996 remained essentially flat as the Company shifted its research
and development efforts to therapeutic angiogenesis product opportunities.
General and administrative expenses were approximately $2.9 million and $2.0
million in 1996 and 1995, respectively. The 45.5% increase from 1995 to 1996
was primarily attributable to increased payroll of approximately $145,000,
personnel and professional fees of approximately $371,000 in connection with
the expansion of the Company's business development efforts and operations, as
well as a one-time expense of $270,000 in connection with the termination
agreement in September 1996 with a former officer of the Company.
The in-process technology expense of approximately $442,000 in 1995 was a
partial charge resulting from the issuance of capital stock in connection with
the acquisition of Theragen, Inc. in 1994. See Note 4 of Notes to Financial
Statements.
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $496,000 and $413,000 in 1996 and 1995,
respectively. The 20.1% increase from 1995 to 1996 was due to variations in
the Company's cash balances during the period as a result of the private
placement of equity securities in late 1994 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1998, the Company financed its operations
through the private placement of equity securities, payments from corporate
collaborators and capital leases. As of March 31, 1998, the Company had
received aggregate gross proceeds of approximately $34.5 million through the
private placement of equity securities, approximately $17.3 million in
research and development funding and milestone payments from corporate
collaborators and approximately $1.4 million of equipment capital lease
financing. As of March 31, 1998, the Company had approximately $7.3 million in
cash and cash equivalents and short-term investments.
Net cash used in operating activities was approximately $484,000, $6.9
million and $6.9 million in 1997, 1996 and 1995, respectively. The decrease in
1997 resulted from research and milestone revenue received from the Warner-
Lambert collaboration. Expenditures for acquisition of property and equipment
were approximately $476,000, $86,000 and $235,000 in 1997, 1996 and 1995,
respectively. The decrease in 1996 took place during the Company's shift in
research focus to therapeutic angiogenesis, while the increase in late 1997
was in connection with the Warner-Lambert collaboration. Cash flow from
financing activities was approximately $2.6 million, $860,000 and $12.0
million in 1997, 1996 and 1995, respectively. Financing cash
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flows related to private equity financing in 1995 and equity purchases in
connection with license and corporate collaboration agreements in 1996 and
1997, offset by payments under capital equipment lease obligations.
The Company anticipates that annual expenditures for research and
development, clinical trials, product development, preclinical studies and
general and administrative activities will increase significantly in future
years. However, the Company's actual capital requirements may change depending
on numerous factors, including, without limitation, the progress of the
Company's research and development programs, the scope and results of
preclinical and clinical studies, the number and nature of the indications the
Company pursues in clinical studies, the timing of regulatory approvals,
technological advances, shifts in the Company's product development efforts
and the status of competitive products. In addition, expenditures may be
dependent on the establishment and maintenance of collaboration relationships
with other companies, the availability of financing and other factors.
The Company believes that the net proceeds from this offering and the sale
of shares to Warner-Lambert, existing cash and short-term investments and
anticipated cash flow from its current corporate collaborators will be
sufficient to support the Company's operations at least through 1999. The
Company expects that it will require significant additional financing in the
future, which it may seek to raise through public or private equity offerings,
debt financing, additional strategic alliance and licensing arrangements or
some combination of these financing alternatives. No assurance can be given
that any such additional financing will be available when needed, if at all,
or that it will be obtained on terms favorable to the Company or its
stockholders. To the extent that the Company raises additional capital by
issuing equity or convertible securities, ownership dilution to stockholders
will result. If adequate financing is not available when needed, the Company
may be required to curtail significantly one or more of its research and
development programs or to obtain funds through agreements with corporate
collaborators or others that may require the Company to relinquish rights to
certain of its technologies or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company uses a number of computer software programs and operating
systems in its internal operations, including applications used in financial
business systems and various administration functions. To the extent that
these software applications, and the software applications of the Company's
vendors, suppliers, financial institutions and service providers, contain
source code that is unable to appropriately interpret the upcoming calendar
year "2000," some level of modification or even possibly replacement of such
source code or applications will be necessary. The Company is in the process
of identifying the software applications that are not "Year 2000" compliant
and it will be communicating with its vendors, suppliers, financial
institutions and service providers regarding their "Year 2000" compliance.
Given the information known at this time about the Company's systems, coupled
with the Company's ongoing efforts to upgrade or replace business critical
systems as necessary, it is currently not anticipated that these "Year 2000"
costs will have a material adverse impact on the Company's business, financial
condition and results of operations. However, the Company is still analyzing
its software applications and, to the extent they are not fully "Year 2000"
compliant, there can be no assurance that the costs necessary to update
software or potential systems interruptions would not have a material adverse
effect on the Company's business, financial condition and results of
operations.
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BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
GenVec focuses on the development and commercialization of novel gene
therapy products for major disease markets. GenVec's lead product candidate,
BIOBYPASS angiogen, is designed to induce angiogenesis, or new blood vessel
formation, in tissues with inadequate blood flow. BIOBYPASS angiogen uses an
adenovirus vector to deliver and express the gene for VEGF/121/. BIOBYPASS
angiogen is being developed for the treatment of CAD and PVD, and is intended
to be used either alone or as an adjunct to existing surgical procedures. In
December 1997, the Company initiated a Phase I/II clinical trial with its
BIOBYPASS angiogen for direct injection into the hearts of patients with CAD
who are undergoing CABG surgery. The Company also intends to commence a Phase
I/II clinical trial in patients with PVD in May 1998. The Company has entered
into a collaboration with Warner-Lambert to develop and commercialize
BIOBYPASS angiogen and other gene therapy products for therapeutic
angiogenesis. Under the terms of the collaboration, Warner-Lambert may pay to
the Company a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. As of April 20, 1998, Warner-Lambert had paid to the Company
$13.5 million under this collaboration, and had purchased $2.0 million of the
Company's stock.
Additionally, GenVec is developing product candidates and vector technology
in the areas of cardiovascular disease, oncology and neurology. For the
treatment of restenosis associated with angioplasty and vascular damage
associated with A-V grafts, GenVec is developing Ad.iNOS, an adenovirus vector
containing the iNOS gene. In oncology, GenVec is developing Ad.TNFa under a
collaboration agreement with Varian. Ad.TNFa, an adenovirus vector containing
the TNFa gene, is designed to enhance the effectiveness of radiation therapy
without increasing toxicity to normal tissue. In collaboration with Fuso,
GenVec is developing Ad.CD and is conducting research on immunotherapy of
cancer based on the delivery of tumor antigen genes. Ad.CD, an adenovirus
vector containing the CD gene, is designed to convert a nontoxic precursor
drug into fluorouracil to effect tumor destruction, either alone or in
combination with radiation therapy. In neurology, GenVec intends to develop
product candidates through the application of its HSV vector technology.
To customize gene therapy products for specific medical needs, GenVec is
developing vectors for cell-specific gene delivery and promoters which
regulate the level and duration of gene expression. GenVec's technology
portfolio includes: (i) therapeutic genes such as VEGF/121/, iNOS, TNFa
and CD; (ii) vector systems such as adenovirus and HSV; (iii) receptor
mediated targeting technology and (iv) tissue-specific and inducible
promoters.
GenVec was incorporated in Delaware in 1992. In August 1994, the Company
acquired Theragen, Inc. through a merger of Theragen, Inc. with and into the
Company. In 1996, the Company began to focus its efforts on the development of
product candidates in the field of therapeutic angiogenesis.
GENVEC STRATEGY
The Company's objective is to be a leader in the development and
commercialization of gene therapy products. To achieve this objective, GenVec
intends to:
. Enhance Leadership in Therapeutic Angiogenesis. GenVec's primary focus is
on the development of its lead product candidate, BIOBYPASS angiogen, for
the treatment of CAD and PVD. The Company also seeks to develop new
therapeutic angiogenesis products in these and other disease indications.
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. Expand Its Portfolio of Products under Development. The Company intends
to expand its existing portfolio of product candidates for the treatment
of cardiovascular disease and cancer. The Company will also pursue
product candidates in new therapeutic areas, including neurological
disorders using its HSV vector technology. GenVec focuses its new product
development efforts in areas where gene therapy has potential benefits
over currently available therapies. GenVec takes into account market
attractiveness, technical feasibility, the potential to develop a
proprietary position and the predictiveness of animal models in choosing
among new product development opportunities.
. Broaden Its Technology Platform. The Company plans to broaden its
portfolio of genes, vectors, promoters and other technologies to develop
new products and attract corporate and academic collaborators. GenVec
intends to accomplish this through internal and sponsored research, in-
licensing and technology acquisitions.
. Strengthen Product Development through Corporate Collaborations. GenVec
establishes corporate collaborations to enhance the development,
manufacture and commercialization of its product candidates. The Company
intends to participate in the manufacture and commercialization of select
product opportunities by retaining certain rights in these areas.
. Maintain and Expand Intellectual Property Strength. The Company seeks to
enable and protect its product opportunities by pursuing patents either
alone or with corporate or academic collaborators or by seeking licenses
from third parties. As of March 31, 1998, the Company held or had
licenses to 154 issued, allowed or pending patents worldwide, of which 28
are issued or allowed in the U.S.
GENE THERAPY RATIONALE AND PRODUCT COMPONENTS
Rationale. Gene therapy seeks to treat a broad range of diseases by
intervening at the genetic level to modify the activity of the body's cells.
Gene therapies provide the body's cells with information in the form of
segments of deoxyribonucleic acid ("DNA"). These DNA segments contain sets of
instructions that direct the body's cells to synthesize specific proteins to
perform basic biochemical and physiological functions. Gene therapy, by adding
or modifying DNA in the body's cells, can cause these cells to augment the
production of proteins already being produced by the body or to produce
proteins not currently present in the target tissue. These proteins can either
be secreted or remain within the target cell. The development of gene therapy
is generally focused on diseases where the specific molecular pathways are
well characterized. The goal of many gene therapies is the local production of
a therapeutic protein, potentially resulting in a more efficacious treatment
alternative with fewer side effects than conventional approaches.
Product Components. A gene therapy product requires several key components
in order to produce a therapeutic effect. A specific gene which encodes a
therapeutic protein must be identified. In addition, regulatory sequences of
DNA, including a promoter, are combined with the gene to regulate production
of the therapeutic protein. A gene therapy product also requires delivery of
the specific gene and its regulatory sequences to the target cell. Typically,
the regulatory and therapeutic gene sequences are inserted into a vector that
can bind to the target cell. After binding to the cell surface, the vector is
internalized and transported to the cellular nucleus where the therapeutic
gene is used for protein expression. This overall process is known as
transfection. The residual vector protein is degraded.
GENVEC PRODUCT DEVELOPMENT PROGRAMS
GenVec's product development activities are focused on diseases that it
believes are well suited for therapeutic intervention using currently
available gene therapy technologies. The Company's current programs focus on
cardiovascular disease, oncology and neurology. The Company's lead product
candidate, BIOBYPASS angiogen, is designed to treat CAD and PVD. BIOBYPASS
angiogen uses an adenovirus vector to deliver the VEGF/121/ gene directly to
tissues with inadequate blood flow to stimulate new blood vessel formation.
GenVec has spent a total of approximately $6.5 million, $6.4 million and $9.0
million for the years ended December 31, 1995, 1996 and 1997, respectively,
and approximately $1.6 million and $3.1 million for the three months ended
March 31, 1997 and March 31, 1998 for research and development related to
these and other products.
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GenVec's product development programs are summarized below:
<TABLE>
<CAPTION>
DEVELOPMENT CORPORATE
PRODUCT DEVELOPMENT PROGRAM THERAPEUTIC GENE VECTOR STATUS (1) COLLABORATOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CARDIOVASCULAR
Ischemic Tissue Disease
Warner-
CAD (BIOBYPASS angiogen) VEGF/121/ Adenovirus Phase I/II Lambert
Warner-
PVD (BIOBYPASS angiogen) VEGF/121/ Adenovirus Phase I/II Lambert
Vascular Damage
Restenosis iNOS Adenovirus Preclinical --
Arteriovenous Graft iNOS Adenovirus Preclinical --
ONCOLOGY
Radiation Therapy TNFa Adenovirus Preclinical Varian
Phase
CD Adenovirus I/II (2) Fuso
Immunotherapy -- Adenovirus Research Fuso
Herpes simplex
NEUROLOGY -- virus Research --
</TABLE>
(1) Product candidates in research are in the early stages of development.
During the preclinical stage, laboratory and animal studies are conducted
to evaluate the therapeutic efficacy of a product candidate. Phase I/II
clinical trials are designed to assess the safety and efficacy of a
product candidate in volunteer patients with the targeted disease.
(2) The Company has initiated a Phase I/II trial with Ad.CD in patients with
colorectal cancer metastatic to the liver to assess the safety of Ad.CD.
These trials do not involve radiation. The Company is currently conducting
preclinical trials of Ad.CD used in combination with radiation therapy and
intends to conduct further studies in this area.
Cardiovascular
Ischemic Tissue Disease
Recent estimates indicate that over 55 million Americans have one or more
types of cardiovascular disease. Cardiovascular disease is the leading cause
of death in the United States and many other developed countries. A major
contributing factor to cardiovascular disease is atherosclerosis, or the
hardening of the arteries due to plaque formation. As atherosclerosis
progresses, the blood vessels narrow, and may close entirely. As a result,
ischemia, or inadequate blood flow to tissues, can result and damage the
affected tissue. In patients with CAD, ischemia in the heart can lead to
severe rest pain, impaired cardiac function or, if very severe, heart attacks.
PVD involves ischemia in the extremities and can lead to intermittent pain
("claudication"), and in severe cases, chronic pain while at rest. In some PVD
cases, amputation of a limb may be required.
Coronary Artery Disease. Approximately 50% of deaths attributable to
cardiovascular disease are due to CAD. Treatment alternatives for CAD range
from risk factor modification and exercise programs in patients with limited
disease to major surgical procedures in severe disease. Drug therapy is a
mainstay of treatment for CAD and many different pharmacologic agents are
available. In patients with severe disease, surgical intervention such as
angioplasty is often used to open occluded vessels. Angioplasty procedures
typically use an inflatable balloon catheter to physically open a narrowed
blood vessel. In 1995, more than 400,000 patients in the U.S. underwent this
procedure. Studies have shown that within seven months following angioplasty,
the artery narrows again, or undergoes restenosis, 30% to 40% of the time. The
procedure is difficult or impossible to perform on certain patients with
multiple vessel disease, diffuse disease, calcified vessels or vessels that
are too small to access. The average cost of angioplasty in the U.S. was
approximately $20,000 in 1995.
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Another surgical option for CAD is CABG, the replacement of the diseased
artery with a new vessel. In 1995, approximately 360,000 patients in the U.S.
underwent CABG. During the CABG procedure, a blocked coronary artery is
replaced with a vessel harvested from another location in the body. The
conventional CABG procedure requires cutting through the sternum of the chest
and placing the patient on cardiopulmonary bypass, both of which involve
significant risk of morbidity and mortality. In addition, it is difficult or
impossible to perform CABG on certain patients with diffuse atherosclerotic
disease or severe small vessel disease or patients who have previously
undergone a CABG. The average cost of CABG was approximately $45,000 in 1995.
The Company believes there is a need for products that can provide longer
lasting, improved therapeutic outcomes and reduced morbidity in patients
undergoing surgical procedures. For patients whose blocked arteries cannot be
opened by angioplasty or replaced by CABG, new treatments are necessary.
Peripheral Vascular Disease. Current data suggests approximately one million
Americans suffer from intermittent claudication in their lower extremities, a
key symptom of PVD. Current therapies for PVD are similar to those for CAD.
Treatment options range from risk factor modification and exercise programs
for patients with mild disease, to angioplasty or artery bypass grafting in
patients with severe disease. However, progression of disease and recurrence
of symptoms after these treatments is typical and ongoing medical management
of the underlying disease process is often necessary. In addition, PVD
patients who have diffuse disease, calcified vessels or vessels that are too
small to access tend to be poor candidates for angioplasty or vascular grafts.
A lack of adequate pharmacological therapy further emphasizes the need for new
treatment strategies for PVD.
Rationale for Therapeutic Angiogenesis. GenVec believes that restoring blood
flow to areas of ischemia through angiogenesis, the formation of new blood
vessels, offers one of the most promising therapeutic options for CAD and PVD.
Angiogenesis is the body's natural response to ischemia. It also occurs as a
normal physiological process during periods of tissue growth, such as an
increase in muscle or fat and during the menstrual cycle and pregnancy.
Angiogenesis may also occur in certain pathological conditions either as a
natural response to the underlying disease (as in inflammation, wound healing
and rheumatoid arthritis) or as a contributing factor to disease progression
(as in tumor growth).
The angiogenesis process is well understood, and a number of genes involved
in the process have been identified. It is believed that under ischemic
conditions, expression of these genes leads to the production of growth
factors and other proteins involved in angiogenesis. The endothelial cells
which line blood vessels contain receptors which bind to growth factors.
Binding of the growth factors to these cell surface receptors triggers a
complex series of events, including the replication and migration of
endothelial cells to ischemic sites, as well as their formation into new blood
vessels. However, in ischemic conditions, the growth factor genes often may
not produce sufficient amounts of the corresponding proteins to generate an
adequate number of new blood vessels. A logical therapeutic approach to this
problem is to enhance the body's own response by temporarily providing higher
concentrations of growth factors at the site of disease.
BIOBYPASS Angiogen. GenVec's lead product candidate, BIOBYPASS angiogen, is
intended to induce angiogenesis in tissue with inadequate blood flow.
BIOBYPASS angiogen uses an adenovirus vector to deliver and express the
VEGF/121/ gene, GenVec's proprietary form of the VEGF gene. The Company is
developing BIOBYPASS angiogen to be used alone and as an adjunct to existing
surgical procedures for the treatment of CAD and PVD.
VEGF is a protein which induces angiogenesis and is an important mediator of
the normal angiogenic response to ischemia. VEGF has a high degree of
specificity for endothelial cells, unlike many other angiogenic factors that
can cause proliferation of additional cell types, such as smooth muscle cells
or fibroblasts. However, VEGF is rapidly cleared from the circulation, making
it difficult to sustain high concentrations of VEGF in the blood. Furthermore,
systemic administration of VEGF can lead to hypotension. In contrast to direct
administration of proteins, gene therapy has the advantage of achieving
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localized, sustained production of the therapeutic protein in tissue with
inadequate blood flow. GenVec has accomplished this by administering BIOBYPASS
angiogen directly to the target tissue.
GenVec believes the adenovirus vector is well suited for therapeutic
angiogenesis because it induces expression of VEGF in tissues for about a
week. This period of expression has been shown to cause the formation of new
blood vessels, but does not appear to cause toxicity. In addition, adenovirus
vectors efficiently transfer genes to the heart so only small amounts of the
vector are needed. Adenovirus vectors have been used in many gene therapy
clinical trials and appear to be well tolerated. In the Company's current CAD
clinical trial, BIOBYPASS angiogen is being administered by direct injection
into the heart using a standard syringe. The Company believes that other
delivery modalities, including endocardial catheters and intraarterial
catheters, may be used in the future and is evaluating various delivery
devices that are currently available or in development by third parties.
GenVec and its collaborators have demonstrated the therapeutic potential of
BIOBYPASS angiogen in animal models of CAD and PVD. A pig model of cardiac
ischemia was used to evaluate the effects of BIOBYPASS angiogen in CAD.
Administration of BIOBYPASS angiogen to the heart increased the number of
blood vessels, improved blood flow and restored cardiac contractility to
normal. The parameters used in this preclinical study are the endpoints
typically used to assess improvement in patients with CAD. In a PVD
preclinical model of hind limb ischemia, BIOBYPASS angiogen increased the
number of blood vessels and the amount of blood flow in the ischemic limb.
The Company initiated a Phase I/II clinical trial with BIOBYPASS angiogen in
December 1997, for patients who are undergoing CABG and also have areas of
diffuse CAD that are not amenable to surgical treatment. BIOBYPASS angiogen is
directly injected into the ischemic regions of the heart that are not amenable
to bypass grafts. In April 1998, the FDA approved the Company's IND for a
Phase I/II clinical trial in PVD, and in May 1998, the Company initiated this
trial in PVD patients with intermittent claudication and for patients with
rest pain.
In July 1997, the Company entered into a collaborative agreement with
Warner-Lambert to develop and commercialize gene therapy products
incorporating the VEGF gene for therapeutic angiogenesis. As part of this
corporate collaboration, Warner-Lambert has primary responsibility for
clinical development and commercialization of BIOBYPASS angiogen and related
VEGF gene therapies. Under the terms of the collaboration, the Company may
receive a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. As of April 20, 1998, Warner-Lambert had paid to the Company an
aggregate of $13.5 million, and had purchased $2.0 million of the Company's
capital stock. See "--Strategic Alliances--Corporate Collaborations--Warner-
Lambert Company."
Vascular Damage
Vascular damage can result from a variety of procedures which mechanically
disturb blood vessel walls. It occurs in several medical conditions, including
restenosis following angioplasty procedures in patients with CAD and PVD, and
the closing ("stenosis") of A-V grafts which are used for vascular access in
patients with renal disease who require dialysis. In these conditions,
vascular damage causes local biological responses such as the proliferation of
smooth muscle cells and the inhibition of endothelial cell layer regrowth,
both of which contribute to vessel narrowing. The local concentration of
nitric oxide, an important regulator of blood vessel function, declines when
there is damage to the endothelial cell layer. Studies suggest that increasing
levels of nitric oxide can inhibit smooth muscle cell proliferation and help
prevent the biological processes that lead to narrowing of blood vessels at
the site of damage.
Restenosis Following Angioplasty. Severe cases of CAD and PVD are often
treated by angioplasty. The damage caused by the angioplasty procedure leads
to restenosis in 30% to 40% of patients within seven months of the procedure.
Current techniques to prevent restenosis involve insertion of a stent, a small
metallic
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scaffold, to prop open the blood vessel at the site of angioplasty. However,
even following stent replacement, 20% to 30% of angioplasty patients still
suffer restenosis within seven months after stent placement. Restenosis rates
of over 50% have been observed for certain high risk patients who have
received a stent. Sales of coronary stents have been estimated to exceed $1.0
billion worldwide in 1997.
Stenosis of Arteriovenous Grafts. In 1995, approximately 700,000 patients
suffered end-stage renal disease worldwide. In the U.S. alone, in 1995 more
than 200,000 patients with end-stage renal disease received dialysis to
cleanse the blood. Dialysis requires long-term, repetitive access to the
patient's vasculature so as to facilitate the insertion of dialysis needles.
The most common form of access site is an A-V graft, which is constructed by
directly connecting an artery of the arm to a large vein or by using a
synthetic graft. This graft then serves as a high blood flow site into which
dialysis needles can be repetitively placed. However, placing the A-V graft
can cause vascular damage that frequently leads to stenosis, limiting its
useful life to about one to three years. Currently, there are no effective
therapies for the treatment of stenosis in A-V grafts.
iNOS Gene Therapy Rationale. The Company believes local production of nitric
oxide by gene therapy has the potential to reduce stenosis and restenosis.
Nitric oxide, a molecule that inhibits smooth muscle cell proliferation and
promotes endothelial cell layer regrowth following vessel damage, is difficult
to administer systemically due to its toxicity and short half-life. To achieve
the local production of nitric oxide, the Company utilizes gene therapy to
deliver the iNOS gene to the site of vascular damage. iNOS catalyzes the
conversion of L-arginine, a common amino acid, to nitric oxide. GenVec and its
collaborators have shown in large animal efficacy models that Ad.iNOS, the
Company's gene therapy product candidate, inhibits the narrowing of damaged
blood vessels.
Ad.iNOS. Ad.iNOS, an adenovirus vector containing the iNOS gene, is intended
for use in combination with stent placement and A-V grafts to prevent
stenosis. This product candidate is designed to enhance the physical
attributes of a stent with locally produced nitric oxide to inhibit
restenosis. Ad.iNOS is in preclinical development for use with stent placement
in CAD and PVD patients following angioplasty. Ad.iNOS is also in preclinical
development to block stenosis which commonly occurs in A-V grafts of renal
dialysis patients. The therapeutic objectives are to mitigate the medical
complications due to vascular damage arising from A-V grafts and to extend the
useful life of the grafts.
GenVec is conducting additional research to evaluate iNOS gene therapies for
other uses, including organ transplants and wound healing. GenVec intends to
establish corporate collaborations to assist in the development and
commercialization of iNOS gene therapy products.
Oncology
Cancer is the second leading cause of death in the U.S. More than a million
newly diagnosed cases of cancer and 500,000 deaths due to cancer are
anticipated this year. Surgery and radiation therapy are typically used to
control localized disease, whereas chemotherapy is often used in patients with
metastatic cancer. Although new treatments of certain cancers have improved
clinical outcomes, many tumors remain refractory to aggressive surgical,
radiological and chemotherapeutic approaches.
Radiation Therapy
Approximately 60% of all cancer patients in the U.S. receive radiation
therapy each year. Even though radiation therapy can be delivered to a
localized area, its therapeutic benefit is often limited by the radiation
damage to surrounding normal tissue. GenVec believes that a potential solution
to this major problem is the use of gene therapy to deliver therapeutic
proteins to the tumor to enhance the antitumor activity of radiation therapy
without increasing toxicity to normal tissue.
Ad.TNFa. TNFa is a potent, immune regulatory protein with demonstrated
clinical antitumor activity. TNFa exerts its effects by binding to receptors
on the surface of cells, including tumor cells and cells of the
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immune system. The clinical utility of TNFa has been limited because systemic
exposure to TNFa causes considerable toxicity. The Company's TNFa-based gene
therapy product candidate, Ad.TNFa is intended to address this problem by
producing high concentrations of TNFa in the target tumor while minimizing
systemic exposure to TNFa. Ad.TNFa is an adenovirus vector that contains the
TNFa gene and a radiation responsive promoter. Ad.TNFa will be injected
directly into the tumor in order to localize production of TNFa at the site of
disease. Since TNFa is a secreted protein, transfection of only a portion of
the tumor cells may be sufficient to produce therapeutic concentrations of
TNFa in the tumor.
The Company expects to develop Ad.TNFa for use in combination with radiation
therapy for the treatment of cancer. GenVec and its collaborators have shown
that Ad.TNFa enhances the antitumor activity of radiation in several animal
models of human cancer. For example, in a human head and neck cancer model,
animals receiving both Ad.TNFa and radiation were observed to have 90% greater
tumor shrinkage than animals receiving either radiation or Ad.TNFa alone.
Although the precise mechanism accounting for the marked increase in
therapeutic effect of radiation is not known, it appears that disruption of
the tumor vasculature is involved. Damage to the blood vessels and rapid
necrosis was evident in the tumors but not in the surrounding normal tissues.
To further enhance the usefulness of Ad.TNFa, a proprietary promoter was
inserted to increase the expression of the TNFa gene during radiation therapy.
The Company licensed rights to the TNFa gene for use in gene therapy in the
United States from Asahi Chemical Industry Co., Ltd. ("Asahi"). GenVec entered
into a corporate collaboration with Varian, a provider of radiation therapy
equipment in the U.S., to enhance the clinical development of Ad.TNFa. The
Company anticipates filing an IND for Ad.TNFa in 1999.
Ad.CD. The toxicity produced following the systemic administration of many
antitumor agents, such as fluorouracil, often limits the amount of drug that
can be administered and, consequently, limits the clinical benefit. Selective
delivery of such drugs to tumors should enhance their effectiveness and reduce
side effects. A strategy to accomplish this is to treat the patient with an
inactive drug that can be activated preferentially in the tumor.
Fluorocytosine is a relatively nontoxic precursor of fluorouracil that can be
converted to fluorouracil by the enzyme CD. Since CD is not normally present
in the body, local delivery of CD to tumors by gene therapy may provide a
method to selectively produce fluorouracil at the tumor sites. GenVec and its
collaborators have shown that injection of Ad.CD, an adenovirus vector
containing the CD gene, into tumors can inhibit their growth if the animal is
also administered fluorocytosine. GenVec has initiated a Phase I/II clinical
study in patients with colorectal cancer metastatic to the liver in which
Ad.CD is injected into the tumor and fluorocytosine is given orally. Since
fluorouracil can sensitize tumors to the therapeutic effects of radiation,
GenVec also intends to evaluate Ad.CD in combination with radiation therapy.
GenVec entered into a license agreement with the National Institutes of Health
for certain gene therapy applications of the CD gene, including the treatment
of cancer using replication deficient viral and synthetic vectors. The Company
is conducting research and development of Ad.CD as part of its corporate
collaboration with Fuso.
Immunotherapy
The Company has entered into a corporate collaboration with Fuso to develop
new gene therapy products for the treatment of human cancer. One of the goals
of this research program is the development of gene therapies that can be used
to treat metastatic cancer by stimulating the body's immune system to seek
out, recognize and kill tumor cells. Gene therapy has the potential to
stimulate specific cells of the immune system, such as dendritic cells, to
recognize tumor antigens. These cells appear to play an important role in
generating a robust antitumor response. Delivery of specific tumor antigens to
the dendritic cells by gene transfer has been shown by the Company's
collaborators to enhance an antitumor immune response. Fuso, GenVec and their
collaborators are conducting a research program aimed at identifying new
product possibilities for the immunotherapy of cancer.
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Neurology
Neurological disorders represent an area of major medical need. Current
treatments often have limited effectiveness, and the complex etiology of these
diseases has slowed the development of new treatments. Additionally, changing
demographics are expected to result in significant increases in the elderly
population in whom certain neurological disorders are most prevalent.
Recent scientific advances have led to the discovery of a number of proteins
and corresponding genes implicated in neurological disorders. As the list of
such therapeutic proteins continues to expand, effective delivery of these
proteins to the specific sites of action may be required to optimize
therapeutic utility. As for other indications, gene therapy offers the
potential advantage of providing protein production at the target site for the
treatment of neurological disorders, while minimizing complications due to
systemic exposure.
GenVec intends to develop products for the treatment of neurological disease
based on the use of HSV vectors. Replication-deficient HSV vectors are
attractive for use in gene therapy because of their ability to enter and
persist in tissues of the nervous system. HSV vectors have an additional
advantage of accommodating larger DNA sequences than most other vectors. The
Company believes medical applications may include the treatment of chronic
pain, spinal cord injury and Parkinson's disease.
GenVec, through sponsored research at the University of Pittsburgh and the
University of Glasgow/Medical Research Council's Institute of Virology, has
engineered HSV vectors for the potential treatment of neurological disorders
and created specialized cell lines for the production of such vectors. GenVec
intends to further develop HSV vectors for the treatment of neurological
disorders.
GENVEC CORE TECHNOLOGIES
Gene therapy products are complex entities comprised of vectors, promoters
and therapeutic genes. Targeting therapeutic genes to specific cell types and
regulating the level and duration of gene expression may be possible with the
appropriate combination of technology. Toward this end, GenVec has established
a portfolio of proprietary technology, including therapeutic genes, advanced
adenovirus and HSV vectors, receptor mediated vector targeting capability and
promoters. The Company seeks to expand product development opportunities by
broadening its technology portfolio through internal research and technology
acquisitions.
Technology Portfolio
GenVec's portfolio of technologies includes genes, vectors, receptor
mediated targeting and promoters.
Genes
VEGF. VEGF is a protein which potently induces angiogenesis and is an
important mediator of the normal angiogenic response to ischemia. VEGF has a
high degree of specificity for endothelial cells. In ischemic conditions, VEGF
binds to receptors found on the endothelial cells which line blood vessels.
This binding triggers a complex series of events, including the replication
and migration of endothelial cells to ischemic sites, as well as their
formation into new blood vessels. The Company has an exclusive license for all
gene therapy applications of the VEGF/121/ gene.
iNOS. iNOS catalyzes the conversion of L-arginine to nitric oxide, a short-
lived molecule with a range of cardiovascular actions, including inhibition of
smooth muscle cell proliferation and promotion of endothelial cell layer
regrowth following vessel damage. The Company believes that the local
production of nitric oxide resulting from iNOS gene therapy has the potential
to be used for multiple vascular damage applications, including the reduction
of restenosis after an angioplasty procedure and stenosis of A-V grafts which
are often used for dialysis in patients with renal disease. The Company has an
exclusive license for all gene therapy applications of the iNOS gene.
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TNFa. TNFa is a potent immune regulatory protein with demonstrated clinical
antitumor activity. It exerts its effects by binding to receptors on the
surface of cells, including tumor cells and cells of the immune system. Since
TNFa is a secreted protein, transfection of only a portion of the tumor cells
may be sufficient to produce therapeutic concentrations of TNFa in the tumor.
GenVec and its collaborators have shown that Ad.TNFa enhances the antitumor
activity of radiation. The Company has a license to all gene therapy
applications of the TNFa gene in the U.S.
CD. CD is an enzyme that converts the relatively nontoxic fluorocytosine to
fluorouracil, an active antitumor agent. In addition, fluorouracil can
sensitize tumors to the therapeutic effects of radiation. The Company has an
exclusive license for certain gene therapy applications of the CD gene,
including the treatment of cancer using replication-deficient viral and
synthetic vectors.
Vectors
Vectors typically serve as the delivery system for carrying the DNA
sequences of therapeutic genes and their corresponding regulatory elements to
cells. These DNA sequences are inserted into a vector that can bind to the
target cell. After binding to the cell surface, the vector is internalized and
transported to the cellular nucleus where the therapeutic gene is used for
protein expression. A variety of vector types with different characteristics
have been developed over the years in an attempt to optimize the outcome of
this gene transfer process. Vectors can be viral or non-viral based, and the
choice of vector type depends on many parameters including the specific
disease, the organ and tissue type involved and the therapeutic gene used.
Each vector has its own set of advantages and disadvantages.
For viral vectors, a number of DNA and RNA viruses (including adenovirus and
HSV) have been developed as potential candidates for safe gene transfer. The
Company believes that in most cases, it is undesirable for these viruses to
freely infect and replicate within the target cell. For this reason, viruses
have been modified through the deletion of certain essential genes to render
them replication-deficient. For non-viral approaches, various synthetic
vectors have been designed using components such as lipids, proteins and DNA
in order to enhance the uptake of genes into cells.
GenVec is currently developing gene therapy products using adenovirus and
HSV as vectors. In addition to the development of technologies which could
improve these viral vectors with regard to safety, efficiency, duration of
gene expression and ease of manufacture, the Company routinely evaluates other
viral and non-viral approaches.
Adenovirus Vectors. Adenoviruses are common DNA viruses that can cause upper
respiratory infections, such as the common cold, in humans. The adenovirus DNA
can be manipulated by standard technology to remove DNA necessary for viral
replication. Therapeutic genes can then be inserted into the modified vector
and efficient gene expression can occur in the absence of viral replication.
Adenovirus vectors have several important features which make them
potentially useful in gene therapy. These vectors can be produced in the high
concentrations necessary for commercial production. In addition, they can
transfer genes to both dividing and non-dividing cells. Adenovirus vectors
have been used for gene transfer in many clinical trials and have an excellent
safety profile. Adenovirus vectors do not integrate into the human DNA,
reducing the risk of toxicity.
After transfection, adenovirus vectors typically express the therapeutic
gene for a few days or weeks, but long-term expression is not usually
observed. This feature is well suited for many applications where acute
expression is desired, such as therapeutic angiogenesis. The Company is
further modifying its adenovirus vectors, as well as evaluating other gene
delivery systems, for use when long-term expression is desired.
GenVec's adenovirus vector development has centered on removing essential
DNA from the adenovirus to alter performance and improve vector manufacture.
In order to produce replication-deficient adenovirus
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vectors, special cell lines must be constructed that contain information
necessary for vector production. These new vectors and cell lines provide the
manufacturing platform from which vectors can be produced for gene therapy
products. Vectors that are deficient in multiple viral genes have an increased
capacity to carry larger therapeutic genes, multiple therapeutic genes or
promoters. By eliminating regions of the adenovirus DNA necessary for viral
replication, as exemplified by GenVec's GV10 and GV11 vectors, potential
safety, production and efficacy advantages may be realized. The expression
profile of a therapeutic gene can be altered using different vectors or
promoters. A goal of GenVec's research program is to develop vectors in which
the expression of a therapeutic gene can be tailored to a specific medical
need.
Herpes Simplex Virus Vectors. HSV readily infects cells of the nervous
system and then persists in a quiescent state in these cells. Because of these
characteristics, the Company is conducting research on the use of these
vectors for the treatment of neurological disease. GenVec has developed novel,
proprietary vectors derived from genetically engineered herpes simplex virus
type I. The strategy for HSV vector development is similar to that for
adenovirus vectors, including the deletion of genes required for viral
replication. The modified HSV vectors are produced in special cell lines that
have been engineered to contain the information needed for vector production.
GenVec has developed a family of proprietary, non-replicating HSV vectors
with different gene expression characteristics and will evaluate these vectors
for a variety of applications, with an initial focus on the treatment of
neurological disorders. Persistent gene expression has also been demonstrated
using certain of the HSV vectors, suggesting that they may have utility when
chronic expression of the therapeutic gene is desired. This technology has
been developed through arrangements with the Universities of Pittsburgh,
Michigan and Glasgow.
Receptor Mediated Targeting
The goal of the Company's receptor mediated targeting program is to develop
vectors that are more efficient and can target specific cell types more
selectively than currently available vectors. The Company believes such
vectors will have significant safety, efficacy and cost advantages.
A number of clinically relevant cells and tissues have been found to express
few or no adenovirus receptors, including skeletal muscle, vascular smooth
muscle, certain endothelial cells and multiple types of tumor cells.
Consequently, these cell types are not as efficiently transfected by
adenovirus vectors as cells which express high levels of adenovirus receptors.
The Company is developing adenovirus vectors with enhanced efficiency and
targeting features by improving their ability to bind to alternative cellular
receptors. For example, binding structures have been incorporated into
adenovirus coat proteins for attachment to specific cellular receptors. Using
this approach, GenVec has developed a vector to bind to specific integrin
receptors present on endothelial cells that has potential for improved
specificity and efficiency when delivered through a vascular route. The
Company has also created certain vectors which have been shown by the Company
and its collaborators to increase transfection to vascular smooth muscle cells
in a porcine restenosis model by over 40-fold. The Company believes that these
and other vectors may have application in the Company's therapeutic
angiogenesis, vascular damage and oncology programs.
Promoters
The goal of GenVec's promoter program is to tailor gene expression to the
specific needs of its potential products. Promoters strongly influence the
level and duration of therapeutic gene expression induced by gene therapy
vectors. GenVec believes its promoter technology will be important in matching
therapeutic gene expression to the desired actions of the corresponding
therapeutic protein. For example, promoters that restrict expression of the
therapeutic gene to a target tissue, such as the heart, may be useful in the
treatment of cardiovascular disease.
GenVec is using its proprietary radiation-induced promoter technology to
increase the expression of the TNFa gene in tumors receiving radiation
therapy. In normal tissues that do not receive exposure to radiation,
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expression of TNFa would not be induced. This approach is intended to enhance
the efficacy of the Ad.TNFa product candidate while reducing the likelihood of
side effects. GenVec is also developing promoters for use in HSV vectors that
produce long-term gene expression in cells of the nervous system for potential
use in products for the treatment of neurological disorders. By combining the
appropriate vector, promoter and therapeutic gene, GenVec believes products
with improved therapeutic effects can be developed.
STRATEGIC ALLIANCES
Corporate Collaborations
To enhance the evaluation, development and commercialization of product
opportunities, GenVec intends to continue to establish corporate
collaborations. These corporate collaborations may reduce financial risk to
the Company and provide for a continued stream of cash flow. The Company
strives to retain various rights in its corporate collaborations to
participate in the manufacturing and commercialization of products, as
appropriate. Over time, and as the Company establishes or acquires increased
internal capabilities, the Company may elect to work more independently with
respect to the development and commercialization of specific product
opportunities. There can be no assurance that any of the Company's corporate
collaborations will result in the successful development or commercialization
of any technologies or products or that the Company will receive any milestone
payments or royalties from any of these corporate collaborations.
Warner-Lambert Company
In July 1997, the Company entered into a collaboration agreement and stock
purchase agreement with Warner-Lambert to develop and commercialize gene
therapy products incorporating the VEGF gene for therapeutic angiogenesis
("Collaboration Products"). Under the terms of these agreements, the Company
may receive a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. Under the collaboration agreement, GenVec has the potential to
receive $25.0 million in research funding, of which $6.0 million, $6.0
million, $5.0 million, $4.0 million and $4.0 million will be paid in years 1,
2, 3, 4 and 5 of the collaboration, respectively. GenVec also has the
potential to receive $25.0 million in milestone payments related to the
development of Collaboration Products for each of CAD and PVD. Through April
20, 1998, Warner-Lambert had paid the Company $4.0 million with respect to
such milestone payments, of which the Company had recognized revenues of $2.0
million for the year ended December 31, 1997 and $2.0 million for the three
month period ended March 31, 1998. Additional milestone payments will be paid
to the Company upon the achievement of events related to the conduct of
pivotal clinical studies, and filing for and receiving regulatory approvals to
market Collaboration Products. In the aggregate, Warner-Lambert had paid to
the Company $9.5 million in technology access fees, and research funding
through April 20, 1998, of which the Company recognized revenues of $8.0
million for the year ended December 31, 1997 and $1.5 million for the three
month period ended March 31, 1998. The stock purchase agreement requires
Warner-Lambert to purchase up to an aggregate of $25 million in Company
securities upon the achievement of certain milestones. Under the milestone
investment provision, Warner-Lambert purchased $2.0 million of the Company's
capital stock in December 1997 based on the enrollment of the first human
patient in a clinical trial for treatment of coronary artery disease, has
agreed to purchase $5.0 million of the Company's Common Stock in a private
transaction concurrent with this offering, and is required to purchase, at the
election of the Company, up to an additional $18.0 million of the Company's
capital stock for demonstrating a process for producing and purifying, in bulk
form, a collaboration product or achieving specified clinical trials for
coronary artery disease, peripheral vascular disease, or a third indication.
Prior to this offering, the Company is required to provide notice of a tranche
sale no more than ninety days after the Company receives notice from Warner-
Lambert or otherwise becomes aware of the occurrence of the tranche event.
After this offering, the Company is required to provide notice of a tranche
sale no sooner than fifty days and no later than sixty days after the issuance
of an announcement regarding the occurrence of the tranche event or twenty-
five days after Warner-Lambert has reasonably withheld consent to the issuance
of the announcement. Warner-Lambert may not transfer any of the securities
purchased pursuant to this agreement for two years after this offering or for
ninety days prior to
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the anticipated occurrence of any tranche date, subject to certain exceptions.
In addition, Warner-Lambert may not transfer any securities purchased in
connection with a tranche event following this offering until the later of two
years after this offering or eighteen months after Warner-Lambert becomes the
holder of record of such securities, as determined on a tranche-by-tranche
basis and subject to certain exceptions. The purchase price for all of these
equity investments is 125% of the fair market value of the securities. Until
the earlier of the expiration of the collaboration agreement or one year after
its termination, Warner-Lambert cannot acquire all of the outstanding capital
stock or substantially all of the assets of a holder of any of the Company's
capital stock, subject to certain exceptions. Upon the closing of this
offering and the concurrent private transaction, Warner-Lambert will own
approximately 6.9% of the Company's Common Stock.
The focus of the initial research and development effort is on any potential
application of the Collaboration Products, including CAD and PVD. Prior to
July 1999, Warner-Lambert may elect to retain indications in addition to CAD
and PVD. In that event, GenVec would receive additional research and
development funding, and the structure of any royalty and milestone payments
would be essentially the same as that covering the initial indications.
Under the collaboration agreement, GenVec granted to Warner-Lambert an
exclusive, royalty-bearing license to sell Collaboration Products worldwide,
excluding Asia, subject to the Company's right to co-promote. Warner-Lambert
is responsible for the costs of developing and commercializing any
Collaboration Products worldwide, excluding Asia, provided the Company will be
responsible for certain expenses if it elects to exercise its co-promotion
right. GenVec is responsible for the payment of license fees, milestone
payments and other payments due to Scios with respect to the development,
manufacture, use or sale of Collaboration Products worldwide, excluding Asia.
GenVec retains the right to co-promote Collaboration Products for any
indications other than PVD in the United States and Canada. In addition, the
Company has retained all rights to develop and commercialize Collaboration
Products discovered outside of the designated fields of research, as well as
the option to manufacture bulk quantities of Collaboration Products. Neither
party may sell or commercialize any product with the same mechanism of action
as BIOBYPASS angiogen that would compete with a Collaboration Product. Between
July 1999 and July 2000, Warner-Lambert has certain negotiation rights with
regard to the development and commercialization of VEGF gene therapy products
not retained by Warner-Lambert. Warner-Lambert has committed to guaranty a
loan to the Company by a bank or other financial institution in a principal
amount of $5.0 million.
Warner-Lambert's research and development funding obligations extend through
2002, although Warner-Lambert may terminate the research program under the
collaboration agreement with six months written notice after July 21, 2000.
Both parties have the right to terminate the collaboration agreement for
breach. The collaboration agreement expires on a Collaboration Product-by-
Collaboration Product and country-by-country basis until neither party has any
remaining royalty obligations. The stock purchase agreement terminates upon
the termination of the collaboration agreement. An Executive Committee
comprising of three representatives from each of the Company and Warner-
Lambert oversees and manages the collaboration.
Fuso Pharmaceuticals Industries, Ltd.
In September 1997, GenVec and Fuso established a collaboration to conduct
research and to identify, evaluate and develop gene therapy products for the
treatment of cancer. If the research program continues for its full term, Fuso
is required to provide $1.0 million in research funding annually for five
years, of which $750,000 will be paid to the Company each year. Fuso has the
right to terminate the collaboration after the second anniversary of the
collaboration upon 90 days prior written notice. In connection with
establishment of the collaboration, Fuso purchased 75,329 shares of the
Company's Class E Convertible Preferred Stock for an aggregate purchase price
of approximately $1.0 million.
As part of the collaboration, GenVec granted Fuso an exclusive, royalty-
bearing license to develop and commercialize products developed under the
collaboration for the treatment of cancer in Japan and at Fuso's
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option, Korea and Taiwan. Fuso will be responsible for the development and
commercialization of any products in its territory. GenVec will receive
additional payments for the achievement by Fuso of specified product
development and regulatory milestones, with the earliest of such payments not
expected in the near term. The Company will also receive royalties on the sale
of any such products commercialized by Fuso. GenVec has retained all rights to
develop and commercialize such products for the treatment of cancer in the
rest of the world, and for all other uses worldwide, subject to certain
restrictions, independently and with third parties.
Varian Associates, Inc.
In March 1998, the Company and Varian entered into a three-year
collaborative agreement in the field of radiation and gene therapy. Under the
agreement, the parties will collaborate on the preclinical and clinical
research and development of specific products and technology, with the goal of
developing novel, improved therapies based on the combined use of radiation
therapy and gene therapy products. Varian will have primary responsibility for
the development of equipment and software for delivery of targeted radiation
therapy, and the Company will have primary responsibility for developing gene
therapy products. The Company and Varian are responsible for their respective
costs in conducting collaborative activities and have no other monetary
obligations under the agreement. In addition, the Company and Varian each
retain the right to develop and commercialize their respective products and
technologies independently or with third parties.
Selected Academic Collaborations and Technology Licenses
GenVec's objective is to create multiple innovative products that meet major
medical needs. To accomplish this objective, the Company combines its core
technology development activities with acquisitions and licensing of its
business technologies, including therapeutic genes, from various sources. In
addition to the contractual arrangements described below, the Company funds
research in laboratories of leading authorities at several academic
institutions for the development of new technologies and the conduct of
preclinical and clinical activities. The Company generally establishes
exclusive license agreements with these and other institutions to obtain the
benefits of any intellectual property invented in connection with such funded
activities. There can be no assurance that the Company's academic
collaborations will result in the successful development or commercialization
of any technologies or products.
Cornell University
In May 1993, the Company entered into a five-year sponsored research
agreement with Cornell University for activities to be conducted in the
laboratory of Dr. Ronald G. Crystal at the Cornell Medical Center.
Upon expiration in March 1998 of the May 1993 agreement, the Company and
Cornell University entered into a new, four-year sponsored research agreement
for the conduct of preclinical and clinical research in the laboratory of Dr.
Crystal. Under the terms of the new agreement and subject to certain
termination rights, GenVec has committed to pay up to $5.7 million in
sponsored research over a four year period, with a minimum sponsorship of
approximately $3.6 million during an initial two and one half year period. The
Company retains the option to exclusively license inventions arising from the
sponsored research activities.
The University of Pittsburgh
In June 1996, GenVec signed an agreement with the University of Pittsburgh
providing the Company with an exclusive, worldwide license to all gene therapy
applications of the human iNOS gene. The Company will make future payments
based on the achievement of specified regulatory milestones and will share
with the University of Pittsburgh certain profits the Company realizes from
the research, development and commercialization of products incorporating the
iNOS gene. GenVec has agreed to provide a minimum royalty on the sale of these
products, which royalties are creditable against the profits to be shared. In
addition,
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the Company granted the University of Pittsburgh a warrant to purchase 101,694
shares of the Company's Common Stock, which shall vest upon the earlier of the
achievement of specified product development and regulatory milestone events
or certain dates. In June 1996, GenVec also entered into a two-year sponsored
research agreement to fund the research of iNOS in Dr. Timothy Billiar's
laboratory at the University of Pittsburgh School of Medicine.
In addition, the Company has separate sponsored research arrangements and a
license agreement with the University of Pittsburgh relating to HSV vector
technology.
Scios, Inc.
In May 1996, the Company entered into an exclusive, worldwide license
agreement with Scios for rights to all gene therapy applications of its
proprietary form of the VEGF gene. The parties will share in certain profits
the Company realizes from the research, development and commercialization of
products incorporating the VEGF gene. GenVec has agreed to provide a minimum
royalty on revenues generated from the development of these products, which
are creditable against the profits to be shared. In connection with the
license agreement, Scios purchased 96,852 shares of the Company's Class D
Convertible Preferred Stock for an aggregate purchase price of $1.0 million.
In addition, the Company granted Scios a warrant to purchase 211,864 shares of
the Company's Common Stock at an exercise price of $13.275 per share. The
warrant is subject to vesting as follows: 75% of the shares subject to the
warrant have vested as of March 31, 1998 and the remainder will vest by June
30, 1999 or earlier upon achievement of specified product development
milestone events. The warrant remains outstanding as of March 31, 1998.
Asahi Chemical Corporation
In February 1998, the Company entered into a non-exclusive license agreement
with Asahi for the rights in the United States to all gene therapy
applications of the TNFa gene. The Company paid Asahi a fee upon the execution
of the agreement, and will make future payments of up to an aggregate of
$300,000 based upon the achievement of specified product development and
regulatory milestones. Under the agreement, the Company will also pay to Asahi
royalties on sales of products in the United States incorporating the TNFa
gene.
INTELLECTUAL PROPERTY
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. In addition, patent law, and particularly patent
law relating to the gene therapy field, is still evolving. Development and
commercialization of the Company's product candidates and any potential
products will require, among other things, the integration of genes, vectors
and promoters with a delivery mechanism and the development of commercially
viable manufacturing processes. The Company's commercial success will be
dependent in part upon achieving such integration and development without
infringing the proprietary rights of others and upon obtaining intellectual
property protection that will give the Company's products an exclusive market
position.
The Company and its licensors have obtained patents and continue to seek
patent protection for technologies which may relate to the Company's product
candidates and potential products, as well as technologies which may prove
useful for future products, including technologies related to the
VEGF/121/ gene, the iNOS gene, the TNFa gene, the CD gene, adenovirus and
HSV vector components, cell lines, viral targeting technology and promoters.
As of March 31, 1998, the Company held or had licenses to 154 issued, allowed
or pending patents worldwide, of which 28 are issued or allowed in the U.S. Of
those patents, the Company has been granted an exclusive license for all gene
therapy applications under two United States patents relating to the
VEGF/121/ gene and the use thereof, an exclusive license in the field of
gene therapy under two United States patents relating to the human iNOS gene
and the use thereof, and an exclusive license in the field of gene therapy for
the treatment of cancer and restenosis, but excluding applications which
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utilize viral-based delivery systems which are replication competent, under
two United States patents relating to the CD gene and the use thereof. The
Company has also been granted a nonexclusive license under the U.S. patent
relating to the TNFa gene and the use thereof. In addition, the Company and
its licensors have patent applications pending in Europe, Japan and other
countries. In furtherance of its current and prospective business, the Company
anticipates that it and its current and future licensors will continue to seek
to improve existing technologies and to develop new technologies and, when
possible, secure patent protection for such improvements and new technologies.
Certain intellectual property components used in developing gene therapy
products, such as certain vectors and promoters used by the Company and
others, are in the public domain. As a result, the Company is unable to obtain
patent protection with respect to such components and third parties can freely
use such components. There can be no assurance that third parties will not
develop products using such components that compete with the Company's
potential products.
There can be no assurance that any of the pending patent applications owned
or licensed by the Company contain patentable and enforceable claims or will
result in valid issued patents, that the claims of any issued patents or any
patents issued in the future are valid and enforceable and will provide
meaningful protection, that the Company or its collaborators will develop
additional proprietary technologies that are patentable, or that any patents
now or in the future licensed or issued to the Company or its collaborators
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
licensed or issued to the Company, design around or otherwise circumvent the
patented technologies or other intellectual property licensed to or developed
by the Company. For example, while the Company has an exclusive license under
two United States patents relating to the VEGF/1//2//1/ gene and the use
thereof for gene therapy applications, third parties have patents for other
forms of the VEGF gene and such third parties or their licensees may develop
products using such other forms of the VEGF gene. There can be no assurance
that products based on such other forms of the VEGF gene or based upon other
growth factors will not be functionally equivalent to or better than the
Company's proposed products, or that such other products will not be more
commercially successful than any products commercialized by the Company or its
collaborators for other reasons, such as superior marketing or lower costs.
Similarly, other parties hold patents for other nitric oxide synthase, tumor
necrosis factor and CD genes. Patents and patent applications of the Company,
its collaborators and its licensors may become involved in interferences,
oppositions or similar proceedings and there can be no assurance that such
patents and patent applications will survive, in whole or in part, such
proceedings. No assurance can be given that patents issued to the Company, its
collaborators or its licensors, if any, will not be contested, narrowed,
revoked or invalidated. Academic collaborators and the U.S. government may
retain certain rights in intellectual property, including patents and patent
applications, developed by such academic collaborators.
While the Company has not conducted freedom to use patent searches on
aspects of its product candidates and potential products and may therefore be
unaware of relevant patents and patent applications of third parties, the
Company is aware of several United States patents and patent applications and
foreign patents and patent applications owned by third parties relating to
gene therapy, promoters, cell lines, vectors and delivery mechanisms which do
or may cover aspects of the Company's product candidates and potential
products or their use or manufacture, including BIOBYPASS angiogen, as well as
other aspects of the Company's technology. Because patent applications are
maintained in secrecy in the United States, the Company cannot be certain that
third parties have not filed applications relating to technology being
developed by the Company or its collaborators or technology covered by patents
or patent applications of the Company, its collaborators or its licensors.
Certain third-party patent applications contain broad claims, and it is not
possible to determine whether or not such claims will be narrowed during
prosecution or will issue as patents, even if the claims appear to encompass
prior art or have other defects. The Company, its collaborators or its
licensors may choose to oppose or challenge third-party patents and patent
applications and such an
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opposition or challenge can be expensive and time consuming. There can be no
assurance that any opposition or challenge will be successful. There can also
be no assurance that the development, manufacture, use, offer for sale, sale
or importation of the Company's product candidates and potential products by
the Company or its collaborators will not infringe claims of these or other
issued patents, or claims that may issue from these or other applications or
that a third party will not threaten or file an infringement action.
If the Company or one of its collaborators brings a patent infringement
action or otherwise brings an action to protect proprietary rights against
third parties or is required to defend against a charge of patent infringement
or a charge of infringement of other intellectual property rights, substantial
costs could be incurred and such actions could result in a significant
diversion of management's time and attention. In addition to being a potential
party to patent infringement litigation, the Company is involved in an
interference proceeding relating to a pending patent application pertaining to
the treatment of blood vessel injury licensed by the Company from the NIH and
a pending patent application of the University of Michigan. An adverse
resolution of such interference proceeding would restrict or eliminate the
scope of the license granted by NIH to GenVec, which the Company believes
would not have a material adverse effect on the Company's current product
candidates. The Company believes it will become involved in additional
interference proceedings declared by the United States Patent and Trademark
Office or opposition proceedings in a foreign patent office. The adverse
resolution of potential proceedings could have a material adverse effect on
the Company's product candidates. The Company intends to provoke interference
proceedings where it believes such actions to be necessary to protect its
intellectual property rights. There can be no assurance that the Company will
be successful in provoking such proceedings or that the Company will achieve a
favorable outcome. Patent infringement actions and other intellectual property
litigation, as well as participation in interference or opposition
proceedings, can be expensive and time-consuming, even in those instances in
which the outcome is favorable to the Company. There can be no assurance that
the Company or its collaborators will prevail in any such litigation or
proceedings. The Company and its licensors obtain intellectual property,
including biological material and know-how, from third parties pursuant to
various agreements and arrangements. Third parties may challenge the
intellectual property rights of the Company or its licensors or claim
ownership of intellectual property developed by the Company or its
collaborators. The Company could incur substantial expenses in contesting such
claims, whether successful or not.
The Company has certain licenses and believes that it or its collaborators
will be required to obtain additional licenses under third-party patents and
patent applications to continue research and development and to commercialize
the Company's product candidates and potential products, and there can be no
assurance that any such license will be made available on commercially viable
terms, if at all. If the Company is unable to obtain a license it may be
required to use an alternate technology or product and this may result in a
delay in FDA approval. In addition, licensors may terminate existing or future
license agreements, or terminate the exclusive nature of such agreements, if
the Company fails to meet specified milestones or other events. Any
termination of a license, or any failure of the Company or its collaborators
to obtain any required license on reasonable terms or at all, or the failure
to maintain the exclusivity of the Company's exclusive licenses, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's product candidates and potential products
will require several components that may each be the subject of a license
agreement. The cumulative license fees and royalties for these components may
make the commercialization of such product candidates and potential products
uneconomical.
The Company may rely on trade secret protection and confidentiality
agreements to protect its interests. It is the Company's policy to require its
employees, consultants, contractors, manufacturers, collaborators and other
advisors to execute confidentiality agreements upon the commencement of
employment, consulting or collaborative relationship with the Company. The
Company also requires signed confidentiality agreements from any entity that
is to receive confidential data. In the case of employees, consultants and
contractors, the agreements generally provide that all inventions made by the
individual while rendering individual services to
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the Company shall be assigned to the Company as the property of the Company.
Nevertheless, there can be no assurance that proprietary information will not
be disclosed, that others will not independently develop substantially
equivalent proprietary information or otherwise gain access to the Company's
trade secrets, or that the Company can meaningfully protect its trade secrets.
In the case of a collaborative arrangement which requires the sharing of
information, the Company's policy is to make available to its collaborator
only such information as is relevant to the arrangement, under controlled
circumstances, and only during the contractual term of the collaborative
arrangement, and subject to a duty of confidentiality on the part of its
collaborator. There can be no assurance, however, that such measures will
adequately protect the Company's information. Any material leak of
confidential information into the public domain or to third parties may have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Intellectual Property."
SCIENTIFIC ADVISERS
The Company has established a select group of scientists and clinicians as
its Scientific Advisory Board ("SAB") to advise the Company on scientific and
technical matters. The Company also consults with teams of scientists and
clinicians on scientific and technical matters for each of the Company's
anticipated product areas. The scientific advisers are generally compensated
by retainer or on a time and expense basis, and certain of them have received
shares of or options to purchase the Company's Common Stock. The Company has
entered into consulting agreements with a number of the scientific advisers.
Scientific Advisory Board
The SAB includes:
Jan L. Breslow, M.D., Frederick Henry Leonhardt Professor, The Rockefeller
University, New York. Dr. Breslow is a member of the National Academy of
Sciences and a former President of the American Heart Association. Dr. Breslow
received his M.D. from Harvard Medical School.
Ronald G. Crystal, M.D., Bruce Webster Professor of Internal Medicine at
Cornell University Medical College, Chief of the Division of Pulmonary and
Critical Care Medicine at The New York Hospital-Cornell Medical Center and
Director of the Gene Therapy Core Facility at Cornell University Medical
College. Dr. Crystal is the Chairman of the SAB and a founder of the Company.
Dr. Crystal received his M.D. from the University of Pennsylvania.
Joseph C. Glorioso III, Ph.D., William S. McEllroy Professor of Biochemistry
and Chairman, Department of Molecular Genetics and Biochemistry, University of
Pittsburgh School of Medicine, Director of the Pittsburgh Human Gene Therapy
Center, Founding Board Member and Treasurer of the American Society of Gene
Therapy and the U.S. Editor for Gene Therapy. Dr. Glorioso received his Ph.D.
in Microbiology from Louisiana State University.
Samuel Hellman, M.D., A.N. Pritzker Distinguished Service Professor,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Hellman was formerly Dean for the Medical Center and Physician-in-Chief of the
Memorial Sloan-Kettering Cancer Center. Dr. Hellman received his M.D. from the
State University of New York, College of Medicine at Syracuse.
Cardiovascular Medicine
Timothy R. Billiar, M.D., Watson Professor of Surgery, University of
Pittsburgh School of Medicine. Dr. Billiar received his M.D. from the
University of Chicago.
Jan L. Breslow, M.D., Frederick Henry Leonhardt Professor, The Rockefeller
University, New York. Dr. Breslow is a member of the National Academy of
Sciences and a former President of the American Heart Association. Dr. Breslow
received his M.D. from Harvard Medical School.
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Maurizio C. Capogrossi, M.D., Chief, Laboratory of Vascular Pathology,
Instituto Dermopatico dell'Immacolata, Rome, Italy. Dr. Capogrossi received
his M.D. from the Universita Statale "La Sapienza" in Rome, Italy.
Delos M. Cosgrove, M.D., Chairman of the Department of Thoracic and
Cardiovascular Surgery, The Cleveland Clinic Foundation, Cleveland, Ohio. Dr.
Cosgrove received his M.D. from the University of Virginia School of Medicine.
Todd K. Rosengart, M.D., Associate Professor of Cardiothoracic Surgery,
Cornell University Medical College, New York. Dr. Rosengart received his M.D.
from Northwestern University.
Eric J. Topol, M.D., Chairman of the Department of Cardiology and Director,
Joseph J. Jacobs Center for Thrombosis and Vascular Biology, The Cleveland
Clinic Foundation, Cleveland, Ohio. Dr. Topol received his M.D. from the
University of Rochester School of Medicine and Dentistry, Rochester, New York.
Jeffrey D. Trachtenberg, M.D., Attending Assistant Professor of Surgery,
University of Pittsburgh School of Medicine. Dr. Trachtenberg received his
M.D. from the State University of New York. His general surgery and vascular
surgery training were conducted at Washington University, St. Louis, Missouri.
Oncology
Albert B. Deisseroth, M.D., Ph.D., Ensign Professor of Medicine, Chief of
Medical Oncology, Yale University School of Medicine, New Haven, Connecticut.
Dr. Deisseroth received his M.D. and Ph.D. from the University of Rochester
School of Medicine and Dentistry, Rochester, New York.
Samuel Hellman, M.D., A.N. Pritzker Distinguished Service Professor,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Hellman was formerly Dean for the Medical Center and Physician-in-Chief of the
Memorial Sloan-Kettering Cancer Center. Dr. Hellman received his M.D. from the
State University of New York, College of Medicine at Syracuse.
Donald W. Kufe, M.D., Professor of Medicine, Harvard Medical School, Chief,
Cancer Pharmacology, Department of Adult Oncology, Dana-Farber Cancer
Institute and Deputy Director of the Dana-Farber Cancer Center, Boston,
Massachusetts.
Tsuneya Ohno, M.D., Ph.D., Jikei University School of Medicine, Tokyo, Japan
and Chairman, the Study Group for Gene Therapy in Japan. Dr. Ohno received his
M.D. from the Jikei University School of Medicine in Tokyo, Japan and his
Ph.D. in Molecular Biology from Keio University in Tokyo, Japan.
Ralph R. Weichselbaum, M.D., Harold H. Hines, Jr. Professor and Chairman,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Weichselbaum is a member of the Institute of Medicine of the National Academy
of Sciences. Dr. Weichselbaum received his M.D. from the University of
Illinois.
Herpes Virus Vectors
Neal A. DeLuca, Ph.D., Professor, Department of Molecular Genetics and
Biochemistry, University of Pittsburgh. Dr. DeLuca received his Ph.D. in
Biophysics from the Pennsylvania State University.
David J. Fink, M.D., Professor of Neurology and Professor of Molecular
Genetics and Biochemistry, the University of Pittsburgh Medical School. Dr.
Fink received his M.D. from Harvard Medical School.
Joseph C. Glorioso III, Ph.D., William S. McEllroy Professor of Biochemistry
and Chairman, Department of Molecular Genetics and Biochemistry, University of
Pittsburgh School of Medicine, Director of the Pittsburgh Human Gene Therapy
Center, Founding Board Member and Treasurer of the American Society of Gene
Therapy and the U.S. Editor for Gene Therapy. Dr. Glorioso received his Ph.D.
in Microbiology from Louisiana State University.
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Christopher Preston, Ph.D., Band 2 Scientist, Non-Clinical Scientific Staff
at the Institute of Virology, Glasgow. Dr. Preston received his Ph.D. in
Biochemistry at the University of Cambridge.
Adenovirus Vectors
Min Li, Ph.D., Assistant Professor of Neuroscience, John Hopkins University
School of Medicine. Dr. Li received his Ph.D. in Molecular Biology and
Genetics from the John Hopkins University School of Medicine.
Charles S. H. Young, D.Phil., Professor of Microbiology, Columbia
University. Dr. Young received his D.Phil. in Yeast Genetics from Oxford
University.
COMPETITION
Competition among entities attempting to identify and develop new therapies
is intense. The Company faces, and will continue to face, competition from
pharmaceutical and biotechnology companies, academic and research institutions
and government agencies, both in the United States and abroad. Many of the
Company's competitors have substantially greater capital resources, research
and development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than the Company. Future competition
will likely come from existing competitors (including competitors with rights
to proprietary forms of the VEGF gene and other genes the Company currently
uses in its product candidates), as well as other companies seeking to develop
new treatments. Competitors or their academic collaborators may identify
important genes or delivery mechanisms before the Company, or develop gene
therapies that are more effective than those developed by the Company or its
corporate collaborators, or obtain regulatory approvals of their drugs more
rapidly than the Company or its corporate collaborators. Moreover, there can
be no assurance that the Company's competitors will not obtain patent
protection or other intellectual property rights that would limit the
Company's or its collaborators' ability to use the Company's gene therapy
technologies. Any of these events could materially and adversely affect the
Company's business, financial condition and results of operations.
The Company will rely on its corporate collaborators for support of certain
of its enabling technologies and intends to rely on its corporate
collaborators for preclinical and clinical development of related potential
products and the manufacturing and marketing of such products. Generally, the
Company's strategic alliance agreements do not preclude the corporate
collaborator from pursuing development efforts utilizing approaches distinct
from that which is the subject of the alliance. Product candidates of the
Company, therefore, may be subject to competition with a potential product
under development by a corporate collaborator. See "Risk Factors--Reliance on
Warner-Lambert and Other Corporate Collaborators."
Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers
development expenses. Products developed by the Company could be made obsolete
by less expensive or more effective technologies, even technologies unrelated
to gene therapy. For example, competitors may also develop small molecule,
protein, antisense or other therapeutic or surgical approaches that may
compete with or obviate the need for the Company's products. There can be no
assurance that the Company will be able to make the enhancements to its
technology necessary to compete successfully with existing or newly emerging
technologies. See "Risk Factors--Intense Competition."
MANUFACTURING
The Company has limited experience in manufacturing and currently lacks the
resources or capability to manufacture any of its product candidates on a
commercial scale. It currently has a research facility for the production of
its product candidates for preclinical purposes and relies on third-party
manufacturers of its product candidates for clinical purposes. For the
Company's lead product, BIOBYPASS angiogen, Warner-Lambert has the right to
fill and finish the final product. However, production of BIOBYPASS angiogen
for future clinical trials and possible commercialization is currently
intended to be performed primarily through a
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third-party manufacturer. The Company currently intends to rely primarily on
corporate collaborators and third-party manufacturers for clinical and
commercial purposes. If a third-party manufacturer cancels or terminates an
existing relationship or if the Company is unable to contract for or obtain a
sufficient supply of its product candidates on acceptable terms, there could
be significant reductions in sales and delays in bringing the Company's
product candidates to market, as well as delays in the Company's clinical
testing schedule, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, it is anticipated that production of the Company's product
candidates will be based in part on proprietary technology of the Company.
Successful technology transfer will be necessary. There can be no assurance
that manufacturers will abide by any limitations or confidentiality
restrictions on licenses with the Company. In addition, any such manufacturer
may develop process technology related to the manufacture of the Company's
compounds that such manufacturer owns either independently or jointly with the
Company. This would increase the Company's reliance on such manufacturer or
require the Company to obtain a license from such manufacturer in order to
have its products manufactured. There can be no assurance that any such
license would be available on terms acceptable to the Company, if at all.
Further, there can be no assurance that the arrangements with third-party
manufacturers will be successful.
Successful large-scale manufacturing of gene therapy products has yet to be
demonstrated by any third party, and it is anticipated that significant
process development changes will be necessary for the commercial process. For
example, changes in the current production process will be required for any
commercial manufacture of BIOBYPASS angiogen. There can be no assurance that
the Company or any third party will be able to manufacture commercial-scale
quantities of gene therapy products, or receive appropriate governmental
approvals on a timely basis or at all. Failure to manufacture successfully or
to obtain appropriate government approvals on a timely basis would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, the Company intends to continue to develop its own
manufacturing capability, which will require significant resources and will be
subject to ongoing government approval and oversight. There can be no
assurance that the Company's efforts in this regard will be successful. See
"Risk Factors--Manufacturing Limitations" and "Risk Factors--Government
Regulation; No Assurance of Regulatory Approval."
GOVERNMENT REGULATION
Prior to marketing, any products developed by the Company or its corporate
collaborators must undergo an extensive regulatory approval process in the
United States and other countries. This regulatory process, which includes
preclinical studies and clinical trials, and may include post-marketing
surveillance of each compound to establish its safety and efficacy, can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Delays
or rejections may also be encountered based upon changes in FDA policies for
drug approval during the period of product development and FDA regulatory
review. Similar delays may also be encountered in obtaining regulatory
approval in foreign countries. Delays in obtaining regulatory approvals could
adversely affect the marketing of any drugs developed by the Company or its
corporate collaborators, impose costly procedures upon the Company's or its
corporate collaborators' activities, diminish any competitive advantages that
the Company or its corporate collaborators may attain and adversely affect the
Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for products developed by the Company or its
corporate collaborators. Furthermore, regulatory approval may entail
limitations on the indicated uses of a proposed product. Because certain of
the Company's product candidates involve the application of new technologies
and may be based upon a new therapeutic approach, such products may be subject
to substantial additional review by various government regulatory authorities,
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon more conventional technologies. The Company's product
candidates may require a delivery device and such product and device may be
subject to separate regulatory review, which could also delay regulatory
approval.
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The Company believes that the commercial uses of its products will be
regulated as biologics by the FDA and comparable regulatory bodies of other
countries. Gene therapy is, however, a relatively new technology, and the
regulatory requirements governing gene therapy products are uncertain. This
uncertainty may result in excessive costs or extensive delays in the
regulatory approval process, adding to the already lengthy review process for
human therapeutic products in general. The Company is not aware of any gene
therapy products that have received marketing approval from the FDA or any
comparable regulatory body of any other country. The regulation of the
Company's products and its ongoing research is subject to change, and future
legislative or administrative acts in the United States or other countries
could have a material adverse effect on the Company's business, financial
condition and results of operations. Regulatory requirements ultimately
imposed could adversely affect the ability of the Company's corporate
collaborators to clinically test, manufacture or market products, and could
significantly delay or reduce the milestone or royalty payments payable to the
Company.
In order to obtain FDA approval of a new biological product, the Company
must submit substantial evidence of safety, purity, potency and efficacy.
The FDA approval process for a new biological drug involves completion of
pre-clinical studies which include laboratory tests and animal studies to
assess safety and effectiveness of the drug. Among other things, the results
of these studies as well as how the product will be manufactured are submitted
to the FDA as part of an IND application and, unless the FDA objects, the IND
becomes effective 30 days following receipt by the FDA. Human clinical trials
may then be conducted. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials or that approval
of an IND will result in subsequent approval of the drug. The results of the
clinical trials are submitted to the FDA as part of a BLA. Product sales may
only commence if the BLA is approved. Regulatory requirements for obtaining
FDA approval are rigorous and there can be no assurance that such approvals
will be obtained on a timely basis or at all.
Human clinical trials are typically conducted in three sequential phases,
but the phases may overlap. Phase I trials consist of testing the product in a
small number of patients primarily for safety at one or more dosage levels. In
Phase II, in addition to safety, the efficacy of the product is typically
evaluated in a patient population slightly larger than is used in Phase I
trials, and appropriate dosage is established. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
patient population at geographically dispersed test sites, and with the dosage
that will be submitted for approval. A clinical plan, or "protocol,"
accompanied by the approval of the institutional review board at the
institution participating in the trials, and patient-informed consent forms
must be submitted to and approval by the FDA prior to commencement of each
clinical trial. The FDA may order the temporary or permanent discontinuation
of a clinical trial at any time if it believes patient safety is at risk. The
Company's regulatory strategy is to seek input from the FDA at all stages of
clinical testing and manufacturing process development.
The results of the pre-clinical and clinical studies on biological drugs are
submitted to the FDA in the form of a BLA for approval to commence commercial
sales. After completion of the FDA's preliminary review of the BLA submission,
the submission is sent to an FDA selected scientific advisory panel composed
of physicians and scientists with expertise in the particular field. The FDA
scientific advisory panel issues a recommendation to the FDA that may include
conditions for approval of the BLA. Although the recommendation is not
binding, the FDA generally follows an advisory panel's advice. Toward the end
of the BLA review process, the FDA will conduct an inspection of the
manufacturer's facilities to ensure that they are in compliance with the
applicable cGMPs requirements. If the FDA evaluation of the manufacturing
facilities contained in the BLA application are favorable, the FDA will issue
an approval letter, which usually contains a number of conditions which must
be met in order to secure final approval. In responding to the BLA, the FDA
may grant marketing approval, require additional testing or information, or
deny the application. Governmental approval of products developed by the
Company may entail limitations on the indicated uses for which such products
may be marketed. Continued compliance with all FDA requirements
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and the conditions in an approved application, including product
specification, manufacturing process, labeling and promotional material and
record keeping and reporting requirements, is necessary for all products.
Failure to comply, or the occurrence of unanticipated adverse effects during
commercial marketing, could lead to the need for product recall or other FDA-
initiated action, which could delay further marketing until the products are
brought into compliance.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, and could have a material adverse effect on the Company's business,
financial condition and results of operations. Violations of regulatory
requirements at any stage during the regulatory process, including preclinical
studies and clinical trials, the approval process, post-approval or in GMP,
may result in various adverse consequences to the Company, including the FDA's
delay in approval or refusal to approve a product, withdrawal of an approved
product from the market or the imposition of criminal penalties against the
manufacturer and license holder. There can be no assurance that the Company or
its corporate collaborators will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Further, the terms of approval of any marketing application,
including the labeling content, may be more restrictive than the Company
desires and could affect the marketability of the Company's proposed products.
Failure to obtain required governmental approvals will delay or preclude the
Company or its corporate collaborators from marketing products or limit the
commercial use of such products and could have a material adverse effect on
the Company's business, financial condition and results of operations. The
President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the biologic
provisions of the FDC Act. The Company cannot predict how or what effect the
changes will have on the regulation of the Company's products. There can be no
assurance that the new legislation will not impose additional costs or
lengthen review times for the Company's products. See "Risk Factors--
Government Regulation; No Assurance of Regulatory Approval."
EMPLOYEES
As of March 31, 1998, the Company had a total of 54 employees, 16 of whom
hold M.D. or Ph.D. degrees and 15 of whom hold other advanced degrees. Of
these, 38 were engaged in research and development and 16 were engaged in
business development, finance and general administration. The Company's future
success depends in significant part upon the continued service of its key
scientific, technical and senior management personnel and its continuing
ability to attract and retain highly qualified technical and management
personnel. None of the Company's employees is represented by a labor union or
covered by a collective bargaining agreement. The Company has not experienced
any work stoppages and considers its relations with its employees to be good.
FACILITIES
The Company's facilities are located in Rockville, Maryland. The Company
leases approximately 14,000 square feet of laboratory and office space on a
month-to-month basis. The Company may terminate this lease by giving notice
for each of five defined areas, one at a time, over a period that, in the
aggregate, would total at least 210 days. In addition, the Company leases
approximately 9,000 square feet of office space under a lease which expires in
April 2000. The Company believes that these facilities will be adequate for
its current and near-term needs but is in the process of identifying new
facilities for expansion.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers as of April 28, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ------------------------------------------------
<S> <C> <C>
Herbert J. Conrad (1)(2).. 65 Chairman of the Board of Directors
Paul H. Fischer, Ph.D.
(1)...................... 48 President, Chief Executive Officer and Director
Thomas E. Smart........... 34 Vice President, Corporate Development, Corporate
Secretary and Treasurer
Imre Kovesdi, Ph.D........ 51 Vice President, Discovery Research
Grant Yonehiro............ 34 Vice President, Product Management
Hal S. Broderson, M.D.
(2)(3)................... 40 Director
Harry T. Rein (1)......... 53 Director
Wendell Wierenga Ph.D..... 50 Director
Gregory F. Zaic (3)....... 50 Director
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Herbert J. Conrad has served as Chairman of the Board of Directors of the
Company since September 1996, and as a director of the Company since August
1994. From September 1996 to November 1996, he was the President and Chief
Executive Officer of the Company. From September 1993 to August 1994, he was a
director of Theragen, Inc., which merged into the Company in August 1994. He
served as President of the Pharmaceuticals Division and Senior Vice President
of Hoffmann-LaRoche, Inc. ("Roche") from 1982 until his retirement in 1993.
Mr. Conrad joined Roche in 1960 and held various positions, including Senior
Vice President of the Pharmaceuticals Division, Chairman of the Board of Medi-
Physics, Inc., and Vice President, Public Affairs and Planning Division. Mr.
Conrad is a director of Gensia Sicor Inc., Bio-Technology General Corp.,
UroCor, Inc. and Dura Pharmaceuticals, Inc.
Paul H. Fischer, Ph.D. has served as President, Chief Executive Officer, and
as a director of the Company since November 1996, and in various positions
with the Company since March 1995. From May 1992 to April 1995, he was
Executive Vice President of Research and Development with Oncologix, Inc., a
biotechnology company. From September 1987 to May 1992, he served as Manager,
Cancer Research at Pfizer, Inc., a pharmaceutical company. Dr. Fischer
received his B.S. in Biology from the University of Denver, his Ph.D. in
Pharmacology from the University of California at San Francisco and performed
post-doctoral research in Pharmacology at Yale University School of Medicine.
Thomas E. Smart has served as Vice President of Corporate Development of the
Company since July 1996. From March 1995 to June 1996, he was Executive
Director of Corporate Development of the Company. From August 1991 to March
1995, he was with Cell Genesys, Inc., a biotechnology company, most recently
as Director of Business Development. From July 1990 to July 1991, Mr. Smart
was with G.D. Searle & Co., a pharmaceutical company, most recently as a
Policy Planning Associate, Corporate Strategic Planning. Mr. Smart received
his B.S. in biological sciences from Cornell University and his M.B.A. from
the University of Chicago Graduate School of Business.
Imre Kovesdi, Ph.D. has served as Vice President of Discovery Research of
the Company since September 1995, and as Director of Vector Biology of the
Company from July 1993 to September 1995. From
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1992 to 1993, he led projects in eukaryotic gene expression and neurotrophic
factors at Lederle Laboratories. From 1990 to 1993, he was Adjunct Assistant
Professor of Microbiology and Immunology at the New York Medical College. Dr.
Kovesdi received his B.A.Sc. in Electrical Engineering from the University of
British Columbia and his Ph.D. in Molecular Biology from Simon Fraser
University.
Grant Yonehiro has served as Vice President of Product Management of the
Company since September, 1997, as Director of Corporate Development from May
1997 to September 1997, and as Associate Director of Corporate Development
from March 1996 to May 1997. From January 1994 to March 1996, he was at Cell
Genesys, Inc., a biotechnology company, most recently as Manager of Business
Development. From June 1992 to December 1993, he was a Research Analyst for
Focus Advisors, Inc., an equity research organization focusing on health care.
Mr. Yonehiro received his Bachelor of Individualized Studies from the
University of Minnesota and his M.B.A. from the University of California at
Berkeley.
Hal S. Broderson, M.D. has served as a director of the Company since
inception. From December 1992 to September 1993, he was the Company's
President. From 1988 to the present, he has been a general partner of Cashon
Biomedical Associates, L.P., which is the managing general partner of the
Hillman Medical Ventures Partnerships. These venture capital funds focus on
early stage medical technology. Dr. Broderson is currently President of Rock
Hill Ventures, Inc., a venture capital and management firm. Dr. Broderson
received his B.A. in Biology from Indiana University, his M.D. from the
University of Kentucky College of Medicine and his M.B.A. from the Wharton
School at the University of Pennsylvania.
Harry T. Rein has served as a director of the Company since September 1995.
From 1987 to the present, he has been Managing General Partner of Canaan
Partners, a venture capital firm. Mr. Rein received his A.B. from Ogelthorpe
College and his M.B.A. from the University of Virginia. Mr. Rein is also a
director of Anadigics, Inc. and Perception, Inc.
Wendell Wierenga, Ph.D. has served as a director of the Company since April
1998. From 1990 to the present, he has been with the Parke-Davis
Pharmaceutical Research division of the Warner-Lambert Company, most recently
as Senior Vice President of Worldwide Preclinical Research, Development and
Technologies. From 1997 to the present he has been Adjunct Professor in the
Department of Chemistry at the University of Michigan. Dr. Wierenga received
his B.A. in Chemistry from Hope College and his Ph.D. in Chemistry from
Stanford University. Dr. Wierenga is also a director of Onyx Pharmaceuticals,
Inc.
Gregory F. Zaic has served as a director of the Company since inception.
From May 1993 to September 1993, Mr. Zaic was Chief Executive Officer of the
Company and from May 1993 to September 1996, he was Chairman of the Board of
Directors of the Company. From 1987 to the present, he has been a general
partner of Prince Ventures, L.P., a venture capital firm. Mr. Zaic received
his B.S. in Aerospace and Mechanical Engineering from Princeton University and
his M.S. in Mechanical Engineering and his M.S. in Management from the
Massachusetts Institute of Technology. Mr. Zaic is also a director of Aronex
Pharmaceuticals, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee comprises Dr. Fischer, Mr. Conrad and Mr. Rein. The
Executive Committee exercises all powers and authority of the Board with
certain exceptions as provided under Delaware law.
The Compensation Committee comprises Mr. Conrad and Dr. Broderson. The
Compensation Committee makes recommendations regarding the Company's Amended
and Restated 1993 Stock Incentive Plan, the 1998 Director Option Plan and the
1998 Employee Stock Purchase Plan, determines salaries for the executive
officers and incentive compensation for employees and consultants of the
Company, and reviews certain other compensation matters.
The Audit Committee comprises Mr. Zaic and Dr. Broderson. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the
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results and scope of the audit and other services provided by the Company's
independent auditors and reviews and evaluates the Company's audit and control
functions.
DIRECTOR COMPENSATION
The Company's Outside Directors (as defined below) currently receive $1,000
per Board meeting attended, $500 per Committee meeting attended and $1,250 per
quarter as a retainer. All Directors receive reimbursement for travel expenses
from the Company for their service as members of the Board of Directors. Under
the 1998 Director Option Plan, each New Outside Director (as defined below)
automatically receives an option to purchase 10,000 shares of Common Stock
upon the later of (i) the effective date of this offering and (ii) the date
such Outside Director joins the Board of Directors. Each Outside Director who
has served on the Board of Directors for at least six months shall receive an
option to acquire 5,000 shares of Common Stock on (i) the effective date of
this offering and (ii) the date of each of the Company's annual meetings of
stockholders, provided such Outside Director is re-elected. Each option
granted under the 1998 Director Option Plan will become exercisable ratably
over a four-year period. The term "Outside Directors" refers to directors who
are not employees of the Company, and the term "New Outside Directors" refers
to Outside Directors who join the Board after March 31, 1998. See "Certain
Transactions" for a description of the Company's Consulting Agreement with Mr.
Conrad.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth summary
information concerning compensation paid by the Company during the fiscal year
ended December 31, 1997, to the Company's Chief Executive Officer and the
three other most highly compensated executive officers who earned in excess of
$100,000 in salary and bonus during the fiscal year ended December 31, 1997
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ----------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($) (1) BONUS ($) UNDERLYING OPTIONS (2)
- --------------------------- ---- -------------- --------- ----------------------
<S> <C> <C> <C> <C>
Paul H. Fischer, Ph.D...... 1997 $205,000 $25,000 38,135
President, Chief Executive
Officer and Director
Thomas E. Smart............ 1997 132,900 15,000 27,118
Vice President, Corporate
Development, Corporate
Secretary and Treasurer
Grant Yonehiro............. 1997 105,784 7,500 50,846
Vice President, Product
Management
Imre Kovesdi, Ph.D......... 1997 159,120 -- --
Vice President, Discovery
Research
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), the compensation described in this table does not
include medical, group life insurance or other benefits received by the
Named Executive Officers that are available generally to all salaried
employees of the Company, and certain perquisites and other personal
benefits received by the Named Executive Officers that do not exceed the
lesser of $50,000 or 10% of any such officer's salary and bonus disclosed
in this table.
(2) Issued pursuant to the Amended and Restated 1993 Stock Incentive Plan.
51
<PAGE>
STOCK OPTION GRANTS
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted during the fiscal year ended December 31, 1997, to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL 1997 (%)(1) ($/SH) (2) DATE 5% ($) 10% ($)
---- ----------- ------------------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Fischer, Ph.D... 38,135(4) 24% $4.13 09/17/2007 $ 99,049 $ 251,010
Thomas E. Smart......... 27,118(5) 17 4.13 09/17/2007 70,434 178,494
Grant Yonehiro.......... 23,728(6) 15 3.54 06/30/2007 52,825 133,869
27,118(7) 17 4.13 10/20/2007 70,434 178,494
Imre Kovesdi, Ph.D...... -- -- -- -- -- --
</TABLE>
- --------
(1) Based on options to purchase 158,476 shares granted to employees in fiscal
1997, including the Named Executive Officers. The options were granted
under the Company's Amended and Restated 1993 Stock Incentive Plan.
(2) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years) and the per-share market price at
the time of the grant. It is calculated assuming that the stock price on
the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the Commission, and do not reflect the
Company's estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock.
(4) Of the 38,135 shares granted, 6/48ths of the shares are exercisable on
March 17, 1998 and 1/48th of the shares are exercisable each month
thereafter.
(5) Of the 27,118 shares granted, 6/48ths of the shares are exercisable on
March 17, 1998 and 1/48th of the shares are exercisable each month
thereafter.
(6) Of the 23,728 shares granted, 6/48ths of the shares are exercisable on
November 17, 1997 and 1/48th of the shares are exercisable each month
thereafter.
(7) Of the 27,118 shares granted, 6/48ths of the shares are exercisable on
April 1, 1998 and 1/48th of the shares are exercisable each month
thereafter.
52
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth, with respect to each of the Named Executive
Officers, information regarding the number and value of securities underlying
unexercised options held by the named Executive Officers as of December 31,
1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Fischer, Ph.D... -- -- 98,248 143,269 $1,077,262 $1,393,456
Thomas E. Smart......... -- -- 15,025 61,238 160,500 583,666
Grant Yonehiro.......... -- -- 3,460 50,775 29,272 423,555
Imre Kovesdi, Ph.D...... -- -- 30,964 26,039 353,300 297,104
</TABLE>
- --------
(1) Based on the assumed initial public offering price of $12.00 per share,
less the exercise price.
EMPLOYMENT AGREEMENTS
On March 9, 1995, Paul H. Fischer, the President, Chief Executive Officer
and a director and stockholder of the Company, entered into an employment
agreement with the Company. Dr. Fischer is entitled to a salary of at least
$170,000 per year pursuant to the employment agreement. Dr. Fischer's salary
for the fiscal year ended December 31, 1997 was $205,000. Should Dr. Fischer's
employment be terminated for any reason other than for cause, his salary will
continue to be paid for nine months from the effective date of such
termination. These salary payments will cease if Dr. Fischer becomes
permanently employed at the same or a greater salary during the nine-month
period.
On March 9, 1995, Thomas E. Smart, the Vice President of Corporate
Development, entered into an employment agreement with the Company. Mr. Smart
is entitled to a salary of at least $110,000 per year pursuant to the
employment agreement. Mr. Smart's salary for the fiscal year ended December
31, 1997 was $132,900. The employment agreement provided for the payment of
bonuses in cash and in options to purchase shares of the Company's Common
Stock upon the consummation of certain corporate collaborations. Should Mr.
Smart's employment be terminated for any reason other than for cause, his
salary will continue to be paid for six months from the effective date of such
termination. These salary payments will cease if Mr. Smart becomes permanently
employed at the same or greater salary during the six-month period. Mr.
Smart's unvested options to purchase the Company's Common Stock will fully
vest on the date of approval of a liquidation or change of control of the
Company. Mr. Smart has received all options and bonuses granted under his
employment agreement, and no further options or bonuses are due under his
employment agreement.
On June 6, 1993, Imre Kovesdi, the Vice President of Discovery Research,
entered into an employment agreement with the Company. Dr. Kovesdi is entitled
to a salary of at least $100,000 per year pursuant to the employment
agreement. Dr. Kovesdi's salary for the fiscal year ended December 31, 1997
was $159,120. Should Dr. Kovesdi's employment be terminated for any reason
other than for cause, his salary will continue to be paid for one year from
the effective date of such termination. These salary payments will cease if
Dr. Kovesdi becomes permanently employed at the same or greater salary during
the one-year period.
EQUITY INCENTIVE PLANS
Amended and Restated 1993 Stock Incentive Plan
The Company adopted its 1993 Stock Incentive Plan (the "Stock Plan") in
October 1993, and amended and restated the Stock Plan in October 1997 and
April 1998. An aggregate of 1,846,218 shares of the Common Stock has been
reserved for issuance, which number will be increased each year on the date of
the annual stockholder meeting, by a number of shares equal to (i) the number
of shares needed to restore the maximum
53
<PAGE>
aggregate number of shares reserved for issuance under the Stock Plan to
1,846,218 or (ii) a lesser amount determined by the Board of Directors. The
purposes of the Stock Plan are to attract and retain the best available
personnel to serve the Company and to provide additional incentive to the
Company's key personnel. The Stock Plan will continue in effect for a term of
ten years, unless it is sooner terminated by the Board.
The Stock Plan permits the grant of options intended to qualify as incentive
stock options ("ISOs") under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to employees (including officers and employee
directors), options that do not so qualify ("NSOs," and together with ISOs,
the "Options") to employees (including officers and employee directors) and
consultants (including non-employee directors) and awards of restricted stock.
The Stock Plan is administered by the Board or a committee appointed by the
Board. Subject to limitations set forth in the Stock Plan, the Board has
authority to select the persons to whom Options will be granted, the number of
shares to be converted by each Option, when Options will be granted, and other
terms of Options granted. Options currently granted under the Stock Plan
generally become exercisable at the rate of 12.5% of the shares six months
from the vesting commencement date and approximately 1/48th of the shares
monthly thereafter, such that the Option is fully exercisable four years from
the vesting commencement date.
The maximum term for ISOs granted under the Stock Plan is ten years, except
that if, at the time of the grant, the optionee possesses more than ten
percent of the combined voting power of the Company or of an affiliate (as
defined in the Code) of the Company the maximum term of the ISO is five years.
The exercise price of ISOs must be at least 100% of the fair market value of
the shares subject to the Option on the date of the grant; provided, however,
that if an ISO is granted to a ten percent stockholder, then the exercise
price must be at least 110% of the fair market value of the stock subject to
the Option on the date of the grant. Options granted under the Stock Plan
generally are non-transferrable and expire three months after the termination
of an optionee's service to the Company.
In addition, in the event of a Change of Control (as defined below), Options
held by employees, advisors or consultants of the Company or members of the
Board of Directors at the time of a Change of Control become immediately
exercisable in full and the restrictions applicable to restricted stock of
employees, advisors or consultants of the Company or members of the Board of
Directors at the time of a change of control lapse immediately. Upon a Change
of Control, the Board of Directors may take whatever action it deems desirable
with respect to outstanding Options, including accelerating the expiration or
termination date no earlier than 30 days after notice of such acceleration is
given to the optionees. A "Change of Control" is deemed to have occurred upon
the earliest to occur of the following events: (i) the date the stockholders
of the Company (or the Board of Directors, if stockholder action is not
required) approve a plan or other arrangement pursuant to which the Company
will be dissolved or liquidated; (ii) the date the stockholders of the Company
(or the Board of Directors, if stockholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company; (iii) the date the stockholders of the Company (or the
Board of Directors, if stockholder action is not required) and the
stockholders of the other constituent corporation (or its board of directors
if stockholder action is not required) have approved a definitive agreement to
merge or consolidate the Company with or into such other corporation, other
than, in either case, a merger or consolidation of the Company in which
holders of shares of the Company's Common Stock immediately prior to the
merger or consolidation will have at least a majority of the ownership of
common stock of the surviving corporation (and, if one class of common stock
is not the only class of voting securities entitled to vote on the election of
directors of the surviving corporation, a majority of the voting power of the
surviving corporation's voting securities) immediately after the merger or
consolidation, which common stock (and, if applicable, voting securities) is
to be held in the same proportion as such holders' ownership of Common Stock
of the Company immediately before the merger or consolidation; (iv) the date
any entity, person or group, within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended, other than the
Company or any of its subsidiaries or any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries, or
any person who
54
<PAGE>
does not conduct any active trade or business shall have become the beneficial
owner of, or shall have obtained voting control over, more than fifty percent
(50%) of the outstanding shares of the Company's Common Stock; or (v) the date
that fewer than a majority of the Board of Directors are Incumbent Directors
(as defined below). "Incumbent Directors" means directors who either (x) are
directors of the Company as of the effective date of the Stock Plan or (y) are
elected, or nominated for election to the Board of Directors with the
affirmative votes of at least a majority of those directors whose election or
nomination was not in connection with any transaction described in subsection
(i) to (iv) or in connection with an actual or threatened proxy contest
relating to the election of directors of the Company.
1998 Employee Stock Purchase Plan
In April 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 350,000 shares of Common Stock.
The number of shares reserved will be increased automatically each year on the
date of the Company's annual stockholder meeting by an amount equal to (i) the
number of shares needed to restore the maximum number of shares reserved for
issuance under the Purchase Plan to 350,000 shares or (ii) a lesser amount
determined by the Board of Directors. The Purchase Plan is intended to qualify
as an employee stock purchase plan within the meaning of Section 423 of the
Code. Under the Purchase Plan, the Board may authorize participation by
eligible employees, including officers, in periodic offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase
Plan will commence on the date of this Prospectus and terminate on April 30,
2000.
Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company or a
subsidiary of the Company designated by the Board for at least 20 hours per
week and are customarily employed by the Company or a subsidiary of the
Company designated by the Board for at least five months per calendar year.
Employees who participate in a offering may have up to ten percent of their
earnings withheld pursuant to the Purchase Plan. The amount withheld is then
used to purchase shares of the Common Stock on specified dates determined by
Board. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock at the
commencement date of each offering or the relevant purchase date. Employees
may end their participation in this offering at any time during this offering,
and participation ends automatically on termination of employment with the
Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has the discretion to provide that each right
to purchase Common Stock will be assumed or an equivalent right substituted by
the successor corporation or the Board may shorten this offering, and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase Common
Stock.
1998 Director Option Plan
In April 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Director Plan is 130,000. Each New Outside Director
is automatically granted on the later of (i) the effective date of this
offering and (ii) the date such Outside Director joins the Board of Directors
an option to purchase 10,000 shares of Common Stock. In addition, each Outside
Director who has served on the Board of Directors for at least six months
shall receive an option to purchase 5,000 shares of Common Stock on (i) the
effective date of this offering and (ii) the date of each of the Company's
annual meetings of stockholders, provided such Outside Director is re-elected
as a director at such meeting. Each option granted under the Director Plan has
a term of ten years. The options vest over a four-year period, with an
exercise
55
<PAGE>
price per share equal to 100% of the fair market value per share on the date
of the grant. Options granted under the Director Plan are generally non-
transferrable. Unless otherwise terminated by the Board of Directors, the
Director Plan terminates automatically in April 2008. On the effective date of
this offering, options to purchase an aggregate of 30,000 shares of Common
Stock will be granted under the Director Plan, with an exercise price equal to
the initial public offering price per share. Upon a Change of Control (as
defined in the Stock Plan), options held by directors shall become immediately
exercisable in full.
401(K) PLAN
The Company has established a tax-qualified employee savings and retirement
plan. Employees must be 21 years old to participate and are eligible on the
first day of the quarter following six months as an employee of the Company.
All amounts contributed by employee participants and earnings on these
contributions are fully vested at all times. Employee participants may elect
to invest their contributions in various established funds.
LIMITATIONS OF DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND
INDEMNIFICATION
The Company's Restated Certificate provides that directors of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a Director, except to the extent
that such exemption from liability or limitation thereof is not permitted by
the Delaware General Corporation Law as currently in effect or as the same as
subsequently amended. Such limitation of liability does not apply to
liabilities arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Amended and Restated Bylaws empower the Company to indemnify
its directors, officers, employees and agents to the fullest extent permitted
by law. Pursuant to this provision, the Company has entered into
indemnification agreements with each of its Directors and Executive Officers.
56
<PAGE>
CERTAIN TRANSACTIONS
CERTAIN TRANSACTIONS
In September 1995, the Company entered a Second Class C Preferred Stock
Purchase Agreement with Canaan S.B.I.C., L.P., Canaan Capital Limited
Partnership, Canaan Capital Offshore L.P., C.V. (collectively, the "Canaan
Entities") and The CIT Group/Venture Capital, Inc. ("The CIT Group"), among
others, pursuant to which the Canaan Entities purchased 305,084 shares of
Class C Preferred Stock for $1.8 million, and The CIT Group purchased 338,983
shares of Class C Preferred Stock for $2.0 million. Harry T. Rein, a director
of the Company, is a general partner of each of the Canaan Entities. Bruce
Schackman, a former director of the Company, is a Managing Director of the CIT
Group.
Each series of the Company's Preferred Stock has certain conversion rights
and protection against certain dilutive issuances of securities by the
Company. Each holder of Preferred Stock is entitled to one vote for each share
held. Holders of Preferred Stock are also entitled to certain preferences over
holders of Common Stock with respect to dividends and in certain liquidation
events. Certain holders of Common Stock and Preferred Stock are entitled to
certain registration rights with respect to such Common Stock and shares of
Common Stock issued upon the conversion thereof. See "Description of Capital
Stock--Registration Rights."
In July 1997, the Company and Warner-Lambert entered a Stock Purchase
Agreement pursuant to which Warner-Lambert is obligated to purchase up to an
aggregate of $25.0 million of the Company's securities. Concurrently, the
Company and Warner-Lambert entered a Research, Development and Collaboration
Agreement. Wendell Wierenga, a director of the Company, is the Senior Vice
President of Worldwide Preclinical Research, Development and Technologies for
the Parke-Davis Pharmaceuticals Research division of Warner-Lambert. See
"Business--Strategic Alliances--Corporate Collaborations--Warner-Lambert
Company."
The Company has entered employment agreements with certain of its executive
officers. See "Management--Employment Agreements" for a description of the
employment agreements with Dr. Fischer, Mr. Smart and Dr. Kovesdi.
The Company entered a consulting agreement with Mr. Conrad, Chairman of the
Company's Board of Directors, on April 28, 1998. Pursuant to the agreement,
Mr. Conrad will be available to the Company for a minimum of five and up to
ten business days per month, and in exchange will receive $1,500 per day. The
agreement has a one-year term, and is renewable.
The Company has granted options to certain of its directors and executive
officers. The Company has also entered into an indemnification agreement with
each of its directors and executive officers.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors and will continue to be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of March 31, 1998, and as
adjusted to reflect the sale of Common Stock offered by the Company hereby for
(i) each person who is known by the Company to own beneficially more than five
percent of the Common Stock; (ii) each of the Company's directors; (iii) each
Named Executive Officer and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS (1) OWNED(2) OFFERING OFFERING
-------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Hillman Medical Ventures
Partnerships (3)................. 1,101,693 15.68% 11.18%
c/o Rock Hill Ventures, Inc.
One Tower Bridge, Suite 1350
100 Front Street
West Conshohocken, PA 19428
Attention: Hal S. Broderson, M.D.
Biotech Growth SA................. 847,457 12.06 8.60
Bellevue Asset Management, AG
Grasenweg 4
Zug/Postach, Zug-6301
Switzerland
Attention: Andreas Bremer, Ph.D.
Genentech, Inc.................... 734,576 10.46 7.45
One DNA Way
South San Francisco, CA 94080
Prince Venture Partners, III,
L.P.............................. 550,846 7.84 5.59
25 Ford Road
Westport, CT 06880
Attention: Gregory Zaic
Sierra Ventures, III, L.P. (4).... 550,846 7.84 5.59
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Attention: Petri Vainio, M.D.,
Ph.D.
Warner-Lambert Company............ 349,853 4.98 6.93 (5)
201 Tabor Road
Morris Plains, NJ 07950
Herbert J. Conrad (6)............. 33,929 * *
Ronald J. Brenner, Ph.D. (7)...... 1,101,693 15.68 11.18
Hal S. Broderson, M.D. (7)........ 1,101,693 15.68 11.18
Thomas S. Porter (8).............. 286,397 4.08 2.91
Harry T. Rein (9)................. 305,084 4.34 3.09
Gregory F. Zaic (10).............. 550,846 7.84 5.59
Paul H. Fischer, Ph.D. (11)....... 137,176 1.92 1.37
Thomas E. Smart (12).............. 65,448 * *
Imre Kovesdi, Ph.D. (13).......... 60,872 * *
Grant Yonehiro (14)............... 16,665 * *
All directors and executive
officers as a group (11 persons)
(15)............................. 2,558,110 35.30% 25.38%
</TABLE>
58
<PAGE>
- --------
* Represents beneficial ownership of less than one percent.
(1) Unless otherwise indicated, the address of each of the named individuals
is: c/o GenVec, Inc., 12111 Parklawn Drive, Rockville, Maryland 20852.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 7,024,451 shares of Common Stock outstanding as of
March 31, 1998, and 9,857,784 shares of Common Stock after completion of
this offering including 333,333 shares to issued to Warner-Lambert upon
closing of this offering. Amounts shown in the above table and the
following notes include shares issuable within the 60-day period
following March 31, 1998, pursuant to the exercise of options.
(3) Includes 84,745 shares owned by Hillman Medical Ventures 1992 L.P.,
508,474 shares owned by Hillman Medical Ventures 1993 L.P., and 508,474
shares owned by Hillman Medical Ventures 1994 L.P. The general partners
of the Hillman Medical Ventures partnerships are Cashon Biomedical
Associates L.P. ("Cashon") and Hillman/Dover Limited Partnership
('"Hillman/Dover"). The general partners of Cashon are Hal S. Broderson,
Ronald J. Brenner and Charles G. Hadley (the "Cashon General Partners").
The general partner of Hillman/Dover is a wholly-owned subsidiary of The
Hillman Company, a firm engaged in diversified investments and
operations. The Hillman Company is controlled by Henry L. Hillman, Elsie
Hilliard Hillman and C.G. Grefenstette, Trustees (the "Trustees") of the
Henry L. Hillman Trust. The Cashon General Partners and the Trustees may
be deemed to be the beneficial owners of the 1,101,693 shares owned by
the Hillman Medical Ventures partnerships.
(4) Includes 21,207 shares held by Sierra Ventures International IV, L.P. and
529,639 shares held by Sierra Ventures IV, L.P.
(5) Adjusted to reflect the sale of 333,333 additional shares to Warner-
Lambert concurrently with the closing of this offering.
(6) Includes 28,528 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(7) Includes 84,745 shares owned by Hillman Medical Ventures 1992 L.P.,
508,474 shares owned by Hillman Medical Ventures 1993 L.P. and 508,474
shares owned by Hillman Medical Ventures 1994 L.P. The general partners
of the Hillman Medical Ventures partnerships are Cashon Biomedical
Associates L.P. ("Cashon") and Hillman/Dover Limited Partnership
("Hillman/Dover"). The general partners of Cashon are Hal S. Broderson,
Ronald J. Brenner and Charles G. Hadley (the "Cashon General Partners").
The general partner of Hillman/Dover is a wholly-owned subsidiary of The
Hillman Company, a firm engaged in diversified investments and
operations. The Hillman Company is controlled by Henry L. Hillman, Elsie
Hillard Hillman and C.G. Grefenstette, Trustees (the "Trustees") of the
Henry L. Hillman Trust. The Cashon General Partners and the Trustees may
be deemed to be the beneficial owners of the 1,101,693 shares owned by
the Hillman Medical Ventures partnerships.
(8) Includes 286,397 shares held by Enterprise Development Fund, L.P., as to
which Mr. Porter disclaims beneficial ownership.
(9) Includes 16,322 shares held by Canaan Capital, L.P., 136,220 shares held
by Canaan Capital Offshore L.P., C.V. and 152,542 shares held by Canaan
S.B.I.C., L.P., as to which Mr. Rein disclaims beneficial ownership.
(10) Includes 550,846 shares held by Prince Venture Partners III, L.P., as to
which Mr. Zaic disclaims beneficial ownership.
(11) Includes 124,465 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(12) Includes 23,076 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 4,837 shares subject to repurchase
by the Company within such period.
(13) Includes 37,373 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(14) Includes 9,886 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 1,271 shares subject to repurchase
by the Company within such period.
(15) Includes 223,328 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 6,108 shares subject to repurchase
by the Company within such period.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 50,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock after giving
effect to the Reverse Split, the conversion of all outstanding shares of
Preferred Stock into Common Stock and the restatement of the Company's
Certificate of Incorporation upon the closing of this offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated
Certificate which is included as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of March 31, 1998, there were 7,024,451 shares of Common Stock
outstanding which were held of record by 82 stockholders, on a pro forma basis
to reflect the Reverse Split and the conversion of all outstanding shares of
Preferred Stock which will occur upon the closing of this offering.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and non-assessable, and the shares of Common Stock to be issued
upon the closing of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock, none of which will
be outstanding upon the closing of this offering. The Board of Directors will
have the authority, without further action by the stockholders, to issue the
undesignated Preferred Stock in one or more series, to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock and to fix the number of
shares constituting any series and the designation of such series.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of and the voting and other rights of the holders of Common Stock. At
present, the Company has no plans to issue any of the Preferred Stock.
WARRANTS
As of March 31, 1998, the Company had outstanding (i) a warrant to purchase
211,864 shares of Common Stock at $13.28 per share expiring in May 2001, or,
if the Company has not effected an initial public offering by May 31, 1998,
upon the fifth anniversary of the initial public offering, but not later than
May 31, 2006; (ii) a warrant to purchase 67,796 shares of Common Stock at
$14.75 per share expiring in May 2001, or, if the Company has not effected an
initial public offering by June 30, 1998, on the third anniversary of the
initial public offering but not later than June 30, 2006; (iii) a warrant to
purchase 16,949 shares of Common Stock at $5.90 per share expiring in
September 2006 and (iv) warrants to purchase 23,807 shares of Common Stock at
$5.90 per share expiring upon the later of October 17, 2005 and five years
from the effective date of the
60
<PAGE>
Company's initial public offering. The shares underlying certain of these
warrants are entitled to registration rights.
REGISTRATION RIGHTS
The holders of 6,375,891 shares of Common Stock and warrants to purchase
211,864 shares of Common Stock (the "Registrable Securities") or certain of
their transferees are entitled to certain rights with respect to the
registration of the Registrable Securities under the Securities Act. These
rights are provided under the terms of an agreement between the Company and
the holders of Registrable Securities. Subject to certain limitations in the
agreement, the holders of the Registrable Securities may require, on three
occasions beginning 180 days following the date of this Prospectus, that the
Company use its best efforts to register the Registrable Securities for public
resale. If the Company registers any of its Common Stock either for its own
account or for the account of other security holders, the holders of
Registrable Securities and holders of an additional 505,809 shares of the
Common Stock are entitled to include their shares of Common Stock in the
registration, subject to the ability of the underwriters to limit the number
of shares included in the offering. Certain holders of Registrable Securities
may also require the Company to register all or a portion of their Registrable
Securities on Form S-3 when use of such form becomes available to the Company.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a public Delaware corporation from
engaging in "business combinations" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
or other transactions resulting in a financial benefit to a stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates owns (or within three years, did own) 15% or more of the
corporation's voting stock. The existence of this provision would be expected
to have anti-takeover effects with respect to transactions not approved in
advance by the Board of Directors, such as discouraging takeover attempts that
might result in a premium over the market price of the Common Stock.
Certain provisions of the Company's Restated Certificate and Amended and
Restated Bylaws may have the effect of preventing, discouraging or delaying a
change in the control of the Company and may maintain the incumbency of the
Board of Directors and management. The authorization of undesignated Preferred
Stock makes it possible for the Board of Directors to issue Preferred Stock
with voting or other rights or preferences that could impede the success of
any attempt to change control of the Company. In addition, the Company's
Amended and Restated Bylaws limit the ability of stockholders of the Company
to raise matters at a meeting of stockholders without giving advance notice.
The Restated Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Amended and Restated Bylaws provide that,
except as otherwise required by law, special meetings of the stockholders can
only be called by the Board of Directors, by the President of the Company, or
by stockholders holding a majority of the shares outstanding and entitled to
vote.
The Amended and Restated Bylaws establish an advance notice procedure for
stockholder proposal to be brought before an annual meeting of stockholders of
the Company, including proposed nominations of persons for election to the
Board of Directors. Stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the Board of Directors or by a
stockholder who was a stockholder of record on the record date for the
meeting, who is entitled to vote at the meeting and who has given to the
Company's Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although
the Amended and Restated Bylaws do not give the Board of Directors the power
to approve or disapprove stockholder
61
<PAGE>
nominations of candidates or proposals regarding other business to be
conducted at a special or annual meeting, the Amended and Restated Bylaws may
have the effect of precluding the conduct of certain business at a meeting if
the proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services, L.L.C.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
the offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of Common Stock of the Company
in the public market after restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon completion of the offering, the Company will have 9,857,784 shares of
Common Stock outstanding, assuming no exercise of currently outstanding
options. Of these shares, the 2,500,000 shares sold in this offering (plus any
additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act, unless they are held by "affiliates" of the Company as that term is used
under the Securities Act and the regulations promulgated thereunder
("Affiliates"). The remaining 7,357,784 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 of the Securities Act (the "Restricted Shares"). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act. As a result of contractual restrictions and the provisions of Rules 144
and 701, additional shares will be available for sale in the public market as
follows: (i) 49,748 Restricted Shares will be eligible for immediate sale on
the date of this Prospectus; (ii) 76,658 Restricted Shares will be eligible
for sale 90 days after the date of this Prospectus and (iii) 7,231,378
Restricted Shares will be eligible for sale 180 days from the date of this
Prospectus upon expiration of their respective holding periods under Rule 144.
In addition, 10,751 shares will be eligible for immediate sale on the date of
this Prospectus upon exercise of vested stock options, and 765,639 shares will
be issuable upon exercise of vested stock options 180 days after the effective
date of this offering upon the expiration of lock-up agreements.
The holders of 6,375,891 shares of Common Stock and the holders of warrants
to purchase 211,864 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning 180 days from the date of
this Prospectus. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders and holders of an
additional 505,809 shares of Common Stock pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse affect on the
Company's ability to raise new capital.
In addition, the Company expects to file a registration statement on Form S-
8 registering a total of 2,326,218 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the Company's equity
incentive plans. The Form S-8 registration statement is expected to be filed
and to become effective 180 days following the effective date of this
offering. Shares registered under such registration statement will be
available for sale in the open market, subject to Rule 144 value limitations
applicable to Affiliates, unless such shares are subject to vesting
restrictions with the Company.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the offering, an Affiliate of the Company or person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares (as defined under Rule 144) for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which the notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to the manner of sale, notice, and availability of current public
information about the Company. A person (or persons whose shares are
aggregated) who is not an Affiliate of the Company at any time during the 90
days immediately preceding the sale, and who has beneficially owned restricted
shares for
63
<PAGE>
at least two years is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above.
An employee, officer or director of the Company or a consultant to the
Company who purchased or was awarded shares or options to purchase shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701 of the Securities Act, which permit Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
holding period restrictions of Rule 144, in each case commencing 90 days after
the date of this Prospectus. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.
64
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, J.P. Morgan Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock
set forth opposite their respective names below. The Underwriters are
committed to purchase and pay for all such shares, if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
BancAmerica Robertson Stephens................................
J.P. Morgan Securities Inc....................................
Donaldson, Lufkin & Jenrette Securities Corporation...........
---------
Total....................................................... 2,500,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession of not more than $ per
share, of which $ per share may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and
reallowances to dealers may be reduced by the Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 375,000 shares of Common Stock at the same price per share as the
Company will receive for the 2,500,000 shares that the Underwriters have
agreed to purchase. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
Common Stock to be purchased by it shown in the above table represents as a
percentage of 2,500,000 shares offered hereby. If purchased, such additional
shares will be sold by the Underwriters on the same terms as those on which
the 2,500,000 shares are being sold. The Company will be obligated, pursuant
to such option, to sell shares to the Underwriters to the extent such option
is exercised. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer and director of the Company and certain stockholders, together
holding approximately 98.3% of the shares of Common Stock outstanding
immediately prior to the closing of the offering, have agreed with the
Representatives that, until 180 days from the date of this Prospectus, subject
to certain limited exceptions, they will not, directly or indirectly, sell,
offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of any shares of Common Stock (or any securities convertible into, or
exchangeable for, or any rights to purchase or acquire, shares of Common
Stock), held by such holders, acquired by such holder after the date hereof or
which may be deemed to be beneficially owned by such holder, without the prior
written consent of BancAmerica Robertson Stephens. Approximately 7,231,378 of
such shares will be eligible for immediate public sale following expiration of
the lock-up period and their respective holding periods under Rule 144.
BancAmerica Robertson Stephens may, in its sole discretion without notice,
release all or any portion of the securities subject to the lock-up
agreements. In addition, the Company has agreed that, until 180 days from the
date of this Prospectus, the Company will not, without the prior written
consent of
65
<PAGE>
BancAmerica Robertson Stephens, subject to certain limited exceptions, sell or
otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock) other than the
Company's sale of shares in this offering, the issuance of Common Stock upon
the exercise of outstanding options, or the Company's grant of options and
issuance of stock under existing stock option or stock purchase plans, or the
shares to be sold to Warner-Lambert concurrent with this offering or otherwise
pursuant to the Company's existing agreement with Warner-Lambert. See "Shares
Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with this offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed
by such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations between the Company and the
Representatives. The material factors to be considered in such negotiations
are prevailing market conditions, certain financial information of the Company
in recent periods, market valuations of other companies that the Company and
the Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover of this
preliminary prospectus is subject to change as a result of market conditions
and other factors. There can be no assurance that an active or orderly trading
market will develop for the Common Stock or that the Common Stock will trade
in the public market subsequent to this offering at or above the initial
trading price. See "Risk Factors--No Prior Public Market for the Common Stock;
Potential Volatility of Stock Price" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
66
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997,
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
Certain statements included in this Prospectus under the captions "Risk
Factors--Intellectual Property", "Business--GenVec Strategy", and "Business--
Intellectual Property" have been reviewed and approved by Leydig, Voit &
Mayer, Ltd., patent counsel for the Company, as experts on such matters.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus, which is a part of the Registration Statement, omits certain
information, exhibits, schedules and undertakings set forth in the
Registration Statement. For further information pertaining to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents or provisions of any contract or other document
referred to herein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. In addition, registration statements and certain other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's web
site on the Internet's World Wide Web, located at http://www.sec.gov. The
Registration Statement, including all exhibits thereto and amendments thereof,
has been filed with the Commission through EDGAR.
67
<PAGE>
GENVEC, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors..................... F-2
Balance Sheets at December 31, 1996 and 1997 and March 31, 1998
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-4
Statements of Stockholders' Equity for the three years in the period ended
December 31, 1997 and the three months ended March 31, 1998 (unaudited).. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GenVec, Inc.:
We have audited the accompanying balance sheets of GenVec, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GenVec, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
McLean, Virginia
March 6, 1998, except for Note 10
which is as of June 2, 1998
F-2
<PAGE>
GENVEC, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- PRO FORMA
1996 1997 MARCH 31, 1998 MARCH 31, 1998
------------ ----------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 5,146,226 $ 6,786,390 $ 4,694,205 $ 4,694,205
Short-term investments
(note 3)................ 2,579,124 2,577,990 2,567,866 2,567,866
Accounts receivable...... -- -- 2,000,000 2,000,000
Prepaid expenses......... 164,928 410,826 341,388 341,388
Other current assets..... 103,712 135,715 293,379 293,379
------------ ----------- ----------- -----------
Total current assets.... 7,993,990 9,910,921 9,896,838 9,896,838
------------ ----------- ----------- -----------
Property and equipment
(note 6):
Equipment................ 1,566,091 1,995,004 2,240,553 2,240,553
Leasehold improvements... 176,311 198,933 226,744 226,744
Furniture and fixtures... 58,256 82,481 90,814 90,814
------------ ----------- ----------- -----------
1,800,658 2,276,418 2,558,111 2,558,111
Less: accumulated
depreciation and
amortization............ (1,194,228) (1,678,562) (1,800,612) (1,800,612)
------------ ----------- ----------- -----------
Net property and
equipment.............. 606,430 597,856 757,499 757,499
------------ ----------- ----------- -----------
Other assets.............. 37,950 37,950 37,950 37,950
------------ ----------- ----------- -----------
Total assets............ $ 8,638,370 $10,546,727 $10,692,287 $10,692,287
============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 264,011 $ 387,150 $ 193,622 $ 193,622
Accrued expenses......... 252,509 252,891 419,396 419,396
Accrued technological
license and
intellectual property
expenses................ 439,466 920,484 1,177,478 1,177,478
Accrued payroll and
related expenses........ 245,843 94,341 91,783 91,783
Current portion of
capital lease
obligation (note 6)..... 414,529 174,611 131,386 131,386
------------ ----------- ----------- -----------
Total current
liabilities............ 1,616,358 1,829,477 2,013,665 2,013,665
------------ ----------- ----------- -----------
Capital lease obligation,
less current portion
(note 6).................... 157,729 46,563 26,273 26,273
Other non-current
liabilities.............. -- 26,500 13,250 13,250
------------ ----------- ----------- -----------
Total non-current
liabilities............ 157,729 73,063 39,523 39,523
------------ ----------- ----------- -----------
Commitments (note 6)
Stockholders' equity
(notes 5 and 7):
Convertible preferred
stock, $.001 par value:
Class A, 226,099 shares
authorized, issued and
outstanding
(liquidation preference
of $667,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 226 226 226 --
Class B, 2,000,079
shares authorized, and
1,918,688 shares issued
and outstanding
(liquidation preference
of $11,320,314) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 1,919 1,919 1,919 --
Class C, 3,570,332
shares authorized,
issued and outstanding
(liquidation preference
of $21,065,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 3,570 3,570 3,570 --
Class D, 338,983 shares
authorized, and 96,852
shares issued and
outstanding
(liquidation preference
of $1,000,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 97 97 97 --
Class E, 75,329 shares
authorized, issued and
outstanding
(liquidation preference
$1,000,000) at December
31, 1997 and March 31,
1998 (no shares
authorized, issued and
outstanding pro forma) -- 75 75 --
Class E1, 154,963 shares
authorized, issued and
outstanding
(liquidation preference
$2,000,000) at December
31, 1997 and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. -- 155 155 --
------------ ----------- ----------- -----------
Total convertible
preferred stock....... 5,812 6,042 6,042 --
------------ ----------- ----------- -----------
Preferred stock, $0.001
par value, no shares
authorized, issued and
outstanding at December
31, 1996 and 1997, and
March 31, 1998,
(5,000,000 shares
authorized, no shares
issued and outstanding
pro forma).............. -- -- -- --
Common stock, $0.001 par
value, 8,814,423,
9,553,191 and 9,553,191
shares authorized at
December 31, 1996 and
1997, and March 31,
1998; 987,419,
1,021,013 and 1,029,488
shares issued and
outstanding at December
31, 1996 and 1997, and
March 31, 1998,
respectively,
(50,000,000 shares
authorized, 7,071,751
shares issued and
outstanding pro
forma).................. 987 1,021 1,030 7,072
Additional paid-in
capital................. 34,462,121 37,497,019 37,521,010 37,521,010
Accumulated deficit...... (27,604,590) (28,859,848) (28,888,936) (28,888,936)
Treasury stock, at cost,
47,300 common shares.... (47) (47) (47) (47)
------------ ----------- ----------- -----------
Total stockholders'
equity................. 6,864,283 8,644,187 8,639,099 8,639,099
------------ ----------- ----------- -----------
Total liabilities and
stockholders' equity... $ 8,638,370 $10,546,727 $10,692,287 $10,692,287
============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GENVEC, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues (note 5):
Research revenues..... $ 1,005,000 $ 698,370 $ 3,187,500 $ -- $1,687,500
Milestone revenues.... -- -- 7,000,000 -- 2,000,000
----------- ----------- ----------- ----------- ----------
Total revenues...... 1,005,000 698,370 10,187,500 -- 3,687,500
----------- ----------- ----------- ----------- ----------
Operating expenses:
Research and
development.......... 6,499,830 6,355,333 8,985,625 1,613,790 3,093,068
General and
administrative....... 2,025,131 2,947,165 2,720,101 550,460 738,487
Purchase of in-process
technology (note 4).. 442,078 -- -- -- --
----------- ----------- ----------- ----------- ----------
Total operating
expenses........... 8,967,039 9,302,498 11,705,726 2,164,250 3,831,555
----------- ----------- ----------- ----------- ----------
Loss from operations.. (7,962,039) (8,604,128) (1,518,226) (2,164,250) (144,055)
----------- ----------- ----------- ----------- ----------
Interest income....... 486,435 571,239 319,538 87,481 117,299
Interest expense...... (73,568) (75,272) (56,570) (12,901) (2,332)
----------- ----------- ----------- ----------- ----------
Net interest
income............. 412,867 495,967 262,968 74,580 114,967
----------- ----------- ----------- ----------- ----------
Net loss............ $(7,549,172) $(8,108,161) $(1,255,258) $(2,089,670) $ (29,088)
=========== =========== =========== =========== ==========
Pro forma basic net
loss per share
(note 2)........... $ (0.18) $ (0.01)
=========== ==========
Shares used in
computing pro forma
basic net loss per
share (note 2)..... 6,999,119 7,018,628
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
GENVEC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D CLASS E
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------- ------------------ ------------------ ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------ ---------- ------ ---------- ------ -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994............ 226,099 $ 226 1,850,109 $1,850 1,474,569 $1,475 -- $ -- -- $ --
Issuance of
Class C
convertible
preferred
shares, net of
issuance costs
of $53,698 (note
7).............. -- -- -- -- 2,095,763 2,095 -- -- -- --
Issuance of
common stock.... -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Issuance of
stock for
Theragen
contingent
shares, net of
issuance costs
of $13,335 (note
4).............. -- -- 68,579 69 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1995............ 226,099 226 1,918,688 1,919 3,570,332 3,570 -- -- -- --
Issuance of
Class D
convertible
preferred
shares, net of
issuance costs
of $8,683
(note 7)........ -- -- -- -- -- -- 96,852 97 -- --
Purchase of
47,300 common
shares (note
7).............. -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1996............ 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 -- --
Issuance of
Class E
convertible
preferred
shares, net of
issuance costs
of $3,215
(note 7)........ -- -- -- -- -- -- -- -- 75,329 75
Issuance of
Class E1
convertible
preferred
shares, net of
issuance costs
of $68,842 (note
7).............. -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1997............ 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 75,329 75
Exercise of
options
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Stock option
compensation
expense
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance, March
31, 1998
(unaudited)..... 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 75,329 75
Pro forma
conversion of
preferred stock
to common stock
(unaudited)..... (226,099) (226) (1,918,688) (1,919) (3,570,332) (3,570) (96,852) (97) (75,329) (75)
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Pro forma
balance at March
31, 1998
(unaudited)..... -- $ -- -- $ -- -- $ -- -- $ -- -- $ --
======== ===== ========== ====== ========== ====== ======== ====== ======== ======
<CAPTION>
CLASS E1 TREASURY
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
----------------- ---------------- PAID-IN ACCUMULATED --------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT AMOUNT TOTAL
--------- ------- --------- ------ ------------ ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994............ -- $ -- 532,480 $ 533 $20,425,958 $(11,947,257) $ -- $8,482,785
Issuance of
Class C
convertible
preferred
shares, net of
issuance costs
of $53,698 (note
7).............. -- -- -- -- 12,309,207 -- -- 12,311,302
Issuance of
common stock.... -- -- 20,424 20 12,030 -- -- 12,050
Exercise of
options......... -- -- 7,812 8 5,030 -- -- 5,038
Issuance of
stock for
Theragen
contingent
shares, net of
issuance costs
of $13,335 (note
4).............. -- -- 63,492 63 428,611 -- -- 428,743
Net loss........ -- -- -- -- -- (7,549,172) -- (7,549,172)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1995............ -- -- 624,208 624 33,180,836 (19,496,429) -- 13,690,746
Issuance of
Class D
convertible
preferred
shares, net of
issuance costs
of $8,683
(note 7)........ -- -- -- -- 991,220 -- -- 991,317
Purchase of
47,300 common
shares (note
7).............. -- -- -- -- (27,860) -- (47) (27,907)
Exercise of
options......... -- -- 363,211 363 212,865 -- -- 213,228
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- 105,060 -- -- 105,060
Net loss........ -- -- -- -- -- (8,108,161) -- (8,108,161)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1996............ -- -- 987,419 987 34,462,121 (27,604,590) (47) 6,864,283
Issuance of
Class E
convertible
preferred
shares, net of
issuance costs
of $3,215
(note 7)........ -- -- -- -- 996,712 -- -- 996,787
Issuance of
Class E1
convertible
preferred
shares, net of
issuance costs
of $68,842 (note
7).............. 154,963 155 -- -- 1,931,002 -- -- 1,931,157
Exercise of
options......... -- -- 33,594 34 22,286 -- -- 22,320
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- 84,898 -- -- 84,898
Net loss........ -- -- -- -- -- (1,255,258) -- (1,255,258)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1997............ 154,963 155 1,021,013 1,021 37,497,019 (28,859,848) (47) 8,644,187
Exercise of
options
(unaudited)..... -- -- 8,475 9 4,991 -- -- 5,000
Stock option
compensation
expense
(unaudited)..... -- -- -- -- 19,000 -- -- 19,000
Net loss
(unaudited)..... -- -- -- -- -- (29,088) -- (29,088)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance, March
31, 1998
(unaudited)..... 154,963 155 1,029,488 1,030 37,521,010 (28,888,936) (47) 8,639,099
Pro forma
conversion of
preferred stock
to common stock
(unaudited)..... (154,963) (155) 6,042,263 6,042 -- -- -- --
--------- ------- --------- ------ ------------ ------------- -------- -----------
Pro forma
balance at March
31, 1998
(unaudited)..... -- $ -- 7,071,751 $7,072 $37,521,010 $(28,888,936) $(47) $8,639,099
========= ======= ========= ====== ============ ============= ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GENVEC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(7,549,172) $(8,108,161) $(1,255,258) $(2,089,670) $ (29,088)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization
expense............. 387,045 503,285 484,334 119,916 132,174
Stock option and
warrant compensation
expense (note 7).... -- 105,060 84,898 -- 19,000
Non-cash purchase of
in-process
technology (note
4).................. 442,078 -- -- -- --
(Increase) decrease
in other current
assets.............. (3,276) (66,669) (32,003) 39,736 (157,664)
(Increase) decrease
in other assets..... (4,696) 514 -- -- --
(Increase) in
accounts
receivable.......... -- -- -- -- (2,000,000)
(Increase) decrease
in prepaid
expenses............ (170,684) 82,718 (245,897) 4,347 69,438
Increase (decrease)
in accounts
payable............. (84,148) (334,736) 123,139 (29,501) (193,528)
Increase (decrease)
in accrued
expenses............ 37,344 459,634 (151,121) 20,321 297,597
Increase (decrease)
in accrued
technological
license and
intellectual
property expenses... 9,211 430,344 481,018 (292,987) 123,344
Increase (decrease)
in other non-current
liabilities......... -- -- 26,500 -- (13,250)
----------- ----------- ----------- ----------- ----------
Net cash used in
operating
activities......... (6,936,298) (6,928,011) (484,390) (2,227,838) (1,751,977)
----------- ----------- ----------- ----------- ----------
Cash flows from
investing activities:
Purchase of property
and equipment........ (235,053) (86,387) (475,760) (64,040) (281,693)
Purchases of
investments.......... -- (8,769,124) (4,361,879) (1,783,889) --
Proceeds from
maturities of
investments.......... -- 6,190,000 4,363,013 2,094,412 --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) investing
activities......... (235,053) (2,665,511) (474,626) 246,483 (281,693)
----------- ----------- ----------- ----------- ----------
Cash flows from
financing activities:
Proceeds from issuance
of common stock...... 5,038 213,228 22,320 3,618 5,000
Proceeds from issuance
of preferred stock,
net of issuance
costs................ 12,311,302 991,317 2,927,944 -- --
Purchase of treasury
stock................ -- (27,907) -- -- --
Payments under capital
lease obligation..... (302,020) (433,191) (351,084) (104,707) (63,515)
Sale of property and
equipment............ -- 116,555 -- -- --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities......... 12,014,320 860,002 2,599,180 (101,089) (58,515)
----------- ----------- ----------- ----------- ----------
Increase (decrease) in
cash and cash
equivalents........... 4,842,969 (8,733,520) 1,640,164 (2,082,444) (2,092,185)
Cash and cash
equivalents, beginning
of period............. 9,036,777 13,879,746 5,146,226 5,146,226 6,786,390
----------- ----------- ----------- ----------- ----------
Cash and cash
equivalents, end of
period................ $13,879,746 $ 5,146,226 $ 6,786,390 $ 3,063,782 $4,694,205
=========== =========== =========== =========== ==========
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for interest.. $ 73,568 $ 75,272 $ 36,158 $ 12,901 $ 2,332
=========== =========== =========== =========== ==========
Supplemental schedule
of non-cash investing
and financing
activities:
Capital stock issued
for the purchase of
Theragen, Inc.
(note 4)............. $ 428,743 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
Assets acquired under
capital lease (note
6)................... $ 391,678 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
Issuance of stock in
payment of accrued
expenses............. $ 12,050 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) ORGANIZATION AND BUSINESS DESCRIPTION
GenVec, Inc. ("GenVec" or the "Company") was incorporated under the laws of
the state of Delaware on December 7, 1992. GenVec focuses on the development
and commercialization of novel gene therapy products for major disease
markets. GenVec's lead product candidate, BIOBYPASS angiogen, is currently in
Phase I/II clinical trials for the treatment of coronary artery disease.
GenVec also intends to initiate a Phase I/II clinical trial in patients with
peripheral vascular disease in May 1998. The Company is developing BIOBYPASS
angiogen as part of its collaboration with the Warner-Lambert Company
("Warner-Lambert"), under which the Company could receive payments totaling
over $100 million in milestone payments, research funding, equity purchases
and technology access fees, upon the achievement of specified milestones. As
of April 20, 1998, Warner-Lambert had paid to the Company $13.5 million under
this collaboration. The Company is also pursuing research and development
programs in the areas of vascular damage, oncology and neurology. GenVec has
entered into corporate collaborations with Varian Associates, Inc. ("Varian")
and Fuso Pharmaceutical Industries, Ltd. ("Fuso") in certain areas of
oncology.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The interim financial statements of the Company for the three months ended
March 31, 1997 and 1998, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements. In the opinion
of management, the accompanying unaudited interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at March 31, 1997 and
1998, and the results of its operations and its cash flows for the three
months ended March 31, 1997 and 1998.
Revenue Recognition
Revenue from research and development contracts is recognized when
performance obligations are met as defined under the terms of the respective
contracts. Revenue from milestone events is recognized when the milestone is
achieved. Research and milestone revenue recognized in the accompanying
statements of operations is not subject to repayment.
Research and Development
Research and development costs are charged to operations as incurred. Such
costs include proprietary research and development activities and expenses
associated with collaborative research agreements.
Technological License and Intellectual Property
Technological license and intellectual property costs consist of payments
associated with license agreements and legal costs associated with the
acquisition and development of intellectual property. Costs associated with
the acquisition and development of intellectual property are expensed when
incurred.
F-7
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Property and Equipment
Property and equipment are stated at cost. Capitalized lease assets are
stated at the lower of the present value of the future minimum lease payments
or fair value at the inception of the lease.
Property and equipment is depreciated over the estimated useful lives of
assets, generally three to seven years, using the straight-line method.
Income Taxes
Income taxes are accounted for in accordance with Statement 109, Accounting
for Income Taxes.
Under the asset and liability method of Statement 109, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less, and are recorded at amortized cost which
approximates fair value. Cash equivalents consist primarily of money market
funds, bonds and commercial paper.
Short-term Investments
The Company's short-term investments, consisting primarily of bonds and
commercial paper, are classified as held to maturity portfolio as the Company
has both the ability and intent to hold securities until maturity. The
portfolio is carried at amortized cost which approximates fair value.
Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share
The Company adopted Statement 128, Earnings Per Share, in 1997. Statement
128 requires the presentation of basic earnings (loss) per share and diluted
earnings (loss) per share, if more dilutive, for all periods presented.
In accordance with Statement 128, basic net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period. The Company has no nominal issued shares as defined in Securities
Exchange Commission Staff Accounting Bulletin No. 98.
Pro forma basic net loss per share as presented in the statement of
operations has been computed as described above and also gives effect to the
conversion of the convertible preferred stock that will occur upon completion
of the Company's initial public offering (using the as-if converted method
from the original date of issuance.)
F-8
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
A reconciliation of shares used in the calculation of basic and pro forma
basic net loss per share follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------ ENDED
1995 1996 1997 MARCH 31, 1998
-------- -------- ---------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Net loss....................... $ (7,549) $ (8,108) $ (1,255) $ (29)
======== ======== ========== ==========
Weighted average shares of
common stock outstanding
(shares used in computing
basic net loss per share)..... 561,319 801,769 956,856 976,365
Basic net loss per share....... $ (13.45) $ (10.11) $ (1.31) $ (0.03)
======== ======== ========== ==========
Shares used in computing basic
net loss per share............ 956,856 976,365
Adjustment to reflect the
effect of the assumed
conversion of preferred
stock......................... 6,042,263 6,042,263
---------- ----------
Shares used in computing pro
forma basic net loss per
share......................... 6,999,119 7,018,628
========== ==========
Pro forma basic net loss per
share......................... $ (0.18) $ (0.01)
========== ==========
</TABLE>
Had the Company been in a net income position, diluted earnings per share
would have been presented and would have included the shares used in the
computation of pro forma basic net loss per share as well as additional
potential common shares related to outstanding options and warrants. The
diluted EPS computation is not included, as all potential common shares are
antidilutive.
Pro Forma Balance Sheet (unaudited)
The unaudited pro forma balance sheet as of March 31, 1998, reflects the
conversion of the existing shares of convertible preferred stock into an
equivalent number of shares of common stock (adjusted for the common stock
reverse split), which conversion is contingent upon the closing of the
offering (see note 10).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles may require 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.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, as reflected in
the accompanying balance sheets, approximate fair value. Financial instruments
consist of cash and cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued technological license and intellectual
property expenses, accrued expenses, accrued payroll and related expenses and
capital lease obligations.
Stock Option Plan
The Company accounts for its stock option plan in accordance with Statement
123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, Statement 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and provide pro forma
F-9
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
net income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method defined in Statement 123 had
been applied. Under APB Opinion No. 25, compensation expense would be recorded
on the date of grant only if the current market price of the underlying stock
exceeded the exercise price. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures of
Statement 123 for employee stock option grants. Non-employee stock option
grants (including options granted to members of the Scientific Advisory Board)
are recorded in accordance with the provisions of Statement 123.
(3) SHORT-TERM INVESTMENTS
The Company holds all securities to maturity. The amortized cost, gross
unrealized holding gains and losses and fair value for held-to-maturity
securities by major security type at December 31, 1996 and 1997 and March 31,
1998, are as follows:
<TABLE>
<CAPTION>
1996
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Corporate bonds...................... $1,686,350 $15,759 $1,702,109
Commercial paper..................... 892,774 (6,537) 886,237
---------- ------- ----------
$2,579,124 $ 9,222 $2,588,346
========== ======= ==========
Classified as cash equivalents:
Corporate bonds...................... $ 601,932 $ 37 $ 601,969
Commercial paper..................... 989,656 -- 989,656
---------- ------- ----------
$1,591,588 $ 37 $1,591,625
========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Tax exempt bonds..................... $ 499,191 $ 534 $ 499,725
Corporate bonds...................... 2,078,799 2,327 2,081,126
---------- ------ ----------
$2,577,990 $2,861 $2,580,851
========== ====== ==========
Classified as cash equivalents:
Corporate bonds...................... $1,998,589 $1,411 $2,000,000
Commercial paper..................... 1,286,427 -- 1,286,427
---------- ------ ----------
$3,285,016 $1,411 $3,286,427
========== ====== ==========
</TABLE>
F-10
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Tax exempt bonds..................... $ 499,591 $ 239 $ 499,830
Corporate bonds...................... 2,068,275 5,209 2,073,484
---------- ------ ----------
$2,567,866 $5,448 $2,573,314
========== ====== ==========
Classified as cash equivalents:
Commercial paper..................... $3,387,799 $ -- $3,387,799
---------- ------ ----------
$3,387,799 $ -- $3,387,799
========== ====== ==========
</TABLE>
(4) PURCHASE OF THERAGEN, INC.
Pursuant to an agreement effective August 8, 1994, the Company acquired
Theragen, Inc., ("Theragen") a gene therapy company incorporated under the
laws of the state of Michigan. This acquisition transferred all of Theragen's
technology, know-how and licenses to the Company. The purchase was effected
through an exchange of all shares of Theragen stock outstanding immediately
prior to the acquisition for up to 964,940 shares of the Company's capital
stock which was comprised of 304,486 shares of common stock, valued at $0.59
per share, 367,067 shares of Class B convertible preferred stock valued at
$5.90 per share, and options to purchase 39,455 shares of common stock at
$0.59 per share. This included contingent shares of 253,932 that were to be
issued or vested upon the achievement of certain milestones. The cost of the
acquisition was $2,580,798 in 1994, which consisted of the fair value as
determined by the Company's Board of Directors, of the Company's capital stock
contributed on the purchase date as well as other direct transaction-related
costs. These costs were recorded as purchase of in-process technology expense
since no capitalizable technology was purchased. The acquisition was accounted
for using the purchase method. Accordingly, the results of operations of the
acquired company were included with those of the Company for periods
subsequent to the date of acquisition.
In November 1995, the terms for the issuance or vesting of the contingent
shares were modified. Instead of issuing these shares upon the achievement of
certain milestones, shares and options were issued or vested in 1995 in an
amount equal to approximately 55.1% of the original issuable contingent shares
in lieu of all contingent rights of former Theragen stockholders. As a result,
68,579 shares of Class B convertible preferred stock were issued as $5.90 per
share and 63,492 shares of common stock were issued at $0.59 per share, while
options totaling 7,759 were vested, and 14,091 were canceled. Shares were
issued at fair value as determined by the Company's Board of Directors,. The
cost of the stock transaction is deemed to be part of the acquisition cost,
and is reflected in the accompanying statements of operations as purchase of
in-process technology expense.
(5) RESEARCH AND DEVELOPMENT AGREEMENTS
Fuso Pharmaceuticals Industries, Ltd.
In September 1997, the Company and Fuso established a collaboration to
conduct research and to identify, evaluate and develop gene therapy products
for the treatment of cancer. If the research program continues for its full
term, Fuso is required to provide $1.0 million in research funding annually
for five years, of which $750,000 will be paid to the Company each year. Fuso
has the right to terminate the collaboration after the second anniversary of
the collaboration upon 90 days prior written notice. In connection with
F-11
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
establishment of the collaboration, Fuso purchased $1.0 million of the
Company's capital stock consisting of 75,329 shares of the Company's Class E
convertible preferred stock for $13.28 per share. The Company recognized
contract revenues from Fuso of $187,500 for the year ended December 31, 1997
and $187,500 for the three months ended March 31, 1998.
As part of the collaboration, the Company granted Fuso an exclusive,
royalty-bearing license to develop and commercialize products developed under
the collaboration for the treatment of cancer in Japan and at Fuso's option,
Korea and Taiwan. Fuso will be responsible for the development and
commercialization of any products in its territory. The Company will receive
additional payments for the achievement by Fuso of specified product
development and regulatory milestones, and royalties on the sale of any such
products commercialized by Fuso. The Company has retained all rights to
develop and commercialize such products for the treatment of cancer in the
rest of the world, and for all other uses worldwide, subject to certain
restrictions, independently and with third parties.
Warner-Lambert Company
In July 1997, Warner-Lambert, a stockholder then owning 7,487 shares of the
Company's common stock and 187,405 shares of the Company's Class B preferred
stock, entered into a collaboration agreement and a stock purchase agreement
with the Company to develop and commercialize gene therapy products
incorporating the VEGF gene for therapeutic angiogenesis ("Collaboration
Products"). Under the agreements, the Company may receive more than $100
million in milestone payments, research funding, equity purchases and
technology access fees, if specified milestones are achieved. Under the
collaboration agreement, the Company has the potential to receive $25.0
million in research funding, of which $6.0 million, $6.0 million, $5.0
million, $4.0 million and $4.0 million will be paid in years 1, 2, 3, 4, and 5
of the collaboration, respectively. GenVec also has the potential to receive
$25.0 million in milestone payments related to the development of
Collaboration Products for each of coronary artery disease and peripheral
vascular disease. Through April 20, 1998, Warner-Lambert had paid the Company
$4.0 million with respect to such milestone payments of which the Company had
recognized revenues of $2.0 million for the year ended December 31, 1997 and
$2.0 million for the three month period ended March 31, 1998. Additional
milestone payments will be paid to the Company upon the achievement of events
related to the conduct of pivotal clinical studies, and filing for and
receiving regulatory approvals to market Collaboration Products. In the
aggregate, Warner-Lambert had paid to the Company $9.5 million in technology
access fees and research funding through April 20, 1998, of which the Company
recognized revenues of $8.0 million for the year ended December 31, 1997 and
$1.5 million for the three month period ended March 31, 1998.
Pursuant to the stock purchase agreement, Warner-Lambert purchased $2.0
million of the Company's capital stock in December 1997, consisting of 154,963
shares of the Company's Class E1 preferred stock at a price of approximately
$12.91 per share. In addition, Warner-Lambert has agreed to purchase $5.0
million of the Company's common stock in a private transaction concurrent with
an IPO at 125% of the price at which a share of common stock is sold to the
public.
Warner-Lambert's research and development funding obligations extend through
2002, although Warner-Lambert may terminate the research program under the
collaboration agreement with six months written notice after July 21, 2000.
Both parties have the right to terminate the collaboration agreement for
breach. The collaboration agreement expires on a Collaboration Product-by-
Collaboration Product and country-by-country basis until neither party has any
remaining royalty obligations. The stock purchase agreement terminates upon
the termination of the collaboration agreement.
F-12
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Genentech, Inc.
In May 1993, Genentech, Inc. ("Genentech"), a stockholder owning 56,610
shares of the Company's Class A preferred stock, and 338,983 shares each of
the Company's Class B and Class C convertible preferred stock as of December
31, 1997 and March 31, 1998, executed a research and development agreement
with the Company. Under this agreement, the Company performed research and
development activities with respect to gene therapy products for cystic
fibrosis. Genentech was required to make certain research and development
payments and certain milestone payments to the Company aggregating up to
$12.75 million, in exchange for the right to develop, manufacture, and sell
potential products in the cystic fibrosis field. Effective September 12, 1996,
the research and development agreement between the Company and Genentech
terminated due to a change in research focus. Contract revenues of $1,000,000,
$698,370 and $0 were recognized from Genentech in 1995, 1996 and 1997,
respectively.
Varian Associates, Inc.
In March 1998, the Company and Varian entered into a three-year
collaborative agreement in the field of radiation and gene therapy. Under the
agreement, the parties will collaborate on the preclinical and clinical
research and development of specific products and technology, with the goal of
developing novel, improved therapies based on the combined use of radiation
therapy and gene therapy products. Varian will have primary responsibility for
the development of equipment and software for delivery of targeted radiation
therapy, and the Company will have primary responsibility for developing gene
therapy products. The Company and Varian each retain the right to develop and
commercialize their respective products and technologies independently or with
third parties.
Scios, Inc.
In May 1996, the Company entered into an exclusive, worldwide license
agreement with Scios for rights to all gene therapy applications of its
proprietary form of the VEGF gene. The parties will share in certain profits
the Company realizes from the research, development and commercialization of
products incorporating the VEGF gene. The Company has agreed to provide a
minimum royalty on revenues generated from the development of these products,
which is creditable against the profits to be shared. In connection with the
license agreement, Scios purchased 96,852 shares of the Company's Class D
convertible preferred stock at a price of $10.33 per share. In addition, the
Company granted Scios a warrant to purchase shares of the Company's Common
Stock, which vests upon the earlier of the achievement of specified product
development milestone events or certain dates. The warrants remain outstanding
as of March 31, 1998.
(6) COMMITMENTS
Lease Agreements
In January 1994, the Company entered into a capital lease agreement allowing
it to fund the acquisition of up to $1.5 million of furniture and equipment
purchases. Lease terms of new purchases were 42 months with an interest rate
of 9.6%. In connection with this agreement, the Company granted the lessor
warrants to purchase approximately 23,800 shares of Class B convertible
preferred stock at a purchase price of approximately $5.90 per share. Pursuant
to this lease agreement, in May 1994, the Company entered into a sale lease-
back transaction whereby it sold and subsequently leased-back furniture and
equipment to which it held title. Additional equipment purchases have been
funded under extensions made to this agreement through 1996.
F-13
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Included in property and equipment at December 31, 1996 and 1997 and March
31, 1998, are assets recorded under this agreement of $1,404,620, $813,552 and
$732,155, respectively. Accumulated depreciation and amortization at December
31, 1996 and 1997 and March 31, 1998, includes amounts for the capital lease
of $906,311, $716,565 and $693,277, respectively.
Future minimum lease payments due under this capital lease at December 31,
1997, are as follows:
<TABLE>
<S> <C>
1998............................................................... $186,007
1999............................................................... 47,988
--------
Total minimum lease payments....................................... 233,995
Less amounts representing interest at 9.6%......................... 12,821
--------
Present value of minimum capital lease payments.................... 221,174
Less current installments.......................................... 174,611
--------
Obligations under capital lease, net of current installments....... $ 46,563
========
</TABLE>
During 1997, portions of the Company's capital lease expired. The Company
has continued leasing assets under the expired leases on a month-to-month
basis.
In addition to the aforementioned capital lease, the Company leases office
and laboratory space under month-to-month operating leases. The Company may
terminate the office and laboratory space leases, one at a time, over a
minimum period of 210 days. Rent expense under operating leases was
approximately $156,000, $167,000 and $240,000 for the years ended December 31,
1995, 1996 and 1997, and approximately $50,000 and $117,000 for the three
months ended March 31, 1997 and 1998, respectively.
Research and Development Agreements
The Company has agreed to provide grants for certain research projects under
agreements with several universities and research organizations. Under the
terms of these agreements, the Company has received exclusive licenses to the
resulting technology. Total grants paid by the Company were $2,598,000,
$2,277,000 and $2,734,000 for the years ended December 31, 1995, 1996 and
1997, and $711,000 and $608,000 for the three months ended March 31, 1997 and
1998, respectively. The Company has commitments to pay up to approximately
$2,064,000, $1,698,000, $1,425,000, $1,425,000 and $356,000 related to these
grants for the years ended 1998, 1999, 2000, 2001, and 2002, respectively .
(7) STOCKHOLDERS' EQUITY
Capital Changes
Effective in December 1995, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 7,848,321 shares
of common stock and 3,570,332 shares of Class C convertible preferred stock,
each having a par value of $0.001 per share.
Effective in June 1996, the Company restated its Certificate of
Incorporation which effected the authorization of a total of 8,814,423 shares
of common stock and 338,983 shares of Class D convertible preferred stock,
each having a par value of $0.001 per share.
F-14
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Effective in December 1997, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 9,553,191 shares
of common stock, 75,329 shares of Class E convertible preferred stock and
154,963 shares of Class E1 convertible preferred stock, each having a par
value of $0.001 per share.
Convertible Preferred Stock
In September 1995, the Company issued an additional 2,095,763 shares of
Class C convertible preferred stock in a private placement. In May 1996, the
Company issued 96,852 shares of Class D convertible preferred stock. In
December 1997, the Company issued 75,329 shares of Class E convertible
preferred stock and 154,963 shares of Class E1 convertible preferred stock.
Since its inception, the Company has issued 6,042,263 shares of convertible
preferred stock (Class A, B, C, D, E and E1) for aggregate cash consideration
of $34,482,000. Preferred stockholders participate in the dividends declared
to common stockholders, if any, in an amount proportionate to the number of
shares of common stock into which the preferred stock is convertible.
Preferred holders are entitled to one vote for each share of common stock into
which the preferred shares can be converted.
In the event of any voluntary or involuntary liquidation of the Company,
before any distribution can be made to the holders of common stock, the
preferred stockholders are entitled to receive payment of $2.95 for each share
of Class A convertible preferred stock, $5.90 for each share of Class B and C
convertible preferred stock, $10.33 for each share of Class D convertible
preferred stock, $13.28 for each share of Class E convertible preferred stock
and $12.91 for each share of Class E1 convertible preferred stock plus any
declared but unpaid dividends. No dividends were declared for the years ended
December 31, 1995, 1996 and 1997, or for the three months ended March 31,
1998.
Holders of Class A, B, C, D, E and E1 convertible preferred stock have the
right at any time, at their option, to convert without the payment of
additional consideration, each preferred stock share into an equivalent number
of common stock shares. Holders of Class A, B, C, D, E and E1 convertible
preferred stock convert at a one-for-one basis. The conversion rates of the
Class A, B and C convertible preferred stock are subject to certain
antidilution adjustments in the event of certain issuances of stock by the
Company at prices below the original purchase price of the stock. The Company
has reserved 6,042,263 shares of common stock for issuance upon conversion of
the Class A, B, C, D, E and E1 convertible preferred stock. Upon the
occurrence of an initial public offering of GenVec stock which yields the
Company at least $15 million, all preferred stock shares will convert to
common stock shares. The preferred stockholders have voting rights equal to
the common shares they would own upon conversion.
Treasury Stock
Outstanding shares of common stock totaling 47,300 were repurchased by the
Company in 1996 at $0.59 per share. The shares were purchased from two
employees who left the Company in 1996.
Restricted Common Stock
In 1993, the Company issued to a former officer a total of 185,939 shares of
restricted common stock at a purchase price equal to the fair market value on
the date of grant in 1993, and recorded notes receivable as a reducing
component of equity (reduction in additional paid-in capital). As of March 31,
1998, 135,092 shares are still restricted and the Company has a note
receivable with a former officer for $79,704 plus accrued interest of $27,760
related to this restricted common stock.
F-15
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Stock Incentive Plan
The Company adopted its 1993 Stock Incentive Plan (the "Stock Plan") in
October 1993. The Stock Plan was amended and restated in October 1997 and
April 1998. An aggregate of 1,846,218 shares of common stock has been reserved
for issuance, which number will be increased on each anniversary date of the
adoption of the Stock Plan, beginning in 1999, by a number of shares equal to
the number of shares needed to restore the maximum aggregate number of shares
reserved for issuance under the Stock Plan to 1,846,218 or a lesser amount
determined by the Board of Directors. The Stock Plan will continue in effect
for a term of ten years, unless terminated by the Board at an earlier date.
Options to purchase common stock under the Stock Plan are exercisable at the
rate of 12.5% of the shares six months from the vesting commencement date and
approximately 1/48th of the shares monthly thereafter, such that the option is
fully exercisable four years from the vesting commencement date.
The maximum term for options granted under the Stock Plan is ten years,
except that if, at the time of the grant, the optionee possesses more than ten
percent of the combined voting power of the Company, the maximum term of the
option is five years. Exercise prices of the options approximates fair value
on the date of grant, however, for options granted to a ten percent
stockholder, then the exercise price must be equal to at least 110% of the
fair value of the stock on the date of grant. Options granted under the Stock
Plan expire three months after the termination of an optionee's service to the
Company.
The Company applies Statement 123 for options granted to consultants. In
adopting Statement 123 for options granted to consultants, $105,060 and
$84,898 for the years ended December 31, 1996 and 1997, and $19,000 for the
three months ended March 31, 1998, was recognized for compensation expense to
consultants.
The Company applies APB Opinion No. 25 in accounting for its stock option
plan for options granted to employees and accordingly, no compensation expense
has been recognized in the financial statements. Had the Company determined
compensation expense based on the fair value at the grant date for its stock
options issued to employees under Statement 123, the Company's net loss would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
----------- ----------- ----------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss................ As reported $(7,549,172) $(8,108,161) $(1,255,258) $(29,088)
=========== =========== =========== ========
Pro forma (7,571,594) (8,179,600) (1,381,997) (29,088)
=========== =========== =========== ========
Basic net loss per
common share........... As reported $ (13.45) $ (10.11) $ (1.31) $ (0.03)
=========== =========== =========== ========
Pro forma (13.49) (10.20) (1.44) (0.03)
=========== =========== =========== ========
</TABLE>
Pro forma net loss reflects compensation expense under Statement 123 only
for options granted for the years ended December 31, 1995, 1996 and 1997, and
for the three months ended March 31, 1998. Therefore, the full impact of
calculating compensation expense for stock options under Statement 123 is not
reflected in the pro forma net loss amounts presented above because
compensation expense is reflected over the options' vesting period and
compensation expense for options granted prior to January 1, 1995, is not
considered.
F-16
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
---------- ---------- ---------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Dividend yield.............. -- -- -- --
Expected volatility......... 63% 63% 60% 60%
Risk free interest rate..... 5.8% 5.8% 5.78% 5.78%
Expected life............... 4.25 years 4.25 years 4.25 years 4.25 years
</TABLE>
A summary of the status of the Company's stock options as of December 31,
1995, 1996 and 1997 and March 31, 1998 and changes during the period ending on
those dates is presented below:
<TABLE>
<CAPTION>
1995 1996 1997 MARCH 31, 1998
---------------- ---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000)'S PRICE (000)'S PRICE (000)'S PRICE (000)'S PRICE
------- -------- ------- -------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 382 $0.59 863 $0.71 860 $1.06 1,114 $1.95
Granted................. 507 0.77 617 1.12 335 4.01 -- --
Cancelled............... (18) 0.18 (304) (0.59) (47) 0.53 -- --
Exercised............... (8) 0.65 (316) 0.59 (34) 0.65 (8) 0.59
--- ----- ---- ----- ----- ----- ----- -----
Outstanding at end of
period................. 863 $0.71 860 $1.06 1,114 $1.95 1,106 $1.95
Options exercisable at
end of period.......... 318 $0.59 326 $0.89 562 $1.18 614 $1.30
Weighted average fair
value of options
granted during the
period................. $0.30 $0.65 $2.18 $ --
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
RANGE WEIGHTED AVERAGE WEIGHTED WEIGHTED
OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- --------------- --------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$0.06 1,700 7.63 years $0.06 1,700 $0.06
0.59 570,377 6.89 0.59 418,353 0.59
0.65-1.00 8,648 6.25 1.00 8,648 0.94
1.48 90,672 8.25 1.48 50,957 1.48
3.54 193,209 8.59 3.54 101,945 3.54
4.13 238,129 9.50 4.13 28,979 4.13
5.90 3,220 7.08 5.90 3,220 5.90
---------- --------- ---- ----- ------- -----
$0.06-5.90 1,105,955 7.84 $1.95 613,802 $1.30
========= =======
</TABLE>
F-17
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Warrants
Warrants to purchase common and preferred stock are granted to organizations
and institutions in conjunction with certain research activities. The warrants
vest according to a combination of time and events as prescribed in the
agreements. The Company applies the provisions of APB Opinion No. 25 to
warrants issued prior to 1996. No warrants were granted during the year ended
December 31, 1997, or for the three months ended March 31, 1998. During the
year ended December 31, 1997, 33,898 warrants expired. At December 31, 1996
and 1997 and March 31, 1998, the Company had the following warrants
outstanding.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
EXERCISE ------------------ ------------------- -------------------
PRICE OUTSTANDING VESTED OUTSTANDING VESTED OUTSTANDING VESTED
-------- ----------- ------ ----------- ------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Class B preferred stock
warrants............... $ 5.90 40,756 23,807 40,756 23,807 40,756 23,807
====== ======= ====== ======= ======= ======= =======
Common stock warrants... $14.75 101,694 16,949 67,796 33,898 67,796 33,898
$13.28 211,864 -- 211,864 158,898 211,864 158,898
------ ------- ------ ------- ------- ------- -------
Total common stock
warrants............... 313,558 16,949 279,660 192,796 279,660 192,796
======= ====== ======= ======= ======= =======
</TABLE>
(8) INCOME TAXES
A reconciliation of tax credits computed at the statutory federal tax rate
on loss from operations before income taxes to the actual income tax expense
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -------------------
1995 1996 1997 1997 1998
----------- ----------- --------- --------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Tax provision computed
at the statutory rate.. $(2,642,000) $(2,838,000) $(439,300) $(731,400) $(10,200)
State income taxes, net
of federal income tax
provision.............. (284,000) (324,000) (50,200) (83,600) (1,200)
Purchase of in-process
technology............. 155,000 -- -- -- --
Book expenses not
deductible for tax
purposes............... 5,000 6,000 8,100 2,000 5,200
Research and
experimentation tax
credit................. (263,000) 41,000 (144,900) (36,200) (36,200)
Change in the beginning
of the period valuation
allowance for deferred
tax assets allocated to
tax expense............ 3,032,000 3,086,000 624,900 847,700 43,900
Other, net.............. (3,000) 29,000 1,400 1,500 (1,500)
----------- ----------- --------- --------- --------
Income tax expense...... $ -- $ -- $ -- $ -- $ --
=========== =========== ========= ========= ========
</TABLE>
F-18
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Deferred income taxes reflect the net effects of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax
assets as of December 31, 1996 and 1997 and March 31, 1998, are as follows:
<TABLE>
<CAPTION>
1996 1997 MARCH 31, 1998
----------- ----------- --------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.... $ 9,703,000 $10,031,000 $10,684,000
Research and experimentation tax
credit............................. 541,000 686,000 722,000
Cumulative effect of using cash
basis method of accounting for
income tax purposes................ 364,000 433,000 (229,000)
Property and equipment, principally
due to differences in
depreciation....................... 66,000 115,000 131,000
Other............................... 41,000 75,000 76,000
----------- ----------- -----------
Total deferred tax assets............. 10,715,000 11,340,000 11,384,000
Valuation allowance................... (10,715,000) (11,340,000) (11,384,000)
----------- ----------- -----------
Net deferred tax asset................ $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The valuation allowance for deferred tax assets increased approximately
$3,032,000, $3,086,000 and $625,000 for the years ended December 31, 1995,
1996 and 1997, respectively and increased approximately $44,000 for the three
months ended March 31, 1998.
At March 31, 1998, the Company has net operating loss carryforwards of
approximately $27.4 million for federal income tax purposes of which $25.7
million expire at various dates through 2012, and $1.7 million expire in 2018,
including $1,493,000 which were acquired from the purchase of Theragen (note
4). The Company also has research and experimentation tax credit carryforwards
of $722,000 at March 31, 1998, of which $686,000 expire through 2012 and
$36,000 expire in 2018. These carryforwards may be significantly limited under
the Internal Revenue Code as a result of ownership changes experienced by the
Company.
(9) DEFINED CONTRIBUTION PLAN--401(K)
The Company has a defined contribution plan (the "Plan") under Internal
Revenue Code Section 401(k) which became effective on January 1, 1995. All
full-time employees who have completed six months of service and are over age
21 are eligible for participation in the Plan. Participants may elect to have
up to 15% of compensation contributed to the Plan. Under the Plan, the
Company's contributions are discretionary. During the years ended December 31,
1995, 1996 and 1997, and for the three months ended March 31, 1998, no
discretionary contributions were made.
(10) SUBSEQUENT EVENTS
Reverse Stock Split
On June 2, 1998, the Company effected a 5.9 for 1 reverse stock split. All
common and preferred share, per share and pro forma amounts in the
accompanying financial statements have been retroactively adjusted for all
periods presented to reflect this reverse stock split for all periods
presented.
F-19
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Capital Changes
Effective in May 1998, the Company amended and restated its Certificate of
Incorporation which effected the authorization of a total of 50,000,000 shares
of common stock, 5,000,000 shares of undesignated preferred stock, 226,099
shares of Class A convertible preferred stock, 1,959,444 shares of Class B
convertible preferred stock, 3,570,332 shares of Class C convertible preferred
stock, 96,852 shares of Class D convertible preferred stock, 75,329 shares of
Class E convertible preferred stock and 154,963 of Class E-1 convertible
preferred stock, each having a par value of $0.001 per share.
Initial Public Offering (unaudited)
On April 27, 1998, the Board of Directors authorized the filing of a
registration statement for the offering with the Securities and Exchange
Commission for the sale of 2,500,000 shares of common stock. If the offering
is consummated under the terms presently anticipated, all 6,042,263 shares of
the convertible preferred stock outstanding as of the closing date of the
offering will be automatically converted into 6,042,263 shares of common stock
on a 1 for 1 basis. No dividends will be payable with respect to such
preferred stock. The deferred offering costs associated with the offering will
be recorded as a reduction of stockholders' equity if the offering is
consummated. If the offering is not consummated, the deferred offering costs
will be charged to operations.
1998 Employee Stock Purchase Plan
In April 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 350,000 shares of common stock.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase
Plan will commence on the effective date of the prospectus and terminate on
April 30, 2000.
Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company for
at least 20 hours per week and for at least five months per calendar year.
Employees who participate in an offering may have up to ten percent of their
earnings withheld pursuant to the Purchase Plan. The amount withheld is then
used to purchase shares of the common stock on specified dates determined by
the Board. The price of common stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering or the relevant purchase date. Employees
may end their participation in an offering at any time during the offering,
and participation ends automatically on termination of employment with the
Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has the discretion to provide that each right
to purchase common stock will be assumed or an equivalent right substituted by
the successor corporation or the Board may shorten this offering, and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase common
stock.
1998 Director Option Plan
In April 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") to provide for the automatic grant of options to purchase
shares of common stock to non-employee directors of the Company.
F-20
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
DECEMBER 31, 1997 AND 1996
The maximum number of shares of common stock that may be issued pursuant to
options granted under the Director Plan is 130,000 shares. Each person who
becomes an outside director is automatically granted, on the date of such
person's election or appointment, an option to purchase 10,000 shares of
common stock. In addition, each outside director shall be granted an option to
purchase 5,000 shares of common stock on (i) the effective date of this
offering and (ii) the date of each of the Company's annual meetings of
stockholders provided such person is still an outside director and that such a
person shall have served on the date of the grant on the board for at least
the preceding six months. Each option granted under the Director Plan has a
term of ten years. The options vest over a four-year period. The exercise
price per share of options shall be 100% of the fair market value per share on
the date of the grant. Options granted under the Director Plan are generally
non-transferable. Unless otherwise terminated by the Board of Directors, the
Director Plan terminates automatically in April 2008. As of March 31, 1998, no
options to purchase shares of common stock had been granted under the Director
Plan.
Employee Stock Options
In April 1998, the Board of Directors granted options to employees to
purchase 101,689 shares of common stock at an exercise price of $5.90 per
share. The Company will record deferred compensation expense during the three
months ended June 30, 1998 in the amount of $518,614 (unaudited) which will be
recognized as compensation expense over the four year vesting period of the
options.
(11) NEW FINANCIAL ACCOUNTING STANDARDS
Statement 130
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Statement 130 establishes standards for the required reporting and display of
comprehensive income and its components in equal prominence with other
financial statements. Statement 130 was issued to address concerns over the
practice of reporting elements of comprehensive income directly in equity.
Statement 130 is effective for both interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect the provisions of this
Statement. On January 1, 1998, the Company adopted Statement 130. Statement
130 did not affect the current or prior period financial statement displays
presented by the Company.
Statement 131
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. Statement 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Statement 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated, unless it is impracticable to
do so. Statement 131 need not be applied to interim financial statements in
the initial year of its application, but comparative information for interim
periods in the initial year of application shall be reported in financial
statements for interim periods in the second year of application. It is not
anticipated that Statement 131 will have any material effect on current or
prior period disclosures presented by the Company.
F-21
<PAGE>
Restenosis, or re-narrowing of blood vessels, associated with angioplasty and
stent placement is a major problem in cardiovascular medicine. Vascular damage
caused by these procedures often produces proliferation of smooth muscle cells
and the inhibition of endothelial cell layer regrowth, leading to vessel
narrowing and impaired blood flow. The Company is currently developing Ad.iNOS,
an adenovirus vector containing the inducible nitric oxide synthase gene, for
the treatment of vascular damage associated with angioplasty and other
applications, such as arteriovenous grafts.
[Two figures of cross-sectional images of blood vessels from animal models of
restenosis illustrate the text immediately below the figures. Figure 1 is taken
from the control subject. Figure 2 is taken from the subject treated with
Ad.iNOS and shows the inhibition of vessel re-narrowing relative to Figure 1.]
The Company's Ad.iNOS product candidate was evaluated using an animal model
of restenosis. Vascular injury was induced in a major blood vessel of the
animal through the introduction of a catheter, followed immediately by an
infusion of either Ad.iNOS or a control directly to the site of damage.
Examination several weeks later revealed evidence of smooth muscle cell
proliferation and significant vessel re-narrowing in the control group (figure
1). In contrast, vessel re-narrowing in Ad.iNOS-treated animals was inhibited
(figure 2). Long-term studies on the effects of Ad.iNOS have not been
conducted. AD.iNOS is not currently marketed by GenVec, and there can be no
assurance that the Company will be able to obtain the necessary regulatory
approvals to do so in the future. See "Risk Factors--Uncertainties Related to
Clinical Development."
<PAGE>
[LOGO OF GENVEC APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 11,025
NASD filing fee................................................. 4,237
Printing and engraving costs.................................... 130,000
Legal fees and expenses......................................... 400,000
Accounting fees and expenses.................................... 150,000
Blue Sky fees and expenses...................................... 10,000
Transfer Agent and Registrar fees............................... 10,000
Miscellaneous expenses.......................................... 184,736
--------
Total......................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in the terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation to be filed upon the closing of the offering to
which this Registration Statement relates (Exhibit 3.3 hereto) and the
Registrant's Bylaws (Exhibit 3.5 hereto) provides for indemnification of the
Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
Registrant has also entered into agreements with its directors and executive
officers that require the Registrant among other things to indemnify them
against certain liabilities that may arise by reason of their status or
service as directors to the fullest extent not prohibited by Delaware law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since April 1995, the Registrant has issued and sold the following
unregistered securities (as adjusted to reflect the 5.9 to 1 reverse stock
split consummated in June 1998):
(1) From April 1, 1995 to March 31, 1998, Registrant granted options to
purchase 1,261,281 shares of Common Stock pursuant to its Amended and
Restated 1993 Stock Incentive Plan at exercise prices ranging from $.59 per
share to $4.13 per share.
(2) From April 1, 1995 to March 31, 1998, Registrant issued and sold an
aggregate of 363,159 shares of Common Stock to its employees, directors and
consultants upon exercise of stock options granted pursuant to Registrant's
Amended and Restated 1993 Stock Incentive Plan at exercise prices ranging
from $0.059 to $0.59 for an aggregate consideration of $1,266,994 .
(3) In September 1995, Registrant issued and sold an aggregate of
2,095,763 shares of Class C Convertible Preferred Stock to private
investors for aggregate cash consideration of $12,365,000. The following
investors purchased shares of Class C Convertible Preferred Stock: Canaan
Capital Limited
II-1
<PAGE>
Partnership, Canaan Capital Offshore Limited Partnership, C.V., Canaan
S.B.I.C., L.P. (collectively, the "Canaan Entities"), Biotech Target SA,
CIP Capital L.P., The CIT Group/Venture Capital, Inc., Fourth Generation
Partners, Mindful Partners, Prism Partners I, Quai Limited, State of
Michigan Pension Fund, Betty S. Bardige. Harry T. Rein, a director of the
Registrant, is a general partner of each of the Canaan Entities. Bruce
Schackman, a former director of the Registrant, is a managing director of
The CIT Group Venture Capital, Inc.
(4) In May 1996, Registrant issued and sold an aggregate of 96,852 shares
of Class D Convertible Preferred Stock to Scios, Inc.. for an aggregate
cash consideration of approximately $1.0 million.
(5) In October 1997, Registrant issued and sold an aggregate of 75,329
shares of Class E Convertible Preferred Stock to Fuso Pharmaceuticals
Industries, Ltd. for an aggregate cash consideration of approximately $1.0
million.
(6) In December 1997, Registrant issued and sold an aggregate of 154,963
shares of Class E-1 Convertible Preferred Stock to Warner-Lambert Company
for an aggregate cash consideration of approximately $2.0 million. Wendell
Wierenga, a director of the Registrant, is the Senior Vice President of
Worldwide Preclinical Research, Development and Technologies for the Parke-
Davis Pharmaceuticals Research division of Warner-Lambert Company.
There were no underwriters employed in connection with any of the above
transactions. See "Certain Transactions" in the form of the Prospectus
included herein.
The sales of the securities described in Items 15(1) and 15(2) were deemed
to be exempt from registration under the Securities Act in reliance on Rule
701 promulgated under Section 3(b)of the Securities Act as transactions
pursuant to compensatory benefit plans and contracts relating to compensation
as provided under such Rule 701. The sale of securities described in Items 15
(3) through 15 (6) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer not
involving a public offering. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access,
through employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of the Registrant, as currently
in effect.
3.2++++ Restated Certificate of Incorporation of the Registrant, to be filed
prior to the closing of the offering.
3.3+++ Restated Certificate of Incorporation, to be filed immediately
following the offering.
3.4++ Restated Bylaws of the Registrant as currently in effect.
3.5+++ Restated Bylaws, to be effective upon the closing of the offering.
4.1++++ Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1++ Form of Indemnification Agreement for Directors and Officers.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
10.2+++ Amended and Restated 1993 Stock Incentive Plan and forms of
agreements thereunder.
10.3+++ 1998 Employee Stock Purchase Plan.
10.4+++ 1998 Director Option Plan.
10.5 +Research, Development and Collaboration Agreement dated July 21,
1997 between the Warner-Lambert Company and the Registrant.
10.6 +Stock Purchase Agreement dated July 21, 1997 between the Warner-
Lambert Company and the Registrant.
10.7 +License Agreement dated May 31, 1996 between Scios, Inc. and the
Registrant.
10.8 +Stock Purchase Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.9 +Collaboration Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.10 +Commercialization Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries Ltd. and the Registrant.
10.11 +License Agreement dated February 1, 1998 between Asahi Chemical
Industry Co., Ltd. and the Registrant.
10.12 +Sponsored Research Agreement dated April 1, 1998 between Cornell
University and the Registrant.
10.13 +Amended and Restated Exclusive License Agreement dated April 1, 1993
between Cornell University and the Registrant.
10.14* Lease Agreement between Trizechahn Twinbrook Metro Limited
Partnership, a Maryland limited partnership.
10.15* Lease Agreement dated September 1, 1997 between Biomedical Institute
and Registrant.
10.16++ Letter Agreement dated March 9, 1995 between the Registrant and Paul
H. Fischer.
10.17++ Letter Agreement dated June 6, 1993 between the Registrant and Imre
Kovesdi.
10.18++ Letter Agreement dated March 9, 1995 between the Registrant and
Thomas E. Smart.
10.19++ Consulting Agreement dated April 28, 1998 between the Registrant and
Herbert J. Conrad.
10.20+++ Registration Rights Agreement dated April 22, 1998 among the
Registrant and certain stockholders.
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit
5.1).
23.3++ Consent of Leydig, Voit & Mayer, Ltd.
24.1++ Power of Attorney (see page II-5 of Registration Statement filed on
April 30, 1998).
27.1++ Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------
* Previously filed with Amendment No. 4 to the Registration Statement on
June 18, 1998.
++++ Previously filed with Amendment No. 2 to the Registration Statement on
June 3, 1998.
+++ Previously filed with Amendment No. 1 to the Registration Statement on
May 22, 1998.
++ Previously filed with original Registration Statement on April 30, 1998.
+ Certain portions of the exhibit have been omitted based upon a request
for confidential treatment; the omitted portions have been filed
separately with the Securities and Exchange Commission.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(a) It will provide to the Underwriters at the closing as specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar volume of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
II-4
<PAGE>
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide Offering thereof;
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
ROCKVILLE, MARYLAND, ON THE 22ND DAY OF JUNE, 1998.
GenVec, Inc.
/s/ Paul H. Fischer
By___________________________________
Paul H. Fischer, President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ Paul H. Fischer Director, President June 22, 1998
- ------------------------------------- and Chief Executive
(PAUL H. FISCHER) Officer (Principal
Executive Officer;
Principal Financial
and Accounting
Officer)
Hal S. Broderson * Director June 22, 1998
- -------------------------------------
(HAL S. BRODERSON)
Herbert J. Conrad * Director June 22, 1998
- -------------------------------------
(HERBERT J. CONRAD)
Harry T. Rein * Director June 22, 1998
- -------------------------------------
(HARRY T. REIN)
Wendell Wierenga * Director June 22, 1998
- -------------------------------------
(WENDELL WIERENGA)
Gregory Zaic * Director June 22, 1998
- -------------------------------------
(GREGORY ZAIC)
/s/ Paul H. Fischer
*By:_________________________________
Paul H. Fischer, Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of the Registrant, as currently
in effect.
3.2++++ Restated Certificate of Incorporation of the Registrant, to be filed
prior to the closing of the offering.
3.3+++ Restated Certificate of Incorporation, to be filed immediately
following the offering.
3.4++ Restated Bylaws of the Registrant as currently in effect.
3.5+++ Restated Bylaws, to be effective upon the closing of the offering.
4.1++++ Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1++ Form of Indemnification Agreement for Directors and Officers.
10.2+++ Amended and Restated 1993 Stock Incentive Plan and forms of
agreements thereunder.
10.3+++ 1998 Employee Stock Purchase Plan.
10.4+++ 1998 Director Option Plan.
10.5 +Research, Development and Collaboration Agreement dated July 21,
1997 between the Warner-Lambert Company and the Registrant.
10.6 +Stock Purchase Agreement dated July 21, 1997 between the Warner-
Lambert Company and the Registrant.
10.7 +License Agreement dated May 31, 1996 between Scios, Inc. and the
Registrant.
10.8 +Stock Purchase Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.9 +Collaboration Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.10 +Commercialization Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries Ltd. and the Registrant.
10.11 +License Agreement dated February 1, 1998 between Asahi Chemical
Industry Co., Ltd. and the Registrant.
10.12 +Sponsored Research Agreement dated April 1, 1998 between Cornell
University and the Registrant.
10.13 +Amended and Restated Exclusive License Agreement dated April 1, 1993
between Cornell University and the Registrant.
10.14* Lease Agreement between Trizechahn Twinbrook Metro Limited
Partnership, a Maryland limited partnership.
10.15* Lease Agreement dated September 1, 1997 between Biomedical Institute
and Registrant.
10.16++ Letter Agreement dated March 9, 1995 between the Registrant and Paul
H. Fischer.
10.17++ Letter Agreement dated June 6, 1993 between the Registrant and Imre
Kovesdi.
10.18++ Letter Agreement dated March 9, 1995 between the Registrant and
Thomas E. Smart.
10.19++ Consulting Agreement dated April 28, 1998 between the Registrant and
Herbert J. Conrad.
10.20+++ Registration Rights Agreement dated April 22, 1998 among the
Registrant and certain stockholders.
23.1* Consent of KPMG Peat Marwick LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.3++ Consent of Leydig, Voit & Mayer, Ltd.
24.1++ Power of Attorney (see page II-5 of Registration Statement filed on
April 30, 1998).
27.1++ Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------
* Previously filed with Amendment No. 4 to the Registration Statement on
June 18, 1998.
++++ Previously filed with Amendment No. 2 to the Registration Statement on
June 3, 1998.
+++ Previously filed with Amendment No. 1 to the Registration Statement on
May 22, 1998.
++ Previously filed with original Registration Statement on April 30, 1998.
+ Certain portions of the exhibit have been omitted based upon a request
for confidential treatment; the omitted portions have been filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 10.5
RESEARCH, DEVELOPMENT AND
COLLABORATION AGREEMENT
WARNER-LAMBERT COMPANY
AND
GENVEC, INC.
JULY 21, 1997
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS.......................................................... 2
1.1 "Affiliate"..................................................... 2
1.2 "Agency"........................................................ 2
1.3 "Background Technology"......................................... 2
1.4 "Bulk Product".................................................. 2
1.5 "Collaboration Product"......................................... 2
1.6 "Collaboration Technology"...................................... 2
1.7 "Control"....................................................... 2
1.8 "Co-Promotion Country".......................................... 2
1.9 "Core U.S. Dossier"............................................. 3
1.10 "Cost of Manufacture"........................................... 3
1.11 "Data Package".................................................. 3
1.12 "Derivation".................................................... 3
1.13 "Development"................................................... 3
1.14 "Development Candidate"......................................... 3
1.15 "Development Costs"............................................. 3
1.16 "Development Plan".............................................. 4
1.17 "Drug Development Committee".................................... 4
1.18 "Effective Date"................................................ 4
1.19 "Executive Committee"........................................... 4
1.20 "Field"......................................................... 4
1.21 "Finished Product".............................................. 4
1.22 "GAAP".......................................................... 4
1.23 "Gene Therapy".................................................. 4
1.24 "IND"........................................................... 4
1.25 "Invention(s)".................................................. 4
1.26 "Know-How"...................................................... 4
1.27 "Net Sales"..................................................... 4
1.28 "Party"......................................................... 5
1.29 "Patent Rights"................................................. 5
1.30 "Phase I", "Phase II", and "Phase III".......................... 5
1.31 "Pivotal"....................................................... 6
1.32 "Pre-Clinical Activities"....................................... 6
1.33 "Pre-Clinical Development Criteria"............................. 6
1.34 "Product Configuration"......................................... 6
1.35 "Product License Application" or "PLA".......................... 6
1.36 "Project Team Leader"........................................... 6
1.37 "Regulatory Approval"........................................... 6
1.38 "Research Management Committee"................................. 6
1.39 "Research Plan"................................................. 6
1.40 "Research Program".............................................. 6
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
----
1.41 "Scientific FTE"................................................ 6
1.42 "Scios Agreement"............................................... 6
1.43 "Second Source"................................................. 7
1.44 "Stock Purchase Agreement"...................................... 7
1.45 "Sublicensee"................................................... 7
1.46 "Term of the Agreement"......................................... 7
1.47 "Term of the Research Program".................................. 7
1.48 "Territory"..................................................... 7
1.49 "Third Party"................................................... 7
1.50 "VEGF".......................................................... 7
1.51 "Valid Claim"................................................... 7
2. RESEARCH PROGRAM..................................................... 7
2.1 Collaborative Research.......................................... 7
2.2 Research Program Expenses....................................... 8
2.3 Records; Reports................................................ 10
2.4 Term and Termination of Research Program........................ 11
2.5 Field Restriction............................................... 12
2.6 Gene Therapy Products Outside the Field......................... 14
3. COMMITTEES........................................................... 14
3.1 Executive Committee............................................. 14
3.2 Research Management Committee................................... 15
3.3 Drug Development Committee...................................... 16
3.4 Meetings........................................................ 17
3.5 Dispute Resolution.............................................. 17
4. DEVELOPMENT.......................................................... 17
4.1 Selection of Development Candidates and
Collaboration Products........................................ 17
4.2 Collaborative Development....................................... 18
4.3 Pre-Clinical Activities......................................... 18
4.4 Development Plan................................................ 18
4.5 Funding of Pre-Clinical Activities and Development.............. 19
4.6 Drug Approval Applications...................................... 19
4.7 Compliance...................................................... 19
4.8 Suspension or Termination of Collaborative Development.......... 20
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
----
5. LICENSE GRANTS....................................................... 21
5.1 Grant by GenVec................................................. 21
5.2 Grant by Warner................................................. 22
5.3 Licenses to Affiliates.......................................... 22
5.4 Sublicenses..................................................... 22
5.5 Cross-Licenses.................................................. 22
5.6 Retained Rights................................................. 22
5.7 Covenant Not to Sue............................................. 23
5.8 No Unauthorized Use............................................. 23
5.9 No Implied Licenses............................................. 23
6. CONSIDERATION........................................................ 23
6.1 Technology Access Fee........................................... 23
6.2 Purchase of GenVec Stock........................................ 23
6.3 Research Program and Development Funding........................ 23
6.4 Milestone Payments.............................................. 24
6.5 Royalties....................................................... 25
6.6 Third Party Royalties........................................... 26
6.7 Withholding Taxes............................................... 27
6.8 Guaranty........................................................ 27
7. BOOKS AND RECORDS.................................................... 27
7.1 Royalty Reports and Payments.................................... 27
7.2 Payment Method; Late Payments................................... 28
7.3 Currency Conversion............................................. 28
7.4 Restrictions on Payments........................................ 28
7.5 Records; Inspection............................................. 28
8. COMMERCIALIZATION IN THE TERRITORY................................... 29
8.1 Collaboration Product Development............................... 29
8.2 Due Diligence................................................... 29
8.3 Commercialization Outside the Territory
and Co-Promotion Countries.................................... 31
9. CO-PROMOTION OPTION.................................................. 31
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
----
10. TRADEMARKS........................................................... 32
10.1 Warner Trademarks............................................... 32
10.2 GenVec Trademarks............................................... 32
10.3 Use of Trademarks............................................... 32
11. SUPPLY OF COLLABORATION PRODUCTS..................................... 33
11.1 Manufacture of Bulk Product by GenVec........................... 33
11.2 Manufacture of Finished Product by Warner....................... 33
11.3 Warner's Right to Identify and Qualify Second
Source for Bulk Product....................................... 34
11.4 Use of Second Source for Bulk Product........................... 34
11.5 Terms of Manufacture and Supply................................. 34
11.6 Technology Transfer............................................. 35
12. REGULATORY AFFAIRS................................................... 35
12.1 Side Effects.................................................... 35
12.2 Regulatory and Other Inquiries.................................. 36
12.3 Product Recall.................................................. 36
12.4 Access to Regulatory Filings.................................... 36
12.5 Regulatory Matters.............................................. 36
13. DEVICE DELIVERY...................................................... 37
13.1 Device Plan..................................................... 37
13.2 Device Agreement................................................ 37
14. INTELLECTUAL PROPERTY................................................ 37
14.1 Ownership of Technology......................................... 37
14.2 Solely-Owned Patent Rights...................................... 38
14.3 Jointly Owned Inventions........................................ 38
14.4 Enforcement..................................................... 39
14.5 Allegations of Infringement by Third Parties.................... 40
14.6 Independent Inventions.......................................... 41
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<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
----
15. OTHER ACTIVITIES..................................................... 41
15.1 Product Configurations.......................................... 41
15.2 No Competing Products........................................... 41
15.3 Independent R&D................................................. 42
16. REPRESENTATIONS AND WARRANTIES....................................... 42
16.1 Legal Authority................................................. 42
16.2 No Conflicts.................................................... 42
16.3 Others Bound.................................................... 42
16.4 Disclaimer...................................................... 42
16.5 Disclaimer of Warranties........................................ 42
17. CONFIDENTIALITY...................................................... 43
17.1 Confidential Information........................................ 43
17.2 Permitted Disclosures........................................... 43
17.3 Publicity....................................................... 44
17.4 Publication..................................................... 44
18. INDEMNIFICATION...................................................... 45
18.1 Warner.......................................................... 45
18.2 GenVec.......................................................... 45
18.3 Procedure....................................................... 45
18.4 Insurance....................................................... 46
19. TERM AND TERMINATION................................................. 46
19.1 Term............................................................ 46
19.2 Termination for Cause........................................... 46
19.3 Effect of Bankruptcy............................................ 46
19.4 Termination Relating to Competing Products...................... 46
19.5 Termination of Research Program................................. 47
19.6 Effect of Termination........................................... 47
19.7 Survival........................................................ 48
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<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
----
20. DISPUTE RESOLUTION................................................... 48
20.1 Mediation....................................................... 48
20.2 Venue........................................................... 48
21. MISCELLANEOUS........................................................ 49
21.1 Governing Law.................................................. 49
21.2 Waiver......................................................... 49
21.3 Assignment..................................................... 49
21.4 Notices........................................................ 49
21.5 Performance Warranty........................................... 50
21.6 Force Majeure.................................................. 50
21.7 Independent Contractors........................................ 50
21.8 Advice of Counsel.............................................. 50
21.9 Severability................................................... 50
21.10 Patent Marking................................................. 50
21.11 Further Assurances............................................. 51
21.12 Compliance with Laws........................................... 51
21.13 No Implied Licenses or Warranties.............................. 51
21.14 Entire Agreement............................................... 51
21.15 Headings....................................................... 51
21.16 Counterparts................................................... 51
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<PAGE>
EXHIBIT 10.5
------------
RESEARCH, DEVELOPMENT AND COLLABORATION AGREEMENT
This RESEARCH, DEVELOPMENT AND COLLABORATION AGREEMENT (the "Agreement"),
effective as of July 21, 1997, is made by and between Warner-Lambert Company, a
Delaware corporation, with a principal place of business at 201 Tabor Road,
Morris Plains, New Jersey 07950 ("Warner"), and GenVec, Inc., a Delaware
corporation, with a principal place of business at 12111 Parklawn Drive,
Rockville, Maryland 20852 ("GenVec").
BACKGROUND
A. GenVec has expertise in the field of gene therapy and is developing
novel, proprietary materials and methods for use in the Field.
B. Warner is in the business of and has expertise in developing,
manufacturing and commercializing pharmaceuticals.
C. Warner and GenVec wish to enter into a collaborative effort to share
such expertise, to conduct research and development with respect to potential
Collaboration Products for use in the Field and, if successful, Warner shall
market certain Collaboration Products for use in the Field in the Territory, and
the Parties may co-promote certain of such Collaboration Products for use in the
Field in the Co-Promotion Countries (the "Collaboration").
D. Warner and GenVec wish to establish a framework for such Collaboration
consisting of (i) the Research Program, (ii) the Pre-Clinical Activities, (iii)
the Development and (iv) the commercialization, and possible co-promotion of
Collaboration Products, each as defined and described further below.
E. Of even date herewith, GenVec and Warner have entered into a Stock
Purchase Agreement, pursuant to which GenVec may offer to Warner, and in such
event Warner shall purchase shares of GenVec preferred and/or common stock.
F. Warner will enter into a Guaranty pursuant to which Warner will
guarantee a line of credit on behalf of GenVec, and in connection therewith
GenVec and Warner will enter into a Security Agreement and any other agreements
as provided for therein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, contained herein, GenVec and Warner agree as follows:
<PAGE>
1. DEFINITIONS
The following capitalized terms shall have the meanings indicated for
purposes of this Agreement:
1.1 "Affiliate" shall mean any corporation, association or other entity
---------
which directly or indirectly controls, is controlled by or is under common
control with the party in question. As used in this definition of "Affiliate,"
the term "control" shall mean direct or indirect beneficial ownership of more
than fifty percent (50%) of the voting or income interest in such corporation or
other business entity.
1.2 "Agency" shall mean the Food and Drug Administration of the United
------
States or any successor entity (the "FDA"), and agencies of other governments of
other countries having similar jurisdiction over the development, manufacturing,
and marketing of pharmaceuticals.
1.3 "Background Technology" shall mean all technology that a Party owns or
---------------------
Controls on the Effective Date and has the right to contribute to the
Collaboration which is necessary for the design, development, testing, use,
manufacture or sale of Product Configurations, Development Candidates and
Collaboration Products for use in the Field, including all such United States
and foreign patents and patent applications (including, without limitation, all
reissues, extensions, substitutions, confirmations, registrations,
revalidations, additions, continuations, continuations-in-part, and divisions
thereof) and other proprietary information, data and know-how existing on the
Effective Date.
1.4 "Bulk Product" shall mean the purified active ingredient of any
------------
Collaboration Product, in bulk form.
1.5 "Collaboration Product" shall mean a Product Configuration in
---------------------
Development pursuant to this Agreement through and including commercial sales.
1.6 "Collaboration Technology" shall mean all Know-How and Patent Rights
------------------------
that a Party owns or Controls, which is conceived, reduced to practice or
otherwise developed by GenVec (or its agents) or Warner (or its agents) or
jointly by GenVec and Warner (or their respective agents) during the Term of the
Research Program and in connection with the Collaboration, including, without
limitation, improvements on the Background Technology.
1.7 "Control" shall mean possession of the ability to grant the licenses
-------
or sublicenses as provided for herein without violating the terms of any
agreement or other arrangement with any Third Party.
1.8 "Co-Promotion Country" shall mean each of the United States of America
--------------------
(including its fifty (50) states, and its territories and possessions, including
the District of Columbia, the Commonwealth of Puerto Rico) and Canada.
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<PAGE>
1.9 "Core U.S. Dossier" shall have the meaning set forth in Section 4.4.
-----------------
1.10 "Cost of Manufacture" shall mean, with respect to any Bulk Product,
-------------------
the fully allocated cost of manufacturing such Collaboration Product (in
accordance with Good Manufacturing Practices), as determined in accordance with
GAAP, consistently applied, including (i) all direct and indirect costs related
to the manufacture of Collaboration Products, including without limitation,
costs for labor, materials (including, without limitation, components of
Collaboration Products) quality control, regulatory compliance, administrative
expenses, subcontractors, fixed and variable manufacturing overhead costs and
business unit or division costs reasonably allocable to the manufacture,
packaging and labeling of Collaboration Products, excluding costs for excess
manufacturing capacity not reasonably related to projected demand for
Collaboration Products, or (ii) with respect to Collaboration Products purchased
from a Third Party vendor, reasonable amounts actually paid to the vendor for
such Collaboration Products.
1.11 "Data Package" shall mean all pre-clinical data and data from any
------------
Phase I and Phase II clinical trials conducted in connection with the Research
Program or Development, data relating to reportable adverse events in respect of
Collaboration Products and any data included in any IND filing with regard to a
Product Configuration (or Collaboration Product) in the Territory.
1.12 "Derivation" shall mean a DNA sequence based on the human VEGF gene
----------
which (i) is a fragment isolated from the human VEGF gene, which fragment
encodes a peptide with biological activity substantially functionally equivalent
to the native VEGF protein, or (ii) is constructed or chemically synthesized
based on information from the human VEGF gene DNA sequence or the human VEGF
protein sequence.
1.13 "Development" shall mean the development of any Product Configuration
-----------
from and after the filing of an IND, through and including product registration
as described in Article 4.
1.14 "Development Candidate" shall mean a Product Configuration which meets
---------------------
the Pre-Clinical Development Criteria, and which the Executive Committee agrees
should undergo further development pursuant to Section 4.1.2.
1.15 "Development Costs" shall mean all direct and indirect costs and
-----------------
expenses, reasonably charged in any phase of the activities required to obtain
Regulatory Approvals in the Territory with respect to any Collaboration Product,
when approved and authorized by the Drug Development Committee as a part of the
applicable Development Plan for such Collaboration Product. Development Costs
shall include, without limitation, costs of: (i) pre-clinical studies conducted
pursuant to a Development Plan, (ii) performance of clinical trials including
clinical grants, (iii) clinical supplies (active substance, vialing, packing,
labeling, delivery to study sites, etc.), (iv) formulation of the Collaboration
Product, including stability and validation, (v) phase IV studies, (vi) costs
associated with regulatory, medical, product surveillance and statistical
services used to support clinical studies and regulatory filings for the
Collaboration Product, and (vii) other research and development costs with
respect to the Collaboration Product.
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<PAGE>
1.16 "Development Plan" shall have the meaning set forth in Section 4.4.
----------------
1.17 "Drug Development Committee" shall have the meaning set forth in
--------------------------
Section 3.3.
1.18 "Effective Date" shall mean the date of this Agreement first written
--------------
above.
1.19 "Executive Committee" shall have the meaning set forth in Section 3.1.
-------------------
1.20 "Field" shall mean the research, drug discovery and development
-----
collaboration aimed at therapeutic agents useful for Gene Therapy-based
induction of angiogenesis and for the first two years of the Research Program
shall include all clinical indications; provided, thereafter the Field shall be
limited to the treatment of coronary artery disease ("CAD") and/or peripheral
vascular disease ("PVD") and/or those other specific clinical indications
selected by Warner pursuant to Section 2.5 below.
1.21 "Finished Product" shall mean the finished pharmaceutical form, in any
----------------
formulation, of a Collaboration Product packaged for sale to a Third Party.
1.22 "GAAP" shall mean generally accepted accounting principles applied in
----
the United States.
1.23 "Gene Therapy" shall mean the introduction of a gene into a person for
------------
therapeutic purposes by (i) in vivo introduction for incorporation into cells of
-- ----
such person, or (ii) by ex vivo introduction into cells for transfer into a
-- ----
person.
1.24 "IND" shall mean an Investigational New Drug application, as defined
---
in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, or any corresponding foreign application, registration or
certification.
1.25 "Invention(s)" shall have the meaning set forth in Section 14.2.1.
------------
1.26 "Know-How" shall mean all ideas, inventions, data, instructions,
--------
processes, formulas, expert opinions and information, including, without
limitation, biological, chemical, pharmacological, toxicological,
pharmaceutical, physical and analytical, clinical, safety, manufacturing and
quality control data and information, in each case, which are developed as a
result of the Collaboration and are necessary or useful for the development,
testing, use, manufacture or sale of Collaboration Products. Know-How does not
include any inventions included in the Patent Rights.
1.27 "Net Sales" shall mean the gross amount invoiced by Warner or its
---------
Affiliates or Sublicensees, for sales to Third Parties (other than Sublicensees)
in arm's length transactions of Collaboration Products and any and all services
provided in connection with sales of Collaboration Products, less: (i) ordinary
and customary trade discounts actually allowed; (ii) credits, rebates and
returns (including, but not limited to, wholesaler and retailer returns); (iii)
freight, postage and duties
-4-
<PAGE>
paid for and separately identified on the invoice or other documentation
maintained in the ordinary course of business; (iv) excise taxes, other
consumption taxes, customs duties and compulsory payments to governmental
authorities actually paid and separately identified on the invoice or other
documentation maintained in the ordinary course of business; and (v) allowances
for uncollectible amounts. A "sale" shall include any transfer or other
disposition for consideration, and Net Sales shall include the fair market value
of all other consideration received by Warner or its Affiliates or permitted
Sublicensees in respect of any grant of rights to make, use, sell or otherwise
distribute Collaboration Products, whether such consideration is in cash,
payment in kind, exchange or another form.
In the case of discounts on "bundles" of products or services which include
Collaboration Products, Warner may with notice to GenVec calculate Net Sales by
discounting the bona fide list price of a Collaboration Product by the average
percentage discount of all products of Warner and/or its Affiliates or
Sublicensees in a particular "bundle", calculated as follows:
Average percentage
discount on a = A x 100
particular "bundle" B
where A equals the total discounted price of a particular "bundle" of products,
and B equals the sum of the undiscounted bona fide list prices of each unit of
every product in such "bundle".
Warner shall provide GenVec documentation, reasonably acceptable to GenVec,
establishing such average discount with respect to each "bundle". If Warner
cannot so establish the average discount of a "bundle", Net Sales shall be based
on the undiscounted list price of the Collaboration Product in the "bundle. If
a Collaboration Product in a "bundle" is not sold separately and no bona fide
list price exists for such Collaboration Product, the Parties shall negotiate in
good faith an imputed list price for such Collaboration Product, and Net Sales
with respect thereto shall be based on such imputed list price.
1.28 "Party" shall mean Warner or GenVec, and the "Parties" shall mean
----- -------
Warner and GenVec.
1.29 "Patent Rights" shall mean all United States and foreign patents
-------------
(including all reissues, extensions, substitutions, confirmations, re-
registrations, re-examinations, revalidations and patents of addition) and
patent applications (including, without limitation, all continuations,
continuations-in-part and divisions thereof) in each case, claiming an invention
which is necessary or useful for the design, development, testing, use,
manufacture or sale of Collaboration Products.
1.30 "Phase I", "Phase II", and "Phase III" shall mean Phase I (or Phase
------- -------- ---------
I/II), Phase II, and Phase III (or Pivotal) clinical trials, respectively, in
each case as prescribed by the applicable Agency's regulations.
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<PAGE>
1.31 "Pivotal" shall mean a clinical trial that is designed to provide data
-------
establishing the safety and efficacy of a Collaboration Product in support of
obtaining Regulatory Approval from an Agency.
1.32 "Pre-Clinical Activities" shall mean all activities (including, but
-----------------------
not limited to, development/scale-up, assay development, toxicology,
pharmacokinetics, metabolism and safety pharmacology), undertaken to develop a
Product Configuration (or a corresponding Development Candidate) which are
determined by the Research Management Committee to be necessary or desirable to
file an IND on such Product Configuration (or a corresponding Development
Candidate), including the preparation and filing of an IND.
1.33 "Pre-Clinical Development Criteria" shall have the meaning set forth
---------------------------------
in Section 4.1.1.
1.34 "Product Configuration" shall mean a potential Gene Therapy product
---------------------
for use in the Field developed in connection with the Collaboration containing a
DNA sequence from the VEGF gene * or a DNA sequence Derivation therefrom, which
may include a combination of one or more other genes (or fragments thereof) and
other elements (e.g., a gene delivery vehicle and/or a gene expression
cassette).
1.35 "Product License Application" or "PLA" shall mean a Product License
--------------------------- ---
Application, as defined in the U.S. Food, Drug and Cosmetic Act and the
regulations promulgated thereunder, and any corresponding foreign application,
registration or certification.
1.36 "Project Team Leader" shall have the meaning set forth in Section
-------------------
3.3.4.
1.37 "Regulatory Approval" shall mean all approvals (including pricing and
-------------------
reimbursement approvals), licenses, registrations and authorizations of all
Agencies necessary for the manufacture, distribution, use or sale of a
Collaboration Product in the applicable country.
1.38 "Research Management Committee" shall have the meaning set forth in
-----------------------------
Section 3.2.
1.39 "Research Plan" shall have the meaning set forth in Section 2.1.1.
-------------
1.40 "Research Program" shall mean that program of research performed by
----------------
the Parties pursuant to Section 2.1.
1.41 "Scientific FTE" shall mean a full time scientist (or in the case of
--------------
less than a full-time dedicated scientist, a full-time, equivalent scientist
year), dedicated to research under the Research Program or in connection with
the Development consisting of no less than 1800 person-hours per year.
1.42 "Scios Agreement" shall mean that certain License Agreement entered by
---------------
GenVec and Scios, Inc. effective May 31, 1996.
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<PAGE>
1.43 "Second Source" shall have the meaning set forth in Section 11.3.
-------------
1.44 "Stock Purchase Agreement" shall mean that certain Stock Purchase
------------------------
Agreement entered by Warner and GenVec of even date herewith.
1.45 "Sublicensee" shall mean a Third Party to whom Warner has granted a
-----------
license or sublicense under the Background Technology or Collaboration
Technology to make, have made, import, use, sell, offer for sale, or otherwise
exploit a Collaboration Product in the Territory. As used in this Agreement,
"Sublicensee" shall also include a Third Party to whom Warner has granted the
right to distribute the Collaboration Product in the Territory, provided that
such Third Party has the responsibility for marketing and/or promotion of the
Collaboration Product within the territory for which such distribution rights
are granted.
1.46 "Term of the Agreement" shall mean the period from the Effective Date
---------------------
until, with respect to each Collaboration Product, the expiration of the last
royalty obligation owed by Warner to GenVec with respect to such Collaboration
Product, or until this Agreement is otherwise terminated earlier pursuant to its
terms.
1.47 "Term of the Research Program" shall have the meaning set forth in
----------------------------
Section 2.4.1.
1.48 "Territory" shall mean the entire world, excluding the countries
---------
listed on Exhibit A hereto, provided, if GenVec exercises its option to co-
promote a specific Collaboration Product for a particular indication in a Co-
Promotion Country, such country shall cease to be included in the Territory with
respect to such Collaboration Product for such indication for all purposes of
this Agreement.
1.49 "Third Party" shall mean any party other than Warner or GenVec or an
-----------
Affiliate of either of them.
1.50 "VEGF" shall mean vascular endothelial growth factor.
----
1.51 "Valid Claim" means a claim of an issued and unexpired patent included
-----------
within the Patent Rights which has not been held unenforceable or invalid by a
court or other governmental agency of competent jurisdiction, and which has not
been disclaimed or admitted to be invalid or unenforceable through reissue or
otherwise.
2. RESEARCH PROGRAM
2.1 Collaborative Research. Subject to the terms and conditions set forth
----------------------
herein, Warner and GenVec will diligently conduct mutually agreed collaborative
research in the Field pursuant to a Research Plan with the primary objective of
developing Collaboration Products (the "Research Program"). The Research
Program shall have the goals of (i) developing at least one Collaboration
-7-
<PAGE>
Product for the treatment of each of CAD and PVD, and (ii) identifying other
clinical indications in the Field for which Product Configurations may be useful
as therapeutic agents. Warner and GenVec shall each use reasonable efforts to
conduct the Research Program in a professional manner in accordance with the
applicable Research Plan within the time schedules contemplated therein. The
activities conducted in connection with the Research Program will be overseen
and administered by the Research Management Committee pursuant to Section 2.1.1
below.
2.11 Research Plan. At least annually, the Research Management
-------------
Committee will prepare and agree upon a written plan (the "Research Plan") that
will (i) include a general overview and timetable for each Party's research
activities and appropriate resources and budgets for such research during the
next year, (ii) set specific objectives for such year, which objectives will be
updated or amended, as appropriate, by the Research Management Committee as
research progresses, and (iii) prepare a preliminary and non-binding plan for
research activities to be conducted by the Parties in the subsequent year. A
preliminary Research Plan has been agreed by the Parties as of the Effective
Date and a formal Research Plan will be agreed by the Research Management
Committee within sixty (60) days of the Effective Date. The Research Management
Committee shall review the Research Plan on an ongoing basis but in no event
less than quarterly and may make changes to the Research Plan then in effect.
2.12 Resources. Each Party agrees to commit the personnel,
---------
facilities, expertise and other resources necessary to perform its obligations
under the Research Plan; provided, however, that neither Party warrants that the
Research Program shall achieve any of the research objectives contemplated by
them.
2.2 Research Program Expenses.
-------------------------
2.2.1 Warner Funding. Subject to Section 2.2.3, Warner shall be
--------------
responsible for paying all costs (direct or indirect) incurred in connection
with the Research Program pursuant to the applicable Research Plan; provided,
any expenses incurred by GenVec in connection with the Research Program which
would result in total costs incurred by GenVec in connection with the Research
Program in excess of the payments to be made by Warner set forth in Section 6.3
must be approved in writing in advance by the Research Management Committee in
order to be eligible for reimbursement under this Section 2.2.1. If (i) GenVec
elects to incur expenses in connection with the Research Program for activities
and in amounts which are approved by the Research Management Committee, but
which will require expenditures in excess of the funding being provided by
Warner under Section 6.3, and (ii) the amounts paid to GenVec by Warner pursuant
to Section 6.3 for a particular calendar year for the conduct of activities
approved by the Executive Committee are not fully expended in such calendar year
for which such amounts are paid, then GenVec may apply any such unexpended
amounts to expenses incurred by GenVec for activities referred to in (i) above.
In the event the amounts budgeted for any single quarterly period are not
expended on or incurred for the Research Program during that quarter, the
remainder shall be carried forward to be expended on activities to be conducted
by GenVec in connection with the Research Program during the subsequent periods
(although there will be no obligation to carry any remainder forward into a new
calendar year), and if the Research Program has terminated, any remainder shall
-8-
<PAGE>
be applied toward Development activities to be conducted by GenVec. If no such
Development activities are to be conducted by GenVec, the remainder shall be
returned to Warner within forty-five (45) days after the end of the Research
Program.
2.2.2 Third Party Technology. In the event that it is necessary to
----------------------
acquire a license from a Third Party with regard to intellectual property or
technology necessary or useful for the conduct of the Research Program (other
than the Scios Agreement), Warner shall be responsible for paying to such Third
Party all amounts due with regard to such a license, and for the expenses of
negotiating and preparing any such license. It is understood and agreed that
Warner shall have the principal responsibility for negotiating such agreements,
unless otherwise agreed by the Parties. The Party with principal responsibility
for negotiating such agreements shall keep the other Party fully informed with
respect to such negotiations, and such other Party shall have the right to
review and comment on such agreements prior to execution, provided such review
shall be conducted at such other Party's expense. It is understood and agreed
that nothing in this Section 2.2.2 shall prohibit either Party from acquiring
licenses from Third Parties with regard to intellectual property or technology
for use by such Party outside the Research Program and that the Party acquiring
such rights shall be responsible for negotiating and preparing such agreements
and for paying all costs associated therewith, and that such Party shall have no
obligation to keep the other Party informed of or provide the other Party an
opportunity to review such agreements.
2.2.3 Asian Company.
-------------
(a) In the event that GenVec enters into an agreement with a
company for the research, development and/or commercialization of one or more
Product Configurations in Japan or other countries outside the Territory and the
Co-Promotion Countries, such company (the "Asian Partner") shall have the option
to obtain access to and the right to use the Data Package for the purpose of
seeking Regulatory Approval for any Product Configurations for any indication to
which the Asian Partner has commercialization rights in Japan and/or any other
country. In exchange for receiving such access and rights, the Asian Partner
must agree to pay to Warner amounts to be agreed by Warner and the Asian
Partner, which shall not exceed one-third of all costs incurred in connection
with those aspects of the Research Program or the Development in which data
contained in the Data Package was generated or obtained. In addition to the
payment to Warner described above, the Asian Partner shall be obligated to pay
all expenses it incurs in conducting research and development activities with
respect to any Product Configuration specifically and solely for obtaining
Regulatory Approvals in Japan and/or any other country for which it has
commercialization rights.
(b) At the request of the Asian Partner, Warner agrees to
negotiate in good faith with the Asian Partner for rights by the Asian Partner
to have access to and use any data other than that contained in the Data Package
which may be useful for obtaining Regulatory Approval in Japan and/or any other
country in which the Asian Partner has commercialization rights, in exchange for
payments to be agreed by Warner and the Asian Partner.
-9-
<PAGE>
(c) If GenVec enters into an agreement with an Asian Partner,
Warner and GenVec shall endeavor to cooperate in the conduct of the Research
Program and Development with any Asian Partner which pays for access to the Data
Package pursuant to subsection (a) above, and seek in good faith to minimize
duplicative costs associated with the conduct of research and development
relating to the relevant Product Configuration(s). In addition, GenVec shall
request that the Asian Partner consider whether discussions between Warner and
the Asian Partner regarding a possible role for Warner in the commercialization
of Product Configurations in Japan and other countries in which the Asian
Partner has commercialization rights could be beneficial.
(d) If GenVec enters into an agreement with an Asian Partner,
GenVec shall use reasonable efforts to include in such an agreement terms
requiring meetings between GenVec, Warner and such Asian Partner no less
frequently than annually so that such parties may discuss matters of common
concern relating to the development of Product Configuration(s). If GenVec
enters into an agreement with an Asian Partner which includes such terms, Warner
agrees to meet with GenVec and such Asian Partner at least annually so that the
parties may discuss matters of common concern relating to the development of
Product Configurations.
2.2.4 Research Program Subcontracts. With the prior approval of the
-----------------------------
Executive Committee, GenVec or Warner may enter into or modify existing
agreements with Third Parties for the performance of activities in furtherance
of the Research Program for which Warner will be responsible for paying in
connection with the Research Program. Warner shall be responsible for directly
paying to the Third Party all compensation required to be paid pursuant to such
Agreement and/or for reimbursing GenVec for all expenses incurred by GenVec in
connection with such agreements, including, without limitation, the out-of-
pocket costs of negotiating and preparing such agreements. It is understood and
agreed that Warner shall have the principal responsibility for negotiating such
agreements, unless otherwise agreed by the Parties. The Party with principal
responsibility for negotiating such agreements shall keep the other Party fully
informed with respect to such negotiations, and such other Party shall have the
right to review and comment on such agreements prior to execution, provided such
review shall be conducted at such other Party's expense. Notwithstanding the
above, it is understood and agreed that the prior approval of the Executive
Committee shall not be required pursuant to this Section 2.2.4 with respect to
GenVec's support of research at * as it relates to the Research Program, or any
modification thereof (provided, it is understood that Warner's payment
obligations with respect to the Research Program shall not increase as a result
of any such modifications to GenVec's existing agreements with *), and Warner
acknowledges that GenVec has notified Warner that GenVec is currently
negotiating modifications to its existing research support agreements with *.
It is understood and agreed that GenVec shall be responsible for negotiating and
preparing such agreements and for paying all out-of-pocket costs incurred in
connection with such activities.
2.3 Records; Reports.
----------------
2.3.1 Records. The Parties shall maintain records that will
-------
properly reflect all work done and results achieved in the performance of the
Research Program (including all data in the form required under any applicable
governmental regulations and as directed by the Research
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<PAGE>
Management Committee), including laboratory records sufficient to establish the
dates of first conception and reduction to practice of any Inventions. Upon
request, the Parties shall provide each other access to such records relating to
any Product Configuration, Development Candidate and/or Collaboration Product
during ordinary business hours during the period the requesting Party retains
rights thereto pursuant to this Agreement.
2.3.2 Reports. The Research Management Committee shall periodically
-------
and not less often than semiannually during the Term of the Research Program,
request and the Parties shall have the obligation to prepare and provide to the
Research Management Committee, written reports summarizing the progress of the
research performed by or sponsored by the Parties pursuant to the Research Plan
during the preceding half-year. In addition, the Parties will exchange at least
quarterly verbal or written reports presenting a meaningful summary of their
activities performed in connection with the Research Program. All Collaboration
Technology made by either Party will be promptly disclosed to the other, with
significant discoveries or advances being communicated as soon as practical
after such information is obtained or its significance is appreciated.
2.3.3 Research Program Expenditures. During the Term of the
-----------------------------
Research Program, GenVec shall provide Warner with a quarterly accounting report
regarding Research Program expenditures by GenVec in the preceding quarter.
GenVec shall keep records of all expenses incurred in connection with the
Research Program, and annually during the Research Program within sixty (60)
days following the end of each calendar year shall provide Warner with a report
describing GenVec's actual average Scientific FTE cost during the preceding
year, and the number of Scientific FTEs utilized in the Research Program during
the preceding year. During the term of the Research Program and for one year
thereafter, Warner shall have the right to audit such records no more than twice
per year during ordinary business hours, at mutually agreed times, to verify
GenVec's expenditures in connection with the Research Program
2.4 Term and Termination of Research Program.
----------------------------------------
2.4.1 Term of the Research Program. The term of the Research
----------------------------
Program shall commence on the Effective Date and, unless terminated earlier
pursuant to Section 2.4.2 or Article 19 or extended by mutual agreement of the
Parties, shall terminate on the fifth anniversary of the Effective Date;
provided, if an IND has been filed in the Territory with respect to a
Collaboration Product for treatment of each of CAD and PVD prior to the fifth
anniversary of the Effective Date, the Research Program may be terminated
earlier with the written agreement of the Parties (the "Term of the Research
Program").
2.4.2 Termination of Research Program. After the third anniversary
-------------------------------
of the Effective Date, the Term of the Research Program may be terminated by
Warner upon six (6) months prior written notice, subject to the following
conditions:
(a) Warner shall be obligated to continue to fund all
Research Program activities ongoing at the time of such written notice and make
all Research Program payments due to
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GenVec until the effective date of such termination; provided, GenVec continues
to perform under and such funds are used to forward the Research Program; and
(b) Each Party shall retain such ownership interest in the
Collaboration Technology as it shall hold on the effective date of such
termination; and
(c) Subject to the terms and conditions of this Agreement,
Warner shall retain its license in the Field to Collaboration Products for which
an IND was filed prior to the date of Warner's notice of its intent to
terminate, but shall have no rights under this Agreement with regard to any
Product Configuration or Development Candidate for which an IND has not been
filed prior to the date of Warner's notice of its intent to terminate the
Research Program; and
(d) Subject to the rights retained by Warner in (c) above,
Warner will grant GenVec an exclusive (even as to Warner), worldwide, fully-
paid, perpetual license (with the right to sublicense) under Warner's interest
in any Collaboration Technology jointly owned by Warner and GenVec necessary or
useful to make, have made, import, use, offer for sale and sell Collaboration
Products, subject to Article 15, for indications other than those which Warner
retains rights hereunder, and products other than Collaboration Products; and
(e) Subject to the rights retained by Warner in (c) above,
at GenVec's request, Warner will negotiate in good faith the terms of an
exclusive, worldwide license to GenVec (with the right to sublicense) under
Warner's interest in any Collaboration Technology owned solely by Warner, to
make, have made, use, import, offer for sale and sell Product Configurations,
subject to Article 15, which terms shall include the payment of a royalty to
Warner on net sales (such net sales to be calculated in accordance with Section
1.27 (with appropriate contextual adjustments) and GAAP) of such products up to
* of such net sales, and other customary and reasonable terms to be agreed by
the Parties.
(f) At GenVec's request, Warner will negotiate in good faith
the terms of a nonexclusive, worldwide license to GenVec (with the right to
sublicense) under Warner's interest in any Collaboration Technology owned solely
by Warner, to make, have made, use, import, offer for sale and sell products
other than Product Configurations, subject to Article 15, which terms shall
include the payment of a royalty to Warner on net sales (such net sales to be
calculated in accordance with Section 1.27 (with appropriate contextual
adjustments), and GAAP) of such products up to * of such net sales, and other
customary and reasonable terms to be agreed by the Parties.
2.5 Field Restriction.
-----------------
2.5.1 Initial Two Years. During the first two (2) years of the
-----------------
Research Program the Parties shall conduct research pursuant to the Research
Plan with the goal of evaluating whether any Product Configuration may be useful
for the treatment of any clinical indication(s) selected by the Executive
Committee. It is understood and agreed that during the first two (2) years of
the Research Program at a minimum the Parties shall seek to develop
Collaboration Products for the treatment of coronary artery disease ("CAD") and
peripheral vascular disease ("PVD") in humans.
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2.5.2 Selection of Indications. On or before the second
------------------------
anniversary of the Effective Date, Warner shall notify GenVec of any specific
indications (other than CAD and PVD) which Warner wishes to retain in the Field.
The first indication so selected by Warner shall automatically be included in
the Field and Warner's obligation to provide funding for the Research Program
and Development shall be increased as set forth in Section 6.3.2(b). Each
additional specific indication so selected by Warner shall automatically be
included in the Field and Warner's obligation to provide funding under Section
6.3 shall increase by * per year per indication. Concurrently with its notice to
GenVec of any indication that Warner wishes to retain in the Field, Warner shall
provide to GenVec a proposed research plan for the conduct of research with
respect thereto through the identification of a Development Candidate for each
such indication in connection with the Research Program, and the Parties shall
negotiate in good faith regarding the specific activities to be conducted in the
Research Program with respect thereto. A research plan for such activities and
the criteria for the applicable milestone subject to Section 6.4.3 shall be
agreed to by the Research Management Committee within ninety (90) days of
Warner's notice to GenVec regarding its election of the applicable indication.
The Parties agree that the payments to be made by Warner to GenVec with respect
to Collaboration Products for each such indication shall include milestone
payments and payments for royalties and transfer pricing for such Collaboration
Product, in each case, which shall be equal to *, unless otherwise agreed by the
Parties.
2.5.3 Non-Selected Indications. In the event that Warner fails to
------------------------
notify GenVec that it wishes to retain rights for a particular indication (other
than CAD or PVD) as described in Section 2.5.2 above, such indication shall
cease to be within the Field as of the second anniversary of the Effective Date,
and, subject to Article 15, GenVec shall be free to develop and commercialize
Gene Therapy products for such indication(s), itself or with a Third Party, and
Warner shall have no further rights thereto.
2.5.4 Collaboration Technology. In the event that any specific
------------------------
clinical indication(s) cease(s) to be within the Field as provided in Section
2.5.3 above, then, at GenVec's request, Warner shall grant to GenVec licenses as
set forth below for practice outside the Field:
(a) Warner will grant GenVec an exclusive (even as to Warner),
worldwide, fully-paid, perpetual license (with the right to sublicense) under
Warner's interest in any Collaboration Technology jointly owned by Warner and
GenVec necessary or useful to make, have made, import, use, offer for sale and
sell Collaboration Products, subject to Article 15, for indications other than
those which Warner retains rights hereunder, and products other than
Collaboration Products; and
(b) At GenVec's request, Warner will negotiate in good faith
the terms of an exclusive, worldwide license to GenVec (with the right to
sublicense) under Warner's interest in any Collaboration Technology owned solely
by Warner, to make, have made, use, import, offer for sale and sell Product
Configurations, subject to Article 15, which terms shall include the payment of
a royalty to Warner on net sales of such products up to [*] of such net sales
(such net sales to be calculated in accordance with Section 1.27 (with
appropriate contextual adjustments) and GAAP), and other customary and
reasonable terms to be agreed by the Parties.
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(c) At GenVec's request, Warner will negotiate in good faith
the terms of * to GenVec (with the right to sublicense) under Warner's interest
in any Collaboration Technology owned solely by Warner, to make, have made, use,
import, offer for sale and sell products other than Product Configurations,
subject to Article 15, which terms shall include the payment of a royalty to
Warner on net sales (such net sales to be calculated in accordance with Section
1.27 (with appropriate contextual adjustments) and GAAP) of such products up to
* of such net sales, and other customary and reasonable terms to be agreed by
the Parties.
2.6 Gene Therapy Products Outside the Field. In the period from the * of
---------------------------------------
the Effective Date until the * of the Effective Date, if GenVec wishes to
develop, itself or with a Third Party, * containing * before commencing
negotiations with any Third Party with respect to such a * for such
indication(s), GenVec shall notify Warner and identify the proposed
indication(s). Within * days of receipt of such notice, Warner shall notify
GenVec if it wishes to negotiate the terms of a further research and development
collaboration between the Parties with respect to such indication(s). If Warner
provides GenVec notice of its interest during such period, the Parties shall
negotiate in good faith the terms of such a further collaboration agreement,
including without limitation, the activities to be conducted, the
responsibilities of the Parties and budgets therefore. Such further * with
respect to Collaboration Products for such indication(s) which shall be equal to
those set forth in Sections 6.4, 6.5 and 11.1, respectively, unless otherwise
agreed by the Parties. At the request of Warner, GenVec shall provide all
relevant data in its possession requested by the Research Management Committee,
to the extent GenVec's obligations to Third Parties permit. In the event that
the Parties have not entered into such a further agreement on or before * of the
date Warner provided notice of its interest to GenVec, or such later date as may
be agreed by the Parties, subject to Article 15, GenVec shall be free to develop
and commercialize such * for such indication(s), itself or with a Third Party,
and *
3. COMMITTEES
3.1 Executive Committee.
-------------------
3.1.1 Membership. Promptly after the Effective Date, Warner and
----------
GenVec will each appoint three (3) representatives to a management committee
(the "Executive Committee"). A Warner representative will serve as chairperson
of the Executive Committee for the initial twelve (12) months. Thereafter, the
chair of the Executive Committee will rotate between a GenVec member and a
Warner member every twelve (12) months. A Party may change any of its
appointments to the Executive Committee at any time with written notice to the
other Party.
3.1.2 Responsibilities. The Executive Committee will be charged
----------------
with overseeing and managing the entire Collaboration, including the Research
Management Committee and the Drug Development Committee. In addition, the role
of the Executive Committee will be, subject to the terms of this Agreement, to:
(i) coordinate the Parties' activities hereunder; (ii) resolve problems or
settle disagreements that are unresolved by the Research Management Committee
and/or the Drug Development Committee, unless otherwise indicated in this
Agreement; (iii) approve allocations of tasks and resources required to carry
out the goals of the Collaboration; (iv) approve all plans and
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annual budgets for the various projects and programs within the Collaboration;
(v) designate Product Configurations as Development Candidates, and authorize
the filing of INDs with respect thereto; (vi) encourage and facilitate ongoing
cooperation between the Parties; (vii) coordinate and monitor the payments and
reimbursements to be made by and between the Parties; and (viii) perform such
other functions as appropriate to further the purposes of this Agreement, as
determined by the Parties.
3.1.3 Meetings. The Executive Committee will meet every six (6)
--------
months and at such other mutually agreeable times as a Party may request,
alternating between the corporate offices of GenVec and Warner, and will
otherwise communicate regularly by telephone, facsimile and/or video conference.
Each Party recognizes the importance of the Executive Committee in the success
of the Collaboration and will use diligent efforts to cause all of its
representatives of such committee to attend all meetings of such committee.
3.1.4 Decision Making; Disputes. All decisions of the Executive
-------------------------
Committee will be made by unanimous approval. Any disputes or disagreements
within the Executive Committee shall be resolved pursuant to Section 3.5.
3.2 Research Management Committee. Promptly after the Effective Date,
-----------------------------
Warner and GenVec will each appoint three (3) representatives to a research
management committee (the "Research Management Committee").
3.2.1 Membership. A GenVec representative will serve as
----------
chairperson of the Research Management Committee for the initial twelve (12)
months. Thereafter, the chair will rotate between a Warner member and a GenVec
member every twelve (12) months. A Party may change any of its appointments to
the Research Management Committee at any time with written notice to the other
Party.
3.2.2 Responsibilities. The Research Management Committee will
----------------
agree on and may, at its discretion, and with the approval of the Executive
Committee, modify the general direction of the pre-clinical research to be
performed under this Agreement. The Research Management Committee will oversee,
review, direct and supervise all operational and scientific aspects of the
Research Program. The Research Management Committee shall be responsible for (i)
establishing the Research Plan; (ii) monitoring and reporting research progress
and ensuring open and frequent exchange between the Parties with respect to
Research Program activities; (iii) determining whether to acquire licenses from
Third Parties with respect to intellectual property necessary or useful for the
conduct of the Research Program; (iv) discussing patent matters relating to
Collaboration Products; and (v) proposing Development Candidates to the
Executive Committee.
3.2.3 Meetings. The Research Management Committee will meet on a
--------
quarterly basis alternating between the corporate offices of GenVec and Warner,
and will otherwise communicate regularly by telephone, facsimile and/or video
conference. Each Party recognizes the importance of the Research Management
Committee in the success of the Collaboration and will use
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diligent efforts to cause all of its representatives of such committee to attend
all meetings of such committee.
3.2.4 Decision Making; Disputes. All decisions of the Research
-------------------------
Management Committee will be made by unanimous approval. Any disputes or
disagreements within the Research Management Committee shall be resolved
pursuant to Section 3.5.
3.3 Drug Development Committee. Within thirty (30) days of the date a
--------------------------
Development Candidate is designated by the Executive Committee, Warner shall
form a development committee for such Development Candidate (the "Drug
Development Committee").
3.3.1 Membership. The Drug Development Committee will include
----------
individuals with expertise and responsibilities in the areas of pre-clinical
development, clinical development or regulatory affairs and shall include two
(2) or more representatives from GenVec as appropriate. A Party may change any
of its appointments to the Drug Development Committee at any time upon giving
written notice to the other Party. *
3.3.2 Responsibilities. The Drug Development Committee will oversee
----------------
all aspects of the Pre-Clinical Activities and Development of each Product
Configuration through the filing of a PLA on a Collaboration Product arising
from such Product Configuration.
3.3.3 Meetings. The Drug Development Committee will meet on a
--------
monthly basis, and will otherwise communicate regularly by telephone, facsimile
and video conference. Each Party recognizes the importance of the Drug
Development Committee in the success of the Collaboration and will use diligent
efforts to cause all of its representatives of such committee to attend all
meetings of such committee.
3.3.4 Project Team Leader. With respect to each Development
-------------------
Candidate and corresponding Collaboration Product in Development, the Executive
Committee will, upon nomination from each Party, select one Drug Development
Committee representative who is a Warner Drug Development Vice President (or
designated equivalent) as a "Project Team Leader" with respect to such
Development Candidate or Collaboration Product. The Project Team Leader will be
responsible for overseeing the operational aspects of the Pre-Clinical
Activities and the Development of the applicable Development Candidate (or
corresponding Collaboration Product), as directed by the Drug Development
Committee, and will prepare and submit to the Drug Development Committee issues
and problems to be decided by the Drug Development Committee.
3.3.5 Decision Making. Decisions of the Drug Development Committee
---------------
shall be made by majority approval after reasonable consultation with GenVec's
representatives on such committee.
3.4 Meetings. All committees created hereunder may meet by telephone or
--------
video conference or in person at such times as are agreeable to the members of
each such committee, but no less frequently than as specified above. Attendance
at meetings shall be at the respective expense
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of the participating Parties. Each committee created hereunder shall assure that
agendas and minutes are prepared for each of its meetings and distributed to the
Parties. All actions taken and decisions made by each committee created
hereunder shall be by unanimous agreement and recorded in writing. If personal
attendance is not possible for valid reasons, voting by proxy is permissible.
3.5 Dispute Resolution. Any disputes or disagreements arising in the
------------------
Research Management Committee or Drug Development Committee will be referred to
the Executive Committee if the Research Management Committee or Drug Development
Committee, as the case may be, is unable to resolve such dispute or disagreement
within thirty days. In addition, any other disputes or disagreements between
the Parties arising hereunder will be referred to the Executive Committee. If
the Executive Committee is unable to resolve after thirty (30) days, a dispute
regarding any issue presented to it or arising in it, such dispute will be
referred to the Chief Executive Officer of GenVec and Warner's Chairman of the
Pharmaceutical Research Division for good faith resolution, for a period of
ninety (90) days. In the event such individuals are unable to resolve such
dispute, subject to Section 20.1, either Party may pursue any remedies it may
have at law or in equity.
4. DEVELOPMENT
4.1 Selection of Development Candidates and Collaboration Products.
--------------------------------------------------------------
4.1.1 Proposed Development Candidates. From time to time the
-------------------------------
Research Management Committee will propose, or either Party may propose, to the
Executive Committee that further Pre-Clinical Activities be undertaken for one
or more Product Configurations. Such proposal will be in writing, accompanied by
a nonbinding plan and budget forecast that outlines studies and activities to be
conducted through completion of Phase III for each Product Configuration
recommended. The Executive Committee will promptly determine whether such
Product Configuration meets criteria established by the Executive Committee for
determining, on an indication-by-indication basis, which Product Configurations
are suitable for consideration as Development Candidates, which criteria may be
amended from time to time upon the written consent of the Parties hereto (the
"Pre-Clinical Development Criteria").
4.1.2 Development Candidates. If the Executive Committee determines
----------------------
that any Product Configuration meets the Pre-Clinical Development Criteria, and
agrees to commence Pre-Clinical Activities with respect to such Product
Configuration, then such Product Configuration shall be deemed to be a
"Development Candidate". Product Configurations which are not designated as
Development Candidates as set forth above may not become Collaboration Products;
provided, any Product Configuration which was not previously selected as a
Development Candidate may become a Development Candidate with the agreement of
the Executive Committee.
4.1.3 Collaboration Products. The Executive Committee shall
----------------------
determine which Development Candidates are suitable for clinical development as
Collaboration Products. Any Development Candidate for which an IND is filed
shall be deemed a "Collaboration Product."
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4.1.4 Loss of Status. In the event that the Drug Development
--------------
Committee or the Executive Committee determines that Development should be
discontinued with respect to a particular Development Candidate or Collaboration
Product, such Product Configuration shall cease to be a Development Candidate or
Collaboration Product, as the case may be, for purposes of this Agreement.
4.2 Collaborative Development. The Parties will each diligently
-------------------------
collaborate in the development of Development Candidates for the purpose of
selecting Collaboration Products and use diligent efforts to develop and bring
such Collaboration Products to the market as soon as reasonably practicable. In
connection therewith, each Party shall use efforts not less than those efforts
it makes with respect to its own pharmaceutical products of comparable
commercial potential, stage of development and patent protection. The role of
each Party in the research and development process will be proposed by the
Project Team Leader and approved by the Drug Development Committee, with each
Party providing advisory and supporting services with respect to each phase of
the process in which such Party may be actively or primarily involved. No
clinical trials involving any Collaboration Product shall be commenced by or on
behalf of either Party without the prior approval of the Drug Development
Committee; provided, GenVec may conduct any such studies with or for an Asian
Partner. Each Party shall ensure that its Development tasks are carried out
adhering to ethical and safety standards customary in the industry.
4.3 Pre-Clinical Activities. The Parties, under the direction of the
-----------------------
Drug Development Committee, shall conduct the Pre-Clinical Activities with
respect to each Development Candidate. The payment of the costs of conducting
such Pre-Clinical Activities shall be as set forth in Section 4.5. During the
period that a particular Development Candidate (or the corresponding
Collaboration Product) is in Development hereunder, under no circumstances shall
either Party conduct studies of such Development Candidate (or the corresponding
Collaboration Product) except as approved and directed by the Drug Development
Committee; provided, GenVec may conduct any such studies with or for an Asian
Partner and support preclinical research at Cornell University Medical Center
without such approval, at its own expense.
4.4 Development Plan. The development of each Development Candidate (and
----------------
the corresponding Collaboration Product) shall be governed by a comprehensive
development plan (the "Development Plan"). The Drug Development Committee shall
prepare for consideration and approval by the Executive Committee a Development
Plan for such Development Candidate (and corresponding Collaboration Product).
The Development Plan shall outline the proposed program of development for such
Development Candidate (and corresponding Collaboration Product), including
formulation, process development, clinical studies and regulatory plans and
other key elements of obtaining Regulatory Approval in each country in the
Territory, including specific activities and estimated timelines for such
activities. Without limiting the foregoing, the Development Plan shall, to the
extent practicable, set forth those pre-clinical and clinical studies necessary
or desirable for the filing of a PLA in the United States for any Development
Candidate (and corresponding Collaboration Product), as determined by the Drug
Development Committee (the "Core U.S. Dossier"). In addition, the Development
Plan shall provide a general overview of relevant plans and timelines for
development of such Collaboration Product within the Territory outside of the
United
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States. Each such Development Plan shall be updated semi-annually by the
Drug Development Committee and submitted to the Executive Committee for review
and approval not later than ninety (90) days prior to each January 1 and July 1
of each applicable year.
4.5 Funding of Pre-Clinical Activities and Development.
--------------------------------------------------
4.5.1 In the Territory. Subject to Section 2.2.3, and Article 9 if
----------------
the Parties Co-Promote, all Development Costs incurred with respect to each
Development Candidate (and corresponding Collaboration Product) for sale in the
Territory shall be borne by Warner, excluding costs incurred by GenVec pursuant
to Section 2.2.1 which were subject to subsection (i) of the second sentence of
Section 2.2.1 and not recovered by GenVec pursuant to the remainder of such
sentence.
4.5.2 Outside the Territory. It is understood and agreed that any
---------------------
Development Costs incurred by GenVec and/or the Asian Partner specifically for
Pre-Clinical Activities and Development of Collaboration Products for sale
outside the Territory and the Co-Promotion Countries shall be borne by such
Asian Partner and/or by GenVec.
4.6 Drug Approval Applications. Warner shall be responsible for and
--------------------------
shall own all regulatory submissions filed in countries in the Territory. The
Parties will cooperate in the preparation of each application for regulatory
approval and in obtaining Regulatory Approvals under this Section 4.6.
Notwithstanding the above, with the prior approval of the Executive Committee,
GenVec shall file the IND for the first Collaboration Product and in such event
GenVec shall be the owner of such IND; provided, however, within thirty (30)
days of Warner's written request, GenVec shall transfer such IND to Warner.
4.7 Compliance. The Parties will comply with all applicable cGLP, cGCP
----------
and cGMP (or foreign equivalents) relating to the conduct of the Pre-Clinical
Activities of any Development Candidate or Development of any Collaboration
Product for sale in the Territory and the Co-Promotion Countries. In addition,
the Parties agree to conduct such Pre-Clinical Activities and Development in
compliance with applicable good laboratory, clinical or manufacturing practices
of countries outside the Territory and the Co-Promotion Countries, provided, and
only to the extent that, GenVec notifies Warner of such cGLP, cGCP and/or cGMP
practices in any such countries, and such practices are not in conflict with the
cGLP, cGCP or cGMP requirements in the Territory and the Co-Promotion Countries.
Where such compliance with such identified practices with respect to countries
outside the Territory and the Co-Promotion Countries results in any additional
Development Costs which in the aggregate are in excess of Fifty Thousand Dollars
($50,000), GenVec shall promptly reimburse Warner for such additional
expenditures incurred, at GenVec's request, by Warner.
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4.8 Suspension or Termination of Collaborative Development.
------------------------------------------------------
4.8.1 Permissive Termination. Warner may elect upon six (6) months
----------------------
prior written notice to (i) terminate its participation in or not to participate
in the Pre-Clinical Activities or Development of any Development Candidate (or
corresponding Collaboration Product), or (ii) terminate such activities with
respect to all Development Candidates (and corresponding Collaboration Products)
for a particular clinical indication.
4.8.2 Suspension for Safety or Efficacy Concerns. Warner may
------------------------------------------
suspend the Development activities with respect to any Collaboration Product for
reasonable safety and/or efficacy concerns, and in such event shall promptly,
but in any event within *, notify GenVec and the Executive Committee, providing
a detailed explanation of its concerns and the basis thereof. Any such
suspension shall not remain in effect for more than * without the approval of
the Executive Committee. In the event that Warner believes that such concerns
warrant termination of further Development with respect to such Collaboration
Product, it shall notify the Executive Committee, and in such event Warner may
immediately terminate any on-going clinical trial with respect to such
Collaboration Product and, at GenVec's request, cooperate with GenVec to ensure
a prompt transition of such Development activities to GenVec. Warner shall
further continue to be responsible for all costs associated with such
Development for a period of * from the date of Warner's notice to the Executive
Committee that it intends to terminate further Development with respect thereto.
4.8.3 Consequences of Termination. In the event Warner gives
---------------------------
notice of termination under this Section 4.8, Warner (i) will remain responsible
for all Development Costs for such Development Candidate (or corresponding
Collaboration Product) until the effective date of the termination, and (ii)
will make its personnel, relevant data and other resources available to GenVec
as necessary to effect an orderly transition of development responsibilities,
with the costs of such personnel, relevant data and resources to be borne by
GenVec after the effective date of the termination. In the event of any such
termination by Warner, Warner's right and license to the applicable Development
Candidate or Collaboration Product, or the applicable indication for which Pre-
Clinical Activities or Development with respect to all Development Candidates
(and corresponding Collaboration Products) have been terminated pursuant to
Section 4.8.1, as the case may be, shall terminate, and Warner shall have no
further rights thereto, and GenVec may develop and commercialize such
Development Candidate(s) and/or Collaboration Product(s), subject to Article 15.
In such event, Warner shall grant to GenVec licenses with regard to such
Development Candidate (and corresponding Collaboration Product), or all
Development Candidates (and corresponding Collaboration Products) for such
indication, as the case may be, as follows:
(a) Warner will grant GenVec an exclusive (even as to Warner),
worldwide, fully-paid, perpetual license (with the right to sublicense) under
Warner's interest in any Collaboration Technology jointly owned by Warner and
GenVec necessary or useful to make, have made, import, use, offer for sale and
sell Development Candidates (and corresponding Collaboration Products), subject
to Article 15, for indications other than those which Warner retains rights
hereunder, and products other than Collaboration Products; and
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(b) At GenVec's request, Warner will negotiate in good faith
the terms of an exclusive, worldwide license to GenVec (with the right to
sublicense) under Warner's interest in any Collaboration Technology owned solely
by Warner, to make, have made, use, import, offer for sale and sell Product
Configurations, subject to Article 15, which terms shall include the payment of
a royalty to Warner on net sales (such net sales to be calculated in accordance
with Section 1.27 (with appropriate contextual adjustments) and GAAP) of such
products up to three percent (3%) of such net sales, and other customary and
reasonable terms to be agreed by the Parties.
(c) At GenVec's request, Warner will negotiate in good faith
the terms of a nonexclusive, worldwide license to GenVec (with the right to
sublicense) under Warner's interest in any Collaboration Technology owned solely
by Warner, to make, have made, use, import, offer for sale and sell products
other than Product Configurations, subject to Article 15, which terms shall
include the payment of a royalty to Warner on net sales (such net sales to be
calculated in accordance with Section 1.27 (with appropriate contextual
adjustments) and GAAP) of such products up to * of such net sales, and other
customary and reasonable terms to be agreed by the Parties.
4.8.4 Acknowledgment. The Parties each recognize and agree that any
--------------
termination by Warner of its participation in Development with respect to a
particular Development Candidate or Collaboration Product or a particular
indication in accordance with this Section 4.8 will not be considered a breach
of its obligations under this Agreement. It is further understood that in the
event that Warner elects to terminate its activities with respect to a
particular indication pursuant to this Section 4.8, such indication shall
thereafter be excluded from the Field.
5. LICENSE GRANTS
5.1 Grant by GenVec. Subject to the terms and conditions of this
---------------
Agreement, GenVec hereby grants and agrees to grant to Warner an exclusive,
worldwide license under the Background Technology and Collaboration Technology
owned or Controlled by GenVec, with the right to sublicense pursuant to Section
5.4, to the extent necessary for Warner to make, have made, use, import, offer
for sale and sell Collaboration Products for use in the Field, in the Territory
and in the Co-Promotion Countries. Such licenses with respect to a
Collaboration Product are exclusive (even as to GenVec), except that GenVec
shall retain the rights set forth in Section 5.6, the right to conduct Pre-
Clinical Activities and Development as set forth in Article 4, and the right to
manufacture and have manufactured Bulk Products pursuant to the terms of Article
11, and, if the Parties enter into a Co-Promotion arrangement pursuant to
Article 9, to use, offer for sale and promote any Collaboration Product in the
Co-Promotion Countries pursuant to the applicable Co-Promotion Agreement.
5.2 Grant by Warner. Subject to the terms and conditions of this
---------------
Agreement, Warner hereby grants and agrees to grant to GenVec an exclusive
(except as to Warner) license under the Background Technology and Collaboration
Technology owned or Controlled by Warner to the extent necessary for GenVec to
(a) use, offer for sale and promote any Collaboration Product in the Co-
Promotion Countries, if the Parties enter into a Co-Promotion Agreement pursuant
to Article 9,
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and (b) manufacture or have manufactured Bulk Products, pursuant to the terms of
Article 11. GenVec may not sublicense any of its rights granted under this
Section 5.2 without the prior written consent of Warner.
5.3 Licenses to Affiliates. Each Party shall, at the other Party's
----------------------
reasonable request, enter into license agreements directly with the other
Party's Affiliates, in lieu of the license grant to the requesting Party;
provided such agreements would not decrease the amount which would be owed
hereunder. Such agreements shall contain the same language as contained herein
with appropriate changes in parties and territory, and this Agreement shall be
amended as appropriate. No such license agreement will relieve Warner or
GenVec, as the case may be, of its obligations hereunder, and such Party will
guarantee the obligations of its Affiliate in any such agreement.
5.4 Sublicenses. Warner may sublicense the rights granted in Section 5.1
-----------
to its Affiliates or Third Parties, with the prior written consent of GenVec,
which consent shall not be unreasonably withheld. Each sublicense granted by
Warner shall be consistent with all the terms and conditions of this Agreement.
Warner shall remain responsible to GenVec for all of each such Sublicensee's
applicable financial and other obligations under this Agreement.
5.5 Cross-Licenses. Each Party hereby grants and agrees to grant to the
--------------
other, a non-exclusive, non-transferable, royalty-free license to use and
practice such Party's Background Technology and Collaboration Technology solely
for research purposes in the Field in connection with the Research Program. In
addition, for each Development Candidate (and corresponding Collaborative
Product) which enters Pre-Clinical Activities or Development, each Party hereby
grants and agrees to grant to the other a non-exclusive, non-transferable,
royalty-free license to use and practice such Party's Background Technology and
Collaboration Technology for the Pre-Clinical Activities and Development of such
Development Candidate (and the corresponding Collaboration Product) in the Field
until termination of Pre-Clinical Activities or Development with respect to such
Development Candidate (or corresponding Collaboration Product).
5.6 Retained Rights. It is understood and agreed that, subject to
---------------
Section 2.6 and Article 15, GenVec shall retain the exclusive right to develop
(including pre-clinical and clinical development), make, have made, use, sell
and otherwise commercialize the Collaboration Products for all uses outside the
Field, and all products other than Collaboration Products in and outside the
Territory and the Co-Promotion Countries. It is understood and agreed that
GenVec may practice and use its Background Technology and Collaboration
Technology in the Territory and the Co-Promotion Countries to facilitate the
exercise of its rights outside the Territory and outside the Co-Promotion
Countries.
5.7 Covenant Not to Sue. In partial consideration for the grant of
-------------------
rights hereunder, Warner agrees not to enforce against GenVec or its Affiliates
any Collaboration Technology owned or controlled by Warner or its Affiliates
during the term of this Agreement that GenVec or its Affiliates may infringe in
practicing the inventions claimed in Background Technology owned or Controlled
by GenVec, unless such practice would constitute a material breach of the
licenses granted Warner hereunder.
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5.8 No Unauthorized Use. Each Party hereby covenants to the other that
-------------------
it will not practice the Background Technology or Collaboration Technology of
the other Party, except as expressly permitted in this Agreement.
5.9 No Implied Licenses. No rights or licenses with respect to any
-------------------
intellectual property owned by GenVec or Warner are granted or shall be deemed
granted hereunder or in connection herewith, other than those rights expressly
granted in this Agreement.
6. CONSIDERATION
6.1 Technology Access Fee. In partial consideration for the license and
---------------------
rights granted Warner herein, Warner shall pay to GenVec within five (5)
business days of the Effective Date a technology access fee of five million
dollars ($5,000,000). Such amount shall not be refundable nor creditable
against other amounts due GenVec under this Agreement.
6.2 Purchase of GenVec Stock. Warner shall purchase shares of GenVec
------------------------
preferred and/or common stock from GenVec, pursuant to the terms and conditions
of the Stock Purchase Agreement.
6.3 Research Program and Development Funding.
----------------------------------------
6.3.1 Years 1 and 2. Warner agrees to pay to GenVec research
-------------
funding with respect to the Research Program and Development in at least the
following amounts for Years 1 and 2:
Period Amount
------ -----------
Year 1 $6,000,000
Year 2 $6,000,000
6.3.2 Years 3, 4 and 5.
----------------
(a) In Years 3, 4 and 5, if the Field includes only * then
Warner shall pay to GenVec research funding with respect to the Research Program
and Development in at least the following amounts:
Period Amount
------ ----------
Year 3 $5,000,000
Year 4 $4,000,000
Year 5 $4,000,000
(b) If the Parties agree pursuant to Section 2.5 to include
* then Warner shall pay to GenVec funding for the Research Program and
Development of at least * for each of *
(c) If the parties agree pursuant to Section 2.5 to include
more than one indication in addition * then Warner shall pay to GenVec
additional funding for the Research
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Program and Development for each such indication of * per year as provided in
Section 2.5.2 unless GenVec otherwise agrees, in its reasonable discretion, that
a lesser amount of funding will provide appropriate support for the activities
to be conducted in the Research Program with respect to such indication.
6.3.3 Research Program Extension. If the Research Program is
--------------------------
extended beyond * pursuant to Section 2.4.1, Warner shall pay to GenVec
additional Research Program funding to be agreed by the Parties for such
additional period.
6.3.4 Schedule of Payments. Year 1 of the Research Program shall
--------------------
commence on July 1, 1997, and each subsequent year of the Research Program (each
a "Year") shall commence on the anniversary of such date. The amounts to be
paid to GenVec in connection with the Research Program shall be paid quarterly,
in advance. The initial payment for the first quarter of Year 1 of the Research
Program shall be made within ten (10) days after the Effective Date, and
subsequent payments shall be made on or before the applicable quarterly
anniversaries of the Effective Date. Unless required by applicable law, such
payments shall be made without withholding for taxes or any other charge and,
subject to Section 2.2.1, shall be non-refundable and non-creditable against
other payments due GenVec under this Agreement. GenVec shall have no obligation
to expend any amount or incur any expense in connection with the Research
Program or the Development except amounts paid by Warner to GenVec pursuant to
this Section 6.3.
6.4 Milestone Payments.
------------------
6.4.1 Collaboration Products. Within thirty (30) days following the
----------------------
occurrence of the relevant events specified below with respect to the first
Collaboration Product intended for use for the treatment of * Warner shall pay
to GenVec the following amounts:
Milestones Amount
---------- ------
*
In addition, within thirty (30) days following the second occurrence and each
subsequent occurrence of each of the above milestones for each additional
Collaboration Product for the treatment of either * Warner will pay to GenVec
additional milestone payments equal to one-third of the amounts indicated above
for the applicable event.
6.4.2 Backup Collaboration Products. The payments due under Section
-----------------------------
6.4.1 above shall be made with respect to each Collaboration Product; provided,
however, if Warner ceases all development of a particular Collaboration Product
after having made payments with respect to such Collaboration Product under
Sections 6.4.1 above following the accomplishment of any milestone specified
above, there shall be no payment due upon the accomplishment of that same
milestone with
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respect to the next Collaboration Product for the same indication. When
milestones are achieved with respect to such subsequent Collaboration Product
which were not previously paid with respect to a corresponding earlier
discontinued Collaboration Product, such milestone payments shall be paid
pursuant to Section 6.4.1.
6.4.3 Milestones for Indications other than *. Within thirty (30)
---------------------------------------
days following * for each indication in the Field * and, in each case, Warner
shall pay to GenVec with respect to each such indication a one-time milestone
payment of *
6.5 Royalties.
---------
6.5.1 Collaboration Product Royalties. In consideration of the
-------------------------------
rights granted hereunder, subject to Section 6.6.2, Warner shall pay the
following royalties to GenVec with respect to aggregate Net Sales of
Collaboration Products in the Territory, on a Collaboration Product-by-
Collaboration Product basis:
Annual Net Sales up to
Annual Net Sales over
Notwithstanding the foregoing provisions of this Section 6.5.1, in the event
that, with respect to a particular Collaboration Product (i) all Valid Claims
owned or Controlled by GenVec cease to exist; and (ii) a Third Party who is not
a Sublicensee commercializes a competing generic product which is identical to
such Collaboration Product; and (iii) Warner believes that sales of such
Collaboration Product would be commercially impracticable, Warner may notify
GenVec and in such event, the parties shall discuss in good faith a reduction in
the royalties payable under this Section 6.5.l; provided, however, that nothing
contained herein shall obligate GenVec to agree to such reduction in royalties
hereunder and the terms of this Agreement shall remain in full force and effect
unless the Parties otherwise agree in writing.
6.5.2 Computation of Royalties. All sales of Collaboration Products
------------------------
between Warner and any of its Affiliates and sublicensees shall be disregarded
for purposes of computing Net Sales and royalties under this Section 6.5, and in
such instances royalties shall be payable only upon sales to unlicensed Third
Parties. Nothing herein contained shall obligate either Party to pay the other
Party more than one royalty on any unit of a Collaboration Product.
6.5.3 Royalty Term. The obligation of Warner to pay royalties under
------------
this Article 6 shall continue for each Collaboration Product on a Collaboration
Product-by-Collaboration Product and country-by-country basis, until the later
of (i) such time as there are no Valid Claims which but for the licenses granted
herein would be infringed by the manufacture, sale or use of such Collaboration
Product in such country, or (ii) ten (10) years from the first commercial sale
of such Collaboration Product in such country.
6.5.4 Minimum Royalty. It is understood and agreed that regardless
---------------
of any credits or offsets to which Warner is entitled under the terms of this
Agreement, the royalty payments due GenVec under Article 6 shall not be * of any
Collaboration Product in the applicable quarter.
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6.6 Third Party Royalties.
---------------------
6.6.1 GenVec Responsibilities. GenVec shall be responsible for the
-----------------------
payment of all license fees, milestone payments and other payments due to Scios
under the Scios Agreement with respect to the development, manufacture, use or
sale of Collaboration Products in the Territory.
6.6.2 Warner Responsibilities. Except as provided in Section 6.6.3,
-----------------------
Warner shall be responsible for the payment of any royalties, license fees and
milestone and other payments due from GenVec or Warner to any other Third
Party(ies) under licenses or similar agreements necessary for the manufacture,
use, import, or sale of Collaboration Products in the Territory; provided,
however, subject to Section 6.5.4, Warner may in any year credit fifty percent
(50%) of any royalties due Third Parties under this Section 6.6.2 against
royalties due GenVec in such year pursuant to this Agreement.
6.6.3 Shared Responsibilities. Subject to Section 6.5.4, in the
-----------------------
event that the aggregate amount paid or otherwise due or owing by Warner with
respect to a particular Collaboration Product (i) to GenVec pursuant to Sections
6.5.1 and 11.1.2, (ii) for the Cost of Manufacture of any Bulk Product subject
to Section 11.4, and (iii) for royalty payments to Third Parties pursuant to
Section 6.6.2, exceed thirty percent (30%) of the Net Sales of such
Collaboration Product, then Warner and GenVec shall equally share the expenses
attributable to (iii) above to the extent such payments would result in
aggregate payments for (i), (ii) and (iii) by Warner in excess of thirty percent
(30%) of Net Sales of the applicable Collaboration Product. It is understood and
agreed that, subject to any credits against royalties available to Warner
pursuant to Section 6.6.2, Warner shall be solely responsible for any such
payment obligations which in the aggregate are less than or equal to thirty
percent (30%) of the Net Sales of the applicable Collaboration Product. In each
such case, such determination shall be made on a country-by-country basis and
Warner shall provide to GenVec documentation establishing the royalty due to the
Third Party(ies) and the payment due from GenVec with respect thereto at least
thirty (30) days before such amount is due. In the event that the payments due
GenVec under Sections 6.5 and 11.1.2 in the aggregate exceed thirty percent
(30%) of Net Sales for a particular Collaboration Product, and Warner believes
that sales of such Collaboration Product would be commercially impracticable,
Warner may notify GenVec and in such event, the parties shall discuss in good
faith a reduction in either or both such payments; provided, however, that
nothing contained herein shall obligate GenVec to agree to such reduction and
the terms of this Agreement shall remain in full force and effect unless the
Parties otherwise agree in writing.
6.7 Withholding Taxes. Any income or other tax that a Party hereunder,
-----------------
its Affiliates or sublicensees is required to withhold (the "Withholding Party")
and pay on behalf of the other Party hereunder (the "Withheld Party") with
respect to the royalties payable under this Agreement shall be deducted from and
offset against said royalties prior to remittance to the Withheld Party;
provided, however, that in regard to any tax so deducted, the Withholding Party
shall give or cause to be given to the Withheld Party such assistance as may
reasonably be necessary to enable the Withheld Party to claim exemption
therefrom or credit therefor, and in each case shall furnish the Withheld Party
proper evidence of the taxes paid on its behalf.
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6.8 Guaranty. Warner agrees that as additional consideration for
--------
GenVec's performance hereunder, it will guaranty a loan to GenVec by a bank or
other financial institution in a principal amount of five million dollars
($5,000,000), which guaranty shall be in a reasonable form agreed by the
Parties. As a condition to Warner's obligation to execute the Guaranty and to
secure the obligation of GenVec to reimburse Warner if Warner is required to
make a payment under the Guaranty, GenVec shall execute and deliver to Warner a
Security Agreement in a reasonable form agreed by the Parties.
7. BOOKS AND RECORDS
7.1 Royalty Reports and Payments. The royalties due under Section 6.5
----------------------------
shall be paid quarterly, within sixty (60) days after the close of each calendar
quarter, or earlier, if practical, immediately following each quarterly period
in which such royalties are earned. With each such quarterly payment, Warner
shall furnish GenVec a royalty statement setting forth, on a country-by-country
and Collaboration Product-by-Collaboration Product basis, the total number of
units of each royalty-bearing Collaboration Product sold hereunder for the
quarterly period for which the royalties are due. Simultaneously with the
delivery of each such report, Warner shall pay to GenVec the total royalties, if
any, due to GenVec for the period of such report. If no royalties are due,
Warner shall so report. In addition, at GenVec's request but no more often than
once in any twelve (12) month period, Warner shall report to GenVec on a
country-by-country and Collaboration Product-by-Collaboration Product basis the
amounts of any deductions and/or adjustments to Net Sales taken by Warner
pursuant to Section 1.27 with respect to Net Sales in the preceding four (4)
calendar quarters.
7.2 Payment Method; Late Payments. All amounts due GenVec hereunder
-----------------------------
shall be paid in U.S. dollars by wire transfer in immediately available funds to
a bank account designated by GenVec. Any payments or portions thereof due
hereunder which are not paid on the date such payments are due under this
Agreement shall bear interest at a rate equal to the lesser of prime rate as
reported by the Citibank (or its successor in interest), New York, New York, *
or the maximum rate permitted by law, calculated on the number of days such
payment is delinquent, compounded monthly. This Section 7.2 shall in no way
limit any other remedies available to GenVec.
7.3 Currency Conversion. Royalties earned shall first be determined in
-------------------
the currency of the country in which they are earned and then converted to its
equivalent in United States currency. The buying rates of exchange for
converting the currencies involved into the currency of the United States quoted
by Citibank (or its successor in interest) New York, New York at the close of
business on the last business day of the quarterly period in which the royalties
were earned shall be used to determine any such conversion.
7.4 Restrictions on Payments. The obligation to pay royalties under this
------------------------
Agreement shall be waived and excused to the extent that statutes, laws, codes
or government regulations in a parti cular country prevent such royalty
payments; provided, however, in such event, if legally permissible, Warner shall
pay the royalties owed to GenVec by depositing such amounts in a bank account in
such country that has been designated by GenVec and promptly report such payment
to GenVec.
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7.5 Records; Inspection. Warner and its Affiliates shall keep (and cause
-------------------
its Sublicensees to keep) complete, true and accurate books of account and
records for the purpose of determining the royalty amounts payable under Article
6. Such books and records shall be kept reasonably accessible for at least *
following the end of the calendar quarter to which they pertain. Such records
will be open for inspection during such * period by a representative or agent of
GenVec reasonably acceptable to Warner, which approval shall not be unreasonably
withheld for the purpose of verifying the royalty statements. Such inspections
may be made no more than once each calendar year, at reasonable times mutually
agreed by Warner and GenVec. GenVec's representative or agent will be obliged
to execute a reasonable confidentiality agreement prior to commencing any such
inspection and may only disclose to GenVec the amount of any variance or error.
GenVec shall bear the costs and expenses of inspections conducted under this
Section 7.5, unless a variation or error producing an underpayment in royalties
payable * of the amount payable for any inspection period is established in the
course of any such inspection, whereupon all costs relating to the inspection
and any unpaid amounts that are discovered will be paid by Warner, together with
interest on such unpaid amounts at the rate specified in Section 7.2 above.
8. COMMERCIALIZATION IN THE TERRITORY
8.1 Collaboration Product Development. Subject to Article 9 if the
---------------------------------
Parties Co-Promote, Warner shall be responsible for all costs of conducting
Development of Collaboration Product(s) in the Territory, including, without
limitation, expenses incurred in conducting clinical trials for Collaboration
Products for which it retains commercialization rights thereto. In addition,
Warner shall be responsible, at its sole expense, for all commercialization of
such Collaboration Product(s) in the Territory so long as Warner retains rights
thereto under this Agreement. During the term of this Agreement, Warner shall
keep GenVec fully informed of its activities subject to this Agreement,
including without limitation, the achievement of the milestones set forth in
Sections 6.4 and 8.2.2 and the commercialization of the Collaboration
Product(s). On or before January 31 of each year, at GenVec's request, Warner
shall provide GenVec with a written report summarizing such events and
activities and detailing those which have not been previously reported. When a
registration package requesting approval for commercial sale of any
Collaboration Product is first filed in any country within the Territory, and
when approval is received therefor, Warner will immediately notify GenVec in
writing.
8.2 Due Diligence.
-------------
8.2.1 Reasonable Efforts. Warner shall use all reasonable efforts
------------------
to: (i) promptly develop the Collaboration Products following designation of
such Collaboration Product, (ii) achieve the milestones set forth in this
Section 8.2, (iii) obtain regulatory approvals to market such Collaboration
Products in the Territory, and (iv) after obtaining regulatory approvals for any
such Collaboration Product, launch such Collaboration Product and promote and
meet the market demand therefor throughout the Territory. In connection
therewith, Warner shall only be required to use efforts comparable to those
efforts Warner makes with respect to its own pharmaceutical products of
comparable commercial potential, stage of development and patent protection.
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8.2.2 Milestones.
----------
(a) * Warner (or its Affiliates or Sublicensees) shall achieve
each of the milestones set forth below with respect to the first Collaboration
Product for * the applicable date set forth below, unless other dates are agreed
by the Executive Committee:
Milestone Milestone Date
--------- --------------
*
It is understood and agreed that Warner shall have no obligation to achieve *
milestone under this Section 8.2.2(a) if the Executive Committee has determined
that GenVec is responsible for the *
(b) * Upon designation of a Development Candidate pursuant
to Section 4.1.2 for each indication within the Field (*), the Executive
Committee shall establish a Development Plan for the corresponding Collaboration
Product pursuant to Section 4.4, and *, initiation of *, and the * with respect
to such Collaboration Product; provided, the dates for achievement of the
foregoing milestones with respect to the first Collaboration Product * shall be
established by the Executive Committee no later than *. Such dates may be
modified by the Executive Committee.
8.2.3 Payments. In the event that Warner fails to achieve any
--------
milestone with respect to any Collaboration Product within * after the
applicable milestone date established under Section 8.2.2 above, Warner shall
pay to GenVec an amount equal to * corresponding milestone payment described in
Section 6.4. Such payment shall be due within * of the applicable milestone
date and shall be creditable against the milestone payment due upon actual
achievement of the applicable milestone. The balance of any milestone payment
which has been partially paid pursuant to this Section 8.2.3 shall be due and
payable * after actual achievement of the applicable milestone.
8.2.4 Lack of Diligence. In the event that Warner (i) fails to use
-----------------
or continue to use diligent efforts to actively develop and commercialize at
least one Product Configuration (or corresponding Collaboration Product) for a
particular clinical indication in the Field as set forth in Section 8.2.1 above
(which diligence shall include but not be limited to the payment of the amounts
set forth in Section 8.2.3), or (ii) notifies GenVec that it will not conduct
further commercialization with respect to a particular clinical indication in
the Field, then GenVec may terminate Warner's rights under this Agreement with
respect to such clinical indication and all Product Configurations (or
corresponding Collaboration Products) therefor in the Territory. In such event,
such indication shall thereafter be excluded from the Field, and, subject to
Article 15, GenVec shall thereafter have the exclusive rights to commercialize
any Product Configuration (or corresponding Collaboration Product) for such
indication in the Territory, alone or with Third Parties, without obligation to
Warner.
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8.2.5 Licenses. In the event that any of Warner's rights terminate
--------
pursuant to Section 8.2.4 above, at GenVec's request, Warner shall grant to
GenVec the following licenses for Product Configurations (and corresponding
Collaboration Products) for the applicable clinical indication:
(a) Warner will grant GenVec an exclusive (even as to Warner),
worldwide, fully-paid, perpetual license (with the right to sublicense) under
Warner's interest in any Collaboration Technology jointly owned by Warner and
GenVec necessary or useful to make, have made, import, use, offer for sale and
sell Product Configurations (and corresponding Collaboration Products), subject
to Article 15, for indications other than those which Warner retains rights
hereunder, and products other than Collaboration Products; and
(b) At GenVec's request, Warner will negotiate in good faith
the terms of an exclusive, worldwide license to GenVec (with the right to
sublicense) under Warner's interest in any Collaboration Technology owned solely
by Warner, to make, have made, use, import, offer for sale and sell Product
Configurations, subject to Article 15, which terms shall include the payment of
a royalty to Warner on net sales (such net sales to be calculated in accordance
with Section 1.27 (with appropriate contextual adjustments) and GAAP) of such
products up to * and other customary and reasonable terms to be agreed by the
Parties.
(c) At GenVec's request, Warner will negotiate in good faith
the terms of a nonexclusive, worldwide license to GenVec (with the right to
sublicense) under Warner's interest in any Collaboration Technology owned solely
by Warner, to make, have made, use, import, offer for sale and sell products
other than Product Configurations, subject to Article 15, which terms shall
include the payment of a royalty to Warner on net sales (such net sales to be
calculated in accordance with Section 1.27 (with appropriate contextual
adjustments) and GAAP) of such products up to * and other customary and
reasonable terms to be agreed by the Parties.
8.3 Commercialization Outside the Territory and Co-Promotion Countries.
------------------------------------------------------------------
It is understood and agreed that, subject to Section 2.2.3, GenVec and/or the
Asian Partner shall be responsible, at their sole expense, for conducting all
research and development (including, without limitation, clinical trials) and
commercialization of Collaboration Products outside the Territory and Co-
Promotion Countries.
9. CO-PROMOTION OPTION
GenVec shall have the option, exercisable on or before * (as established
by the Executive Committee) with respect to each *, with written notice to
Warner, to co-develop and co-promote such Collaboration Product for any such
indication in any one or more of the Co-Promotion Countries (the "Co-Promotion
Option"). If GenVec exercises the Co-Promotion Option with respect to a
particular Collaboration Product for * GenVec shall have the right to co-promote
such Collaboration Product for * than * in the Co-Promotion Country(ies), and
the Parties shall promptly negotiate and enter into a further Co-Promotion
Agreement consistent with this Agreement and which shall include the provisions
set forth on Exhibit B hereto, unless otherwise agreed by the
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Parties. If the Parties fail to enter into a written Co-Promotion Agreement
within nine (9) months from the exercise of the Co-Promotion Option by GenVec,
subject to Article 15, neither Party shall have any right to commercialize the
pertinent Collaboration Product in the Co-Promotion Countries.
10. TRADEMARKS
10.1 Warner Trademarks. Warner may select and own one or more trademarks
-----------------
for marketing a Collaboration Product in countries in the Territory (the "Warner
Trademarks"), taking into consideration the Trademark(s) selected by the Parties
for any countries in which the Parties are conducting co-promotion, if any. All
expenses for (i) registration of such Warner Trademark and (ii) bringing,
maintaining and prosecuting any action to protect or defend such Warner
Trademark in such countries shall be borne by Warner. If Warner and its
Affiliates and Sublicensees terminate the sale of any Collaboration Product
during the term of this Agreement, at GenVec's request, Warner shall assign
during the term of this Agreement to GenVec any Warner Trademark which
specifically identifies such Collaboration Product, and GenVec shall be
responsible for any enforcement and/or maintenance thereof thereafter.
10.2 GenVec Trademarks. In addition to the Warner Trademarks, if GenVec
-----------------
has manufactured a particular Collaboration Product pursuant to Article 11
during the Term of this Agreement, Warner shall have the right and agrees to
advertise and promote such Collaboration Products in the Territory under
trademarks owned by GenVec selected by the Parties (the "GenVec Trademarks"),
taking into consideration the Trademark(s) selected by the Parties for any
countries in which the Parties are conducting co-promotion, if any. At Warner's
request, GenVec shall grant to Warner a royalty-free, non-exclusive license to
use such GenVec Trademarks for the duration of the period Warner retains rights
to such Collaboration Products under this Agreement. All expenses for (i)
registration of such GenVec Trademark and (ii) bringing, maintaining and
prosecuting any action to protect or defend such GenVec Trademark in such
countries shall be borne by GenVec.
10.3 Use of Trademarks. Except as set forth in this Article 10, nothing
-----------------
contained in this Agreement shall grant to either Party any right, title, or
interest in or to any trademarks of the other Party, whether or not specifically
recognized or perfected under applicable laws. At no time during or after the
term of this Agreement shall either Party challenge or assist others to
challenge trademarks used in connection with the Collaboration Products or the
registration thereof or attempt to register any trademarks, marks, or trade
names confusingly similar to such trademarks.
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11. SUPPLY OF COLLABORATION PRODUCTS
11.1 Manufacture of Bulk Product by GenVec.
-------------------------------------
11.1.1 GenVec will have the right to manufacture or have
manufactured the Parties' requirements in the Territory and the Co-Promotion
Countries of each Collaboration Product for clinical studies and requirements of
Bulk Product for commercial use at a GMP facility, provided Bulk Product for
commercial use shall be manufactured at a GMP facility which is licensed and
qualified by the FDA to manufacture such Bulk Product. All costs associated with
the qualification or validation of GenVec or a Third Party manufacturer for the
production of such Bulk Product pursuant to this Section 11.1 shall be borne by
GenVec.
11.1.2 All Product supplied under this Section 11.1.2 shall be
supplied by GenVec at a price equal to the greater of (i) * of the Cost of
Manufacture of such Collaboration Product, or (ii) * of Net Sales * Prior to
such time that GenVec commences supply of the first Collaboration Product for
commercial sale, the Executive Committee shall establish a mechanism for
determining the specific payments due to GenVec pursuant to this Section 11.1.2,
and the timing of such payments to GenVec. Notwithstanding the above, if the
price of the Bulk Product form of any particular Collaboration Product purchased
from GenVec exceeds * and Warner has a written binding commitment from a Second
Source that such Second Source will provide such Bulk Product to Warner for at
least three (3) years at a price less than * of * Warner may notify GenVec, and
in such event Warner may purchase such * of such Collaboration Product from such
Second Source unless GenVec agrees to match the price offered Warner by the
Second Source.
11.1.3 The Executive Committee shall be responsible for
establishing the specifications, including any necessary documentation,
certificates of analysis and test results, for the relevant Collaboration
Product to be manufactured under this Section 11.1. The Executive Committee will
promptly provide each Party with copies of all such specifications and other
information and documentation. In addition, GenVec will provide Warner with
notice of, and results and data from, all FDA audits relating to GenVec's supply
of Bulk Product.
11.2 Manufacture of Finished Product by Warner.
-----------------------------------------
11.2.1 Warner will have the right, using Bulk Product supplied
pursuant to Section 11.1 or 11.4, to manufacture or have manufactured the
Parties' requirements of each Finished Product at a GMP facility which is
licensed and qualified by the FDA to manufacture such Finished Product. All
costs associated with the qualification or validation of Warner or a Third Party
manufacturer for the production of such Finished Product for sale in the
Territory pursuant to this Section 11.2 shall be borne by Warner.
11.2.2 The Executive Committee shall be responsible for
establishing the specifications, including any necessary documentation,
certificates of analysis and test results, for the relevant Collaboration
Product to be manufactured under this Section 11.2. The Executive Committee will
promptly provide each Party with copies of all such specifications and other
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information and documentation. In addition, Warner will provide GenVec with
notice of, and results and data from, all FDA audits relating to Warner's supply
of Finished Product.
11.2.3 At GenVec's request, Warner will supply Finished Products to
GenVec for sale outside the Territory and Co-Promotion Countries, on terms to be
agreed in good faith by the Parties.
11.3 Warner's Right to Identify and Qualify Second Source for Bulk
-------------------------------------------------------------
Product. In its sole discretion and at its expense, Warner may, at any time,
- -------
either (i) enter into an agreement for the qualification and validation of a
Third Party manufacturer of Bulk Product, or (ii) qualify and validate itself to
manufacture Bulk Product (the "Second Source") and GenVec shall provide
reasonable cooperation and assistance at Warner' expense to the Second Source
with respect to such qualification and validation. In the event such Second
Source supplies Bulk Product pursuant to Section 11.4, Warner shall promptly pay
GenVec * Such payment shall not be a Development Cost. In the event such Second
Source is qualified and validated prior to submission of the applicable PLA, it
shall be referenced in the PLA.
11.4 Use of Second Source for Bulk Product. In addition to Warner's
-------------------------------------
right to use the Second Source pursuant to Section 11.1.2, if GenVec is unable
to supply all of the reasonably anticipated requirements (as forecasted pursuant
to Section 11.5.1) of Bulk Products to be manufactured by GenVec pursuant to
Section 11.1 for any reason, including force majeure causes (as defined under
Section 21.6), it shall immediately notify Warner and the Executive Committee
shall discuss the manufacturing issues within ten (10) days of a request by
either Party. If, following such discussions the Parties mutually agree, the
Parties shall utilize the Second Source to manufacture such portion of the Bulk
Products which GenVec is not able to supply. If such Second Source is not yet
established, the Parties may agree on a mutually acceptable Third Party
manufacturer to replace or supplement GenVec as a manufacturer of Bulk Products.
All Bulk Products manufactured by the Second Source shall be manufactured in
accordance with the specifications approved by the Executive Committee. If a
Second Source manufactures any Bulk Products pursuant to this Section 11.4,
Warner and GenVec shall cooperate and assist each other to obtain, transfer or
use any licenses, registrations or information reasonably required to permit
such Second Source to manufacture such Bulk Product.
11.5 Terms of Manufacture and Supply.
-------------------------------
11.5.1 The Executive Committee shall establish procedures
acceptable to both Parties regarding forecasts of requirements of the
Collaboration Products.
11.5.2 Each party shall, at the request and expense of the other
Party, permit an independent accountant to whom the other Party has no
reasonable objection, to have access to and to examine the written records of
the Party which is manufacturing a particular Collaboration Product concerning
its Cost of Manufacturing, during normal business hours, but not more than once
in any twelve (12) month period, to verify the Cost of Manufacturing. The
reviewing Party shall keep in strict confidence all information learned in the
course of such audit.
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11.5.3 Each Party shall keep adequate records with respect to all
Collaboration Products manufactured by it or for it (i.e., Bulk Product or
Finished Product, as the case may be) and in any case in compliance with
applicable law. From time to time, the other Party shall have the right to
review and audit, at the requesting Party's expense, such records and
manufacturing facility (or the facility of a Third Party manufacturer used by
the manufacturing Party) to the extent necessary to verify compliance with the
manufacturing party's obligations hereunder, using an independent auditor
acceptable to the manufacturing Party.
11.5.4 Each Party shall be responsible for manufacturing at a GMP
facility, maintaining the quality control in connection with its own manufacture
of Bulk Products and Finished Products in accordance with cGMP and the
Collaboration Product specifications and shall maintain such further quality
control standards as are established by the Executive Committee. To the extent
Finished Products or Bulk Products are manufactured by a Third Party, the Party
or Parties contracting with such Third Party shall provide in such contract that
such Third Party will be held to the quality control standards established by
the Executive Committee.
11.5.5 Each Party shall use diligent efforts to obtain and
maintain any Regulatory Approvals in the Territory and the Co-Promotion
Countries necessary to manufacture and supply under this Article 11 during the
Development and commercialization of each Collaboration Product.
11.5.6 At the request of either Party, the Parties shall promptly
negotiate and enter into a detailed supply agreement for any Collaboration
Product which shall contain reasonable terms, agreed by the parties, which are
customary in agreements of such type and consistent with the terms herein.
11.6 Technology Transfer. Upon request, GenVec shall provide reasonable
-------------------
technical assistance, and, to the extent that GenVec has a right to do so
without incurring additional expense, licenses on a royalty-free basis, as may
reasonably be requested by Warner to transfer such technology as needed by a
Second Source to commence or continue manufacturing under Section 11.4. All
such technical assistance shall be provided at Warner's expense.
12. REGULATORY AFFAIRS
12.1 Side Effects. Each Party shall advise the other within the time
------------
limit required by applicable Agency laws and regulations (or similar foreign
laws and regulations) by telefax or overnight delivery service addressed to the
attention of its Vice President, Medical Affairs (or, in GenVec's case, the
employee with similar responsibilities), of any unexpected side effect, adverse
reaction or injury which has been brought to that Party's attention at any place
and which is alleged to have been caused by a Collaboration Product. Warner
shall have all rights and responsibility to report such side effects, adverse
reaction or injury in the Territory to regulatory authorities and others as
appropriate.
12.2 Regulatory and Other Inquiries. Upon being contacted by the FDA or
------------------------------
any drug regulatory Agency for any regulatory purpose pertaining to this
Agreement or to a Collaboration
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Product, GenVec and Warner shall promptly (within two (2) business days) notify
and consult with one another and Warner shall provide a response as it deems
appropriate. Warner shall have sole responsibility for responding to all
inquiries in the Territory to Warner or GenVec regarding the benefits, side
effects and other characteristics of Collaboration Products. The Party which is
responsible for manufacturing the Bulk Product form of the pertinent
Collaboration Product shall have the sole responsibility for responding to all
inquiries in the Territory regarding the manufacture of such Bulk Product form
after consultation with the other Party.
12.3 Product Recall. In the event that Warner or GenVec determines that
--------------
an event, incident or circumstance has occurred which may result in the need for
a recall or other removal of any Collaboration Product, or any lot or lots
thereof, from the market, it shall advise and consult with the other Party with
respect thereto. Warner shall make the final determination to recall or
otherwise remove the Collaboration Product or any lot or lots thereof from the
market. GenVec shall be responsible for the costs of any recall due to defects
in Bulk Products improperly manufactured by GenVec, and Warner shall be
responsible for the costs of other recalls in the Territory.
12.4 Access to Regulatory Filings. Each Party and its Affiliates, and,
----------------------------
subject to such Party's obligations to Third Parties, its Sublicensees, shall
have the right to refer to, access, cross reference, and use documents relating
to each Collaboration Product filed by a Party or its Affiliates or Sublicensees
with regulatory entities with respect to activities conducted in connection with
the Research Program or the Development, including clinical studies and other
supporting information, and any written communications to and with the FDA and
other comparable Agencies. GenVec (and its designees) shall have access to and
the right to the Data Package for use in connection with regulatory filings for
(i) Collaboration Products, outside the Co-Promotion Countries and the
Territory, and (ii) with respect to Product Configurations (and corresponding
Collaboration Products) for which Warner does not retain rights under this
Agreement, and other products, outside and within the Territory and Co-Promotion
Countries. It is understood and agreed that GenVec shall not provide access to
the Data Package or other data generated in connection with the Research Program
or with respect to the Development of a Development Candidate (or corresponding
Collaboration Product) to the Asian Partner unless the Asian Partner agrees to
pay the amounts described in Section 2.2.3.
12.5 Regulatory Matters. From and after the Effective Date, subject to
------------------
Section 4.6, the preparation, filing and prosecution of INDs, PLAs and other
regulatory filings required to be filed with any Agency in the Territory in
respect of a Collaboration Product will be in the name of and at the
responsibility of Warner, subject to the right of GenVec to comment on such
filings. The costs of preparation, filing and prosecution of regulatory filings
with regard to Collaboration Products incurred on or after the Effective Date
for the Territory shall be borne entirely by Warner as long as Warner retains
rights to commercialize such Collaboration Product hereunder.
13. DEVICE DELIVERY
13.1 Device Plan. Within ninety (90) days of the Effective Date, the
-----------
Research Management Committee agrees to meet to discuss the potential role of
device delivery technology
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(e.g., [*]) with respect to the research, development and commercialization of
potential Collaboration Products. At such meeting, the Research Management
Committee shall agree to a timeline, not to exceed six (6) months, for the
establishment of initial recommendations on how to appropriately integrate the
use of device delivery technology in the research and development of
Collaboration Products, with the objective of optimizing the commercial adoption
of Collaboration Products.
13.2 Device Agreement. If the Executive Committee determines that a
----------------
relationship or relationships with one or more device companies is appropriate
for commercialization of one or more of the Collaboration Products, GenVec and
Warner will jointly select such company or companies with expertise in the
development and commercialization of devices for the delivery of therapeutic
agents (each a "Device Company") and shall jointly negotiate with any such
Device Company the terms of an agreement for use of the applicable Collaboration
Products in the Field with a device or devices. During the term that Warner has
rights hereunder with respect to a particular Collaboration Product, except in
connection with an Asian Partner, neither Party may license any of its Patents
or Know-How to, or otherwise collaborate in the Field in the Territory or Co-
Promotion Countries with, any Third Party (other than a Sublicensee) for use of
a Collaboration Product with a delivery device, except pursuant to an agreement
mutually acceptable to GenVec and Warner (a "Device Company Agreement").
14. INTELLECTUAL PROPERTY
14.1 Ownership of Technology.
-----------------------
14.1.1 Background Technology. Except as otherwise set forth
---------------------
herein, each Party shall retain ownership or Control, as the case may be, over
its Background Technology. The owner of any patentable Background Technology
shall have the right, at its option and expense, to prepare, file and prosecute
in its own name any patent applications with respect to such Background
Technology and to maintain any patents issued thereon.
14.1.2 Collaboration Technology. Inventorship and rights of
------------------------
ownership of Collaboration Technology (whether or not patentable) shall be
determined in accordance with United States laws of inventorship or the law of
Maryland, as applicable.
14.2 Solely-Owned Patent Rights.
--------------------------
14.2.1 The sole owner (the "Owner") of any patentable Collaboration
Technology (an "Invention") shall have the right, at its option and expense, to
prepare, file and prosecute patent applications in its own name, in such
countries as it deems appropriate, and conduct any interferences, re-
examinations, reissues, oppositions or requests for patent term extensions
relating thereto, using counsel of its choice, and to maintain any patents
issued. In connection therewith, the non-Owner Party agrees to cooperate with
the Owner, at the Owner's expense, in the preparation and prosecution of all
such patent applications and in the maintenance of any patents issued. The
Owner shall keep the other Party currently informed of all steps to be taken in
such preparation, prosecution
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and maintenance of all of its Patent Rights which claim an Invention and shall
upon request furnish the other Party with copies of such Patent Rights and other
related correspondence relating to such Invention to and from patent offices and
where feasible, permit the other Party a period of at least * offer its comments
thereon before the Owner makes a submission to a patent office which could
materially affect the scope or validity of the patent coverage that may result,
and promptly provide the other Party copies of any documents relating to
Invention which the Party conducting such activities receives from such patent
offices, including notice of all interferences, reissues, reexaminations,
oppositions or requests for patent term extensions.
14.2.2 If the Owner fails to (i) fulfill its obligations under this
Section 14.2, or (ii) protect against abandonment of a Patent Right which claims
an Invention, to the extent that the Owner has the right to do so, the Owner
may, at its discretion, permit the non-Owner Party, at its option and expense,
to undertake such obligations. The Party not undertaking such actions shall
fully cooperate with the other Party and shall provide to the other Party
whatever documents that may be needed in connection therewith. The Party not
undertaking such actions may require a suitable indemnity against all damages,
costs and expenses and impose such other reasonable conditions as such Party's
advisors may request. If a non-Owner undertakes the obligations of "Owner"
under this Article 14 with respect to any Patent Rights of the other Party under
this Section 14.2.2, it shall prosecute and maintain the same at its own
expense, and shall not abandon or compromise them or fail to exercise any rights
of appeal without giving the other Party the right to take over the prosecuting
Party's conduct, at such other Party's own expense.
14.3 Jointly Owned Inventions.
------------------------
14.3.1 Responsibilities. Collaboration Technology jointly
----------------
invented by GenVec and Warner will be jointly owned by GenVec and Warner (each a
"Joint Invention"). In each case, the Parties shall agree which Party will have
the rights and responsibilities of the "Inventor" (as described in this Article
14) in respect of any such patentable, jointly owned Collaboration Technology,
and which Party shall have the rights and responsibilities of a non-Inventor
therefor. The Inventor shall use patent counsel reasonably acceptable to the
Non-Inventor, and shall keep the non-Inventor fully informed as to the status of
such patent matters, including, without limitation, by providing the non-
Inventor and its patent counsel the opportunity, at the non-Inventor's expense,
to review and comment on any documents relating to the Joint Invention which
will be filed in any patent office at least * before such filing, and promptly
providing the non-Inventor copies of any documents relating to Joint Invention
which the Inventor receives from such patent offices, including notice of all
interferences, reissues, reexaminations, oppositions or requests for patent term
extensions.
14.3.2 Cooperation.
-----------
(a) The Parties will cooperate to file, prosecute and
maintain patent applications covering the Joint Invention(s) within the
Collaboration Technology in the United States and the European Union (in Europe
through a European Patent Convention application) (collectively, the "Core
Countries") and other countries agreed by the Parties. The Parties will share
equally all expenses and fees associated with the filing, prosecution, issuance
and maintenance of any patent
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<PAGE>
application and resulting patent for a Joint Invention in the Core Countries and
other agreed countries and if such Joint Invention is relevant to the
Collaboration such amounts shall be included within the Research Program
expenses described in Section 2.2. Subject to Section 14.3.2(b) below, it is
understood that, after the termination of the Research Program, the parties
shall share equally the expenses and fees associated with the filing,
prosecution, issuance and maintenance of any patent application and resulting
patent for a Joint Invention in the Core Countries and other agreed countries.
(b) In the event that either Party wishes to seek patent
protection with respect to any Joint Invention outside the Core Countries, it
shall notify the other Party hereto. If both Parties wish to seek patent
protection with respect to such Joint Invention in such country or countries,
activities shall be subject to Section 14.3.2(a) above. If only one Party wishes
to seek patent protection with respect to such Joint Invention in such country
or countries (including, without limitation, Japan), it may file, prosecute and
maintain patent applications and patents with respect thereto, at its own
expense. Whenever possible, the Parties shall cooperate to obtain the benefit of
international treaties, conventions and/or agreements (e.g., the Patent
Cooperation Treaty) in order to obtain the benefits afforded thereby. In any
such case, the Party declining to participate in such activities shall *
14.4 Enforcement.
-----------
14.4.1 Notice. GenVec and Warner shall each promptly notify the
------
other of any infringement or unauthorized use of an Invention which comes to its
attention, describing the facts relating thereto in reasonable detail.
14.4.2 Solely Owned Inventions. Subject to 14.4.3 below, in the
-----------------------
event that any Background Technology or Collaboration Technology solely owned by
a Party (collectively "Technology") necessary for manufacture, use and sale of a
Collaboration Product is infringed or misappropriated by a third Party in any
country in the Territory, or is subject to a declaratory judgment action arising
from such infringement in such country, Warner or GenVec, as the case may be,
shall promptly notify the other Party hereto. The Party which owns or Controls
such Technology (the "Technology Owner") shall have the initial right (but not
the obligation) to enforce such Technology, or defend any declaratory judgment
action with respect thereto, at its expense. In the event that the Technology
Owner fails to initiate a suit to enforce such Technology against a commercially
significant infringement in the Field by a Third Party in any jurisdiction in
the Territory within * of a request by the other Party (the "Licensee") to do
so, the Licensee may, subject to the Technology Owner's agreements with Third
Parties, initiate such suit in the name of the Technology Owner of such
Technology against such infringement, at the expense of such Licensee. In the
event that the Technology Owner's agreements with a Third Party do not allow the
other Party hereto to initiate a suit as described above to enforce the
Technology against a Third Party infringer, then the Technology Owner shall be
obligated to commence such a suit and use diligent efforts in connection
therewith or obtain for the Licensee the right to commence suit against the
infringer. The Party involved in any such claim, suit or proceeding, shall keep
the other Party hereto reasonably informed of the progress of any such claim,
suit or proceeding. Any recovery by such Party received as a result of any such
claim, suit or proceeding shall be used first to reimburse such Party for all
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<PAGE>
expenses (including attorneys and professional fees) incurred in connection with
such claim, suit or proceeding and if the Party initiating the suit is the
Technology Owner of the subject Technology, all of the remainder shall be
retained by such Technology Owner, and if the Party initiating the suit is the
Licensee, * of the remainder shall be paid to the Technology Owner of the
subject Technology and * retained by the Licensee.
14.4.3 Joint Inventions. In the event GenVec or Warner becomes
----------------
aware of any actual or threatened infringement in the Territory of any Patent
Right which claims a Joint Invention, that Party shall promptly notify the other
and the Executive Committee shall promptly discuss how to proceed in connection
with such actual or threatened infringement. In the event such infringement
relates to a jointly owned Collaboration Product only one Party wishes to
participate in such proceeding, it shall have the right to proceed alone, at its
expense, and may retain any recovery; provided, at the request and expense of
the participating Party, the other Party agrees to cooperate and join in any
proceedings in the event that a third Party asserts that the co-owner of such
Joint Invention is necessary or indispensable to such proceedings.
14.5 Allegations of Infringement by Third Parties. Subject to the
--------------------------------------------
provisions of this Section 14.5, Warner shall be responsible for any threatened
or actual claims for Third Party patent infringement or other Third Party
intellectual property right arising out of (i) the manufacture of any
Collaboration Product for which Warner is responsible, or (ii) the manufacture
by GenVec of any Collaboration Product in accordance with processes approved by
the Executive Committee or in accordance with the applicable specifications
(except to the extent such claims are caused by GenVec's negligence or willful
misconduct), or (iii) the use, sale or importation of a Collaboration Product in
the Territory. Upon receiving notice of any actual or threatened claims, the
Parties shall promptly meet to discuss the course of action to be taken to
resolve or defend any such infringement litigation. If GenVec is named as a
party to such claim, suit or proceeding but Warner is not named as a party,
Warner may, at its own expense and through counsel of its own choice, seek leave
to intervene in such claim, suit or proceeding. GenVec agrees not to oppose
such intervention. If Warner, and not GenVec, is named as a Party to such
claim, suit or proceeding, Warner shall have the right to control the defense
and settlement of such claim, suit or proceeding, at its own expense, using
counsel of its own choice, however GenVec, at its own expense and through
counsel of its own choice, may seek to intervene if the claim, suit or
proceeding relates to the commercialization of the Collaboration Product in the
Field, and in such event, Warner agrees not to oppose such intervention. If
GenVec shall, at any time, tender its defense to Warner, then Warner shall
defend GenVec in such claim, suit or proceeding, at Warner's own expense and
through counsel of its own choice, and Warner shall control the defense and
settlement of any such claim, suit or proceeding. In no event, shall Warner
enter into any agreement which makes any admission regarding (i) wrongdoing on
the part GenVec, or (ii) the invalidity, unenforceability or absence of
infringement of any Patent Rights owned or Controlled by GenVec or any patent
claiming a Joint Invention, without the prior written consent of GenVec, which
consent shall not be unreasonably withheld. The Parties shall cooperate with
each other in connection with any such claim, suit or proceeding and shall keep
each other reasonably informed of all material developments in connection with
any such claim, suit or proceeding.
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14.6 Independent Inventions. Ownership rights to inventions that do not
----------------------
rely in material part on technology, data or knowledge contributed by the other
Party or derived under the Collaboration and that are made by the employees of
GenVec (but not of Warner) or by the employees of Warner (but not of GenVec), as
the case may be, whether or not made during the Term of this Agreement, shall
reside solely in GenVec or Warner, respectively, as the case may be. Neither
Party will claim or assert ownership rights, licenses or royalties or other
compensation with respect to such patents and other intellectual property owned
by the other Party. The applicable Party shall have the right, at its option
and expense, to prepare in its own name, file and prosecute any patent
applications and to maintain any patents issued with respect to such inventions.
In connection therewith, the other Party agrees to cooperate with the filing
Party at the filing Party's expense in the preparation and prosecution of all
such patent applications covering such independent inventions to the extent that
such Party's cooperation is reasonably necessary therefor. This obligation
shall survive the expiration or termination of this Agreement.
15. OTHER ACTIVITIES
15.1 Product Configurations. Except as specifically provided in this
----------------------
Agreement or otherwise agreed in writing, neither Warner nor its Affiliates or
Sublicensees shall commercialize any Product Configuration studied in the
Research Program or the Development except as a Collaboration Product in
accordance with this Agreement.
15.2 No Competing Products. To the extent permitted by applicable law,
---------------------
Warner and GenVec each agree that it shall not sell or commercialize in the
Territory, on its own or through a Third Party, during the Term of the
Agreement, any product that (i) has the same therapeutic mechanism of action as
a Collaboration Product, and (ii) such Party knew or reasonably should have
known would compete with or be a substitute for such Collaboration Product,
unless the Executive Committee, which will operate in good faith, determines
that such product has significant medical or commercial advantages over such
Collaboration Product. GenVec agrees not to authorize and to use reasonable
efforts not to encourage or induce any Third Party to use, sell or commercialize
any Gene Therapy product which would reasonably be expected to have an adverse
material impact on a Collaboration Product for use for an indication to which
Warner retains rights under this Agreement, or to conduct such activities
itself.
15.3 Independent R&D. It is understood and agreed that GenVec and Warner
---------------
may each conduct research and development work on potential products and
technologies for use within the Field outside the Research Program and the
Development.
16. REPRESENTATIONS AND WARRANTIES
16.1 Legal Authority. Each Party represents and warrants to the other
---------------
that it has the legal power, authority and right to enter into this Agreement
and to perform its respective obligations set forth herein.
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<PAGE>
16.2 No Conflicts. Each Party represents and warrants that as of the
------------
date of this Agreement it is not a Party to any agreement or arrangement with
any Third Party or under any obligation or restriction, including pursuant to
its Certificate of Incorporation or Bylaws, which in any way limits or conflicts
with its ability to fulfill any of its obligations under this Agreement, and
shall not enter into any such agreement during the term of this Agreement.
GenVec further represents and warrants to Warner that it has delivered to Warner
a copy of the Scios Agreement and no oral agreements or other arrangements exist
between Scios and GenVec which supersede any of the terms of any such written
agreement, and that as of the Effective Date such Scios Agreement is in full
force and effect and neither party to such agreement is in default thereunder.
16.3 Others Bound. Each Party covenants that any contract it enters into
------------
with a Third Party performing services under this Agreement on behalf of such
Party will bind such Third Party to all of the relevant terms and conditions of
this Agreement, unless otherwise agreed by the parties.
16.4 Disclaimer. Except as otherwise expressly stated herein, Warner
----------
hereby disclaims any warranty expressed or implied as to any Collaboration
Product sold or placed in commerce by or on behalf of GenVec. Except as
otherwise expressly stated herein, GenVec hereby disclaims any warranty
expressed or implied as to any Collaboration Product sold or placed in commerce
by or on behalf of Warner.
16.5 Disclaimer of Warranties. GenVec and Warner each specifically
------------------------
disclaim that the Research Program or the Development will be successful, in
whole or part or that any clinical or other studies undertaken by it will be
successful. GENVEC AND WARNER EXPRESSLY DISCLAIM ANY WARRANTIES OR CONDITIONS,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE CONFIDENTIAL
INFORMATION, BACKGROUND TECHNOLOGY, WARNER PATENTS OR KNOW-HOW, OR GENVEC
PATENTS OR KNOW-HOW, COLLABORATION TECHNOLOGY OR PRODUCT CONFIGURATIONS,
DEVELOPMENT CANDIDATES, OR COLLABORATION PRODUCTS, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE, VALIDITY OF ANY BACKGROUND TECHNOLOGY OR COLLABORATION TECHNOLOGY,
PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS
OF THIRD PARTIES.
17. CONFIDENTIALITY
17.1 Confidential Information. Except as expressly provided herein, the
------------------------
Parties agree that, for the term of this Agreement and for * thereafter, the
receiving Party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose except for the purposes
contemplated by this Agreement or the Stock Purchase Agreement any Confidential
Information of the other Party, or any other data, samples, technical and
economic information (including the economic terms hereof), commercialization,
clinical and research strategies and know-how and other information provided by
the other Party (the "Disclosing Party") during the Term of this Agreement or
during the negotiation of this Agreement, or the Stock Purchase Agreement, or in
connection with the transactions contemplated thereby, or any Collaboration
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Technology and all other data, results and information developed pursuant to the
Collaboration and solely owned by the Disclosing Party (collectively the
"Confidential Information") furnished to it by the disclosing Party hereto
pursuant to this Agreement, the Stock Purchase Agreement, or the transactions
contemplated thereby, except that "Confidential Information" shall not include:
(a) information that is or becomes part of the public domain through
no fault of the non-Disclosing Party or its Affiliates; and
(b) information that is obtained after the date hereof by the non-
Disclosing Party or one of its Affiliates from any Third Party which is lawfully
in possession of such Confidential Information and not in violation of any
contractual or legal obligation to the Disclosing Party with respect to such
Confidential Information;
(c) information that is known to the non-Disclosing Party or one or
more of its Affiliates prior to disclosure by the Disclosing Party, as evidenced
by the non-Disclosing Party's written records; and
(d) information that is necessary to be disclosed to any
governmental authorities or pursuant to any regulatory filings, but only to the
limited extent of such legally required disclosure; or
(e) information which has been independently developed by the non-
Disclosing Party without the aid or use of any Confidential Information.
17.2 Permitted Disclosures. Confidential Information may be disclosed to
---------------------
employees, agents, consultants, sublicensees or suppliers of the non-Disclosing
Party or its Affiliates, but only to the extent reasonably required to
accomplish the purposes of this Agreement and only if the non-Disclosing Party
obtains prior agreement from its employees, agents, consultants, sublicensees or
suppliers to whom disclosure is to be made to hold in confidence and not make
use of such information for any purpose other than those permitted by this
Agreement. Each Party will use at least the same standard of care as it uses to
protect proprietary or confidential information of its own to ensure that such
employees, agents, consultants, sublicensees or suppliers do not disclose or
make any unauthorized use of the Confidential Information. Notwithstanding any
other provision of this Agreement, each Party may disclose the terms of this
Agreement and the Stock Purchase Agreement to prospective lenders, investment
bankers and other financial institutions of its choice solely for purposes of
financing the business operations of such Party either (i) upon the written
consent of the other Party or (ii) if the disclosing Party obtains a signed
confidentiality agreement with such entity or financial institution with respect
to such information, upon terms substantially similar to those contained in this
Article 17.
17.3 Publicity. All publicity, press releases and other announcements
---------
relating to this Agreement or the transaction contemplated hereby shall be
reviewed in advance by, and shall be subject to the approval of, both Parties;
provided, however, that either Party may (i) publicize the existence and general
subject matter of this Agreement without the other Party's approval, and (ii)
disclose the terms of this Agreement only to the extent required to comply with
applicable
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securities laws and in the case of (ii), the non-disclosing Party shall have the
right to review and comment on such disclosure prior to its submission, where
practicable. Once a particular disclosure has been approved for disclosure,
either Party may make disclosures which do not differ materially therefrom
without any need for further consents. Notwithstanding the foregoing provisions
of this Section 17.3, the parties agree that all publicity, press releases and
other announcements relating to the occurrence of a Tranche Event (as that term
is defined in the Stock Purchase Agreement) shall be governed by Section 13 (e)
of the Stock Purchase Agreement.
17.4 Publication. The Parties shall cooperate in appropriate publication
-----------
of the results of research and development work performed pursuant to this
Agreement, but subject to the predominating interest to obtain patent protection
for any patentable subject matter. To this end, it is agreed that prior to any
public disclosure of such results, the Party proposing disclosure shall send the
other Party a copy of the information to be disclosed, and shall allow the other
Party * from the date of receipt in which to determine whether the information
to be disclosed contains subject matter for which patent protection should be
sought prior to disclosure, or otherwise contains Confidential Information of
the reviewing Party which such Party desires to maintain as a trade secret. If
notification is not received during the * day period, the Party proposing
disclosure shall be free to proceed with the disclosure. If due to a valid
business reason or a reasonable belief by the non-disclosing Party that the
disclosure contains subject matter for which a patentable invention should be
sought, then prior to the expiration of the * day period, the non-disclosing
Party shall so notify the disclosing Party, who shall then delay public
disclosure of the information for an additional period of up to * permit the
preparation and filing of a patent application on the subject matter to be
disclosed or other action to be taken. The Party proposing disclosure shall
thereafter be free to publish or disclose the information. The determination of
authorship for any paper shall be in accordance with accepted scientific
practice. If GenVec enters into an agreement with an Asian Partner it shall use
reasonable efforts to include in such agreement provisions relating to
publication at least as restrictive as those in this Section 17.4.
18. INDEMNIFICATION
18.1 Warner. Warner agrees to indemnify and hold harmless GenVec and its
------
Affiliates and Sublicensees and their respective employees, agents, officers,
directors and permitted assigns (each a "GenVec Indemnitee") from and against
any claims by a Third Party resulting in any liabilities, damages, settlements,
claims, actions, suits, penalties, fines, costs or expenses incurred (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
(any of the foregoing, a "Claim") arising out of or resulting from (i)
negligence or willful misconduct by Warner, (ii) a breach of any of the
representations or warranties of Warner hereunder, or (iii) the research and
development or manufacture, use, promotion, marketing, sale or other
distribution of any Product Configuration, Development Candidate and/or
Collaboration Product by Warner or its Affiliates or Sublicensees, except, in
each case, to the extent that such Claim arises out of or results from the
negligence or misconduct of a GenVec Indemnitee.
18.2 GenVec. GenVec agrees to indemnify and hold harmless Warner and its
------
Affiliates and Sublicensees and their respective employees, agents, officers,
directors and permitted assigns (each a "Warner Indemnitee") from and against
any claims by a Third Party resulting in any
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liabilities, damages, settlements, claims, actions, suits, penalties, fines,
costs or expenses incurred (including, without limitation, reasonable attorneys'
fees and other expenses of litigation) (any of the foregoing, a "Claim") arising
out of or resulting from (i) the negligence or willful misconduct of GenVec,
(ii) a breach of any of the representations or warranties by GenVec hereunder,
or (iii) the research and development or manufacture by GenVec of any Product
Configuration, Development Candidate and/or Collaboration Product by GenVec or
its Affiliates, except, in each case, to the extent that such Claim arises out
of or results from the negligence or misconduct of a Warner Indemnitee.
18.3 Procedure. A Party or person (the "Indemnitee") that intends to
---------
claim indemnification under this Article 18 shall promptly notify the other
Party (the "Indemnitor") in writing of any loss, claim, damage, liability or
action in respect of which the Indemnitee or any of its Affiliates, Sublicensees
or their directors, officers, employees, agents or counsel intend to claim such
indemnification, and the Indemnitor shall have the right to participate in, and,
to the extent the Indemnitor so desires, to assume the defense thereof with
counsel chosen by Indemnitor, with consent of Indemnitee, which consent shall
not be unreasonably withheld. The Indemnitee shall not enter into negotiations
or enter into any agreement with respect to the settlement of any Claim without
the prior written approval of the Indemnitor, and the indemnity agreement in
this Article 18 shall not apply to amounts paid in settlement of any loss,
claim, damage, liability or action if such settlement is made without the
consent of the Indemnitor, which consent shall not be withheld unreasonably. The
failure to deliver written notice to the Indemnitor within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to the
Indemnitee under this Article 18. At the Indemnitor's request, the Indemnitee
under this Article 18, and its employees and agents, shall cooperate fully with
the Indemnitor and its legal representatives in the investigation and defense of
any action, claim or liability covered by this indemnification and provide full
information with respect thereto.
18.4 Insurance. During the term of this Agreement, GenVec agrees to
---------
maintain a comprehensive general liability insurance policy providing coverage
in amounts of not less than two million dollars ($2,000,000) per incident and
two million dollars ($2,000,000) annual aggregate, and to include Warner as an
additional insured on such insurance policy.
19. TERM AND TERMINATION
19.1 Term. This Agreement shall be effective as of the Effective Date
----
and, unless otherwise terminated earlier pursuant to the other provisions of
this Article 19, shall continue in full force and effect on a Collaboration
Product-by-Collaboration Product and country-by-country basis until the date
that neither Party nor its Affiliates and Sublicensees has any remaining royalty
obligations to the other Party in such country; provided, the provisions of
Section 15.2 shall terminate upon the date that Warner and its Affiliates and
Sublicensees have no further royalties obligations in any country under this
Agreement. Following the expiration of royalty obligations in any country within
the Territory with respect to a particular Collaboration Product or other
product subject to a license granted herein, the Party which has received a
royalty-bearing license therefor shall have a non-exclusive, non-transferable,
fully paid license under the other Party's interest (i) in
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the non-patented Background Technology, and (ii) the Know-How within the
Collaboration Technology, solely to commercialize such Collaboration Product in
the Field or such other product in such country, as the case may be.
19.2 Termination for Cause. Either Party may terminate this Agreement in
---------------------
the event the other Party has materially breached or defaulted in the
performance of any of its obligations hereunder, or under the Stock Purchase
Agreement and such default has continued for sixty (60) days after written
notice thereof was provided to the breaching Party by the nonbreaching Party, or
if a cure of such default cannot reasonably be effected within such sixty (60)
day period, the defaulting Party has failed to deliver within such period a plan
for curing such breach or default which is reasonably sufficient to effect a
cure. Any termination shall become effective at the end of such sixty (60) day
period unless the breaching Party has cured any such breach or default prior to
the expiration of the sixty (60) day period, or has delivered to the other Party
a plan for curing such breach is reasonably acceptable to the other Party.
Notwithstanding the above, in the case of a failure to pay any amount due
hereunder the period for cure of any such default following notice thereof shall
be ten (10) days and, unless payment is made within such period, the termination
shall become effective at the end of such period.
19.3 Effect of Bankruptcy. If, during the Term of the Research Program,
--------------------
either Party files a voluntary petition in bankruptcy, is adjudicated a
bankrupt, makes a general assignment for the benefit of creditors, admits in
writing that it is insolvent or fails to discharge within sixty (60) days after
an involuntary petition in bankruptcy filed against it, then the Term of the
Research Program and this Agreement may be immediately terminated by the other
Party, with notice.
19.4 Termination Relating to Competing Products. GenVec may, at its sole
------------------------------------------
discretion, terminate this Agreement with ninety (90) days notice at any time if
Warner or its Affiliates or Sublicensees commercialize or directly or indirectly
commence Phase III clinical trials with any product for use in the Field in the
Territory or a Co-Promotion Country which (i) has the same therapeutic mechanism
of action as a Collaboration Product, and (ii) such entity knew or reasonably
should have known would compete with or be a substitute for a Collaboration
Product.
19.5 Termination of Research Program. If Warner terminates the Research
-------------------------------
Program pursuant to Section 2.4.2 and no IND has been filed with respect to any
Product Configuration prior to the date of Warner's notice of its intent to
terminate the Research Program, the Agreement shall terminate concurrently with
the termination of the Research Program.
19.6 Effect of Termination.
---------------------
19.6.1 Accrued Rights and Obligations. Termination of this
------------------------------
Agreement for any reason shall not release any Party hereto from any liability
which, at the time of such termination, has already accrued to the other Party
or which is attributable to a period prior to such termination, nor preclude
either Party from pursuing any rights and remedies it may have hereunder or at
law or in equity which accrued or are based upon any event occurring prior to
such termination.
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19.6.2 Return of Confidential Information. Upon any termination
----------------------------------
of this Agreement, Warner and GenVec shall promptly return to the other Party
all Confidential Information received from the other Party (except one copy of
which may be retained by legal counsel solely for purposes of monitoring
compliance with the provisions of Article 17 and archival purposes).
19.6.3 Stock on Hand. In the event this Agreement is terminated
-------------
for any reason, Warner and its Affiliates and Sublicensees shall have the right
in the Territory to sell the stock of any Collaboration Products then on hand,
subject to Articles 6 and 7 and the other applicable terms of this Agreement.
19.6.4 Licenses.
--------
(a) In the event of a termination of the Research Program by
Warner pursuant to Section 2.4.2, the licenses granted Warner shall remain in
effect, subject to the terms and conditions herein, with respect to all
Collaboration Products for which an IND has been filed by Warner prior to the
effective date of such termination, and Warner will grant GenVec an exclusive
(even as to Warner), worldwide, fully-paid, perpetual license (with the right to
sublicense) under Warner's interest in any Collaboration Technology jointly
owned by Warner and GenVec necessary or useful to make, have made, use, import,
offer for sale, and sell Collaboration Products, subject to Article 15, for
indications other than those which Warner retains rights hereunder, and products
other than Collaboration Products.
(b) Subject to Section 19.6.4(e) below, in the event of any
termination of this Agreement pursuant to Section 19.2 or 19.4, the licenses
granted in Article 5 shall terminate concurrently.
(c) In the event of any termination by Warner pursuant to
Section 19.3, the licenses granted to GenVec in Sections 2.4.2(d), 5.2 and 5.5
shall terminate concurrently.
(d) In the event of any termination of this Agreement
pursuant to Section 19.5 or in the event of any termination of this Agreement by
GenVec pursuant to Section 19.3, the licenses granted to Warner shall terminate
concurrently.
(e) If more than one Collaboration Product is being
commercially developed or exploited by Warner or its Affiliates and Sublicensees
hereunder, and GenVec terminates this Agreement pursuant to Section 19.2 due to
a breach relating only to a single Collaboration Product, or pursuant to Section
19.4 due to a particular competing product, then GenVec shall be entitled to
terminate this Agreement only with respect to the applicable Collaboration
Product.
(f) Except as expressly provided in this Section 19.6.4, in
the event of any termination of this Agreement the licenses granted pursuant to
Sections 2.4.2(d), 2.5.4(a), 4.8.3(a) and 8.2.5(a) shall remain in effect.
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(g) In the event that GenVec breaches this Agreement by
commercializing, directly or indirectly, a product within the scope of Section
15.2, then GenVec's right to use the Data Package under Section 12.4 shall
terminate only with respect to such product, on a product-by-product basis. It
is understood and agreed that nothing contained in this Section shall prevent
GenVec from continued use of the Data Package for or with respect to products
not subject to the foregoing sentence of this Section 19.6.4(g).
19.7 Survival. Sections 2.2.1, 2.3.1, 2.3.3, 2.5.4(b) and (c), 4.8.3(b)
--------
and (c), 4.8.4, 5.7 -5.9, 6.7, 7.5, 8.2.5(b) and (c), 10.3, 12.1 - 12.4, 14.1,
14.3, 14.4.3, 14.6, 15.1, 19.6 and 19.7, and Article 7 (until all royalty and
reporting obligations relating to the period prior to the date of expiration or
termination have been satisfied) and Articles 17, 18, 20 and 21 shall survive
the expiration or termination of this Agreement for any reason.
20. DISPUTE RESOLUTION
20.1 Mediation. If a dispute arises out of or relates to this Agreement,
---------
or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure.
20.2 Venue. The exclusive venue of any dispute arising out of or in
-----
connection with the performance of or any breach of this Agreement, shall be the
state courts or U.S. district court located in or for GenVec's principal place
of business, and the Parties hereby irrevocably consent to the personal
jurisdiction of such courts.
21. MISCELLANEOUS
21.1 Governing Law. This Agreement and any dispute arising from the
-------------
performance or any breach hereof shall be governed by and construed in
accordance with the laws of the State of Maryland, without reference to
conflicts of laws principles.
21.2 Waiver. No failure on the part of GenVec or Warner to exercise and
------
no delay in exercising any right under this Agreement, or provided by statute or
at law or in equity or otherwise, shall impair, prejudice or constitute a waiver
of any such right, nor shall any partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right.
21.3 Assignment. This Agreement shall not be assignable by either Party
----------
to any third Party hereto without the written consent of the other Party hereto;
except either Party may assign this Agreement, without such consent, to (i) an
Affiliate of such Party; or (ii) an entity that acquires all or substantially
all of the business or assets of such Party (or with respect to Warner, all of
Warner's pharmaceutical research and development business or assets) to which
this Agreement pertains, whether by merger, reorganization, acquisition, sale,
or otherwise. The terms and conditions of this
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Agreement shall be binding on and inure to the benefit of the permitted
successors and assigns of the Parties.
21.4 Notices. All notices, requests and other communications hereunder
-------
shall be in writing and shall be personally delivered or sent by nationally
recognized overnight express delivery service, registered or certified mail,
return receipt requested, postage prepaid, in each case to the respective
address specified below, or such other address as may be specified in writing to
the other Parties hereto:
WARNER: Warner-Lambert Company
2800 Plymouth Road
Ann Arbor, Michigan 48105
Attn: Vice President & Chairman
Parke-Davis Pharmaceutical Research
with a copy to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jersey 07950
Attn: Vice President, General Counsel
GENVEC: GenVec, Inc.
12111 Parklawn Drive
Rockville, Maryland 20852
Attn: President
with a copy to: Vice President, Corporate Development
21.5 Performance Warranty. Each Party hereby warrants and guarantees the
--------------------
performance of any and all rights and obligations of this Agreement by its
Affiliate(s) and Sublicensees.
21.6 Force Majeure. Neither Party shall be liable to the other for
-------------
failure
or delay in the performance of any of its obligations under this Agreement for
the time and to the extent such failure or delay is caused by earthquake, riot,
civil commotion, war, hostilities between nations, governmental law, order or
regulation, embargo, action by the government or any agency thereof, act of God,
storm, fire, accident, labor dispute or strike, sabotage, explosion or other
similar or different contingencies, in each case, beyond the reasonable control
of the respective Party. The Party affected by Force Majeure shall provide the
other Party with full particulars thereof as soon as it becomes aware of the
same (including its best estimate of the likely extent and duration of the
interference with its activities), and will use its best endeavors to overcome
the difficulties created thereby and to resume performance of its obligations as
soon as practicable. If the performance of any obligation under this Agreement
is delayed owing to a force majeure for any continuous period of more than six
(6) months, the Parties hereto shall consult with respect to an equitable
solution, including the possible termination of this Agreement.
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21.7 Independent Contractors. It is understood that both Parties hereto
-----------------------
are independent contractors and are engaged in the operation of their own
respective businesses, and neither Party hereto is to be considered the agent or
partner of the other Party for any purpose whatsoever. Neither Party has any
authority to enter into any contracts or assume any obligations for the other
Party or make any warranties or representations on behalf of the other Party.
GenVec acknowledges that neither it nor any of its employees are employees of
Warner or members of any of its benefit plans and that neither it nor any of its
employees are eligible to participate in any such benefit plans even if it is
later determined that its or any of its employees' status during the period of
this Agreement was that of an employee of Warner. In addition, GenVec waives
any claim that it may have under the terms of any such benefit plans or under
any law for participation in or benefits under any of Warner's benefit plans.
21.8 Advice of Counsel. GenVec and Warner have each consulted counsel of
-----------------
their choice regarding this Agreement, and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one Party or another
and will be construed accordingly.
21.9 Severability. In the event that any provisions of this Agreement are
------------
determined to be invalid or unenforceable by a court of competent jurisdiction,
the remainder of the Agreement shall remain in full force and effect without
said provision. The Parties shall in good faith negotiate a substitute clause
for any provision declared invalid or unenforceable, which shall most nearly
approximate the intent of the Parties in entering this Agreement; provided, if
the Parties are unable to agree on such a substitute clause and the deletion of
the provision held invalid or unenforceable would produce material adverse
financial consequences for one Party, such Party shall have the right to
terminate the Agreement with one hundred eighty (180) days notice.
21.10 Patent Marking. Each Party agrees to mark and have its Affiliates
--------------
and Sublicensees mark all Collaboration Products they sell or distribute
pursuant to this Agreement in accordance with the applicable statute or
regulations in the country or countries of manufacture and sale thereof.
21.11 Further Assurances. At any time or from time to time on and after
------------------
the date of this Agreement, either Party shall at the request of the other Party
(i) deliver to the requesting Party such records, data or other documents
consistent with the provisions of this Agreement, (ii) execute, and deliver or
cause to be delivered, all such consents, documents or further instruments of
assignment, transfer or license, and (iii) take or cause to be taken all such
actions, as the requesting Party may reasonably deem necessary or desirable in
order for the requesting Party to obtain the full benefits of this Agreement and
the transactions contemplated hereby.
21.12 Compliance with Laws. Each party shall furnish to the other Party
--------------------
any information requested or required by that Party during the term of this
Agreement or any extensions hereof to enable that Party to comply with the
requirements of any U.S. or foreign federal, state and/or government agency.
Each Party shall comply with all applicable U.S., foreign, state, regional and
local laws, rules and regulations relating to its activities to be performed
pursuant to this Agreement, including without limitation, the United States
Foreign Corrupt Practices Act, United States export regulations and such other
United States and foreign laws and regulations as may be applicable, and
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to obtaining all necessary approvals, consents and permits required by the
applicable agencies of the government of the United States and foreign
jurisdictions.
21.13 No Implied Licenses or Warranties. No right or license under any
---------------------------------
patent application, issued patent, know-how or other proprietary information is
granted or shall be granted by implication. All such rights or licenses are or
shall be granted only as expressly provided in the terms of this Agreement.
21.14 Entire Agreement. This Agreement together with the attached
----------------
Exhibits, and the Stock Purchase Agreement entered by the Parties of even date
herewith, constitute the entire agreement, both written or oral, with respect to
the subject matter hereof, and supersede all prior or contemporaneous
understandings or agreements, whether written or oral, between Warner and GenVec
with respect to such subject matter.
21.15 Headings. The captions to the several Sections and Articles hereof
--------
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.
21.16 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and which together shall constitute
one instrument.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed by their authorized representatives as of the Effective Date.
WARNER-LAMBERT COMPANY GENVEC, INC.
By: By:
----------------------------------- -----------------------------------
Name: Name:
--------------------------------- --------------------------------
Title: Title:
-------------------------------- -------------------------------
Exhibits:
A: Excluded Countries (1.48)
B: Co-Promotion Guidelines (9)
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EXHIBIT A
COUNTRIES EXCLUDED FROM THE TERRITORY
*
<PAGE>
EXHIBIT B
CO-PROMOTION PRINCIPLES
1. Required Sales Effort. Each Party shall supply the total promotional
---------------------
and marketing effort (including details, if determined to be an appropriate
sales activity) for each Collaboration Product being co-promoted by the Parties
in each Co-Promotion Country, as determined by a marketing committee to be
established by the Parties (the "Marketing Committee"). The Parties shall be
equally represented on the Marketing Committee. It is understood and agreed
that the sales effort required from the Parties may differ with respect to the
size of the sales force, number of details and other factors, based on the
target market for which such Party has marketing responsibilities as determined
by the Marketing Committee. The Marketing Committee will determine appropriate
written standards for measuring and accounting procedures to confirm and
document each Party's performance of its required sales effort, prior to the
commencement of the term of co-promotion for any Collaboration Product, and may
modify the required sales effort required by each Party as it deems appropriate;
provided that GenVec's percentage of the total required sales effort established
by the Marketing Committee shall * If GenVec has failed or is unable to supply
* of the required sales effort established by the Marketing Committee then
GenVec's right to co-promote the applicable Collaboration Product hereunder
shall terminate in the applicable Co-Promotion Country and such Co-Promotion
Country shall become part of the Territory. If in any year a Party's actual
sales effort falls below its assigned percentage of the total required sales
effort, unless otherwise agreed, such Party's share of profit shall be reduced
for that and all future years, to the percentage of required sales effort
actually provided by such Party in such year, subject to application of this
provision in future years if a Party fails to meet its required sales effort.
2. Marketing Plan and Budget. The co-promotion of each Collaboration
-------------------------
Product will be governed by a marketing plan and budget (the "Marketing Plan and
Budget"). The Executive Committee will be responsible for approving the
Marketing Plan and Budget developed by the Marketing Committee. The Marketing
Plan and Budget will describe fully, to the extent practicable, the proposed
plan for commercialization of the Collaboration Product in each Co-Promotion
Country, including overall marketing strategy, anticipated marketing, sales and
promotion efforts by each Party, market and sales forecasts, pricing analysis
and estimated launch date, as well as advertising and other promotional
materials to be used in the co-promotion. The Marketing Plan and Budget will be
prepared taking into consideration factors such as market conditions, regulatory
factors and competition, and the budget will include all projected co-promotion
expenses for the Collaboration Product.
3. Promotional and Advertising Materials. The Parties shall disseminate
-------------------------------------
in the Co-Promotion Countries only those promotional and advertising materials
which have been provided or approved for use by the Marketing Committee. All
such materials shall be consistent with the relevant Marketing Plan and Budget
approved by the Executive Committee and neither Party shall make any claims or
representations in respect of the Collaboration Products that have not been
approved by the Marketing Committee.
<PAGE>
4. Pricing. The Marketing Plan will include the general operating
-------
guidelines and strategies for the pricing and discounting of Collaboration
Products co-promoted in the Co-Promotion Countries.
5. Orders; Sales. All customer orders for Collaboration Products shall
-------------
be received and executed by Warner. All sales of Collaboration Products will be
billed and booked by Warner.
6. Reimbursement of Development Costs. In the event that GenVec
----------------------------------
exercises the Co-Promotion Option for a particular Collaboration Product for a
particular indication, then at the time of execution by the Parties of a co-
promotion agreement for such Collaboration Product, GenVec will reimburse Warner
for a percentage of the Development Costs with respect to the relevant
Development Candidate (and corresponding Collaboration Product) incurred from
the commencement of Phase III or Pivotal clinical trials for Regulatory Approval
in the Co-Promotion Countries until the date of such co-promotion agreement,
which percentage shall be equivalent to the percentage of total required sales
effort which GenVec is obligated to provide in the first 12 months following
commercial launch of the applicable Collaboration Product. Thereafter, GenVec
shall be obligated to pay for all future Development Costs incurred with respect
to the relevant Collaboration Product to the extent of such percentage of
initial required sales effort. In the event that GenVec is unable to pay any of
its obligations with respect to the Development Costs in cash and continue to
reasonably operate its business in a prudent manner, Warner agrees to consider
alternative forms of payment (e.g., GenVec capital stock, loans or cash
advances). In no event will Warner be required to accept any alternative form
of payment and in no event will Warner agree to accept GenVec capital stock if,
in its sole judgment, the value of such stock is likely to decrease over time.
7. Determination of Co-Promotion Payments. In those countries in which
--------------------------------------
the Parties are co-promoting a Collaboration Product, net sales of the
Collaboration Products in such Co-Promotion Countries shall be allocated first
to reimburse each Party for its co-promotion expenses relating to such
Collaboration Product and then to pay each Party its share of profit. A Party's
percentage share of profit in any year shall equal the percentage of total
required sales effort it is obligated to provide under paragraph 1. In the
event of a negative total profit in any year for a particular Collaboration
Product in a particular Co-Promotion Country, net sales shall be distributed to
the Parties to reimburse their co-promotion expenses such that the proportion of
such Party's unreimbursed co-promotion expenses to the total of all unreimbursed
co-promotion expenses is equal to such Party's percentage of total required
sales effort for a particular Collaboration Product in a particular Co-Promotion
Country. For purposes of this Agreement, the term "co-promotion expenses" shall
mean the following expenses incurred by a Party or for its account, to the
extent allocable to the preparation for the commercial launch of a Collaboration
Product in a Co-Promotion Country, or the marketing, promotion and sales of a
Collaboration Product in such Co-Promotion Country:
(i) the cost of goods as determined by applying Generally Accepted
Accounting Principles as consistently applied by Warner with respect to all of
its pharmaceutical products; and
(ii) post-Regulatory Approval medical and clinical trial costs, costs
of monitoring adverse drug reactions, costs of quality control complaints and
costs associated with maintenance of the Regulatory Approvals; and
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(iii) costs of distribution and shipping of the Collaboration Product
to distributors and customers for the Collaboration Product; and
(iv) direct costs, specifically allocable to the Collaboration
Product, incurred for the sales (including cost of sales forces, speciality
sales force, call reporting and other monitoring/tracking costs, and regional
sales management and marketing management), advertising, promotion and marketing
of the Collaboration Product through any means (including advertisements,
promotional literature, market research, symposia, exhibits and direct mail);
and
(v) costs of product liability insurance required to be purchased
by the Marketing Committee and costs associated with the defense and settlement
of product liability claims; and
(vi) costs associated with the registration of the trademark used in
connection with such Collaboration Product or any trademark infringement
litigation; and
(vii) any consideration payable to Third Parties for licenses
required for the manufacture, importing, sale, marketing or use of the
Collaboration Product in the applicable Co-Promotion Country; and
(viii) expenses associated with recalls; and
(ix) any other expenses on which the Parties may mutually agree.
Co-Promotion expenses shall *
8. Termination of Co-Promotion. Either Party shall have the right upon
---------------------------
90 days prior written notice to terminate its participation in the co-promotion
of a Collaboration Product in any Co-Promotion Country, in which case with
respect to such Collaboration Product where GenVec is the terminating Party,
such Co-Promotion Country shall be deemed to be a country in the Territory. Once
a Party terminates its participation in the co-promotion of a Collaboration
Product, it shall grant to the non-terminating Party such licenses under
Collaboration Technology and Background Technology as shall be necessary for the
non-terminating Party to commercialize such Collaboration Product in such
country the Territory. Any licenses granted to Warner shall be on the terms and
conditions set forth in the Agreement, and any licenses granted to GenVec shall
be exclusive (even as to Warner), royalty-free and fully paid, and shall include
the right to grant sublicenses.
9. Termination Upon Change of Control. In the event the Parties enter a
----------------------------------
Co-Promotion Agreement, and subsequently (i) fifty (50%) or more of GenVec's
outstanding shares of stock entitled to vote for the election of directors are
acquired by a Major Pharmaceutical Company (by purchase or merger or if control
of GenVec is otherwise acquired by a Major Pharmaceutical Company); or (ii) this
Agreement is assigned to a Major Pharmaceutical Company upon a sale of
substantially all of the assets of GenVec; then in any such case Warner may
terminate GenVec's right to co-promote Collaboration Products in the Co-
Promotion Countries pursuant to this Agreement upon written notice to GenVec
(and such Co-Promotion Countries shall no longer be deemed Co-Promotion
Countries, and shall thereafter be within the Territory) provided that such
notice is given
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within thirty (30) days after the earlier of (x) the date GenVec gives Warner
written notice of an event described in (i) or (ii) or (y) the date GenVec
enters into an agreement obligating GenVec to complete a transaction described
in (i) or (ii). "Major Pharmaceutical Company" shall be any of the top thirty-
five (35) pharmaceutical companies, ranked in order of worldwide pharmaceutical
sales, as published by Scrip in its most recent ranking prior to the date of the
10. Trademarks. The Marketing Committee shall approve all trade dress,
----------
logos, slogans, designs and copyrights used on and in connection with any
Collaboration Product in the Co-Promotion Countries. Warner and GenVec shall be
joint owners of the trade dress, logos, slogans, designs and copyrights
specifically developed for and used on and in connection with any Collaboration
Product in the Co-Promotion Countries (the "Collaboration Product Logos and
Copy"). Warner and GenVec shall each retain sole and exclusive ownership of
their own respective and independently developed and pre-existing trademarks,
names, trade dress, logos, slogans, designs and copyrights regardless of whether
such trademarks, names, trade dress, logos, slogans, designs or copyrights are
used on or in connection with any Collaboration Product.
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<PAGE>
EXHIBIT 10.6
STOCK PURCHASE AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of the 21st day of
July, 1997, by and between GENVEC, INC., a Delaware corporation, with its
principal place of business at 12111 Parklawn Drive, Rockville, Maryland 20852
(the "Company"), and WARNER-LAMBERT COMPANY, a Delaware corporation, with its
principal place of business at 201 Tabor Road, Morris Plains, New Jersey 07950
(the "Investor"), with reference to the following recitals:
WHEREAS, the Company and the Investor have entered into a Research,
Development and Collaboration Agreement, dated as of the date hereof (the
"Collaboration Agreement"), pursuant to which the Company and the Investor have
agreed to enter into a collaborative effort, as defined in the Collaboration
Agreement (the "Collaboration"), and have established a framework for their
collaboration, as described in the Collaboration Agreement; and
WHEREAS, the Investor agrees to purchase certain shares of the capital
stock of the Company on and pursuant to the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements, undertakings and
covenants set forth in this Agreement and in the Collaboration Agreement, and
for other good and valuable consideration, the receipt, sufficiency and adequacy
of which are hereby acknowledged, the parties, intending to be legally bound,
hereby agree as follows:
1. Definitions. For purposes of this Agreement the following terms shall
-----------
have the meanings ascribed to them in this Section 1 except as otherwise
expressly indicated or limited by the context in which they appear in this
Agreement. All terms defined in Section 1 or in the Preamble to this Agreement
in the singular form shall have the same meaning when used in the plural form
and vice versa.
(a) "Affiliate" shall mean a person or entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the person or entity specified.
(b) "Aggregate Purchase Price" shall mean, in each instance of a
Tranche Event (as defined below), the cash consideration as specified by the
Company in a Sale Notice (as defined below) or Amended Sale Notice (as defined
below) to be paid by the Investor for the Securities (as defined below)
specified therein; provided however, the amount of such cash consideration shall
not exceed Two Million Dollars ($2,000,000) for the Tranche Event described in
Section l(mm)(1), Three Million Dollars ($3,000,000) for the Tranche Event
described in Section l(mm)(2), Five Million Dollars ($5,000,000) for the Tranche
Event described in Section I (mm)(3), Five Million Dollars ($5,000,000) for the
Tranche Event described in Section 1(mm)(4), Five Million Dollars ($5,000,000)
for the Tranche Event described in Section 1(mm)(5), and Five Million Dollars
($5,000,000) for the Tranche Event described in Section l(mm)(6).
<PAGE>
(c) "Amended Sale Notice" shall mean the written notice given under
certain circumstances by the Company to the Investor in accordance with Section
2(b)(i)(C) of this Agreement that (i) indicates that the Investor must acquire
Securities in accordance with this Agreement and (ii) provides the information
set forth in Section 2(b)(i)(C) hereof, as appropriate.
(d) "Bylaws" shall mean the Company's Amended and Restated By-Laws as
set forth in Exhibit B hereto, as amended from time to time.
(e) "Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day when the banking institutions in Maryland
are authorized or obligated by law or proclamation to close or be closed.
(f) "CAD" shall have the meaning ascribed thereto in the Collaboration
Agreement.
(g) "CAD Milestone I" shall mean with respect to a Collaboration
Product (as defined below) for the treatment of CAD, the enrollment of the first
human patient in a clinical trial.
(h) "CAD Milestone II" shall mean with respect to a Collaboration
Product (as defined below) for the treatment of CAD the earliest of: (x) the
first completion, as determined by the Executive Committee (as defined below),
of the initial Phase I (as defined in the Collaboration Agreement) clinical
trial, (y) the treatment of all patients in a Phase I (as defined in the
Collaboration Agreement) clinical trial per the initial clinical protocol or
thirty (30) days after the administration of a Collaboration Product to three
(3) patients at a dose of ten to the ninth power (10/9/) plaque forming units
(or equivalent), or (z) the enrollment of the first patient in the initial Phase
II (as defined in the Collaboration Agreement) or Phase III (as defined in the
Collaboration Agreement) or Pivotal (as defined in the Collaboration Agreement)
clinical trial (whichever is earliest) which (i) is intended to include thirty
(30) or more patients, or (ii) is approved by the Drug Development Committee (as
defined in the Collaboration Agreement).
(i) "Charter" shall mean the Company's Restated Certificate of
Incorporation as set forth in Exhibit A hereto, as amended from time to time.
(j) "Class A Preferred Stock" shall mean the Company's Class A
Convertible Preferred Stock, par value $.01 per share.
(k) "Class B Preferred Stock" shall mean the Company's Class B
Convertible Preferred Stock, par value $.01 per share.
(l) "Class C Preferred Stock" shall mean the Company's Class C
Convertible Preferred Stock, par value $.01 per share, and the shares of Common
Stock (as defined below) that have been issued upon conversion of the Class C
Preferred Stock.
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<PAGE>
(m) "Class D Preferred Stock" shall mean the Company's Class D
Convertible Preferred Stock, par value $.01 per share.
(n) "Collaboration Product" shall have the meaning ascribed thereto in
the Collaboration Agreement.
(o) "Commission" shall mean the United States Securities and Exchange
Commission.
(p) "Common Stock" shall mean the Company's common stock, par value
$.01 per share, or any common stock issued by the Company in exchange for such
Common Stock.
(q) "Executive Committee" shall have the meaning ascribed thereto in
the Collaboration Agreement.
(r) "Fair Market Value" shall mean, if the Company has sold shares of
Common Stock in an IPO (as defined below), the average of the daily closing bid
and ask prices for a share of the Common Stock for the Trading Period (as
defined below) on the principal national securities exchange or quotation system
on which the Common Stock is listed or quoted. "Fair Market Value" shall mean,
if the closing bid and ask prices of a share of Common Stock are not so listed
or quoted or if the Company has not sold shares of Common Stock in an IPO, the
fair market value of a share of Common Stock or Preferred Stock (as defined
below), respectively, as reasonably determined by the Company's board of
directors on a date no more than fifteen (15) Business Days prior to the date
that the applicable Sale Notice or Amended Sale Notice is to be sent to the
Investor. The Company will provide to the Investor notice of the Fair Market
Value no less than ten (10) Business Days prior to the date the applicable Sale
Notice is to be sent to the Investor. If the Investor disagrees with the
board's determination of the Fair Market Value, it must provide to the Company
notice within five (5) Business Days of receiving the Company's notice of the
Fair Market Value that the Investor disagrees with the board's determination of
the Fair Market Value in which case the Fair Market Value shall be determined by
an appraiser that is selected and paid for by the Company and is reasonably
acceptable to the Investor. The Fair Market Value will then be the amount
determined by the appraiser as of the same date as of which the Company's board
of directors determined the Fair Market Value with which the Investor disagreed.
(s) "GAAP" shall mean generally accepted accounting principles in the
United States.
(t) "Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
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<PAGE>
(u) "IPO" shall mean an initial underwritten public offering of shares
of Common Stock through the registration of the shares on a registration
statement filed under the Securities Act (as defined below).
(v) "Lock-up Period" shall mean each of: (i) the period commencing on
the date of this Agreement and ending two (2) years after the Company sells
shares of Common Stock in an IPO; (ii) the period commencing ninety (90) days
prior to the anticipated date of the occurrence of any Tranche Event and ending
on the day the Investor receives the Sale Notice regarding such Tranche Event
from the Company, and (iii) with respect to Securities sold to the Investor in
connection with each Tranche Event occurring after the Company sells shares of
Common Stock in an IPO, the period commencing on the date the Investor becomes
the holder of record of the Securities purchased in connection with such Tranche
Event and ending on the latter of the lock-up period in this Section 1(v)(i) or
eighteen (18) months after the date the Investor becomes the holder of record of
such Securities determined on a Tranche Event-by-Tranche Event basis.
(w) "Manufacturing Milestone" shall mean the reproducible
demonstration, as shown by the preparation of three (3) consecutive lots of the
first Collaboration Product, of a process for the production and purification of
Bulk Product (as defined in the Collaboration Agreement) at the scale and in a
GMP facility agreed to by the Executive Committee that is usable for the conduct
of a Pivotal (as defined in the Collaboration Agreement) study of such
Collaboration Product.
(x) "Original Registration Stock" shall mean the shares of the Class A
Preferred Stock and the Class B Preferred Stock, the shares of Common Stock that
have been issued upon conversion of the Class A Preferred Stock and the Class B
Preferred Stock, and any shares of Common Stock or other securities issued in
respect of any such securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event.
(y) "Other Shares" shall mean the issued and outstanding shares of
Common Stock proposed to be included in the Piggyback Registration Statement (as
defined below) and held by holders of shares other than the Investor and holders
of any of the Original Registration Stock, the Class C Preferred Stock, and the
Warrant Shares (as defined below).
(z) "PVD" shall have the meaning ascribed thereto in the Collaboration
Agreement.
(aa) "PVD Milestone" shall mean with respect to a Collaboration
Product for the treatment of PVD, the earlier of (i) the first completion, as
determined by the Executive Committee, of the initial Phase I (as defined in the
Collaboration Agreement) clinical trial which comprises less than twelve (12)
patients, or (ii) the administration of a Collaboration Product to the first
twelve (12) patients in any clinical trial.
(bb) "Piggyback Registration Statement" shall have the meaning
ascribed thereto in Section 8(a) herein.
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<PAGE>
(cc) "Preferred Stock" shall mean shares of any of one or more series
of convertible preferred stock which the Company's board of directors shall
authorize for issuance pursuant to the terms of this Agreement and which the
Investor must purchase pursuant to this Agreement. Each share of Preferred
Stock shall have the designations, limitations and rights specified in
subsections B(l), (2)(a) and (4) of Article Ninth of the Charter. Each share of
Preferred Stock (i) shall be entitled to liquidation rights pursuant to the
provisions of B(3) of Article Ninth of the Charter except that the Liquidation
Preference (as defined in the Charter) of the Preferred Stock shall be the same
as the purchase price and (ii) shall be convertible at the option of the
Investor pursuant to the provisions of subsection B(5)(b) of Article Ninth of
the Charter into shares of the Common Stock of the Company at a rate of one
share of Common Stock for each share of Preferred Stock, subject to adjustment
pursuant to the provisions of subsection B(5)(d)(iv) and (v) of Article Ninth of
the Charter, provided, however, that such conversion shall be mandatory upon an
IPO pursuant to the provisions of subsection (B)(6) of Article Ninth of the
Charter.
(dd) "Restriction Period" shall mean the period commencing on the
date the Company sells Common Stock in an IPO and ending one year after the
Company receives notice from the Investor or otherwise becomes aware of the
occurrence of (i) all of the Tranche Events or (ii) the Tranche Event that is
the last of the Tranche Events that is reasonably likely to occur, as mutually
agreed to by the Investor and the Company.
(ee) "Sale Notice" shall mean the written notice given by the Company
to the Investor that (i) indicates that the Investor must acquire Securities in
accordance with this Agreement and (ii) provides the information set forth in
Section 2(a) or 2(b) hereof, as appropriate.
(ff) "Security" shall mean a share of Common Stock or Preferred Stock
issued by the Company to the Investor pursuant to this Agreement.
(gg) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(hh) "Selling Stockholders" shall mean the holders of shares of
Common Stock which seek to have their shares registered for sale on a
registration statement.
(ii) "Subsidiary" shall mean any corporation the majority of the
voting capital stock of which is owned directly or indirectly beneficially or of
record by the Company or the Investor, as applicable.
(jj) "Term of the Research Program" shall have the meaning ascribed
thereto in the Collaboration Agreement.
(kk) "Third Indication Milestone" shall mean the first indication
other than PVD or CAD for which a Collaboration Product achieves either (i) the
first completion, as determined by the Executive Committee, of the initial Phase
I (as defined in the Collaboration Agreement) clinical trial
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<PAGE>
which comprises less than twelve (12) patients or (ii) the administration of a
Collaboration Product to the first twelve (12) patients in any clinical trial.
(ll) "Trading Period" shall mean the twenty (20) consecutive trading
days ending one Business Day prior to the Business Day on which the Investor
must pay the Aggregate Purchase Price for the shares of Common Stock being sold.
(mm) "Tranche Event" shall mean each of the events specified below.
The occurrence of each Tranche Event, independently and without regard to
whether any one of the other Tranche Events has or has not occurred, entitles
the Company to sell Securities to the Investor for the Aggregate Purchase Price,
provided that, prior to such occurrence, Pre-Clinical Activities (as defined in
the Collaboration Agreement) or Development (as defined in the Collaboration
Agreement) with respect to all Development Candidates (as defined in the
Collaboration Agreement) (and corresponding Collaboration Products) for the
related clinical indication set forth in subparagraphs (1), (2) and (4) below
have not been terminated under the Collaboration Agreement:
(1) CAD Milestone I;
(2) CAD Milestone II;
(3) An IPO;
(4) PVD Milestone;
(5) Third Indication Milestone; and
(6) Manufacturing Milestone.
(nn) "Transfer" or "Transferred" shall mean to sell, assign, pledge,
hypothecate, encumber or in any other manner transfer or dispose of or to have
sold, assigned, pledged, hypothecated, encumbered or in any other manner
transferred or disposed of
(oo) "Transferee" shall mean a person or entity to which this
Agreement or the Securities are Transferred.
(pp) "Warrant Shares" shall mean any shares of Common Stock acquired
by Scios Inc. pursuant to the Warrant Agreement entered into by the Company with
Scios Inc. as of May 31, 1996
2. Purchase of Stock. As set forth below, the Investor agrees to
-----------------
purchase Securities issued by the Company for an aggregate amount not to exceed
Twenty-Five Million Dollars ($25,000,000) subject to the terms and conditions
contained in this Agreement. Such purchase will be made in up to six (6)
separate transactions with each such transaction occurring simultaneously with
or after the occurrence of a Tranche Event and after receipt by the Investor of
a Sale Notice for
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<PAGE>
each such purchase. The Investor agrees to purchase shares of Common Stock at
the time the Company sells shares of Common Stock in an IPO and, thereafter,
after the occurrence of each of the other Tranche Events. Prior to the sale of
shares of Common Stock in an IPO, the Investor agrees to purchase shares of
Preferred Stock after each Tranche Event. The Company's right to sell Securities
and the Investor's obligation to purchase Securities are subject to the right of
the Investor to refuse to acquire any portion of the Securities specified in the
Sale Notice, if, at the time of such acquisition, and after taking into account
the conversion into shares of Common Stock of any and all outstanding shares of
the Company's preferred stock and the shares of Preferred Stock specified in the
Sale Notice, the purchase of such portion of Securities would result in the
Investor owning twenty percent (20%) or more of the outstanding shares of Common
Stock and the shares of Common Stock into which the Company's outstanding shares
of preferred stock and the shares of Preferred Stock specified in the Sale
Notice are convertible.
(a) Purchase of Common Stock Upon an IPO. If the Company intends to
------------------------------------
sell shares of Common Stock to the Investor at the time of the sale of shares of
Common Stock in an IPO, at least thirty (30) days before the effectiveness of
the registration statement filed under the Securities Act in connection with the
IPO, the Company will provide a Sale Notice to the Investor to inform the
Investor that it must purchase shares of Common Stock in accordance with this
Agreement.
(i) The Sale Notice will advise the Investor of the Aggregate
Purchase Price and the estimated range of prices at which the shares of Common
Stock may be sold in the IPO. The Investor agrees to pay a purchase price for
each share of Common Stock equal to one-hundred twenty-five percent (125%) of
the price at which a share of Common Stock is sold to the public in the IPO. The
number of shares of Common Stock that the Investor will purchase will equal the
Aggregate Purchase Price divided by the product of 1.25 times the price at which
a share of Common Stock is sold to the public in the IPO, rounded down, if
necessary, to the next whole number of shares. The Aggregate Purchase Price
shall be reduced by the purchase price of the fractional share not issued.
(ii) The purchase and sale of the shares of Common Stock shall
take place simultaneously with the closing of the IPO or on a Business Day no
more than one full Business Day after the closing of the IPO. The Investor
shall deliver the payment for the shares of Common Stock by a wire transfer of
immediately available funds or by a certified bank check payable to the order of
the Company in the amount of the Aggregate Purchase Price. Upon receipt of such
payment by the Company, the Investor will be deemed to be the holder of record
of the shares of Common Stock and the Company will promptly execute and provide
to the Investor a certificate or certificates evidencing issuance to the
Investor of the appropriate number of fully-paid and non-assessable shares of
Common Stock purchased. The Company and the Investor shall comply with the
conditions to the sale set forth in Sections 9 and 10 hereof.
(iii) The Company agrees to advise the Investor periodically
as to the expected timing of the closing of the IPO. If shares of Common Stock
are not sold in the IPO with
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<PAGE>
respect to which the Sale Notice is given, the Company shall continue to have
the right to provide a Sale Notice and sell shares of the Common Stock pursuant
to this Section 2(a) in connection with any future IPO.
(b) Purchase of Securities Upon the Occurrence of A Tranche Event
-------------------------------------------------------------
Other than an IPO. If the Company intends to sell Securities after the
- -----------------
occurrence of a Tranche Event other than an IPO, the Company will provide a Sale
Notice to the Investor to inform the Investor that it must acquire the
Securities in accordance with this Agreement. The Sale Notice will advise the
Investor to purchase shares of either Common Stock or Preferred Stock as set
forth below.
(i) Purchase of Securities Before an IPO.
------------------------------------
(A) The Sale Notice will be sent to the Investor no more
than ninety (90) days after the Company receives notice from the Investor or
otherwise becomes aware of the occurrence of a Tranche Event that occurs before
the sale of shares of Common Stock in an IPO, or such longer period of time to
enable the Company to obtain an appraisal of the Fair Market Value of the
Preferred Stock, if required. The Sale Notice will advise the Investor of the
number of shares of Preferred Stock that the Company has determined to sell to
the Investor, the Fair Market Value of each such share of Preferred Stock, the
purchase price for each such share of Preferred Stock and the Aggregate Purchase
Price. The Investor agrees to pay a purchase price for each share of Preferred
Stock equal to one-hundred twenty-five percent (125%) of the Fair Market Value
of a share of such Preferred Stock. Within thirty (30) days of the Investor's
receipt of the Sale Notice, the Investor shall deliver the payment for such
shares of Preferred Stock by a wire transfer of immediately available funds or
by a certified bank check payable to the order of the Company in the amount of
the Aggregate Purchase Price. Upon receipt of such payment by the Company on a
Business Day, the Investor will be deemed to be the holder of record of such
shares of Preferred Stock and the Company will promptly execute and provide to
the Investor a certificate or certificates evidencing issuance to the Investor
of the appropriate number of fully-paid and non-assessable shares of such
Preferred Stock. The Company and the Investor shall comply with the conditions
to the sale set forth in Sections 9 and 10 hereof.
(B) Notwithstanding paragraph (A) of this Section 2(b)(i),
if the Company sends a Sale Notice in connection with a Tranche Event other than
an IPO after it has filed a registration statement for an IPO which is being
reviewed by the Commission, the Sale Notice shall advise the Investor that the
Investor will purchase shares of Common Stock and will specify the Aggregate
Purchase Price and the estimated range of prices at which such shares of Common
Stock may be sold in the IPO. The Investor agrees to pay a purchase price for
each share of Common Stock equal to one-hundred twenty-five percent (125%) of
the price at which a share of Common Stock is sold to the public in the IPO. The
number of shares of Common Stock that the Investor will purchase will equal the
Aggregate Purchase Price divided by the product of 1.25 times the price at which
a share of Common Stock is sold to the public in the IPO, rounded down, if
necessary, to the next whole number of shares. The Aggregate Purchase Price
shall be reduced by the purchase price of the fractional share not issued. The
purchase and sale of the shares of Common Stock shall take
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<PAGE>
place simultaneously with the closing of the IPO or on a Business Day no more
than one full Business Day after the closing of the IPO. The Investor shall
deliver the payment for the shares of Common Stock by a wire transfer of
immediately available funds or by a certified bank check payable to the order of
the Company in the amount of the Aggregate Purchase Price. Upon receipt of such
payment by the Company, the Investor will be deemed to be the holder of record
of the shares of Common Stock and the Company will promptly execute and provide
to the Investor a certificate or certificates evidencing issuance to the
Investor of the appropriate number of fully-paid and non-assessable shares of
Common Stock. The Company and the Investor shall comply with the conditions to
the sale set forth in Sections 9 and 10 hereof.
(C) If the Company has sent a Sale Notice pursuant to
paragraph (B) of this Section 2(b)(i), the Company agrees to advise the Investor
periodically as to the expected timing of the closing of the IPO. If at any time
the Company reasonably believes that shares of Common Stock will not be sold in
an IPO within the next thirty (30) days, the Company may send to the Investor an
Amended Sale Notice which will supersede the Sale Notice delivered under
2(b)(i)(B). Such Amended Sale Notice shall advise the Investor of the number of
shares of Preferred Stock that the Company has determined to sell to the
Investor, the Fair Market Value of each such share of Preferred Stock, the
purchase price for each such share of Preferred Stock and the Aggregate Purchase
Price. The Investor agrees to pay a purchase price for each share of Preferred
Stock equal to one-hundred twenty-five percent (125%) of the Fair Market Value
of a share of such Preferred Stock within thirty (30) days of the Investors
receipt of the Amended Sale Notice. The Investor shall deliver the payment for
such shares of Preferred Stock by a wire transfer of immediately available funds
or by a certified bank check payable to the order of the Company in the amount
of the Aggregate Purchase Price. Upon receipt of such payment by the Company on
a Business Day, the Investor will be deemed to be the holder of record of such
shares of Preferred Stock and the Company will promptly execute and provide to
the Investor a certificate or certificates evidencing issuance to the Investor
of the appropriate number of fully-paid and non-assessable shares of such
Preferred Stock. The Company and the Investor shall comply with the conditions
to the sale set forth in Sections 9 and 10 hereof.
(ii) Purchase of Common Stock After an IPO.
-------------------------------------
(A) The Sale Notice relating to a Tranche Event that occurs
after an IPO will be sent to the Investor no sooner than fifty (50) days and no
later than sixty (60) days after the issuance of an announcement, a press
release or other publicity regarding the occurrence of the related Tranche Event
or twenty-five (25) Business Days after the Investor has reasonably withheld
consent to the issuance of the announcement, the press release or the other
publicity regarding the occurrence of the Tranche Event. The Sale Notice will
advise the investor that it must purchase shares of Common Stock in accordance
with this Agreement, that the Fair Market Value will be determined based upon
the Trading Period beginning on the specific date that was ten (10) Business
Days prior to the date of the Sale Notice and that the Investor must pay the
Aggregate Purchase Price on the tenth (10th) Business Day after the date of the
Sale Notice. The Investor agrees to pay a purchase price for each share of
Common Stock equal to one-hundred twenty-five percent (125%) of
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<PAGE>
the Fair Market Value of a share of Common Stock. The number of shares of Common
Stock that the investor will purchase will equal the Aggregate Purchase Price
divided by the product of 1.25 times the Fair Market Value of a share of Common
Stock, rounded down, if necessary, to the next whole number of shares.
(B) On the tenth (10th) Business Day after the date of the
Sale Notice the Investor shall deliver the payment for the shares of Common
Stock by a wire transfer of immediately available funds or by a certified bank
check payable to the order of the Company in the amount of the Aggregate
Purchase Price. Upon receipt of such payment by the Company, the Investor will
be deemed to be the holder of record of the shares of Common Stock and the
Company will promptly execute and provide to the Investor a certificate or
certificates evidencing issuance to the Investor of the appropriate number of
fully-paid and non-assessable shares of Common Stock. In addition, the Company
will advise the Investor of the calculation of the Fair Market Value of each
share of Common Stock, the purchase price paid by the Investor for each such
share of Common Stock and the number of shares of Common Stock that the Investor
has purchased and will remit to the Investor the difference, if any, between the
Aggregate Purchase Price and the product of the purchase price for each share of
Common Stock purchased by the Investor under this Section 2(b)(ii)(A) multiplied
by the number of shares of Common Stock purchased by the Investor. The Company
and the Investor shall comply with the conditions to the sale set forth in
Sections 9 and 10 hereof.
(c) Nonperformance by the Investor. Any failure by the Investor to
------------------------------
acquire the Securities in compliance with the provisions of this Agreement,
including as a result of any failure of the Investor to satisfy the conditions
of Section 10 hereof, but excluding as a result of any failure of the Company to
satisfy the conditions of Section 9 hereof, may result in a termination of the
Collaboration Agreement in accordance with Section 19.2 of the Collaboration
Agreement; provided that no such termination shall occur if the Investor's
failure to pay for the Securities in accordance with the Agreement is caused by
a circumstance outside of the control of the Investor and the Investor's payment
for the Securities is delivered as soon as practicable but no later than twenty
(20) Business Days, or a period of time that is otherwise reasonably agreed to
by the parties, after delivery is required pursuant to this Section 2.
3. Authorization of Securities. At the time the Company provides the
---------------------------
Sale Notice or the Amended Sale Notice to the Investor, the Securities shall be
duly and validly authorized and reserved for issuance.
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants that, as of the date of this Agreement:
(a) Corporate Organization. The Company is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly qualified to conduct its business as a foreign corporation
in all jurisdictions where the failure to be so qualified would have an adverse
effect on the Company or its business.
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<PAGE>
(b) Corporate Authority. The Company has all necessary corporate power
-------------------
to execute, deliver and perform this Agreement subject to, in each instance, the
due authorization of the issuance of the Securities and the taking of all
required steps to effect the same.
(c) Capitalization. The Company's authorized capital stock consists
--------------
of (i) 52,005,095 shares of Common Stock, 5,672,475 of which are outstanding;
(ii) 1,334,000 shares of Class A Preferred Stock, 1,334,000 of which are
outstanding; (iii) 11,800,468 shares of Class B Preferred Stock, 11,320,314 of
which are outstanding; (iv) 21,065,000 shares of Class C Preferred Stock,
21,065,000 of which are outstanding; and (v) 2,000,000 shares of Class D
Preferred Stock, 571,429 of which are outstanding. All outstanding shares of
capital stock are validly issued and outstanding, fully-paid and non-assessable.
Except as contemplated by this Agreement and as set forth on Schedule 4(c)
hereto, there are no outstanding rights of first refusal, warrants, options,
conversion privileges, preemptive rights, or other rights or agreements to
purchase or otherwise acquire or issue any equity securities of the Company.
(d) Subsidiaries. The Company does not presently own, have any
------------
investment in, or control, directly or indirectly, any Subsidiaries,
corporations, associations or other business entities.
(e) Validity of Securities. The Securities, when issued, sold and
----------------------
delivered in accordance with the terms of this Agreement and for the Aggregate
Purchase Price specified in the applicable Sale Notice or Amended Sale Notice,
shall be duly and validly issued, fully-paid and nonassessable. If the
Securities are shares of Preferred Stock, the Common Stock issuable upon
conversion of such Preferred Stock, in accordance with the Company's Charter,
shall be, upon such issuance, duly and validly issued, fully-paid and non-
assessable.
(f) Financial Statements. The Company has made available to the
--------------------
Investor the Company's audited financial statements for its most recent fiscal
year and unaudited financial statements for its most recent interim period, in
each case, to the extent available. As of the date of this Agreement, the
financial statements provided are attached hereto as Exhibit C. The annual
---------
financial statements have been prepared in accordance with GAAP and the interim
financial statements have been prepared in a manner consistent with the annual
financial statements (subject to normal year-end audit adjustments and the
omission of footnotes required by GAAP).
(g) Agreements; Actions.
-------------------
(i) Schedule 4(g)(i) hereto sets forth a list of agreements
and proposed agreements between the Company and any of its officers, directors,
Affiliates or any Affiliate thereof
(ii) Except as set forth in Schedule 4(g)(ii) hereto, there are
no agreements,
-11-
<PAGE>
instruments or contracts to which the Company is a party or by which it is bound
which involve (A) obligations of, or payments to, the Company in excess of Two-
Hundred Fifty Thousand Dollars ($250,000), (B) the license for commercial
purposes of any patent, copyright, trade secret or other proprietary rights to
or by the Company or (C) any other material agreement.
(iii) Except as set forth in Schedule 4(g)(iii) hereto, the
Company has not (A) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(B) incurred any indebtedness for money borrowed, (C) incurred any other
liabilities individually in excess of One-Hundred Twenty-Five Thousand Dollars
($125,000) or in excess of Two-Hundred Fifty Thousand Dollars ($250,000) in the
aggregate, other than obligations or liabilities of the Company for compensation
under employment, advisor or consulting agreements, (D) made any loans or
advances to any person, other than ordinary advances for travel expenses, (E)
sold, exchanged or otherwise disposed of any of its material assets or rights or
(F) agreed to any of the foregoing.
(h) Litigation. To the Company's knowledge, there are neither any
----------
pending nor threatened suits, legal proceedings, claims or governmental
investigations against or with respect to the Company or its properties or
assets, or that question the validity of this Agreement or the right of the
Company to enter into this Agreement. There is no judgment, decree or order of
any court in effect against the Company and the Company is not in default with
respect to any order of any governmental authority to which the Company is a
party or by which it is bound.
(i) No Conflict with other Instruments; Compliance with Laws. Subject
--------------------------------------------------------
to obtaining authorization of the issuance of the Securities and subject to
Section 9 hereof, the execution, delivery and performance of this Agreement will
not result in any material violation of, be in material conflict with, or
constitute a material default under, with or without the passage of time or the
giving of notice (i) any provision of the Charter or the Bylaws; (ii) any
provision of any judgment, decree or order to which the Company is a party or by
which it is bound; (iii) any material contract, obligation or commitment to
which the Company is a party or by which it is bound; or (iv) any material
statute, rule or governmental regulation applicable to the Company. The Company
is conducting its business in compliance with all material statutes, rules and
governmental regulations applicable to the Company, and has obtained all
licenses, permits and other governmental authorizations required thereby, where
the failure to do so would have a material adverse effect on the Company or its
business.
(j) Title to Properties; Liens and Encumbrances. Except as set forth
-------------------------------------------
in the Company's financial statements or Schedule 4(j) hereto, the Company has
good and marketable title to all of its properties and assets, both real and
personal, and has good title to all of its leasehold interests, in each case
subject to no mortgage, pledge, lien, security interest, conditional sale
agreement, encumbrance or charge.
(k) Confidential and Proprietary Information. Each employee of and
----------------------------------------
consultant to the Company with access to confidential or proprietary
-12-
<PAGE>
information has executed a proprietary information agreement obligating such
employee or consultant to hold all of such information in confidence.
(l) No Defaults; Violations or Conflicts. Except as set forth in
------------------------------------
Schedule 4(l) hereto, the Company is not in violation of any term or provision
of the Charter, the Bylaws, or any term or provision of any document
representing indebtedness or any mortgage, indenture, contract, agreement or
judgment which would have a material adverse effect on the Company or its
business.
(m) Insurance. The Company has in effect insurance covering risks
---------
associated with its business in such amounts as are customary in its industry.
(n) Prior Registration Rights. Except as set forth in Schedule 4(n)
-------------------------
hereto, the Company is under no contractual obligation to register under the
Securities Act any of its presently outstanding securities or any shares of
Common Stock into which such securities are convertible.
(o) Full Disclosure. The representations and warranties of the
---------------
Company contained in this Agreement and the answers to the questions provided to
Section 5(b)(i) hereof do not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made herein, in
light of the circumstances under which they were made, not misleading.
(p) Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for any filing required by
federal or state securities laws and except, under certain circumstances, for
filings and notifications under the Hart-Scott-Rodino Improvements Act of 1976,
as amended, where applicable.
(q) Corporate Documents. The Charter and the Bylaws of the Company in
-------------------
effect as of the date of this Agreement are in the forms attached hereto as
Exhibits A and B, respectively.
5. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants that, as of the date of this Agreement:
(a) Authorization. The Investor has all corporate power to enter into
-------------
this Agreement and to carry out all of the transactions contemplated hereby,
including the purchase of Securities for an aggregate amount of Twenty-Five
Million Dollars ($25,000,000) and in up to six (6) separate transactions. The
execution, delivery and performance of this Agreement by the Investor and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action on the part of the Investor. This Agreement
constitutes a valid and binding instrument of the Investor, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
-13-
<PAGE>
(b) Securities Representations. The Investor will acquire the
--------------------------
Securities for purposes of investment for its own account and not with a view
to, or for resale in connection with, the distribution thereof, as those terms
are used in the Securities Act, and the rules and regulations promulgated
thereunder. The Investor has been advised and acknowledges that it will not be
able to dispose of the Securities, or any interest therein, without first
complying with the relevant provisions of this Agreement, the Securities Act and
any applicable state securities laws. The Investor also understands that the
provisions of Rule 144 promulgated under the Securities Act, permitting routine
sales of securities of certain issuers subject to the terms and conditions
thereof, are not currently available to it with respect to the Securities. The
Investor acknowledges that, except as set forth in this Agreement, the Company
is under no obligation to register the Securities or to take any action to
assist the Investor in complying with the terms and conditions of any exemption
that might be available under the Securities Act or any state securities laws
with respect to sales of the Securities by the Investor in the future.
(i) The Investor believes that, as of the date of this
Agreement, it has received all of the information it considers necessary or
appropriate for deciding whether to purchase the Securities. The Investor
further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Securities pursuant to this Agreement and the business, properties,
prospects and financial condition of the Company.
(ii) The Investor represents that: (A) the Investor has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of the Investor's prospective investments in the
Securities; (B) the Investor has the ability to bear the economic risk of its
prospective investments; and (C) the Investor is able, without materially
impairing its financial condition, to hold the Securities for an indefinite
period of time and to suffer complete loss on its investments.
(iii) The Investor is an "accredited investor," as that term is
defined in Rule 501 promulgated under the Securities Act.
(iv) The Investor either is (A) not an "Investment Company," as
that term is defined in the Investment Company Act or (B) excluded from the
definition of an Investment Company under Section 3(c)(1) of the Investment
Company Act.
(v) The Investor acknowledges that the representations,
agreements and acknowledgments set forth above are being given by the Investor
with the understanding that they will be relied upon by the Company and its
board of directors to claim the availability of the exemption from the
registration provisions of the Securities Act contained in Section 4(2) thereof
or Regulation D promulgated thereunder.
-14-
<PAGE>
6. Covenants of the Company. The Company hereby covenants that, so long
------------------------
as (x) the Investor owns any shares of Preferred Stock and (y) the Company has
not consummated an IPO, the Company shall furnish to the Investor the financial
statements and reports described in (a) and (b) of this section, such annual
financial statements to be prepared in accordance with GAAP and such interim
financial statements to be prepared in a manner consistent with the annual
financial statements (subject to normal year-end audit adjustments and the
omission of footnotes required by GAAP):
(a) As soon as available, and in any event within one-hundred twenty
(120) days after the end of each fiscal year of the Company, a balance sheet of
the Company as of the end of such fiscal year and related statements of
operations, stockholders' equity and cash flows for such fiscal year, all in
reasonable detail and setting forth in comparative form the figures as of the
end of and for that fiscal year, which financial statements shall have been
audited; and
(b) As soon as available, and in any event within sixty (60) days
after the end of each fiscal quarter of the Company, an unaudited balance sheet
and unaudited statements of operations and cash flows.
7. Covenants of the Investor.
-------------------------
(a) Notification of the Occurrence of a Tranche Event, The Investor
-------------------------------------------------
agrees to promptly notify the Company when it becomes aware of the occurrence of
any Tranche Event other than through the receipt of notice from the Company.
(b) Transfer of Securities.
----------------------
(i) The Investor agrees that it will not Transfer Securities
at any time during any Lock-up Period unless (A) the Investor receives the
express prior written consent of the Company, at the Company's sole discretion
and subject to appropriate Transfer restrictions, (B) the Transfer is a Transfer
to a holder of any of the Company's capital stock and the Transfer takes place
after the Investor provides the Company with prior notice of the Transfer and
before (x) the sale of shares of Common Stock in an IPO and (y) the earlier of
the end of the Term of the Research Program or the delivery by the Investor to
the Company of a notice of termination of the Term of the Research Program, (C)
the Transfer is a Transfer after the end of the Term of the Research Program and
prior to the sale of shares of Common Stock in an IPO to the Company at the
purchase price that a bona fide third party offered to pay the Investor for the
Securities or to the third party if the Company determines not to purchase the
Securities and expresses prior written consent to the Transfer of the Securities
to the third party, which consent shall not be unreasonably withheld, and the
third party agrees to restrictions of Transfer in this Section 7, in a written
agreement reasonably acceptable to the Company, or (D) the Transfer is a
Transfer to the purchaser of all of the outstanding capital stock of the
Investor or all or substantially all of the assets of the Investor, including
every right and interest such entity may have in the Collaboration Agreement, or
to a Subsidiary of the Investor and the Transferee assumes all of the Investor's
obligations, covenants and
-15-
<PAGE>
agreements under this Agreement, including the restrictions on Transfer in this
Section 7, in a written agreement reasonably acceptable to the Company. Upon
such a Transfer to a Subsidiary, the Investor agrees to repurchase the
Securities from the Subsidiary immediately prior to a cessation of the
Subsidiary's status as a Subsidiary of the Investor. If any Lock-up Period is in
effect at the time the Collaboration Agreement is terminated pursuant to its
terms, the Lock-up Period shall terminate one year after such termination.
(ii) In addition to Section 7(b)(i), until the end of the
Restriction Period, the Investor agrees that any sales of shares of Common Stock
acquired under this Agreement, or shares of Common Stock obtained upon the
conversion of Preferred Stock acquired under this Agreement, will be in an
amount that does not exceed in any ninety (90) day period the greater of' (i)
two and one-half percent (2 1/2%) of the Investor's ownership of shares of
Common Stock at the time of the sale or (ii) the average weekly reported volume
of trading in shares of Common Stock on all national securities exchanges and/or
reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding the sale except as
otherwise agreed to in writing by the Company.
(iii) The Investor agrees to hold the Securities subject to
all of the applicable provisions of the Securities Act and the Charter and the
Bylaws in effect as of the date of this Agreement.
(iv) Until the first approval of a PLA (as defined in the
Collaboration Agreement) by an Agency (as defined in the Collaboration
Agreement) of a Collaboration Product, the Investor shall give the Company
prompt written notice of any proposed Transfer of the Securities and shall not
proceed with any such proposed Transfer unless otherwise permitted under this
Agreement.
(v) The Investor agrees that certificates representing the
Securities issued to it pursuant hereto may bear the following or a similar
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
LIMITATION ON THEIR SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, ENCUMBRANCE,
TRANSFER OR OTHER DISPOSITION DESCRIBED IN THE STOCK PURCHASE AGREEMENT
DATED JULY ___, 1997. IN ADDITION, THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE.
NEITHER THE SHARES NOR ANY INTEREST OR PARTICIPATION IN THE SHARES MAY BE
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER
TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT, UNLESS, IN THE OPINION
(WHICH SHALL BE IN FORM AND
-16-
<PAGE>
SUBSTANCE SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
(c) Confidential Information. The Investor's obligations with respect
------------------------
to disclosure of certain information are set forth in Article 17 of the
Collaboration Agreement.
(d) Agreements with Underwriters. In connection with any public
----------------------------
offering of shares of Common Stock, the Investor agrees to enter into a written
agreement with the underwriter(s) if the managing underwriter(s) demands or
requests such an agreement from the Investor and in such form and containing
such provisions as are required by the managing underwriter(s) (except that such
provisions will not be less favorable to the Investor than the provisions of any
agreements entered into by the managing underwriter(s) with other holders of
securities issued by the Company) to preclude the Investor from directly or
indirectly offering to sell, contracting
-17-
<PAGE>
to sell or otherwise disposing of any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock for a specified
period of time after completion of the public offering.
(e) Acquisitions of Securities of the Company. The Investor agrees
-----------------------------------------
that from the date hereof until the expiration of the Collaboration Agreement
(or, if the Collaboration Agreement is terminated earlier pursuant to its terms,
one year after such termination), it will not, directly or indirectly, acquire,
offer to acquire, agree to acquire, become the beneficial owner of or obtain any
rights in respect of any capital stock of the Company, by purchase or otherwise,
except as contemplated by this Agreement or as otherwise agreed to in writing by
the Company, and except through the acquisition for business purposes unrelated
to the Company of all of the outstanding capital stock or all or substantially
all of the assets of a holder of any of the Company's capital stock.
8. Registration Rights.
-------------------
(a) Piggyback Registration Rights. Subject to Section 7(b)(i) and
-----------------------------
Section 7(b)(ii) hereof, if the Company plans to file a registration statement
under the Securities Act on a Form S-3 to register any shares of Common Stock
for sale by it in an underwritten public offering during the Restriction Period
or for sale by it (except in connection with any dividend reinvestment plan,
stock option plan stock purchase plan, savings or similar plan) or any of its
stockholders at any time after the end of the Restriction Period other than on a
shelf registration statement (the "Piggyback Registration Statement"), the
Company shall provide to the Investor and any Transferee under Section
7(b)(i)(D) (referred to jointly in this Section 8 as the "Investor") hereof the
right to include the shares of Common Stock acquired under this Agreement on the
Piggyback Registration Statement, if the Investor is the stockholder of record
of the shares of Common Stock at such time and is unable to sell any shares of
Common Stock acquired under this Agreement pursuant to Rule 144(k) (or any
successor rule) under the Securities Act by providing the Investor with at least
twenty (20) days notice prior to the effectiveness of such registration
statement. At the written request of the Investor, given within ten (10) days
after receipt of such notice, the Company will use reasonable efforts to cause
all of the shares of Common Stock for which registration shall have been
requested to be included in the Piggyback Registration Statement.
(b) Demand Registration. If the Investor is unable to sell shares of
-------------------
Common Stork within eighteen (18) months after the end of the Restriction Period
pursuant to Rule 144(k) (or a successor rule) under the Securities Act or on a
Piggyback Registration Statement, the Investor shall have the right to require
the Company to file one registration statement under the Securities Act on a
Form S-3, provided such registration form is available to the Company, to
register shares of Common Stock acquired under this Agreement for sale in a
public offering that is not to be made on a continuous or delayed basis pursuant
to Rule 415 (or a successor rule) under the Securities Act and that is expected
to yield net proceeds to the Investor of at least Five Million Dollars
($5,000,000), as specified in a written notice from the Investor to the Company.
-18-
<PAGE>
(i) Following the Company's receipt of any notice under this
Section 8(b), the Company shall use its best efforts to register under the
Securities Act, as soon as reasonably practicable, the number of shares of
Common Stock specified by the Investor in such notice (or such lesser number as
the managing underwriter(s) in such offering believes will not unduly jeopardize
the success of the offering); provided, however, that the Company may delay the
filing of the registration statement for as long as
(A) the request for registration pursuant to this Section
8(b) would require the Company to include in the registration statement on the
filing date or on the expected effective date audited financial statements which
are not yet required to be filed with the Commission under the Exchange Act; or
(B) the Company's board of directors reasonably
determines that the disclosure required in the registration statement or the
pricing of the offering would adversely affect the Company or its ability to
engage in a planned registered public offering or in any other planned activity.
(ii) In the event that the Investor makes a demand for
registration as described in this Section 8(b), the Company shall have the right
to register other shares of Common Stock in the registration statement;
provided, however, that such shares shall not be included to the extent provided
- -------- -------
in Section 8(f) below, if applicable, and in all other situations, such shares
(other than the Original Registration Stock) shall not be included to the extent
that the Investor determines in good faith that the inclusion of such shares
will interfere with the successful marketing of the Investor's shares to be
included therein; provided, further, that, if the number of shares to be so
-------- -------
included exceeds the number of the Investor's shares included therein, such
registration shall be deemed to be a registration pursuant to Section 8(a)
hereof.
(iii) The managing underwriter(s) for any underwritten public
offering pursuant to this Section 8(b), shall be mutually acceptable to the
Company and the Investor.
(c) In connection with any registration statement prepared pursuant to
this Section 8:
(i) the Company shall:
(A) use its best efforts to prepare and file with the
Commission the registration statement and use its best efforts to cause such
registration statement to become effective as soon as practicable, provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
Investor, which shall be reasonably acceptable to the Company, and the counsel
selected by any managing underwriter(s) copies of all such documents proposed to
be filed, which documents will be subject to the review of such counsel;
-19-
<PAGE>
(B) use its best efforts to prepare and file with the
Commission such amendments and supplements to such registration statement as may
be necessary to comply with the provisions of the Securities Act;
(C) furnish, or instruct the printer to furnish, to the
Investor such number of copies of the registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as the Investor
may reasonably request in order to facilitate the disposition of the registered
shares of Common Stock;
(D) use its best efforts to register or qualify the
registered shares of Common Stock under such other securities or blue sky laws
of such jurisdictions as the Investor or the managing underwriter(s) in the
offering reasonably deems appropriate, provided that the Company will not be
required to subject itself to taxation in any such jurisdiction, qualify itself
to do business as a foreign corporation in any such jurisdiction, or consent to
general service of process in any such jurisdiction, where it would not
otherwise be so subject, need to be so qualified or need to so consent but for
this requirement;
(E) use its best efforts to cause all of such registered
shares of Common Stock to be listed on each securities exchange on which
securities of the same class as the registered shares of Common Stock are then
listed;
(F) take all actions Customary for such offerings as the
Investor or any managing underwriter(s) reasonably request in order to expedite
or facilitate the disposition of the registered shares of Common Stock being
sold; and
(G) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any security included in such registration statement for sale
in any jurisdiction, use its best efforts promptly to obtain the withdrawal of
such order, and
(ii) the Investor shall be required to furnish the Company with
all relevant information concerning the proposed method of sale of the shares of
Common Stock, and such other information as may be reasonably required by the
Company properly to prepare and file such registration statement in accordance
with applicable provisions of the Securities Act and the rules and regulations
thereunder. Upon request of the Company, such information shall be furnished by
the Investor in writing.
(d) The Investor shall bear all of its expenses in connection with any
registration statement under this Section 8, including the fees and expenses of
its counsel. The Investor shall also bear its pro rata share of all of the
other expenses in connection with the preparation and filing of any registration
statement under this Section 8, any registration or qualification under the
securities laws of states in which the offering will be made under such
registration statement, any
-20-
<PAGE>
filing fee of the National Association of Securities Dealers, Inc. relating to
such offering and any underwriters' or brokers' commission, provided, however,
that the Company shall pay half of the Investor's pro rata share of such other
expenses, except for any brokers' commissions, in an offering that is not
underwritten.
(e) In connection with any public underwritten offering in which the
Investor's shares are registered, the Company and the Investor shall enter into
a written agreement with the managing underwriter(s) in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such managing underwriter(s) and companies of the Company's
size and investment stature, including indemnification.
(f) In the event that the proposed offering under this Section 8 is an
offering by the Company that is, in whole or in part, an underwritten public
offering of shares of Common Stock, and the managing underwriter(s) determines
and advises in writing that the inclusion in the underwritten public offering of
all of the shares of Common Stock owned by the Selling Stockholders would
interfere with the successful marketing (including pricing) of the shares, the
number of the Selling Stockholders' shares to be included in such underwritten
public offering shall be reduced, based upon the number of shares requested by
the Selling Stockholders to be registered in such underwritten public offering
first, pro rata among the holders of Other Shares; second, if necessary, by the
Investor's shares of Common Stock; third, if necessary, pro rata, among the
holders of the Class C Preferred Stock and the Warrant Shares; fourth, if
necessary, pro rata among the holders of the Original Registration Stock; and
lastly, if necessary, among the Company's shares requested by the Company to be
registered.
9. Conditions of the Investor's Obligations to Acquire the Securities.
------------------------------------------------------------------
The obligations of the Investor to acquire the Securities in connection with
each Tranche Event are subject to the following, any of which the Investor may
waive in its discretion:
(a) Opinion of` Counsel. The Company shall provide to the Investor
-------------------
with the Sale Notice or the Amended Sale Notice, as applicable, an opinion of
the Company's counsel, in form and substance reasonably acceptable to the
Investor, that the Securities, when sold and delivered in accordance with this
Agreement, will be duly authorized, validly issued, fully-paid and non-
assessable and, if the Securities are shares of Preferred Stock, the Common
Stock issuable upon conversion of the Preferred Stock, when issued and delivered
upon such conversion in accordance with the Charter, as amended, will be duly
authorized, validly issued, fully-paid and non-assessable.
(b) Representations and Warranties. The Company shall update the
------------------------------
representations and warranties in Section 4 hereof as of the date of the Sale
Notice or the Amended Sale Notice, as applicable.
(c) Securities Laws. The Company shall have complied with the federal
---------------
and state securities laws applicable to the offer and sale of the Securities to
the Investor.
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<PAGE>
(d) Compliance Certificate. The Company shall have delivered to the
----------------------
Investor a certificate, dated as of the date of the Sale Notice or the Amended
Sale Notice, as applicable, signed by the Company's President, certifying that
the conditions to be performed by the Company set forth in this Section 9 have
been satisfied.
(e) Certified Documents. There shall have been delivered to the
-------------------
Investor copies of the Charter and the Bylaws (in each case, as amended or
restated through the date of the Sale Notice), certified by the Secretary of the
Company as complete and correct copies thereof as of the date of the Sale Notice
or the Amended Sale Notice, as applicable.
(f) Court Orders. There shall not be in effect any injunction or
------------
restraining order issued by any court of competent jurisdiction in any action or
proceeding against the consummation of the sale and purchase of the Securities
under this Agreement.
(g) Third Party and Governmental Consents and Approvals. The Company
---------------------------------------------------
shall have obtained any third party and governmental consents and approvals
necessary for the consummation of the transactions contemplated hereby.
10. Conditions of the Company's Issuance of Securities upon Receipt of
------------------------------------------------------------------
Investor's Payment Therefor. The obligations of the Company to issue
- ---------------------------
certificates for the Securities upon receipt of the Aggregate Purchase Price in
connection with each Tranche Event are subject to the following, any of which
the Company may waive in its discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 5 shall be true on and as of the
date that payment for the Securities is given to the Company.
(b) Covenants of the Investor. The Investor shall be in compliance
-------------------------
with its covenants in Section 7 hereof.
(c) Third Party and Governmental Consents and Approvals. The Investor
---------------------------------------------------
shall have obtained any third party and governmental consents and approvals
necessary for the consummation of the transactions contemplated hereby.
(d) Compliance Certificates. The Investor shall have delivered to the
-----------------------
Company dated as of the date of the payment of the Aggregate Purchase Price,
signed by an authorized representative of the Investor, certifying that the
conditions set forth in this Section 10 have been satisfied.
11. Post-Sale Covenants of the Company.
----------------------------------
(a) Securities Laws Compliance. The Company shall make any filings
--------------------------
required by the securities laws of any applicable jurisdiction within the
required time period.
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<PAGE>
(b) Confidential and Proprietary Information. Unless otherwise
----------------------------------------
determined by the board of directors, the Company shall require all future
officers, directors and employees of the Company and its Subsidiaries to execute
the Company's standard form of proprietary information agreement.
12. Termination and Survival.
------------------------
This Agreement shall terminate upon a termination of the Collaboration
Agreement. Sections 7, 12 and 13(f) of this Agreement shall survive any
termination of this Agreement which results from a termination of the
Collaboration Agreement by the Company for cause pursuant to Section 19.2 of the
Collaboration Agreement as a result of actions taken by the Investor. If the
Collaboration Agreement shall be terminated for any other reason, Sections
7(b)(iii), 7(b)(iv), 7(b)(v), 7(c), 7(d), 8(a), 8(c), 8(d), 8(e), 9(c), 11(a),
12 and 13(f) of this Agreement shall survive such termination.
13. Miscellaneous.
-------------
(a) Existing Ownership of Common Stock and Class B Preferred Stock.
--------------------------------------------------------------
The parties acknowledge and agree that the shares of Common Stock and Class B
Preferred Stock, and the right to acquire shares of Common Stock upon the
conversion of such Class B Preferred Stock, owned by the Investor as of the date
of this Agreement, and any other rights arising as a result of such ownership of
shares of Common Stock or Class B Preferred Stock, are not subject to this
Agreement.
(b) Amendments and Waivers. Except as otherwise provided in this
----------------------
Agreement, any provision hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the Company and the Investor. Any
change, waiver, discharge or termination effected in accordance with this
subsection shall be binding upon the Company and the Investor and upon any
Transferee to which this Agreement or the Securities are Transferred pursuant to
Section 13(d) hereof or Section 7(b) of this Agreement, respectively.
(c) Necessary Action to Effect the Agreement. The parties agree to
----------------------------------------
take all necessary action to effect the transactions contemplated by this
Agreement including making all of the required filings and notifications under
the Hart-Scott-Rodino Improvements Act of 1976, as amended, if applicable, and
any other required filings or notices with other governmental agencies Each
party will bear its own expenses associated with any such filings and
notifications.
(d) Transferability. Neither the Investor nor the Company may
---------------
Transfer this Agreement, or any of the rights or obligations hereunder, unless
it is Transferred to the purchaser of all of the outstanding capital stock of
the entity or all or substantially all of the assets of the entity, including
every right and interest such entity may have in the Collaboration Agreement.
The Investor and the Company further agree that, prior to any Transfer of this
Agreement in accordance
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<PAGE>
with this Section 13(d), the Investor or the Company, as applicable, will give
written notice to the other party. This Agreement will be binding upon any
Transferees to which this Agreement is Transferred.
(e) Publicity. The parties agree to cooperate with respect to the
---------
issuance of any publicity about the occurrence of a Tranche Event. Within five
(5) Business Days after the Company receives notice from the Investor or
otherwise becomes aware of the occurrence of a Tranche Event, the Company shall
give notice to the Investor of a request for the consent of the Investor to an
announcement, press release or other publicity about the occurrence of a Tranche
Event. The Investor shall advise the Investor whether it consents to the
requested disclosure, which consent may not be unreasonably withheld, within
five (5) Business Days after its receipt of the notice. Notwithstanding the
Investors' failure to consent, the Company shall have the right to announce,
issue a press release or otherwise publicize the occurrence of a Tranche Event
to the extent necessary to comply with securities laws or listing or similar
requirements. Once the Investor has consented to an announcement, press release
or other publicity of the occurrence of a Tranche Event, the announcement, press
release or other publicity must be issued within ten (10) Business Days of such
consent unless otherwise agreed to by the parties and either party may make
disclosures which do not differ materially from the agreed upon disclosure.
(f) Law Governing. This Agreement will be governed by, and construed
-------------
and enforced in accordance with, the internal laws of the State of Delaware.
(g) Notices. Unless otherwise provided, all notices, requests,
-------
demands and other communications required or permitted under this Agreement will
be in writing and will be deemed to have been duly made and received: (i) upon
personal delivery or confirmed facsimile to the party to be notified; (ii) three
(3) Business Days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, addressed as set forth below; or
(iii) one (1) Business Day after deposit for overnight delivery with Federal
Express or another reputable overnight courier, shipping prepaid, addressed as
set forth below:
(i) If to the Company, then to:
GenVec, Inc.
12111 Parklawn Drive
Rockville, MD 20852
Attn: President
With a copy to:
Attn: Chief Financial Officer
(ii) If to the Investor, then to:
Warner-Lambert Company
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<PAGE>
2800 Plymouth Road
Ann Arbor, Michigan 48105
Attn: Vice President and Chairman
Park-Davis Research Division
With a copy to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
Attn: Vice President and General Counsel
Either party may change the address to which communications are to be sent by
giving five (5) Business Days' advance notice of such change of address to the
other party in conformity with the provisions of this Section 13(g).
(h) Headings. The headings in this Agreement are for purposes of
--------
reference only and will not affect the meaning or construction of any of the
provisions hereof
(i) Execution; Counterparts. This Agreement may be executed in any
-----------------------
number of counterparts, each of which will be deemed to be an original as
against any party whose signature appears on such counterpart, and all of which
will together constitute one and the same instrument. This Agreement will become
binding when one or more counterparts of this Agreement, individually or taken
together, bear the signatures of all of the parties to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase Agreement as
of the date first above written.
WARNER-LAMBERT COMPANY
By:
-------------------------------------
Name: Anthony Wild, Ph.D.
Title: President
Worldwide Pharma Sector
GENVEC
By:
-------------------------------------
Paul H. Fischer, Ph.D..
President and Chief Executive Officer
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<PAGE>
Exhibit A
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"GENVEC, INC.", FILED IN THIS OFFICE ON THE TWENTY-SIXTH DAY OF JUNE, A.D. 1996,
AT 9:05 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
GENVEC, INC.
The undersigned, Thomas W. D'Alonzo, President of Genvec, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The present name of the Corporation is GenVec, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of the State of Delaware on
December 7, 1992.
3. This Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of Section 245 of the Delaware General
Corporation Law, the Board of Directors having duly adopted resolutions
declaring advisable this Restated Certificate of Incorporation.
4. This Restated Certificate of Incorporation is being filed pursuant to
Section 245 of the Delaware General Corporation Law in order to restate and
integrate the Certificate of Incorporation of the Corporation. This Restated
Certificate of Incorporation does not further amend the provisions of the
Certificate of Incorporation of the Corporation as amended previously, and there
is no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation.
5. The Certificate of Incorporation of the Corporation is hereby restated
in its entirety as follows:
-2-
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF GENVEC, INC.
FIRST: The name of the Corporation is:
GENVEC, INC.
SECOND: The address of its registered office in the State of Delaware is:
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The name of its registered agent at such address is: THE
CORPORATION TRUST COMPANY.
THIRD: The nature of the business or purposes to be conducted or
promoted is:
To have unlimited power to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The name and mailing address of the incorporator is as follows:
Name Address
---- -------
Raymond O. Agran 12th Floor Packard Building
15th and Chestnut Streets
Philadelphia, PA 19102
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
SIXTH: Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SEVENTH:
A. Elimination of Certain Liabilities of Directors. A director of
-----------------------------------------------
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that this shall not exempt a director from liability (i) for
- -----------------
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which a director derived an improper personal benefit. If the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal
-3-
<PAGE>
liability provided herein, shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal of modification.
B. Indemnification and Insurance.
-----------------------------
(1) Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "Proceeding"), by reason of the fact that he or she, or a person
for whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, the rights of
indemnification provided hereby shall continue as theretofore notwithstanding
such amendment unless such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors, administrators and personal
representatives; provided, however, that, except as provided in Section (B)(2)
-----------------
of this Article, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) authorized by
the board of directors of the Corporation.
The right to indemnification conferred in this section shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
-----------------
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall he made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this section or
otherwise. The Corporation may, by action of its board of directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
-4-
<PAGE>
(2) Right of Claimant to Bring Suit. A claimant may bring suit
-------------------------------
against the Corporation under Section (B)(1) of this Article only if the
Corporation fails to pay in full within thirty days of its receipt of a written
claim for payment hereunder. If successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim
(including, but not limited to, attorneys' fees). It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of providing such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification
--------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this section shall not be exclusive of any other
right that any person may have or hereafter acquire under any statute, provision
of the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
C. Amendment. Notwithstanding the provisions of this Certificate of
---------
Incorporation and any provisions of the by-laws of the Corporation, no amendment
to this Certificate of Incorporation shall amend, modify or repeal any or all of
this Article SEVENTH unless adopted by the affirmative vote of the consent of
holders of not less than three-fourths of the outstanding shares of stock of the
Corporation entitled to vote in elections of directors, considered for purposes
of this Article as a class.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of
-5-
<PAGE>
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
NINTH: The aggregate number of shares which the Corporation shall have
authority to issue is 88,204,563 of which 52,005,095 shall be designated as
Common Stock, par value $0.01 per share ("Common Stock"), 1,334,000 shall be
designated as Class A Convertible Preferred Stock, par value $.01 per share
("Class A Preferred Stock"), 11,800,468 shall be designated as Class B
Convertible Preferred Stock, par value $0.01 per share, ("Class B Preferred
Stock"), 21,065,000 shall be designated as Class C Convertible Preferred Stock,
par value $.01 per share ("Class C Preferred Stock"), and 2,000,000 shall be
designated as Class D Convertible Preferred Stock, par value $.01 per share
("Class D Preferred Stock") (the Class A Preferred Stock, Class B Preferred
Stock, Class C Preferred Stock and Class D Preferred Stock, unless otherwise
indicated, are hereinafter referred to collectively as the "Preferred Stock") .
The following is a statement of the designations, preferences,
limitations and relative rights in respect of the shares of each class of stock
of the Corporation:
A. Common Stock.
------------
(1) Voting Rights. Each holder of record of Common Stock shall
-------------
have the right to one vote for each share of Common Stock standing in the name
of such holder on the books of the Corporation.
(2) Dividends. Subject to the rights of the holders of the
---------
Preferred Stock, each holder of record of Common Stock will be entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors.
B. Preferred Stock. Except as provided in Section B(5)(d)(i) of
---------------
this Article, each share of Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock and Class D Preferred Stock is identical in all respects
and possesses the same designations, limitations and rights as each other share
of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and
Class D Preferred Stock, as the case may be. Except as provided in Sections
B(2)(b), B(3)(a), B(5)(a) and B(5)(d) of this Article, the Class A Preferred
Stock, Class B Preferred Stock, Class C
-6-
<PAGE>
Preferred Stock and Class D Preferred Stock are identical in all respects and
possess the same designations, limitations and rights.
(1) Dividends. In the event that the Corporation declares or
---------
pays any dividend on the Common Stock or makes, directly or indirectly, any
other distribution in respect to the Common Stock, the holders of Preferred
Stock shall be entitled to participate with the holders of Common Stock in any
such dividends paid or set aside for payment, such that the holders of Preferred
Stock shall receive, with respect to each share of Preferred Stock, an amount
equal to (a) the dividend payable with respect to each share of Common Stock
multiplied by (b) the number of shares (and fraction of a share, if any) of
Common Stock into which such share of Preferred Stock is convertible as of the
record date for such dividend.
(2) Voting Rights.
-------------
(a) Except as otherwise provided herein or by law, the holders of
Preferred Stock shall have full voting rights and powers, they shall be entitled
to vote on all matters as to which holders of the Common Stock shall be entitled
to vote, they shall vote together with the holders of the Common Stock as a
single class, and they shall be entitled to one vote for each share of Common
Stock which would be held by them if all of their shares of Preferred Stock
would be converted into shares of Common Stock under Section B(5) of this
Article.
(b) Except as otherwise provided herein or by law, the vote or consent
of at least two-thirds of the outstanding shares of the Class C Preferred Stock
voting as a separate class shall be required for the following actions:
(i) any change in the rights, preferences, or privileges of
the Class C Preferred Stock;
(ii) any amendment, repeal or addition of any provision
of or to the By-Laws, if such action would adversely affect the
preferences, rights, privileges or powers of, or restrictions provided for
the benefit of, the Class C Preferred Stock;
(iii) the authorization of any class of equity securities
ranking prior to or having preference over the Class C Preferred
Stock with respect to dividends, redemption or assets of the Corporation;
(iv) the reclassification of any shares of Common Stock
into shares of any class of equity securities ranking prior to or having
preference over the Class C Preferred Stock with respect to dividends,
redemption or assets of the Corporation;
-7-
<PAGE>
(v) the merger or consolidation of the Corporation into or
with any other corporation, the sale of all or substantially all of the
Corporation's assets, or the liquidation of the assets of the Corporation,
provided, however, that no such vote or consent under this Section B(2) (b)
-------- -------
(v) shall be required if the aggregate price to be paid to the
Corporation's stockholders in the merger, consolidation, sale or
liquidation is equal to or greater than an amount determined by multiplying
(X) $1.50 per share, as adjusted to reflect any change in the number of
shares of the Corporation's Common Stock as a result of a stock split,
stock dividend, distribution payable in shares of the Corporation's Common
Stock or other reclassification after September 19, 1995, by (y) the number
of outstanding shares of the Corporation's Common Stock (for purposes of
this determination only, a securityholder holding capital stock of the
Corporation convertible into the Corporation's Common Stock shall be
treated as having converted all such convertible stock into the
Corporation's Common Stock at the applicable conversion rate, pursuant to
Section B(5) of this Article, in effect at the time of this determination);
and
(vi) the acquisition by the Corporation of any corporation or
other business entity if such a transaction involves (A) the issuance of
equity securities of the Corporation resulting in the new securityholders
having more than 25 percent of the voting power pursuant to Sections A(1)
and B(2) (a) of this Article or (B) the payment of cash consideration
equivalent to 25% of the product of (x) the sum of the number of shares of
Common Stock and Preferred Stock then outstanding and the number of such
shares underlying options and other rights to acquire such shares
(irrespective of whether such shares, options or other rights are
conditional or unvested) times (y) the then most recent price per share at
which the Corporation sold any shares of Preferred Stock in an offering
that yielded gross proceeds of not less than $5,000,000 to the Corporation.
(c) Whenever holders of the Preferred Stock or Common Stock,
separately or as a single class, are required or permitted to take any action,
such action may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
(3) Rights of Liquidation.
---------------------
-8-
<PAGE>
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a "Liquidation"), before any distribution of assets of the
Corporation shall be made to or set apart for the holders of the Common Stock,
the holders of the Preferred Stock shall be entitled to receive payment out of
such assets of the Corporation in an amount per share equal to $0.50 per share
for each share of Class A Preferred Stock held by such holder, $1.00 per share
for each share of Class B Preferred Stock or Class C Preferred Stock held by
such holder and $1.75 per share for each share of Class D Preferred Stock held
by such holder (such amounts being referred to herein as "Liquidation
Preference") plus any declared but unpaid dividends on such shares of Preferred
Stock. If the assets of the Corporation available for distribution to the
holders of the Preferred Stock shall not be sufficient to make in full the
payments required by this Section B(3)(a), such assets shall be distributed
ratably among the holders of the Preferred Stock based upon the aggregate
Liquidation Preferences of the shares of Preferred Stock held by each such
holder.
(b) If the assets of the Corporation available for
distribution to stockholders exceed the aggregate amounts payable pursuant to
Section B(3)(a) of this Article above, the remainder of such assets shall be
distributed to the holders of Preferred Stock and Common Stock on a pro rata
basis, with the amount distributable to the holders of Preferred Stock to be
computed on the basis of the number of shares of Common Stock which would be
held by them if immediately prior to the Liquidation all of the outstanding
shares of such Preferred Stock had been converted into shares of Common Stock
under Section of this Article.
(c) A merger or consolidation involving the Corporation in
which the Corporation is not the surviving entity and a sale, lease or transfer
of all or substantially all of the assets of the Corporation shall, at the
option of holders representing a majority of the Preferred Stock voting as a
single class, be deemed a Liquidation, unless in connection with such
transaction, each holder of Preferred Stock receives a preferred stock having
terms and conditions which are no less favorable than the terms and conditions
of the Preferred Stock held by such holder prior to the transaction.
(d) Notwithstanding the provisions contained in Section
B(3)(c) of this Article above, in the event of a merger or consolidation
involving the Corporation in which the Corporation is not the surviving entity,
or a sale, lease or transfer of all or substantially all of the assets of the
Corporation, in which a holder of Preferred Stock would receive cash and/or
marketable securities (i.e., securities registered under the Securities Act of
----
1933, as amended, at the time of delivery, or securities committed to be so
registered within 60 days after delivery) in an amount less than the aggregate
Liquidation Preference of the shares of Preferred Stock held by such holder,
then holders of a majority of the Preferred Stock then outstanding, voting as a
single class, may elect, in lieu of all other rights under the terms of the
transaction or this Article, to receive an amount equal to their aggregate
Liquidation Preference for such shares of Preferred Stock. If the holders make
such an election, each such holder shall have a priority on such holder's pro
rata portion of all cash and marketable securities received in such transaction
to the extent of the aggregate Liquidation Preference for such holder's shares
of Preferred Stock. Such election shall be made by the holders by
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<PAGE>
written notice to the Corporation within 30 days after the date of stockholder
approval of the transaction (or within 30 days after receiving notice of such
transaction from the Corporation if the transaction is not submitted for
stockholder approval).
(e) In the event that the Corporation shall, at any time,
issue any shares of Preferred Stock (i) by stock dividend or any other
distribution upon any stock of the Corporation payable in shares of Preferred
Stock, or (ii) by a subdivision of its shares of outstanding Preferred Stock, by
reclassification or otherwise, the Liquidation Preference then in effect shall
be reduced proportionately, and, in like manner, in the event of any combination
of shares of Preferred Stock, by reclassification or otherwise, the Liquidation
Preference then in effect shall be proportionately increased.
(4) Actions Requiring the Consent of the Holders of the Preferred
-------------------------------------------------------------
Stock. As long as any shares of Preferred Stock remain outstanding, the consent
- -----
of the holders of at least a majority of the votes which holders of Preferred
Stock are entitled to cast, given in person or by proxy, either in writing
without a meeting or by vote at a meeting called for such purpose, shall be
necessary for effecting or validating any amendment, alteration or repeal of any
of the provisions of the Certificate of Incorporation or the By-Laws of the
Corporation which (a) increases the number of authorized shares of any class of
capital stock, (b) adversely affects the rights, preferences or powers of any
class of Preferred Stock or of the holders thereof or (c) decreases the required
time for the giving of any notice to which the holders of Preferred Stock may be
entitled.
(5) Conversion.
----------
(a) Right To Convert. A holder of record of any share or
----------------
shares of Class A Preferred Stock shall have the right at any time, at such
holder's option, to convert, without the payment of any additional
consideration, each share of Class A Preferred Stock held by such holder into
that number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (i) .50 by (ii) the Conversion Factor (as defined in
Section B(5)(d) of this Article below) then in effect for the Class A Preferred
Stock. A holder of record of any share or shares of Class B Preferred Stock,
Class C Preferred Stock or Class D Preferred Stock shall have the right at any
time, at such holder's option, to convert, without the payment of any additional
consideration, each share of Class B Preferred Stock, Class C Preferred Stock or
Class D Preferred Stock held by such holder into that number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (X) 1 by (Y)
the Conversion Factor (as defined in Section B(5)(d) of this Article below) then
in effect for the Class B Preferred Stock, Class C Preferred Stock or Class D
Preferred Stock, as applicable; provided, however, that the provisions of
-----------------
B(5)(d)(i) shall not apply to the Conversion Factor for Class D Preferred Stock.
No fractional shares or scrip representing fractional shares shall be issued
upon the conversion of any Preferred Stock. With respect to any fraction of a
share of Common Stock called for upon any conversion after completion of the
calculation of the aggregate number of shares of Common Stock to be issued to
such holder, the Corporation shall pay to such holder an amount in cash equal to
any fractional share to which such holder would be entitled,
-10-
<PAGE>
multiplied by the current market value of a
share, as determined in good faith by the Board of Directors of the Corporation.
(b) Mechanics of Conversion. If the holder of shares of
-----------------------
Preferred Stock desires to exercise such right of conversion, such holder must
give written notice to the Corporation (the "Conversion Notice") of the election
by such holder to convert a stated number of shares of Preferred Stock (the
"Conversion Shares") into shares of Common Stock on the date specified in the
Conversion Notice (which date shall not be earlier than the date on which the
Corporation receives the Conversion Notice (the "Conversion Date)), and by
surrender of the certificate or certificates representing such Conversion
Shares. The Conversion Notice shall also contain a statement of the name or
names (with addresses) in which the certificate or certificates for Common Stock
shall be issued. Promptly after the Conversion Date and the surrender of the
Conversion Shares, the Corporation shall issue and deliver, or cause to be
delivered, to the holder of the Conversion Shares or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
issuable upon the conversion of such Conversion Shares. Such conversion shall be
deemed to have been effected as of the close of business on the Conversion Date,
and the person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the holder or
holders of record of such shares of Common Stock as of the close of business on
such date.
(c) Common Stock Reserved. The Corporation shall at all
---------------------
times reserve and keep available out of its authorized but unissued Common
Stock, solely for issuance upon the conversion of shares of Preferred Stock as
herein provided, such number of shares of Common Stock as shall from time to
time be issuable upon the conversion of all of the shares of Preferred Stock at
the time outstanding.
(d) Conversion Factor. The initial conversion factor for
-----------------
the Class A Preferred Stock shall be .50 and the initial conversion factor for
the Class B Preferred Stock, the Class C Preferred Stock and the Class D
Preferred Stock shall be 1, subject to adjustment, in each case, in accordance
with the provisions in this Section B(5)(d), except that the provisions of
B(5)(d)(i) shall not apply to the Conversion Factor for Class D Preferred Stock.
Such respective conversion factors in effect from time to time, as adjusted
pursuant to the applicable provisions of this Section B(5)(d), are referred to
herein as the "Conversion Factor" for the Class A Preferred Stock, the Class B
Preferred Stock, the Class C Preferred Stock or the Class D Preferred Stock, as
applicable. All of the remaining provisions of this Section B(5)(d) shall apply
separately to the respective Conversion Factors in effect from time to time;
provided, however, that the provisions of B(5)(d)(i) shall not apply to the
- -----------------
Conversion Factor for Class D Preferred Stock.
(i) In the event that the Corporation shall, at any
time or from time to time, issue or sell any shares of the capital stock of the
Corporation (including treasury shares, but excluding (x) 1,334,000 shares of
Class A Preferred Stock and 21,065,000 shares of Class C Preferred Stock, (y) an
aggregate of 15,805,627 shares of Common Stock and an aggregate of 11,800,468
shares of Class B Preferred Stock that have been issued, have been reserved for
-11-
<PAGE>
issuance or will be issued pursuant to options, warrants or other commitments
which have been granted or executed as of December 12, 1995 or will be granted
or executed pursuant to the Corporation's 1993 Stock Incentive Plan, and (z) the
shares of Common Stock issuable upon conversion of the Preferred Stock), then,
immediately upon such issuance or sale, the Conversion Factor shall be reduced
as follows:
(A) The Conversion Factor shall be changed to a
number determined by multiplying the Conversion Factor in effect immediately
prior to such issuance by the following fraction:
A + B
---
C
---------
A + D
wherein:
A = the number of Outstanding Shares (as defined below)
immediately prior to the subject issuance;
B = the aggregate consideration in dollars for the shares
then being issued, expressed as an absolute number;
C = the Conversion Factor in effect immediately prior to
the subject issuance with respect to the applicable
class of Preferred Stock; and
D = the number of shares then being issued.
The applicable Conversion Factor shall be further reduced from time to time
thereafter whenever any shares are so issued or converted for a price per share
lower than the amount of the applicable Conversion Factor, then in effect, as
adjusted prior to that date.
(B) In the event that any shares shall be issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In the event that any shares shall be
issued for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be deemed to be the fair value
of such consideration, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith. Whenever shares are issued upon the exercise of warrants,
options or other conversion rights, the consideration received therefor shall
include both the consideration paid upon the issuance and upon the exercise of
such warrant, option or other right.
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<PAGE>
(C) In the event that the Corporation shall in
any manner grant (whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase any Common Stock or securities
convertible into Common Stock ("Convertible Securities"), or any options for the
purchase of any Common Stock or Convertible Securities, whether or not such
rights or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which shares
of Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by dividing
(I) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Corporation
upon the exercise of such rights or options, or plus, in the case of any
Convertible Securities or rights or options to purchase Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (II) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Conversion Factor in effect
immediately prior to the time of the granting of such rights or options, then
the total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon conversion or exchange of all such Convertible
Securities issuable or issuable upon the exercise of such rights or options
shall be deemed to be outstanding as of the date of the granting of such rights
or options and to have been issued for such price per share, with the effect on
the applicable Conversion Factor specified in Section (5)(d)(i) of this Article.
No further adjustment of the applicable Conversion Factor shall be made upon the
actual issue of such Common Stock or upon the actual issue of such Convertible
Securities upon exercise of such rights or options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities.
(D) If the purchase price provided for in any
right or option referred to in Section B(5)(d)(i)(C) of this Article, or the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change (other than under
or by reason of provisions designed to protect against dilution), the Conversion
Factor then in effect hereunder shall forthwith be readjusted (increased or
decreased, as the case may be) to the Conversion Factor which would have been in
effect at such time had such rights, options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued or
sold.
(E) Notwithstanding the foregoing, upon the
consent of the holders of two-thirds of the applicable class of Preferred Stock
affected and then outstanding, if the Conversion Factor for the applicable class
of Preferred Stock, as set forth in this Section B(5)(d)(i) otherwise would be
reduced, no such reduction in the Conversion Factor for the applicable class of
Preferred Stock, as set forth in this Section B(5)(d)(i), shall occur.
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<PAGE>
(F) Notwithstanding the foregoing, if any holder
of shares of Preferred Stock is entitled to exercise the preemptive rights (the
"Preemptive Right") set forth in Section 9 of the Second Class C Preferred Stock
Purchase Agreement, dated as of September 19, 1995, or in Schedule 9 of the
Amendment and Waiver Agreement, dated as of September 19, 1995 (collectively,
the "Purchase Agreement") with respect to any "Issuance" (as defined in Section
9.2 of the Purchase Agreement) which would, absent the provisions of this
subsection (F), result in a reduction of the Conversion Factor applicable to
shares of such holder's Preferred Stock pursuant to Section B(5)(d)(i) of this
Article, and if such holder (a "Non-Participating Holder") does not, by exercise
of such holder's Preemptive Right, acquire not less than such holder's
"Proportionate Percentage" (as defined in Section 9.2 of the Purchase Agreement)
of the Issuance, then all of such holder's shares of Class A Preferred Stock,
Class B Preferred Stock and Class C Preferred Stock shall automatically, and
without further action on the part of such holder, be converted effective upon,
subject to and concurrently with consummation of the Issuance (the "Issuance
Date") as follows: each share of Class A Preferred Stock held by such Non-
Participating Holder shall be converted into one share of a newly created series
of preferred stock (having such number of shares as the Board of Directors may
by resolution fix) which such class shall be identical in all respects to the
Class A Preferred Stock, except that the Conversion Factor of such class shall
be fixed immediately prior to the Issuance Date and shall be subject to no
further adjustments pursuant to Section B(5)(d)(i) of this Article; each share
of Class B Preferred Stock held by such Non-Participating Holder shall be
converted into one share of a newly created class of preferred stock (having
such number of shares as the Board of Directors may by resolution fix) which
such class shall be identical in all respects to the Class B Preferred Stock,
except that the Conversion Factor of such class shall be fixed immediately prior
to the Issuance Date and shall be subject to no further adjustments pursuant to
Section B(5)(d)(i) of this Article; and each share of Class C Preferred Stock
held by such Non-Participating Holder shall be converted into one share of a
newly created class of preferred stock (having such number of shares as the
Board of Directors may by resolution fix) which such class shall be identical in
all respects to the Class C Preferred Stock, except that the Conversion Factor
of such class shall be fixed immediately prior to the Issuance Date and shall be
subject to no further adjustments pursuant to Section B(5)(d)(i) of this
Article. The Board of Directors of the Corporation shall take all necessary
actions to designate each such new class. Upon such conversion, the shares of
Class A Preferred Stock, Class B Preferred Stock and Class C Preferred Stock so
converted shall be cancelled and not subject to reissuance, but instead shall be
redesignated by the Board of Directors of the Corporation in accordance with the
terms of this Section B(5)(d)(i)(F).
(ii) Each adjustment in a Conversion
Factor shall be calculated to the nearest tenth of a cent.
(iii) As used in this Section B(5)(d), the
term "Outstanding Shares" shall be deemed to include the number of issued and
outstanding shares of Common Stock, plus the number of shares of Common Stock
issuable upon the conversion of the issued and outstanding shares of Preferred
Stock, but shall not include the new shares of Common Stock then being issued by
the Corporation.
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<PAGE>
(iv) In the event that the Corporation
shall, at any time, issue any shares of Common Stock (A) by stock dividend or
any other distribution upon any stock of the Corporation payable in shares of
Common Stock or in shares of Preferred Stock, or (B) by subdivision of its
shares of outstanding Common Stock, by reclassification or otherwise, the
Conversion Factor then in effect shall be reduced proportionately, and, in like
manner, in the event of any combination of shares of Common Stock, by
reclassification or otherwise, the Conversion Factor then in effect shall be
proportionately increased.
(v) If any capital reorganization or
reclassification of the Common Stock of the Corporation, or consolidation or
merger of the Corporation with or into another corporation, or the sale or
conveyance of all or substantially all of its assets to another corporation
shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holders of the Preferred Stock shall thereafter have
the right to receive, in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable with respect to such shares of Preferred
Stock upon the exercise of their conversion rights, such shares of stock,
securities or assets as would have been issued or payable with respect to or in
exchange for the number of outstanding shares of such Common Stock immediately
theretofore receivable with respect to such shares of Preferred Stock upon the
exercise of such rights had such reorganization, reclassification,
consolidation, merger or sale not taken place. In any such case, appropriate
provision shall he made with respect to the rights and interests of the holders
of the Preferred Stock to the end that such conversion rights (including,
without limitation, provisions for adjustment of the applicable Conversion
Factor) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise thereof. The Corporation shall not effect any such
consolidation, merger or sale, unless it provides the holders of the Preferred
Stock at least 30 days advance notice thereof, and prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets, shall assume by written instrument, executed and mailed
or delivered to the holders of the Preferred Stock, the obligation to deliver to
such holders the shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to receive upon
conversion of the shares of Preferred Stock held by such holder.
(vi) If any event occurs as to which the
other provisions of this Section B(5)(d) are not strictly applicable, or if
strictly applicable would not fairly protect the conversion rights of the
Preferred Stock in accordance with the intent and principles of such provisions,
then the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such intent and principles, so as to protect such
conversion rights as aforesaid, but in no event shall any such adjustment have
the effect of increasing the applicable Conversion Factor as otherwise
determined pursuant to this Section B(5)(d).
(e) Stock Transfer Taxes. The issuance of stock certificates upon the
--------------------
conversion of the Preferred Stock shall be made without charge to the converting
holder for any
<PAGE>
tax in respect of such issuance. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares in any name other than that of the holder of
such shares of Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Factor, the Corporation, at its
expense, promptly shall compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Factor at the time in effect for the Preferred Stock, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of such Preferred Stock owned
by such holder.
(g) Notices of Record Date. In the event of any fixing by the
----------------------
Corporation of a record date for the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any shares of
Common Stock or other securities, or any right to subscribe for, purchase or
otherwise acquire, or any option for the purchase of, any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Preferred Stock at least 30 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(h) Notices. Any notice required by the provisions of this Section
-------
B(5) to be given to the holders of shares of Preferred Stock shall he deemed
given if deposited in the United States mail, first class postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
(6) Mandatory Conversion.
--------------------
(a) The Corporation shall cause the conversion ("Mandatory
Conversion") of all of the shares of Preferred Stock into fully paid and
nonassessable shares of Common Stock, at the conversion rate then in effect,
upon the occurrence of the Corporation's underwritten public offering of its
Common Stock pursuant to a registration statement (other than a registration
statement relating to an offer and sale of securities to employees of, or other
persons providing services to, the Corporation pursuant to an employee or
similar benefit plan, registered on Form S-8 or a comparable or successor form)
filed under the Securities Act of 1933, as amended, which yields to the
Corporation not less than $15,000,000 (before deducting any underwriters' or
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<PAGE>
brokers' discounts, fees or commissions) and under which the offering price to
the public is equal to at least $1.50 per share (adjusted for any stock splits,
stock dividends, recapitalizations, mergers, consolidations or similar events
occurring after September 19, 1995) (a "Qualifying Public Offering").
(b) The date ("Mandatory Conversion Date") on which such Mandatory
Conversion shall be deemed to occur is the date on which a closing occurs
pursuant to a Qualifying Public Offering.
(c) On the Mandatory Conversion Date, all rights of the holders of
shares of the Preferred Stock as such holders shall cease except their right to
receive payment of any dividends declared and unpaid to such date; such shares
shall no longer be deemed to be outstanding; and the holders thereof shall on
and after such date be conclusively deemed for all purposes to be holders of the
shares of Common Stock into which their shares of Preferred Stock were
converted.
(d) The Corporation shall promptly give all holders of record of
shares of Preferred Stock written notice of the date that a Qualifying Public
Offering will occur or is anticipated to occur. Such notice shall also specify
the place designated for exchanging the shares of Preferred Stock for shares of
Common Stock. Such notice shall be sent by first class mail, postage prepaid,
to each holder of record of shares of Preferred Stock at such holder's address
as shown in the records of the Corporation. Each holder of shares of Preferred
Stock shall surrender its certificate or certificates for all such shares to the
Corporation or the transfer agent at the place designated in such notice and
shall, upon surrender, receive certificates for the number of shares of Common
Stock to which such holder is entitled.
(e) For the purpose of calculating the conversion ratio of Preferred
Stock into Common Stock in the event of a Mandatory Conversion, such calculation
shall be made in accordance with Section B(5) of this Article.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate
of Incorporation on behalf of the Corporation and have attested such execution
and do verify and affirm, under penalty of perjury, that this Restated
Certificate of Incorporation is the act and deed of the Corporation and that the
facts stated herein are true as of this 19th day of June, 1996.
GENVEC, INC.
By:
--------------------------------
Thomas W. D'Alonzo
President
Attest:
By:
--------------------------------
Charles A. Reinhart III
Secretary
(Corporate Seal)
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<PAGE>
AMENDED AND RESTATED
BYLAWS OF
GENVEC, INC.
(Amended and Restated as of September 12, 1995)
ARTICLE I
OFFICES
-------
Section 1.1 Registered Office and Registered Agent. The Corporation
--------------------------------------
shall maintain a registered office and registered agent within the State of
Delaware, which may be changed by the Board of Directors from time to time.
Section 1.2 Other Offices. The Corporation may also have offices at
-------------
such other places, within or without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS' MEETINGS
----------------------
Section 2.1 Place of Stockholders' Meetings. Meetings of stockholders
-------------------------------
may be held at such place, either within or without the State of Delaware, as
may be designated by the Board of Directors from time to time. If no such place
is designated by the Board of Directors, meetings of the stockholders shall be
held at the registered office of the Corporation in the State of Delaware.
Section 2.2 Annual Meeting. A meeting of the stockholders of the
--------------
Corporation shall be held in each calendar year, commencing with the year 1993,
at such time as the Board of Directors may determine.
<PAGE>
At such annual meeting, there shall be held an election for a Board of
Directors to serve for the ensuing year and until their respective successors
are elected and qualified, or until their earlier resignation or removal.
Subject to the terms of the Corporation's Certificate of Incorporation, the
Board of Directors shall consist of the number of directors determined pursuant
to Section 3.1 hereof, of which the holders of the Corporation's Class A
Convertible Preferred Stock, par value $.01 per share (the "Class A Stock"), the
Corporation's Class B Convertible Preferred Stock, par value $.01 per share (the
"Class B Stock") and the Corporation's Class C Convertible Preferred Stock, par
value $0.01 per share (the "Class C Stock") (the Class A Stock, the Class B
Stock and the Class C Stock being hereinafter collectively referred to as the
"Preferred Stock"), in the aggregate, shall elect at least five directors, of
which Hillman Medical Ventures 1995 L.P. or its successor limited partnership
("Hillman") shall be entitled to elect two such directors and each of Prince
Venture Partners III, L.P. ("Prince III") and Genentech, Inc. ("Genentech")
acting individually and Sierra Ventures IV, L.P. ("Sierra IV") and Sierra
Ventures International IV, L.P. ("Sierra International IV") acting in the
aggregate being entitled to elect one director each; provided, however, that if
-------- -------
the ownership of "Preferred Stock" or shares of the common stock of the Company,
par value $0.01 per share (the "Common Stock"), into which such shares of
"Preferred Stock" are converted (collectively, "Securities") by any of
"Hillman," "Prince III" or "Genentech" individually, or of "Sierra IV" and
"Sierra International IV" in the aggregate, ever becomes less than ten percent
(10%) of the "Common Stock" then outstanding, assuming conversion of all
"Preferred Stock" and issuance of the aggregate maximum number of shares of
"Common Stock" issued, delivered or exchanged therefor and irrespective of
whether any such shares of "Common Stock" or "Preferred Stock" are
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<PAGE>
conditional or unvested (the "Director Entitlement Threshold"), then on the date
on which the ownership of "Securities" by any of "Hillman," "Prince III" or
"Genentech" individually, or of "Sierra IV" and "Sierra International IV" in the
aggregate, falls below the "Director Entitlement Threshold," such applicable
holder or holders of "Preferred Stock" shall no longer be entitled to elect any
particular director and shall only have such rights to exercise the voting power
of the "Preferred Stock" as are set forth in the Corporation's Certificate of
Incorporation; provided, further, that if the Corporation consummates an
-------- -------
underwritten public offering of the Corporation's "Common Stock" pursuant to one
or more registration statements filed under the Securities Act of 1933, as
amended (or any successor statute), yielding gross proceeds to the Corporation
of at least $15,000,000 and under which the offering price to the public is
equal to at least $1.50 per share (adjusted for any stock splits, stock
dividends, recapitalizations, mergers, consolidations or similar events
occurring after September 19, 1995) (a "Qualifying Public Offering"), upon the
closing of the "Qualifying Public Offering," the holders of the "Preferred
Stock" shall not be entitled to elect any particular directors and shall have no
other voting rights with respect to the "Preferred Stock" other than as are set
forth in the Corporation's Certificate of Incorporation; and further provided,
------- --------
that if the director nominated by "Genentech," prior to any "Qualifying Public
Offering" or "Genentech" holding "Securities" in an amount less than the
"Director Entitlement Threshold," is an employee of "Genentech" and if
"Genentech" and the Corporation in good faith and after due and careful
consideration of objective and tangible evidence, agree that the presence of a
"Genentech" employee on the Board substantially, materially and adversely
impedes on an ongoing basis the Corporation's ability to enter into substantial
collaborative agreements with third party biotechnology or pharmaceutical
concerns, then "Genentech" shall be entitled to have an independent individual
-3-
<PAGE>
acceptable to "Genentech," but not a "Genentech" employee, elected as the
representative of "Genentech" on the Corporation's Board of Directors during the
period, as described above, in which "Genentech" has such right to nominate a
director.
Section 2.3 Special Meetings. Except as otherwise specifically provided
----------------
by law, special meetings of the stockholders may be called at any time:
(a) By the Board of Directors; or
(b) By the President of the Corporation; or
(c) By the holders of record of not less than 20% of all
the shares outstanding and entitled to vote.
Upon the written request of any person entitled to call a special meeting
and who is entitled to do so under these Bylaws or applicable law, which request
shall set forth the purpose for which the meeting is desired, it shall be the
duty of the Secretary to give prompt written notice of such meeting to be held
at such time as the Secretary may fix, subject to the provisions of Section 2.4
hereof. If the Secretary shall fail to fix such date and give notice within 10
days after receipt of such request, the person or persons calling the meeting
may do so.
Section 2.4 Notice of Meetings and Adjourned Meetings. Written notice
-----------------------------------------
stating the place, date and hour of any meeting and, in the case of special
meetings, the purpose or purposes for which the meeting is called, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting, except as provided in Section
230 of the Delaware General Corporation Law, as amended from time to time (the
"Delaware Code"). Such notice may be given by or at the direction of the person
or persons authorized to call the meeting.
-4-
<PAGE>
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 2.5 Quorum of and Action by Shareholders.
------------------------------------
(a) Unless otherwise provided in the Certificate of
Incorporation of the Corporation (the "Certificate") or in a Bylaw adopted by
stockholders, the presence, in person or by proxy, of stockholders entitled to
cast at least a majority of the votes that all stockholders are entitled to cast
on a particular matter to be acted upon at the meeting shall constitute a
quorum, but in no event shall a quorum consist of less than one-third (1/3) of
the shares entitled to vote at a meeting. If a meeting cannot be organized
because of the absence of a quorum, those present may, except as otherwise
provided by law, adjourn the meeting to such time and place as they may
determine.
(b) Whenever any corporate action is to be taken by vote
of the stockholders of the Corporation at a duly organized meeting, unless
otherwise provided in the Certificate or the Delaware Code, such corporate
action shall be authorized by a majority of the votes cast at the meeting by the
holders of shares entitled to vote thereon.
(c) The stockholders present at a duly organized meeting
can continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
-5-
<PAGE>
(d) In the case of any meeting for the election of
Directors, those stockholders who attend the second of such adjourned meetings,
although less than a quorum as fixed in this Section, shall nevertheless
constitute a quorum for the purpose of electing Directors.
Section 2.6 Voting List; Proxies. The officer who has charge of the
--------------------
stock ledger of the Corporation shall prepare, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Upon the willful neglect or refusal of the Directors to produce such a list
at any meeting for the election of Directors, they shall be ineligible to any
office at such meeting.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy. All proxies shall
be executed in writing and shall be filed with the Secretary of the Corporation
not later than the day on which exercised. No proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period.
Except as otherwise specifically provided by law, all matters coming before
the meeting shall be determined by a vote by shares. All elections of Directors
shall be by written ballot unless
-6-
<PAGE>
otherwise provided in the Certificate. Except as otherwise specifically provided
by law, all other votes may be taken by voice unless a stockholder demands that
it be taken by ballot, in which latter event the vote shall be taken by written
ballot.
Section 2.7 Informal Action by Stockholders. Unless otherwise provided
-------------------------------
in the Certificate, any action required to be taken at any annual or special
meeting of stockholders, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders or members,
who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.1 Number. The business and affairs of the Corporation shall
------
be managed by or under the direction of a Board of Directors which shall be
composed of not less than five (5) and not more than twelve (12) Directors, the
precise number to be determined from time to time by the Board of Directors.
Section 3.2 Place of Meeting. Meetings of the Board of Directors may be
----------------
held at such place either within or without the State of Delaware, as a majority
of the Directors may from time to time designate or as may be designated in the
notice calling the meeting.
-7-
<PAGE>
Section 3.3 Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held annually, immediately following the annual meeting of
stockholders, at the place where such meeting of the stockholders is held or at
such other place, date and hour as a majority of the newly elected Directors may
designate. At such meeting the Board of Directors shall elect officers of the
Corporation. In addition to such regular meeting, a majority of the Board of
Directors shall have the power to fix, by resolution, the place, date and hour
of other regular meetings of the Board to occur at least once a month and to
convene one meeting a month of the company's executive officers. The Board of
Directors also shall invite the "Primary Investigator" (as defined in that
certain Preferred Stock Purchase Agreement dated as of December 8, 1992, as
Amended and Restated as of May 19, 1993 (as so amended and restated, the
"Purchase Agreement")) to attend any and all meetings of the Board of Directors,
to participate in discussions and express views on matters before the Board, but
without any right to vote; and provided that the "Primary Investigator" shall
--------
withdraw from such meeting upon any discussion of the terms of his engagement or
continuing engagement by the Corporation.
Section 3.4 Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever ordered by the President, by a majority of the
members of the executive committee, if any, or by a majority of the Directors in
office. The "Primary Investigator" (as defined in the Purchase Agreement) shall
be invited to attend such special meetings, under the same terms and conditions
as a regular meeting of the Board of Directors as set forth in Section 3.3.
Section 3.5 Notices of Meetings of Board of Directors.
-----------------------------------------
(a) Regular Meetings. No notice shall be required to be
----------------
given of any regular meeting, unless the same be held at other than the time or
place for holding such meetings as fixed in
-8-
<PAGE>
accordance with Section 3.3, in which event one day's notice shall be given of
the time and place of such meeting.
(b) Special Meetings. At least one day's notice shall be
----------------
given of the time, place and purpose for which any special meeting of the Board
of Directors is to be held.
Section 3.6 Quorum. A majority of the total number of Directors shall
------
constitute a quorum for the transaction of business, and the vote of a majority
of the Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. If there be less than a quorum present, a
majority of those present may adjourn the meeting from time to time and place to
place and shall cause notice of each such adjourned meeting to be given to all
absent Directors.
Section 3.7 Informal Action by the Board of Directors. Any action
-----------------------------------------
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 3.8 Powers.
------
(a) General Powers. The Board of Directors shall have all
--------------
powers necessary or appropriate to the management of the business and affairs of
the Corporation and, in addition to the power and authority conferred by these
Bylaws, may exercise all powers of the Corporation and do all such lawful acts
and things as are not by statute, these Bylaws or the Certificate directed or
required to be exercised or done by the stockholders.
(b) Specific Powers. Without limiting the general powers
---------------
conferred by subparagraph (a) above and the powers conferred by the Certificate
of Incorporation and Bylaws of
-9-
<PAGE>
the Corporation, it is hereby expressly declared that the Board of Directors
shall have the following powers:
(i) To confer upon any officer or officers of the
Corporation the power to choose, remove or suspend assistant officers, agents or
servants.
(ii) To appoint any person, firm or corporation to
accept and hold in trust for the Corporation any property belonging to the
Corporation or in which it is interested, and to authorize any such person, firm
or corporation to execute any documents and perform any duties that may be
requisite in relation to any such trust.
(iii) To appoint a person or persons to vote shares of
another corporation held and owned by the Corporation.
(iv) By resolution adopted by a majority of the full
Board of Directors, to designate one or more of its members to constitute an
executive committee which, to the extent provided in such resolution and subject
to the Delaware code, shall have and may exercise the power of the Board of
Directors in the management of the business and affairs of the corporation and
may authorize the seal of the Corporation to be affixed.
(v) By resolution passed by a majority of the whole
Board of Directors, to designate one or more additional committees, each to
consist of one or more Directors, to have such duties, powers and authority as
the Board of Directors shall determine. All committees of the Board of
Directors, including the executive committee, shall have the authority to adopt
their own rules of procedure. Absent the adoption of specific procedures, the
procedures applicable to the Board of Directors shall also apply to committees
thereof.
(vi) To fix the place, time and purpose of meetings of
stockholders.
-10-
<PAGE>
(vii) To purchase or otherwise acquire for the
Corporation any property, rights or privileges which the Corporation is
authorized to acquire, at such prices, on such terms and conditions and for such
consideration as it shall from time to time see fit, and, at its discretion, to
pay any property or rights acquired by the Corporation, either wholly or partly
in money or in stocks, bonds, debentures or other securities of the Corporation.
(viii) To create, make and issue mortgages, bonds,
deeds of trust, trust agreements and negotiable or transferable instruments and
securities, secured by mortgage or otherwise, and to do every other act and
thing necessary to effectuate the same.
(ix) To appoint and remove or suspend such
subordinate officers, agents or servants, permanently or temporarily, as it may
from time to time think fit, and to determine their duties, and fix, and from
time to time change, their salaries or emoluments, and to require security in
such instances and in such amounts as it thinks fit.
(x) To determine who shall be authorized on the
Corporation's behalf to sign bills, notes, receipts, acceptances, endorsements,
checks, releases, contracts and documents.
Section 3.9 Compensation of Directors. Compensation of Directors and
-------------------------
reimbursement of their expenses incurred in connection with the business of the
Corporation, if any, shall be as determined from time to time by resolution of
the Board of Directors.
Section 3.10 Removal of Directors by Stockholders. Any individual
------------------------------------
Director may be removed from office without assigning any cause by the
affirmative vote of the holders of a majority of the outstanding shares entitled
to elect such Director. In case any one or more Directors are so removed, new
Directors may be elected at the same time.
-11-
<PAGE>
Section 3.11 Resignations. Any Director may resign at any time by
------------
submitting his written resignation to the Corporation. Such resignation shall
take effect at the time of its receipt by the Corporation unless another time be
fixed in the resignation, in which case it shall become effective at the time so
fixed. The acceptance of a resignation shall not be required to make it
effective.
Section 3.12 Vacancies. Except as otherwise set forth in the Certificate,
---------
any vacancies on the Board of Directors, including vacancies resulting from a
removal of Directors under Section 3.10 and newly created directorships
resulting from any increase in the authorized number of Directors, may be filled
by a majority vote of the remaining Directors then in office, although less than
a quorum, or by a sole remaining Director, and each person so elected shall be a
Director until his successor is elected and qualified or until his earlier
resignation or removal.
Section 3.13 Participation by Conference Telephone. Directors may
-------------------------------------
participate in regular or special meetings of the Board by telephone or similar
communications equipment by means of which all other persons participating in
the meeting can hear each other, and such participation shall constitute
presence at the meeting.
ARTICLE IV
OFFICERS
--------
Section 4.1 Election and Office. The Corporations shall have a President,
-------------------
a Secretary and a Treasurer who shall be elected by the Board of Directors. The
Board of Directors may elect such additional officers as it may deem proper,
including a Chairman and Vice Chairman of the Board of Directors, one or more
Vice Presidents, and one or more assistant or honorary officers. Any number of
offices may be held by the same person.
-12-
<PAGE>
Section 4.2 Term. The President, Secretary and Treasurer shall each serve
----
for a term of one year and until their respective successors are chosen and
qualified, unless removed from office by the Board of Directors during their
respective tenures. The term of office of any other officer shall be as
specified by the Board of Directors.
Section 4.3 Powers and Duties of the President. Unless otherwise
----------------------------------
determined by the Board of Directors, the President shall have the usual duties
of an executive officer with general supervision over and direction of the
affairs of the Corporation. In the exercise of these duties and subject to the
limitations set forth in the Delaware Code, these Bylaws, and the actions of the
Board of Directors, the President may appoint, suspend and discharge employees,
agents and assistant officers, fix the compensation of all officers and
assistant officers, shall preside at all meetings of the stockholders at which
he or she shall be present, shall, unless there is a Chairman of the Board of
Directors, preside at all meetings of the Board of Directors and, unless
otherwise specified by the Board of Directors, shall be a member of all
committees. The President shall also do and perform such other duties as from
time to time may be assigned to him or her by the Board of Directors. Unless
otherwise designated by the Board of Directors, the President shall be the Chief
Executive Officer of the Corporation.
Section 4.4 Powers and Duties of the Secretary. Unless otherwise
----------------------------------
determined by the Board of Directors, the Secretary shall record all proceedings
of the meetings of the Corporation, the Board of Directors and all committees,
in books to be kept for that purpose, and shall attend to the giving and serving
of all notices for the Corporation. The Secretary shall have charge of the
corporate seal, the certificate books, transfer books and stock ledgers, and
such other books and papers as the Board of Directors may direct. The Secretary
shall perform all other duties ordinarily
-13-
<PAGE>
incident to the office of Secretary and shall have such other powers and perform
such other duties as may be assigned to him or her by the Board of Directors.
Section 4.5 Powers and Duties of the Treasurer. Unless otherwise
----------------------------------
determined by the Board of Directors, the Treasurer shall have charge of all the
funds and securities of the Corporation which may come into his or her hands.
When necessary or proper, unless otherwise ordered by the Board of Directors,
the Treasurer shall endorse for collection on behalf of the Corporation checks,
notes and other obligations, and shall deposit the same to the credit of the
Corporation in such banks or depositories as the Board of Directors may
designate and shall sign all receipts and vouchers for payments made to the
Corporation. The Treasurer shall enter regularly, in books of the Corporation
to be kept by him or her for that purpose, a full and accurate account of all
moneys received and paid by him or her on account of the Corporation. Whenever
required by the Board of Directors, the Treasurer shall render a statement of
the financial condition of the Corporation. The Treasurer shall at all
reasonable times exhibit the Corporation's books and accounts to any Director of
the Corporation, upon application at the office of the Corporation during
business hours. The Treasurer shall have such other powers and shall perform
such other duties as may be assigned to him or her from time to time by the
Board of Directors.
Section 4.6 Powers and Duties of the Chairman of the Board of Directors.
-----------------------------------------------------------
Unless otherwise determined by the Board of Directors, the Chairman of the Board
of Directors, if any, shall preside at all meetings of Directors and shall serve
ex officio as a member of every committee of the Board of Directors. The
- -- -------
Chairman shall have such other powers and perform such further duties as may be
assigned to him or her by the Board of Directors.
-14-
<PAGE>
Section 4.7 Powers and Duties of Vice Presidents and Assistant Officers.
-----------------------------------------------------------
Unless otherwise determined by the Board of Directors, each Vice President and
each assistant officer shall have the powers and perform the duties of his or
her respective superior officer. Vice Presidents and assistant officers shall
have such rank as shall be designated by the Board of Directors and each, in the
order of rank, shall act for such superior officer in his or her absence or
disability or when so directed by such superior officer or by the Board of
Directors. Vice Presidents may be designated as having responsibility for a
specific aspect of the Corporation's affairs, in which event each such Vice
President shall be superior to the other Vice Presidents in relation to matters
within his aspect. The President shall be the superior officer of the Vice
Presidents. The Treasurer and the Secretary shall be the superior officers of
the Assistant Treasurers and Assistant Secretaries, respectively.
Section 4.8 Delegation of Office. The Board of Directors may delegate the
--------------------
powers or duties of any officer of the Corporation to any other officer or to
any Director from time to time.
Section 4.9 Vacancies. The Board of Directors shall have the power to
---------
fill any vacancies in any office occurring from whatever reason.
Section 4.10 Resignations. Any officer may resign at any time by
------------
submitting his or her written resignation to the Corporation. Such resignation
shall take effect at the time of its receipt by the Corporation, unless another
time be fixed in the resignation, in which case it shall become effective at the
time so fixed. The acceptance of a resignation shall not be required to make it
effective.
ARTICLE V
CAPITAL STOCK
-------------
-15-
<PAGE>
Section 5.1 Stock Certificates. Shares of the Corporation shall be
------------------
represented by certificates signed by or in the name of the Corporation by (a)
the Chairman or Vice Chairman of the Board of Directors, the President or a Vice
President, and (b) the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, representing the number of shares registered in
certificate form, and may be countersigned by a transfer agent or registrar
other than the Corporation or its employee. Any or all of the signatures on the
share certificates may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in the Delaware Code, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
-16-
<PAGE>
Section 5.2 Determination of Stockholders of Record. The Board of
---------------------------------------
Directors may fix, in advance, a record date to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action. Such date shall not be less than 10 nor more than 60 days
before the date of any such meeting, nor more than 60 days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held.
The record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 5.3 Transfer of Shares. Except as provided in Section 5.4,
------------------
transfer of shares shall be made on the books of the Corporation only upon
surrender of the share certificate, duly endorsed and otherwise in proper form
for transfer, which certificate shall be cancelled at the time of the transfer;
no transfer of shares shall be made on the books of this Corporation if such
transfer is in violation of a lawful restriction noted conspicuously on the
certificate.
-17-
<PAGE>
Section 5.4 Lost, Stolen or Destroyed Share Certificates. The Corporation
--------------------------------------------
may issue a new certificate of stock in place of any certificate therefore
issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen, or destroyed certificate,
or his legal representative to give the Corporation a bond sufficient to
indemnify it against claim that may be made against it on account of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
ARTICLE VI
NOTICES
-------
Section 6.1 Contents of Notice. Whenever any notice of a meeting is
------------------
required to be given pursuant to these Bylaws, the Certificate or otherwise, the
notice shall specify the place, day and hour of the meeting; in the case of a
special meeting or where otherwise required by law, the general nature of the
business to be transacted at such meeting; and any other information required by
the Delaware Code.
Section 6.2 Method of Notice. All notices shall be given to each person
----------------
entitled thereto, either personally or by sending a copy thereof by first class
or express mail, postage prepaid, or by telegram (with messenger service
specified), telex or TWX (with answer back received) or courier service, charges
prepaid, or by telecopier, with confirmation of receipt, to such person's
address (or their telex, TWX, telecopier or telephone number) as it appears on
the records of the Corporation, or supplied by such person to the Corporation
for the purpose of notice. If notice is sent by mail, telegraph or courier
service, it shall be deemed to have been given to the person entitled thereto
when deposited in the United States Mail, with the telegraph office or with the
courier service, as the case may be, for delivery to that person or, in the case
of telex, TWX or telecopier, when dispatched.
-18-
<PAGE>
If no address for a stockholder appears on the books of the Corporation and such
stockholder has not supplied the Corporation with an address for the purpose of
notice, notice deposited in the United States Mail addressed to such stockholder
care of General Delivery in the city in which the principal office of the
Corporation is located shall be sufficient.
Section 6.3 Waiver of Notice. Whenever notice is required to be given
----------------
under any provision of the Delaware Code, the Certificate or these Bylaws, a
written waiver, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
Directors, or members of a committee of Directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS
----------------------------
AND OFFICERS AND OTHER PERSONS
------------------------------
Section 7.1 Indemnification. The Corporation shall have the power to
---------------
indemnify any Director, officer, employee or agent of the Corporation against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him, to the fullest extent now
or hereafter permitted by law in connection with and including, but not limited
to, those instances in which such indemnification, although greater in scope or
degree than that expressly provided by Section 145 of the Delaware Code, as
deemed by a majority of a quorum of
-19-
<PAGE>
disinterested Directors (which may consist of only one Director if there is only
one independent Director) or by independent legal counsel, after due
investigation, to be in the best interests of the Corporation, with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, brought or threatened to be brought
against him or her by reason of his or her performance as a Director, officer,
employee or agent of the Corporation, its parent or any of its subsidiaries, or
in any other capacity on behalf of the Corporation, its parent or any of its
subsidiaries. The Board of Directors by resolution adopted in each specific
instance may similarly indemnify any person other than a Director, officer,
employee or agent of the Corporation for liabilities incurred by him or her in
connection with services rendered by him or her for or at the request of the
Corporation, its parent or any of its subsidiaries.
The provisions of this Section shall be applicable to all actions, suits or
proceedings commenced after its adoption, whether such arise out of acts or
omissions which occurred prior or subsequent to such adoption and shall continue
as to a person who has ceased to be a Director, officer, employee or agent or to
render services for or at the request of the Corporation or as the case may be,
its parent, or subsidiaries and shall inure to the benefit of the heirs,
executors and administrators of such a person. The rights of indemnification
provided for herein shall not be deemed exclusive of any other rights to which
any Director, officer, employee or agent of the Corporation may be entitled
under these bylaws, agreement, vote of stockholders or disinterested Directors
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
-20-
<PAGE>
Section 7.2 Advances. Expenses (including attorney's fees) incurred by
--------
any officer or Director in defending any civil, criminal, administrative or
investigative action, suit or proceeding, whether threatened, pending or
completed, may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking, by or on behalf of such Director
or officer, to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Corporation as authorized by law.
Such expenses including attorney's fees incurred by other employees and agents
may be paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
Section 7.3 Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify him or her against such liability under law.
ARTICLE VII
SEAL
----
The form of the seal of the Corporation, called the corporate seal of the
Corporation, shall be as impressed adjacent hereto. (Form of Seal)
ARTICLE IX
FISCAL YEAR
-----------
-21-
<PAGE>
The Board of Directors shall have the power by resolution to fix the fiscal
year of the Corporation. If the Board of Directors shall fail to do so, the
President shall fix the fiscal year.
ARTICLE X
AMENDMENTS
----------
The original or other Bylaws may be adopted, amended or repealed by the
stockholders entitled to vote thereon at any regular or special meeting or, if
the Certificate of Incorporation so provides, by the Board of Directors. The
fact that such power has been so conferred upon the Board of Directors shall not
divest the stockholders of the power nor limit their power to adopt, amend or
repeal Bylaws.
ARTICLE XI
INTERPRETATION OF BYLAWS
------------------------
All words, terms and provisions of these Bylaws shall be interpreted and
defined by and in accordance with the Delaware Code.
-22-
<PAGE>
KPMG
The Global Leader
GENVEC, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
KPMG Peat Marwick LLP
Suite 400
8200 Greensboro Drive
McLean, VA 22102-3803
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GenVec, Inc.:
We have audited the accompanying balance sheets of GenVec, Inc. as of December
31, 1996 and 1995, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. 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 GenVec, Inc. as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the.
Company will continue as a going concern. As discussed in note 3 to the
financial statements, the Company has no source of revenue, has incurred
aggregated net losses of $27,604,590 and has insufficient cash flows to sustain
its operations. Such conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
April 11, 1997
1
<PAGE>
<TABLE>
<CAPTION>
GENVEC, INC.
Balance Sheets
December 31, 1996 and 1995
================================================================================================
ASSETS 1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,146,226 13,879,746
Investments (note 4) 2,579,124
Other current assets 268,640 284,689
Total current assets 7,993,990 14,164,435
Property and equipment (note 7):
Equipment 1,566,091 1,492,561
Leasehold improvements 176,311 176,311
Furniture and fixtures 58,256 45,399
1,800,658 1,714,271
Less: Accumulated depreciation and amortization (1,194,228) (690,943)
------------ -----------
Net property and equipment 606,430 1,023,328
------------ -----------
Other assets 37,950 38,464
------------ -----------
$ 8,638,370 15,226,227
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 955,986 463,831
Accrued payroll and related expenses 245,843 182,756
Current portion of capital lease obligation (note 7) 414,529 361,707
------------ -----------
Total current liabilities 1,616,358 1,008,294
Capital lease obligation, less current portion (note 7) 157,729 527,187
Stockholders' equity (notes 6 and 8):
Convertible preferred stock $.01 par value:
Class A, 1,334,000 shares authorized, issued and
outstanding (liquidation preference of $11,320,314) 13,340 13,340
Class B, 11,800,468 shares authorized and 11,320,314
shares issued and outstanding (liquidation preference of
$11,320,314) 113,203 113,203
Class C, 21,065,000 shares authorized, issuing and
outstanding (liquidation preference of $21,065,000) 210,650 210,650
Class D, 2,000,000 shares authorized and 571,429 shares
issued and outstanding in 1996 (liquidation preference of
$1,000,000) 5,714
Common stock, $.01 par value, 52,005,095 and 46,305,095
shares authorized and 5,826,087 and 3,683,141 shares issued
and outstanding in 1996 and 1995, respectively 58,260 36,831
Additional paid-in capital 34,095,613 32,813,151
Accumulated deficit (27,604,590) (19,496,429)
Treasury stock, at cost, 279,069 common shares (27,907)
------------ -----------
Total stockholders' equity 6,864,283 13,690,746
------------ -----------
Commitments (note 7)
$ 8,638,370 15,226,227
============ ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
GENVEC, INC.
Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Class A Class B Class C
Preferred Stock Preferred Stock Preferred Stock
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,334,000 $13,340 8,750,000 $ 87,500 -- --
Issuance of Class C
convertible
preferred shares, net
of issuance costs of
$______ (note 8) -- -- -- -- 8,700,000 87,000
Repayment of notes
receivable -- -- -- -- -- --
Purchase of Theragen,
Inc. (note 5) -- -- 2,165,696 21,657 -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1994 1,334,000 13,340 10,915,696 109,157 8,700,000 87,000
Issuance of Class C
convertible preferred
shares, net of issuance
costs of $53,698 (note 8) -- -- -- -- 12,365,000 123,650
Issuance of common stock -- -- -- -- -- --
Exercise of options -- -- -- -- -- --
Issuance of stock for
Theragen contingent shares,
net of issuance costs of
$13,335 (note 5) -- -- 404,618 4,046 -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1995 1,334,000 13,340 11,320,314 113,203 21,065,000 210,650
Issuance of Class D
convertible preferred
shares, net of issuance
costs of $8,683 (note 8) -- -- -- -- -- --
Exercise of options -- -- -- -- -- --
Options granted to
consultants -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1996 1,334,000 $13,340 11,320,314 $113,203 21,065,000 $210,650
--------- ---------- ---------- -------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
Class D Treasury
Preferred Stock Common Stock Additional stock
---------------- -------------------- paid in Accumulated -------
Shares Amount Shares Amount capital deficit Amount Total
------- -------- --------- ------- ----------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 -- -- 1,345,478 $13,455 $ 9,246,543 (3,254,126) -- 6,106,712
Issuance of Class C
convertible preferred
shares, net of issuance
costs of
$______ (note 8) -- -- -- -- 8,583,583 -- -- 8,670,583
Repayment of notes
receivable -- -- 30,000 -- -- 30,000
Purchase of Theragen,
Inc. (note 5) -- -- 1,796,469 17,964 2,329,000 -- -- 2,368,621
Net loss -- -- -- -- -- (8,693,131) -- (8,693,131)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1994 3,141,947 31,419 20,189,126 (11,947,257) 8,482,785
Issuance of Class C
convertible preferred
shares, net of issuance
costs of $53,698 (note 8) -- -- -- -- 12,187,652 -- -- 12,311,302
Issuance of common stock -- -- 120,500 1,205 10,845 -- -- 12,050
Exercise of options -- -- 46,092 461 4,577 -- -- 5,038
Issuance of stock for
Theragen contingent shares,
net of issuance costs of
$13,335 (note 5) -- -- 374,602 3,746 420,951 -- -- 428,713
Net loss -- -- -- -- -- (7,549,172) -- (7,549,172)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1995 -- -- 3,683,141 36,831 32,813,151 (19,496,429) -- 13,690,746
Issuance of Class D
convertible preferred
shares, net of issuance
costs of $8,683 (note 8) 571,429 5,714 -- -- 985,603 -- -- 991,317
Exercise of options -- -- 2,142,946 21,429 191,799 (27,907) (27,907)
Options granted to
consultants -- -- -- -- 105,060 -- -- 105,060
Net loss -- -- -- -- -- (8,108,161) -- (8,108,161)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1996 571,429 $5,714 5,826,087 $58,260 $34,095,613 (27,604,590) (27,907) 6,864,283
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
GENVEC, INC.
Statement of Operations
Years ended December 31, 1996, 1995, and 1994
=======================================================================================
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Research revenues (note 6) 698,370 1,005,000 1,000,000
----------- ----------- -----------
Operating expenses:
Research and development 6,077,683 6,499,830 5,645,764
General and administrative 2,947,165 2,025,131 1,605,722
Clinical and regulatory 160,315 - -
Product development 117,335 - -
Purchase of in-process technology (note 5) - 442,078 2,580,798
----------- ----------- -----------
Total operating expenses 9,302,498 8,967,039 9,832,284
----------- ----------- -----------
Loss from operations (8,604,128) (7,962,039) (8,832,284)
----------- ----------- -----------
Other income (expense):
Interest income 571,239 486,435 180,498
Interest expense (75,272) (73,568) (41,345)
----------- ----------- -----------
Total other income 495,967 412,867 139,153
----------- ----------- -----------
Net loss $(8,108,161) (7,549,172) (8,693,131)
=========== ========== ==========
Net loss per share $ (1.71) (2.28) (4.18)
=========== ========== ==========
Shares used for computation 4,730,436 3,311,783 2,078,831
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
GENVEC, INC.
Notes to Financial Statements
December 31, 1996 and 1995
================================================================================
(1) ORGANIZATION AND BUSINESS DESCRIPTION
GenVec, Inc. (the Company) was incorporated under the laws of the state of
Delaware on December 7, 1992. The Company is involved in the research and
development of in-vivo gene therapy products, whereby corrective or
therapeutic genes are introduced directly into affected organs and tissues.
The Company's early clinical applications are the development of gene
therapies for cardiovascular disease, cancer and cystic fibrosis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from research and development contracts is recognized when earned
as defined under the terms of the respective contracts. Revenue from
milestone events is recognized when the milestone is achieved. Revenue
recognized in the accompanying statements of operations is not subject to
repayment.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred. Such
costs include proprietary research and development activities and expenses
associated with collaborative research agreements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Capitalized lease assets are
stated at the lower of the present value of the future minimum lease
payments or fair market value at the inception of the lease.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets which is five years.
Leasehold improvements are amortized using the straight-line method over
the shorter of their estimated useful lives or the term of the leases.
Property and equipment held under capital lease are amortized using the
straight-line method over the lease term, which is 42 months.
5
<PAGE>
INCOME TAXES
Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109 (Statement 109).
(2) CONTINUED
Under the asset and liability method of Statement 109, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that are expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less, and are stated at market value which
approximates cost. Cash equivalents consist primarily of money market
funds and commercial paper.
INVESTMENTS
The Company's short-term investments, consisting primarily of bonds and
commercial paper, are classified as a held-to-maturity security portfolio
as the Company has both the ability and intent to hold the securities until
maturity. The portfolio is carried at amortized cost which approximates
fair value.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year.
Common stock equivalents, which consist of convertible preferred stock,
warrants and options, are not included in the calculation as their effect
would be anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles may require 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.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued
---------------------------
6
<PAGE>
to Employees, and related interpretations. As such, compensation expense
------------
would be recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
---------------------------------------
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosures of SFAS No.
123.
(3) LIQUIDITY
The accompanying financial statements have been prepared on a going concern
basis which contemplates the continuation of operations, realization of
assets, and liquidation of liabilities in the ordinary course of business.
The Company has incurred aggregate net losses of $27,604,590 and has
terminated its contract with a corporate sponsor which was its sole source
of revenue. The Company has insufficient cash flows to sustain its
operations. Such conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.
In a continuing effort to improve the situation, the Company is focusing
its strategy on pursuing corporate partnerships and exploring a variety of
other financing options to raise additional capital. Nevertheless, there
can be no assurance that the Company's efforts will result in positive
effects on the Company's financial condition.
(4) INVESTMENTS
The amortized cost, gross unrealized holding gains and losses and fair
value for held-to-maturity securities by major security type at December
31, 1996 were as follows:
Gross
unrealized
Amortized holding Fair
cost gains (losses) value
- --------------------------------------------------------------------------
Classified as investments:
Corporate bonds $1,686,350 15,759 1,702,109
Commercial paper 892,774 (6,537) 886,237
---------- ------ ---------
$2,579,124 9,222 2,588,346
---------- ------ ---------
Classified as cash equivalents:
Corporate bonds $ 601,932 37 601,969
7
<PAGE>
Commercial 989,656 - 989,656
---------- ------ ---------
$1,591,588 37 1,591,625
---------- ------ ---------
The above securities all mature in 1997.
(5) PURCHASE OF THERAGEN, INC.
Pursuant to an agreement effective August 8, 1994, the Company acquired
Theragen, Inc., a gene therapy company incorporated under the laws of the
state of Michigan. This acquisition transferred all of Theragen's
technology, know-how and licenses to the Company. The purchase was
effected through an exchange of all shares of Theragen stock outstanding
immediately prior to the acquisition for up to 5,693,147 shares of the
Company's capital stock which is comprised of common stock, Class B
preferred stock and options to purchase common stock. This included
contingent shares of 1,498,200 that were to be issued or vested upon the
achievement of certain milestones. The cost of the acquisition was
$2,580,798 in 1994, which consisted of the fair value of the Company's
capital stock contributed on the purchase date as well as other direct
transaction-related costs. These costs were recorded as purchase of in-
process technology expense since no capitalizable technology was purchased.
The acquisition was accounted for using the purchase method. Accordingly,
the results of operations of the acquired company were included with those
of the Company for periods subsequent to the date of acquisition.
In 1995, the terms for the issuance or vesting of the contingent shares
were modified. Instead of issuing these shares upon the achievement of
certain milestones, shares and options were issued or vested in 1995 in an
amount equal to 55.066 percent of the original issuable contingent shares
in lieu of all contingent rights of former Theragen stockholders. As a
result, shares of stock totaling 779,220 were issued at fair market value,
as determined by the Company's Board of Directors, while options totaling
45,780 were vested, and 83,138 were canceled. The cost of the stock
transaction is deemed to be part of the acquisition cost, and is reflected
in the accompanying statements of operations as purchase of in-process
technology expense.
The following unaudited pro forma results of operations for the year ended
December 31, 1994, give effect to the acquisition of Theragen, Inc. as
though it had occurred on January 1, 1994. The unaudited pro forma results
of operations do not include the nonrecurring charge to operations of
$2,580,798 ($.82 per share) for the costs in excess of net assets acquired
which was recorded as purchase of in-process technology.
Total revenues $ 1,005,000
-----------
Net $(6,926,179)
-----------
Pro forma net loss per share $ (2.20)
-----------
Shares used for computation 3,141,947
-----------
8
<PAGE>
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchase been
made at January 1, 1994, or of results which may occur in the future.
(6) RELATED-PARTY TRANSACTIONS
RESEARCH AND DEVELOPMENT AGREEMENT
In May 1993, Genentech Inc., a stockholder owning 334,000 shares of the
Company's Class A preferred stock, and 2,000,000 shares each of the
Company's Class B and Class C preferred stock as of December 31, 1996,
executed a five-year research and development agreement with the Company.
Under this agreement, the Company performed research and development
activities with respect to gene therapy products for cystic fibrosis.
Genentech was required to make certain research and development payments
and certain milestone payments to the Company aggregating up to * in
exchange for the right to develop, manufacture, and sell potential products
in the cystic fibrosis field. Contract revenues of *, * and * were
recognized from Genentech in 1996, 1995, and 1994, respectively.
Effective September 12, 1996, the research and development agreement
between the Company and Genentech terminated due to a change in research
focus. In the event of termination, the agreement allows the Company to
require Genentech to purchase additional equity in the Company in an
aggregate amount as defined in the agreement. This transaction, totaling
approximately * in additional equity, is expected to occur in 1997.
(7) COMMITMENTS
LEASE AGREEMENTS
In January 1994, the Company entered into a capital lease agreement
allowing it to fund the acquisition of up to $1,500,000 of furniture and
equipment purchases. Lease terms of new purchases were 42 months with an
interest rate of 9.6 percent. In connection with this agreement, the
Company granted the lessor warrants to purchase approximately 140,000
shares of Series B preferred stock at a purchase price of $1.00 per share.
Pursuant to this lease agreement, in May 1994, the Company entered into a
sale lease-back transaction whereby it sold and subsequently leased-back
furniture and equipment to which it held title. Additional equipment
purchases have been funded under extensions made to this agreement through
1996.
Included in property and equipment at December 31, 1996 and 1995 are assets
recorded under this agreement of $1,404,620 and $1,288,065, respectively.
Accumulated depreciation and amortization
9
<PAGE>
at December 31, 1996 and 1995 includes amounts for the capital lease of
$906,311 and $521,642, respectively.
Future minimum lease payments due under this capital lease at December 31,
1996 are as follows:
1997 $ 450,687
1998 149,321
1999 16,204
---------
Total minimum lease payments 616,212
Less amounts representing interest at 9.6% 43,954
---------
Present value of minimum capital lease payments 572,258
Less current installments 414,529
---------
Obligations under capital lease, net of current installments $ 157,729
---------
In addition to the aforementioned capital lease, the Company leases office
and laboratory space under operating leases which are cancelable at the
Company's discretion with a 30 to 60 day notice. Office and laboratory
rent expense under operating leases for fiscal years 1996, 1995, and 1994
was approximately $167,000, $156,000, and $105,000, respectively.
RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has agreed to provide grants for certain research projects
under agreements with several universities and research organizations.
Under the terms of these agreements, the Company has received exclusive
licenses to the resulting technology. Total grants paid by the Company
were $2,277,000, $2,598,000, and $2,791,000 during 1996, 1995, and 1994,
respectively. The Company has commitments to pay up to approximately
$2,600,000 related to these grants through 1999.
(8) STOCKHOLDERS' EQUITY
CAPITAL CHANGES
Effective in December 1995, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 46,305,095
shares of common stock and 21,065,000 shares of Class C convertible
preferred stock, each having a par value of $.01 per share.
Effective in June 1996, the Company restated its Certificate of
Incorporation which effected the authorization of a total of 52,005,095
shares of common stock and 2,000,000 shares of Class D convertible
preferred stock, each having a par value of $.01 per share.
10
<PAGE>
CONVERTIBLE PREFERRED STOCK
In November 1994, the Company issued 8,700,000 shares of Class C
convertible preferred stock in a private placement. In September 1995, the
Company issued an additional 12,365,000 shares of Class C convertible
preferred stock in a private placement. In May 1996, the Company issued
571,429 shares of Class D convertible preferred stock.
Since its inception, the Company has issued 34,290,743 shares of
convertible preferred stock (Class A, B, C, and D) for aggregate cash
consideration of $31,482,000. Preferred stockholders participate in the
dividends declared to common stockholders, if any, in an amount
proportionate to the number of shares of common stock into which the
preferred stock is convertible. Preferred holders are entitled to one vote
for each share of common stock into which the preferred shares can be
converted.
In the event of any voluntary or involuntary liquidation of the
corporation, before any distribution can be made to the holders of common
stock, the preferred stockholders are entitled to receive payment of $.50
for each share of Class A preferred stock, $1 for each share of Class B and
C preferred stock and $1.75 for each share of Class D preferred stock, plus
any declared but unpaid dividends. No dividends were declared for the
years ended December 31, 1996, 1995, and 1994.
Holders of Class A, B, C, and D preferred stock have the right at any time,
at their option, to convert without the payment of additional
consideration, each preferred stock share into an equivalent number of
common stock shares.
Upon the occurrence of an initial public offering (IPO) of company stock
which yields the Company at least $15,000,000 and under which the offering
price to the public is equal to at least $1.50 per share, all preferred
stock shares will convert to common stock shares.
TREASURY STOCK
Outstanding shares of common stock totaling 279,069 were repurchased by the
Company in 1996 at $.10 per share. The shares were purchased from two
employees who left the Company in 1996.
STOCK OPTION PLAN
Options to purchase common stock under the Company's stock option plan are
granted to employees and consultants at prices which approximate fair
market value as determined by the Board of Directors. The options vest
over four years for most employees and a combination of time and milestones
for certain employees and consultants. The exercise and expiration dates of
options are also determined by the Company's Board of Directors.
11
<PAGE>
In adopting SFAS No. 123 for options granted to consultants, the total
compensation expense recognized in 1996 for compensation awards to
consultants was $105,060.
The Company applies APB Opinion No. 25 in accounting for its stock option
plan for options granted to employees and accordingly, no compensation
expense has been recognized in the financial statements. Had the Company
determined compensation expense based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net loss would have
been increased to the pro forma amounts indicated below:
1996 1995
----------- ----------
Net loss As reported $(8,108,161) (7,549,172)
----------- ----------
Pro forma $(8,179,600) (7,571,594)
----------- ----------
Loss per common share As reported $ (1.71) (2.28)
----------- ----------
Pro forma $ (1.73) (2.29)
----------- ----------
Pro forma net losses reflect compensation expense under SFAS No. 123 only
for options granted in 1996 and 1995. Therefore, the full impact of
calculating compensation expense for stock options under SFAS No. 123 is
not reflected in the pro forma net loss amounts presented above because
compensation expense is reflected over the options' vesting period and
compensation expense for options granted prior to January 1, 1995 is not
considered.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 0 percent,
expected volatility of 63 percent, risk free interest rate of 5.8 percent,
and expected life of 4.25 years.
A summary of the status of the Company's stock options as of December 31,
1996, 1995, and 1994 and changes during the period ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- --------------------------
Weighted- Weighted- Weighted-
average average average
Shares exercise Shares exercise Shares exercise
(000)'s price (000)'s price (000)'s price
--------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 5,093 $ .12 2,254 $ .10 1,542 $ .10
Granted 3,635 0.19 2,989 0.13 712 0.09
Cancelled (1,791) (0.10) (104) (0.03) - -
Exercised (1,863) 0.10 (46) (0.11) - -
------ ------ ----- ------ ----- ------
Outstanding at end of year 5,074 $ 0.18 5,093 $ 0.12 2,254 $ 0.10
Options exercisable at end
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Options exercisable at end
of year 1,921 $ .15 1,875 $ .10 392 $ .10
Weighted-average fair
value of options
granted during the
year $ .11 $ .05 $ .03
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ---------------------------
Range Weighted-avg.
of remaining Weighted-avg. Weighted-avg.
exercise prices Number contractual life exercise price Number exercise price
- --------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$ .01 - .03 54,697 8.82 years $.02 54,697 $.02
.10 3,830,513 8.5 .10 1,600,396 .10
11 - .17 63,783 8.42 .16 45,413 .15
.25 480,000 9.5 .25 52,514 .25
.60 644,999 9.55 .60 167,496 .60
- ----------- --------- ----------- ---- --------- ----
$ .01 - .60 5,073,992 8.73 $.18 1,920,516 $.15
--------- ---------
</TABLE>
(9) INCOME TAXES
A reconciliation of tax credits computed at the statutory federal tax rate
on loss from operations before income taxes to the actual income tax
expense is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Tax provision (credit) computed at the statutory rate $(2,838,000) (2,642,000) (3,043,000)
State income taxes, net of federal income tax provision
(credit) (324,000) (284,000) (244,000)
Purchase of in-process technology - 155,000 903,000
Book expenses not deductible for tax purposes 6,000 5,000 3,000
Research and experimentation tax credit 41,000 (263,000) (241,000)
Change in the beginning of the year valuation
allowance for deferred tax assets allocated to tax 3,086,000 3,032,000 3,168,000
Expected tax benefit of acquired net operating
loss carryforwards - - (582,000)
Other, net 29,000 (3,000) 36,000
----------- ---------- -----------
Income tax expense $ - - -
----------- ---------- -----------
</TABLE>
Deferred income taxes reflect the net effects of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and
13
<PAGE>
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets as of December 31, 1996 and 1995, are as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax
Net operating loss carryforwards $9,703,000 6,912,000
Research and experimentation tax credit 541,000 581,000
Cumulative effect of using cash basis method of
accounting for income tax purposes 364,000 141,000
Other 41,000 15,000
Property and equipment, principally due to
differences in depreciation 66,000 (20,000)
----------- ----------
Total deferred tax 10,715,000 7,629,000
Valuation allowance (10,715,000) (7,629,000)
----------- ----------
Net deferred tax asset $ - -
----------- ----------
</TABLE>
The valuation allowance for deferred tax assets increased approximately
$3,086,000, $3,032,000 and $3,168,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $24,880,000 for federal income tax purposes which expire at
various dates through 2011, including $1,493,000 which were acquired from
the purchase of Theragen, Inc. (note 5). The Company also has research and
experimentation tax credit carryforwards of $541,000 at December 31, 1996
which expire through 2011. These carryforwards may be significantly
limited under the Internal Revenue Code as a result of ownership changes
experienced by the Company.
(10) DEFINED CONTRIBUTION PLAN - 401(K)
The Company has a defined contribution plan (the Plan) under Internal
Revenue Code Section 401(k) which became effective on January 1, 1995. All
full-time employees who have completed six months of service and are over
age 21 are eligible for participation in the Plan. Participants may elect
to have up to 15 percent of compensation contributed to the Plan. Under
the Plan, the Company's contributions are discretionary. During the years
ended December 31, 1996 and 1995, no discretionary contributions were made.
14
<PAGE>
EXHIBIT B
UNAUDITED
GENVEC, INC.
BALANCE SHEET
AS OF APRIL 30,1997
<TABLE>
<CAPTION>
Current Period Current Period
Actual Budget Variance
-----------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents 3,087,307 2,356,978 730,329
Short term investments 1,296,606 2,579,124 (1,282,518)
Accounts receivable 51,162 103,712 (52,550)
Inventory - - -
Prepaids and other current assets 378,819 164,928 213,891
-----------------------------------------------------------
Total current assets 4,813,894 5,204,742 (390,848)
Property, plant and equipment:
Building and improvements 176,311 176,311 -
Research equipment 1,569,575 1,496,000 73,575
Office equipment 85,260 70,091 15,169
Furniture and fixtures 62,234 58,256 3,978
Production equipment - - -
Assets under financing agreements - - -
Construction In Process - - -
-----------------------------------------------------------
Gross property, plant and equipment 1,893,380 1,800,658 92,722
Accumulated depreciation (1,361,735) (1,327,560) (34,175)
Net property, plant and equipment 531,645 473,098 58,547
Other assets:
Investments - - -
Other long term assets 37,950 37,950 -
Intangible assets - - -
-----------------------------------------------------------
Total other assets 37,950 37,950 -
Total assets 5,383,489 5,715,790 (332,301)
===========================================================
</TABLE>
15
<PAGE>
GENVEC, INC.
UNAUDITED
BALANCE SHEET
AS OF APRIL 30,1997
<TABLE>
<CAPTION>
Current Period Current Period
Actual Budget Variance
------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable 234,797 264,011 (29,214)
Payroll liabilities 53,742 54,593 (851)
Accrued expenses 311,379 883,226 (571,847)
Unearned revenue - - -
Current portion of notes payable - - -
Current portion of capital leases 339,344 339,344 -
Deferred taxes - - -
Other current liabilities - - -
------------------------------------------
Total current liabilities 939,262 1,541,174 (601,912)
Long Term Liabilities:
Long term notes payable - - -
Long term capital lease obligations 92,743 92,743 -
Unearned revenue - - -
Deferred taxes - - -
Other long term liabilities - - -
------------------------------------------
Total liabilities 1,032,005 1,633,917 (601,912)
------------------------------------------
Stockholders' equity:
Preferred stock 342,907 342,907
Common stock 58,715 58,260
Additional paid in capital 34,099,703 34,095,613
Treasury stock (27,907) (27,907)
Unrealized gain on investments - -
Retained earnings (deficit) (27,604,590) (27,604,590)
Net profit / (loss) (2,517,344) (2,782,410)
------------------------------------------
Total stockholders' equity 4,351,484 4,081,873 269,611
------------------------------------------
Total liabilities and equity 5,383,489 5,715,790 (332,301)
=========================================
</TABLE>
16
<PAGE>
GENVEC, INC.
UNAUDITED
COMBINED STATEMENT OF OPERATIONS
FOR THE MONTH ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
Current Current
Period Period Year to Date Year to Date
Actual Budget Variance Actual Budget Variance
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales -- -- -- -- -- --
Other sales -- -- -- -- -- --
Contract research revenues -- -- -- -- -- --
Royalties, licenses and other -- -- -- -- -- --
revenues
-------------------------------------------------------------------------
Total revenues -- -- -- -- -- --
Cost of sale:
Cost of products sold -- -- -- -- -- --
Costs of other sales -- -- -- -- -- --
Cost of contract research -- -- -- -- -- --
-------------------------------------------------------------------------
Total cost of sales -- -- -- -- -- --
Gross margin -- -- -- -- -- --
-------------------------------------------------------------------------
Operating expenses:
General and administrative 167,710 176,500 8,790 718,170 753,376 35,206
Research and development 465,577 468,924 3,347 1,852,739 2,012,196 159,457
Clinical and regulatory 16,217 36,714 20,497 47,647 98,505 50,858
Product development -- -- -- -- -- --
Manufacturing -- -- -- -- -- --
-------------------------------------------------------------------------
Total operating expenses 649,504 682,138 32,634 2,618,556 2,864,077 245,521
-------------------------------------------------------------------------
Operating income (loss) (649,504) (682,138) 32,634 (2,618,556) (2,864,077) 245,521
Other income and expense:
Interest income 30,372 23,750 6,622 117,853 95,000 22,853
Interest expense 3,740 3,333 (407) 16,641 13,333 (3,308)
Gain (loss) disposal of assets -- -- -- -- -- --
Other income (expense) -- -- -- -- -- --
-------------------------------------------------------------------------
Net other income and expense 26,632 20,417 6,215 101,212 81,667 19,545
Income (loss) before taxes (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
Provision for income taxes -- -- -- -- -- --
-------------------------------------------------------------------------
Net income (loss) (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
=========================================================================
</TABLE>
17
<PAGE>
GENVEC, INC.
UNAUDITED
COMBINED STATEMENT OF OPERATIONS
FOR THE MONTH ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
Current Current Year To Year To
Period Period Date Date
Actual Budget Variance Actual Budget Variance
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows used in operating
activities:
Net loss (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
Adjustments to reconcile net
loss used in operating
activities:
Depreciation expense 42,259 33,333 8,926 167,507 133,333 34,174
Decrease (increase) in
other current assets (205,424) - (205,424) (161,341) - (161,341)
Decrease (increase) in
other assets - - - - - -
Increase (decrease) in
accounts payable and
accrued expenses (104,546) - (104,546) (601,911) - (601,911)
---------------------------------------------------------------------------------------------------
Net cash used in operating
activities (890,583) (628,388) (262,195) (3,113,089) (2,649,077) (464,012)
---------------------------------------------------------------------------------------------------
Cash flows provided by
(used for) Investing activities:
Maturity (purchase) of
Short Term investments 977,327 - 977,327 1,282,518 - 1,282,518
Purchase of property
and equipment (28,682) - (28,682) (92,722) - (92,722)
Net cash used for
investing activities 948,645 - 948,645 1,189,796 - 1,189,796
---------------------------------------------------------------------------------------------------
Cash flows provided by (used in)
financing activities:
Proceeds from issuance
of stock 927 - 927 4,545 - 4,545
Payments under capital
lease obligations (35,464) (35,464) - (140,171) (140,171) -
---------------------------------------------------------------------------------------------------
Net cash used in financing
activities (34,537) (35,464) 927 (135,626) (140,171) 4,545
---------------------------------------------------------------------------------------------------
Decrease in cash and cash
equivalents 23,525 (668,852) 687,377 (2,058,919) (2,789,248) 730,329
Cash and cash equivalents,
beginning of period 3,063,782 3,020,830 42,952 5,146,226 5,146,226 -
Cash and cash equivalents,
end of period
</TABLE>
18
<PAGE>
Liabilities in excess of $250,000
Sponsored Research Agreement by and between Cornell University for its
medical college, and the Company, dated as of May 18, 1993, and related Side
Letter Agreement by Cornell University, dated May 18, 1993.
Exclusive License Agreement by and between ARCH Development
Corporation, Dana-Farber Cancer Institute and the Company, effective May 26,
1993, amended January 1, 1994 (currently under renegotiation).
Exclusive License Agreement by and between ARCH Development
Corporation and the Company, effective May 26, 1993 (currently under
renegotiation).
<PAGE>
EXHIBIT 10.7
------------
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") effective as of May 31, 1996 (the
"Effective Date"), is entered by and between Scios Inc., a Delaware corporation,
with principal offices at 2450 Bayshore Parkway, Mountain View, California 94043
("Scios"), and GenVec, Inc., a Delaware corporation, having a principal place of
business at 12111 Parklawn Drive, Rockville, Maryland 20852 ("GenVec").
RECITALS
A. Scios is the sole and exclusive owner of certain Patent Rights and
Know-How (as such terms are defined below) relating to vascular endothelial
growth factor (VEGF) 121 and nucleic acid sequences encoding VEGF 121, and the
use thereof, and related subject matter;
B. GenVec desires to obtain an exclusive license to the Patent Rights and
Know-How in the Field (as defined below) and Scios is willing to grant such a
license to GenVec, on the terms and conditions herein;
C. GenVec and Scios each wish to cooperate to facilitate the development
of proprietary VEGF products, as set forth herein;
D. Of even date herewith, Scios and GenVec have entered into a Stock
Warrant Agreement pursuant to which GenVec will grant to Scios a warrant to
purchase shares of GenVec common stock; and
E. Of even date herewith, Scios and GenVec have entered into a Stock
Purchase Agreement (attached hereto as Exhibit D) pursuant to which Scios will
purchase shares of GenVec Class D Convertible Preferred Stock.
NOW, THEREFORE, Scios and GenVec agree as follows:
1. DEFINITIONS
1.1 "Affiliate" means any corporation or other entity which is directly or
---------
indirectly controlling, controlled by or under the common control of a party
hereto. For the purpose of this Agreement, "control" shall mean the direct or
indirect ownership of at least fifty percent (50%) of the outstanding shares or
other voting rights of the subject entity to elect directors, or if not meeting
the preceding, any entity owned or controlled by or owning or controlling at the
maximum control or ownership right permitted in the country where such entity
exists.
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.2 "Competing Product" shall mean any product in the Field sold by a
-----------------
person other than (a) GenVec, (b) a GenVec sublicensee of the Licensed
Technology, (c) Genentech, Inc., or (d) a sublicensee of Genentech's patent
rights with respect to VEGF, in each case, which if sold by GenVec would be a
Licensed Product.
1.3 "Confidential Information" shall mean (i) any proprietary or
------------------------
confidential information or material in tangible form disclosed hereunder that
is marked as "confidential" at the time it is delivered to the receiving party,
or (ii) proprietary or confidential information disclosed orally hereunder which
is identified as confidential or proprietary when disclosed and such disclosure
of confidential information is confirmed in writing within thirty (30) days by
the disclosing party.
1.4 "Core Countries" shall mean the United States, Canada, Mexico, Japan,
--------------
United Kingdom, France, Germany and Italy.
1.5 "Derived" shall mean a DNA sequence based on the human VEGF gene which
-------
(i) is a fragment isolated from the human VEGF gene, which fragment encodes a
peptide with biological activity substantially functionally equivalent to the
native VEGF protein, *
1.6 "Equity Value" shall mean an amount for the purchase of shares of
------------
GenVec stock, which is equal to * of the fair market value of such stock, with
such fair market value determined based on the share price on the date of actual
purchase, unless GenVec enters into a written agreement to sell such equity to
the purchasing party in the future and the share price on the actual date of
purchase is lower than the share price at the date such agreement is executed,
in which event the fair market value of such equity for purposes of this Section
1.6 shall be based on the share price on the date such agreement is executed.
1.7 "Excess Equity Purchase Amount" shall mean any amount received by
-----------------------------
GenVec from a corporate partner in connection with an agreement for the
development or commercialization of a Licensed Product for the purchase of
shares of GenVec stock which is greater than the Equity Value of such stock.
1.8 "Field" shall mean gene therapy using a DNA sequence encoding all or
-----
part of the gene for vascular endothelial growth factor (VEGF), or a *
1.9 "Licensed Product" shall mean any product containing a DNA sequence
----------------
from the VEGF gene (*) or any product containing a DNA sequence Derived
therefrom or a product within the scope of a Valid Claim within the Patent
Rights.
1.10 "Licensed Technology" means the Know-How and Patent Rights.
-------------------
1.10.1 "Know-How" shall mean any and all technical information,
--------
materials (including without limitation, biological materials), processes,
procedures, compositions, devices, methods, formulas, protocols, techniques,
designs, drawings, and other technical data which is
-2-
<PAGE>
owned, in whole or part, or controlled by Scios or its Affiliates during the
term of this Agreement, which is necessary or useful for the development,
manufacture, use or sale of Licensed Products. Know-How shall not include any
inventions included in the Patent Rights, and shall not include any business
information, such as market research or business analysis.
1.10.2 "Patent Rights" means (i) the patent applications and patents
-------------
listed on Exhibit A hereto, and (ii) all patent applications and patents
relating to a DNA sequence encoding all or part of a gene for VEGF or a sequence
Derived therefrom, or methods of use thereof, or methods of making or use of a
gene for VEGF or, a sequence Derived therefrom, in each case, which is owned, in
whole or part, or controlled by Scios or its Affiliates during the term of this
Agreement including, without limitation, Scios' interest in any Joint
Inventions; and all divisions, continuations, continuations-in-part, and
substitutions of any of the preceding; all foreign patent applications
corresponding to any of the preceding applications or patents; and all U.S. and
foreign patents issuing on any of the preceding applications, including
extensions, reissues, and re-examinations.
1.11 "Manufacturing Costs" shall mean (i) all direct and indirect costs
-------------------
related to the manufacture of Licensed Products, including without limitation,
costs for personnel, materials, quality control, regulatory compliance,
administrative expenses, subcontractors, fixed and variable manufacturing
overhead costs and business unit or division costs reasonably allocable to the
manufacture, packaging and labeling of Licensed Products, and the like, as
determined and allocated in accordance with generally accepted accounting
principles (GAAP), consistently applied, excluding costs for excess
manufacturing capacity not reasonably related to projected demand for Licensed
Products, or (ii) with respect to Licensed Products purchased from a third party
vendor, reasonable amounts actually paid to the vendor for such Licensed
Products.
1.12 "Net Profit" shall mean any Excess Equity Purchase Amount received by
----------
GenVec for the sale of GenVec stock during the term of this Agreement, and with
respect to Licensed Products, the Net Revenues received by GenVec with respect
to such Licensed Products, less:
(a) with respect to Net Revenues subject to Section 1.13 (c), (d) and
(e), where GenVec or a third party which is not a sublicensee of GenVec
manufactures Licensed Products for sale by GenVec, an amount for such
manufacturing equal to the greater of (i) * of Net Sales with respect to such
Licensed Products, or (ii) * of the Manufacturing Costs related to such Licensed
Products; and
(b) with respect to Net Revenues subject to Section 1.13 (d), any
expenses incurred or accrued in connection with the unit packaging, labeling,
marketing, sale or other disposition of the Licensed Products by GenVec, and
general and administrative expenses relating to the preceding, as determined and
allocated in accordance with generally accepted accounting principles.
1.13 "Net Revenues" means the gross revenues received by GenVec for:
------------
-3-
<PAGE>
*
For the avoidance of doubt, it is understood and agreed that Net Revenues shall
not include any amount received by GenVec from a third party for (i) the
purchase of GenVec stock at or below the Equity Value thereof, (ii) Research and
Development Payments, or (iii) reimbursement for patent expenses or other
reimbursements incurred after the execution of a written agreement between
GenVec and a third party providing for reimbursement of such expenses. It is
further understood and agreed that where GenVec has entered into a co-promotion
agreement with a third party with respect to Licensed Products pursuant to which
both parties have the right to commercialize such Licensed Products, Net
Revenues shall only include those revenues received by GenVec with respect to
such Licensed Products which GenVec has the contractual right to retain. It is
further understood and agreed that Net Revenues shall not include Withholding
Taxes (as defined in Section 4.4 below) paid with respect to sales of Licensed
Products to governmental entities pursuant to applicable law.
1.14 "Net Sales" means the amounts received by GenVec and its sublicensees
---------
with respect to sales of Licensed Products to independent third parties, less:
(i) rebates, credits and cash, trade and quantity discounts, actually taken,
(ii) excise taxes, sales, use, value added, and other consumption taxes and
other compulsory payments to governmental authorities, actually paid, (iii) the
cost of any shipping packages and packing, if billed separately, (iv) insurance
costs and outbound transportation charges prepaid or allowed, (v) import and/or
export duties and tariffs actually paid, (vi) amounts allowed or credited due to
returns or uncollectible amounts, and (vii) amounts paid to independent third
parties for intellectual property rights to manufacture, use, import or sell
Licensed Products. GenVec and its sublicensees shall not transfer Licensed
Products for consideration other than cash or cash equivalents without providing
Scios fair compensation therefore consistent with this Agreement; provided,
GenVec shall provide such compensation in a form reasonably acceptable to Scios.
1.15 "Research and Development Payments" means those payments received by
---------------------------------
GenVec from a third party licensee of a Licensed Product that are specifically
intended to support research and development on such Licensed Product,
including: (i) payments to fund the actual fully burdened direct costs of
research and development by GenVec to be performed subsequent to the execution
by GenVec of a written agreement with a third party providing for the
reimbursement of such expenses, plus reasonable GenVec overhead, including
general and administrative expenses, allocated to such research and development
in accordance with GAAP, consistently applied; (ii) payments to cover the actual
payments by GenVec to third parties for research and development relating to the
Licensed Product; and (iii) payments for any other expenses which GenVec can
demonstrate are directly related to such research and development and which can
be reasonably allocated in accordance with GAAP, consistently applied.
1.16 "Transfer Sales" means the amounts received by GenVec with respect to
--------------
sales of Licensed Products to its sublicensees, less: (i) rebates, credits and
cash, trade and quantity discounts, actually taken, (ii) excise taxes, sales,
use, value added, and other consumption taxes and other compulsory payments to
governmental authorities, actually paid, (iii) the cost of any shipping
-4-
<PAGE>
packages and packing, if billed separately, (iv) insurance costs and outbound
transportation charges prepaid or allowed, (v) import and/or export duties and
tariffs actually paid, (vi) amounts allowed or credited due to returns or
uncollectible amounts, and (vii) amounts paid to independent third parties for
intellectual property rights to manufacture, use, import or sell Licensed
Products. GenVec shall not transfer Licensed Products to its sublicensees for
consideration other than cash or cash equivalents without providing Scios fair
compensation therefore consistent with this Agreement, in a form reasonably
acceptable to Scios.
1.17 "Territory" means all countries of the world.
---------
1.18 "Valid Claim" means (i) a claim of an issued and unexpired patent
-----------
claiming a human VEGF cDNA which has not been held unenforceable or invalid by a
court or other governmental agency of competent jurisdiction in an unappealed or
unappealable decision, and which has not been disclaimed or admitted to be
invalid or unenforceable through reissue or otherwise, or (ii) a pending claim
of a patent application claiming a human VEGF cDNA or a sequence Derived
therefrom.
2. LICENSE
2.1 License Grant. Scios hereby grants to GenVec an exclusive, worldwide
-------------
license under the Licensed Technology, with the right to grant and authorize
sublicenses, to make, have made, import, have imported, use, sell, offer for
sale and otherwise exploit Licensed Products in the Field in the Territory.
2.2 Delivery of Know-How. Within five (5) days after the Effective Date,
--------------------
Scios shall deliver to GenVec the biological materials listed on Exhibit B
hereto and the sequence and genetic map of the VEGF 121 cDNA. Within forty-five
(45) days after the Effective Date, knowledgeable representatives of the parties
shall meet to discuss the existing Know-How and shall agree on which Know-How
Scios shall deliver to GenVec, and the schedule of delivery and form thereof.
At least semi-annually during the term of the Agreement, Scios shall provide to
GenVec all Know-How developed or generated during the preceding six (6) month
period.
2.3 Cooperation. It is understood and agreed that the parties intend to
-----------
confer and cooperate to aid each other, without charge, in the development and
commercialization of products within the Patent Rights. The parties shall
negotiate in good faith the scope and nature of such activities, but agree to do
at least the following:
2.3.1 Scios Activities. Scios shall: (i) provide GenVec with
----------------
protocols for Scios' * (iii) meet with GenVec prior to GenVec's pre-IND meeting
with the FDA, to discuss strategy for such meeting; * Such discussions will be
participated in by Scios representatives with appropriate expertise in the
relevant topics. The discussions shall include updates to GenVec as the
understanding of these areas develops.
-5-
<PAGE>
2.3.2 GenVec Activities. GenVec shall, to the extent permitted by
-----------------
its contracts with third parties, allow Scios to inspect GenVec's GMP
manufacturing facility for Licensed Products and keep Scios generally informed
regarding the development of Licensed Products. During the interactions between
Scios and GenVec under this Section 2.3, GenVec shall not disclose to Scios
Confidential Information of GenVec except as it may pertain to a Licensed
Product, or any Confidential Information obtained from a third party.
2.3.3 Level of Cooperation. Unless otherwise agreed, neither party
--------------------
shall have any obligation to provide services to the other pursuant to this
Section 2.3 or Section 3.10 in excess of an aggregate of * per calendar quarter.
2.3.4 Termination. Except as expressly provided in this Section
-----------
2.3.4, the foregoing cooperative activities (but not activities subject to
Section 3.10) shall terminate, at GenVec's discretion, if Scios, itself or with
a third party, commences a program to develop either (i) a VEGF product outside
the Field, or (ii) any product not based on VEGF which GenVec reasonably
believes would compete with a Licensed Product. Scios shall promptly notify
GenVec of its intent to commence any such program, and GenVec may notify Scios
that it wishes to terminate the cooperative activities subject to this Section
2.3, and in such event such activities shall terminate effective immediately.
3. CONSIDERATION
3.1 Warrants. In partial consideration of the license granted herein, of
--------
even date herewith GenVec has granted Scios a warrant to purchase shares of
GenVec stock pursuant to the terms of the Stock Warrant Agreement attached
hereto as Exhibit C.
3.2 Profit Sharing. Subject to Section 3.4 below, in partial
--------------
consideration of the license granted herein, *
3.3 Minimum Royalty. Notwithstanding Section 3.2 above, with respect to
---------------
sales of Licensed Products (including sales of Licensed Products in connection
with a co-promotion relationship) made in countries where there is a Valid Claim
of an issued patent within the Patent Rights covering such Licensed Products,
subject to Section 3.4, GenVec shall pay to Scios no less * All payments made
under this Section 3.3 and Section 3.4 below shall be fully creditable against
any amounts due Scios under Section 3.2.
3.4 Payment Reductions. In the event that a Licensed Product is made,
------------------
used or sold in a country where there is a competing product in the Field, the
amounts due Scios pursuant to Sections 3.2 and 3.3 shall be reduced as follows:
3.4.1 One Competing Product. If any Competing Product is sold in a
---------------------
country and such Competing Product accounts for * or more of the total value of
the sales (in local currency) of
-6-
<PAGE>
products in the Field in such country, then subject to Section 3.4.2 below,
GenVec shall pay to Scios * of the amounts otherwise due pursuant to Sections
3.2 and 3.3 above with respect to sales of Licensed Products in such country.
3.4.2 More than One Competing Product. If two (2) or more Competing
-------------------------------
Products are sold in a country, and (i) one such Competing Product accounts for
* or more of the total value of the sales (in local currency) of products in the
Field in such country, and (ii) the combined sales of all Competing Products in
the Field in such country exceed * of total value of the sales (in local
currency) of products in the Field, then GenVec shall pay to Scios * of the
amounts otherwise due pursuant to Sections 3.2 and 3.3 above with respect to
sales of Licensed Products in such country.
3.5 Combination Products. In the event that a Licensed Product is sold in
--------------------
combination with one or more other product(s) (excluding any products which have
no therapeutic utility) or active therapeutic agent(s) which are not Licensed
Products, Net Revenues from such sales for purposes of calculating the amounts
due under Sections 3.2, 3.3 and 3.4 above shall be calculated by multiplying the
Net Revenues of that combination by the fraction A/(A + B), where A is the gross
selling price of the Licensed Product sold separately and B is the gross selling
price of the other product or active therapeutic agent(s) sold separately. In
the event that no such separate sales are made of the Licensed Product or other
active therapeutic agent or product, Net Revenues with respect to such
combination product shall be as reasonably determined by the parties based on an
allocation between such Licensed Product and such other product or active
therapeutic agent(s), based upon their relative importance and proprietary
protection. Notwithstanding the above, the provisions of this Section 3.5 shall
not apply to Net Revenues to the extent an offset is taken for any corresponding
Net Sales with respect to Section 1.14(vii).
3.6 Other Technology and Products. It is understood and agreed that in
-----------------------------
the event GenVec enters into an agreement with a third party which provides such
third party rights to the Licensed Technology and/or Licensed Products and
intellectual property other than the Licensed Technology and/or products other
than Licensed Products, pursuant to which it receives license fees and/or
milestone payments with respect to (i) intellectual property other than the
Licensed Technology for use in the development or commercialization of products
other than Licensed Products, or (ii) products other than Licensed Products, the
portion of such amounts which constitute Net Profits shall be as reasonably
determined by the parties based on an allocation between the amounts
attributable to the Licensed Technology or Licensed Product and such other
intellectual property or product, based upon their relative importance and
proprietary protection, and GenVec shall only pay to Scios that portion of such
amounts reasonably attributable to the Licensed Technology or Licensed Product,
as the case may be.
3.7 Commercial Impracticability. Notwithstanding the above, in the event
---------------------------
that GenVec believes that the payments set forth in Sections 3.2 or 3.3 above
would make the sale of Licensed Products commercially impracticable it may
notify Scios, and in such event the parties shall negotiate in good faith a
reduction in such payments.
-7-
<PAGE>
3.8 One Payment. No more than one payment shall be due with respect to a
-----------
sale of a particular Licensed Product. No multiple payments shall be payable
because any Licensed Product, or its manufacture, sale or use is covered by more
than one Valid Claim. No amount shall be payable under Sections 3.2 or 3.3
above with respect to Licensed Products distributed for use in research and/or
development, in clinical trials, or as promotional samples where such samples
are provided at or below cost.
3.9 Payment Term. Payments due under this Article 3 shall be payable on a
------------
country-by-country and Licensed Product-by-Licensed Product basis. In countries
where there exists a Valid Claim of an issued patent within the Patent Rights
covering a particular Licensed Product, such payments shall be payable until the
expiration of the last-to-expire issued Valid Claim within the Patent Rights in
such country covering such Licensed Product. If no Valid Claim of an issued
patent within the Patent Rights covering a particular Licensed Product exists in
a country, payments shall be payable in such country until the earlier of * of
the Effective Date, or * of the first commercial sale of a Licensed Product in
such country; provided, in the event that a patent within the Patent Rights
containing a Valid Claim issues in such country, then GenVec shall make payments
with respect to such Valid Claim for the period set forth in the second sentence
above.
3.10 Information regarding Gene Therapy. In partial consideration of the
----------------------------------
rights granted herein, GenVec shall provide to Scios during the term of this
Agreement general insights and information concerning the decision-making and
development processes utilized by GenVec in the development of gene therapy
products. Such discussions will be participated in by GenVec representatives
with appropriate expertise in the relevant topics. The discussions shall
include updates to Scios as the understanding of these areas develops. During
the interactions between Scios and GenVec subject to this Section 3.10, GenVec
need not disclose to Scios any Confidential Information of GenVec except as it
may pertain to a Licensed Product, or any Confidential Information obtained from
a third party. During the period of cooperative activities subject to Section
2.3, GenVec may provide such insights and information in the context of
discussions regarding the development of a Licensed Product. Thereafter, GenVec
may provide such insight and information to Scios in the context of another
product or general education regarding the gene therapy field. Following
termination of the cooperative activities subject to Section 2.3, GenVec shall
not be required to meet with Scios representatives more than twice per calendar
year to provide information under this Section, or participate in any such
meetings more than five (5) years following the date of termination of the
cooperative activities subject to Section 2.3. Such meeting may be held in
person or by telephone or video conference.
4. PAYMENTS
4.1 Payments. GenVec shall pay amounts due Scios pursuant to Article 3
--------
within * after the last day of the calendar quarter in which they are received;
provided, any amounts due with respect to Net Revenues subject to Section 1.13
(a) or (b) shall be paid to Scios within * after such amounts are received by
GenVec. All payments due hereunder shall be made in U.S. dollars, and
-8-
<PAGE>
shall be made by bank wire transfer in immediately available funds to an account
designated by Scios.
4.2 Currency Conversion. If any currency conversion shall be required in
-------------------
connection with the calculation of payments hereunder, such conversion shall be
made using the selling exchange rate for conversion of the foreign currency into
U.S. dollars, quoted for current "buy" transactions for purchasing U.S. dollars
as reported in The Wall Street Journal for the last business day of the calendar
-----------------------
quarter to which such payment pertains.
4.3 Restrictions on Payment. To the extent and as long as the laws and/or
-----------------------
regulations in force in any country prohibit the payment, conversion or
remittance of any of the payments as hereby contemplated, GenVec's obligations
under Article 4 may be discharged by the deposit thereof to the account of
GenVec, or its designee, in any commercial bank or trust company selected by
Scios located in such country; provided, that no infraction of law or regulation
occurs in making such deposit. If due to restrictions or prohibitions imposed
by national or international authority, payments cannot be made as aforesaid,
the parties shall consult with a view to finding a prompt and acceptable
solution, and GenVec will, from time to time, deposit such monies as Scios may
lawfully direct, at no additional out-of-pocket expense to GenVec and with no
further obligation to Scios.
4.4 Withholding Taxes. All amounts required to be paid to Scios pursuant
-----------------
to this Agreement may be paid with deduction for withholding for or on account
of any taxes (other than taxes imposed or measured by net income) or similar
governmental charge imposed on such payment by a jurisdiction other than the
United States ("Withholding Taxes"). GenVec agrees to take reasonable efforts
to structure its business arrangements in order to minimize the Withholding
Taxes, but shall have no obligation to follow any course of action or enter into
any business relationship which would have an adverse impact on GenVec or its
Affiliates or sublicensees, as reasonably determined by GenVec. Upon Scios'
request, GenVec shall provide Scios a certificate evidencing payment of any
Withholding Taxes hereunder.
5. REPORTS AND RECORDS
5.1 Net Profit Reports. GenVec shall deliver to Scios within * after the
------------------
end of each calendar quarter in which Licensed Products are sold a written
report setting forth in reasonable detail, on a Licensed Product-by-Licensed
Product basis, the calculation of the amounts payable to Scios for such calendar
quarter, including the quantities of Licensed Products sold and the Net Revenues
and Net Profits with respect thereto. Such reports shall be Confidential
Information of GenVec subject to Article 7 herein.
5.2 Inspection of Books and Records. GenVec shall maintain accurate books
-------------------------------
and records which enable the calculation of amounts payable hereunder to be
verified. GenVec shall retain the books and records for each quarterly period
for * after the submission of the corresponding report under Section 5.1 hereof.
Upon * prior notice to GenVec, independent accountants selected by
-9-
<PAGE>
Scios, reasonably acceptable to GenVec, after entering into a confidentiality
agreement with GenVec in a form reasonably acceptable to GenVec, may have access
to the books and records of GenVec to conduct a review or audit once per
calendar year, for the sole purpose of verifying the accuracy of GenVec's
payments and compliance with this Agreement. The accountants shall report to
Scios only whether there has been an underpayment and, if so, the amount
thereof. Such access shall be permitted during GenVec's normal business hours at
agreed times during the term of this Agreement and for * after the expiration or
termination of this Agreement. Any such inspection or audit shall be at Scios'
expense, however, in the event an inspection reveals underpayment of * or more
in any audit period, GenVec shall pay the costs of the inspection.
6. DILIGENCE
6.1 Reasonable Efforts. GenVec agrees to use reasonable efforts to
------------------
diligently develop and commercialize at least one Licensed Product and obtain
such approvals as may be necessary for the sale of such Licensed Products in the
United States and such other worldwide markets as GenVec elects to commercialize
the Licensed Products. GenVec's efforts shall be comparable to those efforts
GenVec makes with respect to its other products of comparable value, stage of
development and patent protection. The selection of Licensed Products for
development and commercialization shall be in the sole discretion of GenVec, and
GenVec may satisfy its obligations under this Article 6 itself or through a
sublicensee. GenVec shall notify Scios within * after the first commercial sale
of each Licensed Product.
6.2 First Clinical Dosing. GenVec agrees to (i) use reasonable efforts to
---------------------
dose at least one (1) human patient with a Licensed Product under a United
States IND sponsored by GenVec by the third anniversary of the Effective Date,
or (ii) by the third anniversary of the Effective Date, expend at least * on the
development of a Licensed Product. In the event that GenVec fails to accomplish
both milestones, Scios may, within sixty (60) days of such date, provide GenVec
notice that it intends to terminate the Agreement pursuant to Section 12.2;
provided, however, in such event GenVec may present Scios evidence that it has
acted diligently and in good faith to meet the milestones but failed due to
reasons outside GenVec's control, and in such case Scios shall not have the
right to terminate the Agreement.
7. CONFIDENTIALITY; PUBLICATIONS
7.1 Confidential Information. Except as expressly provided herein, the
------------------------
parties agree that, for the term of this Agreement and for * thereafter, the
receiving party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose except for the purposes
contemplated by this Agreement any Confidential Information furnished to it by
the disclosing party hereto pursuant to this Agreement, except that to the
extent that it can be established by the receiving party by competent proof that
such Confidential Information:
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(i) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(ii) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;
(iii) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement;
(iv) was independently developed by the receiving party; or
(v) was lawfully disclosed to the receiving party by a person other
than a party hereto.
7.2 Permitted Use and Disclosures. Each party hereto may use or disclose
-----------------------------
information disclosed to it by the other party to the extent such use or
disclosure is reasonably necessary in filing or prosecuting patent applications,
prosecuting or defending litigation, complying with laws, governmental
regulations or court orders submitting information to tax or other governmental
authorities, conducting pre-clinical research and development or clinical
trials, making a permitted sublicense or otherwise exercising its rights
hereunder, provided that if a party is required to make any such disclosure of
another party's confidential information, other than pursuant to a
confidentiality agreement, it will give reasonable advance notice to the latter
party of such disclosure and, save to the extent inappropriate in the case of
patent applications, will use reasonable efforts to secure confidential
treatment of such information prior to its disclosure (whether through
protective orders or otherwise).
7.3 Public Disclosures. Except as expressly provided in this Article 7,
------------------
no disclosure or public announcement or other disclosure to third parties
concerning the existence of this Agreement shall be made, either directly or
indirectly, by any party to this Agreement, except as may be legally or
contractually required or as may be required for recording purposes, without
first obtaining the approval of the other party and agreement upon the nature
and text of such announcement of disclosure, which approval shall not be
unreasonably withheld. The party required to make any such public announcement
shall use its reasonable efforts to inform the other party of the proposed
announcement in reasonably sufficient time prior to public release, and shall
use its reasonable efforts to provide the other party with a written copy
thereof, in order to allow such other party to comment upon such announcement.
Once a particular disclosure has been approved, further disclosures which do not
differ materially therefrom may be made without obtaining any further consent of
the other party.
7.4 Confidential Terms. Except as expressly provided herein, each party
------------------
agrees not to disclose any terms of this Agreement to any third party without
the consent of the other party; provided, reasonable disclosures may be made as
required by securities or other applicable laws, or
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to actual or prospective investors or corporate partners, or to a party's
accountants, attorneys and other professional advisors.
8. REPRESENTATIONS AND WARRANTIES
8.1 Scios. Scios represents and warrants that: (i) it is a corporation
-----
duly organized, validly existing and in good standing under the laws of
Delaware; (ii) when executed and delivered, this Agreement will become valid and
binding on Scios, and enforceable against Scios in accordance with its terms;
(iii) the execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate action on the part of Scios; (iv) it is
the sole and exclusive owners of all right, title and interest in the Patent
Rights and the Know-How; (v) it has the right to grant the rights and licenses
granted herein; (vi) the Patent Rights and Know-How are free and clear of any
lien, encumbrance, security interest or restriction on license; (vii) it has not
previously granted, and will not grant during the term of this Agreement, any
right, license or interest in or to the Patent Rights and Know-How, or any
portion thereof, inconsistent with the license granted to GenVec herein; and
(viii) there are no threatened or pending actions, suits, investigations, claims
or proceedings in any way relating to the Patent Rights or Know-How.
8.2 GenVec. GenVec represents and warrants that: (i) it is a corporation
------
duly organized validly existing and in good standing under the laws of the State
of Delaware; (ii) when executed and delivered, this Agreement will become valid
and binding on GenVec, and enforceable against GenVec in accordance with its
terms; (iii) the execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action on the part of GenVec, and
(iv) as of the Effective Date, without conducting any inquiry, GenVec is not
aware of threatened or pending actions, suits, investigations, claims or
proceedings in any way relating to issued patents which GenVec necessarily must
acquire license or other rights to in order to commercialize the Licensed
Technology.
9. INTELLECTUAL PROPERTY
9.1 Ownership. Title to all inventions and other intellectual property
---------
made solely by or on behalf of GenVec during the term of the Agreement shall be
owned by GenVec. Title to all inventions and other intellectual property made
solely by or on behalf of Scios during the term of the Agreement shall be owned
by Scios. Title to all inventions and other intellectual property made jointly
by or on behalf of Scios and GenVec during the term of the Agreement shall be
jointly owned by GenVec and Scios (each a "Joint Invention"). Inventorship of
inventions and other intellectual property rights conceived and/or reduced to
practice by the parties and ownership rights with respect thereto, shall be
determined in accordance with the patent laws of the United States.
9.2 Patent Prosecution.
------------------
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9.2.1 Scios Responsibilities. Except as set forth in Sections 9.2.2
----------------------
and 9.2.3, Scios shall, at its sole expense, have the right to control the
preparation, filing, prosecution and maintenance of the Patent Rights, and any
interferences, re-examinations, reissues and oppositions relating thereto, using
patent counsel of its choice. Scios shall consult with GenVec regarding the
conduct of all such activities, by providing GenVec an opportunity to review and
provide input on all proposed submissions to any patent office at least thirty
(30) days before submittal, and shall include in such applications such claims
as GenVec may reasonably request. Scios shall keep GenVec fully informed as to
the status of such patent applications by promptly providing GenVec copies of
all communications relating to such patent applications that are received from
or sent to any patent office, including without limitation, notice of all
interferences, reissues, re-examinations or oppositions.
9.2.2 Scios Failure to Pursue. In the event Scios fails to file or
-----------------------
having filed fails to further prosecute or maintain any patent applications or
patents within the Patent Rights, or conduct any interferences, re-examinations,
reissues or oppositions with respect thereto, then GenVec shall have the right
to prepare, file, prosecute and maintain such patent applications and patents in
such countries worldwide it deems appropriate, and conduct any interferences,
re-examinations, reissues or oppositions, at its sole expense, using patent
counsel of its choice. In any such event, with respect to (a) patent
applications filed before May 1, 1996, and patents issuing on patent
applications claiming a priority date earlier than May 1, 1996, GenVec shall
have no obligation to pay to Scios any amount with respect to any Licensed
Product covered solely by such a patent application or patent, and with respect
to (b) other patent applications and patents within the Patent Rights except
those subject to Section 9.2.3, GenVec shall have the right to offset against
payments due Scios under this Agreement an amount equal * the patent-related
expenses incurred by GenVec in connection with conducting any of the foregoing
activities with respect to such patent applications and patents.
9.2.3 Joint Inventions.
----------------
(a) The parties will cooperate to file, prosecute and maintain
patent applications covering the Joint Invention(s) in the Core Countries (in
European countries through a European Patent Convention application) and other
countries agreed by the parties. The parties shall agree which parties shall be
responsible for conducting such activities with respect to a particular Joint
Invention and agree on a plan for such activities. The party conducting such
activities shall keep the other party fully informed as to the status of such
patent matters, including, without limitation, by providing the other party the
opportunity, at the other party's expense, to review and comment on any
documents relating to the Joint Invention which will be filed in any patent
office at least thirty (30) days before such filing, and promptly providing the
other party copies of any documents relating to Joint Invention which the party
conducting such activities receives from such patent offices, including notice
of all interferences, reissues, reexaminations, oppositions or requests for
patent term extensions. Subject to Section 9.2.3(b) below, the parties will
share equally all reasonable expenses and fees associated with the filing,
prosecution, issuance and maintenance of
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any patent application and resulting patent for a Joint Invention in the Core
Countries and other agreed countries in accordance with the agreed plan or a
mutually agreed modification thereof.
(b) In the event that either party wishes to seek patent
protection with respect to any Joint Invention outside the Core Countries, it
shall notify the other party hereto. If both parties wish to seek patent
protection with respect to such Joint Invention in such country or countries,
activities shall be subject to Section 9.2.3(a) above. If only one party wishes
to seek patent protection with respect to such Joint Invention in such country
or countries, it may file, prosecute and maintain patent applications and
patents with respect thereto, at its own expense. In any such case, the party
declining to participate in patent application or patent relating to such
activities shall not grant any third party a license under its interest in the
applicable patent application or patent claiming such Joint Intervention without
the prior written consent of the other party.
9.2.4 GenVec Responsibilities. GenVec shall, at its sole expense,
-----------------------
have the right to control the preparation, filing, prosecution and maintenance
of any patent applications and patents solely owned by it, and any
interferences, re-examinations, reissues and oppositions relating thereto, using
patent counsel of its choice.
9.3 Copies. Upon request by GenVec, Scios shall provide to GenVec a copy
------
of any patent applications within the Patent Rights filed by Scios or its
Affiliates during the term of this Agreement promptly after such application is
filed. GenVec shall treat such patent applications as Confidential Information
of Scios until such applications are published.
9.4 Enforcement. If either party hereto becomes aware that any Patent
-----------
Rights (including, without limitation, patents claiming any Joint Invention) are
being or have been infringed by any third party or are subject to a declaratory
judgment action, or that any Know-How has been misappropriated by a third party,
such party shall promptly notify the other party hereto in writing describing
the facts relating thereto in reasonable detail.
9.4.1 Scios. Except as set forth in Section 9.4.3 below, Scios shall
-----
have the initial right, but not the obligation, to institute, prosecute and
control any such action, suit or proceeding (an "Action") at its expense, using
counsel of its choice, and GenVec shall cooperate with Scios in connection with
any such Action, at Scios' expense; provided, Scios may not enter into any
settlement which admits that any of the Patent Rights as it relates to the Field
or any jointly owned patent claiming a Joint Invention is invalid or
unenforceable. Any amounts recovered from third parties in any such Action
shall be used first to reimburse Scios for its costs and expenses associated
with such Action (including, without limitation, attorneys' and experts' fees),
and the remainder shall be divided between the parties as follows: with respect
to any Action other than one concerning a Joint Invention, GenVec shall receive
* of such remainder and Scios shall receive * and with respect to any Action
concerning a Joint Invention other than one relating to gene therapy, GenVec
shall receive * of such remainder and Scios shall receive *
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9.4.2 GenVec. In the event Scios fails to initiate or defend any
------
Action involving the Patent Rights within * days of receiving notice of any
alleged infringement with respect to which one or more third parties has made
sales of allegedly infringing products of at least * or an aggregate of at least
*, GenVec shall have the right, but not the obligation, to initiate such an
Action, at its expense; provided, GenVec may not enter into any settlement which
admits that any of the Patent Rights are invalid or unenforceable. Any amounts
recovered from third parties in any such Action shall be used first to reimburse
GenVec for its costs and expenses associated with such Action (including,
without limitation, attorneys' and experts' fees) and the remainder shall be
divided by the parties with GenVec receiving * of such remainder and Scios
receiving *
9.4.3 Joint Inventions Relating to Gene Therapy. GenVec shall have
-----------------------------------------
the initial right, but not the obligation, to institute, prosecute and control,
at its expense, any such Action with respect to any patent application or patent
claiming a Joint Invention relating to gene therapy, using counsel of its
choice, and Scios shall cooperate with GenVec in connection with any such
Action, at GenVec's expense; provided, GenVec may not enter into any settlement
which admits that any patent claiming a Joint Invention is invalid or
unenforceable. Any amounts recovered from third parties in any such Action shall
be used first to reimburse GenVec for its costs and expenses associated with
such Action (including, without limitation, attorneys' and experts' fees), and
the remainder shall be divided between the parties, with Scios receiving * of
such remainder and GenVec receiving *
9.5 Infringement Claims. If the practice by GenVec of the license granted
-------------------
with respect to the Licensed Technology results in any allegation or claim of
infringement of an intellectual property right of third party against GenVec or
Scios (an "Infringement Claim"), GenVec shall have the exclusive right to defend
any such claim, suit or proceeding, at its own expense, by counsel of its own
choice and shall have the sole right and authority to settle any such suit, and
shall indemnify Scios therefore pursuant to Sections 11.1 and 11.3; provided,
however, Scios shall cooperate with GenVec, at GenVec's reasonable request in
connection with the defense of such claim pursuant to Section 11.3. GenVec
shall be entitled to offset such costs and expenses (including attorneys and
professional fees) incurred in connection with any such proceeding against any
amounts it would otherwise owe Scios under Article 3, up to a maximum of * of
the amounts due Scios.
9.6 Patent Term Extensions. With respect to patents within the Patent
----------------------
Rights, if Scios has not itself earlier applied for a patent extension or other
governmental equivalent available under applicable law with respect to a
particular patent, at GenVec's request following approval of a Licensed Product,
Scios shall, unless Scios or another Scios licensee is developing a product
within the scope of such patent and such product has entered Phase II clinical
trials as of the date of GenVec's request and Scios notifies GenVec that it
intends to file a request for a patent extension or equivalent based on such
other product, designate GenVec (or its designee) as Scios' agent for obtaining
an extension of such patent or governmental equivalent which extends the
exclusivity of any of the patent subject matter where available in any country
in the world, or if not feasible, at GenVec's option, permit GenVec to file in
Scios' name to obtain such extension for GenVec or its sublicensee(s), at
GenVec's expense. Furthermore, Scios and its Affiliates agree to provide
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reasonable assistance to facilitate GenVec's or its sublicensees' efforts to
obtain any such extension. In the event that GenVec elects not to seek such an
extension or equivalent in any country it shall notify Scios, and Scios shall
have the right to seek such an extension or equivalent in such country, at its
expense.
9.7 Gene Therapy Disclosures. As of the Effective Date, GenVec has
------------------------
disclosed to Scios certain publications relating to gene therapy which GenVec
believes may be relevant to the commercialization of the Licensed Technology.
10. DISPUTE RESOLUTION
10.1 Mediation. If a dispute arises out of or relates to this contract,
---------
or the breach thereof, and if said dispute cannot be settled through
negotiation, the parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association before resorting to arbitration, litigation, or some other dispute
resolution procedures.
10.2 Arbitration. Scios and GenVec agree that any dispute or controversy
-----------
arising out of, in relation to, or in connection with this Agreement, or the
validity, enforceability, construction, performance or breach thereof, which is
not resolved by mediation shall be settled by binding arbitration in Rockville,
Maryland, under the then-current Commercial Arbitration Rules and Supplemental
Procedures for Large, Complex Disputes of the American Arbitration Association
by one (1) arbitrator appointed in accordance with such Rules. The arbitrators
shall determine what discovery will be permitted, based on the principle of
limiting the cost and time which the parties must expend on discovery; provided,
the arbitrators shall permit such discovery as they deem necessary to achieve an
equitable resolution of the dispute. The decision and/or award rendered by the
arbitrator shall be written, final and non-appealable and may be entered in any
court of competent jurisdiction. The parties agree that, any provision of
applicable law notwithstanding, they will not request, and the arbitrator shall
have no authority to award, punitive or exemplary damages against any party.
The costs of any arbitration, including administrative fees and fees of the
arbitrator, shall be shared equally by the parties. Each party shall bear the
cost of its own attorneys' fees and expert fees.
11. INDEMNIFICATION
11.1 GenVec. GenVec shall indemnify, defend and hold harmless Scios and
------
its directors, officers, employees and agents (each a "Scios Indemnitee") from
and against any and all liabilities, damages, losses, costs or expenses
(including reasonable attorneys' and professional fees and other expenses of
litigation and/or arbitration) (a "Liability") resulting from any claim, suit or
proceeding brought by a third party against a Scios Indemnitee, arising out of
or in connection with (i) any misrepresentation with regard to, or breach of,
any of the representations and warranties of GenVec set forth in Section 8.2, or
(ii) the use by GenVec or its sublicensees of the biological materials
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provided by Scios to GenVec, or the development, manufacture, use and sale of
Licensed Products by GenVec or its sublicensees, except, in each case, to the
extent due to the negligence or willful misconduct of Scios.
11.2 Scios. Scios shall indemnify, defend and hold harmless GenVec and
-----
its directors, officers, employees and agents (each a "GenVec Indemnitee") from
and against any and all liabilities, damages, losses, costs or expenses
(including reasonable attorneys' and professional fees and other expenses of
litigation and/or arbitration) (a "Liability") resulting from any claim, suit or
proceeding brought by a third party against a GenVec Indemnitee, arising out of
or in connection with any misrepresentation with regard to, or breach of, any of
the representations and warranties of Scios set forth in Section 8.1, except, to
the extent due to the negligence or wilful misconduct of GenVec.
11.3 Procedure. In the event that any Indemnitee intends to claim
---------
indemnification under this Article 11 it shall promptly notify the other party
in writing of such alleged Liability. The indemnifying party shall have the
right to control the defense thereof. The affected Indemnitees shall cooperate
fully with the indemnifying party and its legal representatives in the
investigation and conduct of any Liability covered by this Article 11. The
Indemnitee shall not, except at its own cost, voluntarily make any payment or
incur any expense with respect to any claim, suit or Liability, or make any
admission of liability or attempt to settle any claim without the prior written
consent of the indemnifying party, which such party shall not be required to
give.
12. TERM AND TERMINATION
12.1 Term. The term of this Agreement shall commence on the Effective
----
Date, and unless earlier terminated as provided in this Article 12, shall
continue in full force and effect on a country-by-country and Licensed Product-
by-Licensed Product basis until there are no remaining payment obligations in a
country, at which time the Agreement shall expire in its entirety in such
country. Notwithstanding the above, upon the expiration of this Agreement in
any country, GenVec shall have a non-exclusive, irrevocable, fully paid-up right
and license to use and exploit the Know-How for any purpose.
12.2 Termination for Cause. If either party materially breaches this
---------------------
Agreement, the other party may elect to give the breaching party written notice
describing the alleged breach. If the breaching party has not cured such breach
or is diligently seeking to cure such breach within sixty (60) days after
receipt of such notice, the notifying party will be entitled, in addition to any
other rights it may have under this Agreement, to terminate this Agreement
effective immediately; provided, however, if either party receives notification
from the other of a material breach and if the party alleged to be in default
notifies the other party in writing within forty-five (45) days of receipt of
such default notice that it disputes the asserted default, the matter will be
submitted to dispute resolution as provided in Article 10 of this Agreement. In
such event, the nonbreaching party shall not have the right to terminate this
Agreement until it has been determined in an arbitration
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proceeding that the other party materially breached this Agreement, and the
breaching party fails to cure such breach within ninety (90) days after the
conclusion of such arbitration proceeding.
12.3 Termination for Insolvency. Either party may terminate this
--------------------------
Agreement if the other becomes the subject of a voluntary or involuntary
petition in bankruptcy or any proceeding relating to insolvency, receivership,
liquidation, or composition or the benefit of creditors, if that petition or
proceeding is not dismissed with prejudice within sixty (60) days after filing.
12.4 Termination for Impracticability. GenVec may terminate this
--------------------------------
Agreement with sixty (60) days written notice to Scios if GenVec or a GenVec
sublicensee encounters significant technical, safety or efficacy difficulties in
the development, manufacture or commercialization of a Licensed Product within
the Patent Rights which would make the commercialization of such a Licensed
Product commercially impracticable.
12.5 Effect of Termination.
---------------------
12.5.1 Accrued Rights and Obligations. Termination of this Agreement
------------------------------
for any reason shall not release any party hereto from any liability which, at
the time of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination, nor preclude either party
from pursuing any rights and remedies it may have hereunder or at law or in
equity which accrued or are based upon any event occurring prior to such
termination.
12.5.2 Return of Confidential Information. Upon any termination of
----------------------------------
this Agreement, each party shall promptly return to the other party all
Confidential Information received from the other party (except one copy of which
may be retained for archival purposes).
12.5.3 Stock on Hand. In the event this Agreement is terminated for
-------------
any reason, until six (6) months after the effective date of such a termination
GenVec and its sublicensees shall have the right to sell or otherwise dispose of
the stock of any Licensed Product subject to this Agreement then on hand,
subject to Articles 4 and 5.
12.5.4 Sublicensees. In the event of any termination of this
------------
Agreement any sublicensees granted by GenVec shall remain in force and effect
and shall be assigned by GenVec to Scios, provided, however, that the financial
obligations of each sublicense to Scios shall be limited to the amounts GenVec
would have been obligated to pay to Scios for the activities of such sublicensee
pursuant to this Agreement.
12.5.5 Competing Products. If Scios terminates this Agreement
------------------
pursuant to Sections 12.2 or 12.3, GenVec may not commercialize a Licensed
Product within the scope of a Valid Claim without paying to Scios the royalties
due pursuant to Article 3, unless Scios commences the development or
commercialization of a Licensed Product in the Field, itself or with a third
party.
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12.6 Survival. Sections 9.1, 9.2.3, 9.2.4, 9.5, 12.5 and 12.6, and
--------
Articles 4 (with respect to Licensed Products sold prior to such termination or
pursuant to Section 12.5.3), 5, 7, 8, 10, 11 and 13 of this Agreement shall
survive termination of this Agreement for any reason.
13. MISCELLANEOUS
13.1 Governing Law. This Agreement and any dispute arising from the
-------------
performance or breach hereof shall be governed by and construed in accordance
with the laws of the State of Maryland, without reference to principles of
conflicts of laws.
13.2 Independent Contractors. The relationship of the parties hereto is
-----------------------
that of independent contractors. The parties hereto are not deemed to be
agents, partners or joint venturers of the others for any purpose as a result of
this Agreement or the transactions contemplated thereby.
13.3 Assignment. Neither party may assign this Agreement without the
----------
prior written consent of the other, which consent shall not be unreasonably
withheld; provided, however, either party may assign this Agreement in
connection with a transfer of all or substantially all of its assets relating to
the agreements, whether by sale, merger, operation of law or otherwise. This
Agreement shall be binding upon and inure to the benefit of the parties and
their permitted successors and assigns.
13.4 Notices. Any required notices hereunder shall be given in writing by
-------
certified mail or overnight express delivery service at the address of each
party below, or to such other address as either party may indicate on its behalf
by written notice. Notice shall be deemed served when delivered or, if delivery
is not accomplished by reason or some fault of the addressee, when tendered.
If to Scios: Scios Inc.
2450 Bayshore Parkway
Mountain View, CA 94043
Attention: General Counsel
with a copy to: Vice President, Business Development
If to GenVec: GenVec, Inc.
12111 Parklawn Drive
Rockville, MD 20852
Attention: President
with a copy to: Vice President, Corporate Development
13.5 Force Majeure. Neither party shall lose any rights hereunder or be
-------------
liable to the other party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting party if the failure is
occasioned by war, strike, fire, Act of God, earthquake, flood, lockout,
embargo, governmental acts or orders or restrictions, failure of suppliers, or
any other
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reason where failure to perform is beyond the reasonable control and
not caused by the negligence, intentional conduct or misconduct of the
nonperforming party and the nonperforming party has exerted all reasonable
efforts to avoid or remedy such force majeure; provided, however, that in no
event shall a party be required to settle any labor dispute or disturbance.
13.6 Compliance with Laws. Each party shall furnish to the other party
--------------------
any information related to the subject matter of this Agreement requested or
required by that party during the term of this Agreement or any extensions
hereof to enable that party to comply with the requirements of any U.S. or
foreign federal, state and/or government agency.
13.7 Covenant Not To Sue. During the term of this Agreement, Scios agrees
-------------------
not to assert or enforce against GenVec or any GenVec sublicensee any
intellectual property right owned or controlled by Scios or its Affiliates which
GenVec or its sublicensees may infringe or practice in connection with the
development, manufacture, use, import, sale or other commercialization of any
Licensed Product.
13.8 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
-----------------------
FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES ARISING OUT OF
THE PERFORMANCE OF THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF
LIABILITY.
13.9 Advice of Counsel. GenVec and Scios have each consulted counsel of
-----------------
their choice regarding this Agreement, and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one party or another
and will be construed accordingly.
13.10 Further Assurances. At any time or from time to time on and after
------------------
the date of this Agreement, either party shall at the request of the other party
(i) deliver to the requesting party such records, data or other documents
consistent with the provisions of this Agreement, (ii) execute, and deliver or
cause to be delivered, all such consents, documents or further instruments of
assignment, transfer or license, and (iii) take or cause to be taken all such
actions, as the requesting party may reasonably deem necessary or desirable in
order for the requesting party to obtain the full benefits of this Agreement and
the transactions contemplated hereby.
13.11 Severability. In the event that any provisions of this Agreement are
------------
determined to be invalid or unenforceable by a court of competent jurisdiction,
the remainder of the Agreement shall remain in full force and effect without
said provision. The parties shall in good faith negotiate a substitute clause
for any provision declared invalid or unenforceable, which shall most nearly
approximate the intent of the parties in entering this Agreement; provided, if
the parties are unable to agree on such a substitute clause and the deletion of
the provision held invalid or unenforceable would produce material adverse
financial consequences for one party, such party shall have the right to
terminate the Agreement with one hundred eighty (180) days notice.
-20-
<PAGE>
13.12 Waiver. The failure of a party to enforce any provision of the
------
Agreement shall not be construed to be a waiver of the right of such party to
thereafter enforce that provision or any other provision or right.
13.13 Entire Agreement; Amendment. This Agreement including, its Exhibits,
---------------------------
sets forth the entire agreement and understanding of the parties with respect to
the subject matter hereof, and supersedes all prior discussions, agreements and
writings in relating thereto including, without limitation, the Confidentiality
Agreement entered by the parties dated March 14, 1996. This Agreement may not be
altered, amended or modified in any way except by a writing signed by both
parties.
13.14 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and which together shall constitute
one instrument.
IN WITNESS WHEREOF, Scios and GenVec have executed this Agreement by
their respective duly authorized representatives.
SCIOS INC. GENVEC, INC.
By: By:
-------------------------- ----------------------------
Print Name: Print Name:
------------------ --------------------
Title: Title:
----------------------- -------------------------
-21-
<PAGE>
EXHIBIT A
PATENT RIGHTS (SCIOS INC.)
*
<PAGE>
EXHIBIT B
SCIOS INC. BIOLOGICAL MATERIALS
*
<PAGE>
EXHIBIT C
---------
WARRANT AGREEMENT
This WARRANT AGREEMENT is entered into as of this 31st day of May, 1996, by
and between GENVEC, INC., a Delaware corporation with its principal place of
business at 12111 Parklawn Drive, Rockville, Maryland 20852 (the "Company") and
SCIOS INC., a Delaware corporation with its principal place of business at 2450
Bayshore Parkway, Mountain View, California 94043 (the "Holder").
WHEREAS, the Company and the Holder have entered into a License Agreement,
dated as of the date hereof (the "License Agreement"), pursuant to which the
Holder has granted to the Company a license for the Patent Rights and Know-How
(as such terms are defined in the License Agreement) relating to vascular
endothelial growth factor ("VEGF") 121 and nucleic acid sequences encoding VEGF
121 and the Company and the Holder have agreed to cooperate to facilitate the
development of proprietary VEGF products; and
WHEREAS, the company desires to grant to the Holder the rights set forth in
this Warrant Agreement as part of the consideration for the Holder entering into
the License Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, undertakings and
covenants set forth in this Warrant Agreement, and for other good and valuable
consideration, the receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. The Warrant. The Company hereby agrees to issue and sell to the
-----------
Holder one million two hundred fifty thousand (1,250,000) shares (the "Warrant
Shares") , of the Company's common stock, par value $.01 per share ("Common
Stock"), at an exercise price of two and a quarter U.S. dollars ($2.25) per
share (the "Exercise Price"), subject to the vesting schedule described in
Section 2 and the other provisions of this Warrant Agreement and upon the terms
and conditions herein set forth. The Exercise Price and the number of Warrant
Shares purchasable upon exercise of this Warrant Agreement are subject to
adjustment from time to time as provided in Section 8 of this Warrant Agreement.
2. Vesting Schedule. The Holder's right to exercise this warrant
----------------
Agreement will vest in the following increments (the "Increments") upon the
occurrence of the specified event (collectively, the "Events"), with respect to
a Licensed Product (as defined in the License Agreement), or the specified date:
(a) twenty-five percent (25%) of the Warrant Shares upon the earlier of
demonstration of efficacy in a pre-clinical animal model of cardiac ischemia or
December 31, 1997; (b) twenty-five percent (25%) of the Warrant Shares upon the
earlier of completion of pre-clinical toxicology in support of an
investigational new drug application ("IND") filing or March 31, 1998; (c)
twenty-five percent (25%) of the Warrant Shares upon the earlier of initiation
of a Phase I or a Phase I/II clinical trial or June 30, 1998; and (d) twenty-
five percent (25%) of the Warrant Shares upon the earlier of
<PAGE>
completion of a Phase I or a Phase I/II clinical trial or June 30, 1999. If
either the Company or the Holder provides notice that it intends to terminate
the License Agreement (and does not voluntarily revoke that notice of
termination by written notice to the other party), pursuant to Section 12 of the
License Agreement ("Cancels the License Agreement"), or the License Agreement
otherwise terminates prior to the vesting in full of this Warrant Agreement
pursuant to this Section, the then unvested Increments will not vest and, as of
the date of such termination notice or termination, this Warrant Agreement will
be null and void with respect to such unvested Increments (notwithstanding any
notice period or period staying termination of the License Agreement under
Section 12 of the License Agreement; provided, however, that if the License
-----------------
Agreement is reinstated voluntarily by both parties or through arbitration
pursuant to Section 12 of the License Agreement, the Warrant Agreement will
similarly be reinstated, except that the Increments that were unvested as of the
date of the termination notice or termination will vest upon the earlier of the
respective Events or such respective dates as are reasonably agreed to by the
parties or determined as a part of the arbitration). If the Company or the
Holder Cancels the License Agreement or the License Agreement otherwise
terminates after any Increment vests, this Warrant Agreement will continue to be
exercisable, to the extent of any then unexercised portion of the vested
Increments, until the Expiration Date (as defined in Section 3 of this Warrant
Agreement).
3. Expiration Date. This Warrant Agreement, and the Holder's right to
---------------
purchase any of the Warrant Shares, will expire and cease to be of force and
effect at 5:00 p.m. Eastern Standard Time on the fifth (5th) anniversary of the
date of this Warrant Agreement (the "Expiration Date"); provided, however, that
-----------------
if the Company has not completed an initial public offering of Common Stock (the
"IPO") within two (2) years from the date of this Warrant Agreement, the
"Expiration Date" will be the fifth (5th) anniversary of the effective date of
the IPO; provided further, that, notwithstanding any other provision of this
----------------
Section or this Warrant Agreement, the "Expiration Date" will not be any later
than the tenth (10th) anniversary of the date of this Warrant Agreement.
4. Exercise of this Warrant Agreement. The Holder may exercise this
----------------------------------
Warrant Agreement, to the extent of any then unexercised portion of the vested
Increments, at any time prior to the Expiration Date, in whole or in part, (i)
for amounts not less than one hundred thousand (100,000) Warrant Shares subject
to this Warrant Agreement, as adjusted from time to time as provided in Section
8 of this warrant Agreement, or (ii) as a one-time exercise under this Warrant
Agreement, for any unexercised portion of the vested Increments, by: (a) the
surrender of this Warrant Agreement, With the Exercise Form attached hereto as
Annex A properly completed and executed, at the principal office of the Company
at 12111 Parklawn Drive, Rockville, Maryland 20852 or at such other office of
the Company as the Company may designate by notice in writing to the holder of
this Warrant Agreement, and (b) the delivery of a certified check, bank draft or
wire transfer of immediately available funds, payable to the order of GenVec,
Inc., in an amount equal to the then aggregate purchase price for the Warrant
Shares being purchased upon such exercise. Upon receipt thereof by the Company
on a business day, the Holder will be deemed to be the holder of record of the
Warrant Shares issuable upon such exercise as of the close of business on the
date of such receipt by the Company, and the Company will promptly execute or
cause to be executed and delivered to the Holder, a certificate or certificates
representing the aggregate number of Warrant Shares specified in the Exercise
Form. If this Warrant Agreement is exercised only in part and has
-2-
<PAGE>
not expired, the Company will, at the time of delivery of said stock certificate
or certificates, deliver to the Holder a new Warrant Agreement of like tenor
evidencing the right of the Holder to purchase the remaining Warrant Shares then
covered by this Warrant Agreement. The Company will pay all expenses, taxes
(excluding any income taxes incurred by the Holder) and other charges payable in
connection with the preparation, execution and delivery of stock certificates
pursuant to this Section.
5. Representations of the Company. The Company hereby represents and
------------------------------
warrants to the Holder as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) This Warrant Agreement has been duly authorized by all necessary
corporate action on the part of the Company, has been duly executed by a duly
authorized officer of the Company, and constitutes a valid and binding
obligation of the Company.
(c) Neither the execution and delivery of this Warrant Agreement nor
the consummation of the transactions contemplated hereby will violate or result
in any violation of or be in conflict with or constitute a default under any
term of the charter or bylaws of the Company or of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
the Company.
(d) Upon exercise of this Warrant Agreement and payment of the then
aggregate purchase price by the Holder, the Warrant Shares deliverable hereunder
will be duly issued, fully paid and nonassessable shares and free from all
taxes, liens and charges with respect to the issuance thereof.
6. Representations of the Holder. The Holder hereby represents and
-----------------------------
warrants to the Company as follows:
(a) The Holder is a corporation duly organized, validly existing and
in good standing under the laws of Delaware.
(b) The Holder is acquiring this Warrant Agreement, and will acquire
the Warrant Shares issuable upon exercise of this Warrant Agreement, for
investment for its own account and not with a view to, or for resale in
connection with, any distribution of this Warrant Agreement or the Warrant
Shares issuable upon exercise of this warrant Agreement. The Holder understands
that neither this Warrant Agreement nor the Warrant Shares issuable upon
exercise of this Warrant Agreement have been registered under the Securities Act
of 1933, as amended (the "Securities Act") , or under any state securities laws,
and, as a result thereof, are subject to substantial restrictions on transfer.
The Holder acknowledges that this Warrant Agreement and the shares issuable upon
exercise of this Warrant Agreement must be held indefinitely, unless
subsequently registered under the Securities Act and any applicable state
securities laws or unless exemptions from registration under the Securities Act
and such laws are available.
-3-
<PAGE>
(c) The Holder is an "accredited investor," as that term is defined in
Rule 501 under the Securities Act.
(d) The Holder is either (i) not an "Investment Company," as that term
is defined in the Investment Company Act of 1940, or (ii) excluded from the
definition of an Investment Company under Section 3(c)(1) of the Investment
Company Act of 1940.
7. Survival of Representations. The representations and warranties made
---------------------------
in Sections 5 and 6 of this Warrant Agreement will survive the date of this
Warrant Agreement and will expire upon the earliest of (a) the Expiration Date,
(b) if the Company Cancels the License Agreement or the License Agreement
otherwise terminates before any Increment vests, the date of the termination of
the License Agreement, (c) if the Company Cancels the License Agreement or the
License Agreement otherwise terminates after any Increment vests, the exercise
of the entire unexercised portion of the vested Increments, or (d) the exercise
of this Warrant Agreement for all of the remaining Warrant Shares purchasable
upon exercise of this Warrant Agreement.
8. Certain Adjustments. The Exercise Price at which Warrant Shares may
-------------------
be purchased and the number of Warrant Shares to be purchased upon exercise of
this Warrant Agreement are subject to change or adjustment as follows:
(a) Stock Dividends, Distributions, Subdivisions, Combinations or
-------------------------------------------------------------
Reclassifications. In case the Company (i) pays a dividend in shares of Common
- -----------------
Stock or makes a distribution in shares of Common Stock, (ii) subdivides its
outstanding shares of Common Stock, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issues, by
reclassification of its shares of Common Stock, other securities of the Company
(including any such reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation), the number of Warrant
Shares purchasable upon exercise of this Warrant Agreement will be adjusted so
that the Holder will be entitled to receive the kind and number of Warrant
Shares or other securities of the Company which it would have owned or have been
entitled to receive after the happening of any of the events described above, if
this Warrant Agreement had been exercised immediately prior to the happening of
such event or any record date with respect thereto. Whenever the number of
Warrant Shares purchasable upon the exercise of this Warrant Agreement is
adjusted, as herein provided, the Exercise Price payable upon the exercise of
this Warrant Agreement will be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, of which the numerator will
be the number of Warrant Shares purchasable upon the exercise of this Warrant
Agreement immediately prior to such adjustment, and of which the denominator
will be the number of Warrant Shares purchasable immediately thereafter. An
adjustment made pursuant to this Subsection 8(a) will become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event. No adjustment in the number of Warrant Shares
purchasable hereunder will be required unless such adjustment would require an
increase or decrease of at least one percent (it) in the number of Warrant
Shares purchasable upon the exercise of this Warrant Agreement; provided,
---------
however, that any adjustments which by reason of this restriction are not
- -------
required to be made will be carried forward and taken into
-4-
<PAGE>
account in any subsequent adjustment. All calculations will be made to the
nearest one-thousandth of a share.
(b) Preservation of Purchase Rights Upon Merger, Consolidation, etc.
---------------------------------------------------------------
In case of any consolidation of the Company with or merger of the Company into
another corporation or other entity or in case of any sale, transfer or lease to
another corporation or other entity of all or substantially all the property of
the Company, the Company or such successor or purchasing corporation or other
entity, as the case may be, will, at its option, (i) if any Increment has
vested, pay the Holder an amount in cash equal to the number of Warrant Shares
then exercisable pursuant to this Warrant Agreement multiplied by the difference
between (A) the value of the aggregate consideration in the consolidation,
merger, sale, transfer or lease divided by the number of fully-diluted shares of
Common Stock then outstanding and (B) the then current Exercise Price, (ii)
execute with the Holder an agreement that the Holder will have the right
thereafter, upon vesting of any increment and payment of the Exercise Price in
effect immediately prior to such action, to purchase upon exercise of this
Warrant Agreement the kind and amount of shares and other securities and
property which the Holder would have owned or have been entitled to receive
after the happening of such consolidation, merger, sale, transfer or lease had
this Warrant Agreement been exercised immediately prior to such action, or (iii)
combine its options under (i) and (ii) of this Subsection 8 (b); provided,
---------
however, that no adjustment in respect of cash dividends, interest or other
- -------
income on or from such shares or other securities and property will be made
during the term of this Warrant Agreement or upon the exercise of this Warrant
Agreement. Any agreement executed under Subsection 8(b) (ii) or (iii) will
provide for adjustments, which will be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 8. The provisions of
this Subsection 8(b) will similarly apply to successive consolidations, mergers,
sales, transfers or leases.
(c) No Adjustment for Cash Dividends. No adjustment in respect of any
--------------------------------
cash dividends will be made during the term of this Warrant Agreement or upon
the exercise of this Warrant Agreement.
9. Fractional Shares. Fractional shares will not be issued upon the
-----------------
exercise of this Warrant Agreement, but in any case where the Holder would,
except for the provisions of this Section, be entitled under the terms of this
Warrant Agreement to receive a fractional share upon the exercise of this
Warrant Agreement, the Company will, upon the exercise of this Warrant Agreement
for the largest number of whole shares then called for, pay a sum in cash equal
to the excess of the market value of such fractional share (determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company
in its discretion) over the proportional part of the per share purchase price
represented by such fractional share.
10. Taxes. The Company covenants and agrees that it will pay when due and
-----
payable any federal taxes and any taxes imposed by the State of Delaware, other
than income taxes incurred by the Holder, in respect of the issue of this
Warrant Agreement, or any Warrant Shares or certificates therefor upon the
exercise of this Warrant Agreement pursuant to the provisions of this Warrant
Agreement.
-5-
<PAGE>
11. Notice of Certain Events. In case at any time the Company:
------------------------
(a) Cancels the License Agreement prior to the vesting in full of this
Warrant Agreement;
(b) proposes, by resolution of its Board of Directors, a stock
dividend, distribution, subdivision, combination or reclassification of the
shares of capital stock of the Company for which this Warrant Agreement is
exercisable; or
(c) proposes, by resolution of its Board of Directors, any capital
reorganization or any reclassification or change of capital stock that affects
the Warrant Shares of the Company or any consolidation, merger or sale of
properties and assets of the type described in Section 8 of this Warrant
Agreement;
then, and in each of said cases, the Company will cause notice thereof to be
delivered promptly to the Holder; provided, however, that the Company need not
-------- -------
deliver any separate notice pursuant to Subsection 11(a) if such notice is
provided in accordance with the License Agreement and need not deliver any
notice pursuant to Subsection 11(b) until after any Increment has vested and
unless there exists a then unexercised portion of the vested Increments;
provided further, that the Company will deliver any notice pursuant to
- --------
Subsection 11(c) at least ten (10) days prior to the effective date of the
proposed event.
12. Reservation of Shares. The Company will at all times reserve and keep
---------------------
available out of its authorized but unissued stock, for the purpose of effecting
the exercise of this warrant Agreement, such number of its duly authorized
shares of capital stock for which this Warrant Agreement is exercisable, and the
appropriate number of shares of any stock into which such stock is convertible,
as will from time to time be sufficient to effect the exercise of this Warrant
Agreement.
13. No Rights as Shareholder; Limitation of Liability. This Warrant
-------------------------------------------------
Agreement, as distinct from the shares for which this Warrant Agreement is
exercisable, will not entitle the Holder to any of the rights of a shareholder
of the Company. No provision of this Warrant Agreement, in the absence of
affirmative action by the Holder to purchase the Warrant Shares, and no mere
enumeration herein of the rights or privileges of the Holder, will give rise to
any liability of the Holder for the purchase price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
14. Transfer Restrictions.
---------------------
(a) Securities Laws. NEITHER THIS WARRANT AGREEMENT NOR THE
---------------
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
NEITHER THIS WARRANT AGREEMENT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED, ENCUMBERED OR IN
-6-
<PAGE>
ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, THE SECURITIES LAWS OF EACH RELEVANT STATE,
AND THE TERMS AND CONDITIONS HEREOF. EACH OF THE HOLDER OF THIS WARRANT
AGREEMENT AND THE HOLDER OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF IS
SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.
(b) Stock Certificate Legend. Each certificate for shares issued upon
------------------------
exercise of this Warrant Agreement will bear the following legend:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended, or the securities laws of any State. Neither the
shares nor any interest or participation in the shares may be sold,
assigned, pledged, hypothecated, encumbered or in any other manner
transferred or disposed of in the absence of such registration or
exemption therefrom under such Act or such laws and an opinion (which
will be in form and substance satisfactory to the Company) of counsel
satisfactory to the Company that such registration is not required."
(c) General Restrictions. The Holder may not transfer or assign this
--------------------
Warrant Agreement unless it is transferred or assigned to the purchaser of all
of the outstanding capital stock or all or substantially all of the assets,
including every right and interest the Holder may have in the Patent Rights and
Know-How, of the Holder. The Company may deem and treat the person in whose
name this Warrant Agreement is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and will not be affected by any notice
to the contrary, until presentation of this Warrant Agreement to the Company for
registration of transfer consistent with this Section. The holder of this
Warrant Agreement further agrees that prior to any transfer of this Warrant
Agreement, consistent with this Section, or any transfer of the shares issued
upon exercise hereof, such holder will give written notice to the Company,
together with a copy of the opinion of such holder's counsel as to the
availability of exemption from registration under all applicable securities laws
in connection with any such transfer (which opinion will be reasonably
satisfactory to counsel for the Company).
15. Lock-Up. In connection with any public offering of shares of Common
-------
Stock, the Holder agrees to enter into a written agreement-with the managing
underwriters, if the managing underwriters demand or request such an agreement
from the Holder and from all holders (the "Other Holders") of more shares of
Common Stock, or of shares of preferred stock convertible into more shares of
Common Stock, than the number of shares of Common Stock owned by the Holder
(regardless of whether the managing underwriters obtain such an agreement from
any of the Other Holders), in such form and containing such provisions as are
required by the managing underwriters (except that such provisions will not be
less favorable to the Holder than the provisions of any agreements entered into
by the managing underwriters with the Other Holders) to preclude the Holder from
directly or indirectly offering to sell, contracting to sell or otherwise
disposing of any shares of Common Stock, any options or warrants to purchase
shares of Common Stock, or any
-7-
<PAGE>
securities convertible into or exchangeable for shares of Common Stock for a
period of time not to exceed one hundred eighty (180) days after the effective
date of the registration statement for the public offering.
16. Registration Rights.
-------------------
(a) Piggyback Registration Rights.
-----------------------------
(i) If the Company plans to file a registration statement under
the Securities Act on a Form S-3 to register any shares of Common Stock for sale
by it or any of its stockholders (the "Piggyback Registration Statement")
(except in connection with any stock option plan, stock purchase plan, savings
or similar plan), the Company shall provide the Holder with the right to
include- Warrant Shares on the Piggyback Registration Statement (the "Piggyback
Right") , if the Holder is the stockholder of record of any Warrant Shares at
such time or has the vested right to acquire any Warrant Shares pursuant to this
Warrant Agreement at such time, by providing the Holder with at least thirty
(30) days prior written notice thereof. At the written request of the Holder,
given within twenty (20) days after the receipt of such notice, the Company will
use its best efforts to cause all of the Warrant Shares for which registration
shall have been requested to be included in the Piggyback Registration
Statement. The Company shall provide the Holder with four Piggyback Rights to
register Warrant Shares under this provision.
(ii) In the event that the proposed offering is an offering by the
Company that is, in whole or in part, an underwritten public offering of shares
of Common Stock, and the managing underwriters determine and advise in writing
that the inclusion of the Warrant Shares proposed to be included in the
underwritten public offering and any other issued and outstanding shares of
Common Stock or other securities proposed to be included therein by the security
holders of the Company (the "Other Shares") would interfere with the successful
marketing (including pricing) of the shares, the number of the Holder's Warrant
Shares and the Other Shares to be included in such underwritten public offering
shall be reduced first, pro rata among the Holder and the holders of Other
Shares (other than the holders of shares of the Company's Class A Convertible
Preferred Stock, par value $.01 per share (the "Class A Preferred Stock"), the
Company's Class B Convertible Preferred Stock, par value $.01 per share (the
"Class B Preferred Stock"), the shares of Common Stock that have been issued
upon conversion of the Class A Preferred Stock and the Class B Preferred Stock,
and any shares of Common Stock or other securities issued in respect of any such
securities upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event ("Original Registration Stock")); second, if
necessary, pro rata among the holders of Original Registration Stock, based upon
the number of shares requested by holders thereof to be registered in such
underwritten public offering; and lastly, if necessary, among the Company's
shares requested by the Company to be registered.
(b) Demand Registration Right. Beginning after June 1, 1999, the
-------------------------
Holder shall have one right to demand, by providing written notice to the
Company (the "Demand Registration Right"), that the Company file a registration
statement on Form S-3 to register Warrant Shares for resale by the Holder in an
offering that is not underwritten (the "Registration Statement"). The
-8-
<PAGE>
Company agrees to use its best efforts (i) to file the Registration Statement
with the Securities and Exchange Commission ("SEC") within one hundred eighty
(180) days of receipt of the Holder's notice of its exercise of the Demand
Registration Right, (ii) to obtain the effectiveness of the Registration
Statement and (iii) to keep such Registration Statement effective for a period
of sixty (60) days after its effectiveness. The Holder agrees that it will cease
making offers and sales under the Registration Statement upon the giving of any
notice (the "Notice") by the Company that the Registration Statement must be
amended or supplemented. If the Company shall give any such notice, the Company
will agree to keep the Registration Statement effective after it is amended or
supplemented for such period of time equal to the sum of (i) the number of days
beginning with the date of the Notice to the date the Holder has received an
effective amended prospectus or a supplemented prospectus plus (y) sixty (60)
less the number of days the Registration Statement was useable by the Holder
prior to the Notice. If the Registration Statement is not filed with the SEC by
the one hundred eightieth (180th) day after the Company's receipt of the
Holder's notice of its exercise of the Demand Registration Right, the Holder
shall have the right to a Cashless Exercise (as defined in Exhibit A attached
hereto) of the Warrant Shares provided that the then current Market Price (as
defined in Exhibit A attached hereto) exceeds the then current Exercise Price.
(c) Whenever the Company is required to register any of the Holder's
Warrant Shares pursuant to any of the provisions of this Section 16, the Company
shall also be obligated to do the following:
(i) Furnish to the Holder such copies of preliminary and final
prospectuses and such other documents as the Holder may reasonably request to
facilitate the public offering of the Holder's Warrant Shares;
(ii) Use its best efforts to register or qualify the warrant
Shares covered by said registration statement under the securities or Blue Sky
laws of such jurisdictions as the Holder may reasonably request; provided,
--------
however, that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified, take any action
that would subject it to general service of process in any such jurisdiction
where it is not then so subject or subject the Company to any tax in any such
jurisdiction where it is not then so subject;
(iii) Permit the Holder or its counsel or other representatives,
at the Holder's expense, to inspect and copy such corporate documents and
records as may reasonably be requested by them; and
(iv) Furnish to the Holder a copy of all documents filed and all
correspondence to or from the Securities and Exchange Commission in connection
with any such offering.
(d) The Holder shall bear all of the fees and expenses of its counsel
in connection with the registration statement and the offering. The Holder
shall bear all other expenses in connection with the preparation and filing of
any Registration Statement and its pro rata share of all other expenses in
connection with the preparation and filing of any Piggyback Registration
Statement
-9-
<PAGE>
under this Section 16, any registration or qualification under the securities or
Blue Sky laws of states in which the offering will be made under either such
registration statement and any filing fee of the National Association of
Securities Dealers, Inc. relating to such offering and of any underwriters' or
brokers' commission.
(e) In connection with any public underwritten offering, the Company
and the Holder shall enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of the Company's size and investment stature, including
indemnification.
17. Miscellaneous.
-------------
(a) Amendments and Waivers. This Warrant Agreement and any provision
----------------------
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) Successors and Assigns. This Warrant Agreement will be binding
----------------------
upon and inure to the benefit of the successors and assigns of the Company and
the heirs and permitted registered assigns and transferees of the Holder.
(c) Loss, Theft, Destruction or Mutilation. Upon receipt by the
--------------------------------------
Company of evidence reasonably satisfactory to it that this Warrant Agreement
has been lost, stolen, destroyed or mutilated, and in the case of any lost,
stolen or destroyed Warrant Agreement, a bond of indemnity reasonably
satisfactory to the Company, or in the case of a mutilated Warrant Agreement,
upon surrender and cancellation hereof, the Company will execute and deliver in
the name of the registered holder of this Warrant Agreement, in exchange and
substitution for the Warrant Agreement so lost, stolen, destroyed or mutilated,
a new Warrant Agreement of like tenor with appropriate insertions and
variations.
(d) Law Governing. This Warrant Agreement will be governed by, and
-------------
construed and enforced in accordance with, the internal laws of the State of
Delaware.
(e) Entire Agreement. This Warrant Agreement and the attached annex
----------------
constitute the full and entire understanding and agreement among the parties
with regard to the subject of this Warrant Agreement and the attached annex, and
supersede all prior agreements, understandings, inducements or conditions,
express or implied, oral or written, with respect to the subject of this Warrant
Agreement and the attached annex.
(f) Notices. Unless otherwise provided, all notices, requests, demands
-------
and other communications required or permitted under this Warrant Agreement will
be in writing and will be deemed to have been duly made and received: (i) upon
personal delivery or confirmed facsimile to the party to be notified; (ii) three
(3) business days after deposit with the United States Post Office, by
registered or certified mail or by first class mail, postage prepaid, addressed
as set forth below; or
-10-
<PAGE>
(iii) one (1) business day after deposit with Federal Express or another
reputable overnight courier (for next business day delivery), shipping prepaid,
addressed as set forth below:
(i) If to the Company, then to:
GenVec, Inc.
12111 Parklawn Drive
Rockville, MD 20852
Attn: Chief Financial Officer
----
with a copy to:
Attn: Vice President -- Business Development
-----
(ii) If to the Holder, then to:
Scios Inc.
2450 Bayshore Parkway
Mountain View, CA 94043
Attn: General Counsel
-----
with a copy to:
Attn: Vice President -- Business Development
Either party may change the address to which communications are to be sent by
giving five (5) business days, advance notice of such change of address to the
other party in conformity with the provisions of this Section.
(g) Headings. The headings in this Warrant Agreement are for purposes
--------
of reference only and will not affect the meaning or construction or any of the
provisions hereof.
(h) Execution; Counterparts. This Warrant Agreement may be executed
-----------------------
in any number of counterparts, each of which will be deemed to be an original as
against any party whose signature appears on such counterpart, and all of which
will together constitute one and the same instrument. This Warrant Agreement
will become binding when one or more counterparts of this warrant Agreement,
individually or taken together, bear the signatures of all of the parties to
this Warrant Agreement and the seal of the Company.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this warrant Agreement to be
duly executed and delivered as of the day and year first written above.
SCIOS INC.
By:
-----------------------------------
Name:
Title:
GENVEC, INC.
By:
-----------------------------------
Thomas W. D'Alonzo
President
Attest:
- ---------------------------
Charles A. Reinhart III
Secretary
[Corporate Seal]
-12-
<PAGE>
ANNEX A
-------
EXERCISE FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE ATTACHED WARRANT AGREEMENT OF
GENVEC, INC.
The undersigned, the record holder of the attached original, executed
Warrant Agreement (the "Warrant Agreement") , pursuant to the provisions of the
Warrant Agreement, hereby irrevocably elects to exercise the right, represented
by the Warrant Agreement, to purchase Warrant Shares (as defined
------------
in the Warrant Agreement) covered by the Warrant Agreement, and herewith tenders
payment in full therefor at the price per share provided by the Warrant
Agreement.
------------------------------------
By:
-----------------------------------
Name:
Title:
Address:
-----------------------------------
-----------------------------------
Dated: ,
--------------- -----
-13-
<PAGE>
EXHIBIT D
---------
CLASS D PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of the 31st day of May 1996, by and
between GENVEC, INC., a Delaware corporation with its principal place of
business at.12111 Parklawn Drive, Rockville, Maryland 20852 (the "Company"), and
SCIOS INC., a Delaware corporation with its principal place of business at 2450
Bayshore Parkway, Mountain View, California 94043 (the "Investor"), with
reference to the following recitals:
WHEREAS, the Company was incorporated on December 7, 1992, under the laws
of the State of Delaware;
WHEREAS, the Company and the Investor have entered into a License
Agreement, dated as of the date hereof (the "License Agreement"), pursuant to
which the Investor has granted to the Company a license for the Patent Rights
and Know-How (as such terms are defined in the License Agreement) relating to
vascular endothelial growth factor ("VEGF") 121 and nucleic acid sequences
encoding VEGF 121 and the Company and the Investor have agreed to cooperate to
facilitate the development of proprietary VEGF products;
WHEREAS, the Company and the Investor have entered into a Warrant
Agreement, dated as of the date hereof (the "Warrant Agreement"), pursuant to
which the Investor has the right to acquire, subject to vesting and other
restrictions described in the Warrant Agreement, shares of the Company's common
stock, par value $.01 per share ("Common Stock"); and
WHEREAS, the Investor desires to purchase certain of the shares of the
capital stock of the Company on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements, undertakings and
covenants set forth in this Agreement, and for other good and valuable
consideration, the receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. Terms of Sale. The Company will issue and sell to the Investor, and
-------------
the Investor will purchase from the Company, 571,429 shares of the Company's
Class D Convertible Preferred Stock, par value $.01 per share (the "Shares") for
an aggregate purchase price of one million U.S. dollars and seventy-five cents
($1,000,000.75) as follows:
(a) On or before the third (3)rd) business day after the date hereof,
the Investor will deliver to the Company a non-refundable deposit in the amount
of three hundred fifty thousand U.S. dollars ($350,000) by wire transfer of
immediately available funds; and
<PAGE>
(b) On or before July 2, 1996, the Investor will deliver to the
Company a certified bank check, payable to the order of the Company, or a wire
transfer of immediately available funds in an amount of six hundred fifty
thousand U.S. dollars and seventy-five cents ($650,000.75) in payment for the
Shares. Upon receipt of such payment by the Company on a business day, the
Investor will be deemed to be the holder of record of the Shares and the Company
will promptly execute a certificate evidencing issuance to the Investor of the
appropriate number of fully-paid and nonassessable Shares.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) The Company has all necessary corporate power to enter into this
Agreement, to issue and deliver the Shares hereunder and to carry out all of the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby, including, without limitation, the issuance of the Shares,
have been duly authorized by all requisite corporate action on the part of the
Company. This Agreement constitutes a valid and binding instrument of the
Company, enforceable in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(c) As of the date of this Agreement, the Company's authorized capital
stock consists of (i) 51,305,095 shares of Common Stock, 3,747,629 of which are
outstanding; (ii) 1,334,000 shares of Class A Convertible Preferred Stock, par
value $.01 per share, 1,334,000 of which are outstanding; (iii) 11,800,468
shares of Class B Convertible Preferred Stock, par value $.01 per share,
11,320,314 of which are outstanding; (iv) 21,065,000 shares of Class C
Convertible Preferred Stock, par value $.01 per share, 21,065,000 of which are
outstanding; and (v) 2,000,000 shares of Class D Convertible Preferred Stock,
par value $.01 per share, none of which are outstanding. There are no treasury
shares held by the Company. All outstanding shares of capital stock are, and
the Shares, when issued in accordance with or as contemplated by the terms of
this Agreement, will be validly issued and outstanding, fully paid and
nonassessable. The shares of Common Stock issuable upon conversion of the
Shares are duly and validly authorized and reserved for issuance. Each share of
Class D Convertible Preferred Stock is convertible into a share or shares of
Common Stock, at the rate, and otherwise has the designations, preferences,
limitations and rights, provided for in Article NINTH, attached hereto as
Exhibit A, of the Company's Certificate of Incorporation as duly approved by the
- ---------
Company's stockholders.
-2-
<PAGE>
(d) The Company has made available to the Investors complete and
correct copies of the Company's unaudited financial statements, attached hereto
as Exhibit B, for the four-month period ended April 30, 1996. The unaudited
financial statements have been prepared in a manner consistent with generally
accepted accounting principles, subject to normal year-end audit adjustments and
except that the unaudited financial statements may not contain all footnotes
required by generally accepted accounting principles. The financial statements
reflect all adjustments which are, in the opinion of management, necessary to a
fair statement of the results of the Company for the period presented.
(e) The Company has no liabilities, except: (i) as disclosed or
reflected in the financial statements attached hereto as Exhibit B; or (ii)
----------
liabilities not in excess of two hundred fifty thousand U.S. dollars ($250,000).
(f) To the Company's knowledge, there are neither any pending or
threatened suits, legal proceedings, claims or governmental investigations
against or with respect to the Company or its properties or assets nor any basis
for any such suit, legal proceedings, claim or governmental investigation.
3. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants that:
(a) The Investor is acquiring the Shares for purposes of investment
for its own account and not with a view to, or for resale in connection with,
the distribution thereof, as those terms are used in the Securities Act of 1933,
as amended (the "Securities Act"), and the rules and regulations promulgated
thereunder. The Investor has been advised and acknowledges that it will not be
able to dispose of the Shares, or any interest therein, without first complying
with the relevant provisions of the Securities Act and any applicable state
securities laws. The Investor also understands that the provisions of Rule 144
promulgated under the Securities Act, permitting routine sales of securities of
certain issuers subject to the terms and conditions thereof,.are not currently
available to it with respect to the Shares. The Investor acknowledges that the
Company is under no obligation to register the Shares or to take any action to
assist the Investor in complying with terms and conditions of any exemption that
might be available under the Securities Act or any state securities laws with
respect to sales of the Shares by the Investor in the future.
(b) The Investor is an "accredited investor," as that term is defined
in Rule 501 promulgated under the Securities Act.
(c) The Investor is either (1) not an "Investment Company," as that
term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act") or (ii) excluded from the definition of an Investment
Company under Section 3)(c)(1) of the Investment Company Act.
(d) The Investor acknowledges that the representations, agreements and
acknowledgements set forth above are being given by the Investor with the
understanding that they
-3-
<PAGE>
will be relied on by the Company and its Board of Directors to claim the
availability of the exemption from the registration provisions of the Securities
Act contained in Regulation D promulgated thereunder.
4. Covenants of the Company. The Company hereby covenants that, so long
------------------------
as (i) the Investor owns any shares of the Company's Class D Convertible
Preferred Stock or shares of Common Stock into which such shares of Class D
Convertible Preferred Stock are convertible and (ii) the Company has not
consummated an underwritten public offering of Common Stock pursuant to one or
more registration statements filed under the Securities Act (or any successor
statute), which yields gross proceeds to the Company of at least $15,000,000 and
under which the offering price to the public is equal to at least $1.50 per
share (adjusted for any stock splits, stock dividends, recapitalizations,
mergers, consolidations or similar events occurring after the date hereof), the
Company shall furnish to the Investor the following financial statements,
reports and other documents, such annual financial statements to be prepared in
accordance with generally accepted accounting principles consistently applied
(except as may be noted therein) and such interim financial statements to be
prepared in a manner consistent with the annual financial statements and
consistent with generally accepted accounting principles (subject to normal
year-end audit adjustments and the omission of footnotes required by generally
accepted accounting principles), certified by the Company's chief executive or
financial officer:
(a) As soon as available, and in any event within 120 days after the
end of each fiscal year of the Company, a balance sheet of the Company as of the
end of such fiscal year and related statements of operations, stockholders'
equity and cash flows for such fiscal year, all in reasonable detail and setting
forth in comparative form the figures as of the end of and for the previous
fiscal year, which financial statements shall have been audited, and shall be
accompanied by an opinion addressed to the Company from independent auditors.
(b) As soon as available, and in any event within 45 days after the
end of each fiscal quarter of the Company, an unaudited balance sheet and
unaudited statements of operations and cash flows.
5. Covenants of the Investor.
-------------------------
(a) The Investor agrees to hold the Shares subject to all applicable
provisions of the Securities Act, applicable state securities laws, the
Certificate of Incorporation and the Amended and Restated By-laws of the Company
and this Agreement. The Investor shall give the Company prompt written notice
of any such proposed disposition and shall not proceed with any such proposed
disposition unless a registration under the Securities Act is in effect with
respect to the Shares and all state securities laws have been complied with or
unless the Company shall have received an opinion of counsel, satisfactory to
the Company, to the effect that such registration is not required, and the
Investor agrees that certificates representing the Shares issued to it pursuant
hereto may bear the following legend:
-4-
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY
STATE. NEITHER THE SHARES NOR ANY INTEREST OR PARTICIPATION IN THE
SHARES MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN
ANY OTHER MANNER TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES
ACT, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
(b) The Investor agrees not to disclose to third parties any
confidential information concerning the Company which is furnished to such
Investor by the Company except as required by law, legal process or its
fiduciary duty to report financial and business information to its partners or
affiliates. The term "confidential information" does not include information
which (i) was or becomes generally available to the public other than as a
result of a disclosure by such Investor, or (ii) was or becomes available to
such Investor on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company.
6. Opinion of Counsel. On or before July 2, 1996, the Company's counsel
------------------
will deliver to the Investor an opinion, in form and substance reasonably
satisfactory to the Investor, that the Shares, when sold and delivered in
accordance with this Agreement, will be duly authorized, validly issued and
outstanding, fully paid and non-assessable.
7. Miscellaneous.
-------------
(a) Amendments and Waivers. This Agreement and any provision hereof
----------------------
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) Successors and Assigns. This Agreement will be binding upon and
----------------------
inure to the benefit of the successors and assigns of the Company and the heirs
and permitted registered assigns and transferees of the Investor.
(c) Transferability. The Investor may not transfer or assign this
---------------
Agreement, or any of the rights or obligations hereunder, unless it is
transferred or assigned to the purchaser of all of the outstanding capital stock
or all or substantially all of the assets, including every right and interest
the Investor may have in the Patent Rights and Know-How, of the Investor. The
Investor further agrees that prior to any transfer of this Agreement, consistent
with this Section, or any transfer of the shares issued hereunder, the Investor
will give written notice to the Company, together with a copy of the opinion of
the Investor's counsel as to the availability of exemption from
-5-
<PAGE>
registration under all applicable securities laws in connection with any such
transfer (which opinion will be reasonably satisfactory to counsel for the
Company).
(d) Law Governing. This Agreement will be governed by, and construed
-------------
and enforced in accordance with, the internal laws of the State of Delaware.
(e) Notices. Unless otherwise provided, all notices, requests,
-------
demands and other communications required or permitted under this Agreement will
be in writing and will be deemed to have been duly made and received: (i) upon
personal delivery or confirmed facsimile to the party to be notified; (ii) three
(3) business days after deposit with the United States Post Office, by
registered or certified mail or by first class mail, postage prepaid, addressed
as set forth below; or (iii) one (1) business day after deposit with Federal
Express or another reputable overnight courier (for next business day delivery),
shipping prepaid, addressed as set forth below:
(i) If to the Company, then to:
GenVec, Inc.
12111 Parklawn Drive
Rockville, MD 20852
Attn: Chief Financial Officer
----
with a copy to:
Attn: Vice President -- Business Development
(ii) If to the Investor, then to:
Scios Inc.
2450 Bayshore Parkway
Mountain View, CA 94043
Attn: General Counsel
----
with a copy to:
Attn: Vice President -- Business Development
----
Either party may change the address to which communications are to be sent by
giving five (5) business days' advance notice of such change of address to the
other party in conformity with the provisions of this Section.
(f) Headings. The headings in this Agreement are for purposes of
--------
reference only and will not affect the meaning or construction or any of the
provisions hereof.
-6-
<PAGE>
(g) Execution; Counterparts. This Agreement may be executed in any
-----------------------
number of counterparts, each of which will be deemed to be an original as
against any party whose signature appears on such counterpart, and all of which
will together constitute one and the same instrument. This Agreement will become
binding when one or more counterparts of this Agreement, individually or taken
together, bear the signatures of all of the parties to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Class D Preferred Stock
Purchase Agreement as of the date first above written.
SCIOS INC.
By:
-----------------------------------
Name:
Title:
GENVEC, INC.
By:
-----------------------------------
Thomas W. D'Alonzo
President
-7-
<PAGE>
EXHIBIT 10.8
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of the 26th day of September 1997, by and
between GenVec, Inc., a Delaware corporation with its principal place of
business at 12111 Parklawn Drive, Rockville, Maryland 20852 (the "Company"), and
FUSO Pharmaceutical Industries, Ltd., a corporation organized under the laws of
Japan, with its principal place of business at 3-11, 2-Chome, Morinomiya, Joto-
ku, Osaka 536, Japan and its registered head office at 7-10 1-Chome, Doshomachi,
Chuo-ku, Osaka 541, Japan (the "Investor"), with reference to the following
recitals:
WHEREAS, the Company was incorporated on December 7, 1992, under the laws
of the State of Delaware;
WHEREAS, the Company and the Investor have entered into a Collaboration
Agreement, dated as of the date hereof and a Commercialization Agreement, dated
as of the date hereof (the "Collaboration and Commercialization Agreements"),
pursuant to which the Company has granted to the Investor a license to certain
intellectual property described in the Collaboration and Commercialization
Agreements for the uses described in the Collaboration and Commercialization
Agreements and the Company and the Investor have agreed to collaborate to
conduct research and develop certain gene therapy products for the treatment of
human cancer (the "Collaboration"); and
WHEREAS, the Investor desires to purchase certain of the shares of the
capital stock of the Company on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements, undertakings and
covenants set forth in this Agreement, and for other good and valuable
consideration, the receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. Terms of Sale. Subject to the terms and conditions of this Section 1,
-------------
the Company will issue and sell to the Investor, and the Investor will purchase
from the Company, 444,445 shares of the Company's Class E Convertible Preferred
Stock, par value $.01 per share (the "Shares"), for an aggregate purchase price
of one million one and 25/100 U.S. dollars ($1,000,001.25). On or before the
fourteenth (14th) business day after the date hereof, the Investor will deliver
to the Company a certified bank check, payable to the order of the Company, or a
wire transfer of immediately available funds, in an amount of one million one
and 25/100 U.S. dollars ($1,000,001.25) in payment for the Shares. Upon receipt
of such payment by the Company on a business day, subject to receipt of
stockholder approval ("Stockholder Approval") of the Company's Restated
Certificate of Incorporation attached hereto as Exhibit A (the "Restated
---------
Certificate"), the Investor will be deemed to be the holder of record of the
Shares and the Company will promptly execute a certificate
<PAGE>
evidencing issuance to the Investor of the appropriate number of fully-paid and
non-assessable Shares.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) The Company has all necessary corporate power to enter into this
Agreement, and, subject to receipt of Stockholder Approval, to issue and deliver
the Shares hereunder and to carry out all of the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby, including,
without limitation, the issuance of the Shares, will, subject to receipt of
Stockholder Approval, be duly authorized by all requisite corporate action on
the part of the Company. This Agreement constitutes a valid and binding
instrument of the Company, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(c) Upon receipt of Stockholder Approval, the Company's authorized
capital stock will consist of (i) 52,005,095 shares of Common Stock, par value
$.01 per share, 5,687,473 of which are outstanding; (ii) 1,334,000 shares of
Class A Convertible Preferred Stock, par value $.01 per share, 1,334,000 of
which are outstanding; (iii) 11,800,468 shares of Class B Convertible Preferred
Stock, par value $.01 per share, 11,320,314 of which are outstanding; (iv)
21,065,000 shares of Class C Convertible Preferred Stock, par value $.01 per
share, 21,065,000 of which are outstanding; (v) 2,000,000 shares of Class D
Convertible Preferred Stock, par value $.01 per share, 571,429 of which are
outstanding and (vi) 444,445 shares of Class E Convertible Preferred Stock, par
value $.01 per share, none of which are outstanding. All outstanding shares of
capital stock are, and the Shares, when issued in accordance with or as
contemplated by the terms of this Agreement, will be, validly issued and
outstanding, fully paid and non-assessable. The shares of Common Stock issuable
upon conversion of the Shares are duly and validly authorized and reserved for
issuance. Each share of Class E Convertible Preferred Stock will be convertible
into a share or shares of Common Stock, at the rate, and otherwise has the
designations, preferences, limitations and rights, provided for in Article NINTH
of the Restated Certificate.
(d) The Company has made available to the Investor the Company's
audited financial statements for its most recent fiscal year and unaudited
financial statements for its most recent interim period, in each case, to the
extent available. As of the date of this Agreement, the financial statements
provided are attached hereto as Exhibit B. The annual statements have been
---------
prepared in a manner consistent with generally accepted accounting principles in
the United States ("GAAP") and the interim financial statements have been
prepared in a manner consistent with the annual financial statements (subject to
normal year-end audit adjustments and the omission of footnotes required by
GAAP).
-2-
<PAGE>
(e) The Company has no liabilities, except: (i) as disclosed or
reflected in the financial statements attached hereto as Exhibit B; (ii)
---------
liabilities not in excess of two hundred fifty thousand U.S. dollars
($250,000.00); or (iii) as disclosed on Exhibit C.
---------
(f) To the Company's knowledge, there are neither any pending nor
threatened suits, legal proceedings, claims or governmental investigations
against or with respect to the Company or its properties or assets nor any basis
for any such suit, legal proceedings, claim or governmental investigation.
3. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants that:
(a) The Investor is acquiring the Shares for purposes of investment
for its own account and not with a view to, or for resale in connection with,
the distribution thereof, as those terms are used in the Securities Act of 1933,
as amended (the "Securities Act"), and the rules and regulations promulgated
thereunder. The Investor has been advised and acknowledges that it will not be
able to dispose of the Shares, or any interest therein, without first complying
with the relevant provisions of the Securities Act and any applicable state
laws. The Investor also understands that the provisions of Rule 144 promulgated
under the Securities Act, permitting routine sales of securities of certain
issuers subject to the terms and conditions thereof, are not currently available
to it with respect to the Shares. The Investor acknowledges that the Company is
under no obligation to register the Shares or to take any action to assist the
Investor in complying with terms and conditions of any exemption that might be
available under the Securities Act or any state securities laws with respect to
sales of the Shares by the Investor in the future.
(b) The Investor has all corporate power to enter into this Agreement
and to carry out all of the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Investor and the consummation
of the transactions contemplated hereby have been duly authorized by all
requisite corporate action on the part of the Investor. This Agreement
constitutes a valid and binding instrument of the Investor, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(c) The Investor is an "accredited investor," as that term is defined
in Rule 501 promulgated under the Securities Act.
(d) The Investor either is (i) not an "Investment Company," as that
term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), or (ii) excluded from the definition of an Investment
Company under Section 3(c)(1) of the Investment Company Act.
(e) The Investor acknowledges that the representations, agreements and
acknowledgments set forth above are being given by the Investor with the
understanding that they
-3-
<PAGE>
will be relied on by the Company and its Board of Directors to claim the
availability of the exemption from the registration provisions of the Securities
Act contained in Regulation D promulgated thereunder.
(f) The Investor believes that it has received all the information it
considers necessary or appropriate for deciding whether to purchase the Shares.
In addition, it has had an opportunity to discuss the Company's business,
management, and financial affairs with the Company's management and to review
the Company's facilities. It has had an opportunity to ask questions of
officers of the Company, which questions were answered to the Investor's
satisfaction. It understands that its discussions, as well as the written
information given to it by the Company, were intended to describe the aspects of
the Company's business and prospects which the Company believes to be material,
but were not necessarily a thorough or exhaustive description. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 hereof or the right of the Investor to rely thereon.
4. Covenants of the Company. The Company hereby covenants that, so long
------------------------
as (i) the Investor owns any shares of the Company's Class E Convertible
Preferred Stock or shares of Common Stock into which such shares of Class E
Convertible Preferred Stock have been converted and (ii) the Company has not
consummated an underwritten public offering of Common Stock pursuant to one or
more registration statements filed under the Securities Act (or any successor
statute), the Company shall furnish to the Investor the financial statements and
reports described in (a) and (b) of this section, such annual financial
statements to be prepared in accordance with generally accepted accounting
principles in the United States consistently applied (except as may be noted
therein) and such interim financial statements to be prepared in a manner
consistent with the annual financial statements (subject to normal year-end
audit adjustments and the omission of footnotes), certified by the Company's
chief executive or financial officer:
(a) As soon as available, and in any event within 120 days after the
end of each fiscal year of the Company, a balance sheet of the Company as of the
end of such fiscal year and related statements of operations, stockholders'
equity and cash flows for such fiscal year, all in reasonable detail and setting
forth in comparative form the figures as of the end of and for the previous
fiscal year, which financial statements shall have been audited and shall be
accompanied by an opinion addressed to the Company from independent auditors;
and
(b) As soon as available, and in any event within 60 days after the
end of each fiscal quarter of the Company, an unaudited balance sheet and
unaudited statements of operations and cash flows.
5. Covenants of the Investor.
-------------------------
(a) The Investor agrees that it will not sell, assign, pledge,
hypothecate, encumber or in any other manner transfer or dispose (a "Transfer")
of the Shares or any shares of Common Stock into which such Shares have been
converted (collectively, the "Securities") during the
-4-
<PAGE>
Research Program Term (as defined in the Collaboration Agreement), without
express written consent from the Company.
(b) Before any Securities held by the Investor may be sold or
otherwise transferred (including transfer by gift or operation of law), the
Company shall have a right of first refusal to purchase the Securities on the
terms and conditions set forth in this Section 5(b) (the "Right of First
Refusal").
(i) Notice of Proposed Transfer. The Investor shall deliver to
---------------------------
the Company a written notice (the "Notice") stating: (A) the Investor's bona
fide intention to sell or otherwise transfer such Securities; (B) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (C) the
number of Securities to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Investor proposes to
transfer the Securities (the "Offered Price"), and the Investor shall offer the
Securities at the Offered Price to the Company.
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company may, by giving written
notice to the Investor, elect to purchase all, but not less than all, of the
Securities proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(b)(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Securities purchased by the Company under this Section 5(b) shall be the
Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the
Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made in
-------
cash (by certified bank check, payable to the order of the Investor, or wire
transfer of immediately available funds) within thirty (30) days after receipt
of the Notice or in the manner and at the times set forth in the Notice.
(v) Holder of Company Securities' Right to Transfer. If all of
-----------------------------------------------
the Securities proposed in the Notice to be transferred to a given Proposed
Transferee are not purchased by the Company as provided in this Section 5(b),
then the Investor may sell or otherwise transfer such Securities to the Proposed
Transferee at the Offered Price or at a higher price, provided that (i) such
sale or other transfer is consummated within ninety (90) days after the date of
the Notice; (ii) any such sale or other transfer is effected in accordance with
any applicable securities laws; and (iii) the Proposed Transferee agrees in
writing to be bound by the obligations of the Investor set forth in this
Agreement. If the Securities described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company shall again be offered the Right of First Refusal
before any Securities held by the Investor may be sold or otherwise transferred.
-5-
<PAGE>
(vi) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate upon an initial underwritten public offering of the
Company's securities.
(c) The Investor agrees to hold the Securities subject to all
applicable provisions of the Securities Act, the Restated Certificate and the
Amended and Restated Bylaws of the Company and this Agreement.
(d) The Investor shall give the Company prompt written notice of any
proposed disposition of the Securities and shall not proceed with any such
proposed disposition without the express written consent required by paragraph
(a) of this Section 5 and unless a registration statement under the Securities
Act is in effect with respect to the Securities and any applicable state
securities laws have been complied with or unless the Company shall have
received an opinion of counsel, satisfactory to the Company, to the effect that
such registration is not required. In addition, the Investor agrees the
certificates representing the Securities issued to it pursuant hereto may bear
the following or similar legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST
REFUSAL AND A CONTRACTUAL LIMITATION ON THEIR ASSIGNMENT, PLEDGE,
HYPOTHECATION, ENCUMBRANCE, TRANSFER OR OTHER DISPOSITION DESCRIBED IN THE
STOCK PURCHASE AGREEMENT DATED SEPTEMBER 25, 1997. IN ADDITION, THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE. NEITHER THE SHARES NOR ANY INTEREST OR
PARTICIPATION IN THE SHARES MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED,
ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF THE IN ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES
ACT, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
(e) The Investor agrees not to disclose to third parties any
confidential or proprietary information concerning the Company which is
furnished to the Investor by the Company except as required by law or legal
process. the term "confidential information" does not include information which
(i) was or becomes generally available to the public other than as a result of a
disclosure by such Investor, or (ii) was or becomes available to such Investor
on a non-confidential basis from a source other than the Company, provided that
such source is not bound by a confidentiality agreement with the Company.
-6-
<PAGE>
(f) The Investor agrees in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any securities of the Company (other than those securities included in the
registration) without the prior written consent of the Investor or the
underwriters managing such initial underwritten public offering of the Company's
securities (the "Managing Underwriter") for one hundred eighty (180) days, or
such longer period of time as may be requested by the Managing Underwriter, from
the effective date of such registration, and (2) further agrees to execute any
agreement reflecting (1) above as may be requested by the Managing Underwriter.
The Investor shall cause any proposed purchaser, assignee, transferee or pledgee
of any shares held by the Investor to agree to take and hold such securities
subject to this Section 5(f).
(g) The Investor agrees that it will not, directly or indirectly,
acquire, offer to acquire, agree to acquire, become the beneficial owner of or
obtain any rights in respect of any capital stock of the Company, by purchase or
otherwise, except as contemplated by this Agreement or as otherwise expressly
agreed to in writing by the Company.
6. Opinion of Counsel. On or before September 25, 1997, the Company's
------------------
counsel will deliver to the Investor an opinion, in form and substance
reasonably satisfactory to the Investor, that the Shares, when sold and
delivered in accordance with this Agreement, will be duly authorized, validly
issued and outstanding, fully paid and non-assessable.
7. Miscellaneous
-------------
(a) Amendments and Waivers. This Agreement and any provision hereof
----------------------
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought, provided, however, a change, waiver,
discharge or termination signed by a majority of the holders of the Securities
shall be deemed to be binding on all holders of Securities at the time
outstanding and each future holder of such Securities.
(b) Successors and Assigns. This Agreement will be binding upon and
----------------------
inure to the benefit of the successors and assigns of the Company and the
successors and permitted assigns of the Investor.
(c) Transferability. The Investor may not transfer or assign this
---------------
Agreement, or any of the rights or obligations hereunder, unless it is
transferred or assigned to the purchaser of all of the outstanding capital stock
or all or substantially all of the assets of the Investor, including every right
and interest the Investor may have in the Collaboration Agreement. The Investor
further agrees that prior to any transfer of this Agreement, consistent with
this Section, or any transfer of the Securities, the Investor shall comply with
all provisions of Section 5 of this Agreement.
(d) Law Governing. This Agreement will be governed by, and construed
-------------
and enforced in accordance with, the internal laws of the State of Delaware.
-7-
<PAGE>
(e) Notices. Unless otherwise provided, all notices, requests,
-------
demands and other communications required or permitted under this Agreement will
be in writing and will be deemed to have been duly made and received: (i) upon
personal delivery or confirmed facsimile to the party to be notified; (ii) seven
(7) business days after deposit with the Unites States Post Office, by
registered or certified mail or by first class mail, postage prepaid, addressed
as set forth below (or Japanese equivalent of the foregoing); or (iii) two (2)
business days after deposit with Federal Express or another reputable overnight
courier (for two business day delivery), shipping prepaid, addressed as set
forth below:
(i) if to the Company, then to:
GenVec, Inc.
12111 Parklawn Drive
Rockville, MD 20852
Attn: President
with a copy to:
Attn: Chief Financial Officer
(ii) If to the Investor, then to:
FUSO Pharmaceutical Industries, Ltd.
3-11, 2-Chome Morinomiya, Joto-ku
Osaka 536, Japan
Attn: President
with a copy to:
Attn: Chief Financial Officer
Either party may change the address to which communications are to be sent by
giving five (5) business days' advance notice of such change of address to the
other party in conformity with the provisions of this Section.
(f) Headings. The headings in this Agreement are for purposes of
--------
reference only and will not affect the meaning or construction or any of the
provisions hereof.
(g) Execution; Counterparts. This Agreement may be executed in any
-----------------------
number of counterparts, each of which will be deemed to be an original as
against any party whose signature appears on such counterpart, and all of which
will together constitute one and the same instrument. This Agreement will become
binding when one or more counterparts of this Agreement, individually or taken
together, bear the signatures of all of the parties to this Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Stock Purchase Agreement
as of the date first above written.
FUSO Pharmaceuticals Industries, Ltd.
By:
--------------------------------------
Mikio Toda
President
GenVec, Inc.
By:
--------------------------------------
Paul H. Fischer, Ph.D.
President and Chief Executive Officer
-9-
<PAGE>
Exhibit A
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"GENVEC, INC.", FILED IN THIS OFFICE ON THE TWENTY-SIXTH DAY OF JUNE, A.D. 1996,
AT 9:05 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
GENVEC, INC.
The undersigned, Thomas W. D'Alonzo, President of Genvec, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The present name of the Corporation is GenVec, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of the State of Delaware on
December 7, 1992.
3. This Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of Section 245 of the Delaware General
Corporation Law, the Board of Directors having duly adopted resolutions
declaring advisable this Restated Certificate of Incorporation.
4. This Restated Certificate of Incorporation is being filed pursuant to
Section 245 of the Delaware General Corporation Law in order to restate and
integrate the Certificate of Incorporation of the Corporation. This Restated
Certificate of Incorporation does not further amend the provisions of the
Certificate of Incorporation of the Corporation as amended previously, and there
is no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation.
5. The Certificate of Incorporation of the Corporation is hereby restated
in its entirety as follows:
-2-
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF GENVEC, INC.
FIRST: The name of the Corporation is:
GENVEC, INC.
SECOND: The address of its registered office in the State of Delaware is:
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The name of its registered agent at such address is: THE
CORPORATION TRUST COMPANY.
THIRD: The nature of the business or purposes to be conducted or
promoted is:
To have unlimited power to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The name and mailing address of the incorporator is as follows:
Name Address
---- -------
Raymond O. Agran 12th Floor Packard Building
15th and Chestnut Streets
Philadelphia, PA 19102
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
SIXTH: Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SEVENTH:
A. Elimination of Certain Liabilities of Directors. A director of
-----------------------------------------------
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that this shall not exempt a director from liability (i) for
- -----------------
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which a director derived an improper personal benefit. If the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal
-3-
<PAGE>
liability provided herein, shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal of modification.
B. Indemnification and Insurance.
-----------------------------
(1) Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "Proceeding"), by reason of the fact that he or she, or a person
for whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, the rights of
indemnification provided hereby shall continue as theretofore notwithstanding
such amendment unless such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors, administrators and personal
representatives; provided, however, that, except as provided in Section (B)(2)
-----------------
of this Article, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) authorized by
the board of directors of the Corporation.
The right to indemnification conferred in this section shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
-----------------
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall he made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this section or
otherwise. The Corporation may, by action of its board of directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
-4-
<PAGE>
(2) Right of Claimant to Bring Suit. A claimant may bring suit
-------------------------------
against the Corporation under Section (B)(1) of this Article only if the
Corporation fails to pay in full within thirty days of its receipt of a written
claim for payment hereunder. If successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim
(including, but not limited to, attorneys' fees). It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of providing such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification
--------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this section shall not be exclusive of any other
right that any person may have or hereafter acquire under any statute, provision
of the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
C. Amendment. Notwithstanding the provisions of this Certificate of
---------
Incorporation and any provisions of the by-laws of the Corporation, no amendment
to this Certificate of Incorporation shall amend, modify or repeal any or all of
this Article SEVENTH unless adopted by the affirmative vote of the consent of
holders of not less than three-fourths of the outstanding shares of stock of the
Corporation entitled to vote in elections of directors, considered for purposes
of this Article as a class.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of
-5-
<PAGE>
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
NINTH: The aggregate number of shares which the Corporation shall have
authority to issue is 88,204,563 of which 52,005,095 shall be designated as
Common Stock, par value $0.01 per share ("Common Stock"), 1,334,000 shall be
designated as Class A Convertible Preferred Stock, par value $.01 per share
("Class A Preferred Stock"), 11,800,468 shall be designated as Class B
Convertible Preferred Stock, par value $0.01 per share, ("Class B Preferred
Stock"), 21,065,000 shall be designated as Class C Convertible Preferred Stock,
par value $.01 per share ("Class C Preferred Stock"), and 2,000,000 shall be
designated as Class D Convertible Preferred Stock, par value $.01 per share
("Class D Preferred Stock") (the Class A Preferred Stock, Class B Preferred
Stock, Class C Preferred Stock and Class D Preferred Stock, unless otherwise
indicated, are hereinafter referred to collectively as the "Preferred Stock") .
The following is a statement of the designations, preferences,
limitations and relative rights in respect of the shares of each class of stock
of the Corporation:
A. Common Stock.
------------
(1) Voting Rights. Each holder of record of Common Stock shall
-------------
have the right to one vote for each share of Common Stock standing in the name
of such holder on the books of the Corporation.
(2) Dividends. Subject to the rights of the holders of the
---------
Preferred Stock, each holder of record of Common Stock will be entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors.
B. Preferred Stock. Except as provided in Section B(5)(d)(i) of
---------------
this Article, each share of Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock and Class D Preferred Stock is identical in all respects
and possesses the same designations, limitations and rights as each other share
of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and
Class D Preferred Stock, as the case may be. Except as provided in Sections
B(2)(b), B(3)(a), B(5)(a) and B(5)(d) of this Article, the Class A Preferred
Stock, Class B Preferred Stock, Class C
-6-
<PAGE>
Preferred Stock and Class D Preferred Stock are identical in all respects and
possess the same designations, limitations and rights.
(1) Dividends. In the event that the Corporation declares or
---------
pays any dividend on the Common Stock or makes, directly or indirectly, any
other distribution in respect to the Common Stock, the holders of Preferred
Stock shall be entitled to participate with the holders of Common Stock in any
such dividends paid or set aside for payment, such that the holders of Preferred
Stock shall receive, with respect to each share of Preferred Stock, an amount
equal to (a) the dividend payable with respect to each share of Common Stock
multiplied by (b) the number of shares (and fraction of a share, if any) of
Common Stock into which such share of Preferred Stock is convertible as of the
record date for such dividend.
(2) Voting Rights.
-------------
(a) Except as otherwise provided herein or by law, the holders of
Preferred Stock shall have full voting rights and powers, they shall be entitled
to vote on all matters as to which holders of the Common Stock shall be entitled
to vote, they shall vote together with the holders of the Common Stock as a
single class, and they shall be entitled to one vote for each share of Common
Stock which would be held by them if all of their shares of Preferred Stock
would be converted into shares of Common Stock under Section B(5) of this
Article.
(b) Except as otherwise provided herein or by law, the vote or consent
of at least two-thirds of the outstanding shares of the Class C Preferred Stock
voting as a separate class shall be required for the following actions:
(i) any change in the rights, preferences, or privileges of
the Class C Preferred Stock;
(ii) any amendment, repeal or addition of any provision
of or to the By-Laws, if such action would adversely affect the
preferences, rights, privileges or powers of, or restrictions provided for
the benefit of, the Class C Preferred Stock;
(iii) the authorization of any class of equity securities
ranking prior to or having preference over the Class C Preferred
Stock with respect to dividends, redemption or assets of the Corporation;
(iv) the reclassification of any shares of Common Stock
into shares of any class of equity securities ranking prior to or having
preference over the Class C Preferred Stock with respect to dividends,
redemption or assets of the Corporation;
-7-
<PAGE>
(v) the merger or consolidation of the Corporation into or
with any other corporation, the sale of all or substantially all of the
Corporation's assets, or the liquidation of the assets of the Corporation,
provided, however, that no such vote or consent under this Section B(2) (b)
-------- -------
(v) shall be required if the aggregate price to be paid to the
Corporation's stockholders in the merger, consolidation, sale or
liquidation is equal to or greater than an amount determined by multiplying
(X) $1.50 per share, as adjusted to reflect any change in the number of
shares of the Corporation's Common Stock as a result of a stock split,
stock dividend, distribution payable in shares of the Corporation's Common
Stock or other reclassification after September 19, 1995, by (y) the number
of outstanding shares of the Corporation's Common Stock (for purposes of
this determination only, a securityholder holding capital stock of the
Corporation convertible into the Corporation's Common Stock shall be
treated as having converted all such convertible stock into the
Corporation's Common Stock at the applicable conversion rate, pursuant to
Section B(5) of this Article, in effect at the time of this determination);
and
(vi) the acquisition by the Corporation of any corporation or
other business entity if such a transaction involves (A) the issuance of
equity securities of the Corporation resulting in the new securityholders
having more than 25 percent of the voting power pursuant to Sections A(1)
and B(2) (a) of this Article or (B) the payment of cash consideration
equivalent to 25% of the product of (x) the sum of the number of shares of
Common Stock and Preferred Stock then outstanding and the number of such
shares underlying options and other rights to acquire such shares
(irrespective of whether such shares, options or other rights are
conditional or unvested) times (y) the then most recent price per share at
which the Corporation sold any shares of Preferred Stock in an offering
that yielded gross proceeds of not less than $5,000,000 to the Corporation.
(c) Whenever holders of the Preferred Stock or Common Stock,
separately or as a single class, are required or permitted to take any action,
such action may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
(3) Rights of Liquidation.
---------------------
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<PAGE>
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a "Liquidation"), before any distribution of assets of the
Corporation shall be made to or set apart for the holders of the Common Stock,
the holders of the Preferred Stock shall be entitled to receive payment out of
such assets of the Corporation in an amount per share equal to $0.50 per share
for each share of Class A Preferred Stock held by such holder, $1.00 per share
for each share of Class B Preferred Stock or Class C Preferred Stock held by
such holder and $1.75 per share for each share of Class D Preferred Stock held
by such holder (such amounts being referred to herein as "Liquidation
Preference") plus any declared but unpaid dividends on such shares of Preferred
Stock. If the assets of the Corporation available for distribution to the
holders of the Preferred Stock shall not be sufficient to make in full the
payments required by this Section B(3)(a), such assets shall be distributed
ratably among the holders of the Preferred Stock based upon the aggregate
Liquidation Preferences of the shares of Preferred Stock held by each such
holder.
(b) If the assets of the Corporation available for
distribution to stockholders exceed the aggregate amounts payable pursuant to
Section B(3)(a) of this Article above, the remainder of such assets shall be
distributed to the holders of Preferred Stock and Common Stock on a pro rata
basis, with the amount distributable to the holders of Preferred Stock to be
computed on the basis of the number of shares of Common Stock which would be
held by them if immediately prior to the Liquidation all of the outstanding
shares of such Preferred Stock had been converted into shares of Common Stock
under Section of this Article.
(c) A merger or consolidation involving the Corporation in
which the Corporation is not the surviving entity and a sale, lease or transfer
of all or substantially all of the assets of the Corporation shall, at the
option of holders representing a majority of the Preferred Stock voting as a
single class, be deemed a Liquidation, unless in connection with such
transaction, each holder of Preferred Stock receives a preferred stock having
terms and conditions which are no less favorable than the terms and conditions
of the Preferred Stock held by such holder prior to the transaction.
(d) Notwithstanding the provisions contained in Section
B(3)(c) of this Article above, in the event of a merger or consolidation
involving the Corporation in which the Corporation is not the surviving entity,
or a sale, lease or transfer of all or substantially all of the assets of the
Corporation, in which a holder of Preferred Stock would receive cash and/or
marketable securities (i.e., securities registered under the Securities Act of
----
1933, as amended, at the time of delivery, or securities committed to be so
registered within 60 days after delivery) in an amount less than the aggregate
Liquidation Preference of the shares of Preferred Stock held by such holder,
then holders of a majority of the Preferred Stock then outstanding, voting as a
single class, may elect, in lieu of all other rights under the terms of the
transaction or this Article, to receive an amount equal to their aggregate
Liquidation Preference for such shares of Preferred Stock. If the holders make
such an election, each such holder shall have a priority on such holder's pro
rata portion of all cash and marketable securities received in such transaction
to the extent of the aggregate Liquidation Preference for such holder's shares
of Preferred Stock. Such election shall be made by the holders by
-9-
<PAGE>
written notice to the Corporation within 30 days after the date of stockholder
approval of the transaction (or within 30 days after receiving notice of such
transaction from the Corporation if the transaction is not submitted for
stockholder approval).
(e) In the event that the Corporation shall, at any time,
issue any shares of Preferred Stock (i) by stock dividend or any other
distribution upon any stock of the Corporation payable in shares of Preferred
Stock, or (ii) by a subdivision of its shares of outstanding Preferred Stock, by
reclassification or otherwise, the Liquidation Preference then in effect shall
be reduced proportionately, and, in like manner, in the event of any combination
of shares of Preferred Stock, by reclassification or otherwise, the Liquidation
Preference then in effect shall be proportionately increased.
(4) Actions Requiring the Consent of the Holders of the Preferred
-------------------------------------------------------------
Stock. As long as any shares of Preferred Stock remain outstanding, the consent
- -----
of the holders of at least a majority of the votes which holders of Preferred
Stock are entitled to cast, given in person or by proxy, either in writing
without a meeting or by vote at a meeting called for such purpose, shall be
necessary for effecting or validating any amendment, alteration or repeal of any
of the provisions of the Certificate of Incorporation or the By-Laws of the
Corporation which (a) increases the number of authorized shares of any class of
capital stock, (b) adversely affects the rights, preferences or powers of any
class of Preferred Stock or of the holders thereof or (c) decreases the required
time for the giving of any notice to which the holders of Preferred Stock may be
entitled.
(5) Conversion.
----------
(a) Right To Convert. A holder of record of any share or
----------------
shares of Class A Preferred Stock shall have the right at any time, at such
holder's option, to convert, without the payment of any additional
consideration, each share of Class A Preferred Stock held by such holder into
that number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (i) .50 by (ii) the Conversion Factor (as defined in
Section B(5)(d) of this Article below) then in effect for the Class A Preferred
Stock. A holder of record of any share or shares of Class B Preferred Stock,
Class C Preferred Stock or Class D Preferred Stock shall have the right at any
time, at such holder's option, to convert, without the payment of any additional
consideration, each share of Class B Preferred Stock, Class C Preferred Stock or
Class D Preferred Stock held by such holder into that number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (X) 1 by (Y)
the Conversion Factor (as defined in Section B(5)(d) of this Article below) then
in effect for the Class B Preferred Stock, Class C Preferred Stock or Class D
Preferred Stock, as applicable; provided, however, that the provisions of
-----------------
B(5)(d)(i) shall not apply to the Conversion Factor for Class D Preferred Stock.
No fractional shares or scrip representing fractional shares shall be issued
upon the conversion of any Preferred Stock. With respect to any fraction of a
share of Common Stock called for upon any conversion after completion of the
calculation of the aggregate number of shares of Common Stock to be issued to
such holder, the Corporation shall pay to such holder an amount in cash equal to
any fractional share to which such holder would be entitled,
-10-
<PAGE>
multiplied by the current market value of a
share, as determined in good faith by the Board of Directors of the Corporation.
(b) Mechanics of Conversion. If the holder of shares of
-----------------------
Preferred Stock desires to exercise such right of conversion, such holder must
give written notice to the Corporation (the "Conversion Notice") of the election
by such holder to convert a stated number of shares of Preferred Stock (the
"Conversion Shares") into shares of Common Stock on the date specified in the
Conversion Notice (which date shall not be earlier than the date on which the
Corporation receives the Conversion Notice (the "Conversion Date)), and by
surrender of the certificate or certificates representing such Conversion
Shares. The Conversion Notice shall also contain a statement of the name or
names (with addresses) in which the certificate or certificates for Common Stock
shall be issued. Promptly after the Conversion Date and the surrender of the
Conversion Shares, the Corporation shall issue and deliver, or cause to be
delivered, to the holder of the Conversion Shares or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
issuable upon the conversion of such Conversion Shares. Such conversion shall be
deemed to have been effected as of the close of business on the Conversion Date,
and the person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the holder or
holders of record of such shares of Common Stock as of the close of business on
such date.
(c) Common Stock Reserved. The Corporation shall at all
---------------------
times reserve and keep available out of its authorized but unissued Common
Stock, solely for issuance upon the conversion of shares of Preferred Stock as
herein provided, such number of shares of Common Stock as shall from time to
time be issuable upon the conversion of all of the shares of Preferred Stock at
the time outstanding.
(d) Conversion Factor. The initial conversion factor for
-----------------
the Class A Preferred Stock shall be .50 and the initial conversion factor for
the Class B Preferred Stock, the Class C Preferred Stock and the Class D
Preferred Stock shall be 1, subject to adjustment, in each case, in accordance
with the provisions in this Section B(5)(d), except that the provisions of
B(5)(d)(i) shall not apply to the Conversion Factor for Class D Preferred Stock.
Such respective conversion factors in effect from time to time, as adjusted
pursuant to the applicable provisions of this Section B(5)(d), are referred to
herein as the "Conversion Factor" for the Class A Preferred Stock, the Class B
Preferred Stock, the Class C Preferred Stock or the Class D Preferred Stock, as
applicable. All of the remaining provisions of this Section B(5)(d) shall apply
separately to the respective Conversion Factors in effect from time to time;
provided, however, that the provisions of B(5)(d)(i) shall not apply to the
- -----------------
Conversion Factor for Class D Preferred Stock.
(i) In the event that the Corporation shall, at any
time or from time to time, issue or sell any shares of the capital stock of the
Corporation (including treasury shares, but excluding (x) 1,334,000 shares of
Class A Preferred Stock and 21,065,000 shares of Class C Preferred Stock, (y) an
aggregate of 15,805,627 shares of Common Stock and an aggregate of 11,800,468
shares of Class B Preferred Stock that have been issued, have been reserved for
-11-
<PAGE>
issuance or will be issued pursuant to options, warrants or other commitments
which have been granted or executed as of December 12, 1995 or will be granted
or executed pursuant to the Corporation's 1993 Stock Incentive Plan, and (z) the
shares of Common Stock issuable upon conversion of the Preferred Stock), then,
immediately upon such issuance or sale, the Conversion Factor shall be reduced
as follows:
(A) The Conversion Factor shall be changed to a
number determined by multiplying the Conversion Factor in effect immediately
prior to such issuance by the following fraction:
A + B
---
C
---------
A + D
wherein:
A = the number of Outstanding Shares (as defined below)
immediately prior to the subject issuance;
B = the aggregate consideration in dollars for the shares
then being issued, expressed as an absolute number;
C = the Conversion Factor in effect immediately prior to
the subject issuance with respect to the applicable
class of Preferred Stock; and
D = the number of shares then being issued.
The applicable Conversion Factor shall be further reduced from time to time
thereafter whenever any shares are so issued or converted for a price per share
lower than the amount of the applicable Conversion Factor, then in effect, as
adjusted prior to that date.
(B) In the event that any shares shall be issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In the event that any shares shall be
issued for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be deemed to be the fair value
of such consideration, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith. Whenever shares are issued upon the exercise of warrants,
options or other conversion rights, the consideration received therefor shall
include both the consideration paid upon the issuance and upon the exercise of
such warrant, option or other right.
-12-
<PAGE>
(C) In the event that the Corporation shall in
any manner grant (whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase any Common Stock or securities
convertible into Common Stock ("Convertible Securities"), or any options for the
purchase of any Common Stock or Convertible Securities, whether or not such
rights or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which shares
of Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by dividing
(I) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Corporation
upon the exercise of such rights or options, or plus, in the case of any
Convertible Securities or rights or options to purchase Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (II) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Conversion Factor in effect
immediately prior to the time of the granting of such rights or options, then
the total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon conversion or exchange of all such Convertible
Securities issuable or issuable upon the exercise of such rights or options
shall be deemed to be outstanding as of the date of the granting of such rights
or options and to have been issued for such price per share, with the effect on
the applicable Conversion Factor specified in Section (5)(d)(i) of this Article.
No further adjustment of the applicable Conversion Factor shall be made upon the
actual issue of such Common Stock or upon the actual issue of such Convertible
Securities upon exercise of such rights or options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities.
(D) If the purchase price provided for in any
right or option referred to in Section B(5)(d)(i)(C) of this Article, or the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change (other than under
or by reason of provisions designed to protect against dilution), the Conversion
Factor then in effect hereunder shall forthwith be readjusted (increased or
decreased, as the case may be) to the Conversion Factor which would have been in
effect at such time had such rights, options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued or
sold.
(E) Notwithstanding the foregoing, upon the
consent of the holders of two-thirds of the applicable class of Preferred Stock
affected and then outstanding, if the Conversion Factor for the applicable class
of Preferred Stock, as set forth in this Section B(5)(d)(i) otherwise would be
reduced, no such reduction in the Conversion Factor for the applicable class of
Preferred Stock, as set forth in this Section B(5)(d)(i), shall occur.
-13-
<PAGE>
(F) Notwithstanding the foregoing, if any holder
of shares of Preferred Stock is entitled to exercise the preemptive rights (the
"Preemptive Right") set forth in Section 9 of the Second Class C Preferred Stock
Purchase Agreement, dated as of September 19, 1995, or in Schedule 9 of the
Amendment and Waiver Agreement, dated as of September 19, 1995 (collectively,
the "Purchase Agreement") with respect to any "Issuance" (as defined in Section
9.2 of the Purchase Agreement) which would, absent the provisions of this
subsection (F), result in a reduction of the Conversion Factor applicable to
shares of such holder's Preferred Stock pursuant to Section B(5)(d)(i) of this
Article, and if such holder (a "Non-Participating Holder") does not, by exercise
of such holder's Preemptive Right, acquire not less than such holder's
"Proportionate Percentage" (as defined in Section 9.2 of the Purchase Agreement)
of the Issuance, then all of such holder's shares of Class A Preferred Stock,
Class B Preferred Stock and Class C Preferred Stock shall automatically, and
without further action on the part of such holder, be converted effective upon,
subject to and concurrently with consummation of the Issuance (the "Issuance
Date") as follows: each share of Class A Preferred Stock held by such Non-
Participating Holder shall be converted into one share of a newly created series
of preferred stock (having such number of shares as the Board of Directors may
by resolution fix) which such class shall be identical in all respects to the
Class A Preferred Stock, except that the Conversion Factor of such class shall
be fixed immediately prior to the Issuance Date and shall be subject to no
further adjustments pursuant to Section B(5)(d)(i) of this Article; each share
of Class B Preferred Stock held by such Non-Participating Holder shall be
converted into one share of a newly created class of preferred stock (having
such number of shares as the Board of Directors may by resolution fix) which
such class shall be identical in all respects to the Class B Preferred Stock,
except that the Conversion Factor of such class shall be fixed immediately prior
to the Issuance Date and shall be subject to no further adjustments pursuant to
Section B(5)(d)(i) of this Article; and each share of Class C Preferred Stock
held by such Non-Participating Holder shall be converted into one share of a
newly created class of preferred stock (having such number of shares as the
Board of Directors may by resolution fix) which such class shall be identical in
all respects to the Class C Preferred Stock, except that the Conversion Factor
of such class shall be fixed immediately prior to the Issuance Date and shall be
subject to no further adjustments pursuant to Section B(5)(d)(i) of this
Article. The Board of Directors of the Corporation shall take all necessary
actions to designate each such new class. Upon such conversion, the shares of
Class A Preferred Stock, Class B Preferred Stock and Class C Preferred Stock so
converted shall be cancelled and not subject to reissuance, but instead shall be
redesignated by the Board of Directors of the Corporation in accordance with the
terms of this Section B(5)(d)(i)(F).
(ii) Each adjustment in a Conversion
Factor shall be calculated to the nearest tenth of a cent.
(iii) As used in this Section B(5)(d), the
term "Outstanding Shares" shall be deemed to include the number of issued and
outstanding shares of Common Stock, plus the number of shares of Common Stock
issuable upon the conversion of the issued and outstanding shares of Preferred
Stock, but shall not include the new shares of Common Stock then being issued by
the Corporation.
-14-
<PAGE>
(iv) In the event that the Corporation
shall, at any time, issue any shares of Common Stock (A) by stock dividend or
any other distribution upon any stock of the Corporation payable in shares of
Common Stock or in shares of Preferred Stock, or (B) by subdivision of its
shares of outstanding Common Stock, by reclassification or otherwise, the
Conversion Factor then in effect shall be reduced proportionately, and, in like
manner, in the event of any combination of shares of Common Stock, by
reclassification or otherwise, the Conversion Factor then in effect shall be
proportionately increased.
(v) If any capital reorganization or
reclassification of the Common Stock of the Corporation, or consolidation or
merger of the Corporation with or into another corporation, or the sale or
conveyance of all or substantially all of its assets to another corporation
shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holders of the Preferred Stock shall thereafter have
the right to receive, in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable with respect to such shares of Preferred
Stock upon the exercise of their conversion rights, such shares of stock,
securities or assets as would have been issued or payable with respect to or in
exchange for the number of outstanding shares of such Common Stock immediately
theretofore receivable with respect to such shares of Preferred Stock upon the
exercise of such rights had such reorganization, reclassification,
consolidation, merger or sale not taken place. In any such case, appropriate
provision shall he made with respect to the rights and interests of the holders
of the Preferred Stock to the end that such conversion rights (including,
without limitation, provisions for adjustment of the applicable Conversion
Factor) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise thereof. The Corporation shall not effect any such
consolidation, merger or sale, unless it provides the holders of the Preferred
Stock at least 30 days advance notice thereof, and prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets, shall assume by written instrument, executed and mailed
or delivered to the holders of the Preferred Stock, the obligation to deliver to
such holders the shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to receive upon
conversion of the shares of Preferred Stock held by such holder.
(vi) If any event occurs as to which the
other provisions of this Section B(5)(d) are not strictly applicable, or if
strictly applicable would not fairly protect the conversion rights of the
Preferred Stock in accordance with the intent and principles of such provisions,
then the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such intent and principles, so as to protect such
conversion rights as aforesaid, but in no event shall any such adjustment have
the effect of increasing the applicable Conversion Factor as otherwise
determined pursuant to this Section B(5)(d).
(e) Stock Transfer Taxes. The issuance of stock certificates upon the
--------------------
conversion of the Preferred Stock shall be made without charge to the converting
holder for any
<PAGE>
tax in respect of such issuance. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares in any name other than that of the holder of
such shares of Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Factor, the Corporation, at its
expense, promptly shall compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Factor at the time in effect for the Preferred Stock, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of such Preferred Stock owned
by such holder.
(g) Notices of Record Date. In the event of any fixing by the
----------------------
Corporation of a record date for the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any shares of
Common Stock or other securities, or any right to subscribe for, purchase or
otherwise acquire, or any option for the purchase of, any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Preferred Stock at least 30 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(h) Notices. Any notice required by the provisions of this Section
-------
B(5) to be given to the holders of shares of Preferred Stock shall he deemed
given if deposited in the United States mail, first class postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
(6) Mandatory Conversion.
--------------------
(a) The Corporation shall cause the conversion ("Mandatory
Conversion") of all of the shares of Preferred Stock into fully paid and
nonassessable shares of Common Stock, at the conversion rate then in effect,
upon the occurrence of the Corporation's underwritten public offering of its
Common Stock pursuant to a registration statement (other than a registration
statement relating to an offer and sale of securities to employees of, or other
persons providing services to, the Corporation pursuant to an employee or
similar benefit plan, registered on Form S-8 or a comparable or successor form)
filed under the Securities Act of 1933, as amended, which yields to the
Corporation not less than $15,000,000 (before deducting any underwriters' or
-16-
<PAGE>
brokers' discounts, fees or commissions) and under which the offering price to
the public is equal to at least $1.50 per share (adjusted for any stock splits,
stock dividends, recapitalizations, mergers, consolidations or similar events
occurring after September 19, 1995) (a "Qualifying Public Offering").
(b) The date ("Mandatory Conversion Date") on which such Mandatory
Conversion shall be deemed to occur is the date on which a closing occurs
pursuant to a Qualifying Public Offering.
(c) On the Mandatory Conversion Date, all rights of the holders of
shares of the Preferred Stock as such holders shall cease except their right to
receive payment of any dividends declared and unpaid to such date; such shares
shall no longer be deemed to be outstanding; and the holders thereof shall on
and after such date be conclusively deemed for all purposes to be holders of the
shares of Common Stock into which their shares of Preferred Stock were
converted.
(d) The Corporation shall promptly give all holders of record of
shares of Preferred Stock written notice of the date that a Qualifying Public
Offering will occur or is anticipated to occur. Such notice shall also specify
the place designated for exchanging the shares of Preferred Stock for shares of
Common Stock. Such notice shall be sent by first class mail, postage prepaid,
to each holder of record of shares of Preferred Stock at such holder's address
as shown in the records of the Corporation. Each holder of shares of Preferred
Stock shall surrender its certificate or certificates for all such shares to the
Corporation or the transfer agent at the place designated in such notice and
shall, upon surrender, receive certificates for the number of shares of Common
Stock to which such holder is entitled.
(e) For the purpose of calculating the conversion ratio of Preferred
Stock into Common Stock in the event of a Mandatory Conversion, such calculation
shall be made in accordance with Section B(5) of this Article.
-17-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate
of Incorporation on behalf of the Corporation and have attested such execution
and do verify and affirm, under penalty of perjury, that this Restated
Certificate of Incorporation is the act and deed of the Corporation and that the
facts stated herein are true as of this 19th day of June, 1996.
GENVEC, INC.
By:
--------------------------------
Thomas W. D'Alonzo
President
Attest:
By:
--------------------------------
Charles A. Reinhart III
Secretary
(Corporate Seal)
-18-
<PAGE>
KPMG
The Global Leader
GENVEC, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
KPMG Peat Marwick LLP
Suite 400
8200 Greensboro Drive
McLean, VA 22102-3803
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GenVec, Inc.:
We have audited the accompanying balance sheets of GenVec, Inc. as of December
31, 1996 and 1995, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. 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 GenVec, Inc. as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the.
Company will continue as a going concern. As discussed in note 3 to the
financial statements, the Company has no source of revenue, has incurred
aggregated net losses of $27,604,590 and has insufficient cash flows to sustain
its operations. Such conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
April 11, 1997
1
<PAGE>
<TABLE>
<CAPTION>
GENVEC, INC.
Balance Sheets
December 31, 1996 and 1995
================================================================================================
ASSETS 1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,146,226 13,879,746
Investments (note 4) 2,579,124
Other current assets 268,640 284,689
Total current assets 7,993,990 14,164,435
Property and equipment (note 7):
Equipment 1,566,091 1,492,561
Leasehold improvements 176,311 176,311
Furniture and fixtures 58,256 45,399
1,800,658 1,714,271
Less: Accumulated depreciation and amortization (1,194,228) (690,943)
------------ -----------
Net property and equipment 606,430 1,023,328
------------ -----------
Other assets 37,950 38,464
------------ -----------
$ 8,638,370 15,226,227
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 955,986 463,831
Accrued payroll and related expenses 245,843 182,756
Current portion of capital lease obligation (note 7) 414,529 361,707
------------ -----------
Total current liabilities 1,616,358 1,008,294
Capital lease obligation, less current portion (note 7) 157,729 527,187
Stockholders' equity (notes 6 and 8):
Convertible preferred stock $.01 par value:
Class A, 1,334,000 shares authorized, issued and
outstanding (liquidation preference of $11,320,314) 13,340 13,340
Class B, 11,800,468 shares authorized and 11,320,314
shares issued and outstanding (liquidation preference of
$11,320,314) 113,203 113,203
Class C, 21,065,000 shares authorized, issuing and
outstanding (liquidation preference of $21,065,000) 210,650 210,650
Class D, 2,000,000 shares authorized and 571,429 shares
issued and outstanding in 1996 (liquidation preference of
$1,000,000) 5,714
Common stock, $.01 par value, 52,005,095 and 46,305,095
shares authorized and 5,826,087 and 3,683,141 shares issued
and outstanding in 1996 and 1995, respectively 58,260 36,831
Additional paid-in capital 34,095,613 32,813,151
Accumulated deficit (27,604,590) (19,496,429)
Treasury stock, at cost, 279,069 common shares (27,907)
------------ -----------
Total stockholders' equity 6,864,283 13,690,746
------------ -----------
Commitments (note 7)
$ 8,638,370 15,226,227
============ ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
GENVEC, INC.
Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Class A Class B Class C
Preferred Stock Preferred Stock Preferred Stock
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,334,000 $13,340 8,750,000 $ 87,500 -- --
Issuance of Class C
convertible
preferred shares, net
of issuance costs of
$______ (note 8) -- -- -- -- 8,700,000 87,000
Repayment of notes
receivable -- -- -- -- -- --
Purchase of Theragen,
Inc. (note 5) -- -- 2,165,696 21,657 -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1994 1,334,000 13,340 10,915,696 109,157 8,700,000 87,000
Issuance of Class C
convertible preferred
shares, net of issuance
costs of $53,698 (note 8) -- -- -- -- 12,365,000 123,650
Issuance of common stock -- -- -- -- -- --
Exercise of options -- -- -- -- -- --
Issuance of stock for
Theragen contingent shares,
net of issuance costs of
$13,335 (note 5) -- -- 404,618 4,046 -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1995 1,334,000 13,340 11,320,314 113,203 21,065,000 210,650
Issuance of Class D
convertible preferred
shares, net of issuance
costs of $8,683 (note 8) -- -- -- -- -- --
Exercise of options -- -- -- -- -- --
Options granted to
consultants -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1996 1,334,000 $13,340 11,320,314 $113,203 21,065,000 $210,650
--------- ---------- ---------- -------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
Class D Treasury
Preferred Stock Common Stock Additional stock
---------------- -------------------- paid in Accumulated -------
Shares Amount Shares Amount capital deficit Amount Total
------- -------- --------- ------- ----------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 -- -- 1,345,478 $13,455 $ 9,246,543 (3,254,126) -- 6,106,712
Issuance of Class C
convertible preferred
shares, net of issuance
costs of
$______ (note 8) -- -- -- -- 8,583,583 -- -- 8,670,583
Repayment of notes
receivable -- -- 30,000 -- -- 30,000
Purchase of Theragen,
Inc. (note 5) -- -- 1,796,469 17,964 2,329,000 -- -- 2,368,621
Net loss -- -- -- -- -- (8,693,131) -- (8,693,131)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1994 3,141,947 31,419 20,189,126 (11,947,257) 8,482,785
Issuance of Class C
convertible preferred
shares, net of issuance
costs of $53,698 (note 8) -- -- -- -- 12,187,652 -- -- 12,311,302
Issuance of common stock -- -- 120,500 1,205 10,845 -- -- 12,050
Exercise of options -- -- 46,092 461 4,577 -- -- 5,038
Issuance of stock for
Theragen contingent shares,
net of issuance costs of
$13,335 (note 5) -- -- 374,602 3,746 420,951 -- -- 428,713
Net loss -- -- -- -- -- (7,549,172) -- (7,549,172)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1995 -- -- 3,683,141 36,831 32,813,151 (19,496,429) -- 13,690,746
Issuance of Class D
convertible preferred
shares, net of issuance
costs of $8,683 (note 8) 571,429 5,714 -- -- 985,603 -- -- 991,317
Exercise of options -- -- 2,142,946 21,429 191,799 (27,907) (27,907)
Options granted to
consultants -- -- -- -- 105,060 -- -- 105,060
Net loss -- -- -- -- -- (8,108,161) -- (8,108,161)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1996 571,429 $5,714 5,826,087 $58,260 $34,095,613 (27,604,590) (27,907) 6,864,283
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
GENVEC, INC.
Statement of Operations
Years ended December 31, 1996, 1995, and 1994
=======================================================================================
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Research revenues (note 6) 698,370 1,005,000 1,000,000
----------- ----------- -----------
Operating expenses:
Research and development 6,077,683 6,499,830 5,645,764
General and administrative 2,947,165 2,025,131 1,605,722
Clinical and regulatory 160,315 - -
Product development 117,335 - -
Purchase of in-process technology (note 5) - 442,078 2,580,798
----------- ----------- -----------
Total operating expenses 9,302,498 8,967,039 9,832,284
----------- ----------- -----------
Loss from operations (8,604,128) (7,962,039) (8,832,284)
----------- ----------- -----------
Other income (expense):
Interest income 571,239 486,435 180,498
Interest expense (75,272) (73,568) (41,345)
----------- ----------- -----------
Total other income 495,967 412,867 139,153
----------- ----------- -----------
Net loss $(8,108,161) (7,549,172) (8,693,131)
=========== ========== ==========
Net loss per share $ (1.71) (2.28) (4.18)
=========== ========== ==========
Shares used for computation 4,730,436 3,311,783 2,078,831
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
GENVEC, INC.
Notes to Financial Statements
December 31, 1996 and 1995
================================================================================
(1) ORGANIZATION AND BUSINESS DESCRIPTION
GenVec, Inc. (the Company) was incorporated under the laws of the state of
Delaware on December 7, 1992. The Company is involved in the research and
development of in-vivo gene therapy products, whereby corrective or
therapeutic genes are introduced directly into affected organs and tissues.
The Company's early clinical applications are the development of gene
therapies for cardiovascular disease, cancer and cystic fibrosis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from research and development contracts is recognized when earned
as defined under the terms of the respective contracts. Revenue from
milestone events is recognized when the milestone is achieved. Revenue
recognized in the accompanying statements of operations is not subject to
repayment.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred. Such
costs include proprietary research and development activities and expenses
associated with collaborative research agreements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Capitalized lease assets are
stated at the lower of the present value of the future minimum lease
payments or fair market value at the inception of the lease.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets which is five years.
Leasehold improvements are amortized using the straight-line method over
the shorter of their estimated useful lives or the term of the leases.
Property and equipment held under capital lease are amortized using the
straight-line method over the lease term, which is 42 months.
5
<PAGE>
INCOME TAXES
Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109 (Statement 109).
(2) CONTINUED
Under the asset and liability method of Statement 109, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that are expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less, and are stated at market value which
approximates cost. Cash equivalents consist primarily of money market
funds and commercial paper.
INVESTMENTS
The Company's short-term investments, consisting primarily of bonds and
commercial paper, are classified as a held-to-maturity security portfolio
as the Company has both the ability and intent to hold the securities until
maturity. The portfolio is carried at amortized cost which approximates
fair value.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year.
Common stock equivalents, which consist of convertible preferred stock,
warrants and options, are not included in the calculation as their effect
would be anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles may require 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.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued
---------------------------
6
<PAGE>
to Employees, and related interpretations. As such, compensation expense
------------
would be recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
---------------------------------------
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosures of SFAS No.
123.
(3) LIQUIDITY
The accompanying financial statements have been prepared on a going concern
basis which contemplates the continuation of operations, realization of
assets, and liquidation of liabilities in the ordinary course of business.
The Company has incurred aggregate net losses of $27,604,590 and has
terminated its contract with a corporate sponsor which was its sole source
of revenue. The Company has insufficient cash flows to sustain its
operations. Such conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.
In a continuing effort to improve the situation, the Company is focusing
its strategy on pursuing corporate partnerships and exploring a variety of
other financing options to raise additional capital. Nevertheless, there
can be no assurance that the Company's efforts will result in positive
effects on the Company's financial condition.
(4) INVESTMENTS
The amortized cost, gross unrealized holding gains and losses and fair
value for held-to-maturity securities by major security type at December
31, 1996 were as follows:
Gross
unrealized
Amortized holding Fair
cost gains (losses) value
- --------------------------------------------------------------------------
Classified as investments:
Corporate bonds $1,686,350 15,759 1,702,109
Commercial paper 892,774 (6,537) 886,237
---------- ------ ---------
$2,579,124 9,222 2,588,346
---------- ------ ---------
Classified as cash equivalents:
Corporate bonds $ 601,932 37 601,969
7
<PAGE>
Commercial 989,656 - 989,656
---------- ------ ---------
$1,591,588 37 1,591,625
---------- ------ ---------
The above securities all mature in 1997.
(5) PURCHASE OF THERAGEN, INC.
Pursuant to an agreement effective August 8, 1994, the Company acquired
Theragen, Inc., a gene therapy company incorporated under the laws of the
state of Michigan. This acquisition transferred all of Theragen's
technology, know-how and licenses to the Company. The purchase was
effected through an exchange of all shares of Theragen stock outstanding
immediately prior to the acquisition for up to 5,693,147 shares of the
Company's capital stock which is comprised of common stock, Class B
preferred stock and options to purchase common stock. This included
contingent shares of 1,498,200 that were to be issued or vested upon the
achievement of certain milestones. The cost of the acquisition was
$2,580,798 in 1994, which consisted of the fair value of the Company's
capital stock contributed on the purchase date as well as other direct
transaction-related costs. These costs were recorded as purchase of in-
process technology expense since no capitalizable technology was purchased.
The acquisition was accounted for using the purchase method. Accordingly,
the results of operations of the acquired company were included with those
of the Company for periods subsequent to the date of acquisition.
In 1995, the terms for the issuance or vesting of the contingent shares
were modified. Instead of issuing these shares upon the achievement of
certain milestones, shares and options were issued or vested in 1995 in an
amount equal to 55.066 percent of the original issuable contingent shares
in lieu of all contingent rights of former Theragen stockholders. As a
result, shares of stock totaling 779,220 were issued at fair market value,
as determined by the Company's Board of Directors, while options totaling
45,780 were vested, and 83,138 were canceled. The cost of the stock
transaction is deemed to be part of the acquisition cost, and is reflected
in the accompanying statements of operations as purchase of in-process
technology expense.
The following unaudited pro forma results of operations for the year ended
December 31, 1994, give effect to the acquisition of Theragen, Inc. as
though it had occurred on January 1, 1994. The unaudited pro forma results
of operations do not include the nonrecurring charge to operations of
$2,580,798 ($.82 per share) for the costs in excess of net assets acquired
which was recorded as purchase of in-process technology.
Total revenues $ 1,005,000
-----------
Net $(6,926,179)
-----------
Pro forma net loss per share $ (2.20)
-----------
Shares used for computation 3,141,947
-----------
8
<PAGE>
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchase been
made at January 1, 1994, or of results which may occur in the future.
(6) RELATED-PARTY TRANSACTIONS
RESEARCH AND DEVELOPMENT AGREEMENT
In May 1993, Genentech Inc., a stockholder owning 334,000 shares of the
Company's Class A preferred stock, and 2,000,000 shares each of the
Company's Class B and Class C preferred stock as of December 31, 1996,
executed a five-year research and development agreement with the Company.
Under this agreement, the Company performed research and development
activities with respect to gene therapy products for cystic fibrosis.
Genentech was required to make certain research and development payments
and certain milestone payments to the Company aggregating up to * in
exchange for the right to develop, manufacture, and sell potential products
in the cystic fibrosis field. Contract revenues of *, * and * were
recognized from Genentech in 1996, 1995, and 1994, respectively.
Effective September 12, 1996, the research and development agreement
between the Company and Genentech terminated due to a change in research
focus. In the event of termination, the agreement allows the Company to
require Genentech to purchase additional equity in the Company in an
aggregate amount as defined in the agreement. This transaction, totaling
approximately * in additional equity, is expected to occur in 1997.
(7) COMMITMENTS
LEASE AGREEMENTS
In January 1994, the Company entered into a capital lease agreement
allowing it to fund the acquisition of up to $1,500,000 of furniture and
equipment purchases. Lease terms of new purchases were 42 months with an
interest rate of 9.6 percent. In connection with this agreement, the
Company granted the lessor warrants to purchase approximately 140,000
shares of Series B preferred stock at a purchase price of $1.00 per share.
Pursuant to this lease agreement, in May 1994, the Company entered into a
sale lease-back transaction whereby it sold and subsequently leased-back
furniture and equipment to which it held title. Additional equipment
purchases have been funded under extensions made to this agreement through
1996.
Included in property and equipment at December 31, 1996 and 1995 are assets
recorded under this agreement of $1,404,620 and $1,288,065, respectively.
Accumulated depreciation and amortization
9
<PAGE>
at December 31, 1996 and 1995 includes amounts for the capital lease of
$906,311 and $521,642, respectively.
Future minimum lease payments due under this capital lease at December 31,
1996 are as follows:
1997 $ 450,687
1998 149,321
1999 16,204
---------
Total minimum lease payments 616,212
Less amounts representing interest at 9.6% 43,954
---------
Present value of minimum capital lease payments 572,258
Less current installments 414,529
---------
Obligations under capital lease, net of current installments $ 157,729
---------
In addition to the aforementioned capital lease, the Company leases office
and laboratory space under operating leases which are cancelable at the
Company's discretion with a 30 to 60 day notice. Office and laboratory
rent expense under operating leases for fiscal years 1996, 1995, and 1994
was approximately $167,000, $156,000, and $105,000, respectively.
RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has agreed to provide grants for certain research projects
under agreements with several universities and research organizations.
Under the terms of these agreements, the Company has received exclusive
licenses to the resulting technology. Total grants paid by the Company
were $2,277,000, $2,598,000, and $2,791,000 during 1996, 1995, and 1994,
respectively. The Company has commitments to pay up to approximately
$2,600,000 related to these grants through 1999.
(8) STOCKHOLDERS' EQUITY
CAPITAL CHANGES
Effective in December 1995, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 46,305,095
shares of common stock and 21,065,000 shares of Class C convertible
preferred stock, each having a par value of $.01 per share.
Effective in June 1996, the Company restated its Certificate of
Incorporation which effected the authorization of a total of 52,005,095
shares of common stock and 2,000,000 shares of Class D convertible
preferred stock, each having a par value of $.01 per share.
10
<PAGE>
CONVERTIBLE PREFERRED STOCK
In November 1994, the Company issued 8,700,000 shares of Class C
convertible preferred stock in a private placement. In September 1995, the
Company issued an additional 12,365,000 shares of Class C convertible
preferred stock in a private placement. In May 1996, the Company issued
571,429 shares of Class D convertible preferred stock.
Since its inception, the Company has issued 34,290,743 shares of
convertible preferred stock (Class A, B, C, and D) for aggregate cash
consideration of $31,482,000. Preferred stockholders participate in the
dividends declared to common stockholders, if any, in an amount
proportionate to the number of shares of common stock into which the
preferred stock is convertible. Preferred holders are entitled to one vote
for each share of common stock into which the preferred shares can be
converted.
In the event of any voluntary or involuntary liquidation of the
corporation, before any distribution can be made to the holders of common
stock, the preferred stockholders are entitled to receive payment of $.50
for each share of Class A preferred stock, $1 for each share of Class B and
C preferred stock and $1.75 for each share of Class D preferred stock, plus
any declared but unpaid dividends. No dividends were declared for the
years ended December 31, 1996, 1995, and 1994.
Holders of Class A, B, C, and D preferred stock have the right at any time,
at their option, to convert without the payment of additional
consideration, each preferred stock share into an equivalent number of
common stock shares.
Upon the occurrence of an initial public offering (IPO) of company stock
which yields the Company at least $15,000,000 and under which the offering
price to the public is equal to at least $1.50 per share, all preferred
stock shares will convert to common stock shares.
TREASURY STOCK
Outstanding shares of common stock totaling 279,069 were repurchased by the
Company in 1996 at $.10 per share. The shares were purchased from two
employees who left the Company in 1996.
STOCK OPTION PLAN
Options to purchase common stock under the Company's stock option plan are
granted to employees and consultants at prices which approximate fair
market value as determined by the Board of Directors. The options vest
over four years for most employees and a combination of time and milestones
for certain employees and consultants. The exercise and expiration dates of
options are also determined by the Company's Board of Directors.
11
<PAGE>
In adopting SFAS No. 123 for options granted to consultants, the total
compensation expense recognized in 1996 for compensation awards to
consultants was $105,060.
The Company applies APB Opinion No. 25 in accounting for its stock option
plan for options granted to employees and accordingly, no compensation
expense has been recognized in the financial statements. Had the Company
determined compensation expense based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net loss would have
been increased to the pro forma amounts indicated below:
1996 1995
----------- ----------
Net loss As reported $(8,108,161) (7,549,172)
----------- ----------
Pro forma $(8,179,600) (7,571,594)
----------- ----------
Loss per common share As reported $ (1.71) (2.28)
----------- ----------
Pro forma $ (1.73) (2.29)
----------- ----------
Pro forma net losses reflect compensation expense under SFAS No. 123 only
for options granted in 1996 and 1995. Therefore, the full impact of
calculating compensation expense for stock options under SFAS No. 123 is
not reflected in the pro forma net loss amounts presented above because
compensation expense is reflected over the options' vesting period and
compensation expense for options granted prior to January 1, 1995 is not
considered.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 0 percent,
expected volatility of 63 percent, risk free interest rate of 5.8 percent,
and expected life of 4.25 years.
A summary of the status of the Company's stock options as of December 31,
1996, 1995, and 1994 and changes during the period ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- --------------------------
Weighted- Weighted- Weighted-
average average average
Shares exercise Shares exercise Shares exercise
(000)'s price (000)'s price (000)'s price
--------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 5,093 $ .12 2,254 $ .10 1,542 $ .10
Granted 3,635 0.19 2,989 0.13 712 0.09
Cancelled (1,791) (0.10) (104) (0.03) - -
Exercised (1,863) 0.10 (46) (0.11) - -
------ ------ ----- ------ ----- ------
Outstanding at end of year 5,074 $ 0.18 5,093 $ 0.12 2,254 $ 0.10
Options exercisable at end
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Options exercisable at end
of year 1,921 $ .15 1,875 $ .10 392 $ .10
Weighted-average fair
value of options
granted during the
year $ .11 $ .05 $ .03
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ---------------------------
Range Weighted-avg.
of remaining Weighted-avg. Weighted-avg.
exercise prices Number contractual life exercise price Number exercise price
- --------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$ .01 - .03 54,697 8.82 years $.02 54,697 $.02
.10 3,830,513 8.5 .10 1,600,396 .10
11 - .17 63,783 8.42 .16 45,413 .15
.25 480,000 9.5 .25 52,514 .25
.60 644,999 9.55 .60 167,496 .60
- ----------- --------- ----------- ---- --------- ----
$ .01 - .60 5,073,992 8.73 $.18 1,920,516 $.15
--------- ---------
</TABLE>
(9) INCOME TAXES
A reconciliation of tax credits computed at the statutory federal tax rate
on loss from operations before income taxes to the actual income tax
expense is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Tax provision (credit) computed at the statutory rate $(2,838,000) (2,642,000) (3,043,000)
State income taxes, net of federal income tax provision
(credit) (324,000) (284,000) (244,000)
Purchase of in-process technology - 155,000 903,000
Book expenses not deductible for tax purposes 6,000 5,000 3,000
Research and experimentation tax credit 41,000 (263,000) (241,000)
Change in the beginning of the year valuation
allowance for deferred tax assets allocated to tax 3,086,000 3,032,000 3,168,000
Expected tax benefit of acquired net operating
loss carryforwards - - (582,000)
Other, net 29,000 (3,000) 36,000
----------- ---------- -----------
Income tax expense $ - - -
----------- ---------- -----------
</TABLE>
Deferred income taxes reflect the net effects of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and
13
<PAGE>
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets as of December 31, 1996 and 1995, are as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax
Net operating loss carryforwards $9,703,000 6,912,000
Research and experimentation tax credit 541,000 581,000
Cumulative effect of using cash basis method of
accounting for income tax purposes 364,000 141,000
Other 41,000 15,000
Property and equipment, principally due to
differences in depreciation 66,000 (20,000)
----------- ----------
Total deferred tax 10,715,000 7,629,000
Valuation allowance (10,715,000) (7,629,000)
----------- ----------
Net deferred tax asset $ - -
----------- ----------
</TABLE>
The valuation allowance for deferred tax assets increased approximately
$3,086,000, $3,032,000 and $3,168,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $24,880,000 for federal income tax purposes which expire at
various dates through 2011, including $1,493,000 which were acquired from
the purchase of Theragen, Inc. (note 5). The Company also has research and
experimentation tax credit carryforwards of $541,000 at December 31, 1996
which expire through 2011. These carryforwards may be significantly
limited under the Internal Revenue Code as a result of ownership changes
experienced by the Company.
(10) DEFINED CONTRIBUTION PLAN - 401(K)
The Company has a defined contribution plan (the Plan) under Internal
Revenue Code Section 401(k) which became effective on January 1, 1995. All
full-time employees who have completed six months of service and are over
age 21 are eligible for participation in the Plan. Participants may elect
to have up to 15 percent of compensation contributed to the Plan. Under
the Plan, the Company's contributions are discretionary. During the years
ended December 31, 1996 and 1995, no discretionary contributions were made.
14
<PAGE>
EXHIBIT B
UNAUDITED
GENVEC, INC.
BALANCE SHEET
AS OF APRIL 30,1997
<TABLE>
<CAPTION>
Current Period Current Period
Actual Budget Variance
-----------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents 3,087,307 2,356,978 730,329
Short term investments 1,296,606 2,579,124 (1,282,518)
Accounts receivable 51,162 103,712 (52,550)
Inventory - - -
Prepaids and other current assets 378,819 164,928 213,891
-----------------------------------------------------------
Total current assets 4,813,894 5,204,742 (390,848)
Property, plant and equipment:
Building and improvements 176,311 176,311 -
Research equipment 1,569,575 1,496,000 73,575
Office equipment 85,260 70,091 15,169
Furniture and fixtures 62,234 58,256 3,978
Production equipment - - -
Assets under financing agreements - - -
Construction In Process - - -
-----------------------------------------------------------
Gross property, plant and equipment 1,893,380 1,800,658 92,722
Accumulated depreciation (1,361,735) (1,327,560) (34,175)
Net property, plant and equipment 531,645 473,098 58,547
Other assets:
Investments - - -
Other long term assets 37,950 37,950 -
Intangible assets - - -
-----------------------------------------------------------
Total other assets 37,950 37,950 -
Total assets 5,383,489 5,715,790 (332,301)
===========================================================
</TABLE>
15
<PAGE>
GENVEC, INC.
UNAUDITED
BALANCE SHEET
AS OF APRIL 30,1997
<TABLE>
<CAPTION>
Current Period Current Period
Actual Budget Variance
------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable 234,797 264,011 (29,214)
Payroll liabilities 53,742 54,593 (851)
Accrued expenses 311,379 883,226 (571,847)
Unearned revenue - - -
Current portion of notes payable - - -
Current portion of capital leases 339,344 339,344 -
Deferred taxes - - -
Other current liabilities - - -
------------------------------------------
Total current liabilities 939,262 1,541,174 (601,912)
Long Term Liabilities:
Long term notes payable - - -
Long term capital lease obligations 92,743 92,743 -
Unearned revenue - - -
Deferred taxes - - -
Other long term liabilities - - -
------------------------------------------
Total liabilities 1,032,005 1,633,917 (601,912)
------------------------------------------
Stockholders' equity:
Preferred stock 342,907 342,907
Common stock 58,715 58,260
Additional paid in capital 34,099,703 34,095,613
Treasury stock (27,907) (27,907)
Unrealized gain on investments - -
Retained earnings (deficit) (27,604,590) (27,604,590)
Net profit / (loss) (2,517,344) (2,782,410)
------------------------------------------
Total stockholders' equity 4,351,484 4,081,873 269,611
------------------------------------------
Total liabilities and equity 5,383,489 5,715,790 (332,301)
=========================================
</TABLE>
16
<PAGE>
GENVEC, INC.
UNAUDITED
COMBINED STATEMENT OF OPERATIONS
FOR THE MONTH ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
Current Current
Period Period Year to Date Year to Date
Actual Budget Variance Actual Budget Variance
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales -- -- -- -- -- --
Other sales -- -- -- -- -- --
Contract research revenues -- -- -- -- -- --
Royalties, licenses and other -- -- -- -- -- --
revenues
-------------------------------------------------------------------------
Total revenues -- -- -- -- -- --
Cost of sale:
Cost of products sold -- -- -- -- -- --
Costs of other sales -- -- -- -- -- --
Cost of contract research -- -- -- -- -- --
-------------------------------------------------------------------------
Total cost of sales -- -- -- -- -- --
Gross margin -- -- -- -- -- --
-------------------------------------------------------------------------
Operating expenses:
General and administrative 167,710 176,500 8,790 718,170 753,376 35,206
Research and development 465,577 468,924 3,347 1,852,739 2,012,196 159,457
Clinical and regulatory 16,217 36,714 20,497 47,647 98,505 50,858
Product development -- -- -- -- -- --
Manufacturing -- -- -- -- -- --
-------------------------------------------------------------------------
Total operating expenses 649,504 682,138 32,634 2,618,556 2,864,077 245,521
-------------------------------------------------------------------------
Operating income (loss) (649,504) (682,138) 32,634 (2,618,556) (2,864,077) 245,521
Other income and expense:
Interest income 30,372 23,750 6,622 117,853 95,000 22,853
Interest expense 3,740 3,333 (407) 16,641 13,333 (3,308)
Gain (loss) disposal of assets -- -- -- -- -- --
Other income (expense) -- -- -- -- -- --
-------------------------------------------------------------------------
Net other income and expense 26,632 20,417 6,215 101,212 81,667 19,545
Income (loss) before taxes (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
Provision for income taxes -- -- -- -- -- --
-------------------------------------------------------------------------
Net income (loss) (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
=========================================================================
</TABLE>
17
<PAGE>
GENVEC, INC.
UNAUDITED
COMBINED STATEMENT OF OPERATIONS
FOR THE MONTH ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
Current Current Year To Year To
Period Period Date Date
Actual Budget Variance Actual Budget Variance
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows used in operating
activities:
Net loss (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
Adjustments to reconcile net
loss used in operating
activities:
Depreciation expense 42,259 33,333 8,926 167,507 133,333 34,174
Decrease (increase) in
other current assets (205,424) - (205,424) (161,341) - (161,341)
Decrease (increase) in
other assets - - - - - -
Increase (decrease) in
accounts payable and
accrued expenses (104,546) - (104,546) (601,911) - (601,911)
---------------------------------------------------------------------------------------------------
Net cash used in operating
activities (890,583) (628,388) (262,195) (3,113,089) (2,649,077) (464,012)
---------------------------------------------------------------------------------------------------
Cash flows provided by
(used for) Investing activities:
Maturity (purchase) of
Short Term investments 977,327 - 977,327 1,282,518 - 1,282,518
Purchase of property
and equipment (28,682) - (28,682) (92,722) - (92,722)
Net cash used for
investing activities 948,645 - 948,645 1,189,796 - 1,189,796
---------------------------------------------------------------------------------------------------
Cash flows provided by (used in)
financing activities:
Proceeds from issuance
of stock 927 - 927 4,545 - 4,545
Payments under capital
lease obligations (35,464) (35,464) - (140,171) (140,171) -
---------------------------------------------------------------------------------------------------
Net cash used in financing
activities (34,537) (35,464) 927 (135,626) (140,171) 4,545
---------------------------------------------------------------------------------------------------
Decrease in cash and cash
equivalents 23,525 (668,852) 687,377 (2,058,919) (2,789,248) 730,329
Cash and cash equivalents,
beginning of period 3,063,782 3,020,830 42,952 5,146,226 5,146,226 -
Cash and cash equivalents,
end of period
</TABLE>
18
<PAGE>
Liabilities in excess of $250,000
Sponsored Research Agreement by and between Cornell University for its
medical college, and the Company, dated as of May 18, 1993, and related Side
Letter Agreement by Cornell University, dated May 18, 1993.
Exclusive License Agreement by and between ARCH Development
Corporation, Dana-Farber Cancer Institute and the Company, effective May 26,
1993, amended January 1, 1994 (currently under renegotiation).
Exclusive License Agreement by and between ARCH Development
Corporation and the Company, effective May 26, 1993 (currently under
renegotiation).
<PAGE>
EXHIBIT 10.9
------------
COLLABORATION AGREEMENT
This COLLABORATION AGREEMENT (the "Agreement"), effective as of September
26, 1997 (the "Effective Date"), is made by and between Fuso Pharmaceutical
Industries, Ltd., a corporation organized under the laws of Japan, with a
principal place of business at 3-11, 2-Chome, Morinomiya, Joto-ku Osaka 536
Japan and its registered head office at 7-10, 1-Chome, Doshomachi, Chuo-ku,
Osaka 541 Japan ("Fuso"), and GenVec, Inc., a Delaware corporation, with a
principal place of business at 12111 Parklawn Drive, Rockville, Maryland 20852
("GenVec").
BACKGROUND
A. GenVec has expertise in the field of gene therapy and is developing
novel, proprietary materials and methods for use in the treatment of human
cancer.
B. Fuso is in the business of developing, manufacturing, and
commercializing pharmaceuticals in Japan.
C. GenVec and Fuso desire to establish a collaborative relationship to
conduct research and develop certain gene therapy products for the treatment of
human cancer.
D. GenVec and Fuso have entered into a Stock Purchase Agreement of even
date herewith, pursuant to which GenVec shall sell to Fuso, and Fuso shall
purchase 444,445 shares of GenVec Series E Convertible Preferred Stock. This
Collaboration Agreement shall only be effective if the purchase of such stock is
timely completed as set forth in the Stock Purchase Agreement.
NOW THEREFORE, for and in consideration of the covenants, conditions, and
undertakings hereinafter set forth, it is agreed by and between the parties as
follows:
1. DEFINITIONS
1.1 "Affiliate" shall mean any corporation or other entity which is
---------
directly or indirectly controlling, controlled by or under the common control of
a party hereto. For the purpose of this Agreement, "control" shall mean the
direct or indirect ownership of at least fifty percent (50%) of the outstanding
shares or other voting rights of the subject entity to elect directors, or if
not meeting the preceding, any entity owned or controlled by or owning or
controlling at the maximum control or ownership right permitted in the country
where such entity exists.
1.2 "Commercialization Agreement" shall mean that certain
---------------------------
Commercialization Agreement entered by Fuso and GenVec of even date herewith.
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.3 "Collaboration Product" shall mean a Product Configuration developed
---------------------
in the Research Program intended for use in the Field which the Steering
Committee has designated as such pursuant to Section 2.4.
1.4 "Confidential Information" shall mean (i) any proprietary or
------------------------
confidential information or material in tangible form disclosed hereunder that
is marked as "Confidential" at the time it is delivered to the receiving party,
or (ii) proprietary or confidential information disclosed orally hereunder which
is identified as confidential or proprietary when disclosed and such disclosure
of confidential information is confirmed in writing within thirty (30) days by
the disclosing party.
1.5 "Development Plan" shall mean the written plan for development of a
----------------
particular Collaboration Product prepared pursuant to Section 2.4.2.
1.6 "DFCI" shall mean the Dana Farber Cancer Institute, Inc.
1.7 "Fuso Technology" shall mean Fuso Patent Rights and Fuso Know-How:
---------------
1.7.1 "Fuso Patent Rights" shall mean (i) all patents and patent
------------------
applications conceived and reduced to practice by Fuso alone, or Fuso and/or its
agents (including researchers at Jikei University), in connection with the
Research Program during the Research Program Term, and (ii) any divisions,
continuations, continuations-in-part, reissues, reexaminations, extensions or
other governmental actions which extend any of the subject matter of the patent
applications or patents in (i) above, and any substitutions, confirmations,
registrations or revalidations of any of the foregoing, in each case, which is
owned or controlled, in whole or part, by license, assignment or otherwise by
Fuso, to the extent Fuso has the right to license or sublicense, and subject to
any limitations of such license or sublicense. For the avoidance of doubt, the
Fuso Patent Rights shall not include Fuso Know-How or any *
1.7.2 "Fuso Know-How" shall mean confidential information and
-------------
materials, including, but not limited to, pharmaceutical, chemical, biological
and biochemical products, technical and non-technical data, and information
relating to the results of tests, assays, methods and processes, and drawings,
plans, diagrams, specifications and/or other documents containing said
information and data, discovered, developed or acquired by Fuso alone, or Fuso
and/or its agents (including researchers at Jikei University), in connection
with the Research Program during the Research Program Term which Fuso has the
right to license or sublicense, and subject to any limitations of such license
or sublicense. For the avoidance of doubt, Fuso Know-How shall not include any
Fuso Patent Rights or any *
1.8 "Field" shall mean Gene Therapy for the treatment of human cancer, *
-----
or, in each case, any portion or derivative thereof.
1.9 "Gene Therapy" shall mean the introduction of a gene into a person for
------------
therapeutic purposes (i) by in vivo introduction for incorporation into cells of
such person, or (ii) by ex vivo introduction into cells for transfer into a
person.
1.10 "*" shall have the meaning set forth in Section 7.1.2 below.
-2-
<PAGE>
1.11 "GenVec Technology" shall mean GenVec Patent Rights, GenVec Know-How
-----------------
and *
1.11.1 "GenVec Patent Rights" shall mean (i) all patents and patent
--------------------
applications listed on Exhibit A hereto, or conceived and reduced to practice by
GenVec alone, or GenVec and/or its agents (including researchers at DFCI), in
connection with the Research Program during the Research Program Term, and (ii)
any divisions, continuations, continuations-in-part, reissues, reexaminations,
extensions or other governmental actions which extend any of the subject matter
of the patent applications or patents in (i) above, and any substitutions,
confirmations, registrations or revalidations of any of the foregoing, in each
case, which is owned or controlled, in whole or part, by license, assignment or
otherwise by GenVec, to the extent GenVec has the right to license or
sublicense, and subject to any limitations of such license or sublicense. For
the avoidance of doubt, the GenVec Patent Rights shall not include GenVec Know-
How.
1.11.2 "GenVec Know-How" shall mean confidential information and
---------------
materials, including, but not limited to, pharmaceutical, chemical, biological
and biochemical products, technical and non-technical data, and information
relating to the results of tests, assays, methods and processes, and drawings,
plans, diagrams, specifications and/or other documents containing said
information and data, discovered, developed or acquired by GenVec alone, or
GenVec and/or its agents (including researchers at DFCI), in connection with the
Research Program during the Research Program Term, which GenVec has the right to
license or sublicense, and subject to any limitations of such license or
sublicense. For the avoidance of doubt, GenVec Know-How shall not include any
GenVec Patent Rights
1.12 "Joint Technology" shall mean the Joint Patent Rights and Joint Know-
----------------
How.
1.12.1 "Joint Patent Rights" shall mean (i) all patents and patent
-------------------
applications conceived and reduced to practice jointly by Fuso (or its agents,
including researchers at Jikei University) and GenVec (or its agents, including
researchers at DFCI), in connection with the Research Program during the
Research Program Term and (ii) any divisions, continuations, continuations-in-
part, reissues, reexaminations, extensions or other governmental actions which
extend any of the subject matter of the patent applications or patents in (i)
above, and any substitutions, confirmations, registrations or revalidations of
any of the foregoing. For the avoidance of doubt, the Joint Patent Rights shall
not include the Joint Know-How or any *
1.12.2 "Joint Know-How" shall mean confidential information and
--------------
materials, including, but not limited to, pharmaceutical, chemical, biological
and biochemical products, technical and non-technical data, and information
relating to the results of tests, assays, methods and processes, and drawings,
plans, diagrams, specifications and/or other documents containing said
information and data, discovered, developed or acquired jointly by Fuso (or its
agents, including researchers at Jikei University), and GenVec (or its agents,
including researchers at DFCI), in connection with the Research Program during
the Research Program Term. For the avoidance of doubt, the Joint Know-How shall
not include the Joint Patent Rights or any *
1.13 "MHW" shall mean the Japanese Ministry of Health and Welfare, or any
---
corresponding foreign registration or foreign regulatory authority in the
Territory.
-3-
<PAGE>
1.14 "Phase I", "Phase II", and "Phase III" shall mean Phase I (or Phase
------- -------- ---------
I/II), Phase II (or Phase II/III), and Phase III clinical trials, respectively,
in each case as prescribed by the Japanese equivalent of applicable FDA IND
regulations, or any corresponding foreign statutes, rules or regulations in the
Territory.
1.15 "Pivotal Trial" shall mean a clinical trial that is designed to
-------------
provide data establishing the safety and efficacy of a Collaboration Product in
support of obtaining marketing approval from the MHW.
1.16 "Product Configuration" shall mean any potential product for use in
---------------------
the Field containing a combination of one or more genes (or fragments thereof
and other elements (e.g., a gene delivery vehicle and/or a gene expression
cassette)).
1.17 "Product License Application" or "PLA" shall mean the Japanese
--------------------------- ---
equivalent of a Product License Application, as defined in the U.S. Food, Drug
and Cosmetic Act and the regulations promulgated thereunder, and any
corresponding foreign application, registration or certification in the
Territory.
1.18 "Research Plan" shall have the meaning set forth in Section 2.1.2
-------------
below.
1.19 "Research Program" shall have the meaning set forth in Section 2.1
----------------
below. For the avoidance of doubt, the Research Program shall include
activities conducted pursuant to the Research Plan and activities conducted
pursuant to any Development Plan which the parties agree are to be included
under the Research Program.
1.20 "Research Program Term" shall be that period of time described in
---------------------
Section 2.6.1 below.
1.21 "Steering Committee" shall have the meaning set forth in Section 2.2.1
------------------
below.
1.22 "Territory" shall mean Japan, Korea and Taiwan.
---------
2. RESEARCH PROGRAM
2.1 Research Program.
----------------
2.1.1 Collaborative Effort. Subject to the terms and conditions set
--------------------
forth herein Fuso and GenVec will diligently conduct mutually agreed
collaborative research in the Field pursuant to a Research Plan with the primary
objective of identifying and commencing the development of at least * (the
"Research Program"). The activities conducted in connection with the Research
Program will be overseen and administered by the Steering Committee pursuant to
Section 2.2 below. Fuso and GenVec shall each use reasonable efforts to conduct
the Research Program in accordance with the Research Plan within the time
schedules contemplated therein.
-4-
<PAGE>
2.1.2 Research Plan. Annually, the Steering Committee will prepare and
-------------
agree upon a written plan (the "Research Plan") that will (i) include a general
overview and timetable for each party's research activities and appropriate
resources and budgets for such research during the next year, and (ii) set
specific objectives for each year, which objectives will be updated or amended,
as appropriate, by the Steering Committee as research progresses. The initial
Research Plan shall be agreed in writing by the parties within * days of the
Effective Date. The Steering Committee shall review the Research Plan on an
ongoing basis and may make changes to the Research Plan then in effect.
2.1.3 Development Plan Activities. The Research Program shall include
---------------------------
those activities, within the scope of a Development Plan agreed to by the
parties pursuant to Section 2.4.2, that the parties have agreed to conduct in
connection with the Research Program.
2.1.4 Sponsored Academic Research.
---------------------------
(a) GenVec. In connection with the Research Program, GenVec
------
intends to sponsor certain research and development at DFCI, subject to the
terms of a written sponsored research agreement, to be negotiated and entered
into by GenVec and DFCI.
(b) Fuso. In connection with the Research Program, Fuso intends
----
to sponsor certain research and development at the laboratory of Dr. Tsuneya
Ohno at the Jikei University School of Medicine, subject to the terms of a
written sponsored research agreement, to be negotiated and entered into by Fuso
and Jikei University.
(c) Consistency. It is understood and agreed that the parties
-----------
shall endeavor to negotiate and include in their respective academic sponsored
research agreements relating to the Research Program, provisions fully
consistent with those in this Agreement, including without limitation, policies
related to confidentiality and the filing of patent applications and enforcement
of patents. To the extent the provisions of any agreement negotiated between
GenVec and DFCI or Fuso and Jikei University in connection with any aspect of
the Research Program are inconsistent with the terms and conditions of this
Agreement, the party wishing to enter such agreement shall notify the Steering
Committee prior to the execution of such agreement, and provide an explanation
of the reason for such inconsistency. The Steering Committee shall have the
authority to approve or disapprove such agreement, and the parties hereto shall
not enter into such agreement without the prior written consent of the Steering
Committee.
2.2 Steering Committee.
------------------
2.2.1 Responsibilities. Fuso and GenVec will establish a committee to
----------------
oversee, review and coordinate the Research Program (the "Steering Committee").
The Steering Committee shall be responsible for (i) establishing the Research
Plan, (ii) designating Collaboration Products for commercial development; (iii)
monitoring and reporting research progress and ensuring open and frequent
exchange between the parties with respect to Research Program activities, (iv)
determining whether to acquire licenses from third parties with respect to
intellectual property necessary or useful
-5-
<PAGE>
for the conduct of the Research Program, and (v) discussing patent matters
relating to Collaboration Products.
2.2.2 Membership. The Steering Committee shall be comprised of six (6)
----------
representatives. Two (2) members shall be appointed by Fuso, two (2) members
shall be appointed by GenVec, and Dr. Donald Kufe and Dr. Tsuneya Ohno will each
serve as members of the Steering Committee. Fuso and GenVec may each replace
its Steering Committee representatives at any time, with written notice to the
other party. In the event that Dr. Kufe or Dr. Ohno becomes unavailable to
serve on the Steering Committee, Fuso and GenVec shall agree on an appropriate
replacement. From time to time, the Steering Committee may establish
subcommittees to oversee particular projects or activities, such as decisions
regarding patent matters.
2.2.3 Meetings. The Steering Committee will meet at least two (2)
--------
times per year at locations and times to be determined by the Steering
Committee. Members of the Steering Committee may participate in and vote at
meetings, in person by telephone or by video conference and may vote at meetings
by proxy. The Steering Committee shall prepare written minutes of each meeting
and a written record of all Steering Committee decisions, whether made at an
Steering Committee meeting or otherwise.
2.2.4 Decision Making. All decisions of the Steering Committee will be
---------------
made by majority approval; provided, the designation of each Collaboration
Product as described in Section 2.4.1, and the Development Plan for each
Collaboration Product as described in Section 2.4.2, shall require unanimous
approval of the Steering Committee, and, if there is not unanimity with respect
to such a decision, such matter shall not be subject to arbitration. In the
event that a majority is not achieved within the Steering Committee for any
decision which does not require a unanimous vote, the dispute will be referred
to Fuso's President and GenVec's President, who shall meet promptly in person or
by telephone and endeavor to reach agreement. If such persons are unable to
resolve any disputes the parties shall settle such dispute as set forth in
Article 12 below.
2.3 Research Program Funding.
------------------------
2.3.1 Research Program Funding. During the Research Program Term, Fuso
------------------------
agrees to spend an aggregate of one million dollars ($1,000,000) per year on
funding for the Research Program.
(a) Two hundred fifty thousand dollars ($250,000) of such total
shall be expended by Fuso each year on research conducted in Japan with regard
to the Research Program, all or a portion of which will be used to sponsor
research in the laboratory of Dr. Ohno pursuant to Section 2.1.4(b) above, and a
portion of which may be used by Fuso to conduct research at its facility.
(b) Fuso shall pay to GenVec the remaining seven hundred fifty
thousand dollars ($750,000) per year for the Research Program. Such amounts
shall be used by GenVec for its direct and indirect costs incurred in connection
with Research Program activities approved by the Steering Committee, including,
without limitation, research and development activities by GenVec,
-6-
<PAGE>
sponsored research at DFCI the supply by GenVec (subject to Section 6.2 below)
of Collaboration Products for the conduct of clinical trials (including clinical
trials in Japan) pursuant to the applicable Development Plan, the preparation
and transfer of documents in support of clinical trials of Collaboration
Products in Japan, patent prosecution by GenVec, travel and management expenses
related to the Research Program, and general support of technology development
by GenVec.
(c) The parties anticipate that the amount of the funding
provided in Sections 2.3.1(a) and (b) above will support the activities to be
conducted in connection with the Research Program with the goal of identifying
and commencing the development of * and filing an application for authorization
for *. It is understood and agreed that GenVec shall have no obligation to
expend any amount on the Research Program in excess of the amounts paid by Fuso
to GenVec for the conduct of the Research Program. GenVec shall use reasonable
efforts to conduct the Research Program activities approved by the Steering
Committee in a cost efficient manner consistent with the Research Program budget
and GenVec's customary practices.
2.3.2 Third Party Technology.
----------------------
(a) In the event that GenVec acquires any rights to intellectual
property or technology for its general corporate research and development
activities which are useful for the Research Program, GenVec shall pay any costs
attributable to the general use of the same; provided, GenVec shall have no
obligation to acquire with respect to any such intellectual property or
technology (i) the right to sublicense to Fuso any such intellectual property or
technology, or (ii) any rights relating to the commercialization of
Collaboration Products or any other products.
(b) In the event that it is necessary for GenVec to acquire a
license or GenVec has acquired a license from a third party specifically for
intellectual property or technology necessary or useful for the conduct of the
Research Program and/or the commercialization of Collaboration Products, GenVec
and Fuso shall negotiate and agree on the amounts that each party will be
responsible for paying to such third party with regard to such a license, and
for the expenses of negotiating and preparing any such license. In the event
that the parties are unable to agree on such amounts, GenVec shall have no
obligation to acquire such license and shall have no liability under this
Agreement for not acquiring such a license. It is understood and agreed that
GenVec shall have the principal responsibility for negotiating such agreements
unless otherwise agreed by the parties. In negotiating such agreements, GenVec
shall use reasonable efforts to reach an agreement which is as favorable as
possible to both GenVec and Fuso. GenVec shall report to Fuso on the progress of
such negotiations on a timely basis.
2.4 Collaboration Products.
----------------------
2.4.1 Designation. During the Research Program Term, either party
-----------
shall have the right to nominate for further development as a Collaboration
Product any Product Configuration previously studied or currently under study in
the Research Program. Concurrently, such party shall provide a proposed
Development Plan (as described below) for such proposed Collaboration Product.
At the next Steering Committee meeting, or such later time as the parties may
agree, the Steering Committee shall vote whether or not to designate such
Product Configuration as a
-7-
<PAGE>
Collaboration Product. Any Product Configuration which is unanimously approved
as a Collaboration Product shall be a Collaboration Product for all purposes of
this Agreement. Product Configurations which are not designated as Collaboration
Products as set forth above shall not be Collaboration Products.
2.4.2 Development Plan. Concurrent with the designation of any Product
----------------
Configuration as a Collaboration Product, the Steering Committee shall
unanimously agree on a comprehensive written development plan for the Territory
for such Collaboration Product through the completion of clinical trials in
Japan (the "Development Plan"), which shall include specific activities, tasks
and timelines for each of Fuso and GenVec reasonable to accomplish the
foregoing, and reasonable budgets for such activities sufficient to accomplish
the foregoing, an assessment of relevant business considerations (including,
without limitation, competitive activities of third parties, any patent rights
of third parties and the likelihood that commercially valuable patent rights
could be obtained for such a Collaboration Product), and principles regarding
the coordination of such activities with the development of Collaboration
Products outside the Territory. All or some of such activities may be conducted
in connection with the Research Program, as agreed by the Steering Committee.
For any Development Plan activities which are to be conducted in connection with
the Research Program or which otherwise involve GenVec, subject to Section 5.1,
the Steering Committee shall agree on the financial obligations of each party
with respect to costs incurred in implementing such Development Plan activities.
2.4.3 No Agreement. In the event that the Steering Committee fails to
------------
agree to designate as a Collaboration Product a particular Product Configuration
that Fuso (i) nominated, (ii) prepared a Development Plan for meeting the
criteria in Section 2.4.2 above, and (iii) supported as a Collaboration Product
by voting for the applicable Development Plan, then GenVec may not independently
develop or commercialize such Product Configuration in the Territory for the
Field until after the Research Program Term, unless GenVec has, subject to
Section 2.4.4, previously commenced or established its intent to commence
research (as shown by written records) with respect to such a Product
Configuration, alone or with a third party, prior to the date Fuso proposed to
the Steering Committee that such Product Configuration be designated as a
Collaboration Product.
2.4.4 Independent Development. Subject to Section 2.4.5, Fuso and
-----------------------
GenVec shall each have the right to conduct research relating to the Field
independently or with third parties; provided, however, if either party wishes
to conduct such activities with a commercial third party with regard to a * a
particular indication in the Field during the Research Program Term, and has no
contractual obligations to a third party that would restrict it from offering
rights for such product to the other party hereto, it shall provide the other
party hereto notice and a description of such proposed product and indication.
Within thirty (30) days of a party's receipt of such notice and description, the
party receiving such notice shall notify the other party whether it wishes to
discuss a potential collaboration for the development of such a product for such
indication, and in such event, the parties shall discuss potential terms of a
further collaboration in good faith. If the parties are unable to reach an
agreement within * or such longer period as the parties may agree, the proposing
party may develop such * product alone or may enter into a collaboration
agreement with a third party for the development of such product, and the other
party hereto shall have no further rights with respect to such product.
-8-
<PAGE>
2.4.5 Non-Compete. During the term of the Research Program and for *
-----------
thereafter, neither GenVec nor Fuso, directly or indirectly, shall enter into
any collaboration agreement or other agreement with any commercial third party
for the development or commercialization in the Field within the Territory of *
As used herein, "substantially similar" shall mean a product which contains a
gene studied by the parties in the Research program *. Notwithstanding the
above, if both Fuso and GenVec have agreed in writing to discontinue the
development or commercialization of a particular Product Configuration, either
may develop or commercialize *
2.5 Records; Reports of Information.
-------------------------------
2.5.1 Records. The parties shall maintain (i) financial records in
-------
sufficient detail to establish how Research Program funds are expended, and (ii)
scientific records that will properly reflect all work done and results achieved
in the performance of the Research Program (including all data in the form
required under any applicable governmental regulations) in a manner sufficient
to establish the dates of first conception and reduction to practice of any
inventions. Upon request, the parties shall provide each other access to such
records relating to any Collaboration Product during ordinary business hours
during the Research Program Term and *
2.5.2 Reports. The Steering Committee shall periodically and not less
-------
often than semiannually during the term of the Research Program, request and the
parties shall have the obligation to prepare and provide to the Steering
Committee written reports summarizing the progress of the research performed by
or sponsored by the parties pursuant to the Research Plan during the preceding
half-year. In addition, during the Research Program Term, each party shall
provide the other party with a quarterly accounting report regarding Research
Program expenditures by such party in the preceding quarter.
2.6 Term and Termination of Research Program.
----------------------------------------
2.6.1 Research Program Term. The term of the Research Program shall
---------------------
commence on the Effective Date and, unless terminated earlier pursuant to
Section 2.6.2 or Article 11, shall continue until the fifth anniversary of the
Effective Date (the "Research Program Term").
2.6.2 Termination. After the second anniversary of the Effective Date
-----------
Fuso may with ninety (90) days prior written notice to GenVec, terminate its
support for research by GenVec in connection with the Research Program. In such
an event, the Research Program shall terminate and GenVec may continue, at its
own expense, any such research initiated in connection with the Research
Program. In any such event, subsequent activities undertaken by GenVec shall
not be included in or be part of the Research Program, and notwithstanding any
other provision of this Agreement, any intellectual property developed in
connection with such independent GenVec activities shall not be included in the
GenVec Technology or the Joint Technology.
2.6.3 Lack of Diligence. If GenVec is not diligent and Fuso terminates
-----------------
the Research Program, GenVec shall return to Fuso (i) any amounts unexpended on
the Research Program by GenVec due to GenVec's lack of diligence, and (ii) any
amounts which an arbitrator, in an arbitration proceeding conducted pursuant to
Article 12, deems were expended by GenVec in the Research
-9-
<PAGE>
Program without acting in a diligent manner ("Non-Diligent Research").
Notwithstanding the above, any amounts that GenVec has provided to a third party
(e.g., DFCI) with the approval of the Steering Committee to sponsor research
related to the Research Program which an arbitrator deems Non-Diligent Research
shall be returned to Fuso by GenVec only to the extent that GenVec is able to
obtain a refund from such third party.
2.7 Publication.
-----------
2.7.1 Review. As soon as is practicable prior to the oral public
------
disclosure and prior to the submission to any outside person for publication of
a manuscript describing the scientific data resulting from any stage of the
Research Program, the authors of such disclosure shall disclose to the Steering
Committee the disclosure or manuscript to be made or submitted, and shall allow
the Steering Committee at least thirty (30) days to determine whether such
disclosure or manuscript contains subject matter for which patent protection
should be sought prior to publication or which the other believes should be
modified or deleted to avoid regulatory or commercial difficulties. With
respect to publications by investigators or other third parties, such
publications shall be subject to majority review by the Steering Committee under
this Section 2.7 to the extent that Fuso or GenVec (as the case may be) has the
right to do so.
2.7.2 Delay of Publication. Prior to the expiration of the thirty (30)
--------------------
day period specified in Section 2.7.1, the Steering Committee may notify the
submitting party of its determination that such oral presentation or manuscript
contains objectionable material or material that consists of patentable subject
matter for which patent protection should be sought. The notified party shall
withhold its proposed public disclosure and confer with the Steering Committee
to determine the best course of action to take in order to modify the disclosure
or to obtain patent protection. After resolution of the regulatory or
commercial issues, or the filing of a patent application, the submitting party
shall be free to submit the manuscript and/or make its public oral disclosure.
2.7.3 Publication Rights. After the expiration of thirty (30) days
------------------
from the date of mailing such disclosure or manuscript, unless Fuso or GenVec
has received from the other or the Steering Committee the written notice
specified above, the authoring party shall be free to submit such manuscript for
publication or to publish the disclosed research results. Any such publication
shall include an acknowledgment of the contributions of each party, subject to
customary scientific norms.
2.8 iNOS Products. Notwithstanding any other provision of this Agreement
-------------
or the Commercialization Agreement, GenVec may develop and commercialize Gene
Therapy products containing the iNOS gene (or a fragment or derivative thereof)
for the treatment of cardiovascular disease or other non-cancer indications,
itself or with third parties. If GenVec or such third party reasonably believes
that the commercialization of a Collaboration Product containing the iNOS gene
(or a fragment or derivative thereof) for use in the Field may compete with or
adversely affect the sales of such a product, Fuso may not develop or
commercialize such a Collaboration Product without the prior written consent of
GenVec or a licensee of GenVec with rights to such product, which consent shall
not be unreasonably withheld.
-10-
<PAGE>
3. LICENSE GRANTS
3.1 Research Licenses.
-----------------
3.1.1 Licenses to Fuso. Subject to the terms and conditions of this
----------------
Agreement, GenVec hereby grants to Fuso: (i) a non-exclusive, non-transferable,
royalty-free license under the Gene Therapy Technology jointly developed by
GenVec and Fuso solely to conduct internal research at Fuso and/or the
laboratory of Dr. Ohno at Jikei University (including the Research Program) in
the Field in the Territory; and (ii a non-exclusive, non-transferable, royalty-
free license under the GenVec Technology solely to conduct the Research Program
and clinical trials as described in Article 5 in the Field in the Territory.
3.1.2 License to GenVec. Subject to the terms and conditions of this
-----------------
Agreement, Fuso hereby grants to GenVec a non-exclusive, non-transferable,
royalty-free license under the Fuso Technology solely to conduct research
activities as contemplated herein within the Field (including, but not limited
to, the Research Program and clinical trials as described in Article 5).
3.1.3 Sublicenses. GenVec and Fuso may sublicense the rights granted
-----------
in Sections 3.1.1 and 3.1.2 to * only to the extent that such sublicenses are
reasonably necessary for GenVec and Fuso to conduct research activities in
connection with the Research Program and clinical trials as described in Article
5.
3.2 Retained Rights. It is understood and agreed that GenVec shall retain
---------------
the exclusive right to (i) make, have made, use, sell and otherwise
commercialize the Collaboration Products for all uses within the Field outside
the Territory; (ii) subject to Section 2.4.5, to make, have made, use, sell and
otherwise commercialize the Collaboration Products for use outside the Field,
both in and outside the Territory; (iii) to make, have made, use and sell
Collaboration Products to Fuso in connection with the activities conducted by
GenVec pursuant to this Agreement, unless and until Fuso assumes manufacture of
the Collaboration Products, and (iv) to practice any method, process or
procedure within, and otherwise develop, exploit and/or commercialize the *
3.3 No Implied Licenses. No rights or licenses with respect to the GenVec
-------------------
Technology or the Fuso Technology or other intellectual property owned by GenVec
or Fuso are granted or shall be deemed granted hereunder or in connection
herewith, other than those rights expressly granted in this Agreement.
3.4 Fuso Independent Technology. If during the Research Program Term Fuso
---------------------------
owns or controls intellectual property or materials not within the Fuso
Technology (as defined in Section 1.7) which may be useful for the conduct of
the Research Program or the development or commercialization of Collaboration
Products, Fuso may notify the Steering Committee identifying such intellectual
property and materials, and in such event the parties shall negotiate in good
faith the terms on which Fuso would make available such intellectual property
and materials for the Research Program and/or the development or
commercialization of Collaboration Products. Such terms shall include the terms
relating to the ownership of such Fuso independent technology and improvements
thereto, and shall govern in the event of any conflict between such terms and
the terms of this
-11-
<PAGE>
Agreement. If the parties do not enter into a further written agreement, Fuso
shall have no obligation to make such intellectual property or materials
available to GenVec for any purpose.
4. PAYMENTS
4.1 Research Program Funding. Fuso shall pay to GenVec funding for the
------------------------
Research Program of seven hundred fifty thousand dollars ($750,000) each year
during the Research Program Term. Such amounts shall be paid to GenVec in equal
quarterly installments of one hundred eighty-seven thousand five hundred dollars
($187,500), in advance. The initial payment shall be paid within fourteen (14)
days from the Effective Date and subsequent payments shall be made on or before
the applicable quarterly anniversary of the Effective Date. Such payments shall
be made without withholding for taxes or any other charge and, subject to
Section 2.6.3, shall be non-refundable.
4.2 Milestone Cost Reimbursement. Within thirty (30) days following the
----------------------------
first occurrence in * of each of the events specified below with respect to each
Collaboration Product, Fuso shall pay to GenVec the following amounts:
MILESTONES AMOUNT
----------------------------------------------
*
----------------------------------------------
----------------------------------------------
----------------------------------------------
Fuso shall promptly notify GenVec upon the achievement of each of the
foregoing milestones with respect to each Collaboration Product. It is
understood that such payments shall be made to share the costs incurred by
GenVec in connection with any research, pre-clinical studies and/or clinical
trials in the United States for such Collaboration Product in consideration for
the right to receive data relating to such research, pre-clinical studies and/or
clinical trials from GenVec pursuant to Section 5.1.1.
4.3 Withholding Taxes. All payments required to be made to GenVec
-----------------
pursuant to Article 4 shall be without deduction or withholding for or on
account of any taxes or similar governmental charge.
4.4 Taxes. Any transfer taxes, import duties and other taxes or
-----
governmental charges required to be paid in connection with the transfer to Fuso
of any Collaboration Products manufactured by GenVec hereunder shall be the sole
responsibility of Fuso. In the event that GenVec is required to pay any such
amounts. Fuso shall promptly remit payment to GenVec of such amounts.
5. CLINICAL TRIALS
5.1 Collaboration Product Development by Fuso.
-----------------------------------------
-12-
<PAGE>
5.1.1 Collaboration Products Developed by GenVec. It is understood by
------------------------------------------
the parties that the data to be obtained as the result of clinical trials
conducted by GenVec in the * are useful * to get the authorization of
commencement of Phase I clinical studies in Japan from the Ministry of Education
and MHW. GenVec agrees to * that the Steering Committee agrees * and to provide
Fuso with the data * in a timely manner.
5.1.2 Collaboration Product Development by Fuso. Except as expressly
-----------------------------------------
provided otherwise in this Agreement, Fuso shall be responsible for all costs of
conducting development of Collaboration Product(s) in the Territory in
accordance with the applicable Development Plan(s), including, without
limitation expenses incurred in conducting clinical trials (e.g., clinical
trials in the Territory, and clinical trials conducted outside the Territory
which provide data for regulatory approvals in the Territory). During the term
of this Agreement, Fuso shall keep GenVec fully informed of its activities
subject to this Agreement, including without limitation the achievement of the
milestones set forth in Section 4.2 and, in addition, on or before January 31 of
each year, Fuso shall provide GenVec with a written report detailing such events
and activities.
5.2 Due Diligence.
-------------
5.2.1 Reasonable Efforts. Fuso shall use all reasonable efforts to:
------------------
(i) promptly develop the Collaboration Products following designation of such
Collaboration Product, and (ii) achieve the milestones set forth in Section
5.2.2(a).
5.2.2 Milestones.
----------
(a) Achievement Based. Subject to Sections 5.2.2(b) and 5.2.3
-----------------
below, if each of the following milestones are not timely met by Fuso or its
Sublicensees in Japan with respect to any Collaboration Product with respect to
the dates below (unless other dates are agreed by the Steering Committee and
specified in the applicable Development Plan) the license granted to Fuso with
respect to such Collaboration Product shall terminate in the Territory, and all
rights granted to Fuso relating to such Collaboration Product will revert to
GenVec.
Initiation of first Phase I clinical trial Eighteen (18) months from the date
that the last patient is dosed
with such Collaboration Product in
the first Phase I clinical trial
of such Collaboration Product
conducted in the United States,
subject to the authorization of
the Ministry of Education and MHW
for the commencement of clinical
studies for such Collaboration
Product within twelve (12) months
from such date.
Initiation of first Phase II clinical trial Eighteen (18) months from
initiation of Phase I clinical
trials in Japan.
Initiation of first Phase III clinical trial Forty-two (42) months from
initiation of Phase I clinical
trials in Japan.
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<PAGE>
Subject to Section 5.1.1, Fuso shall make all reasonable effort to obtain the
authorization of the Ministry of Education and MHW for the commencement of
clinical studies concerning the applicable Collaboration Product within the
applicable twelve (12) month period prescribed above.
(b) Expenditure Based. In the event that Fuso has failed to
-----------------
satisfy any of the achievement-based diligence requirement described in Section
5.2.2(a) with respect to particular Collaboration Product, Fuso may establish
its diligence by demonstrating to GenVec that it has expended no less than the
amounts agreed by the parties directly on the preclinical and/or clinical
development of such Collaboration Product in each of the previous two (2) years.
In such event, Fuso's license with respect to Collaboration Product shall remain
in effect for an additional period of twelve (12) months, provided that Fuso
continues to exercise diligent efforts to develop such Collaboration Product and
meet the applicable achievement-based milestone set forth above. In the event,
Fuso accomplishes the applicable milestone in such period, Fuso's license shall
remain in effect, subject to the terms of this Agreement. In such case, such
achievement-based milestones shall be rescheduled taking account of the delay of
preceding achievement-based milestones and other relevant circumstances. The
parties shall reasonably agree on the annual expenditures described in the first
sentence of this Section 5.2.2(b) on or before six (6) months after the date the
Steering Committee designates a particular Collaboration Product pursuant to
Section 2.4, provided in the event the parties are unable to agree on such
amount prior to such date, or such later date as the parties agree then the
provisions of this Section 5.2.2(b) shall not be effective with respect to such
Collaboration.
5.2.3 Lack of Diligence. In the event that Fuso fails to meet the
-----------------
achievement-based or the expenditure-based diligence milestones with respect to
a particular Collaboration Product, GenVec may terminate this Agreement with
respect to such Collaboration Product pursuant to the provision of Section 11.2,
unless Fuso establishes that it has acted reasonably, diligently and in good
faith to meet the milestones but failed due to events outside Fuso's control,
which may include, but not limited to, difficulty to find patients and/or
doctors who are cooperative with the clinical trials or any change of the policy
of the MHW or other authorities concerning general practice of clinical trials
and/or gene therapy. In such event, GenVec shall thereafter have the exclusive
rights to commercialize such Collaboration Products in the Territory, alone or
with third parties.
5.3 Regulatory Filings.
------------------
5.3.1 Research Program-Based Each party and its Affiliates, and,
----------------------
subject to such party's obligations to third parties, its sublicensees, shall
have the right, without charge, to refer to, access, cross reference, and use
documents relating to each Collaboration Product filed by a party or its
Affiliates or Sublicensees with regulatory entities with respect to activities
conducted in connection with the Research Program, * and any written
communications to and with the *
5.3.2 Outside the Research Program. Subject to its obligations to
----------------------------
third parties, each party and its Affiliates and sublicensees, may in exchange
for reasonable consideration to be agreed by the parties, obtain the right to
refer to, access, cross reference, * relating to each Collaboration Product,
filed by a party or its Affiliates or Sublicensees in agreed jurisdictions, with
respect to
-14-
<PAGE>
activities conducted outside the Research Program, including clinical studies
and other supporting information, and any *
6. MANUFACTURING RIGHTS
6.1 Manufacture.
-----------
6.1.1 Clinical Trials in the U.S. GenVec shall have the first right,
---------------------------
but not the obligation to manufacture Collaboration Products for use in Phase I
and II clinical trials conducted outside the Territory pursuant to the Research
Plan or a Development Plan, on a Collaboration Product-by-Collaboration Product
basis. If GenVec elects not to manufacture such Collaboration Products, the
parties shall agree whether Fuso or a third party shall manufacture such
Collaboration Products.
6.1.2 Clinical Trials in the Territory. Fuso shall have the first
--------------------------------
right, but not the obligation to manufacture Collaboration Products for use in
clinical trials in the Territory, on a Collaboration Product-by-Collaboration
Product basis, subject to GenVec's approval not to be unreasonably withheld.
GenVec's decision to approve or disapprove manufacturing by Fuso shall be based
on Fuso's ability to manufacture the applicable Collaboration Product and/or the
period Fuso may require to establish an approved manufacturing facility. If
Fuso elects not to manufacture such Collaboration Products, or GenVec does not
approve of manufacture of such Collaboration Product by Fuso, GenVec shall have
the first right, but not the obligation to manufacture Collaboration Products
for use in clinical trials in the Territory, on a Collaboration Product-by-
Collaboration Product basis, subject to Fuso's approval, not to be unreasonably
withheld. Fuso's decision to approve or disapprove manufacturing by GenVec
shall be based on GenVec's ability to cost effectively manufacture the
applicable Collaboration Product. In the event that GenVec declines to
manufacture a particular Collaboration Product, or Fuso does not approve of the
manufacture of such Collaboration Product by GenVec, then, subject to Section
6.2, Fuso may select a third party contract manufacturer ("Contract
Manufacturer"), reasonably acceptable to GenVec, to manufacture such
Collaboration Product. GenVec and Fuso agree to reasonably cooperate to ensure
the availability of Collaboration Products for Phase I and Phase II clinical
studies in the Territory.
6.2 Contract Manufacturing. If Fuso has Collaboration Products
----------------------
manufactured by a Contract Manufacturer pursuant to Section 6.1 above, it will
require that such Contract Manufacturer sell the Collaboration Products produced
by it only to Fuso, its Affiliates or permitted Sublicensees. In addition, (i)
such Contract Manufacturers shall agree in writing to be bound by the
confidentiality obligations set forth in Article 9 hereof as if they were a
party to this Agreement, (ii) Fuso shall notify the name and financial strength
of each Contract Manufacturer to GenVec prior to the commencement of the
contract manufacturing, and (iii) Fuso shall remain responsible to GenVec for
any failure by Contract Manufacturers to conform to such obligation.
6.3 Payments for Collaboration Products. During the Research Program
-----------------------------------
Term, if GenVec manufactures a particular Collaboration Product, GenVec shall
provide such Collaboration Product to Fuso for use in clinical trials, without
additional charge, if the cost of manufacturing such Collaboration Products is
specifically provided for in the applicable Research Plan and the Research
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<PAGE>
Program funding paid to GenVec pursuant to Section 2.3.1(b). In all other
cases, Fuso shall pay to GenVec an amount to be agreed by the parties for such
Collaboration Products.
6.4 Transfer of Manufacturing Know-How. If Fuso manufactures
----------------------------------
Collaboration Products pursuant to Section 6.1 above, the parties shall
negotiate in good faith the compensation to be paid to GenVec for the transfer
of process development and manufacturing know-how, and shall cooperate with each
other in order that Fuso may initiate manufacture of the Collaboration Product
as soon as practicable; provided, GenVec shall not be obligated to transfer any
manufacturing knowhow which is subject to a contractual obligation with a third
party.
6.5 Fuso Responsibilities. If Fuso undertakes to manufacture the
---------------------
Collaboration Product, Fuso shall be responsible for all costs and liabilities
associated therewith. All Collaboration Products manufactured by or on behalf
of Fuso will conform with all MHW regulations and all applicable foreign laws
and regulations. Fuso shall keep GenVec fully informed of the Collaboration
Product manufacturing procedures and developments relating thereto and GenVec
shall have the right on reasonable prior notice to visit the manufacturing
facility during ordinary business hours and review any relevant records relating
to Collaboration Product manufacture (excluding records relating to the
manufacturer's own proprietary manufacturing processes).
7. INTELLECTUAL PROPERTY
7.1 Ownership of Inventions.
-----------------------
7.1.1 Research Program Technology. Subject to Section 7.1.2 below, (i)
---------------------------
title to all inventions and intellectual property made solely by GenVec
employees or its agents (including researchers at DFCI) in connection with the
Research Program without inventive contribution by Fuso employees or its agents
shall be owned by GenVec; (ii) title to all inventions and intellectual property
made solely by Fuso employees or its agents (including researchers at Jikei
University) in connection with the Research Program without inventive
contribution by GenVec employees or its agents shall be owned by Fuso; and (iii)
title to all inventions and intellectual property made jointly by employees or
the agents of Fuso and GenVec in connection with the Research Program, shall be
jointly owned by GenVec and Fuso.
7.1.2 *. Notwithstanding Section 7.1.1 above, title to all inventions
-
and intellectual property which relates to * made solely by GenVec employees or
its agents (including researchers at DFCI) or jointly by employees or the agents
of Fuso and GenVec in connection with the Research Program (in each case, "*")
shall be owned by GenVec. Fuso hereby assigns to GenVec all its right, title
and interest it may otherwise hold in or to such * and any patent applications
or patents relating thereto. Fuso shall, at the request of GenVec, execute, and
deliver or cause to be delivered, all such consents, documents or further
instruments of assignment or transfer, and take or cause to be taken all such
actions GenVec reasonably deems necessary or desirable in order for GenVec to
obtain the full benefits of the assignment herein.
7.1.3 Inventorship. Inventorship and rights of ownership of inventions
------------
and other intellectual property rights conceived and/or reduced to practice in
connection with the Research
-16-
<PAGE>
Program shall be determined in accordance with the patent and other intellectual
property laws of the United States or the State of Maryland, as applicable, as
long as the laws of the Territory permit application of such laws. Subject to
the licenses granted in Article 3, except as expressly provided in this
Agreement, it is understood that neither party shall have any obligation to
account to the other for profits, or to obtain any approval of the other party
to license or exploit a joint invention for applications outside of the Field by
reason of joint ownership of any such intellectual property.
7.2 Patent Prosecution
------------------
7.2.1 Sole Inventions. Fuso or GenVec, as the case may be, shall, be
---------------
responsible for preparing, filing, prosecuting and maintaining of the patent
applications and patents, solely owned by it, worldwide in such countries as it
deems appropriate, and conducting any interferences, reexaminations, reissues,
oppositions or requests for patent term extensions relating to the Fuso
Technology or GenVec Technology (respectively), using counsel of its choice, at
its expense; provided, such expenses may be included in the Research Program
funding described in Section 2.3.
7.2.2 Joint Patent Rights.
-------------------
(i) The parties will cooperate to file, prosecute and maintain
patent applications covering the Joint Invention(s) in the United States,
European Union (in Europe through a European Patent Convention application) and
Japan (collectively, the "Core Countries") and other countries agreed by the
parties. The parties shall agree which party shall be responsible for conducting
such activities with respect to a particular Joint Invention. The party
conducting such activities shall keep the other party fully informed as to the
status of such patent matters, including, without limitation, by providing the
other party the opportunity, at the other party's expense, to review and comment
on any documents relating to the Joint Invention which will be filed in any
patent office at least thirty (30) days before such filing, and promptly
providing the other party copies of any documents relating to Joint Invention
which the party conducting such activities receives from such patent offices,
including notice of all interferences, reissues, reexaminations, oppositions or
requests for patent term extensions. The parties will share equally all expenses
and fees associated with the filing, prosecution, issuance and maintenance of
any patent application and resulting patent for a Joint Invention in the Core
Countries and other agreed countries and such amounts shall be included within
the Research Program funding described in Section 2.3.
(ii) In the event that either party wishes to seek patent
protection with respect to any Joint Invention outside the Core Countries, it
shall notify the other party hereto. If both parties wish to seek patent
protection with respect to such Joint Invention in such country or countries,
activities shall be subject to Section 7.2.2(a) above. If only one party wishes
to seek patent protection with respect to such Joint Invention in such country
or countries, it may file, prosecute and maintain patent applications and
patents with respect thereto, at its own expense. In any such case, the party
declining to participate in such activities shall not grant any third party a
license under its interest in the applicable Joint Invention in the applicable
country or countries without the prior written consent of the other party.
-17-
<PAGE>
7.3 Enforcement.
-----------
7.3.1 Solely Owned Technology. Subject to 7.3.2 below, in the event
-----------------------
that any GenVec Technology or Fuso Technology (in this Section, both referred to
as "Technology") necessary for use of a Collaboration Product is infringed or
misappropriated by a third party in any country in the Territory, or is subject
to a declaratory judgment action arising from such infringement in such country,
Fuso or GenVec, as the case may be, shall promptly notify the other party
hereto. The party which owns or controls such Technology (the "Owner") shall
have the initial right (but not the obligation) to enforce such Technology, or
defend any declaratory judgment action with respect thereto, at its expense. In
the event that the Owner fails to initiate a suit to enforce such Technology
against a commercially significant infringement in the Field by a third party in
any jurisdiction in the Territory within * of a request by the other party (the
"Licensee") to do so, Licensee may, subject to the Owner's agreements with third
parties, initiate such suit in the name of the Owner of such Technology against
such infringement, at the expense of such Licensee. The party involved in any
such claim, suit or proceeding, shall keep the other party hereto reasonably
informed of the progress of any such claim, suit or proceeding. Any recovery by
such party received as a result of any such claim, suit or proceeding shall be
used first to reimburse such party for all expenses (including attorneys and
professional fees) incurred in connection with such claim, suit or proceeding
and if the party initiating the suit was the owner of the subject Technology,
all of the remainder shall be retained by such owner, and if the party
initiating the suit is the Licensee, * of the remainder shall be paid to the
owner of the subject Technology and * retained by the Licensee.
7.3.2 Jointly Owned Technology. Notwithstanding 7.3.1 above, in the
------------------------
event that any technology that is jointly owned by GenVec and Fuso under Section
7.1 of this Agreement is infringed or misappropriated by a third party, Fuso and
GenVec shall discuss whether, and, if so, how, to enforce such Joint Technology
or defend such Joint Technology in an infringement action, declaratory judgment
or other proceeding. In the event only one party wishes to participate in such
proceeding, it shall have the right to proceed alone, at its expense, and may
retain any recovery; provided, at the request and expense of the participating
party, the other party agrees to cooperate and join in any proceedings in the
event that a third party asserts that the co-owner of such Joint Invention is
necessary or indispensable to such proceedings.
7.4 Infringement Claims. If the use of any Collaboration Product in
-------------------
clinical trials in the Territory pursuant to this Agreement results in any
claim, suit or proceeding alleging patent infringement against GenVec or Fuso,
such party shall promptly notify the other party hereto. If Fuso is not named
as a party in such a claim, suit or proceeding, Fuso may, at its own expense and
through counsel of its own choice, seek leave to intervene in such claim, suit
or proceeding. GenVec agrees not to oppose such intervention. If Fuso, and not
GenVec, is named as a party to such claim, suit or proceeding, Fuso shall have
the right to control the defense and settlement of such claim, suit or
proceeding, at its own expense, using counsel of its own choice, however GenVec,
at its own expense and through counsel of its own choice, may seek to intervene
if the claim, suit or proceeding relates to the commercialization of the
Collaboration Product in the Field, and in such event, Fuso agrees not to oppose
such intervention. If Fuso is named as a party and GenVec shall, at any time,
tender its defense to Fuso, then Fuso shall defend GenVec in such claim, suit or
proceeding, at Fuso's own expense and through counsel of its own choice, and
Fuso shall control the defense and
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<PAGE>
settlement of any such claim, suit or proceeding; provided, Fuso shall not enter
into any agreement which makes any admission regarding (i) wrongdoing on the
part GenVec, or (ii) the invalidity, unenforceability or absence of infringement
of any GenVec Patent Rights or patent claiming a Joint Invention, without the
prior written consent of GenVec, which consent shall not be unreasonably
withheld. The parties shall cooperate with each other in connection with any
such claim, suit or proceeding and shall keep each other reasonably informed of
all material developments in connection with any such claim, suit or proceeding.
8. REPRESENTATIONS AND WARRANTIES
8.1 Warranties.
----------
8.1.1 GenVec. GenVec warrants and represents to Fuso that (i) it has
------
the full right and authority to enter into this Agreement and grant the rights
and licenses granted herein; (ii) as of the Effective Date, there are no
existing or threatened actions, suits or claims pending against it with respect
to the GenVec Technology or its right to enter into and perform its obligations
under this Agreement; (iii) it has not previously granted, and will not grant
during the term of this Agreement, any right, license or interest in or to
GenVec Technology or Joint Technology, or any portion thereof, which are in
conflict with the rights or licenses granted under this Agreement; and (iv) as
of the Effective Date, GenVec believes that the patent applications and patents
listed on Exhibit A hereto is a complete list of patent applications and patents
owned or controlled by GenVec necessary or useful for the conduct of the
Research Program, provided, however, the foregoing does not apply * thereof.
8.1.2 Fuso. Fuso warrants and represents to GenVec that (i) it has the
----
full right and authority to enter into this Agreement, and (ii) it has not
previously granted, and will not grant during the term of this Agreement, any
right, license or interest in or to Fuso Technology or Joint Technology, or any
portion thereof, which are in conflict with the rights or licenses granted under
this Agreement.
8.2 Effect of Representations and Warranties. It is understood that if
----------------------------------------
the representations and warranties under this Article 8 are not true and
accurate and GenVec or Fuso incurs liabilities, costs or other expenses as a
result of such falsity, GenVec or Fuso, as the case may be, shall indemnify,
defend and hold the other party harmless from and against any such liabilities,
costs or expenses incurred, provided that the indemnifying party receives prompt
notice of any claim against GenVec or Fuso, as the case maybe, resulting from or
related to such falsity, the cooperation of the indemnified party, as requested
in connection with any such claim, and the sole right to control the defense or
settlement thereof.
8.3 Disclaimer of Warranties. GenVec and Fuso each specifically disclaim
------------------------
that the Research Program will be successful, in whole or part. GENVEC AND FUSO
EXPRESSLY DISCLAIM ANY WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, WITH RESPECT TO THE CONFIDENTIAL INFORMATION, OR FUSO TECHNOLOGY OR
GENVEC TECHNOLOGY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE, VALIDITY
OF FUSO TECHNOLOGY OR GENVEC
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<PAGE>
TECHNOLOGY, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL
PROPERTY RIGHTS OF THIRD PARTIES.
9. CONFIDENTIALITY
9.1 Confidential Information. Except as expressly provided herein, the
------------------------
parties agree that, for the term of this Agreement and for * thereafter, the
receiving party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose except for the purposes
contemplated by this Agreement any Confidential Information furnished to it by
the disclosing party hereto pursuant to this Agreement, except that to the
extent that it can be established by the receiving party by competent proof that
such Confidential Information:
(i) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(ii) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;
(iii) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement;
(iv) was independently developed by the receiving party without
reference to any information or materials disclosed by the disclosing party; or
(v) was subsequently disclosed to the receiving party by a person
other than a party without breach of any legal obligation to the disclosing
party.
9.2 Permitted Disclosures. Each party hereto may disclose another's
---------------------
Confidential Information to the extent such disclosure is reasonably necessary
in connection with the conduct of the Research Program activities to be
conducted at DFCI or Jikei University (or any other academic institution
approved by the Steering Committee), in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with applicable
governmental regulations or otherwise submitting information to tax or other
governmental authorities, * or making a permitted sublicense or otherwise
exercising its rights hereunder, provided that if a party is required to make
any such disclosure of another party's confidential information, other than
pursuant to a confidentiality agreement, it will give reasonable advance notice
to the latter party of such disclosure and, save to the extent inappropriate in
the case of patent applications, will use its best efforts to secure
confidential treatment of such information prior to its disclosure (whether
through protective orders or otherwise).
9.3 Non-Disclosure. Each of the parties hereto agrees not to disclose to
--------------
any third party the financial terms of this Agreement without the prior written
consent of each other party hereto, except to advisors, investors and others on
a need to know basis under circumstances that reasonably ensure the
confidentiality thereof, or to the extent required by law. Without limitation
upon any
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<PAGE>
provision of this Agreement, each of the parties hereto shall be responsible for
the observance by its employees of the foregoing confidentiality obligations.
Notwithstanding the foregoing, the parties shall agree upon a press release to
announce the execution of this Agreement, together with a corresponding Q&A
outline for use in responding to inquiries about the Agreement; thereafter,
GenVec and Fuso may each disclose to third parties the information contained in
such press release and Q&A without the need for further approval by the other.
10. INDEMNIFICATION
10.1 Indemnification of Fuso. GenVec shall indemnify and hold Fuso and its
-----------------------
Affiliates, and their respective directors, officers, employees, agents and
counsel, and the successors and assigns of the foregoing (the "Fuso
Indemnitees"), harmless from and against any and all liabilities, damages,
losses, costs or expenses (including reasonable attorneys' and professional fees
and other expenses of litigation and/or arbitration) resulting from a claim,
suit or proceeding brought by a third party against a Fuso Indemnitee, arising
from or occurring as a result of': (i) GenVec's conduct of the Research
Program, (ii) the research, development, use or clinical testing of any Product
Configuration and/or Collaboration Product by GenVec or its Affiliates or
licensees (including without limitation, product liability claims), or (iii) the
failure of Collaboration Products manufactured by GenVec to meet the relevant
specifications, except, in each case, to the extent caused by the negligence or
willful misconduct of Fuso.
10.2 Indemnification of GenVec. Fuso shall indemnify and hold GenVec and
-------------------------
its Affiliates and their respective directors, officers, employees, agents and
counsel and the successors and assigns of the foregoing (the "GenVec
Indemnitees"), harmless from and against any and all liabilities, damages,
losses, costs or expenses (including reasonable attorneys' and professional fees
and other expenses of litigation and/or arbitration) resulting from a claim,
suit or proceeding brought by a third party against a GenVec Indemnitee, arising
from or occurring as a result of; (i) Fuso's conduct of the Research Program, or
(ii) the research, development, use or clinical testing of any Product
Configuration and/or Collaboration Product by Fuso or its Affiliates or
Sublicensees (including without limitation, product liability claims), except,
in each case, to the extent caused by the negligence or willful misconduct of
GenVec.
10.3 Procedure. A party (the "Indemnitee") that intends to claim
---------
indemnification under this Article 10 shall promptly notify the other party (the
"Indemnitor") in writing of any loss, claim, damage, liability or action in
respect of which the Indemnitee or any of its Affiliates, Sublicensees or their
directors, officers, employees, agents or counsel intend to claim such
indemnification, and the Indemnitor shall have the right to participate in, and,
to the extent the Indemnitor so desires, to assume the defense thereof with
counsel mutually satisfactory to the parties. The indemnity agreement in this
Article 10 shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action if such settlement is made without the consent of
the Indemnitor, which consent shall not be withheld unreasonably. The failure
to deliver written notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
this Article 10. At the Indemnitor's request, the Indemnitee under this Article
10, and its employees and agents, shall cooperate fully with the Indemnitor and
its legal representatives in the investigation and defense of
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any action, claim or liability covered by this indemnification and provide full
information with respect thereto.
11. TERM AND TERMINATION
11.1 Term. This Agreement shall be effective as of the Effective Date and,
----
unless otherwise terminated earlier pursuant to the other provisions of this
Article 11, shall continue in full force and effect until the expiration or
termination of the Research Program; provided, that the license granted to Fuso
under Section 3.1 and the obligations set forth in Sections 5.1 and 5.2 and
Article 6 shall remain in effect with respect to any Product Configuration which
prior to the effective date of such expiration or termination was designated by
the Steering Committee as a Collaboration Product on a Collaboration Product-by-
Collaboration Product basis, until the earlier of (i) the date that research and
clinical trials with respect to the applicable Collaboration Product have been
discontinued, or (ii) the date GenVec receives payment for a PLA approval with
respect to such Collaboration Product in the Territory.
11.2 Termination for Cause. Either party may terminate this Agreement in
---------------------
the event the other party has materially breached or defaulted in the
performance of any of its obligations hereunder, and such default has continued
for sixty (60) days after written notice thereof was provided to the breaching
party by the nonbreaching party. Any termination shall become effective at the
end of such sixty (60) day period unless the breaching party has cured any such
breach or default prior to the expiration of the sixty (60) day period.
Notwithstanding the above, in the case of a failure to pay any amount due
hereunder the period for cure of any such default following notice thereof shall
be ten (10) days and, unless payment is made within such period, the termination
shall become effective at the end of such period.
11.3 Termination for Insolvency. If voluntary or involuntary proceedings
--------------------------
by or against a party are instituted in bankruptcy under any insolvency law, or
a receiver or custodian is appointed for such party, or proceedings are
instituted by or against such party for corporate reorganization or the
dissolution of such party, which proceedings, if involuntary, shall not have
been dismissed within sixty (60) days after the date of filing, or if such party
makes an assignment for the benefit of creditors, or substantially all of the
assets of such party are seized or attached and not released within sixty (60)
days thereafter, the other party may immediately terminate this Agreement
effective upon notice of such termination.
11.4 Permissive Termination. After the second anniversary of the Research
----------------------
Program, Fuso may, at its sole discretion, terminate this Agreement at any time
with ninety (90) days prior notice pursuant to Section 2.6.2.
11.5 Termination Relating to Sales of Competing Collaboration Products.
-----------------------------------------------------------------
GenVec may, at its sole discretion terminate this Agreement with ninety (90)
days notice if Fuso shall directly or indirectly develop, market, sell, or
otherwise distribute any gene therapy products or components within the Field in
the Territory, which could compete with the Collaboration Products, or Fuso
appoints or licenses any third party to develop, market, sell, or otherwise
distribute any such gene
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<PAGE>
therapy products or components which could compete with Collaboration Products
during the term of this Agreement.
11.6 Termination of Commercialization Agreement. If the Commercialization
------------------------------------------
Agreement terminates, this Agreement shall terminate concurrently.
11.7 Effect of Breach or Termination.
-------------------------------
11.7.1 Accrued Obligations. Termination of this Agreement for any
-------------------
reason shall not release any party hereto from any liability which, at the time
of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination, nor preclude either party
from pursuing any rights and remedies it may have hereunder or at law or in
equity which accrued or are based upon any event occurring prior to such
termination.
11.7.2 Return of Materials. Upon the discontinuance of the research
-------------------
and development activities with respect to a particular Product Configuration,
whether due to termination of this Agreement or otherwise, if a corresponding
Collaboration Product is not being commercialized pursuant to the
Commercialization Agreement, Fuso and GenVec shall promptly return to the other
party all materials and Confidential Information received from the other party
relating specifically to such Product Configuration (except one copy of which
may be retained by legal counsel for archival purposes).
11.7.3 Licenses.
--------
(a) The licenses granted Fuso herein shall terminate in the
event of a termination pursuant to Section 11.2, 11.3, 11.4 (subject to Section
11.1), 11.5 or 11.6.
(b) The licenses granted to GenVec in Section 3.1.2 shall
terminate only in the event of a termination by Fuso pursuant to Section 11.2 or
11.3 or 11.6.
11.8 Survival. Sections 2.5.1, 2.7, 3.2, 3.3, 5.3, 11.1, 11.7 and 11.8 and
--------
Articles 4, 7, 8, 9, 10, 12 and 13 shall survive the expiration or termination
of this Agreement for any reason.
12. DISPUTE RESOLUTION
12.1 Mediation. If a dispute arises out of or relates to this Agreement,
---------
or the breach thereof, and if said dispute cannot be settled through
negotiation, the parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association before resorting to arbitration.
12.2 Arbitration. Any dispute under this Agreement (except any dispute
-----------
relating to the validity or enforceability of any patent) which is not settled
by mutual consent shall be finally settled by binding arbitration. Such
arbitration shall be conducted in accordance with the International Arbitration
Rules of the Asia/Pacific Center by three (3) arbitrators appointed in
accordance with said rules and shall be held in San Francisco, California. At
least one of the arbitrators shall be an
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<PAGE>
independent expert in pharmaceutical product development (including clinical
development and regulatory affairs). The arbitrators shall determine what
discovery will be permitted, consistent with the goal of limiting the cost and
time which the parties must expend for discovery; provided the arbitrators shall
permit such discovery as they deem necessary to permit an equitable resolution
of the dispute. Any written evidence originally in a language other than English
shall be submitted in English translation accompanied by the original or a true
copy thereof. The costs of the arbitration including administrative and
arbitrators' fees, shall be shared equally by the parties and each party shall
bear its own costs and attorneys' and witness' fees incurred in connection with
the arbitration. A disputed performance or suspended performances pending the
resolution of the arbitration must be completed within thirty (30) days
following the final decision of the arbitrators or such other reasonable period
as the arbitrators determine in a written opinion. Any arbitration subject to
this Article shall be completed within one (1) year from the filing of notice of
a request for such arbitration. No punitive damages may be granted by the
arbitrators. The arbitration proceedings and the decision shall not be made
public without the joint consent of the parties and each party shall maintain
the confidentiality of such proceedings and decision unless otherwise permitted
by the other party. The parties agree that the decision shall be the sole,
exclusive and binding remedy between them regarding any and all disputes,
controversies, claims and counterclaims presented to the arbitrators. Any award
may be entered in a court of competent jurisdiction for a judicial recognition
of the decision and an order of enforcement.
13. MISCELLANEOUS
13.1 Governing Law. This Agreement and any dispute arising from the
-------------
performance or breach hereof shall be governed by and construed in accordance
with the laws of the State of California, without reference to conflicts of laws
principles.
13.2 Waiver. Neither party may waive or release any of its rights or
------
interests in this Agreement except in writing. The failure of either 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 or excuse a
similar subsequent failure to perform any such term or condition.
13.3 Assignment. This Agreement shall not be assignable by either party to
----------
any third party hereto without the written consent of the other party hereto;
except either party may assign this Agreement, without such consent, to (i) an
Affiliate of such party; or (ii) an entity that acquires all or substantially
all of the business or assets of such party to which this Agreement pertains,
whether by merger, reorganization, acquisition, sale, or otherwise, and that
agrees in writing to be strictly bound by the terms and conditions of this
Agreement. The terms and conditions of this Agreement shall be binding on and
inure to the benefit of the permitted successors and assigns of the parties.
13.4 Notices. Any notices, requests and other communications hereunder
-------
shall be in writing and shall be personally delivered or sent by international
express delivery service, registered or certified mail, return receipt
requested, postage prepaid, in each case to the respective address specified
below, or such other address as may be specified in writing to the other parties
hereto :
FUSO: Fuso Pharmaceutical Industries, Ltd
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<PAGE>
3-11, 2-Chome, Morinomiya, Joto-ku
Osaka 536, Japan
Attn: President
With a copy to: Director, Research and Development Center
GENVEC: GenVec, Inc.
12111 Parklawn Drive,
Rockville, Maryland 20852
Attn: President
With a copy to: Vice President, Corporate Development
13.5 Performance Warranty. Fuso and GenVec hereby respectively warrant and
--------------------
guarantee the performance of any and all rights and obligations of this
Agreement by their Affiliate(s) and sublicensees.
13.6 Force Majeure. Neither party shall be liable to the other for failure
-------------
or delay in the performance of any of its obligations under this Agreement for
the time and to the extent such failure or delay is caused by earthquake, riot,
civil commotion, war, hostilities between nations, governmental law, order or
regulation, embargo, action by the government or any agency thereof, act of God,
storm, fire, accident, labor dispute or strike, sabotage, explosion or other
similar or different contingencies, in each case, beyond the reasonable control
of the respective party. The party affected by Force Majeure shall provide the
other party with full particulars thereof as soon as it becomes aware of the
same (including its best estimate of the likely extent and duration of the
interference with its activities), and will use its best endeavors to overcome
the difficulties created thereby and to resume performance of its obligations as
soon as practicable. If the performance of any obligation under this Agreement
is delayed owing to a force majeure for any continuous period of more than six
(6) months, the parties hereto shall consult with respect to an equitable
solution including the possible termination of this Agreement.
13.7 Independent Contractors. Nothing contained in this Agreement is
-----------------------
intended implicitly, or is to be construed, to constitute Fuso or GenVec as
partners in the legal sense. No party hereto shall have any express or implied
right or authority to assume or create any obligations on behalf of or in the
name of any other party or to bind any other party to any contract, agreement or
undertaking with any third party.
13.8 Advice of Counsel. GenVec and Fuso have each consulted counsel of
-----------------
their choice regarding this Agreement, and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one party or another
and will be construed accordingly.
13.9 Other Obligations. Except as expressly provided in this Agreement or
-----------------
as separately agreed upon in writing between GenVec and Fuso, each party shall
bear its own costs incurred in connection with the implementation of the
obligations under this Agreement.
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<PAGE>
13.10 Independent Research. Except as expressly provided herein, each party
--------------------
acknowledges and agrees that Fuso and GenVec shall have the right to engage in
their own research and development activities outside the Research Program.
Neither party shall, by virtue of this Agreement, have any right, title or
interest in or to such independent activities or to the income or profits
derived therefrom.
13.11 Severability. In the event that any provisions of this Agreement are
------------
determined to be invalid or unenforceable by a court of competent jurisdiction,
the remainder of the Agreement shall remain in full force and effect without
said provision. The parties shall in good faith negotiate a substitute clause
for any provision declared invalid or unenforceable, which shall most nearly
approximate the intent of the parties in entering this Agreement; provided, if
the parties are unable to agree on such a substitute clause and the deletion of
the provision held invalid or unenforceable would produce material adverse
financial consequences for one party, such party shall have the right to
terminate the Agreement with one hundred eighty (180) days notice.
13.12 Further Assurances. At any time or from time to time on and after the
------------------
date of this Agreement, either party shall at the request of the other party (i)
deliver to the requesting party such records, data or other documents consistent
with the provisions of this Agreement, (ii) execute, and deliver or cause to be
delivered, all such consents, documents or further instruments of assignment,
transfer or license, and (iii) take or cause to be taken all such actions, as
the requesting party may reasonably deem necessary or desirable in order for the
requesting party to obtain the full benefits of this Agreement and the
transactions contemplated hereby.
13.13 Foreign Corrupt Practices Act. In conformity with the United States
-----------------------------
Foreign Corrupt Practices Act, Fuso and its employees and agents shall not
directly or indirectly make any offer, payment, promise to pay, or authorize
payment, or offer a gift, promise to give, or authorize the giving of anything
of value for the purpose of influencing an act or decision of an official of any
government within the Territory or the United States Government (including a
decision not to act) or inducing such official to use his influence to affect
any such governmental act or decision in order to obtain, retain, or direct any
such business.
13.14 Export Laws. Notwithstanding anything to the contrary contained
-----------
herein, all obligations of GenVec and Fuso are subject to prior compliance with
United States export regulations and such other United States or Japanese laws
and regulations as may be applicable, and to obtaining all necessary approvals
required by the applicable agencies of the government of the United States or
Japan. GenVec and Fuso, respectively, shall each use its best efforts to obtain
such approvals from its own government. Each party shall cooperate with the
other party and shall provide assistance to the other party as reasonably
necessary to obtain any required approvals.
13.15 Approvals. Each party shall be responsible, at its expense, for
---------
obtaining any approvals from its own government which may be required under
applicable law, and shall use its best efforts to obtain all necessary approvals
as soon as possible after the execution of this Agreement.
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<PAGE>
13.16 Entire Agreement. This Agreement together with the attached Exhibit,
----------------
and the Commercialization Agreement, and Stock Purchase Agreement entered by the
parties of even date herewith, constitute the entire agreement, both written or
oral, with respect to the subject matter hereof, and supersede all prior or
contemporaneous understandings or agreements, whether written or oral, between
Fuso and GenVec with respect to such subject matter.
13.17 Headings. The captions to the several Sections and Articles hereof
--------
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.
13.18 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and which together shall constitute
one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their authorized representatives as of the Effective Date.
FUSO PHARMACEUTICAL GENVEC, INC.
INDUSTRIES, LTD.
By: _________________________________ By: ________________________________
Name: _______________________________ Name: ______________________________
Title: ______________________________ Title: _____________________________
Exhibit A: GenVec Patent Rights
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<PAGE>
Exhibit A
GenVec Japanese Patent Rights
*
<PAGE>
EXHIBIT 10.10
-------------
COMMERCIALIZATION AGREEMENT
This COMMERCIALIZATION AGREEMENT (the "Agreement"), effective as of
September 26, 1997 (the "Effective Date"), is made by and between Fuso
Pharmaceutical Industries, Ltd., a corporation organized under the laws of
Japan, with a principal place of business at 3-11, 2-Chome, Morinomiya, Joto-ku
Osaka 536 Japan and its registered head office at 7-10, 1-Chome, Doshomachi,
Chuo-ku, Osaka 541 Japan ("Fuso"), and GenVec, Inc., a Delaware corporation,
with a principal place of business at 12111 Parklawn Drive, Rockville, Maryland
20852 ("GenVec").
BACKGROUND
A. GenVec has expertise in the field of gene therapy and is developing
novel, proprietary materials and methods for use in the treatment of human
cancer.
B. Fuso is in the business of developing manufacturing and
commercializing pharmaceuticals in Japan.
C. GenVec and Fuso desire to establish a collaborative relationship to
conduct research and develop certain gene therapy products for the treatment of
human cancer, which Fuso shall have the right to commercialize in the Territory
(as defined below) and GenVec shall have the right to commercialize outside the
Territory.
D. GenVec and Fuso have entered into a Stock Purchase Agreement of even
date herewith, pursuant to which GenVec shall sell to Fuso, and Fuso shall
purchase 444,445 shares of GenVec Series E Convertible Preferred Stock. This
Commercialization Agreement shall only be effective if the purchase of such
stock is timely completed as set forth in the Stock Purchase Agreement.
NOW THEREFORE, for and in consideration of the covenants, conditions, and
undertakings hereinafter set forth, it is agreed by and between the parties as
follows:
1. DEFINITIONS
1.1 Incorporation by Reference. For purposes of this Agreement, the
--------------------------
capitalized terms used in this Agreement which are not defined herein shall have
the meanings set forth in the Collaboration Agreement.
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.2 "Affiliate" shall mean any corporation or other entity which is
---------
directly or indirectly controlling, controlled by or under the common control of
a party hereto. For the purpose of this Agreement, "control" shall mean the
direct or indirect ownership of at least fifty percent (50%) of the outstanding
shares or other voting rights of the subject entity to elect directors, or if
not meeting the preceding, any entity owned or controlled by or owning or
controlling at the maximum control or ownership right permitted in the country
where such entity exists.
1.3 "Collaboration Agreement" shall mean that certain Collaboration
-----------------------
Agreement between the parties effective on even date herewith.
1.4 "Collaboration Product" shall mean a Product Configuration developed
---------------------
in the Research Program intended for use in the Field which the Steering
Committee has designated as such pursuant to Section 2.4 of the Collaboration
Agreement.
1.5 "Confidential Information" shall mean (i) any proprietary or
------------------------
confidential information or material in tangible form disclosed hereunder that
is marked as "Confidential" at the time it is delivered to the receiving party,
or (ii) proprietary or confidential information disclosed orally hereunder which
is identified as confidential or proprietary when disclosed and such disclosure
of confidential information is confirmed in writing within thirty (30) days by
the disclosing party.
1.6 "Development Plan" shall mean the written plan for development of a
----------------
particular Collaboration Product prepared pursuant to Section 2.4.2 of the
Collaboration Agreement.
1.7 "DFCI" shall mean the Dana Farber Cancer Institute, Inc.
1.8 "Fuso Technology" shall mean Fuso Patent Rights and Fuso Know-How:
---------------
1.8.1 "Fuso Patent Rights" shall mean (i) all patents and patent
------------------
applications conceived and reduced to practice by Fuso alone, or Fuso and/or its
agents (including researchers at Jikei University), in connection with the
Research Program during the Research Program Term (as defined in Section 1.19 of
the Collaboration Agreement), and (ii) any divisions, continuations,
continuations-in-part, reissues, reexaminations, extensions or other
governmental actions which extend any of the subject matter of the patent
applications or patents in (i) above, and any substitutions, confirmations,
registrations or revalidations of any of the foregoing, in each case, which is
owned or controlled, in whole or part, by license, assignment or otherwise by
Fuso, to the extent Fuso has the right to license or sublicense, and subject to
any limitations of such license or sublicense. For the avoidance of doubt, the
Fuso Patent Rights shall not include Fuso Know-How or any *
1.8.2 "Fuso Know-How" shall mean confidential information and
-------------
materials, including, but not limited to, pharmaceutical, chemical, biological
and biochemical products, technical and non-technical data, and information
relating to the results of tests, assays, methods and processes, and drawings,
plans, diagrams, specifications and/or other documents containing said
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<PAGE>
information and data, discovered, developed or acquired by Fuso alone, or Fuso
and/or its agents (including researchers at Jikei University), in connection
with the Research Program during the Research Program Term which Fuso has the
right to license or sublicense, and subject to any limitations of such license
or sublicense. For the avoidance of doubt, Fuso Know-How shall not include any
Fuso Patent Rights or any *
1.9 "Field" shall mean Gene Therapy for the treatment of human cancer *
-----
or, in each case, any portion or derivative thereof.
1.10 "Gene Therapy" shall mean the introduction of a gene into a person for
------------
therapeutic purposes (i) by in vivo introduction for incorporation into cells of
such person, or (ii) by ex vivo introduction into cells for transfer into a
person.
1.11 * shall have the meaning set forth in Section 7.1.2 below.
1.12 "GenVec Technology" shall mean GenVec Patent Rights, GenVec Know-How
-----------------
and *
1.12.1 "GenVec Patent Rights" shall mean (i) all patents and patent
--------------------
applications listed on Exhibit A hereto, or conceived and reduced to practice by
GenVec alone, or GenVec and/or its agents (including researchers at DFCI) in
connection with the Research Program during the Research Program Term, and (ii)
any divisions, continuations, continuations-in-part, reissues, reexaminations,
extensions or other governmental actions which extend any of the subject matter
of the patent applications or patents in (i) above, and any substitutions,
confirmations, registrations or revalidations of any of the foregoing, in each
case, which is owned or controlled, in whole or part, by license, assignment or
otherwise by GenVec, to the extent GenVec has the right to license or
sublicense, and subject to any limitations of such license or sublicense. For
the avoidance of doubt, the GenVec Patent Rights shall not include GenVec Know-
How.
1.12.2 "GenVec Know-How" shall mean confidential information and
---------------
materials, including, but not limited to, pharmaceutical, chemical, biological
and biochemical products, technical and non-technical data, and information
relating to the results of tests, assays, methods and processes, and drawings,
plans, diagrams, specifications and/or other documents containing said
information and data, discovered, developed or acquired by GenVec alone, or
GenVec and/or its agents (including researchers at DFCI), in connection with the
Research Program during the Research Program Term, which GenVec has the right to
license or sublicense, and subject to any limitations of such license or
sublicense. For the avoidance of doubt, GenVec Know-How shall not include any
GenVec Patent Rights.
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<PAGE>
1.13 "Joint Technology" shall mean the Joint Patent Rights and Joint Know-
----------------
How.
1.13.1 "Joint Patent Rights" shall mean (i) all patents and patent
-------------------
applications conceived and reduced to practice jointly by Fuso (or its agents,
including researchers at Jikei University) and GenVec (or its agents, including
researchers at DFCI) in connection with the Research Program during the Research
Program Term and (ii) any divisions, continuations, continuations-in-part,
reissues, reexaminations, extensions or other governmental actions which extend
any of the subject matter of the patent applications or patents in (i) above,
and any substitutions, confirmations, registrations or revalidations of any of
the foregoing. For the avoidance of doubt, the Joint Patent Rights shall not
include the Joint Know-How or any *
1.13.2 "Joint Know-How" shall mean confidential information and
--------------
materials, including, but not limited to, pharmaceutical, chemical, biological
and biochemical products, technical and non-technical data, and information
relating to the results of tests, assays, methods and processes, and drawings,
plans, diagrams, specifications and/or other documents containing said
information and data, discovered, developed or acquired jointly by Fuso (or its
agents, including researchers at Jikei University), and GenVec (or its agents,
including researchers at DFCI in connection with the Research Program during the
Research Program Term. For the avoidance of doubt, the Joint Know-How shall not
include the Joint Patent Rights or any *
1.14 "MHW" shall mean the Japanese Ministry of Health and Welfare, or any
---
corresponding foreign registration or foreign regulatory authority in the
Territory.
1.15 "Net Sales" shall mean the gross revenue accrued by Fuso or its
---------
Affiliates or Sublicensees for all Collaboration Products sold by Fuso and its
Affiliates and Sublicenses in arm's length sales to bona fide independent third
parties, and for any and all services related to the Collaboration Products
performed by or on behalf of Fuso or its Affiliates and Sublicensees, less to
the extent included in the invoice price: (1) ordinary and customary trade
discounts actually allowed; (2) credits, rebates and returns (including, but not
limited to, wholesaler and retailer returns); (3) freight, postage and duties
paid for and separately identified on the invoice or other documentation
maintained in the ordinary course of business, and (4) excise taxes, other
consumption taxes, customs duties and compulsory payments to governmental
authorities actually paid and separately identified on the invoice or other
documentation maintained in the ordinary course of business. Net Sales shall
also include the fair market value of all other consideration received by Fuso
or its Affiliates or permitted Sublicensees in respect of any grant of rights to
make, use, sell or otherwise distribute Collaboration Products, whether such
consideration is in cash payment in kind, exchange or another form.
In the case of discounts on "bundles" of products or services which include
Collaboration Products, Fuso may with notice to GenVec discount the bona fide
list price of a Collaboration Product by the average percentage discount of all
products of Fuso and/or its Affiliates or Sublicensees in a particular "bundle",
calculated as follows:
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[eszett] Average percentage
[eszett] discount on a
[eszett] particular "bundle"
where A equals the total discounted price of a particular "bundle" of products,
and B equals the sum of the undiscounted bona fide list prices of each unit of
every product in such "bundle".
Fuso shall provide GenVec documentation, reasonably acceptable to GenVec,
establishing such average discount with respect to each "bundle". If Fuso
cannot so establish the average discount of a "bundle", Net Sales shall be based
on the undiscounted list price of the Collaboration Product in the "bundle". If
a Collaboration Product in a "bundle" is not sold separately and no bona fide
list price exists for such Collaboration Product, the parties shall negotiate in
good faith an imputed list price for such Collaboration Product and Net Sales
with respect thereto shall be based on such imputed list price.
1.16 "Product Configuration" shall mean any potential product for use in
---------------------
the Field containing a combination of one or more genes (or fragments thereof
and other elements (e.g., a gene delivery vehicle and/or a gene expression
cassette).
1.17 "Product License Application" or "PLA" shall mean the Japanese
--------------------------- ---
equivalent of a Product License Application, as defined in the U.S. Food, Drug
and Cosmetic Act and the regulations promulgated thereunder, and any
corresponding foreign application, registration or certification in the
Territory.
1.18 "Steering Committee" shall have the meaning set forth in Section 2.2
------------------
in the Collaboration Agreement.
1.19 "Sublicensee" shall mean a third party to whom Fuso has granted a
-----------
license or sublicense under the GenVec Technology or Joint Technology to make,
use and/or sell a Collaboration Product subject to Section 2.2 below. As used
in this Agreement, Sublicensee shall also include a third party to whom Fuso has
granted the right to distribute the Collaboration Product, provided that such
third party has the responsibility for marketing and/or promotion of the
Collaboration Product within the territory for which such distribution rights
are granted. For the avoidance of doubt, wholesellers or retailers who do not
take such responsibility shall not be deemed as Sublicensees. Further, Contract
Manufacturers set forth in Section 2.2.2 shall not be included in Sublicensees.
1.20 "Territory" shall mean Japan, and, where the option set forth in
---------
Section 5.2.1 is exercised by Fuso, Korea and/or Taiwan, as the case may be.
"Retained Territory" shall mean, on a Collaboration Product-by-Collaboration
- -------------------
Product basis, Japan, Korea and Taiwan until the earlier of (i) Fuso exercises
its option with respect to a particular Collaboration Product, or (ii) the
applicable option period expires, and thereafter shall have the same meaning as
Territory with regard to such Collaboration Product.
1.21 "Valid Claim" shall mean a claim of a pending patent application or a
-----------
claim of an issued and unexpired patent within the GenVec Technology or Joint
Patent Rights which has not
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been held unpatentable, invalid or unenforceable by a court or other government
agency of competent jurisdiction in an unappealed or unappealable decision and
has not been admitted to be invalid or unenforceable through reissue, re-
examination, disclaimer or otherwise; provided, however, that if the holding of
such court or agency is later reversed by a court or agency with appropriate
authority, the claim shall be reinstated as a Valid Claim with respect to Net
Sales accruing after the date of such reversal.
2. LICENSE GRANTS
2.1 Commercialization Licenses to Fuso. Subject to the terms and
----------------------------------
conditions of this Agreement, GenVec hereby grants to Fuso an exclusive,
royalty-bearing license under the GenVec Technology and GenVec's interest in the
Joint Technology, to make (subject to Article 6), have made (subject to Section
2.2.2) use, sell and otherwise commercialize Collaboration Products for all uses
in the Field in the Territory.
2.2 Sublicenses and Contract Manufacturing.
--------------------------------------
2.2.1 Sublicensees. Fuso may sublicense the rights to make, use and/or
------------
sell granted in Section 2.1 to third parties, with the prior written consent of
GenVec, which consent shall not be unreasonably withheld. Fuso may sublicense
the rights granted in Section 2.1 to make Collaboration Products to Affiliates
of Fuso without the consent of GenVec, and such sublicense shall remain in
effect so long as such party remains an Affiliate of Fuso. Each sublicense
granted by Fuso shall be consistent with all the terms and conditions of this
Agreement. Fuso shall remain responsible to GenVec for all of each such
Sublicensee's applicable financial and other obligations under this Agreement.
2.2.2 Contract Manufacturing. Subject to Article 6, Fuso may have
----------------------
Collaboration Products made by a third party contract manufacturer ("Contract
Manufacturer") that will sell the Collaboration Products produced by it only to
Fuso, its Affiliates or permitted Sublicensees; provided that (i) such Contract
Manufacturers agree in writing to be bound by the confidentiality obligations
set forth in Article 9 hereof as if they were a party to this Agreement, (ii)
Fuso shall notify the name and financial strength of each Contract Manufacturer
to GenVec prior to the commencement of the contract manufacturing, and (iii)
Fuso shall remain responsible to GenVec for any failure by Contract
Manufacturers to conform to such obligation.
2.3 Other Licenses.
--------------
2.3.1 Gene Therapy Technology. In the event that Fuso desires to
-----------------------
acquire a license under Gene Therapy Technology for commercial applications in
the Territory, Fuso shall notify GenVec, and the parties agree to negotiate in
good faith for a period of ninety (90) days, or such longer period as the
parties may agree, the terms and conditions on which GenVec would grant such a
license to Fuso; provided, however, in no event shall GenVec be obligated to
negotiate or grant a license for any commercial application(s) which might
compete with the business interests of GenVec or its Affiliates.
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2.3.2 Fuso Technology. Subject to the provisions of Section 7.1.2
---------------
below, Fuso hereby grants to GenVec the following licenses under the Fuso
Technology and Fuso's interest in the Joint Technology:
(a) a non-exclusive, royalty-free license to make, have made,
use, sell and otherwise commercialize Collaboration Products, in the Field,
outside the applicable Retained Territory; and
(b) an exclusive, royalty-free license, subject to Section 5.5.2
below, to make, have made, use, sell and otherwise commercialize Collaboration
Products outside the Field, in and outside the applicable Retained Territory;
and
(c) an exclusive, royalty-bearing license to make, have made,
use, sell and otherwise commercialize products other than Collaboration Products
both in and outside the Field and the applicable Retained Territory. The
financial obligations due Fuso with respect to such license shall be negotiated
in good faith by the parties; provided, in the event the parties are unable to
agree, such terms shall be established pursuant to Article 12.
2.3.3 GenVec may sublicense the rights granted in Section 2.3.2 to
third parties, with the prior written consent of Fuso, which consent shall not
be unreasonably withheld. GenVec may sublicense the right granted in Section
2.3.2 to make Collaboration Products to Affiliates of GenVec without such
consent of GenVec. Each sublicense granted by GenVec shall be consistent with
all the terms and conditions of this Agreement and no Sublicensee may grant
further sublicenses without the prior written consent of GenVec. GenVec shall
remain responsible to Fuso for all of each such sublicensee's applicable
financial and other obligations under this Agreement.
2.4 Covenant Not to Sue. In partial consideration for the grant of rights
-------------------
hereunder, Fuso agrees not to enforce against GenVec or its Affiliates any
patent right owned or controlled by Fuso or its Affiliates during the term of
this Agreement that GenVec or its Affiliates may infringe in practicing the
inventions claimed in the GenVec Patent Rights.
2.5 Retained Rights. It is understood and agreed that GenVec shall retain
---------------
the exclusive right (i) to make, have made, use, sell and otherwise
commercialize the Collaboration Products for all uses within the Field outside
the applicable Retained Territory; (ii) subject to Sections 2.4.3, 2.4.4, and
2.4.5 of the Collaboration Agreement to make, have made, use, sell and otherwise
commercialize the Collaboration Products for use outside the Field, both in and
outside the applicable Retained Territory; (iii) to make, have made, use and
sell Collaboration Products to Fuso in connection with the activities conducted
by GenVec pursuant to this Agreement, unless and until Fuso assumes manufacture
of the Collaboration Products pursuant to Article 6, and (iv) to practice any
method, process or procedure within, and otherwise develop, exploit and/or
commercialize the *
2.6 No Implied Licenses. Fuso acknowledges that the licenses granted by
-------------------
GenVec in Section 2.1 are limited to the Field and the applicable Retained
Territory. No rights or licenses with
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<PAGE>
respect to the GenVec Technology or the Fuso Technology or other intellectual
property owned by GenVec or Fuso are granted or shall be deemed granted
hereunder or in connection herewith, other than those rights expressly granted
in this Agreement or the Collaboration Agreement.
3. PAYMENTS
3.1 Royalties.
---------
3.1.1 Royalties on Net Sales. In partial consideration of the rights
----------------------
granted hereunder, Fuso shall pay running royalties to GenVec equal to * of Net
Sales of Collaboration Products by Fuso and its Affiliates or Sublicensees.
3.1.2 Single Royalty; Non-Royalty Sales. No royalty shall be payable
---------------------------------
under Section 3.1 above with respect to sales of the Collaboration Product among
Fuso, its Affiliates and Sublicensees for resale. In no event shall more than
one such royalty be due GenVec hereunder with respect to any Collaboration
Product.
3.1.3 Royalty Term. The obligation of Fuso to pay royalties under this
------------
Article 3 shall continue for each Collaboration Product on a Collaboration
Product-by-Collaboration Product and country-by-country basis, until the later
of (i) such time as there are no Valid Claims covering the manufacture, sale or
use of such Collaboration Product in such country, or (ii) ten (10) years from
the first commercial sale of such Collaboration Product in such country.
3.1.4 Minimum Royalty. It is understood and agreed that regardless of
---------------
any offsets to which Fuso is entitled, the royalty payments made to GenVec under
Section 3.1 in any quarter shall not be less than * of Net Sales of
Collaboration Products by Fuso and its Affiliates and Sublicensees in the
applicable quarter.
3.1.5 Third Party Royalties. Except as provided in Section 2.3.2 of
---------------------
the Collaboration Agreement, Fuso shall be responsible for the payment of any
royalties, license fees and milestone and other payments due to third parties
under licenses or similar agreements necessary for the manufacture, use or sale
of Collaboration Products in the Territory. * of any such royalty payments due
third parties in any quarter against *
3.2 Initial Payments. Within thirty (30) days following the first
----------------
occurrence in * of * with respect to each Collaboration Product, Fuso shall pay
to * Fuso shall promptly notify GenVec upon the achievement of the foregoing
milestone with respect to each Collaboration Product.
4. PAYMENTS; BOOKS AND RECORDS
4.1 Royalty Reports and Payments. After the first commercial sale by Fuso
----------------------------
or its Affiliates or Sublicensees of a Collaboration Product for which royalties
are payable under Article 3, Fuso shall make quarterly written reports to GenVec
within thirty (30) days after the end of each calendar quarter, stating in each
such report, by country, the number, description and aggregate Net
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<PAGE>
Sales of such Collaboration Product sold during the calendar quarter.
Simultaneously with the delivery of each such report, Fuso shall pay to GenVec
the total royalties, if any, due to GenVec for the period of such report. If no
royalties are due, Fuso shall so report.
4.2 Payment Method; Late Payments. All amounts due GenVec hereunder shall
-----------------------------
be paid in U.S. dollars by wire transfer in immediately available funds to an
account designated by GenVec. Any payments or portions thereof due hereunder
which are not paid on the date such payments are due under this Agreement shall
bear interest at a rate equal to the lesser of prime rate as reported by the
Chase Manhattan Bank, New York, plus * per year, or the maximum rate permitted
by law, calculated on the number of days such payment is delinquent, compounded
monthly.
4.3 Currency Conversion. If any other currency conversion shall be
-------------------
required in connection with the calculation of royalties hereunder, such
conversion shall be made using the exchange rate for conversion of the foreign
currency into U.S. Dollars, quoted for current transactions for buying U.S.
dollars, as reported in The Wall Street Journal for the last business day of the
calendar quarter to which such payment pertains.
4.4 Records; Inspection. Fuso and its Affiliates shall keep (and cause
-------------------
its Sublicensees to keep) complete, true and accurate books of account and
records for the purpose of determining the royalty amounts payable under Article
3. Such books and records shall be kept reasonably accessible for at least
three (3) years following the end of the calendar quarter to which they pertain.
Such records will be open for inspection during such three (3) year period by a
representative or agent of GenVec for the purpose of verifying the royalty
statements. Such inspections may be made no more than once each calendar year,
at reasonable times mutually agreed by Fuso and GenVec. GenVec's representative
or agent will be obliged to execute a reasonable confidentiality agreement prior
to commencing any such inspection. GenVec shall bear the costs and expenses of
inspections conducted under this Section 4.4 unless a variation or error
producing an underpayment in royalties payable exceeding * of the amount payable
for any quarter is established in the course of any such inspection, whereupon
all costs relating to the inspection and any unpaid amounts that are discovered
will be paid by Fuso, together with interest on such unpaid amounts at the rate
specified in Section 4.2 above.
4.5 Withholding Taxes.
-----------------
4.5.1 Royalties. Any payments due GenVec by pursuant to Section 3.1
---------
above shall be made after deduction for any withholding taxes or similar
governmental charge ("Withholding Tax") due thereon. Fuso shall provide GenVec
a certificate evidencing payment of any such Withholding Taxes. Notwithstanding
the foregoing, if such payments by GenVec would reduce the royalty received by
GenVec on any Net Sales below * (after such withholding or other governmental
charge), then Fuso shall pay to GenVec any such additional amounts as may be
necessary to provide GenVec a royalty of no less than * on such Net Sales (after
such withholding or other governmental charge). In such event, if GenVec
receives a tax credit from the U.S. Government for any such
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<PAGE>
additional payments, then GenVec shall promptly notify Fuso and reimburse Fuso
for such amount. GenVec agrees to use reasonable efforts to obtain any available
tax credit.
4.5.2 Milestones. All payments required to be made to GenVec pursuant
----------
to Section 3.2 shall be made after deduction for any withholding taxes or
similar governmental charge required by applicable law. Fuso shall promptly
inform GenVec of the amount and basis of any such deduction, and provide GenVec
a certificate evidencing payment of any such Withholding Taxes.
4.6 Sales Taxes. Any sales taxes (such as consumption tax or value added
-----------
tax), use taxes, transfer taxes, duties or similar governmental charges required
to be paid in connection with the transfer to Fuso of any Collaboration Products
manufactured by GenVec hereunder shall be the sole responsibility of Fuso. In
the event that GenVec is required to pay any such amounts, Fuso shall promptly
remit payment to GenVec of such amounts.
5. COMMERCIALIZATION
5.1 Collaboration Product Development by Fuso. Except as expressly
-----------------------------------------
provided otherwise in this Agreement, Fuso shall be responsible for all costs of
conducting development of Collaboration Product(s) in the Territory in
accordance with the applicable Development Plan(s), including, without
limitation expenses incurred in conducting clinical trials (e.g., clinical
trials in the Territory, and clinical trials conducted outside the Territory
which provide data for regulatory approvals in the Territory). In addition,
Fuso shall be responsible, at its sole expense, for all commercialization of
such Collaboration Product(s) in the Field in the Territory so long as Fuso
retains rights thereto under this Agreement. During the term of this Agreement,
Fuso shall keep GenVec fully informed of its activities subject to this
Agreement and, in addition, on or before January 31 of each year, Fuso shall
provide GenVec with a written report detailing such events and activities. When
a registration package requesting approval for commercial sale of any
Collaboration Product is first filed in any country within the Territory, and
when approval is received therefore, Fuso will immediately notify GenVec in
writing.
5.2 Due Diligence.
-------------
5.2.1 Option. Fuso shall have the option to add both or either of
------
Korea and Taiwan to the Territory by notice to GenVec identifying the pertinent
country(ies) and Collaboration Product. Such option must be exercised with
respect to a particular Collaboration Product no later than the first
anniversary of the initiation of the first Phase II clinical trials of such
Collaboration Product in Japan. If Fuso fails to exercise such option with
respect to a particular Collaboration Product within the applicable period, or
Fuso's rights terminate in Japan with respect to a particular Collaboration
Product prior to the date that Fuso exercises its option for such Collaboration
Product, then Fuso shall lose its option with respect to such Collaboration
Product in Korea and Taiwan.
5.2 Reasonable Efforts. Fuso shall use all reasonable efforts to:
------------------
(i) obtain regulatory approvals to market Collaboration Product(s) in each
country the Territory, and (ii) after obtaining regulatory approvals for such
Collaboration Product(s), launch such Collaboration
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Product(s) in each country in the Territory. Upon the launching of such
Collaboration Product(s), Fuso shall use reasonable efforts to promote and meet
the market demand therefor in the respective country(ies). In connection
therewith, Fuso shall use efforts not less than those efforts Fuso makes with
respect to its own pharmaceutical products of comparable commercial potential,
stage of development and patent protection.
5.2.3 Lack of Diligence. In the event that Fuso fails to use
-----------------
reasonable efforts to exercise its diligence obligations under Section 5.2.2
with respect to a particular Collaboration Product as to a particular country of
the Territory, GenVec may terminate this Agreement with respect to such
Collaboration Product as to such country in accordance with Section 11.2. In
such event, GenVec shall thereafter have the exclusive rights to commercialize
such Collaboration Product in the said country, alone or with third parties.
5.2.4 Licenses. In the event that any of Fuso's rights terminate with
--------
respect to a particular Collaboration Product pursuant to Section 5.2.3 above,
at GenVec's request, Fuso shall grant to GenVec an exclusive (even as to Fuso),
fully-paid, royalty-free license, with the right to sublicense, under Fuso's
interest in any Joint Technology and Fuso Technology necessary or useful to
make, have made, import, use, offer for sale, sell and otherwise commercialize
such Collaboration Products in the Field in the said country.
5.3 Regulatory Filings.
------------------
5.3.1 Use of Documents. Each party and its Affiliates, and, subject to
----------------
such party's obligations to third parties, its sublicensees, shall have the
right free of charge to refer to, access, cross reference, and use documents
relating to each Collaboration Product filed by a party or its Affiliates, its
licensees or Sublicensees with regulatory entities with respect to activities
conducted in connection with the Research Program, * and other supporting
information, and any written communications *
5.3.2 Outside the Research Program. Subject to its obligations to
----------------------------
third parties, each party and its Affiliates and sublicensees, may in exchange
for reasonable consideration to be agreed by the parties, obtain the right to
refer to, access, cross reference, and use documents filed with regulatory
entities relating to each Collaboration Product, filed by a party or its
Affiliates or Sublicensees in agreed jurisdictions, with respect to activities
conducted outside the Research Program, *
5.4 No Other *. Except as specifically provided in this Agreement or
----------
otherwise agreed in writing, neither Fuso nor its Affiliates or Sublicensees
shall commercialize any * studied in the Research Program, except as a
Collaboration Product in accordance with this Agreement, which is identical or
substantially similar to a Product Configuration studied in the Research
Program. As used herein, "substantially similar" shall mean a *
5.5 GenVec Commercialization.
------------------------
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5.5.1 GenVec Responsibilities. Subject to Sections 2.3.1(b) and 2.4.2
-----------------------
of the Collaboration Agreement, GenVec shall be responsible, at its sole
expense, for conducting all development of any Collaboration Product outside the
Field, both in and outside the Territory (including, without limitation,
clinical trials), and all commercialization of such Collaboration Product
outside the Field, both in and outside the Territory.
5.5.2 Competing Products. During the term of this Agreement, GenVec
------------------
agrees that it shall not directly or indirectly develop or commercialize in the
Retained Territory any * identical or substantially similar to a Product
Configuration studied by the parties in the Research Program which GenVec knows
or reasonably should know would compete with or be a substitute for a
Collaboration Product being commercialized by Fuso or its Affiliates or
Sublicensees. As used herein, "substantially similar" shall mean a product
which *
5.6 Limits on Competing Products. During the term of this Agreement, Fuso
----------------------------
shall not directly or indirectly develop, manufacture, market, sell, or
otherwise distribute any * or components within the Field in the applicable
Retained Territory, which could compete with the Collaboration Products or
appoint or license any third party to develop, market, sell, or otherwise
distribute any such * or components which could compete with Collaboration
Products during the term of this Agreement. Fuso further agrees that, during
the term of this Agreement, it shall not, directly or indirectly, develop,
manufacture or commercialize in and/or outside the Territory (except as a
Collaboration Product pursuant to this Agreement) * identical or substantially
similar to a Product Configuration studied by the parties in the Research
Program. As used herein, "substantially similar" shall mean *
5.7 Acknowledgment. It is understood and agreed that the provisions of
--------------
Sections 2.4.3, 2.4.4 and 2.4.5 of the Collaboration Agreement establish certain
limits on the development and commercialization activities of the parties with
respect to certain Product Configurations and Gene Therapy products.
5.8 iNOS Products. Notwithstanding any other provision of this Agreement
-------------
or the Collaboration Agreement, GenVec may develop and commercialize Gene
Therapy products containing the iNOS gene (or a fragment or derivative thereof)
for the treatment of cardiovascular disease or other non-cancer indications,
itself or with third parties. If GenVec or such third party reasonably believes
that the commercialization of a Collaboration Product containing the iNOS gene
(or a fragment or derivative thereof) or use in the Field may compete with or
adversely affect the sales of such a product, Fuso may not develop or
commercialize such a Collaboration Product without the prior written consent of
GenVec or a licensee of GenVec with rights to such product, which consent shall
not be unreasonably withheld.
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6. MANUFACTURING RIGHTS
6.1 Manufacture by Fuso.
-------------------
6.1.1 Clinical Trials in the Territory. Fuso shall have the first
--------------------------------
right, but not the obligation to manufacture Collaboration Products for use in
clinical trials and commercials sales in the Territory, on a Collaboration
Product-by-Collaboration Product basis, subject to GenVec's approval not to be
unreasonably withheld. GenVec's decision to approve or disapprove manufacturing
by Fuso shall be based on Fuso's ability to manufacture the applicable
Collaboration Product and/or the period Fuso may require to establish an
approved manufacturing facility. If Fuso elects not to manufacture such
Collaboration Products, or GenVec does not approve of manufacture of such
Collaboration Product by Fuso, GenVec shall have the first right, but not the
obligation to manufacture Collaboration Products for use in clinical trials and
commercial sales in the Territory, on a Collaboration Product-by-Collaboration
Product basis, subject to Fuso's approval, not to be unreasonably withheld.
Fuso's decision to approve or disapprove manufacturing by GenVec shall be based
on GenVec's ability to cost effectively manufacture the applicable Collaboration
Product. In the event that GenVec declines to manufacture a particular
Collaboration Product, or Fuso does not approve of the manufacture of such
Collaboration Product by GenVec, then, subject to Section 6.1.2, Fuso may select
a third party contract manufacturer ("Contract Manufacturer"), reasonably
acceptable to GenVec, to manufacture such Collaboration Product.
6.1.2 Contract Manufacturing. If Fuso has Collaboration Products
----------------------
manufactured by a Contract Manufacturer pursuant to Section 6.1.1 above, it will
require that such Contract Manufacturer sell the Collaboration Products
produced by it only to Fuso, its Affiliates or permitted Sublicensees. In
addition (i) such Contract Manufacturers shall agree in writing to be bound by
the confidentiality obligations set forth in Article 9 hereof as if they were a
party to this Agreement, (ii) Fuso shall notify the name and financial strength
of each Contract Manufacturer to GenVec prior to the commencement of the
contract manufacturing, and (iii) Fuso shall remain responsible to GenVec for
any failure by Contract Manufacturers to conform to such obligation.
6.1.3 Transfer of Manufacturing Know-How. If Fuso manufactures
----------------------------------
Collaboration Products pursuant to Section 6.1.1 above, the parties shall
negotiate in good faith the compensation to be paid to GenVec for the transfer
of process development and manufacturing know-how, and shall cooperate with each
other in order that Fuso may initiate manufacture of the Collaboration Product
as soon as practicable; provided, GenVec shall not be obligated to transfer any
manufacturing knowhow which is subject to a contractual obligation with a third
party.
6.1.4 Supply Agreement. If Fuso purchases Collaboration Products from
----------------
GenVec pursuant to Section 6.1.1, the parties shall promptly negotiate in good
faith the terms of a Supply Agreement which shall set forth the terms and
conditions of such supply. In the event the parties fail to enter into a
written Supply Agreement within six (6) months from the date that Fuso provides
GenVec notice of its wish to enter into such a Supply Agreement, or such longer
period as the parties may agree, then GenVec shall have no obligation to
manufacture the Collaboration Products for commercialization.
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6.1.5 Supply to GenVec. At GenVec's request, Fuso shall, at its
----------------
option, supply Collaboration Products to GenVec for use outside the Field and/or
outside the Territory, on terms to be agreed in good faith by the parties.
6.1.6 Other GenVec Collaboration Products. At GenVec's request, the
-----------------------------------
parties agree to conduct good faith negotiations regarding the appointment of
Fuso by GenVec as a contract manufacturer of other agreed GenVec products;
provided, however that GenVec shall be under no obligation to appoint Fuso as
its contract manufacturer, and Fuso shall be under no obligation to accept such
appointment, unless the parties mutually agree on terms and conditions governing
such appointment.
6.2 Fuso Responsibilities. If Fuso undertakes to manufacture the
---------------------
Collaboration Product, Fuso shall be responsible for all costs and liabilities
associated therewith. All Collaboration Products manufactured by or on behalf
of Fuso will conform with all MHW regulations and all applicable foreign laws
and regulations. Fuso shall keep GenVec fully informed of the Collaboration
Product manufacturing procedures and developments relating thereto and GenVec
shall have the right on reasonable prior notice to visit the manufacturing
facility during ordinary business hours and review any relevant records relating
to Collaboration Product manufacture (excluding records relating to the
manufacturer's own proprietary manufacturing processes).
6.3 Post Termination Manufacturing. Following the termination of this
------------------------------
Agreement due to the expiration of Fuso's royalty obligations in all countries
in the Territory pursuant to Section 11.1 due to completion of the full payment
term, Fuso shall have the right to make and have made Collaboration Products.
7. INTELLECTUAL PROPERTY
7.1 Ownership of Inventions.
-----------------------
7.1.1 Research Program Technology. Subject to Section 7.1.2 below, (i)
---------------------------
title to all inventions and intellectual property made solely by GenVec
employees or its agents (including researchers at DFCI) in connection with the
Research Program without inventive contribution by Fuso employees or its agents
shall be owned by GenVec; (ii) title to all inventions and intellectual property
made solely by Fuso employees or its agents (including researchers at Jikei
University) in connection with the Research Program without inventive
contribution by GenVec employees or its agents shall be owned by Fuso; and (iii)
title to all inventions and intellectual property made jointly by employees or
the agents of Fuso and GenVec in connection with the Research Program, shall be
jointly owned by GenVec and Fuso.
7.1.2 *. Notwithstanding Section 7.1.1 above, Title to all inventions
-
and intellectual property which relates to * made solely by GenVec employees or
its agents (including researchers at DFCI) or jointly by employees or the agents
of Fuso and GenVec in connection with the Research Program (in each case, *
shall be owned by GenVec. Fuso hereby assigns to GenVec all its right, title
and interest it may otherwise hold in or to such * and any patent applications
or
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<PAGE>
patents relating thereto. Fuso shall, at the request of GenVec, execute, and
deliver or cause to be delivered, all such consents, documents or further
instruments of assignment or transfer, and take or cause to be taken all such
actions GenVec reasonably deems necessary or desirable in order for GenVec to
obtain the full benefits of the assignment herein.
7.1.3 Inventorship. Inventorship and rights of ownership of inventions
------------
and other intellectual property rights conceived and/or reduced to practice in
connection with the Research Program shall be determined in accordance with the
patent and other intellectual property laws of the United States or Maryland, as
applicable, as long as the laws of the Territory permit application of such
laws. Subject to the licenses granted in Article 2, except as expressly
provided in this Agreement, it is understood that neither party shall have any
obligation to account to the other for profits, or to obtain any approval of the
other party to license or exploit a joint invention for applications outside of
the Field by reason of joint ownership of any such intellectual property.
7.2 Patent Prosecution
------------------
7.2.1 Sole Inventions. Fuso or GenVec, as the case may be, shall, be
---------------
responsible for preparing, filing, prosecuting and maintaining of the patent
applications and patents, solely owned by it, worldwide in such countries as it
deems appropriate, and conducting any interferences, reexaminations, reissues,
oppositions or requests for patent term extensions relating to the Fuso
Technology or GenVec Technology (respectively), using counsel of its choice, at
its expense; provided, such expenses may be included in the Research Program
funding described in Section 2.3 of the Collaboration Agreement.
7.2.2 Joint Patent Rights.
-------------------
(a) The parties will cooperate to file, prosecute and maintain
patent applications covering the Joint Invention(s) in the United States,
European Union (in Europe through a European Patent Convention application) and
Japan (collectively, the "Core Countries") and other countries agreed by the
parties. The parties shall agree which party shall be responsible for conducting
such activities with respect to a particular Joint Invention. The party
conducting such activities shall keep the other party fully informed as to the
status of such patent matters, including, without limitation, by providing the
other party the opportunity, at the other party's expense, to review and comment
on any documents relating to the Joint Invention which will be filed in any
patent office at least thirty (30) days before such filing, and promptly
providing the other party copies of any documents relating to Joint Invention
which the party conducting such activities receives from such patent offices,
including notice of all interferences, reissues, reexaminations, oppositions or
requests for patent term extensions. The parties will share equally all expenses
and fees associated with the filing, prosecution, issuance and maintenance of
any patent application and resulting patent for a Joint Invention in the Core
Countries and other agreed countries and such amounts shall be included within
the Research Program funding described in Section 2.3 of the Collaboration
Agreement.
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(b) In the event that either party wishes to seek patent protection
with respect to any Joint Invention outside the Core Countries, it shall notify
the other party hereto. If both parties wish to seek patent protection with
respect to such Joint Invention in such country or countries, activities shall
be subject to Section 7.2.2(a) above. If only one party wishes to seek patent
protection with respect to such Joint Invention in such country or countries, it
may file, prosecute and maintain patent applications and patents with respect
thereto, at its own expense. In any such case, the party declining to
participate in such activities shall not grant any third party a license under
its interest in the applicable Joint Invention in the applicable country or
countries without the prior written consent of the other party.
7.3 Enforcement.
-----------
7.3.1 Solely Owned Technology. Subject to 7.3.2 below, in the event
-----------------------
that any GenVec Technology or Fuso Technology (in this Section, both referred to
as "Technology") necessary for manufacture, use and sale of a Collaboration
Product is infringed or misappropriated by a third party in any country in the
Territory, or is subject to a declaratory judgment action arising from such
infringement in such country, Fuso or GenVec, as the case may be, shall promptly
notify the other party hereto. The party which owns or controls such Technology
(the "Owner") shall have the initial right (but not the obligation) to enforce
such Technology, or defend any declaratory judgment action with respect thereto,
at its expense. In the event that the Owner fails to initiate a suit to enforce
such Technology against a commercially significant infringement in the Field by
a third party in any jurisdiction in the Territory within * of a request by the
other party (the "Licensee") to do so, Licensee may, subject to the Owner's
agreements with third parties, initiate such suit in the name of the Owner of
such Technology against such infringement, at the expense of such Licensee. The
party involved in any such claim, suit or proceeding, shall keep the other party
hereto reasonably informed of the progress of any such claim, suit or
proceeding. Any recovery by such party received as a result of any such claim,
suit or proceeding shall be used first to reimburse such party for all expenses
(including attorneys and professional fees) incurred in connection with such
claim, suit or proceeding and if the party initiating the suit was the owner of
the subject Technology, all of the remainder shall be retained by such owner,
and if the party initiating the suit is the Licensee, * of the remainder shall
be paid to the owner of the subject Technology and * retained by the Licensee.
7.3.2 Jointly Owned Technology. Notwithstanding 7.3.1 above, in the
------------------------
event that any technology that is jointly owned by GenVec and Fuso under Section
7.1 of this Agreement is infringed or misappropriated by a third party, Fuso and
GenVec shall discuss whether, and, if so, how, to enforce such Joint Technology
or defend such Joint Technology in an infringement action, declaratory judgment
or other proceeding. In the event only one party wishes to participate in such
proceeding, it shall have the right to proceed alone, at its expense, and may
retain any recovery; provided, at the request and expense of the participating
party, the other party agrees to cooperate and join in any proceedings in the
event that a third party asserts that the co-owner of such Joint Invention is
necessary or indispensable to such proceedings.
7.4 Infringement Claims. If the manufacture, sale or use of any
-------------------
Collaboration Product in the Territory pursuant to this Agreement results in any
claim, suit or proceeding alleging patent
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<PAGE>
infringement against GenVec or Fuso, such party shall promptly notify the other
party hereto. If Fuso is not named as a party in such a claim, suit or
proceeding, Fuso may, at its own expense and through counsel of its own choice,
seek leave to intervene in such claim, suit or proceeding. GenVec agrees not to
oppose such intervention. If Fuso, and not GenVec, is named as a party to such
claim, suit or proceeding, Fuso shall have the right to control the defense and
settlement of such claim, suit or proceeding, at its own expense, using counsel
of its own choice, however GenVec, at its own expense and through counsel of its
own choice, may seek to intervene if the claim, suit or proceeding relates to
the commercialization of the Collaboration Product in the Field, and in such
event, Fuso agrees not to oppose such intervention. If Fuso is named as a party
and GenVec shall, at any time, tender its defense to Fuso, then Fuso shall
defend GenVec in such claim, suit or proceeding, at Fuso's own expense and
through counsel of its own choice, and Fuso shall control the defense and
settlement of any such claim, suit or proceeding; provided, Fuso shall not enter
into any agreement which makes any admission regarding (i) wrongdoing on the
part GenVec, or (ii) the invalidity, unenforceability or absence of infringement
of any GenVec Patent Rights or patent claiming a Joint Invention, without the
prior written consent of GenVec, which consent shall not be unreasonably
withheld. The parties shall cooperate with each other in connection with any
such claim, suit or proceeding and shall keep each other reasonably informed of
all material developments in connection with any such claim, suit or proceeding.
8. REPRESENTATIONS AND WARRANTIES
8.1 Warranties.
----------
8.1.1 GenVec. GenVec warrants and represents to Fuso that (i) it has
------
the full right and authority to enter into this Agreement and grant the rights
and licenses granted herein; (ii) as of the Effective Date, there are no
existing or threatened actions, suits or claims pending against it with respect
to the GenVec Technology or its right to enter into and perform its obligations
under this Agreement and (iii) it has not previously granted, and will not grant
during the term of this Agreement, any right, license or interest in or to
GenVec Technology or Joint Technology, or any portion thereof, which are in
conflict with the rights or licenses granted under this Agreement.
8.1.2 Fuso. Fuso warrants and represents to GenVec that (i) it has the
----
full right and authority to enter into this Agreement, and (ii) it has not
previously granted, and will not grant during the term of this Agreement, any
right, license or interest in or to Fuso Technology or Joint Technology, or any
portion thereof, which are in conflict with the rights or licenses granted under
this Agreement.
8.2 Effect of Representations and Warranties. It is understood that if
----------------------------------------
the representations and warranties under this Article 8 are not true and
accurate and GenVec or Fuso incurs liabilities, costs or other expenses as a
result of such falsity, GenVec or Fuso, as the case may be, shall indemnify,
defend and hold the other party harmless from and against any such liabilities,
costs or expenses incurred, provided that the indemnifying party receives prompt
notice of any claim against GenVec or Fuso, as the case maybe, resulting from or
related to such falsity, the cooperation of the
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indemnified party, as requested in connection with any such claim, and the sole
right to control the defense or settlement thereof.
8.3 Disclaimer of Warranties. GENVEC AND FUSO EXPRESSLY DISCLAIM ANY
------------------------
WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT
TO THE CONFIDENTIAL INFORMATION, OR FUSO TECHNOLOGY OR GENVEC TECHNOLOGY,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, NONINFRINGEMENT,
OR FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF FUSO TECHNOLOGY OR GENVEC
TECHNOLOGY, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL
PROPERTY RIGHTS OF THIRD PARTIES.
9. CONFIDENTIALITY
9.1 Confidential Information. Except as expressly provided herein, the
------------------------
parties agree that, for the term of this Agreement and for * years thereafter,
the receiving party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose except for the purposes
contemplated by this Agreement any Confidential Information furnished to it by
the disclosing party hereto pursuant to this Agreement, except that to the
extent that it can be established by the receiving party by competent proof that
such Confidential Information:
(a) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving party in breach of this Agreement;
(d) was independently developed by the receiving party without
reference to any information or materials disclosed by the disclosing party; or
(e) was subsequently disclosed to the receiving party by a person
other than a party without breach of any legal obligation to the disclosing
party.
9.2 Permitted Disclosures. Each party hereto may disclose the other's
---------------------
Confidential Information to the extent such disclosure is reasonably necessary
in connection with the conduct of the Research Program activities to be
conducted at DFCI or Jikei University (or any other academic institution
approved by the Steering Committee), in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with applicable
governmental regulations or otherwise submitting information to tax or other
governmental authorities, *, or making a permitted sublicense or otherwise
exercising its rights hereunder, provided that if a party is required to make
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any such disclosure of another party's confidential information, other than
pursuant to a confidentiality agreement, it will give reasonable advance notice
to the latter party of such disclosure and, save to the extent inappropriate in
the case of patent applications, will use its best efforts to secure
confidential treatment of such information prior to its disclosure (whether
through protective orders or otherwise).
9.3 Non-Disclosure. Each of the parties hereto agrees not to disclose to
--------------
any third party the financial terms of this Agreement without the prior written
consent of each other party hereto, except to advisors, investors and others on
a need to know basis under circumstances that reasonably ensure the
confidentiality thereof, or to the extent required by law. Without limitation
upon any provision of this Agreement, each of the parties hereto shall be
responsible for the observance by its employees of the foregoing confidentiality
obligations. Notwithstanding the foregoing, the parties shall agree upon a
press release to announce the execution of this Agreement, together with a
corresponding Q&A outline for use in responding to inquiries about the
Agreement; thereafter, GenVec and Fuso may each disclose to third parties the
information contained in such press release and Q&A without the need for
further approval by the other.
10. INDEMNIFICATION
10.1 Indemnification of Fuso. GenVec shall indemnify Fuso and its
-----------------------
Affiliates, and their respective directors, officers, employees, agents and
counsel, and the successors and assigns of the foregoing (the "Fuso
Indemnitees"), harmless from and against any and all liabilities, damages,
losses, costs or expenses (including reasonable attorneys' and professional fees
and other expenses of litigation and/or arbitration) resulting from a claim,
suit or proceeding brought by a third party against a Fuso Indemnitee, arising
from or occurring as a result of; (i) GenVec's conduct of the Research Program,
(ii) the development, manufacture, marketing and/or commercialization of any
Collaboration Product by GenVec or its Affiliates or licensees (including
without limitation product liability claims), or (iii) the failure of
Collaboration Products manufactured by GenVec to meet the relevant
specifications, except, in each case, to the extent caused by the negligence or
willful misconduct of Fuso.
10.2 Indemnification of GenVec. Fuso shall indemnify GenVec and its
-------------------------
Affiliates and their respective directors, officers, employees, agents and
counsel and the successors and assigns of the foregoing (the "GenVec
Indemnitees"), harmless from and against any and all liabilities, damages,
losses, costs or expenses (including reasonable attorneys' and professional fees
and other expenses of litigation and/or arbitration) resulting from a claim,
suit or proceeding brought by a third party against a GenVec Indemnitee, arising
from or occurring as a result of; (i) Fuso's conduct of the Research Program, or
(ii) the development, manufacture, marketing and/or commercialization of any
Collaboration Product by Fuso or its Affiliates or Sublicensees (including
without limitation, product liability claims), except, in each case, to the
extent caused by the negligence or willful misconduct of GenVec.
10.3 Procedure. A party (the "Indemnitee") that intends to claim
---------
indemnification under this Article 10 shall promptly notify the other party (the
"Indemnitor") in writing of any loss, claim,
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damage, liability or action in respect of which the Indemnitee or any of its
Affiliates, Sublicensees or their directors, officers, employees, agents or
counsel intend to claim such indemnification, and the Indemnitor shall have the
right to participate in, and, to the extent the Indemnitor so desires, to assume
the defense thereof with counsel mutually satisfactory to the parties. The
indemnity agreement in this Article 10 shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such settlement is
made without the consent of the Indemnitor, which consent shall not be withheld
unreasonably. The failure to deliver written notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such Indemnitor of any liability to
the Indemnitee under this Article 10. At the Indemnitor's request, the
Indemnitee under this Article 10, and its employees and agents, shall cooperate
fully with the Indemnitor and its legal representatives in the investigation and
defense of any action, claim or liability covered by this indemnification and
provide full information with respect thereto.
11. TERM AND TERMINATION
11.1 Term. This Agreement shall be effective as of the Effective Date and,
----
unless otherwise terminated earlier pursuant to the other provisions of this
Article 11, shall continue in full force and effect on a Collaboration Product-
by-Collaboration Product and country-by-country basis until the date Fuso and
its Affiliates and Sublicensees has no remaining royalty obligations in such
country. Following the expiration of royalty obligations in any country, Fuso
shall have a non-exclusive, non-transferable, fully paid license under the
GenVec Know-How solely to commercialize the Collaboration Product in the Field
in such country.
11.2 Termination for Cause. Either party may terminate this Agreement in
---------------------
the event the other party has materially breached or defaulted in the
performance of any of its obligations hereunder, and such default has continued
for sixty (60) days after written notice thereof was provided to the breaching
party by the nonbreaching party. Any termination shall become effective at the
end of such sixty (60) day period unless the breaching party has cured any such
breach or default prior to the expiration of the sixty (60) day period.
Notwithstanding the above, in the case of a failure to pay any amount due
hereunder the period for cure of any such default following notice thereof shall
be ten (10) days and, unless payment is made within such period, the termination
shall become effective at the end of such period.
11.3 Termination for Insolvency. If voluntary or involuntary proceedings
--------------------------
by or against a party are instituted in bankruptcy under any insolvency law, or
a receiver or custodian is appointed for such party, or proceedings are
instituted by or against such party for corporate reorganization or the
dissolution of such party, which proceedings, if involuntary, shall not have
been dismissed within sixty (60) days after the date of filing, or if such party
makes an assignment for the benefit of creditors, or substantially all of the
assets of such party are seized or attached and not released within sixty (60)
days thereafter, the other party may immediately terminate this Agreement
effective upon notice of such termination.
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11.4 Permissive Termination. After the second anniversary of the Effective
----------------------
Date, Fuso may, at its sole discretion, terminate this Agreement at any time
with ninety (90) days prior notice.
11.5 Termination Relating to Sales of Competing Collaboration Products.
-----------------------------------------------------------------
GenVec may, at its sole discretion, terminate this Agreement with ninety (90)
days notice in the event of any breach by Fuso of Section 5.6.
11.6 Effect of Breach or Termination.
-------------------------------
11.6.1 Accrued Obligations. Termination of this Agreement for any
-------------------
reason shall not release any party hereto from any liability which, at the time
of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination, nor preclude either party
from pursuing any rights and remedies it may have hereunder or at law or in
equity which accrued or are based upon any event occurring prior to such
termination.
11.6.2 Return of Materials. Upon any termination of this Agreement,
-------------------
Fuso and GenVec shall promptly return to the other party all materials and
Confidential Information (except as provided in 11.1 above) received from the
other party (except one copy of which may be retained by legal counsel for
archival purposes).
11.6.3 Stock on Hand. In the event this Agreement is terminated for
-------------
any reason, Fuso and its Affiliates and Sublicensees shall have the right to
sell or otherwise dispose of the stock of any Collaboration Products then on
hand subject to Articles 3 and 4 and the other applicable terms of this
Agreement.
11.6.4 Licenses.
--------
(a) The licenses granted Fuso herein shall terminate in the
event of a termination pursuant to Section 11.2 or 11.3, or any termination of
the Research Program by Fuso prior to the second anniversary of the Effective
Date. In the event of a termination of the Research Program by Fuso after the
second anniversary of the Effective Date, the licenses granted Fuso shall remain
in effect, subject to the terms and conditions herein, with respect to all
Collaboration Products designated by the Steering Committee prior to the
effective date of such termination.
(b) The licenses granted to GenVec in Section 2.3 shall
terminate only in the event of a termination by Fuso pursuant to Section 11.2 or
11.3.
(c) If more than one Collaboration Product is being
commercially developed or exploited by Fuso or its Affiliates and Sublicensees
hereunder and GenVec terminates this Agreement pursuant to Section 11.2 due to a
breach relating only to a single Collaboration Product, or pursuant to Section
11.5 due to a particular competing product, then GenVec shall be entitled to
terminate this Agreement only with respect to the applicable Collaboration
Product.
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11.7 Survival. Sections 2.4, 2.5, 2.6, 5.2.3, 5.3, 5.4, 6.4, 7.1, 7.2.2,
--------
7.3.2, 11.6 and 11.7 and Articles 4, 8, 9, 10, 12 and 13 shall survive the
expiration or termination of this Agreement for any reason.
12. DISPUTE RESOLUTION
12.1 Mediation. If a dispute arises out of or relates to this Agreement,
---------
or the breach thereof, and if said dispute cannot be settled through
negotiation, the parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association before resorting to arbitration.
12.2 Arbitration. Any dispute under this Agreement (except any dispute
-----------
relating to the validity or enforceability of any patent) which is not settled
by mutual consent shall be finally settled by binding arbitration. Such
arbitration shall be conducted in accordance with the International Arbitration
Rules of the Asia/Pacific Center by three (3) arbitrators appointed in
accordance with said rules and held in San Francisco, California. At least one
of the arbitrators shall be an independent expert in pharmaceutical product
development (including clinical development and regulatory affairs). The
arbitrators shall determine what discovery will be permitted, consistent with
the goal of limiting the cost and time which the parties must expend for
discovery; provided the arbitrators shall permit such discovery as they deem
necessary to permit an equitable resolution of the dispute. Any written
evidence originally in a language other than English shall be submitted in
English translation accompanied by the original or a true copy thereof. The
costs of the arbitration including administrative and arbitrators' fees, shall
be shared equally by the parties and each party shall bear its own costs and
attorneys' and witness' fees incurred in connection with the arbitration. A
disputed performance or suspended performances pending the resolution of the
arbitration must be completed within thirty (30) days following the final
decision of the arbitrators or such other reasonable period as the arbitrators
determine in a written opinion. Any arbitration subject to this Article shall
be completed within one (1) year from the filing of notice of a request for such
arbitration. No punitive damages may be granted by the arbitrators. The
arbitration proceedings and the decision shall not be made public without the
joint consent of the parties and each party shall maintain the confidentiality
of such proceedings and decision unless otherwise permitted by the other party.
The parties agree that the decision shall be the sole, exclusive and binding
remedy between them regarding any and all disputes, controversies, claims and
counterclaims presented to the arbitrators. Any award may be entered in a court
of competent jurisdiction for a judicial recognition of the decision and an
order of enforcement.
13. MISCELLANEOUS
13.1 Governing Law. This Agreement and any dispute arising from the
-------------
performance or breach hereof shall be governed by and construed in accordance
with the laws of the State of California, without reference to conflicts of laws
principles.
13.2 Waiver. Neither party may waive or release any of its rights or
------
interests in this Agreement except in writing. The failure of either party to
assert a right hereunder or to insist upon
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compliance with any term or condition of this Agreement shall not constitute a
waiver of that right or excuse a similar subsequent failure to perform any such
term or condition.
13.3 Assignment. This Agreement shall not be assignable by either party to
----------
any third party hereto without the written consent of the other party hereto;
except either party may assign this Agreement, without such consent, to (i) an
Affiliate of such party; or (ii) an entity that acquires all or substantially
all of the business or assets of such party to which this Agreement pertains,
whether by merger, reorganization, acquisition, sale, or otherwise and that
agrees in writing to be strictly bound by the terms and conditions of this
Agreement. The terms and conditions of this Agreement shall be binding on and
inure to the benefit of the permitted successors and assigns of the parties.
13.4 Notices. Any notices, requests and other communications hereunder
-------
shall be in writing and shall be personally delivered or sent by international
express delivery service, registered or certified mail, return receipt
requested, postage prepaid, in each case to the respective address specified
below, or such other address as may be specified in writing to the other parties
hereto:
FUSO: Fuso Pharmaceutical Industries, Ltd
3-11, 2-Chome, Morinomiya, Joto-ku
Osaka 536, Japan
Attn: President
With a copy to: Director, Research and Development Center
GENVEC: GenVec, Inc.
12111 Parklawn Drive
Rockville, Maryland 20852
Attn: President
With a copy to: Vice President, Corporate Development
13.5 Performance Warranty. Fuso and GenVec hereby respectively warrant and
--------------------
guarantee the performance of any and all rights and obligations of this
Agreement by their Affiliate(s), Sublicensees, and sublicensees.
13.6 Force Majeure. Neither party shall be liable to the other for failure
-------------
or delay in the performance of any of its obligations under this Agreement for
the time and to the extent such failure or delay is caused by earthquake, riot,
civil commotion, war, hostilities between nations, governmental law, order or
regulation, embargo, action by the government or any agency thereof, act of God,
storm, fire, accident, labor dispute or strike, sabotage, explosion or other
similar or different contingencies, in each case, beyond the reasonable control
of the respective party. The party affected by Force Majeure shall provide the
other party with full particulars thereof as soon as it becomes aware of the
same (including its best estimate of the likely extent and duration of the
interference with its activities), and will use its best endeavors to overcome
the difficulties created thereby and to
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resume performance of its obligations as soon as practicable. If the performance
of any obligation under this Agreement is delayed owing to a force majeure for
any continuous period of more than six (6) months, the parties hereto shall
consult with respect to an equitable solution including the possible termination
of this Agreement.
13.7 Independent Contractors. Nothing contained in this Agreement is
-----------------------
intended implicitly, or is to be construed, to constitute Fuso or GenVec as
partners in the legal sense. No party hereto shall have any express or implied
right or authority to assume or create any obligations on behalf of or in the
name of any other party or to bind any other party to any contract, agreement or
undertaking with any third party.
13.8 Advice of Counsel. GenVec and Fuso have each consulted counsel of
-----------------
their choice regarding this Agreement, and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one party or another
and will be construed accordingly.
13.9 Other Obligations. Except as expressly provided in this Agreement or
-----------------
as separately agreed upon in writing between GenVec and Fuso, each party shall
bear its own costs incurred in connection with the implementation of the
obligations under this Agreement.
13.10 Independent Research. Except as expressly provided for herein or in
--------------------
the Collaboration Agreement, each party acknowledges and agrees that Fuso and
GenVec shall have the right to engage in their own research and development
activities outside the Research Program. Neither party shall, by virtue of this
Agreement, have any right, title or interest in or to such independent
activities or to the income or profits derived therefrom.
13.11 Severability. In the event that any provisions of this Agreement are
------------
determined to be invalid or unenforceable by a court of competent jurisdiction,
the remainder of the Agreement shall remain in full force and effect without
said provision. The parties shall in good faith negotiate a substitute clause
for any provision declared invalid or unenforceable, which shall most nearly
approximate the intent of the parties in entering this Agreement; provided, if
the parties are unable to agree on such a substitute clause and the deletion of
the provision held invalid or unenforceable would produce material adverse
financial consequences for one party, such party shall have the right to
terminate the Agreement with one hundred eighty (180) days notice.
13.12 Patent Marking. Fuso agrees to mark and have its Affiliates and
--------------
Sublicensees mark all Collaboration Products they sell or distribute pursuant to
this Agreement in accordance with the applicable statute or regulations in the
country or countries of manufacture and sale thereof.
13.13 Further Assurances. At any time or from time to time on and after the
------------------
date of this Agreement, either party shall at the request of the other party (i)
deliver to the requesting party such records, data or other documents consistent
with the provisions of this Agreement, (ii) execute, and deliver or cause to be
delivered, all such consents, documents or further instruments of assignment,
transfer or license, and (iii) take or cause to be taken all such actions, as
the requesting party may
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reasonably deem necessary or desirable in order for the requesting party to
obtain the full benefits of this Agreement and the transactions contemplated
hereby.
13.14 Trademarks. Fuso and its Affiliates shall have the right to market
----------
the Collaboration Product under their own labels and trademark(s). All
Collaboration Product packages shall carry the notice "Licensed from GenVec,
Inc." or a similar slogan, in a typeface and size agreed by the parties.
13.15 Foreign Corrupt Practices Act. In conformity with the United States
-----------------------------
Foreign Corrupt Practices Act, Fuso and its employees and agents shall not
directly or indirectly make any offer, payment, promise to pay, or authorize
payment, or offer a gift, promise to give, or authorize the giving of anything
of value for the purpose of influencing an act or decision of an official of any
government within the Territory or the United States Government (including a
decision not to act) or inducing such official to use his influence to affect
any such governmental act or decision in order to obtain, retain, or direct any
such business.
13.16 Export Laws. Notwithstanding anything to the contrary contained
-----------
herein, all obligations of GenVec and Fuso are subject to prior compliance with
United States export regulations and such other United States and Japanese laws
and regulations as may be applicable, and to obtaining all necessary approvals
required by the applicable agencies of the government of the United States or
Japan. GenVec and Fuso, respectively, shall each use its best efforts to obtain
such approvals from its own government. Each party shall cooperate with the
other party and shall provide assistance to the other party as reasonably
necessary to obtain any required approvals.
13.17 Approvals. Each party shall be responsible, at its expense, for
---------
obtaining any approvals from its own government which may be required under
applicable law, and shall use its best efforts to obtain all necessary approvals
as soon as possible after the execution of this Agreement.
13.18 Entire Agreement. This Agreement together with the attached Exhibit,
----------------
and the Collaboration Agreement and the Stock Purchase Agreement entered by the
parties of even date herewith, constitute the entire agreement, both written or
oral, with respect to the subject matter hereof, and supersede all prior or
contemporaneous understandings or agreements, whether written or oral, between
Fuso and GenVec with respect to such subject matter.
13.19 Headings. The captions to the several Sections and Articles hereof
--------
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.
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13.20 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their authorized representatives as of the Effective Date.
FUSO PHARMACEUTICAL INDUSTRIES, LTD. GENVEC, INC.
By: _________________________________ By: ________________________________
Name: _______________________________ Name: ______________________________
Title: ______________________________ Title: _____________________________
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<PAGE>
Exhibit A
GenVec Japanese Patent Rights
*
<PAGE>
EXHIBIT 10.11
-------------
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement"), effective as of February 1, 1998
(the "Effective Date"), is entered by and between Asahi Chemical Industry Co.,
Ltd., with a principal place of business at 5-13, Shibaura 4-Chome, Minato-ku
Tokyo, 108, Japan ("Asahi"), and GenVec, Inc. with a principal place of business
at 12111 Parklawn Drive, Rockville, Maryland ("GenVec").
BACKGROUND
A. Asahi owns certain Patent Rights (as defined below) relating to tumor
necrosis factor alpha (TNF); and
B. GenVec desires to obtain a license under the Patent Rights, and Asahi
desires to grant such a license to GenVec, on the terms and conditions herein.
NOW, THEREFORE, Asahi and GenVec agree as follows:
1. DEFINITIONS
1.1 "Affiliate" means any corporation or other entity which is directly or
---------
indirectly controlling, controlled by or under the common control with GenVec.
For the purpose of this Agreement, "control" shall mean the direct or indirect
ownership of at least fifty percent (50%) of the outstanding shares or other
voting rights of the subject entity to elect directors, or if not meeting the
preceding, any entity owned or controlled by or owning or controlling at the
maximum control or ownership right permitted in the Territory.
1.2 "Confidential Information" shall mean (i) any proprietary or
------------------------
confidential information or material in tangible form disclosed hereunder that
is marked as "Confidential" at the time it is delivered to the receiving party,
or (ii) proprietary or confidential information disclosed orally hereunder which
is identified as confidential or proprietary when disclosed and such disclosure
of confidential information is confirmed in writing within thirty (30) days by
the disclosing party.
1.3 "Control" means possession of the ability to grant the license
-------
provided for herein without violating the terms of any agreement or other
arrangement with a third party.
1.4 "Field" means all gene therapy (in vivo and ex vivo) applications.
----- -- ---- -- ----
1.5 "Licensed Product" means any product which is within the scope of an
----------------
issued Valid Claim or was within the scope of an issued Valid Claim.
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.6 "Net Sales" means the gross revenues actually received by GenVec or
---------
its sublicensees from sales of Licensed Products, less (i) normal and customary
rebates, and cash and trade discounts, actually taken, (ii) sales, use and/or
other excise taxes or duties actually paid, (iii) the cost of any packages and
packing, (iv) insurance costs and outbound transportation charges prepaid or
allowed, (v) import and/or export duties actually paid, and (vi) amounts allowed
or credited due to returns.
1.7 "Patent Rights" means (i) U.S. patent application Serial No. * (filed
-------------
* and U.S. Patent No. * (ii) all patent applications and patents which claim
improvements to the subject matter of (i) above; (iii) all divisions,
continuations, continuations-in-part, and substitutions of (i) and (ii) above;
and (iv) all U.S. patents issuing on any of the preceding applications,
including extensions, reissues, and re-examinations; in each case, which is
owned, in whole or part, or Controlled by Asahi.
1.8 "Phase I", "Phase II"and "Phase III" shall mean Phase I, Phase II, and
------- -------- ---------
Phase III clinical trials, respectively, in each case as prescribed by the U.S.
Food and Drug Administration.
1.9 "Regulatory Approval" shall mean approval by the U.S. Food and Drug
-------------------
Administration ("FDA") to market a Licensed Product.
1.10 "Territory" means the United States of America and its territories and
---------
possessions.
1.11 "Valid Claim" means (i) a claim of an issued and unexpired U.S. patent
-----------
included within the Patent Rights which has not been held unenforceable or
invalid by a court or other governmental agency of competent jurisdiction in the
Territory, and which has not been disclaimed or admitted to be invalid or
unenforceable through reissue or otherwise, or (ii) a claim of a pending U.S.
patent application within the Patent Rights.
2. LICENSE; OPTION
2.1 Grant to GenVec. Asahi hereby grants to GenVec a non-exclusive
---------------
license under the Patent Rights to make, have made, import, have imported, use,
sell, have sold, offer for sale and otherwise exploit the Licensed Products in
the Territory for use in the Field. If Asahi acquires the right to extend the
license granted herein to the Affiliates of GenVec, then Asahi shall promptly
notify GenVec and GenVec shall automatically have the right to extend the
license to any of its Affiliates. In the event GenVec extends the license
granted herein to any of its Affiliates, GenVec shall immediately notify Asahi
of the name of such Affiliate. The provisions of this Agreement shall be
binding on such Affiliate, and GenVec shall guarantee the Affiliate's
performance of the obligations under this Agreement.
2.2 *
2.3 Sublicenses; Right of Negotiation. At any particular time during the
---------------------------------
term of the * GenVec shall have the right to grant one sublicense of the rights
granted in Section 2.1 above, and if GenVec grants such a sublicense, GenVec
shall not itself practice its licensing rights so long as such
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<PAGE>
sublicense remains in effect. In the event the foregoing agreement between Asahi
and * expires or is terminated, GenVec shall have the unrestricted right to
grant sublicenses. In the event GenVec grants a sublicense of the rights in
Section 2.1 above, GenVec shall promptly notify Asahi of the name of such
sublicensee. In the event that any existing or potential sublicensee of GenVec
wishes to acquire a non-exclusive license with respect to intellectual property
owned or Controlled by Asahi relating to * (or fragments or derivatives thereof)
or the use thereof, Asahi agrees to negotiate in good faith with GenVec the
terms and conditions of such a license.
2.4 Exclusive Option. If GenVec has acquired any intellectual property
----------------
rights necessary to commercialize Licensed Products in *, and GenVec retains the
legal right to grant to Asahi an option to develop and commercialize Licensed
Products in *, then until the second anniversary of the Effective Date, Asahi
shall have an exclusive option to negotiate and enter into a written agreement
with GenVec with regard to a collaborative license arrangement for the
development and commercialization of Licensed Products in *. The terms and
conditions of such agreement shall be negotiated in good faith by the parties
commencing at such time as Asahi provides GenVec notice that Asahi wishes to
exercise its option.
3. CONSIDERATION
3.1 License Fee. In partial consideration for the license granted herein,
-----------
GenVec shall pay to Asahi a license fee of * within sixty (60) days of the
Effective Date. Such fee shall not be due if GenVec provides notice of its
intent to terminate the Agreement within such sixty (60) day period.
3.2 Milestone Payments. Unless the Agreement is terminated earlier,
------------------
within sixty (60) days following the first achievement by GenVec or a
sublicensee of the following milestones with respect to the first Licensed
Product in the Territory, GenVec shall pay Asahi one-time milestone payments, as
follows:
Event Payment
----- -------
Initiation of Phase II clinical trials *
Initiation of Phase III clinical trials *
Regulatory Approval *
The payment under Section 3.1 above and the payments in this Section 3.2 shall
be nonrefundable.
3.3 Royalties.
---------
3.3.1 During Patent Term. In consideration of the license granted
------------------
herein, GenVec shall pay to Asahi a royalty of * of Net Sales of Licensed
Products which, but for the license granted herein would infringe an issued and
unexpired Valid Claim.
3.3.2 After Patent Term. In the event that all issued Valid
-----------------
Claims covering a particular Licensed Product have expired, but royalties are
still due Asahi pursuant to Section 3.7,
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<PAGE>
then the royalty due with regard to such Licensed Product shall be * of Net
Sales of such Licensed Product.
3.4 Third Party Royalties. GenVec and its sublicensee shall be
---------------------
responsible for any payments due to third parties under licenses or similar
agreements entered by GenVec or its sublicensee relating to the manufacture, use
or sale of Licensed Products in the Territory. GenVec may offset any such
payments made by GenVec or its sublicensee to third parties against royalties
due Asahi pursuant to Section 3.3 above; provided Asahi shall have the right to
receive not less than * of the Net Sales of Licensed Products sold by GenVec or
its sublicensee, except as provided in Section 3.3.2.
3.5 Combination Products. In the event that a Licensed Product is sold in
--------------------
combination as a single product with another active ingredient, component or
other product whose manufacture, sale and use are not covered by a claim within
the Patent Rights for which the combination product is sold, Net Sales from such
sales for purposes of calculating the amounts due under Sections 3.3 above shall
be as reasonably allocated by GenVec between such Licensed Product and such
active ingredient, component or other product, based upon their relative
importance and proprietary protection.
3.6 One Royalty. No more than one royalty payment shall be due with
-----------
respect to a sale of a particular Licensed Product. No multiple royalties shall
be payable because any Licensed Product, or its manufacture, sale or use is
covered by more than one Valid Claim. No royalty shall be payable under Section
3.3 above with respect to sales of Licensed Products among GenVec and its
sublicensee, nor shall a royalty be payable under this Article 3 with respect to
Licensed Products distributed for use in research and/or development, in
clinical trials or as promotional samples.
3.7 Royalty Term. Royalties due under this Article 3 shall be payable on
------------
a Licensed Product-by-Licensed Product basis until the later of (i) the
expiration of the last-to-expire issued Valid Claim covering such Licensed
Product, or (ii) the twelfth anniversary of the Effective Date.
4. PAYMENTS; REPORTS AND RECORDS
4.1 Payments; Currency. GenVec agrees to pay all royalties due to Asahi
------------------
within * after the last day of each half-calendar year in which they accrue.
All payments due hereunder shall be paid in United States dollars.
4.2 Taxes. Any income or other tax that must be withheld on behalf of
-----
Asahi with respect to the royalties owed pursuant to this Agreement shall be
deducted by GenVec from the royalties prior to remittance. Within * after the
last day of each half-calendar year, GenVec shall furnish to Asahi evidence of
any such taxes withheld.
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4.3 Royalty Reports. GenVec shall deliver to Asahi within * after the end
---------------
of each half-calendar year in which Licensed Products are sold a report setting
forth in reasonable detail the calculation of the royalties payable to Asahi for
such half-calendar year, including the Licensed Products sold, the Net Sales
thereof, and all amounts received from sublicensees for sales of Licensed
Products. Such reports shall be Confidential Information of GenVec subject to
Article 6 herein.
4.4 Books and Records. GenVec shall maintain accurate books and records
-----------------
which enable the calculation of royalties payable hereunder to be verified.
GenVec shall retain the books and records for each half-calendar year period for
* after the submission of the corresponding report under Section 4.3 hereof.
Upon * prior notice to GenVec, independent accountants selected by Asahi,
reasonably acceptable to GenVec, after entering into a confidentiality agreement
with GenVec, may have access to GenVec's books and records during GenVec's
normal business hours at mutually agreed times to conduct a review or audit once
per calendar year, for the sole purpose of verifying the accuracy of GenVec's
payments and compliance with this Agreement. The accounting firm shall report
to Asahi only whether there has been a royalty underpayment and, if so, the
amount thereof. Any such inspection or audit shall be at Asahi's expense,
however, in the event an inspection reveals underpayment of * or more in any
audit period, GenVec shall pay the costs of the inspection. GenVec shall
promptly pay to Asahi any underpayment identified in such an audit which amount
is undisputed by GenVec, with interest from the date such amount(s) were due at
the prime rate reported by the Chase Manhattan Bank, New York, New York.
5. DILIGENCE
GenVec agrees to use commercially reasonable diligent efforts to develop
and commercialize the Licensed Products and obtain such approvals as may be
necessary for the sale of the Licensed Products in the Territory. GenVec may
conduct such activities itself or through third parties.
6. CONFIDENTIALITY
6.1 Confidential Information. Except as expressly provided herein, the
------------------------
parties agree that, for the term of this Agreement and for * thereafter, the
receiving party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose except for the purposes
contemplated by this Agreement any Confidential Information furnished to it by
the disclosing party hereto pursuant to this Agreement, except to the extent
that it can be established by the receiving party by competent proof that such
Confidential Information:
(i) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(ii) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;
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<PAGE>
(iii) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement;
(iv) was independently developed by the receiving party as
demonstrated by documented evidence prepared contemporaneously with such
independent development; or
(v) was subsequently lawfully disclosed to the receiving party by a
person other than a party hereto.
6.2 Permitted Use and Disclosures. Each party hereto may use or disclose
-----------------------------
information disclosed to it by the other party to the extent such use or
disclosure is reasonably necessary in filing or prosecuting patent applications,
prosecuting or defending litigation, complying with applicable governmental
regulations or otherwise submitting information to tax or other governmental
authorities, conducting clinical trials, or making a permitted sublicense or
otherwise exercising its rights hereunder, provided that if a party is required
to make any such disclosure of another party's Confidential Information, other
than pursuant to a confidentiality agreement, it will give reasonable advance
notice to the latter party of such disclosure and, save to the extent
inappropriate in the case of patent applications, will use its best efforts to
secure confidential treatment of such information prior to its disclosure
(whether through protective orders or otherwise). Notwithstanding this Section
6.2 and Section 4.3 herein, Asahi may, subject to a confidentiality agreement
containing provisions at least as restrictive as those herein, disclose to the
Beckman Research Institute of the City of Hope, as is reasonably necessary, the
financial terms herein, the payments received and the royalty reports made under
this Agreement.
6.3 Confidential Terms. The parties agree to make a mutually agreed press
------------------
release regarding this Agreement promptly following the Effective Date. Except
as expressly provided herein, each party agrees not to disclose any terms of
this Agreement to any third party without the consent of the other party;
provided, disclosures may be made as required by securities or other applicable
laws, or to actual or prospective investors or corporate partners, or to a
party's accountants, attorneys and other professional advisors.
7. REPRESENTATIONS AND WARRANTIES
7.1 Asahi. Asahi represents and warrants that: (i) it is a corporation
-----
duly organized validly existing and in good standing under the laws of Japan;
and (ii) the execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action on the part of Asahi; (iii) it
is the sole and exclusive owner or exclusive licensee of all right, title and
interest in the Patent Rights; (iv) it has the right to grant the rights and
licenses granted herein, and the Patent Rights are free and clear of any lien,
encumbrance or security interest; (v) it has not previously granted, and will
not grant during the term of this Agreement, any right, license or interest in
and to the Patent Rights, or any portion thereof, inconsistent with the license
granted to
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<PAGE>
GenVec herein; and (vi) there are no threatened or pending actions, lawsuits,
claims or arbitration proceedings in any way relating to the Patent Rights.
7.2 GenVec. GenVec represents and warrants that: (i) it is a corporation
------
duly organized validly existing and in good standing under the laws of the State
of Delaware; and (ii) the execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action on the part of
GenVec.
7.3 Effect of Representations and Warranties. It is understood that if
----------------------------------------
the representations and warranties made by a party under this Article 7 are not
true and accurate, and the other party incurs damages, liabilities, costs or
other expenses as a result, the party making such representations and warranties
shall indemnify and hold the other party harmless from and against any such
damages, liabilities, costs or other expenses incurred as a result.
8. PROSECUTION AND ENFORCEMENT
8.1 Asahi's Responsibilities. Asahi shall have the sole right to control
------------------------
the preparation, filing, prosecution and maintenance of the Patent Rights, and
any interference or opposition proceeding relating thereto, using patent counsel
of its choice and at its sole expense; provided, however, that Asahi shall
consult with GenVec regarding the prosecution of any such patent applica tions
by providing GenVec a reasonable opportunity to review and comment on all
proposed submissions to any patent office at least thirty (30) days before
submittal, and shall incorporate such comments as GenVec may reasonably request.
In addition, Asahi shall keep GenVec reasonably informed as to the status of
such patent applications by promptly providing GenVec copies of all
communications relating to such patent applications that are received from any
patent office.
8.2 Patent Term Extensions. To the extent permitted by applicable law,
-----------------------
GenVec and Asahi shall jointly apply for patent term extensions of patent(s)
within the Patent Rights. If joint applications are not permitted, GenVec shall
have the right to file and diligently seek and obtain such extensions for GenVec
or its sublicensee, in GenVec's name. Asahi agrees to provide reasonable
assistance to facilitate GenVec's efforts to obtain any such extension.
8.3 Enforcement. If either party hereto becomes aware that any Patent
-----------
Rights are being or have been infringed by any third party, such party shall
promptly notify the other party hereto in writing describing the facts relating
thereto in reasonable detail. Asahi shall have the initial right, but not the
obligation, to institute, prosecute and control any action, suit or proceeding
with respect to such infringement, including any declaratory judgment action
(each an "Action"), at its expense; using counsel of its choice. In the event
Asahi fails to initiate or defend any Action involving the Patent Rights within
three (3) months of receiving notice of any infringement, GenVec shall have the
right, but not the obligation, to initiate and control such an Action, at its
expense; provided, GenVec shall be entitled to offset any amount expended in
connection with such Action against up to fifty percent (50%) of royalties due
under Section 3.3. In any such event, Asahi shall cooperate reasonably with
GenVec in connection with any such Action, at GenVec's expense; including
-7-
<PAGE>
without limitation, by joining such Action as a party if requested by GenVec.
Any amounts recovered by GenVec in such Action shall be used first to reimburse
Asahi and GenVec for the expenses incurred in connection with such Action and
any remainder shall be treated as Net Sales of Licensed Products pursuant to
Section 3.3.
8.4 Infringement Claims. If the practice by GenVec of the license granted
-------------------
herein results in any allegation or claim of infringement of an intellectual
property right of third party against GenVec, GenVec shall have the exclusive
right to defend any such claim, suit or proceeding, at its own expense, by
counsel of its own choice and shall have the sole right and authority to settle
any such suit; provided, however, Asahi shall cooperate with GenVec, at GenVec's
reasonable request and expense, in connection with the defense of such claim.
9. DISPUTE RESOLUTION
Any dispute under this Agreement (except any dispute relating to the
validity or enforceability of any patent) which is not settled by mutual consent
shall be finally settled by binding arbitration. Any arbitration initiated by
GenVec shall be conducted in Tokyo and administered by the Japan Commercial
Arbitration Association, and any arbitration initiated by Asahi shall be
conducted in Washington, D.C., and administered by the American Arbitration
Association. In each case, the arbitrators shall apply UNCITRAL rules and all
claims, including counterclaims, shall be subject to resolution by the same
group of arbitrators. Any written evidence originally in a language other than
English shall be submitted in English translation accompanied by the original or
a true copy thereof. The costs of the arbitration (including administrative and
arbitrators' fees), shall be shared equally by the parties, and each party shall
bear its own costs and attorneys' and witness' fees incurred in connection with
the arbitration. The decision and/or award rendered by the arbitrator shall be
written, final and non-appealable and may be entered in any court of competent
jurisdiction for a judicial recognition of the decision and an order of
enforcement.
10. INDEMNIFICATION
10.1 Indemnity. GenVec shall indemnify, defend and hold harmless Asahi and
---------
its directors, officers and employees (each an "Indemnitee") from and against
any and all liabilities, damages, losses, costs or expenses (including
reasonable attorneys' and professional fees and other expenses of litigation
and/or arbitration) (a "Liability") resulting from a claim, suit or proceeding
brought by a third party against an Indemnitee, arising from or occurring as a
result of activities performed by GenVec or its sublicensees in connection with
the development, manufacture or sale of any Licensed Product, except to the
extent caused by the negligence or willful misconduct of Asahi.
10.2 Procedure. In the event that any Indemnitee intends to claim
---------
indemnification under this Article 10 it shall promptly notify GenVec in writing
of such alleged Liability. GenVec shall have the sole right to control the
defense and settlement thereof. The Indemnitees shall cooperate with the
indemnifying party and its legal representatives in the investigation of any
action, claim or liability covered by this Article 10. The Indemnitee shall
not, except at its own cost, voluntarily
-8-
<PAGE>
make any payment or incur any expense with respect to any claim or suit without
the prior written consent of GenVec, which GenVec shall not be required to give.
11. TERM AND TERMINATION
11.1 Term. The term of this Agreement shall commence on the Effective
----
Date, and unless earlier terminated as provided in this Article 11, shall
continue in full force and effect on a Licensed Product-by-Licensed Product
basis until there are no remaining royalty payment obligations with respect
thereto.
11.2 Termination for Cause. If either party materially breaches this
---------------------
Agreement, the other party may elect to give the breaching party written notice
describing the alleged breach. If the breaching party has not cured such breach
within sixty (60) days after receipt of such notice, the notifying party will be
entitled, in addition to any other rights it may have under this Agreement, to
terminate this Agreement effective immediately; provided, however, if either
party receives notification from the other of a material breach and if the party
alleged to be in default notifies the other party in writing within thirty (30)
days of receipt of such default notice that it disputes the asserted default,
the matter will be submitted to arbitration as provided in Article 9 of this
Agreement. In such event, the nonbreaching party shall not have the right to
terminate this Agreement until it has been determined in such arbitration
proceeding that the other party materially breached this Agreement, and the
breaching party fails to cure such breach within ninety (90) days after the
conclusion of such arbitration proceeding.
11.3 Termination for Insolvency. Either party may terminate this Agreement
--------------------------
if the other becomes the subject of a voluntary or involuntary petition in
bankruptcy or any proceeding relating to insolvency, receivership, liquidation,
or composition or the benefit of creditors, if that petition or proceeding is
not dismissed with prejudice within sixty (60) days after filing.
11.4 Permissive Termination. GenVec may terminate this Agreement with
----------------------
respect to any patent application or patent within the Patent Rights with thirty
(30) days written notice to Asahi. GenVec shall have no right to terminate this
Agreement pursuant to this Section 11.4 after the expiration of the Patent
Rights.
11.5 Effect of Termination.
---------------------
(a) Accrued Rights and Obligations. Termination of this Agreement for
------------------------------
any reason shall not release any party hereto from any liability which, at the
time of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination, nor preclude either party
from pursuing any rights and remedies it may have hereunder or at law or in
equity which accrued or are based upon any event occurring prior to such
termination.
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(b) Return of Confidential Information. Upon any termination of this
----------------------------------
Agreement, each party shall promptly return to the other party all Confidential
Information received from the other party (except one copy of which may be
retained for archival purposes).
(c) Stock on Hand. In the event this Agreement is terminated for any
-------------
reason, GenVec and its sublicensee shall have the right to sell or otherwise
dispose of the stock of any Licensed Product then on hand, subject to Articles 3
and 4.
(d) Sublicense. In the event of any termination of this Agreement,
----------
any sublicense granted by GenVec shall remain in force and effect and shall be
assigned by GenVec to Asahi; provided, the financial obligations of any such
sublicensee shall be limited to the amounts GenVec is obligated to pay to Asahi
for the activities of such sublicensee under this Agreement.
11.6 Survival. Sections 11.5 and 11.6 and Articles 4, 6, 7, 9, 10 and 12
--------
of this Agreement shall survive termination of this Agreement for any reason.
12. MISCELLANEOUS
12.1 Governing Law. This Agreement, and any proceeding subject to Article
-------------
10, shall be governed by and construed in accordance with the laws of the State
of New York, without reference to principles of conflicts of laws.
12.2 Independent Contractors. The relationship of the parties hereto is
-----------------------
that of independent contractors. The parties hereto are not deemed to be
agents, partners or joint venturers of the other for any purpose as a result of
this Agreement or the transactions contemplated thereby.
12.3 Assignment. The parties agree that their rights and obligations under
----------
this Agreement shall not be delegated, transferred or assigned to a third party
without prior written consent of the other party hereto. This Agreement shall
be binding upon and inure to the benefit of the parties and their successors and
assigns.
12.4 Right to Develop Independently. Nothing in this Agreement will impair
------------------------------
GenVec's right to independently acquire, license, develop for itself, or have
others develop for it, intellectual property and technology performing similar
functions as the Patent Rights or to market and distribute Licensed Products or
other products based on such other intellectual property and technology.
12.5 Notices. Any required notices hereunder shall be given in writing by
-------
certified mail or international express delivery service (e.g., DHL) at the
address of each party below, or to such other address as either party may
substitute by written notice. Notice shall be deemed served when delivered or,
if delivery is not accomplished by reason or some fault of the addressee, when
tendered.
If to Asahi: Asahi Chemical Industry Co., Ltd.
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5-13 Shibaura 4-Chome
Minato-ku Tokyo, 108, Japan
Attention: Dr. Tetsu Saito, General Manager
Licensing and Business Development Group
If to GenVec: GenVec, Inc.
12111 Parklawn Drive
Rockville, Maryland 20852
Attention: President
with a copy to: Vice President, Corporate Development
12.6 Force Majeure. Neither party shall lose any rights hereunder or be
-------------
liable to the other party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting party if the failure is
occasioned by war, strike, fire, Act of God, earthquake, flood, lockout,
embargo, governmental acts or orders or restrictions, failure of suppliers, or
any other reason where failure to perform is beyond the reasonable control and
not caused by the negligence, intentional conduct or misconduct of the
nonperforming party and such party has exerted all reasonable efforts to avoid
or remedy such force majeure; provided, however, that in no event shall a party
be required to settle any labor dispute or disturbance.
12.7 Advice of Counsel. GenVec and Asahi have each consulted counsel of
-----------------
their choice regarding this Agreement, and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one party or another
and will be construed accordingly.
12.8 Approvals. Each party shall be responsible, at its expense, for
---------
obtaining any approvals from its own government which may be required under
applicable law, and shall use its best efforts to obtain all necessary approvals
as soon as possible after the execution of this Agreement.
12.9 Compliance with Laws. Each party shall furnish to the other party any
--------------------
information requested or required by that party during the term of this
Agreement or any extensions hereof to enable that party to comply with the
requirements of any U.S. or foreign, state and/or government agency.
12.10 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
-----------------------
FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES ARISING OUT OF
THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY.
12.11 Further Assurances. At any time or from time to time on and after the
------------------
date of this Agreement, Asahi shall at the request of GenVec (i) deliver to
GenVec such records, data or other documents consistent with the provisions of
this Agreement, (ii) execute, and deliver or cause to be
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delivered, all such consents, documents or further instruments of transfer or
license, and (iii) take or cause to be taken all such actions, as GenVec may
reasonably deem necessary or desirable in order for GenVec to obtain the full
benefits of this Agreement and the transactions contemplated hereby.
12.12 Severability; Waiver. In the event that any provisions of this
--------------------
Agreement are determined to be invalid or unenforceable by a court of competent
jurisdiction, the remainder of the Agreement shall remain in full force and
effect without said provision. The parties shall in good faith negotiate a
substitute clause for any provision declared invalid or unenforceable, which
shall most nearly approximate the intent of the parties in entering this
Agreement. The failure of a party to enforce any provision of the Agreement
shall not be construed to be a waiver of the right of such party to thereafter
enforce that provision or any other provision or right.
12.13 Entire Agreement; Modification. This Agreement sets forth the entire
------------------------------
agreement and understanding of the parties with respect to the subject matter
hereof, and supersedes all prior discussions, agreements and writings in
relating thereto. This Agreement may not be altered, amended or modified in any
way except by a writing signed by both parties.
12.14 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and which together shall constitute
one instrument.
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IN WITNESS WHEREOF, Asahi and GenVec have executed this Agreement by their
respective duly authorized representatives.
ASAHI CHEMICAL INDUSTRY GENVEC, INC.
CO., LTD.
By: ______________________________________ By: ___________________________
Katsuaki Tuzuki
Managing Director & General Manager Print Name: ___________________
of Health Care Business Administration
Title: ________________________
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EXHIBIT 10.12
-------------
THIS SPONSORED RESEARCH AGREEMENT ("Agreement" or "Sponsored Research
Agreement") dated as of April 1, 1998 (the "Effective Date") is entered into by
and between GENVEC, INC., a Delaware corporation ("Sponsor"), and CORNELL
UNIVERSITY, a not-for-profit educational institution having corporate powers
under the laws of the State of New York ("University"), for its Medical College
("Medical College").
WITNESSETH:
WHEREAS, the Sponsor and the University have previously entered into
that certain Sponsored Research Agreement effective as of May 18, 1993 (the
"Prior Sponsored Research Agreement"), pursuant to which Sponsor supported
preclinical research and clinical research at the Medical College in connection
with Gene Therapy (as defined in Appendix 1 hereto), which relationship the
parties wish to extend;
WHEREAS, the Gene Therapy research project that is to be conducted at
the Medical College with the support of the Sponsor is to be jointly supervised
by Ronald G. Crystal, M.D. ("Dr. Crystal"), a Professor of Medicine at the
Medical College and a paid consultant and equity holder of the Sponsor and
Chairman of the Sponsor's Scientific Advisory Board, and by the Medical
College's Chairman of the Department of Medicine (currently Ralph L. Nachman,
M.D. ("Dr. Nachman")), all as permitted by and in accordance with applicable
Laws and University Policies (as defined in Appendix 1 hereto);
WHEREAS, the Sponsor has entered into an Amended and Restated
Exclusive License Agreement in the form attached as Exhibit A hereto ("License
Agreement") with the Cornell Research Foundation, Inc. ("Foundation"), a wholly
owned subsidiary of the University;
WHEREAS, the Gene Therapy discoveries and inventions made during the
course of the Sponsored Research (as defined in Appendix 1 hereto), as
contemplated by this Agreement, are of mutual interest and benefit to the
University and to the Sponsor, will further instructional and research
objectives of the University in a manner consistent with its status as a not-
for-profit tax-exempt educational institution, and may constitute benefits for
both the Sponsor and the University (including, without limitation, the Medical
College) through inventions, improvements, and discoveries;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree to the following:
1. DEFINITIONS
Capitalized terms used in this Agreement and set forth in Appendix 1 hereto
shall have the meanings set forth in such Appendix 1.
2. SCOPE AND PERFORMANCE OF WORK
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
The University shall commence the performance of the Sponsored Research on
the Effective Date, and, concurrently with compliance by Sponsor with all terms
(including payment terms) of this Agreement, agrees to use reasonable efforts to
perform the Sponsored Research in accordance with the terms and conditions of
this Agreement.
3. PRINCIPAL INVESTIGATORS
3.1 SUPERVISION OF THE SPONSORED RESEARCH
As described in the Crystal Appointment Letter, Dr. Crystal and the
Chairman shall jointly supervise the Sponsored Research. Initial (including
"Phase I", and/or "Phase I/II", if approved by the Medical College) human
feasibility trials with respect to the Sponsored Research may take place at the
University (including the Medical College), at affiliated hospitals, clinics, or
other institutions affiliated with the Medical College, under the direction of
the Principal Investigators. Any Phase II and Phase III trials will take place
entirely under the supervision of independent investigators who are not and have
not been associated with the Sponsored Research. The parties hereto acknowledge
and agree that the Crystal Appointment Letter has been approved by the Medical
College, the University, The New York Hospital, and all applicable internal
review boards of such bodies, including, without limitation, those charged with
responsibility for administration of the University's conflict of interest
policies, as of the date of this Agreement, subject, however, to any changes in
such approvals and policies as the University or such other entities or boards
may determine to be necessary or advisable.
3.2 CHANGE IN PRINCIPAL INVESTIGATORS
In the event that Dr. Crystal dies, becomes disabled such that he
cannot continue his employment at the Medical College, terminates his employment
at the Medical College, or his employment at the Medical College is otherwise
terminated, either party to this Agreement shall have the option to terminate
this Agreement and the Sponsored Research in the manner provided in Section 8.
If Dr. Nachman dies, becomes disabled such that he cannot continue his
employment at the Medical College, terminates his employment at the Medical
College, or his employment at the Medical College is otherwise terminated, or
otherwise is unable or unwilling to continue to serve as co-Principal
Investigator with respect to the Sponsored Research, the successor to Dr.
Nachman as Chairman shall serve as co-Principal Investigator with Dr. Crystal,
unless the University shall have designated another member of its faculty
reasonably acceptable to Sponsor and to Dr. Crystal to serve as the co-Principal
Investigator with Dr. Crystal; provided, however, that if such Chairman or other
faculty member has any consulting or other commercial relationship with a
competitor of Sponsor in the gene therapy field, the University, upon notice of
objection from Sponsor, shall designate another member of its faculty,
reasonably acceptable to Sponsor and Dr. Crystal, without such relationship, to
serve as co-Principal Investigator.
4. PERIOD OF PERFORMANCE
The period of performance under this Agreement will terminate on April
1, 2002, unless earlier terminated pursuant to this Agreement or extended by
written agreement of the parties.
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<PAGE>
5. PAYMENTS
5.1 SPONSOR PAYMENTS
The Sponsor agrees to make payments to the University (on behalf of
the Medical College) for certain costs of the Sponsored Research in accordance
with the payment schedule attached as Exhibit B hereto ("Sponsor Payments"),
subject to and in accordance with the terms of this Agreement. Sponsor Payments
shall be used over the term of this Agreement for the rental of space for Dr.
Crystal's laboratory, the purchase or rental of the substantial portion of the
equipment in such laboratory, a portion of Dr. Crystal's salary from the
University, general research support for preclinical feasibility projects and
clinical evaluation of Gene Therapy technology (excluding Phase II and Phase III
studies), and related matters, including support of other members of Dr.
Crystal's laboratory (all of whom will be employees of the University). The
aggregate amount of the Sponsor Payments shall be Five Million Seven Hundred
Thousand Dollars ($5,700,000), unless the parties agree otherwise pursuant to
Section 5.2. All checks (or electronic funds transfers) shall be made payable
to Cornell University Medical College and sent to the address specified in
Section 19.6. Within ninety (90) days after termination of this Agreement, the
University shall submit a final financial report setting forth costs incurred.
The report shall be accompanied by a check in the amount, if any, of the excess
of Sponsor Payments received by the University over costs actually incurred by
or on behalf of the University in connection with the Sponsored Research.
5.2 ADDITIONAL PAYMENTS
It is agreed to and understood by the parties that the aggregate
amount of the Sponsor Payments is an estimate of the cost of the Sponsored
Research, but that the Sponsor shall not be liable for any payments or costs in
excess of the Sponsor Payments unless the Sponsor shall have previously agreed
in writing to provide additional funds. Funding for work to be performed during
a period beyond that set forth in Section 4, or for work in addition to the
Sponsored Research, shall be agreed to by the Sponsor and the University in
writing prior to the initiation of any such work.
5.3 UNIVERSITY BOOKS AND RECORDS
The University shall maintain records and books of account relating to
this Agreement in accordance with its normal course of business, University
Policies, and prevailing University accounting practices, and shall make such
records and books available to Sponsor upon reasonable notice during normal
business hours, but not more frequently than once every four (4) months.
The University shall maintain scientific records that will properly
reflect all work done, and data and results achieved in the performance of the
Sponsored Research (including all data in the form required under any applicable
governmental regulations) in a manner sufficient to establish the dates of first
conception and reduction to practice of any inventions.
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<PAGE>
5.4 SPONSOR PAYMENTS
Any funds paid to the University pursuant to the Prior Sponsored
Research Agreement which were not expended as of the Effective Date hereof shall
be used to support the Sponsored Research subject to this Agreement. Such funds
shall be additional to the payments due pursuant to Section 5.1, but otherwise
shall be treated as Sponsor Payments for all purposes of this Agreement.
5.5 OTHER FUNDS
The University shall not use funds from any commercial third party to
support any aspect of the Sponsored Research without the prior written consent
of Sponsor.
6. INVENTIONS AND PATENTS
The Medical College shall disclose all Sponsored Research Intellectual
Property Rights to the Sponsor as promptly as practicable upon receipt of such
disclosure, but in no event later than * after the inventor discloses it in
writing to the Medical College personnel responsible for patent matters. The
Principal Investigators shall ensure that all such Sponsored Research
Intellectual Property Rights are promptly disclosed to the Medical College in
writing. The disclosure to the Sponsor shall be in the form of a written report
and shall identify the inventor(s) and this Agreement as being that under which
such invention was made. Such report shall be sufficiently complete in
technical detail to convey a clear understanding, to the extent known at the
time of the disclosure, of the nature, purpose, operation, and the physical,
chemical, biological, or electrical characteristic of the invention. To afford
the parties a reasonable opportunity to preserve their intellectual property
rights, without the parties' written consent neither the Medical College nor the
Sponsor shall disclose such Sponsored Research Intellectual Property Rights to
third parties for at least * days after the date of such disclosure to the
Sponsor pursuant to this Section 6; provided that during such * day period and
thereafter the Sponsor may disclose such Sponsored Research Intellectual
Property Rights to a corporate partner of Sponsor which is entitled to a
sublicense of all or part of the Sponsored Research Intellectual Property
Rights, if such corporate partner and Sponsor have a written agreement of
confidentiality consistent with the provisions hereof. Any disclosures made
pursuant to this Section 6 shall also comply with Section 10 hereof with respect
to any proposed publication, sale, or public use of the invention and shall
disclose whether a manuscript describing the invention has been prepared and is
proposed to be submitted for publication or presentation. Title to reported
inventions will be held in accordance with Section 16.1. Within * of receipt of
the invention report, the Sponsor may notify the University, in writing, that it
elects to license such reported invention to the extent permitted by, and in
accordance with the terms of, the License Agreement. Notwithstanding this
Section 6 or any other provision of this Agreement, however, except to the
extent the same are included within Sponsored Research Intellectual Property
Rights, the parties agree that this Agreement does not authorize or compel the
disclosure to the Sponsor of information regarding research designs, methods,
proposals, findings, or similar information or data of investigators (or other
University employees) not employed in Dr. Crystal's laboratory and under the
joint supervision of Dr. Crystal and the Chairman (even though the Sponsor's
funds may have been used to provide ancillary noninventive services or equipment
to such inventor or other employee).
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<PAGE>
7. PROPRIETARY INFORMATION
The Medical College's acceptance and use of any proprietary
information or proprietary biological materials that may be supplied by the
Sponsor in the course of this research project shall be subject to the
following:
(i) The Sponsor shall mark or designate in writing the information
or biological materials as being proprietary to the Sponsor or, where
appropriate, to a sublicensee of Sponsor.
(ii) The Medical College retains the right to refuse to accept any
such information or biological materials that it does not consider to be
essential to the completion of the Sponsored Research or that it believes to be
improperly designated, for any reason.
(iii) Where the Medical College does accept such information, it
agrees to use reasonable efforts not to publish or otherwise reveal the
information to others outside the Medical College without the permission of the
Sponsor, unless the information has already been published or disclosed, or the
information has already been independently developed, in each case by third
parties or is or are required to be disclosed or delivered by order of a court
of law or regulatory agency.
(iv) Where the Medical College does accept such biological materials,
their use shall be subject to the terms of the Material Transfer Agreement
entered by Sponsor and the Medical College effective December 19, 1996 (the
"Material Transfer Agreement"), a copy of which is attached hereto as Exhibit C.
8. TERMINATION
8.1 TERMINATION EVENTS
This Agreement may be terminated (prior to the expiration of its term
pursuant to Section 4) at any time by one party, upon written notice to the
other party, upon the occurrence of any of the following events:
(i) either party may terminate the Agreement if Dr. Crystal dies,
becomes disabled such that he cannot continue his employment at the Medical
College, terminates his employment at the Medical College, or his employment at
the Medical College is otherwise terminated;
(ii) either party may terminate the Agreement if, in the reasonable
judgment of the terminating party, termination is necessitated by reason of a
change in Laws; provided, however, that the Sponsor shall not use as a ground of
termination such a change which could be cured by a revision of Dr. Crystal's
relationship with the Sponsor;
(iii) a party may terminate the Agreement if it has a reasonable basis
to believe that the other party has engaged in unlawful, unethical, or seriously
inappropriate conduct such that continued performance of the Agreement would
affront legitimate interests of the terminating party; or
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<PAGE>
(iv) a party may terminate the Agreement if the other party has
committed a material breach of the terms of this Agreement or the License
Agreement and has failed to remedy such breach within ten (10) days in relation
to a payment-related breach, and thirty (30) days in relation to other breaches,
following written notice thereof. For purposes of this Section 8, a failure by
the Sponsor to make any payment required pursuant to Section 5 shall be deemed a
material breach.
(v) In the event that a party intends to terminate the Agreement
under Section 8.1(ii), (iii) or (iv), the party shall give written notice to
that effect to the other party, which notice shall effect forthwith suspension
of future performance of the Agreement. The party so notified may initiate
arbitration under Section 19.5, by filing a request for arbitration with the
American Arbitration Association, not later than ten (10) days thereafter, and
termination shall occur if (a) arbitration is not so initiated, or (b) the
arbitrator finds that termination was reasonable.
(vi) Sponsor may provide notice of termination any time for any
reason after October 1, 1999, and in any such case, such termination will be
effective twelve (12) months thereafter.
8.2 TERMINATION CONSEQUENCES
In the event of early termination of this Agreement by the Sponsor
pursuant to Section 8.1, or by the University pursuant to Section 8.1(ii),
(iii), or (iv), the Sponsor shall remit to the University funds in payment of
(a) all internal and external costs and non-cancelable obligations, including
future costs and obligations, incurred as of the date of termination by the
University incident to the Sponsored Research (including, without limitation,
rent, personnel costs, facilities costs, and other costs) until such time as the
University, exercising its best efforts, shall eliminate such costs (or utilize
such personnel and facilities in other endeavors), and (b) any other amounts
that have accrued under this Agreement as of the date of such termination. With
respect to all payments by the Sponsor required by this Section 8.2, in no event
shall the liability of the Sponsor for Sponsor Payments in connection with the
Sponsored Research exceed One Million Four Hundred Twenty-Five Thousand Dollars
($1,425,000) or such other amount as the parties hereto have agreed upon
pursuant to Section 5. Any and all Sponsored Research Intellectual Property
Rights conceived or reduced to practice or otherwise developed prior to the
effective date of such termination shall remain subject to the terms of the
License Agreement, which shall remain in effect until and unless terminated
under its terms.
9. PUBLICITY
The parties acknowledge their mutual intention to announce major
scientific discoveries to the public on a prompt and cooperative basis,
consistent with the terms of this Section 9 and other provisions of this
Agreement. The parties agree that neither the University nor any employee
thereof shall in any way promote, or participate or be used or referred to in
connection with the promotion of the Sponsor or any of Sponsor's products,
securities, or marketing efforts, and that neither party shall use the existence
or terms of this Agreement, any results of the Sponsored Research, or the name
of the other party (or any employee or affiliate thereof) in any public
disclosure, advertising, news release, or other statement that is or may become
public or available to a third party, in each case except as and to the extent
(i) required by Laws (including Securities Laws), (ii) permitted by Section 10,
(iii) permitted
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<PAGE>
by Section 6, or (iv) with the prior written consent of, and only to the extent
approved by, the other party (which consent shall, in the case of the
University, be signed by the Dean of the Medical College and by University
counsel). Notwithstanding the above, once a particular disclosure has been
approved, either party may make disclosures which do not differ materially
therefrom without any further consents of the other party; provided, however,
that the disclosing party shall give prior notice of subsequent disclosures
which, in addition to the information contained in the earlier disclosure,
contains information subject to this Agreement which has not been previously
disclosed; and provided, further, that after approval of a disclosure has been
given, the approving party may at any time with written notice to the other
party withdraw its approval of a particular disclosure prior to its release,
which withdrawal shall be effective immediately. With respect to the
requirements of Securities Laws, counsel to the underwriters or placement agents
of Sponsor's securities may advise Sponsor that Sponsor may be required to
disclose material terms of this Agreement and the License Agreement. In such
event, Sponsor shall so notify the University within a reasonable time prior to
such disclosure, and the University shall have the opportunity to dissuade such
counsel of the need for such disclosure. With respect to any such prospective
disclosure, Sponsor shall use its reasonable efforts, unless the University
otherwise consents, not to use the name of the University, and to seek
"Confidential Treatment" under applicable Securities and Exchange Commission
rules and procedures with respect to any terms of this Agreement and the License
Agreement for which the University wishes to obtain confidential treatment.
Laboratory personnel, including Dr. Crystal, will not engage in solicitation of
the sale of securities of Sponsor, but may, to the extent that doing so does
not, in the University's judgment, unreasonably interfere with their work,
participate in connection with the due diligence investigations of potential
investors and underwriters of securities of Sponsor in describing the Gene
Therapy research and may, to the same extent, respond to questions from such
persons.
10. PUBLICATIONS
10.1 RIGHT TO PUBLISH; PROCEDURES
The University shall have the right, subject to compliance with the
provisions of this Agreement, at its discretion to release information or to
publish any material resulting from the Sponsored Research, and the Sponsor
agrees that the Principal Investigators and other researchers engaged in the
Sponsored Research shall be permitted to present at national, regional and other
professional meetings and symposia, and to publish in journals, theses or
dissertations, or other materials of their own choosing, the progress and
results of the Sponsored Research. The University agrees to furnish the Sponsor
with a copy of any proposed written publication at least * in advance of the
submission of such proposed publication or other written description of research
results to a journal, editor or other third party, in order for the Sponsor to
have an opportunity to begin to seek appropriate legal protection for the
subject matter contained in the proposed publication or description. If due to
a valid business reason or a reasonable belief by the non-disclosing Party that
a disclosure relating to the Sponsored Research contains subject matter for
which a patent should be sought, then prior to the expiration of the * the non-
disclosing party shall so notify the disclosing party, who shall then delay
public disclosure of the information for an additional period of up to * to
permit the preparation of filing of a patent application on the subject matter
to be disclosed or other action to be taken. The Sponsor shall cooperate with
the University and the Foundation, at their request, in the patenting process.
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<PAGE>
10.2 ACKNOWLEDGMENT OF THE SPONSOR
The Sponsor will be given full credit and acknowledgment for the
support provided to the University in any publication resulting from the
Sponsored Research, to the extent Sponsor consents to such credit or
acknowledgment, or such publication requires the same, or the University desires
to list Sponsor in any reports of University's sponsored research projects.
11. REPORTS AND CONFERENCES
11.1 PROGRESS AND FINAL REPORTS TO THE SPONSOR
The University shall furnish the Sponsor letter reports during the
term of this Agreement summarizing the work conducted with respect to the
Sponsored Research, no more frequently than once every four (4) months. A final
written report setting forth and detailing the accomplishments and significant
findings shall be submitted by the University within * of the termination of
this Agreement.
11.2 MEETINGS BETWEEN THE UNIVERSITY AND THE SPONSOR
During the term of this Agreement, representatives of the University
will meet with representatives of the Sponsor at times and places mutually
agreed upon to discuss the progress and results, as well as ongoing plans, or
changes therein, of the Sponsored Research to be performed hereunder. The
Sponsor shall reimburse the University for all reasonable out-of-pocket expenses
incurred by the University and University employees in connection with any such
meetings that are held at locations other than the Medical College.
12. CHANGES
Anything in this Agreement to the contrary notwithstanding, Sponsor
and the Medical College may at any time amend or extend the Sponsored Research
by mutual written agreement (which, in the case of the Medical College, shall be
signed by the Dean of the Medical College), and incorporate such amendment as an
attachment and exhibit to this Agreement. Such changes may include, but are not
limited to, (i) revising (including, without limitation, additions to or
deletions from) the work included in the Sponsored Research, (ii) revising the
period or schedule of performance under Section 4 or as set forth in Exhibit B,
or (iii) increasing or decreasing the Sponsor Payments. Upon any such change,
the parties shall immediately use their best efforts to take all necessary steps
to comply therewith.
13. SPONSOR MATERIALS
Upon the request of the Medical College, the Sponsor agrees to accept
the return of unused portions of any drugs, chemicals, and other materials
supplied by the Sponsor in connection with the Sponsored Research or Biological
Materials provided pursuant to the Material Transfer Agreement ("Sponsor
Materials"), including the containers in which the Sponsor Materials are
shipped, provided that the Sponsor Materials and containers are properly
labeled. The Sponsor agrees to furnish the
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<PAGE>
Medical College with sufficient information regarding all such Sponsor Materials
to permit reasonable interpretation of the results obtained in the Sponsored
Research and to identify precautions needed to help protect the health and
safety of personnel using the Sponsor Materials. The Sponsor agrees to indemnify
and defend the University (including, without limitation, the Medical College),
affiliated hospitals, clinics, and other institutions affiliated with the
Medical College, and the officers, trustees, agents, and employees of each of
them, and hold them harmless from any and all injury, illness, death, property
damage, claim, lawsuit, judgment thereon, or cause of action that results either
in whole or in part from the use of the Sponsor Materials (each a "Claim"), not
arising from the indemnified party's gross negligence or willful misconduct, if
such use was pursuant to Sponsor's directions or was reasonable under the
circumstances. The University shall promptly notify Sponsor of any such Claim
for which the University intends to claim indemnification, and cooperate fully
with Sponsor and its attorneys in the investigation, conduct, defense and
settlement of any such Claim.
14. INDEMNIFICATION
The Sponsor agrees to indemnify and defend the University (including
the Medical College), and affiliated hospitals, clinics, or other institutions
affiliated with the Medical College, and the officers, trustees, agents, and
employees of each of them, and hold them harmless from any and all costs,
expenses, and damages, not arising from the indemnified party's gross negligence
or willful misconduct, arising out of any injury, illness, death, property
damage, claim, lawsuit, judgment thereon, or cause of action (each, a "Claim")
to the extent that these result either in whole or in part from action or
inaction on the part of, or on behalf of, the Sponsor in connection with the
conduct of the Sponsored Research. The University shall promptly notify Sponsor
of any such Claim for which the University intends to claim indemnification, and
cooperate fully with Sponsor and its attorneys in the investigation, conduct,
defense and settlement of any such Claim.
15. INSURANCE
Within thirty (30) days after the date of this Agreement, the Sponsor
shall provide to the University evidence that the Sponsor has liability
insurance of at least five million dollars ($5,000,000). Such evidence shall be
in the form of a certificate of insurance or, in the case of self-insurance, a
letter accompanying the Sponsor's audited financial statements in which an
authorized official of the Sponsor certifies that the Sponsor has sufficient
assets to cover potential costs and losses that might arise in connection with
the Sponsor's obligations hereunder.
16. TITLE TO EQUIPMENT, RESEARCH DATA AND INTELLECTUAL PROPERTY RIGHTS
16.1 PROPERTY OF THE UNIVERSITY
Title to all (a) equipment, laboratory animals, and other materials
or property purchased or manufactured in the performance of the Sponsored
Research (collectively, "Research Equipment") funded under this Agreement and
research data (including, without limitation, data contained in any publication
made pursuant to Section 10 hereof and resulting from the Sponsored Research)
shall vest
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in the University and shall remain the property of the University in a
manner consistent with University Policies and customs with respect thereto, and
(b) any intellectual property first conceived or discovered in the performance
of the Sponsored Research shall vest in accordance with the then-prevailing
United States laws of inventorship. The Sponsor shall have the right to receive
and use, subject to the applicable terms of the License Agreement, breeding
pairs of animals and other biological materials developed in connection with the
Sponsored Research and copies of any research data relating to the Sponsored
Research on reasonable request and notice, and upon reimbursement by the Sponsor
of the University's reasonable costs incurred in connection with copying and
providing such research data, animals and other biological materials to the
Sponsor. Copyright to materials, including computer software, first created
during the performance of the Sponsored Research work funded under this
Agreement shall vest in accordance with the University's copyright policy, and
the Sponsor shall have no rights thereto, except to the extent provided in the
License Agreement.
16.2 GOVERNMENT RIGHTS
An agency of the U.S. Government may have certain rights in an
invention first conceived or discovered during the performance of the Sponsored
Research work funded under this Agreement. The University will use reasonable
efforts to perfect its ownership in any invention made with funds provided by
any government agency and to comply with applicable law in maintaining such
rights and to make available to the Sponsor any rights in such invention.
17. ACKNOWLEDGMENT AND UNDERTAKING RESPECTING DR. CRYSTAL
Sponsor hereby acknowledges that it has been informed of the terms
and conditions of the employment of Dr. Crystal at the Medical College, as set
forth in the Crystal Appointment Letter (including, without limitation,
paragraphs 1A-N and the other provisions of Appendix A thereto), and Sponsor
agrees that it will use reasonable care such that nothing requested by Sponsor
of Dr. Crystal will violate any of the duties or obligations of Dr. Crystal to
the University. Nothing in this Agreement or in the License Agreement, or in any
agreement, undertaking, or understanding to which the Sponsor is party, shall
impair the rights of the University or the Principal Investigators to determine
the nature of performance of Sponsored Research, or Dr. Crystal's other research
at the University, in a manner consistent with University Policies. The
University undertakes to notify Sponsor of any changes in the terms and
conditions of Dr. Crystal's employment material to Sponsor, in the University's
reasonable judgment.
18. ENFORCEMENT OF UNIVERSITY RULES AND THIS AGREEMENT
The University shall use its best efforts to enforce observance by
all University personnel engaged in the Sponsored Research with respect to
University Policies. The Sponsor shall cooperate with University in complying
with University Policies and applicable Laws. The University shall use
reasonable efforts to enforce observance, by all University personnel engaged in
the Sponsored Research, of this Agreement.
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19. OTHER PROVISIONS
19.1 CONTINUED APPLICABILITY OF CRYSTAL APPOINTMENT LETTER
Nothing in this Agreement shall be deemed to modify or supersede the
Crystal Appointment Letter (including, without limitation, paragraphs 1A-N and
the other provisions of Appendix A thereto) all of which the parties
acknowledge.
19.2 NO CONFLICTS
The Sponsor represents and covenants that there are no obligations,
undertakings, representations, warranties, covenants, conditions, rights,
recitals or other statements by or applicable to the University, Dr. Crystal, or
the Sponsored Research (collectively, "Terms") contained in any of its
arrangements, understandings or agreements with Dr. Crystal (collectively, the
"Other Arrangements") that Conflict with any Terms of this Agreement. For
purposes of this Agreement, the word "Conflict" shall include, without
limitation, any case in which (1) performance of a Term in one agreement would
result in a breach or violation of any present or future agreement or
obligation, written or oral, in connection with a Term in another agreement, and
(2) a Term in one agreement could not be carried out as a legal and/or practical
matter consistently with a Term of another agreement absent an amendment to,
waiver of, or potential liability under, such other agreement. The Sponsor
covenants and agrees that it will not knowingly cause or permit any Conflict to
exist between a Term of this Agreement, on the one hand, and a Term of any Other
Agreement, on the other hand, and that, insofar as any Conflict exists at any
time, the Sponsor will seek to cause such Conflicting Term in the Other
Agreement to be waived, amended or rendered null and void, to the extent
necessary to remedy the Conflict.
19.3 NO AGENCY
Neither party is authorized or empowered to act as an agent for the
other for any purpose. Neither party shall, on behalf of the other, enter into
any contract, warranty, or representation as to any matter. Neither party shall
be bound by the acts or conduct of the other.
19.4 FORCE MAJEURE
Neither the University nor the Sponsor shall be liable for any
failure to perform as required by this Agreement, to the extent such failure to
perform is caused by any reason beyond the control of the University or the
Sponsor, as applicable, or by reason of any of the following occurrences, labor
disturbances or labor disputes of any kind, accidents, failure of any
governmental approval required for full performance, civil disorders or
commotions, acts of aggression, floods, earthquakes, acts of God, energy or
other conservation measures, explosion, failure of utilities, mechanical
breakdowns, material shortages, disease or other such occurrences (collectively,
"Force Majeure Conditions"); provided, however, that nothing in this Section
19.4 shall excuse any delay or failure on the part of the Sponsor to make the
Sponsor Payments on a timely basis pursuant to the terms of this Agreement. In
the event of any delayed or excused performance pursuant to this Section 19.4,
the party or parties whose performance was delayed or excused shall use
reasonable efforts to perform as promptly and fully as
-11-
<PAGE>
practicable, and the parties shall take all other reasonable and cooperative
steps to effectuate the transactions contemplated by this Agreement. If one or
more Force Majeure Conditions cause the University to be unable to conduct
Sponsored Research for at least two consecutive weeks, the obligation of Sponsor
to make Sponsor Payments shall be diminished by * for each such week. In the
event that there are more than * weeks, either party may elect to terminate the
Agreement under the provisions of Section 8.1(iv), as if such circumstance were
a material breach thereunder and as if the University were the terminating party
thereunder.
19.5 ARBITRATION
Any dispute arising out of or relating to this Agreement or any
breach of this Agreement, including, without limitation, any disagreement by the
terminated party with respect to termination of this Agreement pursuant to
Sections 8.1(ii), (iii) or (iv) shall be submitted to and determined in binding
arbitration, which shall be conducted in accordance with the then-current rules
and procedures of the American Arbitration Association, subject to the
provisions of this Section 19.5. The arbitration shall be conducted before and
by a single neutral arbitrator with relevant expertise selected by the parties.
If the parties have not selected an arbitrator within * after delivery to the
other party of one party's written demand for arbitration, the arbitrator shall
be selected by the American Arbitration Association pursuant to then-current
rules of that Association. The arbitrator shall have authority to fashion such
just, equitable and legal relief as he, in his sole discretion, may determine,
including, without limitation, specific performance, injunctive or other
equitable relief. Each party shall bear all its own expenses of arbitration and
shall equally share the costs (i.e., arbitrators fees and administrative
charges) of conducting the arbitration. All arbitration proceedings shall be
conducted in New York, New York. The parties shall abide by the terms of any
arbitration award as final and binding under the prevailing rules of said
Association, and judgment upon the award may be had in any court having
jurisdiction. The duty to arbitrate shall survive the cancellation or
termination of this Agreement.
19.6 NOTICES
All notices, demands, requests or other communications which may be
or are required to be given, served, or sent by the University or the Sponsor
pursuant to this Agreement shall be in writing and shall be hand delivered
(including delivery by courier), sent by recognized overnight courier service,
mailed by first-class, registered or certified mail, return receipt requested,
postage prepaid, or transmitted by telegram, telex or facsimile transmission,
addressed as follows:
-12-
<PAGE>
(i) If to the University:
Senior Associate Dean for Research
and Sponsored Programs
Cornell University Medical College
Room A131
1300 York Avenue
New York, New York 10021
Telephone: (212) 746-6020
Facsimile: (212) 746-6938
With a copy (which shall not constitute notice) to:
Office of University Counsel
Cornell University Medical College
1300 York Avenue
New York, New York 10021
Telephone: (212) 746-0463
Facsimile: (212) 746-0495
(ii) If to the Sponsor:
President
GENVEC, INC.
12111 Parklawn Drive
Rockville, MD 20852
With a copy to: Vice President, Corporate Development
Telephone: (301) 816-0396
Facsimile: (301) 816-0085
Notwithstanding the foregoing, each party may designate by notice in writing a
new address or facsimile number to which any notice, demand, request, or
communication may thereafter be so given, served, or sent. Each notice, demand,
request, or communication which shall be delivered, sent, mailed, or transmitted
in the manner described above, shall be deemed sufficiently given, served, sent,
or received for all purposes at such time as it is delivered to the addressee
(with an affidavit of personal delivery, the return receipt, the delivery
receipt, or (with respect to a telex or facsimile) the answer back being deemed
conclusive but not exclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
-13-
<PAGE>
19.7 SURVIVAL
It is the express intention and agreement of the parties that all
covenants, agreements, statements, representations, warranties and indemnities
made in this Agreement shall survive the execution and delivery of this
Agreement.
19.8 WAIVER
Neither the waiver by either party of a breach of or a default under
any of the provisions of this Agreement, nor the failure of a party, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right, remedy, or privilege hereunder shall thereafter be construed
as a waiver of any subsequent breach or default of a similar nature, or as a
waiver of any such provisions, rights, remedies, or privileges hereunder.
19.9 EXERCISE OF RIGHTS
No failure or delay on the part of a party in exercising any right,
power, or privilege hereunder and no course of dealing between the parties shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power, or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The rights and
remedies herein expressly provided are cumulative and not exclusive of any other
rights or remedies which a party would otherwise have at law or in equity or
otherwise.
19.10 BINDING EFFECT
Subject to the provisions hereof restricting assignment, this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and permitted assigns.
19.11 ASSIGNMENT
This Agreement shall not be assigned by either party without the
prior written consent of the other party; provided, however, that the Sponsor
may assign this Agreement upon a merger or sale of all or substantially all of
the Sponsor's assets to the Sponsor's successor in business if such assignment
is approved by the University, such approval not to be unreasonably withheld.
Notwithstanding the foregoing, no assignment of this Agreement shall be valid
unless and until the Sponsor and the proposed assignee sign and deliver to the
University a written agreement, reasonably satisfactory to the University,
pursuant to which such assignee assumes and agrees to be fully responsible for
all obligations and liabilities of the Sponsor under this Agreement.
19.12 ENTIRE AGREEMENT
This Agreement and the License Agreement (including all exhibits and
appendices to each such agreement) and the Crystal Appointment Letter contain
the entire agreement between the parties with respect to the arrangements
contemplated hereby and thereby and supersede any and all prior
-14-
<PAGE>
understandings or agreements between the parties with respect to such
arrangements; provided, the terms of the Material Transfer Agreement shall not
be amended or effected in any way by the execution of this Agreement or the
License Agreement. No amendments or changes to this Agreement shall be effective
unless made in writing and signed by the Dean of the Medical College and
authorized representatives of the Sponsor. All correspondence regarding terms of
this Agreement shall be sent as specified in Section 19.6.
19.13 PRONOUNS
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular, or plural, as the identity of the
person or entity may require.
19.14 HEADINGS
Article and Section headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction of scope of any of the provisions hereof.
19.15 GOVERNING LAW
This Agreement, the rights and obligations of the parties hereto,
and any claims or disputes relating thereto, shall be governed by and construed
in accordance with the laws of the State of New York (but not including the
choice of law rules thereof).
19.16 NONDISCRIMINATION
The University and the Sponsor shall not discriminate against any
employee or applicant for employment because of race, religion, national origin,
sex, age, or physical limitation.
19.17 EXECUTION IN COUNTERPARTS
This Agreement may be executed in as many fully executed
counterparts as may be convenient.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties and persons named below have executed
this Agreement, or caused this Agreement to be executed on their behalf, as of
the date first set forth above.
GENVEC, INC. CORNELL UNIVERSITY, FOR ITS MEDICAL
COLLEGE
- -------------------------------- ------------------------------------
By: Paul Fischer, Ph.D. By:
President
Acknowledged and agreed as to roles
as Principal INVESTIGATORS:
- --------------------------------
Ronald G. Crystal, M.D.
Chairman of the Department of Medicine of the Medical College
- --------------------------------
By: Ralph L. Nachman, M.D.
-16-
<PAGE>
APPENDIX 1: DEFINITIONS
As used in this Agreement, the capitalized terms set forth below shall have
forth below shall have the meanings set forth below:
TERM DEFINITION
- ---- ----------
Biological Research Material: Shall mean any protein, gene, gene
vector, plasmid or other construct,
cell line, hybridoma, antibody or
other similar biological materials or
derivatives or analogs thereof,
created by employees of Cornell
University and arising out of the
Sponsored Research (except to the
extent such biological material is
subject to the Material Transfer
Agreement).
Chairman: The Chairman or acting Chairman of
the Department of Medicine of the
Medical College of the University
(currently Dr. Nachman).
Crystal Appointment Letter: The letter agreement dated December
30, 1992 between the University and
Dr. Crystal relating to the
appointment of Dr. Crystal to the
Medical College faculty and certain
other matters (including Appendix A
to such letter, but not including the
Memorandum setting forth material
terms as mutually proposed between
the Sponsor and the University with
respect to the proposed Sponsored
Research Agreement and Exclusive
License Agreement).
Dr. Crystal: Ronald G. Crystal, M.D., in his
capacity as a Professor of Medicine
at the Medical College, a paid
consultant and an equity holder of
the Sponsor and Chairman of the
Sponsor's Scientific Advisory Board.
For purposes of this Agreement, Dr.
Crystal shall be deemed to be an
employee of the University and shall
not be deemed to be an employee of
the Sponsor.
Dr. Nachman: Ralph L. Nachman, M.D., in his
current capacity as Chairman of the
Department of Medicine of the Medical
College.
Foundation: A wholly owned subsidiary of the
University, which (among other
things) holds ownership interests of
biological materials and patents
issued on inventions made by the
University's staff and administers
licenses in a manner consistent with
the University's Patent Policy.
Gene Therapy: The introduction of nucleic acid into
a person with the purpose of
modifying the functions or behaviors
of cells of the human body, either by
ex vivo introduction of nucleic acid
-------
into cells, which cells are later
introduced into such person's body,
or by in vivo introduction of nucleic
-------
acid into the person's body, to be
incorporated into cells of such
person (nucleic acid being any
<PAGE>
composition of matter that includes two
or more covalently joined nucleotides
and/or variants thereof, including,
without limitation, variants of the
phosphate, ribose sugar and/or
heterocyclic base portions thereof,
provided that such nucleotides and
variants comprise a substantial
component of such composition of
matter).
Laws: All applicable federal, state, local,
and foreign government laws, rules,
regulations, policies, and guidelines
(including, without limitation, those of
the U.S. Department of Health and Human
Services).
License Agreement: The certain Amended and Restated License
Agreement entered into as of March __,
1998 between the Foundation and the
Sponsor.
Material Transfer Agreement: The certain Material Transfer Agreement
entered into as of December 19, 1996
between the Medical Center and Sponsor.
Medical College: The Cornell University Medical
College.
Principal Investigators: Dr. Crystal and the Chairman,
jointly, in their capacity as joint
principal investigators with respect
to the Sponsored Research.
Securities Laws: Applicable federal and state
securities laws, rules, and
regulations.
Sponsor Materials: Any drugs, chemicals, and other
materials or compositions of matter
supplied by the Sponsor in
connection with the Sponsored
Research.
Sponsor: GenVec, Inc., and its successors and
permitted assigns pursuant to the
terms of this Agreement.
Sponsor Payments: The aggregate amount paid or to be paid
by the Sponsor in connection with the
Sponsored Research, in an amount not to
exceed Five Million Seven Hundred
Thousand dollars ($5,700,000.00)
(subject to adjustment as set forth in
the Agreement), payable over four years
from the date of this Agreement, as is
more fully set forth in Exhibit B
---------
hereto.
Sponsored Research: The Gene Therapy research funded, in
whole or in part, by the Sponsor, or as
to which the parties hereafter may agree
in writing as being included in the
definition of "Sponsored Research"
hereunder, to be conducted by the
University under the joint supervision
of Dr. Crystal and the Chairman (or
other University designee) in accordance
with Section 3, and the other terms of
this Agreement and with University
Policies (it being understood that the
Sponsor shall be promptly notified of
any change in University policies that
will alter the Sponsored Research).
-2-
<PAGE>
Sponsored Research Intellectual Individually and collectively, all
Property Rights: patent applications, patents, and
patentable discoveries and inventions
arising, in whole or in part, out of the
Sponsored Research that are first
conceived or discovered and/or reduced
to practice (i) by one or more employees
of the University, or (ii) jointly by
one or more employees of the University
and by one or more employees of the
Sponsor, or (iii) by one or more
inventors not employed in Dr. Crystal's
laboratory (if funds from Sponsor
Payments have been directly utilized to
make such invention), and all Biological
Research Materials and Technical
Information. The parties expect that due
to the level of Sponsor Payments
provided by the Sponsor all Gene Therapy
inventions first conceived or discovered
and/or reduced to practice in Dr.
Crystal's laboratory will fall within
the definition of "Sponsored Research
Intellectual Property Rights." Neither
this definition, nor any other provision
of this Agreement or the License
Agreement, shall give the Sponsor any
rights in any patent application,
patent, patentable discovery or
invention first conceived or discovered
and/or reduced to practice except as
described above, or directly or
indirectly related to or arising out of
Dr. Crystal's duties and
responsibilities for Medical College
programs outside Dr. Crystal's
laboratory including the CUMC gene
therapy core (provided no Sponsor
Payments are used in connection with
such activities); provided, however,
that the foregoing shall not affect the
Sponsor's right, pursuant to Article II
of the License Agreement, to have an
opportunity to negotiate with a third-
party joint inventor who is a University
employee without prior Sponsor
obligations.
Technical Information: Has the meaning given such term in
the License Agreement.
University: Cornell University, a not-for-profit
educational institution having corporate
powers under the laws of the State of
New York.
University Policies: University policies, as in effect and as
they may be modified from time to time,
including (without limitation) the
specific requirements and conditions
contained in the Crystal Appointment
Letter and Appendix A thereto,
appointment and promotion policies, the
Faculty Practice Plan Policies and
Administrative Procedures, and
University patent, conflict, consulting,
and other policies.
-3-
<PAGE>
EXHIBIT B: PAYMENT SCHEDULE AND PRELIMINARY BUDGET
PAYMENT SCHEDULE
The Sponsor Payments to be made pursuant to Section 5 of the Prior Sponsored
Research Agreement and Section 5 of this Sponsored Research Agreement shall be
payable as follows/1/:
PAYMENT AMOUNT DUE DATE
------------------ --------------
*
PRELIMINARY BUDGET
The parties currently expect that the University will use the Sponsor Payments
to support certain aspects of the Sponsored Research, as set forth below. The
parties acknowledge and agree, however, that the specified amounts and
categories are preliminary estimates only and that the timing and amounts of the
University's actual expenditures may differ from this preliminary budget.
Notwithstanding the foregoing, however, the Sponsor shall not be required to
make Sponsor Payments other than as set forth in Section 5 of the Sponsored
Research Agreement and this Exhibit B. The following amounts are in thousands:
5-YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 TOTAL
-------- -------- -------- -------- -------- --------
Direct Costs/2/ * * * * * *
Equipment * * * * * *
Space Rental/3,3/ * * * * * *
Indirect Costs/4/ * * * * * *
Total/3/ * * * * * *
/1/ It is understood and agreed that all payments due Cornell under
the Prior Sponsored Research Agreement prior to the Effective Date of this
Agreement (i.e., all payments due in the period June 1, 1993 - February 1, 1998)
have been paid in full prior to the Effective Date of this Agreement.
/2/ Includes reimbursement of a portion of the cost of *
/3/ Calculated on the basis of *
/4/ It is understood and agreed that all payments due to Cornell under
the Prior Sponsored Research Agreement prior to the Effective Date of this
Agreement (i.e., all payments due for years 1-5, which represent the period June
1, 1993 - February 1, 1998) have been paid in full prior to the Effective Date
of this Agreement. Any unexpended amounts of such funding shall be carried over
and used under this Agreement.
<PAGE>
4-YEAR
EXTENSION
YEAR 6 YEAR 7 YEAR 8 YEAR 9 TOTAL
-------- -------- -------- -------- ---------
Direct Costs/
Equipment/5/ * * * * *
Space Rental/
Indirect Costs/4/ * * * * *
Total/3/ * * * * *
- ---------------------
/5/ Space Rental/Indirect Costs will not be adjusted, either upward or
downward, as a result of any change in anticipated mix of direct costs/equipment
expenditures.
-2-
<PAGE>
EXHIBIT C: MATERIAL TRANSFER AGREEMENT
ID# 000007
MATERIAL TRANSFER AGREEMENT
This MATERIAL TRANSFER AGREEMENT (the "Agreement"), made effective as of
December 19, 1996 (the "Effective Date,"), is entered into by and between
GenVec. Inc., having a place of business at 12111 Parklawn Drive, Rockville,
Maryland 20852 ("GenVec") and the Cornell University Medical College, having, a
place of business at 1300 York Avenue, New York, New York 10021 ("Recipient").
WHEREAS, GenVec and Cornell University have previously entered into that
certain Sponsored Research Agreement effective as of May 18, 1993 (the
"Sponsored Research Agreement"), in connection with Gene Therapy (as defined
therein), pursuant to which GenVec may supply proprietary biological materials
to Cornell University for use in such sponsored research; and
WHEREAS, Cornell University has requested that GenVec supply proprietary
biological materials, and GenVec is willing to provide Cornell University with
biological materials proprietary to GenVec in order to conduct research related
to Gene Therapy (the "Field'), subject to the terms and conditions set forth
below.
1. Material; Research. In consideration of the services provided by Recipient
------------------
and the rights obtained by GenVec under this Agreement, GenVec agrees to
provide Recipient with mutually agreed quantities of the biological
materials specified on Exhibit A and biological materials the properties
thereof as the parties agree to in the future or as have been previously
agreed to (the 'Material") as are reasonably available for the sole purpose
of allowing Recipient to undertake the Sponsored Research, as defined in
the Sponsored Research Agreement (the " Sponsored Research") in the
laboratories and under the supervision of Dr. Ronald G. Crystal
("Scientist"), who is each employed by Recipient. The Materials shall not
be renamed (Materials which are distinct from the original, starting
material may be named with a name that contains the name of the starting
material).
2. Title to Materials. Company shall retain all title and interest in and to
------------------
the Materials. The Investigator shall not imply or represent to any person
that he/she is the owner of the Materials.
3. Other Limitations. Recipient and Scientist agree to: (i) use prudence and
-----------------
reasonable care in the use, handling, storage, transportation, disposition,
and containment of Material, due to its experimental nature and unknown
characteristics; (ii) not administer or use Material in humans or in
contact with any cells or other material to be infused into humans under
<PAGE>
ID# 000007
any circumstance; (iii) refrain from using Material for any commercial
purpose outside of its relationship with GenVec, including, without
limitation. contract research, compound library screening, production of
manufacture of products for sale, or conduct research activities that may
result in the sale, lease. license, or transfer of Material to any entity
other than GenVec; and (iv) refrain from using Material in any research
other than the Sponsored Research without first obtaining GenVec's written
consent.
4. Control of Material. Recipient and Scientist agree to retain control over
-------------------
Material and not to transfer Material to any third person or entity without
first obtaining GenVec's written consent. GenVec, reserves the right to
distribute Material to others and use Material without restriction for its
own purposes.
5. No Warranty. Material is being made available in order to further research
-----------
and understanding with respect thereto. Accordingly, MATERIAL IS BEING
SUPPLIED "AS IS" WITH NO WARRANTIES EXPRESS OR IMPLIED, AND GENVEC
EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. Further, GenVec makes no representation that the use
of Material will not infringe the proprietary rights of any third party.
6. Confidentiality. All oral or written Communications received by Recipient
---------------
and/or Scientist relating to Material are, and shall remain, proprietary
and confidential to GenVec, Provided that any oral disclosure is confirmed
by a written summary thereof sent to Recipient within fifteen (15) days of
such oral disclosure. Recipient and Scientist agree to hold all such
information in confidence and not to disclose such information to any third
party or use it for any purpose other thin to conduct the Sponsored
Research, except that Recipient and Scientist shall not be required to
maintain the confidentiality of information that (i) is already known to
Recipient or Scientist at the time of its disclosure by GenVec, as
evidenced by written records of Recipient or Scientist, (ii) has become
publicly known and generally available through no wrongful act of Recipient
or Scientist, or (iii) has been received by Recipient or Scientist from a
third party authorized to make such disclosure, as evidenced by written
records of Recipient or Scientist.
7. Reports. The Recipient agrees to provide periodic reports and meet with
-------
GenVec representatives as specified in paragraphs 11.1 and 11.2 of the
Sponsored Research Agreement. The periodic and final reports, and the
underlying data, results, observations. and conclusions obtained or made as
a result of Recipients and scientists use of Material (individually or
collectively, the "Results"), shall be the property of GenVec, and each
report shall be sent to Dr. Paul Fischer, President and CEO of GenVec, or
in alternate GenVec designee. In addition, Recipient shall notify GenVec
promptly, but in no event take more than 30 days, of any invention.
discovery, idea or concept, patentable or otherwise, conceived, reduced to
practice, or otherwise developed, alone or jointly, during
-2-
<PAGE>
ID# 000007
the Sponsored Research and for a period of one (1) year thereafter that
incorporates or requires use of Material or that could not have been
conceived, reduced to practice, or otherwise developed without access to or
through the use or study of Material or conduct of the Sponsored Research
(each a "Development'). Notwithstanding the above, nothing in this section
shall be inconsistent with the Sponsored Research Agreement.
8. Publications. GenVec recognize that Recipient and Scientist may wish to
------------
publish scientific articles, abstracts. or posters, or make oral
presentations relating to the Sponsored Research, and Recipient and
Scientist recognize that publication or other public disclosure of the
Results can jeopardize proprietary rights. including patent rights,
relating thereto. Therefore, Recipient agrees to provide GenVec with an
advance copy of any proposed publication, oral presentation, poster or
other disclosure intending to disseminate any or all of the Results at
least twenty (20) days prior to submission for publication, presentation,
or other disclosure. At GenVec's request, Recipient agrees to delete
confidential information of GenVec, and, if requested by GenVec within such
twenty (20) day period, to delay submission for publication, presentation,
or other disclosure for up to an additional ten days (10) to permit the
filing of one or more patent applications in respect of Developments. In
accordance with scientific custom, the contribution of GenVec will be
expressly noted in all written or oral public disclosures made by Recipient
or Scientist which relate to the Sponsored Research or Results, by
acknowledgment or co-authorship, as appropriate.
9. Ownership: Patent Prosecution. Recipient and Scientist hereby grant GenVec
-----------------------------
an exclusive, worldwide license, with the right to grant and authorize
sublicenses, under all Development and related intellectual property. No
additional compensation for such license shall be due Recipient other than
amounts, if any, that may be due under the Sponsored Research Agreement,
the Exclusive License Agreement between the Recipient and GenVec executed
May 18, 1993 and the Exclusive License Agreement between the Recipient and
GenVec executed July 10, 1995. Title to any intellectual property will be
as specified in Provision 16-1(b) of the Sponsored Research Agreement.
Patent counsel shall be acceptable to GenVec.
10. Term: Termination. The term of this Agreement shall be the same as the
-----------------
Sponsored Research Agreement, unless modified by mutual written agreement,
except that either party can terminate this Agreement upon breach by the
other party. Within ten (10) days following completion of the Sponsored
Research or termination, all unused Materials shall, at GenVec's sole
option, be (i) returned to GenVec, or (ii) destroyed with written
certification of such destruction provided to GenVec. Any right or
obligation which accrues hereunder prior to the effective date of
expiration or termination shall survive such expiration or termination, as
will Sections 4-10, and 1 4.
-3-
<PAGE>
ID# 000007
11. Notice. Any notice to be given pursuant to this Agreement shall be made
------
and deemed effective as provided for in paragraph 19.6 of the Sponsored
Research Agreement. In addition. for notice to GenVec, Recipient agrees
to use the address first listed above in this Agreement, or such other
address as may be designated in writing by GenVec, and also provide a copy
to Vice President, Corporate Development.
12. Relationship. The relationship created by this Agreement between GenVec
------------
and Recipient shall be that of independent contractors without the
authority given to either party to bind of act as agent for the other or
its employees for any purpose.
13. Publicity. Neither party shall use the name of the other in any public
---------
announcement, publicity, or advertising with respect to the subject matter
of this Agreement, except as provided in Section 7. without the prior
written approval of the other party, unless reasonably necessary to comply
with applicable government law or regulation. Any publicity shall not be
inconsistent with Section 9 of the Sponsored Research Agreement.
14. Warranties. GenVec and Recipient each warrant and represent that it has
----------
the right to enter into this Agreement and that the terms of this Agreement
are not inconsistent with other contractual obligations, express or
implied, which it now has or will have during the term of this Agreement.
Recipient further warrants and represents that it and Scientist will comply
with all applicable government laws, regulations, and rules. including
guidelines for work with recombinant UNA. and that Material will be used
solely for in vitro research investigations or administration to laboratory
animals.
15. No Implied Licenses. Except as expressly provided herein, GenVec does
-------------------
not, by implication or otherwise, grant to Recipient any license or other
right with respect to Material, Developments, Results, or any intellectual
property relating to any of the foregoing.
16. Assignment. Recipient may not assign its interest in this Agreement
----------
without the prior written consent of GenVec. GenVec may assign its
interest in this Agreement and its rights hereunder.
17. Governing Law. This Agreement is to be governed by and interpreted in
-------------
accordance with the laws of the state of New York (but not including the
choice of law rules thereof).
18. Understanding. This Agreement and Exhibits A set forth the entire
-------------
agreement between the parties with respect to the subject matter contained
herein and supersedes any previous understandings, commitments, or
agreements, whether oral or written, with respect to this subject matter.
The parties may, from time to time during the term of this Agreement,
modify of amend any of the provisions hereof only by an instrument duly
executed by both of the parties.
-4-
<PAGE>
ID# 000007
IN WITNESS WHEREOF, duly authorized representatives of GenVec and Recipient
have executed duplicate originals of this Agreement, and each original, alone or
in combination with the other, shall constitute one and the same instrument.
GENVEC, INC. Cornell University Medical College
By: By:
------------------------------ --------------------------------
Name (print): Name (print):
-------------------- ----------------------
Title: Title:
--------------------------- -----------------------------
Date: Date:
---------------------------- ------------------------------
Acknowledgment by Scientist:
-----------------------------------
By:
--------------------------------
Date:
------------------------------
-5-
<PAGE>
ID# 000007
EXHIBIT A
---------
MATERIAL
For purposes of this Agreement, "Material' shall mean:
*
d. biological materials the parties agree to in the future;
e. any derivative, progeny, modification, or improvement of any of the
biological materials listed in parts (a) through (d) above conceived,
reduced to practice, or otherwise developed by or on behalf of
Recipient;
f. any mixture or combination of (a) through (e) above and other
substances.
g. any improvement of the biological materials listed in parts (a)
through (e) above conceived, reduced to practice, or otherwise
developed by or on behalf of Recipient which is not within the scope
of part (f) above; and
h. any other substance conceived, reduced to practice, or otherwise
developed by or on behalf of Recipient through use of any of the
foregoing.
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<PAGE>
PERSONAL & CONFIDENTIAL
-----------------------
December 30, 1992
Ronald G. Crystal, M.D.
13712 Cana Vista Court
Potomac, Maryland 20854
Dear Ron:
In accordance with our conversations, and upon your acceptance of the terms
and conditions contained herein, I am please to recommend to the Dean of Cornell
University Medical College ("CUMC") that you be appointed a full-time Professor
of Medicine with tenure and the Bruce Webster Professor of Medicine at Cornell,
and I will recommend to the President of the New York Hospital that you be
appointed an Attending Physician there. I am also delighted to recommend that
you be appointed to the administrative position of Chief of the Division of
Pulmonary and Critical Care Medicine (the "Division") in the Department of
Medicine at The New York Hospital-Cornell Medical Center ("NYH-CMC").
Your base salary for the first academic year will be and
your supplemental compensation will be for a total
compensation of . Your base salary will be paid by funds
outside the Division; however, it is expected that your supplemental
compensation will be derived from funds generated by the Division. Any grant
funds generated for your salary will be used to offset the departmental
commitment for your base salary.
Because you will provide clinical care services to patients, you are
required to participate in the CUMC Faculty Practice Plan. A copy of the
Faculty Practice Plan Policy and Administrative Procedures is available through
the FPP Office. I recommend that you read this document and have any questions
answered. Because you will have a guaranteed salary, Faculty Practice Plan
policies have been modified with respect to you so that clinical income
generated as a result of service provided by you will not be available to you
should your employment terminate.
You will be entitled to the fringe benefits generally applicable to the
faculty. Should you have specific questions regarding health or life insurance
coverage, pension plans, flexible benefits, or other benefits, the Benefits
Office at Cornell University can provide you with additional information.
The Department of Medicine (the "Department") will also provide an
additional compensation payment in an amount equal to the
bonus you must return to the Federal Government as a result of your departure.
This amount will be provided to you in the manner and time frame required by the
Public Health Service.
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The Department will also provide a one-time payment of for
expenses related to the creation of a household in New York.
Approximately 4000 square feet of research and office space initially will
be provided to you at MYH-CMC. This research suite will be renovated and
equipment will be supplied per your specifications, and it is expected that the
costs of these renovations and equipment will be funded, in part, by GenVec,
Inc. Within approximately two years of your employment at CUMC, an additional
2000 square feet of research space will be made available at MYH-CMC. Further,
approximately 4500 square feet will be provided for clinical administrative
activities. Additional research space and approximately six clinical beds may
be provided at Rockefeller, which would be arranged by Dr. Jules Hirsch. Should
these beds and/or research space become unavailable at Rockefeller University, I
will attempt to replace them at Cornell. Space allocations may be reviewed in
the future, depending on available funding and your and CUMC's needs.
Financial support of up to $3,000,000 (in aggregate) will be provided to
the Division for a total of up to three years for the direct costs of junior
faculty, salaries, supplies, technical support, and the renovation and equipment
described in the previous paragraph. After that time, it is expected that the
Division will be self-supporting.
Compliance with the CUMC appointment and promotion policies, the Faculty
Practice Plan Policies and Administrative Procedures, and Cornell University
patent, conflict, consulting, and other policies (including, without limitation,
the specific requirements and conditions, attached hereto as Appendix A,
relating to your arrangements with GenVec, Inc. in the event that CUMC and
GenVec, Inc. have entered into a sponsored research agreement), as these
policies and procedures are in effect and as they may be modified from time to
time (collectively, "University Policies"), is a condition of employment.
Your major responsibilities will be those associated with the customary
functions and duties as Chief of the Division of Pulmonary and Critical Care
Medicine. As part of those responsibilities, you will undertake, to expand the
Division's clinical services, revitalize and develop the fellowship program,
provide significant involvement of the Division in medical student and residency
training, and develop the research capabilities of the Division.
Although it is anticipated that you may, from time to time, engage in
outside activities related to your research, you have acknowledged that (1) you
are a full-time employee of CUMC, and CUMC is your primary employer, and (2)
University, local, state and federal laws, rules, policies, guidelines, and
regulations which relate directly or indirectly to agreements of this type
supersede this arrangement. In making this offer, Cornell acknowledges that it
anticipates that you will be an equity holder, and a paid consultant (as
chairman of the Scientific Advisory Board) of GenVec, Inc., all subject to the
restrictions and conditions set forth in University Policies.
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If you find this arrangement acceptable, please indicate your agreement
either by return letter or by signing the enclosed copy of this letter and
returning it to me. I will then begin the process of collecting and submitting
your appointment papers for University approval.
I look forward to having you join us at Cornell.
Sincerely,
Ralph L. Nachman, M.D.
(Appendix A attached)
Approved:
AGREED:
- --------------------------------
Robert Michels, M.D.
Dean, Cornell University Medical College ------------------------------
Ronald G. Crystal, M.D.
Approved:
------------------------------
Date
- --------------------------------
Davie B. Skinner, M.D.
President, The New York Hospital
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<PAGE>
APPENDIX A TO DECEMBER 30, 1992 LETTER
FROM DR. RALPH L. NACHMAN TO DR. RONALD G. CRYSTAL
Set forth below are certain requirements and conditions with respect to the
proposed relationships among Cornell University for its Medical College
("CUMC"), and Dr. Ronald G. Crystal ("Dr. Crystal"), and GenVec, Inc.
("GenVec"). As used herein, "GenVec" shall include GenVec and its affiliates,
successors, and assigns.
1. General
-------
A. There shall be no financial payments, commitments, arrangements or
understandings between GenVec and Dr. Crystal or his family (including
his spouse, parents, siblings, children, and any other blood relative if
the latter resides in the same household with Dr. Crystal)
(collectively, his "Family", and neither Dr. Crystal nor his Family
shall have any debt or equity holdings in or with respect to GenVec
expect to the extent specifically permitted by this Appendix A.
B. An Oversight Committee shall be established by the Dean of CUMC, and
this Committee shall be empowered to undertake the responsibilities, and
shall have the full authority, described in Section II below.
C. By accepting employment with CUMC, Dr. Crystal acknowledges that he is a
full-time employee of CUMC, that CUMC is his primary employer, and that
his relationship with GenVec is superseded by the terms and conditions
of his offer of employment from CUMC and all CUMC appointment and
promotion policies, the Faculty Practice Plan policies and
administrative procedures, and Cornell University patent, conflict,
consulting, and other policies (including, without limitations, the
specific requirements and conditions set forth in this Appendix A), as
these policies and procedures are in effect and as they may be modified
from time to time (collectively, "University Policies").
D. By accepting employment with CUMC, Dr. Crystal represents that his
proposed arrangement with GenVec is consistent with the Department of
Health and Human Services and any other pertinent federal, state, and
local government (collectively herein "HHS"), laws, rules, regulations,
policies, and guidelines (collectively, "Laws"). Dr. Crystal (and, as it
deems appropriate, CUMC) will notify HHS of the full extent of the
arrangements, including any patent applications, and Dr. Crystal shall
advise CUMC of any HHS questions, concerns, or objections (collectively,
"Questions") to the arrangements as soon as Dr. Crystal learns of any
such Questions. CUMC may attempt to obtain from HHS acknowledgment that
the arrangements are acceptable and, if Questions are raised, CUMC may
amend the arrangements as they apply to Dr. Crystal and his
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relationship with GenVec. By accepting employment with CUMC, Dr. Crystal
agrees that the terms and conditions set forth in this Appendix A may be
amended to the extent CUMC reasonably determines to be necessary or
appropriate to respond to HHS Questions or otherwise to comply with
applicable Laws.
E. Candidates for Ph.D. or Masters degrees shall not be assigned to GenVec-
sponsored research.
F. Dr. Crystal will promptly provide the Chairman of the Department of
Medicine and the Oversight Committee with full written disclosure
(including, without limitation, copies of any relevant agreements) of
each of his and his family's financial and other ties to and
arrangements with GenVec, whether direct or indirect (e.g., through
employment in companies that provide services to GenVec).
G. Dr. Crystal will abide by any changes in federal and state government
conflict of interest and other Laws. GenVec shall enter into an
agreement with CUMC reasonably satisfactory to CUMC to provide to
safeguards for CUMC (through "bailout" procedures) so that, if
applicable Laws, in the judgment of CUMC, warrant changes in the
arrangements with Dr. Crystal, CUMC will not be responsible for
administrative expenses and financial losses.
H. GenVec will be obligated under a sponsored research agreement reasonably
acceptable to CUMC to provide CUMC (for use with respect to Dr.
Crystal's research) with $9 million over five years. The agreement
between CUMC and GenVec will provide for a review by CUMC not later than
two years from the first date of Dr. Crystal's employment with CUMC
pursuant to which CUMC may determine, in its discretion, whether to
terminate the agreement before the end of the five-year term.
I. The nature of the arrangement between Dr. Crystal and GenVec will be
disclosed to all members of the CUMC Division of Pulmonary and Critical
Care Medicine (the "Division"), and all research in the Division will be
conducted in openness, subject to the review of the Oversight Committee.
J. Dr. Crystal's equity holdings shall be no greater than 5% of GenVec
equity (determined on a fully diluted basis). His consultant commitment
shall be no greater than the equivalent of one day per week and his
consultant remuneration shall be no greater than $100,000 per annum.
K. By accepting employment with CUMC, Dr. Crystal agrees that, if Laws or
University Policies change in such a way that, as determined by CUMC in
its
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reasonable discretion, these arrangements are no longer permissible
or advisable (in whole or in part), Dr. Crystal shall modify his
arrangements, in a manner reasonably acceptable to CUMC, in order to be
in full compliance therewith.
L. Dr. Crystal's equity in GenVec (and any equity held by or for the
benefit of his Family) will be held in a trust outside of his control
(in form agreeable to CUMC), and the equity can be transferred
(including, without limitation, sold, given away, or pledged) only after
one of the following trigger events: at any time after final FDA
approval of the first product resulting from GenVec-sponsored research
at Cornell; withdrawal of any IND and cessation of clinical research;
upon the sale of GenVec in its entirety to an established publicly-
traded corporation; if required by any HHS or other Laws; or one year
after the termination of GenVec-sponsored research at Cornell.
M. Dr. Crystal will only be permitted to do initial clinical research
feasibility or Phase I studies relating to his GenVec-sponsored or
related research. Phase II and III clinical trials for FDA approval must
be done entirely by independent investigators.
N. Dr. Crystal's supervisor, the Chairman of the Department of Medicine,
shall be a co-principal investigator on all research proposals to
GenVec.
II. Oversight Committee. The recommendations made from time to time by an
-------------------
Oversight Committee if and to the extent that such recommendations are
adopted by the Dean of CUMC shall be conditions of Dr. Crystal's employment
at CUMC.
A. The Oversight Committee shall consist of three or more members. All of
the initially appointed members shall have been appointed by the Dean of
CUMC (and shall have accepted such appointment) prior to final approval
by CUMC of the arrangements among CUMC, GenVec, and Dr. Crystal. A
senior faculty member from another Department at CUMC shall serve as
chair of the Oversight Committee. The remaining Oversight Committee
members shall include one internationally recognized senior scientist
from another institution and a second individual who is scientifically
expert in the subject of gene therapy.
B. The Chairman of the Department of Medicine will meet with the Oversight
Committee and report to it with respect to the operations of the
Division.
C. The Committee shall have full access to outside legal counsel to be used
as deemed necessary by the Committee. The existence and availability of
said outside counsel shall be made known, to all members of the
Division.
D. Members of the Oversight Committee shall serve in office for so long as
the Dean
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of CUMC may from time to time determine.
E. The Oversight Committee shall meet at least three times a year to review
all activities in the Division. The minutes of each meeting shall be
submitted to the Dean of CUMC.
F. Dr. Crystal shall prepare annual research plans and budget
justifications for the GenVec-sponsored research. These proposals shall
be reviewed and approved by the Oversight Committee before CUMC may
release GenVec research funds to Dr. Crystal.
G. Dr. Crystal shall prepare progress reports not less frequently than
every six months on the GenVec-funded research. These progress reports
shall include complete and accurate descriptions of all such research
and all doctoral scientists working on the project. The progress reports
are to be reviewed by the Oversight Committee.
H. The Oversight Committee's functions will include:
1. Vigilance over the research operation covered by any research and
licensing agreements with GenVec including, but not limited to:
(a) Review of research proposals and grants;
(b) Review of conduct and performance of research in progress;
and
(c) Review of publication patterns.
2. Promoting and evaluating appropriate disclosure in all publications
and funding applications.
3. Evaluating periodic reports by the investigator.
4. Reviewing the need for continued involvement in the sponsored
research.
5. Maintaining distinction in the laboratory between GenVec-sponsored
and other research, and monitoring student and post-doctoral
associate assignments.
6. Monitoring compliance with CUMC academic freedom, publication, and
confidentiality policies with regard to information made available to
GenVec.
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J. The Oversight Committee shall be responsible for making recommendations
to the Dean of CUMC to protect CUMC's interests in all dealings between
or among Dr. Crystal, GenVec, and any potentially relevant third
parties.
K. The Oversight Committee may make such other recommendations to the Dean
of CUMC with respect to matters related to its areas of involvement as
are in its discretion appropriate.
L. In the exercise of its functions and responsibilities, the Oversight
Committee will use reasonable efforts, based on information then
available to it. Dr. Crystal shall be primarily responsible (acting in
consultation with the Chairman of the Department of Medicine) for
supplying information necessary to enable the Oversight Committee to
fulfill its functions and responsibilities as described in this
Appendix A.
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<PAGE>
MEMORANDUM
----------
The purpose of this Memorandum is to set forth material terms as mutually
proposed between GenVec, Inc. (the "Sponsor") and Cornell Research Foundation,
Inc./Cornell University for its Medical College (the "University") with respect
to the proposed Sponsored Research Agreement and accompanying Exclusive License
Agreement respecting activities relating to Gene Therapy to be conducted in the
University laboratory of Dr. Ronald G. Crystal ("Dr. Crystal").
A. SPONSORED RESEARCH AGREEMENT:
----------------------------
1. Amount and Payment Schedule - $9,000,000 payable as set forth in the
---------------------------
budget attached hereto as Schedule A.
2. Scope of Research - Research in connection with gene therapy ("Gene
-----------------
Therapy"), which is the transfer of nucleic acid to cells of the body, either in
--
vivo or ex vivo, with the purpose of modifying the functions or behavior of
- ---- -------
those cells. (Nuclear acid is any composition of matter that includes two or
more ribonuclectides and/or decxyribonucleotides.)
3. Term - Five (5) years, unless earlier terminated in the event of the
----
death, disability or termination of the appointment of Dr. Crystal or
termination for cause as set forth in Section 15, below. In the event of any
termination hereunder, (i) the non-cancelable obligations of the University will
be honored by Sponsor; and (ii) Sponsor shall retain any property or
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exclusive license rights with respect to inventions duly disclosed prior to
termination in accordance with University's prevailing policies, which include
timely submission of Record of Invention forms.
4. Scope of Research Support - Sponsor's funds will be used over the life
-------------------------
of the Agreement for the rental of space for Dr. Crystal's lab, the bulk of the
equipment in Dr. Crystal's lab, a portion of Dr. Crystal's salary, and general
research support for pre-clinical feasibility projects and clinical evaluation
of Gene Therapy technology (excluding Phase II and Phase III studies), including
support of other members of Dr. Crystal's laboratory, all of whom will be
employees of the University.
5. Principal Investigator - The Principal Investigators ("PI") will be
----------------------
Dr. Crystal and the chairman of the Department of Medicine, who will jointly
supervise the project. It is acknowledged that Dr. Crystal will be an equity
holder and paid consultant of Sponsor and Chairman of its Scientific Advisory
Board. Initial human feasibility trials will take place at the University,
under the direction of PI, but Phase II and Phase III trials are expected to
take place at independent sites under the supervision of independent
investigators.
6. Inventions and Patents - Inventions and discoveries made during the
----------------------
course of the Sponsored Research and within its scope will be owned by the
University, subject to an exclusive license to Sponsor, and Sponsor and the
University shall jointly be involved with prosecuting all
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patents with respect to technology arising out of the Sponsored Research on a
basis which is mutually agreeable. Disclosure of inventions shall simultaneously
be made by the PI to the University and Sponsor.
7. Publications - PI and others involved in the Sponsored Research shall
------------
be free to publish papers describing developments arising out of the Sponsored
Research. Sponsor shall have the ability to review any publications prior to
submission in order to begin the patenting process if Sponsor deems it
appropriate. Sponsor will participate in the patenting process in a timely
fashion so as not to delay the publication unreasonably.
8. Proprietary Data and Materials Provided by Sponsor - The PI may accept
--------------------------------------------------
from time to time proprietary data or biological materials from Sponsor for use
in the Sponsored Research, subject to prevailing University policies and
practices. Such proprietary data will be marked or designated in writing as
confidential property of Sponsor and the University will use its best efforts to
hold such data confidential.
9. Use of Name - Neither party will use the other's name without written
-----------
consent, which will not unreasonably be withheld, except as required by law,
including securities laws, rules and regulations. With respect to the latter,
Sponsor may be required to disclose material terms of the Agreement, but will
use reasonable efforts, unless the University otherwise consents, not to use the
name of University.
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10. No Solicitation Activities - Laboratory personnel, including Dr.
--------------------------
Crystal, will not engage in solicitation of the sale of securities of Sponsor,
but may participate in connection with the due diligence with potential
investors and underwriters in describing the Gene Therapy research and
responding to questions.
11. Title to Equipment and Data - Title to Equipment and research data
---------------------------
shall belong to the University, in a manner consistent with University policies
and customs with respect thereto. Provided, however, that Sponsor shall have
the right to receive copies of any related research data on reasonable request.
12. Use of Drugs/Chemicals - Sponsor will accept back any unused portions
----------------------
of drugs/chemicals supplied by Sponsor and Sponsor will indemnify the University
with respect to damage caused by sue of such drugs/chemicals pursuant to
Sponsor's direction. In addition, on request of the PI, Sponsor shall furnish
sufficient information for each drug/chemical supplied by Sponsor, to the extent
known, to permit reasonable interpretation of the results obtained in the
Sponsored Research.
13. Acknowledgment and Undertaking by Sponsor Respecting Dr. Crystal -
----------------------------------------------------------------
Sponsor will acknowledge that it has been informed of the terms and conditions
of the employment of Dr. Crystal at the University and Sponsor agrees that it
will use reasonable care such that nothing requested by Sponsor of Dr. Crystal
will violate any of the duties or obligations of Dr. Crystal to the University.
Nothing in those Agreements will impair the rights of the University or the PI
to
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determine the nature and scope of Sponsored Research, or Dr. Crystal's other
research at the University, in a manner consistent with University policy. The
University undertakes to notify Sponsor of any changes in the terms and
conditions of Dr. Crystal's employment material to Sponsor, in the University's
reasonable judgment.
14. Enforcement of University Rules - The University will agree to use its
-------------------------------
best efforts to enforce observance by all University personnel engaged in the
Sponsored Research with respect to the University Patent Policy, and rules for
disclosure respecting ownership of biological materials obtained in connection
with the Sponsored Research from others, and all other pertinent University
rules and regulations impacting on the entitlements of Sponsor.
15. Termination for Cause. Either party hereto shall have the right to
---------------------
terminate the Agreement in the event that (i) in the reasonable judgment of the
terminating party termination is necessitated by reason of a change in
prevailing laws, regulation or government rules, guidelines or policies relating
thereto (provided that GenVec will not use as a ground of termination such a
change which could be cured by a revision of Dr. Crystal's relationship with
GenVec) or (ii) the terminating party has a reasonable basis to believe that the
other party has engaged in unlawful, unethical or seriously inappropriate
conduct such that continued performance of the Agreement would affront
significant legitimate interests of the terminating party. In the event of any
disagreement by the terminated party with respect to the reasonableness of the
alleged grounds for termination under this paragraph, the disagreement will be
resolved by a mutually agreeable third party arbitrator.
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B. LICENSE AGREEMENT.
-----------------
1. Scope of Exclusive License - As stated above with respect to the
--------------------------
Sponsored Research, it is anticipated that funding provided by Sponsor will be
utilized to support, at least in part, all activities in Dr. Crystal's
laboratory, including but not limited to funding for personnel, space and
equipment. It is anticipated, therefore, that all Gene Therapy discoveries made
in that laboratory during the term of this Agreement will utilize such funding.
Accordingly, it is anticipated that Sponsor will obtain exclusive rights to all
such Gene Therapy technology (subject only to prevailing U.S. government rights
with respect to ownership of intellectual property derived in the course of
federally sponsored research) at a royalty rate of between * of net sales,
depending on the inherent value of the Technology and limited in the case of the
Cystic Fibrosis field by royalty burdens to other parties.
2. University conduct - The University agrees that it will not knowingly
------------------
take any actions inconsistent with the exclusive licensing arrangements outlined
above and the University will make reasonable efforts with respect to observance
of University rules by personnel engaged in the laboratory.
3. Right to Sublicense. Sponsor shall have the right to sublicense to
-------------------
third parties, with the written consent of the University. Sponsor shall make
all reasonable efforts to insure
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that sublicensees perform the terms and conditions of the License Agreement
beneficial to the University.
4. Minimum Royalties - Beginning with the filing of the first patent
-----------------
application with respect to a Gene Therapy discovery licensed to Sponsor, it
will pay a minimum royalty of * per year thereafter for each such discovery up
to a maximum for all discoveries of * per annum and discussion will be held with
respect to credit being given for any uncredited portions of minimum royalties
for prior years.
5. Limited Renegotiation Rights for Royalty Rates if Required Under Tax
--------------------------------------------------------------------
Reform Act of 186 ("TEFRA") - Sponsor and the University have determined that
- ---------------------------
the royalty range and criteria as set forth above are fair and competitive with
respect to the all reasonably conceivable discoveries to arise out of the
Sponsored Research. In the unanticipated event that inventions arise which are
not reasonably conceivable such that any renegotiation is required under TEFRA,
acceptable procedures have been worked out for such renegotiation process
consistent with provisions set forth in the University's draft License Agreement
submitted to Sponsor.
6. Patent Infringement Actions - University shall determine initially
---------------------------
whether or not to prosecute patent infringement actions, subject to Sponsor's
right to join and participate in the litigation.
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7. Arbitration of Disputes - All disputes under the License Agreement
-----------------------
will be resolved through Arbitration, including any disagreement with respect to
specific royalty rate within the agreed upon range.
8. Patent License Provisions - The Agreement will include mutually
-------------------------
agreeable provisions respecting intellectual property protection, accounting for
royalty payments, exercise by Sponsor of efforts respecting commercialization of
licensed products and the like.
9. Termination. The grounds for termination of the License Agreement and
-----------
the rights of the parties after termination, will be co-extensive with those
under the Sponsored Research Agreement.
C. EFFECT OF THIS MEMORANDUM
-------------------------
Execution of this Memorandum by the parties will not give rise to a binding
legal agreement but will form the basis for preparation of Agreements
incorporating the terms hereof together with representations, warranties,
conditions, indemnification rights and other provisions that the parties elect
to include.
CORNELL UNIVERSITY FOR ITS MEDICAL COLLEGE
By:
-----------------------------
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CORNELL RESEARCH FOUNDATION, INC.
By:
-----------------------------
GENVEC, INC.
By:
-----------------------------
ACKNOWLEDGED:
- ------------------------------
Dr. Ronald G. Crystal
- ------------------------------
Dr. Ralph L. Nachman
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SCHEDULE A
Proposed GenVec Sponsored Research
- ----------------------------------
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5 5 Year Total
<S> <C> <C> <C> <C> <C> <C>
1 Direct Costs 261 1,011 636 636 636 3,180
2 Equipment 2,000 500 500 500 500 4,000
3 Space rental (5,800 sq ft. x 840 sq. 152 152 152 152 152 750
ft)
4 Indirect cost (33 1/3%) 87 337 212 212 212 1,060
----- ----- ----- ----- ----- -----
Total 2,500 2,000 1,500 1,500 1,500 9,000
</TABLE>
1 A very small portion of direct costs will go to support Ron Crystal's
salary and related fringe benefit costs
2 Money will be from direct costs if equipment and renovation actual
-------
costs are higher than the above estimates
3 As charged by New York Hospital if in New York Hospital space or Cornell
costs is in Cornell space
4 Non facility component of federal indirect cost rate as negotiated
annually; applicable to direct cost (Line 1) only
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EXHIBIT 10.13
-------------
AMENDED AND RESTATED EXCLUSIVE LICENSE AGREEMENT
------------------------------------------------
THIS AGREEMENT (the "Restated Agreement"), effective as of the 1st day of
April, 1993, (the "Effective Date") by and between the CORNELL RESEARCH
FOUNDATION, INC., having offices at Cornell Business & Technology Park, 20
Thornwood Drive, Suite 105, Ithaca, New York 14850 (hereinafter referred to as
"FOUNDATION") and GENVEC, INC., having offices at 12111 Parklawn Drive,
Rockville, Maryland 20852 (hereinafter referred to as "LICENSEE").
W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
WHEREAS, FOUNDATION is a wholly owned subsidiary corporation of Cornell
University and holds the ownership interests of patents issued on inventions
made by Cornell University's staff and administers licenses in a manner
consistent with the patent policy of Cornell University;
WHEREAS, FOUNDATION represents that it is assignee of the patents and/or
patent applications included within the Sponsored Research Intellectual Property
(as defined below) and any patents issuing thereon and has the right to grant
licenses under said patents and/or patent applications and patents issuing
thereon;
WHEREAS, LICENSEE and FOUNDATION previously entered into that certain
Sponsored Research Agreement effective as of May 18, 1993 (the "Prior Crystal
Sponsored Research Agreement"), pursuant to which LICENSEE agreed to fund
certain research conducted under the supervision of Dr. Crystal at the Cornell
University Medical College ("CUMC").
WHEREAS, LICENSEE and FOUNDATION previously entered into that certain
Sponsored Research Agreement effective as of July 10, 1995 (the "Prior Falck-
Pedersen Sponsored Research Agreement"), pursuant to which LICENSEE agreed to
fund certain research conducted under the supervision of Dr. Falck-Pedersen at
the Cornell University Medical College.
WHEREAS, LICENSEE and FOUNDATION intend to supersede the Prior Crystal
Sponsored Research Agreement with a further Sponsored Research Agreement
pursuant to which LICENSEE expects to fund certain research conducted under the
supervision of Dr. Crystal at the Cornell University Medical College, and
LICENSEE and FOUNDATION may enter into other agreements pursuant to which
LICENSEE may support the conduct of research at Cornell University Medical
College and its affiliated clinical entities.
WHEREAS, FOUNDATION has previously granted to LICENSEE an exclusive license
under (i) FOUNDATION's rights included in the Sponsored Research Intellectual
Property (as defined in the Prior Crystal Sponsored Research Agreement)
including the Designated Inventions,
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Biological Material and Technical Information and related intellectual property
rights subject to that certain License Agreement entered April 1, 1993, and (ii)
under FOUNDATION's rights in the Subject Inventions (as defined in the Prior
Falck-Pedersen Sponsored Research Agreement) including the Designated
Inventions, Biological Material and Technical Information and related
intellectual property rights subject to that certain License Agreement entered
July 10, 1995;
WHEREAS, FOUNDATION and LICENSEE wish to amend and restate the License
Agreements and to include under this Restated Agreement exclusive, worldwide
licenses under the discoveries and inventions embodied in the Sponsored Research
Intellectual Property Rights (as defined below);
WHEREAS, as a benefit of funding such research, FOUNDATION is willing to
grant to LICENSEE an exclusive license under FOUNDATION's rights in such
Sponsored Research Intellectual Property Rights upon the terms and conditions
hereinafter set forth;
WHEREAS, the work leading to the Sponsored Research Intellectual Property
was supported in part by an agency of the U.S. Government, FOUNDATION is
obligated to comply with the U.S. Office of Management & Budgets Circular No. A-
124, or 37 CFR Part 401; and
WHEREAS, such FOUNDATION and LICENSEE have entered into a Warrant Agreement
on even date herewith, pursuant to which LICENSEE shall provide to FOUNDATION
warrants to purchase shares of GenVec stock, in accordance with the terms and
conditions therein.
NOW, THEREFORE, in consideration of the covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:
I
DEFINITIONS
-----------
The following definitions will apply throughout this Restated Agreement:
1.1 "Affiliate" shall mean any corporation or other entity which is
---------
directly or indirectly controlling, controlled by or under the common control of
a party hereto. For the purpose of this Restated Agreement, "control" shall
mean the direct or indirect ownership of at least fifty percent (50%) of the
outstanding shares or other voting rights of the subject entity to elect
directors, or if not meeting the preceding, any entity owned or controlled by or
owning or controlling at the maximum control or ownership rights permitted in
the country where such entity exists.
1.2 "Biological Research Materials" shall mean any protein, gene, gene
-----------------------------
vector, plasmid or other construct, cell line, hybridoma, antibody or other
biological material or derivative or analogs thereof, created by one or more
employees of Cornell University and arising out of the Sponsored Research
conducted pursuant to any of the Sponsored Research Agreements (except to the
extent such biological material is subject to the Material Transfer Agreement).
It is understood and agreed
-2-
<PAGE>
that the Biological Research Materials shall include, without limitation, the
Biological Materials (as defined in the Prior Sponsored Research Agreements
and/or License Agreements).
1.3 "Confidential Information" shall mean (i) any proprietary or
------------------------
confidential information or material in tangible form disclosed hereunder that
is marked as "Confidential" at the time it is delivered to the receiving party,
or (ii) proprietary or confidential information disclosed orally hereunder which
is identified as confidential or proprietary when disclosed and such disclosure
of confidential information is confirmed in writing within thirty (30) days by
the disclosing party.
1.4 "LICENSEE" shall mean GenVec, Inc. and its Affiliates.
--------
1.5 "License Year" shall mean each twelve (12) month period beginning on
------------
the effective date of this Restated Agreement first written above and thereafter
on the anniversary date thereof.
1.6 "Licensed Application" shall mean any U.S. patent application within
--------------------
the Sponsored Research Intellectual Property Rights and any continuation,
continuation-in-part, or divisional applications thereof, as well as foreign
counterparts thereof.
1.7 "Licensed Patent" shall mean any U.S. Patent issuing from a Licensed
---------------
Application, and all extensions, reissues and re-examinations thereof, as well
as foreign counterparts thereof.
1.8 "Licensed Product" shall mean any product, composition or material,
----------------
within the scope of a Valid Claim, or which incorporates, in material part,
Biological Research Materials.
1.9 "Material Transfer Agreement" shall mean that certain Material
---------------------------
Transfer Agreement entered by LICENSEE and Cornell University Medical College
effective as of December 19, 1996.
1.10 "Net Sales Price" shall mean the gross amount received by LICENSEE or
---------------
its sublicensees in arm's length sales to third parties of Licensed Products,
after deduction of the following items to the extent such items are incurred and
do not exceed reasonable and customary amounts for each such item in the market
in which such sale occurred:
1.10.1 trade, cash and quantity discounts or rebates, actually allowed
or taken;
1.10.2 credits or allowances given or made for rejection or return of,
and for uncollectible amounts on, previously sold Licensed Products or for
retroactive price reductions;
1.10.3 any separately invoiced tax, duty or other government charge
(other than an income tax) levied on the sale, transportation or delivery of a
Licensed Product and borne by the seller thereof; and
-3-
<PAGE>
1.10.4 any separately invoiced charges for freight, packaging and
insurance.
Net Sales Price shall not include sales or transfers between LICENSEE and its
subsidiaries, Affiliates or sublicensees, except that where such subsidiary,
Affiliate or sublicensee utilizes the Licensed Products for the performance of
commercial services for third party customers, Net Sales Price shall be based on
subsequent final sales of such Licensed Products to third parties by such
Affiliates or sublicensees, unless the intermediate sales price to a sublicensee
is higher than the subsequent final Sales Price, in which case the intermediate
Sales Price shall control.
1.11 "Sponsored Research Agreements" shall mean the Prior Sponsored
-----------------------------
Research Agreements and the Other Sponsored Research Agreements.
1.11.1 "Prior Sponsored Research Agreements" shall mean each of the
-----------------------------------
Prior Crystal Sponsored Research Agreement and the Prior Falck-Pedersen
Sponsored Research Agreement.
1.11.2 "Other Sponsored Research Agreements" shall mean any Sponsored
-----------------------------------
Research Agreement entered by LICENSEE and FOUNDATION (or its affiliated
clinical entities) after December 31, 1997.
1.12 "Sponsored Research Intellectual Property Rights" shall mean
-----------------------------------------------
individually and collectively, all patent applications, patents, and patentable
discoveries and inventions arising, in whole or in part, out of the Sponsored
Research conducted pursuant to any of the Sponsored Research Agreements that are
first conceived or discovered and/or reduced to practice (i) by one or more
employees of the University, or (ii) jointly by one or more employees of the
University and by one or more employees of the Sponsor, or (iii) by one or more
inventors not employed in Dr. Crystal's laboratory (if funds from Sponsor
Payments have been directly utilized to make such invention), and all Biological
Research Materials and Technical Information. The parties expect that due to the
level of Sponsor Payments provided by the Sponsor will include, but not be
limited to, all Gene Therapy inventions first conceived or discovered and/or
reduced to practice in Dr. Crystal's laboratory will fall with the definition of
"Sponsored Research Intellectual Property Rights." For the avoidance of doubt,
it is understood and agreed that the Sponsored Research Intellectual Property
Rights shall include, without limitation, the Sponsored Research Intellectual
Property (as defined in the Prior Crystal Sponsored Research Agreement) and
Subject Inventions (as defined in the Prior Falck-Pedersen Sponsored Research
Agreement). Neither this definition, nor any other provision of this Restated
License Agreement or any Sponsored Research Agreement, shall give the Sponsor
any rights in any patent application, patent, patentable discovery or invention
first conceived or discovered and/or reduced to practice except as described
above, or directly or indirectly related to or arising out of Dr. Crystal's
duties and responsibilities for Medical College programs outside Dr. Crystal's
laboratory including the CUMC gene therapy core (provided no Sponsor Payments
are used in connection with such activities); provided, however, that the
foregoing shall not affect the Sponsor's right to have an opportunity to
negotiate with a third-party joint inventor without prior obligations to
Sponsor.
-4-
<PAGE>
1.13 "Technical Information" shall mean and include all technical
---------------------
information, developments, discoveries and know-how, methods, techniques,
formulae, processes, and other information conceived and/or discovered and/or
reduced to practice in connection with research conducted pursuant to any of the
Sponsored Research Agreements. "Technical Information" shall exclude any of the
foregoing that are included within a claim of a Licensed Patent or a Licensed
Application or which are Biological Research Materials.
1.14 "Valid Claim" shall mean a claim of an issued and unexpired patent or
-----------
a claim of a pending patent application which has not been held unpatentable,
invalid or unenforceable by a court or other government agency of competent
jurisdiction and has not been admitted to be invalid or unenforceable through
reissue, re-examination, disclaimer or otherwise; provided, however, that if any
holding of invalidity, unenforceability or unpatentability is later reversed by
a court or agency with overriding authority, the relevant claim shall be
reinstated as a Valid Claim hereunder with respect to sales made after the date
of such reversal. Notwithstanding the foregoing provisions of this Section
1.14, if a claim of a pending patent application has not issued as a claim of an
issued patent, within * after the date from which such claim takes priority,
such pending claim shall not be a Valid Claim for purposes of this Agreement
unless and until a patent issues including such claim.
II
GRANT
-----
2.1 Subject only to the prevailing rights of and obligations to the U.S.
Government with respect to ownership of intellectual property derived in the
course of federally sponsored research, including, without limitation, any such
rights and obligations set forth in 37 CFR Part 401, should they exist,
FOUNDATION hereby grants to LICENSEE for the term set forth below and under the
royalty basis set forth below, an exclusive license under the Sponsored Research
Intellectual Property Rights (and related Licensed Applications and Licensed
Patents) to make, have made, use, lease, import, have imported, offer for sale,
sell and otherwise exploit Licensed Products in the United States and throughout
the world, with the right to grant sublicenses, as set forth in Article XII
infra; or a semi-exclusive license in the case of an invention within the
- -----
Sponsored Research Intellectual Property Rights invented jointly with a third
party, since while FOUNDATION is obligated to license "exclusively" to LICENSEE
the rights obtained by FOUNDATION through the inventive activity of Dr. Crystal,
and/or employees of Cornell University in the course of Sponsored Research,
FOUNDATION is not obligated to license to LICENSEE rights obtained by a third-
party inventor, thus creating a semi-exclusive license situation, unless
LICENSEE in a separate agreement acquires the exclusive rights of the third
party inventor, so as to create a bundle of rights which together comprise an
"exclusive license". The term "exclusive license" as used hereinabove shall
mean that FOUNDATION shall not issue a license to another, nor will FOUNDATION
make, use or sell Licensed Products, within the period of exclusivity set forth
hereinafter or any agreed upon extension thereof and FOUNDATION shall not
knowingly take, and shall make reasonable efforts to cause CUMC and all
personnel engaged by the University not to take, any actions inconsistent with
the grant of such an exclusive license;
-5-
<PAGE>
2.2 FOUNDATION shall retain the nontransferable right to practice the
Sponsored Research Intellectual Property Rights for its internal, academic, non-
commercial research.
2.3 Promptly following execution of this Agreement, FOUNDATION shall
transfer to LICENSEE a sufficient quantity of the Biological Research Materials
existing as of the Effective Date, and thereafter as Biological Research
Materials are developed, in each case, as are reasonable and necessary for
LICENSEE to establish a viable culture of such Biological Research Materials.
LICENSEE shall reimburse FOUNDATION for the reasonable out-of-pocket costs
incurred by FOUNDATION in transferring the Biological Research Materials to
LICENSEE.
III
TO HAVE MADE
------------
3.1 The right of LICENSEE and its sublicensees to make Licensed Products
includes the right to have made Licensed Products by contract with third
parties. Such contractual arrangements with third parties shall be subject to
and conditioned upon appropriate supervision and quality assurance and control
of the third party by LICENSEE and the third party shall be bound in writing to
respect all rights of FOUNDATION and to supply any production of Licensed
Products made by such third party exclusively to LICENSEE or a sublicensee of
LICENSEE.
IV
FOREIGN PATENTS AND PAYMENT OF COSTS
------------------------------------
4.1 As the opportunity to file foreign counterpart applications of
Licensed Applications exists, LICENSEE may designate foreign countries where
counterpart applications shall be filed and FOUNDATION shall ensure that such
patent applications are timely filed in such designated countries. FOUNDATION
will use counsel reasonably acceptable to LICENSEE in connection with the
preparation and filing of such Licensed Applications. FOUNDATION shall direct
such counsel to provide LICENSEE an opportunity to review and comment on all
papers to be filed with any patent office at least fifteen (15) business days
before such filing, and to include in such paper any arguments and claims as
LICENSEE may request, and to promptly provide to LICENSEE copies of any
documents received from any patent office relating to the Licensed Applications.
4.2 LICENSEE agrees to pay for all reasonable and customary expenses
incurred in the preparation, filing, prosecution, renewal and continuation of
Licensed Patents and Licensed Applications in said designated countries
including all taxes, official fees and attorney's fees. Notwithstanding the
foregoing, LICENSEE may elect in writing to be released from its license any
such Licensed Patents and/or Licensed Applications at any time, in which event
it shall thereafter have no obligation to reimburse FOUNDATION for any future
expenses relating to such patent or patent application.
-6-
<PAGE>
V
PAYMENT OF U.S. FEES
AND CONTINUING PROSECUTION COSTS
--------------------------------
5.1 Where renewal fees are due on a licensed United States patent within
the Sponsored Research Intellectual Property Rights and LICENSEE remains
exclusively licensed, LICENSEE agrees to reimburse FOUNDATION for the costs of
said renewal within thirty (30) days of notice thereof to LICENSEE by
FOUNDATION.
5.2 Where Licensed Applications are pending in the United States, LICENSEE
agrees to pay all reasonable prosecution costs for such applications at least
through an appeal to the U.S. Patents & Trademark Office Board of Appeals, if
the parties agree such an appeal is appropriate.
5.3 LICENSEE agrees to pay for all reasonable and customary expenses
incurred in the preparation, filing, prosecution, renewal and continuation of
Licensed Patents and Licensed Applications in the United States including all
taxes, official fees and attorney's fees. Notwithstanding the foregoing,
LICENSEE may elect in writing to be released from its license any such Licensed
Patents and/or Licensed Applications at any time, in which event it shall
thereafter have no obligation to reimburse FOUNDATION for any future expenses
relating to such patent or patent application.
5.4 FOUNDATION shall direct counsel prosecuting the Licensed Applications
to provide LICENSEE an opportunity to review and comment on all papers to be
filed with any patent office at least fifteen (15) business days before such
filing, and to include in such papers any arguments and claims as LICENSEE may
request, and to promptly provide to LICENSEE copies of any documents received
from any patent office relating to the Licensed Applications.
VI
ROYALTIES AND MINIMUM ROYALTIES TO BE
PAID DURING THE LICENSE AGREEMENT
---------------------------------
6.1 Beginning on March 1, 1998, and continuing for a three (3) year period
thereafter, LICENSEE shall pay FOUNDATION a Thirty Thousand Dollar ($30,000.00)
maintenance fee for that License Year, and following such three (3) year period,
LICENSEE shall pay FOUNDATION a Fifty Thousand Dollar ($50,000.00) maintenance
fee for each License Year during the term of this Restated Agreement. Such
monies will be considered as a credit for any royalties due for that License
Year under this Restated Agreement and the royalty reports may reflect the use
of such credit. Such provision is to be construed as an annual maintenance fee
payment requirement and none of the maintenance fee payments are refundable or
applicable to succeeding License Years.
6.2 LICENSEE will pay to the FOUNDATION a royalty of * of the Net Sales
Price of Licensed Products within the scope of an issued Valid Claim in the
country of manufacture or sale.
-7-
<PAGE>
6.3 If a Licensed Product is covered in the country of manufacture or sale
only by a Valid Claim of a Licensed Patent owned jointly by the FOUNDATION and
LICENSEE, the royalty rate * .
6.4 If a Licensed Product is covered in the country of manufacture or sale
only by a Valid Claim of a Licensed Application, * of the Net Sales Price.
6.5 In the event that a Licensed Product is sold in combination as a
single product with another product or component whose sale and use are not
covered by a claim within the Sponsored Research Intellectual Property Rights in
the country for which the combination product is sold, Net Sales Price from such
sales for purposes of calculating the amounts due under this Article VI above
shall be calculated by multiplying the Net Sales Price of that combination by
the fraction A/(A+B), where A is the selling price of the Licensed Product and B
is the selling price of the other product or component sold separately. In the
event that no such separate sales are made, the Net Sales Price for royalty
determination shall be as reasonably allocated by LICENSEE between such Licensed
Product and such other product or component, based upon their relative
importance and proprietary protection.
6.6 If LICENSEE or its sublicensee is required to pay a third party with
respect to a license for intellectual property rights or other technologies
which LICENSEE, or its sublicensee, in its reasonable judgment, determines are
necessary to practice the Sponsored Research Intellectual Property Rights,
LICENSEE may offset such amounts against royalties due to FOUNDATION for such
Licensed Product. Notwithstanding the foregoing provisions of this Section 6.6
in no event shall the royalties due to FOUNDATION hereunder be reduced * of the
amount that would otherwise be due FOUNDATION pursuant to this Restated
Agreement.
6.7 If LICENSEE or its sublicensee is required to pay a third party with
respect to a license for intellectual property rights or other technologies
which LICENSEE, or its sublicensee, in its reasonable judgment, determines are
necessary or useful to make, use or sell a Licensed Product, but are not
required to practice the Sponsored Research Intellectual Property Rights,
LICENSEE may offset such amounts owing to such third parties against royalties
due to FOUNDATION for such Licensed Product. Notwithstanding the foregoing
provisions of this Section 6.7 in no event shall the royalties due to FOUNDATION
hereunder be so * of the amount that would otherwise be due FOUNDATION pursuant
to this Restated Agreement.
6.8 It is understood and agreed that regardless of any credits or offsets
to which LICENSEE or its sublicensees are entitled under the terms of this
Restated Agreement, the royalty payments due FOUNDATION under this Article 6 *
Net Sales Price of any Licensed Product.
6.9 In the event that more than one Valid Claim within the Licensed
Patents is applicable to any Licensed Product, then only one royalty shall be
paid to FOUNDATION in respect of such Licensed Product. It is understood that
royalties shall only be payable under this Article VI with respect to Licensed
Products whose sale would infringe a Valid Claim in the country for which such
Licensed Product is sold. In no event shall more than one royalty be due
hereunder with respect to
-8-
<PAGE>
any Licensed Product unit, nor shall a royalty be payable under this Article VI
with respect to sales of Licensed Products for use in research and/or
development, in clinical trials or as samples.
6.10 With respect to the possible renegotiation of royalty rates with
regard to any Sponsored Research Intellectual Property Rights subject to this
Agreement, FOUNDATION shall promptly notify LICENSEE if it believes that any
such a renegotiation is required under the Tax Reform Act of 1986 specifically
identifying the applicable intellectual property, and in such event the
following shall apply:
6.10.1 Fair Consideration. FOUNDATION and LICENSEE have determined
------------------
that the consideration payable to the FOUNDATION pursuant to this Agreement is
fair and competitive with respect to all reasonably conceivable inventions and
other intellectual property which might be developed by FOUNDATION under any of
the Sponsored Research Agreements at the time each Sponsored Research Agreement
was executed.
6.10.2 Limited Renegotiation Events. If, notwithstanding the above,
----------------------------
inventions or other discoveries are developed during the term of this Agreement
which were not reasonably conceivable as arising out of or resulting from the
research conducted under the Sponsored Research Agreements (each an "Invention")
and with respect to which the consideration payable to FOUNDATION under this
Agreement is not reasonably believed by FOUNDATION to be competitive, FOUNDATION
shall notify LICENSEE in writing of such determination; provided, however, that
any such renegotiation right of FOUNDATION shall cease and be of no further
force or effect with respect to any Invention from and after 180 days after the
time at which the first Licensed Application on such Invention is filed or other
intellectual property protection is first sought (or, in the case of a
Biological Material, after the time such Biological Material is first indicated
as a possible Invention by LICENSEE). In the event that LICENSEE disputes such
determination of FOUNDATION and the request for renegotiation, LICENSEE shall
have a right, but not the obligation, to submit the issue to arbitration
pursuant to Article XIV hereunder. The arbitration result shall be final and
binding. The arbitrator or Panel shall determine whether (i) it was reasonably
conceivable as of the date the applicable Sponsored Research Agreement was
entered that the subject Invention might have been made or otherwise developed
in connection with the Sponsored Research Agreement and, if not, (ii) whether
the compensation payable under the Agreement is reasonably competitive with
regard to such Invention, based on all relevant circumstances, including without
limitation, the Warrant Agreement provided in partial consideration for the
grant of rights in this Agreement (the "Issues"). The expenses of the
arbitration shall be borne by LICENSEE, except that the Arbitrator may assign
the expenses to FOUNDATION if, in the Arbitrator's opinion, the decision by
FOUNDATION to request arbitration was clearly unreasonable. If either of the
Issues is resolved in favor of LICENSEE, there shall be no renegotiation of
consideration payable with respect to the Inventions or Licensed Products. If
both Issues are resolved in favor of FOUNDATION, the parties shall proceed as
set forth in subparagraph (iii) hereunder.
6.10.3 Renegotiation Process. If either LICENSEE agrees to renegotiate
---------------------
the consideration payable without arbitration or if the Arbitrator determines
the Issues in favor of
-9-
<PAGE>
FOUNDATION, LICENSEE shall have an exclusive right for 90 days to negotiate with
FOUNDATION a royalty arrangement reasonably acceptable to FOUNDATION, which
shall use reasonable efforts to reach satisfactory agreement with LICENSEE.
6.10.4 Right of First Refusal. In the event that FOUNDATION and
----------------------
LICENSEE are unable to reach agreement within such 90 day period, FOUNDATION
shall then have the right to negotiate with third parties other than LICENSEE
with respect to the exclusive licensing of the particular Invention in question;
provided, however, that if FOUNDATION proposes to enter into any agreement for
the licensing of such Invention to any third party, FOUNDATION shall notify
LICENSEE in writing of the proposed terms and LICENSEE shall have a right of
first refusal exercisable within 30 days of receipt of such notice to enter into
an exclusive license with FOUNDATION on substantially similar terms.
6.11 Royalties due under this Article VI shall be payable on a country-by-
country and Licensed Product-by Licensed Product basis until the expiration of
the last-to-expire issued Valid Claim covering such Licensed Product in such
country. It is understood that LICENSEE'S obligation to pay royalties with
respect to a particular Licensed Product shall cease:
(i) if the applicable claims in the Licensed Patent in any particular
country are held invalid by an unappealed or unappealable decision of a court of
competent jurisdiction, in that particular country, or
(ii) upon expiration of the last to expire Licensed Patent covering
such Licensed Product in a country;
(iv) if FOUNDATION abandons its patent solicitation efforts for all
Licensed Applications, and no issued Licensed Patent is in force.
VII
ACCOUNTING AND PAYMENT SCHEDULE
-------------------------------
7.1 Payment, reporting and financial accounting shall be on a quarterly
basis and LICENSEE will deliver to the FOUNDATION within sixty (60) days after
the end of each quarter of the License Year a report in writing setting forth
sales of Licensed Products (including a negative report if appropriate) and will
accompany such report with an appropriate payment of royalty or maintenance fee
due for such period. LICENSEE will keep accurate records, certified by it,
showing the information by which LICENSEE arrived at a royalty determination and
upon FOUNDATION's written request, but not more frequently than once per
calendar year, will permit a person appointed by the FOUNDATION and acceptable
to LICENSEE after entering into a confidentiality agreement with LICENSEE, at
FOUNDATION's expense, to make such inspection of said records at agreed times
during LICENSEE's regular business hours for the sole purpose of and to the
extent necessary to verify royalty reports made by LICENSEE with respect to Net
Sales Price received not more than three (3) years prior to the date of
FOUNDATION's request. The report for the first quarter of the
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<PAGE>
first License Year will include any sales of Licensed Products by LICENSEE prior
to the date of this Restated Agreement and will be accompanied by appropriate
payment of royalty therefor in the U.S. dollars. To the extent that LICENSEE
does not have the right to grant to FOUNDATION the right to audit its
sublicensees' books and records hereunder, LICENSEE shall endeavor to obtain for
itself such right and at the request and expense of FOUNDATION, LICENSEE shall
exercise such audit right with respect to sublicensees, and to the extent its
contractual obligations to the sublicensee permit, provide the results of such
audit for inspection by FOUNDATION pursuant to this Section 7.1.
7.2 Conversion from foreign currencies, if any, shall be based upon the
conversion rate for conversion of the foreign currency into U.S. Dollars, quoted
for current transactions for buying U.S. Dollars, as reported in The Wall Street
---------------
Journal for the last business day of the calendar quarter to which such payment
- --------
pertains.
7.3 Payments which are delayed beyond the sixty (60) days after the end of
the quarter in which they become due shall bear interest at a rate equal to the
prime rate as reported by Chase Manhattan Bank, New York, calculated on the
number of days such payment is delinquent.
VIII
TERM
----
8.1 The aforesaid exclusive license shall commence on April 1, 1993 and
unless terminated earlier pursuant to Article XIII, continue in full force and
effect on country-by-country and Licensed Product-by-Licensed Product basis
until the expiration, revocation or invalidation date of the last Licensed
Patent or of the abandonment of the last Licensed Application in such country,
whichever is later. LICENSEE's license with respect to Biological Research
Materials and Technical Information in each country shall survive the expiration
of this Restated Agreement and shall be deemed fully-paid as of such date.
IX
DUTY OF DILIGENCE
-----------------
9.1 LICENSEE shall use its reasonable efforts to effect the introduction
of Licensed Product(s) into the commercial market as soon as practicable
consistent with sound and reasonable business practices. Upon and after such
introduction and consistent with sound and reasonable business practices,
LICENSEE agrees to continue to use its reasonable efforts to maximize commercial
sales of Licensed Products for the duration of the term of this Agreement.
LICENSEE further agrees to use reasonable best efforts to maintain quality
control over Licensed Products and generally attend to proper, safe, fair and
lawful development and exploitation of the market for Licensed Products. The
foregoing diligence requirements may be satisfied by LICENSEE or its
sublicensees.
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<PAGE>
X
INFRINGEMENT OF LICENSED PATENT RIGHTS BY THIRD PARTIES
-------------------------------------------------------
10.1 In the event that any infringement of a patent within the Sponsored
Research Intellectual Property Rights shall come to the attention of the
FOUNDATION or LICENSEE, then FOUNDATION and LICENSEE shall duly inform each
other. LICENSEE shall have the first right (itself or through others), at its
sole option, to bring suit to enforce the Sponsored Research Intellectual
Property Rights, and/or defend any declaratory judgment action with respect
thereto, in each case with respect to the manufacture, sale or use of a Licensed
Product; provided, however, that LICENSEE shall keep FOUNDATION reasonably
informed as to the defense and/or settlement of such action. FOUNDATION shall
have the right to participate in any such action with counsel of its own choice
at its own expense. If LICENSEE fails to initiate a patent infringement action
to enforce the Sponsored Research Intellectual Property Rights against a
commercially significant infringement by a third party, within * of a request by
FOUNDATION to do so, (or within such shorter period which may be required to
preserve the legal rights of FOUNDATION under the laws of the relevant
government), FOUNDATION may initiate such action at its own expense; provided,
prior to initiating any such action it shall notify LICENSEE of its intent to do
so and shall discuss with LICENSEE and reasonably take into consideration
LICENSEE's views as to whether such an action should then be pursued. LICENSEE
shall have the right to participate in any such action with counsel of its own
choice and its own expense.
10.2 LICENSEE may credit any expenses (including, without limitation,
attorneys and expert fees) incurred in connection with any infringement or
declaratory judgment against up to * of any royalties payable by LICENSEE. Out
of any damages or awards recovered by LICENSEE in such action such amounts shall
be first applied to reimburse LICENSEE's and then FOUNDATION's unreimbursed
expenses, including without limitation, reasonable attorneys' and expert fees
and court costs. Any amount remaining belongs to *
10.3 In any action brought by LICENSEE, LICENSEE undertakes to indemnify
for and hold FOUNDATION harmless from any damages, costs or expenses incurred by
reason of such litigation. LICENSEE shall not settle any claim based on the
infringement of a patent within the Sponsored Research Intellectual Property
Rights without the consent of FOUNDATION, which consent shall not be
unreasonably withheld.
XI
ASSIGNMENT
----------
11.1 The rights and obligations of the LICENSEE are not assignable without
the prior written consent of FOUNDATION, which consent shall not be unreasonably
withheld, except that LICENSEE may assign those rights and obligations without
such consent (i) to an Affiliate of LICENSEE, or (ii) to a successor in
connection with a sale of all or substantially all of LICENSEE's business or
assets relating to this Restated Agreement, whether by merger, operation of law
or
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<PAGE>
otherwise; provided that such assignee or transferee is not bankrupt and
promptly agrees in writing to be bound by the terms and conditions of this
Restated Agreement.
XII
SUBLICENSING
------------
12.1 LICENSEE may sublicense provided that: (i) FOUNDATION finds the
sublicensee generally acceptable, which such acceptance shall not be
unreasonably withheld, (ii) that all sublicensees shall be obligated to all the
terms and conditions of this Restated Agreement beneficial to or protective of
FOUNDATION, and (iii) that LICENSEE shall have the sublicensee guarantee
compliance on all such provisions. FOUNDATION hereby agrees that any Major
Pharmaceutical Company shall be an acceptable sublicensee of LICENSEE. As used
herein, "Major Pharmaceutical Company" shall be any of the top fifty (50)
pharmaceutical companies, ranked in order of worldwide pharmaceutical sales, as
published by Scrip in its most recent ranking prior to the grant of the
sublicense.
12.2 Any sublicense granted by LICENSEE (including, without limitation, any
non-exclusive sublicense) shall remain in effect in the event of any termination
of this Restated Agreement and shall provide for the assignment of such
sublicenses to FOUNDATION or its designee, in the event that the Restated
Agreement is terminated; provided, the financial obligations of each sublicensee
to FOUNDATION shall be limited to the amounts LICENSEE shall be obligated to pay
to FOUNDATION for the activities of such sublicensee pursuant to this Restated
Agreement.
XIII
TERMINATION
-----------
13.1 Either party may terminate this Restated Agreement for noncompliance
with a material term of this Restated Agreement by the other party by written
notice to the breaching party of its intentions to do so, if such breach is not
cured within ninety (90) days after such written notice is given. However, if
the party alleged to be in breach of this Restated Agreement disputes such
breach within such ninety (90) day period, the nonbreaching party shall not have
the right to terminate this Restated Agreement unless it has been determined by
an independent arbitrator that this Restated Agreement was materially breached,
and the breaching party fails to comply with its obligations hereunder within
ninety (90) days after such determination.
13.2 LICENSEE may terminate this License Agreement, in its entirety or as
to any Licensed Patent or Licensed Application, or as to any particular Licensed
Product, or as to any country, at any time by giving FOUNDATION at least sixty
(60) days prior written notice.
13.3 (a) Termination of this Restated Agreement for any reason shall not
release any party hereto from any liability which, at the time of such
termination, has already accrued to the other party or which is attributable to
a period prior to such termination nor preclude either party from
-13-
<PAGE>
pursuing all rights and remedies it may have hereunder or at law or in equity
with respect to any breach of this Restated Agreement.
(b) Upon termination of this Restated Agreement for any reason, each
party shall promptly return to the other party all Confidential Information
received from the other party (except one copy of which may be retained for
archival purposes).
(c) In the event this Restated Agreement is terminated for any reason,
LICENSEE and its sublicensees shall have the right to sell or otherwise dispose
of the stock of any Licensed Product subject to Articles VI and VII hereof.
(d) Articles I, VIII, X, XIV, XV and XVI and Sections 12.2 and 13.3
shall survive the expiration and any termination of this Restated Agreement.
Except as otherwise provided in this Article XIII, all rights and obligations of
the parties under this Restated Agreement shall terminate upon the expiration or
termination of this Restated Agreement.
XIV
ARBITRATION AND JURISDICTION
----------------------------
14.1 If a dispute arises out of or relates to this Restated Agreement, or
the breach thereof, and if said dispute cannot be settled through negotiation,
the parties agree first to try in good faith to settle the dispute by mediation
under the Commercial Mediation Rules of the American Arbitration Association
before resorting to arbitration.
14.2 Subject to Section 14.3, any dispute under this Restated Agreement
(except any dispute relating to the validity or enforceability of any patent)
which is not settled by mutual consent shall be finally settled by binding
arbitration. Any such arbitration proceeding shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and shall be held in New York, New York, unless otherwise agreed by the parties.
The arbitration shall be conducted by an Arbitration Panel comprising three
neutral, independent arbitrators. One arbitrator shall be appointed by
FOUNDATION, one arbitrator shall be appointed by LICENSEE, and a Chairman of the
Arbitration Panel shall be appointed by the first two arbitrators. The members
of the Arbitration Panel shall have sufficient and appropriate education and
experience to competently address the matter submitted to the Arbitration Panel
for resolution. Judgment upon the arbitration award may be entered in any court
of competent jurisdiction. The costs of the arbitration including
administrative and arbitrators' fees, shall be shared equally by the parties and
each party shall bear its own costs and attorneys' and witness' fees incurred in
connection with the arbitration. No punitive damages may be granted by the
arbitrators. The arbitration proceedings and the decision shall not be made
public without the joint consent of the parties and each party shall maintain
the confidentiality of such proceedings and decision unless otherwise permitted
by the other party. The parties agree that the decision shall be the sole,
exclusive and binding remedy between them regarding any and all disputes,
controversies, claims and counterclaims presented to the arbitrators.
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Any award may be entered in a court of competent jurisdiction for a judicial
recognition of the decision and an order of enforcement.
14.3 The FOUNDATION reserves the right and power to proceed with direct
judicial remedies against LICENSEE without conciliation, mediation or
arbitration for breach of the royalty payment and sales reporting provisions of
this Restated Agreement after giving written notice of such breach to LICENSEE
followed by an opportunity period of * in which to cure such breach. In
collecting overdue royalty payments and securing compliance with reporting
obligations, FOUNDATION may use all judicial remedies available.
XV
CONFIDENTIALITY
---------------
15.1 Except as expressly provided herein or as required by law, the parties
agree that, for the term of this Restated Agreement and for * thereafter, the
receiving party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose except for the purposes
contemplated by this Restated Agreement any Confidential Information furnished
to it by the disclosing party hereto pursuant to this Restated Agreement, except
that to the extent that it can be established by the receiving party by
competent proof that such Confidential Information:
15.1.1 was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
15.1.2 was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;
15.1.3 became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Restated Agreement;
15.1.4 was independently developed by the receiving party as
demonstrated by documented evidence prepared contemporaneously with such
independent development; or
15.1.5 was subsequently lawfully disclosed to the receiving party by a
person other than a party hereto.
15.2 Each party hereto may use or disclose information disclosed to it by
the other party to the extent such use or disclosure is reasonably necessary in
filing or prosecuting patent applications, prosecuting or defending litigation,
complying with applicable governmental regulations or otherwise submitting
information to tax or other governmental authorities, conducting clinical
trials, or making a permitted sublicense or otherwise exercising its rights
hereunder, provided that if a party is required to make any such disclosure of
another party's confidential information, other than pursuant to a
confidentiality agreement, it will give reasonable advance notice to the latter
party of
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such disclosure and, save to the extent inappropriate in the case of patent
applications, will use its best efforts to secure confidential treatment of such
information prior to its disclosure (whether through protective orders or
otherwise).
15.3 Except as expressly provided herein, each party agrees not to disclose
any terms of this Restated Agreement to any third party without the consent of
the other party; provided, reasonable disclosures may be made as required by
securities or other applicable laws or other federal or national agency
requirements, or to actual or prospective investors or corporate partners, or to
a party's accountants, attorneys and other professional advisors. Once a
disclosure has been approved, LICENSEE may make disclosures which do not
materially differ therefrom without obtaining approvals from FOUNDATION.
XVI
OTHER
-----
16.1 LICENSEE acknowledges that title to all Biological Research Materials
remains in FOUNDATION and that LICENSEE's possession of Biological Research
Materials under this Agreement is by way of bailment and not conditional or
unconditional sale. Upon termination for cause by FOUNDATION or termination by
LICENSEE under Article XIII, LICENSEE agrees to destroy or return all Biological
Research Materials to FOUNDATION and FOUNDATION shall destroy or return to
LICENSEE all "Sponsor Materials" (as defined in the Sponsored Research
Agreements) and any other materials provided by LICENSEE and its sublicensees
unless provided otherwise in any prevailing biological materials agreements
between the parties. At the natural termination of this Agreement (Article
VIII), LICENSEE shall have the right to continue to possess and use the
Biological Research Materials for any and all purposes without additional
payment.
16.2 LICENSEE agrees that it will not use the indicia or names of
FOUNDATION or any of its personnel in advertising, promotion, or labeling of
Licensed Products without prior written approval of the FOUNDATION, which
approval shall not be unreasonably withheld.
16.3 FOUNDATION represents and warrants that (i) FOUNDATION is and shall
remain the exclusive owner of the entire right, title, and interest in and to
Licensed Patents and Licensed Applications (and co-owner with LICENSEE of all
right, title and interest in and to the Joint Inventions and related Licensed
Patents and Licensed Applications) and Sponsored Research Intellectual Property
Rights; (ii) FOUNDATION has the sole right and authority to enter into this
Restated Agreement and grant the rights and licenses hereunder; (iii) FOUNDATION
has not previously granted and will not grant any rights in the Licensed
Patents, Licensed Applications and Sponsored Research Intellectual Property
Rights that are inconsistent with the rights and licenses granted to LICENSEE
herein; (iv) there are no pending or threatened actions, suits, investigations,
claims or proceedings in any way related to the Licensed Patents, Licensed
Applications and Sponsored Research Intellectual Property Rights; (v) the
Licensed Patents, Licensed Applications and Sponsored Research Intellectual
Property Rights are free and clear of any lien, encumbrance, security interest
and restriction on transfer and license; and (vi) FOUNDATION has and shall
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comply fully with 35 U.S.C. (S)(S)200 et seq. and all implementing regulations
------
necessary to perfect its ownership interest in the Licensed Patents, Licensed
Applications and Sponsored Research Intellectual Property Rights.
16.4 EXCEPT AS PROVIDED IN SECTION 16.3 AND THE WHEREAS CLAUSES, NEITHER
PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES (EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE) WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND FOUNDATION MAKES NO
EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
16.5 FOUNDATION by this Restated Agreement makes no representation as to
the patentability and/or breadth of the inventions and/or discoveries involved
in the Licensed Patents, Licensed Applications and Sponsored Research
Intellectual Property Rights.
16.6 LICENSEE agrees to defend, indemnify and hold FOUNDATION harmless from
and against all liability, damages, expenses or losses for death, personal
injury, illness or property damage (including reasonable attorney's fees)
resulting from a claim, suit or proceeding brought by a third party against
FOUNDATION and arising (a) out of use by LICENSEE or its sublicensees of
inventions licensed or information furnished under this Restated Agreement, or
(b) out of any use, sale or other disposition by LICENSEE or its sublicensees of
Licensed Products made by use of such inventions or information; provided that
any indemnitee that intends to claim indemnification under this Article XVI
shall: (i) promptly notify LICENSEE in writing of any claim with respect to
which the indemnitee intends to claim such indemnification, (ii) give LICENSEE
sole control of the defense and settlement thereof, and (iii) provide LICENSEE,
at LICENSEE's expense, with reasonable assistance and full information with
respect to such claim. LICENSEE shall have no obligation for any claim if the
indemnitee seeking indemnification makes any admission, settlement, or other
communication regarding such claim without the prior consent of LICENSEE, which
consent will not be unreasonably withheld. As used in this clause, FOUNDATION
includes its trustees, officers, agents and employees, and those of Cornell
University (including CUMC) and affiliated hospitals, clinics, or other
institutions affiliated with CUMC, and "LICENSEE" includes its Affiliates,
contractors and sub-contractors. In discharge of the above, LICENSEE will
maintain general liability insurance in the amount of at least one million
($1,000,000) per occurrence with a deductible of more than $10,000 per
occurrence against damage to or destruction of property and injury to or death
of individuals and against such other risks as FOUNDATION may reasonably request
arising out of or in connection with any of the Licensed Products, FOUNDATION,
LICENSEE and their respective officers, trustees, members of their governing
boards, and employees will be named insureds under all such insurance. Such
insurance will also provide that FOUNDATION will be given notice of any material
modification thereof which would reduce insurance coverage of LICENSEE, and at
least thirty (30) days prior written notice of cancellation or termination and
reason therefore. LICENSEE will furnish FOUNDATION upon request, and in any
event on execution of this Restated Agreement and on each anniversary of the
Effective Date of this Restated Agreement, written confirmation issued by the
insurer or an independent insurance agent confirming that insurance is
maintained in accordance with the above requirements.
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16.7 This Restated Agreement shall be interpreted under the Laws of the
State of New York.
16.8 Any payment, report, notice or other communication required or
permitted to be given to either party hereto shall be deemed to have been
properly given and to be effective on the date of delivery if delivered in
person or telecopied (with confirmed answerback) to the number provided by the
other party, or five (5) days after mailing in the United States by certified
first-class United States mail, postage paid, return receipt requested, to the
other party's address as set forth below or to such other address as a party
shall designate by written notice to the other party.
To FOUNDATION: H. Walter Haeussler, President
CORNELL RESEARCH FOUNDATION, INC.
Cornell Business & Technology Park
20 Thornwood Drive, Suite 105
Ithaca, New York 14850
To LICENSEE: GENVEC, INC.
12111 Parklawn Drive
Rockville, Maryland 20852
Attn: President
with a copy to: Vice President, Corporate Development
16.9 LICENSEE's sole obligation to exploit the Licensed Patents, Licensed
Applications and Sponsored Research Intellectual Property Rights is as set forth
in Article IX. Nothing in this Restated Agreement will impair LICENSEE's right
to independently acquire, license, develop for itself, or have others develop
for it, similar technology performing similar functions as the Licensed
Technology or to market and distribute products based on such other technology.
16.10 The relationship of FOUNDATION and LICENSEE established by this
Restated Agreement is that of independent contractors. Nothing in this Restated
Agreement shall be construed to create any other relationship between FOUNDATION
and LICENSEE. Neither party shall have any right, power or authority to assume,
create or incur any expense, liability or obligation, express or implied, on
behalf of the other.
16.11 Any delays in or failures of performance by either party under this
Restated Agreement shall not be considered a breach of this Restated Agreement
if and to the extent caused by occurrences beyond the reasonable control of the
party affected, including but not limited to: acts of God, acts, regulations or
laws of any government, strikes or other concerted acts of workers, fires,
earthquakes, floods, explosions, riots, wars, rebellion, and sabotage. Any time
period for performance imposed hereunder shall be extended by the actual time of
delay caused by any such occurrence.
16.12 A waiver, express or implied, by either FOUNDATION or LICENSEE of any
right under this Restated Agreement or of any failure to perform or breach
hereof by the other party hereto
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shall not constitute or be deemed to be a waiver of any other right hereunder or
of any other failure to perform or breach hereof by such other party, whether of
a similar or dissimilar nature thereto.
16.13 SUBJECT TO SECTION 16.6, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY OR ANY THIRD PARTY FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR EXEMPLARY
DAMAGES (INCLUDING LOST OR ANTICIPATED REVENUES OR PROFITS RELATING TO THE
SAME), ARISING FROM ANY CLAIM RELATING TO THIS RESTATED AGREEMENT, WHETHER SUCH
CLAIM IS BASED ON CONTRACT, TORT OR ANY THEORY OF LIABILITY.
16.14 Headings included herein are for convenience only, do not form a part
of this Restated Agreement and shall not be used in any way to construe or
interpret this Restated Agreement.
16.15 If any provision of this Restated Agreement shall be found by a court
to be void, invalid or unenforceable, the same shall be reformed to comply with
applicable law, or stricken if not so conformable, so as not to affect the
validity or enforceability of the remainder of this Restated Agreement.
16.16 This Restated Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
16.17 At any time or from time to time on and after the date of this
Restated Agreement, either party shall at the request of the other party (i)
deliver to the other party such records, data or other documents consistent with
the provisions of this Restated Agreement, (ii) execute, and deliver or cause to
be delivered, all such consents, documents or further instruments of transfer or
license, and (iii) take or cause to be taken all such actions, as the other
party may reasonably deem necessary or desirable in order for the other party to
obtain the full benefits of this Restated Agreement and the transactions
contemplated hereby.
16.18 LICENSEE and LICENSOR have each consulted counsel of their choice
regarding this Restated Agreement, and each acknowledges and agrees that this
Restated Agreement shall not be deemed to have been drafted by one Party or
another and will be construed accordingly.
16.19 This Restated Agreement, together with the Sponsored Research
Agreements and Material Transfer Agreement, constitute the entire understanding
and agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, representations, agreements, and
understandings, written or oral, that the parties may have reached with respect
to the subject matter hereof. No agreements altering or supplementing the terms
hereof may be made except by means of a written document signed by the duly
authorized representatives of each of the parties hereto. It is understood that
the Sponsored Research Agreements and Material Transfer Agreement are separate
and independent from this Restated Agreement and termination of any of such
agreements shall not operate to terminate or otherwise affect the rights and
obligations of the parties under the other agreements.
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16.20 This Restated Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this instrument to be executed
in duplicate as of the day and year first above written.
ATTEST: CORNELL RESEARCH FOUNDATION, INC.
________________________________ By _____________________________________
H. Walter Haeussler
Title President
Date ___________________________________
ATTEST: GENVEC, INC.
________________________________ By _____________________________________
Title __________________________________
Date ___________________________________
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